We have audited OHI Healthcare Properties
Limited Partnership’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, OHI Healthcare Properties Limited Partnership (the Partnership) maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of OHI Healthcare
Properties Limited Partnership as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive
income, changes in owners’ equity, and cash flows for each of the two years in the period ended December 31, 2017 and for
the period from April 1, 2015 (Aviv merger date) through December 31, 2015, and the related notes and financial statement schedules
listed in the Index at Item 15 (a) (2) and our report dated February 23, 2018 expressed an unqualified opinion thereon.
The Partnership’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND
BASIS OF PRESENTATION
Organization
Omega Healthcare Investors,
Inc. (“Omega”) was formed as a real estate investment trust (“REIT”) and incorporated in the State of
Maryland on March 31, 1992. All of Omega's assets are owned directly or indirectly, and all of Omega's operations are conducted
directly or indirectly, through its subsidiary, OHI Healthcare Properties Limited Partnership (“Omega OP”). Omega
OP was formed as a limited partnership and organized in the State of Delaware on October 24, 2014. No substantive assets were
owned or activity occurred in Omega OP until the merger with Aviv REIT, Inc. on April 1, 2015. Unless stated otherwise or the
context otherwise requires, the terms the “Company,” “we,” “our” and “us” means
Omega and Omega OP, collectively.
The Company has one
reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”)
and the United Kingdom (“U.K.”). Our core business is to provide financing and capital to the long-term healthcare
industry with a particular focus on skilled nursing facilities (“SNFs”), and, to a lesser extent, assisted living
facilities (“ALFs”), independent living facilities and rehabilitation and acute care facilities. Our core portfolio
consists of long-term leases and mortgage agreements. All of our leases are “triple-net” leases, which require the
tenants to pay all property-related expenses. Our mortgage revenue derives from fixed rate mortgage loans, which are secured by
first mortgage liens on the underlying real estate and personal property of the mortgagor.
In April 2015, Aviv
REIT, Inc., a Maryland corporation (“Aviv”), merged (the “Aviv Merger”) with and into a wholly owned subsidiary
of Omega, pursuant to the terms of that certain Agreement and Plan of Merger, dated as of October 30, 2014 (the “Merger
Agreement”), by and among Omega, Aviv, OHI Healthcare Properties Holdco, Inc., a Delaware corporation (“OHI Holdco”),
Omega OP, and Aviv Healthcare Properties Limited Partnership, a Delaware limited partnership.
Prior to April 1,
2015 and in accordance with the Merger Agreement, Omega restructured the manner in which it holds its assets by converting to
an umbrella partnership real estate investment trust structure (the “UPREIT Conversion”). As a result of the UPREIT
Conversion and following the consummation of the Aviv Merger, all of Omega’s assets are held by Omega OP, through its equity
interests in its subsidiaries.
Omega OP is governed
by the Second Amended and Restated Agreement of Limited Partnership of OHI Healthcare Properties Limited Partnership, dated as
of April 1, 2015 (the “Partnership Agreement”). On September 26, 2017, OHI Holdco, a wholly owned subsidiary of Omega
and a co-general partner of Omega OP, was merged with and into Omega, resulting in Omega becoming the sole general partner of Omega
OP. Omega has exclusive control over Omega OP’s day-to-day management pursuant to the Partnership Agreement. As of December
31, 2017, Omega owned approximately 96% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP
Units”), and investors owned approximately 4% of the outstanding Omega OP Units. Each Omega OP Unit (other than those owned
by Omega) is redeemable at the election of the holder for cash equal to the then-fair market value of one share of common stock
of Omega, subject to Omega’s election to exchange the Omega OP Units tendered for redemption for common stock of Omega on
a one-for-one basis in an unregistered transaction, subject to adjustment as set forth in the Partnership Agreement.
Consolidation
Our consolidated
financial statements include the accounts of (i) Omega, (ii) Omega OP, and (iii) all direct and indirect wholly owned subsidiaries
of Omega OP. All intercompany transactions and balances have been eliminated in consolidation, and our net earnings are reduced
by the portion of net earnings attributable to noncontrolling interests.
Omega OP’s
consolidated financial statements include the accounts of (i) Omega OP, and (ii) all direct and indirect wholly owned subsidiaries
of Omega OP. All intercompany transactions and balances have been eliminated in consolidation.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Accounting Estimates
The preparation of
financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value Measurement
The Company measures
and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques
based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable
inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.
This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
|
·
|
Level
1 - quoted prices for identical instruments in active markets;
|
|
·
|
Level
2 - quoted prices for similar instruments in active markets; quoted prices for identical
or similar instruments in markets that are not active; and model-derived valuations in
which significant inputs and significant value drivers are observable in active markets;
and
|
|
·
|
Level
3 - fair value measurements derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
|
The Company measures
fair value using a set of standardized procedures that are outlined herein for all assets and liabilities which are required to
be measured at fair value. When available, the Company utilizes quoted market prices from an independent third party source to
determine fair value and classifies such items in Level 1. In some instances where a market price is available, but the instrument
is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and
classifies such items in Level 2.
If quoted market prices
or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently
sourced market inputs, such as interest rates, option volatilities, credit spreads and/or market capitalization rates. Items valued
using such internally-generated valuation techniques are classified according to the lowest level input that is significant to
the fair value measurement. As a result, these items could be classified in either Level 2 or Level 3 even though there may be
some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted
cash flow and Monte Carlo valuation models.
Risks and Uncertainties
The Company is subject
to certain risks and uncertainties affecting the healthcare industry as a result of healthcare legislation and growing regulation
by federal, state and local governments. Additionally, we are subject to risks and uncertainties as a result of changes affecting
operators of nursing home facilities due to the actions of governmental agencies and insurers to limit the rising cost of healthcare
services.
Business Combinations
We record the purchase
of properties to net tangible and identified intangible assets acquired and liabilities assumed at fair value. Transaction costs
are expensed as incurred as part of a business combination. In making estimates of fair value for purposes of recording the purchase,
we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing
of the respective property and other market data. We also consider information obtained about each property as a result of our
pre-acquisition due diligence, marketing and leasing activities as well as other critical valuation metrics such as current capitalization
rates and discount rates used to estimate the fair value of the tangible and intangible assets acquired (Level 3). When liabilities
are assumed as part of a transaction, we consider information obtained about the liabilities and use similar valuation metrics
(Level 3). In some instances when debt is assumed and an identifiable active market for similar debt is present, we use market
interest rates for similar debt to estimate the fair value of the debt assumed (Level 2). The Company determines fair value as
follows:
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
|
·
|
Land
is determined based on third party appraisals which typically include market comparables.
|
|
·
|
Buildings
and site improvements acquired are valued using a combination of discounted cash flow
projections that assume certain future revenues and costs and consider capitalization
and discount rates using current market conditions as well as replacement cost analysis.
|
|
·
|
Furniture
and fixtures are determined based on third party appraisals which typically utilize a
replacement cost approach.
|
|
·
|
Intangible
assets and liabilities acquired are valued using a combination of discounted cash flow
projections as well as other valuation techniques based on current market conditions
for the intangible asset or liability being acquired. When evaluating below market leases
we consider extension options controlled by the lessee in our evaluation. For additional
information regarding above and below market leases assumed as part of an acquisition
see “In-Place Leases" below.
|
|
·
|
Other
assets acquired and liabilities assumed are typically valued at stated amounts, which
approximate fair value on the date of the acquisition.
|
|
·
|
Assumed
debt balances are valued by discounting the remaining contractual cash flows using a
current market rate of interest.
|
|
·
|
Stock
based compensation and noncontrolling interests are valued using a stock price on the
acquisition date.
|
|
·
|
Goodwill
represents the purchase price in excess of the fair value of assets acquired and liabilities
assumed and the cost associated with expanding our investment portfolio. Goodwill is
not amortized.
|
Asset Acquisitions
On October 1, 2016,
we early adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2017-01,
Business Combinations-Clarifying the Definition of a Business
(“ASU 2017-01”), which clarifies the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted
for as business acquisitions. As a result of adopting ASU 2017-01, real estate acquisitions completed after October 1, 2016 did
not meet the definition of a business combination and were deemed to be asset acquisitions. Real estate asset acquisitions completed
prior to October 1, 2016 were typically deemed to be business combinations and the related acquisition costs were expensed as
incurred. For asset acquisitions, assets acquired and liabilities assumed are recognized by allocating the cost of the acquisition
to the individual assets acquired and liabilities assumed on a relative fair value basis and the costs of the acquisition are
capitalized. The fair value of the assets acquired and liabilities assumed in an asset acquisition are determined in a consistent
manner with the immediately preceding “Business Combinations” section.
Real Estate Investments and Depreciation
The costs of significant
improvements, renovations and replacements, including interest are capitalized. In addition, we capitalize leasehold improvements
when certain criteria are met, including when we supervise construction and will own the improvement. Expenditures for maintenance
and repairs are charged to operations as they are incurred.
Depreciation is computed
on a straight-line basis over the estimated useful lives ranging from 20 to 40 years for buildings, eight to 15 years for site
improvements, and three to ten years for furniture, fixtures and equipment. Leasehold interests are amortized over the shorter
of the estimated useful life or term of the lease.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Lease Accounting
At the inception of
the lease and during the amendment process, we evaluate each lease to determine if the lease should be considered an operating
lease, sales-type lease, or direct financing lease. As of December 31, 2017, we have determined that all but five of our leases
should be accounted for as operating leases. The other five leases are accounted for as direct financing leases.
For leases accounted
for as operating leases, we retain ownership of the asset and record depreciation expense, see “Business Combinations”
and “Real Estate Investments and Depreciation” above for additional information regarding our investment in real estate
leased under operating lease agreements. We also record lease revenue based on the contractual terms of the operating lease agreement
which often includes annual rent escalators, see “Revenue Recognition” below for further discussion regarding the
recordation of revenue on our operating leases.
For leases accounted
for as direct financing leases, we record the present value of the future minimum lease payments (utilizing a constant interest
rate over the term of the lease agreement) as a receivable and record interest income based on the contractual terms of the lease
agreement. Certain direct financing leases include annual rent escalators; see “Revenue Recognition” below for further
discussion regarding the recording of interest income on our direct financing leases. As of December 31, 2017, we fully reserved
$2.9 million of unamortized direct costs related to originating our direct financing leases. As of December 31, 2016, we have
$3.3 million of unamortized direct costs related to originating our direct financing leases recorded on our Consolidated Balance
Sheet.
In-Place Leases
In-place lease assets
and liabilities result when we assume a lease as part of a facility purchase or business combination. The fair value of in-place
leases consists of the following components, as applicable (1) the estimated cost to replace the leases, and (2) the above or
below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place at the time of acquisition
to projected cash flows of comparable market-rate leases (referred to as Lease Intangibles). Lease intangible assets and liabilities
are classified as lease contracts above and below market value, respectively, in other assets and accrued expenses and other liabilities
on our Consolidated Balance Sheets, and amortized on a straight-line basis as decreases and increases, respectively, to rental
income over the estimated remaining term of the underlying leases. Should a tenant terminate the lease, the unamortized portion
of the lease intangible is recognized immediately as income or expense.
Real Estate Investment Impairment
Management evaluates
our real estate investments for impairment indicators at each reporting period, including the evaluation of our assets’
useful lives. The judgment regarding the existence of impairment indicators is based on factors such as, but not limited to, market
conditions, operator performance including the current payment status of contractual obligations and expectations of the ability
to meet future contractual obligations, legal structure, as well as our intent with respect to holding or disposing of the asset.
If indicators of impairment are present, management evaluates the carrying value of the related real estate investments in relation
to management’s estimate of future undiscounted cash flows of the underlying facilities. The estimated future undiscounted
cash flows are generally based on the related lease which relates to one or more properties and may include cash flows from the
eventual disposition of the asset. In some instances, there may be various potential outcomes for a real estate investment and
its potential future cash flows. In these instances, the undiscounted future cash flows used to assess the recoverability are
probability-weighted based on management’s best estimates as of the date of evaluation. Provisions for impairment losses
related to long-lived assets are recognized when expected future undiscounted cash flows based on our intended use of the property
are determined to be less than the carrying values of the assets. An adjustment is made to the net carrying value of the real
estate investments for the excess of carrying value over fair value. The fair value of the real estate investment is determined
based on current market conditions and consider matters such as rental rates and occupancies for comparable properties, recent
sales data for comparable properties, and, where applicable, contracts or the results of negotiations with purchasers or prospective
purchasers. Additionally, our evaluation of fair value may consider valuing the property as a nursing home as well as alternative
uses. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new value
assigned to the asset. Management’s impairment evaluation process, and when applicable, impairment calculations involve
estimation of the future cash flows from management’s intended use of the property as well as the fair value of the property.
Changes in the facts and circumstances that drive management’s assumptions may result in an impairment of the Company’s
assets in a future period that could be material to the Company’s results of operations.
For the years ended
December 31, 2017, 2016 and 2015, we recognized impairment losses on real estate investments of $99.1 million, $58.7 million and
$17.7 million, respectively.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Allowance for Losses on Mortgages, Other Investments
and Direct Financing Leases
The allowances for
losses on mortgage notes receivable, other investments and direct financing leases (collectively, our “loans”) are
maintained at a level believed adequate to absorb potential losses. The determination of the allowances is based on a quarterly
evaluation of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the
collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, financial
strength of the borrower and guarantors and the value of the underlying collateral. If such factors indicate that there is greater
risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based
on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to
the contractual terms of the loan agreements. Consistent with this definition, all loans on non-accrual status may be deemed impaired.
To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status.
When management identifies potential loan impairment indicators, the loan is written down to the present value of the expected
future cash flows. In cases where expected future cash flows are not readily determinable, the loan is written down to the fair
value of the underlying collateral. We may base our valuation on a loan’s observable market price, if any, or the fair value
of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the sale of the collateral.
We account for impaired
loans and direct financing leases using (a) the cost-recovery method, and/or (b) the cash basis method. We generally utilize the
cost-recovery method for impaired loans or direct financing leases for which impairment reserves were recorded. We utilize the
cash basis method for impaired loans or direct financing leases for which no impairment reserves were recorded because the net
present value of the discounted cash flows expected under the loan or direct financing lease and/or the underlying collateral
supporting the loan or direct financing lease were equal to or exceeded the book value of the loans or direct financing leases.
Under the cost-recovery method, we apply cash received against the outstanding loan balance or direct financing lease prior to
recording interest income. Under the cash basis method, we apply cash received to principal or interest income based on the terms
of the agreement. As of December 31, 2017 and 2016, we had $177.5 million and $8.7 million, respectively, of reserves on our loans.
Investment in Unconsolidated Joint
Venture
We account for our
investment in an unconsolidated joint venture using the equity method of accounting as we exercise significant influence, but
do not control the entity.
Under the equity method
of accounting, the net equity investment of the Company is reflected in the accompanying Consolidated Balance Sheets and the Company's
share of net income and comprehensive income from the joint venture is included in the accompanying Consolidated Statements of
Operations and Consolidated Statements of Comprehensive Income, respectively.
On a periodic basis,
management assesses whether there are any indicators that the value of the Company's investment in the unconsolidated joint venture
may be other-than-temporarily-impaired. An investment is impaired only if management's estimate of the value of the investment
is less than the carrying value of the investment, and such a decline in value is deemed to be other than-temporary. To the extent
impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value
of the investment. The estimated fair value of the investment is determined using a discounted cash flow model which is a Level
3 valuation. We consider a number of assumptions that are subject to economic and market uncertainties including, among others,
rental rates, operating costs, capitalization rates, holding periods and discount rates.
No impairment loss
on our investment in unconsolidated joint venture was recognized during the years ended December 31, 2017 or 2016.
Assets Held for Sale
We consider properties
to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan
will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4)
actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we expect
the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable
given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property's
value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Cash and Cash Equivalents
Cash and cash equivalents
consist of cash on hand and highly liquid investments with a maturity date of three months or less when purchased. These investments
are stated at cost, which approximates fair value. The majority of our cash and cash equivalents are held at major commercial
banks.
Restricted Cash
Restricted cash consists
primarily of liquidity deposits escrowed for tenant obligations required by us pursuant to certain contractual terms and other
deposits required by the U.S. Department of Housing and Urban Development (“HUD”) in connection with our HUD borrowings.
Accounts Receivable
Accounts receivable
includes: contractual receivables, effective yield interest receivables, straight-line rent receivables and lease inducements,
net of an estimated provision for losses related to uncollectible and disputed accounts. Contractual receivables relate to the
amounts currently owed to us under the terms of our lease and loan agreements. Effective yield interest receivables relate to
the difference between the interest income recognized on an effective yield basis over the term of the loan agreement and the
interest currently due to us according to the contractual agreement. Straight-line rent receivables relate to the difference between
the rental revenue recognized on a straight-line basis and the amounts currently due to us according to the contractual agreement.
Lease inducements result from value provided by us to the lessee, at the inception or renewal of the lease, and are amortized
as a reduction of rental revenue over the non-cancellable lease term.
On a quarterly basis,
we review our accounts receivable to determine their collectability. The determination of collectability of these assets requires
significant judgment and is affected by several factors relating to the credit quality of our operators that we regularly monitor,
including (i) payment history, (ii) the age of the contractual receivables, (iii) the current economic conditions and reimbursement
environment, (iv) the ability of the tenant to perform under the terms of their lease and/or contractual loan agreements and (v)
the value of the underlying collateral of the agreement. If we determine collectability of any of our contractual receivables
is at risk, we estimate the potential uncollectible amounts and provide an allowance. In the case of a lease recognized on a straight-line
basis, a loan recognized on an effective yield basis or the existence of lease inducements, we generally provide an allowance
for straight-line, effective interest, and or lease inducement accounts receivable when certain conditions or indicators of adverse
collectability are present. If the accounts receivable balance is subsequently deemed uncollectible, the receivable and allowance
for doubtful account balance are written off.
At December 31, 2017,
three of our operators were approximately 90 days or more past due on rent/interest payments to the Company. Two of these operators
are considered top ten operators as determined based on total revenue for the year ended December 31, 2017. Of these three operators,
rent/interest from two of these operators is being recognized on a cash basis as of December 31, 2017.
A summary of our net
receivables by type is as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Contractual receivables
|
|
$
|
43,258
|
|
|
$
|
13,376
|
|
Effective yield interest receivables
|
|
|
11,673
|
|
|
|
9,749
|
|
Straight-line rent receivables – net
|
|
|
216,054
|
|
|
|
208,874
|
|
Lease inducements
|
|
|
16,812
|
|
|
|
8,393
|
|
Allowance
|
|
|
(8,463
|
)
|
|
|
(357
|
)
|
Accounts receivable –
net
|
|
$
|
279,334
|
|
|
$
|
240,035
|
|
In 2017, we recorded
a provision for uncollectible accounts of approximately $9.3 million related to contractual and straight-line rent receivables
for one of our top ten operators and approximately $4.1 million of provision for uncollectible accounts, net of recoveries related
to contractual and straight-line receivables of other operators and/or facilities that we intend to exist or transition.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
In 2016, we wrote-off
approximately $4.3 million of straight-line rent receivable. The write-off primarily related to the transition of facilities from
a former operator to a current operator.
In 2015, we wrote-off
$3.2 million of straight-line rent receivables and $1.5 million of effective yield interest receivables associated with four facilities
that were transitioned to a new operator and three mortgages that were repaid prior to their maturity. This transaction closed
in 2016.
Goodwill Impairment
We assess goodwill
for potential impairment during the fourth quarter of each fiscal year, or during the year if an event or other circumstance indicates
that we may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment
on an interim basis, we assess qualitative factors
such as a
significant
decline in real estate valuations,
current macroeconomic conditions,
state of the equity and capital markets and our overall financial and operating performance
or a significant decline in
the value of our market capitalization, to determine whether it is more likely than not (that is, a likelihood of more than 50
percent) that the fair value of the reporting unit is less than its carrying amount. On an annual basis during the fourth
quarter of each fiscal year, or on an interim basis if we conclude it is more likely than not that the fair value of the reporting
unit is less than its carrying value, we perform a two-step goodwill impairment test to identify potential impairment and measure
the amount of impairment we will recognize, if any. The goodwill is not deductible for tax purposes.
In the first step
of the two-step goodwill impairment test (“Step 1”), we compare
the
fair value of the reporting unit to its net book value, including goodwill. As the Company has only one reporting unit, the fair
value of the reporting unit is determined by reference to the market capitalization of the Company as determined through quoted
market prices and adjusted for other relevant factors. A potential impairment exists if the fair value of the reporting unit is
lower than its net book value. The second step (“Step 2”) of the process is only performed if a potential impairment
exists, and it involves determining the difference between the fair value of the reporting unit's net assets other than goodwill
and the fair value of the reporting unit. If the difference is less than the net book value of goodwill, impairment exists and
is recorded. The Company has not been required to perform Step 2 of the process because the fair value of the reporting unit has
significantly exceeded its book value at the measurement date. There was no impairment of goodwill during 2017, 2016, or 2015.
Income Taxes
Omega and its wholly
owned subsidiaries were organized to qualify for taxation as a REIT under Section 856 through 860 of the Internal Revenue Code
(“Code”). As long as we qualify as a REIT; we will not be subject to federal income taxes on the REIT taxable income
that we distributed to stockholders, subject to certain exceptions. However, with respect to certain of our subsidiaries that
have elected to be treated as taxable REIT subsidiaries (“TRSs”), we record income tax expense or benefit, as those
entities are subject to federal income tax similar to regular corporations. Omega OP is a pass through entity for United States
federal income tax purposes.
We account for deferred
income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred
tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred
tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax
consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact
of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that
all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results
from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax
asset, is included in the tax provision when such changes occur.
Revenue Recognition
We have various different
investments that generate revenue, including leased and mortgaged properties, as well as other investments, including working
capital loans. We recognize rental income and other investment income as earned over the terms of the related leases and notes,
respectively. Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected using
the effective interest method. In applying the effective interest method, the effective yield on a loan is determined based on
its contractual payment terms, adjusted for prepayment terms.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Substantially all
of our operating leases contain provisions for specified annual increases over the rents of the prior year and are generally computed
in one of three methods depending on specific provisions of each lease as follows: (i) a specific annual increase over the prior
year’s rent, generally between 2.0% and 3.0%; (ii) an increase based on the change in pre-determined formulas from year
to year (e.g. increases in the Consumer Price Index); or (iii) specific dollar increases over prior years. Revenue under lease
arrangements with minimum fixed and determinable increases is recognized over the non-cancellable term of the lease on a straight-line
basis. The authoritative guidance does not provide for the recognition of contingent revenue until all possible contingencies
have been eliminated. We consider the operating history of the lessee, the payment history, the general condition of the industry
and various other factors when evaluating whether all possible contingencies have been eliminated.
