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 March 31, 2005
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.)
9690
Deereco Road, Suite 100, Timonium, MD 21093
(Address
of principal executive offices)
(410)
427-1700
(Telephone
number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes
X
No
___
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes
X
No
___
Indicate
the number of shares outstanding of each of the issuer's classes of common stock
as of April 30, 2005.
Common Stock, $.10
par value 51,030,778
(Class)
(Number
of shares)
OMEGA
HEALTHCARE INVESTORS, INC.
FORM
10-Q
March
31, 2005
|
TABLE
OF CONTENTS |
| |
|
Page
No. |
|
PART
I |
Financial
Information |
|
| |
|
|
|
Item
1. |
Financial
Statements: |
|
| |
Consolidated
Balance Sheets |
|
| |
March
31, 2005 (unaudited) and December 31, 2004 |
2 |
| |
|
|
| |
Consolidated
Statements of Operations (unaudited) |
|
| |
Three
months ended March 31, 2005 and 2004 |
3 |
| |
|
|
| |
Consolidated
Statements of Cash Flows (unaudited) |
|
| |
Three
months ended March 31, 2005 and 2004 |
4 |
| |
|
|
| |
Notes
to Consolidated Financial Statements |
|
| |
March
31, 2005 (unaudited) |
5 |
| |
|
|
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition |
|
| |
and
Results of Operations |
16 |
| |
|
|
|
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk |
31 |
| |
|
|
|
Item
4. |
Controls
and Procedures |
31 |
| |
|
|
|
PART
II |
Other
Information |
|
| |
|
|
|
Item
1. |
Legal
Proceedings |
32 |
| |
|
|
|
Item
2. |
Market
for Registrant’s Common Equity and Related Stockholder Matters |
32 |
| |
|
|
|
Item
5. |
Other
Information |
32 |
| |
|
|
|
Item
6. |
Exhibits
|
33 |
| |
|
|
PART
1 - FINANCIAL INFORMATION
Item
1. Financial
Statements
OMEGA
HEALTHCARE INVESTORS, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
| |
|
March
31, |
|
December
31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
(Unaudited) |
|
(See
note) |
|
|
ASSETS |
|
|
|
|
|
Real
estate properties |
|
|
|
|
|
|
|
Land
and buildings at cost |
|
$ |
878,287 |
|
$ |
808,574 |
|
|
Less
accumulated depreciation |
|
|
(158,439 |
) |
|
(153,379 |
) |
Real
estate properties - net |
|
|
719,848 |
|
|
655,195 |
|
|
Mortgage
notes receivable - net |
|
|
44,254 |
|
|
118,058 |
|
| |
|
|
764,102 |
|
|
773,253 |
|
|
Other
investments - net |
|
|
20,185 |
|
|
29,699 |
|
Total
investments |
|
|
784,287 |
|
|
802,952 |
|
| |
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
9,846 |
|
|
12,083 |
|
Accounts
receivable - net |
|
|
4,642 |
|
|
5,582 |
|
Other
assets |
|
|
15,198 |
|
|
12,733 |
|
|
Operating
assets for owned properties |
|
|
— |
|
|
213 |
|
|
Total
assets |
|
$ |
813,973 |
|
$ |
833,563 |
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Revolving
line of credit |
|
$ |
— |
|
$ |
15,000 |
|
Unsecured
borrowings |
|
|
360,000 |
|
|
360,000 |
|
Premium
on unsecured borrowings |
|
|
1,290 |
|
|
1,338 |
|
Other
long-term borrowings |
|
|
3,170 |
|
|
3,170 |
|
Accrued
expenses and other liabilities |
|
|
26,557 |
|
|
21,067 |
|
|
Operating
liabilities for owned properties |
|
|
556 |
|
|
508 |
|
|
Total
liabilities |
|
|
391,573 |
|
|
401,083 |
|
| |
|
|
|
|
|
|
|
Stockholders’
equity: |
|
|
|
|
|
|
|
Preferred
stock |
|
|
168,488 |
|
|
168,488 |
|
Common
stock and additional paid-in-capital |
|
|
597,521 |
|
|
597,780 |
|
Cumulative
net earnings |
|
|
200,317 |
|
|
191,013 |
|
Cumulative
dividends paid |
|
|
(497,664 |
) |
|
(480,292 |
) |
Cumulative
dividends - redemption |
|
|
(41,054 |
) |
|
(41,054 |
) |
Unamortized
restricted stock awards |
|
|
(2,023 |
) |
|
(2,231 |
) |
|
Accumulated
other comprehensive loss |
|
|
(3,185 |
) |
|
(1,224 |
) |
|
Total
stockholders’ equity |
|
|
422,400 |
|
|
432,480 |
|
|
Total
liabilities and stockholders’ equity |
|
$ |
813,973 |
|
$ |
833,563 |
|
Note
- - The
balance sheet at December 31, 2004 has been derived from the 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 consolidated financial statements.
OMEGA
HEALTHCARE INVESTORS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Unaudited
(in
thousands, except per share amounts)
| |
|
Three
Months Ended |
|
| |
|
March
31, |
|
| |
|
2005 |
|
2004 |
|
Revenues |
|
|
|
|
|
|
|
Rental
income |
|
$ |
22,963 |
|
$ |
17,022 |
|
Mortgage
interest income |
|
|
1,956 |
|
|
3,366 |
|
Other
investment income - net |
|
|
522 |
|
|
641 |
|
|
Miscellaneous |
|
|
3,165 |
|
|
130 |
|
Total
operating revenues |
|
|
28,606 |
|
|
21,159 |
|
Expenses |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
6,227 |
|
|
5,159 |
|
General
and administrative |
|
|
1,827 |
|
|
2,004 |
|
Restricted
stock expense |
|
|
285 |
|
|
— |
|
|
Provisions
for impairment |
|
|
3,700 |
|
|
— |
|
Total
operating expenses |
|
|
12,039 |
|
|
7,163 |
|
| |
|
|
|
|
|
|
|
Income
before other income and expense |
|
|
16,567 |
|
|
13,996 |
|
Other
income (expense): |
|
|
|
|
|
|
|
Interest
and other investment income |
|
|
41 |
|
|
19 |
|
Interest
|
|
|
(6,774 |
) |
|
(4,693 |
) |
Interest
- amortization of deferred financing costs |
|
|
(506 |
) |
|
(454 |
) |
Interest
- refinancing costs |
|
|
— |
|
|
(19,106 |
) |
|
Adjustment
of derivative to fair value |
|
|
— |
|
|
256 |
|
Total
other expense |
|
|
(7,239 |
) |
|
(23,978 |
) |
| |
|
|
|
|
|
|
|
Income
(loss) from continuing operations |
|
|
9,328 |
|
|
(9,982 |
) |
|
Loss
from discontinued operations |
|
|
(24 |
) |
|
(316 |
) |
Net
income (loss) |
|
|
9,304 |
|
|
(10,298 |
) |
Preferred
stock dividends |
|
|
(3,559 |
) |
|
(4,687 |
) |
Preferred
stock conversion and redemption charges |
|
|
— |
|
|
(38,743 |
) |
|
Net
income (loss) available to common |
|
$ |
5,745 |
|
$ |
(53,728 |
) |
| |
|
|
|
|
|
|
|
Income
(loss) per common share: |
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations |
|
$ |
0.11 |
|
$ |
(1.29 |
) |
|
Net
income (loss) |
|
$ |
0.11 |
|
$ |
(1.30 |
) |
Diluted: |
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations |
|
$ |
0.11 |
|
$ |
(1.29 |
) |
|
Net
income (loss) |
|
$ |
0.11 |
|
$ |
(1.30 |
) |
| |
|
|
|
|
|
|
|
|
Dividends
declared and paid per common share |
|
$ |
0.20 |
|
$ |
0.17 |
|
|
Weighted-average
shares outstanding, basic |
|
|
50,928 |
|
|
41,459 |
|
|
Weighted-average
shares outstanding, diluted |
|
|
51,313 |
|
|
41,459 |
|
| |
|
|
|
|
|
|
|
Components
of other comprehensive income: |
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
9,304 |
|
$ |
(10,298 |
) |
|
Unrealized
(loss) gain on investment and hedging contracts |
|
|
(1,961 |
) |
|
4,455 |
|
|
Total
comprehensive income (loss) |
|
$ |
7,343 |
|
$ |
(5,843 |
) |
OMEGA
HEALTHCARE INVESTORS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
| |
|
Three
Months Ended
March
31, |
|
| |
|
2005 |
|
2004 |
|
Operating
activities |
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
9,304 |
|
$ |
(10,298 |
) |
Adjustment
to reconcile net income to cash provided by operating
activities: |
|
|
|
|
|
|
|
Depreciation
and amortization (including amounts in discontinued
operations) |
|
|
6,253 |
|
|
5,225 |
|
Provisions
for impairment |
|
|
3,700 |
|
|
— |
|
Refinancing
costs |
|
|
— |
|
|
19,106 |
|
Amortization
for deferred financing costs |
|
|
506 |
|
|
454 |
|
Loss
on assets sold - net |
|
|
37 |
|
|
351 |
|
Restricted
stock amortization expense |
|
|
285 |
|
|
— |
|
Adjustment
of derivatives to fair value |
|
|
— |
|
|
(256 |
) |
Other |
|
|
(87 |
) |
|
(11 |
) |
Net
change in accounts receivable |
|
|
940 |
|
|
(925 |
) |
Net
change in other assets |
|
|
(2,856 |
) |
|
77 |
|
|
Net
change in operating assets and liabilities |
|
|
4,433 |
|
|
(1,123 |
) |
|
Net
cash provided by operating activities |
|
|
22,515 |
|
|
12,600 |
|
| |
|
|
|
|
|
|
|
Cash
flows from investing activities |
|
|
|
|
|
|
|
Acquisition
of real estate |
|
|
(58,053 |
) |
|
— |
|
Proceeds
from sale of real estate investments |
|
|
6,931 |
|
|
85 |
|
Capital
improvements and funding of other investments |
|
|
(1,327 |
) |
|
(420 |
) |
Proceeds
from other investments - net |
|
|
764 |
|
|
1,872 |
|
Investments
in other investments - net |
|
|
(311 |
) |
|
(2,100 |
) |
|
Collection
of mortgage principal |
|
|
60,121 |
|
|
590 |
|
|
Net
cash provided by investing activities |
|
|
8,125 |
|
|
27 |
|
| |
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
Proceeds
from credit facility borrowings |
|
|
47,000 |
|
|
23,700 |
|
Payment
on credit facility borrowings |
|
|
(62,000 |
) |
|
(190,774 |
) |
Prepayment
of re-financing penalty |
|
|
— |
|
|
(6,378 |
) |
Proceeds
from long-term borrowings |
|
|
— |
|
|
200,000 |
|
Proceeds
from sale of interest rate cap |
|
|
— |
|
|
3,460 |
|
Receipts
from dividend reinvestment plan and directors fees |
|
|
149 |
|
|
40 |
|
Receipts
from exercised options |
|
|
133 |
|
|
2,846 |
|
Payments
of exercised options |
|
|
(591 |
) |
|
(978 |
) |
Dividends
paid |
|
|
(17,372 |
) |
|
(11,735 |
) |
Proceeds
from preferred stock offering |
|
|
— |
|
|
12,643 |
|
Proceeds
from common stock offering |
|
|
— |
|
|
23,370 |
|
Deferred
financing costs paid |
|
|
(168 |
) |
|
(9,600 |
) |
|
Cost
of raising capital |
|
|
(28 |
) |
|
— |
|
|
Net
cash (used in) provided by financing activities |
|
|
(32,877 |
) |
|
46,594 |
|
| |
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents |
|
|
(2,237 |
) |
|
59,221 |
|
|
Cash
and cash equivalents at beginning of period |
|
|
12,083 |
|
|
3,094 |
|
|
Cash
and cash equivalents at end of period |
|
$ |
9,846 |
|
$ |
62,315 |
|
|
Interest
paid during the period |
|
$ |
3,996 |
|
$ |
6,973 |
|
OMEGA
HEALTHCARE INVESTORS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
March
31, 2005
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements for Omega Healthcare
Investors, Inc. (“Omega” or the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”) 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 GAAP for complete financial statements. In our
opinion, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Certain reclassifications
have been made to the 2004 financial statements for consistency with the
presentation adopted for 2005. Such reclassifications have no effect on
previously reported earnings or equity.
