TOLEDO, Ohio--(BUSINESS WIRE)--Health Care REIT, Inc. (NYSE: HCN) announces gross investments of $1.3 billion year-to-date in 2011, following $3.2 billion of new investments in 2010. Major investments include partnerships with Benchmark Senior Living, Brandywine Senior Living, Senior Star Living and Silverado Senior Living, and follow the $817 million Merrill Gardens partnership closed in September 2010. The partnerships extend the company’s strategy of capitalizing on favorable fundamentals in the senior housing industry by investing with innovative operators who have a track record of quality care, profitability and growth through non-brokered transactions. The company anticipates earnings accretion in the short run and enhanced NOI growth potential over the long run.
“Relationships with best-in-class operators differentiate our company,” said George L. Chapman, Chairman, Chief Executive Officer and President of Health Care REIT. “Industry knowledge, alignment of interests, trust and shared values make Health Care REIT the partner of choice in senior housing.”
The Value of a Relationship Investment Strategy
Health Care REIT’s new partnerships reinforce the effectiveness of the company’s relationship investment strategy. Premier senior housing operators develop long term business partnerships with Health Care REIT because of the company’s reputation as a trusted capital partner with unique and sophisticated structures that meet their capital and operational needs.
Health Care REIT invests in industry leading operators who produce operating cash flows that are durable through all economic cycles and earnings growth that normally exceeds industry averages. Three of the four new partnerships take advantage of the REIT Investment Diversification and Empowerment Act of 2007 (RIDEA). The RIDEA structure positions Health Care REIT to achieve organic growth in net operating income (NOI) in excess of the stable, well protected 2-3% NOI growth that the company achieves with its triple net lease senior housing portfolio. Further, Health Care REIT will gain value by facilitating best-practice sharing and product line complements between operating partners. Including Merrill Gardens and the three RIDEA partnerships described below, the senior housing operating portfolio investment balance will be 22% of the total portfolio.
Equally important, these regionally dominant operators offer Health Care REIT the opportunity for consistent external growth because Health Care REIT has the right to fund future acquisitions and development by the operator. These partnerships position the company and its operating partners to capitalize on a highly fragmented senior housing industry with attractive demand fundamentals. Health Care REIT’s capital, combined with these best-in-class operating partners, creates powerful alliances in demographically attractive regions such as New England, the Mid-Atlantic, the Pacific Northwest, Southern California and Northern California. Health Care REIT and its operating partners intend to increase their collective market share in these regions through disciplined and accretive future acquisitions.
The Strategy is Working
Health Care REIT’s relationship investment strategy has resulted in a record $4.5 billion in gross investments in 2010 and 2011 to-date. Benchmark, Brandywine, Senior Star and Silverado partnerships exemplify the company’s successful investment in non-brokered transactions with regionally dominant operators who have a track record of quality care, profitability and growth. The company has 63 senior housing and care operator partnerships in its portfolio with embedded future investment opportunities, creating a platform for earnings growth for the next 10-15 years. Including Merrill Gardens and the partnerships announced above, the senior housing operating portfolio investment balance will be approximately $2.2 billion or 22% of the total portfolio, pro-forma for the investments announced to-date. We anticipate this portfolio will generate a 2011 annualized NOI yield after management fees of approximately 7.0% and produce an average 5%-6% annual NOI growth over the next several years. In aggregate for these investments, the company assumed or anticipates assuming approximately $650 million of secured debt with a blended rate of 5.4%. In addition to the availability under the company’s revolving credit facility, the company has obtained bridge financing up to $400 million to complete the transactions.
Benchmark Senior Living
Health Care REIT has signed definitive agreements to form an $890 million partnership with Benchmark Senior Living, which will include 34 senior housing communities and 3,009 units. Benchmark is a leading senior housing operator in New England and will become the largest operator in Health Care REIT’s portfolio by investment balance. This investment is structured as a RIDEA partnership owned 95% by Health Care REIT and 5% by Benchmark. Benchmark will continue to provide management services to the communities under an incentive-based management contract.
