Diversicare Healthcare Services (Nasdaq: DVCR) on Wednesday announced a plan to exit the Kentucky market, ceding control of the 10 skilled nursing facilities it operates in the state.
The Brentwood, Tenn.-based Diversicare reached an agreement with landlord Omega Healthcare Investors (NYSE: OHI) to terminate operations at the 10-building portfolio, which consists of around 885 skilled nursing beds; the deal, which Diversicare described as being “part of its portfolio management strategy,” is set to close during the third quarter of the year.
The company had operated in the Bluegrass State for about 25 years, CEO Jay McKnight said in a statement announcing the move. Just last fall, Diversicare reached an agreement with Omega to consolidate all 34 of its leases with the real estate investment trust (REIT) under a single master agreement with an initial 12-year term.
McKnight declined to provide additional comment on the move when reached by SNN late Wednesday, but he positioned the transaction as a necessary strategic step for Diversicare in the statement.
“This is not a decision we made lightly, but we have concluded that it is in the best interest of Diversicare and its shareholders to focus on our operations in other regions and other opportunities within our existing portfolio,” McKnight said.
Omega will be in charge of naming the new operator, though the announcement did not identify Diversicare’s replacement. A representative from Omega did not respond to a request for further comment as of press time.
As of Wednesday, Diversicare operates 72 skilled nursing and senior living properties, according to the company, with a total of 8,214 licensed beds. The provider’s footprint consists of locations in Tennessee, Ohio, Mississippi, Alabama, Florida, Kansas, Missouri, Texas, and Oklahoma.
The operator in November divested from three other facilities in Kentucky for a combined $18.7 million, a move that contributed to a quarter-over-quarter decline in revenue for the first three months of 2019. The operator has also seen occupancy and skilled mix drops of late, along with an ongoing Department of Justice investigation into its therapy practices.
McKnight hinted at cost-cutting measures during the company’s first quarter earnings call with investors and analysts earlier this month — which also saw the operator report a $3.3 million loss.
“We’ve begun efforts to drive efficiency in certain processes within the organization and to redefine our overhead structure in light of industry headwinds,” he said. “We’ve removed approximately 10% of our non-facility-based positions and have streamlined certain processes to reduce our operating costs. We expect to see the benefits of these efforts in the future quarters.”
Diversicare shares closed Wednesday’s trading up $0.38 or 11.5%, finishing the day at $3.69.
Maggie Flynn contributed reporting to this story.