Invesque Inc. Reports Second Quarter 2019 Results and Announces Transition of Majority of its Greenfield Portfolio to Commonwealth Senior Living to Create a Leading Operator of Seniors Housing in the Mid-Atlantic
Toronto, Ontario, August 14, 2019 – Invesque Inc. (TSX: IVQ.U) (the “Company” or “Invesque”) today announced its results for the three and six months ended June 30, 2019. The Company also announced the plan to transition all 13 of its assets currently operated by affiliates of Greenfield Senior Living (“Greenfield”) to certain of the Company’s affiliates and strategic operating partners (together the “Transition”).
Greenfield Transition
The Company has agreed to terms with Greenfield whereby the Company will acquire 100% of Greenfield’s interests in Company-owned portfolios and its associated leasehold interests, encompassing 13 assets across 10 triple-net leased assets and a three property joint venture.
As part of the Transition, 10 of the communities currently operated by Greenfield will be transferred to Commonwealth Senior Living, LLC (“Commonwealth”) and will be owned, operated and managed by affiliates of the Company. Upon completion of the Transition, Commonwealth will become the Company’s largest source of net operating income (“NOI”), representing approximately 26% of NOI on a pro forma basis.
“We have enjoyed our partnership with Greenfield since acquiring the portfolio as a part of the Care Investment Trust transaction last year,” stated Adlai Chester, Chief Investment Officer for the Company. “Upon transition of the communities to Commonwealth, we will have created the largest senior housing operator in Virginia and one of the largest senior housing operators in the Mid-Atlantic.”
The Company will also expand its relationship with Heritage Senior Living (“Heritage”) by transitioning two Greenfield operated assets to Heritage. The two assets are located in Pennsylvania and New Jersey, which are markets where Heritage currently operates assets in the Company’s portfolio. The transition of these two assets to Heritage will create strategic synergies that will enhance the Company’s existing portfolio.
The first Transition asset was transferred to Commonwealth on August 2, 2019. The Company anticipates that all of the Transition assets will be transferred by December 31, 2019, pending regulatory approval and the satisfaction of other customary closing conditions.
In aggregate, the Company estimates that the Transition will provide for up to US$2.5 Million in additional annual NOI to Invesque based on historical performance. The Transition is expected to be US$0.03-US$0.04 accretive to 2020 adjusted funds from operations (“AFFO”).
Second Quarter and Subsequent Highlights
- Completed the previously announced acquisition of Commonwealth Senior Living, LLC and 17 of its private pay senior housing communities for US$285.4 Million.
- Announced the agreement to acquire three memory care properties, developed by Ellipsis Real Estate Partners (“Ellipsis”) and leased to Constant Care Management Company (“Constant Care”), for US$30.7 Million.
- The acquisition will expand the Company’s relationship with Constant Care from four properties to seven properties upon closing.
- The purchase price for the acquisition will be paid through a combination of assumption of debt, repayment of a portion of the mezzanine loan and, subject to TSX approval, the issuance of Invesque common shares to Ellipsis and Constant Care at a price of US$9.00 per share.
- Formed a joint venture (“JV”) with certain affiliates of Magnetar Capital (“Magnetar”) to own primarily skilled nursing facilities.
- The Company contributed three properties leased to Bridgemoor Transitional Care Operations, LLC (“Bridgemoor”) and five properties leased to The Ensign Group, Inc. into the JV in exchange for US$23.0 Million in cash. Upon closing of the contribution by the Company of one additional asset leased to Bridgemoor, Magnetar will own a 35% interest in the JV.
- The Company collects an asset management fee of 25 basis points on gross asset value.
- The Company will provide a working capital loan of up to US$10.0 Million to Bridgemoor and certain of its subsidiaries. The Company received rights in a warrant for a 9.8% interest in Bridgemoor.
- Closed the previously announced acquisition of two assets operated by Symphony from various sellers for approximately US$30.0 million in cash and Company common shares at a price of US$9.00 per share.
- Closed the sale of The Springs of Mooresville, a 70-bed transitional care and assisted living community, to the current operator, Trilogy Health Services.
- Appointed Donna Brandin, CPA as an independent member of the Board of Directors. Donna will become the Chair of the Audit Committee effective October 1, 2019.
- Reported funds from operations (“FFO”) of US$0.19 and US$0.44 per common share for the three and six months respectively ending June 30, 2019. The Company reported AFFO of US$0.18 and US$0.39 per common share for the three and six months respectively ending June 30, 2019. Excluding deal pursuit costs, the Company reported AFFO of US$0.20 per common share for, and US$0.40 per common share for, the three and six months respectively ending June 30, 2019.
“The second quarter was extremely active for Invesque, highlighted by our transformative Commonwealth transaction. Having our own vertically-integrated senior housing operator provides us a new and effective tool to create value for our shareholders,” commented Scott White, Chairman and Chief Executive Officer for the Company. “The Greenfield transition highlights our ability to leverage the Commonwealth management platform to execute on our plan to optimize and align our portfolio with strategic operating partners to maximize organic cash flow in an accretive manner.”
Financial Highlights
| Three months ended June 30, | Six months ended June 30, | |||
|---|---|---|---|---|
| (in thousands of U.S dollars, except per share values) | 2019 | 2018 | 2019 | 2018 |
| Revenue | $28,824 | $29,354 | $58,048 | $52,393 |
| Net income (l0ss) | $(16,902) | $10,527 | $(9,697) | $12,846 |
| Funds from operations (“FFO”) (1) | $10,445 | $15,042 | $23,341 | $27,222 |
| Funds from operations per share | $0.19 | $0.29 | $0.44 | $0.57 |
| Adjusted funds from operations (“AFFO”) (1) | $9,918 | $12,953 | $20,894 | $23,037 |
| Adjusted funds from operations per share | $0.18 | $0.25 | $0.39 | $0.49 |
(1) FFO and AFFO are measures used by management to evaluate operating performance. Please refer to the section “Non-IFRS Measures” in this press release for more information.
