A real estate investment trust (REIT) that owns more than 80 behavioral health locations could go private in a stunning $14 billion deal.
STORE Capital Corp. (NYSE: STOR), headquartered in Scottsdale, Arizona, announced it has entered into an agreement to go private with Singapore-based global institutional investor GIC and the real estate arm of Chicago-based alternative asset manager, Blue Owl Capital, Oak Street.
STORE Capital Corp. owns 3,012 properties in 49 states and has 579 clients, as of June 30, according to its second-quarter earnings statement filed with the Securities and Exchange Commission. STORE focuses on single tenant operating real estate.
The company owned 89 behavioral health facilities that accounted for about 3.2% of STORE Capital’s $908 million 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 gyms: 64% of its portfolio; manufacturing: 21% of its portfolio; and service-specific retailers, such as care dealerships, ranch supplies, and outdoorsman supply stores, 15% of their 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 leadership team and our disciplined investment approach,” said Mary Fedewa, president and CEO of STORE. Capital, in a statement. Press release.
The deal is expected to close in the first quarter of 2023, according to the statement.
While 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 scale of private capital available to investors.
“There is a lot of capital and margins looking to buy companies like this that are public and take them private,” Andrew Dick, a health care attorney and shareholder in the Indianapolis office of law firm Hall Render, said in an interview.
a launch book report estimates that the global private equity market holds about $3.2 trillion in dry powder or potential assets for investment; $1.24 trillion of that is held by private equity firms at the end of the second quarter.
For private equity specifically, a larger portion of capital in the second quarter of 2022 resided in large funds of more than $1 billion, according to the report.
“One implication of this is that PE investors will be looking for big targets to put that money to work,” the report states. “This is likely to drive them to the public markets in search of attractive candidates to take private, 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 sector. Several REITs with large investments in the skilled nursing and senior housing segments have taken an interest in the sector.
CareTrust REIT Inc. (Nasdaq: CTRE) CEO Dave Sedgwick said during the company’s first-quarter earnings call that behavioral health features a potentially better use for underperforming assets.
Sabra Health Care REIT Inc. (Nasdaq: SBRA) Reaches Settlement with Substance Use Disorder Operator Landmark Recovery in 2019 and Recovery Centers of America in 2021.
behavioral health is a increasingly attractive place for health care and life sciences investing in commercial real estate. Approximately 38% of respondents in a survey conducted by Dallas-based commercial real estate development services and investment firm CBRE Group Inc. (NYSE: CBRE) found that behavioral health facilities fit their criteria for investment by 2022.
“This shows that health care facility owners are looking, in some cases, for equity partners to take real estate risk off the table,” Dick said. “So they go to companies like STORE Capital.”
