Sale‐and‐leaseback as a British real estate model

Abstract

Purpose

Many established trading companies have had considerable capital value locked into their operational properties. These properties have been identified as producing lower returns on invested capital than core business activities. Consequently, there has been a growing trend for the splitting of operational property from core business activity. This paper seeks to identify trends in sale‐and‐leaseback, which is the most common model in the UK.

Design/methodology/approach

This paper reviews, the existing literature and some past transactions in order to identify the motivations of both operational businesses and property investors in adopting the model. Some transaction case studies are also highlighted.

Findings

Identification of the motives behind this approach. Accounting, taxation and capital release are identified as the main drivers when the model first became widespread in the UK two decades ago. It is now driven by taxation and capital release. Originally adopted by leading companies, sale‐and‐leaseback has more recently been used by weaker covenants. The model has remained popular with investors, but there have been some recent failures.

Originality/value

This paper examines recent trends and seeks to identify how the sale‐and‐leaseback model may develop in the UK. Furthermore, the application of the model in the UK may give some insight into its application in other parts of the world, where it is either gaining further acceptance or may have greater potential application.

Citation

Tipping, M. and Bullard, R.K. (2007), "Sale‐and‐leaseback as a British real estate model", Journal of Corporate Real Estate, Vol. 9 No. 4, pp. 205-217. https://doi.org/10.1108/14630010710848458