OMEGA HEALTHCARE INVESTORS, INC. | ||
(Exact name of Registrant as specified in its charter) |
Maryland | 38-3041398 | |
(State of incorporation) | (IRS Employer Identification No.) | |
200 International Circle, Suite 3500, Hunt Valley, MD 21030 | ||
(Address of principal executive offices) | ||
(410) 427-1700 | ||
(Telephone number, including area code) |
Common Stock, $.10 par value | 127,427,232 | |
(Class) | (Number of shares) |
Page No. | ||
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45 | ||
45 | ||
47 |
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Real estate properties | ||||||||
Land and buildings | $ | 3,143,356 | $ | 3,099,547 | ||||
Less accumulated depreciation | (794,105 | ) | (707,410 | ) | ||||
Real estate properties – net | 2,349,251 | 2,392,137 | ||||||
Investment in direct financing leases | 536,687 | 529,445 | ||||||
Mortgage notes receivable – net | 647,590 | 241,515 | ||||||
3,533,528 | 3,163,097 | |||||||
Other investments – net | 51,852 | 53,054 | ||||||
3,585,380 | 3,216,151 | |||||||
Assets held for sale | 6,670 | 1,356 | ||||||
Total investments | 3,592,050 | 3,217,507 | ||||||
Cash and cash equivalents | 452 | 2,616 | ||||||
Restricted cash | 31,821 | 31,759 | ||||||
Accounts receivable – net | 162,628 | 147,504 | ||||||
Other assets | 70,551 | 62,830 | ||||||
Total assets | $ | 3,857,502 | $ | 3,462,216 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Revolving line of credit | $ | 3,000 | $ | 326,000 | ||||
Term loan | 200,000 | 200,000 | ||||||
Secured borrowings | 256,403 | 298,531 | ||||||
Unsecured borrowings – net | 1,841,977 | 1,199,887 | ||||||
Accrued expenses and other liabilities | 149,745 | 137,695 | ||||||
Total liabilities | 2,451,125 | 2,162,113 | ||||||
Stockholders’ equity: | ||||||||
Common stock $.10 par value authorized – 200,000 shares issued and outstanding – 127,408 shares as of September 30, 2014 and 123,530 as of December 31, 2013 | 12,741 | 12,353 | ||||||
Common stock – additional paid-in capital | 2,131,033 | 1,998,169 | ||||||
Cumulative net earnings | 1,091,008 | 926,649 | ||||||
Cumulative dividends paid | (1,828,405 | ) | (1,637,068 | ) | ||||
Total stockholders’ equity | 1,406,377 | 1,300,103 | ||||||
Total liabilities and stockholders’ equity | $ | 3,857,502 | $ | 3,462,216 |
2 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenue | ||||||||||||||||
Rental income | $ | 97,536 | $ | 93,837 | $ | 289,696 | $ | 280,015 | ||||||||
Income from direct financing leases | 14,211 | - | 42,441 | - | ||||||||||||
Mortgage interest income | 16,883 | 7,289 | 36,132 | 22,070 | ||||||||||||
Other investment income – net | 2,035 | 2,175 | 5,197 | 5,492 | ||||||||||||
Total operating revenues | 130,665 | 103,301 | 373,466 | 307,577 | ||||||||||||
Expenses | ||||||||||||||||
Depreciation and amortization | 30,111 | 32,202 | 92,856 | 96,386 | ||||||||||||
General and administrative | 5,987 | 5,462 | 18,781 | 16,142 | ||||||||||||
Acquisition costs | 259 | (9 | ) | 399 | 134 | |||||||||||
Impairment loss on real estate properties | 2,102 | - | 3,660 | - | ||||||||||||
Provisions for uncollectible mortgages, notes and accounts receivable | (15 | ) | 2,321 | 2,730 | 2,386 | |||||||||||
Total operating expenses | 38,444 | 39,976 | 118,426 | 115,048 | ||||||||||||
Income before other income and expense | 92,221 | 63,325 | 255,040 | 192,529 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 11 | 3 | 36 | 20 | ||||||||||||
Interest expense | (30,873 | ) | (24,492 | ) | (87,401 | ) | (75,116 | ) | ||||||||
Interest – amortization of deferred financing costs | (1,243 | ) | (699 | ) | (3,111 | ) | (2,079 | ) | ||||||||
Interest – refinancing gain (costs) | 1,617 | - | (3,068 | ) | 11,112 | |||||||||||
Total other expense | (30,488 | ) | (25,188 | ) | (93,544 | ) | (66,063 | ) | ||||||||
Income before gain (loss) on assets sold | 61,733 | 38,137 | 161,496 | 126,466 | ||||||||||||
(Loss) gain on assets sold – net | (20 | ) | - | 2,863 | (1,151 | ) | ||||||||||
Net income available to common stockholders | $ | 61,713 | $ | 38,137 | $ | 164,359 | $ | 125,315 | ||||||||
Income per common share available to common shareholders: | ||||||||||||||||
Basic: | ||||||||||||||||
Net income | $ | 0.48 | $ | 0.32 | $ | 1.30 | $ | 1.08 | ||||||||
Diluted: | ||||||||||||||||
Net income | $ | 0.48 | $ | 0.32 | $ | 1.30 | $ | 1.08 | ||||||||
