Health Care REIT To Buy Sunrise Senior Living

August 22, 2012

August 22, 2012. In a bombshell announcement today, Health Care REIT announced an agreement to purchase Sunrise Senior Living for $14.50 per share in cash, plus the assumption of about $495 million in debt, for a total initial value of $1.34 billion. But the value goes up as Health Care REIT plans to exercise purchase options on 105 properties owned in joint ventures where Sunrise owns an average 28% interest. When all is said and done in a few years, if it goes as planned, the total deal "value" will approach $5 billion. As part of the complicated transaction, Health Care REIT plans to sell the management company to a "preferred partner," with current management staying in place and the Sunrise name being maintained. That would seem to rule out a sale to one of Health Care REIT's exisiting partners/tenants, or to another major chain, leaving open the possibility of a sale to a new entity or private equity firm that would use the management business as a platform to grow Sunrise once again. Our guess is that Sunrise CEO Mark Ordan will partner with an investor group to buy the management company. In addition, it was revealed that there is an expectation that Sunrise will restart its development business. The transaction is expected to close by February 23, 2013, but there is a $50 million penalty per quarter if it takes longer than that. One major issue is how the other REITs that own Sunrise assets will react to the transaction, and what they will demand to provide their consent to the sale. Health Care REIT has done some pretty clean deals in the past, but this one could get messy if someone gets angry, or jealous. This is a great deal for Sunrise shareholders, as the stock hasn't been near $14.50 per share since September 2008, and the current deal price represents a 62.4% premium.


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