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Care Capital Properties buys 6 behavioral health hospitals for $400M

April 10, 2017

Care Capital Properties, Inc. (NYSE: CCP) today announced that it has entered into a definitive agreement to acquire six behavioral health hospitals in a sale-leaseback transaction for $400 million and to fund up to $50 million in capital expenditures to finance expansion and improvements in the portfolio. The properties are currently owned by affiliates of Signature Healthcare Services, LLC (“Signature”), one of the largest privately owned behavioral health care providers in the United States. Upon completion of the transaction, which is expected to occur in the second quarter of 2017, CCP will lease the properties to affiliates of Signature on a ten-year triple-net basis, with five renewals of five years each. The initial GAAP yield on the transaction is expected to be approximately 8.7%, and the investment was underwritten at 1.5x EBITDAR coverage on cash rent.

“We are extremely pleased to announce this investment in a best-in-class portfolio of purpose-built behavioral real estate with a leading operator in the space. We are excited to establish a new relationship with Signature, which has an outstanding track record as a behavioral health care provider,” CCP Chief Executive Officer Raymond J. Lewis said. “This accretive transaction will enable us to efficiently recycle capital from our dispositions and diversify our portfolio into a new industry sector with a strategic operator, favorable investment attributes and strong cash flows.”

Highlights of the Transaction

The portfolio is comprised of six behavioral health hospitals located in California, Arizona and Illinois. The properties contain a total of 712 beds, and all six properties either have recently been expanded or are currently in planning or under development to increase bed capacity. The properties primarily provide acute inpatient and outpatient psychiatric care, addiction services, geriatric psychiatric care, and child and adolescent psychiatric care.

Signature, founded in 2000, is one of the largest overall behavioral health care providers in the United States and the largest private provider of freestanding psychiatric services dedicated to behavioral health and substance abuse. The company operates eight other acute psychiatric hospitals in addition to the portfolio to be acquired by CCP. Signature is led by a long-tenured management team with over 150 years of combined industry experience.

“We look forward to partnering with CCP on this portfolio,” Signature Chief Executive Officer Soon K. Kim, M.D., said. “Signature is committed to the behavioral health space and will continue to invest in growing our platform through our development pipeline and by expanding existing facilities in underserved markets. We look forward to the potential of growing our relationship with CCP.”

CCP expects to fund approximately $380 million at closing and will have an option, exercisable beginning in the fourth quarter of 2018, to purchase one additional building for an amount that is expected to be approximately $20 million. In addition, the Company has agreed to provide up to $50 million for capital improvement projects in the portfolio over the next several years. CCP will also have a right of first offer on future real estate investment opportunities with Signature.

The transaction will be funded through cash on hand, disposition proceeds and borrowings under the Company’s revolving credit facility. Based on this capitalization, the full year GAAP accretion is projected to be approximately 13 cents. The transaction is subject to regulatory approval and other customary closing conditions and there can be no assurance as to whether or when the transaction will close. CCP expects to update its guidance on the subsequent earnings call following closing of the transaction.

More information regarding the transaction can be found on the Company’s website under the “Investors” section at http://www.carecapitalproperties.com/investors/Signature.

Signature has been advised in this transaction by Goldman, Sachs & Co.

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