The Financial and Operational Benefits

Q. How will net leasing save my company money?

A. A CRIC Capital net lease can result in a number of significant short and long term financial and tax benefits for your business.

1. A Better Balance Sheet

· Since the company is not borrowing money, the lease obligation will not have to be recorded directly as debt or as a long-term obligation or liability on its balance sheet.

· In the case of a sale-leaseback transaction, you, the Lessee will be converting an illiquid asset into cash. You will also be able to increase your company’s net worth by the after-tax difference between the sale price and the book value of the property. (The accounting recognition of this increase in net worth will probably be spread over the term of the lease.)

· If you owned the property, the book value of the property would decline every year because the accounting treatment would require an annual depreciation charge. The fact that the property might be increasing in actual value would be irrelevant to the accounting treatment. Since the Lessee does not own the property, the decline in book value will not be reflected as a charge against the Lessee’s earnings and net worth.

2. The After-Tax Benefits

· The after-tax benefits of net leasing can provide a company with greater savings than other forms of asset-based financing. If a company leases a property, it can deduct 100% of the lease payments against its taxable income. Therefore, leasing almost always results in a lower after-tax cost for the company than any alternative form of financing.

· The after-tax cost is (a) the rent minus (b) the value of the rent deduction. The rent is fully deductible, including that part of the rent allocable to the land.

3. Better use of Capital

· Even when you claim to have access to cheaper funds, it is usually referring to bank financing. However, bank financing is short-term borrowing, usually at a floating rate. Bank financing may make sense in order to cover working capital and other short-term operational needs, but it is the wrong source of capital for the financing of long-term assets such as real estate. Sound financial management dictates that long-term assets be financed with long-term capital. Contact CRIC to learn more.

Q. If I choose net leasing, can I make alterations and additions to the property?

A. Yes. You, as Lessee, are free to make alterations and additions that can help you to successfully run your business, as long as the alterations and additions do not reduce the fair market value of the property.

Q. Can the Lessor interfere with my use of the property or impose other restrictions over my general business operations contained in the lease?

A. With a CRIC Capital net lease, typically, there no other restrictions over the general business operations of the Lessee contained in the lease. A CRIC Capital net lease does not prohibit you from doing anything that would not be prohibited under a conventional leasing or mortgage arrangement. Contact CRIC to learn more.