While in the middle of a gigantic merger to create a $17 billion real estate investment trust (REIT), a major senior living real estate owner is selling a $1 billion stake in its health care portfolio.
New York-based NorthStar Realty Finance Corp. (NYSE: NRF) entered into a definitive agreement to sell a joint venture interest in its health care real estate portfolio for $1 billion to Chinese insurance giant Taikang Insurance Group, the company announced Tuesday. Taikang will have a 19% interest.
The portfolio has a total valuation of $6.1 billion and represents a cap rate of approximately 6.1%. NorthStar expects net proceeds of approximately $340 million.
NRF, which owns 461 health care properties—including nearly 200 senior housing assets—is underway to merge with its current external manager NorthStar Asset Management (NSAM) and private equity firm Colony Capital Inc. (NYSE: CLNY). NRF previously announced it would dispose of nearly 20% of its portfolio of commercial real estate assets in preparation for its three-way merger.
NRF announced the planned health care divestiture with its third quarter earnings release.
“…We are extremely pleased to partner with Taikang Insurance Group, one of China’s leading insurance companies, in our overall health care real estate portfolio,” NRF CEO Jonathan Langer said in a press release. “Taikang shares our vision regarding the long-term value proposition represented by investing in a diversified U.S. healthcare real estate portfolio and we look forward to a fruitful relationship with them.”
Taikang will own 19% of the joint venture, executives said during an earnings call with analysts Tuesday.
NRF expects the transaction to close in the first quarter of 2017, subject to certain regulatory and financing approvals.
NRF also announced that it entered into a definitive agreement to sell a subset of its medical office building (MOB) portfolio for $838 million at a cap rate of approximately 5.6%. NRF expects net proceeds of approximately $115 million for the transaction, which is anticipated to close by the end of the year.
Upon completion of the MOB transaction, the adjusted health care portfolio value would be $5.3 billion, executives said.
“We anticipate that the medical office building sale will close shortly prior to the closing of the joint venture agreement with Taikang,” Langer said on the call. “Assuming the timing works out that way, Taikang’s implied enterprise valuation, purchased amount and capitalization rate on the remainder of the portfolio would effectively adjust to $5.3 billion, $900 million and 6.2%, respectively.”
Both transactions are part of NRF’s larger strategic asset monetization initiatives. To-date, the company has completed approximately $2.8 billion of asset sales, including real estate assets and real estate private equity funds, Langer said, which have generated approximately $1.4 billion of liquidity.
The company has $3.8 billion of assets in contract to be sold to a total of $6.6 billion in asset monetization, according to Langer. While undergoing aggressive divesting, NRF executives noted that more than $1 billion of cash proceeds that remained uninvested during the quarter had a “significant near-term drag on our financial results.”
Investors had little reaction to the earnings and divestiture plans, as NRF’s stock dipped slightly before leveling Tuesday.
NRF reported U.S. GAAP net loss to shareholders of $100.4 million, or $0.56 per diluted share for the third quarter 2016. The combined health care portfolio NOI was $91.6 million during the quarter. NRF reported a third quarter cash dividend of $0.40 per common share.
The upcoming three-way merger has been met with criticism from shareholders, some of whom have pushed for restructuring of the externally managed NRF for some time. Executives from NRF have said the merger will help unlock value for shareholders as the REIT becomes internally managed in the transaction.
Written by Amy Baxter