Omega Announces Second Quarter 2012 Financial Results; Adjusted FFO of $0.53 Per Share for the Second Quarter

HUNT VALLEY, Md.--(BUSINESS WIRE)-- Omega Healthcare Investors, Inc. (NYSE:OHI) (the “Company” or “Omega”) today announced its results of operations for the three- and six-month period ended June 30, 2012. The Company also reported Funds From Operations (“FFO”) available to common stockholders for the three-month period ended June 30, 2012 of $55.8 million or $0.53 per common share. The $55.8 million of FFO available to common stockholders for the second quarter of 2012 includes a $1.7 million gain related to interest refinancing costs, $1.5 million of non-cash stock-based compensation expense and $0.1 million of acquisition related costs. The $1.7 million interest refinancing costs adjustment (gain) is related to the write-off of the remaining fair market value debt adjustment on four HUD mortgage loans that the Company paid off in June 2012. FFO is presented in accordance with the guidelines for the calculation and reporting of FFO issued by the National Association of Real Estate Investment Trusts (“NAREIT”). Adjusted FFO was $0.53 per common share for the three-month period ended June 30, 2012. FFO and Adjusted FFO are non-GAAP financial measures. Adjusted FFO is calculated as FFO available to common stockholders excluding the impact of certain non-cash items and certain items of revenue or expense, including, but not limited to: expenses associated with the retirement of HUD loans, acquisitions and stock-based compensation expense. For more information regarding FFO and Adjusted FFO, see the “Second Quarter 2012 Results – Funds From Operations” section below.

GAAP NET INCOME

For the three-month period ended June 30, 2012, the Company reported net income and net income available to common stockholders of $30.6 million, or $0.29 per diluted common share, on operating revenues of $83.8 million. This compares to net income and net income available to common stockholders of $17.8 million, or $0.17 per diluted common share, on operating revenues of $72.6 million, for the same period in 2011.

For the six-month period ended June 30, 2012, the Company reported net income and net income available to common stockholders of $56.7 million, or $0.54 per diluted common share, on operating revenues of $168.3 million. This compares to net income of $11.9 million and net income available to common stockholders of $6.7 million, or $0.07 per diluted common share, on operating revenues of $143.1 million, for the same period in 2011.

The year-to-date increase in net income was primarily due to the impact of: (i) additional rental income and mortgage interest income associated with approximately $370 million of new investments made since July 1, 2011; (ii) $7.3 million in gains on the sale of assets, (iii) $24.7 million net decrease in real estate impairments and (iv) $4.1 million net decrease in provision for uncollectible accounts receivable. These increases were partially offset by: (i) $4.4 million of increased depreciation expense associated with the new investments; (ii) $6.9 million of increased interest expense primarily associated with financing the new investments; and (iii) $5.4 million in increased interest refinancing costs relating to (a) a $7.1 million charge associated with the tender and redemption of all of the Company’s outstanding $175 million of 7% Senior Notes due 2016 in March 2012, partially offset by (b) a $1.7 million interest refinancing expense adjustment (gain) related to the write-off of the remaining fair market value debt adjustment on four HUD mortgage loans that the Company paid off in June 2012.

SECOND QUARTER 2012 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS

• In July 2012, the Company declared its quarterly common dividend of $0.42 per share.
• In July 2012, Fitch Ratings initiated a BBB- rating on the Company’s senior unsecured notes.
• In June 2012, the Company completed $25 million of new investments.
• In June 2012, the Company established a $245 million 2012 Equity Shelf Program for a continuous at-the-market offering of common stock.
• In April 2012, the Company increased its quarterly common dividend per share to $0.42 from $0.41.

SECOND QUARTER 2012 RESULTS

Operating Revenues and Expenses – Operating revenues for the three-month period ended June 30, 2012 were $83.8 million. Operating expenses for the three-month period ended June 30, 2012 totaled $32.3 million and were composed of $27.2 million of depreciation and amortization expense, $3.5 million of general and administrative expense, $1.5 million of stock-based compensation expense and $0.1 million of expense associated with recently completed acquisitions.

Other Income and Expense – Other income and expense for the three-month period ended June 30, 2012 was a net expense of $23.0 million, which was composed of $24.0 million of interest expense and $0.7 million of amortized deferred financing costs. The Company also recorded a $1.7 million interest refinancing expense adjustment (gain) related to the write-off of the remaining fair market value debt adjustment on four HUD mortgage loans that the Company paid off in June 2012.

Funds From Operations – For the three-month period ended June 30, 2012, reportable FFO available to common stockholders was $55.8 million, or $0.53 per common share on 106 million weighted-average common shares outstanding, compared to $42.6 million, or $0.42 per common share on 102 million weighted-average common shares outstanding, for the same period in 2011.

The $55.8 million of FFO for the three-month period ended June 30, 2012 includes the impact of the $1.7 million interest refinancing expense adjustment, $1.5 million of stock-based compensation expense and $0.1 million of expense associated with recently completed acquisitions.

