Despite recent troubles, HCR ManorCare has a rich history

Blade, The (Toledo, OH)

April 29--"Our history is still being written," begins the 'Our history" page on the HCR ManorCare website.

Gloom colored that history much of the last year -- each dispatch darkening the outlook as millions unpaid in rent caused the company to file bankruptcy, albeit expedited, and ending with the prospect of ManorCare's landlord becoming its owner.

Then came the announcement Thursday that ProMedica had reached a deal to buy the nursing home and rehabilitation care chain with real estate investment trust Welltower Inc. -- which acquired HCR ManorCare's landlord, Quality Care Products, as part of the deal.

Despite HCR ManorCare's recent peril, growth -- in revenues, in profits, in acquisitions -- became the hallmark of a history dating to the 1960s.

Changing hands

Both HCR ManorCare and Welltower trace their lineage to Lima, Ohio, a family owned firm in the 1960s that became Wolfe Industries, and Frederic D. "Fritz" Wolfe, years later widely known as a benefactor of the University of Toledo and Bowling Green State University.

The Wolfe firm started building nursing homes in 1963. Mr. Wolfe and Bruce Thompson in 1970 started Health Care Fund as a real estate investment trust to finance nursing homes and health-care facilities. The fund was renamed Health Care REIT in 1985 and Welltower Inc. in 2015.

In 1981, Mr. Wolfe combined three Wolfe Industries subsidiaries to form Health Care and Retirement Corp. of America to develop, build, and manage health care, nursing, and retirement centers.

Mr. Wolfe sought a buyer three years later for HCR, to avoid questions of a conflict of interest that his roles in HCR and Health Care Fund might have sparked. He found a willing taker in Owens-Illinois Inc., the glass bottle and container giant. Under Chairman Robert Lanigan, O-I aspired to increase the price of company stock -- with the goal of fending off corporate raiders -- by acquiring firms with growth potential, such as a mortgage company and, with HCR, a nursing home chain. O-I paid $99 million for the acquisition. Mr. Wolfe kept control of Health Care Fund.

HCR, under O-I ownership, steadily bought up small chains, some with five homes in one locale, some with 40 homes in multiple states. HCR was three times its 1984 size when, in 1986, O-I announced the subsidiary was moving from Lima to corporate headquarters at One SeaGate in downtown Toledo.

In 1991, O-I divested itself of HCR to concentrate on its core business and raise cash to pay down debt.

"Ever since O-I went private in 1987 -- having been acquired in a leveraged buyout by New York's Kohlberg Kravis Roberts & Co. -- it has sought to sell its health-care unit, an odd duck among O-I's glass businesses," Blade business writer Homer Brickey wrote in an analysis of HCR's newfound independence.

The company survived intact under O-I and KKR ownership and continued to grow as an independent and publicly held company -- and for that "O-I and KKR don't get enough credit," Paul Ormond, HCR president, told The Blade in 1993. "They planted the seeds and allowed us to become an independent company. They had a commitment to build this company."

HCR and another care-facility behemoth, Manor Care Inc., of Gaithersburg, Md., combined in September, 1998.

"We become 55,000 strong," said Mr. Ormond, a onetime O-I corporate planning analyst named HCR president in 1985. He stayed past divestiture, through the Manor Care merger, and then the purchase in 2007 by Carlyle Group, a global private equity firm. He left the company in September.

In 1993, Mr. Ormond said the firm was evolving into a health-care provider and positioning itself "to be part of health-care cost solutions, a part of the solution rather than part of the problem." In 1994, he spoke to a shareholders' meeting of future opportunity, because "the elderly are more wealthy" than before and are "increasingly able to pay for their own care."

The newly merged HCR and Manor Care called itself the largest skilled nursing provider in the industry with more than $2 billion revenues and more than 55,000 employees in 32 states -- and headquarters still in Toledo. The next year, with a grant from the city and state, and a state loan besides, the firm moved from One SeaGate to the 16-story Summit Center on Summit Street.

In 2007, the prospect of Carlyle Group, the private equity firm, buying publicly held HCR ManorCare prompted concerns by Ohio's long-term care ombudsman and sparked protests by members of Service Employees International Union outside Carlyle's Washington headquarters and outside HCR headquarters in Toledo. In 2006, HCR ManorCare had placed 565th on the Fortune 1,000 list.

The $6.3 billion sale was completed in December, 2007, Carlyle's first investment in nursing homes, with word that HCR ManorCare headquarters, its 700 employees, and the entire management staff would be retained in downtown Toledo.

The firm became Toledo's largest privately held company.

Layoffs and cutbacks

Then, in 2010, the firm sold its real estate to a real estate investment trust in California. An HCR ManorCare spokesman said then that the firm was "the lone holdout" in the industry to own the real estate holdings it occupied.

Uncharacteristic bad news came in 2011 as the firm announced that several hundred employees would be laid off nationwide because of cutbacks in Medicare and Medicaid reimbursements.

Money troubles worsened mid-decade, with the firm losing $3.2 million in 2016 alone. In May, 2017, an independent auditor said the losses were "primarily the result of the challenging operating environment in the long-term care segment of the business." The auditor expressed doubt that the firm could continue long-term operations without changing the operating agreement it had with Quality Care Properties, which had become the owner of the real estate from which HCR ManorCare operated.

By July the firm had slipped into default by not paying its rent, which meant HCR ManorCare owed rent for the balance of the lease, $265 million. In August, the landlord asked a court that the firm be placed in receivership.

In March, HCR ManorCare filed for a prepackaged Chapter 11 bankruptcy. An addendum to the plan included $116.7 million to Mr. Ormond, who had left as president and CEO in September. The amount stemmed from a deferred compensation agreement Mr. Ormond signed in 2011 when the Carlyle Group bought the firm.

A bankruptcy judge in Delaware on April 14 approved an expedited bankruptcy plan for HCR ManorCare Inc. to allow the firm to become owned by its landlord and grant Mr. Ormond his deferred compensation -- $116.7 million.

With the ProMedica and Welltower rescue, the firm's ownership returns to its historical roots in northwest Ohio.

Contact Mark Zaborney at mzaborney@theblade.com or 419-724-6182.

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