Omega Healthcare (OHI) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wed, Nov. 4, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Matthew Gourmand
• Chief Financial Officer - Neal Alexander Ballew
• Chief Investment Officer - Vikas Gupta
• Senior Vice President, Data, Intelligence, and Government Relations - Megan Krull

TAKEAWAYS

• Revenue -- $341 million, representing an increase from $312 million due to higher resident fees and services income from the operating portfolio.
• Net Income -- $83 million, reflecting a decrease from $180 million primarily due to $60 million in transition-related expenses and the absence of a $28 million prior-year gain.
• Adjusted Funds From Operations (AFFO) -- $0.82 per share, driven by strong core performance despite a $0.01 per share sequential headwind from recent asset sales.
• Funds Available for Distribution (FAD) -- $0.78 per share, representing growth from $0.75 per share in the same quarter last year.
• Full Year AFFO Guidance -- $3.28 to $3.30 per share, raised by $0.05 at the midpoint from the previous range of $3.22 to $3.26 per share.
• Year-to-Date Investments -- $1.5 billion, including $946 million in capital deployed following the close of the third quarter.
• PACS Transition Rent -- $26.1 million increase, resulting from the transition of 32 Florida facilities and generating an effective yield of 29% in the first year.
• PACS FAD Accretion -- $0.065 per share, representing the expected annualized impact of the Florida facility transition on the company's distribution capacity.
• Runwood Portfolio Loan -- $846 million, carrying an initial interest rate of 8.72% for a portfolio of 55 care homes in the United Kingdom.
• UK RIDEA Conversion Yield -- 26%, achieved through the $48 million buyout of two operator relationships covering 30 care homes.
• Leverage Ratio -- 3.1x, marking the lowest level in the company's history.
• Fixed Charge Coverage -- 6.9x, indicating the highest level of balance sheet coverage for interest and fixed costs in over 10 years.
• ATM Equity Issuance -- $234 million, generated from the sale of 4.7 million shares at an average price of $49.44 per share.
• Genesis Loan Repayment -- $150 million, received following the finalization of the operator's Chapter 11 bankruptcy sale and master lease assumption.
• Operator EBITDAR Coverage -- 1.67x, showing improvement from 1.65x in the prior reporting period ending June 30, 2026.
• Portfolio Occupancy -- 82.7%, reflecting a slight increase from 82.6% on a trailing 12-month basis as of June 30, 2026.
• Asset Sale Headwind -- $8.8 million, reducing sequential quarterly AFFO following $775 million in dispositions and loan repayments over the last two quarters.
• Quarterly G&A Guidance -- $14 million to $15.5 million, serving as the projected general and administrative expense range for the fourth quarter.
• Q3 Real Estate Acquisitions -- $167 million, comprised of 17 facilities across the United States and the United Kingdom.
• Sabre PropCo JV Investment -- $88 million, used to acquire five skilled nursing facilities with funding provided through existing cash and third-party debt.
• Post-Quarter Senior Housing Acquisitions -- $49 million, for five communities in Texas, Florida, and South Carolina to be managed under RIDEA structures.
• Maplewood Monthly Rent -- $6.9 million, assumed to remain constant through the end of the year within the company's financial guidance.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Gupta warned that "certain senate finance committee minority members along with select nonmember Democrats recently renewed their focus on quality in the long term care sector," potentially increasing regulatory oversight.
• Gupta stated, "We are, however, mindful of the congressional elections, and how a changing political environment could alter that calculus over the longer term," regarding the potential for modified regulatory requirements.

SUMMARY

Omega Healthcare Investors, Inc. (NYSE:OHI) reported growth in its funds available for distribution and raised its full-year guidance following a period of high investment activity and portfolio restructuring. Management stated that the company deployed $1.5 billion in capital year to date, with a significant concentration in United Kingdom care homes and United States senior housing through both triple-net and RIDEA structures. The company reported its lowest leverage in history at 3.1x and the highest fixed charge coverage in over a decade. Management stated that sequential financial metrics were impacted by $563 million in asset sales late in the second quarter, but indicated that these dispositions allowed the company to exit properties requiring significant long-term capital while strengthening operator credit. The company is transitioning its capital allocation toward opportunities with alignment of interest, such as RIDEA structures and lease restructurings that allow for participation in operating upside.

• CEO Gourmand stated, "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."
• The company expects to convert the $846 million Runwood mortgage loan into a long-term lease in approximately one year following the satisfaction of regulatory conditions.
• Management noted that the transition of 32 Florida facilities to PACS was a proactive move to unlock value, as the new master lease provides a $26.1 million increase in annual contractual rent.
• Gupta indicated that the United Kingdom market currently presents a 90 basis point tax headwind on net yields compared to the United States market, though RIDEA conversions can provide a compensating economic pickup.
• The company updated its long-term leverage target to remain under 4x adjusted normalized EBITDA due to the current interest rate environment and the ability to fund investments through equity.
• Management confirmed that the Genesis bankruptcy resolution resulted in the assumption of the company's master lease by NewGen, preserving all existing lease economics while resolving loan exposure.

INDUSTRY GLOSSARY

• AFFO (Adjusted Funds From Operations): A financial measure used by REITs that adjusts Nareit FFO for non-cash items and certain recurring expenses to better reflect recurring cash flow.
• EBITDAR Coverage: A ratio measuring an operator's ability to pay rent from earnings before interest, taxes, depreciation, amortization, and rent.
• FAD (Funds Available for Distribution): A non-GAAP measure that adjusts AFFO by subtracting non-cash revenue and recurring capital expenditures to show cash available for dividends.
• RIDEA: A structure established by the REIT Investment Diversification and Empowerment Act that allows a REIT to participate in the operating profit of healthcare properties rather than receiving only fixed rent.
• SHOP (Senior Housing Operating Portfolio): A portfolio of senior housing properties where the REIT has direct exposure to the operating performance of the facilities.
• SNF (Skilled Nursing Facility): A clinical healthcare facility that provides 24-hour nursing care and rehabilitation services.
• Triple-net Lease: A lease agreement where the tenant pays all property expenses, including taxes, insurance, and maintenance, in addition to rent.

Full Conference Call Transcript

Operator: 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 1 to raise your hand. To withdraw your question, press Star 1 again. I will now hand the conference over to Michele Reber. Please go ahead.

Michele Reber: Thank you, and good morning. With me today is Omega's CEO, Matthew Gourmand; CFO, Neal Alexander 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, 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 General 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.

Matthew Gourmand: 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, reflects 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 7 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 have 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 2 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 have 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.

Vikas Gupta: 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 Genesys and our recent operator transitions, and discuss our investment activity and pipeline.

Matthew Gourmand: Starting with portfolio performance. Our core triple net and mortgage loan portfolio continues to demonstrate positive operating trends. Trailing 12-month operator EBITDAR coverage as of June 30, 2026 improved to 1.67x compared to 1.65x 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.

Vikas Gupta: Turning to portfolio activity. We had 2 significant developments in October 1, 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 a $150 million term loan. This represents an excellent outcome for Omega. We preserve all of our existing lease economics, resolve our loan exposure to Genesis, and establish a new lease relationship with an experienced operator. Importantly, the Genesis portfolio continues to generate coverage above our overall portfolio average providing new gen with a strong foundation as it assumes operations.

We know the principles 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 Arrowhead affiliated operators to PACS, 1 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 2.0% thereafter. To facilitate the transaction, Omega paid a $90 million lease termination fee to Arrowhead.

We are pleased to support PAX'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. Arrowhead has been a strong, long standing operator for Omega, and we greatly value their partners. 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 noncore 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 for skilled nursing facilities leased to a new operator, $16 million for 6 UK care homes, leased to an existing operator, and $78 million for 5 senior housing committees placed into our idea structure with an existing operating partner.

In addition, during the quarter, we invested $48 million to convert 30 UK care homes across 2 operator relationships from triple net leases to RIDEA structures. These portfolios were already performing well with coverage above 1.4x and we believe there is an opportunity to capture additional upside through the operating structure. To manage these facilities, we are partnering with 3 established UK operators whom we have existing relationships. These conversions further expand our UK 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 Sabre PropCo joint venture in which Omega owns a 49.0% equity interest acquired 5 skilled nursing facilities for $88 million.

Funded through existing cash and third party debt. Importantly, no additional equity was required from either Sabre or Omega. This is exactly the type of opportunity we envision. When we initially invested in Sabre's real estate and operating platforms. As Sabre improves operations and stabilizes these facilities, we have the opportunity to participate in value creation. In 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 UK investment.

Consisting of an $846 million mortgage loan secured by a portfolio of 55 care homes, including 7 leasehold interests located across the Southeast in Midlands regions of England. Our borrower foundation partners is an existing Omega tenant and an established UK 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 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 our 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.

Matthew Gourmand: While significantly expanding our presence in The UK through our partnership with an operator we know well and trust. Also subsequent to quarter end, completed approximately $100 million of additional investments across 6 senior housing communities. 5 of these communities will operate under RIDEA structures with 2 third party managers while the sixth, a continuing care retirement community. Will be added to an existing operator's master lease. In total, we have 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 UK 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. Continue to see attractive market and off market opportunities across both The US and The UK. 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.

Neal Alexander Ballew: Thanks, Vikas, and good morning. Turning to financials for the third quarter of 26. Revenue for the third quarter was $341 million compared to $312 million for the third quarter of 25. 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 a $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 UK care homes converted to IDEA 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 2 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 Sabre 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 6.9x and our leverage decreased to 3.1x. Historically, we have targeted long term leverage of between 4x and 5x adjusted normalized EBITDA However, given the current rate environment and our ability to accretively fund investments through equity, we are targeting to maintain leverage under 4x 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 to $3.30 per share from our prior range of $3.22 to $3.26 per share.

With that change, the midpoint of our guidance increased to $3.29 per share, a $0.05 increase over the midpoint of our July guidance. Our revised 2026 midpoint of $3.29 per share also represents a $0.19 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 would 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 3 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 30, 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 to $25 million in asset sales each quarter. Guidance also assumes quarterly G&A expense of approximately $14 million to $15.5 million And lastly, the guidance includes the dividend announced last week of $0.0608 per share. The high end of our guidance range includes 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.

Megan Krull: Thanks, Neal, and good morning, everyone. Fundamentals continue to be strong, and reimbursement has been generally as expected this year.

Vikas Gupta: 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 nonmember Democrats 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 for questions.

Operator: We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press Star 1 to raise your hand. To withdraw your question, press Star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. Lastly, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Zach Berge with Citi. Your line is open. Please go ahead.

Zach Berge: Hi. Good morning. I guess I just wanted to kind of dig in a little bit more to the mortgage loan. And just some more background on it. How did that kind of structure come to be? what is kind of the estimated time line to exercise the purchase option? How does the underwriting rent coverage compare to your existing UK care home portfolio and was that an off-market transaction, or can you just talk a little bit about how it came to be?

Vikas Gupta: Yeah, hi. This is Vikas. I will try to cover your questions. It was a marketed transaction, a very competitive process. Which I believe Omega's track record and speed helped us win the deal. And part of the speed was the mortgage loan structure, which we have done before, helped us show the seller that we could quickly close on the transaction. And similar to what we have done in the past, we plan to convert this as soon as regulatory approvals have happened. Which we expect to be in about 1 year. Coverage will be good day 1.

We believe our new operator foundation who is an established operator and has operated similar portfolios before, we will realize some upside. Through pushing acuity and rate increases. So there is when our rent reset will take effect, and we will be able to get a return close to as if we started at a 10% return.

Zach Berge: Great. And 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 are out there for assets?

Matthew Gourmand: So far, we have not really seen too much, Seth. I think that, you know, clearly, will be an impact over time, but it is 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 are just going to continue underwriting exactly as we have It has been a very competitive environment. We have been able to obviously deploy a solid amount of capital and some very compelling investments should the competitive environment become a little less challenging.

Obviously, that would be great, but I do not think we are planning on that happening, and I do not think that we are relying on that to continue to deploy capital thoughtfully. So we should be okay either way.