In the case of rental
revenue recognized on a straight-line basis, we generally record reserves against earned revenues from leases when collection
becomes questionable or when negotiations for restructurings of troubled operators result in significant uncertainty regarding
ultimate collection. The amount of the reserve is estimated based on what management believes will likely be collected. We continually
evaluate the collectability of our straight-line rent assets. If it appears that we will not collect future rent due under our
leases, we will record a provision for loss related to the straight-line rent asset.
We record direct financing
lease income on a constant interest rate basis over the term of the lease. The costs related to originating the direct financing
leases have been deferred and are being amortized on a straight-line basis as a reduction to income from direct financing leases
over the term of the direct financing leases. Allowances are provided against earned revenues from direct financing leases when
collection of amounts due becomes questionable or when negotiations for restructurings of troubled operators lead to lower expectations
regarding ultimate collection.
Mortgage interest
income and other investment income is recognized as earned over the terms of the related mortgage notes or other investment, typically
using the effective yield method. Allowances are provided against earned revenues from mortgage interest or other investments
when collection of amounts due becomes questionable or when negotiations for restructurings of troubled operators lead to lower
expectations regarding ultimate collection.
Gains and losses on
sales of real estate assets are recognized in accordance with the authoritative guidance for sales of real estate. The specific
timing of the recognition of the sale and the related gain is measured against the various criteria in the guidance related to
the terms of the transactions and any continuing involvement associated with the assets sold. To the extent the sales criteria
are not met, we defer gain recognition until the sales criteria are met.
Stock-Based Compensation
We recognize stock-based
compensation expense adjusted for estimated forfeitures to employees and directors, in general and administrative in our Consolidated
Statements of Operations on a straight-line basis over the requisite service period of the awards.
Deferred Financing Costs and Original
Issuance Premium and/or Discounts for Debt Issuance
External costs incurred
from the placement of our debt are capitalized and amortized on a straight-line basis over the terms of the related borrowings
which approximates the effective interest method. Deferred financing costs related to our revolving line of credit are included
in other assets on our Consolidated Balance Sheets and deferred financing costs related to our other borrowings are included as
a direct deduction from the carrying amount of the related debt liability on our Consolidated Balance Sheets. Original issuance
premium or discounts reflect the difference between the face amount of the debt issued and the cash proceeds received and are
amortized on a straight-line basis over the term of the related borrowings. All premiums and discounts are recorded as an addition
to or reduction from debt on our Consolidated Balance Sheets. Amortization of deferred financing costs and original issuance premiums
or discounts totaled $9.5 million, $9.3 million and $7.0 million in 2017, 2016 and 2015, respectively, and are classified as interest
- amortization of deferred financing costs on our Consolidated Statements of Operations. When financings are terminated, unamortized
deferred financing costs and unamortized premiums or discounts, as well as charges incurred for the termination, are recognized
as expense or income at the time the termination is made. Gains and losses from the extinguishment of debt are presented in interest-refinancing
costs on our Consolidated Statements of Operations.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Earnings Per Share/Unit
The computation of
basic earnings per share/unit (“EPS” or “EPU”) is computed by dividing net income available to common
stockholders/Omega OP Unit holders by the weighted-average number of shares of common stock/units outstanding during the relevant
period. Diluted EPS/EPU is computed using the treasury stock method, which is net income divided by the total weighted-average
number of common outstanding shares/Omega OP Units plus the effect of dilutive common equivalent shares/Omega OP Units during
the respective period. Dilutive common shares reflect the assumed issuance of additional common shares/Omega OP Units pursuant
to certain of our share-based compensation plans, including stock options, restricted stock and performance restricted stock units
and the assumed issuance of additional shares related to Omega OP Units held by outside investors. Dilutive Omega OP Units reflect
the assumed issuance of additional Omega OP Units pursuant to certain of our share-based compensation plans, including stock options,
restricted stock and performance restricted stock.
Redeemable Limited Partnership Unitholder
Interests and Noncontrolling Interests
As of April 1, 2015
and after giving effect to the Aviv Merger, the Company owned approximately 138.8 million Omega OP Units and Aviv OP owned approximately
52.9 million Omega OP Units. Each of the Omega OP Units (other than the Omega OP Units owned by Omega) is redeemable at the election
of the Omega OP Unit holder for cash equal to the then-fair market value of one share of Omega common stock, par value $0.10 per
share (“Omega Common Stock”), subject to the Company’s election to exchange the Omega OP Units tendered for
redemption for unregistered shares of Omega Common Stock on a one-for-one basis, subject to adjustment as set forth in the Partnership
Agreement.
Effective June 30,
2015, Omega (through OHI Holdco, in its capacity as the general partner of Aviv OP) caused Aviv OP to make a distribution of Omega
OP Units held by Aviv OP (or equivalent value) to Aviv OP investors (the “Aviv OP Distribution”) in connection with
the liquidation of Aviv OP. As a result of the Aviv OP Distribution, Omega directly and indirectly owned approximately 95% of
the outstanding Omega OP Units, and the other investors owned approximately 5% of the outstanding Omega OP Units at that time.
As a part of the Aviv OP Distribution, Omega settled approximately 0.2 million units via cash settlement. As of December 31, 2017,
Omega owns approximately 96% of the issued and outstanding Omega OP Units, and investors own approximately 4% of the outstanding
Omega OP Units.
Noncontrolling Interests
Noncontrolling interests
is the portion of equity not attributable to the respective reporting entity. We present the portion of any equity that we do
not own in consolidated entities as noncontrolling interests and classify those interests as a component of total equity, separate
from total stockholders’ equity, or owners’ equity on our Consolidated Balance Sheets. We include net income (loss)
attributable to the noncontrolling interests in net income in our Consolidated Statements of Operations.
As our ownership of
a controlled subsidiary increases or decreases, any difference between the aggregate consideration paid to acquire the noncontrolling
interests and our noncontrolling interest balance is recorded as a component of equity in additional paid-in capital, so long
as we maintain a controlling ownership interest.
The noncontrolling
interest for Omega represents the outstanding Omega OP Units held by outside investors.
Foreign Operations
The U.S. dollar is
the functional currency for our consolidated subsidiaries operating in the U.S. The functional currency for our consolidated subsidiaries
operating in the U.K. is the British Pound. For our consolidated subsidiaries whose functional currency is not the U.S. dollar,
we translate their financial statements into the U.S. dollar. We translate assets and liabilities at the exchange rate in effect
as of the financial statement date. Revenue and expense accounts are translated using an average exchange rate for the period.
Gains and losses resulting from translation are included in Omega OP’s owners’ equity and Omega’s accumulated
other comprehensive loss (“AOCL”), as a separate component of equity and a proportionate amount of gain or loss is
allocated to noncontrolling interests.
We and certain of
our consolidated subsidiaries may have intercompany and third-party debt that is not denominated in the entity’s functional
currency. When the debt is remeasured against the functional currency of the entity, a gain or loss can result. The resulting
adjustment is reflected in results of operations, unless it is intercompany debt that is deemed to be long-term in nature in which
case the adjustments are included in Omega OP’s owners’ equity and Omega’s AOCL.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Derivative Instruments
Cash flow hedges
During our normal
course of business, we may use certain types of derivative instruments for the purpose of managing interest rate and currency
risk. To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk
exposure that they are designed to hedge. In addition, at the inception of a qualifying cash flow hedging relationship, the underlying
transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with the Company’s
related assertions. The Company recognizes all derivative instruments, including embedded derivatives required to be bifurcated,
as assets or liabilities on the Consolidated Balance Sheets at fair value which is determined using a market approach and Level
2 inputs. Changes in the fair value of derivative instruments that are not designated in hedging relationships or that do not
meet the criteria of hedge accounting are recognized in earnings. For derivatives designated as qualifying cash flow hedging relationships,
the change in fair value of the effective portion of the derivatives is recognized in Omega OP’s owners’ equity and
Omega’s AOCL as a separate component of equity and a proportionate amount of gain or loss is allocated to noncontrolling
interest, whereas the change in fair value of the ineffective portion is recognized in earnings. We formally document all relationships
between hedging instruments and hedged items, as well as our risk-management objectives and strategy for undertaking various hedge
transactions. This process includes designating all derivatives that are part of a hedging relationship to specific forecasted
transactions as well as recognized liabilities or assets on the Consolidated Balance Sheets. We also assess and document, both
at inception of the hedging relationship and on a quarterly basis thereafter, whether the derivatives are highly effective in
offsetting the designated risks associated with the respective hedged items. If it is determined that a derivative ceases to be
highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, we discontinue hedge
accounting prospectively and record the appropriate adjustment to earnings based on the current fair value of the derivative.
As a matter of policy, we do not use derivatives for trading or speculative purposes. At December 31, 2017, $1.5 million of qualifying
cash flow hedges were recorded at fair value in other assets and at December 31, 2016, $1.5 million of qualifying cash flow hedges
were recorded at fair value in accrued expenses and other liabilities on our Consolidated Balance Sheets.
Net investment hedge
We
use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the
change in the carrying value of the hedging instrument due to remeasurement of the effective portion is reported in Omega OP’s
owners’ equity and Omega’s AOCL in our Consolidated Balance Sheets and the remaining change in the carrying value
of the ineffective portion, if any, is recognized in earnings. We evaluate the effectiveness of our net investment hedge on a
quarterly basis. We did not record any ineffectiveness during 2017.
Related Party Transactions
The Company has a policy
which generally requires related party transactions to be approved or ratified by the Audit Committee. On February 1, 2016, we
acquired 10 SNFs from Laurel Healthcare Holdings, Inc. (“Laurel”) for approximately $169.0 million in cash and leased
them to an unrelated existing operator. A former member of the Board of Directors of the Company, together with certain members
of his immediate family, beneficially owned approximately 34% of the equity of Laurel prior to the transaction. Immediately following
our acquisition, the unrelated existing operator acquired all of the outstanding equity interests of Laurel, including the interests
previously held by the former director of the Company and his family.
Reclassification
Certain prior year amounts have been reclassified
to conform with the current year presentation.
Recently Adopted Accounting Pronouncements
In March 2016, FASB
issued ASU 2016-09,
Compensation-Stock Compensation (Topic 718)
(“ASU 2016-09”). ASU 2016-09 amends the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities
and classification on the statement of cash flows. This guidance is effective for annual and interim reporting periods of public
entities beginning after December 15, 2016. We adopted this accounting standard on January 1, 2017, at which time the Company
began prospectively accounting for excess tax benefits or tax deficiencies as an adjustment to income tax expense in our Consolidated
Statements of Operations as opposed to the prior requirement that these excess tax benefits be recognized in additional paid-in
capital and tax deficiencies be recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement.
The Company will continue to account for forfeitures as they occur and present employee taxes paid as a financing activity on
our Consolidated Statements of Cash Flows. The adoption of this accounting standard did not have a material impact on our consolidated
financial statements.
OMEGA HEALTHCARE INVESTORS, INC. AND
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
During the fourth
quarter of 2017, we adopted ASU 2016-18,
Statement of Cash Flows (Topic 230) Restricted Cash
(“ASU 2016-18”).
ASU 2016-18 requires restricted cash balances be included along with cash and cash equivalents as of the end of the period and
the beginning of period, respectively, in the Company's consolidated statement of cash flows for all periods presented. We have
retrospectively adjusted the presentation of restricted cash on the Company’s Consolidated Statement of Cash Flows for all
prior periods presented, as required. There is no impact to the Company’s net assets, net income or retained earnings in
any period presented. Total net cash provided by operating activities decreased in 2016 and 2015 by approximately $1.0 million
and $14.5 million, respectively, with a corresponding increase to the change in cash, cash equivalents and restricted cash for
the years ended 2016 and 2015.
During the fourth
quarter of 2017, we adopted ASU 2016-15,
Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash
Payments
(“ASU 2016-15”). ASU 2016-15 eliminates the diversity in practice related to the classification of certain
cash receipts and payments in a company’s statement of cash flows for debt prepayment or extinguishment costs, the maturing
of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements,
distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. Historically,
the Company has classified the receipt and reinvestment of property insurance proceeds as an operating activity in its statement
of cash flows. The receipt and reinvestment of property insurance proceeds in 2016 and 2015 was immaterial to the Company’s
financial statements and not adjusted. As a result of adopting ASU 2016-15, the Company presented the receipt and subsequent reinvestment
of property insurance proceeds in 2017 as an investing activity in the Consolidated Statement of Cash Flows, as this classification
more accurately reflects the nature of the cash flows.
There was no impact
to the Company’s net assets, income or retained earnings in any period presented as a result of adopting
ASU 2016-15
.
Recent Accounting Pronouncements
- Pending Adoption
In 2014, the FASB
issued ASU 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”), which outlines a comprehensive model
for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity
recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references
contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09
is effective for the Company beginning January 1, 2018. In addition, the FASB has begun to issue targeted updates to clarify specific
implementation issues of ASU 2014-09. These updates include ASU 2016-08,
Principal versus Agent Considerations (Reporting
Revenue Gross versus Net),
ASU 2016-10,
Identifying Performance Obligations and Licensing,
and ASU 2016-12,
Narrow-Scope
Improvements and Practical Expedients.
As a result of adopting ASU 2014-09 and its updates on January 1, 2018, the Company
will recognize $10.0 million of deferred gain resulting from the sale of facilities to a third party in December 2017 through
retained earnings on January 1, 2018. The Company intends to adopt ASU 2014-09 and its subsequent updates in accordance with the
modified retrospective approach. The Company has completed its analysis of ASU 2014-09 and its related updates and has determined
that its adoption will not have a material impact on our consolidated financial statements, as a substantial portion of our revenue
consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically
excluded from ASU 2014-09 and its updates.
In February 2016, the
FASB issued ASU 2016-02,
Leases
(“ASU 2016-02”), which amends the existing accounting standards for lease accounting,
including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.
ASU 2016-02 will be effective for the Company beginning January 1, 2019. Early adoption of ASU 2016-02 as of its issuance is permitted.
The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date
of initial application, with an option to use certain transition relief. As a result of the pending adoption of ASU 2016-02 and
in connection with the pending adoption of ASU 2014-09, the Company may be required to record real estate tax revenues and an equal
and offsetting real estate tax expense, as a result of our operators paying real estate taxes on our behalf. We are continuing
to evaluate the other impacts of adopting ASU 2016-02 on our consolidated financial statements.
In June 2016, the
FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326
) (“ASU 2016-13”), which changes
the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally
result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after
December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. We are currently
evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
In August 2017 the FASB
issued ASU 2017-12,
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities
(“ASU 2017-12”).
The purpose of this updated guidance is to better align the financial reporting for hedging activities with the economic objectives
of those activities. The transition guidance provides companies with the option of early adopting the new standard using a modified
retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal
years beginning after December 15, 2018. This adoption method will require the Company to recognize the cumulative effect of initially
applying ASU 2017-12 as an adjustment to accumulated other comprehensive income (loss) with a corresponding adjustment to the
opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the update. While the Company
continues to assess all potential impacts of the standard, we do not expect the adoption of ASU 2017-12 to have a material impact
on our consolidated financial statements.
NOTE 3 – PROPERTIES
Leased Property
Our leased real estate
properties, represented by 735 SNFs, 118 ALFs, 15 specialty facilities and one medical office building at December 31, 2017, are
leased under provisions of single or master operating leases with initial terms typically ranging from 5 to 15 years, plus renewal
options. Also see Note 4 – Direct Financing Leases for information regarding additional properties accounted for as direct
financing leases. Substantially all of the single leases and master leases provide for minimum annual rentals that are typically
subject to annual increases. Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and
insurance on the leased properties.
A summary of our investment in leased
real estate properties is as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Buildings
|
|
$
|
6,098,119
|
|
|
$
|
6,090,294
|
|
Land
|
|
|
795,874
|
|
|
|
759,295
|
|
Furniture, fixtures and equipment
|
|
|
440,737
|
|
|
|
454,760
|
|
Site improvements
|
|
|
227,150
|
|
|
|
206,206
|
|
Construction in progress
|
|
|
94,080
|
|
|
|
55,803
|
|
Total real estate investments
|
|
|
7,655,960
|
|
|
|
7,566,358
|
|
Less accumulated depreciation
|
|
|
(1,376,828
|
)
|
|
|
(1,240,336
|
)
|
Real estate investments - net
|
|
$
|
6,279,132
|
|
|
$
|
6,326,022
|
|
For the years ended December 31, 2017, 2016 and 2015, we capitalized
$8.0 million, $6.6 million and $3.7 million, respectively, of interest to our projects under development.
The future minimum estimated
contractual rents due for the remainder of the initial terms of the operating leases are as follows at December 31, 2017:
|
|
(in thousands)
|
|
2018
|
|
$
|
687,567
|
|
2019
|
|
|
696,793
|
|
2020
|
|
|
710,610
|
|
2021
|
|
|
722,609
|
|
2022
|
|
|
720,818
|
|
Thereafter
|
|
|
4,095,073
|
|
Total
|
|
$
|
7,633,470
|
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
The following tables summarize
the significant transactions that occurred between 2017 and 2015. The 2015 table excludes the acquisition of Care Homes in the
U.K. and the Aviv Merger in the second quarter of 2015, which are discussed separately below.
2017 Acquisitions and Other
|
|
Number of
Facilities
|
|
|
Country/
|
|
Total
Investment
(4)
|
|
|
Land
|
|
|
Building & Site
Improvements
|
|
|
Furniture
& Fixtures
|
|
|
Initial
Annual
Cash
Yield
(2)
|
|
Period
|
|
SNF
|
|
|
ALF
|
|
|
State
|
|
(in millions)
|
|
|
(%)
|
|
Q1
|
|
|
-
|
|
|
|
1
|
|
|
VA
|
|
$
|
7.6
|
|
|
$
|
0.5
|
|
|
$
|
6.8
|
|
|
$
|
0.3
|
|
|
|
7.50
|
|
Q2
|
|
|
1
|
|
|
|
-
|
|
|
NC
|
|
|
8.6
|
|
|
|
0.7
|
|
|
|
7.3
|
|
|
|
0.6
|
|
|
|
9.50
|
|
Q2
|
|
|
-
|
|
|
|
18
|
|
|
UK
|
|
|
124.2
|
(1)
|
|
|
34.1
|
|
|
|
85.1
|
|
|
|
5.0
|
|
|
|
8.50
|
|
Q3
|
|
|
-
|
|
|
|
1
|
|
|
TX
|
|
|
2.3
|
|
|
|
0.7
|
|
|
|
1.5
|
|
|
|
0.1
|
|
|
|
9.25
|
|
Q3
|
|
|
15
|
|
|
|
-
|
|
|
IN
|
|
|
211.0
|
|
|
|
18.0
|
|
|
|
180.2
|
|
|
|
12.8
|
|
|
|
9.50
|
|
Q3
|
|
|
9
|
|
|
|
-
|
|
|
TX
|
|
|
19.0
|
(3)
|
|
|
1.7
|
|
|
|
15.5
|
|
|
|
1.8
|
|
|
|
18.60
|
|
Q4
|
|
|
6
|
|
|
|
-
|
|
|
TX
|
|
|
40.0
|
|
|
|
1.0
|
|
|
|
35.1
|
|
|
|
3.9
|
|
|
|
9.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31
|
|
|
|
20
|
|
|
|
|
$
|
412.7
|
|
|
$
|
56.7
|
|
|
$
|
331.5
|
|
|
$
|
24.5
|
|
|
|
|
|
|
(1)
|
Omega recorded a non-cash deferred
tax liability and acquisition costs of approximately $8.2 million and $1.2 million, respectively,
in connection with this acquisition.
|
|
(2)
|
The cash yield is based on the
purchase price.
|
|
(3)
|
In July 2017, we transitioned
nine SNFs formerly subject to a direct financing lease to another operator. As a result
of terminating the direct financing lease, we wrote down the facilities to our original
cost basis and recorded an impairment on the direct financing lease of approximately
$1.8 million. See Note 4 – Direct Financing Leases for additional information.
|
|
(4)
|
All of the aforementioned acquisitions
were accounted for as asset acquisitions.
|
During 2017, we acquired
three parcels of land which are not reflected in the table above for approximately $6.7 million with the intent of building new
facilities for existing operators.
