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HCP to Spin Off HCR ManorCare Into Publicly Traded REIT

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HCP (NYSE: HCP) today announced that the Company's Board of Directors has unanimously approved a plan to spin off its HCR ManorCare ("HCRMC") portfolio of skilled nursing ("SNF") and assisted living assets, as well as other skilled nursing assets, into an independent, publicly-traded REIT ("SpinCo").

The spin-off transaction will enable HCP to improve its portfolio quality and increase its focus on core growth businesses – Senior Housing, Life Science and Medical Office – that consist of a diversified group of leading operators and tenants primarily within the private-pay sector. Following the completion of the spin-off, HCP's diversified portfolio is expected to consist of more than 860 properties, generating annual portfolio income of approximately $1.4 billion.

Lauralee Martin, President and Chief Executive Officer, stated, "We believe this transaction gives HCP the ability to re-confirm itself as a blue-chip, innovative and relationship-oriented healthcare REIT. Post spin, HCP will own a stable, private-pay portfolio that has a track record of delivering consistent, attractive returns. HCP will be able to sharpen its focus on high-growth healthcare sectors and, with a cost of capital benefiting from the stability and growth profile of these strong sectors, we will be positioned to achieve accretive new investment growth. The transaction also gives our shareholders ownership of a separate company structured with the tools and flexibility to maximize the value of its assets."

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"Today's announcement is the result of an active and extensive process involving the Board, our executive team and our advisors to address our portfolio concentration related to HCR ManorCare in a comprehensive manner. We firmly believe this is the best approach to realizing the highest value for our shareholders," said Michael McKee, Executive Chairman of HCP.

In conjunction with the spin-off, Mark Ordan has joined HCP as a Senior Advisor to focus on the HCRMC investment and will lead SpinCo as Chief Executive Officer upon completion of the transaction. Mr. Ordan previously served as the Chief Executive Officer of Washington Prime Group, and prior to that, served as Chief Executive Officer of Sunrise Senior Living and led its financial and operating turnaround.

SpinCo is expected to have a real estate portfolio composed of more than 320 properties, led by facilities operated by HCRMC, with expected in-place annual rent of approximately $485 million. With a flexible balance sheet, SpinCo will be positioned to create value through active asset management that is tailored to address the ongoing changes in the post-acute/SNF industry. Upon completion of the spin-off, SpinCo will be led by an independent management team with deep experience in real estate and healthcare, led by Mark Ordan.

Mr. Ordan stated, "With a singular focus on SNF and assisted living assets and a flexible capital structure, we believe SpinCo will have the tools and flexibility to unlock value in the HCR ManorCare portfolio, as we own, manage, sell or transition assets as desired over time."

Transaction Benefits

Improves HCP's Portfolio Quality, Growth Profile and Financial Position. Post transaction, HCP will own a portfolio of largely private-pay assets across Senior Housing, Life Science and Medical Office. The improved portfolio quality and reduced tenant concentration help position HCP to achieve consistent performance, and a cost of capital that benefits from increased stability and growth profile. As a result, HCP expects to have increased flexibility to pursue its strategy of investing in growth assets that are driven by needs-based demographics with limited involvement in government reimbursement. Following the spin-off, HCP is expected to have a targeted net debt to EBITDA ratio of mid-6x, reflecting cash proceeds raised by SpinCo and additional asset sales, including the anticipated RIDEA II senior housing joint venture transaction announced in today's earnings release.
Enables HCP to Accelerate its Building Healthy Partnerships Strategy. HCP expects to benefit from building and enhancing its relationships with quality operators, health systems and research companies to help generate off-market investment opportunities, supporting its partners' growth needs.
Creates an Independent Vehicle, SpinCo, to Maximize the Value of HCRMC Portfolio. A highly experienced and driven senior management team, flexible capital structure, a more singularly focused strategy, and greater flexibility in terms of asset ownership and asset management tools, will enable SpinCo to maximize value for shareholders.
Transaction Details

Upon completion of the planned spin-off, HCP shareholders will receive shares of SpinCo via a pro rata special distribution. The number of HCP shares owned by each shareholder will not change as a result of the distribution. An investor presentation regarding the spin-off can be found on the Company's website under the Presentations tab of the Investor Relations section at http://ir.hcpi.com.

SpinCo expects to file its initial Form 10 registration statement with the Securities and Exchange Commission in the next 30 days, and the spin-off is expected to be completed in the second half of 2016. The transaction is expected to be a taxable distribution for U.S. income tax purposes. The spin-off distribution is generally expected to have the net effect of a tax-free return of capital.

The transaction is subject to certain conditions, including the effectiveness of SpinCo's Form 10 registration statement and final approval and declaration of the distribution by HCP's Board of Directors. There can be no assurance regarding the ultimate timing of the spin-off or that it will be completed. SpinCo intends to apply to have its common stock authorized for listing on the New York Stock Exchange.

Mark Ordan Biography

Mr. Ordan currently serves as an Independent Director at VEREIT and is a member of both the audit committee and the compensation committee. Mr. Ordan is the Non-Executive Chairman of the Board of WP Glimcher, the surviving entity following the closing of Washington Prime Group's acquisition of Glimcher. Mr. Ordan served as Washington Prime's Chief Executive Officer from May 2014 to January 2015, and also has been one of its directors since May 2014.

From January 2013 to November 2013, Mr. Ordan served as a director and as the Chief Executive Officer of Sunrise Senior Living, which had been a publicly traded operator of approximately 300 senior living communities located in the United States, Canada and the United Kingdom prior to its sale in January 2013 to Health Care REIT, Inc. Mr. Ordan served as Sunrise's Chief Executive Officer from November 2008 to January 2013 and as a director from July 2008 to January 2013. While at Sunrise, Mr. Ordan led its restructuring and oversaw its eventual sale. He also served as the Chief Executive Officer and President of The Mills Corporation ("Mills"), a publicly traded developer, owner and manager of a diversified portfolio of regional shopping malls and retail entertainment centers, from October 2006 to May 2007, as its Chief Operating Officer from February 2006 to October 2006 and as a director from December 2006 until May 2007. Before that, he served as President and Chief Executive Officer of Balducci's LLC, a gourmet food store chain.

Mr. Ordan currently serves on the boards of the following nonprofit organizations: the U.S. Chamber of Commerce, the National Endowment for Democracy, and the Seed School Foundation and the Economic Club of Washington, D.C. Mr. Ordan formerly served as a board member and non-executive Chairman of Federal Realty Investment Trust, and of Harris Teeter Supermarkets.

Advisors

Barclays and Morgan Stanley & Co. LLC are acting as financial advisors to HCP, and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Skadden, Arps, Slate, Meagher & Flom LLP are serving as legal counsel.

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