Hello, everyone. Thank you for joining us, and welcome to Omega Healthcare Investors Third Quarter Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Michele Reber. Please go ahead.
Thank you, and good morning. With me today is Omega's CEO, Matthew Gourmand, CFO, Neal Ballew, CIO, Vikas Gupta, and Megan Krull, Senior Vice President, Data, Intelligence, and Government Relations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, potential transactions, operator prospects, and outlook generally. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. During the call today, we will refer to some non-GAAP financial measures, such as Nareit FFO, Adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement.
In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Matthew.
Thanks, Michele. Good morning, and thank you for joining our third quarter 2026 earnings conference call. Today, I will discuss our third quarter financial results, as well as some of our recent transactions. Third quarter Adjusted Funds From Operations, AFFO of $0.82 per share, and FAD, Funds Available for Distribution, of $0.78 per share, reflect solid year-over-year growth. However, it should be noted that sequentially, these financial metrics were effectively flat, driven by the headwind from $563 million of asset sales late in the second quarter. However, as we have been at pains to stress in our discussions with investors, we are managing this business to create long-term sustainable value.
We believe these dispositions, which were sold at an effective seven cap rate on cash flow, allowed us to exit assets that were going to require significant capital investment over the longer term while strengthening the underlying credit support of the related operators. This is an example of the active portfolio management that we've spoken about in recent quarters, and we were able to show another example in the third quarter as we transitioned 32 facilities to PACS, paying a $90 million termination fee to the prior operator and increasing annual cash rents on this portfolio by $26.1 million in the first year, an effective yield of 29%.
This highly accretive transaction addressed the needs of two longstanding operators while supporting continued quality of care for residents, and we believe there are selective opportunities to achieve similar strong accretion through further active portfolio management efforts in the coming quarters. As we highlighted last quarter, we expected our acquisition run rate to pick up in the second half of the year, and this proved correct, as we've been able to allocate over $1 billion in the second half of the year to date.
As with so many of our transactions executed in recent quarters, the majority of these investments are structured to align our interests with those of our operators, with our initial accretive yields not creating an undue burden on the cash flow of the facilities and with an opportunity to benefit in the upside if, as we expect, an operator improves the financial performance of the portfolio. This philosophy of alignment of interest has been resonating with operators and managers alike, and we continue to be disciplined in our capital allocation policies, focusing on investment opportunities that provide sufficient upside that each party is able to achieve favorable economics.
With an excellent cost of capital, our lowest leverage in the company's history, EBITDA coverage at the highest level in over a decade, robust secular tailwinds, and a portfolio of strong operators looking to grow, we are very optimistic about our ability to create shareholder value for the foreseeable future. I will now turn the call over to Vikas.
Thank you, Matthew, and good morning, everyone. Today, I will review the latest performance trends across our triple net and operating portfolios, provide updates on Genesis and our recent operator transitions, and discuss our investment activity and pipeline. Starting with portfolio performance, our core triple net and mortgage loan portfolio continues to demonstrate positive operating trends. Trailing 12-month operator EBITDA coverage as of June 30, 2026, improved to 1.67 times compared to 1.65 times in the prior reporting period. Occupancy also increased slightly to 82.7% compared to 82.6% previously. Additionally, our Senior Housing Operating Portfolio, or SHOP, continues to perform in line with our underwriting expectations. Turning to portfolio activity, we had two significant developments in October. First, the Genesis Chapter 11 bankruptcy sale was finalized, and our master lease was assumed and assigned to 101 West Street, an affiliate of NewGen.
As part of the transaction, we received repayment of our DIP loan and $150 million term loan. This represents an excellent outcome for Omega. We preserved all of our existing lease economics, resolved our loan exposure to Genesis, and established a new lease relationship with an experienced. Importantly, the Genesis portfolio continues to generate coverage above our overall portfolio average, providing NewGen with a strong foundation as it assumes operations. We know the principals of NewGen well, having transacted with them previously, and look forward to building on that relationship over time. As Matthew mentioned, in October, we also completed the previously announced transition of 32 skilled nursing facilities in Florida from Airamid-affiliated operators to PACS, one of our largest operating partners.
The facilities were added to our existing PACS master lease, with first-year annual contractual rent of $58 million, representing a $26.1 million increase over the prior rent. In year 2, rent will increase by 4.3%, or approximately $2.5 million, followed by annual escalators of 2% thereafter. To facilitate the transaction, Omega paid a $90 million lease termination fee to Airamid. We are pleased to support PACS's expansion into Florida, a new operating state for them. Importantly, the transaction is expected to generate approximately $0.065 per share in annualized FAD accretion, representing a highly attractive outcome for our shareholders. I want to emphasize that this transition was not driven by performance or rent collection issues. Airamid has been a strong, longstanding operator for Omega, and we greatly value their partnership.
