Q3 2024 Omega Healthcare Investors Inc Earnings Call
Statements such as statements regarding our financial projections potential transactions, operator prospects and outlook generally.
Factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the companys filings with the SEC.
During the call today, we will refer to some non-GAAP financial measures such as NAREIT <unk> adjusted <unk> Fad and EBITDA reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement in addition, certain operator coverage and financial information that we discussed.
Based on data provided by our operators that has not been independently verified by Omega I will now turn the call over to Taylor.
Taylor: Thanks, Michele good morning, and thank you for joining our third quarter 2024 earnings conference call.
Today, I will discuss our third quarter financial results and certain key operating trends.
Third quarter Fad funds available for distribution of <unk> 30 per share was better than expected and should continue to improve as several portfolios are in the process of being transitioned which will result in fat upside over the next few quarters.
Our dividend payout ratio is now 96%.
And should continue to drop into the low 90% range in the upcoming quarters.
As a result of our year to date portfolio transitions and acquisitions, we began narrowed and increased our 2024 <unk> guidance to a range of $2 84.
And $2 86 per.
Per share.
We have issued a significant amount of equity to fund our robust pipeline.
Which has bolstered our liquidity and further deleverage the balance sheet.
As Dan will discuss key tenant occupancy and rent coverage metrics are strong.
While the under one times EBITDAR coverage, operator metric has no material risks or concerns.
During the first three quarters of 2024.
Since the assumption of $243 million in debt and the issuance of $14 2 million shares of common stock or over a half a billion dollars in equity proceeds.
We ended the quarter with over $340 million in cash on the balance sheet and a fully available credit facility with a borrowing capacity of 145 billion.
At September 30th 95% of our $4 9 billion and debt was at fixed rates and our net funded debt to annualized adjusted EBITDA was $4 two to three times.
Down from $4 seven six times in the second quarter.
And our fixed charge coverage ratio was four six times.
As Taylor mentioned, we increased our full year adjusted <unk> guidance to a range between $2 84 to.
To $2 86 per share.
A few of the key fourth quarter assumptions are.
We're assuming no change in our revenue related to operators on an accrual basis revenue recognition.
We're assuming levine continues to pay at the existing rate of $3 million per month and.
In Maple woods ability to pay contractual rent continues to improve.
We're assuming the new operator of the Guardian transitioned properties continues to pay $2 $9 million in rent per quarter consistent with the third quarter.
We're assuming $31 million in asset sales in the fourth quarter related to the sale of a portion of the facility is classified as held for sale at the end of the third quarter for which we recorded $200000 in revenue in the third quarter.
We've included the impact of the $119 million of new investments completed in October which were funded with equity.
We project, our quarterly G&A expense to continue to run between 11, five and $13 5 million in the fourth quarter, we assume no material changes in market interest rates as they relate to either the interest earned on balance sheet cash or interest expense charge or credit facility.
Borrowings.
Finally, we assume we will continue to pre fund acquisitions and prepare for our January $2025 $400 million bond maturity by issuing equity as a reminder, for every 4 million shares issued our quarterly adjusted <unk> is negatively impacted by slightly less than one.
Penny per share until the cash is put back to work in new investments.
Taylor: Our 2024 adjusted <unk> guidance does not include any additional investments or asset sales as well as any additional capital transactions other than what I just mentioned.
Or what was included in the earnings release.
Taylor: I will now turn the call over to Dan.
Thanks, Bob and good morning, everyone.
As of September 32020 for.
Omega had an operating asset portfolio of 962 facilities with approximately 90000 operating beds. These.
These facilities were spread across 81 third party operators.
And located within 42 states and the United Kingdom.
Trailing 12 month, operator, EBITDAR coverage for our core portfolio as of June 32024 increased to 149 times versus 142 times for the trailing 12 month period ended March 31 2024.
Turning to portfolio matters as of today Omega is currently not engaged in any restructuring activity with any of its material operators.
The one exception being will be which will be seeking confirmation of its plan of reorganization in mid November.
Turning to new investments.
During the third quarter of 2020 for.
Omega completed a total of $467 million in new investments inclusive of $27 million in Capex.
The new investments include the previously announced bio about 51% JV partner and 63 care homes in the United Kingdom.
The 63 care homes are leased to establish UK operators with current annual rent of $43 6 million.
