‘We can pro­vide al­most un­lim­ited amounts of cap­i­tal’ to help health sys­tems grow

Modern Healthcare - - Q & A -

Since 1999, De­bra Ca­faro has served as CEO of Chicago-based Ven­tas, one of the coun­try’s largest health­care-fo­cused real es­tate in­vest­ment trusts. She be­came chair­man in 2003. Ven­tas had $3 bil­lion in rev­enue in 2014, with a port­fo­lio that in­cludes se­nior hous­ing, med­i­cal of­fice build­ings and spe­cialty hos­pi­tals. The com­pany en­tered the acute-care hospi­tal space this year when it ac­quired Nashville-based Ar­dent Med­i­cal Ser­vices in a $1.75 bil­lion trans­ac­tion. Ven­tas will sep­a­rate Ar­dent’s hospi­tal op­er­a­tions from its real es­tate but con­tinue to own a 9.9% stake in the new op­er­at­ing com­pany. At the same time, Ven­tas spun off its skilled­nurs­ing-fa­cil­ity as­sets into a sep­a­rate com­pany, Care Cap­i­tal Prop­er­ties, a pub­licly traded post-acute care REIT. Mod­ern Health­care reporter Beth Kutscher re­cently spoke with Ca­faro about the strat­egy be­hind those trans­ac­tions, Ven­tas’ plans for ex­pan­sion and the out­look for the health­care REIT sec­tor. This is an edited tran­script.

Mod­ern Health­care: What is the strat­egy be­hind Ven­tas’ re­cent spinoff of its skilled­nurs­ing-fa­cil­ity as­sets and its en­trance into the hospi­tal real es­tate mar­ket?

De­bra Ca­faro: We were very for­tu­nate this year to ac­quire a top 10 hospi­tal sys­tem in Ar­dent Med­i­cal Ser­vices. Ven­tas is the lead­ing cap­i­tal provider to the health­care industry via own­er­ship of real es­tate. Our strat­egy is to part­ner with lead­ing health­care providers in mul­ti­ple seg­ments and pro­vide cap­i­tal to help them ac­com­plish their strate­gic goals and ful­fill their mis­sion. We are at­tracted to the hospi­tal sec­tor for a lot of rea­sons—size, cap­i­tal in­ten­sity and that it is the cen­ter of the de­liv­ery sys­tem. We are very ex­cited to break into this space with a qual­ity provider like Ar­dent.

MH: Do you see this as the be­gin­ning of build­ing a hospi­tal plat­form?

Ca­faro: Ab­so­lutely. Our game plan is to help Ar­dent grow by pro­vid­ing cap­i­tal to them to ac­quire other hos­pi­tals that they can add to the fold.

MH: So you plan to make the ac­qui­si­tions through Ar­dent as op­posed to do­ing more sale/lease­back trans­ac­tions?

Ca­faro: We can do both. It’s ex­cit­ing that we have en­tered a seg­ment where the real es­tate op­por­tu­nity is over $300 bil­lion in value. It is highly frag­mented, there are a lot of cap­i­tal needs, and it is con­sol­i­dat­ing. We would also iden­tify other hospi­tal sys­tems, both for-profit and not-for-profit, where we could do sale/lease­back trans­ac­tions and keep their man­age­ment team in place. So we have two ways to grow this busi­ness.

MH: Have you found that there is more ac­cep­tance among not-for-prof­its of part­ner­ing with REITs?

Ca­faro: Yes. We have been work­ing on this for a decade. Ven­tas and Lil­lib­ridge Health­care Ser­vices (a REIT Ven­tas ac­quired in 2010 that operates as a sub­sidiary) have been serv­ing not-for­profit sys­tems for over 25 years in the med­i­cal of­fice and out­pa­tient sec­tors. We are find­ing much more in­ter­est in ex­plor­ing non­tra­di­tional ways that high-qual­ity sys­tems can ful­fill their mis­sions. We think we can pro­vide al­most un­lim­ited amounts of cap­i­tal to en­able th­ese or­ga­ni­za­tions to grow, to con­sol­i­date and, ul­ti­mately, to be­come more ef­fi­cient and bet­ter serve their com­mu­ni­ties.

MH: A lot of care is mov­ing into out­pa­tient. How do you see that evo­lu­tion go­ing and how do you see your abil­ity to profit from it?

