Milken-led private REIT lends $ 642m to KinderCare portfolio – commercial commentator

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NRT (formerly known as the National Realty Trust) raised $ 641.8 million in commercial mortgage-backed securities (CMBS) debt issued Goldman Sachs and JPMorgan Chase to fund the huge portfolio of kindergartens and early childhood education centers run by KinderCare training centers, according to the analysis from Moody’s Investors Service

The two-year floating rate, rate-only mortgage includes three one-year renewals and is backed by National Realty’s simple interest rate at 549 centers — nearly 4 million square feet in 37 states — under prime lease. by KinderCare.

The CMBS loan, closed on July 21, will pay interest at one month’s LIBOR plus an initial average spread of about 2.32 percent, according to Moody’s.

The 500 leases in the KinderCare portfolio expire in July 2033 and include two renewal options for five years; the remaining 49 assets are leased three years earlier and are not renewable.

The current KinderCare brand is one of the largest privately-owned, commercial preschool institutions in the country. According to the KinderCare website, the company has about 1,500 centers, of which almost 1,400 are accredited.

The brand is currently owned by a Swiss investment manager. Group of Partners, which acquired the operating business as part of the purchase of approximately US $ 1.3 billion Knowledge Universe Education (KUE) in 2015. KUE was the parent organization of KinderCare Learning Centers and was renamed KinderCare Education a few months after the acquisition of the Partners Group.

KUE was an educational services conglomerate built in part by the brothers Lowell and Michael Milken, billionaire financiers and benefactors who have actively invested in various sectors over the years, primarily in education, since the mid-1990s. The latter Milken earned the nickname “the king of junk bonds” for pioneering the issuance of high yield bonds in the 1980s while working for investment banking firm Drexel Burnham Lambert. Milkens developed KUE under the umbrella of Knowledge Universe Inc., the company they founded in 1996 with Oracle co-founder Larry Ellison

As part of sale of KUE to Partners Group In 2015, the Milkenes retained a significant amount of real estate that houses educational services under the KinderCare brand and turned these properties into an NRT. In December 2020, the NRT was recapitalized to pay off debt and facilitate its conversion to REIT status, while Ares Management, Security advantage, Delaware Life Insurance Company, and even Qatar Investment Authority Making non-controlling equity investments as reported by Moody’s and December 2020 report. Security and Exchange Commission

According to Moody’s, KinderCare’s premises under this CMBS funding program averaged 7,241 square feet and range from over 2,500 square feet to over 16,200 square feet. The hotels also have a licensed capacity of 70,022 students – on average, each facility has a license to accommodate 128 students.

At the time of the loan, KinderCare had ongoing lease payments of about $ 84.6 million, or $ 21.29 per square foot, according to Moody’s. Rent also includes a 10 percent rent increase every five years, or a consumer price index (CPI) increase, whichever is lower.

The portfolio has been hit hard by COVID-19 but has recovered well.

In the immediate aftermath of the March 2020 pandemic, quarterly portfolio utilization fell to 23 percent in the second quarter. According to Moody’s, by the end of the first quarter of this year, it recovered its position and reached a 59 percent occupancy rate. In March, occupancy climbed even higher to 61 percent.

Net revenue in the first quarter of 2021 also rose sharply from the same period last year, accounting for 93 percent of what it generated in the first quarter of 2020. KinderCare’s revenues have also been fueled by various federal government aid programs that have spread to tens of billions of dollars. dollars in the childcare industry as a result of the pandemic, according to Moody’s analysis.

Last year, KinderCare received more than $ 119 million in additional revenue streamed to its coffers through government agencies, much of which was aimed at reducing COVID-19 pressures. The government also compensated the education provider in the amount of approximately $ 57.7 million in operating expenses.

Overall, KinderCare received nearly $ 177 million in direct support from the government, accounting for about 13 percent of all revenues in 2020.

Mac Burke can be reached at: mburke@commercialobserver.com

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