Welltower released an update to its transition of the ProMedica portfolio to Integra Health, with Welltower absolving ProMedica from its lease obligations on all 147 facilities as of December 22, 2022. Integra has entered into a master lease for the entire portfolio and will bear financial responsibility for all the assets. Approximately 15 regional operators will be brought on to take over management of the ProMedica assets under subleases, with Integra acting as master tenant.
Then, on December 23, 2022, Welltower sold a 15% interest in the real estate of 54 ProMedica SNFs to Integra for approximately $73 million. This represents the initial tranche of the previously disclosed 85/15 joint venture between Welltower and Integra, with the sale of the remaining 93 assets set to close in stages over the next 12 months, including an additional third of the portfolio expected to close in January 2023.
Integra’s year-one cash rent to the joint venture will be $167 million, and Welltower will recognize 85% of the allocated rent on the 54 assets where Integra has acquired an ownership stake and 100% of the allocated rent on those assets not yet acquired. After Integra completes its planned acquisition of the 15% interest in the 147 assets, Welltower’s pro rata share of cash rent is expected to be $142 million, or $6,800 per bed.
As previously disclosed, Welltower’s combined cash rent actually increases over 4% from its total contractual rent from the prior ProMedica joint venture. That’s a good deal for the REIT, but it remains to be seen for the tenants as they deal with stagnant operations and sustained industry headwinds. The good news is that occupancy across the ProMedica portfolio has improved by 300 basis points from 73.6% in April 2022 to 76.6% in November 2022. And EBITDARM turned positive in the fall on the back of a 50%+ reduction in agency labor use. Other potential expense reductions could take the form of renegotiation of pharmacy contracts, general and professional liability insurance and reduced bad debt. But heading into winter, it won’t be easy.
