Shareholders of Quality Care Properties (NYSE: QCP) on Wednesday voted to approve the company’s acquisition by fellow real estate investment trust Welltower Inc. (NYSE: WELL), marking the latest milestone in a mega-deal that will shake up the skilled nursing industry.
The Bethesda, Md.-based QCP’s investors will receive $20.75 per share as part of the deal.
The results cleared the way for the newly combined REIT to form a joint venture with non-profit hospital provider ProMedica and take over QCP’s existing real estate. In a related move, the Toledo, Ohio-based ProMedica will also acquire the operations of bankrupt skilled nursing provider HCR ManorCare, QCP’s primary tenant.
All told, the terms of the deal approached $2 billion, and the transaction will see the regional ProMedica health chain balloon into a nationwide provider with 160 skilled nursing facilities and 58 assisted living and memory care properties.
“We thank our stockholders for their support and look forward to completing the merger,” CEO Mark Ordan said in a statement announcing the vote.
The path to approval wasn’t without some speed bumps. Back in June, QCP announced that it had received a potentially better offer than the Welltower-ProMedica proposal, though that unnamed suitor eventually dropped out of the running by early July. A pair of shareholders also filed suit against QCP, alleging Exchange Act violations; the REIT responded by updating its proxy statement, and the matter was settled.
Revolution or risk?
When the deal was first announced in April, Welltower executives framed the transaction as a revolutionary move in the long-term health care space.
“The post-acute industry needs to be reinvented with the proper capital structure, provided by patient and strategic capital, and health system sponsorship that believes in the lower-cost care settings,” senior vice president of investments Shankh Mitra said in a conference call with investors.
Welltower CEO Tom DeRosa was even more blunt, urging shareholders to think of the deal as a health-system play — and explicitly not a SNF investment.
“I believe ProMedica and Welltower will together make this real estate more consequential as sites of care,” DeRosa told SNN in April. “I believe that ProMedica sees this real estate beyond the basic function of the skilled nursing facility. This will allow this major health system to deliver its care model in effective, well-located, lower-cost real estate than an acute care hospital.”
In justifying its decision to sell, however, QCP saw bleak times ahead for the SNF business.
“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 proxy statement.
End of an era
Wednesday’s vote also marks the end of QCP’s brief time on the skilled nursing scene. The short-lived REIT was born back in November 2016, when major health care REIT HCP Inc. (NYSE: HCP) spun off its troubled skilled nursing portfolio into a separate entity.
At the time, the market had doubts.
“You’ve seen what can happen, when ManorCare had stumbles,” Green Street Advisors analyst Michael Knott told SNN’s sister site Senior Housing News at the time. “When you have such a large concentration, you’re taking a lot of risks. It will take a long time to whittle that down, but every bit you can bring down [the concentration] is probably a good thing.”
ManorCare and QCP then embarked on a stormy marriage, marked by missed rent payments and a July 2017 lease default. After a protracted negotiation process, QCP eventually assumed control over ManorCare’s assets in March; ManorCare formally entered Chapter 11 bankruptcy protection under a prepackaged plan in April.
Welltower’s stock rose slightly after the vote was announced, gaining $0.62 per share for an increase of 0.98%. QCP’s stock was up about three cents at $20.54.
Written by Alex Spanko