A sale and leaseback allows a company to raise money from the sale of assets, while retaining use of them, but at the cost of increasing operational gearing. The money raised from selling assets may make the company financially stronger, but is commonly used, at least in part, to return capital to shareholders.
The cost of the leaseback rental payments means that operational gearing will be increased, although the impact of this on earnings may, if the money raised is retained, be softened by a lowering of financial gearing.
The largest and highest profile sale and leaseback arrangements usually involve land and property, however a wide range of assets are sold and leased back. The main requirement is that they are capital assets that may sensibly be the subject of a long term lease.
Sale and leaseback arrangements may also have tax effects: at the very least there will be the effect of increasd costs. If the assets being sold and leased back have been depreciated to below the price at which they are sold there will be an initial profit on sale followed by rental payments (usually) higher than the depreciation then replace.
The biggest concerns for investors are the increased operational gearing and the distortion of year-on-year comparisions caused by large sale and leasebacks.