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Ventas (VTR) in Discussion with Kindred Over 36 SNFs' Sale

KND VTR DRE CLI

Trades from $3

Ventas Inc. (VTR - Free Report) announced that it has been engaged in discussions with Kindred Healthcare, Inc. (KND - Free Report) over the terms on which it will approve the sale of 36 skilled nursing facilities (SNFs) which it owns, but are operated by Kindred. This disclosure from the healthcare REIT comes after Kindred recently declared its intention to exit the SNF business.

This move will be in sync with Ventas’ strategy of “de-emphasis” of this particular healthcare real estate category. The company had already made a successful spin off of majority of its SNF business in 2015.

Notably, amid the healthcare reforms implementation, healthcare REITs have been distancing themselves from the skilled nursing facility business. This is because though seniors housing, medical-office buildings and hospitals have been able to reap solid top-line growth in recent years, skilled nursing facilities are becoming more susceptible to top-line pressure due to the change in medical billing procedure.

In fact, tenants of the skilled nursing facilities derive majority of revenues in the form of payments from Medicare and other government insurance programs. However, these tenants have been facing shorter stays and lower rates amid the shift in the billing practices, that stresses more on the value of care provided rather than the volume of services offered. So, healthcare REITs prefer to refrain from this asset category and rather focus on private-pay assets because in such cases, tenants’ revenue trend is likely to remain steadier.   

Presently, Ventas owns 36 SNFs, leased by Kindred, which generate annual cash rent of $49 million. Further, Ventas has 4% of its annual net operating income reaped from SNFs.

Ventas currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the REIT industry may consider stocks like Duke Realty Corp. (DRE - Free Report) and Mack-Cali Realty Corp. (CLI - Free Report) . Both of these stocks carry a Zacks Rank #2 (Buy).

Duke Realty has experienced upward revision in full-year 2016 estimates in the past two months while Mack-Cali has long-term expected growth rate of 6.4% against the industry average of 5.8%.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All EPS numbers presented in this write up represent FFO per share.


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