A sale-leaseback is an agreement where an asset’s seller leases back the property from the purchaser. They are able to continue to use the site, but no longer own it. In a leaseback arrangement, the seller (soon to be tenant) can create their own lease term, rent, annual increases, etc. It is a powerful tool used to grow an operators business. The main advantage of the sale-leaseback model is that it enables businesses to release cash from existing items of value such as equipment, machinery, or most commonly real estate. The cash gained is used for many purposes including business acquisitions and other forms of growth.
For example a Burger King franchisee who operates 5 units may decide they are making more money on the business than the real estate. To help expand the growth of more stores they can self-finance through sale-leasebacks rather than taking out a loan from a bank. It may not always be the best decision for a franchisee to sell there A+ real estate, but the C locations are worth being sold so money can be invested back into the business for future growth. If they are making an 8% return on the real estate and a 20% return on the business it makes more sense for them to have more stores open than simply holding onto the real estate for moderate appreciation.