Nursing Home Giant Genesis Mulls Restructuring as Expenses, Losses Exceed Federal Aid by $60M

Nursing home giant Genesis HealthCare (NYSE: GEN) is in active talks with its financial backers about several potential restructuring options amid ongoing COVID-19 financial strains, CEO George Hager indicated Monday.

“We have initiated discussions with select capital partners to analyze a number of restructuring alternatives,” Hager said on the company’s third quarter earnings call with investors and analysts. “We will continue to work diligently to protect our patients, residents, and staff; improve the operating performance of the business; and pursue opportunities to improve the financial position of the company.”

Those alternatives could include changes to the company’s leases and debt, new joint-venture arrangements, and capitalizing on ancillary business lines.

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“It’s hard to give you a percentage or a status of where any of those conversations are,” Hager said. “But there are a lot of levers here that can be pulled, and we have been and will continue to be very active at looking at the optimal restructuring alternatives going forward.”

The Kennett Square, Pa.-based operator recorded a net loss of $62.8 million in the third quarter of 2020, compared with net income of $46.1 million over the same span in 2019.

Though Genesis pulled down $64 million in federal and state COVID-19 relief over the quarter, expenses and lost revenue associated with the pandemic totaled $124 million during the period.

Genesis in August announced “substantial doubt” about its ability to continue as a going concern over the coming 12-month period, citing its geographic concentration in early COVID-19 hot zones across the Northeast as a key driver of financial distress.

“Even if the Company receives additional funding support from government sources and/or is able to execute successfully all of its these plans and initiatives, given the current challenging environment the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force the Company to seek reorganization under the U.S. Bankruptcy Code,” Genesis warned over the summer.

About 70% of COVID-19 cases among residents and staff at Genesis facilities came five states — Connecticut, Maryland, Massachusetts, New Jersey, and Pennsylvania — that are home to just 45% of the company’s total operating beds.

Several of Genesis’s publicly traded real estate investment trust (REIT) landlords responded to its going-concern warning by switching the company to cash-based accounting and taking significant write-downs.

Omega Healthcare Investors (NYSE: OHI) led the way with a $65 million hit in late September; Welltower Inc. (NYSE: WELL) followed with a $97 million write-off late last month, while LTC Properties (NYSE: LTC) reported a $5.5 million write-down for Genesis and another unnamed operator. Sabra Health Care REIT (Nasdaq: SBRA) just last week pulled off a previously telegraphed $14.3 million write-down on properties operated by Genesis and fellow operator Signature HealthCARE.

In addition to lease and debt restructuring, the company continues to explore the potential reduction of its footprint, which currently consists of more than 350 properties across 25 states.

Genesis in the third quarter sold the real estate and operations of a single facility, using $5 million in proceeds to pay down debt. The company so far in the fourth quarter has handed off control of nine more facilities, allowing Genesis to pay off $22 million more in debt.

There were some bright spots for the operator, including a 130-basis-point increase in occupancy from June to October and steady quantities of personal protective equipment (PPE); Genesis has set aside a portion of its corporate headquarters to serve as a storage and distribution center for supplies, Hager said.

Despite disturbing nationwide increases in nursing home COVID-19 cases, Genesis facilities have not seen a corresponding uptick so far — but chief medical officer Dr. Richard Feifer issued a stark warning about the months ahead.

“We are, however, very much aware of what is going on around us and are deeply concerned about these trends, since we know that the prevalence of COVID in the surrounding community represents the greatest risk of COVID-19 to nursing homes,” Feifer said. “We are actively working to prepare our centers for the next wave of the virus.”

Those preparations include unannounced internal infection-control surveys, increased testing frequencies above Centers for Medicare & Medicaid Services (CMS) requirements in some areas, and analytic tools to help monitor the safety of visits — though Feifer cautioned that Genesis has not been able secure sufficient point-of-care supplies in order to test all incoming visitors.

“We are hopeful that there will be adequate supply to begin testing visitors, but availability is just not there yet,” Feifer said.

Genesis has been using the government-supplied point-of-care testing units in its facilities, with no elevated levels of false results, according to Feifer. Some states continue to bar the use of the rapid tests given concerns about error rates, and while Genesis uses the more reliable polymerase chain reaction (PCR) tests to confirm “clinically suspicious” point-of-care results, Feifer called on jurisdictions to allow wider use of the devices in nursing homes.

“These point-of-care tests are becoming increasingly important as PCR tests still create a delay, which sometimes extends upwards of four days to receive results,” Feifer said. “Any delay in determining who might be contagious is unacceptable, and all the more reason the point-of-care tests are so critical at this juncture.”

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