After purchasing an asset, the owner enters into a long-term contract whereby the property is re-leased to the seller at an agreed price. One of the reasons for the purchase of leasing is the transfer of ownership to a holding company, properly pursuing the current value and profitability of the asset. Another reason why the seller buys money by dumping a valuable asset to a buyer who may be interested in making a guaranteed long-term investment. Leasing agreements are common in the REIT sector. On February 18, 2008, Digi International GmbH, a subsidiary of Digi International Inc. (“Digi”), entered into a binding contract for the sale of its building (the “building”) to Deutsche Structured Finance GmbH – Co. Alphard KG (“DSF”). On the same day, DIGI signed a lease agreement with DSF to re-rent part of the building. The building is located in Joseph-von-Fraunhofer Street 23, D-44227 Dortmund, Germany. Instead, the company may decide to sell one of its long-term assets to an insurance company. You should immediately ensure that this asset is repaid for a certain period of time.
If the insurance company agrees to pay the asset at an interest rate below the interest rate that the bank wanted to charge the company for a loan, then the sale-leaseback agreement with the insurance company would be the superior alternative. Why does a company sell and lease an asset? The company can free up money committed to the property. In addition, the company may enter into a capital lease, in which case it can keep assets and liabilities away from its balance sheet. Since the sale-leaseback agreement is a kind of loan, the company may have the desire to enter into this type of agreement if the rents are lower than the interest it would have had to pay if it had borrowed money to finance the purchase of the asset. A loan must be repaid and appears as a debt in the balance sheet of the company. A leasing operation can actually help improve the health of a company`s balance sheet: balance sheet liabilities will decrease (avoiding additional debt) and short-term assets will increase (cash and in the lease). Although the equity is non-refundable, shareholders are entitled to a company`s profits on the basis of their share of its share. Leaseback, short for “sale-and-lease,” is a financial transaction that involves selling an asset and re-renting it over the long term; As a result, you can continue to use the asset, but you no longer own it. The transaction is generally carried out for capital assets, particularly real estate, as well as for durable goods and capital goods such as airplanes and trains. The concept can also be applied to territorial assets by national governments; Prior to the Falklands War, the UK government proposed a lease agreement to transfer the Falkland Islands to Argentina on a 99-year lease and a similar agreement, also for 99 years, had entered into force before hong Kong`s transfer to mainland China.
Lease agreements are generally enforced because they provide financial, accounting or tax benefits. A sale and leasing transaction is usually a commercial real estate transaction in which a party, often a company, sells its business properties to another party, such as an institutional investor or a real estate investment trust (REIT), and re-leases the property at a rental price and at an acceptable rental period for the new investor/renter. The duration of the credit and the rental rate are based on the financing costs of the new investor/lender, the solvency of the taker and a market return based on the new investor/lender`s initial cash investment.