Welltower Inc. (NYSE: WELL) CEO Tom DeRosa on Wednesday offered a spirited defense of his company’s recent skilled nursing mega-deal, saying the transaction will help save HCR ManorCare from its former private equity owners.
“These are very good assets — great real estate that’s been run by a very effective management team with one hand tied behind its back because they’ve been capital-starved,” DeRosa said during a presentation at the National Association of Real Estate Investment Trusts’ annual REITweek conference in New York City. “This is a very important transaction, because this company, HCR ManorCare, is essentially being rescued by ProMedica and Welltower.”
Those comments expand on a theme DeRosa has cultivated since his Toledo, Ohio-based REIT took the plunge to buy Quality Care Properties, ManorCare’s landlord, in an 80-20 joint venture with non-profit health system ProMedica earlier this spring: ManorCare’s former owners, private equity firm The Carlyle Group, had hamstrung the operator financially in DeRosa’s estimation, detracting from the portfolio’s strengths.
“Don’t confuse over-levered skilled nursing deals that were done by private equity groups with the operating viability of this post-acute care business platform,” DeRosa said at REITweek. “Remember, post-acute care is a very viable and important component of health care delivery. Because of the leverage that private equity firms who owned these businesses put on these businesses, the operations became unsustainable.”
ManorCare had filed for bankruptcy prior to the acquisition after a year filled with missed rent payments and an ongoing receivership battle with QCP, which had originally intended to buy out the operator and surrender its status as a publicly traded REIT. But in swooped ProMedica, which bought out ManorCare’s operations on top of its ownership stake in the joint venture that will own QCP.
DeRosa trumpeted the ManorCare portfolio’s average 4.7 — out of five — quality rating from the Centers for Medicare & Medicaid Services (CMS), as well as the fact that the provider’s management team will stay on to directly see its operations moving forward.
He also positioned the play as part of a greater move toward bringing care to more consumer-friendly sites, pointing to the recent addition of an outpatient clinic to the Shops at Mission Viejo, a California mall owned by retail real estate giant Simon Properties.
“I want to emphasize that this is the latest example of how the Welltower platform will grow: working with large, investment-grade, super-regional health systems to grow their business by driving health care services to sites other — and in addition to — their acute-care hospitals,” DeRosa said.
Demographic wave prediction
DeRosa threw his silver-tsunami prediction into the ring at REITweek, noting that the 85-and-over population is predicted to begin growing faster than the general public starting in about 18 months.
“You should know that we are currently experiencing a lull in the growth of the 85-plus population that will reverse in 2020 .. and absorption of new units coming to market is running at 3% over last year, which demonstrates increasing acceptance of seniors housing as a solution for maintaining the health, wellness,and quality of life of the aging population,” he said.
Welltower chief financial officer John Goodey was even more direct.
“We in the industry expect that 2018 will likely mark the bottom of the U.S. senior housing market cycle,” Goodey said.
And part of the coming uptick, DeRosa predicted, will be operators and investors that can vertically integrate multiple sites of care under one umbrella.
“When you sit down with the CEO of a major health system … they will tell you: ‘Where you can help us is we need a valuable post-acute care option. And we have been trying to figure that out for a number of years,’” DeRosa said. “And this is that opportunity, so we could not be more excited about it.”
Written by Alex Spanko