Post-closing Welltower and Brookdale will have a disposition 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. For Welltower this will equate to up to $80 million in disposition proceeds at a 6.25% cap rate.

“We View This Deal Positively”

Matt Kopsky, Edward Jones analyst, writes that the firm views this deal positively overall, and it gives credit to management for reducing its exposure to the struggling senior-housing operator Brookdale.

He writes:

We like that Welltower was proactive in this restructuring, instead of waiting for its lease to expire and potentially receiving a larger rent cut. Plus, this deal opens up further growth opportunities for Welltower from improved operator relationships and from the additional ownership that Brookdale will sell to Welltower in its senior-housing operating portfolio. Finally, the lease terms with the remaining Brookdale facilities provide more protection for Welltower, which is positive.

Overall, we believe that the small rent cut, which will be recouped by 2021, is a small sacrifice for the many positive developments in this large restructuring.

Earlier this year another healthcare REIT, Ventas, and Brookdale entered into definitive agreements to restructure the leases of Brookdale's portfolio of 128 communities with Ventas. The agreements combined all of the Ventas leased communities into a single master lease and security agreement. Some 8% of the portfolio has been at or near underwater condition up until that point, Mizuho REIT analyst Richard Anderson noted in a research alert.