Omega Healthcare Investors Inc (OHI) 2004 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q1 2004 Omega Healthcare Investors Incorporated conference call. My name is Chris, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating your question and answers session towards the end of the conference. If at any time during the call you require assistance, please press star followed by a zero and coordinator will be happy to assist you. I would now like to turn the presentation over to your host of today's call Mr. Taylor Pickett, Chief Executive Officer. Please proceed sir.

Thank you. Good morning, and thank you for joining our first quarter conference call. Comments made during this call that are not historical factors may be forward-looking statements. Such as statements regarding our financial and FFO projections, dividend policy, portfolio restructurings, and rent payment by certain operators, and business 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 being without limitation, our Form 10-K and Form 10-Q, which identify 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 and adjusted FFO, and revenue and expense information excluding owned and operated assets. Reconciliation of these non-GAAP measures is the most comparable measures under generally accepted accounting principles as well as explanation of the usefulness of the non-GAAP measures are included in our press release issued this morning or in the case of per share of information available under the financial report section of our website at www.omegahealtcare.com.

During the first quarter, Omega recapatilised majority of the balance sheet and closed the new acquisition for the first time in nearly five years. These milestone events conclude nearly three years of restructuring work and represent a return to growth for the company. Major achievements during the quarter include the issuance of $118.5m of series D preferred stock, the completion of $18.1m share secondary offering, and the sale of $2.75m primary shares, which resulted in significant shareholder diversification and a large increase in institutional Investors. The issuance of $200m, 7%, ten year senior notes. The closing of new $125m revolving credit facility. Rating agency upgrades and the schedule April 30th redemption of 9.25% Series A preferred stock. Adjusted FFO for the quarter is $0.22 per share. Bob will review the reconciling items, which all relate to our capital transactions to get to reported FFO. Looking forward and without giving effect to any potential future acquisitions we project 2004 FFO will be $0.88 to $0.90 per share, and 2005 FFO will range from $0.96 to $0.98 per share. As we announced last week, common shareholders of record on April 30 2004 will be paid the dividend of $0.18 per share on May 17. At $0.18 per share our dividend pay ratio is approximately 85% of adjusted FFO, which is in line with our peer group. The board will periodically review our dividend policy. On the acquisition front Omega continues to identify many investment opportunities, primarily by off work current operator relationships. We recently announced the purchase of three facility $26m. We've identified a number of new opportunities. Rob Stephenson our Chief Financial Officer will now review our first quarter financial results.

Thank you Taylor. Affordable FFO when it is alluded with a deposit of $48.2m over a deficit of $1.16 per share for the quarter, as compared to $80.9m or $0.17 per diluted share in the first quarter of 2003. During the quarter, we conceded a number of capital related transactions, which resulted in approximately $57.8m of charges that negatively impacted FFO. These transactions and related charges are as follows. One, the combined redemption and conversion of our Series C Convertible Preferred Stock produced our net income available to common shareholders by $38.7m and thus reduced our FFO. This non-cash $38.7m charge reflects the difference between the redemption price $9.12 and a carrying value of $6.25 multiplied by the number of shares redeemed plus the prorate cost associated with the original issuance of the Preferred C. The redemption of the Preferred C was funded by our issuance of $118.5m of 8.37% of Series D redeemable Preferred Stock. Two, the refinancing of our joint $25m credit facility, and our $50m acquisition facility reduced our FFO by $12.6m. The $12.6m charge is made up of a $6.4m exit fee paid to our old bank's syndication, and a $6.3m of non-cash deferred financing cost written-off for the termination of these facilities. The old credit facilities were replaced during the first quarter with a new $125m revolving credit facility. Three, the sale of a $200m interest rate cap, which supported our $225m credit facility. The cap that sold for approximately $3.5m of cash, which resulted in a loss of approximately $6.5m. The $6.4m exit fee, the $6.3m non-cash write-off of deferred financing cost and the $6.5m loss on the sale of the cap were combined $19.1m are recorded as a separate line item on our statement of operations. When adjusting FFO for the approximately $58m of charges, our adjusted FFO was $9.4m or $0.22 per share for the quarter. Further information regarding the calculation of FFO was included in our earning's release and on our website.

Revenue for the quarter was $21.3m versus $24.3m for the first quarter of 2003. The $3m decrease primarily resulted from a first quarter of 2003 legal settlement of $2.2m and $400,000 of first quarter 2003 revenue related to the Baltimore Post Office, which we then sold in the second quarter of 2003. Turning to expenses for the quarter, our expenses of $12.4m were inline with expenses up $12.5m a year ago with last year's expenses adjusted for the fact of the elimination of owned-in operated assets that we had at that time and a provision for impairment, which we took in the first quarter of 2003.

