Omega Healthcare Investors(OHI) - 2024 Q3 - Quarterly Results

Executive Summary Omega Healthcare Investors, Inc. reported strong Q3 2024 results with significant increases in key financial metrics and new investments, leading to increased full-year AFFO guidance Q3 2024 Financial Highlights Omega Healthcare Investors, Inc. reported strong Q3 2024 results with significant increases across key financial metrics and substantial new investments Q3 2024 vs Q3 2023 Key Financial Highlights | Metric | Q3 2024 ($M) | Q3 2023 ($M) | YoY Change ($M) | Q3 2024 (per share) | Q3 2023 (per share) | YoY Change (per share) | | :-------------------------------------- | :----------- | :----------- | :-------------- | :------------------ | :------------------ | :--------------------- | | Net income | 115 | 94 | +21 | 0.42 | 0.37 | +0.05 | | Nareit FFO | 196 | 161 | +35 | 0.71 | 0.63 | +0.08 | | Adjusted FFO (AFFO) | 203 | 182 | +21 | 0.74 | 0.71 | +0.03 | | Funds Available for Distribution (FAD) | 192 | 174 | +18 | 0.70 | 0.68 | +0.02 | - Completed $440 million in Q3 new investments, consisting of $390 million in real estate acquisitions and $50 million in real estate loans[3] - Issued 14 million common shares in Q3 for gross proceeds of $530 million[3] - Completed $119 million in new investments in Q4 2024 to date[3] CEO Commentary CEO expressed satisfaction with Q3 results, noting FAD per share growth, balance sheet de-leveraging, and a robust investment pipeline, leading to increased 2024 AFFO guidance - The company is pleased with third-quarter results, having continued to grow FAD per share while meaningfully de-leveraging the balance sheet[5] - Approximately $834 million has been accretively invested year-to-date, with a strong pipeline for future investments[5] - The 2024 AFFO guidance has been increased to between $2.84 and $2.86 per share, up from the previous guidance of $2.78 to $2.84 per share[5] Q3 2024 Financial Performance This section details Omega's Q3 2024 financial performance, including revenues, expenses, other income, and net income Revenues Q3 2024 total revenues increased by $34.0 million year-over-year, driven by new investments and operator transitions, partially offset by asset sales Q3 2024 vs Q3 2023 Revenues | Metric | Q3 2024 ($M) | Q3 2023 ($M) | YoY Change ($M) | | :------------- | :----------- | :----------- | :-------------- | | Total Revenues | 276.0 | 242.0 | +34.0 | - The increase in revenue primarily resulted from new investments completed throughout 2023 and 2024 and the timing and impact of operator restructurings and transitions[6] - The increase was partially offset by a decrease in revenue from asset sales completed throughout 2023 and 2024[6] Expenses Q3 2024 total expenses decreased by $31.2 million year-over-year, primarily due to lower impairment, credit loss recovery, and reduced depreciation, partially offset by acquisition costs Q3 2024 vs Q3 2023 Expenses | Metric | Q3 2024 ($M) | Q3 2023 ($M) | YoY Change ($M) | | :------------- | :----------- | :----------- | :-------------- | | Total Expenses | 163.3 | 194.5 | -31.2 | - The decrease in expenses primarily resulted from a decrease in impairment on real estate properties, a recovery in provision for credit losses, a decrease in depreciation and amortization expense, and a decrease in interest expense[7] - This decrease was partially offset by an increase in acquisition, merger, and transition-related costs[7] Other Income and Expense Other (expense) income decreased by $50.9 million in Q3 2024, mainly due to a decrease in gain on assets sold and an increase in other net expenses Q3 2024 vs Q3 2023 Other Income (Expense) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | YoY Change ($M) | | :--------------------------- | :----------- | :----------- | :-------------- | | Total Other (expense) income | (1.4) | 49.5 | -50.9 | - The decrease primarily resulted from a decrease in gain on assets sold and an increase in other expense – net[8] Net Income Net income for Q3 2024 increased by $21.0 million year-over-year, driven by higher revenues, lower expenses, and increased income from unconsolidated joint ventures Q3 2024 vs Q3 2023 Net Income | Metric | Q3 2024 ($M) | Q3 2023 ($M) | YoY Change ($M) | | :--------- | :----------- | :----------- | :-------------- | | Net Income | 114.9 | 93.9 | +21.0 | - The net increase primarily resulted from a $34.0 million increase in total revenue, a $31.2 million decrease in total expenses, and an $8.2 million increase in income from unconsolidated joint ventures[9] - This was partially offset by a $50.9 million decrease in other income and expense and a $1.6 million increase in income tax expense[9] Portfolio and Recent Activity This section provides updates on operator performance, new investments, and asset sales and impairments Operator Updates Omega provided updates on key operators, including