HCP Inc (HCP.N) said it would spin off its beleaguered HCR ManorCare skilled nursing and assisted living business into a publicly traded real estate investment trust (REIT) to focus on assets that are less dependent on government reimbursement. HCP shares rose as much as 6.8 percent on Monday, their biggest intraday percentage gain in nearly five years. The HCR ManorCare business has been a nagging worry for HCP ever since the U.S. Department of Justice sued the unit in April last year over its billing practices.HCP, a healthcare-focused REIT, said the spinoff would allow it to focus on its core businesses – senior housing, life science properties and medical offices. “We need to eliminate the overhang in the HCR ManorCare business so that the rest of the business can flourish,” Executive Chairman Michael McKee said on a call.
The spinoff will lead to a “new portfolio where private-pay increases to 95 percent from 80 percent,” Mizuho Securities analyst Richard Anderson wrote in a note. Skilled nursing facilities, which provide long-term care for patients who struggle with regular day-to-day activities, are vulnerable to changes in healthcare policies as they are covered under Medicare and Medicaid. Ventas Inc (VTR.N), another healthcare REIT, also separated its skilled nursing facilities last year to focus on its hospital business.
Several REITs including NorthStar Realty Finance Corp (NRF.N), Simon Property Group Inc (SPG.N) and Cousin Properties Inc (CUZ.N), have spun off assets in the past couple of years in a bid to simplify their businesses. After the spinoff, HCP expects to have more than 860 properties generating an estimated annual income of about $1.4 billion, the company said on Monday.The new REIT, which will also hold some other nursing facilities of HCP, will own over 320 properties with estimated annual rent of about $485 million.
Mark Ordan, who has joined HCP as senior adviser, will be the chief executive of the new company. HCP shares were up 4.8 percent at $36.22 in noon trading. Up to Friday’s close, the stock had fallen 18 percent since the Justice Department said it had sued HCR ManorCare.Barclays and Morgan Stanley are HCP’s financial advisers for the spinoff. Paul, Weiss, Rifkind, Wharton & Garrison and Skadden, Arps, Slate, Meagher & Flom are its legal advisers. (Reporting by Amrutha Penumudi in Bengaluru; Editing by Kirti Pandey)Download