1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1997
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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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 38-3041398
(State of Incorporation) (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, 1997
Common Stock, $.l0 par value 18,975,384
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(Class) (Number of shares)
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OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
MARCH 31, 1997
INDEX
PART I Financial Information Page No.
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Item 1. Condensed Consolidated Financial Statements:
Balance Sheets -
March 31, 1997 (unaudited)
and December 31, 1996 3
Statements of Operations (unaudited) -
Three-month periods ended:
March 31, 1997
March 31, 1996 4
Statements of Cash Flows (unaudited) -
Three-month periods ended:
March 31, 1997
March 31, 1996 5
Notes to Condensed Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II Other Information
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Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMEGA HEALTHCARE INVESTORS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1997 1996
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(Unaudited) (See Note)
ASSETS
Investments in real estate:
Real estate properties - net $418,338 $343,293
Mortgage notes receivable 216,586 217,474
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634,924 560,767
Investments in Principal Healthcare Finance Ltd. 35,395 29,970
Other investments 31,450 19,640
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701,769 610,377
Cash and short-term investments 5,618 6,244
Goodwill and non-compete agreements - net 7,199 7,605
Other assets 10,954 10,610
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TOTAL ASSETS $725,540 $634,836
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LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition line of credit $98,425 $6,000
Bank term loan 25,000 25,000
Unsecured borrowings 86,381 86,384
Secured borrowings 27,765 24,275
Subordinated convertible debentures 73,225 94,810
Accrued expenses and other liabilities 11,453 15,360
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TOTAL LIABILITIES 322,249 251,829
Common stock and additional
paid-in capital 428,603 406,127
Cumulative net earnings 101,363 91,375
Cumulative dividends paid (126,130) (114,393)
Unamortized restricted stock awards (545) (102)
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TOTAL SHAREHOLDERS' EQUITY 403,291 383,007
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$725,540 $634,836
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Note - The balance sheet at December 31, 1996, 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,
1997 1996
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REVENUES
Rental income $11,420 $10,467
Mortgage interest income 6,999 5,375
Other investment income 1,333 1,127
Miscellaneous 260 205
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20,012 17,174
EXPENSES
Depreciation and amortization 3,569 3,375
Interest 5,320 4,632
General and administrative 1,134 976
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10,023 8,983
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NET EARNINGS $9,989 $8,191
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Net earnings per share $0.53 $0.49
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Dividends paid per share $0.645 $0.62
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Weighted average number of
shares outstanding 18,708 16,855
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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,
1997 1996
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OPERATING ACTIVITIES
Net earnings $9,989 $8,191
Adjustment to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 3,569 3,375
Other non-cash charges 267 159
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13,825 11,725
Net change in operating assets and liabilities (4,909) 1,534
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Net cash provided by operating activities 8,916 13,259
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from subordinated convertible debentures, less issue costs 92,813
Proceeds (payments) on acquisition line of credit 92,425 (70,190)
Proceeds (payments) of long-term borrowings 3,487 (9,686)
Proceeds from Dividend Reinvestment Plan 867 12,018
Dividends paid (11,737) (10,420)
Other (35)
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Net cash provided by financing activities 85,007 14,535
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of real estate (78,202) (375)
Placement of mortgage loans (573) (23,095)
Fundings of other investments (10,811) (7,874)
Advances to Principal Healthcare Finance Limited (5,425)
Collection of mortgage principal 462 107
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Net cash used in investing activities (94,549) (31,237)
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Increase (decrease) in cash and short-term investments ($626) ($3,443)
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Note - During the three-month period ended March 31, 1997, subordinated
convertible debentures totaling $21,585,000 were converted at a
price of $28.625 per share.
See notes to condensed consolidated financial statements.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1997
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, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. 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,
1996.
Note B - First Quarter Real Estate Investments
During the quarter the Company consummated purchase and leaseback agreements
under which four skilled nursing facilities containing 454 beds, located in
Florida, Washington Massachusetts and Idaho where acquired and leased to Sun
Healthcare Group, Inc. (Sun). The total purchase price was $25.5 million. The
initial term of the lease is fourteen years, with two options to extend for an
additional ten years each. The lease provides initial monthly rents of
approximately $223,000, and certain annual increases tied to the Consumer Price
Index.
