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A real estate investment trust (REIT) that owns more than 80 behavioral health locations could be going private in an eye-popping $14 billion deal.
Scottsdale, Arizona-based STORE Capital Corp. (NYSE: STOR) announced it has inked a deal to go private with Singapore-based global institutional investor GIC and Chicago-based alternative asset manager Blue Owl Capital’s real estate arm 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 single-tenant operational real estate.
The company owned 89 behavioral health locations that represented 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 that 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 health clubs — 64% of its portfolio; manufacturing — 21% of its portfolio; and, service-specific retail such as care dealerships, ranch supply and outdoorsman 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 leadership team and our disciplined investment approach,” Mary Fedewa, President and CEO of STORE Capital, said in a news release.
The deal is expected to close in the first quarter of 2023, according to the release.
While a minor 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 shows the scale of the private capital available to investors.
“There’s a lot of capital and sidelines looking to buy companies like this that are public and take them private,” Andrew Dick, a health care attorney and shareholder in the law firm Hall Render’s Indianapolis office, said in an interview.
A Pitchbook report estimates that the global private capital 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 as of the end of the second quarter.
Specific to private equity, a greater share of capital in Q2 2022 resided in large $1 billion-plus funds, the report states.
“An implication of this is that PE investors will seek large targets to put that money to work,” the report states. “This will likely lead them to the public markets in search of attractive candidates for take-privates, especially as prices have been depressed by the bear market.”
REITs are a potential source of new capital and development opportunities for the behavioral health sector. Several REITs with large investments in the senior living and skilled nursing segments have taken an interest in the sector.
CareTrust REIT Inc. (Nasdaq: CTRE) CEO Dave Sedgwick said during the company’s Q1 earnings call that behavioral health presents a potentially better use for underperforming assets.
Sabra Health Care REIT Inc. (Nasdaq: SBRA) it struck a deal with substance-use disorder operator Landmark Recovery in 2019 and Recovery Centers of America in 2021.
Behavioral health is an increasingly attractive place for health care 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 into their investment criteria for 2022.
“It goes to show that owners of health care facilities are looking, in some cases, for capital partners to take the real estate risk off the table,” Dick said. “So they go to firms like STORE Capital.”
Blue Owl Capital, GIC, Oak Street, STORE Capital Corp.
Chris Larson is a reporter for Behavioral Health Business. He holds a bachelor’s degree in communications from Brigham Young University and has been covering the health care sector since December 2016. He is based in the Louisville metro area. When not at work, he enjoys spending time with his wife and two kids, cooking/baking and reading sci-fi and fantasy novels.
Behavioral Health Business (BHB) is the leading source for news and information covering the mental health and addiction industry. BHB is part of the Aging Media Network.