HCP Closes Acquisition of $2B Seniors Housing Portfolio

Two weeks after announcing it planned to acquire 133 seniors housing communities for close to $2 billion from a joint venture between Emeritus Corp. and an affiliate of The Blackstone Group, HCP has already closed on 127 of the properties.

Two weeks after announcing it planned to acquire 133 senior housing communities for $1.73 billion from a joint venture between Emeritus Corp. and an affiliate of The Blackstone Group, HCP has already closed on 127 of the properties. HCP expects to close on the remaining six properties during the fourth quarter.

As part of the transaction, Emeritus, the nation’s largest assisted living and memory care operator, will continue to operate the communities under a new triple-net, master lease.

Meanwhile, Seattle-based Emeritus purchased the remaining nine properties that had originally been part of the Blackstone JV for 142 communities. HCP agreed to provide $52 million in secured debt financing for those acquisitions with Emeritus paying the $10 million balance in cash.

“We are delighted to significantly expand our relationship with Emeritus, a best-in-class operator, with this strategic transaction,” said Jay Flaherty, HCP chairman and CEO. “Congratulations go out to the Emeritus, Blackstone and HCP teams and to Chicago Title for their extraordinary, diligent and cooperative efforts that enabled us to close a transaction of this size within two weeks of announcement.”

To help pay for the acquisition, HCP has agreed to sell 22 million shares of common stock to Goldman, Sachs & Co. as sole underwriter. HCP has also granted Goldman, Sachs an option for 30 days to purchase up to an additional 3.3 million shares of common stock.

The deal was announced Oct. 16, when HCP, a Long Beach, Calif.-based REIT, said it was purchasing the portfolio, which consists of 10,350 units in 29 states. The portfolio is a mix of 61 percent assisted living, 25 percent independent living, 13 percent memory care and 1 percent skilled nursing. As part of the transaction, Emeritus said it would invest an additional $30 million to continue improving the portfolio.

Of the 133 communities, 99 are stabilized and 34 are in lease-up. The properties have an overall occupancy of 86.8 percent with those in lease-up at 74 percent and the stabilized communities at 91.5 percent, according to HCP.

Rent in the first year of the triple-net master lease will be $105.5 million and increase each year, according to Emeritus. The company has been operating the communities since 2010 under management agreements for a fee equal to 5 percent of collected revenues.

The joint venture, which included Blackstone Real Estate Partners VI, an affiliate of The Blackstone Group, certain former tenants-in-common, Emeritus and an investment group affiliated with Emeritus Chairman Dan Baty, acquired the portfolio in August 2010 out of bankruptcy for about $1.2 billion, including assumption of debt. The joint venture subsequently invested $42 million in capital improvements in the properties.

The new deal with HCP calls for Emeritus to receive cash of about $140 million, comprised of approximately $40 million for the company’s interest in the Blackstone JV, and an incentive payment of about $100 million based on the final rate of return to the Blackstone JV’s investors, according to Emeritus. The company had owned approximately 6 percent interest in the Blackstone JV.

“This is a very significant transaction for Emeritus,” said Granger Cobb, Emeritus’ president and CEO. “Strong operating performance, favorable financial market conditions, and Dan Baty’s sense for timing and transaction dynamics, allowed us to execute sooner than we originally contemplated. It allows us to benefit from the substantial upside economics in this portfolio and provides capital for accretive strategic investment in other areas.”