Investor interest and the need for companies to expand are stimulating sale-leaseback operations in Brazil

Leitura de 5min

Real estate sale-leaseback operations are very common in the world’s more developed economies, and are now starting to gain space in Brazil.

This kind of transaction consists of the sale of a property combined with its subsequent leasing to the former owner. It offers three main advantages.

The first of these is financial. The vendor company can use the money received from the sale to make investments and seek to expand its business.

Another important point has to do with freeing up fixed assets. When the company sells the property but also has the guarantee that it can remain in the same location for a specified period, it has the opportunity to concentrate on its core business, because it no longer needs to worry about asset management of the office space.

A third advantage comes through taxation. By reducing the fixed assets on its balance sheet, the company will henceforth have an operational expense and will achieve a fiscal gain.

Roberto Patiño, a transactions manager at JLL, explained that Brazil’s process of economic stabilization in the last two decades has helped promote sale-leaseback operations in the country.

Until we had monetary stabilization, when inflation was out of control, real estate was seen as an important store of value. It represented security. Today it’s the opposite; real estate has become a fixed asset that makes a negative contribution to the return on capital. From the financial point of view there is a consensus that real estate must be used in the best way to boost company income,” Patiño said.

What´s more, he explained, transactions of this type are very much in demand in the financial market. “Receivables from these operations can be securitized, generally as mortgage-backed securities, and placed in the market for investors who are looking for good returns.”

Patiño noted, however, that most investors are interested only in paper issued by companies that are in good financial health – in this case, the company involved in the sale-leaseback operation that will become the tenant.

This market is looking for companies with good credit risk, earnings track record and cash flow, and with plans for fast expansion,” he said.