Omega Healthcare Investors, Inc.

Omega Healthcare Investors, Inc. (NYSE: OHI) is a real estate investment trust that owns and finances skilled nursing, assisted living and care-home properties. Its portfolio spans the United States, United Kingdom and Canada. Most properties are leased to operators, while a growing operating portfolio uses third-party managers.

September-quarter results

Three months ended September 30. USD millions, except diluted per-share amounts.

Adjusted FFO starts with net income, adds back real-estate depreciation and adjusts selected property gains or losses, then makes further adjustments including acquisition and transition costs, severance and stock compensation. FAD makes additional adjustments for noncash items and capitalized interest. These measures differ from operating cash flow and include operating-partnership units in their diluted share denominator.

Current-quarter acquisition and transition costs were $59.9 million and severance was $18.8 million. The year-earlier quarter included a $28.3 million property-sale gain. The move of properties into operating structures also changes revenue presentation: resident-fee revenue was $30.8 million, versus none a year earlier. Total revenue growth is therefore not a like-for-like rental growth measure.

The funded Foundation mortgage

In November, Omega funded a £631.7 million, or $845.7 million, mortgage to a Foundation affiliate. Security comprises 48 U.K. care homes and leasehold interests in seven additional homes. Interest is 8.72% in year one and 8.94% in year two, with maturity in November 2031.

Omega has an option to buy the property interests after customary regulatory conditions are satisfied. It expects no additional consideration on exercise and plans a long-term Foundation lease with a starting cash yield consistent with the mortgage rate. The mortgage is funded; the property purchase remains a subsequent conditional step.

The loan accounts for 89.4% of $945.5 million in new investments after September. Other completed purchases were five U.S. senior housing communities for $49.3 million in October and a Georgia retirement community for $50.5 million in November.

Other completed portfolio developments

During Q3, Omega acquired 17 facilities for $167.3 million, including a five-community purchase partly paid by applying $20.5 million of existing loans toward the price. Separately, it paid $48 million to acquire operators and convert 30 U.K. care homes from leases into managed operating structures.

On October 1, 32 Florida nursing facilities transferred to PACS. Omega paid the previous operator a $90 million termination fee, which it capitalized for amortization over the remaining lease term. Initial annual rent is $58 million, $26.1 million above the prior amount. Rent rises another $2.5 million in year two, then 2% annually. This transition was announced October 5.

The October Genesis sale resulted in lease assignment to NewGen affiliates and $149.5 million of loan repayments received by Omega. This is a postquarter receipt.

Capital and financing

September 30 cash was $195.9 million, with restricted cash of $27.7 million separate. Debt principal was $4.1 billion, comprising $3.8 billion of notes and a $300 million term loan. The $2 billion revolver was undrawn at that date.

The November Foundation mortgage used cash, recycled loan repayments and revolver borrowing. September figures precede that funding; the release does not supply an updated cash balance or exact draw amount. Q3 common-share issuance raised $234.3 million gross from approximately 4.7 million shares.

First-half operating cash flow was $433.2 million, versus $421.2 million a year earlier. These cash-flow figures cover January through June, rather than the September quarter.

Annual forecast and next steps

Adjusted FFO guidance is $3.28 to $3.30 a diluted share, up from $3.22 to $3.26. The plan includes the announced investments, NewGen rent obligations and expected fourth-quarter loan collections. The quarterly dividend declared October 26 is $0.68, payable November 16 to holders of record November 5.

The next milestones are the Foundation purchase option, the resulting lease, further loan collections and the operating performance of properties moved into managed structures.