A real estate investment trust (REIT) that owns more than 80 behavioral health locations could be taken private in a $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 Oak’s real estate arm Street of 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 earnings statement filed with the Securities and Exchange Commission. STORE focuses on single-tenant operational real estate.
The company owned 89 behavioral health locations representing about 3.2% of STORE Capital’s lease and base interest of $908 million, according to a recent investor presentation.
Five years ago, STORE Capital owned 36 properties representing 1.9% of the company’s rent and underlying interest.
STORE Capital focuses on real estate investments in services such as restaurants, early childhood education and health clubs — 64% of its portfolio; production – 21% of its portfolio; and, retail for specialty services such as grooming vendors, farm supplies 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. news release.
The deal is expected to close in the first quarter of 2023, according to the announcement.
While a small part of the STORE capital 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 indicates the degree of private capital available to investors.
“There’s a lot of capital and upside looking to buy companies like this that are public and take them private,” Andrew Dick, a health care attorney and shareholder in law firm Hall Render’s Indianapolis office, 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.
Specific to private equity, a larger share of capital in Q2 2022 was in large funds above $1 billion, the report said.
“One implication of this is that PE investors will be looking for big targets to put that money to work,” the report said. “This is likely to drive them to the public markets in search of attractive take-private candidates, especially as prices have come down from the bear market.”
REIT rowing 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 seniors and skilled nursing segments have shown an interest in this sector.
CEO of CareTrust REIT Inc. (Nasdaq: CTRE) Dave Sedgwick said during the company’s first-quarter earnings call that behavioral health represents a potentially better use for 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 niche for healthcare and life science commercial real estate investment. About 38% 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 looking, in some cases, for equity partners to take real estate risk off the table,” Dick said. “So they go to firms like STORE Capital.”