Form: 8-K

Current report filing

August 3, 2018

8-K: Current report filing

Published on August 3, 2018

 

 

 
PRESS RELEASE – FOR IMMEDIATE RELEASE
OMEGA ANNOUNCES SECOND QUARTER 2018 FINANCIAL RESULTS
Significant Enhancements to Portfolio through Strategic Asset Repositioning
Updates and Improves 2018 Guidance
 
HUNT VALLEY, MARYLAND – August 3, 2018 – Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three-month period ended June 30, 2018.  The Company reported for the three-month period ended June 30, 2018 net income of $82.0 million or $0.39 per common share. The Company also reported Funds From Operations ("FFO") for the quarter of $155.5 million or $0.75 per common share, Adjusted Funds From Operations ("AFFO" or "Adjusted FFO") of $159.1 million or $0.76 per common share, and Funds Available For Distribution ("FAD") of $140.3 million.
FFO for the second quarter of 2018 includes $4.1 million of non-cash stock-based compensation expense, $1.0 million of unrealized gain on warrants and $0.6 million in provisions for uncollectible accounts (Adjusted FFO excludes those three items).  FFO, AFFO and FAD are non-GAAP financial measures.  For more information regarding these non-GAAP measures, see the "Funds From Operations" schedule.

GAAP NET INCOME

For the three-month period ended June 30, 2018, the Company reported net income of $82.0 million, or $0.39 per common share, on operating revenues of $219.9 million.  This compares to net income of $68.2 million, or $0.33 per common share, on operating revenues of $235.8 million, for the same period in 2017.
For the six-month period ended June 30, 2018, the Company reported net income of $169.9 million, or $0.82 per common share, on operating revenues of $440.1 million.  This compares to net income of $177.3 million, or $0.86 per common share, on operating revenues of $467.5 million, for the same period in 2017.
The year-to-date decrease in net income compared to the prior year was primarily due to a $32.3 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, a $7.0 million increase in general and administrative expenses, $3.3 million in increased provisions for uncollectible accounts and $3.0 million in increased interest expense.  This decrease in net income was partially offset by $22.0 million decrease in interest refinancing costs, $14.0 million decrease in impairments on real estate assets and $7.8 million in increased gains on the sale of assets.

CEO COMMENTS

Taylor Pickett, Omega's Chief Executive Officer, stated, "This has been an eventful yet productive quarter.  We sold the majority of facilities associated with our strategic asset repositioning effort; we restructured our Signature portfolio; and we transitioned our legacy Orianna Mississippi and Indiana facilities to two existing Omega operators."  Mr. Pickett added, "As we noted last week, we have terminated the restructuring support agreement with our tenant 4 West Holdings and the sponsor of Orianna's restructuring plan.  We continue to work to resolve the remaining Orianna portfolio issues.  While the form of that resolution is evolving, with $12.5 million of annual rent already realized, we remain confident that the final resolution will ultimately result in our previously stated range of $32 million to $38 million of annual rent or rent equivalents from the assets that previously constituted our Orianna portfolio."  Mr. Pickett concluded "During the quarter, we hosted an Investor Day in which we provided industry and demographic information highlighting the growth opportunities ahead of us.  With an improved portfolio of assets and the majority of our dispositions behind us, we can now focus on redeploying the proceeds and growing the business."

2018 RECENT DEVELOPMENTS AND SECOND QUARTER HIGHLIGHTS

In Q3 2018, the Company

·
declared a $0.66 per share quarterly common stock dividend.
·
transitioned 14 Orianna facilities to existing operators for annual contractual rent of $12.5 million.

In Q2 2018, the Company

·
sold 47 assets for consideration of $137.6 million in cash, a $25 million seller note and $53.1 million in buyer assumed debt.
·
completed $77 million in new investments.
·
invested $54 million in capital renovation and construction-in-progress projects.
·
declared a $0.66 per share quarterly common stock dividend.

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.

