Kindred Dumps Nursing Homes for Huge Loss

Strange Tony,

Kindred announced the sale of their nursing home division late Friday.  Kindred's press release revealed details of the deal:

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (KND) today announced that it has signed a definitive agreement with BM Eagle Holdings, LLC, a joint venture led by affiliates of BlueMountain Capital Management, LLC (“BlueMountain”), under which it will sell the Company’s skilled nursing facility business for $700 million in cash. The sale includes 89 nursing centers with 11,308 licensed beds and seven assisted living facilities with 380 licensed beds, which collectively have approximately 11,500 employees in 18 states. 

Kindred is closing the door on it's initial mission by selling its nursing homes.  Ventas spun off its nursing home operating division into Kindred via an initial public offering in 1998.  Kindred already agreed to pay Ventas $700 million for 36 leased nursing homes.  Ventas press release clarified:

The sale price of $700 million represents a seven percent cash yield on current annual cash rent of $50 million and an eight percent GAAP yield. The difference in yield represents the annual portion of the amortization of $23 million in cash fees Ventas previously received from Kindred. Upon the sale of the SNFs, Ventas is expected to record a gain exceeding $600 million.

Effectively Kindred will take the $700 million from BlueMountain Capital and pass it directly to Ventas.  For BM Eagle Holdings it's buy 36 Ventas nursing homes get the rest for free.

There's a huge disconnect inside this deal.  Ventas owned nursing homes sold at a huge premium and Kindred gave away the physical assets of 25 nursing homes and 3 ALF's.

Kindred's big win comes from "the creation of an approximately $380 million net operating loss carryforward associated with the sale transaction."  That will generate "approximately $140 million of cash tax benefit over time."  The two other wins are simply holding onto stuff the company already owns, working capital and a "retained Las Vegas facility, hospital-based sub-acute units and other retained assets." 

Kindred's stock has been on fire lately.  I wonder what it will do after the market digests the nursing home fire sale that disproportionately enriches Kindred's former owner..

I do worry about the 11,500 Kindred employees going to BM Eagle Holdings.  In the hospice world Kindred pay has been stagnant as benefits deteriorated.  How much worse might these employees fare under private equity ownership?

The deal is expected to close in two stages but should be completed this year.  Kindred CEO Ben Breier will get how big a bonus?  Whatever amount the board awards for this deal should be split 11,500 ways and mailed across 18 states.  Employees should get something for being sold out.  Ben Breier and Stephen Farber should get nothing for turning their back on Kindred's original mission.  Other divisions should know we're disposable as well.  Executives could turn on us at any time.

Anonymous  (from a saleable division in executive enriching Kindred)