Within weeks of being spun out of HCP, Inc. (NYSE: HCP), Quality Care Properties (NYSE: QCP) announced that it had agreed to a two-month temporary rent reduction for its major client, HCR ManorCare. December’s rent was reduced by $15.0 million, or nearly 40% below what it should have been, and January 2017’s rent will be reduced by $10.0 million, or 25% below what it should have been. Quality Care Properties agreed to these reductions in response to a request from HCR ManorCare because of the “continuing financial deterioration” at the company. QCP believes this partial and temporary relief with give it time to “perform due diligence and gather information about the Lessee in advance of a potential comprehensive solution” to the problems at HCR ManorCare. Really? They needed to reduce rent to give QCP time to figure out what to do? We assumed that’s what they were doing for the past six months.
Weirdly, the news did not seem to impact QCP’s stock price much, especially with the Fed’s quarter point interest rate increase. This is bad news for the sector if HCR ManorCare’s financial condition has continued to deteriorate when they should have really been working it and they have already shed some of their worst performers. It would seem that The Carlyle Group, which still controls HCR ManorCare, now has a weakened negotiating position and may want to be out of its position sooner rather than later.
