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8-K - FORM 8-K - WELLTOWER INC. | l42010e8vk.htm |
EX-10.1 - EX-10.1 - WELLTOWER INC. | l42010exv10w1.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
February 28, 2011
For more information contact:
Scott Estes (419) 247-2800
Jennifer Steiner (419) 247-2800
For more information contact:
Scott Estes (419) 247-2800
Jennifer Steiner (419) 247-2800
Health Care REIT, Inc. to Acquire the Real Estate Assets of
Genesis HealthCare for $2.4 Billion
Genesis HealthCare for $2.4 Billion
Toledo, Ohio, February 28, 2011....Health Care REIT, Inc. (NYSE:HCN) announced that it has
signed a definitive agreement to acquire substantially all of the real estate assets of
privately-owned Genesis HealthCare (Genesis), a leading provider of short-term post-acute,
rehabilitation, assisted living and long-term care services, for a purchase price of $2.4 billion.
Genesis highly respected and tenured management team will continue to operate the facilities
pursuant to a long-term triple-net master lease. HCN will have the right to own certain facilities
that Genesis currently leases from third-party landlords, pursuant to fixed price purchase options,
as well as any facilities that Genesis acquires or develops during the initial 15-year term of the
lease at pre-determined attractive lease yields. In addition, HCN has the option to acquire a 9.9%
ownership interest in Genesis for a fixed price equal to $47 million throughout the initial lease
term. This option will enable HCN to share in the future growth of Genesis.
The long-term triple-net lease with Genesis will provide for rent in the first year of $198 million
with an initial cash yield of 8.25%. The rent, which includes a combination of fixed and CPI
escalators, is expected to increase by 3.5% on the first five anniversary dates of the lease and
3.0% per year thereafter. EBITDAR coverage is expected to be 1.5x. Genesis will have a renewal
option at the conclusion of the initial term for an additional 15 years with rent increased to the
greater of 103% of the prior years rent or fair market value.
We expect Health Care REITs acquisition and leaseback of Genesis HealthCares assets will be
highly accretive to HCNs earnings, says George L. Chapman, Health Care REITs Chairman, Chief
Executive Officer and President. The acquisition is consistent with our commitment to partner with
best-in-class operators across the health care acuity spectrum. The investment provides embedded
opportunities for both organic and external growth. Genesis is positioned to grow its quality
payor mix and optimize occupancy as it continues to meet the needs of an increasing post-acute,
short-stay patient population. In addition, Genesis has built a robust pipeline of potential
acquisition and development opportunities as it expands its footprint along the eastern seaboard.
This new partnership between Genesis and Health Care REIT is an exciting growth story.
George V. Hager, Jr., Chief Executive Officer of Genesis added, We at Genesis are delighted to
have the opportunity to partner with Health Care REIT. Together, we will continue our high level
of investment in optimizing and expanding our facilities to meet the needs of our increasingly
acute patient population. Genesis prides itself on providing patients and residents with
outstanding clinical care, delivered by highly skilled practitioners in a warm and comfortable
setting. We selected HCN as our partner because of this shared vision and its commitment to serve
as a trusted, long-term partner in our growth.
Health Care REIT will acquire from Genesis 147 post-acute, skilled nursing and assisted living
facilities located in 11 states in the Northeast and Mid-Atlantic. Genesis largest markets
include Massachusetts, Maryland, New Jersey, Pennsylvania and West Virginia. The portfolio has
geographic density in attractive metropolitan markets with high barriers to entry, significant
hospital system referral source
admission efficiencies and high replacement costs. These notable portfolio strengths are an
unparalleled market differentiator for Genesis in the post-acute and skilled nursing sector.
Genesis is the largest provider of post-acute and skilled nursing care in the majority of its
markets.
The transaction is expected to be $0.39 accretive to FFO and $0.29 to FAD on an annualized basis,
representing a pro-forma 12% and 9% growth over the midpoint of HCNs 2011 guidance as previously
issued on February 16, 2011. Accretion estimates assume HCNs traditional 45% debt to
undepreciated book capitalization structure. Actual 2011 guidance will be updated to reflect
the timing of the closing of the transaction and the composition of
the funding of the transaction. Pro forma for
transactions announced to-date, HCN will have nearly $13 billion in assets comprised of a
well-balanced portfolio of 880 properties. A reconciliation of FFO and FAD measures can be found
in the exhibit at the end of the document.
