HCR ManorCare Falls Behind in Full Lease Payments, Pursues Out-of-Court Restructuring
Quality Care Characteristic(NYSE: QCP), the new healthcare REIT established by HCP last year to take the struggling skillled nursing center operator, HCR ManorCare Inc., off its hands, is dealing with a challenging choice.
With HCR ManorCare falling back in lease and doggedly pursuing an out-of-court restructuring, Quality Care Residence is thinking about taking over the struggling knowledgeable nursing center operator, which is by far its most significant occupant.
However, as QCP recently acknowledged, such a move could trigger it to lose its REIT status.
Quality Care Characteristic was formed in 2016 when HCP Inc. (NYSE: HCP) spun off HCR ManorCare and other health care-related residential or commercial properties. While freeing itself from ManorCare allowed HCP to focus on higher-growth opportunities in its diversified healthcare realty portfolio, it saddled Quality Care Residences with the prospect of a tough turn-around scenario.
As of March 31, Quality Care’s holdings consisted of 257 post?acute/ competent nursing homes, 61 memory care/assisted living properties, one surgical hospital and one medical office building throughout 29 states. HCR Manor Care leases 292 of the 320 residential or commercial properties, accounting for 94% of QCP’s revenue.
The REIT divulged that HCR ManorCare is in default of its master lease contract, behind completely rent payments, and HCR’s lending institutions have also accelerated loan repayments from the Toledo, OH-based nursing center operator.
The operator’s difficulties are not brand-new to Bethesda, MD-based Quality Care. HCP started the spin-off as part of a strategy to enhance its portfolio performance, which was being obstructed as the wider proficient nursing center market continued to experience challenges from much shorter lengths of stays for homeowners, changes in Medicare repayment designs that decreased reimbursement rates, and lower resident counts.
HCR ManorCare’s monetary difficulties escalated this spring. In April, the company participated in a forbearance arrangement with HCR ManorCare concurring not to pursue “workout of treatments” readily available to it as a result of HCR ManorCare’s default under its master lease and security arrangement.
The forbearance contract required, to name a few things, that HCR ManorCare pay $32 million in lease on the first of April, Might and June of 2017, with up to $7 countless the amount received monthly possibly avilable in loans back to HCR ManorCare.
This month, HCR ManorCare just made a $15 million rent payment, less than half its overall under the forebearance contract, according to a Quality Care filing with the U.S. Securities & & Exchange Commission.
HCR ManorCare notified Quality Care that its protected lending institutions have actually accelerated their loans and that the minimized lease payment “corresponds to the amount that it believed to be appropriate to pay at this time because of the impressive acceleration by HCR ManorCare’s protected lending institutions, the desire to preserve liquidity for its stakeholders, the incurrence of expert charges and other restructuring expenses and newly supplied HCR ManorCare management projections of minimized cash flow from the QCP-owned assets.”
HCR ManorCare also forecasted a decrease in the future financial efficiency compared to forecasts it made earlier this year.
Quality Care said it continues to be in conversations with HCR ManorCare about its lease default and a prospective out-of-court restructuring, stating it “thinks that an out-of-court restructuring will need a substantial decrease in HCR ManorCare’s liabilities, but included it might offer no assurance that the necessary contracts among stakeholders would be reached.
On the other hand, QCP stated it is considering all alternatives, consisting of taking full equity ownership of HCR ManorCare.
While Quality Care thinks such a restructuring would allow HCR ManorCare’s to produce a sustainable company operation, if it were to occur, it would also suggest that QCP would not have the ability to retain its REIT status.