In this post-COVID world, Ventas continues to modify existing leases with major tenants with an eye to the future. First was Brookdale Senior Living several years ago, and now it is with its original tenant going back more than 25 years, Kindred.
Ventas owns 23 long-term acute care hospitals that are leased to Kindred for annual cash rent of $109 million. Starting in May 2025, the annual cash rent will be reduced by 27% to $80 million, with annual escalators of 2.75%. The lease maturity date was extended from April 2025 to April 30, 2030.
In addition, as part of the transaction, Ventas has received warrants for 9.9% of the common equity of Kindred’s parent, ScionHealth, exercisable at a pre-transaction value of the common equity. ScionHealth was formed in 2021 with the merger of 61 Kindred LTACs and 18 LifePoint Health community hospitals. This appears to be similar to what Ventas did several years ago with Brookdale when it took warrants for 16.3 million Brookdale shares convertible at $3.00 per share in its first Brookdale lease renegotiation. Ventas has now made more than $60 million on those warrants so far, at least on paper, so not a bad strategy. Ventas will also have the right to receive additional revenue-sharing rent annually if revenue at these assets exceeds certain thresholds.
Ventas also announced it has acquired the real estate of five performing LTACs for $189 million. They will continue to be operated by Kindred and were added to the Kindred Master Lease for an initial 10-year term with annual cash rent of $16 million and annual escalators of 2.75%. These transactions should strengthen EBITDARM rent coverage under the Master Lease to at least 1.3x, which still is not very high lease coverage given the nature of the assets. ScionHealth will use the proceeds of this transaction to improve its credit profile and for other corporate purposes.
