E Omega Healthcare Investors: Addressing The Dividend Amid Earnings Weakness

We recently discussed Omega Healthcare Investors’ (NYSE: OHI) dividend. About a month ago, Omega Healthcare Investors had made its most recent dividend announcement. The 1.5% dividend increase had brought the quarterly payout to $0.66 per share. That said, the yield is on the rise, and is up to 9.5% now as the stock is selling off following earnings. In this column, we discuss earnings and the ramifications. Moreover, we revisit the issue of dividend safety with this popular real estate investment trust.

Quarterly highlights

So just how was the most recent quarter. Well, income was in line with our expectations, but we have to tell you that rentals were a bit weak. Let’s discuss the results, for the quarter which ended on December 31, 2017, Omega Healthcare Investors reported net income of $65.2 million, or $0.31 per common share, on operating revenues of $221.2 million. This is a sizable decline from what we saw last year. In fact, it is a pretty sizable decline. The year-over-year decline was on the order of 50%, as the present results compare to net income of $129.9 million, or $0.63 per common share last year. This decline comes despite operating revenues only falling slightly from the $234.5 million, for the same period in 2016. For the year, things were not much better.

Annual numbers

For the twelve-month period ended December 31, 2017, the Company reported net income of $104.9 million, or $0.51 per common share, on operating revenues of $908.4 million. This compares to net income of $383.4 million, or $1.90 per common share, on operating revenues of $900.8 million, for the same period in 2016.

Why the decline?

Why the decline? The decrease in annual net income compared to the prior year was primarily due to $198.2 million in impairments on direct financing leases related to the Orianna Health Systems portfolio, $40.6 million of reduced revenue resulting from placing Orianna and Daybreak on a cash basis in 2017, and incremental increases of $40.3 million in impairments on real estate assets, $24.7 million in interest expense, $20.5 million in depreciation and amortization expense, $19.9 million in interest refinancing costs, $4.7 million in provisions for uncollectible accounts and $1.8 million in general and administrative expenses.