Invesque Sees Skilled Nursing Tailwinds in Wake of $25M Magnetar Joint Venture

With the new Medicare overhaul set to take effect on October 1 and the recent finalization of a Medicare rate boost for fiscal 2020, leaders at Invesque Inc. (TSX: IVQ.U) were upbeat about the future of its skilled nursing facilities in its second-quarter earnings call Thursday.

In its earnings release, Invesque highlighted the formation of a joint venture with certain affiliates of Magnetar Capital to primarily own SNFs, with Invesque contributing three properties leased to Bridgemoor Transitional Care Operations, LLC and five properties leased to The Ensign Group, Inc. (Nasdaq: ENSG) for $23 million in cash.

Magnetar will own a 35% interest in the JV at the closing of one additional asset leased to Bridgemoor. The deal, first announced earlier this year, closed in the second quarter.

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The transaction marks another step in the ongoing relationship between Invesque and Bridgemoor. Formerly known as Mainstreet Health Investments, the real estate firm had previously been affiliated with skilled nursing developer Mainstreet; the two parties gradually separated, with Mainstreet Investments adopting the Invesque name in the fall of 2017.

Bridgemoor, meanwhile, was formed earlier this year by former Mainstreet executive Mark Fritz to take over four properties that had originally been developed under Mainstreet’s “Rapid Recovery Center” model — the rollout of which coincided with financial difficulties at Mainstreet.

Invesque will collect a 25 basis-point asset management fee on gross asset value, and provide a working capital loan of up to $10 million to Bridgemoor and certain subsidiaries, with Invesque receiving rights in a warrant for a 9.8% interest in Bridgemoor.

Invesque also completed the acquisition of two assets operated by Symphony Post Acute Network, a deal that was previously announced, for approximately $30 million in cash and Invesque common shares at a price of $9 per share.

The Toronto-based health care real estate firm reported a second-quarter net loss of $16.9 million, compared with net income of $10.53 million in the year-ago period, but CEO Scott White sees tailwinds ahead.

“On the skilled nursing front, we are cautiously optimistic about our portfolio of post-acute focused SNFs,” White said on the call.

The reasons for that optimism are primarily related to reimbursement. The Centers for Medicare & Medicaid Services (CMS) recently finalized an increase in Medicare payments to SNFs by $851 million in fiscal 2020, and Illinois recently announced that it would increase funding to SNFs by $240 million.

This is good news for Symphony, which is Invesque’s largest SNF operator and maintains a significant footprint in Illinois, White noted on the call. That said, Symphony is expected to represent about 24% of net operating income by the end of 2019, down from approximately 70% at the time of Invesque’s initial public offering just over three years ago, chief investment officer Adlai Chester said on the call.

White also was optimistic about the effects of the new Patient-Driven Payment Model (PDPM), given that Invesque’s SNF facilities tend to have a greater concentration of Medicare patients “with more clinically complex patients that aren’t exclusively rehab,” he said.

“The coming implementation of the new case mix model … should help drive profitability for sophisticated operators that are focused on high-acuity patients,” White said. “PDPM will shift payment incentives away from the volume of therapy provided and more to patient acuity. Skilled nursing providers, particularly those in our portfolio who focus on group therapy, will be able to capitalize on both cost savings and improved patient outcomes.”

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