Even though occupancy has risen each month since January for skilled nursing operators under the Omega Healthcare Investors umbrella, it’s still not enough to make up for the severe financial challenges caused by the pandemic, the company’s top executives reported Tuesday. 

“We need occupancy to return over 80% in order to meaningfully mitigate the cash flow reductions from a pandemic,” Omega CEO C. Taylor Pickett said during a second-quarter earnings call. 

Omega reported on Tuesday that its average occupancy was approximately 75.7% at the end of July — up from the low of 72.3% the company reported in January. Pickett, however, noted that labor shortages have created two significant problems as its overall occupancy rate has started to improve. 

“First, a number of facilities have self-imposed admission bans if they cannot staff at clinically appropriate levels. Therefore, even though there is an opportunity to increase census based on demand in the market, these facilities have elected to limit new admissions due to staffing limitations,” Pickett explained. 

He said the second issue is the continual climb in wage rates. Labor cost increases are particularly difficult to manage in states with limited or no COVID-19 relief funding. He added that it appears the wage increases may create a new, inflated baseline wage rate going forward.

“The combination of significant occupancy decline and a tight labor market with increasing wages and a shortage of staff have started to create liquidity issues for certain operators,” Pickett said.  

Company executives on Tuesday’s call highlighted an unnamed operator that represents 3%, or $30 million, of its annual revenue who informed Omega that they would be unable to pay June rent of $2.5 million, specifically due to occupancy and labor issues. 

“We are in active ongoing discussions with this operator to determine what we hope will be a consensual restructure of their portfolio. The restructure may result in either releasing facilities or outright sales of part or all of the portfolio. At this time, it is too early to predict the ultimate outcome of these discussions,” Omega COO Daniel Booth said. 

Despite the challenges, Pickett said the company still “strongly believe[s] in the positive long-term prospects for our operating partners as occupancy rebounds and the aging demographics drive increasing demand for skilled nursing facilities.”

For additional coverage from the call, check out the McKnight’s Business Daily.