SECOND QUARTER 2018 RESULTS

Operating Revenues and Expenses – Operating revenues for the three-month period ended June 30, 2018 totaled $219.9 million, which included $18.4 million of non-cash revenue.
Operating expenses for the three-month period ended June 30, 2018 totaled $84.3 million and consisted of $69.6 million of depreciation and amortization expense, $11.1 million of general and administrative expense, $4.1 million of stock-based compensation expense, $0.6 million in provisions for uncollectible accounts and recovery on real estate properties of $1.1 million.  For more information on impairment charges, see the Asset Impairment and Disposition section below.
Other Income and Expense – Other income and expense for the three-month period ended June 30, 2018 was a net expense of $49.3 million, primarily consisting of $48.1 million of interest expense, $2.2 million of amortized deferred financing costs, offst by $1.0 million in unrealized gain on warrants, classified in Interest income and other – net.
Funds From Operations – For the three-month period ended June 30, 2018, FFO was $155.5 million, or $0.75 per common share on 208 million weighted-average common shares outstanding, compared to $150.9 million, or $0.73 per common share on 207 million weighted-average common shares outstanding, for the same period in 2017.
The $155.5 million of FFO for the three-month period ended June 30, 2018 includes the impact of $4.1 million of non-cash stock-based compensation expense, $0.6 million in provisions for uncollectible accounts and $1.0 million in unrealized gain on warrants.
The $150.9 million of FFO for the three-month period ended June 30, 2017 includes the impact of $23.5 million of one-time interest refinancing costs, $3.7 million of non-cash stock-based compensation expense and $2.7 million in provisions for uncollectible accounts, offset by $1.9 million of one-time revenue.
Adjusted FFO was $159.1 million, or $0.76 per common share, for the three-month period ended June 30, 2018, compared to $179.0 million, or $0.87 per common share, for the same period in 2017.  For further information see the "Funds From Operations" schedule.

FINANCING ACTIVITIES

Equity Shelf Program and Dividend Reinvestment and Common Stock Purchase Plan – During the three-month period ended June 30, 2018, the Company sold 1.7 million shares of its common stock generating $50.4 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 2018:
Equity Shelf (At-the-Market) Program for 2018
 
(in thousands, except price per share)
 
                   
     
Q1
     
Q2
   
Year To Date
 
Number of shares 
   
     
912
     
912
 
Average price per share 
 
$
   
$
30.93
   
$
30.93
 
Gross proceeds 
 
$
   
$
28,218
   
$
28,218
 

Dividend Reinvestment and Common Stock Purchase Plan for 2018
 
(in thousands, except price per share)
 
                   
     
Q1
     
Q2
   
Year To Date
 
Number of shares 
   
189
     
759
     
948
 
Average price per share 
 
$
25.87
   
$
29.22
   
$
28.55
 
Gross proceeds 
 
$
4,886
   
$
22,164
   
$
27,050
 

2018 SECOND QUARTER PORTFOLIO ACTIVITY

Portfolio Activity:
$131 Million of New Investments in Q2 2018 – In Q2 2018, the Company completed approximately $77 million of new investments and $54 million in capital renovations and new construction consisting of the following:
$44 Million Mortgage Loan – On June 27, 2018, the Company entered into a $44.2 million first mortgage loan with an existing operator of the Company. The loan is secured by five skilled nursing facilities ("SNFs") with 522 beds located in Michigan. The loan is cross-defaulted and cross-collateralized with the Company's existing loans and master lease with the operator. The loan bears an initial annual interest rate of 9.5%, which rate increases each year by 0.225%.
$23 Million Acquisition – On June 1, 2018, the Company acquired five SNFs for approximately $22.8 million from an unrelated third party.  The five Texas SNFs with 298 beds were added to an existing operator's master lease with an initial cash yield of 9.5% with 2.195% annual rent escalators.
$10 Million Mezzanine Loan – On May 24, 2018, the Company invested an additional $10.0 million into an existing $50.0 million mezzanine loan. The annual interest rate increased to 12.0% and the maturity date was extended to May 2023.
$54 Million Capital Renovation Projects – In addition to the new investments outlined above, in Q2 2018, the Company invested $54.1 million under its capital renovation and construction-in-progress programs.

