Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 7, 2013

Documents

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

Published on November 7, 2013

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, 2013
or

o              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)
  
(IRS Employer
Identification No.)
 
200 International Circle, Suite 3500, 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.

Yes   x                                           No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes    x                                           No   o

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

Large accelerated filer   x                            Accelerated filer   o                           Non-accelerated filer   o                           Smaller reporting company   o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   o                                                      No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 31, 2013.

Common Stock, $.10 par value   122,524,279
(Class)    (Number of shares)
 
 
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
September 30, 2013

TABLE OF CONTENTS
   
Page
No.
 
     
 
   
 
2
     
   
 
3
     
   
 
4
     
   
 
5
     
   
 
6
     
 
 
24
     
37
     
37
     
 
     
38
     
38
     
39
 
 
 

 

 


OMEGA HEALTHCARE INVESTORS, INC.
(in thousands, except per share amounts)

   
September 30,
    
December 31,
  
   
2013
    
2012
  
   
(Unaudited)
        
ASSETS
            
Real estate properties
            
Land and buildings
   $ 3,060,188     $ 3,038,553  
Less accumulated depreciation
     (675,685 )     (580,373 )
Real estate properties – net
     2,384,503       2,458,180  
Mortgage notes receivable – net
     241,490       238,621  
      2,625,993       2,696,801  
Other investments – net
     75,421       47,339  
      2,701,414       2,744,140  
Assets held for sale – net
     1,020       1,020  
Total investments
     2,702,434       2,745,160  
                 
Cash and cash equivalents
     67,757       1,711  
Restricted cash
     28,781       36,660  
Accounts receivable – net
     142,426       125,180  
Other assets
     73,380       73,294  
Total assets
   $ 3,014,778     $ 2,982,005  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Revolving line of credit
   $ —     $ 158,000  
Term loan
     200,000       100,000  
Secured borrowings
     300,034       366,538  
Unsecured borrowings – net
     1,200,013       1,200,394  
Accrued expenses and other liabilities
     124,733       145,744  
Total liabilities
     1,824,780       1,970,676  
                 
Stockholders’ equity:
                
Common stock $.10 par value 200,000 shares authorized –– 119,518 shares as of September 30, 2013 and 112,393 as of December 31, 2012 issued and outstanding
         11,952           11,239  
Common stock – additional paid-in capital
     1,876,609       1,664,855  
Cumulative net earnings
     879,443       754,128  
Cumulative dividends paid
     (1,578,006 )     (1,418,893 )
Total stockholders’ equity
     1,189,998       1,011,329  
Total liabilities and stockholders’ equity
   $ 3,014,778     $ 2,982,005  
 
See notes to consolidated financial statements.
 
2
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
Unaudited
(in thousands, except per share amounts)

   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2013
    
2012
    
2013
    
2012
  
Revenue
                        
Rental income
   $ 93,837     $ 78,170     $ 280,015     $ 229,373  
Mortgage interest income
     7,289       7,677       22,070       22,417  
Other investment income – net
     2,175       1,238       5,341       3,533  
Miscellaneous
     -       23       151       125  
Total operating revenues
     103,301       87,108       307,577       255,448  
                                 
Expenses
                                
Depreciation and amortization
     32,202       28,305       96,386       82,651  
General and administrative
     5,462       5,173       16,142       15,653  
Acquisition costs
     (9 )     483       134       686  
Impairment loss on real estate properties
     -       -       -       272  
Provisions for uncollectible mortgages, notes and accounts receivable
     2,321       -       2,386       -  
Total operating expenses
     39,976       33,961       115,048       99,262  
                                 
Income before other income and expense
     63,325       53,147       192,529       156,186  
Other income (expense)
                                
Interest income
     3       6       20       22  
Interest expense
     (24,492 )     (24,050 )     (75,116 )     (71,026 )
Interest – amortization of deferred financing costs
     (699 )     (673 )     (2,079 )     (1,970 )
Interest – refinancing gain (costs)
     -       -       11,112       (5,410 )
Total other expense
     (25,188 )     (24,717 )     (66,063 )     (78,384 )
                                 
Income before gain on assets sold
     38,137       28,430       126,466       77,802  
Gain (loss) on assets sold – net
     -       1,689       (1,151 )     8,973  
Net income available to common stockholders
   $ 38,137     $ 30,119     $ 125,315     $ 86,775  
                                 
Income per common share available to common shareholders:
                                
Basic:
                                
Net income
   $ 0.32     $ 0.28     $ 1.08     $ 0.82  
Diluted:
                                
Net income
   $ 0.32     $ 0.27     $ 1.08     $ 0.81  
                                 
Dividends declared and paid per common share
   $ 0.47     $ 0.42     $ 1.38     $ 1.25  
                                 
Weighted-average shares outstanding, basic
     117,600       109,135       115,527       106,202  
Weighted-average shares outstanding, diluted
     118,462       109,667       116,335       106,570  
 
See notes to consolidated financial statements.
 
3
 

 


OMEGA HEALTHCARE INVESTORS, INC.
Unaudited
(in thousands, except per share amounts)

   
Common
Stock Par
Value
    
Additional
Paid-in Capital
    
Cumulative
Net Earnings
    
Cumulative
Dividends
    
Total
  
                               
Balance at December 31, 2012 (112,393 common shares)
   $ 11,239     $ 1,664,855     $ 754,128     $ (1,418,893 )   $ 1,011,329  
Issuance of common stock:
                                        
Grant of restricted stock to company directors (15 shares at $30.33 per share)
     2       (2 )     —       —       —  
Amortization of restricted stock
     —       4,350       —       —       4,350  
Dividend reinvestment plan (1,677 shares at $28.53 per share)
     168       47,653       —       —       47,821  
Grant of stock as payment of directors fees (5 shares at an average of $30.93 per share)
     —       137       —       —       137  
Equity Shelf Program (5,428 shares at $30.19 per share, net of issuance costs)
     543       159,616       —       —       160,159  
Net income
     —       —       125,315       —       125,315  
Common dividends ($1.38 per share)
     —       —       —       (159,113 )     (159,113 )
Balance at September 30, 2013 (119,518 common shares)
   $ 11,952     $ 1,876,609     $ 879,443     $ (1,578,006 )   $ 1,189,998  
 
See notes to consolidated financial statements.
 
