NHI Must Buy Back Senior Care Assets from Nonprofit in $40 Million Settlement

| April 29, 2013

National Health Investors, Inc. (NYSE:NHI) and its largest tenant, National Healthcare Corporation, announced last Friday an agreement that resolves a long-standing dispute surrounding accusations they overpriced assets sold to two nonprofit senior care entities they helped establish.

The settlement includes the sale of 14 nursing homes and liquidation of the nonprofits’ assets, which will ultimately result in about $40 million earmarked for “charitable purposes” in Tennessee.

Both nonprofit organizations—SeniorTrust of Florida, Inc. and ElderTrust of Florida, Inc.—had been placed in receivership by the Davidson County Chancery Court at the Tennessee Attorney General’s request. The receiver subsequently filed suit against Murfreesboro-based NHI and National HealthCare Corporation, citing concern regarding the financial terms of certain transactions between the two for-profit corporations and the nonprofit entities.

In 2000, NHI was involved in establishing SeniorTrust and ElderTrust as two Tennessee 501(c)(3) corporations. Between 2001 and 2004, the healthcare real estate investment trust sold a group of skilled nursing facilities located in Missouri and Kansas to SeniorTrust, and a group of skilled nursing facilities in Massachusetts and New Hampshire to ElderTrust.

The financial terms on which NHI had sold and financed the purchase of the skilled nursing portfolio by the nonprofits was seen as a red flag by their receiver, who saw another red flag a few years later in 2007 when NHC acquired the lease of Standifer Place, a long-term care facility in Chattanooga, Tenn., from SeniorTrust.

This time, the receiver raised concerns regarding the financial terms on which National Healthcare Corporation acquired the lease, claiming the terms of the various transactions with NHI and NHC were “unfair” to the nonprofits.

NHI and NHC disputed the claim, but ultimately agreed to a negotiated resolution in which NHI will discount amounts it claims remain due from SeniorTrust and ElderTrust. The two nonprofits will pay those discounted amounts, and then NHI will acquire ElderTrust’s skilled nursing portfolio in Massachusetts and New Hampshire for $23 million.

From the time SeniorTrust and ElderTrust acquired the facilities from NHI, the assets have been managed by National Healthcare Corporation. As part of the settlement, NHC paid additional undisclosed amounts to resolve the receiver’s claims, and has also agreed to lease from NHI the seven Massachusetts and New Hampshire skilled nursing facilities formerly owned by ElderTrust.

The settlements were structured to reduce the nonprofits’ debt to NHI and resolve the dispute regarding whether or not the transactions were fair, says a Tennessean.com article. The sale of the 14 nursing homes and other assets of the nonprofits is expected to largely account for the approximately $40 million settlement, which will not be a direct payment from NHI.

“We believe this settlement is in the best interest of the public and upholds the appropriate use of Tennessee charities,” said Attorney General Bob Cooper in a statement regarding the resolution, subject to approval by the court in which the receiverships are pending. “The Court will ultimately determine how these funds can be used for charitable purposes, and the Office of the Attorney General will seek and welcome public input in that process.”

NHI has previously settled a similar dispute in 2009 regarding another charity the REIT had formed to own nursing homes after being accused of creating and using the nonprofits for its private benefit.

Written by Alyssa Gerace


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Category: Acquisitions, Management & Operators, Senior Care, Senior Housing

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