8-K: Current report filing

 

PRESS RELEASE – FOR IMMEDIATE RELEASE

OMEGA ANNOUNCES FIRST QUARTER 2018 FINANCIAL RESULTS

CONTINUES STRATEGIC ASSET REPOSITIONING

HUNT VALLEY, MARYLAND – May 7, 2018 – Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three-month period ended March 31, 2018.  The Company reported for the three-month period ended March 31, 2018 net income of $87.9 million or $0.42 per common share. The Company also reported Funds From Operations ("FFO") for the quarter of $148.0 million or $0.71 per common share, Adjusted Funds From Operations ("AFFO" or "Adjusted FFO") of $161.3 million or $0.78 per common share, and Funds Available For Distribution ("FAD") of $143.8 million.

FFO for the first quarter of 2018 includes $7.8 million in provisions for uncollectible accounts, $4.1 million of non-cash stock-based compensation expense, $2.0 million for a purchase option buyout and $0.6 million of unrealized gain on warrants (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 March 31, 2018, the Company reported net income of $87.9 million, or $0.42 per common share, on operating revenues of $220.2 million.  This compares to net income of $109.1 million, or $0.53 per common share, on operating revenues of $231.7 million, for the same period in 2017.

The decrease in net income for the three-month period ended March 31, 2018 compared to the prior year was primarily due to a $16.2 million reduction in revenue associated with the Orianna Health Systems ("Orianna" and f/k/a ARK) portfolio, a favorable $10.4 million contractual settlement recorded in the first quarter of 2017, $5.4 million in increased provisions for uncollectible accounts, a $3.6 million increase in general and administrative expenses and $3.0 million in increased interest expense.  This decrease in net income was partially offset by $10.1 million in increased gains on the sale of assets and a $2.7 million decrease in impairments on real estate assets.

Taylor Pickett, Omega's Chief Executive Officer, stated, "We continue to make good progress in our strategic asset repositioning activities and I expect that those efforts will be largely completed during 2018.  In addition, with the impending completion of Signature's consensual restructuring, we will have resolved the uncertainty associated with that operator and our investment in those assets."  Mr. Pickett added, "Orianna recommenced partial rent payments in April as required by our restructuring support agreement and we expect to have further clarity in the near future regarding our efforts to transfer a significant portion of that portfolio."

In Q2 2018, the Company…

·	declared a $0.66 per share quarterly common stock dividend rate.

In Q1 2018, the Company…

·	sold 14 facilities and had 3 mortgage loans repaid, totaling $98.4 million in net cash proceeds.

·	invested $38 million in capital renovation and construction-in-progress projects.

·	completed $30 million in new investments.

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

Operating Revenues and Expenses – Operating revenues for the three-month period ended March 31, 2018 totaled $220.2 million, which included $17.4 million of non-cash revenue.

Operating expenses for the three-month period ended March 31, 2018 totaled $99.6 million and consisted of $70.4 million of depreciation and amortization expense, $12.4 million of general and administrative expense, $7.8 million in provisions for uncollectible accounts, $4.9 million of impairments on real estate properties and $4.1 million of stock-based compensation expense.  The $12.4 million of general and administrative expense included $2.0 million related to the buyout of an in-the-money purchase option from an unrelated third party.  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 March 31, 2018 was a net expense of $49.6 million, primarily consisting of $48.0 million of interest expense and $2.2 million of amortized deferred financing costs.

Funds From Operations – For the three-month period ended March 31, 2018, FFO was $148.0 million, or $0.71 per common share on 208 million weighted-average common shares outstanding, compared to $181.0 million, or $0.88 per common share on 206 million weighted-average common shares outstanding, for the same period in 2017.

The $148.0 million of FFO for the three-month period ended March 31, 2018 includes the impact of $7.8 million in provisions for uncollectible accounts, $4.1 million of non-cash stock-based compensation expense, a $2.0 million purchase option buyout, and $0.6 million in unrealized gain on warrants.  Omega received warrants to purchase Genesis common stock in December 2017 and March 2018 in connection with its Genesis master lease and term loan amendments.

