As it continues to improve its capital structure and rationalize its lease exposure, Genesis HealthCare has joint ventured with Next Healthcare Capital to buy 15 skilled nursing facilities with 2,147 total beds previously leased from Welltower located in Pennsylvania (6), New Jersey (4), Connecticut (3), West Virginia and Massachusetts. Genesis will own a 46% stake in the venture, and lease the properties, at presumably a lower rate than with Welltower, and there will be no escalators for the first five years. Welltower’s lease had 2% annual escalators.
Next Healthcare appears to be willing to wait for that extra return, since Genesis has a purchase option beginning in 2026 to buy out the other 54% at a 10% premium to today’s purchase price. That should be a good enough incentive for Genesis to really work the properties, and it also gives them plenty of time to make any improvements.
This acquisition was valued at $204 million, or $95,000 per bed, with Henry Alonso, Jonathan Slusher and John Randolph of KeyBank Real Estate Capital financing $142.1 million of it and HJ Sims providing a $27 million subordinate HUD PLUS loan to supplement the first mortgage bridge financing from Key.
In addition to this, Genesis divested seven leased facilities that had revenue of $73 million and annual EBITDAR of $2.5 million. A 3.4% EBITDAR margin just does not work in this environment, especially when the annual lease payments were $3.2 million with, we assume, annual escalators. Both transactions are good moves for Genesis, and we hope to see more of them as the company continues to climb out of its rut.
