Manor Care, Inc.

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Manor Care, Inc.

10750 Columbia Pike
Silver Spring, Maryland 20901
U.S.A.
(301) 681-9400
Fax: (301) 680-4002

Public Company
Incorporated: 1968
Employees: 23,000
Sales: $815 million
Stock Exchanges: New York

Manor Care, Inc., is a major player consisting of two linked but disparate industries, healthcare and hotels. One of the largest American publicly owned nursing home operators, Manor Healthcare Corporation owns and runs 166 nursing homes, as well as additional medical facilities. Choice Hotels International, Inc., the company’s hospitality arm, franchises over 2,100 hotels in the U.S. and 20 other countries under seven different brand names. The two operations are joined by their common heritage as businesses begun by one man, Stewart Bainum.

Born in 1919, Stewart Bainum dropped out of college and got his start in business as a plumbing contractor. He then entered the construction business during the postwar building boom that took place in the Washington, D.C., area during the 1950s. In 1960, Bainum made his first entry into the nursing home field when he built a nursing home in Wheaton, Maryland. In 1963, Bainum went into the motel business. By 1968, he was president of Park Consolidated Motels, Inc., based in Silver Spring, Maryland, a suburb of Washington. Park operated five motels, franchised under the Quality Courts Motels name, and two apartment complexes.

Also in 1968, Bainum incorporated his nursing home business with his brother Robert, calling it Manor Care, Inc. The company began with a chain of eight nursing homes, and its stock was sold in the over-the-counter market. From the start, Bainum sought to keep profits high by positioning his company at the upscale end of the nursing home market, serving elderly patients who were affluent enough to pay for their own care, instead of relying on government programs.

In April 1968, Bainum merged his motel operation with the organization from which he had originally purchased his franchises, Quality Courts Motels, Inc. This organization had gotten its start in 1941 as Quality Courts United, Inc., a nonprofit membership corporation of independent motel owners and operators based in Daytona Beach, Florida. The group had been formed to counteract the negative public image that motels had acquired in the 1930s. As roadside tourist camps, motels had become known as places where criminals congregated and other social undesirables were to be found. FBI Director J. Edgar Hoover gave authority to this impression when he wrote in American magazine that “a majority of the 35,000 tourist camps in the U.S. threaten the peace and welfare of the communities upon which these camps have fastened themselves and all of us who form the motoring public. Many of them are not only hideouts and meeting places, but actual bases of operations from which gangs of desperadoes prey upon the surrounding territory.”

To prevent their businesses from collapsing in the face of this public disapproval, motel owners banded together to police their industry and insure that standards were raised and then maintained. In addition, Quality Courts acted as promotor and advertiser for its members. In January 1963, Quality Courts was incorporated under the name Quality Courts Motels, Inc. At this time the company adopted a more formal relationship with its members, changing to a franchise basis.

Three months later, the company made its first stock offering, when it sold shares to member motel owners and operators and their employees. When the company merged with Bainum’s operation five years later, it moved its headquarters from Florida to Maryland, and Bainum became its president and chief executive officer, as its former president became chairman.

By July 1968, Quality Courts had 422 motels, of which 12 were company-owned and the rest franchised, and plans were underway for continued expansion. With a large number of existing motels in the eastern United States, the company looked to the west and to Canada for further growth. In addition, Quality began to prospect for other cash-rich companies in fields related to the motel industry, and in October 1968, it purchased Revere Furniture and Equipment Company, which sold motel furniture and supplies.

Two years later, Quality Motels offered rooms in 33 states, and the company had established an International Division in Brussels, Belgium, to facilitate its movement into the European market. Its first hotel on the Continent was planned for a location near the German capital of Bonn. The company continued to broaden its focus, purchasing Contempo Associates, a motel interior design firm. In addition, Quality’s construction subsidiary won a contract to build military housing. The company’s auxiliary units contributed over a third of the company’s profits in the first three quarters of 1970.

With an aggressive marketing and advertising campaign, backed up by a computerized reservation system and sales offices in ten cities, Quality’s profits remained strong as the motel industry on the whole enjoyed a boom. The company began work on a new seven-story headquarters building in Silver Spring, Maryland, alongside a showroom for its motel furniture branch.