2016 Acquisitions and Other
|
|
Number of
Facilities
|
|
|
Country/
|
|
Total
Investment
(6)
|
|
|
Land
|
|
|
Building
& Site
Improvements
|
|
|
Furniture
& Fixtures
|
|
|
Initial
Annual
Cash
Yield
(7)
|
|
Period
|
|
SNF
|
|
|
ALF
|
|
|
State
|
|
(in millions)
|
|
|
(%)
|
|
Q1
|
|
|
-
|
|
|
|
1
|
|
|
UK
|
|
$
|
8.3
|
|
|
$
|
1.4
|
|
|
$
|
6.7
|
|
|
$
|
0.2
|
|
|
|
7.00
|
|
Q1
|
|
|
-
|
|
|
|
1
|
|
|
UK
|
|
|
6.1
|
|
|
|
0.6
|
|
|
|
5.3
|
|
|
|
0.2
|
|
|
|
7.00
|
|
Q1
|
|
|
10
|
|
|
|
-
|
|
|
OH, VA, MI
|
|
|
169.0
|
(2)
|
|
|
10.5
|
|
|
|
152.5
|
|
|
|
6.0
|
|
|
|
8.50
|
|
Q1
|
|
|
-
|
|
|
|
2
|
|
|
GA
|
|
|
20.2
|
|
|
|
0.8
|
|
|
|
18.3
|
|
|
|
1.1
|
|
|
|
7.50
|
|
Q1
|
|
|
3
|
|
|
|
-
|
|
|
MD
|
|
|
25.0
|
|
|
|
2.5
|
|
|
|
19.9
|
|
|
|
2.6
|
|
|
|
8.50
|
|
Q1
|
|
|
21
|
|
|
|
-
|
|
|
VA, NC
|
|
|
212.5
|
|
|
|
19.3
|
|
|
|
181.1
|
|
|
|
12.1
|
|
|
|
8.50
|
|
Q2
|
|
|
-
|
|
|
|
10
|
|
|
UK
|
|
|
111.9
|
(3)
|
|
|
24.8
|
|
|
|
83.9
|
|
|
|
3.2
|
|
|
|
7.00
|
|
Q2
|
|
|
-
|
|
|
|
3
|
|
|
TX
|
|
|
66.0
|
(4)
|
|
|
5.8
|
|
|
|
58.6
|
|
|
|
1.6
|
|
|
|
6.80
|
|
Q2
|
|
|
3
|
|
|
|
-
|
|
|
CO, MO
|
|
|
31.8
|
|
|
|
3.1
|
|
|
|
26.2
|
|
|
|
2.5
|
|
|
|
9.00
|
|
Q3
|
|
|
-
|
|
|
|
1
|
|
|
FL
|
|
|
4.3
|
|
|
|
2.3
|
|
|
|
1.8
|
|
|
|
0.2
|
|
|
|
8.00
|
|
Q3
|
|
|
-
|
|
|
|
1
|
|
|
GA
|
|
|
2.5
|
|
|
|
0.2
|
|
|
|
2.1
|
|
|
|
0.2
|
|
|
|
8.00
|
|
Q3
|
|
|
-
|
|
|
|
1
|
|
|
FL
|
|
|
16.5
|
|
|
|
1.8
|
|
|
|
14.3
|
|
|
|
0.4
|
|
|
|
8.00
|
|
Q3
|
|
|
1
|
|
|
|
-
|
|
|
SC
|
|
|
10.1
|
|
|
|
2.7
|
|
|
|
6.5
|
|
|
|
0.9
|
|
|
|
9.00
|
|
Q3
|
|
|
1
|
|
|
|
-
|
|
|
OH
|
|
|
9.0
|
(5)
|
|
|
-
|
|
|
|
8.6
|
|
|
|
0.4
|
|
|
|
9.00
|
|
Q3
|
|
|
31
|
|
|
|
-
|
|
|
FL, KY,TN
|
|
|
329.6
|
(1)
|
|
|
24.6
|
|
|
|
290.8
|
|
|
|
14.2
|
|
|
|
9.00
|
|
Total
|
|
|
70
|
|
|
|
20
|
|
|
|
|
$
|
1,022.8
|
|
|
$
|
100.4
|
|
|
$
|
876.6
|
|
|
$
|
45.8
|
|
|
|
|
|
|
(1)
|
The Company’s
investment includes a purchase option buyout obligation with a fair value of approximately
$29.6 million. The future buyout obligation is recorded in accrued expenses and other
liabilities on our Consolidated Balance Sheet. The Company also acquired a term loan
with a fair value of approximately $37.0 million which is recorded in other investments
on our Consolidated Balance Sheet. In August 2017, the purchase option was terminated
and the operator used the proceeds to repay certain other investments, refer to Note
– 6 Other Investments for details.
|
|
(2)
|
Acquired from
a related party. Refer to Note – 2 Summary of Significant Accounting Policies -
Related Party Transactions.
|
|
(3)
|
Omega also recorded
a deferred tax asset of approximately $1.9 million in connection with the acquisition.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
|
(4)
|
The Company paid $63.0 million
in cash at closing to acquire the facilities. We paid an additional $1.5 million in April
2017 and the remaining $1.5 million will be paid in April 2018. The additional consideration
to be paid is contractually determined and not contingent on other factors.
|
|
(5)
|
The Company paid approximately
$3.5 million in cash to acquire the facility. The remainder of the purchase price (approximately
$5.5 million) was funded with the redemption of an other investment note.
|
|
(6)
|
All of the aforementioned acquisitions
were accounted for as business combinations.
|
|
(7)
|
The cash yield is based on the
purchase price.
|
During 2016, the Company
also acquired five parcels of land which are not reflected in the table above for approximately $8.3 million with the intent of
building new facilities for existing operators.
For the year ended December
31, 2016, we recognized rental revenue of approximately $58.1 million and expensed approximately $9.6 million of acquisition related
costs in connection with the aforementioned acquisitions. No goodwill was recorded in connection with these acquisitions.
2015 Acquisitions and Other
|
|
Number of
Facilities
|
|
|
Total
Investment
|
|
|
Land
|
|
|
Building & Site
Improvements
|
|
|
Furniture
& Fixtures
|
|
|
Initial
Annual
Cash
Yield
(4)
|
|
Period
|
|
SNF
|
|
|
ALF
|
|
|
State
|
|
(in millions)
|
|
|
(%)
|
|
Q1
|
|
|
1
|
|
|
|
-
|
|
|
TX
|
|
$
|
6.8
|
|
|
$
|
0.1
|
|
|
$
|
6.1
|
|
|
$
|
0.6
|
|
|
|
9.50
|
|
Q3
|
|
|
6
|
|
|
|
-
|
|
|
NE
|
|
|
15.0
|
|
|
|
1.4
|
|
|
|
12.1
|
|
|
|
1.5
|
|
|
|
9.00
|
|
Q3
|
|
|
1
|
|
|
|
2
|
|
|
WA
|
|
|
18.0
|
|
|
|
2.2
|
|
|
|
14.9
|
|
|
|
0.9
|
|
|
|
8.00
|
|
Q3
|
|
|
-
|
|
|
|
2
|
|
|
GA
|
|
|
10.8
|
|
|
|
1.2
|
|
|
|
9.0
|
|
|
|
0.6
|
|
|
|
7.00
|
|
Q3
|
|
|
1
|
|
|
|
-
|
|
|
VA
|
|
|
28.5
|
(1)
|
|
|
1.9
|
|
|
|
24.2
|
|
|
|
2.4
|
|
|
|
9.25
|
|
Q3
|
|
|
2
|
|
|
|
-
|
|
|
FL
|
|
|
32.0
|
|
|
|
1.4
|
|
|
|
29.0
|
|
|
|
1.6
|
|
|
|
9.00
|
|
Q3
|
|
|
-
|
|
|
|
-
|
|
|
NY
|
|
|
111.7
|
(2)(3)
|
|
|
111.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Q4
|
|
|
1
|
|
|
|
-
|
|
|
AZ
|
|
|
0.6
|
(3)
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
9.00
|
|
Q4
|
|
|
1
|
|
|
|
-
|
|
|
TX
|
|
|
5.3
|
|
|
|
1.8
|
|
|
|
3.0
|
|
|
|
0.5
|
|
|
|
9.50
|
|
Total
|
|
|
13
|
|
|
|
4
|
|
|
|
|
$
|
228.7
|
|
|
$
|
122.0
|
|
|
$
|
98.6
|
|
|
$
|
8.1
|
|
|
|
|
|
|
(1)
|
In July 2015,
we leased the facility to a new operator with an initial lease term of 10 years.
|
|
(2)
|
On July 24,
2015, we purchased five buildings located in New York City, New York for approximately
$111.7 million. We and our operator plan to construct a 215,000 square-foot assisted
living and memory care facility. The properties were added to the operator’s existing
master lease. The lease provides for a 5% annual cash yield on the land during the construction
phase. Upon issuance of a certification of occupancy, the annual cash yield will increase
to 7% in year one and 8% in year two with 2.5% annual escalators thereafter.
|
|
(3)
|
Accounted for
as an asset acquisition.
|
|
(4)
|
The cash yield
is based on the purchase price.
|
For the year ended December
31, 2015, we recognized rental revenue of approximately $4.9 million and expensed $2.2 million of acquisition related costs related
to the aforementioned acquisitions. No goodwill was recorded in connection with these acquisitions.
Acquisition of Care Homes in the U.K.
On May 1, 2015, we closed
on a purchase/leaseback Care Homes Transaction (the “Care Homes Transaction”) for 23 care homes located in the U.K.
and operated by Healthcare Homes Holding Limited (“Healthcare Homes”). As part of the transaction, we acquired title
to the 23 care homes with 1,018 registered beds and leased them back to Healthcare Homes pursuant to a 12-year master lease agreement
with an initial annual cash yield of 7%, and annual escalators of 2.5%. The care homes, comparable to ALFs in the U.S., are located
throughout the East Anglia region (north of London) of the U.K. Healthcare Homes is headquartered in Colchester (Essex County),
England. We recorded approximately $193.8 million of assets consisting of land ($20.7 million), building and site improvements
($152.1 million), furniture and fixtures ($5.3 million) and goodwill ($15.7 million). We also recorded an initial deferred tax
liability associated with the temporary tax basis difference of approximately $15 million.
For the year ended December
31, 2015, we recognized approximately $9.5 million of rental revenue and expensed approximately $3.2 million of acquisition related
costs associated with the Care Homes Transaction.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Aviv Merger
On April 1, 2015, Omega
completed the Aviv Merger, which was structured as a stock-for-stock merger. Under the terms of the Merger Agreement, each outstanding
share of Aviv common stock was converted into 0.90 of a share of Omega Common Stock. In connection with the Aviv Merger, Omega
issued approximately 43.7 million shares of Omega Common Stock to former Aviv stockholders. As a result of the Aviv Merger, Omega
acquired 342 facilities, two facilities subject to direct financing leases, one medical office building, two mortgages and other
investments. Omega also assumed certain outstanding equity awards and other debt and liabilities. Based on the closing price of
Omega’s common stock on April 1, 2015, the fair value of the consideration exchanged was approximately $2.3 billion.
For the year ended December
31, 2015, we recognized approximately $188.4 million of total revenue and expensed approximately $52.1 million in acquisition
and merger related costs in connection with the Aviv Merger.
Pro Forma Acquisition Results
The businesses acquired
in 2015 are included in our results of operations from the dates of acquisition. The following unaudited pro forma results reflect
the impact of the acquisitions as if they occurred on January 1, 2014. In the opinion of management, all significant necessary
adjustments to reflect the effect of the acquisitions have been made. The following pro forma information is not indicative of
future operations.
|
|
Year Ended December 31,
2015
|
|
|
|
(in thousands, except per share
amounts, unaudited)
|
|
Pro forma revenues
|
|
$
|
817,642
|
|
Pro forma net income
|
|
$
|
258,927
|
|
|
|
|
|
|
Earnings per share – diluted:
|
|
|
|
|
Net income – as reported
|
|
$
|
1.29
|
|
Net income – pro forma
|
|
$
|
1.33
|
|
Asset Sales, Impairments and Other
During the fourth quarter of 2017, we sold 32 facilities (two previously held for sale at September 30,
2017) subject to operating leases for approximately $188.0 million in net proceeds recognizing a gain on sale of approximately
$46.4 million. In addition, we recorded impairments on real estate properties of approximately $63.5 million on 32 facilities (two
were subsequently reclassified to held for sale). Of the $63.5 million impairment on real estate properties, $12.6 million related
to one facility that was destroyed in a fire.
In 2017, we sold 52
facilities (14 previously held for sale at December 31, 2016) subject to operating leases for approximately $257.8 million in net
proceeds recognizing a gain on sale of approximately $53.9 million. In addition, we recorded impairments on real estate properties
of approximately $99.1 million on 37 facilities including approximately $2.6 million of capitalized costs associated with the termination
of construction projects with two of our operators. The total net recorded investment in these properties after impairments and
excluding facilities previously sold was approximately $125.1 million as of December 31, 2017, with approximately $7.7 million
related to properties classified as held for sale.
Of the 52 facilities sold
in 2017, the sale of ten of these facilities did not qualify for sale accounting under the full accrual method. The ten SNFs with
a carrying value of approximately $23.2 million were sold to a third-party for approximately $43.3 million, resulting in a total
gain of approximately $17.5 million after $2.6 million of closing costs. In connection with this sale, we provided the buyer a
$10.0 million loan which is recorded in other investments on our Consolidated Balance Sheet. We recognized a net gain of approximately
$7.5 million in 2017 and deferred $10.0 million of gain related to this sale. The $10.0 million of deferred gain is recorded as
a reduction to our other investments on our Consolidated Balance Sheet. See Note 6 – Other Investments for more details.
In 2016, we sold 38 facilities (three previously
held for sale at December 31, 2015) subject to operating leases for approximately $169.6 million in net proceeds recognizing a
gain on sale of approximately $50.2 million. We also recorded impairments on real estate properties of approximately $58.7 million
on 29 facilities.
In 2015, we sold seven SNFs (three previously
held for sale at December 31, 2014) subject to operating leases for total cash proceeds of approximately $41.5 million, generating
a gain on sale of approximately $6.4 million. We also recorded impairments on real estate properties of approximately $17.7 million
on six SNFs.
The 2017 and 2016 impairments
were primarily the result of decisions to exit certain non-strategic facilities and/or operators. The 2015 impairments are primarily
the result of closing facilities or updating the estimated proceeds we expected to receive for the sale of closed facilities at
that time. We reduced the net book value of the impaired facilities to their estimated fair values or, with respect to the facilities
reclassified to held for sale, to its estimated fair value less costs to sell. To estimate the fair value of the facilities, we
utilized a market approach and Level 3 inputs (which generally consist of non-binding offers from unrelated third parties). See
also Note 4 – Direct Financing Leases and Note 8 – Assets Held For Sale for more details.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 4 – DIRECT FINANCING LEASES
The components of investments
in direct financing leases consist of the following:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Minimum lease payments receivable
|
|
$
|
3,707,079
|
|
|
$
|
4,287,069
|
|
Less unearned income
|
|
|
(3,169,942
|
)
|
|
|
(3,685,131
|
)
|
Investment in direct financing leases
|
|
|
537,137
|
|
|
|
601,938
|
|
Less allowance for loss on direct
financing leases
|
|
|
(172,172
|
)
|
|
|
—
|
|
Investment in direct financing leases – net
|
|
$
|
364,965
|
|
|
$
|
601,938
|
|
|
|
|
|
|
|
|
|
|
Properties subject to direct
financing leases
|
|
|
41
|
|
|
|
58
|
|
Number of direct financing leases
|
|
|
5
|
|
|
|
7
|
|
The following table summarizes
our investments in the direct financing leases by operator, net of allowance for loss:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Orianna
|
|
$
|
337,705
|
|
|
$
|
574,581
|
|
Reliance Health Care Management, Inc.
|
|
|
15,458
|
|
|
|
15,498
|
|
Sun Mar Healthcare
|
|
|
11,481
|
|
|
|
11,443
|
|
Markleysburg Healthcare Investors,
LP
|
|
|
321
|
|
|
|
416
|
|
Investment in direct financing
leases - net
|
|
$
|
364,965
|
|
|
$
|
601,938
|
|
The following minimum
rents are due under our direct financing leases for the next five years (in thousands):
2018
(1)
|
2019
(1)
|
2020
(1)
|
2021
(1)
|
2022
(1)
|
$2,612
|
$2,654
|
$2,686
|
$2,629
|
$2,680
|
|
(1)
|
Orianna has been excluded from the contractual minimum rent payments due under our direct financing leases.
See below for additional information.
|
On November 27, 2013,
we closed an aggregate $529 million purchase/leaseback transaction in connection with the acquisition of Ark Holding Company,
Inc. (“Ark Holding”) by 4 West Holdings Inc. At closing, we acquired 55 SNFs and 1 ALF operated by Ark Holding and
leased the facilities back to Ark Holding, now known as New Ark Investment Inc. (“New Ark” which does business as
“Orianna Health Systems” and is herein referred to as “Orianna”), pursuant to four 50-year master leases
with rental payments yielding 10.6% per annum over the term of the leases. The purchase/leaseback transaction is being accounted
for as a direct financing lease.
The lease agreements allow
the tenant the right to purchase the facilities for a bargain purchase price plus closing costs at the end of the lease term.
In addition, commencing in the 41st year of each lease, the tenant will have the right to prepay the remainder of its obligations
thereunder for an amount equal to the sum of the unamortized portion of the original aggregate $529 million investment plus the
net present value of the remaining payments under the lease and closing costs. In the event the tenant exercises either of these
options, we have the right to purchase the properties for fair value at the time.
In 2017, we sold eight
of these facilities, with a carrying value of approximately $36.4 million for approximately $33.3 million to unrelated third parties.
These facilities were subject to direct financing leases with Orianna in the Northwest region and the Southeast region. We recorded
approximately $3.3 million of impairment related to these sales. In addition, we transitioned nine SNFs, representing all of the
facilities subject to another direct financing lease with Orianna in the Texas region, to an existing operator of the Company
pursuant to an operating lease. In connection with this transaction, we recorded the real estate properties at our original cost
basis of approximately $19.0 million, eliminated our investment in the direct financing lease and recorded an impairment of approximately
$1.8 million. In conjunction with this transaction, we also amended our Orianna Southeast region master lease to reduce the outstanding
balance by $19.3 million. As a result of the amendment, we recorded impairment on our investment in direct financing lease of
approximately $20.8 million.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Orianna has not satisfied
the contractual payments due under the terms of the remaining two direct financing leases or the separate operating lease with
the Company and the collectability of future amounts due is uncertain. The Company is in continuing discussions with Orianna regarding
the Orianna portfolio. The outcome of such negotiations may include the sale of some facilities and transitioning certain facilities
from Orianna to other operators.
In 2017, we recorded an
allowance for loss on direct financing leases of $172.2 million with Orianna covering 38 facilities in the Southeast region of
the U.S. The amount of the allowance was determined based on the fair value of the facilities subject to the direct financing
lease. To estimate the fair value of the underlying collateral, we utilized an income approach and Level 3 inputs. Our estimate
of fair value assumed annual rents ranging between $32.0 million and $38.0 million, rental yields between 9% and 10%, current
and projected operating performance of the facilities, coverage ratios and bed values. Such assumptions are subject to change
based on changes in market conditions and the ultimate resolution of this matter. Such changes could be significantly different
than the currently estimated fair value and such differences could have a material impact on our financial statements.
The 38 facilities under
our master leases with Orianna as of December 31, 2017 are located in seven states, predominantly in the southeastern U.S. (37
facilities) and Indiana (1 facility). Our recorded investment in these direct financing leases, net of the $172.2 million allowance,
amounted to $337.7 million, as of December 31, 2017. We have not recognized any direct financing lease income from Orianna for
the period from July 1, 2017 through December 31, 2017. For the year ended December 31, 2017, we recognized a total impairment
of $198.2 million on direct financing leases.
Additionally, we own four
facilities and lease them to Orianna under a master lease which expires in 2026. The four facility lease is being accounted for
as an operating lease. We have not recognized any income on this operating lease for the period from July 1, 2017 through December
31, 2017, as Orianna did not pay the contractual amounts due and collectability is uncertain. Our recorded investment in this
operating lease was $38.4 million as of December 31, 2017. As of December 31, 2017, we have an allowance for contractual receivables
and straight-line rent receivables related to this lease of $1.9 million representing all amounts past due.
NOTE 5 – MORTGAGE NOTES RECEIVABLE
As of December 31, 2017,
mortgage notes receivable relate to 31 fixed rate mortgages on 51 long-term care facilities. The mortgage notes are secured by
first mortgage liens on the borrowers' underlying real estate and personal property. The mortgage notes receivable relate to facilities
located in ten states, operated by seven independent healthcare operating companies. We monitor compliance with mortgages and
when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding loans.
The outstanding principal
amounts of mortgage notes receivable, net of allowances, were as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Mortgage note due 2024; interest at 9.98%
|
|
$
|
112,500
|
|
|
$
|
112,500
|
|
Mortgage note due 2029; interest at 9.68%
|
|
|
410,763
|
|
|
|
412,140
|
|
Other mortgage notes outstanding
(1)
|
|
|
152,874
|
|
|
|
118,637
|
|
Mortgage notes receivable, gross
|
|
|
676,137
|
|
|
|
643,277
|
|
Allowance for loss on mortgage
notes receivable
(2)
|
|
|
(4,905
|
)
|
|
|
(3,934
|
)
|
Total mortgages — net
|
|
$
|
671,232
|
|
|
$
|
639,343
|
|
|
(1)
|
Other
mortgage notes outstanding have stated interest rates ranging from 8.35% to 14.0% per
annum and maturity dates through 2029.
|
|
(2)
|
The
allowance for loss on mortgage notes receivable relates to one mortgage with an operator.
The carrying value and fair value of the mortgage note receivable is approximately $1.5
million at December 31, 2017 and $2.5 million at December 31, 2016.
|
OMEGA HEALTHCARE INVESTORS,
INC. AND OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
$112.5 Million of Mortgage Note due 2024
On January 17, 2014, we
entered into a $112.5 million first mortgage loan with an existing operator. The loan is secured by 7 SNFs and 2 ALFs located
in Pennsylvania (7) and Ohio (2). The mortgage is cross-defaulted and cross-collateralized with our existing master lease with
the operator.
Mortgage Note due 2028
On April 29, 2016, an
existing operator exercised an option to repay certain mortgage notes. We received proceeds of approximately $47.8 million for
the mortgage notes due. In connection with the repayment of the mortgage notes we recognized a net gain of approximately $5.4
million which is recorded in mortgage interest income on our Consolidated Statement of Operations. The remaining $36.0 million
interest only mortgage is secured by three facilities located in Maryland. The interest rate will accrue at a fixed rate of 11%
per annum through April 2018. After April 2018, the interest rate will increase to 13.75% per annum. The initial maturity date
was extended to December 2028. The mortgage is cross-defaulted and cross-collateralized with our existing master lease and other
investment notes with the operator.
$415 Million of Refinancing/Consolidating Mortgage Loans due
2029
On June 30, 2014, we entered
into an agreement to refinance/consolidate $117 million in existing mortgages with maturity dates ranging from 2021 to 2023 on
17 facilities into one mortgage and simultaneously provide mortgage financing for an additional 14 facilities. The original $415
million mortgage matures in 2029 and was secured by 31 facilities. The new loan bore an initial annual cash interest rate of 9.0%
that increases by 0.225% per year (e.g., beginning in year 2 the annual cash interest rate was 9.225%, in year 3 the annual cash
interest rate was 9.45%, etc.). The mortgage is cross-defaulted and cross-collateralized with our existing master lease and other
investment notes with the operator.
Conversion of Mortgage Notes due 2046 to
Leased Properties
In January 2016, we acquired
three facilities via a deed-in-lieu of foreclosure from a mortgagor. The fair value of the facilities approximated the $25.0 million
carrying value of the mortgages. These facilities are located in Maryland. Simultaneously, we leased these facilities to an existing
operator.
