* New Leases Reduce Prior Lease Obligations by $440 Million through January 2032
* Genesis will continue to operate the facilities
Kennett Square, Pa. – Genesis HealthCare (Genesis or the Company), one of the nation’s largest providers of post-acute care, today announced that it has entered into a lease with a new landlord for 64 of its skilled nursing facilities previously leased from Welltower Inc. (Welltower). The Company also plans to enter into a lease with another landlord for an additional 28 facilities currently leased from Welltower.
On November 1, 2016, Welltower sold the real estate of the 64 facilities to Second Spring Healthcare Investments (Second Spring), a joint venture formed by affiliates of Lindsay Goldberg LLC, a private investment firm, and affiliates of Omega Healthcare Investors, Inc., a real estate investment trust (REIT). Genesis will continue to operate the facilities pursuant to its new lease with affiliates of Second Spring effective November 1, 2016 and there will be no change in the operations of these facilities.
The 64 facilities had been included in the Company’s master lease with Welltower and were historically subject to 3.4% annual escalators, which were scheduled to decrease to 2.9% annual escalators effective April 1, 2017. Under the new lease with Second Spring, initial annual rent for the 64 properties is reduced approximately 5% to $103.9 million and annual escalators will decrease to 1.0% after year 1, 1.5% after year 2, and 2.0% thereafter. The more favorable lease terms are expected to reduce Genesis’ cumulative rent obligations through January 2032 by $297 million. As part of the transaction, Genesis issued a note totaling $51.2 million to Welltower, maturing in October 2020.
On November 2, 2016, in a separate transaction, Welltower announced that that it had entered into an agreement to sell the real estate of 28 additional facilities to a joint venture among Welltower, Cindat Capital Management Ltd., and Union Life Insurance Co., Ltd. Similar to the new lease with Second Spring, as part of the Welltower sale, Genesis expects to enter into a lease at closing of the sale, which is expected in the fourth quarter of 2016. Genesis will continue to operate the facilities pursuant to its new lease and there will be no change in the operations of these facilities.
The 28 facilities are currently included in the Company’s master lease with Welltower and have been subject to 3.4% annual escalators, which are scheduled to decrease to 2.9% annual escalators effective April 1, 2017. Under the new lease, the 28 properties’ initial annual rent is expected to be reduced by approximately 5% to $54.5 million and the annual escalators are expected to decrease to 2.0%. The more favorable lease terms are expected to reduce Genesis’ cumulative rent obligations by $143 million through January 2032. As part of the transaction, Genesis expects to issue a five-year note totaling $23.7 million to Welltower, a portion of which is expected to be convertible to common stock at approximately $4 per share. Upon completion of this transaction, Welltower would still lease to Genesis 114 skilled nursing and assisted/senior living facilities.
“I am excited about these win-win transactions for all parties involved,” noted George V. Hager, Jr., Chief Executive Officer of Genesis. “This is a great example of the creative things we can accomplish with our partners to further strengthen our capital structure. For Genesis, the new leases lower year-one rent payments and fixed charges by $10.5 million and $8.1 million, respectively, reduce the burden of rent escalators and are significantly accretive in both the near and long term.”
Lindsay Goldberg is a private investment firm that manages approximately $13 billion of equity capital and focuses on partnering with family-owned and entrepreneur-led companies seeking a partner to help them actively build their businesses. Lindsay Goldberg has significant experience in the skilled nursing industry through its previous investment in Aviv REIT (Aviv). Lindsay Goldberg initially invested in Aviv in 2010 and, through a series of accretive follow-on investments, grew the business alongside management into one of the largest owners of skilled nursing and other healthcare related facilities in the United States. Aviv was taken public in March 2013 and merged with Omega in April 2015.
Omega (NYSE: OHI) is a REIT providing financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities located in the United States and United Kingdom. Omega owns over 900 facilities leased to over 80 operators.
About Genesis HealthCare
Genesis HealthCare (NYSE:GEN) is a holding company with subsidiaries that, on a combined basis, comprise one of the nation’s largest post-acute care providers with approximately 500 skilled nursing centers and assisted/senior living communities in 34 states nationwide. Genesis subsidiaries also supply rehabilitation and respiratory therapy to more than 1,700 healthcare providers in 45 states and the District of Columbia. References made in this release to “Genesis,” “the Company,” “we,” “us” and “our” refer to Genesis Healthcare, Inc. and each of its wholly-owned companies. Visit our website at www.genesishcc.com.
