Omega Expects to Be a Buyer in ’19 After Year of Sell-Offs

After months of repositioning, Omega Healthcare Investors (NYSE: OHI) beat analyst expectations in its third-quarter earnings, and the company expects to continue the momentum next year.

“We expect that in 2019, acquisitions will meaningfully outpace dispositions as we return to our historical growth mode,” CEO Taylor Pickett said on Omega’s third-quarter earnings conference call on Monday.

Omega reported net income of $59.1 million for the most recent quarter, up from a significant loss of $137.5 million during the same quarter last year.

The Hunt Valley, Md.-based real estate investment trust (REIT) has mostly finished with the strategic asset repositioning and portfolio restructuring that dominated most of the year, Pickett said on the call.

Omega has disposed of 71 facilities over the first three quarters of this year, for total consideration of $340 million, and though 10 to 15 additional facilities will likely be sold, the bulk of the asset repositioning sales is done, he added.

That excludes the Orianna Health Systems portfolio, however — 23 facilities of which have been either transitioned or sold. Twenty-two facilities were re-leased to five existing Omega operators, while one facility in Tennessee was sold for $4.3 million. The 19 remaining facilities will be either sold or re-leased, Pickett said.

Omega also entered into a $131.3 million term loan with an unrelated third party on September 28, a loan secured by a collateral assignment of mortgages covering seven skilled nursing facilities, three independent living facilities and one assisted living facility, located in Pennsylvania and Virginia.

The loan matures on February 28, 2019 and has an interest rate of 9.35%, but Omega expects to obtain fee simple title to the facilities and add them to an existing operator’s master lease, according to the REIT’s earnings press release.

Omega has been locked in a legal dispute with Orianna over an effort to pull off a restructuring similar to the one set up with the Louisville, Ky.-based operator Signature HealthCARE.

“We had talked over the last few quarters thinking that Orianna would be finalized this year, and that’s not going to be the case. Bankruptcy is its own beast, and … it’s going to be next year,” Pickett said of Orianna. “Our view is probably Q1 of ’19.”

Acquisitions to accelerate next year

Omega is seeing several transactions come across the desk, but it prefers to confine pipeline discussions to deals that it feels are likely to close, executives said on the call. As a result, going into the fourth quarter, the pipeline is “still not terribly robust.”

“We’re seeing a lot of stuff, but we’re not trading a bunch of stuff,” Omega chief operating officer Daniel Booth said. “It’s really a combination of a bunch of factors. Obviously we’ve been in a little bit of a reposition mode over the course of the last year and a half. We’ve seen cap rates jump around quite a bit, and we’ve sort of hoped and waited for those to settle in. And then our operators also, as you can imagine, have been repositioning themselves. So they’re really paying attention to their existing portfolios and getting their house of cards in order.”

At the National Investment Center for Seniors Housing & Care (NIC) fall conference in Chicago, Pickett said the REIT is looking “three years out” for the future, which is the timeframe in which he expects the headwinds in the skilled nursing industry to abate. But in the near term, Omega executives expressed optimism about Omega’s capacity for growth.

“As we look out at ’19, this is more intuitive than anything,” Booth said in response to analyst questions about the REIT’s pathway to growth through dealmaking. “[But] people are starting to pay more attention to the deals that are out there, I think, and we do think it’ll be a more acquisitive year in 2019 as some of our operators sort of get back in the game.”

Omega shares closed up 5.5%, or $1.80 per share, to end Monday at $34.54.

Written by Maggie Flynn

Maggie Flynn on Linkedin
Maggie Flynn
Business reporter at Aging Media Network
When she's not working, Maggie enjoys running, reading, writing and sports, in no particular order. Favorite things include murder mysteries, Lake Michigan and the Pittsburgh Penguins.

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