10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020.

OR

☐    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             .

Commission file number: 001-33459

Genesis Healthcare, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3934755
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
101 East State Street
Kennett Square, Pennsylvania	19348
(Address of principal executive offices)	(Zip Code)

(610) 444-6350

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value per share	GEN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated Filer  ☒	Emerging growth company ☐
Non-accelerated filer  ☐	Smaller reporting company   ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on August 7, 2020, was:

Class A common stock, $0.001 par value – 110,584,200 shares

Class B common stock, $0.001 par value – 744,396 shares

Class C common stock, $0.001 par value – 55,409,742 shares

Genesis Healthcare, Inc.

Form 10-Q

Index

		Page Number
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets — June 30, 2020 and December 31, 2019	3
	Consolidated Statements of Operations — Three and six months ended June 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Loss) — Three and six months ended June 30, 2020 and 2019	5
	Consolidated Statements of Stockholders’ Deficit — Three and six months ended June 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows — Six months ended June 30, 2020 and 2019	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73
Item 4.	Controls and Procedures	73
Part II.	Other Information
Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	75
Item 6.	Exhibits	76
Signatures		77

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

	June 30, 2020		December 31, 2019
Assets:
Current assets:
Cash and cash equivalents	$	251,651	$	12,097
Restricted cash and equivalents		62,664		63,101
Restricted investments in marketable securities		39,682		31,855
Accounts receivable		459,354		567,636
Prepaid expenses		69,617		108,908
Other current assets		41,723		44,079
Assets held for sale		—		1,171
Total current assets		924,691		828,847
Property and equipment, net of accumulated depreciation of $430,333 and $431,361 at June 30, 2020 and December 31, 2019, respectively		831,333		962,105
Finance lease right-of-use assets, net of accumulated amortization of $20,652 and $23,401 at June 30, 2020 and December 31, 2019, respectively		32,956		37,097
Operating lease right-of-use assets		2,134,233		2,399,505
Restricted cash and equivalents		51,061		50,608
Restricted investments in marketable securities		92,335		105,087
Other long-term assets		108,563		85,725
Deferred income taxes		4,702		3,772
Identifiable intangible assets, net of accumulated amortization of $78,864 and $76,243 at June 30, 2020 and December 31, 2019, respectively		84,826		87,446
Goodwill		85,642		85,642
Assets held for sale		15,992		16,306
Total assets	$	4,366,334	$	4,662,140
Liabilities and Stockholders' Deficit:
Current liabilities:
Current portion of long-term debt	$	19,116	$	162,426
Current portion of finance lease obligations		2,947		2,839
Current portion of operating lease obligations		135,853		140,887
Accounts payable		210,870		238,384
Accrued expenses		364,973		226,092
Accrued compensation		147,281		153,698
Self-insurance reserves		149,793		146,476
Current portion of liabilities held for sale		394		368
Total current liabilities		1,031,227		1,071,170
Long-term debt		1,359,710		1,450,994
Finance lease obligations		36,268		39,335
Operating lease obligations		2,476,384		2,681,403
Deferred income taxes		4,815		5,245
Self-insurance reserves		404,863		406,864
Liabilities held for sale		24,043		19,789
Other long-term liabilities		99,305		69,905
Commitments and contingencies
Stockholders’ deficit:
Class A common stock, (par $0.001, 1,000,000,000 shares authorized, issued and outstanding - 110,584,200 and 107,888,854 at June 30, 2020 and December 31, 2019, respectively)		111		108
Class B common stock, (par $0.001, 20,000,000 shares authorized, issued and outstanding - 744,396 and 744,396 at June 30, 2020 and December 31, 2019, respectively)		1		1
Class C common stock, (par $0.001, 150,000,000 shares authorized, issued and outstanding - 55,409,742 and 56,172,193 at June 30, 2020 and December 31, 2019, respectively)		55		56
Additional paid-in-capital		242,108		248,594
Accumulated deficit		(998,793)		(1,010,296)
Accumulated other comprehensive income		1,591		602
Total stockholders’ deficit before noncontrolling interests		(754,927)		(760,935)
Noncontrolling interests		(315,354)		(321,630)
Total stockholders' deficit		(1,070,281)		(1,082,565)
Total liabilities and stockholders’ deficit	$	4,366,334	$	4,662,140

See accompanying notes to unaudited consolidated financial statements.

3

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net revenues	$	956,259	$	1,145,052	$	2,048,509	$	2,306,692
Salaries, wages and benefits		616,944		626,159		1,197,477		1,268,569
Other operating expenses		317,274		332,528		657,755		675,066
General and administrative costs		39,769		35,562		79,386		71,094
Lease expense		96,395		94,586		194,415		188,647
Depreciation and amortization expense		33,816		28,268		59,804		66,463
Interest expense		31,907		52,975		68,147		104,491
Loss (gain) on early extinguishment of debt		1,421		(24)		5,460		(24)
Investment income		(961)		(2,143)		(2,117)		(4,007)
Other income		(44,100)		(23,413)		(128,932)		(40,330)
Transaction costs		5,543		8,823		11,134		10,084
Long-lived asset impairments		77,100		900		86,800		900
Federal stimulus - COVID-19 other income		(185,500)		—		(185,500)		—
Equity in net income of unconsolidated affiliates		(3,576)		(24)		(3,449)		(85)
(Loss) income before income tax benefit		(29,773)		(9,145)		8,129		(34,176)
Income tax benefit		(457)		(162)		(1,236)		(111)
Net (loss) income		(29,316)		(8,983)		9,365		(34,065)
Less net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
(Loss) earnings per common share:
Basic:
Weighted-average shares outstanding for basic net (loss) income per share		111,232		106,846		110,477		105,289
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.10	$	(0.19)
Diluted:
Weighted-average shares outstanding for diluted net (loss) income per share		111,232		106,846		166,866		105,289
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.07	$	(0.19)

See accompanying notes to unaudited consolidated financial statements.

4

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)

(UNAUDITED)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Net unrealized gain on marketable securities, net of tax		502		622		1,480		1,118
Comprehensive (loss) income		(28,814)		(8,361)		10,845		(32,947)
Less: comprehensive loss attributable to noncontrolling interests		7,157		3,948		1,647		13,668
Comprehensive (loss) income attributable to Genesis Healthcare, Inc.	$	(21,657)	$	(4,413)	$	12,492	$	(19,279)

See accompanying notes to unaudited consolidated financial statements.

5

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(IN THOUSANDS)

(UNAUDITED)

														Accumulated
														other						Total
	Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional		Accumulated		comprehensive		Stockholders'		Noncontrolling		stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		deficit		income		deficit		interests		deficit
Balance at December 31, 2019	107,889	$	108	744	$	1	56,172	$	56	$	248,594	$	(1,010,296)	$	602	$	(760,935)	$	(321,630)	$	(1,082,565)
Net income	—		—	—		—	—		—		—		33,508		—		33,508		5,173		38,681
Net unrealized gain on marketable securities, net of tax	—		—	—		—	—		—		—		—		641		641		337		978
Share based compensation	—		—	—		—	—		—		1,894		—		—		1,894		—		1,894
Issuance of common stock	5		—	—		—	—		—		—		—		—		—		—		—
Conversion of common stock among classes	270		—	—		—	(270)		—		(2,612)		—		—		(2,612)		2,612		—
Distributions to noncontrolling interests	—		—	—		—	—		—		—		—		—		—		(1,123)		(1,123)
Balance at March 31, 2020	108,164	$	108	744	$	1	55,902	$	56	$	247,876	$	(976,788)	$	1,243	$	(727,504)	$	(314,631)	$	(1,042,135)
Net loss	—		—	—		—	—		—		—		(22,005)		—		(22,005)		(7,311)		(29,316)
Net unrealized gain on marketable securities, net of tax	—		—	—		—	—		—		—		—		348		348		154		502
Share based compensation	—		—	—		—	—		—		1,831		—		—		1,831		—		1,831
Issuance of common stock	1,928		2	—		—	—		—		(2)		—		—		—		—		—
Conversion of common stock among classes	492		1	—		—	(492)		(1)		(7,597)		—		—		(7,597)		7,597		—
Distributions to noncontrolling interests	—		—	—		—	—		—		—		—		—		—		(1,163)		(1,163)
Balance at June 30, 2020	110,584	$	111	744	$	1	55,410	$	55	$	242,108	$	(998,793)	$	1,591	$	(754,927)	$	(315,354)	$	(1,070,281)

See accompanying notes to unaudited consolidated financial statements.

6

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(IN THOUSANDS)

(UNAUDITED)

														Accumulated
														other						Total
	Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional		Accumulated		comprehensive		Stockholders'		Noncontrolling		stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		deficit		(loss) income		deficit		interests		deficit
Balance at December 31, 2018	101,236	$	101	744	$	1	59,701	$	60	$	270,408	$	(1,609,828)	$	(262)	$	(1,339,520)	$	(705,346)	$	(2,044,866)
Net loss	—		—	—		—	—		—		—		(15,263)		—		(15,263)		(9,819)		(25,082)
Net unrealized gain on marketable securities, net of tax	—		—	—		—	—		—		—		—		397		397		99		496
Share based compensation	—		—	—		—	—		—		2,087		—		—		2,087		—		2,087
Issuance of common stock	100		—	—		—	—		—		—		—		—		—		—		—
Conversion of common stock among classes	3,081		3	—		—	(3,081)		(3)		(18,175)		—		—		(18,175)		18,175		—
Distributions to noncontrolling interests	—		—	—		—	—		—		64		—		—		64		(1,202)		(1,138)
Contributions from noncontrolling interests	—		—	—		—	—		—		—		—		—		—		18,500		18,500
Cumulative effect of accounting change	—		—	—		—	—		—		—		584,913		—		584,913		340,129		925,042
Balance at March 31, 2019	104,417	$	104	744	$	1	56,620	$	57	$	254,384	$	(1,040,178)	$	135	$	(785,497)	$	(339,464)	$	(1,124,961)
Net loss	—		—	—		—	—		—		—		(4,819)		—		(4,819)		(4,164)		(8,983)
Net unrealized gain on marketable securities, net of tax	—		—	—		—	—		—		—		—		406		406		216		622
Share based compensation	—		—	—		—	—		—		1,748		—		—		1,748		—		1,748
Issuance of common stock	2,996		3	—		—	—		—		(3)		—		—		—		—		—
Conversion of common stock among classes	—		—	—		—	—		—		(7,842)		—		—		(7,842)		7,842		—
Distributions to noncontrolling interests	—		—	—		—	—		—		—		—		—		—		(1,405)		(1,405)
Balance at June 30, 2019	107,413	$	107	744	$	1	56,620	$	57	$	248,287	$	(1,044,997)	$	541	$	(796,004)	$	(336,975)	$	(1,132,979)

See accompanying notes to unaudited consolidated financial statements.

7

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	Six months ended June 30,
	2020		2019
Cash flows from operating activities
Net income (loss)	$	9,365	$	(34,065)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash interest and leasing arrangements, net		11,924		13,818
Other non-cash gain, net		(128,932)		(40,330)
Share based compensation		3,725		3,835
Depreciation and amortization expense		59,804		66,463
Reduction in the carrying amount of operating lease right-of-use assets		63,067		59,529
Provision (recovery) for losses on accounts receivable		40		(746)
Equity in net income of unconsolidated affiliates		(3,449)		(85)
Benefit for deferred taxes		(1,753)		(1,114)
Loss on early extinguishment of debt		1,682		(630)
Long-lived asset impairments		86,800		900
Changes in assets and liabilities:
Accounts receivable		105,971		61,415
Accounts payable and other accrued expenses and other		31,651		(50,864)
Medicare advance payments		156,823		—
Operating lease obligations		(56,121)		(42,045)
Net cash provided by operating activities		340,597		36,081
Cash flows from investing activities:
Capital expenditures		(32,096)		(36,550)
Purchases of marketable securities		(36,187)		(27,269)
Proceeds on maturity or sale of marketable securities		42,985		20,517
Purchases of assets		(9,846)		(252,475)
Sales of assets		207,845		134,373
Investments in joint venture		(16,886)		—
Loan provided to joint venture		(9,000)		—
Other, net		(213)		(804)
Net cash provided by (used in) investing activities		146,602		(162,208)
Cash flows from financing activities:
Borrowings under revolving credit facilities		2,484,841		2,372,000
Repayments under revolving credit facilities		(2,620,802)		(2,382,934)
Proceeds from issuance of long-term debt		34,032		170,565
Repayment of long-term debt		(141,492)		(89,966)
Repayment of finance lease obligations		(1,442)		(1,271)
Debt issuance costs		(479)		(3,708)
Contributions from noncontrolling interests		—		18,500
Distributions to noncontrolling interests and stockholders		(2,287)		(2,544)
Net cash (used in) provided by financing activities		(247,629)		80,642
Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents		239,570		(45,485)
Cash, cash equivalents and restricted cash and equivalents:
Beginning of period		125,806		142,276
End of period	$	365,376	$	96,791
Supplemental cash flow information:
Interest paid	$	54,715	$	91,543
Net taxes paid		1,896		1,610
Federal stimulus - COVID-19 other income		185,500		—
Non-cash investing and financing activities:
Finance lease obligations, net write-down due to lease activity	$	(1,517)	$	(131,842)
Assets subject to finance lease obligations, net write-down due to lease activity		(463)		(530,025)
Operating lease obligations, net (write-down) gross-up due to lease activity		(153,933)		2,402,991
Assets subject to operating leases, net write-down (gross-up) due to lease activity		124,582		(2,259,781)
Financing obligations, net write-down due to lease activity		—		(2,734,940)
Assets subject to financing obligations, net write-down due to lease activity		—		1,718,507

See accompanying notes to unaudited consolidated financial statements.

8

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) General Information

Description of Business

Genesis Healthcare, Inc. is a healthcare services holding company that, through its subsidiaries (collectively, the Company or Genesis), owns and operates skilled nursing facilities, assisted/senior living facilities and a rehabilitation therapy business. The Company has an administrative services company that provides a full complement of administrative and consultative services that allows its affiliated operators and third-party operators with whom the Company contracts to better focus on delivery of healthcare services. At June 30, 2020, the Company provided inpatient services through 361 skilled nursing, assisted/senior living and behavioral health centers located in 25 states. Revenues of the Company’s owned, leased and otherwise consolidated inpatient businesses constitute approximately 87% of its revenues.

The Company provides a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by the Company, as well as by contract to healthcare facilities operated by others. The Company has expanded its delivery model for providing rehabilitation services to community-based and at-home settings, as well as internationally in China. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 10% of the Company’s revenues.

The Company provides an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of the Company’s revenues.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In the opinion of management, the consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The Company presents noncontrolling interests within the stockholders’ deficit section of its consolidated balance sheets. The Company presents the amount of net (loss) income attributable to Genesis Healthcare, Inc. and net (loss) income attributable to noncontrolling interests in its consolidated statements of operations.

The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest and the accounts of variable interest entities (VIEs) where the Company is subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of control and economics that considers whether the Company has the power to direct the activities that most significantly impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to the VIE.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the disclosures normally required by U.S. GAAP or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K on March 16, 2020.

Going Concern Considerations

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.

9

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company’s primary focus as the effects of COVID-19 began to impact the United States was the health and safety of its patients, residents, employees and their respective families. The Company implemented various measures to provide the safest possible environment within its sites of service during this pandemic and will continue to do so.

The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the healthcare industry and the Company’s businesses. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocols within the healthcare system across the United States. A significant number of the Company’s facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks. COVID-19 is having and will likely continue to have a material and adverse effect on the Company’s operations and supply chains, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures.

The Company performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In completing its going concern assessment, the Company considered the uncertainties around the impact of COVID-19 on its future results of operations as well as its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due within 12 months following the date its financial statements were issued. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

In response to COVID-19, the Company has taken the following measures to improve its liquidity position:

● The Company applied for and received government-sponsored financial relief related to the pandemic;

● The Company is utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, with 50% to be repaid in December 2021 and the remaining 50% to be repaid in December 2022;

● While it vigorously advocates, for itself and the skilled nursing industry, regarding the need for additional government sponsored funding, the Company continues to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19;

● The Company continues to implement measures to adapt successfully its operational model to function for the long-term in a COVID-19 environment; and

● The Company has pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity.

These measures and other plans and initiatives of the Company are designed to provide it with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond the Company’s control or may not be available on terms acceptable to the Company, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if the Company receives additional funding support from government sources and/or is able to execute successfully all of its plans and initiatives, given the current

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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challenging environment the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force the Company to seek reorganization under the U.S. Bankruptcy Code.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (the FASB) issued Accounting Standard Update (ASU) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which simplifies the fair value measurement disclosure requirements. The Company adopted the new standard on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022, for smaller reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which serves to remove or amend certain requirements associated with the accounting for income taxes. The standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements and related disclosures.

(2) Certain Significant Risks and Uncertainties

COVID-19

The COVID-19 pandemic has materially and adversely affected, and will continue to materially and adversely affect, the Company’s patients, staff and operations, which in turn has materially and adversely affected its revenues and expenses. The Company began to experience the negative impact of the COVID-19 pandemic beginning in late February 2020. For a more detailed discussion of the impact of COVID-19 on the Company’s operations, net revenues, operating expenses and liquidity, see Note 3 – “Significant Transactions and Events – COVID-19.”

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Revenue Sources

The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third-party payors and long-term care facilities that utilize its rehabilitation therapy and other services. The Company’s inpatient services segment derives approximately 82% of its revenue from Medicare and various state Medicaid programs. The following table depicts the Company’s inpatient services segment revenue by source for the three and six months ended June 30, 2020 and 2019:

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Medicare	20	%	20	%	21	%	20	%
Medicaid	62	%	58	%	60	%	58	%
Insurance	9	%	12	%	10	%	12	%
Private	7	%	8	%	7	%	7	%
Other	2	%	2	%	2	%	3	%
Total	100	%	100	%	100	%	100	%

The sources and amounts of the Company’s revenues are determined by a number of factors, including licensed bed capacity and occupancy rates of inpatient facilities, the mix of patients and the rates of reimbursement among payors. Likewise, payment for ancillary medical services, including services provided by the Company’s rehabilitation therapy services business, varies based upon the type of payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among Medicare, Medicaid and private pay can significantly affect the Company’s profitability.

It is difficult to quantify fully the effect of legislative changes, public and private subsidy and grant programs related to COVID-19, the interpretation or administration of such legislation or other governmental initiatives on the Company’s business and the business of the customers served by the Company’s rehabilitation therapy business. The potential impact of reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, is uncertain at this time. Also, initiatives among managed care payors, conveners and referring acute care hospital systems to reduce lengths of stay and avoidable hospital admissions and to divert referrals to home health or other community-based care settings could have an adverse impact on the Company’s business. Accordingly, there can be no assurance that the impact of any future healthcare legislation, regulation or actions by participants in the health care continuum will not adversely affect the Company’s business. There can be no assurance that payments under governmental and private third-party payor programs will be timely, will remain at levels similar to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Company’s financial condition and results of operations are and will continue to be affected by the reimbursement process, which in the healthcare industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.

Laws and regulations governing the Medicare and Medicaid programs, and the Company’s businesses generally, are complex and are often subject to a number of ambiguities in their application and interpretation. The Company believes that it is in substantial compliance with all applicable laws and regulations. However, from time to time the Company and its affiliates are subject to pending or threatened lawsuits and investigations involving allegations of potential wrongdoing, some of which may be material or involve significant costs to resolve and/or defend, or may lead to other adverse effects on the Company and its affiliates including, but not limited to, fines, penalties and exclusion from participation in the Medicare and/or Medicaid programs.

Concentration of Credit Risk

The Company is exposed to the credit risk of its third-party customers, many of whom are in similar lines of business as the Company and are exposed to the same systemic industry risks of operations as the Company, resulting in a concentration of risk. These include organizations that utilize the Company’s rehabilitation services, staffing services and physician service offerings, engaged in similar business activities or having economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in regulatory and systemic industry conditions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Management assesses its exposure to loss on accounts at the customer level. The greatest concentration of risk exists in the Company’s rehabilitation therapy services business where it has over 140 distinct customers, many being chain operators with more than one location. One of the Company’s customers, a related party, comprises $31.0 million, or approximately 40%, of the gross outstanding contract receivables in the rehabilitation services business at June 30, 2020. See Note 11 – “Related Party Transactions.” A future adverse event impacting this customer or other large customers, resulting in their insolvency or other economic distress, would have a material impact on the Company.

The Company’s business is subject to a number of other known and unknown risks and uncertainties, which are discussed in Part II. Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 16, 2020, and in the Company’s Quarterly Reports on Form 10-Q, including the risk factors discussed herein in Part II. Item 1A.

Covenant Compliance

Should the Company fail to comply with its debt and lease covenants at a future measurement date, it could, absent necessary and timely waivers and/or amendments, be in default under certain of its existing debt and lease agreements. To the extent any cross-default provisions may apply, the default could have a significant impact on the Company’s financial position.

Although the Company is in compliance with the covenants required by its material debt and lease agreements at June 30, 2020, the ongoing uncertainty related to the impact of healthcare reform initiatives and the effect of the COVID-19 pandemic may have an adverse impact on the Company’s ability to remain in compliance with its financial covenants through August 10, 2021. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

The Company’s ability to maintain compliance with financial covenants required by its debt and lease agreements depends in part on management’s ability to increase revenues and control costs and receive adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic as well as possible waivers, deferrals and/or adjustments of debt and lease terms. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt and lease covenant requirements.

There can be no assurance that the confluence of these and other factors will not impede the Company’s ability to meet covenants required by its debt and lease agreements in the future.

(3) Significant Transactions and Events

COVID-19

As discussed in Note 1 – “General Information – Going Concern Considerations,” the Company’s operations and supply chains have been materially and adversely affected by the COVID-19 pandemic, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures. Although the ultimate impact of the pandemic remains uncertain, the following disclosures serve to outline the estimated impact of COVID-19 on its business through June 30, 2020, including the impact of emergency legislation, temporary changes to regulations and reimbursements issued in response to COVID-19.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Operations

The Company’s first report of a positive case of COVID-19 in one of its facilities occurred on March 16, 2020. Since that time, 241 of the Company’s 361 facilities have experienced one or more positive cases of COVID-19 among patients and residents. Over 77% of the patient and resident positive COVID-19 cases in its facilities have occurred in the states of New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland, which correspond to many of the largest community outbreak areas across the country. The Company’s facilities in these five states represent 45% of its total operating beds.

The Company’s occupancy decreased in the early months of the pandemic following the efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of an increasing number of COVID-19 cases in their communities. As the pandemic progressed, occupancy was further decreased by, among other things, implementation of self-imposed admission holds in facilities having exposure to positive cases of COVID-19 among patients, residents and employees. These self-imposed restrictions on admissions were instituted to limit risks of potential spread of the virus by individuals that either tested positive for COVID-19, exhibited symptoms of COVID-19 but had not yet been tested positive due to a severe shortage of testing materials, or were asymptomatic of COVID-19 but potentially positive and contagious.

Net Revenues

The Company’s net revenues for the three and six months ended June 30, 2020 were materially impacted by a significant decline in occupancy as a result of COVID-19. The Company’s skilled nursing facility operating occupancy decreased from 88.2% for the three months ended March 31, 2020 to 77.0% for the three months ended June 30, 2020. However, the revenue lost from the decline in occupancy was partially offset by incremental state sponsored funding programs, changes in payor mix, and the enactment of COVID-19 relief programs, as discussed below. See Regulatory and Reimbursement Relief. After considering a commensurate reduction in operating expenses, the Company estimates lost revenue caused by COVID-19, decreased earnings by approximately $67.0 million and $74.0 million for the three and six months ended June 30, 2020, respectively.

Operating Expenses

The Company’s operating expenses for the three and six months ended June 30, 2020 were materially and adversely impacted due to increases in costs as a result of the pandemic, with more dramatic increases occurring at facilities with positive COVID-19 cases among patients, residents and employees. During the three months and six months ended June 30, 2020, the Company estimates it incurred approximately $145.3 million and $152.5 million, respectively, of incremental operating expenses to prepare for and respond to the pandemic. Increases in cost primarily stemmed from higher labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, medical equipment, food service supplies for staff, enhanced cleaning and environmental sanitation costs, the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients and workers compensation expense.

The Company is not reasonably able to predict the total amount of costs it will incur related to the pandemic and to what extent such incremental costs can be reduced or will be borne by or offset by actions taken by public and private entities in response to the pandemic.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Liquidity

The Company has taken, and will continue to take, actions to enhance and to preserve its liquidity in response to the pandemic. During the three and six months ended June 30, 2020, the Company’s usual sources of liquidity have been supplemented by grants and advanced Medicare payments under programs expanded or created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Specifically, in April 2020, the Company applied for and received $156.8 million of advanced Medicare payments and in April and May 2020 received $185.5 million of relief grants. In addition, the Company has elected to implement the CARES Act payroll tax deferral program, which is expected to preserve on an interest free basis approximately $90 million of cash representing the employer portion of payroll taxes estimated to be incurred between March 27, 2020 and December 31, 2020. The advance Medicare payments of $156.8 million, which are also interest free, are scheduled to be recouped between August 2020 and November 2020, while one-half of the payroll tax deferral amount will become due on each of December 31, 2021 and December 31, 2022. In addition to relief funding under the CARES Act, funding has been committed by a number of states in which the Company operates, currently estimated at $55.5 million, since the outset of the pandemic.

The Company continues to seek opportunities to enhance and to preserve its liquidity, including through reducing expenses, continuing to evaluate its capital structure and seeking further government-sponsored financial relief related to the pandemic. The Company cannot provide assurance that such efforts will be successful, timely or adequate to offset the lost revenue and escalating operating expenses as a result of the pandemic. See Note 1 – “General Information – Going Concern Considerations.”

Regulatory and Reimbursement Relief

On March 18, 2020, the Families First Coronavirus Response Act was enacted, which provided a temporary 6.2% increase to each qualifying state’s Medicaid Federal Medical Assistance Percentage (FMAP) effective January 1, 2020. The temporary FMAP increase will extend through the last day of the calendar quarter in which the COVID-19 public health emergency declared by the U.S. Department of Health and Human Services (HHS), including any extensions or termination, which currently expires October 25, 2020. As part of the requirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporarily increased FMAP is claimed. Further, a number of additional states in which the Company operates have implemented incremental FMAP related reimbursement provisions and other forms of support to assist providers. For the three and six months ended June 30, 2020, the Company recognized as net revenues in the consolidated statements of operations $40.2 million and $45.7 million, respectively, of additional FMAP reimbursement relief. The Company cannot predict the extent to which further FMAP funding programs will be implemented in the states in which it operates.

In further response to the pandemic, on March 27, 2020, the President signed into law the bipartisan CARES Act. The CARES Act allocates $100 billion to a Public Health and Social Services Emergency Fund to “reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” Nursing facility operators participating in Medicare and Medicaid may be eligible to receive compensation for costs incurred in the course of providing medical services, such as those related to obtaining personal protective equipment, COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source. The secretary of the HHS has broad authority and discretion to determine payment eligibility and the amount of such payments.

The Company was impacted by certain provisions of the CARES Act, as summarized below.

● Temporary suspension of certain patient coverage criteria and documentation and care requirements. The CARES Act and a series of temporary waivers and guidance issued by the Centers for Medicare and Medicaid Services (CMS) suspend various Medicare patient coverage criteria as well as certain documentation and care requirements. These accommodations are intended to ensure patients have access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic. The Company believes these regulatory actions could contribute to an increase in census volumes and skilled mix that may not otherwise have occurred, but cannot provide any assurance as to the impact on its businesses.

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

● Relief Funds. During April and May 2020, the Company received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through the Company’s Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. The Company’s relief funds payments are accounted for as government grants, which are recognized on a systematic and rational basis as other income once there is reasonable assurance that the applicable terms and conditions required to retain the funds will be met. The Company recognizes grants once both of the following conditions are met: (1) it is able to comply with the relevant conditions of the grant and (2) the grant will be received. The terms and conditions note that the relief funds received can be used for health care related expenses or lost revenues that are attributable to COVID-19. For the three and six months ended June 30, 2020, the Company recognized the entire amount of relief grants received within the “Federal stimulus – COVID-19 other income” caption in the consolidated statements of operations.

On June 9, 2020 as part of its ongoing efforts to provide financial relief to healthcare providers impacted by COVID-19, HHS announced the Phase 2 general distribution to Medicaid, Medicaid managed care, Children's Health Insurance Program (CHIP) and dental providers. HHS anticipates distributing approximately $15 billion to eligible providers that participate in state Medicaid and CHIP programs that did not receive a payment from the Provider Relief Fund General Allocation (Phase 1). Eligible applicants will receive 2% of Gross Revenues from Patient Care for calendar years 2017, 2018 or 2019 as selected by applicant. Applications have been submitted for four assisted living facilities which meet the eligibility criteria.

On July 22, 2020, President Trump announced that an additional $5 billion of the Provider Relief Program funds will be allocated to Medicare-certified long term care facilities and state veterans’ homes (nursing homes), to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control. On August 7, 2020, HHS provided additional details indicating the $5 billion distribution will provide approximately $2.5 billion in upfront funding to support increased testing, staffing and personal protective equipment needs. There will also be funding available to providers who establish COVID-19 isolation facilities. At this time, the Company has insufficient information to estimate the amount or timing of such distributions.

● Medicare Accelerated and Advanced Payment Program. During the three months ended June 30, 2020, the Company applied for and received $156.8 million of advanced Medicare payments. The payments represent interest-free advances on future services to be provided to Medicare patients between August 2020 and November 2020. The advanced Medicare payments represent contract liabilities that are reported within accrued expenses in the consolidated balance sheet as of June 30, 2020. The $156.8 million in contract liabilities will be subsequently recouped over time as revenue is recognized for claims submitted for services provided to Medicare patients between August 2020 and November 2020. If there is a remaining balance owed after this period, the Company is required to repay the remaining advance.

● Payroll Tax Deferral. Under the CARES Act, the Company has elected to defer payment, on an interest free basis, of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. The Company has presented the balance of deferred payroll taxes, $35.7 million, within other long term liabilities in the consolidated balance sheet as of June 30, 2020.

● Temporary Suspension of Medicare Sequestration. The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee for service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements have incurred this mandatory reduction and it will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period of May 1, 2020 through December 31, 2020. During the three

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

and six months ended June 30, 2020, the suspension of sequestration resulted in net revenues of approximately $2.0 million.

● Employee Retention Tax Credit. The employer payroll tax credit provisions of the CARES Act grant eligible companies a credit against applicable payroll taxes for each calendar quarter in an amount equal to 50% of qualified wages with a maximum credit of $5,000 per employee. The refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. Qualified employees are those who are not providing services as a result of such orders of a government authority. The impact of the employee retention tax credit program was not material for the three and six months ended June 30, 2020.

Strategic Partnerships

Vantage Point Partnership

On January 10, 2020, Welltower, Inc. (Welltower) sold the real estate of one skilled nursing facility located in Massachusetts to the Vantage Point Partnership. The sale represents the final component of a transaction that occurred on September 12, 2019, whereby the Company acquired an approximately 30% membership interest in the partnership, which acquired the real estate of 18 facilities previously leased from Welltower and Second Spring Healthcare Investments (Second Spring). As a result of the January 10, 2020 transaction, the Company will receive an annual rent credit of $0.7 million from Welltower and recorded a gain of $0.2 million as a result of the lease termination. The Vantage Point Partnership acquired this skilled nursing facility for a purchase price of $9.1 million. The consolidation of this additional skilled nursing facility primarily resulted in property and equipment of $9.1 million, non-recourse debt of $7.3 million with the balance of the purchase price settled primarily with proceeds held in escrow from the September 12, 2019 closing. The Company operates all 19 facilities owned by the Vantage Point Partnership.

NewGen Partnership

On February 1, 2020, the Company transitioned operational responsibility for 19 facilities in the states of California, Washington and Nevada to a partnership with New Generation Health, LLC (the NewGen Partnership). The Company sold the real estate and operations of six skilled nursing facilities and transferred the operations to 13 skilled nursing, behavioral health and assisted living facilities for $78.7 million. Net transaction proceeds were used by the Company to repay indebtedness, including prepayment penalties, of $33.7 million, fund its initial 50% equity contribution and working capital requirement of $14.9 million, and provide financing to the partnership of $9.0 million. The Company recorded a gain on sale of assets and transition of leased facilities of $58.8 million and loss on early extinguishment of debt of $1.0 million. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for the day-to-day operations of the facilities. The Company will continue to provide administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services agreements. The Company does not hold a controlling financial interest in the NewGen Partnership. As such, the Company has applied the equity method of accounting for its 50% interest in the NewGen Partnership. The Company’s investment in the NewGen Partnership, $20.5 million, is included within other long-term assets in the consolidated balance sheet as of June 30, 2020.

On May 15, 2020, the Company transitioned operational responsibility for four additional leased facilities in the state of California to the NewGen Partnership. The four facilities generated annual revenues of $55.0 million and pre-tax loss of $0.5 million. Subsequent to May 15, 2020, the Company has applied the equity method of accounting for its 50% interest in these operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Divestiture of Non-Strategic Facilities

On January 31, 2020, Omega Healthcare Investors, Inc. (Omega) sold the real estate of one skilled nursing facility located in Massachusetts. The Company leased the facility under a master lease agreement but closed the facility on July 1, 2019. The sale resulted in a gain on the lease termination of $0.2 million and an annual rent credit of $0.4 million.

On February 1, 2020, the Company sold two owned skilled nursing facilities in North Carolina and one owned skilled nursing facility in Maryland for $61.8 million. Proceeds were used to retire $29.1 million of U.S. Department of Housing and Urban Development (HUD) financed debt. The three facilities generated revenues of $38.7 million and pre-tax income of $0.5 million. The transactions resulted in a gain on sale of $24.5 million and loss on early extinguishment of debt of $2.6 million.

On February 26, 2020, the Company completed the sale of one owned HUD-insured skilled nursing facility in California for $20.8 million. The facility had been classified as an asset held for sale as of December 31, 2019. Proceeds were used to retire $20.5 million of HUD financed debt. The facility generated revenues of $14.0 million and pre-tax loss of $0.1 million. See Note 14 – “Assets Held for Sale.” The transactions resulted in a gain on sale of $3.0 million and loss on early extinguishment of debt of $0.4 million.

On March 4, 2020, the Company divested the operations of one leased assisted/senior living facility in Montana. The lease termination resulted in an annual rent credit of $0.7 million. The facility generated revenues of $2.5 million and pre-tax income of $0.1 million.

On April 1, 2020, the Company sold two owned skilled nursing facilities in New Jersey and one owned skilled nursing facility in Maryland for $45.8 million. Proceeds were used to retire $15.2 million of HUD financed debt and $7.5 million of MidCap Real Estate Loans. The three facilities generated annual revenues of $35.8 million and pre-tax income was de minimis. The transactions resulted in a gain on sale of $21.8 million and loss on early extinguishment of debt of $1.4 million.

On April 1, 2020, the Company divested the operations and terminated the lease of two skilled nursing facilties in Montana. The two facilities generated annual revenues of $18.8 million and pre-tax income of $0.4 million. The lease termination resulted in an annual rent credit of $1.1 million.

On April 20, 2020, the Company divested the operations of four skilled nursing facilities in Florida and two skilled nursing facilities in Maryland that were subject to a master lease with Second Spring. The six facilities generated annual revenues of $62.0 million and pre-tax loss of $2.3 million. The lease termination resulted in a net annual rent credit of $8.5 million.

On June 1, 2020, the Company divested the operations of four leased skilled nursing facilities in Idaho that were subject to a master lease with Omega. The four facilities generated annual revenues of $19.5 million and pre-tax income of $0.1 million. The lease termination resulted in an annual rent credit of $1.4 million.

Gains and losses associated with transactions and divestitures are included in other income on the consolidated statements of operations. See Note 12 – “Other Income.”

(4)   Net Revenues and Accounts Receivable

Revenue Streams

Inpatient Services

The Company generates revenues primarily by providing services to patients within its facilities. The Company uses interdisciplinary teams of experienced medical professionals to provide services prescribed by physicians. These teams include registered nurses, licensed practical nurses, certified nursing assistants and other professionals who provide individualized comprehensive nursing care. Many of the Company’s facilities are equipped to provide specialty care, such as on-site dialysis,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

ventilator care, cardiac and pulmonary management, as well as standard services, such as room and board, special nutritional programs, social services, recreational activities and related healthcare and other services. The Company assesses collectibility on all accounts prior to providing services.

Rehabilitation Therapy Services

The Company generates revenues by providing rehabilitation therapy services, including speech-language pathology, physical therapy, occupational therapy and respiratory therapy at its skilled nursing facilities and assisted/senior living facilities, as well as facilities of third-party skilled nursing operators and other outpatient settings. The majority of revenues generated by rehabilitation therapy services rendered are billed to contracted third party providers.

Other Services

The Company generates revenues by providing an array of other specialty medical services, including physician services, staffing services, and other healthcare related services.

COVID-19

The Company’s net revenues for the three and six months ended June 30, 2020 were materially impacted by COVID-19. For discussion of the impact, see Note 3 – “Significant Transactions and Events – COVID-19.”

Disaggregation of Revenues

The Company disaggregates revenue from contracts with customers by reportable operating segments and payor type. The Company notes that disaggregation of revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source. Payments are generally received within 30 to 60 days after billing. See Note 6 – “Segment Information.”

19

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The composition of net revenues by payor type and operating segment for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

	Three months ended June 30, 2020
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	166,482		$	19,502		$	—		$	185,984
Medicaid		507,871			453			—			508,324
Insurance		66,723			4,822			—			71,545
Private		61,126	(1)		37			—			61,163
Third party providers		—			66,558			25,536			92,094
Other		16,126	(2)		5,152	(2)		15,871	(3)		37,149
Total net revenues	$	818,328		$	96,524		$	41,407		$	956,259

	Three months ended June 30, 2019
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	201,007		$	22,992		$	—		$	223,999
Medicaid		577,097			573			—			577,670
Insurance		114,619			5,916			—			120,535
Private		79,127	(1)		92			—			79,219
Third party providers		—			88,108			20,486			108,594
Other		17,648	(2)		3,254	(2)		14,133	(3)		35,035
Total net revenues	$	989,498		$	120,935		$	34,619		$	1,145,052

(1) Includes Assisted/Senior living revenue of $20.0 million and $23.7 million for the three months ended June 30, 2020 and 2019, respectively. Such amounts do not represent contracts with customers under ASC 606.

(2) Primarily consists of revenue from Veteran Affairs and administration of third party facilities.

(3) Includes net revenues from all payors generated by the other services, excluding third party providers.

20

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

	Six months ended June 30, 2020
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	363,517		$	41,411		$	—		$	404,928
Medicaid		1,058,861			944			—			1,059,805
Insurance		178,995			10,278			—			189,273
Private		136,194	(1)		147			—			136,341
Third party providers		—			139,662			44,154			183,816
Other		33,711	(2)		9,551	(2)		31,084	(3)		74,346
Total net revenues	$	1,771,278		$	201,993		$	75,238		$	2,048,509

	Six months ended June 30, 2019
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	408,975		$	45,744		$	—		$	454,719
Medicaid		1,158,045			1,128			—			1,159,173
Insurance		239,699			11,150			—			250,849
Private		156,060	(1)		204			—			156,264
Third party providers		—			177,637			41,094			218,731
Other		34,211	(2)		5,912	(2)		26,833	(3)		66,956
Total net revenues	$	1,996,990		$	241,775		$	67,927		$	2,306,692

(1) Includes Assisted/Senior living revenue of $42.0 million and $47.4 million for the six months ended June 30, 2020 and 2019, respectively. Such amounts do not represent contracts with customers under ASC 606.

(2) Primarily consists of revenue from Veteran Affairs and administration of third party facilities.

(3) Includes net revenues from all payors generated by the other services, excluding third party providers.

(5) Earnings (Loss) Per Share

The Company has three classes of common stock. Classes A and B are identical in economic and voting interests. Class C has a 1:1 voting ratio with each of the other two classes, representing the voting interests of the legacy FC-GEN Operations Investment, LLC (FC-GEN) owners. Class C common stock is a participating security; however, it shares in a de minimis economic interest and is therefore excluded from the denominator of the basic earnings (loss) per share (EPS) calculation.

The noncontrolling owners of FC-GEN have the right to exchange their membership units in FC-GEN, along with an equivalent number of Class C shares, for shares of Class A common stock of the Company or cash, at the Company’s option. There were exchanges of 0.8 million FC-GEN units and Class C shares in the six months ended June 30, 2020 equating to 0.8 million Class A shares. There were exchanges of 3.1 million FC-GEN units and Class C shares in the six months ended June 30, 2019 equating to 3.1 million Class A shares.

Basic EPS was computed by dividing net (loss) income attributable to Genesis Healthcare, Inc. by the weighted-average number of outstanding common shares for the period. Diluted EPS is computed by dividing net (loss) income attributable to Genesis Healthcare, Inc. plus the effect of any assumed conversions of noncontrolling interests by the weighted-average number of outstanding common shares after giving effect to all potential dilutive common stock.

21

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

A reconciliation of the numerator and denominator used in the calculation of basic net (loss) income per common share follows (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Less: Net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Denominator:
Weighted-average shares outstanding for basic net income (loss) per share		111,232		106,846		110,477		105,289
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.10	$	(0.19)

A reconciliation of the numerator and denominator used in the calculation of diluted net (loss) income per common share follows (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Less: Net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Plus: Assumed conversion of noncontrolling interests		—		—		(15)		—
Net (loss) income available to common stockholders after assumed conversions	$	(22,005)	$	(4,819)	$	11,488	$	(20,082)
Denominator:
Weighted-average common shares outstanding		111,232		106,846		110,477		105,289
Plus: Assumed conversion of noncontrolling interests		—		—		55,811		—
Plus: Unvested restricted stock units and stock warrants		—		—		578		—
Adjusted weighted-average common shares outstanding, diluted		111,232		106,846		166,866		105,289
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.07	$	(0.19)

The computation of diluted net (loss) income per common share attributable to Genesis Healthcare, Inc. excludes the effects of anti-dilutive shares attributable to the assumed conversion of noncontrolling interests, unvested restricted stock units, and stock warrants, which were 56.0 million for the three months ended June 30, 2020 and 57.5 million and 58.4 million for the three and six months ended June 30, 2019, respectively. There were 55.4 million and 56.6 million units attributable to the noncontrolling interests outstanding as of June 30, 2020 and 2019, respectively.

Omnibus Equity Incentive Plans

During the second quarter of 2020, the Company’s shareholders approved the 2020 Omnibus Equity Incentive Plan (the 2020 Plan). As of the effective date of the 2020 Plan, no further grants may be made under the Genesis Healthcare, Inc. Amended and Restated 2015 Omnibus Equity Incentive Plan (the “Prior Plan”). Any shares that were available for issuance under the Prior Plan and that were not subject to outstanding awards under the Prior Plan became available for issuance (in addition to the newly authorized shares) under the 2020 Plan. Accordingly, upon stockholder approval of the 2020 Plan at the Annual Meeting of Stockholders on June 3, 2020, a total of 6,462,605 shares became available for delivery under the 2020 Plan, including (i) 3,500,000 newly authorized shares and (ii) 2,962,605 shares previously registered on Forms S-8 filed with the SEC that were available for issuance under the Prior Plan.

22

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(6) Segment Information

The Company has three reportable operating segments: (i) inpatient services; (ii) rehabilitation therapy services; and (iii) other services. For additional information on these reportable segments, see Note 1 – “General Information – Description of Business.”

A summary of the Company’s segmented revenues follows (in thousands, except percentages):

	Three months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	796,961	83.4	%	$	964,541	84.2	%	$	(167,580)	(17.4)	%
Assisted/Senior living facilities		20,041	2.1	%		23,702	2.1	%		(3,661)	(15.4)	%
Administration of third party facilities		2,110	0.2	%		2,054	0.2	%		56	2.7	%
Elimination of administrative services		(784)	(0.1)	%		(799)	(0)	%		15	1.9	%
Inpatient services, net		818,328	85.6	%		989,498	86.4	%		(171,170)	(17.3)	%
Rehabilitation therapy services:
Total therapy services		153,625	16.1	%		192,906	16.8	%		(39,281)	(20.4)	%
Elimination of intersegment rehabilitation therapy services		(57,101)	(6.0)	%		(71,971)	(6.3)	%		14,870	20.7	%
Third party rehabilitation therapy services, net		96,524	10.1	%		120,935	10.5	%		(24,411)	(20.2)	%
Other services:
Total other services		70,959	7.4	%		45,489	4.0	%		25,470	56.0	%
Elimination of intersegment other services		(29,552)	(3.1)	%		(10,870)	(0.9)	%		(18,682)	(171.9)	%
Third party other services, net		41,407	4.3	%		34,619	3.1	%		6,788	19.6	%
Net revenues	$	956,259	100.0	%	$	1,145,052	100.0	%	$	(188,793)	(16.5)	%

	Six months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	1,726,834	84.5	%	$	1,946,937	84.3	%	$	(220,103)	(11.3)	%
Assisted/Senior living facilities		41,863	2.0	%		47,351	2.1	%		(5,488)	(11.6)	%
Administration of third party facilities		4,151	0.2	%		4,301	0.2	%		(150)	(3.5)	%
Elimination of administrative services		(1,570)	(0.1)	%		(1,599)	—	%		29	1.8	%
Inpatient services, net		1,771,278	86.6	%		1,996,990	86.6	%		(225,712)	(11.3)	%
Rehabilitation therapy services:
Total therapy services		318,421	15.5	%		387,977	16.8	%		(69,556)	(17.9)	%
Elimination of intersegment rehabilitation therapy services		(116,428)	(5.7)	%		(146,202)	(6.3)	%		29,774	20.4	%
Third party rehabilitation therapy services, net		201,993	9.8	%		241,775	10.5	%		(39,782)	(16.5)	%
Other services:
Total other services		125,782	6.1	%		87,607	3.8	%		38,175	43.6	%
Elimination of intersegment other services		(50,544)	(2.5)	%		(19,680)	(0.9)	%		(30,864)	(156.8)	%
Third party other services, net		75,238	3.6	%		67,927	2.9	%		7,311	10.8	%
Net revenues	$	2,048,509	100.0	%	$	2,306,692	100.0	%	$	(258,183)	(11.2)	%

23

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

A summary of the Company’s unaudited condensed consolidated statement of operations follows (in thousands):

	Three months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	819,112	$	153,625	$	67,857	$	3,102	$	(87,437)	$	956,259
Salaries, wages and benefits		451,176		121,984		43,784		—		—		616,944
Other operating expenses		374,583		8,760		21,493		—		(87,562)		317,274
General and administrative costs		—		—		—		39,769		—		39,769
Lease expense		95,279		313		503		300		—		96,395
Depreciation and amortization expense		29,544		1,677		208		2,406		(19)		33,816
Interest expense		12,829		13		9		20,236		(1,180)		31,907
Loss on early extinguishment of debt		—		—		—		1,421		—		1,421
Investment income		—		—		—		(2,141)		1,180		(961)
Other income		(44,100)		—		—		—		—		(44,100)
Transaction costs		—		—		—		5,543		—		5,543
Long-lived asset impairments		77,100		—		—		—		—		77,100
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,297)		721		(3,576)
Income (loss) before income tax benefit		676		26,026		4,237		(60,135)		(577)		(29,773)
Income tax benefit		—		—		—		(457)		—		(457)
Net income (loss)	$	676	$	26,026	$	4,237	$	(59,678)	$	(577)	$	(29,316)

	Three months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	990,297	$	192,906	$	45,325	$	164	$	(83,640)	$	1,145,052
Salaries, wages and benefits		442,028		154,855		29,276		—		—		626,159
Other operating expenses		389,637		12,130		14,402		—		(83,641)		332,528
General and administrative costs		—		—		—		35,562		—		35,562
Lease expense		93,557		335		338		356		—		94,586
Depreciation and amortization expense		22,328		3,112		174		2,654		—		28,268
Interest expense		29,051		13		8		23,903		—		52,975
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(2,143)		—		(2,143)
Other (income) loss		(23,474)		—		61		—		—		(23,413)
Transaction costs		—		—		—		8,823		—		8,823
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,910		(1,934)		(24)
Income (loss) before income tax benefit		36,270		22,461		1,066		(70,877)		1,935		(9,145)
Income tax benefit		—		—		—		(162)		—		(162)
Net income (loss)	$	36,270	$	22,461	$	1,066	$	(70,715)	$	1,935	$	(8,983)

24

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

	Six months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,772,848	$	318,421	$	121,896	$	3,886	$	(168,542)	$	2,048,509
Salaries, wages and benefits		862,218		256,553		78,706		—		—		1,197,477
Other operating expenses		770,109		17,262		39,176		—		(168,792)		657,755
General and administrative costs		—		—		—		79,386		—		79,386
Lease expense		192,261		625		930		599		—		194,415
Depreciation and amortization expense		51,178		3,363		406		4,895		(38)		59,804
Interest expense		26,395		27		19		44,066		(2,360)		68,147
Loss on early extinguishment of debt		—		—		—		5,460		—		5,460
Investment income		—		—		—		(4,477)		2,360		(2,117)
Other (income) loss		(129,212)		—		280		—		—		(128,932)
Transaction costs		—		—		—		11,134		—		11,134
Long-lived asset impairments		86,800		—		—		—		—		86,800
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,109)		660		(3,449)
Income (loss) before income tax benefit		91,074		45,739		4,756		(133,068)		(372)		8,129
Income tax benefit		—		—		—		(1,236)		—		(1,236)
Net income (loss)	$	91,074	$	45,739	$	4,756	$	(131,832)	$	(372)	$	9,365

	Six months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,998,589	$	387,977	$	87,390	$	217	$	(167,481)	$	2,306,692
Salaries, wages and benefits		898,790		311,947		57,832		—		—		1,268,569
Other operating expenses		791,569		23,087		27,891		—		(167,481)		675,066
General and administrative costs		—		—		—		71,094		—		71,094
Lease expense		186,523		665		680		779		—		188,647
Depreciation and amortization expense		54,200		6,276		348		5,639		—		66,463
Interest expense		56,091		27		17		48,356		—		104,491
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(4,007)		—		(4,007)
Other (income) loss		(40,315)		(76)		61		—		—		(40,330)
Transaction costs		—		—		—		10,084		—		10,084
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,386		(1,471)		(85)
Income (loss) before income tax benefit		50,831		46,051		561		(133,090)		1,471		(34,176)
Income tax benefit		—		—		—		(111)		—		(111)
Net income (loss)	$	50,831	$	46,051	$	561	$	(132,979)	$	1,471	$	(34,065)

The following table presents the segment assets as of June 30, 2020 compared to December 31, 2019 (in thousands):  

	June 30, 2020		December 31, 2019
Inpatient services	$	3,723,085	$	4,221,579
Rehabilitation therapy services		264,349		281,978
Other services		56,111		49,877
Corporate and eliminations		322,789		108,706
Total assets	$	4,366,334	$	4,662,140

25

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents segment goodwill as of June 30, 2020 compared to December 31, 2019 (in thousands):

	Rehabilitation Therapy Services		Other Services		Consolidated
Balance at December 31, 2019
Goodwill	$	73,814	$	11,828	$	85,642
Accumulated impairment losses		—		—		—
	$	73,814	$	11,828	$	85,642
Balance at June 30, 2020
Goodwill		73,814		11,828		85,642
Accumulated impairment losses		—		—		—
	$	73,814	$	11,828	$	85,642

(7) Property and Equipment

Property and equipment consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Land, buildings and improvements	$	891,413	$	1,004,447
Equipment, furniture and fixtures		367,432		386,248
Construction in progress		2,821		2,771
Gross property and equipment		1,261,666		1,393,466
Less: accumulated depreciation		(430,333)		(431,361)
Net property and equipment	$	831,333	$	962,105

Net property and equipment included $537.0 million and $535.9 million at June 30, 2020 and December 31, 2019, respectively, associated with the Company's consolidated VIEs.