Zach Berge: Great. Thank you.

Operator: Your next question comes from the line of Michael Goldsmith with UBS. Your line is open. Please go ahead.

Michael Goldsmith: Good morning. Thanks a lot for taking my question. Now with Runwood, you do. You have a very large platform in The UK. And so just wondering, you know, does that make it more attractive to continue to be acquiring in that market? Or, it does sound like your pipeline is split somewhat evenly. So just trying to get an understanding of, you know, where the next acquisition comes and does this platform that you are building in The UK make it more attractive to continue to build upon.

Matthew Gourmand: I do not think it changes how attractive it is. We like it very much. You have seen we have 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 that these are proven quality operators from a clinical standpoint and from a financial standpoint. So 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 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. So from that standpoint, we do not start out with any premeditated expectations as to where we are 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. And we are just going to continue to do that. And ultimately, where we allocate capital is going to be determined through that lens.

Michael Goldsmith: Thanks for that. And then separately, you know, you mentioned additional lease terminations, re-leasing. So the tax's magnitude may be unique. Like, how significant can we. should we be thinking about the opportunity? And then along the same lines, right, you converted 30 homes in The UK to a RIDEA structure. So just maybe just talk about the opportunity to for continued active portfolio management now that you have got a couple pieces of evidence of what you have been able to accomplish.

Matthew Gourmand: I think the good news is that when you have got a portfolio of $12-plus billion dollars worth of real estate, there are always opportunities. We talk about alignment of interest, and that is never more relevant than when you are looking at these situations. Right? You need a willing partner on the other side to agree. And so it is very tough to quantify what it looks like in the near term. I think you know as well enough that we like to under promise on these things. So I think it is clearly there. We have seen a couple of examples. I think we will see more.

In the next 12 months and over the next 5 to 10 years. I think it is gonna become more and more available to us. But in terms of quantifying it, it is gonna be very much determined by finding partners who want to transact in these situations. As you have seen, the yields that 1 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 earnings standpoint.

Vikas Gupta: 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 gonna do it.

Michael Goldsmith: Thank you very much. Good luck in the fourth quarter. Thanks.

Operator: Next question comes from the line of Julien Dumoulin with Goldman Sachs.

Julien Dumoulin: Hi. Thank you for taking my question. Yeah. Maybe going back to the PAC 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 1, or is it rather having an existing partner who is willing to come to the table and find some arrangements to transition operators.

Vikas Gupta: I think it is probably more the latter. You know, the operating backdrop for most of our operators right now is benign.

Matthew Gourmand: So from that standpoint, there is 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.

Vikas Gupta: From that standpoint, it is more of the latter than the former as we see it today. Okay.

Julien Dumoulin: Great. And, I was just wondering, did the election results change at all your sort of thinking around some of the regulatory risks, whether it be, you know, minimum staffing or sort of oversight of nursing home ownership. Sorry. Nursing ownership.

Matthew Gourmand: You know, it does not really. I mean, we knew 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 have dealt with that before in the past. it is not a new issue for us. And quite frankly, we are somewhat aligned in that the Democrats are really looking from a regulatory perspective to make sure that there is quality of care in nursing homes. And that is what we are looking for too.

The only other way that we are 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? So then 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 are doing something that actually has the benefit they are looking for.

Julien Dumoulin: Okay. Thank you so much.

Operator: Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Your line is open. Please go ahead.

Richard Anderson: Hey. Thanks. Good morning, and congrats, Matthew, on your first call as CEO. So, on Genesys, I just wanna make sure I understand. Like, this the economics of your situation with NuGen, by the way, I am glad it is not sisanig. Genesis spelled backwards. Is it any. Is it anything different than know, original gen in terms of, you know, the expectation of rent growth? I guess the main question is what is $14 million GAAP mean in terms of escalations and does that compare to the previous setup?

Vikas Gupta: Hey, Richard. This is Vikas. I will take the first part of your question and can tack the second. The economics from a business perspective are the same. Our lease we are gonna get the same amount of rent and escalators. And I will just add, you know, we went into the bankruptcy with a very good coverage, and that was through some hard work on our part and Genesys' part to approach us with some billings 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.