NOTE 6 – OTHER INVESTMENTS
A summary of our other
investments is as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Other investment note due 2019; interest at 11.25%
|
|
$
|
49,708
|
|
|
$
|
49,458
|
|
Other investment note due 2020; interest at 14.57%
|
|
|
49,490
|
|
|
|
47,913
|
|
Other investment note due 2022, interest at 9.00%
|
|
|
31,987
|
|
|
|
31,987
|
|
Other investment note due 2030; interest at 6.66%
|
|
|
50,000
|
|
|
|
44,595
|
|
Other investment notes outstanding
(1)
|
|
|
95,530
|
|
|
|
87,691
|
|
Other investments, gross
|
|
|
276,715
|
|
|
|
261,644
|
|
Allowance for loss on other
investments
(2)
|
|
|
(373
|
)
|
|
|
(4,798
|
)
|
Total other investments
|
|
$
|
276,342
|
|
|
$
|
256,846
|
|
|
(1)
|
Other
investment notes have maturity dates through 2028 and interest rates ranging from 6.0%
to 12.0% per annum.
|
|
(2)
|
The 2017 allowance for loss on other investments relates to one loan with an operator that has been fully
reserved at December 31, 2017 with a charge to earnings in 2017. The reserves at December 31, 2016 were written off in 2017.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
The following is an overview
of certain notes, including certain notes entered into or fully repaid in 2017 and 2016.
Other Investment note due 2019
On February 26, 2016,
we acquired and funded a $50.0 million mezzanine note at a discount of approximately $0.75 million to a new operator.
Other Investment note due 2020
On July 29, 2016, we provided
an existing operator $48.0 million of term loan funding. The term loan bears interest at LIBOR with a floor of 1% plus 13% and
matures on July 29, 2020. The term loan requires monthly principal payments of $0.25 million through July 2019, and $0.5 million
from August 2019 through maturity. In addition, a portion of the monthly interest may be accrued to the outstanding principal
balance of the loan. In November 2017, we provided the operator forbearance through February 2018. The forbearance allows for
the deferral of principal payments and permits the operator to accrue all interest due to the outstanding principal balance of
the loan.
Other Investment notes due 2020
On December 28, 2017,
we provided subsidiaries of a third party buyer $10.0 million of financing to acquire ten SNFs previously owned by the Company.
The loan bears interest at 10% per annum and requires principal payments of $5.0 million in December 2018, $2.0 million in December
2019 and $3.0 million at maturity in December 2020. The $10.0 million loan is offset by a $10.0 million deferred gain as a result
of the sale. See Note 3 – Properties for more details.
Other Investment note due 2022
On September 30, 2016,
we acquired and amended a term loan with a fair value of approximately $37.0 million with an existing operator. A $5.0 million
tranche of the term loan bears interest at 13% and matures on September 30, 2019 and a $32.0 million tranche of the term loan
bears interest at 9% per annum and matures on March 31, 2022. The $5.0 million tranche was paid off in August 2017.
Other Investment note due 2030
On June 30, 2015, we entered
into a $50.0 million revolving credit facility with an operator. The note bears interest at approximately 6.66% per annum and
matures in 2030. As of December 31, 2017, approximately $50.0 million has been drawn and remains outstanding.
Other Investment notes settlement and paid
off
On December 29, 2016,
we provided an operator a $2.9 million term loan note. The term loan note bore interest at 11.0% per annum and initially matured
in April 2017. The note was paid off in January 2017.
On January 1, 2016, we
entered into a $10.0 million revolving credit facility with an existing operator. The revolving credit facility bore interest
at 7.5% per annum and initially matured in December 2017. The revolving credit facility was paid off in March 2017.
On February 1, 2016, we
provided an existing operator a $15.0 million secured working capital note. The working capital note bore interest at 8.5% per
annum and was repaid at maturity in December 2017.
In August 2017, we executed
an agreement with an existing operator that terminated our purchase option buyout obligation of approximately $30.7 million. The
purchase option buyout obligation was recorded in accrued expenses and other liabilities on our Consolidated Balance Sheets. In
exchange, we agreed to the settlement of other investment notes with a weighted average interest rate of 10.5% and a carrying
value of approximately $30.2 million.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 7 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
On November 1, 2016, we
invested approximately $50.0 million for an approximate 15% ownership interest in a joint venture operating as Second Spring Healthcare
Investments. The other approximate 85% interest is owned by affiliates of Lindsey Goldberg LLC. We account for our investment
in the joint venture using the equity method. On November 1, 2016, the joint venture acquired 64 SNFs for approximately $1.1 billion.
We receive asset management
fees from the joint venture for services provided. For the years ended December 31, 2017 and 2016, we recognized $2.0 million
and $0.3 million, respectively, of asset management fees. These fees are included in miscellaneous income in the accompanying
Consolidated Statements of Operations. The accounting policies for the unconsolidated joint venture are the same as those of the
Company.
NOTE 8 – ASSETS HELD FOR SALE
The following is a summary of our assets held
for sale:
|
|
Properties Held For Sale
|
|
|
|
Number of
Properties
|
|
|
Net Book Value
(in thousands)
|
|
|
|
|
|
December 31, 2015
|
|
|
3
|
|
|
$
|
6,599
|
|
Properties sold/other
(1)
|
|
|
(24
|
)
|
|
|
(75,948
|
)
|
Properties added
(2)
|
|
|
41
|
|
|
|
122,217
|
|
December 31, 2016
|
|
|
20
|
|
|
|
52,868
|
|
Properties sold/other
(3)
|
|
|
(17
|
)
|
|
|
(39,299
|
)
|
Properties added
(4)
|
|
|
19
|
|
|
|
73,130
|
|
December 31, 2017
(5)
|
|
|
22
|
|
|
$
|
86,699
|
|
|
(1)
|
In
2016, we sold 21 SNFs for approximately $86.7 million in net proceeds recognizing gains
on sales of approximately $16.5 million. We also recorded approximately $4.9 million
of impairments on 16 facilities to reduce their net book values to their estimated fair
value less costs to sell. Two SNFs and one ALF classified as assets held for sale in
the second quarter were no longer considered held for sale and were reclassified in the
third quarter back to leased properties at their fair values (approximately $7.0 million).
|
|
(2)
|
In
2016, we reclassified ten ALFs and 31 SNFs to assets held for sale (including the two
SNFs and one ALF mentioned above that were reclassified back to leased properties in
the third quarter). We recorded approximately $49.4 million of impairment charges on
20 of these facilities to reduce their net book values to their estimated fair value
less costs to sell before they were reclassified to assets held for sale.
|
|
(3)
|
In
2017, we sold 13 SNFs and three ALFs for approximately $38.8 million in net proceeds
recognizing a gain on sale of approximately $4.3 million. One SNF classified as an asset
held for sale at December 31, 2016 was no longer considered held for sale during the
first quarter of 2017 and was reclassified back to leased properties at approximately
$5.1 million which represents the facility’s then carrying value adjusted for depreciation
that was not recognized while classified as held for sale.
|
|
(4)
|
In
2017, we reclassified one ALF, one specialty facility and 17 SNFs to assets held for
sale. We recorded approximately $10.3 million of impairment charges to reduce one ALF,
one specialty facility and three SNFs to their estimated fair value less costs to sell
before they were reclassified to assets held for sale.
|
|
(5)
|
We
plan to sell the facilities classified as held for sale at December 31, 2017 within the
next twelve months.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 9 – INTANGIBLES
The following is a summary of our intangibles
as of December 31, 2017 and 2016:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
644,690
|
|
|
$
|
643,474
|
|
|
|
|
|
|
|
|
|
|
Above market leases
|
|
$
|
22,426
|
|
|
$
|
22,476
|
|
In-place leases
|
|
|
167
|
|
|
|
167
|
|
Accumulated amortization
|
|
|
(17,059
|
)
|
|
|
(15,864
|
)
|
Net intangible assets
|
|
$
|
5,534
|
|
|
$
|
6,779
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Below market leases
|
|
$
|
164,443
|
|
|
$
|
165,028
|
|
Accumulated amortization
|
|
|
(83,824
|
)
|
|
|
(70,738
|
)
|
Net intangible liabilities
|
|
$
|
80,619
|
|
|
$
|
94,290
|
|
Above market leases and
in-place leases, net of accumulated amortization, are included in other assets on our Consolidated Balance Sheets. Below market
leases, net of accumulated amortization, are included in accrued expenses and other liabilities on our Consolidated Balance Sheets.
The net amortization related to the above and below market leases is included in our Consolidated Statements of Operations as
an adjustment to rental income.
For the years ended December
31, 2017, 2016 and 2015, our net amortization related to intangibles was $11.9 million, $14.0 million and $13.8 million, respectively.
The estimated net amortization related to these intangibles for the subsequent five years is as follows: 2018 – $10.1 million;
2019 – $8.9 million; 2020 – $8.8 million; 2021 – $8.2 million; 2022 - $7.5 million and $31.6 million thereafter.
As of December 31, 2017 the weighted average remaining amortization period of above market lease assets and below market lease
liabilities is approximately eight years and nine years, respectively.
The following is a summary of our goodwill
as of December 31 2017:
|
|
(in thousands)
|
|
Balance as of December 31, 2016
|
|
$
|
643,474
|
|
Add: foreign currency translation
|
|
|
1,216
|
|
Balance as of December 31, 2017
|
|
$
|
644,690
|
|
NOTE 10 – CONCENTRATION OF
RISK
As of December 31, 2017, our portfolio
of real estate investments consisted of 983 healthcare facilities, located in 41 states and the U.K. and operated by 74 third party
operators. Our investment in these facilities, net of impairments and reserve for uncollectible loans, totaled approximately $8.8
billion at December 31, 2017, with approximately 99% of our real estate investments related to long-term care facilities. Our portfolio
is made up of 775 SNFs, 119 ALFs, 15 specialty facilities, one medical office building, fixed rate mortgages on 47 SNFs and four
ALFs, and 22 facilities that are closed/held for sale. At December 31, 2017, we also held other investments of approximately $276.3
million, consisting primarily of secured loans to third-party operators of our facilities and a $36.5 million investment in an
unconsolidated joint venture.
At December 31, 2017,
we had investments with one operator/or manager that exceeded 10% of our total investments: Ciena Healthcare (“Ciena”).
Ciena generated 10% of our total revenues for the year ended December 31, 2017. At December 31, 2017, the three states in which
we had our highest concentration of investments were Texas (9%), Florida (9%) and Ohio (8%).
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 11 – LEASE AND MORTGAGE DEPOSITS
We obtain liquidity
deposits and other deposits, security deposits and letters of credit from most operators pursuant to our lease and mortgage agreements
with the operators or our borrowing agreements. These generally represent the rental and mortgage interest for periods ranging
from three to six months with respect to certain of our investments or the required deposits in connection with our HUD borrowings.
At December 31, 2017, we held $10.9 million in liquidity and other deposits, $41.2 million in security deposits and $58.4 million
in letters of credit. The liquidity deposits and other deposits, security deposits and the letters of credit may be used in the
event of lease and or loan defaults, subject to applicable limitations under bankruptcy law with respect to operators filing under
Chapter 11 of the United States Bankruptcy Code. Liquidity deposits and other deposits are recorded as restricted cash on our Consolidated
Balance Sheets with the offset recorded as a liability in accrued expenses and other liabilities on our Consolidated Balance Sheets.
Security deposits related to cash received from the operator are primarily recorded in cash and cash equivalents on our Consolidated
Balance Sheets with a corresponding offset in accrued expenses and other liabilities on our Consolidated Balance Sheets. Additional
security for rental and mortgage interest revenue from operators is provided by covenants regarding minimum working capital and
net worth, liens on accounts receivable and other operating assets of the operators, provisions for cross default, provisions for
cross-collateralization and by corporate or personal guarantees.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 12 – BORROWING ARRANGEMENTS
The following is a summary
of our long-term borrowings:
|
|
|
|
|
Annual Interest
Rate as of
December 31,
|
|
|
December 31,
|
|
|
|
Maturity
|
|
|
2017
|
|
|
2017
(5)
|
|
|
2016
(5)
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Secured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD mortgages assumed December 2011
(1)
|
|
|
2044
|
|
|
|
3.06
|
%
|
|
$
|
53,666
|
|
|
$
|
54,954
|
|
Deferred financing costs – net
|
|
|
|
|
|
|
|
|
|
|
(568
|
)
|
|
|
(589
|
)
|
Total secured borrowings – net
(2)
|
|
|
|
|
|
|
|
|
|
|
53,098
|
|
|
|
54,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit
|
|
|
2021
|
|
|
|
2.65
|
%
|
|
|
290,000
|
|
|
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche A-1 term loan
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
200,000
|
|
Tranche A-2 term loan
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
200,000
|
|
Tranche A-3 term loan
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
350,000
|
|
U.S. term loan
|
|
|
2022
|
|
|
|
3.02
|
%
|
|
|
425,000
|
|
|
|
—
|
|
Sterling term loan
(3)
|
|
|
2022
|
|
|
|
1.94
|
%
|
|
|
135,130
|
|
|
|
—
|
|
Omega OP term loan
(2)
|
|
|
2022
|
|
|
|
3.02
|
%
|
|
|
100,000
|
|
|
|
100,000
|
|
2015 term loan
|
|
|
2022
|
|
|
|
3.80
|
%
|
|
|
250,000
|
|
|
|
250,000
|
|
Discounts and deferred financing costs – net
(4)
|
|
|
|
|
|
|
|
|
|
|
(5,460
|
)
|
|
|
(5,657
|
)
|
Total term loans – net
|
|
|
|
|
|
|
|
|
|
|
904,670
|
|
|
|
1,094,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 notes
|
|
|
2023
|
|
|
|
4.375
|
%
|
|
|
700,000
|
|
|
|
700,000
|
|
2024 notes
|
|
|
2024
|
|
|
|
5.875
|
%
|
|
|
—
|
|
|
|
400,000
|
|
2024 notes
|
|
|
2024
|
|
|
|
4.95
|
%
|
|
|
400,000
|
|
|
|
400,000
|
|
2025 notes
|
|
|
2025
|
|
|
|
4.50
|
%
|
|
|
400,000
|
|
|
|
250,000
|
|
2026 notes
|
|
|
2026
|
|
|
|
5.25
|
%
|
|
|
600,000
|
|
|
|
600,000
|
|
2027 notes
|
|
|
2027
|
|
|
|
4.50
|
%
|
|
|
700,000
|
|
|
|
700,000
|
|
2028 notes
|
|
|
2028
|
|
|
|
4.75
|
%
|
|
|
550,000
|
|
|
|
—
|
|
Other
|
|
|
2018
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
3,000
|
|
Subordinated debt
|
|
|
2021
|
|
|
|
9.00
|
%
|
|
|
20,000
|
|
|
|
20,000
|
|
Discount – net
|
|
|
|
|
|
|
|
|
|
|
(21,073
|
)
|
|
|
(17,151
|
)
|
Deferred financing costs – net
|
|
|
|
|
|
|
|
|
|
|
(26,037
|
)
|
|
|
(27,703
|
)
|
Total senior notes and other unsecured borrowings
– net
|
|
|
|
|
|
|
|
|
|
|
3,324,390
|
|
|
|
3,028,146
|
|
Total unsecured borrowings – net
|
|
|
|
|
|
|
|
|
|
|
4,519,060
|
|
|
|
4,312,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured and unsecured borrowings
– net
|
|
|
|
|
|
|
|
|
|
$
|
4,572,158
|
|
|
$
|
4,366,854
|
|
|
(1)
|
Reflects
the weighted average annual contractual interest rate on the mortgages at December 31,
2017 excluding a third-party administration fee of approximately 0.5% annually. Secured
by real estate assets with a net carrying value of $62.0 million as of December 31, 2017.
This borrowing was incurred by wholly owned subsidiaries of Omega OP.
|
|
(2)
|
These amounts represent borrowings that were incurred
by Omega OP or wholly owned subsidiaries of Omega OP.
|
|
(3)
|
This
borrowing is denominated in British Pounds Sterling.
|
|
(4)
|
The
amount includes $0.6 million of net deferred financing costs related to the Omega OP
term loan as of December 31, 2017.
|
|
(5)
|
All
borrowing are direct borrowings of Omega unless otherwise noted.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Unsecured Borrowings
2017 Omega Credit Facilities
On May 25, 2017, Omega
entered into a credit agreement (the “2017 Omega Credit Agreement”) providing us with a new $1.8 billion senior unsecured
revolving and term loan credit facility, consisting of a $1.25 billion senior unsecured multicurrency revolving credit facility
(the “Revolving Credit Facility”), a $425 million senior unsecured U.S. Dollar term loan facility (the “U.S.
Term Loan Facility”), and a £100 million senior unsecured British Pound Sterling term loan facility (the “Sterling
Term Loan Facility” and, together with the Revolving Credit Facility and the U.S. Term Loan Facility, collectively, the
“2017 Omega Credit Facilities”). The 2017 Omega Credit Agreement contains an accordion feature permitting us, subject
to compliance with customary conditions, to increase the maximum aggregate commitments under the 2017 Omega Credit Facilities
to $2.5 billion.
The 2017 Omega Credit
Facilities replace the previous $1.25 billion senior unsecured 2014 revolving credit facility, the previous $200 million Tranche
A-1 senior unsecured term loan facility, and the previous $350 million Tranche A-3 senior unsecured incremental term loan facility
established under our 2014 credit agreement, which has been terminated (the “2014 Omega Credit Agreement”). We had
previously repaid and terminated the $200 million Tranche A-2 senior unsecured term loan facility established under the 2014 Omega
Credit Agreement, with proceeds from our $550 million and $150 million unsecured senior notes issued in April 2017.
The Revolving Credit Facility
bears interest at LIBOR plus an applicable percentage (with a range of 100 to 195 basis points) based on our ratings from Standard
& Poor’s, Moody’s and/or Fitch Ratings. The Revolving Credit Facility matures on May 25, 2021, subject to an option
by us to extend such maturity date for two, six month periods. The 2017 Omega Credit Agreement provides for the Revolving Credit
Facility to be drawn in Euros, British Pounds Sterling, Canadian Dollars (collectively, “Alternative Currencies”)
or U.S. Dollars, with a $900 million tranche available in U.S. Dollars and a $350 million tranche available in U.S. Dollars or
Alternative Currencies. For purposes of the 2017 Omega Credit Facilities, references to LIBOR include the Canadian dealer offered
rates for amounts offered in Canadian Dollars and any other Alternative Currency rate approved in accordance with the terms of
the 2017 Omega Credit Agreement for amounts offered in any other non-London interbank offered rate quoted currency, as applicable.
The U.S. Term Loan Facility
and the Sterling Term Loan Facility bear interest at LIBOR plus an applicable percentage (with a range of 90 to 190 basis points)
based on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings. The U.S. Term Loan Facility and the
Sterling Term Loan Facility each mature on May 25, 2022.
We recorded a non-cash
charge of approximately $5.5 million relating to the write-off of deferred financing costs associated with the termination of
the 2014 Omega Credit Agreement.
2017 Omega OP Term Loan Facility
On May 25, 2017, Omega
OP entered into a credit agreement (the “2017 Omega OP Credit Agreement”) providing it with a new $100 million senior
unsecured term loan facility (the “2017 Omega OP Term Loan Facility”). The 2017 Omega OP Credit Agreement replaces
the $100 million senior unsecured term loan facility obtained in 2015 (the “2015 Omega OP Term Loan Facility”) and
the related credit agreement (the “2015 Omega OP Credit Agreement”). The 2017 Omega OP Term Loan Facility bears interest
at LIBOR plus an applicable percentage (with a range of 90 to 190 basis points) based on our ratings from Standard & Poor’s,
Moody’s and/or Fitch Ratings. The 2017 Omega OP Term Loan Facility matures on May 25, 2022.
Omega OP’s obligations
in connection with the 2017 Omega OP Term Loan Facility are not currently guaranteed, but will be jointly and severally guaranteed
by any domestic subsidiary of Omega OP that provides a guaranty of any unsecured indebtedness of Omega or Omega OP for borrowed
money evidenced by bonds, debentures, notes or other similar instruments in an amount of at least $50 million individually or
in the aggregate.
Amended 2015 Term Loan Facility
On May 25, 2017, Omega
entered into an amended and restated credit agreement (the “Amended 2015 Credit Agreement”), which amended and restated
our previous $250 million senior unsecured term loan facility (the “Amended 2015 Term Loan Facility”). The Amended
2015 Term Loan Facility bears interest at LIBOR plus an applicable percentage (with a range of 140 to 235 basis points) based
on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings. The Amended 2015 Term Loan Facility continues
to mature on December 16, 2022. The Amended 2015 Credit Agreement permits us, subject to compliance with customary conditions,
to add one or more incremental tranches to the Amended 2015 Term Loan Facility in an aggregate principal amount not exceeding
$150 million.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Omega’s obligations
under the 2017 Omega Credit Facilities and the Amended 2015 Term Loan Facility are jointly and severally guaranteed by Omega OP
and any domestic subsidiary of Omega that provides a guaranty of any unsecured indebtedness of Omega for borrowed money evidenced
by bonds, debentures, notes or other similar instruments in an amount of at least $50 million individually or in the aggregate.
As a result of exposure
to interest rate movements associated with the Amended 2015 Term Loan Facility, on December 16, 2015, we entered into various
forward-starting interest rate swap arrangements, which effectively converted $250 million of our variable-rate debt based on
one-month LIBOR to an aggregate fixed rate of approximately 3.8005% effective December 30, 2016. The effective fixed rate achieved
by the combination of the Amended 2015 Term Loan Facility and the interest rate swaps could fluctuate up by 55 basis points or
down by 40 basis points based on future changes to our credit ratings. Each of these swaps began on December 30, 2016 and mature
on December 15, 2022. On the date of inception, we designated the interest rate swaps as cash flow hedges in accordance with accounting
guidance for derivatives and hedges and linked the interest rate swaps to the Amended 2015 Term Loan Facility. Because the critical
terms of the interest rate swaps and Amended 2015 Term Loan Facility coincided, the hedges are expected to exactly offset changes
in expected cash flows as a result of fluctuations in 1-month LIBOR over the term of the hedges. The purpose of entering into
the swaps was to reduce our exposure to future changes in variable interest rates. The interest rate swaps settle on a monthly
basis when interest payments are made. These settlements will occur through the maturity date of the Amended 2015 Term Loan Facility.
The interest rate for the Amended 2015 Term Loan Facility was not hedged for the portion of the term prior to December 30, 2016.
