Omega Announces Fourth Quarter 2007 Financial Results and Adjusted FFO of $0.35 Per Share for the Fourth Quarter
TIMONIUM, Md.--(BUSINESS WIRE)--
Omega Healthcare Investors, Inc. (NYSE:OHI) today announced its results of operations for the quarter and fiscal year ended December 31, 2007. The Company also reported Funds From Operations ("FFO") available to common stockholders for the three and twelve months ended December 31, 2007 of $23.7 million or $0.35 per common share and $93.5 million or $1.42 per common share, respectively. The $23.7 million of FFO available to common stockholders for the quarter includes $0.5 million of non-cash restricted stock expense, a $0.2 million reduction in the Company's non-cash provision for impairment, a $0.1 million provision for income taxes and $0.1 million of non-cash consolidation adjustments due to Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R"). FFO is presented in accordance with the guidelines for the calculation and reporting of FFO issued by the National Association of Real Estate Investment Trusts ("NAREIT"). Adjusted FFO was $0.35 per common share for the three months ended December 31, 2007 and $1.38 for the twelve months ended December 31, 2007. Adjusted FFO is a non-GAAP financial measure, which excludes the impact of certain non-cash items (including restricted stock expense, provision for impairments, changes in derivative fair values, gains on preferred stock and subordinated note investments, accretion investment income and provision for uncollectible accounts receivable), as well as restatement related expenses and provision for income taxes. For more information regarding FFO and adjusted FFO, see "Funds From Operations" section below.
GAAP NET INCOME
For the three-month period ended December 31, 2007, the Company reported net income of $17.3 million, net income available to common stockholders of $14.8 million, or $0.22 per diluted common share and operating revenues of $39.6 million. This compares to net income of $13.4 million, net income available to common stockholders of $10.9 million, or $0.18 per diluted common share, and operating revenues of $36.1 million for the same period in 2006.
For the twelve-month period ended December 31, 2007, the Company reported net income of $69.4 million, net income available to common stockholders of $59.5 million, or $0.90 per diluted common share and operating revenues of $159.6 million. This compares to net income of $55.7 million, net income available to common stockholders of $45.8 million, or $0.78 per diluted common share, and operating revenues of $135.5 million for the same period in 2006.
The increases in net income, operating revenues and net income available to common stockholders during the twelve-month period ended December 31, 2007 were due primarily to new investments completed in late 2006 and early 2007, as well as, the impact of an allowance adjustment of $5.0 million, or $0.08 per common share, with respect to straight-line rent recognition recorded in the first quarter of 2007.
2007 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS
-- On January 22, 2008, the Company purchased General Electric
Capital Corporation's $39 million mortgage loan on seven
skilled nursing facilities ("SNFs") operated by Haven
Eldercare, LLC ("Haven").
-- On January 17, 2008, the Company closed on a $5.2 million new
investment yielding 10%.
-- On January 17, 2008, the Company declared a quarterly common
dividend of $0.29 per share, an increase of $0.01 per common
share compared to the prior quarter.
-- On December 21, 2007, the Company announced that it entered
into a closing agreement with the Internal Revenue Service
("IRS") resolving the previously reported related party tenant
issue.
-- On October 16, 2007, the Company announced the reinstatement
of the optional cash purchase component of the Company's
Dividend Reinvestment and Common Stock Purchase Plan (the
"Plan").
-- In October 2007, the Company declared a quarterly common
dividend of $0.28 per share, an increase of $0.01 per common
share compared to the prior quarter.
FOURTH QUARTER 2007 RESULTS
Operating Revenues and Expenses - Operating revenues for the three months ended December 31, 2007 were $39.6 million. Operating expenses for the three months ended December 31, 2007 totaled $12.1 million, comprised of $9.3 million of depreciation and amortization expense, $2.5 million of general and administrative expenses, a non-cash provision for impairment adjustment of $0.2 million and $0.5 million of restricted stock expense.
Other Income and Expense - Other income and expense for the three months ended December 31, 2007 was a net expense of $10.5 million and was primarily comprised of $10.1 million of interest expense and $0.5 million of deferred financing amortization costs.
Funds From Operations - For the three months ended December 31, 2007, reportable FFO available to common stockholders was $23.7 million, or $0.35 per common share, compared to $19.2 million, or $0.32 per common share, for the same period in 2006. The $23.7 million of FFO for the quarter ended December 31, 2007 includes a $0.1 million provision for income taxes, a non-cash provision for impairment adjustment of $0.2 million and $0.5 million of non-cash restricted stock expense.
