8-K: Current report filing
Published on May 8, 2003
Exhibit 99.1
PRESS RELEASE - FOR IMMEDIATE RELEASE
OMEGA ANNOUNCES FIRST QUARTER 2003 FINANCIAL RESULTS
TIMONIUM, MARYLAND - MAY 8, 2003 - Omega Healthcare Investors, Inc.
(NYSE:OHI) today announced its results of operations for the quarter ended March
31, 2003. The Company reported net income available to common shareholders for
the three-month period ended March 31, 2003 of $1.0 million or $0.03 per fully
diluted common share on revenues of $24.6 million. This compares to a net loss
of ($0.6) million or ($0.02) per fully diluted common share for the same period
in the prior year. The Company also reported Funds From Operations ("FFO") on a
fully diluted basis for the three months ended March 31, 2003 of $13.5 million
or $0.25 per common share.
Revenues for the three-month period ended March 31, 2003 totaled $24.6
million, a decrease of $19.4 million as compared to the same period in 2002.
When excluding nursing home revenues of owned and operated assets, revenues
increased $2.4 million versus the three-month period ended March 31, 2002. The
increase was primarily a result of a lump sum $3.2 million legal settlement
related to the Company's claims against certain parties for the alleged failure
to file UCC financing statements in the Company's favor. The cash settlement
proceeds were offset by related expenses incurred of $1.0 million resulting in a
net gain of $2.2 million.
Expenses for the three-month period ended March 31, 2003 totaled $18.6
million, a decrease of $20.9 million, from the three-month period ended March
31, 2002. Excluding nursing home expenses of owned and operated assets, expenses
were $17.2 million for the three-month period ended March 31, 2003 versus $15.8
million for the same period in 2002. This $1.4 million increase in expenses was
a result of a $4.6 million provision for impairment, partially offset by
favorable reductions in general and administrative and legal expenses of $0.5
million and interest expense savings of $3.0 million primarily attributable to
$85.2 million in reduced debt on our balance sheet versus the same period in
2002.
Nursing home expenses, net of nursing home revenues, for owned and operated
assets for the three-month period ended March 31, 2003 were $1.3 million
compared to $2.0 million for the same period in 2002. This decrease was a result
of the reduction of the number of owned and operated facilities from 19 at March
31, 2002 to one at March 31, 2003.
A provision for impairment of $4.6 million was recorded for the three-month
period ended March 31, 2003. The provision reduced the carrying value of a
closed building to its fair value less costs to dispose. The building is being
actively marketed for sale; however, there can be no assurance if, or when, such
sale will be completed or whether such sales will be completed on terms that
allow us to realize the carrying value of the asset.
Funds from operations for the three-month period ended March 31, 2003, on a
fully diluted basis, was $13.5 million or $0.25 per common share, an increase of
$6.5 million, as compared to $7.0 million or $0.15 per common share for the same
period in 2002 due to the factors mentioned above. The legal settlement
increased FFO by $2.2 million and nursing home revenues and expenses, on a net
basis, decreased FFO by $1.3 million. Both the legal settlement and net impact
from the Company's owned and operated nursing home assets are included in the
$13.5 million of fully diluted FFO. For further information, see the attached
Funds From Operations schedule and notes.
During the first quarter of 2003, the Company reduced its owned and
operated assets from three to one, for a total reduction of 18 owned and
operated assets since March 31, 2002. Specifically, the Company bought out a
leasehold interest in one owned and operated Indiana facility for $0.5 million.
In addition, the Company closed one Illinois facility which was previously
classified as an owned and operated asset. This facility has been transferred to
closed facilities and is included in the Company's Consolidated Balance Sheet.
The Company intends to sell this closed facility as soon as practicable;
however, there can be no assurance if, or when, this sale will be completed. The
Company intends to operate the remaining owned and operated asset, which
generated nursing home revenues, net of expenses, of $0.1 million for the
three-month period ended March 31, 2003 for the Company's own account until it
is able to re-lease, sell or close the facility. The facility and its respective
operations are presented on a consolidated basis in the Company's financial
statements.
The Company believes that presentation of the Company's revenues and
expenses, excluding nursing home owned and operated assets, provides a useful
measure of the operating performance of the Company's core portfolio as a Real
Estate Investment Trust ("REIT") in view of the disposition of all but one of
the Company's owned and operated assets. For 2003, nursing home revenues,
nursing expenses, operating assets and operating liabilities for the Company's
owned and operated properties are shown on a net basis on the face of the
Company's consolidated financial statements. For 2002, nursing home revenues,
nursing home expenses, operating assets and operating liabilities for the
Company's owned and operated properties are shown separately on a gross basis on
the face of the Company's consolidated financial statements.
