Form: 8-K

Current report filing

November 5, 2018

8-K: Current report filing

Published on November 5, 2018

 
 

PRESS RELEASE – FOR IMMEDIATE RELEASE
OMEGA ANNOUNCES THIRD QUARTER 2018 FINANCIAL RESULTS
Strategic Asset Repositioning Substantially Complete;
Begins Capital Redeployment

HUNT VALLEY, MARYLAND – November 5, 2018 – Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three-month period ended September 30, 2018.  The Company reported for the three-month period ended September 30, 2018 net income of $59.1 million or $0.28 per common share. The Company also reported Funds From Operations ("FFO") for the quarter of $159.4 million or $0.76 per common share, Adjusted Funds From Operations ("AFFO" or "Adjusted FFO") of $162.6 million or $0.77 per common share, and Funds Available For Distribution ("FAD") of $144.0 million.
FFO for the third quarter of 2018 includes $4.0 million of non-cash stock-based compensation expense, $1.2 million of unrealized loss on warrants and $2.0 million in recovery of 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 September 30, 2018, the Company reported net income of $59.1 million, or $0.28 per common share, on operating revenues of $221.9 million.  This compares to a net loss of ($137.5) million, or ($0.67) per common share, on operating revenues of $219.6 million, for the same period in 2017.
For the nine-month period ended September 30, 2018, the Company reported net income of $229.0 million, or $1.10 per common share, on operating revenues of $661.9 million.  This compares to net income of $39.8 million, or $0.19 per common share, on operating revenues of $687.2 million, for the same period in 2017.
The year-to-date increase in net income compared to the prior year was primarily due to $233.6 million of impairments on direct financing leases and real estate recorded in 2017 versus $26.7 million recorded in 2018, $22.0 million in decreased interest refinancing costs, a $7.3 million decrease in provision for uncollectible accounts and $1.8 million in increased gains on the sale of assets. The increase in net income was partially offset by 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 $9.6 million increase in general and administrative expenses and $3.3 million in increased interest expense.

CEO COMMENTS

Taylor Pickett, Omega's Chief Executive Officer, stated, "I am happy with the continued progress we made this quarter.  We were able to successfully transition 22 of our legacy Orianna facilities to current operators with good rent coverage.  We continue to make headway with the sale and/or transition of the remaining legacy Orianna facilities and we expect this process to conclude in the next few months.  Furthermore, we remain confident that the final resolution will 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, "We have substantially completed our strategic disposition program and, during the quarter, we began the process of redeploying the capital realized from this program.  While the pipeline is currently not as robust as we would hope, we believe we will continue to find opportunities to allocate capital to quality assets run by sophisticated operators.  As such, in the coming 12 months we would envision returning to our historical growth model where acquisitions meaningfully exceed dispositions."

2018 RECENT DEVELOPMENTS AND THIRD QUARTER HIGHLIGHTS

In Q4 2018, the Company

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

In Q3 2018, the Company

·
transitioned 22 Orianna facilities for annual contractual rent of $17 million.
·
sold 7 assets for consideration of $26 million in cash and a $5 million seller note.
·
completed $131 million in new investments.
·
invested $44 million in capital renovation and construction-in-progress projects.
·
paid a $0.66 per share quarterly common stock dividend.

In Q2 2018, the Company

·
sold 47 assets for consideration of $138 million in cash, a $25 million seller note and $53 million in buyer assumed debt.
·
completed $77 million in new investments.
·
invested $54 million in capital renovation and construction-in-progress projects.
·
paid 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 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.

THIRD QUARTER 2018 RESULTS

Operating Revenues and Expenses – Operating revenues for the three-month period ended September 30, 2018 totaled $221.9 million, which included $17.9 million of non-cash revenue.
Operating expenses for the three-month period ended September 30, 2018 totaled $105.8 million and consisted of $70.7 million of depreciation and amortization expense, $22.9 million of impairment on real estate properties, $10.3 million of general and administrative expense, $4.0 million of stock-based compensation expense and a $2.0 million recovery of uncollectible accounts.  For more information on impairment charges, see the Asset Impairments and Dispositions section below.
Other Income and Expense – Other income and expense for the three-month period ended September 30, 2018 was a net expense of $51.2 million, primarily consisting of $47.8 million of interest expense, $2.2 million of amortized deferred financing costs and $1.2 million in unrealized loss on warrants, in Interest income and other – net.
Funds From Operations – For the three-month period ended September 30, 2018, FFO was $159.4 million, or $0.76 per common share, on 210 million weighted-average common shares outstanding, compared to a loss of ($46.8) million, or a loss of ($0.24) per common share on 207 million weighted-average common shares outstanding, for the same period in 2017.
The $159.4 million of FFO for the three-month period ended September 30, 2018 includes the impact of $4.0 million of non-cash stock-based compensation expense, $2.0 million in recovery for uncollectible accounts and $1.2 million in unrealized loss on warrants.
The ($46.8) million loss of FFO for the three-month period ended September 30, 2017 includes the impact of $194.7 million in impairment on direct financing leases, $11.9 million in provision for uncollectible accounts and $3.9 million of non-cash stock-based compensation expense.
Adjusted FFO was $162.6 million, or $0.77 per common share, for the three-month period ended September 30, 2018, compared to $163.6 million, or $0.79 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 September 30, 2018, the Company sold 0.3 million shares of its common stock, generating $9.9 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
     
Q3
   
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 Planfor 2018
 
   
(in thousands, except price per share)
 
                         
     
Q1
     
Q2
     
Q3
   
Year To Date
 
Number of shares 
   
189
     
759
     
309
     
1,257
 
Average price per share 
 
$
25.87
   
$
29.22
   
$
31.82
   
$
29.36
 
Gross proceeds 
 
$
4,886
   
$
22,164
   
$
9,854
   
$
36,904
 



2018 THIRD QUARTER PORTFOLIO ACTIVITY

$175 Million of New Investments in Q3 2018 – In Q3 2018, the Company completed approximately $131 million of new investments and $44 million in capital renovations and new construction consisting of the following:
$131 Million Loan – On September 28, 2018, the Company entered into a $131.3 million secured term loan with an unrelated third party. The loan is secured by a collateral assignment of mortgages covering seven skilled nursing facilities ("SNFs"), three independent living facilities ("ILFs"), and one assisted living facility ("ALF") located in Pennsylvania and Virginia. The loan bears an interest rate of 9.35% and matures on February 28, 2019.  On or before maturity, the Company expects to obtain fee simple title to the facilities and add the facilities to an existing operator's master lease.
$44 Million Capital Renovation Projects – In addition to the new investment outlined above, in Q3 2018, the Company invested $43.6 million under its capital renovation and construction-in-progress programs.

Orianna – During the quarter, the Company transitioned 22 of the legacy Orianna facilities to five existing Omega operators with combined annual contractual rents of $16.8 million.

On October 12, 2018 the Company sold a legacy Orianna facility to a third party operator for consideration of $4.0 million.

The sale and/or transition of the remaining 19 legacy Orianna facilities is progressing under the supervision of the Bankruptcy Court and we expect this process to conclude in the next few months. The timing of the process and our receipt of the sales proceeds is subject to the approval of the Bankruptcy Court.

ASSET IMPAIRMENTS AND DISPOSITIONS

During the third quarter of 2018, the Company sold seven assets (one previously classified as assets held for sale and one classified as a direct financing lease) for consideration consisting of $25.9 million in cash and a $5.1 million seller note, recognizing a loss of approximately $5.4 million. The Company recorded impairment charges of $22.9 million primarily related to reducing the net book values on eight facilities to their estimated fair values or expected selling prices.
As of September 30, 2018, the Company had 10 facilities classified as assets held for sale totaling $17.8 million.  The Company expects to sell these facilities over the next few quarters.
As part of its strategic asset repositioning program, in addition to the $17.8 million of assets held for sale, the Company is evaluating an additional $60+ million of potential disposition opportunities within its portfolio and may incur additional impairments or potential losses on the dispositions.

DIVIDENDS

On October 16, 2018, the Board of Directors declared a common stock dividend of $0.66 per share, to be paid November 15, 2018 to common stockholders of record as of the close of business on October 31, 2018.



2018 ADJUSTED FFO GUIDANCE AFFIRMED

The Company affirmed of its 2018 Adjusted FFO guidance range of $3.03 to $3.06 per diluted share.

Bob Stephenson, Omega's CFO commented, "Our financial performance improved sequentially in the third quarter as we transitioned some of our legacy Orianna facilities to current operators and began to redeploy capital from our strategic disposition program.  We believe resolution of the remaining legacy Orianna portfolio and further capital investment will continue to improve operating performance, enhancing our dividend coverage and returning us to our targeted leverage range, to which we remain committed."  Mr. Stephenson continued, "With a well-laddered debt profile and no near-term maturities, we believe we are well-positioned from a balance sheet perspective to weather the interest rate volatility and continue to grow our business."

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
 
$
1.48 - $1.51
 
Depreciation
   
1.35
 
Gain on assets sold – net
   
(0.05
)
Real estate impairment
   
0.13
 
FFO
 
$
2.91 - $2.94
 
Adjustments:
       
Unrealized gain on warrants
   
-
 
Purchase option buyout
   
0.01
 
Provision for uncollectible accounts
   
0.03
 
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, $345 million of assets sold and mortgages repaid to us through Q3 2018, the sale of $18 million of assets held for sale, approximately $60+ 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 restructure/sale portfolio in the fourth quarter of 2018.  The Company expects to record approximately $4.2 million in revenue in Q4 related to the Orianna transition portfolio (in Q3 2018, Omega transitioned 22 facilities subject to direct financing leases with a net carrying value of approximately $184.5 million from Orianna to other operators with annual contractual rent of approximately $16.8 million).  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, November 5, 2018 at 10 a.m. Eastern to review the Company's 2018 third 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 Third 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)

   
September 30,
   
December 31,
 
   
2018
   
2017
 
   
(Unaudited)
       
ASSETS
           
Real estate properties
           
Real estate investments 
 
$
7,700,636
   
$
7,655,960
 
Less accumulated depreciation 
   
(1,515,846
)
   
(1,376,828
)
Real estate investments – net 
   
6,184,790
     
6,279,132
 
Investments in direct financing leases – net 
   
163,467
     
364,965
 
Mortgage notes receivable – net 
   
708,178
     
671,232
 
     
7,056,435
     
7,315,329
 
Other investments – net 
   
511,668
     
276,342
 
Investment in unconsolidated joint venture 
   
32,159
     
36,516
 
Assets held for sale – net 
   
17,826
     
86,699
 
Total investments 
   
7,618,088
     
7,714,886
 
                 
Cash and cash equivalents 
   
9,768
     
85,937
 
Restricted cash 
   
1,371
     
10,871
 
Accounts receivable – net 
   
336,825
     
279,334
 
Goodwill 
   
644,201
     
644,690
 
Other assets 
   
31,711
     
37,587
 
Total assets 
 
$
8,641,964
   
$
8,773,305
 
                 
LIABILITIES AND EQUITY
               
Revolving line of credit 
 
$
360,000
   
$
290,000
 
Term loans – net 
   
900,847
     
904,670
 
Secured borrowings – net 
   
     
53,098
 
Senior notes and other unsecured borrowings – net 
   
3,327,393
     
3,324,390
 
Accrued expenses and other liabilities 
   
253,560
     
295,142
 
Deferred income taxes 
   
14,198
     
17,747
 
Total liabilities 
   
4,855,998
     
4,885,047
 
                 
Equity:
               
Common stock $.10 par value authorized – 350,000 shares, issued and outstanding – 200,693 shares as of September 30, 2018 and 198,309 as of December 31, 2017
   
20,069
     
19,831
 
Common stock – additional paid-in capital 
   
5,012,544
     
4,936,302
 
Cumulative net earnings 
   
2,068,295
     
1,839,356
 
Cumulative dividends paid
   
(3,606,181
)
   
(3,210,248
)
Accumulated other comprehensive loss 
   
(32,382
)
   
(30,150
)
Total stockholders' equity 
   
3,462,345
     
3,555,091
 
Noncontrolling interest 
   
323,621
     
333,167
 
Total equity 
   
3,785,966
     
3,888,258
 
Total liabilities and equity 
 
$
8,641,964
   
$
8,773,305
 




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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenue
                       
Rental income 
 
$
192,276
   
$
194,063
   
$
579,075
   
$
580,597
 
Income from direct financing leases
   
264
     
614
     
1,374
     
31,722
 
Mortgage interest income 
   
18,396
     
16,920
     
51,809
     
49,173
 
Other investment income 
   
10,259
     
7,245
     
27,883
     
21,437
 
Miscellaneous income 
   
657
     
796
     
1,791
     
4,250
 
Total operating revenues 
   
221,852
     
219,638
     
661,932
     
687,179
 
                                 
Expenses
                               
Depreciation and amortization 
   
70,711
     
71,925
     
210,681
     
212,268
 
General and administrative 
   
10,278
     
7,688
     
33,845
     
24,275
 
Stock-based compensation 
   
3,962
     
3,872
     
12,107
     
11,350
 
Acquisition costs 
   
-
     
-
     
-
     
(22
)
Impairment on real estate properties
   
22,868
     
17,837
     
26,685
     
35,610
 
Impairment on direct financing leases
   
-
     
194,659
     
15
     
197,968
 
(Recovery) provision for uncollectible accounts
   
(2,000
)
   