Rather, this transaction reflects the proactive approach to asset management that Matthew mentioned earlier, where we identify an opportunity to unlock additional value within our existing portfolio. While transactions of this magnitude may be unique, we remain focused on identifying opportunities to enhance the value of our existing portfolio. These include similar lease termination and re-leasing transactions, dispositions of non-core assets at attractive cap rates, and lease restructurings that allow Omega to participate in future operating upside. Now turning to new investments. During the third quarter, we completed $181 million in new investments, consisting of $167 million in real estate acquisitions and $14 million in real estate loan fundings.
Our acquisitions included $73 million of skilled nursing facilities leased to a new operator, $16 million for six U.K. care homes leased to an existing operator, and $78 million for five senior housing communities placed into a RIDEA structure with an existing operating partner. In addition, during the quarter, we invested $48 million to convert 30 U.K. care homes across two operator relationships from triple-net leases to RIDEA structures. These portfolios were already performing well, with coverage above 1.4 times, and we believe there is an opportunity to capture additional upside through the operating structure. To manage these facilities, we are partnering with three established U.K. operators with whom we have existing relationships. These conversions further expand our U.K. operating platform and demonstrate our willingness to evolve our investment structures when we believe doing so can enhance long-term returns.
Also during the quarter, the Saber PropCo joint venture, in which Omega owns a 49% equity interest, acquired five skilled nursing facilities for $88 million, funded through existing cash and third-party debt. Importantly, no additional equity was required from either Saber or Omega. This is exactly the type of opportunity we envisioned when we initially invested in Saber's real estate and operating platforms. As Saber improves operations and stabilizes these facilities, we have the opportunity to participate in value creation at both the real estate and operating company levels. Turning to our new investment activity subsequent to quarter end. We have already completed $946 million in new investments during the fourth quarter. Our largest transaction was the Runwood U.K. investment, consisting of an $846 million mortgage loan secured by a portfolio of 55 care homes, including seven leasehold interests located across the Southeast and Midlands regions of England.
Our borrower, Foundation Partners, is an existing Omega tenant and an established U.K. operator with a strong track record of performance in comparable portfolios. The loan carries an initial interest rate of 8.72% and is expected to convert to a lease once we exercise our purchase option following the satisfaction of customary regulatory conditions. The initial lease yield will be consistent with the loan yield, with the potential to generate additional returns through a future rent reset tied to improved portfolio performance. We believe this is an attractive investment that combines a strong initial yield with meaningful potential upside, while significantly expanding our presence in the U.K. through a partnership with an operator we know well and trust. Also subsequent to quarter end, we completed approximately $100 million of additional investments across six senior housing communities.
Five of these communities will operate under RIDEA structures with two third-party managers, while the sixth, a continuing care retirement community, will be added to an existing operator's master lease. In total, we've completed approximately $1.5 billion in new investments year to date, including more than $1.1 billion since the beginning of the third quarter. As I have outlined, these transactions span skilled nursing, senior housing, and U.K. care homes, and reflect our team's ability to identify attractive investment opportunities, structure transactions creatively, and deploy capital alongside strong operating partners. Finally, turning to our pipeline. We continue to see attractive market and off-market opportunities across both the U.S. and the U.K., and we remain focused on disciplined capital deployment, high-quality real estate, experienced operating partners, and attractive risk-adjusted returns. Our pipeline remains strong, with numerous opportunities we are actively pursuing for potential closing in the fourth quarter and early 2027.
Building on our recent investment momentum and successful portfolio initiatives, we believe Omega is well-positioned to continue generating attractive returns and long-term shareholder value. I will now turn the call over to Neal.
Thanks, Vikas, and good morning. Turning to financials for the third quarter of 2026. Revenue for the third quarter was $341 million compared to $312 million for the third quarter of 2025. The year-over-year increase was primarily the result of $31 million in resident fees and services from our operating portfolio, which we continue to grow through new acquisitions and triple-net conversions. Net income available to common shareholders for Q3 2026 was $83 million, or $0.27 per diluted common share, compared to $180 million, or $0.59 per diluted common share for Q3 2025.
