Invesque to Acquire Commonwealth Senior Living and 20 of its Communities for US$340.4 Million, Creating a Leading Healthcare Platform Positioned for Future Growth

Invesque will have more than $1.8 billion of asset value including 122 properties

Transformational acquisition repositions Company with majority private pay revenue portfolio and vertically integrated seniors housing platform

Transaction expected to be immediately accretive to adjusted FFO (“AFFO”) per share

TORONTO, May 22, 2019 /CNW/ – Invesque Inc. (TSX: IVQ) (“Invesque” or the “Company”) today announced that it has entered into a definitive agreement (the “Transaction Agreement“) to acquire 20 private pay senior living communities comprising 1,440 units with 1,716 beds (the “Portfolio“) and Commonwealth Senior Living, LLC (“Commonwealth“) for a purchase price of US$340.4 million (the “Transaction“). The Transaction, which is subject to customary closing conditions, is expected to close in the third quarter of 2019.

Highlights of the Transaction

• Strategic Portfolio Acquisition: The Portfolio is strategically clustered in attractive and growing markets across Virginia and Pennsylvania with an average effective age of approximately 10 years. Invesque will obtain an exclusive right of first offer on three additional communities that are currently, and will continue to be, managed by Commonwealth post-closing. The Portfolio is expected to complement Invesque’s existing platform and expand its presence in both Virginia and Pennsylvania.

• Increases Exposure to Private Pay Seniors Housing: The Portfolio comprises 1,440 private pay independent living, assisted living and memory care units with an aggregate resident capacity of 1,716 beds. The Transaction meaningfully increases Invesque’s exposure to private pay seniors housing, which is expected to represent approximately 52% of the Company’s consolidated net operating income (“NOI“) post-closing.

• Enhanced Scale and Investment Platform: Upon the closing of the Transaction, Invesque will have over US$1.8 billion of asset value with 122 properties and 10,844 beds strategically located in growing markets across 20 U.S. states and two Canadian provinces.

• Improved Portfolio Diversification: The Transaction further enhances Invesque’s stable, industry-leading portfolio of healthcare facilities diversified across the spectrum of care with multiple best-in-class operating partners.

• Acquisition of Operating Platform: Together with the Portfolio, the Company will acquire the Commonwealth management team. These long-tenured and highly respected seniors housing operators will serve as the foundation for Invesque to build a vertically integrated, regional operating and management model within its existing seniors housing portfolio. Invesque may leverage this operating platform for the management of additional Invesque properties in the future, which would generate additional synergies and earnings growth to Invesque. Following the Transaction, Invesque’s operating property portfolio will contribute 33% of the Company’s NOI.

• Validation of Embedded Value and Addition of New Investors: Upon closing, the Invesque acquisition vehicle that is acquiring the Portfolio will issue US$67.2 million of preferred interests (the “Preferred Interests“) to Commonwealth’s existing investors. The Preferred Interests will be exchangeable by holders into common shares of Invesque at US$9.75 per share and have an expected initial dividend rate of 6.50% per annum.

• Immediately Accretive Transaction to AFFO per share. The Transaction is expected to be immediately accretive to Invesque’s AFFO per share.

“We are thrilled to partner with Commonwealth and acquire this attractive portfolio of seniors housing properties” said Scott White, Chairman of the Board of Directors and CEO of the Company. “We have long believed alignment is the key to a successful partnership, and the Commonwealth acquisition allows us to vertically integrate with a leading regional operator. Furthermore, this transaction positions our portfolio well as we continue our focus on creating a diversified healthcare real estate company. Following this acquisition, we will have a larger and stronger platform to finance growth and take advantage of market fragmentation in the healthcare industry to create value for our shareholders.”

Commonwealth Senior Living Overview

Commonwealth, collectively with its affiliates, is a leading high-quality developer, owner, and operator of senior living communities led by a highly experienced team focused on both operations and steady growth through acquisition, expansion, and redevelopment opportunities. Commonwealth and affiliates own and operate a well-clustered portfolio of 24 high quality private pay communities strategically located in attractive and growing Mid-Atlantic markets with a concentration in Virginia and locations in Connecticut and Pennsylvania.

Founded in 2002 by Richard J. Brewer and Municipal Capital Appreciation Partners (“MCAP“), Commonwealth has an established reputation as a high-quality senior living operator with industry-wide recognition for differentiated and innovative care programming, best practices in talent acquisition and development, and an award-winning dedication to providing exceptional quality resident care.

