Omega Healthcare Investors(OHI) - 2019 Q3 - Quarterly Report

PART I Financial Information Financial Statements This section presents the unaudited consolidated financial statements for Omega and its operating partnership for Q3 2019 Financial Statements of Omega Healthcare Investors, Inc. Details the company's key financial performance and balance sheet highlights for the third quarter and first nine months of 2019 Omega Healthcare Investors, Inc. - Key Financial Data (in thousands) | Financial Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $233,195 | $221,852 | $682,162 | $661,932 | | Operating Income | $187,160 | $110,672 | $435,860 | $381,484 | | Net Income | $142,948 | $59,062 | $290,801 | $228,981 | | Net Income Available to Common Stockholders | $138,740 | $56,606 | $281,583 | $219,362 | | Diluted EPS | $0.63 | $0.28 | $1.32 | $1.10 | Omega Healthcare Investors, Inc. - Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sept 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $8,996,194 | $8,590,877 | | Real estate investments – net | $6,532,446 | $6,183,791 | | Total Liabilities | $4,912,732 | $4,826,393 | | Senior notes and other unsecured borrowings – net | $3,822,115 | $3,328,896 | | Total Equity | $4,083,462 | $3,764,484 | - Net cash from operating activities for the first nine months of 2019 was $405.8 million, up from $348.5 million in the prior year, while investing activities provided $71.5 million in cash, a significant shift from a use of $150.6 million in 2018[25] Financial Statements of OHI Healthcare Properties Limited Partnership Presents the financial statements for the operating partnership, which are substantially similar to the parent company's - The financial statements of OHI Healthcare Properties Limited Partnership (Omega OP) are substantially similar to Omega's, with primary differences in the presentation of debt and equity[10][26] OHI Healthcare Properties Limited Partnership - Key Financial Data (in thousands) | Financial Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $233,195 | $221,852 | $682,162 | $661,932 | | Operating Income | $187,160 | $110,672 | $435,860 | $381,484 | | Net Income | $142,948 | $59,062 | $290,801 | $228,981 | Notes to Consolidated Financial Statements Highlights significant events including a major merger, adoption of a new lease standard, ongoing litigation, and a subsequent acquisition - On May 17, 2019, Omega completed its merger with MedEquities Realty Trust, Inc., issuing 0.235 shares of Omega common stock and $2.00 in cash for each MedEquities share[43] - The company adopted the new lease accounting standard, Topic 842, on January 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities[80][81] - The company is involved in a securities class action lawsuit filed in late 2017; the case was dismissed in March 2019, but plaintiffs have appealed[182][183] - Subsequent to the quarter end, the company completed a $735 million acquisition of the 60-facility Encore Portfolio on October 31, 2019[204] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Provides management's perspective on financial results, portfolio developments, liquidity, and capital resources for the reporting period Results of Operations Analyzes the key drivers of revenue and expense changes for the third quarter and first nine months of 2019 versus 2018 Q3 2019 vs Q3 2018 Performance (in millions) | Metric | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $233.2 | $221.9 | +$11.3 | | Operating Expenses | $99.1 | $105.8 | -$6.7 | | Nareit FFO | $163.1 | $160.6 | +$2.5 | - The $11.3 million increase in Q3 2019 operating revenues was primarily driven by acquisitions, partially offset by placing certain operators on a cash basis[263] Nine Months 2019 vs 2018 Performance (in millions) | Metric | 9M 2019 | 9M 2018 | Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $682.2 | $661.9 | +$20.2 | | Operating Expenses | $299.1 | $289.7 | +$9.4 | | Nareit FFO | $464.4 | $462.5 | +$1.9 | - The $9.4 million increase in operating expenses for the first nine months of 2019 was mainly due to higher real estate tax expense, depreciation, and merger costs, offset by lower impairment charges[267] Portfolio and Recent Developments Details significant portfolio changes including a major merger, asset sales, operator resolutions, and a subsequent large acquisition - Completed the merger with MedEquities Realty Trust Inc. on May 17, 2019, acquiring 33 facilities and other investments for approximately $346 million[277] - In Q3 2019, the company sold 19 facilities for approximately $177.0 million in net cash proceeds, recognizing a net gain of about $53.1 million[293] - The Orianna bankruptcy was resolved, with Omega receiving approximately $88 million from the created Distribution Trust through September 30, 2019[300][301] - Operator Daybreak Venture LLC continues to face liquidity challenges and did not meet its full contractual payment obligations in Q3 2019[304][305][307] - Subsequent to quarter-end, Omega completed the $735 million acquisition of the 60-facility Encore Portfolio on October 31, 2019[286] Liquidity and Capital Resources Outlines the company's capital structure, recent financing activities, and cash flow generation during the period - As of September 30, 2019, the company had $9.0 billion in total assets and $4.7 billion in total debt, representing a debt-to-total capitalization ratio of approximately 53.4%[309] - On September 20, 2019, the company issued $500 million of 3.625% Senior Notes due 2029, with net proceeds of approximately $487.8 million[311] - Entered into a forward equity sales agreement on September 9, 2019, to sell 7.5 million shares of common stock to finance the Encore Portfolio acquisition[313] - For the nine months ended September 30, 2019, the company generated $405.8 million in net cash from operating activities, compared to $348.5 million in the prior-year period[321] Quantitative and Qualitative Disclosures About Market Risk Confirms no material changes in the company's market risk exposures or management thereof during the third quarter of 2019 - There were no material changes in the company's primary market risk exposures or how those exposures are managed during the quarter ended September 30, 2019[324] Controls and Procedures Asserts the effectiveness of disclosure controls and procedures and notes no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[326] - There were no changes during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[327] PART II Other Information Legal Proceedings Details ongoing legal matters, including a securities class action lawsuit and a Department of Justice investigation - The company is subject to a securities class action lawsuit, which was dismissed but is currently under appeal, and several related shareholder derivative actions[183][184][185] - The company is cooperating with a Department of Justice Civil Investigative Demand (CID) related to the Lakeway Hospital acquired through the MedEquities merger[193] Risk Factors Updates risk factors related to joint ventures, Brexit, and a forward equity sales agreement - The company identifies risks related to its joint ventures, including lack of sole decision-making authority and reliance on partners' financial condition[331] - The United Kingdom's withdrawal from the European Union (Brexit) could adversely affect the company through currency volatility and legal uncertainty[332][334] - The forward equity sales agreement could result in substantial dilution to earnings per share and has uncertain tax treatment[337][342] Unregistered Sales of Equity Securities and Use of Proceeds Reports the issuance of common stock in exchange for operating partnership units during the third quarter of 2019 - In Q3 2019, Omega issued 1,248,361 shares of common stock in exchange for an equal number of Omega OP Units tendered for redemption in an unregistered sale[344] Other Information Announces a key executive appointment and a board resolution regarding its classification structure - Gail D. Makode was appointed as Omega's Chief Legal Officer and General Counsel, effective November 1, 2019[346] - In November 2019, the Board adopted a resolution to opt out of a Maryland law that permits a classified board structure without stockholder approval[347] Exhibits Lists all exhibits filed with the quarterly report, including key agreements and officer certifications - Lists exhibits filed with the report, including the forward equity sales agreement, indenture for the 3.625% Senior Notes due 2029, and required CEO/CFO certifications[348]