Close

Omega Healthcare Investors (OHI) to Acquire Aviv REIT (AVIV) in $3B Deal

October 31, 2014 6:07 AM EDT

Omega Healthcare Investors (NYSE: OHI) and Aviv REIT, Inc. (NYSE: AVIV) announced that the Boards of Directors of both companies have unanimously approved a definitive agreement under which Omega will acquire all of the outstanding shares of Aviv in a stock-for-stock merger. The transaction values Aviv at $3.0 billion, and creates the premier publicly traded pure-play skilled nursing facility real estate investment trust (“REIT”).

Under the terms of the agreement, Aviv shareholders will receive a fixed exchange ratio of 0.90 Omega shares for each share of Aviv common stock they own. Based on the closing stock price for Omega on Thursday, October 30th, 2014, this consideration would be equivalent to $34.97 of Omega stock for each Aviv share, representing a premium to Aviv shareholders of approximately 16.2% over Aviv’s closing stock price on that day. Upon closing of the transaction, Omega shareholders are expected to own approximately 70% and Aviv shareholders, together with the limited partners of Aviv Healthcare Properties Limited Partnership (“Aviv OP”), are expected to own beneficially approximately 30% of the combined company. The stock-for-stock transaction is intended to be tax-free to shareholders. Following the merger, Taylor Pickett, current Omega CEO, will continue to serve as CEO of the combined company while Craig Bernfield, current Aviv Chairman and CEO, will join the Board of Directors of the combined company.

“The combination of Omega and Aviv creates the premier pure-play skilled nursing facility REIT which, with the expertise and proven track records of the combined management teams, will be well-positioned to continue as the leading consolidator in the large, highly fragmented SNF industry,” Omega Chief Executive Officer Taylor Pickett said. “This merger is consistent with Omega’s long history of executing value-creating transactions. The combined sourcing and development capabilities of this company, coupled with its strong balance sheet, provides enhanced capacity to drive growth and is expected to continue to decrease our cost of capital. The combined company will have unrivaled resources to pursue attractive acquisition and development opportunities within its base of existing operator relationships and will also have the human and capital resources to pursue new operator relationships for continued external growth.”

Craig Bernfield, Chairman and Chief Executive Officer of Aviv, said, "This is a strategic combination of two best-in-class companies that have been the most dedicated and successful investors in the skilled nursing sector over the past few decades. The combined company will now be positioned to be the premier consolidator of SNF real estate for years to come. Our merger with Omega will allow us to take advantage of Omega's long term success in the public markets, the scale of the combined company, and Omega's superior access to capital and lower cost of capital, to continue to drive accretive growth by leveraging our relationships with high quality operators to find attractive off market and widely marketed acquisition opportunities.” Mr. Bernfield continued, “I am extremely enthusiastic about Omega's prospects following the merger. The market opportunity is significant due to highly fragmented ownership and lack of competition from other well capitalized companies. The combined management team will be the most knowledgeable and experienced in the country. Taylor and I have known each other well during our careers and I know that he is eminently qualified to lead the combined company."

