Market Overview

Omega Announces Second Quarter 2018 Financial Results

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Significant Enhancements to Portfolio through Strategic Asset
Repositioning

Updates and Improves 2018 Guidance

Omega Healthcare Investors, Inc. (NYSE:OHI) (the "Company" or "Omega")
today announced its results of operations for the three-month period
ended June 30, 2018. The Company reported for the three-month period
ended June 30, 2018 net income of $82.0 million or $0.39 per common
share. The Company also reported Funds From Operations ("FFO") for the
quarter of $155.5 million or $0.75 per common share, Adjusted Funds From
Operations ("AFFO" or "Adjusted FFO") of $159.1 million or $0.76 per
common share, and Funds Available For Distribution ("FAD") of $140.3
million.

FFO for the second quarter of 2018 includes $4.1 million of non-cash
stock-based compensation expense, $1.0 million of unrealized gain on
warrants and $0.6 million in provisions for uncollectible accounts
(Adjusted FFO excludes those three items). FFO, AFFO and FAD are
non-GAAP financial measures. For more information regarding these
non-GAAP measures, see the "Funds From Operations" schedule.

GAAP NET INCOME

For the three-month period ended June 30, 2018, the Company reported net
income of $82.0 million, or $0.39 per common share, on operating
revenues of $219.9 million. This compares to net income of $68.2
million, or $0.33 per common share, on operating revenues of $235.8
million, for the same period in 2017.

For the six-month period ended June 30, 2018, the Company reported net
income of $169.9 million, or $0.82 per common share, on operating
revenues of $440.1 million. This compares to net income of $177.3
million, or $0.86 per common share, on operating revenues of $467.5
million, for the same period in 2017.

The year-to-date decrease in net income compared to the prior year was
primarily due to a $32.3 million reduction in revenue associated with
the Orianna Health Systems ("Orianna" and f/k/a ARK) portfolio, a
favorable $10.4 million contractual settlement recorded in the first
quarter of 2017, a $7.0 million increase in general and administrative
expenses, $3.3 million in increased provisions for uncollectible
accounts and $3.0 million in increased interest expense. This decrease
in net income was partially offset by $22.0 million decrease in interest
refinancing costs, $14.0 million decrease in impairments on real estate
assets and $7.8 million in increased gains on the sale of assets.

CEO COMMENTS

Taylor Pickett, Omega's Chief Executive Officer, stated, "This has been
an eventful yet productive quarter. We sold the majority of facilities
associated with our strategic asset repositioning effort; we
restructured our Signature portfolio; and we transitioned our legacy
Orianna Mississippi and Indiana facilities to two existing Omega
operators." Mr. Pickett added, "As we noted last week, we have
terminated the restructuring support agreement with our tenant 4 West
Holdings and the sponsor of Orianna's restructuring plan. We continue to
work to resolve the remaining Orianna portfolio issues. While the form
of that resolution is evolving, with $12.5 million of annual rent
already realized, we remain confident that the final resolution will
ultimately result in our previously stated range of $32 million to $38
million of annual rent or rent equivalents from the assets that
previously constituted our Orianna portfolio." Mr. Pickett concluded,
"During the quarter, we hosted an Investor Day in which we provided
industry and demographic information highlighting the growth
opportunities ahead of us. With an improved portfolio of assets and the
majority of our dispositions behind us, we can now focus on redeploying
the proceeds and growing the business."

2018 RECENT DEVELOPMENTS AND SECOND QUARTER
HIGHLIGHTS

In Q3 2018, the Company

  • declared a $0.66 per share quarterly common stock dividend.
  • transitioned 14 Orianna facilities to existing operators for annual
    contractual rent of $12.5 million.

In Q2 2018, the Company

  • sold 47 assets for consideration of $137.6 million in cash, a $25
    million seller note and $53.1 million in buyer assumed debt.
  • completed $77 million in new investments.
  • invested $54 million in capital renovation and
    construction-in-progress projects.
  • declared a $0.66 per share quarterly common stock dividend.

In Q1 2018, the Company

  • sold 14 facilities and had 3 mortgage loans repaid, totaling $98.4
    million in net cash proceeds.
  • invested $38 million in capital renovation and
    construction-in-progress projects.
  • completed $30 million in new investments.
  • increased its quarterly common stock dividend rate to $0.66 per share.

SECOND QUARTER 2018 RESULTS

Operating Revenues and Expenses – Operating revenues for
the three-month period ended June 30, 2018 totaled $219.9 million, which
included $18.4 million of non-cash revenue.

