Omega Healthcare Investors (NYSE: OHI) may provide summertime rent relief to one of its skilled nursing tenants, as the delay in federal financial relief is causing strains on operators.
The Florida-based operator told the Maryland-based real estate investment trust (REIT) that it would need help with its June rent, roughly $2.5 million, according to a June 15 note from Stifel.
This situation is arising in part because the amount of money going to nursing homes in the next round of government funding remains unclear, as does the timing of when further financial relief will be distributed.
“Depressed fundamentals from COVID, the repayment of Medicare advance payments (earlier in the pandemic) and the delayed disbursement of government provider relief funds are causing strains for some industry operators, including this tenant,” Stifel analysts stated in their note.
The analysts expect the rents to be paid as additional government support comes to bridge the impact of occupancy loss due to the pandemic.
“It makes no sense to us for the government to save the industry through the CARES Act early in the pandemic, only to watch it implode just as the recovery is starting,” the Stifel note said.
Executives at both Sabra Health Care REIT (Nasdaq: SBRA) and CareTurst (Nasdaq: CTRE) expect $10 billion of the remaining funds to go to the skilled nursing and senior living sector, they said at the Nareit REITWeek investor conference this month. However, they were not sure what the methodology or timing of that distribution might be.
Stifel believes that $3 billion to $7 billion from the fund will be earmarked for skilled nursing.
Omega likely will draw from the operator’s security deposit, which should cover June and July rent, the Stifel analysts expect.
The assumption is that OHI will move the tenant to cash-based accounting and write down the remaining straight-line rent, with August and September rent not expected either. The tenant pays roughly $2.5 million a month in rent.
Once occupancy recovers to 85% or the CARES Act funds are distributed, analysts with Stifel expect rent payment to resume as the operator had strong pre-pandemic performance.
Selling the properties remains the last possible option for OHI. Stifel’s team is anticipating a skilled nursing bounceback, supported by the CARES Act funds.
“We believe the recovery should boost occupancy around 50bps-100bps per month, which implies pre-COVID occupancy will happen in 12 to 24 months,” the Stifel analysts wrote.
Companies featured in this article:
CareTrust REIT, Omega Healthcare Investors, Sabra Health Care REIT, Stifel
