Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company") today announced its results of operations for the quarter ended June 30, 2010. The Company also reported Funds From Operations ("FFO") available to common stockholders for the three months ended June 30, 2010 of $29.7 million or $0.32 per common share. The $29.7 million of FFO available to common stockholders for the second quarter of 2010 includes a charge of approximately $3.5 million to the write-off deferred financing costs associated with the termination of the Company's 2009 credit facility, $1.2 million of costs associated with second quarter acquisitions, an $0.8 million gain from the sale of two mortgage backed securities in the second quarter of 2010, $0.5 million of non-cash restricted stock expense, a $0.2 million provision for impairment on a real estate asset and $0.2 million of net income 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 $0.37 per common share for the three months ended June 30, 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 expense, including, but not limited to: results of operations of owned and operated facilities during the period, expenses associated with acquisitions and restricted stock expense. For more information regarding FFO and Adjusted FFO, see the "Funds From Operations" section below.
“We are extremely pleased to redeploy the cash we raised since December with the closing of the remaining two CapitalSource deals in June”
COMPANY COMMENTS
"We are extremely pleased to redeploy the cash we raised since December with the closing of the remaining two CapitalSource deals in June," stated Taylor Pickett, Omega's President and CEO. Mr. Pickett added, "Omega ended the quarter with an extremely strong balance sheet, no debt maturities prior to 2014, $100 million available on our $320 million revolving credit facility, a new $140 million continuous equity program and a significant increase in our adjusted FFO run rate as a result of the CapitalSource closings." Mr. Pickett concluded by stating, "We have positioned our balance sheet to allow Omega to continue to focus on growing our adjusted FFO and increase both our common stock dividend and our overall return to our shareholders."
GAAP NET INCOME
For the three-month period ended June 30, 2010, the Company reported net income of $15.5 million and net income available to common stockholders of $13.2 million, or $0.14 per diluted common share on operating revenues of $58.8 million. This compares to net income of $19.8 million and net income available to common stockholders of $17.6 million, or $0.21 per diluted common share on operating revenues of $49.2 million, for the same period in 2009.
For the six-month period ended June 30, 2010, the Company reported net income of $36.5 million, net income available to common stockholders of $31.9 million, or $0.35 per diluted common share on operating revenues of $117.5 million. This compares to net income of $44.7 million, net income available to common stockholders of $40.2 million, or $0.49 per diluted common share on operating revenues of $98.3 million, for the same period in 2009.
The year-to-date decreases in both net income and net income available to common stockholders were primarily due to: (i) increased depreciation expense associated with approximately $900 million of new investments (including capital improvements) made throughout 2009 and 2010; (ii) increased interest expense associated with debt issued and assumed in connection with the CapitalSource Inc. ("CapitalSource") asset acquisitions; (iii) acquisition deal related expenses; (iv) the incremental impact of proceeds received from a 2009 legal settlement versus a 2010 legal settlement; and (v) a charge relating to the write-off of deferred financing credit facility costs associated with the termination of the Company's 2009 credit facility in 2010. This impact was partially offset by: (i) revenue associated with $900 million of new investments completed since June 2009; (ii) a $2 million reduction in the net loss associated with owned and operated assets; and (iii) $0.8 million of gain from two mortgage backed securities that were sold in the second quarter of 2010.
SECOND QUARTER 2010 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
- In July 2010, the Company increased its quarterly common dividend per share from $0.32 to $0.36.
- In June 2010, the Company established a $140 million 2010 Equity Shelf Program for a continuous at-the-market offering of common stock.
- In June 2010, the Company closed on the purchase of the remaining 103 long-term care facilities from CapitalSource for $589 million.
- In April 2010, the Company entered into a new $320 million revolving senior secured credit facility.
- In April 2010, the Company sold 1.9 million shares of its common stock to complete its $100 million 2009 Equity Shelf Program generating net proceeds of $37 million.
SECOND QUARTER 2010 RESULTS
Operating Revenues and Expenses - Operating revenues for the three months ended June 30, 2010, excluding nursing home revenues of owned and operated assets and therefore on a non-GAAP basis, were $55.8 million. Operating expenses for the three months ended June 30, 2010, excluding nursing home expenses for owned and operated assets, totaled $21.5 million, comprised of $16.5 million of depreciation and amortization expense, $3.2 million of general and administrative expenses, $1.2 million of expense associated with the CapitalSource asset acquisitions, $0.5 million of restricted stock expense and a $0.2 million non-cash provision for impairment on a real estate asset. 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 June 30, 2010 was a net expense of $19.0 million and was primarily comprised of: (i) $14.7 million of interest expense; (ii) $3.5 million to write-off deferred financing costs associated with the termination of the Company's 2009 credit facility in 2010; and (iii) $0.9 million of amortized deferred financing costs.
Funds From Operations - For the three months ended June 30, 2010, reportable FFO available to common stockholders was $29.7 million, or $0.32 per common share on 93 million weighted-average common shares outstanding, compared to $28.6 million, or $0.35 per common share on 83 million weighted-average common shares outstanding, for the same period in 2009.
The $29.7 million of FFO for the second quarter of 2010 includes the impact of: (i) a charge of approximately $3.5 million relating to the write-off of deferred financing costs associated with the termination of the Company's 2009 credit facility; (ii) $1.2 million of costs associated with the CapitalSource asset acquisitions; (iii) $0.5 million of non-cash restricted stock expense; (iv) a $0.2 million real estate impairment charge; (v) $0.2 million net income associated with owned and operated assets; and (vi) $0.8 million of gain on the sales of two mortgage backed securities that were bought in the first quarter of 2010 and sold in the second quarter of 2010.
The $28.6 million of FFO for the three months ended June 30, 2009 includes the impact of: (i) a $1.1 million net loss associated with owned and operated assets; (ii) $0.5 million of non-cash restricted stock expense; and (iii) a $0.5 million write-off of deferred financing credit facility costs.
Adjusted FFO was $34.0 million, or $0.37 per common share, for the three months ended June 30, 2010, compared to $30.7 million, or $0.37 per common share, for the same period in 2009. The Company had 10.5 million additional weighted-average shares for the three months ended June 30, 2010 compared to the same period in 2009. The increase in weighted-average common shares was primarily a result of: (i) 3.7 million shares of common stock issued to CapitalSource as part of the December 2009 and June 29, 2010 asset acquisitions; (ii) approximately 2.6 million common shares issued under the Company's Dividend Reinvestment and Common Stock Purchase Plan; and (iii) approximately 5.2 million common shares issued under the Company's 2009 Equity Shelf Program. For further information, see "Funds From Operations" below.
FINANCING ACTIVITIES
1.0 Million Share Common Stock Issuance - On June 29, 2010, the Company issued 1.0 million shares of its common stock to CapitalSource as part of the June 29, 2010 CapitalSource asset acquisition. For further information, see "Portfolio Developments" section below.
$140 Million 2010 Equity Shelf Program - On June 25, 2010, the Company entered into separate equity distribution agreements to sell shares of its common stock having an aggregate gross sales price of up to $140,000,000 (the "Agreements") with each of BofA Merrill Lynch, Credit Agricole Securities (USA) Inc., Deutsche Bank Securities, Jefferies & Company, Inc., RBS Securities Inc., Stifel Nicolaus & Company, Incorporated and UBS Securities LLC, each as sales agents and/or principal (collectively, the "Managers"). Under the terms of the Agreements, the Company may from time to time offer and sell shares of its common stock, having an aggregate gross sales price of up to $140,000,000 through or to the Managers. Sales of the shares, if any, will be made by means of ordinary brokers' transactions on the New York Stock Exchange at market prices, or as otherwise agreed with the Managers. The Company will pay each Manager compensation for sales of the shares equal to 2% of the gross sales price per share of shares sold through such Manager, as sales agent, under the Agreements.
$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.
