Omega Healthcare Investors (NYSE: OHI) operators face uncertain timing of their occupancy recovery as labor shortages and delays in federal funding continue across the industry, CEO Taylor Pickett said on the real estate investment trust’s (REIT) second-quarter earnings call.
In June Omega announced that a Florida operator, representing $30 million or 3% of Omega’s annual revenue, told the Maryland-based REIT that their June rent of approximately $2.5 million would not be paid and future rent payments would not be remitted in the coming months.
“The combination of significant occupancy declines and a tight labor market with increasing wages and a shortage of staff has started to create liquidity issues for certain operators,” Pickett explained. “It is possible that additional operators could experience similar cashflow stress.”
The missed rent had minimal impact on Omega’s overall portfolio — as Robert Stephenson, chief financial officer for Omega, explained during the call — with Omega collecting over 99% of its contractual rent mortgage and interest payments and 98% for the month of July, with the decrease attributed to the previously disclosed Florida operator.
“We are in active ongoing discussions with this operator to determine what we hope will be a consensual restructure of their portfolio,” Omega’s COO Dan Booth said. “The restructure may result in either releasing facilities or outright sales of part or all of the portfolio.”
Occupancy recovery continues, federal funding delayed
Since January occupancy has improved each month for Omega, and Pickett indicated he expected that trend to continue.
“We need occupancy to return to over 80% in order to meaningfully mitigate the cash flow reductions from the pandemic,” he said.
Staffing and labor shortage issues could prevent those numbers from improving, however, as a number of facilities have imposed limitations on new admissions due to not having enough staff to fill the buildings.
Occupancy averaged approximately 75.7% for July to date, according to Booth, up from a low of 72.3% in January.
For the industry as a whole, it remains to be seen how much federal funding is still heading to long-term care to help offset cash flow reductions from the pandemic, but Pickett remained optimistic in the positive long-term prospects of Omega’s operating partners as occupancy rebounds and aging demographics drive increasing demand for skilled nursing facilities.
With $24.5 billion in unallocated funds in the Provider Relief Fund, Omega is still waiting for answers on how much additional federal funding it can expect for its properties.
“None of those funds have been allocated and we are still in a wait-and-see mode as to what benefits the long-term care industry will receive,” said Megan Krull, Omega’s senior vice president of operations. “Thankfully, a handful of states have announced new continued or increased stimulus for the long-term care industry, such as Michigan and Pennsylvania.”
It’s still too early to tell what the impact of the funds will be on Omega’s operators and the industry as a whole, she noted.
“We hope that the federal government finds a renewed commitment to this space and that states that haven’t stepped up to provide support soon will with the additional funds that they have now received,” Krull added.
Q2 Investments
Omega closed on skilled nursing financing deals in the second quarter of the year.
On June 1, Omega provided $6.4 million of mortgage financing to an existing operator as the loan was secured by two nursing facilities located in Ohio with an interest rate of 10.5%. The REIT also provided $66 million of mortgage financing to an existing operator.
Year to date, Omega made new investments totaling $722 million, including $48 million for capital expenditures.
“While we make further progress on our existing ongoing developments, we continue to work with our operators on strategic reinvestment in our existing assets,” Steven Insoft, chief corporate development officer for Omega, said.
Omega invested $31.1 million in the second quarter in new construction and strategic reinvestment. Nearly $20 million, $19.5 million, of this investment is predominantly related to its active construction projects.
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