Dividends declared and paid per common share | $ | 0.51 | $ | 0.47 | $ | 1.50 | $ | 1.38 | ||||||||
Weighted-average shares outstanding, basic | 127,464 | 117,600 | 126,132 | 115,527 | ||||||||||||
Weighted-average shares outstanding, diluted | 128,428 | 118,462 | 126,895 | 116,335 |
3 |
Common Stock Par Value | Additional Paid-in Capital | Cumulative Net Earnings | Cumulative Dividends | Total | ||||||||||||||||
Balance at December 31, 2013 (123,530 common shares) | $ | 12,353 | $ | 1,998,169 | $ | 926,649 | $ | (1,637,068 | ) | $ | 1,300,103 | |||||||||
Grant of restricted stock to company directors (12 shares at $35.79 per share) | 1 | (1 | ) | — | — | — | ||||||||||||||
Amortization of restricted stock | — | 6,424 | — | — | 6,424 | |||||||||||||||
Vesting of restricted stock to company executives, net of tax withholdings (70 shares) | 7 | (1,589 | ) | — | — | (1,582 | ) | |||||||||||||
Dividend reinvestment plan (1,944 shares at $34.09 per share) | 195 | 66,068 | — | — | 66,263 | |||||||||||||||
Grant of stock as payment of directors fees (4 shares at an average of $34.85 per share) | — | 150 | — | — | 150 | |||||||||||||||
Equity Shelf Program (1,848 shares at $34.33 per share, net of issuance costs) | 185 | 61,812 | — | — | 61,997 | |||||||||||||||
Net income | — | — | 164,359 | — | 164,359 | |||||||||||||||
Common dividends ($1.50 per share) | — | — | — | (191,337 | ) | (191,337 | ) | |||||||||||||
Balance at September 30, 2014 (127,408 common shares) | $ | 12,741 | $ | 2,131,033 | $ | 1,091,008 | $ | (1,828,405 | ) | $ | 1,406,377 |
4 |
Nine months Ended September 30, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 164,359 | $ | 125,315 | ||||
Adjustment to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 92,856 | 96,386 | ||||||
Provision for impairment on real estate properties | 3,660 | — | ||||||
Provision for uncollectible mortgages, notes and accounts receivable | 2,730 | 2,386 | ||||||
Amortization of deferred financing and debt extinguishment costs (gain) | 6,179 | (9,033 | ) | |||||
Accretion of direct financing leases | (7,242 | ) | — | |||||
Restricted stock amortization expense | 6,570 | 4,433 | ||||||
(Gain) loss on assets sold – net | (2,863 | ) | 1,151 | |||||
Amortization of acquired in-place leases - net | (3,779 | ) | (3,821 | ) | ||||
Change in operating assets and liabilities – net of amounts assumed/acquired: | ||||||||
Accounts receivable, net | (2,252 | ) | (61 | ) | ||||
Straight-line rent receivables | (15,919 | ) | (20,385 | ) | ||||
Lease inducements | 2,009 | 2,230 | ||||||
Effective yield receivable on mortgage notes | (1,731 | ) | (1,416 | ) | ||||
Other operating assets and liabilities | 15,017 | 2,865 | ||||||
Net cash provided by operating activities | 259,594 | 200,050 | ||||||
Cash flows from investing activities | ||||||||
Acquisition of real estate – net of liabilities assumed and escrows acquired | (47,500 | ) | (2,400 | ) | ||||
Deposit for proposed capital lease | — | (15,000 | ) | |||||
Placement of mortgage loans | (528,780 | ) | (3,227 | ) | ||||
Proceeds from sale of real estate investments – net | 4,054 | 2,288 | ||||||
Capital improvements to real estate investments | (12,684 | ) | (23,732 | ) | ||||
Proceeds from other investments | 7,952 | 4,113 | ||||||
Investments in other investments | (6,711 | ) | (32,195 | ) | ||||
Collection of mortgage principal | 122,705 | 358 | ||||||
Net cash used in investing activities | (460,964 | ) | (69,795 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from credit facility borrowings | 756,000 | 201,000 | ||||||
Payments on credit facility borrowings | (1,079,000 | ) | (259,000 | ) | ||||
Receipts of other long-term borrowings | 842,148 | 59,355 | ||||||
Payments of other long-term borrowings | (238,032 | ) | (113,418 | ) | ||||
Payments of financing related costs | (17,319 | ) | (1,053 | ) | ||||
Receipts from dividend reinvestment plan | 66,263 | 47,821 | ||||||
Payments for exercised options and restricted stock – net | (1,582 | ) | — | |||||
Net proceeds from issuance of common stock | 61,997 | 160,159 | ||||||
Dividends paid | (191,269 | ) | (159,073 | ) | ||||
Net cash provided by (used in) financing activities | 199,206 | (64,209 | ) | |||||
(Decrease) increase in cash and cash equivalents | (2,164 | ) | 66,046 | |||||
Cash and cash equivalents at beginning of period | 2,616 | 1,711 | ||||||
