HCP to get ManorCare prop­er­ties in 30 US states for $6.1b

The Pak Banker - - Company& -

NEW YORK: HCP Inc., the biggest U.S. health-care real es­tate in­vest­ment trust, agreed to pay $6.1 bil­lion for 338 de­vel­op­ments from HCR ManorCare Inc. in the largest prop­erty ac­qui­si­tion in at least three years.

The price in­cludes $3.53 bil­lion in cash, $1.72 bil­lion rein­vested from the pay­off of HCP's ex­ist­ing debt in­vest­ments in HCR and $852 mil­lion in stock, Long Beach, Cal­i­for­nia-based HCP said in a state­ment. HCR is owned by funds man­aged by Car­lyle Group, which bought Manor Care Inc. for $6.3 bil­lion in 2007. The ac­qui­si­tion will help boost HCP's reach through its 670 prop­er­ties across 42 states. The HCR de­vel­op­ments are post-acute, skilled nurs­ing and as­sisted liv­ing fa­cil­i­ties in 30 states, in­clud­ing Ohio, Penn­syl­va­nia, Florida, Illi­nois and Michi­gan, ac­cord­ing to the state­ment. HCP cur­rently owns as­sets in­clud­ing 250 se­nior hous­ing fa­cil­i­ties.

"It's a long-term strat­egy to in­vest in health-care prop­er­ties," said David Co­hen, an econ­o­mist at Ac­tion Eco­nom­ics in Singapore. "Health care re­mains a grow­ing in­dus­try."

Health care is the sin­gle­largest in­dus­try in the U.S. based on gross do­mes­tic prod­uct, HCP said on its web­site. The com­pany said healthre­lated ex­pen­di­tures are pro­jected to in­crease 5.1 per­cent this year, cit­ing a Na­tional Health Ex­pen­di­tures re­port in Jan­uary.

HCP is the eighth-biggest U.S. real es­tate in­vest­ment trust by mar­ket value and the largest that in­vests in health­care prop­er­ties, ac­cord­ing to data com­piled by Bloomberg.

"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," Jay Fla­herty, HCP's chair­man and chief ex­ec­u­tive of­fi­cer, said in the state­ment yes­ter­day.

Toledo, Ohio-based HCR and its af­fil­i­ates will con­tinue to run the fa­cil­i­ties un­der a long-term lease sup­ported by a guar­anty from HCR, the state­ment said. The agree­ment in­cludes an in­crease in rent each year and it gives HCP an op­tion to buy a 9.9 per­cent stake in HCR for an ad­di­tional $95 mil­lion.

The an­nounce­ment was made af­ter reg­u­lar U.S. mar­ket hours. HCP rose 0.5 per­cent to close at $32.52 in New York Stock Ex­change com­pos­ite trad­ing. The shares have gained 6.5 per­cent this year, com­pared with the 11 per­cent ad­vance in the Stan­dard & Poor's 500 In­dex. In a sep­a­rate news item it is re­ported that a US Trea­sury pro­gram aimed at pre­vent­ing 3 mil­lion fore­clo­sures is likely to ful­fill less than a third of its goal, a con­gres­sional watchdog re­ported.

The Trea­sury's home­owner aid ef­fort is "in­ef­fec­tive" and has failed to hold mort­gage com­pa­nies ac­count­able, the Con­gres­sional Over­sight Panel for the Trou­bled As­set Re­lief Pro­gram said in a re­port re­leased to­day.

"The pro­gram has turned out to be a lot smaller and have a lot less im­pact on the hous­ing mar­ket than we ex­pected," said for­mer U.S. Sen­a­tor Ted Kauf­man, the chair­man of the panel.

The Home Af­ford­able Mod­i­fi­ca­tion Pro­gram, or HAMP, pays len­ders and ser­vicers to re­write loan terms for bor­row­ers who can't make their cur­rent mort­gage pay­ments. Since its 2008 cre­ation, HAMP's goal of pre­vent­ing 3 mil­lion to 4 mil­lion fore­clo­sures "has been re­peat­edly re­de­fined and wa­tered down," the panel said.

"If cur­rent trends hold, HAMP will pre­vent only 700,000 to 800,000 fore­clo­sures," a small por­tion of the 8 mil­lion to 13 mil­lion fore­clo­sures ex­pected by 2012, said Kauf­man, a Demo­crat from Delaware. The Trea­sury will spend only about a fourth of the $50 bil­lion it al­lo­cated for the pro­gram in 2009, ac­cord­ing to the Con­gres­sional Bud­get Of­fice. "For this rea­son, Trea­sury's re­luc­tance to ac­knowl­edge HAMP's short­com­ings has had real con­se­quences," the TARP panel found. "Ab­sent a dra­matic and un­ex­pected in­crease in HAMP en­roll­ment, many bil­lions of dol­lars set aside for fore­clo­sure mit­i­ga­tion may well be left un­used. As a re­sult, an un­told num­ber of bor­row­ers may go with­out help."

Home­own­ers are drop­ping out of the pro­gram at a faster rate than they're join­ing it, the Trea­sury re­ported last month. The num­ber of bor­row­ers aided by HAMP grew to nearly 520,000 in Oc­to­ber, up 23,750 from a month ear­lier, while 36,300 dropped out af­ter fail­ing to make their mod­i­fied pay­ments. Ti­mothy Mas­sad, Trea­sury's act­ing as­sis­tant sec­re­tary for fi­nan­cial sta­bil­ity, called the re­port "some­what un­fair."

Mas­sad said that while 500,000 home­own­ers have re­ceived per­ma­nent loan mod­i­fi­ca­tions un­der HAMP, the im­pact goes be­yond those num­bers be­cause mort­gage ser­vicers have im­i­tated HAMP with their own pro­grams.

"We've set a new stan­dard for the in­dus­try," Mas­sad told re­porters in a con­fer­ence call. When " mil­lions of mod­i­fi­ca­tions" by the in­dus­try are taken into ac­count, "it is hav­ing a real im­pact on the ground," he said. -Bloomberg

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