8-K: Current report filing

PRESS RELEASE – FOR IMMEDIATE RELEASE

OMEGA ANNOUNCES FOURTH QUARTER 2019 FINANCIAL RESULTS

Completed $896 Million in New Investments in Q4

Increased Quarterly Dividend by $0.01 to $0.67 in October

Provides 2020 Net Income and AFFO Guidance

HUNT VALLEY, MARYLAND – February 5, 2020 – Omega Healthcare Investors, Inc. (NYSE:OHI) (the “Company” or “Omega”) today announced its results of operations for the quarter ended December 31, 2019.  The Company reported net income of $61.1 million or $0.27 per common share. The Company also reported NAREIT Funds From Operations (“NAREIT FFO”) for the quarter of $175.5 million or $0.77 per common share, Adjusted Funds From Operations (“AFFO” or “Adjusted FFO”) of $178.3 million or $0.78 per common share, and Funds Available For Distribution (“FAD”) of $163.7 million.

NAREIT FFO, AFFO and FAD are supplemental non-GAAP financial measures that we believe are useful in evaluating the performance of real estate investment trusts.  For more information regarding these non-GAAP measures, see the “Funds From Operations” schedule below and the Company’s website at www.omegahealthcare.com.

GAAP NET INCOME

For the quarter ended December 31, 2019, the Company reported net income of $61.1 million, or $0.27 per common share, on revenues of $246.7 million.  This compares to net income of $64.9 million, or $0.31 per common share, on revenues of $219.8 million, for the same period in 2018.  The $3.8 million decrease is primarily due to an increase in impairments on real estate properties and a decrease in gains on assets sold.  The decrease was primarily offset by incremental revenue from new investments completed in 2019.

For the year ended December 31, 2019, the Company reported net income of $351.9 million, or $1.58 per common share, on revenues of $928.8 million.  This compares to net income of $293.9 million, or $1.40 per common share, on revenues of $881.7 million, for the same period in 2018.

The year-to-date increase in net income compared to the prior year was primarily due to (i) $45.4 million in revenue from incremental new investments, (ii) a  $30.9 million increase in gains on the sale of assets, (iii) a $10.6 million increase in net income from unconsolidated joint ventures related to gains on the sale of assets  in Q2 2019 and (iv) a $3.8 million decrease in impairments on direct financing leases and real estate properties. The increase in net income was partially offset by (i) a  $20.4 million increase in depreciation and amortization expense related to new investments, (ii) $6.7 million in increased interest expense, (iii) a $4.4 million increase in impairments for uncollectible accounts and (iv) $4.7 million of merger costs related to the May 2019 acquisition of MedEquities Realty Trust, Inc. (“MedEquities”).

CEO COMMENTS

Taylor Pickett, Omega’s Chief Executive Officer, stated, “The fourth quarter represented a strong conclusion to a very productive year.  In December, we completed our acquisition of a 49% interest in a U.K. senior

housing joint venture for approximately $90 million.  In addition, we continue to source smaller, attractively priced acquisitions and new development projects with our existing tenants, while opportunistically divesting of certain non-core holdings.”

Mr. Pickett continued, “In 2019, we were able to accretively invest over $1.6 billion, furthering our relationship with quality existing tenants while selectively diversifying our operator base by leasing to additional proven and experienced operators.”

Mr. Pickett concluded, “We expect the momentum of 2019 to carry into 2020.  We are excited for our Maplewood-run Carnegie Hill assisted living facility to begin accepting residents in the coming months.  The new Medicare reimbursement model, the Patient Driven Payment Model or PDPM, has received positive feedback from operators. While it’s too early to make any definitive conclusions, when combined with the recent 2.4% increase in Medicare reimbursement and the promising demographic tailwinds, we believe our operators are well-positioned to weather the continued labor cost pressures and generate solid financial performance over time.”

2020 RECENT DEVELOPMENTS AND FOURTH QUARTER HIGHLIGHTS

In Q1 2020, the Company…

In Q4 2019, the Company…

In Q3 2019, the Company…

In Q2 2019, the Company…

In Q1 2019, the Company…

FOURTH QUARTER 2019 RESULTS

Operating Revenues and Expenses – Revenues for the quarter ended December 31, 2019 totaled $246.7 million, which included $14.1 million of non-cash revenue, $2.4 million of real estate tax and ground rents, $1.4 million of one-time revenue and a write-off of $0.2 million in uncollectible accounts primarily related to straight-line revenue.

Expenses for the quarter ended December 31, 2019 totaled $133.7 million, consisting of $80.5 million of depreciation and amortization expense, $9.9 million of general and administrative (“G&A”) expense, $3.4 million of real estate tax and ground lease expense, $35.7 million of impairment on real estate properties, $3.8 million of stock-based compensation expense and $0.2 million of impairment on direct financing leases.

Other Income and Expense – Other income and expense for the quarter ended December 31, 2019 was a net expense of $54.8 million, primarily consisting of $52.8 million of interest expense and $2.8 million of amortized deferred financing costs.

Funds From Operations – For the quarter ended December 31, 2019, NAREIT FFO was $175.5 million, or $0.77 per common share, on 228 million weighted-average common shares outstanding, compared to $124.7 million, or $0.59 per common share on 212 million weighted-average common shares outstanding, for the same period in 2018.

The $175.5 million of NAREIT FFO for the quarter ended December 31, 2019 includes $3.8 million of non-cash stock-based compensation expense, $0.2 million write-off of non-cash revenue (primarily straight-line revenue) and $0.2 million of impairment on direct financing leases offset by $1.4 million of one-time revenue.

The $124.7 million of NAREIT FFO for the quarter ended December 31, 2018 includes $27.2 million of impairments on direct financing leases, $3.9 million of non-cash stock-based compensation expense, $0.4 million of merger related costs and $0.3 million in provisions for uncollectable accounts offset by $1.1 million in one-time non-cash revenue.

Adjusted FFO was $178.3 million, or $0.78 per common share, for the quarter ended December 31, 2019, compared to $155.3 million, or $0.73 per common share, for the same quarter in 2018.  For further information see the “Funds From Operations” schedule below and the Company’s website.

2019 ANNUAL RESULTS

Revenues and Expenses – Revenues for the year ended December 31, 2019 totaled $928.8 million, which included $60.9 million of non-cash revenue, $12.9 million of real estate tax and ground rents, $2.4 million of one-time revenue and a write-off of $11.1 million in uncollectible accounts primarily related to straight-line revenue.

Expenses for the year ended December 31, 2019 totaled $432.8 million, consisting of $301.7 million of depreciation and amortization expense, $45.3 million of impairment on real estate properties, $41.8 million of G&A expense, $16.1 million of real estate tax and ground lease expense, $14.9 million of stock-based compensation expense, $7.9 million of impairment on direct financing leases and $5.1 million of merger costs related to the May 2019 acquisition of MedEquities.

Other Income and Expense – Other income and expense for the year ended December 31, 2019 was a net expense of $207.9 million, primarily consisting of $199.2 million of interest expense and $9.6 million of amortized deferred financing costs.

Funds From Operations – For the year ended December 31, 2019, NAREIT FFO was $640.0 million, or $2.88 per common share, on 222 million weighted-average common shares outstanding, compared to $587.2 million, or $2.80 per common share on 210 million weighted-average common shares outstanding, for the same period in 2018.

The $640.0 million of NAREIT FFO for the year ended December 31, 2019 includes $14.9 million of non-cash stock-based compensation expense, $11.1 million write-off of non-cash revenue (primarily straight-line revenue), $7.9 million of impairments on direct financing leases, $5.1 million of merger costs related to the May 2019 acquisition of MedEquities, $2.0 million of interest refinancing cost related to an unconsolidated joint venture, $1.7 million of restructuring costs and a $1.1 million one-time lease termination payment offset by $2.4 million of one-time revenue.

The $587.2 million of NAREIT FFO for the year ended December 31, 2018 includes $27.2 million of impairments on direct financing leases, $16.0 million of non-cash stock-based compensation expense, $6.7 million in provisions for uncollectable accounts, $2.0 million purchase option buyout and $0.4 million of merger costs related to the May 2019 acquisition of MedEquities offset by $1.1 million of one-time revenue.