The portfolio service mix includes assisted living, Alzheimer’s care and independent living. The majority of the communities offer a continuum of care, which is increasingly favored by consumers who desire to “age in place.” The communities have an average age of twelve years and produce rental rates and occupancy in excess of industry averages, reflecting the best-in-class nature of the operations, locations and physical plants. The communities are located in CT (14), MA (13), RI (3), NH (2), VT (1) and ME (1).
Benchmark has a seasoned management team led by Tom Grape, Founder, Chairman and Chief Executive Officer. Mr. Grape is past chairman of the Assisted Living Federation of America (ALFA) and a member of the executive board of the American Seniors Housing Association (ASHA). He is regarded as one of the founding members of the modern senior housing industry as it has developed over the past two decades. Stephanie Handelson joined the company as Chief Operating Officer in 2009. Ms. Handelson has a track record of strong operational performance in the senior housing industry. The management team has produced exceptional NOI growth despite a challenging economic climate.
The entire portfolio is projected to generate a 2011 NOI yield after management fees in a range of 6.8%-7.2%. This portfolio has generated compound annual NOI growth of 7% over the last four years and Health Care REIT anticipates long term growth of approximately 4-5% assuming stable economic conditions. Closing is expected in the first half of 2011, subject to receipt of third party consents and licensure. Health Care REIT, acting through the partnership, will receive a right to fund certain future investments pursued by Benchmark. The parties intend to expand Benchmark’s portfolio.
“We call ourselves Benchmark because we set a standard of excellence. This is demonstrated by our financial returns. Our portfolio has generated compound annual NOI growth of 7% over the last four years,” says Benchmark’s Chief Executive Officer, Tom Grape.
To learn more about the Benchmark Senior Living partnership and to watch an interview with Tom Grape, visit the company’s website at www.hcreit.com/featuredpartners/Benchmark.
Brandywine Senior Living
Health Care REIT recently closed a $600 million acquisition and leaseback of 19 senior housing communities with Brandywine Senior Living, a regionally dominant senior housing operator in the Mid-Atlantic. The investment closed in December 2010, and Brandywine becomes the third-largest operator in Health Care REIT’s portfolio. The investment is structured as a triple-net lease with an initial yield of 7.0%. The lease rate will escalate by 25 basis points per year, or an average of 3.5% over the next three years. In addition, rent will reset to fair market value after the third anniversary of the closing date and every five years thereafter, subject in all cases to a floor of the prior year’s rent plus the annual escalator. The agreement includes an option to convert to a RIDEA structure after a period of three years if Brandywine meets specified performance measures. This creative structure allows Health Care REIT to combine the cash flow protection of a triple-net lease with the opportunity to participate in future NOI growth through the rent reset and/or the RIDEA conversion feature.
The Brandywine portfolio includes 19 senior housing communities with 1,845 units of assisted living, Alzheimer’s care, independent living and skilled nursing care. Most of the communities offer a continuum of care. The communities have an average age of ten years and produce rental rates and occupancy in excess of industry averages. The communities are located in NJ (10), PA (4), DE (2), Long Island (2) and CT (1).
Brandywine is led by an experienced management team of industry leaders, including Brenda Bacon, President and Chief Executive Officer. Ms. Bacon co-founded the company in 1996 and serves as a member of the executive board for Assisted Living Federation of American (ALFA) and ASHA. The company is also led by Ken Segarnick, who has served as General Counsel and Managing Director of Brandywine since 2002. He is a member of the Operator Advisory Board of the National Investment Center (NIC).
Brandywine has translated its scale and operating platform into strong occupancy growth over the past three years, as it re-positioned acquired communities and filled two new development communities. From January 2008 to December 31, 2010, not including the two new development communities, same store occupancy increased over 1000 basis points and net operating income grew by more than 30%. Health Care REIT has the right to fund future real estate investments pursued by Brandywine. Brandywine has acquired and successfully re-positioned eight communities in the past four years, and the companies expect to accelerate the pace of such acquisitions in the future to take advantage of Brandywine’s market position and operating platform.
