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How Omega Healthcare Investors Weathered the Coranavirus Storm in Q1 Relatively Well

By Keith Speights - May 5, 2020 at 7:00AM

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The COVID-19 pandemic is hammering the long-term care industry. But this LTC-focused REIT reported solid revenue and earnings growth in Q1.

It's been an absolutely horrible few months for the long-term care (LTC) industry because of the major impact of the COVID-19 pandemic. And that's not good news for Omega Healthcare Investors (OHI 0.18%). Shares of the LTC-focused real estate investment trust (REIT) have fallen 35% year to date after plunging more than 60% in March.

Omega Healthcare Investors announced its first-quarter results after the market closed on Monday. And investors received some much-needed good news. Here are the highlights from the company's Q1 update.


Image source: Getty Images.

By the numbers

Omega reported first-quarter total operating revenue of $253 million, up 13% year over year. The result topped the average analysts' Q1 revenue estimate of $250.4 million.

The REIT generated net income of $92.3 million, or $0.39 per share, in the first quarter based on generally accepted accounting principles (GAAP). This reflected significant improvement from GAAP earnings of $72.2 million, or $0.34 per share, recorded in the same period in 2019. However, it fell a little short of the consensus Wall Street earnings estimate of $0.42 per share.

Omega's funds from operations (FFO) in the first quarter totaled $181 million, or $0.77 per share, compared to FFO of $144.1 million, or $0.67 per share, in the prior-year period. Adjusted FFO for Q1 came in at $186.2 million, or $0.79 per share. In the same quarter of 2019, the company posted adjusted FFO of $161.3 million, or $0.76 per share.

Behind the numbers

Most of Omega's improved financial results compared to the prior-year period stemmed from the company's new investments. The company also benefited from decreased costs for impairments on direct financing leases and merger-related costs.

CEO Taylor Pickett acknowledged the dark cloud looming over the LTC industry. He said, "While we are pleased to announce strong first quarter results, we recognize that investors are more focused on how our operators are weathering the impact of COVID-19 on their facilities and how this is affecting their capacity to pay our rent."

Pickett noted that LTC operators have experienced lower occupancy levels and higher costs at the same time as they're facing the unprecedented impact of the coronavirus pandemic. However, he said that the financial support provided by federal and state governments have enabled operators "to focus on their primary job of caring for their residents." The implication, of course, is that the financial support for the LTC industry has also meant that Omega hasn't been hit as hard by the COVID-19 impact as it would likely have been. 

Omega continued to make new investments during the first quarter, including $19 million invested in new properties and $39 million in renovations and new construction projects. These new properties included the acquisitions of two care home facilities in the United Kingdom and one skilled nursing facility in Indiana.

Looking ahead

Omega CFO Bob Stephenson said that the REIT has collected 98% of its April rents and mortagage payments. That's certainly encouraging for Omega's prospects. However, the company still felt that it was best to withdraw its 2020 earnings guidance in light of the uncertainty related to the COVID-19 pandemic.

The company also has taken several steps to improve its financial flexibility to weather the continuing storm. In March, Omega borrowed around $300 million from its revolving credit facility. It also temporarily suspended its dividend reinvestment and common stock purchase plan.

Omega Healthcare Investors' long-term prospects should still be solid. Taylor Pickett said that the company continues to believe "that the attractive elements of this asset class, with its needs-based nature, constrained supply and escalating demand, will remain intact once this pandemic has been resolved."

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

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