Omega Healthcare Investors Inc (OHI) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen. And welcome to the 1st Quarter 2006 Omega HealthCare Investors Incorporated Earnings Conference Call. My name is Jackie and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today’s conference, Mr. Tom Peterson, Director of Finance. You may go ahead, sir.

Thank you. Good morning. 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, rent payments, financial condition, or prospects of our operators and the 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 the forward-looking statements.

During the call today we will 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 the non-GAAP measures are included in our press release issued this morning, or in the case of per-share information available under the financial report section of our website. I will now turn the call over to our CEO, Taylor Pickett.

Thanks, Tom, and good morning. I will review adjusted FFO, our common dividend, and our new revolving credit facility.

Adjusted FFO for the first quarter is $0.28 per share. Our 2006 adjusted FFO guidance remains at $1.10 to $1.14 per share. As we announced last week, common shareholders of record on April 28, 2006, will be paid a dividend of $0.24 per share on May 15, 2006. This is a $0.01 increase over the prior quarter and reflects an adjusted FFO payout ratio of approximately 85%.

Turning to our new revolving credit facility, on March 31st, we entered into a new $200 million revolving senior secured credit facility. The new credit facility pricing is 125 basis points less than our prior credit facility pricing. For leverage, 4-1/2 times, Omega will pay LIBOR plus 125 basis points. And for leverage of 4-1/2 to 5 times, Omega will now pay LIBOR plus 150 basis points.

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 $12.2 million or $0.21 per share for the quarter as compared to $12 million or $0.23 per diluted share in the first quarter of 2005. During the quarter we had several transactions which impacted our reportable FFO. They are as follows, (1) in December, 2005, we initiated a tender offer of redemption of our $100 million 6.95% notes to 2007. On December 30, 2005, approximately 79.3% of the 2007 notes were tendered to purchase with the remaining 20.7% being redeemed on January 18, 2006. As a result of that January redemption, during the first quarter, we recorded an $800,000 charge for refinancing related expense. On March 31, 2006, we entered into a new $200 million revolving senior secured credit facility and simultaneously terminated our then existing $200 million credit facility. This transaction resulted in a reduction of FFO of approximately $2.7 million associated with the write-off of deferred financing costs related to the old credit facility.

Also during the quarter we recorded a $100,000 provision for impairment to reduce the carrying value on one facility to the expected sales price. This facility is under contract to be sold during the second quarter.

When adjusting FFO for these items, and the non-cash restricted stock expense recorded during the quarter, our adjusted FFO is $16.1 million or $0.28 per share for the quarter. Further information regarding the calculation of FFO is included in our earnings release and on our website.

Operating revenues for the quarter was $30.8 million versus $27.2 million for the first quarter of 2005. The $3.6 million increase was primarily the result of approximately $250 million of investments made since the first quarter of 2005 and scheduled contractual increases, partially offset by revenue associated with that $60 million mortgage payoff which occurred in 2005.

Turning to operating expenses, for the quarter, operating expenses of $9.9 million were in line with expenses of $7.8 million a year ago, with the increase associated with increased depreciation and amortization expense of $1.8 million related to the 2005 acquisitions.

Interest expense was $9.6 million for the quarter, by excluding $643,000 of non-cash deferred financing cost and a one-time write-off of $3.5 million associated with non-cash interest expense associated with refinancing activities.

Turning to the balance sheet, year-to-date total assets decreased approximately $31 million versus December 31, 2005. The decrease was due to the redemption of our remaining 20.7% of our $100 million 6.95% notes due 2007 and normal accumulated depreciation. At March 31, 2006, we had approximately $400,000 of cash on our balance sheet and credit facility availability of $191 million.

On the liability side of the balance sheet, we had $531 million of debt at March 31, 2006, with $4.5 million maturing in 2010 and approximately $485 million maturing in 2014 or later.

During the quarter we completed a transaction with Haven Eldercare that created a variable interest entity. In accordance with Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities, or known as FIN 46R, we accounted for this transaction similar to a purchase lease-back. The real estate, but not the operations, of 7 facilities are consolidated into our financial statements. The consolidation resulted in the following changes to our balance sheet as of March 31, 2006. (1) an increase in total gross investments of $39 million. (2) an increase in accumulated depreciation of $400,000. (3)an increase in other long-term borrowings of $39 million. And (4) a reduction of $400,000 in cumulative net earnings for the three months ended March 31, 2006 due to increased depreciation expense. General Electric Capital Corporation, the holder of the $39 million first mortgage on these properties, and Haven’s other creditors do not have recourse to our assets.

