HCP Inc (HCP.N) said it will buy 133 senior housing communities for $1.73 billion, including debt, from a joint venture between Emeritus Corp ESC.N and Blackstone Real Estate Partners VI as an aging U.S. population lifts demand for retirement villages.
The three largest publicly listed U.S. healthcare REITs -- HCP, Ventas Inc (VTR.N) and Health Care REIT Inc (HCN.N) -- have been buying communities that provide access to nursing facilities over the last few years, especially after a 2007 law gave these companies more room to grow.
REITs can earn rents on leased properties and also capture the operating income from those facilities by retaining independent management for a fee.
The Emeritus-Blackstone joint venture was one of the last big senior housing portfolios up for grabs, said James Milam, an analyst with Sandler O'Neill & Partners LP.
"There are some other portfolios out there that are possible big transactions but I think we're definitely on the downward slope of this type of major senior housing deal," he said.
HCP's stock was down 2 percent at $45 after the bell. It closed at $45.92 on the New York Stock Exchange on Tuesday. Shares of Emeritus closed at $22.93.
A GOOD DEAL
Emeritus, the nation's largest assisted living and memory care operator, will continue to operate these communities after the deal, a practice also known as a triple net lease.
"I like that it's a triple net lease, which is actually unusual in the last couple of years for large portfolios," Milam said.
According to the lease, HCP will get a fixed rent that grows by a set amount over time and any extra profit will go to Emeritus as the operator.
"This gives HCP some extra security behind the rental payment," he said.
HCP had a portfolio of 314 senior housing facilities as at June end.
Emeritus said it will buy out nine remaining properties from the joint venture 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.
The Blackstone joint venture, in which Emeritus owns an about 6 percent stake, had bought the portfolio out of bankruptcy in 2010.
HCP, which will sell 22 million shares to finance a portion of the transaction, said it expects the deal to add 8 cents per share to its funds from operations (FFO) on an annualized basis.
The company cut its forecast for FFO applicable to common shares by 5 cents per share to between $2.65 and $2.71 for 2012.
Excluding the merger-related items, HCP raised its forecast for FFO applicable to common shares by 1 cent to between $2.74 and $2.80 per share.
Long Beach, California-based HCP is scheduled to report third-quarter results on October 30.
(Reporting by Sagarika Jaisinghani in Bangalore; Editing by Roshni Menon)