The year-over-year decrease was primarily the result of $60 million of acquisition, merger, and transition-related expenses in Q3 2026, substantially all related to the terminating of our leases with the operators of the 30 U.K. care homes converted to RIDEA structures, and a $28 million gain on asset sales in Q3 2025. Adjusted FFO was $262 million, or $0.82 per share for the quarter, and FAD was $250 million, or $0.78 per share. Reconciliations of these non-GAAP measures to net income are included in our earnings release and third-quarter financial supplemental posted to our website. As expected, Q3 2026 AFFO per share decreased by approximately $0.01 compared to Q2 AFFO due to the approximate $775 million in asset sales and loan repayments over the past two quarters, which reduced Q3 AFFO by $8.8 million.
The decrease was partially offset by incremental income from $308 million in new investments completed during the second and third quarters, $124 million in net investment activity by the Saber PropCo JV during the second and third quarters, and lower net interest expense of approximately $5 million, driven by lower average revolver borrowings and higher interest income on cash balances. Our balance sheet remains incredibly strong, our debt is well-laddered, and we have significant liquidity. During the quarter, we issued 4.7 million common shares through our ATM and DRIP programs for gross proceeds of $234 million at an average price of $49.44. At quarter end, we had no borrowings outstanding on our $2 billion revolver and $196 million in cash on hand. Our fixed charge coverage ratio was 6.9 times, and our leverage decreased to 3.1 times.
Historically, we have targeted long-term leverage of between four and five times Adjusted FFO. However, given the current rate environment and our ability to accretively fund investments through equity, we are targeting to maintain leverage under four times for the foreseeable future. Subsequent to quarter end, we funded the $846 million Foundation mortgage loan using a combination of balance sheet cash, capital recycled from loan repayments, and borrowings on our revolver. We continue to have access to the capital markets and have ample liquidity and optionality to fund both the next scheduled debt maturity due in April 2027 and to raise capital to accretively fund the investment pipeline.
Turning to guidance. As we announced in yesterday's press release, we increased and tightened our full-year Adjusted FFO guidance to a range of $3.28-$3.30 per share from our prior range of $3.22- $3.26 per share. With that change, the midpoint of our guidance increased to $3.29 per share, a five-penny increase over the midpoint of our July guidance. Our revised 2026 midpoint of $3.29 per share also represents a 19-cent increase over 2025 full-year AFFO of $3.10. This would represent a 6% year-over-year increase in AFFO while also paying out a dividend yield of nearly 6%.
Our updated guidance reflects the $946 million of new investments completed since quarter end, including the $846 million Foundation mortgage loan, as well as the transition of 32 Florida facilities to PACS, which increases annual contractual rent on those facilities by $26.1 million and annual straight-line revenue of $33.8 million in the first year. With that said, I'd like to take a moment to highlight a few of the guidance assumptions we outlined in our earnings release. Guidance includes the impact of new investments completed through November 3rd and does not include any additional investments not outlined in our press release.
Guidance assumes that no additional operators are placed on a cash basis for revenue recognition, that NewGen pays its full contractual rent of $13.3 million per quarter following its assumption of our lease, which will equate to approximately $14 million in straight-line revenue per quarter, and that Maplewood continues to pay monthly rent of $6.9 million consistent with September. Guidance assumes $306 million of loans outstanding at September 30th, 2026, are repaid in Q4, including $150 million of Genesis loans. As we said at the beginning of the year, we are always seeking to prune and strengthen our portfolio, which could include $15 million-$25 million in asset sales each quarter. Guidance also assumes quarterly G&A expense of approximately $14 million-$15.5 million. Lastly, the guidance includes the dividend announced last week of $0.68 per share.
The high end of our guidance range includes, but is not limited to, additional payments from cash basis operators, exposure to our operating portfolio through RIDEA and JV investments, and G&A at the lower end of the range. Our 2026 Adjusted FFO guidance does not include any additional investments, portfolio activity, asset sales, loan repayments, or capital market transactions other than what I just mentioned or what was included in the earnings release. I will now turn the call over to Megan.
Thanks, Neal, and good morning, everyone. Fundamentals continue to be strong, and reimbursement has been generally as expected this year, with no notable disruptions in our portfolio related to the future impact of the OBBBA. That said, certain Senate Finance Committee minority members, along with select non-member Democrats, have recently renewed their focus on quality in the long-term care sector, including the potential for increased or modified regulatory oversight. While the recent scrutiny has been decidedly partisan in nature, the underlying focus is not new to the industry, and we currently see limited risk that these efforts will translate into meaningful regulatory change in the near term. We are, however, mindful of the congressional elections and how a changing political environment could alter that calculus over the longer term. Partnering with operators focused on quality of care is of the utmost importance to us as a REIT.
At the same time, regulatory requirements need to be thoughtful and appropriately targeted to be effective. We therefore continue to engage with various industry associations to help ensure that the policy dialogue is grounded in a contextualized understanding of the data, rather than the broad generalizations that sometimes characterize these policy debates. We are hopeful that when the time is right, both sides of the aisle will work together to ensure that any proposed regulation or legislation is reasonable and appropriately balanced. And encouragingly, given the current and impending demographic wave, we are pleased to see leaders on both sides making current and future staffing concerns in the industry a high priority. I will now open the call up to questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes on the line of Seth Bergey with Citi. Your line is open. Please go ahead.
Hi, good morning. Thanks for taking my question. I guess I just wanted to kind of dig in a little bit more to kind of the mortgage loan, and just some more background on it. How did that kind of structure come to be? What's kind of the estimated timeline to exercise the purchase option? How does the underwriting rent coverage compare to your existing U.K. care home portfolio? Was that an off-market transaction, or can you just talk a little bit about how it came to be? Thanks.
Yeah. Hi, this is Vikas. I'll try to cover your questions. It was a marketed transaction, a very competitive process, where I believe Omega's track record and speed helped us win the deal. Part of the speed was the mortgage loan structure, which we've done before, helped us show the seller that we could quickly close on the transaction. Similar to what we've done in the past, we plan to convert this as soon as regulatory approvals have happened, which we expect to be in about one year. Coverage will be good day one, but we believe our new operator, Foundation, who is an established operator and has operated similar portfolios before, will realize some upside through pushing acuity and rate increases.
So there is when our rent reset will take effect, and we'll be able to get a return close to as if we started at 10% return.
Great. Then just, how have you seen kind of the landscape change at all, if at all, with some of the move in the 10-year and kind of the number that is out there for assets?
So far we haven't really seen too much, Seth. I think that clearly there will be an impact over time, but it's happened relatively recently, so a lot of the deals that have been struck were either previously agreed to or financed. Thankfully, our cost of capital on the equity side of things remains very robust. So from our standpoint, we're just going to continue underwriting exactly as we have. It has been a very competitive environment. We've been able to obviously deploy a solid amount of capital in some very compelling investments. Should the competitive environment become a little less challenging, obviously that would be great, but I don't think we're planning on that happening, and I don't think that we're relying on that to continue to deploy capital thoughtfully. So we should be okay either way.
Great. Thank you.
Your next question comes on the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.
Good morning. Thanks a lot for taking my question. With Runwood, you have a very large platform in the U.K. And so just wondering, does that make it more attractive to continue to be acquiring in that market? Or it does sound like your pipeline is kind of split somewhat evenly, so just trying to get an understanding of where the next acquisition comes, and does this platform that you're building in the U.K. make it more attractive to continue to build upon?
I don't think it changes how attractive it is. We like the U.K. very much. You've seen we've allocated a lot of capital there in the past few years. We have, over the course of a decade, curated a thoughtful pipeline of operators with whom we have strong relationships, and these are proven quality operators from a clinical standpoint and from a financial standpoint. Such that there are opportunities there, we will continue to work with our operators and managers and try to understand whether we want to do that in a triple-net or a RIDEA format. In terms of the opportunities generally, we see a good amount of opportunities across the platform in all areas, and we kind of term ourselves equal opportunity capitalists. From that standpoint, we don't start out with any premeditated expectations as to where we're going to allocate capital.
We allocate each deal and then underwrite each deal with a view of trying to buy quality real estate, partnering with quality operators and managers to create an accretive and sustainable yield over time. We're just going to continue to do that, and ultimately where we allocate capital is going to be determined through that lens.
Thanks for that. Separately, you mentioned additional lease terminations, re-leases, and restructurings, so the PACS's magnitude may be unique. How significant should we be thinking about the opportunity? Along the same lines, you converted 30 homes in the U.K. to a RIDEA structure. Maybe just talk about the opportunity for continued active portfolio management now that you've got a couple pieces of evidence of what you've been able to accomplish.
I think the good news is that when you've got a portfolio of $12 billion plus worth of real estate, there are always opportunities. We talk about alignment of interest, and that's never more relevant than when you're looking at these situations. You need a willing partner on the other side to agree. It's very tough to quantify what it looks like in the near term. I think you know us well enough that we like to under-promise on these things. I think it's clearly there. We've seen a couple of examples, and I think we'll see more in the next 12 months and over the next 5- 10 years. I think it's just going to become more and more available to us.
But in terms of quantifying it is going to be very much determined by finding partners who want to transact in these situations. As you have seen, the yields that one is able to achieve in many of these structures are so compelling that you do not need a great deal from a dollar standpoint to be quite powerful from an earning standpoint. So, the team continue to look for opportunities, continue to engage with operators, and the only thing I can reassure you is, if the opportunity is there, we are going to do it.
Thank you very much. Good luck in the fourth quarter.
Thanks.
Your next question comes from the line of Julien Blouin with Goldman Sachs. Your line is open. Please go ahead.
Hi. Thank you for taking my question. Yeah, maybe going back to the PACS transition, I was wondering, is the limiting factor on doing more of these the depth of the operator pool of strong partners willing and able to take on a transition like this one? Or is it rather having an existing partner who is willing to come to the table and find some arrangement to transition operators?
I think it's probably more the latter. The operating backdrop for most of our operators right now is relatively benign. From that standpoint, there isn't a pressing need on the part of many operators to look to transact in such a way. But I think that the appetite from our operating partners who want to continue to take on these properties is somewhat unabated. From that standpoint, it's more of the latter than the former as we see it today.
Okay, great. I was just wondering, do the election results change at all your sort of thinking around some of the regulatory risks, whether it be minimum staffing or sort of oversight of nursing home ownership, nursing ownership?
You know, it doesn't really. I mean, we expected that this might happen, that the House and the Senate might both go blue, and obviously Democrats have a heavy concentration on regulatory changes. But we've dealt with that before in the past. It's not a new issue for us. And quite frankly, we're somewhat aligned in that the Democrats are really looking from a regulatory perspective to make sure that there's quality of care in nursing homes. And that's what we're looking for too. The only other way that we're successful on a long-term basis, because we are a long-term holder of the real estate, is to make sure that we align ourselves with operators who provide quality of care, right?
It just becomes how does that regulation get implemented, and making sure that we have a voice in that to make sure that through our associations, that Congress has an understanding of what the reality is and making sure that they're doing something that actually has the benefit they're looking for.
Okay, thank you so much.
Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Your line is open. Please go ahead.
Hey, thanks. Good morning, and congrats, Matt, on your first call as CEO. On Genesis, I just want to make sure I understand the economics of your situation with NewGen. By the way, I am glad it is not Siseneg, Genesis spelled backwards. Is it anything different than original Gen in terms of the expectation of rent growth. I guess the main question is, what does 14 million GAAP mean in terms of escalations, and how does that compare to the previous setup?
Hey, Rich, this is Vikas. I will take the first part of your question, and Neal can tackle the second. The economics from a business perspective are the same. Our lease, we are going to get the same amount of rent and escalators. I will just add, we went into the bankruptcy with a very good coverage, and that was through some hard work on our part and Genesis's part to approach us with some buildings they wanted to exit, and we found those buildings new homes. So we went into the bankruptcy with good coverage, and now we have a new tenant who will have good coverage, and we continue to get the same economics on those.
Yeah, and second question-
Sure, good.
Sorry.
Thanks. Sorry. Go ahead.
I was going to say on the straight line piece, good question. We have been asked this question in the past. We just wanted to give the pieces and be transparent, right? Genesis, going through bankruptcy, they were on a cash basis, but with NewGen having a good credit, they will be on a straight line basis. We were just trying to give you the pieces of what the straight line GAAP revenue is going to be of that $14 million per year.
Okay. What is your appetite to grow with them? You mentioned sort of portfolio management efforts, but are you open to growing in the future with NewGen?
Yeah, so we knew NewGen through some sale transactions we had done with them previously, but through this process, we really dug in, spent time with them, and at this point, we are generally impressed with their operating model. They have a proven locally focused business model, and we think that will work well, especially for these buildings that are spread across the U.S. So the proof is in the pudding, and if things go well, I think, yes, we would be open to more acquisition opportunities with them.
Just a quick, to close out my questions, they do not have any obligations around the unsecured creditors or anything like that that is outside of this new company. Is that correct?
That is correct.
Okay. Thank you.
Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open. Please go ahead.
Yes. Good morning, everyone, and congrats on the solid quarter and outlook. I just wanted to follow up on Michael's earlier question around the U.K., and if we kind of think U.K. versus U.S. today, where would you say you're getting the better relative value and maybe the more attractive investment spread, the leasing economics? If you could just kind of walk us through a little bit of that.
Sure. That's a great question. I mean, it's very deal specific, Tayo. We've always looked at it from a standpoint of in the U.S., you can get standardly in the SNF world, we're looking for a 10% yield, which obviously will be a gross and a net 10. In the U.K., we're tending to look for a 10 on a gross basis, but there is a little tax friction that takes that down about 90 basis points. So inherently, there is a little bit of a headwind on a net yield standpoint there. In the U.S. RIDEA, we've been pretty open in saying that given the fact that we're able to get 10% yields in our triple net, we're looking for more than that when we're taking the operating exposure and the volatility that comes along with that.
When you look at it strictly from a yield standpoint, I think you probably would say that if done correctly, the RIDEA portfolio probably provides the best yield, but obviously a little bit more risk than the U.S. SNF market is probably second and the U.K. third. But that doesn't capture everything in the fact that there's also opportunities in some situations, as you've seen in the U.K., to convert some of these things over to RIDEA. So that creates an economic pickup that probably at least matches, if not improves, our yields above the standard SNF 10 with 2.5% escalators. It's quite a nuanced thing, and then you have to think about it from a standpoint also of what's the quality of the real estate you're getting in these situations as well.
We look at each deal very specifically, and as you've seen, given where we've been allocating capital over the last couple of years, we are relatively agnostic as to where that capital is allocated as long as it fits our criteria in terms of yield, quality of real estate, and quality of operating or managing partner.
Got you. That's helpful. On the regulatory side, any update? I know over the summer, there was some talk from CMS about potential recalibration of PDPM because of concerns about upcoding. Any kind of news in the past few months around those lines? There's kind of the change in the Senate and the House potentially create more risk on that end in 2027? How do we kind of think about that?
No, we haven't really heard anything on that front, and neither have our industry partners.
Got you. All right. Thanks again. Well done.
Thanks.
Your next question comes from the line of Dave Rodgers with Raymond James. Your line is open. Please go ahead. Your next question comes from the line of Nick Yulico with Scotiabank. Your line is open. Please go ahead.
Oh, thanks. First question, going back to the Airamid transition to PACS, can you talk about the coverage on the lease previously, what it looks like now, and how much was the higher rent driven by, I guess, PACS's view on a more optimistic, let's say, EBITDA scenario for the facilities?
Hey, Nick, it's Vikas. I'll cover that. We don't disclose coverages by operator, but I will say the Airamid coverage was strong, and hence we were able to charge a good bit of rent increase there. Our PACS master lease coverage is extremely strong. The way we see it is PACS's coverage will be fine day one, but as PACS has done before, they will find upside in these buildings. We think ultimately PACS's coverage with us will just improve in the long run.
Okay, thanks, Vikas. Then, Neal Ballew, I guess, just a question on how to think about the balance sheet here. You talked about the fourth quarter investments, then you got the loan repayments coming in. How should we think about sort of like equity issuance over the next couple quarters to, I guess, reduce the line balance? Also, how should we think about that line balance and sort of managing floating rate debt exposure along with the unsecured bond you have maturing next year? Thanks.
Yeah, great question. Thanks. I'd say, of course, I'd tell you that our equity is still undervalued, but given the price, we can still accretively invest. So, I think we do, as I said in the talking points, have a lot of optionality and flexibility. Do have that revolver there for these instances of being able to creatively put capital to work. But you're right. At this point, given this price, you could see us issuing equity to pay down the revolver. Then looking forward to next quarter, the $700 million bond coming due April 1st, given where bond pricing is today, doesn't look that compelling, but I think there's a scenario where you could see us do a combination of term loan and ATM proceeds to take down that bond issuance.
Okay. Thanks, guys.
Thanks, Nick.
Your next question comes from the line of Dave Rodgers with Raymond James. Your line is open. Please go ahead.
Yeah, good morning. Sorry about that, guys. Technology issues. My internet's down, so I do not know if I will get these numbers right, but I am curious. The returns on the PACS deal were pretty clear and pretty strong. I am curious about the returns on the RIDEA buyout in the U.K. and those conversions. I think the return on that may be a little less clear just from the way that you put it in the press release. I was kind of curious if you could kind of talk about how you thought about some of those returns on top of what you have done in the U.S.
Yeah, certainly. Great question. I will walk you through the quick math here. In the press release, we give you that we wrote a $48 million check to buy out those operators, and we also gave you the, I will give it to you in dollars, the annual rent for those 30 facilities was $26.7 million. With the EBITDA coverage of the 1.47, the math there shows it is $12.5 million of cash flow after paying our rent. In effect, by us taking over these properties in a RIDEA structure, we are going to continue to get the proceeds of that rent and that $12.5 million on top. The $12.5 million divided by the $48 million outlay is a 26% yield. I think that is the math I would think through.
