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National Health Investors Enters JV to Buy Timber Ridge

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Given its efforts to specialize in joint venture (JV) financing, National Health Investors, Inc. (NHI - Free Report) recently entered into an agreement with an affiliate of Life Care Services (“LCS”) to acquire Timber Ridge at Talus. The transaction, valued at $133 million, excluding estimated transaction costs of $2 million, is expected to close on or around Jan 31.

Timber Ridge is a type-A continuing care retirement community (CCRC) located in Issaquah, WA, serving the greater Seattle area. It will be acquired from a JV between Westminster Capital and LCS. While the community was originally built in 2008, an extensive expansion project was completed in 2017 with the help of funds provided by National Health Investors.

Timber Ridge has 401 units, comprising 330 independent living apartments, 14 assisted living apartments, 12 memory care apartments and 45 skilled nursing beds. Notably, the community is more than 95% occupied.

Deal Details

The new JV will include a property company (PropCo) and an operating company (OpCo), with the latter being capitalized with $3.2 million initially. National Health Investors will own 80% and 25% interest in PropCo and OpCo, respectively, and the remaining ownership will lie with LCS.

The community will be leased to OpCo (by PropCo) under a triple net lease with an initial cash yield of 6.75%. The lease will have a seven-year initial term, along with two five-year renewal options. The escalators will be tied to CPI with a floor and a cap of 1.75% and 2.25%, respectively.

In terms of working capital, National Health Investors will contribute $43.2 million and $0.8 million to PropCo and OpCo, respectively. Also, the REIT will provide funds worth $81 million from a first mortgage to PropCo at an interest rate of 5.75%, including the $60-million note that it had originally funded in 2015. This brings the company’s total investment to $125 million. Barring this, it will provide a $5 million line of credit to OpCo to meet the working capital needs. Also, LCS will contribute $10.8 million and $2.4 million to fund the working capital of PropCo and OpCo, respectively.

Conclusion

CCRC, being a unique and differentiated form of senior housing offerings, attracts baby boomers at early ages, and thus enjoys relatively higher occupancy rates. Also, with the move, the REIT remains well poised to capitalize on the growing expenditure trend of senior citizens on healthcare services.
 
Moreover, in order to develop a CCRC from scratch, the investment costs are huge, limiting the new supply. This, along with Timber Ridge’s location in a high barrier to entry market, will provide National Health Investors with a significant pricing advantage.

Shares of this Zacks Rank #3 (Hold) company have gained 4.4%, underperforming the industry's growth of 18.7% in the past year.

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