The good news seems to keep on coming. Omega Healthcare Investors released its first quarter 2023 results, and while the past was still problematic, the future is looking brighter. The REIT is the largest owner of skilled nursing facilities in the country, and its customers were particularly hard hit in the pandemic. It appears, however, that most of the restructurings and asset sales are behind them, even though there are a few significant ones ongoing. The positive attitude and look to the future sent the share price surging by nearly 10%.
The recently announced rent and interest deferrals, and changes, include LaVie, Maplewood Senior Living, Agemo (which has resumed its $6.4 million quarterly payments) and a UK operator of care homes (Healthcare Homes), which has also resumed payments effective May 1. In addition, four operators with 48 SNFs have had their facilities transitioned to two existing Omega operators and three new operators for them.
Omega’s confidence in the market is evidenced by its continued acquisitions. It acquired six care homes in the UK for $26.4 million and entered into a master lease with a new operator with an initial cash yield of 8.0% with 2.5% escalators.
To start the second quarter, Omega acquired four skilled nursing facilities in West Virginia for $114.8 million and leased them to an existing operator, adding them to a master lease at an initial cash yield of 9.5% with 2.5% annual escalators. Concurrent with the acquisition, Omega provided $104.6 million of mezzanine financing to that operator to help them finance their acquisition of 13 additional nursing homes in West Virginia. The loan has a yield of 12%, which is not too shabby for Omega. The team at Meridian Capital Group helped arrange $185 million in total financing from a commercial bank and finance company to facilitate the acquisition.
West Virginia has been a popular state, with solid Medicaid reimbursement rates and a limited supply of beds relative to demand. The state commands the highest per-bed values in the country. Omega also acquired a SNF in the state for $13.8 million and leased it to an existing operator, with an initial cash yield of 10% and 2.5% escalators.
We learned that Dave Balow and Patrick Burke of Senior Living Investment Brokerage handled the transaction. Built in 1979 and 1987, the facility had been family-owned and operated since 1987. But the decision was made to divest the facility in order to focus on their additional, out-of-state seniors housing communities. It is located in the town of Jane Lew, a town of only 400 residents, but the facility has no competition in the county, and its nearest competitor is 15 miles away. That scarcity means occupancy has always been high (at around 88% in 2022), and the facility recently benefited from a Medicaid rate increase up to $325 per day. It operated at a 7% margin, but the Medicaid rate bump would improve that quickly.
SLIB confidentially marketed the asset and procured double-digit offers from a selective national and regional buyer pool, eventually selecting Omega which is utilizing its existing operating partner who has rapidly grown its presence in West Virginia. The price came to approximately $190,000 per bed.
It is not just all about acquisitions, however. In the first quarter Omega sold two facilities, one previously classified as held for sale, for $17.6 million in cash, producing a gain of $13.6 million. As of March 31, 2023, the REIT had six facilities classified as assets held for sale, totaling $25.8 million in net book value.
It is a welcome sign that Omega’s management is feeling a little better about their situation and the overall market. About 33% of its portfolio has recovered its occupancy and agency use across its portfolio is in decline. EBITDAR coverage increased in the fourth quarter to 1.09x from 0.83x in the third quarter. And, its 191 seniors housing assets are at 87% occupancy, even though their EBITDAR coverage is still just below 1.0x.