$700 Million 4.375% Senior Notes due 2023
On July 12, 2016, we issued
$700 million aggregate principal amount of our 4.375% Senior Notes due 2023 (the “2023 Notes”). The 2023 Notes were
sold at an issue price of 99.739% of their face value before the underwriters’ discount. Our net proceeds from the offering,
after deducting underwriting discounts and expenses, were approximately $692.0 million. The net proceeds from the offering were
used to repay outstanding borrowings under our revolving credit facility, to purchase the $180.0 million mortgage term loan and
for general corporate purposes. The 2023 Notes mature on August 1, 2023 and pay interest semi-annually.
Redemption of $400 Million 5.875% Senior
Notes due 2024
On April 28, 2017, we
redeemed all of our outstanding $400 million aggregate principal amount of 5.875% Senior Notes due 2024 (the “5.875% Notes”).
As a result of the redemption, during the second quarter of 2017, we recorded 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.
$400 Million 4.95% Senior Notes due 2024
On March 11, 2014, we sold $400
million aggregate principal amount of our 4.95% Senior Notes due 2024 (the “2024 Notes”). These notes were sold at
an issue price of 98.58% of the principal amount of the notes, before the initial purchasers’ discount resulting in gross
proceeds of approximately $394.3 million. The 2024 Notes mature on April 1, 2024 and pay interest semi-annually.
$400 Million 4.50% Senior Notes due 2025
On September 11, 2014,
we sold $250 million aggregate principal amount of our 4.50% Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes
were sold at an issue price of 99.131% of their face value before the initial purchasers’ discount resulting in gross proceeds
of approximately $247.8 million. The 2025 Notes mature on January 15, 2025 and pay interest semi-annually.
On April 4, 2017, we issued an additional
$150 million aggregate principal amount of our existing 2025 Notes (the “additional $150 million 2025 Notes”). The
additional $150 million 2025 Notes were sold at an issue price of 99.540% of their face value before the underwriters’ discount.
Our net proceeds from the additional $150 million 2025 Notes, after deducting underwriting discounts and expenses, were approximately
$149.9 million (inclusive of accrued interest). See $
550 Million 4.75% Senior Notes due 2028
below for the use of these
proceeds.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
$600 Million 5.25% Senior Notes due 2026
On September 23, 2015,
we sold $600 million aggregate principal amount of our 5.250% Senior Notes due 2026 (the “2026 Notes”). The 2026 Notes
were sold at an issue price of 99.717% of their face value before the initial purchasers’ discount. Our total net proceeds
from the offering, after deducting initial purchasers’ discounts and other offering expenses, were approximately $594.4
million. The net proceeds of the offering were used to repay our outstanding $575 million aggregate principal amount 6.75% Senior
Notes due 2022 and for general corporate purposes. The 2026 Notes mature on January 15, 2026 and pay interest semi-annually.
$700 Million 4.50% Senior Notes due 2027
On March 18, 2015, we
sold $700 million aggregate principal amount of our 4.50% Senior Notes due 2027 (the “2027 Notes”). The 2027 Notes
were sold at an issue price of 98.546% of their face value before the initial purchasers’ discount. Our total net proceeds
from the offering, after deducting initial purchasers’ discounts and other offering expenses, were approximately $683 million.
The net proceeds of the offering were used for general corporate purposes, including the repayment of Aviv indebtedness on April
1, 2015 in connection with the Aviv Merger, and repayment of future maturities on our outstanding debt. The 2027 Notes mature
on April 1, 2027 and pay interest semi-annually.
$550 Million 4.75% Senior Notes due 2028
On April 4, 2017, we issued
$550 million aggregate principal amount of our 4.75% Senior Notes due 2028 (the “2028 Notes”). The 2028 Notes mature
on January 15, 2028. The 2028 Notes were sold at an issue price of 98.978% of their face value before the underwriters’
discount. Our net proceeds from the 2028 Notes offering, after deducting underwriting discounts and expenses, were approximately
$540.8 million. The net proceeds from the 2028 Notes offering and the additional $150 million 2025 Notes offering were used to
(i) redeem all of our outstanding 5.875% Notes on April 28, 2017, (ii) prepay the $200 million 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 our revolving
credit facility.
Other Debt Repayments
In connection with the
Aviv Merger on April 1, 2015, we assumed notes payable with a face amount of $650 million and a revolving credit facility with
an outstanding balance of $525 million. In connection with the Aviv Merger, we repaid this debt assumed from Aviv on April 1,
2015. Due to the contractual requirements for early repayments; we paid approximately $705.6 million to retire the $650 million
notes assumed. The amount repaid in connection with the revolving credit facility was $525 million.
General
Certain of our other secured
and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of December
31, 2017 and 2016, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured
and unsecured borrowings. Omega OP, the guarantor of Parent’s outstanding senior notes, does not directly own any substantive
assets other than its interest in non-guarantor subsidiaries.
The required principal
payments, excluding the premium or discount and deferred financing costs on our secured and unsecured borrowings, for each of
the five years following December 31, 2017 and the aggregate due thereafter are set forth below:
|
|
(in thousands)
|
|
2018
|
|
$
|
2,828
|
|
2019
|
|
|
1,370
|
|
2020
|
|
|
1,412
|
|
2021
|
|
|
311,456
|
|
2022
|
|
|
911,631
|
|
Thereafter
|
|
|
3,396,599
|
|
Totals
|
|
$
|
4,625,296
|
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
The following summarizes the refinancing related
costs:
|
|
Year Ended December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Write off of deferred financing costs
and unamortized premiums due to refinancing
(1)(2)(3)
|
|
$
|
10,195
|
|
|
$
|
301
|
|
|
$
|
(7,134
|
)
|
Prepayment and other costs associated
with refinancing
(4)
|
|
|
11,770
|
|
|
|
1,812
|
|
|
|
35,971
|
|
Total debt extinguishment costs
|
|
$
|
21,965
|
|
|
$
|
2,113
|
|
|
$
|
28,837
|
|
|
(1)
|
In 2017, we
recorded (a) $4.7 million of write-offs of unamortized deferred costs associated with
the early redemption of our 5.875% Notes and (b) $5.5 million of write-offs of unamortized
deferred financing costs associated with the termination of the 2014 Omega Credit Agreement.
|
|
(2)
|
In 2016, we
recorded $0.3 million of write-offs of unamortized deferred financing costs associated
with three facilities that were acquired via a deed-in-lieu of foreclosure.
|
|
(3)
|
In 2015, we
recorded: (a) $4.2 million of write-offs of unamortized deferred financing costs and
discount associated with the early redemption of our $200 million 7.5% Senior Notes due
2020, (b) $1.9 million in net write-offs associated with unamortized deferred financing
costs and original issuance premiums/discounts associated with the early redemption of
our $575 million 6.75% Senior Notes due 2022, offset by (c) $13.2 million gain related
to the early extinguishment of debt from the write off of unamortized premiums on HUD
debt. In 2015, we paid approximately $188.5 million to retire 24 HUD mortgage loans.
|
|
(4)
|
In 2017, we
made $11.8 million of prepayment penalties associated with the early redemption of our
5.875% Notes. In 2016, we purchased a $180 million mortgage term loan and paid a 1% premium
of approximately $1.8 million to purchase the debt. In 2015, we made: (a) $7.5 million
of prepayment penalties associated with the early redemption of our $200 million 7.5%
Senior Notes due 2020, (b) $19.4 million of prepayment penalties associated with the
early redemption of our $575 million 6.75% Senior Notes due 2022 and (c) $9.1 million
of prepayment penalties associated with 24 HUD mortgage loans that we paid off in 2015.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 13 – FINANCIAL INSTRUMENTS
The net carrying amount
of cash and cash equivalents, restricted cash and contractual receivables reported in the Consolidated Balance Sheets approximates
fair value because of the short maturity of these instruments (Level 1).
At December 31, 2017 and
2016, the net carrying amounts and fair values of our financial instruments were as follows:
|
|
2017
|
|
|
2016
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in direct financing leases – net
|
|
$
|
364,965
|
|
|
$
|
364,965
|
|
|
$
|
601,938
|
|
|
$
|
598,665
|
|
Mortgage notes receivable – net
|
|
|
671,232
|
|
|
|
686,772
|
|
|
|
639,343
|
|
|
|
644,961
|
|
Other investments – net
|
|
|
276,342
|
|
|
|
281,031
|
|
|
|
256,846
|
|
|
|
253,385
|
|
Total
|
|
$
|
1,312,539
|
|
|
$
|
1,332,768
|
|
|
$
|
1,498,127
|
|
|
$
|
1,497,011
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit
|
|
$
|
290,000
|
|
|
$
|
290,000
|
|
|
$
|
190,000
|
|
|
$
|
190,000
|
|
Tranche A-1 term loan – net
|
|
|
—
|
|
|
|
—
|
|
|
|
198,830
|
|
|
|
200,000
|
|
Tranche A-2 term loan
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Tranche A-3 term loan – net
|
|
|
—
|
|
|
|
—
|
|
|
|
347,449
|
|
|
|
350,000
|
|
U.S. term loan – net
|
|
|
422,498
|
|
|
|
425,000
|
|
|
|
—
|
|
|
|
—
|
|
Sterling term loan – net
|
|
|
134,360
|
|
|
|
135,130
|
|
|
|
—
|
|
|
|
—
|
|
Omega OP term loan – net
(1)
|
|
|
99,423
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
2015 term loan – net
|
|
|
248,390
|
|
|
|
250,000
|
|
|
|
248,064
|
|
|
|
250,000
|
|
4.375% notes due 2023 – net
|
|
|
693,474
|
|
|
|
711,190
|
|
|
|
692,305
|
|
|
|
693,505
|
|
5.875% notes due 2024 – net
|
|
|
—
|
|
|
|
—
|
|
|
|
395,065
|
|
|
|
432,938
|
|
4.95% notes due 2024 – net
|
|
|
393,680
|
|
|
|
420,604
|
|
|
|
392,669
|
|
|
|
406,361
|
|
4.50% notes due 2025 – net
|
|
|
394,640
|
|
|
|
399,874
|
|
|
|
245,949
|
|
|
|
249,075
|
|
5.25% notes due 2026 – net
|
|
|
594,321
|
|
|
|
625,168
|
|
|
|
593,616
|
|
|
|
611,461
|
|
4.50% notes due 2027 – net
|
|
|
686,516
|
|
|
|
681,007
|
|
|
|
685,052
|
|
|
|
681,978
|
|
4.75% notes due 2028 – net
|
|
|
539,882
|
|
|
|
550,667
|
|
|
|
—
|
|
|
|
—
|
|
HUD debt – net
(1)
|
|
|
53,098
|
|
|
|
51,817
|
|
|
|
54,365
|
|
|
|
52,510
|
|
Subordinated debt – net
|
|
|
20,376
|
|
|
|
23,646
|
|
|
|
20,490
|
|
|
|
23,944
|
|
Other
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
3,000
|
|
|
|
3,000
|
|
Total
|
|
$
|
4,572,158
|
|
|
$
|
4,665,603
|
|
|
$
|
4,366,854
|
|
|
$
|
4,444,772
|
|
|
(1)
|
These amounts
represent borrowings that were incurred by Omega OP or wholly owned subsidiaries of Omega
OP.
|
Fair value estimates are
subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks,
discount rates and relevant comparable market information associated with each financial instrument (see Note 2 – Summary
of Significant Accounting Policies). The use of different market assumptions and estimation methodologies may have a material
effect on the reported estimated fair value amounts.
The following methods
and assumptions were used in estimating fair value disclosures for financial instruments.
|
·
|
Direct
financing leases: The fair value of the investments in direct financing leases are estimated
using a discounted cash flow analysis, using interest rates being offered for similar
leases to borrowers with similar credit ratings (Level 3). In addition, the Company may
estimate the fair value of its investment based on the estimated fair value of the collateral
using a market approach or an income approach which considers inputs such as, current
and projected operating performance of the facilities, projected rent, prevailing capitalization
rates and/or coverages and bed values (Level 3).
|
|
·
|
Mortgage
notes receivable: The fair value of the mortgage notes receivables are estimated using
a discounted cash flow analysis, using interest rates being offered for similar loans
to borrowers with similar credit ratings (Level 3).
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
|
·
|
Other
investments: Other investments are primarily comprised of notes receivable. The fair
values of notes receivable are estimated using a discounted cash flow analysis, using
interest rates being offered for similar loans to borrowers with similar credit ratings
(Level 3).
|
|
·
|
Revolving
line of credit and term loans: The fair value of our borrowings under variable rate agreements
are estimated using a present value technique based on expected cash flows discounted
using the current market rates (Level 3).
|
|
·
|
Senior
notes and subordinated debt: The fair value of our borrowings under fixed rate agreements
are estimated using a present value technique based on inputs from trading activity provided
by a third party (Level 2).
|
|
·
|
HUD
debt: The fair value of our borrowings under HUD debt agreements are estimated using
an expected present value technique based on quotes obtained by HUD debt brokers (Level
2).
|
NOTE 14 – TAXES
Omega is a REIT for United
States federal income tax purposes, and Omega OP is a pass through entity for United States federal income tax purposes.
Omega and Omega OP,
including their wholly owned subsidiaries were organized, have operated, and intend to continue to operate in a manner that
enables Omega to qualify for taxation as a REIT under Sections 856 through 860 of the Code. On a quarterly and annual basis
we perform several analyses to test our compliance within the REIT taxation rules. In order to qualify as a REIT, in addition
to other requirements, we must: (i) distribute dividends (other than capital gain dividends) to our stockholders in an amount
at least equal to (A) the sum of (a) 90% of our “REIT taxable income” (computed without regard to the dividends
paid deduction and our net capital gain), and (b) 90% of the net income (after tax), if any, from foreclosure property, minus
(B) the sum of certain items of non-cash income on an annual basis, (ii) ensure that at least 75% and 95%, respectively, of
our gross income is generated from qualifying sources that are described in the REIT tax law, (iii) ensure that at least 75%
of our assets consist of qualifying assets, such as real property, mortgages, and other qualifying assets described in the
REIT tax law, (iv) ensure that we do not own greater than 10% in voting power or value of securities of any one issuer, (v)
ensure that we do not own either debt or equity securities of another company that are in excess of 5% of our total assets
and (vi) ensure that no more than 25% of our assets are invested in one or more taxable REIT subsidiaries (and with respect
to taxable years beginning after December 31, 2017, no more than 20%). In addition to the above requirements, the REIT rules
require that no less than 100 stockholders own shares or an interest in the REIT and that five or fewer individuals do not
own (directly or indirectly) more than 50% of the shares or proportionate interest in the REIT during the last half of any
taxable year. If we fail to meet the above or any other requirements for qualification as a REIT in any tax year, we will be
subject to federal income tax on our taxable income at regular corporate rates and may not be able to qualify as a REIT for
the four subsequent years, unless we qualify for certain relief provisions that are available in the event we fail to satisfy
any of these requirements.
We are also subject to
federal taxation of 100% of the net income derived from the sale or other disposition of property, other than foreclosure property,
that we held primarily for sale to customers in the ordinary course of a trade or business. We believe that we do not hold assets
for sale to customers in the ordinary course of business and that none of the assets currently held for sale or that have been
sold would be considered a prohibited transaction within the REIT taxation rules.
So long as we qualify
as a REIT under the Code, we generally will not be subject to federal income taxes on the REIT taxable income that we distribute
to stockholders, subject to certain exceptions. In 2017, 2016, and 2015, we distributed dividends in excess of our taxable income.
Since the year 2000, the
definition of foreclosure property has included any “qualified health care property,” as defined in Code Section 856(e)(6)
acquired by us as the result of the termination or expiration of a lease of such property. We have from time to time operated
qualified healthcare facilities acquired in this manner for up to two years (or longer if an extension was granted). Properties
that we had taken back in a foreclosure or bankruptcy and operated for our own account were treated as foreclosure properties
for income tax purposes, pursuant to Code Section 856(e). Gross income from foreclosure properties was classified as “good
income” for purposes of the annual REIT income tests upon making the election on the tax return. Once made, the income was
classified as “good” for a period of three years, or until the properties were no longer operated for our own account.
In all cases of foreclosure property, we utilized an independent contractor to conduct day-to-day operations to maintain REIT
status. In certain cases, we operated these facilities through a taxable REIT subsidiary. For those properties operated through
the taxable REIT subsidiary, we formed a new entity (TC Healthcare) to act as the eligible independent contractor on our behalf
and conduct the day-to-day operations with respect to the health care facilities we held as foreclosure property in order for
us to maintain REIT status. We have not held foreclosure property since 2011. As a result of the foregoing, we do not believe
that our past participation in the operation of nursing homes increased the risk that we would fail to qualify as a REIT.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
We may be subject to income
or franchise taxes in certain states and municipalities. Also, we created five wholly owned subsidiary REITs and added a sixth
wholly owned subsidiary REIT as of January 1, 2016, all of which are subject to all of the REIT qualification rules set forth
in the Code. We merged five of the wholly owned subsidiary REITs into a single wholly owned subsidiary REIT in December 2015,
and then merged the sixth wholly owned subsidiary REIT into our other wholly owned subsidiary REIT in December 2016, which wholly
owned subsidiary REIT remains subject to all of the REIT qualification rules set forth in the Code.
Subject to the limitation
under the REIT asset test rules, we are permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries (“TRSs”).
We have elected for two of our active subsidiaries to be treated as TRSs. One of our TRSs is subject to federal, state and local
income taxes at the applicable corporate rates and the other is subject to foreign income taxes. As of December 31, 2017, our TRS
that is subject to federal, state and local income taxes at the applicable corporate rates had a net operating loss carry-forward
of approximately $5.4 million. The loss carry-forward is fully reserved as of December 31, 2017, with a valuation allowance due
to uncertainties regarding realization. Our net operating loss carryforwards generated up through December 31, 2017 will be carried
forward for no more than 20 years.
For the year ended
December 31, 2017, 2016 and 2015, we recorded approximately $2.4 million, $3.3 million and $1.0 million, respectively, of federal,
state and local income tax provision. For the year ended December 31, 2017, 2016 and 2015, we recorded a provision (benefit) for
foreign income taxes of approximately $0.8 million, $(1.9) million and $0.2 million, respectively.
The following is a summary of deferred tax assets and liabilities:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign
deferred tax assets
(1)
|
|
$
|
2,341
|
|
|
$
|
1,811
|
|
Federal net operating loss carryforward
|
|
|
1,142
|
|
|
|
253
|
|
Total deferred assets
|
|
|
3,483
|
|
|
|
2,064
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Foreign
deferred tax liabilities
(1)
|
|
|
17,747
|
|
|
|
9,906
|
|
Total net deferred liabilities before valuation allowances
|
|
|
(14,264
|
)
|
|
|
(7,842
|
)
|
Valuation allowance on deferred tax asset
|
|
|
(1,142
|
)
|
|
|
(253
|
)
|
Net deferred tax liabilities
|
|
$
|
(15,406
|
)
|
|
$
|
(8,095
|
)
|
|
(1)
|
The
deferred tax assets and liabilities primarily resulted from inherited basis differences
resulting from our acquisition of entities in the U.K. Subsequent adjustments to these
accounts result from GAAP to tax differences related to depreciation, indexation and
revenue recognition.
|
On December 22, 2017,
the Tax Cuts and Jobs Act (the "Tax Act") was enacted. The Tax Act includes numerous changes to existing U.S. tax law,
including lowering the statutory U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Company
has completed its preliminary assessment of these changes, and has determined that there is an immaterial impact to the financial
statements.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 15 – RETIREMENT ARRANGEMENTS
Our Company has a 401(k)
Profit Sharing Plan covering all eligible employees. Under this plan, employees are eligible to make contributions, and we, at
our discretion, may match contributions and make a profit sharing contribution. Amounts charged to operations with respect to
these retirement arrangements totaled approximately $0.5 million, $0.5 million, $0.4 million in 2017, 2016 and 2015, respectively.
In addition, we have a
deferred stock compensation plan that allows employees and directors the ability to defer the receipt of stock awards. The deferred
stock awards (units) participate in future dividends as well as the change in the value of the Company’s common stock. As
of December 31, 2017 and 2016, the Company had 423,296 and 384,107 deferred stock units outstanding.
NOTE 16 – STOCKHOLDERS’/OWNERS’ EQUITY
$500 Million Equity Shelf Program
On September 3, 2015,
we entered into separate Equity Distribution Agreements (collectively, the “Equity Shelf Agreements”) to sell shares
of our common stock having an aggregate gross sales price of up to $500 million (the “2015 Equity Shelf Program”)
with several financial institutions, each as a sales agent and or principal (collectively, the “Managers”). Under
the terms of the Equity Shelf Agreements, we may sell shares of our common stock, from time to time, through or to the Managers
having an aggregate gross sales price of up to $500 million. Sales of the shares, if any, will be made by means of ordinary brokers’
transactions on the New York Stock Exchange at market prices, or as otherwise agreed with the applicable Manager. We will pay
each Manager compensation for sales of the shares equal to 2% of the gross sales price per share for shares sold through such
Manager under the applicable Equity Shelf Agreements.
For the year ended December
31, 2015, we did not issue any shares under the 2015 Equity Shelf Program. For the year ended December 31, 2016, we issued approximately
0.7 million shares under the 2015 Equity Shelf Program, at an average price of $29.97 per share, net of issuance costs, generating
net proceeds of approximately $19.7 million. For the year ended December 31, 2017, we issued approximately 0.7 million shares
under the 2015 Equity Shelf Program, at an average price of $30.81 per share, net of issuance costs, generating net proceeds of
approximately $22.1 million.
Increase of Authorized Omega Common Stock
On March 27, 2015, we
amended our charter to increase the number of authorized shares of our capital stock from 220 million to 370 million and the number
of authorized shares of our common stock from 200 million to 350 million.
10.925 Million Common
Stock Offering
On February 9, 2015, we
completed an underwritten public offering of 10.925 million shares of our common stock at $42.00 per share before underwriting
and other offering expenses. The Company’s total net proceeds from the offering were approximately $440 million, after deducting
underwriting discounts and commissions and other estimated offering expenses.
