Arcapita sells senior housing portfolio
Bahrain-based private equity and real estate investor Arcapita Bank B.S.C. announced Wednesday the sale of a portfolio of 29 U.S. senior living communities to its former co-investment partner Sunrise Senior Living Inc. and CNL Lifestyle Properties Inc. in a deal worth $630 million including debt.
The sale follows Arcapita's aborted attempt last year to sell its 90% stake in the portfolio for $643.5 million to Health Care REIT Inc. of Toledo, Ohio, which was unveiled with high hopes in September and then terminated the following month.
Instead, Sunrise of McClean, Va., has injected its own equity, valued at $90 million, into the new arrangement with CNL, while Arcapita, through U.S. subsidiary Arcapita Inc., has received proceeds of $262 million.
Arcapita did not reveal its overall capital gain on the portfolio, which it mainly bought for an undisclosed price during 2003, adding one further property at a later date. But it did disclose the investment had delivered a yield in excess of 9% a year over the past seven years.
"This was a dream investment," said Arcapita spokesman Tim Doyne, adding that the portfolio had delivered on target overall.
Sunrise said the portfolio includes 17 communities in the most important markets of New York, Chicago and Los Angeles, with the remainder in New Jersey, Washington, New England, Minneapolis, St. Louis, Detroit, Ohio, San Francisco and Colorado Springs. It said net operating income, or NOI, in the portfolio had grown 22.5% between 2005 and 2008 and rebounded in 2010 after a decline in 2009. November 2010 annualized NOI was up 3.1% compared with the previous year. Meanwhile, CNL of Orlando, Fla., said the average age of the properties was just under 10 years.
"We believe these properties are positioned to compete well in their local markets as baby boomers start to retire in large numbers over the next two decades," CNL chief executive Byron Carlock said in a statement.
When the deal closed on Monday, CNL, with an equity stake of $135 million, owned 60% of the holding. Sunrise owns 40%, but it will also have a 30-year management contract for the entire venture as well as the option to buy CNL out during years three to six of the partnership for an internal rate of return of 13% or 14%. Either party can initiate a buy or sell process from year seven onward.
The acquisition was financed with a three year, $435 million loan, arranged by Goldman Sachs Lending Partners LLC.
Eugene Pinover and Thomas Henry of Willkie Farr & Gallagher LLP served as legal counsel to Sunrise and the new joint venture. Peter Lopez and Peter Reinert of Orlando law firm Lowndes, Drosdick, Doster, Kantor and Reed PA advised CNL. Arcapita did not use financial advisers, but it took legal counsel from King & Spalding LLP's Isam Salah and Alan Albright. Michael Weinberger of Cleary Gottlieb Steen & Hamilton LLP served as counsel for Goldman Sachs.