Omega Healthcare Investors Inc (OHI) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Omega Healthcare Investors earnings fourth quarter 2010 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, madam.

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 restructuring, rent payments, financial condition or prospects of our operators, contemplated acquisitions 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 information are available on our website at www.Omegahealthcare.com, and in the case of FFO and adjusted FFO in our press release today. I will now turn the call over to our CEO, Taylor Pickett.

Thanks Michelle, and good morning. Adjusted FFO for the fourth quarter is $0.46 per share. We have maintained our common dividend of $0.37 which reflects a payout ratio within our historical range of 80% to 85%. Our adjusted FFO guidance for 2011 is $1.80 to $1.86 per share. This guidance assumes $150 million in acquisition during 2011. The guidance range reflects the uncertainty regarding the timing and the ability to close this level of acquisitions.

Earlier this month, we announced the redemption of our Series D Preferred Stock. Redemption of this stock further simplifies our balance sheet, improves fixed charge coverage and is modestly accretive.

We've also announced that the operations of four Connecticut facilities formerly leased by affiliates of Formation Capital and managed by Genesis have been taken over by a receiver appointed by the state of Connecticut. The transition of these facilities strengthens the cash flow of the remaining 11 facility portfolio with Formation. The ultimate disposition of the Connecticut facilities will require coordination with the Connecticut receiver, but in all scenarios will not reduce our adjusted FFO guidance.

Our balance sheet and liquidity remain in outstanding shape. With the issuance of $350 million in bonds in December, we moved our first bond maturity to 2016, with a modest maturing balance of $175 million. Bob Stevenson, our Chief Financial Officer, will now review our fourth quarter financial results.

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $28.4 million or $0.29 per share for the quarter as compared to $24.9 million or $0.29 per diluted sharein the fourth quarter of 2009. Our adjusted FFO of $45.1 million or $0.46 per share for the quarter excludes $16 million of interest refinancing experience, $455,000 of noncash restricted stock compensation expense, $64,000 of acquisition related expense, and it also excludes a $149,000 net loss associated with the runoff of expenses from our former owned and operated assets. Further information regarded 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 revenues was $71.1 million versus $44.5 million for the fourth quarter of 2009. The increase was primarily a result of $26 million of revenue associated with the CapitalSource acquisitions completed in December 2009 and June 2010, and incremental revenue associated with capital improvements made to our facilities throughout 2010. These two were partially off set by a $1 million quarterly decrease in Formations rental income based on their amended first quarter of 2010 contract.

This $71.1 million of revenue for the quarter was composed of $65.3 million of cash revenue and $5.8 million of noncash revenue.

Operating expense for the fourth quarter of 2010 when excluding nursing home expenses, provisions for impairments, restricted stock compensation expense and acquisition deal related expense increased by $14.6 million as compared to the fourth quarter of 2009. The increase was primarily the result of additional depreciation expense associated with the nearly $900 million of CapitalSource assets acquired in December 2009 and June 2010, as well as additional G&A expense primarily related to the acquisitions. We believe our 2011 G&A will be approximately $13.5 million to $14 million assuming no extraordinary transactions or unusual events.

Interest expense for the quarter, when excluding refinancing costs and noncash deferred financing costs was $20 million versus $9.4 million for the same period in 2009. The $10.6 million increase in interest expense resulted from the CapitalSource acquisitions.

During the quarter, we reported $16 million of interest refinancing expense which was made up of the following, $3 million of cash payed to GE for the early prepayment on a term loan, just under $8 million of cash paid to bondholders relating to the early redemption of notes due 2014 and the balance related to the write off of deferred financing costs associated with these two debt instruments.

Turning to the balance sheet, we completed a number of transactions during 2010 that had and will continue to have a significant impact on our balance sheet. In February 2010, we issued and sold 200 million, 7.5% senior unsecured notes through 2020. In April, we entered into a new $320 million revolving senior secured credit facility which matures in April 2014.

In two separate closings in June, we acquired a total of 103 facilities from CapitalSource, for approximately $563 million. Consideration consisted of $358 million in cash, $53 million of assumed HUD debt that bears a blended interest rate of 6.16%, $129 million of assumed HUD debt having and interest rate of 4.85%, $20 million of assumed subordinated 9% notes, and $3 million in Omega common stock. In addition, we issued CapitalSource an additional $15 million in Omega common stock and consideration for escrowed funds transferred at the closings.

In October 2010 we issued and sold $225 million, 6.75% senior unsecured notes due 2022. Proceeds from this offering were used to repay our $100 million secured term loan and pay outstanding balances under our credit facility. In November 2010 we issued and sold $350 million, 6.75% senior unsecured notes due 2022. Proceeds from this offering were used to tender and redeem our $310 million, 7% notes due 2014, and repay all remaining outstanding borrowings on our credit facility.

