Quantum Announces Agreement to Acquire NJ-Based Long-Term Acute Care Hospital

TORONTO, June 12, 2015 /CNW/ - On June 9, 2015, Quantum International Income Corp. ("QIIC" or the "Company") (TSXV: QIC / QIC.U), a healthcare company focused on providing superior patient care through the delivery of integrated health solutions, has signed a definitive agreement (the "Agreement") to acquire Columbus Hospital LTACH, LLC (the "LTACH") http://columbusltach.org/, a company operating a long term acute care hospital in New Jersey (the "Acquisition").

The LTACH is currently running on a four month unaudited annualized basis of approximately US$40,000,000 in revenue and approximately US$13,500,000 of EBITDA. QIIC's legal counsel engaged independent consultants, Navigant Consulting Inc., to conduct a compliance review which has been completed. In addition, an independent external auditor was retained to conduct a financial review of the LTACH, which is ongoing.

The LTACH has been under new management since October 2014. The management change has resulted in significantly improved operational results for the LTACH. This management team will be retained as a part of the Acquisition. These results were borne primarily of two initiatives: (i) cost cutting through the reduction and better utilization of employees, and group purchasing of supply materials, and (ii) revenue enhancement through full capacity utilization and a significant increase in the size of the marketing team focused on sourcing patients with illnesses that are eligible for LTACH services.  The LTACH operates much like an acute care hotel whereby the bed occupancy rates, illness type, revenue management and relationships with general hospitals for patients provide for an extremely stable, predictable and long-term visible financial profile. Prior to the new management taking over operations, the historic financial results were as follows:









unaudited


 Balance sheet

unaudited

Income statement

unaudited

annualized (1) 



Dec-14


 FY-14 

 FY-15 


Current assets

8,698,193

Patient revenue

25,532,275

39,823,093


Property plant & equipment

1,528,115

Operating expenses

23,959,556

26,288,058


Intangible assets

40,000,000

Operating profit

1,572,719

13,535,035



50,226,308





Current liabilities

10,217,235

Other expenses

1,189,085

(66,037)


Non current liabilities

12,700






10,229,935

Net income

383,634

13,601,072








Members equity

39,996,373

Avg. occupancy (2) 

31

50








Total liabilities & members equity

50,226,308

(1)

Annualized FY-15 consists of the first 4 months of 2015 operations presented on an annual basis.

(2)

Average occupancy is the average number of patents beds occupied per month out of the 63 available beds at LTACH.

 

Long-term acute care hospitals serve a critical purpose for patients and general care hospitals alike.  Critically ill Medicare patients, whose care requirements reach beyond the 15 day general hospital stay reimbursement period, need acute care facilities that can meet their recovery needs -- sub-acute care facilities and nursing homes are unable to provide these specialized services.  There is currently a federal Medicare moratorium in place through 2017 on the licensing of new facilities, as a result, in the opinion of QIIC, the New Jersey market is significantly underserved.   

LTACH is the largest freestanding multi-specialty long term acute care hospital in New Jersey currently certified by the federal Medicare program.  The LTACH has a total capacity of 63 acute care beds.  The hospital employs approximately 200 full time professionals. The LTACH provides an extended range of critical care services for medically complex patients. Clinically, the LTACH's focus is on patients with serious medical conditions who require intense specialized treatment for an extended period of recovery time, ideally, for an average length of stay of 25 days or more. The LTACH is designed to provide comprehensive and technologically advanced medical care to patients suffering from catastrophic illnesses and cataclysmic trauma. The specialty hospital model provides for a high acuity population for patients who have not responded to treatment in traditional general hospitals. With that in mind, the LTACH's clinical pathway delivery methodology was shaped to respond to the highest levels of acuity. The most profound benefit is the fact that a long term acute care hospital is designed to accept those long-stay patients who drive up a general hospitals' average length of stay. Those general hospitals with a persistent high length-of-stay problem benefit from the services of facilities such as the LTACH. While the majority of long term acute care hospitals in the US operate as a separately licensed hospital within a host's general acute care hospital campus, the LTACH operates as a free-standing facility.