During the six months ended June 30, 2020, the Company purchased one skilled nursing facility and sold 13 skilled nursing facilities resulting in a net reduction in net property and equipment of $88.5 million.

During the six months ended June 30, 2020, the Company recorded long-lived asset impairment charges to its property and equipment of $7.1 million.

(8) Leases

The Company leases the majority of the skilled nursing facilities and assisted/senior living facilities used in its operations, most of which are subject to triple-net leases, meaning that in addition to rent, the Company is responsible for paying property taxes, insurance, and maintenance and repair costs. As of June 30, 2020, the Company leased approximately 72% of its centers; 38% were leased pursuant to master lease agreements with four landlords. The Company also leases certain office space, land, and equipment.

The Company’s real estate leases generally have initial lease terms of 10 to 15 years or more and typically include one or more options to renew, with renewal terms that generally extend the lease term for an additional five to ten years or more. Exercise of the renewal options is generally subject to the satisfaction of certain conditions which vary by contract and generally follow payment terms that are consistent with those in place during the initial term. The Company assesses renewal options using a “reasonably certain” threshold, which is understood to be a high threshold and, therefore, the majority of its leases’ terms do not include renewal periods for accounting purposes. For leases where the Company is reasonably certain to exercise its renewal option, the option periods are included within the lease term and, therefore, the measurement of the right-of-use (ROU) asset and lease liability. The payment structure of the Company’s leases generally contain annual escalation clauses that are either fixed or variable in nature, some of which are dependent upon published indices. Leases with an initial term of 12 months or less are not recorded on the balance sheet; expense for these leases is recognized on a straight-line basis over the lease term as an other operating expense.

As of June 30, 2020, the Company held fixed-price options to purchase 57 facilities, 23 of which are subject to third-party leases and 34 of which are included within the Company’s consolidated VIEs. The Company assesses the likelihood of exercising

26

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

the purchase option using a “reasonably certain” threshold, which is understood to be a high threshold and, therefore, purchase options are generally assumed to be exercised when a compelling economic reason to exercise the option exists. Certain leases include options to terminate the lease, the terms and conditions of which vary by contract. Such options allow the contract parties to terminate their obligations under the lease contract, typically in return for an agreed financial consideration. The Company’s lease agreements do not contain any material residual value guarantees. The Company leases certain facilities from affiliates of related parties. See Note 11 – “Related Party Transactions.”

The Company makes certain assumptions in determining the discount rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate for collateralized borrowings, based on the information available at commencement date, in determining the present value of lease payments. In order to apply the incremental borrowing rate, a portfolio approach was utilized to group assets based on similar lease terms in a manner whereby the Company reasonably expects that the application does not differ materially from application to individual leases.

Subsequent to lease commencement date, the Company reassesses lease classification when there is a contract modification that is not accounted for as a separate contract, a change in lease term, or a change in the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. This reassessment is made using current facts, circumstances and conditions. As a result of a lease’s modification, the remaining consideration in the contract is reallocated to lease and non-lease components, as applicable, and the lease liability is remeasured using the applicable discount rate at the effective date of the modification. The remeasurement of the lease liability will result in adjustment to the corresponding ROU asset, unless the lease is fully or partially terminated, in which case, a gain or loss will be recognized.

During the three and six months ended June 30, 2020, the Company recorded long-lived asset impairment charges to its lease ROU assets of $77.1 million and $79.7 million, respectively.

The maturity of total operating and finance lease obligations at June 30, 2020 is as follows (in thousands):

Year ending December 31,	Operating Leases		Finance Leases (1)
2020 (excluding the six months ended June 30, 2020)	$	178,275	$	3,486
2021		358,686		6,797
2022		361,289		6,591
2023		368,991		6,373
2024		375,874		6,135
Thereafter		2,860,726		34,854
Total lease payments		4,503,841		64,236
Less interest		(1,891,604)		(25,021)
Total lease obligations		2,612,237		39,215
Less current portion		(135,853)		(2,947)
Long-term lease obligations	$	2,476,384	$	36,268

(1) Finance lease payments include $37.2 million related to options to renew lease terms that are reasonably certain of being exercised.

27

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table provides lease costs and income by line item on the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):

		Three months ended June 30,				Six months ended June 30,
	Classification	2020		2019		2020		2019
Operating lease cost	Lease expense	$	96,395	$	94,586	$	194,415	$	188,647
Finance lease cost:
Amortization of finance lease ROU assets	Depreciation and amortization expense		966		6,630		1,982		13,488
Interest on finance lease obligations	Interest expense		1,149		21,840		2,368		44,632
Total finance lease expense			2,115		28,470		4,350		58,120
Variable lease cost	Other operating expenses		8,974		10,559		17,749		21,330
Short-term leases	Other operating expenses		4,291		6,439		9,674		12,615
Sublease income	Net revenues		(1,463)		-		(2,438)		-
Total		$	110,312	$	140,054	$	223,750	$	280,712

The following table provides remaining lease term and discount rates by lease classification as of June 30, 2020:

Lease Term and Discount Rate	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases		12.1		12.6
Finance leases		9.9		10.2
Weighted-average discount rate
Operating leases		9.5%		9.6%
Finance leases		10.6%		12.2%

The following table includes supplemental lease information for the six months ended June 30, 2020 and 2019 (in thousands):

	Six months ended June 30,
Other information	2020		2019
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	184,467	$	171,928
Operating cash flows from finance leases		3,810		40,451
Financing cash flows from finance leases		1,442		1,271
Right-of-use assets obtained in exchange for new lease obligations
Operating leases		5,942		77,166
Finance leases		672		-

Lease Covenants

The Company’s lease agreements generally contain covenant requirements that, among other things, and subject to certain exceptions, impose operating and financial restrictions on the Company and its subsidiaries. These leases also require the Company to meet defined financial covenants, such as a minimum level of consolidated liquidity, a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage. Certain of the Company’s leases include cross-default provisions with each other and certain material debt instruments. At June 30, 2020, the Company was in compliance with the financial covenants contained in its leases containing cross-default provisions, with the exception of one master lease agreement involving two of its facilities. However, in July 2020, the Company received a waiver for these covenant breaches through October 1, 2021.

At June 30, 2020, the Company did not meet certain financial covenants contained in two leases related to four of its facilities. The Company is current in the timely payment of its obligations under such leases. These leases do not have cross-default provisions, nor do they trigger cross-default provisions in any of the Company’s other loan or lease agreements. The Company will continue to work with the related credit parties to amend such leases and the related financial covenants. The Company does not believe the breach of such financial covenants at June 30, 2020 will have a material adverse impact on its financial position. The Company has been afforded certain cure rights to such defaults by posting collateral in the form of additional letters of credit or security deposit.

28

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company’s ability to maintain compliance with its lease covenants depends in part on management’s ability to increase revenue, control costs and receive timely and adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic. See Note 1 – “General Information – Going Concern Considerations” and Note 3 – “COVID-19” for discussions that could impact future covenant compliance. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly lease covenant compliance requirements. Should the Company fail to comply with its lease covenants at a future measurement date, it would, absent necessary and timely waivers and/or amendments, be in default under certain of its existing lease agreements. To the extent any cross-default provisions may apply, the default would have a significant impact on the Company’s financial position.

(9) Long-Term Debt

Long-term debt at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Asset based lending facilities, net of debt issuance costs of $7,255 and $8,615 at June 30, 2020 and December 31, 2019, respectively	$	277,745	$	412,346
Term loan agreements, net of debt issuance costs of $801 and $1,084 and debt premium balance of $3,501 and $4,816 at June 30, 2020 and December 31, 2019, respectively		203,630		196,714
Real estate loans, net of debt issuance costs of $3,089 and $3,846 and debt premium balance of $14,496 and $19,328 at June 30, 2020 and December 31, 2019, respectively		229,038		265,700
HUD insured loans, net of debt issuance costs of $1,138 and $2,909 at June 30, 2020 and December 31, 2019, respectively		44,670		117,117
Notes payable		110,211		116,952
Mortgages and other secured debt (recourse)		6,925		6,369
Mortgages and other secured debt (non-recourse), net of debt issuance costs of $8,953 and $9,349 and debt premium balance of $1,372 and $1,422 at June 30, 2020 and December 31, 2019, respectively		506,607		498,222
		1,378,826		1,613,420
Less: Current portion of long-term debt		(19,116)		(162,426)
Long-term debt	$	1,359,710	$	1,450,994

Asset Based Lending Facilities

The Company maintains an asset based lending facility, as amended, that was originally comprised of (a) a $285.0 million first lien term loan facility, (b) a $240.0 million first lien revolving credit facility and (c) a $30.0 million delayed draw term loan facility (collectively, the ABL Credit Facilities) with affiliates of MidCap Financial Services, LLC (MidCap). The commitments under the delayed draw term loan facility were reduced to $25.0 million on June 30, 2020 and will be further reduced to $22.5 million on September 30, 2020, and $20.0 million on December 31, 2020.

The Company originally entered into the ABL Credit Facilities in March 2018. The ABL Credit Facilities have a stated maturity of March 6, 2023 and include a springing maturity clause that would accelerate the maturity date 90 days prior to the maturity of the Term Loan Agreements, Welltower Real Estate Loans or MidCap Real Estate Loans (each defined below), in the event those agreements are not extended or refinanced. In the event that the springing maturity clause is triggered, the maturity date of the ABL Credit Facilities would be accelerated to September 1, 2021. The revolving credit facility includes a swinging lockbox arrangement whereby the Company transfers all funds deposited within its designated lockboxes to MidCap on a daily basis and then draws from the revolving credit facility as needed. Cash proceeds of $51.1 million received under the ABL Credit Facilities remain in a restricted account. This amount is pledged to cash collateralize letters of credit. The Company has classified this deposit and all cash account balances subject to deposit account control agreements that were sprung under the ABL Credit Facilities as restricted cash and equivalents in the consolidated balance sheets at June 30, 2020 and December 31, 2019.

Borrowings under the term loan and revolving credit facility components of the ABL Credit Facilities bear interest at a 90-day LIBOR rate (subject to a floor of 0.5%) plus an applicable margin of 6%. Borrowings under the delayed draw component bear interest at a 90-day LIBOR rate (subject to a floor of 1%) plus an applicable margin of 11%. Borrowing levels under the term loan

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GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

and revolving credit facility components of the ABL Credit Facilities are limited to a borrowing base that is computed based upon the level of eligible accounts receivable.

In addition to paying interest on the outstanding principal borrowed under the revolving credit facility, the Company is required to pay a commitment fee to the lenders for any unutilized commitments. The commitment fee rate equals 0.5% per annum on the revolving credit facility and 2% on the delayed draw term loan facility.

The term loan facility and revolving credit facility include a termination fee equal to 1.5%. The term loan facility and revolving credit facility include an exit fee equal to $1.6 million and $1.0 million, respectively, due and payable on the earlier of the loan’s retirement or on the maturity date.

The ABL Credit Facilities contain representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default and security interests that are customarily required for similar financings. Financial covenants include a minimum consolidated fixed charge coverage ratio, a maximum leverage ratio and minimum liquidity.

Borrowings and interest rates under the ABL Credit Facilities were as follows at June 30, 2020 (dollars in thousands):

					Weighted
					Average
ABL Credit Facilities	Commitment		Borrowings		Interest
Term loan facility	$	285,000	$	285,000	6.50	%
Revolving credit facility (Non-HUD)		168,000		—	6.50	%
Revolving credit facility (HUD)		72,000		—	6.50	%
Delayed draw term loan facility		25,000		—	12.00	%
	$	550,000	$	285,000	6.50	%

As of June 30, 2020, the Company had a total borrowing base capacity of $292.9 million with outstanding borrowings under the ABL Credit Facilities of $285.0 million, leaving the Company with approximately $7.9 million of available borrowing capacity under the ABL Credit Facilities.

Term Loan Agreements

The Company and certain of its affiliates, including FC-GEN (the Borrower) are party to a term loan agreement, as amended, (the Term Loan Agreement) with an affiliate of Welltower and an affiliate of Omega. The Term Loan Agreement originally provided for term loans (the Term Loans) in the aggregate principal amount of $120.0 million and later expanded to $160.0 million. The Term Loan Agreement matures on November 30, 2021. The original Term Loan for $120.0 million bears interest at a rate equal to 14.0% per annum, with up to 9.0% per annum to be paid in kind. The additional Term Loan for $40.0 million bears interest at a rate equal to 10.0% per annum, with up to 5.0% per annum to be paid in kind. The Term Loans had an outstanding accreted principal balance of $200.9 million and $193.0 million at June 30, 2020 and December 31, 2019, respectively.

The Term Loan Agreement is secured by a first priority lien on the equity interests of the subsidiaries of the Company and the Borrower as well as certain other assets of the Company, the Borrower and their subsidiaries, subject to certain exceptions. The Term Loan Agreement is also secured by a junior lien on the assets that secure the ABL Credit Facilities on a first priority basis.

Welltower and Omega, or their respective affiliates, are each currently landlords under certain master lease agreements to which the Company and/or its affiliates are tenants.

The Term Loan Agreement contains financial, affirmative and negative covenants, and events of default that are customary for debt securities of this type. Financial covenants include a maximum leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio, the most restrictive of which is the minimum interest coverage ratio which requires the Company to maintain a coverage ratio, as defined therein, of no less than 1.7 to 1.0 through December 31, 2020, and increasing to 1.8 to 1.0 thereafter.

30

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Real Estate Loans

MidCap Real Estate Loans

The Company originally entered into two real estate loans with MidCap (MidCap Real Estate Loans) with combined available proceeds of $75.0 million during March 2018. The MidCap Real Estate Loans are secured by eight skilled nursing facilities and mature on March 30, 2023, subject to acceleration of the maturity date in the event the ABL Credit Facilities are repaid in full and terminated. The loans are subject to principal payments and bear an annual interest rate equal to 30-day LIBOR (subject to a floor of 1.5%) plus an applicable margin of 5.85%, with the balance due at maturity. Proceeds from the MidCap Real Estate Loans were used to repay partially the Welltower Real Estate Loans (defined below). On November 8, 2018, one of the MidCap Real Estate Loans was amended with an additional borrowing of $10.0 million. The proceeds were used to retire a maturing mortgage loan on a corporate office building. The office building has been added as collateral and the loan maturity remains March 30, 2023. The $10.0 million additional loan is subject to an annual interest rate equal to 30-day LIBOR (subject to a floor of 2.0%) plus an applicable margin of 6.25% with principal amortizing immediately and the balance due at maturity. During 2019, the Company divested the real property and operations of six facilities that were subject to the MidCap Real Estate Loans, using the sale proceeds to repay $39.8 million on the loans. During the six months ended June 30, 2020, the Company divested the real property and operations of four facilities that were subject to the MidCap Real Estate Loans, using the sale proceeds to repay $21.6 million on the loans. The MidCap Real Estate Loans had an outstanding principal balance of $20.1 million and $42.2 million at June 30, 2020 and December 31, 2019, respectively. Additionally, one facility that is subject to the MidCap Real Estate Loans was classified as held for sale as of June 30, 2020, resulting in the classification of $5.5 million in long term debt as held for sale. The sale of this facility was completed in July 2020. See Note 14 – “Assets Held for Sale” and Note 17 – “Subsequent Events.”

Welltower Real Estate Loans

The Company is subject to two real estate loan agreements with Welltower (Welltower Real Estate Loans). The Welltower Real Estate Loans are subject to payments of interest only during the term with a balloon payment due at maturity, provided, that to the extent the subsidiaries receive any net proceeds from the sale and/or refinance of the underlying facilities such net proceeds are required to be used to repay the outstanding principal balance of the Welltower Real Estate Loans. The Welltower Real Estate Loans have a maturity date of January 1, 2022 and an annual interest rate of 12.0%, of which 7.0% will be paid in cash and 5.0% will be paid in kind. The Company agreed to make commercially reasonable efforts to secure commitments to repay no less than $105.0 million of the Welltower Real Estate Loan obligations. As of June 30, 2020, the Company has not yet secured the total required repayments or commitments. As a result, the annual cash component of the interest payments was increased by approximately $2.0 million with a corresponding decrease in the paid in kind component of interest. At June 30, 2020, the Welltower Real Estate Loans are unsecured. The Welltower Real Estate Loans contain a conversion option, whereby up to $50.0 million of the balance can be converted into Class A common stock of the Company or a 10-year note bearing 2% paid in kind interest. The conversion option is available to the Company upon the satisfaction of certain conditions, the most significant include: the raise of new capital and application thereof to existing Welltower debt instruments, the repayment of $105.0 million to Welltower, as described above, the partial repayment of the Term Loans, and the partial repayment of the Welltower Real Estate Loans, such that the remaining outstanding principal balance does not exceed $50.0 million. During the first quarter of 2020, the Company divested the real property and operations of the remaining facility that was subject to the Welltower Real Estate Loans, using the sale proceeds to repay $9.0 million on the loans. The Welltower Real Estate Loans had an outstanding accreted principal balance of $203.0 million and $208.0 million at June 30, 2020 and December 31, 2019, respectively.

HUD Insured Loans

As of June 30, 2020, the Company had eight owned skilled nursing facility loans insured by HUD. The HUD insured loans have an original amortization term of 30 to 35 years and an average remaining term of 29.0 years with fixed interest rates ranging from 3.0% to 3.5% and a weighted average interest rate of 3.3%. Prepayments are generally allowed only after 12 months from the inception of the mortgage. Prepayments are subject to a penalty of 10% of the remaining principal balances in the first year and the prepayment penalty decreases each subsequent year by 1% until no penalty is required thereafter. Any further HUD insured loans will require additional HUD approval. All HUD insured loans are non-recourse loans to the Company. All loans are subject to HUD

31

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

regulatory agreements that require escrow reserve funds to be deposited with the loan servicer for mortgage insurance premiums, property taxes, insurance and for capital replacement expenditures. As of June 30, 2020, the balance of escrow reserve funds, $5.3 million, is included within prepaid expenses in the consolidated balance sheets.

During the six months ended June 30, 2020, the Company sold the real property and operations of eight skilled nursing facilities that were subject to HUD financing, one of which was classified as held for sale at December 31, 2019. The sale proceeds were used to retire HUD insured loans totaling $74.5 million. The HUD insured loans for owned facilities had an aggregate principal balance of $65.2 million and $140.6 million at June 30, 2020 and December 31, 2019, respectively. Additionally, the HUD insured loans of two facilities with an aggregate principal balance of $19.4 million were classified as held for sale at June 30, 2020.

Notes Payable

In November 2016, the Company issued a note totaling $51.2 million to Welltower, which accrues cash interest at 3.0% and paid-in-kind interest at 7.0%. Cash interest is paid and paid-in-kind interest accretes the principal amount semi-annually every May 1 and November 1. During 2019, the maturity date of the note was extended to December 15, 2021. Upon the satisfaction of certain conditions, including the repayment of the Term Loans, repayment of the other note payable, noted below, to Welltower, and partial repayment of the Welltower Real Estate Loans, the outstanding note balance in excess of $6.0 million will be forgiven by Welltower. The note had an outstanding accreted principal balance of $66.5 million and $64.2 million at June 30, 2020 and December 31, 2019, respectively.

In December 2016, the Company issued a second note totaling $11.7 million to Welltower, which accrues cash interest at 3.0% and paid-in-kind interest at 7.0%. Cash interest is paid and paid-in-kind interest accretes the principal amount semi-annually every June 15 and December 15. The note matures on December 15, 2021, and had an outstanding accreted principal balance of $15.1 million and $14.6 million at June 30, 2020 and December 31, 2019, respectively.

In October 2019, the Company converted $23.2 million of its trade payables into a note payable. The note requires monthly interest payments based on an annual interest rate of 3.5%. As of June 30, 2020, the outstanding principal balance of the note payable was $22.6 million. The balance of the note is due on September 30, 2022.

In November 2019, the Company issued a short-term note payable for $15.0 million. During the first and second quarters of 2020, the Company paid $6.0 million and $3.0 million, respectively, on the note, resulting in an outstanding principal balance of $6.0 million at June 30, 2020. The balance of the note is due on September 30, 2020.

Other Debt

Mortgages and other secured debt (recourse). The Company carries mortgage loans and notes payable on certain of its corporate office buildings and other acquired assets. The loans are secured by the underlying real property and have fixed or variable rates of interest with a weighted average interest rate of 1.3% at June 30, 2020, and maturity dates ranging from 2020 to 2024.

Mortgages and other secured debt (non-recourse). The Company’s consolidated joint ventures and VIEs are subject to various loans, as set forth below. These loans are labeled “non-recourse” because neither the Company nor any of its wholly owned subsidiaries is obligated to perform under the respective loan agreements.

Next Partnership Debt

The Company holds a 46% ownership interest in a partnership with Next Healthcare (Next), a related party (the Next Partnership). The Company has concluded the Next Partnership, which includes 15 facilities, qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Next Partnership in the accompanying consolidated financial statements.

32

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Next Partnership is subject to a term loan agreement with an original principal balance of $142.1 million and maturity date of January 31, 2022. The term loan bears interest at LIBOR plus 3.50% and is subject to interest-only payments through January 31, 2021. Beginning in April 2021, principal payments calculated based on a 25-year amortization schedule, after giving effect to any prior refinancings or other repayments of the term loan, will be applied to the remaining term loan balance. During the second quarter of 2020, the Next Partnership term loan was partially refinanced via two new HUD insured loans. Proceeds from the new HUD insured loans were principally used to pay down $24.6 million on the Next Partnership term loan. The term loan had an outstanding principal balance of $78.8 million and $103.4 million as of June 30, 2020 and December 31, 2019, respectively. The term loan was collateralized by 10 facilities as of June 30, 2020.

The Next Partnership is subject to a mezzanine loan with an original principal balance of $27.0 million and maturity date of February 1, 2029. The mezzanine loan bears interest at 11.50% and is subject to interest-only payments through January 2022, with payments including a principal component thereafter. The mezzanine loan had an outstanding principal balance of $27.0 million as of both June 30, 2020 and December 31, 2019.

The Next Partnership includes five facilities that are subject to HUD-insured loans, two of which were entered into during the six months ended June 30, 2020. The loans mature on dates ranging from January 1, 2055 through June 1, 2055. The loans bear interest at fixed rates ranging from 2.79% to 3.15% and had an aggregate outstanding principal balance of $67.5 million and $41.7 million at June 30, 2020 and December 31, 2019, respectively.

Vantage Point Partnership Debt

The Company holds an approximately 30% ownership interest in a partnership with Vantage Point Capital, LLC (the Vantage Point Partnership). The Company has concluded the Vantage Point Partnership, which includes 19 facilities, qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Vantage Point Partnership in the accompanying consolidated financial statements.

The Vantage Point Partnership is subject to a term loan agreement with an aggregate original principal balance of $240.9 million and maturity date of September 12, 2026. The term loan bears interest at LIBOR (subject to a floor of 1.75%) plus 3.75% and is subject to interest-only payments through October 1, 2021. The interest-only period can be extended through October 1, 2022 upon satisfaction of certain conditions, such as the achievement of a specified debt service coverage ratio and ratio of adjusted net operating income to the outstanding term loan balance. Following the interest-only period, principal payments calculated based on a 25-year amortization schedule, after giving effect to any prior refinancings or other repayments of the term loan, will be applied to the remaining term loan balance. The term loan had an outstanding principal balance of $240.9 million and $233.6 million at June 30, 2020 and December 31, 2019, respectively. The term loan was collateralized by 19 facilities as of June 30, 2020.

The Vantage Point Partnership is subject to a promissory note in the amount of $76.8 million, the entire balance of which was outstanding at June 30, 2020 and December 31, 2019. The promissory note bears interest at 14.0% and matures on September 12, 2028.

Other Non-Recourse Debt

The Company has other non-recourse loans consisting principally of revenue bonds and secured bank loans with maturities ranging from 2023 through 2034. The loans are secured by the underlying real and personal property of individual facilities and have fixed or variable rates of interest, with a weighted average interest rate of 4.2% at June 30, 2020. The loans had an aggregate outstanding principal balance of $23.1 million and $23.8 million at June 30, 2020 and December 31, 2019, respectively.

Debt Covenants

The ABL Credit Facilities, the Term Loan Agreement and the Welltower Real Estate Loans (collectively, the Credit Facilities) each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum interest

33

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

coverage ratio, a minimum fixed charge coverage ratio and minimum liquidity. The Credit Facilities include cross-default provisions with each other and certain material lease agreements. At June 30, 2020, the Company was in compliance with its financial covenants contained in the Credit Facilities.

The Company’s ability to maintain compliance with its debt covenants depends in part on management’s ability to increase revenue, control costs and receive timely and adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic. See Note 1 – “General Information – Going Concern Considerations” and Note 3 – “COVID-19” for discussions that could impact future covenant compliance. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt covenant compliance requirements. Should the Company fail to comply with its debt covenants at a future measurement date, it would, absent necessary and timely waivers and/or amendments, be in default under certain of its existing credit agreements. To the extent any cross-default provisions may apply, the default would have a significant impact on the Company’s financial position.

The maturity of total debt of $1,380.7 million, excluding debt issuance costs and other non-cash debt discounts and premiums, at June 30, 2020 is as follows (in thousands):

Twelve months ended June 30,
2021	$	19,122
2022		572,580
2023		335,297
2024		12,490
2025		10,224
Thereafter		430,980
Total debt maturity	$	1,380,693

(10) Income Taxes

The Company effectively owns 67.1% of FC-GEN, which is an entity taxed as a partnership for U.S. income tax purposes and the Company’s only source of taxable income. FC-GEN is subject to income taxes in several U.S. state and local jurisdictions. The income taxes assessed by these jurisdictions are included in the Company’s tax provision, but at its 67.1% ownership of FC-GEN.

For the three months ended June 30, 2020, the Company recorded income tax benefit of $0.5 million, representing an effective tax rate of 1.5%, compared to income tax benefit of $0.2 million, representing an effective tax rate of 1.8%, for the same period in 2019.

For the six months ended June 30, 2020, the Company recorded income tax benefit of $1.2 million, representing an effective tax rate of (15.2)%, compared to income tax benefit of $0.1 million, representing an effective tax rate of 0.3%, for the same period in 2019. The change in the Company’s effective tax rate was primarily attributable to two discrete events that occurred during the second quarter of 2020: the Company recorded a $1.8 million valuation allowance against certain deferred tax assets of FC-GEN and the Company’s Bermuda captive insurance company incurred year-to-date losses, both of which were a result of the adverse effects of COVID-19.

The Company continues to assess the requirement for, and amount of, a valuation allowance in accordance with the “more likely than not” standard. Management had previously determined that the Company would not realize the majority of its deferred tax assets and accordingly, had established a valuation allowance against such deferred tax assets. As of June 30, 2020, management determined that the existing valuation allowance was still necessary and that an additional $1.8 million valuation allowance was necessary, as noted above.

The Company’s Bermuda captive insurance company incurred year-to-date losses due to the impact of COVID-19. Under the CARES Act, any loss sustained during 2020 is permitted to be carried back for five years. Despite the current year-to-date losses, the captive is expected to generate income in future periods to offset its deferred tax assets.

34

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company expects that its 2020 tax year will likely be impacted by certain provisions contained in the CARES Act, such as increased limits on interest expense deductions, acceleration of refunds related to alternative minimum tax credits, payroll tax deferrals, and employee retention tax credits.

Exchange Rights and Tax Receivable Agreement

The noncontrolling owners of FC-GEN have the right to exchange their membership units in FC-GEN, along with an equivalent number of Class C shares, for shares of Class A common stock of the Company or cash, at the Company’s option.  As a result of such exchanges, the Company increases its holding interest in FC-GEN at the cost of the fair market value of the stock that was exchanged with the noncontrolling owners for their interest in FC-GEN. The cost of the exchanges to the Company in excess of the tax basis of the Company’s increased share of the assets of FC-GEN is adjusted to the tax basis of the Company’s increased share of the assets of FC-GEN, pursuant to internal revenue code (IRC) Section 743(b), because of FC-GEN’s IRC Section 754 election. The exchanges during the six months ended June 30, 2020 and 2019 resulted in IRC Section 743(b) deductible goodwill of $6.7 million and $13.7 million, respectively.

The Company is party to a tax receivable agreement (TRA) with the noncontrolling owners of FC-GEN.  The agreement provides for the payment by the Company to the noncontrolling owners of FC-GEN of 90% of the cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes as a result of (i) the increases in tax basis attributable to the owners of FC-GEN and (ii) tax benefits related to imputed interest deemed to be paid by the Company as a result of the TRA.  Under the TRA, the benefits deemed realized by the Company as a result of the increase in tax basis attributable to the noncontrolling owners of FC-GEN generally will be computed by comparing the actual income tax liability of the Company to the amount of such taxes that the Company would have been required to pay had there been no such increase in tax basis.

Estimating the amount of payments that may be made under the TRA is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis and deductions, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, such as the timing of exchanges, the price of shares of the Company’s Class A common stock at the time of the exchange, the amount and timing of the Company’s income, and future tax rates of jurisdictions in which the Company has tax liability.

The TRA also provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, FC-GEN (or its successor’s) obligations under the TRA would be based on certain assumptions defined in the TRA. As a result of these assumptions, FC-GEN could be required to make payments under the TRA that are greater or less than the specified percentage of the actual benefits realized by the Company that are subject to the TRA. In addition, if FC-GEN elects to terminate the TRA early, it would be required to make an early termination payment, which upfront payment may be made significantly in advance of the anticipated future tax benefits.

Payments generally are due under the TRA within a specified period of time following the filing of FC-GEN’s U.S. federal and state income tax return for the taxable year with respect to which the payment obligation arises. Payments under the TRA generally will be based on the tax reporting positions that FC-GEN will determine. Although FC-GEN does not expect the IRS to challenge the Company’s tax reporting positions, FC-GEN will not be reimbursed for any overpayments previously made under the TRA, but any overpayments will reduce future payments. As a result, in certain circumstances, payments could be made under the TRA in excess of the benefits that FC-GEN actually realizes in respect of the tax attributes subject to the TRA.

The term of the TRA generally will continue until all applicable tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA and make an early termination payment.

In certain circumstances (such as certain changes in control, the election of the Company to exercise its right to terminate the agreement and make an early termination payment or an IRS challenge to a tax basis increase) it is possible that cash payments under the TRA may exceed actual cash savings.

35

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(11) Related Party Transactions

The Company provides rehabilitation services to certain facilities owned and operated by two customers in which certain members of the Company’s board of directors, board observer, and shareholders with greater than 5% of the Company’s Class A common stock beneficially own an ownership interest. In the case of one significant customer, these services resulted in net revenues of $25.5 million and $51.3 million in the three and six months ended June 30, 2020, respectively, as compared to net revenues of $29.9 million and $59.8 million in the three and six months ended June 30, 2019, respectively. The customer’s total net accounts receivable balance was $31.0 million and $28.9 million at June 30, 2020 and December 31, 2019, respectively. Further, the Company holds a note receivable from this customer, which was derived from past due accounts receivable, in the amount of $56.3 million. The Company has reserved $55.0 million on the note receivable balance. The reserve represents the judgment of management and does not indicate a forgiveness of any amount owed by this related party customer. The Company is monitoring the financial condition of this customer and will adjust the reserve levels accordingly as new information about their outlook is available. In the case of the other customer, services began in the third quarter of 2018. The Company recorded net revenues of $1.2 million and $2.6 million in the three and six months ended June 30, 2020, respectively, compared to net revenues of $1.8 million and $3.6 million in the three and six months ended June 30, 2019, respectively. The customer’s total net accounts receivable balance was $1.2 million and $1.4 million at June 30, 2020 and December 31, 2019, respectively.

Certain subsidiaries of the Company are subject to a lease of 12 centers in New Hampshire and Florida from 12 separate limited liability companies affiliated with Next (the Next Landlord Entities). The lease was effective June 1, 2018 and the initial annualized rent to be paid was $13.0 million. The lease includes a purchase option that is exercisable in 2022. Certain members of the Company’s board of directors each directly or indirectly hold an ownership interest in the Next Landlord Entities totaling approximately 4% in the aggregate. These members have earned acquisition fees and may earn asset management fees and other fees paid from the Next Landlord Entities.

As of June 30, 2020, Welltower held greater than 5% of the Company’s Class A common stock. The Company is party to a master lease with an affiliate of Welltower. The initial term of the master lease expires on January 31, 2037 and the Company has one eleven-year renewal option. Annual rent escalators under the master lease are 2.0%. During the three and six months ended June 30, 2020, the Company paid rent of approximately $17.7 million and $35.4 million, respectively, to Welltower, as compared to $18.1 million and $38.2 million during the three and six months ended June 30, 2019, respectively. The Company holds options to purchase certain facilities subject to the master lease. At June 30, 2020, the Company leased 42 facilities from Welltower. The Company and certain of its affiliates are also party to certain debt instruments with Welltower. During the three and six months ended June 30, 2020, the Company paid interest to Welltower of $6.7 million and $12.2 million, respectively, as compared to $6.5 million and $11.8 million during the three and six months ended June 30, 2019, respectively.

The Company transitioned operational responsibility for 23 facilities in the states of California, Washington and Nevada to the NewGen Partnership. The Company does not hold a controlling financial interest in the NewGen Partnership. As such, the Company has applied the equity method of accounting for its 50% interest in the NewGen Partnership. The Company provided $9.0 million in financing to the NewGen Partnership. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for the day-to-day operations of the facilities. The Company provides administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services agreements. The Company also subleases six facilities to the NewGen Partnership. Total revenues recorded for these services in the three and six months ended June 30, 2020 were $6.3 million and $10.2 million, respectively.

36

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(12) Other Income

In the three and six months ended June 30, 2020 and 2019, the Company completed multiple transactions, including the divestiture of numerous skilled nursing facilities and the termination or modification of certain lease agreements. See Note 3 – “Significant Transactions and Events.” These transactions resulted in a net (gain) loss recorded as other income in the consolidated statements of operations. The following table summarizes those net (gains) losses (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Gain on sale of owned assets (1)	$	(23,215)	$	(27,345)	$	(97,795)	$	(27,345)
Loss recognized for exit costs associated with divestiture of operations (2)		5,374		4,578		10,309		7,921
Gain on lease termination or modification (3)		(26,259)		(646)		(41,446)		(20,906)
Total other income	$	(44,100)	$	(23,413)	$	(128,932)	$	(40,330)

(1) The Company sold three and 13 owned skilled nursing facilities during the three and six months ended June 30, 2020, respectively. The Company sold five owned skilled nursing facilities during the three and six months ended June 30, 2019. The gain represents sale proceeds in excess of the carrying value of the assets sold.

(2) The Company divested operations of 19 and 43 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2020, respectively. The Company divested operations of nine and 19 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2019, respectively. Upon divestiture, the Company recognizes exit costs for uncollectible accounts receivable resulting from a sale, the write-off of inventory balances assumed by the new operator, and other costs associated with the transition of operations.

(3) The Company amended numerous lease agreements in the three and six months ended June 30, 2020 and 2019. These transactions resulted in a combination of base rent reductions, annual escalator reductions, lease term extensions or reductions and facility terminations. Each lease amendment triggers a lease reassessment of the respective ROU asset and lease liability with an offsetting adjustment recorded to the consolidated statements of operations as other income or loss. In the three months ended June 30, 2020, the Company recognized a gain on the lease termination of 16 facilities totaling $26.2 million. In the six months ended June 30, 2020, the Company sold the leasehold rights of 13 facilities resulting in a gain of $10.7 million and terminated 24 divested facilities from various lease agreements resulting in a gain of $30.7 million. In the three months ended June 30, 2019, the Company amended the Welltower Master Lease to reflect the lease termination of two facilities resulting in a gain of $0.6 million. In the six months ended June 30, 2019, the Company amended the Welltower Master Lease multiple times to reflect the lease termination of 26 facilities resulting in a gain of $20.9 million…

(13) Asset Impairment Charges

Long-Lived Assets with a Definite Useful Life

In each quarter, the Company’s long-lived assets with a definite useful life are tested for impairment at the lowest levels for which there are identifiable cash flows. The primary asset in each long-lived asset group is principally a building or ROU asset in the inpatient segment and customer relationship assets in the rehabilitation therapy services segement. The Company estimated the future net undiscounted cash flows expected to be generated from the use of the long-lived assets and then compared the estimated undiscounted cash flows to the carrying amount of the long-lived assets. The cash flow period was based on the remaining useful lives of each long-lived asset group. The Company recognized asset impairment charges in the inpatient segment of $77.1 million and $86.8 million during the three and six months ended June 30, 2020, respectively, as compared to $0.9 million during the three and six months ended June 30, 2019.

(14) Assets Held for Sale

In the normal course of business, the Company continually evaluates the performance of its operating units, with an emphasis on selling or closing underperforming or non-strategic assets. These assets are evaluated to determine whether they qualify as assets held for sale or discontinued operations. The assets and liabilities of a disposal group classified as held for sale shall be presented separately in the asset and liability sections, respectively, of the statement of financial position in the period in which they are identified only. Assets held for sale that qualify as discontinued operations are removed from the results of continuing operations. The results of operations in the current and prior year periods, along with any cost to exit such businesses in the year of discontinuation, are classified as discontinued operations in the consolidated statements of operations.

At June 30, 2020, the Company classified three skilled nursing facilities operated by the Company in the states of California, Nevada, and Rhode Island as held for sale. The facilities did not meet the criteria as discontinued operations. The Company is party

37

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

to purchase and sale agreements, as amended, to sell the facilities for an aggregate $31.4 million. The sale of the Rhode Island facility was completed in July 2020.

At December 31, 2019, the Company classified one skilled nursing facility operated by the Company in the state of California as held for sale. The facility did not meet the criteria as a discontinued operation. The sale of the facility, which was subject to a HUD insured loan, was completed on February 26, 2020. See Note 3 – “Significant Transactions and Events – Divestiture of Non-Strategic Facilities.”

The following table sets forth the major classes of assets and liabilities included as part of the disposal groups as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Current assets:
Prepaid expenses	$	—	$	1,171
Long-term assets:
Property and equipment, net of accumulated depreciation of $5,079 and $2,201 at June 30, 2020 and December 31, 2019, respectively		15,992		16,306
Total assets	$	15,992	$	17,477
Current liabilities:
Current portion of long-term debt	$	394	$	368
Long-term liabilities:
Long-term debt		24,043		19,789
Total liabilities	$	24,437	$	20,157

(15) Commitments and Contingencies

Loss Reserves For Certain Self-Insured Programs

General and Professional Liability and Workers’ Compensation

The Company self-insures for certain insurable risks, including general and professional liabilities and workers’ compensation liabilities through the use of self-insurance or retrospective and self-funded insurance policies and other hybrid policies, which vary among states in which the Company operates, including wholly owned captive insurance subsidiaries, to provide for potential liabilities for general and professional liability claims and workers’ compensation claims. General and professional liability policies are typically written for a duration of 12 months or less and are measured on a “claims made” basis. Regarding workers’ compensation, the Company self-insures to its deductible and purchases statutorily required insurance coverage in excess of its deductible. Excess insurance policies are typically written for a duration of 12 months or less and are measured on an “occurrence” basis. There is a risk that amounts funded by the Company’s self-insurance programs may not be sufficient to respond to all claims asserted under those programs. Insurance reserves represent estimates of future claims payments. This liability includes an estimate of the development of reported losses and losses incurred but not reported. Provisions for changes in insurance reserves are made in the period of the related coverage. The Company also considers amounts that may be recovered from excess insurance carriers in estimating the ultimate net liability for such risks.

The Company’s management employs its judgment and periodic independent actuarial analysis in determining the adequacy of certain self-insured workers’ compensation and general and professional liability obligations recorded as liabilities in the Company’s financial statements. The Company evaluates the adequacy of its self-insurance reserves on a semi-annual basis or more frequently when it is aware of changes to its incurred loss patterns that could impact the accuracy of those reserves. The methods of making such estimates and establishing the resulting reserves are reviewed periodically and are based on historical paid claims information and nationwide nursing home trends. The foundation for most of these methods is the Company’s actual historical reported and/or paid loss data. Any adjustments resulting therefrom are reflected in current earnings. Claims are paid over varying periods, and future payments may be different than the estimated reserves.

The Company utilizes a combination of third-party administrators (TPAs), in-house adjusters, and legal counsel, along with systems designed to maintain and process claims to provide it with the data utilized in its assessments of reserve adequacy. Where

38

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

TPAs are utilized, they operate under the oversight of the Company’s in-house risk management and legal functions. These functions and systems ensure that the claims are properly administered so that the historical data is reliable for estimation purposes. Case reserves, which are approved by the Company’s legal and risk management departments, are determined based on an estimate of the ultimate settlement and/or ultimate loss exposure of individual claims.

The provision for general and professional liability risks totaled $7.4 million and $35.1 million for the three and six months ended June 30, 2020, respectively, as compared to $5.4 million and $26.8 million for the three and six months ended June 30, 2019, respectively. The reserves for general and professional liability, which are recorded on an undiscounted basis, were $384.6 million and $392.8 million as of June 30, 2020 and December 31, 2019, respectively.

The provision for workers’ compensation risks totaled $25.1 million and $37.6 million for the three and six months ended June 30, 2020, respectively, as compared to $13.4 million and $28.6 million for the three and six months ended June 30, 2019, respectively. The reserves for loss for workers’ compensation risks were $170.1 million and $160.5 million as of June 30, 2020 and December 31, 2019, respectively. These reserves are discounted based on actuarial estimates of claim payment patterns using a discount rate for the current policy year of 1.6%. The discount rates are based upon the risk-free rate for the appropriate duration for the respective policy year. The removal of discounting would have resulted in an increased reserve for workers’ compensation risks of $9.5 million and $12.0 million as of June 30, 2020 and December 31, 2019, respectively.

Health Insurance

The Company offers employees an option to participate in self-insured health plans. Health insurance claims are paid as they are submitted to the plans’ administrators. The Company maintains an accrual for claims that have been incurred but not yet reported to the plans’ administrators and therefore have not yet been paid. This accrual for incurred but not yet reported claims was $13.2 million and $15.1 million as of June 30, 2020 and December 31, 2019, respectively. The liability for the self-insured health plan is recorded in accrued compensation in the consolidated balance sheets. Although management believes that the amounts provided in the Company’s consolidated financial statements are adequate and reasonable, there can be no assurances that the ultimate liability for such self-insured risks will not exceed management’s estimates.

Select Subcommittee on the Coronavirus Crisis

A U.S. House of Representatives subcommittee, the Select Subcommittee on the Coronavirus Crisis, announced an investigation into the ongoing COVID-19 crisis in nursing homes, demanding information from both the federal government and five large operators, including the Company.

Legal Proceedings

The Company and certain of its subsidiaries are involved in or have received notice of various investigations, litigation and potential claims related to the COVID-19 pandemic, including inquiries from state and federal agencies; professional liability claims; and employment-related lawsuits and claims. Such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation. The applicability of such protection has not yet been adjudicated in any pending claim against the Company.

While there can be no assurance, based on the Company’s evaluation of information currently available, management does not believe the results of such litigation and investigations would have a material adverse effect on the results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may evolve based upon further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.

The Company and certain of its subsidiaries are involved in various litigation and regulatory investigations arising in the ordinary course of business. While there can be no assurance, based on the Company’s evaluation of information currently available, management does not believe the results of such litigation and regulatory investigations would have a material adverse effect on the

39

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may be affected by limited information (particularly in the early stages of government investigations). Accordingly, the Company’s assessment of materiality may change in the future based upon availability of discovery and further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.

From time to time the Company may enter into confidential discussions regarding the potential settlement of pending investigations or litigation. There are a variety of factors that influence the Company’s decisions to settle and the amount it may choose to pay, including the strength of the Company’s case, developments in the investigation or litigation, the behavior of other interested parties, the demand on management time and the possible distraction of the Company’s employees associated with the case and/or the possibility that the Company may be subject to an injunction or other equitable remedy. The settlement of any pending investigation, litigation or other proceedings could require the Company to make substantial settlement payments and result in its incurring substantial costs.

Lease Guarantees

The Company is subject to lease guaranty agreements on six of the facilities leased by the NewGen Partnership, under which it guarantees all payments and performance obligations of the tenants. As of June 30, 2020, the six leases have undiscounted cash rent obligations remaining of $87.9 million.

(16) Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, restricted cash and equivalents, restricted investments in marketable securities, accounts receivable, accounts payable and current and long-term debt.

The Company’s financial instruments, other than its accounts receivable and accounts payable, are spread across a number of large financial institutions whose credit ratings the Company monitors and believes do not currently carry a material risk of non-performance.

Recurring Fair Value Measures

Fair value is defined as an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as shown below. An instrument’s classification within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Level 1 —	Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 —	Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.
Level 3 —	Inputs that are unobservable for the asset or liability based on the Company’s own assumptions (about the assumptions market participants would use in pricing the asset or liability).

40

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The tables below present the Company’s assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	June 30,		Identical Assets		Observable Inputs		Inputs
Assets:	2020		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	251,651	$	251,651	$	—	$	—
Restricted cash and equivalents		113,725		113,725		—		—
Restricted investments in marketable securities		132,017		46,810		85,207		—
Total	$	497,393	$	412,186	$	85,207	$	—

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	December 31,		Identical Assets		Observable Inputs		Inputs
Assets:	2019		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	12,097	$	12,097	$	—	$	—
Restricted cash and equivalents		113,709		113,709		—		—
Restricted investments in marketable securities		136,942		45,903		91,039		—
Total	$	262,748	$	171,709	$	91,039	$	—

The Company places its cash and cash equivalents, restricted cash and equivalents and restricted investments in marketable securities in quality financial instruments and limits the amount invested in any one institution or in any one type of instrument. The Company has not experienced any significant losses on such investments. Certain of the Company’s financial instruments have quoted prices but are traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fairly valued using other financial instruments, the parameters of which can be directly observed. These financial instruments have been reported as Level 2 measurements.

