Acquisitions And Other Significant Transactions | 9 Months Ended |
Sep. 30, 2013 |
Business Combinations [Abstract] | ' |
Acquisitions And Other Significant Transactions | ' |
Acquisitions and Other Significant Transactions |
We make acquisitions of certain businesses and complete other transactions from time to time that we believe align with our strategic intent to, among other factors, enhance the overall care of our residents as well as maximize our revenues, operating income, and cash flows. |
In September 2013, we acquired 38 communities pursuant to an operating lease with Health Care REIT, Inc. ("HCN") (the "Master Lease"). These communities were previously operated by Merrill Gardens (the "Merrill Gardens Communities"). Rent in the first year of the Master Lease will initially be $54.0 million and will increase each year based on the greater of (i) the percentage change in the consumer price index ("CPI") or (ii) (a) 4.0% in the second year of the lease and (b) 3.25% thereafter. Additional rent may be due beginning in the third year of the lease if gross revenues, as defined therein, exceed certain thresholds. The initial term of the Master Lease is fifteen years, and we have the option to extend the lease for one additional fifteen-year term. HCN has committed to fund up to $10.0 million for capital improvements during the first two years of the Master Lease, and our rent will increase by 6.5% of any such capital improvements funded. The Company also entered into an operations transfer agreement with Merrill Gardens, pursuant to which we paid to Merrill Gardens a $10.0 million management contract termination fee upon commencement of the Master Lease. |
In July 2013, we entered into a fifteen-year lease for a 76-unit assisted living community in Ohio. Base rent is initially $1.1 million per year, increasing by 3.0% annually. We have options for three additional five-year terms. We are accounting for this transaction as an operating lease. |
In June 2013, we sold one community to HCP, Inc. (“HCP”), a real estate investment trust, and leased it back from HCP. The sale price was $18.0 million and we used $13.0 million of the proceeds to pay down mortgage debt. The lease with HCP is for an initial term of 15 years, with options for two additional ten-year terms. Because of continuing involvement in the property in the form of a purchase option, we are accounting for the lease as a financing lease, and therefore recorded the $18.0 million of sales proceeds as a financing lease obligation. |
In June 2013, we extended the term of a community operating lease for an additional 15 years, with two ten-year extensions available. In addition, we amended our right to exercise the purchase option on the property in exchange for a $6.1 million cash payment from the lessor, which represented the difference between the current market value of the property and the purchase option price. The amended lease provides us with an option to purchase the community beginning in 2020. |
In April 2013, we purchased a 20-unit assisted living community that we previously leased from Ventas, Inc. (“Ventas”) (Note 5). The purchase price was $3.9 million, and we accounted for the transaction as an asset purchase. |
In March 2013, we entered into a 15-year lease for a 118-unit assisted living community in California. Base rent is initially $1.8 million per year, increasing by 3.0% annually. We have the option to extend the lease term for an additional ten years. We are accounting for this transaction as an operating lease. |
2013 Stock Offering |
On March 18, 2013, pursuant to an underwritten secondary public offering, certain shareholders completed the sale of 7,973,600 shares of our common stock held by them. On the same date, in connection with the underwriter’s exercise of its option to purchase additional shares of our common stock, the Company sold 1,196,040 newly issued shares to the underwriter and received net cash proceeds of $31.3 million. |
2012 HCP Transaction |
Prior to October 2012, the Company held a 6.0% ownership interest in a joint venture (the “Sunwest JV”) with BRE/SW Member LLC, an affiliate of Blackstone Real Estate Advisors VI, L.P (“Blackstone”), Columbia Pacific Opportunity Fund (“Columbia Pacific”), which is controlled by Daniel R. Baty, a founder of the Company and the Chairman of our board of directors, and certain other tenant-in-common investors. In October 2012, the Sunwest JV entered into a purchase and sale agreement with Emeritus and HCP, whereby the Sunwest JV agreed to sell to HCP 142 of its communities (the “Properties”), 133 of which were then leased to Emeritus (the “HCP Leased Communities”) and nine were sold to Emeritus (the “Emeritus Nine Communities”) for $62.0 million, with $52.0 million financed with a loan from HCP (the “HCP Loan”). The HCP Leased Communities are operated by Emeritus under lease agreements with HCP (collectively, the “HCP Lease”) and became, at the date of closing, part of the Company’s Consolidated Portfolio. The Emeritus Nine Communities are operated by Emeritus, except for one that continues to be managed by an unrelated third party. In April 2013, we sold one of the Emeritus Nine Communities for $5.3 million. In the third quarter of 2013, we sold two of the Emeritus Nine Communities for a combined total sales price of $9.2 million, of which the net proceeds from the sales of $8.9 million were used to reduce the principal balance of the HCP Loan. |