Inclusive of Omega third quarter investment of 365 million.
Omega is total cash investment in the 63 care homes.
$441 million, which results in a gross return of nine 9%.
The additional third quarter, new investments of $75 million have a weighted average cash yield of 10, 1% and above seven facilities in three states and the United Kingdom.
Subsequent to the third quarter of 2020 for Omega closed on a $119 million in additional new investments excluding capex.
The investments involved three facilities in two states and 14 facilities in the United Kingdom and have a weighted average yield of 10, 5%.
Year to date through October Omega has closed on $915 million in new investments, including Capex through the third quarter.
I'll now turn the call over to Megan.
Thanks, Dan and good morning, everyone State reimbursement continues to be one of the keys to the improved metrics that Dan spoke tail, while we applaud. The fact that many states have and continue to step up in very meaningful ways.
We also know that reimbursement support has a tendency to ebb and flow and therefore, we would caution anyone from thinking that these levels of increases are guaranteed to continue in the long term.
Taylor: Meanwhile, we are all anxiously awaiting the outcome of the various effort against the staffing mandate.
Taylor: Plaintiff, including certain industry Association have filed a motion for summary judgment in federal court in the state of Texas with respect to their lawsuit against the mandate, which they argue overstep Cms's authority.
While not guaranteed the ruling on that could come as early as first quarter of 2025.
Additionally, 20 attorneys general have also filed suit against the staffing mandate in federal Court in Iowa.
While the overturning of the Chevron doctrine by the Supreme Court earlier. This year certainly appears to pave the way for a victory on the legal front.
Post election Legislative efforts also remain as the reversal of the rule would stand to save the federal government $22 billion over 10 years. According to the congressional budget office.
With no federal funding, specifically earmarked for the mandate and no imminent structural improvement that would improve staffing availability. We are hopeful that there will ultimately be overturned and then any future regulatory changes staffing or otherwise will be introduced in a much more thoughtful way.
I will now open the call up for questions.
Speaker Change: Thank you the floor is now open for questions. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
I'd like to withdraw your question simply press Star one again.
To allow as many questions as possible. We please ask that you limit yourself to one question and one follow up.
Your first question comes from the line of Jonathan Hughes of Raymond James Your line is open.
Okay.
Hi, there good morning.
Jonathan Hughes: Looking at EBITDAR coverage and it's now basically one five times I think the highest in the post pandemic world and the outlook for improving coverage and strong due to some favorable supply demand dynamics I think we all know about.
But I wanted to ask about the triple net lease structure I know you don't necessarily get to participate in that EBITDAR upside, but the safety.
The rent paid to you does increase I don't think I've ever asked a question about lease expirations, but for those few lesions.
Spire whats the ability you have to either increase rents and maybe reset coverage and go back to say a historical 1314 times range or would you rather just renew them higher modestly and take the higher coverage and greater brand safety.
That's a great question Jonathan.
Speaker Change: If you look at.
We have a couple of maturities that are pretty big in 2027.
And it is a good example of the structure in this industry, where you typically have a 10 to 15 year lease that has renewals at the operators option.
So structurally there is really not a big opportunity and most leases to reset.
We have a handful with reset rates for various reasons, but.
Jonathan Hughes: In terms of the overall model you just saw.
That's not how this industry has evolved.
Jonathan Hughes: Okay.
Jonathan Hughes: Okay.
And then.
I'll stick with just one more.
Jonathan Hughes: And looking at leverage so maybe maybe for Bob Taylor as well I think the four two times.
<unk> today is a decade low I don't know what the all time lowest but it's slower than at any point I think since 2014.
The investment spreads today are really wide and accretive using equity that obviously never has to be refi. So my question is has there been any change to the leverage target of four to five times or.
Is it still in that range.
Speaker Change: Maybe any consideration can running even lower so put you in a better position Kirk our opportunities over the next several years.
We haven't changed our stated guidance is still between four to five times, but I think given the pipeline and given the equity currency and the spread that you just mentioned.
We think it will continue to go down.
Speaker Change: Thank you. Your next question comes from the line of Michael Griffin of Citi. Your line is open.
Thanks, just wanted to touch on occupancy for that.
Obviously it continues to increase on a sequential basis. So I'm curious if you can kind of give us some building blocks on what the drivers of this are the studio facility staffing increasing is it due to greater resident penetration and do you think we're in a world in a scenario in the near term, where we are at or above kind of your pre COVID-19.
