OMEGA HEALTHCARE INVESTORS INC Annual Report - A Comprehensive Review

Dive into the performance of OMEGA HEALTHCARE INVESTORS INC (OHI) for the fiscal year ended December 31, 2025. This report offers a clear look at OHI's operations, financial health, strategic direction, and key risks, providing essential insights for investors.

1. Company Overview and Operational Performance

OMEGA HEALTHCARE INVESTORS INC is a leading real estate investment trust (REIT) focused on healthcare properties. Its diverse portfolio includes skilled nursing facilities (SNFs), assisted living facilities (ALFs), independent living facilities, and continuing care retirement communities. OHI operates across 42 U.S. states and the United Kingdom, leasing its properties to various third-party operators.

The 2025 fiscal year featured active portfolio management and strategic adjustments. OHI expanded its reach through targeted acquisitions, adding 12 new facilities across Texas, California, New Mexico, South Carolina, New Jersey, and the UK, investing approximately $350 million. At the same time, the company strategically sold 8 non-core properties for gross proceeds of $120 million, enhancing its portfolio quality and geographic focus. These activities led to a net increase in portfolio value and a slight expansion of its asset base. OHI also advanced approximately $75 million in new and existing real estate loans, further supporting its operator partners and investment strategy.

2. Financial Performance Highlights

OHI demonstrated resilient financial performance in 2025, reflecting its active portfolio management and stable lease structures.

• Revenue: Total revenue grew by 4.5% to $1.15 billion, driven by new acquisitions and contractual rent escalators.
• Net Income: Net income attributable to common stockholders reached $285 million, or $1.18 per diluted share.
• Funds From Operations (FFO): FFO, a key REIT metric indicating operating cash flow, stood at $720 million, or $2.98 per diluted share, marking a 3.2% increase year-over-year.
• Adjusted Funds From Operations (AFFO): AFFO, which offers a more accurate picture of cash available for distribution, was $650 million, or $2.69 per diluted share.
• Dividend: OHI maintained its quarterly dividend at $0.67 per share, totaling an annual dividend of $2.68 per share. The AFFO payout ratio was 99.6%, meaning OHI distributed nearly all its adjusted operating cash flow as dividends.
• Portfolio Metrics: Average occupancy across the portfolio remained stable at 82.5% for SNFs and 88.0% for ALFs. Lease coverage ratios (excluding government stimulus) averaged 1.3x for SNFs and 1.4x for ALFs, indicating operators' ability to meet their rent obligations.

3. Major Achievements and Challenges

Achievements:

• Strategic Acquisitions: OHI successfully executed its growth strategy by acquiring 12 high-quality facilities in key markets, enhancing its portfolio's geographic diversification and operator base.
• Portfolio Optimization: Selling 8 non-core assets allowed OHI to reinvest capital into higher-yielding properties and improve overall portfolio quality.
• Strategic Partnerships: OHI formed new joint ventures, including the Cindat ICE Portfolio JV and the Saber OpCo JV, expanding its investment capacity and diversifying its risk profile. The Liberty Joint Venture also progressed, showcasing OHI's commitment to collaborative growth.
• Stable Operations: Despite ongoing industry pressures, OHI maintained strong occupancy rates and lease coverage ratios across its core portfolio.

Challenges:

• Property Impairment Charges: OHI recorded impairment charges totaling $45 million on 8 facilities in 2025. While this improved significantly from 14 facilities in 2024 ($75 million) and 25 facilities in 2023 ($130 million), these charges reduced asset values on the balance sheet and negatively impacted net income, signaling continued operational or market challenges for specific properties.
• Operator Transitions: The transition of 48 facilities from the "Guardian" operator in 2024 continued to incur costs and temporary revenue disruptions in early 2025. However, the transition to new operators was largely completed by Q2 2025, stabilizing rental income from these assets.
• Rising Operating Costs for Tenants: Operators continued to face significant challenges from labor shortages and rising wage costs. These pressures impacted their profitability and ability to cover rent, which OHI closely monitors through lease coverage ratios.

4. Financial Health and Liquidity

OHI maintains a robust financial position with a balanced capital structure.

• Debt Structure: Total consolidated debt stood at $5.2 billion as of December 31, 2025. This included $1.5 billion in mortgage loans, $2.0 billion in senior unsecured notes (with $500 million maturing in 2026), and $1.7 billion under its Omega Op Term Loan.
• Liquidity: The company held $150 million in cash and cash equivalents and had $750 million available under its revolving credit facility, providing ample liquidity for operations and future investments.
• Risk Management: OHI actively manages interest rate risk through interest rate swaps, hedging approximately 70% of its variable-rate debt. It also uses foreign exchange forward contracts to mitigate currency fluctuations related to its UK investments, ensuring predictable cash flows. The net debt to adjusted EBITDA ratio was 5.8x, falling within management's target range.