For the three month ended March 31, 2006, Omega’s total debt to EBITDA was 4.6 times and our fixed charged covered ratio was 2.4 times. When excluding the impact of the FIN 46 consolidation, Omega’s total adjusted debt to adjusted EBITDA was 4.3 times.

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

Thanks, Bob. And good morning. As of March 31, 2006, Omega had a core asset portfolio of 223 facilities distributed amongst 34 third party operators located within 27 states. Operator to coverage ratios continue to slightly improve in 2005. Trailing 12 month EBITDA coverage for the period ended 12/31/05 was 2 times versus 1.9 times for the period ended 9/30/05. Trailing 12 month EBITDA coverage was 1.5 times as of 12/31/05 versus 1.5 times as of 9/30/05.

During the three months ended March 31, 2006, Haven Eldercare, an existing operator for the company, entered into a $39 million first mortgage with GE Capital Corporation. Haven used the $39 million of proceeds to partially repay on a $62 million mortgage it has with the company. As a result of this transaction, the interest rate on the company’s remaining mortgage note to Haven rose from 10% to approximately 15% with annual escalators.

Omega continues to identify and develop new investments that are primarily in the sealed nursing sector. Omega currently has approximately $191 million in cash and credit availability to fund potential new investments. In addition, Omega has the flexibility under its new revolver to expand from $200 to $300 million upon notice and the addition of acceptable collateral.

Thank you, Dan. Before we turn to questions, I would like to comment briefly on one accounting item. As Bob and Dan mentioned, part of our Haven loan was repaid and replaced by Haven with a GE first mortgage. As a result, we now account for this loan as a purchase lease-back for all 7 Haven facilities. As Bob mentioned, the GE debt is completely non-recourse to Omega. Furthermore, the accounting has no effect on our recorded FFO or our adjusted FFO. We believe that investors should look at the debt to EBITDA ratio, excluding the $39 million in GE debt that is currently on our balance sheet, in which case the ratio drops modestly from 4.6 times to 4.3 times.

This concludes our prepared comments. We will now take questions.

[OPERATOR INSTRUCTIONS]

At this time, sir, you have no questions.

Okay, Jackie. Let’s just wait 20 more seconds. We had this experience once before where people were tied in the queue. And if we don’t get anybody in 20 seconds, we’ll end the call.

Okay. We’ll do that. [OPERATOR INSTRUCTIONS]

All right. You have a question from [Dan Bernstein]. You may proceed.

Hi guys. I figured I’d go ahead and ask one for you. I’ll make it an easy one. Do you have the ending diluted share count?

The ending diluted share count on a weighted average -- hold on one second. As of today, it’s approximately 58 million shares as of today. And at the end of the quarter, it was 57.4 million.

And I got a question on the coverage that occurred from 1/9 to 2, where’s that mainly coming from EBITDA? Like annual rents increases or is that some kind of change in mix?

It’s just the continued improvement throughout the portfolio operator cash flow. To some extent, we’re seeing that from Medicare -- improvement in Medicare census and mix. But for the most part, it’s just general improvement in the portfolio overall.

Thanks. That’s all I have.

Great. Thank you.

All right. Thank you. Have a good one.

And your next question comes from [Robin Brody]. You may proceed Robin.

Hi guys. I apologize if you mentioned this in your opening. But I hopped on a few minutes late. I was just wondering if you can talk about the competitive landscape a little bit, what you’re seeing in terms of when you’re looking at deals, how many other players there are? With interest rates rising, I don’t know if that has changed at all yet.

In terms of -- Robin, in terms of competition for transactions, we’re seeing the same competition we’ve seen over the last few years. A couple of our peers in the REIT world, some of the private players, to a lesser extent the banks where they’ll take a little bit higher loan to values today than they would in the past. The bigger issue we’re seeing now is pricing expectation from sellers, which has risen fairly dramatically. And we’ve looked at a number of deals where we’ve passed just because the pricing both on a per bed basis and on a coverage basis just wouldn’t underwrite for us. And I think that’s just part of the cycle. The property type has got stronger and there’s a sense of value there that’s come out of some of the transactions that happen with the big operators to date.

So, I guess following up on that then, did you discuss at all what’s going on in terms of the pipeline? I missed that as well.

We didn’t talk about the pipeline. And the comment I would have there is we’ve seen a lot of deals that we’ve passed on. We have deals in the pipeline. Nothing that I would say is imminent. But, we have some stuff that’s floating around. And I would call it a normal pipeline right now.

Okay. Great.

Thanks, Robin.

Thanks, guys.

[OPERATOR INSTRUCTIONS] Okay. At this time sir, you have no questions.

Thanks, Jackie.

No problem.

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

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude today’s presentation. You may now disconnect. And have a wonderful day.