A real estate investment trust (REIT) with more than 80 behavioral health locations could go private in a dazzling $14 billion deal.
Scottsdale, Arizona-based STORE Capital Corp. (NYSE: STOR) announced that Singapore-based global institutional investor GIC and Chicago-based alternative asset manager Blue Owl Capital have signed an agreement to go private with Oak Street, the real estate arm.
STORE Capital Corp. has 3,012 properties in 49 states and 579 clients as of June 30, according to its second-quarter earnings statement submitted to the Securities and Exchange Commission. STORE focuses on single-tenant operational real estate.
According to a recent investor presentation, the company owned 89 behavioral health centers, representing approximately 3.2% of STORE Capital’s $908 million base rent and interest.
Five years ago, STORE Capital owned 36 properties representing 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, which make up 64% of its portfolio; manufacturing — 21% of its portfolio; and service specific retail such as maintenance dealers, farm supplies and outdoor supply stores – 15% of its portfolio.
“This opportunity is a confirmation by two leading real estate investors with significant access to capital, the strength of our platform, our experienced leadership team, and our disciplined investment approach,” said Mary Fedewa, President and CEO of STORE Capital. newsletter.
According to the statement, the deal is expected to be completed in the first quarter of 2023.
While a small part of the SHOP Capital portfolio, REITs like SHOP represent compelling potential partners for the behavioral health sector that is growing and continues to mature as an industry. It also shows the scale of private equity available to investors.
“There’s a lot of capital and sidetracking that wants to buy public companies like this and make them private,” Andrew Dick, a health attorney and shareholder in the Indianapolis office of law firm Hall Render, said in an interview.
A Pitchbook report estimates the global private equity market has around $3.2 trillion in dry powder or potential assets for investment; $1.24 trillion of this belongs to private equity firms as of the end of the second quarter.
Specific to private equity, the report states that a larger share of capital in the second quarter of 2022 is in large funds, worth over $1 billion.
“One implication of this is that PE investors will look for big targets to put this money into,” the report says. “This will lead them to the public markets in search of attractive candidates for the private sector, especially as prices have been suppressed by the bear market.”
REIT’s shovel interest in behavioral health
REITs are a potential source of new capital and development opportunities for the behavioral health sector. A few REITs with large investments in the senior living and skilled nursing segments have taken an interest in the sector.
CareTrust REIT A.S. (Nasdaq: CTRE) CEO Dave Sedgwick said behavioral health offers potentially better use for underperforming assets during the company’s first-quarter earnings call.
Sabra Health Care REIT A.Ş. (Nasdaq: SBRA) signed a deal with substance use disorder operator Landmark Recovery in 2019 and Recovery Centers of America in 2021.
Behavioral health, healthcare, and life sciences are becoming an increasingly attractive destination for commercial real estate investments. Dallas-based commercial real estate development services and investment firm CBRE Group Inc. (NYSE: CBRE), nearly 38% of respondents found that their behavioral health facilities fit the investment criteria for 2022.
“It shows that healthcare facility owners, in some cases, seek equity partners to take real estate risk off the table,” Dick said. “So they go to firms like STORE Capital.”