April 6, 2015 / 11:25 AM / 2 years ago

Ventas buys private hospital chain for $1.75 billion

(Reuters) - Ventas Inc, a healthcare real estate investment trust, is buying Ardent Medical Services Inc for $1.75 billion to expand its hospitals business at a time when more Americans are seeking healthcare services under the Affordable Care Act.

Ventas’ shares rose as much as 6 percent on Monday after the company also said it would spin off its portfolio of skilled nursing facilities.

Privately held Ardent runs 14 hospitals in the United States, with most of them in Texas, Oklahoma and New Mexico — states where enrollments in federal health insurance programs have been high.

U.S. hospitals are getting a stronger-than-expected benefit from an influx of low-income patients whose bills are paid by the government’s Medicaid program.

The $1 trillion U.S. hospital market is also benefiting from increasing emergency room visits and an aging population, Ventas said in a statement.

Ventas said the Medicare Payment Advisory Commission has recommended a 3.25 percent increase in Medicare reimbursement rates to service providers for acute-care services for fiscal year 2016.

Nashville, Tennessee-based Ardent’s 10 hospitals in Texas, Oklahoma and New Mexico are expected to account for 6 percent of Ventas’ net operating income after the acquisition, Chief Executive Debra Cafaro said on a call.

While New Mexico expanded its Medicaid offering to include Affordable Care Act health benefits, Texas and Oklahoma have seen higher enrollments even without the expansion.

Under the deal, Ventas will split Ardent’s real estate portfolio from its hospital operations, and sell the hospitals to a new company owned by Ardent’s management and other equity sources.

Ventas will retain up to 9.9 percent of the new company.

The deal is expected to add 8-10 cents to Ventas’ funds from operations per share in the first year after the transaction closes. The deal is expected to close in mid-2015.

Ventas, which owns senior housing communities, medical office buildings and hospitals, also said it would spin off most of its portfolio of skilled nursing facilities.

The spinoff, which is expected to be completed in the second half of 2015, will create one of two healthcare real estate investment trusts focused on running skilled nursing facilities.

The other company is Ensign Group Inc, which spun off its real estate business to focus on running skilled nursing facilities.

Ventas’ shares were up 5 percent at $77.01 in afternoon trading on the New York Stock Exchange.

(This story corrects paragraph 12 and first bullet point to say Ventas would spin off most, not all, of its portfolio of skilled nursing facilities. The error also appeared in an earlier version.)

Editing by Simon Jennings and Saumyadeb Chakrabarty

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