Genesis HealthCare, based in Kennett Square, Pennsylvania, is a leading provider of short-term
post-acute, rehabilitation, assisted living and long-term care services. Genesis has successfully
expanded its clinical capabilities in recent years to become a leading provider of short-term,
post-acute services, demonstrated by the fact that 90% of patients are admitted from hospitals and
62% of Genesis patients are discharged to the home. As part of this post-acute focus, Genesis now
has over 120 clinical specialty units. Given its strong clinical capabilities, Genesis facilities
are well positioned as the lowest cost post-acute inpatient setting. With $405 million in
investments in facility improvements and clinical programs, Genesis quality mix has increased from
47% in 2006 to a projected 55% in 2011 and is positioned for significant growth as the short-term,
post-acute patient census accelerates. Driven by growth in quality mix, clinical capabilities and
operational efficiencies, Genesis has generated 9% annual average revenue growth, 14% average
annual EBITDAR growth and consistent average occupancy of 91% over the last five years. Genesis is
privately-owned by affiliates of Formation Capital and JER Partners.
An overview document discussing further details of the Genesis transaction will be available on the
Featured Partners page of HCNs website at www.hcreit.com/featuredpartners.
Transaction Benefits
| Post-acute platforms are emerging as a critical component in the evolution of health care delivery and reimbursement: Changes in health care delivery models and health care reform favor the post-acute platform as a lower-cost alternative to hospitalization. Genesis strategy to focus its care model on the growing post-acute patient population includes $405 million in capital improvements in the last six years, the creation more than 120 clinical specialty units and an initiative to significantly increase the numbers of physicians or nurse practitioners in their facilities. | ||
| Alignment with HCNs relationship investment strategy and commitment to invest across the acuity spectrum: Health Care REIT and Genesis shared alignment in their relationship and partnership approach to business creates value for both companies. Additionally, the significant overlap with Health Care REITs health system, assisted living and senior housing portfolio partners in the Northeast and Mid-Atlantic creates a continuum of care within Health Care REITs portfolio of operators, ensuring that patients can receive services in a facility owned by HCN at any point along the health care continuum. HCNs health system, assisted living and independent living care partnerships provide the potential for referral relationships and a platform in which to share best practices with the goal of increasing quality while lowering the cost of care. | ||
| Embedded opportunity for organic and external growth: Genesis is positioned for superior organic and external growth. Organic growth will be driven through increases in short-term, post-acute patient population, which in turn will drive higher quality payor mix. Since 2006, Genesis has increased the quality payor mix from 47% in 2006 to a projected 55% in 2011 with room for additional growth. External growth opportunities will be driven through an established pipeline of potential acquisition opportunities along the eastern seaboard through existing purchase options |
and rights of first refusal. Additionally, the company also has received Certificates of Need (CONs) in key markets suitable to develop modern post-acute facilities. | |||
| Geographic advantage: Genesis geographic focus in contiguous states along the Northeast and Mid-Atlantic provides for an industry-leading system of provider relationships. High barrier to entry markets and replacement costs create a portfolio that would be extremely difficult to replicate. Operational efficiencies and strong, local brand presence are additional benefits of geographic density. | ||
| Strength of management team: Genesis executive management team, led by George V. Hager, Jr., Chief Executive Officer, has been in place for almost 20 years and will continue to manage the operations. The teams forward thinking approach recognizes that coordination across the health care continuum is critical to efficient and effective health care delivery. | ||
| Highly accretive transaction: The transaction is expected to be $0.39 accretive to FFO and $0.29 to FAD on an annualized basis, representing a proforma 12% and 9% growth over the midpoint of HCNs 2011 guidance as previously issued on February 16, 2011. Accretion estimates assume HCNs traditional 45% debt to undepreciated book capitalization structure. Actual 2011 guidance will be updated to reflect the timing of the closing of the transaction and the composition of the funding of the transaction. Proforma for transactions announced to-date, HCN will have nearly $13 billion in assets comprised of a well-ballance portfolio of 880 properties. A reconciliation of FFO and FAD measures can be found in the exhibit at the end of this document. |
Transaction Terms
The transaction, which has been approved by Health Care REITs Board of Directors and the
shareholders of Genesis, is structured as an equity purchase of the Genesis subsidiary that holds
the real estate. Completion of the transaction is subject to satisfaction of conditions regarding
regulatory approvals and third party consents, and to other customary closing conditions. HCN
expects the acquisition to close during the 2nd quarter of 2011, although there can be no assurance
that the transaction will close or, if it does, when the closing will occur.
Health Care REIT has obtained a commitment for a bridge loan in an amount up to $2.4 billion which
will be available to finance the acquisition of Genesis if needed.
UBS Investment Bank was exclusive financial advisor and lead capital markets advisor to HCN on the
transaction. Arnold & Porter, LLP, Shumaker, Loop & Kendrick, LLP, and Sidley Austin, LLP,acted
as HCNs legal advisors. In connection with the transaction, BofA Merrill Lynch and Citi are
Genesis financial advisors and Arnall Golden Gregory, LLP, Skadden, Arps, Slate, Meagher & Flom
LLP & Affiliates and Williams Mullen are their legal advisors.
Conference Call Information
The
company has scheduled a conference call on Monday, February 28, 2011
at 4:45 p.m. Eastern Time to discuss
the acquisition. Telephone access will be available by dialing
888-346-2469 or 706-758-4923 (international). For those unable to
listen to the call live, a taped rebroadcast will be available
beginning two hours after completion of the call through March 14,
2011. To access the rebroadcast, dial 800-642-1687 or 706-645-9291
(international). The conference ID number is 47782388. To participate
in the webcast, log on to www.hcreit.com or www.earnings.com 15
minutes before the call to download the necessary software. Replays
will be available for 90 days through those same websites. This press
release is posted on the companys website at hereit.com under
the heading news.
About Health Care REIT, Inc.
Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is a real estate
investment trust that invests across the full spectrum of senior housing and health care real
estate. The company also provides an extensive array of property management and development
services. As of December 31, 2010, the companys broadly diversified portfolio consisted of 683
properties in 41 states. More information is available on the
companys website at www.hcreit.com.
About Genesis HealthCare Corporation
Genesis HealthCare Corporation is one of the nations largest post-acute and skilled nursing care
providers with over 200 locations in 13 eastern states. Genesis also supplies contract
rehabilitation therapy to over 1,100 healthcare providers in 28 states and the District of
Columbia. For more information, go to www.genesishcc.com.
Forward Looking Statements
This document may contain forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. When the company uses words such as may, will, intend,
should, believe, expect, anticipate, project, pro forma, estimate or similar
expressions, it is making forward-looking statements. Forward-looking statements are not guarantees
of future performance and involve risks and uncertainties. The companys expected results may not
be achieved, and actual results may differ materially from expectations. This may be a result of
various factors, including, but not limited to, competition within the health care and senior
housing industries (in particular the response to the transaction in the marketplace); the failure
to make new investments as and when anticipated; negative developments in the operating results or
financial condition of operators or tenants, including Genesis; the failure of closing, including
this acquisition, to occur as and when anticipated; unanticipated difficulties and/or expenditures
relating to this acquisition and future acquisitions and the integration of the acquired facilities
into the companys portfolio; the attainment of third-party consents and the receipt of applicable
healthcare licenses and governmental approvals; compliance with IRS guidance; and changes in rules
or practices governing the companys financial reporting. Additional factors are discussed in the
companys Annual Report on Form 10-K and in its other reports filed from time to time with the
Securities and Exchange Commission. The company assumes no obligation to update or revise any
forward-looking statements or to update the reasons why actual results could differ from those
projected in any forward-looking statements.
Non-GAAP Financial Measures
HCN believes that net income attributable to common stockholders, as defined by U.S. generally
accepted accounting principles (U.S. GAAP), is the most appropriate earnings measurement.
However, it considers funds from operations (FFO) and funds available for distribution (FAD) to
be useful supplemental measures of our operating performance. Historical cost accounting for real
estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets
diminishes predictably over time as evidenced by the provision for depreciation. However, since
real estate values have historically risen or fallen with market conditions, many industry
investors and analysts have considered presentations of operating results for real estate companies
that use historical cost accounting to be insufficient. In response, the National Association of
Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating
performance for REITs that excludes historical cost depreciation from net income. FFO, as defined
by NAREIT, means net income, computed in accordance with U.S. GAAP, excluding gains (or losses)
from sales of real estate, plus real estate depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. FAD represents FFO excluding net straight line
rental adjustments, amortization related to above/below market leases and amortization of non-cash
interest expenses and less cash used to fund capital expenditures, tenant improvements and lease
commissions. HCN believes that FFO and FAD are useful supplemental measures of operating
performance because investors and equity analysts may use these measures to compare our operating
performance between periods or as compared to other REITs or other companies on a consistent basis
without having to account for differences caused by unanticipated and/or incalculable items.