During this time, Bainum’s nursing home business also grew, though at a less rapid rate. By 1971, the company operated ten different homes with a total of 1,441 beds. Early in the next year, Manor Care purchased two 100-bed extended care facilities from Medical Development Services, Inc., of Memphis, Tennessee. Located in Columbia, North Carolina, and Wilmington, South Carolina, this acquisition extended the company’s operation to six states. Manor Care also began construction of an additional facility.

In late August 1972, Bainum’s hospitality business, Quality Courts, changed its name to Quality Inns International, Inc., to reflect the ever-broadening scope of its business. In keeping with this new emphasis, in the following year the company announced its plans to open 20 new European hotels.

Those plans ran into a snag with the 1973-74 Arab oil embargo, which resulted in long lines at the gas pumps and significantly slowed the American economy. As a motel operator dependent upon customers taking long trips in cars, Quality Inns was particularly vulnerable, and the company “damn near went out of business,” its president Joseph W. McCarthy later told the Wall Street Journal. In response to this crisis, Quality Inns ditched its plans to expand in Europe, stopped construction on projects underway, sold the properties it found most affected by the gas shortage, and worked to strengthen relations with its franchise operators.

In the nursing home business, which was largely unaffected by the fuel shortage, Manor Care continued its steady growth. By 1974, the company was operating 15 long-term care facilities in seven states, including Maryland, its home state, Virginia, North and South Carolina, New Jersey, and Ohio. Manor Care added to its holdings with the purchase of the Powell Nursing Home, in Texas City, Texas, which it renamed Manor Care of Texas City. The company already operated two properties in Houston, Texas.

Quality Inns had become the tenth-largest American hotel chain in number of rooms by 1977. By the following year, the company had expanded further, purchasing the Royale Inns of America chain, and entering into an agreement to open 40 motels in Mexico as a joint venture with a Mexican bank. By August 1978, the company ran 286 motels.

In early April 1978, Bainum’s healthcare operation, Manor Care, began an effort to acquire the Hillhaven Corporation, a nursing home company based in Tacoma, Washington. Although Hillhaven resisted the takeover attempt vigorously, by the end of August, Manor Care had acquired nearly 60 percent of the company’s common stock and more than a third of its voting stock, and the two companies had managed to hammer out an agreement. Manor Care then sold its stake in Hillhaven to National Medical Enterprises, a California hospital management concern, at a significant profit one year later.

By 1979, Quality Inns had recovered from its slump earlier in the decade, and the company, now the seventh-largest American motel chain, was reporting record profits and an increased dividend. Quality Inns was planning an additional 175 motels, to be added through franchising in the U.S., and also looked to add 50 properties in Canada.

In 1980, Bainum moved to merge his two separate businesses. This was accomplished by having Manor Care purchase essentially all of the Quality Inns company, in a transaction valued at $37 million. In September of the following year, Manor Care reorganized as a holding company for three subsidiaries: Quality Inns, Inc., which owned and operated hotels; Quality Inns International, Inc., which franchised hotels under the Quality Inn name; and Manor Healthcare Corporation, which at that time operated a hospital, three alcohol-rehabilitation facilities, and 23 separate nursing homes, including new facilities in Sugar Land, Texas, and Clearwater, Florida.

One month after the company’s restructuring, Manor Healthcare entered a bidding war with National Medical Enterprises for control of Cenco, Inc., a nursing home operator based in Illinois. By early November 1981, Manor Care had acquired more than 90 percent of Cenco, at a cost of $202 million. With Cenco’s 83 nursing homes, containing 10,000 beds all together, the purchase nearly quadrupled the number of beds in long-term care facilities operated by Manor Care. One year later, the company announced that it would sell five subsidiaries of Cenco, which manufactured items such as scientific glassware, research equipment, and valves, because they did not fit in with the company’s primary mission of running nursing homes and hotels. The liquidation of these assets, in addition to the sale of 14 nursing homes, helped to defray the cost of the Cenco acquisition, which left Manor Care with a $167 million bank debt.

