Genesis HealthCare CEO calls restructuring 'a huge step'

Genesis HealthCare chief executive George V. Hager Jr. told investors Thursday that the nursing home company's latest financial restructuring "a huge, huge step for us bridging to the recovery and moving to the next cycle of this industry."

Under the deal announced Wednesday, Genesis's largest landlords Welltower Inc. and Sabra Health Care REIT Inc., will sell certain properties leased to Genesis. Genesis is then expected lease them from the new owners at lower rents. That rent reduction is expected to be $54 million annually starting in January.

Debt restructuring, a pause in cash payments on certain debt, is expected to bring the total restructuring relief between $80 million to $100 million annually, the Kennett Square company said. Genesis has more than 30 nursing homes in the Philadelphia region.

For context, Hager explained on the call that in the 12 months ended Sept. 30 Genesis had $5 million pretax free-cash flow, after rent, interest, and capital expenditures for maintenance.

Dana Hambly, an analyst at Stephens Inc., congratulated Hager on the restructuring, but raised doubts. "It's a huge relief, but I fear if the underlying operations don't start to stabilize and improve we'll be at this same point in another year from now or so," Hambly said during the conference call.

Hager said it appeared to him that the company and the industry were close to the bottom of a down cycle.

However, pressures could continue. For example, managed care for Medicaid, which pays for most nursing home stays, starts next year in Pennsylvania, one of Genesis's biggest markets.

For years, the company has already been pressured by the growth in managed Medicare, which "inherently yield about a 20 percent reduction in length of stay and about a 10 to 15 percent lower rate per patient day as compared to traditional Medicare," Hager said.

In its quarterly report to the Securities and Exchange Commission Wednesday, Genesis said it may be forced to file for bankruptcy protection without the relief from creditors that it outlined.

"Clearly this has been the most protracted and complex down cycle in our history," Hager told investors. "More recently, as these pressures have continued to mount, we have begun to see operators of all sizes forced into receivership or other formal restructuring proceedings. That is why I cannot emphasize enough how appreciative I am of the long-standing collaborative partnerships we have with Welltower and Sabra. In difficult times, as partners, our interests clearly overlap."