Neal Alexander Ballew: Yeah. And the second question-- Sure. Good. Sorry. Thanks. Sorry. Good-- I was going to say on the straight line piece, good question. We have been asked this question in the past. We just wanna give the pieces and be transparent. Right? So Genesys, going through pay-- 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 are just trying to give you the pieces of what the straight line gap revenue is going to be of that $14 million per year.

Richard Anderson: Okay. And what is your appetite to grow with them? You mentioned sort of you know, sort of portfolio management. Efforts. But, you know, are you are you open to growing, in the future with NuGen?

Vikas Gupta: Yeah. So we knew NuGen 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 our 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 US. 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.

Richard Anderson: And just a quick. You know, 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?

Vikas Gupta: that is correct. Okay. Thank you.

Operator: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Line is open. Please go ahead.

Omotayo Okusanya: Yes. Good morning, everyone, and congrats on the solid quarter and outlook. I just wanted to follow-up on Michael's earlier, around The UK. And if we kind of think UK versus US today, where would you say you are getting the better relative value and maybe the more attractive, you know, investment spread, the leasing economics? And could you just kinda walk us through a little bit of that?

Matthew Gourmand: Sure. that is a great question. I mean, it is very deal-specific, right, Tayo? But We have always looked at it from a standpoint of in the US, you can get standardly in the sniff world. We are looking for a 10.0% yield, which obviously will be a gross and a net 10.0%. In The UK, we are tending to look for a 10.0% on a gross basis, but there is a little tax friction that takes that down about 90.0 basis points. So inherently, there is a little bit of a headwind on a net yield standpoint there.

And then in The US right here, we have been pretty open in saying that given the fact that we are able to get 10.0% yields in our triple net, we are looking for more than that when we are 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 US SNP market is probably second and The UK third. But that does not capture everything.

The fact that there is also opportunities in some situations, as you have seen in The UK, 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 and ops and escalators. So it is quite a nuanced thing. And then you have to think about from a standpoint also. What. what is the quality of the real estate that you are getting in these situations as well? So we look at each deal very specifically.

And as you have seen where we have 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.

Omotayo Okusanya: Gotcha. that is helpful. And then on the regulatory side, any update. I know, like, over the summer, there was some talk from CMS about potential recalibration of PDPM because of concerns about coding. Any kind of news in the past few months around those lines? You know, the kind of the change in the senate and the house kind of potentially create more risk on that end in 2027? Like, how do we kind of think about that?

Matthew Gourmand: No. We have not really heard anything on that front, neither have our interest partners.

Omotayo Okusanya: Gotcha. Alright. Thanks again. Well done. Thanks.

Operator: 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.

Nicholas Yulico: Thanks. First question, going back to the Arrowhead transition to PACS, can you talk about the coverage on the lease previously? What it looks like now, and you know, how much was the higher rent driven by I guess, PACS' view on a more optimistic, let's say, EBITDAR scenario for the facilities.

Vikas Gupta: Hey, Nick. it is Vikas. I will cover that. So, you know, we do not disclose coverages by operator, but I will say the Arrowhead coverage was strong. And, hence, we were able to charge a good bit of rent increase there. And our PACS master lease coverage is extremely strong. So the way we see it is PACS' coverage will be fine day 1, but as PACS has done before, they will find upside in these buildings. So we think ultimately PACS' coverage with us will just improve in the long run.

Nicholas Yulico: Okay. Thanks, Vikas. And then, Neal, I guess just a question on the 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 an equity issuance over the next couple quarters to, I guess, reduce the line balance? Or, and then also, how should we think about that line balance and sort of managing floating rate debt exposure along with the debt with the unsecured bond you have maturing next year? Thanks.

Neal Alexander Ballew: Yeah. Great question. Thanks. I would say, of course, I would tell you that our you know, equity is still undervalued, but given the price, we could still accretively invest. And so know, I think we do, as I said, the talking points have a lot of optionality and flexibility. Do you have that revolver there for these instances of being able to, you know, credibly put capital to work. But you are right. At this point, given this price, you know, I you could see us issuing equity to pay down the revolver.

And then looking forward to next quarter, you know, the $700 million bond coming due April 1, Given where bond pricing is today, it does not look that compelling, but I think there is a scenario where you could see us do a combination of term loan and ATM proceeds to take down that bond issuance. Okay.

Nicholas Yulico: Thanks, guys. Thanks.

Operator: Your next question comes from the line of Dave Rodgers with Raymond James. Your line is open. Please go ahead.

Dave Rodgers: 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 UK 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. So 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 US.

Neal Alexander Ballew: Yeah. Certainly. Great question. I will walk you through the quick math here. So in the press release, we give you that we, you know, 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 on. For those 30 facilities was $26.7 million. And with the EBITDAR coverage of the 1.47, the math there shows, you know, it is $12.5 million of cash flow after paying our rent. So in effect, by us taking over these properties in our RIDEA structure, We are gonna continue to get the proceeds of that rent and that $12.5 million on top.

So the $12.5 million divided by the $48 million. Million dollar outlay is a 26.0% yield. I think that is the math I would think through. So not quite as good, but we are still happy with it. And I would say that we do believe there is operational upside to that. So we would say that is kind of a conservative number.

Dave Rodgers: Great. that is helpful. I appreciate you running through that. And then with regard to Maplewood, it seems like they are getting pretty close stabilization at this point. I know you guys still provide kind of the quarterly run rate for that 1, but, you know, how close are we to stabilization there and getting comfortable to the point of maybe not providing the detail on Maplewood core?

Vikas Gupta: Yeah. I think. Let me give you some occupancies that will help you a little. Second Avenue, our New York property is at 95.0%. Our D.C. property is at 78.0%. And then the whole core portfolio, which includes 2nd Avenue, New York is at 96.0%. So it is not stabilized because of DC, but again, we think of this as RIDEA. Effectively, and 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 should say 1 to 2 years in our eyes, but that is still TBD.

Matthew Gourmand: 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 great deal of conviction that even upon stabilization, there is still meaningful growth to come from this portfolio for many years to come.

Dave Rodgers: Thank you.

Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Please go ahead.

Juan Sanabria: Good morning. Thanks for the time. Just hoping to piggyback on Dave's question with regards to The UK shopping transitions of those 30 assets. If you could spend a little time talking about the age or vintage of the asset, mix, bathroom, Generally, how you view kinda triple net versus shop type in The UK given you know, divergence in. Or a spectrum of the opportunities.

Matthew Gourmand: I. You are breaking up a little bit at the end there, but I will. We 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 is kind of consistent with most of our portfolio. it is what we would term middle market assets. They are predominantly purpose built assets. With on suites. They are fit for purpose for the longer term. They are 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.

And then in terms of how we look at the quality, the real estate is part of the context of whether we do idea or triple net. It does not it is not really a primary determining factor. Ultimately, a lot of the time, it is determined by what the operator slash manager wants. So if they if they believe there is meaningful upside, there is a far greater appetite amongst operators in The UK to take triple net leases than there are in The US seniors housing space. So from that standpoint, it is not surprising when a number of operators wanna 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. And that is something that we spend an awful lot of time looking at, making sure that they have the requisite number of en suites or wet rooms. That they were primarily purpose-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.

So that is. it is a major, major consideration. there is no point buying assets that ultimately in 5 to 10 years are just not going to be fit for purpose. Thanks for that, Matthew.

Juan Sanabria: Just as a follow-up, hoping you could talk a little bit about the pipeline going forward, the mix across the different buckets and how that is maybe changing prospectively, if at all? If you have seen any pickup implications for maybe changes you are seeing in HUD or lack thereof. With regards to maybe tilting back towards US skilled nursing that I think you said maybe had the highest initial yields Any color would be helpful.

