Welltower Takes $97 Million Write-Down on Genesis in Wake of ‘Going Concern’ Notice

Welltower Inc. (NYSE: WELL) took a $97 million write-down associated with properties operated by Genesis HealthCare (NYSE: GEN) amid concerns about the nursing home giant’s future, the real estate investment trust (REIT) announced Thursday.

The move came as Welltower switched Genesis to cash-based reporting for its lease income, retroactive to July 1, though chief financial officer Tim McHugh emphasized that Genesis “remains current on all financial obligations” to the REIT through October.

The write-down specifically consisted of straight-line rent receivables, McHugh said.

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“Genesis HealthCare, which makes up approximately half of our long-term/post-acute segment exposure, included language in the second quarter financials filed on August 10 regarding its ability to continue as a going concern,” McHugh said Thursday on Welltower’s third-quarter 2020 earnings call.

The reporting shift also resulted in a $2.2 million cash-flow hit as compared to the prior quarter, McHugh noted.

Welltower now joins fellow REIT Omega Healthcare Investors (NYSE: OHI) in taking such a step; Omega last month announced a $65 million Genesis write-down after switching the Kennett Square, Pa.-based operator to cash-based reporting, along with a $75 million write-down for fellow tenant Signature HealthCARE.

Sabra Health Care REIT (Nasdaq: SBRA) similarly announced that it may take such a step with its Genesis and Signature assets, which would result in a $14 million write-down for the REIT.

The wave of actions came after Genesis publicly indicated that its future is deeply uncertain in the wake of COVID-19 financial strains, citing $74 million in lost revenue during the first six months of 2020 and skyrocketing expenses related to the ongoing pandemic.

“The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued,” the operator observed in an August release.

Genesis’s geographic footprint in the Northeast includes regions hit particularly hard in the earliest days of COVID-19 pandemic, when less was known about the virus and blanket bans on non-essential surgeries removed the normally vital stream of Medicare-covered post-acute patients from its buildings.

“Without giving effect to the prospect, timing, and adequacy of future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties,” Genesis noted.

Outside of the Genesis worries, Welltower reported same-store growth of 2% year-over-year for its post-acute and long-term care assets during the quarter, along with a 2.3% NOI boost for its ProMedica joint-venture assets — the nursing homes and senior living properties formerly known as HCR ManorCare and now currently under a rebranding process to ProMedica Senior Care.

Welltower acquired those buildings in an 80-20 joint venture with the ProMedica hospital system in 2018 as part of the REIT’s push to develop vertically integrated health care networks, long a stated goal of former CEO Tom DeRosa.

New CEO Shankh Mitra, presiding over his first quarterly earnings call since DeRosa’s departure earlier this month, emphasized that the Toledo, Ohio-based Welltower’s strategy will remain the same under his leadership.

“Many of you have asked me if our strategy will change going forward. The answer to that question is an emphatic no,” Mitra said. “Welltower will continue to strive to be the premier wellness infrastructure company that allocates capital in the path of growth of health care and wellness trends.”

Welltower logged total net income of $325.6 million in the third quarter of 2020, down from $589.9 million during the same span in 2019. Shares of WELL rose slightly by midday, logging a 3% gain — or $1.57 — to reach $53.96 by 12:30 Eastern time Thursday.

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