Interest expense was $5.1m for the quarter and included $500,000 of non-cash related interest cost. Turning to the balance sheet, year-to-date total assets increased $61m versus December 31st, 2003, primarily due to the cash associated for the capital transactions we've previously mentioned. At March 31st, 2004, we had approximately $62m of cash in our balance sheet and credit facility availability of $103m. Today, we currently have approximately $150m of combined invested cash and availability. On the liability side of the balance sheet, we had $314m of debt at March 31st, 2004, and we have no debt maturities prior to August 2007. At March 31st, 2004, our total debt to EBITDA was 4.1 times and our fixed charge coverage ratio was 2.0 times after adjusting for the $19.1m of the refinance related interest expense. When your pro forma in the redemption of the Series A Preferred Stock, our fixed charge coverage ratio is approximately 2.2 times. I will now turn the call over to Dan Booth, our Chief Operating Officer.

Thanks Bob, and good morning. As of March 31st, 2004, Omega had a core asset portfolio of 205 facilities distributed among 40 third-party operators located in 28 states. Effective April 1st, 2004, the core portfolio increased by three facilities. As Omega closed on the purchase of three skilled nursing facilities representing the 399 beds. Total investment of $26m. Few of the facilities are located in , with the third located in Connecticut. The facilities were combined into an existing master lease with the current operator. Rent under the master lease was increased by approximately $2.7m for the first lease year, commencing April 1, 2004, with annual increases thereafter. The terms of the master leases had been increased to 10 years on January 1, 2004, and run through December 31, 2013. Followed by the two 10 year renewal options. The company received the security deposit equivalent to three months of the incremental rent. In addition to the Bremond and Kentucky transactions, Omega has identified a number of other senior investment opportunities, primarily leveraging of our many current operator relationships. As of today Omega has nearly $100m of available capital to fund these potential acquisitions, after the redemption of the Series A preferred stock. Turning to portfolio developments. Effective March 2, 2004, Omega finalized and closed a third agreement regarding the 51 properties owned by various subsidiaries of Omega that are leased to various affiliates of Sun. On January 26, 2004 Sun and Omega announced that they have reached an agreement principle regarding the restructuring of the master leases covering those properties. That agreement has now been documented in the binding lease and related agreements presumed to which some will continue to operate and occupy 23 long-term care facilities, 5 behavioral properties, and 2 hospital properties. Effective March 8, 2004, the company re-leased three formerly leased by Claremont Health Care Holdings, located at Florida and representing 360 beds, to an existing operator in -- with an initial annual lease rate of $2.5m. These facilities were added to an existing master lease, the initial term of which has been extended 10 years to February 2014. The aggregate annual lease rate under this master lease inclusive of the $2.5m is $3.9m. Separately the company continues its ongoing restructuring discussions with Claremont regarding the remaining two facilities Claremont currently leases from the company. At this time the company can't determine the timing or outcome of those discussions. Turning to portfolio performance. Operator coverage ratios we're stable in the fourth quarter of 2003, trailing 12 months EBITDA coverage for the period ending 12/31/03 was 1.5 three times versus 1.5 two times for the period 9/30/03. EBITDA coverage also remained stable at 1.08 as of 12/31 versus 1.07 as of 9/30/03.

Thank you Dan. As Omega looks foreword, our strategy has three major components. The first is to continue to actively manage and where possible upgrade our existing portfolio. The second is to manage our balance sheet to continue to improve our credit ratings with the ultimate goal being a return to investment grade. And third is this conservatively grow the portfolio, which will create more diversity and incremental FFO. Omega will be presenting at the 29 annual healthcare conference hosted by Deutsche Bank Securities in on May 4th, at 3.00 pm. A copy of the slides used in this presentation will be available on Omega's website from May 5th to June 4th. This concludes our prepared comments, we will now take questions.

Thank you sir, Ladies and gentlemen if you wish to ask a question please press star followed by one on your touch tone telephone. If your question has been answered or you wish to remove your question, please press star followed by two. Questions will be taken in the order received. Please press star one to begin, and your first question comes from Stepheny Trend of Parry , please proceed.

Hi, good morning. You had given FFO guidance for '04 and '05. Can you please go over your EBITDA guidance as well?

We haven't given EBITDA guidance, we've given our FFO guidance and that's all what we're prepared to do at this time.

Okay, would it be a -- to get the EBITDA on the first quarter number. It's around $77m. Is that a good run rate for the quarter?

$77m. On an annualized basis?

Yes.

Yes, that's correct. I would be publishing on the website our EBITDA for the quarter, after the call. So you'll be able to get into our website and see that breakout and then you can annualize it.

Okay thank you.

And the next question comes from Jerry Doctrow of Legg Mason. Please proceed.

Hi. This is actually Tom Wallace coming on behalf of Jerry Doctrow. Just have a question about the acquisition environment, deals pricing, things like that. I know that you guys just had a sniff investment. I am wondering if that's what we can expect you guys are going to stay in skilled nursing or if you guys are going to work towards and franchise into other things?

