Labor costs and inflation continue to affect senior living operators in Omega Healthcare Investors’ portfolio, executives said Thursday on the Hunt Valley, MD-based real estate investment trust’s third-quarter earnings call.
“We believe that we will continue to grapple with ongoing COVID-related operator issues for the next 12 to 16 months,” CEO Taylor Pickett said, noting that the call was the REIT’s 11th since the pandemic started.
When asked about fundamentals related to the REIT’s senior housing portfolio, executives said that they “look pretty good,” with occupancy at “high-end” Maplewood Senior Living communities in the US at pre-pandemic levels and increasing, the UK recovered, and “our piece of the Brookdale portfolio” performing “pretty well.”
Omega’s portfolio includes 17 Maplewood communities and 24 Brookdale Senior Living communities. Both companies are on the REIT’s list of 10 operators with the largest financial presence in its portfolio, according to supplemental material issued in conjunction with the earnings call.
Overall, occupancy across Omega’s portfolio of 183 independent living, assisted living and memory care properties in the US and UK, Chief Operating Officer Daniel Booth said, was 85.8% as of mid-October 2022, versus 83% in January.
“The pressures exacerbated by the pandemic continue to take their toll” across Omega’s portfolio of senior living communities and skilled nursing facilities, although the worst of the pandemic appears to have subsided clinically, said Megan Krull, senior vice president of operations.
“Occupancy continues to recover at an extremely slow pace,” she added, noting that recovery “continues to be hindered by self-imposed admission bans due to staffing shortages and also an attempt by operators to eradicate agency usage.”
Krull referenced a July jobs report from the American Health Care Association/National Center for Assisted Living that indicated that the assisted living workforce was down 3.9% in size since February 2020, with nursing homes faring worse, losing 14.1% of their collective workforce in the same timeframe.
Expenses remain elevated from pre-COVID levels due to staffing and staffing-related costs such as agency usage, Krull said, but “anecdotally, we have also started hearing from many operators in the last several months that staffing is easing very modestly.”
Occupancy has recovered at 29% of Omega’s core facilities, and an additional 25% of facilities have recovered to within 5% of pre-COVID levels, she said. That 54% rate compares favorably to last quarter’s figure of 48%, Krull added.
Most opportunities in the UK right now
On the last day of the quarter, Omega closed on the acquisition of four assisted living communities in the UK for $28.2 million and entered into a master lease for the facilities with a new operator, Booth said.
Executives said that Omega’s investment pipeline has remained the same for the past year or so, with the “lion’s share” of the REIT’s opportunities occurring in the UK, where occupancy recovery has been quicker, although the UK is starting to experience inflation.
Overall, Omega’s new investments and capital expenditures totaled $87 million in the quarter and year to date total $301 million, Booth said.
Seemingly prompted by rumors of a potential sale of Brookdale and perhaps by comments made on another recent earnings call, one analyst asked whether Omega’s master lease agreement with Brookdale contained any change-of-control language detailing what the REIT’s rights would be should Brookdale get a new owner.
Executives said they would need to read the leases to be certain but that “it would be atypical in a public company lease scenario where we’d have rights to stop something like that. So if there was a transaction, we would have a new set of equity holders.”