On March 31, 1997, the Company entered into a purchase/leaseback agreement by
which it acquired 11 nursing homes with 1,439 beds located in Alabama, Florida,
Illinois, Louisiana and Texas. The total purchase consideration was $61
million. The initial lease of these assets with Atrium Healthcare, the
operator at the date of the purchase, provides for monthly rents of $670,000.
Note C - Asset Concentrations
As of March 31, 1997, 95.5% of the Company's real estate investments related to
long-term care facilities. The Company's facilities are located in 26 states
and are operated by 35 independent healthcare operating companies.
Approximately 51% of the Company's real estate investments are operated by 8
public companies: Advocat, Inc. (16.6%), GranCare, Inc. (8.8%), Unison
Healthcare Corp (6.6%), Sun Healthcare Group, Inc. (6.4%), Regency Health
Services, Inc. (5.5%), Res-Care, Inc. (4.2%), Integrated Health Services, Inc.
(1.6%) and Horizon/CMS Healthcare Corp. (1.6%). Of the remaining 26
independent operators, none operate investments in facilities representing more
than 8% of the total real estate
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investments.
Note D - Conversion of Subordinated Debentures
During the three-month period ended March 31, 1997 approximately $21.6 million
of subordinated convertible debentures were converted at a conversion price of
$28.625 per share. At March 31, 1997, 2,558,000 shares are reserved for
issuance upon conversion of the remaining debentures.
Note E - Net Earnings Per Share
Net earnings per share is computed based on the weighted average number of
common shares outstanding during the respective periods. The inclusion of
options using the treasury stock method and the assumed conversion of
debentures is not materially dilutive.
The Financial Accounting Standards Board recently issued statement No. 128,
"Earnings per Share". This new standard is not expected to have a material
effect on reported per share amounts, primarily because stock options are not
materially dilutive and the assumed conversion of debentures presently is
anti-dilutive.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 Statements that are not historical facts contained in
Management's Discussion and Analysis are forward-looking statements that
involve risks and uncertainties that could cause actual results to differ from
projected results. Some of the factors that could cause actual results to
differ materially include: the financial strength of the operators of the
Company's facilities as it affects their continuing ability to meet their
obligations to the Company under the terms of the Company's agreements with
such operators; changes in operators or ownership of operators; government
policy relating to the healthcare industry, including changes in the
reimbursement levels under the Medicare and Medicaid programs; operators'
continued eligibility to participate in the Medicare and Medicaid programs;
changes in reimbursement by other third party payors; occupancy levels at the
Company's facilities; the availability and cost of capital; the strength and
financial resources of the Company's competitors; the Company's ability to make
additional real estate investments at attractive yields and changes in tax laws
and regulations affecting real estate investment trusts.
Following is a discussion of the consolidated financial condition and
results of operations of the Company which should be read in conjunction with
the consolidated financial statements and accompanying notes.
Revenues for the quarter ended March 31, 1997 totaled $20.0 million, an
increase of $2.8 million over the period ending March 31, 1996. The 1997
revenue growth stems primarily from additional investments of approximately
$158 during the twelve-month period ended March 31, 1997. Real estate
investments of $671 million as of March 31, 1997 have an average yield of
12.1%.
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Expenses for the quarter ended March 31, 1997 totaled $10,023,000 an
increase of $1,040,000 over expenses of $8,983,000 for 1996. The provision for
depreciation and amortization for the three-month period ending March 31, 1997
totaled $3.6 million increasing by $194,000 over the 1996 period as a result of
additional investments.
Interest expense for the quarter ended March 31, 1997 was $5.3 million,
compared with $4.6 million for 1996. The increase in 1997 is primarily due to
higher average outstanding borrowings during the 1997 period.
General and administrative expenses for the quarters ending March 31, 1997
and 1996 totaled $1,134,000 and $976,000, respectively, and represented
approximately 5.7% of revenues for each period.
At all times, the Company intends to make and manage its investments
(including the sale or disposition of property or other investments) and to
operate in such a manner as to be consistent with the requirements of the
Internal Revenue Code of 1986, as amended (or regulations thereunder) to
qualify as a REIT, unless, because of changes in circumstance or changes in the
Code (or regulations thereunder), the Board of Directors determines that it is
no longer in the best interests of the Company to qualify as a REIT. As such,
it generally will not pay federal income taxes on the portion of its income
which is distributed to shareholders.
