TABLE
OF CONTENTS
|
||
Page
No.
|
||
PART
I
|
Financial
Information
|
|
Item
1.
|
Financial
Statements:
|
|
Consolidated
Balance Sheets
|
||
March
31, 2006 (unaudited) and December 31, 2005
|
2
|
|
Consolidated
Statements of Operations (unaudited)
|
||
Three
months ended March 31, 2006 and 2005
|
3
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
||
Three
months ended March 31, 2006 and 2005
|
4
|
|
Notes
to Consolidated Financial Statements
|
||
March
31, 2006 (unaudited)
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
|
and
Results of Operations
|
15
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
28
|
Item
4.
|
Controls
and Procedures
|
29
|
PART
II
|
Other
Information
|
|
Item
1.
|
Legal
Proceedings
|
30
|
Item
1A.
|
Risk
Factors
|
30
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
30
|
Item
6.
|
Exhibits
|
31
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
(Unaudited)
|
|||||||
ASSETS
|
|||||||
Real
estate properties
|
|||||||
Land
and buildings at cost
|
$
|
1,057,936
|
$
|
996,127
|
|||
Less
accumulated depreciation
|
(164,438
|
)
|
(157,255
|
)
|
|||
Real
estate properties - net
|
893,498
|
838,872
|
|||||
Mortgage
notes receivable - net
|
42,577
|
104,522
|
|||||
936,075
|
943,394
|
||||||
Other
investments - net
|
25,985
|
23,490
|
|||||
962,060
|
966,884
|
||||||
Assets
held for sale - net
|
1,863
|
1,243
|
|||||
Total
investments
|
963,923
|
968,127
|
|||||
Cash
and cash equivalents
|
403
|
3,948
|
|||||
Accounts
receivable
|
6,495
|
5,885
|
|||||
Other
assets
|
14,091
|
37,769
|
|||||
Total
assets
|
$
|
984,912
|
$
|
1,015,729
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Revolving
line of credit
|
$
|
4,500
|
$
|
58,000
|
|||
Unsecured
borrowings - net
|
484,743
|
505,429
|
|||||
Other
long-term borrowings
|
41,800
|
2,800
|
|||||
Accrued
expenses and other liabilities
|
24,262
|
19,563
|
|||||
Operating
liabilities for owned properties
|
53
|
256
|
|||||
Total
liabilities
|
555,358
|
586,048
|
|||||
Stockholders’
equity:
|
|||||||
Preferred
stock
|
118,488
|
118,488
|
|||||
Common
stock and additional paid-in-capital
|
670,418
|
663,607
|
|||||
Cumulative
net earnings
|
234,582
|
227,701
|
|||||
Cumulative
dividends paid
|
(551,726
|
)
|
(536,041
|
)
|
|||
Cumulative
dividends - redemption
|
(43,067
|
)
|
(43,067
|
)
|
|||
Unamortized
restricted stock awards
|
—
|
(1,167
|
)
|
||||
Accumulated
other comprehensive income
|
859
|
160
|
|||||
Total
stockholders’ equity
|
429,554
|
429,681
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
984,912
|
$
|
1,015,729
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Revenues
|
|||||||
Rental
income
|
$
|
28,933
|
$
|
21,748
|
|||
Mortgage
interest income
|
1,184
|
1,956
|
|||||
Other
investment income - net
|
525
|
297
|
|||||
Miscellaneous
|
109
|
3,165
|
|||||
Total
operating revenues
|
30,751
|
27,166
|
|||||
Expenses
|
|||||||
Depreciation
and amortization
|
7,518
|
5,697
|
|||||
General
and administrative
|
2,349
|
2,112
|
|||||
Total
operating expenses
|
9,867
|
7,809
|
|||||
Income
before other income and expense
|
20,884
|
19,357
|
|||||
Other
income (expense):
|
|||||||
Interest
and other investment income
|
113
|
41
|
|||||
Interest
|
(9,609
|
)
|
(6,774
|
)
|
|||
Interest
- amortization of deferred financing costs
|
(643
|
)
|
(506
|
)
|
|||
Interest
- refinancing costs
|
(3,485
|
)
|
-
|
||||
Total
other expense
|
(13,624
|
)
|
(7,239
|
)
|
|||
Income
from continuing operations
|
7,260
|
12,118
|
|||||
Loss
from discontinued operations
|
(379
|
)
|
(2,814
|
)
|
|||
Net
income
|
6,881
|
9,304
|
|||||
Preferred
stock dividends
|
(2,481
|
)
|
(3,559
|
)
|
|||
Net
income available to common
|
$
|
4,400
|
$
|
5,745
|
|||
Income
per common share:
|
|||||||
Basic:
|
|||||||
Income
from continuing operations
|
$
|
0.08
|
$
|
0.17
|
|||
Net
income
|
$
|
0.08
|
$
|
0.11
|
|||
Diluted:
|
|||||||
Income
from continuing operations
|
$
|
0.08
|
$
|
0.17
|
|||
Net
income
|
$
|
0.08
|
$
|
0.11
|
|||
Dividends
declared and paid per common share
|
$
|
0.23
|
$
|
0.20
|
|||
Weighted-average
shares outstanding, basic
|
57,412
|
50,928
|
|||||
Weighted-average
shares outstanding, diluted
|
57,474
|
51,313
|
|||||
Components
of other comprehensive income:
|
|||||||
Net
income
|
$
|
6,881
|
$
|
9,304
|
|||
Unrealized
Gain (loss) on investments and hedging contracts
|
699
|
(1,961
|
)
|
||||
Total
comprehensive income
|
$
|
7,580
|
$
|
7,343
|
Three
Months Ended
March
31,
|
|||||||
2006
|
2005
|
||||||
Operating
activities
|
|||||||
Net
income
|
$
|
6,881
|
$
|
9,304
|
|||
Adjustment
to reconcile net income to cash provided by operating
activities:
|
|||||||
Depreciation
and amortization (including amounts in discontinued
operations)
|
7,527
|
6,253
|
|||||
Provision
for impairment on real estate properties (including amounts in
discontinued operations)
|
121
|
3,700
|
|||||
Refinancing
costs
|
3,485
|
—
|
|||||
Amortization
of deferred financing costs
|
643
|
506
|
|||||
Loss
on assets sold - net
|
248
|
37
|
|||||
Restricted
stock amortization expense
|
293
|
285
|
|||||
Other
|
(10
|
)
|
(87
|
)
|
|||
Net
change in accounts receivable
|
(610
|
)
|
940
|
||||
Net
change in other assets
|
1,774
|
(2,856
|
)
|
||||
Net
change in operating assets and liabilities
|
4,519
|
4,458
|
|||||
Net
cash provided by operating activities
|
24,871
|
22,540
|
|||||
Cash
flows from investing activities
|
|||||||
Acquisition
of real estate
|
—
|
(58,053
|
)
|
||||
Proceeds
from sale of real estate investments
|
—
|
6,931
|
|||||
Capital
improvements and funding of other investments
|
(1,359
|
)
|
(1,327
|
)
|
|||
Proceeds
from other investments
|
6,801
|
764
|
|||||
Investments
in other investments
|
(8,587
|
)
|
(311
|
)
|
|||
Collection
of mortgage principal
|
196
|
60,121
|
|||||
Net
cash (used in) provided by investing activities
|
(2,949
|
)
|
8,125
|
||||
Cash
flows from financing activities
|
|||||||
Proceeds
from credit facility borrowings
|
19,200
|
47,000
|
|||||
Payments
on credit facility borrowings
|
(72,700
|
)
|
(62,000
|
)
|
|||
Receipts
from other long-term borrowings
|
39,000
|
—
|
|||||
Prepayment
of re-financing penalty
|
(755
|
)
|
—
|
||||
Receipts
from dividend reinvestment plan
|
7,588
|
124
|
|||||
Receipts/(payments)
from exercised options - net
|
225
|
(458
|
)
|
||||
Dividends
paid
|
(15,685
|
)
|
(17,372
|
)
|
|||
Payment
