Should the phrase “only the strong survive” be changed to “only those with cash survive” become the new calling card for the senior housing real estate investment trust industry? Industry experts are predicting a huge amount of merger and acquisition activity in the broader REIT sector over the remainder of 2009 and into 2010 as stronger companies with high levels of cash and liquidity and limited debt target their weaker rivals. If the credit markets don’t easy more for commercial real estate or other federal programs are not enacted for the commercial real estate market, many REITs and senior housing providers will be struggling to survive if they cannot refinance their debt and the debt financings that come due in 2011 will be much larger than in 2009-2010. Over the last few weeks, various REITs have found success in raising equity and debt in the public markets giving stronger companies a more diverse war chest for acquisitions.
Last week General Growth Properties filed for Chapter 11 bankruptcy as it was unable to refinance the debt on its balance sheet for the properties it acquired and used large amounts of leverage to finance those transactions. General Growth’s niche in the REIT business was shopping malls and it used debt to acquire and build many malls across the United States. Will other publicly traded senior housing REITs fall into a similar situation as General Growth? While Sunrise Senior Living is not a REIT, it’s highly leveraged balance sheet and its predicament working with lenders draws parallels between the two companies. General Growth’s creditors were unwilling to negotiate with the company but Sunrise Senior Living’s creditors have been thus far…as the end of April nears, will Sunrise choose the same course as General Growth if its lenders say “enough is enough”?