SMITH / PACKETT

Background
Our client was widely considered to be the premier third party senior housing developer in the mid-Atlantic and Southeast United States. Over a 28 year span, the company had developed or acquired more than 200 senior housing and healthcare facilities with an aggregate value in excess of $1 billion.  The current portfolio consisted of 30 properties in four different investor pools.

The Challenge
The 2008 recession had placed a strain on many of the client’s traditional lending sources. Their lenders were increasing their equity requirements for new development, making it difficult for our client to develop new facilities - its core income source.  Smith/Packett held a variety of assets in various stages of development, with different operators and different lease terms; the assets were both institutional and non-institutional quality. Smith/Packett‘s portfolio was comprised of numerous investor groups, with different investment horizons and investment structures. Each investor group had different release prices on each of their different properties, making it challenging to satisfy the needs of all the investors as well as the client. A portion, but not all, of the portfolio had purchase options.

The Journey
Heavenrich scoured the client’s balance sheet for assets that would be considered most desirable and would receive a premium in the current market environment.  We received feedback from investor groups as to their flexibility and interest level for dispositions.

The Solution
Heavenrich identified seven skilled nursing facilities within the portfolio that would meet the client’s equity needs and meet investor hurdles. This 230,000 square foot, 563-bed portfolio was built between 1989 and 2004. Heavenrich recognized that by removing the operating assets from the overall offering we could enhance the client’s equity and overall value of the transaction. We therefore recommended removing them.

The Results
After taking the offering out to over 100 qualified REITS and private equity groups, Heavenrich narrowed the field down to seven financially qualified strategic bidders. Each bidder placed bids on some, or all, of the portfolio. Heavenrich then worked with the investor pools and client to determine release conditions and terms for each property.  By removing the operating assets, Heavenrich enhanced the bid prices by over 5%.

The winning bidder was Grubb & Ellis Healthcare REIT, an emerging and aggressive REIT that tailored its terms and conditions to provide Smith/Packett  $45 million in financial flexibility that they needed in order to continue to fund their pipeline of new developments.

WHITE OAK SENIOR CARE

Background
Over a period of five years, Steve Bellone built White Oak Senior Care to a seven-facility, 900+ skilled bed portfolio in the Washington DC and Baltimore markets of Maryland and West Virginia. With no equity partner, Steve had limited ability to expand further. At the same time he recognized that the market was unique and the industry was experiencing a high degree of uncertainty. Steve wanted to take some chips off the table. The question he faced was how he could continue to grow comfortably with the capital demands that he faced and the uncertainty in the reimbursement market.

Steve approached a friend who was CEO of a publicly traded REIT and they negotiated favorable lease terms and an $80,000,000 sale price which were acceptable to Steve.

The Challenge
While much of the portfolio was stabilized, one of the facilities, a well-located but very old skilled nursing facility, needed to be torn down, rebuilt and repositioned. It had to move from providing care for a Medicaid population to a more upscale resident base that would provide rehab under Medicare. A significant amount of value lay in potential success of that facility. The balance of the portfolio was positioned as Medicaid for a more indigent population.

The Journey
Heavenrich understood the importance of the to-be-built facility in the overall value and structure of the transaction. We spent considerable time exploring the market, the demographics and the plan to market this new facility, which was highlighted in the offering memorandum.  We negotiated full value for the to-be-built facility with no earn out.

In addition, Heavenrich identified several under-the-radar REITS that had a strong interest in growing the skilled portion of their portfolio. In total, Heavenrich identified 75 potential acquirers that would well match Steve’s needs, which were narrowed down to 10 letters of intent. Heavenrich established a two-step process for bidders in which bids were submitted and a first cut was made. Finalists were then allowed to sharpen their pencils after feedback was given on the terms that were important to Steve Bellone.

