HCP to Buy Out Retirement Community Portfolio Stake for $510M

IRVINE, CA—HCP and Brookdale Senior Living have struck multiple agreements that will ultimately improve HCP’s operator diversification and strengthen Brookdale triple-net portfolio, according to HCP’s CEO Tom Herzog.

HCP has agreed to buy out Brookdale’s 51% joint venture interest in 12 continuing care retirement communities for $510 million leaving HCP to fully own the 5,641-unit portfolio. HCP and Brookdale will also terminate the management agreements on the 12 CCRCs, after which HCP will transition management to Life Care Services. HCP will pay $100 million termination fee to Brookdale as part of this arrangement. Finally, HCP and Brookdale will market for sale the remaining three CCRCs in the existing joint venture.

At the same time Brookdale will acquire 18 triple-net leased properties from HCP for $405 million, representing a 7.4% lease yield on trailing twelve month rent as of June 30, 2019. HCP and Brookdale have agreed to restructure the 24 remaining Brookdale triple-net leased properties into a single master lease.

HCP will also provide up to $35 million capital investment in the remaining triple-net portfolio over a 5-year term and receive a 7% initial return on the invested capital.

These transactions are expected to reduce HCP’s Brookdale concentration from 16% to 8% of cash NOI on a pro forma basis.

The acquisition of Brookdale’s 51% interest in the 12 CCRCs, the transitions to LCS, and the asset sales to Brookdale are expected to close in 1Q 2020, subject to customary closing conditions. The asset sales to third parties are expected to close over the next 12 to 18 months.

“This transaction will allow HCP to improve its operator diversification, as well as strengthen its remaining Brookdale triple-net portfolio,” Tom Herzog, president and CEO of HCP, said in prepared remarks.