Business Only vs Business + Freehold: How to Choose What to Sell

If you own both the operating business and the freehold property your centre sits on, the biggest pre-sale decision is not when to sell or who to list with. It is which of the two assets you actually sell — and in what structure. That single choice shapes the price you achieve, the buyer pool you reach, the tax outcome you walk away with, and the next five years of your involvement with the centre.

There are three credible routes. Each one has a different buyer at the other end of it, a different after-tax outcome, and a different post-sale relationship with the asset. The right choice depends on what you want the next chapter to look like — not on what someone with a generic listing template tells you is “easier.”

The Three Routes

Route 1 — Sell the business only and keep the freehold. You exit the operator role and become the landlord. The buyer takes over the centre as an operating business, signs a new lease with you on commercial terms, and you continue collecting rent for the duration of that lease. This is the route most owner-operators reach for first because it feels intuitive — keep the asset, sell the headache.

Route 2 — Sell the business and the freehold together. A single transaction, a single buyer, one set of legal costs, one settlement date. The buyer takes possession of both the operating business and the underlying property. This is the “going concern” sale that the institutional and private-investor market is largely built around in 2026.

Route 3 — Sale-and-leaseback. You sell the freehold to a property investor on Day 1 and simultaneously sign a long lease back to yourself, then sell the operating business with that lease attached on Day 2 (or stay on as the operator). The two assets are deliberately split, each is priced separately, and the lease between them becomes the key document.

Each route is a different transaction, with a different price, a different buyer profile, and a different tax footprint. The headline mistake we see in pre-sale conversations is treating these as interchangeable. They are not.

What Each Route Actually Prices At

Route 1 (business only) is priced on adjusted EBITDA × a multiple. Quality single-site childcare businesses in Australia trade in a 3.0x–5.0x adjusted EBITDA range, with the multiple driven by lease quality, occupancy, NQF rating, and educator stability. The mechanics of how EBITDA is built — and why the gap between statutory and adjusted EBITDA matters so much — are walked through in our pillar valuation guide. For the route decision, the practical point is that this is a P&L-derived price. You are selling the right to operate the centre, not the dirt underneath it.

Route 2 (paired, going concern) is priced on the underlying property yield. When a single buyer takes both, the price is usually a function of the rent that the underlying property will sustain, capitalised at a market yield — not the business EBITDA. Stonebridge Property Group’s Childcare Investment Review 2025 records metro freehold childcare assets transacting in the 4.25–5.25% yield band and regional in the 5.25–6.25% band, with the 12-month yield compression on the order of 90–130 bps. Burgess Rawson’s FY24–25 data confirms a similar profile across $241.6m of transactions, with a record $151m December 2025 auction setting tone for 2026. The full read on how cap rates move and what compresses them sits in our cap rates piece.

Route 3 (sale-and-leaseback) is priced on the lease you sign on Day 1. The freehold component is sold to a property investor on the strength of the lease the operator (you, or your future buyer) signs back to themselves. That lease — its term, its review mechanism, its repairing covenant, its option structure — is the asset the investor is actually buying. A 15+ year initial term with options to 25 years, structured as a triple-net lease with fixed annual reviews, will command yields at the tighter end of the band. A shorter term with a market review and a gross lease structure will push the yield wider. The mechanics of what makes a childcare lease bankable sit in our pillar lease guide; for the route decision, the point is that the lease you sign on the day of the sale is the dial that moves your price.

The order-of-magnitude difference between routes is real. The same 80-place centre, with a stabilised $300,000 of property rent and $400,000 of business EBITDA, could realise:

• Route 1 (business only): business at 4.0x adjusted EBITDA = $1.6m, freehold retained on the seller’s balance sheet at a derived value of roughly $5.7m–$6.7m using the 4.50–5.25% yield band, but not converted to cash today.
• Route 2 (going concern): total transaction in the $7.0m–$8.0m range, blended across the business and the underlying property, in a single sale to a single buyer.
• Route 3 (sale-and-leaseback): freehold to an investor at $5.7m–$6.7m on a 15-year lease, then business at 4.0x EBITDA = $1.6m to a separate operator-buyer — combined gross of $7.3m–$8.3m, but with two settlement timelines and an active lease relationship between the two new parties.