For the three month period ended June 30, 2010, the Company recorded a 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 1.9 Million Shares of Common Stock Under the $100 Million 2009 Equity Shelf Program - In April 2010, the Company sold 1.9 million shares of its common stock available under its $100 million 2009 Equity Shelf Program resulting in net proceeds of approximately $37 million. At the conclusion of the April transactions, the Company cancelled its $100 million 2009 Equity Shelf Program.
PORTFOLIO DEVELOPMENTS
CapitalSource Acquisitions - On June 29, 2010, the Company purchased 40 long-term care facilities from affiliates of CapitalSource pursuant to the securities purchase agreement executed and announced in November of 2009, for an aggregate purchase price of approximately $270 million, consisting of the assumption of $182 million of indebtedness guaranteed by the U.S. Department of Housing and Urban Development ("HUD"), $20 million of other indebtedness, $65 million cash and $3 million of Omega common stock. In addition, Omega issued to an affiliate of CapitalSource an additional $15 million of Omega common stock as consideration for certain escrow amounts transferred at closing.
The $182.0 million of assumed HUD debt is comprised of 29 HUD mortgage loans. Eleven of the HUD loans have a face value of $53.2 million with a blended interest rate of 6.61% and maturities between January 2036 and May 2040. The face value of the remaining 18 HUD loans assumed is $128.8 million with an interest rate of 4.85% and maturities between January 2040 and January 2045. The $20 million of other indebtedness is comprised of five separate $4.0 million subordinated 9% notes that mature in December 2021.
In accordance with the guidance for accounting for a business combination, the Company is required to allocate the fair value of the assets purchased and liabilities assumed, including identifiable intangibles, in the CapitalSource asset acquisitions at their fair values. Preliminary estimates of the fair values of the HUD mortgage loans assumed are approximately $20.8 million greater than the face value of the loans, as market rates for comparable loans at the acquisition date were less than the stated rates on the loans. Preliminary estimate of the fair value of the subordinated notes assumed is approximately $1.8 million greater than the face value of the subordinated notes, as market rates for comparable notes at the acquisition date were less than the stated rates on the notes. As a result, the Company will amortize the impact of the fair value adjustments over the term of the loans utilizing an effective interest method.
On June 9, 2010, the Company purchased 63 long-term care facilities from affiliates of CapitalSource for an aggregate purchase price of approximately $293 million in cash, in accordance with the terms of the securities purchase agreement between the parties executed and announced in November of 2009.
The combined 103 facilities acquired from CapitalSource, representing 11,409 available beds located in 20 states, are part of 43 in-place triple net leases among 20 operators.
Owned and Operated Assets - On June 1, 2010, the two Vermont owned and operated facilities had their license transferred to a third party operator and the facilities are now part of the Formation Capital ("Formation") master lease. In 2008, Genesis Healthcare ("Genesis") entered into a long-term management agreement with Formation to oversee the day-to-day operations of these two facilities. The Company's consolidated financial statements include the financial position and results of operations of the Vermont facilities from July 7, 2008 to May 31, 2010. As a result of the transition to Formation, effective June 1, 2010, and since the Company no longer operates any facilities, the revenues and expenses of these entities are not included in our consolidated statements of income after June 1, 2010.
DIVIDENDS
Common Dividends - On July 15, 2010, the Company's Board of Directors announced a common stock dividend of $0.36 per share, increasing the quarterly common dividend by $0.04, or 12.5%, per share over the prior quarter. The common dividends are to be paid August 16, 2010 to common stockholders of record on July 30, 2010. At the date of this release, the Company has approximately 95 million common shares outstanding.
Series D Preferred Dividends - On July 15, 2010, the Company's Board of Directors also declared its regular quarterly dividend for the Series D preferred stock, payable August 16, 2010 to preferred stockholders of record on July 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 May 1, 2010 through July 30, 2010.
2010 ADJUSTED FFO GUIDANCE AFFIRMATION
The Company affirmed its quarterly 2010 Adjusted FFO available to common stockholders guidance to be between $0.43 and $0.46 per diluted share after giving effect to the 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. 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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