Omega Healthcare, Aviv REIT to Merge in $3B Deal

Omega Healthcare Investors Inc. is about to become the largest owner of skilled nursing facilities in the country, and by a wide margin.

Omega Healthcare Investors Inc. is about to become the largest–and by a wide margin–owner of skilled nursing facilities in the country. The healthcare REIT has agreed to acquire Aviv REIT Inc., a leading owner of post-acute and long-term care SNFs, in an all-stock merger valued at $3 billion.

The stock-for-stock transaction will provide Aviv shareholders with 0.90 shares for each share of Aviv common stock, which boils down to $34.97 of Omega stock for each Aviv share. It’s a premier price tag for a premier portfolio; investment banking firm Stifel, Nicolaus & Co. calculates an implied cap rate of 6.7 percent, noting that individual assets can be snapped up for yields of 8 to 10 percent.

When all is said and done, Omega will be a $10 billion REIT with 789 SNFs and 85 other healthcare properties.

On paper, it looks like a win-win. The merged company will create a gargantuan portfolio of high-quality, complementary assets spanning 41 states, and will be positioned for sector-leading growth.

“Overall, we see this as an attractive strategic acquisition,” according to Stifel’s note on the transaction. “Omega is improving its scale and visibility within the industry, establishing itself as the leading consolidator of skilled nursing properties. Omega improves its operator mix and expands its relationships which can lead to greater deal flow at more attractive yields.”

The combined REIT will also have a strong balance sheet that, along with a lower cost of capital, will stimulate future growth. And the list of advantages goes on.

The impact of the Omega/Aviv union, however, will likely go far beyond the advantages for the resulting entity. “We see this as a merger of complementary portfolios and a strategic opportunity to consolidate the industry,” Stifel analysts assert in the note. “With the transaction, Omega removes its largest competitor for deals and clears a path to continuing as the largest consolidator focused on the fragmented skilled nursing segment. The company estimates that the market is more than $100 billion and that 87 percent of SNFs are privately owned.”

The merger between Omega and Aviv is on track to close in the first quarter of 2015.