Omega Healthcare agrees to buy up to $860 million of long-term-care facilities from CapitalSource

By Jennifer Lanning Drey

Portland, Ore., Nov. 17 - Omega Healthcare Investors Inc. has entered into a securities purchase agreement with CapitalSource Inc. and several of its affiliates to purchase entities owning 80 long-term-care facilities for approximately $565 million, the company announced Tuesday.

Additionally, the agreement includes a purchase option for Omega to acquire entities owning an additional 63 facilities for $295 million.

"The CapitalSource portfolio will not only generate terrific financial returns for Omega, but it also provides significant strategic benefits," Taylor Pickett, chief executive officer of Omega, said Tuesday during a company conference call held to discuss the agreement.

Specifically, the transaction increases the size and diversity of Omega's existing portfolio, includes assets that parallel Omega's existing assets and expands Omega's operating base, which affords the company the opportunity for future growth in the form of potential acquisitions and investments in capital improvements, Daniel J. Booth, Omega's chief operating officer, said during the call.

From a leverage perspective, the company expects its post-closing debt-to-annualized-EBITDA ratio to be 4.3 times, which Pickett said is "comfortably within all of our covenants and continues to compare very favorably to our peers."

The company plans to draw approximately $150 million on its $200 million revolving credit facility to finance the initial closing.

Omega said it is currently reviewing multiple financing proposals in anticipation of the second closing.

When asked for more specifics on the potential financing options, Booth said Omega had looked at a number of different proposals and is thinking of a five-year $100 million term loan.

By providing for up to three closings, the agreement allows both Omega and CapitalSource time to obtain the various consents needed, and, in the case of the purchase-option properties, it provides Omega the flexibility to raise capital at an appropriate price, Pickett said.

Transaction structure

Under the securities purchase agreement, at the first closing, Omega will acquire entities owning 40 facilities and the option to purchase entities owning 63 additional facilities for $294.4 million.

The purchase price consists of $184.2 million in cash and a promissory note, $50.8 million in Omega common stock and the assumption of $59.4 million of debt maturing in December 2012.

The first closing is expected to occur on Dec. 31.

At the second closing, Omega will acquire entities owning 40 additional facilities for $270.4 million.

That purchase price consists of $65.1 million in cash, the assumption of $20 million of 9% subordinated debt maturing in December 2021, the assumption of $55.7 million of HUD debt maturing between January 2036 and May 2040 and the anticipated assumption of $129.6 million of HUD debt maturing in 2039.

The second closing is expected to occur on April 1.

Purchase option

Omega's option to acquire entities owning an additional 63 facilities is exercisable for cash consideration of $295.2 million at any time through Dec. 31, 2011.

During the question-and-answer session of the call, Pickett said the only circumstance that would prevent Omega from moving forward with the purchase option would be not being able to access capital at a reasonable price.

"Frankly, the way we look at our capital structure and moving forward, a substantial amount of that option price would have to be raised in the form of equity capital, so it's going to be market driven from our perspective," he said.

Omega could use some debt to finance the purchase option but would look to keep its leverage in the 4-times range, he said.

Omega is a Hunt Valley, Md.-based real estate investment trust that invests primarily in long-term health-care facilities.

CapitalSource is a Chevy Chase, Md.-based commercial lending, investment and asset management business.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.