So far this week we’ve discussed a number of acquisitions that range from larger transactions like Brookdale Senior Living’s multi-billion purchase of Emeritus and NorthStar Realty Finance Corp.’s purchase of Griffin-American Health Care REIT II, to smaller deals like Capital Senior Living’s purchase of two senior housing properties in Wisconsin and Virginia for $33.9 million. Today, we’ll conclude our overview of recent acquisition activity in the space by discussing a larger deal that could potentially be worth as much as $2.3 billion. The pace, size, and volume of acquisition activity in the sector continues to demonstrate the strength of the senior housing industry and the attractiveness of senior housing assets. Senior living providers and investors who are seeking capital to add more of these assets to their portfolios should contact Cambridge Realty Capital to learn more about the different financing options that it offers for acquisitions, sale/leasebacks, debt refinancing and other purposes as well.
Health Care REIT Takes Aggressive Action to Grow its Portfolio
In addition to NorthStar Realty Finance Corp.’s purchase of Griffin-American, another multi-billion dollar deal senior housing deal has just been announced. Specifically, Health Care REIT has announced that it is purchasing the outstanding units of HealthLease Properties REIT, including its outstanding debt, for $950 million. This purchase will add 53 senior housing properties to Health Care REIT’s portfolio and all 53 communities are already being managed by experienced operators under a triple-net lease arrangement. But Health Care REIT isn’t stopping there. At the same time it acquired Health Lease Properties REIT, it also entered into a partnership with Mainstreet Property Group. Mainstreet Property Group is the largest developer of post-acute and senior housing facilities in the country and is also HealthLease Properties’ management company. Under its partnership with Mainstreet, Health Care REIT will acquire 17 of Mainstreet’s Next Generation properties for $369 million and will also provide mezzanine financing at interest rates in the mid-teens, while receiving purchase rights to an additional 45 Next Generation properties that are currently being developed. This part of the deal has been valued at $1 billion, meaning that the total value of this transaction could ultimately be as high as $2.3 billion. Mainstreet coined the term “Next Generation” for these properties because each community features a unique mix of 30 assisted living beds, 70 post-acute beds, and also includes rehabilitation therapy areas, high-end common areas, and numerous amenities as well.
With respect to the returns that the deal could generate, according to Health Care REIT, its purchase of HealthLease Properties REIT should produce an initial cash yield of 7%, its purchase of Mainstreet’s 17 Next Generation properties should produce an initial cash yield of 7.5% and purchasing the additional 45 Next Generation properties that are in development should produce a slightly higher yield of 7.7%, for a blended yield on the entire transaction of 7.4%. Furthermore, according to some analysts that have reviewed the deal, after accounting for rent escalators Health Care REIT’s total return on the deal should be in the 9% range. Strong returns like these have everyone associated with this deal excited about it, including Tom DeRosa, Health Care REIT’s Chief Executive Officer. In commenting on the deal Mr. DeRosa stated that “This transaction again demonstrates [Health Care REIT’s] integral role in the health care delivery continuum. With Mainstreet, [Health Care REIT] is developing the next generation of post-acute care. [Furthermore], we are connecting leading health systems, post-acute providers and seniors housing operators to deliver integrated health care delivery platforms that will improve the quality of care, create operating efficiencies and reduce costs.”
As the economy continues to improve and interest rates remain low, the pace of senior housing deals should continue to remain strong. However, most analysts are also predicting that the Federal Reserve will move to raise interest rates sometime next year. Before this occurs and the cost of borrowing rises, parties that are seeking capital to acquire additional senior housing assets for their portfolios or for other purposes should continue to look to the Chicago-based firm Cambridge Realty Capital for assistance with their financing needs.