Orianna – On July 1, 2018, the Company transitioned the legacy Orianna portfolio in Mississippi (13 facilities) to an existing Omega operator with annual contractual rent of $12 million.  On August 1, 2018, a legacy Orianna facility in Indiana was transitioned to an existing operator with annual contractual rent of $0.5 million.
 
On July 25, 2018, Omega terminated the restructuring support agreement with its tenant 4 West Holdings and the sponsor of Orianna's restructuring plan.  The Company is evaluating and/or pursuing alternative courses of action to protect its assets and shareholder value, and working with operators to protect the interests of residents of the facilities.
 
Agemo Holdings LLC (formerly Signature Healthcare) – As previously reported in the Company's Form 10-Q, filed on May 10, 2018, Omega and Signature Healthcare entered into a consensual out-of-court restructuring agreement on May 7, 2018.  As part of the restructuring, Signature Healthcare was reorganized to separate each of its primary portfolios with its three major landlords into distinct lease silos.  Signature Healthcare formed Agemo Holdings LLC to be the holding company of the leases and loans of the Omega portfolio.
In connection with the Signature Healthcare restructuring, Omega agreed to: (1) defer up to $6.3 million of rent per annum for 3 years commencing May 1, 2018; (2) provide capital expenditure funds of approximately $4.5 million per year for 3 years to be used for the general maintenance and capital improvements of our 59 facilities; (3) extend a 7-year working capital term loan at 7% for an amount up to $25 million with a maturity date of April 30, 2025; (4) extend the term of the master lease by two years to December 31, 2030 and (5) extend the maturity date of the existing term loan by two years to December 31, 2024.

ASSET IMPAIRMENTS AND DISPOSITIONS

During the second quarter of 2018, the Company sold 47 assets (33 previously classified as assets held for sale and one classified as a direct financing lease) for consideration of $137.6 million in cash, a $25 million seller note and $53.1 million in buyer-assumed HUD debt, recognizing a loss of approximately $2.9 million.
During the second quarter, the Company received $5.2 million in insurance proceeds related to a facility destroyed in a fire in 2017 (note – the Company recorded a $12.6 million impairment charge related to the fire in Q4 2017) and expects to receive additional insurance proceeds in the second half of 2018.  The Company recorded impairment charges of $4.1 million primarily related to reducing the net book values on five facilities to their estimated fair values or expected selling prices.  The combination of the recovery and the impairment charges resulted in a net recovery on real estate properties of $1.1 million. 
As of June 30, 2018, the Company had three facilities classified as assets held for sale totaling $3.8 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 $3.8 million of assets held for sale, the Company is evaluating an additional $90+ million of potential disposition opportunities within its portfolio and may incur additional impairments or potential losses on the dispositions.

DIVIDENDS

On July 13, 2018, the Board of Directors declared a common stock dividend of $0.66 per share, to be paid August 15, 2018 to common stockholders of record as of the close of business on July 31, 2018.

2018 ADJUSTED FFO GUIDANCE REVISED

The Company increased the lower end of its 2018 Adjusted FFO guidance by $0.07 to its revised range of $3.03 to $3.06 per diluted share.

Bob Stephenson, Omega's CFO commented, "Similar to the first quarter, our better-than-expected second quarter results were predominantly due to planned asset sales occurring later in the quarter than initially assumed.  Accordingly, we are increasing the low end of our guidance for 2018 annual AFFO and FAD."  Mr. Stephenson continued, "As I stated when we issued our 2018 guidance in February, we expanded our initial guidance range this year due to lack of clarity around the timing of asset sales, capital redeployment and the ultimate resolution on Orianna.  With the majority of our strategic asset repositioning complete, we feel comfortable increasing the low end of our guidance range.  While we expect to redeploy most of the proceeds from the asset sales by year-end, the exact timing around redeployment will significantly impact where we fall within this revised guidance range."

The following table presents a reconciliation of Omega's guidance regarding Adjusted FFO to projected GAAP earnings.
   
