HCP entered into a definitive agreement this week to acquire the real estate assets of HCR ManorCare for $6.1 billion in what's become the largest deal involving a real estate investment trust in three years according to a New York Times article. HCR ManorCare, owned privately by management and equity funds managed by The Carlyle Group, is unloading 338 post-acute, skilled nursing and assisted living facilities in 30 states, with the highest concentrations in Ohio, Pennsylvania, Florida, Illinois and Michigan. The transaction is being made via $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).
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. "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." CSCA Capital Advisors, LLC acted as lead financial advisor with Citi, UBS and Wells Fargo also advising. 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.
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