Omega Announces First Quarter 2019 Financial Results

HUNT VALLEY, Md.–(BUSINESS WIRE)–Omega Healthcare Investors, Inc. (NYSE:OHI) (the “Company” or “Omega”)
today announced its results of operations for the quarter ended March
31, 2019. The Company reported net income of $72.2 million or $0.34 per
common share. The Company also reported Funds From Operations (“FFO”)
for the quarter of $144.1 million or $0.67 per common share, Adjusted
Funds From Operations (“AFFO” or “Adjusted FFO”) of $161.3 million or
$0.76 per common share, and Funds Available For Distribution (“FAD”) of
$145.2 million.

Adjusted FFO excludes a few one-time non-cash revenue and expense items
from FFO. FFO, AFFO and FAD are non-GAAP financial measures. For more
information regarding these non-GAAP measures, see the “Funds From
Operations” schedule below and the Company’s website at www.omegahealthcare.com.

GAAP NET INCOME

For the quarter ended March 31, 2019, the Company reported net income of
$72.2 million, or $0.34 per common share, on operating revenues of
$223.7 million. This compares to net income of $87.9 million, or $0.42
per common share, on operating revenues of $220.2 million, for the same
period in 2018.

The decrease in net income for the quarter ended March 31, 2019 compared
to the prior year was primarily due to (i) a $17.5 million reduction in
gains on the sale of assets, (ii) an increase of $2.9 million of costs
related to the acquisition of MedEquities Realty Trust (“MedEquities”)
and (iii) an increase of $2.8 million of impairments on direct financing
leases and real estate properties. The decrease in net income was
partially offset by a $6.6 million net reduction in provisions for
uncollectible accounts.

CEO COMMENTS

Taylor Pickett, Omega’s Chief Executive Officer, stated, “We had a solid
first quarter. We announced our pending acquisition of MedEquities,
resolved the sale and transition of our legacy Orianna assets and began
to see our general and administrative expenses tick down as legal costs
began to moderate. We also announced that we had provided one of our
operators, Daybreak, near-term liquidity relief via a $2.5 million rent
deferral in each of the first two quarters of 2019. During the first
quarter, they paid in accordance with these terms and we began to see an
improvement in their patient quality mix in the first few months of
2019. We continue to work closely with Daybreak to maximize rents and
ensure they protect the value of our real estate assets. While our
operators continue to battle a challenging operating environment, a
number of positive factors lead us to believe this environment will
improve in the near future. The implementation of the Patient Driven
Payment Model (“PDPM”) and the recently announced 2.5% increase in
Medicare reimbursement, both starting in October, will augment the
improving census driven by a multi-decade demographic tailwind.”

Mr. Pickett continued, “With the MedEquities closing imminent, the
acquisition pipeline beginning to pick up and our flagship Manhattan
senior housing development, Inspīr at Carnegie Hill, due to open at the
end of the year, we are optimistic for the future and believe we will be
able to take advantage of our preeminent platform to continue to grow
our portfolio and increase shareholder value.”

2019 RECENT DEVELOPMENTS AND FIRST QUARTER
HIGHLIGHTS

In Q2 2019, the Company…

• declared a $0.66 per share quarterly common stock dividend.

In Q1 2019, the Company…

• entered into a definitive merger agreement to acquire MedEquities
  Realty Trust, Inc.
• finalized the Orianna portfolio restructuring.
• invested $42 million in capital renovation and
  construction-in-progress projects.
• paid a $0.66 per share quarterly common stock dividend.

FIRST QUARTER 2019 RESULTS

Operating Revenues and Expenses – Operating revenues for
the quarter ended March 31, 2019 totaled $223.7 million, which included
$15.8 million of non-cash revenue, $4.0 million of real estate tax and
ground rents, and a $1.2 million provision for uncollectible
straight-line revenue.

Operating expenses for the quarter ended March 31, 2019 totaled $101.5
million, consisting of $70.9 million of depreciation and amortization
expense, $11.8 million of general and administrative (“G&A”) expense,
$7.7 million of impairments on direct financing leases related to
finalizing the sale of 15 Orianna facilities, $4.1 million of real
estate tax and ground lease expense, $4.1 million of stock-based
compensation expense and $2.9 million of merger related costs. For more
information on impairment charges, see the “2019 First Quarter and
Recent Portfolio Activity – Asset Impairments and Dispositions” section
below.

The Company adopted a new lease accounting standard effective January 1,
2019. As a result, operating revenues increased $4.0 million (offset by
an increase in operating expenses of $4.1 million) related to real
estate taxes and ground lease income.

