Genesis Healthcare takes $532 million write-down, warns of possible bankruptcy

Genesis Health Inc., one of the nation's largest nursing home operators, warned Wednesday that without relief from creditors it may have to file for bankruptcy protection.

"As currently structured, it is unlikely that the company will be able to generate sufficient cash flow to cover required financial obligations, including its rent obligations, its debt-service obligations and other obligations due to third parties," the Kennett Square company said in its quarterly report to the Securities and Exchange Commission.

Shares in Genesis, which has more than 20 percent of its 450 facilities in Pennsylvania and New Jersey, fell 10.6 percent Wednesday, to close at 87 cents on the New York Stock Exchange.

Genesis blamed "the persistent pressure of health care reforms enacted in recent years." Changes have aimed to keep the elderly out of nursing homes or at least to reduce the amount of time they spend in the facilities.

"The negative impact of continued reductions in skilled patient admissions, shortening lengths of stay, escalating wage inflation and professional liability losses, combined with the increased cost of capital through escalating lease payments accelerated in the third quarter of 2017," Genesis said.

Genesis said it had entered into preliminary agreements for relief with two of its landlords, units of Sabra Healthcare REIT Inc. and Welltower Inc. Those arrangements call for Sabra and Welltower to sell an unspecified number of facilities and for Genesis to lease them from the new owners at a reduced rate. That help could come in the first half of next year.

The troubles of Genesis's nursing home operations are reflected in the company's decision to take a $360 million write-down for all of the goodwill associated with its inpatient operations. Goodwill is a term for future economic benefits from an acquisition above and beyond physical and other separately identifiable assets.

In addition, the company recorded a noncash charge of $164.4 million on the physical assets of its inpatient operations, which were valued at $5.2 billion at the end of last year.

In the quarter ended Sept. 30, Genesis had an overall net loss of $615 million in revenue of $1.3 billion. In the comparable quarter a year ago, it lost $52 million on revenue of $1.4 billion.

Even on an adjusted-cash basis before rent, interest, taxes, and account charges, a measure used widely in the nursing home industry, Genesis reported a decline of $147.8 million this year from $172.1 million last year.