JV Closes on $1.1B Acquisition of Extendicare Operations in U.S.

by Jeff Shaw

NEW YORK CITY — NorthStar Healthcare Income Inc. (NorthStar Healthcare) — through a joint venture with Formation Capital LLC and Safanad Management Ltd. — has closed the acquisition of the U.S.-based operations of Extendicare International Inc., including a portfolio of 158 seniors housing and care facilities for a total cost of approximately $1.1 billion.

New York-based NorthStar Healthcare, a public, non-traded real estate investment trust, acquired a 36.67 percent interest in the portfolio, while affiliates of Safanad and Formation collectively acquired the remaining 63.33 percent interest.

In connection with the acquisition, NorthStar Healthcare also originated a $75 million mezzanine loan to partially finance the transaction, which bears interest at a fixed rate of 10 percent per year and has a term of 67 months.

Among highlights of the acquisition:

• The portfolio consists of 152 skilled nursing facilities and six assisted living facilities with over 15,000 beds located across 12 states, with the largest concentrations in Indiana, Kentucky, Ohio, Michigan and Wisconsin.

• The facilities are leased to five third-party operators pursuant to long-term net leases.

• The overall resident occupancy was approximately 83 percent as of March 31.

In addition to the mezzanine loan, the joint venture financed the acquisition with a combination of 75 percent fixed debt and 25 percent floating-rate debt totaling approximately $886 million, with a weighted average current interest rate of 4.8 percent.

The financing consists of new and in-place financing provided by the U.S. Department of Housing and Urban Development and a number of leading institutional private lenders, in addition to the mezzanine loan provided by NorthStar Healthcare.

“Our strategic partnerships continue to drive transaction volume and accretive investment opportunities for NorthStar Healthcare and our growing healthcare portfolio,” says Ron Jeanneault, CEO and president of NorthStar Healthcare.

“The depth of our team combined with our strong industry relationships enabled us to execute on this complex transaction and expand our portfolio with quality healthcare real estate assets. We remain focused on continuing to build a diverse portfolio of needs-driven senior housing on behalf of our shareholders,” adds Jeanneault.

NorthStar Healthcare’s portfolio consists of 39 investments with an aggregate total cost of $2.5 billion, including 34 equity investments with an aggregate total cost of $2.3 billion and five debt investments with an aggregate principal amount of $221 million as of July 14.

In 2014, Canada-based Extendicare Inc. (TSX: EXE) and its international subsidiary, Extendicare International Inc., entered into a definitive share purchase agreement in November 2014 to sell substantially all of the company’s U.S. business to a group of investors led by Formation Capital, a healthcare-focused private investment firm, and an affiliate of Safanad, a global principal investment firm, for US$870 million (CAN$992 million based on the exchange rate at that time). That deal closed July 1.

Headquartered in Markham, Ontario, Extendicare Inc. is a leading provider of care and services for seniors in Canada with a network of 112 senior care centers (58 owned/54managed) as well as home health care operations. The company has a workforce of 22,400 in Canada.

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