In addition to the equity issued in the CapitalSource closings, during 2010 under our two equity shelf programs also known as continuous equity programs or at-the-market programs, we sold 6.9 million shares of new common stock generating net cash proceeds of approximately $139 million. Under our dividend reinvestment and common stock purchase plan, we issued 3 million shares of our common stock generating net cash proceeds of approximately $61 million.

At December 31, 2010 we had approximately $2.3 billion of total assets. On the liability side of the balance sheet, we had $1.2 billion of debt and we had our entire $320 million revolving credit facility available for use.

On February 3, 2011 we announced that on March 7 we will be redeeming all of our 8.375% Series D Cumulative Redeemable Preferred Stock, currently valued at $108.5 million. As a result of the Preferred D redemption, in the first quarter of 2011 we recorded $3.4 million charge to net income available to common stockholders to writeoff issuance calls associated with the Series D Preferred Stock.

Today we have approximately $317 million in combined invested cash and credit facility availability. We also have $70 million of shares available to issue under our equity shelf program. For the three month ended December 31, 2010, our total debt to annualized EBITDA was 4.3 times and our fixed charged cover ratio was 2.9 times. I will now turn the call over to Dan Booth, our Chief Operating Officer.

Thanks Bob, and good morning everyone. As of December 31, 2010, Omega had a core asset portfolio of 399 facilities distributed among 53 party operators located within 35 states. Operator coverage ratios remained stable during the third quarter of 2010. Trailing 12-month operator EBITDARM, and EBITDAR coverage ratios for the period ended December 30, was 2.0 and 1.6 times respectively, mirroring the coverages seen in the second quarter.

Turning to acquisition financing. In December of 2010 Omega entered into an approximately $16 million first mortgage loan with a new operator. The loan is secured by three skilled nursing facilities totaling 240 beds, all located in Florida. The term on the mortgage is 20 years and bears an initial interest rate of 10% with annual escalators.

In addition to our relatively robust pipeline of investment opportunities, Omega expects to see an increase in its pace of new construction and extensive renovation projects. Omega funded nearly $10 million and $36 million during the fourth quarter and year-to-date respectively on renovation and expansion projects. As of today, Omega has nearly $65 million of outstanding commitments for capital expenditures.

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

(Operator Instructions). One moment for any questions. And we do have a question from the line of John Roberts of Hilliard Lyons.

Good morning. You mentioned $150 million in acquisitions that you are anticipating for the year, could you give the full color on that? What you expect, areas you are looking at, etcetera?

Sure. The $150 million is what we've built into our plan for guidance purposes which is the first time we've ever done that from a guidance perspective, and it reflects the fact that we see a pipeline that's, as Dan mentioned, relatively robust and consistent with pipelines we have seen in prior years where we have been able to do $150 million, $200 million in acquisition. Although I will say none of that is eminent. The typical acquisition we are looking at is regional six to 12 facilities and predominately skilled nursing facilities.

Any thoughts on cap rates at this point?

We are still seeing cap rates in the 10% range. And that is compressed from eight to 12 months ago. We are seeing some deals trade in the high 9%. My expectation is they will probably sit in that range for the next 12 months.

Great, thanks a lot.

Great.

Thank you. (Operator Instructions). Our next question comes from the line of Joe Galzerano of [Munich].

Yes, Joe Galzerano of Muzinich. I just want to follow up on John's question. You mentioned that the pipeline was robust. I wonder if that's a change you have seen and what do you think is driving that change? Do you think that the smaller regional guys are concerned about regulation changes, and so forth? Maybe if you can give us some insight into that and what you think.

Dan, do you have --

I think that the SNFs market -- when we say the pipeline has picked up relatively, it's really in our world in the SNFs market. I think there's just more going on in the SNFs market right now. I think, yes, some of the regionals have decided to do a capital transaction. It is a myriad of different reasons for it, but we are just seeing a pick up. So the amount of deals flow we are looking at compared to the previous couple of quarters has picked up noticeably.

I don't think it's reimbursement driven,necessarily. I think there were a handful of operators that were looking at tax consequences at the end of the year. Capital gains rates has held, but it's not clear that that will continue to hold. I think people are looking at making trades today under the current economic scenario that they are looking at, and net dollars, and thinking that now is probably a pretty good time that if they are going to do a transaction to do it.

Okay. Thank you.

Thank you, I see no further questions in the queue at this time.

Thanks, Karen. Thank you for joining our fourth quarter earning release call. Bob Stevenson, our CFO, will be available for any follow up questions you may have.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.