Invesque Inc. Announces Completion of Final Phase of New Framework with Symphony Care Network
Final Phase Included Sale of Additional Skilled Nursing Facilities and Execution of Amended and Restated Master Lease for Remaining Properties
Toronto, Ontario, June 2, 2021 – Invesque Inc. (TSX: IVQ.U and IVQ) (the “Company” or “Invesque”) today announced the completion of the final phase of transactions associated with the previously disclosed memorandum of understanding (“MOU”) to streamline the Company’s relationship with Symphony Care Network (“SymCare”).
As previously announced, Invesque and SymCare executed the non-binding MOU in the fourth quarter of 2020. At the time of execution of the MOU and as of March 31, 2021, SymCare operated 16 facilities for the Company under an absolute net lease structure.
Under the terms of the MOU, the Company agreed to sell to SymCare, and/or transition to a new tenant, approximately 50% of Invesque’s existing assets operated by SymCare. The MOU also set forth an agreement between Invesque and SymCare to enter into an amended and restated 15-year absolute net master lease with enhanced lease coverage for the remaining properties which would continue to be operated by SymCare, and an agreement to restructure the outstanding loan agreements between SymCare and Invesque (collectively, the “Transaction”).
Recap of Initial Phase of the Transaction
As previously disclosed in the Company’s first quarter 2021 earnings release, dated May 12, 2021, the Company successfully completed the initial phase of the Transaction on April 30, 2021.
Under the initial phase of the Transaction, Invesque sold the Symphony of Chesterton facility to SymCare for US$20.0 million, netting the Company approximately US$5.5 million in net cash proceeds.
The Company also transitioned four skilled nursing facilities, all of which were previously leased to SymCare, to Cascade Capital Group (“Cascade”) on April 30, 2021. The facilities that were transitioned to Cascade included Aria, Bronzeville, Evanston, and Glendale. The new lease arrangement between Cascade and Invesque features a 10-year initial term and two five-year renewal options. Base rent is approximately US$3.4 million in year one of the lease, approximately US$5.0 million in year two of the lease, approximately US$5.5 million in year three of the lease, and thereafter base rent will escalate by 2% annually. Cascade will have a purchase option to acquire the facilities beginning in the fifth year of the lease.
Highlights of the Final Phase of the Transaction
On June 1, 2021, the Company closed on the final phase of the Transaction.
The final phase of the Transaction included the sale of three additional skilled nursing facilities to SymCare for approximately US$55.5 million, netting the Company approximately US$10.5 million in net cash proceeds. The three facilities sold to SymCare included Symphony of Lincoln Park, Symphony of South Shore, and Symphony Residences of Lincoln Park. SymCare is also obligated to acquire Symphony of Chicago West (“Chicago West”) on or before May 1, 2024, subject to a minimum price of US$30.5 million. SymCare funded a non-refundable cash deposit into escrow as part of its obligation to purchase Chicago West.
In addition to the closing of the sale of the three facilities noted above, SymCare and Invesque entered into an amended and restated 15-year master lease for the remaining eight properties, which will continue to be operated by SymCare. The amended and restated master lease, which includes the Chicago West property, features rent of approximately US$14.3 million beginning on January 1, 2022, and annual base rent escalators of 2% beginning on January 1, 2023. For the remainder of 2021, rent will be subject to a floor of US$1.1 million per month plus the amount of EBITDAR generated at the facilities subject to the master lease.
As part of the final phase of the Transaction, Invesque and SymCare also restructured the outstanding loan agreements with SymCare and amended the Company’s warrant interest in SymCare. As previously disclosed, Invesque has held a warrant interest in SymCare that was exercisable upon a change of control for a 9.8% ownership stake in SymCare. As part of the Transaction, SymCare and Invesque executed an amendment to the warrant agreement to provide the Company the ability to exercise its right at any time for a 9.8% ownership stake in SymCare.
The outstanding loan obligations owed by SymCare to Invesque, along with the outstanding deferred rent payable under the master lease, have been consolidated into a new loan payable by SymCare to Invesque with a principal balance of US$17 million (the “New Loan”). Interest and principal payments under the New Loan agreement will be subject to certain coverage ratio requirements under the amended master lease agreement. The New Loan is cross-collateralized and cross-defaulted with the master lease and features prepayment requirements in the event that SymCare makes distributions to equity owners. The New Loan has a maturity date that is the same as the maturity date of the master lease, including any extension options exercised by SymCare.