The $19.2 million of FFO for the three months ended December 31, 2006, includes a $3.6 million non-cash gain on preferred stock and subordinated note investments, $1.2 million of 2006 restatement related expenses, a non-cash $0.8 million provision for uncollectible accounts receivable, a $0.6 million non-cash decrease in the fair value of a derivative, a $0.6 million provision for income taxes, a $0.4 million non-cash provision for impairment, $0.3 million of non-cash restricted stock expense and $0.1 million in non-cash accretion investment income.
When excluding the above mentioned items in 2007 and 2006, adjusted FFO was $24.1 million, or $0.35 per common share for the three months ended December 31, 2007, compared to $19.4 million, or $0.32 per common share, for the same period in 2006. For further information, see the attached "Funds From Operations" schedule and notes.
2007 ANNUAL RESULTS
Operating Revenues and Expenses - Operating revenues for the twelve months ended December 31, 2007 were $159.6 million. Operating expenses for the twelve months ended December 31, 2007 totaled $48.5 million, comprised of $36.0 million of depreciation and amortization expense, $9.7 million of general and administrative expenses, a non-cash provision for impairment of $1.4 million and $1.4 million of restricted stock compensation expense.
Other Income and Expense - Other income and expense for the twelve months ended December 31, 2007 was a net expense of $43.8 million and was primarily comprised of $42.1 million of interest expense and $2.0 million of deferred financing amortization costs.
Provision for Income Taxes - On December 21, 2007, the Company announced that it has entered into a closing agreement with the IRS resolving the previously reported related party tenant issues associated with preferred stock issued to Omega by Advocat, Inc. in 2000. Based on this closing agreement, the Company has paid approximately $5.6 million in penalty taxes and interest to the IRS relating to tax years 2002 through 2006. The Company had previously accrued the $5.6 million of income tax liabilities as of December 31, 2006.
As a result of entering into the closing agreement and the Company's previously announced 2006 Advocat restructuring agreement, the Company has been advised by tax counsel that it will not receive any non-qualified related party tenant income from Advocat in future fiscal years. Accordingly, the Company does not expect to incur tax expense associated with related party tenant income in periods commencing after January 1, 2007.
Funds From Operations - For the twelve months ended December 31, 2007, reportable FFO available to common stockholders was $93.5 million, or $1.42 per common share, compared to $76.7 million, or $1.31 per common share, for the same period in 2006. The $93.5 million of FFO for the year includes an adjustment to the allowance for straight-line revenue of $5.0 million (resulted in an increase in first quarter 2007 revenue of $5.0 million), $0.3 million of non-cash FIN 46R consolidation adjustments, $7 thousand reduction in non-cash provision for income taxes, $1.4 million of non-cash provision for impairments and $1.4 million of non-cash restricted stock compensation expense.
The $76.7 million of FFO for the twelve months ended December 31, 2006, includes $4.5 million of non-cash restricted stock expense associated with the Company's issuance of restricted stock and unit grants to executive officers during 2004, $2.7 million of non-cash interest expense relating to the write-off of deferred financing costs associated with the termination of an old credit facility, $0.8 million of non-cash interest expense associated with the tender offer and purchase of approximately 20.7% of the Company's then remaining $100 million aggregate principal amount of 2007 Notes, a $2.7 million accounting gain on the sale of an equity security, a $3.6 million non-cash gain on preferred stock and subordinated note investments, a $9.1 million non-cash increase in the fair value of a derivative, $1.3 million of non-cash accretion investment income, a $2.3 million provision for income taxes, $1.2 million of restatement related expenses, a $0.5 million non-cash provision for impairment and a non-cash $0.9 million provision for uncollectible accounts receivable.
When excluding the above mentioned non-cash or non-recurring items in 2007 and 2006, adjusted FFO was $91.0 million, or $1.38 per common share for the twelve months ended December 31, 2007, compared to $73.1 million, or $1.24 per common share, for the same period in 2006. For further information, see the attached "Funds From Operations" schedule and notes.
PORTFOLIO DEVELOPMENTS
Haven Eldercare, LLC - On January 22, 2008, the Company completed a transaction with General Electric Capital Corporation to purchase an existing $39 million mortgage due October 2012 on seven Haven SNFs. The Company has an existing $23 million second mortgage on these seven facilities. The Company now has a $62 million combined mortgage on the seven facilities. The Company also has a purchase option on the seven facilities that would allow the Company to acquire the fee simple interest in the facilities. If the Company exercises the purchase option, the seven facilities would be combined with an existing eight facility master lease. The borrowers and guarantors under the mortgage, and the lessee, sublessees and guarantors in respect of the master lease are all debtors-in-possession in chapter 11 proceedings being jointly administered in the United States Bankruptcy Court for the District of Connecticut, New Haven Division.
Alpha Health Care Properties, LLC - On January 17, 2008, the Company purchased one SNF for $5.2 million from an unrelated third party and leased the facility to Alpha Health Care Properties, LLC ("Alpha"), an existing tenant of the Company. The facility was added to Alpha's existing master lease and will generate an additional $0.5 million of annual rent.
Litchfield Investment Company, LLC - On July 31, 2007, the Company completed a transaction with Litchfield Investment Company, LLC and its affiliates to purchase five skilled nursing facilities for a total investment of approximately $40 million. The facilities total 645 beds and are located in Alabama (1), Georgia (2), Kentucky (1) and Tennessee (1). The Company also provided a $2.5 million loan in the form of a subordinated note as part of the transaction that was paid-off during the fourth quarter. Simultaneously with the closing of the purchase transaction, the five facilities were combined into an Amended and Restated Master Lease containing 13 other facilities between the Company and an existing operator, Home Quality Management. The Amended and Restated Master Lease was extended until July 31, 2017.
Advocat - The Company continuously evaluates the payment history and financial strength of its operators and has historically established an allowance for straight-line rent adjustments for operators that do not meet the Company's internal revenue requirements. The Company considers factors such as payment history, the operator's financial condition as well as current and future anticipated operating trends when evaluating whether to establish contra revenue reserves.
The Company has reviewed Advocat's financial statements annually and noted that since 2000 the opinion of Advocat's external auditors contained a "going concern" qualification. During the first quarter of 2007, the Company reviewed Advocat's 2006 annual report and noted that Advocat's auditor's opinion no longer contained a going concern qualification. In addition, the Company also reviewed Advocat's financial statements and noted significant improvements in its financial condition since 2000. As a result, the Company determined that it should reverse approximately $5.0 million of straight-line allowance previously established. The change in estimate resulted in an additional $0.08 per share of income from continuing operations and net income for the first quarter of 2007.
Asset Sales - During the third quarter of 2007, the Company agreed to restructure a five facility master lease with one of its existing tenants whereby the Company and tenant have agreed to sell three facilities and reduce the annual rent on the master lease by $0.4 million. On November 30, 2007, two of the facilities were sold for approximately $2.8 million in cash proceeds which generated an accounting gain of $0.4 million. In addition, the Company has recorded a $1.4 million provision for impairment on the third facility to reduce its carrying value to its estimated fair value. The third facility is currently under contract to be sold with an anticipated first quarter 2008 closing.
On December 22, 2006, Residential Care VIII, LLC, a subsidiary of American Senior Communities, LLC, notified the Company of its intent to exercise its option to purchase two facilities. The two facilities were classified on the Company's December 31, 2006 consolidated balance sheet as assets held for sale with a net book value of approximately $1.9 million. On January 31, 2007, the Company received gross cash proceeds of approximately $3.6 million and recorded an accounting gain of approximately $1.7 million.
In two additional separate transactions during the first quarter of 2007, the Company sold two facilities for their approximate net book value, generating cash proceeds of approximately $0.8 million.
2007 FINANCING ACTIVITIES
7.130 Million Common Stock Offering - As previously announced, on April 3, 2007, the Company closed an underwritten public offering of 7,130,000 shares of Omega common stock at $16.75 per share, less underwriting discounts. The sale included 930,000 shares sold in connection with the exercise of an over-allotment option granted to the underwriters. The Company received approximately $113 million in net proceeds from the sale of the shares, after deducting underwriting discounts and before estimated offering expenses.
Increase in Credit Facility - Pursuant to Section 2.01 of the Company's Credit Agreement, dated as of March 31, 2006, as amended, (the "Credit Agreement"), the Company was permitted under certain circumstances to increase its available borrowing base under the Credit Agreement from $200 million up to an aggregate of $300 million. Effective February 22, 2007, the Company exercised its right to increase its available borrowing base under the Credit Agreement from $200 million to $255 million and the Company consented to add 18 of its properties to the borrowing base assets under the Credit Agreement.
