Omega HealthCare Investors, Inc. Q1 2010 Earnings Call Transcript

Omega HealthCare Investors, Inc. Q1 2010 Earnings Call Transcript
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Omega HealthCare Investors, Inc. (OHI)

Q1 2010 Earnings Call Transcript

May 5, 2010 10:00 am ET

Executives

Michelle Reiber – IR

Taylor Pickett – CEO and President

Bob Stephenson – CFO

Dan Booth – COO

Analysts

Dan Bernstein – Stifel Nicolaus

Tayo Okusanya – Jefferies

Presentation

Operator

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Good day, everyone, and welcome to the Omega HealthCare Investors earnings first quarter conference call. At this time, this conference is being recorded.

At this time, for opening remarks and instructions, I would like to turn the call over to Michelle Reiber. Please go ahead, ma'am.

Michelle Reiber

Thank you and good morning. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial and FFO projections, dividend policy, portfolio restructurings, rent payments, financial conditions or prospects of our operators, contemplated acquisitions, and our business and portfolio outlook generally.

These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially.

Please see our press releases and our filings with the Securities and Exchange Commission, including without limitation our most recent report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

During the call today, we will refer to some non-GAAP financial measures such as FFO, adjusted FFO and EBITDA. Reconciliations to these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the “Financial Information” section of our website at www.omegahealthcare.com and, in the case of FFO and adjusted FFO, in our press release issued today.

I will now turn the call over to our CEO, Taylor Pickett.

Taylor Pickett

Thanks, Michelle, and good morning. Adjusted FFO for the first [ph] quarter is $0.38 per share. We have maintained the common dividend at $0.32 per share, a payout ratio of 84%, which is consistent with our historical policy of an 80% to 85% payout ratio.

There are several modest adjustments to get to adjusted FFO. The adjusted FFO of $0.38 per share for the first quarter reflects the core run rate of the portfolio; that is, the positive effect of the legal settlement offsets the negative arbitrage of holding a significant cash balance and the expected improvement in Formation rent revenue.

Turning to the CapitalSource transaction, the third option portfolio is scheduled for closing in June, while the HUD portfolio remains subject to government approval. Hopefully, we will receive this approval soon, in which case we will close on the HUD portfolio during the second quarter. We have sufficient cash and revolving credit facility availability to close both the option portfolio and the HUD portfolio with no additional capital required.

Turning to FFO guidance, we have increased our quarterly adjusted FFO guidance to a range of $0.43 to $0.46 per share. This run rate is post all of the CapitalSource closings and does not reflect any new equity issuances.

Finally, on the Formation portfolio front, we have signed amended agreements with Formation that, subject to Formation, Genesis achieving budgeted facility cash flow, will modestly reduce our prior contractual rent. The effect of this amendment is included in our quarterly run rate guidance.

Bob Stephenson, our Chief Financial Officer, will now review our first quarter financial results.

Bob Stephenson

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $33.4 million or $0.38 per share for the quarter, as compared to $33.6 million, or $0.41 per share, in the first quarter of 2009.

Our adjusted FFO was $33.5 million, or $0.38 per share for the quarter, and excludes a settlement with a former operator for breach of contract, net of legal costs and the collection of past due revenue of $1.1 million, $220,000 of acquisition-related expenses, non-cash restricted stock compensation expense of $839,000, and it also excludes the $200,000 net loss associated with our owned and operated assets.

Further information regarding the calculation of FFO is included in our earnings release and on our website.

Operating revenue for the quarter, when excluding owned and operated nursing home revenue and a legal settlement, was $50.6 million versus $44.7 million for the first quarter of 2009, with the increase primarily a result of the December 2009 CapitalSource acquisition. Operating expense for the quarter – for the first quarter of 2010, when excluding nursing home expenses, provisions for impairments, and acquisition-related expenses, increased by $4.3 million as compared to the first quarter of 2009.

This increase was primarily the result of additional depreciation expense associated with approximately $270 million of CapitalSource assets acquired in December 2009.

Interest expense for the quarter, but excluding non-cash deferred financing costs, was $13.6 million versus $8.8 million for the same period in 2009. This increase was due to higher average debt balances on our balance sheet, primarily associated with the following: One, a full quarter of interest on our $100 million 6.5% term loan entered into in December 2009; second, a partial quarter of interest on a $200 million 7.5% bond due 2020 that were issued in February of 2010; and finally, a partial quarter of interest associated with the $59 million of assumed CapitalSource mortgage debt that we paid off in February of 2010.

We completed a number of transactions in 2010, which had and will continue to have a significant impact on our balance sheet.

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