The nation’s largest skilled nursing chain is entering into a unique new arrangement to partially own some of its occupied properties while forgoing rent increases.
Genesis HealthCare announced Monday that it plans to buy back 15 facilities that it has been leasing from real estate investment trust Welltower. With the move, Genesis is partnering with investment firm Next Healthcare Capital and will hold a 46% ownership interest in the facilities.
The properties had been subject to 2% annual rent increases, but those will be skipped for the next five years. Genesis also acquired a fixed-price purchase option to acquire those buildings starting in 2026, at a 10% premium above the original acquisition cost.
In an email, Genesis CFO Tom DiVittorio said the company previously entered into a similar relationship with Next in June involving 12 other centers. As a result of both transactions, they now have purchase options on 27 buildings, allowing the company to “systematically gain control” of its real estate over time, and build “equity upside” as it heads toward 2020. This opens the door for further property ownership in the future, he added.
DiVittorio noted that the industry “has struggled in recent years,” and having leases without such accelerations “is very valuable.”
“The elimination of rent escalators in the near-term removes one of the greatest challenges associated with leasing assets in the long-term care space,” he told McKnight’s.
“I am excited about these win-win transactions for all parties involved,” Genesis CEO George Hager, Jr. added in a statement. “This is a great example of the creative things we can accomplish with our partners.”
Meanwhile, seven more facilities that had been leased from Welltower will be sold to a third party, with Genesis no longer operating them. Those seven properties previously netted Genesis aggregate annual revenue of $73 million last year. DiVittorio said the sale of these other seven buildings has allowed Genesis to finance its 46% interest in the partnership.
The announcement did not specify the locations of the facilities, nor the third-party buyer or sales price.