Dividend Reinvestment and Common Stock
Purchase Plan
We have a Dividend Reinvestment
and Common Stock Purchase Plan (the “DRSPP”) that allows for the reinvestment of dividends and the optional purchase
of our common stock. For the year ended December 31, 2017, we issued 1.2 million shares of common stock for gross proceeds of
approximately $36.7 million. For the year ended December 31, 2016, we issued 7.2 million shares of common stock for gross proceeds
of approximately $240.0 million. For the year ended December 31, 2015, we issued 4.2 million shares of common stock for gross
proceeds of approximately $150.8 million.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Accumulated Other Comprehensive Loss
The following is a summary of our accumulated
other comprehensive loss, net of tax where applicable:
|
|
As of and For the Year
Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(54,948
|
)
|
|
$
|
(8,413
|
)
|
|
$
|
—
|
|
Translation gain (loss)
|
|
|
28,644
|
|
|
|
(46,303
|
)
|
|
|
(8,240
|
)
|
Realized gain (loss)
|
|
|
311
|
|
|
|
(232
|
)
|
|
|
(173
|
)
|
Ending balance
|
|
|
(25,993
|
)
|
|
|
(54,948
|
)
|
|
|
(8,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
(1,420
|
)
|
|
|
(718
|
)
|
|
|
—
|
|
Unrealized gain (loss)
|
|
|
545
|
|
|
|
(719
|
)
|
|
|
(718
|
)
|
Realized gain
(1)
|
|
|
2,338
|
|
|
|
17
|
|
|
|
—
|
|
Ending balance
|
|
|
1,463
|
|
|
|
(1,420
|
)
|
|
|
(718
|
)
|
Net investment hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unrealized loss
|
|
|
(7,110
|
)
|
|
|
—
|
|
|
|
—
|
|
Ending balance
|
|
|
(7,110
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accumulated other comprehensive loss for Omega OP
(2)
|
|
|
(31,640
|
)
|
|
|
(56,368
|
)
|
|
|
(9,131
|
)
|
Add: portion included in noncontrolling interest
|
|
|
1,490
|
|
|
|
2,541
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss for Omega
|
|
$
|
(30,150
|
)
|
|
$
|
(53,827
|
)
|
|
$
|
(8,712
|
)
|
|
(1)
|
Recorded in interest
expense on the Consolidated Statements of Operations.
|
|
(2)
|
These amounts
are included in owners’ equity.
|
NOTE 17 – STOCK-BASED COMPENSATION
Restricted Stock and Restricted Stock Units
Restricted stock and restricted
stock units (“RSUs”) are subject to forfeiture if the holder’s service to us terminates prior to vesting, subject
to certain exceptions for certain qualifying terminations of employment or a change in control of the Company. Prior to vesting,
ownership of the shares/Omega OP Units cannot be transferred. The restricted stock has the same dividend and voting rights as
our common stock. RSUs accrue dividend equivalents but have no voting rights. Restricted stock and RSUs are valued at the price
of our common stock on the date of grant. We expense the cost of these awards ratably over their vesting period.
The RSUs assumed from
Aviv as part of the Aviv Merger were valued at the closing price of our stock on the date of the transaction. The portion of the
vesting accruing prior to the acquisition was recorded as part of the purchase price consideration. The expense associated with
the vesting that occurred after the date of the transaction was recorded as stock compensation expense ratably over the remaining
life of the RSUs.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
The following table summarizes
the activity in restricted stock and RSUs for the years ended December 31, 2015, 2016 and 2017:
|
|
Number of
Shares/Omega
OP Units
|
|
|
Weighted -
Average Grant-
Date Fair Value
per Share
|
|
|
Compensation
Cost
(1)
(in millions)
|
|
Non-vested at December 31, 2014
|
|
|
309,934
|
|
|
$
|
30.08
|
|
|
|
|
|
Granted during 2015
|
|
|
233,483
|
|
|
|
39.25
|
|
|
$
|
9.2
|
|
Assumed
in Aviv Merger
(2)
|
|
|
38,268
|
|
|
|
23.50
|
|
|
$
|
0.9
|
|
Cancelled during 2015
|
|
|
(61,911
|
)
|
|
|
33.77
|
|
|
|
|
|
Vested during 2015
|
|
|
(106,146
|
)
|
|
|
28.72
|
|
|
|
|
|
Non-vested at December 31, 2015
|
|
|
413,628
|
|
|
$
|
34.45
|
|
|
|
|
|
Granted during 2016
|
|
|
158,506
|
|
|
|
34.49
|
|
|
$
|
5.5
|
|
Cancelled during 2016
|
|
|
(905
|
)
|
|
|
24.92
|
|
|
|
|
|
Vested during 2016
|
|
|
(235,176
|
)
|
|
|
30.41
|
|
|
|
|
|
Non-vested at December 31, 2016
|
|
|
336,053
|
|
|
$
|
37.32
|
|
|
|
|
|
Granted during 2017
|
|
|
185,004
|
|
|
|
31.25
|
|
|
$
|
5.8
|
|
Cancelled during 2017
|
|
|
(1,000
|
)
|
|
|
34.78
|
|
|
|
|
|
Vested during 2017
|
|
|
(182,548
|
)
|
|
|
39.58
|
|
|
|
|
|
Non-vested at December 31, 2017
|
|
|
337,509
|
|
|
$
|
32.78
|
|
|
|
|
|
|
(1)
|
Total compensation
cost to be recognized on the awards based on grant date fair value, which is based on
the market price of the Company’s common stock on the date of grant.
|
|
(2)
|
Omega stock
price on April 1, 2015 was $40.74. The weighted average stock price indicated in the
table above represents the expense per unit that we will record related to the assumed
Aviv RSUs.
|
Performance Based Incentive Stock Units
Performance restricted
stock units (“PRSUs”) and long term incentive plan units (“LTIP Units”) are subject to forfeiture if the
performance requirements are not achieved or if the holder’s service to us terminates prior to vesting, subject to certain
exceptions for certain qualifying terminations of employment or a change in control of the Company. The PRSUs awarded in January
2013, December 2013, January 2014, March 2015, April 2015, July 2015, March 2016, and January 2017 and the LTIP Units awarded
in March 2015, April 2015, July 2015, March 2016, and January 2017 have varying degrees of performance requirements to achieve
vesting, and each PRSU and LTIP Units award represents the right to a variable number of shares of common stock or partnership
units (each LTIP Unit once earned is convertible into one Omega OP Unit in Omega OP, subject to certain conditions). The vesting
requirements are based on either the (i) total shareholders return (“TSR”) of Omega or (ii) Omega’s TSR relative
to other real estate investment trusts in the MSCI U.S. REIT Index for awards before 2016 and in the FTSE NAREIT Equity Health
Care Index for awards granted in or after 2016 (“Relative TSR”). We expense the cost of these awards ratably over
their service period.
Prior to vesting and the
distribution of shares, ownership of the PRSUs cannot be transferred. Dividends on the PRSUs are accrued and only paid to the
extent the applicable performance requirements are met. While each LTIP Unit is unearned, the employee receives a partnership
distribution equal to 10% of the quarterly approved regular periodic distributions per Omega OP Unit. The remaining partnership
distributions (which in the case of normal periodic distributions is equal to the total approved quarterly dividend on Omega’s
common stock) on the LTIP Units accumulate, and if the LTIP Units are earned, the accumulated distributions are paid.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
We used a Monte Carlo
model to estimate the fair value for the PRSUs and LTIP Units granted to the employees. The following are the significant assumptions
used in estimating the value of the awards for grants made on the following dates:
|
|
December
31, 2013
and
January 1,
2014
|
|
|
March
31, 2015
|
|
|
April 1,
2015
|
|
|
July 31,
2015
|
|
|
March 17,
2016
|
|
|
January 1,
2017
|
|
Closing
price on date of grant
|
|
$
|
29.80
|
|
|
$
|
40.57
|
|
|
$
|
40.74
|
|
|
$
|
36.26
|
|
|
$
|
34.78
|
|
|
$
|
31.26
|
|
Dividend yield
|
|
|
6.44%
|
|
|
|
5.23%
|
|
|
|
5.20%
|
|
|
|
6.07%
|
|
|
|
6.56%
|
|
|
|
7.81%
|
|
Risk free
interest rate at time of grant
|
|
|
0.04%
to 0.86%
|
|
|
|
0.10%
to 0.94%
|
|
|
|
0.09%
to 0.91%
|
|
|
|
0.13%
to 1.08%
|
|
|
|
0.50%
to 1.14%
|
|
|
|
0.66%
to 1.58%
|
|
Expected volatility
|
|
|
24.16%
to 25.86%
|
|
|
|
20.06%
to 21.09%
|
|
|
|
20.06%
to 21.08%
|
|
|
|
20.06%
to 20.21%
|
|
|
|
23.92%
to 24.88%
|
|
|
|
22.82%
to 25.26%
|
|
The following table summarizes
the activity in PRSUs and LTIP Units for the years ended December 31, 2015, 2016 and 2017:
|
|
Number of
Shares
|
|
|
Weighted-
Average Grant-
Date Fair Value
per Share
|
|
|
Compensation
Cost
(1)
(in millions)
|
|
Non-vested at December 31, 2014
|
|
|
850,213
|
|
|
$
|
10.97
|
|
|
|
|
|
Granted during 2015
|
|
|
537,923
|
|
|
|
18.51
|
|
|
$
|
10.0
|
|
Cancelled during 2015
|
|
|
(165,570
|
)
|
|
|
14.11
|
|
|
|
|
|
Forfeited during 2015
|
|
|
(128,073
|
)
|
|
|
12.04
|
|
|
|
|
|
Vested during 2015
(2)
|
|
|
(181,406
|
)
|
|
|
10.10
|
|
|
|
|
|
Non-vested at December 31, 2015
|
|
|
913,087
|
|
|
$
|
14.87
|
|
|
|
|
|
Granted during 2016
|
|
|
679,549
|
|
|
|
14.67
|
|
|
$
|
10.0
|
|
Forfeited during 2016
|
|
|
(518,638
|
)
|
|
|
12.10
|
|
|
|
|
|
Vested during 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Non-vested at December 31, 2016
|
|
|
1,073,998
|
|
|
$
|
16.08
|
|
|
|
|
|
Granted during 2017
|
|
|
685,064
|
|
|
|
14.87
|
|
|
$
|
10.2
|
|
Cancelled during 2017
|
|
|
(5,361
|
)
|
|
|
15.98
|
|
|
|
|
|
Forfeited during 2017
|
|
|
(392,921
|
)
|
|
|
18.33
|
|
|
|
|
|
Vested during 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Non-vested at December 31, 2017
|
|
|
1,360,780
|
|
|
$
|
14.82
|
|
|
|
|
|
|
(1)
|
Total compensation
cost to be recognized on the awards was based on the grant date fair value or the modification
date fair value.
|
|
(2)
|
PRSUs are shown
as vesting in the year that the Compensation Committee determines the level of achievement
of the applicable performance measures.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
The following table summarizes our total unrecognized
compensation cost as of December 31, 2017 associated with restricted stock, restricted stock units, PRSU awards, and LTIP Unit
awards to employees:
|
|
Grant
Year
|
|
Shares/ Units
(1)
|
|
|
Grant Date
Average
Fair Value
Per Unit/
Share
|
|
|
Total
Compensation
Cost
(1)
(in millions)
|
|
|
Weighted
Average
Period of
Expense
Recognition
(in months)
|
|
|
Unrecognized
Compensation
Cost
(2)
(in
millions)
|
|
|
Performance
Period
|
|
Vesting
Dates
|
RSUs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/17/16 RSU
|
|
2016
|
|
|
130,006
|
|
|
|
34.78
|
|
|
|
4.5
|
|
|
|
33
|
|
|
|
0.9
|
|
|
N/A
|
|
12/31/2018
|
1/1/2017 RSU
|
|
2017
|
|
|
140,416
|
|
|
|
31.26
|
|
|
|
4.4
|
|
|
|
36
|
|
|
|
2.9
|
|
|
N/A
|
|
12/31/2019
|
Restricted Stock Units Total
|
|
|
|
|
270,422
|
|
|
$
|
32.95
|
|
|
$
|
8.9
|
|
|
|
|
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSR PRSUs and LTIP Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/15 2017 LTIP Units
|
|
2015
|
|
|
137,249
|
|
|
|
14.66
|
|
|
|
2.0
|
|
|
|
45
|
|
|
|
0.5
|
|
|
1/1/2015-12/31/2017
|
|
Quarterly in 2018
|
4/1/2015 2017 LTIP Units
|
|
2015
|
|
|
53,387
|
|
|
|
14.81
|
|
|
|
0.8
|
|
|
|
45
|
|
|
|
0.2
|
|
|
1/1/2015-12/31/2017
|
|
Quarterly in 2018
|
3/17/2016 2018 LTIP Units
|
|
2016
|
|
|
370,152
|
|
|
|
13.21
|
|
|
|
4.9
|
|
|
|
45
|
|
|
|
2.6
|
|
|
1/1/2016-12/31/2018
|
|
Quarterly in 2019
|
1/1/2017 2019 LTIP Units
|
|
2017
|
|
|
399,726
|
|
|
|
12.61
|
|
|
|
5.0
|
|
|
|
48
|
|
|
|
3.8
|
|
|
1/1/2017-12/31/2019
|
|
Quarterly in 2020
|
TSR PRSUs & LTIP Total
|
|
|
|
|
960,514
|
|
|
$
|
13.26
|
|
|
$
|
12.7
|
|
|
|
|
|
|
$
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative TSR PRSUs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/15 2017 Relative TSR
|
|
2015
|
|
|
137,249
|
|
|
|
22.50
|
|
|
|
3.1
|
|
|
|
45
|
|
|
|
0.8
|
|
|
1/1/2015-12/31/2017
|
|
Quarterly in 2018
|
4/1/2015 2017 Relative TSR
|
|
2015
|
|
|
53,387
|
|
|
|
22.92
|
|
|
|
1.2
|
|
|
|
45
|
|
|
|
0.3
|
|
|
1/1/2015-12/31/2017
|
|
Quarterly in 2018
|
3/17/2016 2018 Relative TSR
|
|
2016
|
|
|
305,563
|
|
|
|
16.44
|
|
|
|
5.1
|
|
|
|
45
|
|
|
|
2.6
|
|
|
1/1/2016-12/31/2018
|
|
Quarterly in 2019
|
1/1/2017 2019 Relative TSR
|
|
2017
|
|
|
285,338
|
|
|
|
18.04
|
|
|
|
5.1
|
|
|
|
48
|
|
|
|
3.9
|
|
|
1/1/2017-12/31/2019
|
|
Quarterly in 2020
|
Relative TSR PRSUs Total
|
|
|
|
|
781,537
|
|
|
$
|
18.53
|
|
|
$
|
14.5
|
|
|
|
|
|
|
$
|
7.6
|
|
|
|
|
|
Grand Total
|
|
|
|
|
2,012,473
|
|
|
$
|
17.95
|
|
|
$
|
36.1
|
|
|
|
|
|
|
$
|
18.5
|
|
|
|
|
|
|
(1)
|
Total shares/units and compensation costs are net of shares/units cancelled.
|
|
(2)
|
This table excludes approximately $1.1 million of unrecognized compensation costs related to our
directors.
|
Stock Options and Tax Withholding
As part of the Aviv Merger,
we assumed approximately 5.7 million Aviv employee stock options that were fully vested prior to the merger. On April 1, 2015,
the Aviv stock options were converted into Omega stock options at an exchange ratio of 0.9 resulting in issuance of approximately
5.1 million Omega stock options. The intrinsic value of the stock option assumed on April 1, 2015 was approximately $99.2 million
and was recorded as part of the consideration provided in the merger. During 2017, 2016 and 2015, approximately 26 thousand, 2.5
million and 2.6 million options, respectively, were exercised at a weighted average price of $18.97 per share, $19.38 per share
and $19.38 per share, respectively.
Stock withheld to pay
minimum statutory tax withholdings for equity instruments granted under stock-based payment arrangements for the years ended December
31, 2017, 2016 and 2015, was $2.1 million, $23.4 million and $26.7 million, respectively.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
Shares Available for Issuance for Compensation
Purposes
On June 6, 2013, at our
Company’s Annual Meeting, our stockholders approved the 2013 Stock Incentive Plan (the “2013 Plan”), which amended
and restated the Company’s 2004 Stock Incentive Plan. The 2013 Plan is a comprehensive incentive compensation plan that
allows for various types of equity-based compensation, including restricted stock units (including performance-based restricted
stock units and LTIP units), stock awards, deferred restricted stock units, incentive stock options, non-qualified stock options,
stock appreciation rights, dividend equivalent rights and certain cash-based awards (including performance-based cash awards).
The 2013 Plan increased the number of shares reserved for issuance for compensation purposes by 3.0 million.
As of December 31, 2017,
approximately 1.6 million shares of common stock were reserved for issuance to our employees, directors and consultants under
our stock incentive plans.
NOTE 18 – DIVIDENDS
Common Dividends
The Board of Directors
has declared common stock dividends as set forth below:
Record Date
|
|
Payment Date
|
|
Dividend per
Common
Share
|
|
|
Increase over
Prior
Quarter
|
|
January 31, 2017
|
|
February 15, 2017
|
|
$
|
0.62
|
|
|
$
|
0.01
|
|
May 1, 2017
|
|
May 15, 2017
|
|
|
0.63
|
|
|
|
0.01
|
|
August 1, 2017
|
|
August 15, 2017
|
|
|
0.64
|
|
|
|
0.01
|
|
October 31, 2017
|
|
November 15, 2017
|
|
|
0.65
|
|
|
|
0.01
|
|
January 31, 2018
|
|
February 15, 2018
|
|
|
0.66
|
|
|
|
0.01
|
|
On the same dates listed
above, Omega OP Unit holders received the same distributions per unit as those paid to the common stockholders of Omega.
Per Share Distributions
Per share distributions
by our Company were characterized in the following manner for income tax purposes (unaudited):
|
|
Year Ended December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
1.571
|
|
|
$
|
1.968
|
|
|
$
|
1.133
|
|
Return of capital
|
|
|
0.932
|
|
|
|
0.322
|
|
|
|
1.047
|
|
Capital gains
|
|
|
0.037
|
|
|
|
0.070
|
|
|
|
-
|
|
Total dividends paid
|
|
$
|
2.540
|
|
|
$
|
2.360
|
|
|
$
|
2.180
|
|
For additional information regarding dividends,
see Note 14 – Taxes.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Litigation
On November 16, 2017,
a purported securities class action complaint captioned
Dror Gronich v. Omega Healthcare Investors, Inc., C. Taylor Pickett,
Robert O. Stephenson, and Daniel J. Booth
was filed against the Company and certain of its officers in the United States District
Court for the Southern District of New York, Case No. 1:17-cv-08983-NRB. On November 17, 2017, a second purported securities class
action complaint captioned
Steve Klein v. Omega Healthcare Investors, Inc., C. Taylor Pickett, Robert O. Stephenson, and Daniel
J. Booth
was filed against the Company and the same officers in the United States District Court for the Southern District
of New York, Case No. 1:17-cv-09024-NRB. Both lawsuits purport to be class actions brought on behalf of shareholders who acquired
the Company’s securities between February 8, 2017 and October 31, 2017. Both complaints allege that the defendants violated
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by making materially false and/or misleading
statements, and by failing to disclose material adverse facts, about the Company’s business, operations, and prospects,
including regarding the financial and operating results of certain of the Company’s operators, the ability of certain operators
to make timely rent payments, and the impairment of certain of the Company’s leases and the uncollectibility of certain
receivables. The complaints, which purport to assert claims for violations of Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, as well as Section 20(a) of the Exchange Act, seek an unspecified amount of monetary damages, interest,
fees and expenses of attorneys and experts, and other relief.
On January 16, 2017, four
plaintiffs and one group of plaintiffs acting jointly filed motions for consolidation of the two actions, appointment of counsel,
and appointment of lead plaintiff. They are: (i) The Hannah Rosa Trust; (ii) Patricia Zaborowski, Hong Jun, Cynthia Peterson,
Simona Vacchieri, and Glenn Fausz (self-defined as the “Omega Investor Group”); (iii) Royce Setzer; (iv) Carpenters
Pension Fund of Illinois; and (v) Glenn Fausz. The Omega Investor Group and The Hannah Rosa Trust thereafter withdrew their applications.
The motions are pending before the Court.
Although the Company denies
the material allegations of the two complaints and intends to vigorously pursue its defense, we are in the very early stages of
this litigation and are unable to predict the outcome of the case or to estimate the amount of potential costs.
In addition, we are subject
to various other legal proceedings, claims and other actions arising out of the normal course of business. While any legal proceeding
or claim has an element of uncertainty, management believes that the outcome of each lawsuit, claim or legal proceeding that is
pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial position
or results of operations.
