Omega to Buy 58 Skilled Nursing Facilities in $735 Million Deal

Omega Healthcare Investors (NYSE: OHI) on Tuesday announced plans to pick up 58 skilled nursing facilities in a 60-building deal valued at $735 million.

The Hunt Valley, Md.-based real estate investment trust (REIT) agreed to the deal on July 26, Omega reported this week, though it remains subject to approval by the Department of Housing and Urban Development (HUD) and the satisfaction of other closing conditions.

That $735 million price tag also includes a pair of assisted living facilities, with the total portfolio consisting of 6,590 operating beds in eight states. Omega did not publicly name the seller or the current operators, though the REIT noted that the 60 properties are under the control of two operators across three triple-net leases; in 2020, those agreements will generate $64 million in contractual cash rent, according to Omega.

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A spokesperson for Omega declined to comment on the identity of the seller or sellers when reached late Tuesday, citing a non-disclosure agreement.

Omega paid $345 million in cash, with the remaining $390 million coming from HUD-backed mortgage loans set to mature between September 2046 and December 2051.

The announcement came as part of the company’s second quarter 2019 earnings release, which saw Omega report net income of $75.7 million, down from $82 million from the same span in 2018.

Omega CEO Taylor Pickett also used the release to decry the failure of the Texas legislature to increase Medicaid rates in the Lone Star State — a proposed move that the REIT had classified as a potential lifeline for its properties in the state operated by struggling provider Daybreak Venture.

“During the quarter, the Texas state legislature failed to pass any form of skilled nursing Medicaid rate relief, meaning that operators in the state will have to deal with the same Medicaid reimbursement rates — which are one of the lowest in the country,” Pickett said in a statement.

Daybreak underpaid Omega by about $4 million in rent in the fourth quarter of 2018, with the company providing a $2.5 million rent deferral for the first and second quarters of this year. While both companies had banked on lawmakers to provide some relief, the death of the bill means that Daybreak’s woes will likely continue, according to Pickett.

“We do not envision Daybreak reverting to their contractual rent for the foreseeable future, and are actively working with Daybreak’s management team and third party consultants to maximize future Daybreak cash flows,” Pickett said.

Outside of Texas, Pickett was optimistic about the impending Patient-Driven Payment Model (PDPM) and the coming $851 million Medicare market basket boost for skilled nursing providers in fiscal 2020.

“We believe the combination of PDPM and the recently confirmed 2.4% increase in Medicare reimbursement will augment the improving census, driven by the multi-decade demographic tailwind,” he said.

Omega closed Tuesday’s trading at $36.00 per share, up 12 cents or 0.33%. The company will host a call with investors and analysts Wednesday morning.

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