Omega Healthcare Acquires 24 Senior Living Communities

The portfolio consists of assisted living, independent living and memory care facilities with 2,552 units located across 11 states.

Last week during its earnings call Omega Healthcare Investors’ CEO Taylor Pickett surprised the market with the announcement that the company had acquired 24 senior living communities for $510 million from Healthpeak Properties in January. In the process, it launched a new relationship with leading operator Brookdale and expanded its focus on the senior living space. 

The portfolio that Omega acquired consists of assisted living, independent living and memory care facilities with a total of 2,552 units located across 11 states. The facilities will generate approximately $43.5 million in contractual 2021 cash rent with annual escalators of 2.4%.

“We look forward to working with the Brookdale team and possibly identifying new opportunities where we might partner in the future,” Pickett said in the company’s earnings call.

In a research report about the transaction, Mizuho Securities USA noted that the move was surprising given that most of OHI’s portfolio (80% of revenues) is in skilled nursing and that senior housing remains challenging.

However, Mizuho said that OHI acquired the transaction with attractive pricing, limiting the potential downside. At $43.5 million, the transactions pencil out to an 8.5% cash yield, affording the company a 25% to 30% rent abatement for the entire seven-year lease period while still covering its cost of capital used to fund the transaction.

“It’s a gutsy move but feels sensible to us, as anything better than this worst-case scenario should create real value for shareholders, and suggests the deal will be highly accretive over the length of the lease,” Mizuho said in the research report.

In Q4, OHI has made approximately $98 million in new investments, including purchasing a portfolio of six skilled nursing homes and an assisted living facility in Virginia for $78 million. It also invested $19 million in its capital renovation and development programs. In addition, the company sold 16 facilities for $64 million in Q4 2020 and sold five properties for 76 million in Q1 2021.

“Coupled with the $510M Brookdale portfolio acquisition, OHI is opportunistically putting its attractive cost of capital to work, which should drive earnings growth in 2021,” Mizuho said in the research report.

While senior housing has been hit hard by COVID-19, many firms are optimistic about the sector’s long-term trends. In October, Taurus Investment Holdings and Northbridge Cos. formed a partnership acquiring six class-A senior housing properties for $200 million from the senior housing REIT Welltower. The 507-unit portfolio marked Taurus Investment Holdings’ first investment within this sector of the commercial real estate universe.

“We believe that the demand for high-quality senior housing will remain strong in the coming years with the upcoming demographic shift as the 75-plus population continues to accelerate,” Taurus CEO Peter A. Merrigan said at the time of the deal.