Health Care REIT Buys Gracewell’s U.K. Portfolio for $257M

By Barbra Murray, Contributing Editor

Health Care REIT Inc. is having quite a busy month. Its latest move is the acquisition of a portfolio of 11 premier private-pay communities from U.K.-based Gracewell Healthcare.  HCN acquired the 767-unit collection, based in Southern England, for $257 million in cash.

The Gracewell portfolio is none too shabby, consisting predominantly of properties developed within the last two years, and with HCN’s ownership of the assets under the RIDEA structure, the REIT is poised to benefit from the portfolio’s strong NOI growth potential.

In addition to growing its footprint in England, HCN used the Gracewell purchase to expand its relationship with management company Sunrise Senior Living L.L.C., of which HCN owns 24 percent. Sunrise, which has had a presence in England for more than 10 years, has agreed to acquire Gracewell’s management division, thereby taking over management responsibilities for the newly purchased Gracewell communities.

And there’s more much more to the Gracewell transaction: HCN and Sunrise have signed a deal to redevelop an existing seniors housing community and develop 11 more properties totaling 812 units with Gracewell’s founders, Tim Street and Daniel Kay. Street and Kay will be able to rely on their ongoing relationship with Patron Capital for financing.

“HCN has built a strategic position in the U.K. as the leading partner to the premium private-pay seniors housing industry,” Tom DeRosa, CEO of HCN, noted in a prepared statement. “This latest acquisition brings together the operating expertise of Sunrise, the development expertise of Gracewell and the strategic capital of HCN.”

The Gracewell acquisition  and the new Sunrise partnership come right on the heels of HCN’s purchase of the outstanding units of HealthLease Properties Real Estate Investment Trust in a deal valued at $950 million, another all-cash deal. The transaction involves 53 high-quality seniors housing, post-acute care and long-term care communities. Additionally, HCN committed to acquiring 17 of Mainstreet’s Next Generation properties that are currently under construction and entered into an agreement involving the future development of 45 properties. The purchase of the units and the development have a total value of $1.4 billion.

Sunrise’s recent activities are being viewed in a positive light by many. “Both deals carry attractive total return profiles—accounting for both initial yields and potential future cash-flow growth—of roughly 9.5 percent or greater, which compares very favorably to our mid-7s estimate of Health Care REIT’s cost of funding, thus creating value for shareholders,” Todd Lukasik, senior analyst with Morningstar Inc., told Commercial Property Executive. “Furthermore, both transactions include potential future investment opportunities for Health Care REIT to invest alongside its operating partners’ growing businesses, which furthers the success of Health Care REIT’s well-articulated and well-executed relationship investment strategy.”