DIVIDENDS
Common Dividends - On January 17, 2008, the Company's Board of Directors announced a common stock dividend of $0.29 per share, to be paid February 15, 2008 to common stockholders of record on January 31, 2008. At the date of this release, the Company had approximately 68.6 million outstanding common shares.
Series D Preferred Dividends - On January 17, 2008, the Company's Board of Directors declared its regular quarterly dividend for the Series D preferred stock, payable February 15, 2008 to preferred stockholders of record on January 31, 2008. Series D preferred stockholders of record on January 31, 2008 will be paid dividends in the approximate amount of $0.52344 per preferred share, on February 15, 2008. The liquidation preference for the Company's Series D preferred stock is $25.00 per share. Regular quarterly preferred dividends represent dividends for the period November 1, 2007 through January 31, 2008.
Dividend Reinvestment and Common Stock Purchase Plan - On October 16, 2007, the Company announced the reinstatement of the optional cash purchase component of the Plan, effective immediately for investments beginning November 15, 2007. The Company also announced that the per share purchase discount for both optional cash purchases and dividend reinvestments was reset to 1%.
2008 ADJUSTED FFO GUIDANCE
The Company currently expects its 2008 adjusted FFO to be between $1.41 and $1.43 per diluted share. The Company's adjusted FFO guidance for 2008 excludes the future impacts of acquisitions, gains and losses from the sale of assets, additional divestitures, certain revenue and expense items, capital transactions and restricted stock amortization expense. A reconciliation of the adjusted FFO guidance to the Company's projected GAAP earnings is provided on a schedule attached to this press release. The Company may, from time to time, update its publicly announced adjusted FFO guidance, but it is not obligated to do so.
The Company's adjusted FFO guidance is based on a number of assumptions, which are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve its projected results.
TAX TREATMENT FOR 2007 DIVIDENDS
Preferred D Dividends -The Company has determined that 100% of all dividends on Series D Preferred Stock in 2007 should be treated for tax purposes as an ordinary dividend.
Common Dividends - On February 15, 2007, May 15, 2007, August 15, 2007 and November 15, 2007, the Company paid dividends to its common stockholders in the per share amounts of $0.26, $0.27, $0.27 and $0.28, for stockholders of record on January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007, respectively. The Company has determined that 29.13% of the common dividends paid in 2007 should be treated for tax purposes as a return of capital, with the balance of 70.87% treated as an ordinary dividend.
ANNUAL MEETING
As previously announced on January 17, 2008, the Company's 2008 Annual Meeting of Stockholders will be held on Thursday, May 22, 2008, at 10:00 a.m., local time, at the Holiday Inn Select, Baltimore-North, 2004 Greenspring Drive, Timonium, Maryland. Stockholders of record as of the close of business on April 14, 2008 will be entitled to receive notice of and to participate at the 2008 Annual Meeting of Stockholders.
CONFERENCE CALL
The Company will be conducting a conference call on Thursday, January 31, 2008, at 10 a.m. EST to review the Company's 2007 fourth quarter and year end results and current developments. To listen to the conference call via webcast, log on to www.omegahealthcare.com and click the "earnings call" icon on the Company's home page. Webcast replays of the call will be available on the Company's website for two weeks following the call.
The Company is a real estate investment trust investing in and providing financing to the long-term care industry. At December 31, 2007, the Company owned or held mortgages on 236 SNFs and assisted living facilities with approximately 27,247 beds located in 27 states and operated by 28 third-party healthcare operating companies.
This announcement includes forward-looking statements. Actual results may differ materially from those reflected in such forward-looking statements as a result of a variety of factors, including, among other things: (i) uncertainties relating to the business operations of the operators of the Company's properties, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels; (ii) regulatory and other changes in the healthcare sector, including without limitation, changes in Medicare reimbursement; (iii) changes in the financial position of the Company's operators; (iv) the ability of operators in bankruptcy to reject unexpired lease obligations, modify the terms of the Company's mortgages, and impede the ability of the Company to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor's obligations; (v) the availability and cost of capital; (vi) competition in the financing of healthcare facilities; (vii) the Company's ability to maintain its status as a real estate investment trust; and (viii) other factors identified in the Company's filings with the Securities and Exchange Commission. Statements regarding future events and developments and the Company's future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements.