The $181.0 million of FFO for the three-month period ended March 31, 2017 includes the impact of $3.7 million of non-cash stock-based compensation expense and $2.4 million in provisions for uncollectible accounts, offset by a $10.4 million non-cash contractual settlement.

Adjusted FFO was $161.3 million, or $0.78 per common share, for the three-month period ended March 31, 2018, compared to $176.7 million, or $0.86 per common share, for the same period in 2017.  For further information see the "Funds From Operations" schedule.

Portfolio Activity

Genesis Healthcare – On March 6, 2018, the Company amended certain terms of its $48.0 million secured term loan with Genesis Healthcare, Inc. ("Genesis") and provided Genesis an additional $16.0 million secured term loan bearing interest at a fixed rate of 10% per annum, of which 5% per annum will be paid-in-kind and matures on July 29, 2020.

In connection with the Genesis master lease and term loan amendments, in December 2017 and March 2018, respectively, the Company received warrants to purchase 1.5 million shares of Genesis common stock.  In December 2017, Genesis issued the Company a stock warrant to purchase 900,000 shares of its common stock at an exercise price of $1.00 per share, exercisable beginning August 2018 and ending December 2022.  On March 6, 2018, Genesis issued the Company a stock warrant to purchase 600,000 shares of its common stock at an exercise price of $1.33 per share, exercisable beginning September 2018 and ending March 2023. For the three month period ended March 31, 2018, the Company recorded $581 thousand of other income resulting from mark-to-market gains on the warrants.

Maplewood – During the first quarter of 2018, the Company paid Maplewood Real Estate Holdings, LLC ("Maplewood"), an existing operator, approximately $50 million in exchange for a reduction of Maplewood's participation in an in-the-money purchase option.  As a result, the Company recorded a lease inducement of approximately $28 million that will be amortized as a reduction to rental income over the remaining term of the lease.  The remaining $22 million was recorded as a reduction to the initial contingent liability reported in Accrued expenses and other liabilities on the Company's Consolidated Balance Sheets.

$68 Million of New Investments in Q1 2018 – In Q1 2018, the Company completed approximately $30 million of new investments and $38 million in capital renovations and new construction consisting of the following:

$13 Million Acquisition – On February 28, 2018, the Company acquired one skilled nursing facility ("SNF") for approximately $13.2 million from an unrelated third party.  The 130 bed facility located in Virginia was added to an existing operator's master lease with an initial annual cash yield of 9.5% with 2.5% annual escalators.

$7 Million Acquisition – On March 1, 2018, the Company acquired one SNF for approximately $7.4 million from an unrelated third party.  The 66 bed facility located in Pennsylvania was added to an existing operator's master lease with an initial cash yield of 9.5% with 2.5% annual escalators.

$6 Million Acquisition – On March 1, 2018, the Company acquired one care home facility (similar to assisted living facilities in the United States) located in the United Kingdom ("UK") from an unrelated third party for approximately $5.5 million.  The 40 bed facility was added to an existing operator's master lease with an initial annual cash yield of 8.5% with 2.5% annual escalators.

$4 Million Acquisition – On February 15, 2018, the Company acquired one care home facility in the UK from an unrelated third party for approximately $3.6 million.  The 30 bed facility was added to an existing operator's master lease with an initial annual cash yield of 8.5% with 2.5% annual escalators.

$38 Million Capital Renovation Projects – In addition to the new investments outlined above, in Q1 2018, the Company invested $38.0 million under its capital renovation and construction-in-progress programs.

During the first quarter of 2018, the Company sold 14 facilities for approximately $74.0 million in net cash proceeds, recognizing a gain of approximately $17.5 million.  The Company also received $24.4 million for final payment on three mortgage loans.  In addition, the Company recorded approximately $7.8 million of provisions for uncollectible accounts related to the write-off of straight-line receivables resulting from the transfer of 15 facilities to new operators within Omega's portfolio.

During the first quarter, the Company recorded approximately $4.9 million of impairments on real estate properties to reduce the net book values of 17 facilities to their estimated fair values or expected selling prices.  As of March 31, 2018, the Company had 33 facilities classified as assets held for sale totaling $143.4 million.  The Company expects to sell these facilities over the next few quarters.

As part of its ongoing strategic asset repositioning program, in addition to the $143 million of assets held for sale, the Company is evaluating an additional $125+ million of potential disposition opportunities within its portfolio and may incur additional impairments or potential losses on the dispositions.

On April 13, 2018, the Board of Directors declared a common stock dividend of $0.66 per share, to be paid May 15, 2018 to common stockholders of record on April 30, 2018.

The Company affirmed its 2018 Adjusted FFO guidance of $2.96 to $3.06 per diluted share.

Bob Stephenson, Omega's CFO commented, "Our better than expected first quarter results largely reflect the timing of new investments and asset sales.  A number of planned asset sales were completed later in the quarter than originally assumed.  Accordingly,  we are reaffirming our previously issued guidance for 2018 annual AFFO and FAD."  Mr. Stephenson continued, "As I stated in February; we expanded our guidance range for this year as the timing of asset sales and the redeployment of capital from those sales, as well as the timing of the ultimate resolution of the Orianna portfolio through the bankruptcy process may significantly impact our results."  Mr. Stephenson concluded, "Our asset sales and approximately $275 million of potential asset dispositions are on track to be completed over the next several months.  We expect to redeploy most of the capital from the sales by year end; although the actual timing may vary."

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 (of which $38 million was completed in Q1), $98 million of assets sold and mortgages repaid in Q1 2018, the sale of $143 million of assets held for sale, approximately $125 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.

The Company will be conducting a conference call on Tuesday, May 8, 2018 at 10 a.m. Eastern to review the Company's 2018 first 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 First Quarter 2018 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.

*   *   *   *   *   *

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

________________________

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.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED INCOME STATEMENTS

Unaudited

(in thousands, except per share amounts)

OMEGA HEALTHCARE INVESTORS, INC.

FUNDS FROM OPERATIONS

Unaudited

(in thousands, except per share amounts)

 

 

		Three Months Ended
		March 31,
		2018				2017
Net income		$	87,933			$	109,112
Deduct gain from real estate dispositions			(17,500	)			(7,420	)
Sub – total			70,433				101,692
Elimination of non-cash items included in net income:
Depreciation and amortization			70,361				69,993
Depreciation - unconsolidated joint venture			1,657				1,658
Add back non-cash provision for impairments on real estate properties			4,914				7,638
Add back non-cash provision for impairments on real estate properties of unconsolidated joint venture			608				—
Funds from operations ("FFO")		$	147,973			$	180,981
Weighted-average common shares outstanding, basic			198,911				197,013
Restricted stock and PRSUs			136				347
Omega OP Units			8,769				8,814
Weighted-average common shares outstanding, diluted			207,816				206,174
Funds from operations available per share		$	0.71			$	0.88
Adjustments to calculate adjusted funds from operations:
Funds from operations		$	147,973			$	180,981
Deduct unrealized gain on warrants			(581	)			—
Deduct contractual settlement			—				(10,412	)
Deduct acquisition costs			—				(41	)
Add back one-time buy-out of purchase option			2,000				—
Add back provision for uncollectible accounts			7,814				2,404
Add back non-cash stock-based compensation expense			4,056				3,744
Adjusted funds from operations ("AFFO")		$	161,262			$	176,676
Adjustments to calculate funds available for distribution:
Non-cash interest expense		$	2,216			$	2,810
Capitalized interest			(2,296	)			(1,989	)
Non-cash revenues			(17,380	)			(18,129	)
Funds available for distribution ("FAD")		$	143,802			$	159,368

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 (computed in accordance with GAAP), adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairments on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures.  Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.  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. 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 also uses Adjusted FFO among the performance metrics for performance-based compensation of officers. 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.

The following tables present selected portfolio information, including operator and geographic concentrations, and revenue maturities for the period ended March 31, 2018:

The following tables present operator revenue mix, census and coverage data based on information provided by our operators as of December 31, 2017:

The following table presents a debt maturity schedule as of March 31, 2018:

The following table presents investment activity for the three month period ended March 31, 2018: