Omega Healthcare Investors, Inc. (NYSE: OHI) reported a successful first quarter with $75 million in new investments, including real estate loans, acquisitions, and capital projects.

Despite industry challenges such as the recently announced minimum staffing rule, CEO Taylor Pickett said he is satisfied with the company’s performance, citing higher interest income, improved operational metrics and occupancy, and reduced agency staffing use.

Yet Pickett said he was disappointed with the final ruling on minimum staffing.

“Many of the constructive industry ideas and comments that include the use of technology and certain best practices are not included in the final rule,” he said, adding that the rule will add an undue burden given the industry’s current labor challenges.

However, he acknowledged the staggered implementation timeline provides an opportunity for the industry to address these challenges more effectively.

“As there is a long lead time for the implementation of the final rule, we remain cautiously optimistic that the role will be improved over the next couple of years,” Pickett said.

In the first quarter of 2024, Omega posted funds from operations (FFO) of $0.68 per share, beating Wall Street estimates by $0.03.

Shares of Omega traded at $31.34, up 7 cents, or 0.22%.

Financial performance

The Maryland-based real estate investment trust (REIT) issued 1 million common shares, generating gross proceeds of $33 million and repaid $400 million debt maturity in April 2024. Omega reported a net income of $69 million.

Omega said it continued its strategic restructuring initiatives, including transitioning facilities from the Guardian portfolio to new operators. The company completed $165 million in new investments in the second quarter of 2024, focusing on real estate acquisitions and loans.

Revenue for the first quarter rose to $243 from $218 million for the first quarter of 2023.

“The year-over-year increase is primarily a result of the timing and impact of operator restructurings, transitions, and revenue from new investments completed throughout 2023 and 2024, partially offset by asset sales completed during that same period,”  said CFO Robert Stephenson. 

As far as the LaVie portfolio restructuring goes, LaVie will continue to pay at the existing rate of $1.5 million per month until completion of the portfolio restructuring, Stephenson said.

“In the first quarter, LaVie paid approximately $4.4 million in rents, and in April, it paid $1.5 million in rent. In addition, in the first quarter, we recorded $100,000 in rent related to two transition LaVie facilities and anticipate $300,000 in rent per quarter related to that transition,” he said.

After a considerable number of divestitures in 2023 and the first quarter of 2024, LaVie’s remaining portfolio consists of 13 facilities in North Carolina, nine in Pennsylvania, six in Mississippi, two in Virginia, and one in Florida, Stephenson said.

“We remain in ongoing discussions with LaVie to determine the best overall feature of each of these remaining 31 facilities,” he said, adding LaVie has consistently paid $1.5 million per month, and will continue to do so until the completion of portfolio restructuring and LaVie’sability to pay contractual rent.

On the Guardian portfolio, executives said that it has been transitioned with estimated annual rent of $5.5 million starting in mid-April, and a potential to increase of up to $12.4 million annually, he added.

“During the first four months of 2024, Omega released the remaining six facilities that were formerly Guardian assets to an unrelated third party,” he said. “This concludes our restructuring of our Guardian portfolio in our relationship overall.”

As of March 31, 2024, Omega had 16 facilities classified as assets held for sale, totaling $81.5 million. Booth said that Omega closed on investments consisting of $71.7 million in loans to a UK operator at a 10% interest rate, and $93.7 million in acquisitions.

Impact of the staffing mandate

On the minimum staffing rule, executives faulted the Centers for Medicare & Medicaid Services (CMS) for not providing funding to fulfill its requirements, noting that a majority of U.S. skilled nursing facilities do not currently meet the requirements.

Despite a delayed implementation based on urban versus rural settings, the final rule lacks certain adjustments considering the wide variability in staffing access across geographic regions and the actual acuity level of residents, Megan Krull, senior VP of operations, said during the call..

“Instead, the one change that was made was to increase the overall hours from three to 3.48, with the additional 0.4 hours added to be covered by any mix of RNs, CNAs, or LPNs, with these overall numbers taking effect in two years for urban facilities and three years for rural ones,” she said.

Yet a lot can happen in the intervening two years when the first set of requirements are set to be enforced, Krull said.

“[There is] bipartisan legislation that has already been introduced in Congress and the potential for legal action,” she said. “There’s also the potential that additional rulemaking will change the mandate in the coming years.”

Still, Omega’s primary focus has been on reimbursement related to inflation, Krull said.

“We continue to hear from our operators that agencies are just down and uncertain portfolios have been eliminated entirely,” she said. “However, wide variation by market remains. Occupancy continues its steady improvement with a slight anticipated slowdown in the winter months.”

The number of core facilities recovered is now at 44%, up from the 42% reported in the third quarter, though 21% of core facilities that have not yet fully recovered are at or above 84% occupancy, she said.