‘Busy and productive’ quarter includes numerous Brookdale transitions, HCP says

The second quarter was a “busy and productive” one for Irvine, CA-based HCP, during which time the real estate investment trust completed the majority of its previously announced transitions of Brookdale Senior Living communities, CEO Thomas Herzog said Thursday during a second-quarter earnings call.

“Year-to-date, we’ve sold $700 million of Brookdale assets, and another $500 million are under binding purchase contracts,” Executive Vice President and Chief Investment Officer Scott Brinker said. “A handful” of additional properties are still being offered for sale, he added.

Five Brookdale Senior Living communities were sold back to Brookdale, HCP said, and 22 Brookdale communities are under contract to be acquired for $428 million by affiliates of Apollo Global Management.

Twenty-eight Brookdale communities remaining in HCP’s portfolio have been transitioned to other operators, the REIT said. Twenty are now Atria Senior Living properties, five now have the Sunrise Senior Living name, two are Eclipse Senior Living communities and one is a Sonata Senior Living community. HCP had established relationships with most of the companies, some more extensive than others, Brinker said.

“Atria, Sunrise, Eclipse and Sonata are hard at work implementing targeted plans for operational improvements at these newly transitioned communities,” Herzog said. “Our expectation is these high-quality operators will drive outperformance for HCP, but it will be choppy and take some time to capture this upside.”

Recovery of occupancy, now in the low 80s versus low 90s 18 months ago, might not occur until the second half of 2019 or 2020, Brinker said, but HCP kept the properties because they showed potential.

“Our new partners are hard at work, but realistically, it takes time to build a new team of culture, implement systems and rebuild a local reputation,” he added.

Many of the communities are 20 years old and need some capital investment to attract residents and staff, Brinker said.

“And it’s not just the physical plant but the quality of the care that’s being delivered, the services offered, the value delivered, the quality and training of the staff,” he said. “Those things are incrementally more important. I think that will increasingly be the case.”

Approximately eight more Brookdale communities will transition to new owners this month, with “a small handful” of transfers expected later in the year due to licensure delays, Brinker said.