Welltower Takes $83M Write-Down on Genesis Loans as Long-Term Nursing Home Outlook Remains Unclear

Welltower Inc. (NYSE: WELL) this week announced another major write-down related to troubled nursing home tenant Genesis HealthCare (NYSE: GEN) as the provider’s future — along with the outlook for the rest of the sector — remains unclear.

During the fourth quarter of 2020, the Toledo, Ohio-based real estate investment trust (REIT) wrote down $83 million in unsecured loan exposure related to Genesis, which last year openly expressed doubts about its ability to continue as a going concern given COVID-19 financial strains.

That comes on top of a $97 million write-down associated with the Kennett Square, Pa.-based Genesis’s leases, which Welltower instituted after converting the operator to cash-based reporting retroactive to last July 1. Welltower was one of multiple REITs, including Omega Healthcare Investors (NYSE: OHI) and Sabra Healthcare REIT (Nasdaq: SBRA), that made similar moves in the wake of Genesis’s going concern warning last August.


“Similar to our Genesis lease income, we’ve been recognizing all interest on our unsecured loans on a cash basis, so this impairment does not change income recognition on these loans,” Welltower chief financial officer Tim McHugh said during the company’s Q4 earnings call Wednesday morning. “Genesis remains current on all financial obligations to Welltower through January.”

The REIT logged 2% same-store revenue growth in its long-term and post-acute care portfolio as compared to the prior year quarter, McHugh noted, though the significant concentration of Genesis assets in that category drove down EBITDAR coverage to 1.0 times, a drop of .012x.

Welltower’s other major post-acute play, its joint venture with hospital system ProMedica to own the former HCR ManorCare chain of nursing facilities, saw 2.7% growth in net operating income and trailing 12-month EBITDAR coverage of 2.27 times, McHugh said.


The theme among Welltower’s executives was rolling with continued COVID-related uncertainties, both for its post-acute assets and senior living holdings. Wh en asked if the company would consider changes to its leases with post-acute tenants, CEO Shankh Mitra said they’ll focus on making sure operators are taking the long-term view, and not extrapolating short-term performance into permanent trends.

“If we think that our tenants and us, we can’t agree on what the long term value of our real estate is, then we have to move forward with a different operator,” Mitra said. “Our value is in the real estate, and we know how to preserve it.”

In a research note issued before the earnings call, analysts from BMO Capital Markets pointed out the Genesis distress as contributor to the company’s weakening post-acute care position, and predicted rent cuts and transitions in Welltower’s senior housing portfolio.

Genesis, which operates more than 300 skilled nursing facilities and assisted living properties, started the year with a change at the top when longtime CEO George Hager stepped down on January 5. He was replaced with board chairman Robert Fish, though Hager has remained in the spotlight after Sen. Elizabeth Warren publicly criticized a $5.2 million bonus paid to the former CEO as an act of “unfathomable greed” given COVID-19 deaths in Genesis facilities and the company’s calls for more federal funding.

Genesis indeed received hundreds of millions in relief from Washington, though the company indicated that it may not survive even with additional help.

“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 in August.

The leadership change indicates continued uncertainty about the company’s future, Credit Suisse speculated last month.

“Additionally, GEN’s long-time CEO George Hager retired in early January, suggesting, in our view, there is no quick fix to the current situation,” Credit Suisse observed in its analysis.

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