Quality Inns president Joseph W. McCarthy left the chain in June 1980, and, after six months without a leader at the helm, Bainum appointed Robert C. Hazard, Jr., to the post. Hazard brought a number of top managers with him from his previous position at Best Western hotels. The new team set out to double the size of Quality Inns in three years, adding new properties through franchising at the rate of one every other business day. In addition, the company looked to enter the overseas market once again, this time through an affiliated European chain, Crest hotels.

Quality Inn also divided its properties into three groups: top-quality motels, to be called Quality Royale; medium-priced outlets, which would keep the Quality Inn name; and low-priced motels, to be known as Comfort Inns. To insure that all three sectors would live up to their name, the company instituted a strict quality-control system, and dropped 20 motels for failing to measure up. Quality Inn also planned to install a state-of-the-art reservation system, and to launch a nationwide ad campaign, to keep its ever-burgeoning number of rooms filled.

In the fall of 1983, the nursing home arm of Manor Care began an attempt to expand into the southwest by taking over the Anta Corporation, a company based in Oklahoma City that operated nursing homes, as well as aluminum and energy businesses. Although its efforts were initially rebuffed, in January 1984 Anta agreed to sell Four Seasons Nursing Centers, Inc., its 47-home long-term care subsidiary, to Manor Care for $56 million. Like Manor Care, Four Seasons served private-pay patients. One month earlier, the company had acquired three facilities in central Pennsylvania owned by the Barley family for $11.7 million. These purchases helped to make Manor Care the fourth-largest publicly traded nursing home operator in the United States, with a total of 154 homes.

Following this period of expansion through acquisition, Manor Care reevaluated its growth policy. The company concluded that the prices of nursing home properties had begun to outstrip their value, and that operations the company started from scratch were, in general, more profitable than those it bought from others. Manor Care therefore decided to achieve its next phase of expansion in the healthcare industry through development and construction from the ground up, rather than through acquisition.

Anticipating a demographic shift that would result in a large growth in the elderly population, Manor Care turned its attention to upgrading its nursing home facilities in 1985, undertaking an extensive program of refurbishment that would allow it to attract and hold onto the most wealthy, and most profitable, nursing home patients. In addition to locating its facilities in affluent areas, the company expanded its “Williamsburg Concept.” Operating Williamsburg wings in eight nursing centers, Manor Care provided its patients with gourmet food, private dining areas, limousine service, and cultural outings, as well as a hostess that acted as a concierge, catering to the special needs of patients. Programs such as this were rewarded by Manor Care’s profits, which were twice as high as the industry average.

In 1985, Manor Care increased its holdings in the hotel industry when it became the largest shareholder in a British chain of hotels, with nearly a third of Prince of Wales Hotels, P.L.C. This purchase provided the company with a toehold in Europe, from which to launch further expansion. In September, 1985, Manor Care announced that it planned to add 40 new hotels overseas within the next year. In addition, the company franchised 82 more Quality Inn hotels.

As Manor Care moved into the late 1980s, it began a program to shed less-profitable properties, and use the proceeds from their sale, as well as profits generated by its hotel operations, to finance the further growth of its healthcare division. To that end, eight nursing centers, four hotels, and an office building were sold in 1986, and the company began construction of six new nursing homes and nine additions to previously existing facilities. Manor Care also targeted 64 sites for future development, all in demographically desirable areas, with a large number of wealthy old people. With this strategy, the company hoped to maintain its ratio of 60 percent privately paying patients, the industry’s highest.

The primary arena of growth for Manor Care’s hotel business during this time continued to be overseas. The company entered the New Zealand market in 1986, with ten franchised hotels, and also added properties in Canada, Mexico, the United Kingdom, Belgium, Germany, Switzerland, and Italy.

