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BROOKDALE, HCP FORM $1.2B JOINT VENTURE

BRENTWOOD, TENN. AND LONG BEACH, CALIF. — Brookdale Senior Living (NYSE: BKD) and HCP Inc. (NYSE: HCP) have formed a new $1.2 billion joint venture to own and operate entry fee continuing care retirement communities (CCRCs). At its inception, the joint venture will own 14 CCRC campuses, the majority of which are located in Florida.

Also part of the agreement is the amendment of leases on 202 HCP-owned seniors housing communities that are currently operated by Emeritus Corp. (NYSE: ESC). Brookdale and Emeritus announced their merger in February, and the new agreement is conditioned upon the closing of that merger.

“We are very excited about strengthening our relationship with HCP as we partner to create an industry-leading entry fee CCRC joint venture,” says Andy Smith, CEO of Brookdale. “Combining the capital strengths of HCP with Brookdale’s operating platform forms a compelling investment vehicle for our existing entry fee CCRCs and provides for growth in this fragmented asset class.”

The joint venture’s 14-campus portfolio will total approximately 7,000 units, broken down as 67 percent independent living, 18 percent skilled nursing, 11 percent assisted living and 4 percent memory care. Brookdale will hold a 51 percent ownership stake while HCP holds the remaining 49 percent ownership stake.

Brookdale will contribute eight campuses that it currently owns as well as the leasehold rights including purchase options on two campuses owned by HCP. In turn, HCP will contribute those two campuses, as well as $334 million in cash, which will be used to acquire from third parties four additional CCRCs currently operated by Brookdale.

The amendments to the leases on the Emeritus-operated properties will involve the cancellation of Emeritus Corp.’s purchase options on 49 HCP-owned properties. Subsequently, all 202 properties owned by HCP and operated by Emeritus will be separated into two portfolios.

One portfolio will consist of 49 non-stabilized properties (19 of which are related to purchase option cancellations) that will be converted to a RIDEA structure, contributed to a separate joint venture and managed by Brookdale. The other portfolio will consist of 153 properties (30 of which are related to purchase option cancellations) to be net leased by Broookdale.

“The modifications to the Emeritus leases should improve upon the previously-announced projected benefits of our pending merger,” says Smith. “They bring forward the future value of the imbedded purchase options through lower rent and escalators and reduced lease leverage in a 153-community triple-net portfolio, while creating a 49-community RIDEA joint venture.”

Brookdale will hold a 20 percent ownership interest in the 49-property RIDEA portfolio and will invest in capital improvements to increase occupancies and operating performance. The 153-property portfolio will provide base rent of $158 million, and HCP will make $100 million available through 2017 for capital improvements to these properties.

Brentwood, Tenn.-based Brookdale owns more than 600 and operates more than 500 seniors housing facilities. The company’s stock price closed at $31.34 per share on April 23, up from $26.40 per share one year ago.

Long Beach, Calif.-based HCP owns more than 400 seniors housing facilities. The company’s stock price closed at $40.80 per share on April 23, down from $53.05 per share a year ago.

— John McCurdy

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