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2007 2006
--------------------------
(Unaudited) (Audited)
ASSETS
Real estate properties
Land and buildings at cost $ 1,274,722 $ 1,235,679
Less accumulated depreciation (221,366) (187,797)
--------------------------
Real estate properties - net 1,053,356 1,047,882
Mortgage notes receivable - net 31,689 31,886
--------------------------
1,085,045 1,079,768
Other investments - net 13,683 22,078
--------------------------
1,098,728 1,101,846
Assets held for sale - net 2,870 4,663
--------------------------
Total investments 1,101,598 1,106,509
Cash and cash equivalents 1,979 729
Restricted cash 2,104 4,117
Accounts receivable - net 64,992 51,194
Other assets 11,614 12,821
--------------------------
Total assets $ 1,182,287 $ 1,175,370
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving line of credit $ 48,000 $ 150,000
Unsecured borrowings 485,000 485,000
Discount on unsecured borrowings - net (286) (269)
Other long-term borrowings 40,995 41,410
Accrued expenses and other liabilities 22,378 28,037
Income tax liabilities 73 5,646
Operating liabilities for owned properties -- 92
--------------------------
Total liabilities 596,160 709,916
--------------------------
Stockholders' equity:
Preferred stock issued and outstanding -
4,740 shares Class D with an aggregate
liquidation preference of $118,488 118,488 118,488
Common stock $.10 par value authorized -
100,000 shares: Issued and outstanding
- 68,114 shares in 2007 and 59,703
shares in 2006 6,811 5,970
Common stock and additional paid-in-capital 825,925 694,207
Cumulative net earnings 362,140 292,766
Cumulative dividends paid (684,170) (602,910)
Cumulative dividends - redemption (43,067) (43,067)
--------------------------
Total stockholders' equity 586,127 465,454
--------------------------
Total liabilities and stockholders'
equity $ 1,182,287 $ 1,175,370
==========================
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
--------------------- ---------------------
2007 2006 2007 2006
--------------------- ---------------------
Revenues
Rental income $ 37,969 $ 34,248 $ 152,061 $ 126,892
Mortgage interest
income 992 1,010 3,888 4,402
Other investment income
- net 485 809 2,821 3,687
Miscellaneous 148 49 788 532
---------- ---------- ---------- ----------
Total operating revenues 39,594 36,116 159,558 135,513
Expenses
Depreciation and
amortization 9,288 8,781 36,028 32,070
General and
administrative 2,461 3,120 9,661 9,227
Restricted stock
expense 545 293 1,425 4,517
Provision for
impairment on real
estate properties (220) - 1,416 -
Provision for
uncollectible
mortgages, notes and
accounts receivable - 765 - 792
---------- ---------- ---------- ----------
Total operating expenses 12,074 12,959 48,530 46,606
Income before other income
and expense 27,520 23,157 111,028 88,907
Other income (expense):
Interest and other
investment income 123 42 257 413
Interest (10,146) (11,928) (42,134) (42,174)
Interest - amortization
of deferred financing
costs (499) (439) (1,958) (1,952)
Interest - refinancing
costs - - - (3,485)
Gain on sale of equity
securities - - - 2,709
Gain on investment
restructuring - 3,567 - 3,567
Change in fair value of
derivatives - (593) - 9,079
---------- ---------- ---------- ----------
Total other expense (10,522) (9,351) (43,835) (31,843)
Income before gain on
assets sold 16,998 13,806 67,193 57,064
Gain from assets sold, net 398 - 398 1,188
---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes 17,396 13,806 67,591 58,252
Provision for income taxes (125) (608) 7 (2,347)
---------- ---------- ---------- ----------
Income from continuing
operations 17,271 13,198 67,598 55,905
Discontinued operations 45 211 1,776 (208)
---------- ---------- ---------- ----------
Net income 17,316 13,409 69,374 55,697
Preferred stock dividends (2,481) (2,481) (9,923) (9,923)
---------- ---------- ---------- ----------
Net income available to
common $ 14,835 $ 10,928 $ 59,451 $ 45,774
========== ========== ========== ==========
Income per common share:
Basic:
Income from continuing
operations $ 0.22 $ 0.18 $ 0.88 $ 0.78
========== ========== ========== ==========
Net income $ 0.22 $ 0.18 $ 0.90 $ 0.78
========== ========== ========== ==========
Diluted:
Income from continuing
operations $ 0.22 $ 0.18 $ 0.88 $ 0.78
========== ========== ========== ==========
Net income $ 0.22 $ 0.18 $ 0.90 $ 0.78
========== ========== ========== ==========
Dividends declared and
paid per common share $ 0.28 $ 0.25 $ 1.08 $ 0.96
========== ========== ========== ==========
Weighted-average shares
outstanding, basic 68,148 59,980 65,858 58,651
========== ========== ========== ==========
Weighted-average shares
outstanding, diluted 68,200 60,109 65,886 58,745
========== ========== ========== ==========
Components of other
comprehensive income:
Net income $ 17,316 $ 13,409 $ 69,374 $ 55,697
Unrealized gain on common
stock investment - - - 1,580
Reclassification
adjustment for gains on
common stock investment - - - (1,740)
Reclassification
adjustment for gains on
preferred stock
investment - (1,091) - (1,091)
Unrealized loss on
preferred stock
investment - (40) - (803)
---------- ---------- ---------- ----------
Total comprehensive income $ 17,316 $ 12,278 $ 69,374 $ 53,643
========== ========== ========== ==========
OMEGA HEALTHCARE INVESTORS, INC.
