Hunt Valley, MD-based Omega Healthcare Investors reported fourth-quarter adjusted funds from operations of 81 cents per share Thursday, in line with several analysts. But for many, the bigger story to come from Omega last week was its $510 million deal with Healthpeak Properties that resulted in the acquisition of 24 Brookdale Senior Living communities.
“We find the move surprising given Omega’s portfolio is majority skilled nursing and our view that the outlook for senior housing remains challenging,” said Mizuho USA analysts Omotayo Okusanya and Zachary Silverberg, in an investor note on the real estate investment trust’s fourth-quarter results. “That said, the attractive pricing should provide plenty of cushion for any potential downside.”
The real estate investment trust’s portfolio by facility investment type before the Brookdale acquisition, according to a November investor presentation, was 83% skilled nursing and 17% senior living, with Maplewood Senior Living and its upscale Inspir brand among the REIT’s prominent investments in senior living.
Also during the fourth quarter, Omega took advantage of its strong stock price by raising approximately $153 million through the sale of common equity through its at-the-market program. In addition, Omega issued $700 million of 3.375% senior notes due 2031, the lowest rate at which the firm has issued a 10-year bond. Proceeds from the senior notes were used to pay down the firm’s credit facility and term loans and settle interest rate swaps.
“We continued to lower our leverage in the fourth quarter with ATM share issuances and increased our balance sheet cash to help finance the Brookdale portfolio acquisition from Healthpeak in January,” Omega CFO Bob Stephenson said.
Despite seeing its annual net income drop more than 50% in 2020 — to $163.5 million — the firm reported relatively stable year-end revenues at $892.4 million. Its fourth quarter net income of $63.1 million outpaced the fourth quarter of 2019 by $2 million.
Mizuho noted that all of the company’s strong acquisition activity to start the year bodes well for earnings growth in 2021 but noted that no earnings guidance was provided, due to uncertainty related to how the new Biden administration will treat the skilled nursing sector.
“With earnings estimates expected to increase given the accretive acquisition, and Omega’s skilled nursing operators showing improving rent coverages given significant government stimulus for the skilled nursing sector, the year appears off to a good start for Omega,” analysts wrote.