HCR ManorCare Falls Behind in Full Rent Payments, Pursues Out-of-Court Restructuring
Quality Care Residence(NYSE: QCP), the new healthcare REIT set up by HCP last year to take the troubled skillled nursing center operator, HCR ManorCare Inc., off its hands, is facing a hard choice.
With HCR ManorCare falling back in rent and doggedly pursuing an out-of-court restructuring, Quality Care Properties is considering taking control of the struggling competent nursing center operator, which is without a doubt its most significant renter.
Nevertheless, as QCP just recently acknowledged, such a relocation might cause it to lose its REIT status
As it pursues its alternatives, Quality Care stated it is looking for a dedication from HRC ManorCare’s loan providers for acquisition financing of approximately $500 million to be used to re-finance HRC’s existing financial obligation and supply operating capital.
Quality Care would promise money and substantially all properties of both skilled nursing
and hospice entities to secure the financing.
Quality Care is searching for a dedication by June 15.
[Editor’s Note: This story was upgraded Friday June 9 with info on financing request.]
Quality Care Characteristic was formed in 2016 when HCP Inc. (NYSE: HCP) spun off HCR ManorCare and other health care-related homes. While releasing itself from ManorCare enabled HCP to concentrate on higher-growth chances in its diversified healthcare real estate portfolio, it saddled Quality Care Characteristics with the prospect of a difficult turn-around circumstance.
Since March 31, Quality Care’s holdings included 257 post?acute/ competent nursing residential or commercial properties, 61 memory care/assisted living properties, one surgical hospital and one medical office complex throughout 29 states. HCR Manor Care leases 292 of the 320 properties, accounting for 94% of QCP’s earnings.
The REIT revealed that HCR ManorCare remains in default of its master lease contract, behind completely lease payments, and HCR’s lending institutions have actually also accelerated loan payments from the Toledo, OH-based nursing center operator.
The operator’s problems are not new to Bethesda, MD-based Quality Care. HCP initiated the spin-off as part of a strategy to boost its portfolio performance, which was being hindered as the more comprehensive knowledgeable nursing facility market continued to experience difficulties from much shorter lengths of stays for homeowners, modifications in Medicare compensation designs that lowered compensation rates, and lower resident counts.
HCR ManorCare’s monetary problems escalated this spring. In April, the company entered into a forbearance agreement with HCR ManorCare agreeing not to pursue “exercise of solutions” readily available to it as an outcome of HCR ManorCare’s default under its master lease and security agreement.
The forbearance arrangement needed, to name a few things, that HCR ManorCare pay $32 million in rent on the very first of April, Might and June of 2017, with as much as $7 countless the quantity got monthly potentially avilable in loans back to HCR ManorCare.
This month, HCR ManorCare only made a $15 million rent payment, less than half its total under the forebearance arrangement, according to a Quality Care filing with the United States Securities & & Exchange Commission.
HCR ManorCare notified Quality Care that its secured lending institutions have actually accelerated their loans which the decreased lease payment “corresponds to the quantity that it thought to be proper to pay at this time in light of the impressive velocity by HCR ManorCare’s secured loan providers, the desire to protect liquidity for its stakeholders, the incurrence of professional charges and other restructuring expenditures and newly provided HCR ManorCare management projections of minimized capital from the QCP-owned properties.”
HCR ManorCare also forecasted a decrease in the future financial efficiency compared to forecasts it made even earlier this year.
Quality Care said it continues to remain in discussions with HCR ManorCare about its lease default and a prospective out-of-court restructuring, saying it “thinks that an out-of-court restructuring will require a considerable decrease in HCR ManorCare’s liabilities, however included it might offer no guarantee that the required agreements among stakeholders would be reached.
On the other hand, QCP stated it is thinking about all alternatives, including taking complete equity ownership of HCR ManorCare.
While Quality Care thinks such a restructuring would allow HCR ManorCare’s to create a sustainable company operation, if it were to occur, it would likewise indicate that QCP would not be able to keep its REIT status.