Debt Instruments

The table below shows the carrying amounts and estimated fair values, net of debt issuance costs and other non-cash debt discounts and premiums, of the Company’s primary long-term debt instruments (in thousands):

	June 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Asset based lending facilities	$	277,745	$	277,745	$	412,346	$	412,346
Term loan agreements		203,630		203,630		196,714		196,714
Real estate loans		229,038		229,038		265,700		265,700
HUD insured loans		44,670		44,670		117,117		117,117
Notes payable		110,211		110,211		116,952		116,952
Mortgages and other secured debt (recourse)		6,925		6,925		6,369		6,369
Mortgages and other secured debt (non-recourse)		506,607		506,607		498,222		498,222
	$	1,378,826	$	1,378,826	$	1,613,420	$	1,613,420

The fair value of debt is based upon market prices or is computed using discounted cash flow analysis, based on the Company’s estimated borrowing rate at the end of each fiscal period presented. The majority of the Company’s debt instruments contain variable rates that are based upon current market prices, or have been refinanced within the recent past. Consequently, management believes the carrying value of these debt instruments approximates fair value. The Company believes this approach approximates the exit price notion of fair value measurement and the inputs to the pricing models qualify as Level 2 measurements.

41

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Non-Recurring Fair Value Measures

The Company recently applied the fair value measurement principles to certain of its non-recurring nonfinancial assets in connection with an impairment test.

The following tables present the Company’s hierarchy for nonfinancial assets measured at fair value on a non-recurring basis (in thousands):

			Impairment Charges -
	Carrying Value		Six months ended
	June 30, 2020		June 30, 2020
Assets:
Property and equipment, net	$	831,333	$	7,100
Finance lease right-of-use assets, net		32,956		2,600
Operating lease right-of-use assets		2,134,233		77,100
Intangible assets, net		84,826		—
Goodwill		85,642		—
			Impairment Charges -
	Carrying Value		Six months ended
	December 31, 2019		June 30, 2019
Assets:
Property and equipment, net	$	962,105	$	900
Finance lease right-of-use assets, net		37,097		—
Operating lease right-of-use assets		2,399,505		—
Intangible assets, net		87,446		—
Goodwill		85,642		—

The fair value allocation related to the Company’s acquisitions and the fair value of tangible and intangible assets related to the Company’s impairment analysis are determined using a discounted cash flow approach, which is a significant unobservable input (Level 3). The Company estimates the fair value using the income approach (which is a discounted cash flow technique). These valuation methods required management to make various assumptions, including, but not limited to, future profitability, cash flows and discount rates. The Company’s estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential.

Developing discounted future cash flows in applying the income approach requires the Company to evaluate its intermediate to longer-term strategies, including, but not limited to, estimates of revenue growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows requires the selection of risk premiums, which can materially impact the present value of future cash flows.

The Company estimated the fair value of acquired tangible and intangible assets using discounted cash flow techniques that included an estimate of future cash flows, consistent with overall cash flow projections used to determine the purchase price paid to acquire the business, discounted at a rate of return that reflects the relative risk of the cash flows. The Company believes the estimates and assumptions used in the valuation methods are reasonable.

(17) Subsequent Events

CCGEN Partnership

On July 2, 2020, the Company sold one facility to Cascade Capital Group, LLC (Cascade) for $26.1 million. Cascade also acquired eight facilities from Second Spring that the Company operated under a master lease agreement. The Company will continue to operate all nine of these facilities under a new master lease agreement with Cascade. The initial lease term is 10 years with one five-year renewal option available. Initial annual base rent will be $20.7 million. The Company holds a purchase option to acquire the nine facilities exercisable between the fourth and fifth lease year for a fixed price of $251.6 million. The Company executed a promisory note agreeing to pay Cascade $20.3 million. The promissory note represents capital the Company will

42

GENESIS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

contribute into a planned partnership with Cascade (CCGen Partnership). Once the requisite regulatory approvals are received, the prommisory note will be converted into a 49% membership interest in the CCGen Partnership.

Divestiture of Non-Strategic Facilities

On July 6, 2020, the Company sold a skilled nursing facility in Rhode Island for $10.5 million. Proceeds were used to retire $5.5 million of MidCap Real Estate Loans. The facility generated annual revenues of $9.9 million and pre-tax income of $0.2 million.  The facility was classified as held for sale as of June 30, 2020. See Note 14 – “Assets Held For Sale.”

The Company is currently assessing the full impact that these subsequent events will have on its consolidated financial statements.

43

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition as of the dates and for the periods presented and should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q. As used in this MD&A, the words “we,” “our,” “us” and the “Company,” and similar terms, refer collectively to Genesis Healthcare, Inc. and its wholly-owned subsidiaries, unless the context requires otherwise. This MD&A should be read in conjunction with our consolidated financial statements and related notes included in this report, as well as the financial information and MD&A contained in our Annual Report (defined below).

All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “pursue,” “plans” or “prospect,” or the negative or other variations thereof or comparable terminology. They include, but are not limited to, statements about the Company’s expectations and beliefs regarding its future operations and financial performance. Historical results may not indicate future performance. Our forward-looking statements are based on current expectations and projections about future events, and there can be no assurance that they will be achieved or occur, in whole or in part, in the timeframes anticipated by the Company or at all. Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance of the Company may differ materially from that expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, particularly in Item 1A, “Risk Factors,” which was filed with the SEC on March 16, 2020 (the Annual Report), and those discussed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, particularly in Item 1A “Risk Factors,” which was filed with the SEC on May 27, 2020 as well as others that are discussed in this Quarterly Report on Form 10-Q. These risks and uncertainties could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. Our business is also subject to the risks that affect many other companies, such as employment relations, natural disasters, general economic conditions and geopolitical events. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price. Any forward-looking statements contained herein are made only as of the date of this report. The Company disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.

Business Overview

Genesis is a healthcare services holding company that, through its subsidiaries, owns and operates skilled nursing facilities, assisted living facilities and a rehabilitation therapy business. We have an administrative services company that provides a full complement of administrative and consultative services that allows our affiliated operators and third-party operators with whom we contract to better focus on delivery of healthcare services. At June 30, 2020, we provided inpatient services through 361 skilled nursing, senior/assisted living and behavioral health centers located in 25 states. Revenues of our owned, leased and otherwise consolidated inpatient businesses constitute approximately 87% of our revenues.

We also provide a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by us, as well as by contract to healthcare facilities operated by others. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 10% of our revenues.

We provide an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of our revenues.

Going Concern Considerations

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.

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Our primary focus as the effects of COVID-19 began to impact the United States was the health and safety of our patients, residents, employees and their respective families. We implemented various measures to provide the safest possible environment within our sites of service during this pandemic and will continue to do so.

The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the healthcare industry and our businesses. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocols within the healthcare system across the United States. A significant number of our facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks. COVID-19 is having and will likely continue to have a material and adverse effect on our operations and supply chains, resulting in a reduction in our operating occupancy and related revenues, and an increase in our expenditures.

We performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of our plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In completing our going concern assessment, we considered the uncertainties around the impact of COVID-19 on our future results of operations as well as our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within 12 months following the date our financial statements were issued. Without giving effect to the prospect, timing and adequacy of future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

In response to COVID-19, we have taken the following measures to improve our liquidity position:

● We applied for and received government-sponsored financial relief related to the pandemic;

● We are utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, with 50% to be repaid in December 2021 and the remaining 50% to be repaid in December 2022;

● While we vigorously advocate, for ourself and the skilled nursing industry, regarding the need for additional government sponsored funding, we continue to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19;

● We continue to implement measures to adapt successfully our operational model to function for the long-term in a COVID-19 environment; and

● We have pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity.

These measures and other plans and initiatives of ours are designed to provide us with adequate liquidity to meet our obligations for at least the twelve-month period following the date our financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond our control or may not be available on terms acceptable to us, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if we receive additional funding support from government sources and/or are able to execute successfully all of our plans and initiatives, given the current challenging environment our operating plans and resulting cash flows along with our cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force us to seek reorganization under the U.S. Bankruptcy Code.

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Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should we be unable to continue as a going concern.

Significant Transactions and Events

COVID-19

The Centers for Disease Control and Prevention (CDC) has stated that older adults, such as our patients, are at a higher risk for serious illness and death from COVID-19 due to the prevalence of chronic medical conditions. In addition, our employees are at higher risk of contracting or spreading the disease due to the nature of the work environment when caring for patients. In an effort to prevent the introduction of COVID-19 into our facilities, and to help control further exposure to infections within communities, we have implemented policies restricting visitors at all of our facilities except for essential healthcare personnel and certain end-of-life situations. We also implemented policies for screening employees and anyone permitted to enter the building, implemented in-room only dining, activities programming and therapy. Upon confirmation of a positive COVID-19 exposure at a facility, our policy is to follow government guidance to minimize further exposure, including implementing personal protection protocols, restricting new admissions, and isolating patients. Due to the vulnerable nature of our patients, we expect many of these restrictions will continue at our facilities, even as federal, state, and local stay-at-home and social distancing orders and recommendations are relaxed. Notwithstanding these restrictions and our other response efforts, the virus has had, and likely will continue to have, introduction to, and transmission within, certain facilities due to the easily transmissible nature of COVID-19.

COVID-19 has materially and adversely affected our operations and supply chains, resulting in a reduction in our operating occupancy and related revenues, and an increase in our expenditures. Although the ultimate impact of the pandemic remains uncertain, the following disclosures serve to outline the estimated impact of COVID-19 on our business through June 30, 2020, as well as further developments through the filing date of this Quarterly Report on Form 10-Q, including the impact of emergency legislation, temporary changes to regulations and reimbursements issued in response to COVID-19.

Operations

Our first report of a positive case of COVID-19 in one of our facilities occurred on March 16, 2020. Since that time, 241 of the our 361 facilities have experienced one or more positive cases of COVID-19 among patients and residents. Over 77% of the patient and resident positive COVID-19 cases in our facilities have occurred in the states of New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland, which correspond to many of the largest community outbreak areas across the country. Our facilities in these five states represent 45% of its total operating beds. Despite the unprecedented challenges facing our operations, we reported that of the 897 focused infection control surveys conducted during the pandemic by state and federal officials at our centers, 94% achieved a “zero deficiency rate.”

Our occupancy decreased in the early months of the pandemic following the efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of an increasing number of COVID-19 cases in their communities. As the pandemic progressed, occupancy was further decreased by, among other things, implementation of self-imposed admission holds in facilities having exposure to positive cases of COVID-19 among patients, residents and employees. These self-imposed restrictions on admissions were instituted to limit risks of potential spread of the virus by individuals that either tested positive for COVID-19, exhibited symptoms of COVID-19 but had not yet been tested positive due to a severe shortage of testing materials, or were asymptomatic of COVID-19 but potentially positive and contagious.

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Net Revenues

Our net revenues for the three and six months ended June 30, 2020 were materially impacted by a significant decline in occupancy as a result of COVID-19. Our skilled nursing facility operating occupancy decreased from 88.2% for the three months ended March 31, 2020 to 77.0% for the three months ended June 30, 2020. However, the revenue lost from the decline in occupancy was partially offset by incremental state sponsored funding programs, changes in payor mix, and the enactment of COVID-19 relief programs, as discussed below. See “Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue - COVID-19 Regulatory and Reimbursement Relief.”

After considering a commensurate reduction in operating expenses, we estimate lost revenue caused by COVID-19 decreased earnings by approximately $67.0 million and $74.0 million for the three and six months ended June 30, 2020, respectively. The impact of COVID-19 on our occupancy and net revenues for the remainder of 2020 will depend on future developments, which are highly uncertain and cannot be predicted, including the pace of recovery in occupancy, the future scope and severity of COVID-19 and the actions taken by public and private entities in response to the pandemic.

Operating Expenses

Our operating expenses for the three and six months ended June 30, 2020 were materially and adversely impacted due to increases in costs as a result of the pandemic, with more dramatic increases occurring at facilities with positive COVID-19 cases among patients, residents and employees. During the three months and six months ended June 30, 2020, we estimate we incurred approximately $145.3 million and $152.5 million, respectively, of incremental operating expenses to prepare for and respond to the pandemic. Increases in cost primarily stemmed from higher labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, medical equipment, food service supplies for staff, enhanced cleaning and environmental sanitation costs, the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients and workers compensation expense.

We are not reasonably able to predict the total amount of costs we will incur related to the pandemic and to what extent such incremental costs can be reduced or will be borne by or offset by actions taken by public and private entities in response to the pandemic.

Strategic Partnerships

Vantage Point Partnership

On January 10, 2020, Welltower, Inc. (Welltower) sold the real estate of one skilled nursing facility located in Massachusetts to the Vantage Point Partnership. The sale represents the final component of a transaction that occurred on September 12, 2019, whereby we acquired an approximately 30% membership interest in the partnership, which acquired the real estate of 18 facilities previously leased from Welltower and Second Spring Healthcare Investments (Second Spring). As a result of the January 10, 2020 transaction, we will receive an annual rent credit of $0.7 million from Welltower and recorded a gain of $0.2 million as a result of the lease termination. The Vantage Point Partnership acquired this skilled nursing facility for a purchase price of $9.1 million. The consolidation of this additional skilled nursing facility primarily resulted in property and equipment of $9.1 million, non-recourse debt of $7.3 million with the balance of the purchase price settled primarily with proceeds held in escrow from the September 12, 2019 closing. We operate all 19 facilities owned by the Vantage Point Partnership.

NewGen Partnership

On February 1, 2020, we transitioned operational responsibility for 19 facilities in the states of California, Washington and Nevada to a partnership with New Generation Health, LLC (the NewGen Partnership). We sold the real estate and operations of six skilled nursing facilities and transferred the operations to 13 skilled nursing, behavioral health and assisted living facilities for $78.7 million. Net transaction proceeds were used by us to repay indebtedness, including prepayment penalties, of $33.7 million, fund our initial 50% equity contribution and working capital requirement of $14.9 million, and provide financing to the partnership of $9.0 million. We recorded a gain on sale of assets and transition of leased facilities of $58.8 million and loss on early extinguishment of debt of $1.0 million. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for the day-to-day operations of the facilities. We will continue to provide administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services

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agreements. We do not hold a controlling financial interest in the NewGen Partnership. As such, we have applied the equity method of accounting for our 50% interest in the NewGen Partnership. Our investment in the NewGen Partnership, $20.5 million, is included within other long-term assets in the consolidated balance sheet as of June 30, 2020.

On May 15, 2020, we transitioned operational responsibility for four additional leased facilities in the state of California to the NewGen Partnership. The four facilities generated annual revenues of $55.0 million and pre-tax loss of $0.5 million. Subsequent to May 15, 2020, we have applied the equity method of accounting for our 50% interest in these operations.

CCGEN Partnership

On July 2, 2020, we sold one facility to Cascade Capital Group, LLC (Cascade) for $26.1 million. Cascade also acquired eight facilities from Second Spring that we operated under a master lease agreement. We will continue to operate all nine of these facilities under a new master lease agreement with Cascade. The initial lease term is 10 years with one five-year renewal option available. Initial annual base rent will be $20.7 million. We hold a purchase option to acquire the nine facilities exercisable between the fourth and fifth lease year for a fixed price of $251.6 million. We executed a promisory note agreeing to pay Cascade $20.3 million. The promissory note represents capital we will contribute into a planned partnership with Cascade (CCGen Partnership). Once the requisite regulatory approvals are received, the prommisory note will be converted into a 49% membership interest in the CCGen Partnership.

Divestiture of Non-Strategic Facilities

On January 31, 2020, Omega Healthcare Investors, Inc. (Omega) sold the real estate of one skilled nursing facility located in Massachusetts. We leased the facility under a master lease agreement but closed the facility on July 1, 2019. The sale resulted in a gain on the lease termination of $0.2 million and an annual rent credit of $0.4 million.

On February 1, 2020, we sold two owned skilled nursing facilities in North Carolina and one owned skilled nursing facility in Maryland for $61.8 million. Proceeds were used to retire $29.1 million of U.S. Department of Housing and Urban Development (HUD) financed debt. The three facilities generated revenues of $38.7 million and pre-tax income of $0.5 million. The transactions resulted in a gain on sale of $24.5 million and loss on early extinguishment of debt of $2.6 million.

On February 26, 2020, we completed the sale of one owned HUD-insured skilled nursing facility in California for $20.8 million. The facility had been classified as an asset held for sale as of December 31, 2019. Proceeds were used to retire $20.5 million of HUD financed debt. The facility generated revenues of $14.0 million and pre-tax loss of $0.1 million. See Note 14 – “Assets Held for Sale.” The transactions resulted in a gain on sale of $3.0 million and loss on early extinguishment of debt of $0.4 million.

On March 4, 2020, we divested the operations of one leased assisted/senior living facility in Montana. The lease termination resulted in an annual rent credit of $0.7 million. The facility generated revenues of $2.5 million and pre-tax income of $0.1 million.

On April 1, 2020, we sold two owned skilled nursing facilities in New Jersey and one owned skilled nursing facility in Maryland for $45.8 million. Proceeds were used to retire $15.2 million of HUD financed debt and $7.5 million of MidCap Real Estate Loans. The three facilities generated annual revenues of $35.8 million and pre-tax income was de minimis. The transactions resulted in a gain on sale of $21.8 million and loss on early extinguishment of debt of $1.4 million.

On April 1, 2020, we divested the operations and terminated the lease of two skilled nursing facilties in Montana. The two facilities generated annual revenues of $18.8 million and pre-tax income of $0.4 million. The lease termination resulted in an annual rent credit of $1.1 million.

On April 20, 2020, we divested the operations of four skilled nursing facilities in Florida and two skilled nursing facilities in Maryland that were subject to a master lease with Second Spring. The six facilities generated annual revenues of $62.0 million and pre-tax loss of $2.3 million. The lease termination resulted in a net annual rent credit of $8.5 million.

On June 1, 2020, we divested the operations of four leased skilled nursing facilities in Idaho that were subject to a master lease with Omega. The four facilities generated annual revenues of $19.5 million and pre-tax income of $0.1 million. The lease termination resulted in an annual rent credit of $1.4 million.

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On July 6, 2020, we sold a skilled nursing facility in Rhode Island for $10.5 million. Proceeds were used to retire $5.5 million of MidCap Real Estate Loans. The facility generated annual revenues of $9.9 million and pre-tax income of $0.2 million. The facility was classified as held for sale as of June 30, 2020. See Note 14 – “Assets Held For Sale.”

Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue

COVID-19 Regulatory and Reimbursement Relief

On March 18, 2020, the Families First Coronavirus Response Act was enacted, which provided a temporary 6.2% increase to each qualifying state’s Medicaid Federal Medical Assistance Percentage (FMAP) effective January 1, 2020. The temporary FMAP increase will extend through the last day of the calendar quarter of the COVID-19 public health emergency declared by the U.S. Department of Health and Human Services (HHS), including any extensions or termination, which currently expires October 25, 2020. As part of the requirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporarily increased FMAP is claimed. Further, a number of additional states in which we operate have implemented incremental FMAP related reimbursement provisions and other forms of support to assist providers. For the three and six months ended June 30, 2020, we recognized as net revenues in the consolidated statements of operations of $40.2 million and $45.7 million, respectively, of additional FMAP reimbursement relief. We cannot predict the extent to which further FMAP funding programs will be implemented in the states in which we operate.

In further response to the pandemic, on March 27, 2020, the President signed into law the bipartisan CARES Act. The CARES Act allocates $100 billion to a Public Health and Social Services Emergency Fund to “reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” Nursing facility operators participating in Medicare and Medicaid may be eligible to receive compensation for costs incurred in the course of providing medical services, such as those related to obtaining personal protective equipment, COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source. The secretary of the HHS has broad authority and discretion to determine payment eligibility and the amount of such payments.

Further, the Paycheck Protection Program and Health Care Enhancement Act was signed into law on April 24, 2020. Congress appropriated $75.0 billion for healthcare providers through the Paycheck Protection Program and Health Care Enhancement Act. HHS is distributing this money through the Provider Relief Fund, and these payments do not need to be repaid. While we believe that the relief funds received by us to date under the CARES Act have primarily benefited Medicare providers as opposed to Medicaid providers and have provided limited support to our rehabilitation therapy services segment, we cannot predict the extent to which any of our businesses will receive any such additional funds, and to what extent the financial impact of receiving such funds would effectively offset any shortfall in funds received to date as compared to the escalation in our costs and lost revenue as a result of the broad implications of the pandemic.

We were impacted by certain provisions of the CARES Act, as summarized below.

● Temporary suspension of certain patient coverage criteria and documentation and care requirements. The CARES Act and a series of temporary waivers and guidance issued by the Centers for Medicare and Medicaid Services (CMS) suspend various Medicare patient coverage criteria as well as certain documentation and care requirements. These accommodations are intended to ensure patients have access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic. We believe these regulatory actions could contribute to an increase in census volumes and skilled mix that may not otherwise have occurred, but cannot provide any assurance as to the impact on our businesses.

● Relief Funds. During April and May 2020, we received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through the Company’s Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. Our relief funds payments are accounted for as government grants, which are recognized on a systematic and rational basis as other income once there is reasonable assurance that the applicable terms and conditions required to retain the funds will be met. We recognize grants once both of the following

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conditions are met: (1) we are able to comply with the relevant conditions of the grant and (2) the grant will be received. The terms and conditions note that the relief funds received can be used for health care related expenses or lost revenues that are attributable to COVID-19. For the three and six months ended June 30, 2020, we recognized the entire amount of relief grants received within the “Federal stimulus – COVID-19 other income” caption in the consolidated statements of operations.

On June 9, 2020 as part of its ongoing efforts to provide financial relief to healthcare providers impacted by COVID-19, HHS announced the Phase 2 general distribution to Medicaid, Medicaid managed care, Children's Health Insurance Program (CHIP) and dental providers. HHS anticipates distributing approximately $15.0 billion to eligible providers that participate in state Medicaid and CHIP programs that did not receive a payment from the Provider Relief Fund General Allocation (Phase 1). Eligible applicants will receive 2% of Gross Revenues from Patient Care for calendar years 2017, 2018 or 2019 as selected by applicant. Applications have been submitted for four assisted living facilities which meet the eligibility criteria.

On July 22, 2020, President Trump announced that an additional $5.0 billion of the Provider Relief Program funds will be allocated to Medicare-certified long term care facilities and state veterans’ homes (nursing homes), to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control. On August 7, 2020, HHS provided additional details indicating the $5 billion distribution will provide approximately $2.5 billion in upfront funding to support increased testing, staffing and personal protective equipment needs. There will also be funding available to providers who establish COVID-19 isolation facilities. At this time, we have insufficient information to estimate the amount or timing of such distributions.

● Medicare Accelerated and Advanced Payment Program. During the three months ended June 30, 2020, we applied for and received $156.8 million of advanced Medicare payments. The payments represent interest-free advances on future services to be provided to Medicare patients between August 2020 and November 2020. The advanced Medicare payments represent contract liabilities that are reported within accrued expenses in the consolidated balance sheet as of June 30, 2020. The $156.8 million in contract liabilities will be subsequently recouped over time as revenue is recognized for claims submitted for services provided to Medicare patients between August 2020 and November 2020. If there is a remaining balance owed after this period, we are required to repay the remaining advance.

● Payroll Tax Deferral. Under the CARES Act, we have elected to defer payment, on an interest free basis, of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. We have presented the balance of deferred payroll taxes, $35.7 million, within other long term liabilities in the consolidated balance sheet as of June 30, 2020. We estimate the total payroll tax deferral through December 31, 2020 to approximate $90 million.

● Temporary Suspension of Medicare Sequestration. The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee for service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements have incurred this mandatory reduction and it will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period of May 1, 2020 through December 31, 2020. During the three and six months ended June 30, 2020, the suspension of sequestration resulted in net revenues of approximately $2.0 million. We estimate the total increase in our revenue due to the suspension of sequestration for 2020 to be approximately $8.0 million.

● Employee Retention Tax Credit. The employer payroll tax credit provisions of the CARES Act grant eligible companies a credit against applicable payroll taxes for each calendar quarter in an amount equal to 50% of qualified wages with a maximum credit of $5,000 per employee. The refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. Qualified employees are those who are not providing services as a result of such orders of a government authority. The impact of the employee retention tax credit program was not material for the three and six months ended June 30, 2020.

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COVID-19 Testing Requirements

On July 14, 2020, HHS announced rapid point-of-care diagnostic testing devices will be distributed to nursing homes to assist in testing. CMS will also begin requiring, rather than recommending, that all nursing homes in states with a 5% positivity rate or greater test all nursing home staff each week. It is hoped that this new staff testing requirement will enhance efforts to keep the virus from entering and spreading through nursing homes by identifying asymptomatic carriers. At this time, we cannot predict the extent to which any of our businesses will receive any such additional funds to reimburse us for this additional testing, and to what extent the financial impact of receiving such funds would effectively offset any shortfall in funds resulting from the performance of this testing.

COVID-19 Reporting Requirements

On April 19, 2020, CMS announced new regulatory requirements that will require skilled nursing homes to report cases of COVID-19 directly to the CDC. This information must be reported in accordance with existing privacy regulations and statues. In addition, skilled nursing homes are required to inform residents, their families and representatives of COVID-19 cases in their facilities; this notification is required to take place by 5 PM the next calendar day following the occurrence of a single confirmed infection of COVID-19, or of three or more residents or staff with new-onset of respiratory symptoms that occur within 72 hours of one another. Further, the CDC will be providing a reporting tool to skilled nursing homes that will support Federal efforts to collect nationwide data to assist in COVID-19 surveillance and response. There could be civil monetary penalties for not meeting these reporting requirements.

On April 30, 2020, CMS announced that it would be convening an independent commission to conduct comprehensive assessments of nursing home responses to the COVID-19 pandemic. The commission will consist of skilled nursing facility residents, families, resident/patient advocates, industry experts, clinicians, medical ethicists, administrators, academicians, infection control and prevention professionals, state and local authorities, and other experts. The commission is expected to develop recommendations specific to (1) protecting residents from COVID-19 and improving the responsiveness of care delivery; (2) strengthening regulations to enable rapid and effective identification and mitigation of COVID-19 transmissions in nursing homes; and (3) enhancing enforcement strategies to improve compliance with infection control policies. Recommendations from the commission will be delivered to CMS and may be incorporated into the regulatory framework applicable to nursing facilities.

Provider Relief Fund Reporting Requirement

On July 20, 2020, HHS informed Provider Relief Fund (PRF) recipients that received one or more payments exceeding $10,000 in the aggregate from the PRF of the timing of future reporting requirements. The reports shall be in such form, with such content, as specified by the Secretary of HHS in future program instructions directed to all recipients and will provide directions on reporting obligations. The reporting system will become available to recipients for reporting on October 1, 2020. All recipients must report within 45 days of the end of calendar year 2020 on their expenditures through the period ending December 31, 2020. Recipients who have expended funds in full prior to December 31, 2020 may submit a single final report at any time during the window that begins October 1, 2020, but no later than February 15, 2021. Recipients with funds unexpended after December 31, 2020, must submit a second and final report no later than July 31, 2021.

Provider Relief Fund Single Audit Requirement

HHS indicates that PRF payments will be subject to the Office of Management and Budget Single Audit process, which requires an organization-wide audit of an entity that expends $750,000 or more of federal assistance. The objective of the Single Audit is to provide assurance that federal funds are used appropriately. PRF payments are required to be included in determining if a recipient that is a commercial (for profit) organization is required to have an audit if reported annual total federal funds received are equal to or above $750,000. Audit reports of commercial entities are to be submitted directly to HHS, Audit Resolution Division.

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 Final Rule - Medicare Annual Market Basket for Fiscal Year 2021

On July 31, 2020, CMS issued a final rule providing a net market basket increase for skilled nursing facilities of 2.2 percent beginning October 1, 2020. This market basket update reflects a full market basket increase of 2.2 percentage points, no forecast error correction and no multifactor productivity adjustment. CMS estimates that the net market basket update would increase Medicare skilled nursing facility payments by approximately $750 million in fiscal year 2021.

Proposed Rule – Physician Fee Schedule

On August 3, 2020, CMS issued a proposed rule to revise payment policies under the Medicare physician fee schedule and makes other policy changes related to Medicare Part B payment on or after January 1, 2021.  The revised payment policies, as proposed, would reduce our reimbursement rate for Medicare Part B therapy services and physician services revenues by an estimated $20 million to $25 million on an annualized basis.  We are evaluating options to mitigate the impact of the rate reductions should the rule be finalized as proposed.

Key Performance and Valuation Measures

In order to assess our financial performance between periods, we evaluate certain key performance and valuation measures for each of our operating segments separately for the periods presented. Results and statistics may not be comparable period-over-period due to the impact of acquisitions and dispositions, or the impact of new and lost therapy contracts.

The following is a glossary of terms for some of our key performance and valuation measures and Non-GAAP measures:

“Actual Patient Days” is defined as the number of residents occupying a bed (or units in the case of an assisted/senior living center) for one qualifying day in that period.

“Adjusted EBITDA” is defined as EBITDA adjusted for newly acquired or constructed businesses with start-up losses and other adjustments to provide a supplemental performance measure. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with, Non-GAAP measures.

“Adjusted EBITDAR” is defined as EBITDAR adjusted for newly acquired or constructed businesses with start-up losses and other adjustments to provide a supplemental valuation measure. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with, Non-GAAP measures.

“Available Patient Days” is defined as the number of available beds (or units in the case of an assisted/senior living center) multiplied by the number of days in that period.

“Average Daily Census” or “ADC” is the number of residents occupying a bed (or units in the case of an assisted/senior living center) over a period of time, divided by the number of calendar days in that period.

“EBITDA” is defined as EBITDAR less lease expense. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with Non-GAAP measures.

“EBITDAR” is defined as net income or loss attributable to Genesis Healthcare, Inc. before net income or loss of non-controlling interests, net income or loss from discontinued operations, depreciation and amortization expense, interest expense and lease expense. See “Reasons for Non-GAAP Financial Disclosure” for an explanation of the adjustments and a description of our uses of, and the limitations associated with Non-GAAP measures.

“Insurance” refers collectively to commercial insurance and managed care payor sources, including Medicare Advantage beneficiaries, but does not include managed care payors serving Medicaid residents, which are included in the Medicaid category.

“Occupancy Percentage” is measured as the percentage of Actual Patient Days relative to the Available Patient Days.

“Skilled Mix” refers collectively to Medicare and Insurance payor sources.

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“Therapist Efficiency” is computed by dividing billable labor minutes related to patient care and customer value added services by total labor minutes for the period.

Key performance and valuation measures for our businesses are set forth below, followed by a comparison and analysis of our financial results:

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Financial Results (in thousands)
Financial Performance Measures:
Net revenues (GAAP)	$	956,259	$	1,145,052	$	2,048,509	$	2,306,692
Net (loss) income attributable to Genesis Healthcare, Inc. (GAAP)		(22,005)		(4,819)		11,503		(20,082)
EBITDA (Non-GAAP)		35,950		72,098		136,080		136,778
Adjusted EBITDA (Non-GAAP)		59,382		61,433		102,241		115,869
Valuation Measure:
Adjusted EBITDAR (Non-GAAP)	$	155,777			$	296,656

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INPATIENT SEGMENT:

	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Occupancy Statistics - Inpatient
Available licensed beds in service at end of period		38,193			46,353			38,193			46,353
Available operating beds in service at end of period		36,742			44,408			36,742			44,408
Available patient days based on licensed beds		3,475,715			4,213,333			6,951,985			8,378,173
Available patient days based on operating beds		3,340,756			4,036,602			6,669,380			8,027,459
Actual patient days		2,571,092			3,496,046			5,524,820			6,977,410
Occupancy percentage - licensed beds		74.0	%		83.0	%		79.5	%		83.3	%
Occupancy percentage - operating beds		77.0	%		86.6	%		82.8	%		86.9	%
Skilled mix		15.8	%		18.2	%		17.2	%		18.6	%
Average daily census		28,254			38,418			30,356			38,549
Revenue per patient day (skilled nursing facilities)
Medicare Part A	$	579		$	528		$	570		$	526
Insurance		508			454			492			456
Private and other		368			364			370			361
Medicaid		268			231			256			231
Medicaid (net of provider taxes)		245			211			234			211
Weighted average (net of provider taxes)	$	308		$	277		$	300		$	278
Patient days by payor (skilled nursing facilities)
Medicare		249,909			344,916			541,783			704,651
Insurance		128,995			252,272			345,264			518,739
Total skilled mix days		378,904			597,188			887,047			1,223,390
Private and other		147,565			193,603			322,623			379,838
Medicaid		1,876,518			2,505,024			3,970,177			4,975,038
Total Days		2,402,987			3,295,815			5,179,847			6,578,266
Patient days as a percentage of total patient days (skilled nursing facilities)
Medicare		10.4	%		10.5	%		10.5	%		10.7	%
Insurance		5.4	%		7.7	%		6.7	%		7.9	%
Skilled mix		15.8	%		18.2	%		17.2	%		18.6	%
Private and other		6.1	%		5.9	%		6.2	%		5.8	%
Medicaid		78.1	%		75.9	%		76.6	%		75.6	%
Total		100.0	%		100.0	%		100.0	%		100.0	%
Facilities at end of period
Skilled nursing facilities
Leased		249			311			249			311
Owned		16			37			16			37
Joint Venture		61			20			61			20
Managed		12			12			12			12
Total skilled nursing facilities		338			380			338			380
Total licensed beds		40,655			46,108			40,655			46,108
Assisted/Senior living facilities:
Leased		19			21			19			21
Owned		1			3			1			3
Joint Venture		2			1			2			1
Managed		1			2			1			2
Total assisted/senior living facilities		23			27			23			27
Total licensed beds		1,829			2,233			1,829			2,233
Total facilities		361			407			361			407
Total Jointly Owned and Managed— (Unconsolidated)		36			14			36			14

REHABILITATION THERAPY SEGMENT*:

	Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019
Revenue mix %:
Company-operated		34	%		36	%		34	%		36	%
Non-affiliated and affiliated third party		66	%		64	%		66	%		64	%
Sites of service (at end of period)		1,119			1,203			1,119			1,203
Revenue per site	$	137,460		$	153,373		$	280,319		$	302,642
Therapist efficiency %		65	%		68	%		68	%		68	%

* Excludes respiratory therapy services.

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Reasons for Non-GAAP Financial Disclosure

The following discussion includes references to Adjusted EBITDAR, EBITDA and Adjusted EBITDA, which are non-GAAP financial measures (collectively, Non-GAAP Financial Measures). A Non-GAAP Financial Measure is a numerical measure of a registrant’s historical or future financial performance, financial position and cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. We have provided reconciliations of the Non-GAAP Financial Measures to the most directly comparable GAAP financial measures.

We believe the presentation of Non-GAAP Financial Measures provides useful information to investors regarding our results of operations because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business. By excluding certain expenses and other items that may not be indicative of our core business operating results, these Non-GAAP Financial Measures:

● allow investors to evaluate our performance from management’s perspective, resulting in greater transparency with respect to supplemental information used by us in our financial and operational decision making;

● facilitate comparisons with prior periods and reflect the principal basis on which management monitors financial performance;

● facilitate comparisons with the performance of others in the post-acute industry;

● provide better transparency as to the measures used by management and others who follow our industry to estimate the value of our company; and

● allow investors to view our financial performance and condition in the same manner as our significant landlords and lenders require us to report financial information to them in connection with determining our compliance with financial covenants.

We use two Non-GAAP Financial Measures primarily (EBITDA and Adjusted EBITDA) as performance measures and believe that the GAAP financial measure most directly comparable to these two Non-GAAP Financial Measures is net income (loss) attributable to Genesis Healthcare, Inc. We use one Non-GAAP Financial Measure (Adjusted EBITDAR) as a valuation measure and believe that the GAAP financial measure most directly comparable to this Non-GAAP Financial Measures is net income (loss) attributable to Genesis Healthcare, Inc. We use Non-GAAP Financial Measures to assess the value of our business and the performance of our operating businesses, as well as the employees responsible for operating such businesses. Non-GAAP Financial Measures are useful in this regard because they do not include such costs as interest expense, income taxes and depreciation and amortization expense which may vary from business unit to business unit depending upon such factors as the method used to finance the original purchase of the business unit or the tax law in the state in which a business unit operates. By excluding such factors when measuring financial performance, many of which are outside of the control of the employees responsible for operating our business units, we are better able to evaluate value and the operating performance of the business unit and the employees responsible for business unit performance. Consequently, we use these Non-GAAP Financial Measures to determine the extent to which our employees have met performance goals, and therefore the extent to which they may or may not be eligible for incentive compensation awards.

We also use Non-GAAP Financial Measures in our annual budget process. We believe these Non-GAAP Financial Measures facilitate internal comparisons to historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. The presentation of these Non-GAAP Financial Measures is consistent with our past practice and we believe these measures further enable investors and analysts to compare current Non-GAAP measures with Non-GAAP measures presented in prior periods.

Although we use Non-GAAP Financial Measures as financial measures to assess value and the performance of our business, the use of these Non-GAAP Financial Measures is limited because they do not consider certain material costs necessary to operate the business. These costs include our lease expense (only in the case of Adjusted EBITDAR), the cost to service debt, the depreciation

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and amortization associated with our long-lived assets, losses on early extinguishment of debt, transaction costs, long-lived asset impairment charges, federal and state income tax expenses, the operating results of our divested businesses and the income or loss attributable to noncontrolling interests. Because Non-GAAP Financial Measures do not consider these important elements of our cost structure, a user of our financial information who relies on Non-GAAP Financial Measures as the only measures of our performance could draw an incomplete or misleading conclusion regarding our financial performance. Consequently, a user of our financial information should consider net income (loss) attributable to Genesis Healthcare, Inc. as an important measure of our financial performance because it provides the most complete measure of our performance.

Other companies may define Non-GAAP Financial Measures differently and, as a result, our Non-GAAP Financial Measures may not be directly comparable to those of other companies. Non-GAAP Financial Measures do not represent net income (loss), as defined by GAAP. Non-GAAP Financial Measures should be considered in addition to, not a substitute for, or superior to, GAAP Financial Measures.

We use the following Non-GAAP Financial Measures that we believe are useful to investors as key valuation and operating performance measures:

EBITDA

We believe EBITDA is useful to an investor in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (interest expense) and our asset base (depreciation and amortization expense) from our operating results. In addition, financial covenants in our debt agreements use EBITDA as a measure of compliance.

Adjustments to EBITDA

We adjust EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, in the case of Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA, when combined with GAAP net loss attributable to Genesis Healthcare, Inc., and EBITDA, is beneficial to an investor’s complete understanding of our operating performance. In addition, such adjustments are substantially similar to the adjustments to EBITDA provided for in the financial covenant calculations contained in our lease and debt agreements.

We adjust EBITDA for the following items:

● Loss (gain) on early extinguishment of debt. We recognize gains or losses on the early extinguishment of debt when we refinance our debt prior to its original term, requiring us to write-off any unamortized deferred financing fees. We exclude the effect of gains or losses recorded on the early extinguishment of debt because we believe these gains and losses do not accurately reflect the underlying performance of our operating businesses.

● Other income. We primarily use this income statement caption to capture gains and losses on the sale or disposition of assets. We exclude the effect of such gains and losses because we believe they do not accurately reflect the underlying performance of our operating businesses.

● Transaction costs. In connection with our restructuring, acquisition and disposition transactions, we incur costs consisting of investment banking, legal, transaction-based compensation and other professional service costs. We exclude restructuring, acquisition and disposition related transaction costs expensed during the period because we believe these costs do not reflect the underlying performance of our operating businesses.

● Long-lived asset impairments. We exclude non-cash long-lived asset impairment charges because we believe including them does not reflect the ongoing performance of our operating businesses. Additionally, such impairment charges represent accelerated depreciation expense, and depreciation expense is also excluded from EBITDA.

● Severance and restructuring. We exclude severance costs from planned reduction in force initiatives associated with restructuring activities intended to adjust our cost structure in response to changes in the business environment. We

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believe these costs do not reflect the underlying performance of our operating businesses. We do not exclude severance costs that are not associated with such restructuring activities.

● (Income) loss of newly acquired, constructed or divested businesses. The acquisition and construction of new businesses is an element of our growth strategy. Many of the businesses we acquire have a history of operating losses and continue to generate operating losses in the months that follow our acquisition. Newly constructed or developed businesses also generate losses while in their start-up phase. We view these losses as both temporary and an expected component of our long-term investment in the new venture. We adjust these losses when computing Adjusted EBITDA in order to better analyze the performance of our mature ongoing business. The activities of such businesses are adjusted when computing Adjusted EBITDA until such time as a new business generates positive Adjusted EBITDA. The divestiture of underperforming or non-strategic facilities is also an element of our business strategy. We eliminate the results of divested facilities beginning in the quarter in which they become divested. We view the income or losses associated with the wind-down of such divested facilities as not indicative of the performance of our ongoing operating business.

● Stock-based compensation. We exclude stock-based compensation expense because it does not result in an outlay of cash and such non-cash expenses do not reflect the underlying performance of our operating businesses.

● Impact of COVID-19. We excluded the net impact of the COVID-19 pandemic on our revenues and expenses for the three and six months ended June 30, 2020 due to the extraordinary nature of the virus and its impact across the globe. We view the incremental expenses, lost revenue and government relief grants as not indicative of the underlying potential long-term performance of our operating businesses. Our estimate of the pandemic’s impact on earnings for the three and six months ended June 30, 2020 includes the following components: (1) incremental funding received to address escalating expenses and lost revenue; (2) incremental expenses incurred as a result of the pandemic; and (3) the net impact of lost revenue, after considering a resulting reduction in operating expenses. For the three and six months ended June 30, 2020, we excluded funding recognized under the CARES Act and additional funding provided by certain states totaling approximately $228.0 million and $234.0 million, respectively. For the three and six months ended June 30, 2020, we excluded incremental expenses incurred in connection with the COVID-19 pandemic of approximately $145.3 million and $152.5 million, respectively. For the three and six months ended June 30, 2020 we excluded the estimated net impact of lost revenue offset by any resulting reduction in operating expenses, of approximately $67.0 million and $74.0 million, respectively.

Adjusted EBITDAR

We use Adjusted EBITDAR as one measure in determining the value of our business and the value of prospective acquisitions or divestitures. Adjusted EBITDAR is also a commonly used measure to estimate the enterprise value of businesses in the healthcare and other industries. In addition, financial covenants in our lease agreements use Adjusted EBITDAR as a measure of compliance. The adjustments made and previously described in the computation of Adjusted EBITDA are also made when computing Adjusted EBITDAR. 

Supplemental Information

We provide supplemental information about certain capital costs we believe are beneficial to an investor’s understanding of our capital structure and cash flows. This supplemental information includes (1) cash interest payments on our recourse and HUD guaranteed indebtedness (2) cash rent payments made to partially owned real estate joint ventures that is eliminated in consolidation, net of any distributions returned to us, and (3) total cash lease payments made pursuant to operating leases and finance leases.

This supplemental information is used by us to evaluate our leverage, fixed charge coverage and cash flow. This supplemental information is consistent with information used by our major creditors in evaluating compliance with financial covenants contained in our material lease and loan agreements.

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See the reconciliation of net (loss) income attributable to Genesis Healthcare, Inc. to Non-GAAP financial information included herein (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Adjustments to compute EBITDA:
Net loss attributable to noncontrolling interests		(7,311)		(4,164)		(2,138)		(13,983)
Depreciation and amortization expense		33,816		28,268		59,804		66,463
Interest expense		31,907		52,975		68,147		104,491
Income tax benefit		(457)		(162)		(1,236)		(111)
EBITDA	$	35,950	$	72,098		136,080		136,778
Adjustments to compute Adjusted EBITDA:
Loss (gain) on early extinguishment of debt		1,421		(24)		5,460		(24)
Other income		(44,100)		(23,413)		(128,932)		(40,330)
Transaction costs		5,543		8,823		11,134		10,084
Long-lived asset impairments		77,100		900		86,800		900
Severance and restructuring		346		673		701		2,119
(Income) loss of newly acquired, constructed, or divested businesses		(3,329)		865		(5,250)		2,744
Stock-based compensation		1,831		1,748		3,725		3,835
Estimated impact of COVID-19		(15,380)		—		(7,477)		—
Other non-recurring income		—		(237)		—		(237)
Adjusted EBITDA	$	59,382	$	61,433	$	102,241	$	115,869
Lease expense		96,395		94,586		194,415		188,647
Adjusted EBITDAR	$	155,777			$	296,656
Supplemental information:
Cash interest payments on recourse and HUD debt	$	15,280	$	20,491	$	34,660	$	42,940
Cash payments made to partially owned real estate joint ventures, net of distributions received		12,679		4,193		25,379		4,193
Total cash lease payments made pursuant to operating leases and finance leases	$	90,436	$	105,888	$	183,782	$	213,516

Results of Operations

Same-store Presentation

We continue to execute on a strategic plan which includes expansion in core markets and operating segments which we believe will enhance the value of our business in the ever-changing landscape of national healthcare. We are also focused on “right-sizing” our operations to fit that new environment and to divest underperforming and non-strategic assets, many of which were consolidated as part of larger acquisitions in recent years to achieve the net overall growth strategy.

We define our same-store inpatient operations as those skilled nursing and assisted/senior living centers which have been operated by us, in a steady-state, for each comparable period in this Results of Operations discussion. We exclude from that definition those skilled nursing and assisted/senior living facilities recently acquired that were not operated by us for the entire period, as well as those that were divested prior to or during the most recent period presented. In cases where we are developing new skilled nursing or assisted/senior living centers, those operations are excluded from our “same-store” inpatient operations until the revenue driven by operating patient census is stable in the comparable periods.

Since the nature of our rehabilitation therapy services operations experiences high volume of both new and terminated contracts in an annual cycle, and the scale and significance of those contracts can be very different to both the revenue and operating expenses of that business, a same-store presentation based solely on the contract or gym count does not provide an accurate depiction of the business. Accordingly, we do not reference same-store figures in this MD&A with regard to that business.

The volume of services delivered in our other services businesses can also be affected by strategic transactional activity. To the extent there are businesses to be excluded to achieve same-store comparability those will be noted in the context of the Results of Operations discussion.

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Impact of COVID-19 on Results of Operations

The COVID-19 pandemic will impact the comparability of our 2020 financial results with those of other periods. That reduced comparability will be highlighted in the discussion of our results of operations, separate from our same-store presentation. For more information about the COVID-19 pandemic and its impact on our results of operations and financial position, see “COVID-19” described more fully in this MD&A.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

A summary of our unaudited results of operations for the three months ended June 30, 2020 as compared with the same period in 2019 follows (in thousands, except percentages):

	Three months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	796,961	83.4	%	$	964,541	84.2	%	$	(167,580)	(17.4)	%
Assisted/Senior living facilities		20,041	2.1	%		23,702	2.1	%		(3,661)	(15.4)	%
Administration of third party facilities		2,110	0.2	%		2,054	0.2	%		56	2.7	%
Elimination of administrative services		(784)	(0.1)	%		(799)	(0)	%		15	1.9	%
Inpatient services, net		818,328	85.6	%		989,498	86.4	%		(171,170)	(17.3)	%
Rehabilitation therapy services:
Total therapy services		153,625	16.1	%		192,906	16.8	%		(39,281)	(20.4)	%
Elimination of intersegment rehabilitation therapy services		(57,101)	(6.0)	%		(71,971)	(6.3)	%		14,870	20.7	%
Third party rehabilitation therapy services, net		96,524	10.1	%		120,935	10.5	%		(24,411)	(20.2)	%
Other services:
Total other services		70,959	7.4	%		45,489	4.0	%		25,470	56.0	%
Elimination of intersegment other services		(29,552)	(3.1)	%		(10,870)	(0.9)	%		(18,682)	(171.9)	%
Third party other services, net		41,407	4.3	%		34,619	3.1	%		6,788	19.6	%
Net revenues	$	956,259	100.0	%	$	1,145,052	100.0	%	$	(188,793)	(16.5)	%

	Three months ended June 30,
	2020				2019				Increase / (Decrease)
			Margin				Margin
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
EBITDA:
Inpatient services	$	43,049	5.3	%	$	87,649	8.9	%	$	(44,600)	(50.9)	%
Rehabilitation therapy services		27,716	18.0	%		25,586	13.3	%		2,130	8.3	%
Other services		4,454	6.3	%		1,248	2.7	%		3,206	256.9	%
Corporate and eliminations		(39,269)	—	%		(42,385)	—	%		3,116	7.4	%
EBITDA	$	35,950	3.8	%	$	72,098	6.3	%	$	(36,148)	(50.1)	%

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A summary of our unaudited condensed consolidating statement of operations follows (in thousands):

	Three months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	819,112	$	153,625	$	67,857	$	3,102	$	(87,437)	$	956,259
Salaries, wages and benefits		451,176		121,984		43,784		—		—		616,944
Other operating expenses		374,583		8,760		21,493		—		(87,562)		317,274
General and administrative costs		—		—		—		39,769		—		39,769
Lease expense		95,279		313		503		300		—		96,395
Depreciation and amortization expense		29,544		1,677		208		2,406		(19)		33,816
Interest expense		12,829		13		9		20,236		(1,180)		31,907
Loss on early extinguishment of debt		—		—		—		1,421		—		1,421
Investment income		—		—		—		(2,141)		1,180		(961)
Other income		(44,100)		—		—		—		—		(44,100)
Transaction costs		—		—		—		5,543		—		5,543
Long-lived asset impairments		77,100		—		—		—		—		77,100
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,297)		721		(3,576)
Income (loss) before income tax benefit		676		26,026		4,237		(60,135)		(577)		(29,773)
Income tax benefit		—		—		—		(457)		—		(457)
Net income (loss)	$	676	$	26,026	$	4,237	$	(59,678)	$	(577)	$	(29,316)

	Three months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	990,297	$	192,906	$	45,325	$	164	$	(83,640)	$	1,145,052
Salaries, wages and benefits		442,028		154,855		29,276		—		—		626,159
Other operating expenses		389,637		12,130		14,402		—		(83,641)		332,528
General and administrative costs		—		—		—		35,562		—		35,562
Lease expense		93,557		335		338		356		—		94,586
Depreciation and amortization expense		22,328		3,112		174		2,654		—		28,268
Interest expense		29,051		13		8		23,903		—		52,975
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(2,143)		—		(2,143)
Other (income) loss		(23,474)		—		61		—		—		(23,413)
Transaction costs		—		—		—		8,823		—		8,823
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,910		(1,934)		(24)
Income (loss) before income tax benefit		36,270		22,461		1,066		(70,877)		1,935		(9,145)
Income tax benefit		—		—		—		(162)		—		(162)
Net income (loss)	$	36,270	$	22,461	$	1,066	$	(70,715)	$	1,935	$	(8,983)

Net Revenues

Net revenues for the three months ended June 30, 2020 decreased by $188.8 million, or 16.5%, as compared with the three months ended June 30, 2019.