As part of the Company’s constant effort to improve the effectiveness
and efficiency of its operations, on February 15, 2019, the Company
implemented an internal realignment resulting in the closing of its
Chicago office and the elimination of certain positions. As a result,
the Company recorded in G&A approximately $1.0 million in restructuring
related expenses.

Other Income and Expense – Other income and expense for
the quarter ended March 31, 2019 was a net expense of $50.0 million,
primarily consisting of $48.1 million of interest expense and $2.2
million of amortized deferred financing costs offset by $0.3 million in
unrealized gain on warrants (included in Interest income and other –
net).

Funds From Operations – For the quarter ended March 31,
2019, FFO was $144.1 million, or $0.67 per common share, on 214 million
weighted-average common shares outstanding, compared to $147.4 million,
or $0.71 per common share on 208 million weighted-average common shares
outstanding, for the same period in 2018.

The $144.1 million of FFO for the quarter ended March 31, 2019 includes
$7.7 million in impairments on direct financing leases, $4.1 million of
non-cash stock-based compensation expense, $2.9 million of merger
related costs, a $1.2 million write-off of non-cash revenue, a $1.1
million one-time lease termination payment, $1.0 million of
restructuring costs and $1.0 million of one-time revenue.

The $147.4 million of FFO for the quarter ended March 31, 2018 included
the impact of $7.8 million in provisions for uncollectible accounts,
$4.1 million of non-cash stock-based compensation expense and a $2.0
million purchase option buyout.

Adjusted FFO was $161.3 million, or $0.76 per common share, for the
quarter ended March 31, 2019, compared to $161.3 million, or $0.78 per
common share, for the same quarter in 2018. For further information see
the “Funds From Operations” schedule.

FINANCING ACTIVITIES

Equity Shelf Program and Dividend Reinvestment and Common Stock
Purchase Plan – During the quarter ended March 31, 2019, the
Company sold 3.1 million shares of its common stock, generating $110.6
million of gross proceeds. The following table outlines shares of the
Company’s common stock issued under its Equity Shelf Program and its
Dividend Reinvestment and Common Stock Purchase Plan:

2019 FIRST QUARTER AND RECENT PORTFOLIO ACTIVITY

$42 Million of New Investments – In the first quarter of
2019, the Company invested $41.8 million under its capital renovation
and construction-in-progress programs.

Orianna – On January 11, 2019, 15 Orianna facilities were
sold for $176 million of consideration, comprised of $146 million in
cash (received by the estate trust) and a $30 million seller note held
by the Company. The Company received $25 million to repay the
debtor-in-possession revolving credit and term loan facility. During the
first quarter, the Company received $86.7 million from the estate trust.
The estate trust currently holds cash and accounts receivable which will
be liquidated with a portion of the proceeds paying various estate
expenses with the balance to be paid to the Company. In the first
quarter of 2019, the Company recorded a $7.7 million impairment charge
related to the finalization of the Orianna portfolio based on the
estimated collectability of the remaining accounts receivable owed to
the Company held in the estate trust.

MedEquities Merger – As previously announced, on January
2, 2019, the Company entered into a definitive merger agreement under
which Omega will acquire all of the outstanding shares of MedEquities
Realty Trust, Inc. (NYSE:MRT). The transaction represents an enterprise
value of approximately $600 million for MedEquities and further
diversifies Omega’s assets and operators. The meeting of MedEquities
stockholders to approve the merger will be held on May 15, 2019, and we
expect to complete the acquisition shortly thereafter.

Under the terms of the merger agreement, each outstanding share of
MedEquities common stock will be exchanged for 0.235 of a share of Omega
common stock plus $2.00 in cash.

Asset Impairments and Dispositions – During the first
quarter of 2019, 16 assets were sold (one previously classified as
assets held for sale and 15 classified as a direct financing lease) for
$87.1 million in cash and a $30 million seller note. The Company
recorded an impairment charge on direct financing leases as previously
described.

As of March 31, 2019, the Company had two facilities classified as
assets held for sale totaling approximately $0.6 million. The Company
expects to sell these facilities over the next few quarters.

DIVIDENDS

On April 15, 2019, the Board of Directors declared a common stock
dividend of $0.66 per share, to be paid May 15, 2019 to common
stockholders of record as of the close of business on April 30, 2019.

2019 ADJUSTED FFO GUIDANCE AFFIRMED

The Company affirmed its 2019 Adjusted FFO guidance to be between $3.00
and $3.12 per diluted share.

