Completed $87 Million in New Investments
HUNT VALLEY, Md.–(BUSINESS WIRE)–Omega Healthcare Investors, Inc. (NYSE: OHI) (the “Company” or “Omega”) announced today its results for the quarter ended September 30, 2022.
THIRD QUARTER 2022 AND OTHER HIGHLIGHTS
Net income for the quarter of $105 million, or $0.43 per common share, compared to $143 million, or $0.58 per common share, for the same period in 2021.
Nareit Funds From Operations (“Nareit FFO”) for the quarter of $159 million or $0.65 per common share, on 243 million weighted-average common shares outstanding, compared to $181 million, or $0.73 per common share, on 247 million weighted-average common shares outstanding, for the same period in 2021.
Adjusted Funds From Operations (“Adjusted FFO” or “AFFO”) for the quarter of $185 million or $0.76 per common share, compared to $209 million, or $0.85 per common share, for the same quarter in 2021.
Funds Available for Distribution (“FAD”) for the quarter of $173 million, compared to FAD of $199 million for the same quarter in 2021.
Completed $28 million in real estate acquisitions.
Invested $40 million in a new loan that bears interest at 12.0% per annum.
Funded $19 million in capital renovation and construction-in-progress projects.
Sold four facilities for $51 million in cash proceeds, generating a $41 million gain.
Declared a $0.67 per share quarterly cash dividend on common stock to be paid in November.
Nareit FFO, AFFO and FAD are supplemental non-GAAP financial measures that the Company believes are useful in evaluating the performance of real estate investment trusts (“REITs”). Reconciliations and further information regarding these non-GAAP measures are provided at the end of this press release.
CEO COMMENTS
Taylor Pickett, Omega’s Chief Executive Officer, stated, “We have made significant progress in working through our operator restructurings and, by early next year, we expect that a combination of resuming lease payments from restructured operators and repurposed proceeds from asset sales will be reflected in our adjusted FFO and FAD, further enhancing our dividend coverage and leverage metrics.”
Mr. Pickett continued, “Occupancy continues to slowly improve, and many states have implemented strong Medicaid reimbursement rate increases. However, with occupancy still not having fully returned and operators struggling with a higher cost environment, profitability for most operators continues to sit meaningfully below pre-pandemic levels and, as a result, the near-term risk of further operator issues remains elevated.”
Mr. Pickett concluded, “We remain constructive on the longer-term opportunities within this industry. We believe the ultimate financial impact to the business from our near-term operator issues should be relatively modest and, as a low-cost provider of post-acute care, the skilled nursing industry is well positioned to benefit from multi-decade demographic tailwinds.”
THIRD QUARTER 2022 RESULTS
Revenues – Revenues for the quarter ended September 30, 2022 totaled $239.4 million, a decrease of $42.2 million over the same period in 2021. The decrease primarily resulted from (i) asset sales completed throughout 2021 and 2022, (ii) operator restructurings and (iii) no rental income or interest income recognized in the third quarter of 2022 from Agemo Holdings, LLC (“Agemo”); see “Operator Updates” below. The decrease was partially offset by revenue from new investments completed throughout 2021 and 2022.
Expenses – Expenses for the quarter ended September 30, 2022 totaled $177.7 million, a decrease of $16.5 million over the same period in 2021. The decrease primarily resulted from (i) a $21.4 million decrease in the provision for credit losses and (ii) a $3.4 million decrease in depreciation and amortization expense related to facility sales and facilities reclassified as held for sale, partially offset by (i) a $5.1 million increase in impairment on real estate properties, (ii) a $1.8 million increase in general and administrative (“G&A”) expense related to legal services and (iii) a $1.1 million increase in stock-based compensation expense.
Other Income and Expense – Other income for the quarter ended September 30, 2022 totaled $40.4 million, a decrease of $14.4 million over the same period in 2021. The decrease primarily resulted from a $15.2 million decrease in gain on assets sold.
Net Income – Net income for the quarter ended September 30, 2022 totaled $105.1 million, a decrease of $37.8 million over the same period in 2021. The decrease primarily resulted from the aforementioned (i) $42.2 million decrease in total revenues and (ii) the $14.4 million decrease in other income and expense, partially offset by (i) the $16.5 million decrease in expenses and (ii) $2.6 million in incremental income from unconsolidated joint ventures.
