November 7, 2018 | 10-Q | Quarterly report pursuant to Section 13 or 15(d)

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, 2018

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

OMEGA HEALTHCARE INVESTORS, INC.

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP


(Exact name of Registrant as specified in its charter)

Maryland	1-11316	38-3041398
(Omega Healthcare Investors, Inc.)	(Omega Healthcare Investors, Inc.)	(Omega Healthcare Investors, Inc.)
Delaware	333-203447-11	36-4796206
(OHI Healthcare Properties Limited Partnership)	(OHI Healthcare Properties Limited Partnership)	(OHI Healthcare Properties Limited Partnership)
(State of incorporation or organization)	(Commission file number)	(IRS Employer Identification No.)
303 International Circle, Suite 200, Hunt Valley, MD 21030
(Address of principal executive offices)

(410) 427-1700
(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.

Omega Healthcare Investors, Inc. Yes ☒No ☐OHI Healthcare Properties Limited Partnership Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Omega Healthcare Investors, Inc. Yes ☒No ☐OHI Healthcare Properties Limited Partnership Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one:)

Omega Healthcare Investors, Inc.


Large accelerated filer☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐

OHI Healthcare Properties Limited Partnership


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Omega Healthcare Investors, Inc. ☐		OHI Healthcare Properties Limited Partnership ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Omega Healthcare Investors, Inc. Yes ☐	No ☒	OHI Healthcare Properties Limited Partnership Yes ☐	No ☒

Indicate the number of shares outstanding of each of the issuers’ classes of common stock as of October 31, 2018


Omega Healthcare Investors, Inc.
Common Stock, $.10 par value		200,696,539

OHI Healthcare Properties Limited Partnership
N/A		No common stock outstanding
(Class)		(Number of shares)

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2018 of Omega Healthcare Investors, Inc. and OHI Healthcare Properties Limited Partnership (“Omega OP”). Unless stated otherwise or the context otherwise requires, (i) references to “Omega” or the “Company” means Omega Healthcare Investors, Inc. and its consolidated subsidiaries, (ii) references to “Parent” refer to Omega Healthcare Investors, Inc. without regard to its consolidated subsidiaries, and (iii) references to “Omega OP” means OHI Healthcare Properties Limited Partnership and its consolidated subsidiaries.

Omega is a self-administered real estate investment trust (“REIT”) under the Internal Revenue Code of 1986. Omega is structured as an umbrella partnership REIT (“UPREIT”) under which all of Omega's assets are owned directly or indirectly by, and all of Omega's operations are conducted directly or indirectly through, its operating partnership subsidiary, Omega OP.

Parent directly owned approximately 96% of the issued and outstanding partnership units in Omega OP (the “Omega OP Units”) at September 30, 2018. Each Omega OP Unit (other than those owned by Parent) is redeemable at the election of the holder for cash equal to the then-fair market value of one share of common stock of Parent, subject to Parent’s election to exchange the Omega OP Units tendered for redemption for common stock of the Parent on a one-for-one basis in an unregistered transaction, subject to adjustment as set forth in the partnership agreement. The management of Parent consists of the same members as the management of Omega OP.

The financial results of Omega OP are consolidated into the financial statements of Omega. Omega has no significant assets other than its investments in Omega OP. Omega and Omega OP are managed and operated as one entity. Omega OP has no significant assets other than its interests in non-guarantor subsidiaries.

We believe it is important for investors to understand the few differences between Omega and Omega OP in the context of how we operate as a consolidated company. Omega acts as the general partner of Omega OP. Net proceeds from equity issuances by Parent are contributed to Omega OP in exchange for additional partnership units. Parent and Omega OP incur indebtedness. The net proceeds of the Parent’s borrowings are loaned to Omega OP. The outstanding senior notes and certain other debt of Parent is guaranteed by Omega OP.

The presentation of debt and related interest, including amounts accrued, stockholders’ equity, owners’ equity and noncontrolling interests are the main areas of difference between the consolidated financial statements of Omega and Omega OP. The differences between debt, stockholders’ equity and owners’ equity result from differences in the debt or equity issued at the Omega and Omega OP levels. With respect to owners’ equity, the units held by the partners in Omega OP other than the Parent are accounted for as owners’ equity in Omega OP’s financial statements and as noncontrolling interests in Omega’s financial statements. Although classified differently, total debt and equity of Omega and Omega OP are the same.