The point is not that one route always wins. The point is that the gap between the routes is large enough that it deserves a properly modelled comparison before you list.

The Buyer Pool Each Route Reaches

Route 1 attracts operators. Other childcare operators, first-time owner-operators, small groups looking to add a single site. They want a clean business to step into, they want a long lease at a defensible rent, and they want the option to focus on operations rather than property. The pool is wide but the cheque sizes are smaller; the buyer’s lender will typically lend 60–65% against the going-concern business value, which constrains what they can pay.

Route 2 attracts going-concern investors. Private investors, family offices, smaller institutional buyers who want a single asset with the operator and the property in one structure — often because they intend to manage the operator transition themselves or already own a small group. The buyer pool here is narrower but the cheque sizes are larger, and the lender will typically lend against the property value at LVRs of 65–70% for freehold.

Route 3 reaches two buyer pools in parallel. The freehold goes to a property investor — typically a private investor or a childcare-specialist syndicate — who is buying a long-duration cash flow. Institutional buyers (Charter Hall Social Infrastructure, Arena REIT, Centuria) operate at the larger end of this market on WALE-rich portfolios; private investors take single assets at slightly wider yields. The business goes to an operator. Splitting the two unlocks both pools rather than asking one buyer to be both an operator and an investor. The trade-off is execution complexity — two transactions, two due diligence processes, two settlement timelines, and a lease document that both buyers will scrutinise.

After-Tax Is the Number That Actually Counts

The route comparison is not complete until it is run after tax. Three things change between routes:

Capital gains framework. A business sale (Route 1) and a freehold sale (Routes 2 and 3) sit under different parts of the capital gains regime. For a long-held owner-operator structure, the small business CGT concessions can materially change the after-tax outcome on either the business or the freehold component, depending on which entity holds what and how long it has held it. These concessions are highly fact-specific — they depend on entity structure, turnover, net asset value, and active asset tests — and the answer is rarely intuitive. The ATO’s general guidance is the starting point; the actual outcome needs your tax adviser sitting alongside your sale adviser before you commit to a route.

Depreciation recapture on the building. Freehold sales (Routes 2 and 3) will typically trigger recapture of building depreciation claimed over the holding period. For a centre built in the past 15–20 years, this recapture can be meaningful — sometimes $150,000–$400,000 of additional taxable income depending on the depreciation schedule. This shifts the after-tax positioning of the freehold sale and can change which route wins on net proceeds.

GST treatment. Going concern sales (Route 2) can usually be structured as GST-free under the going-concern rules, which simplifies cash flow at settlement. Split routes (Routes 1 and 3) may have different GST positions on each component depending on how the contracts are written. This is a structural drafting question, not a strategic one — but it sits inside the route decision because the structure changes between routes.

We do not give tax advice and this article does not give tax advice. The point is that the route-vs-route comparison is gross of tax until your accountant runs it net of tax — and the ranking sometimes changes after tax. Run the after-tax comparison before you commit.

What Each Route Says About Your Next Five Years

There is one more dimension that is often the decisive one. Each route locks in a different post-sale relationship with the centre:

Route 1 keeps you as the landlord for the next 10–25 years, depending on the lease you sign with the operator-buyer. That is rent income, capital growth exposure on the property, and a relationship that needs managing. For owners who want passive income and like real estate, that is upside. For owners who want a clean exit, that is the wrong route dressed up as the safe one.

Route 2 is the cleanest exit. One settlement, one cheque, no continuing obligation to the centre, no lease to manage. For owners who want to walk away and recycle capital into other asset classes, this is usually the right route — even if it does not appear to maximise gross headline price in every scenario.

