KENNETT SQUARE—Genesis HealthCare (Genesis or the Company), one of the nation’s largest providers of post-acute care services, announced that it has entered into a real estate partnership (Partnership) with Next Healthcare Capital (Next) involving 15 skilled nursing facilities previously leased from Welltower Inc. (Welltower). Seven additional facilities historically leased from Welltower were sold to a third party. Genesis will no longer operate the seven facilities after the sale.
On January 31, 2019, Welltower sold the real estate of 15 facilities to the new Partnership, of which Genesis acquired a 46% ownership interest. Genesis also acquired a fixed price purchase option to acquire the real estate beginning in 2026 at a 10% premium above the original acquisition cost. Genesis will continue to operate these facilities pursuant to a new lease with the Partnership. The remaining interest is held by Next, a privately owned healthcare real estate investment firm. The 15 facilities had been included in the Company’s master lease with Welltower and were subject to 2.0% annual rent escalators. Under the new lease, there are no rent escalators for the first five years.
The seven facilities that Genesis will no longer operate had aggregate annual revenue of approximately $73 million. As a result of the transaction, Genesis estimates its annual EBITDAR will decline $2.5 million and annual cash lease obligations will be reduced approximately $3.2 million. In year one, the transaction is accretive to EBITDA by $0.7 million.
“I am excited about these win-win transactions for all parties involved,” noted George V. Hager, Jr., Chief Executive Officer of Genesis. “This is a great example of the creative things we can accomplish with our partners. For Genesis, the transaction is accretive to earnings and provides us with the opportunity to participate in any upside accretion in the value of the real estate with a mechanism to purchase the real estate in the future.”