Omega Healthcare Investors Inc (OHI) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the Omega HealthCare Investors earnings third-quarter conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Michelle Reiber. 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 our 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 most recent report on 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, Michelle, and good morning.

Adjusted FFO for the third quarter is $0.37 per share. We've 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. I would expect to be at the bottom of the range based on our sale of equity during the third quarter, combined with minimal new investment activity year to date. During the third quarter, Omega sold 1.4 million shares of common stock at an average price of $17.17 per share, under our newly implemented equity shelf program.

Our leverage, measured by debt to annualized EBITDA, is at an all-time low of under three times. Nearly all of our $200 million line of credit is available for growth.

The long-term care acquisition market is beginning to show some signs of life. We have several potential deals that we are investigating on a preliminary basis. To give some perspective to potential acquisition volume, in 2009 we had minimal new investment activity, but in the prior five years, 2004 through 2008, we invested $895 million.

Turning to our portfolio, facility coverages continue to remain strong throughout the portfolio. The only major tenant that is currently struggling is Formation, a former Haven facilities. Financial results in New Hampshire, Vermont, and West Virginia were very strong within the Formation portfolio, while financial results in Connecticut and Rhode Island were weak and have not improved as quickly as originally planned.

Although the overall Formation portfolio performed reasonably well in July and August, continued improvement will be necessary to achieve 2010 budgeted results.

On the legislative front, we continue to actively monitor proposed and new legislation affecting our industry. Right now, we are not expecting new legislation to significantly impact the skilled nursing home industry.

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

Thank you, Taylor, and good morning. Our reportable FFO on a dilutive basis was $30 million, or $0.36 per share for the quarter, as compared to $23.9 million, or $0.31 per common share in the third quarter of 2008.

Our adjusted FFO of $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 of $480,000, and an $89,000 impairment charge on a real estate asset. Further information regarding the calculation of FFO and adjusted 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 $45 million versus $40.7 million for the third quarter of 2008. The $4.3 million increase was primarily a result of approximately $2.9 million of rental income associated with $60 million of acquisitions completed late in 2008, approximately $400,000 of revenue associated with lease amendments that occurred over the last 12 months, and finally, approximately $400,000 of investment income associated with outstanding notes with our third-party operators.

Operating expense for the third quarter of 2009, when excluding nursing home expenses and provisions for impairments, increased by $700,000 as compared to the third quarter of 2008. This increase was primarily the result of additional depreciation expense associated with acquisitions completed in 2008.

Interest expense for the quarter, when excluding non-cash deferred financing costs, was $9.2 million versus $9.4 million for the same period in 2008. This reduction was primarily due to lower average debt on our balance sheet, partially offset by higher borrowing rates.

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 an applicable percentage based on our consolidated leverage, and has a 2% LIBOR floor.

Turning to the balance sheet, at September 30, 2009, we had approximately $1.3 billion of total assets. On the liability side of the balance sheet, we had $494 million of debt at September 30 and we had $191 million available under our $200 million revolving credit facility, which matures in June 2012. Outside of the $9 million outstanding under our credit facility at September 30, we have no other debt maturities until 2014.

On June 12, 2009, we entered into a $100 million equity shelf program, also known as a continuous equity program. Under this program, we can sell shares of our common stock in open-market transactions. During the quarter, we issued 1.4 million shares of new common stock under this plan at an average price of $17.17 per share, generating net proceeds of approximately $24 million.

For the three months ended September 30, 2009, Omega's total debt to annualized EBITDA was 2.9 times and our fixed-charge coverage ratio was 3.5 times. With the closing of the new credit facility, our balance sheet is rock solid. We have no debt maturities until 2012 and significant cash availability with very low leverage. I will now turn the call over to Dan Booth, our Chief Operating Officer.

Thanks, Bob, and good morning. As of September 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 second quarter of 2009. Trailing 12-month operator EBITDARM coverage for the period ended June 30, 2009, was two times versus two times for the period ended March 31. Trailing 12-month operator EBITDAR coverage was 1.6 times as of June 30 versus 1.6 times as of March 31.

Turning to the investment market, as Taylor mentioned we have begun to see an increased amount of activity in the long-term care acquisition market. The number of quality investment opportunities picked up noticeably in the third quarter of 2009.

In addition to acquisition opportunities, we continued to invest dollars in our existing portfolio. Through the first three quarters of 2009, Omega has completed almost $15 million in capital expenditures and has nearly $55 million committed for new capital expenditure projects.

Thanks, Dan. We'll now open the call up for questions.

(Operator Instructions). [Duncan Izzo].

Taylor, is there -- it's no secret at this point that there is another skilled nursing REIT that's trying to come public. I guess, one, did you look at it as a potential acquisition and, two, could you offer any thoughts on how you think OHI is different, considering that the market and investors are being asked to answer that very question right now?

Sure. The answer to the first question is, no, we did not look at that portfolio. I know that they had looked at potentially coming out a year ago, and they were just waiting, I think, from a timing perspective.

I would say that portfolio is relatively similar. We have some bigger tenants that are more visible, like Sun Healthcare. But beyond that, I don't know a lot about the details of the portfolio in terms of asset quality or operators. I think all of those operators are regional players. Dan, do you have any?

Not being intimate with that portfolio or what their coverages are or the specifics about who operates them, I can't add to that, no.

Okay. And then, can you tell us -- obviously in the aggregate, the coverage ratios are holding up well. But do you know, I guess, how many either properties or portfolios, or what percentage, have rent coverage after management fees and after CapEx that may be below one time?

There's really only one portfolio which represents -- I'd have to hand-crank the amount of what percentage of revenues it represents. But it's the Formation portfolio that Taylor mentioned.

Jerry Doctrow, Stifel Nicolaus.

I just had a couple of things. Continuous equity issuance, do you expect to do more in the fourth quarter with price down? We're kind of out of the market at this point.

I wouldn't say that we are necessarily out of the market, but if you look at the price that we sold in the third quarter is averaging $17.17, that's a price point that we're comfortable with. My view is at sub-$15, that's not a price point we would be comfortable with.

Okay, happy to hear that. And just in terms of timing of acquisitions, I mean, again, it sounds like it's starting to percolate. My sense is, this is -- from a couple of things you said, my sense is it could be $200 million on an annual basis, but that's really talking 2010. We may not see that much, if anything, yet this year. Is that sort of a right takeaway?

I think to get something closed this year, even if it were to happen, isn't going to affect this year's numbers. So I think from our view, we are really looking forward, and the context I gave in terms of acquisition activity in prior periods -- $200 million a year has sort of been our pace when the market has been open and active, and we are seeing a similar type market today.

Beyond that, we've never really given guidance for acquisitions just because it is so lumpy.

When do the couple of BIEs go away so we can get -- stop worrying about those?

There -- we have those two facilities and we are just waiting on licensures to change hands and we are hoping within the next couple of quarters.

Okay, but it may not be -- it may carry into 2010.

We were told that Vermont was a one-year process, and that's proved to be completely true. And we're worried it may be 1.25 years.

Yes, we were told it was one year. And then we were told it was 1 year to 1.5 years. So. We're coming up on a year now.

Okay. All right. I won't look for it tomorrow. And then, just in terms of the reimbursement, you touched on it generally that you didn't expect anything in terms of legislation. I'm assuming really there is nothing in Medicare, either regulatory or legislative-wise, you're particularly worried about. I was wondering if you could touch, give us a little color on maybe Medicaid in the big states. I think for you that's Ohio, Florida, Pennsylvania.

Jerry, we haven't seen anything material yet come out of any of those states at this point in time. Obviously, it all is predicated upon ultimate state budgets and where they come out in their next fiscal years, and/or if they have any emergencies mid-year.

But right now, no. There are no -- Ohio has been talking off and on about some cuts that have yet to be implemented. They are not significant from where we sit. So right now, we are still holding on.

(Operator Instructions). Currently, Mr. Pickett, I'm showing no further questions in the queue.

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

Ladies and gentlemen, this does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect.