8-K: Current report filing

 

PRESS RELEASE – FOR IMMEDIATE RELEASE

OMEGA ANNOUNCES FOURTH QUARTER 2017 FINANCIAL RESULTS

CONTINUES STRATEGIC ASSET REPOSITIONING

HUNT VALLEY, MARYLAND – February 13, 2018 – Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three-month period ended December 31, 2017.  The Company reported for the three-month period ended December 31, 2017 net income of $65.2 million or $0.31 per common share. The Company also reported Funds From Operations ("FFO") for the quarter of $159.2 million or $0.77 per common share, Adjusted Funds From Operations ("AFFO" or "Adjusted FFO") of $163.7 million or $0.79 per common share, and Funds Available For Distribution ("FAD") of $149.0 million.

FFO for the fourth quarter of 2017 includes $3.9 million of non-cash stock-based compensation expense, $0.9 million in provisions for uncollectible accounts, $0.5 million of one-time revenue and $0.2 million in impairments on direct financing leases (Adjusted FFO excludes those four items).  FFO, AFFO and FAD are non-GAAP financial measures.  For more information regarding these non-GAAP measures, see the "Funds From Operations" schedule.

For the three-month period ended December 31, 2017, the Company reported net income of $65.2 million, or $0.31 per common share, on operating revenues of $221.2 million.  This compares to net income of $129.9 million, or $0.63 per common share, on operating revenues of $234.5 million, for the same period in 2016.

For the twelve-month period ended December 31, 2017, the Company reported net income of $104.9 million, or $0.51 per common share, on operating revenues of $908.4 million.  This compares to net income of $383.4 million, or $1.90 per common share, on operating revenues of $900.8 million, for the same period in 2016.

The decrease in annual net income compared to the prior year was primarily due to $198.2 million in impairments on direct financing leases related to the Orianna Health Systems ("Orianna" and f/k/a ARK) portfolio, $40.6 million of reduced revenue resulting from placing Orianna and Daybreak on a cash basis in 2017, and incremental increases of $40.3 million in impairments on real estate assets, $24.7 million in interest expense, $20.5 million in depreciation and amortization expense, $19.9 million in interest refinancing costs, $4.7 million in provisions for uncollectible accounts and $1.8 million in general and administrative expenses.  This decrease in net income was partially offset by $48.2 million of increased revenue associated with new investments completed in 2016 and 2017, $3.7 million in increased gains on the sale of assets, a contractual settlement of $10.4 million recorded in the first quarter of 2017 and a decrease of $9.6 million in acquisition costs.

Taylor Pickett, Omega's Chief Executive Officer stated, "Healthcare delivery continues to rapidly evolve.  In anticipation of the changing environment, we made significant progress in our strategic asset repositioning efforts during the fourth quarter.  We disposed of 35 non-strategic assets at favorable cap rates, and we are evaluating over $300 million of assets to potentially sell or transition in addition to the identified 22 facilities that are currently held for sale."  Mr. Pickett continued, "In addition, we continued to make progress with Orianna and Signature to cooperatively transition and restructure these portfolios."

In Q1 2018, the Company…

·	increased its quarterly common stock dividend rate to $0.66 per share.

·	sold 3 facilities and had 3 mortgage loans paid off totaling $35 million in net cash proceeds.

In Q4 2017, the Company…

·	sold 34 facilities and had a mortgage loan repaid totaling $189 million in net cash proceeds.

·	completed $40 million in new investments.

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

·	increased its quarterly common stock dividend rate to $0.65 per share.

In Q3 2017, the Company…

·	completed $203 million in new investments.

·	sold 4 facilities totaling $12 million in net cash proceeds.

·	transitioned Orianna's Texas portfolio to an existing operator.

·	invested $36 million in capital renovation and construction-in-progress projects.

·	increased its quarterly common stock dividend rate to $0.64 per share.

In Q2 2017, the Company…

·	entered into new and amended senior unsecured credit facilities to replace the Company's prior unsecured revolving credit and term loan credit facilities.

·	completed $134 million in new investments.

·	sold 8 facilities totaling $45 million in net cash proceeds.

·	invested $48 million in capital renovation and construction-in-progress projects.

·	redeemed $400 million of its 5.875% Senior Notes due 2024.

·	prepaid a $200 million senior unsecured term loan.

·	issued $550 million aggregate principal amount of its 4.75% Senior Notes due 2028.

·	issued $150 million aggregate principal amount of its 4.50% Senior Notes due 2025.

·	increased its quarterly common stock dividend rate to $0.63 per share.

In Q1 2017, the Company…

·	completed $8 million in new investments.

·	sold 15 facilities totaling $46 million in net cash proceeds.

·	invested $30 million in capital renovation and construction-in-progress projects.

·	increased its quarterly common stock dividend rate to $0.62 per share.

