06/18/2015 03:54 EDT | Updated 06/18/2016 05:59 EDT

Regal selling Canadian seniors residences to cross-border joint venture

Toronto's Regal Lifestyle Communities is selling its 23 seniors residences in Canada for $374 million, less than three years after it became a public company.

The acquisition represents a rare opportunity to add quality buildings concentrated in Canada's largest cities, where there's strong demand, said Tom DeRosa, chief executive of Ohio-based Health Care REIT (NYSE:HCN).

The U.S. company and Revera of Mississauga, Ont., offered $12 per share for Regal (TSX:RLC) in a deal that values the retirement home chain at $766 million, including $359 million of assumed debt. HCN will own a 75 per cent stake while Revera will be operator and own the remainder.

It's the third transaction since the two companies formed a joint venture in 2013. Together, they'll now own 94 residences with investments totalling $2.8 billion. They'll also jointly own the Sunrise Senior Living management company, with Revera owning a 76 per cent interest.

Canada's senior population is projected to more than double over the next 20 years, creating growth opportunities in a market that is fragmented with many small public and private owners.

Revera CEO Thomas Wellner says the Regal deal, involving private seniors residences, is part of its strategy to expand.

"We're always looking and we have our eye on a number of sites that fit with our intentions," he said in an interview.

Regal's slightly newer buildings, containing more than 3,600 suites, are mainly located in Ontario, including several in the Ottawa area. There are also seven locations in Quebec and buildings in British Columbia, Saskatchewan and Newfoundland and Labrador.

About 83 per cent of Regal's profits come from Toronto, Montreal, Ottawa and Vancouver. Many of Regal's buildings, with an average of about 120 units, come with swimming pools, gyms and garden courtyards, similar to Revera's retirement homes.

Wellner said the merger won't result in any changes for Regal residents, or for the approximately 1,700 employees who will be transferred to Revera or will be able to fill vacancies at the new owner.

"We want to make things as seamless as possible," he said.

Industry analysts see opportunity for more deals ahead as the industry in Canada and the U.S. continues to consolidate amid an aging population.

"We think there will be increasing pressure to move patients more quickly out of inpatient care into more transitional facilities and eventually independent living," Roy Shepard of Edward Jones wrote in a report.

However, he called the price "expensive," driven by institutional funds and public REITs chasing private pay assets.

With Regal, HCN said it will own an interest in nearly 10 per cent of Canada's 224,342 rental units and 15 per cent in the five largest markets.

Regal CEO Simon Nyilassy couldn't be immediately reached for comment. In a statement, he said the offer recognizes the value that Regal has created since its initial public offering in October 2012.

The company's shares surged nearly 28 per cent in Thursday trading on the TSX, rising to $12.06.

The offer came about four months after Wellner approached Regal's CEO and includes a $16.5 million break fee and right to match any competing bid. It has received support from Regal's directors and executive officers owning 11.6 per cent of the company's shares. Revera owns about eight per cent.

Revera is a subsidiary of the Public Sector Pension Investment Board, which invests the plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force.

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