ProMedica, Welltower reach deal to purchase HCR ManorCare

Blade, The (Toledo, OH)

April 26--ProMedica has reached a deal to purchase HCR ManorCare, a move that will keep ownership of the nation's second largest nursing home chain in Toledo and establish ProMedica as one of the country's top 15 not-for-profit health systems by revenue.

In a complementary transaction, Toledo-based real estate investment trust Welltower Inc. will acquire the whole of Quality Care Properties, which currently owns the facilities used by HCR ManorCare. Welltower and ProMedica then will form a joint venture to serve as HCR ManorCare's landlord.

The complex deal, officially announced Thursday, is being touted by Welltower and ProMedica as a revolutionary kind of partnership between a real estate investment trust and a hospital system

"This is an exciting opportunity for Welltower and singularly validates our strategy of partnering with major health systems to drive health care delivery to lower cost settings while improving health outcomes," Welltower chief executive officer Tom DeRosa said in a prepared statement.

Officials with ProMedica said it's also a new way of thinking for hospitals.

"We want to take down the wall between traditional hospital and post-acute care services in an effort to enhance the health and well-being of our aging population," Randy Oostra, ProMedica's president and chief executive officer said. "The lines are blurring between where health care begins and stops. This acquisition provides us the platform to think differently about health and aging."

According to figures from Welltower, ProMedica will spend $1.35 billion in cash to purchase HCR ManorCare, while Welltower will spend approximately $1.95 billion to acquire all outstanding QCP stock.

Although long recognized as a leader in long-term care and skilled nursing, experts say HCR ManorCare has been struggling for the past couple of years as lower Medicare reimbursements have severely cut its revenue streams. Financial filings show ManorCare lost $3.7 million the past three years, including $3.2 million in 2016.

That led to ManorCare falling behind on its rent to Quality Care Properties. As a result, ManorCare filed for Chapter 11 bankruptcy in March.

Initially, Quality Care Properties had reached a deal though the bankruptcy court to acquire and operate HCR ManorCare. A federal judge signed off on that deal earlier this month.

But on Thursday, Quality Care Properties CEO Mark Ordan said that selling Quality Care to Welltower was the company's best option going forward.

"We are pleased to reach these agreements with ProMedica and Welltower, which provide QCP shareholders with strong, certain and immediate value and position the great team at HCR ManorCare to continue providing high quality care to patients and their families," he said in a prepared statement.

"Through these agreements," he continued, "we have found a unique owner for our skilled nursing and memory care/assisted living facilities with a relatively low cost of capital, an enormous and flexible balance sheet, a large [capital expenditure] commitment to our assets and a vision of long-term value beyond what QCP could likely deliver on a standalone and risk adjusted basis."

The sale of HCR ManorCare to ProMedica must still be approved by the bankruptcy court. Welltower's acquisition of Quality Care Properties must be approved by QCP shareholders. The deal will be finalized once ManorCare exits bankruptcy, which is expected to take place in the third quarter of this year.

HRC ManorCare operates about 500 assisted living, skilled nursing, and home-health and hospice centers under the ManorCare, Arden Court, and Heartland brand names, and has about 1,700 employees locally -- which include about 700 at its 333 N. Summit St. headquarters, located across the street from ProMedica's new downtown headquarters -- and more than 50,000 nationally.

Check back for updates.

Contact Tyrel Linkhorn at tlinkhorn@theblade.com, 419-724-6134, or on Twitter @TyrelLinkhorn.

Contact Jon Chavez at jchavez@theblade.com or 419-724-6128.

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