HCP Inc. HCP have partnered with Brookdale Senior Living Inc. BKD to acquire a portfolio of 35 private pay senior housing communities, with 5,025 units in total, from Chartwell Retirement Residences. The deal is valued at $849 million.
Under the agreement, HCP and Brookdale are going to acquire this portfolio using a RIDEA joint venture (JV) structure with HCP owning 90% stake and Brookdale holding the rest.
The move would help HCP further extend its ties with Brookdale and enhance its private pay assets that offer better prospects for top-line growth. In the wake of retiring baby boomers, national health expenditure is projected to increase over the coming years since senior citizens incur higher medical expenses compared with the average population. Therefore, we expect HCP to benefit from this trend.
Specifically, the portfolio constitutes 33 senior housing properties (4,792 units). These properties hold a diversified mix with 46% being assisted living, 45% independent living, 5% memory care and 4% skilled nursing. This apart, the portfolio comprises leasehold interests in two communities that remain wholly under HCP’s ownership and consists of 233 units, together with purchase option rights that can be exercised in 2017. These properties, spread across 8 states, are concentrated over Florida, Texas and Colorado.
Being positioned in the top 31 Metropolitan Statistical Areas of the country, the purchase of this private pay senior housing portfolio comes as a strategic fit. The assets enjoy an average monthly rate of $3,425 and are presently 89% occupied. Expected to be purchased without the burden of third-party debt, this portfolio is estimated to reap a first-year cash yield of around 6.6%.
These communities have been under Brookdale’s operation since 2011, following its acquisition of Horizon Bay. Brookdale management would continue to run the communities under a long-term agreement following the deal closure. The transaction, expected to close in third-quarter 2015, is subject to approval of regulators and other customary closing norms.
Notably, last year too, HCP expanded its relationship with Brookdale by creating a new $1.2 billion continuing care retirement communities (CCRC) JV.
Both HCP and Brookdale currently carry a Zacks Rank #3 (Hold). Investors interested in the healthcare REIT may consider stocks like Omega Healthcare Investors Inc. OHI and Ventas, Inc. VTR. Both these stocks hold a Zacks Rank #2 (Buy).
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