Ventas has signed a definitive agreement to acquire privately-owned Ardent Medical Services, with its affiliates Ardent Health Services, for $1.75 billion in cash.
Article continues below
Ardent Health Services will be entitled to distribute up to $75 million in excess cash to its existing shareholders. The transaction is expected to be immediately accretive to Ventas's normalized funds from operations (FFO) per share by $0.08 to $0.10 in the first full year after close.
Ardent Health Services is owned by private equity funds managed by Welsh, Carson, Anderson & Stowe. Based in Nashville, Tennessee, Ardent Health Services and its subsidiaries own and operate leading health systems in major markets in the U.S. Ardent Health Services currently generates approximately $2 billion in annual revenues with over 50 percent of its revenue derived from commercial (private) payors.
Concurrent with the closing of the transaction, Ventas intends to separate Ardent Health Services' hospital operations from its owned real estate and sell the hospital operations to one or more newly formed entities (collectively, Ardent) owned by current management of Ardent Health Services, other equity sources, and up to 9.9 percent owned by Ventas.
Ventas and Ardent will enter into pre-agreed long-term triple-net leases with an expected going in cash yield exceeding 7 percent and annual escalators estimated at 2.5 percent. The EBITDARM to rent coverage ratio for the purchased facilities is expected to be approximately 2.9x in year one.
Ventas will own ten high-quality hospitals (and related real estate) operated by Ardent under the names BSA Health System in Amarillo, Texas, Hillcrest HealthCare System in Tulsa, Oklahoma and Lovelace Health System in Albuquerque, New Mexico. These assets include acute care, heart, rehab and women's health hospitals, comprising approximately 3.2 million square feet and 2,045 beds.
Accretive Transaction/Leverage Neutral. This transaction is expected to be immediately accretive to Ventas's normalized FFO per share by $0.08 to $0.10 (cash) in the first full year after close on a leverage neutral basis.
Ventas's going in cash unlevered yield on the Company's aggregate net investment is expected to exceed 7 percent. Ventas will maintain its strong credit profile and balance sheet, and there is no expected change to the Company's credit rating or outlook.
Increases Ventas's Presence in Attractive Industry. The $1 trillion U.S. hospital market (by revenues) is benefiting from attractive dynamics, including an increase in U.S. hospital expenditures, increasing emergency room visits and admissions, a growing 65 and over population, and more than 10 million newly insured individuals.
With Ventas's support, Ardent will be well positioned to drive future consolidation opportunities in a highly fragmented market. The Medicare Payment Advisory Commission (MedPAC) has recommended a 3.25 percent increase in Medicare rates for acute-care services for fiscal year 2016. ■
Predominant upper-level ridging stretching from the Southwest to the southern High Plains will allow for another day of record-breaking heat across parts of Nevada and Arizona today.