Health Care Deal News: Spotlight on Long-Term Care - September 2012

It was a record month in the seniors housing and care market, with about two dozen acquisitions disclosed, split fairly evenly between the skilled nursing side of the business and the private pay seniors housing side.  Based on conversations with several intermediaries in this business, we know that the fourth quarter is expected to be very active, especially as sellers try to get their deals done while the capital gains tax is in their favor. No other deals matched Sunrise in size or pricing, but very few ever do.  Newcastle Investment Corp. (NYSE: NCT), which operates as a REIT and is affiliated with Fortress Investment Group (NYSE: FIG), purchased eight senior living properties from Oregon-based BPM Senior Living.  The properties are located in California, Oregon, Utah, Arizona and Idaho and have a total of 701 units.  Newcastle paid $143.0 million, or about $204,000 per unit, and financed the acquisition with $88.4 million of debt from Fannie Mae arranged by Oak Grove Capital; the rest of the price was paid in cash.  The properties will now be managed by an un-named affiliate of Newcastle.

The majority of the assets of Florida-based Royal Senior Care (RSC), which was 60% owned by Israeli shopping center company Gazit-Globe, was sold for $230 million, or $175,500 per unit.  The 12 communities are located in the southeastern U.S. and RSC will continue to own and manage its joint venture interest in two seniors housing facilities, one fully-owned community and a land parcel available for development.  The buyer was not revealed, but we believe the ubiquitous Health Care REIT may have been involved.  There were many other sales, which are detailed in the tables on pages 11 and 12, but it was quite a month.

In the skilled nursing sector, what was striking was not just the number of deals (a dozen or so), but the prices that were paid for some of the assets.  There were six transactions with a price per bed above $70,000, when the national average is closer to $50,000 per bed, excluding the REIT sale/leasebacks when they essentially buy an entire company.  Two of the highest priced deals involved REITs as the buyer (it’s tough to beat their cost of capital and liquidity in this market).  In a sale/leaseback transaction, and the highest-priced deal of the month, LTC Properties (NYSE: LTC) purchased two skilled nursing facilities with 288 beds in Ohio from Carespring Health Care Management for $54.0 million, or $187,500 per bed.  One is located in Cincinnati and was built in 2009, while the other is in Dayton and was built in 2010.  This represents one of the highest prices we have seen in the skilled nursing sector, but we might as well get used to it.  These newly built skilled nursing facilities, in good Medicare and managed care markets, are going to be cost............Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today