Brookdale and HCP Create $1.2 Billion Joint Venture to Acquire CCRCs

Senior living giant Brookdale Senior Living (NYSE:BKD) and real estate investment trust HCP Inc. (NYSE:HCP) today announced a joint venture encompassing a $1.2 billion portfolio of entrance fee Continuing Care Retirement Communities (CCRCs).

The venture will own and operate 14 entry-fee CCRCs and will create the largest healthcare REIT platform to operate and acquire these types of assets.

“Combining the capital strengths of HCP with Brookdale’s operating platform forms a compelling investment vehicle for our existing entry fee CCRCs and provides for growth in this fragmented asset class,” said Brookdale President and CEO Andy Smith.

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The joint venture, at its inception, will own a portfolio predominantly based in Florida and comprising 7,000 units with an average occupancy rate of 81%. The units comprise 67% independent living, 18% skilled nursing, 11% assisted living and 4% memory care.

Brookdale and HCP will own 51% and 49% of the joint venture, respectively. In Brookdale’s outline of the opportunities presented by the deal, the company pointed to “significant consolidation potential in entry fee CCRC industry,” noting the 1,860 entry- fee CCRC communities in the market today, highlighting that 81% of those are typically highly levered non-profits with little new supply being developed.

The companies have also agreed to amend the leases on 202 HCP-owned senior housing properties currently operated by Emeritus, that will result in a 49-property RIDEA portfolio and a 153-property triple-net leased portfolio.

The 49 properties included in the RIDEA joint venture have an average occupancy of 80%, with occupancy at 91% for the 153 properties within the triple-net portfolio.

As part of the transaction, existing Emeritus purchase options encompassing the 49 HCP properties will be cancelled at closing.

Brookdale and Emeritus are expected to complete a $2.8 billion deal that will merge the two companies in the third quarter of this year. The closing of the joint venture agreement between Brookdale and HCP is contingent upon the Emeritus-Brookdale deal closing.

Smith also pointed to the benefit of modifying the Emeritus leases under the agreement.

“The modifications to the Emeritus leases should improve upon the previously-announced projected benefits of our pending merger,” he said. “They bring forward the future value of the imbedded purchase options through lower rent and escalators and reduced lease leverage in a 153-community triple-net portfolio, while creating a 49-community RIDEA joint venture.”

Brookdale is bringing eight owned campuses to the joint venture, as well as leasehold rights including purchase options on three HCP-owned properties.

HCP will contribute those three properties leased to Brookdale and $334 million of cash, which will be used to acquire four additional entry-fee CCRCs currently managed by Brookdale and owned by third parties.

HCP’s chief executive and President Lauralee Martin pointed to future growth opportunities presented by the agreement.

“We are pleased to partner with Brookdale and create the largest CCRC platform in the healthcare REIT sector providing attractive future growth opportunities,” she said in the joint release.

Written by Elizabeth Ecker and Jason Oliva

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