HCR ManorCare Falls Behind on Rent as Troubles Mount

HCR ManorCare failed to completely pay its June rent to primary landlord Quality Care Properties (NYSE: QCP), citing pressure from its secured lenders and decreased profit projections.

One of the largest skilled nursing providers in the country, the Toledo, Ohio-based HCR ManorCare paid just $15 million of the $32 million it owed QCP for June rent, the Bethesda, Md.-based real estate investment trust (REIT) stated in an 8-K filed today. The two parties entered a forbearance agreement back in April, under which HCR ManorCare would pay QCP $32 million on the first of April, May, and June. After making the initial two payments without incident, HCR ManorCare told QCP it couldn’t meet the June obligation amid increasing demands from its lenders and decreased profit projections related to QCP-owned properties.

“QCP has not yet had an opportunity to form its own view with respect to the most recent financial information provided by HCR ManorCare, or the relevance of this information to the potential future operations of a stable, restructured business,” QCP’s filing read.


The turmoil comes less than a year after “big three” health care REIT HCP Inc. (NYSE: HCP) spun off its troubled HCR ManorCare unit into its own REIT, eventually named Quality Care Partners; HCR ManorCare now accounts for 94% of QCP’s total annual revenues. As of March 31, QCP owned 257 post-acute skilled nursing properties across 29 states, according to its quarterly report, along with 61 memory care or assisted living properties, one surgical hospital, and one medical office building.

Just after the forbearance agreement was made public in April, HCR ManorCare announced that it was seeking a major restructuring of its master lease with QCP in order to maintain its liquidity for the following year and quell auditor doubts that it couldn’t operate as a going concern long-term.

The restructuring negotiations are currently still ongoing, according to QCP’s 8-K filing, but the REIT continues to consider “all alternatives” — including the complete equity takeover of HCR ManorCare, which would strip QCP of its REIT status.


“QCP would then expect to restructure HCR ManorCare’s operations to create a sustainable business model,” the filing reads.

The 8-K filing comes just a few days after HCR ManorCare CEO Paul Ormond reportedly demanded $100 million in deferred compensation related to private-equity firm Carlyle Group’s purchase of the company back in 2007, according to the New York Post. QCP, citing an ongoing Department of Justice investigation into alleged Medicare fraud and the general financial pressures on the company and its primary tenant, declined to pay the money, saying such a hefty sum would cause HCR to default, the Post reported.

QCP’s stock dropped $0.30, or 1.74%, to close Monday’s trading at $16.91.

Written by Alex Spanko

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