Q2 2025 Omega Healthcare Investors Inc Earnings Call
Jericho: Ladies and gentlemen, thank you for standing by. My name is Jericho, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omega Healthcare Investors' second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Michele Reber. You may begin.
Ladies and gentlemen, thank you for standing by. My name is Jericho and I'll be your conference operator today.
It's time, I would like to welcome everyone to the Omega Healthcare. Investors second quarter earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad,
If you would like to withdraw your question again, press the star 1.
I would now like to turn the conference over to Michelle Reber. You may begin
Michele Reber: Thank you, and good morning. With me today is Omega's CEO, Taylor Pickett; President, Matthew Gourmand; CFO, Bob Stephenson; CIO, Vikas Gupta; and Megan Krull, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward-looking 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 company's filings with the SEC. During the call today, we will refer to some non-GAAP financial measures, such as NAREIT FFO, Adjusted FFO, 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.
Thank you and good morning with me today is Omega CEO. Taylor picket president, Matthew Gorman, CFO Bob Stevenson CIO vikas Gupta and Meghan, croll senior Vice President of Operations.
Comments made during this conference call that are not historical facts. May be forward-looking 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 company's filings with the SEC.
During the call today, we will refer to some non-gaap Financial measures such as nay ffo adjusted, ffo, fad and Evita.
Michele Reber: In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor.
Our operators that has not been independently verified by Omega.
Taylor C. Pickett: Thanks, Michele. Good morning, and thank you for joining our second quarter 2025 earnings conference call. Today, I will discuss our second quarter financial results and certain key operating trends. Second quarter adjusted FFO of $0.77 per share and FAD, funds available for distribution, of $0.74 per share reflect strong revenue and EBITDA growth, principally fueled by acquisitions and active portfolio management. We again raised and narrowed our 2025 FFO guidance from a per-share range of $2.95 to $3.01 up to $3.04 to $3.07, which reflects our strong second quarter 2025 earnings and the issuance of $600 million in five-year bonds versus the continued sale of equity. Our balance sheet metrics are very strong, with adjusted annualized EBITDA of nearly $1.2 billion and net funded debt of only $4.3 billion. In July, Genesis filed a Chapter 11 bankruptcy.
I will now turn the call over to Taylor.
Thanks, Michelle.
Good morning and thank you for joining our second quarter 2025 earnings conference call.
Today, I will discuss our second quarter financial results and certain key operating trends.
Second quarter, adjusted funds from operations of 77 cents, per share.
In fact of available for distribution of 74 cents per share.
Reflects strong revenue and IBA dog growth principally fueled by Acquisitions and active portfolio management.
We again raised and narrowed our 2025 afo guidance.
From a per share range of $2.95 to $3.01.
Up to $3.04 to $3.07, which reflects our strong second quarter 2025 earnings.
And the issue of 600 million in 5 year, bonds versus the continued sale of equity.
Our balance sheet metrics are very strong with adjusted annualized. Evida of nearly 1.2 billion dollars and net funded debt of only 4.3 billion.
Taylor C. Pickett: Omega, along with other Genesis lenders, has committed to debtor in possession financing and, in addition, to support a bid to buy assets via Section 363 bankruptcy sale process. In the interim, we expect to receive our full monthly contractual rent. Turning to portfolio mix, our senior housing portfolio continues to grow. It is now comprised of 396 facilities, which is 38% of our total operating facility portfolio. With our strong acquisition pipeline, a favorable operating environment, and over $2 billion in liquidity with very low leverage, we are ideally positioned to grow both our senior housing and skilled nursing portfolios. I will now turn the call over to Bob.
In July Genesis filed, a chapter 11 bankruptcy.
Omega along with other Genesis lenders, has committed to debtor in possession financing. And in addition to support a bid to buy assets via section, 363 bankruptcy sale process.
In the interim, we expect to receive our full monthly contractual rent.
Turning to portfolio, mix.
Our senior housing portfolio continues to grow. It is now comprised of 30096 facilities, which is 38% of our total operating facility portfolio.
With our strong acquisition pipeline, a favorable operating environment and over 2 billion dollars in liquidity.
With very low leverage, we are ideally positioned to grow both our senior housing and skilled nursing portfolios.
I will now turn the call over to Bob.
Matthew Gourmand: Thanks, Taylor, and good morning. Turning to our financials for the second quarter of 2025, revenue for the second quarter was $283 million compared to $253 million for the second quarter of 2024. The year-over-year increase is primarily the result of the timing and impact of revenue from new investments completed throughout 2024 and 2025, operator restructurings and transitions, and annual escalators, partially offset by asset sales completed during that same time period. Our net income for the second quarter was $140 million, or $0.46 per share, compared to $117 million, or $0.45 per common share for the second quarter of 2024. Our NAREIT FFO for the second quarter was $213 million, or $0.70 per share as compared to $189 million, or $0.72 per share for the second quarter of 2024.
Thanks Taylor and good morning.
Turning to our financials for the second quarter of 2025.
Revenue for the second quarter was $283 million, compared to $253 million for the second quarter of 2024.
The year-over-year increase is primarily the result of the timing and impact of revenue from new Investments completed throughout 2024 and 2025 operator, restructuring and Transitions and annual escalators, partially offset by asset sales completed during that same time, period.
Our net income for the second quarter was $0 million.
Or 46 cents per share compared to 117 million or 45 cents per common share for the second quarter of 2024.
Our net rate, ffo for the second quarter was 213 million or 700 cents per share as compared to 189 million or 72 cents per share for the second quarter of 2024.
Matthew Gourmand: Our adjusted FFO was $232 million, or $0.77 per share for the quarter, and our FAD was $223 million, or $0.74 per share. Both exclude several items outlined in our NAREIT FFO, adjusted FFO, and FAD reconciliations to net income found in our earnings release, as well as our second quarter financial supplemental posted to our website. Our second quarter 2025 FAD was $0.021 greater than our first quarter 2025 FAD, with the increase primarily resulting from incremental revenue related to the timing and completion of $605 million in new investments completed during the first half of 2025. In addition, Maplewood paid $17.6 million in rent in the second quarter, an increase of $2 million, inclusive of an additional $1.1 million of rent related to the Washington, D.C. facility compared to the first quarter of 2025, and $1.9 million in higher rental income from our U.K.
Our adjusted ffo was 232 million or 77 cents per share for the quarter and our Fed was 223 million or 74 cents per share and both excludes several items. Outlined in our NRE ffo adjusted, ffo and fed. Reconciliations to net income down in our earnings release as well, as our second quarter Financial supplemental posted to our website.
Our second quarter of 2025 Fed was 2.1, cents greater than our first quarter of 2025 fed with the increase, primarily resulting from incremental, Revenue related, to the timing and completion of 605 million in new Investments completed. During the first half of 2025,
In addition, Maplewood paid 17.6 million in rent in the second quarter, an increase of dollars, inclusive of an additional 1.1 million of rent related to the Washington DC facility compared to the first quarter of 2025.
Matthew Gourmand: operators due to favorable foreign currency fluctuations. These were partially offset by the second quarter issuance of 7 million common shares of equity for gross proceeds totaling $258 million as we continue to pre-fund our investment pipeline. Our balance sheet remains incredibly strong, and we have continued to take steps to improve our liquidity, capital stack, and maturity ladder. In June, we opportunistically issued $600 million, 5.2% senior notes due in July 2030. Our notes issuance was leverage neutral as proceeds will be used to repay the $600 million of 5.25% senior notes maturing in January 2026. We will repay the notes on or about October 15th, 2025, which is the earliest we can repay at par. Additionally, we repaid a $50 million term loan in April.
...and $1.9 million in higher rental income from our UK operators, due to favorable foreign currency fluctuations.
These were partially offset.
By the second quarter, we issued 7 million common shares of equity for gross proceeds totaling $258 million, as we continue to pre-fund our investment pipeline.
Our balance sheet remains incredibly strong. And we've continued to take steps to improve our liquidity. Capital stack and maturity ladder.
$600 million 5.2%, senior notes due in July 2030,
Our notes issuance was leveraged neutral. As proceeds, will be used to repay the million dollars of 5.25% senior notes. Maturing in January 2026,
we will repay the notes on or about October 15th, 2025, which is the earliest we can repay at par.