We believe combining the quarterly reports on Form 10-Q of Omega and Omega OP into this single report results in the following benefits:

combined reports better reflect how management and the analyst community view the business as a single operating unit;

combined reports enhance investors’ understanding of Omega and Omega OP by enabling them to view the business as a whole and in the same manner as management;

combined reports are more efficient for Omega and Omega OP and result in savings in time, effort and expense; and

combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

In order to highlight the differences between Omega and Omega OP, the separate sections in this report for Omega and Omega OP specifically refer to Omega and Omega OP. In the sections that combine disclosure of Omega and Omega OP, this report refers to “we” and “us” actions or holdings as being “our” actions or holdings. Although Omega OP and its subsidiaries hold all of our assets, we believe that reference to “we,” “us” or “our” in this context is appropriate because the business is one enterprise and we operate substantially all of our business through Omega OP.

OMEGA HEALTHCARE INVESTORS, INC.

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

FORM 10-Q

September 30, 2018


TABLE OF CONTENTS
		Page No.
PART I	Financial Information

Item 1.	Financial Statements of Omega Healthcare Investors, Inc.:
	Consolidated Balance Sheets
	September 30, 2018 (unaudited) and December 31, 2017	2
	Consolidated Statements of Operations (unaudited)
	Three and Nine months ended September 30, 2018 and 2017	3
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)
	Three and Nine months ended September 30, 2018 and 2017	4
	Consolidated Statement of Changes in Equity (unaudited)
	Nine months ended September 30, 2018	5
	Consolidated Statements of Cash Flows (unaudited)
	Nine months ended September 30, 2018 and 2017	6

	Financial Statements of OHI Healthcare Properties Limited Partnership:
	Consolidated Balance Sheets
	September 30, 2018 (unaudited) and December 31, 2017	7
	Consolidated Statements of Operations (unaudited)
	Three and Nine months ended September 30, 2018 and 2017	8
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)
	Three and Nine months ended September 30, 2018 and 2017	9
	Consolidated Statement of Changes in Owners’ Equity (unaudited)
	Nine months ended September 30, 2018	10
	Consolidated Statements of Cash Flows (unaudited)
	Nine months ended September 30, 2018 and 2017	11

	Notes to Consolidated Financial Statements
	September 30, 2018 (unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	59

PART II	Other Information

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 6.	Exhibits	61

PART I – FINANCIAL INFORMATION

Item 1 - Financial Statements

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)


	September 30,		December 31,
	2018		2017
	(Unaudited)
ASSETS
Real estate properties
Real estate investments	$	7,700,636	$	7,655,960
Less accumulated depreciation		(1,515,846)		(1,376,828)
Real estate investments – net		6,184,790		6,279,132
Investments in direct financing leases – net		163,467		364,965
Mortgage notes receivable – net		708,178		671,232
		7,056,435		7,315,329
Other investments – net		511,668		276,342
Investment in unconsolidated joint venture		32,159		36,516
Assets held for sale – net		17,826		86,699
Total investments		7,618,088		7,714,886

Cash and cash equivalents		9,768		85,937
Restricted cash		1,371		10,871
Accounts receivable – net		336,825		279,334
Goodwill		644,201		644,690
Other assets		31,711		37,587
Total assets	$	8,641,964	$	8,773,305

LIABILITIES AND EQUITY
Revolving line of credit	$	360,000	$	290,000
Term loans – net		900,847		904,670
Secured borrowings – net		-		53,098
Senior notes and other unsecured borrowings – net		3,327,393		3,324,390
Accrued expenses and other liabilities		253,560		295,142
Deferred income taxes		14,198		17,747
Total liabilities		4,855,998		4,885,047

Equity:
Common stock $.10 par value authorized – 350,000 shares,
issued and outstanding – 200,693 shares as of
September 30, 2018 and 198,309 as of December 31, 2017		20,069		19,831
Common stock – additional paid-in capital		5,012,544		4,936,302
Cumulative net earnings		2,068,295		1,839,356
Cumulative dividends paid		(3,606,181)		(3,210,248)
Accumulated other comprehensive loss		(32,382)		(30,150)
Total stockholders’ equity		3,462,345		3,555,091
Noncontrolling interest		323,621		333,167
Total equity		3,785,966		3,888,258
Total liabilities and equity	$	8,641,964	$	8,773,305

