80+ behavioral health locations hit by $14 billion REIT deal

A real estate investment trust (REIT) that owns more than 80 behavioral health locations could go private in a shock $14 billion deal.

Scottsdale, Arizona-based STORE Capital Corp. (NYSE: STOR) announced that it has signed a private equity deal with Singapore-based global institutional investor GIC and Chicago-based alternative asset manager Blue Owl Capital for Oak Street real estate.

STORE Capital Corp. owned 3,012 properties in 49 states and had 579 customers as of June 30, according to a second-quarter earnings report filed with the Securities and Exchange Commission. STORE focuses on single-tenant operating real estate.

The company owned 89 behavioral health locations, which represented about 3.2% of STORE Capital’s $908 million base rent and interest, according to a recent investor filing.

Five years ago, STORE Capital owned 36 properties that accounted for 1.9% of the company’s base rent and interest.

STORE Capital focuses on real estate investments in services such as restaurants, early childhood education and health clubs — 64% of its portfolio; manufacturing — 21% of its portfolio; and retail with specific services, such as care dealers, ranch supplies and outdoor goods stores — 15% of its portfolio.

“This opportunity is an endorsement by two leading real estate investors with significant access to capital for the strength of our platform, our experienced leadership team and our disciplined investment approach,” said Mary Fedeva, president and CEO of STORE Capital, in a release to news.

The deal is expected to close in the first quarter of 2023, according to the announcement.

Although a minor part of STORE Capital’s portfolio, REITs like STORE represent compelling potential partners for the behavioral health sector as it grows and continues to evolve as an industry. It also shows the scale of private capital available to investors.

“There’s a lot of capital and parties that want to buy companies like this that are public and take them private,” Andrew Dick, a health care attorney and shareholder in the Indianapolis office of law firm Hall Render, said in an interview.

A Pitchbook report estimates that the global private equity market holds about $3.2 trillion in dry powder or potential investable assets; $1.24 trillion of that was held by private equity firms as of the end of the second quarter.

Specific to private equity, a larger share of capital in the second quarter of 2022 was in large funds worth more than $1 billion, the report said.

“The bottom line is that PE investors will be looking for big targets to put that money to work,” the report said. “This is likely to drive them to the public markets in search of attractive candidates to take private, especially since prices have been depressed by the bear market.”

REIT’s interest in behavioral health

REITs are a potential source of new capital and growth opportunities for the behavioral health sector. Several REITs with large investments in the senior living and skilled nursing segments have shown interest in the sector.

The CEO of CareTrust REIT Inc. (Nasdaq: CTRE) Dave Sedgwick said during the company’s first-quarter earnings call that behavioral health represents a potentially better use of underperforming assets.

Sabra Health Care REIT Inc. (Nasdaq: SBRA) struck a deal with substance use disorder operator Landmark Recovery in 2019 and Recovery Centers of America in 2021.

Behavioral health is an increasingly attractive location for commercial real estate investment in healthcare and life sciences. About 38 percent of respondents to a survey by Dallas-based commercial real estate development services and investment firm CBRE Group Inc. (NYSE: CBRE) identified behavioral health facilities as meeting their 2022 investment criteria.

“It shows that healthcare facility owners are looking, in some cases, for capital partners to de-risk real estate,” Dick said. “So they go to firms like STORE Capital.”

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