Omega Healthcare Investors revealed late Monday that one of its tenants had fallen behind on its rent payments by $4 million, with the company agreeing to defer millions in lease costs.
Denton-based Daybreak Venture — which operates more than 65 facilities across Texas — has been plagued by a litany of problems, said Omega Chief Operating Officer Daniel Booth. Omega will defer about $4.2 million in lease costs for the fourth quarter of 2018 for Daybreak, and another $5 million over the first half of this year.
“The operating environment for skilled nursing facilities in the state of Texas has gotten increasingly more challenging over the last several years,” he said during a call with investors Tuesday. He noted the state’s largest skilled nursing player, Senior Care Centers, filed for bankruptcy in December, citing similar struggles.
“While none of Omega’s operators have reached that point, many are experiencing shrinking margins as a result of woefully low state Medicaid rates, a slow but steady erosion in occupancy and a robust labor market, causing virtually across-the-board labor pressures,” Booth added.
Omega will collect $5.2 million in cash from Daybreak each of the first two quarters of this year, before returning to the normal payments of $7.7 million afterward.
Omega officials listed several reasons for optimism for Daybreak’s future. Those include certain operational improvements that Daybreak is pursuing, participation in Texas’ Quality Incentive Payment program (which is similar Upper Payment Limit and could increase its annual revenue by upward of $7 million), and the possible passage of the Nursing Facility Reinvestment Allowance. The latter is a provider-backed change that would help to address the state’s Medicaid shortfalls for long-term care.
“We believe that temporary rent deferrals are critical to provide additional time to allow these initiatives to reach their full potential and positively impact the performance of the Daybreak portfolio,” Booth told investors.
