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Health Care REIT (HCN), Revera to Acquire Regal Lifestyle Communities in $623M Deal

June 18, 2015 8:34 AM EDT
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Price: $52.22 -4.01%

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Net income: 354.74M

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Health Care REIT (NYSE: HCN) and Revera, Inc. (“Revera”) announced that they have entered into a definitive agreement to acquire Regal Lifestyle Communities Inc. ("Regal") through an existing 75/25 joint venture (JV) for CAD$12.00 per share in cash, or a total enterprise value of approximately CAD$766 million, or US$623 million. The initial cash yield is anticipated to be 6.1% and anticipated to be immediately accretive to FFO and FAD per share. All currency references are based upon an exchange rate of CAD to USD of 1.23:1.

Regal is a publicly traded Canadian corporation that owns and operates 23 high-quality seniors housing communities with over 3,600 units. This private pay portfolio includes 13 communities in Ontario, seven in Quebec, and one each in British Columbia, Saskatchewan and Newfoundland. Approximately 83% of the portfolio’s net operating income is derived from Toronto, Montreal, Ottawa and Vancouver.

“Together with our partner, Revera, we continue to deliver compelling housing and care settings for Canada's growing senior population,” said Tom DeRosa, HCN’s Chief Executive Officer. “The acquisition of Regal is a rare opportunity to add a large, high-quality private pay portfolio concentrated in Canada's largest metropolitan markets, where there is strong underlying demand. HCN's unparalleled relationship model continues to drive transparent and consistent new investment growth. We will continue pursuing strategic international investment opportunities through our teams on the ground in Toronto and London.”

Strong Relationship Results

HCN and Revera formed a joint venture in May 2013, when HCN acquired 47 seniors housing communities from Revera for CAD$1.34 billion (CAD$1.0 billion for HCN’s 75% stake). Consistent with HCN’s strategy, the joint venture has grown significantly. Including the acquisition of Regal, the JV is projected to comprise 94 communities with gross investments of CAD$2.8 billion. Additionally, Revera and HCN jointly own the Sunrise Senior Living management company, with Revera owning a 76% interest and HCN owning a 24% interest.

“Revera is entering an exciting period of expansion in the senior living sector focused on growth and innovation across its private pay portfolio in Canada, the United States and the United Kingdom,” said Thomas G. Wellner, President and Chief Executive Officer of Revera. “We are pleased to strengthen our relationship with HCN and to grow our leadership position in Canada through the acquisition of these high-quality retirement communities. We look forward to welcoming the Regal teams to Revera and to working together to continue to create a great experience for seniors in our communities.”

Canadian Market Opportunity

The acquisition of Regal strengthens HCN’s and Revera’s leading positions in Canada and is consistent with the partnership’s focus on acquiring best-in-class assets in premium markets. Upon completion of the transaction, HCN will own an interest in over 21,500 seniors housing units, representing approximately 10% of the Canadian seniors housing supply and 15% of the supply in the five largest Canadian markets. The growth of Canada’s senior population is projected to more than double over the next 20 years creating demand for new and improved supply. Additionally, the Canadian seniors housing sector is highly fragmented leading to immediate growth opportunities.

Timing and Financing

The transaction is expected to close in the second half of 2015, subject to Regal shareholder approval, lenders’ approval, and customary regulatory approvals. The investment has been structured with the intention of complying with the REIT Investment Diversification and Empowerment Act (RIDEA).

Ownership 75% HCN/ 25% Revera
Purchase Price

CAD$766 million (CAD$575 million/CAD$191 million)

Existing Debt

CAD$359 million (CAD$269 million/CAD$90 million)

Weighted Average Interest Rate

3.8%

Avg. Term to Maturity 4.0 years
HCN Cash Requirement

CAD$306 million

The existing debt noted above is as of March 31, 2015 and excludes 6% Convertible Unsecured Subordinated Debentures. The HCN Cash Requirement noted above excludes fees, transaction costs and any premiums payable on redeeming the Convertible Unsecured Subordinated Debentures.

Advisors

Brookfield Financial and BMO Capital Markets are acting as financial advisors to HCN and Revera. Goodmans LLP is acting as HCN and Revera’s legal advisor.

CIBC is acting as financial advisor to Regal. Stikeman Elliot LLP is acting as legal counsel to Regal.



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