Matthew Gourmand: Our $1.45 billion undrawn credit facility was extended to the end of October, and we also extended our $429 million term loan until August 2026. We anticipate completing a new credit facility in the next few months. At June 30th, we ended the quarter with $734 million in cash on the balance sheet. 95% of our $5 billion in debt was at fixed rates, and our fixed charge coverage ratio was 5.4 times. Our net funded debt to annualized adjusted normalized EBITDA was 3.67 times, which is the lowest our leverage has been in over a decade. We still have targeted leverage range between 4 and 5 times, with a sweet spot being between 4.5 and 4.75 times.
Additionally, we repaid a $50 million term loan in April. Our $1.45 billion undrawn credit facility was extended to the end of October, and we also extended our $429 million term loan until August 2026.
We anticipate completing a new credit facility in the next few months.
At June 30th, we ended the quarter with $734 million in cash on the balance sheet.
95% of our 5 billion dollars in debt was at fixed rates.
And our fixed charge coverage ratio was 5.4 times, and our net funded debt to annualized adjusted normalized EVA was 3.67 times, which is the lowest our leverage has been in over a decade.
We still have targeted, leverage range between 4 and 5 times with a sweet spot being between 4.5 and 4.75 times.
Matthew Gourmand: Given our strong equity currency, we have the flexibility to accretively fund investments with equity, as we have over the past several quarters, thereby positioning ourselves for outsized adjusted FFO growth as we can opportunistically look to the debt and banking markets. As Taylor C. Pickett mentioned, we raised and narrowed our full-year adjusted FFO guidance to a range between $3.04 to $3.07 per share. The increase was primarily due to several factors. One, we completed $183 million of new investments post our first quarter earnings call. Two, our prior guidance assumed we would issue equity or have approximately $600 million of cash on hand to repay our $600 million of notes due January 2026. We were able to issue bonds versus equity to put the cash on the balance sheet to handle that maturity. In addition, that maturity will be repaid in October.
Given our strong Equity currency, we have the flexibility to a creatively fund Investments with Equity, as we have over the past several quarters. Thereby, positioning ourselves for outsides adjusted affo growth, as we can opportunistically look to the debt and banking markets.
as Taylor mentioned, we raised and narrowed our full year adjusted ffo guidance to a range between $3.04 to $3.07 per share
To increase was primarily due to several factors. We completed $183 million of new investments post our first quarter earnings call.
Our prior guidance assumed that we would issue equity or have approximately $600 million of cash on hand to repay our $600 million of notes due January 2026.
Matthew Gourmand: Three, following the completion of the LaVie bankruptcy, on June 1st, our mass release was assigned to Agemo. Given the improved balance sheet of Agemo and the strong operating performance of the underlying facilities, effective June 1st, Agemo was placed on a straight-line basis for revenue recognition. Turning to our revised full-year guidance, the key assumptions are as follows. On the revenue and expense side, we will record $3.6 million of monthly revenue related to Agemo, of which $3.1 million represents their contractual rent. We are assuming no other changes in our revenue related to operators on an accrual basis of revenue recognition.
We were able to issue bonds versus equity to put the cash on the balance sheet to handle that maturity. In addition, that maturity will be repaid in October.
And 3 following the completion of the levy. Bankruptcy on June 1st, our Master Lease was assigned to avaris given the improved balance sheet of avaris and the strong operating performance of the underlying facilities.
Effective, June 1st of bartis was placed on a straight line basis for Revenue recognition.
Turning to our revised 4-year Guidance. The key assumptions are as follows on the revenue and expense side, we will record 3.6 million of monthly Revenue related to Avis of which 3.1 million represents the contractual rent.
Matthew Gourmand: As a note, approximately 80% of our operators are currently on a straight-line basis of accounting, which means any growth in revenue through annual escalators will not yield further growth in adjusted FFO, but would yield cash flow growth. We are assuming Genesis pays rent and interest pursuant to terms of the debt financing agreement. Maplewood continues to pay at its July monthly run rate of $6.1 million. We entered into derivative instruments to reduce the impact of foreign currency fluctuations on income generated from our U.K. investments for the balance of the year. We project quarterly G&A expense to run between $13.5 million to $14.5 million for the remaining two quarters of 2025. On the investment side, we have included the impact of new investments completed as of June 30th and did not include any additional new investments.
We're assuming no other changes in our Revenue related, to operators on an approval basis of Revenue. Recognition. As a note Approximately, 80% of our operators are currently on a straight line basis of accounting which means any growth in Revenue through annual escalators will not yield further growth in adjusted ffo, but would yield cash flow growth.
We're assuming Genesis pays rent and interest pursuant to terms of the debt financing agreement.
And Maplewood continues to pay at its July monthly run, rate of 6.1 million.
We entered into derivative instruments to reduce the impact of foreign currency fluctuations on income generated from our UK Investments.
For the balance of the year.
We project quarterly GNA expense to run between 13.5 million to 14.5 million. For the remaining 2 quarters of 2025.
Matthew Gourmand: On the balance sheet, of the $233 million in mortgages and other real estate-backed investments contractually maturing in 2025, we are assuming $65 million will convert from loans to fee-simple real estate, and $88 million will be repaid throughout 2025. The balance of the loans are being extended beyond 2025. We are assuming approximately $50 million of asset sales, of which $12 million qualified as assets held for sale as of the end of the quarter. We recorded $1.3 million of revenue in this second quarter related to these assets. We assume we will repay $252 million of secured debt on or about November 25th, 2025, with equity. We assume no material changes in market interest rates.
When the investment side, we've included the impact of new Investments, completed as of June 30th and did not include any additional new Investments.
On the balance sheet.
Of the 233 million in mortgages and other real estate backed Investments contractually maturing in 2025.
We're assuming $65 million will convert from loans to fees. Simple real estate, and $88 million will be repaid throughout 2025, with the balance of the loans being extended beyond 2025.
The quarter.
We recorded $1.3 million of revenue in the second quarter related to these assets.
We assume we will repay $252 million of secured debt on or about November 25, 2025, with equity.
And we assume no material changes in Market interest rates.
Matthew Gourmand: Our 2025 adjusted FFO guidance does not include any additional investments or asset sales, as well as any additional capital market transactions other than what I just mentioned or that was included in our earnings release. I will now turn the call over to Vikas.
Our 2025 adjusted ffo guidance is not include any additional Investments or assets sales as well as any additional Capital Market transactions. Other than what I just mentioned or that was included in our earnings release
Vikas Gupta: Thank you, Bob, and good morning, everyone. Today, I will discuss the most recent performance trends for Omega Healthcare Investors' operating portfolio, as well as recent activity for three of Omega Healthcare Investors' larger operators, Omega Healthcare Investors' investment activity in the second quarter of 2025, and an update on Omega Healthcare Investors' pipeline and market trends for the remainder of 2025. Turning to portfolio performance, trailing 12-month operator EBITDA coverage for our core portfolio as of March 31, 2025, remains flat quarter over quarter at 1.51 times. This strong coverage level demonstrates our operators' ability across skilled nursing and senior housing to cover their rent and retain sufficient cash for clinical care while in a fluid regulatory and reimbursement environment.
I will now turn the call over to Vikas.
Thank you, Bob and good morning everyone.
Today, I will discuss the most recent performance trends for omega's operating portfolio as well as recent activity for 3 of omega's larger. Operators, omegas investment activity in the second quarter of 2025 and an update on omega's Pipeline and market trends for the remainder of 2025,
Turning to portfolio performance trailing 12-month, operator ibadur coverage for our core portfolio as of March, 31st 2025 remains flat quarter over quarter and 1.51 times.
Vikas Gupta: Our core portfolio consists of 1,032 facilities, of which 62% is comprised of skilled nursing facilities and other transitional care facilities in the U.S., and the other 38% is U.S. senior housing and U.K. care homes. As Taylor C. Pickett previously mentioned, Genesis filed for Chapter 11 bankruptcy protection on July 9, 2025, with the goal of selling substantially all of its assets through a Section 363 sale to a winning bidder of such assets, followed by a liquidating plan of reorganization. Omega Healthcare Investors 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 Healthcare Investors has worked with Genesis in recent years to divest underperforming facilities from its mass release, which has resulted in a strong current trailing 12-month coverage of 1.5 times.
The strong coverage level demonstrates, our operators ability across skilled nursing, and senior housing to cover their rent and retain sufficient cash for clinical care while in a fluid Regulatory and reimbursement environment.
Our core portfolio consists of 1,000 and 32 facilities of which 62% is comprised of skilled nursing facilities and other Transitional Care Facilities in the US and the other 38% is US senior housing and UK Care Homes.
