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 June 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.)
900 Victors 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 June 30, 1999
Common Stock, $.10 par value 19,854,815
(Class) (Number of shares)
<PAGE>
OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
June 30, 1999
INDEX
PART I Financial Information Page No.
- ------ --------------------- --------
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets
June 30, 1999 (unaudited) and December 31, 1998 .......... 2
Statements of Operations (unaudited)-
Three-month and Six-month periods ended
June 30, 1999 and 1998 ................................... 3
Statement of Cash Flows (unaudited)-
Six-month periods ended June 30, 1999 and 1998 ........... 4
Notes to Condensed Consolidated Financial Statements
June 30, 1999 (unaudited) ................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9
PART II Other Information
- ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders .......... 15
Item 6. Exhibits and Reports on Form 8-K ............................. 16
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 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 ................................. (63,710) (56,385)
------- -------
Real estate properties - net ............................... 657,735 586,993
Mortgage notes receivable ..................................... 337,898 340,455
------- -------
995,633 927,448
Investment in Omega Worldwide, Inc. ............................. 7,326 6,226
Investments in Principal Healthcare Finance Ltd. ................ 1,615 1,629
Other investments ............................................... 55,139 33,898
------ ------
1,059,713 969,201
Assets held for sale ............................................ 27,028 35,289
------ ------
Total Investments (Cost of $1,150,451 at June 30, 1999
and $1,060,875 at December 31, 1998) .......................... 1,086,741 1,004,490
Cash and short-term investments ................................. 65 1,877
Goodwill and non-compete agreements - net ....................... 3,593 4,422
Other assets .................................................... 13,812 21,856
------ ------
Total Assets .................................................. $1,104,211 $1,032,645
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Acquisition line of credit ...................................... $ 205,500 $ 123,000
Unsecured borrowings ............................................ 311,132 311,570
Secured borrowings .............................................. 21,586 21,784
Subordinated convertible debentures ............................. 48,405 48,405
Deferred purchase obligation .................................... 10,591
Accrued expenses and other liabilities .......................... 13,006 22,124
------ ------
Total Liabilities ............................................. 610,220 526,883
Preferred Stock ................................................. 107,500 107,500
Common stock and additional paid-in capital ..................... 448,698 454,445
Cumulative net earnings ......................................... 238,269 212,434
Cumulative dividends paid ....................................... (298,761) (266,054)
Stock option loans .............................................. (2,796) (2,863)
Unamortized restricted stock awards ............................. (780) (461)
Accumulated other comprehensive income .......................... 1,861 761
----- ---
Total Shareholders' Equity .................................... 493,991 505,762
------- -------
$1,104,211 $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
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OMEGA HEALTHCARE INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
Rental income ................................................. $ 18,580 $ 18,719 $ 36,708 $ 36,000
Mortgage interest income ...................................... 10,188 7,548 20,405 14,753
Other investment income ....................................... 1,749 1,527 3,411 3,162
Miscellaneous ................................................. 250 132 266 279
--- --- --- ---
30,767 27,926 60,790 54,194
Expenses
Depreciation and amortization ................................. 5,865 5,845 11,460 10,972
Interest ...................................................... 10,406 8,050 20,512 15,679
General and administrative .................................... 1,486 1,307 2,983 2,672
----- ----- ----- -----
17,757 15,202 34,955 29,323
------ ------ ------ ------
Net earnings before gain on distribution of Omega Worldwide,
Inc. and preferred stock dividends............................ 13,010 12,724 25,835 24,871
Gain on distribution of Omega Worldwide, Inc. ................... 30,240 30,240
------ ------ ------ ------
Net earnings .................................................... 13,010 42,964 25,835 55,111
Preferred stock dividends ....................................... (2,408) (2,048) (4,816) (3,378)
------ ------ ------ ------
Net earnings available to common ................................ $ 10,602 $ 40,916 $ 21,019 $ 51,733
========== ========== ========== ==========
Net Earnings per common share:
Basic before gain on distribution ............................. $ 0.53 $ 0.53 $ 1.06 $ 1.08