Adjusted FFO was $681.4 million, or $3.07 per common share, for the year ended December 31, 2019, compared to $638.3 million, or $3.04 per common share, for 2018.  For further information see the “Funds From Operations” schedule below and the Company’s website.

FINANCING ACTIVITIES

7.5 Million Share Forward Stock Offering – On September 9, 2019, in connection with a $300 million underwritten public offering, the Company entered into a forward equity sales agreement to sell 7.5 million shares of its common stock at an initial net price of $40.01 per share, after underwriting discounts and commissions.  On December 27, 2019, the Company settled the forward equity sales agreement by the physical delivery of 7.5 million shares of common stock in exchange for $295.9 million of net cash proceeds.

Equity Shelf Program and Dividend Reinvestment and Common Stock Purchase Plan – During the quarter ended December 31, 2019, the Company sold 0.6 million shares of its common stock, generating $25.6 million of gross proceeds under its Equity Shelf Program and its Dividend Reinvestment and Common Stock Purchase Plan:

2019 FOURTH QUARTER PORTFOLIO ACTIVITY

Q4 Portfolio Activity:

$896 Million of New Investments in Q4 2019 – In the fourth quarter of 2019, the Company completed approximately $839 million of new investments and $57 million in capital renovations and new construction projects consisting of the following:

$735 Million Encore Portfolio Acquisition – On October 31, 2019, the Company completed its previously announced 60 facility acquisition for $735 million.  Consideration consisted of approximately $346 million in cash and the assumption of approximately $389 million in mortgage loans guaranteed by the U.S. Department of Housing and Urban Development (“HUD”).  The HUD loans have a blended “all-in” rate (interest rates and mortgage insurance premiums) of 3.66% per annum with maturities between September 2046 and January 2052.

The 60 facilities, consisting of 58 skilled nursing facilities (“SNFs”) and two assisted living facilities (“ALFs”) representing 6,590 operating beds are located in Florida (37), North Carolina (8), Mississippi (6), Louisiana (4), Idaho (2), Kentucky (1), Missouri (1) and Montana (1).  These facilities are leased to two operators within three triple net leases providing for approximately $64 million in 2020 annual contractual cash rent.

$93 Million Joint Venture – On December 18, 2019, the Company purchased from Healthpeak Properties, Inc. its 49% interest in a U.K. portfolio consisting of 67 senior housing facilities, as well as related development and working capital loans, for an aggregate purchase price of approximately $93 million before transaction costs.

$57 Million of New Investments – In the fourth quarter of 2019, the Company invested $56.9 million under its capital renovation and construction-in-progress programs.

Asset Sales and Impairments:

$33 Million in Assets Sales – In the fourth quarter of 2019, the Company sold 11 properties for $33.3 million in cash, recognizing a gain of approximately $2.9 million.

Impairments and Assets Held for Sale – During the fourth quarter of 2019, the Company recorded an impairment charge of $35.7 million to reduce the net book values on 17 properties to their estimated fair values or expected selling prices.

As of December 31, 2019, the Company had six properties classified as assets held for sale totaling approximately $4.9 million.  The Company expects to sell these properties over the next few quarters.

DIVIDENDS

On January 15, 2019, the Board of Directors declared a common stock dividend of $0.67 per share, to be paid February 14, 2020 to common stockholders of record as of the close of business on January 31, 2020.

TAX TREATMENT FOR 2019 DIVIDENDS

On February 15, 2019, May 15, 2019, August 15, 2019 and November 15, 2019, the Company paid dividends to its common stockholders in the per share amounts of $0.66, $0.66, $0.66 and $0.67 for stockholders of record on January 31, 2019, April 30, 2019, July 31, 2019 and October 31, 2019, respectively. The Company has determined the tax treatment for the dividends is as follows:

2020 GUIDANCE

The Company expects its 2020 annual net income to be between $1.58 and $1.66 per diluted share and its Adjusted FFO to be between $3.12 to $3.20 per diluted share.

Bob Stephenson, Omega’s CFO, commented, “Our 2020 guidance reflects the annual impact of $863 million of net 2019 fourth quarter acquisitions and asset sales, revenue from Maplewood related to the Carnegie Hill project, continuing Daybreak on a cash basis and the full impact of our 2019 capital markets activity.”  Mr. Stephenson continued, “The $296 million in net proceeds from the physical settlement of our 7.5 million common shares equity forward agreement on December 27th adds additional capacity to our credit facility for potential acquisitions.”

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 2020 includes (i) the annual impact of acquisitions completed in 2019, (ii) approximately $21 million of cash rent payments from Maplewood related to the Carnegie Hill project, (iii) over $82 million of planned capital renovation projects with 2020 estimated in-service dates or spending that we expect to generate cash in 2020, (iv) Daybreak continuing on a cash basis, (v) approximately $9.5 million to $10.5 million of quarterly G&A, and (vi) approximately $25 million to $35 million of quarterly equity issuances.  It excludes additional acquisitions and asset sales, the impact of gains and losses from the sale of assets, certain revenue and expense items, interest refinancing expense, additional capital transactions, acquisition costs, and additional provisions for uncollectible accounts, if any.

The Company's guidance is based on several 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 of collection of rental obligations from operators on a cash basis, 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 may, from time to time, update its publicly announced Adjusted FFO guidance, but it is not obligated to do so.

CONFERENCE CALL

The Company will be conducting a conference call on Thursday, February 6, 2020 at 10 a.m. Eastern to review the Company’s 2019 fourth quarter results and current developments.  Analysts and investors within the United States interested in participating are invited to call (877) 511-2891.  The Canadian toll-free dial-in number is (855) 669-9657.  All other international participants may use the dial-in number (412) 902-4140.  Ask the operator to be connected to the “Omega Healthcare’s Fourth Quarter 2019 Earnings Call.”

To listen to the conference call via webcast, log on to www.omegahealthcare.com and click the “earnings call” icon on the Company’s home page.  Webcast replays of the call will be available on the Company’s website for two weeks following the call.

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Omega is a real estate investment trust that invests in the long-term healthcare industry, primarily in skilled nursing and assisted living facilities.  Its portfolio of assets is operated by a diverse group of healthcare companies, predominantly in a triple-net lease structure.  The assets span all regions within the US, as well as in the UK.

FOR FURTHER INFORMATION, CONTACT

Matthew Gourmand, SVP, Investor Relations

or

Bob Stephenson, CFO at (410) 427-1700

Forward-Looking Statements

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’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) the impact of healthcare reform and regulation,

including cost containment measures and changes in reimbursement policies, procedures and rates; (iii) the ability of operators and borrowers to maintain the financial strength and liquidity necessary to satisfy their respective rent and debt obligations; (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 and the impact of changes in tax laws and regulations affecting REITs; (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 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; and (xiv) other factors identified in Omega’s filings with the SEC. 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.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. Accordingly, readers should not place undue reliance on those statements. All forward-looking statements are based upon information available to us on the date of this release. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share amounts)

OMEGA HEALTHCARE INVESTORS, INC.

FUNDS FROM OPERATIONS

Unaudited

(in thousands, except per share amounts)

(1) In 2019, the provision or charges for uncollectible rental revenue accounts (straight-line and contractual) are recorded through rental income.

NAREIT Funds From Operations (“NAREIT 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 NAREIT FFO in accordance with the definition and interpretive guidelines issued by the National Association of Real Estate Investment Trusts (“NAREIT”), and consequently, NAREIT 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 and changes in the fair value of warrants.  Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.  The Company believes that NAREIT 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 funds from operations was designed by the real estate industry to address this issue.  Funds from operations described herein is not necessarily comparable to funds from operations 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 NAREIT 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 may not be comparable to the NAREIT definition of funds from operations 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 FAD 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, funds from operations 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:

(1) Excludes facilities which are non-operating, closed and/or not currently providing patient services.

(2) Includes ALFs, memory care and independent living facilities.