Ca­faro: We be­lieve that part of bend­ing the cost curve will be treat­ing pa­tients in the low­est-cost, clin­i­cally ap­pro­pri­ate set­tings, which in many cases may be an out­pa­tient set­ting. But at the same time, we would hope to pro­vide cap­i­tal to as­sist hos­pi­tals to own both in­pa­tient and out­pa­tient and cap­ture an in­te­grated mar­ket. We would own the real es­tate, and that real es­tate would op­er­ate in a syn­er­gis­tic way. The out­pa­tient set­tings can be feed­ers for the high-qual­ity hospi­tal sys­tem. We can help hos­pi­tals build mar­ket share by ac­quir­ing other hos­pi­tals and work­ing through ca­pac­ity is­sues.

MH: How does the spinoff com­pany you cre­ated, Care Cap­i­tal Prop­er­ties, give you ad­di­tional flex­i­bil­ity?

Ca­faro: The strat­egy is to cre­ate two faster-grow­ing com­pa­nies with dif­fer­en­ti­ated strate­gies.

“The Af­ford­able Care Act and re­lated health­care re­form has been a net pos­i­tive for our busi­ness.”

Care Cap­i­tal will be fo­cused on the skilled-nurs­ing busi­ness with lo­cal and re­gional providers. It’s an ex­ter­nal rollup strat­egy for that sec­tor. We think there is a gap in the mar­ket, both on the REIT side as well as on the cus­tomer side, and that Care Cap­i­tal will be well-po­si­tioned with a good bal­ance sheet to help that co­hort of providers grow by pro­vid­ing cap­i­tal.

Ven­tas, on the other hand, im­proved the qual­ity of our port­fo­lio. We fo­cused on do­ing this with the na­tion’s lead­ing op­er­a­tors in ev­ery sec­tor—hos­pi­tals, post-acute and se­nior liv­ing. We have in­creased our in­ter­nal growth rate. And we have main­tained the abil­ity to serve across the con­tin­uum of care by en­ter­ing the hospi­tal space with Ar­dent, while keep­ing our post-acute busi­ness with the lead­ing providers like Kin­dred and Ge­n­e­sis and HealthSouth, and hav­ing this out­pa­tient and med­i­cal of­fice build­ing busi­ness. All of th­ese over time will work to­gether.

MH: Has the skilled-nurs­ing busi­ness be­come more chal­leng­ing, given the pay­ment cuts and over­billing in­ves­ti­ga­tions?

Ca­faro: The post-acute busi­ness is an in­te­gral part of the de­liv­ery sys­tem. It goes through ups and downs, but it’s here to stay. While we re­duced our in­vest­ment in the skilled­nurs­ing busi­ness through the spinoff to the tune of about $4 bil­lion of as­sets, we want to keep this con­tin­uum of care within the port­fo­lio as th­ese high-qual­ity providers can start to work more and more to­gether with hos­pi­tals and physi­cians.

MH: Are you con­sid­er­ing of­fer­ing value-added ser­vices to the op­er­at­ing com­pa­nies, such as a group pur­chas­ing or­ga­ni­za­tion?

Ca­faro: We help our cus­tomers achieve some ben­e­fit from our scale in terms of pur­chas­ing and we are likely to pur­sue that even more ag­gres­sively.

MH: How do you see your in­vest­ment mix over the next cou­ple of years?

Ca­faro: We will build a lead­ing busi­ness in the hospi­tal space over the com­ing years. We hope to do that with Ar­dent, as well as with other qual­ity hospi­tal and health­care sys­tems. I hope that seg­ment of our port­fo­lio grows. There may be some op­por­tu­ni­ties in post-acute that would be very se­lec­tive.

MH: How has health­care re­form af­fected the industry?

Ca­faro: The Af­ford­able Care Act and re­lated health­care re­form has been a net pos­i­tive for our busi­ness. Hos­pi­tals have been the great­est ben­e­fi­cia­ries. Posta­cute providers have not yet got­ten the same sig­nif­i­cant ben­e­fits. But on the whole, the ACA is a net pos­i­tive for our busi­ness.

MH: What will be the im­pact on your com­pany and other REITs when the Fed­eral Re­serve raises in­ter­est rates, since REITs have ben­e­fited from a low-in­ter­est rate en­vi­ron­ment?

Ca­faro: We are in an ex­cit­ing phase when we will con­tinue to see incredible growth in the op­por­tu­ni­ties we have. There are al­ways sources, such as in­ter­est rates, that cause you to change the tac­tics you may use. Right now, I think you will con­tinue to see a very mod­est in­ter­est rate en­vi­ron­ment. That will con­tinue to be sup­port­ive of our busi­ness.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.