More Dispositions – Headlined by Genesis – Bring Welltower’s SNF Exit to $525M Over the Past Year

Welltower Inc. (NYSE: WELL) continues to shrink its long-term care portfolio, selling seven Genesis HealthCare properties in the first quarter of this year.

Overall, the senior care segment represented just 4.8% of Welltower’s total NOI in place at the end of 2021 — versus 10.1% at the end of 2020. The 530 basis point decline was largely driven by the exit of its Genesis relationship, according to Welltower’s CFO Tim McHugh.

However, the company’s portfolio exposure to senior housing declined to 61.8% in the first quarter of 2022, according to Stifel analysts, while its long-term post-acute care exposure grew slightly.

“Our long-term post-acute portfolio generated -1.8% year over year same store growth and controlling 12-month EBITDAR coverage was 1.3X,” McHugh said during the company’s first quarter earnings call on Wednesday.

It’s been over a year since Genesis announced a three-part strategic restructuring plan. The longtime player in the SNF space continues to chart a path toward recovery after seeing $67 million in lost revenue associated with COVID-19 during the second quarter of 2020 and $74 million for the first six months of 2020.

Welltower’s planned exit of Genesis continued during the quarter and as it closed on the sale of seven properties priced at $76 million. In April, the real estate investment trust also closed on the sale of two properties for proceeds of $17 million. This follows the company’s exit from 21 properties previously leased to Genesis prior to the REIT’s third quarter earnings call last year.

As part of its restructuring, Genesis also sold 51 skilled nursing, assisted living and senior living facilities in nine states to new operators. The facilities were sold in exchange for $86 million that was used to repay a portion of its debt obligations to Welltower. Genesis also received $170 million in debt reduction from Welltower.

The Genesis sale brought Welltower’s total sales in the long-term post-acute care space over the last 12 months to $525 million with a funding cap rate of 7.5%. An additional $202 million is under contract for sale at quarter end, McHugh added.

With a reported normalized FFO of $0.82/share, Welltower matched analysts’ consensus expectations. Reported normalized FFO growth was 15% over the prior year.

SNF coverage, Healthcare Trust interest

Stifel analysts expect the company’s SNF coverage – which saw its EBITDAR coverage rise 1 basis point to 1.30x — should continue to improve “relatively quickly” as the economy reopens and census is rebuilt.

Due to it being a “lower margin business,” however, the slope of the recovery is expected to be steeper than other sectors, they wrote.

While pulling back from SNF ownership, Welltower is making record investments in other types of health care assets and made a nearly $5 billion cash offer for Healthcare Realty Trust Inc. (NYSE: HR) that was ultimately rejected, the Wall Street Journal reported earlier this month.

Welltower CEO Shankh Mitra defended the REIT’s offer and intent on that transaction, which he felt may have been mischaracterized, during the earnings call on Wednesday.

“I am genuinely disappointed that the HR board and management did not engage with us,” he said. “We never chase a deal and we never will. Although I am disappointed that HR did not engage with us, we thought our offer would result in a superior outcome for HR shareholders.”