4
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
Unaudited (in thousands)
 
   
Nine Months Ended
September 30,
  
   
2013
    
2012
  
Cash flows from operating activities
            
Net income
   $ 125,315     $ 86,775  
Adjustment to reconcile net income to cash provided by operating activities:
                
Depreciation and amortization
     96,386       82,651  
Impairment on real estate properties
     —       272  
Provision for uncollectible mortgages, notes and accounts receivable
     2,386       —  
Amortization of deferred financing and debt extinguishment (gain)/costs
     (9,033 )     7,380  
Restricted stock amortization expense
     4,433       4,456  
Loss (gain) on assets sold – net
     1,151       (8,973 )
Amortization of acquired in-place leases - net
     (3,821 )     (4,088 )
Other
     —       (113 )
Change in operating assets and liabilities – net of amounts assumed/acquired:
                
  Accounts receivable, net
     (61 )     195  
  Straight-line rent receivables
     (20,385 )     (19,745 )
  Lease inducements
     2,230       2,527  
  Effective yield receivable on mortgage notes
     (1,416 )     (1,674 )
  Other operating assets and liabilities
     2,865       7,304  
Net cash provided by operating activities
     200,050       156,967  
Cash flows from investing activities
                
Acquisition of real estate – net of liabilities assumed and escrows acquired
     (2,400 )     (232,661 )
Deposit for proposed capital lease
     (15,000 )     —  
Placement of mortgage loans
     (3,227 )     (7,126 )
Proceeds from sale of real estate investments
     2,288       24,194  
Capital improvements to real estate investments
     (23,732 )     (20,106 )
Proceeds from other investments
     4,113       11,821  
Investments in other investments
     (32,195 )     (4,671 )
Collection of mortgage principal
     358       362  
Net cash used in investing activities
     (69,795 )     (228,187 )
Cash flows from financing activities
                
Proceeds from credit facility borrowings
     101,000       272,000  
Payments on credit facility borrowings
     (259,000 )     (442,500 )
Proceeds from term loan
     100,000       —  
Receipts of other long-term borrowings
     59,355       400,000  
Payments of other long-term borrowings
     (113,418 )     (189,657 )
Payments of financing related costs
     (1,053 )     (13,150 )
Receipts from dividend reinvestment plan
     47,821       106,132  
Net proceeds from issuance of common stock
     160,159       77,673  
Dividends paid
     (159,073 )     (132,678 )
Net cash (used in) provided by financing activities
     (64,209 )     77,820  
                 
Increase in cash and cash equivalents
     66,046       6,600  
Cash and cash equivalents at beginning of period
     1,711       351  
Cash and cash equivalents at end of period
   $ 67,757     $ 6,951  
Interest paid during the period, net of amounts capitalized
   $ 75,848     $ 70,123  

See notes to consolidated financial statements.
 
5
 

 


OMEGA HEALTHCARE INVESTORS, INC.
Unaudited
September 30, 2013

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Business Overview

Omega Healthcare Investors, Inc. (“Omega” or the “Company”) has one reportable segment consisting of investments in healthcare-related real estate properties.  Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”) located in the United States.  Our core portfolio consists of long-term leases and mortgage agreements.  All of our leases are “triple-net” leases, which require the tenants to pay all property-related expenses.  Our mortgage revenue derives from fixed-rate mortgage loans, which are secured by first mortgage liens on the underlying real estate and personal property of the mortgagor.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Omega have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding 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 notes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The results of operations for the interim periods reported herein are not necessarily indicative of results to be expected for the full year.  We have evaluated all subsequent events through the date of the filing of this Form 10-Q. These unaudited consolidated financial statements should be read in conjunction with the financial statements and the footnotes thereto included in our latest Annual Report on Form 10-K.

Our consolidated financial statements include the accounts of (i) Omega, (ii) all direct and indirect wholly owned subsidiaries of Omega, and (iii) TC Healthcare, a variable interest entity (“VIE”) that we consolidate as the primary beneficiary.  All inter-company accounts and transactions have been eliminated in consolidation of the financial statements.

Accounts Receivable

Accounts receivable includes: contractual receivables, effective yield interest receivables, straight-line rent receivables and lease inducements, net of an estimated provision for losses related to uncollectible and disputed accounts.  Contractual receivables relate to the amounts currently owed to us under the terms of our lease and loan agreements.  Effective yield interest receivables relate to the difference between the interest income recognized on an effective yield basis over the term of the loan agreement and the interest currently due to us according to the contractual agreement. Straight-line receivables relate to the difference between the rental revenue recognized on a straight-line basis and the amounts currently due to us according to the contractual agreement.  Lease inducements result from value provided by us to the lessee at the inception or renewal of the lease and will be amortized as a reduction of rental revenue over the non cancellable lease term. 

On a quarterly basis, we review our accounts receivable to determine their collectability.  The determination of collectability of these assets requires significant judgment and is affected by several factors relating to the credit quality of our operators that we regularly monitor, including (i) payment history, (ii) the age of the contractual receivables, (iii) the current economic conditions and reimbursement environment, (iv) the ability of the tenant to perform under the terms of their lease and/or contractual loan agreements and (v) the value of the underlying collateral of the agreement.  If we determine collectability of any of our contractual receivables is at risk, we estimate the potential uncollectible amounts and provide an allowance.  In the case of a lease recognized on a straight-line basis or existence of lease inducements, we generally provide an allowance for straight-line accounts receivable and/or the lease inducements when certain conditions or indicators of adverse collectability are present.
 
6
 

 

 
A summary of our net receivables by type is as follows:

   
September 30,
     December 31,  
   
2013
    
2012
  
   
(in thousands)
  
             
Contractual receivables
   $ 3,905     $ 3,963  
Effective yield interest receivables
     4,992       3,576  
Straight-line receivables
     116,972       98,973  
Lease inducements
     17,077       19,307  
Allowance
     (520 )     (639 )
Accounts receivable – net
   $ 142,426     $ 125,180  

In August 2013, we entered into an agreement with one of our current operators and a new third party operator to transition 11 facilities from the current operator to the third party operator.  As a result of the transition, we evaluated the recoverability of the straight-line rent receivable associated with the current operator’s lease and recorded a $2.3 million provision for uncollectible accounts associated with straight-line receivables that were written-off.  (See Note 2 – Properties and Investments).

