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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 SEPTEMBER 30, 1998
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------------- ---------------
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.)
900 VICTORS WAY, SUITE 350, ANN ARBOR, MI 48108
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(734) 887-0200
(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
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK AS OF SEPTEMBER 30, 1998
COMMON STOCK, $.10 PAR VALUE 20,197,747
(CLASS) (NUMBER OF SHARES)
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OMEGA HEALTHCARE INVESTORS, INC
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS
SEPTEMBER 30, 1998 (UNAUDITED)
AND DECEMBER 31, 1997........................................2
STATEMENTS OF OPERATIONS (UNAUDITED)-
THREE-MONTH AND NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997............................3
STATEMENT OF CASH FLOWS (UNAUDITED)-
NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1998 AND 1997............................4
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)...............................5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................8
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................13
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMEGA HEALTHCARE INVESTORS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
1998 1997
-------------- --------------
(Unaudited) (See Note)
ASSETS
Real estate properties
Land and buildings at cost ................................. $ 604,747 $ 561,054
Less accumulated depreciation .............................. (51,206) (48,147)
--------- ---------
Real estate properties - net ....................... 553,541 512,907
Mortgage notes receivable .................................. 228,494 218,353
--------- ---------
782,035 731,260
Investment in Omega Worldwide, Inc. ............................. 8,561
Investments in Principal Healthcare Finance Ltd. ................ 1,629 30,730
Other investments ............................................... 29,584 29,790
Assets held for sale ............................................ 80,376
--------- ---------
Total Investments (cost of $953,391 at September 30, 1998
and $839,927 at December 31, 1997) ................. 902,185 791,780
Cash and short-term investments ................................. 477 500
Goodwill and non-compete agreements - net ....................... 4,837 5,981
Other assets .................................................... 22,237 17,847
--------- ---------
TOTAL ASSETS ............................................... $ 929,736 $ 816,108
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition line of credit ...................................... $ 14,300 $ 58,300
Unsecured borrowings ............................................ 311,705 186,705
Secured borrowings .............................................. 22,044 22,261
Subordinated convertible debentures ............................. 48,405 62,485
Accrued expenses and other liabilities .......................... 13,292 18,136
--------- ---------
TOTAL LIABILITIES .......................................... 409,746 347,887
Preferred Stock ................................................. 107,500 57,500
Common stock and additional paid-in capital ..................... 458,483 441,161
Cumulative net earnings ......................................... 204,494 136,225
Cumulative dividends paid ....................................... (250,113) (165,824)
Stock option loans .............................................. (2,895)
Unrealized gain on Omega Worldwide, Inc. ........................ 3,096
Unamortized restricted stock awards ............................. (575) (841)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ................................. 519,990 468,221
--------- ---------
$ 929,736 $ 816,108
========= =========
Note - The balance sheet at December 31, 1997, 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 September 30, Nine months ended September 30,
1998 1997 1998 1997
------------ ------------- ------------ -----------
REVENUES
Rental income ............................................... $ 19,602 $ 13,318 $ 55,602 $ 38,451
Mortgage interest income .................................... 6,905 7,406 21,658 21,395
Other investment income ..................................... 1,758 2,553 4,920 5,533
Miscellaneous ............................................... 169 287 448 712
-------- -------- -------- --------
28,434 23,564 82,628 66,091
EXPENSES
Depreciation and amortization ............................... 5,758 4,322 16,730 12,225
Interest .................................................... 8,108 6,262 23,787 17,678
General and administrative .................................. 1,410 1,176 4,082 3,478
-------- -------- -------- --------
15,276 11,760 44,599 33,381
-------- -------- -------- --------
NET EARNINGS BEFORE GAIN ON DISTRIBUTION OF
OMEGA WORLDWIDE, INC. AND PREFERRED STOCK DIVIDENDS ....... 13,158 11,804 38,029 32,710
GAIN ON DISTRIBUTION OF OMEGA WORLDWIDE, INC ................ 30,240
PREFERRED STOCK DIVIDENDS ................................... (2,408) (1,330) (5,786) (2,216)
-------- -------- -------- --------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS ............... $ 10,750 $ 10,474 $ 62,483 $ 30,494
Net Earnings per common share:
Basic net earnings before gain on distribution ............. $ 0.53 $ 0.55 $ 1.61 $ 1.61
======== ======== ======== ========
Diluted net earnings before gain on distribution ........... $ 0.53 $ 0.54 $ 1.61 $ 1.60
======== ======== ======== ========
Basic net earnings after gain on distribution .............. $ 0.53 $ 0.55 $ 3.13 $ 1.61
======== ======== ======== ========
Diluted net earnings after gain on distribution ............ $ 0.53 $ 0.54 $ 3.13 $ 1.60
======== ======== ======== ========
Dividends paid per common share ............................. $ 0.67 $ 0.645 $ 2.01 $ 1.935
======== ======== ======== ========
Average Shares Outstanding, Basic ........................... 20,173 19,141 19,979 18,969
======== ======== ======== ========
Average Shares Outstanding, Diluted ......................... 20,178 19,227 19,983 19,056
======== ======== ======== ========
Other comprehensive income, net of taxes:
Unrealized Gain (Loss) on Omega Worldwide, Inc............. $ (2,835) -- $ 3,096 --
======== ======== ======== ========
See notes to condensed consolidated financial statements.
