Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three-month period ended March 31, 2011.
The Company also reported Funds From Operations ("FFO") available to common stockholders for the three-month period ended March 31, 2011 of $14.1 million or $0.14 per common share. The $14.1 million of FFO available to common stockholders for the first quarter of 2011 includes $25.0 million in provision for impairments on real estate assets, a $3.5 million non-cash preferred stock redemption charge, $1.5 million of non-cash stock-based compensation expense, a $0.2 million net loss associated with the run-off of owned and operated assets, $45 thousand of costs associated with 2010 acquisitions and $16 thousand of interest refinancing costs. 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 $0.44 per common share for the three-month period ended March 31, 2011. 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, provisions for impairment and stock-based compensation expense.
“First Quarter 2011 Results - Funds From Operations”
GAAP NET INCOME
For the three-month period ended March 31, 2011, the Company reported a net loss of $5.9 million and a net loss available to common stockholders of $11.1 million, or a loss of $0.11 per diluted common share on operating revenues of $70.5 million. This compares to 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, for the same period in 2010.
The decreases in both net income and net income available to common stockholders were primarily due to: (i) increased depreciation expense associated with over $630 million of new investments (including capital improvements) made throughout 2010; (ii) impairment charges related to five real estate assets recorded in 2011; (iii) increased interest expense associated with debt instruments issued and assumed in 2010 primarily related to the CapitalSource Inc. ("CapitalSource") asset acquisitions; (iv) increased general and administrative expenses resulting from new investments and (v) income associated with cash received from a legal settlement in the first quarter of 2010. In addition to the aforementioned items, net income available to common stockholders was also reduced by a non-cash charge related to the redemption of the Company's 8.375% Series D Cumulative Redeemable Preferred Stock in 2011. This impact was partially offset by revenue associated with the new investments completed in 2010.
FIRST QUARTER 2011 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
- In April 2011, the Company increased its quarterly common dividend per share from $0.37 to $0.38.
- On March 7, 2011, the Company redeemed all of its outstanding shares of 8.375% Series D Redeemable Preferred Stock valued at $108.5 million.
FIRST QUARTER 2011 RESULTS
Operating Revenues and Expenses - Operating revenues for the three-month period ended March 31, 2011 were $70.5 million. Operating expenses for the three-month period ended March 31, 2011, excluding nursing home expenses for owned and operated assets, totaled $55.5 million and was comprised of $25.2 million of depreciation and amortization expense, $25.0 million of provision for impairments on real estate assets, $3.7 million of general and administrative expense, $1.5 million of stock-based compensation expense and $45 thousand of expense associated with the 2010 CapitalSource asset acquisitions. A reconciliation of these amounts to revenues and expenses reported in accordance with GAAP is provided at the end of this release.
The $25.0 million provision for impairment recorded during the quarter was associated with five skilled nursing facilities ("SNFs"). The Company recorded a $24.4 million provision on four Connecticut SNFs currently managed by a receiver appointed by the State of Connecticut (see the "2011 Portfolio and Recent Developments" section below for additional information). The Company also recorded a $0.6 million provision to reduce the book value of an Oklahoma SNF to its estimated sales price. This SNF was reclassified to "Assets held for sale-net" on the balance sheet.
Other Income and Expense - Other income and expense for the three-month period ended March 31, 2011 was a net expense of $20.7 million, which was comprised of $20.0 million of interest expense, $0.7 million of amortized deferred financing costs and $16 thousand of interest refinancing expense.
Funds From Operations - For the three-month period ended March 31, 2011, reportable FFO available to common stockholders was $14.1 million, or $0.14 per common share on 100 million weighted-average common shares outstanding, compared to $33.4 million, or $0.38 per common share on 89 million weighted-average common shares outstanding, for the same period in 2010.
The $14.1 million of FFO for the three-month period ended March 31, 2011 includes the impact of approximately $25.0 million of provisions for impairment on real estate assets, $3.5 million of non-cash preferred stock redemption charges, $1.5 million of non-cash stock-based compensation expense, a $0.2 million net loss associated with owned and operated assets, $45 thousand of costs associated with 2010 acquisitions and $16 thousand in interest refinancing expense.