Operating expenses for the three-month period ended June 30, 2018
totaled $84.3 million and consisted of $69.6 million of depreciation and
amortization expense, $11.1 million of general and administrative
expense, $4.1 million of stock-based compensation expense, $0.6 million
in provisions for uncollectible accounts and recovery on real estate
properties of $1.1 million. For more information on impairment charges,
see the Asset Impairment and Disposition section below.

Other Income and Expense – Other income and expense for
the three-month period ended June 30, 2018 was a net expense of $49.3
million, primarily consisting of $48.1 million of interest expense, $2.2
million of amortized deferred financing costs, offset by $1.0 million in
unrealized gain on warrants, classified in Interest income and other –
net.

Funds From Operations – For the three-month period ended
June 30, 2018, FFO was $155.5 million, or $0.75 per common share, on 208
million weighted-average common shares outstanding, compared to $150.9
million, or $0.73 per common share on 207 million weighted-average
common shares outstanding, for the same period in 2017.

The $155.5 million of FFO for the three-month period ended June 30, 2018
includes the impact of $4.1 million of non-cash stock-based compensation
expense, $0.6 million in provisions for uncollectible accounts and $1.0
million in unrealized gain on warrants.

The $150.9 million of FFO for the three-month period ended June 30, 2017
includes the impact of $23.5 million of one-time interest refinancing
costs, $3.7 million of non-cash stock-based compensation expense and
$2.7 million in provisions for uncollectible accounts, offset by $1.9
million of one-time revenue.

Adjusted FFO was $159.1 million, or $0.76 per common share, for the
three-month period ended June 30, 2018, compared to $179.0 million, or
$0.87 per common share, for the same period in 2017. For further
information see the "Funds From Operations" schedule.

FINANCING ACTIVITIES

Equity Shelf Program and Dividend Reinvestment and Common Stock
Purchase Plan
– During the three-month period ended June 30,
2018, the Company sold 1.7 million shares of its common stock,
generating $50.4 million of gross proceeds. The following table outlines
shares of the Company's common stock issued under its Equity Shelf
Program and its Dividend Reinvestment and Common Stock Purchase Plan in
2018:

 

Equity Shelf (At-the-Market) Program for 2018

(in thousands, except price per share)
     
Q1 Q2 Year To Date
Number of shares 912 912
Average price per share $ $ 30.93 $ 30.93
Gross proceeds $ $ 28,218 $ 28,218
 
 

Dividend Reinvestment and Common Stock Purchase Plan for 2018

(in thousands, except price per share)
     
Q1 Q2 Year To Date
Number of shares 189 759 948
Average price per share $ 25.87 $ 29.22 $ 28.55
Gross proceeds $ 4,886 $ 22,164 $ 27,050
 

2018 SECOND QUARTER PORTFOLIO ACTIVITY

Portfolio Activity:

$131 Million of New Investments in Q2 2018 – In Q2 2018,
the Company completed approximately $77 million of new investments and
$54 million in capital renovations and new construction consisting of
the following:

$44 Million Mortgage Loan – On June
27, 2018, the Company entered into a $44.2 million first mortgage loan
with an existing operator of the Company. The loan is secured by five
skilled nursing facilities ("SNFs") with 522 beds located in Michigan.
The loan is cross-defaulted and cross-collateralized with the Company's
existing loans and master lease with the operator. The loan bears an
initial annual interest rate of 9.5%, which rate increases each year by
0.225%.

$23 Million Acquisition – On June 1,
2018, the Company acquired five SNFs for approximately $22.8 million
from an unrelated third party. The five Texas SNFs with 298 beds were
added to an existing operator's master lease with an initial cash yield
of 9.5% with 2.195% annual rent escalators.

$10 Million Mezzanine Loan – On May
24, 2018, the Company invested an additional $10.0 million into an
existing $50.0 million mezzanine loan. The annual interest rate
increased to 12.0% and the maturity date was extended to May 2023.

$54 Million Capital Renovation Projects
– In addition to the new investments outlined above, in Q2 2018, the
Company invested $54.1 million under its capital renovation and
construction-in-progress programs.

Orianna – On July 1, 2018, the Company transitioned the
legacy Orianna portfolio in Mississippi (13 facilities) to an existing
Omega operator with annual contractual rent of $12 million. On August 1,
2018, a legacy Orianna facility in Indiana was transitioned to an
existing operator with annual contractual rent of $0.5 million.

On July 25, 2018, Omega terminated the restructuring support agreement
with its tenant 4 West Holdings and the sponsor of Orianna's
restructuring plan. The Company is evaluating and/or pursuing
alternative courses of action to protect its assets and shareholder
value, and working with operators to protect the interests of residents
of the facilities.

Agemo Holdings LLC (formerly Signature Healthcare) – As
previously reported in the Company's Form 10-Q, filed on May 10, 2018,
Omega and Signature Healthcare entered into a consensual, out-of-court
restructuring agreement on May 7, 2018. As part of the restructuring,
Signature Healthcare was reorganized to separate each of its primary
portfolios with its three major landlords into distinct lease silos.
Signature Healthcare formed Agemo Holdings LLC to be the holding company
of the leases and loans of the Omega portfolio.

In connection with the Signature Healthcare restructuring, Omega agreed
to: (1) defer up to $6.3 million of rent per annum for 3 years
commencing May 1, 2018; (2) provide capital expenditure funds of
approximately $4.5 million per year for 3 years to be used for the
general maintenance and capital improvements of our 59 facilities; (3)
extend a 7-year working capital term loan at 7% for an amount up to $25
million with a maturity date of April 30, 2025; (4) extend the term of
the master lease by two years to December 31, 2030 and (5) extend the
maturity date of the existing term loan by two years to December 31,
2024.

ASSET IMPAIRMENTS AND DISPOSITIONS

During the second quarter of 2018, the Company sold 47 assets (33
previously classified as assets held for sale and one classified as a
direct financing lease) for consideration of $137.6 million in cash, a
$25 million seller note and $53.1 million in buyer-assumed HUD debt,
recognizing a loss of approximately $2.9 million.

During the second quarter, the Company received $5.2 million in
insurance proceeds related to a facility destroyed in a fire in 2017
(note – the Company recorded a $12.6 million impairment charge related
to the fire in Q4 2017) and expects to receive additional insurance
proceeds in the second half of 2018. The Company recorded impairment
charges of $4.1 million primarily related to reducing the net book
values on five facilities to their estimated fair values or expected
selling prices. The combination of the recovery and the impairment
charges resulted in a net recovery on real estate properties of $1.1
million.

As of June 30, 2018, the Company had three facilities classified as
assets held for sale totaling $3.8 million. The Company expects to sell
these facilities over the next few quarters.

As part of its ongoing strategic asset repositioning program, in
addition to the $3.8 million of assets held for sale, the Company is
evaluating an additional $90+ million of potential disposition
opportunities within its portfolio and may incur additional impairments
or potential losses on the dispositions.

DIVIDENDS

On July 13, 2018, the Board of Directors declared a common stock
dividend of $0.66 per share, to be paid August 15, 2018 to common
stockholders of record as of the close of business on July 31, 2018.

2018 ADJUSTED FFO GUIDANCE REVISED

The Company increased the lower end of its 2018 Adjusted FFO guidance by
$0.07 to its revised range of $3.03 to $3.06 per diluted share.

Bob Stephenson, Omega's CFO commented, "Similar to the first quarter,
our better-than-expected second quarter results were predominantly due
to planned asset sales occurring later in the quarter than initially
assumed. Accordingly, we are increasing the low end of our guidance for
2018 annual AFFO and FAD." Mr. Stephenson continued, "As I stated when
we issued our 2018 guidance in February, we expanded our initial
guidance range this year due to lack of clarity around the timing of
asset sales, capital redeployment and the ultimate resolution on
Orianna. With the majority of our strategic asset repositioning
complete, we feel comfortable increasing the low end of our guidance
range. While we expect to redeploy most of the proceeds from the asset
sales by year-end, the exact timing around redeployment will
significantly impact where we fall within this revised guidance range."

The following table presents a reconciliation of Omega's guidance
regarding Adjusted FFO to projected GAAP earnings.

 

2018 Annual Adjusted FFO
Guidance Range
(per diluted
common share)

Full Year
Net Income $1.58 - $1.61
Depreciation 1.38
Gain on assets sold – net (0.07)
Real estate impairment 0.02
FFO $2.91 - $2.94
Adjustments:
Unrealized gain on warrants (0.01)
Purchase option buyout 0.01
Provision for uncollectible accounts 0.04
Stock-based compensation expense 0.08
Adjusted FFO $3.03 - $3.06

Note: All per share numbers rounded to 2 decimals.

The Company's Adjusted FFO guidance for 2018 reflects the impact of
capital renovation projects, $311 million of assets sold and mortgages
repaid through Q2 2018, the sale of $4 million of assets held for sale,
approximately $90+ million of potential divestitures and the
redeployment of capital from asset sales. It assumes the Company will
not be recording revenue related to its Orianna portfolio for the
majority of 2018, with the exception of $6.25 million ($12.5 million
annually) related to Orianna's former Mississippi and Indiana
facilities, which transitioned to two existing operators of the Company
effective July 1 and August 1, respectively. It also excludes the impact
of gains and losses from the sale of assets, certain revenue and expense
items, interest refinancing expense, capital transactions, acquisition
costs, and additional provisions for uncollectible accounts, if any. The
Company may, from time to time, update its publicly announced Adjusted
FFO guidance, but it is not obligated to do so.

The Company's guidance is based on a number of assumptions, which are
subject to change and many of which are outside the Company's control.
If actual results vary from these assumptions, the Company's
expectations may change. Without limiting the generality of the
foregoing, the timing and completion of acquisitions, divestitures,
capital and financing transactions, and variations in stock-based
compensation expense may cause actual results to vary materially from
our current expectations. There can be no assurance that the Company
will achieve its projected results.

CONFERENCE CALL

The Company will be conducting a conference call on Monday, August 6,
2018 at 10 a.m. Eastern to review the Company's 2018 second quarter
results and current developments. Analysts and investors within the
United States interested in participating are invited to call (877)
511-2891. The Canadian toll-free dial-in number is (855) 669-9657. All
other international participants can use the dial-in number (412)
902-4140. Ask the operator to be connected to the "Omega Healthcare's
Second Quarter 2018 Earnings Call."

To listen to the conference call via webcast, log on to www.omegahealthcare.com
and click the "earnings call" icon on the Company's home page. Webcast
replays of the call will be available on the Company's website for two
weeks following the call.

Omega is a real estate investment trust that invests in the long-term
healthcare industry, primarily in skilled nursing and assisted living
facilities. Its portfolio of assets is operated by a diverse group of
healthcare companies, predominantly in a triple-net lease structure. The
assets span all regions within the US, as well as in the UK.

This press release includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All
statements regarding Omega's or its tenants', operators', borrowers' or
managers' expected future financial condition, results of operations,
cash flows, funds from operations, dividends and dividend plans,
financing opportunities and plans, capital markets transactions,
business strategy, budgets, projected costs, operating metrics, capital
expenditures, competitive positions, acquisitions, investment
opportunities, dispositions, facility transitions, growth opportunities,
expected lease income, continued qualification as a REIT, plans and
objectives of management for future operations and statements that
include words such as "anticipate," "if," "believe," "plan," "estimate,"
"expect," "intend," "may," "could," "should," "will" and other similar
expressions are forward-looking statements. These forward-looking
statements are inherently uncertain, and actual results may differ from
Omega's expectations. Omega does not undertake a duty to update these
forward-looking statements, which speak only as of the date on which
they are made.

Omega's actual results may differ materially from those reflected in
such forward-looking statements as a result of a variety of factors,
including, among other things: (i) uncertainties relating to the
business operations of the operators of Omega's properties, including
those relating to reimbursement by third-party payors, regulatory
matters and occupancy levels; (ii) regulatory and other changes in the
healthcare sector; (iii) changes in the financial position of Omega's
operators; (iv) the ability of any of Omega's operators in bankruptcy to
reject unexpired lease obligations, modify the terms of Omega's
mortgages and impede the ability of Omega to collect unpaid rent or
interest during the pendency of a bankruptcy proceeding and retain
security deposits for the debtor's obligations, and other costs and
uncertainties associated with operator bankruptcies; (v) the
availability and cost of capital; (vi) changes in Omega's credit ratings
and the ratings of its debt securities; (vii) competition in the
financing of healthcare facilities; (viii) Omega's ability to maintain
its status as a REIT; (ix) Omega's ability to sell assets held for sale
or complete potential asset sales on a timely basis and on terms that
allow Omega to realize the carrying value of these assets; (x) Omega's
ability to re-lease, otherwise transition or sell underperforming assets
on a timely basis and on terms that allow Omega to realize the carrying
value of these assets; (xi) the effect of economic and market conditions
generally, and particularly in the healthcare industry; (xii) the
potential impact of changes in the SNF and assisted living facility
("ALF") market or local real estate conditions on the Company's ability
to dispose of assets held for sale for the anticipated proceeds or on a
timely basis, or to redeploy the proceeds therefrom on favorable terms;
(xiii) changes in interest rates; (xiv) changes in tax laws and
regulations affecting REITs; and (xv) other factors identified in
Omega's filings with the Securities and Exchange Commission. Statements
regarding future events and developments and Omega's future performance,
as well as management's expectations, beliefs, plans, estimates or
projections relating to the future, are forward looking statements.
Omega undertakes no obligation to update any forward-looking statements
contained in this announcement.

