Nu-Med, an Encino-based hospital chain, is planning a financial restructuring intended to raise its stock price by eliminating its preferred shares and cutting common shares outstanding by nearly 20%.
The company also reported a $1.9-million loss for its fourth quarter ended April 30, cutting its yearlong earnings sharply, but said the deficit wasn't related to the proposed financial restructuring.
Under the recapitalization plan, Nu-Med will place property appraised at $42 million, or about 7% of its real estate, into a new, publicly traded real estate investment trust that it will spin off. Specific properties haven't been chosen, but Nu-Med owns 13 acute-care hospitals, 11 office buildings and three psychiatric hospitals.
Nu-Med hopes that shares in the REIT, expected to trade on the American Stock Exchange, initially will be valued at $12. Nu-Med said it will issue the REIT stock in exchange for up to 1.9 million shares of its common stock on a one-for-one basis. In addition, it will exchange 1.1 REIT shares for each of its 1.3 million preferred shares.
The company will retain 5% of the REIT stock, and will act as its management company, said William Hartauer, Nu-Med president.
Nu-Med will enter long-term leases with the REIT, he said, and hospital acquisitions may be made through the new entity. He said a registration statement will probably be filed with the Securities and Exchange Commission within 30 days.
No Takeover Fears
Hartauer said the move has nothing to do with takeover fears, even though several of Nu-Med's senior executives, including chairman Maurice Lewitt but not Hartauer, previously worked at two health-care firms that were bought out by bigger companies.
Instead, Hartauer said, the move is aimed at raising the price of Nu-Med shares, which closed at $8.125 in over-the-counter trading Thursday, the day before the company's announcements. The stock closed at $8.88 on Friday and $8.50 on Monday. Over the past 12 months, the stock's price has ranged from $6.25 to $13.25; it has hovered between $7 and $8 in recent months.
The new REIT would enable the company to eliminate preferred dividends and cut its number of common shares from 9.8 million to 7.9 million. Since leasing costs should be offset by lower depreciation, Hartauer said, higher earnings should result.
Nu-Med hopes that creating the REIT will expose what it considers the full value of its assets. Hartauer said the company's properties are carried on its books at cost, which is below their appraised value, but he wouldn't say how big the difference is.
The company's fourth-quarter loss, which amounted to 22 cents a share, was down from earnings of $1.9 million, or 19 cents a share, for the same period a year ago. Sales were $89.9 million, up 75%.
For the year, Nu-Med's profits were down 73%, to $2.0 million, or 12 cents a share, versus $7.5 million, or 76 cents a share, the year before. Sales were $315.3 million, up 57%.
Hartauer said profits were reduced by two factors. First, he said, the company is renovating two facilities in Florida and is doing extensive construction elsewhere. Second, he said, the company increased its allowance for costs that are not reimbursed by Medicare.
That figure, a charge against earnings, was $24 million in the most recent quarter, versus $8.4 million a year ago. For the year, the charge was $68.7 million, versus $31.0 million a year ago.