Kindred Healthcare Announces Agreement with Ventas to Transition Non-Strategic Nursing Center Operations

Strategic Insights -

Kindred Healthcare, Inc. has entered into an agreement with Ventas, Inc. to transition the operations under the leases for nine non-strategic nursing centers. The agreement will allow Kindred to dispose of these operations and reduce its base rent obligations. The transition of the nursing centers is expected to be completed by December 31, 2015, and will involve the transfer of 903 licensed nursing center beds. The operations will be reflected in discontinued operations through the expiration of the lease term.

Key Takeaways:

  • Kindred Healthcare has entered into an agreement with Ventas, Inc. to transition the operations under the leases for nine non-strategic nursing centers.
  • The current lease term for eight of these nursing centers is scheduled to expire at the end of April 2018, and for the ninth center at the end of April 2020.
  • The 903 licensed nursing center beds in the nine facilities generated revenues of approximately $65 million for the year ended December 31, 2013.
  • Kindred will pay an aggregate of $40 million in connection with the agreements in January 2015, which payments are expected to be tax deductible.
  • The Company's press release dated December 29, 2014, reporting the Ventas Agreement is attached as Exhibit 99.1.
  • The agreement also modifies provisions in the 2007 master leases to make them more consistent with Master Lease Agreement No. 5, and reimburses Ventas for certain deferred capital expenditures.
  • If the transfer of the nursing centers requires any upgrades to the facilities to satisfy regulatory requirements, Kindred will be required to pay the first $5 million of such expenses in the aggregate.
  • Ventas has agreed to pay Kindred 25% of the net proceeds of the sale of any of the nursing centers, up to $3 million.
  • The transactions are expected to be nominally accretive to both the Company's consolidated earnings per diluted share in 2014 and its lease adjusted leverage.
  • The agreement is expected to reduce Kindred's base rent obligations for the facilities by 50% until the transfers are complete if not completed by December 31, 2015.

Statistics:

  • 903 licensed nursing center beds to be transferred
  • $65 million in revenues generated by the nine facilities for the year ended December 31, 2013
  • $40 million to be paid by Kindred in January 2015
  • $5 million to be paid by Kindred for regulatory upgrades to the facilities
  • 25% of net proceeds up to $3 million to be paid to Kindred by Ventas for the sale of any of the nursing centers
  • 50% reduction in base rent obligations for the facilities if transfers are not completed by December 31, 2015

Sources:

  • Form 8-K (Current report) filed by Kindred Healthcare, Inc. with the Securities and Exchange Commission on December 29, 2014
  • Press Release dated December 29, 2014, reporting the Ventas Agreement (Exhibit 99.1)
  • Master Lease Agreement No. 2 (Exhibit 10.1)
  • Form 10-K for the year ended December 31, 2013, filed by Kindred Healthcare, Inc. with the Securities and Exchange Commission
  • Kindred Healthcare, Inc. (NYSE: KND)
  • Ventas, Inc. (NYSE: VTR)