Today Health Care REIT (NYSE: HCN) and Revera, Inc. announced they have entered into an agreement to acquire Canadian senior housing operator Regal Lifestyle Communities Inc. (TSX: RLC) for $623 million through an existing 75/25 joint venture between the two companies.
The Toronto, Ontario-based Regal owns and operates 23 senior housing communities with more than 3,600 units. This private pay portfolio includes 13 communities in Ontario, seven in Quebec, and one each in the provinces of British Columbia, Saskatchewan and Newfoundland.
Approximately 83% of the portfolio’s net operating income is derived from the markets of Toronto, Montreal, Ottawa and Vancouver.
The portfolio is 85% independent living and 14% assisted living, with a small proportion being memory care, Revera President and CEO Thomas G. Wellner told SHN.
“The properties generally are younger than our existing fleet of Revera homes,” Wellner said. “They’ve been well-built, from our due diligence [findings].”
Amenities in the Regal properties put them in the mid- to upper-market range, he said, adding that there are certain “minor” modification opportunities, such as enhancements in bistro dining areas.
Revera plans to double its Canadian units in the next five years, Wellner told SHN. That will be achieved through organic growth as well as by singular acquisitions and platform acquisitions. In terms of its capital strategy, partnerships such as the one with HCN are key for Revera, which is 100% owned by a large Canadian pension fund.
“[Partnerships] allow us to be much more efficient with the use of our own capital,” Wellner said. “We can have a broader set of communities but our need to put out equity is less. We maintain exposure to the real estate in a balanced way and retain the operating responsibility and operating contract.”
When the transaction is completed, the Regal communities will operate under the Revera brand and will be managed by Revera, except the properties in Quebec. Those will be managed by a third party, according to Revera.
Future acquisitions may take a similar joint venture form, as both Revera and HCN are comfortable with the structure and it eases legal and set-up concerns, Wellner said. There also likely will be opportunities for other capital partners to invest with Revera, Wellner added.
Revera is focused on growing its private pay business across the continuum, with a focus on options that would appeal to a “younger senior,” Wellner said. The company currently has development projects underway in Ontario, Alberta and British Columbia, and also is focused on growth in the United States and the United Kingdom.
“The acquisition of Regal is a rare opportunity to add a large, high-quality private pay portfolio concentrated in Canada’s largest metropolitan markets, where there is strong underlying demand,” said Health Care REIT CEO Tom DeRosa in a written statement.
The initial cash yield is anticipated to be 6.1% and is anticipated to be immediately accretive to FFO and FAD per share.
Thursday’s deal is the latest development between Health Care REIT and Revera, which formed a joint venture in May 2013, when the Toledo, Ohio-based REIT acquired 47 senior housing communities from Revera for CAD $1.34 billion.
Including the acquisition of Regal, the joint venture is projected to comprise 94 communities with gross investments of CAD $2.8 billion.
Additionally, Revera and HCN also jointly own the Sunrise Senior Living management company, with Revera owning a 76% interest and HCN owning a 24% interest. In achieving this, the companies bought out affiliates of the management company’s former private equity owners for an undisclosed amount—one of which included Kohlberg Kravis Roberts & Co. L.P.
The acquisition of Regal strengthens HCN’s and Revera’s positions in Canada. Upon completion of the transaction, HCN will own an interest in more than 21,500 senior housing units, representing approximately 10% of the Canadian senior housing supply and 15% of the supply in the five largest Canadian markets, HCN stated in a release.
“Revera is entering an exciting period of expansion in the senior living sector focused on growth and innovation across its private pay portfolio in Canada, the United States and the United Kingdom,” said Wellner, in a statement.
And the company has already been making good on those plans. Just earlier this week, Revera signed an asset purchase agreement with Genesis HealthCare (NYSE: GEN) to sell 24 of its U.S. skilled nursing facilities along with its contract rehabilitation business for $240 million.
The divestment is part of Revera’s “transformative journey” to double-down on its strengths and focus on private-pay senior housing, Wellner said. In the United States, he said, Revera’s growth will be focused through Sunrise.
“We are pleased to strengthen our relationship with HCN and to grow our leadership position in Canada through the acquisition of these high-quality retirement communities,” Wellner said in a prepared statement. “We look forward to welcoming the Regal teams to Revera and to working together to continue to create a great experience for seniors in our communities.”
HCN expects the acquisition of Regal to close in the second half of 2015, subject to Regal shareholder approval, as well as lenders’ approvals and other customary regulatory approvals.
Brookfield Financial and BMO Capital Markets are acting as financial advisors to HCN and Revera. Goodmans LLP is acting as HCN and Revera’s legal advisor.
CIBC is acting as financial advisor to Regal, and Stikeman Elliot LLP is acting as legal counsel.