Executive Summary

Reported Q2 2019 operating revenues of $225.3M, diluted EPS of $0.34, FFO/share of $0.71 and Adjusted FFO/share of $0.77; FAD was $150.6M .
Guidance tightened: FY2019 Net Income/share to $1.44–$1.48 and Adjusted FFO/share to $3.03–$3.07; Q4 2019 Adjusted FFO/share adjusted to $0.76–$0.79 (from $0.78–$0.81) .
Completed $678M of new investments in Q2, including the seamless May close of MedEquities ($623M) and announced a $735M HUD-backed portfolio under contract generating ~$64M 2020 cash rent—an external growth catalyst .
Management flagged Texas Medicaid headwinds (Daybreak rent expected at ~$3–$5M/quarter on cash basis near term) and highlighted upcoming PDPM and 2.4% Medicare rate increase as tailwinds into Q4 and 2020 .

What Went Well and What Went Wrong

What Went Well

External growth acceleration: Closed MedEquities ($623M) and signed a $735M PSA for 60 facilities; pipeline also includes smaller accretive deals (e.g., $25M purchase-leaseback at 9.5% yield) .
Operational tailwinds into Q4: PDPM (10/1) and 2.4% Medicare rate increase expected to improve operator margins; management modeled portfolio coverage improvement of ~0.02–0.11 turns per operator, mid-point as overall expectation .
Improving payout metrics: Declared $0.66 dividend with payout ratio at 86% of Adjusted FFO and 97% of FAD; management expects redeployment and Daybreak improvements to support run-rate into 2020 .

What Went Wrong

Texas Medicaid pressure and Daybreak cash-basis rents: Legislature did not pass rate relief; Daybreak rent recognition remains cash basis at ~$3–$5M per quarter “for the foreseeable future” .
Non-cash straight-line receivable write-off: Q2 included a $6.7M write-off of non-collectible straight-line revenue for two operators, impacting reported revenue and FFO .
Guidance lower for Q4: Q4 Adjusted FFO/share moved down to $0.76–$0.79 (from $0.78–$0.81) reflecting the planned sale of ten Diversicare assets and Daybreak cash-basis revenue .

Financial Results

Metric	Q4 2018	Q1 2019	Q2 2019
Operating Revenues ($USD Millions)	$219.8	$223.7	$225.3
Diluted EPS ($USD)	$0.31	$0.34	$0.34
FFO per Share ($USD)	$0.59	$0.67	$0.71
Adjusted FFO per Share ($USD)	$0.73	$0.76	$0.77
Funds Available for Distribution (FAD) ($USD Millions)	$138.2	$145.2	$150.6
Dividend per Share ($USD)	$0.66	$0.66	$0.66

YoY comparison (Q2 2019 vs Q2 2018):

Metric	Q2 2018	Q2 2019
Operating Revenues ($USD Millions)	$219.9	$225.3
Diluted EPS ($USD)	$0.39	$0.34
FFO per Share ($USD)	$0.74	$0.71
Adjusted FFO per Share ($USD)	$0.76	$0.77
FAD ($USD Millions)	$140.3	$150.6
Dividend per Share ($USD)	$0.66	$0.66

Q2 2019 revenue composition:

Revenue by Facility Type	Amount ($USD Millions)	% of Total
Skilled Nursing/Transitional Care	$183.2	81%
Senior Housing	$27.7	12%
Real Estate Tax & Ground Lease Income	$3.0	2%
Other Investment & Misc. Income (net)	$11.4	5%
Total Operating Revenues	$225.3	100%

KPIs and operating details (Q2 2019):

KPI	Q2 2019
Non-cash revenue included	~$17.0M
Straight-line write-off (non-collectible)	$6.7M
G&A expense	$9.5M
Interest expense (excl. deferred costs)	~$48.4M
Impairment on real estate properties	$5.7M
Q2 new investments (total)	$678.2M
MedEquities close (May 17)	$622.6M assets acquired; 7.5M OHI shares issued
Post-Q2 PSA (60 facilities)	$735.0M; ~$64M 2020 cash rent; HUD debt 3.66%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Income per diluted share	FY 2019	$1.49–$1.61	$1.44–$1.48	Lowered
Adjusted FFO per diluted share	FY 2019	$3.00–$3.12	$3.03–$3.07	Tightened (midpoint up)
Net Income per diluted share	Q4 2019	$0.42–$0.45	$0.39–$0.42	Lowered
Adjusted FFO per diluted share	Q4 2019	$0.78–$0.81	$0.76–$0.79	Lowered
Dividend per share	Quarterly	$0.66 (maintained)	$0.66 (maintained)	Maintained

Management attributed guidance changes primarily to the pending sale of ten Diversicare assets, continuing Daybreak cash-basis revenue (~$3–$5M/quarter), and shares issued under equity programs; potential additional ATM equity issuance may further impact guidance .