See notes to consolidated financial statements.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Revenue
Rental income	$	192,276	$	194,063	$	579,075	$	580,597
Income from direct financing leases		264		614		1,374		31,722
Mortgage interest income		18,396		16,920		51,809		49,173
Other investment income		10,259		7,245		27,883		21,437
Miscellaneous income		657		796		1,791		4,250
Total operating revenues		221,852		219,638		661,932		687,179

Expenses
Depreciation and amortization		70,711		71,925		210,681		212,268
General and administrative		14,240		11,560		45,952		35,625
Acquisition costs		-		-		-		(22)
Impairment on real estate properties		22,868		17,837		26,685		35,610
Impairment on direct financing leases		-		194,659		15		197,968
(Recovery) provision for uncollectible accounts		(2,000)		11,899		6,363		13,667
Total operating expenses		105,819		307,880		289,696		495,116

Income (loss) before other income and expense		116,033		(88,242)		372,236		192,063
Other income (expense)
Interest income and other - net		(1,214)		4		496		262
Interest expense		(47,764)		(47,383)		(143,857)		(140,509)
Interest – amortization of deferred financing costs		(2,238)		(2,228)		(6,723)		(7,273)
Interest – refinancing costs		-		-		-		(21,965)
Contractual settlement		-		-		-		10,412
Realized gain on foreign exchange		27		95		20		235
Total other expense		(51,189)		(49,512)		(150,064)		(158,838)

Income (loss) before (loss) gain on assets sold		64,844		(137,754)		222,172		33,225
(Loss) gain on assets sold – net		(5,361)		693		9,248		7,491
Income (loss) from continuing operations		59,483		(137,061)		231,420		40,716
Income tax expense		(804)		(999)		(2,185)		(2,690)
Income (loss) from unconsolidated joint venture		383		545		(254)		1,728
Net income (loss)		59,062		(137,515)		228,981		39,754
Net (income) loss attributable to noncontrolling interest		(2,456)		5,837		(9,619)		(1,735)
Net income (loss) available to common stockholders	$	56,606	$	(131,678)	$	219,362	$	38,019

Earnings per common share available to common stockholders:
Basic:
Net income (loss) available to common stockholders	$	0.28	$	(0.67)	$	1.10	$	0.19
Diluted:
Net income (loss)	$	0.28	$	(0.67)	$	1.10	$	0.19

Weighted-average shares outstanding, basic		200,910		197,890		199,773		197,445
Weighted-average shares outstanding, diluted		210,437		206,662		208,905		206,502

See notes to consolidated financial statements.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017

Net income (loss)	$	59,062	$	(137,515)	$	228,981	$	39,754
Other comprehensive (loss) income:
Foreign currency translation		(3,518)		5,022		(9,802)		19,630
Cash flow hedges		1,196		2,351		7,472		198
Total other comprehensive (loss) income		(2,322)		7,373		(2,330)		19,828
Comprehensive income (loss)		56,740		(130,142)		226,651		59,582
Comprehensive (income) loss attributable to noncontrolling interest		(2,359)		5,524		(9,521)		(2,579)
Comprehensive income (loss) attributable to common stockholders	$	54,381	$	(124,618)	$	217,130	$	57,003

See notes to consolidated financial statements.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Unaudited

(in thousands, except per share amounts)


