Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company") today announced its results of operations for the quarter ended March 31, 2010. The Company also reported Funds From Operations ("FFO") available to common stockholders for the three months ended March 31, 2010 of $33.4 million or $0.38 per common share. The $33.4 million of FFO available to common stockholders for the first quarter of 2010 includes $3.7 million of cash proceeds associated with a legal settlement, $0.2 million of costs associated with a December 2009 acquisition, $0.8 million of non-cash restricted stock expense and a $0.2 million net loss associated with owned and operated assets. FFO is presented in accordance with the guidelines for the calculation and reporting of FFO issued by the National Association of Real Estate Investment Trusts ("NAREIT"). Adjusted FFO was $0.38 per common share for the three months ended March 31, 2010. FFO and Adjusted FFO are non-GAAP financial measures. Adjusted FFO is calculated as FFO available to common stockholders less certain non-cash items and certain items of revenue or expenses, including: results of operations of owned and operated facilities during the period, expenses associated with acquisitions, portions of legal settlements and restricted stock expense. For more information regarding FFO and Adjusted FFO, see the "Funds From Operations" section below.
GAAP NET INCOME
For the three-month period ended March 31, 2010, the Company reported net income of $21.0 million and net income available to common stockholders of $18.7 million, or $0.21 per diluted common share on operating revenues of $58.7 million. This compares to net income of $24.9 million and net income available to common stockholders of $22.6 million, or $0.27 per diluted common share on operating revenues of $49.2 million for the same period in 2009.
The decreases in net income and net income available to common stockholders for the three-month period ended March 31, 2010 compared to the prior year were primarily due to: (i) the incremental impact of proceeds from a 2009 legal settlement versus a 2010 legal settlement, (ii) increased interest expense associated with new debt issued and assumed in connection with the December 2009 CapitalSource Inc. ("CapitalSource") asset acquisition, (iii) increased depreciation expense, and (iv) acquisition related expenses. This impact was partially offset by a $6.0 million increase in rental income associated with the acquired CapitalSource assets.
FIRST QUARTER 2010 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
- In April 2010, the Company announced its intention to exercise its option to acquire certain CapitalSource subsidiaries owning 63 long-term care facilities.
- In April 2010, the Company entered into a new $320 million revolving senior secured credit facility.
- In March and April 2010, the Company sold 3.8 million shares of its common stock under its Equity Shelf Program generating net proceeds of $74 million.
- In February 2010, the Company repaid $59 million of mortgage debt it assumed as part of the December 2009 CapitalSource asset acquisition.
- In February 2010, the Company issued $200 million aggregate principal amount of its 7 ½% senior unsecured notes due 2020.
- In January 2010, the Company increased its quarterly common dividend per share from $0.30 to $0.32.
FIRST QUARTER 2010 RESULTS
Operating Revenues and Expenses - Operating revenues for the three months ended March 31, 2010, excluding nursing home revenues of owned and operated assets and therefore on a non-GAAP basis, were $54.3 million. Operating expenses for the three months ended March 31, 2010, excluding nursing home expenses for owned and operated assets, totaled $18.6 million, comprised of $14.7 million of depreciation and amortization expense, $2.9 million of general and administrative expenses, $0.8 million of restricted stock expense and $0.2 million of expense associated with the December 2009 CapitalSource asset acquisition. A reconciliation of these amounts to revenues and expenses reported in accordance with GAAP is provided at the end of this release.
Other Income and Expense - Other income and expense for the three months ended March 31, 2010 was a net expense of $14.5 million and was primarily comprised of $13.6 million of interest expense and $1.0 million of amortized deferred financing costs.
Funds From Operations - For the three months ended March 31, 2010, reportable FFO available to common stockholders was $33.4 million, or $0.38 per common share on 89 million weighted-average common shares outstanding, compared to $33.6 million, or $0.41 per common share on 82 million weighted-average common shares outstanding, for the same period in 2009.
The $33.4 million of FFO for the first quarter of 2010 includes cash proceeds associated with a legal settlement, $0.2 million of costs associated with the December 2009 CapitalSource acquisition, $0.8 million of non-cash restricted stock expense and a $0.2 million net loss associated with owned and operated assets.
The $33.6 million of FFO for the three months ended March 31, 2009, includes the impact of a $4.5 million legal settlement, a $0.9 million net loss associated with owned and operated assets, $0.5 million of non-cash restricted stock expense and a real estate impairment of $0.1 million.
Adjusted FFO was $33.5 million, or $0.38 per common share, for the three months ended March 31, 2010, compared to $30.5 million, or $0.37 per common share, for the same period in 2009. The Company had 6.5 million additional weighted-average shares for the three months ended March 31, 2010 compared to the same period in 2009. The increase in weighted-average common shares was primarily a result of: (i) 2.7 million shares of common stock issued to CapitalSource as part of the December 2009 acquisition; (ii) approximately 2.3 million common shares issued under the Company's Dividend Reinvestment and Common Stock Purchase Plan; and (iii) approximately 3.3 million common shares issued under the Company's Equity Shelf Program. For further information, see "Funds From Operations" below.
FINANCING ACTIVITIES
$320 million Credit Facility - On April 13, 2010, the Company entered into a new $320 million revolving senior secured credit facility (the "2010 Credit Facility"). The 2010 Credit Facility replaces the Company's previous $200 million revolving senior secured credit facility (the "2009 Credit Facility"). The 2010 Credit Facility matures in four years, on April 13, 2014; provided, however, if the Company has not refinanced or repaid its $310 million 7% Senior Notes due April 2014 prior to December 31, 2013, the maturity date for the 2010 Credit Facility will become December 31, 2013. The 2010 Credit Facility includes an "accordion feature" that permits the Company to expand its borrowing capacity to $420 million during its first three years.
The 2010 Credit Facility is priced at LIBOR plus an applicable margin (ranging from 325 basis points to 425 basis points) based on the Company's consolidated leverage and is not subject to a LIBOR floor. The Company's applicable percentage above LIBOR is currently 350 basis points. The 2010 Credit Facility will be used for acquisitions and general corporate purposes. At the date of this release, the Company had no borrowings outstanding under the 2010 Credit Facility.
The Company and its subsidiaries terminated the 2009 Credit Facility in connection with the effectiveness of the 2010 Credit Facility. The Company did not experience any material early termination penalties due to the termination of the 2009 Credit Facility. For the three month period ending June 30, 2010, the Company will record a one-time, non-cash charge of approximately $3.5 million relating to the write-off of deferred financing costs associated with the termination of the 2009 Credit Facility.
Sale of 3.8 Million Shares of Common Stock Under the Equity Shelf Program - On April 6, 2010, the Company sold 1.7 million shares of its common stock available under its $100 million Equity Shelf Program pursuant to a terms agreement dated March 31, 2010 with BofA Merrill Lynch, resulting in net proceeds of approximately $32.3 million.
In addition, during the three months ended March 31, 2010, the Company sold approximately 2.1 million shares of its common stock under the Equity Shelf Program resulting in net proceeds of approximately $42 million. Of the 2.1 million shares sold, 0.2 million, representing net proceeds of $4.7 million had a settlement date in April 2010 and the sale of these shares will be recorded in the second quarter of 2010.
$200 Million Senior Notes - On February 9, 2010, the Company sold $200 million aggregate principal amount of its 7½% Senior Notes due 2020 (the "Notes"). The Notes were sold at an issue price of 98.278% of the principal amount of the Notes resulting in gross proceeds to the Company of approximately $197 million. The Company used the net proceeds from the sale of the Notes, after discounts and expenses, to (i) repay outstanding borrowings of approximately $59 million of mortgage debt assumed in connection with the December 2009 CapitalSource asset acquisition and (ii) repay all outstanding borrowings under the 2009 Credit Facility.
$59 million Mortgage Debt - In connection with the December 2009 CapitalSource asset acquisition, the Company assumed $59.4 million of 6.8% mortgage debt maturing on December 31, 2011. Proceeds from the Notes sold in February 2010 were used to repay the assumed mortgage debt on February 16, 2010.
