LCS and National Health Investors (NYSE:NHI) have joined forces to buy a continuing care retirement community (CCRC) in Washington.
The Des Moines, Iowa-based senior living company and the Murfreesboro, Tennessee-based real estate investment trust (REIT) on Tuesday agreed to form a new joint venture to own and operate Timber Ridge at Talus, a “Type A,” 401-unit CCRC near Seattle in Issaquah, Washington. LCS has been a minority equity owner in Timber Ridge in partnership with Westminster Capital since LCS Development originally developed the community in 2008.
The new NHI-LCS JV intends to acquire Timber Ridge for $133 million from an existing JV between Westminster Capital and LCS. The transaction is expected to close on or around Jan. 31, with additional closing costs estimated at about $2 million.
LCS’ new JV with NHI comes just days after the company announced another joint venture to buy an upscale CCRC in Chicago with Harrison, New York-based Senior Care Development. That sale reportedly valued the community at $105 million, which is more than double the community’s 2012 purchase price, according to the Wall Street Journal.
Despite the proximity of the two announcements, the timing is largely coincidental, according to Dan Lahey, vice president and director of investments and capital deployment for LCS Real Estate.
“The commonality is these are both high-quality, successful, entry-fee life plan communities that LCS has a strong desire to own and operate on a long-term basis,” Lahey told Senior Housing News. “And we executed an equity recapitalization to effectuate that in both situations.”
The JV with NHI consists of one company which owns the property, and another that owns the operations — an arrangement sometimes known as an PropCo/OpCo split. Under that arrangement, NHI will own an 80% stake in the PropCo, while LCS will own the remaining 20%. And LCS will have a 75% ownership interest in the OpCo, with NHI owning 25%.
The PropCo will lease the community to the OpCo under a triple-net lease structure, with an initial cash yield of 6.75%. The lease has a seven-year initial term, with two included five-year renewal options. Escalators are set to be based on the Consumer Price Index (CPI), with a floor of 1.75% and a ceiling of 2.25%.
In terms of funding, NHI has agreed to contribute $43.2 million in equity to the PropCo, and $800,000 in working capital to the OpCo. NHI has also agreed to provide $81 million in financing to the PropCo, or about 60% of the purchase price. LCS, meanwhile, is contributing $10.8 million in equity to the PropCo and $2.4 million in working capital to the OpCo.
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NHI is also providing a $5 million line of credit to the OpCo for working capital. The REIT’s total investment in the JV is about $125 million.
NHI provided $130 million for a phase-two expansion project at Timber Ridge in 2017 to build a pool, a larger dining room, theater and meeting area and more independent living units. The financing included an option to purchase the building once certain conditions were met, according to NHI President and CEO Eric Mendelsohn.
“The purchase option took effect once phase two reached 90% [occupied] for 60 days, which it has been,” Mendelsohn told SHN. “So, here we are.”
Today, the community is over 95% occupied, with “crash pad” apartments and amenities including a fitness center, aquatic center, creative arts studio, putting green, library, woodworking shop, salon and boutique market.