FINANCING ACTIVITIES
$500 Million Stock Repurchase Program – The following is a summary of the 2022 quarterly common share repurchases through September 30:
Stock Repurchase Program for 2022
(in thousands, except price per share)
Q1
Q2
Q3
Total
Number of shares
981
4,227
—
5,208
Average price per share
$
27.84
$
27.19
$
—
$
27.32
Repurchase cost
$
27,321
$
114,946
$
—
$
142,267
Dividend Reinvestment and Common Stock Purchase Plan – The following is a summary of the 2022 quarterly common shares issued under the Dividend Reinvestment and Common Stock Purchase Plan through September 30:
Dividend Reinvestment and Common Stock Purchase Plan for 2022
(in thousands, except price per share)
Q1
Q2
Q3
Total
Number of shares
80
85
71
236
Average price per share
$
28.45
$
27.91
$
32.80
$
29.57
Gross proceeds
$
2,273
$
2,363
$
2,335
$
6,971
2022 THIRD QUARTER PORTFOLIO AND RECENT ACTIVITY
Operator Updates:
Agemo – During the quarter, Agemo continued to not pay contractual rent and interest due under its lease and loan agreements, and as a result, the Company did not recognize revenue related to this operator. During the third quarter of 2022, the Company sold two facilities previously leased to Agemo in connection with the restructuring of the Company’s lease and loan agreements with Agemo. In the fourth quarter of 2022, the Company sold an additional 19 facilities previously leased to Agemo for gross proceeds of $316 million; bringing the total Agemo assets sold to 21 facilities for $359 million in gross proceeds.
Other Operators – In March 2022, another operator representing 2.4% of the Company’s first quarter 2022 annualized contractual rent and interest revenue did not pay its March contractual amounts due under its lease agreement. In April 2022, the lease with this operator was amended to allow the operator to apply its $2.0 million security deposit to its March 2022 contractual rental payment and to allow for a short-term rent deferral for April, with regular rental payments required to resume in May. This operator paid contractual rent in May 2022; however, this operator failed to make the full contractual rent payment for June 2022. The Company placed this operator on a cash basis of revenue recognition during the second quarter and wrote off $8.3 million of straight-line rent receivables through rental income. During the third quarter of 2022, this operator continued to make partial contractual rent payments. As the operator is on a cash basis, the Company only recognized the cash received in the third quarter of $2.5 million for revenue, AFFO and FAD purposes. The Company is continuing its portfolio restructuring discussions with the operator.
In June 2022, another operator representing 2.2% of the Company’s second quarter 2022 annualized contractual rent and interest revenue underpaid the contractual rent amount due under its lease agreement by $0.6 million. In July 2022, the Company drew the full amount of the operator’s $5.4 million letter of credit and applied $0.6 million of the proceeds to pay the unpaid portion of June’s rent and held the balance in a cash account. In the third quarter of 2022, this operator continued to short-pay its contractual rent, and the Company applied $3.3 million of the cash collateral against the unpaid rent during this period. The Company placed this operator on a cash basis of revenue recognition during the third quarter of 2022 and wrote-off approximately $10.5 million of straight-line rent receivables and lease inducements through rental income. As the operator is on a cash basis, the Company recognized the cash received and the cash collateral applied to rent in the third quarter of $5.5 million for revenue, AFFO and FAD purposes. As of September 30, 2022, $1.5 million remains as collateral for the master lease. The Company is continuing its portfolio restructuring discussions with the operator.
New Investments:
The following table presents real estate investment activity:
Three Months Ended
Nine Months Ended
Real Estate Investment Activity ($000’s)
September 30, 2022
September 30, 2022
$ Amount
%
$ Amount
%
Real property
$
28,193
32.5
%
$
149,690
49.8
%
Construction-in-progress
7,028
8.1
%
16,708
5.5
%
Capital expenditures
11,474
13.2
%
38,813
12.9
%
Mortgages
—
—
%
—
—
%
Other
40,000
46.2
%
95,600
31.8
%
Total
$
86,695
100.0
%
$
300,811
100.0
%
$28 Million Real Estate Acquisition – On September 30, 2022, the Company acquired four care homes in the United Kingdom (“U.K.”) (similar to assisted living facilities in the United States (“U.S.”)) for $28.2 million. Concurrent with the acquisition, the Company entered into a master lease for the facilities with a new operator with an initial annual cash yield of 8.0% with 2.5% annual escalators.
$40 Million Mezzanine Loan – On September 1, 2022, the Company entered into a $40.0 million loan with a new operator. The loan bears interest at a fixed rate of 12% per annum (with semiannual principal payments of $1.7 million) and matures on September 14, 2027.
Asset Sales, Impairments and Mortgage and Other Investment Principal Repayments:
$51 Million in Asset Sales – In the third quarter of 2022, the Company sold four facilities for $51.4 million in cash, recognizing a gain of $40.9 million. One of these facilities was previously classified as held for sale.
Impairments and Assets Held for Sale – During the third quarter of 2022, the Company recorded a $10.0 million net impairment charge to reduce the net book value of four facilities to their estimated fair value.
As of September 30, 2022, the Company had 34 facilities classified as assets held for sale, totaling $190.7 million in net book value. Twenty of these facilities relate to the Agemo restructuring of which 19 were sold in the fourth quarter for gross proceeds of $316 million.
Mortgage Principal Repayments – During the third quarter of 2022, the Company received $44.8 million in principal repayments on an operator’s outstanding mortgages.
Other Investment Principal Repayments – During the third quarter of 2022, the Company received $35.0 million in principal repayments on a note classified in Other investment – net.
OPERATOR COVERAGE DATA
The following tables present operator revenue mix, census and coverage data based on information provided by our operators for the indicated periods. We have not independently verified this information, and we are providing this data for informational purposes only.
Operator Revenue Mix (1)
Medicare /
Private /
Medicaid
Insurance
Other
Three-months ended June 30, 2022
53.5
%
31.5
%
15.0
%
Three-months ended March 31, 2022
51.0
%
35.8
%
13.2
%
Three-months ended December 31, 2021
54.3
%
32.2
%
13.5
%
Three-months ended September 30, 2021
53.1
%
33.3
%
13.6
%
Three-months ended June 30, 2021
53.2
%
33.5
%
13.3
%
____________________________
(1) Excludes all facilities considered non-core and does not include federal stimulus revenue.
Coverage Data
Before
After
Occupancy (2)
Management
Management
Operator Census and Coverage (1)
Fees (3)
Fees (4)
Twelve-months ended June 30, 2022
75.8
%
1.39x
1.06x
Twelve-months ended March 31, 2022
75.1
%
1.44x
1.10x
Twelve-months ended December 31, 2021
74.5
%
1.48x
1.14x
Twelve-months ended September 30, 2021
74.2
%
1.52x
1.18x
Twelve-months ended June 30, 2021
74.2
%
1.63x
1.28x
___________________________
(1) Excludes facilities considered non-core.
(2) Based on available (operating) beds.
(3) Represents EBITDARM of our operators, defined as earnings before interest, taxes, depreciation, amortization, Rent costs and management fees for the applicable period, divided by the total Rent payable to the Company by its operators during such period. “Rent” refers to the total monthly contractual rent and mortgage interest due under the Company’s lease and mortgage agreements over the applicable period.
(4) Represents EBITDAR of our operators, defined as earnings before interest, taxes, depreciation, amortization, and Rent (as defined in footnote 3) expense for the applicable period, divided by the total Rent payable to the Company by its operators during such period. Assumes a management fee of 4%.
BALANCE SHEET AND LIQUIDITY
As of September 30, 2022, the Company had $5.3 billion of outstanding indebtedness with a weighted-average annual interest rate of 4.20%. The Company’s indebtedness consisted of an aggregate principal amount of $4.9 billion of senior unsecured notes, a $50.0 million unsecured term loan, $368.5 million of secured debt and $17.9 million of borrowings outstanding under its unsecured revolving credit facility. As of September 30, 2022, total cash and cash equivalents were $134.9 million, and the Company had $1.4 billion of undrawn capacity under its unsecured revolving credit facility.
DIVIDENDS
On October 21, 2022, the Board of Directors declared a quarterly cash dividend of $0.67 per share, to be paid November 15, 2022, to common stockholders of record as of the close of business on November 1, 2022.
ADDITIONAL INFORMATION
Additional information regarding the Company can be found in its Third Quarter 2022 Financial Supplemental posted in the “Quarterly Supplements” section of Omega’s website. The information contained on, or that may be accessed through Omega’s website, including the information contained in the aforementioned supplemental, is not incorporated by any reference into, and is not part of, this document.
