The market for the sale and lease back of ambulatory surgery centers is at historically high levels. To get the maximum value out of a piece of real estate, ASC leaders should consider selling and leasing back their property.
Jason Winokur, vice president of J.H. Winokur, Inc., gave a presentation on the topic June 10 at Becker's 14th Annual Spine, Orthopedic and Pain Management-Driven ASC Conference + The Future of Spine in Chicago.
"Many times with selling and leasing back an ASC, nothing changes with the facility's operations — the rent and costs stay the same, the landlord just changes," said Mr. Winokur. "Now is a good time for ASCs to consider a sell and lease-back arrangement, because there are more buyers than sellers in the market."
Highlighted below are five takeaways from Mr. Winokur's presentation.
1. ASCs are desirable for buyers because they tend to be highly profitable, stable businesses with a long-term time horizon.
2. Buyers typically include real estate investment companies, individuals seeking long-term income opportunities, family foundations and real estate investment trusts.
3. Many buyers are looking for the following things in an ASC:
- A track record of profitability
- An NNN lease with no landlord responsibilities
- Leases spanning 10 years or more
- Annual rent bumps of 2 to 3 percent
- ASC-guaranteed leases that don't require personal guarantees on the buyer's behalf
4. In transactions involving the sale and lease back of an ASC, value is determined by the rent. Rent is typically fair market value. That means an ASC with a higher rent price will also typically have a higher sale price.
5. Individuals who sell and lease back an ASC may be able to do a 1031 exchange, which can help shelter the capital gained on taxable income. In a 1031 exchange, the taxes are deferred through the purchase of a similar, or "like kind," property, such as an income-producing apartment, office space or retail location.
More articles on transactions and valuation:
Hospital/physician ASC joint ventures on the rise — here's why
Tenet bonds up 1.4%: 5 observations
3 new joint venture ASCs — May/June 2016