Nationwide Health Properties Takes In $81 Million for RTC Acquisition
Nationwide Health Properties Inc. said it raised about $81 million on Wall Street Tuesday to pay for 45 convalescent homes that it is acquiring from the Resolution Trust Corp.
The offering of 3 million newly issued common shares at $28 apiece was sold to a slew of U.S. and European institutional investors and was not available to individuals, said Catherine C. Creswell, a stock analyst at Alex. Brown & Sons in Baltimore.
R. Bruce Andrews, Nationwide Health Properties’ chief executive, said that his firm sought Securities and Exchange Commission permission to sell 2 million shares when it announced its intention to raise the cash through equity rather than loans. The company’s debt load is now equal to 10% of its assets. But Andrews said Tuesday that the company negotiated “a higher price than we thought” for the shares and obtained SEC permission to issue 1 million more.
The transaction was managed by Britain’s National Westminster Bank PLC in London, which earned a commission of 3.5%, or $2.4 million, on the deal.
“It’s going to mean a real strong return for the company,” Andrews said.
Indeed, Nationwide, a real estate investment trust specializing in health-care properties, announced last month that it had struck a deal with the RTC to buy the convalescent-home mortgages for $85.6 million, an 11% discount on the value of the properties.
The 25 mortgages that cover the convalescent homes, located in 12 states, were seized by the RTC when Home Federal Savings of Kansas City, Mo., folded early in 1991.
That strategy was a good one, Andrews said, because none of the mortgages, taken out between 1985 and 1988, is in arrears. Also, they all have balloon payments due in four years on average, giving Nationwide Health Properties the leeway either to buy the properties from the current owners or to renegotiate new mortgages and continue collecting interest payments.
The transfer of the mortgages to Nationwide is expected to close on July 9. The balance of the $85.6-million payment to the RTC, the federal agency that manages and liquidates failed thrifts, will come from the company’s cash reserves, Andrews said.
Analyst Creswell said that the investment will yield an annual profit of about 14% for Nationwide as it begins to collect interest payments from the convalescent homes’ owner-operators.
The company, with 1991 revenue of $36.4 million, owns 112 health-care facilities across the country, and typically leases them to operators. Nationwide receives a tax benefit in the form of depreciation on the facilities, while the operators are responsible for upkeep and maintenance.
The RTC purchase marks the first time that Nationwide has entered the mortgage business by holding paper on properties and collecting interest payments rather than rent as a source of revenue.
Nationwide also has 13.5 million outstanding shares that are traded publicly on the New York Stock Exchange. That stock closed Tuesday at $28.75, down 75 cents.
Creswell said that Tuesday’s sale depressed the value per share for most of the day. “If you are going to have 3 million shares go out, it causes the market to react.”
Still, she said, the decision to raise money through the stock sale was a better strategy than taking out loans.
“Will the stock be depressed for a long time? Absolutely not,” Creswell said. “The lion’s share (of the payment to RTC) has been taken care of by far.” The strategy, she said, gives Andrews “a better equity position to go forward.”
