(Bloomberg) — Ventas Inc. (NYSE:VTR) rose the most in three years after agreeing to buy a U.S. hospital company and saying it plans to spin off most of its skilled-nursing and rehabilitation properties into an independent real estate investment trust.
The acquisition of Ardent Medical Services Inc. and an affiliate for $1.75 billion in cash will allow Ventas to diversify its holdings, Chief Executive Officer Debra Cafaro said on a conference call Monday. Shares of Chicago-based Ventas jumped 5 percent to $76.90, the biggest gain since October 2011.
“We’ve been waiting a long time to find the right entry point into the U.S. hospital market because of its strong improving trends, and we’ve been very selective,” Cafaro said on the call. “Ardent is the deal we’ve been waiting for.”
The $1 trillion U.S. hospital market is benefiting from more emergency-room visits and admissions, a growing 65-and-over population and more than 10 million newly insured individuals. The transaction is expected to add 8 cents to 10 cents a share to earnings in the first full year after it’s completed, Ventas said in a statement.
Under the deal, Ventas intends to own 10 hospital properties and separate their operations into entities that will be owned by current Ardent management, along with other equity sources, which will hold long-term leases from Ventas. Ventas will have up to a 9.9 percent stake in those entities, according to the statement.
Nashville-based Ardent, which is owned by private-equity funds managed by Welsh Carson Anderson & Stowe, operates BSA Health System in Amarillo, Texas, Hillcrest HealthCare System in Tulsa, Okla., and Lovelace Health System in Albuquerque, N.M.. The facilities include acute-care, heart, rehabilitation and women’s-health hospitals and comprise about 3.2 million square feet (297,000 square meters) and 2,045 beds.
Separately on Monday, Ventas announced a plan to spin off most of the post-acute and skilled-nursing facilities it owns into an independent, publicly traded REIT. The new company will own 355 skilled-nursing facilities and other health care properties that are operated by 44 service providers, Ventas said in a separate statement.
The spinoff will be one of two U.S. companies specializing in such rehabilitation and nursing centers, the company said. The other is Omega Healthcare Investors.
The new company will be geographically diverse, with operations in 37 states. It is likely to generate $240 million to $245 million of funds from operations in its first full year of business, Ventas said. FFO is a cash-flow measure used by REITs.
“There is a great opportunity in the marketplace” for the new company, Cafaro said on the call. “We think that market opportunity, both on the external-growth side as well as the market opportunity in the investment community, is exactly right to launch this vehicle.”
—With assistance from Niamh Ring and Steve Dickson in New York.