Omega Healthcare Investors (NYSE: OHI) CEO Taylor Pickett has seen some distressed assisted living communities on the market — but not at prices indicative of their condition.
“On the assisted living side, we’ve made an effort to look for potentially distressed prospects, and quite frankly, those have not panned out,” Pickett said during the company’s first-quarter 2021 earnings call Tuesday. “We’ve seen some distressed activity, but there’s a lot of money out there chasing those deals.”
The Hunt Valley, Maryland-based health care real estate investment trust (REIT) had some of its own challenges to contend with, particularly in areas with significant Covid-19 outbreaks early in the pandemic. But, the REIT is also seeing signs now that some headwinds are not as strong as they were last year.
For example, the Maplewood Senior Living portfolio, which is concentrated in the New York and Boston metro areas, hit 80.4% occupancy during the second quarter of 2020. By November 2020, occupancy had rebounded to 85.6% before plateauing.
Omega reported it had $2.2 billion in senior housing investments as of the end of the first quarter of 2021, a total that includes the company’s recent $510 million acquisition of 24 Brookdale Senior Living (NYSE: BKD) communities. All of the company’s 156 assisted living, independent living and memory care assets in the U.S. and U.K. are under triple-net master leases. Excluding the newly acquired Brookdale communities, Omega’s senior housing portfolio logged a trailing 12-months EBITDA lease coverage of 1.08 times in the fourth quarter of 2020.
“With Covid outbreaks having affected different markets at various times, this decrease in performance was to be expected,” said Omega Chief Corporate Development Officer Steven Insoft. “Rising vaccination rates amongst residents and staff are a critical step to restoring occupancy and performance. While we remain constructive about the prospects of senior housing, the Covid-19 outbreak has warranted a far more selective approach to development.”
For now, the company is underwriting transactions by doing “a myriad of different things,” Pickett said.
“We can’t look at our normal, trailing 12-months, because you have Covid results and all that stimulus money and everything else,” he said. “So you really look to what happened pre-2020, 2019 results, and then you have to look to the operators and their 2021 — or in most instances, 2022 — budgets, and where they expect to be. [It’s] a little bit bigger buffer from the normal for your coverages.”
A bright spot in the company’s portfolio is the Maplewood-operated Inspir community in Manhattan, which is seeing “encouraging” early returns, according to Insoft.
“We’ve got well into the mid-30s in terms of residents in the building,” Insoft said. “We had always sort of underwritten the project to be a three-year stabilization, and we have really no reason to come off of that at this point.”