When Genesis Healthcare Inc., one of the nation's largest nursing-home operators, returned to the stock market three years ago through a merger, the goal for the Kennett Square company was to sell more shares to the public to pay down its massive debt load.
Instead, the stock tanked, never making it out of the single digits and hitting a low of 60 cents in December, as Medicare and Medicaid rates haven't kept pace with rising costs. Plus, better-paying Medicare patients increasingly are kept out of nursing homes, leaving Genesis and others with a heavier concentration of money-losing Medicaid patients, who bring in less than half of Medicare.
The shares, which trade on the New York Stock Exchange, have since recovered slightly, to close Tuesday at $1.64, thanks to the willingness of Genesis' biggest landlords, Welltower Inc. and Sabra Healthcare REIT Inc., to cut aggregate rents by 11 percent, or $54 million. The landlords also kicked in an $8 million reduction cash interest on loans.
"They see the problems going around the industry," George V. Hager Jr., Genesis' chief executive, said in an interview Monday.
On Friday, Genesis reported a 2017 loss of $214.4 million, as measured by earnings before interest, taxes, and amortization, on revenue of $5.4 billion, compared with a profit of $647 million on revenue of $5.7 billion in 2016.
Genesis is not alone. A tidal wave of financial pressure sweeping through the entire nursing-home industry has engulfed players big and small. HCR ManorCare Inc., of Toledo, Ohio, filed a prepackaged bankruptcy on March 4 and will be taken over by its landlord, Quality Care Properties Inc.
Locally, Oak Health & Rehabilitation Centers Inc., which operates Suburban Woods in East Norriton and five other Philadelphia-area centers, was put into receivership by its landlord, Formation Capital, an investor group that, along with management, controls Genesis. Further afield, major operators such as Golden Living and Kindred have more or less left the nursing home business, Hager said.
Why has Genesis been spared?
"Where are they better off?" Hager asked rhetorically, referring to Welltower and Sabra. "Are they better off forcing something like a ManorCare or an Oak or are they better off resetting the leases, which they did, to a market rate and allowing the company to continue to operate? Then you don't incur all those costs and disruptions. When you go down that negative road, you sort of lose control of what happens," he said.
The circumstances at HCR ManorCare, which operates 10 nursing homes in the Philadelphia region, differ from those at Genesis, said Jeffrey Langbaum, senior REIT analyst at Bloomberg Intelligence. ManorCare has a single landlord for all of its 295 nursing homes and assisted-living facilities.
The dynamic would have been much more complicated for Welltower and Sabra had they decided that they couldn't budge any more than they already had in previous restructurings and instead forced Genesis into bankruptcy. If they had taken over Genesis operations, their status as real estate investment trusts might have been at risk, Langbaum said.
Welltower, which in 2011 paid $2.4 billion for Genesis' real estate, still owns 86 Genesis nursing homes. Sabra owns 54. Since 2016, both Welltower and Sabra have been selling sites. Of its 470 facilities with 56,834 licensed beds, Genesis owns just 48 of them. The company has a total of 44 landlords.
The split of real estate ownership from operations is common in many sectors, including hospitality, casinos, and hospitals, but it has not worked so well for nursing homes, given their heavy reliance on government payers. "I think that model works if, in the long term, the earning streams of the business are a little more predictable," Hager said.
Despite the turmoil, Hager, who has worked for the company since 1992, spoke of optimism for the future of Genesis.
Baby boomers will grow older and demand will increase for nursing homes, though he acknowledged the risk that technology and other innovation could more than offset demographics by allowing even more of the frail elderly to remain at home.
"What I think potentially could have a bigger impact in the industry is a reduction in the supply of nursing home beds," Hager said, before leaving Monday on a trip to China, where Genesis is trying to establish a rehabilitation therapy business.
Pennsylvania and New Jersey, where Genesis has its biggest presence, have 1,304 fewer beds now than they did in 2010, federal data show. That is a decline of 0.9 percent. Nationally, the number of beds relative to the U.S. population 65 and older has fallen to 36 for every 100 people in 2014 from 45.7 ten years earlier.
"I think that decline could accelerate just because of financial distress," Hager said, believing that Genesis has the scale "to withstand downturns in the industry more effectively."
1985: Genesis Health Ventures is founded when Mike Walker buys 11 nursing in Massachusetts and Connecticut.
1991: Genesis goes public. It owns 42 nursing homes. Through acquisitions Genesis grows from $200 million in annual revenue to $2.4 billion by 1998.
2000: Along with several other large nursing-home chains, Genesis files for bankruptcy protection after Medicare payments were cut sharply. Genesis emerged from bankruptcy in 2001.
2003: Genesis Health Ventures spins off the nursing homes into Genesis HealthCare. The inpatient pharmacy business remained under the name NeighborCare Inc.
2005: Omnicare Inc. buys NeighborCare for $1.55 billion.
2007: Formation Capital and JER Partners take Genesis HealthCare private for nearly $2 billion.
2011: Health Care REIT Inc., now Welltower, buys most of Genesis's real estate for $2.4 billion.
2012: Genesis buys nursing home operator Sun Healthcare Group Inc. for $215 million, expanding to 422 nursing homes in 29 states.
2015: Genesis completes a reverse merger with publicly-traded Skilled Healthcare Group Inc. and returns to the New York Stock Exchange.
2017: In a major restructuring, landlords agreed to cut Genesis's aggregate annual rent by $54 million, or 11 percent.