UPDATED: Health Care REIT, Revera Overhaul Sunrise Management in Buyout Deal

Private equity is out, and a senior housing operator is in for ownership of Sunrise Senior Living’s management company.

Health Care REIT (NYSE:HCN) has agreed to recapitalize the management company and will move from owning a 20% interest in Sunrise to 24% once the deal closes. Terms of the deal were not disclosed. Revera Inc., a Canadian operator of senior housing properties that’s owned by Public Sector Pension Investment Board, will own the remainder of the management company.

Revera and HCN are buying out affiliates of Kohlberg Kravis Roberts & Co. L.P., Beecken Petty O’Keefe & Company, and CoastWood Senior Housing Partners LLC for full ownership of the operating platform, for an undisclosed amount.

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“We look forward to a supportive and long-term partnership with Health Care REIT and Revera,” said Penny McIntyre, Sunrise’s chief executive officer, in a statement. “Sunrise will continue to operate independently under our current brand, and we welcome this new chapter in our journey to provide Sunrise’s high-quality, innovative care to seniors.”

Analysts say they were surprised by the private equity exit, but don’t expect any major changes as a result.

“We did not expect the KKR triumvirate to exit the senior housing management business. However, we do not read anything into this move to suggest a problem in the senior housing industry,” said Stifel Nicolaus analysts in an update.

In other words, the private equity groups are not so much getting out of senior housing as they are getting out of senior housing management, Robert Mains, an analyst at Stifel, told SHN.

Last May, Health Care REIT partnered with Revera by acquiring a 75% interest in Revera‘s $1.35 billion Canadian senior housing portfolio.

“Health Care REIT and Revera share a long-term investment horizon, partnership approach to business and expertise in seniors housing,” said George L. Chapman, Health Care REIT’s chairman and chief executive officer. “We are pleased with our investment in Sunrise as it is performing in line with our high expectations. KKR, Beecken Petty O’Keefe and Coastwood played an important role in transitioning Sunrise from a public company to a best-in-class privately held company.”

The private equity groups along with Health Care REIT acquired the management company business for around $130 million in September 2012. Health Care REIT’s investment at the time totaled around $26 million for a 20% interest.

“Sunrise is committed to the highest standards of living and quality of care for its residents, and we are proud to have invested in the company and to have supported management alongside Health Care REIT. The company has a bright future ahead of it,” Ralph Rosenberg, KKR’s Global Head of Real Estate, said.

“Through our partnership led by KKR, we expect to continue to be very active investors in seniors housing,” Dan Decker, J.D., president of CoastWood, told SHN. “We also expect to separately pursue non-REIT assets such as operating companies.”

It’s possible Revera is setting itself up to serve as a large third-party manager in the senior housing industry, Stifel notes, filling a current dearth of such players in the industry. Revera’s president and CEO Jeff Lozon expressed an ongoing commitment to the long-term growth of the senior housing sector and its existing partnership with Health Care REIT.

“This is an important strategic opportunity for Revera to invest in a management company that has a presence in the growing and vibrant seniors housing markets in the U.S. and U.K.,” Lozon said.

The transaction is expected to close in the second quarter of 2014, pending regulatory approvals. KeyBanc Capital Markets served as financial advisors to Sunrise.

Written by Alyssa Gerace

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