========== ========== ========== ==========
Diluted before gain on distribution ........................... $ 0.53 $ 0.53 $ 1.06 $ 1.08
========== ========== ========== ==========
Basic after gain on distribution .............................. $ 0.53 $ 2.03 $ 1.06 $ 2.60
========== ========== ========== ==========
Diluted after gain on distribution ............................ $ 0.53 $ 2.03 $ 1.06 $ 2.60
========== ========== ========== ==========
Dividends paid per common share ................................. $ 0.70 $ 0.67 $ 1.40 $ 1.34
========== ========== ========== ==========
Average Shares Outstanding, Basic ............................... 19,844 20,153 19,871 19,881
====== ====== ====== ======
Average Shares Outstanding, Diluted ............................. 19,857 20,199 19,884 19,927
====== ====== ====== ======
Other comprehensive income, net of taxes:
Unrealized Gain on Omega Worldwide, Inc. ...................... $ 365 $ $ 1,100 $
========== ========== ========== ==========
Total Comprehensive Income $ 13,375 $ 42,964 $ 26,935 $ 55,111
========== ========== ========== ==========
</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>
Six Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net earnings .................................................... $ 25,835 $ 55,111
Adjustment to reconcile net earnings to cash provided by
operating activities:
Depreciation and amortization .............................. 11,460 10,972
Income realized on assets held for sale .................... 1,316
Other non-cash charges ..................................... 486 588
Gain on distribution of Omega Worldwide .................... (30,240)
------- -------
Funds from operations available for distribution
and investment ................................................ 39,097 36,431
Net change in operating assets and liabilities .................. (1,221) (5,848)
------ ------
Net cash provided by operating activities ....................... 37,876 30,583
Cash flows from financing activities
Proceeds (payments) of acquisition line of credit ............... 82,500 (47,000)
Proceeds from unsecured note offering ........................... 125,000
Proceeds from preferred stock offering .......................... 50,000
Payments of long-term borrowings ................................ (198) (145)
Receipts from Dividend Reinvestment Plan ........................ 1,210 828
Dividends paid .................................................. (32,707) (29,310)
Purchase of 312,100 shares of common stock for retirement ....... (8,740)
Costs of raising capital ........................................ (3,390)
Other ........................................................... 477 751
--- ---
Net cash provided by financing activities ....................... 42,542 96,734
Cash flow from investing activities
Acquisition of real estate ...................................... (67,958) (118,085)
Placement of mortgage loans ..................................... (23,083) (12,000)
Proceeds from assets held for sale .............................. 6,795
Net proceeds from sale of Omega Worldwide shares ................ 16,938
Fundings of other investments - net ............................. (5,798) (13,652)
Collection of mortgage principal ................................ 7,814 2,194
Other ........................................................... (301)
------ ------
Net cash used in investing activities ........................... (82,230) (124,906)
------- --------
Increase (Decrease) in cash and short-term investments .......... ($ 1,812) $ 2,411
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 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 six-month periods ended June
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 - Second Quarter Real Estate Investments
During the second quarter of 1999, a total of $50.2 million of new real
estate investments were added. A $34.1 million purchase/leaseback transaction
was completed with Alterra Healthcare Corporation (formerly known as Alternative
Living Services), with $10.6 million of the purchase price deferred until
certain conditions related to completion and occupancy of facilities are
satisfied. The transaction included ten assisted living facilities with 361
units, located in seven states. The initial annual rent on the investment is
$3.54 million and the initial lease term is 14 years.
An $11.2 million bridge loan due July 19, 1999 was completed during April.
The loan is secured by a first mortgage lien on three facilities with 226 beds
and has an initial annual yield of 10%.
A purchase/leaseback transaction for $4.9 million was completed with TLC
Health Care, Inc. in June. The transaction was for one facility in Texas with
248 beds. The initial lease term is 14 years and the initial annual yield is
10.5%.
Note C - Asset Concentrations
As of June 30, 1999, 89.4% of the cost of the Company's real estate
investments are related to long-term care skilled nursing facilities, 5.6% to
assisted living facilities, 2.2% to rehabilitation hospitals, and 2.8% to
medical office facilities. The Company's healthcare facilities are located in 31
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states and are operated by 31 independent healthcare operating companies.
Approximately 72.1% of the Company's investments are operated by eight public
companies, including Sun Healthcare Group, Inc. (24.6%), Integrated Health
Services, Inc. (15.2%), Advocat Inc. (10.5%), RainTree Healthcare Corporation
(f.k.a. Unison Healthcare Corporation) (7.0%), Mariner Post-Acute Network
(5.5%), Alterra Healthcare Corporation (4.3%) and two other public companies
(5.0%). The two largest private operators represent 6.3% and 4.2% of
investments, and no other operator represents more than 3.0% of investments. The
three largest states in which investments are located are Florida (13.9%), Texas
(7.4%) and California (7.1%).
Note D - Other Portfolio 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. Finally, it
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. 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 are required.
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 June 30, 1999, the carrying value of assets held under plan
for disposition total $27.0 million. During the three-month and six-month
periods ended June 30, 1999, the Company realized disposition proceeds of $3.9
million and $6.8 million, respectively. Reported net rental revenues for the
1999 three-month and six-month periods exclude approximately $650,000 and $1.3
million, respectively, of income realized from these assets.
Purchase / Prepayment Options
A tenant has exercised its purchase option to acquire four of five
facilities leased from the Company, with a cost of $15.3 million and net
carrying amount of $12.7 million. An appraisal process to establish the purchase
price is currently underway. Under the terms of the lease, the tenant must
complete the purchase by October 30, 1999.
The Company also received notice from a mortgagor that it intends to prepay
a mortgage balance of approximately $26 million during the third quarter of
1999.
6
<PAGE>
Mortgage Conversion
On July 14, 1999, the Company acquired 12 nursing homes with 1,259 licensed
beds in lieu of foreclosure from The Frontier Group. The Company has invested
approximately $67 million in seven Massachusetts and five Connecticut
facilities. After transfer of the licenses and receipt of regulatory
approval, the Company will negotiate lease agreements with one or more new
operators.
Note E - 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 F - 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
share amounts reflect the dilutive effect of stock options (12,587 shares and
45,842 shares for the six-month periods in 1999 and 1998, respectively). Assumed
conversion of the Company's 1996 convertible debentures is antidilutive.
Note G - Omega Worldwide, Inc.
As of June 30, 1999 the Company holds a $7,326,000 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 June 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 six-month periods ending
June 30, 1999 were $196,000 and $394,000, respectively.
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Note H - 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.
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 six-month periods ending June 30, 1999
totaled $30.8 million and $60.8 million, respectively, an increase of $2.8
million and $6.6 million, respectively, over the periods ending June 30, 1998.
The 1999 revenue growth stems primarily from new real estate investments of
approximately $244 million during the twelve-month period ending June 30, 1999,
offset by revenues of approximately $5.7 million from assets identified for
disposition. Additionally, approximately $800,000 of revenue growth stems from
participating incremental net revenues which became effective in 1999. Total
investments of $1.15 billion as of June 30, 1999 have an average annualized
yield of approximately 11.1%.
Expenses for the three-month and six-month periods ended June 30, 1999
totaled $17.8 million and $35.0 million, respectively, an increase of $2.6
million and $5.6 million, respectively, over expenses for 1998. The provision
for depreciation and amortization for the three-month and six-month periods
ended June 30, 1999 totaled $5,865,000 and $11,460,000, respectively, increasing
9
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$20,000 and $488,000 over the same periods in 1998. The increase in the
three-month and six-month periods stems from higher average real property
investments, partially offset by increases in average depreciable lives of more
recent acquisitions.
Interest expense for the three-month and six-month periods ended June 30,
1999 was $10.4 million and $20.5 million, respectively, compared with $8.1
million and $15.7 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 six-month
periods ended June 30, 1999 totaled $1.5 million and $3.0 million, respectively.
These expenses for the three-month and six-month periods were approximately 4.8%
and 4.9% of revenues, respectively, as compared to 4.7% and 4.9% of revenues,
respectively, for the 1998 periods.
Net earnings available to common shareholders were $10,602,000 and
$21,019,000 for the three-month and six-month periods in 1999, respectively,
decreasing approximately $74,000 and $474,000 from the 1998 periods (excluding
the non-recurring gain of $30.2 million in 1998). The decrease stems from the
factors mentioned above, as well as non-recognition of income from assets held
for sale. As a result of the reduction in average shares outstanding from the
share repurchase program and the effect of dividends on the Series B Preferred
Stock issued in 1998, net earnings per diluted common share (excluding the
non-recurring gain in 1998) remained constant at $0.53 for the three-month
period and decreased from $1.08 to $1.06 for the six-month period.
