Attached files
| file | filename |
|---|---|
| EX-99.1 - Sentio Healthcare Properties Inc | v171427_ex99-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported):
December
18, 2009
CORNERSTONE
HEALTHCARE PLUS REIT, INC.
(Exact
name of registrant as specified in its charter)
|
Maryland
|
333-139704
|
20-5721212
|
|
(State or Other Jurisdiction of Incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification Number)
|
1920
Main Street, Suite 400
Irvine,
California 92614
(Address
of principal executive offices)
(949)
852-1007
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligations of the registrant under any of the following
provisions.
|
o
|
Written communications pursuant
to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
o
|
Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR
240.14d-2(b)
|
|
o
|
Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)
|
|
o
|
Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)
|
|
ITEM 1.01
|
ENTRY INTO MATERIAL DEFINITIVE
AGREEMENT.
|
Joint
Venture to Develop a Long-Term Acute Care Hospital in Rome, GA
General
On January 12, 2010, through a
wholly-owned indirect subsidiary, Cornerstone Healthcare Plus REIT, Inc. (the
“Company”) funded an investment in a joint venture along with Cornerstone
Private Equity Fund Operating Partnership, LP (the “Cornerstone Co-Investor”),
an affiliate of the Company’s sponsor that is also advised by Cornerstone
Leveraged Realty Advisors, LLC, and affiliates of The Cirrus Group, an
unaffiliated entity, to develop a $16.3 million free-standing medical facility
on the campus of the Floyd Medical Center in Rome, Georgia. The
agreements pursuant to which the Company agreed to fund this investment were
dated as of December 18, 2010. The material features of the
investment in the joint venture and the development are described below. The
terms of the related construction financing are set forth under Item 2.03
below.
Joint Venture Parties and
Structure
The Cornerstone JV Entity.
The Company invested approximately $2.7 million to acquire an 83.3% equity
interest in Cornerstone Rome LTH Partners LLC (the “Cornerstone JV Entity”)
through a wholly-owned subsidiary of its operating partnership, CGI Healthcare
Operating Partnership, LP (“CGI Healthcare”). The Cornerstone
Co-Investor invested approximately $532,000 to acquire the remaining 16.7%
interest in the Cornerstone JV Entity. As the manager of the
Cornerstone JV Entity, CGI Healthcare generally has the authority to direct and
control the business of the Cornerstone JV Entity; however, under the terms of
the operating agreement for the Cornerstone JV Entity, certain major decisions
regarding the business of the Cornerstone JV Entity require the unanimous
approval of CGI Healthcare and the Cornerstone Co-Investor. The
operating agreement contains terms, conditions, representations, warranties and
indemnities that are customary and standard for joint ventures in the real
estate industry.
Parties to the Rome Joint
Venture. The Cornerstone JV Entity contributed approximately $3.2 million
of capital to acquire a 90% limited partnership interest in Rome LTH Partners,
LP (the “Rome Joint Venture”). Three affiliates of The Cirrus Group
(collectively the “Cirrus Limited Partners”) contributed an aggregate of
approximately $354,000 to acquire an aggregate 9.5% limited partnership interest
in the Rome Joint Venture. A fourth affiliate of the Cirrus
Group acts as the general partner and holds the remaining 0.5%
interest in the Rome Joint Venture (the “Cirrus General Partner” and,
collectively with the Cirrus Limited Partners, the “Cirrus
Partners”). As a result of the structure described above,
the Company holds an approximately 75% indirect equity interest in Rome Joint
Venture, the Cornerstone Co-Investor holds an approximately 15% indirect equity
interest and the Cirrus Partners hold the remaining 10% equity
interest. The Company’s equity capital investment in the joint
venture was funded from proceeds from its ongoing initial public
offering.
Management of the Rome Joint
Venture. Under the partnership agreement of the Rome Joint Venture, the
Cirrus General Partner generally has control over the affairs of the partnership
and the development project, except that certain major decisions with respect to
the business of the partnership require the approval of a majority in interest
of the partners. Such major decisions include, among others, (i) the
sale or transfer of all or substantially all of the partnership’s assets, (ii)
termination of the ground lease with Floyd Medical Center, (iii) admission of
new partners, (iv) loans of partnership funds, (v) changes to the proposed use
of the new facility and (vi) significant changes to the contract for the
construction of the new facility.
Distributions to the Rome Joint
Venture Partners. Distributions are made generally to return capital
contributions to the Rome Joint Venture partners with preferred
returns. Thereafter distributions are paid in varying amounts
depending on whether the Cirrus Partners are then entitled to receive a
promotional interest in the cash flows of the partnership (the “Cirrus
Promote”). During the period that the Cirrus Promote is in effect,
cash flow of the partnership is distributed in part to the partners in
proportion to their relative capital contribution account balances, and in part
to the Cirrus Partners in accordance with their respective promote
percentages. After the Cirrus Promote has terminated, cash flow of
the partnership is distributed to the partners in proportion to their relative
capital contribution account balances. Under the partnership
agreement, the Cirrus Promote remains in effect until the Cirrus Partners elect
to exercise the right, between the second and fourth anniversaries of the
effective date of the partnership agreement, to initiate a monetization
procedure pursuant to which the Cornerstone JV Entity is required to pay a
promote termination amount to the Cirrus Partners that is calculated based upon
the value of the development property at the time the monetization procedure is
initiated.
