Sunrise Senior Living, Inc. (NYSE: SRZ) has entered into a settlement and restructuring agreement with HCP (NYSE:HCP) to transition Sunrise from management of 27 HCP-owned senior living communities for an aggregate cash payment of $50 million to Sunrise, and to settle the lawsuits between the Company and HCP pending in Virginia and Delaware. HCP paid $40 million to Sunrise on August 31, 2010 and expects to pay $10 million in subsequent installments payable on the earlier of the completion of transitioning in the next 12 months. HCP stated that it will enter into new arrangements for the 27 communities that are anticipated to reflect improved operating margins of the communities and will be making announcements on those arrangements in the coming months.
"We are pleased that we have restructured our relationship with Sunrise in a manner that will benefit both parties," said HCP Chairman and Chief Executive Officer, Jay Flaherty. "This transaction highlights the most recent example of HCP’s active approach to asset management as we continue to find ways in this economic environment to unlock additional value in our portfolio. Arrangements with replacement operators are at an advanced stage and we anticipate achieving a substantial return on our $50 million investment and attractive accretion to our 2011 and 2012 earnings profile."
In connection with the settlement and restructuring agreement, Sunrise made a $15 million principal repayment of its bank credit facility and entered into a 14th amendment to its credit agreement extending the maturity date to December 2, 2011. Outstanding consolidated debt under the Company’s bank credit facility after the $15 million payment is $8.4 million, down from $95 million at December 31, 2008. Sunrise and HCP will also negotiate to restructure the leasing and management agreements of up to 35 other senior living communities. Sunrise also announced that it has completed the previously announced sale of eight of the Company’s nine German assisted living facilities to GHS Pflegeresidenzen Grundstucks GmbH and Prudential Real Estate Investors.
"We are very pleased with the agreement with HCP as it brings Sunrise additional capital that will be used to fulfill many of our financial obligations – and it puts to rest the HCP litigation while paving a path toward a new, positive relationship. These are two very important steps that strengthen Sunrise," said Mark Ordan, Sunrise’s chief executive officer. "We have stated our need to refinance the company, and this deal goes a long way toward that goal. While we continue to pursue balance sheet-enhancing transactions, including asset sales, we do not foresee a need to sell additional community management portfolios. We are, of course, also pleased to complete the previously announced sale of eight German communities to Pramerica."