In
December 2004, the Financial Accounting Standards Board issued FAS No. 123
(revised 2004), Share-Based
Payment (“FAS
No. 123R”), which is a revision of FAS No. 123, Accounting
for Stock-Based Compensation. FAS No.
123R supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees, and
amends FAS No. 95, Statement
of Cash Flows.
Registrants were initially required to adopt FAS No. 123R as of the beginning of
the first interim or annual period that begins after June 15, 2005. On April 14,
2005, subsequent to the end of our 2005 first quarter, the Securities and
Exchange Commission adopted a new rule that allows companies to implement FAS
No. 123R at the beginning of their next fiscal year, instead of the next
reporting period, that begins after June 15, 2005. We will adopt FAS No. 123R at
the beginning of our 2006 fiscal year. We are currently evaluating the impact of
adoption of this pronouncement.
Operating
results for the three-month period ended March 31, 2005 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2005. For further information, refer to the financial statements and footnotes
included in our annual report on Form 10-K for the year ended December 31,
2004.
Our
consolidated financial statements include the accounts of Omega and all direct
and indirect wholly owned subsidiaries. All inter-company accounts and
transactions have been eliminated in consolidation. We have
one reportable segment consisting of investments in real estate. Our business is
to provide financing and capital to the long-term healthcare industry with a
particular focus on skilled nursing facilities located in the United States. Our
core portfolio consists of long-term lease and mortgage agreements. All of our
leases are “triple-net” leases, which require the tenants to pay all property
related expenses. Our mortgage revenue derives from fixed-rate mortgage loans,
which are secured by first mortgage liens on the underlying real estate and
personal property of the mortgagor. Substantially all depreciation expenses
reflected in the consolidated statements of operations relate to the ownership
of our investment in real estate.
NOTE
2 - PROPERTIES
In the
ordinary course of our business activities, we periodically evaluate investment
opportunities and extend credit to customers. We also regularly engage in lease
and loan extensions and modifications. Additionally, we actively monitor and
manage our investment portfolio with the objectives of improving credit quality
and increasing returns. In connection with portfolio management, we may engage
in various collection and foreclosure activities.
If we
acquire real estate pursuant to a foreclosure, lease termination or bankruptcy
proceeding and do not immediately re-lease or sell the properties to new
operators, the assets will be included on the balance sheet as “foreclosed real
estate properties,” and the value of such assets is reported at the lower of
cost or estimated fair value.
The table
below summarizes our number of properties and gross investment by category for
the three months ended March 31, 2005:
| |
|
|
|
Mortgage |
|
Total |
|
| |
|
Leased |
|
Notes |
|
Healthcare |
|
|
Facility
Count |
|
Property |
|
Receivable |
|
Facilities |
|
Balance
at December 31, 2004 |
|
|
175 |
|
|
46 |
|
|
221 |
|
Properties
sold/mortgages paid |
|
|
(3 |
) |
|
(12 |
) |
|
(15 |
) |
Properties
acquired |
|
|
7 |
|
|
- |
|
|
7 |
|
|
Properties
transferred to purchase/leaseback |
|
|
6 |
|
|
(6 |
) |
|
- |
|
|
Balance
at March 31, 2005 |
|
|
185 |
|
|
28 |
|
|
213 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Investment
($000’s) |
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004 |
|
$ |
808,574 |
|
$ |
118,058 |
|
$ |
926,632 |
|
Properties
sold/mortgages paid |
|
|
(7,243 |
) |
|
(59,657 |
) |
|
(66,900 |
) |
Properties
acquired |
|
|
65,553 |
|
|
- |
|
|
65,553 |
|
Properties
transferred to purchase/leaseback |
|
|
13,776 |
|
|
(13,776 |
) |
|
- |
|
Impairment
on properties |
|
|
(3,700 |
) |
|
- |
|
|
(3,700 |
) |
|
Capex
and other |
|
|
1,327 |
|
|
(371 |
) |
|
956 |
|
|
Balance
at March 31, 2005 |
|
$ |
878,287 |
|
$ |
44,254 |
|
$ |
922,541 |
|
Leased
Property
Our
leased real estate properties, represented by 183 long-term care facilities and
two rehabilitation hospitals at March 31, 2005, are leased under provisions of
single leases and master leases with initial terms typically ranging from 5 to
15 years, plus renewal options. Substantially all of the leases and master
leases provide for minimum annual rentals that are subject to annual increases
based upon increases in the Consumer Price Index or increases in revenues of the
underlying properties, with certain maximum limits. Under the terms of the
leases, the lessee is responsible for all maintenance, repairs, taxes and
insurance on the leased properties.
Set forth
below is a summary of the lease and acquisition transactions that occurred in
the three months ended March 31, 2005.
Essex
Healthcare
| · |
On
January 13, 2005, we closed on approximately $58 million of net new
investments as a result of the exercise by American Health Care Centers
(“American”) of a put agreement with us for the purchase of 13 skilled
nursing facilities (“SNFs”). The gross purchase price of approximately $79
million was satisfied in part by a purchase option of approximately $7
million and approximately $14 million in mortgage loans we had outstanding
with American and its affiliates. |
| · |
The
13 properties, all located in Ohio, will continue to be leased by Essex
Healthcare Corporation. The master lease and related agreements have
remaining terms of approximately six years. |
Claremont
Health Care Holdings, Inc.
| · |
Effective
January 1, 2005, we re-leased one SNF formerly leased to Claremont Health
Care Holdings, Inc., located in New Hampshire and representing 68 beds to
an existing operator. This facility was added to an existing master lease
which expires on December 31, 2013, followed by two 10-year renewal
options. |
Other
| · |
During
the three months ended March 31, 2005, a $3.7 million provision for
impairment charge was recorded to reduce the carrying value on two
facilities, currently in the process of being re-leased or potentially
closed, to their estimated fair value. |
Assets
Sold
During
the three months ended March 31, 2005, we sold three facilities, located in
Florida and California, for their approximate net book value realizing cash
proceeds of approximately $6.1 million, net of closing costs and other
expenses.
Acquisitions
There was
one acquisition of thirteen facilities completed for the three-months ended
March 31, 2005 (see Leased Property, Essex Healthcare above). The table below
summarizes the acquisition. The purchase price includes estimated transaction
costs.
100%
Interest Acquired Acquisition
Date Purchase
Price ($000’s)
Thirteen
facilities in Ohio
January 13, 2005 $79,300
The
acquired properties are included in our results of operations from the
respective date of acquisition. The following unaudited pro forma results of
operations reflect these transactions as if each had occurred on January 1 of
the year presented. In our opinion, all significant adjustments necessary
to reflect
the effects of the acquisitions have been made; however, a preliminary
allocation of the purchase price to land and buildings was made, and we will
finalize the allocation in 2005 after all information is obtained.
| |
|
Pro
Forma
(in
thousands, except per share amounts) |
|
| |
|
Three
Months Ended
March
31, |
|
| |
|
|
2005 |
|
|
2004 |
|
|
Revenues |
|
$ |
28,876 |
|
$ |
23,233 |
|
|
Net
income (loss) |
|
$ |
9,271 |
|
$ |
(9,619 |
) |
| |
|
|
|
|
|
|
|
|
Earnings
per share - Basic |
|
$ |
0.11 |
|
$ |
(1.28 |
) |
|
Earnings
per share - Diluted |
|
$ |
0.11 |
|
$ |
(1.28 |
) |
Mortgage
Notes Receivable
Mortgage
notes receivable relate to 28 long-term care facilities. The mortgage notes are
secured by first mortgage liens on the borrowers' underlying real estate and
personal property. The mortgage notes receivable relate to facilities located in
eight states, operated by eight independent healthcare operating companies. We
monitor compliance with mortgages and when necessary have initiated collection,
foreclosure and other proceedings with respect to certain outstanding loans. As
of March 31, 2005, we had no foreclosed property and none of our mortgages were
in foreclosure proceedings.
Mortgage
interest income is recognized as earned over the terms of the related mortgage
notes. Reserves are taken against earned revenues from mortgage interest when
collection of amounts due becomes questionable or when negotiations for
restructurings of troubled operators lead to lower expectations regarding
ultimate collection. When collection is uncertain, mortgage interest income on
impaired mortgage loans is recognized as received after taking into account
application of security deposits.
On
February 1, 2005, Mariner Health Care, Inc. (“Mariner”) exercised its right to
prepay in full the $59.7 million aggregate principal amount owed to us under a
promissory note secured by a mortgage with an interest rate of 11.57%, together
with the required prepayment premium of 3% of the outstanding principal balance
and all accrued and unpaid interest. In addition, pursuant to certain provisions
contained in the promissory note, Mariner paid us an amendment fee owed for the
period ending on February 1, 2005.
No
provisions for loss on mortgages or notes receivable were recorded during the
three-months ended March 31, 2005 and 2004, respectively.
NOTE
3 - CONCENTRATION OF RISK
As of
March 31, 2005, our portfolio of domestic investments consisted of 213
healthcare facilities, located in 28 states and operated by 39 third-party
operators. Our gross investment in these facilities, net of impairments and
before reserve for uncollectible loans, totaled approximately $923 million at
March 31, 2005, with approximately 98% of our real estate investments related to
long-term care facilities. This portfolio is made up of 183 long-term healthcare
facilities, two rehabilitation hospitals owned and leased to third parties and
fixed rate mortgages on 28 long-term healthcare facilities. At March 31, 2005,
we also held miscellaneous investments of approximately $20 million, consisting
primarily of secured loans to third-party operators of our
facilities.
At March
31, 2005, approximately 27% of our real estate investments were operated by two
public companies: Sun Healthcare Group, Inc. (“Sun”) (16%) and Advocat, Inc.
(“Advocat”) (11%). Our largest private company operators (by investment) were
Guardian LTC Management, Inc. (9%), Essex Healthcare Corp. (9%), Haven
Healthcare (6%), and Seacrest Healthcare (6%). No other operator represents more
than 5% of our investments. The three states in which we had our highest
concentration of investments were Ohio (15%), Florida (13%) and Pennsylvania
(9%) at March 31, 2005.
For the
three-month period ended March 31, 2005, our revenues from operations totaled
$28.6 million, of which approximately $5.5 million were derived from Sun (19%)
and $3.1 million from Advocat (11%). No other operator generated more than 10%
of our revenues from operations.
NOTE
4 - DIVIDENDS
In order
to qualify as a REIT, we are required to distribute dividends (other than
capital gain dividends) to our stockholders in an amount at least equal to (A)
the sum of (i) 90% of our "REIT taxable income" (computed without regard to the
dividends paid deduction and our net capital gain), and (ii) 90% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if we dispose of any built-in
gain asset during a recognition period, we will be required to distribute at
least 90% of the built-in gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before we
timely file our tax return for such year and paid on or before the first regular
dividend payment after such declaration. In addition, such distributions are
required to be made pro rata, with no preference to any share of stock as
compared with other shares of the same class, and with no preference to one
class of stock as compared with another class except to the extent that such
class is entitled to such a preference. To the extent that we do not distribute
all of our net capital gain or do distribute at least 90%, but less than 100% of
our "REIT taxable income," as adjusted, we will be subject to tax thereon at
regular ordinary and capital gain corporate tax rates. In addition, our $200
million revolving senior secured credit facility (“Credit Facility”) has certain
financial covenants which limit the distribution of dividends paid during a
fiscal quarter to no more than 95% of our immediately prior fiscal quarter’s FFO
as defined in the loan agreement governing the Credit Facility (the “Loan
Agreement”), unless a greater distribution is required to maintain REIT status.
The Loan Agreement, defines FFO as net income (or loss), plus depreciation and
amortization and shall be adjusted for charges related to: (i) restructuring our
debt; (ii) redemption of preferred stock; (iii) litigation charges up to $5.0
million; (iv) non-cash charges for accounts and notes receivable up to $5.0
million; (v) non-cash compensation related expenses; and (vi) non-cash
impairment charges.
