Senior Living (June 2007)

Ventas completes acquisition of Sunrise

$1.07 BILLION TRANSACTION CLOSES AFTER VENTAS INCREASES THE PRICE

By John Mugford

After surviving a competing offer and a court date, healthcare real estate investment trust (REIT) Ventas Inc. of Louisville, Ky., in recent weeks completed its $1.07 billion acquisition of Toronto-based Sunrise Living Real Estate Investment Trust.

Before closing on the acquisition, Ventas (NYSE:VTR) increased its offer for Sunrise, a Toronto-based senior living communities operator, by about 10 percent, or $170 million, to $1.03 billion. At the closing, the deal was valued at $1.07 billion, given the currency exchange rates at the time. Including the assumption of $940 million in Sunrise debt, the total deal was valued at $1.96 billion, according to officials with the two REITs.

In a press release, Debra A. Cafaro, the chief executive and president, called the transaction “a major milestone” for the company. The Sunrise portfolio consists of 77 senior living communities – 66 in the United States and 11 in Canada. Ventas says the acquisition also gives it a strong development pipeline and an entry into the Canadian seniors housing market.

The final price represented a premium of about 57 percent over the volume weighted average trading price of Sunrise’s units on the Toronto Stock Exchange (TSX) for the 20-day period immediately preceding the announcement of the original transaction in January.

Another entity, Sunrise Senior Living, Inc., developed most of the Sunrise REIT assets and will remain as the manager of all of the properties under existing long-term contracts. Sunrise Senior Living is also a minority joint venture partner in 59 of the communities.

On its way toward acquiring the Sunrise REIT portfolio, Ventas had to survive a competing bid for the properties from Long Beach, Calif.-based Healthcare Property Investors Inc. (NYSE:HCP). After Ventas and Sunrise REIT reached an agreement, HCP offered to buy the properties at a 20 percent premium over Ventas’s bid. But an Ontario Superior Court judge ruled that HCP had a standstill agreement that prohibited it from making a proposal to acquire the portfolio. The Court of Appeal for Ontario dismissed HCP’s appeals.

Ventas has since initiated a lawsuit against HCP, alleging that it interfered with the Sunrise REIT deal. Ventas seeks more than $100 million as well as punitive damages; HCP said the claims were without merit.

With the acquisition, Ventas is continuing its efforts of increasing revenues from private pay sources. Its portfolio now consists of independent and assisted living facilities, skilled nursing facilities, hospitals and medical office buildings (MOBs).

Ventas, Kindred

agree to a sale

and a new lease

LOUISVILLE, Ky. – Louisville, Ky.-based Ventas Inc. in recent weeks announced two major transactions with its biggest tenant, Kindred Healthcare Inc. In one of the deals, Ventas (NYSE:VTR), a real estate investment trust (REIT), agreed to sell a 22-property portfolio to Kindred for $171.5 million.

In another deal, Ventas secured five-year extensions on Kindred leases at 64 of its healthcare properties.

The assets Ventas plans to sell to Kindred are underperforming properties consisting of 21 skilled nursing facilities with an aggregate total of 2,600 beds in 14 states, and a long-term acute care hospital with 220 beds in Detroit. The sale is expected to close by the end of the second quarter (Q2) of this year. Louisville-based Kindred, which is planning to resell the properties by the end of 2007, will also pay a $3.5 million lease termination.

According to news reports, Ventas expects to see a gain of about $120 million on the deal and will use the proceeds to pay down part of the interim financing facility used for the acquisition of Sunrise Senior Living REIT (please see story at the top of this page).

Ventas has been making strides to diversify its portfolio, including being less dependent on Kindred for rent revenue, and to sell underperforming assets.

In addition to the sale, Ventas and Kindred closed on leasing agreements at 64 Ventas-owned properties. The agreement calls for extended the master leases at 56 skilled nursing facilities and eight long-term acute care hospitals for five years beyond their scheduled expiration date. The leases now run through April 30, 2013.