I think and at this point in time the universe in which we're looking at, which includes a lot of our existing operators, is going to be in the sniff arena. I think that at least in the next four quarters, that's really where we are going to be focusing our attention, is on the sniff arena.

Okay. Are you looking -- are you targeting basically the same yields as you did for the $26m investment you had in the second quarter?

Yes we are.

Okay.

North of 10 -- 10% north.

10% north. Okay. And then just another question about the Sun's stock that you received, what are you guys planning on doing with that cash?

Well, I guess, there are two components to Sun deal. We've received, approximately $0.5m cash - $500,000 of cash, which will pay down credit line, and we'll throw on that credit line as we grow the company. And then we received 760,000 shares of stock, which are currently in the registration process. And once the shares are registered we'll look at working on monotizing that in an organized way.

Okay. And just I could probably assume that you'd sell that relatively soon and pay down debt with that as well?

The timing is going to depend on the market for the Sun stock, but we would look to sell it as soon as it makes sense.

Okay. Okay, that's it.

Great, thanks.

Once again, ladies and gentlemen, to ask a question please press star one. And your next question comes from Michael Szafranski of Arnic . Please proceed.

Good morning. My question relates to your dividend. Last year, I believe, part of it was characterized as a return of capital for tax purposes; do you see this year in the same situation?

A portion of the common dividends will very likely be return of capital. In the first quarter, in the call we did in January or February, we talked about a range of 50% to 80% as recurrent capital for common; we continue to believe that that range is a figured estimate.

On that call, where these FFO charges at that time?

The FFO charges were not factored in, but what was also not factored in was the revenue related to the Sun shares that we just received. So, you have things going both directions. And so the range, I think, it's still pretty good and it's partly contingent on the sale of the foreclosed facilities that we are currently marketing.

Okay thank you.

Thank you sir. And your next question comes from Henry of Deutsche Bank. Please proceed.

Good morning guys. Just a couple of quick questions. I've noticed the -- you said the pipeline was filled and or is pretty good and that you had the 26 in acquisitions this particular quarter. Should we still think about maybe acquisitions along that level, going forward, on a quarterly basis, or something different than that?

I think there are opportunities at that level, but as you know it is such a lumpy thing to try to predict. Looking at the price line, I think, we have an opportunity to do that sort of volume on a quarterly basis, but we are not prepared to give any formal projections as to where we heading there.

Sure, that's fine. And in terms of leveraged target right around the four times - - still - - what do you want to say?

Yes. We are going to stay tight to the four.

Tight to the four. And then, one last one, any developments with some of -- any lessees that's weakening at all or strengthening that we should know? Bob, you know, certainly clear minds, if anything like that that you might expect or little worried about?

No, nothing of any materiality. Our portfolio continues to strengthen quarter-over-quarter.

Great, sounds good. Thanks a lot.

Thank you.

Thank you. Your next question comes from Murray Garrison of UBS, please proceed.

Thanks. You mentioned, one of the key strategies is continuing to kind of review the portfolio upgrade. I'm just curious, I mean are you looking at, you know, swapping assets or selling assets or just kind of what you are talking about there? And then just generally, can you give any color on what you here in state level in terms of reimbursement for the year?

In terms of upgrading the quality of the portfolio -- we have a couple of situations where properties are in larger relationships that may benefit from moving out of relationships into another cooperative way. We're also looking opportunities to put CAPEX selectively into certain facilities with related rent increases, so we take the quality of the property up cash flow from operations perspective goes up, which ends up in win-win. As it relates to the state side, the general sentiments from the states is favorable. Lee Crabill, our Senior VP of Operations, who is here, do you want to just comment on what we are hearing from the state.

Yes, we are in the third year of downturn state revenues, as everyone knows, but in the prior two years the states have been very successful in continuing to fund the nursing home operations to their support to the Medicaid programs, and we see the same occurring this year, though they are still in their forming budget stages.

Okay. So, there is nothing in those particular stages you guys are more focused or worried about or anything like that?

It is a little early, and the general feedback we are getting is that, in our view is that, we are not going to see anything that's dramatic enough to cause concern in terms of coverage's and ability to pay .

Okay. And then just -- I mean in terms you had talked about the CAPEX, is that - are we talking about a material pipe or thing or is that a couple of million bucks or?

Yes, I not any more than that. You know, couple of millions of dollars. You know, selective facility here and there were a $500,000 over haul with the related, you know, 10% or 11% or 12% half-rate rent increase would allow them to cash in more patients.

Sure. And then just finally, you said you are registering Sun sectors, no other lack of is that right?

That's correct.

Thanks guys.

Okay.

Once again Ladies and Gentleman to ask your question please press star-one on your touch-tone telephone. At this time sir you have no further audio questions.

Perfect. Thank you very much for joining in our first call. Bob Stevenson will available for any follow-up questions that you may have.

Thank you very much Ladies and Gentleman. This conclude the presentation, you may now disconnect.