Omega Healthcare Investors late last year shed 30 skilled nursing facilities operated by LaVie Care Centers, formerly part of the behemoth Consulate Health Care.

In addition, the real estate investment trust is transitioning another six LaVie properties to new operators and likely will take the same approach with a half dozen properties run by Guardian Healthcare.

Paring back and resetting some skilled nursing assets was a core topic during Omega’s 2023 fourth-quarter earnings call Thursday morning. Even as staffing shortages ease and occupancy ticks back up, the REIT continues to experience challenges with some lease obligations.

Omega reported net income of $57 million for the quarter, up from $47 million in the same quarter of 2022. It also reported funds from operations at $129 million for quarter four, compared to a loss of $30 million to close out 2022.

The increased stability led the firm to issue its first full-year guidance since the pandemic began, with 2024 adjusted funds from operations forecast between $2.70 and $2.80 per share.

CEO Taylor Pickett said leaders had enough “visibility into the timing and ultimate resolution of the portfolios that are being transitioned or sold” to do so.

“Key tenant occupancy and rent coverage metrics continue to improve,” said Pickett, who later noted the entire portfolio (including senior living assets) grew to 83.2% occupancy last quarter.

“In general, the restructured portfolios have meaningful long-term value and, although we are working to finalize these restructurings as quickly as possible, our ultimate goal is to maximize long-term sustainable cash flow,” Pickett said in a statement on the earnings published Wednesday. “We anticipate our 2024 first and second quarter earnings to continue to be impacted by these restructuring efforts, although we expect earnings will improve as the year progresses and our operator issues are resolved.”

Maximizing SNF values

On the call, Omega leaders discussed ongoing challenges with senior living operator Maplewood, where conditions appear to be improving.

Investors and analysts on the call, however, sought more details on Omega’s ongoing efforts to steady its SNF holdings.

COO Dan Booth outlined recent skilled activity, including the sale of 30 LaVie assets in Florida for $317.9 million. An additional six LaVie facilities are being transitioned to another operator, which has been identified by Omega but remains unnamed publicly as details are finalized. Those buildings are split between Louisiana and Florida.

That leaves another 30 LaVie buildings in the Omega portfolio, and their future remains uncertain. Those facilities are in North Carolina, Pennsylvania, Mississippi and Virginia.

“Three of those four states are considered highly desirable from an operating environment standpoint,” Booth said, adding that LaVie had paid $1.45 million in lease obligations each month since November.

Later, pushed on whether those remaining assets might also be sold, Pickett said they “perform well.”

“In whomever’s hands they end up, there’s a lot of value there,” he added. “It’s just a question of working through the process to make sure we maximize the value proposition.”

Omega is also negotiating new terms to re-lease six buildings in Pennsylvania (5) and West Virginia (1) from Guardian to a different operator. That deal could be completed by the end of the second quarter, company officials said.

As of last year, Guardian operated 35 facilities in those two states. In an interview with McKnight’s Long-Term Care News last February, CEO Michael Herald touted community clusters as a strength of its decentralized operations model.

Omega had reported rent issues with the company at least as far back as early 2022.

Staffing, Medicaid concerns

While much of the call centered on transitioning properties, Omega leaders said they remained committed to acquisitions. The firm has $440 million in cash on hand, with an additional $1.4 billion in credit to extend buying capacity. 

While Omega made a higher-than-typical amount of loans last quarter, CFO Bob Stephenson said that wasn’t necessarily away from acquisitions.

“We just have pick-up in loans,” he said. “It was just filling a void in the capital markets as they stand today. There are a lot of banks that aren’t active … and we could continue to see that certainly in ’24.”

Also noted by analysts were ongoing staffing and Medicaid challenges.

Megan Krull, senior vice president for operations, acknowledged an easing of staffing pressures, with quarter three agency use at three times the rate of pre-pandemic levels. In previous quarters, agency use had quintupled. She credited the presence of more staff with pushing occupancy higher, even into January.

But those occupancy gains remain “overshadowed” by the looming federal staffing rule for nursing homes. Krull noted that “a lot could happen” in the two years before implementation would begin, including passage of legislation that aims to block any rule from taking place amid a labor shortage.

On the reimbursement side, however, she noted ongoing challenges in some states, including some that two years ago offered promising rate adjustments. With a major retreat from Florida, Krull said, Omega is “not looking to  jump back in there any time soon.” Omega is aso watching Pennsylvania closely, though leaders said they aren’t at the point that they would avoid the right investment opportunity in the state.

For additional coverage of this earnings call, see McKnight’s Senior Living and the McKnight’s Business Daily.