Real Property Investment

Corporate Finance 101:
How to Maximize Capital Allocation

Surveyed Chief Financial Officers considered financial flexibility to be the most important factor in their decision making. This flexibility is needed to pursue critical business objectives. A hospital has the option of funding with internally generated cash flow or other people’s money. When making real estate project funding decisions, several factors may be considered:

  • Hospital financial flexibility
  • Opportunity cost; seeking highest yielding return (project funding vs. investment in operations)
  • Market strategy
  • Blended cost of capital (debt and equity)

For hospitals, ambulatory medical real estate provides
access to cost-effective institutional equity.

The Fundamental Economics That Drive Our Approach
There are three fundamental factors which generate the cost effectiveness of our ownership structures:

1) through financial structuring we maximize the use of low yield debt relative to high cost equity within the real estate ownership entity;

2) the borrowing by the real estate ownership entity recognizes the superior credit strength of most healthcare providers and hence reduces cost relative to traditional mortgage financing;

3) aggregation and securitization are used to further lower capital costs.

Cash is king - balance sheet strength and cash position
significantly affect healthcare providers strength and flexibility

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