Omega Healthcare Invts Q3 2026 Earnings Call Transcript

Omega Healthcare Invts (NYSE:OHI) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/954733075

Summary

Omega Healthcare Invts reported third quarter adjusted funds from operations (AFFO) of $0.82 per share, reflecting solid year-over-year growth but flat sequential performance due to asset sales.

The company completed significant portfolio management actions, including the transition of 32 facilities to PACS, which increased annual cash rents by $26.1 million.

Omega Healthcare allocated over $1 billion in investments in the second half of the year, with a focus on aligning interests with operators and maintaining robust capital discipline.

The Genesis Chapter 11 bankruptcy sale was finalized, and the company’s master lease was assumed by 101 West St., preserving lease economics and establishing a relationship with an experienced operator.

New investments of $181 million were completed in the third quarter, and the company remains optimistic about its strong investment pipeline in both the US and UK.

Full-year adjusted FFO guidance was increased to a range of $3.28 to $3.30 per share, reflecting recent investments and portfolio transitions.

The balance sheet remains strong with no borrowings on the $2 billion revolver and significant liquidity, targeting leverage under four times adjusted normalized EBITDA.

Management expressed confidence in the company’s strategic direction and ability to create long-term shareholder value despite competitive market conditions.

Full Transcript

OPERATOR

Again. I will now hand the conference over to Michelle Reber. Please go ahead.

Michelle Reber (Investor Relations)

Thank you and good morning. With me today is Omega’s CEO Matthew Gormand, CFO Neal Ballew, CIO Vikas Gupta and Megan Kroll, 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.

Matthew Gormand (Chief Executive Officer)

Thanks Michelle. 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 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’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 long-standing 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.

Vikas Gupta (Chief Investment Officer)

Thank you Matthew and good morning everyone. Today I’ll 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 EBITDAR 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 St., an affiliate of NuGen. 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 operator.

Importantly, the Genesis portfolio continues to generate coverage above our overall portfolio average, providing NuGen with a strong foundation as it assumes operations. We know the principals of NuGen 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 Aramid-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 two, 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 Aramid. We are pleased to support PACS’ expansion into Florida, a new operating state for them. Importantly, the transaction is expected to generate approximately 6.5 cents 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.

Aramid has been a strong, long-standing 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 identified 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 UK 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 UK 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 UK operators with 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% 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 Sabre or Omega. This is exactly the type of opportunity we envisioned 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 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 UK 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 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 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 UK 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 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, we 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’ll now turn the call over to Neal.

Neal Ballew (Chief Financial Officer)

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 UK 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 one penny 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 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 6.9 times and our leverage decreased to 3.1 times.

Historically, we have targeted long-term leverage of between 4 and 5 times 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 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 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 five-penny 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’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 NuGen 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 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 $0.68 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.

Megan Krull (Senior Vice President of Operations)

Thanks, Neil, 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 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. 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.

OPERATOR

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 from the line of Zach Berge with Citi.

Your line is open. Please go ahead.

Zach Berge (Analyst)

Hi, good morning. Thanks for taking my question. 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’s the estimated timeline 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 (Chief Investment Officer)

Yeah, hi, this is Vikas. I’ll 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. And part of the speed was the mortgage loan structure, which we’ve done before, that helped us show the seller we could quickly close on the transaction. And 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 when our rent reset takes effect, we’ll be able to get a return close to as if we started at a 10% return.

Zach Berge (Analyst)

Great. And then just how have you seen the landscape change at all, if at all, with some of the move in the 10-year and the number that are out there for assets?

Vikas Gupta (Chief Investment Officer)

So, so far we haven’t really seen too much, Seth. I think that, you know, 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 deploy a solid amount of capital in some very compelling investments. Should the competitive environment become a little less challenging, 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.

Zach Berge (Analyst)

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 (Analyst)

Good morning. Thanks a lot for taking my question. You know, now with Runwood, you have a very large platform in the UK, 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 UK make it more attractive to continue to build upon?

Matthew Gormand (Chief Executive Officer)

I don’t think it changes how attractive it is. We like the UK 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 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 don’t start out with any premeditated expectations as to where we’re going to allocate capital. We evaluate each deal and 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’re just going to continue to do that, and ultimately where we allocate capital is going to be determined through that lens. I think the good news is that when you’ve got a portfolio of 12 plus billion dollars’ 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, and so it’s very tough to quantify what it looks like in the near term. I think you know well enough that we like to underpromise on these things.

So I think it’s clearly there. We’ve seen a couple of examples. I think we’ll see more in the next 12 months, and over the next five to 10 years I think it’s just going to become more and more available to us. But in terms of quantifying it, it’s going to be very much determined by finding partners who want to transact in these situations. As you’ve seen, the yields that one is able to achieve in many of these structures are so compelling that you don’t need a great deal from a dollar standpoint to be quite powerful from an earnings 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’re going to do it.

