Omega Healthcare Investors, Inc. (NYSE:OHI) (the “Company” or
“Omega”) today announced its results of operations for the quarter
ended December 31, 2018. The Company reported for the quarter ended
December 31, 2018 net income of $64.9 million or $0.31 per common
share. The Company also reported Funds From Operations (“FFO”) for
the quarter of $124.5 million or $0.59 per common share, Adjusted
Funds From Operations (“AFFO” or “Adjusted FFO”) of $155.3 million
or $0.73 per common share, and Funds Available For Distribution
(“FAD”) of $138.2 million.
FFO for the fourth quarter of 2018 includes $27.2 million in
impairments on direct financing leases related to the Orianna
Health Systems (“Orianna” and f/k/a ARK) portfolio restructuring,
$3.9 million of non-cash stock-based compensation expense, $1.1
million in one-time non-cash revenue, $0.4 million of merger
related costs, $0.3 million in provisions for uncollectable
accounts and $0.2 million of unrealized loss on warrants (Adjusted
FFO excludes the aforementioned 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 quarter ended December 31, 2018, the Company reported
net income of $64.9 million, or $0.31 per common share, on
operating revenues of $219.8 million. This compares to net income
of $65.2 million, or $0.31 per common share, on operating revenues
of $221.2 million, for the same period in 2017.
For the year ended December 31, 2018, the Company reported net
income of $293.9 million, or $1.40 per common share, on operating
revenues of $881.7 million. This compares to net income of $104.9
million, or $0.51 per common share, on operating revenues of $908.4
million, for the same period in 2017.
The increase in net income for 2018 compared to the prior year
was primarily due to (i) $297.3 million of impairments on direct
financing leases and real estate recorded in 2017 versus $57.0
million recorded in 2018, (ii) a $22.0 million decrease in interest
refinancing costs and (iii) a $7.9 million decrease in provision
for uncollectible accounts. The increase in net income was
partially offset by (i) a $29.1 million reduction in gains on the
sale of assets, (ii) a $26.7 million reduction in revenue, (iii) a
$15.0 million increase in general and administrative expenses, (iv)
a $10.4 million favorable contractual settlement recorded in the
first quarter of 2017 and (v) $3.7 million in increased interest
expense.
CEO COMMENTS
Taylor Pickett, Omega’s Chief Executive Officer, stated, “The
fourth quarter presented the Company with unique challenges
including higher than normal general and administrative expenses,
primarily related to Orianna legal expenses, as well as
underpayment of approximately $4 million of rent by one of our
operators, Daybreak. As investors are aware, Daybreak’s rents are
accounted for on a cash basis and so this rent shortfall
immediately impacted our 4th quarter revenues. While Daybreak has
implemented many favorable changes to their business, the operating
environment in Texas remains challenging near-term, with low
occupancy and one of the lowest Medicaid reimbursement rates in the
country. We are working cooperatively with Daybreak by providing
near-term liquidity relief via a $2.5 million rent deferral for
each of the first and second quarters of 2019, which preserves
Omega’s long-term economics from the lease.”
Mr. Pickett continued, “We look forward to 2019. With our asset
repositioning and portfolio restructurings complete, we expect
significantly lower general and administrative costs and look
forward to completing the MedEquities acquisition. While the labor
market remains challenging for our operators, we believe the
Patient Driven Payment Model, starting in October, represents a
sensible reimbursement model that should improve both patient
outcomes and operator profitability. Further, we believe 2019
should see a return to the historical acquisition profile of the
Company, which should drive growth in FFO as the year
progresses.”
2019 RECENT DEVELOPMENTS AND 2018
HIGHLIGHTS
In Q1 2019, the Company…
- entered into a definitive merger
agreement to acquire MedEquities Realty Trust, Inc.
- finalized the Orianna
restructuring.
- declared a $0.66 per share quarterly
common stock dividend.
In Q4 2018, the Company…
- paid a $0.66 per share quarterly common
stock dividend.
- completed $53 million in new
investments.
- invested $45 million in capital
renovation and construction-in-progress projects.
- sold 15 assets for cash consideration
of $67 million, recognizing a gain of $15.5 million.
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, recognizing a loss of
$5.4 million.
- 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, recognizing a loss of $2.9 million.
- 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,
recognizing a gain of $17.5 million.
- 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.
FOURTH QUARTER 2018
RESULTS
Operating Revenues and Expenses – Operating revenues for
the quarter ended December 31, 2018 totaled $219.8 million, which
included $16.0 million of non-cash revenue.
Operating expenses for the quarter ended December 31, 2018
totaled $119.2 million, consisting of $70.6 million of depreciation
and amortization expense, $27.2 million of impairments on direct
financing leases related to finalizing the Orianna sale portfolio,
$13.7 million of general and administrative expense, $3.9 million
of stock-based compensation expense, $3.2 million of impairment on
real estate properties, $0.4 million of merger related costs and
$0.3 million in provisions for uncollectable accounts. For more
information on impairment charges, see the “2018 Fourth Quarter and
Recent Portfolio Activity – Asset Impairments and Dispositions”
section below.
Other Income and Expense – Other income and expense for
the quarter ended December 31, 2018 was a net expense of $51.0
million, primarily consisting of $48.6 million of interest expense,
$2.2 million of amortized deferred financing costs and $0.2 million
in unrealized loss on warrants (included in Interest income and
other – net).
Funds From Operations – For the quarter ended December
31, 2018, FFO was $124.5 million, or $0.59 per common share, on 212
million weighted-average common shares outstanding, compared to
$159.2 million, or $0.77 per common share on 208 million
weighted-average common shares outstanding, for the same period in
2017.
The $124.5 million of 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, $0.3 million in provisions
for uncollectable accounts and $0.2 million in unrealized loss on
warrants, offset by $1.1 million in one-time non-cash revenue.
The $159.2 million of FFO for the quarter ended December 31,
2017 includes $3.9 million of non-cash stock-based compensation
expense, $0.9 million in provisions for uncollectable accounts, and
$0.2 million in impairment on direct financing leases, offset
by $0.5 million in one-time non-cash revenue.
Adjusted FFO was $155.3 million, or $0.73 per common share, for
the quarter ended December 31, 2018, compared to $163.7 million, or
$0.79 per common share, for the same quarter in 2017. For further
information see the “Funds From Operations” schedule.
2018 ANNUAL RESULTS
Operating Revenues and Expenses – Operating revenues for
the year ended December 31, 2018 totaled $881.7 million. Operating
expenses for the year ended December 31, 2018 totaled $408.9
million and were comprised of $281.3 million of depreciation and
amortization expense, $47.5 million of general and administrative
expense, $29.8 million of impairment on real estate properties,
$27.2 million in impairment on direct financing leases, $16.0
million of non-cash stock-based compensation expense and $6.7
million in provision for uncollectible accounts.
Other Income and Expense – Other income and expense for
the year ended December 31, 2018 was a net expense of $201.1
million, which was primarily comprised of $192.5 million of
interest expense and $9.0 million of amortized deferred financing
costs.
Funds From Operations – For the year ended December 31,
2018, FFO was $587.4 million, or $2.80 per common share on 210
million weighted-average common shares outstanding, compared to
$444.3 million, or $2.15 per common share on 207 million
weighted-average common shares outstanding, for 2017.
The $587.4 million of FFO for the year ended December 31, 2018
includes the impact of $27.2 million in impairment on direct
financing leases related to the Orianna portfolio, $16.0 million of
non-cash stock-based compensation expense, $6.7 million in
provisions for uncollectible accounts, and $1.1 million (net) in
miscellaneous one-time items.
The $444.3 million of FFO for the year ended December 31, 2017
includes the impact of $198.2 million in impairment on direct
financing leases related to the Orianna portfolio, $23.5 million of
interest expenses related to debt refinancing, $15.2 million of
non-cash stock-based compensation expense and $14.6 million in
provisions for uncollectible accounts, offset by a one-time $10.4
million contractual settlement with an unrelated third party
related to a 2012 contingent liability obligation that was resolved
in the first quarter of 2017 and $2.4 million of one-time
revenue.
Adjusted FFO was $638.3 million, or $3.04 per common share, for
the year ended December 31, 2018, compared to $683.0 million, or
$3.30 per common share, for 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 quarter ended December 31,
2018, the Company sold 1.7 million shares of its common stock,
generating $59.4 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 Q3 Q4 2018 Total Number of shares
— 912 — 1,364 2,276 Average price per share $ — $ 30.93 $ — $ 36.29
$ 34.14 Gross proceeds $ — $ 28,218 $ — $ 49,499 $ 77,717
Dividend Reinvestment and Common Stock
Purchase Plan
for 2018
(in thousands, except price per share) Q1 Q2
Q3 Q4 2018 Total Number of shares 189 759 309 292
1,549 Average price per share $ 25.87 $ 29.22 $ 31.82 $ 33.93 $
30.22 Gross proceeds $ 4,886 $ 22,164 $ 9,854 $ 9,897 $ 46,801
2018 FOURTH QUARTER AND RECENT
PORTFOLIO ACTIVITY
$98 Million of New Investments – In the fourth quarter of
2018, the Company completed approximately $53 million of new
investments and $45 million in capital renovations and new
construction consisting of the following:
$8 Million
Acquisition – On November 14, 2018, the Company acquired one
skilled nursing facility (“SNF”) / assisted living facility (“ALF”)
for $8.1 million from an unrelated third party. The Indiana
facility with 70 SNF beds and 30 ALF beds was added to an existing
operator’s master lease with an initial cash yield of 9.5% with
2.5% annual rent escalators.
$35 Million
Acquisition – On November 30, 2018, the Company acquired
three SNFs and one independent living facility (“ILF”) for $35.1
million from an unrelated third party. The four Pennsylvania
facilities with 420 beds were added to an existing operator’s
master lease with an initial cash yield of 9.5% with 2.5% annual
rent escalators.
$9 Million
Acquisition – On December 20, 2018, the Company acquired one
SNF for $9.2 million from an unrelated third party. The Ohio
facility with 126 SNF beds was added to an existing operator’s
master lease with an initial cash yield of 9.5% with 2.5% annual
rent escalators.
$45 Million Capital
Renovation Projects – In addition to the new investments
outlined above, in Q4 2018, the Company invested $45.2 million
under its capital renovation and construction-in-progress
programs.
Orianna – During the fourth quarter of 2018, the Company
transitioned one legacy Orianna facility to an existing Omega
operator with annual contractual rent of $0.8 million. In 2018, the
Company transitioned a total of 23 legacy Orianna facilities to
five existing operators with combined annual contractual rents of
$17.6 million.
During the fourth quarter, the Company signed an agreement to
transition three of the legacy Orianna facilities to an existing
Omega operator with annual contractual rents of $1.5 million. The
license transfer is expected to occur in the first quarter of
2019.
On October 12, 2018, the Company sold a legacy Orianna facility
to a third party operator for consideration of $4.0 million.
On January 11, 2019, 15 Orianna facilities were sold for $176
million of consideration, comprised of $146 million in cash
(received by the estate trust) and a $30 million seller note held
by the Company. The Company received $25 million to settle the
debtor-in-possession revolving credit and term loan facility. The
estate currently holds cash and accounts receivable which will be
liquidated with the proceeds paying various estate expenses and the
balance to be paid to the Company. In December 2018, the Company
recorded a $27.2 million impairment charge related to the
finalization of this transaction.
Mr. Pickett commented, “All of the Omega Orianna assets have now
been transitioned or sold. The resulting annualized rent and rent
equivalents of approximately $33 million are consistent with our
previously stated range of $32 million to $38 million. The non-cash
impairment charge of $27.2 million in the fourth quarter has no
effect on our future cash flow run rate related to the former
Orianna assets.”
MedEquities Merger – As previously announced, on January
2, 2019, the Company entered into a definitive merger agreement
under which Omega will acquire all of the outstanding shares of
MedEquities Realty Trust, Inc. (NYSE:MRT) (“MedEquities”). The
transaction represents an enterprise value of approximately $600
million for MedEquities and further diversifies Omega’s assets and
operators.
Under the terms of the agreement, MedEquities stockholders will
receive a fixed exchange ratio of 0.235 Omega common shares plus
$2.00 in cash for each share of MedEquities common stock held by
them.
Earlier today the Company filed a registration statement with
the Securities and Exchange Commission (“SEC”) in connection with
the proposed acquisition of MedEquities. The Company expects the
transaction to be completed in the second quarter of 2019, subject
to approval by MedEquities stockholders.
Asset Impairments and Dispositions – During the fourth
quarter of 2018, the Company sold 15 assets (nine previously
classified as assets held for sale and one classified as a direct
financing lease) for $67.3 million in cash, recognizing a gain of
approximately $15.5 million. The Company recorded impairment
charges on real estate properties of $3.2 million, primarily
related to reducing the net book values on three facilities to
their estimated fair values or expected selling prices. The Company
recorded impairment charges on direct financing leases of $27.2
million related to the remaining Orianna portfolio that was sold in
the first quarter of 2019.
As of December 31, 2018, the Company had three facilities
classified as assets held for sale totaling approximately $1.0
million. The Company expects to sell these facilities over the next
few quarters.
DIVIDENDS
On January 15, 2019, the Board of Directors declared a common
stock dividend of $0.66 per share, to be paid February 15, 2019 to
common stockholders of record as of the close of business on
January 31, 2019.
Mr. Pickett commented, “As a result of the success of our asset
repositioning program, the resolution of the Orianna portfolio, and
the expected contribution from the pending acquisition of
MedEquities, we currently anticipate maintaining our current
quarterly dividend level for the next several quarters with the
goal of increasing the dividend in the relatively near future.”
TAX TREATMENT FOR 2018
DIVIDENDS
On February 15, 2018, May 15, 2018, August 15, 2018 and November
15, 2018, the Company paid dividends to its common stockholders in
the per share amounts of $0.66 for stockholders of record on
January 31, 2018, April 30, 2018, July 31, 2018 and October 31,
2018, respectively. The Company has determined the tax treatment
for the dividends as follows:
Dividend Payment Date
% Taxable as OrdinaryIncome
% Taxable as Return ofCapital
% Taxable as CapitalGain
February 15, 2018 64.0459% 35.2800% 0.6741% May 15, 2018 64.0459%
35.2798% 0.6744% August 15, 2018 64.0458% 35.2798% 0.6744% November
15, 2018 64.0458% 35.2798% 0.6744%
2019 ADJUSTED FFO
GUIDANCE
The Company currently expects its 2019 Adjusted FFO to be
between $3.00 and $3.12 per diluted share.
Bob Stephenson, Omega’s CFO commented, “Our 2019 guidance
assumes that the MedEquities merger will be completed in the second
quarter. It also reflects the revenue reduction related to our
fourth quarter 2018 asset sales and a 2019 six month forbearance
period where we will receive reduced rental payments from
Daybreak.” Mr. Stephenson continued, “We expect to redeploy most of
the cash proceeds from the Orianna transaction by mid-year;
however, the timing is very unpredictable.” Mr. Stephenson
concluded, “Subject to equity market conditions, we may decide to
issue equity under our ATM to continue to de-lever, which may
significantly impact our guidance and we have therefore expanded
our guidance range versus previous years. Further, in order to
provide additional clarity to our longer-term expected operating
performance, we have included fourth quarter 2019 estimated
guidance along with our annual guidance.”
The following table presents a reconciliation of Omega’s
guidance regarding Adjusted FFO to projected GAAP earnings.
2019 Q4 Adjusted FFOGuidance Range(per
diluted commonshare)
2019 Annual AdjustedFFOGuidance Range(per
diluted commonshare)
Net Income $0.42 - $0.45 $1.43 - $1.55 Depreciation 0.34 1.37
Depreciation – unconsolidated joint venture 0.00 0.02 Gain on
assets sold – net 0.00 0.00 FFO $0.76 - $0.79 $2.82 - $2.94
Adjustments: Acquisition/transaction costs 0.00 0.09 Interest –
refinancing costs 0.00 0.00 Restructuring expenses 0.00 0.01
Stock-based compensation expense 0.02 0.08 Adjusted FFO
$0.78 - $0.81 $3.00 - $3.12
Note: All per share numbers rounded to 2
decimals.
The Company's Adjusted FFO guidance for 2019 assumes the
MedEquities merger is completed in the second quarter, $150 million
of planned capital renovation projects with 2019 estimated
in-service dates, and the sale of $1 million of assets held for
sale. It assumes the Company will continue recording revenue
related to Daybreak on a cash basis with reduced rent for the first
six months of 2019. The Company expects to record approximately
$5.2 million in rent in both Q1 and Q2 related to Daybreak
(approximately a $2.5 million reduction per quarter). 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's guidance is based on a number of assumptions,
which are subject to change and many of which are outside the
Company’s control. If actual results vary from these assumptions,
the Company's expectations may change. Without limiting the
generality of the foregoing, the timing and completion of
acquisitions, divestitures, capital and financing transactions, and
variations in stock-based compensation expense may cause actual
results to vary materially from our current expectations. There can
be no assurance that the Company will achieve its projected
results. The Company 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 Tuesday,
February 12, 2019 at 10 a.m. Eastern to review the Company’s 2018
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 can
use the dial-in number (412) 902-4140. Ask the operator to be
connected to the “Omega Healthcare’s Fourth 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.
Additional Information and Where to Find It
In connection with the proposed transaction with MedEquities
(the “Merger”), Omega has filed a registration statement on Form
S-4 (File No. 333-229594) with the SEC. The registration statement
includes a copy of the merger agreement and constitutes the
preliminary proxy statement of MedEquities and the preliminary
prospectus of Omega. After the registration statement is declared
effective, MedEquities plans to mail to its stockholders the
definitive proxy statement/prospectus. MedEquities and Omega may
also file other documents with the SEC in connection with the
proposed Merger. This document is not a substitute for the proxy
statement/prospectus or registration statement or any other
document that MedEquities or Omega may file with the SEC. Investors
are urged to read the registration statement, the proxy
statement/prospectus and any other relevant documents when they are
available, as well as any amendments or supplements to these
documents, carefully and in their entirety.
Investors may obtain free copies of the registration statement,
the preliminary proxy statement/prospectus, and all other relevant
documents filed by Omega and MedEquities with the SEC through the
website maintained by the SEC at www.sec.gov, or by contacting
MedEquities at 3100 West End Avenue, Suite 1000, Nashville,
Tennessee 37203, Attn: Tripp Sullivan, (615) 760-1104, or Omega at
Omega Healthcare Investors, Inc. 303 International Circle, Suite
200 Hunt Valley, Maryland 21030, Attn: Matthew Gourmand, Senior VP
of Investor Relations, (410) 427-1714.
Participants in the Solicitation
Omega, MedEquities and their respective directors and executive
officers may be deemed to be participants in the solicitation of
proxies from MedEquities’ stockholders in respect of the proposed
Merger. Information regarding Omega’s directors and executive
officers can be found in Omega’s definitive proxy statement filed
with the SEC on April 30, 2018, its Form 10-K filed with the SEC on
February 23, 2018, and its Form 8-K reports filed with the SEC on
October 25, 2018 and November 2, 2018, as well as its other filings
with the SEC. Information regarding the directors and executive
officers of MedEquities can be found in its definitive proxy
statement filed with the SEC on April 16, 2018, as well as its
other filings with the SEC. Additional information regarding the
interests of such potential participants is included in the
registration statement on Form S-4 filed by Omega and other
relevant documents to be filed with the SEC in connection with the
proposed Merger. These documents are available free of charge on
the SEC’s website and from Omega and MedEquities, as applicable,
using the sources indicated above.
No Offer or Solicitation
This communication is not intended to and does not constitute an
offer to sell or the solicitation of an offer to buy, sell or
solicit any securities or any proxy, vote or approval, nor shall
there be any sale of securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such
jurisdiction. No offer of securities shall be deemed to be made
except by means of a prospectus meeting the requirements of Section
10 of the Securities Act of 1933, as amended.
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.
In addition, the proposed acquisition of MedEquities presents
additional factors that could cause Omega’s results to differ
materially from those reflected in the forward-looking statements.
Important risk factors related to the MedEquities transaction that
may cause such a difference include, without limitation, risks and
uncertainties related to (i) the risk that the conditions to
closing of the Merger may not be satisfied including, without
limitation, the MedEquities stockholder approval; (ii) the ability
of Omega to integrate the acquired business successfully and to
achieve anticipated cost savings and other synergies; (iii) the
possibility that other anticipated benefits of the proposed Merger
will not be realized, including, without limitation, anticipated
revenues, expenses, earnings and other financial results; (iv)
potential litigation relating to the proposed Merger that could be
instituted; (v) the ability to meet expectations regarding the
timing and closing of the Merger; and (vi) possible disruptions
from the proposed Merger that could harm the businesses of Omega
and/or MedEquities. These risks, as well as other risks associated
with the proposed acquisition of MedEquities, are more fully
discussed in the registration statement on Form S-4 that Omega has
filed with the SEC in connection with the proposed transaction, as
may be amended and supplemented. 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)
December 31, 2018 2017
(Unaudited)
ASSETS Real estate properties Real estate
investments $ 7,746,410 $ 7,655,960 Less accumulated depreciation
(1,562,619 ) (1,376,828 ) Real estate
investments – net 6,183,791 6,279,132 Investments in direct
financing leases – net 132,262 364,965 Mortgage notes receivable –
net 710,858 671,232 7,026,911
7,315,329 Other investments – net 504,626 276,342 Investment in
unconsolidated joint venture 31,045 36,516 Assets held for sale –
net 989 86,699 Total investments
7,563,571 7,714,886 Cash and cash equivalents 10,300 85,937
Restricted cash 1,371 10,871 Accounts receivable – net 347,377
279,334 Goodwill 643,950 644,690 Other assets 24,308
37,587 Total assets $ 8,590,877
$ 8,773,305
LIABILITIES AND EQUITY Revolving
line of credit $ 313,000 $ 290,000 Term loans – net 898,726 904,670
Secured borrowings – net — 53,098 Senior notes and other unsecured
borrowings – net 3,328,896 3,324,390 Accrued expenses and other
liabilities 272,172 295,142 Deferred income taxes 13,599
17,747 Total liabilities
4,826,393 4,885,047 Equity:
Common stock $.10 par value authorized – 350,000 shares, issued and
outstanding – 202,346 shares as of December 31, 2018 and 198,309 as
of December 31, 2017
20,235
19,831
Common stock – additional paid-in capital 5,074,544 4,936,302
Cumulative net earnings 2,130,511 1,839,356 Cumulative dividends
paid (3,739,197 ) (3,210,248 ) Accumulated other comprehensive loss
(41,652 ) (30,150 ) Total stockholders’ equity
3,444,441 3,555,091 Noncontrolling interest 320,043
333,167 Total equity 3,764,484
3,888,258 Total liabilities and equity $
8,590,877 $ 8,773,305
OMEGA
HEALTHCARE INVESTORS, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS Unaudited
(in thousands, except per share
amounts)
Three Months Ended Twelve Months Ended
December 31, December 31, 2018
2017 2018 2017 Revenue
Rental income $ 188,265 $ 194,579 $ 767,340 $ 775,176
Income from direct financing leases 262 614 1,636 32,336 Mortgage
interest income 18,503 17,029 70,312 66,202 Other investment income
12,345 7,788 40,228 29,225 Miscellaneous income 375
1,196 2,166 5,446 Total
operating revenues 219,750 221,206 881,682 908,385
Expenses Depreciation and amortization 70,598 75,323 281,279
287,591 General and administrative 13,676 8,218 47,521 32,493
Stock-based compensation 3,880 3,862 15,987 15,212 Acquisition
costs 383 - 383 (22 ) Impairment on real estate properties 3,154
63,460 29,839 99,070 Impairment on direct financing leases 27,153
231 27,168 198,199 Provision for uncollectible accounts 326
913 6,689 14,580
Total operating expenses 119,170 152,007 408,866 647,123
Other operating income Gain on assets sold – net
15,526 46,421 24,774
53,912
Operating income
116,106 115,620 497,590 315,174
Other income (expense) Interest income and other – net (183
) 5 313 267 Interest expense (48,605 ) (48,253 ) (192,462 )
(188,762 ) Interest – amortization of deferred financing costs
(2,237 ) (2,243 ) (8,960 ) (9,516 ) Interest – refinancing costs -
- - (21,965 ) Contractual settlement - - - 10,412 Realized gain on
foreign exchange 12 76 32
311 Total other expense (51,013 ) (50,415 ) (201,077
) (209,253 )
Income from continuing operations
65,093 65,205 296,513 105,921 Income
tax expense (825 )
(558 ) (3,010 ) (3,248 ) Income from unconsolidated joint venture
635
509 381 2,237
Net
income 64,903 65,156 293,884
104,910 Net income attributable to noncontrolling
interest (2,687 ) (2,756
) (12,306 ) (4,491
) Net income available to common stockholders
$ 62,216 $ 62,400
$ 281,578 $ 100,419
Earnings per common share available to common
stockholders: Basic: Net income available to common
stockholders $ 0.31 $ 0.31 $ 1.41 $ 0.51
Diluted: Net income $ 0.31 $ 0.31 $ 1.40
$ 0.51 Dividends declared per common share $
0.66 $ 0.65 $ 2.64 $ 2.54
Weighted-average shares outstanding, basic 201,799
198,614 200,279 197,738
Weighted-average shares outstanding, diluted 212,132
207,646 209,711 206,790
OMEGA HEALTHCARE INVESTORS, INC. FUNDS FROM
OPERATIONS Unaudited
(in thousands, except per share
amounts)
Three Months Ended Twelve Months Ended
December 31, December 31, 2018
2017 2018 2017
Net income $ 64,903 $ 65,156 $ 293,884 $ 104,910 Deduct gain
from real estate dispositions (15,526 ) (46,421 ) (24,774 ) (53,912
) Add back loss from real estate dispositions of unconsolidated
joint venture — — 670
— Sub-total 49,377 18,735 269,780 50,998
Elimination of non-cash items included in net income: Depreciation
and amortization 70,598 75,323 281,279 287,591 Depreciation -
unconsolidated joint venture 1,372 1,657 5,876 6,630 Add back
non-cash provision for impairments on real estate properties 3,154
63,460 29,839 99,070 Add back non-cash provision for impairments on
real estate properties of unconsolidated joint venture —
— 608 —
Funds from operations (“FFO”) $ 124,501 $ 159,175
$ 587,382 $ 444,289
Weighted-average common shares outstanding, basic 201,799 198,614
200,279 197,738 Restricted stock and PRSUs 1,619 260 691 269 Omega
OP Units 8,714 8,772 8,741
8,783 Weighted-average common shares
outstanding, diluted 212,132 207,646
209,711 206,790
Funds
from operations available per share $ 0.59 $ 0.77
$ 2.80 $ 2.15
Adjustments to
calculate adjusted funds from operations: Funds from operations
$ 124,501 $ 159,175 $ 587,382 $ 444,289 Deduct one-time revenue
(1,110 ) (513 ) (1,110 ) (2,394 ) Add back (deduct) unrealized loss
(gain) on warrants 211 — (160 ) — Deduct contractual settlement — —
— (10,412 ) Add back (deduct) acquisition costs 383 — 383 (22 ) Add
back one-time buy-out of purchase option — — 2,000 — Add back
impairment for direct financing leases 27,153 231 27,168 198,199
Add back provision for uncollectible accounts 326 913 6,689 14,580
Add back interest refinancing expense — — — 23,539 Add back
non-cash stock-based compensation expense 3,880
3,862 15,987 15,212
Adjusted funds from operations (“AFFO”) $ 155,344
$ 163,668 $ 638,339 $ 682,991
Adjustments to calculate funds available for
distribution: Non-cash interest expense $ 2,212 $ 2,215 $ 8,855
$ 10,076 Capitalized interest (3,291 )
(2,124 ) (11,093 ) (7,991 ) Non-cash revenues (16,029 )
(14,718 ) (69,738 ) (64,117 )
Funds
available for distribution (“FAD”) $ 138,236 $ 149,041
$ 566,363 $ 620,959
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
December 31, 2018:
As of December 31, 2018 As of December
31, 2018 Balance Sheet Data
Total # ofProperties
TotalInvestment($000’s)
% ofInvestment
# ofOperatingProperties (1)
# ofOperatingBeds (1)
Real Estate Investments 850 $ 7,746,410 90 % 838
83,883 Direct Financing Leases 17 132,262 2 % 17 1,639
Mortgage Notes Receivable 54 710,858 8 % 54
5,814 921 $ 8,589,530 100 % 909 91,336 Assets Held For Sale
3 989 Total Investments 924 $ 8,590,519
Investment Data
Total # ofProperties
TotalInvestment($000’s)
% ofInvestment
# ofOperatingProperties(1)
# ofOperatingBeds (1)
Investmentper Bed($000’s)
Skilled Nursing Facilities/Transitional Care
792
$
7,077,402
82
%
785
83,558
$
85
Senior Housing (2) 129 1,512,128 18 % 124
7,778 $ 194 921 $ 8,589,530 100 % 909 91,336 $ 94 Assets
Held For Sale 3 989 Total Investments 924 $ 8,590,519
(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 Twelve Months Ended December 31, 2018 December 31,
2018 Rental Property $ 188,265 86 % $ 767,340 87 % Direct
Financing Leases 262 0 % 1,636 0 % Mortgage Notes 18,503 8 % 70,312
8 % Other Investment Income and Miscellaneous Income - net
12,720 6 % 42,394 5 % $ 219,750 100 % $
881,682 100 %
Revenue
by Facility Type Three Months Ended Twelve Months Ended
December 31, 2018 December 31, 2018 Skilled Nursing
Facilities/Transitional Care $ 180,023 82 % $ 728,233
82 % Senior Housing 27,007 12 % 111,055 13 % Other 12,720