LaVie's Chapter 11 bankruptcy, Maplewood's management transition, and Guardian's facility transition LaVie Care Centers, LLC LaVie filed for Chapter 11 bankruptcy in June 2024, with Omega providing DIP financing, and continued full contractual rent payments - LaVie Care Centers, LLC filed for Chapter 11 bankruptcy protection in June 2024[10] - Omega committed $10 million of debtor-in-possession (DIP) financing to LaVie, with $4.5 million drawn in June[10] - LaVie paid full monthly contractual rent of $3.0 million from June through October 2024[10] Maplewood Senior Living An agreement was reached to transition Maplewood's control to its existing management team, with increased rent payments in Q3 2024 - In July 2024, Omega reached an agreement to transition control of Maplewood Senior Living to key members of the existing management team[11] - Maplewood paid $12.1 million in rent in Q3 2024 (compared to $11.8 million in Q2 2024)[11] - In October 2024, Maplewood paid $4.05 million in rent[11] Guardian Omega transitioned its remaining six Guardian facilities to a new operator, recognizing consistent quarterly contractual rent - In April 2024, the Company transitioned its remaining six Guardian facilities to a new operator[12] - Omega recognized quarterly contractual rent of $2.8 million in Q2 and $2.9 million in Q3 from the new operator[12] - In October 2024, Omega received $1.0 million in contractual rent from the new operator[12] New Investments Omega completed significant new investments in Q3 2024, totaling $467.1 million, primarily in real property acquisitions and real estate loans Q3 2024 Investment Activity Overview Total investment activity for Q3 2024 was $467.1 million, primarily in real property and real estate loans, contributing to a year-to-date total of $796.1 million Investment Activity ($000's) for Three and Nine Months Ended September 30, 2024 | Investment Activity ($000's) | Three Months Ended Sep 30, 2024 ($ Amount) | Three Months Ended Sep 30, 2024 (%) | Nine Months Ended Sep 30, 2024 ($ Amount) | Nine Months Ended Sep 30, 2024 (%) | | :--------------------------------------- | :----------------------------------------- | :---------------------------------- | :---------------------------------------- | :--------------------------------- | | Real property (1) | $389,545 | 83.4 % | $517,541 | 65.0 % | | Real estate loans receivable | 50,381 | 10.8 % | 197,518 | 24.8 % | | Total real property and loan investments | 439,926 | 94.2 % | 715,059 | 89.8 % | | Construction-in-progress | 15,266 | 3.3 % | 55,955 | 7.0 % | | Capital expenditures | 11,952 | 2.5 % | 25,072 | 3.2 % | | Total capital investments | 27,218 | 5.8 % | 81,027 | 10.2 % | | Total | $467,144 | 100.0 % | $796,086 | 100.0 % | Real Estate Acquisitions Omega completed $389.5 million in real estate acquisitions in Q3 2024, including three facilities and the remaining 51% interest in the Cindat JV - Acquired three facilities for $24.6 million in Q3 2024, leased to two existing operators and one new operator, with a combined initial annual cash yield of 10.0% and annual escalators of 2.5%[15] - On July 24, 2024, acquired the remaining 51% equity interest in the Cindat joint venture for $100.9 million cash and assumption of a $243.2 million mortgage loan (fair value $264.0 million)[16] - The total investment in the 63 U.K. facilities, including the Cindat JV acquisition, is approximately $461.9 million, with annual contractual rent of $43.6 million[16] Real Estate Loans In Q3 2024, Omega funded $50.4 million in mortgage and other real estate loans with a weighted-average interest rate of 10.2% - Funded $50.4 million in mortgage and other real estate loans in three separate Q3 transactions, with a weighted-average interest rate of 10.2%[17] Q4 2024 Investments to Date As of October 2024, Omega completed $119.3 million in new investments, comprising real estate loans and UK real estate acquisitions - In October 2024, funded $79.6 million in real estate loans to one existing and two new operators, with a weighted average interest rate of 10.8%[17] - In October 2024, acquired three facilities in the U.K. for $39.7 million, leased to an existing operator, with an initial annual cash yield of 10.0% and an annual escalator of 2.5%[18] - Through October 30, 2024, the Company has completed $834.3 million in new investments in 2024, excluding construction-in-progress and capital expenditures[18] Asset Sales and Impairments In Q3 2024, Omega sold six facilities for $23.9 million, incurred a $0.2 million loss, and recorded an $8.6 million net impairment charge - In Q3 2024, the Company sold six facilities for $23.9 million in cash, recognizing a loss of $0.2 million[19] - During Q3 2024, the Company recorded an $8.6 million net impairment charge to reduce the net book value of five facilities[19] - As of September 30, 2024, 15 facilities with