When it rains, it pours, and that has certainly been the case for the seniors housing industry’s debt issues in recent weeks. Right at the end of the first quarter, Ventas announced that it intends to take ownership of the collateral that supports its approximately $486 million cash-pay mezzanine loan to Santerre Health Investors, a company that was formed to manage the portfolio of DigitalBridge’s healthcare assets that sold to an investment group composed of Highgate Capital Investments and Aurora Health Network in 2021. Ventas had originally provided the loan as part of a refinance in 2019 with Colony Capital, which rebranded as DigitalBridge in 2021. The $490 million loan bore interest at LIBOR plus 6.42%. LIBOR was around 2.5% at the time, as opposed to being above 4.5% in the last couple of months.
The Santerre portfolio includes 88 medical office buildings, 48 triple-net leased skilled nursing facilities and hospital assets, and 16 SHOP communities predominantly operated by an existing Ventas partner. Occupancy was 74% across the SHOP communities, which represented nearly 20% of the Santerre portfolio’s NOI. The remaining 80% of NOI was split between the MOB and SNF assets. The MOBs total over 3 million square feet and are located in desirable markets across 18 states. Meanwhile, the SNFs were materially challenged by the pandemic, according to Ventas, and there is potential upside in value.
The REIT expects to take ownership of the portfolio through a “loan to own” structure that converts the outstanding principal amount of the Santerre mezzanine loan to equity, with no additional consideration being paid. Ventas added that it believes that the impact of taking ownership of the Santerre portfolio is within its forecasted guidance range for 2023 Normalized Funds from Operations provided in its Q4 and full-year earnings.
Ventas expects to take over ownership in the second quarter of 2023, and until then, the REIT has the right to receive interest income due on the loan to the extent funds are available for that purpose. Ventas has received approximately 90% of the interest due in March 2023 under the mezzanine loan, and the interest due in January and February 2023 was previously paid in full.
Ventas’s ownership of the equity in the Santerre portfolio will be subject to an existing approximately $1 billion non-recourse senior loan. The senior loan is secured by the assets in the Santerre portfolio, bears interest at LIBOR +1.84% and matures in June 2023. Ventas will have the right to extend the maturity of this senior loan to June 2024 and expects to exercise such right. The Santerre senior loan can be repaid in whole or in part prior to its maturity, and assets can be released from the liens thereof, subject to its terms. Ventas expects to fund the repayment of the loan through a variety of capital sources and asset sales on a long-term basis.
