Omega Healthcare to Buy Aviv REIT in $3B All-Stock Deal



November 3, 2014, Zacks Equity Research - In a significant development in the real estate investment trust (REIT) industry,
Omega Healthcare Investors Inc. (OHI - Snapshot Report) and Aviv REIT, Inc. (AVIV - Snapshot Report) have inked a definite agreement. Under the terms of the agreement, Omega will acquire Aviv in an all-stock deal worth $3 billion, thereby creating a $10 billion skilled nursing facility (SNF) REIT in the country.

Armed with the expertise and proven track record of both management teams, the new entity could comfortably pursue acquisitions and development opportunities in the large but highly fragmented SNF industry. Its human and capital resources will also position it better to tap new operator relationships for sustained external growth.

Per the agreement, shareholders of Aviv will receive 0.90 of Omega share for each of their shares. The deal values Aviv at $34.97 per share based on Omega's closing price on Oct 30, representing a premium of 16.2% to Aviv shareholders.

Upon closure, Omega shareholders will own around 70% of the combined value, and Omega CEO Taylor Pickett will serve as the chief executive of the new entity. Aviv chairman and CEO Craig Bernfield will join the board of the combined firm, along with two other directors of the former.

This deal would bring together two leading teams on the SNF platforms, with a superior track of value creation for shareholders. Notably, Omega has a record of total shareholder return of 586% over the past decade, while shareholder return of Aviv is 64% since its IPO in 2013. This is suggestive of solid returns for the shareholders of the combined entity.

Moreover, the merged entity will boast a portfolio of 83 operator relationships over 41 states as well as long-term triple-net master leases with sector-leading rent coverage. Further, sourcing and development capabilities, along with a strong balance sheet, will provide the company with an enhanced capacity to drive growth. It is also likely to lower the cost of capital.

The transaction, still subject to certain customary closing conditions and approvals from shareholders of both companies, is expected to close in the first quarter of 2015. Nevertheless, the deal is likely to be a game changer in a less-competitive SNF industry.