Greetings, and welcome to the Omega Healthcare Investors Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After today's presentation, there will be a brief question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Michele Reber. Thank you. You may begin.

Thank you, and good morning. With me today is Omega's CEO, Taylor Pickett; COO, Dan Booth; CFO, Bob Stephenson; and Megan Krull, Senior Vice President of Operations. 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 Taylor.

Thanks, Michele. Good morning, and thank you for joining our second quarter 2024 earnings conference call. Today, I will discuss our second quarter financial results and certain key operating trends. Second quarter FAD fund is available for distribution of $0.68 per share was better than expected and should continue to improve as several portfolios are in the process of being transitioned, which will result in FAD upside over the next few quarters. Our dividend payout ratio is now below 100% and should continue to drop into the mid-90% range in the upcoming quarters. As a result of year-to-date portfolio transitions and acquisitions, we have narrowed and increased our 2024 AFFO guidance to a range of $2.78 per share and $2.84 per share. We have issued a significant amount of equity to fund our robust pipeline, which has helped to further delever the balance sheet. As Dan will discuss key tenant occupancy and rent coverage metrics continue to improve. The under one time EBITDAR coverage operator metric dropped to 8.9% of total rent. And looking at the 8.9% balance of below one times operators, we can break the 8.9% into 2 buckets Operators representing 6.1% of 8.9%, our strong credits, and therefore, payment of rent should not be an issue. That leaves operators representing 2.8% consisting of 8 small relationships. On July 24, we as the 49% minority partner in a real estate joint venture closed on the acquisition of the remaining 51% joint venture interest. We now own a 100% interest in the 63 U.K. facilities previously owned by the joint venture. The acquisition included the assumption of $243 million in secured debt. It is our intention to repay the secured debt in November 2025 as prepayment of the debt prior to November of 2025 will result in significant prepayment penalties. The interest rate of 10.38% on the assumed debt is significantly above Omega debt market rates. For GAAP accounting purposes, the above-market portion of the interest expense is capitalized as part of the joint venture acquisition. We intend to use this same GAAP accounting treatment for our FFO, adjusted FFO and FAD calculations. Lastly, after more than 4 years of COVID related industry issues, the industry has generally recovered to pre-COVID operating metrics. The combination of strong demographics and limited or no new supply should bode well for our operating partners. I will now turn the call over to Bob.

Thanks, Taylor, and good morning. Turning to our financials for the second quarter. Revenue for the second quarter was $253 million compared to $250 million for the second quarter of 2023. The year-over-year increase is primarily the result of the timing and impact of operator restructurings, transitions and revenue from new investments completed throughout 2023 and 2024, partially offset by asset sales completed during that same time period. Our NAREIT FFO for the second quarter was $189 million or $0.72 per share as compared to $155 million or $0.63 per share for the second quarter of 2023. Our adjusted FFO was $185 million or $0.71 per share for the quarter, and our FAD was $177 million or $0.68 per share and both exclude several items outlined in our NAREIT FFO, adjusted FFO and FAD reconciliations to net income found in our earnings release as well as our second quarter financial supplemental posted to our website. Our second quarter FAD was $0.023 [ph] greater than our first quarter FAD. As outlined in our press release, the Guardian portfolio did not pay in Q1 and was transitioned to a new operator in April with an annual base rent of $5.5 million and additional annual rent up to $6.9 million based on the new operator's revenue. In the second quarter, we received rental income of $2.8 million from the new operator, which consisted of $1.3 million of base minimum rent and $1.5 million of incremental rent. Turning to LaVie. They paid an additional $1.5 million in the second quarter as the rent payment increased from $1.5 million per month to $3 million per month starting in June. And lastly, Maplewood paid $11.8 million of rent in the second quarter versus $11.3 million in the first quarter. In July, Maplewood paid $4 million in…

Thanks, Bob, and good morning, everyone. As of June 30, 2024, Omega had an operating asset portfolio of 900 facilities with approximately 86,000 operating beds. These facilities were spread across 77 third-party operators and located within 42 states in the United Kingdom. Trailing 12-month operator EBITDAR coverage for our core portfolio as of March 31, 2024, increased to 1.42 times versus 1.33 times for the trailing 12-month period ended December 31, 2023. Occupancy for our overall core portfolio has continued to recover from a low of 74.6% in January of 2022 to 80.8% as of mid-July 2024 based upon preliminary reporting from our operators. Turning to portfolio matters. LaVie, as previously announced, will be filed for Chapter 11 bankruptcy protection on June 2, 2024, in the Northern District of Georgia. Omega believes this filing was a necessary and important step in creating an entity that is operationally solvent and sustainable with enhanced liquidity and a strengthened balance sheet. We continue to believe that there is meaningful value in our portfolio of current LaVie assets. Omega has been working with LaVie for over a year to assist it in reducing its continued exposure to underperforming assets, which in turn has alleviated some of the financial burdens on the current LaVie portfolio. We believe the current cash flow generated by our remaining LaVie portfolio is sustainable and will support long-term annualized rent of approximately $36 million, while also retaining sufficient cash within the business to provide for strong clinical care. LaVie paid approximately $3 million in rent in the months of June, July and August of 2024. Although the bankruptcy proceedings are still in process, Omega anticipates that the final resolution will be concluded prior to year-end of 2024. In addition to the aforementioned restructurings, Omega is working with several other relatively…

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Our first question is coming from the line of Jonathan Hughes with Raymond James. Please proceed.

Good morning. Thank you for the prepared remarks and commentary. I was hoping you could share some details of what the investment pipeline looks like today in terms of size, yields, skilled nursing versus assisted living and then acquisitions versus loans?

Sure. So as we indicated last quarter, remains today, our pipeline is very active. We're seeing a lot of deals both here in the States and over in the U.K. Our average yield is a little north of 10%, which is consistent with what we're seeing in the market. If you compare that -- as we indicated on the call, we did just over $700 million of deals through July of 2024. If you compare that to last year, we had done just over $300 million of deals through the same time period. So we've more than doubled that. And once again, that's as a result of a very active pipeline.

Okay. Are you seeing any more private capital competitors come back to the space? Or are they still largely on the sidelines due to the challenging bank lending environment?

So we haven't seen them. So if they've come back, we're not seeing them in any material.

Okay. And then just one more for me for Bob. The equity raise via the ATM in the quarter, I think it was the most in second quarter last year and obviously as an accretive source of capital to fund acquisitions and leverage is now sub five times. There's plenty of capacity on the revolver. Hoping you could just talk more about how you think of funding investment activity going forward and early thoughts on addressing the 2025 debt maturities? Thanks

Absolutely. I think your first statement hit it that we could do all acquisitions accretively, using equity right now, and we want to continue to do that to maintain our leverage less than five times. So I would look, you know, looking forward, we'll continue to do that.

And then just thoughts on the maturities for next year?

Yes. We have $400 million coming up in January 15, and we'll get in front of that similar to the way we got in front of our $400 million that we just paid off in April. So in the fourth quarter, we'll sit down and look at the market to see whether it's bomb for bond, but more likely it would be equity.

Thanks for the time.

Thank you. Our next question is coming from the line of c. Please proceed with your question.

Thanks. And I'm wondering if you could give some more color just on the buyout of your partner's stake in the Cindat joint venture. Can you give us a sense, were there any capital or liquidity constraints that your partner haves. You might have been wanting to -- for them to sell their stake kind of driving force behind that. And then you quoted the interest rate on it. If you were to refi, I guess when the back comes due next year, how much benefit from the accretion do you think you'd get?

Yes. Michael, you're coming out -- it was a little bit difficult to hear you, but I think I got your question. The relationship within the JV, when we first set it up, we had buy-sell provisions. And we just felt like the timing was good from a market perspective to trigger that. The 51% partner had the opportunity to match the bid and take us out and they elected not to do so. We thought we got it at a really attractive price when you look at 10% yields ultimately on that asset. Unfortunately, it came with a piece of paper that's not all that attractive. Our cost of capital -- debt capital would be about 6%, so you look at the differential there, it's 4.38% on $243 million. I mean, that's essentially the pickup with the refi.

Great. Appreciate the color there, Taylor. And then just on the Guardian portfolio. Just wanted to get a sense, is there something that the new operator is doing differently that Guardian wasn't? I thought Pennsylvania was a relatively tough state to operate in, but any color you have there would be helpful.

I'm not sure I heard all that question. The facilities in Pennsylvania were struggling. I can tell you that. We moved in the second quarter. We set up kind of a unique rent structure that was -- had basically a revenue thinker embedded in it if the operator performed well, which they did, the kicker, if you will, kicked in, in the second quarter, we were able to receive the higher rent, and we expect that to go forward through the remainder of the year.

