[UPDATED] Health Care REIT to Acquire Sunrise Senior Living in Deal Valued at $1.9 Billion

Health Care REIT, Inc. (NYSE:HCN) announced on Wednesday that it will acquire all of the approximately 58.3 million outstanding common stock of national senior living chain Sunrise Senior Living (NYSE:SRZ) for $14.50 per share in an all-cash transaction, totaling about $845 million.

The Toledo, Ohio-based REIT will acquire Sunrise’s 20 wholly-owned senior housing communities along with Sunrise’s average 28% interest in joint ventures that own 105 senior housing communities across the nation, reflecting a real estate value of about $1.9 billion. HCN will pay about $950 million of that in cash, and the balance through the assumption of debt at an average interest rate of approximately 4.9%.

Most of the 20 wholly-owned communities are located in the U.S., at 17, with the remaining three in Canada. The joint venture communities are located in the U.S. (78) and the United Kingdom (27).


The REIT affirmed its plans to exercise purchase options, when available, on some of Sunrise’s 105 joint ventures. In 2013 and 2014, 50 properties will have exercisable purchase options.

The balance of properties, says HCN, are open-ended or have buy/sell rights that could result in the REIT acquiring 100% interest.

Health Care REIT intends to structure ownership and operation of the wholly-owned communities and any joint venture communities, if and when acquired, under the RIDEA structure. The REIT is currently negotiating the exact structure of the management contract; Scott Brinker, the executive vice president of investments, said during a call with analysts that the details would “be arranged before long.”


“This acquisition powerfully advances our strategic vision: own the highest quality, private pay seniors housing communities in strong, growing, affluent markets and align with experienced, dynamic management teams,” said George L. Chapman, Health Care REIT’s Chairman and CEO, in a statement. “This transaction positions us to build on our collaborative, relationship based investment philosophy and benefit from the ongoing transformation of the sector. There are few opportunities to acquire assets of this quality in a transaction of this scale.”

The transaction was unanimously approved by the Sunrise board of directors and is not subject to any financing contingency. It represents a 62.4% premium to Sunrise’s closing stock price on Aug. 21, 2012.

“We are most excited to achieve such a strong return for our shareholders while we forge a new relationship with a world class health care real estate owner/investor,” said Mark Ordan, Sunrise’s chief executive officer. “We are proud that Health Care REIT has chosen to invest in our team and looks to us as partners going forward.”

The acquisition is subject to regulatory approvals, customary closing conditions and approval by Sunrise’s shareholders, and is expected to close in the first half of 2013. There is, however, a $40 million break-up fee, and if the transaction doesn’t close by or before Feb. 21, 2013, as a result of certain closing extension rights which may be exercised by Health Care REIT, Sunrise shareholders will be entitled to receive additional transaction consideration during the period beginning on Feb. 21, 2013.

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

***UPDATE:  Some analysts expressed surprise at the price per share HCN paid for Sunrise, especially considering the operator’s past financial troubles and a bankruptcy scare in early 2009.

However, HCN emphasized it had done its “due diligence,” and suggested that it wasn’t the only one in the running—or even the highest bidder—to acquire the senior living chain.

“We thought the best way to go in was to support the current management team,” said George Chapman, HCN’s chairman and CEO, during the analyst call. “…there was a process that was run, and that we won that process.”

Several of Sunrise’s joint ventures are heavily leveraged, another analyst pointed out, but while some communities may be “too much debt,” Brinker acknowledged, he didn’t seem worried.

“The assets in the portfolio are exactly the type we want to have in our portfolio long-term, especially with an operator like Sunrise,” he said.

More information on the deal can be found in HCN’s Sunrise Senior Living Acquisition Overview.

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