Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega") today announced its results of operations for the three- and six-month period ended June 30, 2011. The Company also reported Funds From Operations ("FFO") available to common stockholders for the three-month period ended June 30, 2011 of $42.6 million or $0.42 per common share. The $42.6 million of FFO available to common stockholders for the second quarter of 2011 includes a $4.1 million provision for uncollectible accounts receivable, $1.5 million of non-cash stock-based compensation expense, $0.2 million net loss associated with the run-off of owned and operated assets and a $16 thousand adjustment in non-cash preferred stock redemption charges.
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 $0.47 per common share for the three-month period ended June 30, 2011. FFO and Adjusted FFO are non-GAAP financial measures. Adjusted FFO is calculated as FFO available to common stockholders excluding the impact of 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 uncollectible accounts receivable and stock-based compensation expense.
GAAP NET INCOME
For the three-month period ended June 30, 2011, the Company reported net income of $17.8 million and net income available to common stockholders of $17.8 million, or $0.17 per diluted common share on operating revenues of $72.6 million. This compares to 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, for the same period in 2010.
For the six-month period ended June 30, 2011, the Company reported net income of $11.9 million and net income available to common stockholders of $6.7 million, or $0.07 per diluted common share on operating revenues of $143.1 million. This compares to net income of $36.5 million and net income available to common stockholders of $31.9 million, or $0.35 per diluted common share on operating revenues of $117.5 million, for the same period in 2010.
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 over $640 million of new investments (including capital improvements) made throughout 2010 and 2011; (ii) impairment charges related to five real estate assets recorded in the first quarter of 2011; (iii) increased interest expense associated with debt instruments issued and assumed in 2010 primarily related to the asset acquisitions from CapitalSource Inc. ("CapitalSource"); (iv) provisions for uncollectible accounts receivable related to one of our operators; (v) increased general and administrative expenses resulting from new investments; and (vi) 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 and 2011.
SECOND QUARTER 2011 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
- In July 2011, the Company increased its quarterly common dividend per share to $0.40 from $0.38.
- In July 2011, the Company completed an exchange offer for $575 million of its 6¾% senior notes due 2022 issued on October 4, 2010 and November 23, 2010 in two separate private placements.
- In April 2011, the Company increased its quarterly common dividend per share to $0.38 from $0.37.
SECOND QUARTER 2011 RESULTS
Operating Revenues and Expenses - Operating revenues for the three-month period ended June 30, 2011 were $72.6 million. Operating expenses for the three-month period ended June 30, 2011, excluding nursing home expenses for owned and operated assets, totaled $33.8 million and were comprised of $24.8 million of depreciation and amortization expense, a $4.1 million provision for uncollectible accounts receivable, $3.4 million of general and administrative expense and $1.5 million of stock-based compensation expense. 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-month period ended June 30, 2011 was a net expense of $20.8 million, which was comprised of $20.1 million of interest expense and $0.7 million of amortized deferred financing costs.
Funds From Operations - For the three-month period ended June 30, 2011, reportable FFO available to common stockholders was $42.6 million, or $0.42 per common share on 102 million weighted-average common shares outstanding, compared to $29.7 million, or $0.32 per common share on 93 million weighted-average common shares outstanding, for the same period in 2010.
The $42.6 million of FFO for the three-month period ended June 30, 2011 includes the impact of approximately $4.1 million of provisions for uncollectible accounts receivable, $1.5 million of non-cash stock-based compensation expense, a $0.2 million net loss associated with owned and operated assets and $16 thousand of preferred stock redemption charges.
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 of net income associated with owned and operated assets; and (vi) a $0.8 million 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.