Commitments
We have committed to fund the construction
of new leased and mortgaged facilities and other capital improvements. We expect the funding of these commitments to be completed
over the next several years. Our remaining commitments at December 31, 2017, are outlined in the table below (in thousands):
Total commitment
|
|
$
|
682,249
|
|
Amount funded
(1)
|
|
|
383,586
|
|
Remaining commitment
|
|
$
|
298,663
|
|
|
(1)
|
Includes finance
costs.
|
Environmental Matters
As of December 31, 2017
and 2016, we had identified conditional asset retirement obligations primarily related to the future removal and disposal of asbestos
that is contained within certain of our real estate investment properties. The asbestos is appropriately contained, and we believe
we are compliant with current environmental regulations. If these properties undergo major renovations or are demolished, certain
environmental regulations are in place, which specify the manner in which asbestos must be handled and disposed. We are required
to record the fair value of these conditional liabilities if they can be reasonably estimated. As of December 31, 2017 and 2016,
sufficient information was not available to estimate our liability for conditional asset retirement obligations as the obligations
to remove the asbestos from these properties have indeterminable settlement dates. As such, no liability for conditional asset
retirement obligations was recorded on our accompanying Consolidated Balance Sheets as of December 31, 2017 and 2016.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 20 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS
OF CASH FLOWS
The following are supplemental
disclosures to the consolidated statements of cash flows for the year ended December 31, 2017, 2016 and 2015:
OMEGA HEALTHCARE INVESTORS, INC.
|
|
Year Ended December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Reconciliation of cash and cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
85,937
|
|
|
$
|
93,687
|
|
|
$
|
5,424
|
|
Restricted cash
|
|
|
10,871
|
|
|
|
13,589
|
|
|
|
14,607
|
|
Cash, cash equivalents and restricted cash at end of
period
|
|
$
|
96,808
|
|
|
$
|
107,276
|
|
|
$
|
20,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid during the period, net of amounts capitalized
|
|
$
|
182,832
|
|
|
$
|
148,326
|
|
|
$
|
145,929
|
|
Taxes paid during the period
|
|
$
|
4,141
|
|
|
$
|
4,922
|
|
|
$
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash acquisition of real estate (See Note 3)
|
|
$
|
(27,170
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Non cash acquisition of businesses (see Note 3 and Note 5)
|
|
|
—
|
|
|
|
(60,079
|
)
|
|
|
(3,602,040
|
)
|
Non cash surrender of mortgage (see Note 3 and Note 5)
|
|
|
—
|
|
|
|
25,000
|
|
|
|
—
|
|
Non cash investment in other investments
|
|
|
(6,353
|
)
|
|
|
—
|
|
|
|
—
|
|
Non cash proceeds from other investments (see Note 6 and Note 3)
|
|
|
30,187
|
|
|
|
5,500
|
|
|
|
—
|
|
Non cash settlement of direct financing lease (See Note
4)
|
|
|
18,989
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
15,653
|
|
|
$
|
(29,579
|
)
|
|
$
|
(3,602,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Aviv debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,410,637
|
|
Stock exchanged in merger
|
|
|
—
|
|
|
|
—
|
|
|
|
1,902,866
|
|
Omega OP Units exchanged in merger
|
|
|
—
|
|
|
|
—
|
|
|
|
373,394
|
|
Purchase option buyout obligation (see Note 3)
|
|
|
—
|
|
|
|
29,579
|
|
|
|
—
|
|
Change in fair value of cash flow hedges
|
|
|
2,970
|
|
|
|
764
|
|
|
|
718
|
|
Remeasurement of debt denominated in a foreign currency
|
|
|
7,070
|
|
|
|
—
|
|
|
|
—
|
|
Other unsecured long term borrowing (see Note 3 and Note
12)
|
|
|
—
|
|
|
|
3,000
|
|
|
|
—
|
|
Total
|
|
$
|
10,040
|
|
|
$
|
33,343
|
|
|
$
|
3,687,615
|
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
|
|
Year Ended December 31,
|
|
|
The period from
April 1, 2015
(Aviv Merger
date) through
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Reconciliation of cash and cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
85,937
|
|
|
$
|
93,687
|
|
|
$
|
5,424
|
|
Restricted cash
|
|
|
10,871
|
|
|
|
13,589
|
|
|
|
14,607
|
|
Cash, cash equivalents and restricted cash at end of
period
|
|
$
|
96,808
|
|
|
$
|
107,276
|
|
|
$
|
20,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid during the period, net of amounts capitalized
|
|
$
|
182,832
|
|
|
$
|
148,326
|
|
|
$
|
120,100
|
|
Taxes paid during the period
|
|
$
|
4,141
|
|
|
$
|
4,922
|
|
|
$
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash acquisition of real estate (See Note 3)
|
|
$
|
(27,170
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Non cash acquisition of businesses (see Note 3 and Note 5)
|
|
|
—
|
|
|
|
(60,079
|
)
|
|
|
(3,602,040
|
)
|
Non cash surrender of mortgage (see Note 3 and Note 5)
|
|
|
—
|
|
|
|
25,000
|
|
|
|
—
|
|
Non cash investment in other investments
|
|
|
(6,353
|
)
|
|
|
—
|
|
|
|
—
|
|
Non cash proceeds from other investments (see Note 6 and Note 3)
|
|
|
30,187
|
|
|
|
5,500
|
|
|
|
—
|
|
Non cash settlement of direct financing lease (See Note
4)
|
|
|
18,989
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
15,653
|
|
|
$
|
(29,579
|
)
|
|
$
|
(3,602,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Aviv debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,410,637
|
|
Contribution from Omega in merger
|
|
|
—
|
|
|
|
—
|
|
|
|
1,902,866
|
|
Omega OP Units exchanged in merger
|
|
|
—
|
|
|
|
—
|
|
|
|
373,394
|
|
Purchase option buyout obligation (see Note 3)
|
|
|
—
|
|
|
|
29,579
|
|
|
|
—
|
|
Change in fair value of cash flow hedges
|
|
|
2,970
|
|
|
|
764
|
|
|
|
718
|
|
Remeasurement of debt denominated in a foreign currency
|
|
|
7,070
|
|
|
|
—
|
|
|
|
—
|
|
Other unsecured long term borrowing (see Note 3 and Note
12)
|
|
|
—
|
|
|
|
3,000
|
|
|
|
—
|
|
Total
|
|
$
|
10,040
|
|
|
$
|
33,343
|
|
|
$
|
3,687,615
|
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE 21 – SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following summarizes
the Omega and Omega OP’s quarterly results of operations for the years ended December 31, 2017 and 2016:
Omega
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(in thousands, except per share amounts)
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
231,744
|
|
|
$
|
235,797
|
|
|
$
|
219,638
|
|
|
$
|
221,206
|
|
Net income (loss)
(1)
|
|
$
|
109,112
|
|
|
$
|
68,157
|
|
|
$
|
(137,515
|
)
|
|
$
|
65,156
|
|
Net income (loss) available to common stockholders
|
|
$
|
104,440
|
|
|
$
|
65,257
|
|
|
$
|
(131,678
|
)
|
|
$
|
62,400
|
|
Net income (loss) available to common per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.53
|
|
|
$
|
0.33
|
|
|
$
|
(0.67
|
)
|
|
$
|
0.31
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.53
|
|
|
$
|
0.33
|
|
|
$
|
(0.67
|
)
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
212,879
|
|
|
$
|
228,824
|
|
|
$
|
224,638
|
|
|
$
|
234,486
|
|
Net income
|
|
$
|
58,196
|
|
|
$
|
113,154
|
|
|
$
|
82,134
|
|
|
$
|
129,883
|
|
Net income available to common stockholders
|
|
$
|
55,555
|
|
|
$
|
108,052
|
|
|
$
|
78,549
|
|
|
$
|
124,259
|
|
Net income available to common per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.57
|
|
|
$
|
0.40
|
|
|
$
|
0.63
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
0.57
|
|
|
$
|
0.40
|
|
|
$
|
0.63
|
|
Omega OP
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(in thousands, except per share amounts)
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
231,744
|
|
|
$
|
235,797
|
|
|
$
|
219,638
|
|
|
$
|
221,206
|
|
Net income (loss)
(1)
|
|
$
|
109,112
|
|
|
$
|
68,157
|
|
|
$
|
(137,515
|
)
|
|
$
|
65,156
|
|
Net income (loss) available to Omega OP Unit holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.53
|
|
|
$
|
0.33
|
|
|
$
|
(0.67
|
)
|
|
$
|
0.31
|
|
Net income (loss) per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.53
|
|
|
$
|
0.33
|
|
|
$
|
(0.67
|
)
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
212,879
|
|
|
$
|
228,824
|
|
|
$
|
224,638
|
|
|
$
|
234,486
|
|
Net income
|
|
$
|
58,196
|
|
|
$
|
113,154
|
|
|
$
|
82,134
|
|
|
$
|
129,883
|
|
Net income available to Omega OP Unit holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.57
|
|
|
$
|
0.40
|
|
|
$
|
0.63
|
|
Net income per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
0.57
|
|
|
$
|
0.40
|
|
|
$
|
0.63
|
|
|
(1)
|
Amounts
reflect provisions for uncollectible accounts and impairment losses on real estate properties and direct financing leases of $10.0
million, $12.8 million, $224.4 million and $64.6 million for the three month periods ended March 31, 2017, June 30, 2017, September
30, 2017 and December 31, 2017, respectively. Amounts also reflect net gain (loss) on assets sold of $7.4 million, $(0.6) million,
$0.7 million and $46.4 million for the three month periods ended March 31, 2017, June 30, 2017, September 30, 2017 and December
31, 2017, respectively.
|
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– Continued
NOTE
22 – EARNINGS PER SHARE/UNIT
The following tables set
forth the computation of basic and diluted earnings per share/unit:
|
|
Omega
|
|
|
Omega OP
|
|
|
|
Year Ended December
31,
|
|
|
Year Ended December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
(1)
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
104,910
|
|
|
$
|
383,367
|
|
|
$
|
233,315
|
|
|
$
|
104,910
|
|
|
$
|
383,367
|
|
|
$
|
190,263
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(4,491
|
)
|
|
|
(16,952
|
)
|
|
|
(8,791
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income available to common stockholders/Omega OP Unit
holders
|
|
$
|
100,419
|
|
|
$
|
366,415
|
|
|
$
|
224,524
|
|
|
$
|
104,910
|
|
|
$
|
383,367
|
|
|
$
|
190,263
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share/unit
|
|
|
197,738
|
|
|
|
191,781
|
|
|
|
172,242
|
|
|
|
206,521
|
|
|
|
200,679
|
|
|
|
193,843
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
269
|
|
|
|
956
|
|
|
|
1,539
|
|
|
|
269
|
|
|
|
956
|
|
|
|
1,899
|
|
Noncontrolling interest – Omega OP Units
|
|
|
8,783
|
|
|
|
8,898
|
|
|
|
6,727
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Denominator for diluted earnings per share/unit
|
|
|
206,790
|
|
|
|
201,635
|
|
|
|
180,508
|
|
|
|
206,790
|
|
|
|
201,635
|
|
|
|
195,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders/Omega OP Unit
holders
|
|
$
|
0.51
|
|
|
$
|
1.91
|
|
|
$
|
1.30
|
|
|
$
|
0.51
|
|
|
$
|
1.91
|
|
|
$
|
0.98
|
|
Earnings per share/unit - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.51
|
|
|
$
|
1.90
|
|
|
$
|
1.29
|
|
|
$
|
0.51
|
|
|
$
|
1.90
|
|
|
$
|
0.97
|
|
|
(1)
|
The period is
from April 1, 2015 (Aviv Merger date) through December 31, 2015.
|
NOTE 23 – SUBSEQUENT EVENTS
In February 2018, the
Company agreed to transition an existing portfolio of 13 facilities in Ohio. The transition is expected to occur during the
first half of 2018 with the facilities being leased to another existing operator pursuant to a new master lease agreement. As a
result of the transition, the Company expects to write-off approximately $7.5 million of straight-line rent receivable.
OMEGA HEALTHCARE INVESTORS, INC. AND OHI
HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
SCHEDULE II – VALUATION AND QUALIFYING
ACCOUNTS
(in thousands)
December 31, 2017
Description
|
|
Balance at
Beginning of
Period
|
|
|
Charged to
Provision
Accounts
|
|
|
Deductions or
Other
(1)
|
|
|
Balance at
End of
Period
|
|
Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
357
|
|
|
$
|
13,392
|
|
|
$
|
5,286
|
|
|
$
|
8,463
|
|
Mortgage notes receivable
|
|
|
3,934
|
|
|
|
971
|
|
|
|
—
|
|
|
|
4,905
|
|
Other investments
|
|
|
4,798
|
|
|
|
217
|
|
|
|
4,642
|
|
|
|
373
|
|
Direct financing leases
|
|
|
—
|
|
|
|
198,199
|
|
|
|
26,027
|
|
|
|
172,172
|
|
Total
|
|
$
|
9,089
|
|
|
$
|
212,779
|
|
|
$
|
35,955
|
|
|
$
|
185,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
309
|
|
|
$
|
4,246
|
|
|
$
|
4,198
|
|
|
$
|
357
|
|
Mortgage notes receivable
|
|
|
—
|
|
|
|
3,934
|
|
|
|
—
|
|
|
|
3,934
|
|
Other investments
|
|
|
2,960
|
|
|
|
1,665
|
|
|
|
(173
|
)
|
|
|
4,798
|
|
Total
|
|
$
|
3,269
|
|
|
$
|
9,845
|
|
|
$
|
4,025
|
|
|
$
|
9,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
78
|
|
|
$
|
4,994
|
|
|
$
|
4,763
|
|
|
$
|
309
|
|
Other investments
|
|
|
—
|
|
|
|
2,879
|
|
|
|
(81
|
)
|
|
|
2,960
|
|
Total
|
|
$
|
78
|
|
|
$
|
7,873
|
|
|
$
|
4,682
|
|
|
$
|
3,269
|
|
|
(1)
|
Uncollectible accounts
written off, net of recoveries or adjustments.
|
OMEGA HEALTHCARE INVESTORS,
INC. AND OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
SCHEDULE
III – REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Cost to
|
|
|
Cost
Capitalized
|
|
|
Which
Carried at
|
|
|
|
|
|
|
|
|
|
Life
on Which
|
|
|
|
|
Company
|
|
|
Subsequent
to
|
|
|
Close
of Period
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
in
Latest
|
|
|
|
|
|
|
|
Buildings
and
|
|
|
|
|
|
Carrying
|
|
|
(6)
|
|
|
|
|
|
Buildings
and
|
|
|
|
|
|
Accumulated
|
|
|
Date
of
|
|
Date
|
|
Income
Statements
|
Description
(1)
|
|
Encumbrances
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Cost
|
|
|
Other
|
|
|
Land
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
Acquired
|
|
is
Computed
|
Maplewood Real
Estate Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connecticut
(AL)
|
|
|
|
$
|
25,063
|
|
|
$
|
216,538
|
|
|
$
|
3,287
|
|
|
$
|
59
|
|
|
$
|
-
|
|
|
$
|
25,063
|
|
|
$
|
219,884
|
|
|
$
|
244,947
|
|
|
$
|
20,109
|
|
|
1968-2015
|
|
2015
|
|
33 years
|
Massachusetts
(AL, SNF)
|
|
|
|
|
19,041
|
|
|
|
113,728
|
|
|
|
11,982
|
|
|
|
-
|
|
|
|
(680
|
)
|
|
|
19,041
|
|
|
|
125,030
|
|
|
|
144,071
|
|
|
|
10,614
|
|
|
1988-2017
|
|
2015
|
|
30 years to 33 years
|
New
York (AL)
|
|
|
|
|
118,606
|
|
|
|
-
|
|
|
|
34,738
|
|
|
|
5,759
|
|
|
|
-
|
|
|
|
118,606
|
|
|
|
40,497
|
|
|
|
159,103
|
|
|
|
-
|
|
|
-
|
|
2015
|
|
-
|
Ohio (AL)
|
|
|
|
|
3,683
|
|
|
|
27,628
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,683
|
|
|
|
27,663
|
|
|
|
31,346
|
|
|
|
2,275
|
|
|
1999-2016
|
|
2015
|
|
30
years to 33 years
|
Total
Maplewood
|
|
|
|
$
|
166,393
|
|
|
$
|
357,894
|
|
|
$
|
50,042
|
|
|
$
|
5,818
|
|
|
$
|
(680
|
)
|
|
$
|
166,393
|
|
|
$
|
413,074
|
|
|
$
|
579,467
|
|
|
$
|
32,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
Holdings II:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
(SNF)
|
|
|
|
$
|
14,077
|
|
|
$
|
166,901
|
|
|
$
|
13,295
|
|
|
$
|
158
|
|
|
$
|
-
|
|
|
$
|
14,077
|
|
|
$
|
180,354
|
|
|
$
|
194,431
|
|
|
$
|
48,710
|
|
|
1940-1997
|
|
1996-2016
|
|
3 years to 39 years
|
Georgia
(SNF)
|
|
|
|
|
3,833
|
|
|
|
10,847
|
|
|
|
3,949
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,833
|
|
|
|
14,796
|
|
|
|
18,629
|
|
|
|
9,522
|
|
|
1964-1970
|
|
2007
|
|
20 years
|
Kentucky
(SNF)
|
|
|
|
|
13,335
|
|
|
|
87,791
|
|
|
|
4,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,335
|
|
|
|
91,965
|
|
|
|
105,300
|
|
|
|
23,772
|
|
|
1964-1980
|
|
1999-2016
|
|
20 years to 33 years
|
Maryland
(SNF)
|
|
|
|
|
1,480
|
|
|
|
19,663
|
|
|
|
1,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,480
|
|
|
|
20,846
|
|
|
|
22,326
|
|
|
|
7,804
|
|
|
1959-1977
|
|
2010
|
|
29 years to 30 years
|
Tennessee
(AL, SNF)
|
|
|
|
|
8,414
|
|
|
|
182,235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,414
|
|
|
|
182,235
|
|
|
|
190,649
|
|
|
|
12,029
|
|
|
1966-2016
|
|
2014-2016
|
|
25
years to 30 years
|
Total
Signature
|
|
|
|
$
|
41,139
|
|
|
$
|
467,437
|
|
|
$
|
22,601
|
|
|
$
|
158
|
|
|
$
|
-
|
|
|
$
|
41,139
|
|
|
$
|
490,196
|
|
|
$
|
531,335
|
|
|
$
|
101,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saber
Health Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
(SNF)
|
|
|
|
$
|
423
|
|
|
$
|
4,422
|
|
|
$
|
197
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
423
|
|
|
$
|
4,619
|
|
|
$
|
5,042
|
|
|
$
|
536
|
|
|
2009
|
|
2015
|
|
33 years
|
North
Carolina (SNF)
|
|
|
|
|
10,780
|
|
|
|
106,695
|
|
|
|
11,899
|
|
|
|
323
|
|
|
|
-
|
|
|
|
10,780
|
|
|
|
118,917
|
|
|
|
129,697
|
|
|
|
11,448
|
|
|
1965-2013
|
|
2016
|
|
3 years to 30 years
|
Ohio
(SNF, AL)
|
|
|
|
|
5,035
|
|
|
|
107,057
|
|
|
|
6,124
|
|
|
|
-
|
|
|
|
(268
|
)
|
|
|
5,035
|
|
|
|
112,913
|
|
|
|
117,948
|
|
|
|
11,379
|
|
|
1979-2000
|
|
2015-2016
|
|
30 years to 33 years
|
Pennsylvania
(SNF)
|
|
|
|
|
7,134
|
|
|
|
124,476
|
|
|
|
3,858
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,134
|
|
|
|
128,334
|
|
|
|
135,468
|
|
|
|
13,132
|
|
|
1873-2002
|
|
2015
|
|
33 years
|
Virginia
(SNF)
|
|
|
|
|
8,500
|
|
|
|
85,982
|
|
|
|
2,675
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,500
|
|
|
|
88,657
|
|
|
|
97,157
|
|
|
|
7,433
|
|
|
1964-2013
|
|
2016
|
|
30
years
|
Total
Saber Health Group
|
|
|
|
$
|
31,872
|
|
|
$
|
428,632
|
|
|
$
|
24,753
|
|
|
$
|
323
|
|
|
$
|
(268
|
)
|
|
$
|
31,872
|
|
|
$
|
453,440
|
|
|
$
|
485,312
|
|
|
$
|
43,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ciena
Healthcare:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indiana
(SNF)
|
|
|
|
$
|
321
|
|
|
$
|
7,703
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
321
|
|
|
$
|
7,703
|
|
|
$
|
8,024
|
|
|
$
|
902
|
|
|
1973
|
|
2015
|
|
33 years
|
Michigan
(SNF, AL)
|
|
|
|
|
4,087
|
|
|
|
115,547
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,087
|
|
|
|
115,547
|
|
|
|
119,634
|
|
|
|
12,261
|
|
|
1964-1997
|
|
2015
|
|
33 years
|
North
Carolina (ILF, SNF)
|
|
|
|
|
4,331
|
|
|
|
65,027
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,331
|
|
|
|
65,027
|
|
|
|
69,358
|
|
|
|
7,233
|
|
|
1927-1997
|
|
2015
|
|
12 years to 33 years
|
Ohio
(SNF, AL)
|
|
|
|
|
10,343
|
|
|
|
159,846
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(80
|
)
|
|
|
10,343
|
|
|
|
159,766
|
|
|
|
170,109
|
|
|
|
16,833
|
|
|
1960-2007
|
|
2010-2016
|
|
20 years to 33 years
|
Virginia
(SNF)
|
|
|
|
|
6,300
|
|
|
|
87,772
