The Art Of The Sale/Leaseback

Jul. 30, 2020 7:00 AM ETIRM, ILPT, NNN, O, STOR, WPC42 Comments


  • The primary benefit of a sale/leaseback for the seller is that it can convert an illiquid fixed asset into cash and increase its working capital.
  • In this pandemic-marked cycle, this option can be extremely beneficial, giving the company enhanced liquidity.
  • The sale/leaseback alternative provides the occupier 100% of the value of the property. Compare that to traditional mortgage financing, which is usually around 65% loan-to-value.
  • This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

A few days ago, I wrote a bullish article on Iron Mountain (IRM). In it, I explained that the REIT "has around $2.5 billion of 'owned' real estate at its disposal." So, it could theoretically "sell all of its 'owned' real estate and lease it back."

I went on to explain that:

"As far as I'm concerned - given the global demand for data storage - Iron Mountain should take a much closer look at monetizing its owned real estate to drive shareholder value. But to be clear, I'm not an activist, merely a suggestivist!"

Today, I thought I'd take a closer look at the larger concept of a sale/leaseback. That way, you can get more color on the value creation potential in Iron Mountain's properties - not to mention the significance of the asset monetization tool.

It's an extremely interesting way of doing business.

Explaining Sale/Leasebacks

For starters, a sale/leaseback is an arrangement between two parties:

  1. One party (the seller/lessee) that owns an asset sells it to a second party (the buyer/lessor).
  2. The seller/lessee leases the asset back from the buyer/lessor.

According to the Journal of Accountancy, benefits for the seller-lessee include:

  • An immediate inflow of cash that can be deployed in some area of the entity's business.
  • A cheaper form of financing.

Benefits for the buyer-lessor include:

  • Reduced default risk from being able to directly investigate the seller-lessee's credit.
  • The ability to more easily terminate the contract than would be the case under conventional financing.
  • Important tax advantages.
  • Guaranteed residual value at termination.

Then, there are the disadvantages. As Fountainhead Commercial explains, there are "potential tax liabilities associated with capital gains that you may be responsible for after the sale of your property."

In addition, you won't "be able to leverage any depreciation benefits" anymore. And you forfeit "any future

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This article was written by

Brad Thomas profile picture
Leader of iREIT on Alpha
The #1 Service For Safe and Reliable REIT Income

Brad Thomas is the CEO of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 15,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) iREIT on Alpha (Seeking Alpha), and (2) The Dividend Kings (Seeking Alpha), and (3) Wide Moat Research. He is also the editor of The Forbes Real Estate Investor

Thomas has also been featured in Barron's, Forbes Magazine, Kiplinger’s, US News & World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. 

He is the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, and 2022 (based on page views) and has over 108,000 followers (on Seeking Alpha). Thomas is also the author of The Intelligent REIT Investor Guide (Wiley) and is writing a new book, REITs For Dummies. 

Thomas received a Bachelor of Science degree in Business/Economics from Presbyterian College and he is married with 5 wonderful kids. He has over 30 years of real estate investing experience and is one of the most prolific writers on Seeking Alpha. To learn more about Brad visit HERE.

Disclosure: I am/we are long O, STOR, WPC, IRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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