The $42.6 million of FFO for the three-month period ended June 30, 2011 includes the impact of approximately $4.1 million of provisions for uncollectible accounts receivable, $1.5 million of non-cash stock-based compensation expense, a $0.2 million net loss associated with owned and operated assets and $16 thousand of preferred stock redemption charges.

Adjusted FFO was $55.7 million, or $0.53 per common share, for the three months ended June 30, 2012, compared to $48.4 million, or $0.47 per common share, for the same period in 2011. The Company had 4.0 million additional weighted-average shares for the three months ended June 30, 2012 compared to the same period in 2011. For further information see “Funds From Operations” below.

FINANCING ACTIVITIES

$11.8 Million HUD Mortgage Payoffs – On June 29, 2012, the Company paid $11.8 million to retire four mortgage loans guaranteed by the Department of Housing and Urban Development (“HUD”). The loans were assumed as part of the December 2011 purchase of 17 skilled nursing facilities (“SNFs”) from affiliates of Capital Funding Group, Inc. and had a blended interest rate of 6.49% per annum with maturities between October 2029 and September 2042. The payoff resulted in a $1.7 million gain on the extinguishment of the debt which included a $0.1 million prepayment penalty.

$245 Million Equity Shelf Program – On June 19, 2012, the Company entered into separate Equity Distribution Agreements (collectively, the “2012 Agreements”) with each of BB&T Capital Markets, a division of Scott & Stringfellow, LLC, Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Capital Markets, LLC, RBS Securities Inc., Stifel, Nicolaus & Company, Incorporated, SunTrust Robinson Humphrey, Inc. and UBS Securities LLC, each as a sales agent and/or principal (collectively, the “Managers”) to establish a $245 million Equity Shelf Program. Under the terms of the 2012 Agreements, the Company may sell shares of its common stock, from time to time, through or to the Managers having an aggregate gross sales price of up to $245 million. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the New York Stock Exchange at market prices, or as otherwise agreed with the applicable Manager. The Company will pay each Manager compensation for sales of the shares equal to 2% of the gross sales price per share of shares sold through such Manager under the applicable 2012 Agreement.

Termination of $140 Million Equity Shelf Program – Also on June 19, 2012, the Company terminated its $140 Million Equity Shelf Program (“2010 ESP”).

In April 2012, the Company sold 510,000 shares of its common stock under the 2010 ESP for net proceeds of approximately $10.8 million. Since inception of the 2010 ESP, the Company sold a total of 5.3 million shares of common stock generating total net proceeds of $112.6 million, net of $2.3 million in commissions.

Equity Shelf Program and the Dividend Reinvestment and Common Stock Purchase Plan – During the six-month period ended June 30, 2012, the Company sold the following shares of its common stock under its Equity Shelf Program and its Dividend Reinvestment and Common Stock Purchase Plan:

2012 PORTFOLIO AND RECENT DEVELOPMENTS

Health and Hospital Corporation – On June 29, 2012, the Company purchased four SNFs from an unrelated third party for $21.7 million and leased them to Health and Hospital Corporation, an existing operator of the Company. The four SNFs located in Indiana, totaling 383 beds, were added to the existing master lease with Health and Hospital Corporation.

Mark Ide Limited Liability Company – On June 29, 2012, the Company purchased one SNF from an unrelated third party for approximately $3.4 million and leased it to Mark Ide Limited Liability Company, an existing operator of the Company. The SNF located in Indiana, totaling 80 beds, was added to the existing Mark Ide master lease.

Facility Sales – For the three month period ended June 30, 2012, the Company sold three held-for-sale facilities for total cash proceeds of $7.9 million, generating a $2.0 million accounting gain.

DIVIDENDS

Common Dividends – On July 17, 2012, the Company’s Board of Directors announced a common stock dividend of $0.42 per share, to be paid August 15, 2012 to common stockholders of record on July 31, 2012. At the date of this release, the Company had approximately 108 million common shares outstanding.

2012 ADJUSTED FFO GUIDANCE

The Company revised its 2012 Adjusted FFO available to common stockholders to be between $2.12 and $2.15 per diluted share versus its previous range of $2.09 to $2.12 per share.

The Company's Adjusted FFO guidance for 2012 includes the impact of approximately $150 million of projected new investments (inclusive of investments completed through June 30, 2012); however, it excludes the impact of gains and losses from the sale of assets, additional divestitures, certain revenue and expense items, interest refinancing expense, capital transactions and restricted stock amortization expense. A reconciliation of the Adjusted FFO guidance to the Company's projected GAAP earnings is provided on a schedule attached to this press release. The Company may, from time to time, update its publicly announced Adjusted FFO guidance, but it is not obligated to do so.

