Omega Marginally Beats, Ups Outlook

Zacks

Omega Healthcare Investors, Inc. (OHI), a real estate investment trust (:REIT), reported third quarter 2012 adjusted FFO (funds from operations) of 54 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, this compared favorably with adjusted FFO of 48 cents in the year-earlier quarter.

Adjusted FFO came in at $58.7 million, compared to $49.2 million in the year-earlier quarter. The reported FFO was $56.7 million or 52 cents per share, compared to $44.5 million or 43 cents per share in the year-earlier quarter.

Quarter Highlights

Total operating revenue during the quarter increased 19.6% year over year to $87.1 million and also beat the Zacks Consensus Estimate of $86.0 million. The increase was primarily attributable to hike in rental income, mortgage interest and investment income.

Operating expenses for the quarter surged 15.6% to $34.0 million due to a increase in depreciation and amortization expenses and general and administrative expenses in the reported quarter.

Acquisitions and Dispositions

In the reported quarter, the company purchased 27 Indiana-based properties. Of these, 17 facitlities were for skilled nursing, four were for assisted living and six for independent living. The facilities, totaling 2,892 beds, were acquired for a combined price of $203 million.

The company sold one held-for-sale facility for $2.3 million, which generated a $1.7 million accounting gain during the quarter.

As of September 30, 2012, Omega owned or held mortgages on 460 skilled nursing facilities, assisted living facilities and other specialty hospitals comprised of 53,269 licensed beds, across 33 U.S. states.

Dividend

Concurrent with the earnings release, Omega Healthcare announced a common share dividend of 44 cents per share, to be paid on November 15 to common shareholders of record as of October 31. The quarterly dividend marked an increase of 4.8% over the payout in the last quarter.

Liquidity

At the end of the third quarter, the company had cash and cash equivalents of $7.0 million and total debt of $1,935.0 million.  

2012 Outlook

The company has increased its 2012 adjusted FFO guidance. Adjusted FFO is now expected to be between $2.15 and $2.17 per share versus its previous range of $2.12 and $2.15.

Our Take

Considering the operating results for the third quarter, significant dividend hike and increased full-year guidance, we expect analysts to up their estimates in the coming days. Currently the Zacks Consensus Estimate for 2012 and 2013 are pegged at $2.14 and $2.18, respectively, signifying a year-over-year growth of 13.23% and 2.04% respectively.

Omega Healthcare, which competes with HCP, Inc. (HCP), carries a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.

Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.

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