BETHESDA, MD–Health care REIT Welltower has entered into a definite agreement to acquire Quality Care Properties in an all-cash transaction for $20.75 per share, or approximately $1.95 billion. The locally-based company has also negotiated a separate agreement with ProMedica Health System in which ProMedica will acquire Quality Care's troubled skilled nursing tenant HCR ManorCare when it completes its Chapter 11 bankruptcy. ProMedica will also acquire Quality Care's other major tenant, Arden Courts, the nation's second largest provider of post-acute services and long-term care.

The two deals are expected to close concurrently, with Welltower forming an 80/20 joint venture with ProMedica to facilitate the transactions and to hold the HCR ManorCare and Arden Courts real estate.

The total deal value, including all these moving parts, comes to $3.117 billion.

Each transaction is, for all practical purposes, cross-conditioned that the other will happen. The ProMedica transaction is subject to approval by the US Bankruptcy Court and the  Welltower transaction is subject to approval by Quality Care Properties' shareholders.

As part of its bankruptcy, filed earlier this Spring, HCR ManorCare agreed to transfer ownership to Quality Care. HCR ManorCare's problems had been long brewing; it owed $7.1 billion in debt, $446 million of which was rent. Quality Care and its tenant tried for many months to work out a deal. About a week ago, HCR ManorCare's $7.1 billion bankruptcy plan and reorganization was approved by the court.

Welltower's per share acquisition price represents a 64.7% premium to the closing price of Quality Care Properties' common stock on March 1, 2018, the last day of trading prior to its announcement that it had entered into an agreement to acquire HCR ManorCare. The purchase price also represents a 17.3% premium to the 60-day volume weighted average price ended April 24, 2018.

Quality Care Properties will receive a reverse termination fee of $250 million if ProMedica fails to acquire HCR ManorCare in the bankruptcy proceeding. Quality Care will pay Welltower a termination fee of $19.8 million — or $59.5 million, in certain circumstances — if it terminates the agreement to accept a superior proposal.

Quality Care Properties is a spinoff of HCP properties. The past 17 months since its launch have been marked by “a difficult situation with our principal tenant,” says its CEO Mark Ordan in a prepared statement. It has also “navigated industry headwinds that pressured our EBITDA, while under a constraining financing umbrella.”

The Board evaluated its standalone prospects and options going forward and determined that the Welltower transaction is the best path forward “in light of QCP's risks and opportunities,” he also said.

Welltower, Ordan noted, has a relatively low cost of capital, an enormous and flexible balance sheet, a large CAPEX commitment to Quality Care's assets and a vision of long-term value, “beyond what QCP could likely deliver on a standalone and risk adjusted basis.”