In order to expand its presence in the seniors housing and post-acute care segments, Health Care REIT, Inc. (HCN) is set to acquire HealthLease Properties REIT in a cash deal valued at around $950 million, including debt.
Further, the company has entered into a partnership agreement with Mainstreet Property Group – the external management company of HealthLease – and plans to shell out as much as $1.4 billion for acquiring development projects under the Next Generation brand, bringing the total potential investment to $2.3 billion.
Following the news release, Health Care REIT shares gained 2.27% during yesterday’s regular trading session, reflecting upbeat investors’ sentiment.
Besides Health Care REIT, other companies are also seeking to capitalize on the rising demand for healthcare facilities and senior housing backed by the aging population and increasing healthcare expenses.
Last week, NorthStar Realty Finance Corp. (NRF) announced a deal to acquire Griffin-American Healthcare REIT II in a $4 billion transaction. In June, Ventas Inc. (VTR) inked an agreement to acquire its competitor, American Realty Capital Healthcare Trust Inc. (HCT) in a stock and cash deal worth $2.9 billion.
The HealthLease acquisition deal would bring on board 53 high-quality seniors housing, post-acute care and long-term care communities, concentrated in North Carolina, Indiana, and Alberta, Canada.
Managed under long-term triple-net lease agreements, this portfolio acquisition is expected to close in the fourth quarter of the current year. It is anticipated to add 4 cents to the company’s funds from operations (:FFO) per share in the very first year following the deal closure.
As per the partnership agreement with Mainstreet, Health Care REIT would acquire 17 premium Next Generation communities, positioned mainly in the Denver, Kansas City and Indianapolis metropolitan areas, for around $369 million.
The purchase is anticipated to take place in phases as construction is accomplished starting in fourth quarter of the current year through the first quarter of 2016. This deal is expected to add meaningfully to the company’s earnings.
Further, Health Care REIT would offer mezzanine financing and gain-purchasing rights for an additional 45 Next Generation development projects upon accomplishment of construction, representing an acquisition pipeline worth $1.0 billion. This pipeline is anticipated to be delivered in phases from 2016 through first quarter of 2017.
Health Care REIT plans to finance the deal with its $2.5 billion unsecured credit facility and $207 million of cash available, as of Jun 30, 2014. Over the long term, the company’s finance plans would be supported by its target capitalization of 60% equity and 40% debt.
Notably, the project, still awaiting confirmation from the unit holders of HealthLease as well as specific competition and regulatory approvals, would not involve any workforce from either company.
Going forward, we believe that such strategic portfolio acquisitions would serve as growth drivers for Health Care REIT. Though an anticipated rise in interest rate is a concern, aging population and increase in healthcare spending for senior citizens promise strong prospects in the future.
Health Care REIT currently carries a Zacks Rank #3 (Hold).
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