Senior Living (September 2006)

A $649 million whopper in senior sector

VENTAS AGREES TO BUY 67 FACILITES FROM CANADIAN FAMILY FOR $649 MILLION

By John Mugford

Ventas Inc., a publicly traded real estate investment trust that concentrates on senior healthcare facilities, recently announced that it has entered into a blockbuster of a deal to acquire 67 healthcare and senior housing facilities for about $649 million.

Louisville-based Ventas (NYSE: VTR) officials say the company has entered a definitive agreement to acquire the properties from affiliates of the Reichmann family of Canada. The facilities have a total of 5,885 beds/units and are located in 16 states across the United States.

The deal is expected to close in the fourth quarter of this year and be immediately accretive to Ventas’ Funds From Operation (FFO).

According to Ventas officials, the deal is expected to add about $50 million to its annual rental revenue. The company says it considers the acquisition price of $111,000 per bed/unit to be below replacement cost.

Ventas expects to fund the transaction through a combination of cash and equity, including about 1.7 million shares of its common stock, issued to the seller at closing. That portion of the deal would represent about $65 million, with the remainder being funded through the assumption of up to $30 million of existing secured debt and borrowing from Ventas’ revolving credit facility and the issuance of senior notes or other debt securities.

Ventas officials say they pursued the transaction to continue with the company’s plans to grow and diversify its portfolio. As for its diversification efforts, Ventas officers say the acquisition further decreases the company’s exposure to healthcare operations that depend on federal Medicare reimbursements. In fact, the acquisition increases the company’s revenue from private-pay facilities to about 48 percent of its overall revenue.

Also, the transaction would decrease the company’s percentage of rental revenues coming from assets operated by Louisville-based Kindred Healthcare Inc. (NYSE: KND), the REIT’s major tenant. Kindred leases 225 facilities from Ventas.

Ventas and Kindred are currently involved in a legal dispute concerning how much Kindred should be paying in rent. Back in 2001, as Kindred was emerging from Chapter 11 bankruptcy protection, the two parties entered an agreement in which Ventas lowered the operator’s rent for a certain number of years. That agreement reportedly allows Ventas to bring the rent up to market rates this year.

Earlier this year, Ventas proposed raising the total amount of annual rent that Kindred pays to $317 million – a yearly increase of $111 million. Kindred objected to the proposal, saying it already pays $95 million too much.

As a result of the dispute, the two parties entered a reset right process. As part of that process, three appraisers agreed upon by both parties are in the process of determining the total amount of fair market rent that Kindred should pay to Ventas.

For background purposes, Ventas and Kindred were once part of nursing home company Vencor Inc. until 1998. That’s when Kindred became the operator and Ventas the landlord.

The facilities Ventas is acquiring fall into four separate groups: Health Care Group includes five continuing-care retirement communities (CCRCs) and two dementia facilities in southern California; United Rehab has 17 skilled-nursing facilities and two rehab hospitals; Elmcroft Group includes eight assisted living facilities in the southeastern United States; and Outlook Pointe has 33 assisted living properties in the mid-Atlantic region.

In a news release, Ventas’ chairman, president and CEO Debra Cafaro said that the acquisition “exemplifies the continued execution of our strategic growth and diversification plan. In one step, we are adding an important new tenant relationship, acquiring a diverse portfolio of assets with a large component of private pay revenues, and continuing our commitment to strong internal growth from rental escalations.”

Ventas said that it plans to lease the properties to subsidiaries of a newly formed firm, Senior Care Inc., for 15 years on a triple-net basis with two five-year extensions. Senior Care Inc. will be led by CEO Pat Mulloy and CFO Tim Wesley. Also, Gary Smith, the former CEO of Elmcroft Assisted Living, is set to join the new company as COO.

Senior Care will reportedly have 74 senior housing and healthcare assets in 16 states under lease, ownership or management at its inception.

Chaparral plans

9-building, $400M

campus in Houston

HOUSTON – Houston-based Chaparral Group plans to build a 30-acre senior center in Houston, which will include nine buildings, for $400 million. The Oasis Medical Campus will be composed of a regional hospital, an urgent care center, a medical office building (MOB), senior apartments, and an assisted living and Alzheimer’s center.

Phase two of the development is now under construction and it will include a 10-story MOB and a $26 million, 96,500 square foot assisted living and Alzheimer’s center. The new assisted living facilities replace an older 84-room exiting facility. The new facility will include 123 units.

The “Class A” MOB will include 193,191 square feet of net rentable area. No figures have been released on the planned square footages for the hospital, urgent care center or independent living facilities.

