Is now the time to consider a Real Estate Sale Leaseback transaction to support your liquidity & growth?

 

A real estate sale leaseback transaction could improve your working capital which could be utilized to take advantage of growth opportunities for your business. 

 

 

Case Illustration

 

To view the numbers for the case illustration click here.

 

ABC Co. (“ABC” or the “Company”) had a fully utilized $15 million operating line that was constraining its day-to-day operations and growth. 

 

ABC and its trusted advisors undertook the following:

• Sell the real estate for proceeds of $10 million

• Leaseback the real estate from the purchaser for $600,000 (6% of $10 million) in rent per annum

• Repay the outstanding mortgage of $5 million that was secured by the real estate sold

• No income taxes have been assumed from the sale of the real estate (ignored to simplify the illustration.

 

ABC's balance sheet and selected financial ratios are presented before and after the real estate sale leaseback transaction.  The real estate sale leaseback transaction increased ABC’s net working capital by $5.5 million ($6 million versus $500,000) and improved the Company’s working capital ratio from 1.03x to 1.43x.  The real estate sale leaseback transaction improved ABC’s leverage and debt service ratios.  ABC’s EBITDA (Earnings Before Interest Taxes Depreciation & Amortization) decreased by $600,000 ($6.4 million versus $7 million) representing the rent attributable to the real estate sale leaseback transaction.  ABC's debt service ratio's improved from 4.67x to 12.80x pursuant to the real estate sale leaseback financing.

 

To view our firm's Financing experience click here.

 

Claude Conan, CA, CPA, CBV, MBA (Founder and President of Quantum Advisory Inc.) can be reached by telephone at 780.669.9724 or email at claude.conan@quantumadvisory.ca.