HCP to Acquire Senior Housing Portfolio from Emeritus Joint Venture for $1.73 Billion

HCP (NYSE:HCP) announced on Tuesday that it will acquire a 133-property senior housing portfolio for $1.73 billion from a joint venture between Emeritus Corporation (NYSE:ESC) and Blackstone Real Estate Partners VI, an affiliate of The Blackstone Group.

Emeritus will enter into a new triple-net master lease and continue to operate these communities. The company, which is the largest assisted living and memory care operator in the nation, has also committed to investing an additional $30 million, or $2,900 per unit, to continue improving the real estate and operating performance of the portfolio.

“The transaction demonstrates our thesis of unlocking significant value for our operating partners through real estate driven transactions while providing our shareholders with attractive risk adjusted returns,” said Jay Flaherty, HCP’s Chairman and CEO, in a statement. “This transaction is immediately accretive, significantly expands our senior housing portfolio and is structured through the safety of a guaranteed triple-net lease with meaningful upside through contractual rent escalators.”

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The Blackstone joint venture initially acquired the 142-property portfolio out of bankruptcy in 2010 and transitioned the operations to Emeritus, under management agreements for a fee equal to 5% of collected revenues. Following a $42 million investment for capital improvements, the portfolio’s occupancy increased from 80% to 88%.

The 133 properties purchased by HCP have a total of 10,350 units located in 29 states. The care mix is 61% assisted living, 25% independent living, 13% memory care and 1% skilled nursing.

Emeritus is also purchasing the nine remaining properties from the Blackstone joint venture in conjunction with the HCP acquisition.  The REIT has agreed to provide secured debt financing of $52 million.

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Emeritus owned an approximately 6% interest in the joint venture, and selling the portfolio allowed the company to monetize its economic and promoted interests in the joint venture, according to CEO Granger Cobb, with “immediate” results in excess of $140 million of proceeds to the operator.

“[The transaction] secures our continued management of these communities on a long-term basis and positions us to capture future upside in the operations as we continue to deploy capital expenditures to maximize local strategic market opportunities,” Cobb said in a statement.

Written by Alyssa Gerace

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