Another operator is unable to pay rent to Omega Healthcare Investors (NYSE: OHI), bringing the total number to three — two operators had stopped paying rent earlier this year.
The three operators make up about 8.6% of the Maryland-based real estate investment trust’s (REIT) third quarter contractual rent and mortgage payments, according to a report released in conjunction with the BofA Securities 2021 Global Real Estate Conference.
“This operator did not pay its contractual August rent or interest on other loans outstanding and has indicated that it does not expect to pay September,” Omega noted in its report; the third operator represents 5.4% of estimated rent and mortgage payments for the third financial quarter.
Omega CEO Taylor Pickett said during the REIT’s second quarter earnings call last month that “the combination of significant occupancy declines and a tight labor market with increasing wages and a shortage of staff has started creating liquidity issues for certain operators.”
Pickett also said at the time that it’s possible other operators would experience similar cashflow stress.
Omega did not respond to a request for further comment on Tuesday.
The REIT holds $17.6 million in letters of credit, cash deposits, and “certain limited personal guarantees.”
Omega said it is considering alternative options, adding that there will be no write-off of straight-line non-cash revenue for the third operator; the operator had converted to cash-basis accounting.
Stifel analysts say transitioning properties to new operators or selling them outright are the “last possible steps,” according to a published note in June. Instead, analysts expect Omega to keep its operators in place to repay rent with interest.
“Management noted the operator had strong performance pre-pandemic and expects the operating results post-pandemic to be similar,” Stifel said in its 2Q note.
Omega did collect 98% of rent in the second quarter, according to the report. Occupancy declined approximately 11% between January 2020 and January 2021, Omega reported, with a 4% uptick through August.
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