Welltower Exits Genesis HealthCare Relationship, Cozies Up To ProMedica

Welltower will exit its operating relationship with Genesis HealthCare as it sells 51 wholly-owned skilled-nursing facilities through a series of transactions that will deploy approximately $745 million of anticipated proceeds into new opportunities, the company has announced.

Welltower will sell 42 traditional skilled nursing facilities for $680 million to a joint venture in which it will retain a participating preferred equity position. Of those, 35 traditional skilled nursing facilities will be sold for approximately $500 million to a joint venture comprised of Welltower, Aurora Health Network, and Peace Capital. Welltower has entered into a forward sale agreement valued at $182 million for seven skilled nursing facilities it currently sub-leases to Genesis and for which Welltower owns a bargain purchase option that can be executed in April 2023. The Aurora Health Network joint venture is intended to close at the same time Welltower exercises its bargain purchase option, Welltower said in a statement. 

Welltower will also contribute its nine former PowerBack short-stay rehab facilities into an existing 80/20 joint venture with ProMedica, at a total value of $292 million.  To transition the assets, Welltower will pay Genesis an $86 million lease termination fee and will reduce Genesis’ indebtedness to the company by $170 million once certain restructuring milestones are achieved. Welltower’s equity ownership position in Genesis will also increase from 9% to 15%. After the debt reduction, Genesis will owe Welltower $167 million with a maturity date of January 1, 2024.

The transactions total $880 million in real estate value, net of the $86 million termination fee, and reflect pricing of around $144,000 per unit. The deals will result in near-term earnings dilution, but will “meaningfully de-risk” Welltower’s portfolio, the company said in a statement. The Genesis exit was “a long time coming and removes an overhang,” according to a recent Mizuho analysis, which also notes that the transfer of the PowerBack facilities to ProMedica is credit enhancing, given the strength of an in-place master lease on the properties. 

Welltower has said it will likely incur an approximate $0.05 per share negative impact to normalized FFO on an annualized basis after proceeds are deployed from the transactions. Before those proceeds are reinvested, the  transactions are expected to be approximately $0.16 per share dilutive to normalized FFO on an annualized basis.

“The quality of [Welltower’s] portfolio and long-term growth prospects will be significantly enhanced following the transition of assets to regional operators and through the future deployment of proceeds received through these transactions,” said Shankh Mitra, Welltower’s CEO.  “As a result of these transactions, we are confident that Welltower is even better positioned today to create significant long-term value for our shareholders.”

Welltower’s senior housing operating portfolio total spot occupancy fell 80 basis points to 74% on February 26, down from 74.8% at the end of January, according to Mizuho. This is consistent with previous guidance. In addition, as of February 26 Welltower indicated it had seen a 87% decline in its trailing two-week COVID-19 case count since mid-January.