News & Analysis

Carlyle in $6.1bn ManorCare asset sale

The nursing home chain taken private by Carlyle for $6.3bn in 2007 will sell 338 skilled and assisted living facilities to healthcare-focused REIT HCP.

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The Carlyle Group has agreed to sell substantially all the real estate of its nursing home chain HCR ManorCare in a $6.1 billion sale-leaseback deal.

Healthcare-focused REIT HCP said it would pay $3.5 billion in cash together with $2.7 billion in debt repayments and stock issuance for 338 skilled nursing and assisted living properties, located across 30 states.

Carlyle took ManorCare private in 2007 in a deal valued at $6.3 billion, acquiring the nursing home company through its $7.85 billion Carlyle Partner IV fund, which closed in 2005. Some of the proceeds from the sale, which needs regulatory approval, will be returned to investors as “return of capital”, a Carlyle spokesman said.

HCP said in a statement the triple net sale-leaseback deal would generate a rental income of $472.5 million in the first year, equivalent to a 1.5x EBITDAR coverage ratio, with the rent increasing 3.5 percent each year for the first five years and by three percent for the remaining term. The leases have initial terms of 13 to 17 years, but with extensions could run up to 35 years in total. ManorCare management and Carlyle will remain owners of the ManorCare operating company. A spokesman for Carlyle added that ManorCare had generated total EBITDA of 31 percent since its 2007 take-private.

HCP will also have the right to acquire a 9.9 percent interest in ManorCare for $95 million, with HCP potentially financing the deal with a $3.3 billion bridge loan. HCP said it could replace parts of the bridge loan with the new issuance of debt and equity securities. The sale-leaseback is expected to close in the first quarter of 2011.

In the wake of Carlyle’s take-private of ManorCare, the private equity firm faced a barrage of protest from labour unions with the deal’s closing date pushed back at least twice after the Service Employees’ International Union (SEIU) convinced several state legislatures to hold hearings on the buyout, and in some cases, delay granting Carlyle the necessary operating licenses.