TOLEDO, OHIO — Health Care REIT (NYSE:HCN) has positioned itself as among the largest seniors housing owners in the world by entering into a definitive agreement to acquire Sunrise Senior Living (NYSE:SRZ) for approximately $844.6 million in cash. The deal was announced today.
The purchase price reflects a real estate value of approximately $1.9 billion. Approximately $950 million will be paid in cash and the balance will be assumed debt at an average interest rate of approximately 4.9 percent.
The REIT purchased Sunirse at $14.50 per share, which is a 62 percent premium to Sunrise’s stock price at the close of business on Tuesday at $8.93 per share.
The acquisition will bring Health Care REIT’s holdings to 58,000 units in the U.S., Canada and the United Kingdom. The REIT will acquire Sunrise’s 20 wholly owned seniors communities, as well as Sunrise’s interest in joint ventures that own 105 seniors housing communities. Of the wholly owned facilities, 17 are located in the U.S. and three are in Canada, while 78 of the joint venture communities are located in the U.S. and the rest (27) are located in the UK.
The communities have a median age of eight years and 90 percent of the communities are Sunrise’s mansion design. Approximately 50 percent of the properties are located in the top five MSAs and approximately 85 percent are located in the top 20 MSAs in their respective countries. The portfolio is concentrated in New York, Los Angeles, San Francisco, Washington, D.C., Philadelphia, Boston, Chicago and London.
“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,” says George Chapman, chairman and CEO of Health Care REIT. “Sunrise has been a leader in the transformation of seniors housing. There are few opportunities to acquire assets of this quality in a transaction of this scale.”
The acquisition includes a real estate pipeline of more than $2 billion from purchasing additional interests from existing Sunrise joint venture partners. Health Care REIT will own approximately 28 percent interest in Sunrise’s 105 joint venture communities on average. Of those properties, 37 have purchase options exercisable in 2013, 13 have purchase options in 2014 and 21 are subject to open buy/sell rights that could result in a 100 percent ownership interest.
Health Care REIT is planning on structuring ownership and operations of the wholly owned facilites under RIDEA, which was made available following the REIT Investment Diversification and Empowerment Act of 2007. The structure allows the company to both share in the risk of the portfolio and share in the profits from operations through rental income.
Health Care REIT expects NOI to increase 4 to 5 percent per year on average, assuming economic conditions are consistent with the current market. Additionally, the REIT’s private pay percentage is expected to increase from 74 percent to 77 percent following the transaction. Sunrise will become Health Care REIT’s second largest operator at approximately 11 percent of the portfolio.
“Sunrise has been at the forefront for more than 30 years in creating best-in-class, high-end senior living communities,” says Mark Ordan, CEO of Sunrise. “The entire Sunrise management team is pleased to be entering into this transaction with Health Care REIT.”
Bank of America Merrill Lynch acted as the exclusive financial advisor to Health Care REIT in the transaction. Arnold & Porter; Shumaker, Loop & Kendrick; and Sidley Austin acted as Health Care REIT’s legal advisors.
Health Care REIT’s stock price closed Tuesday at $59.75 per share, up from trading at $46.42 per share this time last year.
The transaction is expected to close in the first half of 2013.
— John Nelson