Highlights of the Acquisition Agreement

QIIC will acquire 100% of the membership interest in the LTACH for US$29,000,000.  In order to provide for optimal operations during the initial year of ownership of the LTACH by QIIC, QIIC has entered into a consulting agreement with an entity which will provide to the LTACH consultants with extensive experience in long term acute care hospital operations. Pursuant to such agreement, QIIC will pay such entity a monthly fee of US$25,833. In addition, QIIC has agreed to acquire the consulting entity on the first anniversary of the closing of the Acquisition for (i) a convertible promissory note with a face value of US$6,400,000, which note will be issued concurrent with the commencement of the consulting arrangement and will be convertible into a 16% membership interest in the LTACH, at the option of either the holder or QIIC, and (ii) an additional payment that is dependent on the LTACH EBITDA, the maximum amount of which shall be US$22,200,000 (of which US$5,400,000 will be paid concurrent with the commencement of the consulting arrangement), which amount would be payable if the LTACH produced EBITDA of US$15,000,000 or greater for such one year period, with lesser amounts payable on pro rata basis for a lower EBITDA result.

The transaction is subject to Department of Health and TSX Venture Exchange approval and is expected to close in August of 2015.  QIIC is evaluating several different financing alternatives for this transaction involving debt and/or equity. No finder's fee is payable by QIIC in the transaction and the transaction is at arm's length.

"The LTACH business is a key piece of our business strategy of providing integrated health solutions. The LTACH acquisition creates a counterbalance of solid long-term cash flow to the exponential growth potential in our surgery centre business in the same regional market." Grant White the CEO of QIIC stated, furthermore "The LTACH is an in-network facility with Medicare as its biggest payor, which further balances our payor mix profile".

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements and forward-looking information (collectively, "Forward-Looking Statements") and QIIC cautions investors about important factors that could cause QIIC's actual results to differ materially from those expressed, implied or projected in any Forward-Looking Statements included in this press release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "expects", "will continue", "is anticipated", "anticipates", "may", "could", "believes", "estimates", "intends", "plans", "forecast", "projection" and "outlook") are not historical facts and may be Forward-Looking Statements that involve projections, estimates, assumptions, known and unknown risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Statements or otherwise materially inaccurate. No assurance can be given that these expectations or assumptions will prove to be correct and such Forward-Looking Statements included in this press release should not be unduly relied upon. These Forward-Looking Statements speak only as of management's beliefs and expectations as of the date of this press release. In addition, this press release may contain Forward-Looking Statements drawn from or attributed to third party sources. Accordingly, any such statements are qualified in their entirety by reference to the information discussed throughout this press release.

In particular, this press release contains Forward-Looking Statements regarding anticipated future financial, structural, growth and operating performance of QIIC, including as it pertains to the operations detailed in this press release and the deployment of capital into new acquisitions.

Actual results may differ materially due to a number of risks and uncertainties faced by QIIC, including, but not limited to: general economic and business conditions; global financial conditions; the failure of QIIC to identify future acquisition targets; third parties honouring their contractual obligations with QIIC and its subsidiaries; relationships with operating and/or joint venture partners; inaccuracy, incompleteness or omissions in any of the financial and other information upon which management bases its analysis of potential acquisitions; the failure to realize the anticipated benefits of QIIC's current and future acquisitions; factors relating to the healthcare industry, including reliance on third-party payors for revenue; licensing, certification and accreditation risk; healthcare regulatory requirements; dependence on physician relationships; litigation, professional liability claims; insurance coverage limitations and uninsured risks; dependence on key personnel at the QIIC and operations level; competition from other healthcare providers; factors relating to the media content generation and distribution industry, including ability to deliver services in a timely manner; changes in technology, consumer markets or demand for media services; changes in federal, provincial and foreign content laws and regulations; dependence on third party content producers; competition for, among other things, capital, equipment and skilled personnel; the inability to generate sufficient cash flow from operations to meet future obligations; the inability to obtain required debt and/or equity financing for future acquisitions on suitable terms; competition for acquisition targets; seasonality and fluctuations in results; and limited diversification of QIIC's business industries, structures and operations.

QIIC cautions that the list and description of Forward-Looking Statements, risks, assumptions and uncertainties set out above is not exhaustive. QIIC will update the Forward-Looking Statements as required by securities law. All Forward-Looking Statements contained in this press release are qualified by these cautionary statements.

Unless otherwise specified in this press release, information contained in this press release is current as of the date of this press release. Unless otherwise specified, all dollar amounts herein refer to Canadian dollars. Additional information on these and other factors that could affect the operations or financial results of QIIC and its subsidiaries are included in disclosure documents filed by QIIC with the securities regulatory authorities, available under QIIC's profile on SEDAR at www.sedar.com.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Quantum International Income Corp

For further information: Grant White, Chief Executive Officer, 416.477.3410; Manu K. Sekhri, President, 416.477.3414; Investor Relations, Kin Communications, Joel Kitsul - Sr. VP Investor Relations, 1-866-684-6730, QIC@kincommunications.com

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