We continuously evaluate the payment history and financial strength of our operators and have historically established allowance reserves for straight-line rent adjustments for operators that do not meet our requirements.  We consider factors such as payment history and the operator’s financial condition as well as current and future anticipated operating trends when evaluating whether to establish allowance reserves.

NOTE 2 – PROPERTIES AND INVESTMENTS

In the ordinary course of our business activities, we periodically evaluate investment opportunities and extend credit to customers.  We also regularly engage in lease and/or loan extensions and modifications. Additionally, we actively monitor and manage our investment portfolio with the objectives of improving credit quality and increasing investment returns.  In connection with our portfolio management, we may engage in various collection and foreclosure activities.

If we acquire real estate pursuant to a foreclosure or bankruptcy proceeding, the assets will initially be included on the consolidated balance sheet at the lower of cost or estimated fair value.

Leased Property

Our leased real estate properties, represented by 417 SNFs, 16 assisted living facilities (“ALFs”) and 11 specialty facilities at September 30, 2013, are leased under provisions of single or master leases with initial terms typically ranging from 5 to 15 years, plus renewal options.  Substantially all of our leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of three methods depending on specific provisions of each lease as follows: (i) a specific annual percentage increase over the prior year’s rent, generally 2.5%; (ii) an increase based on the change in pre-determined formulas from year to year (i.e., such as increases in the Consumer Price Index (“CPI”)); or (iii) specific dollar increases over prior years.  Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties.
 
7
 

 

 
Transition of 11 Arkansas Facilities to a New Operator

On August 30, 2013, we transitioned 11 SNFs located in Arkansas that we previously leased to Advocat Inc. (now known as Diversicare Healthcare Services) to a new third party operator. The 11 facilities represent 1,084 operating beds. We amended the Advocat master lease to provide for reduced rent to reflect the transition of the 11 facilities to the new operator, and recorded a $2.3 million provision for uncollectible straight-line rent receivable. Simultaneously with the amendment to the Advocat master lease, we entered into a new master lease with the new third party operator of the 11 facilities. The new master lease expires on August 30, 2023 and includes fixed annual rent escalators.
 
 
Commitment to Enter into a $525 Million Sale/Leaseback Transaction

In September 2013, a wholly owned subsidiary of Omega committed to enter into a $525 million sale/leaseback transaction in connection with the proposed acquisition of Ark Holding Company, Inc. (“Ark Holding”) by 4 West Holdings, Inc. In connection with the closing of the proposed acquisition, a subsidiary of Omega will acquire title to 56 facilities currently operated by Ark Holding and lease them back to Ark Holding pursuant to a 50-year lease, with rental payments yielding 10.7% per annum over the term of the lease. The sale/leaseback transaction will be accounted for as a capital lease for accounting purposes and, consistent with that treatment, the tenant will have the right to purchase the facilities for a nominal price plus closing costs at the end of the lease. In addition, commencing in the 41st year of the lease, the tenant will have the right to prepay the remainder of its obligations thereunder for an amount equal to the sum of unamortized portion of the original $525 million investment by Omega, the net present value of the remaining payments under the lease, and closing costs. In the event the tenant exercises either of these options, we would have the right to purchase the properties for fair market value at the time. The sale/leaseback transaction is subject to the satisfaction of all the conditions to the closing of the proposed acquisition of Ark Holding, including obtaining certain consents and licenses, the absence of any event having a material adverse effect on Ark Holding since the date of the agreement, and the issuance of title insurance on the properties. In September 2013, we funded a $15.0 million deposit related to this potential transaction which is included in other assets as of September 30, 2013.
 
8
 

 

Pro Forma Acquisition Results
 
The facilities acquired in 2012 are included in our results of operations from the date of acquisition.  The following unaudited pro forma results of operations reflect the impact of the transactions as if they occurred on January 1, 2012.  For a list of the transactions, refer to Note 3 – Properties in our 2012 Form 10-K.  In the opinion of management, all significant necessary adjustments to reflect the effect of the acquisitions have been made.  The following pro forma information is not indicative of future operations.
 
   
Pro Forma
  
   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2013
    
2012
    
2013
    
2012
  
   
(in thousands, except per share amounts, unaudited)
  
                         
Revenues
   $ 103,301     $ 97,892     $ 307,577     $ 293,244  
Net income available to common stockholders
   $ 38,137     $ 34,703     $ 125,315     $ 102,571  
                                 
Earnings per share – diluted:
                                
Net income available to common stockholders – as reported
   $ 0.32     $ 0.27     $ 1.08     $ 0.81  
Net income available to common stockholders – pro forma
   $ 0.32     $ 0.32     $ 1.08     $ 0.96  

Assets Sold or Assets Held for Sale

Assets Sold

In June 2013, we sold one facility in Texas for total cash proceeds of $2.2 million, resulting in a $1.2 million loss.  Also, in April 2013, we sold a parcel of undeveloped land to a third party for approximately $0.1 million.

Assets Held for Sale

At September 30, 2013, we had two SNFs and one parcel of land classified as held-for-sale with an aggregate net book value of approximately $1.0 million.

Mortgage Notes Receivables

Our mortgage notes receivables relate to 14 fixed-rate mortgages on 33 long-term care facilities.  The mortgage notes are secured by first mortgage liens on the borrowers’ underlying real estate and personal property.  The mortgage notes receivable relate to facilities located in five states, which are operated by five independent healthcare operating companies.  We monitor compliance with mortgages and when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding loans.  As of September 30, 2013, none of our mortgages were in default or in foreclosure proceedings.  Where appropriate, the mortgage properties are generally cross-collateralized with the master lease agreement with the same operator.

