What a Warehouse Lease Puts on the Balance Sheet, and the Own-or-3PL Decision

By Bernardo Campelo, Forbes Business Council E-Commerce Leader, Amazon SPN Certified provider, Amazon SP-API authorized partner, and Founder of PrepVia.

The call usually comes a week after a building tour. The brand has outgrown its 3PL invoices. A broker has walked the founder through a clean building with dock doors and tall racking. The rent per square foot looks cheaper than the 3PL line on the P&L. The founder wants me to check the math.

I ask one question before I open any spreadsheet. When do you plan to sell the company, or raise money on it? The lease you sign this year will still be in your financial statements when a buyer or a lender reads them. If it looks like the leases in the filings below, it arrives on the balance sheet as the whole term, discounted, on the day it starts. A 3PL bills you as you use it, although its agreement carries commitments of its own.

Here is the thesis. A warehouse lease is a financing commitment wearing an operations badge, and you should price it against the date you plan to sell or raise, not only against the 3PL invoice.

What Pattern's $20.8 Million Warehouse Lease Put on Its Balance Sheet

Pattern Group files with the SEC, so its lease is public. In its quarterly report on Form 10-Q for the period ended June 30, 2026, Pattern says it entered into a lease for a warehouse and distribution facility in Pennsylvania. The lease commenced on June 1, 2026, with an initial term of 7.4 years. Pattern classified it as an operating lease.

On commencement, Pattern recognized a right-of-use asset and a matching lease liability of $20.8 million, measured at a discount rate of 5.26%. Pattern did not buy the building. It signed a promise to pay rent, and that promise became a number on both sides of the balance sheet.

Now look at the whole balance sheet. Adding the current and non-current lines, Pattern's operating lease liabilities rose from $30.8 million at December 31, 2025 to $51.3 million at June 30, 2026. Its operating lease right-of-use assets rose from $28.2 million to $48.9 million. The same filing says the outstanding balance on its revolving credit facility with JPMorgan Chase was zero at June 30, 2026, with $150.0 million available to draw.

So on June 30, 2026, Pattern owed nothing on its revolver and carried $51.3 million of operating lease liabilities. That is not a verdict on Pattern. In Pattern's filing, the commitment landed on the balance sheet the day the lease started, sized by the whole term, not by the month it was in.

The Liability Is the Rent You Promised, Discounted

In these filings, a lease liability is not the sum of the rent. It is the present value of the payments you promised. Church & Dwight's 10-Q for the quarter ended June 30, 2026 shows the arithmetic in one small table. Its total future minimum lease commitments were $207.1 million. Less $35.0 million of imputed interest, the present value of its lease liabilities was $172.1 million.

The discount rate is an estimate. Pattern lists the incremental borrowing rate used to measure its operating lease liabilities among its significant estimates. Church & Dwight uses its estimated secured incremental borrowing rate for leases without an implicit rate. Its schedule of minimum rentals also includes reasonably assured renewal options, and it accounts for base rent separately from nonlease components such as common-area maintenance.

To see the mechanism at brand scale, here is a lease I made up. The rent is illustrative, not a market quote for any building, and I borrowed Pattern's 5.26% only as a reference rate.

The illustrative column assumes level payments at month end, discounted monthly at 5.26% a year, with no escalators, free rent or renewal options. Your accountant measures the real one. The shape is what matters. Measured the way these filings measure it, a seven-year lease at $30,000 a month puts roughly $2.1 million of liability on a balance sheet that may have carried none the day before.

Extensions count too. Church & Dwight says it extended the term at one of its leased warehouse facilities in April 2025. That raised its right-of-use assets and lease liabilities by about $11.0 million. Extend a lease six months before a sale, and the extension is in the numbers the buyer reads.

Where the Cost Lands: Rent, EBITDA and the Racking

Some founders assume a lease flatters EBITDA. For the operating leases in the two filings in this post, it does not. Church & Dwight says all its recorded leases are operating leases, with lease expense recognized on a straight-line basis in cost of sales or SG&A, depending on the leased item. Pattern defines Adjusted EBITDA as net income excluding depreciation and amortization, net interest income, income taxes, share-based compensation and related taxes, offering costs and other items it does not consider representative. Lease cost is not on that list.

So in these filings, warehouse rent is an operating expense, the same way a 3PL fee is, and Pattern does not add it back. Church & Dwight reports no EBITDA in this 10-Q, and it puts the non-cash part of its lease expense, $13.0 million in the first six months of 2026, in the Amortization caption of its cash flow statement. A model that builds EBITDA by adding back that caption adds back part of the rent. Ask how your buyer's model treats it.

