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Omega Announces First Quarter 2017 Financial Results

HUNT VALLEY, MD–Omega Healthcare Investors, Inc. (NYSE:OHI) (the “Company” or “Omega”) today announced its results of operations for the three-month period ended March 31, 2017. The Company reported for the three-month period ended March 31, 2017 net income of $109.1 million, or $0.53 per common share, Funds From Operations (“FFO”) of $181.0 million or $0.88 per common share, and Funds Available For Distribution (“FAD”) of $159.4 million.

FFO for the first quarter of 2017 includes $3.7 million of non-cash stock-based compensation expense and $2.4 million in provisions for uncollectible accounts. These costs were partially offset by a $10.4 million one-time contractual settlement. Adjusted FFO is $0.86 per common share for the three-month period ended March 31, 2017. FFO, Adjusted FFO and FAD are non-GAAP financial measures. For more information regarding FFO and Adjusted FFO, see the “Funds From Operations” schedule.

GAAP NET INCOME

For the three-month period ended March 31, 2017, the Company reported net income of $109.1 million, or $0.53 per common share, on operating revenues of $231.7 million. This compares to net income of $58.2 million, or $0.29 per common share, on operating revenues of $212.9 million, for the same period in 2016.

The increase in net income for the three-month period ended March 31, 2017 compared to the prior year was primarily due to revenue associated with new investments completed in 2016, a one-time contractual settlement in 2017 and the reduction in impairments on real estate assets and acquisition costs. This increase in net income was partially offset by $7.6 million in increased depreciation and amortization expense, $1.1 million in incremental general and administrative expenses and $1.0 million in increased stock-based compensation expense.

2017 RECENT DEVELOPMENTS AND FIRST QUARTER HIGHLIGHTS

In Q2 2017, the Company…
• redeemed $400 million of its 5.875% senior notes due 2024.
• prepaid its $200 million senior unsecured term loan.
• issued $550 million aggregate principal amount of its 4.750% Senior Notes due 2028.
• issued $150 million aggregate principal amount of its 4.500% Senior Notes due 2025.
• increased its quarterly common stock dividend rate to $0.63 per share.

In Q1 2017, the Company…
• completed $7.6 million in new investments.
• invested $30 million in capital renovation and construction-in-progress projects.
• increased its quarterly common stock dividend rate to $0.62 per share.

FIRST QUARTER 2017 RESULTS

Operating Revenues and Expenses – Operating revenues for the three-month period ended March 31, 2017 totaled $231.7 million which included $18.1 million of non-cash revenue.

Operating expenses for the three-month period ended March 31, 2017 totaled $92.5 million and were comprised of $70.0 million of depreciation and amortization expense, $8.8 million of general and administrative expense, $7.6 million of impairment on real estate properties, $3.7 million of stock-based compensation expense and $2.4 million in provision for uncollectible accounts. The $7.6 million and $2.4 million charges were primarily the result of the Company’s continued effort to exit certain non-strategic facilities.

Other Income and Expense – Other income and expense for the three-month period ended March 31, 2017 was a net expense of $37.1 million, which was primarily comprised of $45.0 million of interest expense and $2.5 million of amortized deferred financing costs. The expense was offset by a one-time $10.4 million contractual settlement with an unrelated third party related to a 2012 contingent liability obligation that was resolved in the first quarter of 2017.

Funds From Operations – For the three-month period ended March 31, 2017, FFO was $181.0 million, or $0.88 per common share on 206 million weighted-average common shares outstanding, compared to $153.6 million, or $0.77 per common share on 198 million weighted-average common shares outstanding, for the same period in 2016.

The $181.0 million of FFO for the three-month period ended March 31, 2017 includes the impact of $3.7 million of non-cash stock-based compensation expense and $2.4 million in provision for uncollectible accounts, offset by a $10.4 million non-cash contractual settlement.

The $153.6 million of FFO for the three-month period ended March 31, 2016 includes the impact of $5.1 million in provision for uncollectible accounts, $3.8 million of acquisition costs, $2.8 million of non-cash stock-based compensation expense and $0.3 million of interest refinancing costs.

Adjusted FFO was $176.7 million, or $0.86 per common share, for the three months ended March 31, 2017, compared to $165.4 million, or $0.83 per common share, for the same period in 2016. For further information see the “Funds From Operations” schedule.

FINANCING ACTIVITIES

$550 Million Senior Notes and $150 Million Senior Notes – On April 4, 2017, Omega issued (i) $550 million aggregate principal amount of its 4.750% Senior Notes due 2028 (the “2028 Notes”) and (ii) an additional $150 million aggregate principal amount of its existing 4.500% Senior Notes due 2025 (the “2025 Notes,” and together with the 2028 Notes collectively, the “Notes”). The 2028 Notes mature on January 15, 2028 and the 2025 Notes mature on January 15, 2025.

The 2028 Notes were sold at an issue price of 98.978% of their face value before the underwriters’ discount and the 2025 Notes were sold at an issue price of 99.540% of their face value before the underwriters’ discount. The net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $690.7 million. The net proceeds from the Notes offering were used to (i) redeem all of the Company’s outstanding $400 million aggregate principal amount of 5.875% Senior Notes due 2024 (the “2024 Notes”) on April 28, 2017, (ii) prepay a $200 million senior unsecured incremental term loan facility (the “Tranche A-2 Term Loan Facility”) on April 5, 2017 that otherwise would have become due on June 27, 2017, and (iii) repay outstanding borrowings under its revolving credit facility.

$400 Million Senior Notes Redemption – On April 28, 2017, the Company redeemed all of its outstanding 2024 Notes. As a result of the redemption, during the second quarter of 2017, the Company will record approximately $16.5 million in redemption related costs and write-offs, including $11.8 million for the call premium and $4.7 million in net write-offs associated with unamortized deferred financing costs.

Equity Shelf Program and Dividend Reinvestment and Common Stock Purchase Plan – During the three-month period ended March 31, 2017, the Company sold 0.5 million shares of its common stock generating $14.4 million of gross proceeds. The following table outlines shares of the Company’s common stock issued under its Equity Shelf program and its Dividend Reinvestment and Common Stock Purchase Plan in 2017:

(in thousands, except price per share)
Equity Shelf

(At-the-Market)

Program

Dividend

Reinvestment and

Common Stock

Purchase Program

Q1 2017

Number of shares      228      239
Average price per share     $  31.12     $  30.67
Gross proceeds     $  7,079     $  7,335
2017 FIRST QUARTER PORTFOLIO ACTIVITY

$38 Million of New Investments in Q1 2017 – In Q1 2017, the Company completed a new $8 million investment and $30 million in capital renovations and new construction consisting of the following:

$8 Million Acquisition – On January 31, 2017, the Company completed a purchase/leaseback of one assisted living facility (“ALF”) for $7.6 million. The 60 bed ALF, located in Virginia, was added to the existing operator’s master lease with an initial annual cash yield of 7.5% with 2.5% annual escalators.

$30 Million Capital Renovation Projects – In addition to the new investment outlined above, in Q1 2017, the Company invested approximately $30 million under its capital renovation and construction-in-progress programs.

ASSET DISPOSITIONS AND IMPAIRMENTS

During the first quarter of 2017, the Company sold 15 facilities for approximately $45.8 million in net cash proceeds recognizing a gain of approximately $7.4 million. Eleven of the sold facilities were previously classified as assets held for sale. In addition, the Company recorded approximately $7.6 million of impairments on three facilities, one of which was reclassified to assets held for sale on March 31, 2017.

As of March 31, 2017, the Company had nine facilities, totaling $23.2 million, classified as assets held for sale. The Company expects to sell these facilities over the next few quarters.

DIVIDENDS

On April 13, 2017, the Board of Directors declared a common stock dividend of $0.63 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, to be paid May 15, 2017 to common stockholders of record on May 1, 2017.

2017 ADJUSTED FFO GUIDANCE AFFIRMED

The Company affirmed its 2017 annual Adjusted FFO available to common stockholders to be between $3.40 and $3.44 per diluted share. The Company’s 2017 FAD guidance and reconciliation to projected net income can be found in the Company’s First Quarter 2017 Financial Supplement located on the Company’s website. The following table presents a reconciliation of Omega’s guidance regarding Adjusted FFO to projected GAAP earnings.

2017 Annual Adjusted FFO
Guidance Range
(per diluted common share)
Full Year
Net Income     $1.86 – $1.90
Depreciation     1.40
Gain on assets sold     (0.04)
Real estate impairment     0.04
FFO     $3.26 – $3.30
Adjustments:
Contractual settlement     (0.05)
Provision for uncollectible accounts     0.01
Transaction costs     0.00
Interest – refinancing costs     0.11
Stock-based compensation expense     0.07
Adjusted FFO     $3.40 – $3.44

Note: All per share numbers rounded to 2 decimals.

The Company’s Adjusted FFO guidance for 2017 includes approximately $100 million of planned capital renovation projects; however, it excludes the impact of additional new investments. It also excludes the impact of gains and losses from the sale of assets, revenue from divestitures, certain revenue and expense items, interest refinancing expense, capital transactions, acquisition costs, provision for uncollectible accounts, and stock-based compensation expense. The Company may, from time to time, update its publicly announced Adjusted FFO guidance, but it is not obligated to do so.

The Company’s guidance is based on a number of assumptions, which are subject to change and many of which are outside the Company’s control. If actual results vary from these assumptions, the Company’s expectations may change. Without limiting the generality of the foregoing, the timing and completion of acquisitions, divestitures, capital and financing transactions, and variations in stock-based compensation expense may cause actual results to vary materially from our current expectations. There can be no assurance that the Company will achieve its projected results.