In 1987, Manor Care’s management underwent a shift, as founder Stewart Bainum’s son, Stewart Bainum, Jr., took over as chairman. Stewart Bainum, Jr., had been a Maryland state senator, and he took his place in the family business in the wake of his loss in a race for a seat in the U.S. House of Representatives. The older Bainum assumed the post of vice chairman of the board, and under his guidance the younger Bainum continued the company’s policy of emphasizing growth in the healthcare sector. Manor Care sold four hotels, its stake in the Prince of Wales hotel chain in England, and its alcoholic rehabilitation centers in 1987, and opened two new nursing homes, in addition to one that was acquired. The company laid ambitious plans to build 20 new nursing homes each year, to double in size in less than ten years. In the midst of this building spree, Manor Care also diversified its healthcare operations slightly, adding assisted living facilities for those requiring less intense medical care than nursing homes provide, and special units called “Arcadia Units” to care for people with Alzheimer’s disease.

In its lodging operations, Manor Care moved more strongly into the upscale market when it formed Clarion Hotels and Resorts, a group of 37 luxury resorts operated as a joint venture with the Associated Inns and Restaurants Company of America. It also dropped 76 motels from its line that failed to meet its standards of quality, and added France, India, and Ireland to its roster of locations abroad.

In late 1987, Manor Care’s Quality Inn motel division became involved in a dispute with the U.S. Immigration and Naturalization Service over its alleged hiring of illegal aliens, underlining the shortage of menial workers that plagued both Manor Care’s hotel and nursing homes divisions, driving costs up. Facing almost 100 percent annual turnover among some types of nursing home employees, the company implemented incentive programs, such as scholarships for outstanding workers, in an effort to keep employees on the job. Nevertheless, high labor costs in the health care field continued to eat into Manor Care’s profits, leaving the company’s new nursing homes in the red for longer and longer periods of time. Faced with a temporary dead-end in this field, for which it had nurtured such high hopes, Manor Care turned its focus to its hotel subsidiaries in the late 1980s.

In 1988, the company broadened the scope of its hotel offerings, hoping to induce new growth. Quality Inns introduced two lines of hotels consisting entirely of suites: Quality Suites and Comfort Suite Hotels. In all, 46 all-suite outlets came on-line. In addition, the company began marketing a chain of newly constructed budget motels it called “McSleep Inns,” which soon became known as “Sleep Inns” after a dispute with McDonald’s over rights to the “Me” prefix.

In June 1990, Manor Care made an unsuccessful attempt to buy the Ramada and Howard Johnson hotel franchises. In early July, it made a successful purchase when it acquired the Rodeway Inns International franchise system, with 148 budget motels, for nearly $15 million. Later that month, Manor Care changed the name of its Quality Inns, International, division—responsible for franchising hotels around the world—to Choice Hotels International, Inc., reflecting the diversity of hotel trade names the company now controlled. By number of outlets, Choice had become the largest hotel franchise system in the world.

Manor Care’s hotel buying binge continued that fall, when it completed acquisition of Econo Lodges of America, with 615 motels, along with 85 related Friendship Inns, for $60 million. With seven brand names, including Quality, Comfort, Clarion, Sleep, Econo Lodge, Friendship, and Rodeway Inns, Choice now held one quarter of the low-cost hotel room market. The company began heavy television advertising featuring celebrities popping out of suitcases. As Choice Chairman Robert C. Hazard, Jr., told Forbes, “Our goal is 1 million hotel rooms and 10,000 hotels worldwide by the year 2000.”

The rapid pace of acquisitions left Choice with the daunting task of integrating the new chains into its old system. The main link between the disparate parts became a new $5 million computerized reservation program. Although the war in the Persian Gulf depressed travel and tourism in early 1991, by the end of the year, business had rebounded, and occupancy rates were again running above industry average. While Manor Care’s lodging division accounted for only 12 percent of its revenues in the fiscal year ended in May 1991, Choice contributed over a third of the company’s profits, as the nursing home business continued to lag.

Beset by continued high labor costs and limits on earnings enforced though Medicare caps, Manor Care began to search out more highly profitable niches within the healthcare field. To this end, the company expanded its premium Alzheimer’s units, and also implemented a program to care for patients who must be fed intravenously. As it looks forward to the 1990s, Manor Care can build on a record of strong and innovative management, which will help the company to negotiate the pitfalls of operation in its dual industries, healthcare and hotels.