Genesis, as Taylor previously mentioned, filed for Chapter 11 bankruptcy protection on July 9, 2025, with the goal of selling substantially all of its assets through a Section 363 sale to a winning bidder of such assets, followed by a liquidating plan of reorganization.
Mega believes this filing was the necessary and important step in creating an entity that is operationally solvent and sustainable, with enhanced liquidity and a strengthened balance sheet.
Vikas Gupta: As such, Omega Healthcare Investors' rent of $52 million generated by our 31-facility lease is stable, and the credit of our tenant should become stronger via the bankruptcy process. During the bankruptcy, Omega Healthcare Investors has committed to support Genesis by providing up to $8 million in debtor in possession financing. Genesis has agreed to pay full contractual rent to Omega Healthcare Investors during this period. In addition to our lease, Omega Healthcare Investors has a $121 million term loan with Genesis, which is secured by a first lien on Genesis' four ancillary businesses, and it's subordinated all assets liened from the overall business of Genesis. We believe our loan is fully collateralized, with the credit of the borrower improving via the bankruptcy process. Genesis has paid full contractual rent each month since April 2025, and as previously mentioned, has committed to doing so going forward.
Mega has worked with Genesis in recent years, to divest underperforming facilities, from its Master Lease, which has resulted in this, strong current trailing 12-month coverage of 1.5 times.
As such, Mega's rent of $52 million generated by our 31 facilities lease is stable, and the credit of our tenant should become stronger via the bankruptcy process.
During the bankruptcy, Omega is committed to support Genesis by providing up to $8 million in debt-in-possession financing.
Genesis has agreed to pay full contractual rent to Omega during this period. In addition to our lease Omega has 121 million Term Loan with Genesis, which is secured by a first. Lean on Genesis of the 4 and 3 businesses and its subordinated all assets, lean from the overall business of Genesis,
We believe our loan is fully collateralized, with the credit of the borrower improving via the bankruptcy process.
Vikas Gupta: The bankruptcy process is anticipated to take a period of 9 to 12 months. This timeline, along with all elements of the bankruptcy filing process, is subject to the approval of the bankruptcy court and other complexities inherent in Chapter 11 proceedings. LaVie exited bankruptcy on June 1st, 2025, at which time the Omega LaVie master lease was assumed and assigned to Avartis. As anticipated, all material lease terms, including the contractual rent of $3.1 million per month or $37.5 million per annum, remain the same as under the legacy LaVie lease. Avartis has made full contractual payments for June and July. Maplewood performance and occupancy for the 17-facility Maplewood portfolio, inclusive of Inspire Carnegie Hill in New York City, remains strong with an occupancy level of 95% as of July 2025.
Genesis is paid full contractual event each month since April 2025 and has previously mentioned has committed to doing. So, going for the bankruptcy process is anticipated to take a period of 9 to 12 months. This timeline along with all elements of the bankruptcy. Filing process is subject to the approval of the bankruptcy court. In other complexities inherent in chapter 11 proceedings,
LV.
Levie exited bankruptcy on June 1st 2025 in which time the Omega LV Master release was assumed and assigned to a varus as anticipated. All material lease terms, including the contractual rent of 3.1 million per month for 375 million per, Anum remaining the same as under the legacy of Ellis.
Of artists has made full contractual payments for June and July.
Maplewood.
Vikas Gupta: Inspire Embassy Row, the new 174-unit senior housing facility in Washington, D.C., that opened in February 2025, is in the process of leasing up with an occupancy of 30% as of the end of July. As Bob noted, for all 18 facilities, Maplewood paid $17.6 million in rent in the second quarter. Omega expects rent payments to increase in the coming quarters as Maplewood increases rates, pushes occupancy growth, and realizes further operational efficiencies. Other than Genesis, Omega is currently not engaged in restructuring activity with any of our major operators. Turning to new investments, we are pleased with Omega's 2025 transaction activity through the end of June, with over $605 million in total new investments year to date through June 30th, of which over $560 million, or 93%, were real estate investments added to our balance sheet.
Performance and occupancy for the 17 faculty with an occupancy level of 95%, as of July 2025.
Inspire Embassy Row, the new 174 unit, senior housing facility in Washington DC that opened in February 2025, is in the process of leasing up with an occupancy of 30% as of the end of July.
As Bob noted for all 18 facilities, Maplewood paid 17.6 million in rent in the second quarter.
Mega expects rent payments are increased in coming quarters, as Maplewood increases rates, pushes occupancy, growth and realizes further operational efficiencies
Other than Genesis Omega is currently not engaged in restructuring activity, with any of our major operators.
Turning to new Investments.
Vikas Gupta: During the second quarter, Omega completed a total of $527 million in new investments, not including $30 million in CapEx. The new investments include $502 million in real estate acquisitions via five separate transactions. As previously announced, in April 2025, we closed a $344 million investment for a portfolio of 45 care homes across the U.K. and the island of Jersey. Omega leased the 45 care homes to four existing operators and two new operators. Additionally, in the second quarter, we invested $158 million across four separate transactions to acquire 12 facilities, eight skilled nursing facilities, and four assisted living facilities, and leased them to two existing operators and two new operators. All transactions have an initial annual cash yield of 10%, with annual escalators ranging from 1.7% to 2.5%.
We are pleased with the mega 2025 transaction activity through the end of June, with over 605 million in total, new Investments year to date through June 30th of which, over 560 million or 93%, where real estate Investments added to our balance sheet.
A total of 527 million in new Investments.
Not including $30 million in capex.
The new Investments include 502 million in real estate Acquisitions via 5 separate transactions.
As previously announced in April 2025, we closed a 344 million investment for a portfolio of 45 Care, Homes across the UK and the island of Jersey.
Omega least the 45 Care Homes to 4 existing operators and 2 new operators.
Additionally, in the second quarter, we invested $158 million across 4 separate transactions to acquire 12 facilities: 8 skilled nursing facilities and 4 assisted living facilities.
In lease them to 2 existing operators and 2 new operators.
Vikas Gupta: Lastly, Omega invested $25 million in real estate loans via two transactions, where both loans have an interest rate of 10%. As discussed last quarter, the U.K. continued to be a large driver of our 2025 new investment activity, totaling approximately $392 million, or 65% of our total new investments, excluding CapEx. We continue to see ample opportunities to deploy capital in the U.K., many of which our U.K. operating partners identify and secure off-market, with Omega as their preferred capital partner. Turning to the pipeline, Omega's pipeline and transaction outlook for the second half of 2025 continues to be very favorable. We are witnessing an increase in marketed opportunities both in the U.S. and the U.K., while also securing off-market opportunities that our operating partners and other relationships bring us.
All transactions have an initial annual cash Shield of 10% with annual escalators ranging from 1.7% to 2.5%.
Lastly, Omega invested. 25 million in real estate loans via 2 transactions. We're both loans have an interest rate of 10%.
As discussed last quarter, the UK continued to be a large driver of our 2025 new investment activity, totaling approximately, 392 million, or 65% of our total new Investments, including capex.
We continue to see ample opportunities to deploy capital in the UK, many of which are UK operating partners, identifying and securing off-market deals with a mega as a Preferred Capital Partner.
Turning to the pipeline.
Omegas pipeline, transaction, outlook for the second half of 2025 continues to be very favorable.
Vikas Gupta: Looking at asset mix, many of the larger marketed transactions we are seeing are for regional senior housing assets at prices meaningfully below replacement costs. Transaction activity on the skilled nursing front is also sizable, and we are seeing numerous opportunities from individual owner-operators and regional sellers, while also seeing larger off-market opportunities brought to us by our existing relationships. We are evaluating and considering all asset types with a focus on structuring new investments to be immediately accretive, while also providing opportunities for Omega to further improve returns in future years as the underlying cash flows of our communities increase from the continued occupancy gains and operational efficiencies. I will now turn the call over to Megan.
we are witnessing an increase in marketed opportunities, both in the US and the UK while also securing off-market opportunities that are operating partners and other relationships bring us
Looking at asset mix, many of the larger market transactions. We are seeing are for regional senior housing assets.
At prices meaningfully below replacement cost.
Transaction activity in the skilled nursing fund is also sizeable, and we're seeing numerous opportunities for individual owner-operators and regional sellers. We are also seeing larger off-market opportunities brought to us by our existing relationships.
We are evaluating all asset types, with a focus on structuring new investments to be immediately accretive.
