Ventas Inc. (NYSE: VTR) on Friday announced an extension of its lease arrangement with Genesis HealthCare (NYSE: GEN) — a move that intrigued analysts given other landlords’ moves away from the operator.
The real estate investment trust (REIT) granted Genesis five more years under its existing rent and escalator terms, with a few landlord-friendly twists: The Kennett Square, Pa.-based operator gave Ventas a $1.6 million cash fee, a corporate guarantee, and a guarantee of the rent from a third-party firm through 2026.
Ventas chairman and CEO Debra Cafaro trumpeted the deal on the Chicago-based REIT’s first-quarter earnings call Friday morning.
“This favorable transaction demonstrates our proactive asset-management approach and capabilities,” Cafaro said.
The move goes against the general attitude among REITs toward Genesis: Sabra Health Care REIT (Nasdaq: SBRA) recently wrapped up its “Genesis Exodus” plan, which saw the REIT dispose of the vast majority of its Genesis-operated assets. The operator also recently bought back 15 SNFs owned by Welltower Inc. (NYSE: WELL) in a joint venture with Next Healthcare Capital in a deal valued at $204 million.
That Ventas seemed to be bucking a larger trend drew the attention of analyst Tayo Okusanya of Jefferies & Co.
“It’s impressive to me that you can do this while you have a lot of other people doing the exact opposite thing,” Okusanya said during the call.
In response, Cafaro mentioned the corporate guarantee and the cash payment as reasons the REIT felt upbeat about the deal, as well as Genesis’s relatively small place in Ventas’s overall portfolio: The operator generates about $20 million of the REIT’s $3.7 billion in annual revenues, and Ventas reported just 17 total skilled nursing assets in its 2018 annual report.
When pressed for the identity of the third party that had agreed to guarantee Genesis’s rent for the next five years, Cafaro deferred, but did provide a hint.
“If you think about the corporate history of Genesis, you might be able to figure it out, but I’m just going to leave it where it stands now: with a credit-worthy, third-party guarantor,” she said.
When reached by SNN, a spokesperson for Genesis did not identify the guarantor.
“Genesis has a long-standing relationship with Ventas,” the spokesperson said in an e-mailed statement. “We lease a small number of facilities in our core markets, principally Pennsylvania and West Virginia. We were happy to extend the relationship through 2026.”
Michael Carroll, an analyst for RBC Capital Markets who also covers Ventas, pointed to the minor position that Genesis plays in the REIT’s portfolio — which also includes senior housing, medical office building, and hospital assets.
He also noted that the Genesis divestitures by other REITs may not have been an indictment of the operator.
“I don’t think some of the other REITs were necessarily moving away from that operator due to concerns with the operator,” he told SNN. “It’s just that the lease structures that they had were upside-down, so they were forced to make some type of change.”