Net earnings were approximately $9,989,000 for the 1997 period, an
increase of approximately $1.8 million (22%) over the 1996 period as a result
of the various factors mentioned above. The weighted average outstanding
shares increased to 18.7 million shares from 16.9 million shares, as a result
of conversions of Convertible Debentures and the issuance of 1,000,000 shares
in a private placement completed in November 1996.
Funds available for distribution (FAD) for the period ending March 31,
1997 was $13,825,000, an increase of $2.1 million (18%) over the 1996
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 $13,754,000 ($.74 per share) for the 1997
quarter, increasing $2.0 million (17%) as compared to $11,737,000 ($0.70 per
share) for the three months ended March 31, 1996. 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 common stock based 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.
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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. 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 has demonstrated a strong capacity to access the capital
markets by raising more than $900 million in capital since it was organized in
1992. The Company raised more than $400 million in equity, including $130 from
the initial public offering in 1992, $165 million from the HEP acquisition in
1994 and two additional offerings, the latest completed in November 1996.
Additionally, nearly $500 million of debt capital has been raised, some of which
has been used to retire secured borrowing debt with higher interest rates. In
1996, the Company completed a placement of $95 million of 8.5% Convertible
Subordinated Debentures due 2001, and executed an agreement to increase its
current bank line of credit facility by $50 million and to extend the term of
the revolving credit agreement to July 1999. The increase in the credit
facility allows for an additional $25 million, plus the equivalent of $25
million in a pounds sterling denominated term loan due in October, 2000 for
total permitted borrowings of up to $150 million.
In February 1997, the Company filed two shelf registration statements with
the Securities and Exchange commission permitting the issuance of up to
$250,000,000 of securities. The Company registered up to $150,000,000 related
to common stock, unspecified debt, preferred stock, and convertible securities
which may be issued from time to time in connection with a Registration
Statement on Form S-3. Additionally, the Company registered on Form S-4 common
stock totaling $100 million to be issued in connection with future property
acquisitions.
As of March 31, 1997, the Company has total assets of $726 million,
shareholders' equity of $403 million, and long-term borrowings of $212 million
representing approximately 30% 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 $26.6 million under its line of credit
arrangement.
The Company distributes a large portion of the cash available from
operations. Cash dividends paid totaled $0.645 per share for the quarter ended
March 31, 1997, compared with $0.62 per share for 1996. Additionally, on April
15, 1997 , a $0.645 per share dividend was declared, payable on May 15, 1997 to
shareholders of record on May 2, 1997. The current $0.645 per quarter rate
represents an annualized rate of $2.58 per share.
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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 15,
1997.
(b) The following directors were re-elected at the meeting for a
three-year term:
James E. Eden
Thomas F. Franke
Bernard J. Korman
The following directors were not elected at the meeting but their term
of office continued after the meeting:
Essel W. Bailey Jr.
Harold J. Kloosterman
Edward Lowenthal
Robert L. Parker
(c) The results of the vote were as follows:
Name For Withheld
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James E. Eden 16,877,186 106,124
Thomas F. Franke 16,873,031 110,279
Bernard J. Korman 16,872,493 110,817
(d) Not applicable
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
EXHIBIT DESCRIPTION
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4.1 Form of Articles Supplementary for Series A Preferred Stock
4.2 Form of Series A Preferred Stock Certificate
5 Opinion of Counsel to the Registrant regarding legality
23 Consent of Counsel to the Registrant (included in Exhibit
5)
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K.
None
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
Date: April 22, 1997 By: ESSEL W. BAILEY, JR.
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Essel W. Bailey, Jr.
President
Date: April 22, 1997 By: DAVID A. STOVER
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David A. Stover
Chief Financial Officer
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Exhibit Index
Exhibit Description
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4.1 Form of Article Supplementary for Series A Preferred Stock
4.2 Form of Series A Preferred Stock Certificate
5 Opinion of Counsel to the Registrant regarding legality
23 Consent of Counsel to the Registrant (included in Exhibit 5)
27 Financial Data Schedule