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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-11316
OMEGA HEALTHCARE
INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(State of Incorporation)
38-3041398
(I.R.S. Employer Identification No.)
905 W. EISENHOWER CIRCLE, SUITE 110, ANN ARBOR, MI 48103
(Address of principal executive offices)
(313) 747-9790
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of March 31, 1996.
COMMON STOCK, $.10 PAR VALUE
(Class)
17,129,810
(Number of shares)
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OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
MARCH 31, 1996
INDEX
ITEM PAGE
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PART I -- FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements:
Balance Sheets --
March 31, 1996 (unaudited) and December 31, 1995.................................. 2
Statements of Operations (unaudited) --
Three-month periods ended:
March 31, 1996
March 31, 1995.................................................................. 3
Statements of Cash Flows (unaudited) --
Three-month periods ended:
March 31, 1996
March 31, 1995.................................................................. 4
Notes to Condensed Financial Statements (unaudited)................................. 5
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 6
PART II -- OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders................................. 7
6. Exhibits and Reports on Form 8-K.................................................... 8
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMEGA HEALTHCARE INVESTORS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
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(UNAUDITED) (SEE NOTE)
ASSETS
Investments in real estate:
Real estate properties -- net....................................... $ 334,287 $336,720
Mortgage notes receivable........................................... 181,277 158,290
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515,564 495,010
Other investments..................................................... 40,296 32,599
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555,860 527,609
Cash and short-term investments....................................... 2,983 6,426
Goodwill and non-compete agreements -- net............................ 8,823 9,228
Other assets.......................................................... 10,607 7,925
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$ 578,273 $551,188
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition line of credit............................................ $ 4,500 $ 74,690
Unsecured borrowings.................................................. 86,384 86,384
Secured borrowings.................................................... 24,383 34,069
Subordinated convertible debentures................................... 95,000
Accounts payable and accrued expenses................................. 11,041 8,917
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Total liabilities.............................................. 221,308 204,060
Common stock and additional paid-in capital........................... 374,698 362,468
Cumulative net earnings............................................... 64,975 56,784
Cumulative dividends paid............................................. (82,491) (72,071)
Unamortized restricted stock awards................................... (217) (53)
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Total shareholders' equity..................................... 356,965 347,128
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$ 578,273 $551,188
========= ========
NOTE -- The balance sheet at December 31, 1995, has been derived from audited
consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
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OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31
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1996 1995
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Revenues
Rental income........................................................... $10,467 $ 9,916
Mortgage interest income................................................ 5,375 4,422
Other investment income................................................. 1,127 107
Other................................................................... 205 76
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17,174 14,521
Expenses
Depreciation and amortization........................................... 3,392 3,233
Interest................................................................ 4,615 3,509
General and administrative.............................................. 976 890
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8,983 7,632
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Net earnings.............................................................. $ 8,191 $ 6,889
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Net earnings per share.................................................... $0.49 $0.44
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Dividends paid per share.................................................. $0.62 $0.59
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Weighted average number of shares outstanding............................. 16,885 15,748
====== ======
See notes to condensed consolidated financial statements.
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OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
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1996 1995
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Cash Flows from Operating Activities
Net earnings.......................................................... $ 8,191 $ 6,889
Adjustment to reconcile net earnings to cash provided by operations:
Depreciation and amortization...................................... 3,392 3,233
Other noncash items................................................ 142 312
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Cash from operating activities available for distribution............... 11,725 10,434
Net change in operating assets and liabilities.......................... 1,534 811
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Net cash provided by operating activities............................... 13,259 11,245
Cash Flows from Financing Activities
Dividends paid........................................................ (10,420) (9,280)
Proceeds from Dividend Reinvestment Plan.............................. 12,018 2,422
Payments on acquisition line of credit................................ (70,190)
Payments of senior mortgage notes..................................... (1,047)
Proceeds from subordinated convertible debentures, less issue costs... 92,813
Payments of long-term borrowings...................................... (9,686) (297)
Refund of transaction deposits........................................ (2,310)
Other................................................................. 37
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Cash provided by (used in) financing activities......................... 14,535 (10,475)
Cash Flows from Investing Activities
Acquisition of real estate............................................ (375) (5,457)
Placement of mortgage loans........................................... (23,095)
Advance funding of investments........................................ (158) (2,438)
Collections of mortgage notes......................................... 107 566
Fundings of other investments......................................... (7,716)
Other................................................................. (72)
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Cash used in investing activities....................................... (31,237) (7,401)
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Decrease in Cash and Short-Term Investments............................. $ (3,443) $ (6,631)
======== ========
See notes to condensed consolidated financial statements.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
1996, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
NOTE B -- FIRST QUARTER REAL ESTATE INVESTMENTS
In January 1996 the Company provided a $4.5 million convertible
participating mortgage loan to ExtendaCare, Inc. This mortgage relates to three
nursing home facilities in Kentucky with a total of 192 beds and an office
building. The Company also placed a $15.8 million participating mortgage loan
related to four nursing home facilities in Florida with 423 beds. The four
facilities are operated by Advocat, Inc. Additionally, the Company advanced $3.5
million to Unison Healthcare, Inc. pending the placement of mortgages on certain
facilities in Texas.
At March 31, 1996, the Company has commitments, subject to certain
conditions, to provide additional financing totaling approximately $41 million.
NOTE C -- ASSET CONCENTRATIONS
As of March 31, 1996, 95% of the Company's total investments relate to
long-term care facilities. Investments with the three largest operators total
38%, represented by 18.8% of total investments with Advocat, Inc (previously
Diversicare Corporation of America), 10.1% with Professional Healthcare
Management Inc., a wholly-owned subsidiary of GranCare, Inc. and 8.2% with
Unison Healthcare, Inc.
The aggregate of investments with publicly traded operators decreased to
52.3% of total investments at March 31, 1996, from 52.5% of total investments at
December 31, 1995. The change reflects additional investments with Advocat and
Unison, coupled with the addition of Regency Healthcare Services, Inc., as an
operator of Company properties through its acquisition of certain facilities
operated by Liberty Healthcare entities. These additions were offset by a
decrease resulting from the Company's initiation of the early termination of
leases and related re-leasing of certain facilities previously operated by
Beverly Enterprises, Inc.
NOTE D -- NET EARNINGS PER SHARE
Net earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the respective periods. The inclusion
of options using the treasury stock method and the assumed conversion of
debentures outstanding is not materially dilutive.
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OMEGA HEALTHCARE INVESTORS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Revenues for the quarter ended March 31, 1996 totaled $17.2 million, an
increase of $2.7 million over the period ending March 31, 1995. The 1996 revenue
growth stems primarily from additional investments of $96.4 million during the
twelve-month period ended March 31, 1996. Real estate investments of $539
million as of March 31, 1996 have an average yield of approximately 12.2%.
Expenses for the quarter ended March 31, 1996 totaled $8,983,000, an
increase of $1.4 million over expenses of $7.6 million for 1995. The provision
for depreciation and amortization for the three-month period ending March 31,
1996 totaled $3.4 million increasing by $159,000 over the 1995 period as a
result of additional investments.
Interest expense for the quarter ended March 31, 1996 was approximately
$4.6 million, compared with $3.5 million for 1995. The increase in 1996 is
primarily due to higher average borrowings outstanding during the 1996 period,
offset by lower interest rates.
General and administrative expenses for the quarter ending March 31, 1996
totaled approximately $980,000 or approximately 5.7% of revenues as compared to
6.1% for 1995.
No provision for federal income taxes has been made since the Company
intends to continue to qualify as a real estate investment trust under the
provisions of the Internal Revenue Code. Accordingly, the Company will not be
subject to federal income taxes on amounts distributed to shareholders provided
it distributes at least 95% of its real estate investment trust taxable income
and meets certain other conditions.
Net earnings were $8.2 million for the 1996 period, an increase of
approximately 16% over the 1995 period as a result of the various factors
mentioned above. The weighted average outstanding shares increased to 16.9
million shares from 15.7 million shares, as a result of shares issued pursuant
to the Dividend Reinvestment Program.
Cash provided by operating activities available for distribution (FAD) for
the period ending March 31, 1996 was $11,725,000, an increase of $1.3 million
(12%) over the 1995 three-month period. FAD is net earnings, excluding any gains
or losses from debt restructuring and sales of property, plus depreciation and
amortization associated with real estate investments, amortization of deferred
financing cost and the net effect of all other non-cash items included in net
earnings. Funds From Operations (FFO) totaled $11,737,000 ($.70 per share) for
the 1996 quarter, increasing $1,485,000 (14.5%) as compared to $10,252,000
($0.65 per share) for the three months ended March 31, 1995. FFO is net
earnings, excluding any gains or losses from debt restructuring and sales of
property, plus depreciation and amortization associated with real estate
investments and charges to earnings for non-cash compensation. While there
generally is very little difference between FAD and FFO for healthcare REITS,
both of these measures of cash flow are used by analysts and investors as
benchmarks for measuring profitability and capacity to sustain dividend
payments.