The Solution
The ultimate winning bid came in at $90,000,000 ($10,000,000 more than had previously been negotiated) from two separate purchasers; Omega Healthcare Investors acquired four of the facilities and affiliates of White Pine Holdings, an independent third party owner/operator, purchased three of the facilities and operations.

Heavenrich structured one of the facility acquisitions in a manner that allowed for enhanced reimbursement and enhanced value through a mortgage vs. an equity structure. In addition, Heavenrich negotiated down a lease yield which gave the client greater on-going cash flow to continue growing his business.

The Results
The facilities will continue to be operated by the current manager, White Oak Healthcare. Steve now has the capital necessary to acquire other skilled nursing facilities and has the option of selling off his operating company to a private equity group.

GREENFIELD SENIOR LIVING

Background
Our client, Greenfield Senior Living, had successfully grown from one assisted living and memory care facility into a regional operator of nine facilities, eight located in Virginia and one in Tennessee. The portfolio had an approximate value of $70 million. Greenfield was considered one of the best in class regionally in turning around and operating troubled properties.

The Challenge
Greenfield wanted to generate liquidity and financial flexibility to capitalize on the turbulent and opportunistic acquisition market and accelerate the growth of their organization. They had grown accustomed to the privilege of dictating the terms to their small and fractured investor base; however they were frustrated with the time, energy and uncertainty to maintain these types of relationships. Greenfield was a mom and pop operation that didn’t want to cash out, but wanted to recapitalize their investor base.

The Journey
At this pivotal point in their growth trajectory, Greenfield needed to move beyond their small investor base to more institutional capital in order to continue their growth pace. Heavenrich recognized that the client was concerned with the dynamics of institutional capital. They advised taking it slow, one step at a time and restricting the offering to a smaller portion of their overall holdings.

The Solution
Heavenrich recognized the need to work with the smaller and more flexible REITS and private equity groups. We identified Care Investment Trust, which acquired three of their stabilized, private pay assisted living facilities for $20.8 million. Simultaneously with the acquisition, Care leased the facilities back to affiliates of Greenfield under a master lease. The portfolio contained 164 total licensed beds, consisting of 115 assisted living beds and 49 memory care beds. The properties were well positioned for continued high occupancy and consistent financial performance within their communities and exhibited stable operating performance, with aggregate occupancy levels averaging in excess of 90%.

The Results
Heavenrich culled the needed equity for the client in order to secure their goals of liquidity for strategic acquisitions. Through this transaction Greenfield secured a capital partner that was an excellent fit for their future needs.

TWO SUB-ACUTE FACILITIES

Background
A Northeast operator had established a portfolio of two highly profitable 120-bed skilled nursing facilities with the unique niche in the captive ventilator market. The operator had concerns that reimbursement uncertainties on both a national and state level could wipe out the company’s profitability.

The Challenge
At the time that the transaction was being contemplated, there were no REITS that held this type of service niche in their portfolio. Additionally, these were older, smaller facilities where REITS typically had difficulty paying a high per bed price.

The Journey
Heavenrich felt confident that the cash flows from the operations justified a high purchase price. We were aware of several REITS that would be very interested in the product, based on a transaction structure that would afford a high coverage ratio. Heavenrich extensively researched the State reimbursement environment for this service. During this journey, the reimbursement levels became uncertain. Heavenrich advised that the client put the sale on hold until there was resolution from the State on the reimbursement rate, as it may have undermined the value of the transaction.

The Solution
Heavenrich structured a transaction with a higher coverage ratio that would give the targeted acquirers comfort for this type of unique service niche. In addition, Heavenrich identified the lease yields and rent escalators and covenants that the owners could approve. Once the reimbursement was set, Heavenrich moved ahead quickly to close the sale with Sabra Health Care REIT for $29.85 million. Simultaneously with the acquisition, Sabra leased the facilities back to affiliates of the seller under a master lease.

The Results
Heavenrich set a price-per-bed record for skilled facilities of $240,000. The fact that this was a small portfolio of older facilities made it particularly extraordinary.