Selling a Healthcare Business with Real Estate:
When a healthcare business goes to market, one of the most complex variables to navigate is real estate ownership. Whether the business owns its facilities outright, leases them from a related property company, or pays rent to an independent landlord, real estate can significantly impact valuation, deal structure, and negotiations with potential buyers.
In healthcare—where facilities like medical offices, skilled nursing centers, assisted living communities, or outpatient clinics are core to operations—the handling of real estate can make or break a transaction. Investors, private equity firms, and strategic buyers often scrutinize not just the performance of the operating company but also the sustainability and terms of its property arrangements.
At Acquire.Care, this is our specialty. If you’re thinking about selling, reach out at jake@acquire.care. It’s what we do.
This article explores the intricacies of selling a healthcare business that owns property, walking through different ownership scenarios, financial reporting considerations, and deal structuring options, while highlighting how metrics such as EBITDA, EBITDAR, and market rent adjustments come into play.
Why Real Estate Matters in Healthcare Transactions
Real estate in healthcare isn’t just a backdrop—it is often integral to how care is delivered. Skilled nursing facilities, rehab centers, and ambulatory surgery centers rely on specialized build-outs, medical infrastructure, and proximity to patient populations. Buyers want confidence that the facilities will remain available, appropriately priced, and in compliance long after the transaction closes.
Key reasons why real estate is a critical piece of the puzzle:
Operational stability: Continuity of facilities ensures patient care is uninterrupted.
Regulatory considerations: Some facilities are tied to licensure, certificate of need (CON) approvals, or Medicare/Medicaid reimbursements.
Financial implications: Rent, depreciation, and property ownership directly impact cash flow and EBITDA.
Exit optionality: A seller may monetize the real estate separately, bundle it into the operating company’s sale, or retain it as a long-term income stream.
Scenario 1: Business and Real Estate Are Owned Together
In this scenario, the healthcare company owns both the operating entity and the physical real estate (e.g., a corporation owns a skilled nursing facility and the building it operates in).
Pros of Selling Together
Clean transaction: Buyer acquires both the operating company and its facilities in one deal.
Financing leverage: Lenders often view real estate as a hard asset, which can improve financing options.
Control: Buyer avoids landlord risk and has flexibility in future facility improvements or expansions.
Cons of Selling Together
Higher price tag: Combining real estate with operations raises the deal size, potentially narrowing the pool of buyers.
Tax implications: Sellers may face different capital gains treatment depending on how the property is held.
Reduced flexibility: Seller forfeits the opportunity to keep real estate as a passive income stream.
Valuation Considerations
When real estate is included in the sale, valuation involves two parallel components:
Enterprise Value (EV) – based on EBITDA multiples of the healthcare business.
Real Estate Value – typically appraised separately, often using a capitalization rate (cap rate) applied to the rental income the property could generate at market rates.
Buyers often negotiate by backing into what rent would be if the property were leased and adjusting EBITDA accordingly.
Scenario 2: Real Estate Held in a Separate Property Company
It’s common in healthcare for owners to split the business into two entities:
OpCo (Operating Company) – runs the healthcare business.
PropCo (Property Company) – holds the real estate and leases it to the OpCo.
This arrangement is popular for liability and tax reasons, and it gives owners flexibility when selling.
Path A: Selling Both Entities Together
Buyer acquires both OpCo and PropCo.
Valuation follows the same principles as Scenario 1, but legal structuring requires careful diligence.
Path B: Selling Only the OpCo (Retaining Real Estate)
Buyer acquires the healthcare business but leases the property from the seller (now landlord).
Seller retains long-term rental income, often with a 10–15 year triple-net lease (NNN).
Attractive to buyers who prefer smaller check sizes, and to sellers who want recurring cash flow post-exit.
Path C: Selling Only the PropCo (Keeping the Business)
Less common, but sometimes the owner sells real estate to a REIT (Real Estate Investment Trust) or investor while retaining operations. This is known as a sale-leaseback. It unlocks capital tied up in real estate while keeping control of the business.
Scenario 3: Market Rent Already in Place
When the healthcare operating company already pays market rent (whether to a third-party landlord or a related PropCo), the P&L reflects normalized expenses.
Why This Matters
EBITDA—the most widely used metric in healthcare deals—excludes interest, taxes, depreciation, and amortization but includes rent.
If rent is already set at market levels, there’s no need for “pro forma” adjustments.
Buyers can underwrite EBITDA as-is, confident it reflects sustainable operating cash flow.
This scenario creates clean lines between operations and property, which buyers tend to favor.
Scenario 4: Below-Market or Above-Market Rent
When the current rent is not aligned with market rates, adjustments are essential:
Below-market rent: EBITDA may be artificially inflated. Buyers will adjust down by imputing market rent.
Above-market rent: EBITDA may be suppressed. Buyers adjust upward to normalize P&L.
For example, if a nursing home pays $30,000/month rent to a related PropCo but market rent is $45,000/month, a buyer will reduce EBITDA by $15,000/month (or $180,000 annually) before applying valuation multiples.
Scenario 5: Sale-Leaseback During or After a Transaction
In some deals, especially private equity roll-ups, the buyer or seller may execute a sale-leaseback: selling the property to an investor or REIT and leasing it back.
Benefits
Unlocks real estate value for the seller.
Reduces upfront capital required for the buyer.
Establishes a long-term lease that secures operational stability.
Risks
Long-term rent obligations may reduce future profitability.
If rent escalations are aggressive, they may strain cash flow.
Metrics at Play: EBITDA vs. EBITDAR
Valuation in healthcare transactions almost always starts with EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), but in facility-based care, EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent) is equally important. The difference comes down to how rent is treated.
EBITDA
Includes rent as an operating expense.
Useful when the business already pays market rent—the P&L reflects sustainable operations.
Multiples (e.g., 6x–8x) are applied directly to EBITDA to calculate Enterprise Value.
Example:
EBITDA = $2M with rent already at market levels.
Valuation at 7x = $14M.
EBITDAR
Excludes rent by adding it back to EBITDA.
Normalizes performance across businesses regardless of whether they own or lease real estate.
Commonly used when:
Rent is paid to a related PropCo at below- or above-market levels.
The company owns its real estate outright and pays no rent.
Example:
Reported EBITDA = $4M (no rent).
Market rent estimate = $1.2M.
EBITDAR = $5.2M.
For valuation: Adjusted EBITDA = $4M (after subtracting market rent). Buyer applies 7x = $28M. Property valued separately at $12M.
Rent Coverage Ratios
Lenders and REITs often analyze EBITDAR ÷ Rent to test financial health.
Coverage > 1.3x–1.5x = healthy.
Coverage < 1.2x = risk of rent strain.
Example:
EBITDAR = $5M, Rent = $1.5M → Coverage = 3.3x (strong).
Real-World Example: Skilled Nursing Facility
Scenario A: Facility owns its building outright. EBITDA = $2M. Buyer values business at 6x = $12M. Property valued separately at $8M (cap rate approach). Deal size = $20M.
Scenario B: Facility pays below-market rent to PropCo ($200k less annually than market). EBITDA shows $2M, but adjusted EBITDA = $1.8M. At 6x = $10.8M. Buyer negotiates lower price unless rent terms are reset.
Scenario C: Sale-leaseback executed. Facility sells property for $8M to REIT, signs NNN lease at $800k/year rent. Seller nets real estate proceeds but EBITDA drops accordingly.
Key Deal Questions Sellers Should Ask
Do I want to sell my business and my real estate together, or separately?
If separately, what is the market rent, and how will that impact EBITDA and valuation?
Would a sale-leaseback maximize value, or burden the business with high fixed costs?
How do tax implications differ between selling an operating entity and selling property?
Does my target buyer (PE vs strategic vs REIT) have a preference for owning or leasing?
Strategic Considerations for Buyers
Private Equity Buyers: Often prefer OpCo-only transactions, leaving real estate to REITs or the seller. They prioritize cash-on-cash returns and scalability.
Strategic Buyers: May want both business and property for long-term integration.
REITs and Real Estate Investors: Typically focus only on PropCo, often in tandem with PE buyers.
Conclusion
Selling a healthcare business with real estate requires more than standard M&A preparation. The interplay of ownership structures, rent normalization, EBITDA vs. EBITDAR adjustments, and cap rate-driven valuations creates multiple transaction pathways.
Sellers who thoughtfully evaluate whether to bundle or separate their property, normalize rent, and anticipate buyer preferences are far better positioned to maximize value.
At the end of the day, you don’t have to navigate this alone. Reach out at jake@acquire.care to get expert guidance on how to structure your exit and maximize both business and property value. It’s what we do.
Ultimately, the decision comes down to a seller’s goals: a clean exit, a steady rental income stream, or a hybrid that balances liquidity with long-term ownership. In healthcare—where facilities aren’t just buildings but the very foundation of care—those decisions shape not only financial outcomes but the future of the business itself.
If you’re considering selling your healthcare business, start the conversation today. jake@acquire.care is the best resource to ensure you explore every option and come to the table with confidence.
