The hospital sector staged a strong showing in February, with 11 transactions recorded thus far. The month’s total beat January’s four deals, and was even higher than December 2015’s nine transactions.
Unfortunately, bankruptcy proceedings provided the catalyst for four of February’s hospital deals, and we’re sure to see more in the year ahead. Last year, at least 11 hospital deals involved a bankrupt facility, so four already on the books in 2016 doesn’t seem to bode well.
Prices for the hospitals reached $96.2 million, which was what HCA North Texas (NYSE: HCA) paid for Forest Park Medical Center at Frisco, a 54-bed hospital that is part of the failing, physician-owned chain in Texas. Sabra Health Care REIT (NASDAQ: SBRA) paid $119.8 million for the real estate back in October 2013, then the hospital sought Chapter 11 bankruptcy protection in September 2015. HCA North Texas is the Irving-based arm of Hospital Corporation of America. It operates 15 hospitals and more than 50 ambulatory care sites in the state.
Another physician-owned hospital, Doctors’ Hospital of Michigan, in Pontiac, was sold to Sant Partners, LLC, a family-owned private equity firm based in Austin, Texas. The 47-bed for-profit filed for Chapter 11 bankruptcy protection in July 2015, after surviving a similar filing in 2008, when it was known as North Oakland Medical Center. Sant Partners will write off its previous $1.5 million emergency loan that it made to Doctors’ Hospital in 2015 to keep the facility running, as well as some $13 million of debt.
The other two hospitals are in Kentucky, Westlake Regional Hospital in Columbia, and New Horizons Medical Center in Owenton. Both were acquired by local healthcare systems for nominal prices. T.J. Regional Health in Glasgow, Kentucky paid $3.3 million for Westlake Regional, which has 49 beds dedicated to acute-care patients and 24 to psychiatric patients. T.J. Regional is in talks with a psychiatric group regarding the latter beds.
St. Elizabeth Healthcare, a six-hospital system in Edgewood, Kentucky, acquired the 25-bed New Horizons Medical Center, which filed for Chapter 11 bankruptcy protection in May 2015. In 2014, it posted operating revenue of $8.7 million, but only $25,254 in EBITDA for the year. St. Elizabeth agreed to pay $600,000, and Health Point Family Care, a physician medical group based in Covington, will pay $50,000 to acquire the hospital jointly. St. Elizabeth also agreed to make an initial investment of more than $350,000 for repairs and upgrades.
It’s unusual to see so many bankruptcy sales in one month, but they may become more routine. In the first week of March, another of the Forest Park Medical Centers, this one in San Antonio, Texas, was sold at a foreclosure auction for $58 million, less than two-thirds of its assessed value, according to a local business journal. We’ll have more coverage of 2015’s hospital sales in the 22nd edition of The Health Care Services Acquisition Report, publishing soon.
