First Quarter 2018 Results
- US GAAP revenue in the first quarter of 2018 was $1.30 billion compared to $1.39 billion in the first quarter of 2017;
- US GAAP net loss attributable to Genesis Healthcare, Inc. in the first quarter of 2018 was $68.5 million compared to $50.8 million in the first quarter of 2017;
- Adjusted EBITDAR in the first quarter of 2018 was $150.6 million compared to $165.7 million in the first quarter of 2017; and
- Adjusted EBITDA in the first quarter of 2018 was $117.5 million compared to $129.6 million in the first quarter of 2017.
“Adjusted EBITDAR in the current year quarter was reduced by $4.0 million associated with 38 underperforming, non-core facilities that were divested since the prior year quarter,” noted George V. Hager, Jr., Chief Executive Officer of Genesis. “In the current year quarter, there were two additional factors that served to reduce year-over-year Adjusted EBITDAR by approximately $10.0 million. First, in the current year quarter, we experienced more adverse winter weather patterns in Northeast and Mid-Atlantic states than in the prior year quarter, resulting in $4.0 million of incremental utility and ground maintenance costs. Second, 16 of our skilled nursing facilities during the current year quarter were subject to admission restrictions associated with influenza, staffing or other regulatory imposed restrictions. As a result, these 16 centers generated approximately $6.0 million less Adjusted EBITDAR in the current year quarter as compared to the prior year quarter.”
“Despite these unusual and unanticipated challenges this quarter, our Adjusted EBITDAR of $150.6 million met our expectations as our business leaders continue to demonstrate great diligence by effectively managing our operating cost structure, executing on dozens of performance improvement initiatives and reducing year-over-year general and administrative costs by over 11%,” continued Mr. Hager.
Genesis has made significant progress with its strategy to exit challenging facilities and certain low-density markets in order to focus on investment and growth in core, strategic markets. During 2018, Genesis has completed or is in the process of divesting or exiting the operations of 43 buildings as follows:
- Genesis closed one leased facility in the first quarter of 2018, and exited the operations of five additional leased facilities on April 1, 2018. These six facilities had annual net revenue of $37.5 million, Adjusted EBITDA of ($2.1) million and a pre-tax net loss of ($5.6) million. Genesis estimates these transactions will result in the reduction of approximately $0.8 million of annual cash lease expense.
- On April 11, 2018, Genesis announced that it had signed a definitive agreement to sell 23 Texas skilled nursing facilities (22 buildings owned by Genesis and one leased) to Regency REIT, LLC and exit the operations of one additional leased skilled nursing facility. Aggregate annual revenue and EBITDA of all 24 Texas facilities totaled approximately $173.7 million and $7.5 million, respectively. Genesis estimates these transactions will result in the reduction of approximately $97 million of indebtedness and $1.8 million of annual cash lease expense. The closing of these transactions is subject to further due diligence and other customary closing conditions.
- Genesis also expects to exit the operations of 13 additional leased facilities by July 1, 2018. The 13 facilities generated annual net revenue of $155.6 million, Adjusted EBITDA of $5.8 million and a pre-tax net loss of ($16.4) million. Genesis estimates these transactions will result in the reduction of approximately $12.2 million of annual cash lease expense.
“We remain encouraged by the initiatives underway to improve margins, reduce leverage and strengthen the overall quality of our portfolio by exiting these non-strategic markets and underperforming assets,” commented Mr. Hager.
New Real Estate Loan
On March 30, 2018, Genesis entered into two real estate loans with combined available proceeds of $75.0 million, $73.0 million of which was drawn as of March 31, 2018. These five year loans, which are secured by the real estate loan of 18 skilled nursing facilities, are subject to an annual interest rate equal to LIBOR plus an applicable margin of 5.85%. Net proceeds from the loans of $69.7 million were used to repay partially the Welltower Real Estate Loans.
In April 2018, Genesis announced that its subsidiary in China, referred to as GRS-HS, signed a definitive agreement to sell 51% of its investment in China, to Riswein Health Industry Investment Co., Ltd (Riswein) for $30.0 million. The transaction is expected to close in the first quarter of 2019 and is subject to regulatory and licensing approvals, and other customary conditions. Riswein and GRS-HS will use the $30.0 million to further fund expansion in China.
Adoption and Impact of Revenue Recognition Accounting Standards
On January 1, 2018, Genesis adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606). Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of applying ASC 606 to the quarter ended March 31, 2018 was a $24.8 million implicit price concession, directly reducing net revenues, which previously would have been recorded as a provision for losses on accounts receivable.
If the provisions of ASC 606 were applied on a pro forma basis to the quarter ended March 31, 2017, reported revenue would have been $1,365.6 million, with no impact to net loss attributed to Genesis Healthcare, Inc.
Genesis to Present at the Bank of America Merrill Lynch 2018 Health Care Conference
George V. Hager, Jr., Chief Executive Officer of Genesis, is scheduled to host a fireside chat at the Bank of America Merrill Lynch 2018 Health Care Conference on Thursday, May 17, 2018 at 10:00 a.m. Pacific Time. The conference is being held at the Encore Hotel in Las Vegas, NV. A live webcast and replay of the Company’s fireside chat will be available on the Company’s website at www.genesishcc.com/investor-relations.
Source: Genesis Administrative Services LLC, 101 East State Street, Kennett Square PA 19348
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