A senior housing subsidiary of alternative investment firm TPG is beginning to exit a 183-property portfolio with an interest sale to a real estate investment trust, TPG said Tuesday.
Fort Worth, Texas-based TPG acquired senior living platform Enlivant, formerly a REIT called Assisted Living Concepts, in 2013 for about $278 million, PERE previously reported. Now, the firm is selling a 49 percent stake in a 183-property portfolio from Enlivant with the intention to sell the remaining interest.
Irvine, California-based Sabra Health Care REIT bought the minority stake, valued at $371 million, in the portfolio that totals 8,820 units across 20 states. The deal includes an option for Sabra to buy the remaining majority interest in portfolio in the next three years. Enlivant will continue to manage the properties under a 10-year contract with two five-year extensions.
A spokeswoman declined further comment on the deal.
“The changing economic climate with rising interest rates and more challenging markets have pulled investors and developers back into a period of more rational pricing with increased caution from lenders.”
PERE understands that capital for the portfolio came from TPG’s sixth private equity fund, a 2008-vintage vehicle that closed on $18.9 billion, according to data from sister publication Private Equity International, and from undisclosed TPG Real Estate separate accounts.
The portfolio is 82 percent occupied, up from 60 percent when Enlivant began managing the properties. The portfolio’s current occupancy and rental rates are both below industry averages, with the firm’s monthly revenue per occupied unit at about $4,000, below the industry average of $4,200, Green Street Advisors wrote in a research note on Tuesday.
“Sabra sees opportunities for further occupancy growth as the properties reach full stabilization,” the firm wrote. “In addition, the REIT foresees incremental acquisitions and development opportunities through the new partnership with Enlivant.”
The transaction is expected to close before the end of the year.
PERE understands that TPG Real Estate and Enlivant plan to continue buying senior housing properties. In September 2016, Enlivant bought a 48-property senior housing portfolio for about $300 million from two REITs, PERE previously reported. Sabra is not involved in that deal. Capital for that purchase came from TPG Real Estate Partners II, the firm’s second value-added vehicle that closed on over $2 billion in October 2015. TPG also will separately continue to own more than 40 senior living communities that were acquired primarily in late 2016.
TPG Real Estate manages more than $5 billion in assets, according to Tuesday’s statement.
Overall, investment activity in US senior housing has dropped since its 2015 peak, when volume hit $21.9 billion, according to a June report from CBRE. In 2016, senior housing saw $14.2 billion in transactions, and the first quarter of 2017 continued the decline, with a 21 percent drop in volume year-on-year.
“Transaction volume hit all-time highs in 2014 and 2015, which was driven by the low cost of capital and an unquenchable thirst for yield,” the report said. “More recently, the changing economic climate with rising interest rates and more challenging markets have pulled investors and developers back into a period of more rational pricing with increased caution from lenders… With the potential for some large portfolio transactions, we expect transaction volume to be more in line with historical averages.”