Cash and cash equivalents at end of period | $ | 452 | $ | 67,757 | ||||
Interest paid during the period, net of amounts capitalized | $ | 76,276 | $ | 75,848 |
5 |
6 |
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Contractual receivables | $ | 5,132 | $ | 2,941 | ||||
Effective yield interest receivables | 5,085 | 5,333 | ||||||
Straight-line receivables | 138,615 | 123,486 | ||||||
Lease inducements | 14,219 | 16,228 | ||||||
Allowance | (423 | ) | (484 | ) | ||||
Accounts receivable – net | $ | 162,628 | $ | 147,504 |
7 |
8 |
Pro Forma | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in thousands, except per share amounts, unaudited) | ||||||||||||||||
Revenues | $ | 130,823 | $ | 105,358 | $ | 376,015 | $ | 313,748 | ||||||||
Net income available to common stockholders | $ | 61,788 | $ | 38,949 | $ | 165,373 | $ | 127,751 | ||||||||
Earnings per share – diluted: | ||||||||||||||||
Net income available to common stockholders – as reported | $ | 0.48 | $ | 0.32 | $ | 1.30 | $ | 1.08 | ||||||||
Net income available to common stockholders – pro forma | $ | 0.48 | $ | 0.33 | $ | 1.30 | $ | 1.10 |
9 |
10 |
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Minimum lease payments receivable | $ | 4,255,817 | $ | 4,291,067 | ||||
Estimated residual values | — | — | ||||||
Less unearned income | (3,719,130 | ) | (3,761,622 | ) | ||||
Investment in direct financing leases | $ | 536,687 | $ | 529,445 | ||||
Properties subject to direct financing leases | 56 | 56 |
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
$47,000 | $47,000 | $47,319 | $48,370 | $49,580 |
11 |
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Other investment note due 2015 | $ | 2,168 | $ | 2,318 | ||||
Other investment notes due 2021 - 2023 | 14,926 | 13,427 | ||||||
Other investment note due 2014 | - | 62 | ||||||
$31.5 million other investment note due 2017 | 24,500 | 23,750 | ||||||
$2.5 million other investment note due 2015 | 1,640 | 546 | ||||||
$6.0 million other investment note due 2013 | 5,439 | 5,439 | ||||||
$1.3 million other investment note due 2017 | 1,300 | 1,300 | ||||||
$1.5 million other investment note due 2014 | 1,456 | 1,456 | ||||||
Notes receivable, gross(1) | 51,429 | 48,298 | ||||||
Allowance for loss on notes receivable | (1,977 | ) | (1,977 | ) | ||||
Notes receivable, net | 49,452 | 46,321 | ||||||
Other | 2,400 | 2,400 | ||||||
Marketable securities | - | 4,333 | ||||||
Total other investments | $ | 51,852 | $ | 53,054 |
(1) | The majority of these notes bear interest at approximately 10% annually. |
12 |
13 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in thousands) | ||||||||||||||||
Stock-based compensation expense | $ | 2,022 | $ | 1,509 | $ | 6,570 | $ | 4,433 |
14 |
15 |
16 |
Grant Year | Shares/ Units | Grant Date Average Fair Value Per Unit/ Share | Total Compensation Cost (in millions) | Weighted Average Period of Expense Recognition (in months) | Unrecognized Compensation Cost (in millions) | ||||||||||||||||
Multi-year TSR PRSUs | 2011 | 279,550 | $ | 11.06 | $ | 3.1 | 44 | $ | - | ||||||||||||
Multi-year Relative TSR PRSUs | 2011 | 93,183 | 12.26 | 1.1 | 44 | - | |||||||||||||||
Restricted stock units | 2013 | 213,741 | 29.80 | 6.4 | 36 | 4.8 | |||||||||||||||
2014 Transition TSR PRSUs | 2013 | 77,371 | 8.27 | 0.6 | 12 | 0.2 | |||||||||||||||
2015 Transition TSR PRSUs | 2013 | 77,369 | 7.48 | 0.6 | 24 | 0.4 | |||||||||||||||
2016 Transition TSR PRSUs | 2013 | 115,785 | 8.67 | 1.0 | 36 | 0.8 | |||||||||||||||
2014 Transition Relative TSR PRSUs | 2013 | 77,371 | 11.68 | 0.9 | 12 | 0.2 | |||||||||||||||
2015 Transition Relative TSR PRSUs | 2013 | 77,368 | 13.06 | 1.0 | 24 | 0.6 | |||||||||||||||
2016 Transition Relative TSR PRSUs | 2013 | 115,781 | 14.25 | 1.7 | 36 | 1.2 | |||||||||||||||
Restricted stock units | 2014 | 122,137 | 29.80 | 3.6 | 36 | 2.7 | |||||||||||||||
2016 TSR PRSUs | 2014 | 154,584 | 8.67 | 1.4 | 48 | 1.1 | |||||||||||||||
2016 Relative TSR PRSUs | 2014 | 154,584 | 14.25 | 2.2 | 48 | 1.8 | |||||||||||||||
Total | 1,558,824 | $ | 15.12 | $ | 23.6 | $ | 13.8 |
17 |
Current | September 30, | December 31, | ||||||||||||||
Maturity | Rate | 2014 | 2013 | |||||||||||||
(in thousands) | ||||||||||||||||
Secured borrowings: | ||||||||||||||||
HUD mortgages assumed June 2010 (1) | 2040 - 2045 | 4.85 | % | $ | 126,907 | $ | 128,641 | |||||||||
