Extendicare Sells U.S. Portfolio for $870 Million to Formation Capital

Extendicare announced Friday an agreement to sell almost off of its senior care business in the United States for $870 million to a group of investors led by Formation Capital, LLC.

The portfolio comprises 141 owned and operated senior care communities, four communities operated under lease agreements, ten which are operated under managed contracts, and an additional 21 facilities in Kentucky that are leased to a third party operator.

“This transaction realizes our stated objective of separating our U.S. and Canadian businesses,” said Tim Lukenda, President and CEO of Extendicare. “Importantly, this transaction generates substantial cash proceeds that accelerate our vision to further grow our Canadian business and expand our service offering.”

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The deal provides Formation Capital, a private equity firm that has invested over $5.5 billion of capital in seniors housing, one of the largest skilled nursing portfolios in the country.

The purchase price represents a multiple of 8.8 times trailing twelve months normalized EBITDA from the U.S. business according to the company. The cash purchase price is expected to be $222 million after the assumption of mortgage loans and other debt related to the business. The company will retain an interest in an ongoing cash stream of approximately $6 million per year, net of upfront costs, for 15 years, plus the potential for profit sharing on certain leased centers.

During a conference call with analysts last week, Lukenda said there were multiple bids for the portfolio, but the process was delayed as it looked to resolve a government investigation.

Extendicare was under investigation by the U.S. Department of Justice for allegedly providing worthless services and billing Medicare for medically unreasonable and unnecessary rehabilitation therapy services in October. However the company refuted the governments claims and settled without any admission of wrongdoing.

After the deal Extendicare will retain ten of its skilled nursing facilities, which it plans to sell in the future.

It’s unclear who will be operating the communities once closed, SHN reached out to Formation for comment but had yet to hear back at press time.

The deal is scheduled to close in the second quarter of 2015, subject to certain licensing and other third party approvals.

Written by John Yedinak

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