Tuesday, March 22, 2011

Carlyle Monetizes ManorCare Physical Assets

The Carlyle Group will sell HCR ManorCare's real estate assets for $6.1 billion and lease them back from HCP, a health care real estate investment trust.  HCP's SEC filing states:

HCP will acquire from HCR ManorCare 334 post-acute, skilled nursing and assisted living facilities located in 30 states, with the highest concentrations in Illinois, Ohio, Pennsylvania, Michigan and Florida. 

The deal will make Carlyle $1.5 billion on ManorCare's nursing home facilities.  In 2008 Carlyle financed the ManorCare deal with $4.6 billion in a secured real-estate credit facility, comprising approximately 330 skilled nursing facilities and assisted living facilities.

HCP stated it owned $1.7 billion of CMBS facility debt, which it will put toward the $6.1 billion deal.  HCP purchased much of the CMBS debt at a deep discount.

How will facility cost increases be passed on to taxpayers via Medicaid?  Higher lease fees will wind through each nursing home's Medicaid cost report, eventually impacting the monies paid by states and the federal government.

The Master Lease will provide for minimum rent in the first year of $472.5 million, with minimum rent to increase by 3.5% per year during the subsequent five years of the term and by 3% per year for the remaining portion of the initial term.
A review of ManorCare's property plant and equipment is in order:

Prior to the Carlyle deal, book value stood at $1.47 billion (September 2007)
This rose to $4.6 billion via the CMBS facility (December 2007)
HCP is paying $6.1 billion in consideration for the same assets (plus four new facilities)

Whose home rose 315% in value in the last four years?  Raise your hand.  The Carlyle Group's "Great Cash In" continues.  Carlyle's back....

Update 3-23-11:  Texas nursing homes should go for fire sale prices once huge Medicaid cuts are implemented in the "Great Texas ExPerryment."  Carlyle's ManorCare should have lots of capital to buy.  It wouldn't be the first time Texas Republicans set the stage for Carlyle Group profits.

Update 5-7-11:  Carlyle's ManorCare is cited in a letter lamenting the state of nursing home care.   They missed the nature of Carlyle's monetizing ManorCare's physical assets.  Carlyle still owns the nursing home operations.