As part of the Transaction, the Company will be acquiring 20 of the 24 Commonwealth assets with an exclusive right of first offer on three additional assets that are currently, and will continue to be, managed by Commonwealth. Commonwealth’s revenue is generated from private pay funding sources, and the Portfolio does not have direct exposure to Medicare, Medicaid or other government funding sources.

Following completion of the Transaction, Commonwealth’s experienced senior management team will continue to manage and operate the Portfolio.

“We are excited to partner with Invesque as we continue to execute on delivering outstanding support to our associates and exceptional care to our residents” said Richard Brewer, CEO of Commonwealth. “The Invesque transaction is a win-win for our investors and our team and will allow us to continue to grow and provide high quality services for years to come.”

Invesque Pro Forma Portfolio

 

The Transaction represents a significant expansion of the Company’s portfolio, increasing the number of properties from 102 to 122, and the number of beds from 9,128 to 10,844 across 20 U.S. states and two Canadian provinces. The Transaction significantly enhances the Company’s operator, geographic and property-type diversification. The tables below provide a more detailed breakdown of the Company’s pro forma portfolio.

 

Transaction Overview

The consideration to be paid to Commonwealth’s existing investors at closing of the Transaction will include approximately US$67.2 million of Preferred Interests in the Invesque acquisition vehicle acquiring the Portfolio. The Preferred Interests will be exchangeable by holders into common shares of Invesque at a fixed exchange price of US$9.75 per Invesque common share. The Preferred Interests have a fixed liquidation value and an expected initial dividend rate of 6.50% per annum. Additionally, Invesque will have the right to redeem the Preferred Interests at par value in increments of up to 40% of the originally issued amount every twelve months beginning 24 months after closing.

The acquisition of the Portfolio will be capitalized with approximately US$220 million of property-level mortgage financing. The remainder of the purchase price will be funded with a draw on the Company’s revolving credit facility and cash on hand.

The proposed transaction is subject to obtaining certain regulatory approvals, including Toronto Stock Exchange (“TSX“) approval, Invesque shareholder approval (which is expected to be obtained by way of a written consent) and other customary closing conditions.

Advisors

BMO Capital Markets is serving as financial advisor to Invesque. Barack Ferrazzano Kirschbaum & Nagelberg LLP is serving as Invesque’s primary legal counsel with assistance from Goodmans LLP and other law firms. Houlihan Lokey Capital, Inc. is serving as financial advisor to Commonwealth. Burr & Forman LLP is serving as Commonwealth’s legal counsel.

About Invesque

Invesque is a healthcare real estate company with an investment thesis centered around the opportunity created by the global aging demographic trend. Invesque currently capitalizes on this opportunity by investing in a highly diversified portfolio of income generating health care properties located across the United States and Canada through long-term absolute net leases, joint ventures, and development capital. For more information, visit www.invesque.com.

Non-IFRS Financial Measures

FFO, AFFO and NOI are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. Such measures are presented in this news release because management of the Company believes that such measures are relevant in interpreting the purchase price metrics and performance of acquisitions. Such measures, as computed by the Company, may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable to the measures reported by such other organizations. Please see the Company’s most recent management’s discussion and analysis, which is available on SEDAR at www.sedar.com, for how the Company reconciles FFO, AFFO and NOI to the nearest IFRS measure.

Forward-Looking Information

This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the Company and the environment in which it operates. Forward-looking statements are identified by words such as “believe”, “anticipate”, “project”, “expect”, “intend”, “plan”, “will”, “may” “estimate”, “pro forma” and other similar expressions. These statements are based on the Company’s expectations, estimates, forecasts and projections and include, without limitation, statements regarding the completion of the Transaction and the timing thereof, the benefits of the Transaction (including the extent it will be accretive to the Company’s FFO and AFFO per share), the expectation that additional synergies will be achieved, and the approval of the issuance of the Preferred Interests.  The forward-looking statements in this news release are based on certain assumptions, including that all conditions to completion of the Transaction (including obtaining the written consent of selected shareholders holding more than 50% of the issued and outstanding Invesque common shares or otherwise obtaining shareholder approval at a meeting of shareholders) will be satisfied or waived, and that the Transaction will be completed. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, risks that the conditions to the completion of the Transaction will not be satisfied or waived, that the Transaction will otherwise not be completed or that the Portfolio will not perform or be integrated as expected, as well as the factors discussed under the heading “Risk Factors” in the Company’s annual information form available at www.sedar.com. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the Company assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

SOURCE Invesque Inc.

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