Omega Healthcare Earnings 2019-06-30

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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

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For the quarterly period ended June 30, 2019

or

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

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For the transition period from                           to                           

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OMEGA HEALTHCARE INVESTORS, INC.

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

​

​	​	​
Maryland	1-11316	38-3041398
(Omega Healthcare Investors, Inc.)	(Omega Healthcare Investors, Inc.)	(Omega Healthcare Investors, Inc.)
Delaware	333-203447-11	36-4796206
(OHI Healthcare Properties Limited Partnership)	(OHI Healthcare Properties Limited Partnership)	(OHI Healthcare Properties Limited Partnership)
(State or other jurisdiction of incorporation or organization)	(Commission file number)	(IRS Employer Identification No.)

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303 International Circle, Suite 200, Hunt Valley, MD 21030

(Address of principal executive offices)

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(410) 427-1700

(Registrant’s telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.10 par value	OHI	New York Stock Exchange

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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.

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Omega Healthcare Investors, Inc. Yes      No  ◻	OHI Healthcare Properties Limited Partnership Yes    No  ◻

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

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Omega Healthcare Investors, Inc. Yes      No  ◻	OHI Healthcare Properties Limited Partnership Yes    No  ◻

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

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Omega Healthcare Investors, Inc.

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OHI Healthcare Properties Limited Partnership

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

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Omega Healthcare Investors, Inc. ☐

OHI Healthcare Properties Limited Partnership ☐

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

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Omega Healthcare Investors, Inc. Yes  ☐

No ⌧

OHI Healthcare Properties Limited Partnership Yes  ☐

No ⌧

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Indicate the number of shares outstanding of each of the issuers’ classes of common stock as of August 2, 2019

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Table of Contents

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2019 of Omega Healthcare Investors, Inc. and OHI Healthcare Properties Limited Partnership (“Omega OP”). Unless stated otherwise or the context otherwise requires, (i) references to “Omega” or the “Company” means Omega Healthcare Investors, Inc. and its consolidated subsidiaries, (ii) references to “Parent” refer to Omega Healthcare Investors, Inc. without regard to its consolidated subsidiaries, and (iii) references to “Omega OP” means OHI Healthcare Properties Limited Partnership and its consolidated subsidiaries.

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

Parent directly owned approximately 97% of the issued and outstanding partnership units in Omega OP (the “Omega OP Units”) at June 30, 2019. Each Omega OP Unit (other than those owned by Parent) is redeemable at the election of the holder for cash equal to the then-fair market value of one share of common stock of Parent, subject to Parent’s election to exchange the Omega OP Units tendered for redemption for common stock of the Parent on a one-for-one basis in an unregistered transaction, subject to adjustment as set forth in the partnership agreement. The management of Parent consists of the same members as the management of Omega OP.

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

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

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

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

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

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

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

●

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

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

Table of Contents

OMEGA HEALTHCARE INVESTORS, INC.

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

FORM 10-Q

June 30, 2019

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TABLE OF CONTENTS
​	​	Page No.
PART I	Financial Information	​
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Item 1.	Financial Statements of Omega Healthcare Investors, Inc.:	​
​	Consolidated Balance Sheets	​
​	June 30, 2019 (unaudited) and December 31, 2018	2
​	Consolidated Statements of Operations (unaudited)	​
​	Three and Six months ended June 30, 2019 and 2018	3
​	Consolidated Statements of Comprehensive Income (unaudited)	​
​	Three and Six months ended June 30, 2019 and 2018	4
​	Consolidated Statements of Changes in Equity (unaudited)	​
​	Three and Six months ended June 30, 2019 and 2018	5
​	Consolidated Statements of Cash Flows (unaudited)	​
​	Six months ended June 30, 2019 and 2018	7
​	Financial Statements of OHI Healthcare Properties Limited Partnership:	​
​	Consolidated Balance Sheets	​
​	June 30, 2019 (unaudited) and December 31, 2018	8
​	Consolidated Statements of Operations (unaudited)	​
​	Three and Six months ended June 30, 2019 and 2018	9
​	Consolidated Statements of Comprehensive Income (unaudited)	​
​	Three and Six months ended June 30, 2019 and 2018	10
​	Consolidated Statements of Changes in Owners’ Equity (unaudited)	​
​	Three and Six months ended June 30, 2019 and 2018	11
​	Consolidated Statements of Cash Flows (unaudited)	​
​	Six months ended June 30, 2019 and 2018	13
​	Notes to Consolidated Financial Statements	​
​	June 30, 2019 (unaudited)	14
​	​	​
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
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Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
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Item 4.	Controls and Procedures	65
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PART II	Other Information	​
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Item 1.	Legal Proceedings	66
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Item 1A.	Risk Factors	66
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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
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Item 5.	Other Information	68
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Item 6.	Exhibits	69

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Table of Contents

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PART I – FINANCIAL INFORMATION

