Kindred Plans to Leave Skilled Nursing Business, Posts Q3 Loss of $671.3M

LOUISVILLE, KY. — Kindred Healthcare Inc. (NYSE: KND) plans to fully exit the skilled nursing business, the Louisville-based healthcare owner-operator announced Monday afternoon during a third-quarter earnings call. Kindred posted a $671.3 million loss in the third quarter.

The company was already in the process of reducing the number of skilled nursing facilities in its portfolio. At its peak the company owned and/or operated more than 300 skilled nursing facilities across the country.

Kindred will instead focus the bulk of its efforts on Kindred at Home, the country’s largest provider of home healthcare and hospice services, according to Kindred. The company expects half its earnings to come from Kindred at Home, while long-term acute care hospitals will account for 25 percent of its earnings and rehabilitation services will account for the remainder.

By divesting its entire skilled nursing portfolio, Kindred expects to reduce annual rent obligations by $90 million, capital expenditures by $30 million and corporate overhead by between $70 million and $100 million.

“We are taking proactive strategic steps to position Kindred for long-term success against the backdrop of dynamic changes in the healthcare services industry,” says Benjamin Brier, president and CEO of Kindred.

“Our plan to exit the skilled nursing facility business, together with the significant cost realignment initiative we are undertaking in connection with the exit, are substantial steps forward in our continuing effort to transform Kindred’s strategy and growth profile to enhance shareholder value,” added Brier.

The announcement was made as the stock market closed for the day. Overnight trading saw stocks plunge from $8.75 per share at closing on Monday, Nov. 7, to an open of $5.70 per share on Tuesday, Nov. 8. The company’s stock traded at $12.81 one year ago, and hit an annual peak of $14.90 in April.

Many of the seniors housing industry’s largest players are distancing themselves from the skilled nursing sector amid changes to Medicare reimbursement that focuses more on short-term rehabilitation than long-term stays.

Ventas (NYSE: VTR) and HCP Inc. (NYSE: HCP), two of seniors housing’s largest REITs, recently spun off the bulk of their skilled nursing portfolios into separate, publicly traded REITs.

The industry’s largest REIT by market cap — Welltower (NYSE: HCN) — has decried the spinoff strategy, but last week divested 64 skilled nursing facilities for $1.1 billion and sold 75 percent interest in 28 additional facilities to Chinese investors.

Ventas, which owns 36 Kindred-operated skilled nursing facilities, released a statement following the announcement.

“We are working with Kindred to finalize a consent agreement that will create value for Ventas and Kindred shareholders, and facilitate Kindred’s exit from the skilled nursing business,” says Debra Cafaro, Ventas chairman and CEO. “This represents an opportunity to continue our de-emphasis of the skilled nursing business that began with our successful spinoff of most of our skilled nursing business in 2015.”

Additionally, the statement notes that the leases on the Ventas-owned facilities are fully guaranteed by Kindred, and that Kindred cannot sell or transfer operations of any facilities without Ventas’ consent. “Such consent has not yet been provided,” according to the statement.

— Jeff Shaw