Omega Healthcare Investors(US:OHI)2020-10-30 19:00Financial Data and Key Metrics Changes - Adjusted FFO for Q3 2020 was $0.82 per share, and funds available for distribution was $0.78 per share, allowing the company to maintain a quarterly dividend of $0.67 per share, with a payout ratio of 82% of adjusted FFO and 86% of funds available for distribution [12][13] - NAREIT FFO on a diluted basis was $15 million or $0.06 per share for the quarter, compared to $163 million or $0.72 per diluted share for Q3 2019 [19] - Revenue for Q3 was approximately $254 million before adjusting for non-recurring write-downs, with over 99% of contractual rent collected [21][22] Business Line Data and Key Metrics Changes - The company recorded a significant drop in occupancy rates, with a decrease of 800 basis points, but has seen operator expenses drop and cash flows improve as high infection rate geographies abate [13][14] - Operator EBITDARM and EBITDA coverage for the core portfolio increased to 1.84 and 1.48 times respectively for the trailing 12 months, despite external factors negatively impacting performance [32] Market Data and Key Metrics Changes - Cumulative occupancy percentages for the core portfolio dropped from 84% in January 2020 to a low of 75.1% in August 2020, with a slight rebound to 75.6% in October [35][36] - The company noted that occupancy impacts correlated closely with the number of confirmed COVID-19 cases in facilities, with heavily affected facilities experiencing occupancy erosion of 25% or more [36] Company Strategy and Development Direction - The company remains optimistic about returning to pre-COVID operating environments once the pandemic is controlled, emphasizing the importance of government support for skilled nursing and assisted living care settings [14][15] - Omega Healthcare Investors is focusing on strategic reinvestment in existing assets and has made new investments totaling approximately $163 million year-to-date [41][62] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the return of occupancy and cash flows to pre-COVID levels, contingent on the availability of a vaccine and continued government support [16][52] - The company highlighted the importance of federal stimulus funds in supporting operators during the pandemic, with expectations for additional stimulus as unallocated CARES Act money remains available [66][120] Other Important Information - The company issued $700 million of senior notes due February 2031, which will increase quarterly interest expense by approximately $1.8 million [24] - Approximately 88% of the company's $5.2 billion in debt was fixed as of September 30, 2020, with a net funded debt to adjusted annualized EBITDA ratio of 5.25 times [28] Q&A Session Summary Question: Government reimbursement and future stimulus - Management noted that there is still $30 billion of unallocated CARES Act money available and expects another round of stimulus once political matters are settled [66] Question: Skilled nursing occupancy challenges - Management indicated that the delay in occupancy recovery is due to the nature of elective surgeries and the demographics of patients being discharged [72][75] Question: Acquisition market opportunities - Management observed a slight uptick in the acquisition environment but noted challenges in underwriting and due diligence due to COVID-19 [77][124] Question: Impact of state budget reductions - Management expressed that while state budgets are monitored, Medicaid rates are rarely cut due to federal matching funds [84] Question: Long-term outlook for skilled nursing - Management anticipates a continued shift towards higher acuity Medicare and Medicaid patients post-COVID, but does not expect dramatic changes in the industry structure [87][90]