Funds from Operations ("FFO") totaled $17,235,000 and $34,020,000 for the
three-month and six-month periods ending June 30, 1999, representing an increase
of approximately $602,000 and $1,330,000 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.
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
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finance operations, fund future investments in additional facilities, and meet
debt service requirements.
At June 30, 1999, the Company has a strong financial position with total
assets of $1.1 billion, shareholders' equity of $494.0 million, and long-term
debt of $381.1 million, representing approximately 35% of total capitalization.
Long-term debt excludes funds borrowed under its acquisition credit agreement.
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 $206 million was drawn at June 30, 1999. During the
remainder of 1999, the Company anticipates receiving asset sale proceeds
approximating the carrying value of assets held for sale, and has been advised
that a mortgagor intends to prepay a mortgage of approximately $26 million.
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.
Additionally, 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.
The Company has demonstrated a strong capacity for timely 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.
Cash dividends paid totaled $1.40 per share for the six-month period ending
June 30, 1999, compared with $1.34 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 83.8% for the six-month period ended June 30, 1999, compared with
83.2% for the same period in 1998. Approximately 50% of incremental cash flow
from operations is expected to be retained annually through gradual reductions
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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. Borrowings under the $200 million
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.
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 is reviewing 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 initially 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.
With respect to the Company's material outside vendors, such as its banks,
payroll processor, and telecommunications providers, the Company's assessment
will cover 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, borrowers, and properties, the
Company's assessment will cover the tenants' compliance efforts, the
possibility of any interface difficulties or electromechanical problems
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<PAGE>
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 intends to implement identified remedies, to 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.
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
13
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 20, 1999.
(b) The following directors were re-elected at the meeting for a three-
year term:
Essel W. Bailey, Jr.
Martha A. Darling
Harold J. Kloosterman
The following directors were not elected at the meeting but their term
of office continued after the meeting:
James E. Eden
Thomas F. Franke
Henry H. Greer
Bernard J. Korman
Edward Lowenthal
Robert L. Parker
(c) In addition to the election of the directors, stockholders were
requested to vote on the approval of an amendment to the Company's Articles of
Incorporation to increase the total number of authorized shares of the Company's
common stock from 50 million to 100 million.
<TABLE>
<CAPTION>
Election of Directors
---------------------
Approval of increase
in authorized shares
Manner of Essel W. Martha A. Harold J. of the Company's
Vote Cast Bailey, Jr. Darling Kloosterman Common Stock
---------------- ---------------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
For 17,526,323 17,515,223 17,525,538 14,126,779
Withheld 111,870 122,970 112,655
Against 3,391,649
Abstentions and broker 119,765
nonvotes
</TABLE>
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following Exhibits are filed herewith:
Exhibit Description
------- -----------
3.1 Form of Articles of Amendment to the Company's Articles
of Incorporation, as amended
27 Financial Data Schedule
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed since March 31, 1999:
Form 8-K dated April 20, 1999: Report with the following exhibits:
Amended and Restated Bylaws of Omega Healthcare Investors,
Inc. as of April 20, 1999
Articles of Restatement of Omega Healthcare Investors, Inc.,
as amended on April 20, 1999
Rights Agreement, dated as of May 12, 1999, between
Omega Healthcare Investors, Inc. and First Chicago
Trust Company, as Rights Agent, including Exhibit A
thereto (Form of Articles Supplementary relating to
the Series A Junior Participating Preferred Stock)
and Exhibit B thereto (Form of Right Certificate)
Press Release issued by Omega Healthcare Investors, Inc. on
May 12, 1999
16
<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: July 16, 1999 By: /s/ESSEL W. BAILEY, JR.
----------------------------
Essel W. Bailey, Jr.
President
Date: July 16, 1999 By: /s/DAVID A. STOVER
----------------------------
David A. Stover
Chief Financial Officer
17
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]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Apr-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,104,211
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,104,211
<SALES> 0
<TOTAL-REVENUES> 30,767
<CGS> 0
<TOTAL-COSTS> 16,271
<OTHER-EXPENSES> 1,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,406
<INCOME-PRETAX> 13,010
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,010
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.53
</TABLE>
