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Quality Care REIT Taking Over HCR ManorCare and its 500 Facilities

Quality Care Giving Up REIT Status; HCR ManorCare Expected to File for Ch. 11 Bankruptcy
March 2, 2018
Quality Care Properties Inc. (NYSE: QCP) and HCR ManorCare Inc. have reached an agreement for Quality Care to take control over HCR ManorCare, including its skilled nursing, assisted living, hospice and homecare businesses.

As part of the agreement, Quality Care will drop its legal claims against HCR ManorCare for deferred and unpaid rent in exchange for 100% equity ownership of HCR ManorCare.

The deal also ends Quality Care's plans to qualify as a REIT, since it becomes the tenant in the properties it currently owns.

The transaction will occur through a prepackaged plan of reorganization under which HCR ManorCare will voluntarily file for Chapter 11 bankruptcy reorganization in the coming days. The transaction will then be subject to bankruptcy court approval, which is expected during the second quarter and the transaction is expected to be completed during the third quarter of 2018.

HCR ManorCare provides short-term, post-hospital services and long-term care with a network of more than 500 skilled nursing and rehabilitation centers, memory care communities, assisted living facilities, outpatient rehabilitation clinics, and hospice and home health care agencies.

"We see this as the best available opportunity to improve a challenging situation," said Mark Ordan, CEO of Quality Care. "We considered every possible option and determined that entering this agreement to take direct ownership of our tenant best positions QCP to reposition the business to realize the potential of its properties for QCP shareholders."

The transaction is expected to recapitalize HCR ManorCare and provide stability and flexibility to better react to today's rapidly changing post-acute care industry.

Post-acute/skilled nursing operators have been facing several ongoing challenges, including:
  • A shift away from a traditional fee for service model towards new managed care models with reduced payments and lengths of stays, especially managed Medicare plans;
  • Increased competition from alternative healthcare services such as home-based health agencies and life-care at home, community-based service programs, as well as increased available senior housing, retirement communities and convalescent centers; and
  • Increased regulatory scrutiny on government reimbursements.

    Effective immediately, Guy Sansone, a managing director and chairman of the Healthcare Industry Group at global professional services firm Alvarez & Marsal, and Laura Linynsky, Quality Care's senior vice president and a former chief operating officer of Sunrise Senior Living, will serve on behalf of Quality Care as consultants and work with the HCR ManorCare management team in the transition.

    After the deal closes, Sansone is expected to assume the role of HCR ManorCare's CEO and Linynsky is expected to serve as HCR ManorCare's interim chief financial officer.

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