Sun Healthcare

buys Harborside

for $349 million

IRVINE, Calif. – Sun Healthcare Group of Irvine, Calif., recently announced that it has completed its acquisition of Boston-based Harborside Healthcare Corp. for about $349 million. The company had announced its intentions to acquire Harborside and its 73 skilled nursing facilities in October. Harborside also owned an assisted living facility and an independent living facility.

The properties were acquired from Investcorp, a New York-based global investment manager. Sun Healthcare announced that it plans to refinance or assume Harborside’s net debt of about $275 million. To make the acquisition, Sun Healthcare entered into a new $485 million senior secured credit facility, which is essentially a line of credit in connection with the purchase.

For the year ended Dec. 31, 2006, Sun Healthcare reported total net revenue of about $1 billion, compared with about $765.7 million in 2005. Sun Healthcare’s inpatient services subsidiaries, including SunBridge Healthcare Corp., operate 141 skilled-nursing, long-term-care, assisted-living and mental-health facilities in 19 states.

Brookdale closes

on two properties

for $101 million

CHICAGO – Chicago-based Brookdale Senior Living recently announced that it has completed its acquisition of two senior-living communities in Ohio and North Carolina for about $101 million. Brookdale announced the pending deal in December – it had previously leased the two communities, which were owned by private investors.

With the acquisition, Brookdale now owns and operates more than 540 independent-living, assisted-living, dementia care and continuing care retirement centers (CCRCs) in 35 states. In March, the company reported total revenue of about $1.3 billion for the year ended Dec. 31, 2006, compared with $790.6 million in 2005, according to its filing with the Securities and Exchange Commission (SEC).

Emeritus increases

portfolio with

major acquisitions

SEATTLE – Seattle-based Emeritus Corp. (AMEX: ESC) in recent months announced two major acquisitions. In late March, the company announced that it intended to acquire San Ramon, Calif.-based Summerville Senior Living by purchasing all of Summerville’s outstanding common stock. With the merger, Emeritus would acquire a portfolio of 81 properties with 7,935 units in 13 states. Summerville is to become a wholly owned subsidiary of Emeritus when the transaction closes.
The agreement calls for the issuance of 8.5 million shares of Emeritus common stock to Summerville shareholders, including certain Summerville employees, and the Apollo Real Estate Advisors-managed real estate funds known as Apollo Real Estate Investment Funds III and IV. Upon the closing of the deal, Summerville shareholders would account for about 31 percent of outstanding Emeritus stock.

In addition to the Summerville acquisition, Emeritus in early March acquired 12 communities for about $101.6 million from Nashville, Tenn.-based Healthcare Realty Trust. The properties are located in five states and have a total of 786 units. Emeritus had been leasing the communities from Healthcare Realty Trust, a public traded real estate investment trust (REIT), for several years.

With the acquisitions, Emeritus’s portfolio comprises 284 communities with 24,448 units, expandable to 28,000, across 36 states.

Healthcare Realty had announced in February that it planned to exit the senior living segment of the industry. At that time, it controlled 62 senior living properties with a total of 5,817 licensed beds; those communities were being run by 15 different operators.

For the Record

Oak Brook, Ill.-based Inland Real Estate Development recently announced that it is partnering with HPD Cambridge in the development of four mixed-use/senior living developments with a total of 144 apartment units in LaGrange, Ill. The $55 million project consists of four communities featuring approximately 32,000 square feet of retail and restaurant space on the first level with residential space on the second and third levels. Construction on the first phase, the 30-unit LaGrange Pointe, is slated to begin this spring. Construction on the other properties is expected to begin in the fall… Chicago-based Brookdale Senior Living announced that it has acquired the property underlying an entrance-fee continuing care retirement community in Tampa for $51 million. The community consists of 362 independent-living retirement apartments, a 270-bed skilled nursing facility and a 107-bed assisted-living facility. Brookdale has managed the community since 1998… An affiliate of Chicago-based Senior Lifestyle Corp., in a joint venture with Chicago-based Walton Street Capital LLC, recently acquired a portfolio of nine senior housing properties in three states – Florida, Texas and Oklahoma. The portfolio has a total of 1,427 residences. Senior Lifestyle will operate all of the properties. The majority of the units, 1,161 all together, are independent living residences. The rest are assisted living units. q