Transaction Rationale and Highlights

  • High Quality and Complementary Portfolio. The combined company will have a high quality diversified portfolio including the following characteristics:
    • Substantial scale and significant diversification with 83 operator relationships in 41 states
    • Long-term triple-net master leases with sector-leading rent coverage
    • Commitment to high quality properties
  • Platforms With Superior Historical Track Records. The transaction combines the management teams of two of the leading SNF platforms, with superior track records of value creation for shareholders.
    • Omega is the top performing REIT over the last ten years with a total shareholder return of 586 percent
    • Aviv total shareholder return of 64 percent since its IPO in 2013
  • Positioned for Continued Sector-Leading Growth. On a combined basis, Omega will be uniquely positioned to deliver SNF sector-leading growth
    • Demonstrated track record of attractive acquisitions and development
    • Consolidator in large, fragmented industry with attractive fundamentals
    • Combined operator relationships that are expected to provide an ongoing pipeline of accretive transactions
    • Over $900MM year-to-date combined investments
  • Attractive Financial Impact.
    • Expected to be accretive to Omega’s run rate Adjusted FFO and FAD. Preliminary combined company 2015 guidance for Adjusted Funds Available for Distribution (“FAD”) to common stockholders is a range of $2.81 to $2.87 per diluted share as compared to Omega’s 2014 FAD guidance of $2.58 to $2.61 per diluted share. The combined pipeline and unique sourcing capabilities, together with low leverage and improved cost of capital, should enable Omega to expand its growth profile with accretive transactions. Aviv’s development and redevelopment strategy, combined with Omega’s established capital expenditure financing program, is expected to provide attractive returns while enhancing asset quality. In addition, the combined company will maintain an UPREIT structure which will enable the combined company to structure tax-efficient transactions.
    • Strong balance sheet and lower cost of capital to drive future accretive growth. The combined company is expected to have a pro forma funded debt to total market capitalization ratio of less than 35%, funded debt to Adjusted EBITDA (Q3 annualized) ratio of less than 5.0x, secured debt to gross asset value of less than 5.0%, and an Adjusted Pro Forma EBITDA to interest coverage ratio greater than 3.5x as of September 30, 2014. The strong unsecured balance sheet, material increase in portfolio size and tenant diversity are expected to (i) enhance the combined company’s credit profile and (ii) lower the long-term cost of capital, driving further accretion. With a history of prudent balance sheet management, Omega believes that the strength of the combined company should create positive ratings momentum.
    • Stable and secure dividend with above-average growth potential, as well as a conservative pro forma payout ratio. Omega has increased its dividend at an 11% annual compounded rate since 2004 and expects continued dividend growth for shareholders of the combined company post-closing. Each company intends to continue its current dividend policy pending the closing of the transaction.

Effect on Aviv OP Limited Partners

In connection with Omega’s implementation of an UPREIT structure, holders of Aviv OP units will receive units of an Omega operating partnership based on the same exchange ratio as provided for Aviv common stock in the merger agreement. The Omega operating partnership units will be convertible into Omega common stock on a 1:1 basis following the completion of the merger (subject to adjustment based on future events as provided for in the partnership agreement).

Management and Board of Directors

Taylor Pickett, current CEO of Omega, will continue to serve as CEO of the combined company. Craig Bernfield, current Aviv Chairman and CEO, will serve in the same capacity until closing to ensure an orderly transition. Following the closing of the transaction, the Omega Board of Directors will be expanded to include three directors from Aviv, including Mr. Bernfield, bringing the total to 11 members. As part of the transaction, Omega will be requesting that its shareholders approve a proposal to de-classify Omega’s Board of Directors and provide for the annual election of directors.

Following the merger, Omega will maintain its corporate headquarters in Hunt Valley, Maryland. Dan Booth and Bob Stephenson will retain current roles as COO and CFO, respectively, of the combined company. Aviv’s Chicago based acquisition and development operations will continue to be based in Chicago under the leadership of Steven Insoft, augmenting Omega’s existing investment capabilities.

Anticipated Synergies

The combined companies expect to benefit from approximately $9 million of general and administrative cash savings and additional savings from reduced borrowing costs.

Approvals and Timing

Completion of the transaction is subject to satisfaction of customary closing conditions, including the approval of shareholders of both companies. LG Aviv LP, an affiliate of Lindsay Goldberg LLC, has entered into a voting agreement with Omega pursuant to which it has agreed to vote in favor of the transaction, subject to the terms and conditions set forth in the voting agreement. The transaction is expected to close in the first quarter of 2015.

Advisors

Morgan Stanley & Co. LLC is acting as the exclusive financial advisor to Omega, and Bryan Cave LLP, Doran Derwent, PLLC and Kaye Scholer LLP are acting as legal counsel. PJT Partners and Goldman, Sachs & Co. are acting as financial advisors to Aviv and Sidley Austin LLP is acting as legal counsel.



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Corporate News, Guidance, Hot Corp. News, Hot M&A, Management Comments, Mergers and Acquisitions

Related Entities

Morgan Stanley, Dividend, Definitive Agreement, IPO