Omega Healthcare Investors’ bottom line took a hit in the first quarter as operator restructurings from the prior quarter kicked in to advance pandemic recovery. But CEO Taylor Pickett said the long-term care industry is still on the road to recovery and remains “quite fragile.”
During Wednesday’s earnings call, Pickett said that the Hunt Valley, MD-based real estate investment trust’s first quarter financial performance was in line with expectations due to the effects of previously disclosed operator restructurings.
“We expect our financial performance to improve in the coming quarters as restructurings are concluded, restructured operators begin paying rent again, and proceeds from asset sales are redeployed,” Pickett said. “The operating backdrop continues to improve, with occupancy increasing, the tight labor market moderating slightly, and federal and state reimbursement increases providing much needed support to an industry still feeling the impact from the pandemic.”
One of those restructurings was with Maplewood Senior Living, which operated 17 Omega communities and saw occupancy declines and increased costs, particularly in labor. At the same time, supply chain constraints resulted in elevated costs and delayed openings at its Manhattan and Princeton, NJ, developments.
Omega indicated that stabilization of the Manhattan and Princeton properties, as well as operating improvements, may allow Maplewood to return to paying full rent and interest.
In the United Kingdom, Healthcare Homes — which operates 42 Omega-owned care homes (similar to assisted living in the US) — received a rent deferral through April, with regular payments returning this month. Although the provider’s occupancy declines were more modest compared with operators in the United States, a 300% increase in energy costs at the end of 2022 created operating pressures.
US operators still face a difficult, although improving, environment, according to Omega. Operators representing 10% of fourth-quarter 2022 rent and mortgage payments stopped paying rent as of December. And in January, Omega announced another three operator restructurings/deferrals.
“With many operators continuing to struggle with the impact of COVID-19 on both occupancy and staffing, there remains an elevated risk that additional operators may be unable to pay in accordance with their contractual terms,” Omega stated in an investor presentation.
Pickett said that continued occupancy improvement, strong state reimbursement rates and some moderation in a still difficult labor market are leading to positive operating trends. In its senior housing operating portfolio, occupancy remained steady at 87% as of mid-April, compared with 83% in January 2022.
Agency labor expense for the fourth quarter 2022 was down five times from where it was in 2019, according to Senior Vice President of Operations Megan Krull. But operators are not out of the woods yet.
On a brighter note, the acquisition pipeline is picking up, with Omega closing on $276 million in transactions year to date, including a March 31 acquisition of six care homes in the UK for $26.4 million.
The REIT also funded $11 million in capital renovations and construction-in-progress projects in the first quarter.
