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- 1/30/24: A Senior Living Landlord IPOs to Pay Off Loans
1/30/24: A Senior Living Landlord IPOs to Pay Off Loans
Defining the future of real estate
Franco Faraudo & Travis Barrington
January 30, 2024
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Propmodo Daily
By Franco Faraudo · Jan. 30, 2024
Greetings!
Today, we examine American Healthcare's SEC filing, a private REIT preparing to go public mainly to reduce its debt. Benefiting from an aging population, the company's business model shows promise. Yet, it's worth considering if the current skepticism towards real estate in the stock market might temporarily affect its stock performance post-IPO.
Also today, we explore the transformative impact of Vulcan Real Estate's 555 Tower, Bellevue, Washington's tallest building and a beacon of urban revitalization. The 42-story building, leased entirely to Amazon, combines a vast office space with a lively retail area, art features, and green designs, redefining Bellevue's skyline and raising the bar for sustainable urban development.
Today’s newsletter is brought to you by AirGarage.
Now let's dig in!
A Senior Living Landlord IPOs To Pay Off Loans
Forest Park Medical Center in Southlake, Texas
The American population is getting older. In the next decade, the number of people 80 years old and older will grow by 50 percent and the number of people that are between 75 to 79 years of age will increase by 36 percent. All of this equates to more money being spent on healthcare and senior living facilities.
But like everyone in real estate right now, healthcare and senior living operators are struggling with high-interest rates. Paying off loans, especially those that have variable interest rates, is paramount to surviving in the short term, even if the long-term fundamentals are favorable, like with healthcare and senior living facilities. One private REIT has decided to go public, hoping to use the money it raises from its IPO to pay down debt and set it up for further acquisitions.
The company is American Healthcare, a private REIT that was formed as a corporation in 2015. They have filed with the SEC to become a public company on the NYSE with the ticker symbol AHR. Thirty-five percent of the company’s portfolio is in senior health facilities, 35 percent is in medical offices, and 17 percent is in senior housing. The rest is in nursing facilities and hospitals.
American Healthcare has grown its senior living portfolio thanks in part to an acquisition of Trilogy REIT back in November. This deal boosted American Healthcare’s senior living holdings and also bought them 74 percent ownership of Trilogy Management. Trilogy Management manages the REIT’s senior living facilities but is not allowed to own any properties and, therefore, compete with American Healthcare.
The IPO is expected to generate $840 million for the company if they get the price per share that they are hoping for. All of that would go to pay off some of their $1.8 billion dollars of debt, 11.4 percent of which is unsecured. Currently, the company only has $35 million in cash, but it does have $875 million in undrawn lines of credit. According to the filing, their hope is that going public will provide a cash infusion and “enable us over time to access multiple forms of equity and debt capital currently not available to us.”
A private REIT going public isn’t huge news, but the timing of this IPO is interesting. Because of the negative public sentiment around real estate right now, many real estate companies are actually choosing to become private to insulate themselves from market fluctuations. American Healthcare execs are likely hoping that their favorable niche will provide a boost that hasn’t applied to office and multifamily REITs.
With high-interest rates, paying off debt is more important than ever. If everything goes right, this IPO will allow American Healthcare to lower its expenses significantly and position itself for future acquisitions in the coming wave of foreclosures. But if the market is not as interested in healthcare and senior living facilities as the company thinks, it could end up seeing its valuations lowered, leaving it with some hard questions from investors.
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Feedback Loop
Friday we asked if you thought that mass timber was a more sustainable construction material than concrete or steel. Here are the results:
Sixty-eight percent answered “🪓 Yes, let's use more of this rapidly renewable resource” while 32 percent voted “🌲 No, it does more harm to forests than it is worth.”
Groundbreaking
Insider Insights
👨⚖️ Liquidation orders: China’s largest developer, Evergrande, is officially bankrupt and has been ordered by a court to liquidate its asset in order to (try to) pay off investors.
🛍 Retail Return: Despite struggles in other sectors of real estate, retail seems to be performing well enough to cause many landlords to do away with the concessions that were common during and after the pandemic.
Propmodo Technology: Location Analytics
Overheard
I think giant property company liquidations must occur before we can see a bottom in real estate and therefore the economy in China. It's positive, not negative
— Jim Cramer (@jimcramer)
9:29 AM • Jan 29, 2024
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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.
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