OPERATOR

Your next question comes from the line of Julian Bulin with Goldman Sachs. Your line is open. Please go ahead.

Julian Bulin (Analyst)

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, you know, of strong partners willing and able to take on a transition like this one, or is it rather having, you know, an existing partner who is willing to come to the table and find some arrangement to transition operators?

Matthew Gormand (Chief Executive Officer)

I think it’s probably more the latter. You know, the operating backdrop for most of our operators right now is relatively benign, so 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. So from that standpoint, it’s more of the latter than the former as we see it today.

Julian Bulin (Analyst)

Okay, great. And 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? Sorry, nursing home ownership? Yeah,

Matthew Gormand (Chief Executive Officer)

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, you know, we’re somewhat aligned in that the Democrats’ bureaucrats 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 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. 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’re doing something that actually has the benefit they’re looking for.

Julian Bulin (Analyst)

Okay, thank you so much.

OPERATOR

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

Rich Anderson (Analyst)

Hey, thanks. Good morning and congrats, Matt, on your first call. CEO. So, on Genesis, I just want to make sure I understand, like the economics of your situation with NewGen. By the way, I’m glad it’s not Sisinnag—Genesis spelled backwards. Is it anything different than original Genesis 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?

Vikas Gupta (Chief Investment Officer)

This is Vikas. I’ll take the first part of your question. Neil can tackle the second. So the economics from a business perspective are the same. Our lease, we are going to 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 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.

Rich Anderson (Analyst)

Sure. Good. Sorry. Thanks. Sorry. Good.

Neal Ballew (Chief Financial Officer)

I was going to say on the straight-line piece—good question. We’ve been asked this question in the past. We just wanted to give the pieces and be transparent. Right. So Genesis, you know, going through bankruptcy, they were on a cash basis, but with NewGen having good credit, they’ll 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.

Rich Anderson (Analyst)

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

Vikas Gupta (Chief Investment Officer)

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’re generally impressed with their operating model. They have a proven, locally focused business model, and we think that’ll 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.

Rich Anderson (Analyst)

And just a quick, you know, to close out my questions, they don’t have any obligations around the unsecured creditors or anything like that that’s outside of this new company. Is that correct?

Neal Ballew (Chief Financial Officer)

That’s correct.

Rich Anderson (Analyst)

Okay, thank you.

OPERATOR

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

Omotayo Okusanya (Analyst)

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 UK, and if we kind of think UK versus U.S. today, where would you say you’re getting the better relative value and maybe the more attractive, you know, investment spread, the leasing economics, and if you could just kind of walk us through a little bit of that.

Matthew Gormand (Chief Executive Officer)

Sure, that’s a great question. I mean it’s very deal specific, right, Tyo. But 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 UK, 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.

And then in the U.S. right here, 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. Then the U.S. SNF market is probably second and the UK third. But that doesn’t capture everything in the fact that there’s also opportunities in some situations, as you’ve 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 two … and escalators.

So it’s quite a nuanced thing. And then you have to think about it from a standpoint also, what’s the quality of the real estate that you’re getting in these situations as well? So 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.

Omotayo Okusanya (Analyst)

Gotcha. That’s 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 upcoding. Any kind of news in the past few months around those lines? You know, does 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?

Megan Krull (Senior Vice President of Operations)

No, we haven’t really heard anything on that front. Neither have our industry partners.

Omotayo Okusanya (Analyst)

Gotcha. All right, thanks again. Well done.

OPERATOR

Your next question comes from the line of Dave Rogers with Raymond James. Your line is open, please go ahead. Your next question comes from the line of Nick Ulico with Scotiabank. Your line is open. Please go ahead.

Nick Ulico (Analyst at Scotiabank)

Oh, thanks. First question going back to the Aramid 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’s view on, you know, a more optimistic, let’s say EBITDAR scenario for the facilities?

Vikas Gupta (Chief Investment Officer)

Hey Nick, it’s Vikas. I’ll cover that. So, you know, we don’t disclose coverages by operator, but I will say the Aramid 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’s coverage will be fine day one, 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.

Nick Ulico (Analyst at Scotiabank)

Okay, thanks, Vikas. And then Neil, 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, and then also how should we think about that line balance and sort of managing floating-rate debt exposure along with the debt, the unsecured bond you have maturing next year?

Neal Ballew (Chief Financial Officer)

Yeah, great question. Thanks. I’d say, of course, I’d tell you that our, you know, equity is still undervalued, but given the price, we can still accretively invest. And so, you know, I think we do, as I said in 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, crudely put capital to work. But you’re right. At this point, given this price, you know, 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, 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.

