In early May, Ventas sent to Kindred Healthcare its formal notice of rent reset, asking for an additional $111 million in annual rent. Obviously, Kindred does not believe that increase reflects the fair market rental value of the nursing facilities and long-term acute care hospitals (LTACs) it leases from Ventas. So they had 30 days to negotiate an agreed upon change in annual rent, together with the annual rent escalators, which are currently an above-market 3.5%. If they did not come to terms by June 8, according to the agreement entered into five years ago, each firm then would have 30 days to hire an appraisal firm, and these two appraisers will appoint a third appraiser to value the entire Ventas/Kindred portfolio in terms of what the fair market rental value is. We expected an announcement one way or the other after the June 8 deadline, but the silence has been deafening. There is no requirement for them to make an announcement, since the various steps that will be taken have been clearly spelled out, but we expected one anyway. Since they have 30 days to decide on the final appraiser, we assume negotiations are continuing.
Ventas is not sitting around with its hands tied, however. The REIT announced today an acquisition from a third party of a 137-unit retirement community in Minnesota for $19.1 million, or $139,400 per unit, that it will lease to Capital Senior Living. The cap rate based on the first quarter’s annualized results is just under 10%, so it appears to be an attractive deal for Ventas, and Capital Senior Living will make a $150,000 cash flow profit after a 5% management fee and an 8% lease rate. We still have no word yet on Ventas’ negotiations to buy privately held, and Canadian-based, Senior Care REIT, which planned to go public this year. If successfully consummated, it would be the third REIT that Ventas will have acquired. And with Chartwell REIT taking itself out of the running for Retirement Residences REIT, you never know what Ventas may do.
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