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Valuation for Clinics

Valuation for clinics: the importance of operating ratios

Longer life expectancy makes clinics a crisis-resistant product. Since healthcare facilities are monovalent real estate assets, the valuation of a clinic is primarily based on an analysis of its business and operating ratios. The sector is also highly regulated, which requires strong legal knowledge. 

The market is characterised by strong demand: investors see clinics as alternative and secure assets in a highly regulated sector.

  • 5.25 %

    This is the prime return on clinical assets in France outside Paris

  • 353

    This is the number of health establishments in France

  • 6 to 12 %

    of sales: average rental effort rate for well-managed clinics

2018 - BNP Paribas Real Estate Valuation France

The key to operational profitability

Interview with Philippe Rebotton, real estate valuer specialised in clinics real estate assets at BNP Paribas Real Estate - Valuation. Discover our expertise in valuing this monovalent asset.

Our expert weighs in

Philippe Rebotton

Real estate valuer specialised in clinic assets

What are the characteristics of clinic real estate assets?

The clinical real estate asset is a product that resists crises: with longer life expectancies, there are always more people to be cared for. The sector is also highly regulated, which requires strong legal knowledge. This asset type also tends to change: With a view to controlling healthcare costs, the French public authorities are encouraging the development of outpatient interventions. A new clinic will therefore have less accommodation space. Finally, detailed analysis of operating ratios is critical to the valuation of clinical real estate assets.

 

What are the market trends?

The health real estate market is currently characterised by a predominance of unit asset acquisitions rather than portfolios. There is also less outsourcing, and transactions between investors.

Due to the consolidation of healthcare institutions, investors' interest in healthcare real estate is hampered by a lack of products. The result is an increase in the transfer prices of private hospitals. Premium "returns of around 5% are observed in this market. There is also a decline in the private sector's market share in favour of hospitals, particularly in less profitable sectors such as obstetrics. The most profitable activities remain dialysis and chemotherapy.

 

What are investors' expectations?

Investors are institutional investors, SCPI, OPCI, Listed companies (SIIC) and real estate funds. They are looking for secure operations, which they obtain through firm nine-year leases (in France). As the market is tight, with a lower supply than demand, the clinic asset is attractive. For investors, it is seen as a means of diversifying wealth. As a result, investors are often involved in the construction of new clinics or in the context of mergers.

What are the main valuation criteria for a clinic?

Healthcare institutions are monovalent real estate assets. Analysis of operating ratios is important in valuing clinics. The objective is to assess the risk on real estate and the level of bearable rent.

Number and duration of stays

These are hospitalisations

Revenue excluding medical acts

Private room or companion fees

Turnover per practitioner

The fees of each physician

Expense items

For example, personnel costs per specialty

Effective profitability of the clinic

Margin rate, financial profitability

In order to estimate the value of a clinic, a medico-surgical centre, a maternity hospital or a dialysis centre, it is important to understand and analyse its functioning and assess its operating profitability, which is closely linked to the rental charge. Many other ratios can be taken into account to value a health care institution, such as the rate of turnover in ambulatory care, the number of examinations and scans, the average age of the doctors in the institution and their reputation, etc. The most secure products according to these criteria are generally new clinics managed by national or international groups that are well established locally.

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