CHS sell­ing off hos­pi­tals with com­bined rev­enue to­tal­ing $1.5 bil­lion

Modern Healthcare - - NEWS - By Dave Barkholz

Strong buyer in­ter­est, cou­pled with the need to shed $15 bil­lion in debt, is lead­ing Com­mu­nity Health Sys­tems to un­load more hos­pi­tals.

Dur­ing an earn­ings call last week, CHS CEO Wayne Smith an­nounced a plan to sell an undis­closed num­ber of hos­pi­tals that have a com­bined rev­enue of $1.5 bil­lion. The chain ear­lier put 30 other hos­pi­tals on the mar­ket.

So far, CHS has com­pleted the sale of 20 of the 30 hos­pi­tals for which it has agree­ments. It ex­pects to shed about $3.4 bil­lion in an­nu­al­ized rev­enue from those deals and the sale of other as­sets, Smith said, adding that the health sys­tem ex­pects gross pro­ceeds of about $2 bil­lion from the first group of as­sets sold. He said the hos­pi­tal di­vesti­tures will al­low CHS to fo­cus cap­i­tal and man­age­ment re­sources in its higher-mar­gin mar­kets.

Dur­ing the earn­ings call, he said CHS’ eight hos­pi­tals in the Fort Wayne, Ind., mar­ket did well in the sec­ond quar­ter as did those in Tuc­son, Ariz., and Arkansas. Sev­eral Florida hos­pi­tals also showed im­prove­ment in the sec­ond quar­ter, he said.

CHS has been fetch­ing about 12 times EBITDA on its hos­pi­tal di­vesti­tures, a level Smith called solid. The sys­tem’s debt-to-EBITDA ra­tio is one of the high­est among in­vestor-owned hos­pi­tal com­pa­nies at more than 7 times. The di­vesti­ture cam­paign is ex­pected to bring down the ra­tio to about 6 times EBITDA in 2018.

The com­pany, which now owns about 130 hos­pi­tals, posted EBITDA of $435 mil­lion on rev­enue of $4.14 bil­lion in the quar­ter com­pared with EBITDA of $563 mil­lion on rev­enue of $4.59 bil­lion in the year-ear­lier quar­ter.

For hos­pi­tals owned for more than a year, ad­mis­sions in the quar­ter fell 2.5%, rev­enue about 1% and surg­eries 2% from the year-ear­lier pe­riod.

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