Vikas Gupta: Yeah. This is Vikas. I will jump on this 1. So as I said in my prepared remarks, our pipeline is strong. And we are looking at all 3 asset classes. Skilled nursing, senior housing, and UK. It is competitive. But I will say there is a lot of volume. Hence, we were able to do the deal volume we have done, and hence, our pipeline continues to be strong. As for where we continue to see opportunities, I would say it is leaning a little bit more towards senior housing RIDEA And care homes, both UK 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.

Matthew Gourmand: And then the only thing I would follow-up on is just with your comment on HUD. We have heard feedback from some very sophisticated players within the space that is possibly changing the ability to borrow and the like. We have not seen that as of yet. But I would not discount what other people are seeing. We just have not seen it ourselves.

Juan Sanabria: Thank you.

Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Please go ahead.

Michael Carroll: 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. But what about opportunistic asset sales? Is there additional asset sales that you are kind of looking at within the portfolio that the company is looking at pursuing?

Matthew Gourmand: 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. So obviously we have 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 is a result of challenged facilities. Right? So 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 are revisiting that. So I do not 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. So I think it is gonna be more determined by price than necessity.

Michael Carroll: Okay. And, so, I know that you have full a couple SNF portfolios recently at pretty low cap rates. I mean, is there opportunistic sales that you could pursue that has those good-priced,, low cap rate type transactions? Or is that something that just kind of comes up randomly when something like that arises?

Matthew Gourmand: Everything has a price. If anyone wishes to pay very large amounts of money for our assets, please call Vikas.

Vikas Gupta: Great.

Michael Carroll: Thank you.

Operator: Your next question comes from the line of Michael Stojek with Green Street. Your line is open. Please go ahead.

Michael Stojek: Thanks, and good morning. Maybe going back to The UK mortgage deal, can you just talk about how that portfolio compares to the company's in place UK assets in terms of price point, payer mix, location, or anything else that can give us a sense of the quality of the assets?

Vikas Gupta: 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. And so overall, I think it will just elevate the caliber of our UK portfolio.

Michael Stojek: Got it. that is helpful. Maybe 1 on occupancy. it is been essentially flat over the past year or so. Guess how much of that is just because of investment activity more organic occupancy? I guess, you said differently, what is occupancy growth been like over the past year or so on more of a same store basis?

Megan Krull: A lot of what you are seeing is those in and outs of what is going on transactionally. So from a same basis, we are seeing increased growth and we are continuing to see increased growth into this next quarter.

Michael Stojek: Okay. Understood. Thank you.

Operator: Your next question comes from the line of Farrell Granath with Bank of America.

Ferrell Granath: Hi, morning. This is Andrew Riel on with Ferrell. Thanks for taking our questions. I guess, first, you know, with Genesis now resolved and the Runwood investment initially structured as a loan, should we think about the role of lending going forward? And how do you see the size of that loan book trending over time?

Matthew Gourmand: Yeah. So loans for the purpose of loans, it is like running on a treadmill. Right? You exert a huge amount of energy and go nowhere over time. So it is just not something that we will be looking to do. The loan structure in The UK is effectively a conduit to access the real estate So I do not 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 have either gotta have access to real estate or some participation in economic upside But, you know, we are not a bank, and we do not wanna trade at the kind of multiples that warrants. So we will continue to look to own the real estate wherever possible. And if we are looking to do loans, there better be something attached to it other than just putting money out the door.

Ferrell Granath: Okay. Thanks. And apologies if I missed this earlier, but just curious if you could maybe discuss just cap rates broadly you are seeing across the asset classes and maybe how they vary in The US versus UK today?

Vikas Gupta: Yeah. As I mentioned, it is a competitive environment. I mean, look. Cap rates have not changed a lot historically, but there are a lot of players out there. So senior housing is very competitive in The US. 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, which made Runwood a very competitive process. You can see the cap rate we are entering at. This deal, which is a bit more aggressive than we have done historically. So in general, I would just say cap rates are more aggressive than what we have seen. Historically.

But we are structuring things in ways that we can, over time, go back and get our normal returns of 10.0%-plus.

Ferrell Granath: Okay. Thank you.

Operator: We have reached the end of the Q&A session.

Matthew Gourmand: 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, and 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 wanna acknowledge that and thank them. Bye everyone.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.