Newcastle Betting Big on Senior Housing, Plans $319 Million Acquisition Pipeline

Newcastle Investment Corp. (NYSE:NCT) continues to bet big in the senior housing space with more than $300 million worth of acquisitions on the horizon and ongoing talks of possibly spinning off its senior living business.

The company is currently under contract to acquire 15 senior housing properties for a total purchase price of $319 million, for which Newcastle expects will require an equity investment of $230 million, according to company executives during an earnings call Friday.

Newcastle ended the first quarter with a total of $503 million of capital invested into the senior housing space and it continues to see big opportunities within the industry.


“Overall for the market, we think the continued fragmentation in the industry creates an opportunity on the buy,” said Andrew White, managing director and head of senior housing for Newcastle, during the earnings call.

Newcastle reported core earnings of $34 million, or $0.10 per share, during the first quarter ended March 31, 2014, an increase when compared to the previous quarter’s results of $27 million, or $0.08 per share.

This 26% increase in core earnings was primarily driven by a “full quarter performance” from Holiday Retirement—from which Newcastle acquired 52 properties for a purchase price of approximately $1 billion in December—said Justine Cheng, chief financial officer, treasurer and chief operating officer for Newcastle.


While this transaction marked Newcastle’s largest entry into senior housing, the company would still consider future deals similar to this magnitude.

“We are always interested and active looking at larger transactions, but if we thought there was a big portfolio that would add to the vitality of the business, we would definitely pursue it,” said Riis.

For now, the company says it continues to see “healthy” competition for the larger and more widely marketed portfolios, with portfolios sizes of more than $1 billion seeing 10 or 12 bids, said Newcastle Chairman Wesley Edens.

“Our strategy has really been to focus on the off market and non-broker transaction,” Edens said. “So I think we have seen largely less competition in the niche we are planning.”

The company’s deal flow has generally been a mix of single asset or two asset deals on the low end, and eight, 10 and 12 asset portfolios on the high end, Edens added.

Notable first quarter highlights for the company included the acquisition of two managed senior housing properties for $26 million in January, for which the Newcastle put up $9 million in equity.

The quarter also saw Newcastle spinning off its media-related investments into its own entity, New Media Investment Group Inc. (NYSE:NEWM)—an initiative that has triggered speculation as to whether the company would do the same for its senior living business.

With a total of $503 million of equity invested into its senior housing business, there is a possibility a spin-off might happen in the near future, according to remarks made by Newcastle President and CEO Kenneth Riis.

“At this point with $500 million of investment capital and $700 million kind of prospectively on the very near-term horizon, I do think it is large enough on a standalone basis and it’s something we’re considering very, very seriously,” said Riis. “So there is nothing to report in terms of the spin today.”

Though the company has not yet taken any action with its board of directors or the Securities and Exchange Commission, the prospect of a spin-off is something Newcastle hopes gives on sooner rather than later, Riis added.

Newcastle did not yet disclose who the seller, or sellers, would be for the 15 property acquisition of $319 million. The properties are, however, subject to completion of diligence and other closing conditions.

Written by Jason Oliva

Companies featured in this article: