Omega Enters 2019 With $600 Million MedEquities Acquisition

After a year spent streamlining its portfolio and operations, Omega Healthcare Investors (NYSE: OHI) rang in 2019 by adding nearly three dozen new assets, including some senior housing. The real estate investment trust (REIT) did so by acquiring Nashville, Tennessee-based MedEquities Realty Trust (NYSE: MRT) in a $600 million cash-and-stock transaction.

Once a pure skilled nursing player, Hunt Valley, Maryland-based Omega has entered the senior housing sector with targeted acquisitions in recent years. In 2016, the REIT spent $66 million to acquire three independent and assisted living facilities in Texas, and another $114 million on 10 care homes in the United Kingdom — the equivalent of U.S. assisted living facilities. Omega is also the capital partner for Maplewood Senior Living’s Inspir Manhattan community on the Upper East Side. Omega acquired the land for that development for $111.7 million in 2015.

The MedEquities deal, which was approved by the board of directors of both REITs, adds 34 facilities and nine new operators to Omega’s portfolio, and increases Omega’s non-skilled nursing assets by $296 million in value.

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Under the merger terms, MedEquities stock will be valued at $10.26/share, based on Omega’s closing stock price of $35.15 on Dec. 31, 2018. MedEquities stockholders will receive 0.235 shares of Omega stock plus $2 cash for each of their shares, and a 21-cent/share dividend on the trading day immediately prior to the closing date of the transaction. Omega will also assume responsibility for $34 million in loans on MedEquities’ ledger. News of the announcement sent MedEquities stock skyrocketing in trading to $10.11/share, after closing 2018 at $6.84.

Omega operates 917 properties in 41 states. The MedEquities merger adds 20 skilled nursing facility and one senior housing asset to its portfolio. The balance of MedEquities’ holdings are in acute care, rehabilitation and behavioral health, along with one medical office building — Baylor Scott & White Medical Center in Lakeway, Texas.

MedEquities’ third-quarter 2018 supplemental earnings presentation lists Newport Beach, California-based skilled nursing and senior living provider Life Generations as its only assisted living operator.

“This acquisition reinforces our commitment to the skilled nursing and senior housing industry, while adding new asset types to our portfolio [and] furthering our strategic objectives,” Omega CEO Taylor Pickett said in a statement. The REIT announced during its Q3 2018 earnings call last November it would shift to an acquisition strategy in 2019 after spending much of the past year unloading properties and repositioning its portfolio.

MedEquities launched an initial public offering (IPO) of up to 19 million shares in September 2016 and planned to use the funds to finance the acquisition of 26 properties valued at over $600 million.

MedEquities chairman and CEO John McRoberts touted overlapping synergies and Omega’s history of asset growth as reasons behind the merger in a statement.

“This is a very compelling transaction for MedEquities’ stockholders,” McRoberts said in a statement.

The deal requires approval from MedEquities shareholders. Omega does not plan to make any changes to its executive staff or board of directors.

MedEquities declined to comment on the merger. Omega did not respond to requests for comment.

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