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Major tenant slow to provide financial statements, Quality Care Properties says

HCR ManorCare, the troubled skilled nursing operator that is the tenant in most of Quality Care Properties Inc.'s properties, has not provided the REIT with recent financial statements, according to a filing.

Quality Care debuted as a public entity in November 2016, when it was spun off from HCP Inc. It was created in large part as a vehicle to remove properties leased to HCR ManorCare from HCP's books. Before the spinoff, the operator's travails, which included an investigation by the Department of Justice and poor financial performance, had dogged HCP for years.

According to Quality Care's Form 10-K filing, ManorCare accounted for 94% of its revenue in 2016, and is a tenant in 299 of its 327 properties. The REIT is required by the SEC to include ManorCare's audited financial statements as of Dec. 31, 2016, and 2015 for the three years in the period ended Dec. 31, 2016. As of March 31, Quality Care said it is unable to provide those statements because ManorCare has not provided them.

Quality Care said it informed ManorCare "on multiple occasions during the past several weeks" that the filings were due. In response, the REIT said ManorCare informed it that the statements are not yet prepared, "without further explanation."

Analysts have suggested in the past that the REIT could adjust its relationship with ManorCare by renegotiating the tenant's rent agreement, or could decide to give up its REIT status and take on a larger ownership stake in the tenant. The company has a current equity investment in ManorCare that it values at zero.

In its annual filing, Quality Care said it is in discussions with the operator about the financial statements "and other matters."

The REIT amended its description of risk factors surrounding its business to warn that the material in ManorCare's financial statements, when it does surface, "could differ materially and adversely" from the unaudited information provided to Quality Care so far. Quality Care's stock price could fluctuate as a result, and could be hurt by any "corrective disclosure" it may need to make in the future, the company said.

Moreover, Quality Care said the failure to produce the filings could expose it to liability under the Exchange Act or impair its ability to issue securities or otherwise finance its operations. At some point, the company said, the failure to file could endanger the continued listing of the company's stock on the NYSE.