ECG was engaged to render an opinion on the fair market value (FMV) of a hospital joint venture (JV).
Under the proposed JV, a new campus would be built and jointly operated by the owner of a California hospital (CH) and a new JV partner. In order to comply with California seismic requirements by 2030, all buildings on the CH’s existing campus would require at least some renovation in order to continue operating. ECG accounted for these renovations in valuing the contribution of CH’s existing business.
The parties planned to enter into a JV centered on the development of a new campus 10 miles north of the CH’s existing campus, and would jointly invest in the new campus through the contribution of capital and cash. ECG was asked to determine the contribution amount for the CH owners.
To accomplish this, we performed a valuation of the existing business in order to determine the value of the CH that is being contributed to the JV. Given that the CH’s existing facilities required substantial investment to remain compliant with California seismic code—estimates to retrofit ranged from $150 million to $660 million—ECG performed a construction phasing analysis and a review of the CH’s $150 million seismic upgrade budget. The analysis resulted in a low-end estimate of $210 million for a phased, five-year seismic upgrade to the CH campus. We prepared two scenarios to incorporate the construction costs into the FMV analysis: one based on the CH’s capital budget for a more encompassing rebuild of the existing campus and another based on our review of the high-level minimal seismic-upgrade budget. The forecasts in each scenario reflected the impact to operations caused by construction and were weighted to reflect the cost a market participant would likely incur in bringing the campus up to code.ECG prepared multiple retrofit scenarios to illustrate how value would change if certain nonoperating items were removed from the original value or if cash flows prior to a certain period were not considered. The client and JV partner utilized ECG’s report to set the purchase price.
The client and JV partner utilized ECG’s report to set the purchase price.
