HCP, Brookdale Restructure Relationship with $1B in Transactions

IRVINE, Calif., and BRENTWOOD, Tenn. — Two of the largest publicly traded companies in the seniors housing space — Irvine based REIT HCP (NYSE:HCP) and Brentwood-based owner-operator Brookdale Senior Living (NYSE: BKD) — have announced a series of transactions totaling more than $1 billion to restructure the relationship between the companies.

In the first transaction, HCP will acquire Brookdale’s 51 percent stake in a joint ownership venture in 12 entry-fee continuing care retirement communities (CCRCs) totaling 5,641 units for $510 million. HCP will also transfer operations of the 12 communities from Brookdale to Life Care Services, paying a $100 million termination fee to Brookdale in the process.

Brookdale and HCP now co-own three remaining CCRCs, and will put the properties on the market for sale.

In the second transaction, Brookdale will acquire 18 tripe-net leased properties from HCP for $405 million. The sale represents a 7.4 percent yield based on trailing 12-month rent.

Additionally, the companies agreed to restructure the remaining 24 Brookdale-operated, HCP-owned triple-net properties under a single master lease. The new lease features 2.5 percent annual escalators and runs through the end of 2027. HCP agreed to provide up to $35 million for capital improvements to the properties over the next five years.

The transactions are all expected to close in the first quarter of 2020.

Both companies referred to the restructuring as “mutually beneficial.” HCP cited improved operator diversification, reducing Brookdale’s share of the company’s NOI from 16 percent to 8 percent, as its main goal.

“We are pleased with the outcome of this mutually beneficial transaction, which reflects the collaboration and partnership we share with Brookdale,” says Tom Herzog, president and CEO of HCP. “This transaction will allow HCP to improve its operator diversification, as well as strengthen its remaining Brookdale triple-net portfolio.”

Brookdale’s goal in the transactions was to eliminate unconsolidated joint venture interests, simplifying the company’s financial reporting, as well as receiving a cash infusion from the property sales. Proceeds from the sales will be used for opportunistic share repurchases and elective debt pay downs.

“This agreement with HCP marks another significant step in Brookdale’s ongoing efforts to increase our owned real estate portfolio, reduce complexity of our operations, and most importantly, unlock the value of the unconsolidated CCRC venture,” says Lucinda Baier, Brookdale’s president and CEO. “These transactions highlight the importance of maintaining collaborative relationships with our REIT partners as we continually evaluate opportunities to enhance shareholder value.”