Omega Healthcare Investors(OHI) - 2023 Q1 - Quarterly Report

PART I Financial Statements The unaudited consolidated financial statements for Q1 2023 show total assets decreased to $9.29 billion, net income significantly fell to $35.9 million, and operating cash flow decreased to $111.4 million Consolidated Balance Sheets Total assets decreased to $9.29 billion as of March 31, 2023, primarily due to reduced real estate assets, while total equity also declined Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $9,290,206 | $9,405,163 | | Real estate assets – net | $6,438,035 | $6,537,491 | | Cash and cash equivalents | $245,182 | $297,103 | | Total Liabilities | $5,604,595 | $5,601,881 | | Senior notes and other unsecured borrowings – net | $4,903,377 | $4,900,992 | | Total Equity | $3,685,611 | $3,803,282 | Consolidated Statements of Operations Total revenues decreased to $218.2 million in Q1 2023, leading to a sharp decline in net income to $35.9 million, primarily due to lower rental income and higher impairment charges Consolidated Statements of Operations Summary (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $218,202 | $249,315 | | Rental income | $189,077 | $216,883 | | Total expenses | $199,831 | $167,733 | | Impairment on real estate properties | $38,988 | $3,511 | | Gain on assets sold – net | $13,637 | $113,637 | | Net income available to common stockholders | $35,942 | $189,607 | | Diluted EPS | $0.15 | $0.79 | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $111.4 million in Q1 2023, while investing activities significantly declined and financing activities used $166.4 million Consolidated Statements of Cash Flows Summary (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $111,360 | $132,202 | | Net cash provided by investing activities | $2,657 | $177,338 | | Net cash (used in) provided by financing activities | ($166,422) | $161,237 | | (Decrease) increase in cash | ($52,126) | $470,370 | Notes to Consolidated Financial Statements Notes detail significant events including asset acquisitions, sales, impairments, and ongoing collectibility issues with operators leading to rent deferrals and restructurings - In Q1 2023, the company acquired 6 ALF facilities in the U.K. for $26.4 million with an initial annual cash yield of 8.0%[27] - During Q1 2023, the company sold two facilities for $17.6 million in net cash proceeds, recognizing a net gain of $13.6 million, and recorded impairments of approximately $39.0 million on four facilities[32][35] - As of March 31, 2023, 17 operators were on a cash basis for revenue recognition, representing 25.1% of total revenues for the quarter[42] - In Q1 2023, the company allowed eight operators to defer $24.4 million of contractual rent and interest, primarily related to LaVie ($14.3M), Healthcare Homes ($6.1M), and Agemo ($1.9M)[44] - Subsequent to quarter end, the company committed to a $222.6 million investment with an existing operator, including the acquisition of 4 SNFs and providing five loans[141] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impact of COVID-19 on operators, leading to collectibility issues and restructurings, with total revenues and Nareit FFO decreasing, while maintaining strong liquidity Outlook, Trends and Other Conditions Operators face ongoing challenges from COVID-19, including lower occupancy and labor shortages, with uncertainty regarding future government support post-public health emergency - Operators are significantly impacted by reduced revenue from lower occupancy, increased expenses, and uncertainty around reimbursement levels, especially with the public health emergency ending on May 11, 2023[150] - Staffing shortages continue to impact operators' occupancy levels and profitability, requiring them to limit admissions in some cases[151][152] - The phase-out of the additional 6.2% FMAP reimbursement in 2023 may adversely affect operators if state rate-setting does not adjust to cover increased costs[153] First Quarter of 2023 and Recent Highlights Q1 2023 highlights include facility acquisitions and sales, significant impairments, and ongoing operator distress management through restructurings and lease transitions - Acquired six facilities for $26.4 million and invested $10.1 million in capital improvements[183] - Sold two facilities for $17.6 million in net proceeds, resulting in a $13.6 million gain, and recorded $39.0 million in impairments on four other facilities[184][186] - Managed significant operator collectibility issues, including deferring $24.4 million in rent and interest and executing major restructurings with operators Agemo, LaVie, and Maplewood[187][188] Results of Operations Q1 2023 saw rental income decrease by $27.8 million due to cash-basis operators, interest income fall, and a significant increase in real estate impairment charges Comparison of Results (in thousands) | Account | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Rental income | $189,077 | $216,883 | $(27,806) | | Interest income | $28,420 | $31,143 | $(2,723) | | Impairment on real estate properties | $38,988 | $3,511 | $35,477 | | (Recovery) provision for credit losses | $(4,057) | $1,824 | $(5,881) | | Gain on assets sold – net | $13,637 | $113,637 | $(100,000) | - The decrease in rental income was primarily driven by a $45.5 million net decrease from cash basis operators, including Maplewood and LaVie[190] Funds From Operations Nareit FFO, a key non-GAAP measure, decreased by $24.6 million to $146.1 million in Q1 2023, primarily due to lower total revenue from operators Nareit FFO Reconciliation (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income | $36,845 | $195,156 | | Deduct gain from real estate dispositions | (13,637) | (113,637) | | Depreciation and amortization | 81,192 | 82,752 | | Add back impairments on real estate properties | 38,988 | 3,511 | | Nareit FFO | $146,072 | $170,678 | - The $24.6 million decrease in Nareit FFO was primarily driven by the overall decrease in total revenue[198] Liquidity and Capital Resources As of March 31, 2023, the company had $5.3 billion in total debt, mostly fixed-rate, and strong liquidity with $245 million cash and $1.43 billion credit facility availability - As of March 31, 2023, total debt was $5.3 billion, with 98% being fixed-rate debt, and a weighted average annual interest rate of 4.1%[200][201] - The company has $1.43 billion of availability under its revolving credit facility and approximately $245 million of cash on its balance sheet[202] - The company anticipates repaying the $350 million of 4.375% senior notes due in August 2023 using available cash and proceeds from its revolving credit facility[202] Quantitative and Qualitative Disclosures About Market Risk No material changes were reported in the company's primary market risk exposures or their management during Q1 2023 - There were no material changes in the company's primary market risk exposures or how those exposures are managed during the quarter[220] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[222] - No changes in internal control over financial reporting occurred during the quarter that materially affected or are likely to materially affect internal controls[223] PART II – OTHER INFORMATION Legal Proceedings The company is involved in a securities class action lawsuit with a $30.75 million settlement approved, and ongoing litigation with debt holders regarding offset rights - A settlement of $30.75 million for a securities class action lawsuit was approved on April 25, 2023, funded by the company's directors and officers insurers[126] - The company is involved in ongoing litigation with subordinated debt holders related to the former Gulf Coast master lease agreement regarding the exercise of offset rights for unpaid rent[132][133] Risk Factors No material changes to the company's risk factors were reported from those disclosed in the 2022 Form 10-K - No material changes to risk factors were reported from those disclosed in the 2022 Form 10-K[225] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company did not issue common stock for Omega OP Units nor repurchase shares under its authorized stock repurchase program - The company did not repurchase any shares of its outstanding common stock during the first quarter of 2023[228] Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - The report includes required CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial statements in Inline XBRL format (Exhibit 101)[230]