Omega Healthcare Investors(US:OHI)2019-08-08 20:02PART I Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Omega Healthcare Investors, Inc. and its operating partnership, including balance sheets, statements of operations, and cash flows, with detailed notes Financial Statements of Omega Healthcare Investors, Inc. The consolidated financial statements for Omega Healthcare Investors, Inc. show an increase in total assets to $9.1 billion as of June 30, 2019, from $8.6 billion at year-end 2018, primarily driven by growth in real estate investments Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total real estate investments – net | $6,684,102 | $6,183,791 | | Total assets | $9,098,420 | $8,590,877 | | Total liabilities | $5,045,914 | $4,826,393 | | Total stockholders' equity | $3,802,971 | $3,444,441 | Consolidated Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $225,279 | $219,881 | $448,967 | $440,080 | | Operating income | $126,525 | $132,677 | $248,700 | $270,812 | | Net income available to common stockholders | $73,141 | $78,536 | $142,843 | $162,756 | | Diluted EPS | $0.34 | $0.39 | $0.68 | $0.82 | Consolidated Statement of Cash Flows Highlights - Six Months Ended June 30 (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $265,412 | $217,166 | | Net cash used in investing activities | ($15,012) | ($6,250) | | Net cash used in financing activities | ($227,764) | ($294,056) | | Increase (decrease) in cash | $22,467 | ($83,259) | Financial Statements of OHI Healthcare Properties Limited Partnership The financial statements for OHI Healthcare Properties Limited Partnership mirror those of the parent company, Omega, in terms of assets and operating results, with primary differences in liabilities and equity presentation - Omega OP's total assets of $9.1 billion as of June 30, 2019, are identical to the parent company's consolidated assets28 - A significant liability on Omega OP's balance sheet is the $4.7 billion in intercompany loans payable to the parent, Omega, as of June 30, 201928 - Net income for Omega OP was $75.7 million for Q2 2019 and $147.9 million for the six months ended June 30, 2019, identical to the consolidated net income of the parent company before noncontrolling interest adjustments31 Notes to Consolidated Financial Statements These notes detail the company's accounting policies, significant events including the MedEquities merger and lease accounting standard adoption, operator developments, and subsequent events like a major acquisition agreement - On May 17, 2019, Omega completed its merger with MedEquities Realty Trust, Inc., acquiring it for consideration valued at approximately $346 million, consisting of stock and cash43100 - The company adopted the new lease accounting standard, Topic 842, on January 1, 2019, using the modified retrospective method, resulting in the recognition of right-of-use assets and lease liabilities78 - Following the resolution of the Orianna bankruptcy in January 2019, the company received approximately $88 million from the created Distribution Trust and recorded a $7.7 million allowance in Q1 2019 due to diminished collectability of remaining receivables113114115 - On July 26, 2019, the company entered into an agreement to purchase 60 facilities for $735 million, consisting of cash and the assumption of approximately $390 million in HUD-guaranteed mortgage loans192 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, revenue drivers, the regulated healthcare environment, operator updates, and confirms sufficient liquidity for future operations and investments - The company's core business is providing financing and capital to the long-term healthcare industry, with a portfolio of 949 facilities in 41 states and the U.K. as of June 30, 2019197201 - The healthcare industry is heavily regulated, with significant operator revenue derived from Medicare and Medicaid, noting the shift to the value-based Patient Driven Payment Model (PDPM) effective October 1, 2019, which could materially affect operators' financial conditions208213218 - Daybreak Venture LLC remains on a cash basis for revenue recognition due to liquidity challenges stemming from low occupancy, high labor costs, and a low Texas Medicaid rate, leading to reduced expectations for future quarterly cash rent receipts287288289 - Management believes its liquidity, including cash from operations and availability under its credit facilities, is adequate liquidity to finance operations, meet debt service, and fund future investments through the next twelve months300 Quantitative and Qualitative Disclosures About Market Risk The company states that there were no material changes in its primary market risk exposures or the management of those exposures during the quarter ended June 30, 2019 - There were no material changes in the company's primary market risk exposures during Q2 2019306 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019308 - No material changes to the company's internal control over financial reporting were identified during the quarter309 PART II Other Information Legal Proceedings The company is involved in various legal proceedings, including a securities class action, merger-related lawsuits, and a Department of Justice investigation, which management intends to vigorously defend - A securities class action lawsuit alleging misleading statements was dismissed with prejudice in March 2019, but the plaintiffs filed an appeal in April 2019173 - Four separate lawsuits were filed by MedEquities stockholders challenging the merger with Omega; two of these lawsuits also name Omega as a defendant176 - The company is cooperating with a U.S. Department of Justice (DOJ) investigation regarding alleged violations related to Lakeway Hospital, an asset in which Omega now holds a 51% interest182183 Risk Factors This section highlights additional or revised risk factors, including those related to joint ventures and the potential adverse impacts of Brexit on the company's operations and investments - The company highlights risks associated with joint ventures, including the inability to take actions opposed by partners, reliance on partners' financial condition, and potential for disputes313315 - The withdrawal of the U.K. from the E.U. (Brexit) is identified as a risk that could adversely affect the company through currency volatility, legal uncertainty, and potential changes to tax and trade laws314317319 Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2019, Omega issued 251,679 shares of its common stock in exchange for an equal number of Omega OP Units that were tendered for redemption in a private transaction - In Q2 2019, the company issued 251,679 unregistered shares of common stock to redeem an equivalent number of Omega OP Units321 Other Information A new retirement policy for executive officers was adopted, effective January 1, 2020, providing for prorated and full vesting of equity incentives under specific eligibility and notice conditions - A new retirement policy was adopted on August 2, 2019, for executive officers, effective for grants made on or after January 1, 2020322 - To be eligible, an officer must be at least 62 years old with 10 years of service and provide at least 6 months' notice of retirement322 - The policy provides for prorated vesting of performance-based equity and full vesting of time-based equity for qualifying retirees322323 Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreement amendments, CEO and CFO certifications, and XBRL interactive data files