Hospital deals are hopping in Philadelphia, this week. Last week, we reported on the merger of UPMC and PinnacleHealth, which brought Pittsburgh-based UPMC into the south central part of the state, where PinnacleHealth is strong. Now Tenet Healthcare (NYSE: THC) is selling two Philadelphia-based hospitals and other related operations to a new subsidiary of Paladin Healthcare, and a healthcare real estate investment trust (REIT).
The deal involves Tenet’s Hahnemann University Hospital, St. Christopher’s Hospital for Children, and two Tenet-owned physician practices. The buyer is American Academic Health System, LLC (AAHS), newly formed by Paladin to own and operate academic medical centers and general acute care hospitals across the country.
Paladin’s focus is to buy financially or clinically under-performing hospitals located in urban or suburban areas, and turn them around. The company currently manages four general acute care hospitals in southern California and Washington, D.C.-based Howard University Hospital, located on the campus of Howard University.
Like several hospital deals announced by private equity-backed healthcare systems this year, privately held Paladin partnered with Harrison Street Real Estate Capital, LLC, a healthcare REIT, on this transaction.
Tenet expects to recieve proceeds of approximately $170 million from the transaction, comprised of $152.5 million in cash and a promissory note in the amoung of $17.5 million.
During the 12 months ended June 30, 2017, the Philadelphia hospitals and operations generated approximately $790 million of net operating revenue and an adjusted EBITDA loss of approximately $15 million.
Tenet expects to record an estimated non-cash impairment charge of approximately $230 million pre-tax (approximately $150 million after-tax) within continuing operations in the quarter ending September 30, 2017. Tenet also expects to report a taxable loss on the sale of these assets of approximately $200 million, which will increase the size of the company’s federal net operating loss carryforwards by a corresponding amount.
This transaction is expected to close early in 2018.
