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

Published on May 8, 2015



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

 
FORM 10-Q
(Mark One)
            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015
or

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number 1-11316

OMEGA HEALTHCARE INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
     
Maryland
 
38-3041398
 
(State of incorporation)
 
(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 ☒                                           No ☐

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 ☒                                           No ☐

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 ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐                                                      No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 1, 2015.
 
Common Stock, $.10 par value   182,683,520
(Class)   (Number of shares)
 
 
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
March 31, 2015
 
TABLE OF CONTENTS
 
   
Page
   
No.
 
     
 
 
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3
     
 
4
     
 
5
     
 
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41
     
41
     
 
     
43
     
43
     
44
     
45
 
 
 

 

 


OMEGA HEALTHCARE INVESTORS, INC.
(in thousands, except per share amounts)
                 
   
March 31,
    December 31,  
   
2015
   
2014
 
   
(Unaudited)
       
ASSETS
           
Real estate properties
           
Land and buildings
  $ 3,227,983     $ 3,223,785  
Less accumulated depreciation
    (847,240 )     (821,712 )
Real estate properties – net
    2,380,743       2,402,073  
Investment in direct financing leases
    541,846       539,232  
Mortgage notes receivable
    649,793       648,079  
      3,572,382       3,589,384  
Other investments
    48,268       48,952  
      3,620,650       3,638,336  
Assets held for sale – net
    16,877       12,792  
Total investments
    3,637,527       3,651,128  
                 
Cash and cash equivalents
    700,143       4,489  
Restricted cash
    27,880       29,076  
Accounts receivable – net
    176,877       168,176  
Other assets
    55,593       68,776  
Total assets
  $ 4,598,020     $ 3,921,645  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Revolving line of credit
  $     $ 85,000  
Term loan
    200,000       200,000  
Secured borrowings
    93,719       251,454  
Unsecured borrowings – net
    2,333,657       1,842,049  
Accrued expenses and other liabilities
    199,691       141,815  
Total liabilities
    2,827,067       2,520,318  
                 
Stockholders’ equity:
               
Common stock $.10 par value authorized – 350,000 shares, issued and outstanding – 138,752 shares as of March 31, 2015 and 127,606 as of December 31, 2014
      13,875         12,761  
Common stock – additional paid-in capital
    2,580,248       2,136,234  
Cumulative net earnings
    1,191,050       1,147,998  
Cumulative dividends paid
    (2,014,220 )     (1,895,666 )
Total stockholders’ equity
    1,770,953       1,401,327  
Total liabilities and stockholders’ equity
  $ 4,598,020     $ 3,921,645  

See notes to consolidated financial statements.
 
2
 

 


OMEGA HEALTHCARE INVESTORS, INC.
Unaudited
(in thousands, except per share amounts)
                 
   
Three Months Ended
 
   
March 31,
 
   
2015
   
2014
 
Revenue
           
Rental income
  $ 100,964     $ 95,918  
Income from direct financing leases
    14,346       14,084  
Mortgage interest income
    16,579       9,326  
Other investment income – net
    1,531       1,673  
Total operating revenues
    133,420       121,001  
                 
Expenses
               
Depreciation and amortization
    30,610       31,444  
General and administrative
    6,014       6,497  
Acquisition costs
    4,868       95  
Impairment loss on real estate properties
    5,982       -  
Provisions for uncollectible mortgages, notes and accounts receivable
    (2 )     (16 )
Total operating expenses
    47,472       38,020  
                 
Income before other income and expense
    85,948       82,981  
Other income (expense)
               
Interest income
    193       8  
Interest expense
    (32,359 )     (27,081 )
Interest – amortization of deferred financing costs
    (1,353 )     (922 )
Interest – refinancing costs
    (9,377 )     (2,040 )
Total other expense
    (42,896 )     (30,035 )
                 
Income before gain on assets sold
    43,052       52,946  
Gain on assets sold – net
    -       2,883  
Net income available to common stockholders
  $ 43,052     $ 55,829  
                 
Income per common share available to common shareholders:
               
Basic:
               
Net income
  $ 0.32     $ 0.45  
Diluted:
               
Net income
  $ 0.32     $ 0.45  
                 
Dividends declared per common share
  $ 0.89     $ 0.49  
                 
Weighted-average shares outstanding, basic
    134,346       124,459  
Weighted-average shares outstanding, diluted
    134,806       124,822  
 
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, 2014 (127,606 common shares)
  $ 12,761     $ 2,136,234     $ 1,147,998     $ (1,895,666 )   $ 1,401,327  
Amortization of restricted stock
          1,551                   1,551  
Vesting of restricted stock to company executives, net of tax withholdings (85 shares)
      8       (1,914 )                     (1,906 )
Dividend reinvestment plan (135 shares at $40.13 per share)
    13       5,401                   5,414  
Grant of stock as payment of directors fees (1 share at an average of $40.61 per share)
          50                   50  
Issuance of common stock (10,925 shares at an average of $40.32 per share)
    1,093       438,926                   440,019  
Net income
                43,052             43,052  
Common dividends declared ($0.89 per share)
                      (118,554 )     (118,554 )
Balance at March 31, 2015 (138,752 common shares)
  $ 13,875     $ 2,580,248     $ 1,191,050     $ (2,014,220 )   $ 1,770,953  
 
See notes to consolidated financial statements.
 
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OMEGA HEALTHCARE INVESTORS, INC.
Unaudited (in thousands)
                 
   
Three months Ended
March 31,
 
   
2015
   
2014
 
Cash flows from operating activities
           
Net income
  $ 43,052     $ 55,829  
Adjustment to reconcile net income to cash provided by operating activities:
               
Depreciation and amortization
    30,610       31,444  
Provision for impairment on real estate properties
    5,982        
Provision for uncollectible mortgages, notes and accounts receivable
    (2 )      
Amortization of deferred financing and debt extinguishment costs
    10,730       2,962  
Accretion of direct financing leases
    (2,614 )     (2,350 )
Stock-based compensation
    1,610       2,263  
Gain on assets sold – net
          (2,883 )
Amortization of acquired in-place leases - net
    (1,192 )     (1,287 )
Change in operating assets and liabilities – net of amounts assumed/acquired:
               
