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HCP Reveals Series of Mutually Beneficial Transactions with Brookdale

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HCP Inc. recently revealed several transactions with Brookdale Senior Living Inc. related to HCP’s 15-campus CCRC JV and triple-net portfolio with Brookdale that will position HCP to improve operator diversification, acquire Brookdale’s interest in 12 CCRC campuses and strengthen the remaining Brookdale triple-net portfolio.

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

Specifically, the transactions consist of:

CCRC TRANSACTIONS

  • HCP to acquire Brookdale’s 51% joint venture interest in 12 entry fee CCRCs with 5,641 units for $510 million (HCP will then own a 100% interest)
  • HCP and Brookdale agree to terminate management agreements on the 12 CCRCs, and HCP to transition management from Brookdale to Life Care Services (“LCS”) under a highly incentivized contract
  • HCP to pay $100 million termination fee to Brookdale (approximately 5x annual management fee) and reset management fee with LCS (approximately $7 million annual savings)
  • HCP and Brookdale to jointly market for sale to third parties the remaining three CCRCs in the existing joint venture

TRIPLE-NET TRANSACTIONS

  • Brookdale to 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. These 18 triple-net leased properties had a 0.86x rent coverage after management fee as of June 30, 2019
  • HCP and Brookdale agree to restructure the 24 remaining Brookdale triple-net leased properties into a single master lease with 2.4% annual escalators with a maturity date on December 31, 2027, and pro forma rent coverage of ~1.1x after management fee and ~1.3x before management fee
  • HCP to provide up to $35 million capital investment in remaining triple-net portfolio over a 5-year term and receive a 7% initial return on the invested capital

OTHER TRANSACTIONS

  • HCP and Brookdale agree to terminate agreements related to one Brookdale triple-net leased property with 1.0x rent coverage after management fee (to be converted to SHOP upon transition of management to LCS) and one SHOP property to be marketed for sale to third parties
  • 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.