PORTFOLIO DEVELOPMENTS
Anticipated CapitalSource Acquisitions - On April 20, 2010, the Company announced that it intends to exercise its option to acquire 63 additional long-term care facilities from affiliates of CapitalSource. The aggregate consideration to be paid at the closing under the option agreement (the "Option Closing"), which is expected to occur in June 2010, is approximately $295 million, consisting of approximately: (i) $34 million in cash, and (ii) the repayment of $261 million of debt at closing. The 63 facilities owned by the entities to be acquired at the Option Closing, representing 6,607 available beds located in 19 states, are part of 30 in-place triple net leases among 18 operators. The 30 leases generate approximately $34 million of annualized revenue.
The Company acquired the option to purchase these 63 facilities in connection with the Company's previously announced securities purchase agreement with CapitalSource dated November 17, 2009, pursuant to which the Company acquired entities owning 40 facilities on December 22, 2009, and has agreed to acquire 40 other facilities subject to obtaining consent of the U.S. Department of Housing and Urban Development ("HUD").
The purchase price payable at each such closing is also subject to certain adjustments, including but not limited to a dollar-for-dollar increase or decrease of the consideration to the extent the assumed debt is less than or greater than the amount set forth in the purchase agreement, and an upward or downward adjustment to prorate certain items of accrued and prepaid income and expense of the CapitalSource subsidiaries to be acquired.
The consummation of the Option Closing and the remaining closing under the purchase agreement with CapitalSource are subject to customary closing conditions, and there can be no assurance as to when or whether such transactions will be consummated.
Emerald Mortgage - In February 2010, titles to four Emerald properties on which the Company held a mortgage were transferred to wholly-owned subsidiaries of the Company by Deed in Lieu of Foreclosure. These facilities were then subsequently leased to one of our existing operators under a new four facility ten year master lease.
DIVIDENDS
Common Dividends - On April 15, 2010, the Company's Board of Directors announced a common stock dividend of $0.32 per share to be paid May 17, 2010 to common stockholders of record on April 30, 2010. At the date of this release, the Company had approximately 93 million common shares outstanding.
Series D Preferred Dividends - On April 15, 2010, the Company's Board of Directors also declared its regular quarterly dividend for the Series D preferred stock, payable May 17, 2010 to preferred stockholders of record on April 30, 2010. Series D preferred stockholders of record will be paid dividends in the approximate amount of $0.52344 per preferred share. The liquidation preference for the Company's Series D preferred stock is $25.00 per share. Regular quarterly preferred dividends represent dividends for the period February 1, 2010 through April 30, 2010.
2010 ADJUSTED FFO GUIDANCE
The Company currently expects its quarterly 2010 Adjusted FFO available to common stockholders to be between $0.43 and $0.46 per diluted share after giving effect to the anticipated second and third closings of the CapitalSource assets.
The Company's Adjusted FFO guidance for 2010 excludes the impact of all other future acquisitions, gains and losses from the sale of assets, additional divestitures, certain revenue and expense items, capital transactions and restricted stock amortization expense. A reconciliation of the Adjusted FFO guidance to the Company's projected GAAP earnings is provided on a schedule attached to this press release. The Company may, from time to time, update its publicly announced Adjusted FFO guidance, but it is not obligated to do so.
The Company's Adjusted FFO guidance is based on a number of assumptions, which are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. While the Company expects the second and third closings under the purchase agreement with CapitalSource to occur in the second quarter of 2010, the second closing is subject to HUD approval of the transfer and both closings are subject to other terms and conditions set forth in the CapitalSource purchase agreement. Accordingly, there can be no assurance as to when or whether either closing will occur. Without limiting the generality of the foregoing, the completion of acquisitions, divestitures, capital and financing transactions, variations in restricted stock amortization expense, and the factors identified below may cause actual results to vary materially from our current expectations. There can be no assurance that the Company will achieve its projected results.
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