The COVID-19 pandemic’s lingering impacts on labor and inflation costs led Omega Healthcare Investors to propose a lease restructuring with luxury senior living brand Maplewood Senior Living, the Hunt Valley, MD-based real estate investment trust announced Monday.
The pandemic has resulted in a decline in occupancy and increased labor costs, whereas supply chain issues resulted in elevated costs and delayed the opening of Maplewood’s Manhattan and Princeton, NJ, developments.
In its third-quarter earnings call, Omega indicated that labor costs and inflation continued to affect the senior living operators in its portfolio and said it expected those pressures to continue for the next 12 to 16 months.
“While we believe Maplewood’s occupancy has predominantly rebounded, robust resident rate increases have still been unable to keep pace with cost inflation,” Omega indicated Monday in an investor presentation. “With the Manhattan and Princeton facilities still in lease-up, Maplewood’s current cash flows, absent a portfolio restructuring, are insufficient to cover their rent and interest obligations to us in the near term.”
Although Maplewood has received federal and state financial support during the pandemic, Omega indicated that it was not sufficient to offset the pandemic’s effects on its portfolio.
In October, Omega reported collecting rent from 91% of its operators for the third quarter. The REIT said it continues to work to resolve its outstanding operator issues, with many operators continuing to struggle with the effects of COVID-19 on occupancy and staffing.
Proposed restructuring plan
Under its proposed restructuring plan, Omega said it intends to defer Maplewood’s rent escalators through 2025, as well as interest on a $250.5 million secured revolving credit facility this year. Cash interest payments will be phased in starting in 2024.
Omega said it also intends to increase the secured credit facility by approximately $13 million to support near-term liquidity needs on its communities in New York City (operating under the Inspir brand as Inspir Carnegie Hill) and Princeton, NJ (Maplewood at Princeton), which are in lease-up. Maplewood also was placed on a cash basis for revenue recognition as of the fourth quarter of 2022.
“We believe that stabilization of the Manhattan and Princeton facilities, as well as further underlying operating improvements, may allow Maplewood to return to paying full contractual rent and interest,” Omega indicated, adding that in the event of a sale, any unpaid balances will be recaptured through sales proceeds.
The proposed restructuring is expected to result in annual cash rent payments from Maplewood through 2025 of approximately $69.2 million. Omega received rent payments from Maplewood of $17.3 million in the fourth quarter of 2022 and $68.4 million for fiscal year 2022.
Maplewood will pay approximately $19 million of contractual interest in kind this year. In addition, for the fourth quarter of 2022, Omega expects to record a noncash write-off of $29.3 million due to placing Maplewood on a cash basis for revenue recognition.
Maplewood, which operates 17 senior living communities for Omega, opened Inspir Carnegie Hill, a luxury senior living community on Manhattan’s Upper East Side, in 2021. The Inspir brand, officially launched in 2017, is geared toward older adults in major urban markets and was Maplewood’s first community under its international brand. Inspir Embassy Row in Washington, DC, will be the second US community using the Inspir name.
