Total Value to Kindred Will Approximate $910
Million
Net Value to Kindred Will Approximate $210
MillionFollowing Previously Announced $700 Million Real
Estate Purchase from Ventas, Inc.
Kindred’s Annual Rent Expense Will Be
Reduced By Approximately $88 Million,Annual Capital
Expenditures Will Be Reduced By Approximately $30 Million, and
AnnualNoncontrolling Interests Payments Will Be Reduced By
Approximately $18 Million Following Sale
Kindred Will Retain Working Capital, Owned
Las Vegas Nursing Centerand Hospital-Based Sub-Acute
Units
Kindred Expects Phased Transaction Closings
to Begin in the Third Quarter of 2017and Be Completed by
Year End 2017
Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE: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. As detailed below, Kindred expects that the
combination of the cash proceeds, anticipated working capital
liquidation, tax benefits, retained assets and other items will
result in approximate total value to Kindred of $910 million after
deducting estimated transaction and severance costs. These results
are consistent with the Company’s previously announced
expectations.
As previously disclosed, 36 of the skilled nursing facilities
(the “Ventas Properties”) are currently leased from Ventas, Inc.
(“Ventas”) (NYSE:VTR), and Kindred has an option to acquire the
real estate of the Ventas Properties for aggregate consideration of
$700 million. As Kindred closes on the sale of the Ventas
Properties to BlueMountain, Kindred will pay to Ventas the
allocable portion of the $700 million purchase price for the Ventas
Properties and Ventas will convey the real estate for the
applicable Ventas Property to BlueMountain or its designee.
Kindred expects to realize net value of approximately $210
million, subject to post-closing adjustments, and after the $700
million payment to Ventas, estimated transaction costs of
approximately $35 million and estimated severance costs of
approximately $35 million. This amount includes approximately $80
million in retained net working capital, the majority of which will
be liquidated over late 2017 and early 2018, approximately
$140 million(1) of cash tax benefit over time from the
creation of an approximately $380 million net operating loss
carryforward associated with the sale transaction, and
approximately $60 million of value associated with the retained Las
Vegas facility, hospital-based sub-acute units and other retained
assets.
Benjamin A. Breier, President and Chief Executive Officer of
Kindred, commented, “Today’s announcement is a historic milestone
for all of Kindred’s stakeholders. Exiting the skilled nursing
facility business, in its entirety, has been a long-stated goal of
our enterprise. After more than two decades of nursing center
operations, this announcement clears the way to closing that
chapter of Kindred’s story, and turning the page to the future of
integrated post-acute care.”
Mr. Breier added, “The exit and sale of our nursing center
operations significantly enhances shareholder value, shifts
attention to our higher margin and faster growing businesses, and
advances our efforts to transform Kindred’s strategy. Upon
completion of this transaction, we believe Kindred’s capital
structure, leverage profile and operating performance will all be
markedly improved.”
Mr. Breier concluded, “We believe that BlueMountain and the
associated new operators will be strong partners in providing
leadership for these buildings going forward. We are proud to
report that since announcing our divestiture plans, our Nursing
Center Division has maintained high standards of care and patient
satisfaction, while delivering stable operating results. On behalf
of the Kindred Board of Directors and management team, I thank all
of our caregivers for their hard work and dedication to our
patients, residents and their families throughout this process. We
appreciate their continued commitment as we execute a smooth
transition.”
Stephen D. Farber, Executive Vice President and Chief Financial
Officer of Kindred, remarked, “We expect exiting the skilled
nursing facility business will increase Kindred’s annual cash flow
by approximately $20 million to $30 million, as we reduce our
annual rent obligations by approximately $88 million, reduce our
annual capital expenditures by approximately $30 million, eliminate
approximately $18 million of annual cash disbursements related to
noncontrolling interests, and eliminate $70 million to $80 million
of skilled nursing facility overhead following completion of the
transaction. These overhead savings are included as part of the
Company’s previously announced $70 million to $100 million
enterprise-wide overhead restructuring initiative.”
Discontinued Operations Accounting Commentary
The Company anticipates that substantially all of its skilled
nursing facility business, and the contribution margin from
applicable RehabCare contracts servicing the Company’s skilled
nursing facility business, will move to discontinued operations
when reporting second quarter results in August, at which time the
Company intends to provide updated guidance and adjust prior
periods to reflect the anticipated sale. The Company estimates this
accounting change will reduce second quarter reported core earnings
before interest, income taxes, depreciation, amortization and rent
(“EBITDAR”) from continuing operations by approximately $35
million(2)(3) and have a roughly breakeven(2) impact on second
quarter core diluted earnings per share.
The Company notes these amounts assume that no RehabCare
contracts servicing the Company’s skilled nursing facility business
are retained. Discontinued operations accounting rules do not allow
the associated contribution margins from these contracts to be
reported as continuing operations unless contracts for those
facilities are signed with the new operators. The Company
historically has retained approximately half of such contracts in
similar divestitures and anticipates similar contract retention
levels for this transaction. The Company expects this will result
in approximately $10 million(2) of incremental annual core
EBITDAR performance (approximately $2.5 million(2) per quarter) in
continuing operations upon execution of contracts with new
operators.