Additional Capital
Contributions. Pursuant to the partnership agreement of the
Rome Joint Venture, the partners may be required to fund additional capital
contributions determined to be necessary by the Cirrus General
Partner. Controllable cost overruns on the development project are to
be paid 100% by the Cirrus Limited Partners in the form of mandatory capital
contributions to the Rome Joint Venture that are not credited to the
respective capital accounts of the Cirrus Limited Partners. Before the Cirrus
Promote is terminated, additional capital contributions are generally payable
45% by the Cornerstone JV Entity and 55% by the Cirrus Limited
Partners. After the Cirrus Promote terminates, further additional
capital contributions are payable by the partners in proportion to their
percentage interests in the Rome Joint Venture. With the exception of
certain capital contributions related to the repayment of the construction loan,
additional capital contributions generally require the prior consent of the
Cornerstone JV Entity.
Buy/Sell Rights. The limited
partners of the Rome Joint Venture generally may not transfer their respective
interests in the partnership without the prior written consent of the Cirrus
General Partner and the Cornerstone JV Entity. In the event that a
limited partner decides to effect a voluntary transfer of all or a portion of
such partner’s interest, then the partnership and the other partners shall have
a right of first refusal to purchase such partnership interests at a purchase
price determined based upon the value of the development property at the time of
such proposed transfer.
Management Fees. Under the
Rome Joint Venture partnership agreement, the Cirrus Partners are entitled to
receive certain fees related to the management and financing of the
project. During the construction period, the Rome Joint Venture shall
pay the Cirrus General Partner a development fee equal to 3.6% of the total cost
of construction of the development project as provided for in the development
budget. In connection with securing the construction loan, the Rome
Joint Venture will pay a financing fee of 0.5% of the amount of the construction
loan to an affiliate of the Cirrus Group. Beginning on the date the
development is completed, the Rome Joint Venture shall pay an affiliate of the
Cirrus Group an annual property management fee of 3.5% of the total gross rental
income generated by the property, which may be partially offset by property
management fees paid under tenant leases.
Ground
Lease. Effective as of December 18, 2009, the Rome Joint
Venture entered into a ground lease with Floyd Medical Center to lease the land
for the proposed development. The first year ground lease payment is $17,500 and
the expense is passed through to the tenants under the terms of their leases.
The ground lease has an initial term of 40 years, with a guaranteed right to
renew for an additional 40-year term.
The Development Project
The
aggregate budgeted development cost for the proposed development of the
long-term acute care medical facility is approximately $16.3
million. The development cost will be funded with approximately $3.54
million of initial capital from the Rome Joint Venture and a $12.75 million
construction loan described under Item 2.03 below. The Company expects to fund
its portion of any future required capital contributions using proceeds raised
in its ongoing public offering.
The long-term acute care medical
facility is planned to comprise approximately 53,000 square feet, of which 86%
percent will be occupied by a long-term acute care hospital operated by
RehabCare Group, Inc. pursuant to a long-term net lease. RehabCare Group, Inc.
is one of the country’s largest providers of service in the post-acute care
setting. The remaining space will be occupied by Floyd Medical Center
as clinical space, also pursuant to a long-term net lease. The new
facility will replace and expand The Specialty Hospital, LLC, an existing 24-bed
long term acute care hospital operated by RehabCare Group, Inc. and currently
housed in the existing main Floyd Medical Center building. The new
facility will be a separate freestanding building connected to the existing
hospital and will have a total of 45 beds. The expanded facility will
serve patients throughout the northwest Georgia and northeast Alabama region who
are in need of intensive care for an extended period of time. There
are no competing facilities within a 50-mile radius of the new development
project.
In evaluating this development as
a potential investment and determining the appropriate amount of consideration
to be paid for this investment, the Company considered a variety of factors
including overall valuation of targeted net rental income, location,
demographics, existing and planned competitive properties and price per square
foot and analyzed how the investment compares to comparables in its
market.
|
ITEM
2.03
|
CREATION OF A
DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF
BALANCE SHEET
ARRANGEMENT OF REGISTRANT
|
Rome
Joint Venture Construction Financing
In
connection with this development, the Rome Joint Venture entered into a $12.75
million construction loan. The loan will mature on December 18, 2012,
with two 1-year extension options dependent on certain financial
covenants. The loan bears a variable interest rate with a spread of
300bp over 1-month LIBOR with a floor of 6.15%. Monthly payments for
the first twelve months will be interest-only. Monthly payments
beginning the thirteenth month will include interest and principal based on a
25-year amortization period.
|
ITEM 9.01
|
FINANCIAL STATEMENTS AND
EXHIBITS.
|
|
(d)
|
Exhibits
|
|
99.1
|
Press Release dated January 12,
2010
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
|
CORNERSTONE
HEALTHCARE PLUS REIT, INC.
|
||
|
Dated: January
14, 2010
|
By:
|
/s/ Sharon C. Kaiser
|
|
Sharon
C. Kaiser,
|
||
|
Chief
Financial Officer
|
||