How a Sale-Leaseback of ASC Real Estate Can Eliminate Debt and Increase EBITDA
Ambulatory Surgery Centers (ASCs) are valuable healthcare assets, often delivering high-quality, efficient surgical care in a cost-effective setting. Yet, many physician-owned ASCs carry debt from startup costs, expansions, or equipment purchases. One underutilized financial tool to strengthen their balance sheet and enhance financial performance is a sale-leaseback of their real estate.
What Is a Sale-Leaseback?
In a sale-leaseback transaction, an ASC sells its real estate to a third-party investor, investment firm or real estate investment trust (REIT) and simultaneously signs a long-term lease to remain in the facility. The ASC continues to operate as usual, but now pays rent instead of owning the property.
This arrangement can unlock immediate capital while preserving control of the surgical operations.
Key Financial Benefits:
1. Debt Elimination and Liquidity Generation
For ASCs with real estate equity, a sale-leaseback provides an opportunity to convert an illiquid asset into cash—often without disrupting operations. Proceeds from the sale can be used to:
Pay off existing debt
Buy out partners
Fund expansion
Build cash reserves
If the ASC has significant debt on its balance sheet, using sale proceeds to eliminate that debt immediately reduces interest expense and improves overall financial health.
2. Increased EBITDA
One of the most compelling advantages is the potential increase in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)—a key performance metric used in valuations and private equity transactions.
Here’s how:
Eliminating mortgage interest lowers expenses not included in EBITDA, indirectly improving net cash flow.
Property depreciation, a non-cash expense, disappears from the income statement because the ASC no longer owns the real estate.
Most importantly, rent payments in a sale-leaseback are excluded from EBITDA calculations—unlike mortgage interest and depreciation—so the reported EBITDA actually increases.
Example: Suppose an ASC currently has $500,000 in annual mortgage interest and $200,000 in real estate depreciation. By selling the property and leasing it back at a $500,000 annual rent, the ASC eliminates the interest and depreciation expenses. Rent isn’t deducted when calculating EBITDA, so EBITDA increases by $700,000—even though net cash flow remains similar.
Strategic Implications
More Attractive to Private Equity
Higher EBITDA and a stronger balance sheet can increase an ASC’s valuation—especially when preparing for a private equity sale. Because EBITDA is often multiplied in valuation models (e.g., 6–10× EBITDA), even modest improvements can significantly boost enterprise value.
Reduced Risk and Simplified Ownership.
Physician-owners often prefer to focus on clinical and operational excellence—not property management. Sale-leasebacks can simplify ownership structures and reduce the risks of real estate depreciation, maintenance costs, and future capital expenditures.
What to Consider: While the benefits are compelling, sale-leasebacks are long-term financial commitments. Key considerations include:
Lease Terms: Rent escalations, renewal options, and lease length should be negotiated carefully.
Valuation: Both the sale price of the property and the rent should reflect fair market value.
Tax Implications: Physicians may face capital gains taxes on the sale; however, these may be offset or deferred through tax strategies like a 1031 exchange.
Conclusion: A sale-leaseback can be a strategic financial move for ASC owners seeking to eliminate debt, increase EBITDA, and position the center for growth or a future sale. By unlocking the value of their real estate without disrupting operations, physician-owners can strengthen their center’s financial profile and maximize long-term returns.
If you’re considering a sale-leaseback, it’s essential to engage experienced advisors to evaluate offers, negotiate favorable lease terms, and align the transaction with your strategic goals.
When pursuing a sale-leaseback for Ambulatory Surgery Center (ASC) real estate, it’s critical to work with advisors who understand both healthcare operations and healthcare real estate.