In the news, the decision appears as a real estate deal: a land lease in Riyadh to build and operate an educational complex. But the economic reading starts from a simpler question: What does the company actually want to own? The land or the ability to quickly open a successful school and then replicate the experience in other locations?

A contract of this type presents us with two important indicators: first, the company is betting on the growth of educational demand in a specific location, and second, it wants to do so without freezing a large capital in land purchase. The news is not the “rental number” itself; rather, it is the logic of financial management and the risks behind it.

And because the financial details illuminate the idea, it suffices to capture them in one context without overwhelming: the discussion revolves around a long-term contract of approximately 25 years with a two-year grace period with no rent due, followed by an annual value of around 2.24 million riyals with a 10% increase every five years, and a total commitment of 63.9 million riyals (excluding VAT) over the contract duration. These figures do not explain the decision alone, but they place it in context: Payments distributed over time instead of a large upfront purchase payment.

Liquidity: “The Ability to Move” is More Important than Owning the Asset

The biggest difference between buying and leasing is not psychological, but financial: buying consumes huge liquidity all at once. And liquidity here is not a “luxury,” but the fuel for operations: construction and equipping, hiring, educational systems, marketing, and operating expenses before reaching full capacity.
Therefore, an educational company may prefer to keep its funds available for expansion or quality improvement, as the real return comes from “student seats” rather than “square meters.”

When mentioning liquidity, we need a simple concept: cash flows.

Cash flows mean the actual movement of money in and out, not the accounting profit recorded in the statements. A company may appear “profitable” on paper, but it stumbles if liquidity exits before revenue comes in. The presence of two years of grace here is not an administrative detail; it is an economic message: Pay after you start generating income from operations.

Flexibility: The Value of the Exit Option Does Not Show Up in Headlines

Riyadh is a rapidly changing city: neighborhoods are growing, competition is expanding, and family preferences are shifting. Therefore, owning land in one location means bearing the risks of “decision stability” even if circumstances change. Leasing, on the other hand, gives the company something valuable: the option to reassess.
In economics, it is said that options have value even if not used. The mere existence of a future option to adjust plans or redistribute investments reduces the cost of error.

Here, another concept appears simply: risks are not necessarily a bad event, but rather “uncertainty” about the future. Long-term leases are managed as a tool to reduce uncertainty: payments are made in stages, reassessments occur periodically, and decisions remain adjustable instead of becoming a permanent constraint.

The Company is Not a Real Estate Company… But an Operating and Educational Company

The question “Why didn’t they buy the land?” implicitly assumes that owning land is the goal. However, in the business model of private educational companies, the goal is usually to build an operational network: good locations, a strong educational experience, and efficient cost management. The land here is a “platform” rather than a “product.”

This leads us to a concept that explains a lot without complication: business model. A business model is simply: How does the company generate revenue?
If revenue comes from educational operations, then freezing funds in land may be less beneficial than employing them in ways that enhance capacity and quality or accelerate the opening of a new location.

Cost of Capital: Not All Riyals Are Equal in Value

Even if the company has the ability to purchase, there remains a crucial economic question: Does the expected return from operating an educational complex exceed the alternative return if the funds were placed in other investments or used to reduce debts?
This is what is called cost of capital: the price the company pays for using money, whether it is borrowed money (interest/financing) or money from shareholders (expected return). When the company chooses leasing over buying, it may be saying: “I want to keep my money to achieve a higher return in operations.”

What Does the Gradation of Leasing Tell Us About the Bet?

The increase of 10% every five years is not a trivial number; it means that the owner is betting on inflation or an increase in the value of the location in the long term, and the company is betting that its ability to raise revenues (by increasing the number of students and improving operational capacity) will keep pace with that. It is a contract that “negotiates” with time: each party places its expectations within the mechanism of increase.

How Do We Read Long-Term Leasing Decisions in Companies?

When reading a news item like this, try to set the numbers aside for a minute and ask four simple questions:

  1. Is the company profiting from the asset or from operations? If it is an operating company (education/health/logistics), leasing may make sense to avoid freezing liquidity.
  2. Does the contract provide realistic time for construction before payment? A grace period - like two years - is usually a sign of conscious cash flow management.
  3. Is the increase mechanism operationally absorbable? An increase of 10% every five years means the company needs gradual revenue growth and cost efficiency.
  4. What is the value of flexibility compared to owning land? Sometimes owning land is excellent… and sometimes flexibility is more important, especially in sectors where competition changes rapidly.

With this reading, the news shifts from “a lease contract” to a practical lesson in decision economics: A company may choose not to buy the land simply because it is buying something else more important—the ability to grow without being slowed down by a single asset.