HUD mortgages assumed October 2011 (1) | 2036 - 2040 | 4.87 | % | 30,492 | 31,145 | |||||||||||
HUD mortgages assumed December 2011(1) | 2044 | 3.06 | % | 57,714 | 58,592 | |||||||||||
HUD mortgages assumed December 2012(1) | 2040 - 2045 | 4.64 | % | 41,290 | 80,153 | |||||||||||
Total secured borrowings | 256,403 | 298,531 | ||||||||||||||
Unsecured borrowings: | ||||||||||||||||
Revolving line of credit | 2018 | 1.65 | % | 3,000 | 326,000 | |||||||||||
Term loan | 2019 | 1.65 | % | 200,000 | 200,000 | |||||||||||
203,000 | 526,000 | |||||||||||||||
2020 notes | 2020 | 7.50 | % | 200,000 | 200,000 | |||||||||||
2022 notes | 2022 | 6.75 | % | 575,000 | 575,000 | |||||||||||
2024 notes | 2024 | 5.875 | % | 400,000 | 400,000 | |||||||||||
2024 notes | 2024 | 4.95 | % | 400,000 | — | |||||||||||
2025 notes | 2025 | 4.50 | % | 250,000 | — | |||||||||||
Subordinated debt | 2021 | 9.00 | % | 20,782 | 20,892 | |||||||||||
1,845,782 | 1,195,892 | |||||||||||||||
(Discount) premium - net | (3,805 | ) | 3,995 | |||||||||||||
Total unsecured borrowings | 2,044,977 | 1,725,887 | ||||||||||||||
Totals – net | $ | 2,301,380 | $ | 2,024,418 |
(1) | Reflects the weighted average annual contractual interest rate on the mortgages. |
18 |
19 |
20 |
September 30, 2014 | December 31, 2013 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
Assets: | (in thousands) | |||||||||||||||
Cash and cash equivalents | $ | 452 | $ | 452 | $ | 2,616 | $ | 2,616 | ||||||||
Restricted cash | 31,821 | 31,821 | 31,759 | 31,759 | ||||||||||||
Investment in direct financing leases | 536,687 | 536,687 | 529,445 | 529,445 | ||||||||||||
Mortgage notes receivable – net | 647,590 | 634,448 | 241,515 | 240,482 | ||||||||||||
Other investments – net | 51,852 | 52,529 | 53,054 | 50,124 | ||||||||||||
Totals | $ | 1,268,402 | $ | 1,255,937 | $ | 858,389 | $ | 854,426 | ||||||||
Liabilities: | ||||||||||||||||
Revolving line of credit | $ | 3,000 | $ | 3,000 | $ | 326,000 | $ | 326,000 | ||||||||
Term loan | 200,000 | 200,000 | 200,000 | 200,000 | ||||||||||||
7.50% notes due 2020 – net | 198,149 | 255,040 | 197,890 | 256,852 | ||||||||||||
6.75% notes due 2022 – net | 580,584 | 753,536 | 581,105 | 735,687 | ||||||||||||
5.875% notes due 2024 – net | 400,000 | 438,251 | 400,000 | 411,266 | ||||||||||||
4.95% notes due 2024 – net | 394,626 | 403,261 | — | — | ||||||||||||
4.50% notes due 2025 – net | 247,836 | 244,163 | — | — | ||||||||||||
HUD debt | 256,403 | 260,832 | 298,531 | 287,718 | ||||||||||||
Subordinated debt | 20,782 | 28,906 | 20,892 | 28,849 | ||||||||||||
Totals | $ | 2,301,380 | $ | 2,586,989 | $ | 2,024,418 | $ | 2,246,372 |
● | Cash and cash equivalents and restricted cash: The carrying amount of cash and cash equivalents and restricted cash reported in the balance sheet approximates fair value because of the short maturity of these instruments (i.e., less than 90 days) (Level 1). |
● | Mortgage notes receivable: The fair value of the mortgage notes receivables are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3). |
● | Direct financing leases: The fair value of the direct financing receivables are estimated using a discounted cash flow analysis, using interest rates being offered for similar leases to borrowers with similar credit ratings (Level 3). |
● | Other investments: Other investments are primarily comprised of: (i) notes receivable and (ii) an investment in a redeemable non-convertible preferred security of an unconsolidated business accounted for using the cost method of accounting. The fair values of notes receivable are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3). The fair value of the investment in the unconsolidated business is estimated using quoted market value and considers the terms of the underlying arrangement (Level 3). |
21 |
● | Revolving line of credit and term loan: The fair value of our borrowings under variable rate agreements are estimated using an expected present value technique based on expected cash flows discounted using the current market rates (Level 3). |
● | Senior notes and subordinated debt: The fair value of our borrowings under fixed rate agreements are estimated based on open market trading activity provided by a third party (Level 2). |
