The Toledo Blade - December 15, 2010
Toledo's largest privately held company has sold off its real estate to a California company and will lease it back as part of what amounts to a $6.1 billion refinancing of the deal that originally made HCR ManorCare a private firm three years ago.
Neither the day-to-day operations of ManorCare, which is owned by the Carlyle Group and headquartered in downtown Toledo, nor its approximately 60,000 employees will be affected by the transaction with HCP Inc., a real estate investment trust based in Long Beach, Calif., ManorCare spokesman Rick Rump said. The company also will remain a large part of the Toledo skyline for the foreseeable future, he said.
HCP will pay $3.53 billion in cash and $852 million in stock for the properties. It can issue 25.7 million shares or a cash equivalent. The deal includes $1.72 billion in funds HCP previously invested in ManorCare. HCP, the largest medical real estate investment trust (REIT) in the U.S., will have an option to buy a 9.9 percent stake in ManorCare for another $95 million.
"This needs to be looked at as a refinancing," Mr. Rump said. "When we took the company private in 2007, [the transaction] was backed by mortgage-backed securities. We are exchanging those for a sale-leaseback arrangement." (Note: Morningstar states that the assets will be triple-net leased to HCR Manorcare at a 7.9% initial capitalization rate with 3%-3.5% contractual annual rent escalators.)
Mr. Rump said ManorCare had become "the lone holdout" in its industry to still own its own real estate holdings. He said inside the company's 338 facilities across 30 states, ManorCare "will still have all the responsibilities it has always had. We will just be leasing these facilities instead of owning them, as we have in the past."
HCR ManorCare, which was purchased for $6.3 billion in 2007 by the Carlyle Group, a private equity firm based in Washington, has 338 facilities that provide postacute care, skilled nursing services, and assisted living facilities in 30 states. The company is centered around 275 skilled nursing and rehabilitation centers, and about 50 facilities that provide care for Alzheimer's and dementia patients, with many of its properties concentrated in Ohio, Pennsylvania, Florida, and Michigan.
The purchase by HCP will expand the California trust's portfolio to nearly 1,000 properties, which it says are worth $19 billion in total. HCP already runs 250 senior housing properties and 45 skilled nursing facilities.
Morgan Keegan analyst Robert Mains said HCP "has long indicated an interest in investing in premier nursing home assets," and described ManorCare as the top nursing home operator in the United States.
HCP took out a bridge loan worth up to $3.3 billion to complete the deal, and it will issue debt and 31 million shares of common stock in lieu of borrowings. The underwriters will have an option to buy another 4.7 million shares in the next 30 days to cover any over allotments.
The companies said they expect the deal, which needs regulatory approvals, to close late in the first quarter of 2011. The deal already had been approved by shareholders of both HCP and ManorCare.
HCP officials said Paul Ormond, ManorCare's president, chairman, and chief executive officer, will be invited to join the HCP board.
In a statement, Mr. Ormond said, "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."
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