The SeniorCare Investor: Health Care REIT Deals Again-

Acquisition Of Sunrise Continues Sector Consolidations
 

It was exactly two years ago that Health Care REIT (NYSE: HCN) announced its $817 million joint venture with Merrill Gardens, an existing tenant.  The transaction was completed using the so-called RIDEA structure (REIT Industry Diversification and Empowerment Act of 2007), with the additional benefits of ownership of the assets beyond merely the lease payments accruing to the REIT. 

The goal, of course, was to eke out a higher return, but with the potential for a less consistent earnings stream if property cash flow fluctuated. Perhaps the most common description of the transaction at the time was that it was a “game-changer,” but the people uttering that phrase had no idea of the size of the REIT tsunami that would follow in the next 18 months, as more than $22 billion of REIT portfolio acquisitions were announced, including several that were done using the RIDEA structure.  REITs were king with their low cost of capital that kept on getting cheaper, unlimited access to that capital and a knowledge of the sector with a strong comfort level regarding its future to go along with it.  But then the deal flow seemed to stop.  Was it a question of digesting too many acquisitions in too short a time period?  Or was it simply that the large portfolios and companies with high quality assets were largely gone, or just not for sale?

The REITs still did smaller transactions, but there were no eye-popping deals for over a year…until August.  We are beginning to think that George does not like to let the boys and girls of Health Care REIT take any time off in the late months of summer, as evidenced by yet another late August deal announcement.  This one was different, however, as the $14.50 per share purchase of Sunrise Senior Living (NYSE: SRZ) represents the first time that HCN has agreed to buy a publicly traded operating company and essentially take it private.  It is also different because more than 50% of SRZ’s properties are owned by four other REITs, with 143 properties owned by just two: Ventas (NYSE: VTR), which for now is the largest owner of Sunrise assets with 95 properties, and HCP, Inc. (NYSE: HCP), with 48 properties.  This obviously makes for some strange bedfellows, as we have to assume at least one of these two REITs was in on the bidding for Sunrise and came up short, whether in price or in structure..................Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today