Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

April 22, 1997

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

Published on April 22, 1997



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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
(State of Incorporation)
38-3041398
(I.R.S. Employer Identification No.)

905 W. EISENHOWER CIRCLE, SUITE 110, ANN ARBOR, MI 48103
(Address of principal executive offices)

(313) 747-9790
(Telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No ___

Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of June 30, 1996.

COMMON STOCK, $.10 PAR VALUE
(Class)
17,136,960
(Number of shares)

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OMEGA HEALTHCARE INVESTORS, INC.

FORM 10-Q

JUNE 30, 1996

INDEX



PAGE
ITEM NO.
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PART 1 -- FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements
Balance Sheets --
June 30, 1996 (unaudited) and December 31, 1995................................... 2
Statements of Operations (unaudited) --
Three-month and Six-month periods ended June 30, 1996 and 1995.................... 3
Statement of Cash Flows (unaudited) --
Six-month periods ended June 30, 1996 and 1995.................................... 4
Notes to Condensed Financial Statements
June 30, 1996 (unaudited)......................................................... 5
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 6
PART II -- OTHER INFORMATION
6. Exhibits and Reports................................................................ 7


1

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMEGA HEALTHCARE INVESTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)





JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (SEE NOTE)

ASSETS
Investments in real estate:
Real estate properties -- net....................................... $ 331,321 $336,720
Mortgage notes receivable........................................... 192,243 158,290
--------- --------
523,564 495,010
Other investments..................................................... 50,173 32,599
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573,737 527,609
Cash and short-term investments....................................... 7,036 6,426
Goodwill and non-compete agreements -- net............................ 8,417 9,228
Other assets.......................................................... 9,844 7,925
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$ 599,034 $551,188
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition line of credit............................................ $ 25,250 $ 74,690
Unsecured borrowings.................................................. 86,384 86,384
Secured borrowings.................................................... 24,119 34,069
Subordinated convertible debentures................................... 95,000
Accounts payable and accrued expenses................................. 13,231 8,917
--------- --------
Total Liabilities.............................................. 243,984 204,060
Common stock and additional paid-in capital........................... 374,898 362,468
Cumulative net earnings............................................... 73,454 56,784
Cumulative dividends paid............................................. (93,114) (72,071)
Unamortized restricted stock awards................................... (188) (53)
--------- --------
Total shareholders' equity..................................... 355,050 347,128
--------- --------
$ 599,034 $551,188
========= ========


NOTE -- The balance sheet at December 31, 1995, has been derived from audited
consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.

See notes to condensed consolidated financial statements.

2

OMEGA HEALTHCARE INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------

Revenues
Rental income......................................... $10,541 $10,032 $21,009 $19,948
Mortgage interest income.............................. 5,877 4,464 11,251 8,886
Other investment income............................... 1,176 132 2,304 239
Other................................................. 82 73 286 149
------- ------- ------- -------
17,676 14,701 34,850 29,222
Expenses
Depreciation and amortization......................... 3,393 3,216 6,785 6,449
Interest.............................................. 4,905 3,590 9,520 7,099
General and administrative............................ 899 731 1,875 1,622
------- ------- ------- -------
9,197 7,537 18,180 15,170
------- ------- ------- -------
Net Earnings............................................ $ 8,479 $ 7,164 $16,669 $14,052
======= ======= ======= =======
Net earnings per share.................................. $0.49 $0.45 $0.98 $0.89
======= ======= ======= =======
Dividends paid per share................................ $0.62 $0.59 $1.24 $1.18
======= ======= ======= =======
Weighted average number of shares outstanding........... 17,137 15,904 17,011 15,826
======= ======= ======= =======


See notes to condensed consolidated financial statements.

3

OMEGA HEALTHCARE INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(IN THOUSANDS)



SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
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Cash Flows from Operating Activities
Net earnings.......................................................... $ 16,669 $ 14,052
Adjustment to reconcile net earnings to cash provided by operations:
Depreciation and amortization...................................... 6,785 6,449
Other noncash items................................................ 283 635
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Cash from operating activities available for distribution............... 23,737 21,136
Net change in operating assets and liabilities.......................... 5,058 1,328
-------- --------
Net cash provided by operating activities............................... 28,795 22,464

Cash Flows from Financing Activities
Dividends paid........................................................ (21,043) (18,630)
Proceeds from Dividend Reinvestment Plan.............................. 12,217 8,056
(Payments) proceeds on acquisition line of credit..................... (49,440) 4,000
Proceeds from subordinated convertible debentures, less issue costs... 92,651
Payments of long-term borrowings...................................... (9,949) (2,580)
Refund of transaction deposits........................................ (2,310)
Other................................................................. (531) (180)
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Cash provided by (used in) financing activities......................... 23,905 (11,644)