The Company's Adjusted FFO guidance is based on a number of assumptions, which are subject to change and many of which are outside the Company’s control. If actual results vary from these assumptions, the Company's expectations may change. Without limiting the generality of the foregoing, the timing and completion of acquisitions, divestitures, capital and financing transactions, and variations in restricted stock amortization expense may cause actual results to vary materially from our current expectations. There can be no assurance that the Company will achieve its projected results.

CONFERENCE CALL

The Company will be conducting a conference call on Friday, July 27, 2012, at 10 a.m. Eastern to review the Company’s 2012 second quarter results and current developments. Analysts and investors interested in participating are invited to call (877) 317-6789 from within the United States or (412) 317-6789 from outside the United States and ask the operator to be connected to the “Omega Healthcare Second Quarter 2012 Earnings Call.”

To listen to the conference call via webcast, log on to www.omegahealthcare.com and click the “earnings call” icon on the Company’s home page. Webcast replays of the call will be available on the Company’s website for two weeks following the call.

The Company is a real estate investment trust investing in and providing financing to the long-term care industry. At June 30, 2012, the Company owned or held mortgages on 433 skilled nursing facilities, assisted living facilities and other specialty hospitals with approximately 50,385 licensed beds (48,330 available beds) located in 33 states and operated by 47 third-party healthcare operating companies. In addition, the Company has four facilities currently held for sale.

This announcement includes forward-looking statements, including without limitation the information under the heading “2012 Adjusted FFO Guidance.” Actual results may differ materially from those reflected in such forward-looking statements as a result of a variety of factors, including, among other things: (i) uncertainties relating to the business operations of the operators of the Company’s properties, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels; (ii) regulatory and other changes in the healthcare sector; (iii) changes in the financial position of the Company’s operators; (iv) the ability of any of the Company’s operators in bankruptcy to reject unexpired lease obligations, modify the terms of the Company’s mortgages and impede the ability of the Company to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor's obligations; (v) the availability and cost of capital; (vi) changes in the Company’s credit ratings and the ratings of its debt securities; (vii) competition in the financing of healthcare facilities; (viii) the Company’s ability to maintain its status as a real estate investment trust; (ix) the Company’s ability to manage, re-lease or sell any owned and operated facilities; (x) the Company’s ability to sell closed or foreclosed assets on a timely basis and on terms that allow the Company to realize the carrying value of these assets; (xi) the effect of economic and market conditions generally, and particularly in the healthcare industry; and (xii) other factors identified in the Company’s filings with the Securities and Exchange Commission. Statements regarding future events and developments and the Company’s future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements. The Company undertakes no obligation to update any forward-looking statements contained in this announcement.

This press release includes Funds From Operations, or FFO, which is a non-GAAP financial measure. For purposes of the Securities and Exchange Commission’s Regulation G, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in this press release, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Regulation G, the Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

The Company calculates and reports FFO in accordance with the definition and interpretive guidelines issued by the National Association of Real Estate Investment Trusts ("NAREIT"), and consequently, FFO is defined as net income available to common stockholders, adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairments on real estate assets. The Company believes that FFO is an important supplemental measure of its operating performance. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions. The term FFO was designed by the real estate industry to address this issue. FFO described herein is not necessarily comparable to FFO of other real estate investment trusts, or REITs, that do not use the same definition or implementation guidelines or interpret the standards differently from the Company.

The Company uses FFO as one of several criteria to measure the operating performance of its business. The Company further believes that by excluding the effect of depreciation, amortization, impairments on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and between other REITs. The Company offers this measure to assist the users of its financial statements in analyzing its performance; however, this is not a measure of financial performance under GAAP and should not be considered a measure of liquidity, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP. Investors and potential investors in the Company’s securities should not rely on this measure as a substitute for any GAAP measure, including net income.

Adjusted FFO is calculated as FFO available to common stockholders excluding the impact of non-cash stock-based compensation and certain revenue and expense items identified above. The Company believes that Adjusted FFO provides an enhanced measure of the operating performance of the Company’s core portfolio as a REIT. The Company’s computation of Adjusted FFO is not comparable to the NAREIT definition of FFO or to similar measures reported by other REITs, but the Company believes it is an appropriate measure for this Company.

The Company currently expects its 2012 Adjusted FFO available to common stockholders to be between $2.12 and $2.15 per diluted share. The following table presents a reconciliation of our guidance regarding 2012 FFO and Adjusted FFO to net income available to common stockholders:

The following tables present selected portfolio information, including operator and geographic concentrations, and revenue maturities for the period ended June 30, 2012:

The following tables present operator revenue mix, census and coverage data based on information provided by our operators:

The following table presents a debt maturity schedule as of June 30, 2012:

The following table presents investment activity for the three- and six - month period ended June 30, 2012:

Omega Healthcare Investors, Inc.
Bob Stephenson, CFO, 410-427-1700

Source: Omega Healthcare Investors, Inc.

Released July 27, 2012