July 7, 2015
Mike Hargrave

Ventas – Ardent Deal – Premium Price for a Premier Portfolio? – Part 2

Part one of this post established comparative pricing for the Ventas/Ardent hospital real estate deal compared to Revista’s industry averages. We established that Ventas is paying a slight premium (compared to industry averages) for the Ardent portfolio. Part 2 will look at the product Ventas is buying – to determine the quality of the real estate and operations. Hopefully we can align the quality of this portfolio with the price Ventas is paying for it!

Ventas has announced they will own ten high-quality hospitals (and related real estate) operated by Ardent under the names BSA Health System in Amarillo, Texas, Hillcrest HealthCare System in Tulsa, Oklahoma and Lovelace Health System in Albuquerque, New Mexico. These assets include acute care, heart, rehab and women’s health hospitals, comprising approximately 3.2 million square feet and 2,045 beds. Ventas has not announced the names and addresses of these properties (as of yet) but we can reasonably determine which properties they are buying and thus assess the quality of the portfolio.

Before we get started, we should note that Ventas is not buying the entire portfolio that Ardent Health Services operates.

Hillcrest Health System, Tulsa OK

Oklahoma Heart

Oklahoma Heart Institute

Ardent purchased Hillcrest health system in 2004 for roughly $281.2 million. According to this case study, Ardent purchased the cash strapped system in 2004 and brought in much needed capital to fuel growth and investments. Since the purchase, Ardent has invested more than $362 into the Hillcrest Health System. Hillcrest operates the Hillcrest Medical Center (HMC), a 691 bed licensed general acute care hospital. HMC is the number 3 hospital in Tulsa (in terms of patient days and number of staffed beds; source CMS) but among competing hospitals, HMC, along with the Hillcrest Hospital South generate the highest revenue per patient day in the Tulsa market. Ardent has invested over $100 million into HMC to expand programs and services. In 2009, Ardent invested $69 million to build the Oklahoma Heart Institute, a 104 bed hospital dedicated exclusively to heart care. This hospital is located on the HMC campus in addition to several medical office buildings (MOBs) which Ardent owns and we assume Ventas is buying. Suffice to say, the Ardent/Hillcrest merger has resulted in a very strong health system positioned for future growth.

Lovelace Health System, Albuquerque NM

In 2001, Ardent formed the Lovelace Health System among competing, struggling hospitals. Ardent paid $211 million in 2001 and has invested $351 million in capital investments since then. Ardent’s holdings in Albuquerque include the Lovelace Medical Center, which is (like HMC) the number 3 hospital in the market but generates that highest revenue per patient day among the general acute care facilities in Albuquerque. Ardent also owns the Lovelace Women’s Hospital which features a 53-bed Level III Neonatal Intensive Care Unit, 24/7 emergency department, 16 labor and delivery rooms, a 41-bed Mother-Baby unit, and a Maternal-Fetal Medicine program for high-risk pregnancies. Ardent also owns

Lovelace Westside Hospital

Lovelace Westside Hospital

and operates the Lovelace Westside hospital, an 80 bed hospital that underwent a $27 million renovation that brought a new birthing center and expanded ER access.  Lovelace includes, and Ardent owns, the Heart Hospital of New Mexico and the Lovelace Rehabilitation Hospital. Like Hillcrest, Ardent’s continued investments into Lovelace have created a thriving health system.

BSA Health System, Amarillo, TX

In 2013, Ardent purchased 80% of Baptist St. Anthony’s Health System (BSA) through a joint venture formed with Baptist Community Services of Amarillo. Ardent purchased a JV interest in BSA, a system with a strong financial position who wanted a partner to grow with. This system includes the Baptist St. Anthony’s Hospital, which is the dominant hospital in Amarillo boasting a market share of roughly 56% of patient days

Baptist St. Anthony's Hosptial

Baptist St. Anthony’s Hosptial

(source, CMS).  The system also includes 2 surgical hospitals (which investors generally pay higher prices per bed and square foot for) and the Harrington Cancer Center, which is slated for a $25 million expansion to start later this year.

Taken as a whole, it is easy to see why Ventas and Ardent are excited about this strategic deal. In our view, this transaction creates a platform for future growth into sector that requires extensive capital to meet the challenges of an evolving healthcare delivery system.