Mortgage interest income is recognized as earned over the terms of the related mortgage notes, using the effective yield method.  Allowances are provided against earned revenues from mortgage interest when collection of amounts due becomes questionable or when negotiations for restructurings of troubled operators lead to lower expectations regarding ultimate collection.  When collection is uncertain, mortgage interest income on impaired mortgage loans is recognized as received after taking into account application of security deposits.
 
9
 

 


NOTE 3 – OTHER INVESTMENTS

A summary of our other investments is as follows:

   
September 30,
    
December 31,
  
   
2013
    
2012
  
   
(in thousands)
  
             
Other Investment note due 2015
   $ 2,368     $ 2,518  
Other Investment notes due 2021 - 2023
     13,217       9,775  
Other Investment note due 2013
     551       1,018  
Other Investment note due 2014
     250       812  
$28.0 Million Other Investment note due 2017
     24,500       26,500  
$2.5 Million Other Investment note due 2014
     306       -  
$6.0 Million Other Investment note due 2013
     5,439       3,450  
Other Investment note due 2013
     -       261  
$1.3 Million Other Investment note due 2017
     1,300       425  
$25.0 Million Other Investment note due 2017
     24,910       -  
Notes receivable, gross(1) 
     72,841       44,759  
Allowance for loss on notes receivable
     (1,977 )     (1,977 )
Notes receivable, net
     70,864       42,782  
                 
Marketable securities and other
     4,557       4,557  
Total other investments
   $ 75,421     $ 47,339  
 
(1)
The majority of these notes bear interest at approximately 10% annually.

$25 Million Other Investment Note due 2017

In May 2013, we invested $24.9 million in a mezzanine loan with a third party.  The loan bears interest at 12% per annum and matures in December 2017.

NOTE 4 – CONCENTRATION OF RISK

As of September 30, 2013, our portfolio of real estate investments consisted of 480 healthcare facilities, located in 34 states and operated by 48 third-party operators.  Our gross investment in these facilities, net of impairments and before reserve for uncollectible loans, totaled approximately $3.3 billion at September 30, 2013, with approximately 99% of our real estate investments related to long-term care facilities.  Our portfolio is made up of 417 SNFs, 16 ALFs, 11 specialty facilities, fixed rate mortgages on 33 SNFs and three SNFs that are closed/held-for-sale.  At September 30, 2013, we also held miscellaneous investments of approximately $75.4 million, consisting primarily of secured loans to third-party operators of our facilities.

At September 30, 2013, we had investments with two operators and/or managers that exceeded 10% of our total investment: (i) Genesis Healthcare (“Genesis”) (11%) and (ii) CommuniCare Health Services, Inc. (“CommuniCare”) (10%).  The three states in which we had our highest concentration of investments were Florida (18%), Ohio (11%) and Indiana (10%) at September 30, 2013.
 
For the three-month period ended September 30, 2013, our revenues from operations totaled $103.3 million, of which approximately $13.8 million were from Genesis (13%) and $11.0 million were from CommuniCare (11%).  No other operator generated more than 10% of our revenues from operations for the three-month period ended September 30, 2013.
 
10
 

 


For the nine-month period ended September 30, 2013, our revenues from operations totaled $307.6 million, of which approximately $41.4 million were from Genesis (13%) and $33.1 million were from CommuniCare (11%).  No other operator generated more than 10% of our revenues from operations for the nine-month period ended September 30, 2013.

NOTE 5 – DIVIDENDS


On October 15, 2013, the Board of Directors declared a common stock dividend of $0.48 per share, increasing the quarterly common dividend by $0.01 per share over the previous quarter.  The common dividends are to be paid November 15, 2013 to common stockholders of record on October 31, 2013.

On July 16, 2013, the Board of Directors declared a common stock dividend of $0.47 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, which was paid August 15, 2013 to common stockholders of record on July 31, 2013.

On April 16, 2013, the Board of Directors declared a common stock dividend of $0.46 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, which was paid May 15, 2013 to common stockholders of record on April 30, 2013.

On January 16, 2013, the Board of Directors declared a common stock dividend of $0.45 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, which was paid February 15, 2013 to common stockholders of record on January 31, 2013.

NOTE 6 – TAXES

So long as we qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “Code”), we generally will not be subject to federal income taxes on the REIT taxable income that we distribute to stockholders, subject to certain exceptions.  On a quarterly and annual basis, we test our compliance within the REIT taxation rules to ensure that we were in compliance with the rules.

Subject to the limitation under the REIT asset test rules, we are permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries (“TRSs”).  Currently, we have one TRS that is taxable as a corporation and pays federal, state and local income tax on its net income at the applicable corporate rates.  As of September 30, 2013, the TRS had a net operating loss carry-forward of $1.0 million.  The loss carry-forward is fully reserved with a valuation allowance as of September 30, 2013.

NOTE 7 – STOCK-BASED COMPENSATION

On June 6, 2013, at our Company’s Annual Meeting, our stockholders approved the 2013 Stock Incentive Plan (the “2013 Plan”), which amended and restated the Company’s 2004 Stock Incentive Plan.  The 2013 Plan is a comprehensive incentive compensation plan that allows for various types of equity-based compensation, including restricted stock units (including performance-based restricted stock units), stock awards, deferred restricted stock units, incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights and certain cash-based awards (including performance-based cash awards).  The 2013 Plan increased the number of shares reserved for issuance for compensation purposes by 3,000,000.
 
11
 

 

 
The following is a summary of our stock-based compensation expense for the three- and nine- month periods ended September 30, 2013 and 2012, respectively:

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2013
    
2012
    
2013
    
2012
  
   
(in thousands)
  
                         
Stock-based compensation expense
   $ 1,509     $ 1,485     $ 4,433     $ 4,456  

Stock Awards

Effective January 2011, we granted 428,503 shares of restricted stock and 496,977 performance restricted stock units (“PRSUs”) to six employees. In each of January 2012 and 2013, we granted an additional 124,244 PRSUs to six employees.

Restricted Stock Awards

The restricted stock awards vest 100% on December 31, 2013, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.  As of September 30, 2013, no shares of restricted stock have vested under these restricted stock awards.