Bob Stephenson, Omega’s CFO commented, “Our 2019 guidance assumes that
the MedEquities merger will be completed in mid-May. We expect to
redeploy most of the cash proceeds received in the first quarter from
the Orianna transaction throughout the remainder of 2019; however, the
timing is unpredictable.” Mr. Stephenson continued, “As I stated in
February, we may continue to issue equity under our ATM to further
de-lever, which may significantly impact our guidance. To clarify our
longer-term expected operating performance, we have reiterated our
fourth quarter 2019 estimated guidance to be between $0.78 and $0.81 per
share along with our annual guidance.”

The following table presents a reconciliation of Omega’s guidance
regarding Adjusted FFO to projected GAAP earnings.

The Company’s Adjusted FFO guidance for 2019 assumes the MedEquities
merger is completed in the second quarter, $125 million of planned
capital renovation projects with 2019 estimated in-service dates, and
proceeds from potential asset disposition opportunities will be
redeployed with cash yields between 9% – 9.5%. It also excludes the
impact of gains and losses from the sale of assets, certain revenue and
expense items, interest refinancing expense, capital transactions,
acquisition costs, and additional provisions for uncollectible accounts,
if any.

The Company’s guidance is based on a number of assumptions, which are
subject to change and many of which are outside the Company’s control.
If actual results vary from these assumptions, the Company’s
expectations may change. Without limiting the generality of the
foregoing, the timing of collection of rental obligations from operators
on a cash basis, the timing and completion of acquisitions,
divestitures, capital and financing transactions, and variations in
stock-based compensation expense may cause actual results to vary
materially from our current expectations. There can be no assurance that
the Company will achieve its projected results. The Company may, from
time to time, update its publicly announced Adjusted FFO guidance, but
it is not obligated to do so.

CONFERENCE CALL

The Company will be conducting a conference call on Wednesday, May 8,
2019 at 10 a.m. Eastern to review the Company’s 2019 first quarter
results and current developments. Analysts and investors within the
United States interested in participating are invited to call (877)
511-2891. The Canadian toll-free dial-in number is (855) 669-9657. All
other international participants can use the dial-in number (412)
902-4140. Ask the operator to be connected to the “Omega Healthcare’s
First Quarter 2019 Earnings Call.”

To listen to the conference call via webcast, log on to www.omegahealthcare.com
and click the “earnings call” icon on the Company’s home page. Webcast
replays of the call will be available on the Company’s website for two
weeks following the call.

Omega is a real estate investment trust that invests in the long-term
healthcare industry, primarily in skilled nursing and assisted living
facilities. Its portfolio of assets is operated by a diverse group of
healthcare companies, predominantly in a triple-net lease structure. The
assets span all regions within the US, as well as in the UK.

Additional Information and Where to Find It

In connection with the proposed transaction with MedEquities (the
“Merger”), Omega has filed a registration statement on Form S-4 (File
No. 333-229594) with the SEC. The registration statement includes
a copy of the merger agreement and constitutes the proxy statement of
MedEquities and the prospectus of Omega. MedEquities and Omega may also
file other documents with the SEC in connection with the proposed
Merger. This document is not a substitute for the proxy
statement/prospectus or registration statement or any other document
that MedEquities or Omega may file with the SEC. Investors are urged to
read the registration statement, the proxy statement/prospectus and any
other relevant documents when they are available, as well as any
amendments or supplements to these documents, carefully and in their
entirety.

Investors may obtain free copies of the registration statement, the
proxy statement/prospectus, and all other relevant documents filed by
Omega and MedEquities with the SEC through the website maintained by the
SEC at www.sec.gov,
or by contacting MedEquities at 3100 West End Avenue, Suite 1000,
Nashville, Tennessee 37203, Attn: Tripp Sullivan, (615) 760-1104, or
Omega at Omega Healthcare Investors, Inc. 303 International Circle,
Suite 200 Hunt Valley, Maryland 21030, Attn: Matthew Gourmand, Senior VP
of Investor Relations, (410) 427-1714.

Participants in the Solicitation

Omega, MedEquities and their respective directors and executive
officers may be deemed to be participants in the solicitation of proxies
from MedEquities’ stockholders in respect of the proposed Merger.
Information regarding Omega’s directors and executive officers can be
found in Omega’s definitive proxy statement filed with the SEC on April
24, 2019 and its Form 10-K filed with the SEC on February 26, 2019, as
well as its other filings with the SEC. Information regarding the
directors and executive officers of MedEquities can be found in its Form
10-K/A filed with the SEC on April 29, 2019, as well as its other
filings with the SEC. Additional information regarding the interests of
such potential participants is included in the registration statement on
Form S-4 filed by Omega and other relevant documents to be filed with
the SEC in connection with the proposed Merger. These documents are
available free of charge on the SEC’s website and from Omega and
MedEquities, as applicable, using the sources indicated above.