Common
Dividends
On April
19, 2005, the Board of Directors announced a common stock dividend of $0.21 per
share, an increase of $0.01 per common share compared to the prior quarter, to
be paid May 16, 2005 to common stockholders of record on May 2,
2005.
On
January 18, 2005, the Board of Directors announced a common stock dividend of
$0.20 per share, an increase of $0.01 per common share compared to the prior
quarter. The common stock dividend was paid February 15, 2005 to common
stockholders of record on January 31, 2005.
Series
D Preferred Dividends
On March
15, 2005, the Board of Directors declared the regular quarterly dividends for
its 8.375% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred
Stock”) to stockholders of record on May 2, 2005. The stockholders of record of
the Series D Preferred Stock on May 2, 2005 will be paid dividends in the amount
of $0.52344 per preferred share on May 16, 2005. The liquidation preference for
the Company’s Series D Preferred Stock is $25.00 per share. Regular quarterly
preferred dividends for the Series D Preferred Stock represent dividends for the
period February 1, 2005 through April 30, 2005.
On
January 18, 2005, the Board of Directors declared regular quarterly dividends of
approximately $0.53906 per preferred share for its Series D Preferred Stock,
which were paid February 15, 2005 to preferred stockholders of record on January
31, 2005.
Series
B Preferred Stock Redemption and Quarterly Dividends
On March
15, 2005, the Board of Directors also authorized the redemption of all shares
outstanding of our 8.625% Series B Preferred Stock (“Series B Preferred Stock”)
(NYSE:OHI PrA; CUSIP: 681936209). We redeemed all of the outstanding shares on
May 2, 2005 for $25.00 per share, plus $0.55104 per share in accrued and unpaid
dividends through the redemption date, for an aggregate redemption price of
$25.55104 per share. Dividends on the shares of Series B Preferred Stock ceased
to accrue from and after the redemption date, after which the Series B Preferred
Stock was no longer outstanding and holders of the Series B Preferred Stock have
only the right to receive the redemption price.
The
notice of redemption and related materials were mailed to the holders of the
Series B Preferred Stock on or about April 1, 2005. EquiServe Trust Company
acted as our redemption and paying agent. On or before the redemption date, we
deposited with EquiServe the aggregate redemption price to be held in trust for
the benefit of the holders of the Series B Preferred Stock. Holders of the
Series B Preferred Stock who hold shares through the Depository Trust Company
will have their shares of the Series B Preferred Stock redeemed in accordance
with the Depository Trust Company’s procedures.
In
connection with the redemption of the Series B Preferred Stock, Omega’s second
quarter 2005 results will reflect a non-recurring reduction in net income
attributable to common shareholders of approximately $2.0 million or
approximately $0.04 per common share. This reduction will be taken in accordance
with the Securities and Exchange Commission’s Interpretation of FASB-EITF Topic
D-42 (“The Effect on the Calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock”), issued on July 31, 2003. Under this
interpretation, all costs associated with the original issuance of the Series B
Preferred Stock will be recorded as a reduction of net income attributable to
common stockholders.
On
January 18, 2005, the Board of Directors declared regular quarterly dividends of
approximately $0.52344 per preferred share for its Series B Preferred Stock,
which were paid February 15, 2005 to preferred stockholders of record on January
31, 2005.
NOTE
5 - TAXES
As a
qualified REIT, we will not be subject to Federal income taxes on our income,
and no provisions for Federal income taxes have been made. We are permitted to
own up to 100% of a “taxable REIT subsidiary” (“TRS”). Currently we have two
TRSs that are taxable as corporations and that pay federal, state and local
income tax on their net income at the applicable corporate rates.
NOTE
6 - STOCK-BASED COMPENSATION
Stock
Options
We
account for stock options using the intrinsic value method as defined by APB
Opinion No. 25, Accounting
for Stock Issued to Employees. Under
the terms of the 2000 Stock Incentive Plan (the “2000 Plan”), we reserved
3,500,000 shares of common stock. The exercise price per share of an option
under the 2000 Plan cannot be reduced after the date of grant, nor can an option
be cancelled in exchange for an option with a lower exercise price per share.
The 2000 Plan provides for non-employee directors to receive options that vest
over three years while other grants vest over the period required in the
agreement applicable to the individual recipient. Directors, officers and
employees and consultants are eligible to participate in the 2000 Plan. At March
31, 2005, there were outstanding options for 495,213 shares of common stock
granted to 17 eligible
participants under the 2000 Plan. Additionally, 355,655 shares of restricted
stock have been granted under the provisions of the 2000 Plan, and as of March
31, 2005, there were no shares of unvested restricted stock outstanding under
the 2000 Plan.
At March
31, 2005, under the 2000 Plan, there were options for 131,484 shares of common
stock currently exercisable with a weighted-average exercise price of $7.06,
with exercise prices ranging from $2.32 to $37.20. There were 559,960 shares
available for future grants as of March 31, 2005. A breakdown of the options
outstanding under the 2000 Plan as of March 31, 2005, by price range, is
presented below:
|
Option
Price
Range |
|
|
Number |
|
|
Weighted
Average Exercise Price |
|
|
Weighted
Average Remaining Life (Years |
) |
|
Number
Exercisable |
|
|
Weighted
Average Price on Options Exercisable |
|
$2.32
-$3.00 |
|
|
279,797 |
|
$ |
2.69 |
|
|
6.39 |
|
|
32,343 |
|
$ |
2.37 |
|
$3.01
-$3.81 |
|
|
169,919 |
|
$ |
3.21 |
|
|
6.65 |
|
|
61,145 |
|
$ |
3.24 |
|
$6.02
-$9.33 |
|
|
26,496 |
|
$ |
6.69 |
|
|
6.94 |
|
|
18,995 |
|
$ |
6.38 |
|
$20.25
-$37.20 |
|
|
19,001 |
|
$ |
28.03 |
|
|
2.24 |
|
|
19,001 |
|
$ |
28.03 |
|
On April
20, 2004, our Board of Directors approved the 2004 Stock Incentive Plan (the
“2004 Plan”), which was subsequently approved by our stockholders at our annual
meeting held on June 3, 2004. Under the terms of the 2004 Plan, we reserved
3,000,000 shares of common stock. The exercise price per share of an option
under the 2004 Plan cannot be less than fair market value (as defined in the
2004 Plan) on the date of grant. The exercise price per share of an option under
the 2004 Plan cannot be reduced after the date of grant, nor can an option be
cancelled in exchange for an option with a lower exercise price per share.
Directors, officers, employees and consultants are eligible to participate in
the 2004 Plan. As of March 31, 2005, a total of 331,275 shares of restricted
stock and 317,500 restricted stock units have been granted under the 2004 Plan,
and as of March 31, 2005, there were no outstanding options to purchase shares
of common stock under the 2004 Plan.
At March
31, 2005, the only options outstanding to purchase shares of common stock were
options issued under our 2000 Plan for 495,213 shares of common stock. For the
quarter ended March 31, 2005, no options were granted under any of our stock
incentive plans. The following is a summary of option activity under the 2000
Plan:
|
Stock
Options |
|
Number
of
Shares |
|
Exercise
Price |
|
Weighted-
Average
Price |
|
Outstanding
at December 31, 2004 |
|
|
570,183 |
|
$ |
2.320 - 37.205 |
|
$ |
3.891 |
|
Granted
during 1st
quarter 2005 |
|
|
- |
|
|
- - - |
|
|
- |
|
Exercised |
|
|
(74,970) |
|
|
2.320 - 9.330 |
|
|
2.805 |
|
|
Cancelled |
|
|
- |
|
|
- - - |
|
|
- |
|
Outstanding
at March 31, 2005 |
|
|
495,213 |
|
|
2.320 - 37.205 |
|
|
4.056 |
|
Statement
of Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, which
was effective January 1, 2003, requires certain disclosures related to our
stock-based compensation arrangements.
The
following table presents the effect on net income and earnings per share if we
had applied the fair value recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, to our
stock-based compensation.
| |
|
Three
Months Ended
March
31, |
|
| |
|
2005 |
|
2004 |
|
(in
thousands, except per share amounts) |
|
|
Net
income (loss) to common stockholders |
|
$ |
5,745 |
|
$ |
(53,728 |
) |
|
Add:
Stock-based compensation expense included in net income (loss) to common
stockholders |
|
|
285 |
|
|
— |
|
| |
|
|
6,030 |
|
|
(53,728 |
) |
|
Less:
Stock-based compensation expense determined under the fair value based
method for all awards |
|
|
348 |
|
|
6 |
|
|
Pro
forma net income (loss) to common stockholders |
|
$ |
5,682 |
|
$ |
(53,734 |
) |
| |
|
|
|
|
|
|
|
Earnings
per share: |
|
|
|
|
|
|
|
|
Basic,
as reported |
|
$ |
0.11 |
|
$ |
(1.30 |
) |
|
Basic,
pro forma |
|
$ |
0.11 |
|
$ |
(1.30 |
) |
|
Diluted,
as reported |
|
$ |
0.11 |
|
$ |
(1.30 |
) |
|
Diluted,
pro forma |
|
$ |
0.11 |
|
$ |
(1.30 |
) |
The
Black-Scholes options valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, options valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
Restricted
Stock
On
September 10, 2004, we entered into restricted stock agreements with four
executive officers under the 2004 Plan. A total of 317,500 shares of restricted
stock were granted, which equated to approximately $3.3 million of deferred
compensation. The shares vest thirty-three and one-third percent (33 1/3%) on
each of January 1, 2005, January 1, 2006 and January 1, 2007 so long as the
executive officer remains employed on the vesting date, with vesting
accelerating upon a qualifying termination of employment or upon the occurrence
of a change of control (as defined in the Restricted Stock
Agreements).
For the
quarter ended March 31, 2005, we issued 1,443 shares of restricted common stock
to each non-employee director and an additional 2,000 shares of restricted
common stock to the Chairman of the Board under the 2004 Plan for a total of
9,215 shares. These shares represent a payment of the portion of the directors’
annual retainer that is payable in shares of our common stock.
Performance
Restricted Stock Units
On
September 10, 2004, we entered into performance restricted stock unit agreements
with our four executive officers under the 2004 Plan. A total of 317,500
restricted stock units were issued under the 2004 Plan and will fully vest into
shares of common stock when our company attains $0.30 per share of adjusted
funds from operations (as defined in the Restricted Stock Unit Agreements) for
two (2) consecutive quarters, with vesting accelerating upon a qualifying
termination of employment or upon the occurrence of a change of control (as
defined in the Restricted Stock Unit Agreements). The issuance of restricted
stock units has no impact on our calculation of diluted earnings per common
share at this time; however, under our current method of accounting for
stock-based compensation, the expense related to the restricted stock units will
be recognized when it becomes probable that the vesting requirements will be
met.
NOTE
7 - FINANCING ACTIVITIES AND BORROWING ARRANGEMENTS
Bank
Credit Agreements
At March
31, 2005, there were no outstanding borrowings under our Credit Facility and
$4.3 million was utilized for the issuance of letters of credit, leaving
availability of $195.7 million.
Our
long-term borrowings require us to meet certain property level financial
covenants and corporate financial covenants, including prescribed leverage,
fixed charge coverage, minimum net worth, limitations on additional indebtedness
and limitations on dividend payouts. As of March 31, 2005, we were in compliance
with all property level and corporate financial covenants.
At
December 31, 2004, we had $15.0 million of outstanding borrowings with a blended
interest rate of 5.41%.
$60
Million 7% Senior Unsecured Notes Offering
On
October 29, 2004, we completed a privately placed offering of an additional $60
million aggregate principal amount of 7% senior notes due 2014 (“the Additional
Notes”) at an issue price of 102.25% of the principal amount of the Additional
Notes (equal to a per annum yield to maturity of approximately 6.67%), resulting
in gross proceeds of approximately $61 million. The terms of the Additional
Notes offered were substantially identical to our existing $200 million
aggregate principal amount of 7% senior notes due 2014 issued in March 2004 (the
“Existing Notes”), which were subsequently exchanged for registered senior notes
in September 2004. The Additional Notes were issued through a private placement
to qualified institutional buyers under Rule 144A under the Securities Act of
1933 (the “Securities Act”) and in offshore transactions pursuant to Regulation
S under the Securities Act.
