HCP to Spin Off HCR ManorCare Portfolio Into Separate REIT

  • New REIT will own skilled-nursing and assisted-living centers
  • Transaction will allow HCP to focus on growing businesses

HCP Inc. will spin off its HCR ManorCare portfolio of skilled-nursing and assisted-living assets into a separate publicly traded real estate investment trust, enabling the parent company to focus on growing businesses including senior housing and medical offices.

The new REIT will own more than 320 properties earning an annual rent of about $485 million, Irvine, California-based HCP said in a statement on Monday. The spinoff is expected to be completed in the second half of 2016. After its completion, HCP will have more than 860 properties, generating income of about $1.4 billion a year.

The transaction will leave HCP with “a stable, private-pay portfolio that has a track record of delivering consistent, attractive returns,” President and Chief Executive Officer Lauralee Martin said in the statement. 

HCP has been struggling to overcome a drag on its profit and rent growth from its ManorCare unit, which has been plagued with declining admissions, lower rent coverage and a U.S. Justice Department lawsuit, according to an April 1 report by Bloomberg Intelligence analyst Jeffrey Langbaum.

The ManorCare portfolio “has been a terrible drag on them for years,” Langbaum said in an e-mail. “They’ve been under pressure to do something. And that pressure ratcheted up” after competitor Ventas Inc. spun off its skilled-nursing assets into Care Capital Properties in August.

Shares of HCP have slipped about 12 percent in the past year, compared with a 3 percent gain in the Bloomberg index of health-care REITs. The company is the third-largest U.S. health care REIT by market value, behind Welltower Inc. and Ventas.

Real estate companies are taking advantage of the growing demand for medical
services and senior housing as the U.S. population ages. The number of people
over 65 is forecast to be 83.7 million in 2050, up from 43.1 million in 2012,
according to the U.S. Census Bureau.

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