Omega Misses Rental Income Projections Due to Delinquent Tenants

Omega Healthcare Investors, Inc. (NYSE: OHI) missed its estimated quarterly rental income, with top executives from the real estate investment trust (REIT) blaming two delinquent operators on its second-quarter earnings call Thursday morning.

Omega reported rental income of $194 million for the second quarter of 2017, a figure that — while 4% higher than it recorded in the same quarter of 2016 — fell $40 million short of projections, according to Seeking Alpha.

While officials didn’t set out to name names, one analyst induced the company to identify one of the culprits as the troubled Signature HealthCARE, LLC.


Headwinds denied

Neither Signature nor the unnamed second operator fell behind due to industry challenges such as labor, reductions in lengths of stays, and rate pressures, said Taylor Pickett, president and CEO of the Hunt Valley, Md.-based Omega. Rather, both are experiencing other issues as a result of management changes, portfolio changes, and the litigation environment in Kentucky, Pickett said.

Signature owes about $10 million in back rent, Omega chief operating officer Daniel Booth said on the call, though he added that the Louisville, Ky.-based operator has enough money in personal guarantees and other assets to cover more than the outstanding tab.


For the other tenant, if there is further deterioration and the operator cannot fulfill the plan that it put forward to Omega, then the REIT will look hard at switching to cash-based accounting for the unnamed operator.

Ultimately, Omega executives stressed that though they are carefully monitoring the situation, they are not yet taking action with either of these tenants.

“We believe that some of the negative news regarding the reliability of our future rents and the ability to continue to deliver dividend growth to our shareholders significantly overstate the issues that our operators are managing through today, and ignores the enormous demographic wave of aging seniors that will have greatly expanded health care needs over the next five years,” Pickett said.

Signature’s woes

Omega isn’t alone in dealing with Signature-related problems — just ask Sabra Health Care REIT, Inc. (NASDAQ: SBRA).

Two Sabra shareholders backed up their intentions to vote against the company’s impending merger with Care Capital Properties (NYSE: CCP), another Signature landlord, by citing the provider’s shaky financial footing.

Signature did not respond to inquiries for comment by press time.

Other Omega results

Beyond rental income problems, Omega reported a second quarter net income of $68 million, or $0.33 per common share, on operating revenues of $236 million. This compares to net income of $113 million, or $0.57 per common share, on operating revenues of $229 million, for the same period in 2016.

In the second quarter, the company completed $134 million in new investments, invested $48 million in capital renovation and construction-in-progress projects, and increased its quarterly common stock dividend rate to $0.63 per share.

“Our superior balance sheet strength provides us with ample room to capitalize on opportunities in the skilled nursing facility industry and navigate through some of the challenges that individual operators will face,” Pickett said.

Omega shares were down 3.54% at $1.19 as the market closed on Thursday.

Written by Elizabeth Jakaitis

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