CHICAGO (Reuters) - Shares of healthcare property owner Quality Care Properties Inc fell to a 13-month low on Tuesday as investors braced for a prolonged legal battle over unpaid rent with its main tenant,
No. 2 U.S. nursing home chain HCR ManorCare.
In a regulatory filing on Tuesday, Quality Care said it would pursue all legal paths against its tenant, which owes more than $300 million in back rent. Options include its August request for a court-appointed receiver to take over ManorCare’s operations.
ManorCare is one of many U.S. nursing homes struggling to reconcile declining reimbursement rates with increasing costs for medical supplies, insurance, aging buildings and litigation.
“This has been a prolonged process,” Fitch Rating analyst Britton Costa said.
Shares in Quality Care, a real estate investment trust (REIT), closed down 3.8 percent at $13.01 on the New York Stock Exchange.
Quality Care’s filing on Tuesday followed a December statement that appeared to signal progress in talks, such as a reduction in rent.
On Tuesday, Quality Care said ManorCare missed a reduced $14 million rent payment due Jan. 25.
In August, Quality Care first asked for a receiver to take over Toledo, Ohio-based ManorCare, with more than 250 skilled nursing and assisted living facilities across the United States.
Healthcare REITs invested heavily in skilled nursing facilities a decade ago but now are scrambling to protect their business from the downturn. Ventas Inc and Welltower Inc have diversified away from the sector.
“The amount of cash that went toward rent payments has left ManorCare with little money to invest in its facilities and deal with the headwinds that the industry is facing,” Fitch’s Costa said.
“We continue to think that a combination of the two companies or a sustainable reduction in rent are the most rational outcomes,” he said.
Quality Care and ManorCare did not immediately respond to requests for comment.
Private equity firm Carlyle Group bought HCR ManorCare in a 2007 leveraged buyout for $6.3 billion and sold the properties to HCP Inc, a large healthcare REIT for $6.1 billion in 2010. As ManorCare’s operations declined in 2016, HCP spun off the properties to Quality Care.
A combined group could force Quality Care to relinquish its REIT status. REITs receive favorable tax treatment and REIT investors are expected to benefit under U.S. President Donald Trump’s tax package.
By: Tracy Rucinski (Reporting), Tom Brown (Editing)