The Company further notes that, due to the requirements of
discontinued operations accounting, these figures do not include
the benefit of approximately $20 million to $25 million of
additional annual cost reductions (approximately $5 million to
$6 million per quarter) enabled by this transaction that the
Company expects to achieve, and are included as part of the $70
million to $80 million of anticipated cost reductions indicated
above.
Other Transaction Items
The transaction is subject to customary conditions to closing,
including the receipt of all licensure, regulatory and other
approvals. Kindred expects that the closings for the transaction
will occur in phases as regulatory and other approvals are
received. Kindred expects that the initial closing will occur in
the third quarter of 2017 and that all of the closings will be
completed by year end.
Guggenheim Securities is acting as financial advisor to Kindred.
Polsinelli PC is acting as legal advisor and Cleary Gottlieb Steen
& Hamilton LLP is acting as special counsel to Kindred.
Forward-Looking Statements
This press release includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements include, but are
not limited to, all statements regarding the Company’s ability to
exit the skilled nursing facility business and the expected timing
of such exit, including the receipt of all required regulatory
approvals and the satisfaction of the closing conditions for the
transaction, as well as the Company’s ability to realize the
anticipated benefits, sale proceeds, cost savings and strategic
gains from the transaction, all statements regarding the Company’s
expected future financial position, results of operations, cash
flows, dividends, financing plans, business strategy, budgets,
capital expenditures, competitive positions, growth opportunities,
plans and objectives of management, government investigations,
regulatory matters, and statements containing words such as
“anticipate,” “approximate,” “believe,” “plan,” “estimate,”
“expect,” “project,” “could,” “would,” “should,” “will,” “intend,”
“hope,” “may,” “potential,” “upside,” and other similar
expressions. Statements in this press release concerning the
Company’s business outlook or future economic performance,
anticipated profitability, revenues, expenses, dividends or other
financial items, and product or services line growth, and expected
outcome of government investigations and other regulatory matters,
together with other statements that are not historical facts, are
forward-looking statements that are estimates reflecting the best
judgment of the Company based upon currently available
information.
Such forward-looking statements are inherently uncertain, and
stockholders and other potential investors must recognize that
actual results may differ materially from the Company’s
expectations as a result of a variety of factors. Such
forward-looking statements are based upon management’s current
expectations and include known and unknown risks, uncertainties and
other factors, many of which the Company is unable to predict or
control, that may cause the Company’s actual results, performance,
or plans to differ materially from any future results, performance
or plans expressed or implied by such forward-looking statements.
These statements involve risks, uncertainties, and other factors
detailed from time to time in the Company’s Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K filed with the Securities and Exchange Commission.
Many of these factors are beyond the Company’s control. The
Company cautions investors that any forward-looking statements made
by the Company are not guarantees of future performance. The
Company disclaims any obligation to update any such factors or to
announce publicly the results of any revisions to any of the
forward-looking statements to reflect future events or
developments.
About Kindred Healthcare
Kindred Healthcare, Inc., a top-90 private employer in the
United States, is a FORTUNE 500 healthcare services company based
in Louisville, Kentucky with annual revenues of approximately
$7.2 billion(4). At March 31, 2017, Kindred through its
subsidiaries had approximately 100,100 employees providing
healthcare services in 2,624 locations in 46 states, including 82
long-term acute care hospitals, 19 inpatient rehabilitation
hospitals, 91 nursing centers, 19 sub-acute units, 619 Kindred at
Home home health, hospice and non-medical home care sites of
service, 101 inpatient rehabilitation units (hospital-based) and
contract rehabilitation service businesses which served 1,693
non-affiliated sites of service. Ranked as one of Fortune
magazine’s Most Admired Healthcare Companies for eight years,
Kindred’s mission is to promote healing, provide hope, preserve
dignity and produce value for each patient, resident, family
member, customer, employee and shareholder we serve. For more
information, go to www.kindredhealthcare.com. You can also follow
us on Twitter and Facebook.
(1)
The Company’s deferred tax assets are
subject to a full valuation allowance under generally accepted
accounting principles (“GAAP”) and the cash benefit is subject to
the Company generating taxable income over the carryforward
period.
(2)
All forward-looking non-GAAP financial
measures used to provide the Company’s 2017 second quarter outlook
are provided only on a non-GAAP basis. This is due to the inherent
difficulty of forecasting the timing or amount of items that would
be included in the most directly comparable forward-looking GAAP
financial measures. As a result, reconciliation of the
forward-looking non-GAAP financial measures to GAAP is not
available without unreasonable effort and the Company is unable to
access the probable significance of the unavailable information.
The Company calculates core EBITDAR and core diluted earnings per
share by excluding charges related to impairments, business
interruption settlements, restructuring charges, debt amendment
costs, executive or restructuring-related severance, retirement and
retention costs, restructuring-related facility closing charges,
and material transaction, integration, litigation, and research and
development costs.
(3)
Approximately $30 million of such amount
relates to the estimated operating results of the Company’s skilled
nursing facility business and approximately $5 million relates to
the estimated contribution margin from the Company’s RehabCare
contracts serving the Company’s skilled nursing facility
business.
(4)
Revenues for the last twelve months ended
March 31, 2017.
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