NEW YORK — New Senior Investment Group Inc. (NYSE: SNR) has entered into an agreement to acquire a 28-property portfolio of private-pay, independent living senior housing properties from affiliates of Holiday Retirement for approximately $640 million.
New Senior expects to invest approximately $190 million of equity and incur approximately $450 million of debt to purchase the portfolio. New Senior anticipates the closing of the acquisition by the third quarter.
“We are excited to add 28 independent living properties to our portfolio through this accretive acquisition,” says New Senior CEO Susan Givens. “This transaction further increases our private-pay seniors housing NOI (net operating income) exposure to 91 percent of our portfolio.”
The portfolio is 100 percent private pay and contains 3,298 independent living units located across 21 states, which as of May had an average occupancy rate of 88 percent.
The portfolio is currently operated by Holiday, and New Senior expects Holiday will continue to operate the portfolio following the closing of the acquisition under new property management agreements.
New Senior also expects the portfolio to generate an initial cash NOI of approximately 6.4 percent after property management fees.
The transaction is the second large sale of properties Lake Oswego, Ore.-based Holiday has made in the last month. In May the company sold a 32-property independent living portfolio spanning 3,983 units and is 100 percent private pay. The communities are located in 12 states, with the largest concentration of facilities in California, Texas and Washington.
Upon closing of the acquisition, New Senior’s portfolio will include 152 properties with approximately 18,900 beds across 37 states.
In a release, New Senior outlined the strategic benefits of the acquisition:
- Upon closing, New Senior expects NOI from private-pay independent living and assisted living/memory care communities to increase to approximately 91 percent. New Senior’s portfolio will be balanced between business models, with its managed portfolio expected to account for approximately 51 percent of NOI and its triple-net leased portfolio expected to account for approximately 49 percent of NOI following the acquisition.
- The portfolio has a strong occupancy rate of 88 percent. Furthermore, the portfolio generated strong NOI margins (after property management fees) of approximately 40 percent for the first quarter of 2015.
- The acquisition will increase the geographic diversification of the New Senior’s portfolio, adding five new states (Arkansas, South Dakota, South Carolina, Hawaii and Indiana).
- New Senior expects Holiday, one of the largest independent living operators in the country with over 300 properties in 43 states, to continue to manage the properties after the closing of the acquisition, which should allow for a seamless transition in the property operations. The terms of the management agreement will include a base management fee along with an incentive fee to align the interests of Holiday and New Senior in driving performance and growth. Holiday is majority owned by private equity funds managed by an affiliate of New Senior’s manager.
- New Senior expects the acquisition to be accretive to its adjusted funds from operations and normalized funds available for distribution.
The transaction was unanimously approved by a committee of New Senior’s board of directors composed of independent directors, with Greenhill & Co. LLC acting as the committee’s financial advisor and Davis Polk & Wardell LLP acting as its legal advisor. Skadden, Arps, Slate, Meagher & Flom LLP is the legal advisor to Holiday.
New Senior is a publicly traded real estate investment trust focused on investing in seniors housing properties across the United States. The company owns 124 properties in 32 states, and is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm. The company spun off from Newcastle Investment Corp. in November 2014.
Holiday is a privately held company that as of 2014 operates more than 300 seniors housing communities in the United States and is the one of the largest owner-operators in the country.
New Senior’s stock price closed at $15.25 per share on Monday, June 22, down from $16.78 on January 2.
— Scott Reid