Omega Healthcare Investors announced Thursday that it will move to a cash-basis accounting method for tenants Genesis Healthcare and Agemo Holdings LLC (f/k/a Signature Healthcare). The move comes as Omega was informed by the two firms of doubt regarding their ability to continue as a “going concern” in relation to the uncertainty around future cash flows caused by the COVID-19 pandemic.
Similarly, Irvine, CA-based Sabra Health Care REIT announced Friday that the firm’s auditors are evaluating the circumstances giving rise to the going concern issues for Genesis and Signature and also may transition them to a cash-basis accounting method of rental revenue.
Omega reported that it expects to write down approximately $140 million in straight-line receivables and lease inducements in the third quarter as a result. In addition, the firm will also be recording an impairment estimated at $28 million, related to the uncollateralized portion of a loan to Signature.
“Based on our continuing dialogue with both companies, we are hopeful that ongoing government support and a return to pre-pandemic resident occupancies will provide them with the liquidity needed to meet all of their future Omega financial obligations,” said Taylor Pickett, CEO of Omega.
Sabra reported that the firm would write off approximately $14.4 million of straight-line rental receivables and lease-related intangible assets if it needs to transition the leases with these tenants to cash-basis accounting. The firm expects to complete its evaluation during its third-quarter reporting cycle.
“While we understand the reasoning for the going concern disclosures for Genesis and Signature given the uncertainty of the operating environment, we are encouraged by the recent positive occupancy trends we see in our skilled nursing/transitional care portfolio and the continued government support for this vitally important component of healthcare delivery,” Sabra CEO and Chairman Rick Matros said.