 

Operating Revenues and Expenses – Operating revenues for the three-month period ended December 31, 2017 totaled $221.2 million, which included $14.7 million of non-cash revenue.

Operating expenses for the three-month period ended December 31, 2017 totaled $152.0 million and consisted of $75.3 million of depreciation and amortization expense, $63.5 million of impairment on real estate properties, $8.2 million of general and administrative expense, $3.9 million of stock-based compensation expense, $0.9 million in provision for uncollectible accounts and $0.2 million in impairment on direct financing leases.  For more information on impairment and provision charges, see the Asset Impairment and Disposition section below.

Other Income and Expense – Other income and expense for the three-month period ended December 31, 2017 was a net expense of $50.4 million, primarily consisting of $48.3 million of interest expense and $2.2 million of amortized deferred financing costs.

Funds From Operations – For the three-month period ended December 31, 2017, FFO was $159.2 million, or $0.77 per common share on 208 million weighted-average common shares outstanding, compared to $171.5 million, or $0.84 per common share on 205 million weighted-average common shares outstanding, for the same period in 2016.

The $159.2 million of FFO for the three-month period ended December 31, 2017 includes the impact of $3.9 million of non-cash stock-based compensation expense, $0.9 million in provision for uncollectible accounts and $0.2 million in impairment on direct financing leases, offset by $0.5 million in one-time non-cash revenue.

The $171.5 million of FFO for the three-month period ended December 31, 2016 includes the impact of $5.9 million in provisions for uncollectible accounts and $3.7 million of non-cash stock-based compensation expense, offset by $0.7 million in one-time non-cash revenue.

Adjusted FFO was $163.7 million, or $0.79 per common share, for the three-month period ended December 31, 2017, compared to $180.4 million, or $0.88 per common share, for the same period in 2016.  For further information see the "Funds From Operations" schedule.

Operating Revenues and Expenses – Operating revenues for the twelve-month period ended December 31, 2017 totaled $908.4 million.  Operating expenses for the twelve-month period ended December 31, 2017 totaled $647.1 million and were comprised of $287.6 million of depreciation and amortization expense, $198.2 million in impairment on direct financing leases related to the Orianna portfolio, $99.1 million of impairment on real estate properties, $32.5 million of general and administrative expense, $15.2 million of non-cash stock-based compensation expense and $14.6 million in provision for uncollectible accounts.

Other Income and Expense – Other income and expense for the twelve-month period ended December 31, 2017 was a net expense of $209.3 million, which was primarily comprised of $188.8 million of interest expense, $22.0 million of interest refinancing costs and $9.5 million of amortized deferred financing costs, offset by a one-time $10.4 million contractual settlement with an unrelated third party related to a 2012 contingent liability obligation that was resolved in the first quarter of 2017.

Funds From Operations – For the twelve-month period ended December 31, 2017, FFO was $444.3 million, or $2.15 per common share on 207 million weighted-average common shares outstanding, compared to $660.1 million, or $3.27 per common share on 202 million weighted-average common shares outstanding, for the same period in 2016.

The $444.3 million of FFO for the twelve-month period ended December 31, 2017 includes the impact of $198.2 million in impairment on direct financing leases related to the Orianna portfolio, $23.5 million of interest expenses related to debt refinancing, $15.2 million of non-cash stock-based compensation expense and $14.6 million in provisions for uncollectible accounts, offset by a one-time $10.4 million contractual settlement with an unrelated third party related to a 2012 contingent liability obligation that was resolved in the first quarter of 2017 and $2.4 million of one-time revenue.

The $660.1 million of FFO for the twelve-month period ended December 31, 2016 includes the impact of $13.8 million of non-cash stock-based compensation expense, $9.8 million in provisions for uncollectible accounts, $9.6 million of acquisition costs and $2.1 million of interest refinancing costs, offset by a $5.4 million cash receipt related to early termination of mortgages and $1.3 million of one-time revenue.

Adjusted FFO was $683.0 million, or $3.30 per common share, for the twelve months ended December 31, 2017, compared to $688.7 million, or $3.42 per common share, for the same period in 2016.  For further information see the "Funds From Operations" schedule.

Equity Shelf Program and Dividend Reinvestment and Common Stock Purchase Plan – During the three-month period ended December 31, 2017, the Company sold 0.2 million shares of its common stock generating $6.6 million of gross proceeds.  The following table outlines shares of the Company's common stock issued under its Equity Shelf program and its Dividend Reinvestment and Common Stock Purchase Plan in 2017:

$71 Million of New Investments in Q4 2017 – In Q4 2017, the Company completed approximately $40 million of new investments and $31 million in capital renovations and new construction consisting of the following:

$40 Million Acquisition – On November 1, 2017, the Company acquired six skilled nursing facilities ("SNFs") for approximately $39.8 million from an unrelated third party.  The six Texas SNFs with approximately 575 beds were leased to a new operator of the Company with an initial annual cash yield of 9.25% and 2.5% annual escalators.  On the same date, the Company also transferred one facility (120 beds) from an existing operator and added it to the new lessee's master lease.