Performance Restricted Stock Units

Effective January 1, 2011, we awarded three types of PRSUs to the six employees: (i) 124,244 annual total shareholder return (“TSR”) PRSUs for the year ended December 31, 2011 (“2011 Annual TSR PRSUs”); (ii) 279,550 multi-year absolute TSR PRSUs and (iii) 93,183 multi-year relative TSR PRSUs.  On January 1, 2012 and 2013, we awarded to the six employees 124,244 annual TSR PRSUs for the year ended December 31, 2012 and 2013 (the “2012 Annual TSR PRSUs” and the “2013 Annual TSR PRSUs”).

Annual TSR PRSUs

The number of shares earned under the annual TSR PRSUs depends generally on the level of achievement of TSR for the year.  The annual TSR PRSUs vest on December 31 of the year, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.  The 2011 Annual TSR PRSUs were forfeited because the required TSR for 2011 was not achieved.  The performance requirement for the 2012 Annual TSR PRSUs was achieved and the 124,244 shares vested and were distributed to the employees at December 31, 2012.  As of September 30, 2013, the 2013 annual TSR PRSUs have not been earned.

Multi-year Absolute TSR PRSUs

The number of shares earned under the multi-year absolute TSR PRSUs depends generally on the level of achievement of TSR for the three-years ending December 31, 2013.  The multi-year absolute TSR PRSUs vest 25% on the last day of each calendar quarter in 2014, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.
 
Multi-year Relative TSR PRSUs

The number of shares earned under the multi-year relative TSR PRSUs depends generally on the level of achievement of TSR relative to other real estate investment trusts in the MSCI U.S. REIT Index for the three-years ending December 31, 2013.  The multi-year relative TSR PRSUs vest 25% on the last day of each calendar quarter in 2014, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.
 
12
 

 

 
The PRSU awards have varying degrees of performance requirements to achieve vesting, and each PRSU award represents the right to a variable number of shares of common stock and related dividend equivalents based on dividends paid to stockholders during the applicable performance period.

As of September 30, 2013, none of the multi-year PRSUs are vested or earned.

The following table summarizes our total unrecognized compensation cost as of September 30, 2013 associated with outstanding restricted stock and PRSU awards to employees:
                               
   
Shares/ Units
    
Grant Date
Average Fair
Value Per
Unit/ Share
    
Total
Compensation
Cost
(in millions)
    
Weighted
Average
Period of
Expense Recognition
(in months)
    
Unrecognized
Compensation
Cost
(in millions)
  
       
Restricted stock
     428,503     $ 22.44     $ 9.6       36     $ 0.8  
2013 Annual PRSUs
     124,244     $ 8.92       1.1       12       0.3  
Multi-year absolute TSR PRSUs
     279,550     $ 11.06       3.1       44       0.7  
Multi-year relative TSR PRSUs
     93,183     $ 12.26       1.1       44       0.2  
Total
     925,480     $ 14.93     $ 14.9             $ 2.0  

We used a Monte Carlo model to estimate the fair value for PRSUs granted to the employees.

Director Restricted Stock Grants

As of September 30, 2013, we had 43,457 shares of restricted stock outstanding to directors.  The directors’ restricted shares are scheduled to vest over the next three years.  As of September 30, 2013, the unrecognized compensation cost associated with outstanding director restricted stock grants is approximately $0.5 million.
 
13
 

 

 
NOTE 8 – FINANCING ACTIVITIES AND BORROWING ARRANGEMENTS

Secured and Unsecured Borrowings

The following is a summary of our long-term borrowings:

         
Current
    
September 30,
    
December 31,
  
   
Maturity
    
Rate
    
2013
    
2012
  
               
(in thousands)
  
Secured borrowings:
                        
HUD mortgages assumed June 2010
     2036 - 2040       -     $ —     $ 62,921  
HUD mortgages assumed June 2010 (1)
     2040 - 2045       4.85 %     129,209       130,887  
HUD mortgages assumed October 2011 (1)
     2036 - 2040       4.87 %     31,359       31,991  
HUD mortgages assumed December 2011(1)
     2044            3.06 %     58,880       58,884  
HUD mortgages assumed December 2012(1)
     2031 - 2045       5.50 %     80,586       81,855  
Total secured borrowings
                     300,034       366,538  
                                 
Unsecured borrowings:
                                
Revolving line of credit
     2016            -     $ —     $ 158,000  
Term loan
     2017            1.93 %     200,000       100,000  
                      200,000       258,000  
                                 
2020 notes
     2020            7.50 %     200,000       200,000  
2022 notes
     2022            6.75 %     575,000       575,000  
2024 notes
     2024            5.875 %     400,000       400,000  
Subordinated debt
     2021            9.00 %     20,930       21,049  
                      1,195,930       1,196,049  
Premium - net
                     4,083       4,345  
Total unsecured borrowings
                     1,400,013       1,458,394  
Totals – net
                   $ 1,700,047     $ 1,824,932  

 
(1)
Reflects the weighted average annual interest rate on the mortgages.

Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants.  As of December 31, 2012 and September 30, 2013, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

Bank Credit Agreements

We have a $700 million unsecured credit facility that we entered into on December 6, 2012, comprised of a $500 million unsecured revolving credit facility  (the “2012 Revolving Credit Facility”) and a $200 million unsecured term loan (the “2012 Term Loan Facility” and, together with the 2012 Revolving Credit Facility, collectively, the “2012 Credit Facilities”).

The 2012 Credit Facilities include an “accordion feature” that permits us to expand our borrowing capacity thereunder by a combined $300 million, to a total of $1 billion.

At September 30, 2013, we had no outstanding amount under the 2012 Revolving Credit Facility, and no letters of credit outstanding, leaving availability of $500 million.  The 2012 Revolving Credit Facility matures on December 6, 2016, with an option by us to extend the maturity one additional year.  The 2012 Revolving Credit Facility is priced at LIBOR plus an applicable percentage (beginning at 150 basis points, with a range of 100 to 190 basis points) based on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings, plus a facility fee based on the same ratings (initially 30 basis points, with a range of 15 to 45 basis points).
 
