Genesis HealthCare announced additional changes to its capital structure and leased interests in skilled nursing facilities, all for the better. Genesis has partnered with a private investor to purchase 18 nursing facilities previously leased from Welltower and Second Spring Healthcare Investments. Genesis will have a 30% equity stake in these 18 facilities, and lease them from the joint venture entity, but with a big difference.
Previously, these 18 facilities had annual rent escalators ranging from 2.0% to 2.5%, but with the new lease, the escalators do not begin until year five of the lease. In addition, Genesis has a fixed-price purchase option to acquire the real estate of these 18 properties in 2024 at a 10% premium above today’s original acquisition cost. That is a relatively small premium, and if the company can succeed under the new PDPM reimbursement system for Medicare, we may see the purchase in five years, assuming the capital markets remain stable.
In a second transaction, Genesis sold eight skilled nursing facilities it owned to various third parties for approximately $89 million. These eight had annual revenues of about $83 million. All of the transactions combined will result in a decline in annual EBITDA of $4.5 million, but the company’s pre-tax loss will improve by $1.9 million. Genesis wants to be in a position where it owns or has fixed price purchase contracts on 30% of its assets by the end of 2020. That is a worthy goal.
