Extendicare Closes $870 Million Sale of its U.S. Business to Formation

Canada-based Extendicare Inc. has completed the $870 million sale of its U.S. business to a group of investors led by private equity firm Formation Capital, LLC, effective July 1, the company announced today. The Canadian skilled nursing giant may use the proceeds in part to increase its involvement in the private pay retirement community sector in its home country.

Extendicare Health Services Inc., which owned and operated the U.S. businesses, also has closed on the sale of 10 skilled nursing centers excluded from the initial sale, for net after-tax cash proceeds of about $11 million.

The Extendicare portfolio comprised 141 owned and operated senior care communities, as well as an additional 21 facilities in Kentucky leased to a third-party operator, 10 operated under managed contracts and four operated under lease agreements. The acquisition, first announced in November 2014, gives Formation Capital one of the largest U.S. skilled nursing portfolios. It remains unclear who will operate the facilities.

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Extendicare is one of the largest senior care operators in Canada, with 89 properties and nearly 12,000 units, according to recent data from CBRE, BofA Merrill Lynch Global Research. The company announced that it would be splitting its U.S. and Canadian operations when it released its first quarter 2013 results.

The decision was driven in large part by the different regulatory and reimbursement environments in the two countries, which became even starker after passage of the Affordable Care Act in 2010, company leaders said.

Extendicare now intends to double-down on its Canadian long-term care assets and explore other ways of growing in that market.

“In addition to using part of the proceeds to repay a bridge loan associated with our recent home health acquisition, we intend to use the proceeds to further expand and grow our Canadian operations including growing our long-term care revenue through redevelopment, and exploring opportunities in the private-pay retirement space,” Extendicare President and CEO Timothy Lukenda said in a statement announcing the deal closing.

The purchase price was partially settled through assumption of mortgage loans and other third-part debt of approximately $655 million, and working capital and other adjustments, according to Extendicare. The company estimates that aggregate net after-tax proceeds will total $240 million, or $300 million Canadian dollars at the exchange rate as of June 30.

The Extendicare announcement came just one day after Brookdale Senior Living (NYSE: BKD) and HCP, Inc. (NYSE: HCP) announced closing on an $847 million private-pay portfolio acquired from another major Canadian player: Chartwell Retirement Residences. The portfolio represented the entirety of Chartwell’s U.S. business.

U.S.-based senior housing players also have been eyeing Canada as a growth market. Sabra Health Care REIT (Nasdaq: SBRA) acquired a nine-property portfolio and Health Care REIT (NYSE: HCN), in a joint venture with Canada-based Revera, Inc., acquired Canadian senior housing operator Regal Lifestyle Communities for $623 million.

Written by Tim Mullaney

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