SEATTLE-Emeritus Corp. and HCP Inc. have agreed to purchase 142 senior housing communities owned by a joint venture composed of Emeritus, Blackstone Real Estate Partners, certain former tenants-in-common and an investment fund affiliated with Dan Baty, Emeritus’ chairman. Emeritus owns a roughly 6% interest in the Blackstone joint venture and has been operating the communities since 2010 under management agreements for a fee equal to 5% of collected revenues. GlobeSt.com was unable to reach the parties before deadline to determine where the communities being sold are located or any other unifying features.

Once the transaction is consummated, HCP will acquire 133 of the communities for an aggregate purchase price of $1.7 billion consisting of cash and the assumption of existing debt. Emeritus will receive cash of approximately $140 million, consisting of approximately $40 million for the firm’s interest in the Blackstone JV and an incentive payment of approximately $100 million based on the final rate of return to the Blackstone JV’s investors. The final closings for these transactions are expected to be completed in the fourth quarter of this year.

As part of the transaction, Emeritus will also acquire nine communities for $62 million, of which $10 million will be paid in cash and $52 million will be financed with a four-year loan from HCP with an initial interest rate of 6.1%.

In addition, Emeritus will continue to operate the 133 communities purchased by HCP under a long-term, triple-net master lease. Rent in the first year of the lease will amount to $105.5 million and will increase each year in the manner specified in the lease. Emeritus has also agreed to make $30 million in capital improvements to these properties.

Granger Cobb, Emeritus’ president and CEO, called the transaction “very significant for Emeritus” in a prepared statement. “Strong operating performance, favorable financial market conditions and Dan Baty’s sense for timing and transaction dynamics allowed us to execute sooner than originally contemplated.”

He added that the transaction allows Emeritus to “benefit from the substantial upside economics in this portfolio and provides capital for accretive strategic investment in other areas.”

Jay Flaherty, HCP’s chairman and CEO, reports that the transaction “significantly expands our senior-housing portfolio and is structured through the safety of a guaranteed triple-net lease with meaningful upside through contractual rent escalators.”

As GlobeSt.com reported in May 2011, Emeritus had agreed to buy Blackstone's 81% interest in 24 assisted living facilities totaling 1,867 units that Emeritus has been operating in a JV with Blackstone. The net purchase price to acquire Blackstone’s 81% interest in the joint venture was expected to be approximately $99 million, based on a total portfolio value of $310 million, according to an Emeritus announcement at the time regarding the deal.

Instant Insights /

Emeritus, HCP to Buy Senior Portfolio for $1B

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