The CEO of Welltower Inc. (NYSE: HCN) had some fighting words this week about the spinoff plans of industry peers, adamantly saying he will never spin off Welltower’s skilled nursing portfolio as long as he is at the helm of the company.
“We will not hand you a leaking, steaming bag of real estate and say, ‘Here you go, do what you want to do with it, but I’m washing my hands of it,’” CEO Tom DeRosa said Tuesday at REITWeek hosted by the National Association of Real Estate Investment Trusts (NAREIT).
DeRosa took aim at Welltower’s industry peers HCP Inc. (NYSE: HCP) and Ventas Inc. (NYSE: VTR). HCP recently announced its plans to spin off its struggling skilled nursing assets into an independent, publicly-traded REIT. The spinoff is anticipated to be completed by the end of the year, and follows similar actions by Ventas, which spun off its skilled nursing assets into a publicly-traded REIT, Care Capital Properties (NYSE: CCP), last year.
“I will say here, you will not see us spin out our real estate to you,” DeRosa said during the presentation. “We will not do that as along as I’m sitting in this seat.”
Rather than restructure or spin off skilled nursing assets, Welltower is more likely to sell the real estate, according to DeRosa and other members of the leadership team. This is the first year that Welltower is planning to do more dispositions than acquisitions since he joined the company 13 years ago, Executive Vice President and CFO Scott Estes said.
“Expect us to look really hard for incremental dispositions even beyond what is in our public forecasts at this point,” he said. “The private market is very strong in the skilled nursing space in particular. We’ve been thinking about using incremental proceeds to invest in high quality, private pay assets.”
DeRosa noted that Welltower’s skilled nursing properties are profitable, in well-located buildings, and more likely to be rewarded in the private market.
“We think it’s still good real estate, and as you’ve heard a number of people on the dais saying today, there’s a lot of private capital that’s interested in buying real estate that’s well located with a profitable location,” DeRosa said during the event.
He also doubled down on a “perception imbalance” on skilled nursing assets, a claim he made earlier last month that has played a part in Welltower’s undervalued stock. Misinformation about Genesis Healthcare (NYSE: GEN), Welltower’s skilled nursing operator, has impacted the company’s stock value, which DeRosa believes is undervalued, he said during an earnings call in May.
The point was echoed by Welltower CIO Scott Brinker at REITWeek.
“The stock price notwithstanding, they’re routinely thought of as a premier provider in the sector,” he said of Genesis. “I think there’s more risk attached to that name right now than is warranted.”
His position is in stark contrast to Lauralee Martin, CEO of HCP, who noted that selling the real estate of their skilled nursing assets would actually lose investors value. Structuring the assets into their own REIT would enable shareholders to see more value in the lease structure with HCP’s skilled nursing tenant, HCR ManorCare, that isn’t currently realized under HCP, Martin said.
Comparisons between HCR ManorCare and Genesis are unwarranted, Brinker said Tuesday. While noting that he cannot comment specifically on what’s happening at ManorCare, he said, “That’s a totally different situation” than the one facing Genesis.
Ventas also had different goals to capture more value with its spinoff, including enabling the skilled nursing assets to grow at a more aggressive pace than the rest of the REIT’s portfolio.
DeRosa, however, questions the viability of CCP’s performance as a result.
“They thought that they would achieve a better growth rate outside of Ventas?” DeRosa told SNL Financial in an interview after the investor presentation. “Well, have you watched how that’s performed, and have you read their financial performance?”
Written by Amy Baxter