Genesis Healthcare sees nursing home lease deals saving cash

[November 10, 2017] By Tracy Rucinski

CHICAGO (Reuters) - Genesis Healthcare Inc, one of the largest U.S. nursing home operators, expects to bounce back from industry woes after reaching a deal to restructure some of its leases, Chief Executive George Hager told investors on Thursday.

Many companies in the nursing home industry have struggled with rising costs and dwindling funding from state medical assistance programs. Their difficulties are weighing on landlords, including large real estate investment trusts that invested in the sector over the past decade.

"Clearly, this has been the most protracted and complex down cycle in our history," Hager said on a conference call following the release of third-quarter results, noting that operators of all sizes have been forced into receivership or formal restructuring proceedings.

Chicago-based Genesis expects to save an annual $54 million once two of its main landlords, Welltower Inc and Sabra Health Care REIT Inc, have sold their facilities to a new owner, which would then charge lower rent.

However, Hager said only some of those planned facility sales were binding and would close by Jan. 1, while the timing of others was uncertain. The new owner was not disclosed.

Genesis also expects to save on interest payments by selling assets to pay down debt owed to Welltower. In total, the restructuring efforts are expected to generate between $80 million and $100 million in fixed annual cash savings.

One analyst, Dana Rolfson Hambly of Stephens Inc, expressed concern that the restructuring efforts would not be enough to improve finances if underlying operating conditions remained under pressure next year.

Genesis posted a $615 million net loss in the third quarter and warned that liquidity and finances would be strained without relief from creditors and landlords.

Hager declined to comment on the group's 2018 outlook.

Shares in Genesis, which have lost 78 percent of their value over the past year, closed at 95 cents on Thursday.

Another large U.S. nursing home operator, HCR ManorCare, has until Dec. 1 to reach an agreement with its landlord Quality Care Properties over more than $300 million in unpaid rent.

Quality Care, which relies on ManorCare for more than 90 percent of its revenues and posted a $34 million third-quarter net loss on Thursday, has threatened to replace ManorCare's management with a court-appointed receiver.

(Reporting by Tracy Rucinski; Editing by Tom Hals and Leslie Adler)

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