Ventas agreed to buy Ardent Medical Services and its affiliate Ardent Health Services for $1.75 billion in cash in a bid to expand its existing portfolio.

According to a statement released Monday, Chicago-based Ventas has signed a definitive agreement to acquire all shares of Ardent Medical Services from Welsh, Carson, Anderson & Stow and other existing shareholders.

Ventas

Ventas to gain 14 hospitals to its portfolio

Ventas, a leading real estate investment trust (REIT), will buy Monday Ardent Health for $1.75 billion in cash, funded in part from the spin-off of its skilled nursing portfolio into its own publicly traded REIT.

While the Ardent deal is expected to close mid-year, the spin-off is expected to close in the second half of 2015.

Nashville-based Ardent is one of the 10 largest for-profit hospitals in the U.S. and generates about $2 billion in annual revenue. Ventas said the deal would bring 14 hospitals into its portfolio, which it anticipates will enhance its normalized funds from operations by 8 to 10 cents per share in the first year after the purchase closes.

Ardent will be entitled to distribute up to $75 million in excess cash to its shareholders. When the deal closes, Ventas will separate Ardent’s hospital operations from its real estate. It will sell these hospital operations to a new entity owned by Ardent, in which Ventas will have a 9.9% stake. The two will enter a long-term lease.

The REIT plans to separate Ardent’s operating business from its real estate portfolio and sell the division to a new entity owned by current Ardent management, other equity sources and Ventas. The REIT spinoff will comprise 355 skilled nursing facilities and other health care assets operated by 44 regional and local care providers. The average lease doesn’t expire for 10 years and the portfolio includes facilities in 37 states. It is expected to generate funds from operations of $240 to $245 million in its first full year.

Engaging a REIT as a funding partner is an attractive and emerging model for health care providers.

$1 trillion U.S. hospital market

The U.S. hospital market is estimated at $1 trillion and it is benefiting from more emergency room visits and admissions, a growing 65-and-over population, and over 10 million newly insured individuals. The deal would facilitate Ardent to be better positioned to benefit from future consolidation opportunities.

Expressing confidence over the deal, David T. Vandewater, president and chief executive officer of Ardent Health Services, said: “With Ventas, a $35 billion health care-dedicated REIT, we will have an opportunity to become a substantial capital partner to not-for-profit hospitals and health systems”.

Shares of Ventas are up around 2% this year through Thursday’s close, while it rose about 2% in light premarket trading.

As reported by ValueWalk, last year, Ventas agreed to acquire all the outstanding shares of American Realty Capital Healthcare Trust for $2.6 billion in cash and stock.