On
December 21, 2004, we filed a registration statement on Form S-4 under the
Securities Act with the SEC offering to exchange (the “Additional Notes Exchange
Offer”) up to $60 million aggregate principal amount of our registered 7% Senior
Notes due 2014 (the “Additional Exchange Notes”), for all of our outstanding
unregistered Additional Notes. On March 18, 2005, upon the expiration of the
Additional Notes Exchange Offer, $60 million aggregate principal amount of
Additional Exchange Notes were exchanged for the unregistered Additional Notes.
As a result of the Additional Exchange Offer, no Additional Notes remain
outstanding. The terms of the Additional Exchange Notes are identical to the
terms of the Additional Notes, except that the Additional Exchange Notes are
registered under the Securities Act and therefore freely tradable (subject to
certain conditions) along with our previously registered Existing Notes as a
single class. The Additional Exchange Notes represent our unsecured senior
obligations and have been guaranteed by all of our subsidiaries with
unconditional guarantees of payment that rank equally with existing and future
senior unsecured debt of such subsidiaries and senior to existing and future
subordinated debt of such subsidiaries.
Our $260
million 7% senior notes due 2014 (“Senior Notes”) are guaranteed jointly and
severally, fully and unconditionally by all of our wholly-owned subsidiaries. We
are the issuer and non-guarantor of the Senior Notes and, aside from the assets
or operations of our subsidiaries; we do not have any significant assets or
operations. Pursuant to the terms of the indenture governing the Senior Notes,
we will not and will not permit any of our subsidiary guarantors to cause or
otherwise effect any consensual encumbrance or restriction with respect to the
payment of any dividend or the making of any distributions on any capital stock,
to pay indebtedness owed to
us or any
subsidiary guarantor, to make loans of advances to us or any of our subsidiary
guarantors, or transfer its property
or assets to us or any of our subsidiary guarantors other than in certain
limited exceptions.
NOTE
8 - LITIGATION
We are
subject to various legal proceedings, claims and other actions arising out of
the normal course of business. While any legal proceeding or claim has an
element of uncertainty, management believes that the outcome of each lawsuit
claim or legal proceeding that is pending or threatened, or all of them
combined, will not have a material adverse effect on our consolidated financial
position or results of operations.
We and
several of our wholly-owned subsidiaries have been named as defendants in
professional liability claims related to our former owned and operated
facilities. Other third-party managers responsible for the day-to-day operations
of these facilities have also been named as defendants in these claims. In these
suits, patients of certain previously owned and operated facilities have alleged
significant damages, including punitive damages against the defendants. The
majority of these lawsuits representing the most significant amount of exposure
were settled in 2004. There currently is one lawsuit pending that is in the
discovery stage and we are unable to predict the likely outcome of this lawsuit
at this time.
NOTE
9 - DISCONTINUED OPERATIONS
The
implementation of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, as of
January 1, 2002, requires the presentation of the net operating results of
facilities sold during 2005 as income from discontinued operations for all
periods presented. We incurred a net loss from discontinued operations of $24
thousand in the accompanying consolidated statements of operations.
The
following table summarizes the results of operations of facilities sold during
the three months ended March 31, 2005 and 2004, respectively.
| |
|
Three
Months Ended |
|
| |
|
March
31, |
|
| |
|
2005 |
|
2004 |
|
|
|
(in
thousands) |
Revenues |
|
|
|
|
|
|
|
|
Rental
income |
|
$ |
39 |
|
$ |
101 |
|
Subtotal
revenues |
|
|
39 |
|
|
101 |
|
Expenses |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
26 |
|
|
66 |
|
|
Subtotal
expenses |
|
|
26 |
|
|
66 |
|
| |
|
|
|
|
|
|
|
Income
before loss on sale of assets |
|
|
13 |
|
|
35 |
|
|
Loss
on assets sold - net |
|
|
(37 |
) |
|
(351 |
) |
|
Loss
from discontinued operations |
|
$ |
(24 |
) |
$ |
(316 |
) |
NOTE
10 - EARNINGS PER SHARE
The
computation of basic earnings per common share (“EPS”) is computed by dividing
net income available to common stockholders by the weighted-average number of
shares of common stock outstanding during the relevant period. Diluted EPS
reflects the potential dilution that could occur from shares issuable through
stock-based compensation, including stock options and restricted stock
rewards.
For the
three-month period ended March 31, 2005, the dilutive effect from stock options
was immaterial. For the three-month period ended March 31, 2004, there was no
dilutive effect from stock options.
NOTE
11 - SUBSEQUENT EVENTS
Dividends
On April
19, 2005, the Board of Directors announced a common stock dividend of $0.21 per
share to be paid May 16, 2005 to common stockholders of record on May 2,
2005.
Series
B Preferred Stock Redemption
On May 2,
2005, we redeemed all outstanding 2.0 million shares of our Series B Preferred
Stock at a price of $25.55104 per share, comprised of the $25 per share
liquidation value and accrued dividend. During 2004, we raised over $193 million
from public offerings of our capital stock, the proceeds of which were used for,
among other things, the reduction of amounts owed under our Credit Facility
prior to the time such funds were needed to fund the redemption. The redemption
of the $50 million of Series B Preferred Stock, as well as the related accrued
dividend, was funded through invested cash and approximately $40 million of
Credit Facility borrowings, which had been paid down from the proceeds of our
2004 stock offerings. Under FASB-EITF Issue D-42, “The Effect on the Calculation
of Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock,” the repurchase of the Series B Preferred Stock will result in a non-cash
charge to net income available to common stockholders of approximately $2.0
million in the second quarter of 2005.
Bank
Credit Agreement
On April
26, 2005, we amended our Credit Facility to reduce both LIBOR and Base Rate
interest spreads (as defined in the Credit Facility) by 50 basis points for
borrowings outstanding. At March 31, 2005, we had no outstanding borrowings
under our Credit Facility.
Item
2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-looking
Statements, Reimbursement Issues and Other Factors Affecting Future
Results
The
following discussion should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this document. This document contains
forward-looking statements within the meaning of the federal securities laws,
including statements regarding potential financings and potential future changes
in reimbursement. These statements relate to our expectations, beliefs,
intentions, plans, objectives, goals, strategies, future events, performance and
underlying assumptions and other statements other than statements of historical
facts. In some cases, you can identify forward-looking statements by the use of
forward-looking terminology including, but not limited to, terms such as “may,”
“will,” “anticipates,” “expects,” “believes,” “intends,” “should” or comparable
terms or the negative thereof. These statements are based on information
available on the date of this filing and only speak as to the date hereof and no
obligation to update such forward-looking statements should be assumed. Our
actual results may differ materially from those reflected in the forward-looking
statements contained herein as a result of a variety of factors, including,
among other things:
| (i) |
those
items discussed under “Risk Factors” in Item 1 to our 2004 Form
10-K; |
| (ii) |
uncertainties
relating to the business operations of the operators of our assets,
including those relating to reimbursement by third-party payors,
regulatory matters and occupancy levels; |
| (iii) |
the
ability of any operators in bankruptcy to reject unexpired lease
obligations, modify the terms of our mortgages and impede our ability to
collect unpaid rent or interest during the process of a bankruptcy
proceeding and retain security deposits for the debtors’
obligations; |
| (iv) |
our
ability to sell closed assets on a timely basis and on terms that allow us
to realize the carrying value of these
assets; |
| (v) |
our
ability to negotiate appropriate modifications to the terms of our credit
facility; |
| (vi) |
our
ability to manage, re-lease or sell any owned and operated
facilities; |
| (vii) |
the
availability and cost of capital; |
| (viii) |
competition
in the financing of healthcare facilities; |
| (ix) |
regulatory
and other changes in the healthcare sector; |
| (x) |
the
effect of economic and market conditions generally and, particularly, in
the healthcare industry; |
| (xi) |
changes
in interest rates; |
| (xii) |
the
amount and yield of any additional
investments; |
| (xiii) |
changes
in tax laws and regulations affecting real estate investment trusts;
and |
| (xiv) |
changes
in the ratings of our debt and preferred
securities. |
Overview
At March
31, 2005, our portfolio of domestic investments consisted of 213 healthcare
facilities, located in 28 states and operated by 39 third-party operators. Our
gross investment in these facilities, net of impairments and before reserve for
uncollectible loans, totaled approximately $923 million at March 31, 2005, with
approximately 98% of our real estate investments related to long-term care
facilities. This portfolio is made up of 183 long-term healthcare facilities,
two rehabilitation hospitals owned and leased to third parties, and fixed rate
mortgages on 28 long-term healthcare facilities. At March 31, 2005, we also held
miscellaneous investments of approximately $20 million, consisting primarily of
secured loans to third-party operators of our facilities.
Medicare
Reimbursement
Nearly
all of our properties are used as healthcare facilities; therefore, we are
directly affected by the risk associated with the healthcare industry. Our
lessees and mortgagors, as well as any facilities that may be owned and operated
for our own account from time to time, derive a substantial portion of their net
operating revenues from third-party payors, including the Medicare and Medicaid
programs. These programs are highly regulated by federal, state and local laws,
rules and regulations, and subject to frequent and substantial change. The
Balanced Budget Act of 1997 (the “Balanced Budget Act”) significantly reduced
spending levels for the Medicare and Medicaid programs. Due to the
implementation of the terms of the Balanced Budget Act, effective July 1, 1998,
the majority of skilled nursing facilities (“SNFs”) shifted from payments based
on reasonable cost to a prospective payment system for services provided to
Medicare beneficiaries. Under the prospective payment system, SNFs are paid on a
per diem prospective case-mix adjusted basis for all covered services.
Implementation of the prospective payment system has affected each long-term
care facility to a different degree, depending upon the amount of revenue such
facility derives from Medicare patients.
Legislation
adopted in 1999 and 2000 increased Medicare payments to nursing facilities and
specialty care facilities on an interim basis. Section 101 of the Balanced
Budget Refinement Act of 1999 (the “Balanced Budget Refinement Act”) included a
20% increase for 15 patient acuity categories (known as Resource Utilization
Groups (“RUGs”)) and a 4% across the board increase of the adjusted federal per
diem payment rate for all RUGs. The 20% increase was implemented in April 2000
and will remain in effect until the Centers for Medicare and Medicaid Services
(“CMS”) implements refinements to the current RUG case-mix classification system
to more accurately estimate the cost of non-therapy ancillary services. The 4%
increase was implemented in April 2000 and expired October 1, 2002.
The
Benefits Improvement and Protection Act of 2000 (the “Benefits Improvement and
Protection Act”) included a 16.7% increase in the nursing component of the
case-mix adjusted federal periodic payment rate, which was implemented in April
2000 and expired October 1, 2002. The Benefits Improvement and Protection Act
also modified the 20% increase granted in the Balanced Budget Refinement Act,
reducing the 20% increase for three of the 15 RUGs to a 6.7% increase and
instituting a new 6.7% increase for 11 other RUGs. These modifications were
implemented in April 2001 and will remain in effect until CMS refines the
current RUG case-mix classification system.
The
October 1, 2002 expiration of the 4% and 16.7% increases under these statutes
has had an adverse impact on the revenues of the operators of nursing facilities
and has negatively impacted some operators’ ability to satisfy their monthly
lease or debt payments to us. Medicare reimbursement could be further reduced
when CMS completes its refinement of the RUG classification system, thereby
eliminating the temporary 20% and 6.7% increases also established under these
statutes.
On August
4, 2003, CMS published the payment rates for SNFs for federal fiscal year 2004
(effective October 1, 2003 through September 30, 2004), which included a 3.0%
increase in Medicare payments for federal fiscal year 2004. In addition, CMS
announced that the 20% and 6.7% temporary add-ons for certain payment categories
would remain in effect for federal fiscal year 2004. CMS also confirmed in the
August 4, 2003 announcement its intention to incorporate a forecast error
adjustment to take into account previous years’ update errors. As a result, CMS
increased the national payment rates by an additional 3.26% above the 3.0%
increase for federal fiscal year 2004.
