Strange Tony,
Kindred President Ben Breier opened his portion of the third quarter earnings call with:
"Last night we announced the strategic decision to exit the skilled
nursing facility business, which is the final step in a process that
began for us 15 years ago when Kindred operated over 300 skilled nursing
facilities.'
'A full exit of this business, together with the
significant cost realignment initiative we are undertaking in connection
with the exit, are substantial steps forward in our effort to continue
to transform Kindred's strategy and growth profile to enhance
shareholder value. We're pleased to be working with Ventas to finalize
an agreement that will create value for Ventas and Kindred shareholders,
and facilitate Kindred's exit from the skilled nursing business."
Most people don't know but Ventas birthed Kindred via a spinoff on May 1, 1998. The two companies remained intertwined ever since.
Kindred reduced its significant nursing home division by selling
facilities in 2013 and 2015. Breaking Ventas leases cost Kindred serious money:
In
January 2015 Kindred paid Ventas a
$40 million early termination fee
associated with nine leased facilities. In 2013 Ventas received a
$20
million early termination fee associated with fifty nine leased
facilities.
Kindred paid $521 million in rent to Ventas over the last three years.
- $172 million for the year ended December 31, 2015
- $192 million for the year ended December 31, 2014
- $248 million for the year ended December 31, 2013
That relationship will be tested in Kindred's
decision to exit the nursing center business, which Breier said is struggling to meet budget targets.
"Our exposure to the challenges facing the nursing center industry are
expected to amount to $40 million to $50 million worse than our 2016
operating plan."
Kindred plans to sell its remaining nursing homes during 2017, but it will need to buy them from Ventas
before reselling them. McKnight's
said "Kindred's skilled nursing portfolio includes the
36 Ventas facilities,
26 facilities the company owns and 25 that are rented from other
companies. Kindred expects to bring in $100 million to $300 million from
the sale of the portfolio."
In prior nursing home asset sales Kindred
recorded an asset impairment charge of $8 million and a loss on divestiture of $2 million.
The nursing center wheel is about to fall off the Kindred wagon. Oddly, it could fall to Care Capital Properties, Ventas
skilled nursing REIT spinoff. That might explain Kindred executives clarity on how much they expect
to make on the sale.
“We expect the after-tax net proceeds from the sale of these assets will
range from $100 million to $300 million after transaction costs,
severance expenses, and the amount payable to Ventas for the sale of the
Ventas Properties,” he said. “We expect to apply these anticipated net
proceeds to reduce funded debt, which combined with the impact of our
cost realignment initiative, the elimination of approximately $90
million of annual rents, and the reduction of approximately $30 million
of annual capital expenditures will reduce our leverage.”
Why should anyone at hospice care what happens in the nursing center division? With $1.2 billion in revenue gone executives will likely provide us more attention. In Gentiva or Kindred that is generally an uncomfortable thing. Their plans didn't work for the nursing center segment, likely because they were divorced from reality. There is a limit to staff's ability to endure executive ignorance, aggression and impatience. It's a harsh contrast to the hospice movement's core founding principles.
Anonymous (from Kindredful)