5. Key Risks to Investment

Investors should be aware of several key risks that could impact OHI's stock price and financial performance:

• Operator Solvency and Performance: OHI's revenue depends heavily on its tenant operators' financial health and operational performance. Deterioration in operator profitability due to rising labor costs, declining occupancy, or changes in reimbursement policies could lead to lease defaults, rent concessions, or property impairments.
• Healthcare Reimbursement and Regulatory Changes: As a healthcare REIT, OHI is highly sensitive to changes in government healthcare reimbursement policies (e.g., Medicare, Medicaid, the Patient-Driven Payment Model or PDPM for SNFs) and regulatory environments in both the U.S. and UK (e.g., Care Quality Commission or CQC regulations). Adverse changes could significantly impact operator revenues and, consequently, OHI's rental income.
• Interest Rate Fluctuations: While OHI employs hedging strategies, significant increases in interest rates could raise borrowing costs for unhedged debt and impact the valuation of its properties and its ability to refinance maturing debt on favorable terms.
• Property Impairments: Ongoing impairment charges indicate that certain properties may face long-term challenges, potentially leading to further write-downs of asset values and reduced profitability.
• Debt Levels and Refinancing Risk: OHI carries substantial debt. While actively managed, the need to refinance significant maturities, such as the $500 million in senior notes due in 2026, could expose the company to higher interest rates or tighter credit markets.
• Indemnification Guarantees: OHI provided indemnification guarantees related to certain past transactions, which could expose the company to potential liabilities of up to $75 million under specific triggering events, though the likelihood is assessed as low.

6. Competitive Positioning

OHI operates in a competitive landscape alongside other healthcare REITs and institutional investors. Its competitive advantages include:

• Scale and Diversification: OHI's extensive portfolio across multiple asset types and geographies provides diversification, reducing reliance on any single market or operator.
• Strong Operator Relationships: Long-standing relationships with a diverse group of regional and national operators are crucial for stable occupancy and rent collection.
• Expertise in Healthcare Real Estate: Deep industry knowledge and underwriting expertise allow OHI to identify and acquire high-quality assets and effectively manage complex operator transitions.
• Access to Capital: As a large, established REIT, OHI generally has efficient access to capital markets for acquisitions and refinancing, though this can fluctuate with market conditions.

7. Strategic Direction and Future Outlook

OHI's strategy centers on optimizing its existing portfolio, pursuing disciplined growth through targeted acquisitions, and fostering strong operator partnerships. The active portfolio management observed in 2025, including strategic divestitures and new joint ventures, underscores this commitment to enhancing asset quality and shareholder value.

Looking ahead to 2026, OHI anticipates continued portfolio activity. Subsequent events in early 2026 include further acquisitions of 3 SNFs in Alabama and Georgia for $70 million, demonstrating ongoing investment. The company also expects to continue its strategic initiatives with the Saber OpCo JV and Maplewood Real Estate Holdings, focusing on operational improvements and potential expansion. Management guidance for 2026 projects AFFO per share in the range of $2.65 to $2.75, reflecting a stable outlook for its core business and modest growth from new investments. Capital expenditures for portfolio maintenance and improvements are estimated at $80 million for 2026.

8. Market and Regulatory Environment

OHI's performance is significantly influenced by broader market trends and regulatory developments in the healthcare sector. Key factors include:

• Aging Demographics: The increasing elderly population in both the U.S. and UK continues to drive demand for SNF and ALF services, providing a long-term tailwind for OHI's properties.
• Healthcare Policy and Reimbursement: Changes to Medicare and Medicaid reimbursement rates, particularly for SNFs, directly impact operator profitability. The Patient-Driven Payment Model (PDPM) in the U.S. and evolving CQC regulations in the UK are continuously monitored for their effects on operators.
• Labor Shortages and Wage Inflation: The healthcare industry faces persistent staffing challenges, leading to increased labor costs for operators. This pressure can compress operator margins and impact their ability to meet lease obligations.
• Interest Rate Environment: The prevailing interest rate environment affects OHI's cost of capital for new investments and refinancing, as well as the valuation of its real estate assets.

OHI remains vigilant in monitoring these external factors and adapting its strategy to navigate the evolving healthcare landscape.