Omega Working Through Operator Problems, Optimistic About Skilled Nursing Future

Omega Healthcare Investors, Inc. (NYSE: OHI) reported progress on its operator issues and expressed optimism about the regulatory and legislative environment during its fourth-quarter earnings call on Wednesday.

Executives reported “considerable progress” in resolving its issues with Louisville, Kentucky-based Signature HealthCARE, which missed payments in the third quarter, while negotiations with Orianna Health Systems are ongoing.

The Hunt Valley, Md.-based real estate investment trust (REIT) reported fourth-quarter net income of $65.2 million, or $0.31 per common share, on operating revenues of $221.2 million, compared with net income of $129.9 million, or $0.63 per common share, on operating revenues of $234.5 million in the year-ago period.


This contrasted sharply with the third quarter, when Omega reported a net loss of $137.5 million in the third quarter and missed analyst expectations by $44.04 million. Though Omega again missed analyst expectations by $28.2 million on rental revenue in the fourth quarter, funds from operations (FFO) at 77 cents per share were in line with projections.

Progress on Operator Issues

Omega’s Signature HealthCare portfolio was one of several operator problems it faced in the third quarter of 2017, but the REIT appeared cautiously upbeat about the outcome in the fourth-quarter earnings call.


“Since our last earnings call, considerable progress has been made toward finalizing a comprehensive agreement among Signature and Signature’s three primary landlords, which will effectively bifurcate each of the three portfolios into three distinct legal siloes and separate virtually all legal obligations,” Omega Chief Operating Officer Daniel Booth said on the call.

As part of that agreement, Omega agreed to defer certain rent payment obligations and provide a working capital loan, Booth said.

“While we remain cautiously optimistic that a satisfactory global restructuring with all constituents will be finalized in the near future, such a restructuring remains contingent upon Signature’s successful resolution of its material PLGL claims,” he added.

Omega is also hoping to reach a final agreement with Orianna, which fell behind “significantly” on rent payments during the third quarter, in the coming weeks and remains in active negotiations with the operator.

“We… remain confident that our post-transition restructuring rent or rent equivalent, in the event of asset sales, will be in our previously stated range of between $32 [million] and $38 million dollars, Booth said.

Regulatory Hope

Despite record low occupancy facing skilled nursing providers, there might be light at the end of the tunnel as far as regulations go.

“The activity in the past several months has concluded perhaps the most challenging yet positive legislative and regulatory year for skilled nursing facilities in decades,” Jeff Marshall, senior vice president of operations at Omega, said on the call.

Even with the $2 billion cut to Medicare reimbursements for skilled nursing facilities announced last week, there is hope that the industry could see a more friendly regulatory environment, with Omega officials specifically calling out the confirmation of new Department of Health and Human Services secretary Alex Azar.

“Azar’s confirmation provides assurance that the SNF-friendly regulatory policies to date under the Trump admin are likely to continue, especially with the continued leadership of CMS by Seema Verma,” Marshall added.

Omega also recently completed a “comprehensive and detailed analysis of the demographics that will drive demand for skilled nursing facilities throughout the next decade,” CEO Taylor Pickett said.

“We believe we will begin to feel the demographic demand wave heading into 2019,” he said.

Written by Maggie Flynn and John Yedinak

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