on common stock offering
|
(154
|
)
|
(28
|
)
|
|||
Deferred
financing costs paid
|
(2,186
|
)
|
(168
|
)
|
|||
Net
cash used in financing activities
|
(25,467
|
)
|
(32,902
|
)
|
|||
(Decrease)
increase in cash and cash equivalents
|
(3,545
|
)
|
(2,237
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
3,948
|
12,083
|
|||||
Cash
and cash equivalents at end of period
|
$
|
403
|
$
|
9,846
|
|||
Interest
paid during the period
|
$
|
1,684
|
$
|
3,996
|
Mortgage
|
Total
|
||||||||||||
Leased
|
Notes
|
Facilities
|
Healthcare
|
||||||||||
Facility
Count
|
Property
|
Receivable
|
Held
for Sale
|
Facilities
|
|||||||||
Balance
at December 31, 2005
|
192
|
32
|
3
|
227
|
|||||||||
Properties
sold/mortgages paid
|
-
|
-
|
(1
|
)
|
(1
|
)
|
|||||||
Properties
transferred to assets held for sale
|
(1
|
)
|
-
|
1
|
-
|
||||||||
Properties
transferred to purchase/leaseback
|
7
|
(7
|
)
|
-
|
-
|
||||||||
Balance
at March 31, 2006
|
198
|
25
|
3
|
226
|
|||||||||
Investment
($000’s)
|
|||||||||||||
Balance
at December 31, 2005
|
$
|
996,127
|
$
|
104,522
|
$
|
1,243
|
$
|
1,101,892
|
|||||
Properties
sold/mortgages paid
|
-
|
(39,000
|
)
|
(245
|
)
|
(39,245
|
)
|
||||||
Properties
transferred to assets held for sale
|
(865
|
)
|
-
|
865
|
-
|
||||||||
Properties
transferred to purchase/leaseback
|
61,750
|
(22,750
|
)
|
-
|
39,000
|
||||||||
Impairment
on properties
|
(121
|
)
|
-
|
-
|
(121
|
)
|
|||||||
Capital
expenditures and other
|
1,045
|
(195
|
)
|
-
|
850
|
||||||||
Balance
at March 31, 2006
|
$
|
1,057,936
|
$
|
42,577
|
$
|
1,863
|
$
|
1,102,376
|
· |
During
the three months ending March 31, 2006, Haven Eldercare, LLC (“Haven”), an
existing operator of ours, entered into a $39 million first mortgage
loan
with General Electric Capital Corporation (“GE Loan”). Haven used the $39
million of proceeds to partially repay on a $62 million mortgage
it has
with us. Simultaneously, we subordinated the payment of our remaining
$23
million of the mortgage note, due in October 2012, to that of the
GE Loan.
As a result of this transaction, the interest rate on our remaining
mortgage note to Haven rose from 10% to approximately 15%, with annual
escalators.
|
· |
In
conjunction with the above transactions and the application of FIN
46R, we
consolidated the financial statements and related real estate of
this
Haven entity into our financial statements. The consolidation resulted
in
the following changes to our consolidated balance sheet as of March
31,
2006: (1) an increase in total gross investments of $39.0 million;
(2) an
increase in accumulated depreciation of $0.4 million; (3) an increase
in
other long-term borrowings of $39.0 million; and (4) a reduction
of $0.4
million in cumulative net earnings for the three months ended March
31,
2006 due to the increased depreciation expense. General Electric
Capital
Corporation and Haven’s other creditors do not have recourse to our
assets. We have an option to purchase the mortgaged facilities for
a fixed
price in 2012. Our results of operations will reflect the effects
of the
consolidation of this entity, which will be accounted for similarly
to our
other purchase-leaseback
transactions.