CMS
published the payment rates for SNFs for federal fiscal year 2005 (October 1,
2004 through September 30, 2005) on July 30, 2004. CMS announced that the
national payment rates would be increased by 2.8% over the previous year’s
rates. Additionally, CMS stated it would maintain the 20% and 6.7% temporary
add-ons for the designated payment categories for federal fiscal year
2005.
A 128%
temporary increase in the per diem amount paid to SNFs for residents who have
AIDS took effect on October 1, 2004. This temporary payment increase, which will
remain in place until CMS implements revisions to the RUG case-mix
classification system, arises from the Medicare Prescription Drug Improvement
and Modernization Act of 2003 (“Medicare Modernization Act”). When applicable,
this 128% increase applies in lieu of the 20% and 6.7% increases described
above.
The
Medicare Modernization Act also temporarily reinstituted a moratorium on the
application of a reimbursement cap on outpatient rehabilitative services. The
therapy cap limits reimbursement to $1,590 for physical therapy and
speech-language pathology services provided on an outpatient basis. Congress
first enacted a moratorium on the implementation of a reimbursement cap from
January 1, 2000 until January 1, 2003. CMS enforced the reimbursement cap from
September 1, 2003 through December 7, 2003, at which point Congress reinstituted
the moratorium under the Medicare Modernization Act. The moratorium remains in
place through December 31, 2005, and its future beyond that date is unclear at
this point.
CMS
released a proposed rule in February 2003 that, if implemented, would limit
Medicare reimbursement to certain providers, including SNFs, for bad debt
arising from unpaid beneficiary deductibles and coinsurance amounts. In the
proposed rule, CMS indicated that reimbursement rates would be reduced by 10%
each year for three years until reimbursement rates to SNFs for bad debt equal
70% of reimbursement rates during federal fiscal year 2003. CMS has not issued a
final rule on this issue, and we cannot predict whether CMS will implement these
proposed policies or when the final rule may be issued. However, extensive cuts
in Medicare payments for bad debt could have a material adverse effect on our
operators’ financial condition and operations, which could adversely affect
their ability to meet their payment obligations to us.
Due to
the temporary nature of the 20% and 6.7% Medicare payment increases established
under the Balanced Budget Refinement Act and the Benefits Improvement and
Protection Act as well as the increase in the per diem amounts for SNF residents
who have AIDS under the Medicare Modernization Act, we cannot be assured that
the federal reimbursement will remain at levels comparable to present levels and
that such reimbursement will be sufficient for our lessees or mortgagors to
cover all operating and fixed costs necessary to care for Medicare and Medicaid
patients. We also cannot be assured that there will be any future legislation to
increase payment rates for SNFs. If payment rates for SNFs are not increased in
the future, some of our lessees and mortgagors may have difficulty meeting their
payment obligations to us.
Congress
may consider federal legislation involving the Medicare program in 2005,
although the likelihood of enactment of such legislation remains
uncertain.
Medicaid
and Other Third-Party Reimbursement
Each
state has its own Medicaid program that is funded jointly by the state and
federal government. Federal law governs how each state manages its Medicaid
program, but there is wide latitude for states to customize Medicaid programs to
fit the needs and resources of their citizens. Rising
Medicaid costs and decreasing state revenues caused by recent economic
conditions have prompted an increasing number of states to cut or consider
reductions in Medicaid funding as a means of balancing their respective state
budgets. Existing and future initiatives affecting Medicaid reimbursement may
reduce utilization of (and reimbursement for) services offered by the operators
of our properties. In recent years, many states announced actual or potential
budget shortfalls, and many budget forecasts for 2006 could be similar. As a
result of these budget shortfalls, many states have announced that they are
implementing or considering implementing “freezes” or cuts in Medicaid
reimbursement rates, including rates paid to SNF providers, or reductions in
Medicaid enrollee benefits, including long-term care benefits. We cannot predict
the extent to which Medicaid rate freezes or cuts or benefit reductions will
ultimately be adopted, the number of states that will adopt them or the impact
of such adoption on our operators. However, extensive Medicaid rate cuts or
freezes or benefit reductions could have a material adverse effect on our
operators’ liquidity, financial condition and results of operations, which could
adversely affect their ability to make lease or mortgage payments to
us.
On May
28, 2003, the federal Jobs and Growth Tax Relief Reconciliation Act (the “Tax
Relief Act”) was signed into law, which included an increase in Medicaid federal
funding for five fiscal quarters (April 1, 2003 through June 30, 2004). In
addition, the Tax Relief Act provided state fiscal relief for federal fiscal
years 2003 and 2004 to assist states with funding shortfalls, and these
temporary federal funding provisions are considered to have partially mitigated
state Medicaid funding reductions through federal fiscal year 2004. However, the
temporary Medicaid funding provided under the Tax Relief Act expired on June 30,
2004. Although federal legislation was introduced in Congress in 2004 to
reinstitute the funding, it is unknown whether such legislation will be
introduced in 2005, whether such legislation will be enacted, what level of
funding would be provided if the legislation was enacted, or how great an effect
this funding could have on mitigating Medicaid funding reductions.
Congress
may consider federal legislation to reform the Medicaid program in 2005,
although the content and likelihood of enactment of such legislation remains
uncertain. Recently, CMS embarked on an initiative to reform the Medicaid
program by working on a state-by-state basis to scrutinize states’ ability to
use intergovernmental transfers (“IGTs”) to access federal Medicaid funding for
public providers.
On April
28, 2005, both houses of Congress adopted a
$2.6 trillion FY 2006 budget resolution conference report that calls for $34.7
billion in savings from mandatory programs over five years, including $10
billion from Medicaid. Although the budget resolution is nonbinding, it acts as
a guideline for Congress for the final budget. Although the exact amount of the
Medicaid cuts are not finalized, the proposed reductions are significant and
would likely have an adverse impact on state Medicaid programs and providers
generally.
Finally,
private payors, including managed care payors, are increasingly demanding
discounted fee structures and the assumption by healthcare providers of all or a
portion of the financial risk of operating a healthcare facility. Efforts to
impose greater discounts and more stringent cost controls are expected to
continue. Any changes in reimbursement policies that reduce reimbursement levels
could adversely affect the revenues of our lessees and mortgagors and thereby
adversely affect those lessees' and mortgagors' abilities to make their monthly
lease or debt payments to us.
Fraud
and Abuse
There are
various extremely complex and largely uninterpreted federal and state laws
governing a wide array of referrals, relationships and arrangements and
prohibiting fraud by healthcare providers, including criminal provisions that
prohibit filing false claims or making false statements to receive payment or
certification under Medicare and Medicaid, or failing to refund overpayments or
improper payments. Governments are devoting increasing attention and resources
to anti-fraud initiatives against healthcare providers. Penalties for healthcare
fraud have been increased and expanded over recent years, including broader
provisions for the exclusion of providers from the Medicare and Medicaid
programs, and the OIG in cooperation with other federal and state agencies,
continues to focus on the activities of skilled nursing facilities in certain
states in which we have properties. In addition, the federal False Claims Act
allows a private individual with knowledge of fraud to bring a claim on behalf
of the federal government and earn a percentage of the federal government’s
recovery. Because of these incentives, these so-called ‘‘whistleblower’’ suits
have become more frequent. The violation of any of these laws or regulations by
an operator may result in the imposition of fines or other penalties that could
jeopardize that operator’s ability to make lease or mortgage payments to us or
to continue operating its facility.
Legislative
and Regulatory Developments
Each
year, legislative and regulatory proposals are introduced or proposed in
Congress, state legislatures as well as by federal and state agencies, which, if
implemented, could result in major changes in the healthcare system, either
nationally or at the state level. In addition, regulatory proposals and rules
are released on an ongoing basis that may have major impacts on the healthcare
system generally and the industries in which our operators do business.
Legislative and regulatory developments can be expected to occur on an ongoing
basis at the local, state and federal levels that have direct or indirect
impacts on the policies governing the reimbursement levels paid to our
facilities by public and private third-party payors, the costs of doing business
and the threshold requirements that must be met for facilities to continue
operation or to expand. The Medicare Modernization Act, which is one example of
such legislation, was enacted in December 2003. The significant expansion of
other benefits for Medicare beneficiaries under this Act, such as the
prescription drug benefit, could result in financial pressures on the Medicare
program that might result in future legislative and regulatory changes with
impacts on our operators. Although the creation of a prescription drug benefit
for Medicare beneficiaries was expected to generate fiscal relief for state
Medicaid programs, the structure of the benefit and costs associated with its
implementation and administration through the states may mitigate the relief for
states that was anticipated. CMS also launched the Nursing Home Quality
Initiative program in 2002, which requires nursing homes participating in
Medicare to provide consumers with comparative information about the quality of
care at the facility. In the event any of our operators do not maintain the same
or superior levels of quality care as their competitors, patients could choose
alternate facilities, which could adversely impact our operators’ revenues. In
addition, the reporting of such information could lead in the future to
reimbursement policies that reward or penalize facilities on the basis of the
reported quality of care parameters. Other proposals under consideration include
efforts by individual states to control costs by decreasing state Medicaid
reimbursements in the current or future fiscal years and federal legislation
addressing various issues, such as protecting consumers in managed care plans,
improving quality of care and reducing medical errors throughout the health care
industry. We cannot accurately predict whether any proposals will be adopted or,
if adopted, what effect, if any, these proposals would have on operators and,
thus, our business.
Potential
Risks from Bankruptcies
Our lease
arrangements with operators who operate more than one of our facilities are
generally made pursuant to a single master lease (“Master Lease”) covering all
of that operator’s facilities. The Bankruptcy Reform Act of 1978, as amended
(“Bankruptcy Code”), provides that a trustee or a debtor-in-possession in a case
under the Bankruptcy Code has the power and the option to assume, assume and
assign to a third party, or reject the unexpired lease of a debtor-lessee. In
the event that the unexpired lease is assumed on behalf of the debtor-lessee,
obligations under the lease generally would be entitled to a priority over other
unsecured pre-bankruptcy claims. However, the debtor-lessee may not have to cure
historical non-monetary defaults under the lease to the extent that they have
not resulted in an actual pecuniary loss, but the debtor-lessee must cure
non-monetary defaults under the lease from the time of assumption going forward.
If a lease is rejected, assuming that the lessor does not have a perfected
security interest in collateral to secure the lease rejection damages, the
lessor has a general unsecured claim limited to any unpaid rent already due plus
an amount equal to the rent reserved under the lease, without acceleration, for
the greater of one year or 15% of the remaining term of such lease, not to
exceed three years. A debtor-lessee must generally pay all rent payments coming
due under the lease after the bankruptcy filing but before the rejection of the
lease. The Bankruptcy Code provides that the debtor-lessee must make the
decision regarding assumption/assumption and assignment/rejection within a
certain period of time. The bankruptcy court in certain instances may, however,
extend this time period.
Generally,
with respect to our mortgage loans, the imposition of an automatic stay under
the Bankruptcy Code precludes us from exercising foreclosure or other remedies
against the debtor without first obtaining stay relief from the bankruptcy
court. Pre-petition creditors generally do not have rights to the cash flows
from the properties underlying the mortgages. Mortgagees may, however, receive
periodic payments from the debtor/mortgagors. Such payments are referred to as
adequate protection payments. The timing of adequate protection payments and
whether the mortgagees are entitled to such payments at all in bankruptcy
depends on negotiating an acceptable settlement with the mortgagor (and subject
to approval of the bankruptcy court) or the order of the bankruptcy court in the
event a negotiated settlement cannot be achieved. A mortgagee also is treated
differently from a landlord in three key respects. First, the mortgage loan is
not subject to assumption or rejection because it is not an executory contract
or a lease. Second, the mortgagee's loan may be divided into (1) a secured loan
for the portion of the mortgage debt that does not exceed the value of the
property and (2) a general unsecured loan for the portion of the mortgage debt
that exceeds the value of the property. Assuming that there is not enough money
to pay all unsecured creditors in full, a secured creditor such as our company
is entitled to the recovery of (i) interest and (ii) reasonable fees, costs and
charges provided for under the agreement or state statute under which such claim
arose only if, and to the extent that, the value of the collateral exceeds the
amount owed. If the value of the collateral exceeds the amount of the debt,
interest as well as reasonable fees, costs, and charges may not be paid during
the bankruptcy case, but will accrue until confirmation of a plan of
reorganization/liquidation or such other time as the court orders. If the value
of the collateral held by a secured creditor is less than the secured debt
(including such creditor’s secured debt and the secured debt of any creditor
with a more senior security interest in the collateral), interest on the loan
for the time period between the filing of the case and confirmation may be
disallowed. Finally, while a lease generally would either be rejected or assumed
with all of its benefits and burdens intact, the terms of a mortgage, including
the rate of interest and the timing of principal payments, may be modified if
the debtor is able to effect a "cram down" under the Bankruptcy
Code.