Chaparral plans to build the campus in a Mediterranean style, which it believes will appeal to seniors.

Senior portfolio

in Las Vegas

fetches $239M

LAS VEGAS – In an off-market transaction, Las Vegas-based Carefree Senior Living has sold 2,219 senior living apartment units to Greenwich, Conn.-based Orion Residential for $238.93 million, or about $154 per net rentable square feet. The portfolio, which consists of nine active senior living communities in Las Vegas, includes 1.55 million rentable square feet. Orion used a 70 percent acquisition loan from Wachovia to complete the transaction.

For Carefree, which opened its first senior adult community in 1995, the deal is a cash-out transaction. For Orion, the deal is part of its plan to develop a $1 billion senior living portfolio within the next five years. Before the Carefree transaction closed, Orion owned 11 properties in six states.

Orion, a fund owned by Starwood Capital Group, is new to senior living. As a result, the company is partnering with Seattle-based Leisure Care to help oversee the operations in the Carefree neighborhoods. The portfolio is currently 95 percent leased.

Brookdale picks

up 8 new senior

living communities

CHICAGO – In a $237.7 million deal, Chicago-based Brookdale Senior Living (NYSE: BKD) has completed the purchase of eight new senior living communities in four states from AEW Capital Management.

The portfolio, which includes 1,172 units, is part of Brookdale’s aggressive acquisitions strategy. The facilities ranges from stand-alone assisted living facilities to larger communities that offer a combination of independent living, assisted living and Alzheimer’s care.

Five different operators had managed the properties, but Brookdale will now manage all of the sites. With the acquisition, the company now owns and operates 450 facilities in 32 states. Excluding its $1.2 billion merger with American Retirement Corp., Brookdale has purchased or made commitments to purchase $788.6 million in senior housing assets.

Brookdale is planning to invest approximately $327 million in equity in these transactions and plans to use existing cash and a corporate acquisition line to pay for the equity portion of these acquisitions.

For the Record

Sunrise Senior Living (NYSE: SRZ) recently acquired Dallas-based Trinity Hospice Inc., for $71 million. Trinity currently operates 24 hospice programs in nine states, and Sunrise will assume management of those properties and acquire its headquarters in Dallas.

Sunrise says that it plans to expand Trinity’s operations into markets where Sunrise has a significant number of properties. Currently, Sunrise operates 422 senior living properties in 37 states and internationally… In other news from Sunrise, Toronto-based Sunrise Senior Living Real Estate Investment Trust (TSX: SZR.UN) recently agreed to acquire an 80 percent interest in 24 assisted living communities in the United States for $470 million. Sunrise’s deal with an unnamed U.S. institutional investor will increase the REIT’s capacity by more than 50 percent with the addition of 2,023 suites. The remaining 20 percent stake will continue to be owned by Sunrise Senior Living Inc…. Senior Housing Properties Trust Inc. (NYSE: SNH) of Newton, Mass., recently announced that it has acquired five senior living properties in four states from Salem, Ore.-based Holiday Retirement Corp. The properties contain a total of 783 units. The properties involved in the transaction include three independent living communities with 344 units in San Bernardino, Calif., Springfield, Ill., and Frankfort, Ky.; a 144-unit assisted living property in Naples, Fla.; and a 295-unit CCRC in Pompano Beach, Fla. At the time of the sales transaction acquisition, Newton, Mass.-based Five Star Quality Care Inc. (AMEX: FVE), a senior living operator, signed a long-term lease with the new owner, Senior Housing Properties Trust. David Rothschild of the San Diego office of CB Richard Ellis Inc. (NYSE: CBG) marketed the properties on behalf of Holiday Retirement… Capital Senior Living Corp. (NYSE: CSU) and GE Healthcare Financial Services recently formed a new joint venture to complete a $38.2 million acquisition of three senior housing communities in the metropolitan Indianapolis area. The new joint venture is owned 15 percent by Capital Senior Living and 85 percent by GE Healthcare Financial Services. The three communities comprise 300 units of seniors housing, including 198 units of assisted living and 102 units of memory care. Occupancy of the acquired properties is about 87 percent… Brandywine Senior Care Inc. of Mt. Laurel, N.J., an owner and operator of assisted living facilities in the Mid-Atlantic region, recently announced that it has been acquired by Warburg Pincus, a private equity firm and investor in real estate and healthcare. Terms of the transaction were not disclosed. Warburg Pincus acquired Brandywine from ABS Capital Partners, Grotech Partners, HB Equity and other investors.  In connection with the acquisition, the company will change its name to Brandywine Senior Living.