Stronger-than-expected cash rent payments helped bolster Omega Healthcare Investors’ performance in the second quarter, giving the real estate investment trust a healthy $250 million in revenue, $5 million higher than the same period a year ago, officials said on a Thursday earnings call.
“The year-over-year increase is primarily the result of timing related to operator restructurings, revenue from new investments completed in 2022 and 2023, partially offset by asset sales completed through that same time frame,” said Chief Financial Officer Robert O. Stephenson.
Some of the surprise strength came from skilled nursing provider LaVie Care Centers, which paid $16.9 million in rent ($2.5 million for April and full rent of $7.2 million for both May and June) in accordance with restructuring agreement terms disclosed in the first quarter.
“Restructuring discussions, including the sale and release of additional facilities, are still ongoing, and the company anticipates the additional restructuring activity to be completed in the next several months,” the REIT noted. “The company expects LaVie will continue to pay $2.5 million per month until the additional restructuring activities are completed.”
To date, 13 facilities have been divested. Another 23 are in the process of being sold or released, most of them expected to be transferred in the fourth quarter of 2023, Chief Operating Officer Dan Booth said.
“The expectation is that their cash and their liquidity is going to go down until those transitions occur,” he added. “Like with any transition that involves a sale, they take a while and there is a lot of lead time running up to that. There are a lot of third parties that we have no control over. So, the expectation, at least for right now, is that in the third quarter, we will see that reduced rent amount.”
Omega agreed to allow LaVie to short-pay rent by approximately 66% during the third quarter. But when the restructuring is completed, Pickett said, he expects “a significant increase in cash rents from the current agreed upon partial rent payments.”
Booth said that many of the facilities Omega and LaVie are in the process of transitioning are in Florida.
Megan Krull, senior vice president of operations, told analysts that operators in the state were facing mixed conditions, given its continued “severe” staffing shortage and operators’ reliance on agency. But she also noted that Florida provided for up to a 5% rate increase starting Oct. 1.
“While much of the Florida rate is based on quality indicators, meaning that not all operators will see this large of an increase, it does represent somewhat of a trend in rate settings where more and more states are tying reimbursement increases to quality measures,” she said. “Assuming this is done in a thoughtful manner, this is something that we welcome, however, it should never fully replace increases tied to the inflationary environment.”
For additional coverage of this earnings call, see the McKnight’s Business Daily.
