HCP to Restructure Brookdale Portfolio, Give Up Consent Rights

In a complex series of transactions, HCP Inc. (NYSE: HCP) is moving aggressively to reduce its exposure to Brookdale Senior Living (NYSE: BKD) and restructure its portfolio.

The deals are expected to reduce HCP’s Brookdale concentration from about 27% of cash NOI and interest income to about 15.7%, improve lease coverage, and diversify tenant mix for the Irvine, California-based real estate investment trust (REIT). It could give Brookdale more flexibility to pursue a large, entity-level transaction.

HCP and Brookdale have agreed to terminate management agreements on 36 senior housing operating properties (SHOP) and leases on 32 triple-net communities, according to a press release.

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Brookdale has agreed to waive fees on all management agreement terminations and HCP has agreed to modify the rent on the remaining Brookdale triple-net portfolio, providing a $5 million annual rent reduction.

HCP intends to either transition to other operators or sell the 68 SHOP and triple-net properties next year. The sales and operational changes are expected to generate between $600 million and $900 million in net proceeds for HCP.

HCP is also selling six properties to Brookdale for $275 million and purchasing the operator’s 10% interest in two RIDEA joint ventures for $99 million.

Furthermore, HCP announced today the sale of its remaining investments in the RIDEA II senior housing joint venture to an investor group led by Columbia Pacific Advisors (CPA) for $332 million. The RIDEA II joint venture owns 49 communities, with 46 managed by Brookdale.

In addition, HCP is agreeing to waive some of its consent rights, which could free up Brookdale as it continues to pursue strategic alternatives. Rumors have been swirling since early 2017 that the company–the largest senior living provider in the nation–is in talks to be acquired in whole or in part, although the most recent potential buyer reportedly has stopped negotiating. If Brookdale does undertake an entity-level transaction, HCP would have the right to exit all SHOP and continuing care retirement community assets at no cost and receive additional covenants regarding the triple-net leased properties.

“This is a win-win for Brookdale and HCP, and we appreciate very much the collaborative way this agreement has come together,” said Tom Herzog, HCP’s president and CEO, in a statement. “Reducing our Brookdale concentration has been one of our highest priorities in 2017, and these agreements allow us to do that in a structured and cooperative manner.”

Written by Tim Regan

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