Without any Deal over Lease Defaulty in Sight, Prospects for both Companies Remain Uncertain
After reaching a deadlock to take over its largest tenant, Quality Care Characteristic (NYSE: QCP)has actually now given struggling proficient nursing center operator HCR ManorCare Inc. until the end of the week to pay off $79.6 million in past due lease.
Failure to do so “will make up an occasion of default needing the immediate payment of an additional approximately $265 million of delayed rent commitments and allow the QCP lessors to terminate the master lease, designate receivers or exercise other solutions with respect to any and all rented residential or commercial properties,” according to a new filing with federal securities regulators.
Quality Care Residence reported that its primary occupant paid around $8.2 countless its lease on July 7 rather than the approximately $39.5 million in lease required to be paid.
[Editor’s Note: This story was upgraded July 11 with details of rent payment demand information.]
Last month, Quality Care Properties revealed it was in conversations with HCR ManorCare– its primary tenant– about HCR ManorCare’s default under its master lease. Quality Care was looking for a commitment from HRC ManorCare’s loan providers for acquisition funding of approximately $500 million to be utilized to re-finance HRC’s present financial obligation and supply working capital. Such a relocation might have caused QCP to lose its REIT status.
QCP said confidential discussions about restructuring alternatives are continuing.
“QCP thinks it is necessary that any restructuring supply the QCP-owned centers and their experienced and committed staff members with the liquidity, resources, capital expense and other support required to guarantee the long-term connection of outstanding client and resident care,” the REIT reported.
HCR ManorCare is the occupant and operator of significantly all QCP’s residential or commercial properties which represents 94% of the REIT’s total income.
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 releasing itself from ManorCare enabled HCP to concentrate on higher-growth opportunities in its diversified healthcare real estate portfolio, it saddled Quality Care Characteristics with the possibility of a difficult turnaround situation.
As of March 31, Quality Care’s holdings included 257 post-acute/skilled nursing properties, 61 memory care/assisted living properties, one surgical health center and one medical office complex throughout 29 states. HCR Manor Care leases 292 of the 320 residential or commercial properties.
HCR ManorCare operates more than 500 skilled nursing and rehabilitation centers, memory care neighborhoods, helped living centers, outpatient rehab centers, and hospice and home health care firms across the nation under the names of Heartland, ManorCare Health Providers and Arden Courts.
Following Quality Care Residence’ statement last month, rating agency Moody’s Investors Service reduced QCP’s and left open the capacity for more downgrade
The scores downgrade reflects Moody’s view that continued disturbances in capital from HCR will cause material deterioration in QCP’s operating profits and liquidity in the next 12-18 months.
The continuous scores review will focus on QCP’s ultimate tactical direction, its ability to reach an out-of-court lease restructuring with HCR and the impact of the restructuring on QCP’s cash flows and HCR’s EBITDAR coverage.