The objective of this work is to analyze and assess the pros and cons of sale and leaseback transactions (SLBTs) from different perspectives. For that purpose, mainly printed sources from leading authors in the area of finance and accounting as well as academic journals will be used. To include latest developments and insights, the author will reference publications by standardization bodies, the Big Four audit firms as well as consulting companies, among others.
At first, the foundational framework will be established, including an overview of available financing methods and a definition on what is commonly understood by external as well as internal financing. The following sub-chapter drills deeper into the matter by defining what leases are and how they can be classified into different types. For that reason, operating and financial leases will be distinguished with reference to common accounting standards. Additionally, a practical example will illustrate this distinction. This is closely followed by the definition of sale and leaseback transactions including the prime characteristics of it. Also, a practical example will ensure clearer understanding.
In the main part the pros of sale and leaseback will be assessed from the perspective of the seller as well as from buyer of the assets. The associated cons will be analyzed thereafter. Another practical example will serve to complement this section.
In the next chapter the possible effects of changing regulations, laws and accounting practices regarding leases and SLBT’s will be outlined. This includes a practical example to illustrate and explain the effects of the new accounting standard “IFRS 16 Leases” on this subject from different perspectives. After that, a concise overview of typical sale and leaseback applications will follow.
List of Contents
List of Abbreviations
List of Figures
List of Tables
1 Introduction
2 Financing methods
2.1 External financing
2.2 Internal financing
2.3 Leases
2.3.1 Operating lease
2.3.2 Financial (capital) lease
2.3.3 Practical example operating vs. financial lease
2.3.4 Sale and leaseback
2.3.5 Practical example of sale and leaseback
3 Pros and Cons of sale and leaseback transactions
3.1 Pros for the seller (lessee/occupier)
3.2 Pros for the buyer (lessor/investor)
3.3 Cons
3.4 Practical example direct M&A vs. sale and leaseback transaction
4 Effects of changing laws, regulations, and accounting practices on sale and leaseback transactions
4.1 New IASB & FASB lease accounting standards
4.2 Effects of “IFRS 16 Leases” on sale and leaseback transactions
4.3 Typical sale and leaseback applications in practice
5 Conclusion & Outlook
Bibliography
Printed sources
Online sources
Other sources
Appendices
Appendix 1: Composition of corporate financing for U.S. nonfinancial corporations 1994-2008
Appendix 2: New leasing growth rates by country in 2014
Appendix 3: New leasing volumes (in bn €) per country in 2014
Appendix 4: New leasing growth rates per asset type in 2014
Appendix 5: U.S. Treasury Bill Rates 2006-2016
Appendix 6: Deposit interest rates for corporate customers, New York, Bank of America, 2016
Appendix 7: Example of a sale and leaseback agreement
Appendix 8: Weaknesses of lease accounting standards before 2016
Appendix 9: Overview of “IFRS 16 Leases” effects on a company’s income statement compared to previous accounting standards
ITM checklist
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