LONG BEACH, CA-Locally based healthcare REIT HCP has agreed to acquire substantially all of the assets of Toledo, OH-based post-acute services provider HCR ManorCare Inc. for $6.1 billion and has launched a 40-million-share stock issue that is expected to raise $1.28 billion to pay for part of the deal, which is expected to close in the first quarter next year. The deal to buy the 338 facilities from HCR ManorCare comes on the heels of HCP’s $860 million definitive agreement to acquire partner CNL Retirement Properies Inc.'s 65% interest in a joint venture that owns 25 senior housing assets.

HCP will acquire the assets from privately owned HCR ManorCare with $3.528 billion in cash; $1.72 billion reinvested from the payoff of HCP's existing debt investments in HCR ManorCare (original cash investment of $1.49 billion); and $852 million in HCP common stock issued directly to the shareholders of HCR ManorCare.

The deal will give HCP 338 post-acute, skilled nursing and assisted living facilities “located in strong markets with high barriers to entry,” HCP says. The facilities are located in 30 states, with the highest concentrations in Ohio, Pennsylvania, Florida, Illinois and Michigan.

HCR ManorCare and its affiliates will continue to operate the assets under a long-term triple-net master lease supported by a guaranty from HCR ManorCare. In addition, the agreement grants HCP an option to acquire a 9.9% interest in HCR ManorCare for an additional purchase price of $95 million.

The triple-net lease with HCR ManorCare will provide for rent in the first year of $472.5 million, which will increase by 3.5% per year after each of the first five years and by 3% for the remaining portion of the fixed term. The properties will be grouped into four pools, and the agreement provides specific terms of rent and rent increases for each of those pools.

HCP has obtained a commitment for a bridge loan in an amount up to $3.3 billion that will be available to complete the HCR ManorCare acquisition. The REIT intends to issue debt and equity securities in lieu of any borrowings available under the bridge loan.

Regarding the stock offering, HCP initially said Tuesday that it would issue 31 million shares, then raised the figure to 40 million shares late in the day. The REIT intends to grant the underwriters an option for 30 days to purchase up to six million additional shares of common stock and anticipates that the net proceeds will be used, together with future debt offerings, cash on hand, and the reinvestment of proceeds from the repayment of HCP's existing HCR ManorCare debt investments, to finance the acquisition of the HCR ManorCare properties.

In the deal with CNL Retirement Properties, the REIT will become the sole owner of the portfolio of 25 assets, which were originally acquired by the joint venture of HCP and CNL on Oct. 5, 2006. HCP will pay approximately $137 million in cash for CNL’s 65% interest in the properties and will assume its partner's share of approximately $650 million of Fannie Mae debt secured by the assets in a transaction valuing the venture at $860 million. The acquisition is subject to customary closing conditions and is expected to close on or before Jan. 31, 2011.