REIT caps quarter with $26.75 million acquisition of Forest Park Pavilion in Dallas
By John B. Mugford
Forest Park Medical Center in Dallas has to be considered one of the biggest success stories when it comes to beating the odds in the world of new hospital development.
That’s because the relatively new hospital, which opened in 2009, is owned by doctors during an era in which the federal government is doing its best to stop the new development of such facilities and the expansion of existing ones. In order to do so, the government added a provision to the Patient Protection and Affordable Care Act (PPACA) that, in effect, denies Medicare and Medicaid reimbursements to any physician-owned hospital developed or expanded after the law’s passage in 2010.
Yet, Forest Park – which has two existing hospitals, four others in development in Texas and several more in planning – is not only surviving, but thriving. It is doing so by accepting only patients who can pay their bills through private insurance, workers’ compensation or out of their own pockets – no Medicare or Medicaid reimbursements.
Healthcare Trust of America Inc. (NYSE: HTA), a publicly listed real estate investment trust (REIT), recently demonstrated its confidence in that private pay model by acquiring a medical office building (MOB) on the campus of Forest Park’s first hospital, about eight miles north of downtown Dallas on the North Central Expressway. The sale closed Dec. 26.
“Our most recent acquisition allows us to expand in the attractive Dallas area, with a leading and fast growing health system focused on the private pay sector of the market,” HTA Chairman and CEO Scott D. Peters said in news release.
“This acquisition brings to a close a successful 2012, in which we acquired $295 million of predominately on-campus MOBs, brought 70 percent of our portfolio under our property management platform and successfully listed on the NYSE.”
Although the Forest Park hospital opened with 24 beds and eight operating rooms (ORs) prior to the passage of the PPACA, it was expanded since then – meaning it bucked the provision of the PPACA. Today, it has 84 beds and 14 ORs. The campus also includes three MOBs, including the one recently acquired by HTA.
HTA paid $26.75 million for the 68,874 square foot Forest Park Pavilion, which was marketed for the seller by a team led by Philip J. “P.J.” Camp, a principal with investment banking firm Hammond Hanlon Camp LLC.
The seller was a partnership of Forest Park and the Dallas-based developer of the building, Neal Richards Group (NRG) and SRP Medical Investments LP. SRP Medical is a real estate investment and development business formerly part of The Staubach Co. NRG develops and handles project management and the leasing of medical office space at the Forest Park hospitals.
Mr. Camp reports that the Forest Park Pavilion is 100 percent master leased by the hospital, with Forest Park occupying about 54 percent; the remainder is housed by other physicians and groups. About 15,000 square feet is available, but that space is subject to the master lease.
According to Mr. Camp, the acquisition helps HTA establish a relationship with a successful, growing hospital entity.
“Forest Park has found a formula by which they are not only successful but are growing despite the fact that physician-owned hospitals cannot receive reimbursements from the federal government,” Mr. Camp says. “They are certainly a good entity for an MOB investor, in this case HTA, to have a relationship with.”
The capitalization (cap) rate, often calculated as a first-year return on an investment, was 7.25 percent, according to Mr. Camp.
“The hospital and its development partners sold the building because they are growing and are looking to reinvest the capital generated from the sale into that growth,” he adds.
Growing indeed. The Forest Park growth plan calls for a number of new physician-owned hospitals being developed in coming years, including ventures outside of its home base of North Texas. Such potential locales include Austin, Texas; Tulsa, Okla.; Albuquerque, N.M.; Little Rock, Ark.; Scottsdale, Ariz.; and others.
The model calls for building medical centers with an approximate price tag of $80 million, 50 to 60 inpatient beds, 400- to 600-space parking garages, and about 80,000 square feet of medical office space, depending on physician demand.
For HTA, the acquisition adds to a portfolio primarily focused on MOBs that, at the end of 2012, totaled 12.6 million square feet of space in 27 states. The value of its properties, based on purchase price, was about $2.6 billion. The portfolio is 91.1 percent occupied and 56 percent of its rent income comes from credit-rated tenants.
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