Inpatient Services – Revenue decreased $171.2 million, or 17.3%, in the three months ended June 30, 2020 as compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, inpatient services revenue decreased $35.1 million, or 4.3%, excluding 76 divested underperforming facilities and the acquisition or development of 3 additional facilities. The same-store revenue decrease is net of $8.8 million related to a new provider tax program in the state of New Mexico, which was not in place for the corresponding period in 2019 and an additional increase of $10.2 million in the three months ended June 30, 2020 is attributed to the transition from the resource utilization group based reimbursement to the Patient-Driven Payment Model (PDPM) reimbursement methodology in the fourth quarter of fiscal 2019. Giving effect to these factors, we estimate the remaining same-store inpatient revenue decrease of $54.1 million in the three months ended June 30, 2020 compared with the same period in 2019 is due to the impact of COVID-19, partially offset by increasing payor rates, primarily in our Medicaid population, reflecting a trend that was observed before COVID-19 impacted our operations. While census was adversely impacted by admission holds and declining in-house census as the pandemic progressed, average payor rates increased as acuity of the in-house census increased with treatment of the population testing positive for the virus. COVID-19, has, and will likely

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continue to disrupt this favorable overall census trend and may have an unpredictable impact on the skilled mix of our inpatient facilities as a result of the temporary change to patient coverage criteria.

For an expanded discussion regarding the factors influencing our operating census and challenges to our ability to grow inpatient service revenues, see Item 1, “Business – Industry Trends” in our Annual Report on Form 10-K filed with the SEC, “Key Performance and Valuation Measures” in this MD&A for quantification of the census trends and revenue per patient day as well as “COVID-19” in this MD&A.

Rehabilitation Therapy Services – Revenue decreased $24.4 million, or 20.2% comparing the three months ended June 30, 2020 with the same period in 2019. Of that decrease, $11.8 million is due to lost contract business, offset by $5.0 million attributed to new contracts. COVID-19 began to impact the skilled nursing customers of our rehabilitation services at an accelerating rate by March 2020 and continuing through June 30, 2020, resulting in a decrease of revenue of $7.5 million in the three months ended June 30, 2020 as compared with the same period in 2019. The remaining decrease of $10.1 million is principally due to reduced volume of services provided to existing customers and amended customer pricing terms in connection with the implementation of PDPM.

Other Services – Revenue increased $6.8 million, or 19.6% in the three months ended June 30, 2020 as compared with the same period in 2019. Our other services revenue is comprised mainly of our physician services and staffing services businesses, in addition to our Accountable Care Organization (ACO). In the three months ended June 30, 2020 and 2019, the ACO did not recognize any revenue under the Medicare Shared Savings Program (MSSP). We are participating in the MSSP in 2020; however, uncertainty around how the 2020 MSSP will perform in light of COVID-19 precludes us from recognizing any savings to the Medicare program at this stage. Revenue in our physician services business decreased $0.4 million in the three months ended June 30, 2020 as compared with the same period in 2019, all of which is attributed to reduced census volumes from the impact of COVID-19 on the inpatient business. The remaining increase of revenue of $7.2 million is in our staffing services business, which has shifted its focus to developing its services to our affiliated nursing facilities and therapy gyms. While the staffing business gross revenue has increased over 87% in the three months ended June 30, 2020 as compared with the same period in 2019, its revenue from external customers has only increased 25.9% over that same period. Further penetration of the internal staffing needs is a strategic goal for our staffing business, and, if successful, it will provide a benefit to our inpatient and rehabilitation therapy segments to combat a historically strong labor market and accelerating wage pressures, in addition to the evolving demands of post-acute care in light of the COVID-19 impact on our various lines of business.

EBITDA

EBITDA for the three months ended June 30, 2020 decreased by $36.1 million, or 50.1%, as compared with the three months ended June 30, 2019. Excluding the impact of loss on early extinguishment of debt, other (income) loss, transaction costs, long-lived asset impairments and Federal Stimulus – COVID-19 other income, EBITDA decreased $168.0 million, or 287.7% when compared with the same period in 2019. The contributing factors for this net decrease are described in our discussion below of segment results and corporate overhead.

Inpatient Services – EBITDA decreased by $44.6 million, or 50.9% for the three months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of other (income) loss, long-lived asset impairments and Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $167.0 million when compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, the inpatient EBITDA as adjusted decreased $158.5 million. Same-store staffing costs, net of nursing agency and other purchased services and adjusted for the impact of COVID-19, increased $100.9 million. Wages and purchased services include supplemental premium pay rates and bonuses to insure we could attract adequate staff to address our clinical needs during the pandemic. Nursing wage inflation increased 28.8% while non-nursing wage inflation increased 20.8% in the three months ended June 30, 2020 as compared with the same period in 2019. Same-store lease expense increased $2.7 million, primarily due to lease amendments in 2019 resulting in certain financing leases being reclassified as operating leases. Our self-insurance programs, including general and professional liability, workers’ compensation and health insurance benefits, resulted in a decrease of $15.4 million EBITDA as adjusted in the three months ended June 30, 2020 as compared with the same period in 2019. Prior to the COVID-19 pandemic our self-insurance programs were performing as anticipated and within normal claims reporting patterns of our same-store operations recently. The provisions for general and professional liability recorded in both the three months ended June 30, 2020 and the comparable period in 2019 reflect continued favorable claims development and accelerated claims settlement initiated in 2018. We have not changed our reserving methodology or assumptions for any COVID-19 specific exposures. Our self-insured health benefit plans have seen reduced expenses principally due to other medical care settings limiting non-emergency services during the COVID-19 pandemic, however, we anticipate those

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deferred procedures will impact expense over the remainder of fiscal year 2020. $24.9 million of the net EBITDA decrease relating to self-insurance programs is for an incremental provision of COVID-19 related workers’ compensation exposure incurred through June 30, 2020. The introduction of the new provider tax program in New Mexico resulted in an increase of EBITDA of $5.8 million compared to the same period in 2019 before the program was enacted. The remaining $45.3 million decrease in EBITDA, as adjusted, of the segment is principally due to the negative affects COVID-19 has had on our business, partially offset with reduced therapy services cost due to the implementation of PDPM. See “Significant Transactions and Events – COVID-19.”

Rehabilitation Therapy Services – EBITDA increased by $2.1 million, or 8.3%, for the three months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $3.0 million when compared with the same period in 2019. Lost therapy contracts exceeded new contracts by $2.1 million in the three months ended June 30, 2020 as compared with the same period in 2019. COVID-19 resulted in a decrease of EBITDA of $4.4 million in the three months ended June 30, 2020. The remaining increase of $3.5 million is principally attributed to overhead cost reductions and improved accounts receivable collections in the period. Therapist efficiency was negatively impacted by the impact of COVID-19, decreasing to 64.8% in the three months ended June 30, 2020 compared with 67.9% in the comparable period in the prior year. This decline in therapist efficiency is expected to be temporary as we have adjusted staffing and service models to address the clinical needs of our skilled nursing customers impacted by COVID-19.

Other Services — EBITDA increased $3.2 million, or 256.9%, for the three months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted increased $0.8 million when compared with the same period in 2019. The EBITDA of our staffing services business increased $2.4 million in the three months ended June 30, 2020 as compared with the same period in 2019, principally due to growth in its services with affiliated customers. The remaining decrease of $1.6 million pertains to our physician services business and ACO. Both businesses have been negatively impacted by COVID-19 reducing patient encounters due to reduced skilled nursing census across the industry and increased costs to support practitioners.

Corporate and Eliminations — EBITDA increased $3.1 million, or 7.4%, for the three months ended June 30, 2020 as compared with the same period in 2019. EBITDA of our corporate function includes loss on early extinguishment of debt and losses associated with transactions that are outside of the scope of our reportable segments. These and other transactions, which are separately captioned in our consolidated statements of operations and described more fully above in our Reasons for Non-GAAP Financial Disclosure, contributed $1.8 million of the net increase in EBITDA. Corporate overhead costs, net of fee income, increased $1.3 million, or 3.6%, in the three months ended June 30, 2020 as compared with the same period in 2019. This increase is principally due to investments in information technology and related upgrades. The remaining increase in EBITDA of $2.4 million is primarily the result of an increase in investment earnings from our unconsolidated affiliates accounted for on the equity method and other investments.

Other (income) loss — Consistent with our strategy to divest assets in non-strategic markets, we incur losses and generate gains resulting from the sale, transition or closure of underperforming operations and assets. Other (income) loss for the three months ended June 30, 2020 principally represents gains on sales of real estate and leasehold rights in the period. See also Note 12 – “Other Income.”

Transaction costs — In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the three months ended June 30, 2020 and 2019 were $5.5 million and $8.8 million, respectively.

Long-lived asset impairments — In the three months ended June 30, 2020, we recognized impairments of property and equipment and right-of-use (ROU) assets of $77.1 million. For more information about the conditions of the business which contributed to these impairments, see “Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue” and “Financial Condition and Liquidity Considerations” in this MD&A, as well as Note 13 – “Asset Impairment Charges - Long-Lived Assets with a Definite Useful Life.”

Federal stimulus – COVID 19 – other income – During April and May 2020, we received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through our Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost

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revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

Other Expense

The following discussion applies to the consolidated expense categories between EBITDA and net income (loss) of all reportable segments, corporate and eliminations in our consolidating statement of operations for the three months ended June 30, 2020 as compared with the same period in 2019.

Depreciation and amortization — Each of our reportable segments and corporate overhead have depreciating property, plant and equipment, including amortization of finance lease ROU assets. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense increased $5.5 million in the three months ended June 30, 2020 as compared with the same period in 2019. On a same-store basis, depreciation and amortization increased $2.8 million in the three months ended June 30, 2020 as compared with the same period in 2019. This increase is principally due to acceleration of depreciation of assets sold into real estate joint ventures in the current quarter, offset by reductions in the amortization of the right to use assets of our remaining leases.

Interest expense — Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as finance leases. Interest expense decreased $21.1 million in the three months ended June 30, 2020 as compared with the same period 2019. On a same-store basis, interest expense is down $16.0 million in the three months ended June 30, 2020 as compared with the same period in 2019. An increase of $4.4 million of interest expense is attributed to consolidating debt and the associated interest expense of two real-estate partnerships in 2019, which were determined to be variable interest entities (VIEs) of which we are the primary beneficiary. See Note 1 – “General Information – Basis of Presentation” and Note 9 – “Long-Term Debt.” Cash rent decreased $3.6 million in the three months ended June 30, 2020 as compared with the same period in 2019 as a result of a reduction in outstanding borrowings under our revolving credit facility, primarily due to the timing of the Medicare Advance payments in connection with CARES Act relief funding. Borrowing levels are expected to increase over the period the Medicare Advance is required to be recouped. The remaining decrease in interest expense of $16.8 million is principally due to lease amendments entered in 2019 and early 2020 that resulted in modifications to the accounting for certain leases, converting them from financing leases with interest expense to operating leases presented as lease expense.

Income tax benefit — For the three months ended June 30, 2020, we recorded income tax benefit of $0.5 million from continuing operations representing an effective tax rate of 1.5% compared to an income tax benefit of $0.2 million from continuing operations, representing an effective tax rate of 1.8% for the same period in 2019. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of June 30, 2020, we have determined that the valuation allowance is still necessary.

Net Income (Loss) Attributable to Genesis Healthcare, Inc.

The following discussion applies to categories between net income (loss) and net income (loss) attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the three months ended June 30, 2020 as compared with the same period in 2019.

Net income (loss) attributable to noncontrolling interests — On February 2, 2015, FC-GEN Operations Investment, LLC (FC-GEN) combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 9.0 million Class C common stock, leaving a remaining direct noncontrolling economic interest of approximately 32.9%. For the three months ended June 30, 2020 and 2019, loss of $(6.5) million and $(1.9) million, respectively, has been attributed to the Class C common stock.

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In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any VIEs where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the three months ended June 30, 2020 and 2019, loss of $(0.8) million and $(2.2) million, respectively, has been attributed to these unaffiliated third parties.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

A summary of our unaudited results of operations for the six months ended June 30, 2020 as compared with the same period in 2019 follows (in thousands, except percentages):

	Six months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	1,726,834	84.5	%	$	1,946,937	84.3	%	$	(220,103)	(11.3)	%
Assisted/Senior living facilities		41,863	2.0	%		47,351	2.1	%		(5,488)	(11.6)	%
Administration of third party facilities		4,151	0.2	%		4,301	0.2	%		(150)	(3.5)	%
Elimination of administrative services		(1,570)	(0.1)	%		(1,599)	—	%		29	1.8	%
Inpatient services, net		1,771,278	86.6	%		1,996,990	86.6	%		(225,712)	(11.3)	%
Rehabilitation therapy services:
Total therapy services		318,421	15.5	%		387,977	16.8	%		(69,556)	(17.9)	%
Elimination of intersegment rehabilitation therapy services		(116,428)	(5.7)	%		(146,202)	(6.3)	%		29,774	20.4	%
Third party rehabilitation therapy services, net		201,993	9.8	%		241,775	10.5	%		(39,782)	(16.5)	%
Other services:
Total other services		125,782	6.1	%		87,607	3.8	%		38,175	43.6	%
Elimination of intersegment other services		(50,544)	(2.5)	%		(19,680)	(0.9)	%		(30,864)	(156.8)	%
Third party other services, net		75,238	3.6	%		67,927	2.9	%		7,311	10.8	%
Net revenues	$	2,048,509	100.0	%	$	2,306,692	100.0	%	$	(258,183)	(11.2)	%

	Six months ended June 30,
	2020				2019				Increase / (Decrease)
			Margin				Margin
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
EBITDA:
Inpatient services	$	168,647	9.5	%	$	161,122	8.1	%	$	7,525	4.7	%
Rehabilitation therapy services		49,129	15.4	%		52,354	13.5	%		(3,225)	(6.2)	%
Other services		5,181	4.1	%		926	1.1	%		4,255	459.5	%
Corporate and eliminations		(86,877)	—	%		(77,624)	—	%		(9,253)	(11.9)	%
EBITDA	$	136,080	6.6	%	$	136,778	5.9	%	$	(698)	(0.5)	%

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A summary of our unaudited condensed consolidating statement of operations follows (in thousands):

	Six months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,772,848	$	318,421	$	121,896	$	3,886	$	(168,542)	$	2,048,509
Salaries, wages and benefits		862,218		256,553		78,706		—		—		1,197,477
Other operating expenses		770,109		17,262		39,176		—		(168,792)		657,755
General and administrative costs		—		—		—		79,386		—		79,386
Lease expense		192,261		625		930		599		—		194,415
Depreciation and amortization expense		51,178		3,363		406		4,895		(38)		59,804
Interest expense		26,395		27		19		44,066		(2,360)		68,147
Loss on early extinguishment of debt		—		—		—		5,460		—		5,460
Investment income		—		—		—		(4,477)		2,360		(2,117)
Other (income) loss		(129,212)		—		280		—		—		(128,932)
Transaction costs		—		—		—		11,134		—		11,134
Long-lived asset impairments		86,800		—		—		—		—		86,800
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,109)		660		(3,449)
Income (loss) before income tax benefit		91,074		45,739		4,756		(133,068)		(372)		8,129
Income tax benefit		—		—		—		(1,236)		—		(1,236)
Net income (loss)	$	91,074	$	45,739	$	4,756	$	(131,832)	$	(372)	$	9,365

	Six months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,998,589	$	387,977	$	87,390	$	217	$	(167,481)	$	2,306,692
Salaries, wages and benefits		898,790		311,947		57,832		—		—		1,268,569
Other operating expenses		791,569		23,087		27,891		—		(167,481)		675,066
General and administrative costs		—		—		—		71,094		—		71,094
Lease expense		186,523		665		680		779		—		188,647
Depreciation and amortization expense		54,200		6,276		348		5,639		—		66,463
Interest expense		56,091		27		17		48,356		—		104,491
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(4,007)		—		(4,007)
Other (income) loss		(40,315)		(76)		61		—		—		(40,330)
Transaction costs		—		—		—		10,084		—		10,084
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,386		(1,471)		(85)
Income (loss) before income tax benefit		50,831		46,051		561		(133,090)		1,471		(34,176)
Income tax benefit		—		—		—		(111)		—		(111)
Net income (loss)	$	50,831	$	46,051	$	561	$	(132,979)	$	1,471	$	(34,065)

Net Revenues

Net revenues for the six months ended June 30, 2020 decreased by $258.2 million, or 11.2%, as compared with the six months ended June 30, 2019.

Inpatient Services – Revenue decreased $225.7 million, or 11.3%, in the six months ended June 30, 2020 as compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, inpatient services revenue increased $13.7 million, or 0.8%, excluding 87 divested underperforming facilities and the acquisition or development of 3 additional facilities. The same-store revenue increase is net of $18.1 million related to a new provider tax program in the state of New Mexico, which was not in place for the corresponding period in 2019 and an additional $19.9 million of the increase in the six months ended June 30, 2020 is attributed to the transition from the resource utilization group based reimbursement to the Patient-Driven Payment Model (PDPM) reimbursement methodology in the fourth quarter of fiscal 2019. Giving effect to these factors, we estimate the remaining same-store inpatient revenue decrease of $24.3 million in the six months ended June 30, 2020 compared with the same period in 2019 is due to the impact of COVID-19, partially offset by increasing payor rates, primarily in our Medicaid population, reflecting a trend that was observed before COVID-19 impacted our operations. While census was adversely impacted by admission holds and declining in-house census as the pandemic progressed, average payor rates increased as acuity of the in-house census increased with treatment of the population testing positive for the virus. COVID-19, has,

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and will likely continue to disrupt this favorable overall census trend and may have an unpredictable impact on the skilled mix of our inpatient facilities as a result of the temporary change to patient coverage criteria.

For an expanded discussion regarding the factors influencing our operating census and challenges to our ability to grow inpatient service revenues, see Item 1, “Business – Industry Trends” in our Annual Report on Form 10-K filed with the SEC, “Key Performance and Valuation Measures” in this MD&A for quantification of the census trends and revenue per patient day as well as “COVID-19” in this MD&A.

Rehabilitation Therapy Services – Revenue decreased $39.8 million, or 16.5% comparing the six months ended June 30, 2020 with the same period in 2019. Of that decrease, $19.1 million is due to lost contract business, offset by $8.2 million attributed to new contracts. COVID-19 began to impact the skilled nursing customers of our rehabilitation services at an accelerating rate by March 2020 and continued through June 30, 2020, resulting in a decrease of revenue of $10.4 million in the six months ended June 30, 2020 as compared with the same period in 2019. The remaining decrease of $18.5 million is principally due to reduced volume of services provided to existing customers and amended customer pricing terms in connection with the implementation of PDPM.

Other Services – Revenue increased $7.3 million, or 10.8% in the six months ended June 30, 2020 as compared with the same period in 2019. Our other services revenue is comprised mainly of our physician services and staffing services businesses, in addition to our Accountable Care Organization (ACO). In the six months ended June 30, 2020 and 2019, the ACO did not recognize any revenue under the Medicare Shared Savings Program (MSSP). We are participating in the MSSP in 2020; however, uncertainty around how the 2020 MSSP will perform in light of COVID-19 precludes us from recognizing any savings to the Medicare program at this stage. Revenue in our physician services business increased $1.1 million in the six months ended June 30, 2020 as compared with the same period in 2019. The remaining increase of revenue of $6.2 million is in our staffing services business, which has shifted its focus to developing its services to our affiliated nursing facilities and therapy gyms. While the staffing business gross revenue has increased over 66% in the six months ended June 30, 2020 as compared with the same period in 2019, its revenue from external customers has only increased 9.6% over that same period. Further penetration of the internal staffing needs is a strategic goal for our staffing business, and, if successful, it will provide a benefit to our inpatient and rehabilitation therapy segments to combat a historically strong labor market and accelerating wage pressures, in addition to the evolving demands of post-acute care in light of the COVID-19 impact on our various lines of business.

EBITDA

EBITDA for the six months ended June 30, 2020 decreased by $0.7 million, or 0.5%, as compared with the six months ended June 30, 2019. Excluding the impact of loss on early extinguishment of debt, other (income) loss, transaction costs and long-lived asset impairments, EBITDA decreased $14.4 million, or 29.4% when compared with the same period in 2019. The contributing factors for this net decrease are described in our discussion below of segment results and corporate overhead.

Inpatient Services – EBITDA increased by $7.5 million, or 4.7% for the six months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of other (income) loss, long-lived asset impairments and Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $173.4 million, or 142.5% when compared with the same period in 2019. Divestiture activity and COVID-19 are the primary drivers of this variance. On a same-store basis, the inpatient EBITDA as adjusted decreased $153.0 million. Same-store staffing costs, net of nursing agency and other purchased services and adjusted for the impact of COVID-19, increased $130.4 million. Wages and purchased services include supplemental premium pay rates and bonuses to insure we could attract adequate staff to address our clinical needs during the pandemic. Nursing wage inflation increased 16.9% while non-nursing wage inflation increased 11.6% in the six months ended June 30, 2020 as compared with the same period in 2019. Same-store lease expense increased $6.0 million, primarily due to lease amendments in 2019 resulting in certain financing leases being reclassified as operating leases. Our self-insurance programs, including general and professional liability, workers’ compensation and health insurance benefits, resulted in a decrease of $20.4 million EBITDA as adjusted in the six months ended June 30, 2020 as compared with the same period in 2019. Prior to the COVID-19 pandemic our self-insurance programs were performing as anticipated and within normal claims reporting patterns of our same-store operations recently. The provisions for general and professional liability recorded in both the six months ended June 30, 2020 and the comparable period in 2019 reflect continued favorable claims development and accelerated claims settlement initiated in 2018. We have not changed our reserving methodology or assumptions for any COVID-19 specific exposures. Our self-insured health benefit plans have seen reduced expenses principally due to other medical care settings limiting non-emergency services during the COVID-19 pandemic, however, we anticipate those deferred procedures will impact expense over the remainder of fiscal year 2020. $24.9 million of the net EBITDA decrease relating to self-insurance programs is for an incremental provision of COVID-19 related workers’ compensation

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exposure incurred through June 30, 2020. The introduction of the new provider tax program in New Mexico resulted in an increase of EBITDA of $11.3 million compared to the same period in 2019 before the program was enacted. The remaining $7.5 million decrease in EBITDA, as adjusted, of the segment is principally due to the negative affects COVID-19 has had on our business, partially offset with reduced therapy services cost due to the implementation of PDPM. See “Significant Transactions and Events – COVID-19.”

Rehabilitation Therapy Services – EBITDA decreased by $3.2 million, or 6.2%, for the six months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted decreased $8.3 million when compared with the same period in 2019. Lost therapy contracts exceeded new contracts by $3.6 million in the six months ended June 30, 2020 as compared with the same period in 2019. COVID-19 resulted in a decrease of EBITDA of $6.7 million in the six months ended June 30, 2020. The remaining increase of $2.0 million is principally attributed to reduced overhead costs. Therapist efficiency improved to 68.1% in the six months ended June 30, 2020 compared with 68.0% in the comparable period in the prior year.

Other Services — EBITDA increased $4.3 million, or 459.5%, for the six months ended June 30, 2020 as compared with the same period in 2019. Excluding the impact of Federal Stimulus – COVID-19 other income, EBITDA as adjusted increased $2.1 million when compared with the same period in 2019. The EBITDA of our staffing services business increased $3.1 million in the six months ended June 30, 2020 as compared with the same period in 2019, principally due to growth in its services with affiliated customers. The remaining decrease of $1.0 million pertains to our physician services business and ACO. Both businesses have been negatively impacted by COVID-19 reducing patient encounters due to reduced skilled nursing census across the industry and increased costs to support practitioners.

Corporate and Eliminations — EBITDA decreased $9.3 million, or 11.9%, for the six months ended June 30, 2020 as compared with the same period in 2019. EBITDA of our corporate function includes loss on early extinguishment of debt and losses associated with transactions that are outside of the scope of our reportable segments. These and other transactions, which are separately captioned in our consolidated statements of operations and described more fully above in our Reasons for Non-GAAP Financial Disclosure, contributed $6.5 million of the net decrease in EBITDA. Corporate overhead costs, net of fee income, increased $4.6 million, or 6.5%, in the three months ended June 30, 2020 as compared with the same period in 2019. This increase is principally due to investments in information technology and related upgrades. The remaining increase in EBITDA of $1.8 million is primarily the result of an increase in investment earnings from our unconsolidated affiliates accounted for on the equity method and other investments.

Other (income) loss — Consistent with our strategy to divest assets in non-strategic markets, we incur losses and generate gains resulting from the sale, transition or closure of underperforming operations and assets. Other (income) loss for the six months ended June 30, 2020 principally represents gains on sales of real estate and leasehold rights in the period. See also Note 12 – “Other Income.”

Transaction costs — In the normal course of business, we evaluate strategic acquisition, disposition and business development opportunities. The costs to pursue these opportunities, when incurred, vary from period to period depending on the nature of the transaction pursued and if those transactions are ever completed. Transaction costs incurred for the six months ended June 30, 2020 and 2019 were $11.1 million and $10.1 million, respectively.

Long-lived asset impairments — In the six months ended June 30, 2020, we recognized impairments of property and equipment and right-of-use (ROU) assets of $86.8 million. For more information about the conditions of the business which contributed to these impairments, see “Industry Trends and Recent Regulatory Governmental Actions Affecting Revenue” and “Financial Condition and Liquidity Considerations” in this MD&A, as well as Note 13 – “Asset Impairment Charges - Long-Lived Assets with a Definite Useful Life.”

Federal stimulus – COVID 19 – other income – During April and May 2020, we received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through our Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

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Other Expense

The following discussion applies to the consolidated expense categories between EBITDA and net income (loss) of all reportable segments, corporate and eliminations in our consolidating statement of operations for the three and six months ended June 30, 2020 as compared with the same period in 2019.

Depreciation and amortization — Each of our reportable segments and corporate overhead have depreciating property, plant and equipment, including amortization of finance lease ROU assets. Our rehabilitation therapy services and other services have identifiable intangible assets which amortize over the estimated life of those identifiable assets. Depreciation and amortization expense decreased $6.7 million in the six months ended June 30, 2020 as compared with the same period in 2019. On a same-store basis, depreciation and amortization decreased $10.6 million in the six months ended June 30, 2020 as compared with the same period in 2019. In the inpatient services segment, $9.4 million of the decrease is principally due reduction in the amortization of right to use assets in our continuing lease portfolio, with the remaining $1.2 million reduction principally due to prior year acceleration related to multiple lease transactions.

Interest expense — Interest expense includes the cash interest and non-cash adjustments required to account for our debt instruments, as well as the expense associated with leases accounted for as finance leases. Interest expense decreased $36.4 million in the six months ended June 30, 2020 as compared with the same period 2019. On a same-store basis, interest expense is down $26.7 million in the three months ended June 30, 2020 as compared with the same period in 2019. An increase of $12.1 million of interest expense is attributed to consolidating debt and the associated interest expense of two real-estate partnerships in 2019, which were determined to be variable interest entities (VIEs) of which we are the primary beneficiary. See Note 1 – “General Information – Basis of Presentation” and Note 9 – “Long-Term Debt.” Cash rent decreased $5.3 million in the six months ended June 30, 2020 as compared with the same period in 2019 as a result of a reduction in outstanding borrowings under our revolving credit facility, primarily due to the timing of the Medicare Advance payments in connection with CARES Act relief funding. Borrowing levels are expected to increase over the period the Medicare Advance is required to be recouped. The remaining decrease in interest expense of $33.5 million is principally due to lease amendments entered in 2019 and early 2020 that resulted in modifications to the accounting for certain leases, converting them from financing leases with interest expense to operating leases presented as lease expense.

Income tax benefit — For the six months ended June 30, 2020, we recorded income tax benefit of $1.2 million from continuing operations representing an effective tax rate of (15.2)% compared to an income tax benefit of $0.1 million from continuing operations, representing an effective tax rate of 0.3% for the same period in 2019. There is a full valuation allowance against our deferred tax assets, excluding our deferred tax asset on our Bermuda captive insurance company’s discounted unpaid loss reserve. Previously, in assessing the requirement for, and amount of, a valuation allowance in accordance with the standard, we determined it was more likely than not we would not realize our deferred tax assets and established a valuation allowance against the deferred tax assets. As of June 30, 2020, we have determined that the valuation allowance is still necessary.

Net Income (Loss) Attributable to Genesis Healthcare, Inc.

The following discussion applies to categories between net income (loss) and net income (loss) attributable to Genesis Healthcare, Inc. in our consolidated statements of operations for the six months ended June 30, 2020 as compared with the same period in 2019.

Net income (loss) attributable to noncontrolling interests — On February 2, 2015, FC-GEN Operations Investment, LLC (FC-GEN) combined with Skilled Healthcare Group, Inc. and the combined results were consolidated with approximately 42.0% direct noncontrolling economic interest shown as noncontrolling interest in the financial statements of the combined entity. The direct noncontrolling economic interest is in the form of Class C common stock of FC-GEN that are exchangeable on a 1-to-1 basis to our public shares. The direct noncontrolling economic interest will continue to decrease as Class C common stock of FC-GEN are exchanged for public shares. Since the combination, there have been conversions of 9.0 million Class C common stock, leaving a remaining direct noncontrolling economic interest of approximately 32.9%. For the six months ended June 30, 2020 and 2019, loss of $(0.6) million and $(12.2) million, respectively, has been attributed to the Class C common stock.

In addition to the noncontrolling interests attributable to the Class C common stock holders, our consolidated financial statements include the accounts of all entities controlled by us through our ownership of a majority voting interest and the accounts of any VIEs where we are subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the

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entity's residual returns, or both. We adjust net income attributable to Genesis Healthcare, Inc. to exclude the net income attributable to the third party ownership interests of the VIEs. For the six months ended June 30, 2020 and 2019, loss of $(1.5) million and $(1.8) million, respectively, has been attributed to these unaffiliated third parties.

Liquidity and Capital Resources

Cash Flow and Liquidity

The following table presents selected data from our consolidated statements of cash flows (in thousands):

	Six months ended June 30,
	2020		2019
Net cash provided by operating activities	$	340,597	$	36,081
Net cash provided by (used in) investing activities		146,602		(162,208)
Net cash (used in) provided by financing activities		(247,629)		80,642
Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents		239,570		(45,485)
Beginning of period		125,806		142,276
End of period	$	365,376	$	96,791

Net cash provided by operating activities in the six months ended June 30, 2020 increased $304.5 million compared with the same period in 2019. The six months ended June 30, 2020 include receipt of Medicare advances of $156.8 million and $36.0 million from the deferral of payroll taxes under the CARES Act. The remaining increase in cash provided by operating activities is attributed to a combination of state and federal COVID-19 grants, offset by the cost and lost revenue caused by COVID-19 and the timing of payments.

Net cash provided by investing activities in the six months ended June 30, 2020 was $146.6 million compared to net cash used in investing activities of $162.2 million in the six months ended June 30, 2019. Routine capital expenditures for the six months ended June 30, 2020 decreased by $4.5 million as compared with the same period in the prior year. Net sales and maturities of marketable securities of $6.8 million in 2020 exceeded net purchases of marketable securities of $6.8 million in 2019, resulting in a net change in cash provided of $13.6 million. In the six months ended June 30, 2020, there were asset purchases of $9.8 million primarily as a result of the acquisition of one skilled nursing facility by the consolidated Vantage Point Partnership as described in “Significant Transaction and Events” compared to asset sales of $207.8 million comprised primarily of the real property of 13 owned facilities and leasehold rights of 13 leased facilities described in “Significant Transaction and Events”. In the six months ended June 30, 2019, there were asset purchases of $252.5 million by the consolidated Next Partnership and its acquisition of 22 skilled nursing facilities and asset sale proceeds of $79.0 million resulting from the simultaneous sale of seven skilled nursing facilities. The six months ended June 30, 2019 also included $55.4 million in proceeds from the sale of five skilled nursing facilities in California. The six months ended June 30, 2020 also included cash used of $16.9 million for an investment in a new joint venture and cash used of $9.0 million extending the new joint venture a loan as described in “Significant Transaction and Events.” The remaining incremental source of cash in the six months ended June 30, 2020 as compared to the same period in the prior year of $0.6 million was due primarily to restricted deposit and notes receivable activity.

Net cash used in financing activities in the six months ended June 30, 2020 was $247.6 million compared to net cash provided by financing activities of $80.6 million in the June 30, 2019. The net increase in cash used in financing activities of $328.3 million is principally attributed to debt repayments exceeding new borrowings in the six months ended June 30, 2020 as compared to the same period in 2019. In the six months ended June 30, 2020, we had proceeds from the issuance of debt of $34.0 million, consisting primarily of $7.3 million by the consolidated Vantage Point Partnership and $26.1 million in HUD refinancings by our consolidated Next Partnership. In the six months ended June 30, 2019, we had proceeds from the issuance of debt of $170.6 million primarily from the consolidated Next Partnership. Repayment of long-term debt in the six months ended June 30, 2020 was $141.5 million compared to $90.0 million in the same period of the prior year. In the six months ended June 30, 2020, we repaid $74.5 million in HUD-insured loans, $21.6 million in MidCap Real Estate Loans, $9.0 million in Welltower Real Estate Loans, $9.0 million in a short-term note payable and $24.5 million in term loan paydowns associated with the consolidated Next Partnership. In the six months ended June 30, 2019, we repaid $27.7 million in MidCap Real Estate Loans and $14.2 million in HUD-insured loans using proceeds from the sale of five skilled nursing facilities in California and reduced the term loan facility of the ABL Credit Facilities by $40.0 million while increasing the revolving credit facilities by the same amount. The remaining decrease in cash used to repay long-term debt of $5.2 million relates to a decrease in routine debt payments. In the six months ended June 30, 2020, we had net repayments under the revolving credit facilities of $136.0 million as compared with $10.9 million of net repayments under the revolving credit facilities in the same period in 2019. In the six months ended June 30, 2020, we paid debt issuance costs of $0.5

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million from the consolidated Vantage Point Partnership. In the six months ended June 30, 2019, we paid debt issuance costs of $3.7 million from the consolidated Next Partnership. In the six months ended June 30, 2019, we received contributions from a noncontrolling interest for $18.5 million resulting from the aforementioned Next Partnership.

Our primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under our asset based lending facilities (ABL Credit Facilities).

The objectives of our capital planning strategy are to ensure we maintain adequate liquidity and flexibility. Pursuing and achieving those objectives allow us to support the execution of our operating and strategic plans and weather temporary disruptions in the capital markets and general business environment. Maintaining adequate liquidity is a function of our results of operations, restricted and unrestricted cash and cash equivalents and our available borrowing capacity.

At June 30, 2020, we had total liquidity of $282.9 million consisting of cash on hand of $275.0 million and available borrowings under our ABL Credit Facilities of $7.9 million. During the six months ended June 30, 2020, we maintained liquidity sufficient to meet our working capital, capital expenditure and development activities.

COVID-19 Impact on Liquidity

We have taken, and will continue to take, actions to enhance and preserve our liquidity in response to the pandemic. During the three and six months ended June 30, 2020, our usual sources of liquidity have been supplemented by grants and advanced Medicare payments under programs expanded or created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Specifically, in April 2020, we applied for and received $156.8 million of advanced Medicare payments and in April and May 2020 received $185.5 million of relief grants. In addition, we have elected to implement the CARES Act payroll tax deferral program, which has preserved, on an interest free basis, approximately $36 million of cash through June 30, 2020. The advance Medicare payments of $156.8 million, which are also interest free, are scheduled to be recouped between August 2020 and November 2020, while one-half of the payroll tax deferral amount will become due on each of December 31, 2021 and December 31, 2022. In addition to relief funding under the CARES Act, funding has been committed by a number of states in which we operate, currently estimated at $47.2 million, since the outset of the pandemic. These sources of cash provided by federal and state governments have and will continue to be used to fund the impact of escalating expenses and the net effect of lost revenue caused by the COVID-19 pandemic.

We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expenses, continuing to evaluate our capital structure, pursuing strategic liquidity enhancing transactions and seeking further government-sponsored financial relief related to the pandemic. We cannot provide assurance that such efforts will be successful or adequate to offset the lost revenue and escalating operating expenses as a result of the pandemic.

Liquidity and Going Concern Considerations

We performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of our plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In completing our going concern assessment, we considered the uncertainties around the impact of COVID-19 on our future results of operations as well as our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within 12 months following the date our financial statements were issued. Without giving effect to the prospect, timing and adequacy of future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

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In response to COVID-19, we have taken the following measures to improve our liquidity position:

● We applied for and received government-sponsored financial relief related to the pandemic;

● We are utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, 50% to be repaid by December 31, 2021 and 50% to be repaid by December 31, 2022;

● While we vigorously advocate, for ourself and the skilled nursing industry, regarding the need for additional government sponsored funding, we continue to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19;

● We continue to implement measures to adapt successfully our operational model to function for the long-term in a COVID-19 environment; and

● We have pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity.

These measures and other plans and initiatives of ours are designed to provide us with adequate liquidity to meet our obligations for at least the twelve-month period following the date our financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond our control or may not be available on terms acceptable to us, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if we receive additional funding support from government sources and/or are able to execute successfully all of our plans and initiatives, given the current challenging environment our operating plans and resulting cash flows along with our cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force us to seek reorganization under the U.S. Bankruptcy Code.

Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should we be unable to continue as a going concern.

Risk and Uncertainties

Although we are in compliance with the covenants required by our material debt and lease agreements at June 30, 2020, the ongoing uncertainty related to the impact of healthcare reform initiatives and the effect of the COVID-19 pandemic may have an adverse impact on our ability to remain in compliance with our financial covenants through August 10, 2021. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

There can be no assurance that the confluence of these and other factors will not impede our ability to meet our debt and lease covenants in the future.

Financing Activities

Divestiture of Non-Strategic Facilities

Consistent with our strategy to divest assets in non-strategic markets, we have exited 44 inpatient operations, including 37 skilled nursing facilities, two assisted/senior living facilities and five behavioral health centers in 11 states beginning January 1, 2020 through August 1, 2020, including:

● The sale of three owned skilled nursing facilities located in North Carolina and Maryland on February 1, 2020. A gain was recognized totaling $24.9 million.

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● The transition of operational responsibility for 19 facilities in the states of California, Washington and Nevada to NewGen on February 1, 2020. The transaction included the sale of the real estate and operations of six skilled nursing facilities and transfer of the leasehold rights to seven skilled nursing, five behavioral health centers and one assisted living facility. A gain was recognized totaling $58.8 million.

● The sale of one owned skilled nursing facility located in California on February 26, 2020. A gain was recognized totaling $3.0 million.

● The lease termination of one assisted/senior living facility located in Montana on March 4, 2020. A de minimis loss was recognized.

● The sale of three owned skilled nursing facilities located in New Jersey and Maryland on April 1, 2020. A gain was recognized totaling $21.7 million.

● The lease termination of two skilled nursing facilities located in Montana on April 1, 2020. A loss was recognized totaling $0.8 million.

● The lease termination of six skilled nursing facilities located in Florida and Maryland on April 20, 2020. A gain was recognized totaling $11.2 million.

● The transition of operational responsibility for four additional leased facilities in California to NewGen on May 15, 2020. A gain was recognized totaling $5.1 million.

● The lease termination of six skilled nursing facilities located in Idaho on June 1, 2020. A gain was recognized totaling $5.3 million.

● The sale of one owned skilled nursing facility located in Rhode Island on July 6, 2020. An initial loss was recognized totaling $0.5 million.

Financial Covenants

The ABL Credit Facilities, the Term Loan Agreement and the Welltower Real Estate Loans (collectively, the Credit Facilities) each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio and minimum liquidity. At June 30, 2020, we were in compliance with all of the financial covenants contained in the Credit Facilities.

We have master lease agreements with Welltower, Omega and Second Spring (collectively, the Master Lease Agreements). Our Master Lease Agreements each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and minimum liquidity. At June 30, 2020, we were in compliance with the covenants contained in the Master Lease Agreements.

We have two master lease agreements with Cindat Best Years Welltower JV LLC involving 28 of our facilities. We did not meet certain financial covenants contained in one of the master lease agreements involving two of our facilities at June 30, 2020. In July 2020, we received a waiver for these covenant breaches through October 1, 2021. At June 30, 2020, we are in compliance with the financial covenants contained in the other master lease agreement.

At June 30, 2020, we did not meet certain financial covenants contained in two leases related to four of our facilities. We are current in the timely payment of our obligations under such leases. These leases do not have cross-default provisions, nor do they trigger cross-default provisions in any of our other loan or lease agreements. We will continue to work with the related credit parties to amend such leases and the related financial covenants. We do not believe the breach of such financial covenants has a material adverse impact on us at June 30, 2020.

Our ability to maintain compliance with our covenants depends in part on management’s ability to increase revenue and control costs, and the extent to which our efforts and the impact of government-sponsored financial relief related to the COVID-19 pandemic aqequately and timely offset lost revenue and higher costs caused by the pandemic. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with our quarterly covenant compliance requirements. Should we fail to comply with our covenants at a future measurement date, we would, absent necessary and timely waivers and/or amendments, be in default under certain of our existing credit agreements. To the extent any cross-default provisions may apply, the default would have a significant impact on our financial position. See Liquidity and Going Concern Considerations.

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Concentration of Credit Risk

We are exposed to the credit risk of our third-party customers, many of whom are in similar lines of business as us and are exposed to the same systemic industry risks of operations as we are, resulting in a concentration of risk. These include organizations that utilize our rehabilitation services, staffing services and physician service offerings, engage in similar business activities or have economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in regulatory and systemic industry conditions.

Management assesses its exposure to loss on accounts at the customer level. The greatest concentration of risk exists in our rehabilitation therapy services business where we have over 140 distinct customers, many being chain operators with more than one location. One customer, which is a related party of ours, comprises $31.0 million, or approximately 40%, of the gross outstanding contract receivables in the rehabilitation services business at June 30, 2020. See Note 11 – “Related Party Transactions.” A future adverse event impacting this customer or several other large customers resulting in their insolvency or other economic distress would have a material impact on us.

Off-Balance Sheet Arrangements

As of June 30, 2020, we were subject to six lease guarantees whereby we guarantee all payments and performance obligations of six facilities leased by the NewGen Partnership. As of June 30, 2020, the six leases have undiscounted cash rent obligations remaining of $87.9 million. As of December 31, 2019, we were not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future impact on our financial condition, changes in financial condition, revenue or expense, results of operations, liquidity, capital expenditures, or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of end of the period covered by this report, the disclosure controls and procedures were effective at that reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

Management determined that there were no changes in our internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

For information regarding certain pending legal proceedings to which we are a party or our property is subject, see Note 15 — “Commitments and Contingencies – Legal Proceedings,” to our consolidated financial statements included elsewhere in this report, which is incorporated herein by reference.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes or additions to the risk factors previously in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 16, 2020 or in Part II. Item 1A, “Risk Factors,” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, which was filed with the SEC on May 27, 2020.

The COVID-19 pandemic has materially and adversely affected, and will continue to materially and adversely affect, our patients, staff and operations, which in turn has materially and adversely affected our revenues and expenses. The extent to which the COVID-19 pandemic continues materially and adversely to affect our patients, staff, operations, financial condition, results of operations, compliance with financial covenants and liquidity will depend on future developments, including the measures taken by public and private entities in response to the pandemic, which are highly uncertain and cannot be predicted.

On March 11, 2020, the World Health Organization (WHO) declared COVID-19 a pandemic.  COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.  According to the WHO up to half of the COVID-19 related deaths in European countries were individuals residing in long-term care facilities, similar to the ones we operate in the United States. Furthermore, a significant number of our facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks. COVID-19 has materially and adversely affected our operations and supply chains, resulting in a reduction in our operating occupancy and related revenues, and an increase in our expenditures.  

Our future operations, financial condition, results of operations, compliance with financial covenants and liquidity will continue to be impacted materially by developments related to the COVID-19 pandemic, including, but not limited to: the duration and severity of the spread of COVID-19 in our core markets and among our patients and staff; the effectiveness of measures we are taking to respond to COVID-19; the volume of patients and/or staff infected by COVID-19 who reside or work at our facilities and the resulting impact to the volume of new admissions to our facilities; the volume of cancelled or rescheduled elective procedures occurring at referring hospitals in our markets and the resulting impact to the volume of new admissions to our facilities; the volume of patients infected by COVID-19 who are discharged from or pass away while at our facilities and the resulting impact to our occupancy; the impacts of governmental and administrative regulations as well as the nature and adequacy of financial relief and other forms of support for the skilled nursing and post-acute industry; the extent of disruptions and shortages to center-based staffing needs; the extent of disruptions and shortages to the supply chain of critical services and supplies, including personal protective equipment and the capacity to test patients and employees for COVID-19; increases in expenses related to staffing, supply chain or other expenditures; the impact of our substantial indebtedness and lease obligations, as well as risks associated with disruptions in the financial markets as a result of the COVID-19 pandemic which could impact us from a financing perspective; and changes in and deteriorating macroeconomic conditions nationally and regionally in our markets resulting from the COVID-19 pandemic.

Further, the scale and scope of the COVID-19 pandemic may heighten the potential adverse effects on our business, financial condition, results of operations, compliance with financial covenants and liquidity described in our previously disclosed risk factors. These and other potential impacts of COVID-19 have materially and adversely affected, and will continue to materially and adversely affect, our business, financial condition, results of operations, compliance with financial covenants and liquidity. We are not able to fully quantify or predict the impact these factors have had, or will have, on our business, financial condition, results of

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operations, compliance with financial covenants and liquidity, but we expect that the COVID-19 pandemic, including the measures taken in response to the pandemic, will materially affect our current and future financial performance. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition, results of operations, compliance with financial covenants and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including the pace of recovery in occupancy, the future scope and severity of COVID-19 and the actions taken by public and private entities in response to the pandemic to address its impact, among others.

In completing our going concern assessment, we considered the uncertainties around the impact of COVID-19 on our future results of operations as well as our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within 12 months following the date our financial statements were issued. Without giving effect to the prospect of future governmental funding support and other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our rent obligations, our debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

Litigation and/or investigations regarding COVID-19 could materially and adversely affect our financial condition, results of operations, compliance with financial covenants and liquidity.

A growing number of professional liability and employment related claims have been filed or are threatened to be filed against us and our subsidiaries related to COVID-19. The professional liability claims relate to the death of residents of nursing centers who contracted COVID-19. Such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation. The applicability of such protection has not yet been adjudicated in any pending claim against us. The employment related claims have been filed by our employees or by the Equal Employment Opportunity Commission or state agencies, and these claims primarily relate to allegations of disability or Family and Medical Leave Act discrimination or the inadequacy of the personal protective equipment made available to the employees who work in our nursing centers.

A U.S. House of Representatives subcommittee, the Select Subcommittee on the Coronavirus Crisis, announced an investigation into the ongoing COVID-19 crisis in nursing homes, demanding information from both the federal government and five large operators, including us. In addition, the Attorneys General of several states have initiated inquiries into the nursing facility industry’s and/or our response to the COVID-19 pandemic and they have requested information from us. We intend to cooperate fully with these investigations.

While we deny any wrongdoing and will vigorously defend ourself in these matters, managing litigation and responding to governmental investigations is costly and may involve a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on our reputation, business, results of operations and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item  5. Other Information

None.

75

Item 6. Exhibits

(a) Exhibits.

