Welltower: ProMedica, ManorCare in ‘Fine Shape’ Despite COVID-19 Strains on Nursing Homes

Welltower Inc. (NYSE: WELL) on Thursday provided little detail on the state of its joint venture with hospital system ProMedica, but executives insisted that the fundamentals of the business line — which includes the nursing home giant HCR ManorCare — remain strong despite COVID-19.

“I will tell you that ProMedica is in fine shape,” Welltower chief operating officer and chief investment officer Shankh Mitra said during the company’s first-quarter 2020 earnings call.

Given the Toledo, Ohio-based system’s outstanding bonds, Mitra said commenting too deeply on ProMedica’s finances would be “extremely inappropriate.”

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But he did allow that like many other hospital and health care providers, ProMedica’s acute and post-acute business has suffered from a drop in elective surgeries, which were largely suspended as the health care system pivoted solely toward coronavirus care.

Mitra pointed to ProMedica’s managed care insurance arm — which has seen its share of difficulties in recent quarters — as a potential buffer for the strain on the hospital and nursing home sides of its business. He also expressed optimism about the effects of the federal government’s relief efforts on ProMedica’s future.

“Any operating weakness should be offset by what any system — whether ProMedica or not — should be receiving from the CARES Act,” Mitra said.

Asked by an analyst where ProMedica and ManorCare’s operations ranked on the real estate investment trust’s (REIT) list of top concerns, Mitra expressed confidence.

“We’re worried about everything, but on that line, it’s very, very low,” he said.

ManorCare, along with the rest of the skilled nursing industry, has struggled to secure sufficient testing and personal protective equipment (PPE) for its residents and staff, with chief medical officer Mark Gloth this week explaining his frustrations to the public during a telephone press conference.

“We’re able to get about 10% of what we really need in our facilities,” Gloth said. “It’s day by day by day. Then you have families who justifiably are calling us up and saying, ‘Hey, how come you haven’t tested my loved one yet? The governor said that we have to do that.’ They’re hearing those reports. And our answer is: We don’t have the kits.”

The Toledo-based Welltower received 97% of April rent from its triple-net tenants, which include both seniors housing and post-acute care facilities.

But there are some signs that the REIT’s senior living properties are in for rough times ahead: Occupancy fell 70 basis points in March and another 240 basis points in April, with chief financial officer Tim McHugh projecting that it will drop a further 500 to 600 basis points through the end of June.

Like many other publicly traded companies, Welltower withdrew its 2020 guidance, while also reducing its dividend payments by 30% to preserve cash flow.

But CEO Tom DeRosa remained confident in the long-term viability of the REIT’s model, which has relied heavily on vertically integrating care across settings from the hospital to senior living to home.

“We still believe that because of the aging of the population, and because of the needs of a population of seniors who are going to be living longer, we are still committed to models that bring those seniors together in settings that can better manage their needs — whether they are less acute or more acute,” DeRosa said.

Even the significant stress on the nation’s nursing home infrastructure, in DeRosa’s view, was the result on insufficient investment in the space and not necessarily the model itself — an argument he made repeatedly during the REIT’s 2018 acquisition of ManorCare out of bankruptcy in conjunction with ProMedica.

“A lot of the media attention has been focused on negativity, on some tragic situations that have occurred in largely undercapitalized nursing facilities,” DeRosa said. “I think there will be good stories to tell about how they managed the needs of their population during this impossible situation, and you can be sure that they will be aggressively marketing those stories to help people regain confidence in the sector.”

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