FUNDS FROM OPERATIONS
Unaudited
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
--------------------- ---------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Net income available to
common stockholders $ 14,835 $ 10,928 $ 59,451 $ 45,774
Deduct gain from real
estate dispositions(1) (398) (547) (1,994) (1,354)
---------- ---------- ---------- ----------
Sub-total 14,437 10,381 57,457 44,420
Elimination of non-cash
items included in net
income:
Depreciation and
amortization(1) 9,288 8,831 36,056 32,263
---------- ---------- ---------- ----------
Funds from operations
available to common
stockholders $ 23,725 $ 19,212 $ 93,513 $ 76,683
========== ========== ========== ==========
Weighted-average common
shares outstanding, basic 68,148 59,980 65,858 58,651
Effect of restricted
stock awards 38 106 12 74
Assumed exercise of
stock options 14 23 16 20
---------- ---------- ---------- ----------
Weighted-average common
shares outstanding,
diluted 68,200 60,109 65,886 58,745
========== ========== ========== ==========
Fund from operations per
share available to common
stockholders $ 0.35 $ 0.32 $ 1.42 $ 1.31
========== ========== ========== ==========
Adjusted funds from
operations:
Funds from operations
available to common
stockholders $ 23,725 $ 19,212 $ 93,513 $ 76,683
Deduct gain from sale
of Sun common stock -- -- -- (2,709)
Deduct Advocat straight
line valuation
allowance adjustment -- -- (5,040) --
Deduct/add non-cash
(increase) decrease in
fair value of Advocat
derivative -- 593 -- (9,079)
Deduct Advocat non-cash
accretion investment
income -- (125) -- (1,280)
Deduct Advocat non-cash
gain on investment
restructuring -- (3,567) -- (3,567)
Deduct FIN 46
adjustment (66) -- (296) --
Deduct/add back non-
cash provision for
income taxes 125 608 (7) 2,347
Deduct/add back non-
cash provision for
impairments on real
estate properties(1) (220) 420 1,416 541
Add back non-cash
provisions for
uncollectible
mortgages, notes and
accounts receivable -- 765 -- 944
Add back non-cash
restricted stock
expense 545 293 1,425 4,517
Add back one-time non-
cash interest
refinancing expense -- -- -- 3,485
Add back restatement
related expenses -- 1,234 -- 1,234
---------- ---------- ---------- ----------
Adjusted funds from
operations available to
common stockholders $ 24,109 $ 19,433 $ 91,011 $ 73,116
========== ========== ========== ==========
(1) Includes amounts in discontinued operations
This press release includes Funds From Operations, or FFO, which is a non-GAAP financial measure. For purposes of the Securities and Exchange Commission's Regulation G, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in this press release, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Regulation G, the Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
The Company calculates and reports FFO in accordance with the definition and interpretive guidelines issued by the National Association of Real Estate Investment Trusts ("NAREIT"), and consequently, FFO is defined as net income available to common stockholders, adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization. The Company believes that FFO is an important supplemental measure of its operating performance. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions. The term FFO was designed by the real estate industry to address this issue. FFO herein is not necessarily comparable to FFO of other real estate investment trusts, or REITs, that do not use the same definition or implementation guidelines or interpret the standards differently from the Company.
