Welltower Ends Brookdale JV, Enters New RIDEA Agreement with Pegasus

A page from Welltower's investor presentation on the transactions. Click to view larger. A page from Welltower's investor presentation on the transactions. Click to view larger.

TOLEDO, Ohio — Seniors housing REIT giant Welltower (NYSE: WELL) has announced a restructuring of its agreements with Brookdale (NYSE: BKD), the largest owner-operator of seniors housing in the country.

The basis of the restructuring is the transition of 63 Brookdale operated communities out of a joint venture between the two companies. Brookdale will pay a $58 million termination fee and continue to operate the properties during the transition. Toledo-based Welltower will pay $74.2 million to acquire Brookdale’s 20 percent interest in the properties, which equates to a 7.2 percent capitalization rate.

Of the properties being transitioned, 37 will enter into a new RIDEA joint venture with Pegasus Senior Living, a newly formed management group led by turnaround specialists Steven Vick and Chris Hollister. Another 12 properties will be entered into an existing agreement with Canadian operator Cogir, which will invest $68.2 million for a 15 percent interest in the properties.

For the remaining 14 properties, three will be sold and the remaining 11 will be split among six existing Welltower operators based on market and type of care.

Welltower’s goal in the move is to reduce the concentration of Brookdale assets in its portfolio and increase the lease coverage in the remaining Brookdale-operated communities. It also offers the chance for Welltower to found a new relationship with Pegasus while expanding its existing relationship with Cogir. Following the transactions, Brookdale will continue to operate 74 communities totaling 3,688 units under triple-net leases with Welltower.

The transactions are expected to reduce Welltower's Brookdale concentration, on a pro forma basis, from 7.6 percent of in-place NOI to approximately 2.9 percent.

"This collaborative transaction is a positive for both Brookdale and Welltower, and demonstrates our ability to strategically reposition our portfolio and is further demonstration of CEO Cindy Baier's commitment to drive Brookdale to be an action-oriented and results-focused operator," says Tom DeRosa, CEO of Welltower.

"We are excited to be forming a new operating relationship with Pegasus Senior Living, a new seniors housing business founded by industry veterans Steven Vick and Chris Hollister,” continues DeRosa. “Steven and Chris have a combined 50 years of seniors housing operating experience and have partnered with Welltower for over 25 years.”

Brookdale, for its part, described the transactions as “mutually beneficial” and said the move allows the company “improved strategic flexibility.”

“The transactions with Welltower will improve our ongoing cash flows and overall lease coverage, reduce our lease exposure, streamline our portfolio, provide us with greater transactional flexibility, and offer long-term stability for the remaining portfolio,” says Cindy Baier, Brookdale’s president and CEO. “We are grateful to Tom DeRosa and the Welltower team for their creativeness and focus on completing this win-win transaction, which strengthens our long-term relationship with Welltower and is another important step in our turnaround strategy.”

Baier was promoted from CFO to CEO earlier this year as part of an attempt to right the ship at the beleaguered owner-operator. Based in the Nashville area, Brookdale operated 1,023 communities in 46 states that can serve up to 101,000 residents as of Dec. 31, 2017. Although it is the largest owner and operator of seniors housing in the country, the company has struggled for the past few years following its $2.8 billion acquisition of fellow giant Emeritus in 2014.

Brookdale’s stock price closed at $9.05 per share on Wednesday, June 27, per share on Wednesday, Feb. 21, down from $15.08 one year ago and a five-year high of $38.72 on April 6, 2015.

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