Kindred Healthcare, Inc. (KND) is looking to drive earnings growth as it repositions its capital structure by converting leased properties into owned properties, as well as by building new, company-owned skilled nursing centers, says Richard A. Lechleiter, Chief Financial Officer of Kindred Healthcare, Inc.
“The repositioning…is part of a larger attempt to right-size the capital structure of the company to become less lease-dependent and be a larger owner of real estate which is financed by amortizable debt and free cash flows. In simple terms, leases in our business are very expensive forms of financing compared to on-balance-sheet financings that are available to us today. So where possible, and we’ve done this over several years, we continue to look for ways to convert leased properties to owned properties,” Lechleiter said.
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KND‘s owned properties are both cash-flow-accretive and earnings-accretive, Lechleiter says, versus the leased properties that have rent escalators, which inhibit earnings growth. He also highlights KND‘s buildout of new skilled nursing centers, which will be owned properties and therefore contribute significantly to the company’s earnings.
“The new skilled nursing centers we are building today, and we have several on the drawing board in key markets, will all be owned properties, which will be more significant to our earnings growth over time. As we amortize debt, as these things depreciate, the overall contribution level to earnings becomes much more significant if we own them than if we lease them,” Lechleiter said.
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