Cash Flows from Investing Activities
Acquisition of real estate............................................ (532) (5,458)
Placement of mortgage loans........................................... (34,185) (6,842)
Advance funding of investments........................................ (3,542)
Collections of mortgage notes......................................... 231 656
Fundings of other investments......................................... (17,573)
Other................................................................. (32) (13)
-------- --------
Cash used in investing activities....................................... (52,091) (15,199)
-------- --------
Increase (Decrease) in Cash and Short-Term Investments............. $ 610 $ (4,379)
======== ========


See notes to condensed consolidated financial statements.

4

OMEGA HEALTHCARE INVESTORS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

JUNE 30, 1996

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods ended
June 30, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1995.

NOTE B -- SECOND QUARTER REAL ESTATE INVESTMENTS

In June 1996 the Company provided a $11,090,000 participating mortgage loan
to Emerald Healthcare. This mortgage relates to two nursing home facilities in
Florida with a total of 300 beds.

NOTE C -- ASSET CONCENTRATIONS

As of June 30, 1996, approximately 55% of the Company's total real estate
investments relate to publicly traded operators. Investments with these
operators are represented by: Advocat, Inc (19.8%); Professional Healthcare
Management, Inc., a wholly-owned subsidiary of GranCare, Inc. (10.7%); Unison
Healthcare (8.7%); Regency Healthcare Services (8.4%); Res-Care (5.2%); and
Integrated Health Services (1.8%). The aggregate of investments with publicly
traded operators increased approximately 2% during 1996 primarily as a result of
the funding of additional investments with Advocat and Unison, coupled with the
addition of Regency Healthcare Services, Inc., as an operator through its
acquisition of certain facilities operated by Liberty Healthcare entities. This
percentage increase was partially offset by the Company's initiation of the
early termination of leases and related re-leasing of certain facilities
previously operated by Beverly Enterprises, Inc.

NOTE D -- NET EARNINGS PER SHARE

Net earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the respective periods. The inclusion
of options using the treasury stock method and the assumed conversion of
debentures outstanding is not materially dilutive.

5

OMEGA HEALTHCARE INVESTORS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Revenues for the three-month and six-month periods ending June 30, 1996
totaled $17.7 and $34.9 million respectively, an increase of $3.0 million and
$5.7 million, respectively over the same periods in 1995. The 1996 revenue
growth stems primarily from additional investments of approximately $110 million
during the twelve-month period ended June 30, 1996. Additionally, revenue growth
of approximately $625,000 stems from participating incremental net revenues
which became effective in 1996. Real estate investments of $550 million as of
June 30, 1996 have an average yield of 11.96%.

Expenses for the three-months ending June 30, 1996 totaled $9,197,000, an
increase of $1.7 million over expenses of $7.5 million for the same period in
1995. Expenses for the six-month period ending June 30, 1996 totaled $18.2
million, increasing $3.0 million over the expenses for the 1995 six-month
period. The provision for depreciation and amortization for the three-month and
six-month periods ending June 30, 1996 totaled $3.4 million and $6.8, increasing
by $177,000 and $336,000 over the 1995 periods as a result of additional
investments.

Interest expense for the quarter ended June 30, 1996 was approximately $4.9
million, compared with $3.6 million for the 1995 three-month period. For the
six-month period ended June 30, 1996, interest expense totaled approximately
$9.5 million, increasing $2.4 million over the 1995 period. The increases in
1996 are primarily due to higher average borrowings, offset by lower interest
rates.

General and administrative expense for the three-months and six-months
ended June 30, 1996 totaled approximately $900,000 and $1,875,000. These
expenses for the three-month and six-month periods were approximately 5.1% and
5.4% of revenues as compared to 5.0% and 5.6% for the same periods 1995.

No provision for federal income taxes has been made since the Company
intends to continue to qualify as a real estate investment trust under the
provisions of the Internal Revenue Code. Accordingly, the Company will not be
subject to federal income taxes on amounts distributed to shareholders provided
it distributes at least 95% of its real estate investment trust taxable income
and meets certain other conditions.

As a result of the various factors mentioned above, net earnings were $8.5
million for the three-month 1996 period, an increase of approximately 18.1% over
the 1995 period. Net earnings for the six-month period in 1996 increased
approximately $2,617,000 (18.6%) over the 1995 period. Net earnings per share
for the three-month period ending June 30 were $0.49 in 1996 and $0.45 in 1995,
while net earnings per share for the six-month period were $0.98 in 1996 and
$0.89 in 1995. The 1996 per share increases stem from additional earnings offset
by an increase of approximately 7.5% in average shares outstanding during the
respective periods.

