UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
(Mark One)
x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014
or
 
o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________
 
Commission file number 1-11316
 
OMEGA HEALTHCARE
INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
     
Maryland
  
38-3041398
 
(State of incorporation)
  
(IRS Employer
Identification No.)
 
200 International Circle, Suite 3500, Hunt Valley, MD 21030
(Address of principal executive offices)
 
(410) 427-1700
(Telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
 
Yes   x                                           No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes    x                                         No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one:)
 
Large accelerated filer   x                  Accelerated filer   o                  Non-accelerated filer   o         Smaller reporting company   o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   o                                                     No   x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of April 30, 2014.
 
Common Stock, $.10 par value   126,039,605
(Class)    (Number of shares)
                                                                                                                                                                                          
 
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
March 31, 2014
 
TABLE OF CONTENTS
     
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PART I – FINANCIAL INFORMATION
 
Item 1 - Financial Statements
 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
             
   
March 31,
    
December 31,
  
   
2014
    
2013
  
   
(Unaudited)
        
ASSETS
            
Real estate properties
            
Land and buildings
   $ 3,107,285     $ 3,099,547  
Less accumulated depreciation
     (738,708 )     (707,410 )
Real estate properties – net
     2,368,577       2,392,137  
Investment in direct financing leases
     531,795       529,445  
Mortgage notes receivable – net
     354,497       241,515  
      3,254,869       3,163,097  
Other investments – net
     56,052       53,054  
      3,310,921       3,216,151  
Assets held for sale – net
     820       1,356  
Total investments
     3,311,741       3,217,507  
                 
Cash and cash equivalents
     20,374       2,616  
Restricted cash
     28,817       31,759  
Accounts receivable – net
     152,863       147,504  
Other assets
     65,130       62,830  
Total assets
   $ 3,578,925     $ 3,462,216  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Revolving line of credit
   $ —     $ 326,000  
Term loan
     200,000       200,000  
Secured borrowings
     297,016       298,531  
Unsecured borrowings – net
     1,594,106       1,199,887  
Accrued expenses and other liabilities
     132,456       137,695  
Total liabilities
     2,223,578       2,162,113  
                 
Stockholders’ equity:
                
Common stock $.10 par value authorized – 200,000 shares issued and outstanding – 125,419 shares as of
March 31, 2014 and 123,530 as of December 31, 2013
       12,542         12,353  
Common stock – additional paid-in capital
     2,059,085       1,998,169  
Cumulative net earnings
     982,478       926,649  
Cumulative dividends paid
     (1,698,758 )     (1,637,068 )
Total stockholders’ equity
     1,355,347       1,300,103  
Total liabilities and stockholders’ equity
   $ 3,578,925     $ 3,462,216  
 
See notes to consolidated financial statements.
 
2
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
       
   
Three Months Ended
  
   
March 31,
  
   
2014
    
2013
  
Revenue
            
Rental income
   $ 95,918     $ 93,109  
Income from direct financing leases
     14,084       -  
Mortgage interest income
     9,326       7,346  
Other investment income – net
     1,421       1,306  
Miscellaneous
     252       -  
Total operating revenues
     121,001       101,761  
                 
Expenses
                
Depreciation and amortization
     31,444       31,959  
General and administrative
     6,497       5,197  
Acquisition costs
     95       134  
Provisions for uncollectible mortgages, notes and accounts receivable
     (16 )     -  
Total operating expenses
     38,020       37,290  
                 
Income before other income and expense
     82,981       64,471  
Other income (expense)
                
Interest income
     8       3  
Interest expense
     (27,081 )     (25,672 )
Interest – amortization of deferred financing costs
     (922 )     (682 )
Interest – refinancing costs
     (2,040 )     -  
Total other expense
     (30,035 )     (26,351 )
                 
Income before gain on assets sold
     52,946       38,120  
Gain on assets sold – net
     2,883       -  
Net income available to common stockholders
   $ 55,829     $ 38,120  
                 
Income per common share available to common shareholders:
                
Basic:
                
Net income
   $ 0.45     $ 0.34  
Diluted:
                
Net income
   $ 0.45     $ 0.34  
                 
Dividends declared and paid per common share
   $ 0.49     $ 0.45  
                 
Weighted-average shares outstanding, basic
     124,459       112,782  
Weighted-average shares outstanding, diluted
     124,822       113,522  
 
See notes to consolidated financial statements.
 
3
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Unaudited
(in thousands, except per share amounts)
                               
   
Common
Stock Par
Value
    
Additional
Paid-in Capital
    
Cumulative
Net Earnings
    
Cumulative
Dividends
    
Total
  
                               
Balance at December 31, 2013 (123,530 common shares)
   $ 12,353     $ 1,998,169     $ 926,649     $ (1,637,068 )   $ 1,300,103  
Amortization of restricted stock
     —       2,227       —       —       2,227  
Vesting of restricted stock to company executives, net of tax withholdings (31 shares)
       3       (533 )     —       —       (530 )
Dividend reinvestment plan (993 shares at $31.77 per share)
     99       31,441       —       —       31,540  
Grant of stock as payment of directors fees (1 share at an average of $31.41 per share)
     —       50       —       —       50  
Equity Shelf Program (864 shares at $32.94 per share, net of issuance costs)
     87       27,731       —       —       27,818  
Net income
     —       —       55,829       —       55,829  
Common dividends ($0.49 per share)
     —       —       —       (61,690 )     (61,690 )
Balance at March 31, 2014 (125,419 common shares)
   $ 12,542     $ 2,059,085     $ 982,478     $ (1,698,758 )   $ 1,355,347  
 
See notes to consolidated financial statements.
 
4
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (in thousands)
       
   
Three months Ended
March 31,
  
   
2014
    
2013
  
Cash flows from operating activities
            
Net income
   $ 55,829     $ 38,120  
Adjustment to reconcile net income to cash provided by operating activities:
                
Depreciation and amortization
     31,444       31,959  
Amortization of deferred financing and debt extinguishment costs
     2,962       682  
Accretion of direct financing leases
     (2,350 )     —  
Restricted stock amortization expense
     2,263       1,452  
Gain on assets sold – net
     (2,883 )     —  
Amortization of acquired in-place leases - net
     (1,287 )     (1,304 )
Change in operating assets and liabilities – net of amounts assumed/acquired:
                
Accounts receivable, net
     (431 )     635  
Straight-line rent receivables
     (5,324 )     (6,010 )
Lease inducements
     715       842  
Effective yield receivable on mortgage notes
     (319 )     (545 )
Other operating assets and liabilities
     (2,563 )     (8,231 )
Net cash provided by operating activities
     78,056       57,600  
Cash flows from investing activities
                
Acquisition of real estate – net of liabilities assumed and escrows acquired
     (4,700 )     —  
Placement of mortgage loans
     (113,114 )     (2,049 )
Proceeds from sale of real estate investments
     3,631       —  
Capital improvements to real estate investments
     (3,334 )     (8,328 )
Proceeds from other investments
     1,067       1,770  
Investments in other investments
     (4,065 )     (2,968 )
Collection of mortgage principal
     132       119  
Net cash used in investing activities
     (120,383 )     (11,456 )
Cash flows from financing activities
                
Proceeds from credit facility borrowings
     120,000       155,000  
Payments on credit facility borrowings
     (446,000 )     (213,000 )
Receipts of other long-term borrowings
     594,320       59,355  
Payments of other long-term borrowings
     (201,238 )     (59,997 )
Payments of financing related costs
     (4,155 )     (806 )
Receipts from dividend reinvestment plan
     31,540       36,330  
Payments for exercised options and restricted stock – net
     (530 )     —  
Net proceeds from issuance of common stock
     27,818       51,453  
Dividends paid
     (61,670 )     (50,579 )
Net cash provided by (used in) financing activities
     60,085       (22,244 )
                 
Increase in cash and cash equivalents
     17,758       23,900  
Cash and cash equivalents at beginning of period
     2,616       1,711  
Cash and cash equivalents at end of period
   $ 20,374     $ 25,611  
Interest paid during the period, net of amounts capitalized
   $ 26,243     $ 26,092  
 
See notes to consolidated financial statements.
 
5
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
March 31, 2014

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Business Overview

Omega Healthcare Investors, Inc. (“Omega” or the “Company”) has one reportable segment consisting of investments in healthcare-related real estate properties.  Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”) located in the United States.  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.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Omega have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The results of operations for the interim periods reported herein are not necessarily indicative of results to be expected for the full year.  We have evaluated all subsequent events through the date of the filing of this Form 10-Q. These unaudited consolidated financial statements should be read in conjunction with the financial statements and the footnotes thereto included in our latest Annual Report on Form 10-K.

Our consolidated financial statements include the accounts of (i) Omega and (ii) all direct and indirect wholly owned subsidiaries of Omega.  All inter-company accounts and transactions have been eliminated in consolidation of the financial statements.

Recent Accounting Pronouncements

Discontinued Operations

In April 2014, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update No (ASU 2014-08), “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”.  ASU 2014-08 on Discontinued Operations changes the criteria for determining which disposals can be presented as discontinued operations and modified related disclosure requirements.  Under the new guidance, a discontinued operation is defined as: (i) a disposal of a component or group of components that is disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (ii) an acquired business or nonprofit activity that is classified as held for sale on the date of acquisition.  The standard states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity.  Under the current US GAAP, an entity is prohibited from reporting a discontinued operation if it has certain continuing cash flows or involvement component after the disposal.  The new guidance eliminates these criteria.
 
6
 

 

 
The standard expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation, an entity’s continuing involvement with a discontinued operation following the disposal date and retained equity method investments in a discontinued operation.  The guidance is effective for annual periods beginning on or after December 15, 2014 and interim periods within that year.  Early adoption is permitted, and calendar year-end companies may early adopt the guidance in the first quarter of 2014, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issue.  We have chosen to adopt the guidance effective January 1, 2014 and determined that the adoption had no impact on our consolidated financial statements.

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 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 will be 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 or existence of lease inducements, we generally provide an allowance for straight-line accounts receivable and/or the lease inducements when certain conditions or indicators of adverse collectability are present.

A summary of our net receivables by type is as follows:
             
   
March 31,
    
December 31,
  
   
2014
    
2013
  
   
(in thousands)
  
             
Contractual receivables
   $ 3,352     $ 2,941  
Effective yield interest receivables
     5,653       5,333  
Straight-line receivables
     128,810       123,486  
Lease inducements
     15,513       16,228  
Allowance
     (465 )     (484 )
Accounts receivable – net
   $ 152,863     $ 147,504  

We continuously evaluate the payment history and financial strength of our operators and have historically established allowance reserves for straight-line rent adjustments for operators that do not meet our requirements.  We consider factors such as payment history and the operator’s financial condition as well as current and future anticipated operating trends when evaluating whether to establish allowance reserves.
 
7
 

 

 
NOTE 2 – PROPERTIES AND INVESTMENTS

In the ordinary course of our business activities, we periodically evaluate investment opportunities and extend credit to customers.  We also regularly engage in lease and/or loan extensions and modifications. Additionally, we actively monitor and manage our investment portfolio with the objectives of improving credit quality and increasing investment returns.  In connection with our portfolio management, we may engage in various collection and foreclosure activities.

If we acquire real estate pursuant to a foreclosure or bankruptcy proceeding, the assets will initially be included on the consolidated balance sheet at the lower of cost or estimated fair value.

