Nearly doubling its size in one fell swoop, Griffin-American Healthcare REIT III is acquiring Trilogy Health Services for approximately $1.125 billion (including the assumption of $205.1 million of debt) pursuant to a joint venture with NorthStar Healthcare Income. Griffin-American will own approximately two-thirds of the joint venture (bringing total real estate and related investments to approximately $2 billion) and will act as its manager, while NorthStar will own the other third. Also as part of the transaction, Trilogy’s founder and CEO, Randy Bufford, and other members of the company’s management will own a $24 million, or 3.6%, stake in Trilogy. Mr. Bufford will remain in place to manage Trilogy on behalf of the joint venture.
Founded 18 years ago, Trilogy maintains a portfolio of 96 senior care properties and more than 10,000 beds, most of which have been built or substantially renovated in the past 10 years. Of the 96 properties, 53 are owned (half of which have some assumed HUD debt), 16 are leased with purchase options, six are expected to be purchased over time, 14 are leased pursuant to joint ventures including one with a purchase option, and the remaining seven are leased.
The margins have steadily been increasing, from 9.6% in 2012 to an estimated 12.1% for 2015. Plus, the quality mix has also been rising, from about 70% of census in 2007 to nearly 80% in 2015, with revenues increasing by 189% and EBITDA by 309% in the same period. Based on the owned properties, the transaction featured a 7.35% cap rate.
CS Capital Advisors LLC acted as financial advisor to Griffin-American and NHI. Paul, Weiss, Rifkind, Wharton & Garrison LLP served as lead legal advisors to the joint venture, while Morris, Manning & Martin, LLP acted as legal advisors to Griffin-American. Trilogy was represented by Guggenheim Securities. The transaction is expected to close in the first quarter of 2016, contingent on the HUD assumptions.
With this acquisition, NorthStar brings its total investment for the year to about $1.85 billion, including its purchase of 15 CCRCs from Fountains Senior Living and the acquisition of 32 independent living communities from an affiliate of Holiday Retirement earlier this year. That is roughly 19% of the total investment in the entire sector so far this year. Plus, when you look at its $5.2 billion spent in 2014, which included its acquisition of Griffin-American Healthcare REIT II, NorthStar has been one of the most active investors in the last couple of years.