Route 3 sits between the two. You are out of the operator role, you are out of the property, but you are the seller of a lease document that is now the centrepiece of someone else’s investment thesis. If the lease is well drafted, this matters less in practice. If it is not, you may find yourself called into post-completion conversations for months.

Timing also matters. Each of the three routes pairs differently with the broader cycle and your own situation — the deeper read on when to time a sale at all is in our when to sell guide. For most owners, the route decision should be locked in 12–18 months before the listing date, not in the final month — exactly because each route requires different preparation work (see our pre-sale preparation guide for the 12–18 month checklist).

A Four-Factor Decision Grid

In practice, we run the route comparison across four factors:

1. Total realised proceeds, after tax. Model all three routes with your accountant. Add the cash today plus the discounted future cash flows (rent on Route 1, no future cash on Route 2 or 3). Compare on a like-for-like basis.

2. Time and execution risk. Route 2 is one transaction. Route 3 is two transactions, with the second contingent on the first. Route 1 is one transaction now and an ongoing landlord relationship. Risk-adjust the proceeds.

3. Buyer-pool fit. Look at your actual buyer pool — what would Route 1 attract, what would Route 2 attract, what would Route 3 attract? Sometimes the answer is decided by your catchment: in a deep institutional-investor market, Routes 2 and 3 dominate; in a shallower regional market, Route 1 may be the only realistic option.

4. What you actually want. Capital recycling, passive income, lifestyle exit, partial exit — these are not soft considerations, they are the constraint that should sit at the top of the model, not the bottom.

The differences between routes also interact with whether the underlying asset is structured as leasehold-only or freehold-only — a distinction we work through in Leasehold vs Freehold Childcare: What’s the Difference in Value?. For owners who hold both, the routes above are the strategic layer on top of that valuation comparison.

For most owners, the right first step is a value read on both the operating business and the underlying freehold, run separately. Our free 60-second estimator gives you an order-of-magnitude number on both — useful as the input that lets your accountant model the after-tax comparison across all three routes before the sale conversation starts.

Key Takeaway

If you own both the business and the freehold, the route decision sits one level above the listing decision and shapes everything that follows. Three routes exist; they each price on different inputs, attract different buyers, carry different tax footprints, and lock in different post-sale relationships. Run the gross-and-net comparison across all three before you commit. The gap between the routes is too large to leave to default.

Considering a sale and want to know what each route would realistically achieve on your centre? Talk to ChildcareLink — we work with owner-operators across NSW, VIC and QLD on route selection, buyer-pool mapping, and lease drafting ahead of listing. Visit childcarelink.com.au or contact our team directly.

Sources

• Stonebridge Property Group — Childcare Investment Review 2025 ($205M / 27 transactions, metro freehold yields 4.25–5.25%, regional 5.25–6.25%, 90–130 bps yield compression, named 2025 sales)
• Burgess Rawson / CBRE — Childcare Insights FY24–25 ($241.6M annual transaction volume, $151M record December 2025 auction)
• Charter Hall Social Infrastructure REIT — FY25 reporting (institutional childcare WALE benchmark, triple-net structure context)
• Arena REIT — FY25 reporting (WALE 18.5 years, triple-net portfolio benchmark)
• Australian Children’s Education and Care Quality Authority (ACECQA) — Service Approval transfer process (SA04/SA05 forms, 42-day pre-transfer notification, 28-day intervention window)
• Australian Taxation Office — general capital gains framework, depreciation recapture, small business CGT concession context (general framing only — sellers must obtain independent tax advice)
• Reserve Bank of Australia — cash rate 4.35% (May 2026)
• Australian Bureau of Statistics / Productivity Commission Report on Government Services 2026 — sector size and structure
• ChildcareLink transaction and advisory experience — observed price differentials across paired and split-route sales, buyer-pool dynamics, sale-and-leaseback lease drafting patterns 2024–2026

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. ChildcareLink recommends seeking independent professional advice tailored to your specific circumstances before making any business or investment decisions.