While also providing opportunities for a mega to further improve returns in future years, as the underlying cash flows of our communities increase from the continued occupancy, gains, and operational efficiencies.
I will now turn the call over to Megan.
Megan Krull: Thanks, Vikas, and good morning, everyone. The One Big Beautiful Bill Act, or OBBBA, was signed into law on July 4th, and as an industry, there is a lot to be thankful for. Despite pressure on the provider tax program, skilled nursing was specifically carved out from any Medicaid reductions. Removing the usual target on the back of this industry is a major win for the industry associations and operators who continue to drive a broader understanding within the legislative and executive branches of the importance of the long-term care industry. It is also another indication of President Trump's support, similar to what we saw at the start of the pandemic. As expected, the Medicaid expansion population, those able-bodied adults that were added with the Affordable Care Act, were the target of much of the reform.
thanks Vic, and good morning everyone, the 1, big beautiful, bill act or obba was signed into law on July 4th and as an industry there's a lot to be thankful for despite pressure on the provider tax program skilled nursing was specifically carved out from any Medicaid reductions
Removing the usual Target on the back of this industry is a major win for the industry. Associations and operators, who continue to drive a broader understanding within the legislative and executive branches of the importance of the long-term care industry.
It is also another indication of President Trump's support, similar to what we saw at the start of the pandemic.
Megan Krull: However, non-SNF provider taxes in expansion states will also be reduced over time, starting in 2028, which will have an impact on the hospital system. Generally speaking, a reduction in the overall federal funding of Medicaid to the states, regardless of the target, may cause states to evaluate all programs. That said, given the continued improvement in fundamentals, the strong lobbying efforts on behalf of the industry, and demographic tailwinds, we feel well-positioned to weather that potential storm. While Medicare was not specifically targeted in the OBBBA, the expected increase in deficit caused by the Act will, without legislative action, likely cause a 4% cut in the 2026 Medicare rate.
As expected, the Medicaid expansion population—those able-bodied adults that were added with the Affordable Care Act—were the target of much of the reform. However, non-net taxes in expansion states will also be reduced over time, starting in 2028, which will have an impact on the hospital system.
Generally speaking, a reduction in the overall federal funding of Medicaid to the states, regardless of the target, may cause states to evaluate all programs.
That said, given the continued improvement in fundamentals, the strong lobbying efforts on behalf of the industry, and the Democratic tailwind, we feel well positioned to weather that potential storm.
Megan Krull: However, given the scheduled Medicare rate increase later this year, coupled with the nature of our portfolio, with skilled nursing more heavily relying on Medicaid, and with an increasingly heavier concentration on private pay product, the near-term expected impact should be minimal. Historically, legislative action has been taken to avoid this automatic reduction. Finally, the OBBBA puts a moratorium on the implementation of the staffing requirements of the staffing mandate for 10 years. That said, the Texas and Iowa federal courts have now both found that CMS lacked the authority to issue the regulations surrounding the required hours, and while still subject to appeal, given the overturning of the Chevron Doctrine, it seems more likely than not that the higher courts will uphold that finding.
While Medicare was not specifically targeted in the obba, the expected increase in deficit, caused by the ACT will without legislative action, likely caused a 4% cut in the 2026 Medicare rate.
However, given the scheduled Medicare rate increase later this year coupled with the nature of our portfolio with skilled nursing more heavily relying on Medicaid and with an increasingly heavier, concentration on private pay product. The near-term expected impact should be minimal.
Historically legislative action has been taken to avoid this automatic reduction.
Finally, the obba puts a moratorium on the implementation of the Staffing. Requirements of the Staffing mandate for 10 years.
Megan Krull: We are grateful to have this latest reconciliation chapter behind us and look forward to continued support of this critical industry serving some of the most vulnerable in our population. I will now open the call up for questions.
That said, the Texas and Iowa federal courts have now both found that CMS lacked the authority to issue the regulations surrounding the required hours. While still subject to appeal, given the overturning of the Chevron Doctrine, it seems more likely than not that the higher courts will uphold that finding.
Jericho: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your headset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. We also do request for today's session that you limit to one question and one follow-up question. Your first question comes from Jonathan Hughes from Raymond James. Please go ahead.
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute. When asking your question, again press star 1 to join the queue.
We also do request for today's session that you'll please limit to 1 question and 1 follow-up question.
Your first question comes from Jonathan Hughes from Raymond James, please go ahead.
Jonathan Hughes: Hi there. Happy Friday. Thank you for the prepared remarks and commentary. I was hoping you could share some more details of what the investment pipeline looks like today in terms of yields and specifically on the U.S. seniors' housing opportunities you mentioned in the prepared remarks, and then maybe also yields on the sales in the quarter.
Hi there. Happy Friday. Thank you for the prepared, remarks and commentary. I was hoping
You could share some more details of what the investment pipeline looks like today in terms of yields, and, and specifically on the I think us senior housing opportunities you mentioned in in the prepared remarks, and then maybe also yields on the sales and the quarter.
Vikas Gupta: Sure. Vikas here. As I mentioned, our pipeline is strong. It consists of U.S. senior housing, U.S. SNF, and care homes in the U.K. It's just as strong as it has been and continues to be strong. We continue to just look at all the product that's out there for accretive investments. Yield, the yield we continue to push 10% across the board for all of those asset classes.
Sure. Um, I think it's here, as I mentioned. Um, our pipeline is strong. It consists of U.S. senior housing, U.S. Sniff and Care, and homes in the U.K.
Um, it's just as strong as it has been and continues to be strong. We continue to just look at all the product that's out there.
For a creative Investments.
Um, you yield the yield. We continue to push 10% across the board for all of those asset classes.
Jonathan Hughes: Yield on sales.
Vikas Gupta: On sales, we are, you know, any sales at this point forward are usually just strategic sales or at times purchase options related to old workouts. Otherwise, we have no sales on the horizon.
Um, and then on sales, um, we are, you know, any sales at this point for are usually just strategic sales or at times purchase options related to old workouts. But otherwise, we have no sales on the horizon.
Jonathan Hughes: Okay. Then my follow-up would be on Maplewood. They paid more rent versus Q1, and that was due in part to Embassy Row being in the full Q2. But even excluding Embassy Row, the rent there did tick up. Can you just remind us of the expected rent trajectory there, what is embedded in guidance, and when you expect them to hopefully return to paying full contract rent?
okay, and then
My follow-up would be on Maplewood.
They paid more rent versus the first quarter and and that was due in part to to Embassy Row being in the full second quarter, but even excluding Embassy Road the rent, their did tick up can you just remind us of the expected? Rent, trajectory there, what's embedded in guidance and when you expect them to hopefully return to paying full contract rent,
Matthew Gourmand: We will tag team on this, Jonathan. What is laid out, what they paid in the quarter is actually laid out in the press release pretty nicely. I look at it from a modeling standpoint. They paid $6.1 million most recently. That is what we model on a go-forward basis. My upside guidance would be based on any additional rent, and we are hoping they do pay that.
Yeah, we we'll we'll tag team on this, Jonathan. So you know what's laid out? What what they paid in the quarter is actually laid out in the press release pretty nicely but I look at it from a modeling standpoint.
You know, they've paid 6.1 million dollars, the most recently. That's what we model on. A, go for a basis. My upside guidance would be based on any additional rent, and we're hoping they do pay that. So
Vikas Gupta: Overall, Maplewood's doing a great job. Occupancy in New York is at 93%. They're going to keep pushing that occupancy, pushing rate, and we're just hoping for further improvement.
Yeah. And Jonathan overall um Maple's doing a great job occupancy, in New York is a 93%. Um, they're going to keep pushing that occupancy pushing rate and we're just hoping for further Improvement.
Jonathan Hughes: All right. Thanks for the time.
All right, make sure the time.
Jericho: Our next question comes from John Tulichowski from Wells Fargo. Please go ahead.
Our next question comes from John Fully Chowski from Wells Fargo. Please go ahead.
John Tulichowski: Good morning. Thank you. First one is for Bob. It seems like there is a bit of a change of strategy on the balance sheet versus, you know, what you are planning on raising and what you are going to do in the quarter. Bob, could you maybe talk about that and maybe if the stock starts to work in your favor again and sort of on the trajectory it was in 2024, if that could change things in the back half of the year?
Uh, good morning. Thank you. Uh, first, 1 is for Bob. Um, it seems like there's a bit of a change in strategy on the balance sheet versus, you know,
You were planning on raising, and when you end up doing the quarter box, you maybe talk about that. And maybe if the stock starts still working your favorite again, sort of on the true directory, it was in 24 to change things in the back half of the year.