HCNs supplemental reporting measures and similarly entitled financial measures are widely used by
investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and
investment recommendations of companies. HCNs management uses these financial measures to
facilitate internal and external comparisons to historical operating results and in making
operating
decisions. Additionally, they are utilized by the Board of Directors to evaluate
management. None of the
supplemental reporting measures represent net income or cash flow provided from operating
activities as determined in accordance with U.S. GAAP and should not be considered as alternative
measures of profitability or liquidity. Finally, the supplemental reporting measures, as defined by
the company, may not be comparable to similarly entitled items reported by other real estate
investment trusts or other companies.
Guidance Reconciliations Exhibit
Year ended December 31, 2011
($ per share data)
Year ended December 31, 2011
($ per share data)
HCN Guidance | Pro Forma HCN Annualized | |||||||||||||||||||||||
(as issued February 16, 2011) | Guidance Post-Genesis (1) | |||||||||||||||||||||||
Low | Midpoint | High | Low | Midpoint | High | |||||||||||||||||||
FFO Reconciliation: |
||||||||||||||||||||||||
Net income attributable to common
stockholders |
$ | 1.02 | $ | 1.07 | $ | 1.12 | $ | 1.39 | $ | 1.44 | $ | 1.49 | ||||||||||||
Depreciation and amortization(2) |
2.23 | 2.23 | 2.23 | 2.25 | 2.25 | 2.25 | ||||||||||||||||||
Funds from operations |
$ | 3.25 | $ | 3.30 | $ | 3.35 | $ | 3.64 | $ | 3.69 | $ | 3.74 | ||||||||||||
Increase from current guidance |
12 | % | ||||||||||||||||||||||
Dividends per common share |
$ | 2.86 | $ | 2.86 | $ | 2.86 | $ | 2.86 | $ | 2.86 | $ | 2.86 | ||||||||||||
FFO payout ratio |
88 | % | 87 | % | 85 | % | 79 | % | 78 | % | 76 | % | ||||||||||||
FAD Reconciliation: |
||||||||||||||||||||||||
Net income attributable to common
stockholders |
$ | 1.02 | $ | 1.07 | $ | 1.12 | $ | 1.39 | $ | 1.44 | $ | 1.49 | ||||||||||||
Depreciation and amortization(2) |
2.23 | 2.23 | 2.23 | 2.25 | 2.25 | 2.25 | ||||||||||||||||||
Net straight-line rent and above/below
amortization(2) |
(0.17 | ) | (0.17 | ) | (0.17 | ) | (0.28 | ) | (0.28 | ) | (0.28 | ) | ||||||||||||
Non-cash interest expense |
0.10 | 0.10 | 0.10 | 0.09 | 0.09 | 0.09 | ||||||||||||||||||
Cap-ex, tenant improvements, lease
commissions |
(0.17 | ) | (0.17 | ) | (0.17 | ) | (0.15 | ) | (0.15 | ) | (0.15 | ) | ||||||||||||
Funds available for distribution |
$ | 3.01 | $ | 3.06 | $ | 3.11 | $ | 3.30 | $ | 3.35 | $ | 3.40 | ||||||||||||
Increase from current guidance |
9 | % | ||||||||||||||||||||||
Dividends per common share |
$ | 2.86 | $ | 2.86 | $ | 2.86 | $ | 2.86 | $ | 2.86 | $ | 2.86 | ||||||||||||
FAD payout ratio |
95 | % | 93 | % | 92 | % | 87 | % | 85 | % | 84 | % |
Notes: (1) | Assuming traditional financing mix of 55% equity and 45% debt, excluding potential capital carrying costs. | |
(2) | Amounts presented net of noncontrolling interests share and HCNs share of unconsolidated joint ventures. | |
* | Actual 2011 guidance will be updated to reflect the timing of the closing of the transaction and the composition of the funding of the transaction. |