Invesque Inc. (TSX: IVQ.U), the Toronto-based real estate investment company formerly known as Mainstreet Health Investments, Inc. announced an agreement Wednesday to acquire Charlottesville, Virginia-based senior housing owner and operator Commonwealth Senior Living and 20 of its properties for $340.4 million.
Invesque also has an exclusive right of first offer for three other Commonwealth assets that are currently, and will continue to be, managed by Commonwealth. The company’s revenue is generated from private pay funding sources, and the portfolio does not have direct exposure to Medicare, Medicaid or other government funding sources.
The deal will expand Invesque’s senior housing portfolio to 122 properties in 20 states and two Canadian provinces, for a total value of $1.8 billion. It also further diversifies Invesque’s overall portfolio, company Chairman and CEO Scott White told Senior Housing News.
“This is the first time we will own an operating and management company outright,” he said.
The Commonwealth acquisition adds 1,440 units with 1,716 beds spanning private pay independent living, assisted living and memory care to Invesque’s portfolio. The portfolio holds a geographic concentration in Virginia and Pennsylvania that Invesque said it views as growing and attractive markets.
Invesque’s overall portfolio is weighted in favor of private-pay senior housing for the first time. Senior housing now accounts for 52% of Invesque’s holdings, while skilled nursing comprises 39% and the balance is in other assets including medical office buildings.
A fast negotiation
Invesque is continuing to rapidly expand. Following Mainstreet Investments’ purchase of Care Investment Trust in 2017 and its name change to Invesque at that time, the company has re-located to a new headquarters building in Carmel, Indiana and stated plans last year to add 39 jobs by 2024, as it drives toward a total portfolio in excess of $2.4 billion.
While the company has a robust acquisition pipeline, Commonwealth did not enter the picture until earlier this year, White told SHN. In addition to the Care Investment Trust deal, Invesque also acquired Toronto-based medical office real estate investment trust Mohawk Medical Properties for $142 million in May 2018.
“We’ve grown by $1 billion over the past year,” White said.
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It was Commonwealth that started the process. The company decided last fall to enter the market and gauge interest in a possible partnership, Commonwealth CEO Richard Brewer told SHN.
While there was interest some numerous investors, Brewer found Invesque’s values and vision aligned well with Commonwealth’s future plans.
“This was not a need-driven decision,” he said. “Rather, it was a robust process to find the right partner.”
The agreement marks the first time Invesque is acquiring an operator, but there are no plans to scale Commonwealth’s platform nationally, White told SHN. As new acquisition opportunities present themselves, however, Invesque will consider bringing those under the Commonwealth banner if they fit. Invesque has an exclusive right of first offer on three additional communities that are currently, and will continue to be, managed by Commonwealth post-closing.
“We continue to focus on regional operators — we have 21 operators in our portfolio,” he said.
Founded in 2002 by Richard Brewer and Municipal Capital Appreciation Partners (MCAP), Commonwealth impressed Invesque’s leadership based on its history, management team and track record of success, the company said. This fit the criteria Invesque sought in acquiring an operator, and White believes it can extract some of the operator’s best practices for use among the other operators in its senior living portfolio.
“We like to work with people that we know,” White said. “We’ve known [Commonwealth CEO] Richard [Brewer] and his team for quite some time. This is a highly sophisticated operation.”
Brewer and the rest of Commonwealth’s executive team will remain in place. MCAP and Brewer will continue to have a significant stake in the Commonwealth properties, in addition to acquiring new properties of their own.
They are also excited for the opportunity to pursue both development and redevelopment projects on current and future Invesque holdings, he said.
Shaping the portfolio further
Moving forward, Invesque leadership envisions a balanced portfolio of one-third senior housing, one-third skilled nursing and one-third medical office and other health care assets. The company will eventually scale down the number of operators attached to its senior housing portfolio, White told SHN.
Commonwealth will be one of Invesque’s preferred operators now that it is in the fold.
“We don’t want to one day have 200 buildings and 70 operators,” he said. “There’s too much management oversight for that.”
Invesque will remain geographically agnostic with its future investment opportunities, so long as the operating partners are the right fit.
Commonwealth wants to continue what Brewer calls a “smart growth” trajectory. The operator does not expect to expand too far beyond its mid-Atlantic sweet spot, and will work with both MCAP and Invesque on strategic acquisitions that fit with their respective investment models.
Commonwealth is set up now to operate several additional properties and could double from its current size within the next five years if the projects make sense, Brewer said.
“Invesque enables us to expedite our growth plans and leverage our existing management platform,” he said.
A full continuum of care
The reshaping of Invesque’s portfolio is the first step to providing a full continuum of care. White believes the company is better prepared than its competitors to stretch across the care spectrum and enter new arenas.
“Ten percent of our NOI is medical office buildings,” he said. “Over time, we may look to other asset classes — all within health care.”
Investors acquiring operators and assets is rare, but not uncommon. Last January, Bridge Investment Group acquired Somerby Senior Living’s real estate and operations. Bridge Seniors Housing Fund CEO Robb Chapin told SHN the deal gives Bridge leverage in future acquisitions, as well as the opportunity to offer a more vertically integrated property management model across its senior housing portfolio.