Quality Care Properties to Take Over HCR ManorCare

Quality Care Properties (NYSE: QCP) has reached an agreement to take over full equity ownership of its tenant, skilled nursing provider HCR ManorCare. As a result of the transaction, QCP expects to lose its status as a real estate investment trust (REIT), the company announced this morning.

The transaction follows a long period of financial troubles at ManorCare and months of negotiations with its REIT landlord QCP.

Toledo, Ohio-based ManorCare, one the largest skilled nursing providers in the nation, is expected to file for Chapter 11 bankruptcy protection, paving the way for QCP to take over the company through a prepackaged plan of reorganization, pending bankruptcy court and regulatory approvals. The court’s approval is expected in the second quarter of 2018, with the transaction anticipated to be completed in the third quarter, according to QCP.

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Patient care will not be affected by this deal, under which ManorCare’s employees, creditors, vendors and suppliers — aside from QCP — are not expected to be negatively impacted and will be paid “in the ordinary course,” QCP’s press release stated.

“This agreement facilitates a consensual resolution that provides stability and flexibility for the business,” QCP CEO Mark Ordan stated in the release. “We see this as the best available opportunity to improve a challenging situation. We considered every possible option and determined that entering this agreement to take direct ownership of our tenant best positions QCP to reposition the business to realize the potential of its properties for QCP shareholders.”

Effective immediately, Guy Sansone, managing director and chairman of the Healthcare Industry Group at global professional services firm Alvarez & Marsal, and Laura Linynsky, QCP’s senior vice president and a former COO of senior housing giant Sunrise Senior Living, will begin working in a consultant role to oversee the transition of ownership. Upon completion of the transaction, Sansone is expected to serve as ManorCare’s CEO and Linynsky is expected to become interim CFO.

“We have worked with QCP to reach an agreement that provides stability for our employees, residents and patients,” ManorCare president and CEO Steven Cavanaugh stated. “I am proud of the hard work and dedication that HCR ManorCare employees have continued to demonstrate in delivering outstanding care during difficult times.”

Latest step in the dance

Friday morning’s news marks the latest milestone in a troubled tango between the two partners. Back in 2016, HCP, Inc. (NYSE: HCP) spun off its skilled nursing assets into QCP, which became a “pure play” REIT with ManorCare accounting for 94% of its revenues during the 12 months ended December 2016. This became a problem last year, when the beleaguered ManorCare fell behind on its rent payments and eventually defaulted on its lease, facing $265 million in deferred rent bills.

QCP attempted to appoint a third-party receiver to oversee ManorCare’s operations, a move that the provider resisted — while the REIT itself ended up offering multiple extensions of its receivership deadline to the provider.

QCP’s stock spiked in the wake of the news, rising $2.88 — or 23.8% — in early morning trading.

Written by Tim Mullaney and Alex Spanko

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