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, 1999
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) (I.R.S. Employer Identification No.)
900Victors Way, Suite 350, Ann Arbor, MI 48108 (Address of
principal executive offices)
(734) 887-0200
(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, 1999
Common Stock, $.10 par value 19,887,250
(Class) (Number of shares)
<PAGE>
OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
September 30, 1999
INDEX
Page No.
--------
PART I Financial Information
- ------ ---------------------
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets
September 30, 1999 (unaudited)
and December 31, 1998.................................. 2
Statements of Operations (unaudited)-
Three-month and Nine-month periods ended
September 30, 1999 and 1998............................ 3
Statement of Cash Flows (unaudited)-
Nine-month periods ended
September 30, 1999 and 1998............................ 4
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (unaudited)......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
PART II Other Information
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K ......................... 15
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30 December 31,
1999 1998
---- ----
(Unaudited) (See Note)
ASSETS
<S> <C> <C>
Real estate properties
Land and buildings at cost .............................................. $ 721,445 $ 643,378
Less accumulated depreciation ........................................... (69,125) (56,385)
------- -------
Real estate properties - net .......................................... 652,320 586,993
Mortgage notes receivable ............................................... 251,911 340,455
------- -------
904,231 927,448
Other investments ......................................................... 60,196 41,753
Other real estate ......................................................... 76,834 -
------ ------
1,041,261 969,201
Assets held for sale ...................................................... 25,097 35,289
------ ------
Total Investments (Cost of $1,135,483 at September 30, 1999
and $1,060,875 at December 31, 1998) .................................. 1,066,358 1,004,490
Cash and short-term investments ........................................... 183 1,877
Goodwill and non-compete agreements - net ................................. 3,178 4,422
Other assets .............................................................. 15,343 21,856
------ ------
Total Assets $ 1,085,062 $ 1,032,645
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition lines of credit ............................................... $ 195,100 $ 123,000
Unsecured borrowings ...................................................... 311,131 311,570
Secured borrowings ........................................................ 21,510 21,784
Subordinated convertible debentures ....................................... 48,405 48,405
Deferred purchase obligation .............................................. 6,467 -
Accrued expenses and other liabilities .................................... 11,583 22,124
------ ------
Total Liabilities 594,196 526,883
Preferred Stock ........................................................... 107,500 107,500
Common stock and additional paid-in capital ............................... 449,364 454,445
Cumulative net earnings ................................................... 250,624 212,434
Cumulative dividends paid ................................................. (315,071) (266,054)
Stock option loans ........................................................ (2,796) (2,863)
Unamortized restricted stock awards ....................................... (652) (461)
Accumulated other comprehensive income .................................... 1,897 761
----- ------
Total Shareholders' Equity 490,866 505,762
------- -------
$ 1,085,062 $ 1,032,645
=========== ===========
</TABLE>
Note - The balance sheet at December 31, 1998, has been derived from audited
consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
2
<PAGE>
OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Rental income ....................................................... $ 19,723 $ 19,602 $ 56,431 $ 55,602
Mortgage interest income ............................................ 8,671 6,905 29,076 21,658
Other investment income ............................................. 1,694 1,758 5,105 4,920
Other real estate income ............................................ 951 - 951 -
Miscellaneous ....................................................... 264 169 530 448
----- ----- ----- -----
31,303 28,434 92,093 82,628
Expenses
Depreciation and amortization ....................................... 6,488 5,758 17,948 16,730
Interest ............................................................ 10,992 8,108 31,504 23,787
General and administrative .......................................... 1,468 1,410 4,451 4,082
----- ----- ----- -----
18,948 15,276 53,903 44,599
------ ------ ------ ------
Net earnings before gain on distribution of Omega
Worldwide, Inc. and preferred stock dividends ....................... 12,355 13,158 38,190 38,029
Gain on distribution of Omega Worldwide, Inc .......................... - - - 30,240
------ ------ ------ ------
Net earnings .......................................................... 12,355 13,158 38,190 68,269
Preferred stock dividends ............................................. (2,408) (2,408) (7,224) (5,786)
------ ------ ------ ------
Net earnings available to common ...................................... $ 9,947 $ 10,750 $ 30,966 $ 62,483
======= ======== ======== ========
Net Earnings per common share:
Basic before gain on distribution ................................... $ 0.50 $ 0.53 $ 1.56 $ 1.61
====== ====== ====== ======