2018 Annual Adjusted FFO
Guidance Range
(per diluted common share)
 
   
Full Year
 
Net Income
 
$
1.58 - $1.61
 
Depreciation
   
1.38
 
Gain on assets sold – net
   
(0.07
)
Real estate impairment
   
0.02
 
FFO
 
$
2.91 - $2.94
 
Adjustments:
       
Unrealized gain on warrants
   
(0.01
)
Purchase option buyout
   
0.01
 
Provision for uncollectible accounts
   
0.04
 
Stock-based compensation expense
   
0.08
 
Adjusted FFO
 
$
3.03 - $3.06
 
Note: All per share numbers rounded to 2 decimals.

The Company's Adjusted FFO guidance for 2018 reflects the impact of capital renovation projects, $311 million of assets sold and mortgages repaid through Q2 2018, the sale of $4 million of assets held for sale, approximately $90+ 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, with the exception of $6.25 million ($12.5 million annually) related to Orianna's former Mississippi and Indiana facilities, which transitioned to two existing operators of the Company effective July 1 and August 1, respectively.  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.

CONFERENCE CALL
The Company will be conducting a conference call on Monday, August 6, 2018 at 10 a.m. Eastern to review the Company's 2018 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 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, and other costs and uncertainties associated with operator bankruptcies; (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)

   
June 30,
   
December 31,
 
   
2018
   
2017
 
   
(Unaudited)
       
ASSETS
           
Real estate properties
           
Real estate investments 
 
$
7,571,661
   
$
7,655,960
 
Less accumulated depreciation 
   
(1,475,463
)
   
(1,376,828
)
Real estate investments – net 
   
6,096,198
     
6,279,132
 
Investments in direct financing leases – net 
   
349,465
     
364,965
 
Mortgage notes receivable – net 
   
703,309
     
671,232
 
     
7,148,972
     
7,315,329
 
Other investments – net 
   
377,206
     
276,342
 
Investment in unconsolidated joint venture 
   
32,820
     
36,516
 
Assets held for sale – net 
   
3,782
     
86,699
 
Total investments 
   
7,562,780
     
7,714,886
 
                 
Cash and cash equivalents 
   
10,951
     
85,937
 
Restricted cash 
   
2,598
     
10,871
 
Accounts receivable – net 
   
320,140
     
279,334
 
Goodwill 
   
644,369
     
644,690
 
Other assets 
   
33,301
     
37,587
 
Total assets 
 
$
8,574,139
   
$
8,773,305
 
                 
LIABILITIES AND EQUITY
               
Revolving line of credit 
 
$
220,000
   
$
290,000
 
Term loans – net 
   
902,168
     
904,670
 
Secured borrowings – net 
   
     
53,098
 
Unsecured borrowings – net 
   
3,325,889
     
3,324,390
 
Accrued expenses and other liabilities 
   
257,049
     
295,142
 
Deferred income taxes 
   
14,718
     
17,747
 
Total liabilities 
   
4,719,824
     
4,885,047
 
                 
Equity:
               
Common stock $.10 par value authorized – 350,000 shares, issued and outstanding – 200,332 shares as of June 30, 2018 and 198,309 as of December 31, 2017
   
20,033
     
19,831
 
Common stock – additional paid-in capital 
   
4,997,329
     
4,936,302
 
Cumulative net earnings 
   
2,011,689
     
1,839,356
 
Cumulative dividends 
   
(3,473,406
)
   
(3,210,248
)
Accumulated other comprehensive loss 
   
(30,157
)
   
(30,150
)
Total stockholders' equity 
   
3,525,488
     
3,555,091
 
Noncontrolling interest 
   
328,827
     
333,167
 
Total equity 
   
3,854,315
     
3,888,258
 
Total liabilities and equity 
 
$
8,574,139
   
$
8,773,305
 




OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED INCOME STATEMENTS
Unaudited
(in thousands, except per share amounts)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenue
                       
Rental income 
 
$
192,850
   
$
193,997
   
$
386,799
   
$
386,534
 
Income from direct financing leases
   
497
     
15,462
     
1,110
     
31,108
 
Mortgage interest income 
   
16,834
     
16,297
     
33,413
     
32,253
 
Other investment income 
   
9,097
     
7,278
     
17,624
     
14,192
 
Miscellaneous income 
   
603
     
2,763
     
1,134
     
3,454
 
Total operating revenues 
   
219,881
     
235,797
     
440,080
     
467,541
 
                                 
Expenses
                               
Depreciation and amortization 
   
69,609
     
70,350
     
139,970
     
140,343
 
General and administrative 
   
11,148
     
7,807
     
23,567
     
16,587
 
Stock-based compensation 
   
4,089
     
3,734
     
8,145
     
7,478
 
Acquisition costs 
   
-
     
19
     
-
     
(22
)
(Recovery) impairment on real estate properties
   
(1,097
)
   
10,135
     
3,817
     
17,773
 
Provision for uncollectible accounts
   
564
     
2,673
     
8,378
     
5,077
 
Total operating expenses 
   
84,313
     
94,718
     
183,877
     
187,236
 
                                 
Income before other income and expense
   
135,568
     
141,079
     
256,203
     
280,305
 
Other income (expense)
                               
Interest income and other – net 
   
1,125
     
254
     
1,710
     
258
 
Interest expense 
   
(48,082
)
   
(48,085
)
   
(96,093
)
   
(93,126
)
Interest – amortization of deferred financing costs
   
(2,242
)
   
(2,543
)
   
(4,485
)
   
(5,045
)
Interest – refinancing costs 
   
-
     
(21,965
)
   
-
     
(21,965
)
Contractual settlement 
   
-
     
-
     
-
     
10,412
 
Realized (loss) gain on foreign exchange
   
(66
)
   
79
     
(7
)
   
140
 
Total other expense 
   
(49,265
)
   
(72,260
)
   
(98,875
)
   
(109,326
)
                                 
Income before (loss) gain on assets sold
   
86,303
     
68,819
     
157,328
     
170,979
 
(Loss) gain on assets sold – net 
   
(2,891
)
   
(622
)
   
14,609
     
6,798
 
Income from continuing operations 
   
83,412
     
68,197
     
171,937
     
177,777
 
Income tax expense 
   
(838
)
   
(591
)
   
(1,381
)
   
(1,691
)
(Loss) income from unconsolidated joint venture
   
(588
)
   
551
     
(637
)
   
1,183
 
Net income 
   
81,986
     
68,157
     
169,919
     
177,269
 
Net income attributable to noncontrolling interest
   
(3,450
)
   
(2,900
)
   
(7,163
)
   
(7,572
)
Net income available to common stockholders
 
$
78,536
   
$
65,257
   
$
162,756
   
$
169,697
 
                                 
Income per common share available to common stockholders:
                               
Basic:
                               
Net income available to common stockholders
 
$
0.39
   
$
0.33
   
$
0.82
   
$
0.86
 
Diluted:
                               
Net income 
 
$
0.39
   
$
0.33
   
$
0.82
   
$
0.86
 
                                 
Dividends declared per common share
 
$
0.66
   
$
0.63
   
$
1.32
   
$
1.25
 
                                 
Weighted-average shares outstanding, basic
   
199,497
     
197,433
     
199,204
     
197,223
 
Weighted-average shares outstanding, diluted
   
208,460
     
206,672
     
208,139
     
206,423
 
                                 


OMEGA HEALTHCARE INVESTORS, INC.
FUNDS FROM OPERATIONS
Unaudited
(in thousands, except per share amounts)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Net income 
 
$
81,986
   
$
68,157
   
$
169,919
   
$
177,269
 
Add back loss (deduct gain) from real estate dispositions
   
2,891
     
622
     
(14,609
)
   
(6,798
)
Add back loss from real estate dispositions of unconsolidated joint venture
   
640
     
     
640
     
 
Sub – total 
   
85,517
     
68,779
     
155,950
     
170,471
 
Elimination of non-cash items included in net income:
                               
Depreciation and amortization 
   
69,609
     
70,350
     
139,970
     
140,343
 
Depreciation - unconsolidated joint venture
   
1,466
     
1,658
     
3,123
     
3,316
 
(Deduct recovery) add back non-cash provision for impairments on real estate properties
   
(1,097
)
   
10,135
     
3,817
     
17,773
 
Add back non-cash provision for impairments on real estate properties of unconsolidated joint venture
   
     
     
608
     
 
Funds from operations ("FFO") 
 
$
155,495
   
$
150,922
   
$
303,468
   
$
331,903
 
                                 
Weighted-average common shares outstanding, basic
   
199,497
     
197,433
     
199,204
     
197,223
 
Restricted stock and PRSUs 
   
197
     
467
     
167
     
407
 
Omega OP Units 
   
8,766
     
8,772
     
8,768
     
8,793
 
Weighted-average common shares outstanding, diluted
   
208,460
     
206,672
     
208,139
     
206,423
 
                                 
Funds from operations available per share 
 
$
0.75
   
$
0.73
   
$
1.46
   
$
1.61
 
                                 
Adjustments to calculate adjusted funds from operations:
                               
Funds from operations 
 
$
155,495
   
$
150,922
   
$
303,468
   
$
331,903
 
Deduct one-time revenue 
   
     
(1,881
)
   
     
(1,881
)
Deduct unrealized gain on warrants 
   
(1,021
)
   
     
(1,602
)
   
 
Deduct contractual settlement 
   
     
     
     
(10,412
)
Add back (deduct) acquisition costs 
   
     
19
     
     
(22
)
Add back one-time buy-out of purchase option
   
     
     
2,000
     
 
Add back provision for uncollectible accounts
   
564
     
2,673
     
8,378
     
5,077
 
Add back interest refinancing expense 
   
     
23,539
     
     
23,539
 
Add back non-cash stock-based compensation expense
   
4,089
     
3,734
     
8,145
     
7,478
 
Adjusted funds from operations ("AFFO")
 
$
159,127
   
$
179,006
   
$
320,389
   
$
355,682
 
                                 
Adjustments to calculate funds available for distribution:
                               
Non-cash interest expense 
 
$
2,215
   
$
2,851
   
$
4,431
   
$
5,661
 
Capitalized interest 
   
(2,608
)
   
(1,906
)
   
(4,904
)
   
(3,895
)
Non-cash revenues 
   
(18,432
)
   
(17,956
)
   
(35,812
)
   
(36,085
)
Funds available for distribution ("FAD") 
 
$
140,302
   
$
161,995
   
$
284,104
   
$
321,363
 
                                 

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 income statement, 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 lease and loan maturities for the period ended June 30, 2018:
   
As of June 30, 2018
   
As of June 30, 2018
 
Balance Sheet Data
 
Total # of Properties
   
Total Investment ($000's)
   
% of Investment
   
# of Operating Properties (1)
   
# of Operating Beds (1)
 
Real Estate Investments
   
840
   
$
7,571,661
     
88
%
   
830
     
83,002
 
Direct Financing Leases
   
40
     
349,465
     
4
%
   
40
     
4,144
 
Mortgage Notes Receivable
   
53
     
703,309
     
8
%
   
53
     
5,764
 
     
933
   
$
8,624,435
     
100
%
   
923
     
92,910
 
Assets held for sale
   
3
     
3,782
                         
Total Investments
   
936
   
$
8,628,217
                         
 
Investment Data
 
Total # of Properties
   
Total Investment ($000's)
   
% of Investment
   
# of Operating Properties(1)
   
# of Operating Beds (1)
   
Investment per Bed ($000's)
 
Skilled Nursing Facilities/Transitional Care
   
805
   
$
7,152,134
     
83
%
   
798
     
85,130
   
$
84
 
Senior Housing (2)
   
128
     
1,472,301
     
17
%
   
125
     
7,780
   
$
189
 
     
933
   
$
8,624,435
     
100
%
   
923
     
92,910
   
$
93
 
Assets held for sale
   
3
     
3,782
                                 
Total Investments
   
936
   
$
8,628,217
                                 
(1) (1) Excludes facilities which are non-operating, closed and/or not currently providing patient services.
(2) Includes ALFs, memory care and independent living facilities.
 
