The SeniorCare Investor: Health Care REIT Dominates--

REIT Stuns The Market With Five Deals In A Month


We realized that the fourth quarter closed with a REIT bang, as Ventas (NYSE: VTR) and HCP, Inc. (NYSE: HCP) each announced one transaction valued at a combined $9.2 billion. And as we headed into January, the rumors were swirling that Health Care REIT (NYSE: HCN) was catching up or, as we now know, had already begun to catch up. But we never expected a single blockbuster announcement, which came in mid-February, with four major company acquisitions. And then the big one, which came late on the last day of February. Don’t they want to leave anything else for their friendly rivals?

When Health Care REIT announced its Merrill Gardens transaction last summer, a so-called RIDEA deal whereby the REIT keeps the growing profits and not just lease payments, some people referred to it as an industry “game-changer.” Perhaps management at HCN was thinking, “You ain’t seen nothin’ yet.”  But we would venture to say that last summer they could not have anticipated they would come out with a single announcement covering four acquisitions worth a total of $1.9 billion with four well-known industry players.  While we were aware of all four of the acquisitions, we had thought that the largest transaction was actually going to Ventas, but learned in mid-January that either we were misinformed or that Health Care REIT made a more compelling bid late in the game. For obvious reasons, no one wants to talk about it.

Benchmark Senior Living. The largest transaction of the group was an $845.5 million purchase of a 95% interest in 34 assisted living and memory care facilities with 3,009 units operated by Benchmark Senior Living. This acquisition is one of the so-called RIDEA acquisitions whereby the REIT will own the real estate and the cash flow (at least 95% of it) and not just collect rent. The seller of this interest was Australia-based The GPT Group (ASX: GPT), which had decided two years ago to shed non-core assets when they could achieve “value-creating” prices for their investors.  And their timing could not have been better.  GPT purchased this portfolio in late 2006 (19 facilities) for approximately $431.5 million, which included $3.5 million for a 20% interest in the Benchmark management company, and in late 2007 (15 facilities) for about $268 million.  Even though those purchases were at the market peak, GPT ended up with an  A$119 million capital gain on the sale, which is quite good considering they purchased these properties just before the worst real estate market in 70 years in the U.S.  

The value of this acquisition (for the full 100%) was $890 million, or just over $295,000 per unit.  While not a record-breaker, and also not the most expensive of the four transactions, this is certainly up there.  But one has to remember that Benchmark operates mostly in New England, and in many of the most expensive towns in Connecticut and Massachusetts, where land values are often the highest in the country, not to mention the incomes of the elderly.  These 34 properties that HCN purchased are located in Connecticut (14), Massachusetts (13), Rhode Island (3), New Hampshire (2) and one each in Maine and Vermont.  In addition to these 34 properties, Benchmark operates eight facilities in Massachusetts and one each in Connecticut and New Hampshire for a total of 44...Want to read more? Click here for a free trial and download the current issue today