Omega Healthcare Investors Inc (OHI) 2004 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2004 Omega HealthCare Investors, Inc. Earnings Conference Call. My name is Andrea and I'll be your coordinator for today.

[Operator Instructions]

I would now like to turn the presentation over to the host of today's call, Mr. Taylor Pickett, CEO. Please proceed.

Thank you. Good morning and thank you for joining our fourth quarter conference call. Comments made during this conference call that are not historical facts maybe forward looking statements, such as statements regarding our financial and FFO projections, dividend policy, portfolio restructurings or rent payment by certain operators and 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 SEC including, without limitation, our Form 10-K and our Form 10-Q, which identify specific factors that may cause actual results (inaudible) to differ materially than those described in forward-looking statements.

During the call today we'll refer to some non-GAAP financial measures such as FFO and adjusted FFO, and revenue and expense information excluding owned and operated assets. Reconciliations for these non-GAAP measures, the most comparable measure under (inaudible) is subject to accounting principles, as well as an explanation of usefulness of non-GAAP measures are included in our press release issued this morning. More in the case of per share information available in the financial report section of our Web site at omegahealthcare.com.

I will review adjusted FFO common dividends and Omega's 2005 growth strategy. Adjusted FFO for the quarter is 24 cents per share up from 23 cents in the third quarter. Adjusted FFO for the full year is 91 cents per share. Bob Stephenson will detail the reconciled (ph) item which relates to non-cash restricted stock expense to get to reported FFO.

Looking forward, we project that 2005 adjusted FFO will be $1 to $1.02 per share. We are not providing guidance related to our projected acquisition activity. However, in order to achieve our projected 2005 FFO, we will need to close at least at $75 million in new acquisitions during 2005. As we announced last week, the common shareholders of record on January 31, 2005 will be paid the dividend at 20 cents per share on February 15, 2005. This reflects a one penny increase from last quarter and an adjusted FFO pay-out ratio of 83%.

Turning to our 2005 growth strategy, Omega will continue to focus on skilled nursing facility acquisitions in 2005. We intend to continue to leverage our many operator relationships. In February, Omega will have approximately 200 million available for potential acquisitions, which provides us with the capacity to look at both small and relatively large transactions. Bob Stephenson, our CFO, will now review our fourth quarter financial results.

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $10.6 million or 22 cents per share for the quarter as compared to $11 million or 20 cents per diluted share in the fourth quarter of 2003. During the quarter we reported an $837,000 expense accrual related to restricted stock awards granted during the third quarter of 2004 and expect to record $1.1 million in 2005. When adjusting FFO for the non-cash restricted stock expense, our adjusted FFO is $11.5 million or 24 cents per share for the quarter. Further information regarding the calculation of FFO is included in our earnings release and on our Website. Operating revenue for the quarter was $24.2 million versus $20.89 million for the fourth quarter of 2003 when excluding owned and operated revenues from 2003. The $3.5 million increase was primarily a result of new investments made during the second and fourth quarter for 2004, releasing and restructuring activities completed throughout 2003 and during the first quarter of 2004 as well as scheduled contractual increases.

Turning to operating expenses, for the quarter, our operating expenses of 8.4 million, which included $837,000 of restricted stock expense, were in line with expenses of $7.3 million a year ago, where last year's expense is adjusted for the effect of eliminating owned and operated assets. Interest expense was $6.7 million for the quarter and included a half a million dollars of non-cash related interest calls.

Looking at the balance sheet, during the quarter we completed a number of capital-related transactions and new investments which impacted our balance sheet. In addition, we completed a number of transactions in the first half of 2004. Those transactions are as follows. The issuance of 118.5 million of 8.375% series, the preferred stocks, the completion of an 18.1 million share secondary offering and the sale of 2.7 million primary shares, the issuance of 200 million, 7%, 10-year senior notes. We closed on 125 million revolving credit facility and we are seeing 57.5 million, 9.25% series, a preferred stock.

During the fourth quarter of 2004, we completed the following capital rating transactions. The issuance of 60 million, 7%, 10-year senior notes. These notes were sold at a premium with an effective yield to maturity of 6.67%. The completion of a 4 million share primary offering and finally increase of revolving credit facility commitment to $200 million. YTD total assets increased $105 million versus December 31, 2003, primarily due to $121 million of combined new investments completed during the second and fourth quarters of 2004 and cash associated with the capital rating transactions I've just summarized.

At December 31 2004, we had approximately $12.1 million of cash on our balance sheet and credit facility availability of $181 million. On the liability side of the balance sheet, we had $380 million of debt at December 31 2004. It's important to note Omega has no debt maturities prior to June 2007. For the three months end of December 31 2004 our total debt-to-EBITDA was 4.4 times and our fixed charge coverage ratio was 2.0 times. When adjusting for incremental revenue associated with fourth quarter acquisitions, our total debt-to-EBITDA run rate was 4.1 times and our fixed charged coverage ratio was 2.1 times. I'll now turn the call over to Dan Booth, our COO.

