IRVINE, Calif. — HCP Inc. (NYSE: HCP) has unveiled a plan to “significantly reduce” its concentration of Brookdale-operated seniors housing communities.
The plan includes HCP selling six Brookdale properties for an estimated $275 million, as well as selling its remaining 40 percent stake in a joint venture to Columbia Pacific Advisors for $332 million. The joint venture — RIDEA II — owns 49 seniors housing properties, of which Brookdale operates 46.
Irvine-based HCP is one of the “Big Three” seniors housing REITs. Headquartered in Brentwood, Tenn., Brookdale is by far the largest owner and operator of seniors housing in the United States. Its operational portfolio includes 1,048 properties and 102,055 units as of June 1, 2017, according to the American Seniors Housing Association, nearly triple the size of the next largest competitor.
However, the company has struggled since its $2.8 billion acquisition of fellow seniors housing giant Emeritus in 2014. After initially experiencing a lift in the months following the merger, Brookdale’s stock price fell from $38.16 on March 2, 2015, to $11.80 on Feb. 8, 2016.
The goal of HCP’s plan is to reduce its exposure to Brookdale-operated properties, increase its lease coverage of the Brookdale communities it will continue to own, and diversify HCP’s overall portfolio.
Other parts of HCP’s restructuring include purchasing Brookdale’s 10 percent interest in two joint ventures for $99 million. HCP will also terminate management agreements and triple-net leases on 68 Brookdale-operated properties, then either sell the properties or transition them to new operators. That move is expected to generate between $600 million and $900 million for HCP.
HCP estimates the combined moves will reduce its exposure to Brookdale from 27 percent of its total portfolio income to 15.7 percent. HCP intends to use the proceeds from dispositions primarily to repay debt and for general corporate purposes.
"This is a win-win for Brookdale and HCP, and we appreciate very much the collaborative way this agreement has come together," says Tom Herzog, president and CEO of HCP. "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."
HCP expects to complete the transactions in stages throughout 2017 and 2018. Barclays is acting as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to HCP.