Brookdale Could Rapidly Consolidate CCRC Industry with HCP Backing

Brookdale Senior Living (NYSE:BKD) will soon become a driving force in the industry for continuing care retirement communities (CCRCs) with the capital backing of new joint venture partner HCP, Inc. (NYSE:HCP), analysts say.

The companies announced Wednesday they would enter a joint venture agreement to own and operate a $1.2 billion portfolio, that at its onset, will comprise 14 entry-fee CCRCs.

The JV creates the largest healthcare real estate investment trust (REIT) to acquire and operate CCRCs, which has analysts saying Brookdale might be well-positioned to consolidate the industry for these assets.

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“With HCP as a capital partner, BKD may be able to rapidly consolidate the CCRC industry,” stated Bank of America Merrill Lynch analysts in a report Thursday.

In terms of ownership, Brookdale will own 51% of the joint venture with HCP owning the remaining 49% interest.

Brookdale is bringing eight of its owned CCRCs to the joint venture and also leasehold rights that include purchase options on three properties owned by HCP.

HCP will contribute those three properties leased by Brookdale as well as $344 million of cash to buy four additional entry-fee CCRC assets currently leased by Brookdale from third parties.

Investor interest from publicly traded REITs could bode well for the CCRC sector, which has been a troubled spot within senior housing in the years during the economic downturn, suggested Jeff Theiler, an analyst with Green Street Advisors.

“I think it’s a good sign for CCRC owners that there’s investor interest,” Theiler told SHN. “There has been hesitancy in the past among publicly traded REITs to invest in entry-fee CCRCs, but it’s positive for current owners of that property type.”

The CCRC market has faced some challenges during the downturn relating to the entry-fee model many utilize. Several communities have made headlines in the recent past with multi-million dollar bankruptcies. Now Brookdale could be breathing new life into the sector with HCP’s backing.

The joint venture agreement also involves amending the leases on 202 HCP-owned senior housing properties leased by Emeritus, resulting the the creation of a 49-property RIDEA joint venture and a 153-property triple-net leased portfolio.

These 49 RIDEA assets have an average occupancy of 80%, while average occupancy for the triple-net lease portfolio is 91%.

In February, Brookdale and Emeritus announced they would combine in a $2.8 billion merger, creating the largest senior housing operator in the U.S., totaling 112,700 units across 46 states. The CCRC partnership and lease negotiations with HCP are predicated on the successful closing of the Emeritus merger.

Wednesday’s joint venture announcement arrives a week after Brookdale and Emeritus announced that the mandatory waiting period under the HSR Act of 1976—a federal antitrust law—have expired, in turn bringing them closer to finalizing the deal.

Written by Jason Oliva

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