Number		Description
3.1	Fourth Amended and Restated Certificate of Incorporation of Genesis Healthcare, Inc. (filed as Exhibit 3.1 to our Current Report on Form 8-K filed on June 9, 2020, and incorporated herein by reference).
3.2	Third Amended and Restated Bylaws of Genesis Healthcare, Inc. (filed as Exhibit 3.2 to our Current Report on Form 8-K filed on June 9, 2020, and incorporated herein by reference).
10.1	Genesis Healthcare, Inc. 2020 Omnibus Incentive Plan (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 9, 2020, and incorporated herein by reference).
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

________________

* Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended ​

76

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GENESIS HEALTHCARE, INC.
Date:	August 10, 2020	By	/S/    GEORGE V. HAGER, JR.
			George V. Hager, Jr.
			Chief Executive Officer
Date:	August 10, 2020	By	/S/    THOMAS DIVITTORIO
			Thomas DiVittorio
			Chief Financial Officer
			(Principal Financial Officer and Authorized Signatory)

77

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, George V. Hager, Jr., certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Genesis Healthcare, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 10, 2020
		/S/ GEORGE V. HAGER, JR.
		George V. Hager, Jr.
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Thomas DiVittorio, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Genesis Healthcare, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Ugust 10
Date:	August 10, 2020
		/S/ THOMAS DIVITTORIO
		Thomas DiVittorio
		Chief Financial Officer

EX-32

Exhibit 32

The following certifications are being furnished solely to accompany the Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the “Report”), of Genesis Healthcare, Inc., a Delaware corporation (the “Company”), pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the Company, hereby certifies, to his knowledge, that:

(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	August 10, 2020	/S/ GEORGE V. HAGER, JR.
		George V. Hager, Jr.
		Chief Executive Officer

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the Company, hereby certifies, to his knowledge, that:

(1) the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	August 10, 2020	/S/ THOMAS DIVITTORIO
		Thomas DiVittorio
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - $ / shares	6 Months Ended
	Jun. 30, 2020	Aug. 07, 2020
Document Information [Line Items]
Entity Central Index Key	0001351051
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2020
Document Transition Report	false
Entity File Number	001-33459
Entity Registrant Name	Genesis Healthcare, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-3934755
Entity Address, Address Line One	101 East State Street
Entity Address, City or Town	Kennett Square
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19348
City Area Code	610
Local Phone Number	444-6350
Title of 12(b) Security	Class A common stock, $0.001 par value per share
Trading Symbol	GEN
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Class A Common Stock
Document Information [Line Items]
Entity Listing, Par Value Per Share	$ 0.001
Entity Common Stock, Shares Outstanding		110,584,200
Class B Common Stock
Document Information [Line Items]
Entity Listing, Par Value Per Share	0.001
Entity Common Stock, Shares Outstanding		744,396
Class C Common Stock
Document Information [Line Items]
Entity Listing, Par Value Per Share	$ 0.001
Entity Common Stock, Shares Outstanding		55,409,742

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 251,651	$ 12,097
Restricted cash and equivalents	62,664	63,101
Restricted investments in marketable securities	39,682	31,855
Accounts receivable	459,354	567,636
Prepaid expenses	69,617	108,908
Other current assets	41,723	44,079
Assets held for sale		1,171
Total current assets	924,691	828,847
Property and equipment, net of accumulated depreciation of $430,333 and $431,361 at June 30, 2020 and December 31, 2019, respectively	831,333	962,105
Finance lease right-of-use assets, net of accumulated amortization of $20,652 and $23,401 at June 30, 2020 and December 31, 2019, respectively	32,956	37,097
Operating lease right-of-use assets	2,134,233	2,399,505
Restricted cash and equivalents	51,061	50,608
Restricted investments in marketable securities	92,335	105,087
Other long-term assets	108,563	85,725
Deferred income taxes	4,702	3,772
Identifiable intangible assets, net of accumulated amortization of $78,864 and $76,243 at June 30, 2020 and December 31, 2019, respectively	84,826	87,446
Goodwill	85,642	85,642
Assets held for sale	15,992	16,306
Total assets	4,366,334	4,662,140
Current liabilities:
Current portion of long-term debt	19,116	162,426
Current portion of finance lease obligations	2,947	2,839
Current portion of operating lease obligations	135,853	140,887
Accounts payable	210,870	238,384
Accrued expenses	364,973	226,092
Accrued compensation	147,281	153,698
Self-insurance reserves	149,793	146,476
Current portion of liabilities held for sale	394	368
Total current liabilities	1,031,227	1,071,170
Long-term liabilities:
Long-term debt	1,359,710	1,450,994
Finance lease obligations	36,268	39,335
Operating lease obligations	2,476,384	2,681,403
Deferred income taxes	4,815	5,245
Self-insurance reserves	404,863	406,864
Liabilities held for sale	24,043	19,789
Other long-term liabilities	99,305	69,905
Commitments and contingencies
Stockholders' deficit:
Additional paid-in-capital	242,108	248,594
Accumulated deficit	(998,793)	(1,010,296)
Accumulated other comprehensive income	1,591	602
Total stockholders' deficit before noncontrolling interests	(754,927)	(760,935)
Noncontrolling interests	(315,354)	(321,630)
Total stockholders' deficit	(1,070,281)	(1,082,565)
Total liabilities and stockholders' deficit	4,366,334	4,662,140
Class A Common Stock
Stockholders' deficit:
Common stock	111	108
Class B Common Stock
Stockholders' deficit:
Common stock	1	1
Class C Common Stock
Stockholders' deficit:
Common stock	$ 55	$ 56

XML

CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Other assets:
Accumulated depreciation on property and equipment	$ 430,333	$ 431,361
Accumulated amortization on finance lease ROU asset	20,652	23,401
Accumulated amortization on intangible assets	$ 78,864	$ 76,243
Class A Common Stock
Stockholders' deficit:
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	1,000,000,000	1,000,000,000
Common stock, issued (in shares)	110,584,200	107,888,854
Common stock, shares, outstanding (in shares)	110,584,200	107,888,854
Class B Common Stock
Stockholders' deficit:
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	20,000,000	20,000,000
Common stock, issued (in shares)	744,396	744,396
Common stock, shares, outstanding (in shares)	744,396	744,396
Class C Common Stock
Stockholders' deficit:
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	150,000,000	150,000,000
Common stock, issued (in shares)	55,409,742	56,172,193
Common stock, shares, outstanding (in shares)	55,409,742	56,172,193

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenues	$ 956,259		$ 1,145,052		$ 2,048,509	$ 2,306,692
Salaries, wages and benefits	616,944		626,159		1,197,477	1,268,569
Other operating expenses	317,274		332,528		657,755	675,066
General and administrative costs	39,769		35,562		79,386	71,094
Lease expense	96,395		94,586		194,415	188,647
Depreciation and amortization expense	33,816		28,268		59,804	66,463
Interest expense	31,907		52,975		68,147	104,491
Loss (gain) on early extinguishment of debt	1,421		(24)		5,460	(24)
Investment income	(961)		(2,143)		(2,117)	(4,007)
Other income	(44,100)		(23,413)		(128,932)	(40,330)
Transaction costs	5,543		8,823		11,134	10,084
Long-lived asset impairments	77,100		900		86,800	900
Federal stimulus - COVID-19 other income	(185,500)				(185,500)
Equity in net income of unconsolidated affiliates	(3,576)		(24)		(3,449)	(85)
(Loss) income before income tax benefit	(29,773)		(9,145)		8,129	(34,176)
Income tax benefit	(457)		(162)		(1,236)	(111)
Net (loss) income	(29,316)	$ 38,681	(8,983)	$ (25,082)	9,365	(34,065)
Less net loss attributable to noncontrolling interests	7,311		4,164		2,138	13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$ (22,005)		$ (4,819)		$ 11,503	$ (20,082)
Basic:
Weighted-average shares outstanding for basic net (loss) income per share	111,232		106,846		110,477	105,289
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc.	$ (0.20)		$ (0.05)		$ 0.10	$ (0.19)
Diluted:
Weighted-average shares outstanding for diluted net (loss) income per share	111,232		106,846		166,866	105,289
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc.	$ (0.20)		$ (0.05)		$ 0.07	$ (0.19)

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net (loss) income	$ (29,316)	$ (8,983)	$ 9,365	$ (34,065)
Net unrealized gain on marketable securities, net of tax	502	622	1,480	1,118
Comprehensive income (loss)	(28,814)	(8,361)	10,845	(32,947)
Less: comprehensive loss attributable to noncontrolling interests	7,157	3,948	1,647	13,668
Comprehensive (loss) income attributable to Genesis Healthcare, Inc.	$ (21,657)	$ (4,413)	$ 12,492	$ (19,279)

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($) shares in Thousands, $ in Thousands	Common Stock Class A Common Stock	Common Stock Class B Common Stock	Common Stock Class C Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Stockholders' Deficit	Noncontrolling Interests	Total
Balance, beginning of period at Dec. 31, 2018	$ 101	$ 1	$ 60	$ 270,408	$ (1,609,828)	$ (262)	$ (1,339,520)	$ (705,346)	$ (2,044,866)
Balance, beginning of period (in shares) at Dec. 31, 2018	101,236	744	59,701
Increase (decrease) in stockholders' deficit
Net (loss) income					(15,263)		(15,263)	(9,819)	(25,082)
Net unrealized gain on marketable securities, net of tax						397	397	99	496
Share-based compensation				2,087			2,087		2,087
Issuance of common stock, shares	100
Conversion of common stock among classes	$ 3		$ (3)	(18,175)			(18,175)	18,175
Conversion of common stock among classes (in shares)	3,081		(3,081)
Distributions to noncontrolling interests				64			64	(1,202)	(1,138)
Contributions from noncontrolling interests								18,500	18,500
Cumulative effect of accounting change					584,913		584,913	340,129	925,042
Balance, end of period at Mar. 31, 2019	$ 104	$ 1	$ 57	254,384	(1,040,178)	135	(785,497)	(339,464)	(1,124,961)
Balance, end of period (in shares) at Mar. 31, 2019	104,417	744	56,620
Balance, beginning of period at Dec. 31, 2018	$ 101	$ 1	$ 60	270,408	(1,609,828)	(262)	(1,339,520)	(705,346)	(2,044,866)
Balance, beginning of period (in shares) at Dec. 31, 2018	101,236	744	59,701
Increase (decrease) in stockholders' deficit
Net (loss) income									(34,065)
Net unrealized gain on marketable securities, net of tax									1,118
Balance, end of period at Jun. 30, 2019	$ 107	$ 1	$ 57	248,287	(1,044,997)	541	(796,004)	(336,975)	(1,132,979)
Balance, end of period (in shares) at Jun. 30, 2019	107,413	744	56,620
Balance, beginning of period at Mar. 31, 2019	$ 104	$ 1	$ 57	254,384	(1,040,178)	135	(785,497)	(339,464)	(1,124,961)
Balance, beginning of period (in shares) at Mar. 31, 2019	104,417	744	56,620
Increase (decrease) in stockholders' deficit
Net (loss) income					(4,819)		(4,819)	(4,164)	(8,983)
Net unrealized gain on marketable securities, net of tax						406	406	216	622
Share-based compensation				1,748			1,748		1,748
Issuance of common stock	$ 3			(3)
Issuance of common stock, shares	2,996
Conversion of common stock among classes				(7,842)			(7,842)	7,842
Distributions to noncontrolling interests								(1,405)	(1,405)
Balance, end of period at Jun. 30, 2019	$ 107	$ 1	$ 57	248,287	(1,044,997)	541	(796,004)	(336,975)	(1,132,979)
Balance, end of period (in shares) at Jun. 30, 2019	107,413	744	56,620
Balance, beginning of period at Dec. 31, 2019	$ 108	$ 1	$ 56	248,594	(1,010,296)	602	(760,935)	(321,630)	(1,082,565)
Balance, beginning of period (in shares) at Dec. 31, 2019	107,889	744	56,172
Increase (decrease) in stockholders' deficit
Net (loss) income					33,508		33,508	5,173	38,681
Net unrealized gain on marketable securities, net of tax						641	641	337	978
Share-based compensation				1,894			1,894		1,894
Issuance of common stock, shares	5
Conversion of common stock among classes				(2,612)			(2,612)	2,612
Conversion of common stock among classes (in shares)	270		(270)
Distributions to noncontrolling interests								(1,123)	(1,123)
Balance, end of period at Mar. 31, 2020	$ 108	$ 1	$ 56	247,876	(976,788)	1,243	(727,504)	(314,631)	(1,042,135)
Balance, end of period (in shares) at Mar. 31, 2020	108,164	744	55,902
Balance, beginning of period at Dec. 31, 2019	$ 108	$ 1	$ 56	248,594	(1,010,296)	602	(760,935)	(321,630)	(1,082,565)
Balance, beginning of period (in shares) at Dec. 31, 2019	107,889	744	56,172
Increase (decrease) in stockholders' deficit
Net (loss) income									9,365
Net unrealized gain on marketable securities, net of tax									1,480
Balance, end of period at Jun. 30, 2020	$ 111	$ 1	$ 55	242,108	(998,793)	1,591	(754,927)	(315,354)	(1,070,281)
Balance, end of period (in shares) at Jun. 30, 2020	110,584	744	55,410
Balance, beginning of period at Mar. 31, 2020	$ 108	$ 1	$ 56	247,876	(976,788)	1,243	(727,504)	(314,631)	(1,042,135)
Balance, beginning of period (in shares) at Mar. 31, 2020	108,164	744	55,902
Increase (decrease) in stockholders' deficit
Net (loss) income					(22,005)		(22,005)	(7,311)	(29,316)
Net unrealized gain on marketable securities, net of tax						348	348	154	502
Share-based compensation				1,831			1,831		1,831
Issuance of common stock	$ 2			(2)
Issuance of common stock, shares	1,928
Conversion of common stock among classes	$ 1		$ (1)	(7,597)			(7,597)	7,597
Conversion of common stock among classes (in shares)	492		(492)
Distributions to noncontrolling interests								(1,163)	(1,163)
Balance, end of period at Jun. 30, 2020	$ 111	$ 1	$ 55	$ 242,108	$ (998,793)	$ 1,591	$ (754,927)	$ (315,354)	$ (1,070,281)
Balance, end of period (in shares) at Jun. 30, 2020	110,584	744	55,410

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities
Net (loss) income	$ 9,365	$ (34,065)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Non-cash interest and leasing arrangements, net	11,924	13,818
Other non-cash gain, net	(128,932)	(40,330)
Share based compensation	3,725	3,835
Depreciation and amortization expense	59,804	66,463
Reduction in the carrying amount of operating lease right-of-use assets	63,067	59,529
Provision (recovery) for losses on accounts receivable	40	(746)
Equity in net income of unconsolidated affiliates	(3,449)	(85)
Benefit for deferred taxes	(1,753)	(1,114)
Loss on early extinguishment of debt	1,682	(630)
Long-lived asset impairments	86,800	900
Changes in assets and liabilities:
Accounts receivable	105,971	61,415
Accounts payable and other accrued expenses and other	31,651	(50,864)
Medicare advance payments	156,823
Operating lease obligations	(56,121)	(42,045)
Net cash provided by operating activities	340,597	36,081
Cash flows from investing activities:
Capital expenditures	(32,096)	(36,550)
Purchases of marketable securities	(36,187)	(27,269)
Proceeds on maturity or sale of marketable securities	42,985	20,517
Purchases of assets	(9,846)	(252,475)
Sales of assets	207,845	134,373
Investments in joint venture	(16,886)
Loan provided to joint venture	(9,000)
Other, net	(213)	(804)
Net cash provided by (used in) investing activities	146,602	(162,208)
Cash flows from financing activities:
Borrowings under revolving credit facilities	2,484,841	2,372,000
Repayments under revolving credit facilities	(2,620,802)	(2,382,934)
Proceeds from issuance of long-term debt	34,032	170,565
Repayment of long-term debt	(141,492)	(89,966)
Repayment of finance lease obligations	(1,442)	(1,271)
Debt issuance costs	(479)	(3,708)
Contributions from noncontrolling interests		18,500
Distributions to noncontrolling interests and stockholders	(2,287)	(2,544)
Net cash (used in) provided by financing activities	(247,629)	80,642
Net increase (decrease) in cash, cash equivalents and restricted cash and equivalents	239,570	(45,485)
Cash, cash equivalents and restricted cash and equivalents:
Beginning of period	125,806	142,276
End of period	365,376	96,791
Supplemental cash flow information:
Interest paid	54,715	91,543
Net taxes paid	1,896	1,610
Federal stimulus - COVID-19 other income	185,500
Non-cash investing and financing activities:
Finance lease obligations, net write-down due to lease activity	(1,517)
Finance lease obligations, net write-down due to lease activity under ASC 840		(131,842)
Assets subject to finance lease obligations, net write-down due to lease activity	(463)
Assets subject to finance lease obligations, net write-down due to lease activity, under ASC 840		(530,025)
Operating lease obligations, net (write-down) gross-up due to lease activity	(153,933)	2,402,991
Assets subject to operating leases, net write-down (gross-up) due to lease activity	$ 124,582	(2,259,781)
Financing obligations, net write-down due to lease activity under ASC 840		(2,734,940)
Assets subject to financing obligations, net write-down due to lease activity under ASC 840		$ 1,718,507

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General Information

6 Months Ended

Jun. 30, 2020

General Information

General Information

(1) General Information

Description of Business

Genesis Healthcare, Inc. is a healthcare services holding company that, through its subsidiaries (collectively, the Company or Genesis), owns and operates skilled nursing facilities, assisted/senior living facilities and a rehabilitation therapy business. The Company has an administrative services company that provides a full complement of administrative and consultative services that allows its affiliated operators and third-party operators with whom the Company contracts to better focus on delivery of healthcare services. At June 30, 2020, the Company provided inpatient services through 361 skilled nursing, assisted/senior living and behavioral health centers located in 25 states. Revenues of the Company’s owned, leased and otherwise consolidated inpatient businesses constitute approximately 87% of its revenues.

The Company provides a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by the Company, as well as by contract to healthcare facilities operated by others. The Company has expanded its delivery model for providing rehabilitation services to community-based and at-home settings, as well as internationally in China. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 10% of the Company’s revenues.

The Company provides an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of the Company’s revenues.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In the opinion of management, the consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The Company presents noncontrolling interests within the stockholders’ deficit section of its consolidated balance sheets. The Company presents the amount of net (loss) income attributable to Genesis Healthcare, Inc. and net (loss) income attributable to noncontrolling interests in its consolidated statements of operations.

The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest and the accounts of variable interest entities (VIEs) where the Company is subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of control and economics that considers whether the Company has the power to direct the activities that most significantly impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to the VIE.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the disclosures normally required by U.S. GAAP or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K on March 16, 2020.

Going Concern Considerations

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.

The Company’s primary focus as the effects of COVID-19 began to impact the United States was the health and safety of its patients, residents, employees and their respective families. The Company implemented various measures to provide the safest possible environment within its sites of service during this pandemic and will continue to do so.

The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the healthcare industry and the Company’s businesses. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocols within the healthcare system across the United States. A significant number of the Company’s facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks. COVID-19 is having and will likely continue to have a material and adverse effect on the Company’s operations and supply chains, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures.

The Company performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In completing its going concern assessment, the Company considered the uncertainties around the impact of COVID-19 on its future results of operations as well as its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due within 12 months following the date its financial statements were issued. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

In response to COVID-19, the Company has taken the following measures to improve its liquidity position:

● The Company applied for and received government-sponsored financial relief related to the pandemic;

● The Company is utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, with 50% to be repaid in December 2021 and the remaining 50% to be repaid in December 2022;

● While it vigorously advocates, for itself and the skilled nursing industry, regarding the need for additional government sponsored funding, the Company continues to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19;

● The Company continues to implement measures to adapt successfully its operational model to function for the long-term in a COVID-19 environment; and

● The Company has pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity.

These measures and other plans and initiatives of the Company are designed to provide it with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond the Company’s control or may not be available on terms acceptable to the Company, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if the Company receives additional funding support from government sources and/or is able to execute successfully all of its plans and initiatives, given the current

challenging environment the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force the Company to seek reorganization under the U.S. Bankruptcy Code.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (the FASB) issued Accounting Standard Update (ASU) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which simplifies the fair value measurement disclosure requirements. The Company adopted the new standard on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022, for smaller reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which serves to remove or amend certain requirements associated with the accounting for income taxes. The standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements and related disclosures.

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Certain Significant Risks and Uncertainties

6 Months Ended

Jun. 30, 2020

Certain Significant Risks and Uncertainties

Certain Significant Risks and Uncertainties

(2) Certain Significant Risks and Uncertainties

COVID-19

The COVID-19 pandemic has materially and adversely affected, and will continue to materially and adversely affect, the Company’s patients, staff and operations, which in turn has materially and adversely affected its revenues and expenses. The Company began to experience the negative impact of the COVID-19 pandemic beginning in late February 2020. For a more detailed discussion of the impact of COVID-19 on the Company’s operations, net revenues, operating expenses and liquidity, see Note 3 – “Significant Transactions and Events – COVID-19.”

Revenue Sources

The Company receives revenues from Medicare, Medicaid, private insurance, self-pay residents, other third-party payors and long-term care facilities that utilize its rehabilitation therapy and other services. The Company’s inpatient services segment derives approximately 82% of its revenue from Medicare and various state Medicaid programs. The following table depicts the Company’s inpatient services segment revenue by source for the three and six months ended June 30, 2020 and 2019:

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Medicare	20	%	20	%	21	%	20	%
Medicaid	62	%	58	%	60	%	58	%
Insurance	9	%	12	%	10	%	12	%
Private	7	%	8	%	7	%	7	%
Other	2	%	2	%	2	%	3	%
Total	100	%	100	%	100	%	100	%

The sources and amounts of the Company’s revenues are determined by a number of factors, including licensed bed capacity and occupancy rates of inpatient facilities, the mix of patients and the rates of reimbursement among payors. Likewise, payment for ancillary medical services, including services provided by the Company’s rehabilitation therapy services business, varies based upon the type of payor and payment methodologies. Changes in the case mix of the patients as well as payor mix among Medicare, Medicaid and private pay can significantly affect the Company’s profitability.

It is difficult to quantify fully the effect of legislative changes, public and private subsidy and grant programs related to COVID-19, the interpretation or administration of such legislation or other governmental initiatives on the Company’s business and the business of the customers served by the Company’s rehabilitation therapy business. The potential impact of reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, is uncertain at this time. Also, initiatives among managed care payors, conveners and referring acute care hospital systems to reduce lengths of stay and avoidable hospital admissions and to divert referrals to home health or other community-based care settings could have an adverse impact on the Company’s business. Accordingly, there can be no assurance that the impact of any future healthcare legislation, regulation or actions by participants in the health care continuum will not adversely affect the Company’s business. There can be no assurance that payments under governmental and private third-party payor programs will be timely, will remain at levels similar to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. The Company’s financial condition and results of operations are and will continue to be affected by the reimbursement process, which in the healthcare industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.

Laws and regulations governing the Medicare and Medicaid programs, and the Company’s businesses generally, are complex and are often subject to a number of ambiguities in their application and interpretation. The Company believes that it is in substantial compliance with all applicable laws and regulations. However, from time to time the Company and its affiliates are subject to pending or threatened lawsuits and investigations involving allegations of potential wrongdoing, some of which may be material or involve significant costs to resolve and/or defend, or may lead to other adverse effects on the Company and its affiliates including, but not limited to, fines, penalties and exclusion from participation in the Medicare and/or Medicaid programs.

Concentration of Credit Risk

The Company is exposed to the credit risk of its third-party customers, many of whom are in similar lines of business as the Company and are exposed to the same systemic industry risks of operations as the Company, resulting in a concentration of risk. These include organizations that utilize the Company’s rehabilitation services, staffing services and physician service offerings, engaged in similar business activities or having economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in regulatory and systemic industry conditions.

Management assesses its exposure to loss on accounts at the customer level. The greatest concentration of risk exists in the Company’s rehabilitation therapy services business where it has over 140 distinct customers, many being chain operators with more than one location. One of the Company’s customers, a related party, comprises $31.0 million, or approximately 40%, of the gross outstanding contract receivables in the rehabilitation services business at June 30, 2020. See Note 11 – “Related Party Transactions.” A future adverse event impacting this customer or other large customers, resulting in their insolvency or other economic distress, would have a material impact on the Company.

The Company’s business is subject to a number of other known and unknown risks and uncertainties, which are discussed in Part II. Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 16, 2020, and in the Company’s Quarterly Reports on Form 10-Q, including the risk factors discussed herein in Part II. Item 1A.

Covenant Compliance

Should the Company fail to comply with its debt and lease covenants at a future measurement date, it could, absent necessary and timely waivers and/or amendments, be in default under certain of its existing debt and lease agreements. To the extent any cross-default provisions may apply, the default could have a significant impact on the Company’s financial position.

Although the Company is in compliance with the covenants required by its material debt and lease agreements at June 30, 2020, the ongoing uncertainty related to the impact of healthcare reform initiatives and the effect of the COVID-19 pandemic may have an adverse impact on the Company’s ability to remain in compliance with its financial covenants through August 10, 2021. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

The Company’s ability to maintain compliance with financial covenants required by its debt and lease agreements depends in part on management’s ability to increase revenues and control costs and receive adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic as well as possible waivers, deferrals and/or adjustments of debt and lease terms. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt and lease covenant requirements.

There can be no assurance that the confluence of these and other factors will not impede the Company’s ability to meet covenants required by its debt and lease agreements in the future.

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Significant Transactions and Events

6 Months Ended

Jun. 30, 2020

Significant Transactions and Events

Significant Transactions and Events

(3) Significant Transactions and Events

COVID-19

As discussed in Note 1 – “General Information – Going Concern Considerations,” the Company’s operations and supply chains have been materially and adversely affected by the COVID-19 pandemic, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures. Although the ultimate impact of the pandemic remains uncertain, the following disclosures serve to outline the estimated impact of COVID-19 on its business through June 30, 2020, including the impact of emergency legislation, temporary changes to regulations and reimbursements issued in response to COVID-19.

Operations

The Company’s first report of a positive case of COVID-19 in one of its facilities occurred on March 16, 2020. Since that time, 241 of the Company’s 361 facilities have experienced one or more positive cases of COVID-19 among patients and residents. Over 77% of the patient and resident positive COVID-19 cases in its facilities have occurred in the states of New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland, which correspond to many of the largest community outbreak areas across the country. The Company’s facilities in these five states represent 45% of its total operating beds.

The Company’s occupancy decreased in the early months of the pandemic following the efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of an increasing number of COVID-19 cases in their communities. As the pandemic progressed, occupancy was further decreased by, among other things, implementation of self-imposed admission holds in facilities having exposure to positive cases of COVID-19 among patients, residents and employees. These self-imposed restrictions on admissions were instituted to limit risks of potential spread of the virus by individuals that either tested positive for COVID-19, exhibited symptoms of COVID-19 but had not yet been tested positive due to a severe shortage of testing materials, or were asymptomatic of COVID-19 but potentially positive and contagious.

Net Revenues

The Company’s net revenues for the three and six months ended June 30, 2020 were materially impacted by a significant decline in occupancy as a result of COVID-19. The Company’s skilled nursing facility operating occupancy decreased from 88.2% for the three months ended March 31, 2020 to 77.0% for the three months ended June 30, 2020. However, the revenue lost from the decline in occupancy was partially offset by incremental state sponsored funding programs, changes in payor mix, and the enactment of COVID-19 relief programs, as discussed below. See Regulatory and Reimbursement Relief. After considering a commensurate reduction in operating expenses, the Company estimates lost revenue caused by COVID-19, decreased earnings by approximately $67.0 million and $74.0 million for the three and six months ended June 30, 2020, respectively.

Operating Expenses

The Company’s operating expenses for the three and six months ended June 30, 2020 were materially and adversely impacted due to increases in costs as a result of the pandemic, with more dramatic increases occurring at facilities with positive COVID-19 cases among patients, residents and employees. During the three months and six months ended June 30, 2020, the Company estimates it incurred approximately $145.3 million and $152.5 million, respectively, of incremental operating expenses to prepare for and respond to the pandemic. Increases in cost primarily stemmed from higher labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of personal protective equipment, medical equipment, food service supplies for staff, enhanced cleaning and environmental sanitation costs, the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients and workers compensation expense.

The Company is not reasonably able to predict the total amount of costs it will incur related to the pandemic and to what extent such incremental costs can be reduced or will be borne by or offset by actions taken by public and private entities in response to the pandemic.

Liquidity

The Company has taken, and will continue to take, actions to enhance and to preserve its liquidity in response to the pandemic. During the three and six months ended June 30, 2020, the Company’s usual sources of liquidity have been supplemented by grants and advanced Medicare payments under programs expanded or created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Specifically, in April 2020, the Company applied for and received $156.8 million of advanced Medicare payments and in April and May 2020 received $185.5 million of relief grants. In addition, the Company has elected to implement the CARES Act payroll tax deferral program, which is expected to preserve on an interest free basis approximately $90 million of cash representing the employer portion of payroll taxes estimated to be incurred between March 27, 2020 and December 31, 2020. The advance Medicare payments of $156.8 million, which are also interest free, are scheduled to be recouped between August 2020 and November 2020, while one-half of the payroll tax deferral amount will become due on each of December 31, 2021 and December 31, 2022. In addition to relief funding under the CARES Act, funding has been committed by a number of states in which the Company operates, currently estimated at $55.5 million, since the outset of the pandemic.

The Company continues to seek opportunities to enhance and to preserve its liquidity, including through reducing expenses, continuing to evaluate its capital structure and seeking further government-sponsored financial relief related to the pandemic. The Company cannot provide assurance that such efforts will be successful, timely or adequate to offset the lost revenue and escalating operating expenses as a result of the pandemic. See Note 1 – “General Information – Going Concern Considerations.”

Regulatory and Reimbursement Relief

On March 18, 2020, the Families First Coronavirus Response Act was enacted, which provided a temporary 6.2% increase to each qualifying state’s Medicaid Federal Medical Assistance Percentage (FMAP) effective January 1, 2020. The temporary FMAP increase will extend through the last day of the calendar quarter in which the COVID-19 public health emergency declared by the U.S. Department of Health and Human Services (HHS), including any extensions or termination, which currently expires October 25, 2020. As part of the requirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporarily increased FMAP is claimed. Further, a number of additional states in which the Company operates have implemented incremental FMAP related reimbursement provisions and other forms of support to assist providers. For the three and six months ended June 30, 2020, the Company recognized as net revenues in the consolidated statements of operations $40.2 million and $45.7 million, respectively, of additional FMAP reimbursement relief. The Company cannot predict the extent to which further FMAP funding programs will be implemented in the states in which it operates.

In further response to the pandemic, on March 27, 2020, the President signed into law the bipartisan CARES Act. The CARES Act allocates $100 billion to a Public Health and Social Services Emergency Fund to “reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” Nursing facility operators participating in Medicare and Medicaid may be eligible to receive compensation for costs incurred in the course of providing medical services, such as those related to obtaining personal protective equipment, COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source. The secretary of the HHS has broad authority and discretion to determine payment eligibility and the amount of such payments.

The Company was impacted by certain provisions of the CARES Act, as summarized below.

● Temporary suspension of certain patient coverage criteria and documentation and care requirements. The CARES Act and a series of temporary waivers and guidance issued by the Centers for Medicare and Medicaid Services (CMS) suspend various Medicare patient coverage criteria as well as certain documentation and care requirements. These accommodations are intended to ensure patients have access to care notwithstanding the burdens placed on healthcare providers due to the COVID-19 pandemic. The Company believes these regulatory actions could contribute to an increase in census volumes and skilled mix that may not otherwise have occurred, but cannot provide any assurance as to the impact on its businesses.

● Relief Funds. During April and May 2020, the Company received $185.5 million of relief grants from CARES Act funds administered by the HHS. The grants are primarily related to the skilled nursing care provided through the Company’s Inpatient Services segment. Grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for health care related expenses or lost revenues that are attributable to COVID-19. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. The Company’s relief funds payments are accounted for as government grants, which are recognized on a systematic and rational basis as other income once there is reasonable assurance that the applicable terms and conditions required to retain the funds will be met. The Company recognizes grants once both of the following conditions are met: (1) it is able to comply with the relevant conditions of the grant and (2) the grant will be received. The terms and conditions note that the relief funds received can be used for health care related expenses or lost revenues that are attributable to COVID-19. For the three and six months ended June 30, 2020, the Company recognized the entire amount of relief grants received within the “Federal stimulus – COVID-19 other income” caption in the consolidated statements of operations.

On June 9, 2020 as part of its ongoing efforts to provide financial relief to healthcare providers impacted by COVID-19, HHS announced the Phase 2 general distribution to Medicaid, Medicaid managed care, Children's Health Insurance Program (CHIP) and dental providers. HHS anticipates distributing approximately $15 billion to eligible providers that participate in state Medicaid and CHIP programs that did not receive a payment from the Provider Relief Fund General Allocation (Phase 1). Eligible applicants will receive 2% of Gross Revenues from Patient Care for calendar years 2017, 2018 or 2019 as selected by applicant. Applications have been submitted for four assisted living facilities which meet the eligibility criteria.

On July 22, 2020, President Trump announced that an additional $5 billion of the Provider Relief Program funds will be allocated to Medicare-certified long term care facilities and state veterans’ homes (nursing homes), to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control. On August 7, 2020, HHS provided additional details indicating the $5 billion distribution will provide approximately $2.5 billion in upfront funding to support increased testing, staffing and personal protective equipment needs. There will also be funding available to providers who establish COVID-19 isolation facilities. At this time, the Company has insufficient information to estimate the amount or timing of such distributions.

● Medicare Accelerated and Advanced Payment Program. During the three months ended June 30, 2020, the Company applied for and received $156.8 million of advanced Medicare payments. The payments represent interest-free advances on future services to be provided to Medicare patients between August 2020 and November 2020. The advanced Medicare payments represent contract liabilities that are reported within accrued expenses in the consolidated balance sheet as of June 30, 2020. The $156.8 million in contract liabilities will be subsequently recouped over time as revenue is recognized for claims submitted for services provided to Medicare patients between August 2020 and November 2020. If there is a remaining balance owed after this period, the Company is required to repay the remaining advance.

● Payroll Tax Deferral. Under the CARES Act, the Company has elected to defer payment, on an interest free basis, of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. The Company has presented the balance of deferred payroll taxes, $35.7 million, within other long term liabilities in the consolidated balance sheet as of June 30, 2020.

● Temporary Suspension of Medicare Sequestration. The Budget Control Act of 2011 requires a mandatory, across the board reduction in federal spending, called a sequestration. Medicare fee for service claims with dates of service or dates of discharge on or after April 1, 2013 incur a 2.0% reduction in Medicare payments. All Medicare rate payments and settlements have incurred this mandatory reduction and it will continue to remain in place through at least 2023, unless Congress takes further action. In response to COVID-19, the CARES Act temporarily suspended the automatic 2.0% reduction of Medicare claim reimbursements for the period of May 1, 2020 through December 31, 2020. During the three

and six months ended June 30, 2020, the suspension of sequestration resulted in net revenues of approximately $2.0 million.

● Employee Retention Tax Credit. The employer payroll tax credit provisions of the CARES Act grant eligible companies a credit against applicable payroll taxes for each calendar quarter in an amount equal to 50% of qualified wages with a maximum credit of $5,000 per employee. The refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. Qualified employees are those who are not providing services as a result of such orders of a government authority. The impact of the employee retention tax credit program was not material for the three and six months ended June 30, 2020.

Strategic Partnerships

Vantage Point Partnership

On January 10, 2020, Welltower, Inc. (Welltower) sold the real estate of one skilled nursing facility located in Massachusetts to the Vantage Point Partnership. The sale represents the final component of a transaction that occurred on September 12, 2019, whereby the Company acquired an approximately 30% membership interest in the partnership, which acquired the real estate of 18 facilities previously leased from Welltower and Second Spring Healthcare Investments (Second Spring). As a result of the January 10, 2020 transaction, the Company will receive an annual rent credit of $0.7 million from Welltower and recorded a gain of $0.2 million as a result of the lease termination. The Vantage Point Partnership acquired this skilled nursing facility for a purchase price of $9.1 million. The consolidation of this additional skilled nursing facility primarily resulted in property and equipment of $9.1 million, non-recourse debt of $7.3 million with the balance of the purchase price settled primarily with proceeds held in escrow from the September 12, 2019 closing. The Company operates all 19 facilities owned by the Vantage Point Partnership.

NewGen Partnership

On February 1, 2020, the Company transitioned operational responsibility for 19 facilities in the states of California, Washington and Nevada to a partnership with New Generation Health, LLC (the NewGen Partnership). The Company sold the real estate and operations of six skilled nursing facilities and transferred the operations to 13 skilled nursing, behavioral health and assisted living facilities for $78.7 million. Net transaction proceeds were used by the Company to repay indebtedness, including prepayment penalties, of $33.7 million, fund its initial 50% equity contribution and working capital requirement of $14.9 million, and provide financing to the partnership of $9.0 million. The Company recorded a gain on sale of assets and transition of leased facilities of $58.8 million and loss on early extinguishment of debt of $1.0 million. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for the day-to-day operations of the facilities. The Company will continue to provide administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services agreements. The Company does not hold a controlling financial interest in the NewGen Partnership. As such, the Company has applied the equity method of accounting for its 50% interest in the NewGen Partnership. The Company’s investment in the NewGen Partnership, $20.5 million, is included within other long-term assets in the consolidated balance sheet as of June 30, 2020.

On May 15, 2020, the Company transitioned operational responsibility for four additional leased facilities in the state of California to the NewGen Partnership. The four facilities generated annual revenues of $55.0 million and pre-tax loss of $0.5 million. Subsequent to May 15, 2020, the Company has applied the equity method of accounting for its 50% interest in these operations.

Divestiture of Non-Strategic Facilities

On January 31, 2020, Omega Healthcare Investors, Inc. (Omega) sold the real estate of one skilled nursing facility located in Massachusetts. The Company leased the facility under a master lease agreement but closed the facility on July 1, 2019. The sale resulted in a gain on the lease termination of $0.2 million and an annual rent credit of $0.4 million.

On February 1, 2020, the Company sold two owned skilled nursing facilities in North Carolina and one owned skilled nursing facility in Maryland for $61.8 million. Proceeds were used to retire $29.1 million of U.S. Department of Housing and Urban Development (HUD) financed debt. The three facilities generated revenues of $38.7 million and pre-tax income of $0.5 million. The transactions resulted in a gain on sale of $24.5 million and loss on early extinguishment of debt of $2.6 million.

On February 26, 2020, the Company completed the sale of one owned HUD-insured skilled nursing facility in California for $20.8 million. The facility had been classified as an asset held for sale as of December 31, 2019. Proceeds were used to retire $20.5 million of HUD financed debt. The facility generated revenues of $14.0 million and pre-tax loss of $0.1 million. See Note 14 – “Assets Held for Sale.” The transactions resulted in a gain on sale of $3.0 million and loss on early extinguishment of debt of $0.4 million.

On March 4, 2020, the Company divested the operations of one leased assisted/senior living facility in Montana. The lease termination resulted in an annual rent credit of $0.7 million. The facility generated revenues of $2.5 million and pre-tax income of $0.1 million.

On April 1, 2020, the Company sold two owned skilled nursing facilities in New Jersey and one owned skilled nursing facility in Maryland for $45.8 million. Proceeds were used to retire $15.2 million of HUD financed debt and $7.5 million of MidCap Real Estate Loans. The three facilities generated annual revenues of $35.8 million and pre-tax income was de minimis. The transactions resulted in a gain on sale of $21.8 million and loss on early extinguishment of debt of $1.4 million.

On April 1, 2020, the Company divested the operations and terminated the lease of two skilled nursing facilties in Montana. The two facilities generated annual revenues of $18.8 million and pre-tax income of $0.4 million. The lease termination resulted in an annual rent credit of $1.1 million.

On April 20, 2020, the Company divested the operations of four skilled nursing facilities in Florida and two skilled nursing facilities in Maryland that were subject to a master lease with Second Spring. The six facilities generated annual revenues of $62.0 million and pre-tax loss of $2.3 million. The lease termination resulted in a net annual rent credit of $8.5 million.

On June 1, 2020, the Company divested the operations of four leased skilled nursing facilities in Idaho that were subject to a master lease with Omega. The four facilities generated annual revenues of $19.5 million and pre-tax income of $0.1 million. The lease termination resulted in an annual rent credit of $1.4 million.

Gains and losses associated with transactions and divestitures are included in other income on the consolidated statements of operations. See Note 12 – “Other Income.”

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Net Revenues and Accounts Receivable

6 Months Ended

Jun. 30, 2020

Net Revenues and Accounts Receivable

Net Revenues and Accounts Receivable

(4)   Net Revenues and Accounts Receivable

Revenue Streams

Inpatient Services

The Company generates revenues primarily by providing services to patients within its facilities. The Company uses interdisciplinary teams of experienced medical professionals to provide services prescribed by physicians. These teams include registered nurses, licensed practical nurses, certified nursing assistants and other professionals who provide individualized comprehensive nursing care. Many of the Company’s facilities are equipped to provide specialty care, such as on-site dialysis,

ventilator care, cardiac and pulmonary management, as well as standard services, such as room and board, special nutritional programs, social services, recreational activities and related healthcare and other services. The Company assesses collectibility on all accounts prior to providing services.

Rehabilitation Therapy Services

The Company generates revenues by providing rehabilitation therapy services, including speech-language pathology, physical therapy, occupational therapy and respiratory therapy at its skilled nursing facilities and assisted/senior living facilities, as well as facilities of third-party skilled nursing operators and other outpatient settings. The majority of revenues generated by rehabilitation therapy services rendered are billed to contracted third party providers.

Other Services

The Company generates revenues by providing an array of other specialty medical services, including physician services, staffing services, and other healthcare related services.

COVID-19

The Company’s net revenues for the three and six months ended June 30, 2020 were materially impacted by COVID-19. For discussion of the impact, see Note 3 – “Significant Transactions and Events – COVID-19.”

Disaggregation of Revenues

The Company disaggregates revenue from contracts with customers by reportable operating segments and payor type. The Company notes that disaggregation of revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source. Payments are generally received within 30 to 60 days after billing. See Note 6 – “Segment Information.”

The composition of net revenues by payor type and operating segment for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

	Three months ended June 30, 2020
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	166,482		$	19,502		$	—		$	185,984
Medicaid		507,871			453			—			508,324
Insurance		66,723			4,822			—			71,545
Private		61,126	(1)		37			—			61,163
Third party providers		—			66,558			25,536			92,094
Other		16,126	(2)		5,152	(2)		15,871	(3)		37,149
Total net revenues	$	818,328		$	96,524		$	41,407		$	956,259

	Three months ended June 30, 2019
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	201,007		$	22,992		$	—		$	223,999
Medicaid		577,097			573			—			577,670
Insurance		114,619			5,916			—			120,535
Private		79,127	(1)		92			—			79,219
Third party providers		—			88,108			20,486			108,594
Other		17,648	(2)		3,254	(2)		14,133	(3)		35,035
Total net revenues	$	989,498		$	120,935		$	34,619		$	1,145,052

(1) Includes Assisted/Senior living revenue of $20.0 million and $23.7 million for the three months ended June 30, 2020 and 2019, respectively. Such amounts do not represent contracts with customers under ASC 606.

(2) Primarily consists of revenue from Veteran Affairs and administration of third party facilities.

(3) Includes net revenues from all payors generated by the other services, excluding third party providers.

	Six months ended June 30, 2020
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	363,517		$	41,411		$	—		$	404,928
Medicaid		1,058,861			944			—			1,059,805
Insurance		178,995			10,278			—			189,273
Private		136,194	(1)		147			—			136,341
Third party providers		—			139,662			44,154			183,816
Other		33,711	(2)		9,551	(2)		31,084	(3)		74,346
Total net revenues	$	1,771,278		$	201,993		$	75,238		$	2,048,509

	Six months ended June 30, 2019
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	408,975		$	45,744		$	—		$	454,719
Medicaid		1,158,045			1,128			—			1,159,173
Insurance		239,699			11,150			—			250,849
Private		156,060	(1)		204			—			156,264
Third party providers		—			177,637			41,094			218,731
Other		34,211	(2)		5,912	(2)		26,833	(3)		66,956
Total net revenues	$	1,996,990		$	241,775		$	67,927		$	2,306,692

(1) Includes Assisted/Senior living revenue of $42.0 million and $47.4 million for the six months ended June 30, 2020 and 2019, respectively. Such amounts do not represent contracts with customers under ASC 606.

(2) Primarily consists of revenue from Veteran Affairs and administration of third party facilities.

(3) Includes net revenues from all payors generated by the other services, excluding third party providers.

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Earnings (Loss) Per Share

6 Months Ended

Jun. 30, 2020

Earnings (Loss) Per Share

Earnings (Loss) Per Share

(5) Earnings (Loss) Per Share

The Company has three classes of common stock. Classes A and B are identical in economic and voting interests. Class C has a 1:1 voting ratio with each of the other two classes, representing the voting interests of the legacy FC-GEN Operations Investment, LLC (FC-GEN) owners. Class C common stock is a participating security; however, it shares in a de minimis economic interest and is therefore excluded from the denominator of the basic earnings (loss) per share (EPS) calculation.

The noncontrolling owners of FC-GEN have the right to exchange their membership units in FC-GEN, along with an equivalent number of Class C shares, for shares of Class A common stock of the Company or cash, at the Company’s option. There were exchanges of 0.8 million FC-GEN units and Class C shares in the six months ended June 30, 2020 equating to 0.8 million Class A shares. There were exchanges of 3.1 million FC-GEN units and Class C shares in the six months ended June 30, 2019 equating to 3.1 million Class A shares.

Basic EPS was computed by dividing net (loss) income attributable to Genesis Healthcare, Inc. by the weighted-average number of outstanding common shares for the period. Diluted EPS is computed by dividing net (loss) income attributable to Genesis Healthcare, Inc. plus the effect of any assumed conversions of noncontrolling interests by the weighted-average number of outstanding common shares after giving effect to all potential dilutive common stock.

A reconciliation of the numerator and denominator used in the calculation of basic net (loss) income per common share follows (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Less: Net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Denominator:
Weighted-average shares outstanding for basic net income (loss) per share		111,232		106,846		110,477		105,289
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.10	$	(0.19)

A reconciliation of the numerator and denominator used in the calculation of diluted net (loss) income per common share follows (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Less: Net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Plus: Assumed conversion of noncontrolling interests		—		—		(15)		—
Net (loss) income available to common stockholders after assumed conversions	$	(22,005)	$	(4,819)	$	11,488	$	(20,082)
Denominator:
Weighted-average common shares outstanding		111,232		106,846		110,477		105,289
Plus: Assumed conversion of noncontrolling interests		—		—		55,811		—
Plus: Unvested restricted stock units and stock warrants		—		—		578		—
Adjusted weighted-average common shares outstanding, diluted		111,232		106,846		166,866		105,289
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.07	$	(0.19)

The computation of diluted net (loss) income per common share attributable to Genesis Healthcare, Inc. excludes the effects of anti-dilutive shares attributable to the assumed conversion of noncontrolling interests, unvested restricted stock units, and stock warrants, which were 56.0 million for the three months ended June 30, 2020 and 57.5 million and 58.4 million for the three and six months ended June 30, 2019, respectively. There were 55.4 million and 56.6 million units attributable to the noncontrolling interests outstanding as of June 30, 2020 and 2019, respectively.

Omnibus Equity Incentive Plans

During the second quarter of 2020, the Company’s shareholders approved the 2020 Omnibus Equity Incentive Plan (the 2020 Plan). As of the effective date of the 2020 Plan, no further grants may be made under the Genesis Healthcare, Inc. Amended and Restated 2015 Omnibus Equity Incentive Plan (the “Prior Plan”). Any shares that were available for issuance under the Prior Plan and that were not subject to outstanding awards under the Prior Plan became available for issuance (in addition to the newly authorized shares) under the 2020 Plan. Accordingly, upon stockholder approval of the 2020 Plan at the Annual Meeting of Stockholders on June 3, 2020, a total of 6,462,605 shares became available for delivery under the 2020 Plan, including (i) 3,500,000 newly authorized shares and (ii) 2,962,605 shares previously registered on Forms S-8 filed with the SEC that were available for issuance under the Prior Plan.

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Segment Information

6 Months Ended

Jun. 30, 2020

Segment Information

Segment Information

(6) Segment Information

The Company has three reportable operating segments: (i) inpatient services; (ii) rehabilitation therapy services; and (iii) other services. For additional information on these reportable segments, see Note 1 – “General Information – Description of Business.”