 
Revenue Composition ($000's)
                 
                   
Revenue by Investment Type
 
Three Months Ended
   
Six Months Ended
 
   
June 30, 2018
   
June 30, 2018
 
Rental Property
 
$
192,850
     
88
%
 
$
386,799
     
88
%
Direct Financing Leases
   
497
     
0
%
   
1,110
     
0
%
Mortgage Notes
   
16,834
     
8
%
   
33,413
     
8
%
Other Investment Income and Miscellaneous Income - net
   
9,700
     
4
%
   
18,758
     
4
%
   
$
219,881
     
100
%
 
$
440,080
     
100
%

Revenue by Facility Type
 
Three Months Ended
   
Six Months Ended
 
   
June 30, 2018
   
June 30, 2018
 
Skilled Nursing Facilities/Transitional Care
 
$
182,266
     
83
%
 
$
364,519
     
83
%
Senior Housing
   
27,915
     
13
%
   
56,803
     
13
%
Other
   
9,700
     
4
%
   
18,758
     
4
%
   
$
219,881
     
100
%
 
$
440,080
     
100
%
                                 




Rent/Interest Concentration by Operator
($000's)
 
# of Properties (1)
   
Total
Annualized Contractual Rent/Interest (1)(2)
   
% of Total
Annualized Contractual Rent/Interest
 
Ciena Healthcare
   
74
   
$
88,767
     
11.5
%
CommuniCare Health Services, Inc.
   
47
     
61,389
     
8.0
%
Genesis Healthcare
   
50
     
57,259
     
7.4
%
Signature Holdings II, LLC
   
59
     
50,064
     
6.5
%
Saber Health Group
   
40
     
40,767
     
5.3
%
Health & Hospital Corporation
   
44
     
35,234
     
4.6
%
Guardian LTC Management Inc.
   
32
     
31,036
     
4.0
%
Maplewood Real Estate Holdings, LLC
   
14
     
30,450
     
4.0
%
Daybreak Venture, LLC.
   
57
     
29,666
     
3.9
%
Diversicare Healthcare Services
   
35
     
28,866
     
3.7
%
Remaining Operators (3)
   
415
     
316,642
     
41.1
%
     
867
   
$
770,140
     
100.0
%
                         
(1)
(1) Excludes facilities which are non-operating, closed and/or not currently providing patient services.
(2) 2Q 2018 contractual rent/interest annualized; includes mezzanine and term loan interest.
(3) Excludes 42 Orianna and 14 Preferred Care facilities due to their bankruptcy status: all facilities of these two operators are expected to be transitioned or sold.
 

Geographic Concentration by Investment ($000's)
 
Total # of Properties (1)
   
Total
Investment (1)
   
% of Total Investment
 
Texas
   
118
   
$
830,726
     
9.6
%
Florida
   
93
     
823,540
     
9.5
%
Michigan
   
53
     
681,344
     
7.9
%
Ohio
   
62
     
635,090
     
7.4
%
Indiana
   
65
     
583,112
     
6.8
%
California
   
54
     
497,584
     
5.8
%
Pennsylvania
   
43
     
463,951
     
5.4
%
Tennessee
   
38
     
324,770
     
3.8
%
Virginia
   
18
     
285,063
     
3.3
%
North Carolina
   
32
     
270,254
     
3.1
%
Remaining 31 states (2)
   
302
     
2,821,396
     
32.7
%
     
878
     
8,216,830
     
95.3
%
United Kingdom
   
55
     
407,605
     
4.7
%
     
933
   
$
8,624,435
     
100.0
%
(1) Excludes three properties with total investment of $3.8 million classified as assets held for sale.
(2) Remaining 31states Total Investment includes New York City 2nd Avenue development project.
         




Rent and Loan Maturities ($000's)
As of June 30, 2018
 
Operating Lease Expirations
& Loan Maturities
Year
 
2018 Lease Rent
   
2018 Interest
   
2018 Lease and Interest Rent
   
%
 
 2018
 
$
-
   
$
1,442
   
$
1,442
     
0.2
%
 2019
   
2,093
     
-
     
2,093
     
0.3
%
 2020
   
5,387
     
3,376
     
8,763
     
1.1
%
 2021
   
6,186
     
142
     
6,328
     
0.8
%
 2022
   
37,096
     
-
     
37,096
     
4.8
%
 2023
   
22,803
     
-
     
22,803
     
3.0
%
   
Notes: Based on annualized 2nd quarter 2018 contractual rent and interest.
 