Leased Property

Our leased real estate properties, represented by 420 SNFs, 18 assisted living facilities (“ALFs”) and 11 specialty facilities at March 31, 2014, are leased under provisions of single or master leases with initial terms typically ranging from 5 to 15 years, plus renewal options.  Substantially all of our 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 percentage increase over the prior year’s rent, generally 2.5%; (ii) an increase based on the change in pre-determined formulas from year to year (i.e., such as increases in the Consumer Price Index (“CPI”)); or (iii) specific dollar increases over prior years.  Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties.

$4.7 Million of New Investment

On January 30, 2014, we acquired an ALF in Arizona from an unrelated third party for approximately $4.7 million. The operations of the 90 bed facility were transitioned to an existing operator of Omega.

Pro Forma Acquisition Results

The facilities acquired in 2014 and 2013 are included in our results of operations from the date of acquisition.  The following unaudited pro forma results of operations reflect the impact of the transactions as if they occurred on January 1, 2013.  For a list of the 2013 transactions, refer to Note 3 – Properties in our 2013 Form 10-K.  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.
       
   
Pro Forma
  
   
Three Months Ended
  
   
March 31,
  
   
2014
    
2013
  
   
(in thousands, except per share amounts, unaudited)
  
       
Revenues
   $ 121,088     $ 102,666  
Net income available to common stockholders
     55,890       38,493  
                 
Earnings per share – diluted:
                
Net income available to common stockholders – as reported
   $ 0.45     $ 0.34  
Net income available to common stockholders – pro forma
     0.45       0.34  

8
 

 


Assets Sold or Assets Held for Sale

Assets Sold

In the first quarter of 2014, we sold one SNF in Louisiana for approximately $1.0 million, resulting in a $0.8 million gain.  We also sold two closed held-for-sale SNFs for total cash proceeds of $2.6 million, generating approximately a $2.1 million gain.

Assets Held for Sale

At March 31, 2014, we had one SNF and one parcel of land classified as held-for-sale with an aggregate net book value of approximately $0.8 million.

Mortgage Notes Receivables

Our mortgage notes receivables relate to 17 fixed-rate mortgages on 40 SNFs and two ALFs.  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 six states, which are operated by six 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.  As of March 31, 2014, none of our mortgages were in default or in foreclosure proceedings.  Where appropriate, the mortgaged properties are generally cross-collateralized with the master lease agreement with the same operator.

Mortgage interest income is recognized as earned over the terms of the related mortgage notes, using the effective yield method.  Allowances are provided against earned revenues from mortgage interest when collection of amounts due becomes questionable or when negotiations for restructurings of troubled operators lead to lower expectations regarding ultimate collection.  When collection is uncertain, mortgage interest income on impaired mortgage loans is recognized as received after taking into account application of security deposits.

$113 Million of New Investment in Q1 2014

On January 17, 2014, we entered into a $112.5 million first mortgage loan with an existing operator of Omega.  The loan is secured by 7 SNFs and 2 ALFs totaling 784 operating beds located in Pennsylvania (7) and Ohio (2).  The loan is cross-defaulted and cross-collateralized with our existing master lease with the operator.  The loan bears an initial annual interest rate of 9.5% and matures in January 2024.

NOTE 3 – DIRECT FINANCING LEASES

The components of investment in direct financing leases consist of the following:
             
   
March 31,
    
December 31,
  
   
2014
    
2013
  
   
(in thousands)
  
Minimum lease payments receivable
   $ 4,279,317     $ 4,291,067  
Estimated residual values
     —       —  
Less unearned income
     (3,747,522 )     (3,761,622 )
Investment in direct financing leases
   $ 531,795     $ 529,445  
                 
Properties subject to direct financing leases
     56       56  
 
9
 

 

 
On November 27, 2013, we closed on 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 previously operated by Ark Holding and leased the facilities back to Ark Holding, 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 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 market value at the time.

The 56 facilities represent 5,624 licensed beds located in 12 states, predominantly in the southeastern United States. The 56 facilities are separated by region and divided amongst four cross-defaulted master leases.  The four regions include the Southeast (39 facilities), the Northwest (7 facilities), Texas (9 facilities) and Indiana (1 facility).  As of March 31, 2014, the following minimum rents are due under our direct financing lease for the next five years (in thousands):

Year 1
Year 2
Year 3
Year 4
Year 5
$47,000
$47,000
$47,128
$47,778
$48,972
 
NOTE 4 – OTHER INVESTMENTS

A summary of our other investments is as follows:
             
   
March 31,
    
December 31,
  
   
2014
    
2013
  
   
(in thousands)
  
             
Other investment note due 2015
   $ 2,268     $ 2,318  
Other investment notes due 2021 - 2023
     13,504       13,427  
Other investment note due 2014
     -       62  
$31.5 million other investment note due 2017
     26,500       23,750  
$2.5 million other investment note due 2014
     829       546  
$6.0 million other investment note due 2013
     5,439       5,439  
$1.3 million other investment note due 2017
     1,300       1,300  
$1.5 million other investment note due 2014
     1,456       1,456  
Notes receivable, gross(1)
     51,296       48,298  
Allowance for loss on notes receivable
     (1,977 )     (1,977 )
Notes receivable, net
     49,319       46,321  
                 
Other
     2,400       2,400  
Marketable securities
     4,333       4,333  
Total other investments
   $ 56,052     $ 53,054  
 
(1)
The majority of these notes bear interest at approximately 10% annually.

$31.5 Million Other Investment Note due 2017

In February 2014, we amended our five year 10.0% term loan agreement with an existing operator allowing for an additional draw of $3.5 million at 10.5% interest rate.  The loan matures in January 2017.