Matthew Gourmand: You were a little hard to hear. I will try to answer that. If I do not, just re-ask a piece of it. The strategy, again, we have an equity currency. Leading into the year, we said we are going to take advantage of that equity currency, and the bond market was not available at the coupon we were looking for. We saw an opportunity and opportunistically took advantage of that. That is why on the guidance side, instead of having issuing equity to fund the next year's bonds, we decided to do debt for debt. As you saw, we are basically leverage neutral. It was a great transaction from our standpoint. I did not catch the second part, if you would not mind repeating that.
We were a little hard to hear, I I'll try to answer that if I don't just re a piece of it. So the strategy um again we we were we have an equity currency so leading into the year. We said we're going to take advantage of that Equity currency and the bond market was not available. At the coupon we were looking for, we were up, we saw an opportunity and opportunity mystically took advantage of that. So that's why. When the guidance side instead of having issuing Equity to fund the next year's bonds, we decided to do debt for that. And as you saw, it were basically leveraged neutral. So it was a great transaction from our standpoint.
I didn't catch the second part; if you wouldn't mind repeating that.
John Tulichowski: No, it was just about if, you know, if things change in the second half of the year, the ability, or maybe the desire, to try to fund future, you know, bonds with equity instead of just refi as you did, or, you know, would you kind of hold course here?
No, it was just about if you know, if things change in the second half of the year there.
or the, maybe the desire to try to fund future, you know, bonds with Equity instead of just refi as you did or
You know, would you kind of hold course here?
Matthew Gourmand: That is a great question. We are going to keep that same strategy, what I discussed in our prepared points, that we will use equity, given that it is a strong currency, to fund acquisitions. There is a chance in the bank market. I am redoing our credit facility. If I could go out and potentially do a term loan, I may take out the secured debt with a term loan. If I do, that would take us to the upside of the guidance as well.
Farm loan. I may take out the the uh, secured debt with a term loan. If I do, that would take us to the outside of the guidance as well.
John Tulichowski: Okay, that's helpful. My second question is just on the sub-one coverage. For EBITDA, there's a tenant that's growing. It looks like there's only two quarters currently included. If you grow it to a full number, I think you're roughly at 11%. What gives you confidence in that tenant as they're growing with you? The second part of that is there's also a tenant at 0.99% EBITDA coverage. Do you think there's the potential for them to graduate out of this bucket? On a net basis next quarter, you'd be down quarter over quarter?
Okay, that's helpful. And then my second question is just on the, uh, the sub 1 coverage, but there's a tenant that's Brewing. You know, it looks like the only there's only 2 quarters currently included. But if you grow it to a full number, I think you're roughly 11%, what gives you confidence in that in it, um, as they're growing with you and then maybe the second part of that is, there's also a tenant at 0.99% even dark coverage. Do you think there's the potential for them to graduate out of this bucket and on a net basis? Next quarter, you'd be down quarter of a quarter.
Matthew Gourmand: Yeah, I'll take this. This is Taylor C. Pickett. I'll take the question in reverse order. You're right to focus on the 0.99. That tenant has continued to improve. Based on preliminary numbers in April and May, they will come out of the bucket next quarter if everything holds. That's great news, and that takes the 9.8 down to 4 and change. Then if you look at the other, there are two other big operators that are close, one at 0.85 and one at 0.87. They also, in 2025, have had performance above those coverage amounts. Remember, it's trailing 12. We're headed in the right direction with both of those. You really get down to a modest under one times bucket once you deal with those three big guys. We're really encouraged that directionally we're in great shape.
Yeah, I'll I'll take the, this is Taylor, I'll take the question in reverse order. So, um, you're right to focus on the 0.99 that tenant has continued to improve, uh, based on preliminary numbers in April and May, they will come out of the bucket next quarter. If everything holds
So that's great news and that takes the 9.8, you know, down to 4 and change. Um, and then if if you look at the other 2, other big operators um that are closed, 1 at 085 and 1 at 0.87.
And they also in 2025 have had performance.
Matthew Gourmand: I would add just overall, although coverage at 1.51 was flat quarter to quarter, again, if you look at April and May and the trajectory, we expect our overall coverages will continue to grow.
Above those coverage amounts. Um, so remember, it's trailing 12, we're headed in the right direction with both of those. So you really get down to a modest under 1 times bucket. Um, once you deal with those 3, big guys, um, we're we're really encouraged that, uh, directionally we're in great shape, um, and I would add just overall, although coverage at 151,
was flat quarter to quarter again, if you look at April and May and the trajectory
We expect our overall coverages will continue to grow.
John Tulichowski: Very helpful. Thank you.
All right, very helpful. Thank you.
Jericho: Our next question comes from Seth Bergey from Citi. Please go ahead.
Our next question comes from Seth Bergie from City. Please go ahead.
Speaker 13: Thanks for taking my question. Going back to Maplewood, can you remind us how the lease is structured and quantify how much upside in rents you could potentially capture?
Uh, just going back to Maplewood. Can you remind us how the lease is structured and, uh, quantify how much upside in rents you could potentially capture?
Vikas Gupta: This is Vikas. The lease is structured that the contractual rent is $69 million, but at this point, we are not looking at it that way. We are looking at all cash flow that comes to Omega Healthcare Investors. So they are trending close to full contractual rent. But like I said previously, we expect further improvements in the coming quarters.
Yeah. Um, so this is Vikas. I believe the structure that the contractual rent is $69 million. But at this point, we're not looking at it that way; we're looking at all cash flow that comes to Omega. So, um, they're trending close to full contractual rent. But, like I said previously, we expect.
Matthew Gourmand: To add to that a little bit, basically, all the cash that is generated in the Maplewood entity will come to us for the foreseeable future. So it is very much like our FAD structure.
Further improvements in coming, quarters.
And just to add to that a little bit.
Um, basically all the cash that's generated in the Maplewood entity.
Will come to us for the foreseeable future. So it's very much like our idea structure
Speaker 13: Okay, that is helpful. Can you just talk about who else you are seeing out there as you compete for investment opportunities, and has your underwriting changed at all, kind of just given that the legislation around provider tax cuts is behind us?
Okay, that's helpful. And then
You know, can you just talk about who else you're seeing out there as you compete for investment opportunities and has your underwriting?
Changed at all kind of just given that the legislation around provider tax cuts is behind us.
Vikas Gupta: Yeah, this is Vikas again. As for who we see out there, it hasn't really changed. We see our retailers, we see private equity, we see family offices. As for underwriting, we continue to underwrite the same. As I've said on previous calls, we didn't change our underwriting standards. So we've kept them the same, and now, especially with the good news, we will continue to keep it the same.
Yeah, and that's the biggest again. As for who we see out there, it hasn't really changed. We see our rate years, we see private equity, we see family offices.
Um, and as, for underwriting, we continue to underwrite the same. As I've said on previous calls, we didn't change our underwriting standards, so we've kept them the same. And now, especially with the good news, we will continue to keep it safe.
Speaker 13: Great. Thank you.
Great. Thank you.
Jericho: Our next question comes from Juan Sanabres from BMO Capital Markets. Please go ahead.
Our next question comes from 1 Saab. From BMO Capital markets, please go ahead.
Juan Sanabres: Hi, thanks for the time. It is just curious on the holistic portfolio metrics. Occupancy ticked up, but coverage kind of stayed flat. Just curious why that was and confidence or visibility in future step-ups in rent coverage. I am not sure if you can share a Q2, Q3, or early thoughts on kind of the next quarter's EBITDA or TTM coverage. Thanks.
Hi, thanks for the time. It's just curious on the, uh, holistic portfolio metrics. Um, occupancy picked up at coverage, kind of stayed flat. Just curious if why that was and uh confidence or visibility and and future step ups and rent coverage. I'm not sure if you could share a T3 or or early thoughts on kind of the next quarters uh either dark, TTM coverage next.
Matthew Gourmand: Yeah, yeah. One, it is interesting when you have trailing 12, you can have a quarter that falls off and a quarter that comes in, and you are not necessarily going to get the reaction from occupancy right away because there can be just odd accruals or whatever. But the general trajectory, as I mentioned earlier, based particularly on the April and May preliminary results that we have, is up. So I would expect, based on what we know today, that our overall coverages next quarter will be higher. To your point, reflecting just this continued occupancy driver of that coverage.
