HCP (NYSE: HCP) has inked a $445 million deal to acquire nine senior housing communities operated by Discovery Senior Living as part of a flurry of recent activity. The Irvine, California-based real estate investment trust (REIT) also acquired three Oakmont Senior Living buildings and has expanded its RIDEA partnerships with Oakmont and Sunrise Senior Living.
HCP announced these and other moves as part of its first-quarter earnings release Wednesday afternoon. On the whole, HCP logged a funds from operations (FFO) of 43 cents, which was in line with analysts’ expectations.
The company’s Discovery acquisition includes 1,242 units at seven communities in Florida, one in Georgia and another one in Texas. The communities currently have an average occupancy of 79% and the deal has an initial capitalization rate in the low-4% range, and HCP will receive a purchase option to acquire each project at a 6.25% cap rate on stabilized net operating income (NOI).
The REIT also is providing Discovery with up to $40 million of junior financing on four new properties representing 724 units and set to be developed and operated by Discovery. Three of those developments are campus expansions of the properties which HCP acquired in the $445 million acquisition.
Chad Lavender and Ryan Maconachy, vice chairmen of global commercial real estate advisory firm Newmark Knight Frank, arranged the sale.
As of April, Discovery’s portfolio included 56 communities in 14 states, with over half of its communities being independent living or senior apartments.
“While we certainly enjoyed our partnership with Kayne Anderson on these communities, we are very enthusiastic about growing our relationship with HCP and partnering with them to both continue and expand the tremendous lifestyle and experience of our residents, their family members and our team members at the Discovery Village communities,” Discovery CEO Richard Hutchinson told Senior Housing News. “Our shared philosophy of owning and operating high quality assets that are differentiated in great markets to better serve our customers, creates a strategic alignment that will mutually benefit Discovery and HCP in the short, mid and long term.”
HCP also has converted 18 Sunrise Senior Living communities from triple-net leases to RIDEA structures. HCP expects to convert another 17 Sunrise triple-net lease properties to RIDEA structures this year. McLean, Virginia-based Sunrise is one of the largest senior living providers in the nation, with about 265 U.S. properties overall.
“The conversion better aligns our interest with Sunrise, removes a cumbersome legacy lease structure, and improves the real estate quality and diversification of our SHOP portfolio,” HCP noted in its earnings release.
The REIT also acquired a $113 million portfolio of three newly built communities in California operated by Oakmont Senior Living in California. The communities have a current average occupancy rate of 98%. As part of this transaction, HCP assumed $50 million of secured debt, with a year one capitalization rate in the mid-5% range.
Additionally, the REIT converted four existing Oakmont communities in the state from triple-net leases to RIDEA structures.
Both the Sunrise and Oakmont conversions are part of an ongoing portfolio overhaul that’s been years in the making. More recently, the company has focused on switching high-performing assets from triple-net leases to a RIDEA structure in order to realize growth and revenue potential in its same store senior housing operating portfolio (SHOP).
HCP will hold a conference call on May 2 at noon, Eastern Time, to discuss its latest earnings.