In three separate transactions in the second quarter, Omega Healthcare Investors acquired 34 facilities for a total of $114.7 million and leased them to an existing operator and two operators new to its giant portfolio.
It was indicative of an optimistic real estate investment trust that has continued to accrue and reorganize its assets in a profitable way, exceeding Wall Street expectations. The Hunt Valley, MD-based REIT had completed $648 million in new investments through July, CEO Taylor Pickett said in a second-quarter earnings statement.
“Our second-quarter financial performance showed strong sequential improvement, driven primarily by accretive investments and the resolution of portfolio restructurings,” he noted.
Omega declared a quarterly cash dividend of $0.67 per share. It also increased the guidance range of its 2024 adjusted funds from operations to a range of $2.78 to $2.84 per diluted share, up from the previous $2.70 to $2.80.
“The fundamentals of the business continue to improve,” said Megan Krull, Omega’s senior vice president of operations on Friday’s second-quarter earnings 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.”
Overall facility occupancy has continued to rebound from the pandemic, reaching nearly 81% as of mid-July, company officials said. That’s more than a 6 percentage point rise from the low 30 months ago.
Omega’s holdings include more than 85,000 beds among its more than 900 properties, which are overseen by 77 different operators. The holdings spread across 42 states and the UK, which company officials said has been a particularly attractive investment location lately.
LaVie assets praised
Company leaders also reflected on the previously announced news that Atlanta-based LaVie Care Centers, which operates 43 licensed skilled nursing facilities or independent living communities across five states, filed for Chapter 11 bankruptcy in June. Omega is the company’s largest landlord.
“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,” Omega Chief Financial Officer Bob Stephenson said on Friday’s call.
“We continue to believe that there is meaningful value in our portfolio of current LaVie assets,” Stephenson added. “Omega has been working with LaVie for over a year to assist it in reducing its continued exposure to underperforming assets, which in turn has alleviated some of the financial burdens on the current 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.”
As part of Omega’s debtor-in-possession loan commitment, during the period of bankruptcy protection, LaVie is required to pay the REIT full contractual rent of $3 million a month on the properties LaVie continues to lease from the company. LaVie has paid approximately $3 million in rent in the months of June, July and so far in August. Before filing for bankruptcy, the company paid $1.5 million monthly in April and May.
Booth said that Omega expects LaVie’s bankruptcy to be resolved before the end of the year.
Guardian and Maplewood updates
In other news, Omega reported that in April it transitioned its remaining six Guardian Healthcare facilities to a different operator for minimum initial annual contractual rent of $5.5 million. Rent could be increased in the future depending on revenues received by the operator.
For the second quarter, Omega said, the REIT received rental income of $2.8 million from the new operator.
“We’re assuming the new operator of the Guardian transition facilities will continue to pay rent of $2.8 million per quarter consistent with the second quarter,” Stephenson said.
Brockway, PA-based Guardian filed for Chapter 11 bankruptcy protection last week for its 19 SNFs in Pennsylvania and West Virginia.
Meanwhile, Omega officials also said that in July, it reached an agreement with the estate of Greg Smith, the late president and CEO of Maplewood Senior Living, to transition control of Maplewood.
Smith passed away unexpectedly in late March. Under the agreement, which must be approved by a court, members of Maplewood’s management team will assume Omega’s lease and loan agreements.Omega reported that Maplewood paid $11.8 million in rent in the second quarter compared with $11.3 million in the first quarter. In July alone, Maplewood paid $4 million in rent.
