Welltower to Largely End Relationship with Genesis, Bolster ProMedica Joint Venture in $880M Deal

Welltower Inc. (NYSE: WELL) late Tuesday announced that it will largely end its relationship with troubled nursing home giant Genesis HealthCare (NYSE: GEN), with its joint venture health system partner ProMedica picking up some of the buildings — while also divesting 25 properties acquired through its 2018 ProMedica JV.

The Genesis exodus spans 51 assets, according to the Toledo, Ohio-based real estate investment trust (REIT) — 35 of which will be sold to a joint venture consisting of Welltower, Aurora Health Network, and Peace Capital for a total of $500 million. That group will transition the operations of the facilities to “leading regional operators,” according to the REIT; Welltower will have a preferred equity position in the JV arrangement.

Seven additional assets, which Welltower currently leases and sublets to Genesis, will transition to a regional operator; the REIT will eventually buy those properties in conjunction with the Aurora joint venture — when a purchase option becomes available in April 2023 — for a total price of $182 million.

“Although we are only a small part of the Aurora Health Network Joint Venture, our structured investment puts us in a position to capture additional value creation as we come out of COVID,” Welltower CEO Shankh Mitra said in a statement. “As a result of these transactions, we are confident that Welltower is even better positioned today to create significant long-term value for our shareholders.”

The New York City-based Aurora Health Network was co-founded by managing directors Joel Landau — chairman and founder of nursing home operator The Allure Group — and fellow health care operator Leo Friedman, according to its website.

Peace Capital, based in Howell, N.J., is a private investor that owns and operates both skilled nursing and assisted living facilities in the Northeast and Midwest.

Finally, nine PowerBack-branded Genesis rehabilitation facilities valued at $292 million will fold into Welltower’s existing 80-20 ProMedica joint venture, with the health system assuming operations over the coming months under the ProMedica Senior Care brand. The PowerBack facilities target more clinically complex post-acute patients, who also come with more lucrative Medicare and private insurance coverage than the typical long-term nursing home resident on Medicaid.

“The PowerBack facilities are intended to enhance ProMedica’s post-acute capabilities by enabling the health system to further strengthen its ability to work with referral sources and provide the care needed by patients and their families in these markets,” Welltower observed in its release announcing the deal.

In a separate deal, the Welltower-ProMedica joint venture will shed 25 “non-strategic” skilled nursing properties picked up back in 2018 for a total of $265 million; the facilities span eight states with an average age of 41 years, according to Welltower.

Despite the disposal of 25 facilities, both Mitra and ProMedica president and CEO Randy Oostra framed the transactions as a strengthening of their partnership.

“The contribution of nine former PowerBack facilities into our existing joint venture will be substantially funded through the disposition of non-strategic joint venture assets as was announced today,” Mitra said.

The REIT and the non-profit came together to purchase the real estate associated with the former HCR ManorCare chain of nursing homes, which the health system now operates on its own under the ProMedica Senior Care name, nearly three years ago in a deal valued at $4.4 billion

“ProMedica has the unique opportunity to improve its senior care portfolio through these two important transactions,” Oostra said of the most recent deals in a statement. “The transactions are a testament to the strong partnership we have formed with Welltower and our shared focus on innovation and quality patient care.”

As for Genesis, the severance marks the end of a decade-long relationship between the two parties. Welltower will pay an $86 million lease termination fee to execute the 51-building divorce.

“Today’s transactions represent the culmination of Welltower’s 10-year operating partnership with Genesis,” Welltower CFO Tim McHugh said in a statement. “We are pleased to have attained a mutually beneficial resolution for both companies, having generated substantial proceeds to Welltower while simultaneously de-risking the company.”

The Kennett Square, Pa.-based Genesis sent a shockwave through the health care real estate markets last summer when it disclosed formal doubts about its ability to continue as a going concern due to COVID-related financial strains, but the Welltower exit marks the first major move by a REIT to substantially distance itself from the operator.

Welltower and several other publicly traded landlords took rent write-downs after switching Genesis to cash reporting. Genesis CEO George Hager departed the company at the start of the year, with board chairman Robert Fish replacing him in the top spot.

The relationship isn’t completely dead, however: Once Genesis hits “certain restructuring milestones,” Welltower will forgive $170 million in debt in exchange for a 15% equity stake in the operator, while Aurora will also provide a “capital infusion” into Genesis.

“Upon conclusion of the aforementioned loan transactions, Genesis will have $167 million of indebtedness to Welltower which will carry a maturity date of January 1, 2024,” the REIT noted in its release.