In a complicated series of transactions, Welltower Inc. recently revealed the substantial restructure of its exposure to Brookdale Senior Living, as The REIT Wire earlier reported. It is expected to result in a concentration of less than 3% (from 7.6% currently) with only modest (and temporary) NOI loss as a consequence. In total, 63 assets (48 triple net, 15 RIDEA) will be transitioned to new or existing WELL operators (except for 3 planned sales).
In a report analyzing the deal, Mizuho Securities says that the motivation for Welltower was the reduced BKD concentration (even lower if WELL completes QCP) will be 100% triple-net and include 74 communities and 3,688 units. EBITDAR coverage is expected to average 1.31x, and all of this is expected to be done before the end of 2018, the report says. Prior to the announcement, the company says it didn’t occur to them that WELL was being meaningfully impacted by its BKD exposure.
Perhaps most important for the wider healthcare REIT audience is the transaction removes much of the change of control consent power that WELL holds regarding something strategic with BKD, the report continues. “This may mark the end to the perceived REIT roadblock (preceded by HCP and VTR
relinquishing their consent control) and may allow BKD more freedom to entertain a wider swath of options. This may also provide a short-term upward sympathy trade for the HC REITs.”
The report concludes that “whether it is BKD, Genesis Healthcare or any healthcare provider of note, it has never been more obvious that the fortunes of operators accrue to the REITs. And while the REIT fixes announced to date have been improvements, they became necessary only because of the challenges/missteps of the past that we hope will parlay into lessons learned going forward.”