Not quite as good, but we are still happy with it. I would say that we do believe there is operational upside to that, so we would say that that is kind of a conservative number.
Great. That's helpful. I appreciate you running through that. With regard to Maplewood, it seems like they're getting pretty close to stabilization at this point. I know you guys still provide kind of the quarterly run rate for that one, but how close are we to stabilization there and getting comfortable to the point of maybe not providing the detail on Maple each quarter?
Yeah, I think, let me give you some occupancies that'll help you a little bit. Second Avenue, our New York property, is at 95%. Our D.C. property is at 78%. The whole core portfolio, which includes Second Avenue, New York, is 96%. So it isn't stabilized because of D.C., but again, we think of this as RIDEA. Effectively, all of their cash flow comes to us. As you saw quarter-over-quarter, that cash flow continues to increase. We still have a few years till we stabilize, or I should say 1-2 years in our eyes, but that is still TBD.
I would also say that just the quality of this portfolio and the ability of this management team to push rate and continue to find value gives us a great deal of conviction that even upon, quote unquote, "stabilization," there's still meaningful growth to come from this portfolio for many years to come.
Thank you.
Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead.
Good morning. Thanks for the time. Just hoping to piggyback on Dave's question with regards to the U.K. SHOP transitions of those 30 assets. If you could spend a little time talking about the age or vintage of the asset mix on [big bathroom], and generally how you view triple-net versus SHOP type in the U.K., given the divergence in or spectrum of the overseas.
You break up a little bit at the end there, but I will give it a go, and if we miss some of your questions, please follow up. So yeah, in terms of the vintage of the assets that we converted, it's kind of consistent with most of our portfolio. It's what we would term kind of middle market assets. They're predominantly purpose-built assets with ensuites. They are fit for purpose for the longer term. There's, quite frankly, a lack of real estate in the market over there to meet these needs, so we feel very high conviction that the quality of this real estate will be there for the long term. Then in terms of how we look at the quality, the real estate is part of the context of whether we do RIDEA or triple-net. It's not really a primary determining factor.
Ultimately, a lot of the time, it's determined by what the operator/manager wants. If they believe there's meaningful upside, there's a far greater appetite amongst operators in the U.K. to take triple-net leases than there are in the U.S. seniors housing space. From that standpoint, it's not surprising when a number of operators want to take that side of things. Obviously, all of the assets that we look to buy, be they in a RIDEA format or in a triple-net format, have to be fit for purpose longer term.
That's something that we spend an awful lot of time looking at, making sure that they have the requisite number of ensuites or wet rooms, that they were primarily built as purpose-built, and that whether they are capable of effectively providing the clinical needs and the quality of home care that residents are going to be looking for for the foreseeable future. It's a major consideration. There's no point buying assets that ultimately in 5- 10 years are just not going to be fit for purpose.
Thanks for that, Matthew. Just as a follow-up, hoping you could talk a little bit about the pipeline going forward and the mix across the different buckets and how that's maybe changing prospectively, if at all. If you've seen any pickup implications for maybe changes you're seeing in HUD or lack thereof with regards to maybe tilting back towards U.S. skilled nursing that I think you said maybe had the highest initial yields. Any color would be helpful.
Yeah, this is Vikas. I'll jump in on this one. As I said in my prepared remarks, our pipeline is strong, and we're looking at all three asset classes, skilled nursing, senior housing, and U.K. It is competitive, but I will say there's a lot of volume. Hence, we were able to do the deal volume we've done, and hence our pipeline continues to be strong. As for where we continue to see opportunities, I would say it's leaning a little bit more towards senior housing, RIDEA, and care homes, both U.K. care homes, both in triple-net and RIDEA. When it comes to skilled nursing, it is very competitive. But with that said, we do have skilled nursing deals in our pipeline, and we continue to keep pursuing them.
The only thing I'd follow up on is just with your comment on HUD. We have heard feedback from some very sophisticated players within the space that that is possibly changing the ability to borrow and the like. We haven't seen that as of yet, but I wouldn't discount what other people are seeing. We just haven't seen it ourselves.
Thank you.
Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Please go ahead.
Thanks. Matthew, I wanted to touch on where OHI is on refining its portfolio. I know you already discussed throughout this call about opportunities to do some operator transitions, kind of similar to the PACS deal. What about opportunistic asset sales? Is there additional asset sales that you're kind of looking at within the portfolio that the company is looking at pursuing?
