CHS spinoff Quorum is already selling eight of its 38 hospitals

Quorum Health, the embattled hospital spinoff of Community Health Systems, has agreed to sell two of at least eight rural hospitals it has for sale to reduce debt and refine its portfolio.

Quorum announced Thursday that it has a definitive agreement to sell its 64-bed Sandhills Regional Medical Center in Hamlet, N.C., to FirstHealth of the Carolinas. Terms were not disclosed.

It is the second hospital that 38-hospital Quorum has agreed to sell this month. It also has an agreement to sell 56-bed Barrow Regional Medical Center in Winder, Ga., to Northeast Georgia Health System. Both deals are expected to be completed by year-end, subject to regulatory approvals.

"We are working toward additional divestitures in our efforts to improve organizational performance and reduce our debt," Quorum CEO Thomas Miller said in a release Thursday.

In a note to investors Thursday, Mizuho Securities said the Sandhills hospital deal is one of eight hospitals that Quorum has for sale. During a June presentation to investors in New York, Miller said the new hospital chain could sell as many as 11 hospitals.

The Brentwood, Tenn.-based system has drawn the ire of some investors almost from the time of its spinoff in April from CHS as a separate public company. Franklin, Tenn.-based CHS is using the $1.2 billion in proceeds from the spinoff to pay back debt that also is high by industry standards.

Earlier this month, a big Quorum investor, Q Investments, alleged that Quorum and CHS management misled Quorum investors about the financial and operating condition of the company. Q Investments has called on the Quorum board of directors to investigate the transaction.

Also, a class-action shareholder lawsuit has been launched against Quorum, claiming that the failure of Quorum to disclose accurate information has resulted in a loss of equity value for investors. CHS has denied doing anything improper in the spinoff.

Quorum and CHS have the two highest debt levels among the large investor-owned hospital companies.

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Source: Jefferies Equity Research

Quorum's debt is 6.9 times 2016 analyst estimates for EBITDA, while CHS' is 6.3 times, according to figures compiled by Jefferies Inc. In contrast, HCA Holdings has debt that is 3.7 times EBITDA and LifePoint Health's is 3.5 times.

In its 2016 second quarter, Quorum posted a 1.6% decline in revenue to $529.7 million from $538.4 million for the same period in 2015.

The company in the quarter posted a loss from operations of $259.3 million compared with income from operations of $27.5 million in the same period in 2015. The operating results for the three months included $250.4 million of impairment to long-lived assets and goodwill taken against the value of its hospitals.