Of occupancy.
Yes, I mean, I think look the occupancy is going to continue to go up I think it's going to we've seen some increases in the last couple of months even that number is.
Speaker Change: We're back to a time, where there is sort of a cyclical.
A cyclical times Warren.
The summer months it might go down a little bit in the winter it might go down a little bit.
Speaker Change: But ultimately I think staffing has improved a little bit it's still it's still a struggle with a lot of different areas and so youll see different occupancies in different areas, depending on what's going on.
Speaker Change: But certainly staffing continues to be a concern.
Speaker Change: Okay.
Speaker Change: Great. That's helpful. And then just maybe turning to the transaction activity and kind of your thoughts on the acquisition environment.
Are you seeing a lot of these deals mostly driven by motivated sellers that have upcoming maturity. They can't refi or has the market become more deep and liquid and bid ask spreads have narrowed somewhat and then if you could comment maybe on the availability of any bridge to HUD lending that would be helpful too.
Yes, I mean, the market has been and continues to be awfully active.
Speaker Change: I think the.
Speaker Change: Theres no one reason to point to to tell why that's become so active.
Obviously, the rates will come down a little bit and people are seeing out.
Speaker Change: Out there available.
There is more capital now.
So I think overall, that's just great in a very.
Speaker Change: Active market.
And I think we'll see that going forward here for the next at least 12.
Speaker Change: 12 months.
Speaker Change: Okay.
Thank you. Your next question comes from the line of Jonathan <unk> of Wells Fargo. Your line is open.
Speaker Change: Yeah.
Hey, good morning, guys, Hey, <unk> on for John Thanks for taking the question.
Just outside of the minimum staffing like what else is on the ballot here that we should be aware of wafer discussions around health care at home their Medicare advantage.
Speaker Change: Sniff claims at elevated levels et cetera.
And also we just like your thoughts on how each candidate would impact the sniff landscape.
I mean look at the end of the day, we can't really determine whats going to happen with the election or what would happen depending on who gets put into power, but this industry always does better when there is a balance of power so regardless of.
Wins, the presidency will be looking at Congress to sort of balance that piece of that.
Speaker Change: You mentioned, a bunch of regulatory items and certainly.
Well does have an impact on the industry potentially but really nursing homes that have already pushed everybody out to home health that could be there.
Really needs based industry.
I think you'll see stuff around the edges, but I don't think that theres going to be anything that would substantially change the industry.
I appreciate the color and just a quick follow up here. So just talk about the original expectations back in June for Levine to emerge out of the bankruptcy process here with the restructured balance sheet and how you expect the situation to play out during the <unk> comments.
Speaker Change: <unk>.
Seem to indicate that you guys are expecting some resolution here come mid November here is going to be any loss of Brent or downtime as a result of this transition.
Speaker Change: So they are currently scheduled for a plant a confirmation in mid November we do expect that to go through.
Speaker Change: The plan sponsor will assume the lease as it stands today.
Speaker Change: Which includes monthly rent payments of $3 million.
And that we expect to be the rent going forward.
There is a difference in timing between confirmation on the effectiveness, but we expect to receive.
A full three months are all $3 million in that period.
And the effective dates just relying upon regulatory approvals.
Speaker Change: Yeah.
Thank you. Your next question comes from the line of John Pawlowski of Green Street. Your line is open.
Hi, good morning, Thanks for the time Mega and one for you on the regulatory front I know state support has been a positive surprise for a while now having any major states.
Speaker Change: Members spend or.
Alright tides staffing service for all is actually a surprise negatively in recent months.
Speaker Change: Can you repeat that sorry, the end of that.
Speaker Change: Yes, I have any states essentially as state support surprise negatively in any recent months in any of your states.
Speaker Change: I haven't seen anything negative there have been some neutral once we're there.
Slightly positive to slightly negative, but most of what we've been seeing is pretty nice sizable increases.
Speaker Change: Okay.
Speaker Change: Okay, and then any.
Speaker Change: Any kind of concerning.
<unk> staffing staffing rules kind of.
Speaker Change: Around the Pennsylvania like.
Speaker Change: Scenario rumored right now in the market in any other states.
No I mean look the states are always looking at doing things like that but I think everybody is holding off a little bit to see what happens with the staffing mandate.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question comes from the line of Nick <unk> of Scotiabank. Your line is open.
Speaker Change: Okay.
Hi, Good morning. This is al let Shang on with Nick.
Speaker Change: I mean, just looking at your your.
Your exposure to different sites segments skilled nursing senior housing.
This is a function of what <unk> been investing in.
Given exposure to skilled nursing ticked down this quarter maybe below.
Speaker Change: Historical levels, how are you thinking about.
Speaker Change: Operational volatility and investments going solar between.
Speaker Change: These two segments.
Speaker Change: Our investments are really driven by our.
Principally by our operating partner relationships.
Speaker Change: To the extent, we can lever into any of those relationships.
Speaker Change: With the right underwriting.
Where our capital is going to go.
It happens that senior housing, we've driven a lot more capital in our senior housing over the last couple of years and you've seen those percentages change a little bit and I think that trend probably continues but there is no particular goal other than continuing to allocate capital with meaningful spreads to our existing relation.
Speaker Change: Chips.
Speaker Change: Okay.
Speaker Change: Okay makes sense.
Speaker Change: And then sticking to the investment side.
Speaker Change: You did add a skilled nursing facility development in Florida.
This quarter into the pipeline.
Are you thinking about exposure to that market, maybe development as an investment going forward.
Depending on spreads or so.
Speaker Change: Yes.
Again with the right operator.
And it will continue to allocate into that market.
But the reimbursement has gotten much better in the state of Florida. So.
A lot friendlier environment that it was a few years ago.
Speaker Change: So.
If it fits our underwriting.
We will continue to allocate into that statement.
Speaker Change: Yeah.
Thank you. Your next question comes from the line of Juan Sanabria of BMO capital markets. Your line is open.
Hi, this is robin handle I'm sitting in quantity.
Speaker Change: I was just curious in maplewood whats the occupancy trend at the second asset and left up to stabilization at this point.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: Hey, just a little note on maplewood.
Speaker Change: We're done with the financial restructuring there there is still some.
Change of ownership in legal work around those documents, but.
Speaker Change: Just a note there Scott Theres no material financial restructurings, but maplewood has a little more wood to chop on the legal side.
Speaker Change: Inspire is now 72% occupied.
Speaker Change: Yeah.
Speaker Change: And it's really slow trudge up that hill.
Speaker Change: I don't know when.
When there'll be to 85% 90%.
But they are adding net residents each month.
It's just a it takes it's going to take some time so.
I am hopeful sometime sometime in 2025, we are talking about them being at those levels of occupancy.
Speaker Change: <unk> to be seen.
Speaker Change: Got it.
On the DC development, what's the level of confidence that I have made a good can can increase incremental rents.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The.
Can you help me one more time the level of confidence that PC.
VC that we can increase incremental.
Oh, yes, Tc is going to be net additive to.
Speaker Change: Our rent.
Pretty meaningfully.
6%, 7%, 8% year over year and our expectations.
We'll be receiving.
Speaker Change: Okay.
Just any investment pipe, what's the appetite to do bigger deals at this point.
Speaker Change: Yes.
Speaker Change: Yes.
I mean, there have been some bigger deals out there we've had an opportunity to look at them.
Maybe are our underwriting is a little bit more disciplined than others.
Speaker Change: Mostly passed on.
Speaker Change: Some of these bigger deals.
Speaker Change: To some degree we might still be some.
Speaker Change: Some role in their cap structure on a go forward basis.
Speaker Change: Yeah.
Thank you. Your next question comes from the line of Justin speak of RBC capital markets. Your line is open.
Yes, thanks for taking the question.
Just where do you see the best new investment opportunities should we still.
Speaker Change: Think about the best opportunities being in the UK care home market.
Speaker Change: Yes.
I think in the end.
<unk> fourth quarter, and maybe even the first quarter that will be.
A lot of what the pipeline is currently made up of I think after that.
We will see obviously the U S pipeline are in the U S activity has picked up quite a bit throughout this year.
Speaker Change: So I expect that will shift at some point in 2025.
Okay, and then you mentioned that there are some some bigger portfolios on the market that you guys did see.
Can you just provide some color on sort of the pipeline the size of the pipeline right now in the asset mix in location.
It's a little bit of a mixed bag as I've said, we've got a number of deals still and we're looking at in the U K the U S.
<unk> activities.
We're looking at mostly snaps, but we've got some our sprinkled in there as well.
So as far as size guys, we don't it's hard to comment on.
Speaker Change: What exists inside the pipeline, but we're obviously looking at.
Speaker Change: Virtually every deal thats out there in the market, including the big ones.
Speaker Change: Yeah.
Your next question comes from the line of Alex <unk> of Baird. Your line is open.
Hi, Thanks for taking my question kind of off the pipeline question you already talked about.
The us versus UK, but can you talk about lending versus.
Real estate acquisitions.
Speaker Change: The pipeline is headed so far and <unk> it looks like it's been weighted to the loan side.
Yes, I think for the most part you'll still see us more heavily invested obviously in real estate acquisitions in the fee simple properties themselves.
We have dabbled in the loan side, a little bit as of late.
Those loans have a lot of different attributes.
Speaker Change: Theres Mezz financing there is some.
Loans to lease there is some long term loans that actually looks like leases with.
Lockout provisions so you got a pretty.
Speaker Change: Pretty vast mixed bag of what type of loans they are.
So we will do some of those a lot of those are involved existing operators and just.
Speaker Change: Some of their needs.
Are additive to the portfolio in terms of new operators just getting it.
Finding a new operator potentially in a new space.
Speaker Change: Okay. Thank you.
Maybe speak under 15 assets that are currently held for sale and then also how much of the portfolio can be a candidate for asset sales.
Speaker Change: Okay.
Yes, we have 15 currently it's made up of really.
Speaker Change: Three operators.
Speaker Change: As I said in my talking points I expect half of that to be sold in the fourth quarter.
And the other half early next year.
Speaker Change: And there really is very limited.
Yes, we're always looking at ways to improve the portfolio.
Speaker Change: There might be sales opportunities, but theres not a lot of that within the existing portfolio as we sit here today.
Your next question comes from the line of Daniel <unk> of Bank of America. Your line is open.
Speaker Change: Hello, Thanks for having me just to go back on Maplewood do you provide any color on <unk>.
Why are you pushed back on the timing for this maplewood development.
Speaker Change: Yeah.
Speaker Change: The DC development.
We were scheduled for December now it looks like January.
Speaker Change: So.
Speaker Change: Sure.
It goes quarter to quarter, but this is really getting statistically.
Turning up the last pieces of construction and getting the CEO.
We're talking about 30 days.
Speaker Change: Okay.
That's all for me thank you.
Speaker Change: Your next question comes from the line of Joe <unk> of Jefferies. Your line is open.
Alright. Thank you for taking my question it looks like a new sniff operator was added to the sub one times EBITDAR coverage list, representing three 2% of Brent I guess, if you could just provide some color on maybe what drove the coverage decline, maybe where what states the operators located in.
Speaker Change: Okay.
Yes, we have one operator that is always sort of on that cost above falling below or above one point out of times, but they're primarily in the state of Florida, which can have a large rate increase that we expect that.
Speaker Change: Over the next several quarters work its way out of that bucket.
Great. That's all for me thanks.
Speaker Change: And your last question comes from the line of Juan Sanabria with BMO capital markets. Your line is open.
It's Robin here again, just had a follow up on the on guarding actually curious why the pits led to higher rents and what.
It would take going forward to unlock the full $12 4 million.
Yes, I mean, we obviously were able to hit the higher rent.
Speaker Change: For 2024.
Obviously, we won't know until 2025, whether we hit the upper end of the range.
Speaker Change: Okay got it and maybe just one for you.
Speaker Change: You mentioned there are some areas where things staffing difficulties Phil could you maybe just elaborate on specific states or markets.
Speaker Change: I mean look Florida.
Speaker Change: Tough at times, but I think with the rate increase there getting that hopefully help take that a little that Texas is tough somebody it's oral areas or just a little bit tougher.
Speaker Change: The final staffing.
And so you do have people who are stuck in the hospital system, who can't get pushed out because theres just not the ability to do that.
Speaker Change: Yeah.
Thank you and with that that concludes our Q&A session I will now turn the conference back over to Taylor Pickett for closing remarks.
Thanks, everyone for joining today.
Speaker Change: Please direct any follow up calls.
Speaker Change: As a team.
Great day.
This concludes today's conference call you may now disconnect.
Speaker Change: Thank you.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Yeah.