One day after Genesis Healthcare (NYSE: GEN) announced a joint venture to acquire 15 skilled nursing facilities from its landlord, the main lender in the deal put a price tag on the transaction: $204 million.
KeyBank underwrote and closed a $142.1 million loan to help Genesis and its deal partner, the New York City-based Next Healthcare Capital, purchase the buildings from Welltower Inc. (NYSE: WELL).
The Kennett Square, Pa.-based Genesis — which operates more than 400 skilled nursing and senior housing properties across the country — holds a 46% stake in the new joint venture, with Next controlling a 54% majority. In a statement released yesterday, Genesis positioned the deal as a way to reduce rent costs: By purchasing the facilities from Welltower, the provider cut its annual rent obligations by $3.2 million per year, with no escalators for the first five years under its new arrangement with the joint venture.
Welltower, a Toledo, Ohio-based real estate investment trust (REIT) with extensive holdings in the senior housing and care space, had included annual escalators of 2% in its previous lease agreement with Genesis.
At the same time, Genesis announced that it would exit the operations of seven additional facilities, which had previously brought $73 million in annual revenues to the provider. All told, the combined effects of the transaction will result in a first-year EBITDAR accretion of about $700,000, according to the provider.
“This is a great example of the creative things we can accomplish with our partners,” Genesis CEO George Hager said in a Monday statement announcing the deal. “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.”
Henry Alonso, Jonathan Slusher, and John Randolph of KeyBank Real Estate Capital led the deal for the lender. The portfolio consists of six properties in Pennsylvania, four in New Jersey, three in Connecticut, and one facility each in West Virginia and Massachusetts* — for a total of 2,147 beds.
This marks the second skilled nursing deal of the last 12 months for KeyBank and Next, according to the bank; Next, a private investment firm, has a specific focus on buildings in Certificate of Need states, with holdings in 35 states according to its website.
The Fairfield, Conn.-based private investment firm HJ Sims was also involved in the transaction, providing a $27 million mezzanine loan.
Editor’s Note: Due to an error in the initial announcement from KeyBank, one of the facilities in the deal was incorrectly identified as being in Maryland; it was actually in Massachusetts.