ambulatory surgery centers, and others may no longer be affordable or core to the organization.
Businesses that are not core to the mission could be divested in order to fund core strategies.
The type of sales process selected for those non-core assets or businesses can significantly impact the
monetary value of the divesture and other benefits and considerations (see Sidebar), so hospitals will
want to seek the advice of a financial advisor and legal counsel.
Types of Sales Processes
Exclusive
Negotiations
One
Low
High
High
Source: Kaufman, Hall & Associates, Inc.
Buyer universe
Comfort with strategic
decision to divest
Maintain confidentiality
Risk of not closing a
transaction
Maximize monetary
value Low
Maximize non-
monetary value
Controlling time line
Controlling transaction
structure and
documents
Low
Ensure fairness/
adequacy of value Low
Time commitment
from management Low
Fairness of information
disclosure High
Fiduciary responsibility Medium
Limited
Sale
2 to 4
Low
High
Medium
Controlled
Sale
5 to 15
High
Medium
Low
Public
Auction
Many
High
Low
Low
Real Estate. The starting point for
consideration of real estate as a source
of capital is a thorough assessment of an
organization’s existing real estate
holdings. The assessment should include
a close look at the current operational
value of each building or land holding, its
future strategic value, and the potential
financial value, using appropriate criteria
or metrics for each.
Medium
High
High
Low
Low
Medium
Low
High
High
High
High
Low
High
High
Medium
High
High
Low
High
Low
Low
Medium
High
High
High
High
For the most part, hospitals will want to
continue owning properties with high
values across all three factors, as well as
properties with high strategic value
(even if they have lower operational and
financial values). Generally, assets with
high financial value, but lower
operational and/or strategic value,
should be considered as monetization
opportunities. Real estate assets with
low values across all three categories
are more of a challenge and may
represent a redevelopment opportunity.
A more thorough “sell or hold”
evaluation is recommended for real
estate assets with mixed results.
Often real estate monetization related
to buildings involves a sale/leaseback transaction, where the hospital commits to a long-term lease for a
portion of the buildings it has sold. Proceeds from the sale of buildings are returned to the hospital’s
balance sheet, which improves liquidity and key credit rating ratios—most importantly, days cash on
hand and cash to debt. However, the hospital will lose rental income and incur new occupancy expenses
for the portion of space leased by the hospital. The question is whether the balance sheet benefit
outweighs the incremental operating costs.
As mentioned earlier, executives must fully understand the implications of such transactions, including
financial issues related to the implied cost of capital in the leaseback transaction as compared to the
hospital’s overall cost of capital. Strategic issues, such as ongoing control, are also important. Through
long-term ground lease control provisions, it is possible to monetize certain real estate assets while still
maintaining a degree of strategic control, such as restriction on competitive activities and the right to
lease space.
A Guide to Financing Strategies for Hospitals
