The Health Care M&A Monthly: Senior Care REIT Deals Surge--

Seven Transactions Announced Worth $11.975 Billion


Senior care posted the greatest level of M&A activity in February, as measured by dollar volume. Seven deals were announced worth a combined total of $11.975 billion, or 37% of all dollars spent on health care M&A for the month. Six deals involving real estate investment trusts, or REITs, captured the lion’s share of this activity. We have seen smaller deals with senior care operators as the acquirers, but the industry is currently swept up in a frenzy of deal making involving the REITs.

This new wave of REIT activity got under way last year when Health Care REIT (NYSE: HCN) undertook a deal with Merrill Gardens utilizing the so-called RIDEA structure whereby the REIT keeps not just the lease payments, but the growing profits, as well. Late in 2010, both Ventas (NYSE: VTR) and HCP, Inc. (NYSE: HCP) announced large deals worth a combined $9.2 billion. Needless to say, this activity is underwritten by a recovering economy and the return of capital to the markets. And the possibility of structuring a transaction as a RIDEA deal, allowing a REIT to tap into additional revenue streams from the properties, has clearly attracted the attention of investors.

Apparently, the Merrill Gradens deal last summer was just a taste of things to come. Fast-forward to February 2011, and HCN announced five transactions worth a combined total of $4.5 billion.

In mid-February, the company announced four deals with regional operators. In the largest of the four, one worth $890.0 million, HCN is entering into a RIDEA partnership with Benchmark Senior Living to own and operate 34 senior housing communities with 3,009 units in New England. Under terms of this sale-manageback deal, the partnership will be owned 95% by HCN and 5% by Benchmark. Further to the terms, Benchmark will manage the facilities under an incentive-based management contract. The relevant communities are located in Connecticut (14), Massachusetts (13), Rhode Island (3), New Hampshire (2), Vermont (1) and Maine (1). The average age of the facilities is 12 years. The seller is Australia’s GPT Group (ASX: GPT), which decided two years ago to shed noncore assets when they could achieve a decent return for investors (and they did). The price of over $295,000 per unit is high, but these are good facilities in the expensive New England market.

In the second deal, Brandywine Senior Living is entering into a sale/leaseback with HCN for 19 seniors housing communities with 1,845 units of assisted living, Alzheimer’s care, independent living and skilled nursing. The deal, valued at $600.0 million, is initially structured as a sale-leaseback with an option to convert later to a RIDEA partnership. The communities are located in New Jersey (10), Pennsylvania (4), Delaware (3), New York (1) and Connecticut (1), and neatly dovetail with those in the Benchmark portfolio. The seller here was Warburg Pincus; it was well known in the industry that they wanted to divest these properties as they had made a strategic decision three years ago to exit the sector.

The third deal involves a RIDEA partnership between HCN (90%) and Senior Star Living (10%) to own and operate nine seniors housing communities with 1,687 units in the Midwest and Southwest. The value of the deal is $360.0 million, or approximately $213,400 per unit. The communities are located in Missouri (2), Ohio (2), Oklahoma (2), New Mexico (1), Iowa (1) and Illinois (1).

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