Nick Ulico (Analyst at Scotiabank)

Okay, thanks, guys. Thank you.

OPERATOR

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

Neal Ballew (Chief Financial Officer)

Yeah, certainly. Great question. I’ll 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’ll give it to you in dollars—the annual rent for those 30 facilities was $26.7 million. And with the EBITDAR coverage of 1.47, the math there shows, you know, it’s 12 and a half million dollars of cash flow after paying our rent. So, in effect, by us taking over these properties in a RIDEA structure, we’re going to continue to get the proceeds of that rent and that 12 and a half million dollars on top.

So the 12 and a half divided by the $48 million outlay is a 26% yield. I think that’s the math I would think through. So not quite as good, but we’re still happy with it. And I would say that we do believe there’s operational upside to that. So we would say that that is kind of a conservative number.

Megan Krull (Senior Vice President of Operations)

Yeah, I think—let me give you some occupancies that’ll help you a little bit. Second Avenue, our New York properties, at 95%; our DC properties at 78%. And the whole core portfolio, which includes Second Avenue in New York, is 96%. So it isn’t 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 I should say one to two years in our eyes, but that is still TBD.

Matthew Gormand (Chief Executive Officer)

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.

OPERATOR

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

Juan Sanabria (Analyst)

Good morning. Thanks for the time. Just hoping to piggyback on Dave’s question with regards to the UK shop transitions of those 30 assets, if you could spend a little time talking about the age or vintage of the asset mix, big bathroom, generally how you view kind of triple net versus shop type in the UK given divergence or a spectrum of overseas.

Matthew Gormand (Chief Executive Officer)

You broke up a little bit at the end there, but we’ll 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 en suites, 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. And then in terms of how we look at the quality of the real estate as 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 slash manager wants. So if they believe there’s meaningful upside, there’s a far greater appetite amongst operators in the UK to take triple net leases than there are in the U.S. seniors housing space. So 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. And that’s 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 built as purpose-built, and that 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 it’s a major, major consideration. There’s no point buying assets that ultimately in five to ten years are just not going to be fit for purpose.

Juan Sanabria (Analyst)

Thanks for that, Matthew. 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’s maybe changing perspectively, 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.

Vikas Gupta (Chief Investment Officer)

Yeah, this is Vikas. I’ll jump in on this one. So 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 UK. 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 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 Gormand (Chief Executive Officer)

And then 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.

Juan Sanabria (Analyst)

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 (Analyst at RBC Capital Markets)

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 PAC, but 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?

Matthew Gormand (Chief Executive Officer)

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’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?

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’re revisiting that. So 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. So I think it’s going to be more determined by price than necessity.

Michael Carroll (Analyst at RBC Capital Markets)

Okay. And Sarah, 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?

Matthew Gormand (Chief Executive Officer)

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

Michael Carroll (Analyst at RBC Capital Markets)

Great, thank you.

OPERATOR

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

Michael Stoic (Analyst)

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 could give us a sense of the quality of the assets.

Vikas Gupta (Chief Investment Officer)

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. And so overall I think it’ll elevate the caliber of our UK portfolio.

Michael Stoic (Analyst)

Got it. That’s helpful. Maybe one on occupancy—it’s been essentially flat over the past year. 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?

Megan Krull (Senior Vice President of Operations)

A lot of what you are seeing is those ins and outs of what’s going on transactionally. So from a same-store basis, we are seeing increased growth and we are continuing to see increased growth into this next quarter.

Michael Stoic (Analyst)

Okay, understood. Thank you.

OPERATOR

Your next question comes from the line of Farrell Granite with Bank of America. Your line is open. Please go ahead.

Andrew Reel (Analyst)

Hi. Morning. This is Andrew Reel on with Farrell. Thanks for taking our questions. I guess first, you know, with Genesis now resolved and the one 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?

Matthew Gormand (Chief Executive Officer)

Yeah, so 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. So it’s just not something that we’d be looking to do. The loan structure in the UK is effectively a conduit to access the real estate. So 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.

But, you know, we’re not a bank and we don’t want to trade at the kind of multiples that 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.

Andrew Reel (Analyst)

Okay, thanks. And apologies if I missed this earlier, but just curious if you could maybe discuss just cap rates broadly you’re seeing across asset classes and maybe how they vary in the U.S. versus UK today.

Vikas Gupta (Chief Investment Officer)

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. So senior housing is very competitive in the U.S. You have all the other REITs playing in there, private equity playing in their care homes. We also have REITs playing there as well, now, with 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.

So 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.

OPERATOR

We have reached the end of the Q&A session. I will now turn the call back to Matthew Gormand, CEO, for closing remarks.

Matthew Gormand (Chief Executive Officer)

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’re 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.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

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