									Accumulated
	Common		Additional		Cumulative				Other		Total
	Stock		Paid-in		Net		Cumulative		Comprehensive		Stockholders’		Noncontrolling		Total
	Par Value		Capital		Earnings		Dividends		Loss		Equity		Interest		Equity
Balance at December 31, 2017 (198,309 common shares & 8,772 Omega OP Units)	$	19,831	$	4,936,302	$	1,839,356	$	(3,210,248)	$	(30,150)	$	3,555,091	$	333,167	$	3,888,258
Cumulative effect of accounting change (see Note 1)		-		-		9,577		-		-		9,577		423		10,000
Balance at January 1, 2018 (198,309 common shares & 8,772 Omega OP Units)		19,831		4,936,302		1,848,933		(3,210,248)		(30,150)		3,564,668		333,590		3,898,258
Grant of restricted stock to company directors (38 shares at $30.36 per share)		4		(4)		-		-		-		-		-		-
Stock-based compensation expense		-		12,107		-		-		-		12,107		-		12,107
Vesting/exercising of equity compensation plan, net of tax withholdings (89 shares)		9		(1,663)		-		-		-		(1,654)		-		(1,654)
Dividend reinvestment and stock purchase plan (1,257 shares at an average of $29.36 per share)		126		36,778		-		-		-		36,904		-		36,904
Deferred compensation directors (35 shares at $30.42 per share)		3		191		-		-		-		194		-		194
Equity Shelf Program (912 shares at $29.82 per share, net of issuance costs)		91		27,111		-		-		-		27,202		-		27,202
Common dividends declared ($1.98 per share)		-		-		-		(395,933)		-		(395,933)		-		(395,933)
Conversion of Omega OP Units to common stock (53 share at $32.98 per share)		5		1,722		-		-		-		1,727		-		1,727
Redemption of Omega OP Units (57 units at $32.52 per share)		-		-		-		-		-		-		(1,845)		(1,845)
Omega OP Units distributions		-		-		-		-		-		-		(17,645)		(17,645)
Comprehensive income:
Foreign currency translation		-		-		-		-		(9,390)		(9,390)		(412)		(9,802)
Cash flow hedges		-		-		-		-		7,158		7,158		314		7,472
Net income		-		-		219,362		-		-		219,362		9,619		228,981
Total comprehensive income																226,651
Balance at September 30, 2018 (200,693 shares & 8,715 Omega OP Units)	$	20,069	$	5,012,544	$	2,068,295	$	(3,606,181)	$	(32,382)	$	3,462,345	$	323,621	$	3,785,966

See notes to consolidated financial statements.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited (in thousands)


	Nine Months Ended
	September 30,
	2018		2017
Cash flows from operating activities
Net income	$	228,981	$	39,754
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		210,681		212,268
Impairment on real estate properties		31,860		35,610
Impairment on direct financing leases		15		197,968
Provision for uncollectible accounts		6,363		13,667
Interest - amortization of deferred financing costs		6,723		17,468
Accretion of direct financing leases		89		(6,139)
Stock-based compensation expense		12,107		11,350
Gain on assets sold – net		(9,248)		(7,491)
Amortization of acquired in-place leases - net		(7,518)		(9,101)
Effective yield receivable on mortgage notes		(889)		(1,558)
Interest paid-in-kind		(4,944)		-
Change in operating assets and liabilities – net:
Contractual receivables		2,265		(35,418)
Straight-line rent receivables		(46,787)		(13,559)
Lease inducements		(32,315)		1,342
Other operating assets and liabilities		(48,918)		(28,893)
Net cash provided by operating activities		348,465		427,268
Cash flows from investing activities
Acquisition of real estate		(52,744)		(345,268)
Net proceeds from sale of real estate investments		246,351		69,788
Investments in construction in progress		(98,760)		(69,409)
Investments in direct financing leases		-		(6,951)
Proceeds from sale of direct financing lease		16,947		33,074
Placement of mortgage loans		(62,185)		(29,324)
Collection of mortgage principal		25,612		1,058
Distributions from unconsolidated joint venture		4,407		10,966
Capital improvements to real estate investments		(24,425)		(25,293)
Receipts from insurance proceeds		6,911		-
Investments in other investments		(374,784)		(86,075)
Proceeds from other investments		162,118		45,045
Cash acquired		-		2,341
Net cash used in investing activities		(150,552)		(400,048)
Cash flows from financing activities
Proceeds from credit facility borrowings		1,003,000		1,487,000
Payments on credit facility borrowings		(933,000)		(1,312,000)
Receipts of other long-term borrowings		-		1,346,749
Payments of other long-term borrowings		(2,049)		(1,252,463)
Payments of financing related costs		(8)		(29,198)
Receipts from dividend reinvestment plan		36,904		30,136
Payments for exercised options and restricted stock		(1,654)		(2,120)
Net proceeds from issuance of common stock		27,202		22,196
Dividends paid		(395,738)		(373,424)
Redemption of Omega OP Units		(118)		(48)
Distributions to Omega OP Unit Holders		(17,645)		(16,819)
Net cash used in financing activities		(283,106)		(99,991)
Effect of foreign currency translation on cash, cash equivalents and restricted cash		(476)		409
Decrease in cash, cash equivalents and restricted cash		(85,669)		(72,362)
Cash, cash equivalents and restricted cash at beginning of period		96,808		107,276
Cash, cash equivalents and restricted cash at end of period	$	11,139	$	34,914

