Leaders with Welltower (NYSE: WELL) are touting improvements in a portfolio of seven skilled nursing facilities, saying that a similar playbook is being deployed across the large portfolio of SNFs in its joint venture with Integra Health.
The seven SNFs in question transitioned from being operated by Genesis HealthCare to Complete Care Management, in 2021. This quarter, Welltower exercised a purchase option and closed on a forward agreement to sell the SNFs to the REIT’s joint venture with Aurora Health Network and Peace Capital, resulting in net proceeds of $104 million to Welltower. Welltower CEO Shankh Mitra said the company is beginning to capture significant embedded NOI from the properties as they return to their pre-COVID net operating income (NOI) levels and higher.
“By operating these facilities more efficiently from an expense perspective while increasing quality mix, Peace has been able to improve EBITDAR by more than 75% relative to the pre-COVID levels,” Mitra said Wednesday, during the REIT’s Q1 2023 earnings call. “This point is further underscored by our COVID class of acquisitions and our further efforts to transition other assets over the last few years.”
EBITDAR margin for the properties increased from 13.1% in Q4 2019 to 20.8% in Q4 2022, according to a business update that Welltower released Tuesday.
“A similar path to value creation is currently being pursued through the transition of formerly operated ProMedica assets to 20+ regional operators with Aurora/Integra,” Welltower stated in the business update.
Last year, Welltower sold and transitioned 147 skilled nursing facilities formerly operated by ProMedica to a newly formed joint venture with Integra.
Integra transition
Welltower provided some updates on the Integra transition.
Subsequent to the end of Q1 2023, Welltower sold to Integra a 15% interest in 31 skilled nursing assets for $74 million — this was the second tranche of assets to be transitioned in this way. Sale of 15% ownership interest in the remaining assets to Integra expected to occur in stages over the next 12 months with timing largely driven by regulatory processes and evaluation of strategic assets for sale.
“Year One rent will total $218 million ($185 million WELL share), broken down into $51/$43 million (Total/WELL share) that ProMedica will pay for the AL/MC communities and $167/$142 million for the SNF assets to be paid by Integra,” Stifel analysts wrote in a note on the earnings, observing that the transition “appears to be going smoothly.”
Pipeline of opportunities
The Welltower pipeline is “robust with opportunities” for investment, including in skilled nursing, Mitra said during the earnings call.
“We are very focused on participating debt structures in the SNF side where we can create high-teen returns despite using some debt and some equity-like features,” he said.
And he touted Welltower’s capital availability even in a turbulent climate.
“Our ability to source over $1 billion of capital this year in the midst of a very challenging capital markets environment is a testament to the confidence entrusted in us by the banking community, the lenders, our investors and our other partners,” he said. “With approximately $700 million of the cash on the books and undrawn line of credit, we are not only positioned to endure further capital market volatility, but also to deploy capital as opportunities arise.”
Companies featured in this article:
Genesis HealthCare, Integra Health, Peace Capital, Welltower