6 % 42,394 5 % $ 219,750 100 % $
881,682 100 %
Rent/Interest Concentration by
Operator($000’s)
# ofProperties (1)
2018 Q4AnnualizedContractualRent/Interest
(1)(2)
% of
TotalAnnualizedContractualRent/Interest
Ciena 74 $ 94,466 11.9 % Communicare 45 59,489 7.5 %
Genesis 59 59,397 7.5 % Signature 58 51,079 6.4 % Saber 45 43,419
5.4 % HHC 44 35,939 4.5 % Guardian 35 34,712 4.3 % Maplewood 14
31,437 3.9 % Daybreak 57 30,026 3.8 % Diversicare 34 29,232 3.7 %
Remaining Operators (3) 421 327,650 41.1 % 886
$ 796,846 100.0 % (1) Excludes facilities which are
non-operating, closed and/or not currently providing patient
services. (2) Includes mezzanine and term loan interest. (3)
Excludes 18 Orianna facilities, 4 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
byInvestment ($000’s)
Total # ofProperties (1)
TotalInvestment (1)
% of TotalInvestment
Florida 93 $ 839,303 9.8 % Texas 114 826,333 9.6 %
Michigan 53 689,004 8.0 % Ohio 58 592,798 6.9 % Indiana 66 591,106
6.9 % Pennsylvania 47 499,430 5.8 % California 54 497,586 5.8 %
Virginia 19 280,717 3.3 % Tennessee 34 280,557 3.3 % North Carolina
32 277,436 3.2 % Remaining 31 states (2) 296
2,820,117 32.8 % 866 8,194,387 95.4 % United Kingdom 55
395,143 4.6 % 921 $ 8,589,530 100.0 %
(1) Excludes three properties with total investment of $1.0
million classified as assets held for sale. (2)
Includes New York City 2nd Avenue
development project.
Rent and Loan Maturities
($000's) As of December 31, 2018
Operating Lease Expirations & Loan
Maturities
Year Lease Rent Interest
Lease and
Interest Rent
% of Total
Annualized
Contractual
Rent/Interest
2019 524 1,442 1,966
0.2% 2020 5,428 3,514 8,942 1.1% 2021 5,411 - 5,411
0.7% 2022 37,822 - 37,822 4.7% 2023 14,755 - 14,755 1.9%
Notes:
Based on annualized 4th quarter 2018
contractual rent and interest.
Excludes Safe Haven contractual revenue of approximately $1.4
million expiring in 2019 due to its bankruptcy status.
The following tables present operator
revenue mix, census and coverage data based on information provided
by our operators as of September 30, 2018:
Operator Revenue Mix
(1) As of September 30, 2018 Medicaid
Medicare /
Insurance
Private / Other
Three-months ended September 30, 2018 53.9% 33.7% 12.4%
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% (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 September 30, 2018 82.3% 1.67x
1.32x Twelve-months ended June 30, 2018 82.5% 1.70x 1.34x
Twelve-months ended March 31, 2018 82.4% 1.69x 1.33x Twelve-months
ended December 31, 2017 82.3% 1.71x 1.34x Twelve-months ended
September 30, 2017 82.2% 1.72x 1.35x (1) Excludes all
facilities considered non-core. (2) Based on available (operating)
beds.
The following table presents a debt
maturity schedule as of December 31, 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
2019 $ - $ - $ - $ - 2020 - - - - 2021
313,000 - 20,000 333,000 2022 902,990 - - 902,990 2023 - 700,000 -
700,000 2024 - 400,000 - 400,000 Thereafter -
2,250,000 -
2,250,000 $ 1,215,990 $ 3,350,000 $
20,000 $ 4,585,990 (1) The $313 million
Line of Credit borrowings excludes $4.0 million net deferred
financing costs and can be extended into 2022. The $903 million is
comprised of a: $425 million US Dollar term loan, £100 million term
loan (equivalent to $128 million in US dollars), $100 million term
loan to Omega’s operating partnership and $250 million term loan
(excludes $4.3 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 twelve month periods ended December 31,
2018:
Investment Activity
($000's) Three Months Ended Twelve Months Ended December 31,
2018 December 31, 2018 Funding by Investment Type $
Amount % $ Amount % Real
Property $ 52,358 53.7 % $ 104,855 22.2
% Construction-in-Progress 37,274 38.2 % 127,945 27.2 % Capital
Expenditures 7,950 8.1 % 52,985 11.2 % Investment in Direct
Financing Leases - 0.0 % 15 0.0 % Mortgages - 0.0 % 44,200 9.4 %
Other - 0.0 % 141,300
30.0 % Total $ 97,582 100.0 % $ 471,300 100.0 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190211005754/en/
Matthew Gourmand, SVP, Investor RelationsorBob Stephenson,
CFO(410) 427-1700
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