CONFERENCE CALL
The Company will be conducting a conference call on Thursday, November 3, 2022, at 10 a.m. Eastern time to review the Company’s 2022 third quarter results and current developments. Analysts and investors within the U.S. interested in participating are invited to call (877) 511-2891. The Canadian toll-free dial-in number is (855) 669-9657. All other international participants may use the dial-in number (412) 902-4140. Ask the operator to be connected to the “Omega Healthcare’s Third Quarter 2022 Earnings Call.”
To listen to the conference call via webcast, log on to www.omegahealthcare.com and click the “Omega Healthcare Investors, Inc. 3Q Earnings Call” hyper-link under “Upcoming Events” in the Investor Relations section on Omega’s website homepage. Webcast replays of the call will be available on Omega’s website for a minimum of two weeks following the call. Additionally, a copy of the earnings release will be available in the “Featured Documents” and “Press Releases” sections of Omega’s website.
* * * * * *
Omega is a REIT that invests in the long-term healthcare industry, primarily in skilled nursing and assisted living facilities. Its portfolio of assets is operated by a diverse group of healthcare companies, predominantly in a triple-net lease structure. The assets span all regions within the U.S., as well as in the U. K.
Forward-Looking Statements and Cautionary Language
This press release includes forward-looking statements within the meaning of the federal securities laws. All statements regarding Omega’s or its tenants’, operators’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, facility transitions, growth opportunities, expected lease income, continued qualification as a REIT, plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from Omega’s expectations.
Omega’s actual results may differ materially from those reflected in such forward-looking statements as a result of a variety of factors, including, among other things: (i) uncertainties relating to the business operations of the operators of Omega’s properties, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels; (ii) the impact of the Novel coronavirus (“COVID-19”) pandemic on our business and the business of our operators, including without limitation, the duration of the federally declared public health emergency and related government and regulatory support, the levels of staffing shortages, increased costs and decreased occupancy experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection with the pandemic, the ability of our operators to comply with infection control and vaccine protocols and to manage facility infection rates, and the sufficiency of government support and reimbursement rates to offset such costs and the conditions related thereto; (iii) the ability of any of Omega’s operators in bankruptcy to reject unexpired lease obligations, modify the terms of Omega’s mortgages and impede the ability of Omega to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor’s obligations, and other costs and uncertainties associated with operator bankruptcies; (iv) Omega’s ability to re-lease, otherwise transition or sell underperforming assets or assets held for sale on a timely basis and on terms that allow Omega to realize the carrying value of these assets; (v) the availability and cost of capital to Omega; (vi) changes in Omega’s credit ratings and the ratings of its debt securities; (vii) competition in the financing of healthcare facilities; (viii) competition in the long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs; (ix) additional regulatory and other changes in the healthcare sector; (x) changes in the financial position of Omega’s operators; (xi) the effect of economic and market conditions generally, and particularly in the healthcare industry; (xii) changes in interest rates or the impact of inflation; (xiii) the timing, amount and yield of any additional investments; (xiv) changes in tax laws and regulations affecting REITs; (xv) the potential impact of changes in the SNF and ALF market or local real estate conditions on the Company’s ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to redeploy the proceeds therefrom on favorable terms; (xvi) Omega’s ability to maintain its status as a REIT; (xvii) the effect of other factors affecting our business or the businesses of Omega’s operators that are beyond Omega’s or operators’ control, including natural disasters, other health crises or pandemics and governmental action, particularly in the healthcare industry, and (xviii) other factors identified in Omega’s filings with the Securities and Exchange Commission. Statements regarding future events and developments and Omega’s future performance, as well as management’s expectations, beliefs, plans, estimates or projections relating to the future, are forward looking statements.
We caution you that the foregoing list of important factors may not contain all the material factors that are important to you. Accordingly, readers should not place undue reliance on those statements. All forward-looking statements are based upon information available to us on the date of this release. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
September 30,
December 31,
2022
2021
(Unaudited)
ASSETS
Real estate assets
Buildings and improvements
$
7,217,231
$
7,448,126
Land
908,424
916,328
Furniture and equipment
498,473
511,271
Construction in progress
84,884
74,062
Total real estate assets
8,709,012
8,949,787
Less accumulated depreciation
(2,246,659
)
(2,160,696
)
Real estate assets – net
6,462,353
6,789,091
Investments in direct financing leases – net
10,560
10,873
Mortgage notes receivable – net
669,533
835,086
7,142,446
7,635,050
Other investments – net
608,190
469,884
Investments in unconsolidated joint ventures
176,556
194,687
Assets held for sale
190,723
261,151
Total investments
8,117,915
8,560,772
Cash and cash equivalents
134,855
20,534
Restricted cash
3,323
3,877
Contractual receivables – net
9,945
11,259
Other receivables and lease inducements
266,890
251,815
Goodwill
648,948
651,417
Other assets
293,829
138,804
Total assets
$
9,475,705
$
9,638,478
LIABILITIES AND EQUITY
Revolving credit facility
$
17,861
$
—
Secured borrowings
368,405
362,081
Senior notes and other unsecured borrowings – net
4,898,609
4,891,455
Accrued expenses and other liabilities
295,454
276,716
Total liabilities
5,580,329
5,530,252
Equity:
Preferred stock $1.00 par value authorized – 20,000 shares, issued and outstanding – none
—
—
Common stock $.10 par value authorized – 350,000 shares, issued and outstanding – 234,176 shares as of September 30, 2022 and 239,061 shares as of December 31, 2021
23,417
23,906
Additional paid-in capital
6,305,089
6,427,566
Cumulative net earnings
3,392,822
3,011,474
Cumulative dividends paid
(6,029,603
)
(5,553,908
)
Accumulated other comprehensive loss (income)
6,243
(2,200
)
Total stockholders’ equity
3,697,968
3,906,838
Noncontrolling interest
197,408
201,388
Total equity
3,895,376
4,108,226
Total liabilities and equity
$
9,475,705
$
9,638,478
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Revenues
Rental income
$
203,202
$
243,583
$
624,086
$
696,408
Real estate tax and ground lease income
4,386
3,581
11,813
9,472
Income from direct financing leases
256
257
768
772
Mortgage interest income
17,234
23,047
57,380
70,693
Other investment income
14,110
10,780
36,481
34,245
Miscellaneous income
242
424
2,866
1,270
Total revenues
239,430
281,672
733,394
812,860
Expenses
Depreciation and amortization
82,709
86,097
248,668
256,745
General and administrative
11,066
9,299
31,786
28,721
Real estate tax and ground lease expense
4,542
3,639
12,596
10,092
Stock-based compensation expense
6,809
5,706
20,515
16,913
Acquisition, merger and transition related costs
185
—
5,658
1,814
Impairment on real estate properties
10,015
4,942
21,221
42,453
Recovery on direct financing leases
—
—
—
(717
)
Provision for credit losses
4,106
25,511
4,367
28,023
Interest expense
54,985
55,827
165,058
167,254
Interest – amortization of deferred financing costs
3,253
3,152
9,697
9,125
Total expenses
177,670
194,173
519,566
560,423
Other income (expense)
Other (loss) income – net
(176
)
(767
)
(5,038
)
4
Loss on debt extinguishment
(376
)
(642
)
(389
)
(30,707
)
Gain on assets sold – net
40,930
56,169
179,747
160,634
Total other income
40,378
54,760
174,320
129,931
Income before income tax expense and income from unconsolidated joint ventures
102,138
142,259
388,148
382,368
Income tax expense
(1,191
)
(976
)
(3,535
)
(2,873
)
Income from unconsolidated joint ventures
4,117
1,552
7,522
14,569
Net income
105,064
142,835
392,135
394,064
Net income attributable to noncontrolling interest
(2,790
)
(3,888
)
(10,787
)
(10,616
)
Net income available to common stockholders
$
102,274
$
138,947
$
381,348
$
383,448
Earnings per common share available to common stockholders:
Basic:
Net income available to common stockholders
$
0.44
$
0.58
$
1.61
$
1.62
Diluted:
Net income
$
0.43
$
0.58
$
1.60
$
1.62
Dividends declared per common share
$
0.67
$
0.67
$
2.01
$
2.01
Contacts
FOR FURTHER INFORMATION, CONTACT
Matthew Gourmand, SVP, Corporate Strategy & Investor Relations
or
Bob Stephenson, CFO at (410) 427-1700