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OMEGA HEALTHCARE INVESTORS, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
Nine Months Ended
September 30,
1998 1997
------------- -------------
OPERATING ACTIVITIES
Net earnings $ 68,269 $ 32,710
Adjustment to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 16,730 12,225
Gain on distribution of Omega Worldwide (30,240)
Other non-cash charges 946 926
--------- ---------
Funds from operations available for distribution and investment 55,705 45,861
Net change in operating assets and liabilities (16,418) (6,904)
--------- ---------
Net cash provided by operating activities 39,287 38,957
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured note offering 125,000 100,000
Proceeds from preferred stock offering 50,000 57,500
Proceeds (payments) of acquisition line of credit (44,000) 500
Payments of long-term borrowings (217) (1,798)
Receipts from Dividend Reinvestment Plan 1,331 1,274
Dividends paid (45,227) (37,697)
Costs of raising capital (3,390) (4,072)
Other 1,204 (375)
--------- ---------
Net cash provided by financing activities 84,701 115,332
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of real estate (118,345) (86,046)
Placement of mortgage loans (12,000) (10,990)
Fundings of other investments - net (10,241) (45,928)
Temporary advances to Principal Healthcare Finance Limited (12,695)
Net proceeds from sale of Omega Worldwide shares 16,938
Collection of mortgage principal 2,250 1,338
Other (2,613)
--------- ---------
Net cash used in investing activities (124,011) (154,321)
--------- ----------
Decrease in cash and short-term investments ($23) ($32)
========= =========
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
for Omega Healthcare Investors, Inc. (the Company), 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 and nine-month periods ended
September 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
NOTE B - PRINCIPAL HEALTHCARE FINANCE LIMITED AND OMEGA WORLDWIDE, INC.
In 1995 the Company sponsored the organization of Principal Healthcare
Finance Limited (Principal), an Isle of Jersey company, whose purpose is to
invest in nursing homes and long-term care facilities in the United Kingdom. The
Company had invested $30.7 million in Principal at December 31, 1997 of which
$23.7 million was represented by a (pound)15 million subordinated note due June
30, 2000 and $7 million was represented by equity investment. The Company also
provided investment advisory and management services to Principal and had
advanced temporary loans to Principal from time to time.
In November, 1997, the Company formed a separate company, Omega
Worldwide, Inc. (Worldwide) and on April 2 it contributed substantially all of
its Principal assets to Worldwide in exchange for approximately 8.5 million
shares of Worldwide common stock and 260,000 shares of Series B preferred stock.
The Company retained 990,000 ordinary shares of Principal. Of the 8,500,000
shares of Worldwide received by the Company, approximately 5,200,000 were
distributed on April 2, 1998 to the shareholders of the Company on the basis of
one Worldwide share for every 3.77 common shares of the Company held by
shareholders of the Company on the record date of February 1, 1998. Of the
remaining 3,300,000 shares of Worldwide received by the Company, approximately
1,000,000 shares of Worldwide are held by the Company, and the other 2,300,000
shares were sold by the Company on April 3, 1998 for net proceeds of
approximately $16,250,000 in a Secondary offering pursuant to a registration
statement of Worldwide. The market value of the distribution to shareholders
approximates $39 million or $1.99 per share. A non-recurring gain of $30.2
million was recorded on the distribution and secondary offerings of Worldwide
common shares during the second quarter of 1998.
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NOTE C - ASSET CONCENTRATIONS
As of September 30, 1998, 89.6% of the cost of the Company's total
investments are related to long-term care facilities, 2.5% related to
rehabilitation hospitals, 3.1% to medical office facilities and 4.8% to other
investments. The Company's healthcare facilities are located in 28 states and
are operated by 30 independent healthcare operating companies. Approximately
65.1% of the Company's investments are operated by six public companies,
including Sun Healthcare Group, Inc. (26.9%), Integrated Health Services, Inc.
(12.5%), Advocat Inc. (11.8%), Mariner Post-Acute Network (6.2%), and two other
public companies (7.7%). Of the remaining operators, none operate investments in
facilities representing more than 5.1% of the total investments. The three
largest states in which investments are located are Florida (12.4%), Indiana
(10.6%) and California (7.2%).
NOTE D - OTHER PORTFOLIO MATTERS
In the ordinary course of its business activities, the Company
periodically evaluates investment opportunities and extends credit to customers.
It also is regularly engaged in lease and loan extensions and modifications and
believes its management has the experience and expertise to deal with such
issues as may arise from time to time.
UNISON HEALTHCARE CORPORATION
Unison Healthcare Corporation("Unison"), through two subsidiaries and
an affiliated partnership, leases from the Company and operates fourteen
nursing homes representing approximately 1,250 licensed nursing beds with a
total Company investment of $34.5 million, representing approximately 3.7
percent of total assets at September 30, 1998. The fourteen nursing homes
are located in Indiana and Texas. In addition, a subsidiary of Unison leases
six nursing homes located in Texas from UNHC Real Estate Holdings, Ltd.
("UNHC"). These six nursing homes are mortgaged by UNHC to the Company to
secure a mortgage loan of approximately $10.2 million. At December 31, 1997,
Unison was in default in its lease obligations to the Company and to UNHC,
and UNHC was in default in its mortgage payments to the Company, including for
both of them nonpayment of rents and interest totaling $1.5 million. Pursuant
to due notice, the Company as of January 2, 1998 terminated the leases with
respect to the fourteen nursing homes and accelerated the mortgage indebtedness
with respect to the six properties. In January, 1998, the Unison subsidiaries
which lease all twenty nursing homes filed for protection under the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Arizona ("Bankruptcy Court"). In May, Unison Healthcare Corporation (the
parent company) also filed for protection under the Bankruptcy Code in the
Bankruptcy Court.
In October, 1998, Unison filed a First Amended Joint Plan of
Reorganization ("Amended Plan") with the Bankruptcy Court. The Bankruptcy
Court has approved a Disclosure Statement in Support of the Amended Plan and
the Disclosure Statement has been mailed to all creditors of Unison to vote on
the Amended Plan. Under the Amended Plan (i) approximately $100 million of
existing unsecured indebtedness and certain other indebtedness of Unison will
be converted into equity shares of reorganized Unison, (ii) the Company's
leases with respect to eight of the fourteen nursing homes leased directly to
subsidiaries of Unison will be reinstated, (iii) the Company's lease with
respect to six of the nursing homes located in Indiana and leased directly to a
subsidiary of Unison will be terminated in exchange for cash and a secured note
from Unison, (iv) the Company will purchase seven nursing homes owned by Unison
in Colorado and Arizona for approximately $38 million, and will lease those
nursing homes to Unison, and (v) the Company will acquire the interest of
UNHC in the six nursing homes mortgaged by UNHC to the Company; three of these
nursing homes will be conveyed to Unison for $1 million, and the remaining
three will be leased to Unison. Whether the Amended Plan will be confirmed is
not known. In the meantime, all lease payments with respect to the fourteen
facilities are being made to the Company, and the monthly mortgage payments
owing by UNHC are being deposited into escrow, pending resolution of certain
disputes between the Company and UNHC. Based on advice of counsel, the Company
is confident that it will ultimately receive the mortgage payments now being
paid into escrow.
GRADUATE HOSPITAL AND GRADUATE HEALTH SYSTEM
On July 21, 1998, Allegheny Health, Education and Research
Foundation("AHERF") and related entities including Allegheny Hospitals,
Centennial ("Centennial") filed voluntary Chapter 11 bankruptcy petitions in
the United States Bankruptcy Court for the Western District of Pennsylvania.
On September 22, 1998, the Bankruptcy Court entered an order pursuant
to which Centennial, successor to The Graduate Hospital and Graduate Health
Systems, Inc. under leases (the "Operating Leases") of three medical office
buildings and a parking structure adjoining the Graduate Hospital in
Philadelphia, Pennsylvania, has paid to Omega, as of November 1, 1998, all past
due base rent under the leases, except for base rent due for the period June
1, 1998 through July 20,1998. On October 30, 1998, the Bankruptcy Court
approved the sale to Tenet Healthcare Corporation of certain assets of
Centennial, including Centennial's interest under the Operating Leases. At the
closing of the sale to Tenet, Centennial is obligated under the Bankruptcy
Court's September 22, 1998 order to cure all remaining monetary defaults under
the Operating Leases.
ASSETS HELD FOR SALE
At the Company's Board of Directors meeting on July 15, 1998,
management was authorized to initiate a plan to dispose of certain properties
judged to have limited potential and to redeploy the proceeds.
As of September 30, 1998, the carrying value of assets held under plan
for disposition total $80.4 million. These assets had a cost of $92.4 million
and annualized revenues approximate $11.4 million. The Company anticipates that
completion of the targeted disposals will occur primarily in
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the fourth quarter of 1998.
On October 30, 1998, one of the facilities held for sale generated sale
proceeds of $10.3 million. These proceeds were used to repay funds drawn under
the Company's credit facility. While management believes there is no impairment
of the carrying value of the assets to be sold, it expects redeployment of the
proceeds in new investments will result in near-term reductions in funds
from operations from lower investment yields on redeployment.
NOTE E - PREFERRED STOCK
On April 28, 1998, the Company received gross proceeds of $50 million
resulting from the issuance of 2 million shares of 8.625% Series B Cumulative
Preferred Stock ("Preferred Stock") at $25 per share. Dividends on the Preferred
Stock are cumulative from the date of original issue and are payable quarterly
commencing on August 15, 1998. On April 7, 1997, the Company received gross
proceeds of $57.5 million from the issuance of 2.3 million shares of 9.25%
Series A Cumulative Preferred Stock ("Preferred Stock") at $25 per share.
Dividends on the Series A Preferred Stock are cumulative from the date of
original issue and are payable quarterly.
NOTE F - NET EARNINGS PER SHARE
Net earnings per share is computed based on the weighted average number
of common shares outstanding during the respective periods. Per share amounts
for prior periods have been restated as required by the Financial Accounting
Standards Board Statement No. 128. Among the changes stemming from the new
pronouncement is a requirement to present both basic and diluted per share
amounts. Diluted earnings per share amounts reflect the dilutive effect of stock
options (4,531 shares and 86,296 shares for 1998 and 1997, respectively). The
assumed conversion of convertible debentures is antidilutive.
NOTE G - CONVERSION OF DEBENTURES
During the nine-month period ended September 30, 1998, approximately
$14,080,000 of subordinated convertible debentures were converted to 522,207
shares at a conversion price of $26.962 per share.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
"Safe Harbor" Statements Under the United States Private Securities
Litigation Reform Act of 1995. Statements contained in this document that are
not based on historical fact are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements regarding the Company's future development
activities, the future condition and expansion of the Company's markets, the
Company's ability to meet its liquidity requirements and the Company's growth
strategies, as well as other statements which may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," or similar terms, variations of those terms or the negative of
those terms. 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 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.
RESULTS OF OPERATIONS
Revenues for the three-month and nine-month periods ending September
30, 1998 totaled $28.4 million and $82.6 million, respectively, an increase of
$4.9 million and $16.5 million, respectively, over the periods ending September
30, 1997. The 1998 revenue growth stems primarily from additional real estate
investments of approximately $219.4 million during the twelve-month period
ending September 30, 1998 offset by decrease in investments in Principal
Healthcare Finance Limited and other investments of $58.3 million. Additionally,
revenue growth of approximately $1.7 million stems from participating
incremental net revenues which became effective in 1998. Total investments of
$953 million as of September 30, 1998 have an average annualized yield of
approximately 11.59%.
Expenses for the three-month and nine-month periods ended September 30,
1998 totaled $15.3 million and $44.6 million, respectively, an increase of $3.5
million and $11.2 million, respectively, over expenses for 1997. The provision
for depreciation and amortization for the three-month and nine-month periods
ended September 30, 1998 totaled $5.8 million and $16.7 million, respectively,
increasing $1.4 million and $4.5 million, respectively, over the same periods in
1997 as a result of additional real estate investments.