Yeah. Yeah, well it's interesting when you have trailing 12, you know, you can have a quarter that falls off and a quarter that comes in and um you're not necessarily going to get
the reaction from occupancy right away because, you know, there can be just
A lot of rules or whatever.
but the general trajectory, as I mentioned earlier, faced particularly on the April and May preliminary results that we have
Based on what we know today.
That our overall coverage is.
Next quarter will be higher, and to your point, reflecting just this continued occupancy.
Driver of that coverage.
Juan Sanabres: Second question, just wanted to follow up with the commentary made by Megan Krull at the beginning about the potential for a cut, just given statutory, I guess, considerations for Medicare. There's a history of not doing that. Just curious if you could, or hoping you could provide a little bit more color on the mechanics and the processes laid out.
Um, and second question.
Just wanted to follow up with the commentary made by Megan at the beginning about.
Megan Krull: There is just a general requirement that if there is an increase in the deficit by a certain amount, there has to be a cut as well to try to balance things out. It is capped for Medicare at 4%. That is, you know, sort of worst-case scenario, although keep in mind, at the same time, you are going to have a 3.2% rate increase that just got finalized yesterday that is going to offset that. As I said, the fundamentals are good, the demographics are good. Yes, legislatively, they have typically gone and gotten rid of that piece of it. Right now, I think Congress is in recess, so we would not find out until a couple more months whether or not they will do that.
Um, the potential for a cut, just given statutory, I guess considerations for Medicare, but then, you know, obviously there's a history of not doing that. So, just curious if you could or hoping you could provide a little bit more color on the mechanics and the processes laid out.
Yeah, there's just a general requirement that. If there's an increase in the death, the deficit by a certain amount.
Out. And so it's capped for Medicare at 4%. So that's, you know, sort of worst-case scenario, although keep in mind.
At the same time, you're going to have a 3.2% rate increase that just got finalized yesterday. That's going to offset that. And as I said, you know, the fundamentals are good, the demographics are good. Um, but yes, legislatively they have typically gone and, and gotten rid of that piece of it. Um, right now, I think they're in Congress is in recess so we wouldn't find out until, you know, a couple more months whether or not they'll do that.
Juan Sanabres: Thank you.
Thank you.
Jericho: Our next question comes from Michael Stroyah from Green Street. Please go ahead.
Our next question comes from Michael. Stoya from Green Street, please go ahead.
Speaker 13: Thanks, and good morning. Maybe one on the labor side. What sort of wage increases are you seeing your operators pass along to employees today? And is there a meaningful difference between wage growth within your SNF and senior housing portfolios?
Thanks and good morning uh maybe 1 on the labor side. What sort of wage increases are you seeing your operators pass along to employees today? And is there a meaningful difference between wage growth within your Sniff and senior housing portfolios.
Megan Krull: I would say from a wage perspective, we are just seeing normal inflationary increases at this point, unlike what we had seen previously during COVID and right after COVID, where things were a little bit out of whack. I do not know that we are seeing any differences between the SNF and the ALF portfolios on the wage side.
I mean, I would say from a wage perspective, we're just seeing.
At this point, um, you know, unlike what we had seen previously during Co and, you know, right after Co for things were a little bit out of whack, um, and I don't know that we're seeing any differences between the, the Sniff and the AL portfolio is on the wage side.
Speaker 13: Okay. I guess how about at the occupation level? Has there been any specific occupations that have been maybe more difficult to hire or retain?
Okay, uh, I I guess how about it the occupation level has there. Been any specific occupations that have been maybe more difficult uh, to higher uh, or
Or retain.
Megan Krull: I mean, the CNAs are always a little bit more of a difficult piece of things just because of where these states have pushed the minimum wages. So it is tough to keep that an attractive business. But our operators have been dealing with that over the last several years, and it has become more of a, you just have to entice people to the culture that you build and that you want to be working here, and you want to attract the people who are looking to help people. So I think it has not been as much of an issue that we have seen recently.
I mean, the CNAs are always a little bit more of a difficult um piece of things. Just because of you know, where these states have pushed the minimum wages. So it's it's tough to keep, you know, keep that in attractive, um, business. Um, but but they've our operators have been dealing with that over the last several years and it's become more of a, you know, you just have to entice people as to the culture that you build and that you want to be working here.
And you want to attract the people who are looking to help people. And so, um, I think it hasn't been as much of an issue, um, that we've seen recently
Speaker 13: Great. Thanks for the time.
Great, thanks for the time.
Jericho: Our next question comes from Omotayo Okusanya from Deutsche Bank. Please go ahead.
Our next question comes from Omotayo Okusaga from Deutsche Bank. Please go ahead.
Omotayo Okusanya: Yes, good morning, everyone. Just a quick question on the guidance raised. Again, it's pretty impressive. It feels like it's a bunch of things that are coming together there. My question is, it just feels like the company is figuring out ways to drive additional earnings growth and create additional shareholder value. I am curious from internally what may be changing that's helping Omega Healthcare Investors identify these opportunities quicker, faster, and also giving the company the ability to really execute on these things.
Uh yes, good morning everyone. Uh, just a quick question on the guidance.
Uh, raise again, it's, you know, it's pretty impressive. It feels like, it's, it's a bunch of things that are that are coming together there. And I just my question, is it it just feels like the companies figuring out ways.
to kind of, you know,
Drive additional earnings growth and create additional shareholder value. And I'm curious from a internally, what may be changing. That's helping Omega identify these opportunities quicker faster. And also giving the company the ability to really kind of execute on these things.
Matthew Gourmand: Sure. Thanks, Taylor. It is Matthew here. I think we continue to just push active portfolio management as best we can. I think that we are actively looking at operators and facilities that maybe do not align, working with operators to get them out of facilities that maybe do not, should not be part of their core portfolio, and then sourcing other operators that are more suited to run those facilities. Often there presents an opportunity for either risk mitigation or even rent pickup in those situations. I would say also, as Vikas said in his talking points, that we are considering multiple different structures to try to create that incremental value to align ourselves better with our operators and to potentially benefit from the further upside that we think will happen in both the skilled nursing and senior housing facility operating metrics over the next 10-plus years.
Sure, thanks, Tail. It's Matthew here. I think, you know, we continue to just push active portfolio management as best we can. I think that we are actively looking at operators and facilities that maybe don't align, working with operators to get them out of facilities that maybe shouldn't be part of their corporation.
So, she is.
Jericho: That's helpful. Then one other quick one from me. Apologies, I joined the call a little late. Just curious if you addressed PACS at all.
That's helpful. And then one other quick question for me. I apologize, I joined the call a little late. Just curious if you addressed packs at all.
Vikas Gupta: So for PACS, we know just about everything. We only know what the public markets know. As an operator, we find PACS to be clinically strong. We continue to have strong coverages with them. From our perspective, it is an odd amendment.
Yeah, um, so, um, bio for PAX, we know just about everything. The more just, we only know what the public markets know, but as an operator, we find PAX to be clinically strong. We continue to have strong coverages with them.
So, from our perspective, it's it's an automated at this point.
Jericho: Gotcha. Thank you. Our next question comes from Nick Uleko from Scotland Bank. Please go ahead.
Okay, thank you.
Our next question comes from Nick iliko from Scott, Scott Liang, please go ahead.
Speaker 13: Morning. First question is on the dividend. With the FAD improving this quarter and the improvement in the guidance, in the second quarter, you are at, it looks like a 90% dividend payout ratio on FAD. I am just wondering how the board is thinking about a potential dividend increase in the future and how we should think about a payout ratio that you need to get to to support dividend growth.
Good morning. Uh, first question is on the dividend, you know, with the fad, improving this quarter and, you know, the Improvement in the guidance. I, you know, in the second quarter you're at looks like a 90% dividend payout ratio on fad. And so I'm just wondering how you know the board's thinking about uh potential you know dividend increase in the future and you know how we should think about a payout ratio uh that you need to get to to uh support the V growth.
Matthew Gourmand: It is a great question, Nick. One that we actually talked about in our most recent board meeting. I think the general view is that we need to be in the 80s, kind of that 85% payout ratio range before we contemplate a dividend raise. From a tax perspective, you get into the high 70s, even low 80s, you start to push up against the threshold anyway. We are not quite there, but I think we have some visibility into potentially having that conversation in the next three, four quarters.