10
 

 

 
NOTE 5 – CONCENTRATION OF RISK

As of March 31, 2014, our portfolio of real estate investments consisted of 548 healthcare facilities, located in 38 states and operated by 49 third-party operators.  Our gross investment in these facilities, net of impairments and before reserve for uncollectible loans, totaled approximately $4.0 billion at March 31, 2014, with approximately 99% of our real estate investments related to long-term care facilities.  Our portfolio is made up of 475 SNFs, 19 ALFs, 11 specialty facilities, fixed rate mortgages on 40 SNFs and two ALFs, and one SNF that is closed/held-for-sale.  At March 31, 2014, we also held miscellaneous investments of approximately $56.1 million, consisting primarily of secured loans to third-party operators of our facilities.

At March 31, 2014, we had investments with one operator and/or manager that exceeded 10% of our total investments: New Ark Investment, Inc. (“Ark”) (13%).  The three states in which we had our highest concentration of investments were Florida (16%), Ohio (10%) and Indiana (9%) at March 31, 2014.

For the three-month period ended March 31, 2014, our revenues from operations totaled $121.0 million, of which approximately $14.1 million were from Ark (12%) and $13.8 million were from Genesis HealthCare (“Genesis”) (11%).  No other operator generated more than 10% of our revenues from operations for the three-month period ended March 31, 2014.
 
NOTE 6 – DIVIDENDS

On April 18, 2014, the Board of Directors declared a common stock dividend of $0.50 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, to be paid May 15, 2014 to common stockholders of record on April 30, 2014.

On January 15, 2014, the Board of Directors declared a common stock dividend of $0.49 per share, increasing the quarterly common dividend by $0.01 per share over the prior quarter, which was paid February 17, 2014 to common stockholders of record on January 31, 2014.

NOTE 7 – TAXES

So long as we qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code (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.  On a quarterly and annual basis, we test our compliance within the REIT taxation rules to ensure that we were in compliance with the rules.

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”).  Currently, we have one TRS that is taxable as a corporation and pays federal, state and local income tax on its net income at the applicable corporate rates.  As of March 31, 2014, the TRS had a net operating loss carry-forward of $1.0 million.  The loss carry-forward is fully reserved with a valuation allowance as of March 31, 2014.

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NOTE 8 – STOCK-BASED COMPENSATION

The following is a summary of our stock-based compensation expense for the three- month periods ended March 31, 2014 and 2013, respectively:

   
Three Months Ended
March 31,
  
   
2014
    
2013
  
   
(in thousands)
  
             
Stock-based compensation expense
   $ 2,263     $ 1,452  

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/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.

On December 31, 2013, we granted 213,741 RSUs to six employees.  The RSUs vest ratably over the three year period ending December 31, 2016, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

On January 1, 2014, we granted 122,137 RSUs to six employees.  The RSUs vest on December 31, 2016, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

Performance Restricted Stock Units

Performance restricted stock units (“PRSUs”) 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 2011, January 2013, December 2013 and January 2014 have varying degrees of performance requirements to achieve vesting, and each PRSU award represents the right to a variable number of shares of common stock based on performance and related dividend equivalents based on dividends paid to stockholders during the applicable performance period.  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.  We expense the cost of these awards ratably over their service period.

Prior to vesting and distribution of shares, ownership of the PRSUs cannot be transferred.  The dividends on the PRSUs accumulate and if vested are paid when the shares are distributed to the employee.

PRSUs (for Performance Periods 2011 through 2013)

In January 2011, we awarded performance restricted stock units (“PRSUs”) to six employees, including:(i) 279,552 multi-year absolute TSR PRSUs and (ii) 93,183 multi-year relative TSR PRSUs.  On January 1, 2013, we awarded to the six employees 124,244 annual TSR PRSUs for the year ended December 31, 2013 (“2013 Annual TSR PRSUs”).
 
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2013 Annual TSR PRSUs

The TSR goal for the 2013 Annual TSR PRSUs was achieved at the high level and 124,244 shares vested and were distributed to the employees in January 2014.

Multi-year TSR PRSUs (for the 2011- 2013 Performance Period)

The number of shares earned under the multi-year TSR PRSUs depended generally on the level of achievement of TSR for the three-years ending December 31, 2013.  In January 2014, the board of directors reviewed the performance and determined the performance targets were met at the high level.  The multi-year TSR PRSUs vest 25% on the last day of each calendar quarter in 2014, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

Multi-year Relative TSR PRSUs (for the 2011- 2013 Performance Period)

The number of shares earned under the multi-year relative TSR PRSUs depended generally on the level of achievement of TSR relative to other real estate investment trusts in the MSCI U.S. REIT Index for the three-years ending December 31, 2013.  In January 2014, the board of directors reviewed the performance and determined the performance targets were met at the high level.  The multi-year relative TSR PRSUs vest 25% on the last day of each calendar quarter in 2014, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

PRSUs (for 2013- 2016 Performance Periods)

In December 2013, we awarded six types of PRSUs to six employees: (i) 77,371 PRSUs that vest based on TSR for the one year period starting December 31, 2013 and ending December 31, 2014 (“2014 Transition TSR PRSUs”), (ii) 77,369 PRSUs that vest based on the TSR for the two year period starting December 31, 2013 and ending December 31, 2015 (“2015 Transition TSR PRSUs”), (iii) 115,785 PRSUs that vest based on TSR for the three year period starting December 31, 2013 and ending December 31, 2016 (“2016 Transition TSR PRSUs”), (iv) 77,371 PRSUs that vest based on relative TSR for the one year period starting December 31, 2013 and ending December 31, 2014 (“2014 Transition Relative TSR PRSUs”), (v) 77,368 Transition PRSUs that vest based on relative TSR for the two year period starting December 31, 2013 and ending December 31, 2015 (“2015 Transition Relative TSR PRSUs”), and (vi) 115,781 PRSUs that vest based on relative TSR for the three year period starting December 31, 2013 and ending December 31, 2016 (“2016 Transition Relative TSR PRSUs”).