14
 

 

 
At September 30, 2013, the full $200 million was outstanding under the 2012 Term Loan Facility.  The 2012 Term Loan Facility is also priced at LIBOR plus an applicable percentage (beginning at 175 basis points, with a range of 110 to 230 basis points) based our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings.  The 2012 Term Loan Facility matures on December 6, 2017.

HUD Loans Payoff

On May 31, 2013, we paid approximately $51.0 million to retire 11 mortgages guaranteed by U.S. Department of Housing and Urban Development (“HUD”) that were assumed in connection with our acquisition of certain subsidiaries of CapitalSource in June 2010.  The retirement of the 11 HUD mortgages resulted in a net gain of approximately $11.1 million.  The net gain included the write-off of approximately $11.3 million related to the premium for recording the debt at fair value at the time of the transaction offset by a prepayment fee of approximately $0.2 million.

HUD Mortgage Debt Refinancing

On March 26, 2013, we refinanced existing HUD mortgage debt on 12 properties in Arkansas for approximately $59.4 million including closing costs that were added to the outstanding balance.  The annual interest rate for the refinanced debt decreased from 5.55% to approximately 3.06%, with the term of the refinanced mortgages remaining unchanged.  For the three months ended March 31, 2013, we paid off a total of $58.9 million, including routine principal payments on the 12 Arkansas mortgage debts.

$250 Million Equity Shelf Program

On March 18, 2013, we entered into separate Equity Distribution Agreements (collectively, the “2013 Agreements”) to sell shares of our common stock having an aggregate gross sales price of up to $250 million (the “2013 ESP”) with several financial institutions, each as a sales agent and/or principal (collectively, the “Managers”).  Under the terms of the 2013 Agreements, we may sell shares of our common stock, from time to time, through or to the Managers having an aggregate gross sales price of up to $250 million.  Sales of the shares will be made by means of ordinary brokers’ transactions on the New York Stock Exchange at market prices, or as otherwise agreed with the applicable Manager.  We will pay each Manager compensation for sales of the shares equal to 2% of the gross sales price per share of shares sold through such Manager under the applicable 2013 Agreement.  We are not obligated to sell and the Managers are not obligated to buy or sell any shares under the 2013 Agreements.  No assurance can be given that we will sell any shares under the 2013 Agreements, or, if we do, as to the price or amount of shares that we sell, or the dates when such sales will take place.

For the three months ended September 30, 2013, we sold 2.1 million shares under the 2013 ESP, at an average price of $29.42 per share, generating gross proceeds of approximately $63.2 million, before $1.3 million of commissions.  For the nine months ended September 30, 2013, we sold approximately 4.4 million shares under the 2013 ESP, at an average price of $30.61 per share, generating gross proceeds of approximately $136.0 million, before $2.7 million of commissions.

Termination of $245 Million Equity Shelf Program

On March 18, 2013, we terminated our $245 million Equity Shelf Program (the “2012 ESP”) that we entered into with several financial institutions on June 19, 2012.  For the three months ended March 31, 2013, we issued approximately 1.0 million shares under the 2012 ESP at an average price of $28.29 per share, generating gross proceeds of approximately $27.8 million, before $0.6 million of commissions.

Since inception of the 2012 ESP, we have sold a total of 3.6 million shares of common stock generating total gross proceeds of $91.4 million under the program, before $1.9 million of commissions.  As a result of the termination of the 2012 ESP, no additional shares were issued under the 2012 ESP.
 
15
 

 


Dividend Reinvestment and Common Stock Purchase Plan

For the three-month period ended September 30, 2013, approximately 0.2 million shares of our common stock at an average price of $29.03 per share were issued through our Dividend Reinvestment and Common Stock Purchase Program for net proceeds of approximately $6.2 million.  For the nine-month period ended September 30, 2013, approximately 1.7 million shares of our common stock at an average price of $28.53 per share were issued through our Dividend Reinvestment and Common Stock Purchase Program for net proceeds of approximately $47.8 million.

NOTE 9 – FINANCIAL INSTRUMENTS

At September 30, 2013 and December 31, 2012, the carrying amounts and fair values of our financial instruments were as follows:

   
September 30, 2013
    
December 31, 2012
  
   
Carrying
Amount
    
Fair
Value
    
Carrying
Amount
    
Fair
Value
  
Assets:
  
(in thousands)
  
Cash and cash equivalents
   $ 67,757     $ 67,757     $ 1,711     $ 1,711  
Restricted cash
     28,781       28,781       36,660       36,660  
Mortgage notes receivable – net
     241,490       240,013       238,621       235,705  
Other investments – net
     75,421       72,820       47,339       44,077  
Totals
   $ 413,449     $ 409,371     $ 324,331     $ 318,153  
Liabilities:
                                
Revolving line of credit
   $ —     $ —     $ 158,000     $ 158,000  
Term loan
     200,000       200,000       100,000       100,000  
7.50% Notes due 2020 – net
     197,805       246,304       197,546       252,363  
6.75% Notes due 2022 – net
     581,278       709,601       581,799       724,240  
5.875% Notes due 2024 – net
     400,000       401,492       400,000       441,761  
HUD debt
     300,034       335,745       366,538       433,803  
Subordinated debt
     20,930       27,153       21,049       27,896  
Totals
   $ 1,700,047     $ 1,920,295     $ 1,824,932     $ 2,138,063  

Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument (see Note 2 – Summary of Significant Accounting Policies in our 2012 Annual Report on Form 10-K).  The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts.

The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

 
●
Cash and cash equivalents and restricted cash:  The carrying amount of cash and cash equivalents and restricted cash reported in the balance sheet approximates fair value because of the short maturity of these instruments (i.e., less than 90 days) (Level 1).

 
●
Mortgage notes receivable:  The fair values of the mortgage notes receivables are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).

 
●
Other investments:  Other investments are primarily comprised of: (i) notes receivable and (ii) an investment in a redeemable non-convertible preferred security of an unconsolidated business accounted for using the cost method of accounting.  The fair values of notes receivable are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).  The fair value of the investment in the unconsolidated business is estimated using quoted market value and considers the terms of the underlying arrangement (Level 3).
 
16
 

 

 
 
●
Revolving line of credit and term loan:  The fair value of our borrowings under variable rate agreements are estimated using an expected present value technique based on expected cash flows discounted using the current market rates (Level 2).