Thanks Bob and good morning everyone. As of December 31, 2004, Omega had a core asset portfolio of 221 facilities, distributed among 42 third-party operators located in 29 states. After a lengthy process of repositioning our balance sheet to elaborate growth, Omega began making new healthcare investments in the second quarter of 2004. Our primary focus being the skilled nursing home sector. During the year, Omega made gross investments of $122 million including 86.5 million in the fourth quarter. These investments involved 20 skilled nursing facilities, one assisted living facility and one combination skilled facility and rehab hospital.

Subsequently in January of 2005 Omega made a net new investment of approximately $58 million on 13 skilled nursing facilities in Ohio. The average rate of return for all the 2004 investments and the 2005 investments to date was 10.7%. Omega continues to identify and develop new investment opportunities primarily in the skilled nursing home sector. As Taylor mentioned, going into February, Omega will have approximately 200 million in cash and credit availability to fund potential new investments.

Turning to our portfolio performance. Our credit coverage ratios improved significantly in the third quarter of 2004. Trailing 12 months EBITDA and coverage for the period ended 9/30/04 was 1.8 times versus 1.69 times for the period ended June 30 of '04. Trailing 12 months EBITDAR coverage also improved to 1.33 times as of 9/30/04 versus 1.23 times as of 6/30. Coverages for Omega's portfolio either remains stable or improved in each of the last eight quarters.

Thank you, Dan. This concludes our prepared comments. We will now take questions.

[Operator Instructions].

And our first question comes from John Wallace from Legg Mason. Please proceed.

Good morning guys.

Good morning John.

Could you just give us any sense on rank coverages of the 4Q '04 investments and maybe American health transactions?

Sure. John, a big one in '04, the coverage was north of 1.5 and then the first quarter transaction was north of 1.3.

That's EBITDAR coverage.

EBITDAR.

Right.

Could you give us any detail on the quality of these of the facilities, I guess, in Ohio?

I would say that the quality of both these portfolios actually would've raised the overall portfolio of Omega's portfolio.

And then, could you guys give us any sense on what you guys are hearing about drugs (ph)?

Sure John. We're going to ask, Lee Crabill, our Senior Vice President of Nursing Home Operations to respond.

John, you're probably aware that the CMS has mandated to present to Congress its recommendation on drug refinement (ph) in January. Our industry represents the closest this process -- have little intelligence on that as of last week. However, the general consensus of most is that whatever recommendations come out would cause rates to somewhat (inaudible) hold the line.

OK.

Remain stable.

OK, Thanks, guys.

Thanks John.

And our next question comes from Lee Garson (ph) from UBS. Please proceed.

Hi, just a couple of quick ones. First, I was just wondering, can you guys give us some perspective for what you plan to do with the proceeds you expect to receive on the Mariner prepayment?

Sure. We've mentioned in our call that we will have, going into February, $200 million available. Basically the entire credit facility available for acquisitions. That anticipates using the Mariner proceeds to pay down what we borrowed on the line of credit. So, we will use the Mariner proceeds to pay back our revolving credit obligation that we have today and that entire 200 million will be available for future transactions.

Great. And then, with respect to future transactions, I mean you gave parameters around availability. I mean when you look into the price line, are you starting to see larger transactions? Is it something that we should be looking for here in the near term?

Well we're seeing add-on transactions with our current operators that are relatively modest. I'd say the $10 million to $20 million range but we also have a handful of the $40 million plus type transactions that we're working on. And that's what I -- from our perspective, call larger.

I mean, obviously with -- I guess more reasonably given what's going on with some of the publics (inaudible), it seems like (inaudible) nursing home real estate assets are on the rise. Are you guys starting to see that impact negotiations at this point?

Without a doubt. I think you're seeing a scenario in the marketplace where the facilities are being valued at what I would call full replacement costs for the most part. Obviously you have to have cash flows underlying -- underpinning the facilities that support the underwriting. But for the most part we're seeing high quality facilities that are being valued at whatever cost (inaudible).

So you still feel good about the 75 million of investments for the year?

I do. Obviously, we're in $1 to $1.2 in it. We have to close 75 plus million in acquisitions. And right now we feel pretty good about being able to achieve that result. We don't have the kind of history that some of our peers have to project what we might do but we certainly have that in the pipeline today. It's just a question of moving transactions forward to a close.

OK. And then one more. Just with respect to the pay-out ratio. I mean 80%, is that something you think is right when you think about the balance of the year?

We've been pretty consistent. Our pay-out ratio is between 80% and 85% and the way I look at it is as FFO grows, our dividend is about 4 cents less than our FFO per quarter and I would expect that as we have in the past we'll look at every quarter, FFO and our related dividend. And keep it in that range.

Thank you.

[Operator Instructions].

And we have a follow up question from John Wallace from (inaudible). Please proceed.

Hi guys. Just following up on the question that was previously asked. What are you guys seeing in the -- for yields on the investments in your pipeline?

We're seeing -- I mean, in the (inaudible) sector, we have consistently seen yields north of 10%. That's what our target has been and will be in '05.

And could we assume 10.5 kind of on average of what you did in 2004?

That's really hard to predict. It depends on the quality of the deal, the size of the deal and how competitive it is.

OK. All right, thank you.

Ladies and gentlemen this concludes the Q&A portion of today's call. I would now like to turn the presentation back to Taylor Pickett for closing remarks.

Thank you for joining our conference call. Bob Stephenson, our CFO, will be available any follow up questions that you may have.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.