HUNT VALLEY, Md.--(BUSINESS WIRE)--Omega Healthcare Investors, Inc. (NYSE:OHI)  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  for the quarter of $155.5 million or $0.75 per common share, Adjusted Funds From Operations  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:

$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.

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.