Balance Sheet and Portfolio Highlights
| (in thousands of U.S. dollars, except number of properties) | June 30, 2019 | December 31, 2018 |
|---|---|---|
| Total assets | $1,220,346 | $1,283,959 |
| Number of owned properties | 101 | 98 |
| Debt | $687,480 | $731,215 |
| Debt / Gross Book Value | 56.3% | 57.0% |
“With the volatility in interest rates creating a favorable backdrop in the debt markets, we were active in the capital markets to lock in more favorable rates and further stagger our maturities,” commented Scott Higgs, Chief Financial Officer for the Company. “We were able to generate savings and long-term cash flow stability through active refinancings and interest rate swaps, as well as close on an advantageous rate on newly sourced debt on the Commonwealth transaction.”
Subsequent Events
Closing of Acquisition of Commonwealth and 17 of its Communities
On August 1, 2019, the Company closed on the previously announced acquisition of Commonwealth and 17 private pay senior living communities comprising 1,205 units with 1,469 beds (together the “Initial Tranche”).
The aggregate purchase price for the Initial Tranche was approximately US$285.4 million. The consideration was funded through a combination of the incurrence of new debt of US$176.0 million, the assumption of existing debt of approximately US$9.5 million, the issuance of approximately US$53.6 million of preferred interests (the “Preferred Interests”) in the Invesque acquisition vehicle acquiring the Initial Tranche (“Foxhound LLC”), and cash.
The acquisition of the remaining three properties (“Second Tranche”) from the transaction announced on May 22, 2019 is expected to close in the next 90 days, subject to the approval of certain lenders of secured debt underlying the Second Tranche properties. The Second Tranche is expected to be funded through a combination of the assumption of debt, the issuance of approximately US$11.8 million of Preferred Interests, and cash.
The Preferred Interests will be initially exchangeable by holders into common shares of the Company at a fixed exchange price of US$9.75 per Invesque common share. The Preferred Interests have an initial dividend rate of 6.50% per annum and have a liquidation value equal to their unreturned initial capital contribution and any accrued and unpaid dividends. Additionally, under certain circumstances, Foxhound LLC will have the right to redeem the Preferred Interests at its discretion for an amount specified in its operating agreement.
The overall transaction is expected to be immediately accretive to FFO and AFFO and represents an approximately 200 basis point spread to the Company’s weighted average cost of capital.
Magnetar Preferred Equity
In July 2019, the Company entered into subscription agreements in respect to a private placement with Magnetar (“Private Placement”), subject to customary closing conditions. The Private Placement is expected to close in the next 30 days.
The Company will issue Class A Series 4 Convertible Preferred Shares of the Company (the “Preferred Shares”) to Magnetar for aggregate proceeds of approximately US$14.6 Million. Magnetar will receive 1,538,461 Preferred Shares at a price per share of US$9.4575 and the Preferred Shares will be convertible into common shares of the Company at a conversion price of US$9.75.
The proceeds of the Private Placement will be used to fund a portion of the Commonwealth transaction announced on May 22, 2019 and for general corporate purposes.
Investor Conference Call
A conference call hosted by the Company’s senior management team will be held Thursday, August 15, 2019 at 10:00 AM ET. The telephone numbers for the conference call are: Local: (647) 427-7450 or Toll Free: (888) 231-8191. The passcode for the conference call is: 4896518. The conference will also be available via webcast at https://invesque.com/company-presentations/. Please log on at least 15 minutes before the call commences. The telephone numbers to listen to the call after it is completed (taped replay) are: Local: (416) 849-0833 or Toll Free: (855) 859-2056. The Passcode for the taped replay is 4896518.
About Invesque
Invesque is a health care real estate company with an investment thesis centered around the opportunity created by the global aging demographic trend. Invesque currently capitalizes on this opportunity by investing in a highly diversified portfolio of income generating health care properties located across the United States and Canada through long-term absolute net leases, joint ventures, and development capital. For more information, visit www.invesque.com.
Forward-Looking Information
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 expected additional NOI and AFFO resulting from the Transition, as well as information with respect to the closing of the Transition, the closing of the acquisition of the Ellipsis assets, the closing of the Private Placement and the closing of the Second Tranche of Commonwealth. 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, including without limitation the risk that the conditions for completion of the closing of the Transition, the closing of the acquisition of the Ellipsis assets, the closing of the Private Placement and/or the closing of the Second Tranche of Commonwealth will not be satisfied or waived and the risk that any one or more of the portfolios being acquired will not be integrated into the Company as currently expected. 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 the assumption that the closing conditions to each of these transactions will be satisfied and that the assets related to each of these transactions will be integrated into the Company as currently expected. 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. Accordingly, readers are cautioned not to place undue reliance on the forward-looking statements. Additional risks, uncertainties, material assumptions and other factors that could affect actual results are 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. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, the Company does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Non-IFRS Measures
The Company reports its financial results in accordance with International Financial Reporting Standard (“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 June 30, 2019, please refer to the Financial Measures section of the June 30, 2019 MD&A available on the Company’s website and on SEDAR at www.sedar.com.
For Information Contact
Investor Relations
1-317-643-4017
ir@invesque.com