US-based publicly-traded real estate investment trust, CareTrust REIT, has entered into a definitive agreement with LNT Care Developments, a UK-based care home developer and operator, to acquire 45 new care homes for approximately £1.1bn (US$1.5bn) in a strategic transaction that secures a pathway to building a significant senior housing operating portfolio (SHOP) platform across the UK.
The transaction is structured with staggered closings, the first of which occurred on 1 October, and comprised 24 homes, constructed within the past two years, for approximately £576m. The investment was funded using a combination of proceeds from the settlement of outstanding forward equity agreements and a draw on the company’s revolving credit facility.
The remaining 21 homes are under development, which CareTrust will acquire for approximately £504m upon completion.
All homes are leased to subsidiaries of Crystal Care, LNT’s care home operating portfolio company, under triple-net leases that provide for fixed annual escalators and renewal options.
The transaction was structured to provide CareTrust consistent, guaranteed rental income from a high-quality operator in the initial years following development. Following the Lease-up Phase, both CareTrust and LNT intend to transfer all 45 homes to a RIDEA structure with Crystal Care.
The SHOP Phase is expected to begin between years two and four following each home’s completion with the first transition anticipated to occur by the fourth quarter of 2027.
The transaction is expected to be accretive to normalised funds from operations per share during the Lease-up Phase, inclusive of straight-line rent adjustments, and to generate an all-in yield in the mid- to high-7% range on a pre-tax basis in year one of the SHOP Phase.
“We have structured [the deal] so that we are paid to be patient while the homes fill, and when we move to acquire the operating companies we underwrite all-in stabilised yields in the mid- to high-7% range with room to grow,” said ,” said James Callister, CareTrust’s CIO. “This also materially improves the age, quality and configuration of our overall UK care home portfolio.”
As part of the transaction, LNT has granted CareTrust an option to acquire the LNT platform in its entirety in the future.
JP Morgan served as financial advisor to CareTrust, and Jones Day acted as legal advisor to CareTrust. Lazard served as financial advisor to LNT; Slaughter and May and Freeths served as legal advisors to LNT.