 
●
Senior notes and other long-term borrowings:  The fair value of our borrowings under fixed rate agreements are estimated based on open market trading activity provided by a third party (Level 2).

NOTE 10 – LITIGATION

We are subject to various legal proceedings, claims and other actions arising out of the normal course of business. While any legal proceeding or claim has an element of uncertainty, management believes that the outcome of each lawsuit, claim or legal proceeding that is pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial position or results of operations.

NOTE 11 – EARNINGS PER SHARE

The computation of basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the relevant period.  Diluted EPS is computed using the treasury stock method, which is net income available to common stockholders divided by the total weighted-average number of common outstanding shares plus the effect of dilutive common equivalent shares during the respective period.  Dilutive common shares reflect the assumed issuance of additional common shares pursuant to certain of our share-based compensation plans, including stock options, restricted stock and performance restricted stock units.
 
17
 

 

 
The following tables set forth the computation of basic and diluted earnings per share:

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2013
    
2012
    
2013
    
2012
  
   
(in thousands, except per share amounts)
  
Numerator:
                        
Net income
   $ 38,137     $ 30,119     $ 125,315     $ 86,775  
Numerator for net income available to common per share - basic and diluted
   $ 38,137     $ 30,119     $ 125,315     $ 86,775  
                                 
Denominator:
                                
Denominator for basic earnings per share
     117,600       109,135       115,527       106,202  
Effect of dilutive securities:
                                
Restricted stock
     823       511       774       350  
Deferred stock
     39       21       34       18  
Denominator for diluted earnings per share
     118,462       109,667       116,335       106,570  
                                 
Earnings per share – basic:
                                
Net income – basic
   $ 0.32     $ 0.28     $ 1.08     $ 0.82  
Earnings per share – diluted:
                                
Net income – diluted
   $ 0.32     $ 0.27     $ 1.08     $ 0.81  
 
NOTE 12 – CONSOLIDATING FINANCIAL STATEMENTS

As of September 30, 2013, we had outstanding (i) $200 million 7.5% Senior Notes due 2020, (ii) $575 million 6.75% Senior Notes due 2022 and (iii) $400 million 5.875% Senior Notes due 2024, which we collectively refer to as the Senior Notes. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, by each of our subsidiaries that guarantee other indebtedness of Omega or any of the subsidiary guarantors. All of our subsidiaries that guarantee the Senior Notes also guarantee the 2012 Credit Facilities. Any subsidiary that we properly designate as an “unrestricted subsidiary” under the indentures governing the Senior Notes will not provide guarantees of the Senior Notes or of our 2012 Credit Facilities.

As of and prior to March 31, 2010, the non-guarantor subsidiaries were minor and insignificant. On June 29, 2010, we designated as “unrestricted subsidiaries” the 39 subsidiaries we acquired from CapitalSource subject to HUD indebtedness. During the fourth quarter of 2011, we designated as “unrestricted subsidiaries” 20 subsidiaries we acquired subject to HUD indebtedness, of which five subsidiaries were removed in July 2012 due to the retirement of the HUD related mortgages. During the fourth quarter of 2012, we designated as “unrestricted subsidiaries” eight subsidiaries we acquired subject to HUD indebtedness. In July 2013, we removed 11 subsidiaries due to the retirement of the HUD related debt.

For the nine months ended September 30, 2013 and 2012, the operating cash flow of the non-guarantor subsidiaries approximated net income of the non-guarantor subsidiaries, adjusted for depreciation and amortization expense.  On March 26, 2013, the non-guarantor subsidiaries refinanced existing HUD mortgage debt on 12 properties in Arkansas for approximately $59.4 million. The refinanced amount included $58.9 million related to retiring the old HUD debt and $0.5 million of closing costs that were added to the new (refinanced) HUD debt.  On May 31, 2013, we retired 11 HUD mortgages totaling $62.3 million ($51.0 million related to the outstanding principal of the 11 HUD mortgages and $11.3 million related to the unamortized premium for marking the debt to market on the date the debt was assumed and $0.2 million in prepayment fees).
 
18
 

 

               In addition, the non-guarantor subsidiaries also made $3.4 million of routine principal payments during the nine months ended September 30, 2013. For the nine-month period ended September 30, 2012, the non-guarantor subsidiaries did not engage in investing or financing activities other than the principal payment of $2.3 million for the HUD mortgages on the facilities owned by the non-guarantor subsidiaries. All of the subsidiary guarantors of our outstanding Senior Notes and 2012 Credit Facilities, and all of our non-guarantor subsidiaries, are 100% owned by Omega.

The following summarized condensed consolidating financial information segregates the financial information of the non-guarantor subsidiaries from the financial information of Omega Healthcare Investors, Inc. and the subsidiary guarantors under the Senior Notes.  The results and financial position of acquired entities are included from the dates of their respective acquisitions.

OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING BALANCE SHEETS
Unaudited
(in thousands, except per share amounts)
   
September 30, 2013
  
   
Issuer & Subsidiary Guarantors
    
Non-Guarantor Subsidiaries
    
Elimination Company
    
Consolidated
  
                         
ASSETS
                        
Real estate properties
                        
Land and buildings                                                        
   $ 2,602,688     $ 457,500     $ -     $ 3,060,188  
Less accumulated depreciation                                                        
     (627,301 )     (48,384 )     -       (675,685 )
Real estate properties – net                                                      
     1,975,387       409,116       -       2,384,503  
Mortgage notes receivable – net                                                           
     241,490       -       -       241,490  
      2,216,877       409,116       -       2,625,993  
Other investments – net                                                           
     75,421       -       -       75,421  
      2,292,298       409,116       -       2,701,414  
Assets held for sale – net                                                           
     1,020       -       -       1,020  
Total investments                                                        
     2,293,318       409,116       -       2,702,434  
                                 