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Interest expense for the three-month and nine-month periods ended
September 30, 1998 was $8.1 million and $23.8 million, respectively, compared
with $6.3 million and $17.7 million, respectively, for the same periods in 1997.
The increase in 1998 is primarily due to higher average outstanding borrowings
during the 1998 periods, offset partially by interest rate savings from
conversions of subordinated debentures and reduced spreads on line of credit
borrowings.
General and administrative expenses for the three-month and nine-month
periods ended September 30, 1998 totaled approximately $1.4 million and $4.1
million, respectively. These expenses for the three-month and nine-month periods
were approximately 5.0% and 4.9% of revenues, respectively, as compared to 5.0%
and 5.3% of revenues, respectively, for the 1997 three-month and nine-month
periods.
Net earnings available to common shareholders excluding the
non-recurring gain were $10,750,000 and $32,243,000, respectively, for the
three-month and nine-month periods, increasing approximately $276,000 and
$1,749,000, respectively, over the 1997 periods. The increase stems from the
various factors mentioned above, offset partially by provision for additional
preferred dividends on the new Series B preferred shares. Net earnings per
diluted common share excluding the non-recurring gain decreased from $.54 to
$.53 and increased from $1.60 to $1.61 for the three-month and nine-month
periods, respectively.
Funds from Operations ("FFO") totaled $16,621,000 and $49,311,000 for
the three-month and nine-month periods ending September 30, 1998, representing
an increase of approximately $1,739,000 and $6,145,000 over the same periods in
1997. FFO is net earnings available to common shareholders, excluding any gains
or losses from debt restructuring and sales of assets, plus depreciation and
amortization associated with real estate investments and charges to earnings for
non-cash common stock based compensation.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has raised capital of approximately $190 million during the
nine-month period ended September 30, 1998. In April 1998, the Company received
approximately $17 million gross proceeds from the sale of shares of Worldwide
(see Note B to the financial statements). It also raised approximately $48
million net proceeds from the issuance of Series B Preferred Stock (see Note E
to the financial statements) and approximately $124 million from the issuance of
unsecured notes.
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
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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 capital
markets timely and has raised more than $1.2 billion in capital since it was
organized in 1992. The Company raised more than $500 million in equity,
including $130 million from the initial public offering in 1992, $73 million
from a follow-on common stock offering in 1994, $165 million from the Health
Equity Properties acquisition in 1994 and three additional offerings, the latest
represented by the offering of Series B preferred stock completed in April 1998.
Additionally, over $700 million of debt capital has been raised, some of which
has been used to retire secured borrowings 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. In 1997, the Company issued $57.5
million of Series A Preferred Stock with a yield of 9.25% and completed a $100
million 10-year senior note offering priced to yield 6.99%. In September 1997,
the Company completed the second amended and restated loan agreement. The new
agreement provides for total permitted borrowings of up to $200 million, reduces
interest rates on borrowings, and extends the term of the agreement to September
2000. In April 1998, the Company issued $50 million of Series B Preferred Stock
with a yield of 8.625%. In June 1998, the Company completed a $125 million
4-year senior note offering priced to yield 7.04%.
As of September 30, 1998, the Company has total assets of $930 million,
shareholders' equity of $520 million, and long-term borrowings of $382 million,
representing approximately 41% of the total capitalization. The Company expects
to generally maintain a long-term debt-to-capitalization ratio of approximately
40%. At September 30, 1998, the Company had available borrowings of up to $181
million under its revolving line of credit arrangement.
In February 1997, the Company filed a Form S-4 shelf registration
statement with the Securities and Exchange Commission registering common stock
totaling $100 million to be issued in connection with future property
acquisitions. Additionally, on August 29, 1997 the Company filed a Form S-3
registration statement with the Securities and Exchange Commission permitting
the issuance of up to $200 million related to common stock, unspecified debt,
preferred stock and convertible securities. During the second quarter of 1998,
$175 million of debt and preferred stock were issued pursuant to the Form S-3.
The Company distributes a large portion of the cash available from
operations. Cash dividends paid totaled $.67 and $2.01 per share for the
three-month and nine-month periods ending September 30, 1998 compared with $.645
and $1.935 per share for the same periods in 1997. The current $.67 per quarter
rate represents an annualized rate of $2.68 per share. Omega's Board of
Directors declared a regular quarterly dividend of $.67 per share to be paid
November 13, 1998 to common shareholders of record on October 30, 1998.
