CHS selling off hospitals with combined revenue totaling $1.5 billion
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.