Diluted before gain on distribution ................................. $ 0.50 $ 0.53 $ 1.56 $ 1.61
====== ====== ====== ======
Basic after gain on distribution .................................... $ 0.50 $ 0.53 $ 1.56 $ 3.13
====== ====== ====== ======
Diluted after gain on distribution .................................. $ 0.50 $ 0.53 $ 1.56 $ 3.13
====== ====== ====== ======
Dividends paid per common share ....................................... $ 0.70 $ 0.67 $ 2.10 $ 2.01
====== ====== ====== ======
Average Shares Outstanding, Basic ..................................... 19,872 20,173 19,872 19,979
====== ====== ====== ======
Average Shares Outstanding, Diluted ................................... 19,873 20,178 19,873 19,983
====== ====== ====== ======
Other comprehensive income (loss), net of taxes:
Unrealized Gain on Omega Worldwide, Inc. ............................ $ 36 $ (2,835) $ 1,136 $ 3,096
==== ======== ======= =======
Total comprehensive income ............................................ $ 12,391 $ 10,323 $ 39,326 $ 71,365
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net earnings ..................................................................................... $ 38,190 $ 68,269
Adjustment to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization .................................................................. 17,948 16,730
Income realized on assets held for sale ........................................................ 2,214 -
Other non-cash charges ......................................................................... 385 946
Gain on distribution of Omega Worldwide ........................................................ - (30,240)
----- -------
Funds from operations available for distribution and investment .................................. 58,737 55,705
Net change in operating assets and liabilities ................................................... (4,134) (16,418)
------ -------
Net cash provided by operating activities ........................................................ 54,603 39,287
Cash flows from financing activities
Proceeds (payments) of acquisition lines of credit.............................................. 72,100 (44,000)
Proceeds from unsecured note offering .......................................................... - 125,000
Proceeds from preferred stock offering ......................................................... - 50,000
Payments of long-term borrowings ............................................................... (274) (217)
Receipts from Dividend Reinvestment Plan ....................................................... 1,878 1,331
Dividends paid ................................................................................. (49,017) (45,227)
Purchase of 312,100 shares of common stock for retirement ...................................... (8,740) -
Costs of raising capital ....................................................................... - (3,390)
Other .......................................................................................... 431 1,204
--- -----
Net cash provided by financing activities ........................................................ 16,378 84,701
Cash flow from investing activities
Acquisition of real estate ..................................................................... (73,378) (118,345)
Placement of mortgage loans..................................................................... (22,944) (12,000)
Proceeds from assets held for sale ............................................................. 7,829 -
Net proceeds from sale of Omega Worldwide shares ............................................... - 16,938
Fundings of other investments - net ............................................................ (10,798) (10,241)
Collection of mortgage principal ............................................................... 26,616 2,250
Other .......................................................................................... - (2,613)
------ ------
Net cash used in investing activities ............................................................ (72,675) (124,011)
------- --------
Decrease in cash and short-term investments ...................................................... $ (1,694) $ (23)
======== =====
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1999
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for
Omega Healthcare Investors, Inc. (the "Company"), 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, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. 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, 1998.
Note B - Asset Concentrations
As of September 30, 1999, 89.6% of the cost of the Company's real estate
investments ($973.4 million) is related to long-term care skilled nursing
facilities, 4.9% to assisted living facilities, 2.4% to rehabilitation
hospitals, and 3.1% to medical office facilities. These healthcare facilities
are located in 30 states and are operated by 29 independent healthcare operating
companies. Approximately 79.1% of the Company's total investments are operated
by nine public companies, including Sun Healthcare Group, Inc. (24.7%),
Integrated Health Services, Inc. (15.3%), Advocat Inc. (10.6%), RainTree
Healthcare Corporation (f.k.a. Unison Healthcare Corporation) (7.8%), Genesis
Health Ventures, Inc. (6.7%), Mariner Post-Acute Network (5.6%), Alterra
Healthcare Corporation (3.2%) and two other public companies (5.2%). The two
largest private operators represent 4.4% and 3.0% of investments, and no other
operator represents more than 2.5% of investments. Total investments include
Other Real Estate operated for the Company's own account (see Note C). The three
largest states in which investments are located are Florida (14.1%), Texas
(7.5%) and California (6.4%).
