Fresh off a major restructuring effort with key tenant Signature HealthCARE, the CEO of Omega Healthcare Investors (NYSE: OHI) had a decidedly sunny outlook for the skilled nursing industry’s short-term future — as well as Signature’s.
“We’ll look three years out,” Taylor Pickett said of his company’s restructuring strategy during a panel discussion at the National Investment Center for Seniors Housing & Care (NIC) fall conference in Chicago on Wednesday. “We think the headwinds will have completely abated, that the cash flows will have returned, and will probably be better for an entity like Signature.”
The Hunt Valley, Md.-based real estate investment trust (REIT) inked a restructuring agreement with the struggling Signature chain of skilled nursing facilities this past spring, which saw Omega provide $6.4 million in annual rent deferments, $4.5 million in capital expenditure funds per year, and up to $25 million in working capital loans.
Those three strategies represent the bulk of Omega’s turnaround “toolkit,” according to Pickett, with the dual goal of providing short-term relief for the operator — which, in Signature’s case, was about $25 million behind on rent — while also preserving the REIT’s long-term play.
“We think about restructuring, it’s typically: How do we deal with the issues without giving away dramatic future upside?” Pickett said.
It’s been an active year for the REIT, which has also seen a legal battle with tenant Orianna Health Systems over a similar restructuring effort, as well as the continued execution of ongoing plan to shed underperforming properties — with 64 sold for $311 million as of the second quarter, and plans to sell off $90 million more by the end of 2018.
But Pickett also bucked with the rest of the industry to declare that the operators in Omega’s portfolio have already seen a boost from the so-called “silver tsunami,” the coming wave of baby boomers who will soon reach the target age for skilled nursing services — which Pickett pegged at 75 and up. He noted that the current crop of SNF residents were born during a small “baby bust” created by the Great Depression from 1929 to around 1940, with today’s 80-year-old born in 1938.
While the baby boom generation didn’t enter the world until 1946, at least according to the most commonly accepted definition, Pickett said his company identifies the start of the demographic wave at 1940, meaning Omega’s buildings have already gotten something of a population boost in the second half of this decade.
“We started to see the demographics flow through our business beginning in 2015 and start to offset the length-of-stay impact that we’ve seen,” he said.
Pickett also took his time on the panel discussion to praise the potential effects of the Patient-Driven Payment Model, which he and multiple other operator and REIT CEOs have classified as a positive influence for the industry — and boldly predicted that the entire conversation around skilled nursing will be different by the time NIC holds its summit in Chicago next September.
“Skilled is much easier to predict in my mind than senior housing,” Pickett said. “It comes down to the demand and the demographics, and they’re here.”