News of higher operating costs sends the shares of newly merged Genesis Healthcare and Skilled Healthcare down more than 20%.
Welcome back to the world of public investors. I say this to George Hager and his team at Genesis Healthcare, which closed on the reverse merger with Skilled Healthcare on February 2. Just three weeks later, they reported fourth quarter operating results for both companies, and while the skilled patient day mix at Genesis increased by 60 basis points and occupancy increased 30 basis points from the year ago quarter, Skilled Healthcare’s occupancy declined 110 basis points from the fourth quarter in 2013, to just 81.1%. Sounds a little too similar to the Brookdale/Emeritus scenario last month. Despite this, Skilled’s cash flow and margins increased nicely, and both EBITDAR and EBITDA margins are running ahead of Genesis. But what got to investors was the fact that controllable operating expenses at Genesis were $31 million higher than previous expectations. The market did not take this too well, sending the merged company’s shares down 22% on the news, and they have not recovered too much of that loss yet. But higher operating costs have been something we have been warning about. For Genesis? It’s back to quarter-to-quarter financial management, whether they like it or not.