a total net book value of $76.0 million were classified as assets held for sale[20] Operator Coverage Data This section presents key operator performance metrics, including revenue mix, census, and coverage ratios Operator Revenue Mix The operator revenue mix for Q2 2024 showed Medicaid as the largest component at 53.2%, followed by Medicare/Insurance at 28.9% Operator Revenue Mix (1) | Operator Revenue Mix (1) | Medicaid | Medicare / Insurance | Private / Other | | :-------------------------------------- | :------- | :------------------- | :-------------- | | Three-months ended June 30, 2024 | 53.2 % | 28.9 % | 17.9 % | | Three-months ended March 31, 2024 | 52.7 % | 30.0 % | 17.3 % | | Three-months ended December 31, 2023 | 55.3 % | 28.0 % | 16.7 % | | Three-months ended September 30, 2023 | 55.5 % | 28.0 % | 16.5 % | | Three-months ended June 30, 2023 | 54.0 % | 30.0 % | 16.0 % | Operator Census and Coverage For the twelve months ended June 30, 2024, operator occupancy increased to 80.9%, with improving coverage ratios before and after management fees Operator Census and Coverage (1) | (1) Operator Census and Coverage | Occupancy (2) | Coverage Before Fees (3) | Coverage After Management Fees (4) | | :------------------------------------- | :------------ | :----------------------- | :--------------------------------- | | Twelve-months ended June 30, 2024 | 80.9 % | 1.85x | 1.49x | | Twelve-months ended March 31, 2024 | 80.2 % | 1.78x | 1.42x | | Twelve-months ended December 31, 2023 | 79.6 % | 1.69x | 1.33x | | Twelve-months ended September 30, 2023 | 79.1 % | 1.63x | 1.28x | | Twelve-months ended June 30, 2023 | 78.6 % | 1.50x | 1.15x | Financing and Capital Activities This section outlines Omega's capital raising efforts, balance sheet position, and dividend declarations Dividend Reinvestment and ATM Program Through September 30, 2024, the DRIP and ATM programs generated significant gross proceeds from common share issuances, with Q3 being most active Dividend Reinvestment and Common Stock Purchase Plan for 2024 (in thousands, except price per share) | | Q1 | Q3 | Total | | :---------------------- | :--- | :----- | :------ | | Number of shares | 29 | 2,575 | 3,017 | | Average price per share | $30.44 | $35.13 | $34.59 | | Gross proceeds | $882 | $90,469 | $104,366 | ATM Program for 2024 (in thousands, except price per share) | | Q1 | Q2 | Q3 | Total | | :---------------------------- | :----- | :------ | :------ | :------- | | Number of shares | 1,041 | 7,212 | 11,630 | 19,883 | | Average price per share | $31.02 | $32.16 | $37.81 | $35.40 | | Gross proceeds | $32,295 | $231,920 | $439,685 | $703,900 | Balance Sheet and Liquidity As of September 30, 2024, Omega had $4.9 billion in outstanding indebtedness, $342.4 million in cash, and $1.45 billion in undrawn credit facility capacity - As of September 30, 2024, outstanding indebtedness totaled $4.9 billion with a weighted-average annual interest rate of 4.6%[27] - Indebtedness consisted of $4.2 billion in senior unsecured notes, $478.5 million in unsecured term loans, and $250.2 million in secured debt[27] - Total cash and cash equivalents were $342.4 million, and the Company had $1.45 billion of undrawn capacity under its unsecured revolving credit facility[27] Dividends Declared On October 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.67 per share, payable on November 15, 2024 - On October 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.67 per share[28] - The dividend is to be paid on November 15, 2024, to common stockholders of record as of November 4, 2024[28] 2024 AFFO Guidance This section details Omega's revised 2024 Adjusted FFO guidance and the underlying assumptions and exclusions Revised Guidance Omega increased its 2024 Adjusted FFO guidance range to $2.84 to $2.86 per diluted share, up from the previous range - The Company increased its expected 2024 Adjusted FFO range to be between $2.84 to $2.86 per diluted share[29] - This is an increase from the previous guidance range of $2.78 to $2.84 per diluted share[29] Guidance Assumptions and Exclusions The revised guidance incorporates new investments and asset sales, with specific assumptions and exclusions regarding future market conditions and non-recurring items - Revised guidance includes the annual impact of $834 million in new investments completed through October 2024[30] - Assumptions include $31 million in asset sales, Q4 G&A expense of approximately $11.5 million to $13.5 million, no material changes in market interest rates, and no additional operators placed on a cash-basis for revenue recognition[30] - The guidance excludes any additional acquisitions and asset sales, certain revenue and expense items, interest refinancing expenses, acquisition costs, capital market activity, and additional provisions for credit losses[30] Additional Information & Disclosures This section