Additionally, regular quarterly preferred stock dividends of $.578 per share and
$.539 per share, were declared payable on November 13, 1998 to Series A (9.25%),
and Series B (8.625%) Cumulative Preferred shareholders of record on October 30,
1998, respectively.
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YEAR 2000 COMPLIANCE
The Year 2000 compliance issue concerns the inability of certain
systems and devices to properly use or store dates beyond December 31, 1999.
This could result in system failures, malfunctions, or miscalculations that
disrupt normal operations. This issue affects most companies and organizations
to large and small degrees, at least to the extent that potential exposures must
be evaluated.
The Company is reviewing risks with regard to the ability of the
Company's own internal operations, the impact of outside vendors' ability to
operate, and the impact of tenants' ability to operate. The Company initially
focused this review on mission-critical operations, recognizing that other
potential effects are expected to be less material. The Company believes its own
internal operations, its technology infrastructure, information systems, and
software applications are likely to be compliant or will be compliant by
mid-1999 based upon certification statements by the applicable vendors. In those
cases where there are compliance issues, these are considered to be minor in
nature and remedies are already identified. Expenditures for such remedies will
not be material.
With respect to the Company's material outside vendors, such as its
banks, payroll processor, and telecommunications providers, the Company's
assessment will cover the compliance efforts of significant vendors, the effects
of potential non-compliance, and remedies that may mitigate or obviate such
effects as to the Company's business and operations. The Company plans to
complete its assessment of compliance by important vendors by mid-1999.
With respect to the Company's tenants and properties, the Company's
assessment will cover the tenants' compliance efforts, the possibility of any
interface difficulties or electromechanical problems relating to compliance by
material vendors, the effects of potential non-compliance, and remedies that may
mitigate or obviate such effects. The Company plans to process information from
tenant surveys beginning in 1999 and complete its assessment by mid-1999.
Because the Company's evaluation of these issues has been conducted by
its own personnel or by selected inquiries of its vendors and tenants in
connection with their routine servicing operations, the Company believes that
its expenditures for assessing Year 2000 issues, though difficult to quantify,
have not been material. In addition, the Company is not aware of any issues that
will require material expenditures by the Company in the future.
Based upon current information, the Company believes that the risk
posed by foreseeable Year 2000 related problems with its internal systems
(including both information and non-information systems) is minimal. Year 2000
related problems with the Company's software applications and internal
operational programs are unlikely to cause more than minor disruptions in the
Company's operations. Year 2000 related problems at certain of its third-party
service providers, such as its banks, payroll processor, and telecommunications
provider is marginally greater, though, based upon current information, the
Company does not believe any such problems would have a material effect on its
operations. For example, Year 2000 related problems at such third-party service
providers could delay the processing of financial transactions and the Company's
payroll and could disrupt the Company's internal and external communications.
The Company believes that the risk posed by Year 2000 related problems
at its properties or
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with its tenants is marginally greater, though, based upon current information,
the Company does not believe any such problems would have a material effect on
its operations. Year 2000 related problems at certain governmental agencies and
third-party payers could delay the processing of tenant financial transactions,
though, based upon current information, the Company does not believe any such
problems would have a material long-term effect on its operations. Year 2000
related problems with the electromechanical systems at its properties are
unlikely to cause more than minor disruptions in the Company's operations.
The Company intends to complete outstanding assessments, to implement
identified remedies, to continue to monitor Year 2000 issues, and will develop
contingency plans if, and to the extent deemed, necessary. However, based upon
current information and barring developments, the Company does not anticipate
developing any substantive contingency plans with respect to Year 2000 issues.
In addition, the Company has no plans to seek independent verification or review
of its assessments.
While the Company believes that it will be Year 2000 compliant by
December 31, 1999, there can be no assurance that the Company will be successful
in identifying and assessing all compliance issues, or that the Company's
efforts to remedy all Year 2000 compliance issues will be effective such that
they will not have a material adverse effect on the Company's business or
results of operations.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
EXHIBIT DESCRIPTION
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3 Amended and Restated Bylaws, as amended July 7, 1998
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K - None were filed.
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SIGNATURES
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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: November 9, 1998 By: /s/ESSEL W. BAILEY, JR.
----------------------------------
Essel W. Bailey, Jr.
President
Date: November 9, 1998 By: /s/DAVID A. STOVER
----------------------------------
David A. Stover
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
3 Amended and Restated Bylaws, as amended July 7, 1998
27 Financial Data Schedule