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

   
June 30, December 31,
2018   2017
(Unaudited)
ASSETS
Real estate properties
Real estate investments $ 7,571,661 $ 7,655,960
Less accumulated depreciation   (1,475,463 )     (1,376,828 )
Real estate investments – net 6,096,198 6,279,132
Investments in direct financing leases – net 349,465

364,965

Mortgage notes receivable – net   703,309       671,232  
7,148,972 7,315,329
Other investments – net 377,206 276,342
Investment in unconsolidated joint venture 32,820 36,516
Assets held for sale – net   3,782       86,699  
Total investments 7,562,780 7,714,886
 
Cash and cash equivalents 10,951 85,937
Restricted cash 2,598 10,871
Accounts receivable – net 320,140 279,334
Goodwill 644,369 644,690
Other assets   33,301       37,587  
Total assets $ 8,574,139     $ 8,773,305  
 
LIABILITIES AND EQUITY
Revolving line of credit $ 220,000 $ 290,000
Term loans – net 902,168 904,670
Secured borrowings – net 53,098
Unsecured borrowings – net 3,325,889 3,324,390
Accrued expenses and other liabilities 257,049 295,142
Deferred income taxes   14,718       17,747  
Total liabilities   4,719,824       4,885,047  
 
Equity:
Common stock $.10 par value authorized – 350,000 shares, issued and
outstanding – 200,332 shares as of June 30, 2018 and 198,309 as of
December 31, 2017

 

20,033

 

19,831

Common stock – additional paid-in capital 4,997,329 4,936,302
Cumulative net earnings 2,011,689 1,839,356
Cumulative dividends (3,473,406 ) (3,210,248 )
Accumulated other comprehensive loss   (30,157 )     (30,150 )
Total stockholders' equity 3,525,488 3,555,091
Noncontrolling interest   328,827       333,167  
Total equity   3,854,315       3,888,258  
Total liabilities and equity $ 8,574,139     $ 8,773,305  
 
 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED INCOME STATEMENTS
Unaudited

(in thousands, except per share amounts)

   
Three Months Ended Six Months Ended
June 30,

June 30,

2018   2017   2018   2017
Revenue  
Rental income $ 192,850 $ 193,997 $ 386,799 $ 386,534
Income from direct financing leases 497 15,462 1,110 31,108
Mortgage interest income 16,834 16,297 33,413 32,253
Other investment income 9,097 7,278 17,624 14,192
Miscellaneous income   603     2,763     1,134     3,454  
Total operating revenues 219,881 235,797 440,080 467,541
 
Expenses
Depreciation and amortization 69,609 70,350 139,970 140,343
General and administrative 11,148 7,807 23,567 16,587
Stock-based compensation 4,089 3,734 8,145 7,478
Acquisition costs - 19 - (22 )
(Recovery) impairment on real estate properties (1,097 ) 10,135 3,817 17,773
Provision for uncollectible accounts   564     2,673     8,378     5,077  
Total operating expenses 84,313 94,718 183,877 187,236
 
Income before other income and expense 135,568 141,079 256,203 280,305
Other income (expense)
Interest income and other – net 1,125 254 1,710 258
Interest expense (48,082 ) (48,085 ) (96,093 ) (93,126 )
Interest – amortization of deferred financing costs (2,242 ) (2,543 ) (4,485 ) (5,045 )
Interest – refinancing costs - (21,965 ) - (21,965 )
Contractual settlement - - - 10,412
Realized (loss) gain on foreign exchange   (66 )   79     (7 )   140  
Total other expense (49,265 ) (72,260 ) (98,875 ) (109,326 )
 
Income before (loss) gain on assets sold 86,303 68,819 157,328 170,979
(Loss) gain on assets sold – net   (2,891 )   (622 )   14,609     6,798  
Income from continuing operations 83,412 68,197 171,937 177,777
Income tax expense (838 ) (591 ) (1,381 ) (1,691 )
(Loss) income from unconsolidated joint venture   (588 )   551     (637 )   1,183  
Net income 81,986 68,157 169,919 177,269
Net income attributable to noncontrolling interest   (3,450 )   (2,900 )   (7,163 )   (7,572 )
Net income available to common stockholders $ 78,536   $ 65,257   $ 162,756   $ 169,697  
 
Income per common share available to common stockholders:
Basic:
Net income available to common stockholders $ 0.39   $ 0.33   $ 0.82   $ 0.86  
Diluted:
Net income $ 0.39   $ 0.33   $ 0.82   $ 0.86  
 
Dividends declared per common share $ 0.66   $ 0.63   $ 1.32   $ 1.25  
 
Weighted-average shares outstanding, basic   199,497     197,433     199,204     197,223  
Weighted-average shares outstanding, diluted   208,460     206,672     208,139     206,423  
 
