Health Care REIT, Inc. (NYSE:HCN) announced today that in connection with its previously announced acquisition of Sunrise Senior Living, Inc. (NYSE:SRZ), affiliates of Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”), affiliates of Beecken Petty O’Keefe & Company (“BPOC”) and Coastwood Senior Housing Partners LLC have entered into a definitive agreement to acquire the management company business of Sunrise Senior Living for approximately $130 million. Health Care REIT will invest approximately $26 million for a 20% interest in the new entity. Under the agreement, the sale will close immediately prior to Health Care REIT’s previously announced acquisition of Sunrise Senior Living.
“The acquisition of the management business by a partnership with substantial expertise in both health care and real estate, that includes KKR, BPOC and Coastwood, powerfully endorses the Sunrise value proposition,” said George L. Chapman, Health Care REIT’s Chairman and Chief Executive Officer. “The backing of Sunrise management ensures a stable and growing management platform that aligns perfectly with our long-term value creation expectations.”
The management business being sold will include existing Sunrise management contracts covering 282 communities, which includes the 125 communities to be acquired by Health Care REIT, leasehold interests in 15 communities and 12 development parcels. In addition, a subsidiary of the Sunrise management partnership will employ all employees of Sunrise Senior Living and operate under the “Sunrise” name and brand. Immediately following the completion of the sale of the management company, Health Care REIT will proceed with the acquisition of Sunrise Senior Living, including its interest in 125 senior living communities.
The Sunrise management partnership has agreed that the management company entity will reduce the base management fees charged on the originally announced 20 wholly owned communities to 5.0% of revenues, which will be adjusted upwards or downwards depending on achievement of net operating income performance hurdles. The Sunrise management partnership further agreed that the management company entity will reduce the base management fees on the originally announced 105 joint venture communities, as joint venture partners are bought out and the properties become wholly owned, to the lesser of the current management fee or 5.5% of revenues, which will be adjusted upwards or downwards depending on achievement of net operating income performance hurdles.