Health Care REIT Acquires Sunrise
A May 2012 study in the journal Health Services Research found a 10% increase in assisted living capacity between 1993 and 2007. At the same time there was a 1.4% decline in private pay occupancy in nursing homes.
It may be small, but it does show a shift in movement toward assisted living. The crown jewels of that market are higher-end private pay communities.And the Ohio-based Health Care REIT, Inc. just purchased an extremely large chunk of that market in a $1.9 billion deal to acquire Sunrise Senior Living, Inc.
REIT acquired 20 of Sunrise’s wholly-owned senior housing communities as well as interest in the McLean, Va.-based company’s joint ventures. Sunrise employs almost 32,000 people and operates just more than 300 communities at of June 2012, according to company data. “This acquisition powerfully advances our strategic vision: own the highest quality, private-pay seniors housing communities in strong, growing, affluent markets and align with experienced, dynamic management teams,” said George L. Chapman, Health Care REIT's chief executive officer. “This transaction positions us to build on our collaborative, relationship based investment philosophy and benefit from the ongoing transformation of the sector. There are few opportunities to acquire assets of this quality in a transaction of this scale.”
Although many such residents of these communities live with little or no assistance, most have sizable skilled nursing facilities attached. Residents often segue into those communities as they age and become more frail. “This is one of the bigger transactions in this market in recent years,” said George Yedinak, founder and publisher of the trade publication Senior Housing News. “Based upon the history of Sunrise and its longstanding status in the assisted living world, it may be the defining transaction for 2012 thus far.”
This gives them some high-quality assets in major metro markets that have really great demographics and, most importantly, people that can pay privately,” Yedinak added. “Location, revenue per resident in the communities, the scope and sheer number of properties gives it some real panache. Then add the Sunrise brand to it and think there is a lot of potential.”
Yedinak noted that the industry seems to be splitting into communities whose residents are with money or without. Real estate owners are beginning to place a “huge premium” on communities where individuals can pay for their own care and housing. He added that Sunrise was ripe for purchasing because of its choices during the real estate bubble. The organization took on a lot of debt and leverage to build some of its newer communities. They ran into financial problems when credit markets went downhill. The company, he said, has been in “restructuring mode” for a few years, selling off assets and repositioning itself. “This transaction is part of the ultimate restructuring,” he said.
One of the benefits of the transaction for REIT is its interest in Sunrise’s ventures.
According to a statement issued by REIT, the organization expects to own an average of a 28% interest in 105 of Sunrise’s joint venture communities when the acquisition is complete. Thirty-seven will have purchase options in 2013, 13 have them in 2014.
“They have a pipeline where they can plan debt and equity offerings as well as property acquisitions,” Yedinak said. “They have a roadmap laid out for the next couple of years based on knowing when the options come into play.”
According to the company’s statement, the acquisition makes REIT one of the largest owners of seniors housing in the world with more than 58,000 units in the United States, Canada and the United Kingdom. Sunrise is expected to operate the communities, but the terms are not being disclosed because of confidentiality agreements and continued negations.
The deal is expected to be completed in the first half of 2013.
