Ownership & finance
Sale-leaseback
Also written: sale and leaseback
What Sale-leaseback means
A financial transaction where a hotel owner sells the real estate asset to an investor while simultaneously signing a long-term lease agreement to continue operating the property without operational disruption.
How it is used
Owners use sale-leasebacks to unlock equity tied up in real estate, freeing capital for brand acquisition, debt paydown, or portfolio expansion without losing brand presence. Institutional investors favor them for predictable, long-term rental yields backed by commercial property. The transaction shifts the operator's balance sheet from asset-heavy to asset-light, replacing depreciation and mortgage payments with fixed or variable rent obligations that impact EBITDA and EBITDA margins.
Worked example
An owner sells a 200-room hotel valued at $40 million to a real estate investment trust (REIT). Simultaneously, the owner executes a 20-year triple-net (NNN) lease at an initial 6.5% cap rate. The owner receives $40 million in gross cash proceeds and pays $2.6 million in annual rent, maintaining full control over daily operations and guest revenues.
Common mistake
Operators often miscalculate the long-term burden of fixed lease payments during unexpected market downturns when revenues drop but rent obligations remain unchanged.