HCP (NYSE:HCP) announced that it has signed a definitive
agreement to acquire substantially all of the real estate assets of
privately-owned HCR ManorCare, Inc. (“HCR ManorCare”), for a
purchase price of $6.1 billion. The consideration for the purchase
will consist of the following:
- $3.528 billion in cash;
- $1.72 billion reinvested from the
payoff of HCP’s existing debt investments in HCR ManorCare
(original cash investment of $1.49 billion); and
- $852 million in HCP common stock issued
directly to the shareholders of HCR ManorCare (a fixed 25.7 million
shares, or, at HCP’s option, a cash equivalent to the currently
agreed value of those shares).
HCP will acquire from HCR ManorCare 338 post-acute, skilled
nursing and assisted living facilities located in strong markets
with high barriers to entry. The facilities are located in 30
states, with the highest concentrations in Ohio, Pennsylvania,
Florida, Illinois and Michigan.
HCR ManorCare and its affiliates will continue to operate the
assets pursuant to a long-term triple-net master lease supported by
a guaranty from HCR ManorCare. In addition, HCR ManorCare will
grant HCP an option to acquire a 9.9% interest in HCR ManorCare for
an additional purchase price of $95 million.
The triple-net lease with HCR ManorCare will provide for rent in
the first year of $472.5 million, an amount representing a 1.5x
EBITDAR coverage ratio. The rent will increase by 3.5% per year
after each of the first five years and by 3% for the remaining
portion of the fixed term. The properties will be grouped into four
pools, and HCR ManorCare will have a one-time extension option for
each pool with rent increased for the first year of the extension
option to the greater of fair market rent or a 3% increase over the
rent for the prior year. The pools will have initial terms ranging
from 13 to 17 years, and if the extension terms are exercised the
total available term of the lease will range among pools from 23 to
35 years.
HCP has obtained a commitment for a bridge loan in an amount up
to $3.3 billion that will be available to complete the HCR
ManorCare acquisition. HCP intends to issue debt and equity
securities in lieu of any borrowings available under the bridge
loan.
HCR ManorCare, Inc., based in Toledo, Ohio, is widely recognized
as a leading provider of short-term, post-hospital rehabilitation,
complex medical services and long-term care. HCR ManorCare is owned
privately by management and equity funds managed by The Carlyle
Group. HCR ManorCare has successfully expanded its clinical
capabilities in recent years to become a premier provider of
post-acute services and to offer patients and payors a more
cost-effective alternative to prolonged and costly
hospitalizations. For the first nine months of 2010, HCR
ManorCare’s portfolio had a quality mix, which represents the
percentage of revenues from Medicare and private pay sources, of
71%. Paul A. Ormond, the Chairman, President and Chief Executive
Officer of HCR ManorCare, will be invited to join HCP’s Board of
Directors.
“This transaction reinvests our substantial debt investment in a
secure long-term, growing income stream that will be highly
accretive to HCP’s funds from operations and funds available for
distribution,” said Jay Flaherty, HCP’s Chairman and Chief
Executive Officer. “The acquisition is consistent with our ‘5x5’
business model and an important milestone for our Company. Pro
forma for this transaction, HCP will have $19 billion in assets
comprised of a well-balanced portfolio of 1,000 properties.”
Paul Ormond added, “We at HCR are delighted to have the
opportunity to help secure the future of HCR ManorCare’s operations
by partnering with HCP. Going forward, our company leadership
remains the same, we will continue our high level of investment in
training and facilities, and our employees will continue to provide
the same high-quality care that our patients and residents expect.
HCR ManorCare’s priority has always been to focus on providing the
highest quality care and caring possible to meet the needs and
expectations of those we serve, and we selected HCP as our partner
because of our shared vision and its industry leading
franchise.”
The transaction, which has been approved by HCP’s Board of
Directors and the shareholders of HCR ManorCare, is structured as
an acquisition of the stock of the HCR ManorCare subsidiary that
owns the assets. Completion of the transaction is subject to
satisfaction of conditions regarding regulatory approvals and third
party consents, and to other customary closing conditions. In
addition, the purchase price will be adjusted at closing based on
changes in net liabilities associated with the acquired assets,
which adjustment may be effected through adjustments in the amount
of stock issued to the shareholders of HCR ManorCare. HCP expects
the acquisition to close late in the first quarter of 2011,
although there can be no assurance that the transaction will close
or, if it does, when the closing will occur.
CSCA Capital Advisors, LLC acted as lead financial advisor and
provided a fairness opinion in connection with the transaction.
Citi, UBS and Wells Fargo Securities also acted as financial
advisors. Skadden, Arps, Slate, Meagher & Flom LLP acted as
HCP’s legal advisor. In connection with the transaction, J.P.
Morgan Securities LLC is HCR ManorCare’s exclusive financial
advisor and Latham & Watkins LLP is their legal advisor.
On December 14, 2010, HCP will host a conference call and
webcast at 8:15 a.m. Eastern Time to discuss the acquisition.
The dial-in number for the conference call is 866-202-3048
(U.S.) and 617-213-8843 (International). The participant passcode
is 81650073. You may also access the conference call via webcast at
www.hcpi.com. The link may be found under the "Investor Relations"
tab and the “Event Calendar” page. An archive of the event will be
available on HCP's website through December 28, 2010.
An investor presentation discussing the HCR ManorCare
transaction will be available on HCP’s website at www.hcpi.com
under the “Presentations” portion of the “Investor Relations”
tab.
ABOUT HCP
HCP, Inc., an S&P 500 company, is a real estate investment
trust (REIT) that, together with its consolidated subsidiaries,
invests primarily in real estate serving the healthcare industry in
the United States. As of September 30, 2010, HCP’s portfolio of
investments, including properties owned by its unconsolidated joint
ventures, consisted of: (i) interests in 670 properties among the
following segments: 250 senior housing, 102 life science, 252
medical office, 45 skilled nursing and 21 hospital; and (ii) $2.0
billion of mezzanine and other secured loans. For more information,
visit the Company’s website at www.hcpi.com.
FORWARD-LOOKING STATEMENTS
The statements contained in this release that are not historical
facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements are made as of the date
hereof and are subject to known and unknown risks, uncertainties,
assumptions and other factors—many of which are out of the
Company’s control and difficult to forecast—that could cause actual
results to differ materially from those set forth in or implied by
forward-looking statements. These risks and uncertainties include,
but are not limited to: the satisfaction of the conditions to the
closing of the acquisition; the ability of HCP to obtain financing
necessary to consummate the acquisition or on acceptable terms,
including the satisfaction of conditions necessary for a draw on
the bridge loan; national and local economic conditions; changes in
healthcare laws and regulations, including the impact of future or
pending healthcare reform, and other changes in the healthcare
industry which affect the operations of HCR ManorCare or the above
facilities; the ability of HCR ManorCare to attract and retain
residents and operate the communities in a manner at least
consistent with historical operations; the ability of HCR ManorCare
to obtain and maintain regulatory approvals necessary for the
closing of the acquisition and the long-term operation of the
facilities; changes in management; changes in tax laws and
regulations; changes in the financial position or business
strategies of HCR ManorCare; changes in rules governing financial
reporting; and other risks described from time to time in the
Company’s Securities and Exchange Commission filings. The Company
assumes no, and hereby disclaims any, obligation to update any of
the foregoing or any other forward-looking statements as a result
of new information or new or future developments, except as
otherwise required by law. These statements should not be relied
upon as representing the Company’s views as of any date subsequent
to the date of this press release.
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