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CHICAGO ─ Hospitals and health systems can reap significant short- and long -term operating and financial benefits by proactively addressing their real estate strategies as a part of the merger and acquisition (M&A) process. With the dramatic consolidation of healthcare providers expected to continue unimpeded for the foreseeable future, the opportunity to reduce cost by turning to real estate portfolio optimization has never been better – or the need greater.
After dwindling in 2009 to its lowest level of this decade, hospital M&A activity rebounded sharply last year. According to Irving Levin and Associates, in 2011 the total number of transactions increased to 86, an 11.7 percent increase from the 77 transactions completed in 2010 and a 63.4 percent increase from the 52 transactions completed in 2009. While the dollar value of transactions was down, the total value of the 86 mergers in 2011 was approximately $7.9 billion. Given the ongoing issues of reform and consolidating underway in the industry, merger and acquisition activity in 2012 is expected to remain above average.
While this trend continues, the importance and value of the associated real estate is often overlooked during the M&A process, according to the Healthcare Solutions group at Jones Lang LaSalle. Hospital executives tend to focus on the fundamental business strategies driving M&A, with real estate as a secondary issue. Yet property, plant and equipment typically account for about half of the assets on hospital balance sheets. Clearly, a more proactive approach to addressing real estate issues before, during and after M&A transactions offers many advantages.
“The benefits of proactive, integrated real estate analysis and planning quickly become evident after M&A transactions close,” said Mindy Berman, managing director of the Healthcare Capital Markets group at Jones Lang LaSalle. “The real estate analysis conducted during the pre-transaction stage can often facilitate ‘quick wins’ – short-term strategic moves that pay almost immediate dividends.” Those moves can include the disposition of surplus properties and leases to generate cash; operating audits to wring cost-saving efficiencies from real estate portfolios, leases and procurement; and the release of cash from the balance sheet through the sale of surplus buildings and land, and through sale-leasebacks.
“Longer term, there is also an opportunity to rationalize the entire real estate portfolio through a comprehensive, strategic analysis,” Berman added. “This can yield benefits derived from portfolio rightsizing, improved operations and the further release of equity through additional real estate transactions.”
Ultimately, this transition phase should culminate in the complete alignment of real estate with the overall organizational strategy. By the time the M&A process reaches its final stage – implementation of the long-term business strategy – the real estate will have played a pivotal role in both the short- and long-term financial and operational success of the consolidation.
M&A transactions open thedoor to numerous real estate-related opportunities, such as:
Organizational improvements from the centralization of administrative services and processes
Capital release through sale, or monetization, of non-core real estate assets
Reduced costs and increased efficiency from leveraging the size and scale of shared services
Environmental benefits and expense savings through improved energy management
Assurance of regulatory compliance through a careful evaluation of hospital real estate practices
“The hospital M&A process offers substantial potential to eliminate duplication of services, confirm organizational commitments to real estate operating costs in leases and contracts, improve efficiencies, and create additional value and capital through a systematic approach to managing and operating real estate,” Berman concludes.“By focusing on real estate early in the deal-making process, health systems have an exceptional opportunity to capture many benefits.”
Jones Lang LaSalle’s Healthcare Solutions Group works with hospitals and healthcare providersthroughout the nation delivering program management, strategic consulting, financial strategy, transaction and sustainability advisory services and facilities and property management. Through its work, the Healthcare Solutions group drives efficiencies and enhances quality through the unrealized potential of real estate assets and infrastructure.
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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47.7 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.
