One of the biggest nursing home operators in the US has told investors that it could face bankruptcy within 12 months unless the government provides more help to meet pandemic-related losses.

The warning from Genesis Healthcare offers an early indication of the financial damage wrought by a virus that is readily transmitted among older people living in close quarters, and comes alongside high-profile defaults by real estate investors exposed to the sector.

The property group Colony Capital revealed on Monday that it had handed over the keys to 36 senior living facilities, having defaulted on debt secured on the assets.

Genesis said a dearth of new residents and far higher staffing costs had clouded its financial outlook and raised “substantial doubt” about the company’s ability to operate as a going concern.

The warning cast doubt over the future of a company that operates 350 nursing facilities, about half of them in New York and surrounding states that bore the brunt of the pandemic in its early stages in the US.

The group has financial backing from private equity firm Apollo Global Management, which provided $555m in asset-backed loans via its credit arm.

Without “future governmental funding support and other mitigating plans . . . it is unlikely that the company will be able to generate sufficient cash flows [to meet its obligations]”, Genesis said in a regulatory filing on Monday evening.

Since reporting its first Covid-19 cases in March, Genesis has been forced to limit family visitation and close some nursing homes to new residents.

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At Genesis facilities in the five hardest-hit states, occupancy rates were down 17 percentage points in the quarter ended June 30, while the hourly wage for nursing staff increased by 45 per cent as the company was forced to offer higher pay and bonuses to attract adequate staff.

“These are astonishing figures that highlight just how wide the range of impact can be on skilled nursing facilities located in markets having high prevalence of community spread,” said George Hager, Genesis chief executive.

So far, Genesis says it has received $228m in relief and support from other federal and state sources — including the Cares Act passed by Congress earlier this year — more than enough to pay for its $213m in extra costs and lost revenue.

Still, the company warned: “The continued timely receipt of adequate government financial support cannot be assured.”

Colony Capital’s founder Tom Barrack, a close ally of US president Donald Trump, has also urged massive government support to help the real estate industry through a period of “chaos”.

Colony has suffered higher operating costs in its senior housing properties, where operators were forced to pay higher wages and to stock up on personal protective equipment and other expensive supplies.

Against that deteriorating financial performance, Colony has defaulted on a total of $203m of debt secured on healthcare properties, about three-quarters of which have now been seized by lenders.

Via Financial Times