Yeah, it's a great question. Nick 1 that we actually talked about in our most recent board meeting. Um I think the general view is is um that we need to be in the 80s. You know, kind of that 85% payout ratio range um
Before we contemplate dividend rates.
But from a tax perspective, you get into the high 70s, even low 80s.
You start to push up against the threshold anyway. So, um, we're not quite there, but I think we have some visibility into.
Um, into potentially having that conversation in the next 3 or 4 quarters.
Speaker 13: Okay, thanks, Taylor C. Pickett. Second is on Genesis. I know you talked about having gotten rid of some, worked with them to get rid of some underperforming assets over the years. Just maybe remind us why you have a confidence that the pool of assets you own with them is still assets they want to keep and that there is not risk of some sort of rejection of lease or any sort of move to right-size rent through a bankruptcy process. Thanks.
Okay. Thanks Taylor. And then uh, second is on Genesis, um, yeah, I know you talked about having, you know, gotten rid of some worked with them to get rid of some underperforming assets over the years. Um, just maybe, uh, remind us. Why, you know, you have a confidence that, um, you know, that that the pool of assets, um, you know, you own with them is still as if they want to keep. And that there's not, you know, risk of some sort of um, you know, rejection uh of lease or um you know, any sort of move to right size rent to a bank, bankruptcy process. Thanks.
Matthew Gourmand: It is a master lease, first of all. So they would have to, they cannot cherry-pick the assets. They would have to reject all 31 highly desirable assets with really good coverage. I would say the best portfolio in that Genesis entity. So the idea of going through a reorganization without that portfolio, I do not think makes any sense. We feel really good about the assumption and exit with our portfolio intact. As Vikas Gupta mentioned, there are a handful of facilities, particularly in the Northeast, that we have exited very tough markets. What we have left with them is Mid-Atlantic, principally, and really strong coverages with a lot of good visibility for growth.
Yeah. So um
It's Master Lease, first of all. So they would have to, they can't cherry-pick the assets and they'd have to reject all 31.
Um, highly desirable assets.
With really good coverage, I would say the best portfolio in that Genesis entity.
So the idea of going through a reorganization without that portfolio, I don't think makes any sense. We feel really good about.
um, the Assumption and exit with our portfolio intact. Uh and as Vick is mentioned, there were a handful of facilities particularly in the Northeast that we've exited, very tough markets. Um what we have left with them is Mid-Atlantic uh principally. Um and really strong coverages uh with a lot of good visibility for growth.
Speaker 13: All right, thanks.
All right, thanks.
Jericho: Our next question comes from Farrah Graniff from Bank of America. Please go ahead.
Our next question comes from Pharaoh Granite from Bank of America. Please go ahead.
Farrah Graniff: Thank you and good morning. My first question is about when you are looking within the marketplace. I was curious if you can explain the split between either unsolicited inbound and what either efficiencies you are doing internally on your teams for that external growth outlook, more focused on faster connection to negotiation and execution of deals.
Thank you, and good morning. Um, my first question is about, uh, when you're looking within the marketplace. I was curious if you can explain the split between either unsolicited inbounds and what efficiencies you're doing internally on your team for that external growth outlook, uh, more focused on, uh, faster connection to.
Negotiation to execution of deals.
Vikas Gupta: This is Vikas. We do a lot for new deals, and that includes incomings. We have a corporate development team that goes out, tries to meet new operators, tries to find real estate. We also have a lot of data initiatives that we are using to look and see what is out there, what is available, what operators could want to sell real estate or partner with us. I cannot tell you how that breaks down exactly, but we do it all to look for new transactions.
Yeah, this is I guess. Um,
We do a lot for new deals, and that includes incomings. We have a corporate development team that goes out and tries to meet new operators. They look for real estate, and we also have a lot of data initiatives that we're using to look and see what's out there, what's available, and which operators could want to sell real estate or partner with us. So I can't tell you exactly how that breaks down, but we do it all. They look for new transactions.
Farrah Graniff: Great. I guess also, can you just share a few thoughts on how you think about either using new operators versus current operators while you are expanding your footprint?
great, and I guess also, can you just
Share a few thoughts.
New operators versus current operators, while you're expanding your footprint.
Vikas Gupta: Yeah, we continue to, a big part of our pipeline continues to be from our current operators, but we are actively looking for new operators. Sometimes that happens through a workout situation where we meet a new operator, but as I mentioned, we have a corporate development team that is specifically going out there looking for new operators today. So it has become one of our strategic initiatives.
Situation where we meet a new operator, but as I mentioned, we have a corporate development team that is just specifically going out there looking for new operators today. So it's become 1 of our strategic initiatives.
Farrah Graniff: Great, thank you.
Great. Thank you.
Jericho: Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead.
Our next.
Our next question comes from Michael Carroll from RBC Capital markets, please go ahead.
Speaker 13: Yeah, thanks. I want to circle back on the prepared remarks talking about, I guess, the senior housing transaction activity. It sounded like Omega Healthcare Investors is seeing more of these types of deals coming across their desk. I mean, would these be traditional net lease type transactions? I mean, is it hard to get those types of deals done, or is this going to be more of a unique structure where Omega Healthcare Investors can also benefit in the upside?
Circle back on the prepared remarks talking about, I guess the seniors housing transaction activity. Um, it sounded like oi, um, is seeing more of these types of deals coming out. I mean, with these speed traditional net lease types transactions. I mean, is it hard to get those types of deals done or, or is this going to be more of a unique structure where where Omega can also benefit in the upside?
Matthew Gourmand: Actually, this is Matthew here. Yeah, I think you are right. The traditional triple net structure is less appealing to a lot of operators these days. We continue to look at various different structures, Michael. Ultimately, it is about creating long-term sustainable shareholder growth. That really means partnering with superior operators and buying properties that are sustainably fit for purpose in markets that we like at prices that make sense for us. If we can do that, we will consider various different structures to align those interests and ultimately achieve accretive growth for our shareholders. Everything is on the table.
Actually, this is Matthew here. Um, yeah, I think you're right. Uh, the traditional triple net structure, is less appealing to a lot of operators these days. Um, and so we can continue to look at various different structures. Michael, ultimately, it's about creating long-term sustainable, shareholder growth, and that really, uh, means partnering with Superior operators and buying properties that are uh, sustainably fit for purpose in markets that we like to prices that make sense for us. Uh and if we can do that, we will consider um various different structures to align those interests and ultimately uh achieve a creative growth
Growth, um, for our shareholders, so everything's on the table.
Speaker 13: Okay. And then, Matthew Gourmand, did I hear it correctly? It sounded like that this is something that is more in the forefront or that Omega Healthcare Investors is being more active on this front. Is that true? And would those structures be like a REDIA structure, or would it be something different?
Okay, and then Matthew, did I hear it correctly? It sounded like that. This is something that's more in the forefront or that Omega is being more active on. Is that true? And what would those structures be like? An AIDA structure, or would it be something different?
Matthew Gourmand: It could be. I think we are continuing to look at it. We've always looked at it, but quite frankly, the market's changed. Previously, there was more appetite for triple nets, and now that doesn't seem to be the case. So, yes, we would be open to that idea, but at the same time, a lot of what we're seeing right now doesn't fit what we think makes financial sense. There are some stabilized portfolios with very little upside trading at prices that we can't reconcile. We're just going to have to be incredibly disciplined both with the operator and the real estate. From that standpoint, I don't want to shout the word REDIA and assume that it's going to be a significant portion of our business over the next 6 to 12 months. We are going to be opportunistic. If it happens, it happens.
It could be, um, I, I.
Matthew Gourmand: But at the same time, if it doesn't because the opportunities aren't presenting themselves, we still feel that there's a decent pipeline available to us to continue to accretively invest.
I think we all continuing to look at it. We've always looked at it. But quite frankly, the Market's changed previously, there was more appetite for triple Nets and and now that doesn't seem to be the case. Um, so yes, uh, we would be open to that idea, but at the same time, a lot of what we're seeing right now doesn't fit. Uh, what we think, makes Financial sense. Uh, there are some stabilized portfolios with very little upside trading at prices that we can't reconcile. Um, and so we're just going to have to be incredibly disciplined both with the operator and the real estate. Um, so from that standpoint, I don't want to, you know, shout the word right here and assume that, you know, it's, it's going to be a significant portion of our business over the next 6 to 12 months, we are going to be opportunistic if it happens, it happens. Um, but at the same time, uh, if it doesn't because the opportunities are presenting themselves, we still feel that there's a decent pipeline available to us to continue to lead to continued to a creatively invest.