“We are enormously excited about our growth opportunities with Health Care REIT as our financial partner. Our plans for growth include both acquisitions and development in highly attractive Mid-Atlantic markets,” said Brenda Bacon, President and Chief Executive Officer of Brandywine.
To learn more about the Brandywine Senior Living partnership and to watch an interview with Brenda Bacon, visit the company’s website at www.hcreit.com/featuredpartners/Brandywine.
Senior Star Living
Health Care REIT has formed a $360 million partnership to own and operate nine senior housing communities with Senior Star Living, a highly regarded operator in the Midwest. The investment closed in December 2010 and Senior Star becomes the fifth-largest operator in Health Care REIT’s portfolio. Health Care REIT owns a 90% interest in this RIDEA partnership, while Senior Star owns the remaining 10% interest and continues to provide management services to the communities under an incentive-based management contract. The portfolio consists of two combination senior housing communities in fill-up that were contributed by Health Care REIT and previously leased to Senior Star valued at $124 million and seven stabilized senior housing communities previously owned and operated by Senior Star valued at $236 million.
Co-founders and managing principals William and Robert Thomas have been instrumental in advancing the professionalism of the senior housing industry over the past two decades. William Thomas is the past chairman and member of the executive board of ASHA, while his brother Robert currently holds executive leadership positions for ASHA and the Alzheimer’s Impact Movement and is a past board member of the National Alzheimer’s Association.
The new investment is currently projected to generate a 2011 NOI yield of approximately 6.0%. Including the two fill-up facilities and assuming stable economic conditions, the portfolio is projected to generate a double-digit annual NOI growth over the next several years.
Three-quarters of the 1,687 total units are independent living, while the remainder are assisted living and Alzheimer’s care. The communities are located in MO (2), OH (2) OK (2), NM (1), IA (1), and IL (1). In their respective markets, these are communities of choice because of Senior Star’s life enriching model of care and commitment to customer service. In 2010, Senior Star’s collective occupancy was more than 300 basis points above the industry unit count average as reported by NIC and ASHA. Senior Star has a proven record of turning underperforming buildings into profitable operations, including the seven stabilized communities in the joint venture with HCN. The partners have agreed to seek additional acquisitions through the partnership.
“The opportunity for the future is so significant in what we can learn from each other, how we can extend each other, how we can build towards excellence…,” says William Thomas. Robert Thomas adds, “It’s another growth story. It’s amazing.”
To learn more about the Senior Star Living partnership and to watch an interview with Bill and Bob Thomas, visit the company’s website at www.hcreit.com/featuredpartners/SeniorStar.
Silverado Senior Living
The Company has formed a $298 million partnership with Silverado Senior Living, the leading provider of Alzheimer’s care in the country. This RIDEA partnership, which closed in January 2011, owns 18 senior housing communities. Silverado becomes the ninth-largest operator in Health Care REIT’s portfolio. Health Care REIT owns a 95% interest in the partnership, while Silverado owns the remaining 5% interest and continues to provide management services to the communities under an incentive-based management contract. Health Care REIT also owns a minority interest in Silverado’s management services, hospice and home health businesses, which offer complementary services to their memory care communities.
The portfolio consists of six communities contributed by Health Care REIT valued at $76 million and 12 communities contributed by Silverado valued at $222 million. The portfolio is regionally concentrated in demographically attractive high barrier to entry markets, with communities in CA (9), TX (7), AZ (1) and UT (1). The portfolio contains 1,454 beds, consisting of 97% Alzheimer’s care and 3% post-acute care. Silverado intends to add one to three new communities to the portfolio each year, with an emphasis on re-positioning underperforming communities. This growth will be funded in partnership with Health Care REIT.
The portfolio is projected to generate a NOI yield after management fees of approximately 7.5% in 2011 increasing to 8.5% in 2012, as the partnership stabilizes certain communities currently in fill-up. This increase represents approximately 13% potential growth. As a result of Silverado’s best-in-class Alzheimer’s care services, the portfolio is anticipated to generate 4-5% long-term average annual growth assuming stable economic conditions.
Silverado provides a continuum of care in each of its markets, ranging from home care to hospice care. The company is nationally recognized as the leader in memory care. Their reputation is supported by excellent clinical outcomes and innovative programming. The Silverado care model has influenced senior housing providers nationwide since the company’s founding in 1996, and the company continues to be at the forefront of innovation. Silverado has earned numerous industry awards and commendations, including “Best Places to Work in Orange County (Orange County Register and OC Metro 2009, 2010,) “Top Places to Work in Texas, (Texas Monthly, 2009), the Utah Best of State Assisted Living Award (2008), and the Centers for Excellence in Assisted Living “Dementia Care” Award (2009.) Silverado partners with academic institutions to advance clinical research in memory care, including the University of California San Diego, the University of California Los Angeles, the University of Southern California and Baylor College of Medicine.
Silverado’s innovative management team is led by Loren Shook, Co-founder, President, CEO, and Chairman. Mr. Shook is vice chairman of ALFA, chairman of the operating advisory board of the NIC, and a member of the executive board of ASHA. He is the co-author of The Silverado Story: A Memory-Care Culture Where Love is Greater than Fear and is widely regarded as a thought leader with respect to the care of those with memory-impairment diseases. Tom Croal is the company’s Chief Financial Officer and serves as the chairman of the ALFA CFO Roundtable and a member of the ALFA Operational Excellence Panel.
“Health Care REIT is the only capital partner we will consider doing a RIDEA business structure with,” said Loren Shook, President, CEO and Chairman of Silverado Senior Living. “Our decision to embark on a joint venture with Health Care REIT is about more than just a financing rate. It is about doing business with a partner that we can trust and that has the capabilities and innovation to fuel our growth in attractive demographic locations.”
To learn more about the Silverado Senior Living partnership and to watch an interview with President, CEO and Chairman, Loren Shook, visit the company’s website at www.hcreit.com/featuredpartners/Silverado.
Fourth Quarter and Year-end Operating Results for 2010
Health Care REIT will announce operating results for the company’s fourth quarter and year ended December 31, 2010 in a news release distributed prior to the conference call scheduled for Wednesday, February 16, 2011 at 10:00 a.m. Eastern Time. The call will provide an opportunity to obtain further information about these new investments.
To learn more about Health Care REIT’s relationship investment strategy, view video interviews with the CEO’s representing the company’s new partners and read other interactive partnership highlight materials, visit the company’s website at www.hcreit.com/featuredpartners.
About Health Care REIT, Inc.
Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is a real estate investment trust that invests across the full spectrum of senior housing and health care real estate. The company also provides an extensive array of property management and development services. As of December 31, 2010, the company’s broadly diversified portfolio consisted of 683 properties in 41 states. More information is available on the company’s website at www.hcreit.com.
This document may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. When the company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The company’s expected results may not be achieved, and actual results may differ materially from expectations. This may be a result of various factors, including, but not limited to, competition within the health care and senior housing industries; the failure to make new investments as and when anticipated; negative developments in the operating results or financial condition of operators, tenants, management companies or partners; the failure of closings to occur as and when anticipated; the cooperation of partners including the ability to reach agreement on major decisions; unanticipated difficulties and/or expenditures relating to future acquisitions and the integration of multi-property acquisitions; the attainment of lender consents and the receipt of applicable healthcare licenses and governmental approvals; compliance with IRS guidance; and changes in rules or practices governing the company’s financial reporting. Additional factors are discussed in the company’s Annual Report on Form 10-K and in its other reports filed from time to time with the Securities and Exchange Commission. The company assumes no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements.