Welltower’s Mitra: ‘Controversial’ Genesis Investment Paid Off for REIT with Portfolio Sale, Equity Stake

Welltower Inc. (NYSE: WELL) CEO Shankh Mitra this week touted his company’s decision to largely break up with top nursing home tenant Genesis HealthCare (NYSE: GEN) — while also expressing confidence that the turnaround group brought in to stabilize the troubled operator will bring more value to the real estate investment trust (REIT).

Mitra in particular pointed to the 8.5% unlevered internal rate of return (IRR) achieved over the entirety of the relationship between Welltower and Genesis, a partnership that was substantially reduced last week when the REIT announced a plan to transition 51 buildings currently under Genesis’s control.

“In one of the most controversial investments this company has made, we made 8.5% unlevered return — which in this environment, you would say, that’s a very significant return for all that we have gone through,” Mitra said late Monday during the virtual Citi Global Property Conference. “We extracted value for our owners where most people thought there was no value, and we still think there will be more value coming our way.”


The complex deal additionally saw Welltower take a 15% stake in the Kennett Square, Pa.-based Genesis, which last August publicly disclosed doubts about its ability to continue as a going concern, citing COVID-19 financial strains. The day after Welltower announced its move to shed Genesis assets, the operator announced a restructuring effort that will see it voluntarily leave the New York Stock Exchange and take a $50 million capital injection from turnaround firm ReGen Healthcare LLC.

Mitra on Monday expressed optimism about the new investors’ ability to turn things around at Genesis.

“We think that there’s going to be significant value creation,” he said.


Last week’s blockbuster deal also included a reshuffling of properties operated by the non-profit ProMedica Health System, Welltower’s joint-venture partner for the former HCR ManorCare chain of nursing homes; Welltower and ProMedica own the real estate in an 80-20 arrangement, respectively, with the hospital system running the facilities on its own.

The JV sold off 25 “non-strategic” facilities acquired in the original Welltower-ProMedica deal in 2015, while also picking up nine PowerBack-branded short-term rehab facilities from Genesis.

The former PowerBack locations will serve as feeders into ProMedica’s other post-acute offerings in their respective markets, Mitra said; the CEO also drew a distinction between the PowerBack facilities and traditional SNFs, saying they’re “considered the best assets in the business that work under a skilled nursing license.”

“Anything you know about skilled nursing, you have to forget and rethink,” Mitra said of the properties.

That framing aligns with former Welltower CEO Tom DeRosa’s repeated assertions that the REIT’s decision to partner with ProMedica and go long on skilled nursing facilities wasn’t a bet on the future of nursing homes, but rather the need for health systems to control wider and wider swaths of the care continuum.

“When we announced ProMedica, people said: ‘Oh, they’re doing a SNF deal.’ That’s a very pedestrian view of what the ProMedica joint venture is,” DeRosa told SNN in June 2019. “The ProMedica joint venture was a first-ever joint venture between a not-for-profit health system and a for-profit health care delivery platform like Welltower that enabled this health system to further vertically integrate.”

The sum total of the most recent deals, according to Mitra, proves that Welltower’s leaders “know how to make money in the business.”

“We’re patient. We’re not moving with what the flavor of the day is, and we know through the right operator, through right structures, and with patience, we can make a lot of money for our owners — even if it is not the most popular transaction or popular asset type that we’re chasing,” he said.

Companies featured in this article:

, , ,