Q3 2019 Earnings Call

Matters first any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied on today's call mr. should not place undue reliance.

On forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results, except as required by federal Securities laws Genesis healthcare and its affiliates do not undertake to publicly update or revise any forward looking statements or changes that arise as a result from new information future events change.

In circumstances or for any other reason in addition, any operation. We mentioned today is operated by a separate independent operating subsidiary that has its own management employees and assets references to the consolidated company and its assets and activities as well as the use of the terms. We are in similar verbiage are not meant to.

By the Genesis healthcare has direct operating assets employees or revenue or that any of the various operations are operated by the same entity.

Our discussion today and the information in our earnings release and in our public filings include references to adjusted EBITDAR EBITDA and adjusted EBITDA, which are non-GAAP financial measures. We believe that the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for.

Trending analyzing and benchmarking the performance and value of our business, but such non-GAAP financial measures should not be relied upon at the exclusion of.

Please refer to the company's reserves for non-GAAP financial disclosures and its GAAP to non-GAAP reconciliations.

Contained in today's earnings release, and with that I'll turn the call over to George Hager CEO of Genesis healthcare.

Thank you Laurie good morning, and thanks for joining US help college identity brands from my voice hopefully you put all your move.

I'll focus my comments this morning on our progress.

With our strategic initiatives, including our portfolio management real estate acquisitions and value based programs.

I will then turn the call loads called Inventorial Genesis as Chief Financial Officer.

We will provide more details on our quarterly results and other updates before opening the lines for questions.

Overall, we had another solid quarter highlighted by continued same store occupancy.

Providing further evidence that we read the census, low point back in the fourth quarter of 2018 fundamentals of the business continued to trend positively.

First.

Regarding our strategic initiatives I would like to update you on our portfolio optimization activities.

During the third quarter of 2019, we divested exited or closed the operations of 22 non core facilities.

Year to date.

Through October Onest 2019.

We exited the total 43 facilities.

With approximate annual revenue of $366 million adjusted EBITDA of $11.5 billion at a pre tax loss of $10.3 million.

These transactions resulted in the reduction of approximately 6.9 million of annual cash lease payments and the repayment above $154 million of indebtedness.

The divestiture transactions did reflect continued robust demand for our skilled nursing facility beds and valuations per bed that exceeded our expectations.

In addition to facility divestitures.

We're also pursuing creative joint venture structures.

Designed to take advantage of strong local operating resources in a number of our western markets.

These joint ventures will allow us to realize the benefits of combining successful local operators.

With the scale infrastructure and technology platform of the largest national provider.

We will update you on our JV negotiations have been finalized.

Before I leave this subject I would like to highlight our cumulative progress in streamlining our portfolio over these last several years.

Currently 76% of our facilities are located in Genesis is historical markets east of the Mississippi.

We will continue to drive Genesis back to its successful operating model that prioritized local market density.

Longstanding hospital and payer relationships and consistently positive clinical results.

Next I would like to like update you on our real estate trade real estate transactions as Weve discussed.

Previously we are looking to acquire back.

A significant component of our real estate.

We think ownership of a higher percentage of our real estate.

Continuing to improve the capital structure of the company.

Subsequent to September Thirtyth, 2019, we announced that we made an investment.

With a private investor involving 18 skilled nursing facilities previously leased from second spring healthcare investments and Welltower.

Through this investment we gained approximately a 30% interest in the entity that owns the real estate of the 18 facilities.

We also acquired a fixed price purchase option to to acquire the real estate in 2024 at a 10% plene premium above the original acquisition cost.

This is the third unique investment transaction, we have completed over the last two years.

Each of these transactions focuses on ownership with the right to obtain ownership in our underlying real estate.

The purchase options in these transactions are exercisable between 2023 2026.

Upon the exercise of these options.

Our debt service cost will be reduced by approximately $23 million.

Were 40% on an annualized basis.

We have previously stated it was our goal to owner obtained the ownership rights to purchase at least 30% of our portfolio by the end up 2020.

At this time I feel comfortable raising our goal to 35% by the end of 2020, given the transactions that are currently in process.

Moving onto our are accountable care organization, the only long term care focused a CEO in the country.

For those of you who are not familiar the Genesis healthcare a CEO .

Participated in the Medicare shared savings plan in an upside only no risk track for the 2018 performance period.

This track Alaska.

You would just see this continual sort of downward slope that in the last couple of quarters has really started to flatten. So maybe a point I'll make where you were going is there's no doubt that the that the portfolio that we're managing today.

As George mentioned is much more stable, but the clinical performance, there's going to be more consistent it's in markets, where we have a lot of clinical capability. So I do think that theres some greater stability.

In the skilled mix in the business the portfolio that we're operating today, but that said even if you try if you did all this on a same store basis, you'll definitely see this trajectory declining in terms of the level of detail a deceleration of the decline and.

So we're hopeful that we are hitting it sort of a real inflection point and we can see some organic growth here in the not too distant future.

Okay. Thank you.

Thanks for your question at this time with center you May continue.

Well, we appreciate everyone joining us for the call. This morning, and as always I'd call myself, I Lorianne and the rest of the other Genesis team.

Our available for any questions that you might have after the call. Thank you again for joining us this morning.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.