Data from Lisa Benston, Colliers PKF Hospitality Research, and Kindred Healthcare, Inc.
Edited: Lisa Benston Source: Kindred Healthcare, Inc.
Kindred Healthcare, Inc. (the “Company”) today announced that its subsidiaries have signed a definitive agreement to acquire five long-term acute care (“LTAC”) hospitals from Vista Healthcare, LLC (“Vista”) for a purchase price of $180 million in cash.
“We are excited to have these new employees join our organization and believe they bring resources and expertise that will complement our existing operations and local teams. These transactions also will provide our new colleagues with additional opportunities for professional growth and development.”
Vista operates four freestanding hospitals and one hospital-in-hospital with a total of 250 beds all located in southern California. The assets being acquired currently generate annualized revenues of approximately $150 million and earnings before interest, income taxes, depreciation and amortization of approximately $27 million. The Company is not acquiring the working capital of Vista or assuming any of its liabilities. All of the Vista hospitals are leased. The Company expects to finance the transaction with proceeds from its revolving credit facility.
The Vista transaction is subject to several regulatory approvals and other conditions to closing, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. The Vista transaction is expected to close in the fourth quarter of 2010.
The Company also announced that its subsidiaries have signed a definitive agreement to acquire three recently constructed nursing and rehabilitation centers in the Dallas-Fort Worth market for a purchase price of $38 million in cash. The Company currently operates six hospitals and is developing a co-located hospital-based sub-acute unit in the Dallas-Fort Worth market. In addition, the Company announced that it intends to develop two of these three nursing centers into transitional care centers, focused on short-term rehabilitation and medically complex patients, and add a transitional care unit to the third nursing center. The Company expects to finance this transaction with proceeds from its revolving credit facility.
These three owned nursing and rehabilitation centers have a total of 405 beds and currently generate annualized revenues of approximately $24 million and earnings before interest, income taxes, depreciation and amortization of approximately $3 million. The Company is acquiring the real estate associated with these nursing and rehabilitation centers but is not acquiring working capital or assuming any liabilities. The transaction is subject to several regulatory approvals and other conditions to closing and is expected to close by the end of the third quarter of 2010.
Within the first year following the closing of these transactions, the Company expects to incur certain transition costs that are expected to range from $6 million to $8 million. Excluding these costs, the Company expects that these transactions will be slightly accretive to earnings in 2010 and $0.17 to $0.22 per diluted share accretive to earnings upon completion of the integration process. The Company’s estimate of earnings accretion includes the expected negative impact of refinancing its current $500 million revolving credit facility, including both its existing indebtedness and the amounts used to finance these transactions. The Company expects to complete the refinancing in the fourth quarter of 2010.
Paul J. Diaz, President and Chief Executive Officer of the Company, commented that “We view the Vista transaction as a great opportunity to meet the growing demand for our services in southern California and expand our hospital operations. The Vista hospitals provide high quality services and care for patients with high acuity levels. The Vista hospitals also provide several clinical service offerings not currently available in our area hospitals providing us with an opportunity to expand our clinical services as well as attract more commercial and managed care business.”
Ara Tavitian, M.D., President and Chief Executive Officer of Vista, said, “The dedication and efforts of our management team, including Marc C. Ferrell, J. Vartan Hovsepian and Marc A. Furstman, and our staff have enabled us to make Vista a high quality provider of healthcare. We are excited about joining our operations with Kindred and believe that our combined strengths will promote expanded services and clinical programs that will better serve our patients and their families. Kindred also offers our employees the ability to expand their opportunities with a proven and dynamic healthcare provider. We look forward to integrating our operations with Kindred and to the continued growth and development of our combined services.”
Edited: Lisa Benston Source: Colliers PKF Hospitality Research
Based on the strong surge in lodging demand that occurred during the first half of 2010, Colliers PKF Hospitality Research (PKF-HR) now forecasts that the average U.S. hotel will achieve a 2.3 percent increase in net operating income (NOI) during 2010. This follows a 37.8 percent cumulative decline in profits experienced from 2007 through 2009, and is the first annual uptick in forecasted NOI since 2007.
"The bottom-line losses suffered by hotel owners over the past two years were devastating, and the repercussions have been, and continue to be, felt throughout the financial community," said R. Mark Woodworth, president of PKF-HR. "The likelihood that this trauma is coming to an end is welcome news. With occupancy driving the growth in RevPAR in 2010, the rise in profits at this stage is somewhat underwhelming. However, going forward we will begin to see a more profitable formula for revenue growth as operators reclaim pricing leverage and room rates begin to rise. That being said, operators must pay attention to the significant increases in operating costs that we've consistently observed during past recovery periods." PKF-HR forecasts double-digit growth in unit-level NOI growth each year from 2011 through 2013.
The improved outlook for 2010 bottom-line performance is the result of increasing optimism about the top-line. In the recently released September 2010 edition of Hotel Horizons®, PKF-HR forecasts a 4.6 percent increase in revenue per available room (RevPAR) for the U.S. lodging market in 2010. This is the result of a projected 5.2 percent rise in occupancy, but a 0.6 percent decline in average room rates (ADR). "Our analysis confirms that the sharp rise in demand during the first half of 2010 is partially attributable to the low level of room rates," Woodworth added.
Budgeting for 2011
While PKF-HR's forecasts during the past few quarters have grown increasingly optimistic for 2010, the firm's projections for 2011 have softened. In the September 2010 Hotel Horizons ® report, PKF-HR forecasts RevPAR to increase 5.9 percent in 2011. This compares with the firm's 7.8 percent RevPAR forecast published in June of 2010. "It's not that we are becoming less bullish on 2011. It's more that the 2010 recovery is happening at a quicker pace," Woodworth noted.
For 2011, PKF-HR is projecting ADR to increase 3.8 percent. Concurrently, occupancy is forecast to grow 2.1 percent. With ADR driving revenue growth, unit-level NOI is projected to rise 10.8 percent.
"The projected 5.2 percent annual increase in occupancy during 2010 is based on the strong 7.0 percent growth in lodging demand reported by Smith Travel Research (STR) for the first half of the year, plus the modestly optimistic economic forecast prepared by Moody's Economy.com in July of 2010," Woodworth said. "While our 2010 performance projection has improved over previous forecasts, we are becoming a bit more concerned about the economic environment that lies ahead. We like what we've seen so far in 2010, but we are starting to notice some potential economic headwinds that could pose a threat to hotel performance."
"Uncertainty impacts the psyche of both hotel operators and their potential guests. We have identified several factors that are a cause for concern: persistent high levels of unemployment, continued weakness in housing, airline capacity constraints, the November elections, and the tax policies that expire on January 1, 2011," stated John B. Corgel Ph.D., the Robert C. Baker Professor of Real Estate at the Cornell University School of Hotel Administration and Senior Advisor to PKF-HR. "It is important to note that the PKF-HR positive forecasts of lodging performance include the economic forecast assumptions of Moody's Economy.com. However, I must admit that our bias towards the September forecasts is slightly negative, meaning that actual results are more likely to fall short of, rather than exceed, projected results."
U.S. Lodging Industry Annual Change
2010 Forecast 2011 Forecast
Occupancy +5.2% +2.1%
ADR -0.6% +3.8%
RevPAR +4.6% +5.9%
Supply +2.0% +1.1%
Demand +7.3% +3.2%
Unit-Level NOI* +2.3% +10.8%
Note: * Forecast - Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.