LIQUIDITY AND CAPITAL RESOURCES
The Company continually seeks new investments in healthcare real estate
properties, primarily long-term care facilities, with the objective of
profitable growth and further diversification of the investment portfolio.
Permanent financing for future investments is expected to be provided through a
combination of both private placement and public offerings of debt and/or equity
securities. In January 1996, the Company completed the placement of $95 million
of 8.5% Convertible Subordinated Debentures due 2001. Net proceeds were used to
repay certain borrowings, including $75 million under the acquisition line of
credit and $9.6 million of secured borrowings, and to fund real estate
investments. The debentures are convertible into shares of common stock at a
price of $28.625 per share representing a premium of 105% of the market price of
the Company's stock on the date the debentures were sold. At March 31, 1996,
3,319,000 shares of common stock are reserved for possible issuance upon
conversion.
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OMEGA HEALTHCARE INVESTORS, INC.
As of March 31, 1996, the Company has a strong financial position with
total assets of $578 million, shareholders' equity of $357 million, and
long-term borrowings of $206 million representing 36% of the total
capitalization. The Company anticipates eventually attaining and then
maintaining a long-term debt-to-capitalization ratio of approximately 40%. The
Company has available permitted additional borrowings of $95.5 million under its
line of credit arrangement. Management believes the Company's liquidity and
various sources of available capital are adequate to finance operations, fund
future investments in additional facilities, and meet debt service requirements.
The Company distributes a large portion of the cash available from
operations. Cash dividends paid totaled $0.62 per share for the quarter ended
March 31, 1996, compared with $0.59 per share for 1995. Additionally, on April
16, 1996, a $0.62 per share dividend was declared, payable on May 15, 1996 to
shareholders of record on May 2, 1996. The current $0.62 per quarter rate
represents an annualized rate of $2.48 per share.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A) THE COMPANY'S ANNUAL MEETING OF SHAREHOLDERS WAS HELD ON APRIL 16,
1996.
(B) THE FOLLOWING DIRECTORS WERE RE-ELECTED AT THE MEETING FOR A THREE-YEAR
TERM:
Essel W. Bailey, Jr.
Harold J. Kloosterman
The following directors were not elected at the meeting but their term
of office continued after the meeting:
James E. Eden
Thomas F. Franke
Bernard J. Korman
Edward Lowenthal
Robert L. Parker
(C) THE RESULTS OF THE VOTE WERE AS FOLLOWS:
NAME FOR WITHHELD
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Essel W. Bailey, Jr. 15,288,247 73,824
Harold J. Kloosterman 15,289,522 72,549
(D) NOT APPLICABLE
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OMEGA HEALTHCARE INVESTORS, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS -- THE FOLLOWING EXHIBIT IS FILED HEREWITH:
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
99.1 Subordination of Management Agreement and Management Fees by and
between Diversicare Management Services Co. and Emerald Healthcare,
Inc. The Agreement subordinates to Omega's payments all management
contracts and fees payable by Emerald to Advocat (the parent of
Diversicare). In addition, under the Agreement, a default under the
Emerald Mortgage constitutes a default under all other agreements
between the Registrant and Advocat with respect to the operation by
Advocat of approximately 3,400 licensed beds.
(B) REPORTS ON FORM 8-K. THE FOLLOWING REPORTS ON FORM 8-K WERE FILED SINCE
DECEMBER 31, 1995:
Items Reported
Form 8-K dated January 19, 1996 -- Report in connection with the
issuance of Subordinated Convertible Debentures which includes only
exhibits required under Item 7 of the form as follows: Placement Agency
Agreement dated January 19, 1996, First Supplemental Indenture dated
January 23, 1996, and Statement of Eligibility of Trustee on Form T-1
dated January 22, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMEGA HEALTHCARE INVESTORS, INC.
Registrant
By: ESSEL W. BAILEY, JR. President
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ESSEL W. BAILEY, JR. Date: May 8, 1996
By: DAVID A. STOVER Chief Financial Officer
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DAVID A. STOVER
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
99.1 Subordination of Management Agreement and Management Fees by and between Diversicare
Management Services Co. and Emerald Healthcare, Inc. The Agreement subordinates to
Omega's payments all management contracts and fees payable by Emerald to Advocat
(the parent of Diversicare). In addition, under the Agreement, a default under the
Emerald Mortgage constitutes a default under all other agreements between the
Registrant and Advocat with respect to the operation by Advocat of approximately
3,400 licensed beds.