At the initial closing on October 30, 2012, the Sunwest JV sold 136 of the 142 Properties to HCP, which included the Emeritus Nine Communities that Emeritus then purchased from HCP. At the second closing on December 4, 2012, HCP purchased two more of the Properties, which were included in the HCP Leased Communities and became part of the HCP Lease as of that date. |
In the first quarter of 2013, the Sunwest JV closed on the sale of the remaining four HCP Leased Communities and they were added to the HCP Lease. |
The aggregate sales price payable to the Sunwest JV for the Properties was $1.8 billion. |
When final distributions are made by the Sunwest JV, Emeritus expects to have received, in total, cash of approximately $139.0 million, comprised of approximately $45.0 million for the Company’s ownership interest in the Sunwest JV and a promote incentive payment of approximately $94.0 million based on the final rate of investment return to the Sunwest JV’s investors. As of September 30, 2013, Emeritus had received total cash distributions of $136.9 million related to the sale. Remaining distributions are expected by the end of 2013. |
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We are accounting for the HCP Lease as a financing capital lease and our acquisition of the Emeritus Nine Communities as an asset purchase. Due to our ownership interest in the Sunwest JV, we are accounting for the acquisition of the HCP Leased Communities as a sale and leaseback. Because we currently expect to exercise all renewal options, we will have substantial continuing involvement in the HCP Leased Communities. As a result, in accordance with GAAP, we deferred the gain associated with our equity interest in the Sunwest JV and include it in the lease financing obligation. Lease payments are recorded to interest expense and the lease financing obligation using the effective interest method. As of September 30, 2013, the deferred gain was $124.9 million, which represents our share of the cash proceeds from the sale through September 30, 2013, including the promote incentive, net of our investment in the Sunwest JV. |
2012 Nurse On Call Acquisition |
In November 2012, we purchased Nurse On Call, Inc., the largest Medicare-licensed provider of home healthcare services in Florida. We paid cash of $102.9 million (net of cash acquired) for 91.0% of the equity of NOC’s parent company, and the remaining equity is owned by certain members of NOC’s management team (the “Minority Members”). We acquired NOC in order to increase our service offerings to seniors, with the goal of expanding this platform beyond Florida. |
In connection with the NOC acquisition, we entered into a put/call agreement, whereby the Minority Members have the right to require us to purchase certain of their equity interests beginning on January 1, 2016 (or earlier upon the occurrence of certain events). Likewise, we have the right to require any of the Minority Members to sell certain of their equity interests to us beginning on January 1, 2016 (or earlier, if any of the Minority Members cease to be an employee). The purchase price will be based on a formula specified in the put/call agreement. Because the minority members have a put right, under GAAP, the equity held by the Minority Members is classified on the consolidated balance sheet as redeemable noncontrolling interest, which is outside of our permanent equity. The balance of redeemable noncontrolling interest as of September 30, 2013 and December 31, 2012 was $10.6 million and $10.1 million , respectively, which represents the estimated redemption value as of those dates. During the first quarter of 2013, the Minority Members received a $3.9 million distribution from the proceeds of a$50.0 million credit facility that NOC entered into in February 2013 (Note 5). We recorded this distribution as additional paid-in capital. |
The following table sets forth the effect on our results of operations had the acquisition of NOC occurred as of January 1, 2012 (in thousands): |
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| Pro Forma Combined |
| (unaudited) |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Total operating revenues | $ | 491,733 | | | $ | 417,438 | | | $ | 1,440,027 | | | $ | 1,238,626 | |
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Operating income from continuing operations | 43,031 | | | 28,208 | | | 116,863 | | | 78,667 | |
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Loss from continuing operations before income taxes | (28,236 | ) | | (9,853 | ) | | (96,570 | ) | | (37,599 | ) |
Net loss attributable to Emeritus Corporation | | | | | | | |
common shareholders | (27,823 | ) | | (12,724 | ) | | (103,536 | ) | | (46,025 | ) |
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Basic and diluted loss per common share attributable to | | | | | | | |
Emeritus Corporation common shareholders | $ | (0.59 | ) | | $ | (0.29 | ) | | $ | (2.23 | ) | | $ | (1.03 | ) |
Basic and diluted weighted average common shares | | | | | | | |
outstanding | 46,962 | | | 44,642 | | | 46,401 | | | 44,612 | |
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Dispositions |
In the third quarter of 2013, we sold two of the Emeritus Nine Communities, as discussed above, representing a total of 185 units. Aggregate net sales proceeds of $8.9 million were used to pay down outstanding debt. In the second quarter of 2013, we sold two communities and terminated the lease on one community, representing a total of 194 units. Aggregate sales proceeds of $7.3 million were used to pay down outstanding debt. Impairment charges, including impairment charges related to property held for sale as of September 30, 2013, totaled $5.2 million for the nine months ended September 30, 2013, which are included in loss from discontinued operations. |