Canadian Leisureworld Senior Care Corporation (TSX:LW) entered acquisition agreements on April 26 to buy three luxury retirement residences in the Greater Vancouver Area in British Columbia for an aggregate purchase price of $119.8 million, including a mark to market on assumed debt and excluding a performance-based earn-out of up to $6 million.
Two of the residences, located in South Surrey, BC have a total of 257 residential suites; the third, located in Port Coquitlam, BC has 135 residential suites.
Pacifica Resort Retirement Living consists of two connected four-story buildings with 175 total suites, 130 of which are being purchased. The suites are broken into 60 condominium suites, 15 of which are being purchased, while the remaining 45 are owned by third parties. Residents in those third-party suites will be able to purchase services and utilize Pacifica’s facilities for a monthly fee. Out of the 130 purchase suites, 90 are designated as independent living, and 40 are assisted living. The current occupancy rate is 96%.
Peninsula Resort Retirement Living is a six-story building with 127 suites; 92 are independent living, and 35 are assisted living. It has a current occupancy rate of 93%.
Astoria Resort Retirement Living is a four-story building with 135 suites, 110 of which are independent living, and the remainder assisted living. Astoria is currently in a lease-up phase with a 59% occupancy.
In conjunction with the transaction, Leisureworld has also agreed to sell, on a bought-deal basis, $49 million of subscription receipts for $12.05 per receipt.
Leisureworld considers the purchase a strategic entry point into British Columbia’s seniors’ living market; the acquisition diversifies the company’s portfolio of retirement and long-term care homes and increases its asset base by approximately 16%.
“We are focused on establishing Leisureworld as a leading provider of facilities and services across the continuum of seniors’ living in Canada. This acquisition represents an important step for us as it both expands our retirement residence portfolio and extends our presence outside Ontario,” said David Cutler, President and Chief Executive Officer of Leisureworld, in a statement. “We look forward to establishing our presence in the attractive British Columbia seniors’ living market with three first-class retirement residences. Further, the transaction is consistent with our commitment to make acquisitions that are accretive to AFFO, to further support our shareholder dividends.”
The three residences, which are all relatively new, will continue to be operated by an experienced team after the acquisition closes; the existing corporate management team of the vendors will continue to manage the newly-acquired residences for one year to ensure a smooth transition and efficient integration of the portfolio into Leisureworld’s business.
The vendors of two out of the three residences are entitled to earn up to an additional $6 million, in aggregate, depending on how the buildings perform in the next year.
Leisureworld estimates the portfolio’s purchase price implies a 7.48% cap rate on stabilized NOI. The acquisition is expected to close on or around May 23, 2012.
Financing the Acquisition
As previously mentioned, Leisureworld plans to sell 4.07 million subscription receipts on a bought-deal basis for $12.05 per receipt to help finance the acquisition and transaction costs. They will be sold to a syndicate of underwriters led by TD Securities, Inc. for gross proceeds of $49,043,500, and the underwriters will have an over-allotment option to purchase up to an additional 610,500 subscription receipts at the same offering price, which they can choose to do in whole or in part no later than 30 days after the offering closes. If exercised in full, this would increase the gross offering size to $56,400,025.
The proceeds from this offering will be deposited in escrow depending on when the acquisition closes. If it closes on or before July 31, 2012, then the escrowed proceeds from the offering will be released to the company and be used to pay a portion of the purchase price of the acquisition. However, if Leisureworld doesn’t close on the portfolio by July 31, 2012, or if the transaction is terminated at an earlier time, then the gross proceeds and pro rata entitlement to interest will be paid to the holders of the receipts.
A portion of the portfolio’s acquisition price will be covered with the assumption of an existing mortgage secured by one of the acquired residences. The mortgage has an outstanding balance of $23.6 million with a fixed interest rate of 5.18%; it matures in 2017. Leisureworld has also gotten a commitment letter from a Canadian chartered bank to provide a $26 million two-year loan and a $26.1 million one-year loan to finance the remainder of the portfolio purchase price and costs associated with the transaction. Each of the two loans will have a floating interest rate equal to the bankers’ acceptance rate, plus 187.5 basis points.
Leisureworld plans to review its options about getting long-term debt financing to replace these loans, including the possibility of obtaining Canada Mortgage and Housing Corporation-insured mortgages.
Written by Alyssa Gerace