Omega Healthcare Investor, a real estate investment trust, is tapping the securitization market to help finance its acquisition of a portfolio of 64 primarily skilled nursing facilities.
The 64 facilities have a total of 7,786 beds and are all leased to Genesis Healthcare, according to Morningstar Credit Ratings.
This month, Omega and co-investor Lindsay Goldberg obtained $757.6 million of loans from Morgan Stanley and Citigroup, which they used, along with $342.4 million of equity, to acquire the portfolio from Welltower, another REIT. A $555 million portion of this loan serves as collateral for a commercial mortgage securitization dubbed Morgan Stanley Capital Citigroup Trust 2016-SNR.
The transaction will issue seven classes of notes with preliminary ratings from Morningstar ranging from AAA to BB+.
KeyBank National Association is the master servicer and special servicer.
Among the credit risks to the deal, according to Morningstar, is the fact that federally-sponsored Medicare and the joint federal/state-funded Medicaid make up the majority (82.9%) of the payment streams at the skilled nursing facilities; both programs are subject to federal cut backs, and the programs’ funding is not guaranteed at current levels.
There are also licensing requirements for the facilities that must be maintained, as well as litigation risks.
However, Morningstar takes comfort from the fact that the loan was used to make an acquisition, rather than cash out equity; in fact the borrowers used cash for over 30% of the purchase price.
And while the properties are concentrated with a single master tenant operating in a single industry, they are spread across eight states, none of which represents more than 25.6% of net cash flow, as measured by the rating agency.
Also, seven states where the Genesis portfolio is located have established building limitations on new skilled nursing facilities, limiting future competition.
Also, the master lease, which runs through January 2032, allows for annual increases over the initial annual rent of $103.9 million. The interest-only loan has a fully-extended term of 60 months and accrues interest at a fixed rate of 4.54654%.