Excludes Preferred Care's contractual revenue of approximately $3.2 million expiring in 2022 due to its bankruptcy status.
 
Orianna revenue of approximately $47.3 million does not contractually expire until 2026 or later and therefore is also excluded due to their bankruptcy status.
 

The following tables present operator revenue mix, census and coverage data based on information provided by our operators as of March 31, 2018:

Operator Revenue Mix (1)
 
As of March 31, 2018
 
   
Medicaid
   
Medicare / Insurance
   
Private / Other
 
                   
Three-months ended March 31, 2018
   
51.3
%
   
36.4
%
   
12.3
%
Three-months ended December 31, 2017
   
52.9
%
   
34.6
%
   
12.5
%
Three-months ended September 30, 2017
   
52.9
%
   
34.7
%
   
12.4
%
Three-months ended June 30, 2017
   
51.9
%
   
35.9
%
   
12.2
%
Three-months ended March 31, 2017
   
51.0
%
   
37.3
%
   
11.7
%
   
(1) Excludes all facilities considered non-core.
 

Operator Census and Coverage (1)
       
Coverage Data
 
   
Occupancy (2)
   
Before
Management Fees
   
After
Management Fees
 
                   
Twelve-months ended March 31, 2018
   
82.4
%
   
1.69
x
   
1.33
x
Twelve-months ended December 31, 2017
   
82.3
%
   
1.71
x
   
1.34
x
Twelve-months ended September 30, 2017
   
82.2
%
   
1.72
x
   
1.35
x
Twelve-months ended June 30, 2017
   
82.4
%
   
1.71
x
   
1.34
x
Twelve-months ended March 31, 2017
   
82.5
%
   
1.69
x
   
1.33
x
                         
(1) Excludes all facilities considered non-core.
(2) Based on available (operating) beds.
 



The following table presents a debt maturity schedule as of June 30, 2018:

Debt Maturities ($000's)
 
Unsecured Debt
       
 
Year
 
Line of Credit and Term Loans (1)
   
Senior Notes/Other (2)
   
Sub Notes (3)
   
Total Debt Maturities
 
2018
 
$
-
   
$
-
   
$
-
   
$
-
 
2019
   
-
     
-
     
-
     
-
 
2020
   
-
     
-
     
-
     
-
 
2021
   
220,000
     
-
     
20,000
     
240,000
 
2022
   
907,030
     
-
     
-
     
907,030
 
2023
   
-
     
700,000
     
-
     
700,000
 
Thereafter
   
-
     
2,650,000
     
-
     
2,650,000
 
   
$
1,127,030
   
$
3,350,000
   
$
20,000
   
$
4,497,030
 
                                 
(1) The $220 million Line of Credit borrowings excludes $4.8 million net deferred financing costs and can be extended into 2022. The $907 million is comprised of a: $425 million US Dollar term loan, £100 million term loan (equivalent to $132 million in US dollars), $100 million term loan to Omega's operating partnership and $250 million term loan (excludes $4.9 million net deferred financing costs related to the term loans).
(2) Excludes net discounts and deferred financing costs.
(3) Excludes $0.3 million of fair market valuation adjustments.
 
                                 

The following table presents investment activity for the three and six month periods ended June 30, 2018:

Investment Activity ($000's)
 
Three Months Ended
   
Six Months Ended
 
   
June 30, 2018
   
June 30, 2018
 
Funding by Investment Type
 
$ Amount
   
%
   
$ Amount
   
%
 
Real Property
 
$
22,825
     
17.4
%
 
$
52,497
     
26.4
%
 Construction-in-Progress
   
38,743
     
29.6
%
   
58,228
     
29.4
%
Capital Expenditures
   
15,367
     
11.7
%
   
33,830
     
17.0
%
Investment in Direct Financing Leases
   
-
     
0.0
%
   
15
     
0.0
%
Mortgages
   
44,200
     
33.7
%
   
44,200
     
22.2
%
Other
   
10,000
     
7.6
%
   
10,000
     
5.0
%
Total
 
$
131,135
     
100.0
%
 
$
198,770
     
100.0
%