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monetization
Enhance revenue via alternative capital
To monetize or reverse monetize?
Strong market value for healthcare real estate, plentiful liquidity from bond and capital markets, and low cost of capital are all major positives for healthcare providers during this challenging time. Though 2020 has been challenging for healthcare operations, the strength of healthcare real estate is a refreshing theme. Real estate investors recognize excellent long-term yield opportunities in well-located properties with stable income and tenancy, well-supported by lenders seeking the same security. Healthcare executives can raise capital for re-investment in patient care by selling real estate assets and leasing them back from the new owner, a process known as monetization. However, the same low interest rates and favorable and diverse capital access that facilitate monetization are also supportive of reverse-monetization, which refers to health systems buying back facilities and self-developing new properties. This conversion of real property to cash is known as monetization, for which the current market presents an ideal confluence of circumstances.
Given two starkly different paths, which one is best for providers? Many aren’t sure if they should monetize or “reverse monetize” or how to determine what to do and when.
Three considerations drive confident decision-making
The decision about capitalizing real estate involves a thoughtful process which source of capital – borrowing, leasing, cash on hand or investments – is best suited for the circumstances? The following are three key considerations to evaluate the options
- How do you use your facilities?
When considering potential portfolio changes, providers will prioritize retaining control over core assets. Key elements of a core property include duration of need, capital investment in building infrastructure and clinical equipment, licenses and certificate of need as well as flexibility for future use.
- What is your capital strategy?
Health systems are faced with relentless needs for capital for growth. Population health management, facility expansion, physician alignment, technological investment, and mergers and acquisition activity compete for resources.
Health systems must consider sources of capital such as traditional tax-exempt or taxable bonds and bank financing alongside alternatives such as real estate capital derived from third party investors or credit lease financing options that vary depending on credit quality of the provider. The attributes of each capital source align with different operational strategies as well as cash raise or financial statement goals.
- What are your available capital sources?
With the shift to outpatient care, the options for capital have helpfully progressed beyond traditional bond financing. The current complexity of patient care requirements necessitates a wider range of capital solutions. Understanding finance and lease options in the context of facility and delivery requirements is critical. Third-party ownership and developer solutions can still work, but creative financing can also support a healthcare provider’s objective.
The question isn’t necessarily “should I buy or sell, lease or own,” but “how do I balance access to capital, operate as a good steward of my organization’s financial position and help fulfill its mission of care?”
Alternative and structured finance capital frequently gives hospitals the chance to balance low cost capital solutions with ownership and control while diversifying sources of funding and minimizing leverage and debt rating impact.
ALTERNATIVE FINANCING SOLUTIONS
Credit Tenant Lease (CTL): 100% financing of real property, structured as an operating or finance lease with a cost of capital approximating the health system’s cost of debt based on its credit rating. A hospital can utilize CTL to finance an owned asset or to reduce the rental rate associated with a third party-owned property. A CTL is flexible for duration of financing, but it commonly executed for 20 to 30 years.
Synthetic Lease: 100% operating lease financing which offers economic ownership and control of any type of real property or equipment.
501c3 Foundation: A not-for-profit conduit for ownership of real estate can offer tax-exempt status for property, allowing a qualifying tenant to avoid real property taxes as well as sales and use taxes.
Navigating complex options to achieve maximum financial performance
The growing complexity of healthcare delivery and changes in reimbursement have challenged healthcare financial executives to execute their missions and strategy. At the same time, there is a diverse and exciting array of financial alternatives available to hospitals today – allowing these executives to extract value from their real estate assets.
It’s a different game than it was 20 or even 10 years ago, and new tools are needed to face these new challenges. Financial advisors to health systems perform a vital role for financial planning and bond underwriting. It is increasingly clear that real estate capital strategists can augment this role in an increasingly beneficial way.
To extract maximum financial benefits, healthcare organizations need an experienced partner to evaluate sophisticated finance options, especially those that accommodate all the unique attributes of healthcare real estate. These professional real estate capital markets organizations can identify a range of available capital sources and can quantify and qualify lease-versus-own decisions. Through a strategic partnership you can execute your plan to ensure the optimal financial outcome with a reliable investor or funding source. With the proper capital finance strategy and the right partner, healthcare leaders can drive a financially secure path forward and thrive in a post-pandemic future.
How can monetization help your organization enhance revenue ? Click here or call +1 872 201 1305
