Unlocking value and increasing liquidity: the rise of sale-and-leaseback transactions in SEE

In their pursuit of optimising capital structure and enhancing liquidity, companies in the Southeast European (SEE) region are embracing sale-and-leaseback transactions. These transactions offer companies the opportunity to unlock the value of their real estate and other assets while retaining their operational use. This article explores the growing popularity of sale-and-leaseback transactions in the SEE region, examining their benefits and implications for companies and investors.

Understanding sale-and-leaseback transactions

A typical sale-and-leaseback transaction involves the sale of a property to an investor while simultaneously entering into a long-term lease agreement for the same property. In other words, the company selling the property becomes the lessee while the investor purchasing the property becomes the lessor. This arrangement allows companies to release capital that is otherwise tied up in real estate, enabling them to reinvest that capital in their core business activities, debt reduction, or further business expansion.

Benefits for companies

Sale-and-leaseback transactions provide companies with an immediate financial boost and improve their liquidity position. The released capital can be utilised for working capital needs, technological modernisation, or strategic investments. Furthermore, transforming owned property into leased property enhances balance sheet ratios, increases creditworthiness, and facilitates access to additional sources of financing. Sale-and-leaseback arrangements also offer operational flexibility, allowing companies to adapt their real estate portfolios to changing market conditions.

Advantages for investors

Sale-and-leaseback transactions offer investors a stable income stream through long-term lease contracts. This predictable cash flow is particularly appealing to institutional investors seeking reliable returns on their investments. Investing in sale-and-leaseback transactions also allows for portfolio diversification beyond traditional real estate investments. Investors can potentially benefit from the appreciation of real estate values over time, thereby earning additional returns on their investments.

Sale-and-leaseback trends in Serbia

In recent years, sale-and-leaseback transactions have gained popularity in Serbia as companies strive to optimise their financial resources. This strategy is particularly prevalent in sectors such as retail, commercial real estate and logistics. Serbian companies utilise sale-and-leaseback arrangements to unlock the value of their assets and improve liquidity. With the Serbian real estate market experiencing growth and attracting foreign investments, sale-and-leaseback transactions present an opportunity for companies to capitalise on their valuable assets while retaining operational control.

Sale-and-leaseback transactions in Serbia have attracted the attention of both domestic and foreign investors actively seeking opportunities in the commercial and retail sectors. This market offers stable income streams and capital growth, creating a win-win scenario for companies looking to optimise their capital structure and investors in search of stable returns.

Apart from the real estate sector, sale-and-leaseback transactions are also present in the telecommunications sector. For instance, this can be seen in the sale of mobile network tower infrastructure, which is then followed by its continued use through lease arrangements.

Challenges and considerations

While sale-and-leaseback transactions offer numerous advantages, certain challenges must be considered. Preserving fair competition and preventing monopolistic practices are of primary importance. Professional valuation by licensed appraisers and thorough legal due diligence are crucial in determining the market value of the property, assessing its condition, and identifying potential legal and other risks.

If the investor plans to make additional investments in the property, such as renovation or capacity expansion, both the investor and the company effectively become partners in a complex project. Therefore, choosing a reliable investor is vital for the successful execution of the transaction.  Some of the topics that participants in these transactions should take into careful consideration include urban planning, permit issuance for construction works, project implementation timelines, contractual penalties for delays or non-fulfillment of obligations, contract termination options, right of pre-emption/pre-lease, and tax treatment.

Conclusion

Sale-and-leaseback transactions have emerged as an important and attractive financial strategy, offering companies the opportunity to unlock value and increase liquidity. The benefits for both companies and investors are numerous, including improved cash flow, operational flexibility, and diversification opportunities. With the SEE region’s continued development and attractiveness for investments, sale-and-leaseback transactions can play a significant role in supporting various business sectors. Through careful property valuation and legal due diligence, companies and investors can benefit greatly from sale-and-leaseback transactions in the dynamic real estate market of the SEE region.

For more information on sale-and-lease-back arrangements and how they can benefit your SEE business, contact your regular CMS adviser or local CMS expert Ivan Gazdić.