A summary of the Company’s segmented revenues follows (in thousands, except percentages):

	Three months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	796,961	83.4	%	$	964,541	84.2	%	$	(167,580)	(17.4)	%
Assisted/Senior living facilities		20,041	2.1	%		23,702	2.1	%		(3,661)	(15.4)	%
Administration of third party facilities		2,110	0.2	%		2,054	0.2	%		56	2.7	%
Elimination of administrative services		(784)	(0.1)	%		(799)	(0)	%		15	1.9	%
Inpatient services, net		818,328	85.6	%		989,498	86.4	%		(171,170)	(17.3)	%
Rehabilitation therapy services:
Total therapy services		153,625	16.1	%		192,906	16.8	%		(39,281)	(20.4)	%
Elimination of intersegment rehabilitation therapy services		(57,101)	(6.0)	%		(71,971)	(6.3)	%		14,870	20.7	%
Third party rehabilitation therapy services, net		96,524	10.1	%		120,935	10.5	%		(24,411)	(20.2)	%
Other services:
Total other services		70,959	7.4	%		45,489	4.0	%		25,470	56.0	%
Elimination of intersegment other services		(29,552)	(3.1)	%		(10,870)	(0.9)	%		(18,682)	(171.9)	%
Third party other services, net		41,407	4.3	%		34,619	3.1	%		6,788	19.6	%
Net revenues	$	956,259	100.0	%	$	1,145,052	100.0	%	$	(188,793)	(16.5)	%

	Six months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	1,726,834	84.5	%	$	1,946,937	84.3	%	$	(220,103)	(11.3)	%
Assisted/Senior living facilities		41,863	2.0	%		47,351	2.1	%		(5,488)	(11.6)	%
Administration of third party facilities		4,151	0.2	%		4,301	0.2	%		(150)	(3.5)	%
Elimination of administrative services		(1,570)	(0.1)	%		(1,599)	—	%		29	1.8	%
Inpatient services, net		1,771,278	86.6	%		1,996,990	86.6	%		(225,712)	(11.3)	%
Rehabilitation therapy services:
Total therapy services		318,421	15.5	%		387,977	16.8	%		(69,556)	(17.9)	%
Elimination of intersegment rehabilitation therapy services		(116,428)	(5.7)	%		(146,202)	(6.3)	%		29,774	20.4	%
Third party rehabilitation therapy services, net		201,993	9.8	%		241,775	10.5	%		(39,782)	(16.5)	%
Other services:
Total other services		125,782	6.1	%		87,607	3.8	%		38,175	43.6	%
Elimination of intersegment other services		(50,544)	(2.5)	%		(19,680)	(0.9)	%		(30,864)	(156.8)	%
Third party other services, net		75,238	3.6	%		67,927	2.9	%		7,311	10.8	%
Net revenues	$	2,048,509	100.0	%	$	2,306,692	100.0	%	$	(258,183)	(11.2)	%

A summary of the Company’s unaudited condensed consolidated statement of operations follows (in thousands):

	Three months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	819,112	$	153,625	$	67,857	$	3,102	$	(87,437)	$	956,259
Salaries, wages and benefits		451,176		121,984		43,784		—		—		616,944
Other operating expenses		374,583		8,760		21,493		—		(87,562)		317,274
General and administrative costs		—		—		—		39,769		—		39,769
Lease expense		95,279		313		503		300		—		96,395
Depreciation and amortization expense		29,544		1,677		208		2,406		(19)		33,816
Interest expense		12,829		13		9		20,236		(1,180)		31,907
Loss on early extinguishment of debt		—		—		—		1,421		—		1,421
Investment income		—		—		—		(2,141)		1,180		(961)
Other income		(44,100)		—		—		—		—		(44,100)
Transaction costs		—		—		—		5,543		—		5,543
Long-lived asset impairments		77,100		—		—		—		—		77,100
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,297)		721		(3,576)
Income (loss) before income tax benefit		676		26,026		4,237		(60,135)		(577)		(29,773)
Income tax benefit		—		—		—		(457)		—		(457)
Net income (loss)	$	676	$	26,026	$	4,237	$	(59,678)	$	(577)	$	(29,316)

	Three months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	990,297	$	192,906	$	45,325	$	164	$	(83,640)	$	1,145,052
Salaries, wages and benefits		442,028		154,855		29,276		—		—		626,159
Other operating expenses		389,637		12,130		14,402		—		(83,641)		332,528
General and administrative costs		—		—		—		35,562		—		35,562
Lease expense		93,557		335		338		356		—		94,586
Depreciation and amortization expense		22,328		3,112		174		2,654		—		28,268
Interest expense		29,051		13		8		23,903		—		52,975
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(2,143)		—		(2,143)
Other (income) loss		(23,474)		—		61		—		—		(23,413)
Transaction costs		—		—		—		8,823		—		8,823
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,910		(1,934)		(24)
Income (loss) before income tax benefit		36,270		22,461		1,066		(70,877)		1,935		(9,145)
Income tax benefit		—		—		—		(162)		—		(162)
Net income (loss)	$	36,270	$	22,461	$	1,066	$	(70,715)	$	1,935	$	(8,983)

	Six months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,772,848	$	318,421	$	121,896	$	3,886	$	(168,542)	$	2,048,509
Salaries, wages and benefits		862,218		256,553		78,706		—		—		1,197,477
Other operating expenses		770,109		17,262		39,176		—		(168,792)		657,755
General and administrative costs		—		—		—		79,386		—		79,386
Lease expense		192,261		625		930		599		—		194,415
Depreciation and amortization expense		51,178		3,363		406		4,895		(38)		59,804
Interest expense		26,395		27		19		44,066		(2,360)		68,147
Loss on early extinguishment of debt		—		—		—		5,460		—		5,460
Investment income		—		—		—		(4,477)		2,360		(2,117)
Other (income) loss		(129,212)		—		280		—		—		(128,932)
Transaction costs		—		—		—		11,134		—		11,134
Long-lived asset impairments		86,800		—		—		—		—		86,800
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,109)		660		(3,449)
Income (loss) before income tax benefit		91,074		45,739		4,756		(133,068)		(372)		8,129
Income tax benefit		—		—		—		(1,236)		—		(1,236)
Net income (loss)	$	91,074	$	45,739	$	4,756	$	(131,832)	$	(372)	$	9,365

	Six months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,998,589	$	387,977	$	87,390	$	217	$	(167,481)	$	2,306,692
Salaries, wages and benefits		898,790		311,947		57,832		—		—		1,268,569
Other operating expenses		791,569		23,087		27,891		—		(167,481)		675,066
General and administrative costs		—		—		—		71,094		—		71,094
Lease expense		186,523		665		680		779		—		188,647
Depreciation and amortization expense		54,200		6,276		348		5,639		—		66,463
Interest expense		56,091		27		17		48,356		—		104,491
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(4,007)		—		(4,007)
Other (income) loss		(40,315)		(76)		61		—		—		(40,330)
Transaction costs		—		—		—		10,084		—		10,084
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,386		(1,471)		(85)
Income (loss) before income tax benefit		50,831		46,051		561		(133,090)		1,471		(34,176)
Income tax benefit		—		—		—		(111)		—		(111)
Net income (loss)	$	50,831	$	46,051	$	561	$	(132,979)	$	1,471	$	(34,065)

The following table presents the segment assets as of June 30, 2020 compared to December 31, 2019 (in thousands):  

	June 30, 2020		December 31, 2019
Inpatient services	$	3,723,085	$	4,221,579
Rehabilitation therapy services		264,349		281,978
Other services		56,111		49,877
Corporate and eliminations		322,789		108,706
Total assets	$	4,366,334	$	4,662,140

The following table presents segment goodwill as of June 30, 2020 compared to December 31, 2019 (in thousands):

	Rehabilitation Therapy Services		Other Services		Consolidated
Balance at December 31, 2019
Goodwill	$	73,814	$	11,828	$	85,642
Accumulated impairment losses		—		—		—
	$	73,814	$	11,828	$	85,642
Balance at June 30, 2020
Goodwill		73,814		11,828		85,642
Accumulated impairment losses		—		—		—
	$	73,814	$	11,828	$	85,642

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Property and Equipment

6 Months Ended

Jun. 30, 2020

Property and Equipment

Property and Equipment

(7) Property and Equipment

Property and equipment consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Land, buildings and improvements	$	891,413	$	1,004,447
Equipment, furniture and fixtures		367,432		386,248
Construction in progress		2,821		2,771
Gross property and equipment		1,261,666		1,393,466
Less: accumulated depreciation		(430,333)		(431,361)
Net property and equipment	$	831,333	$	962,105

Net property and equipment included $537.0 million and $535.9 million at June 30, 2020 and December 31, 2019, respectively, associated with the Company's consolidated VIEs.

During the six months ended June 30, 2020, the Company purchased one skilled nursing facility and sold 13 skilled nursing facilities resulting in a net reduction in net property and equipment of $88.5 million.

During the six months ended June 30, 2020, the Company recorded long-lived asset impairment charges to its property and equipment of $7.1 million.

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Leases

6 Months Ended

Jun. 30, 2020

Leases

Lessee operating and finance leases

(8) Leases

The Company leases the majority of the skilled nursing facilities and assisted/senior living facilities used in its operations, most of which are subject to triple-net leases, meaning that in addition to rent, the Company is responsible for paying property taxes, insurance, and maintenance and repair costs. As of June 30, 2020, the Company leased approximately 72% of its centers; 38% were leased pursuant to master lease agreements with four landlords. The Company also leases certain office space, land, and equipment.

The Company’s real estate leases generally have initial lease terms of 10 to 15 years or more and typically include one or more options to renew, with renewal terms that generally extend the lease term for an additional five to ten years or more. Exercise of the renewal options is generally subject to the satisfaction of certain conditions which vary by contract and generally follow payment terms that are consistent with those in place during the initial term. The Company assesses renewal options using a “reasonably certain” threshold, which is understood to be a high threshold and, therefore, the majority of its leases’ terms do not include renewal periods for accounting purposes. For leases where the Company is reasonably certain to exercise its renewal option, the option periods are included within the lease term and, therefore, the measurement of the right-of-use (ROU) asset and lease liability. The payment structure of the Company’s leases generally contain annual escalation clauses that are either fixed or variable in nature, some of which are dependent upon published indices. Leases with an initial term of 12 months or less are not recorded on the balance sheet; expense for these leases is recognized on a straight-line basis over the lease term as an other operating expense.

As of June 30, 2020, the Company held fixed-price options to purchase 57 facilities, 23 of which are subject to third-party leases and 34 of which are included within the Company’s consolidated VIEs. The Company assesses the likelihood of exercising

the purchase option using a “reasonably certain” threshold, which is understood to be a high threshold and, therefore, purchase options are generally assumed to be exercised when a compelling economic reason to exercise the option exists. Certain leases include options to terminate the lease, the terms and conditions of which vary by contract. Such options allow the contract parties to terminate their obligations under the lease contract, typically in return for an agreed financial consideration. The Company’s lease agreements do not contain any material residual value guarantees. The Company leases certain facilities from affiliates of related parties. See Note 11 – “Related Party Transactions.”

The Company makes certain assumptions in determining the discount rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate for collateralized borrowings, based on the information available at commencement date, in determining the present value of lease payments. In order to apply the incremental borrowing rate, a portfolio approach was utilized to group assets based on similar lease terms in a manner whereby the Company reasonably expects that the application does not differ materially from application to individual leases.

Subsequent to lease commencement date, the Company reassesses lease classification when there is a contract modification that is not accounted for as a separate contract, a change in lease term, or a change in the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. This reassessment is made using current facts, circumstances and conditions. As a result of a lease’s modification, the remaining consideration in the contract is reallocated to lease and non-lease components, as applicable, and the lease liability is remeasured using the applicable discount rate at the effective date of the modification. The remeasurement of the lease liability will result in adjustment to the corresponding ROU asset, unless the lease is fully or partially terminated, in which case, a gain or loss will be recognized.

During the three and six months ended June 30, 2020, the Company recorded long-lived asset impairment charges to its lease ROU assets of $77.1 million and $79.7 million, respectively.

The maturity of total operating and finance lease obligations at June 30, 2020 is as follows (in thousands):

Year ending December 31,	Operating Leases		Finance Leases (1)
2020 (excluding the six months ended June 30, 2020)	$	178,275	$	3,486
2021		358,686		6,797
2022		361,289		6,591
2023		368,991		6,373
2024		375,874		6,135
Thereafter		2,860,726		34,854
Total lease payments		4,503,841		64,236
Less interest		(1,891,604)		(25,021)
Total lease obligations		2,612,237		39,215
Less current portion		(135,853)		(2,947)
Long-term lease obligations	$	2,476,384	$	36,268

(1) Finance lease payments include $37.2 million related to options to renew lease terms that are reasonably certain of being exercised.

The following table provides lease costs and income by line item on the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):

		Three months ended June 30,				Six months ended June 30,
	Classification	2020		2019		2020		2019
Operating lease cost	Lease expense	$	96,395	$	94,586	$	194,415	$	188,647
Finance lease cost:
Amortization of finance lease ROU assets	Depreciation and amortization expense		966		6,630		1,982		13,488
Interest on finance lease obligations	Interest expense		1,149		21,840		2,368		44,632
Total finance lease expense			2,115		28,470		4,350		58,120
Variable lease cost	Other operating expenses		8,974		10,559		17,749		21,330
Short-term leases	Other operating expenses		4,291		6,439		9,674		12,615
Sublease income	Net revenues		(1,463)		-		(2,438)		-
Total		$	110,312	$	140,054	$	223,750	$	280,712

The following table provides remaining lease term and discount rates by lease classification as of June 30, 2020:

Lease Term and Discount Rate	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases		12.1		12.6
Finance leases		9.9		10.2
Weighted-average discount rate
Operating leases		9.5%		9.6%
Finance leases		10.6%		12.2%

The following table includes supplemental lease information for the six months ended June 30, 2020 and 2019 (in thousands):

	Six months ended June 30,
Other information	2020		2019
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	184,467	$	171,928
Operating cash flows from finance leases		3,810		40,451
Financing cash flows from finance leases		1,442		1,271
Right-of-use assets obtained in exchange for new lease obligations
Operating leases		5,942		77,166
Finance leases		672		-

Lease Covenants

The Company’s lease agreements generally contain covenant requirements that, among other things, and subject to certain exceptions, impose operating and financial restrictions on the Company and its subsidiaries. These leases also require the Company to meet defined financial covenants, such as a minimum level of consolidated liquidity, a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage. Certain of the Company’s leases include cross-default provisions with each other and certain material debt instruments. At June 30, 2020, the Company was in compliance with the financial covenants contained in its leases containing cross-default provisions, with the exception of one master lease agreement involving two of its facilities. However, in July 2020, the Company received a waiver for these covenant breaches through October 1, 2021.

At June 30, 2020, the Company did not meet certain financial covenants contained in two leases related to four of its facilities. The Company is current in the timely payment of its obligations under such leases. These leases do not have cross-default provisions, nor do they trigger cross-default provisions in any of the Company’s other loan or lease agreements. The Company will continue to work with the related credit parties to amend such leases and the related financial covenants. The Company does not believe the breach of such financial covenants at June 30, 2020 will have a material adverse impact on its financial position. The Company has been afforded certain cure rights to such defaults by posting collateral in the form of additional letters of credit or security deposit.

The Company’s ability to maintain compliance with its lease covenants depends in part on management’s ability to increase revenue, control costs and receive timely and adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic. See Note 1 – “General Information – Going Concern Considerations” and Note 3 – “COVID-19” for discussions that could impact future covenant compliance. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly lease covenant compliance requirements. Should the Company fail to comply with its lease covenants at a future measurement date, it would, absent necessary and timely waivers and/or amendments, be in default under certain of its existing lease agreements. To the extent any cross-default provisions may apply, the default would have a significant impact on the Company’s financial position.

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Long-Term Debt

6 Months Ended

Jun. 30, 2020

Long-Term Debt [Abstract]

Long-Term Debt

(9) Long-Term Debt

Long-term debt at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Asset based lending facilities, net of debt issuance costs of $7,255 and $8,615 at June 30, 2020 and December 31, 2019, respectively	$	277,745	$	412,346
Term loan agreements, net of debt issuance costs of $801 and $1,084 and debt premium balance of $3,501 and $4,816 at June 30, 2020 and December 31, 2019, respectively		203,630		196,714
Real estate loans, net of debt issuance costs of $3,089 and $3,846 and debt premium balance of $14,496 and $19,328 at June 30, 2020 and December 31, 2019, respectively		229,038		265,700
HUD insured loans, net of debt issuance costs of $1,138 and $2,909 at June 30, 2020 and December 31, 2019, respectively		44,670		117,117
Notes payable		110,211		116,952
Mortgages and other secured debt (recourse)		6,925		6,369
Mortgages and other secured debt (non-recourse), net of debt issuance costs of $8,953 and $9,349 and debt premium balance of $1,372 and $1,422 at June 30, 2020 and December 31, 2019, respectively		506,607		498,222
		1,378,826		1,613,420
Less: Current portion of long-term debt		(19,116)		(162,426)
Long-term debt	$	1,359,710	$	1,450,994

Asset Based Lending Facilities

The Company maintains an asset based lending facility, as amended, that was originally comprised of (a) a $285.0 million first lien term loan facility, (b) a $240.0 million first lien revolving credit facility and (c) a $30.0 million delayed draw term loan facility (collectively, the ABL Credit Facilities) with affiliates of MidCap Financial Services, LLC (MidCap). The commitments under the delayed draw term loan facility were reduced to $25.0 million on June 30, 2020 and will be further reduced to $22.5 million on September 30, 2020, and $20.0 million on December 31, 2020.

The Company originally entered into the ABL Credit Facilities in March 2018. The ABL Credit Facilities have a stated maturity of March 6, 2023 and include a springing maturity clause that would accelerate the maturity date 90 days prior to the maturity of the Term Loan Agreements, Welltower Real Estate Loans or MidCap Real Estate Loans (each defined below), in the event those agreements are not extended or refinanced. In the event that the springing maturity clause is triggered, the maturity date of the ABL Credit Facilities would be accelerated to September 1, 2021. The revolving credit facility includes a swinging lockbox arrangement whereby the Company transfers all funds deposited within its designated lockboxes to MidCap on a daily basis and then draws from the revolving credit facility as needed. Cash proceeds of $51.1 million received under the ABL Credit Facilities remain in a restricted account. This amount is pledged to cash collateralize letters of credit. The Company has classified this deposit and all cash account balances subject to deposit account control agreements that were sprung under the ABL Credit Facilities as restricted cash and equivalents in the consolidated balance sheets at June 30, 2020 and December 31, 2019.

Borrowings under the term loan and revolving credit facility components of the ABL Credit Facilities bear interest at a 90-day LIBOR rate (subject to a floor of 0.5%) plus an applicable margin of 6%. Borrowings under the delayed draw component bear interest at a 90-day LIBOR rate (subject to a floor of 1%) plus an applicable margin of 11%. Borrowing levels under the term loan

and revolving credit facility components of the ABL Credit Facilities are limited to a borrowing base that is computed based upon the level of eligible accounts receivable.

In addition to paying interest on the outstanding principal borrowed under the revolving credit facility, the Company is required to pay a commitment fee to the lenders for any unutilized commitments. The commitment fee rate equals 0.5% per annum on the revolving credit facility and 2% on the delayed draw term loan facility.

The term loan facility and revolving credit facility include a termination fee equal to 1.5%. The term loan facility and revolving credit facility include an exit fee equal to $1.6 million and $1.0 million, respectively, due and payable on the earlier of the loan’s retirement or on the maturity date.

The ABL Credit Facilities contain representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default and security interests that are customarily required for similar financings. Financial covenants include a minimum consolidated fixed charge coverage ratio, a maximum leverage ratio and minimum liquidity.

Borrowings and interest rates under the ABL Credit Facilities were as follows at June 30, 2020 (dollars in thousands):

					Weighted
					Average
ABL Credit Facilities	Commitment		Borrowings		Interest
Term loan facility	$	285,000	$	285,000	6.50	%
Revolving credit facility (Non-HUD)		168,000		—	6.50	%
Revolving credit facility (HUD)		72,000		—	6.50	%
Delayed draw term loan facility		25,000		—	12.00	%
	$	550,000	$	285,000	6.50	%

As of June 30, 2020, the Company had a total borrowing base capacity of $292.9 million with outstanding borrowings under the ABL Credit Facilities of $285.0 million, leaving the Company with approximately $7.9 million of available borrowing capacity under the ABL Credit Facilities.

Term Loan Agreements

The Company and certain of its affiliates, including FC-GEN (the Borrower) are party to a term loan agreement, as amended, (the Term Loan Agreement) with an affiliate of Welltower and an affiliate of Omega. The Term Loan Agreement originally provided for term loans (the Term Loans) in the aggregate principal amount of $120.0 million and later expanded to $160.0 million. The Term Loan Agreement matures on November 30, 2021. The original Term Loan for $120.0 million bears interest at a rate equal to 14.0% per annum, with up to 9.0% per annum to be paid in kind. The additional Term Loan for $40.0 million bears interest at a rate equal to 10.0% per annum, with up to 5.0% per annum to be paid in kind. The Term Loans had an outstanding accreted principal balance of $200.9 million and $193.0 million at June 30, 2020 and December 31, 2019, respectively.

The Term Loan Agreement is secured by a first priority lien on the equity interests of the subsidiaries of the Company and the Borrower as well as certain other assets of the Company, the Borrower and their subsidiaries, subject to certain exceptions. The Term Loan Agreement is also secured by a junior lien on the assets that secure the ABL Credit Facilities on a first priority basis.

Welltower and Omega, or their respective affiliates, are each currently landlords under certain master lease agreements to which the Company and/or its affiliates are tenants.

The Term Loan Agreement contains financial, affirmative and negative covenants, and events of default that are customary for debt securities of this type. Financial covenants include a maximum leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio, the most restrictive of which is the minimum interest coverage ratio which requires the Company to maintain a coverage ratio, as defined therein, of no less than 1.7 to 1.0 through December 31, 2020, and increasing to 1.8 to 1.0 thereafter.

Real Estate Loans

MidCap Real Estate Loans

The Company originally entered into two real estate loans with MidCap (MidCap Real Estate Loans) with combined available proceeds of $75.0 million during March 2018. The MidCap Real Estate Loans are secured by eight skilled nursing facilities and mature on March 30, 2023, subject to acceleration of the maturity date in the event the ABL Credit Facilities are repaid in full and terminated. The loans are subject to principal payments and bear an annual interest rate equal to 30-day LIBOR (subject to a floor of 1.5%) plus an applicable margin of 5.85%, with the balance due at maturity. Proceeds from the MidCap Real Estate Loans were used to repay partially the Welltower Real Estate Loans (defined below). On November 8, 2018, one of the MidCap Real Estate Loans was amended with an additional borrowing of $10.0 million. The proceeds were used to retire a maturing mortgage loan on a corporate office building. The office building has been added as collateral and the loan maturity remains March 30, 2023. The $10.0 million additional loan is subject to an annual interest rate equal to 30-day LIBOR (subject to a floor of 2.0%) plus an applicable margin of 6.25% with principal amortizing immediately and the balance due at maturity. During 2019, the Company divested the real property and operations of six facilities that were subject to the MidCap Real Estate Loans, using the sale proceeds to repay $39.8 million on the loans. During the six months ended June 30, 2020, the Company divested the real property and operations of four facilities that were subject to the MidCap Real Estate Loans, using the sale proceeds to repay $21.6 million on the loans. The MidCap Real Estate Loans had an outstanding principal balance of $20.1 million and $42.2 million at June 30, 2020 and December 31, 2019, respectively. Additionally, one facility that is subject to the MidCap Real Estate Loans was classified as held for sale as of June 30, 2020, resulting in the classification of $5.5 million in long term debt as held for sale. The sale of this facility was completed in July 2020. See Note 14 – “Assets Held for Sale” and Note 17 – “Subsequent Events.”

Welltower Real Estate Loans

The Company is subject to two real estate loan agreements with Welltower (Welltower Real Estate Loans). The Welltower Real Estate Loans are subject to payments of interest only during the term with a balloon payment due at maturity, provided, that to the extent the subsidiaries receive any net proceeds from the sale and/or refinance of the underlying facilities such net proceeds are required to be used to repay the outstanding principal balance of the Welltower Real Estate Loans. The Welltower Real Estate Loans have a maturity date of January 1, 2022 and an annual interest rate of 12.0%, of which 7.0% will be paid in cash and 5.0% will be paid in kind. The Company agreed to make commercially reasonable efforts to secure commitments to repay no less than $105.0 million of the Welltower Real Estate Loan obligations. As of June 30, 2020, the Company has not yet secured the total required repayments or commitments. As a result, the annual cash component of the interest payments was increased by approximately $2.0 million with a corresponding decrease in the paid in kind component of interest. At June 30, 2020, the Welltower Real Estate Loans are unsecured. The Welltower Real Estate Loans contain a conversion option, whereby up to $50.0 million of the balance can be converted into Class A common stock of the Company or a 10-year note bearing 2% paid in kind interest. The conversion option is available to the Company upon the satisfaction of certain conditions, the most significant include: the raise of new capital and application thereof to existing Welltower debt instruments, the repayment of $105.0 million to Welltower, as described above, the partial repayment of the Term Loans, and the partial repayment of the Welltower Real Estate Loans, such that the remaining outstanding principal balance does not exceed $50.0 million. During the first quarter of 2020, the Company divested the real property and operations of the remaining facility that was subject to the Welltower Real Estate Loans, using the sale proceeds to repay $9.0 million on the loans. The Welltower Real Estate Loans had an outstanding accreted principal balance of $203.0 million and $208.0 million at June 30, 2020 and December 31, 2019, respectively.

HUD Insured Loans

As of June 30, 2020, the Company had eight owned skilled nursing facility loans insured by HUD. The HUD insured loans have an original amortization term of 30 to 35 years and an average remaining term of 29.0 years with fixed interest rates ranging from 3.0% to 3.5% and a weighted average interest rate of 3.3%. Prepayments are generally allowed only after 12 months from the inception of the mortgage. Prepayments are subject to a penalty of 10% of the remaining principal balances in the first year and the prepayment penalty decreases each subsequent year by 1% until no penalty is required thereafter. Any further HUD insured loans will require additional HUD approval. All HUD insured loans are non-recourse loans to the Company. All loans are subject to HUD

regulatory agreements that require escrow reserve funds to be deposited with the loan servicer for mortgage insurance premiums, property taxes, insurance and for capital replacement expenditures. As of June 30, 2020, the balance of escrow reserve funds, $5.3 million, is included within prepaid expenses in the consolidated balance sheets.

During the six months ended June 30, 2020, the Company sold the real property and operations of eight skilled nursing facilities that were subject to HUD financing, one of which was classified as held for sale at December 31, 2019. The sale proceeds were used to retire HUD insured loans totaling $74.5 million. The HUD insured loans for owned facilities had an aggregate principal balance of $65.2 million and $140.6 million at June 30, 2020 and December 31, 2019, respectively. Additionally, the HUD insured loans of two facilities with an aggregate principal balance of $19.4 million were classified as held for sale at June 30, 2020.

Notes Payable

In November 2016, the Company issued a note totaling $51.2 million to Welltower, which accrues cash interest at 3.0% and paid-in-kind interest at 7.0%. Cash interest is paid and paid-in-kind interest accretes the principal amount semi-annually every May 1 and November 1. During 2019, the maturity date of the note was extended to December 15, 2021. Upon the satisfaction of certain conditions, including the repayment of the Term Loans, repayment of the other note payable, noted below, to Welltower, and partial repayment of the Welltower Real Estate Loans, the outstanding note balance in excess of $6.0 million will be forgiven by Welltower. The note had an outstanding accreted principal balance of $66.5 million and $64.2 million at June 30, 2020 and December 31, 2019, respectively.

In December 2016, the Company issued a second note totaling $11.7 million to Welltower, which accrues cash interest at 3.0% and paid-in-kind interest at 7.0%. Cash interest is paid and paid-in-kind interest accretes the principal amount semi-annually every June 15 and December 15. The note matures on December 15, 2021, and had an outstanding accreted principal balance of $15.1 million and $14.6 million at June 30, 2020 and December 31, 2019, respectively.

In October 2019, the Company converted $23.2 million of its trade payables into a note payable. The note requires monthly interest payments based on an annual interest rate of 3.5%. As of June 30, 2020, the outstanding principal balance of the note payable was $22.6 million. The balance of the note is due on September 30, 2022.

In November 2019, the Company issued a short-term note payable for $15.0 million. During the first and second quarters of 2020, the Company paid $6.0 million and $3.0 million, respectively, on the note, resulting in an outstanding principal balance of $6.0 million at June 30, 2020. The balance of the note is due on September 30, 2020.

Other Debt

Mortgages and other secured debt (recourse). The Company carries mortgage loans and notes payable on certain of its corporate office buildings and other acquired assets. The loans are secured by the underlying real property and have fixed or variable rates of interest with a weighted average interest rate of 1.3% at June 30, 2020, and maturity dates ranging from 2020 to 2024.

Mortgages and other secured debt (non-recourse). The Company’s consolidated joint ventures and VIEs are subject to various loans, as set forth below. These loans are labeled “non-recourse” because neither the Company nor any of its wholly owned subsidiaries is obligated to perform under the respective loan agreements.

Next Partnership Debt

The Company holds a 46% ownership interest in a partnership with Next Healthcare (Next), a related party (the Next Partnership). The Company has concluded the Next Partnership, which includes 15 facilities, qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Next Partnership in the accompanying consolidated financial statements.

The Next Partnership is subject to a term loan agreement with an original principal balance of $142.1 million and maturity date of January 31, 2022. The term loan bears interest at LIBOR plus 3.50% and is subject to interest-only payments through January 31, 2021. Beginning in April 2021, principal payments calculated based on a 25-year amortization schedule, after giving effect to any prior refinancings or other repayments of the term loan, will be applied to the remaining term loan balance. During the second quarter of 2020, the Next Partnership term loan was partially refinanced via two new HUD insured loans. Proceeds from the new HUD insured loans were principally used to pay down $24.6 million on the Next Partnership term loan. The term loan had an outstanding principal balance of $78.8 million and $103.4 million as of June 30, 2020 and December 31, 2019, respectively. The term loan was collateralized by 10 facilities as of June 30, 2020.

The Next Partnership is subject to a mezzanine loan with an original principal balance of $27.0 million and maturity date of February 1, 2029. The mezzanine loan bears interest at 11.50% and is subject to interest-only payments through January 2022, with payments including a principal component thereafter. The mezzanine loan had an outstanding principal balance of $27.0 million as of both June 30, 2020 and December 31, 2019.

The Next Partnership includes five facilities that are subject to HUD-insured loans, two of which were entered into during the six months ended June 30, 2020. The loans mature on dates ranging from January 1, 2055 through June 1, 2055. The loans bear interest at fixed rates ranging from 2.79% to 3.15% and had an aggregate outstanding principal balance of $67.5 million and $41.7 million at June 30, 2020 and December 31, 2019, respectively.

Vantage Point Partnership Debt

The Company holds an approximately 30% ownership interest in a partnership with Vantage Point Capital, LLC (the Vantage Point Partnership). The Company has concluded the Vantage Point Partnership, which includes 19 facilities, qualifies as a VIE and the Company is the primary beneficiary. As such, the Company has consolidated all of the accounts of the Vantage Point Partnership in the accompanying consolidated financial statements.

The Vantage Point Partnership is subject to a term loan agreement with an aggregate original principal balance of $240.9 million and maturity date of September 12, 2026. The term loan bears interest at LIBOR (subject to a floor of 1.75%) plus 3.75% and is subject to interest-only payments through October 1, 2021. The interest-only period can be extended through October 1, 2022 upon satisfaction of certain conditions, such as the achievement of a specified debt service coverage ratio and ratio of adjusted net operating income to the outstanding term loan balance. Following the interest-only period, principal payments calculated based on a 25-year amortization schedule, after giving effect to any prior refinancings or other repayments of the term loan, will be applied to the remaining term loan balance. The term loan had an outstanding principal balance of $240.9 million and $233.6 million at June 30, 2020 and December 31, 2019, respectively. The term loan was collateralized by 19 facilities as of June 30, 2020.

The Vantage Point Partnership is subject to a promissory note in the amount of $76.8 million, the entire balance of which was outstanding at June 30, 2020 and December 31, 2019. The promissory note bears interest at 14.0% and matures on September 12, 2028.

Other Non-Recourse Debt

The Company has other non-recourse loans consisting principally of revenue bonds and secured bank loans with maturities ranging from 2023 through 2034. The loans are secured by the underlying real and personal property of individual facilities and have fixed or variable rates of interest, with a weighted average interest rate of 4.2% at June 30, 2020. The loans had an aggregate outstanding principal balance of $23.1 million and $23.8 million at June 30, 2020 and December 31, 2019, respectively.

Debt Covenants

The ABL Credit Facilities, the Term Loan Agreement and the Welltower Real Estate Loans (collectively, the Credit Facilities) each contain a number of financial, affirmative and negative covenants, including a maximum leverage ratio, a minimum interest

coverage ratio, a minimum fixed charge coverage ratio and minimum liquidity. The Credit Facilities include cross-default provisions with each other and certain material lease agreements. At June 30, 2020, the Company was in compliance with its financial covenants contained in the Credit Facilities.

The Company’s ability to maintain compliance with its debt covenants depends in part on management’s ability to increase revenue, control costs and receive timely and adequate compensatory grants and subsidies from governmental authorities relative to the COVID-19 pandemic. See Note 1 – “General Information – Going Concern Considerations” and Note 3 – “COVID-19” for discussions that could impact future covenant compliance. Due to continuing changes in the healthcare industry, as well as the uncertainty with respect to changing referral patterns, patient mix, and reimbursement rates, it is possible that future operating performance may not generate sufficient operating results to maintain compliance with its quarterly debt covenant compliance requirements. Should the Company fail to comply with its debt covenants at a future measurement date, it would, absent necessary and timely waivers and/or amendments, be in default under certain of its existing credit agreements. To the extent any cross-default provisions may apply, the default would have a significant impact on the Company’s financial position.

The maturity of total debt of $1,380.7 million, excluding debt issuance costs and other non-cash debt discounts and premiums, at June 30, 2020 is as follows (in thousands):

Twelve months ended June 30,
2021	$	19,122
2022		572,580
2023		335,297
2024		12,490
2025		10,224
Thereafter		430,980
Total debt maturity	$	1,380,693

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Income Taxes

6 Months Ended

Jun. 30, 2020

Income Taxes

Income Taxes

(10) Income Taxes

The Company effectively owns 67.1% of FC-GEN, which is an entity taxed as a partnership for U.S. income tax purposes and the Company’s only source of taxable income. FC-GEN is subject to income taxes in several U.S. state and local jurisdictions. The income taxes assessed by these jurisdictions are included in the Company’s tax provision, but at its 67.1% ownership of FC-GEN.

For the three months ended June 30, 2020, the Company recorded income tax benefit of $0.5 million, representing an effective tax rate of 1.5%, compared to income tax benefit of $0.2 million, representing an effective tax rate of 1.8%, for the same period in 2019.

For the six months ended June 30, 2020, the Company recorded income tax benefit of $1.2 million, representing an effective tax rate of (15.2)%, compared to income tax benefit of $0.1 million, representing an effective tax rate of 0.3%, for the same period in 2019. The change in the Company’s effective tax rate was primarily attributable to two discrete events that occurred during the second quarter of 2020: the Company recorded a $1.8 million valuation allowance against certain deferred tax assets of FC-GEN and the Company’s Bermuda captive insurance company incurred year-to-date losses, both of which were a result of the adverse effects of COVID-19.

The Company continues to assess the requirement for, and amount of, a valuation allowance in accordance with the “more likely than not” standard. Management had previously determined that the Company would not realize the majority of its deferred tax assets and accordingly, had established a valuation allowance against such deferred tax assets. As of June 30, 2020, management determined that the existing valuation allowance was still necessary and that an additional $1.8 million valuation allowance was necessary, as noted above.

The Company’s Bermuda captive insurance company incurred year-to-date losses due to the impact of COVID-19. Under the CARES Act, any loss sustained during 2020 is permitted to be carried back for five years. Despite the current year-to-date losses, the captive is expected to generate income in future periods to offset its deferred tax assets.

The Company expects that its 2020 tax year will likely be impacted by certain provisions contained in the CARES Act, such as increased limits on interest expense deductions, acceleration of refunds related to alternative minimum tax credits, payroll tax deferrals, and employee retention tax credits.

Exchange Rights and Tax Receivable Agreement

The noncontrolling owners of FC-GEN have the right to exchange their membership units in FC-GEN, along with an equivalent number of Class C shares, for shares of Class A common stock of the Company or cash, at the Company’s option.  As a result of such exchanges, the Company increases its holding interest in FC-GEN at the cost of the fair market value of the stock that was exchanged with the noncontrolling owners for their interest in FC-GEN. The cost of the exchanges to the Company in excess of the tax basis of the Company’s increased share of the assets of FC-GEN is adjusted to the tax basis of the Company’s increased share of the assets of FC-GEN, pursuant to internal revenue code (IRC) Section 743(b), because of FC-GEN’s IRC Section 754 election. The exchanges during the six months ended June 30, 2020 and 2019 resulted in IRC Section 743(b) deductible goodwill of $6.7 million and $13.7 million, respectively.

The Company is party to a tax receivable agreement (TRA) with the noncontrolling owners of FC-GEN.  The agreement provides for the payment by the Company to the noncontrolling owners of FC-GEN of 90% of the cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes as a result of (i) the increases in tax basis attributable to the owners of FC-GEN and (ii) tax benefits related to imputed interest deemed to be paid by the Company as a result of the TRA.  Under the TRA, the benefits deemed realized by the Company as a result of the increase in tax basis attributable to the noncontrolling owners of FC-GEN generally will be computed by comparing the actual income tax liability of the Company to the amount of such taxes that the Company would have been required to pay had there been no such increase in tax basis.

Estimating the amount of payments that may be made under the TRA is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis and deductions, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, such as the timing of exchanges, the price of shares of the Company’s Class A common stock at the time of the exchange, the amount and timing of the Company’s income, and future tax rates of jurisdictions in which the Company has tax liability.

The TRA also provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, FC-GEN (or its successor’s) obligations under the TRA would be based on certain assumptions defined in the TRA. As a result of these assumptions, FC-GEN could be required to make payments under the TRA that are greater or less than the specified percentage of the actual benefits realized by the Company that are subject to the TRA. In addition, if FC-GEN elects to terminate the TRA early, it would be required to make an early termination payment, which upfront payment may be made significantly in advance of the anticipated future tax benefits.

Payments generally are due under the TRA within a specified period of time following the filing of FC-GEN’s U.S. federal and state income tax return for the taxable year with respect to which the payment obligation arises. Payments under the TRA generally will be based on the tax reporting positions that FC-GEN will determine. Although FC-GEN does not expect the IRS to challenge the Company’s tax reporting positions, FC-GEN will not be reimbursed for any overpayments previously made under the TRA, but any overpayments will reduce future payments. As a result, in certain circumstances, payments could be made under the TRA in excess of the benefits that FC-GEN actually realizes in respect of the tax attributes subject to the TRA.

The term of the TRA generally will continue until all applicable tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA and make an early termination payment.

In certain circumstances (such as certain changes in control, the election of the Company to exercise its right to terminate the agreement and make an early termination payment or an IRS challenge to a tax basis increase) it is possible that cash payments under the TRA may exceed actual cash savings.

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Related Party Transactions

6 Months Ended

Jun. 30, 2020

Related Party Transactions

Related Party Transactions

(11) Related Party Transactions

The Company provides rehabilitation services to certain facilities owned and operated by two customers in which certain members of the Company’s board of directors, board observer, and shareholders with greater than 5% of the Company’s Class A common stock beneficially own an ownership interest. In the case of one significant customer, these services resulted in net revenues of $25.5 million and $51.3 million in the three and six months ended June 30, 2020, respectively, as compared to net revenues of $29.9 million and $59.8 million in the three and six months ended June 30, 2019, respectively. The customer’s total net accounts receivable balance was $31.0 million and $28.9 million at June 30, 2020 and December 31, 2019, respectively. Further, the Company holds a note receivable from this customer, which was derived from past due accounts receivable, in the amount of $56.3 million. The Company has reserved $55.0 million on the note receivable balance. The reserve represents the judgment of management and does not indicate a forgiveness of any amount owed by this related party customer. The Company is monitoring the financial condition of this customer and will adjust the reserve levels accordingly as new information about their outlook is available. In the case of the other customer, services began in the third quarter of 2018. The Company recorded net revenues of $1.2 million and $2.6 million in the three and six months ended June 30, 2020, respectively, compared to net revenues of $1.8 million and $3.6 million in the three and six months ended June 30, 2019, respectively. The customer’s total net accounts receivable balance was $1.2 million and $1.4 million at June 30, 2020 and December 31, 2019, respectively.

Certain subsidiaries of the Company are subject to a lease of 12 centers in New Hampshire and Florida from 12 separate limited liability companies affiliated with Next (the Next Landlord Entities). The lease was effective June 1, 2018 and the initial annualized rent to be paid was $13.0 million. The lease includes a purchase option that is exercisable in 2022. Certain members of the Company’s board of directors each directly or indirectly hold an ownership interest in the Next Landlord Entities totaling approximately 4% in the aggregate. These members have earned acquisition fees and may earn asset management fees and other fees paid from the Next Landlord Entities.

As of June 30, 2020, Welltower held greater than 5% of the Company’s Class A common stock. The Company is party to a master lease with an affiliate of Welltower. The initial term of the master lease expires on January 31, 2037 and the Company has one eleven-year renewal option. Annual rent escalators under the master lease are 2.0%. During the three and six months ended June 30, 2020, the Company paid rent of approximately $17.7 million and $35.4 million, respectively, to Welltower, as compared to $18.1 million and $38.2 million during the three and six months ended June 30, 2019, respectively. The Company holds options to purchase certain facilities subject to the master lease. At June 30, 2020, the Company leased 42 facilities from Welltower. The Company and certain of its affiliates are also party to certain debt instruments with Welltower. During the three and six months ended June 30, 2020, the Company paid interest to Welltower of $6.7 million and $12.2 million, respectively, as compared to $6.5 million and $11.8 million during the three and six months ended June 30, 2019, respectively.

The Company transitioned operational responsibility for 23 facilities in the states of California, Washington and Nevada to the NewGen Partnership. The Company does not hold a controlling financial interest in the NewGen Partnership. As such, the Company has applied the equity method of accounting for its 50% interest in the NewGen Partnership. The Company provided $9.0 million in financing to the NewGen Partnership. Concurrently, the facilities have entered, or will enter upon regulatory approval, into management services agreements with NewGen for the day-to-day operations of the facilities. The Company provides administrative and back office services to the facilities pursuant to administrative support agreements, as well as therapy services pursuant to therapy services agreements. The Company also subleases six facilities to the NewGen Partnership. Total revenues recorded for these services in the three and six months ended June 30, 2020 were $6.3 million and $10.2 million, respectively.

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Other Income

6 Months Ended

Jun. 30, 2020

Other Income

Other Income

(12) Other Income

In the three and six months ended June 30, 2020 and 2019, the Company completed multiple transactions, including the divestiture of numerous skilled nursing facilities and the termination or modification of certain lease agreements. See Note 3 – “Significant Transactions and Events.” These transactions resulted in a net (gain) loss recorded as other income in the consolidated statements of operations. The following table summarizes those net (gains) losses (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Gain on sale of owned assets (1)	$	(23,215)	$	(27,345)	$	(97,795)	$	(27,345)
Loss recognized for exit costs associated with divestiture of operations (2)		5,374		4,578		10,309		7,921
Gain on lease termination or modification (3)		(26,259)		(646)		(41,446)		(20,906)
Total other income	$	(44,100)	$	(23,413)	$	(128,932)	$	(40,330)

(1) The Company sold three and 13 owned skilled nursing facilities during the three and six months ended June 30, 2020, respectively. The Company sold five owned skilled nursing facilities during the three and six months ended June 30, 2019. The gain represents sale proceeds in excess of the carrying value of the assets sold.

(2) The Company divested operations of 19 and 43 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2020, respectively. The Company divested operations of nine and 19 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2019, respectively. Upon divestiture, the Company recognizes exit costs for uncollectible accounts receivable resulting from a sale, the write-off of inventory balances assumed by the new operator, and other costs associated with the transition of operations.

(3) The Company amended numerous lease agreements in the three and six months ended June 30, 2020 and 2019. These transactions resulted in a combination of base rent reductions, annual escalator reductions, lease term extensions or reductions and facility terminations. Each lease amendment triggers a lease reassessment of the respective ROU asset and lease liability with an offsetting adjustment recorded to the consolidated statements of operations as other income or loss. In the three months ended June 30, 2020, the Company recognized a gain on the lease termination of 16 facilities totaling $26.2 million. In the six months ended June 30, 2020, the Company sold the leasehold rights of 13 facilities resulting in a gain of $10.7 million and terminated 24 divested facilities from various lease agreements resulting in a gain of $30.7 million. In the three months ended June 30, 2019, the Company amended the Welltower Master Lease to reflect the lease termination of two facilities resulting in a gain of $0.6 million. In the six months ended June 30, 2019, the Company amended the Welltower Master Lease multiple times to reflect the lease termination of 26 facilities resulting in a gain of $20.9 million…

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Asset Impairment Charges

6 Months Ended

Jun. 30, 2020

Goodwill and Identifiable Intangible Assets

Asset Impairment Charges

(13) Asset Impairment Charges

Long-Lived Assets with a Definite Useful Life

In each quarter, the Company’s long-lived assets with a definite useful life are tested for impairment at the lowest levels for which there are identifiable cash flows. The primary asset in each long-lived asset group is principally a building or ROU asset in the inpatient segment and customer relationship assets in the rehabilitation therapy services segement. The Company estimated the future net undiscounted cash flows expected to be generated from the use of the long-lived assets and then compared the estimated undiscounted cash flows to the carrying amount of the long-lived assets. The cash flow period was based on the remaining useful lives of each long-lived asset group. The Company recognized asset impairment charges in the inpatient segment of $77.1 million and $86.8 million during the three and six months ended June 30, 2020, respectively, as compared to $0.9 million during the three and six months ended June 30, 2019.

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Assets Held for Sale

6 Months Ended

Jun. 30, 2020

Assets Held for Sale

Assets Held for Sale

(14) Assets Held for Sale

In the normal course of business, the Company continually evaluates the performance of its operating units, with an emphasis on selling or closing underperforming or non-strategic assets. These assets are evaluated to determine whether they qualify as assets held for sale or discontinued operations. The assets and liabilities of a disposal group classified as held for sale shall be presented separately in the asset and liability sections, respectively, of the statement of financial position in the period in which they are identified only. Assets held for sale that qualify as discontinued operations are removed from the results of continuing operations. The results of operations in the current and prior year periods, along with any cost to exit such businesses in the year of discontinuation, are classified as discontinued operations in the consolidated statements of operations.

At June 30, 2020, the Company classified three skilled nursing facilities operated by the Company in the states of California, Nevada, and Rhode Island as held for sale. The facilities did not meet the criteria as discontinued operations. The Company is party

to purchase and sale agreements, as amended, to sell the facilities for an aggregate $31.4 million. The sale of the Rhode Island facility was completed in July 2020.

At December 31, 2019, the Company classified one skilled nursing facility operated by the Company in the state of California as held for sale. The facility did not meet the criteria as a discontinued operation. The sale of the facility, which was subject to a HUD insured loan, was completed on February 26, 2020. See Note 3 – “Significant Transactions and Events – Divestiture of Non-Strategic Facilities.”

The following table sets forth the major classes of assets and liabilities included as part of the disposal groups as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Current assets:
Prepaid expenses	$	—	$	1,171
Long-term assets:
Property and equipment, net of accumulated depreciation of $5,079 and $2,201 at June 30, 2020 and December 31, 2019, respectively		15,992		16,306
Total assets	$	15,992	$	17,477
Current liabilities:
Current portion of long-term debt	$	394	$	368
Long-term liabilities:
Long-term debt		24,043		19,789
Total liabilities	$	24,437	$	20,157

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies

Commitments and Contingencies

(15) Commitments and Contingencies

Loss Reserves For Certain Self-Insured Programs

General and Professional Liability and Workers’ Compensation

The Company self-insures for certain insurable risks, including general and professional liabilities and workers’ compensation liabilities through the use of self-insurance or retrospective and self-funded insurance policies and other hybrid policies, which vary among states in which the Company operates, including wholly owned captive insurance subsidiaries, to provide for potential liabilities for general and professional liability claims and workers’ compensation claims. General and professional liability policies are typically written for a duration of 12 months or less and are measured on a “claims made” basis. Regarding workers’ compensation, the Company self-insures to its deductible and purchases statutorily required insurance coverage in excess of its deductible. Excess insurance policies are typically written for a duration of 12 months or less and are measured on an “occurrence” basis. There is a risk that amounts funded by the Company’s self-insurance programs may not be sufficient to respond to all claims asserted under those programs. Insurance reserves represent estimates of future claims payments. This liability includes an estimate of the development of reported losses and losses incurred but not reported. Provisions for changes in insurance reserves are made in the period of the related coverage. The Company also considers amounts that may be recovered from excess insurance carriers in estimating the ultimate net liability for such risks.

The Company’s management employs its judgment and periodic independent actuarial analysis in determining the adequacy of certain self-insured workers’ compensation and general and professional liability obligations recorded as liabilities in the Company’s financial statements. The Company evaluates the adequacy of its self-insurance reserves on a semi-annual basis or more frequently when it is aware of changes to its incurred loss patterns that could impact the accuracy of those reserves. The methods of making such estimates and establishing the resulting reserves are reviewed periodically and are based on historical paid claims information and nationwide nursing home trends. The foundation for most of these methods is the Company’s actual historical reported and/or paid loss data. Any adjustments resulting therefrom are reflected in current earnings. Claims are paid over varying periods, and future payments may be different than the estimated reserves.

