June 14, 2010 - EXHIBIT 99.1 - 8-K: Current report filing | Omega Healthcare Investors, Inc. (OHI)

Exhibit 99.1

	Unaudited Combined Statement of Revenues and Certain Expenses

	Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II
	For the Three Months Ended March 31, 2010

INDEX TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II
	Unaudited Combined Statement of Revenues and Certain Expenses for the three months ended March 31, 2010	1
	Notes to the Unaudited Combined Statement of Revenues and Certain Expenses	2

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II

Combined Statement of Revenues and Certain Expenses

For the Three Months Ended March 31, 2010

(Unaudited)

($ in thousands)



Revenues:
Operating lease income	$	7,203
Other income		29
Total revenues		7,232

Certain expenses:
Interest		2,926
General and administrative		1,166
Total expenses		4,092
Revenues in excess of certain expenses	$	3,140

See accompanying notes.

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Note 1. Basis of Presentation

The combined statement has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission and is not intended to be a complete presentation of the actual operations of the Sale Properties. Accordingly, the combined financial statement excludes certain expenses because they may not be comparable to those expenses expected to be incurred in the future operations of the Sale Properties. Items excluded consist primarily of allocated income tax charges, which may not be comparable to future operations. Consistent with CapitalSource’s treatment of the Sale Properties in its consolidated financial statements for the three months ended March 31, 2010, depreciation ceased on November 1, 2009 as a result of the Sale Properties being classified as held for sale and presented as discontinued operations therein.

The following table describes the composition of the Sale Properties:

Operating Property		Location
2055 Georgia St. East		Bartow, FL
755 Meadows Road		Boca Raton, FL
1902 59th Street West		Bradenton, FL
1111 South Highland Avenue		Clearwater, FL
1111 South Highland Avenue		Clearwater, FL
1270 Turner Street		Clearwater, FL
991 East New York Avenue		Deland, FL
545 West Euclid Avenue		Deland, FL
3250 Winkler Avenue		Ft. Myers, FL
114 3rd Street		Fort Walton Beach, FL
1414 59th Street		Gulfport, FL
13719 Dallas Drive		Hudson, FL
512 South 11th Street		Lake Wales, FL
610 East Bella Vista Drive		Lakeland, FL
1336 St. Andrews		Panama City, FL
401 East Sample Road		Pompano Beach, FL
51 West Sample Road		Pompano Beach, FL
950 Mellonville Avenue		Sanford, FL
1524 East Avenue South		Sarasota, FL
7045 Evergreen Woods Trail		Spring Hill, FL
7101 31st Street South		St. Petersburg, FL
4201 31st Street South		St. Petersburg, FL
550 62nd Street		St. Petersburg, FL
15002 Hutchinson Road		Tampa, FL
4411 North Habana Avenue		Tampa, FL
515 Chesapeake Drive		Tarpon Springs, FL
1705 Jess Parrish Court		Titusville, FL
300 15th Street		West Palm Beach, FL

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Operating Property		Location
2629 Del Prado Boulevard		Cape Coral, FL
3387 Gulf Breeze Parkway		Gulf Breeze, FL
4343 Langley Avenue		Pensacola, FL
138 Sandestine Lane		Destin, FL
5951 Colonial Drive		Margate, FL
3107 North H Street		Pensacola, FL
103 Ruby Lane		Crestview, FL
6894 Pine Forest Road		Pensacola, FL
538 Menge Avenue		Pass Christian, MS
1199 Ocean Springs Road		Ocean Springs, MS
1304 Walnut Street		Waynesboro, MS
1530 Broad Avenue		Gulfport, MS

In the combined statement, unless the context otherwise requires or indicates, references to ‘‘we,’’ ‘‘our,’’ and ‘‘us’’ refer to the Sale Properties.

Note 2. Summary of Significant Accounting Policies

Our financial reporting and accounting policies conform to U.S. generally accepted accounting principles (‘‘GAAP’’).

We have conducted our subsequent events review through May 17, 2010.

Use of Estimates

The preparation of the combined statement of revenues and certain expenses in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosure of revenues and certain expenses of the Sale Properties during the reporting period. Actual results could differ from those estimates.

Principles of Combination

The accompanying financial statement reflects our combined accounts of the Sale Properties. All significant intercompany accounts and transactions have been eliminated.

Real Estate Investments

In assessing lease intangibles, we recognize above-market and below-market in-place lease values for acquired operating leases based on the present value of the difference between: (1) the contractual amounts to be received pursuant to the leases negotiated and in-place at the time of acquisition of the facilities; and (2) management’s estimate of fair market lease rates for the facility or equivalent facility, measured over a period equal to the remaining non-cancelable term of the lease. Factors to be considered for lease intangibles also include estimates of carrying costs during hypothetical lease-up periods, market conditions, and costs to execute similar leases. The capitalized above-market or below-market lease values are classified as intangible lease assets, net, and lease obligations, net, respectively, and are amortized into operating lease income over the remaining non-cancelable term of each lease.

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Operating Lease Income Recognition

Substantially all of our real estate investments are leased to unrelated third parties through long-term, triple-net operating leases that typically include fixed rental payments, subject to escalation over the life of the lease. We recognize operating lease income on a straight-line basis over the non-cancelable term of the lease when collectability is reasonably assured. For the three months ended March 31, 2010, straight-line rental revenues totaling $0.4 million were recognized as a component of operating lease income in our combined statement of revenues and certain expenses.

We do not recognize any revenue on contingent rents until payments are received and all contingencies have been met.

Income Taxes

We expect that the Sale Properties will reside in a real estate investment trust under the Internal Revenue Code of 1986, and generally will not be subject to corporate income taxes to the extent it distributes at least 90% of its taxable income to its shareholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes in the accompanying statement of revenues and certain expenses.

Note 3. Commitments and Contingencies

We identified conditional asset retirement obligations primarily related to the future removal and disposal of asbestos that is contained within certain of our real estate investment properties. The asbestos is appropriately contained, and we believe we are compliant with current environmental regulations. If these properties undergo major renovations or are demolished, certain environmental regulations are in place, which specify the manner in which asbestos must be handled and disposed.

From time to time we are party to legal proceedings. We do not believe that any currently pending or threatened proceedings, if determined adversely to us, would have a material adverse effect on our combined statement of revenues and certain expenses.

Note 4. Borrowings

Mortgage Debt

We had mortgage debt totaling $184.3 million as of March 31, 2010. As of March 31, 2010, our mortgage debt comprised eleven mortgage loans totaling $55.1 million assumed in 2006 and 2007 on the acquisition of certain of our real estate investment properties and guaranteed by the U.S. Department of Housing & Urban Development (“HUD”) and collateralized by eleven of our real estate investment properties. As of March 31, 2010, our mortgage debt also comprised an additional 18 new mortgage loans totaling $129.2 million guaranteed by HUD, collateralized by 29 of our real estate investment properties and which we entered into in December 2009. The weighted average interest rate as of March 31, 2010 on the assumed mortgage loans was 6.61% and on the new mortgage loans was 4.85%. The weighted average maturity as of March 31, 2010 on the assumed mortgage loans was 27 years and on the new mortgage loans was 33 years. Interest expense on this debt for the three months ended March 31, 2010 was $2.5 million.

Subordinated Debt

In November 2006, in connection with the acquisition of eleven properties, we entered into an aggregate of $20 million junior subordinated unsecured seller notes. The term of the notes is 15 years, and interest is payable quarterly at a fixed rate of 9.0%. The interest on these notes is due and payable only to the extent that there is rent being received from the tenants of the acquired properties to cover the interest expense related to this debt. Principal is due at the end of the 15-year period in December 2021, but only to the extent that all rent has been paid for the 15-year term of the debt. As of March 31, 2010, all rent had been paid in full. Interest expense on this debt for the three months ended March 31, 2010 was $0.4 million.

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing II

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Note 5. Related Party Transactions

For the three months ended March 31, 2010, certain management, administrative and operational services of CapitalSource were shared between the Sale Properties and other CapitalSource operations. For purposes of financial statement presentation, the costs for these shared services have been allocated to the Sale Properties based on actual direct costs incurred and an allocation of indirect costs. CapitalSource’s management believes that the allocations are reasonable. However, actual expenses may be materially different from the allocated expenses if the Sale Properties had operated as an unaffiliated stand-alone entity.

Our combined statement of revenues and certain expenses for the three months ended March 31, 2010, includes the following related party income and expenses ($ in thousands):



Allocated interest income(1)	$	26
Allocated general and administrative expenses(2)		685

(1)	Represents an allocation of interest income earned on cash held and managed by CapitalSource on our behalf.

(2)	To facilitate operating efficiency, CapitalSource provides office space, equipment, certain administrative support, and other assistance to the Sale Properties. As a result, overhead expenses (including compensation and benefits) have been allocated to the Sale Properties at cost based on the relative value of its real estate assets to CapitalSource’s portfolio.

	Unaudited Combined Statement of Revenues and Certain Expenses

	Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III
	For the Three Months Ended March 31, 2010

INDEX TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III
	Unaudited Combined Statement of Revenues and Certain Expenses for the three months ended March 31, 2010	1
	Notes to the Unaudited Combined Statement of Revenues and Certain Expenses	2

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III

Combined Statement of Revenues and Certain Expenses

For the Three Months Ended March 31, 2010

(Unaudited)

($ in thousands)



Revenues:
Operating lease income	$	8,503
Other income		23
Total revenues		8,526

Certain expenses:
Interest		1,587
Depreciation		2,540
General and administrative		1,106
Total expenses		5,233
Revenues in excess of certain expenses	$	3,293

See accompanying notes.

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Note 1. Basis of Presentation

Presented herein is the unaudited combined statement of revenues and certain expenses of a portion of the healthcare-related assets and liabilities of CapitalSource Inc.’s (“CapitalSource”) direct real estate business owned by subsidiaries of CapitalSource Healthcare REIT, (the “Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III” or the “Sale Properties”) to be sold to Omega Healthcare Investors, Inc. (“OHI”), a publicly traded company. The sale is contingent on OHI’s exercise of a non-refundable option, for which CapitalSource received shares of OHI. The specific properties and terms of the sale are outlined in the Casablanca Option Agreement between CapitalSource and OHI. In April 2010, we received written notice that OHI is electing to exercise the option to acquire the properties, with a proposed closing date in June 2010. These assets were included in CapitalSource’s continuing operations through March 31, 2010 as they did not meet the criteria to be held for sale as of March 31, 2010. The composition of the Sale Properties is defined below.

The following table describes the composition of the Sale Properties:

Operating Property		Location
404 Washington Street		Albany, KY
9 Medical Drive		Amarillo, TX
3864 Sweeten Creek Road		Arden, NC
5269 Asbury Road		Augusta, KY
50 Shepherd Lane		Bedford, KY
520 Glenburn Avenue		Cambridge, MD
2714 13th Street NW		Canton, OH
200 Clive Drive SW		Cedar Rapids, IA
40 Parkhurst Road		Chelmsford, MA
110 Beverly Drive		Chesterton, IN
590 South Indian Hill Boulevard		Claremont, CA
3185 West Arkansas Avenue		Denver, CO
1400 North San Antonio Avenue		Douglas, AZ
960 East Bowles		Dumas, AR
100 Laurel Drive		Elkton, MD
2940 North Clinton Street		Fort Wayne, IN
303 Highway 155 (Murchison Street)		Frankston, TX
102 Pocahontas Trail		Georgetown, KY
2961 St. Anthony Drive		Green Bay, WI
5471 Scioto Darby Road		Hilliard, OH
287 Baker Street		Huntsville, TN
344 South Ritter Avenue		Indianapolis, IN
8181 Harcourt Road		Indianapolis, IN
203 Sparks Avenue		Jeffersonville, IN
2700 Waters Edge Parkway		Jeffersonville, IN
115 White Road		King, NC
2035 Stonebrook Place		Kingsport, TN
1000 Tandal Place		Knightdale, NC
2400 South First Street		Lake City, FL