|
· |
There
were no acquisitions made during the three months ended March 31,
2006.
|
· |
On
March 31, 2006, we sold a SNF in Illinois resulting in an accounting
loss
of approximately $0.2 million.
|
· |
During
the three
months ended March 31, 2006, a
$0.1 million provision for impairment charge was recorded to reduce
the
carrying value to its sales price of one facility that is currently
under
contract to be sold in the second quarter of
2006.
|
Option
Price Range
|
Number
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life (Years)
|
Number
Exercisable
|
Weighted
Average Price on Options Exercisable
|
|||||||||||
$2.96
-$3.81
|
11,918
|
$
|
3.41
|
5.76
|
11,918
|
$
|
3.41
|
|||||||||
$6.02
-$9.33
|
22,330
|
$
|
6.67
|
6.31
|
20,661
|
$
|
6.46
|
|||||||||
$20.25
-$37.20
|
18,333
|
$
|
28.23
|
2.43
|
18,333
|
$
|
28.23
|
Stock
Options
|
Number
of
Shares
|
Exercise
Price
|
Weighted-
Average
Price
|
Weighted-Average
Remaining Contractual Term
|
|||||||||
Outstanding
at December 31, 2005
|
227,440
|
$$
|
2.760-37.205
|
$
|
5.457
|
4.6
|
|||||||
Granted
during 1st
quarter 2006
|
|||||||||||||
Exercised
|
(174,191
|
)
|
2.760-9.330
|
2.979
|
—
|
||||||||
Cancelled
|
(668
|
)
|
22.452-22.452
|
22.452
|
—
|
||||||||
Outstanding
at March 31, 2006
|
52,581
|
$$
|
2.960-37.205
|
$
|
13.448
|
4.4
|
|||||||
Vested
at March 31, 2006
|
50,912
|
$$
|
2.960-37.205
|
$
|
13.583
|
4.3
|
Non-Vested
Options
|
Number
of
Shares
|
|
|
Exercise
Price
|
|
|
Weighted-
Average
Price
|
|
|
Weighted-Average
Remaining Contractual Term
|
|||
Non-vested
at December 31, 2005
|
74,985
|
$$
|
2.760-9.330
|
$
|
3.200
|
7.0
|
|||||||
Vested
during 1st
quarter 2006
|
(73,316
|
)
|
2.760-9.330
|
3.059
|
—
|
||||||||
Non-vested
at March 31, 2006
|
1,669
|
$$
|
9.330-9.330
|
$
|
9.330
|
7.8
|
Three
Months Ended
March
31,
|
|||||||
2006
|
2005
|
||||||
(in
thousands, except per share amounts)
|
|||||||
Net
income to common stockholders
|
$
|
4,400
|
$
|
5,745
|
|||
Add:
Stock-based compensation expense included in net income to common
stockholders
|
293
|
285
|
|||||
4,693
|
6,030
|
||||||
Less:
Stock-based compensation expense determined under the fair value
based
method for all awards
|
293
|
348
|
|||||
Pro
forma net income to common stockholders
|
$
|
4,400
|
$
|
5,682
|
|||
Earnings
per share:
|
|||||||
Basic,
as reported
|
$
|
0.08
|
$
|
0.11
|
|||
Basic,
pro forma
|
$
|
0.08
|
$
|
0.11
|
|||
Diluted,
as reported
|
$
|
0.08
|
$
|
0.11
|
|||
Diluted,
pro forma
|
$
|
0.08
|
$
|
0.11
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
(in
thousands)
|
|||||||
Revenues
|
|||||||
Rental
income
|
$
|
—
|
$
|
1,467
|
|||
Other
income
|
—
|
$
|
12
|
||||
Subtotal
revenues
|
—
|
1,479
|
|||||
Expenses
|
|||||||
Depreciation
and amortization
|
9
|
556
|
|||||
General
and administrative
|
1
|
—
|
|||||
Provision
for impairment
|
121
|
3,700
|
|||||
Subtotal
expenses
|
131
|
4,256
|
|||||
Income
(loss) before loss on sale of assets
|
(131
|
)
|
(2,777
|
)
|
|||
Loss
on assets sold - net
|
(248
|
)
|
(37
|
)
|
|||
Loss
from discontinued operations
|
$
|
(379
|
)
|
$
|
(2,814
|
)
|
(i) |
those
items discussed under “Risk Factors” in Item 1A to our annual report on
Form 10-K for the year ended December 31,
2005;
|
(ii) |
uncertainties
relating to the business operations of the operators of our assets,
including those relating to reimbursement by third-party payors,
regulatory matters and occupancy
levels;
|
(iii) |
the
ability of any operators in bankruptcy to reject unexpired lease
obligations, modify the terms of our mortgages and impede our ability
to
collect unpaid rent or interest during the process of a bankruptcy
proceeding and retain security deposits for the debtors’
obligations;
|
(iv) |
our
ability to sell closed assets on a timely basis and on terms that
allow us
to realize the carrying value of these
assets;
|
(v) |
our
ability to negotiate appropriate modifications to the terms of our
credit
facility;
|
(vi) |
our
ability to manage, re-lease or sell any owned and operated
facilities;
|
(vii) |
the
availability and cost of capital;
|
(viii) |
competition
in the financing of healthcare
facilities;
|
(ix) |
regulatory
and other changes in the healthcare
sector;
|
(x) |
the
effect of economic and market conditions generally and, particularly,
in
the healthcare industry;
|
(xi) |
changes
in interest rates;
|
(xii) |
the
amount and yield of any additional
investments;
|
(xiii) |
changes
in tax laws and regulations affecting real estate investment trusts;
and
|
(xiv) |
changes
in the ratings of our debt and preferred
securities.
|
· |
Rental
income was $28.9 million, an increase of $7.2 million over the same
period
in 2005. The increase was due to new leases entered into throughout
2005,
scheduled contractual increases in rents, and from consolidation
of a
VIE.
|
· |
Mortgage
interest income totaled $1.2 million, a decrease of $0.8 million
over the
same period in 2005. The decrease was primarily the result of normal
amortization and a $60 million loan payoff that occurred in the first
quarter of 2005.
|
· |
Miscellaneous
revenue was $0.1 million, a decrease of $3.1 million over the same
period
in 2005. The decrease was due to contractual revenue owed to us as
a
result of a mortgage note prepayment in the first quarter of
2005.
|
· |
Our
depreciation and amortization expense was $7.5 million, compared
to $5.7
million for the same period in 2005. The increase is due to new
investments placed throughout 2005.
|
· |
Our
general and administrative expense, when excluding restricted stock
amortization expense, was $2.1 million, compared to $1.8 million
for the
same period in 2005.
|
· |
Our
interest expense, excluding amortization of deferred costs and refinancing
related interest expenses, for the three months ended March 31, 2006
was
$9.6 million, compared to $6.8 million for the same period 2005.
The
increase of $2.8 million was primarily due to higher debt on our
balance
sheet versus the same period in
2005.
|
· |
For
the three months ended March 31, 2006, we
recorded a $0.8 million non-cash charge associated with the redemption
of
the remaining 20.7% of our $100 million aggregate principal amount
of
6.95% unsecured notes due 2007 not otherwise tendered in
2005.
|
· |
For
the three months ended March 31, 2006, we recorded a one time, non-cash
charge of approximately $2.7 million relating to the write-off of
deferred
financing costs associated with the termination of our prior credit
facility.
