Health Care REIT Inc., the third-largest health-care real estate investment trust by market value, agreed to acquire Sunrise Senior Living Inc. for about $845 million to expand its assisted-living communities.
Health Care REIT will pay $14.50 a share in cash, a 62 percent premium over Sunrise’s closing share price of $8.93 yesterday. Sunrise has about 58.3 million shares outstanding, according to data compiled by Bloomberg. The transaction reflects a real estate value of about $1.9 billion, Toledo, Ohio-based Health Care REIT said today in a statement.
Demand for assisted-living and senior housing is expected to rise as the U.S. population ages. The number of residents aged 65 and over will increase 79 percent through 2030, Health Care REIT said in a quarterly regulatory filing, citing Census Bureau data. The acquisition of McLean, Virginia-based Sunrise will expand Health Care REIT’s presence in major markets such as New York, Los Angeles, Washington and Philadelphia.
“Because of the expected wave of demand coming from retiring baby boomers, senior housing should have strong fundamental demand in the coming years,” Jeff Theiler, an analyst with Green Street Advisors Inc. in Newport Beach, California, said in a telephone interview. “This is some of the most aggressive pricing I’ve seen for a senior housing transaction.”
U.S. health-care REITs have announced deals totaling $3.44 billion in the last 12 months at an average premium of about 13 percent, according to data compiled by Bloomberg.
Sunrise shares jumped 60 percent to $14.26 at the close in New York. Health Care REIT fell 2.7 percent to $58.14.
The acquisition includes Sunrise’s 20 wholly owned senior-housing communities in the U.S and Canada as well as the company’s interest in joint ventures that own 105 communities, 27 of them in the U.K.
“There are very few opportunities of this scale and quality,” George L. Chapman, Health Care REIT’s chairman and chief executive officer, said on a conference call with analysts. “Senior housing is undervalued relative to other classes of real estate.”
After the transaction, Health Care REIT will own more than 58,000 units of senior housing, according to the statement. The deal increases the share of the landlord’s business that isn’t dependent on government reimbursements and lowers the average age of its properties to 12 years from 13 years, according to a presentation on the company’s website.
The decline in average age, along with a high revenue per occupied room, suggests Health Care REIT is getting “new properties with the right amenities in good, strong locations,” John Sheehan, an analyst with Edward Jones in St. Louis, said in a telephone interview.
The Sunrise deal is conditioned on the approval of its shareholders and is scheduled to be completed in the first half of 2013.
Goldman Sachs Group Inc. and KeyBanc Capital Markets Inc. served as financial advisers on the transaction, and Wachtell Lipton Rosen & Katz was the legal adviser to Sunrise, according to the statement.
Health Care REIT completed $1.1 billion of acquisitions in the second quarter, including a $509.5 million deal with Chartwell Seniors Housing for properties in Canada, according to an Aug. 6 report from JPMorgan Chase & Co. analysts led by Michael Mueller.
HCP Inc. and Ventas Inc. are the two largest health-care REITs by market value, according to Bloomberg data.