● | HUD debt: The fair value of our borrowings under HUD debt agreements are estimated based on quote obtained by HUD debt brokers (Level 2). |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 61,713 | $ | 38,137 | $ | 164,359 | $ | 125,315 | ||||||||
Numerator for net income available to common stockholders’ per share - basic and diluted | $ | 61,713 | $ | 38,137 | $ | 164,359 | $ | 125,315 | ||||||||
Denominator: | ||||||||||||||||
Denominator for basic earnings per share | 127,464 | 117,600 | 126,132 | 115,527 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Common stock equivalents | 964 | 862 | 763 | 808 | ||||||||||||
Denominator for diluted earnings per share | 128,428 | 118,462 | 126,895 | 116,335 | ||||||||||||
Earnings per share – basic: | ||||||||||||||||
Net income – basic | $ | 0.48 | $ | 0.32 | $ | 1.30 | $ | 1.08 | ||||||||
Earnings per share – diluted: | ||||||||||||||||
Net income – diluted | $ | 0.48 | $ | 0.32 | $ | 1.30 | $ | 1.08 |
22 |
23 |
September 30, 2014 | ||||||||||||||||
Issuer & Subsidiary Guarantors | Non-Guarantor Subsidiaries | Elimination Company | Consolidated | |||||||||||||
ASSETS | ||||||||||||||||
Real estate properties | ||||||||||||||||
Land and buildings | $ | 2,684,567 | $ | 458,789 | $ | - | $ | 3,143,356 | ||||||||
Less accumulated depreciation | (725,746 | ) | (68,359 | ) | - | (794,105 | ) | |||||||||
Real estate properties – net | 1,958,821 | 390,430 | - | 2,349,251 | ||||||||||||
Investment in direct financing leases | 536,687 | - | - | 536,687 | ||||||||||||
Mortgage notes receivable – net | 647,590 | - | - | 647,590 | ||||||||||||
3,143,098 | 390,430 | - | 3,533,528 | |||||||||||||
Other investments – net | 51,852 | - | - | 51,852 | ||||||||||||
3,194,950 | 390,430 | - | 3,585,380 | |||||||||||||
Assets held for sale – net | 6,670 | - | - | 6,670 | ||||||||||||
Total investments | 3,201,620 | 390,430 | - | 3,592,050 | ||||||||||||
Cash and cash equivalents | 452 | - | - | 452 | ||||||||||||
Restricted cash | 7,013 | 24,808 | - | 31,821 | ||||||||||||
Accounts receivable – net | 153,569 | 9,059 | - | 162,628 | ||||||||||||
Investment in affiliates | 140,802 | - | (140,802 | ) | - | |||||||||||
Other assets | 43,612 | 26,939 | - | 70,551 | ||||||||||||
Total assets | $ | 3,547,068 | $ | 451,236 | $ | (140,802 | ) | $ | 3,857,502 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Revolving line of credit | $ | 3,000 | $ | - | $ | - | $ | 3,000 | ||||||||
Term loan | 200,000 | - | - | 200,000 | ||||||||||||
Secured borrowings | - | 256,403 | - | 256,403 | ||||||||||||
Unsecured borrowings – net | 1,821,195 | 20,782 | - | 1,841,977 | ||||||||||||
Accrued expenses and other liabilities | 116,496 | 33,249 | - | 149,745 | ||||||||||||
Intercompany payable | - | 102,200 | (102,200 | ) | - | |||||||||||
Total liabilities | 2,140,691 | 412,634 | (102,200 | ) | 2,451,125 | |||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock | 12,741 | - | - | 12,741 | ||||||||||||
Common stock – additional paid-in capital | 2,131,033 | - | - | 2,131,033 | ||||||||||||
Cumulative net earnings | 1,091,008 | 38,602 | (38,602 | ) | 1,091,008 | |||||||||||
Cumulative dividends paid | (1,828,405 | ) | - | - | (1,828,405 | ) | ||||||||||
Total stockholders’ equity | 1,406,377 | 38,602 | (38,602 | ) | 1,406,377 | |||||||||||
Total liabilities and stockholders’ equity | $ | 3,547,068 | $ | 451,236 | $ | (140,802 | ) | $ | 3,857,502 |
24 |
December 31, 2013 | ||||||||||||||||
Issuer & Subsidiary Guarantors | Non – Guarantor Subsidiaries | Elimination Company | Consolidated | |||||||||||||
ASSETS | ||||||||||||||||
Real estate properties | ||||||||||||||||
Land and buildings | $ | 2,642,047 | $ | 457,500 | $ | — | $ | 3,099,547 | ||||||||
Less accumulated depreciation | (653,858 | ) | (53,552 | ) | — | (707,410 | ) | |||||||||
Real estate properties – net | 1,988,189 | 403,948 | — | 2,392,137 | ||||||||||||
Investment in direct financing leases | 529,445 | — | — | 529,445 | ||||||||||||
Mortgage notes receivable – net | 241,515 | — | — | 241,515 | ||||||||||||
2,759,149 | 403,948 | — | 3,163,097 | |||||||||||||
Other investments – net | 53,054 | — | — | 53,054 | ||||||||||||
2,812,203 | 403,948 | — | 3,216,151 | |||||||||||||
Assets held for sale – net | 1,356 | — | — | 1,356 | ||||||||||||
Total investments | 2,813,559 | 403,948 | — | 3,217,507 | ||||||||||||
Cash and cash equivalents | 2,616 | — | — | 2,616 | ||||||||||||