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Operating Property		Location
4405 Lakewood Road		Lake Worth, FL
1432 Depew Street		Lakewood, CO
2301 Collins Drive		Las Vegas, NM
3051 Buffalo Road		Lawrenceburg, TN
2030 Harper Avenue		Lenoir, NC
21412 Great Mills Road		Lexington Park, MD
200 Kingston Circle Drive		Ligonier, IN
110 SE Lee Avenue		Live Oak, FL
1555 Commerce Street		Logansport, IN
710 Michigan Avenue		Lowell, IN
954 Navco Road		Mobile, AL
320 North Eastern Avenue		Moore, OK
500 South Grant Avenue		Omro, WI
833 Kingsley Avenue		Orange Park, FL
7950 Lake Underhill Road		Orlando, FL
1730 Lucerne Terrace		Orlando, FL
450 South 9th Street		Piggott, AR
1700 North Washington Street		Pilot Point, TX
1400 North Waverly Street		Ponca City, OK
1655 Southeast Walton Road		Port St. Lucie, FL
2050 Chester Boulevard		Richmond, IN
1933 Peppertree Drive		Safford, AZ
900 Elmhurst Boulevard		Salina, KS
1705 Boren Street		Seminole, OK
535 West Federal Street		Shawnee, OK
1215 South Western Road		Stillwater, OK
625 Taylorsville Road		Taylorsville, KY
6602 Memorial Drive		Texas City, TX
1564 South University Boulevard		Upland, IN
511 Windmill Street		Walnut Cove, NC
1801 North Lake Miriam Drive		Winter Haven, FL
1801 North Lake Miriam Drive		Winter Haven, FL
25 Reynolds Mountain Boulevard		Woodfin, NC
2000 Andrews Road		Yorktown, IN

In the combined statement, unless the context otherwise requires or indicates, references to ‘‘we,’’ ‘‘our,’’ and ‘‘us’’ refer to the Sale Properties.

Note 2. Summary of Significant Accounting Policies

Our financial reporting and accounting policies conform to U.S. generally accepted accounting principles (‘‘GAAP’’).

We have conducted our subsequent events review through May 17, 2010.

Use of Estimates

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Principles of Combination

The accompanying financial statement reflects our combined accounts of the Sale Properties. All significant intercompany accounts and transactions have been eliminated.

Real Estate Investments

Depreciation is computed on a straight-line basis over the estimated useful life of the asset, which ranges from 10 to 40 years for buildings and improvements. Furniture and equipment related to our real estate investments are depreciated over seven and five year periods, respectively.

Deferred Financing Fees

Deferred financing fees represent fees and other direct incremental costs incurred in connection with our borrowings. These amounts are amortized into income as interest expense over the estimated life of the borrowing using the interest method.

Operating Lease Income Recognition

Substantially all of our real estate investments are leased to unrelated third parties through long-term, triple-net operating leases that typically include fixed rental payments, subject to escalation over the life of the lease. We recognize operating lease income on a straight-line basis over the non-cancelable term of the lease when collectability is reasonably assured. For the three months ended March 31, 2010, straight-line rental revenues totaling $0.2 million were recognized as a component of operating lease income in our combined statement of revenues and certain expenses.

We do not recognize any revenue on contingent rents until payments are received and all contingencies have been met.

Income Taxes

Healthcare Real Estate Carve-out of CapitalSource Inc.: Closing III

NOTES TO THE UNAUDITED COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES

Note 3. Commitments and Contingencies

Note 4. Borrowings

Mortgage Debt

As of March 31, 2010, our mortgage debt consisted of a senior loan of $227.8 million and a mezzanine loan of $33.7 million collateralized by 63 real estate investment properties. Both loans mature on April 9, 2011 and have a one-year extension option exercisable at our option. The interest rate under the senior loan is one-month LIBOR plus 1.54%, and the interest rate under the mezzanine loan is one-month LIBOR plus 4%. As of March 31, 2010, the one-month LIBOR was 0.25%. Interest expense on this debt for the three months ended March 31, 2010 was $1.6 million, which included amortization of deferred financing fees of $0.2 million.

Note 5. Related Party Transactions

Our combined statement of revenues and certain expenses for the three months ended March 31, 2010, includes the following related party income and expenses ($ in thousands):



Allocated interest income(1)	$	23
Allocated general and administrative expenses(2)		1,052

(1)	Represents an allocation of interest income earned on cash held and managed by CapitalSource on our behalf.

(2)	To facilitate operating efficiency, CapitalSource provides office space, equipment, certain administrative support, and other assistance to the Sale Properties. As a result, overhead expenses (including compensation and benefits) have been allocated to the Sale Properties at cost based on the relative value of its real estate assets to CapitalSource’s portfolio.