A real estate investment trust (REIT) that owns more than 80 behavioral health locations could go private in a dazzling $14 billion deal.
Scottsdale, Arizona-based STORE Capital Corp. (NYSE: STOR) announced it has signed a deal with Singapore-based global institutional investor GIC and Chicago-based alternative asset manager Blue Owl Capital’s Oak Street real estate arm.
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 approximately 3.2% of STORE Capital’s $908 million base rent and interest, according to a recent investor presentation.
Five years ago, owned by STORE Capital 36 homes representing 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; production — 21% of its portfolio; and service-specific retailing such as care dealers, ranch supplies, and outdoorsy stores – 15% of its portfolio.
“This opportunity is a confirmation, 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,” said Mary Fedewa, President and CEO of STORE Capital, in a press release.
According to the release, the deal is expected to close in the first quarter of 2023.
While they are a small part of the STORE Capital portfolio, REITs such as STORE represent attractive potential partners for the behavioral health sector as it grows and continues to mature as an industry. It also shows the size of private equity available to investors.
“There’s a lot of capital and sidelines looking for companies like this that are public and want to take them private,” Andrew Dick, a health care attorney and shareholder of the law firm Hall Render’s Indianapolis office, said in an interview.
A Pitch Book report estimates that the global private capital market contains approximately $3.2 trillion in dry powder, or potential assets for investment; Of that, $1.24 trillion at the end of the second quarter will be held by private equity firms.
For private equity specifically, a higher proportion of capital in the second quarter of 2022 was in large funds exceeding $1 billion, the report says.
“An implication of this is that PE investors will seek big targets to put that money to work,” the report states. “This is likely to lead them into the public markets in search of attractive take-private candidates, especially as prices have been depressed by the bear market.”
REIT’s Rowing Interest in Behavioral Health
REITs are a potential source of new capital and development opportunities for the behavioral health sector. Several REITs with major investments in the senior living and skilled nursing segments have taken interest in the industry.
CareTrust REIT Inc. (Nasdaq: CTRE) CEO Dave Sedgwick said during the company’s Q1 earnings call that behavioral health a potential better use for underperforming assets.
Behavioral health is a increasingly attractive place for commercial real estate investments in healthcare and life science. 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 investment criteria for 2022.
“It shows that in some cases, healthcare facility owners are looking for capital partners to take real estate risk off the table,” Dick said. “So they go to companies like STORE Capital.”