Omega Dips Into Senior Housing with $246 Million NYC Project

Following a quarter that saw nearly $200 million of new investments, along with the completion of the Aviv “mega merger,” Omega Healthcare Investors (NYSE: OHI) is hungry for more acquisitions—and it’s already spent $184 million in the past month alone.

And among its current projects is a senior living development in Manhattan, which is an eye-catching foray into the private-pay senior housing sector for the REIT that has made its name with skilled nursing investments.

While Omega leaders say they will continue to focus on the skilled nursing space predominantly, the New York project and another overseas indicate that the company is branching out into new directions as it pursues growth.

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Gaining Transatlantic Traction

During the second quarter ended June 30, 2015, Omega made $196 million of new investments and capital renovations. Of this amount, the company spent $18 million under its capital renovations program.

The brunt of this activity involved a $178 million acquisition in the United Kingdom to acquire 23 care homes operated by Healthcare Homes Holding Limited, a company headquartered in Colchester, England. Comparable to assisted living facilities in the U.S., the care homes comprise 1,018 registered beds and are located throughout the East Anglia region, north of London.

The Hunt Valley, Md.-based REIT reported a net income of $43.5 million, or $0.22 per diluted common share, for the second quarter—slightly lower than the net income of $46.8 million, or $0.37 per diluted common share, the company reported during the same quarter a year ago.

But despite the year-over-year loss, Omega has big plans ahead for the third quarter and the remainder of 2015, in terms of acquisitions as well as new construction.

Both the Chicago and Hunt Valley acquisition teams have been actively reviewing and underwriting a “significant number of investment opportunities,” said Omega Chief Operating Officer Dan Booth during the company’s second quarter earnings conference call Tuesday morning.

“At this point, we are comfortable reaffirming our acquisition target of $650 million of new investments for the year with the opportunity of perhaps exceeding that target,” he said.

Big Plans in the Big Apple

Of the $184 million of new investments Omega made in July, the most significant was a $111.7 million real estate acquisition, for which the REIT purchased five buildings on the Upper East Side of Manhattan where it plans to co-develop a new senior living facility with Maplewood Senior Living, with whom Omega already has an existing tenant relationship.

The project, which Omega executives referred to as “Maplewood Second Avenue” during the company’s second quarter conference call, will be an assemblage of properties located on Manhattan’s Second Avenue between 93rd and 94th streets.

Omega’s intent is to build a 214-unit, 20-story assisted living and memory care community spanning 210,000 square feet, with a total project cost of $246 million, which is inclusive of the land acquisition price, said Omega’s Chief Corporate Development Officer Steven Insoft during Tuesday’s call.

Maplewood, which is based in Westport, Conn., operates assisted living and memory care facilities—along with one skilled nursing facility (SNF)—in Massachusetts, Ohio and Connecticut, where their facilities are concentrated in Fairfield County.

“Maplewood has considered many sites in the New York City market, with this particular opportunity striking the right balance of cost and neighborhood appropriateness,” Insoft said. “As such, the New York City market presents an extension of Maplewood’s footprint in the Manhattan market and, in particular, allows Maplewood to fill a long-time market void of purpose-built assisted living and memory care facilities with its best-in-class services and real estate offerings.”

Omega did not state when it plans to begin construction on the Maplewood Second Avenue project, though Insoft did note that the company expects the community to open in early 2018.

The investments in the U.K. and those with an assisted living provider like Maplewood represent somewhat of a “style shift” for Omega, which has 84 operating partners, of which 82 are SNF-driven tenant relationships, said CEO Taylor Pickett.

“The U.K. was new for us, but we have talked about putting our toe in the water as it relates to assisted living facilities and private-pay,” Picket said during the earnings call.

But when it comes to allocating capital, Omega assured that SNFs are going to receive the vast majority of investments.

“That’s our number one priority,” Pickett said. “So it might be a little bit of a style drift, but only when you look at property type and not how we run our business, and how we think about tenant relationships as a growth mechanism over the next decade.”

Written by Jason Oliva

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