Cash provided by operating activities available for distribution (FAD) for
the six-month period ending June 30, 1996 was $23,737,000, an increase of $2.6
million (12.3%) over the 1995 six-month period. FAD is net earnings, excluding
any gains or losses from debt restructuring and sales of property, plus
depreciation and amortization associated with real estate investments,
amortization of deferred financing cost and the net effect of all other non-cash
items included in net earnings. Funds From Operations (FFO) totaled $0.70 per
share ($12,027,000) for the 1996 second quarter, increasing 6.1% as compared to
$0.66 per share for the three months ended June 30, 1995. For the 1996 six-month
period FFO totaled $23.7 million ($1.40 per share) increasing $3 million and
$0.09 per share over the six-months ending 1995. FFO is net earnings, excluding
any gains or losses from debt restructuring and sales of property, plus
depreciation and amortization associated with real estate investments and
charges to earnings for non-cash compensation. While there generally is very
little difference between FAD and FFO for healthcare REITS, both of these
measures of cash flow are used by analysts and investors as benchmarks for
measuring profitability and capacity to sustain dividend payments.

6

OMEGA HEALTHCARE INVESTORS, INC.

LIQUIDITY AND CAPITAL RESOURCES

The Company continually seeks new investments in healthcare real estate
properties, primarily long-term care facilities, with the objective of
profitable growth and further diversification of the investment portfolio. As of
the date of this report, commitments for third quarter fundings of investments
in long-term care facilities total approximately $17.5 million.

Permanent financing for future investments is expected to be provided
through a combination of both private placement and public offerings of debt
and/or equity securities. In January 1996, the Company completed the placement
of $95 million of 8.5% Convertible Subordinated Debentures due 2001. Net
proceeds were used to repay certain borrowings, including $75 million under the
acquisition line of credit and $9.6 million of secured borrowings, and to fund
real estate investments. The debentures are convertible into shares of common
stock at a price of $28.625 per share representing a premium of 105% of the
market price of the Company's stock on the date the debentures were sold. At
June 30, 1996, 3,319,000 shares of common stock are reserved for possible
issuance upon conversion. Additionally, in June 1996 the Company executed
agreements to increase its current credit facility by $50 million. The increase
in the credit facility allows for an additional $25 million on the revolving
credit facility, increasing it to $125 million, plus the equivalent of $25
million in a pound sterling denominated term loan which would be due in October
2000 once drawn. The original loan agreement has been amended and restated, with
the term extended to July 1999.

As of June 30, 1996, the Company has a strong financial position with total
assets of $599 million, shareholders' equity of $355 million, and long-term
borrowings of $206 million representing 34% of the total capitalization. The
Company anticipates eventually attaining and then maintaining a long-term
debt-to-capitalization ratio of approximately 40%. The Company has available
permitted additional borrowings of $124.77 million under its new credit
arrangement. Management believes the Company's liquidity and various sources of
available capital are adequate to finance operations, fund future investments in
additional facilities, and meet debt service requirements.

The Company distributes a large portion of the cash available from
operations. The dividend payout ratio, that is the ratio of the per share
amounts of dividends paid to the per share amount of funds from operations, was
88.5% for the six-month period ended June 30, 1996, compared with 90.1% for the
same period in 1995. On July 17, 1996 , a $0.62 per share dividend was declared,
payable on August 15, 1996 to shareholders of record on August 2, 1996. The
current $0.62 per quarter rate represents an annualized rate of $2.48 per share
as compared with $2.36 for 1995.

PART II -- OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS -- THE FOLLOWING EXHIBIT IS FILED HEREWITH:

EXHIBIT DESCRIPTION

27 Financial Data Schedule

(B) REPORTS ON FORM 8-K. THE FOLLOWING REPORTS ON FORM 8-K WERE FILED SINCE
MARCH 31, 1996:

Items Reported

Form 8-K dated June 10, 1996 -- Report in connection with execution of
Amended and Restated Loan Agreement among the Registrant, Fleet Bank
N.A., as agent, and the Banks signatory thereto.

7

OMEGA HEALTHCARE INVESTORS, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

OMEGA HEALTHCARE INVESTORS, INC.
Registrant



By: ESSEL W. BAILEY, JR. President
------------------------------------------
ESSEL W. BAILEY, JR. } Date: July 19, 1996

By: DAVID A. STOVER Chief Financial Officer
------------------------------------------
DAVID A. STOVER




8

EXHIBIT INDEX



EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule