Welltower is cutting most ties with beleaguered Genesis HealthCare, the company announced late Tuesday.
The real estate investment trust plans to terminate leases with Genesis for 51 of its properties and will provide an $86 million lease termination fee upon their successful transition. The real estate transactions total $880 million in net value, or about $144,000 per bed, according to Welltower.
“The quality of the company’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,” Welltower CEO Shankh Mitra said in a statement.
“Importantly, the transactions will … serve to meaningfully de-risk Welltower’s portfolio,” the company said.
Welltower plans to transition the involved facilities to other leading regional skilled nursing operators.
The Welltower/ProMedica joint venture on Tuesday also announced it is divesting a 25-property portfolio of “non-strategic” skilled nursing buildings for $265 million. The facilities were acquired when the Welltower/ProMedica partnership was formed in 2018. The facilities are in eight states and average 41 years of age.
The sale price represented a valuation of $82,000 per bed. The joint venture generated an unlevered internal rate of return of 22% over the term of the holdings, Welltower said.
In addition, the companies will be plucking nine state-of-the-art short-term PowerBack rehabilitation facilities operated by Genesis HealthCare for their joint venture. The PowerBack facilities are valued at $292 million and will be rebranded as ProMedica Senior Care, a label that was launched in October 2020.
“We are delighted to expand our partnership with ProMedica and enhance the quality and growth profile of our joint venture through these transactions,” Mitra said. “We shared lofty aspirations with ProMedica at the outset of our relationship and are pleased to announce that our expectations have been exceeded. “
Welltower said it will retain a preferred equity position in a joint venture with Aurora Health Network and Peace Capital, which will involve 42 of the facilities announced Tuesday. Their sale price was $680 million.
The announced transactions will result in short-term dilution of earnings, Welltower acknowledged. But it added that it expects to “create significant value for shareholders following the deployment of $745 million of anticipated proceeds over a range of higher-quality opportunities.”
“Although we are only a small part of the Aurora Health Network Joint Venture, our structured investment puts us in a position to capture additional value creation as we come out of COVID,” Mitra added. “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 said that it would realize an 8.5% unlevered internal rate of return over the full term of its relationship with Genesis HealthCare.
In 2016, Genesis represented more than 17% of Welltower’s pro rata net operating income.
Genesis has faced financial uncertainty since the start of the COVID-19 pandemic. The company in November reported had begun discussions with “select capital partners” to analyze a number of restructuring alternatives to improve Genesis’ financial outlook.
The company, also at the time, said it endured $60 million in losses directly related to the coronavirus pandemic during the third quarter — despite receiving $64 million in federal and state aid for the period.