Omega Healthcare Investors Inc (OHI) 2009 Q2 法說會逐字稿

Good day and welcome to the Omega Healthcare second-quarter earnings investors conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Michele Reber. Please go ahead, ma'am.

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 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, 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 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 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.

Thanks, Michele, and good morning.

Adjusted FFO for the second quarter is $0.37 per share. We have maintained the common dividend at $0.30 per share, which is an 81% payout ratio and is within our historic range of 80% to 85%.

Our 2009 adjusted FFO guidance remains $1.47 to $1.50 per share.

On June 30, 2009 we entered into a new $200 million revolving senior secured credit facility. The new credit facility is priced at LIBOR plus 400 basis points with a 2% floor. With the closing of the new credit facility, our balance sheet is rock solid. We have no debt maturities for three years, significant cash availability and very low leverage. As I mentioned in our call during the first quarter, we will patiently deploy capital with a particular focus on our current operators.

On the legislative front, Omega, along with the rest of the skilled nursing home industry, continues to monitor potential Medicare and Medicaid changes. At this time it is too early and speculative to comment on what will actually occur.

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

Thank you, Taylor, and good morning. Our reportable FFO on a dilutive basis was $28.6 million, or $0.35 per share for the quarter, as compared to $24.4 million, or $0.33 per diluted share, in the second quarter of 2008.

As Taylor described, our adjusted FFO is $30.7 million, or $0.37 per share for the quarter, which excludes a net loss associated with our owned and operated assets; non-cash restricted stock compensation expense, up $479,000; and $526,000 related to the write-off of deferred financing costs associated with replacing our old credit facility. 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, was $44.8 million, versus $43.7 million for the second quarter of 2008. The $1.1 million increase was primarily a result of approximately $1.4 million of rental income associated with $60 million of acquisitions completed since June of 2008; approximately $300,000 of mortgage interest income associated with $70 million of new mortgage financings placed during the second quarter of 2008; and $700,000 of revenue associated with lease amendments that occurred over the last 12 months.

These three items were partially offset by $700,000 of reduced miscellaneous income related to the collection of old receivables and fees booked related to Haven Healthcare's bankruptcy, which were recorded during the second quarter of 2008, and $0.5 million of reduced rental income from assets that we sold in the third quarter of 2008.

Operating expense for the second quarter of 2009, when excluding nursing home expenses and provisions for impairments, increased by $1.4 million as compared to the second quarter of 2008. The increase was primarily the result of additional depreciation expense associated with acquisitions completed in 2008.

Interest expense for the quarter, when excluding noncash deferred financing cost and a nonrecurring write-off of $526,000 associated with replacing our old credit facility, was $8.7 million, versus $9.7 million for the same period in 2008. This reduction was primarily due to lower average debt on our balance sheet combined with lower borrowing rates.

As Taylor mentioned, our new $200 million revolving credit facility was effective June 30, 2009 and is priced at LIBOR plus an applicable percentage based on our consolidated leverage and has a 2% LIBOR floor. In addition to the increase in pricing on future outstanding borrowings, our noncash deferred interest expense will increase by approximately $200,000 per quarter on a go-forward basis as a result of the new credit facility.

Turning to the balance sheet, at June 30, 2009, we had approximately $1.3 billion of total assets. On the liability side of the balance sheet, we had $531 million of debt at June 30, 2009, and had $154 million available on the new $200 million revolving credit facility, which matures in 2012. Our new credit facility is made up of a syndication of financial institutions which include Bank of America, Deutsche Bank, UBS and GE Capital. Outside of the $46 million outstanding on the credit facility at June 30, we have no other debt maturities until 2014. As of today, we have cash and credit facility availability of approximately $169 million.

For the three months ended June 30, 2009, Omega's total debt to EBITDA was 3.3 times and our fixed-charge coverage ratio was 3.4 times. However, when you exclude owned and operated nursing home revenues and expenses, Omega's total debt to EBITDA would be approximately 3.1 times, and our fixed-charge coverage ratio would be approximately 3.5 times.

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

Thanks, Bob, and good morning. As of June 30, 2009, Omega had a core asset portfolio of 254 facilities distributed among 25 third-party operators located within 28 states. Operator coverage ratios remained strong during the first quarter of 2009.

Trailing 12-month operator EBITDARM coverage for the period ended March 31, 2009 was 2 times, versus 2 times for the period ended December 31, 2008. Trailing-12-month operator EBITDAR coverage was 1.6 times as of March 31, versus 1.6 times as of December 31.

As to the current acquisition environment, we have seen very little activity in the long-term care sector over the last several quarters. Instead, our focus has been to invest in our existing portfolio, namely in the form of capital expenditures. Through the first two quarters of 2009, Omega has completed almost $8 million in capital expenditures and has nearly $60 million committed for new capital projects.

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

(Operator instructions) Jerry Doctrow, Stifel Nicolaus.

Good morning. A couple of things, I guess starting with maybe the last thing that Dan raised. And this may be in the supplement, I just haven't gotten to it yet. So on your CapEx expenditures were there any in the quarter and do you have a sense about how the timing on the $60 million and maybe the yield on that stuff will play out?

Jerry, it was about a little over, it was $4 million for the quarter,. So it was about $4 million in the first quarter, $4 million in the second, and we expect the $60 million to go in the course of the next two years, approximately.

Okay. And in terms of just yield on that, what about should we assume?

It's right around 10%.

Okay. Okay, thanks. At some point you were talking about doing, trying the Lean program. Now I've been hearing mixed reviews about it from other -- is that something that's still on the agenda or any progress there?

You know, I would say that with the redo of our credit facility it's not as important as it once was. But it's not something that we've completely stopped looking at. There are still a couple of portfolios which might fit into the Lean program and so we are still looking at that.

Okay. And just, can you remind me what's going on with the operating assets? Is that stuff that came out of Haven and is that going to go away at some point or can we just sort of live with it about where it is?

We have two assets left in our owned and operated portfolio that are in Vermont, and it's really a licensing process question. We have been told that it could take up to a year to move the license in Vermont and that appears to be the case. So you know, I think what you'll see, though, is that with the transition of all the properties to Formation/Genesis, that our current loss that is going to go down very substantially and we think those assets will break even or make a little bit of money at some point in the next couple quarters

Okay. And then maybe next year or something they finally disappear?

Well, hopefully the licensing process is completed and the assets will move into the master release with Formation/Genesis.

Okay. And when did you start that process? I'm just --

It's been six months at least. Yes, we started --

Okay. So another six months from now it might move?

That's correct, Jerry

Okay. And I think just last time you had given us, in addition to kind of the overall overages, a sense of kind of the stratification, you know, and so many were below 1.2, that sort of thing. What I'm really trying to get at is are there any sort of problem children in the portfolio that if we get some stress out of reimbursement or whatever that we might see -- or states not paying in cash, which we've seen, anybody that's kind of at risk. So you can give us a little color on that?

Yes, you know, it's really limited. Formation is in the -- is still ramping up -- the turnaround, those assets, but if we carve that out -- Dan, you've got --

Yes, Jerry, last time we sort of reported on the stratification we had $15 million of revenues which were coming from portfolios with overages of less than 1.2 times and that number today is closer to $14 million and 12 of it's Haven. So you're just really talking about a couple of one-off facilities that are in the -- below the 1.2 times coverage.

Okay. Okay, fair enough. Thanks, that's all for me.

(Operator instructions.) I show that there are no further questions at this time. I'll now turn the call back over to Taylor Pickett for any additional comments or a closing statement.

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

That concludes today's conference and we thank you for participating.