Note C - Portfolio Valuation Matters
In the ordinary course of its business activities, the Company periodically
evaluates investment opportunities and extends credit to customers. It also is
regularly engaged in lease and loan extensions and modifications. Additionally,
the Company actively monitors and manages its investment portfolio with the
objectives of improving credit quality and increasing returns. In connection
with portfolio management, it engages in various collection and foreclosure
activities. The Company believes its management has the skills, knowledge and
experience to deal with such issues as may arise from time to time.
5
<PAGE>
When the Company acquires real estate pursuant to a foreclosure proceeding,
it is classified as "other real estate" and recorded at the lower of cost or
fair value based on appraisal. Additionally, when a formal plan to sell real
estate is adopted, the real estate is classified as "assets held for sale," with
the net carrying amount adjusted to the lower of cost or estimated net
realizable value. Based on management's current review of the lease and mortgage
portfolio, no provision for impairment of leased assets or collection losses of
mortgage principal is required as of September 30, 1999.
Assets Held For Sale
During 1998 management was authorized to initiate a plan to dispose of
certain properties judged to have limited long-term potential and to redeploy
the proceeds. As of September 30, 1999, the carrying value of assets held under
plan for disposition total $25.1 million. During the three-month and nine-month
periods ended September 30, 1999, the Company realized disposition proceeds of
$1.0 million and $7.8 million, respectively. Reported net rental revenue for the
1999 three-month and nine-month periods excludes approximately $898,000 and $2.2
million, respectively, of income realized from these assets.
Other Real Estate
The Company owns 18 facilities with 1,665 beds located in three states,
which are operated for its own account. The investment in this real estate is
classified under Other Real Estate as of September 30, 1999. It includes 12
nursing homes located in Massachusetts and Connecticut with 1,259 licensed beds.
The facilities were acquired by the Company on July 14, 1999 in lieu of
foreclosure and are currently being managed by Genesis Healthcare. At September
30, 1999, the Company had invested approximately $70.4 million in these
facilities. The Company presently is considering negotiating a lease with one or
more new operators or selling the facilities. Income from these facilities
approximated $850,000 for the period from July 15 through September 30, 1999.
Other Real Estate also includes six facilities with 406 licensed beds
located in Indiana. Pursuant to the reorganization completed by RainTree
Healthcare Corporation, formerly known as Unison Healthcare Corporation, the
Company terminated its lease with respect to these six facilities. In exchange
for terminating the lease, the Company received $1 million in cash and a $3
million secured note. Income realized for the three months ended September 30,
1999 was approximately $101,000.
6
<PAGE>
Property Agreement with Sun Healthcare Group
On October 14, 1999, the Company completed a comprehensive property
agreement with Sun Healthcare Group ("Sun") related to the 54 facilities leased
by the Company to Sun. Immediately after the agreement was signed, Sun filed for
Chapter 11 reorganization with the Federal Bankruptcy Court at Wilmington,
Delaware and filed a motion with the Bankruptcy Court for authority to fulfill
the terms of the comprehensive property agreement. The Federal Bankruptcy Court
has set a November 12, 1999 hearing date with respect to the comprehensive
property agreement. If approved, the agreement will confirm the existing
economic terms of lease agreements between the Company and Sun with respect to
50 healthcare properties, representing $219 million in investments and $23.2
million in annual rental revenues. Four facilities involving an original
investment of $19.8 million and annual rents of $2.1 million will be managed by
new operators for the account of the Company if operating leases are not in
place upon entry of the court order. As of the date of this report, the Company
has arranged for the lease of one of these facilities with no substantive change
to the rent and other terms of the lease as compared with the Sun lease. Pending
the confirmation of the court order, the Company is considering its various
options with respect to the remaining three facilities.
Purchase / Prepayment Options
The Company received notice from a mortgagor that it intends to prepay a
mortgage balance of approximately $26 million. On September 30, 1999 the
mortgagor received a commitment from HUD and it expects to complete the
refinancing on or about November 30, 1999.
One tenant has exercised its purchase option to acquire three custodial
care facilities and one skilled nursing facility leased from the Company, with a
cost of $15.3 million and net carrying amount of $12.6 million. An appraisal
process to establish the purchase price was completed on October 29, 1999,
resulting in sales proceeds of $7.5 million. The sale is expected to close on or
before November 10, 1999 and will result in the recognition of a loss of
approximately $5 million during the fourth quarter of 1999.
Note D - Preferred Stock
During 1997, the Company issued 2.3 million shares of 9.25% Series A
Cumulative Preferred Stock at $25 per share. During 1998, the Company issued 2
million shares of 8.625% Series B Cumulative Preferred Stock at $25 per share.
Dividends on the preferred stock are cumulative from the date of original issue
and are payable quarterly.
Note E - Net Earnings Per Share
Net earnings per share is computed based on the weighted average number of
common shares outstanding during the respective periods. Diluted earnings per
7
<PAGE>
share amounts reflect the dilutive effect of stock options (970 shares and 4,531
shares for the nine-month periods in 1999 and 1998, respectively). Assumed
conversion of the Company's 1996 convertible debentures is antidilutive.
Note F - Omega Worldwide, Inc.
As of September 30, 1999 the Company holds a $7,362,000 investment in Omega
Worldwide, Inc. ("Worldwide"), represented by 1,163,000 shares of common stock
and 260,000 shares of Preferred stock. The Company has guaranteed repayment of
$25 million of Worldwide permitted borrowings pursuant to a revolving credit
facility in exchange for a 1% annual fee and an unused fee of 25 basis points.
The Company has been advised that at September 30, 1999 no borrowings are
outstanding under Worldwide's revolving credit facility. Additionally, the
Company has a Services Agreement with Worldwide, which provides for the
allocation of indirect costs incurred by the Company to Worldwide. The
allocation of indirect costs is based on the relationship of assets under the
Company's management to the combined total of those assets and assets under
Worldwide's management. Indirect costs allocated to Worldwide for the
three-month and nine-month periods ending September 30, 1999 were $186,000 and
$580,000, respectively, compared with $152,000 and $303,000 for the same periods
in 1998.
Note G - Shareholder Rights Plan
On May 12, 1999, the Company's Board of Directors authorized the adoption
of a shareholder rights plan. The plan is designed to require a person or group
seeking to gain control of the Company to offer a fair price to all the
Company's shareholders. The rights plan will not interfere with any merger,
acquisition or business combination that the Company's Board of Directors finds
is in the best interest of the Company and its shareholders.
In connection with the adoption of the rights plan, the board declared a
dividend distribution of one right for each common share outstanding on May 24,
1999. The rights will not become exercisable unless a person acquires 10% or
more of the Company's common stock, or begins a tender offer that would result
in the person owning 10% or more of the Company's common stock. At that time,
each right would entitle each shareholder other than the person who triggered
the rights plan to purchase either the Company's common stock or stock of an
acquiring entity at a discount to the then market price. The plan was not
adopted in response to any specific attempt to acquire control of the Company.
Note H - Subsequent Events
On October 19, 1999 the Board of Directors declared its regular
quarterly dividend of $.70 per share to be paid November 15, 1999 to common
shareholders of record on October 29, 1999. In addition, the board declared its
regular quarterly dividends of $.578 per share and $.539 per share,
respectively, to be paid on November 15, 1999 to Series A and Series B
Cumulative Preferred shareholders of record on October 29, 1999.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
"Safe Harbor" Statement Under the United States Private Securities Litigation
Reform Act of 1995. Statements contained in this document that are not based on
historical fact are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements regarding the Company's future development activities, the
future condition and expansion of the Company's markets, the Company's ability
to meet its liquidity requirements and the Company's growth strategies, as well
as other statements which may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "estimate," "anticipate," or
similar terms, variations of those terms or the negative of those terms.
Statements that are not historical facts contained in Management's Discussion
and Analysis are forward-looking statements that involve risks and uncertainties
that could cause actual results to differ from projected results. Some of the
factors that could cause actual results to differ materially include: The
financial strength of the Company's facilities as it affects the operators'
continuing ability to meet their obligations to the Company under the terms of
the Company's agreements with such operators; changes in the reimbursement
levels under the Medicare and Medicaid programs; operators' continued
eligibility to participate in the Medicare and Medicaid programs; changes in
reimbursement by other third party payors; occupancy levels at the Company's
facilities; the availability and cost of capital; the strength and financial
resources of the Company's competitors; the Company's ability to make additional
real estate investments at attractive yields; and changes in tax laws and
regulations affecting real estate investment trusts.
Following is a discussion of the consolidated results of operations,
financial position and liquidity and capital resources of the Company, which
should be read in conjunction with the consolidated financial statements and
accompanying notes.
Results of Operations
Revenues for the three-month and nine-month periods ending September 30,
1999 totaled $31.3 million and $92.1 million, respectively, an increase of $2.9
million and $9.5 million, respectively, over the periods ending September 30,
1998. The 1999 revenue growth stems primarily from new real estate investments
of approximately $255.8 million during the twelve-month period ending September
30, 1999, offset by revenues of approximately $7.2 million from assets
identified for sale. Additionally, approximately $1.0 million of revenue growth
stems from participating incremental net revenues that became effective in 1999.
As of September 30, 1999, gross real estate investments of $973 million have an
average annualized yield of approximately 11.4%.
Expenses for the three-month and nine-month periods ended September 30,
1999 totaled $18.9 million and $53.9 million, respectively, an increase of $3.7
million and $9.3 million, respectively, over expenses for 1998. The provision
for depreciation and amortization for the three-month and nine-month periods
ended September 30, 1999 totaled $6,488,000 and $17,948,000, respectively,
increasing $730,000 and $1,218,000 over the same periods in 1998. The increase
for the three-month and nine-month periods relates to higher average real
property investments and additions to other real estate stemming from
foreclosure proceedings.
9
<PAGE>
Interest expense for the three-month and nine-month periods ended September
30, 1999 was $11.0 million and $31.5 million, respectively, compared with $8.1
million and $23.8 million, respectively, for the same periods in 1998. The
increase in 1999 is primarily due to higher average outstanding borrowings
during the 1999 period at slightly lower rates than the same period in the prior
year.
General and administrative expenses for the three-month and nine-month
periods ended September 30, 1999 totaled $1.5 million and $4.5 million,
respectively. These expenses for the three-month and nine-month periods were
approximately 4.7% and 4.8% of revenues, respectively, as compared to 5.0% and
4.9% of revenues, respectively, for the 1998 periods.
Net earnings available to common shareholders were $9,947,000 and
$30,966,000 for the three-month and nine-month periods in 1999, respectively,
decreasing approximately $803,000 and $1,277,000 from the 1998 periods
(excluding the non-recurring gain of $30.2 million in 1998). The decrease stems
primarily from non-recognition of income from assets held for sale of $898,000
and $2,214,000 for the three-month and nine-month periods, respectively. Net
earnings per diluted common share (excluding the non-recurring gain in 1998)
decreased from $0.53 to $0.50 for the three-month period and decreased from
$1.61 to $1.56 for the nine-month period as a result of the non-recognition of
income on assets held for sale ($.04 per share for the three-month period and
$.10 per share for the nine-month period), coupled with the effect of increased
dividends from preferred stock issued in 1998. The decrease from these items is
mitigated by the aforementioned asset growth and the reduction in average shares
outstanding from the share repurchase program for the nine-month period.
Funds from Operations ("FFO") totaled $17,446,000 and $51,466,000 for the
three-month and nine-month periods ending September 30, 1999, representing an
increase of approximately $825,000 and $2,155,000 over the same periods in 1998.
FFO is net earnings available to common shareholders, excluding any gains or
losses from debt restructuring and the effects of asset dispositions, plus
depreciation and amortization associated with real estate investments and
charges to earnings for non-cash common stock based compensation.
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 Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended. 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.
10
<PAGE>
Liquidity and Capital Resources
The Company continually seeks new investments in healthcare 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 private
and public offerings of debt and equity securities. 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.
At September 30, 1999, the Company has a strong financial position with
total assets of $1.1 billion, shareholders' equity of $490.9 million, and
long-term debt of $381.0 million, representing approximately 35% of total
capitalization. Long-term debt excludes funds borrowed by the Company under its
acquisition credit agreements. The Company anticipates maintaining a long-term
debt-to-capitalization ratio of approximately 40%. The Company has $250 million
available under its revolving credit facilities, of which $195.1 million was
drawn at September 30, 1999. During the remainder of 1999, the Company expects
to receive approximately $35 million related to sale proceeds from the exercise
of a lease/purchase option by a tenant and the prepayment of a mortgage.
On January 14, 1999, the Company's Form S-3 registration statement
permitting the issuance of up to $300 million related to common stock,
unspecified debt, preferred stock and convertible securities was declared
effective by the Securities and Exchange Commission. Additionally, in February
1997, the Company filed a Form S-4 shelf registration statement with the
Securities and Exchange Commission registering common stock totaling $100
million to be issued in connection with future property acquisitions.
The Company has demonstrated a strong capacity for access of capital markets
and has raised more than $1.2 billion in debt and equity capital since it was
organized in 1992. The Company raised more than $500 million in equity,
including $130 million from the initial public offering in 1992, $73 million
from a follow-on common stock offering in 1994, $165 million from the Health
Equity Properties acquisition in 1994 and three additional offerings, including
the offering of Series A and Series B Preferred Stock. Additionally, over $700
million of debt capital has been raised, some of which has been used to retire
secured borrowings with higher interest rates. In 1996, the Company completed a
placement of $95 million of 8.5% Convertible Subordinated Debentures due 2001,
and 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. In 1997, the Company issued $57.5 million of Series A Preferred Stock with
a yield of 9.25% and completed a $100 million 10-year senior note offering
priced to yield 6.99%. In September 1997, the Company completed the second
amended and restated loan agreement. The new agreement provides for total
permitted borrowings of up to $200 million, reduces interest rates on
borrowings, and extends the term of the agreement to September 2000. In April
1998, the Company issued $50 million of Series B Preferred Stock with a yield of
8.625%. In June 1998, the Company completed a $125 million 4-year senior note
offering priced to yield 7.04%. In March 1999 the Company entered into a
three-year $50 million secured revolving line of credit facility with a bank.
11
<PAGE>
Cash dividends paid totaled $2.10 per share for the nine-month period
ending September 30, 1999, compared with $2.01 per share for the same period in
1998. The current $.70 per quarter rate represents an annualized rate of $2.80
per share. The dividend payout ratio, that is the ratio of per share amounts for
dividends paid to the diluted per share amounts of funds from operations, was
approximately 83.1% for the nine-month period ended September 30, 1999, compared
with 83.4% for the same period in 1998. Approximately 50% of incremental cash
flow from operations is expected to be retained annually through gradual
reductions in the dividend payout ratio, with such funds used to fund additional
investments and provide financial flexibility.
