Omega Healthcare Investors Inc (OHI) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Omega HealthCare Investors first-quarter 2005 conference call. My name is Nicole, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Taylor Pickett, Chief Executive Officer. Please proceed.

Good morning, and thank you for joining our first-quarter conference call. 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 and 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 Securities and Exchange Commission including 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'll refer to some non-GAAP financial measures, such as FFO and adjusted FFO. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles as well as an explanation of the usefulness of non-GAAP measures are included in our press release issued this morning or in the case of adjusted FFO per share information available under the "Financial Report" section of our website at omegahealthcare.com.

I will review adjusted FFO, common dividends, recent transactions and our acquisition pipeline. Adjusted FFO for the quarter is $0.25 per share, up from $0.24 in the fourth quarter. To get to adjusted FFO, Omega made the following adjustments. First, we reduced recorded FFO by approximately $0.06 related to one-time cash revenue that we received as part of the Mariner loan payoff. Second, we increased reported FFO by approximately $0.08 for non-cash expenses.

Over $0.07 relates to the impairment of two nursing facilities located in Illinois. Omega recorded no revenue related to these two facilities in 2004, and we have not budgeted a revenue for 2005 and beyond. It is possible that Omega could recover substantially more than the current $500,000 book value for these two facilities. At which time, we would record revenue, which would also be adjusted out of reported FFO to get to our adjusted FFO. We continue to project that 2005 adjusted FFO will be $1.00 to $1.02 per share.

Turning to our common dividend, as we announced last week, common shareholders of record on May 2nd will be paid a dividend of $0.21 per share on May 16th, 2005. This reflects a $0.01 increase from last quarter and an adjusted FFO payout ratio of 84%.

Since the beginning of the year, we have closed on 58 million in new investments, which offsets the repayment of the $60 million Mariner mortgage. In addition, we announced the May 2nd redemption of our $50 million Series D preferred stock. Also this week, we amended our $200 million revolving credit agreement to reduce our interest costs by 50 basis points.

In terms of new acquisitions, the acquisition opportunities were very limited in January and February. During March, we experienced an increase in our acquisition pipeline and now have a number of potential transactions in the pipeline. Bob Stephenson, our Chief Financial Officer, will now review our first-quarter financial results.

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $12 million or $0.23 per share for the quarter as compared to a deficit of $48 million or a deficit of $1.16 per share in the first quarter of 2004. As Taylor mentioned earlier, during the quarter, we recorded a non-cash 3.7 million provision for impairment charge, and we also recorded approximately 3.1 million of one-time revenue associated with the Mariner mortgage loan payoff. When adjusting FFO for the non-cash impairment charge, non-cash restricted stock expense and the one-time revenue, our adjusted FFO is $13 million or $0.25 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 28.6 million versus 21.2 million for the first quarter of 2004. The 7.4 million increase, primarily was a result of new investments made during 2004 and the first quarter of 2005, the one-time revenue associated with the mortgage payoff, as well as scheduled contractual increases.

Turning to operating expenses -- for the quarter, our operating expenses of 8.1 million -- which exclude the 3.7 million provision for impairment and the $285,000 of restricted stock expense -- were in line with expenses of 7.2 million a year ago with the 1.1 million increase primarily associated with increased depreciation and amortization expense related to 2004 acquisitions. Interest expense was 7.3 million for the quarter and included a $0.5 million of non-cash related interest costs.

Turning to the balance sheet -- during the quarter, we had a number of transactions, which impacted our balance sheet. They are as follows -- we completed 58 million of net new investments. Mariner Health Care repaid a $60 million mortgage loan. As previously mentioned, we impaired two assets for $3.7 million. We sold 3 facilities for 6.1 million in cash proceeds. We repaid all outstanding borrowings under our credit facility. And we announced the redemption of our 50 million 8.625% Series B preferred stock. The Series B preferred stock will be redeemed on May 2, 2005.

As a result of these transactions, year-to-date total assets decreased $20 million versus December 31, 2004. At March 31, 2005, we had approximately 9.8 million of tax cash on our balance sheet and credit facility availability of approximately $196 million.

On the liability side of the balance sheet, we had 364 million of debt at March 31, 2005. It is important to note that we have no debt maturities prior to June 2007. For the 3 months ended March 31, 2005, our total debt to EBITDA was 4.0 times, and our fixed charge coverage ratio was 2.1 times. When adjusting for the elimination of the one-time revenue item, the provision for impairment and adding incremental revenue related to our first-quarter acquisition, our total debt to EBITDA run rate was 3.8 times, and our fixed charge coverage radio was 2.2 times.

I will now turn the call over to Dan Booth, our Chief Operating Officer.

As of March 31, 2005, Omega had a core asset portfolio of 213 facilities distributed amongst 39 third-party operators located in 28 states. During the quarter, Omega made gross investments of $58 million on 13 skilled nursing facilities in Ohio. Also during the quarter, Omega had a $59 million mortgage paid off by Mariner Health Care.

In addition, 1 Florida operator exercised the purchase option on 2 facilities for approximately $4 million. Omega continues to identify and develop new investment opportunities, primarily in the skilled nursing home sector. Omega currently has approximately $155 million in cash and credit availability to fund potential new investments after the repayment of the Preferred B.

Turning to portfolio performance -- operator coverage ratios improved significantly in the fourth quarter of 2004. Trailing 12-month EBITDARM coverage for the period ended 12/31/04 was 1.87 times versus 1.8 times for the period ended 9/30/04. Trailing 12-month EBITDAR coverage also improved to 1.4 times as of 12/31/04 versus 1.33 times as of 9/30/04. Coverages for Omega's portfolio have either remained stable or improved in each of the last 9 quarters.

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

(OPERATOR INSTRUCTIONS). Chris Pike, UBS.

Just a quick question. I know Taylor in the previous calls, you refrained from providing acquisition guidance. But then you kind of snuck in the line saying -- well, to meet our guidance, this is the type of acquisitions we're assuming. Can you add some color in '05? It is still status quo on that front?

I don't think we are prepared to provide guidance again in our track record short. I will say that again in January and February, the pipeline -- we did not see a lot of activity. But we didn't have much in the pipeline. In the last several weeks, we have seen a lot more activity. We have $70 million worth of deals in the pipeline that have some potential. Who knows if they will close or not. But we are in the middle of diligence. And if we're able to close those deals, we will be at our target for the year to hit our FFO range. And it is early in the year, so I feel pretty good about that. I think we're going to see some more activity in the acquisition pipeline, as the year rolls along.

Just a couple of follow-ups on that then. What caused the spigot to turn off in the first couple months of the year? Was it capped rates compressing to a level that you folks just felt uncomfortable with? Or was it just a dearth in the amount of packets that got shuffled across your desk?

I think there's just a general -- folks stepping back for a little bit when the administration came out with the budget proposals. And for whatever reason, there wasn't a lot of activity in terms of packages being floated around and that sort of thing, and it has picked up. That is just a guess.

What about capped rates for the type of products that you folks are looking to take down. Do you see --?

You know, our focus continues to be skilled nursing facilities. And for the most part, the capped rates are holding up where we can look at 10% plus yields.

The types of facilities that are being offered -- I know in the past, sometimes they were 30,000 a bed. I think you guys started to buy or purchased facilities with greater cost per bed. What are the characteristics of the pipeline at this point?

You know, the cost per bed is very -- so widely by state, Chris. The low end is perhaps in older facilities in Texas to the high-end in sort of the Northeast, where those bed prices go up quite a bit. What we are looking at in the pipeline now is kind of a mix.

So, there's no --?

In both the Texases (sic) of the world and the Northeast, so we are seeing both ends of the spectrum.

You don't see a greater offer side for what I would try to point the B type or the lower cost per bed facilities at this point?

We don't have anything in the pipeline like that, no.

Last question and I'll yield the floor here. In terms of RUDs (ph), if the refinement comes down, I know Taylor you and I have spoken about this -- where do you see your operator margins going to both before and after management fees?

The original administration proposal that we were looking at coverages declined by from the current 1.4, they would go down into the high 1.2 range, maybe 1.28, 1.27 on a combined basis. Now, that being said, our sense is that the budget proposal put out by administration is probably the worst result we're going to get. And so, it is something in between that and 0; we should be in pretty good shape.

Eric Gommel, Legg Mason.

Just following up on the previous question. Assuming a $20 per day reimbursement cut -- how much of your nursing home portfolio if any would actually fall below one-times rent coverage? Can you quantify that?

Well, we have one portfolio that is below one-times coverage already. And that obviously will get a little bit worse. For the most part, the balance of the portfolio should be -- I don't think that there's anything that goes below one time. But you start to squeeze it, and the risk gets higher. But I would say there is one, perhaps two portfolios that may have -- that might have issues in that scenario.

And one additional question -- are you still in the process of disposing? Or have you completed disposing your shares in Sun Healthcare?

No, we still hold the 760,000 shares that we have had with Sun.

(OPERATOR INSTRUCTIONS). Mr. Pickett, please proceed. There are no additional questions at this time.

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

Ladies and gentlemen, this does conclude your conference call for today. You may all disconnect, and thank you for your participation.