Health Care REIT To Acquire HealthLease REIT

August 13, 2014


August 13, 2014. Health Care REIT (NYSE: HCN) announced today that it has entered into an agreement to purchase HealthLease Properties Real Estate Investment Trust (TSX: HLP.UN) for C$14.20 per share, representing a 31% premium to the previous day’s closing price. The deal is valued at US$950 million for the 53 properties with a total of 5,331 beds, or just over $178,000 per bed. Of that total, 14 properties are in Canada and 39 are in the United States. One of the attractions to Health Care REIT of this portfolio is that it is the newest portfolio of senior care properties of all the REITs (or really, any operating company). Nearly all the properties have a combination of skilled nursing (but really short-term subacute care) beds and high-end assisted living. A typical property that has been recently built includes 70 skilled nursing beds (private rooms) and about 30 assisted living units (private rooms). These are trying to set the standard for post-acute care, at least with regard to the physical environment. Great care, however, can be provided in any setting.

The other attraction is that Health Care REIT has entered into an agreement with Mainstreet Property Group, which has been developing many of the properties purchased by HealthLease, to acquire 17 seniors housing and post-acute development properties from Mainstreet upon issuance of a certificate of occupancy and licensure at a 7.5% cap rate on 12-month forward net rent. The projected value of this rental income is approximately $369 million. It’s not over. Health Care REIT has also entered into an agreement with Mainstreet to provide mezzanine financing and receive purchase rights, at HCN’s option, for another 45 properties beginning in 2016. The purchase option price on this pipeline represents a 7.7% initial cash yield on the projected rental income. If all of these transactions end up closing, the total deal value will approach $2.3 billion.  

HealthLease’s tenants include such respected names as Trilogy Health Services and Life Care Services, names very familiar to Health Care REIT. This acquisition will certainly bring down the average age of Health Care REIT’s portfolio, giving it assets that are expected to be positioned for the future. But the 17-property “sub-deal” will come at a time when the market could be hit with higher interest rates on top of occupancy pressures from new development. At least the 45-property future deal is option based, so if the market gets a little ahead of itself it can take a breather. All year we have been saying that the bigger REITs will be buying the smaller ones, and in the past three months we have seen three billion-dollar REIT-on-REIT deals, and the buying spree is not over.



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