SNF operators – including tenant Omega – strained by the delay in funds from the CARES law
Omega Healthcare Investors (NYSE: OHI) could give summer rent relief to one of its qualified nursing tenants, as the delay in federal financial relief is straining operators.
The Florida-based operator told the Maryland-based Real Estate Investment Trust (REIT) it would need help with its June rent, of around $ 2.5 million, according to a memo from the 15 June from Stifel.
This is due in part to the fact that the amount of money going to nursing homes in the next round of government funding remains uncertain, as does when further financial relief will be distributed.
“Depressed COVID fundamentals, reimbursement of Medicare advances (earlier in the pandemic) and delayed disbursement of relief funds from government providers are straining some industry operators, including this tenant,” analysts said. of Stifel in their note.
Analysts expect rents to be paid as additional government support addresses the impact of loss of occupancy due to the pandemic.
“It doesn’t make sense to us that the government is saving the industry through the CARES law at the onset of the pandemic, only to see it implode just as the recovery begins,” Stifel’s note said.
Executives at Sabra Health Care REIT (Nasdaq: SBRA) and CareTurst (Nasdaq: CTRE) expect $ 10 billion of the remaining funds to go to the skilled nursing and senior living sector, they said. said at the Nareit REITWeek investor conference this month. However, they were not sure of the methodology or timing of this distribution.
Stifel estimates that $ 3-7 billion of the fund will be earmarked for skilled nursing care.
Omega will likely draw on the operator’s security deposit, which is expected to cover June and July rents, Stifel analysts say.
The assumption is that OHI will move the tenant to cash basis and write off the remaining straight-line rent, with August and September rents also not expected. The tenant pays approximately $ 2.5 million per month in rent.
Once the occupancy rate returns to 85% or the CARES law funds are distributed, analysts at Stifel expect rental payments to resume, as the operator performed well before the pandemic.
The sale of properties remains the last possible option for OHI. The Stifel team anticipates a rebound in skilled nursing care, supported by funds from the CARES law.
“We believe the recovery is expected to increase occupancy by around 50 to 100 basis points per month, implying that pre-COVID occupancy will occur in 12 to 24 months,” Stifel analysts wrote .