Other than its increased share price, the news does not seem to be getting better with regard to the negotiations between Quality Care Properties (NYSE: QCP), HCR ManorCare and the various stakeholders. After making only a partial rent payment for June because of liquidity concerns, it looks like HCRMC has skipped the July payment in its entirety. The two sides have been trying to negotiate a deal, which seems to be the acquisition or merger of HCRMC into QCP, which would wipe out the burdensome lease payments. Our guess is that they just can’t over a few of the major sticking points, which include the Department of Justice investigation and the unfunded deferred compensation totaling more than $100 million, which would have to be paid out in the event of a change in control of HCRMC. The deadline for discovery in the DoJ investigation was supposed to be June 30, but we have heard little.
The other problem, which could explain the zero rent payment for July, is that the operating and financial condition continues to deteriorate so that they really do need to conserve cash as opposed to using rent payments as a negotiating ploy. Regardless, the sooner the parties can come to an agreement the better, otherwise there is that old fear of unintended consequences, and it just is not worth the risk. Any further weakening of HCR ManorCare will not do any side any good, and it will also hurt the skilled nursing sector as a whole as it will be used as an example of things to come as reimbursement continues to tighten.
