Exiting the SNF business, Kindred’s decision is just part of a national transformation of the sector that started a year ago.
And I thought last week was a tough one. When Kindred Healthcare released its third quarter earnings on Monday night, I knew it would open significantly down, but 33% down? The company has decided to exit the skilled nursing sector – sound familiar? This was a bit surprising because even though they had already gone from 300 SNFs to around 92 today, I assumed the remaining facilities were the best ones, and in the markets close to its LTACs, rehab hospitals and home health services. That was the entire theory around being the post-acute provider of choice in their top 15 or 17 markets. While they can still partner with the local skilled nursing facilities of choice, it does represent a strategy shift. The problem was that these 92 skilled nursing assets did not contribute to the bottom line like their other businesses, and it was not going to get any better. In fact, there was more than $70 million of administrative overhead associated with these facilities, and that will be gone.
My friends, I have been working in this sector for 30 years now, and let me just say what is happening is unprecedented, and could be transformational for the skilled nursing sector when you add in all the other divestitures and property swaps. And while all these moving parts may look like an industry in despair, the buyers continue to line up. Why? Because they still see value, and many understand that running two, three or 10 SNFs is vastly more doable than 300 or 500 buildings scattered across the country. Health care remains local. Kindred will be left with the largest home health and hospice business in the country which will produce 50% of its profits, a profitable rehab business that is growing, and an LTAC business that, while undergoing some changes, will continue to be an important source of profits. When the company’s market cap dropped below $500 million early yesterday morning, all I could think of was, what an opportunity for a long-term investor. But management still has to deliver, and it won’t have the excuse of skilled nursing dragging it down anymore. May the Force be with you, Ben.
