CHS Negotiating Hospital Sales to Generate $1.2 Billion

The funds expected to be generated by the sales of hospitals, home health businesses, and non-hospital real estate will be used to pay down $15 billion in debt.

Community Health Systems is negotiating with seven entities to divest 17 hospitals, home care businesses, or non-hospital real estate properties, CEO Wayne T. Smith said in a conference call Wednesday with analysts. The transactions are expected to be completed by mid-2017.

"Estimate proceeds from these transactions include working capital projected to generate $1.2 billion," Smith said. "A substantial portion of these proceeds will be used for further debt reduction."

"It is also worth noting that the interest level in our assets is extremely high," Smith said. "We are receiving interest from a number of parties and we will provide updates as we receive definitive agreements and reach the close of the transactions."

The announcement came as Smith tried to put a positive spin on weak third quarter that saw $4.3 billion in net operating revenues, down 9.6% when compared with the same period in 2015. Smith blamed the drop on low volumes and higher-than-expected expenses.

"It goes without saying that we are not pleased with our performance in the third quarter," Smith told the analysts. "Over the years we have seen some variability but our inconsistent performance recently in the third quarter simply has not been good enough."

"Operationally, we have experienced a great deal of change over the past few quarters," he said. "Assimilation of the HMA hospitals has been more difficult than anticipated. The recent spin off of Quorum Health, realignment of our divisions, a number of new division presidents and vice presidents, the promotion of our new chief operations officers (Tim L. Hingtgen), consolidations of many of our back office functions and IT conversions, ultimately these changes will help to strengthen the company for the better long term success. Some of these changes have created challenges in the near term."

Smith said that the divestitures were not unanticipated.

"We knew when we bought HMA, just as when we acquired Triad, that we would have to rationalize our portfolio, that we had facilities that did not fit," he said.

"As we look to the future, we want to make sure we are in sustainable markets where we have good opportunities to deploy our resources and capital so that we can expand in those markets going forward. We will continue to look at properties. We will continue to evaluate our properties, in terms of ones that are beneficial."

Last month, CHS sold three hospitals in Mississippi and one hospital in Florida to non-profit Curae Health Inc. as part of a plan to pay down debt and refine its portfolio. On Oct. 18, CHS announced that it was selling an 80% stake in its home health and hospital unit to Almost Family, Inc., for $128 million.

Smith said that reducing debt is not the only motivation for the divestitures.

"We haven't set any specific target number in terms of debt pay-down," he said. "We are more concerned about having improved margins and ensuring that our operations work efficiently and that our performance improves as well."