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Quality Care to renegotiate tenant's master lease, accept rent deferral

Quality Care Properties Inc. agreed to let its principal tenant defer $22.5 million in rent, and is lending the tenant money while the two sides negotiate a long-term restructuring of their relationship.

The tenant, a unit of HCR ManorCare, has failed to provide Quality Care with recent financial statements and promised under the new agreement to do so by April 10. ManorCare's majority owner is Carlyle Group LP. Quality Care owns a minority stake in the skilled nursing operator that it currently values at zero.

ManorCare has long struggled to afford its rent payments, and HCP Inc., its previous landlord, spun off Quality Care in late 2016 primarily as a way of ridding itself of the ManorCare relationship. Quality Care derives 94% of its 2016 revenue from the ManorCare master lease, which it agreed in November 2016 to reduce by $25 million.

Under the new agreement, ManorCare is required to make cash rent payments of $32 million for each of April, May and June, deferring an additional $7.5 million per month that otherwise would have been due. That money will now be due July 5, or sooner if the agreement is terminated early.

ManorCare's 2016 audited financial statements, which Quality Care expects to receive under the agreement, are expected to include a "going concern" exception for the tenant in the auditor opinion, the company said.

In the period leading up to the agreement's July 5 expiration, Quality Care and ManorCare "intend to engage in good faith discussions concerning a long-term restructuring of the terms of the master lease, the guaranty of the master lease and certain other matters." To "facilitate" those talks, Quality Care said it also agreed to give ManorCare a temporary secured extension of credit of up to $7 million per month for each of April, May and June.

The loan would be due and payable in full not later than Dec. 31, 2017, subject to acceleration upon certain events.