Ventas announced it intends to take ownership of the collateral that supports its approximately $486 million cash-pay mezzanine loan to Santerre Health Investors. The Santerre mezzanine loan is secured by equity interests in entities that collectively own a diverse pool of medical office buildings, senior housing operating portfolio communities, triple-net leased skilled nursing facilities and hospital assets in the United States.
Ventas expects to take ownership of the Santerre portfolio through a ‘loan to own’ structure that converts the outstanding principal amount of the Santerre mezzanine loan to equity, with no additional consideration being paid. The company currently believes that the impact of taking ownership of the Santerre Portfolio is within its forecasted guidance range for 2023 normalized funds from operations provided in its 2022 fourth quarter and full year earnings and 2023 outlook release issued on Feb. 9, 2023.
The Santerre Portfolio includes:
- 88 medical office buildings (MOBs), representing more than 40% of the net operating income (NOI) of the Santerre Portfolio, with more than three million square feet located in desirable markets across 18 U.S. states._x000D_
- The MOBs are predominantly affiliated with health systems and are currently managed by third-party property management and leasing firms.
- Ventas intends to utilize its property management and leasing experience to oversee performance and expects the MOB assets to be consistent contributors to the company’s overall performance, providing stable contributions through a variety of macroeconomic conditions.
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- 16 large scale senior housing operating portfolio (SHOP) communities, representing nearly 20% of the NOI of the Santerre Portfolio, with approximately 1,900 units and 74% current occupancy, located primarily in attractive markets across five U.S. states._x000D_
- The SHOP communities are predominantly operated by an existing Ventas operating partner who has been the long-time manager of the assets. Ventas intends to apply its proprietary experiential insights and data analytics platform, Ventas OI, to drive near-term performance and maximization of long-term value.
- Consistent with industry trends, Ventas expects the SHOP assets to benefit from the multiyear growth and recovery cycle underway in senior housing, with significant opportunity to recapture NOI from the communities as occupancy returns to pre-pandemic levels.
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- 48 skilled nursing facilities and hospital assets, representing nearly 40% of the NOI of the Santerre Portfolio. While these assets were materially challenged by the COVID-19 pandemic, the company believes they have potential value upside.
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The company expects to complete the process of taking ownership of the Santerre portfolio in the second quarter of 2023. Until Ventas takes ownership of the Santerre portfolio and pursuant to an existing lockbox arrangement, the company has the right to receive interest income due on the Santerre mezzanine loan to the extent funds are available for that purpose. Ventas has received approximately 90% of the interest due in March 2023 under the Santerre mezzanine loan, and the interest due in January and February 2023 was previously paid in full.
The company’s ownership of the equity in the Santerre portfolio will be subject to an existing approximately $1 billion non-recourse senior loan. The Santerre senior loan is secured by the assets in the Santerre Portfolio, bears interest at LIBOR +1.84% and matures in June 2023. Ventas will have the right to extend the maturity of the Santerre senior loan to June 2024 and expects to exercise such right. The Santerre senior loan can be repaid in whole or in part prior to its maturity, and assets can be released from the liens thereof, subject to its terms. The company expects to fund the repayment of the Santerre senior loan through a variety of capital sources and asset sales on a long-term basis. The company remains committed to maintaining its BBB+ rating and preserving a strong balance sheet.
There can be no assurance that the contemplated transactions described herein will be completed on the terms described or at all. In addition, while Ventas currently believes that the value of the Santerre portfolio and the other collateral approximates the value of the current loan balance due under the Santerre senior loan and the Santerre mezzanine loan, there can be no assurance that the company will not recognize allowances with respect to the Santerre mezzanine loan in the future or, if the contemplated transactions are completed, whether the company will recognize purchase accounting impacts, impairments, write downs or other non-cash charges.