2014 Transition TSR PRSUs

The number of shares earned under the 2014 Transition TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning December 31, 2013 and ending December 31, 2014.  The 2014 Transition TSR PRSUs vest on December 31, 2014, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

2015 Transition TSR PRSUs

The number of shares earned under the 2015 Transition TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning December 31, 2013 and ending December 31, 2015.  The 2015 Transition TSR PRSUs vest on December 31, 2015, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.
 
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2016 Transition TSR PRSUs

The number of shares earned under the 2016 Transition TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning December 31, 2013 and ending December 31, 2016.  The 2016 Transition TSR PRSUs vest on December 31, 2016, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

2014 Transition Relative TSR PRSUs

The number of shares earned under the 2014 Transition Relative TSR PRSUs depends generally on the level of achievement of TSR relative to the MSCI U.S. REIT Index for the period beginning December 31, 2013 and ending December 31, 2014.  The 2014 Transition Relative TSR PRSUs vest on December 31, 2014, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

2015 Transition Relative TSR PRSUs

The number of shares earned under the 2015 Transition Relative TSR PRSUs depends generally on the level of achievement of TSR relative to MSCI U.S. REIT Index for the period beginning December 31, 2013 and ending December 31, 2015.  The 2015 Transition Relative TSR PRSUs vest on December 31, 2015, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.
 
2016 Transition Relative TSR PRSUs

The number of shares earned under the 2016 Transition Relative TSR PRSUs depends generally on the level of achievement of TSR relative to MSCI U.S. REIT Index for the period beginning December 31, 2013 and ending December 31, 2016.  The 2016 Transition Relative TSR PRSUs vest on December 31, 2016, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

PRSUs (for 2014- 2016 Performance Periods)

In January 2014, we awarded two types of PRSUs to six employees: (i) 154,584 PRSUs that vest   based on TSR for the three year period starting January 1, 2014 and ending December 31, 2016 (“2016 TSR PRSUs”), and (ii) 154,584 PRSUs that vest based on relative TSR for the three year period starting January 1, 2014 and ending December 31, 2016 (“2016 Relative TSR PRSUs”).

2016 TSR PRSUs

The number of shares earned under the 2016 TSR PRSUs depends generally on the level of achievement of Omega’s TSR for the period beginning January 1, 2014 and ending December 31, 2016.  The 2016 TSR PRSUs vest quarterly in 2017 in equal increments, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

2016 Relative TSR PRSUs

The number of shares earned under the 2016 Quarterly Relative TSR PRSUs depends generally on the level of achievement of Omega’s TSR relative to MSCI U.S. REIT Index for the period beginning January 1, 2014 and ending December 31, 2016.  The 2016 Relative TSR PRSUs vest quarterly in 2017 in equal increments, subject to continued employment on the vesting date and subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company.

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The following table summarizes our total unrecognized compensation cost as of March 31, 2014 associated with outstanding restricted stock, restricted stock units and PRSU awards to employees:
                                 
 
Grant
Year
  
Shares/
Units
    
Grant Date Average Fair Value Per
Unit/ Share
    
Total Compensation Cost
(in millions)
    
Weighted Average
Period of
Expense Recognition
(in months)
    
Unrecognized Compensation Cost
(in millions)
  
                                 
Multi-year TSR PRSUs
2011
     279,550     $ 11.06     $ 3.1       44     $ 0.2  
Multi-year Relative TSR PRSUs
2011
     93,183       12.26       1.1       44       0.1  
Restricted stock units
2013
     213,741       29.80       6.4       36       5.8  
2014 Transition TSR PRSUs
2013
     77,371       8.27       0.6       12       0.5  
2015 Transition TSR PRSUs
2013
     77,369       7.48       0.6       24       0.5  
2016 Transition TSR PRSUs
2013
     115,785       8.67       1.0       36       0.9  
2014 Transition Relative TSR PRSUs
2013
     77,371       11.68       0.9       12       0.7  
2015 Transition Relative TSR PRSUs
2013
     77,368       13.06       1.0       24       0.9  
2016 Transition Relative TSR PRSUs
2013
     115,781       14.25       1.7       36       1.5  
Restricted stock units
2014
     122,137       29.80       3.6       36       3.3  
2016 TSR PRSUs
2014
     154,584       8.67       1.4       48       1.3  
2016 Relative TSR PRSUs
2014
     154,584       14.25       2.2       48       2.1  
Total
       1,558,824     $ 15.12     $ 23.6             $ 17.8  
 
We used a Monte Carlo model to estimate the fair value for PRSUs granted to the employees.

Director Restricted Stock Grants

As of March 31, 2014, we had 30,970 shares of restricted stock outstanding to directors.  The directors’ restricted shares are scheduled to vest over the next three years.  As of March 31, 2014, the unrecognized compensation cost associated with outstanding director restricted stock grants is approximately $0.4 million.

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NOTE 9 – FINANCING ACTIVITIES AND BORROWING ARRANGEMENTS
 
Secured and Unsecured Borrowings
 
The following is a summary of our long-term borrowings:
 
         
Current
    
March 31,
    
December 31,
  
   
Maturity
    
Rate
    
2014
    
2013
  
               
(in thousands)
  
Secured borrowings:
                        
HUD mortgages assumed June 2010 (1)
     2040 - 2045       4.85 %   $ 128,068     $ 128,641  
HUD mortgages assumed October 2011 (1)
     2036 - 2040       4.87 %     30,929       31,145  
HUD mortgages assumed December 2011(1)
     2044       3.06 %     58,301       58,592  
HUD mortgages assumed December 2012(1)
     2031 - 2045       5.50 %     79,718       80,153  
Total secured borrowings
                     297,016       298,531  
                                 
Unsecured borrowings:
                                
Revolving line of credit
     2016       1.95 %   $ -     $ 326,000  
Term loan
     2017       1.91 %     200,000       200,000  
                      200,000       526,000  
                                 
2020 notes
     2020       7.50 %     200,000       200,000  
2022 notes
     2022       6.75 %     575,000       575,000  
2024 notes
     2024       5.875 %     400,000       400,000  
2024 notes
     2024       4.95 %     400,000       —  
Subordinated debt
     2021       9.00 %     20,855       20,892  
                      1,595,855       1,195,892  
Premium (discount) - net
                     (1,749 )     3,995  
Total unsecured borrowings
                     1,794,106       1,725,887  
Totals – net
                   $ 2,091,122     $ 2,024,418  
   
 
(1)
Reflects the weighted average annual interest rate on the mortgages.
 
Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants.  As of December 31, 2013 and March 31, 2014, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.
 
Bank Credit Agreements
 
We have a $700 million unsecured credit facility that we entered into on December 6, 2012, comprised of a $500 million unsecured revolving credit facility  (the “2012 Revolving Credit Facility”) and a $200 million unsecured term loan (the “2012 Term Loan Facility” and, together with the 2012 Revolving Credit Facility, collectively, the “2012 Credit Facilities”).
 
The 2012 Credit Facilities include an “accordion feature” that permits us to expand our borrowing capacity thereunder by a combined $300 million, to a total of $1 billion.
 
At March 31, 2014, we had no outstanding amount under the 2012 Revolving Credit Facility, and no letters of credit outstanding, leaving availability of $500 million.  The 2012 Revolving Credit Facility matures on December 6, 2016, with an option by us to extend the maturity one additional year.  The 2012 Revolving Credit Facility is priced at LIBOR plus an applicable percentage (beginning at 150 basis points, with a range of 100 to 190 basis points) based on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings, plus a facility fee based on the same ratings (initially 30 basis points, with a range of 15 to 45 basis points).
 
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At March 31, 2014, the full $200 million was outstanding under the 2012 Term Loan Facility.  The 2012 Term Loan Facility is also priced at LIBOR plus an applicable percentage (beginning at 175 basis points, with a range of 110 to 230 basis points) based our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings.  The 2012 Term Loan Facility matures on December 6, 2017.
 
$200 Million Term Loan
 
On December 27, 2013, we entered into a new $200 million senior unsecured, deferred draw, term loan facility (the “2013 Term Loan Facility”) that was scheduled to mature on February 29, 2016.
 
The 2013 Term Loan Facility was priced at LIBOR plus an applicable percentage (beginning at 175 basis points, with a range of 110 to 230 basis points) based on the Company’s ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings.
 
In January 2014, we drew all $200 million under the 2013 Term Loan Facility and used the proceeds to (i) fund a new mortgage investment and (ii) repay outstanding borrowings under the 2012 Revolving Credit Facility.  In March 2014, we paid off and terminated the 2013 Term Loan Facility with proceeds from the sale of our 4.95% Senior Notes due 2024 (see below).  In addition, we recorded a non-cash charge of approximately $2.0 million relating to the write-off of deferred financing costs associated with the termination of the 2013 Term Loan Facility.
 
$400 Million Senior Notes
 
On March 6, 2014, we sold $400 million aggregate principal amount of our 4.95% Senior Notes due 2024.  These notes were sold at an issue price of 98.580% of the principal amount of the notes, before the initial purchasers’ discount resulting in gross proceeds of approximately $394.3 million.  We used the net proceeds of the offering to repay in full our $200 million 2013 Term Loan Facility, and a portion of our indebtedness outstanding under our 2012 Revolving Credit Facility.
 
$250 Million Equity Shelf Program
 
On March 18, 2013, we entered into separate Equity Distribution Agreements (collectively, the “2013 Equity Shelf Agreements”) to sell shares of our common stock having an aggregate gross sales price of up to $250 million (the “2013 Equity Shelf Program”) with several financial institutions, each as a sales agent and/or principal (collectively, the “Managers”).
 
For the three-month period ended March 31, 2014, we issued approximately 0.9 million shares under the 2013 Equity Shelf Program, at an average price of $32.94 per share, generating gross proceeds of approximately $28.5 million, before $0.6 million of commissions.
 
Dividend Reinvestment and Common Stock Purchase Plan
 
For the three-month period ended March 31, 2014, approximately 1.0 million shares of our common stock at an average price of $31.77 per share were issued through our Dividend Reinvestment and Common Stock Purchase Program for gross proceeds of approximately $31.5 million.
 
 
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NOTE 10 – FINANCIAL INSTRUMENTS
 
At March 31, 2014 and December 31, 2013, the carrying amounts and fair values of our financial instruments were as follows:
 
   
March 31, 2014
    
December 31, 2013
  
   
Carrying
Amount
    
Fair
Value
    
Carrying
Amount
    
Fair
Value
  
Assets:
  
(in thousands)
  
Cash and cash equivalents
   $ 20,374     $ 20,374     $ 2,616     $ 2,616  
Restricted cash
     28,817       28,817       31,759       31,759  
Investment in direct financing leases
     531,795       531,795       529,445       529,445  
Mortgage notes receivable – net
     354,497       379,719       241,515       240,482  
Other investments – net
     56,052       55,664       53,054       50,124  
Totals
   $ 991,535     $ 1,016,369     $ 858,389     $ 854,426  
Liabilities:
                                
Revolving line of credit
   $ —     $ —     $ 326,000     $ 326,000  
Term loan
     200,000       200,000       200,000       200,000  
7.50% notes due 2020 – net
     197,976       260,166       197,890       256,852  
6.75% notes due 2022 – net
     580,931       713,689       581,105       735,687  
5.875% notes due 2024 – net
     400,000       430,052       400,000       411,266  
4.95% notes due 2024 – net
     394,344       394,344       —       —  
HUD debt
     297,016       299,641       298,531       287,718  
Subordinated debt
     20,855       27,880       20,892       28,849  
Totals
   $ 2,091,122     $ 2,325,772     $ 2,024,418     $ 2,246,372  
 
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 in our Annual Report on Form 10-K for the year ended December 31, 2013).  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.
 
