Ventas Seeks New Tenants for 64 Healthcare Assets After Kindred’s Troubled Q4

Ventas, Inc. (NYSE:VTR) announced on Feb. 23 that it’s looking for new tenants for 64 healthcare assets that are currently leased to Kindred Healthcare, Inc. (NYSE:KND) under four master leases, after the healthcare services company opted not to renew the majority of its leases with the REIT.

“We believe these assets will be attractive to a wide variety of respected and quality healthcare providers,” said Ventas Chairman and CEO Debra A. Cafaro in a statement. “We are eager to begin the marketing process, which will improve our diversification and broaden our tenant base.”

The leases comprise $77 million of current annual cash rent, and while Ventas will continue to receive rent from Kindred through these four leases, they expire on April 30, 2013, giving the REIT approximately one year to find new tenants. The leases that Kindred does not intend to renew represent approximately 5.5% of Ventas’ current annualized net operating income.


Kindred’s troubled fourth quarter, which featured a net loss of nearly $71.9 million, may contribute to this decision. The net loss includes a $72.9 million loss from continuing operations. For the full year, Kindred experienced a net loss of nearly $53.5 million, as opposed to the previous year’s net income of $56.5 million.

These net losses come despite an overall gain in revenues, both for the fourth quarter, a 34% increase to $1.5 billion, and for the year, at more than $5.5 billion, compared to the previous year’s $4.4 billion.

Kindred’s president and CEO Paul Diaz said the company experienced a “very difficult fourth quarter” that was brought on by significant Medicare cuts which impacted its skilled nursing and rehabilitation therapy businesses.


In its fourth quarter earnings report, Kindred stated its intentions to renew three lease “bundles” containing 19 nursing and rehabilitation centers and six LTAC hospitals, but to not renew seven other bundles containing 54 nursing and rehab centers and 10 LTAC hospitals, which Ventas now intends to market.

The leases that are set to expire without plans for renewal don’t satisfy Kindred’s targeted investment returns or fit in with its strategic operating plan, said Diaz, especially as the majority of the nursing and rehab assets within the leases are predominantly chronic care and Medicaid-dependent, which aren’t well-suited for Kindred’s higher acuity, transitional care strategy.

“Under our operating model, these facilities also have limited growth opportunities and our expected earnings from these operations do not support the allocation of capital, risk or management time over the renewal period,” Diaz said. “Given the current reimbursement environment, particularly around nursing centers, we believe that our capital investments and management efforts are best focused in other areas of growth including home health, acute rehabilitation units, newer owned LTAC and inpatient rehabilitation hospitals, as well as investments in new integrated care models.”

Kindred had somewhat delayed announcing its intentions for renewal, a topic that came up during Ventas’ fourth quarter earnings call.

“With respect to April 30, there’s a lot going on in the reimbursement world and so on, we’ve got mitigation and so on,” said Ventas’ Cafaro. “So I don’t criticize Kindred basically for waiting until they have the most possible information until they decide whether they’re going to renew or not.”

The 25 healthcare assets that Kindred is renewing comprise $46 million a year of current annual rent, with the renewal lease term beginning on May 1, 2013, and going through April 30, 2018.

Written by Alyssa Gerace

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