SALE-LEASEBACK: AN ALTERNATIVE WAY TO REAL ESTATE FINANCING

Abstract

Companies are questioning the virtue of owning illiquid assets in this age of advancing sophistication for corporate real estate management. The general trend in today's corporate world is to outsource, right-size, and focus on core industries. Sale-leaseback transactions offer corporations an important opportunity to achieve financial goals and improve their statements. With the renaissance of sale-leaseback deals in the West, it is felt that a study is required to provide an insight into the viability of sale-leaseback transactions in Singapore's institutional and economic climate. This study seeks to explore the fundamentals of sale-leaseback and discuss the implications of off-balance sheet financing in Singapore's context. A quantitative study on a hypothetical sale-leaseback deal for C.K. Tang is simulated to assess the economic viability of sale-leaseback transactions in Singapore's corporate real estate market. Eventually, it is found that sale-leaseback arrangements are not viable under normal market conditions as the cost of leasing is higher than the cost of finance. Unless a discounted rental can be negotiated, the lessee shall continue to own the property and aim to seek future capital gains from holding the property. However, this alternative financial instrument serves as a useful tool for structuring the more intricate securitization deals.