11,899
     
6,363
     
13,667
 
Total operating expenses 
   
105,819
     
307,880
     
289,696
     
495,116
 
                                 
Income (loss) before other income and expense
   
116,033
     
(88,242
)
   
372,236
     
192,063
 
Other income (expense)
                               
Interest income and other – net 
   
(1,214
)
   
4
     
496
     
262
 
Interest expense 
   
(47,764
)
   
(47,383
)
   
(143,857
)
   
(140,509
)
Interest – amortization of deferred financing costs
   
(2,238
)
   
(2,228
)
   
(6,723
)
   
(7,273
)
Interest – refinancing costs 
   
-
     
-
     
-
     
(21,965
)
Contractual settlement 
   
-
     
-
     
-
     
10,412
 
Realized gain on foreign exchange
   
27
     
95
     
20
     
235
 
Total other expense 
   
(51,189
)
   
(49,512
)
   
(150,064
)
   
(158,838
)
                                 
Income (loss) before (loss) gain on assets sold
   
64,844
     
(137,754
)
   
222,172
     
33,225
 
(Loss) gain on assets sold – net 
   
(5,361
)
   
693
     
9,248
     
7,491
 
Income (loss) from continuing operations
   
59,483
     
(137,061
)
   
231,420
     
40,716
 
Income tax expense 
   
(804
)
   
(999
)
   
(2,185
)
   
(2,690
)
Income (loss) from unconsolidated joint venture
   
383
     
545
     
(254
)
   
1,728
 
Net income (loss) 
   
59,062
     
(137,515
)
   
228,981
     
39,754
 
Net (income) loss attributable to noncontrolling interest
   
(2,456
)
   
5,837
     
(9,619
)
   
(1,735
)
Net income (loss) available to common stockholders
 
$
56,606
   
$
(131,678
)
 
$
219,362
   
$
38,019
 
                                 
Income per common share available to common stockholders:
                               
Basic:
                               
Net income (loss) available to common stockholders
 
$
0.28
   
$
(0.67
)
 
$
1.10
   
$
0.19
 
Diluted:
                               
Net income (loss) 
 
$
0.28
   
$
(0.67
)
 
$
1.10
   
$
0.19
 
                                 
Dividends declared per common share
 
$
0.66
   
$
0.64
   
$
1.98
   
$
1.89
 
                                 
Weighted-average shares outstanding, basic
   
200,910
     
197,890
     
199,773
     
197,445
 
Weighted-average shares outstanding, diluted
   
210,437
     
206,662
     
208,905
     
206,502
 
                                 


OMEGA HEALTHCARE INVESTORS, INC.
FUNDS FROM OPERATIONS
Unaudited
(in thousands, except per share amounts)
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Net income (loss) 
 
$
59,062
   
$
(137,515
)
 
$
228,981
   
$
39,754
 
Add back loss (deduct gain) from real estate dispositions
   
5,361
     
(693
)
   
(9,248
)
   
(7,491
)
Add back loss from real estate dispositions of unconsolidated joint venture
   
30
     
     
670
     
 
Sub-total 
   
64,453
     
(138,208
)
   
220,403
     
32,263
 
Elimination of non-cash items included in net income:
                               
Depreciation and amortization 
   
70,711
     
71,925
     
210,681
     
212,268
 
Depreciation - unconsolidated joint venture
   
1,381
     
1,657
     
4,504
     
4,973
 
Add back non-cash provision for impairments on real estate properties
   
22,868
     
17,837
     
26,685
     
35,610
 
Add back non-cash provision for impairments on real estate properties of unconsolidated joint venture
   
     
     
608
     
 
Funds from operations ("FFO") 
 
$
159,413
   
$
(46,789
)
 
$
462,881
   
$
285,114
 
                                 
Weighted-average common shares outstanding, basic
   
200,910
     
197,890
     
199,773
     
197,445
 
Restricted stock and PRSUs 
   
812
     
     
382
     
271
 
Omega OP Units 
   
8,715
     
8,772
     
8,750
     
8,786
 
Weighted-average common shares outstanding, diluted
   
210,437
     
206,662
     
208,905
     
206,502
 
                                 
Funds from operations available per share 
 
$
0.76
   
$
(0.24
)
 
$
2.22
   
$
1.38
 
                                 
Adjustments to calculate adjusted funds from operations:
                               
Funds from operations 
 
$
159,413
   
$
(46,789
)
 
$
462,881
   
$
285,114
 
Deduct one-time revenue 
   
     
     
     
(1,881
)
Add back (deduct) unrealized loss (gain) on warrants
   
1,231
     
     
(371
)
   
 
Deduct contractual settlement 
   
     
     
     
(10,412
)
Deduct acquisition costs 
   
     
     
     
(22
)
Add back one-time buy-out of purchase option
   
     
     
2,000
     
 
Add back impairment for direct financing leases
   
     
194,659
     
15
     
197,968
 
(Deduct) add back (recovery) provision for uncollectible accounts
   
(2,000
)
   
11,899
     
6,363
     
13,667
 
Add back interest refinancing expense 
   
     
     
     
23,539
 
Add back non-cash stock-based compensation expense
   
3,962
     
3,872
     
12,107
     
11,350
 
Adjusted funds from operations ("AFFO")
 
$
162,606
   
$
163,641
   
$
482,995
   
$
519,323
 
                                 
Adjustments to calculate funds available for distribution:
                               
Non-cash interest expense 
 
$
2,212
   
$
2,200
   
$
6,643
   
$
7,861
 
Capitalized interest 
   
(2,898
)
   
(1,972
)
   
(7,802
)
   
(5,867
)
Non-cash revenues 
   
(17,897
)
   
(13,314
)
   
(53,709
)
   
(49,399
)
Funds available for distribution ("FAD") 
 
$
144,023
   
$
150,555
   
$
428,127
   
$
471,918
 
                                 

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 September 30, 2018:
   
As of September 30, 2018
   
As of September 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
   
851
   
$
7,700,636
     
90
%
   
846
     
84,759
 
Direct Financing Leases
   
18
     
163,467
     
2
%
   
18
     
1,753
 
Mortgage Notes Receivable
   
53
     
708,178
     
8
%
   
53
     
5,764
 
     
922
   
$
8,572,281
     
100
%
   
917
     
92,276
 
Assets Held For Sale
   
10
     
17,826
                         
Total Investments
   
932
   
$
8,590,107
                         

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
   
795
   
$
7,083,109
     
83
%
   
793
     
84,520
   
$
84
 
Senior Housing (2)
   
127
     
1,489,172
     
17
%
   
124
     
7,756
   
$
192
 
     
922
   
$
8,572,281
     
100
%
   
917
     
92,276
   
$
93
 
Assets Held For Sale
   
10
     
17,826
                                 
Total Investments
   
932
   
$
8,590,107
                                 
(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
   
Nine Months Ended
 
   
September 30, 2018
   
September 30, 2018
 
Rental Property
 
$
192,276
     
87
%
 
$
579,075
     
88
%
Direct Financing Leases
   
264
     
0
%
   
1,374
     
0
%
Mortgage Notes
   
18,396
     
8
%
   
51,809
     
8
%
Other Investment Income and Miscellaneous Income - net
   
10,916
     
5
%
   
29,674
     
4
%
   
$
221,852
     
100
%
 
$
661,932
     
100
%

Revenue by Facility Type
 
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2018
   
September 30, 2018
 
Skilled Nursing Facilities/Transitional Care
 
$
183,691
     
83
%
 
$
548,210
     
83
%
Senior Housing
   
27,245
     
12
%
   
84,048
     
13
%
Other
   
10,916
     
5
%
   
29,674
     
4
%
   
$
221,852
     
100
%
 
$
661,932
     
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
   
$
94,277
     
11.9
%
CommuniCare Health Services, Inc.
   
46
     
61,624
     
7.8
%
Genesis Healthcare
   
50
     
57,327
     
7.2
%
Signature Holdings II, LLC
   
58
     
50,556
     
6.4
%
Saber Health Group
   
45
     
43,379
     
5.5
%
Health & Hospital Corporation
   
44
     
35,469
     
4.5
%
Maplewood Real Estate Holdings, LLC
   
14
     
31,367
     
4.0
%
Guardian LTC Management Inc.
   
32
     
31,192
     
3.9
%
Daybreak Venture, LLC.
   
