On Wednesday, Health Care REIT, Inc. (NYSE: HCN) announced it had agreed to purchase Sunrise Senior Living, Inc. (NYSE: SRZ) for approximately $845 million.
For the the third-biggest health care real estate investment trust (defined by market value), the deal provides an opportunity to broaden its assisted-living communities. The cash transaction is $14.50 per share and represents a 62 percent premium over Sunrise Senior Living, Inc. (NYSE: SRZ)’s $8.93 closing price on Tuesday.
In a statement on Wednesday, Health Care REIT, Inc. (NYSE: HCN) said the transaction has a $1.9 billion real estate value. This will encompass Sunrise’s 20 wholly owned U.S. and Canadian senior- housing communities and its share in joint ventures that own 105 communities (27 from the U.K.). This can be broken down further after the deal closes with Health Care REIT taking ownership of more than 58,000 units of senior housing.
The transaction also raises the landlord’s business share that is independent of government reimbursements and cuts the average age of Health Care REIT’s properties to 12 years from 13 years, according to the company’s website.
George L. Chapman, Health Care REIT’s chairman and chief executive officer said in conference call via Bloomberg, “There are very few opportunities of this scale and quality. Senior housing is undervalued relative to other classes of real estate.”
One analyst, John Sheehan of Edward Jones gave the deal a thumbs up and noted that with the declining average age, along with a high revenue per occupied room, it conveys that Health Care REIT is receiving “new properties with the right amenities in good, strong locations.”
Sunrise’s shareholders will need to approval the deal. It is expected to close in 2013’s first half.
Goldman Sachs Group Inc. (NYSE:GS) and KeyBanc Capital Markets Inc. are the financial advisers for the deal with Wachtell Lipton Rosen & Katz serving as Sunrise”s legal adviser.
BMO Capital markets is cautiously optmistic about the transaction, noting:
Big Picture: The transaction would result in RIDEA representing 30% of HCN’s portfolio – the top end of its 25%-30% target. While more RIDEA may mean more growth for now, the risk level is also elevated. Only a full cycle of operations will tell if it is worth it. HCN is a quality organization with quality leaders and has earned the benefit of the doubt. However, some additional appetite for risk may be needed to maintain existing or attract new investors.
Joining the Health Insurer M&A Party
Wednesday’s news comes after Aetna Inc.’s (NYSE:AET) announcement on Monday to purchase Coventry Health Care Inc. (NYSE: CVH) for $5.6 billion. The company will pay $42.08 a share for Coventry, who is the top performer on the NYSE for medical insurers in 2012.
The deal represented a 20 percent premium over Coventry’s closing price of $34.94 from Friday, Aug. 17. The company had a $4.68 billion market value. With Coventry’s debt, the deal has a $7.3 billion value.
And just last month, WellPoint Inc. (NYSE:WLP) announced its own plans to acquire Amerigroup (NYSE:AGP). In the agreement, the company said it will pay $92.00 per share in cash to purchase Amerigroup’s outstanding shares. The deal has an approximate value of $4.9 billion.
The deal is also expected to close in the first half of 2013.