UGHS enters Dallas market with acquisition of second
core hospital
By Steven Ralston, CFA
Today
University General Health System
(
UGHS
)
announced the acquisition of the South Hampton Community
Hospital, a 111-bed, 270-physician facility located in Dallas,
Texas. Of the $30 million purchase price, $28.5 million will be
financed by Houston National Bank through a 4.25% 10-year
installment promissory note. The transaction, which is expected
to close by year-end 2012, is anticipated to add at least $40
million in revenue and $15 million in adjusted EBITDA in calendar
2013, implying only a two year payback on adjusted EBITDA.
To read our full research report on University General Health
System, download it here:
Zacks Reaffirms Recently Raised Price Target of
$0.90
Entrance into Dallas Market:
The acquisition marks University General's entrance into the
company's second market and the further execution of management's
acquisition strategy with another core hospital. We expect the
company to pursue the same strategy in Dallas as in Houston. The
hospital will be upgraded with at least $1.0 million in capital
improvements in order to enable the capability of providing
concierge healthcare services. Importantly,
South Hampton Community Hospital will be rebranded as
University General Hospital - Dallas
. The acquisition also includes a 22,000 square foot medical
office building, which currently is approximately 55% occupied.
Over time, University General should be able to improve the
occupancy rate.
At some point, we expect the hospital serve as an anchor hub
to several HOPDs (Hospital Out Patient Departments), which will
enhance the offering of healthcare services and leverage the cost
infrastructure of the Dallas system. In Houston market,
University General has been extremely active in recent months by
acquiring new facilities as HOPDs, namely 1960 Digital Imaging,
three clinics at the Kingwood Diagnostic and Rehabilitation
Center, the Robert Horry Center for Sports and Physical
Rehabilitation Center and the sleep and imaging center in
Baytown. Adding facilities as new HOPDs has multiple benefits,
including driving incremental revenue growth, achieving economies
of scale, boosting average daily inpatient census and often
improving the company's overall payer mix. Thus, the acquisition
of South Hampton Community Hospital advances the company's
acquisition strategy by developing another system of healthcare
facilities in a second metropolitan market and operating under
the University General brand.
University General Expects To Turnaround South Hampton
Community Hospital.
The South Hampton Community Hospital has undergone two
bankruptcies in the past decade and, according to University
General's management, has "had some challenges, multiple
management companies that have failed." South Hampton Community
Hospital also received an "F" for safety from the
Washington-based Leapfrog Group last week. Once the acquisition
is consummated, University General plans to launch safety and
quality improvements. South Hampton Community Hospital offers
services similar to those at University General Hospital in
Houston. The Dallas hospital specializes in orthopedic and
cardiac surgery as well as urology, ear-nose-and-throat (ENT),
general medicine and bariatrics. In particular, University
General Hospital in Houston has received national recognition for
distinction in bariatric surgery from Blue Cross and Blue Shield
of Texas. At the company's initial core hospital in Houston,
University General
provides concierge service, and we would expect the company to
bring that level of service to University General Hospital -
Dallas.
We reaffirm our Outperform rating and price target of $0.90,
which incorporates the significant positive revenue and EBITDA
surprises into our valuation models, which are based on the
company attaining first quartile valuation metrics of
price-to-sales and enterprise value-to-EBITDA.
For additional research on small-cap stocks, please visit
scr.zacks.com.
To become a subscriber to Zacks SCR and receive SCR blogs
and research reports emailed directly to your inbox, please visit
our
Subscribe page.
UNIVTY GEN HLTH (UGHS): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research