A real estate investment trust (REIT) that owns more than 80 behavioral health facilities could go private in a jaw-dropping $14 billion deal.
STORE Capital Corp. (NYSE:STOR), based in Scottsdale, Arizona, announced that it has signed a privatization agreement with Singapore-based global institutional investor GIC and Oak Street, the real estate arm of Chicago-based alternative asset manager Blue Owl Capital. .
STORE Capital Corp. owns 3,012 properties in 49 states and has 579 customers, as of June 30, according to its second-quarter income statement filed with the Securities and Exchange Commission. STORE focuses on single-tenant operating real estate.
The company owned 89 behavioral health sites that accounted for about 3.2% of STORE Capital’s $908 million in base rent and interest, according to a recent investor presentation.
Five years ago, STORE Capital owned 36 properties which represented 1.9% of the company’s base rent and interest.
STORE Capital focuses on real estate investments in services such as restaurants, early childhood education and health clubs — 64% of its portfolio; manufacturing — 21% of its portfolio; and, the retail of specific services such as care dealers, ranch and outdoor supply stores – 15% of its portfolio.
“This opportunity is an endorsement, by two leading real estate investors with significant access to capital, of the strength of our platform, our experienced management team and our disciplined investment approach,” said Mary Fedewa, President and CEO of STORE Capital, in a press release.
The deal is expected to close in the first quarter of 2023, according to the statement.
Although only a minor part of STORE Capital’s portfolio, REITs like STORE represent compelling potential partners for the behavioral health sector as it grows and continues to mature as an industry. It also shows the extent of private capital available to investors.
“There’s a lot of capital and margins looking to buy companies like this that are public and take them private,” said Andrew Dick, health care attorney and shareholder in the firm’s Indianapolis office. Hall Render lawyers, in an interview.
A report by Pitchbook estimates that the global private capital market holds approximately $3.2 trillion in dry powder, or potential assets for investment; $1.24 trillion of that amount is held by private equity firms at the end of the second quarter.
Specific to private equity, a greater share of capital in the second quarter of 2022 resided in large funds over $1 billion, the report said.
“One implication of this is that private equity investors will be looking for big targets to put that money to work with,” the report said. “That will likely drive them into the public markets looking for attractive candidates for private takes, especially as prices have been depressed by the bear market.”
REIT’s Growing Interest in Behavioral Health
REITs are a potential source of new capital and development opportunities for the behavioral health industry. Several REITs with large investments in the senior living and skilled nursing segments have taken an interest in the sector.
CareTrust REIT Inc. (Nasdaq: CTRE) CEO Dave Sedgwick said on the company’s first quarter earnings call that behavioral health presents a potentially better use of underperforming assets.
Sabra Health Care REIT Inc. (Nasdaq: SBRA) reached an agreement with substance use disorder operator Landmark Recovery in 2019 and Recovery Centers of America in 2021.
Behavioral health is an increasingly attractive location for commercial real estate investment in healthcare and life sciences. Approximately 38% of respondents to a survey conducted by Dallas-based commercial real estate development services and investment firm CBRE Group Inc. (NYSE: CBRE) found behavioral health facilities to meet their investment criteria for 2022.
“It shows that healthcare facility owners are, in some cases, looking for financial partners to eliminate real estate risk,” Dick said. “So they go to companies like STORE Capital.”
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