57
     
30,017
     
3.8
%
Diversicare Healthcare Services
   
35
     
28,959
     
3.7
%
Remaining Operators (3)
   
427
     
328,167
     
41.3
%
     
882
   
$
792,334
     
100.0
%
                         
(1) Excludes facilities which are non-operating, closed and/or not currently providing patient services.
(2) 3Q 2018 contractual rent/interest annualized; includes mezzanine and term loan interest.
(3) Excludes 20 Orianna facilities, 14 Preferred Care facilities and one Safe Haven facility due to their bankruptcy status: all facilities of these three 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
   
116
   
$
825,921
     
9.7
%
Florida
   
93
     
822,624
     
9.6
%
Michigan
   
53
     
686,212
     
8.0
%
Ohio
   
60
     
629,884
     
7.3
%
Indiana
   
65
     
582,802
     
6.8
%
California
   
54
     
497,588
     
5.8
%
Pennsylvania
   
43
     
464,270
     
5.4
%
Tennessee
   
35
     
284,102
     
3.3
%
Virginia
   
18
     
280,718
     
3.3
%
North Carolina
   
32
     
274,264
     
3.2
%
Remaining 31 states (2)
   
298
     
2,821,299
     
32.9
%
     
867
     
8,169,684
     
95.3
%
United Kingdom
   
55
     
402,597
     
4.7
%
     
922
   
$
8,572,281
     
100.0
%
(1) Excludes 10 properties with total investment of $17.8 million classified as assets held for sale.
(2) Includes New York City 2nd Avenue development project.
         




Rent and Loan Maturities ($000's)
As of September 30, 2018
 
Operating Lease Expirations
& Loan Maturities
Year
 
2018 Lease Rent
   
2018 Interest
   
2018 Lease and Interest Rent
   
%
 
 2018
 
$
-
   
$
-
   
$
-
     
0.0
%
 2019
   
734
     
1,442
     
2,176
     
0.3
%
 2020
   
5,397
     
3,444
     
8,841
     
1.1
%
 2021
   
6,241
     
140
     
6,381
     
0.8
%
 2022
   
37,336
     
-
     
37,336
     
4.7
%
 2023
   
19,047
     
-
     
19,047
     
2.4
%
   
Notes: Based on annualized 3rd quarter 2018 contractual rent and interest.
 
Excludes Safe Haven contractual revenue of approximately $1.4 million expiring in 2019 due to its bankruptcy status.
 
Orianna revenue of approximately $26.1 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 June 30, 2018:

Operator Revenue Mix (1)
 
As of June 30, 2018
 
   
Medicaid
   
Medicare / Insurance
   
Private / Other
 
                   
Three-months ended June 30, 2018
   
52.7
%
   
34.8
%
   
12.5
%
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
%
   
(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 June 30, 2018
   
82.5
%
   
1.70
x
   
1.34
x
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
                         
(1) Excludes all facilities considered non-core.
(2) Based on available (operating) beds.
 



The following table presents a debt maturity schedule as of September 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
   
360,000
     
-
     
20,000
     
380,000
 
2022
   
905,410
     
-
     
-
     
905,410
 
2023
   
-
     
700,000
     
-
     
700,000
 
Thereafter
   
-
     
2,650,000
     
-
     
2,650,000
 
   
$
1,265,410
   
$
3,350,000
   
$
20,000
   
$
4,635,410
 
                                 
(1) The $360 million Line of Credit borrowings excludes $4.4 million net deferred financing costs and can be extended into 2022. The $905 million is comprised of a: $425 million US Dollar term loan, £100 million term loan (equivalent to $130 million in US dollars), $100 million term loan to Omega's operating partnership and $250 million term loan (excludes $4.6 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 nine month periods ended September 30, 2018:

Investment Activity ($000's)
 
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2018
   
September 30, 2018
 
Funding by Investment Type
 
$ Amount
   
%
   
$ Amount
   
%
 
Real Property
 
$
-
     
0.0
%
 
$
52,497
     
14.0
%
 Construction-in-Progress
   
32,443
     
18.5
%
   
90,671
     
24.3
%
Capital Expenditures
   
11,206
     
6.4
%
   
45,035
     
12.1
%
Investment in Direct Financing Leases
   
-
     
0.0
%
   
15
     
0.0
%
Mortgages
   
-
     
0.0
%
   
44,200
     
11.8
%
Other
   
131,300
     
75.1
%
   
141,300
     
37.8
%
Total
 
$
174,949
     
100.0
%
 
$
373,718
     
100.0
%