This release includes “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “pursue,” “plans,” or “prospect,” or the negative or other variations thereof or comparable terminology. They include, but are not limited to, statements about Genesis’ expectations and beliefs regarding its future financial performance, anticipated cost management, anticipated business development and anticipated financing activities. These forward-looking statements are based on current expectations and projections about future events, including the assumptions stated in this release, and there can be no assurance that they will be achieved or occur, in whole or in part, in the timeframes anticipated by the Company or at all. Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance of Genesis may differ materially from that expressed or implied by such forward-looking statements.
These risks and uncertainties include, but are not limited to, the following:
• reductions in Medicare or Medicaid reimbursement rates, or changes in the rules governing the Medicare or Medicaid programs could have a material adverse effect on our revenues, financial condition and results of operations;
• reforms to the U.S. healthcare system that have imposed new requirements on us;
• revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;
• our success being dependent upon retaining key executives and personnel;
• it can be difficult to attract and retain qualified nurses, therapists, healthcare professionals and other key personnel, which, along with a growing number of minimum wage and compensation related regulations, can increase our costs related to these employees;
• recently enacted changes in Medicare reimbursements for physician and non-physician services could impact reimbursement for medical professionals. Moreover, payment annual caps that limit the amounts that can be paid for outpatient therapy services rendered to any Medicare beneficiary may negatively affect our results of operations;
• we are subject to extensive and complex laws and government regulations. If we are not operating in compliance with these laws and regulations or if these laws and regulations change, we could be required to make significant expenditures or change our operations in order to bring our facilities and operations into compliance;
• our physician services operations are subject to corporate practice of Medicare laws and regulations. Our failure to comply with these laws and regulations could have a material adverse effect on our business and operations;
• we face inspections, reviews, audits and investigations under federal and state government programs, such as the Department of Justice, and contracts. These investigations and audits could result in adverse findings that may negatively affect our business, including our results of operations, liquidity and financial condition;
• significant legal actions, which are commonplace in our industry, could subject us to increased operating costs, which could materially and adversely affect our results of operations, liquidity and financial condition;
• insurance coverages, including professional liability coverage, may become increasingly expensive and difficult to obtain for health care companies, and our self-insurance may expose us to significant losses;
• failure to maintain effective internal control over financial reporting could have an adverse effect on our ability to report on our financial results on a timely and accurate basis;
• we may be unable to reduce costs to offset decreases in our patient census levels or other expenses timely and completely;
• completed and future acquisitions may consume significant resources, may be unsuccessful and could expose us to unforeseen liabilities and integration risks;
• we lease a significant number of our facilities and may experience risks relating to lease termination, lease expense escalators, lease extensions, special charges and leases that are not economically efficient in the current business environment;
• our substantial indebtedness, scheduled maturities and disruptions in the financial markets could affect our ability to obtain financing or to extend or refinance debt as it matures, which could negatively impact our results of operations, liquidity, financial condition and the market price of our common stock;
• our potential issuance of debt securities that are convertible into our common stock could result in dilution of your percentage ownership of our company, if such debt securities are converted to common stock;
• we are subject to numerous covenants and requirements under our various credit and leasing agreements and a breach of any such covenants or requirements could, unless timely and effectively remediated, lead to default and potential cross default under such agreements;
• the holders of a majority of the voting power of Genesis’ common stock have entered into an extended voting agreement, and the voting group’s interests may conflict with the interests of other holders;
• some of our directors are significant stockholders or representatives of significant stockholders, which may present issues regarding diversion of corporate opportunities and other potential conflicts; and
• we are a “controlled company” within the meaning of NYSE rules and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.
The Company’s Annual Report on Form 10-K for the year ended December 31, 2015, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the U.S. Securities and Exchange Commission, including the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 when it is filed, discuss the foregoing risks as well as other important risks and uncertainties of which investors should be aware. Any forward-looking statements contained herein are made only as of the date of this release. Genesis disclaims any obligation to update its forward-looking statements or any of the information contained in this release. Investors are cautioned not to place undue reliance on these forward-looking statements.