Emeritus Senior Living Sells Joint Venture Assets for $1.8 Billion

Emeritus Corporation, a national provider of assisted living and memory care services, entered into definitive agreements with HCP Inc. and affiliates of Blackstone Real Estate Partners VI, under which HCP and Emeritus will acquire 142 senior housing communities, representing approximately 11,350 units currently owned by a joint venture comprised of Emeritus, Blackstone, certain former tenants-in-common and an investment fund affiliated with Dan Baty, the company’s chairman. Emeritus owns an approximately 6 percent interest in the Blackstone joint venture and has been operating the communities since 2010 under management agreements for a fee equal to 5 percent of collected revenues.

Upon consummation of the transaction, 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, comprised of approximately $40 million for the company’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. 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 percent.

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 committed to make $30 million in capital improvements with respect to these communities.

“This is a very significant transaction for Emeritus,” Granger Cobb, the company’s president and CEO, said in a 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. It allows us to benefit from the substantial upside economics in this portfolio and provides capital for accretive strategic investment in other areas.”

Final closings of these transactions are expected to be completed in the fourth quarter of 2012.

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