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
(in
thousands)
|
|||||||
Net
income available to common
|
$
|
4,400
|
$
|
5,745
|
|||
Add
back loss from real estate dispositions
|
248
|
37
|
|||||
4,648
|
5,782
|
||||||
Elimination
of non-cash items included in net income:
|
|||||||
Depreciation
and amortization
|
7,527
|
6,253
|
|||||
Funds
from operations available to common stockholders
|
$
|
12,175
|
$
|
12,035
|
· |
During
the three months ending March 31, 2006, Haven Eldercare, LLC (“Haven”), an
existing operator of ours, entered into a $39 million first mortgage
loan
with General Electric Capital Corporation (“GE Loan”). Haven used the $39
million of proceeds to partially repay on a $62 million mortgage
it has
with us. Simultaneously, we subordinated the payment of our remaining
$23
million on the mortgage note, due in October 2012, to that of the
GE Loan.
As a result of this transaction, the interest rate on our remaining
mortgage note to Haven rose from 10% to approximately 15%, with annual
escalators.
|
· |
In
conjunction with the above transactions and the application of FIN
46R, we
consolidated the financial statements and related real estate of
this
Haven entity into our financial statements. The consolidation resulted
in
the following changes to our consolidated balance sheet as of March
31,
2006: (1) an increase in total gross investments of $39.0 million;
(2) an
increase in accumulated depreciation of $0.4 million; (3) an increase
in
other long-term borrowings of $39.0 million; and (4) a reduction
of $0.4
million in cumulative net earnings for the three months ended March
31,
2006 due to the increased depreciation expense. General Electric
Capital
Corporation and Haven’s other creditors do not have recourse to our
assets. Our results of operations will reflect the effects of the
consolidation of this entity which will be accounted for similarly
to our
other purchase-leaseback
transactions.
|
· |
On
March 31, 2006, we sold a SNF in Illinois resulting in an accounting
loss
of approximately $0.2 million.
|
· |
During
the three
months ended March 31, 2006, a
$0.1 million provision for impairment charge was recorded to reduce
the
carrying value of one facility that is currently under contract to
be sold
in the second quarter of 2006, to its sales
price.
|
Payments
due by period
|
||||||||||||||||
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
||||||||||||
(In
thousands)
|
||||||||||||||||
Long-term
debt (1)
|
$
|
531,300
|
$
|
390
|
$
|
850
|
$
|
5,460
|
$
|
524,600
|
||||||
Other
long-term liabilities
|
674
|
231
|
443
|
-
|
-
|
|||||||||||
Total
|
$
|
531,974
|
$
|
621
|
$
|
1,293
|
$
|
5,460
|
$
|
524,600
|
(1) |
The
$531.3 million includes $4.5 million in borrowings under the new
$200
million revolving senior secured credit facility that matures in
March
2010, $310 million aggregate principal amount of 7.0% Senior Notes
due
2014 and $175 million aggregate principal amount of 7% Senior Notes
due
2016. It also includes Haven’s $39 million first mortgage with General
Electric Capital Corporation that expires in
2012.
|
Period
|
Total
Number of Shares Purchased(1)
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that May be Purchased
Under
these Plans or Programs
|
|||
January
1, 2006 to January 31, 2006
|
1,966
|
$
|
12.59
|
-
|
$
|
-
|
|||||||
February
1, 2006 to February 28, 2006
|
-
|
-
|
-
|
-
|
|||||||||
March
1, 2006 to March 31, 2006
|
-
|
-
|
-
|
-
|
|||||||||
Total
|
1,966
|
$
|
12.59
|
-
|
$
|
-
|
Exhibit
No.
|
Description
|
|
10.1
|
Credit
Agreement, dated as of March 31, 2006, among OHI Asset, LLC, OHI
Asset
(ID), LLC, OHI Asset (LA), LLC, OHI Asset (TX), LLC, OHI Asset (CA),
LLC,
Delta Investors I, LLC, Delta Investors II, LLC, Texas Lessor- Stonegate,
LP, the lenders named therein, and Bank of America, N.A. (Incorporated
by
reference to the Current Report on Form 8-K filed on April 5,
2006).
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive
Officer.
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of the Chief Financial
Officer.
|
|
32.1
|
Section
1350 Certification of the Chief Executive Officer.
|
|
32.2
|
Section
1350 Certification of the Chief Financial Officer.
|