The Company utilizes a combination of third-party administrators (TPAs), in-house adjusters, and legal counsel, along with systems designed to maintain and process claims to provide it with the data utilized in its assessments of reserve adequacy. Where

TPAs are utilized, they operate under the oversight of the Company’s in-house risk management and legal functions. These functions and systems ensure that the claims are properly administered so that the historical data is reliable for estimation purposes. Case reserves, which are approved by the Company’s legal and risk management departments, are determined based on an estimate of the ultimate settlement and/or ultimate loss exposure of individual claims.

The provision for general and professional liability risks totaled $7.4 million and $35.1 million for the three and six months ended June 30, 2020, respectively, as compared to $5.4 million and $26.8 million for the three and six months ended June 30, 2019, respectively. The reserves for general and professional liability, which are recorded on an undiscounted basis, were $384.6 million and $392.8 million as of June 30, 2020 and December 31, 2019, respectively.

The provision for workers’ compensation risks totaled $25.1 million and $37.6 million for the three and six months ended June 30, 2020, respectively, as compared to $13.4 million and $28.6 million for the three and six months ended June 30, 2019, respectively. The reserves for loss for workers’ compensation risks were $170.1 million and $160.5 million as of June 30, 2020 and December 31, 2019, respectively. These reserves are discounted based on actuarial estimates of claim payment patterns using a discount rate for the current policy year of 1.6%. The discount rates are based upon the risk-free rate for the appropriate duration for the respective policy year. The removal of discounting would have resulted in an increased reserve for workers’ compensation risks of $9.5 million and $12.0 million as of June 30, 2020 and December 31, 2019, respectively.

Health Insurance

The Company offers employees an option to participate in self-insured health plans. Health insurance claims are paid as they are submitted to the plans’ administrators. The Company maintains an accrual for claims that have been incurred but not yet reported to the plans’ administrators and therefore have not yet been paid. This accrual for incurred but not yet reported claims was $13.2 million and $15.1 million as of June 30, 2020 and December 31, 2019, respectively. The liability for the self-insured health plan is recorded in accrued compensation in the consolidated balance sheets. Although management believes that the amounts provided in the Company’s consolidated financial statements are adequate and reasonable, there can be no assurances that the ultimate liability for such self-insured risks will not exceed management’s estimates.

Select Subcommittee on the Coronavirus Crisis

A U.S. House of Representatives subcommittee, the Select Subcommittee on the Coronavirus Crisis, announced an investigation into the ongoing COVID-19 crisis in nursing homes, demanding information from both the federal government and five large operators, including the Company.

Legal Proceedings

The Company and certain of its subsidiaries are involved in or have received notice of various investigations, litigation and potential claims related to the COVID-19 pandemic, including inquiries from state and federal agencies; professional liability claims; and employment-related lawsuits and claims. Such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation. The applicability of such protection has not yet been adjudicated in any pending claim against the Company.

While there can be no assurance, based on the Company’s evaluation of information currently available, management does not believe the results of such litigation and investigations would have a material adverse effect on the results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may evolve based upon further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.

The Company and certain of its subsidiaries are involved in various litigation and regulatory investigations arising in the ordinary course of business. While there can be no assurance, based on the Company’s evaluation of information currently available, management does not believe the results of such litigation and regulatory investigations would have a material adverse effect on the

results of operations, financial position or cash flows of the Company. However, the Company’s assessment of materiality may be affected by limited information (particularly in the early stages of government investigations). Accordingly, the Company’s assessment of materiality may change in the future based upon availability of discovery and further developments in the proceedings at issue. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.

From time to time the Company may enter into confidential discussions regarding the potential settlement of pending investigations or litigation. There are a variety of factors that influence the Company’s decisions to settle and the amount it may choose to pay, including the strength of the Company’s case, developments in the investigation or litigation, the behavior of other interested parties, the demand on management time and the possible distraction of the Company’s employees associated with the case and/or the possibility that the Company may be subject to an injunction or other equitable remedy. The settlement of any pending investigation, litigation or other proceedings could require the Company to make substantial settlement payments and result in its incurring substantial costs.

Lease Guarantees

The Company is subject to lease guaranty agreements on six of the facilities leased by the NewGen Partnership, under which it guarantees all payments and performance obligations of the tenants. As of June 30, 2020, the six leases have undiscounted cash rent obligations remaining of $87.9 million.

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2020

Fair Value of Financial Instruments

Fair Value of Financial Instruments

(16) Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, restricted cash and equivalents, restricted investments in marketable securities, accounts receivable, accounts payable and current and long-term debt.

The Company’s financial instruments, other than its accounts receivable and accounts payable, are spread across a number of large financial institutions whose credit ratings the Company monitors and believes do not currently carry a material risk of non-performance.

Recurring Fair Value Measures

Fair value is defined as an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as shown below. An instrument’s classification within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Level 1 —	Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 —	Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.
Level 3 —	Inputs that are unobservable for the asset or liability based on the Company’s own assumptions (about the assumptions market participants would use in pricing the asset or liability).

The tables below present the Company’s assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	June 30,		Identical Assets		Observable Inputs		Inputs
Assets:	2020		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	251,651	$	251,651	$	—	$	—
Restricted cash and equivalents		113,725		113,725		—		—
Restricted investments in marketable securities		132,017		46,810		85,207		—
Total	$	497,393	$	412,186	$	85,207	$	—

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	December 31,		Identical Assets		Observable Inputs		Inputs
Assets:	2019		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	12,097	$	12,097	$	—	$	—
Restricted cash and equivalents		113,709		113,709		—		—
Restricted investments in marketable securities		136,942		45,903		91,039		—
Total	$	262,748	$	171,709	$	91,039	$	—

The Company places its cash and cash equivalents, restricted cash and equivalents and restricted investments in marketable securities in quality financial instruments and limits the amount invested in any one institution or in any one type of instrument. The Company has not experienced any significant losses on such investments. Certain of the Company’s financial instruments have quoted prices but are traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fairly valued using other financial instruments, the parameters of which can be directly observed. These financial instruments have been reported as Level 2 measurements.

Debt Instruments

The table below shows the carrying amounts and estimated fair values, net of debt issuance costs and other non-cash debt discounts and premiums, of the Company’s primary long-term debt instruments (in thousands):

	June 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Asset based lending facilities	$	277,745	$	277,745	$	412,346	$	412,346
Term loan agreements		203,630		203,630		196,714		196,714
Real estate loans		229,038		229,038		265,700		265,700
HUD insured loans		44,670		44,670		117,117		117,117
Notes payable		110,211		110,211		116,952		116,952
Mortgages and other secured debt (recourse)		6,925		6,925		6,369		6,369
Mortgages and other secured debt (non-recourse)		506,607		506,607		498,222		498,222
	$	1,378,826	$	1,378,826	$	1,613,420	$	1,613,420

The fair value of debt is based upon market prices or is computed using discounted cash flow analysis, based on the Company’s estimated borrowing rate at the end of each fiscal period presented. The majority of the Company’s debt instruments contain variable rates that are based upon current market prices, or have been refinanced within the recent past. Consequently, management believes the carrying value of these debt instruments approximates fair value. The Company believes this approach approximates the exit price notion of fair value measurement and the inputs to the pricing models qualify as Level 2 measurements.

Non-Recurring Fair Value Measures

The Company recently applied the fair value measurement principles to certain of its non-recurring nonfinancial assets in connection with an impairment test.

The following tables present the Company’s hierarchy for nonfinancial assets measured at fair value on a non-recurring basis (in thousands):

			Impairment Charges -
	Carrying Value		Six months ended
	June 30, 2020		June 30, 2020
Assets:
Property and equipment, net	$	831,333	$	7,100
Finance lease right-of-use assets, net		32,956		2,600
Operating lease right-of-use assets		2,134,233		77,100
Intangible assets, net		84,826		—
Goodwill		85,642		—
			Impairment Charges -
	Carrying Value		Six months ended
	December 31, 2019		June 30, 2019
Assets:
Property and equipment, net	$	962,105	$	900
Finance lease right-of-use assets, net		37,097		—
Operating lease right-of-use assets		2,399,505		—
Intangible assets, net		87,446		—
Goodwill		85,642		—

The fair value allocation related to the Company’s acquisitions and the fair value of tangible and intangible assets related to the Company’s impairment analysis are determined using a discounted cash flow approach, which is a significant unobservable input (Level 3). The Company estimates the fair value using the income approach (which is a discounted cash flow technique). These valuation methods required management to make various assumptions, including, but not limited to, future profitability, cash flows and discount rates. The Company’s estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential.

Developing discounted future cash flows in applying the income approach requires the Company to evaluate its intermediate to longer-term strategies, including, but not limited to, estimates of revenue growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows requires the selection of risk premiums, which can materially impact the present value of future cash flows.

The Company estimated the fair value of acquired tangible and intangible assets using discounted cash flow techniques that included an estimate of future cash flows, consistent with overall cash flow projections used to determine the purchase price paid to acquire the business, discounted at a rate of return that reflects the relative risk of the cash flows. The Company believes the estimates and assumptions used in the valuation methods are reasonable.

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Subsequent Events

6 Months Ended

Jun. 30, 2020

Subsequent Events

Subsequent Events

(17) Subsequent Events

CCGEN Partnership

On July 2, 2020, the Company sold one facility to Cascade Capital Group, LLC (Cascade) for $26.1 million. Cascade also acquired eight facilities from Second Spring that the Company operated under a master lease agreement. The Company will continue to operate all nine of these facilities under a new master lease agreement with Cascade. The initial lease term is 10 years with one five-year renewal option available. Initial annual base rent will be $20.7 million. The Company holds a purchase option to acquire the nine facilities exercisable between the fourth and fifth lease year for a fixed price of $251.6 million. The Company executed a promisory note agreeing to pay Cascade $20.3 million. The promissory note represents capital the Company will

contribute into a planned partnership with Cascade (CCGen Partnership). Once the requisite regulatory approvals are received, the prommisory note will be converted into a 49% membership interest in the CCGen Partnership.

Divestiture of Non-Strategic Facilities

On July 6, 2020, the Company sold a skilled nursing facility in Rhode Island for $10.5 million. Proceeds were used to retire $5.5 million of MidCap Real Estate Loans. The facility generated annual revenues of $9.9 million and pre-tax income of $0.2 million.  The facility was classified as held for sale as of June 30, 2020. See Note 14 – “Assets Held For Sale.”

The Company is currently assessing the full impact that these subsequent events will have on its consolidated financial statements.

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General Information (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Description of Business

Description of Business

Genesis Healthcare, Inc. is a healthcare services holding company that, through its subsidiaries (collectively, the Company or Genesis), owns and operates skilled nursing facilities, assisted/senior living facilities and a rehabilitation therapy business. The Company has an administrative services company that provides a full complement of administrative and consultative services that allows its affiliated operators and third-party operators with whom the Company contracts to better focus on delivery of healthcare services. At June 30, 2020, the Company provided inpatient services through 361 skilled nursing, assisted/senior living and behavioral health centers located in 25 states. Revenues of the Company’s owned, leased and otherwise consolidated inpatient businesses constitute approximately 87% of its revenues.

The Company provides a range of rehabilitation therapy services, including speech pathology, physical therapy, occupational therapy and respiratory therapy. These services are provided by rehabilitation therapists and assistants employed or contracted at substantially all of the centers operated by the Company, as well as by contract to healthcare facilities operated by others. The Company has expanded its delivery model for providing rehabilitation services to community-based and at-home settings, as well as internationally in China. After the elimination of intercompany revenues, the rehabilitation therapy services business constitutes approximately 10% of the Company’s revenues.

The Company provides an array of other specialty medical services, including management services, physician services, staffing services, and other healthcare related services, which comprise the balance of the Company’s revenues.

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In the opinion of management, the consolidated financial statements include all necessary adjustments for a fair presentation of the financial position and results of operations for the periods presented.

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The Company presents noncontrolling interests within the stockholders’ deficit section of its consolidated balance sheets. The Company presents the amount of net (loss) income attributable to Genesis Healthcare, Inc. and net (loss) income attributable to noncontrolling interests in its consolidated statements of operations.

The consolidated financial statements include the accounts of all entities controlled by the Company through its ownership of a majority voting interest and the accounts of variable interest entities (VIEs) where the Company is subject to a majority of the risk of loss from the VIE's activities, or entitled to receive a majority of the entity's residual returns, or both. The Company assesses the requirements related to the consolidation of VIEs, including a qualitative assessment of control and economics that considers whether the Company has the power to direct the activities that most significantly impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits that could be potentially significant to the VIE.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the disclosures normally required by U.S. GAAP or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K on March 16, 2020.

Going Concern Considerations

Going Concern Considerations

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. COVID-19 is a complex and previously unknown virus which disproportionately impacts older adults, particularly those having other underlying health conditions.

The Company’s primary focus as the effects of COVID-19 began to impact the United States was the health and safety of its patients, residents, employees and their respective families. The Company implemented various measures to provide the safest possible environment within its sites of service during this pandemic and will continue to do so.

The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the healthcare industry and the Company’s businesses. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and substantial changes to selected protocols within the healthcare system across the United States. A significant number of the Company’s facilities and operations are geographically located and highly concentrated in markets with close proximity to areas of the United States that have experienced widespread and severe COVID-19 outbreaks. COVID-19 is having and will likely continue to have a material and adverse effect on the Company’s operations and supply chains, resulting in a reduction in its operating occupancy and related revenues, and an increase in its expenditures.

The Company performed an assessment to determine whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this assessment does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management assesses the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In completing its going concern assessment, the Company considered the uncertainties around the impact of COVID-19 on its future results of operations as well as its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due within 12 months following the date its financial statements were issued. Without giving effect to the prospect of timely and adequate future governmental funding support and other mitigating plans, many of which are beyond the Company’s control, it is unlikely that the Company will be able to generate sufficient cash flows to meet its required financial obligations, including its rent obligations, its debt service obligations and other obligations due to third parties. The existence of these conditions raises substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

In response to COVID-19, the Company has taken the following measures to improve its liquidity position:

● The Company applied for and received government-sponsored financial relief related to the pandemic;

● The Company is utilizing the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes incurred through December 2020, with 50% to be repaid in December 2021 and the remaining 50% to be repaid in December 2022;

● While it vigorously advocates, for itself and the skilled nursing industry, regarding the need for additional government sponsored funding, the Company continues to explore and take advantage of existing government sponsored funding programs implemented to support businesses impacted by COVID-19;

● The Company continues to implement measures to adapt successfully its operational model to function for the long-term in a COVID-19 environment; and

● The Company has pursued, and will continue to pursue, creative and accretive opportunities to sell assets and enter into joint venture structures in order to provide liquidity.

These measures and other plans and initiatives of the Company are designed to provide it with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. However, such plans and initiatives are dependent on factors that are beyond the Company’s control or may not be available on terms acceptable to the Company, or at all. Accordingly, management determined it could not be certain that the plans and initiatives would be effectively implemented within one year after the date the financial statements are issued. Further, even if the Company receives additional funding support from government sources and/or is able to execute successfully all of its plans and initiatives, given the current

challenging environment the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued, which could force the Company to seek reorganization under the U.S. Bankruptcy Code.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (the FASB) issued Accounting Standard Update (ASU) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which simplifies the fair value measurement disclosure requirements. The Company adopted the new standard on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022, for smaller reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which serves to remove or amend certain requirements associated with the accounting for income taxes. The standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect, if any, that the standard will have on its consolidated financial statements and related disclosures.

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Certain Significant Risks and Uncertainties (Tables)

6 Months Ended

Jun. 30, 2020

Certain Significant Risks and Uncertainties

Schedule of revenue by major source (in thousands)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Medicare	20	%	20	%	21	%	20	%
Medicaid	62	%	58	%	60	%	58	%
Insurance	9	%	12	%	10	%	12	%
Private	7	%	8	%	7	%	7	%
Other	2	%	2	%	2	%	3	%
Total	100	%	100	%	100	%	100	%

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Net Revenues and Accounts Receivable (Tables)

6 Months Ended

Jun. 30, 2020

Net Revenues and Accounts Receivable

Schedule of revenues by revenue source

The composition of net revenues by payor type and operating segment for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

	Three months ended June 30, 2020
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	166,482		$	19,502		$	—		$	185,984
Medicaid		507,871			453			—			508,324
Insurance		66,723			4,822			—			71,545
Private		61,126	(1)		37			—			61,163
Third party providers		—			66,558			25,536			92,094
Other		16,126	(2)		5,152	(2)		15,871	(3)		37,149
Total net revenues	$	818,328		$	96,524		$	41,407		$	956,259

	Three months ended June 30, 2019
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	201,007		$	22,992		$	—		$	223,999
Medicaid		577,097			573			—			577,670
Insurance		114,619			5,916			—			120,535
Private		79,127	(1)		92			—			79,219
Third party providers		—			88,108			20,486			108,594
Other		17,648	(2)		3,254	(2)		14,133	(3)		35,035
Total net revenues	$	989,498		$	120,935		$	34,619		$	1,145,052

(1) Includes Assisted/Senior living revenue of $20.0 million and $23.7 million for the three months ended June 30, 2020 and 2019, respectively. Such amounts do not represent contracts with customers under ASC 606.

(2) Primarily consists of revenue from Veteran Affairs and administration of third party facilities.

(3) Includes net revenues from all payors generated by the other services, excluding third party providers.

	Six months ended June 30, 2020
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	363,517		$	41,411		$	—		$	404,928
Medicaid		1,058,861			944			—			1,059,805
Insurance		178,995			10,278			—			189,273
Private		136,194	(1)		147			—			136,341
Third party providers		—			139,662			44,154			183,816
Other		33,711	(2)		9,551	(2)		31,084	(3)		74,346
Total net revenues	$	1,771,278		$	201,993		$	75,238		$	2,048,509

	Six months ended June 30, 2019
				Rehabilitation
	Inpatient			Therapy			Other
	Services			Services			Services			Total
Medicare	$	408,975		$	45,744		$	—		$	454,719
Medicaid		1,158,045			1,128			—			1,159,173
Insurance		239,699			11,150			—			250,849
Private		156,060	(1)		204			—			156,264
Third party providers		—			177,637			41,094			218,731
Other		34,211	(2)		5,912	(2)		26,833	(3)		66,956
Total net revenues	$	1,996,990		$	241,775		$	67,927		$	2,306,692

(1) Includes Assisted/Senior living revenue of $42.0 million and $47.4 million for the six months ended June 30, 2020 and 2019, respectively. Such amounts do not represent contracts with customers under ASC 606.

(2) Primarily consists of revenue from Veteran Affairs and administration of third party facilities.

(3) Includes net revenues from all payors generated by the other services, excluding third party providers.

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Earnings (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings (Loss) Per Share

Schedule of reconciliation of the numerator and denominator used in the calculation of basic net (loss) income per common share

A reconciliation of the numerator and denominator used in the calculation of basic net (loss) income per common share follows (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Less: Net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Denominator:
Weighted-average shares outstanding for basic net income (loss) per share		111,232		106,846		110,477		105,289
Basic net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.10	$	(0.19)

Schedule of reconciliation of the numerator and denominator used in the calculation of diluted net (loss) income per common share

A reconciliation of the numerator and denominator used in the calculation of diluted net (loss) income per common share follows (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Numerator:
Net (loss) income	$	(29,316)	$	(8,983)	$	9,365	$	(34,065)
Less: Net loss attributable to noncontrolling interests		7,311		4,164		2,138		13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$	(22,005)	$	(4,819)	$	11,503	$	(20,082)
Plus: Assumed conversion of noncontrolling interests		—		—		(15)		—
Net (loss) income available to common stockholders after assumed conversions	$	(22,005)	$	(4,819)	$	11,488	$	(20,082)
Denominator:
Weighted-average common shares outstanding		111,232		106,846		110,477		105,289
Plus: Assumed conversion of noncontrolling interests		—		—		55,811		—
Plus: Unvested restricted stock units and stock warrants		—		—		578		—
Adjusted weighted-average common shares outstanding, diluted		111,232		106,846		166,866		105,289
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc.	$	(0.20)	$	(0.05)	$	0.07	$	(0.19)

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2020

Segment Information

Summary of segmented revenues

A summary of the Company’s segmented revenues follows (in thousands, except percentages):

	Three months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	796,961	83.4	%	$	964,541	84.2	%	$	(167,580)	(17.4)	%
Assisted/Senior living facilities		20,041	2.1	%		23,702	2.1	%		(3,661)	(15.4)	%
Administration of third party facilities		2,110	0.2	%		2,054	0.2	%		56	2.7	%
Elimination of administrative services		(784)	(0.1)	%		(799)	(0)	%		15	1.9	%
Inpatient services, net		818,328	85.6	%		989,498	86.4	%		(171,170)	(17.3)	%
Rehabilitation therapy services:
Total therapy services		153,625	16.1	%		192,906	16.8	%		(39,281)	(20.4)	%
Elimination of intersegment rehabilitation therapy services		(57,101)	(6.0)	%		(71,971)	(6.3)	%		14,870	20.7	%
Third party rehabilitation therapy services, net		96,524	10.1	%		120,935	10.5	%		(24,411)	(20.2)	%
Other services:
Total other services		70,959	7.4	%		45,489	4.0	%		25,470	56.0	%
Elimination of intersegment other services		(29,552)	(3.1)	%		(10,870)	(0.9)	%		(18,682)	(171.9)	%
Third party other services, net		41,407	4.3	%		34,619	3.1	%		6,788	19.6	%
Net revenues	$	956,259	100.0	%	$	1,145,052	100.0	%	$	(188,793)	(16.5)	%

	Six months ended June 30,
	2020				2019				Increase / (Decrease)
	Revenue		Revenue		Revenue		Revenue
	Dollars		Percentage		Dollars		Percentage		Dollars		Percentage
Revenues:
Inpatient services:
Skilled nursing facilities	$	1,726,834	84.5	%	$	1,946,937	84.3	%	$	(220,103)	(11.3)	%
Assisted/Senior living facilities		41,863	2.0	%		47,351	2.1	%		(5,488)	(11.6)	%
Administration of third party facilities		4,151	0.2	%		4,301	0.2	%		(150)	(3.5)	%
Elimination of administrative services		(1,570)	(0.1)	%		(1,599)	—	%		29	1.8	%
Inpatient services, net		1,771,278	86.6	%		1,996,990	86.6	%		(225,712)	(11.3)	%
Rehabilitation therapy services:
Total therapy services		318,421	15.5	%		387,977	16.8	%		(69,556)	(17.9)	%
Elimination of intersegment rehabilitation therapy services		(116,428)	(5.7)	%		(146,202)	(6.3)	%		29,774	20.4	%
Third party rehabilitation therapy services, net		201,993	9.8	%		241,775	10.5	%		(39,782)	(16.5)	%
Other services:
Total other services		125,782	6.1	%		87,607	3.8	%		38,175	43.6	%
Elimination of intersegment other services		(50,544)	(2.5)	%		(19,680)	(0.9)	%		(30,864)	(156.8)	%
Third party other services, net		75,238	3.6	%		67,927	2.9	%		7,311	10.8	%
Net revenues	$	2,048,509	100.0	%	$	2,306,692	100.0	%	$	(258,183)	(11.2)	%

Summary of condensed consolidated statements of operations and Total assets

A summary of the Company’s unaudited condensed consolidated statement of operations follows (in thousands):

	Three months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	819,112	$	153,625	$	67,857	$	3,102	$	(87,437)	$	956,259
Salaries, wages and benefits		451,176		121,984		43,784		—		—		616,944
Other operating expenses		374,583		8,760		21,493		—		(87,562)		317,274
General and administrative costs		—		—		—		39,769		—		39,769
Lease expense		95,279		313		503		300		—		96,395
Depreciation and amortization expense		29,544		1,677		208		2,406		(19)		33,816
Interest expense		12,829		13		9		20,236		(1,180)		31,907
Loss on early extinguishment of debt		—		—		—		1,421		—		1,421
Investment income		—		—		—		(2,141)		1,180		(961)
Other income		(44,100)		—		—		—		—		(44,100)
Transaction costs		—		—		—		5,543		—		5,543
Long-lived asset impairments		77,100		—		—		—		—		77,100
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,297)		721		(3,576)
Income (loss) before income tax benefit		676		26,026		4,237		(60,135)		(577)		(29,773)
Income tax benefit		—		—		—		(457)		—		(457)
Net income (loss)	$	676	$	26,026	$	4,237	$	(59,678)	$	(577)	$	(29,316)

	Three months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	990,297	$	192,906	$	45,325	$	164	$	(83,640)	$	1,145,052
Salaries, wages and benefits		442,028		154,855		29,276		—		—		626,159
Other operating expenses		389,637		12,130		14,402		—		(83,641)		332,528
General and administrative costs		—		—		—		35,562		—		35,562
Lease expense		93,557		335		338		356		—		94,586
Depreciation and amortization expense		22,328		3,112		174		2,654		—		28,268
Interest expense		29,051		13		8		23,903		—		52,975
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(2,143)		—		(2,143)
Other (income) loss		(23,474)		—		61		—		—		(23,413)
Transaction costs		—		—		—		8,823		—		8,823
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,910		(1,934)		(24)
Income (loss) before income tax benefit		36,270		22,461		1,066		(70,877)		1,935		(9,145)
Income tax benefit		—		—		—		(162)		—		(162)
Net income (loss)	$	36,270	$	22,461	$	1,066	$	(70,715)	$	1,935	$	(8,983)

	Six months ended June 30, 2020
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,772,848	$	318,421	$	121,896	$	3,886	$	(168,542)	$	2,048,509
Salaries, wages and benefits		862,218		256,553		78,706		—		—		1,197,477
Other operating expenses		770,109		17,262		39,176		—		(168,792)		657,755
General and administrative costs		—		—		—		79,386		—		79,386
Lease expense		192,261		625		930		599		—		194,415
Depreciation and amortization expense		51,178		3,363		406		4,895		(38)		59,804
Interest expense		26,395		27		19		44,066		(2,360)		68,147
Loss on early extinguishment of debt		—		—		—		5,460		—		5,460
Investment income		—		—		—		(4,477)		2,360		(2,117)
Other (income) loss		(129,212)		—		280		—		—		(128,932)
Transaction costs		—		—		—		11,134		—		11,134
Long-lived asset impairments		86,800		—		—		—		—		86,800
Federal stimulus - COVID-19 other income		(177,975)		(5,148)		(2,377)		—		—		(185,500)
Equity in net (income) loss of unconsolidated affiliates		—		—		—		(4,109)		660		(3,449)
Income (loss) before income tax benefit		91,074		45,739		4,756		(133,068)		(372)		8,129
Income tax benefit		—		—		—		(1,236)		—		(1,236)
Net income (loss)	$	91,074	$	45,739	$	4,756	$	(131,832)	$	(372)	$	9,365

	Six months ended June 30, 2019
			Rehabilitation
	Inpatient		Therapy		Other
	Services		Services		Services		Corporate		Eliminations		Consolidated
Net revenues	$	1,998,589	$	387,977	$	87,390	$	217	$	(167,481)	$	2,306,692
Salaries, wages and benefits		898,790		311,947		57,832		—		—		1,268,569
Other operating expenses		791,569		23,087		27,891		—		(167,481)		675,066
General and administrative costs		—		—		—		71,094		—		71,094
Lease expense		186,523		665		680		779		—		188,647
Depreciation and amortization expense		54,200		6,276		348		5,639		—		66,463
Interest expense		56,091		27		17		48,356		—		104,491
Gain on early extinguishment of debt		—		—		—		(24)		—		(24)
Investment income		—		—		—		(4,007)		—		(4,007)
Other (income) loss		(40,315)		(76)		61		—		—		(40,330)
Transaction costs		—		—		—		10,084		—		10,084
Long-lived asset impairments		900		—		—		—		—		900
Equity in net loss (income) of unconsolidated affiliates		—		—		—		1,386		(1,471)		(85)
Income (loss) before income tax benefit		50,831		46,051		561		(133,090)		1,471		(34,176)
Income tax benefit		—		—		—		(111)		—		(111)
Net income (loss)	$	50,831	$	46,051	$	561	$	(132,979)	$	1,471	$	(34,065)

The following table presents the segment assets as of June 30, 2020 compared to December 31, 2019 (in thousands):  

	June 30, 2020		December 31, 2019
Inpatient services	$	3,723,085	$	4,221,579
Rehabilitation therapy services		264,349		281,978
Other services		56,111		49,877
Corporate and eliminations		322,789		108,706
Total assets	$	4,366,334	$	4,662,140

The following table presents segment goodwill as of June 30, 2020 compared to December 31, 2019 (in thousands):

	Rehabilitation Therapy Services		Other Services		Consolidated
Balance at December 31, 2019
Goodwill	$	73,814	$	11,828	$	85,642
Accumulated impairment losses		—		—		—
	$	73,814	$	11,828	$	85,642
Balance at June 30, 2020
Goodwill		73,814		11,828		85,642
Accumulated impairment losses		—		—		—
	$	73,814	$	11,828	$	85,642

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2020

Property and Equipment

Schedule of property and equipment

Property and equipment consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Land, buildings and improvements	$	891,413	$	1,004,447
Equipment, furniture and fixtures		367,432		386,248
Construction in progress		2,821		2,771
Gross property and equipment		1,261,666		1,393,466
Less: accumulated depreciation		(430,333)		(431,361)
Net property and equipment	$	831,333	$	962,105

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases

Schedule of operating lease liability maturities

Year ending December 31,	Operating Leases		Finance Leases (1)
2020 (excluding the six months ended June 30, 2020)	$	178,275	$	3,486
2021		358,686		6,797
2022		361,289		6,591
2023		368,991		6,373
2024		375,874		6,135
Thereafter		2,860,726		34,854
Total lease payments		4,503,841		64,236
Less interest		(1,891,604)		(25,021)
Total lease obligations		2,612,237		39,215
Less current portion		(135,853)		(2,947)
Long-term lease obligations	$	2,476,384	$	36,268

(1) Finance lease payments include $37.2 million related to options to renew lease terms that are reasonably certain of being exercised.

Schedule of finance lease liability maturities

Year ending December 31,	Operating Leases		Finance Leases (1)
2020 (excluding the six months ended June 30, 2020)	$	178,275	$	3,486
2021		358,686		6,797
2022		361,289		6,591
2023		368,991		6,373
2024		375,874		6,135
Thereafter		2,860,726		34,854
Total lease payments		4,503,841		64,236
Less interest		(1,891,604)		(25,021)
Total lease obligations		2,612,237		39,215
Less current portion		(135,853)		(2,947)
Long-term lease obligations	$	2,476,384	$	36,268

(1) Finance lease payments include $37.2 million related to options to renew lease terms that are reasonably certain of being exercised.

Schedule of leases

The following table provides lease costs and income by line item on the consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):

		Three months ended June 30,				Six months ended June 30,
	Classification	2020		2019		2020		2019
Operating lease cost	Lease expense	$	96,395	$	94,586	$	194,415	$	188,647
Finance lease cost:
Amortization of finance lease ROU assets	Depreciation and amortization expense		966		6,630		1,982		13,488
Interest on finance lease obligations	Interest expense		1,149		21,840		2,368		44,632
Total finance lease expense			2,115		28,470		4,350		58,120
Variable lease cost	Other operating expenses		8,974		10,559		17,749		21,330
Short-term leases	Other operating expenses		4,291		6,439		9,674		12,615
Sublease income	Net revenues		(1,463)		-		(2,438)		-
Total		$	110,312	$	140,054	$	223,750	$	280,712

The following table provides remaining lease term and discount rates by lease classification as of June 30, 2020:

Lease Term and Discount Rate	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases		12.1		12.6
Finance leases		9.9		10.2
Weighted-average discount rate
Operating leases		9.5%		9.6%
Finance leases		10.6%		12.2%

The following table includes supplemental lease information for the six months ended June 30, 2020 and 2019 (in thousands):

	Six months ended June 30,
Other information	2020		2019
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	184,467	$	171,928
Operating cash flows from finance leases		3,810		40,451
Financing cash flows from finance leases		1,442		1,271
Right-of-use assets obtained in exchange for new lease obligations
Operating leases		5,942		77,166
Finance leases		672		-

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Long-term Debt (Tables)

6 Months Ended

Jun. 30, 2020

Long-Term Debt [Abstract]

Schedule of long-term debt

Long-term debt at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Asset based lending facilities, net of debt issuance costs of $7,255 and $8,615 at June 30, 2020 and December 31, 2019, respectively	$	277,745	$	412,346
Term loan agreements, net of debt issuance costs of $801 and $1,084 and debt premium balance of $3,501 and $4,816 at June 30, 2020 and December 31, 2019, respectively		203,630		196,714
Real estate loans, net of debt issuance costs of $3,089 and $3,846 and debt premium balance of $14,496 and $19,328 at June 30, 2020 and December 31, 2019, respectively		229,038		265,700
HUD insured loans, net of debt issuance costs of $1,138 and $2,909 at June 30, 2020 and December 31, 2019, respectively		44,670		117,117
Notes payable		110,211		116,952
Mortgages and other secured debt (recourse)		6,925		6,369
Mortgages and other secured debt (non-recourse), net of debt issuance costs of $8,953 and $9,349 and debt premium balance of $1,372 and $1,422 at June 30, 2020 and December 31, 2019, respectively		506,607		498,222
		1,378,826		1,613,420
Less: Current portion of long-term debt		(19,116)		(162,426)
Long-term debt	$	1,359,710	$	1,450,994

Schedule of borrowings and interest rates under ABL Credit Facility

Borrowings and interest rates under the ABL Credit Facilities were as follows at June 30, 2020 (dollars in thousands):

					Weighted
					Average
ABL Credit Facilities	Commitment		Borrowings		Interest
Term loan facility	$	285,000	$	285,000	6.50	%
Revolving credit facility (Non-HUD)		168,000		—	6.50	%
Revolving credit facility (HUD)		72,000		—	6.50	%
Delayed draw term loan facility		25,000		—	12.00	%
	$	550,000	$	285,000	6.50	%

Schedule of maturity of total debt

The maturity of total debt of $1,380.7 million, excluding debt issuance costs and other non-cash debt discounts and premiums, at June 30, 2020 is as follows (in thousands):

Twelve months ended June 30,
2021	$	19,122
2022		572,580
2023		335,297
2024		12,490
2025		10,224
Thereafter		430,980
Total debt maturity	$	1,380,693

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Other Income (Tables)

6 Months Ended

Jun. 30, 2020

Other Income

Summary of Net (Gain) Loss Recorded as Other Income

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Gain on sale of owned assets (1)	$	(23,215)	$	(27,345)	$	(97,795)	$	(27,345)
Loss recognized for exit costs associated with divestiture of operations (2)		5,374		4,578		10,309		7,921
Gain on lease termination or modification (3)		(26,259)		(646)		(41,446)		(20,906)
Total other income	$	(44,100)	$	(23,413)	$	(128,932)	$	(40,330)

(1) The Company sold three and 13 owned skilled nursing facilities during the three and six months ended June 30, 2020, respectively. The Company sold five owned skilled nursing facilities during the three and six months ended June 30, 2019. The gain represents sale proceeds in excess of the carrying value of the assets sold.

(2) The Company divested operations of 19 and 43 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2020, respectively. The Company divested operations of nine and 19 facilities, including the sold facilities noted above, in the three and six months ended June 30, 2019, respectively. Upon divestiture, the Company recognizes exit costs for uncollectible accounts receivable resulting from a sale, the write-off of inventory balances assumed by the new operator, and other costs associated with the transition of operations.

(3) The Company amended numerous lease agreements in the three and six months ended June 30, 2020 and 2019. These transactions resulted in a combination of base rent reductions, annual escalator reductions, lease term extensions or reductions and facility terminations. Each lease amendment triggers a lease reassessment of the respective ROU asset and lease liability with an offsetting adjustment recorded to the consolidated statements of operations as other income or loss. In the three months ended June 30, 2020, the Company recognized a gain on the lease termination of 16 facilities totaling $26.2 million. In the six months ended June 30, 2020, the Company sold the leasehold rights of 13 facilities resulting in a gain of $10.7 million and terminated 24 divested facilities from various lease agreements resulting in a gain of $30.7 million. In the three months ended June 30, 2019, the Company amended the Welltower Master Lease to reflect the lease termination of two facilities resulting in a gain of $0.6 million. In the six months ended June 30, 2019, the Company amended the Welltower Master Lease multiple times to reflect the lease termination of 26 facilities resulting in a gain of $20.9 million…

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Assets Held for Sale (Tables)

6 Months Ended

Jun. 30, 2020

Assets Held for Sale

Schedule of major classes of assets and liabilities included as part of the disposal groups

The following table sets forth the major classes of assets and liabilities included as part of the disposal groups as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Current assets:
Prepaid expenses	$	—	$	1,171
Long-term assets:
Property and equipment, net of accumulated depreciation of $5,079 and $2,201 at June 30, 2020 and December 31, 2019, respectively		15,992		16,306
Total assets	$	15,992	$	17,477
Current liabilities:
Current portion of long-term debt	$	394	$	368
Long-term liabilities:
Long-term debt		24,043		19,789
Total liabilities	$	24,437	$	20,157

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value of Financial Instruments

Schedule of fair value of assets measured on a recurring basis

The tables below present the Company’s assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	June 30,		Identical Assets		Observable Inputs		Inputs
Assets:	2020		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	251,651	$	251,651	$	—	$	—
Restricted cash and equivalents		113,725		113,725		—		—
Restricted investments in marketable securities		132,017		46,810		85,207		—
Total	$	497,393	$	412,186	$	85,207	$	—

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	December 31,		Identical Assets		Observable Inputs		Inputs
Assets:	2019		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	12,097	$	12,097	$	—	$	—
Restricted cash and equivalents		113,709		113,709		—		—
Restricted investments in marketable securities		136,942		45,903		91,039		—
Total	$	262,748	$	171,709	$	91,039	$	—

Schedule of carrying amounts and estimated fair values of long-term debt, net of issuance costs and other non-cash debt discounts and premiums

The table below shows the carrying amounts and estimated fair values, net of debt issuance costs and other non-cash debt discounts and premiums, of the Company’s primary long-term debt instruments (in thousands):

	June 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Asset based lending facilities	$	277,745	$	277,745	$	412,346	$	412,346
Term loan agreements		203,630		203,630		196,714		196,714
Real estate loans		229,038		229,038		265,700		265,700
HUD insured loans		44,670		44,670		117,117		117,117
Notes payable		110,211		110,211		116,952		116,952
Mortgages and other secured debt (recourse)		6,925		6,925		6,369		6,369
Mortgages and other secured debt (non-recourse)		506,607		506,607		498,222		498,222
	$	1,378,826	$	1,378,826	$	1,613,420	$	1,613,420

Schedule of hierarchy of nonfinancial assets measured at fair value on a nonrecurring basis

The following tables present the Company’s hierarchy for nonfinancial assets measured at fair value on a non-recurring basis (in thousands):

			Impairment Charges -
	Carrying Value		Six months ended
	June 30, 2020		June 30, 2020
Assets:
Property and equipment, net	$	831,333	$	7,100
Finance lease right-of-use assets, net		32,956		2,600
Operating lease right-of-use assets		2,134,233		77,100
Intangible assets, net		84,826		—
Goodwill		85,642		—
			Impairment Charges -
	Carrying Value		Six months ended
	December 31, 2019		June 30, 2019
Assets:
Property and equipment, net	$	962,105	$	900
Finance lease right-of-use assets, net		37,097		—
Operating lease right-of-use assets		2,399,505		—
Intangible assets, net		87,446		—
Goodwill		85,642		—

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General Information - Description of Business, Basis of Presentation and Going Concern Considerations (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2020 state	Jun. 30, 2019	Jun. 30, 2020 facility state	Jun. 30, 2019	Mar. 11, 2020
Description of business
Repayment of payroll taxes through Dec 2021 (as a percent)					50.00%
Repayment of payroll taxes through Dec 2022 (as a percent)					50.00%
Revenue | Product Concentration Risk
Concentration risk
Concentration risk (as a percent)	100.00%	100.00%	100.00%	100.00%
Rehabilitation therapy service | Revenue | Product Concentration Risk
Concentration risk
Concentration risk (as a percent)	10.10%	10.50%	9.80%	10.50%
Inpatient Services
Description of business
Number of skilled nursing, assisted/senior living and behavioral health centers through which inpatient services are provided | facility			361
Number of states with facilities | state	25		25
Inpatient Services | Revenue | Product Concentration Risk
Concentration risk
Concentration risk (as a percent)	85.60%	86.40%	86.60%	86.60%

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General Information - Recent Accounting Pronouncements (Details)	Jun. 30, 2020
Accounting Standards Update 2018-13
Recent Accounting Pronouncements
Change in Accounting Principle, Accounting Standards Update, Adopted	true
Change in Accounting Principle, Accounting Standards Update, Adoption Date	Jan. 01, 2020
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false
Accounting Standards Update 2016-13
Recent Accounting Pronouncements
Change in Accounting Principle, Accounting Standards Update, Adopted	false
Change in Accounting Principle, Accounting Standards Update, Early Adoption	false

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Certain Significant Risks and Uncertainties - Revenue Sources (Details) - Government contracts - Inpatient Services	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenue Sources
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Medicare
Revenue Sources
Concentration Risk, Percentage	20.00%	20.00%	21.00%	20.00%
Medicaid
Revenue Sources
Concentration Risk, Percentage	62.00%	58.00%	60.00%	58.00%
Insurance
Revenue Sources
Concentration Risk, Percentage	9.00%	12.00%	10.00%	12.00%
Private
Revenue Sources
Concentration Risk, Percentage	7.00%	8.00%	7.00%	7.00%
Other
Revenue Sources
Concentration Risk, Percentage	2.00%	2.00%	2.00%	3.00%
Revenue | Medicare and Medicaid
Revenue Sources
Concentration Risk, Percentage			82.00%

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Certain Significant Risks and Uncertainties - Concentration of Credit Risk (Details) - Credit Concentration Risk [Member] - Accounts Receivable - Rehabilitation Services $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($) customer
Minimum
Concentration Risk
Number of distinct customers	140
Related Party Customer
Concentration Risk
Concentration risk (as a percent)	40.00%
Number of large customers comprising over 34% of the net outstanding contract receivables	1
Contract receivables, net | $	$ 31.0

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Significant Transactions and Events - COVID-19 (Details) $ in Thousands	1 Months Ended		2 Months Ended	3 Months Ended		6 Months Ended
	May 31, 2020 USD ($)	Apr. 30, 2020 USD ($)	May 31, 2020 USD ($)	Jun. 30, 2020 USD ($)	Mar. 31, 2020	Jun. 30, 2020 USD ($)	Jun. 09, 2020 facility	May 27, 2020 USD ($) facility
Subsequent Event [Line Items]
Number of facilities, COVID-19, patients, residents, and employees, positive cases | facility								241
Number of facilities | facility								361
Number of facilities, COVID-19, positive cases, concentration percentage, New Jersey, Connecticut, Massachusetts, Pennsylvania, and Maryland (as a percent)								77.00%
Number of facilities, operating beds, concentration percentage, New Jersey, Connecticut, Massachusetts, Pennsylvania, and Maryland (as a percent)								45.00%
COVID-19 incremental operating expense				$ 145,300		$ 152,500
Medicare advance payments		$ 156,800				156,823
Relief grants			$ 185,500
Coronavirus Aid, Relief, and Economic Security Act, payroll tax deferral program								$ 90,000
COVID-19 state funding committed								$ 55,500
COVID 19
Subsequent Event [Line Items]
Medicare advance payments		156,800
Eligible number of living facilities | facility							4
Decrease in revenue				67,000		74,000
Relief grants	$ 185,500	$ 185,500
Additional FMAP reimbursement relief				40,200		45,700
Revenue from Suspension of Sequestration				2,000		2,000
COVID 19 | Other long-term liabilities
Subsequent Event [Line Items]
Deferred payroll taxes				$ 35,700		$ 35,700
COVID 19 | Skilled Nursing Facilities
Subsequent Event [Line Items]
Decrease in operating occupancy (as a percent)				77.00%	88.20%

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Significant Transactions and Events - Strategic Partnerships (Details) $ in Thousands				3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 01, 2020 USD ($) facility	Jan. 10, 2020 USD ($) facility	Sep. 12, 2019 facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Dec. 31, 2019 facility	May 16, 2020
Acquisitions, Lease Amendments and Terminations
Payment for investment in joint venture						$ 16,886
Annual base rent				$ 96,395	$ 94,586	194,415	$ 188,647
Gain (loss) on early extinguishment of debt				$ (1,421)	$ 24	$ (5,460)	$ 24
Number Of Facilities Divested Or Closed | facility				19	9	43	19	6
Skilled Nursing Facilities
Acquisitions, Lease Amendments and Terminations
Number of facilities sold | facility	6			3	5	13	5
Number of facilities acquired | facility						1
California, Washington and Nevada | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations
Acquisitions, Lease Amendments and Terminations
Ownership interest									50.00%
HUD insured loans | Skilled Nursing Facilities
Acquisitions, Lease Amendments and Terminations
Number of facilities sold | facility						8
Vantage Point Partnership
Acquisitions, Lease Amendments and Terminations
Variable interest entity, ownership interest (as a percent)			30.00%			30.00%
Number of facilities, membership interest in real estate acquired | facility			18
Vantage Point Partnership | Skilled Nursing Facilities
Acquisitions, Lease Amendments and Terminations
Number of facilities sold | facility		1
New Generation Health, LLC | California, Washington and Nevada
Acquisitions, Lease Amendments and Terminations
Payment for investment in joint venture						$ 20,500
Investments in facilities	$ 14,900
Payments for Advance to Affiliate	9,000
Gain (Loss) on sale of owned facilities and transition of leased facilities	58,800
Gain (loss) on early extinguishment of debt	$ (1,000)
Ownership interest	50.00%
Welltower
Acquisitions, Lease Amendments and Terminations
Annual rent credits		$ 700
Purchase price of facilities acquired		9,100
Proceeds from sale of facilities		200
Property, plant and equipment, net, increase due to consolidation		9,100
Non-recourse debt		$ 7,300

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Significant Transactions and Events - Divestiture of Non-Strategic Facilities (Details) $ in Thousands										1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 01, 2020 USD ($) facility	May 15, 2020 USD ($) facility	Apr. 20, 2020 USD ($) facility	Apr. 01, 2020 USD ($) facility	Mar. 04, 2020 USD ($) facility	Feb. 26, 2020 USD ($) facility	Feb. 01, 2020 USD ($) facility	Jan. 31, 2020 USD ($)	Jan. 10, 2020 USD ($)	Jan. 31, 2020 USD ($) facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Dec. 31, 2019 facility
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility											19	9	43	19	6
Other Nonoperating Income (Expense)											$ 44,100	$ 23,413	$ 128,932	$ 40,330
Increase in Operating lease obligations													(56,121)	(42,045)
Gain on early extinguishment of debt											$ (1,421)	$ 24	(5,460)	24
Loss on early extinguishment of debt													$ (1,682)	$ 630
Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility							6				3	5	13	5
Number of facilities acquired | facility													1
Disposal Group Not Discontinued Operations Divestiture And Lease Termination | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Gain on partial lease termination						$ 3,000
Gain on early extinguishment of debt						$ 400
Disposal Group, Disposed of by Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility				3
Disposal Group, Held-for-sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility															1
Sales price											$ 31,400		$ 31,400
Maryland | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility							1
Maryland | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility			2
Maryland | Disposal Group, Disposed of by Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility				1
Massachusetts | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Annual rent credit granted on termination										$ 400
Gain on partial lease termination								$ 200
Number of facilities sold | facility										1
California | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility						1
Annual revenues						$ 14,000
Pre-tax net income (loss)						(100)
Sales price						20,800
Repayments of loans						$ 20,500
California | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility		4
Annual revenues		$ 55,000
Pre-tax net income (loss)		$ 500
Florida | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility			4
Florida and Maryland | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility			6
Annual rent credit granted on termination			$ 8,500
Annual revenues			62,000
Pre-tax net income (loss)			$ (2,300)
New Jersey | Disposal Group, Disposed of by Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility				2
North Carolina and Maryland | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Annual revenues							$ 38,700
Pre-tax net income (loss)							500
Gain (loss) recognized in disposal group							24,500
Sales price							61,800
Repayments of loans							29,100
Gain on early extinguishment of debt							$ 2,600
North Carolina | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility							2
Montana | Assisted Senior Living Facilities
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility					1
Annual rent credit granted on termination					$ 700
Annual revenues					2,500
Pre-tax net income (loss)					$ 100
Montana | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility				2
Annual rent credit granted on termination				$ 1,100
Annual revenues				18,800
Pre-tax net income (loss)				400
Idaho | Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility	4
Annual rent credit granted on termination	$ 1,400
Annual revenues	19,500
Pre-tax net income (loss)	$ 100
New Jersey and Maryland | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Annual revenues				35,800
New Jersey and Maryland | Disposal Group, Disposed of by Sale, Not Discontinued Operations
Skilled Nursing Facility Divestitures
Gain (loss) recognized in disposal group				21,800
New Jersey and Maryland | Disposal Group, Disposed of by Sale, Not Discontinued Operations | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Sales price				45,800
Loss on early extinguishment of debt				1,400
New Generation Health, LLC
Skilled Nursing Facility Divestitures
Leasehold rights transferred, number of facilities | facility							13						13
New Generation Health, LLC | California, Washington and Nevada
Skilled Nursing Facility Divestitures
Sales price							$ 78,700
Repayments of loans							33,700
Gain on early extinguishment of debt							$ (1,000)
Welltower
Skilled Nursing Facility Divestitures
Annual rent credit granted on termination									$ 700
HUD insured loans | Skilled Nursing Facilities
Skilled Nursing Facility Divestitures
Number of facilities sold | facility													8
HUD insured loans | New Jersey and Maryland
Skilled Nursing Facility Divestitures
Repayments of loans				15,200
Mid Cap Real Estate Loans
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility													4
Mid Cap Real Estate Loans | Disposal Group, Held-for-sale, Not Discontinued Operations
Skilled Nursing Facility Divestitures
Number of facilities divested or closed | facility													1
Mid Cap Real Estate Loans | New Jersey and Maryland
Skilled Nursing Facility Divestitures
Repayments of loans				$ 7,500

