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Omega Healthcare Investors (NYSE:OHI) is expected to experience a slide in adjusted funds from operations for the last quarter of 2022, as the REITs’ profitability is set to be adversely impacted by the continued inability of several of its operators to pay their rent on time.
Recall last month when the company, which primarily invests in skilled nursing and assisted living facilities, warned of lower EBITDA and funds available for distribution in Q1 2023 vs. Q4 2022, citing the lingering operator issues. At the same time, OHI proposed restructuring for three of its operators, in a move that will result in deferred rent payments.
“Management appears to have positioned the deals in a way where income could potentially be recaptured in the future, to minimize value destruction,” JMP analyst Aaron Hecht wrote in a Jan. 11 note.
The Visible Alpha consensus for Q4 adjusted FFO stood at $0.66 a share, down from the $0.76 recorded in Q3 and from $0.81 in the year-ago period. Still, the company’s FFO has surprised to the upside in each of the three previous quarters, though past performance is no guarantee of future results.
Analysts have lowered their Q4 FFO expectations by 3.4% in the past six months.
Seeking Alpha contributor Jussi Askola took note of OHI’s tenant issues earlier this week and suggested “management should have already cut the dividend just to be safe, preserve some liquidity and protect its investment grade rating, but the management is reluctant to do so because it does not want to ruin its dividend track record.” He viewed the stock, down 7.2% Y/Y, as a Hold.
On the other hand, fellow SA contributor Brad Thomas recently justified OHI with a Strong Buy rating as he sees “a compelling argument that the business models will continue to generate predictable income that could result in very attractive total returns.” See why SA contributor Gen Alpha thinks OHI’s operator issues and rent coverage concerns will trough in the first half of 2023, followed by a potential rebound in the back half of the year.
