Discovery Senior Living and White Oak Healthcare REIT have acquired a 10-building portfolio, which will be operated by Discovery as part of the provider’s strategy of expanding through the creation of largely independent regional management companies.
The sale, coming in at more than $100 million, includes communities in Louisiana, Mississippi and South Carolina and contains more than 650 independent living, assisted living and memory care beds.
Evans Senior Investments (ESI) represented the seller — regional owner/operator Schonberg Communities — in the transaction.
For Bonita Springs, Florida-based Discovery, the addition brings the company’s current portfolio to 100 communities. Ten more communities will soon be added through a recent deal with National Health Investors (NYSE: NHI), bringing the total to 110 communities in 18 states by the end of next month, Discovery CEO Richard Hutchinson told Senior Housing News.
Although the Schonberg deal involves 10 buildings, Discovery is considering the portfolio to consist of eight properties, due to some co-located buildings that are part of the same community, Hutchinson said.
This deal also marks Discovery’s entrance into Mississippi and is another step in the firm’s regionally-focused strategy.
The three South Carolina properties will be added to TerraBella, the wholly-owned subsidiary management company that Discovery set up earlier this year.
The remaining five communities, three in Louisiana and two in Mississippi, will be added to the regional sub-brand SummerHouse.
The SummerHouse portfolio involves about 11 communities in Alabama, Louisiana, and Mississippi, too few for Discovery to create a fully-fledged regional management subsidiary at this time, said Hutchinson.
No growth is easy, according to Hutchinson; however, the latest transaction involves a strong and largely stable portfolio. During the Covid-19 pandemic, occupancy rates fell in the portfolio from an average of 91% in 2019 to 78% in Q3 2020. At the time of the sale, the portfolio was 87% occupied and boasted a net operating income margin of 32%, just two points below where it was in 2019, according to ESI.
Furthermore, the current period of expansion is enabled by Discovery’s three decades of experience and the “tens of millions of dollars” spent in creating the infrastructure for growth through subsidiary management companies, Hutchinson noted.
In Feb. 2021, Discovery added 16 communities acquired from Irvine, California-based REIT Healthpeak (NYSE: PEAK), also in collaboration with White Oak. The deal enabled the creation of regional subsidiary Morada Senior Living.
In Nov. 2021, Discovery added 19 former Eclipse Senior Living communities during the firm’s closure. Of those 19 properties, 13 were added to the TerraBella sub-brand, paving the way for Discovery to stand it up on its own as a management subsidiary focused on Georgia and the Carolinas.
The optimum number of communities for Discovery to create a management subsidiary is 25-30, according to Hutchinson.
With these latest additions and planned additions in January, TerraBella will be at 26 communities.
With an incoming 10 properties in early 2022, Morada will be close to 20 communities. “They still have some growth to do in Arkansas, Oklahoma, and Texas,” Hutchinson said of scaling Morada. However, that growth should be completed by the end of 2022.
In the next year, Discovery will also be targeting a subsidiary in the Northeast and expanding its national brands, including through the introduction of its Discovery Place “experiential living” product. Shovels should be in the ground on the first Discovery Place development in Q1 2022, Hutchinson said.
He is bullish headed into the new year, thanks in part to occupancy recovery in 2021. Discovery went beyond pre-Covid occupancy on a same-store basis in July 2021, and is now up between 350 and 380 basis points on a same-store basis, he said.
“It’s pretty amazing to do that in this environment,” he said.
Tim Regan contributed reporting for this article.
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