Health Care REIT, Inc. HCN has completed the sale of its life science portfolio, reaping an unlevered internal rate of return ("IRR") of 15%. The company had disclosed the purchase deal in May 2015.
Specifically, HCN sold off its 49% stake in 7 life science buildings to its partner, Forest City Enterprises, Inc., for $573.5 million. These life science buildings are situated at the Massachusetts Institute of Technology’s University Park, which is a mixed-use life science campus in Cambridge, MA.
Notably, in Feb 2010, Forest City and HCN had formed a 51/49 equity joint venture (“JV”) for these properties; wherein HCN had invested $327 million, together with debt assumption, for its 49% stake.
The move is in sync with HCN’s strategy of recycling capital through asset dispositions, and using the proceeds for growth of its high-quality health care real estate.
As a matter of fact, in a bid to expand its footprint in Canada and enhance private-pay portfolio, HCN, along with Revera, Inc., has agreed to acquire retirement communities’ provider, Regal Lifestyle Communities Inc. Valued at C$766 million or $623 million, the acquisition will be carried out through an existing 75/25 JV. The deal is expected to be immediately accretive to funds from operations (“FFO”) and funds available for distribution (“FAD”) per share; with initial cash yield projected at 6.1% (read more: HCN & Revera JV Set to Acquire Regal Lifestyle in Canada).
We believe strategic portfolio sell-outs and opportunistic investments would serve as growth drivers for HCN. A rise in senior citizen spending for healthcare reasons promises strong prospects. Yet, an anticipated increase in interest rate and intense competition remain as pressing concerns.
Health Care REIT currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Hersha Hospitality Trust HT, Hospitality Properties Trust HPT and First Industrial Realty Trust Inc. FR. All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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