Invesque (TSX: IVQ.U) is wasting no time in building up the $340 million Commonwealth Senior Living portfolio acquired in May.
Invesque is transitioning the majority of its assets operated by Falls Church, Virginia-based Greenfield Senior Living to Commonwealth, the Toronto-based real estate investment trust (REIT) announced in its second quarter 2019 earnings report Wednesday.
The Greenfield transition will make Commonwealth the largest source of Invesque’s annual net operating income (NOI), accounting for 26% by the end of 2019. It also makes Commonwealth the largest senior housing operator in Virginia and one of the largest in the mid-Atlantic U.S., with a total of 34 communities, and White believes Commonwealth’s platform can handle as many as 50 facilities over the next couple years.
Invesque reported a net loss of $16.9 million and normalized funds from operations (FFO) of $0.19 per share in the second quarter of 2019. This was mostly due to writedowns related to an acquisition that did not pan out, Invesque Chairman and CEO Scott White told Senior Housing News.
Invesque reported $28.82 million in revenue in the quarter, a 1.8% dropoff year-over-year. White attributed this to softness across Invesque’s joint venture portfolio.
Invesque owns 13 communities operated by Greenfield. Charlottesville, Virginia-based Commonwealth will assume operations of 10 of those properties — one community in Oak Ridge, Tennessee was transitioned to Commonwealth on Aug. 2, White told SHN.
Three Greenfield communities in Maryland will transition to Commonwealth in September, followed by five communities in Virginia in October and one Pennsylvania facility before the end of the year, Commonwealth CEO Richard Brewer told SHN.
The Greenfield portfolio and operating relationship was inherited in Invesque’s purchase of Care Investment Trust in 2017, at which time it also changed its name from Mainstreet Investments. Negotiations about a transition happened over the course of nine months and the portfolio is stabilized from an occupancy standpoint at around 83%, White told SHN.
Two Greenfield communities in New Jersey and Pennsylvania will be transitioned to Hammonton, New Jersey-based operator, Heritage Senior Living. The properties are in markets where Heritage has an existing presence, and will add market density for pricing power and market synergies, Invesque Chief Investment Officer Adlai Chester said during a Thursday earnings call.
Heritage will become the third-largest source of Invesque’s annual NOI, accounting for 8% of its total.
Commonwealth is excited for the opportunity to add to its portfolio, Brewer told SHN.
“We built our platform to take on more properties. Working with Invesque, we will be able to take on unique opportunities that make sense,” he said.
Strategic future growth
The Commonwealth acquisition has dramatically reshaped Invesque’s portfolio into a predominantly private-pay real estate investment company, paced by a senior housing portfolio of 122 communities in 20 states and two Canadian provinces, totaling $1.8 billion in value. White estimates senior housing will account for approximately 55% of Invesque’s pro forma NOI by the end of the year. The REIT also invests in Skilled nursing facilities and medical office buildings.
The Commonwealth deal also gives Invesque a differentiated, vertically integrated operating and property management model with decades of expertise in the industry. White expects Commonwealth to work closely with other Invesque operators to share insights and best practices.
Invesque will also work with Commonwealth to reposition certain assets that would make a better fit for the operator, something Brewer is eager to capitalize on.
“We’re looking for fill-in opportunities across our markets,” he said.
Now that Invesque has amassed a large portfolio in a short period of time — Chester estimates the company has grown at a 53% annualized rate since its 2016 IPO — it is time to step back and emphasize maximizing the value of its assets.
The Greenfield transition is one example, as is the acquisition Invesque eventually decided not to pursue.
“We’re going asset by asset, determining which ones to sell and those that fit the portfolio,” Chester said.