Omega put $846 million into care homes it does not own yet

Omega Healthcare Investors has funded an $845.7 million mortgage tied to British care homes. It expects to own the underlying property interests later, once the conditions for a purchase option are met.

The structure matters to the company's new investment total. Research by Ticker Byline shows that this one loan accounts for nearly 90% of the $945.5 million Omega invested after September through its November 3 results announcement.

A mortgage first, with an option attached

The £631.7 million loan went to an affiliate of Foundation Partners Asset Management, an existing operator relationship. It is secured by 48 U.K. care homes and leasehold interests in seven more, collectively known as the Runwood portfolio.

The mortgage carries an 8.72% interest rate, rising to 8.94% in the second year, and matures in November 2031.

A purchase option becomes exercisable after customary regulatory conditions are completed. Omega expects to exercise it without paying additional consideration, then put the property interests under a long-term lease with Foundation. The expected starting cash yield on that lease is consistent with the mortgage rate.

The funding sits beyond September's balance sheet

Omega says it funded the loan with existing cash, money recycled from loan repayments and borrowing under its revolving credit facility.

One source of recycled capital arrived in October, when Omega received $149.5 million related to its Genesis loans. The Genesis bankruptcy sale was finalized, and Omega's lease was assigned to the buyer's affiliates.

At September 30, Omega had $195.9 million of cash, $4.1 billion of debt principal and $2 billion of unused revolving capacity. Those figures precede the new mortgage funding. The release does not give a new post-funding cash balance or borrowing amount.

Share issuance also supplied capital earlier in the year. Omega issued about 4.7 million common shares during Q3 for $234 million in gross proceeds.

A higher forecast, with a changing portfolio

Omega raised its annual adjusted funds from operations forecast to $3.28 to $3.30 a share from $3.22 to $3.26. The midpoint rose five cents to $3.29. This adjusted REIT earnings measure adds back real-estate depreciation and adjusts selected gains, costs and other items.

Quarterly adjusted funds from operations rose to 82 cents a share from 79 cents. GAAP net income moved lower, to $86.8 million from $185 million, with acquisition and transition costs and severance weighing on the current result. Last year's quarter also included a property-sale gain.

The wider investment total includes completed U.S. property purchases alongside the U.K. loan. The next milestone for the largest investment is the option becoming exercisable and Omega taking the property interests into a lease structure. The Omega company profile tracks the funding, completed portfolio changes and earnings expectations.