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(177
|
)
|
|
|
6,123
|
|
|
|
87,772
|
|
|
|
93,895
|
|
|
|
6,729
|
|
|
1979-2007
|
|
2016
|
|
30
years
|
Total
Ciena HealthCare
|
|
|
|
$
|
25,382
|
|
|
$
|
435,895
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(257
|
)
|
|
$
|
25,205
|
|
|
$
|
435,815
|
|
|
$
|
461,020
|
|
|
$
|
43,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CommuniCare
Health Services, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indiana
(SNF)
|
|
|
|
$
|
17,949
|
|
|
$
|
193,059
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,949
|
|
|
$
|
193,059
|
|
|
$
|
211,008
|
|
|
$
|
3,333
|
|
|
1963-2014
|
|
2017
|
|
20 years to 30 years
|
Maryland
(SNF)
|
|
|
|
|
7,190
|
|
|
|
74,029
|
|
|
|
3,844
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,190
|
|
|
|
77,873
|
|
|
|
85,063
|
|
|
|
17,808
|
|
|
1921-1985
|
|
2010-2011
|
|
25 years to 30 years
|
Ohio
(SNF, SH, ALF)
|
|
|
|
|
6,445
|
|
|
|
76,436
|
|
|
|
11,821
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,445
|
|
|
|
88,257
|
|
|
|
94,702
|
|
|
|
37,954
|
|
|
1927-2008
|
|
1998-2008
|
|
20 years to 39 years
|
Pennsylvania
(SNF)
|
|
|
|
|
1,753
|
|
|
|
18,533
|
|
|
|
11,281
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,753
|
|
|
|
29,814
|
|
|
|
31,567
|
|
|
|
12,167
|
|
|
1950-1964
|
|
2005
|
|
39 years
|
West
Virginia (SNF)
|
|
|
|
|
450
|
|
|
|
14,758
|
|
|
|
185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
450
|
|
|
|
14,943
|
|
|
|
15,393
|
|
|
|
3,053
|
|
|
1963
|
|
2011
|
|
35
years
|
Total
CommuniCare
|
|
|
|
$
|
33,787
|
|
|
$
|
376,815
|
|
|
$
|
27,131
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
33,787
|
|
|
$
|
403,946
|
|
|
$
|
437,733
|
|
|
$
|
74,315
|
|
|
|
|
|
|
|
OMEGA HEALTHCARE INVESTORS,
INC. AND OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
SCHEDULE
III – REAL ESTATE AND ACCUMULATED DEPRECIATION — continued
(in thousands)
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Cost to
|
|
|
Cost
Capitalized
|
|
|
Which
Carried at
|
|
|
|
|
|
|
|
|
|
Life
on Which
|
|
|
|
|
Company
|
|
|
Subsequent
to
|
|
|
Close
of Period
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
in
Latest
|
|
|
|
|
|
|
|
Buildings
and
|
|
|
|
|
|
Carrying
|
|
|
(6)
|
|
|
|
|
|
Buildings
and
|
|
|
|
|
|
Accumulated
|
|
|
Date
of
|
|
Date
|
|
Income
Statements
|
Description
(1)
|
|
Encumbrances
|
|
Land
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Cost
|
|
|
Other
|
|
|
Land
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
Acquired
|
|
is
Computed
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
(SNF)
|
|
|
|
$
|
1,817
|
|
|
$
|
33,356
|
|
|
$
|
12,916
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,817
|
|
|
$
|
46,272
|
|
|
$
|
48,089
|
|
|
$
|
33,080
|
|
|
1960-1982
|
|
1992-1997
|
|
31 years to 33 years
|
Arizona
(TBI, SNF, AL)
|
|
|
|
|
10,995
|
|
|
|
86,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,995
|
|
|
|
86,868
|
|
|
|
97,863
|
|
|
|
13,093
|
|
|
1949-1999
|
|
2012-2015
|
|
33 years to 40 years
|
Arkansas
(SNF, AL)
|
|
(2)
|
|
|
3,698
|
|
|
|
85,308
|
|
|
|
8,856
|
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
3,698
|
|
|
|
94,128
|
|
|
|
97,826
|
|
|
|
39,139
|
|
|
1967-2009
|
|
1992-2015
|
|
25 years to 33 years
|
California
(SNF, TBI)
|
|
|
|
|
73,466
|
|
|
|
408,201
|
|
|
|
3,837
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73,466
|
|
|
|
412,038
|
|
|
|
485,504
|
|
|
|
68,870
|
|
|
1927-2013
|
|
1997-2015
|
|
5 years to 35 years
|
Colorado
(SNF, ILF)
|
|
|
|
|
11,279
|
|
|
|
88,831
|
|
|
|
7,790
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,279
|
|
|
|
96,621
|
|
|
|
107,900
|
|
|
|
33,257
|
|
|
1925-1975
|
|
1998-2016
|
|
20 years to 39 years
|
Connecticut
(land only)
|
|
|
|
|
879
|
|
|
|
4,446
|
|
|
|
980
|
|
|
|
-
|
|
|
|
(5,426
|
)
|
|
|
879
|
|
|
|
-
|
|
|
|
879
|
|
|
|
-
|
|
|
N/A
|
|
1999
|
|
N/A
|
Florida
(SNF, AL)
|
|
|
|
|
63,094
|
|
|
|
504,796
|
|
|
|
42,010
|
|
|
|
1,082
|
|
|
|
(9,737
|
)
|
|
|
63,019
|
|
|
|
538,226
|
|
|
|
601,245
|
|
|
|
170,325
|
|
|
1933-2017
|
|
1992-2017
|
|
2 years to 40 years
|
Georgia
(SNF, AL)
|
|
|
|
|
3,730
|
|
|
|
47,387
|
|
|
|
669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,730
|
|
|
|
48,056
|
|
|
|
51,786
|
|
|
|
7,015
|
|
|
1967-1998
|
|
1998-2016
|
|
30 years to 40 years
|
Idaho
(SNF, AL)
|
|
|
|
|
6,625
|
|
|
|
62,353
|
|
|
|
1,322
|
|
|
|
-
|
|
|
|
(14,690
|
)
|
|
|
6,625
|
|
|
|
48,985
|
|
|
|
55,610
|
|
|
|
12,887
|
|
|
1911-2008
|
|
1997-2015
|
|
25 years to 39 years
|
Illinois
(SNF)
|
|
|
|
|
5,112
|
|
|
|
98,178
|
|
|
|
66
|
|
|
|
-
|
|
|
|
(44,462
|
)
|
|
|
4,977
|
|
|
|
53,917
|
|
|
|
58,894
|
|
|
|
892
|
|
|
1961-1981
|
|
2015
|
|
30 years to 33 years
|
Indiana
(SNF, ILF, AL, MOB, SH,)
|
|
|
|
|
25,781
|
|
|
|
335,737
|
|
|
|
435
|
|
|
|
-
|
|
|
|
(1,828
|
)
|
|
|
25,773
|
|
|
|
334,352
|
|
|
|
360,125
|
|
|
|
80,438
|
|
|
1942-2008
|
|
1992-2015
|
|
20 years to 40 years
|
Iowa
(SNF, AL)
|
|
|
|
|
2,485
|
|
|
|
60,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,485
|
|
|
|
60,406
|
|
|
|
62,891
|
|
|
|
9,456
|
|
|
1961-1998
|
|
2010-2015
|
|
12 years to 33 years
|
Kansas
(SNF)
|
|
|
|
|
4,800
|
|
|
|
47,496
|
|
|
|
12,767
|
|
|
|
-
|
|
|
|
(2,229
|
)
|
|
|
4,800
|
|
|
|
58,034
|
|
|
|
62,834
|
|
|
|
8,524
|
|
|
1957-1985
|
|
2010-2015
|
|
12 years to 33 years
|
Kentucky
(SNF, AL)
|
|
|
|
|
5,611
|
|
|
|
123,995
|
|
|
|
9,851
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,611
|
|
|
|
133,846
|
|
|
|
139,457
|
|
|
|
25,761
|
|
|
1917-2002
|
|
1994-2015
|
|
33 years
|
Louisiana
(SNF)
|
|
|
|
|
2,178
|
|
|
|
52,870
|
|
|
|
3,303
|
|
|
|
-
|
|
|
|
(189
|
)
|
|
|
2,178
|
|
|
|
55,984
|
|
|
|
58,162
|
|
|
|
19,388
|
|
|
1957-1983
|
|
1997-2006
|
|
22 years to 39 years
|
Massachusetts
(SNF)
|
|
|
|
|
5,389
|
|
|
|
35,826
|
|
|
|
2,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,389
|
|
|
|
37,986
|
|
|
|
43,375
|
|
|
|
19,661
|
|
|
1964-1993
|
|
1997-2010
|
|
20 years to 39 years
|
Michigan
(SNF)
|
|
|
|
|
830
|
|
|
|
30,921
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
830
|
|
|
|
30,921
|
|
|
|
31,751
|
|
|
|
5,921
|
|
|
1964-1975
|
|
2011-2015
|
|
25 years to 33 years
|
Minnesota
(SNF, AL, ILF)
|
|
|
|
|
10,502
|
|
|
|
52,585
|
|
|
|
4,294
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,502
|
|
|
|
56,879
|
|
|
|
67,381
|
|
|
|
6,407
|
|
|
1966-1983
|
|
2015
|
|
33 years
|
Mississippi
(SNF)
|
|
|
|
|
2,910
|
|
|
|
49,507
|
|
|
|
827
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,910
|
|
|
|
50,334
|
|
|
|
53,244
|
|
|
|
16,050
|
|
|
1962-1988
|
|
2009-2010
|
|
20 years to 40 years
|
Missouri
(SNF)
|
|
|
|
|
7,333
|
|
|
|
121,481
|
|
|
|
693
|
|
|
|
-
|
|
|
|
(37,104
|
)
|
|
|
7,325
|
|
|
|
85,078
|
|
|
|
92,403
|
|
|
|
9,624
|
|
|
1955-1994
|
|
1999-2016
|
|
30 years to 33 years
|
Montana
(SNF)
|
|
|
|
|
1,319
|
|
|
|
11,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,319
|
|
|
|
11,698
|
|
|
|
13,017
|
|
|
|
1,274
|
|
|
1963-1971
|
|
2015
|
|
33 years
|
Nebraska
(SNF)
|
|
|
|
|
1,600
|
|
|
|
23,142
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,600
|
|
|
|
23,142
|
|
|
|
24,742
|
|
|
|
3,687
|
|
|
1963-1969
|
|
2015
|
|
20 years to 33 years
|
Nevada
(SNF, SH, TBI)
|
|
|
|
|
5,501
|
|
|
|
50,472
|
|
|
|
8,350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,501
|
|
|
|
58,822
|
|
|
|
64,323
|
|
|
|
12,858
|
|
|
1972-2004
|
|
2009-2015
|
|
26 years to 33 years
|
New
Hampshire (SNF, AL)
|
|
|
|
|
1,782
|
|
|
|
19,837
|
|
|
|
1,463
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,782
|
|
|
|
21,300
|
|
|
|
23,082
|
|
|
|
9,057
|
|
|
1963-1999
|
|
1998-2006
|
|
33 years to 39 years
|
New
Mexico (SNF)
|
|
|
|
|
8,372
|
|
|
|
62,191
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,372
|
|
|
|
62,191
|
|
|
|
70,563
|
|
|
|
6,493
|
|
|
1960-1985
|
|
2015
|
|
33 years
|
North
Carolina (SNF)
|
|
|
|
|
3,798
|
|
|
|
60,591
|
|
|
|
3,551
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,798
|
|
|
|
64,142
|
|
|
|
67,940
|
|
|
|
28,802
|
|
|
1964-1987
|
|
1994-2017
|
|
25 years to 36 years
|
Ohio
(SNF, SH, AL)
|
|
|
|
|
18,135
|
|
|
|
254,695
|
|
|
|
7,134
|
|
|
|
-
|
|
|
|
(552
|
)
|
|
|
18,135
|
|
|
|
261,277
|
|
|
|
279,412
|
|
|
|
64,195
|
|
|
1920-1998
|
|
1994-2015
|
|
21 years to 39 years
|
Oklahoma
(SNF, AL)
|
|
|
|
|
4,650
|
|
|
|
36,247
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,650
|
|
|
|
36,247
|
|
|
|
40,897
|
|
|
|
9,820
|
|
|
1965-2013
|
|
2010-2015
|
|
20 years to 33 years
|
Oregon
(AL, SNF)
|
|
|
|
|
3,641
|
|
|
|
45,218
|
|
|
|
4,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,641
|
|
|
|
49,222
|
|
|
|
52,863
|
|
|
|
5,350
|
|
|
1959-2004
|
|
2014-2015
|
|
25 years to 33 years
|
Pennsylvania
(SNF, AL, ILF)
|
|
|
|
|
9,981
|
|
|
|
187,731
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
9,976
|
|
|
|
187,731
|
|
|
|
197,707
|
|
|
|
62,399
|
|
|
1942-2012
|
|
1998-2015
|
|
16 years to 39 years
|
Rhode
Island (SNF)
|
|
|
|
|
3,658
|
|
|
|
35,082
|
|
|
|
4,793
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,658
|
|
|
|
39,875
|
|
|
|
43,533
|
|
|
|
17,682
|
|
|
1965-1981
|
|
2006
|
|
39 years
|
South
Carolina (SNF)
|
|
|
|
|
7,800
|
|
|
|
59,782
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,800
|
|
|
|
59,782
|
|
|
|
67,582
|
|
|
|
8,838
|
|
|
1959-2007
|
|
2014-2016
|
|
20 years to 33 years
|
Tennessee
(SNF)
|
|
|
|
|
5,827
|
|
|
|
99,457
|
|
|
|
5,332
|
|
|
|
-
|
|
|
|
(135
|
)
|
|
|
5,933
|
|
|
|
104,548
|
|
|
|
110,481
|
|
|
|
51,466
|
|
|
1958-1985
|
|
1992-2015
|
|
20 years to 31 years
|
Texas
(AL, SNF)
|
|
|
|
|
70,761
|
|
|
|
721,428
|
|
|
|
27,074
|
|
|
|
68
|
|
|
|
(2,532
|
)
|
|
|
70,761
|
|
|
|
746,038
|
|
|
|
816,799
|
|
|
|
124,486
|
|
|
1952-2015
|
|
1997-2017
|
|
2 years to 40 years
|
United
Kingdom (AL)
|
|
|
|
|
81,843
|
|
|
|
346,104
|
|
|
|
1,791
|
|
|
|
-
|
|
|
|
(22,258
|
)
|
|
|
79,688
|
|
|
|
327,792
|
|
|
|
407,480
|
|
|
|
22,033
|
|
|
1750-2012
|
|
2015-2017
|
|
30 years
|
Vermont
(SNF)
|
|
|
|
|
318
|
|
|
|
6,006
|
|
|
|
602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
318
|
|
|
|
6,608
|
|
|
|
6,926
|
|
|
|
2,592
|
|
|
1971
|
|
2004
|
|
39 years
|
Virginia
(SNF, AL)
|
|
|
|
|
3,021
|
|
|
|
37,129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,021
|
|
|
|
37,129
|
|
|
|
40,150
|
|
|
|
2,942
|
|
|
1989-1995
|
|
2015-2017
|
|
30 years to 40 years
|
Washington
(SNF, AL)
|
|
|
|
|
11,719
|
|
|
|
138,056
|
|
|
|
2,627
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
11,718
|
|
|
|
140,682
|
|
|
|
152,400
|
|
|
|
27,356
|
|
|
1930-2004
|
|
1995-2015
|
|
20 years to 33 years
|
West
Virginia (SNF)
|
|
|
|
|
1,523
|
|
|
|
52,187
|
|
|
|
6,877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,523
|
|
|
|
59,064
|
|
|
|
60,587
|
|
|
|
32,336
|
|
|
1961-1996
|
|
1994-2008
|
|
25 years to 39 years
|
Wisconsin
(SNF)
|
|
|
|
|
5,996
|
|
|
|
44,333
|
|
|
|
6,043
|
|
|
|
-
|
|
|
|
(12,982
|
)
|
|
|
5,996
|
|
|
|
37,394
|
|
|
|
43,390
|
|
|
|
6,338
|
|
|
1964-1994
|
|
2010-2015
|
|
12
years to 33 years
|
Total
Other
|
|
|
|
$
|
499,759
|
|
|
$
|
4,621,934
|
|
|
$
|
192,417
|
|
|
$
|
1,150
|
|
|
$
|
(154,167
|
)
|
|
$
|
497,478
|
|
|
$
|
4,663,615
|
|
|
$
|
5,161,093
|
|
|
$
|
1,079,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
798,332
|
|
|
$
|
6,688,607
|
|
|
$
|
316,944
|
|
|
$
|
7,449
|
|
|
$
|
(155,372
|
)
|
|
$
|
795,874
|
|
|
$
|
6,860,086
|
|
|
$
|
7,655,960
|
|
|
$
|
1,376,828
|
|
|
|
|
|
|
|
|
(1)
|
The real estate included in this schedule is being used
in either the operation of skilled nursing facilities (SNF), assisted living facilities (AL), independent living facilities (ILF),
traumatic brain injury (TBI), medical office building (MOB) or specialty hospitals (SH) located in the states or country indicated.
|
|
(2)
|
Certain of the real estate indicated are security for
the HUD loan borrowings totalling $53.7 million.
|
|
|
Year Ended December 31,
|
|
(3)
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Balance at beginning of period
|
|
$
|
3,223,785
|
|
|
$
|
6,743,958
|
|
|
$
|
7,566,358
|
|
Acquisitions through foreclosure
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
Acquisitions (a)
|
|
|
3,371,234
|
|
|
|
1,017,761
|
|
|
|
419,333
|
|
Impairment
|
|
|
(12,916
|
)
|
|
|
(53,717
|
)
|
|
|
(98,672
|
)
|
Improvements
|
|
|
220,272
|
|
|
|
95,807
|
|
|
|
116,786
|
|
Disposals/other
|
|
|
(58,417
|
)
|
|
|
(262,451
|
)
|
|
|
(347,845
|
)
|
Balance at close of period
|
|
$
|
6,743,958
|
|
|
$
|
7,566,358
|
|
|
$
|
7,655,960
|
|
(a) Includes approximately $3.1 billion, $35.1 million and $27.2 million of noncash consideration exchanged during the years ended December 31, 2015, 2016 and 2017, respectively.
|
|
Year Ended December 31,
|
|
(4)
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Balance at beginning of period
|
|
$
|
821,712
|
|
|
$
|
1,019,150
|
|
|
$
|
1,240,336
|
|
Provisions for depreciation
|
|
|
210,555
|
|
|
|
266,904
|
|
|
|
287,189
|
|
Dispositions/other
|
|
|
(13,117
|
)
|
|
|
(45,718
|
)
|
|
|
(150,697
|
)
|
Balance at close of period
|
|
$
|
1,019,150
|
|
|
$
|
1,240,336
|
|
|
$
|
1,376,828
|
|
|
(5)
|
The reported amount of our real estate at December 31,
2017 is greater than the tax basis of the real estate by approximately $0.9 billion.
|
|
(6)
|
Reflects bed sales, impairments (including the write-off
of accumulated depreciation), land easements and impacts from foreign currency exchange rates.
|
OMEGA HEALTHCARE INVESTORS,
INC. AND OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP
SCHEDULE IV – MORTGAGE LOANS
ON REAL ESTATE
(in thousands)
December 31, 2017
Grouping
|
|
Description
(1)
|
|
Interest Rate
|
|
|
Fixed/Variable
|
|
Final Maturity Date
|
|
Periodic Payment Terms
|
|
Prior Liens
|
|
Face Amount of Mortgages
|
|
|
Carrying Amount of Mortgages
(2) (3) (6)
|
|
|
Carrying Amount of Loans Subject to Delinquent Principal or Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Louisiana (1 AL facility)
|
|
|
8.75
|
%
|
|
F
|
|
2018
|
|
Interest plus $17 of principal payable monthly with $10,836 due at maturity
|
|
None
|
|
$
|
11,027
|
|
|
$
|
10,944
|
|
|
$
|
-
|
|
2
|
|
Maryland (3 SNF facilities)
|
|
|
11.00
|
%
|
|
V
|
|
2028
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
74,928
|
|
|
|
35,964
|
|
|
|
-
|
|
3
|
|
Michigan (1 SNF facility)
|
|
|
11.04
|
%
|
|
V
|
|
2029
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
3,968
|
|
|
|
3,968
|
|
|
|
-
|
|
4
|
|
Michigan (1 SNF facility)
|
|
|
10.77
|
%
|
|
V
|
|
2029
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
4,112
|
|
|
|
4,112
|
|
|
|
-
|
|
5
|
|
Michigan (8 SNF facilities)
|
|
|
10.51
|
%
|
|
V
|
|
2029
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
12,107
|
|
|
|
12,107
|
|
|
|
-
|
|
6
|
|
Michigan (8 SNF facilities)
|
|
|
9.74
|
%
|
|
V
|
|
2029
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
-
|
|
7
|
|
Michigan (31 SNF facilities)
|
|
|
9.68
|
%
|
|
V
|
|
2029
|
|
Interest plus $115 of principal payable monthly with $382,127 due at maturity
|
|
None
|
|
|
415,000
|
|
|
|
410,763
|
|
|
|
-
|
|
8
|
|
Michigan (3 SNF facilities)
|
|
|
9.50
|
%
|
|
V
|
|
2029
|
|
Interest plus $2 of principal payable monthly with $10,466 due at maturity
|
|
None
|
|
|
11,000
|
|
|
|
10,988
|
|
|
|
-
|
|
9
|
|
Michigan (1 SNF facility)
|
|
|
9.50
|
%
|
|
V
|
|
2029
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
188
|
|
|
|
188
|
|
|
|
-
|
|
10
|
|
Michigan (1 SNF facility)
|
|
|
8.67
|
%
|
|
V
|
|
2029
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
14,045
|
|
|
|
14,045
|
|
|
|
-
|
|
11
|
|
Michigan (1 SNF facility)
|
|
|
9.50
|
%
|
|
V
|
|
2019
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
210
|
|
|
|
210
|
|
|
|
-
|
|
12
|
|
Michigan (1 SNF facility)
|
|
|
9.50
|
%
|
|
V
|
|
2018
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
7,440
|
|
|
|
7,440
|
|
|
|
-
|
|
13
|
|
New Jersey (1 AL facility)
|
|
|
14.00
|
%
|
|
F
|
|
2018
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
3,195
|
|
|
|
3,195
|
|
|
|
-
|
|
14
|
|
Ohio (2 SNF facilities) and Pennsylvania (5 SNF and 2 AL facilities)
|
|
|
9.98
|
%
|
|
V
|
|
2024
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
112,500
|
|
|
|
112,500
|
|
|
|
-
|
|
15
|
|
Ohio (1 SNF facility)
|
|
|
11.91
|
%
|
|
V
|
|
2018
|
|
Interest payable monthly until maturity
|
|
None
|
|
|
11,874
|
|
|
|
12,001
|
(4)
|
|
|
-
|
|
16
|
|
South Carolina (1 AL facility)
|
|
|
8.75
|
%
|
|
F
|
|
2018
|
|
Interest accrues monthly until maturity
|
|
None
|
|
|
10,288
|
|
|
|
10,288
|
|
|
|
-
|
|
17
|
|
Tennessee ( 1 SNF facility)
|
|
|
8.35
|
%
|
|
F
|
|
2015
|
|
Past due
|
|
None
|
|
|
6,997
|
|
|
|
1,472
|
|
|
|
1,472
|
(5)
|
18
|
|
Virginia (1 AL facility)
|
|
|
8.75
|
%
|
|
F
|
|
2018
|
|
Interest accrues monthly until maturity
|
|
None
|
|
|
8,548
|
|
|
|
8,547
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
719,927
|
|
|
$
|
671,232
|
|
|
$
|
1,472
|
|
|
(1)
|
Mortgage loans included in this schedule represent first
mortgages on facilities used in the delivery of long-term healthcare of which such facilities are located in the states indicated.
|
|
(2)
|
The aggregate cost for federal income tax purposes is
approximately $676.6 million.
|
|
|
Year Ended December 31,
|
|
(3)
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Balance at beginning of period
|
|
$
|
648,079
|
|
|
$
|
679,795
|
|
|
$
|
639,343
|
|
Additions during period - new mortgage loans or additional fundings
|
|
|
33,288
|
|
|
|
48,722
|
|
|
|
34,643
|
|
Deductions during period - collection of principal/other
|
|
|
(1,572
|
)
|
|
|
(89,174
|
)
|
|
|
(2,754
|
)
|
Balance at close of period
|
|
$
|
679,795
|
|
|
$
|
639,343
|
|
|
$
|
671,232
|
|
|
(4)
|
The carrying value of the mortgage exceeds the face value
of the mortgage due to an acquisition date fair market value adjustment.
|
|
(5)
|
Mortgage written down to the fair value of the underlying
collateral.
|
|
(6)
|
Mortgages included in the schedule which were extended
during 2017 aggregated approximately $3.2 million.
|