<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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or
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11316
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OMEGA HEALTHCARE INVESTORS, INC.
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(Exact name of Registrant as specified in its charter)
Maryland 38-3041398
(State of Incorporation) (I.R.S. Employer Identification No.)
905 W. Eisenhower Circle, Suite 110, Ann Arbor, MI 48103
(Address of principal executive offices)
(313) 747-9790
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of September 30, 1996
Common Stock, $.l0 par value 17,147,249
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(Class) (Number of shares)
<PAGE> 2
OMEGA HEALTHCARE INVESTORS, INC
FORM 10-Q
SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I Financial Information Page No.
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<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets- 3
September 30, 1996 (unaudited)
and December 31, 1995
Statements of Operations (unaudited)- 4
Three-month and Nine-month periods ended
September 30, 1996 and 1995
Statement of Cash Flows (unaudited)- 5
Nine-month periods ended
September 30, 1996 and 1995
Notes to Condensed Financial Statements 6
September 30, 1996 (unaudited)
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations
PART II Other Information
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Item 5. Other Information 9
Item 6. Exhibits and Reports 9
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMEGA HEALTHCARE INVESTORS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
----------- -----------
(Unaudited) (See Note)
ASSETS
<S> <C> <C>
Investments in real estate:
Real estate properties - net $346,116 $336,720
Mortgage notes receivable 228,465 158,290
-------- --------
574,581 495,010
Other investments 59,577 32,599
-------- --------
634,158 527,609
Cash and short-term investments 3,453 6,426
Goodwill and non-compete agreements - net 8,011 9,228
Other assets 10,834 7,925
-------- --------
$656,456 $551,188
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition line of credit $62,838 $74,690
Unsecured borrowings 111,384 86,384
Secured borrowings 24,027 34,069
Subordinated convertible debentures 95,000
Accounts payable and accrued expenses 9,609 8,917
-------- --------
Total Liabilities 302,858 204,060
Common stock and additional
paid-in capital 375,188 362,468
Cumulative net earnings 82,270 56,784
Cumulative dividends paid (103,739) (72,071)
Unamortized restricted stock awards (121) (53)
-------- --------
Total Shareholders' Equity 353,598 347,128
-------- --------
$656,456 $551,188
======== ========
</TABLE>
Note - The balance sheet at December 31, 1995, has been derived from audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements.
<PAGE> 4
OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Rental income $10,690 $10,085 $31,699 $30,034
Mortgage interest income 6,439 4,824 17,691 13,710
Other investment income 1,681 677 3,985 677
Other 205 286 592
------- ------- ------- -------
18,810 15,791 53,661 45,013
EXPENSES
Depreciation and amortization 3,424 3,209 10,176 9,430
Interest 5,577 4,141 15,097 11,468
General and administrative 993 957 2,902 2,580
------- ------- ------- -------
9,994 8,307 28,175 23,478
------- ------- ------- -------
NET EARNINGS $8,816 $7,484 $25,486 $21,535
======= ======= ======= =======
Net earnings per share $0.51 $0.46 $1.49 $1.35
======= ======= ======= =======
Dividends paid per share $0.62 $0.59 $1.86 $1.77
======= ======= ======= =======
Weighted average number of
shares outstanding 17,142 16,169 17,055 15,941
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $25,486 $21,535
Adjustment to reconcile net earnings to cash
provided by operations:
Depreciation and amortization 10,176 9,430
Other noncash items 448 1,160
------- -------
Cash from operating activities
available for distribution 36,110 32,125
Net change in operating assets and liabilities 179 2,122
------- -------
Net cash provided by operating activities 36,289 34,247
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (31,668) (28,145)
Proceeds from Dividend Reinvestment Plan 12,545 14,248
(Payments) proceeds on acquisition line of credit (11,852) 45,860
Term loan borrowings 25,000
Proceeds from subordinated convertible debentures,
less issue costs 92,650
Payments of long-term borrowings (10,042) (7,879)
Refund of transaction deposits (2,310)
Other (373) (1,267)
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Cash provided by financing activities 76,260 20,507
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate (18,338) (5,458)
Placement of mortgage loans (70,531) (15,300)
Fundings of other investments (26,978) (32,078)
Advance funding of investments (3,904)
Collections of mortgage notes 355 754
Other (30) (16)
------- -------
Cash used in investing activities (115,522) (56,002)
------- -------
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($2,973) ($1,248)
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1996
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
and nine-month periods ended September 30, 1996, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
Note B - Third Quarter Real Estate Investments
The Company provided a $4,941,000 participating mortgage loan to HCPIII
Hillsborough, Inc., a subsidiary of Premiere Associates in August 1996. This
mortgage relates to a facility located in Florida with a total of 180 licensed
beds.