Adjusted FFO was $92.8 million, or $0.92 per common share, for the six-month period ended June 30, 2011, compared to $67.5 million, or $0.74 per common share, for the same period in 2010. The Company had 8.8 million additional weighted-average shares for the six months ended June 30, 2011 compared to the same period in 2010. The increase in weighted-average common shares was primarily a result of: (i) approximately 4.5 million common shares issued under the equity shelf programs and (ii) approximately 3.4 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
$575 Million 6¾% Senior Notes Exchange - On July 14, 2011, the Company exchanged $575 million of its 6¾% Senior Notes due 2022 (the "2022 Notes") that had been registered under the Securities Act of 1933 for $575 million of its outstanding 6¾% Senior Notes due 2022. The 2022 Notes were sold in October and November 2010 in two separate private placements. The October 2010 private placement was sold at an issue price of 98.984% of the $225 million principal amount resulting in gross proceeds to the Company of approximately $223 million. The November 2010 private placement was sold at an issue price of 103% of the $350 million principal amount resulting in gross proceeds to the Company of approximately $361 million.
Equity Shelf Program and the Dividend Reinvestment and Direct Stock Purchase Plan - During the six-month period ended June 30, 2011, the Company sold the following shares of its common stock:
PORTFOLIO AND RECENT DEVELOPMENTS
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 skilled nursing facilities ("SNFs"), seeking the appointment of a receiver. The SNFs were leased and operated by FC/SCH 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 timely filed its notice of appeal, taking the position that the Court's Order (the "Order") is final and appealable, and erroneous. Following the Company's notice of appeal, the Company negotiated a stipulation with the State and the receiver which afforded it significant concessions. Those concessions included: (a) an agreed recognition of the Company as a secured lienholder with a priority claim, (b) an accelerated time frame for the (i) allocation by the Receiver of collected funds between pre- and post- receivership periods, and (ii) disbursement to the Company of pre-receivership funds collected, and (c) an agreement by the State that it would forego its right to seek recoupment of pre-receivership funds as reimbursement for post-receivership advances. In exchange for these concessions (among others), the Company withdrew its appeal.
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 and year-to-date net income, the closure of the facilities does not impact the Company's adjusted FFO guidance, which is discussed below.
FC/SCH Facilities - On June 15, 2011, the Company executed an Agreement To Enter Into Master Lease And Restructure Certain Obligations ("MTA") with Genesis Healthcare, LLC ("Genesis") and FC/SCH Partners, LLC and FC Properties WV, LLC (previously referred to as "Formation" and hereafter "FC/SCH") related to the eleven facilities currently leased by FC/SCH. Among other things, the MTA provides at the closing:
- a subsidiary of Genesis will enter into a new long-term master lease providing for a twelve-year initial term;
- Genesis will deliver a guaranty of the new master lease;
- the restructuring of certain indebtedness of FC/SCH to Omega, including, the guaranty of Genesis to repay such indebtedness as restructured; and
- the release of certain other obligations of FC/SCH.
The sole condition to the closing of the transactions contemplated by the MTA is the receipt of all necessary healthcare regulatory approvals in Massachusetts, New Hampshire, Rhode Island and West Virginia to the transfer of the operating licenses from FC/SCH to Genesis. If not received as of the closing, the facilities located in Vermont will be added to the new master lease when the regulatory approvals for Vermont are received.
As a result of the MTA, during the second quarter of 2011, the Company evaluated the recoverability of the straight-line rent and lease inducements associated with FC/SCH and recorded a $4.1 million provision for uncollectible accounts associated with straight-line receivables and lease inducements.
DIVIDENDS
Common Dividends - On July 14, 2011, the Company's Board of Directors announced a common stock dividend of $0.40 per share, increasing the quarterly common dividend by $0.02, or 5.3%, per share over the prior quarter, to be paid August 15, 2011 to common stockholders of record on August 1, 2011. At the date of this release, the Company had approximately 103 million common shares outstanding.
2011 ADJUSTED FFO GUIDANCE
The Company modified its guidance for 2011 Adjusted FFO available to common stockholders to be between $1.82 and $1.86 per diluted share. In January 2011, the Company issued its guidance indicating 2011 Adjusted FFO available to common stockholders would 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. 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, 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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