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Ventas Signs New Lease Agreement

Zacks Equity Research

Ventas Inc. (VTR), a leading healthcare real estate investment trust (:REIT), recently signed a ‘new LTAC lease’ agreement with Kindred Healthcare Inc. (KND) to lease 10 long-term acute care hospitals (LTACs), comprising 1,066 licensed hospital beds. The agreement will take effect from May 1, 2013 and the initial annual rent will be $28 million. The lease agreement bears an initial term of 10 years and includes annual CPI-based escalations ranging from 0-4%.

The new lease agreement will replace a previous lease agreement with Kindred Healthcare encompassing 10 LTACs and scheduled to expire on April 30, 2013. The rent for these LTACs period from May 1, 2012 to April 30, 2013 is $22 million.

Kindred Healthcare, a real estate investment trust (:REIT), provides healthcare services through its subsidiaries. It operates hospitals, nursing centers and a contract rehabilitation services business across the United States. As of December 31, 2011, it operated 121 LTAC hospitals, 5 IRFs, 224 nursing and rehabilitation centers and 6 assisted living facilities.

In addition, Ventas also announced its plan to re-lease 54 nursing and rehabilitation centers, which will commence on May 1, 2012 and will carry an annual rent of around $57 million or approximately 4% of Ventas' NOI. The lease agreement will expire on April 30, 2013. As a matter of fact, if Ventas lease these properties for 10% more or less than the current rent, then it will not impact Ventas’ normalized funds from operations (:FFO) in second quarter 2012. Presently, the company is searching for a suitable tenant for the properties.

These 54 assets were previously leased to Kindred Healthcare. Of the 89 healthcare properties leased to Kindred, it will now be responsible for 35 properties through both the new LTAC Lease and previously exercised lease renewals. Effective May 1, 2013, the total annual rent for these properties will be approximately $76 million. The rent for the assets for the period from May 1, 2012 to April 30, 2013 is $69 million.

Ventas reported first quarter 2012 recurring FFO of $263.9 million or 91 cents per share, which beat the Zacks Consensus Estimate by 2 cents. With superior quarterly results, the Zacks Consensus Estimate for 2012 and 2013 are pegged at $3.71 and $3.95, respectively, representing an annual growth of 10.09% and 6.53%.

Chicago, Illinois-based Ventas invests, finances, leases and manages healthcare properties. Its diverse portfolio contains more than 1,400 assets in 47 states (including the District of Columbia) and two Canadian provinces consists of seniors housing communities, medical office buildings, hospitals, skilled nursing facilities and other properties.

Ventas currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, HCP Inc. (HCP) also holds a Zacks #3 Rank.

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