In August 1996 the Company purchased from Manor Healthcare Corp., four
skilled nursing facilities with 517 total beds for a total purchase
consideration of $17,700,000. The facilities are located in Texas, Illinois,
Indiana and Iowa. Simultaneously, a lease agreement for these facilities was
executed with Sunrise Healthcare Corporation, a subsidiary of Sun Healthcare
Group, Inc.
During the third quarter the Company also purchased a mortgage portfolio
of 23 nursing homes with 2,497 licensed beds from Vencor, Inc. The portfolio
of first lien mortgages were purchased for approximately $30,250,000.
Note C - Asset Concentrations
As of September 30, 1996, approximately 53% of the Company's total real
estate investments relate to publicly traded operators. Investments with these
operators are represented by: Advocat, Inc. (18.3%); Professional Healthcare
Management, Inc., a subsidiary of GranCare, Inc., (9.7%); Unison Healthcare
(7.9%); Regency Healthcare Services (7.6%); Res-Care (4.7%); Sunrise
Healthcare Corporation, a subsidiary of Sun Healthcare Group, Inc. (2.9%) and
Integrated Health Services (1.7%). Advocat, Inc. is the only operator
representing more than 10% of total real estate investments.
Note D - Net Earnings Per Share
Net earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the respective periods. The
inclusion of options using the treasury stock method and the assumed conversion
of debentures outstanding is not materially dilutive.
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenues for the three-month and nine-month periods ending September 30,
1996 totaled $18.8 and $53.7 million respectively, an increase of $3.0 million
and $8.6 million, respectively over the same periods in 1995. The 1996 revenue
growth stems primarily from yields on additional investments of approximately
$132 million during the twelve-month period ended September 30, 1996.
Additionally, approximately $1,035,000 of the nine-month increase stems from
participating incremental net revenues which became effective in 1996. Real
estate investments of $604 million as of September 30, 1996 have an average
yield of 11.93%.
Expenses for the three-months ending September 30 1996 totaled $9,994,000,
an increase of $1.7 million over expenses of $8.3 million for the same period
in 1995. Expenses for the nine-month period ending September 30, 1996 totaled
$28.2 million, increasing $4.7 million over total expenses for the 1995
nine-month period. The provision for depreciation and amortization for the
three-month and nine-month periods ending September 30, 1996 totaled $3.4
million and $10.2, respectively, increasing by $231,000 and $795,000 over the
1995 periods as a result of additional investments in real estate properties.
Interest expense for the quarter ended September 30, 1996 was
approximately $5.6 million, compared with $4.1 million for the 1995 three-month
period. For the nine-month period ended September 30, 1996, interest expense
totaled approximately $15.1 million, increasing $3.6 million over the 1995
period. The increases in the 1996 periods are primarily due to higher average
borrowings, offset by lower interest rates.
General and administrative expense for the three-months and nine-months
ended September 30, 1996 totaled approximately $993,000 and $2,902,000. These
expenses for the three-month and nine-month periods were approximately 5.3%
and 5.4% of revenues as compared to 6.1% and 5.7% for the same periods in 1995.
No provision for federal income taxes has been made since the Company
intends to continue to qualify as a real estate investment trust under the
provisions of the Internal Revenue Code. Accordingly, the Company will not be
subject to federal income taxes on amounts distributed to shareholders provided
it distributes at least 95% of its real estate investment trust taxable income
and meets certain other conditions.
As a result of the various factors mentioned above, net earnings were $8.8
million for the three-month 1996 period, an increase of approximately 17.8%
over the 1995 period. Net earnings for the nine-month period in 1996 increased
approximately $3,951,000 (18.3%) over the 1995 period. Net earnings per share
for the three-month period ending September 30 were $0.51 in 1996 and $0.46 in
1995, while net earnings per share for the nine-month period were $1.49 in
1996 and $1.35 in 1995. The 1996 per share increases stem from additional net
earnings offset by an increase in average shares outstanding during the 1996
periods.