Great. That's it for me. Thanks for the time.

Thank you. Our next question is coming from Jamie Feldman with Wells Fargo. Please proceed with your question.

Great. Thanks for taking the question. I guess just starting, you have a decent number of mortgage and other real estate backed investments mature in '24 and '25. Can you talk about the plans for those and the opportunity to -- to put that capital to work at a similar rate? Or how do you think that plays out for earnings?

So we've got -- there are kind of ones mortgages that are coming due over the course of the next, call it, 12 months. No one in particular is that material. We expect some of those to pay off and we expect some of those to be extended. I don't think we're going to see a lot of dollars rolling back, but yes, there were short-term moans for the most part, mezz sprinkled in there.

Okay. I mean do you think it ends -- you think like -- I guess, obviously in '24, but for '25, do you think it's neutral to earnings or you can...

Yes, it shouldn't have any material impact at all on earnings.

Okay. And then it looks like the investment environment has been pretty favorable this year. Can you talk about what you're seeing more in -- particularly in the U.K. where it seems like you've had more opportunities recently. How much do you think you might put to work there and what the opportunity set looks like going forward?

Both the states and the U.K. is quite active right now. I think what we have going for us in the U.K. is that there's not as many capital players over there just yet. I mean they had a quicker recovery overall from COVID. So we got in there pretty quick. And we haven't seen a lot of capital players come into that market yet. So we're able to pick and choose, and we are being opportunistic at this point in the U.K. looking at really kind of all facets of aeromes [ph]

Okay. Well, how would you frame like the magnitude of the investment opportunity?

I would think about the pipeline -- the pipeline that created the opportunities that we've seen in the first 7 months of this year hasn't changed. So you never can predict when stuff is going to come through, but it's a similar pipeline in terms of the opportunity set that we're seeing.

Okay. And then finally, can you just give an update on the Second Avenue Maplewood project? What are your thoughts on lease up, how you think that develops into the back half of '24 and early '25?

Yes. So Second Avenue continues to ramp up in a market where there's a lot of new products. I mean we were the first in, but there's three buildings that followed us in Manhattan. And we're doing well, 67% occupied and will continue to trend up. But remember also the building has matured. So you have residents that passed away and are being backfilled with new residents. So it's -- I'm not sure it's tough to predict when we get to 90%, but there's certainly a pathway and they continue to do well.

Okay. All right. Thank you for your thoughts.

Thank you. The next question is coming from the line of Vikram Malhotra with Mizuho. Please proceed with your question.

Morning. Thanks for taking the question. I just wonder if you could expand on the Maplewood point and maybe just also give us an update just on DC. But just in New York, it seems like you said there's a lot of competition, maybe some discounting, lease-ups a bit slower. Any statistics you can share like I think you did at NAREIT [ph] to give us some ticks on move-in, move-out sort of occupancy. Just what are you anticipating for the lease up to sort of a run rate where you can get full rent?

Yes. Timing is impossible to predict. But I will say that there has been, as you mentioned, there's been some discounting of product in Manhattan. Fortunately, the -- there's not so much price sensitivity in Manhattan. If somebody property is desirable, you can pretty much haul prices. So you think about Second Avenue, which has 120 residents. So it's a vibrant community already. It shows very well the care is exceptional. And that's why we're able to get RevPAR [ph] of $22,000 a month. So I think we have everything headed the right direction. But to answer the question, when 67% get to 90%, not this year, probably you're looking at 25. And then just to close the loop on Maplewood, there were really three key things for us with that team. One is transitioning operations out of the Greg Smith state. One was stabilizing that operating balance sheet. And the last is the ramp-up of Second Avenue. The balance sheet has been stabilized. The transition of operations is in process and the ramp-ups on its way. The rest of that core portfolio, the other 16 facilities do incredibly well. So you have this solid base that fully supports the current rent, and we feel really good about the outlook. It's just timing as it possible to predict.

Okay. Thanks. And then just, Bob, a follow-up on the -- you mentioned the share count impact into 3Q. But just putting everything together just on FAD, am I correct in the ballpark that you're $0.68 in the quarter sort of goes to 70.71 [ph] in the back half?

That's the math that would fit the rate change.

