Omega Healthcare Investors (NYSE: OHI) posted a solid second quarter, reflecting continued stability and aggressive expansion in its investments.
“The fundamentals of the business continue to improve,” Megan Krull, Senior Vice President of Operations, said during the company’s quarterly conference call. “While not at pre-pandemic levels, occupancy has stabilized, and the recovery, from a coverage perspective, is indicative of the fact that many states have and continue to step up in meaningful ways to provide the support necessary in recovery efforts.”
Occupancy rates across Omega’s facilities continue to recover, with the overall core portfolio achieving an 80.8% occupancy rate by mid-July 2024. This marks a rebound from a low of 74.6% in January 2022.
In the second quarter, Omega’s funds from operations (FFO) came in at $0.71 per share, beating Wall Street estimates by $0.03. The Maryland-based real estate investment trust (REIT) posted a revenue of $252.7 million, outperforming estimates by $45.69 million.
This increase was driven primarily by the strategic acquisition of new investments and the successful transition of several operator portfolios.
The company reported funds available for distribution (FAD) of $0.68 per share, surpassing expectations, with executives highlighting key developments in its portfolio, particularly related to skilled nursing facilities (SNFs) and ongoing restructurings.
“Our FAD for the quarter was … higher than the previous quarter, underscoring our improving operational efficiency and financial stability,” said Taylor Pickett, Omega’s CEO.
The EBITDAR coverage for core operators increased to 1.42 times, reflecting improved financial health and operational efficiency.
On Friday, Omega shares closed at $38.26, up 4.25%, or $1.56.
Outlook and investments
Omega’s investment pipeline remains robust, with $221 million allocated to new investments in Q2, excluding capital expenditures. This was funded through the issuance of 7.6 million shares of common stock, amounting to $245 million.
During the latest quarter, Omega completed $254 million in new investments, including $33 million in capital expenditures. Overseas, the United Kingdom market remains a key focus for the company due to its current favorable investment conditions and limited competition, Pickett said.
As of the second quarter, Omega had an operating asset portfolio of 900 facilities with approximately 86,000 operating beds. These facilities were spread across 77 third-party operators and located within 42 states in the U.K., company executives said.
Omega has adjusted its full-year AFFO guidance to a range of $2.78 to $2.84 per share. This forecast assumes stable revenue from current operators, continued rent payments from LaVie and Maplewood, and successful transitions of new operators. The company expects to manage around $77 million in asset sales in the latter half of 2024 and will continue focusing on strategic investment opportunities, particularly in the U.K.
LaVie, Guardian portfolio restructuring and performance
Omega’s portfolio management includes significant ongoing restructuring efforts.
LaVie, which filed for Chapter 11 bankruptcy protection in June, has continued work with Omega to cut its exposure to underperforming assets, Omega executives said, adding that LaVie has met its rent payments to Omega. LaVie is expected to resolve the bankruptcy proceedings by the end of 2024, they said.
“Omega believes this filing was a necessary and important step in creating an entity that is operationally solvent and sustainable with enhanced liquidity and a strengthened balance sheet. We continue to believe that there is meaningful value in our portfolio of current LaVie assets,” said Dan Booth, Omega’s COO.
LaVie has been able to successfully alleviate some of the financial burdens, he said.
“We believe the current cash flow generated by our remaining LaVie portfolio is sustainable and will support long-term annualized rent of approximately $36 million, while also retaining sufficient cash within the business to provide for strong clinical care,” Booth noted.
LaVie paid approximately $3 million in rent in the months of June, July and August of 2024.
“In addition to the aforementioned restructurings, Omega is working with several other relatively small operators on various restructurings,” Booth said.
As for the Guardian portfolio, it was transitioned to a new operator in April, executives said, resulting in increased rental income of $2.8 million for the second quarter. The new operator’s performance has been promising, suggesting improved financial stability for these facilities.
Staffing mandate: ‘Cooler heads will prevail’
As company executives remain optimistic about the investment environment and continue to actively explore new opportunities, regulatory challenges remain a consideration, particularly concerning the new staffing mandate.
They also noted favorable factors and developments, including the overturning of the Chevron doctrine, in leading to the success of the lawsuit against the staffing mandate.
“While there continues to be, and likely always will be some level of pressure on the industry from a regulatory perspective, hopefully cooler heads will always prevail, and the ultimate scrutiny will be well balanced and achieve a level of reasonableness indicative of an understanding of the industry as a whole,” Krull said.