Restricted cash | 6,827 | 24,932 | — | 31,759 | ||||||||||||
Accounts receivable – net | 140,331 | 7,173 | — | 147,504 | ||||||||||||
Investment in affiliates | 108,707 | — | (108,707 | ) | — | |||||||||||
Other assets | 36,723 | 26,107 | — | 62,830 | ||||||||||||
Total assets | $ | 3,108,763 | $ | 462,160 | $ | (108,707 | ) | $ | 3,462,216 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Revolving line of credit | $ | 326,000 | $ | — | $ | — | $ | 326,000 | ||||||||
Term loan | 200,000 | — | — | 200,000 | ||||||||||||
Secured borrowings | — | 298,531 | — | 298,531 | ||||||||||||
Unsecured borrowings – net | 1,178,995 | 20,892 | — | 1,199,887 | ||||||||||||
Accrued expenses and other liabilities | 103,665 | 34,030 | — | 137,695 | ||||||||||||
Intercompany payable | — | 83,065 | (83,065 | ) | — | |||||||||||
Total liabilities | 1,808,660 | 436,518 | (83,065 | ) | 2,162,113 | |||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock | 12,353 | — | — | 12,353 | ||||||||||||
Common stock – additional paid-in-capital | 1,998,169 | — | — | 1,998,169 | ||||||||||||
Cumulative net earnings | 926,649 | 25,642 | (25,642 | ) | 926,649 | |||||||||||
Cumulative dividends paid | (1,637,068 | ) | — | — | (1,637,068 | ) | ||||||||||
Total stockholders’ equity | 1,300,103 | 25,642 | (25,642 | ) | 1,300,103 | |||||||||||
Total liabilities and stockholders’ equity | $ | 3,108,763 | $ | 462,160 | $ | (108,707 | ) | $ | 3,462,216 |
25 |
Three Months Ended September 30, 2014 | Nine Months Ended September 30, 2014 | |||||||||||||||||||||||||||||||
Issuer & Subsidiary Guarantors | Non – Guarantor Subsidiaries | Elimination | Consolidated | Issuer & Subsidiary Guarantors | Non – Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Rental income | $ | 85,020 | $ | 12,516 | $ | - | $ | 97,536 | $ | 252,076 | $ | 37,620 | $ | - | $ | 289,696 | ||||||||||||||||
Income from direct financing leases | 14,211 | - | - | 14,211 | 42,441 | - | - | 42,441 | ||||||||||||||||||||||||
Mortgage interest income | 16,883 | - | - | 16,883 | 36,132 | - | - | 36,132 | ||||||||||||||||||||||||
Other investment income – net | 2,035 | - | - | 2,035 | 5,197 | - | - | 5,197 | ||||||||||||||||||||||||
Total operating revenues | 118,149 | 12,516 | - | 130,665 | 335,846 | 37,620 | - | 373,466 | ||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 25,619 | 4,492 | - | 30,111 | 78,049 | 14,807 | - | 92,856 | ||||||||||||||||||||||||
General and administrative | 5,898 | 89 | - | 5,987 | 18,502 | 279 | - | 18,781 | ||||||||||||||||||||||||
Acquisition costs | 259 | - | - | 259 | 399 | - | - | 399 | ||||||||||||||||||||||||
Provision for impairment on real estate properties | 2,102 | - | - | 2,102 | 3,660 | - | - | 3,660 | ||||||||||||||||||||||||
Provision for uncollectible mortgages, notes and accounts receivable | (15 | ) | - | - | (15 | ) | 2,730 | - | - | 2,730 | ||||||||||||||||||||||
Total operating expenses | 33,863 | 4,581 | - | 38,444 | 103,340 | 15,086 | - | 118,426 | ||||||||||||||||||||||||
Income before other income and expense | 84,286 | 7,935 | - | 92,221 | 232,506 | 22,534 | - | 255,040 | ||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest income | 2 | 9 | - | 11 | 12 | 24 | - | 36 | ||||||||||||||||||||||||
Interest expense | (27,158 | ) | (3,715 | ) | - | (30,873 | ) | (76,202 | ) | (11,199 | ) | - | (87,401 | ) | ||||||||||||||||||
Interest – amortization of deferred financing costs | (1,238 | ) | (5 | ) | - | (1,243 | ) | (3,095 | ) | (16 | ) | - | (3,111 | ) | ||||||||||||||||||
Interest – refinancing gain (costs) | - | 1,617 | - | 1,617 | (4,685 | ) | 1,617 | - | (3,068 | ) | ||||||||||||||||||||||
Equity in earnings | 5,841 | - | (5,841 | ) | - | 12,960 | - | (12,960 | ) | - | ||||||||||||||||||||||
Total other expense | (22,553 | ) | (2,094 | ) | (5,841 | ) | (30,488 | ) | (71,010 | ) | (9,574 | ) | (12,960 | ) | (93,544 | ) | ||||||||||||||||
Income before gain (loss) on assets sold | 61,733 | 5,841 | (5,841 | ) | 61,733 | 161,496 | 12,960 | (12,960 | ) | 161,496 | ||||||||||||||||||||||
(Loss) gain on assets sold – net | (20 | ) | - | - | (20 | ) | 2,863 | - | - | 2,863 | ||||||||||||||||||||||
Net income available to common stockholders | $ | 61,713 | $ | 5,841 | $ | (5,841 | ) | $ | 61,713 | $ | 164,359 | $ | 12,960 | $ | (12,960 | ) | $ | 164,359 |
26 |
OMEGA HEALTHCARE INVESTORS, INC.