The
receipt of liquidation proceeds or the replacement of an operator that has
defaulted on its lease or loan could be delayed by the approval process of any
federal, state or local agency necessary for the transfer of the property or the
replacement of the operator licensed to manage the facility. In addition, some
significant expenditures associated with real estate investment, such as real
estate taxes and maintenance costs, are generally not reduced when circumstances
cause a reduction in income from the investment. In order to protect our
investments, we may take possession of a property or even become licensed as an
operator, which might expose us to successor liability under government programs
(or otherwise) or require us to indemnify subsequent operators to whom we might
transfer the operating rights and licenses. Third-party payors may also suspend
payments to us following foreclosure until we receive the required licenses to
operate the facilities. Should such events occur, our income and cash flow from
operations would be adversely affected.
Concentration
of Risk
For the
three-month period ended March 31, 2005, our revenues from operations totaled
$28.6 million, of which approximately $5.5 million were derived from Sun
Healthcare Group, Inc. (“Sun”) (19%) and $3.1 million from Advocat, Inc. (11%).
No other operator generated more than 10% of our revenues from
operations.
As of
March 31, 2005, our real estate investments consisted of 213 healthcare
facilities, located in 28 states and operated by 39 third-party operators. Our
gross investment in these facilities, net of impairments and before reserve for
uncollectible loans, totaled approximately $923 million at March 31, 2005, with
approximately 98% of our real estate investments related to long-term care
facilities. This portfolio is made up of 183 long-term healthcare facilities,
two rehabilitation hospitals owned and leased to third parties, and fixed rate
mortgages on 28 long-term healthcare facilities.
At March
31, 2005, approximately 27% of our real estate investments were operated by two
public companies: Sun (16%) and Advocat (11%). Our largest private company
operators (by investment) were Guardian LTC Management, Inc. (9%), Essex
Healthcare Corp. (9%), Haven Healthcare (6%), and Seacrest Healthcare (6%). No
other operator represents more than 5% of our investments. The three states in
which we had our highest concentration of investments were Ohio (15%), Florida
(13%) and Pennsylvania (9%) at March 31, 2005.
Healthcare
Investment Risks
The
possibility that the healthcare facilities will not generate income sufficient
to meet operating expenses or will yield returns lower than those available
through investments in comparable real estate or other investments are
additional risks of investing in healthcare-related real estate. Income from
properties and yields from investments in such properties may be affected by
many factors, including changes in governmental regulation (such as zoning
laws), general or local economic conditions (such as fluctuations in interest
rates and employment conditions), local supply and demand for improved real
estate, a reduction in rental income as the result of an inability to maintain
occupancy levels, natural disasters (such as earthquakes and floods) or other
factors.
General
Real Estate Risks
Real
estate investments are relatively illiquid and, therefore, tend to limit our
ability to vary our portfolio promptly in response to changes in economic or
other conditions. Thus, if the operation of any of our properties becomes
unprofitable due to competition, age of improvements or other factors such that
the lessee or borrower becomes unable to meet its obligations on the lease or
mortgage loan, the liquidation value of the property may be substantially less,
particularly relative to the amount owed on any related mortgage loan, than
would be the case if the property were readily adaptable to other
uses.
Critical
Accounting Policies and Estimates
Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and a summary of our
significant accounting policies is included in Note 2 to our 2004 Form 10-K. Our
preparation of the financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses during the
reporting period.
We have
identified four significant accounting policies that we believe are critical
accounting policies. These critical accounting policies are those that have the
most impact on the reporting of our financial condition and those requiring
significant assumptions, judgments and estimates. With respect to these critical
accounting policies, we believe the application of judgments and assessments is
consistently applied and produces financial information that fairly presents the
results of operations for all periods presented. The four critical accounting
policies are:
Revenue
Recognition
With the
exception of three master leases, rental income and mortgage interest income are
recognized as earned over the terms of the related master leases and mortgage
notes, respectively. Such income includes periodic increases based on
pre-determined formulas (i.e., such as increases in the Consumer Price Index) as
defined in the master leases and mortgage loan agreements. Reserves are taken
against earned revenues from leases and mortgages when collection becomes
questionable or when negotiations for restructurings of troubled operators
result in significant uncertainty regarding ultimate collection. The amount of
the reserve is estimated based on what management believes will likely be
collected. When collection is uncertain, lease revenues are recorded when
received, after taking into account application of security deposits. Interest
income on impaired mortgage loans is recognized when received after taking into
account application of principal repayments and security deposits.
The three
master leases not recognized as earned over the term of the lease are recognized
on a straight-line basis. We
recognize the minimum base rental revenue under the respective master lease on a
straight-line basis over the term of the related lease. Accrued straight-line
rents represent the rental revenue recognized in excess of rents due under the
lease agreements at the balance sheet date.
Gains on
sales of real estate assets are recognized pursuant to the provisions of SFAS
No. 66, “Accounting for Sales of Real Estate.” The specific timing of the
recognition of the sale and the related gain is measured against the various
criteria in SFAS No. 66 related to the terms of the transactions and any
continuing involvement associated with the assets sold. To the extent the sales
criteria are not met, we defer gain recognition until the sales criteria are
met.
Depreciation
and Asset Impairment
Under
GAAP, real estate assets are stated at the lower of depreciated cost or fair
value, if deemed impaired. Depreciation is computed on a straight-line basis
over the estimated useful lives of 25 to 40 years for buildings and
improvements. Management periodically, but not less than annually, evaluates
our real estate investments for impairment indicators, including the evaluation
of our assets’ useful lives. The judgment regarding the existence of impairment
indicators is based on factors such as, but not limited to, market conditions,
operator performance and legal structure. If indicators of impairment are
present, management evaluates the carrying value of the related real estate
investments in relation to the future undiscounted cash flows of the underlying
facilities. Provisions
for impairment losses related to long-lived assets are recognized when expected
future undiscounted cash flows are determined to be permanently less than the
carrying values of the assets. If the sum of the expected future undiscounted
cash flows, including sales proceeds, is determined to be permanently less than
carrying value, then an adjustment is made to the net carrying value of the
leased properties and other long-lived assets for the excess of historical cost
over fair value. The fair value of the real estate investment is determined by
market research, which includes valuing the property as a nursing home as well
as other alternative uses.
If we
decide to sell rental properties or land holdings, we evaluate the
recoverability of the carrying amounts of the assets. If the evaluation
indicates that the carrying value is not recoverable from estimated net sales
proceeds, the property is written down to estimated fair value less costs to
sell. Our estimates of cash flows and fair values of the properties are based on
current market conditions and consider matters such as rental rates and
occupancies for comparable properties, recent sales data for comparable
properties, and, where applicable, contracts or the results of negotiations with
purchasers or prospective purchasers. Changes in estimated future cash flows due
to changes in our plans or view of market and economic conditions could result
in recognition of additional impairment losses, which, under applicable
accounting guidance, could be substantial.
During
the three-month period ended March 31, 2005, we recognized impairment losses
associated with two facilities of $3.7 million.
Loan
Impairment
Management,
periodically but not less than annually, evaluates our outstanding loans and
notes receivable. When management identifies potential loan impairment
indicators, such as non-payment under the loan documents, impairment of the
underlying collateral, financial difficulty of the operator or other
circumstances that may impair full execution of the loan documents, and
management believes these indicators are permanent, then the loan is written
down to the present value of the expected future cash flows. In cases where
expected future cash flows cannot be estimated, the loan is written down to the
fair value of the collateral. The fair value of the loan is determined by market
research, which includes valuing the property as a nursing home as well as other
alternative uses.
Assets
Held for Sale and Discontinued Operations
Pursuant
to the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the operating results of specified real estate assets which
have been sold, or otherwise qualify as held for disposition (as defined by SFAS
No. 144), are reflected as discontinued operations in the consolidated
statements of operations for all periods presented. We held no assets that
qualified as held for disposition, as defined by SFAS No. 144, as of March 31,
2005; however, during
the three months ended March 31, 2005, we sold three facilities, located in
Florida and California, for their approximate net book value realizing cash
proceeds of approximately $6.1 million, net of closing costs and other expenses.
See Note 9 - Discontinued Operations.
Results
of Operations
The
following discussion relates to our consolidated results of operations,
financial position and liquidity and capital resources, which should be read in
conjunction with our consolidated financial statements and accompanying notes.
Three
Months Ended March 31, 2005 and 2004
Operating
Revenues
Our
operating revenues for the three months ended March 31, 2005 totaled $28.6
million, an increase of $7.4 million, over the same period in 2004. The $7.4
million increase was primarily a result of new investments made throughout 2004
and during the first quarter of 2005, contractual interest revenue associated
with the payoff of a mortgage note, re-leasing and restructuring activities
completed throughout 2004, as well as scheduled contractual increases in rents.
The increase in operating revenues from new investments was partially offset by
a reduction in mortgage interest income.
Detailed
changes in operating revenues during the three months ended March 31, 2005 are
as follows:
| · |
Rental
income for the three months ended March 31, 2005 was $23.0 million, an
increase of $5.9 million over the same period in 2004. The increase was
due to new leases entered into throughout 2004 and during the first
quarter of 2005, restructurings and re-leasing activities and scheduled
contractual increases in rents. |
| · |
Mortgage
interest income for the three months ended March 31, 2005 totaled $2.0
million, a decrease of $1.4 million over the same period in 2004. The
decrease was primarily the result of normal amortization and a $60 million
loan payoff which occurred in the first quarter of
2005. |
| · |
Other
investment income for the three months ended March 31, 2005 totaled $0.5
million, a decrease of $0.1 million over the same period in
2004. |
| · |
Miscellaneous
revenue for the three months ended March 31, 2005 was $3.2 million, an
increase of $3.0 million over the same period in 2004. The increase was
due to contractual revenue owed to us as a result of a mortgage note
prepayment. |
Operating
Expenses
Operating
expenses for the three months ended March 31, 2005 totaled $12.0 million, an
increase of approximately $4.9 million over the same period in 2004. The
increase was primarily due to a $3.7 million non-cash provision for impairment
charge recorded in the three months ended March 31, 2005, restricted stock
amortization expense recorded in 2005, and $1.1 million of increased
depreciation expense. This increase was partially offset by reductions in
general and administrative costs.
Detailed
changes in our operating expenses during the three months ended March 31, 2005
are as follows:
| · |
Our
depreciation and amortization expense for the three
months ended March 31, 2005 was $6.2 million, compared to $5.2 million for
the same period in 2004. The increase is due to new investments placed
throughout 2004 and during the first quarter of
2005. |
| · |
Our
general and administrative expense was $1.8 million, compared to $2.0
million for the same period in 2004. |
| · |
Our
restricted stock expense was $0.3 million, compared to $0 for the same
period in 2004. The increase is due to the expense associated with
restricted stock awards granted in the third quarter of
2004. |
| · |
A
$3.7 million provision for impairment charge was recorded to reduce the
carrying value on two facilities, currently in the process of being
re-leased or potentially closed, to their estimated fair
value. |
Other
Expense
For the
three months ended March 31, 2005, our total other net expenses were $7.2
million as compared to $24.0 million for the same period in 2004. The
significant changes are as follows:
| · |
Our
interest expense, excluding amortization of deferred costs, for the
three
months ended March 31, 2005
was $6.8 million, compared to $4.7 million for the same period in 2004.