 
●
Cash and cash equivalents and restricted cash:  The carrying amount of cash and cash equivalents and restricted cash reported in the balance sheet approximates fair value because of the short maturity of these instruments (i.e., less than 90 days) (Level 1).
 
 
●
Mortgage notes receivable:  The fair values 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).
 
 
●
Direct financing leases:  The fair values of the direct financing 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).
 
 
●
Other investments:  Other investments are primarily comprised of: (i) notes receivable and (ii) an investment in a redeemable non-convertible preferred security of an unconsolidated business accounted for using the cost method of accounting.  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).  The fair value of the investment in the unconsolidated business is estimated using quoted market value and considers the terms of the underlying arrangement (Level 3).
 
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●
Revolving line of credit and term loan:  The fair value of our borrowings under variable rate agreements are estimated using an expected present value technique based on expected cash flows discounted using the current market rates (Level 3).
 
 
●
Senior notes and other long-term borrowings:  The fair value of our borrowings under fixed rate agreements are estimated based on open market trading activity provided by a third party (Level 2).
 
NOTE 11 – LITIGATION
 
We are subject to various 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.
 
NOTE 12 – EARNINGS PER SHARE
 
The computation of basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the relevant period.  Diluted EPS is computed using the treasury stock method, which is net income available to common stockholders divided by the total weighted-average number of common outstanding shares plus the effect of dilutive common equivalent shares during the respective period.  Dilutive common shares reflect the assumed issuance of additional common shares pursuant to certain of our share-based compensation plans, including stock options, restricted stock and performance restricted stock units.
 
The following tables set forth the computation of basic and diluted earnings per share:
 
   
Three Months Ended
March 31,
  
   
2014
    
2013
  
   
(in thousands, except per share amounts)
  
Numerator:
            
Net income
   $ 55,829     $ 38,120  
Numerator for net income available to common per share - basic and diluted
   $ 55,829     $ 38,120  
 
Denominator:
                
Denominator for basic earnings per share
     124,459       112,782  
Effect of dilutive securities:
                
Common stock equivalents
     363       740  
Denominator for diluted earnings per share
     124,822       113,522  
                 
Earnings per share – basic:
                
Net income – basic
   $ 0.45     $ 0.34  
Earnings per share – diluted:
                
Net income – diluted
   $ 0.45     $ 0.34  
 
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NOTE 13 – CONSOLIDATING FINANCIAL STATEMENTS
 
As of March 31, 2014, we had outstanding (i) $200 million 7.5% Senior Notes due 2020, (ii) $575 million 6.75% Senior Notes due 2022, (iii) $400 million 5.875% Senior Notes due 2024 and (iv) $400 million 4.95% Senior Notes due 2024, which we collectively refer to as the Senior Notes.  The Senior Notes are fully and unconditionally guaranteed, jointly and severally, by each of our subsidiaries that guarantee other indebtedness of Omega or any of the subsidiary guarantors.  All of our subsidiaries that guarantee the Senior Notes also guarantee the 2012 Credit Facilities.  Any subsidiary that we properly designate as an “unrestricted subsidiary” under the indentures governing the Senior Notes will not provide guarantees of the Senior Notes or the 2012 Credit Facilities.
 
As of and prior to March 31, 2010, the non-guarantor subsidiaries were minor and insignificant.  On June 29, 2010, we designated as “unrestricted subsidiaries” the 39 subsidiaries we acquired from CapitalSource subject to HUD indebtedness, of which 12 subsidiaries were re-designated as “restricted subsidiaries” and subsidiary guarantors in July 2013 due to the retirement of the HUD related debt on 11 facilities.  During the fourth quarter of 2011, we designated as “unrestricted subsidiaries” 20 subsidiaries we acquired subject to HUD indebtedness, of which six subsidiaries were re-designated as “restricted subsidiaries” and subsidiary guarantors in July 2012 due to the retirement of the HUD related mortgages on five facilities.  During the fourth quarter of 2012, we designated as “unrestricted subsidiaries” eight subsidiaries we acquired subject to HUD indebtedness.  The following summarized condensed consolidating financial information reflects these changes.
 
For the three months ended March 31, 2014 and 2013, the operating cash flow of the non-guarantor subsidiaries approximated net income of the non-guarantor subsidiaries, adjusted for depreciation and amortization expense and rent recorded on straight-line basis.  On March 26, 2013, the non-guarantor subsidiaries refinanced existing HUD mortgage debt on 12 properties in Arkansas for approximately $59.4 million. The refinanced amount included $58.7 million related to retiring the old HUD debt and $0.7 million of closing costs that were added to the new (refinanced) HUD debt.
 
For the three months ended March 31, 2014 and 2013, the non-guarantor subsidiaries did not engage in investing or financing activities other than the principal payment of $1.2 million and $1.1 million, respectively for the HUD mortgages on the facilities owned by the non-guarantor subsidiaries.  All of the subsidiary guarantors of our outstanding Senior Notes and 2012 Credit Facilities, and all of our non-guarantor subsidiaries, are 100% owned by Omega.
 
The following summarized condensed consolidating financial information segregates the financial information of the non-guarantor subsidiaries from the financial information of Omega Healthcare Investors, Inc. and the subsidiary guarantors under the Senior Notes.  The results and financial position of acquired entities are included from the dates of their respective acquisitions.
 
