8-K: Current report filing

 

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PRESS RELEASE – FOR IMMEDIATE RELEASE

OMEGA ANNOUNCES SECOND QUARTER 2016 FINANCIAL RESULTS;

ADJUSTED FFO OF $0.87 AND EPS OF $0.57 PER SHARE FOR THE SECOND QUARTER

HUNT VALLEY, MARYLAND – August 2, 2016 – Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three-month period ended June 30, 2016.  The Company also reported for the three-month period ended June 30, 2016 Funds From Operations ("FFO") of $172.3 million or $0.87 per common share, Funds Available For Distribution ("FAD") of $154.0 million and net income of $113.2 million, or $0.57 per common share.

The $172.3 million of FFO for the second quarter of 2016 includes $3.7 million of non-cash stock-based compensation expense and $3.5 million of acquisition and merger related costs.  These were offset by a $5.4 million prepayment penalty (cash received) related to early termination of mortgages and a $1.2 million recovery related to provisions for uncollectible mortgages, notes and straight-line receivables.  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 $0.87 per common share for the three-month period ended June 30, 2016.  FFO, Adjusted FFO and FAD are non-GAAP financial measures.  Adjusted FFO is calculated as FFO excluding the impact of certain non-cash items and certain items of revenue or expense, including, but not limited to: acquisition and merger related costs, interest refinancing costs, provisions for impairment, uncollectible mortgages and accounts receivable and stock-based compensation expense.  For more information regarding FFO, Adjusted FFO and FAD, see the "Second Quarter 2016 Results – Funds From Operations" section.

For the three-month period ended June 30, 2016, the Company reported net income of $113.2 million, or $0.57 per common share, on operating revenues of $228.8 million.  This compares to net income of $43.5 million, or $0.22 per common share, on operating revenues of $197.7 million, for the same period in 2015.

For the six-month period ended June 30, 2016, the Company reported net income of $171.4 million, or $0.86 per common share, on operating revenues of $441.7 million.  This compares to net income of $86.5 million, or $0.53 per common share, on operating revenues of $331.1 million, for the same period in 2015.

The year-to-date increase in net income compared to the prior year was primarily due to revenue associated with the acquisition by merger (the "Aviv Merger") of Aviv REIT, Inc. ("Aviv") on April 1, 2015 and new investments completed in 2015 and 2016.  This increase was partially offset by (i) $38.2 million in increased depreciation and amortization expense, (ii) $28.6 million in increased impairments on real estate assets, (iii) $6.3 million in increased interest expense, (iv) $4.0 million in incremental general and administrative expenses, (v) $4.0 million increase in provisions for uncollectible mortgages, notes and straight-line receivables and (vi) a $2.0 million increase in stock-based compensation expense.

In Q3 2016, the Company…

·	repurchased an outstanding $180 million secured term loan due 2019.

·	increased its quarterly common stock dividend rate to $0.60 per share.

·	issued $700 million aggregate principal amounts of its 4.375% Senior Notes due 2023.

In Q2 2016, the Company…

·	completed $220 million in new investments.

·	invested $28 million in capital renovation and construction in progress projects.

·	increased its quarterly common stock dividend rate to $0.58 per share.

In Q1 2016, the Company…

·	completed $494 million in new investments.

·	invested $31 million in capital renovation and construction in progress projects.

·	completed a $350 million senior unsecured 5-year term loan.

·	increased its quarterly common stock dividend rate to $0.57 per share.

Operating Revenues and Expenses – Operating revenues for the three-month period ended June 30, 2016 totaled $228.8 million.  Operating expenses for the three-month period ended June 30, 2016 totaled $86.6 million and were comprised of $65.5 million of depreciation and amortization expense, $8.2 million of general and administrative expense, $6.9 million impairment on real estate assets, $3.7 million of stock-based compensation expense and $3.5 million of acquisition and merger related costs.

The Company also recorded a $1.2 million adjustment in provision for uncollectible mortgages, notes and straight line receivables representing a recovery of a receivable previously written-off.  For information regarding the $6.9 million of real estate impairments, see the "Asset Disposition and Impairments" section.

Other Income and Expense – Other income and expense for the three-month period ended June 30, 2016 was a net expense of $41.9 million, which was primarily comprised of $39.7 million of interest expense and $2.2 million of amortized deferred financing costs.

Funds From Operations – For the three-month period ended June 30, 2016, reportable FFO was $172.3 million, or $0.87 per common share on 199 million weighted-average common shares outstanding, compared to $100.7 million, or $0.52 per common share on 194 million weighted-average common shares outstanding, for the same period in 2015.

The $172.3 million of FFO for the three-month period ended June 30, 2016 includes the impact of a $5.4 million cash receipt related to early termination of mortgages, $3.7 million of non-cash stock-based compensation expense, $3.5 million of acquisition and merger related costs and a $1.2 million adjustment (recovery) related to the provision for uncollectible mortgages, notes and straight-line receivables.

The $100.7 million of FFO for the three-month period ended June 30, 2015 includes the impact of $47.1 million of acquisition related costs, $2.9 million of non-cash stock-based compensation expense and a $1.0 million adjustment (gain) related to interest refinancing activities.

Adjusted FFO was $173.0 million, or $0.87 per common share, for the three months ended June 30, 2016, compared to $149.7 million, or $0.77 per common share, for the same period in 2015.  For further information see the "Funds From Operations" schedule.

$180 Million Secure Term Loan Repurchase – On July 25, 2016, the Company purchased the outstanding $180 million secured term loan to two subsidiaries of the Company that were acquired as part of the Aviv Merger on April 1, 2015.  The Company paid $180 million plus a 1% prepayment fee to purchase the debt.  The Company's purchase of this term loan eliminates the debt on the Company's consolidated financial statements going forward.  .  The term loan was secured by real estate assets having a net carrying value of $290.5 million at June 30, 2016. The interest rate was based on LIBOR, with a floor of 50 basis points, plus a margin of 350 basis points. The interest rate at June 30, 2016 was 4.13% per annum.

$700 Million Senior Notes – On July 12, 2016, the Company sold $700 million aggregate principal amount of its 4.375% Senior Notes due 2023 (the "2023 Notes").  The 2023 Notes were sold at an issue price of 99.739% of their face value before the underwriters' discount.  The Company's net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $692.0 million.  The net proceeds from the offering were used to repay outstanding borrowings under the Company's revolving credit facility and for general corporate purposes.

As of June 30, 2016, the Company had $470 million of outstanding borrowings under its revolving credit facility and $1.1 billion of outstanding unsecured term loan borrowings.

Equity Shelf Program and Dividend Reinvestment and Common Stock Purchase Plan – During the first two quarters of 2016, the Company sold the following shares of its common stock under its Equity Shelf Program and its Dividend Reinvestment and Common Stock Purchase Plan:

$220 Million of New Investments in Q2 2016 – In Q2 2016, the Company completed four separate transactions totaling $220 million of new investments.  The new investments consisted of the following:

$32 Million Acquisition – In May 2016, the Company acquired three skilled nursing facilities ("SNFs") located in Colorado (2) and Missouri (1) from an unrelated third party for $31.8 million and leased them to an existing operator.  The SNFs, consisting of 344 operating beds, were added to the existing operator's master lease with an initial annual cash yield of 9.0% with 2.5% annual escalators.

$9 Million Mezzanine Loan – In April 2016, the Company invested $8.5 million in a mezzanine loan with a third party.  The loan bears interest at 11% per annum and matures in May 2021.

$114 Million Acquisition – In April 2016, the Company acquired 10 care homes (similar to assisted living facilities ("ALFs") in the United States) in the United Kingdom ("UK") from an unrelated third party for approximately $113.8 million (USD) and leased them to its existing UK operator.  The 10 care homes with 743 registered beds were added to the existing operator's 12-year master lease which has an initial annual cash yield of 7% with 2.5% annual escalators.

$66 Million Acquisition – In April 2016, the Company acquired three ALFs / independent living facilities located in Texas (representing 355 operating beds) for approximately $66.0 million and leased them to a new operator to the Company.   The facilities were combined into a 12-year master lease agreement with an initial annual cash yield of 6.8% in year one, increasing to 7.2% in year two, 7.4% in year three with annual escalators of 2.8% thereafter.

$28 Million Capital Renovation Projects – In Q2 2016, the Company invested approximately $28 million under its capital renovation and construction in progress programs.

$50 Million of Mortgage Loan and Note Repayments in Q2 2016 – On April 29, 2016, an existing operator paid $55.4 million to the Company to repay approximately $50.0 million related to several facility mortgages and notes.  As a result, for the three-month period ended June 30, 2016, the Company recorded prepayment penalty income (classified as Mortgage interest income) of approximately $5.4 million.

During the second quarter of 2016, the Company sold 11 facilities (seven previously classified as assets held for sale) for approximately $41.4 million in net cash proceeds recognizing a gain of approximately $13.2 million.  Four of the 11 facility sales resulted from an existing operator of Omega exercising its options to purchase four facilities with a carrying value of approximately $15 million which were held for sale at March 31, 2016 for approximately $24 million.

During the three-month period ending June 30, 2016, the Company recorded approximately $6.9 million in provisions for impairment and moved four additional facilities to assets held for sale.  As of June 30, 2016, the Company had 22 facilities, totaling $52.5 million, classified as held for sale.  The Company expects to sell these facilities over the next few quarters.

On July 14, 2016, the Board of Directors declared a common stock dividend of $0.60 per share, increasing the quarterly common dividend by $0.02 per share over the prior quarter, to be paid August 15, 2016 to common stockholders of record on August 1, 2016.

The Company revised its 2016 annual Adjusted FFO to be between $3.36 and $3.40 per share.  The table below outlines Omega's 2016 quarterly guidance for Adjusted FFO:

The Company's Adjusted FFO guidance for 2016 includes approximately $773 million of combined new investments and planned capital renovation projects completed through June 30, 2016.  It also includes approximately $400 million of potential new investments which may close in 2016; however, it excludes the impact of gains and losses from the sale of assets, certain revenue and expense items, interest refinancing expense, capital transactions, acquisition and merger related costs, provisions for uncollectable receivables and stock-based compensation expense.  A reconciliation of the Adjusted FFO guidance to the Company's projected GAAP earnings is provided on schedules 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 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 and potential new investments.

