HCP-Brookdale Closes $1.2B CCRC JV Deal; Will It Benefit?

HCP Inc. HCP has extended its relationship with Brookdale Senior Living BKD by creating a $1.2 billion continuing care retirement communities (CCRC) joint venture (JV) and amending previous Emeritus leases. The partnership offers a solid growth platform with favorable dynamics in senior housing and good occupancy prospects.

Specifically, the $1.2 billion JV will initially own a portfolio of 14 entry fee CCRCs. On the other hand, the lease amendment involved changes in the triple-net leases on 202 HCP-owned senior housing communities. These properties were previously operated by Emeritus Corporation that was purchased by Brookdale last July.

Simultaneous with the deal closure, $324 million of cash was pumped into the CCRC joint venture by HCP. The amount was used for funding the acquisition of 4communities out of the 14 campuses that the JV will initially comprise. Brookdale will continue to manage the CCRC communities.

With an increase in the elderly population and consequent proliferation in healthcare expenses, demand for healthcare facilities and senior housing has been on the rise. To capitalize on this trend, strong players in the market have announced acquisitions or extension of relationships with lease operators.

Recently, Ventas Inc. VTR completed the acquisition of 29 Canadian senior living communities from Holiday Retirement. The company is also set to buy its competitor, American Realty Capital Healthcare Trust Inc., in a stock and cash deal worth $2.9 billion.

In addition, Health Care REIT, Inc. HCN unveiled a plan to acquire HealthLease Properties REIT in order to expand its presence in the seniors housing and post-acute care segments.  The transaction was valued at around $950 million in cash, including debt.

Going forward, we believe that improving fundamentals in the healthcare REIT market, a well-balanced and diversified portfolio, along with strategic acquisitions and tie-ups would place HCP on the growth trajectory. In particular, the CCRC partnership with Brookdale offers a solid platform for growth. Yet, cut-throat competition and an anticipated increase in interest rate continue to pose challenges for the company.

HCP currently carries a Zacks Rank #3 (Hold).