Brookdale Senior Living (NYSE: BKD) has agreed to acquire Horizon Bay Realty, the ninth largest operator of senior living communities in the United States.
Upon closing, Brookdale will add an additional 90 communities to its portfolio with over 16,000 units in 19 states. As part of the deal, Brookdale entered agreements to restructure Horizon Bay’s existing relationship with HCP, Inc. (NYSE: HCP) relating to 33 communities that Horizon Bay currently leases from HCP.
HCP and Brookdale will form a join venture (JV) to own and operate 21 communiites and leas the remaining 12 from HCP. The JV will utilize a RIDEA structure with Brookdale acquiring a 10% interest, while it will manage the communities under a ten-year management agreement with 4 five-year renewal options and will retain all ancillary services operations.
The 21-community portfolio has a total of 5,070 units (approximately 4,252 independent living, 736 assisted living, and 82 Alzheimer’s/dementia care) and is primarily located in Florida, Texas, Illinois and Rhode Island. For the other 12 communities, Brookdale will lease them from HCP. The portfolio has a total of 1,547 units (approximately 588 independent living, 578 assisted living, 225 Alzheimer’s/dementia care and 156 skilled nursing units) and is primarily located in Texas and Rhode Island. In addition, Horizon Bay leases an additional community from HCP pursuant to a triple net lease and subleases that community to a third-party operator.
“Acquiring Horizon Bay represents a significant opportunity for Brookdale to further build our scale, operating platform and market concentrations,” said said Bill Sheriff, Brookdale’s Chief Executive Officer. “Many of these communities are in markets where we have either built or are building a network continuum. Consistent with our long-term strategy, we believe that the transaction may also ultimately provide an opportunity for us to own an interest in the real estate associated with certain of the managed communities.”
As far as the HCP JV is concerned, Sheriff said there is significant upside potential in working together.
“The venture combines our strengths with the proper capital structure to enable Brookdale and HCP to jointly maximize the portfolio’s potential,” he said. “The structure of the HCP joint venture includes elements that align our interests very closely. We look forward to building on the success of these communities and to continuing to provide them with high-quality care and services.”
Mark Ohlendorf, Co-President and Chief Financial Officer of Brookdale said the company plans to invest approximately $47 million in the first year of operation, including acquisition consideration, capital contributions to the HCP joint venture, integration costs, transaction expenses and capital expenditures related to the rollout of our ancillary services programs.
“Brookdale expects return on invested capital to average approximately 35% to 40% per year over the first three years,” he said. “These transactions will be slightly accretive to our 2011 Cash From Facility Operations, excluding integration and transactions costs, and are expected to add approximately $0.09 to $0.11 per share to 2012 CFFO and approximately $0.15 to $0.17 per share to 2013 CFFO.”