Earnings Call Themes & Trends

Topic	Q4 2018 (Prior-2)	Q1 2019 (Prior-1)	Q2 2019 (Current)	Trend
PDPM/Medicare	PDPM seen as sensible, expected to improve outcomes/profitability; 2019 acquisition profile rebound expected	2.5% Medicare increase and PDPM expected to provide relief; stable 82.8% occupancy	PDPM and 2.4% rate increase expected to lift coverage; improvement modeled operator-by-operator (avg ~0.02–0.11)	Positive margin tailwind into Q4/Q1 2020
Texas Medicaid/Daybreak	Liquidity relief via $2.5M rent deferral per Q1/Q2 2019; Texas operating environment challenging	Daybreak meeting obligations with deferrals; QIPP/PDPM/Medicare increase expected to help; rate relief uncertain	No rate relief passed; Daybreak on cash basis $3–$5M/qtr; consultant engaged; expect benefit from QIPP/PDPM	Persistent headwind; cautious near-term
External growth	~$98M Q4 investments; set up for 2019 growth	MRT ($600M EV) nearing close; pipeline tightening cap rates; target ~$1B/year long-term	$678M Q2 closed (incl. MRT) and $735M PSA signed; $25M 9.5% yield deal post-Q2	Strong acceleration
Seniors housing (Maplewood/NYC)	Inspir Carnegie Hill highlighted; dividend maintained	NYC project ~$285M, early 2020 opening; senior housing coverage 1.17x; pipeline active	Momentum in deposits consistent with suburban precedents; portfolio $1.6B; senior housing coverage 1.19x	Steady build-out
Financing/leverage/equity	$4.7B debt, plan to delever; leverage target ~4.7–5.0x	ATM/DRIP issuance; pro forma leverage ~5.0x post MRT	Considering terming out $500M line; forward sale of 7.5M shares in Sept to fund pending acquisition	Proactive funding, mix of debt/equity
Florida Medicaid PPS	N/A	N/A	FY19–20 PPS dynamics: 4.5% rate drop due to hurricane relief; later 1.5% bump; overall state budgets healthy; minimal broader cuts expected	Mixed; manageable

Management Commentary

“We seamlessly closed and integrated the MedEquities acquisition in May and on July 26th we signed a $735 million purchase agreement to acquire 60 facilities… opportunistically divesting non-core holdings.” — CEO Taylor Pickett .
“We have tightened our 2019 year-end guidance… primarily as a result of the pending sale of ten Diversicare assets, continuing Daybreak on a cash basis at approximately $3 to $5 million per quarter… shares issued under our equity programs.” — CFO Bob Stephenson .
“We remain excited about… PDPM, which begins on October 1st… [and] the recently confirmed 2.4% increase in Medicare reimbursement.” — CEO Taylor Pickett .
“We are adjusting our expectations for future cash rent receipts [Daybreak] to a range of between $3 million and $5 million per quarter for the foreseeable future.” — COO Dan Booth .

Q&A Highlights

Acquisition under contract: coverage “slightly above our current mean”; expected closing 3–9 months subject to HUD; rent bumps 2.25% and 2.5% in the two portfolios; no retenanting planned .
Financing strategy: will opportunistically term out $500M revolver; bond deal not in guidance; proceeds from Diversicare sale expected to support funding .
Pipeline commentary: steady flow of “singles and doubles”; larger deals are “choppy” and hard to predict .
Texas exposure strategy: opportunistic additions with existing operators; potential for flat Medicaid rate increases; rural facilities require higher risk adjustment; portfolio ~20%–25% rural .
Dividend policy: board reviews quarterly; with coverage “in the 90s”, no shift expected near term; upcoming assets (NYC, $735M acquisition) will drive cash flow .

Estimates Context

Wall Street consensus estimates via S&P Global were unavailable during request due to API limit; therefore, comparison to consensus (EPS/Revenue/EBITDA) cannot be provided at this time (S&P Global retrieval failed).
Implications: Street models should reflect tightened FY2019 Adjusted FFO/share ($3.03–$3.07) and lower Q4 Adjusted FFO/share ($0.76–$0.79), incorporate Daybreak cash-basis rent ($3–$5M/qtr), and add expected ~$64M 2020 cash rent from the $735M HUD-backed acquisition upon closing .

Key Takeaways for Investors

External growth is the key near-term catalyst: $678M closed in Q2 and $735M under contract with attractive HUD financing and escalators; expect impact on 2020 run-rate cash rents as deals close .
PDPM and Medicare rate increase provide a margin tailwind that can lift operator coverage, partially offsetting labor pressures and state-level Medicaid dynamics (especially Texas) .
Guidance reset modestly lowers Q4 while tightening FY2019, reflecting portfolio pruning (Diversicare sale) and Daybreak cash recognition; watch for redeployment and Daybreak improvements into 2020 .
Funding flexibility remains strong: revolver usage near $500M poised for terming out; management may continue to use DRIP/ATM and executed a forward equity sale in September tied to acquisition funding .
Dividend appears supported by payout metrics (86% of Adjusted FFO; 97% of FAD); incremental cash from NYC opening and portfolio close could bolster coverage over time .
State policy watch: Florida PPS adjustments and Texas Medicaid rates introduce dispersion; PDPM/QIPP and selective capital allocation (Southeast/Far West focus) mitigate risks .
Monitor closing timeline and HUD approvals for the $735M portfolio (3–9 months expected); any slippage affects 2020 rent timing .

OMEGA HEALTHCARE INVESTORS INC (OHI)·Q2 2019 Earnings Summary