Sale and lease back
Lease back agreement
– The applicant agrees to pay the leasing company periodic installments agreed upon in the contract for the period of time defined in the contract. The installments may be pre-payable or post-payable.
– No down payment is required. The economic return on fixed assets is maintained, since the leasing does not appear on the balance sheet. Consequently, the lessee’s debt ratio does not change either.
– The financial immobilization that we have generated with the acquisition of the assets, we can release it to use the money obtained through these contracts to finance the current activity of the company, without compromising the viability of the company since we continue to have all the productive elements of the same.
Sale and lease back
Lease-back, as its name suggests, is similar to leasing, but in reverse. The operation consists of the owner of a property, movable or immovable, selling it to a leasing agency and then entering into a leasing contract for it.
In this case, the ownership of the asset is transferred to the buyer, generally a leasing company, but in turn, the selling company retains the right to continue using it and therefore it will remain in its possession.
As regards the accounting treatment of the transaction, it will be necessary to comply with the provisions of NRS 8.ª Arrendamientos y otras operaciones de naturaleza similar (Leases and other transactions of a similar nature). Section 3 of the aforementioned standard establishes the following in this respect:
When the economic conditions of a disposal, connected to the subsequent lease of the assets disposed of, indicate that it is a financing method and, consequently, it is a finance lease, the lessee shall not change the classification of the asset, nor shall it recognize any profit or loss arising from this transaction. Additionally, it shall record the amount received with a credit to an item that shows the corresponding financial liability.
Leaseback
Lease-back, as its name suggests, is similar to leasing, but in reverse. The operation consists of the owner of a property, movable or immovable, selling it to a leasing agency and then entering into a leasing contract for it.
In this case, the ownership of the asset is transferred to the buyer, generally a leasing company, but in turn, the selling company retains the right to continue using it and therefore it will remain in its possession.
As regards the accounting treatment of the transaction, it will be necessary to comply with the provisions of NRS 8.ª Arrendamientos y otras operaciones de naturaleza similar (Leases and other transactions of a similar nature). Section 3 of the aforementioned standard establishes the following in this respect:
When the economic conditions of a disposal, connected to the subsequent lease of the assets disposed of, indicate that it is a financing method and, consequently, it is a finance lease, the lessee shall not change the classification of the asset, nor shall it recognize any profit or loss arising from this transaction. Additionally, it shall record the amount received with a credit to an item that shows the corresponding financial liability.
Leaseback accounting
Sale and leaseback is a real estate formula whereby the owner of an asset sells said property, but without ceasing to make use of it, since, together with the sale, a lease contract is formalized with the new buyer. In this way, the figures of seller and buyer are transformed into tenant and lessor respectively, who are linked by means of a long-term lease contract.
«Supermarket operators stand out for their healthy balance sheets, so they present an ideal profile for this type of transaction,» explains Lobo. «Many of them have very significant equity, which can be monetized and allows them to generate capital to reinvest in their expansion into other markets or in relevant transformation initiatives (improvements in the online shopping process, store refurbishments, introduction of new concepts in their commercial offer, etc.). In essence, the sale of stores allows them to finance all these growth-focused initiatives without resorting to external sources of financing,» analyzes Lobo.