Portfolio Diversification Post Transaction
The Company’s portfolio of properties leased to SymCare, prior to the Transaction, was acquired as part of Invesque’s initial public offering (“IPO”) in 2016 with subsequent additions in 2019. At the time of the Company’s IPO in 2016, SymCare represented approximately 75% of Invesque’s net operating income (“NOI”). The Company has reduced its exposure and concentration to SymCare through strategic acquisitions in recent years.
Post the closing of the Transaction, SymCare now represents less than 11% of Invesque’s pro-forma NOI, a signification reduction from approximately 30% of the Company’s NOI in 2018 and approximately 24% of the Company’s pro-forma NOI as of the first quarter of 2021.
“The Invesque and SymCare teams worked thoughtfully, diligently, and collaboratively over the last eight months to streamline and strengthen our relationship to set both sides up for long-term success,” commented Adlai Chester, Chief Investment Officer for the Company. “The Transaction allowed Invesque to achieve further diversification of its revenue sources which has been our long-standing goal. In addition, the Transaction allowed us to crystalize value in certain properties, reduce overall portfolio leverage, strengthen our liquidity position, and preserve value in the remaining portfolio with SymCare.”
Financial Impacts of the Transaction
Net proceeds from the Transaction were used to pay down the Company’s credit facility, led by KeyBank, and the balance will be used for other corporate purposes. The Transaction is expected to reduce Invesque’s consolidated leverage, as calculated under the Company’s credit facility agreement, to approximately 59.2%, down from approximately 60.7% as of March 31, 2021. This reduction in leverage provides Invesque approximately 25 basis points of interest cost savings under the Company’s credit facility given consolidated leverage, as calculated under the Company’s credit facility agreement, is now under 60%.
Based upon the Transaction impact and other factors, the Company estimates that fiscal year 2021 adjusted funds from operations (“AFFO”) per share will be approximately US$0.50 to US$0.53. Further, the Company estimates that fiscal year 2022 AFFO per share will be approximately US$0.62 to US$0.65 and that leverage, as calculated under the Company’s credit facility agreement, will reduce to approximately 57%-58%.
Invesque is a North American health care real estate company with an investment thesis focused on the premise that an aging demographic in North America will continue to utilize health care services in growing proportion to the overall economy. Invesque currently capitalizes on this opportunity by investing in a highly diversified portfolio of income generating properties across the health care spectrum. Invesque’s portfolio includes investments in independent living, assisted living, memory care, skilled nursing, transitional care, and medical office properties, which are operated primarily under long-term leases and joint venture arrangements with industry leading operating partners. Invesque’s portfolio also includes investments in owner-occupied seniors housing properties in which Invesque owns the real estate and provides management services through its subsidiary management company, Commonwealth Senior Living. For more information, please visit www.invesque.com.
This press release contains forward-looking information that reflects the current expectations of management about the future results and opportunities for the Company, including without limitation information with respect to the financial impacts of the Transaction, including the impact on the Company’s consolidated leverage, 2021 and 2022 AFFO, and 2021 and 2022 AFFO per share. Forward-looking statements generally can be identified by words such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, “project”, or “continue” or similar expressions suggesting future outcomes or events. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Company’s control. Although the Company believes that the expectations in its forward-looking statements are reasonable, its forward-looking statements have been based on factors and assumptions concerning future events which may prove to be inaccurate. Those factors and assumptions are based upon currently available information, including with respect to the financial impact of the Transaction. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated, or implied in the forward-looking statements, including those risks, uncertainties, material assumptions and other factors discussed in the Company’s public disclosure documents available at www.sedar.com, including in the risk factors described in the Company’s current annual information form. Accordingly, readers are cautioned not to place undue reliance on the forward-looking statements.
The Company reports its financial results in accordance with International Financial Reporting Standards (“IFRS”). Included in this news release are certain non-IFRS financial measures as supplemental indicators used by management to track the Company’s performance. These non-IFRS measures are NOI, FFO and AFFO. The Company believes that these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS. For a full definition of these measures and a reconciliation to net profit for the three months ended March 31, 2021, please refer to the Financial Measures section of the March 31, 2021 MD&A available on the Company’s website and on SEDAR at www.sedar.com.
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