Cash and cash equivalents                                                           
     67,757       -       -       67,757  
Restricted cash                                                           
     6,755       22,026       -       28,781  
Accounts receivable – net                                                           
     136,101       6,325       -       142,426  
Investment in affiliates                                                           
     107,535       -       (107,535 )     -  
Other assets                                                           
     46,829       26,551       -       73,380  
Total assets                                                        
   $ 2,658,295     $ 464,018     $ (107,535 )   $ 3,014,778  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Revolving line of credit                                                           
   $ -     $ -     $ -     $ -  
Term loan                                                           
     200,000       -       -       200,000  
Secured borrowings                                                           
     -       300,034       -       300,034  
Unsecured borrowings – net                                                           
     1,179,083       20,930       -       1,200,013  
Accrued expenses and other liabilities
     89,214       35,519       -       124,733  
Intercompany payable                                                           
     -       85,438       (85,438 )     -  
Total liabilities                                                        
     1,468,297       441,921       (85,438 )     1,824,780  
                                 
Stockholders’ equity:
                                
Common stock                                                           
     11,952       -       -       11,952  
Common stock – additional paid-in capital
     1,876,609       -       -       1,876,609  
Cumulative net earnings                                                           
     879,443       22,097       (22,097 )     879,443  
Cumulative dividends paid                                                           
     (1,578,006 )     -       -       (1,578,006 )
Total stockholders’ equity                                                        
     1,189,998       22,097       (22,097 )     1,189,998  
Total liabilities and stockholders’ equity
   $ 2,658,295     $ 464,018       (107,535 )   $ 3,014,778  
 
19
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING BALANCE SHEETS
 (in thousands, except per share amounts)

   
December 31, 2012
  
   
 
Issuer & Subsidiary
Guarantors
    
Non – Guarantor Subsidiaries
    
Elimination Company
    
 
Consolidated
  
                         
ASSETS
                        
Real estate properties
                        
Land and buildings
   $ 2,580,977     $ 457,576     $ —     $ 3,038,553  
Less accumulated depreciation
     (547,489 )     (32,884 )     —       (580,373 )
Real estate properties – net
     2,033,488       424,692       —       2,458,180  
Mortgage notes receivable – net
     238,621       —       —       238,621  
      2,272,109       424,692       —       2,696,801  
Other investments – net
     47,339       —       —       47,339  
      2,319,448       424,692       —       2,744,140  
Assets held for sale – net
     1,020       —       —       1,020  
Total investments
     2,320,468       424,692       —       2,745,160  
                                 
Cash and cash equivalents
     1,711       —       —       1,711  
Restricted cash
     10,095       26,565       —       36,660  
Accounts receivable – net
     121,488       3,692       —       125,180  
Investment in affiliates
     115,835       —       (115,835 )     —  
Other assets
     49,153       24,141       —       73,294  
Total assets
   $ 2,618,750     $ 479,090       (115,835 )   $ 2,982,005  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Revolving line of credit
   $ 158,000     $ —     $ —     $ 158,000  
Term loan
     100,000       —       —       100,000  
Secured borrowings
     62,921       303,617       —       366,538  
Unsecured borrowings – net
     1,179,345       21,049       —       1,200,394  
Accrued expenses and other liabilities
     107,155       38,589       —       145,744  
Intercompany payable
     —       104,040       (104,040 )     —  
Total liabilities
     1,607,421       467,295       (104,040 )     1,970,676  
                                 
Stockholders’ equity:
                                
Common stock
     11,239       —       —       11,239  
Common stock – additional paid-in capital
     1,664,855       —       —       1,664,855  
Cumulative net earnings
     754,128       11,795       (11,795 )     754,128  
Cumulative dividends paid
     (1,418,893 )     —       —       (1,418,893 )
Total stockholders’ equity
     1,011,329       11,795       (11,795 )     1,011,329  
Total liabilities and stockholders’ equity
   $ 2,618,750     $ 479,090     $ (115,835 )   $ 2,982,005  
 
20
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)

   
 
Three Months Ended September 30, 2013
    
Nine Months Ended September 30, 2013
  
   
 
Issuer & Subsidiary Guarantors
    
Non – Guarantor Subsidiaries
    
 
 
Elimination
    
Consolidated
    
Issuer & Subsidiary Guarantors
    
Non – Guarantor Subsidiaries
    
 
 
Elimination
    
Consolidated
  
Revenue
                                                
Rental income
   $ 81,289     $ 12,548     $ -     $ 93,837     $ 242,253     $ 37,762     $ -     $ 280,015  
Mortgage interest income
     7,289       -       -       7,289       22,070       -       -       22,070  
Other investment income – net
     2,175       -       -       2,175       5,341       -       -       5,341  
Miscellaneous
     -       -       -       -       151       -       -       151  
Total operating revenues
     90,753       12,548       -       103,301       269,815       37,762       -       307,577  
                                                                 
Expenses
                                                                
Depreciation and amortization
     27,034       5,168       -       32,202       80,885       15,501       -       96,386  
General and administrative
     5,372       90       -       5,462       15,859       283       -       16,142  
Acquisition costs
     (9 )     -       -       (9 )     134       -       -       134  
Provision for uncollectible mortgages, notes and accounts receivable
     2,321       -       -       2,321       2,386       -       -       2,386  
Total operating expenses
     34,718       5,258       -       39,976       99,264       15,784       -       115,048  
                                                                 
Income before other income and expense
     56,035       7,290       -       63,325       170,551       21,978       -       192,529  
Other income (expense):
                                                                
Interest income
     (4 )     7       -       3       (1 )     21       -       20  
Interest expense
     (20,725 )     (3,767 )     -       (24,492 )     (63,429 )     (11,687 )     -       (75,116 )
Interest – amortization of deferred financing costs
     (694 )     (5 )     -       (699 )     (2,069 )     (10 )     -       (2,079 )
Interest – refinancing gain (costs)
     -       -       -       -       11,112       -       -       11,112  
Equity in earnings
     3,525       -       (3,525 )     -       10,302       -       (10,302 )     -  
Total other expense
     (17,898 )     (3,765 )     (3,525 )     (25,188 )     (44,085 )     (11,676 )     (10,302 )     (66,063 )
                                                                 
Income before gain on assets sold
     38,137       3,525       (3,525 )     38,137       126,466       10,302       (10,302 )     126,466  
Loss on assets sold – net