On May 6, Omega Healthcare Investors released their first quarter earnings report, and it was a period of major acquisition activity and balance sheet improvements that position the REIT well for the recovery that is surely coming soon in senior care. In the first quarter, Omega closed nearly $600 million of acquisitions and $16.8 million in capital renovations and new construction projects.  

The largest deal by far was its $511.3 million acquisition of 24 senior living communities from Healthpeak Properties, which closed in January. The acquisition included the assumption of an in-place master lease with Brookdale Senior Living that provides for 2021 contractual rent of $43.5 million with a 2.4% annual escalator. Totaling 2,552 operating units, the portfolio is scattered across the country. The price came to about $200,350 per unit. 

That results in an 8.5% current lease yield, which is quite attractive, plus those increased escalator payments. In the third quarter it looks as if occupancy was about 81.9% (the most recent financial data we could find), with revenue per occupied room of $5,342 and EBITDARM lease coverage of 1.07x. That is not good if Brookdale is leasing them at just above breakeven before their management fee. The good news, however, is that if we are at the bottom in occupancy, the operating performance should start to improve soon. 

Omega also spent $83.1 million ($116,000 per bed) on six skilled nursing facilities in Florida owned by an unrelated third party. The six facilities with 716 beds were added to an existing operator’s master lease with an initial annual cash yield of 9.25% with 2.25% annual escalators. Omega also sold 24 facilities for $188.3 million in cash, recognizing a gain of approximately $100.3 million (21 of which were previously classified as held for sale) and as of the end of the quarter still had six properties classified as assets held for sale, totaling approximately $7.9 million. 

At the start of the pandemic, Omega positioned its balance sheet well to tackle any emergencies that could be thrown their way. Since disaster was averted, and its residents were for the most part vaccinated, Omega could then put that capital to use in the M&A space, hence the major PEAK acquisition. But the company continued to improve its balance sheet in the first quarter, with a $700 million senior unsecured note offering in March and a new $1.45 billion unsecured credit facility in April. Omega then repaid approximately $661 million of combined fixed and variable rate debt maturing in the next two years with 12-year fixed-rate paper, the 3.25% coupon for which was the lowest coupon ever issued by Omega.  

As of March 31, Omega held $51.4 million of total cash and cash equivalents and $1.1 billion of undrawn capacity on its unsecured credit facility revolver. There are also no unsecured notes maturing until 2023, while weighted-average debt maturity improved to 8.4 years and its weighted-average cost of debt improved to 4.12%. Further, using its Equity Shelf Program and Dividend Reinvestment and Common Stock Purchase Plan, Omega sold 2.0 million shares of its common stock during the quarter, generating $76.8 million of gross proceeds. Maybe some of those proceeds will be put back into the M&A market?