UPDATE: HCP Files Complaint Against Sunrise Senior Living

Shares of senior-housing operator Sunrise Senior Living Inc. (SRZ) plunged more than 24% Tuesday after HCP Inc. (HCP) said it aims to terminate management agreements on 64 properties.

Monday afternoon, HCP alleged breach of contract, saying Sunrise is operating the properties in a manner favoring the interests of Sunrise and its affiliates "at the expense of HCP and its tenants," the health-care REIT said in a statement.

Sunrise has battled liquidity and balance-sheet issues that have dragged down its shares. In April, the company received a 12th amendment to its bank credit facility - providing some breathing room until December.

While Sunrise's corporate issues may be a backdrop to HCP's recent actions, some analysts say the complaint is an attempt to extricate HCP from its lower-margin deals with the operator. "HCP has a plan to divest themselves of Sunrise exposure to a degree that makes sense, relative to problems Sunrise is having," says Richard Anderson, an analyst with BMO Capital Markets. HCP is more likely to keep Sunrise as an operator in "mansion" properties where the operating margins are higher, he said.

Sunrise, which said it operated 411 communities as of May 8, and HCP weren't immediately available for comment.

Earlier this month, HCP terminated management agreements on 15 Sunrise communities for "failure to achieve certain performance thresholds."

In a statement on Monday, Sunrise said the "litigation is without merit." Sunrise Chief Executive Mark Ordan said HCP purchased the communities under long-term management agreements with "many years remaining." The communities have "steadily improved their performance yet HCP has continuously expressed their desire to terminate their agreements."

In addition, Sunrise plans to "enforce our rights vigorously on behalf of all Sunrise stakeholders," he said.

The company said the majority of its management agreements with HCP have expiration dates ranging from 2028 to 2038 and include extension options held by Sunrise.

Sunrise shares recently traded down 26.51% at $1.58, while HCP fell slightly to $21.00.

-By Veronica Dagher, Dow Jones Newswires; 212-416-2261; [e-mail]