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Kindred Healthcare Announces Fourth Quarter Results And Plans For Ventas Lease Renewals

The Company also announced that it does not intend to renew seven renewal bundles containing 54 nursing and rehabilitation centers and ten LTAC hospitals (collectively, the “Expiring Facilities”). The Expiring Facilities contain 6,140 licensed nursing and rehabilitation center beds and 1,066 licensed hospital beds and generated revenues of approximately $790 million for the year ended December 31, 2011. The current annual rent for the Expiring Facilities approximates $77 million. The Company will continue to operate the Expiring Facilities and include the Expiring Facilities in its results from continuing operations through the expiration of the lease term in April 2013.

Management believes that the divestiture of the Expiring Facilities could reduce the Company’s consolidated earnings per diluted share by $0.10 to $0.15 in 2013, but will not otherwise materially impact the Company’s cash flows or financial position. This estimate is based upon a number of assumptions, including the Company’s estimated impact of the recent and impending Medicare reimbursement reductions for nursing centers and LTAC hospitals and its ability to achieve overhead savings in connection with these divestitures.

Mr. Diaz remarked, “At this time, we believe it is important to give investors our views on the Ventas renewals. We have evaluated the lease renewals as we would any acquisition. The Renewal Facilities generally meet our targeted investment returns and rent coverage ratios after capital expenditures and otherwise fit within our strategic operating plan.”

Mr. Diaz continued, “While in general the individual Expiring Facilities are good assets, these bundles as a whole do not satisfy our targeted investment returns or fit within our strategic operating plan. The majority of the Expiring Facilities are outside our cluster markets and many of the nursing and rehabilitation centers that are predominantly chronic care and Medicaid dependent are not well suited for our 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. 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. In addition, we believe that, over time, these divestitures will substantially improve our capital structure by reducing our lease obligations and related leverage and the earnings leakage associated with rent escalators.”

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