Total Value to Kindred Will Approximate $910 Million
Net Value to Kindred Will Approximate $210 Million
Following
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 Annual
Noncontrolling
Interests Payments Will Be Reduced By Approximately $18 Million
Following Sale
Kindred Will Retain Working Capital, Owned Las Vegas Nursing Center
and
Hospital-Based Sub-Acute Units
Kindred Expects Phased Transaction Closings to Begin in the Third
Quarter of 2017
and Be Completed by Year End 2017
LOUISVILLE, Ky.--(BUSINESS WIRE)--Jun. 30, 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
millionto $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.
Source: Kindred Healthcare, Inc.
Kindred Healthcare, Inc.
Todd Flowers, 502-596-6569
Investor
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