New investments generally are funded from temporary borrowings under the
Company's acquisition credit line agreement. Interest cost incurred by the
Company on borrowings under its revolving credit line facilities will vary
depending upon fluctuations in prime and/or LIBOR rates. With respect to the
unsecured acquisition credit line, interest rates depend in part upon changes in
the Company's ratings by national agencies. The term of the $200 million
unsecured facility expires on September 30, 2000. Borrowings under the facility
bear interest at LIBOR plus 1.00% or, at the Company's option, at the prime
rate. Borrowings under the $50 million facility bear interest at LIBOR plus
2.00% or, at the Company's option, at the prime rate. The Company expects to
periodically replace funds drawn on the revolving credit facilities through
fixed-rate long-term borrowings, the placement of convertible debentures, or the
issuance of additional shares of common and/or preferred stock. Historically,
the Company's strategy has been to match the maturity of its indebtedness with
the maturity of its assets and to employ fixed-rate long-term debt to the extent
practicable. Difficult capital markets continue to limit the Company's access to
growth capital, and the Company is considering options to improve liquidity and
strengthen its balance sheet. For example, if capital market conditions place
limitations on the Company's access to traditional sources of capital, the
Company expects to target real estate investments to sell as a source of
additional liquidity and for payments of term obligations as they mature.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of certain systems
and devices to properly use or store dates beyond December 31, 1999. This could
result in system failures, malfunctions, or miscalculations that disrupt normal
operations. This issue affects most companies and organizations to large and
small degrees, at least to the extent that potential exposures must be
evaluated.
The Company has reviewed risks with regard to the ability of the Company's
own internal operations, the impact of outside vendors' ability to operate, and
the impact of tenants' ability to operate. The Company has focused this review
on mission-critical operations, recognizing that other potential effects are
expected to be less material. Based upon information available from technology
vendors to date, the Company does not believe that there are issues which could
have a material effect upon its operations with respect to its own internal
operations, its technology infrastructure, information systems, and software. In
those cases where there are compliance issues, these are considered to be minor
in nature, and remedies are already identified. Expenditures for such remedies
will not be material.
12
<PAGE>
With respect to the Company's significant outside vendors, such as its
banks, payroll processor, and telecommunications providers, the Company's
assessment has covered the compliance efforts of significant vendors, the
effects of potential non-compliance, and remedies that may mitigate or obviate
such effects as to the Company's business and operations. Based upon its
assessment of outside vendors, the Company does not believe that there are
issues which could have a material effect upon its operations.
With respect to the Company's tenants and properties, the Company's
assessment has covered the tenants' compliance efforts, the possibility of any
interface difficulties or electromechanical problems relating to compliance by
material vendors, the effects of potential non-compliance, and remedies that may
mitigate or obviate such effects. Based upon responses from tenant surveys to
date, the Company does not believe that there are tenant/property-related issues
which could have a material effect upon its operations.
Because the Company's evaluation of these issues has been conducted by its
own personnel or by selected inquiries of its vendors and tenants in connection
with their routine servicing operations, the Company believes that its
expenditures for assessing Year 2000 issues, though difficult to quantify, have
not been material. In addition, the Company is not aware of any issues that will
require material expenditures by the Company in the future.
Based upon current information, the Company believes that the risk posed by
foreseeable Year 2000 related problems with its internal systems (including both
information and non-information systems) is minimal. Year 2000 related problems
with the Company's software applications and internal operational programs are
unlikely to cause more than minor disruptions in the Company's operations. Year
2000 related problems at certain of its third-party service providers, such as
its banks, payroll processor, and telecommunications provider, is marginally
greater, though, based upon current information, the Company does not believe
any such problems would have a material effect on its operations. For example,
Year 2000 related problems at such third-party service providers could delay the
processing of financial transactions and the Company's payroll, and could
disrupt the Company's internal and external communications.
The Company believes that the risk posed by Year 2000 related problems with
its tenants is marginally greater, though, based upon current information, the
Company does not believe any such problems would have a material effect on its
operations. Year 2000 related problems at certain governmental agencies and
third-party payers could delay the processing of tenant financial transactions,
though, based upon current information, the Company does not believe any such
problems would have a material long-term effect on its operations. Year 2000
related problems with the electromechanical systems at its properties are
unlikely to cause more than minor disruptions.
The Company has implemented identified remedies, will continue to monitor
Year 2000 issues, and will develop contingency plans if, and to the extent,
deemed necessary. However, based upon current information and barring
developments, the Company does not anticipate developing any substantive
contingency plans with respect to Year 2000 issues. In addition, the Company has
no plans to seek independent verification or review of its assessments.
