A real estate investment trust (REIT) that owns more than 80 behavioral health sites could be taken private in a staggering $14 billion deal.
STORE Capital Corp. Scottsdale, Arizona-based (NYSE: STOR) announced that it has signed an agreement to go private with Singapore-based global institutional investor GIC and Chicago-based alternative asset manager Blue Owl Capital Oak Street.
STORE Capital Corp. owns 3,012 properties in 49 states and has 579 customers as of June 30, according to its second-quarter earnings statement filed with the Securities and Exchange Commission. STORE focuses on operating properties with one tenant.
The company owned 89 behavioral health locations representing 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 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 — 64% of its portfolio. manufacturing — 21% of its portfolio; and, retail for specific services, such as grooming agencies, ranch supplies and outdoor supply stores — 15% of its portfolio.
“This opportunity is a validation, from 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 . news.
The deal is expected to close in the first quarter of 2023, according to the statement.
While they are a small part of the STORE Capital portfolio, REITs like STORE represent compelling potential partners for the behavioral health sector as it develops and continues to mature as an industry. It also shows the scale of private capital available to investors.
“There’s a lot of capital and leeway that wants to buy companies like this that are public and take them private,” Andrew Dick, a health care attorney and shareholder in the Indianapolis law firm Hall Render’s, said in an interview.
A Pitchbook report estimates that the global private equity market holds about $3.2 trillion in dry powder or potential investable assets. $1.24 trillion of that was held by private equity firms at the end of the second quarter.
For private equity funds in particular, a larger share of capital in the second quarter of 2022 was in large funds of $1 billion and above, the report said.
“One consequence of this is that PE investors will look for big targets to put that money to work,” the report said. “That will likely drive them to the public markets in search of attractive take-private candidates, especially as prices have come down from the bear market.”
REIT’s interest in behavioral health
REITs are a potential source of new capital and growth opportunities for the behavioral health sector. Several REITs with large investments in the senior and skilled nursing sectors have shown interest in the sector.
The CEO of CareTrust REIT Inc. (Nasdaq: CTRE ) Dave Sedgwick said during the company’s first-quarter earnings call that behavioral health presents a potentially better use for underperforming assets.
Sabra Health Care REIT Inc. (Nasdaq: SBRA) struck a deal with substance use disorder firm Landmark Recovery in 2019 and Recovery Centers of America in 2021.
Behavioral health is an increasingly attractive place for healthcare and life science to invest in commercial real estate. About 38 percent of respondents to a survey by Dallas-based commercial real estate development services and investment firm CBRE Group Inc. (NYSE: CBRE) found that behavioral health facilities fit their 2022 investment criteria.
“This shows that healthcare facility owners are, in some cases, looking to equity partners to take real estate risk off the table,” Dick said. “That’s how they go to companies like STORE Capital.”