In February 2004, NAREIT informed its member companies that it was adopting the position of the SEC with respect to asset impairment charges and would no longer recommend that impairment write-downs be excluded from FFO. In the tables included in this press release, the Company has applied this interpretation and has not excluded asset impairment charges in calculating its FFO. As a result, its FFO may not be comparable to similar measures reported in previous disclosures. According to NAREIT, there is inconsistency among NAREIT member companies as to the adoption of this interpretation of FFO. Therefore, a comparison of the Company's FFO results to another company's FFO results may not be meaningful.
The Company uses FFO as one of several criteria to measure the operating performance of its business. The Company further believes that by excluding the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and between other REITs. The Company offers this measure to assist the users of its financial statements in analyzing its performance; however, this is not a measure of financial performance under GAAP and should not be considered a measure of liquidity, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP. Investors and potential investors in the Company's securities should not rely on this measure as a substitute for any GAAP measure, including net income.
Adjusted FFO is calculated as FFO available to common stockholders less non-cash stock-based compensation and one-time revenue and expense items. The Company believes that adjusted FFO provides an enhanced measure of the operating performance of the Company's core portfolio as a REIT. The Company's computation of adjusted FFO is not comparable to the NAREIT definition of FFO or to similar measures reported by other REITs, but the Company believes it is an appropriate measure for this Company.
The following table presents a reconciliation of our guidance regarding 2008 FFO and Adjusted FFO to net income available to common stockholders:
2008 Projected
---------------
Per diluted share:
Net income available to common stockholders $ 0.86 -$ 0.88
Adjustments:
Depreciation and amortization 0.52 - 0.52
------- -------
Funds from operations available to common stockholders $ 1.38 -$ 1.40
Adjustments:
Restricted stock expense 0.03 - 0.03
------- -------
Adjusted funds from operations available to common
stockholders $ 1.41 -$ 1.43
======= =======
The following table summarizes the results of operations of assets included in discontinued operations during the three and twelve months ended December 31, 2007 and 2006, respectively.
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------------------------
2007 2006 2007 2006
-------------------------------------------
(In thousands)
Revenues
Rental income $ 45 $ 140 $ 212 $ 552
Other income -- -- -- --
-------------------------------------------
Subtotal revenues 45 140 212 552
-------------------------------------------
Expenses
Depreciation and
amortization -- 50 28 193
General and
administrative -- 6 3 40
Provision for
uncollectible accounts
receivable -- -- -- 152
Provision for
impairment -- 420 -- 541
-------------------------------------------
Subtotal expenses -- 476 31 926
-------------------------------------------
Gain (loss) before gain on
sale of assets 45 (336) 181 (374)
Gain on assets sold - net -- 547 1,595 166
-------------------------------------------
Discontinued operations $ 45 $ 211 $ 1,776 $ (208)
===========================================
The following tables present selected portfolio information, including operator and geographic concentrations, and revenue maturities for the period ending December 31, 2007.
Portfolio
Composition
($000's)
-------------------
# of %
Balance Sheet Data Properties # Beds Investment Investment
---------------------------------------
Real Property(1)(2) 227 26,127 $1,296,792 98%
Loans Receivable(3) 9 1,120 31,689 2%
---------------------------------------
236 27,247 $1,328,481 100%
# of % Investment
Investment Data Properties # Beds Investment Investment per Bed
--------------------------------------------------
Skilled Nursing
Facilities (1)(3) 228 26,661 $1,274,723 96% $ 48
Assisted Living
Facilities 6 416 30,323 2% 73
Rehab Hospitals 2 170 23,435 2% 138
--------------------------------------------------
236 27,247 $1,328,481 100% $ 49
(1) Includes three held for sale facilities and includes $19.2 million
for lease inducement.
(2) Includes 7 buildings worth $61.8 million resulting from a FIN 46
Consolidation.
(3) Includes $1.3 million of unamortized principal.
Revenue Composition ($000's)
--------------------------------
Revenue by Investment Type Three Months Ended Year Ended
December 31, 2007 December 31, 2007
-------------------------------------
Rental Property (1) $ 37,969 96% $ 152,061 96%
Mortgage Notes 992 3% 3,888 2%
Other Investment Income 485 1% 2,821 2%
-------------------------------------
$ 39,446 100% $ 158,770 100%
Revenue by Facility Type Three Months Ended Year Ended
December 31, 2007 December 31, 2007
-------------------------------------
Assisted Living Facilities $ 596 2% $ 2,075 1%
Skilled Nursing Facilities (1) 38,365 97% 153,874 97%
Other 485 1% 2,821 2%
-------------------------------------
$ 39,446 100% $ 158,770 100%
(1) Revenue includes $0.8 million and $3.2 million reduction for lease inducements for the three- and twelve-months periods ending December 31, 2007, respectively.
