Health Care REIT’s Purchase of Sunrise Good Sign for Seniors Housing

The recent purchase of Sunrise Senior Living by Health Care REIT, making it one of the largest seniors housing owners in the world, points to a generously healthy seniors housing market.

The just-announced, but still pending, sale of Sunrise Senior Living, of McLean, Va., to Health Care REIT Inc. points to the overall health of the senior housing sector.

“Health care REITs have seen stable occupancy levels in 2012, thanks to solid absorption and limited new supply,” George Hoglund, associate director in the REIT group at Fitch Ratings, told Commercial Property Executive. “Senior housing operating portfolios have been generating solid results and will continue to do so for the foreseeable future, due in part to favorable demographics.”

“With over $8 billion raised this year alone,” Hoglund added, “health care REITs are still enjoying healthy access to capital.”

The acquisition, per a definitive agreement announced by both companies yesterday, reportedly will position Health Care REIT, of Toledo, Ohio, among the world’s largest seniors housing owners, with more than 58,000 units in the United States, Canada and United Kingdom. Having already been unanimously approved by Health Care REIT’s board, the transaction is subject to approval by Sunrise’s shareholders. If approved, the deal is expected to close in the first half of 2013.

The price of $14.50 per share of Sunrise common stock represents a 62.4 percent premium to the closing stock price on Aug. 21. The purchase price reflects a real estate value of about $1.9 billion, of which about $950 million will be paid in cash and the balance through the assumption of debt.

Under the transaction, Health Care REIT will acquire Sunrise’s 20 wholly owned seniors housing communities in the United States (17) and Canada (three) and Sunrise’s interest in joint ventures that own 105 seniors housing communities in the United States (78) and United Kingdom (27).

Sunrise operates about 300 communities, totaling about 29,800 units, in the United States, Canada and the United Kingdom. Sunrise will become Health Care REIT’s second-largest operator at approximately 11 percent of the portfolio based on investment balance.

According to a Form 8-K filed Wednesday, one condition of the closing is “completion of certain reorganization transactions in all material respects so that Sunrise’s real estate assets and management business are held in separate Sunrise subsidiaries….” The point of this, per the filing, is to give Health Care REIT the option to request that Sunrise sell its management business to a third party at the time of closing.

The purchased communities have a median age of eight years, and 90 percent of them are Sunrise’s “mansion” prototype. The portfolio is concentrated in New York; Los Angeles; San Francisco; Washington, D.C.; Philadelphia; Boston; Chicago; and London.

The acquisition, Health Care REIT noted, includes a real estate pipeline of more than $2 billion that could be realized by purchasing additional interests from Sunrise’s JV partners. At the time of acquisition, Health Care REIT expects to own an average 28 percent interest in the 105 joint venture communities. Of those communities, 71 are subject to purchase options that are open or are exercisable in 2013 or 2014.

BofA Merrill Lynch acted as exclusive financial advisor to Health Care REIT. Arnold & Porter LLP; Shumaker, Loop & Kendrick LLP; and Sidley Austin LLP acted as Health Care REIT’s legal advisors.

Goldman, Sachs & Co. and KeyBanc Capital Markets Inc. served as advisors, and Wachtell, Lipton, Rosen & Katz as legal advisor, to Sunrise.