provides details on the Q3 2024 conference call, a company overview, and forward-looking statement disclaimers Conference Call Details Omega will host a conference call on Thursday, October 31, 2024, at 10 a.m. Eastern time to discuss Q3 2024 results - A conference call will be held on Thursday, October 31, 2024, at 10 a.m. Eastern time to review Q3 2024 results[34] - Analysts and investors can participate via dial-in at (877) 407-9124 (U.S.) or (201) 689-8584 (international), or listen via webcast on www.omegahealthcare.com[34](index=34&type=chunk) Company Overview Omega is a REIT investing in skilled nursing and assisted living facilities across the U.S. and U.K., primarily under triple-net leases - Omega is a REIT that invests in the long-term healthcare industry, primarily in skilled nursing and assisted living facilities[35] - Its portfolio of assets is operated by a diverse group of healthcare companies, predominantly in a triple-net lease structure[35] - The assets span all regions within the U.S., as well as in the U.K.[35] Forward-Looking Statements The press release contains forward-looking statements subject to various uncertainties and risks, and actual results may differ materially from expectations - The press release includes forward-looking statements regarding Omega's or its tenants', operators', borrowers' or managers' expected future financial condition, results of operations, cash flows, and business strategy[36] - These statements are inherently uncertain, and actual results may differ materially due to factors such as uncertainties relating to operator business operations, regulatory matters, and the timing of recovery from staffing shortages[36][37] - Other factors include changes in tax laws, ability to re-lease underperforming assets, availability and cost of capital, and economic and market conditions generally[37] Financial Statements This section presents Omega's consolidated balance sheets, statements of operations, and reconciliation of non-GAAP financial measures Consolidated Balance Sheets The consolidated balance sheet as of September 30, 2024, shows total assets of $9.57 billion, total liabilities of $5.17 billion, and total equity of $4.40 billion Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------- | :----------- | :----------- | | Total assets | $9,571,871 | $9,117,402 | | Total liabilities | $5,171,572 | $5,355,111 | | Total equity | $4,400,299 | $3,762,291 | - Real estate assets – net increased to $6,291,558 thousand as of September 30, 2024, from $5,888,096 thousand as of December 31, 2023[38] - Cash and cash equivalents decreased to $342,444 thousand as of September 30, 2024, from $442,810 thousand as of December 31, 2023[38] Consolidated Statements of Operations The consolidated statements of operations for Q3 and YTD September 30, 2024, show significant increases in total revenues and net income compared to prior year periods Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenues | $276,028 | $242,032 | $772,072 | $710,421 | | Total expenses | $163,258 | $194,499 | $487,218 | $595,711 | | Net income | $114,914 | $93,908 | $301,339 | $192,274 | | Net income available to common stockholders (Diluted) | $0.42 | $0.37 | $1.14 | $0.78 | | Dividends declared per common share | $0.67 | $0.67 | $2.01 | $2.01 | Nareit FFO, Adjusted FFO and FAD Reconciliation This reconciliation provides a breakdown of Nareit FFO, Adjusted FFO, and FAD, showing increases across these non-GAAP metrics for Q3 and YTD 2024 Nareit FFO, Adjusted FFO and FAD Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Nareit FFO | $196,074 | $161,034 | $538,311 | $462,259 | | Adjusted FFO (AFFO) | $203,074 | $182,180 | $564,157 | $525,210 | | Funds Available for Distribution (FAD) | $192,382 | $173,633 | $536,921 | $493,491 | Nareit FFO Available Per Share | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Nareit FFO available per share | $0.71 | $0.63 | $2.03 | $1.86 | Non-GAAP Financial Measures Explanation This section defines Nareit FFO, Adjusted FFO, and FAD as supplemental non-GAAP financial measures used to evaluate REIT performance, with cautionary notes - Nareit FFO, Adjusted FFO, and FAD are supplemental non-GAAP financial measures useful in evaluating the performance of real estate investment trusts (REITs)[4][45][46] - Nareit FFO is defined as net income adjusted for asset dispositions, certain non-cash items (depreciation, amortization, impairments), and adjustments for unconsolidated partnerships and joint ventures[46] - Adjusted FFO is Nareit FFO excluding non-cash stock-based compensation and certain revenue and expense items, while FAD is Adjusted FFO less non-cash expense and non-cash revenue[47] - These non-GAAP measures are not measures of financial performance under GAAP and should not be considered as substitutes for net income or indicators of liquidity or cash flow[48]