Nationwide Health Properties Inc., a Newport Beach-based real estate investment trust that owns nursing homes, is paying $171 million for 13 facilities in Massachusetts and New York.
The company is buying the nursing homes and an assisted living facility from Senior Residential Care and Wingate Healthcare Holdings Inc., which plan to lease them back and continue to run them.
The deal is set to close in December.
Nationwide plans to spend $20 million for upgrades and expansions of the facilities in the next two years, the company said.
Another $50 million could be spent on acquisitions of other care facilities owned by Wingate, Nationwide said.
Senior Residential and Wingate are units of Continental Asset Management of Needham, Mass. Gerry and Scott Schuster, a father and son team and Wingate’s principals, run the home care business.
Nationwide, which invests in senior housing and long-term care facilities, has investments in 425 facilities in 39 states. The company had a market value of $1.5 billion as of last week.
The acquisition, which averages $92,000 per bed, raised some eyebrows on Wall Street.
“This amount is well above the company’s portfolio average of $33,721 per bed for nursing homes and $79,310 per unit for assisted living facilities,” wrote analyst James W. Sullivan, who follows Nationwide for Prudential Equity Group LLC.
In a statement, Donald Bradley, Nationwide’s chief investment officer, said the deal brings “high quality skilled nursing facilities in New England” that stand to boost the company’s funds from operations.
“We do not take issue with the purchase of high-quality (skilled nursing) assets,” wrote Robert Mains, a healthcare services analyst with Ryan Beck & Co., a Florham Park, N.J.-based investment bank. “However, NHP’s purchase price is likely to be controversial.”
The appeal of the facilities is that they are in well-off areas and have been open for 14 years on average, according to Mains.
“Modern (skilled nursing facilities) with above-average quality mixes are safer investments than older facilities with thinner margins, since they are less susceptible to competition and more able to weather reimbursement tightening,” Mains said.
The deal likely will send Nationwide to Wall Street to raise money in a share offering, according to analyst Sullivan.
Nationwide could issue $150 million in shares in the current quarter and another $100 million in the second quarter.
Nursing homes and assisted-living facilities have a rocky history littered with casualties. Some real estate investment trusts that own them have seen operators go out of business amid cuts in government funding.
The federal Medicare and Medicaid programs are a primary source of funding for Nationwide’s operators.
“Both Medicare and Medicaid funding could be pressured owing to federal and state budgetary concerns,” Sullivan said.
“In addition, patient care liability costs for nursing home and assisted-living operators have increased because of lawsuits concerning patient care,” he said.