No Offer or Solicitation

This communication is not intended to and does not constitute an
offer to sell or the solicitation of an offer to buy, sell or solicit
any securities or any proxy, vote or approval, nor shall there be any
sale of securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under
the securities laws of any such jurisdiction. No offer of securities
shall be deemed to be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.

Forward-Looking Statements

This press release includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All
statements regarding Omega’s or its tenants’, operators’, borrowers’ or
managers’ expected future financial condition, results of operations,
cash flows, funds from operations, dividends and dividend plans,
financing opportunities and plans, capital markets transactions,
business strategy, budgets, projected costs, operating metrics, capital
expenditures, competitive positions, acquisitions, investment
opportunities, dispositions, facility transitions, growth opportunities,
expected lease income, continued qualification as a REIT, plans and
objectives of management for future operations and statements that
include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,”
“expect,” “intend,” “may,” “could,” “should,” “will” and other similar
expressions are forward-looking statements. These forward-looking
statements are inherently uncertain, and actual results may differ from
Omega’s expectations.

Omega’s actual results may differ materially from those reflected in
such forward-looking statements as a result of a variety of factors,
including, among other things: (i) uncertainties relating to the
business operations of the operators of Omega’s properties, including
those relating to reimbursement by third-party payors, regulatory
matters and occupancy levels; (ii)the impact of healthcare reform and
regulation, including cost containment measures and changes in
reimbursement policies, procedures and rates; (iii) the ability of
operators and borrowers to maintain the financial strength and liquidity
necessary to satisfy their respective rent and debt obligations; (iv)
the ability of any of Omega’s operators in bankruptcy to reject
unexpired lease obligations, modify the terms of Omega’s mortgages and
impede the ability of Omega to collect unpaid rent or interest during
the pendency of a bankruptcy proceeding and retain security deposits for
the debtor’s obligations, and other costs and uncertainties associated
with operator bankruptcies; (v) the availability and cost of capital;
(vi) changes in Omega’s credit ratings and the ratings of its debt
securities; (vii) competition in the financing of healthcare facilities;
(viii) Omega’s ability to maintain its status as a REIT and the impact
of changes in tax laws and regulations affecting REITs; (ix) Omega’s
ability to sell assets held for sale or complete potential asset sales
on a timely basis and on terms that allow Omega to realize the carrying
value of these assets; (x) Omega’s ability to re-lease, otherwise
transition or sell underperforming assets on a timely basis and on terms
that allow Omega to realize the carrying value of these assets; (xi) the
effect of economic and market conditions generally, and particularly in
the healthcare industry; (xii) the potential impact of changes in the
SNF and ALF market or local real estate conditions on the Company’s
ability to dispose of assets held for sale for the anticipated proceeds
or on a timely basis, or to redeploy the proceeds therefrom on favorable
terms; (xiii) changes in interest rates; and (xiv) other factors
identified in Omega’s filings with the SEC. Statements regarding future
events and developments and Omega’s future performance, as well as
management’s expectations, beliefs, plans, estimates or projections
relating to the future, are forward looking statements.

In addition, the proposed acquisition of MedEquities presents
additional factors that could cause Omega’s results to differ materially
from those reflected in the forward-looking statements. Important
risk factors related to the MedEquities transaction that may cause such
a difference include, without limitation, risks and uncertainties
related to (i) the risk that the conditions to closing of the Merger may
not be satisfied including, without limitation, the MedEquities
stockholder approval; (ii) the ability of Omega to integrate the
acquired business successfully and to achieve anticipated cost savings
and other synergies; (iii) the possibility that other anticipated
benefits of the proposed Merger will not be realized, including, without
limitation, anticipated revenues, expenses, earnings and other financial
results; (iv) potential litigation relating to the proposed Merger that
could be instituted; (v) the ability to meet expectations regarding the
timing and closing of the Merger; and (vi) possible disruptions from the
proposed Merger that could harm the businesses of Omega and/or
MedEquities. These risks, as well as other risks associated with
the proposed acquisition of MedEquities, are more fully discussed in the
registration statement on Form S-4 that Omega has filed with the SEC in
connection with the proposed transaction, as may be amended and
supplemented. We caution you that the foregoing list of important
factors may not contain all of the material factors that are important
to you. Accordingly, readers should not place undue reliance on those
statements. All forward-looking statements are based upon information
available to us on the date of this release. We undertake no obligation
to publicly update or revise any forward-looking statement as a result
of new information, future events or otherwise, except as otherwise
required by law.

Contacts

Matthew Gourmand, SVP, Investor Relations
or
Bob Stephenson,
CFO
(410) 427-1700

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