See notes to consolidated financial statements.

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)



	September 30,		December 31,
	2018		2017
	(Unaudited)
ASSETS
Real estate properties
Real estate investments	$	7,700,636	$	7,655,960
Less accumulated depreciation		(1,515,846)		(1,376,828)
Real estate investments – net		6,184,790		6,279,132
Investments in direct financing leases – net		163,467		364,965
Mortgage notes receivable – net		708,178		671,232
		7,056,435		7,315,329
Other investments – net		511,668		276,342
Investment in unconsolidated joint venture		32,159		36,516
Assets held for sale – net		17,826		86,699
Total investments		7,618,088		7,714,886

Cash and cash equivalents		9,768		85,937
Restricted cash		1,371		10,871
Accounts receivable – net		336,825		279,334
Goodwill		644,201		644,690
Other assets		31,711		37,587
Total assets	$	8,641,964	$	8,773,305

LIABILITIES AND OWNERS’ EQUITY
Term loan – net	$	99,521	$	99,423
Secured borrowings – net		-		53,098
Accrued expenses and other liabilities		205,583		226,028
Deferred income taxes		14,198		17,747
Intercompany loans payable		4,536,696		4,488,751
Total liabilities		4,855,998		4,885,047

Owners’ Equity:
General partners’ equity		3,462,345		3,555,091
Limited partners’ equity		323,621		333,167
Total owners’ equity		3,785,966		3,888,258
Total liabilities and owners’ equity	$	8,641,964	$	8,773,305

See notes to consolidated financial statements.

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Revenue
Rental income	$	192,276	$	194,063	$	579,075	$	580,597
Income from direct financing leases		264		614		1,374		31,722
Mortgage interest income		18,396		16,920		51,809		49,173
Other investment income		10,259		7,245		27,883		21,437
Miscellaneous income		657		796		1,791		4,250
Total operating revenues		221,852		219,638		661,932		687,179

Expenses
Depreciation and amortization		70,711		71,925		210,681		212,268
General and administrative		14,240		11,560		45,952		35,625
Acquisition costs		-		-		-		(22)
Impairment on real estate properties		22,868		17,837		26,685		35,610
Impairment on direct financing leases		-		194,659		15		197,968
(Recovery) provision for uncollectible accounts		(2,000)		11,899		6,363		13,667
Total operating expenses		105,819		307,880		289,696		495,116

Income (loss) before other income and expense		116,033		(88,242)		372,236		192,063
Other income (expense)
Interest income and other - net		(1,214)		4		496		262
Interest expense		(47,764)		(47,383)		(143,857)		(140,509)
Interest – amortization of deferred financing costs		(2,238)		(2,228)		(6,723)		(7,273)
Interest – refinancing costs		-		-		-		(21,965)
Contractual settlement		-		-		-		10,412
Realized gain on foreign exchange		27		95		20		235
Total other expense		(51,189)		(49,512)		(150,064)		(158,838)

Income (loss) before (loss) gain on assets sold		64,844		(137,754)		222,172		33,225
(Loss) gain on assets sold – net		(5,361)		693		9,248		7,491
Income (loss) from continuing operations		59,483		(137,061)		231,420		40,716
Income tax expense		(804)		(999)		(2,185)		(2,690)
Income (loss) from unconsolidated joint venture		383		545		(254)		1,728
Net income (loss)	$	59,062	$	(137,515)	$	228,981	$	39,754

Earnings per unit:
Basic:
Net income (loss)

10-Q: Quarterly report pursuant to Section 13 or 15(d)