Brookdale Acquires 18-Property HCP Portfolio for $405M, Exits Joint Venture

Brookdale Senior Living (NYSE: BKD) has inked several new transactions with HCP (NYSE: HCP) that both companies say better position them for the future.

The multiple transactions will see Brookdale assume ownership of an 18-property leased portfolio for $405 million, step away from a joint venture and reconfigure lease obligations, the companies announced Tuesday. The moves come a little more than a month after HCP announced it would accelerate its strategic plan for senior housing, and in the midst of an ongoing operational turnaround for Brrookdale.

The new arrangement is a positive development for Brookdale, according to Stifel analyst Chad Vanacore.

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“Brookdale management took a positive step forward in its multi-part transaction with landlord HCP,” Vanacore wrote in a note to investors on Tuesday. “The company managed to monetize its CCRC portfolio, increase its real estate ownership, reduce the burden of underwater leases and improve lease coverage while simplifying financial reporting.”

Investors seemed to agree.

Brookdale’s share price grew about 2.6% to land at $7.78, while HCP remained mostly flat at $35.71 by the time the markets closed Tuesday.

Buy and sell

Among the several newly announced transactions is a deal for HCP to buy Brookdale’s joint venture interest in 12 entry-fee CCRCs for $277 million in net proceeds. As part of the sale, HCP will pay Brookdale $100 million to terminate its management agreements and transition them to Life Care Services, the management arm of parent company LCS.

HCP and Brookdale will then jointly market for sale the remaining three CCRCs in their joint venture portfolio, with Brookdale receiving 51% of the net cash proceeds from that sale.

Brookdale isn’t just selling properties — it’s also buying some communities, too. The Brentwood, Tennessee-based operator agreed to acquire 18 triple-net leased communities from HCP for a total purchase price of $405 million.

Both HCP and Brookdale also agreed to overhaul some of their mutual management lease agreements. The companies will restructure the lease for 24 communities, with a term that will expire at the end of 2027 that includes two 10-year extension options. HCP set the annual rent escalators at 2.4%, and agreed to fund up to $35 million of capital expenditures in order to reposition the communities.

HCP and Brookdale also agreed to terminate the lease related to a triple-net leased property and transition to LCS, and market another Brookdale property to third-party buyers.

All of the aforementioned transactions are expected to reduce HCP’s concentration of Brookdale-managed properties to 8% of cash net operating income (NOI), down from 16% before the transaction.

The acquisition of Brookdale’s JV interest, the transitions to LCS, and the asset sales to Brookdale are all expected to close in the first quarter of next year. The asset sales to third parties, meanwhile, could close over the next 12 to 18 months.

HCP President and CEO Tom Herzog touted the deal as a win-win for both companies.

“This transaction will allow HCP to improve its operator diversification, as well as strengthen its remaining Brookdale triple-net portfolio,” Herzog stated in a press release.

Brookdale President and CEO Cindy Baier, meanwhile, said the new agreement with HCP marks another step in Brookdale’s ongoing efforts to increase its owned real estate portfolio, reduce the complexity of its operations and unlock value from its CCRC venture.

“These transactions highlight the importance of maintaining collaborative relationships with our REIT partners as we continually evaluate opportunities to enhance shareholder value,” Baier said.

Neither Baier or Herzog were available for comment when their companies were reached by Senior Housing News today.

Brookdale on the move

The activity with HCP comes against the backdrop of a proxy battle. Brookdale has openly sparred with activist shareholder Land and Buildings over the shareholder’s proposal to spin off Brookdale’s real estate into a separate real estate company.

The sparring intensified in September when Brookdale shot down the prospect of electing to its board former HCP CEO Jay Flaherty, who Land and Buildings favored. And just this week, Brookdale enlisted the help of Glenview Capital Management — its largest shareholder — which will vote all of its shares in favor of the operator’s board of director nominees, Victoria Freed and Guy Sansone.

And while taking on the activist shareholder and restructuring its portfolio, Brookdale in recent weeks has announced several initiatives aimed at improving the quality of its memory care and clinical services.

Since May of 2018, the company has added new memory care programs to five communities, with plans to add such programs to more communities through 2021.

Recent examples include a new $12 million project with HCP to add a memory care program to the Brookdale Vernon Hills community in Vernon Hills, Illinois; and a plan to unveil a new memory care program at Brookdale Central Paradise Valley community in Phoenix, Arizona on Oct. 5.

The operator also announced on Sept. 12 a new rehab program for memory care residents at Brookdale Overland Park in Overland Park, Kansas. The skilled nursing and rehab program included renovations, which added a new therapy space and equipped resident suites with SafelyYou, an AI-enabled monitoring technology designed to cut down on falls and visits to the emergency room among memory care residents.

And in Texas, Brookdale recently added on-site treatment options for dialysis at four CCRCs. Brookdale partnered with Dialyze Direct to provide the treatment in the CCRCs’ skilled nursing centers. The centers are meant to help the CCRCs’ residents who need dialysis but have trouble getting Medicare to cover the costs of transportation to their treatments.

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