Portfolio Developments
Sun Healthcare Group, Inc. ("Sun"). During the first quarter of 2003, Sun
remitted rent of $5.0 million versus the contractual amount of $6.4 million. The
Company has agreed with Sun to use letters of credit (posted by Sun as security
deposits) in the amount of $1.4 million to make up the difference in rent and
agreed to temporarily forebear in declaring a default under the lease caused by
Sun's failure to restore the $1.4 million letter of credit. The Company holds
additional security deposits (in the form of cash and letters of credit) in the
amount of $1.4 million as of March 31, 2003.
Also during the quarter, Sun announced "that it has opened dialogue with
many of its landlords concerning the portfolio of properties leased to Sun and
various of its consolidated subsidiaries. [Sun] is seeking a rent moratorium
and/or rent concessions with respect to certain of its facilities and is seeking
to transition its operations of certain facilities to new operators while
retaining others." To this end, Sun has initiated conversations with the Company
regarding a restructure of the Company's Master Lease. Although it is too early
to predict the outcome of these conversations, it is likely that the Company's
overall contractual rent will be reduced on certain facilities and that certain
other facilities may be transitioned and re-leased to unaffiliated third-party
operators. In April and May of 2003, Sun paid $1.3 million and $1.3 million,
respectively, versus the monthly contractual rent of $2.2 million. The Company
applied security deposits in the amount of $1.4 million. At the date of this
release, Sun has exhausted its security deposits with the Company.
Alterra Healthcare Corporation ("Alterra"). The Company currently leases
eight assisted living facilities (325 units) located in seven states to
subsidiaries of Alterra. In the first quarter of 2003, the Company was notified
by Alterra that it did not intend to pay January rent and that a restructuring
of its Master Lease was necessary. Subsequently, Alterra resumed and has
continued to pay lease payments to the Company at an annualized rent of $1.45
million versus the fourth quarter 2002 annualized contractual rent of
approximately $2.6 million. The Company is currently recognizing revenue on a
cash basis.
Alterra also announced during the first quarter of 2003, that, in order to
facilitate and complete its on-going restructuring initiatives, they had filed a
voluntary petition with the U.S. Bankruptcy Court for the District of Delaware
to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The Company is in
the process of attempting to negotiate a restructure of the Master Lease. At
this time it is too early to predict the outcome of the negotiations, including
the ultimate impact of the bankruptcy proceedings or any subsequent
developments.
Claremont Health Care Holdings, Inc. During the first quarter of 2003, the
Company completed a restructured transaction with Claremont Health Care
Holdings, Inc. (formerly Lyric Health Care, LLC) whereby nine facilities
formerly leased under two Master Leases were combined into one new ten-year
Master Lease. Annual rent under the new lease is $6.0 million, the same amount
of rent recognized in 2002 for these properties.
Integrated Health Services, Inc. ("IHS"). During the three-month period
ended March 31, 2003, the Company successfully re-leased nine facilities
formerly operated by IHS. Accordingly, eight skilled nursing facilities
("SNFs"), which the Company held mortgages on, and one SNF, which the Company
leased to IHS, have been re-leased to various unaffiliated third parties as
described below. Titles to the eight properties, which the Company held
mortgages on, have been transferred to wholly-owned subsidiaries of the Company
by Deeds in Lieu of Foreclosure.
Specifically, during the quarter ended March 31, 2003, the Company leased
nine SNFs to four unaffiliated third-party operators as part of four separate
transactions. Each of the nine facilities had formerly been operated by
subsidiaries of IHS. The four transactions included: (i) a Master Lease of five
SNFs in Florida representing 600 beds to affiliates of Seacrest Healthcare
Management, LLC, which lease has a ten-year term and has an initial annual rent
of $2.5 million; (ii) a month-to-month lease (following a minimum four-month
term) on two SNFs in Georgia representing 304 beds to subsidiaries of Triad
Health Management of Georgia, LLC, which lease has annualized rent of $0.7
million - the month-to-month structure results from Georgia Medicaid rate cuts
(effective February 1, 2003) and the potential for future Georgia reimbursement
changes; (iii) a lease of one SNF in Texas, representing 130 beds, to an
affiliate of Senior Management Services of America, Inc., which lease has a
ten-year term and has various rent step-ups, reaching $384,000 by year three,
thereafter, increasing by the lesser of CPI or 2.5%; and (iv) re-leased one
159-bed SNF, located in the state of Washington to a subsidiary of Sun, with an
initial lease term of eight years and an initial annual rent of $0.5 million.
These lease transactions terminated substantially all remaining contractual
and debt relationships with IHS.
Other Assets
On May 7, 2003, the Company sold its investment in a Baltimore, Maryland
asset, leased by the United States Postal Service, to FL Lajolla, Inc. for
approximately $19.6 million. FL Lajolla, Inc. paid the Company $1.95 million and
assumed a first mortgage of approximately $17.6 million. As a result of this
transaction, the Company's debt balance is approximately $289 million versus
$306 million at March 31, 2003.
Debt Maturity
At the date of this release, the Company has $112.0 million in borrowings
and $12.5 million in letters of credit outstanding under its credit facility
maturing in December 2003. The Company's other credit facility matures in June
2005 and has $65.0 million in borrowings outstanding. The Company is in active
negotiations with financial institutions to refinance both of its existing
credit facilities. However, the Company can give no assurance as to if, or when,
the refinancing will occur.
Dividend Policy
The Company does not intend to consider reinstatement of preferred or
common dividends until it has greater clarity with respect to its ability to
refinance the credit facility maturing in December of 2003.
Conference Call
The Company will be conducting a conference call on Thursday, May 8, 2003,
at 10 a.m. EDT to review the Company's 2003 first quarter results and current
developments. 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. Listening via webcast will require you to have Microsoft Media Player
installed on your computer, which can be downloaded at no charge from the
Company's website. Please allow up to 30 minutes prior to the call to download
this software. Webcast replays of the call will be available on the Company's
website for two weeks following the call. Additionally, a copy of this press
release is available to investors on the "new releases" section of the Company's
website.
* * * * * *
Omega is a Real Estate Investment Trust investing in and providing
financing to the long-term care industry. At March 31, 2003, the Company owned
or held mortgages on 221 skilled nursing and assisted living facilities with
approximately 21,900 beds located in 28 states and operated by 35 third-party
healthcare operating companies.
FOR FURTHER INFORMATION, CONTACT
Bob Stephenson, CFO at (410) 427-1722
------------------------
This announcement includes forward-looking statements, including statements
regarding extension or refinancing of debt and dividend policy. All forward
looking statements included herein are based on information available to the
Company on the date hereof. Such statements only speak as of the date hereof and
the Company assumes no obligation to update such forward-looking statements.
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) the ability of the Company to dispose of assets held for sale
on a timely basis and at appropriate prices; (ii) uncertainties relating to the
operation of the Company's owned and operated assets, including those relating
to reimbursement by third-party payors, regulatory matters and occupancy levels;
(iii) the ability of the Company to manage, re-lease or sell owned and operated
assets (iv) regulatory and other changes in the healthcare sector, including
without limitation, changes in Medicare reimbursement; (v) changes in the
financial position of our operators; (vi) the ability of 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; (vii) the availability and cost of
capital; (viii) competition in the financing of healthcare facilities; and (ix)
other factors identified in the Company's filings with the Securities and
Exchange Commission.
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
Note - The balance sheet at December 31, 2002 has been derived from the audited
consolidated financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to consolidated financial statements.
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)
See notes to consolidated financial statements.
OMEGA HEALTHCARE INVESTORS, INC.
FUNDS FROM OPERATIONS
Unaudited
(In thousands, except per share amounts)
* Lower of basic or diluted FFO per share
The Company believes that Funds From Operations ("FFO") is an important
supplemental measure of the Company's 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. The
Company generally uses the National Association of Real Estate Investment
Trusts' ("NAREIT") measure of FFO. The Company defines FFO as net income
available to common stockholders, adjusted for the effects of asset dispositions
and impairments and certain non-cash items, primarily depreciation and
amortization. FFO herein is not necessarily comparable to FFO presented by other
REITs due to the fact that not all REITs use the same definition. Diluted FFO is
adjusted for the assumed conversion of Series C preferred stock and the exercise
of in-the-money stock options.
Adjusted FFO is calculated as diluted FFO less revenues and expenses
related to nursing home operations and non-recurring revenue items. The Company
believes that Adjusted FFO provides an enhanced measure of the operating
performance of the Company's core portfolio as a REIT in view of the disposition
of all but one of the Company's owned and operated assets.