Got it. Okay. And then just -- sorry, just to clarify, you said you mentioned the acquisitions that closed in the quarter. That also includes -- that's basically the loans as well as the deals that you've done in terms of the impact going forward into 3Q and 4Q, correct? In terms of the deal that you announced in the 3Q as you bake that into the run rate, I just wanted to clarify the timing of those deals just so that we can model it out into the third and fourth quarter.

We've baked those in. I said all acquisitions completed through July 30 were baked into the guidance.

Got it. Okay. Thanks so much and congrats on a strong quarter.

Thank you. Our next question is coming from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.

This is Robin fitting for Juan. Just curious on Maplewood why did the Washington D.C. development budget increase by $50 million?

Yes. DC, that really relates to what we've seen in construction costs over the last 3 years, not just in this industry, but across almost all construction industries this 25% increase, and it just reflects the fact that when we close this out, that's what it's going to end up costing...

Okay. And on the sub-1 coverage, what's the expected trend into '25? And how low can this exposure recently get to?

So I think there's a couple of things that are interesting there. You have a number of operators that the EBITDAR [ph] coverage is above 1. And so there's a handful of those operators that I think just naturally work their way out of the bucket, including one larger -- the largest operator. And then there's a handful of smaller operators that are -- we're currently working through some restructuring activity and I think all come out of the bucket. And we probably settle at less than 2% going into 2025. That's -- that would be the goal. And that's normal. If you look at our history for 20 years, we've always had 2% to 4% in that bucket.

Thank you.

Thank you. Our next question is coming from the line of Justin Hasbeak [ph] with RBC Capital Markets. Please proceed with your question.

Thanks. You mentioned that the new operator for the Guardian assets can continue to pay $2.8 million in total quarterly rent for the remainder of the year. How should we think about this portfolio going forward into next year? And just how volatile could this rent be going forward?

Once again, it's revenue, there's revenue-based kickers. So we could move around. But right now, based upon second quarter results, we think that that's sustainable, and that's what we're going to see going forward.

Thank you. We'll move on to our next question, which is coming from the line of Alex Fagan with Baird. Please proceed with your question.

Hello. Good morning. Thank you for taking my question. First on the Cindat JV, which you guys bought out, how are the two operators in that portfolio performing? Can you share any metrics about EBITDAR coverage or anything else?

Their coverage is consistent with what we see in our overall portfolio. So nothing unusual there in terms of underwriting really cut down the middle type portfolios for us.

All right. And would you be able to provide an update on the $109 million of other real estate loans that were due in 2024 that were extended from March 29 on June 28, were those paid out? Or just any update there/

Yes. I mean it's a fully collateralized loan. There's plenty of liquidity in a market that's a little tough to borrow. And so we were very comfortable extending that line out.

But the loan was extended to June 28, 2024, has that been paid back or extended again?

You know what, we're all looking each other trying to figure out what loan it is. Can I just have Bob circle back with you on that because I don't want it to state anything.

Yes. No worries. That's it for me. Thank you, guys.

Thank you. The next question is coming from Joshua Dennerlein with Bank of America. Please proceed with your question.

This is Carl Grades [ph] on behalf of Josh. I was wondering if you could also go back to the Guardian assets or the new tenants. Just understanding mechanics and with the rent, and I understand with the revenue kicker, is that evaluated throughout the quarter? Is it -- is there a certain timing adjustment that we should be thinking that if they're hitting certain revenue goals that that's being evaluated that would be increased?

So it was evaluated in the second quarter. As I indicated, they did meet the criteria of having the take or kick in to the extent that we reported it, we do believe it's sustainable. It will continue to go quarter after quarter throughout the year. There's no more magic to it.

Or at least does it get reevaluated from going forward for that excess amount that they could continue to go up?

Once again, I think that the revenue that they recorded in the second quarter is sustainable. So I don't think it's going to go either up or down, it's going to pretty much remain flat.

Okay. Thank you so much. And also in terms of the uptick that we saw in the occupancy and coverage data of your operators, is there any specific, at least facility type or operator that's performing better than others or a standout?

You mean in terms of like Smith versus...

Yes.

I mean I think we've historically since COVID seen the ALF [ph] product come back a little bit quicker. But I think generally speaking, we're seeing census increase at all of them. The Smith is now so catching up.

Okay. Thank you so much.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Taylor Pickett for closing comments.

Thanks, everyone, for joining our call today. Please feel free to follow up with the team.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.+