HCP to Spin Off HCR ManorCare Portfolio Into Separate REIT

by Jeff Shaw

IRVINE, CALIF. — HCP (NYSE: HCP), one of the largest healthcare real estate investment trusts in the United States, will spin off its HCR ManorCare portfolio of skilled nursing and assisted living assets into an independent, publicly traded REIT. The company’s board of directors approved the plan today.

The newly formed REIT, SpinCo, will be composed of more than 320 properties operated by HCR ManorCare. The portfolio has an expected in-place annual rent of approximately $485 million.

“Post spin, HCP will own a stable, private-pay portfolio that has a track record of delivering consistent, attractive returns,” says Lauralee Martin, president and CEO of Irvine-based HCP. “HCP will be able to sharpen its focus on high-growth healthcare sectors.”

This is the second major REIT to spin off its skilled nursing portfolio in the past year. In August, Ventas created Care Capital Properties as a way to spin off its skilled nursing assets.

“We need to eliminate the overhang that exists from the current challenges facing HCR ManorCare so the rest of our business can flourish,” said Micheal McKee, executive chairman of the board, on the company’s first-quarter earnings call this morning. “As we reviewed our options, for many reasons it became clear to the board that the best pathway forward was to pursue a spin-off transaction.” McKee did not explain the specific challenges facing HCR.

HCP will focus on its core businesses such as seniors housing, life science and medical office. Following the completion of the spin-off, HCP’s portfolio will consist of more than 860 properties, generating an annual portfolio income of approximately $1.4 billion.

Mark Ordan, former CEO of Sunrise Senior Living, will take the reins as CEO of SpinCo.

“With a singular focus on skilled nursing facilities and assisted living assets and a flexible capital structure, we believe SpinCo will have the tools and flexibility to unlock value in the HCR ManorCare portfolio,” says Ordan.

There were two other notable executive changes made in conjunction with the announcement. Kai Hsiao, former CEO of independent living giant Holiday Retirement, was hired as executive vice president of asset management for HCP’s seniors housing division. Justen Hutchens, meanwhile, was promoted from chief investment officer of seniors housing for HCP to chief investment officer of the entire company.

HCP expects to complete the spin-off in the second half of this year. Upon completion, HCP shareholders will receive shares of SpinCo via a pro rata special distribution. The number of HCP shares owned by each shareholder will not change as a result of the distribution.

Barclays and Morgan Stanley & Co. are serving as financial advisors to HCP.

Paul, Weiss, Rifkind, Wharton & Garrison LLP and Skadden, Arps, Slate, Meagher & Flom LLP are serving as legal counsel.

HCP’s stock price closed on Friday, May 6 at $34.55 per share, down from $39.20 a year ago.

— Christina Cannon

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