QCP Sets Date for Welltower Vote, Sees Skilled Nursing Woes Through 2020

Quality Care Properties (NYSE: QCP) has set a date for shareholders to vote on its proposed acquisition by Welltower Inc. (NYSE: WELL) and the ProMedica hospital system — and despite rumblings about a potentially better offer, QCP continues to tell shareholders to approve the deal.

The real estate investment trust (REIT) will convene a meeting of its shareholders on July 25 at a Residence Inn in Bethesda, Md., where QCP is based, to determine whether or not the deal will go through.

“The board of directors of the company has unanimously approved the merger and determined that the merger agreement is advisable and in the best interests of the company and its stockholders,” QCP’s management wrote in a proxy notice filed with the Securities and Exchange Commission on Thursday. “The board unanimously recommends that the stockholders of the company vote ‘FOR’ the proposal to approve the merger.”

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The official date announcement came on the same day that a federal bankruptcy judge overseeing ManorCare’s Chapter 11 case signed off on the merger plan, as first reported by the Toledo Blade.

Under the terms of the deal, first announced in April, the Toledo, Ohio-based Welltower will acquire QCP’s real estate assets in a joint venture with ProMedica, a fellow Toledo company that operates non-profit hospitals. In a separate but related transaction, ProMedica will pick up HCR ManorCare, the struggling skilled nursing provider that accounts for the vast majority of QCP’s tenant portfolio.

QCP revealed a potential wrench in the deal two weeks ago, when management announced that they had received a potentially better offer during the transaction’s “go-shop” period. Still, QCP emphasized that it had not fully vetted the new suitor, and continued to urge shareholders to vote in favor of the existing ProMedica-Welltower deal.

Inside ManorCare’s finances 

The proxy statement also broke down some of the reasons why QCP elected to take the Welltower deal instead of its previous takeover plan for the struggling ManorCare chain, which entered Chapter 11 after a series of missed rent payments and other financial issues throughout 2017.

QCP had initially signaled its intention to buy out ManorCare and surrender its status as a publicly traded REIT, but Welltower’s proposal proved superior once QCP’s management started to crunch the numbers.

“A sustained, long-term negative business trajectory in the skilled nursing and assisted living sectors has been ongoing since 2012 and has steepened over the past year and is expected to continue through at least 2020,” the REIT wrote in its reasons for championing the ManorCare sale to ProMedica.

In addition, QCP cast doubt on ManorCare’s focus on post-acute care through its MedBridge program.

“Industry trends have reduced the attractiveness and operating performance of facilities that focus on post-acute care,” QCP wrote. “In particular, Medicare fee-for-service reimbursement has come under pressure, with a shift towards greater managed care and shorter length of stays, and in many cases, for certain types of post-acute categories, home health care has also become a viable alternative to skilled nursing facilities.”

The REIT also mirrored a point Welltower CEO Tom DeRosa had made while defending the decision to go all in on ManorCare’s properties: The operations are sound, he said, but the buildings themselves have simply been capital-starved under years of ownership by a private equity firm.

“Given these older facilities, and the newer competition that has been built in many of the company’s markets for both asset types, significant capital expenditures are required to remain competitive, and the risks that capital investment alone may not be sufficient to stem the negative operating trends currently being exhibited in the company’s remaining core skilled nursing facilities and assisted living facilities,” QCP concluded.

Written by Alex Spanko 

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