Great question. Thanks for that. We have spent a lot of time, our operations team has spent a lot of time looking at that portfolio, and I think that as we sit here today, there is no sense of urgency in terms of large elements of the portfolio that do not seem fit for purpose longer term. Obviously, we've gone through a fairly decent culling process from about 2016 onwards, and a certain amount of that was generated by challenged operators, but sometimes challenged operators as a result of challenged facilities, right? Inherently, there probably was a culling of some underperforming facilities as a result of that. That having been said, we do challenge the team constantly to be making sure that we're revisiting that.
I don't think that any sales that we would make in the next few years come from a position of necessity, but I do think that there are probably selective opportunistic sales that could happen at the right price. I think it's going to be more determined by price than necessity.
Okay. And sir, I know that you have sold a couple SNF portfolios recently at pretty low cap rates. I mean, is there opportunistic sales that you could pursue that has those good price, low cap rate type transactions, or is that something that just kind of comes up randomly when something like that arises?
Everything has a price. If anyone wishes to pay very large amounts of money for our assets, please call Vikas.
Great. Thank you.
Your next question comes from the line of Michael Stroyeck with Green Street. Your line is open. Please go ahead.
Thanks, and good morning. Maybe going back to the U.K. mortgage deal, can you just talk about how that portfolio compares to the company's in-place U.K. assets in terms of price point, payer mix, location, or anything else that could give us a sense of the quality of the assets?
Yeah. This is Vikas. I would start by saying it is a higher quality than our average portfolio right now, hence the price per bed was a bit higher. But with that, we see a lot of opportunity. As I said earlier, we see some upside in this portfolio. We think our new operator Foundation could see some of that opportunity through rate increases, and that will be driven by acuity. Overall, it is a good portfolio. It has a high private pay mix. Overall, I think it will elevate the caliber of our U.K. portfolio.
Got it. That's helpful. Maybe one on occupancy. It's been essentially flat over the past year or so. I guess how much of that is just because of investment activity versus more organic occupancy? I guess, said differently, what has occupancy growth been like over the past year or so on more of a same-store basis?
A lot of what you are seeing is those ins and outs of what's going on transactionally. From a same-store basis, we are seeing increased growth, and we are continuing to see increased growth into this next quarter.
Okay. Understood. Thank you.
Your next question comes from the line of Farrell Granath with Bank of America. Your line is open. Please go ahead.
Hi. Morning. This is Andrew Reale on for Farrell. Thanks for taking our questions. I guess first, with Genesis now resolved and the Runwood investment initially structured as a loan, how should we think about the role of lending going forward, and how do you see the size of that loan book trending over time?
Yeah. Loans for the purpose of loans is kind of like running on a treadmill, right? You exert a huge amount of energy and go nowhere over time. It's just not something that we'll be looking to do. The loan structure in the U.K. is effectively a conduit to access the real estate. I don't consider that to be a loan per se. I think that we would be extremely selective on doing loans for the sake of loans. I think you've either got to have access to real estate or some participation in economic upside. We're not a bank, and we don't want to trade at the kind of multiples that that warrants. We will continue to look to own the real estate wherever possible.
If we are looking to do loans, there better be something attached to it other than just putting money out the door.
Okay. Thanks. Apologies if I missed this earlier, but just curious if you could maybe discuss cap rates broadly you're seeing across the asset classes and maybe how they vary in the U.S. versus U.K. today.
Yeah. As I mentioned, it's a competitive environment. I mean, look, cap rates haven't changed a lot historically, but there's a lot of players out there. Senior housing is very competitive in the U.S. You have all the other REITs playing in there, private equity playing in there. Care homes, we also have REITs playing there as well now, made Runwood a very competitive process. You can see the cap rate we're entering at this deal, which is a bit more aggressive than we've done historically. In general, I would just say cap rates are more aggressive than what we've seen historically. But we are structuring things in ways that we can, over time, go back and get our normal returns of 10% plus.
Okay. Thank you.
We have reached the end of the Q&A session. I will now turn the call back to Matthew Gourmand, CEO, for closing remarks.
Thanks, everyone, for joining us today. If you have any questions, reach out to the group. I would just like to take this opportunity to thank the team as well. The results that you are seeing are a result of huge amounts of hard work on the part of all the employees of the company. So, I want to acknowledge that and thank them. Thanks, everyone. Bye.
This concludes today's call. Thank you for attending. You may now disconnect.