The Company will be conducting a conference call on Wednesday, August 3, 2016 at 10 a.m. Eastern to review the Company's 2016 second quarter results and current developments.  Analysts and investors within the United States interested in participating are invited to call (877) 511-2891.  The Canadian toll-free dial-in number is (855) 669-9657.  All other international participants can use the dial-in number (412) 902-4140.  Ask the operator to be connected to the "Omega Healthcare's Second Quarter 2016 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.

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Omega is a real estate investment trust investing in and providing financing to the long-term care industry. As of June 30, 2016, Omega has a portfolio of investments that includes over 900 properties located in 42 states and the United Kingdom and operated by 84 different operators.

FOR FURTHER INFORMATION, CONTACT

Bob Stephenson, CFO at (410) 427-1700

________________________

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding Omega's or its tenants', operators', borrowers' or managers' expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, merger integration, growth opportunities, expected lease income, continued qualification as a REIT, plans and objectives of management for future operations and statements that include words such as "anticipate," "if," "believe," "plan," "estimate," "expect," "intend," "may," "could," "should," "will" and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from Omega's expectations. Omega does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

Omega's 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 Omega'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 Omega's operators; (iv) the ability of any of Omega's operators in bankruptcy to reject unexpired lease obligations, modify the terms of Omega's mortgages and impede the ability of 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 Omega's credit ratings and the ratings of its debt securities; (vii) competition in the financing of healthcare facilities; (viii) Omega's ability to maintain its status as a REIT; (ix) Omega's ability to manage, re-lease or sell any owned and operated facilities, if any; (x) Omega's ability to sell closed or foreclosed assets on a timely basis and on terms that allow Omega to realize the carrying value of these assets; (xi) the effect of economic and market conditions generally, and particularly in the healthcare industry; (xii) risks relating to the integration of Aviv's operations and employees into Omega and the possibility that the anticipated synergies and other benefits of the combination with Aviv will not be realized or will not be realized within the expected timeframe; (xiii) the potential impact of changes in the SNF and ALF market or local real estate conditions on the Company's ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to redeploy the proceeds therefrom on favorable terms and (xiv) other factors identified in Omega's filings with the Securities and Exchange Commission. Statements regarding future events and developments and Omega's future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward looking statements. Omega undertakes no obligation to update any forward-looking statements contained in this announcement.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share amounts)

OMEGA HEALTHCARE INVESTORS, INC.

FUNDS FROM OPERATIONS

Unaudited

(in thousands, except per share amounts)

Funds From Operations ("FFO"), Adjusted FFO and Funds Available for Distribution ("FAD") are non-GAAP financial measures.  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 exclude 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 include 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, 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, Adjusted FFO and FAD are important supplemental measures 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.

Adjusted FFO is calculated as FFO excluding the impact of non-cash stock-based compensation and certain revenue and expense items identified above. FAD is calculated as Adjusted FFO less non-cash interest expense and non-cash revenue, such as straight-line rent. The Company believes these measures provide an enhanced measure of the operating performance of the Company's core portfolio as a REIT. FAD is calculated as Adjusted FFO less non-cash interest expense and non-cash revenue, such as straight-line rent.  The Company's computation of Adjusted FFO and FAD are not comparable to the NAREIT definition of FFO or to similar measures reported by other REITs, but the Company believes that they are appropriate measures for this Company.

The Company uses these non-GAAP measures among the 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 these measures to assist the users of its financial statements in analyzing its operating performance and not as measures of liquidity or cash flow. These non-GAAP measures are not measures of financial performance under GAAP and should not be considered as measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with GAAP.  Investors and potential investors in the Company's securities should not rely on these non-GAAP measures as substitutes for any GAAP measure, including net income.

 

 

2016 Quarterly Adjusted FFO Guidance Range (per diluted common share)
			Q3				Q4			Full Year
Net Income		$	0.49 - $0.50			$	0.49 - $0.52			$	1.84 - $1.88
Depreciation			0.32				0.32				1.28
Gain on assets sold			-				-				(0.07	)
Real estate impairments			-				-				0.21
FFO		$	0.81 - $0.82			$	0.81 - $0.84			$	3.26 - $3.30
Adjustments:
Transaction costs			-				-				0.04
Provision for uncollectible accounts			-				-				0.02
One-time cash items in FFO			-				-				(0.03	)
Stock-based compensation expense			0.02				0.02				0.07
Adjusted FFO		$	0.83 - $0.84			$	0.83 - $0.86			$	3.36 - $3.40

The following tables present selected portfolio information, including operator and geographic concentrations, and revenue maturities for the period ended June 30, 2016:

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

(1) Based on available (operating) beds.

The following table presents a debt maturity schedule as of June 30, 2016:

The following table presents investment activity for the three– and six– month period ended June 30, 2016: