Welltower Sees ‘Even Further Upside’ from Genesis Exit as the Nursing Home Giant Restructures

Welltower Inc. (NYSE: WELL) on Thursday again touted the benefits of a blockbuster move to largely end its relationship with troubled nursing home giant Genesis HealthCare, hinting at an even greater return for the real estate investment trust (REIT) than previously disclosed.

Welltower CEO Shankh Mitra pointed to the $144,000-per-bed price tag on the transaction, which saw the REIT offload 51 Genesis-operated nursing homes to several buyers, and the 8.5% unlevered return achieved over the life of Welltower’s partnership with Genesis.

That rate will rise to 9% after Genesis repays its outstanding debt, Mitra said during the REIT’s first quarter 2021 earnings call, indicating “even further upside potential” for the deal.


“We believe that this represents a very favorable outcome for Welltower shareholders, particularly in light of the challenging environment that we have faced in the post-acute sector — and then COVID-related, pandemic-induced downside we have seen,” Mitra said. “While the transactions will result in some near-term earnings dilution for Welltower, we expect to create significant value for our shareholders following the deployment of the $745 million of anticipated proceeds over a range of high-quality opportunities.”

Under the terms of the complex deal, announced in March, Welltower sold 35 Genesis properties to a joint venture consisting of the REIT, Peace Capital, and Aurora Health Network for $500 million, with Welltower retaining a preferred equity stake in the JV. Those facilities will be transitioned to regional operators, according to Welltower.

Seven more facilities that Welltower had leased and sublet to Genesis will also be transferred to a regional operator; the REIT intends to purchase the facilities for $182 million in April 2023, upon the availability of a purchase option. Finally, Welltower transferred nine Genesis-operated rehabilitation facilities, branded under the PowerBack name, to its existing joint venture with ProMedica — the non-profit health system that teamed up with the REIT back in 2018 to take over the former HCR ManorCare chain of for-profit nursing homes.


Genesis is in the midst of a significant restructuring that saw the Kennett Square, Pa.-based operator leave the New York Stock Exchange and receive a $50 million injection from private investor ReGen Healthcare. Harry Wilson, an executive with a history of health care turnarounds, took the helm as CEO in March, marking the second leadership change of 2021; longtime chief executive George Hager stepped down at the start of the year, with Robert Fish serving as his short-term replacement.

“We wish the team at Genesis much success in the future, as we have substantially exited a challenging legacy structure with Genesis,” Mitra said Thursday. “I hope our shareholders appreciate the favorable ultimate outcome.”

The CEO was also upbeat about his company’s ongoing relationship with ProMedica. Concurrent with the Genesis transaction, Welltower announced a plan to shed 25 “non-strategic” former HCR ManorCare nursing homes, citing an average physical plant age of 41 years; both parties framed the deal as a strengthening of their joint-venture partnership, a theme that Mitra repeated Thursday.

“The ProMedica team is making progress in developing new relationships with other health systems as a provider of choice, as ProMedica represents the premium not-for-profit provider at the leading edge of health care evolution,” Mitra said, adding that he’s hopeful Welltower can deploy additional capital with the health system.

The ProMedica business line logged same-store net operating income growth of 2.8% from the first quarter of 2020, with trailing 12-month EBITDAR coverage of 1.9 times, chief financial officer Tim McHugh noted.

The Toledo, Ohio-based health system had been eyeing those PowerBack properties for years prior to the pandemic, with the upheaval of COVID-19 only accelerating ProMedica’s desire to strengthen its portfolio and plan for a future in which senior care providers must capture a wider continuum of care to survive.

To that end, ProMedica recently announced a partnership with fellow health system MetroHealth, which will see the two parties build a 96-bed skilled nursing and rehabilitation facility in Cleveland — located on an existing MetroHealth campus with geriatric and mental health clinics.

“I think that there’s a lot of opportunities around these joint ventures, where systems look at us and say: Okay, we don’t have to own the whole thing, but we need an expert,” ProMedica Senior Care president David Parker told SNN in March. “And the partnership opportunity allows us to leverage our strengths, but also ensure that we have the ability to tap into that volume, and drive quality care in those marketplaces.”

But outside of ProMedica, Welltower’s growth focus is trained squarely on senior living. Excluding the health system, long-term and post-acute care will account for just 6% of NOI for the REIT, with Genesis representing just 90 basis points of in-place NOI, according to McHugh.

Welltower’s big earnings-season announcement came in the form of a $750 million deal to recapitalize HC-One, a major senior living player in the United Kingdom.

“We are particularly pleased to support HC-One’s strategy to invest in its communities and staff who have performed their role admirably throughout the Covid-19 pandemic,” Mitra said in a statement. “After a challenging period for the UK seniors housing sector, we look forward to participating in a period of recovery and growth in the years ahead.”

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