Assisted living and memory care “may become more consequential” in the healthcare system, and the recent complex deal involving Welltower, ProMedica Health System and HCR ManorCare “is the best example that one can point to” of how that system is changing, Welltower CEO Tom DeRosa told shareholders and analysts Friday during the real estate investment trust’s second-quarter earnings call.
Expect similar deals in the future, he said.
Welltower acquired the assets of Quality Care Properties on Thursday for approximately $1.95 billion. In a separate deal, nonprofit health system ProMedica acquired QCP tenant ManorCare for approximately $300 million in cash and the assumption of $1.1 billion in debt. A new 80/20 joint venture between Welltower and ProMedica subsequently leased 218 ManorCare properties to ProMedica for 15 years.
With finalization of the deal, ProMedica becomes the 15th largest health system in the country, with a presence in 30 states and services at 700 locations encompassing a hospital system, a physician group, telehealth, health plans, an academic affiliation, skilled nursing, assisted living, rehabilitation, home health and hospice care.
DeRosa said Welltower “could not be more excited” about the deal with fellow Toledo, OH-based companies ProMedica and ManorCare, adding that it “demonstrates how a healthcare REIT and a super-regional health system can work together to reimagine the settings where healthcare services will be delivered. You will be hearing much more about this in the coming months.”
Arden Courts a ‘hidden gem’
ManorCare’s Arden Courts memory care communities are a “hidden gem” in the acquisition, the CEO said.
“We have been looking for a mid-market memory care business for quite some time, and we have had our eye on Arden Courts,” he said.
Welltower Senior Vice President of Investments Shankh Mitra said that the monthly rate for Silverado memory care communities in Welltower’s portfolio averages around $10,000, whereas the monthly rate at Arden Courts is in the $6,000 to $7,000 range.
“We really think Arden Courts is going to become a very important platform for us because of the needs that will be dramatically accelerating over the next three to five years and beyond,” DeRosa said.
Looking for more deals
The CEO said that Welltower is looking to increase its business with large regional health systems and that the interest has been mutual from such health systems.
“Have we gotten a lot of inbounds? Yes, we have,” DeRosa said. “Many health systems are now calling us because they’ve seen the ProMedica announcement. They understand the power that ProMedica will now have with HCR ManorCare, having both post-acute care as well as an assisted-living-focused-on-memory-care business. These are challenges for health systems.”
ProMedica’s “very successful insurance business” also is something other health systems wish to emulate in the form of Medicare Advantage and managed Medicaid programs, he said.
Several health systems already have a stake in post-acute care, DeRosa said.
“I think you’re going to see many of them looking to partner with Welltower in assisted living,” he said. “I think that’s one of the big opportunities. It’s all about health systems moving away from the idea that they treat disease solely, that they meet their customer in the emergency room.”
DeRosa said executives from “one of the largest regional health systems in the Northeast” visited Welltower’s New York office on Thursday to discuss an assisted living project. “This health system does have a post-acute care division, which includes assisted living and independent living. They are able to direct patient flow between the hospital and these assets and actually share staffing. So it’s a very efficient way of managing healthcare delivery.”
Such efficiencies will grow in importance as the 85+ demographic in the United States starts to increase rapidly in approximately 18 months, DeRosa said.
“If we don’t have a solution to manage the health and wellness of an increasingly aging population, we have a lot of problems as a society,” he said. “And we believe that we are structuring Welltower to really capitalize on that threat and create opportunities around that. This is something that you’ll be hearing more from us about. When you hear us say that we are talking to … the major health systems in this country about the assisted living business, that is a leading indicator that this business is changing, and it’s changing at least with respect to Welltower.”