Operator Concentration
($000's)
------------------------------
Concentration by Investment # of Properties Investment % Investment
---------------------------------------
Sun Healthcare Group, Inc. 42 $ 233,323 18%
Communicare. 19 196,737 15%
Advocat, Inc. 40 144,958 11%
HQM 18 137,490 10%
Haven 15 118,186 9%
Guardian (1) 17 105,171 8%
Remaining Operators 85 392,616 29%
---------------------------------------
236 $1,328,481 100%
(1) Investment amount includes a $19.2 million lease inducement.
Geographic Concentration
($000's)
------------------------------
Concentration by Region # of Properties Investment % Investment
---------------------------------------
South (1) 114 $ 561,477 42%
Midwest 51 335,417 25%
Northeast 37 260,104 20%
West 34 171,483 13%
---------------------------------------
236 $1,328,481 100%
Concentration by State # of Properties Investment % Investment
---------------------------------------
Ohio 37 $ 282,604 21%
Florida 25 171,850 13%
Pennsylvania 17 110,225 8%
Texas 21 82,457 6%
California 15 59,718 5%
Remaining States (1) 121 621,627 47%
---------------------------------------
236 $1,328,481 100%
(1) Investment amount includes $19.2 million for a lease inducement.
Revenue Maturities
($000's)
---------------------
Operating Lease Current Current Lease and
Expirations & Loan Lease Interest Interest
Maturities Year Revenue(1) Revenue(1) Revenue %
------------------------------------------------
2008 1,001 - 1,001 1%
2009 - - - 0%
2010 11,494 1,438 12,932 8%
2011 11,676 163 11,839 8%
2012 14,449 - 14,449 10%
Thereafter 109,008 2,118 111,126 73%
-------------------------------------
$ 147,628 $ 3,719 $ 151,347 100%
(1) Based on 2008 contractual rents and interest (assumes no annual
escalators)
Selected Facility
Data
---------------------
TTM ending 9/30/07 Coverage Data
---------------
% Payor Mix Before After
--------------------- Mgmt. Mgmt.
Census Private Medicare Fees Fees
------------------------------------------------
All Healthcare
Facilities 82.5% 11.3% 13.9% 2.2 x 1.8 x
The following tables present selected financial information, including leverage and interest coverage ratios, as well as a debt maturity schedule for the period ending December 31, 2007.
Current Capitalization ($000's)
---------------------------------------------------
Outstanding
Balance %
----------- ------
Borrowings Under Bank Lines $ 48,000 4%
Long-Term Debt Obligations (1) 525,995 45%
Stockholder's Equity 586,127 51%
------------------
Total Book Capitalization $1,160,122 100.0%
(1) Excludes net discount of $0.3 million on unsecured borrowings.
Includes $39.0 million of additional debt due to required FIN 46R
consolidation.
Leverage & Performance Ratios
Debt / Total Book Cap 49.5%
Debt / Total Market Cap 32.2%
Interest Coverage:
4th quarter 2007 3.5x
Debt
Maturities
($000's) Secured Debt
----------- -----------------------
Lines of Haven FIN-46 Senior
Year Credit(1) Consolidation Other Notes Total
-----------------------------------------------------------
2008 $ - $ - $ 435 $ - $ 435
2009 - - 465 - 465
2010 255,000 - 495 - 255,495
2011 - - 290 - 290
Thereafter - 39,000 310 485,000 524,310
------------------------------------------------
$ 255,000 $ 39,000 $1,995 $485,000 $780,995
--------
(1) Reflected at 100% capacity.
The following table presents investment activity for the three- and twelve-month periods ending December 31, 2007.
Investment Activity ($000's)
---------------------------------
Three Months Ended Year Ended
December 31, 2007 December 31, 2007
------------------------------------
$ Amount % $ Amount %
------------------------------------
Funding by Investment Type:
Real Property $ - - $ 39,500 86%
Mortgages - - 345 1%
Other 2,014 100% 6,187 13%
------------------------------------
Total $ 2,014 100% $ 46,032 100%
Source: Omega Healthcare Investors, Inc.
Released January 31, 2008