Welltower Scales Back on Brookdale Portfolio, Forms JV With New Operator Pegasus

Brookdale Senior Living (NYSE: BKD) and Welltower Inc. (NYSE: WELL) have agreed to an early termination for Brookdale’s triple-net lease obligations on 37 senior living communities, in a “mutually beneficial” move that reduces Welltower’s participation with Brookdale and allows more flexibility for the largest senior housing operator in the nation. At the same time, Welltower has formed a joint-venture with a newly formed senior living operator, among other significant changes.

The agreement, announced Wednesday afternoon, includes a provision that Brentwood, Tennessee-based Brookdale will sell its 20% equity interest in its RIDEA joint venture with Welltower to the Toledo, Ohio-based health care real estate investment trust (REIT) for a gross value of $74.2 million.

Brookdale also will not renew two master leases for 11 communities with Welltower that are scheduled to mature in September. All told, Welltower’s restructuring of its Brookdale portfolio includes 63 assets.

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But the shift also brings a brand new operator into the mix, Welltower announced in a separate press release. On June 30, 37 properties are slated to form a RIDEA joint venture between Welltower and Pegasus Senior Living, a newly created management group based in Dallas and led by senior living industry veterans Steven Vick and Chris Hollister.

Vick and Hollister possess a combined 50 years of senior housing operating experience, including operating turnaround communities in secondary markets.

Vick in 1991 co-founded Sterling House, which went public in 1995 and merged with Alternative Living Services in 1997 to form Alterra Healthcare Corporation. In 2002, Vick became the CEO of Assisted Living Concepts (ALC), a publicly traded senior living operator with more than 180 communities. He also founded Signature Senior Living, a provider that developed and operated 17 assisted living and memory care communities in Texas.

Hollister, meanwhile, co-founded Southern Assisted Living (SALI) and served as CEO of the company until 2006. Most recently, he served as an outside director for Sunrise Senior Living.

Welltower is also transferring management of 12 properties to Cogir, a senior living operator headquartered in Montreal, Canada. Additionally, the REIT will divvy up another 11 properties among six of the its operating partners, and sell three remaining non-core properties located in tertiary markets.

Overall, the move is expected to pare down Welltower’s Brookdale concentration, on a pro forma basis, from 7.6% of in-place NOI to approximately 2.9%, according to Welltower.

As part of the agreement, Brookdale will pay Welltower a $58 million termination fee, and will continue to operate some properties until they are able to be transitioned to other operators and Brookdale also set up an asset sale agreement that will allow Brookdale to identify communities with up to $5 million in base rent for sale at a pre-determined 6.25% rent credit.

“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,” said Welltower CEO Tom DeRosa in a statement.

When the dust settles, Brookdale will be left operating 74 communities under triple-net leases with Welltower, Brookdale said.

“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,” Brookdale CEO Cindy Baier said in a statement. “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.”

This is the second significant lease restructuring for Brookdale this year, Baier said. In April, the senior living operator entered into definitive agreements with Ventas (NYSE: VTR) to restructure a portfolio of 128 communities. The agreements combined substantially all of Ventas’ wholly owned Brookdale communities into one master lease and security agreement.

Brookdale declined to comment further when reached by Senior Housing News, while Welltower didn’t immediately comment as of press time today.

Written by Tim Regan

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