There are many reasons for companies to lease their equipment, but often investors fail to consider the benefits for companies that act as the lessors in those agreements. Such companies that rent and lease equipment can often thrive by utilizing unique advantages often characteristic to their trade. Leasing companies have the following distinct advantages working in their favor:
Tax Benefits: Companies can often gain varying forms of tax relief by means of allocating assets with high depreciation rates. Likewise, rentals can often be structured in order to pass on some of the burden or benefit to the lessee.
Secured Collateral: The company acting as the lessor has its interest fully secured as it is the owner of the leased asset. Therefore, in theory it can always take full repossession of the asset should the lessee default on the agreement.
Leveraged Return: Most leasing companies tend to operate on higher degrees of financial leverage. This means that they have a very low equity capital while using higher amounts of borrowed funds. As a result, the company will often gain the advantage of high rates of return on equity.
High Profits: By setting rate of returns higher than its own borrowing rate, the leasing company will tend to have high profit margins. This is added with the notion that leased property can fetch higher rates of return than the cost of the property, and that it can be salvaged or sold upon expiration of the useful life.
Recession Resistant: Through the use of lease financing, large companies are often readily able to acquire equipment and machinery even in the midst of recessionary conditions. Combined with the notion that consumer leasing/renting tends to increase during times of uncertainty, leasing companies often retain a favorable condition in such environments.
Often when investors think of leasing companies, they are quick to consider REITs or car-oriented businesses that offer such services. Yet the range of property for lease can vary in scope from the humble toaster to the newest airplane model. The following is a short side-by-side comparison of the many types of companies that specialize in rentals/leases:
|Company||Market Cap.||Fwd. P/E||Industry|
|Aercap Holdings (AER)||$1.64 B||5.89||Aircraft|
|Rent-A-Center (RCII)||$2.11 B||11.15||Household Goods|
|Textainer Group (TGH)||$1.44 B||7.87||Cargo Containers|
|United Rentals (URI)||$1.95 B||12.54||Construction Eqmt.|
|Avis Budget Group (CAR)||$1.31 B||6.61||Vehicles|
|Apartment Investment & Management (AIV)||$2.73 B||12.77||Apartments|
|Mitcham Industries (MIND)||$294 M||9.97||Seismic Eqmt.|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.