The Health Care M&A Monthly: Seniors Housing Deals In Focus--

October Produces Six Deals Worth Over $3.2 Billion


Toward the end of each year, we see a flurry of transactions in the Long-Term Care sector as brokers, bankers and principals try to tie up the deals they have been working on so diligently. During the third quarter of 2010, 18 deals were announced worth a combined total of $163.4 million. While October’s six transactions continued the sector’s average monthly deal volume, the price of this M&A activity spiked to over $3.2 billion.  This increase may be attributed in equal parts to a number of portfolio deals and the desire of players not to carry over work in progress into the New Year. After all, sales must be made to firm up year-end figures and bonuses.

The largest Long-Term Care deal involves a sale-manageback transaction. Ventas (NYSE: VTR), a real estate investment trust, or REIT, is acquiring 118 senior living properties with 13,500 assisted living units from Louisville-based Atria Senior Living, the fourth largest operator of senior housing properties in the country. Atria is currently owned by private equity funds managed by Lazard Real Estate Partners. The purchase price of $3.1 billion consists of $1.35 billion in 24.96 million shares of Ventas stock,  $150.0 million in cash and $1.6 billion in assumed debt. Just before the deal takes place, Atria will spin off its management company, which will then continue to operate the assets under a management contract with VTR. Funds associated with Lazard will own a majority interest in the management company, allowing it to continue to participate in the industry, while Atria management and Ventas will have a minority share.

This deal increases Ventas’s portfolio of facilities in the upscale New York City, New England and California markets, which should help allay concerns over maintaining and building up occupancy rates. Further, once this acquisition closes, over two-thirds of VTR’s assets will be private pay, which will reduce the company’s exposure to changes in government reimbursement protocols, real or threatened. From a pragmatic point of view, this deal clearly benefits Lazard by permitting it to monetize its investment in the company.

This transaction follows on the heels of the Health Care REIT (NYSE: HCN) 80/20 joint venture with Merrill Gardens in a deal that was valued at $817.0 million, or about $186,000 per unit, compared with about $230,000 for the Atria assets.  Both transactions are being done using the relatively new structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (RIDEA), which allows REITs the opportunity to keep all the economic benefits of real estate ownership as opposed to simply receiving rents and the 2.5% annual rent increases.  With the cost of capital for the large health care REITs at perhaps an all-time low, these RIDEA-structured transactions are becoming increasingly popular, even though very few have actually closed. 

October saw another deal between a REIT and an operator, but this time it was an outright sale...Want to read more? Click here for a free trial and download the current issue today