13
<PAGE>
While the Company believes that it will be Year 2000 compliant by December
31, 1999, there can be no assurance that the Company will be successful in
identifying and assessing all compliance issues, or that the Company's efforts
to remedy all Year 2000 compliance issues will be effective such that they will
not have a material adverse effect on the Company's business or results of
operations.
The information above contains forward-looking statements, including,
without limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequate resources that are made
pursuant to "Safe Harbor" provisions of the Private Securities Litigation Reform
Act of 1995. Readers are cautioned that forward-looking statements about the
Year 2000 should be read in conjunction with the Company's disclosures under the
heading: "Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995.
14
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following Exhibits are filed herewith:
Exhibit Description
------- -----------
3.1 Articles of Amendment to the Company's Articles of
Incorporation, as amended
27 Financial Data Schedule
(b) Reports on Form 8-K - None were filed.
15
<PAGE>
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: November 2, 1999 By: /s/ESSEL W. BAILEY, JR.
-----------------------
Essel W. Bailey, Jr.
President
Date: November 2, 1999 By: /s/DAVID A. STOVER
-----------------------
David A. Stover
Chief Financial Officer
16
Exhibit 3.1
OMEGA HEALTHCARE INVESTORS, INC.
ARTICLES OF AMENDMENT
OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation
having its principal office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
by striking out Section 1. of Article IV in its entirety and inserting in lieu
thereof the following:
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. The total number of shares of capital stock which
the corporation shall have authority to issue is One Hundred
Ten Million (110,000,000) , of which One Hundred Million
(100,000,000) shall be shares of Common Stock having a par
value of $.10 per share and Ten Million (10,000,000) shall be
shares of Preferred Stock having a par value of $1.00 per
share. The aggregate par value of all of said shares shall be
Twenty Million Dollars ($20,000,000). Prior to the increase,
the aggregate par value of all said shares was Fifteen Million
Dollars ($15,000,000).
SECOND: The board of directors of the Corporation, at a
meeting duly convened and held on January 19, 1999, adopted a resolution in
which was set forth the foregoing amendment to the charter, declaring that the
said amendment to the charter was advisable and directing that it be submitted
for action thereon at a meeting of the stockholders of the Corporation to be
held on April 20, 1999.
THIRD: Notice setting forth the aforesaid amendment of the
charter and stating that a purpose of the meeting of the stockholders would be
to take action thereon, was given as required by law to all stockholders of the
Corporation entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote required by law.
FOURTH: (a) The total number of shares of all classes of
stock of the Corporation heretofore authorized, and the number and par value of
the shares of each class were as follows.
Common Stock Par Value
------------ ---------
50,000,000 $.10 per share
Preferred Stock Par Value
--------------- ---------
10,000,000 $1.00 per share
(b) The total number of shares of all classes of
stock of the Corporation as increased, and the number and par value of the
shares of each class, are as follows:
Common Stock Par Value
------------ ---------
100,000,000 $.10 per share
Preferred Stock Par Value
--------------- ---------
10,000,000 $1.00 per share
(c) The aggregate par value of all shares of all
classes of stock of the Corporation heretofore authorized was $15,000,000. The
aggregate par value of all shares of all classes of stock as increased by this
amendment is $20,000,000. This amendment has the effect of increasing the
aggregate par value of all shares of all classes of stock of the Corporation by
$5,000,000.
IN WITNESS WHEREOF, the Corporation has caused these presents
to be signed in its name and on its behalf by its Vice-President and its
corporate seal to be hereunto affixed and attested by its Secretary,
THE UNDERSIGNED, Vice-President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states that to the best
of his knowledge, information and belief the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all material
respects and that this statement is made under the penalties of perjury.
Attest: OMEGA HEALTHCARE INVESTORS, INC.
s/s: Susan A. Kovach By: s/s David A. Stover [SEAL]
- ------------------------------ -------------------------------
Susan Allene Kovach, Secretary David A. Stover, Vice President
[Affix corporate seal]
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<ARTICLE> 5
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<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jul-01-1999
<PERIOD-END> Sep-30-1999
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0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 1,085,062
<SALES> 0
<TOTAL-REVENUES> 31,303
<CGS> 0
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