The increase of $2.1 million was primarily due to higher debt on our
balance sheet versus the same period in
2004. |
| · |
For
the three
months ended March 31, 2004,
we recorded $19.1 million of refinancing-related charges associated with
refinancing our capital structure. The $19.1 million consists of a $6.4
million exit fee paid to our previous bank syndication and a $6.3 million
non-cash deferred financing cost write-off associated with the termination
of our then existing $225 million credit facility and our $50 million
acquisition facility, and a loss of approximately $6.5 million associated
with the sale of an interest rate cap. |
Loss
from Discontinued Operations
Discontinued
operations relate to properties we disposed of in 2005 and are accounted for as
discontinued operations under SFAS No. 144. For the three
months ended March 31, 2005, we sold three facilities, located in Florida and
California, for their approximate net book value realizing cash proceeds of
approximately $6.1 million, net of closing costs and other expenses. See Note 9
- - Discontinued Operations. In accordance with SFAS No. 144, the $24 thousand net
loss is reflected in our consolidated statements of operations as discontinued
operations.
Funds
From Operations
Our funds
from operations available to common stockholders (“FFO”), for the three months
ended March 31, 2005, was a $12.0 million, an increase of $60.2 million as
compared to a deficit of $48.2 million for the same period in 2004.
We
calculate and report FFO in accordance with the definition and interpretive
guidelines issued by the National Association of Real Estate Investment Trusts
(“NAREIT”), and, consequently, FFO is defined as net income available to common
stockholders, adjusted for the effects of asset dispositions and certain
non-cash items, primarily depreciation and amortization. We believe that FFO is
an important supplemental measure of our operating performance. Because the
historical cost accounting convention used for real estate assets requires
depreciation (except on land), such accounting presentation implies that the
value of real estate assets diminishes predictably over time, while real estate
values instead have historically risen or fallen with market conditions. The
term FFO was designed by the real estate industry to address this issue. FFO
herein is not necessarily comparable to FFO of other real estate investment
trusts (“REITs”) that do not use the same definition or implementation
guidelines or interpret the standards differently from us.
We use
FFO as one of several criteria to measure operating performance of our business.
We further believe that by excluding the effect of depreciation, amortization
and gains or losses from sales of real estate, all of which are based on
historical costs and which may be of limited relevance in evaluating current
performance, FFO can facilitate comparisons of operating performance between
periods and between other REITs. We offer this measure to assist the users of
our
financial statements in evaluating our
financial performance under GAAP, and FFO should not be considered a measure of
liquidity, an alternative to net income or an indicator of any other performance
measure determined in accordance with GAAP. Investors and potential investors in
our securities should not rely on this measure as a substitute for any GAAP
measure, including net income.
In
February 2004, NAREIT informed its member companies that it was adopting the
position of the Securities and Exchange Commission (“SEC”) with respect to asset
impairment charges and would no longer recommend that impairment write-downs be
excluded from FFO. In the tables included in this disclosure, we have applied
this interpretation and have not excluded asset impairment charges in
calculating our FFO. As a result, our FFO may not be comparable to similar
measures reported in previous disclosures. According to NAREIT, there is
inconsistency among NAREIT member companies as to the adoption of this
interpretation of FFO. Therefore, a comparison of our FFO results to another
company's FFO results may not be meaningful.
The
following table presents our FFO results reflecting the impact of asset
impairment charges (the SEC's interpretation) for the three months ended March
31, 2005 and 2004:
| |
|
Three
Months Ended |
|
| |
|
March
31, |
|
| |
|
|
2005 |
|
|
2004 |
|
|
|
(in
thousands) |
| |
|
|
|
|
|
|
|
Net
income (loss) available to common |
|
$ |
5,745 |
|
$ |
(53,728 |
) |
|
Add
back loss from real estate dispositions |
|
|
37 |
|
|
351 |
|
Sub-total |
|
|
5,782 |
|
|
(53,377 |
) |
Elimination
of non-cash items included in net income (loss): |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
6,253 |
|
|
5,225 |
|
|
Funds
from operations available to common stockholders |
|
$ |
12,035 |
|
$ |
(48,152 |
) |
Taxes
As a
qualified REIT, we will not be subject to Federal income taxes on our income,
and no provisions for Federal income taxes have been made. We are permitted to
own up to 100% of a “taxable REIT subsidiary” (“TRS”). Currently we have two
TRSs that are taxable as corporations and that pay federal, state and local
income tax on their net income at the applicable corporate rates.
Portfolio
Developments, New Investments and Recent Developments
The
partial expiration of certain Medicare rate increases has had an adverse impact
on the revenues of the operators of nursing home facilities and has negatively
impacted some operators’ ability to satisfy their monthly lease or debt payment
to us. In several instances, we hold security deposits that can be applied in
the event of lease and loan defaults, subject to applicable limitations under
bankruptcy law with respect to operators seeking protection under Chapter 11 of
the Bankruptcy Act.
Below is
a brief description, by third-party operator, of our re-leasing, restructuring
or new investment transactions that occurred during the three months ended March
31, 2005.
Essex
Healthcare
| · |
On
January 13, 2005, we closed on approximately $58 million of net new
investments as a result of the exercise by American Health Care Centers
(“American”) of a put agreement with us for the purchase of 13 SNFs. The
gross purchase price of approximately $79 million was satisfied in part by
a purchase option of approximately $7 million and approximately $14
million in mortgage loans we had outstanding with American and its
affiliates. |
| · |
The
13 properties, all located in Ohio, will continue to be leased by Essex
Healthcare Corporation. The master lease and related agreements have
remaining terms of approximately six years. |
Mariner
Health Care, Inc.
| · |
On
February 1, 2005, Mariner Health Care, Inc. (“Mariner”) exercised its
right to prepay in full the $59.7 million aggregate principal amount owed
to us under a promissory note secured by a mortgage with an interest rate
of 11.57%, together with the required prepayment premium of 3% of the
outstanding principal balance and all accrued and unpaid interest. In
addition, pursuant to certain provisions contained in the promissory note,
Mariner paid us an amendment fee owed for the period ending on February 1,
2005. |
Claremont
Health Care Holdings, Inc.
| · |
Effective
January 1, 2005, we re-leased one SNF formerly leased to Claremont Health
Care Holdings, Inc., located in New Hampshire and representing 68 beds to
an existing operator. This facility was added to an existing master lease
which expires on December 31, 2013, followed by two 10-year renewal
options. |
Other
| · |
During
the three months ended March 31, 2005, a $3.7 million provision for
impairment charge was recorded to reduce the carrying value on two
facilities, currently in the process of being re-leased or potentially
closed, to their estimated fair value. |
Asset
Dispositions in 2005
| · |
During
the three months ended March 31, 2005, we sold three facilities, located
in Florida and California, for their approximate net book value realizing
cash proceeds of approximately $6.1 million, net of closing costs and
other expenses. |
Liquidity
and Capital Resources
At March
31, 2005, we had total assets of $814.0 million, stockholders’ equity of $422.4
million and debt of $364.5 million, representing approximately 46.3% of total
capitalization.
The
following table shows the amounts due in connection with the contractual
obligations described below as of March 31, 2005.
| |
|
Payments
due by period |
|
| |
|
Total |
|
Less
than
1
year |
|
1-3
years |
|
3-5
years |
|
More
than
5
years |
|
|
|
(In
thousands) |
Long-term
debt (1) |
|
$ |
363,170 |
|
$ |
370 |
|
$ |
100,805 |
|
$ |
900 |
|
$ |
261,095 |
|
|
Other
long-term liabilities |
|
|
786 |
|
|
201 |
|
|
401 |
|
|
184 |
|
|
- |
|
|
Total |
|
$ |
363,956 |
|
$ |
571 |
|
$ |
101,206 |
|
$ |
1,084 |
|
$ |
261,095 |
|
| (1) |
The
$363.2 million includes the $100.0 million aggregate principal amount of
6.95% Senior Notes due 2007, $0 borrowings under the $200 million credit
facility borrowing, which matures in March 2008 and $260 million aggregate
principal amount of 7.0% Senior Notes due
2014. |
Financing
Activities and Borrowing Arrangements
Bank
Credit Agreements
We have a
$200 million revolving senior secured credit facility (“Credit Facility”). At
March 31, 2005, there were no outstanding borrowings under our Credit Facility
and $4.3 million of availability under the Credit Facility was utilized for the
issuance of letters of credit, leaving availability of $195.7
million.
Our
long-term borrowings require us to meet certain property level financial
covenants and corporate financial covenants, including prescribed leverage,
fixed charge coverage, minimum net worth, limitations on additional indebtedness
and limitations on dividend payouts. As of March 31, 2005, we were in compliance
with all property level and corporate financial covenants.
Series
B Preferred Redemption
On May 2,
2005, we redeemed all of the 2.0 million outstanding shares of our Series B
Preferred Stock at a price of $25.55104 per share, comprised of the $25 per
share liquidation value and accrued dividend. During 2004 we raised over $193
million from public offerings of our capital stock, the proceeds of which were
used for, among other things, the reduction of amounts owed under our Credit
Facility prior to the time such funds were needed to fund the redemption. The
redemption of the $50 million of Series B Preferred Stock, as well as the
related accrued dividend, was funded through invested cash and approximately $40
million of Credit Facility borrowings, which had been paid down from the
proceeds of our 2004 stock offerings. Under FASB-EITF Issue D-42, “The Effect on
the Calculation of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock,” the repurchase of the Series B Preferred Stock will result
in a non-cash charge to net income available to common stockholders of
approximately $2.0 million in the second quarter of 2005.
$60
Million 7% Senior Unsecured Notes Offering
On
October 29, 2004, we completed a privately placed offering of an additional $60
million aggregate principal amount of 7% senior notes due 2014 (“the Additional
Notes”) at an issue price of 102.25% of the principal amount of the Additional
Notes (equal to a per annum yield to maturity of approximately 6.67%), resulting
in gross proceeds of approximately $61 million. The terms of the Additional
Notes offered were substantially identical to our existing $200 million
aggregate principal amount of 7% senior notes due 2014 issued in March 2004 (the
“Existing Notes”), which were subsequently exchanged for registered senior notes
in September 2004. The Additional Notes were issued through a private placement
to qualified institutional buyers under Rule 144A under the Securities Act of
1933 (the “Securities Act”) and in offshore transactions pursuant to Regulation
S under the Securities Act.
On
December 21, 2004, we filed a registration statement on Form S-4 under the
Securities Act with the SEC offering to exchange (the “Additional Notes Exchange
Offer”) up to $60 million aggregate principal amount of our registered 7% Senior
Notes due 2014 (the “Additional Exchange Notes”), for all of our outstanding
unregistered Additional Notes. On March 18, 2005, upon the expiration of the
Additional Notes Exchange Offer, $60 million aggregate principal amount of
Additional Exchange Notes were exchanged for the unregistered Additional Notes.
As a result of the Additional Exchange Offer, no Additional Notes remain
outstanding. The terms of the Additional Exchange Notes are identical to the
terms of the Additional Notes, except that the Additional Exchange Notes are
registered under the Securities Act and therefore freely tradable (subject to
certain conditions) along with our previously registered Existing Notes as a
single class. The Additional Exchange Notes represent our unsecured senior
obligations and have been guaranteed by all of our subsidiaries with
unconditional guarantees of payment that rank equally with existing and future
senior unsecured debt of such subsidiaries and senior to existing and future
subordinated debt of such subsidiaries.