Three Months Ended September 30, 2013 | Nine Months Ended September 30, 2013 | |||||||||||||||||||||||||||||||
Issuer & Subsidiary Guarantors | Non – Guarantor Subsidiaries | Elimination | Consolidated | Issuer & Subsidiary Guarantors | Non – Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Rental income | $ | 81,289 | $ | 12,548 | $ | - | $ | 93,837 | $ | 242,253 | $ | 37,762 | $ | - | $ | 280,015 | ||||||||||||||||
Mortgage interest income | 7,289 | - | - | 7,289 | 22,070 | - | - | 22,070 | ||||||||||||||||||||||||
Other investment income – net | 2,175 | - | - | 2,175 | 5,492 | - | - | 5,492 | ||||||||||||||||||||||||
Total operating revenues | 90,753 | 12,548 | - | 103,301 | 269,815 | 37,762 | - | 307,577 | ||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 27,034 | 5,168 | - | 32,202 | 80,885 | 15,501 | - | 96,386 | ||||||||||||||||||||||||
General and administrative | 5,372 | 90 | - | 5,462 | 15,859 | 283 | - | 16,142 | ||||||||||||||||||||||||
Acquisition costs | (9 | ) | - | - | (9 | ) | 134 | - | - | 134 | ||||||||||||||||||||||
Provision for uncollectible mortgages, notes and accounts receivable | 2,321 | - | - | 2,321 | 2,386 | - | - | 2,386 | ||||||||||||||||||||||||
Total operating expenses | 34,718 | 5,258 | - | 39,976 | 99,264 | 15,784 | - | 115,048 | ||||||||||||||||||||||||
Income before other income and expense | 56,035 | 7,290 | - | 63,325 | 170,551 | 21,978 | - | 192,529 | ||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest income | (4 | ) | 7 | - | 3 | (1 | ) | 21 | - | 20 | ||||||||||||||||||||||
Interest expense | (20,725 | ) | (3,767 | ) | �� | - | (24,492 | ) | (63,429 | ) | (11,687 | ) | - | (75,116 | ) | |||||||||||||||||
Interest – amortization of deferred financing costs | (694 | ) | (5 | ) | - | (699 | ) | (2,069 | ) | (10 | ) | - | (2,079 | ) | ||||||||||||||||||
Interest – refinancing gain | - | - | - | - | 11,112 | - | - | 11,112 | ||||||||||||||||||||||||
Equity in earnings | 3,525 | - | (3,525 | ) | - | 10,302 | - | (10,302 | ) | - | ||||||||||||||||||||||
Total other expense | (17,898 | ) | (3,765 | ) | (3,525 | ) | (25,188 | ) | (44,085 | ) | (11,676 | ) | (10,302 | ) | (66,063 | ) | ||||||||||||||||
Income before gain (loss) on assets sold | 38,137 | 3,525 | (3,525 | ) | 38,137 | 126,466 | 10,302 | (10,302 | ) | 126,466 | ||||||||||||||||||||||
Loss on assets sold – net | - | - | - | - | (1,151 | ) | - | - | (1,151 | ) | ||||||||||||||||||||||
Net income available to common stockholders | $ | 38,137 | $ | 3,525 | $ | (3,525 | ) | $ | 38,137 | $ | 125,315 | $ | 10,302 | $ | (10,302 | ) | $ | 125,315 |
27 |
28 |
(i) | those items discussed under “Risk Factors” in Item 1A to our annual report on Form 10-K for the year ended December 31, 2013 and in Part II, Item 1A of this report (if any); |
(ii) | uncertainties relating to the business operations of the operators of our assets, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels; |
(iii) | the ability of any operators in bankruptcy to reject unexpired lease obligations, modify the terms of our mortgages and impede our ability to collect unpaid rent or interest during the process of a bankruptcy proceeding and retain security deposits for the debtors’ obligations; |
(iv) | our ability to sell closed or foreclosed assets on a timely basis and on terms that allow us to realize the carrying value of these assets; |
(v) | our ability to negotiate appropriate modifications to the terms of our credit facilities; |
(vi) | our ability to manage, re-lease or sell any owned and operated facilities; |
(vii) | the availability and cost of capital; |
(viii) | changes in our credit ratings and the ratings of our debt securities; |
(ix) | competition in the financing of healthcare facilities; |
(x) | regulatory and other changes in the healthcare sector; |
(xi) | the effect of economic and market conditions generally and, particularly, in the healthcare industry; |
(xii) | changes in the financial position of our operators; |
(xiii) | changes in interest rates; |
(xiv) | the amount and yield of any additional investments; |
(xv) | changes in tax laws and regulations affecting real estate investment trusts; and |
(xvi) | our ability to maintain our status as a real estate investment trust. |
29 |
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36 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income available to common stockholders | $ | 61,713 | $ | 38,137 | $ | 164,359 | $ | 125,315 | ||||||||
Add back loss (deduct gain) from real estate dispositions | 20 | — | (2,863 | ) | 1,151 | |||||||||||
Sub-total | 61,733 | 38,137 | 161,496 | 126,466 | ||||||||||||
Elimination of non-cash items included in net income: | ||||||||||||||||
Depreciation and amortization | 30,111 | 32,202 | 92,856 | 96,386 | ||||||||||||
Add back impairments on real estate properties | 2,102 | — | 3,660 | — | ||||||||||||
Funds from operations available to common stockholders | $ | 93,946 | $ | 70,339 | $ | 258,012 | $ | 222,852 |
37 |
38 |
39 |
40 |
41 |
42 |
43 |
44 |
Consummation of the Merger with Aviv is subject to certain conditions that may not be satisfied.
