Omega Healthcare Investors (NYSE:OHI) is revising its method of accounting for lease-related revenue of operators that have notified the company of doubt regarding their ability to continue as a going concern.
Starting with the quarter ending Sept. 30, 2020, Omega will record revenue for such operators on a cash-basis accounting method rather than a straight-line accounting method.
As a result, that change will apply to revenue of two of its operators - Genesis Healthcare and Agemo Holdings (f/k/a Signature Healthcare).
Omega expects to write down straight-line receivables and lease inducements of ~$140M in the September quarter, representing $65M for Genesis and $75M for Agemo.
In addition, Omega will record an impairment estimate at $28M, related to the uncollateralized portion of a loan to Agemo.
As a result of the accounting change, OHI now expects Q3 revenue to be "meaningfully lower" than in Q2, even though cash rents, funds available for distribution and cash flows won't be affected, said OHI Chief Financial Officer Bob Stephenson.
CEO Taylor Pickett said both operators have been paying contractual rents due. "Based on our continuing dialogue with both companies, we are hopeful that ongoing government support and a return to pre-pandemic resident occupancies will provide them with the liquidity needed to meet all of their future Omega financial obligations," he said.
OHI doesn't expect to record a reserve related to its other investments outstanding in the two operators, which are expected to be ~$81M for Genesis and $29M for Agemo as of Sept. 30, 2020.