Neither FFO nor Adjusted FFO represents cash generated from operating
activities in accordance with GAAP, and therefore, should not be considered
alternatives to net income as indications of operating performance or to net
cash flow from operating activities, as determined by GAAP, as a measure of
liquidity, and such measures are not necessarily indicative of cash available to
fund cash needs. The Company believes that in order to facilitate a clear
understanding of the consolidated historical operating results of the Company,
FFO and Adjusted FFO should be examined in conjunction with net income as
presented elsewhere in this Press Release.
Nursing home revenues and nursing home expenses in our consolidated
financial statements which relate to our owned and operated assets are as
follows:
Three Months Ended
March 31,
--------------------------
2003 2002
--------------------------
(Unaudited)
(In thousands)
Nursing home revenues (1)
Medicaid...................................... $ 855 $13,503
Medicare...................................... 272 4,257
Private & other............................... 412 3,988
--------------------------
Total nursing home revenues (2)............. 1,539 21,748
--------------------------
Nursing home expenses
Patient care expenses......................... 866 15,278
Administration................................ 1,111 4,502
Property & related............................ 209 1,592
Leasehold buyout expense...................... 582 -
Management fees............................... 76 1,200
Rent.......................................... 28 1,128
--------------------------
Total nursing home expenses (2)............. 2,872 23,700
--------------------------
Nursing home revenues and expenses of owned
and operated assets - net (2)............... $(1,333) $ -
==========================
(1) Nursing home revenues from these owned and operated assets are recognized
as services are provided.
(2) Nursing home revenues and expenses of owned and operated assets for the
three months ended March 31, 2003 are shown on a net basis on the face of
our Consolidated Statements of Operations and are shown on a gross basis
for the three months ended March 31, 2002.
The table below reconciles reported revenues and expenses to revenues and
expenses excluding nursing home revenues and expenses of owned and operated
assets. Nursing home revenues and expenses of owned and operated assets for the
three-month period ended March 31, 2003 are shown on a net basis on the face of
the Company's Consolidated Statements of Operations and are shown on a gross
basis for the three-month period ended March 31, 2002. Since nursing home
revenues are not included in reported revenues for the three-month period ended
March 31, 2003, no adjustment is necessary to exclude nursing home revenues.
Three Months Ended
March 31,
--------------------------
2003 2002
--------------------------
(Unaudited)
(In thousands)
Total revenues................................ $24,564 $43,924
Nursing home revenues of owned and
operated assets........................... - 21,748
--------------------------
Revenues excluding nursing home revenues
of owned and operated assets............ $24,564 $22,176
==========================
Total expenses................................ $18,579 $39,467
Nursing home expenses of owned and
operated assets........................... - 23,700
Nursing home revenues and expenses of owned
and operated assets - net................. 1,333 -
--------------------------
Expenses excluding nursing home expenses
of owned and operated assets............ $17,246 $15,767
==========================
The assets and liabilities in the Company's consolidated financial
statements which relate to our owned and operated assets are as follows:
March 31, December 31,
2003 2002
--------------------------
(Unaudited)
(In thousands)
ASSETS
Cash ......................................... $ 562 $ 838
Accounts receivable - net (1)................. 4,810 7,491
Other current assets (1)...................... 277 1,207
--------------------------
Total current assets....................... 5,649 9,536
--------------------------
Investment in leasehold - net (1)............. - 185
--------------------------
Land and buildings............................ 5,294 5,571
Less accumulated depreciation................. (567) (675)
--------------------------
Land and buildings - net...................... 4,727 4,896
--------------------------
Assets held for sale - net.................... - 2,324
--------------------------
Total assets............................... $10,376 $16,941
==========================
LIABILITIES
Accounts payable.............................. $ 818 $ 389
Other current liabilities..................... 4,047 4,223
--------------------------
Total current liabilities.................. 4,865 4,612
--------------------------
Total liabilities (1)......................... $ 4,865 $ 4,612
==========================
Operating assets and liabilities for owned
properties - net (1)........................ $ 222 $ -
==========================
(1) Operating assets and liabilities for owned properties as of March 31, 2003
are shown on a net basis on the face of the Company's Consolidated Balance
Sheet and are shown on a gross basis as of December 31, 2002.
Omega Healthcare Investors, Inc.
Summary of Investment Activity
First Quarter 2003