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 stock-based compensation expense and a $0.2 million net loss associated with owned and operated assets.
Adjusted FFO was $44.4 million, or $0.44 per common share, for the three-month period ended March 31, 2011, compared to $33.5 million, or $0.38 per common share, for the same period in 2010. The Company had 11.1 million additional weighted-average shares for the three months ended March 31, 2011 compared to the same period in 2010. The increase in weighted-average common shares was primarily a result of: (i) approximately 6.3 million common shares issued under the equity shelf programs; (ii) approximately 1.0 million shares of common stock issued to CapitalSource as part of the June 29, 2010 asset acquisition; and (iii) approximately 3.1 million common shares issued under the Company's Dividend Reinvestment and Common Stock Purchase Plan. For further information see "Funds From Operations" below.
FINANCING ACTIVITIES
Series D Preferred Redemption - On March 7, 2011, the Company redeemed all of its 8.375% Series D Cumulative Redeemable Preferred Stock ("Series D Preferred Stock") at the redemption price of $25.00 per share, plus $0.21519 per share in accrued and unpaid dividends up to and including the redemption date, for an aggregate redemption price of $25.21519 per share. In connection with the redemption of the Series D Preferred Stock, the Company wrote-off approximately $3.4 million of preferred stock issuance costs (recorded in 2004) that reduced first quarter 2011 net income attributable to common stockholders by approximately $0.03 per common share.
Equity Shelf Program and the Dividend Reinvestment and Direct Stock Purchase Plan - During the three-month period ended March 31, 2011, the Company sold the following shares of its common stock:
2011 PORTFOLIO AND RECENT DEVELOPMENTS
Formation Capital, Connecticut Facilities - In January 2011, upon the Company's request, a complaint was filed by the State of Connecticut, Commissioner of Social Services (the "State"), against the licensees/operators of the Company's four Connecticut SNFs, seeking the appointment of a receiver. The SNFs were leased and operated by affiliates of Formation and were managed by Genesis. The Superior Court, Judicial District of Hartford, Connecticut appointed a receiver.
The receiver is responsible for (i) operating the facilities and funding all operational expenses incurred after the appointment of the receiver and (ii) providing the court with recommendations regarding the facilities. In March, the receiver moved to close all four SNFs and the Company objected. At the hearing held on April 21, 2011, the Company stated its position that the receiver failed to comply with the statutory requirements prior to recommending the facilities' closure. In addition, alternative operators expressed interest in operating several of the facilities. On April 27, 2011, the Court granted the receiver's motion and ordered the facilities closed.
The Company intends to file a timely notice of appeal, taking the position that the Court's Order (the "Order") is final and appealable, and erroneous. The Order is stayed under Connecticut law (thereby prohibiting any actions in furtherance of the Order to close) during the time period in which the Company has to file its appeal (20 days) and then during the pendency of such appeal; however, the receiver and/or the State may seek an order from the Court to lift the stay.
As a result of the Court's Order, the Company recorded an impairment charge of $24.4 million during the three-month period ended March 31, 2011, in accordance with US Generally Accepted Accounting Principles, to reduce the carrying values of the Connecticut facilities to their fair values. While this impairment charge reduced first quarter net income, the closure of the facilities does not impact the Company's adjusted FFO guidance which is confirmed below.
DIVIDENDS
Common Dividends - On April 14, 2011, the Company's Board of Directors announced a common stock dividend of $0.38 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, to be paid May 16, 2011 to common stockholders of record on April 29, 2011. At the date of this release, the Company had approximately 102 million common shares outstanding.
2011 ADJUSTED FFO GUIDANCE CONFIRMED
The Company confirmed its guidance for 2011 Adjusted FFO available to common stockholders to be between $1.80 and $1.86 per diluted share.
The Company's Adjusted FFO guidance for 2011 excludes the impact of gains and losses from the sale of assets, additional divestitures, impairment of assets, certain revenue and expense items, capital transactions and restricted stock amortization expense. 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, and variations in restricted stock amortization 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.
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