Accounts receivable, net
    (196 )     (431 )
Straight-line rent receivables
    (5,275 )     (5,324 )
Lease inducements
    (2,110 )     715  
Effective yield receivable on mortgage notes
    (1,120 )     (319 )
Other operating assets and liabilities
    23,819       (2,563 )
Net cash provided by operating activities
    103,294       78,056  
Cash flows from investing activities
               
Acquisition of real estate – net of liabilities assumed and escrows acquired
    (6,300 )     (4,700 )
Investment in construction in progress
    (5,851 )      
Placement of mortgage loans
    (2,002 )     (113,114 )
Proceeds from sale of real estate investments
    255       3,631  
Capital improvements to real estate investments
    (5,604 )     (3,334 )
Proceeds from other investments
    2,155       1,067  
Investments in other investments
    (1,468 )     (4,065 )
Collection of mortgage principal
    288       132  
Net cash used in investing activities
    (18,527 )     (120,383 )
Cash flows from financing activities
               
Proceeds from credit facility borrowings
    6,000       120,000  
Payments on credit facility borrowings
    (91,000 )     (446,000 )
Receipts of other long-term borrowings
    689,822       594,320  
Payments of other long-term borrowings
    (347,883 )     (201,238 )
Payments of financing related costs
    (21,318 )     (4,155 )
Receipts from dividend reinvestment plan
    5,414       31,540  
Payments for exercised options and restricted stock – net
    (1,906 )     (530 )
Net proceeds from issuance of common stock
    440,019       27,818  
Dividends paid
    (68,261 )     (61,670 )
Net cash provided by financing activities
    610,887       60,085  
                 
Increase in cash and cash equivalents
    695,654       17,758  
Cash and cash equivalents at beginning of period
    4,489       2,616  
Cash and cash equivalents at end of period
  $ 700,143     $ 20,374  
Interest paid during the period, net of amounts capitalized
  $ 25,829     $ 26,243  
                 
Non-cash financing activities:
               
Accrued dividends 
 
$
50,221     $  
 
See notes to consolidated financial statements.
 
5
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
Unaudited
March 31, 2015

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 and (ii) all direct and indirect wholly owned subsidiaries of Omega. All inter-company accounts and transactions have been eliminated in consolidation of the financial statements.

On April 1, 2015, Aviv REIT Inc., a Maryland corporation (“Aviv”), merged (the “Merger”) with and into a wholly owned subsidiary of Omega, pursuant to the terms of that certain Agreement and Plan of Merger, dated as of October 30, 2014 (the “Merger Agreement”), by and among the Company, Aviv, OHI Healthcare Properties Holdco, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Omega (“Merger Sub”), OHI Healthcare Properties Limited Partnership, a Delaware limited partnership (“Omega OP” or the “ Operating Partnership”), and Aviv Healthcare Properties Limited Partnership, a Delaware limited partnership (the “Aviv OP”).

Prior to April 1, 2015 and in accordance with the Merger Agreement, Omega restructured the manner in which it holds its assets by converting to an umbrella partnership real estate investment trust structure (the “UPREIT Conversion”). As a result of UPREIT conversion, substantially all of the Company’s assets are held by an Operating Partnership which is a subsidiary of the Company. See Note 15 – Subsequent Events for more details.

Recent Accounting Pronouncements

Amendments to the Consolidation Analysis
 
In February 2015, the Financial Accounting Standards Board (“FASB”) issued updated guidance that makes targeted amendments to the current consolidation accounting guidance. The update is in response to accounting complexity concerns, particularly from the asset management industry. The guidance simplifies consolidation accounting by reducing the number of approaches to consolidation, provides a scope exception to registered money market funds and similar unregistered money market funds and ends the indefinite deferral granted to investment companies from applying the variable interest entity guidance.
 
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The updated guidance is effective for annual and interim periods beginning after December 15, 2015. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Revenue Recognition

In May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The effective date is for periods beginning after December 15, 2016. We are currently evaluating the impact, if any, the adoption of this standard will have on our consolidated 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, are 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.
 
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A summary of our net receivables by type is as follows:
                 
   
March 31,
    December 31,  
   
2015
   
2014
 
   
(in thousands)
 
             
Contractual receivables
  $ 4,969     $ 4,799  
Effective yield interest receivables
    7,352       6,232  
Straight-line receivables
    148,927       143,652  
Lease inducements
    15,681       13,571  
Allowance
    (52 )     (78 )
Accounts receivable – net
  $ 176,877     $ 168,176  

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.

Leased Property

Our leased real estate properties, represented by 421 SNFs, 22 assisted living facilities (“ALFs”) and 11 specialty facilities at March 31, 2015, 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.

$6.8 Million New Investment in Q1 2015

On January 28, 2015, we purchased one SNF from an unrelated third party for approximately $6.3 million in cash and leased it to an existing operator. The purchase and sale agreement includes a provision that requires us to make an additional payment of $0.5 million to the seller if certain financial metrics of the facility are achieved. As a result, we recorded the potential $0.5 million payment as part of the purchase price. The 93 bed SNF, located in Texas, was added to the operator’s existing master lease with an initial annual cash yield of 9.5%.
 
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Pro Forma Acquisition Results

The facilities acquired in 2015 and 2014 are included in our results of operations from the date of acquisition. The following unaudited pro forma results of operations reflect the impact of first quarter 2015 and 2014 transactions as if they occurred on January 1, 2014. For a list of the 2014 transactions, refer to Note 3 – Properties in our 2014 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 does not reflect acquisition of Aviv and is not indicative of future operations.
                 
   
Pro Forma
 
   
Three Months Ended
 
   
March 31,
 
   
2015
   
2014
 
   
(in thousands, except per share amounts, unaudited)
 
       
Revenues
  $ 133,478     $ 123,827  
Net income available to common stockholders
  $ 43,085     $ 56,923  
                 
Earnings per share – diluted:
               
Net income available to common stockholders – as reported
  $ 0.32     $ 0.45  
Net income available to common stockholders – pro forma
  $ 0.32     $ 0.46  

Asset Sales, Impairments and Other

During the three-month period ended March 31, 2015, we initiated plans to construct a new single facility with an existing operator that would consolidate and replace three existing facilities. As a result, we recorded a total of $6.0 million in impairment charges related to three Florida SNFs to reduce their net book values to their estimated sales price.

During the three-month period ended March 31, 2015, we reclassified one SNF in Alabama with a carrying value of approximately $4.1 million to assets held for sale.

Mortgage Notes Receivables

Our mortgage notes receivables relate to 14 fixed-rate mortgages on 53 SNFs and two ALFs. 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 March 31, 2015, none of our mortgages were in default or in foreclosure proceedings. Where appropriate, the mortgaged 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.
 
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NOTE 3 – ASSETS HELD FOR SALE
                 
   
Properties Held For Sale
 
   
Number of Properties
   
Net Book Value
(in thousands)
 
       
December 31, 2014 (1) 
    4     $ 12,792  
Properties sold
           
Properties added
    1       4,085  
March 31, 2015 (2) 
    5     $ 16,877  
                 
(1)      Includes one parcel of land and three facilities.
(2)      Included one parcel of land and four facilities.
               
 
As mentioned above in Note 2 – Properties and Investments, in the first quarter of 2015, we reclassified one SNF in Alabama with a carrying value of approximately $4.1 million to assets held for sale.
 
NOTE 4 – DIRECT FINANCING LEASES

The components of investment in direct financing leases consist of the following:
                 
   
March 31,
   
December 31,
 
   
2015
   
2014
 
   
(in thousands)
 
Minimum lease payments receivable
  $ 4,232,317     $ 4,244,067  
Estimated residual values
           
Less unearned income
    (3,690,471 )     (3,704,835 )
Investment in direct financing leases
  $ 541,846     $ 539,232  
                 
Properties subject to direct financing leases
    56       56  

On November 27, 2013, we closed on an aggregate $529 million purchase/leaseback transaction in connection with the acquisition of Ark Holding Company, Inc. (“Ark Holding”) by 4 West Holdings Inc. At closing, we acquired 55 SNFs and 1 ALF operated by Ark Holding and leased the facilities back to Ark Holding, now known as New Ark Investment Inc. (“New Ark”), pursuant to four 50-year master leases, with rental payments yielding 10.6% per annum over the term of the leases. The purchase/leaseback transaction is being accounted for as a direct financing lease.

The lease agreements allow the tenant the right to purchase the facilities for a bargain purchase price plus closing costs at the end of the lease term. In addition, commencing in the 41st year of each lease, the tenant will have the right to prepay the remainder of its obligations thereunder for an amount equal to the sum of the unamortized portion of the original aggregate $529 million investment plus 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 have the right to purchase the properties for fair market value at the time.
 
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The 56 facilities represent 5,623 licensed beds located in 12 states, predominantly in the southeastern United States. The 56 facilities are separated by region and divided amongst four cross-defaulted master leases. The four regions include the Southeast (39 facilities), the Northwest (7 facilities), Texas (9 facilities) and Indiana (1 facility). As of March 31, 2015, the following minimum rents are due under our direct financing leases for the next five years (in thousands):

Year 1
Year 2
Year 3
Year 4
Year 5
$47,000
$47,128
$47,778
$48,972
$50,197
 
NOTE 5 – OTHER INVESTMENTS

A summary of our other investments is as follows:
                 
       March 31,       December 31,  
      2015       2014  
   
(in thousands)
 
                 
Other investment notes due 2015
  $ 91     $ 141  
Other investment notes due 2021 - 2023
    17,413       16,182  
$31.5 million other investment note due 2017
    23,500       23,500  
$2.5 million other investment note due 2014
          1,640  
$6.0 million other investment note due 2015
    5,439       5,439  
$1.3 million other investment note due 2017
    1,300       1,300  
$0.9 million other investment note due 2015
    525       750  
Notes receivable, gross(1)
    48,268       48,952  
Allowance for loss on notes receivable
           
Total other investments
  $ 48,268     $ 48,952  
 
(1)
The majority of these notes bear interest at approximately 10% annually.

$2.5 Million Other Investment note due 2014 Payoff

In May 2013, we entered into a $2.5 million working capital note at 6% interest rate with an existing operator. The loan was paid off in March 2015.
 
NOTE 6 – CONCENTRATION OF RISK

As of March 31, 2015, our portfolio of real estate investments consisted of 569 healthcare facilities, located in 38 states and operated by 50 third-party operators. Our gross investment in these facilities, net of impairments and before reserve for uncollectible loans, totaled approximately $4.4 billion at March 31, 2015, with approximately 99% of our real estate investments related to long-term care facilities. Our portfolio is made up of 474 SNFs, 23 ALFs, 11 specialty facilities, fixed rate mortgages on 53 SNFs and two ALFs, and six SNFs that are closed/held-for-sale. At March 31, 2015, we also held miscellaneous investments of approximately $48.3 million, consisting primarily of secured loans to third-party operators of our facilities.

At March 31, 2015, we had investments with one operator and/or manager that exceeded 10% of our total investments: New Ark (13%). The three states in which we had our highest concentration of investments were Florida (14%), Michigan (10%) and Ohio (9%) at March 31, 2015.

For the three-month period ended March 31, 2015, our revenues from operations totaled $133.4 million, of which approximately $15.3 million were from New Ark (11%) and $13.8 million were from Genesis HealthCare (“Genesis”) (10%). No other operator generated more than 10% of our revenues from operations for the three-month period ended March 31, 2015.
 
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NOTE 7 – DIVIDENDS AND STOCKHOLDERS’ EQUITY

On April 15, 2015, our Board of Directors declared a prorated dividend of $0.18 per share of Omega’s common stock in view of the completed acquisition of Aviv, pursuant to the Merger. The per share dividend amount payable by Omega represents dividends for April 2015, at a quarterly dividend rate of $0.54 per share of common stock, representing an increase of $0.01 per share over the quarterly dividend rate for the immediately preceding quarterly period. The $0.18 dividend will be payable in cash on May 15, 2015 to stockholders of record as of the close of business on April 30, 2015.
 
On March 5, 2015, the Board of Directors declared a prorated dividend of $0.36 per share of Omega’s common stock in view of the pending acquisition of Aviv, pursuant to the Merger. The per share dividend amount represented dividends for February and March 2015, at a quarterly dividend rate of $0.54 per share of common stock, representing an increase of $0.01 per share over the quarterly dividend rate for the immediately preceding quarterly period. The dividend was paid in cash on April 7, 2015 to stockholders of record as of the close of business on March 31, 2015.

On January 14, 2015, the Board of Directors declared a common stock dividend of $0.53 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, which was paid February 16, 2015 to common stockholders of record on February 2, 2015.

