Care Capital Properties to acquire six behavioral health hospitals for $400M
Care Capital Properties announced that it has entered into a definitive agreement to acquire six behavioral health hospitals in a sale-leaseback transaction for $400M and to fund up to $50M in capital expenditures to finance expansion and improvements in the portfolio. The properties are currently owned by affiliates of Signature Healthcare Services, LLC, one of the largest privately owned behavioral health care providers in the United States. Upon completion of the transaction, which is expected to occur in the second quarter of 2017, CCP will lease the properties to affiliates of Signature on a ten-year triple-net basis, with five renewals of five years each. The initial GAAP yield on the transaction is expected to be approximately 8.7%, and the investment was underwritten at 1.5x EBITDAR coverage on cash rent. The portfolio is comprised of six behavioral health hospitals located in California, Arizona and Illinois. The properties contain a total of 712 beds, and all six properties either have recently been expanded or are currently in planning or under development to increase bed capacity. The properties primarily provide acute inpatient and outpatient psychiatric care, addiction services, geriatric psychiatric care, and child and adolescent psychiatric care. CCP expects to fund approximately $380M at closing and will have an option, exercisable beginning in the fourth quarter of 2018, to purchase one additional building for an amount that is expected to be approximately $20M. In addition, the company has agreed to provide up to $50M for capital improvement projects in the portfolio over the next several years. CCP will also have a right of first offer on future real estate investment opportunities with Signature. The transaction will be funded through cash on hand, disposition proceeds and borrowings under the company's revolving credit facility. Based on this capitalization, the full year GAAP accretion is projected to be approximately 13 cents. The transaction is subject to regulatory approval and other customary closing conditions and there can be no assurance as to whether or when the transaction will close. CCP expects to update its guidance on the subsequent earnings call following closing of the transaction.