Item 1 - Financial Statements

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

​	​	​	​	​	​	​	​
​		June 30,			December 31,		​
​		2019			2018
​	​	(Unaudited)		​	​	​	​
ASSETS	​	​		​	​	​	​
Real estate properties		​			​		​
Real estate investments	​	$	8,373,540		$	7,746,410	​
Less accumulated depreciation	​		(1,689,438)			(1,562,619)	​
Real estate investments – net	​		6,684,102			6,183,791	​
Investments in direct financing leases – net	​		11,709			132,262	​
Mortgage notes receivable – net	​		774,327			710,858	​
​	​		7,470,138			7,026,911	​
Other investments	​		367,233			504,626	​
Investments in unconsolidated joint ventures	​		102,838			31,045	​
Assets held for sale – net	​		4,606			989	​
Total investments	​		7,944,815			7,563,571	​
​	​	​	​	​	​	​	​
Cash and cash equivalents	​		32,766			10,300	​
Restricted cash	​		1,372			1,371	​
Contractual receivables – net	​		25,903			33,826	​
Other receivables and lease inducements	​	​	342,030	​	​	313,551	​
Goodwill	​		643,875			643,950	​
Other assets	​		107,659			24,308	​
Total assets	​	$	9,098,420		$	8,590,877	​
​	​	​	​	​	​	​	​
LIABILITIES AND EQUITY	​						​
Revolving line of credit	​	$	500,000		$	313,000	​
Term loans – net	​		898,604			898,726	​
Secured borrowing	​		2,275			—	​
Senior notes and other unsecured borrowings – net	​		3,331,905			3,328,896	​
Accrued expenses and other liabilities	​		300,303			272,172	​
Deferred income taxes	​		12,827			13,599	​
Total liabilities	​		5,045,914			4,826,393	​
​	​	​	​	​	​	​	​
Equity:	​				​		​
Common stock $.10 par value authorized – 350,000 shares, issued and outstanding – 216,089 shares as of June 30, 2019 and 202,346 as of December 31, 2018	​		21,608		​	20,235	​
Common stock – additional paid-in capital	​		5,580,042		​	5,074,544	​
Cumulative net earnings	​		2,265,156		​	2,130,511	​
Cumulative dividends paid	​		(4,013,116)		​	(3,739,197)	​
Accumulated other comprehensive loss	​		(50,719)		​	(41,652)	​
Total stockholders’ equity	​		3,802,971		​	3,444,441	​
Noncontrolling interest	​		249,535		​	320,043	​
Total equity	​		4,052,506		​	3,764,484	​
Total liabilities and equity	​	$	9,098,420		$	8,590,877	​

See notes to consolidated financial statements.

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2

Table of Contents

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share amounts)

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Three Months Ended

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Six Months Ended

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June 30,

June 30,

​

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2019

2018

2019

2018

Revenue

​

​

​

​

​

​

​

​

​

​

​

​

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Rental income

​

$

194,817

​

$

192,850

$

386,994

​

$

386,799

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Income from direct financing leases

​

259

​

497

519

​

1,110

​

Mortgage interest income

​

18,832

​

16,834

36,966

​

33,413

​

Other investment income

​

11,133

​

9,097

23,047

​

17,624

​

Miscellaneous income

​

238

​

603

1,441

​

1,134

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Total operating revenues

​

225,279

​

219,881

448,967

​

440,080

​

​

​

​

​

​

​

​

​

​

​

​

​

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Expenses

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​

​

​

Depreciation and amortization

​

73,637

​

69,609

144,489

​

139,970

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General and administrative

​

13,875

​

15,237

30,008

​

31,712

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Real estate taxes

​

​

4,030

​

​

—

​

​

7,912

​

​

—

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Acquisition costs

​

1,236

​

—

4,185

​

—

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Impairment (recovery) on real estate properties

​

5,709

​

(1,097)

5,709

​

3,817

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Impairment on direct financing leases

​

—

​

—

7,700

​

—

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Provision for uncollectible accounts

​

—

​

564

—

​

8,378

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Total operating expenses

​

98,487

​

84,313

200,003

​

183,877

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other operating (loss) income

​

​

​

​

​

​

​

​

​

​

​

​

​

(Loss) gain on assets sold – net

​

​

(267)

​

​

(2,891)

​

​

(264)

​

​

14,609

​

Operating income

​

126,525

​

132,677

248,700

​

270,812

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other income (expense)

​

​

​

​

​

​

Interest income and other – net

​

(191)

​

1,125

146

​

1,710

​

Interest expense

​

(48,380)

​

(48,082)

(96,480)

​

(96,093)

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Interest – amortization of deferred financing costs

​

(2,238)

​

(2,242)

(4,476)

​

(4,485)

​

Realized loss on foreign exchange

​

(195)

​

(66)

(169)

​

(7)

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Total other expense

​

(51,004)

​

(49,265)

(100,979)

​

(98,875)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

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Income from continuing operations

​

75,521

​

83,412

147,721

​

171,937

​

Income tax expense

​

(793)

​

(838)

(1,468)

​

(1,381)

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Income (loss) from unconsolidated joint ventures

​

943

​

(588)

1,600

​

(637)

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Net income

​

75,671

​

81,986

147,853

​

169,919

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Net income attributable to noncontrolling interest

​

(2,530)

​

(3,450)

(5,010)

​

(7,163)

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Net income available to common stockholders

​

$

73,141

​

$

78,536

$

142,843

​

$

162,756

​

​

​

​

​

​

​

​

​

​

​

​

​

​

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Earnings per common share/unit available to common stockholders:

​

​

​

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Basic:

​

​

​

​

Net income available to common stockholders

​

$

0.35

​

$

0.39

$

0.69

​

$

0.82

​

Diluted:

​

​

​

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Net income

​

$

0.34

​

$

0.39

$

0.68

​

$

0.82

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​

​

​

​

​

​

​

​

​

​

​

​

​

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Weighted-average shares outstanding, basic

​

211,569

​

199,497

208,064

​

199,204

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Weighted-average shares outstanding, diluted

​

220,479

​

208,460

217,002

​

208,139

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See notes to consolidated financial statements.

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