Increase of Authorized Omega Common Stock

On March 27, 2015, Omega amended its charter to increase the number of authorized shares of Omega capital stock from 220 million to 370 million and the number of authorized shares of Omega common stock from 200 million to 350 million.

10.925 Million Common Stock Offering

On February 9, 2015, we completed an underwritten public offering of 10.925 million shares of our common stock at $42.00 per share before underwriting and other offering expenses. The Company’s total net proceeds from the offering were approximately $440 million, after deducting underwriting discounts and commissions and other estimated offering expenses.

Dividend Reinvestment and Common Stock Purchase Plan

For the three-month period ended March 31, 2015, approximately 0.1 million shares of our common stock at an average price of $40.13 per share were issued through our Dividend Reinvestment and Common Stock Purchase Program for gross proceeds of approximately $5.4 million.
 
NOTE 8 – 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 are in compliance with the REIT 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 March 31, 2015, the TRS had a net operating loss carry-forward of approximately $1.0 million. The loss carry-forward is fully reserved with a valuation allowance as of March 31, 2015.
 
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NOTE 9 – STOCK-BASED COMPENSATION

The following is a summary of our stock-based compensation expense for the three- month periods ended March 31, 2015 and 2014, respectively:
                 
   
Three Months Ended
March 31,
 
   
2015
   
2014
 
   
(in thousands)
 
             
Stock-based compensation expense
  $ 1,610     $ 2,263  

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock units (“RSUs”) are subject to forfeiture if the holder’s service to us terminates prior to vesting, subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company. Prior to vesting, ownership of the shares/units cannot be transferred. The restricted stock has the same dividend and voting rights as our common stock. RSUs accrue dividend equivalents but have no voting rights. Restricted stock and RSUs are valued at the price of our common stock on the date of grant. We expense the cost of these awards ratably over their vesting period.

On December 31, 2013, we granted 213,741 RSUs to employees. The RSUs vest ratably over the three year period ending December 31, 2016, 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. In December 2014, 71,247 shares of restricted stock vested and were distributed to employees.

On January 1, 2014, we granted 122,137 RSUs to employees. The RSUs vest on December 31, 2016, 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.

On March 31, 2015, we granted 123,693 RSUs to employees. The RSUs vest on December 31, 2017, 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.

Performance Restricted Stock Units

Performance restricted stock units (“PRSUs”) are subject to forfeiture if the performance requirements are not achieved or if the holder’s service to us terminates prior to vesting, subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company. The PRSUs awarded in January 2011, January 2013, December 2013 and January 2014 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 based on performance and related dividend equivalents based on dividends paid to stockholders during the applicable performance period. The vesting requirements are based on either the (i) total shareholders return (“TSR”) of Omega or (ii) Omega’s TSR relative to other real estate investment trusts in the MSCI U.S. REIT Index. We expense the cost of these awards ratably over their service period.

Prior to vesting and distribution of shares, ownership of the PRSUs cannot be transferred. The dividends on the PRSUs accumulate and if vested are paid when the shares are distributed to the employee.
 
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2011 PRSU Grant (for Performance Periods 2011 through 2013)

In January 2011, we awarded PRSUs to employees, including: (i) 279,552 multi-year absolute TSR PRSUs and (ii) 93,183 multi-year relative TSR PRSUs. On January 1, 2013, we awarded to employees 124,244 annual TSR PRSUs for the year ended December 31, 2013 (“2013 Annual TSR PRSUs”).

2013 Annual TSR PRSUs

The TSR goal for the 2013 Annual TSR PRSUs was achieved at the high level and 124,244 shares vested and were distributed to the employees in January 2014.

Multi-year TSR PRSUs (for the 2011- 2013 Performance Period)

The number of shares earned under the multi-year TSR PRSUs depended generally on the level of achievement of TSR for the three years ended December 31, 2013. In January 2014, our Board of Directors reviewed the performance and determined the performance targets were met at the high level. The multi-year TSR PRSUs vested 25% on the last day of each calendar quarter in 2014, and were distributed in 2014.

Multi-year Relative TSR PRSUs (for the 2011- 2013 Performance Period)

The number of shares earned under the multi-year relative TSR PRSUs depended 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 ended December 31, 2013. In January 2014, our Board of Directors reviewed the performance and determined the performance targets were met at the high level. The multi-year relative TSR PRSUs vested 25% on the last day of each calendar quarter in 2014 and were distributed in 2014.

December 31, 2013 PRSU Grant (for 2013- 2016 Performance Periods)

In December 2013, we awarded six types of PRSUs to employees: (i) 77,371 PRSUs that vest based on TSR for the one year period starting December 31, 2013 and ending December 31, 2014 (“2014 Transition TSR PRSUs”), (ii) 77,369 PRSUs that vest based on the TSR for the two year period starting December 31, 2013 and ending December 31, 2015 (“2015 Transition TSR PRSUs”), (iii) 115,785 PRSUs that vest based on TSR for the three year period starting December 31, 2013 and ending December 31, 2016 (“2016 Transition TSR PRSUs”), (iv) 77,371 PRSUs that vest based on relative TSR for the one year period starting December 31, 2013 and ending December 31, 2014 (“2014 Transition Relative TSR PRSUs”), (v) 77,368 Transition PRSUs that vest based on relative TSR for the two year period starting December 31, 2013 and ending December 31, 2015 (“2015 Transition Relative TSR PRSUs”), and (vi) 115,781 PRSUs that vest based on relative TSR for the three year period starting December 31, 2013 and ending December 31, 2016 (“2016 Transition Relative TSR PRSUs”).

2014 Transition TSR PRSUs

The number of shares earned under the 2014 Transition TSR PRSUs depended generally on the level of achievement of Omega’s TSR for the period beginning December 31, 2013 and ending December 31, 2014. The 2014 Transition TSR PRSUs vested on December 31, 2014. In January 2015, our Board of Directors reviewed the performance and determined the performance targets were met at the “high” level and the shares were distributed in January 2015.

2015 Transition TSR PRSUs

The number of shares earned under the 2015 Transition TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning December 31, 2013 and ending December 31, 2015. The 2015 Transition TSR PRSUs vest on December 31, 2015, 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.
 
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2016 Transition TSR PRSUs

The number of shares earned under the 2016 Transition TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning December 31, 2013 and ending December 31, 2016. The 2016 Transition TSR PRSUs vest on December 31, 2016, 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.

2014 Transition Relative TSR PRSUs

The number of shares earned under the 2014 Transition Relative TSR PRSUs depended generally on the level of achievement of TSR relative to the MSCI U.S. REIT Index for the period beginning December 31, 2013 and ended December 31, 2014. The 2014 Transition Relative TSR PRSUs vested on December 31, 2014. In January 2015, our Board of Directors reviewed the performance and determined that 61,769 shares were earned. The shares were distributed in January 2015.

2015 Transition Relative TSR PRSUs

The number of shares earned under the 2015 Transition Relative TSR PRSUs depends generally on the level of achievement of TSR relative to MSCI U.S. REIT Index for the period beginning December 31, 2013 and ending December 31, 2015. The 2015 Transition Relative TSR PRSUs vest on December 31, 2015, 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.

2016 Transition Relative TSR PRSUs

The number of shares earned under the 2016 Transition Relative TSR PRSUs depends generally on the level of achievement of TSR relative to MSCI U.S. REIT Index for the period beginning December 31, 2013 and ending December 31, 2016. The 2016 Transition Relative TSR PRSUs vest on December 31, 2016, 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.

January 2014 PRSU Grant (for 2014- 2016 Performance Periods)

In January 2014, we awarded two types of PRSUs to employees: (i) 154,584 PRSUs that vest based on TSR for the three year period starting January 1, 2014 and ending December 31, 2016 (“2016 TSR PRSUs”), and (ii) 154,584 PRSUs that vest based on relative TSR for the three year period starting January 1, 2014 and ending December 31, 2016 (“2016 Relative TSR PRSUs”).

2016 TSR PRSUs

The number of shares earned under the 2016 TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning January 1, 2014 and ending December 31, 2016. The 2016 TSR PRSUs vest quarterly in 2017 in equal increments, 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.

2016 Relative TSR PRSUs

The number of shares earned under the 2016 Relative TSR PRSUs depends generally on the level of achievement of Omega’s TSR relative to MSCI U.S. REIT Index for the period beginning January 1, 2014 and ending December 31, 2016. The 2016 Relative TSR PRSUs vest quarterly in 2017 in equal increments, 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.
 
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March 2015 PRSU and LTIP Grant (for 2015- 2017 Performance Periods)

In March 2015, we awarded two types of awards to employees: (i) 154,716 profit interest partnership units that vest based on TSR of Omega for the three year period starting January 1, 2015 and ending December 31, 2017 (“2017 TSR LTIP Units”), and (ii) 154,716 PRSUs that vest based on relative TSR for the three year period starting January 1, 2015 and ending December 31, 2017 (“2017 Relative TSR PRSUs”).

2017 TSR LTIPs Units

The number of shares earned under the 2017 TSR LTIP Units depends generally on the level of achievement of Omega’s TSR for the period beginning January 1, 2015 and ending December 31, 2017. The 2017 TSR LTIPs vest quarterly in 2018 in equal increments, 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.

2017 Relative TSR PRSUs

The number of shares earned under the 2017 Relative TSR PRSUs depends generally on the level of achievement of Omega’s TSR relative to MSCI U.S. REIT Index for the period beginning January 1, 2015 and ending December 31, 2017. The 2017 Relative TSR PRSUs vest quarterly in 2018 in equal increments, 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 following table summarizes our total unrecognized compensation cost as of March 31, 2015 associated with outstanding restricted stock, restricted stock units and PRSU awards to employees:
                                           
   
 
 
 
 
Grant
Year
 
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 units
 
2013
    142,494     $ 29.80     $ 4.3     36     $ 3.7  
2015 Transition TSR PRSUs
 
2013
    77,369       7.48       0.6     24       0.2  
2016 Transition TSR PRSUs
 
2013
    115,785       8.67       1.0     36       0.6  
2015 Transition Relative TSR PRSUs
 
2013
    77,368       13.06       1.0     24       0.4  
2016 Transition Relative TSR PRSUs
 
2013
    115,781       14.25       1.7     36       1.0  
Restricted stock units
 
2014
    122,137       29.80       3.6     36       2.1  
2016 TSR PRSUs
 
2014
    154,584       8.67       1.3     48       0.9  
2016 Relative TSR PRSUs
 
2014
    154,584       14.25       2.2     48       1.5  
2017 Restricted stock units
 
2015
    123,693       40.57       5.0     33       5.0  
2017 LTIPs Units
 
2015
    154,716       14.66       2.3     45       2.3  
2017 Relative TSR PRSUs
 
2015
    154,716       22.50       3.5     45       3.5  
Total
        1,393,227     $ 18.98     $ 26.5           $ 21.2  

We used a Monte Carlo model to estimate the fair value for PRSUs and the LTIP Units granted to the employees.
 
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Director Restricted Stock Grants

As of March 31, 2015, we had 37,983 shares of restricted stock outstanding to directors. The directors’ restricted shares are scheduled to vest over the next three years. As of March 31, 2015, the unrecognized compensation cost associated with outstanding director restricted stock grants is approximately $0.5 million.
 
NOTE 10 – BORROWING ACTIVITIES AND ARRANGEMENTS

Secured and Unsecured Borrowings

The following is a summary of our long-term borrowings:
                             
   
Maturity
   
Rate as of
March 31,
2015
   
March 31,
2015
   
December 31,
2014
 
               
(in thousands)
 
Secured borrowings:
                       
HUD mortgages assumed June 2010 (1)
  2040 - 2045         $     $ 126,319  
HUD mortgages assumed October 2011 (1)
  2036     4.91 %     26,457       26,658  
HUD mortgages assumed December 2011(1)
  2044     3.06 %     57,116       57,416  
HUD mortgages assumed December 2012(1)
  2041     4.35 %     10,146       41,061  
Total secured borrowings
                93,719       251,454  
                             
Unsecured borrowings:
                           
Revolving line of credit
  2018                 85,000  
Term loan
  2019     1.68 %     200,000       200,000  
                  200,000       285,000  
                             
2020 notes
  2020                 200,000  
2022 notes
  2022     6.75 %     575,000       575,000  
2024 notes
  2024     5.875 %     400,000       400,000  
2024 notes
  2024     4.95 %     400,000       400,000  
2025 notes
  2025     4.50 %     250,000       250,000  
2027 notes
  2027     4.50 %     700,000        
Subordinated debt
  2021     9.00 %     20,712       20,747  
                  2,345,712       1,845,747  
Discount - net
                (12,055 )     (3,698 )
Total unsecured borrowings
                2,533,657       2,127,049  
Total – net
              $ 2,627,376     $ 2,378,503  
 
 
(1)
Reflects the weighted average annual contractual interest rate on the mortgages at March 31, 2015; however, excludes a 0.5% third-party administration fee.

Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of March 31, 2015 and December 31, 2014, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

Bank Credit Facilities
 
On June 27, 2014, we entered into a $1.2 billion unsecured credit facility, comprised of a $1 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $200 million senior unsecured term loan facility (the “Term Loan Facility” and, collectively, the “2014 Credit Facilities”).
 
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The Revolving Credit Facility is priced at LIBOR plus an applicable percentage (beginning at 130 basis points, with a range of 92.5 to 170 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 25 basis points, with a range of 12.5 to 30 basis points). The Revolving Credit Facility is used for acquisitions and general corporate purposes. At March 31, 2015, we had no borrowings outstanding under the Revolving Credit Facility. The Revolving Credit Facility matures on June 27, 2018, subject to a one-time option by us to extend such maturity date by one year.
 
The Term Loan Facility is also priced at LIBOR plus an applicable percentage (beginning at 150 basis points, with a range of 100 to 195 basis points) based on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings. At March 31, 2015, we had $200 million in borrowings outstanding under the Term Loan Facility. The Term Loan Facility matures on June 27, 2019.
 
In January 2015, we entered into an engagement letter with respect to various proposed amendments to our existing 2014 Credit Facilities. The amendments to our senior unsecured credit facility were completed on April 1, 2015. See Note 15 – Subsequent Events for more details.

HUD Mortgage Loans Payoff

On March 31, 2015, we paid approximately $154.3 million to retire 21 mortgage loans guaranteed by U.S. Department of Housing and Urban Development (“HUD”), totaling approximately 146.9 million. 18 loans had an all-in blended interest rate of 5.35% per annum with maturities between January 2040 and January 2045 and three loans had an all-in blended interest rate of 5.23% per annum with maturities between February 2040 and February 2045. The payoff resulted in a $2.3 million gain on the extinguishment of the debt due to the write-off of the $9.7 million unamortized debt premium recorded at the time of acquisition offset by a prepayment fee of approximately $7.4 million.

Issuance of $700 Million of Senior Notes

On March 18, 2015, we sold $700 million aggregate principal amount of our 4.50% Senior Notes due 2027 (the “2027 Notes”). The 2027 Notes were sold at an issue price of 98.546% of their face value before the initial purchasers’ discount. The Company’s total net proceeds from the offering, after deducting initial purchasers’ discounts and other offering expenses, were approximately $683 million. The net proceeds of the offering have or will be used for general corporate purposes, including the repayment of Aviv indebtedness on April 1, 2015 in connection with Omega’s acquisition of Aviv by merger, and repayment of future maturities on Omega’s outstanding debt.

The 2027 Notes mature on April 1, 2027. The 2027 Notes bear an interest rate of 4.50% per annum, and are fully and unconditionally guaranteed, jointly and severally, by our existing and future subsidiaries that guarantee indebtedness for money borrowed by Omega in a principal amount at least equal to $50 million (including as of the date hereof our existing senior notes and the facilities under our credit agreement). The 2027 Notes are Omega’s unsecured senior obligations and rank equally in right of payment with all of Omega’s existing and future senior debt and is senior in right of payment to all of Omega’s existing and future subordinated debt. Omega may redeem some or all of the 2027 Notes prior to January 1, 2027 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium calculated by reference to U.S. treasuries with a maturity comparable to the remaining term of the 2027 Notes, and accrued and unpaid interest, if any, to, but not including, the applicable redemption date. The 2027 Notes will be redeemable at any time on or after January 1, 2027 at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.

$200 Million 7.5% Senior Notes due 2020 Redemption

On March 13, 2015, Omega redeemed all of its outstanding 7.5% Senior Notes due 2020 (the “2020 Notes”) at a redemption price of approximately $208.7 million, consisting of 103.750% of the principal amount, plus accrued and unpaid interest on such notes to, but not including, the date of redemption.
 
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In connection with the redemption, during the first quarter of 2015, we recorded approximately $11.7 million redemption related costs and write-offs, including $7.5 million in prepayment fees for early redemption and $4.2 million of write-offs associated with unamortized deferred financing and discount costs. The consideration for the redemption of the 2020 Notes was funded from the net proceeds of the 10.925 million share common stock offering. See Note 7 Dividends and Stockholders’ Equity for additional details.
 
NOTE 11 – FINANCIAL INSTRUMENTS

At March 31, 2015 and December 31, 2014, the carrying amounts and fair values of our financial instruments were as follows:
                                 
   
March 31, 2015
   
December 31, 2014
 
   
Carrying
Amount
   
Fair
Value
   
Carrying
Amount
   
Fair
Value
 
Assets:
 
(in thousands)
 
Cash and cash equivalents
  $ 700,143     $ 700,143     $ 4,489     $ 4,489  
Restricted cash
    27,880       27,880       29,076       29,076  
Investment in direct financing leases
    541,846       541,846       539,232       539,232  
Mortgage notes receivable – net
    649,793       646,088       648,079       642,626  
Other investments – net
    48,268       53,315       48,952       49,513  
Totals
  $ 1,967,930     $ 1,969,272     $ 1,269,828     $ 1,264,936  
Liabilities:
                               
Revolving line of credit
  $     $     $ 85,000     $ 85,000  
Term loan
    200,000       200,000       200,000       200,000  
7.50% notes due 2020 – net
                198,235       264,269  
6.75% notes due 2022 – net
    580,237       752,996       580,410       677,851  
5.875% notes due 2024 – net
    400,000       461,054       400,000       449,242  
4.95% notes due 2024 – net
    394,909       418,462       394,768       410,358  
4.50% notes due 2025 – net
    247,942       255,852       247,889       244,053  
4.50% notes due 2027 – net
    689,857       687,048              
HUD debt
    93,719       96,224       251,454       266,434  
Subordinated debt
    20,712       28,620       20,747       26,434  
Totals
  $ 2,627,376     $ 2,900,256     $ 2,378,503     $ 2,623,641  

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 Annual Report on Form 10-K for the year ended December 31, 2014). 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 consolidated 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 value 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).
 
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Direct financing leases: The fair value of the direct financing receivables are estimated using a discounted cash flow analysis, using interest rates being offered for similar leases to borrowers with similar credit ratings (Level 3).

 
Other investments: Other investments are primarily comprised of notes receivable. 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).

 
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 3).

 
Senior notes and subordinated debt: 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).

 
HUD debt: The fair value of our borrowings under HUD debt agreements are estimated based on quotes obtained by HUD debt brokers (Level 2).
 
NOTE 12 – 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.

As previously reported, four putative class actions were filed by purported stockholders of Aviv against Aviv, its directors, the Company and Merger Sub challenging the Merger. The lawsuits sought injunctive relief preventing the parties from consummating the Merger, rescission of the transactions contemplated by the Merger Agreement, imposition of a constructive trust in favor of the class upon any benefits improperly received by the defendants, compensatory damages, and litigation costs including attorneys’ fees. The four cases were transferred to the Business and Technology Case Management Program of the Circuit Court, Baltimore City, Maryland. The plaintiffs in each case amended their complaints to add allegations that the disclosures in the Form S-4 filed with the Securities and Exchange Commission on January 5, 2015 in connection with the Merger, were inadequate to allow Aviv shareholders to make an informed decision whether to approve the Merger. On January 28, 2015, the court entered a stipulated consolidation order consolidating the four lawsuits into a single proceeding styled In re Aviv REIT Inc. Stockholder Litigation, Case No. 24-C-14-006352. On February 6, 2015, (1) Aviv, the Aviv Partnership and the Aviv directors filed a motion to dismiss the consolidated complaint and (2) the Company, Merger Sub and the Omega Operating Partnership separately moved to dismiss the consolidated complaint as to them. The plaintiffs have moved to expedite the discovery period. On March 20, 2015, the court granted the defendants’ motions to dismiss the consolidated complaint.

In addition to these lawsuits, Omega is aware of a derivative demand letter that was delivered to the Aviv board of directors by Gary Danley (“Danley”), who subsequently filed one of the aforementioned lawsuits. The allegations in the demand letter are substantially similar to the allegations in Danley’s complaint.

Omega believes that these actions have no merit and intends to defend vigorously against any further attempts to prosecute these claims. The time period for taking an appeal of the grant of the motions to dismiss has now expired and, as a result, we believe these matters are now concluded.
 
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NOTE 13 – 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.

The following tables set forth the computation of basic and diluted earnings per share:
                 
   
Three Months Ended
March 31,
 
   
2015
   
2014
 
   
(in thousands, except per share amounts)
 
Numerator:
           
Net income
  $ 43,052     $ 55,829  
Numerator for net income available to common stockholders’ per share - basic and diluted
  $ 43,052     $ 55,829  
                 
Denominator:
               
Denominator for basic earnings per share
    134,346       124,459  
Effect of dilutive securities:
               
Common stock equivalents
    460       363  
Denominator for diluted earnings per share
    134,806       124,822  
                 
Earnings per share – basic:
               
Net income – basic
  $ 0.32     $ 0.45  
Earnings per share – diluted:
               
Net income – diluted
  $ 0.32     $ 0.45  
 
NOTE 14 – CONSOLIDATING FINANCIAL STATEMENTS

As of March 31, 2015, we had outstanding: (i) $575 million 6.75% Senior Notes due 2022, (ii) $400 million 5.875% Senior Notes due 2024, (iii) $400 million 4.95% Senior Notes due 2024, (iv) $250 million 4.5% Senior Notes due 2025 and (v) $700 million 4.5% Senior Notes due 2027, 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 2014 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 the 2014 Credit Facilities.

For the three months ended March 31, 2015 and 2014, we had 47 and 52 “unrestricted subsidiaries” respectively. During the third quarter of 2014, four subsidiaries were re-designated as “restricted subsidiaries and Subsidiary Guarantors” due to the retirement of the HUD related debt on four facilities in September 2014. In October 2014, we retired HUD debt on one facility and one subsidiary was re-designated as a restricted subsidiary.

On March 31, 2015, the Company paid off HUD debt related to 21 facilities and 32 subsidiaries will be re-designated as “restricted subsidiaries and Subsidiary Guarantors”.
 
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For the three months ended March 31, 2015 and 2014, the operating cash flow of the non-guarantor subsidiaries approximated net income of the non-guarantor subsidiaries, adjusted for depreciation and amortization expense and rent recorded on a straight-line basis. On September 30, 2014, we retired four HUD mortgages, $34.3 million related to the outstanding principal of the four HUD mortgages, $3.3 million related to the noncash write off of unamortized premium recorded at the time of acquisition offset by a prepayment fee of approximately $1.7 million. On October 31, 2014, we retired one HUD mortgage, $3.4 million related to the outstanding principal of the mortgage, $0.2 million related to noncash of unamortized premium offset by a prepayment fee of approximately $0.2 million.

On March 31, 2015, we retired 21 HUD mortgages, $146.9 million related to the outstanding principal of the 21 HUD mortgages, $9.7 million related to the noncash write off of unamortized premium recorded at the time of acquisition offset by a prepayment fee of approximately $7.4 million.

For the three months ended March 31, 2015, and 2014, the non-guarantor subsidiaries did not engage in investing or financing activities other than the principal payment of $1.0 and $1.1 million, respectively for the HUD mortgages on the facilities owned by the non-guarantor subsidiaries. As of March 31, 2015, all of the Subsidiary Guarantors of our outstanding Senior Notes and 2014 Credit Facilities, and all of our non-guarantor subsidiaries, are 100% owned by Omega. See Note 15 – Subsequent Events.
 
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.

