TOLEDO, Ohio, March 2, 2021 /PRNewswire/ -- Welltower ("Company") today announced that it has substantially exited its operating relationship with Genesis HealthCare ("GEN"). Through a series of transactions, Welltower has successfully proven the strength of its underlying asset value despite a difficult operating environment and challenged lease coverage. While the transactions will result in near-term earnings dilution, Welltower expects to create significant value for shareholders following the deployment of $745 million of anticipated proceeds over a range of higher-quality opportunities. Importantly, the transactions will also serve to meaningfully de-risk Welltower's portfolio.
"We are pleased to announce today's transactions which will benefit all of Welltower's stakeholders. The quality of the Company's portfolio and long-term growth prospects will be significantly enhanced following the transition of assets to regional operators and through the future deployment of proceeds received through these transactions," said Shankh Mitra, Welltower's CEO. "I am also pleased that Welltower will expand its highly successful relationship with ProMedica. 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. 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. 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."
Welltower has entered into definitive agreements to sell 42 traditional skilled nursing facilities for $680 million to a joint venture in which Welltower will retain a participating preferred equity position. Welltower will also contribute its nine mostly purpose built former PowerBack facilities, which provide higher acuity, short-stay rehabilitation and care, into its 80/20 joint venture with ProMedica at a total value of $292 million. Genesis is expected to transition operations in the coming months to ProMedica at which time the former PowerBack facilities will be contributed to the joint venture.
To effectuate the transition of all 51 assets, Welltower will provide Genesis a lease termination fee of $86 million upon the successful transition of all properties, which will be used to immediately repay indebtedness to Welltower. The $880 million real estate value is net of the $86 million termination fee.
Following the deployment of proceeds received through the transactions, Welltower is expected to incur an approximate $0.05 per share negative impact to normalized funds from operations (FFO) on an annualized basis. Prior to the reinvestment of proceeds, the transactions are expected to be approximately $0.16 per share dilutive to normalized FFO on an annualized basis.
Genesis has paid all contractual rent due to Welltower through February 2021.
Aurora Healthcare Joint Venture
Welltower has entered into definitive agreements to sell 35 traditional skilled nursing facilities for approximately $500 million to a joint venture comprised of Welltower, Aurora Health Network, and Peace Capital. The operations of these facilities will be transitioned to leading regional operators in the coming months following approval by state regulators. Importantly, Welltower will retain a participating preferred equity position in the joint venture which will allow the Company to benefit from future growth.
Seven Property Sublease Portfolio
Welltower currently leases seven skilled nursing facilities, which it sub-leases to Genesis and has entered into an agreement to transition the operations of these properties into a new lease agreement with a regional operator. Welltower owns a bargain purchase option on the portfolio which can be executed in April 2023. The Company has entered into a forward sale agreement for the seven properties, valued at $182 million, with the Aurora Health Network joint venture that is intended to close simultaneously with the exercise of Welltower's bargain purchase option. These seven properties represent the only subleased assets within the Welltower portfolio.
Genesis Loans and Equity Investment
Following a series of loan loss charges recognized by Welltower in previous years, the current book value of loans outstanding to Genesis totals $137 million. In exchange for the lease termination fee of $86 million to Genesis, Genesis will repay an equivalent amount of indebtedness to Welltower, which currently has a book value of zero dollars. Additionally, upon achievement of certain restructuring milestones, Welltower will reduce Genesis' indebtedness by an additional $170 million in exchange for an equity interest in Genesis, allowing for participation in the expected post-COVID recovery in fundamentals. Following a capital infusion into Genesis by Aurora, Welltower will maintain a 15% equity ownership in 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.
Tim McHugh, Welltower's CFO, said, "Today's transactions represent the culmination of Welltower's 10-year operating partnership with Genesis. 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. We remain extremely confident in our ability to deploy capital received through these transactions which will create meaningful value for shareholders in the future."
Forward Looking Statement
This press release may contain forward-looking statements. When Welltower uses words such as "may," "will," "intend," "should," "believe," "expect," "anticipate," "project," "estimate" or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Welltower's actual results to differ materially from Welltower's expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to, the successful completion of the transactions and those factors discussed in Welltower's reports filed from time to time with the Securities and Exchange Commission. Welltower undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.
Welltower Inc. (NYSE: WELL), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate infrastructure needed to scale innovative care delivery models and improve people's wellness and overall health care experience. Welltower™, a real estate investment trust (REIT), owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. More information is available at http://welltower.com/.
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