Cash provided by operating activities available for distribution (FAD) for
the nine-month period ending September 30, 1996 was $36,110,000, an increase of
$4.0 million (12.4%) over the 1995 nine-month period. FAD is net earnings,
excluding any gains or losses from debt restructuring and sales of property,
plus depreciation and amortization associated with real estate investments,
amortization of deferred financing cost and the net effect of all other
non-cash items included in net earnings. Funds From Operations (FFO) totaled
$0.72 per share ($12,411,000) for the 1996 third quarter, increasing 7.5% as
compared to $0.67 per share for the three months ended September 30,1995. For
the 1996 nine-month period FFO totaled $36.2 million ($2.12 per share)
increasing $4.6 million and $0.14 per share over the nine-months ending in
1995. FFO is net earnings, excluding any gains or losses from debt
restructuring and sales of property, plus depreciation and amortization
associated with real estate investments and charges to earnings for non-cash
compensation. While there generally is very little difference between FAD and
FFO for healthcare REITS, both of these measures of cash flow are used by
analysts and investors as benchmarks for measuring
<PAGE> 8
profitability and capacity to sustain dividend payments.
LIQUIDITY AND CAPITAL RESOURCES
The Company continually seeks new investments in healthcare real estate
properties, primarily long-term care facilities, with the objective of
profitable growth and further diversification of the investment portfolio.
Permanent financing for future investments is expected to be provided through a
combination of both private placement and public offerings of debt and/or
equity securities.
In January 1996, the Company completed the placement of $95 million of
8.5% Convertible Subordinated Debentures due 2001. Net proceeds were used to
repay certain borrowings, including $75 million under the acquisition line of
credit and $9.6 million of secured borrowings, and to fund real estate
investments. The debentures are convertible into shares of common stock at a
price of $28.625 per share representing a premium of 105% of the market price
of the Company's stock on the date the debentures were sold. At September 30,
1996, 3,319,000 shares of common stock are reserved for possible issuance upon
conversion.
In June 1996 the Company executed an agreement to increase its current
bank line of credit facility by $50 million and to extend the term of the
revolving credit agreement to July 1999. The increase in the credit facility
allows for an additional $25 million on the revolving credit facility,
increasing it to $125 million, plus the equivalent of $25 million in a pound
sterling denominated term loan due in October 2000. The term loan
availability was drawn in the third quarter.
As of September 30, 1996, the Company has a strong financial position with
total assets of $656 million, shareholders' equity of $354 million, and
long-term borrowings of $230 million representing 35% of the total
capitalization. The Company anticipates eventually attaining and then
maintaining a long-term debt-to-capitalization ratio of approximately 40%. At
September 30, 1996, the Company has available permitted additional borrowings
of approximately $62 million under its new credit arrangement. Management
believes the Company's liquidity and various sources of available capital are
adequate to finance operations, fund future investments in additional
facilities, and meet debt service requirements.
The Company distributes a large portion of the cash available from
operations. The dividend payout ratio, that is the ratio of the per share
amounts of dividends paid to the per share amount of funds from operations, was
87.7% for the nine-month period ended September 30, 1996, compared with 89.3%
for the same period in 1995. On October 16, 1996, a $0.62 per share dividend
was declared, payable on November 15, 1996 to shareholders of record on
November 4, 1996. The current $0.62 per quarter rate represents an annualized
rate of $2.48 per share as compared with an annualized rate of $2.36 paid
during 1995.
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
At the date of this report, the Company has completed arrangements for the
initial institutional investment by U.K. investors in Principal Healthcare
Finance Limited, the Company's United Kingdom affiliate. Of the total of
approximately $46,000,000 of subordinated debt and equity investment in
Principal, the Company is investing approximately $30 million, U.K.
institutions are investing $14 million and certain directors of the Company are
investing $2.0 million. Proceeds of the funding are expected to be realized on
or before October 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - THE FOLLOWING EXHIBIT IS FILED HEREWITH:
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
(B) Reports on form 8-K - None were filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMEGA HEALTHCARE INVESTORS, INC.
Registrant
Date: October 18, 1996 By: /s/ Essel W. Bailey Jr.
-----------------------------
Essel W. Bailey, Jr.
President
Date: October 18, 1996 By: /s/ David A. Stover
------------------------------
David A. Stover
Chief Financial Officer
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
27 Exhibit 27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FILED AS PART
OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,453
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 656,456
<CURRENT-LIABILITIES> 0
<BONDS> 293,249
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 656,456
<SALES> 0
<TOTAL-REVENUES> 53,661
<CGS> 0
<TOTAL-COSTS> 10,176
<OTHER-EXPENSES> 2,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,097
<INCOME-PRETAX> 25,486
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,486
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49<F1>
<FN>
<F1>EPS-DILUTED NOT SEPARATELY REPORTED BECAUSE INCLUSION OF OPTIONS USING TREASURY
STOCK METHOD AND THE ASSUMED CONVERSION OF DEBENTURES OUTSTANDING NOT
MATERIALLY DILUTIVE.
</FN>
</TABLE>
