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ProMedica slashes costs of leases to nursing homes

The Blade - 10/4/2018

Oct. 04--ProMedica has cut by more than half what it will pay annually to lease nursing homes acquired in the $3.3 billion deal for HCR ManorCare.

The annual cost for leasing 168 skilled nursing homes once leased by ManorCare will fall to $179 million this year vs. $400 million last year, according to a new report from Fitch Ratings.

The savings will allow Toledo-based ProMedica to invest in its other facilities as well as in the communities it serves, said ProMedica spokesman Julie Beckert.

"It's an opportunity," she said.

ProMedica in July bought ManorCare, one of the nation's largest senior-care providers, for $3.3 billion in conjunction with Toledo-based real estate investment trust Welltower.

Welltower bought all of the buildings that ManorCare once operated, while ProMedica runs the health-care business. That includes the nursing homes, assisted-living facilities, and home and hospice locations. Ms. Beckert said ProMedica negotiated much better leases for the buildings than ManorCare did before the merger.

ProMedica is one of the largest integrated health-care systems in the United States with 13 hospitals, a large health plan, and now senior-care operations across 30 states.

Welltower is divesting an additional 73 nursing homes that ManorCare once operated, Beckert said.

Before ProMedica and Welltower bought ManorCare out of Chapter 11 bankruptcy, the court had ordered the sale of the 73 nursing homes, said Mary Ellen Pisanelli, Welltower senior vice president for legal and administration. Now Welltower is busy disposing of those assets.

Terms of the divestitures have not been disclosed. Ms. Beckert also said ProMedica is not revealing the list of divested nursing homes or their locations.

The remaining 168 homes at ProMedica are focused on treating patients needing sophisticated services over short stays of a week or so for knee replacements, rehabilitation, and rest before returning home, said Fitch senior director Kevin Holloran, who wrote the ProMedica ratings report this week.

That report was used for assigning an investment grade BBB+ rating to a $1.45 billion debt offering that ProMedica is planning this autumn for service expansion and to repay a $1.15 billion bridge loan taken to buy HCR ManorCare.

The services Holloran described can have higher margins than long nursing home stays.

Many big senior-care companies, such as ManorCare, have been reducing their nursing home exposure because of the lower profitability they tend to carry vs. assisted living and home care.

Kindred Healthcare, based in Louisville, a year ago sold its giant nursing home operation to focus on higher-margin business lines.

In addition to the 168 nursing homes ProMedica is operating, it also runs 54 assisted living communities, focusing heavily on dementia and Alzheimer patients, as well as 108 home care and hospice locations.

Contact David Barkholz at dbarkholz@theblade.com or 419-724-6134 or on Twitter @barkholzatAN.

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