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Net Revenues and Accounts Receivable (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of revenue
Net revenues				$ 2,306,692
Total net revenues	$ 956,259	$ 1,145,052	$ 2,048,509	2,306,692
Inpatient Services
Disaggregation of revenue
Net revenues	818,328	989,498		1,996,990
Total net revenues	818,328	989,498	1,771,278	1,996,990
Rehabilitation therapy service
Disaggregation of revenue
Net revenues	96,524	120,935	201,993	241,775
Total net revenues	96,524	120,935	201,993
Other Services
Disaggregation of revenue
Net revenues	41,407	34,619	75,238	67,927
Total net revenues	41,407	34,619	75,238
Medicare
Disaggregation of revenue
Net revenues	185,984	223,999	404,928	454,719
Medicare | Inpatient Services
Disaggregation of revenue
Net revenues	166,482	201,007	363,517	408,975
Medicare | Rehabilitation therapy service
Disaggregation of revenue
Net revenues	19,502	22,992	41,411	45,744
Medicaid
Disaggregation of revenue
Net revenues	508,324	577,670	1,059,805	1,159,173
Medicaid | Inpatient Services
Disaggregation of revenue
Net revenues	507,871	577,097	1,058,861	1,158,045
Medicaid | Rehabilitation therapy service
Disaggregation of revenue
Net revenues	453	573	944	1,128
Insurance
Disaggregation of revenue
Net revenues	71,545	120,535	189,273	250,849
Insurance | Inpatient Services
Disaggregation of revenue
Net revenues	66,723	114,619	178,995	239,699
Insurance | Rehabilitation therapy service
Disaggregation of revenue
Net revenues	4,822	5,916	10,278	11,150
Private
Disaggregation of revenue
Net revenues	61,163	79,219	136,341	156,264
Private | Inpatient Services
Disaggregation of revenue
Net revenues	61,126	79,127	136,194	156,060
Private | Rehabilitation therapy service
Disaggregation of revenue
Net revenues	37	92	147	204
Assisted living | Inpatient Services
Disaggregation of revenue
Revenue not accounted for under Topic 606	20,000	23,700	42,000	47,400
Third party providers
Disaggregation of revenue
Net revenues	92,094	108,594	183,816	218,731
Third party providers | Rehabilitation therapy service
Disaggregation of revenue
Net revenues	66,558	88,108	139,662	177,637
Third party providers | Other Services
Disaggregation of revenue
Net revenues	25,536	20,486	44,154	41,094
Other
Disaggregation of revenue
Net revenues	37,149	35,035	74,346	66,956
Other | Inpatient Services
Disaggregation of revenue
Net revenues	16,126	17,648	33,711	34,211
Other | Rehabilitation therapy service
Disaggregation of revenue
Net revenues	5,152	3,254	9,551	5,912
Other | Other Services
Disaggregation of revenue
Net revenues	$ 15,871	$ 14,133	$ 31,084	$ 26,833

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Earnings (Loss) Per Share - General Information (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2020 shares	Jun. 30, 2020 class shares	Jun. 30, 2019 shares
Income Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Number of classes of common stock | class		3
2020 Plan
Income Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Grants (shares)	0	0
Shares became available for delivery	6,462,605
Authorized shares	3,500,000
2015 Plan
Income Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Available for issuance under prior plan	2,962,605	2,962,605
Class C Common Stock
Income Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Voting ratio		1
Number of classes of stock that share voting ratio | class		2
Number of units exchanged		800,000	3,100,000
Class A Common Stock
Income Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Number of shares converted		800,000	3,100,000

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Earnings (Loss) Per Share - Calculation of Basic Net (Loss ) Income Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net (loss) income	$ (29,316)	$ 38,681	$ (8,983)	$ (25,082)	$ 9,365	$ (34,065)
Less net loss attributable to noncontrolling interests	7,311		4,164		2,138	13,983
Net (loss) income attributable to Genesis Healthcare, Inc.	$ (22,005)		$ (4,819)		$ 11,503	$ (20,082)
Denominator:
Weighted-average shares outstanding for basic net (loss) income per share	111,232		106,846		110,477	105,289
Basic net income (loss) per common share attributable to Genesis Healthcare, Inc.	$ (0.20)		$ (0.05)		$ 0.10	$ (0.19)

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Earnings (Loss) Per Share - Calculation of Diluted Net (Loss) Income Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net (loss) income	$ (29,316)	$ 38,681	$ (8,983)	$ (25,082)	$ 9,365	$ (34,065)
Less net loss attributable to noncontrolling interests	7,311		4,164		2,138	13,983
Net income (loss) attributable to Genesis Healthcare, Inc.	(22,005)		(4,819)		11,503	(20,082)
Plus: Assumed conversion of noncontrolling interests					(15)
Net (loss) income available to common stockholders after assumed conversions	$ (22,005)		$ (4,819)		$ 11,488	$ (20,082)
Denominator:
Weighted-average shares outstanding for basic net income (loss) per share	111,232		106,846		110,477	105,289
Plus: Assumed conversion of noncontrolling interests					55,811
Plus: Unvested restricted stock units and stock warrants					578
Adjusted weighted-average common shares outstanding, diluted	111,232		106,846		166,866	105,289
Diluted net (loss) income per common share attributable to Genesis Healthcare, Inc.	$ (0.20)		$ (0.05)		$ 0.07	$ (0.19)

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Earnings (Loss) Per Share - Antidilutive Securities (Details) - Assumed conversion of noncontrolling interests, unvested restricted stock units and stock warrants - shares shares in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares	56.0	57.5		58.4
Number of units attributed to the noncontrolling interests outstanding			55.4	56.6

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Segment Information - Segment Reporting (Details) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020 USD ($) segment	Mar. 31, 2020 USD ($)	Jun. 30, 2019 USD ($) segment	Mar. 31, 2019 USD ($)	Jun. 30, 2020 USD ($) segment	Jun. 30, 2019 USD ($) segment
Segment Reporting Information
Number of reportable segments | segment	3		3		3	3
Net revenues						$ 2,306,692
Net revenues	$ 956,259		$ 1,145,052		$ 2,048,509	2,306,692
Increase (Decrease) in Net Revenue From Prior Period	(188,793)				(258,183)
Salaries, wages and benefits	616,944		626,159		1,197,477	1,268,569
Other operating expenses	317,274		332,528		657,755	675,066
General and administrative costs	39,769		35,562		79,386	71,094
Lease expense	96,395		94,586		194,415	188,647
Depreciation and amortization expense	33,816		28,268		59,804	66,463
Interest expense	31,907		52,975		68,147	104,491
Loss (gain) on early extinguishment of debt	1,421		(24)		5,460	(24)
Investment income	(961)		(2,143)		(2,117)	(4,007)
Other income	(44,100)		(23,413)		(128,932)	(40,330)
Transaction costs	5,543		8,823		11,134	10,084
Long-lived asset impairments	77,100		900		86,800	900
Federal stimulus - COVID-19 other income	(185,500)				(185,500)
Equity in net income of unconsolidated affiliates	(3,576)		(24)		(3,449)	(85)
(Loss) income before income tax benefit	(29,773)		(9,145)		8,129	(34,176)
Income tax benefit	(457)		(162)		(1,236)	(111)
Net (loss) income	$ (29,316)	$ 38,681	$ (8,983)	$ (25,082)	$ 9,365	$ (34,065)
Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	100.00%		100.00%		100.00%	100.00%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(16.50%)				(11.20%)
Inpatient Services
Segment Reporting Information
Net revenues	$ 818,328		$ 989,498			$ 1,996,990
Net revenues	818,328		$ 989,498		$ 1,771,278	$ 1,996,990
Increase (Decrease) in Net Revenue From Prior Period	$ (171,170)				$ (225,712)
Inpatient Services | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	85.60%		86.40%		86.60%	86.60%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(17.30%)				(11.30%)
Inpatient Services | Skilled Nursing Facilities
Segment Reporting Information
Net revenues	$ 796,961		$ 964,541		$ 1,726,834	$ 1,946,937
Increase (Decrease) in Net Revenue From Prior Period	$ (167,580)				$ (220,103)
Inpatient Services | Skilled Nursing Facilities | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	83.40%		84.20%		84.50%	84.30%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(17.40%)				(11.30%)
Inpatient Services | Assisted Senior Living Facilities
Segment Reporting Information
Revenues outside scope of ASC 606					$ 41,863	$ 47,351
Net revenues	$ 20,041		$ 23,702
Increase (Decrease) in Net Revenue From Prior Period	$ (3,661)				$ (5,488)
Inpatient Services | Assisted Senior Living Facilities | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	2.10%		2.10%		2.00%	2.10%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(15.40%)				(11.60%)
Inpatient Services | Administration of third party facilities
Segment Reporting Information
Net revenues	$ 2,110		$ 2,054		$ 4,151	$ 4,301
Increase (Decrease) in Net Revenue From Prior Period	$ 56				$ (150)
Inpatient Services | Administration of third party facilities | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	0.20%		0.20%		0.20%	0.20%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	2.70%				(3.50%)
Rehabilitation therapy service
Segment Reporting Information
Net revenues	$ 96,524		$ 120,935		$ 201,993	$ 241,775
Net revenues	96,524		$ 120,935		201,993
Increase (Decrease) in Net Revenue From Prior Period	$ (24,411)				$ (39,782)
Rehabilitation therapy service | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	10.10%		10.50%		9.80%	10.50%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(20.20%)				(16.50%)
Rehabilitation therapy service | Therapy Services
Segment Reporting Information
Net revenues	$ 153,625		$ 192,906		$ 318,421	$ 387,977
Increase (Decrease) in Net Revenue From Prior Period	$ (39,281)				$ (69,556)
Rehabilitation therapy service | Therapy Services | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	16.10%		16.80%		15.50%	16.80%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(20.40%)				(17.90%)
Other Services
Segment Reporting Information
Net revenues	$ 41,407		$ 34,619		$ 75,238	$ 67,927
Net revenues	41,407		$ 34,619		75,238
Increase (Decrease) in Net Revenue From Prior Period	$ 6,788				$ 7,311
Other Services | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	4.30%		3.10%		3.60%	2.90%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	19.60%				10.80%
Other Services | Other Services
Segment Reporting Information
Net revenues	$ 70,959		$ 45,489		$ 125,782	$ 87,607
Increase (Decrease) in Net Revenue From Prior Period	$ 25,470				$ 38,175
Other Services | Other Services | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	7.40%		4.00%		6.10%	3.80%
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	56.00%				43.60%
Operating Segments | Inpatient Services
Segment Reporting Information
Net revenues	$ 819,112		$ 990,297		$ 1,772,848	$ 1,998,589
Salaries, wages and benefits	451,176		442,028		862,218	898,790
Other operating expenses	374,583		389,637		770,109	791,569
Lease expense	95,279		93,557		192,261	186,523
Depreciation and amortization expense	29,544		22,328		51,178	54,200
Interest expense	12,829		29,051		26,395	56,091
Other income	(44,100)		(23,474)		(129,212)	(40,315)
Long-lived asset impairments	77,100		900		86,800	900
Federal stimulus - COVID-19 other income	(177,975)				(177,975)
(Loss) income before income tax benefit	676		36,270		91,074	50,831
Net (loss) income	676		36,270		91,074	50,831
Operating Segments | Rehabilitation therapy service
Segment Reporting Information
Net revenues	153,625		192,906		318,421	387,977
Salaries, wages and benefits	121,984		154,855		256,553	311,947
Other operating expenses	8,760		12,130		17,262	23,087
Lease expense	313		335		625	665
Depreciation and amortization expense	1,677		3,112		3,363	6,276
Interest expense	13		13		27	27
Other income						(76)
Federal stimulus - COVID-19 other income	(5,148)				(5,148)
(Loss) income before income tax benefit	26,026		22,461		45,739	46,051
Net (loss) income	26,026		22,461		45,739	46,051
Operating Segments | Other Services
Segment Reporting Information
Net revenues	67,857		45,325		121,896	87,390
Salaries, wages and benefits	43,784		29,276		78,706	57,832
Other operating expenses	21,493		14,402		39,176	27,891
Lease expense	503		338		930	680
Depreciation and amortization expense	208		174		406	348
Interest expense	9		8		19	17
Other income			61		280	61
Federal stimulus - COVID-19 other income	(2,377)				(2,377)
(Loss) income before income tax benefit	4,237		1,066		4,756	561
Net (loss) income	4,237		1,066		4,756	561
Corporate, Non-Segment
Segment Reporting Information
Net revenues	3,102		164		3,886	217
General and administrative costs	39,769		35,562		79,386	71,094
Lease expense	300		356		599	779
Depreciation and amortization expense	2,406		2,654		4,895	5,639
Interest expense	20,236		23,903		44,066	48,356
Loss (gain) on early extinguishment of debt	1,421		(24)		5,460	(24)
Investment income	(2,141)		(2,143)		(4,477)	(4,007)
Transaction costs	5,543		8,823		11,134	10,084
Equity in net income of unconsolidated affiliates	(4,297)		1,910		(4,109)	1,386
(Loss) income before income tax benefit	(60,135)		(70,877)		(133,068)	(133,090)
Income tax benefit	(457)		(162)		(1,236)	(111)
Net (loss) income	(59,678)		(70,715)		(131,832)	(132,979)
Elimination
Segment Reporting Information
Net revenues	(87,437)		(83,640)		(168,542)	(167,481)
Other operating expenses	(87,562)		(83,641)		(168,792)	(167,481)
Depreciation and amortization expense	(19)				(38)
Interest expense	(1,180)				(2,360)
Investment income	1,180				2,360
Equity in net income of unconsolidated affiliates	721		(1,934)		660	(1,471)
(Loss) income before income tax benefit	(577)		1,935		(372)	1,471
Net (loss) income	(577)		1,935		(372)	1,471
Elimination | Inpatient Services
Segment Reporting Information
Net revenues	(784)		$ (799)		(1,570)	(1,599)
Increase (Decrease) in Net Revenue From Prior Period	$ 15				$ 29
Elimination | Inpatient Services | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	(0.10%)		0.00%		(0.10%)
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	1.90%				1.80%
Elimination | Rehabilitation therapy service
Segment Reporting Information
Net revenues	$ (57,101)		$ (71,971)		$ (116,428)	$ (146,202)
Increase (Decrease) in Net Revenue From Prior Period	$ 14,870				$ 29,774
Elimination | Rehabilitation therapy service | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	(6.00%)		(6.30%)		(5.70%)	(6.30%)
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	20.70%				20.40%
Elimination | Other Services | Other Services
Segment Reporting Information
Net revenues	$ (29,552)		$ (10,870)		$ (50,544)	$ (19,680)
Increase (Decrease) in Net Revenue From Prior Period	$ (18,682)				$ (30,864)
Elimination | Other Services | Other Services | Product Concentration Risk | Revenue
Segment Reporting Information
Concentration Risk, Percentage	(3.10%)		(0.90%)		(2.50%)	(0.90%)
Increase (Decrease) in Net Revenue as Percent of Prior Period Revenue	(171.90%)				(156.80%)

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Segment Information - Assets and Goodwill by Segment (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Segment Reporting, Asset Reconciling Item
Segment total assets	$ 4,366,334	$ 4,662,140
Corporate and Eliminations
Segment Reporting, Asset Reconciling Item
Segment total assets	322,789	108,706
Inpatient Services
Segment Reporting, Asset Reconciling Item
Segment total assets	3,723,085	4,221,579
Rehabilitation therapy service
Segment Reporting, Asset Reconciling Item
Segment total assets	264,349	281,978
Other Services
Segment Reporting, Asset Reconciling Item
Segment total assets	$ 56,111	$ 49,877

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Segment Information - Segment Goodwill (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Goodwill [Line Items]
Goodwill	$ 85,642	$ 85,642
Goodwill, net	85,642	85,642
Rehabilitation therapy service
Goodwill [Line Items]
Goodwill	73,814	73,814
Goodwill, net	73,814	73,814
Other Services
Goodwill [Line Items]
Goodwill	11,828	11,828
Goodwill, net	$ 11,828	$ 11,828

XML

Property and Equipment - Tabular Disclosure (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Property and Equipment
Gross property and equipment	$ 1,261,666	$ 1,393,466
Less accumulated depreciation	(430,333)	(431,361)
Net property and equipment	831,333	962,105
Land, buildings and improvements
Property and Equipment
Gross property and equipment	891,413	1,004,447
Equipment, furniture and fixtures
Property and Equipment
Gross property and equipment	367,432	386,248
Construction in progress
Property and Equipment
Gross property and equipment	$ 2,821	$ 2,771

XML

Property and Equipment - Consolidated VIEs (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Property and Equipment
Net property and equipment	$ 831,333	$ 962,105
Variable Interest Entity, Primary Beneficiary
Property and Equipment
Net property and equipment	$ 537,000	$ 535,900

XML

Property and Equipment - Lease Updates (Details) $ in Thousands		3 Months Ended		6 Months Ended
	Feb. 01, 2020 facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility
Assets held for sale
Amount reclassified from property and equipment to assets held for sale		$ 88,500		$ 88,500
Other Asset Impairment Charges		$ 77,100	$ 900	$ 86,800	$ 900
Skilled Nursing Facilities
Assets held for sale
Number of facilities acquired | facility				1
Number of facilities sold | facility	6	3	5	13	5
Other Asset Impairment Charges				$ 7,100

XML

Leases - General Information (Details)	6 Months Ended
	Jun. 30, 2020 item
Leases
Percentage of centers that are leased properties (as a percent)	72.00%
Percentage of centers under master lease agreements (as a percent)	38.00%
Number of landlords with master lease agreements	4

XML

Leases - Terms and Lease Transactions (Details)	6 Months Ended
	Jun. 30, 2020
Operating leases
Lessee, Operating Lease, Existence of Option to Extend	true
Lessee, Operating Lease, Existence of Option to Terminate	true
Finance leases
Lessee, Finance Lease, Existence of Option to Extend	true
Lessee, Finance Lease, Existence of Option to Terminate	true
Minimum
Operating leases
Term of operating lease	10 years
Operating lease renewal term	5 years
Finance leases
Term of finance lease	10 years
Finance lease renewal term (in years)	5 years
Maximum
Operating leases
Term of operating lease	15 years
Operating lease renewal term	10 years
Finance leases
Term of finance lease	15 years
Finance lease renewal term (in years)	10 years

XML

Leases - Fixed-price Options (Details)	Jun. 30, 2020 facility
Leases
Fixed-price options to purchase facilities, number of facilities	57
Fixed-price options to purchase facilities, subject to third-party leases, number of facilities	23
Fixed-price options to purchase facilities, subject to lease arrangements with consolidated variable interest entities, number of facilities	34

XML

Leases - Finance Leases - Impairment (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Income and Expenses, Lessee [Abstract]
Finance lease right-of-use assets, net, Impairment charges	$ 77.1	$ 79.7

XML

Leases - Operating Leases - Maturity (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Maturity of operating lease obligations
2020 (excluding the six months ended June 30, 2020)	$ 178,275
2021	358,686
2022	361,289
2023	368,991
2024	375,874
Thereafter	2,860,726
Total operating lease payments	$ 4,503,841

XML

Leases - Operating Leases - Total Lease Obligation (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Operating leases
Total operating lease payments	$ 4,503,841
Less interest	(1,891,604)
Total operating lease obligations	2,612,237
Less current portion	(135,853)	$ (140,887)
Long-term operating lease obligations	$ 2,476,384	$ 2,681,403

XML

Leases - Finance Leases - Maturity (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Maturity of finance lease obligations
2020 (excluding the six months ended June 30, 2020)	$ 3,486
2021	6,797
2022	6,591
2023	6,373
2024	6,135
Thereafter	34,854
Total finance lease payments	$ 64,236

XML

Leases - Finance Leases - Total Lease Obligation (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Finance leases
Total finance lease payments	$ 64,236
Less interest	(25,021)
Total finance lease obligations	39,215
Less current portion	(2,947)	$ (2,839)
Long-term finance lease obligations	$ 36,268	$ 39,335

XML

Leases - Finance Leases - Additional Information (Details) $ in Millions	Jun. 30, 2020 USD ($)
Leases
Portion of finance lease payments due related to options to extend lease terms	$ 37.2

XML

Leases - Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Lease cost
Operating lease cost	$ 96,395	$ 94,586	$ 194,415	$ 188,647
Amortization of finance lease right-of-use assets	966	6,630	1,982	13,488
Interest on finance lease liabilities	1,149	21,840	2,368	44,632
Total finance lease expense	2,115	28,470	4,350	58,120
Variable lease cost	8,974	10,559	17,749	21,330
Short-term leases	4,291	6,439	9,674	12,615
Sublease income	(1,463)		(2,438)
Total lease cost	$ 110,312	$ 140,054	$ 223,750	$ 280,712

XML

Leases - Lease Term and Discount Rate (Details)	Jun. 30, 2020	Dec. 31, 2019
Leases
Weighted-average remaining lease term (years) - operating leases	12 years 1 month 6 days	12 years 7 months 6 days
Weighted-average remaining lease term (years) - finance leases	9 years 10 months 24 days	10 years 2 months 12 days
Weighted-average discount rate - operating leases	9.50%	9.60%
Weighted-average discount rate - finance leases	10.60%	12.20%

XML

Leases - Other Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Leases
Operating cash flows from operating leases	$ 184,467	$ 171,928
Operating cash flows from finance leases	3,810	40,451
Financing cash flows from finance leases	1,442	1,271
Right-of-use assets obtained in exchange for new lease obligations, operating leases	5,942	$ 77,166
Right-of-use assets obtained in exchange for new lease obligations, finance leases	$ 672

XML

Leases - Lease Covenants (Details)	6 Months Ended
	Jun. 30, 2020 facility agreement
Leases
Number of leases with unmet financial covenants | agreement	2
Number of facilities under leases with unmet financial covenants | facility	4
Welltower - CBYW
Leases
Number of leases with unmet financial covenants | agreement	1
Number of facilities under leases with unmet financial covenants | facility	2

XML

Long-Term Debt - General Information (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Long-term debt
Total long-term debt	$ 1,378,826	$ 1,613,420
Current installments of long-term debt	(19,116)	(162,426)
Long-term debt	1,359,710	1,450,994
ABL Credit Facilities
Long-term debt
Total long-term debt	277,745	412,346
Debt issuance costs	7,255	8,615
Term Loan
Long-term debt
Total long-term debt	203,630	196,714
Debt issuance costs	801	1,084
Debt premium	3,501	4,816
Real estate loans
Long-term debt
Total long-term debt	229,038	265,700
Debt issuance costs	3,089	3,846
Debt premium	14,496	19,328
HUD insured loans
Long-term debt
Total long-term debt	44,670	117,117
Debt issuance costs	1,138	2,909
Welltower Notes
Long-term debt
Total long-term debt	110,211	116,952
Mortgages and other secured debt (recourse)
Long-term debt
Total long-term debt	6,925	6,369
Mortgages and other secured debt (non-recourse)
Long-term debt
Total long-term debt	506,607	498,222
Debt issuance costs	8,953	9,349
Debt premium	$ 1,372	$ 1,422

XML

Long-Term Debt - New Asset Based Lending Facilities - General Information (Details) - USD ($) $ in Thousands		6 Months Ended
	Mar. 06, 2018	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2020	Sep. 30, 2020	Dec. 23, 2016	Nov. 01, 2016
Debt Instrument [Line Items]
Payment of first lien term loan facility		$ 2,620,802	$ 2,382,934
Borrowings		285,000
Total borrowing base capacity		550,000
ABL Credit Facilities
Debt Instrument [Line Items]
Number of days prior to maturity of various loan agreements that the maturity of the credit facilities may be accelerated	90 days
Restricted Cash and Cash Equivalents		$ 51,100
Term Loan And Revolving Credit Facility
Debt Instrument [Line Items]
Termination fees, if loan repaid after year two (as a percent)		1.50%
First Lien Term Loan Facility
Debt Instrument [Line Items]
Debt instrument exit fees amount		$ 1,600
Borrowings		285,000
Total borrowing base capacity		285,000
First Lien Revolving Credit Facility
Debt Instrument [Line Items]
Debt instrument exit fees amount		1,000
Revolving credit facility (Non-HUD)
Debt Instrument [Line Items]
Total borrowing base capacity		168,000
HUD Tranche
Debt Instrument [Line Items]
Total borrowing base capacity		72,000
Delayed Draw Term Loan Facility
Debt Instrument [Line Items]
Promissory note		$ 25,000
Commitment fee rate (as percentage)		2.00%
Total borrowing base capacity		$ 25,000
Delayed Draw Term Loan Facility | Forecast
Debt Instrument [Line Items]
Promissory note				$ 20,000	$ 22,500
Note Payable Due December 2021 [Member]
Debt Instrument [Line Items]
Promissory note						$ 11,700
Welltower note payable due October 30, 2020
Debt Instrument [Line Items]
Promissory note							$ 51,200
New Asset Based Lending Facilities | First Lien Term Loan Facility
Debt Instrument [Line Items]
Promissory note	$ 285,000
New Asset Based Lending Facilities | First Lien Revolving Credit Facility
Debt Instrument [Line Items]
Promissory note	240,000
New Asset Based Lending Facilities | Delayed Draw Term Loan Facility
Debt Instrument [Line Items]
Promissory note	$ 30,000
New Asset Based Lending Facilities | 90-Day LIBOR | Term Loan And Revolving Credit Facility
Debt Instrument [Line Items]
Floor rate (as a percent)	0.50%
Applicable margin	6.00%
New Asset Based Lending Facilities | 90-Day LIBOR | Delayed Draw Term Loan Facility
Debt Instrument [Line Items]
Floor rate (as a percent)	1.00%
Applicable margin	11.00%
Revolving Credit Facility
Debt Instrument [Line Items]
Commitment fee rate (as percentage)		0.50%
Borrowings		$ 285,000
Total borrowing base capacity		292,900
Available borrowing capacity under the ABL Credit Facilities		$ 7,900

XML

Long-Term Debt - New Asset Based Lending Facilities - Borrowings and Interest Rates (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Debt Instrument [Line Items]
Borrowings	$ 285,000
Weighted Average Interest	6.50%
First Lien Term Loan Facility
Debt Instrument [Line Items]
Borrowings	$ 285,000
Weighted Average Interest	6.50%
Revolving credit facility (Non-HUD)
Debt Instrument [Line Items]
Weighted Average Interest	6.50%
HUD Tranche
Debt Instrument [Line Items]
Weighted Average Interest	6.50%
Delayed Draw Term Loan Facility
Debt Instrument [Line Items]
Weighted Average Interest	12.00%

XML

Long-Term Debt - Term Loan Agreement (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2020	Dec. 31, 2019	Mar. 06, 2018
Term Loan
Term Loan Facility and New Term Loan Agreement
Outstanding principal balance under term loan facility			$ 193.0
Term Loan | Term Loan Amendment
Term Loan Facility and New Term Loan Agreement
Fixed interest rate				10.00%
Term Loan Amendment
Term Loan Facility and New Term Loan Agreement
Additional Term Loan	$ 40.0
Term Loan Amendment | Term Loan Amendment
Term Loan Facility and New Term Loan Agreement
Aggregate principal amount	160.0
Fixed interest rate				14.00%
Term Loan Amendment | Minimum
Term Loan Facility and New Term Loan Agreement
Paid-in-kind interest rate				9.00%
Term Loan Amendment | Maximum
Term Loan Facility and New Term Loan Agreement
Paid-in-kind interest rate				5.00%
New Term Loan Facility [Member]
Term Loan Facility and New Term Loan Agreement
Outstanding principal balance under term loan facility	$ 200.9
New Term Loan Facility [Member] | Maximum
Term Loan Facility and New Term Loan Agreement
Leverage ratio	1.70%
New Term Loan Facility [Member] | Forecast
Term Loan Facility and New Term Loan Agreement
Leverage ratio		1.80%
Affiliate Of Welltower Inc And Affiliate Of Omega Healthcare Investors Inc | Term Loan
Term Loan Facility and New Term Loan Agreement
Aggregate principal amount	$ 120.0

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Long-Term Debt - Real Estate Loans (Details) $ in Millions		3 Months Ended			6 Months Ended		12 Months Ended
	Nov. 08, 2018 USD ($) loan	Jun. 30, 2020 USD ($) facility loan	Mar. 31, 2020 USD ($)	Jun. 30, 2019 facility	Jun. 30, 2020 USD ($) facility loan	Jun. 30, 2019 facility	Dec. 31, 2019 USD ($) facility	Mar. 30, 2018 USD ($) loan
Long-term debt
Repayments of Debt					$ 21.6		$ 39.8
Number of facilities divested or closed | facility		19		9	43	19	6
Outstanding principal balance		$ 20.1			$ 20.1		$ 42.2
Welltower Real Estate Loan Amendments
Long-term debt
Aggregate principal balance							$ 208.0
Mid Cap Real Estate Loans
Long-term debt
Number of real estate loans | loan								2
Aggregate principal amount								$ 75.0
Number of facilities pledged | facility					8
Number of facilities divested or closed | facility					4
Outstanding principal balance		5.5			$ 5.5
Mid Cap Real Estate Loans | Disposal Group, Held-for-sale, Not Discontinued Operations
Long-term debt
Number of facilities divested or closed | facility					1
Mid Cap Real Estate Loans | LIBOR
Long-term debt
Floor rate (as a percent)					1.50%
Applicable margin					5.85%
Mid Cap Real Estate Loan One [Member]
Long-term debt
Number of real estate loans | loan	1
Additional borrowings	$ 10.0
Mid Cap Real Estate Loan One [Member] | 30-day LIBOR
Long-term debt
Floor rate (as a percent)	2.00%
Applicable margin	6.25%
Welltower Real Estate Loans
Long-term debt
Aggregate principal balance		$ 203.0			$ 203.0
Welltower Real Estate Loans | Welltower Real Estate Loan Amendments
Long-term debt
Number of real estate loans | loan		2			2
Term of debt					10 years
Repayments of Debt			$ 9.0
Fixed interest rate		12.00%			12.00%
Cash interest rate		7.00%			7.00%
Paid-in-kind interest rate		5.00%			5.00%
Amount of increase to cash component of interest payments					$ 2.0
Repayment required for conversion option, condition					105.0
Outstanding principal balance		$ 50.0			50.0
Welltower Real Estate Loans | Welltower Real Estate Loan Amendments | Minimum
Long-term debt
Amount that must be repaid by date certain to maintain the decreased cash pay interest rate					$ 105.0
Welltower Real Estate Loans | Welltower Real Estate Loan Amendments | Maximum
Long-term debt
Paid-in-kind interest rate		2.00%			2.00%
Debt conversion option					$ 50.0

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Long-Term Debt - HUD Insured Loans (Details) $ in Thousands			3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 26, 2020 facility	Feb. 01, 2020 facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Dec. 31, 2019 USD ($) facility
Long-term debt
Weighted Average Interest			6.50%		6.50%
Number of facilities divested or closed			19	9	43	19	6
Debt instrument retired | $					$ 141,492	$ 89,966
Skilled Nursing Facilities
Long-term debt
Number Of Facilities Sold		6	3	5	13	5
Disposal Group, Held-for-sale, Not Discontinued Operations | Skilled Nursing Facilities
Long-term debt
Number Of Facilities Classified As Held For Sale			3		3		1
Number Of Facilities Sold							1
HUD insured loans
Long-term debt
Principal balance outstanding | $			$ 65,200		$ 65,200		$ 140,600
Debt instrument average remaining term (in years)					29 years
Weighted Average Interest			3.30%		3.30%
Debt instrument period in which prepayment is not allowed (in months)					12 months
Prepayment penalty (as a percentage)					10.00%
Decrease in prepayment penalty (as a percentage)					1.00%
Debt instrument retired | $					$ 74,500
HUD insured loans | Minimum
Long-term debt
Term of debt					30 years
Fixed interest rate			3.00%		3.00%
HUD insured loans | Maximum
Long-term debt
Term of debt					35 years
Fixed interest rate			3.50%		3.50%
HUD insured loans | Skilled Nursing Facilities
Long-term debt
Number Of Facilities Sold					8
HUD insured loans | Skilled Nursing Facilities
Long-term debt
Number of debt instruments insured by HUD					8
HUD insured loans | Prepaid Expenses and Other Current Assets
Long-term debt
Escrow reserve funds | $			$ 5,300		$ 5,300
HUD insured loans | Disposal Group, Held-for-sale, Not Discontinued Operations
Long-term debt
Principal balance outstanding | $			$ 19,400		$ 19,400
Number of facilities financed by HUD					2
California | Skilled Nursing Facilities
Long-term debt
Number Of Facilities Sold	1
Skilled Nursing Facility | California
Long-term debt
Number of facilities divested or closed		19

XML

Long-Term Debt - Notes Payable (Details) - USD ($) $ in Millions	1 Months Ended		3 Months Ended		6 Months Ended	12 Months Ended
	Nov. 30, 2019	Oct. 31, 2019	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2020	Dec. 31, 2019	Dec. 23, 2016	Nov. 01, 2016
Long-term debt
Repayments of debt					$ 21.6	$ 39.8
Short-term notes payable
Long-term debt
Principal balance outstanding			$ 6.0		6.0
Notes Issued	$ 15.0
Repayments of debt			3.0	$ 6.0
Welltower note payable due October 30, 2020
Long-term debt
Promissory note								$ 51.2
Note Payable Due December 15 2021
Long-term debt
Principal balance outstanding			15.1		15.1	14.6
Cash interest rate							3.00%
Paid-in-kind interest rate							7.00%
Note Payable Due September 30, 2022
Long-term debt
Debt converted		$ 23.2
Fixed interest rate		3.50%
Principal balance outstanding			22.6		22.6
Welltower Inc | Welltower Notes
Long-term debt
Loan forgiven on conditions					6.0
Welltower Inc | Welltower note payable due October 30, 2020
Long-term debt
Principal balance outstanding			$ 66.5		$ 66.5	$ 64.2
Cash interest rate								3.00%
Paid-in-kind interest rate								7.00%

XML

Long-Term Debt - Other (Details) $ in Millions		3 Months Ended	6 Months Ended	12 Months Ended
	Sep. 12, 2019	Jun. 30, 2020 USD ($) loan	Jun. 30, 2020 USD ($) facility loan	Dec. 31, 2019 USD ($)
Long-term debt
Weighted Average Interest		6.50%	6.50%
Repayments of debt			$ 21.6	$ 39.8
Mortgages and other secured debt (recourse)
Long-term debt
Weighted Average Interest		1.30%	1.30%
Mortgages and other secured debt (non-recourse)
Long-term debt
Weighted Average Interest		4.20%	4.20%
Aggregate outstanding principal balance		$ 23.1	$ 23.1	23.8
HUD insured loans
Long-term debt
Weighted Average Interest		3.30%	3.30%
Principal balance outstanding		$ 65.2	$ 65.2	140.6
Next Partnership
Long-term debt
Variable interest entity, ownership interest (as a percent)			46.00%
Number of facilities included in VIE | facility			15
Next Partnership | Term Loan
Long-term debt
Aggregate principal amount		$ 142.1	$ 142.1
Applicable margin rate (as a percent)			3.50%
Number of debt instruments insured by HUD | loan		2
Repayments of debt		$ 24.6
Term of debt			25 years
Principal balance outstanding		78.8	$ 78.8	103.4
Number of collateralized facilities | facility			10
Next Partnership | Mezzanine loan
Long-term debt
Aggregate principal amount		$ 27.0	$ 27.0
Fixed interest rate		11.50%	11.50%
Principal balance outstanding		$ 27.0	$ 27.0	27.0
Next Partnership | HUD insured loans
Long-term debt
Number of debt instruments insured by HUD | loan			2
Number of facilities included | facility			5
Principal balance outstanding		$ 67.5	$ 67.5	41.7
Vantage Point Partnership
Long-term debt
Variable interest entity, ownership interest (as a percent)	30.00%		30.00%
Ownership interest percentage		19.00%	19.00%
Vantage Point Partnership | Term Loan
Long-term debt
Aggregate principal amount		$ 240.9	$ 240.9
Floor rate		1.75%	1.75%
Applicable margin rate (as a percent)			3.75%
Term of debt			25 years
Principal balance outstanding		$ 240.9	$ 240.9	$ 233.6
Number of collateralized facilities | facility			19
Vantage Point Partnership | Promissory note
Long-term debt
Aggregate principal amount		$ 76.8	$ 76.8
Fixed interest rate		14.00%	14.00%
Principal balance outstanding		$ 76.8	$ 76.8
Minimum | HUD insured loans
Long-term debt
Term of debt			30 years
Fixed interest rate		3.00%	3.00%
Minimum | Next Partnership | HUD insured loans
Long-term debt
Fixed interest rate		2.79%	2.79%
Maximum | HUD insured loans
Long-term debt
Term of debt			35 years
Fixed interest rate		3.50%	3.50%
Maximum | Next Partnership | HUD insured loans
Long-term debt
Fixed interest rate		3.15%	3.15%

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Long-Term Debt - Debt Covenants (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Twelve months ended December 31,
2021	$ 19,122
2022	572,580
2023	335,297
2024	12,490
2025	10,224
Thereafter	430,980
Total long-term debt	$ 1,380,693

XML

Income Taxes - Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Tax Expense (Benefit), Continuing Operations, Income Tax Reconciliation
Effective tax rate	1.50%	1.80%	(15.20%)	0.30%
Income tax benefit	$ (457)	$ (162)	$ (1,236)	$ (111)
Deferred tax asset valuation allowance	$ 1,800		$ 1,800
FC-GEN Operations Investment, LLC
Income Tax Expense (Benefit), Continuing Operations, Income Tax Reconciliation
Business Acquisition, Percentage of Voting Interests Acquired	67.10%		67.10%

XML

Income Taxes - Exchange Rights and Tax Receivable Agreement (Details) - FC-GEN Operations Investment, LLC - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Goodwill Tax Deductible Amount Tax Basis Step Up	$ 6.7	$ 13.7
Tax receivable agreement, potential payment as percentage of cash savings	90.00%

XML

Related Party Transactions (Details) $ in Thousands		3 Months Ended		6 Months Ended
	Jun. 01, 2018 USD ($) facility item	Jun. 30, 2020 USD ($) facility customer	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) facility customer	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Related Party Transaction
Options to renew				true
Lease cost		$ 110,312	$ 140,054	$ 223,750	$ 280,712
NewGen Partnership
Related Party Transaction
Ownership interest		50.00%		50.00%
Number of facilities transitioned operational facility | facility		23		23
Maximum
Related Party Transaction
Operating lease renewal term		10 years		10 years
Minimum
Related Party Transaction
Operating lease renewal term		5 years		5 years
Related Party Customer
Related Party Transaction
Net revenue from related party		$ 1,200	1,800	$ 2,600	3,600
Notes receivable from related party		$ 1,200		$ 1,200		$ 1,400
Class A Common Stock | Minimum
Related Party Transaction
Ownership interest		5.00%		5.00%
Rehabilitation Services
Related Party Transaction
Net accounts receivable from related party		$ 31,000		$ 31,000		$ 28,900
Rehabilitation Services
Related Party Transaction
Number of customers owned and operated | customer		2		2
Net revenue from related party		$ 25,500	29,900	$ 51,300	59,800
Reserves posted against note receivable				55,000
Notes receivable from related party		$ 56,300		$ 56,300
Next Landlord Entities
Related Party Transaction
Initial annualized lease rent paid	$ 13,000
Next Landlord Entities | Board of directors
Related Party Transaction
Ownership interest percentage		4.00%		4.00%
Next Landlord Entities | New Hampshire And Florida [Member]
Related Party Transaction
Number of facilities under lease and purchase option | facility	12
Number of LLCs affiliated with Next Healthcare | item	12
Welltower Inc
Related Party Transaction
Number of facilities under lease and purchase option | facility		42		42
Interest paid		$ 6,700	6,500	$ 12,200	11,800
Operating lease renewal term		11 years		11 years
Options to renew				true
Annual rent escalators		2.00%		2.00%
Lease cost		$ 17,700	$ 18,100	$ 35,400	$ 38,200
Equity Method Investee | NewGen Partnership
Related Party Transaction
Net revenue from related party		$ 6,300		10,200
Financing provided				$ 9,000
Number of facilities subleased to related party | facility		6		6

XML

Other Income (Details) $ in Thousands			3 Months Ended		6 Months Ended		12 Months Ended
	Apr. 01, 2020 facility	Feb. 01, 2020 facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Dec. 31, 2019 facility
Gain on sale of owned assets			$ (23,215)	$ (27,345)	$ (97,795)	$ (27,345)
Loss recognized for exit costs associated with divestiture of operations			5,374	4,578	10,309	7,921
Gain on partial master lease termination			(26,259)	(646)	(41,446)	(20,906)
Total other (income) loss			$ (44,100)	$ (23,413)	$ (128,932)	$ (40,330)
Number of facilities divested or closed | facility			19	9	43	19	6
Leases terminated, number of facilities | facility			16		24
Leases terminated, gain (loss) on lease termination			$ 26,200		$ 30,700
New Generation Health, LLC
Leasehold rights transferred, number of facilities | facility		13			13
Leasehold rights transferred, gain (loss) on lease termination			$ 10,700		$ 10,700
Welltower Master Lease
Leases terminated, number of facilities | facility				2		26
Leases terminated, gain (loss) on lease termination				$ 600		$ 20,900
Skilled Nursing Facilities
Number of facilities sold | facility		6	3	5	13	5
Disposal Group, Disposed of by Sale, Not Discontinued Operations | Skilled Nursing Facilities
Number of facilities sold | facility	3

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Asset Impairment Charges (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Asset Impairment Charges
Impairment charges	$ 77.1	$ 0.9	$ 86.8	$ 0.9

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Assets Held for Sale (Details) - Disposal Group, Held-for-sale, Not Discontinued Operations $ in Thousands	Jun. 30, 2020 USD ($) facility	Dec. 31, 2019 USD ($) facility
Assets and Liabilities of Disposal Group
Prepaid expenses		$ 1,171
Property and equipment, net of accumulated depreciation of $5,079 and $2,201 at June 30, 2020 and December 31, 2019, respectively	$ 15,992	16,306
Accumulated depreciation	5,079	2,201
Total Assets	15,992	17,477
Current portion of long-term debt	394	368
Long-term debt	24,043	19,789
Total Liabilities	$ 24,437	$ 20,157
Skilled Nursing Facilities
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Number of facilities classified as held for sale | facility	3	1
Sales consideration amount	$ 31,400

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Commitments and Contingencies - Workers' Compensation (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Commitments and Contingencies
Workers' Compensation discount rate (as a percentage)			1.60%
Potential effect of discounting on Workers Compensation reserve	$ 9.5		$ 9.5		$ 12.0
Provision for general and professional liability	7.4	$ 5.4	35.1	$ 26.8
Reserve for general and professional liability	384.6		384.6		392.8
Provision for workers' compensation	25.1	$ 13.4	37.6	$ 28.6
Reserve for workers' compensation risks	170.1		170.1		160.5
Health insurance reserve	$ 13.2		$ 13.2		$ 15.1

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Commitments and Contingencies - Lease Guarantees (Details) - New Generation Health, LLC $ in Millions		6 Months Ended
	Feb. 01, 2020 facility	Jun. 30, 2020 USD ($) facility
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Leasehold rights transferred, number of facilities	13	13
Leasehold rights transferred, lease guarantee agreements, executed, number of facilities	6	6
Leasehold rights transferred, lease guarantee agreements, executed, undiscounted cash rent obligations | $		$ 87.9

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Fair Value of Financial Instruments - Recurring Measures (Details) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	$ 251,651	$ 12,097
Restricted cash and equivalents	113,725	113,709
Restricted investments in marketable securities	132,017	136,942
Assets, Fair Value Disclosure, Total	497,393	262,748
Level 1
Assets, Fair Value Disclosure [Abstract]
Cash and cash equivalents	251,651	12,097
Restricted cash and equivalents	113,725	113,709
Restricted investments in marketable securities	46,810	45,903
Assets, Fair Value Disclosure, Total	412,186	171,709
Level 2
Assets, Fair Value Disclosure [Abstract]
Restricted investments in marketable securities	85,207	91,039
Assets, Fair Value Disclosure, Total	$ 85,207	$ 91,039

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Fair Value of Financial Instruments - Debt Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	$ 1,378,826	$ 1,613,420
Asset based lending facilities
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	277,745	412,346
Term Loan
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	203,630	196,714
Real estate loans
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	229,038	265,700
HUD insured loans
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	44,670	117,117
Welltower Notes
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	110,211	116,952
Mortgages and other secured debt (recourse)
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	6,925	6,369
Mortgages and other secured debt (non-recourse)
Financial Liabilities Fair Value Disclosure [Abstract]
Principal balance outstanding, net	506,607	498,222
Level 2
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	1,378,826	1,613,420
Level 2 | Asset based lending facilities
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	277,745	412,346
Level 2 | Term Loan
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	203,630	196,714
Level 2 | Real estate loans
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	229,038	265,700
Level 2 | HUD insured loans
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	44,670	117,117
Level 2 | Welltower Notes
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	110,211	116,952
Level 2 | Mortgages and other secured debt (recourse)
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	6,925	6,369
Level 2 | Mortgages and other secured debt (non-recourse)
Financial Liabilities Fair Value Disclosure [Abstract]
Fair Value	$ 506,607	$ 498,222

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Fair Value of Financial Instruments - Nonrecurring Measures (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Non-recurring Fair Value Measures
Finance lease right-of-use assets, net	$ 32,956	$ 32,956		$ 37,097
Finance lease right-of-use assets, net, Impairment charges	77,100	79,700
Operating lease right-of-use assets	2,134,233	2,134,233		2,399,505
Fair Value, Measurements, Nonrecurring
Non-recurring Fair Value Measures
Property and equipment, net	831,333	831,333		962,105
Property and equipment, Impairment Charges		7,100	$ 900
Finance lease right-of-use assets, net	32,956	32,956		37,097
Finance lease right-of-use assets, net, Impairment charges		2,600
Operating lease right-of-use assets	2,134,233	2,134,233		2,399,505
Operating lease right-of-use assets, Impairment Charges		77,100
Intangible assets, net	84,826	84,826		87,446
Goodwill	$ 85,642	$ 85,642		$ 85,642

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Subsequent Events (Details) $ in Thousands				3 Months Ended		6 Months Ended
	Jul. 06, 2020 USD ($)	Jul. 02, 2020 USD ($) facility Option	Feb. 01, 2020 facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility	Jun. 30, 2020 USD ($) facility	Jun. 30, 2019 USD ($) facility
Subsequent Event [Line Items]
Annual base rent				$ 96,395	$ 94,586	$ 194,415	$ 188,647
Skilled Nursing Facilities
Subsequent Event [Line Items]
Number of facilities sold | facility			6	3	5	13	5
Number of facilities acquired | facility						1
Skilled Nursing Facilities | Rhode Island
Subsequent Event [Line Items]
Annual revenues						$ 9,900
Pre-tax net income (loss)						$ 200
Subsequent Events | Skilled Nursing Facilities | Rhode Island
Subsequent Event [Line Items]
Sales price	$ 10,500
Repayments of loans	$ 5,500
Cascade | Subsequent Events
Subsequent Event [Line Items]
Number of facilities sold | facility		1
Sales price		$ 26,100
Number of facilities acquired | facility		8
Number of facilities operates under master lease agreement | facility		9
Option to extend		true
Initial lease term		10 years
Number of options to extend | Option		1
Lease renewal term		5 years
Annual base rent		$ 20,700
Number of facilities with purchase option | facility		9
Fixed purchase price		$ 251,600
Promissory note		$ 20,300
Cascade | Subsequent Events | CCGen Partnership
Subsequent Event [Line Items]
Percentage of membership interest in partnership		49.00%