Genesis Chain’s Downfall
Greed and Incompetence
Despite tens of billions of dollars in federal bailout money, the nursing home industry is in serious jeopardy. Mostly because of greed and incompetence. Many are declaring bankruptcy or restructuring. Some are trying to avoid accountability for bleeding the chains dry.
“I think that the REIT model is dead,” Robert Hartman, founder of Symphony Post Acute Network, told a conference.
Consulate Health Care
Consulate Health Care was accused of Medicare fraud and mismanagement. The chain manages and operates 140 skilled nursing facilities across six states. The Qui tam case resulted in a $258 million judgment. To avoid paying the judgment, six nursing home entities owned, operated, and controlled by Consulate Health Care filed for bankruptcy. Law360 reported that court documents show the six entities are part of a family of companies owned by Consulate. However, Consulate itself is not filing for bankruptcy.
The entities “lack the financial capacity to satisfy the Ruckh judgments and cannot risk an interruption in care to the residents of the managed SNFs that might result from enforcement of the Ruckh judgments,” according to court documents.
For example, Genesis Healthcare was the nation’s biggest operator of nursing facilities. However, their share price has consistently declined because of mismanagement and over-leveraging assets. Genesis had faced an involuntarily de-listing from the New York Stock Exchange after its shares fell below $1 for 30 consecutive trading days back in April 2020.
Welltower is a large real estate investment trust that loans to profitable nursing home chains. Genesis is $423 million in debt to Welltower. Therefore, Welltower terminated the $880 million loan guaranteed by the leases in 51 Genesis properties. In response, Genesis “voluntarily” delisted itself from the New York Stock Exchange. Welltower is looking for regional operators to take over the management.
Indeed, two years ago, George Hager, CEO of Genesis, told the same health care conference, “I would argue that the traditional REIT structure in skilled nursing has been proven to be a failure.”
Genesis operates 325 facilities but struggled financially because of mismanagement. Last year, Genesis warned investors it was at risk of going out of business. In January, its CEO retired taking millions in bonus payments. Now Genesis is in a fundamental restructuring.
The Genesis restructuring plan includes an agreement with ReGen Healthcare LLC for a capital infusion of $50 million. The deal will terminate its master lease with Welltower covering 51 facilities. Genesis will receive about $86 million, and $170 million in additional debt reductions. Genesis expects to reduce its outstanding debt by $264 million.
Forbes columnist Howard Gleckman suggested that the restructuring and breakup of Genesis and Welltower is “an indication of the industry’s distress.” That is what greed and incompetence does to a business.