Dividends
In order
to qualify as a REIT, we are required to distribute dividends (other than
capital gain dividends) to our stockholders in an amount at least equal to (A)
the sum of (i) 90% of our "REIT taxable income" (computed without regard to the
dividends paid deduction and our net capital gain), and (ii) 90% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if we dispose of any built-in
gain asset during a recognition period, we will be required to distribute at
least 90% of the built-in gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before we
timely file our tax return for such year and paid on or before the first regular
dividend payment after such declaration. In addition, such distributions are
required to be made pro rata, with no preference to any share of stock as
compared with other shares of the same class, and with no preference to one
class of stock as compared with another class except to the extent that such
class is entitled to such a preference. To the extent that we do not distribute
all of our net capital gain or do distribute at least 90%, but less than 100% of
our "REIT taxable income," as adjusted, we will be subject to tax thereon at
regular ordinary and capital gain corporate tax rates. In addition, our Credit
Facility has certain financial covenants which limit the distribution of
dividends paid during a fiscal quarter to no more than 95% of our immediately
prior fiscal quarter’s FFO as defined in the loan agreement governing the Credit
Facility (the “Loan Agreement”), unless a greater distribution is required to
maintain REIT status. The Loan Agreement, defines FFO as net income (or loss),
plus depreciation and amortization and shall be adjusted for charges related to:
(i) restructuring our debt; (ii) redemption of preferred stock; (iii) litigation
charges up to $5.0 million; (iv) non-cash charges for accounts and notes
receivable up to $5.0 million; (v) non-cash compensation related expenses; and
(vi) non-cash impairment charges.
Common
Dividends
On April
19, 2005, the Board of Directors announced a common stock dividend of $0.21 per
share, an increase of $0.01 per common share compared to the prior quarter, to
be paid May 16, 2005 to common stockholders of record on May 2,
2005.
On
January 18, 2005, the Board of Directors announced a common stock dividend of
$0.20 per share, an increase of $0.01 per common share compared to the prior
quarter. The common stock dividend was paid February 15, 2005 to common
stockholders of record on January 31, 2005.
Series
D Preferred Dividends
On March
15, 2005, the Board of Directors declared the regular quarterly dividends for
its 8.375% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred
Stock”) to stockholders of record on May 2, 2005. The stockholders of record of
the Series D Preferred Stock on May 2, 2005 will be paid dividends in the amount
of $0.52344 per preferred share on May 16, 2005. The liquidation preference for
the Company’s Series D Preferred Stock is $25.00 per share. Regular quarterly
preferred dividends for the Series D Preferred Stock represent dividends for the
period February 1, 2005 through April 30, 2005.
On
January 18, 2005, the Board of Directors declared regular quarterly dividends of
approximately $0.53906 per preferred share for its Series D Preferred Stock,
which were paid February 15, 2005 to preferred stockholders of record on January
31, 2005.
Series
B Preferred Stock Redemption and Quarterly Dividends
On March
15, 2005, the Board of Directors also authorized the redemption of all shares
outstanding of our 8.625% Series B Preferred Stock (“Series B Preferred Stock”)
(NYSE:OHI PrA; CUSIP: 681936209). We redeemed all of the outstanding shares on
May 2, 2005 for $25.00 per share, plus $0.55104 per share in accrued and unpaid
dividends through the redemption date, for an aggregate redemption price of
$25.55104 per share. Dividends on the shares of Series B Preferred Stock ceased
to accrue from and after the redemption date, after which the Series B Preferred
Stock was no longer outstanding and holders of the Series B Preferred Stock have
only the right to receive the redemption price.
The
notice of redemption and related materials was mailed to the holders of the
Series B Preferred Stock on or about April 1, 2005. EquiServe Trust Company
acted as our redemption and paying agent. On or before the redemption date, we
deposited with EquiServe the aggregate redemption price to be held in trust for
the benefit of the holders of the Series B Preferred Stock. Holders of the
Series B Preferred Stock who hold shares through the Depository Trust Company
will have their shares of the Series B Preferred Stock redeemed in accordance
with the Depository Trust Company’s procedures.
In
connection with the redemption of the Series B Preferred Stock, Omega’s second
quarter 2005 results will reflect a non-recurring reduction in net income
attributable to common shareholders of approximately $2.0 million or
approximately $0.04 per common share. This reduction will be taken in accordance
with the Securities and Exchange Commission’s Interpretation of FASB-EITF Topic
D-42 (“The Effect on the Calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock”), issued on July 31, 2003. Under this
interpretation, all costs associated with the original issuance of the Series B
Preferred Stock will be recorded as a reduction of net income attributable to
common stockholders.
On
January 18, 2005, the Board of Directors declared regular quarterly dividends of
approximately $0.52344 per preferred share for its Series B Preferred Stock,
which were paid February 15, 2005 to preferred stockholders of record on January
31, 2005.
Liquidity
We
believe our liquidity and various sources of available capital, including cash
from operations, our existing availability under our Credit Facility and
expected proceeds from mortgage payoffs are more than adequate to finance
operations, meet recurring debt service requirements and fund future investments
through the next twelve months.
We
regularly review our liquidity needs, the adequacy of cash flow from operations,
and other expected liquidity sources to meet these needs. We believe our
principal short-term liquidity needs are to fund:
· normal
recurring expenses;
· debt
service payments;
· preferred
stock dividends;
· common
stock dividends; and
· growth
through acquisitions of additional properties.
The
primary source of liquidity is our cash flows from operations. Operating cash
flows have historically been determined by: (i) the number of facilities we
lease or have mortgages on; (ii) rental and mortgage rates; (iii) our debt
service obligations; and (iv) general, administrative and legal expenses. The
timing, source and amount of cash flows provided by financing activities and
used in investing activities are sensitive to the capital markets environment,
especially to changes in interest rates. Changes in the capital markets
environment may impact the availability of cost-effective capital and affect our
plans for acquisition and disposition activity.
Cash and
cash equivalents totaled $9.8 million as of March 31, 2005, a decrease of $2.2
million as compared to the balance at December 31, 2004. The following is a
discussion of changes in cash and cash equivalents due to operating, investing
and financing activities, which are presented in our Consolidated Statement of
Cash Flows.
Operating
Activities - Net
cash flow from operating activities generated $22.5 million for the three months
ended March 31, 2005, as compared to $12.6 million for the same period in 2004.
The $9.9 million increase is due primarily to: (i) incremental revenue
associated with acquisitions completed throughout 2004 and the first quarter of
2005; (ii) one-time contractual revenue associated with a mortgage note
prepayment; and (iii) normal working capital fluctuations during the
period.
Investing
Activities - Net
cash flow from investing activities was $8.1 million for the three months ended
March 31, 2005 as compared to $27 thousand for the same period in 2004. The
increase of $8.1 million was primarily due to: (i) a $60.0 million mortgage
payoff in February 2005; and (ii) $6.9 million of asset sales; offset partially
by $58.1 million of net new investments placed in January 2005 as compared to
2004.
Financing
Activities - Net
cash flow from financing activities was an outflow of $32.9 million for the
three months ended March 31, 2005 as compared to an inflow of $46.6 million for
the same period in 2004. The change in financing cash flow was primarily a
result of: (i) issuance of $118.5 million of preferred equity in the first
quarter of 2004; (ii) a public issuance of 2.7 million shares of our common
stock at a price of $9.85 per share in the first quarter of 2004; (iii) a
private offering of $200 million of senior unsecured notes in March 2004; and
(iv) the sale of an interest rate cap in March 2004; offset partially by
repayments on our credit facility and other borrowings.
Effects
of Recently Issued Accounting Standards
In
December 2004, the Financial Accounting Standards Board issued FAS No. 123
(revised 2004), Share-Based
Payment (“FAS
No. 123R”), which is a revision of FAS No. 123, Accounting
for Stock-Based Compensation. FAS No.
123R supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees, and
amends FAS No. 95, Statement
of Cash Flows.
Registrants were initially required to adopt FAS No. 123R as of the beginning of
the first interim or annual period that begins after June 15, 2005. On April 14,
2005, subsequent to the end of our 2005 first quarter, the Securities and
Exchange Commission adopted a new rule that allows companies to implement FAS
No. 123R at the beginning of their next fiscal year, instead of the next
reporting period, that begins after June 15, 2005. We will adopt FAS No. 123R at
the beginning of our 2006 fiscal year. We are currently evaluating the impact of
adoption of this pronouncement.
Item
3 - Quantitative and Qualitative Disclosures about Market
Risk
There were no material changes in the Company's market risk during the three
months ended March 31, 2005. For additional information, refer to Item 7a
as presented in the 2004 Annual Report on Form 10-K.
Item
4 - Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our
principal executive officer and principal financial officer are responsible for
establishing and maintaining disclosure controls and procedures as defined in
the rules promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). We evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of March 31, 2005 and, based on that
evaluation, our principal executive officer and principal financial officer have
concluded that these controls and procedures were effective as of March 31,
2005.
Disclosure
controls and procedures are the controls and other procedures designed to ensure
that information that we are required to disclose in our reports under the
Exchange Act is recorded, processed, summarized and reported within the time
periods required. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information we are
required to disclose in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
No
changes in our internal control over financial reporting were identified as
having occurred in the three months ended March 31, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART
II -
OTHER INFORMATION
Item
1 -
Legal Proceedings
See Note
8 - Litigation to the Consolidated Financial Statements in PART I, Item 1
hereto, which is hereby incorporated by reference in response to this
item.
Item
2 - Market for Registrant’s Common Equity and Related Stockholder
Matters
Our
shares of Common Stock are traded on the New York Stock Exchange under the
symbol “OHI.” During the three months ended March 31, 2005, we purchased 13,909
shares of our common stock from employees to pay the withholding taxes
associated with employee exercising of stock options.
|
Period |
|
Total
Number of Shares Purchased (1) |
|
Average
Price Paid per Share |
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs |
|
Maximum
Number (or Approximate Dollar Value) of Shares that May be Purchased Under
these Plans or Programs |
|
January
1, 2005 to January 31, 2005 |
|
|
13,909 |
|
$ |
11.10 |
|
|
- |
|
$ |
- |
|
February
1, 2005 to February 28, 2005 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
March
1, 2005 to March 31, 2005 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Total |
|
|
13,909 |
|
$ |
11.10 |
|
|
- |
|
$ |
- |
|
(1)
Represents shares purchased from employees to pay the withholding taxes related
to the exercise of employee stock options. The shares were not part of a
publicly announced repurchase plan or program.
Item
5 - Other Information
On April
29, 2005, we borrowed approximately $40 million under our $200 million revolving
credit facility (the "Credit Facility"). On May 2, 2005, we borrowed an
additional $2 million under the Credit Facility. The terms of the Credit
Facility are governed by that certain credit agreement (the "Credit Agreement"),
dated as of March 22, 2004, as amended, by and among OHI Asset, LLC, OHI Asset
(ID), LLC, OHI Asset (LA), LLC, OHI Asset (TX), LLC, OHI Asset (CA), LLC, Delta
Investors I, LLC, Delta Investors II, LLC and Texas Lessor-Stonegate, LP.
and
the
lenders named therein, and Bank of America, N.A., as Administrative Agent. The
interest rate per annum applicable to the Credit Facility is either the
Eurodollar Rate, plus the Applicable Percentage (as defined below), or the Base
Rate, which will be the higher of (i) the rate of interest publicly announced by
the Administrative Agent of the Credit Facility as its prime rate in effect, and
(ii) the federal funds rate from time to time plus 0.50%, plus, in each case,
the Applicable Percentage. The Applicable Percentage with respect to the Credit
Facility is determined in accordance with a performance grid based on our
consolidated leverage ratio, as set forth in the Credit Agreement. The
Applicable Percentage may range from 2.75% to 1.75% in the case
of Eurodollar advances, and from 1.25% to .25% in the case of base rate
advances. The default rate on the Credit Facility is 3.00% above the interest
rate otherwise applicable to base rate loans.
Item
6 -
Exhibits
|
Exhibit
No.
|
|
Description
|
|
10.1
|
|
Form
of Directors’ Restricted Stock Award (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on January 19, 2005, File No.
1-111316)
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer.
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer.
|
|
32.1
|
|
Section
1350 Certification of the Chief Executive Officer.
|
|
32.2
|
|
Section
1350 Certification of the Chief Financial Officer.
|
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: May 5,
2005 By: /S/ C.
TAYLOR PICKETT
C. Taylor
Pickett
Chief
Executive Officer
Date: May 5,
2005 By: /S/
ROBERT O. STEPHENSON
Robert O.
Stephenson
Chief
Financial Officer