Speaker 13: Great. Appreciate it.
Appreciate it.
Jericho: Our next question comes from Vikas Gupta from Mizuho. Please go ahead.
Our next question comes from Vicram Mohatt from Mizuho. Please go ahead.
Speaker 13: Thanks for taking the question. I guess, Matthew, I just wanted to dig into those comments a bit more. A lot of your peers have sort of been more aggressive on the EBITDA structure, buying more, call it 90% plus stabilized assets, at 7% initial yields. I am just sort of wondering, is that type, is that structure what you are talking about? Is there some other structure? If you could just dig into the four assets you bought on AL, like are those triple net and what were the yields on those specifically?
Matthew Gourmand: Some of our peers are buying those because some of our peers have the cost of capital to be able to do that and not be dilutive. We don't have that luxury. Therefore, we have to be a little bit more selective in terms of what we take over. The opportunities are likely to be smaller portfolios or a small cluster of facilities as opposed to larger portfolios because those tend to be marketed and tend to, quite frankly, get into a price range that doesn't make financial sense for our shareholders and us. We still see a lot of opportunity out there of fit-for-purpose assets that if put in the hands of the right operator and you have a rationalization of expenses and put some CapEx in to be able to push rate and occupancy can be highly accretive over time.
Uh, thanks for being the question, I guess. Matthew I just wanted to dig into that, uh, those comments a bit more, you know, a lot of your peers, uh, have sort of been more aggressive on the idea structure, buying more call. It 90 plus percent stabilized assets at 7% initial yields. Um, I I'm just sort of wondering, does that type? Is that structure is what you're talking about? Is there some other structure? And if you could just dig into the 4, you bought on a like, are those triple net and what were the heels on those specifically?
Yeah. So some of our peers are buying those because some of our peers have the cost Capital to be able to do that and not be dilutive. Um, we don't have that luxury and so therefore we have to be a little bit more selective in terms of what we take over. Um, the opportunities are likely to be, uh, smaller portfolios or, or or or um, a small cluster of facilities as opposed to larger portfolios because those tend to be marketed and tend to quite frankly, get into a price range. That doesn't make Financial sense for our shareholders and us, um,
Matthew Gourmand: I think those are the kind of things that we're going to be looking at.
Vikas Gupta: For the second part of your question, Vikas Gupta, those four ALFs that we bought are triple net deals at 10%.
But we still see a lot of opportunity out there of fit for purpose assets that if put in the hands of the right operator and you have rationalization of expenses and put some capex in to be able to push rate and occupancy, can be highly accretive over time. So I think those are the kind of things that we're going to be looking at. Um, and for the second part of your question vicram, um, those 4 Alves that we bought are triple net deals at 10%,
Omotayo Okusanya: Okay, that is helpful. I guess, I wanted to go to the U.K. There is more competition there recently from one of your peers. It still seems like a very attractive market based on your comments. I am wondering, in the past, you have said, I guess the first half you had said the U.K. pipeline was good, and then you had mentioned it was smaller. Do you mind just updating us, how are you looking at the U.K. in terms of specific opportunities and, how big could that eventually become over the next few years?
And then you had mentioned it was smaller. Do you mind just updating us? Like, how are you looking at the UK, um, in terms of specific opportunities, and like, how big could that, uh, eventually become, uh, you know, over the next few years?
Vikas Gupta: I will start with your last part of your question. There are 17,000 beds. We believe there is still a lot of consolidation to take place in the U.K. We do think it will be part of our pipeline going forward. At this very moment, it is not the lion's share of our pipeline, but we do have an ongoing U.K. pipeline that is largely driven by our current operators out there.
Yeah, I'll start with your last part of your question there. There are 17,000 care homes, so we believe there's still a lot of consolidation to take place in the UK. We do think it will be part of our pipeline going forward. At this very moment, it is not the lion's share of our pipeline, but we do have an ongoing UK pipeline that is larger, driven by our current operators out there.
Omotayo Okusanya: Thank you.
Thank you.
Jericho: Our next question comes from Alex Dagen from Baird. Please go ahead.
Our next question comes from Alex, agent from Beer. Please go ahead.
Speaker 13: Hey, thank you for taking my question. I guess the first one for me is which segments in the U.S. senior housing space are the best opportunities to target today? Also, how do the senior housing metrics currently in the portfolio compare to the SNF side?
Hey, thank you for taking my question. Um, I guess first one for me is which segments in the U.S. senior housing space are the best opportunities to target today? And then also, how do the senior housing metrics currently in the portfolio compare to the SNF side?
Matthew Gourmand: The first one, I think it just comes down to the individual asset. We have seen some IL portfolios that look interesting. We have seen some CCRCs that look interesting. We have seen IL, AL memory cares that do not have a SNF component and therefore cannot really call themselves CCRCs that look interesting. But at the same time, we have seen multiple assets within all of those classes that we cannot make sense of the pricing on. So I think from our standpoint, we have a fairly decent understanding. Obviously, we have been in this industry, in the senior housing industry for many years. We have a fairly decent understanding as to what each of these should be able to achieve and what the value is, what the cost to rebuild is.
So the first 1, I think it just comes down to the individual asset. Now, we've seen some ill portfolios that look interesting. We've seen some CCRCs that look interesting. We've seen Eylul, memory care units that don't sell, have a sniff component and therefore can't really call themselves CCRCs. Is that look interesting.
Matthew Gourmand: We are going to approach each one individually, especially in alignment with superior operating partners to understand what they can achieve. Ultimately, what we are looking for is a low to mid-teen IRR over time, not assuming any cap rate compression within that model after CapEx that provides a sufficiently compelling return to be more appealing potentially than our standard triple net. Innately our standard triple net structure has a little bit more consistency to it and normally a little bit more visibility to it because you have that non-operating exposure and that coverage support. So in order to invest in these assets, it has to be providing a sufficiently compelling return, and that can be over any of those classes.
But at the same time, we've seen multiple assets within all of those classes that we can't make sense of the pricing on. So I think from our standpoint, um, we have a fairly decent understanding. Obviously, we've been in this industry in the Senior Housing Industry for for many years. Um, we have a fairly decent understanding as to what each of these should be able to achieve. And what the value is, what the cost rebuild is. And so we're going to approach each 1 individually uh especially in alignment with Superior operating Partners to understand what they can achieve. And ultimately what we're looking for is a, you know, low to mid te irr over time. Not assuming any cap rate compression within that model. Uh, after the capex that provides a sufficiently compelling return to
Be more appealing potentially, uh, than our standard triple net. You know, innately our standard triple net structure has a little bit more consistency to it and normally a little bit more visibility to it because you have that, uh, non-operating exposure and that coverage support. Um, so in order to invest in these assets, it has to be providing a sufficiently compelling return, and that can be over any of those classes.
Speaker 13: Thank you for that. How do the senior housing metrics currently in the portfolio compare to the SNFs?
Matthew Gourmand: Sure. In terms of coverage, pretty similar. I would say that, we include our UK care homes within our senior housing component. I would say they probably have a moderately higher occupancy and coverage than our overall portfolio. But other than that, our U.S. senior housing is materially in line metric-wise from an operating. Obviously, the margins are higher, but in terms of occupancy and in terms of coverage, they are materially in line.
Thank you for that. And I guess the second part was, how do the senior housing metrics currently in the portfolio compare to the surface?
Sure. Um, in terms of coverage, uh, pretty similar, I would say that, you know, we include our UK Care Homes within our Scenic senior housing component. I would say they probably have a moderately higher occupancy and coverage than our overall portfolio. But other than that, our U.S. senior housing is materially in line metric-wise from an operating perspective. Obviously, the margins are higher. Uh, but in terms of occupancy and in terms of coverage, they are materially in line.
Speaker 13: Got it. Thank you. That's it for me.
Got it. Thank you. That's it for me.
Jericho: Again, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to Taylor C. Pickett for closing remarks.
Again, if you would like to ask a question, please press *1 on your telephone keypad.
There are no further questions at this time. I would like to turn the call back over to Taylor for closing remarks.
Matthew Gourmand: Thanks for joining our call this morning. We appreciate the thoughtful questions, and we are here if there is any follow-up.
Vikas Gupta: Have a great day.
Thanks for joining our call this morning. We appreciate the thoughtful questions, um, and we're here. If there's any follow-up, have a great day.
Jericho: This concludes today's conference call. You may now disconnect.
This concludes today's conference call. You may now disconnect.