 
OMEGA HEALTHCARE INVESTORS, INC.
FUNDS FROM OPERATIONS
Unaudited

(in thousands, except per share amounts)

   
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017   2018   2017
   
Net income $ 81,986 $ 68,157 $ 169,919 $ 177,269
Add back loss (deduct gain) from real estate dispositions 2,891 622 (14,609 ) (6,798 )
Add back loss from real estate dispositions of unconsolidated joint
venture
  640         640        
Sub – total 85,517 68,779 155,950 170,471
Elimination of non-cash items included in net income:
Depreciation and amortization 69,609 70,350 139,970 140,343
Depreciation - unconsolidated joint venture 1,466 1,658 3,123 3,316
(Deduct recovery) add back non-cash provision for impairments on
real estate properties
(1,097 ) 10,135 3,817 17,773
Add back non-cash provision for impairments on real estate
properties of unconsolidated joint venture
          608        
Funds from operations ("FFO") $ 155,495   $ 150,922   $ 303,468     $ 331,903  
 
Weighted-average common shares outstanding, basic 199,497 197,433 199,204 197,223
Restricted stock and PRSUs 197 467 167 407
Omega OP Units   8,766     8,772     8,768       8,793  
Weighted-average common shares outstanding, diluted   208,460     206,672     208,139       206,423  
 
Funds from operations available per share $ 0.75   $ 0.73   $ 1.46     $ 1.61  
 
Adjustments to calculate adjusted funds from operations:
Funds from operations $ 155,495 $ 150,922 $ 303,468 $ 331,903
Deduct one-time revenue (1,881 ) (1,881 )
Deduct unrealized gain on warrants (1,021 ) (1,602 )
Deduct contractual settlement (10,412 )
Add back (deduct) acquisition costs 19 (22 )
Add back one-time buy-out of purchase option 2,000
Add back provision for uncollectible accounts 564 2,673 8,378 5,077
Add back interest refinancing expense 23,539 23,539
Add back non-cash stock-based compensation expense   4,089     3,734     8,145       7,478  
Adjusted funds from operations ("AFFO") $ 159,127   $ 179,006   $ 320,389     $ 355,682  
 
Adjustments to calculate funds available for distribution:
Non-cash interest expense $ 2,215 $ 2,851 $ 4,431 $ 5,661
Capitalized interest (2,608 )

 

(1,906 ) (4,904 ) (3,895 )
Non-cash revenues   (18,432 )

 

  (17,956 )   (35,812 )     (36,085 )
Funds available for distribution ("FAD") $ 140,302   $ 161,995   $ 284,104     $ 321,363  
 

Funds From Operations ("FFO"), Adjusted FFO and Funds Available for
Distribution ("FAD") are non-GAAP financial measures. For purposes of
the Securities and Exchange Commission's Regulation G, a non-GAAP
financial measure is a numerical measure of a company's historical or
future financial performance, financial position or cash flows that
exclude amounts, or is subject to adjustments that have the effect of
excluding amounts, that are included in the most directly comparable
financial measure calculated and presented in accordance with GAAP in
the income statement, balance sheet or statement of cash flows (or
equivalent statements) of the company, or include amounts, or is subject
to adjustments that have the effect of including amounts, that are
excluded from the most directly comparable financial measure so
calculated and presented. As used in this press release, GAAP refers to
generally accepted accounting principles in the United States of
America. Pursuant to the requirements of Regulation G, the Company has
provided reconciliations of the non-GAAP financial measures to the most
directly comparable GAAP financial measures.

The Company calculates and reports 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 (computed in accordance with GAAP), adjusted for the effects
of asset dispositions and certain non-cash items, primarily depreciation
and amortization and impairments on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. The
Company believes that FFO, Adjusted FFO and FAD are important
supplemental measures of its 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 described herein is not necessarily
comparable to FFO of other real estate investment trusts, or REITs, that
do not use the same definition or implementation guidelines or interpret
the standards differently from the Company.

Adjusted FFO is calculated as FFO excluding the impact of non-cash
stock-based compensation and certain revenue and expense items
identified above. FAD is calculated as Adjusted FFO less non-cash
interest expense and non-cash revenue, such as straight-line rent. The
Company believes these measures provide an enhanced measure of the
operating performance of the Company's core portfolio as a REIT. The
Company's computation of Adjusted FFO and FAD are not comparable to the
NAREIT definition of FFO or to similar measures reported by other REITs,
but the Company believes that they are appropriate measures for this
Company.

The Company uses these non-GAAP measures among the criteria to measure
the operating performance of its business. The Company also uses
Adjusted FFO among the performance metrics for performance-based
compensation of officers. The Company further believes that by excluding
the effect of depreciation, amortization, impairments on real estate
assets 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. The
Company offers these measures to assist the users of its financial
statements in analyzing its operating performance and not as measures of
liquidity or cash flow. These non-GAAP measures are not measures of
financial performance under GAAP and should not be considered as
measures of liquidity, alternatives to net income or indicators of any
other performance measure determined in accordance with GAAP. Investors
and potential investors in the Company's securities should not rely on
these non-GAAP measures as substitutes for any GAAP measure, including
net income.

The following tables present selected portfolio information,
including operator and geographic concentrations, and lease and loan
maturities for the period ended June 30, 2018:

       
As of June 30, 2018 As of June 30, 2018
Balance Sheet Data

Total # of
Properties

 

Total
Investment
($000's)

 

% of
Investment

# of
Operating
Properties (1)

 

# of
Operating
Beds (1)

Real Estate Investments 840   $ 7,571,661   88 % 830   83,002
Direct Financing Leases 40 349,465 4 % 40 4,144
Mortgage Notes Receivable 53     703,309   8 % 53   5,764
933 $ 8,624,435 100 % 923 92,910
Assets held for sale 3     3,782
Total Investments 936 $ 8,628,217
 
                       
Investment Data

Total # of
Properties

 

Total
Investment
($000's)

 

% of
Investment

# of
Operating
Properties(1)

 

# of
Operating
Beds (1)

 

Investment
per Bed
($000's)

Skilled Nursing Facilities/Transitional Care

805

 

$

7,152,134

 

83

%

798

 

85,130

 

$

84

Senior Housing (2) 128     1,472,301   17 % 125   7,780 $ 189
933 $ 8,624,435 100 % 923 92,910 $ 93
Assets held for sale 3     3,782
Total Investments 936 $ 8,628,217
 
(1) Excludes facilities which are non-operating, closed and/or not
currently providing patient services.
(2) Includes ALFs, memory care and independent living facilities.
 
       
Revenue Composition ($000's)
         
Revenue by Investment Type Three Months Ended Six Months Ended
June 30, 2018   June 30, 2018
Rental Property $ 192,850 88 % $ 386,799   88 %
Direct Financing Leases 497 0 % 1,110 0 %
Mortgage Notes 16,834 8 % 33,413 8 %
Other Investment Income and Miscellaneous Income - net   9,700   4 %     18,758   4 %
$ 219,881 100 % $ 440,080 100 %
 
       
Revenue by Facility Type Three Months Ended   Six Months Ended
June 30, 2018   June 30, 2018
Skilled Nursing Facilities/Transitional Care $ 182,266   83 % $ 364,519   83 %
Senior Housing 27,915 13 % 56,803 13 %
Other   9,700   4 %     18,758   4 %
$ 219,881 100 % $ 440,080 100 %
 
             

Rent/Interest Concentration by Operator

($000's)

# of
Properties (1)

 

Total
Annualized
Contractual
Rent/Interest (1)(2)

 

% of Total
Annualized
Contractual
Rent/Interest

Ciena Healthcare 74   $ 88,767   11.5 %
CommuniCare Health Services, Inc. 47 61,389 8.0 %
Genesis Healthcare 50 57,259 7.4 %
Signature Holdings II, LLC 59 50,064 6.5 %
Saber Health Group 40 40,767 5.3 %
Health & Hospital Corporation 44 35,234 4.6 %
Guardian LTC Management Inc. 32 31,036 4.0 %
Maplewood Real Estate Holdings, LLC 14 30,450 4.0 %
Daybreak Venture, LLC. 57 29,666 3.9 %
Diversicare Healthcare Services 35 28,866 3.7 %
Remaining Operators (3) 415     316,642   41.1 %
867 $ 770,140 100.0 %
 
(1) Excludes facilities which are non-operating, closed and/or not
currently providing patient services.
(2) 2Q 2018 contractual rent/interest annualized; includes mezzanine and
term loan interest.
(3) Excludes 42 Orianna and 14 Preferred Care facilities due to their
bankruptcy status: all facilities of these two operators are
expected to be transitioned or sold.
             
Geographic Concentration by Investment ($000's)

Total # of
Properties (1)

 

Total
Investment (1)

 

% of Total
Investment

Texas 118   $ 830,726   9.6 %
Florida 93 823,540 9.5 %
Michigan 53 681,344 7.9 %
Ohio 62 635,090 7.4 %
Indiana 65 583,112 6.8 %
California 54 497,584 5.8 %
Pennsylvania 43 463,951 5.4 %
Tennessee 38 324,770 3.8 %
Virginia 18 285,063 3.3 %
North Carolina 32 270,254 3.1 %
Remaining 31 states (2) 302     2,821,396   32.7 %
878 8,216,830 95.3 %
United Kingdom 55     407,605   4.7 %
933 $ 8,624,435 100.0 %
 
(1) Excludes three properties with total investment of $3.8 million
classified as assets held for sale.
(2) Remaining 31 states Total Investment includes New York City 2nd
Avenue development project.
     
Rent and Loan Maturities ($000's) As of June 30, 2018
Operating Lease Expirations

& Loan Maturities

Year  

2018 Lease
Rent

 

2018
Interest

 

2018 Lease
and Interest
Rent

  %
2018   $ -   $ 1,442   $ 1,442   0.2 %
2019 2,093 - 2,093 0.3 %
2020 5,387 3,376 8,763 1.1 %
2021 6,186 142 6,328 0.8 %
2022 37,096 - 37,096 4.8 %
2023 22,803 - 22,803 3.0 %
 

Notes:

Based on annualized 2nd quarter 2018 contractual rent and interest.

Excludes Preferred Care's contractual revenue of approximately $3.2
million expiring in 2022 due to its bankruptcy status.
Orianna revenue of approximately $47.3 million does not
contractually expire until 2026 or later and therefore is also
excluded due to their bankruptcy status.
 

The following tables present operator revenue mix, census and
coverage data based on information provided by our operators as of
March 31, 2018:

     
Operator Revenue Mix (1) As of March 31, 2018
Medicaid  

Medicare /
Insurance

 

Private / Other

   
Three-months ended March 31, 2018 51.3% 36.4% 12.3%
Three-months ended December 31, 2017 52.9% 34.6% 12.5%
Three-months ended September 30, 2017 52.9% 34.7% 12.4%
Three-months ended June 30, 2017 51.9% 35.9% 12.2%
Three-months ended March 31, 2017 51.0% 37.3% 11.7%
 
(1) Excludes all facilities considered non-core.
       
Operator Census and Coverage (1)     Coverage Data
Occupancy (2)  

Before
Management
Fees

 

After
Management
Fees

 
Twelve-months ended March 31, 2018 82.4% 1.69x 1.33x
Twelve-months ended December 31, 2017 82.3% 1.71x 1.34x
Twelve-months ended September 30, 2017 82.2% 1.72x 1.35x
Twelve-months ended June 30, 2017 82.4% 1.71x 1.34x
Twelve-months ended March 31, 2017 82.5% 1.69x 1.33x
 
(1) Excludes all facilities considered non-core.
(2) Based on available (operating) beds.
   

The following table presents a debt maturity schedule as of
June 30, 2018:

       
Debt Maturities ($000's)

Unsecured Debt

Year

Line of Credit and
Term Loans (1)

 

Senior
Notes/Other (2)

 

Sub Notes (3)

 

Total Debt
Maturities

2018 $ -   $ -   $ - $ -
2019 - - - -
2020 - - - -
2021 220,000 - 20,000 240,000
2022 907,030 - - 907,030
2023 - 700,000 - 700,000
Thereafter   -     2,650,000     -     2,650,000
$ 1,127,030   $ 3,350,000   $ 20,000   $ 4,497,030
 
(1) The $220 million Line of Credit borrowings excludes $4.8 million net
deferred financing costs and can be extended into 2022. The $907
million is comprised of a: $425 million US Dollar term loan, £100
million term loan (equivalent to $132 million in US dollars), $100
million term loan to Omega's operating partnership and $250 million
term loan (excludes $4.9 million net deferred financing costs
related to the term loans).
(2) Excludes net discounts and deferred financing costs.
(3) Excludes $0.3 million of fair market valuation adjustments.
   

The following table presents investment activity for the three
and six month periods ended June 30, 2018:

       
Investment Activity ($000's) Three Months Ended Six Months Ended
June 30, 2018   June 30, 2018
Funding by Investment Type $ Amount   %   $ Amount   %
Real Property $ 22,825   17.4 % $ 52,497   26.4 %
Construction-in-Progress 38,743 29.6 % 58,228 29.4 %
Capital Expenditures 15,367 11.7 % 33,830 17.0 %
Investment in Direct Financing Leases - 0.0 % 15 0.0 %
Mortgages 44,200 33.7 % 44,200 22.2 %
Other   10,000   7.6 %     10,000   5.0 %
Total $ 131,135 100.0 % $ 198,770 100.0 %
 

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