HCP announces series of mutually beneficial transactions with Brookdale

HCP announced several transactions with Brookdale Senior Living related to HCP's 15-campus continuing care retirement community (CCRC) joint venture and triple-net portfolio with Brookdale.

The transaction will allow HCP to improve operator diversification, acquire Brookdale's interest in 12 CCRC campuses and strengthen the remaining Brookdale triple-net portfolio.

Details of the CCRC transactions include:

• HCP will buy out Brookdale’s 51 percent stake in 12 CCRCs with 5,641 units for $510 million, giving HCP full ownership of those communities.
• HCP and Brookdale agree to terminate management agreements on the 12 CCRCs and HCP to transition management from Brookdale to Life Care Services (LCS).
• HCP to pay a $100 million termination fee to Brookdale (approximately five times the 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.

Details of the triple-net transactions include:

• Brookdale to acquire 18 triple-net leased properties from HCP for $405 million, representing a 7.4 percent lease yield on trailing 12-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 percent annual escalators with a maturity date on Dec. 31, 2027, and pro forma rent coverage of approximately 1.1x after management fee and approximately 1.3x before management fee
• HCP to provide up to $35 million capital investment in remaining triple-net portfolio over a five-year term and receive a 7 percent initial return on the invested capital.

Details of other transactions include:

• 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