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