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OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING BALANCE SHEETS
Unaudited
(in thousands, except per share amounts)
 
   
March 31, 2015
 
   
Issuer &
Subsidiary
Guarantors
   
Non-Guarantor
Subsidiaries
   
Elimination Company
   
Consolidated
 
                         
ASSETS
                       
Real estate properties
                       
Land and buildings
  $ 2,837,697     $ 390,286     $ -     $ 3,227,983  
Less accumulated depreciation
    (776,167 )     (71,073 )     -       (847,240 )
Real estate properties – net
    2,061,530       319,213       -       2,380,743  
Investment in direct financing leases
    541,846       -       -       541,846  
Mortgage notes receivable – net
    649,793       -       -       649,793  
      3,253,169       319,213       -       3,572,382  
Other investments – net
    48,268       -       -       48,268  
      3,301,437       319,213       -       3,620,650  
Assets held for sale – net
    16,877       -       -       16,877  
Total investments
    3,318,314       319,213       -       3,637,527  
                                 
Cash and cash equivalents
    700,143       -       -       700,143  
Restricted cash
    7,052       20,828       -       27,880  
Accounts receivable – net
    168,464       8,413       -       176,877  
Investment in affiliates
    224,843       -       (224,843 )     -  
Other assets
    45,506       10,087       -       55,593  
Total assets
  $ 4,464,322     $ 358,541     $ (224,843 )   $ 4,598,020  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                               
Term loan
  $ 200,000     $ -     $ -     $ 200,000  
Secured borrowings
    -       93,719       -       93,719  
Unsecured borrowings – net
    2,312,945       20,712       -       2,333,657  
Accrued expenses and other liabilities
    180,424       19,267       -       199,691  
Intercompany payable
    -       184,916       (184,916 )     -  
Total liabilities
    2,693,369       318,614       (184,916 )     2,827,067  
                                 
Stockholders’ equity:
                               
Common stock
    13,875       -       -       13,875  
Common stock – additional paid-in capital
    2,580,248       -       -       2,580,248  
Cumulative net earnings
    1,191,050       39,927       (39,927 )     1,191,050  
Cumulative dividends paid
    (2,014,220 )     -       -       (2,014,220 )
Total stockholders’ equity
    1,770,953       39,927       (39,927 )     1,770,953  
Total liabilities and stockholders’ equity
  $ 4,464,322     $ 358,541     $ (224,843 )   $ 4,598,020  
 
23
 

 


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

   
December 31, 2014
 
   
Issuer &
Subsidiary
Guarantors
   
Non –
Guarantor
Subsidiaries
   
Elimination Company
   
Consolidated
 
                         
ASSETS
                       
Real estate properties
                       
Land and buildings
  $ 2,834,498     $ 389,287     $     $ 3,223,785  
Less accumulated depreciation
    (754,517 )     (67,195 )           (821,712 )
Real estate properties – net
    2,079,981       322,092             2,402,073  
Investment in direct financing leases
    539,232                   539,232  
Mortgage notes receivable – net
    648,079                   648,079  
      3,267,292       322,092             3,589,384  
Other investments – net
    48,952                   48,952  
      3,316,244       322,092             3,638,336  
Assets held for sale – net
    12,792                   12,792  
Total investments
    3,329,036       322,092             3,651,128  
                                 
Cash and cash equivalents
    4,489                   4,489  
Restricted cash
    7,016       22,060             29,076  
Accounts receivable – net
    160,789       7,387             168,176  
Investment in affiliates
    73,622             (73,622 )      
Other assets
    42,876       25,900             68,776  
Total assets
  $ 3,617,828     $ 377,439     $ (73,622 )   $ 3,921,645  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                               
Revolving line of credit
  $ 85,000     $     $     $ 85,000  
Term loan
    200,000                   200,000  
Secured borrowings
          251,454             251,454  
Unsecured borrowings – net
    1,821,302       20,747             1,842,049  
Accrued expenses and other liabilities
    110,199       31,616             141,815  
Intercompany payable
          40,309       (40,309 )      
Total liabilities
    2,216,501       344,126       (40,309 )     2,520,318  
                                 
Stockholders’ equity:
                               
Common stock
    12,761                   12,761  
Common stock – additional paid-in-capital
    2,136,234                   2,136,234  
Cumulative net earnings
    1,147,998       33,313       (33,313 )     1,147,998  
Cumulative dividends paid
    (1,895,666 )                 (1,895,666 )
Total stockholders’ equity
    1,401,327       33,313       (33,313 )     1,401,327  
Total liabilities and stockholders’ equity
  $ 3,617,828     $ 377,439     $ (73,622 )   $ 3,921,645  
 
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OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
       
   
Three Months Ended March 31, 2015
 
   
Issuer & Subsidiary Guarantors
   
Non –
Guarantor
Subsidiaries
   
 
 
Elimination
   
Consolidated
 
Revenue
                       
Rental income
  $ 89,610     $ 11,354     $ -     $ 100,964  
Income from direct financing leases
    14,346       -       -       14,346  
Mortgage interest income
    16,579       -       -       16,579  
Other investment income – net
    1,531       -       -       1,531  
Total operating revenues
    122,066       11,354       -       133,420  
                                 
Expenses
                               
Depreciation and amortization
    26,732       3,878       -       30,610  
General and administrative
    5,977       37       -       6,014  
Acquisition costs
    4,868       -       -       4,868  
Provision for impairment on real estate properties
    5,982       -       -       5,982  
Provision for uncollectible mortgages, notes and accounts receivable
    (2 )     -       -       (2 )
Total operating expenses
    43,557       3,915       -       47,472  
                                 
Income before other income and expense
    78,509       7,439       -       85,948  
Other income (expense):
                               
Interest income
    186       7       -       193  
Interest expense
    (29,235 )     (3,124 )     -       (32,359 )
Interest – amortization of deferred financing costs
    (1,348 )     (5 )     -       (1,353 )
Interest – refinancing costs
    (11,674 )     2,297       -       (9,377 )
Equity in earnings
    6,614       -       (6,614 )     -  
Total other expense
    (35,457 )     (825 )     (6,614 )     (42,896 )
                                 
Income before gain (loss) on assets sold
    43,052       6,614       (6,614 )     43,052  
Gain (loss) on assets sold – net
    -       -       -       -  
Net income available to common stockholders
  $ 43,052     $ 6,614     $ (6,614 )   $ 43,052  
 
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OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
       
   
Three Months Ended March 31, 2014
 
   
Issuer &
Subsidiary
Guarantors
   
Non –
Guarantor
Subsidiaries
   
 
 
Elimination
   
Consolidated
 
Revenue
                       
Rental income
  $ 85,412     $ 10,506     $ -     $ 95,918  
Income from direct financing leases
    14,084       -       -       14,084  
Mortgage interest income
    9,326       -       -       9,326  
Other investment income – net
    1,673       -       -       1,673