These are company disclosures, not the text of the standard, and the classification matters. Amazon leases fulfillment network facilities under both operating and finance leases. Its 10-Q for the quarter ended June 30, 2026 reports operating lease cost as one line, and finance lease cost as amortization of lease assets plus interest on lease liabilities: two things EBITDA, by its name, is measured before. Your auditor decides which kind yours is. In the operating case, the lease keeps the rent in operating expense and adds a liability.

What does move in an owned operation is the capital spending. Racking, automation and leasehold improvements turn into depreciation, which Pattern's Adjusted EBITDA excludes. In the six months ended June 30, 2026, Pattern used $20.2 million in investing activities, primarily on internally developed software and on machinery, warehouse automation and leasehold improvements. EBITDA does not show that spending as it goes out. Your bank account does.

Labor, utilities and supplies stay above the line either way. I covered that side in the hidden costs of running your own warehouse and in the Amazon 3PL versus do-it-yourself cost breakdown. This post is about what those comparisons leave out: the commitment, and where it sits.

When does a buyer start reading EBITDA instead of owner earnings? Empire Flippers' valuation guide, updated September 8, 2026, says most businesses valued at $5,000,000 or less on its marketplace are valued on seller's discretionary earnings (SDE), and that EBITDA is typically used for businesses worth over $5,000,000. Quiet Light's market multiples page, updated July 10, 2026, says it may use EBITDA instead of SDE for larger ecommerce businesses, often those earning $1 million or more in annual profit. Past those lines, you are handing over financial statements, and the lease is in them.

What a 3PL Agreement Puts on the Balance Sheet: Ask, Do Not Assume

A 3PL bills you for receiving, prep, storage and outbound as the work happens. That is the appeal before a sale: the cost moves with the units. It is tempting to go one step further and promise the agreement will stay out of your financial statements. I will not make that promise, and you should not assume it.

Whether a specific service agreement contains a lease is an accounting judgment on that contract. The rules live in Topic 842, the leases standard of the Financial Accounting Standards Board, and I am not going to paraphrase them to you from memory. Your auditor reads your contract and decides.

What you can do is make that review fast. Send your auditor the whole 3PL agreement, amendments included, with these clauses flagged:

• Any clause that names a dedicated area, building, racking or equipment for your inventory.
• Any fixed monthly minimum, and what happens to it when volume drops.
• The term, the renewal mechanics and the notice period to leave.
• Rate escalators and any reserved-space or guaranteed-capacity fee.

Short leases deserve the same caution. Church & Dwight's stated policy is that leases with an initial term of twelve months or less are not recorded on its balance sheet. That is one company's policy in one filing. Do not read it as a rule for a one-year lease or for your 3PL agreement. Ask.

The same goes for an agreement with PrepVia. PrepVia bills per unit, from $0.40 per unit, and storage at $0.07 per cubic foot per day. Pricing goes by volume level, on request, with custom pricing above 20,000 units a month, and its published terms list no long-term contract. Send that agreement to your auditor like any other contract. For the commitments that are not accounting questions, work through the ten clauses to read before you sign a prep center agreement.

The Side-by-Side: Own Warehouse or 3PL, Row by Row

This is the instrument. Fill in your own lease draft and 3PL quotes, then take it to your CFO and your auditor before you sign anything. Figures marked illustrative are made up, from the lease above or a stress case. Reported figures are Pattern's and Church & Dwight's.

Two rows decide most of these conversations. The volume row is where a lease hurts a brand whose sales dip in the year before a sale, the stretch a buyer studies hardest. The sale row is where the lease term collides with the date on your exit plan. If your answer to both is that you will be fine, write down why, in numbers.

Be honest about the 3PL column too. Its capacity is variable only inside its walls. PrepVia runs a 5,500 sq ft building with 3 docks in Miami, and that is a real limit. Plan peak space the way brands reserve prep center capacity for Q4: ahead of time, in writing.

Timing the Decision Against a Sale or a Raise

A 7.4-year term makes sense for a company that plans to run a building for years. It is an awkward length for a brand whose owner plans to sell in two. In the illustrative lease, about $1.58 million of liability is still on the books at month 24. The buyer takes it, prices it, or asks you to deal with it first. Whether the lease can be assigned to a buyer, and with whose consent, is written in the lease. Your lawyer reads that clause before you sign, not after the letter of intent.

A raise works the same way. Pattern's 10-Q says its credit agreement contains financial, affirmative and negative covenants, and that it was in compliance with all of them at June 30, 2026. If you have a credit agreement, read how it defines debt and EBITDA, with counsel, before you sign a lease that adds a liability to every balance sheet you send the lender.

Then there is the bookkeeping. The FASB's post-implementation review of Topic 842, issued November 20, 2025, concluded that the standard gives investors more useful information about a lessee's leasing activities. It also found that lessee costs, both to implement and to keep applying it, were significantly higher than the Board expected. The main reason was that companies' existing systems and processes often could not account for operating leases on the balance sheet. If the Board underestimated the work, a two-person finance team should budget for it.

On the June 10, 2026 episode of the Operators podcast, three operator CEOs debated owning a warehouse versus outsourcing to a 3PL. They were Matt Bertulli of Pela Case and Lomi, Mike Beckham of Simple Modern and Curtis Matsko of Portland Leather Goods. The episode description promises a look at when flexibility beats cost savings, and at "why high-growth brands get burned by leases."

Hybrid: own the base, outsource the peak

You do not have to choose one model for everything. Pattern's 10-Q describes its fulfillment costs as costs from third-party fulfillment centers and from operating and staffing its own. At brand scale, keep a building for the base volume you are sure of, and send peak, Amazon prep and new channels through a 3PL whose bill moves with units. Buying a brand that already made this choice? Read 3PL due diligence before an acquisition.

Frequently Asked Questions

Does a warehouse lease count as debt when I sell my Amazon brand or raise money?

On Pattern's June 30, 2026 balance sheet, operating lease liabilities are their own lines, separate from its revolving credit facility, which had a zero balance that day. Whether a buyer's price model or a lender's covenant treats a lease liability as debt is set in the deal documents or the credit agreement, not in the lease. Ask your M&A adviser and your counsel before you sign the lease.

Does rent on an operating warehouse lease reduce EBITDA?

In Pattern's filing, yes: rent sits in operating expense and its Adjusted EBITDA does not add lease cost back. Church & Dwight records straight-line lease expense in cost of sales or SG&A and reports no EBITDA in this 10-Q. A finance lease reads differently: Amazon's 10-Q shows finance lease cost as amortization and interest. Which kind your lease is belongs to your auditor, and how a buyer adds it up belongs in the deal documents.

Can a 3PL agreement end up recorded as a lease?

I will not answer yes or no for your contract, because it is an accounting judgment on the specific agreement and it belongs to your auditor. Send the full agreement and every amendment, and flag any dedicated space or equipment, fixed minimums, the term, renewals and the notice period. Get the conclusion in writing before you model the decision.

Are warehouse leases of twelve months or less kept off the balance sheet?

Church & Dwight states that its leases with an initial term of twelve months or less are not recorded on its balance sheet. That is one company's disclosed policy, not the text of the standard. If a short lease is part of your plan, ask your auditor how your books will treat it.

Why is the lease liability smaller than the total rent I will pay?

Because the filings carry it as a present value. Church & Dwight's future minimum lease commitments were $207.1 million at June 30, 2026, and after $35.0 million of imputed interest its lease liabilities were $172.1 million. In this post's illustrative lease, $2.52 million of rent becomes about $2.10 million of liability at 5.26%.

Can a 3PL absorb all of my peak volume?

Only inside its own building and alongside its other clients' peaks, which is why capacity belongs in the contract, not in a sales call. PrepVia runs a 5,500 sq ft building with 3 docks in Miami. If your plan depends on a Q4 surge, reserve that capacity in writing before the season starts.

Final Take

A warehouse lease looks like an operations decision because it comes with dock doors and racking. On the balance sheet, it is a financing decision. Pattern's Pennsylvania lease turned a 7.4-year promise into a $20.8 million liability on the day it started. Church & Dwight's table shows the same arithmetic at scale: the payments, discounted, sitting next to everything else you owe.

That does not make a 3PL the right answer every time. A 3PL has its own commitments, its own capacity limits, and an agreement your auditor should read too. What a 3PL gives you is cost that moves with units, in the months a buyer or a lender studies hardest.

So put the decision on the calendar before the floor plan. If the sale is years out and the base volume is certain, a lease sized to that base can make sense. If not, keep the fixed commitment small and the variable capacity large. Then let your auditor, not a broker's tour, tell you what each contract puts on the balance sheet.