Liquidity Issues Persist, But Federal and State Funding May Help, Omega Says

Operators continue to face liquidity and workforce shortage issues at this point in the pandemic, Omega Healthcare Investors (NYSE: OHI) told shareholders during its third quarter earnings call on Friday, but anticipated Provider Relief Funds (PRF) and state initiatives will offset costs when they arrive.

Florida’s nearly $100 million funding initiative for nursing homes, along with expected relief from remaining PRF, will help operators fighting the workforce shortage and liquidity issues, Omega CEO Taylor Pickett said during the call.

“This is extremely welcome news as Florida had not previously provided any stimulus to the industry, but it is still too soon to know what the ultimate payout will be for each operator,” said Megan Krull, senior vice president of operations for Omega.

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With applications for PRF closed as of Oct. 25, Pickett anticipates distribution to take place over the next several months, although it’s not certain how much funding each facility will get on this front either.

“The determination on what percentage of losses the building will be reimbursed for is not just based on the number of applicants, but also weighted differently depending on the size of the operator, whether it serves a rural versus an urban population, and whether it serves Medicare, Medicaid and CHIP residents,” noted Krull.

Omega’s operators cumulatively recorded about $49 million in federal stimulus funds during the second financial quarter, compared to $74 million in the first quarter, while facilities saw slow occupancy recovery from 72.3% in January to 75.5% according to Omega COO Daniel Booth.

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“While coverages have improved quarter over quarter, the fact that coverage without stimulus … highlights the reason why we have had a handful of operators unable to pay rent this quarter and into October,” Booth said during the call.

Pickett touched on the workforce shortage during the earnings call as well, linking the “dramatically increased” use of staffing agencies, combined with an increase in wages, to an increase in overall hourly cost for operations.

Omega reported Nareit Funds From Operations (Nareit FFO) for the third quarter at $180.7 million, or 73 cents per share, compared to $15.1 million, or 6 cents per share during the same quarter last year.

Other investments and sales discussed included a $66 million mortgage financing to an existing operator for six nursing facilities in Ohio, and a $10 million purchase lease for two nursing homes in the UK, Booth said. Year-to-date, Omega has made new investments totalling $821 million.

Omega announced it sold 15 facilities for $109.7 million in cash in the third financial quarter, recognizing a gain of $56.2 million.

Shareholders will receive a 67 cent per share cash dividend on common stock in the fourth quarter.

Pickett said it’s possible liquidity issues will impact more operators based on uncertainty surrounding the amount and timing of ongoing federal and state support.

“We’re several months into the recoupment cycle for those operators that took Medicare advance payments when the pandemic started,” Pickett said. “Repayment of these advances has significantly impacted operator liquidity, including the liquidity of Agemo and Gulf Coast.”

Agemo Holdings and Gulf Coast Health Care stopped paying contractual rent in August and June respectively, while Guardian Healthcare failed to make rent and interest payments going into the fourth financial quarter.

Maryland-based Omega plans to transition a “significant portion” of its Guardian portfolio to an unrelated third-party, the real estate investment trust (REIT) said in its earnings statement; the REIT holds letters of credit from Guardian for $7.4 million.

Similar to its handling of Guardian rent nonpayment, Omega recorded $8.4 million in revenue for Agemo, via its letters of credit and application of Agemo’s security deposit.

Agemo Holdings LLC is the legal name for a portfolio of buildings operated by Signature HealthCARE, after Signature consolidated its leases with Omega as part of a 2018 restructuring.

Pensacola, Fla.-based Gulf Coast, which filed for Chapter 11 bankruptcy mid-October, stopped paying rent for 24 of its facilities; Omega pulled revenue from Gulf Coast’s security deposit for $7.4 million during the quarter.

Omega and Gulf Coast entered into a restructuring support agreement — Omega will provide up to $25 million in financing to inject liquidity and assist with operation transition.

“Historically, in many of our restructurings, one or more of the actions that I’ve outlined are sufficient to protect the value of our assets, and most, if not all, the long term cash flow generation from the restructured assets. We continue to remain hopeful that the outcome of our covered restructurings will yield a similar result,” Pickett said, referencing actions like rent deferrals, asset sales and transitions to a new operator.

Agemo represents 5.3% of annual revenue for Omega, with Guardian and Gulf Coast at 3.7% 3% respectively, Booth said.

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