Health Care REIT Pays $2.4 Billion for 147 Skilled Nursing Facilities

March 1, 2011

March 1, 2011. In yet another example of the financial power of health care REITs, Health Care REIT announced its fifth significant acquisition in two weeks, this time in the skilled nursing sector.  Last night, the company disclosed it will purchase....

147 skilled nursing facilities from Genesis HealthCare Corporation for $2.4 billion, or about $133,000 per bed (a handful of assisted living facilities were included in the deal).  These facilities will be leased back to Genesis at an initial annual rent of $198 million plus annual escalators, which produces an initial yield of 8.25%.  In addition, Health Care REIT will have an option to purchase a 9.9% interest in Genesis during the term of the lease for a fixed price of $47 million.  The deal will be very accretive to Health Care REIT and the rent coverage is about 1.5x.  Since Formation Capital and JER Partners took Genesis private in mid-2007, it looks as if they have increased EBITDAR by well over 50% and have also invested a few hundred million dollars in the physical plant.  While we don't know what their return has been (and it is still growing since they still own the operating company which has additional assets), we do know that its investors are very pleased, to say the least.  Genesis operates in a very tight geographic area that almost mirrors that of two other recent HealthCare REIT acquisitions, Benchmark Senior Living and Brandywine Senior Living.  We always thought an acquisition of Benchmark by Genesis made tremendous strategic sense in the post-acute care world, and now they will both be under the same financial umbrella.   

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