Consummation of the Merger with Aviv is subject certain conditions, including, among others:
● | the approval of the stockholders of both our company and Aviv; |
● | the effectiveness of a registration statement covering the shares of common stock to be issued to the stockholders of Aviv; |
● | the accuracy of the representations and warranties and compliance with the respective covenants of the parties, subject to certain materiality qualifiers; |
● | the absence of certain legal impediments; |
● | the receipt by each party of an opinion from each party’s respective counsel as to the tax treatment of the transaction; |
● | the receipt by each party of an opinion as to the other party’s tax qualification as REIT; |
● | the election to the Omega’s board of three directors designated by Aviv; |
● | stockholder approval of an amendment to our Charter increasing the number of shares of common stock authorized to be issued; |
● | the completion of a series of transactions resulting in the combination of the Aviv Operating Partnership with the Omega Operating Partnership, thereby creating an umbrella partnership REIT structure, or UPREIT, for Omega; and |
● | certain other customary conditions. |
We cannot provide any assurance that the Merger will be completed, or that there will not be a delay in the completion of the Merger. Any delay could, among other things, result in additional transaction costs, loss of revenue or other negative effects resulting from uncertainty about completion of the Merger. While the Merger Agreement is in force, we are subject to certain restrictions on the conduct of our business, which may adversely affect our ability to execute certain of our business strategies.
In the event the Merger Agreement is terminated or the transaction is materially delayed for any reason, the price of our common stock may be impacted. If the Merger Agreement is terminated, we may incur substantial fees in connection with the termination of the transactions and we will not recognize the anticipated benefits of the Merger. In addition, if the Merger is not completed, we may experience negative reactions from the financial markets and from our operators, employees and others, or be subject to litigation commenced against us to perform our obligations under the Merger Agreement.
The anticipated benefits of the Merger with Aviv may not be realized fully and may take longer to realize than expected.
The success of the Merger will depend, in part, on the combined company’s ability to successfully integrate the businesses of the Company and Aviv, which currently operate as independent public companies, and realize the anticipated benefits, including synergies, cost savings, and economies of scale, from the combination. If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the value of the combined company’s common stock may be harmed.
45 |
The Merger is the largest and most significant acquisition the Company has undertaken. We will incur significant transaction and Merger-related costs in connection with the Merger and the integration process. We may encounter material challenges in connection with this integration process, including, without limitation:
● | the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Merger; |
● | managing a larger combined company; |
● | integrating two unique corporate cultures, which may prove to be challenging; |
● | the possibility of faulty assumptions underlying expectations regarding the integration process; |
● | consolidating corporate and administrative infrastructures and eliminating duplicative operations; and |
● | unforeseen expenses or delays associated with the Merger. |
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations.
We might need additional financing, which may not be available on favorable terms.
We intend to refinance substantially all of Aviv’s outstanding indebtedness. We currently anticipate that our available sources of liquidity, including borrowings under our revolving credit facility, are sufficient to finance all or substantially all of the transactions contemplated by the Merger Agreement. However, to the extent additional financing necessary or desirable, such additional financing may not be available on favorable terms, if at all. Our ability to obtain financing is generally not a condition to closing under the Merger Agreement unless the terms of the financing available would have a material adverse effect on the combined company. If we are unable to obtain sufficient financing or other sources of capital, we may be subject to significant monetary or other damages under the Merger Agreement.
The Merger will substantially reduce the percentage ownership interests of our current stockholders; it may not be accretive and may cause dilution to our earnings per share, which may negatively affect the market price of our common stock.
If the Merger is completed, the investors in Aviv and the Aviv Operating Partnership are expected to beneficially own approximately 30% of the common stock of the combined company after the Merger. Our expectations of the benefits of the Merger are based on preliminary estimates, which may materially change, due to additional transaction and integration-related costs, the failure to realize all of the benefits anticipated in the Merger, or unforeseen liabilities or other issues existing or arising with the business of Aviv or otherwise resulting from the Merger. All of these factors could cause dilution to our earnings per share and funds from operations or decrease or delay the expected accretive effect of the Merger and cause a decrease in the price of our common stock.
46 |
Exhibit No. | |||||
2.1 | Agreement and Plan of Merger, dated as of October 30, 2014, by and among Omega Healthcare Investors, Inc., OHI Healthcare Properties Holdco, Inc., OHI Healthcare Properties Limited Partnership, L.P., Aviv REIT, Inc., and Aviv Healthcare Properties Limited Partnership (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on November 5, 2014). | ||||
4.1 | Indenture, dated as of September 11, 2014, by and among Omega Healthcare Investors, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, related to the 4.50% Senior Notes due 2025, including the Form of 4.50% Senior Notes and Form of Subsidiary Guarantee related thereto. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on September 11, 2014). | ||||
4.2 | Registration Rights Agreement, dated as of September 11, 2014, by and among Omega Healthcare Investors, Inc., the subsidiary guarantors named therein, and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Agricole Securities (USA) Inc. and RBS Securities Inc., collectively on behalf of the several Initial Purchasers. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on September 11, 2014). | ||||
10.1 | Ownership Limit Waiver Agreement dated as of October 30, 2014 by and between Omega Healthcare Investors, Inc., and LG Aviv L.P (Incorporated by reference to Exhibit 10,1 to the Company’s Current Report on Form 8-K, filed on November 5, 2014). | ||||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.* | ||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.* | ||||
32.1 | Section 1350 Certification of the Chief Executive Officer.* | ||||
32.2 | Section 1350 Certification of the Chief Financial Officer.* | ||||
101.INS | XBRL Instance Document. | ||||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
47 |
Date: | November 7, 2014 | By: | /S/ C. TAYLOR PICKETT | ||
C. Taylor Pickett | |||||
Chief Executive Officer | |||||
Date: | November 7, 2014 | By: | /S/ ROBERT O. STEPHENSON | ||
Robert O. Stephenson | |||||
Chief Financial Officer |
48 |