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OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING BALANCE SHEETS
Unaudited
(in thousands, except per share amounts)
 
   
March 31, 2014
  
   
Issuer &
Subsidiary
Guarantors
    
Non-Guarantor
Subsidiaries
    
Elimination
Company
    
Consolidated
  
                         
ASSETS
                        
Real estate properties
                        
Land and buildings                                                        
   $ 2,649,785     $ 457,500     $ -     $ 3,107,285  
Less accumulated depreciation                                                        
     (679,994 )     (58,714 )     -       (738,708 )
Real estate properties – net                                                      
     1,969,791       398,786       -       2,368,577  
Investment in direct financing leases                                                           
     531,795       -       -       531,795  
Mortgage notes receivable – net                                                           
     354,497       -       -       354,497  
      2,856,083       398,786       -       3,254,869  
Other investments – net                                                           
     56,052       -       -       56,052  
      2,912,135       398,786       -       3,310,921  
Assets held for sale – net                                                           
     820       -       -       820  
Total investments                                                        
     2,912,955       398,786       -       3,311,741  
                                 
Cash and cash equivalents                                                           
     20,374       -       -       20,374  
Restricted cash                                                           
     6,932       21,885       -       28,817  
Accounts receivable – net                                                           
     145,061       7,802       -       152,863  
Investment in affiliates                                                           
     103,807       -       (103,807 )     -  
Other assets                                                           
     37,681       27,449       -       65,130  
Total assets                                                        
   $ 3,226,810     $ 455,922     $ (103,807 )   $ 3,578,925  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Revolving line of credit                                                           
   $ -     $ -     $ -     $ -  
Term loan                                                           
     200,000       -       -       200,000  
Secured borrowings                                                           
     -       297,016       -       297,016  
Unsecured borrowings – net                                                           
     1,573,251       20,855       -       1,594,106  
Accrued expenses and other liabilities
     98,212       34,244       -       132,456  
Intercompany payable                                                           
     -       74,617       (74,617 )     -  
Total liabilities                                                        
     1,871,463       426,732       (74,617 )     2,223,578  
                                 
Stockholders’ equity:
                                
Common stock                                                           
     12,542       -       -       12,542  
Common stock – additional paid-in capital
     2,059,085       -       -       2,059,085  
Cumulative net earnings                                                           
     982,478       29,190       (29,190 )     982,478  
Cumulative dividends paid                                                           
     (1,698,758 )     -       -       (1,698,758 )
Total stockholders’ equity                                                        
     1,355,347       29,190       (29,190 )     1,355,347  
Total liabilities and stockholders’ equity
   $ 3,226,810     $ 455,922       (103,807 )   $ 3,578,925  
 
21
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING BALANCE SHEETS
 (in thousands, except per share amounts)
 
   
December 31, 2013
  
   
 
Issuer &
Subsidiary
Guarantors
    
Non – Guarantor
Subsidiaries
    
Elimination
Company
    
Consolidated
  
                         
ASSETS
                        
Real estate properties
                        
Land and buildings
   $ 2,642,047     $ 457,500     $ —     $ 3,099,547  
Less accumulated depreciation
     (653,858 )     (53,552 )     —       (707,410 )
Real estate properties – net
     1,988,189       403,948       —       2,392,137  
Investment in direct financing leases
     529,445       —       —       529,445  
Mortgage notes receivable – net
     241,515       —       —       241,515  
      2,759,149       403,948       —       3,163,097  
Other investments – net
     53,054       —       —       53,054  
      2,812,203       403,948       —       3,216,151  
Assets held for sale – net
     1,356       —       —       1,356  
Total investments
     2,813,559       403,948       —       3,217,507  
                                 
Cash and cash equivalents
     2,616       —       —       2,616  
Restricted cash
     6,827       24,932       —       31,759  
Accounts receivable – net
     140,331       7,173       —       147,504  
Investment in affiliates
     108,707       —       (108,707 )     —  
Other assets
     36,723       26,107       —       62,830  
Total assets
   $ 3,108,763     $ 462,160     $ (108,707 )   $ 3,462,216  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Revolving line of credit
   $ 326,000     $ —     $ —     $ 326,000  
Term loan
     200,000       —       —       200,000  
Secured borrowings
     —       298,531       —       298,531  
Unsecured borrowings – net
     1,178,995       20,892       —       1,199,887  
Accrued expenses and other liabilities
     103,665       34,030       —       137,695  
Intercompany payable
     —       83,065       (83,065 )     —  
Total liabilities
     1,808,660       436,518       (83,065 )     2,162,113  
                                 
Stockholders’ equity:
                                
Common stock
     12,353       —       —       12,353  
Common stock – additional paid-in-capital
     1,998,169       —       —       1,998,169  
Cumulative net earnings
     926,649       25,642       (25,642 )     926,649  
Cumulative dividends paid
     (1,637,068 )     —       —       (1,637,068 )
Total stockholders’ equity
     1,300,103       25,642       (25,642 )     1,300,103  
Total liabilities and stockholders’ equity
   $ 3,108,763     $ 462,160     $ (108,707 )   $ 3,462,216  

22
 

 

 
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
 
   
Three Months Ended March 31, 2014
  
   
Issuer &
Subsidiary
Guarantors
    
Non –
Guarantor
Subsidiaries
    
 
 
Elimination
    
Consolidated
  
Revenue
                        
Rental income
   $ 83,366     $ 12,552     $ -     $ 95,918  
Income from direct financing leases
     14,084       -       -       14,084  
Mortgage interest income
     9,326       -       -       9,326  
Other investment income – net
     1,421       -       -       1,421  
Miscellaneous
     252       -       -       252  
Total operating revenues
     108,449       12,552       -       121,001  
                                 
Expenses
                                
Depreciation and amortization
     26,282       5,162       -       31,444  
General and administrative
     6,406       91       -       6,497  
Acquisition costs
     95       -       -       95  
Provision for uncollectible mortgages, notes and accounts receivable
     (16 )     -       -       (16 )
Total operating expenses
     32,767       5,253       -       38,020  
                                 
Income before other income and expense
     75,682       7,299       -       82,981  
Other income (expense):
                                
Interest income
     1       7       -       8  
Interest expense
     (23,328 )     (3,753 )     -       (27,081 )
Interest – amortization of deferred financing costs
     (917 )     (5 )     -       (922 )
Interest – refinancing costs
     (2,040 )     -