$31 Million Capital Renovation Projects – In addition to the new investments outlined above, in Q4 2017, the Company invested $31.1 million under its capital renovation and construction-in-progress programs.

During the fourth quarter of 2017, the Company sold 34 facilities for approximately $189.0 million in net cash proceeds recognizing a gain of approximately $46.4 million.  The Company also received $0.1 million for final payment on one facility mortgage.  In addition, the Company recorded approximately $0.9 million of provision for uncollectible accounts, related to the write-off of straight-line receivables, resulting from 2018 expected sales.

In addition, during the fourth quarter, the Company recorded approximately $63.5 million of impairments on real estate properties to reduce the net book value of 32 facilities to their estimated fair value or expected selling price.  The fourth quarter impairments included a charge of $13.2 million related to a facility destroyed in a fire.  The Company expects to receive insurance proceeds in 2018.

As of December 31, 2017, the Company had 22 facilities, totaling $86.7 million, classified as assets held for sale.  The Company expects to sell these facilities over the next few quarters.  As part of its ongoing strategic asset repositioning program, the Company is also evaluating an additional $300+ million of potential disposition opportunities within its portfolio.

On January 16, 2018, the Board of Directors declared a common stock dividend of $0.66 per share, increasing the quarterly common dividend by $0.01 per share over the previous quarter.  The common dividends are to be paid February 15, 2018 to common stockholders of record on January 31, 2018.

Mr. Pickett commented, "As a result of our strategic repositioning activities, 2018 will not be a growth year, and therefore, we do not expect to increase the dividend during 2018.  However, I want to be very clear that we are confident in the payout percentage coverage and sustainability of our current quarterly dividend."

The Company currently expects its 2018 Adjusted FFO to be between $2.96 and $3.06 per diluted share. 

Bob Stephenson, Omega's CFO commented, "Our 2018 guidance reflects the revenue reduction related to our fourth quarter asset sales, assets held for sale and approximately $300 million of potential asset dispositions."  Mr. Stephenson continued, "We fully expect to redeploy most of the capital from the sales by year end; however, the timing is very unpredictable."  Mr. Stephenson concluded, "Timing related to the redeployment of capital from asset sales and the timing related to the final outcome of the Orianna facilities may significantly impact our guidance and we have therefore expanded our guidance range versus previous years."

 The following table presents a reconciliation of Omega's guidance regarding Adjusted FFO to projected GAAP earnings.

Note: All per share numbers rounded to 2 decimals.

The Company's Adjusted FFO guidance for 2018 reflects the impact of approximately $100 million of planned capital renovation projects, the sale of $87 million of assets held for sale, approximately $300 million of potential divestitures and the redeployment of capital from asset sales.  It assumes the Company will not be recording revenue related to its Orianna portfolio for the majority of 2018.  It also excludes the impact of gains and losses from the sale of assets, certain revenue and expense items, interest refinancing expense, capital transactions, acquisition costs, and additional provisions for uncollectible accounts, if any.  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 stock-based compensation 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.

On February 15, 2017, May 15, 2017, August 15, 2017 and November 15, 2017, the Company paid dividends to its common stockholders in the per share amounts of $0.62, $0.63, $0.64 and $0.65, for stockholders of record on January 31, 2017, May 1, 2017, August 1, 2017 and October 31, 2017, respectively.  The Company has determined that 36.70% of the common dividends paid in 2017 should be treated for tax purposes as a return of capital, 61.85% treated as an ordinary dividend, with the balance of 1.45% treated as capital gains.

The Company will be conducting a conference call on Wednesday, February 14, 2018 at 10 a.m. Eastern to review the Company's 2017 fourth 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 Fourth Quarter 2017 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 that invests in the long-term healthcare industry, primarily in skilled nursing and assisted living facilities.  Its portfolio of assets is operated by a diverse group of healthcare companies, predominantly in a triple-net lease structure.  The assets span all regions within the US, as well as in the UK.

FOR FURTHER INFORMATION, CONTACT

Matthew Gourmand, SVP, Investor Relations

or

Bob Stephenson, CFO at (410) 427-1700

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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, facility transitions, 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 Omega 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 sell assets held for sale or complete potential asset sales on a timely basis and on terms that allow Omega to realize the carrying value of these assets; (x) Omega's ability to re-lease, otherwise transition or sell underperforming 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) the potential impact of changes in the SNF and assisted living facility ("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; (xiii) changes in interest rates; (xiv) changes in tax laws and regulations affecting REITs and (xv) 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.

 

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