There had been rumors that HCP, Inc. might be buying Emeritus Senior Living, but it looks like it is buying only a portion of the assets managed by the company. HCP has agreed to pay $1.73 billion for 133 senior living communities with 10,350 units, or about $167,000 per unit, which make up most of the joint venture portfolio of the former Sunwest Management properties purchased in 2010 by The Blackstone Group (80%) and Emeritus and Columbia Pacific Advisors (the remaining 20%). The purchase two years ago was for 144 properties at $110,000 per unit.
Nine additional properties that Emeritus will be purchasing from the Blackstone J/V, to be financed with $52 million of debt from HCP, may be the ones to make up most of the difference. The cap rate on the 99 stabilized properties is 6.8%, while the cap rate on the 34 non-stabilized properties (74% occupancy) is 5.7%, for a blended cap rate of 6.6%. This is aggressive pricing, but reflects the low cost of capital for REITs these days. The deal is a huge win for Blackstone in just two short years, as well as for Emeritus, which will take in more than $140 million of proceeds from the sale and will continue to manage them under a triple net lease with HCP. As part of the agreement, Emeritus has agreed to invest $30 million in the properties, which is on top of the $40 million the J/V invested over the past two years, which we are sure was necessary. The overall portfolio occupancy has increased from 80% to 87% in two years, which is a significant change and which we believe is above budget.