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May 3, 2016
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RE:Omega Healthcare Investors, Inc.
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Form 10-K for the year ended December 31, 2015
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Filed February 29, 2016
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File No. 001-11316
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Form 8-K
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Filed February 10, 2016
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File No. 001-11316
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1.
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We note that you present basic net income available to common stockholders, but diluted net income on a consolidated basis. Please tell us why you believe this complies with ASC 260-10-45-11A, which states that for purposes of computing EPS in consolidated financial statements (both basic and diluted), if one or more less-than-wholly-owned subsidiaries is included in the consolidated group, income from continuing operations and net income shall exclude the income attributable to the noncontrolling interest in subsidiaries.
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Redeemable Limited Partnership Unitholder Interests and Noncontrolling Interests
As of April 1, 2015 and after giving effect to the Aviv Merger, the Company owned approximately 138.8 million Omega OP Units and Aviv OP owned approximately 52.9 million Omega OP Units. Each of the Omega OP Units (other than the Omega OP Units owned by Omega) is redeemable at the election of the Omega OP Unit holder for cash equal to the then-fair market value of one share of Omega common stock, par value $0.10 per share (“Omega Common Stock”), subject to the Company’s election to exchange the Omega OP Units tendered for redemption for unregistered shares of Omega Common Stock on a one-for-one basis, subject to adjustment as set forth in the Partnership Agreement. Effective June 30, 2015, the Company (through Merger Sub, in its capacity as the general partner of Aviv OP) caused Aviv OP to make a distribution of Omega OP Units held by Aviv OP (or equivalent value) to Aviv OP investors (the “Aviv OP Distribution”) in connection with the liquidation of Aviv OP. As a result of the Aviv OP Distribution, Omega directly and indirectly owned approximately 95% of the outstanding Omega OP Units, and the other investors own approximately 5% of the outstanding Omega OP Units. As a part of the Aviv OP Distribution, Omega settled approximately 0.2 million units via cash settlement. As of December 31, 2015, Omega directly and indirectly owns approximately 95% of the outstanding Omega OP Units, and the other investors own approximately 5% of the outstanding Omega OP Units.
Noncontrolling Interests
Noncontrolling interests is the portion of equity in the Omega OP not attributable to the Company. We present the portion of any equity that we do not own in consolidated entities as noncontrolling interests and classify those interests as a component of total equity, separate from total stockholders’ equity, on our Consolidated Balance Sheets. We include net income attributable to the noncontrolling interests in net income in our Consolidated Statements of Operations and Comprehensive Income.
As our ownership of a controlled subsidiary increases or decreases, any difference between the aggregate consideration paid to acquire the noncontrolling interests and our noncontrolling interest balance is recorded as a component of equity in additional paid-in capital, so long as we maintain a controlling ownership interest.
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Earnings Per Share
Basic earnings per common 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 year. Diluted EPS is computed using the treasury stock method, which is net income 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 and the assumed issuance of additional shares related to Omega OP Units held by outside investors. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends or dividend equivalents that participate in undistributed earnings with common stockholders are considered participating securities that shall be included in the two-class method of computing basic EPS. The impact of the two class method is immaterial. For additional information, see Note 20 – Earnings Per Share.
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Year Ended December 31,
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2015 | 2014 | 2013 | ||||||||
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(in thousands, except per share amounts) | |||||||||
Numerator:
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Net income
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$ | 233,315 | $ | 221,349 | $ | 172,521 | ||||
Less: Net income attributable to noncontrolling interests
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(8,791) | — | — | |||||||
Net income available to common stockholders
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$ | 224,524 | $ | 221,349 | $ | 172,521 | ||||
Denominator:
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Denominator for basic earnings per share
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172,242 | 126,550 | 117,257 | |||||||
Effect of dilutive securities:
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Common stock equivalents
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1,539 | 744 | 843 | |||||||
Noncontrolling interest – OP units
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6,727 | — | — | |||||||
Denominator for diluted earnings per share
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180,508 | 127,294 | 118,100 | |||||||
Earnings per share - basic:
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Net income available to common stockholders
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$ | 1.30 | $ | 1.75 | $ | 1.47 | ||||
Earnings per share - diluted:
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Net income
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$ | 1.29 | $ | 1.74 | $ | 1.46 |
2.
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Please clarify why the value of shares and OP units exchanged in the Aviv merger ($2,276,260) differs from the amount disclosed as the fair value of merger consideration ($3,908,528).
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On April 1, 2015, Omega completed the Aviv Merger, which was structured as a stock-for-stock merger. Under the terms of the Merger Agreement, each outstanding share of Aviv common stock was converted into 0.90 of a share of Omega common stock. In connection with the Aviv Merger, Omega issued approximately 43.7 million shares of common stock to former Aviv stockholders. As a result of the Aviv Merger, Omega acquired 342 facilities, two facilities subject to direct financing leases, one medical office building, two mortgages and other investments. The facilities are located in 31 states and are operated by 38 third-party operators. Omega also assumed certain outstanding equity awards and other debt and liabilities. Based on the closing price of Omega’s common stock on April, 1, 2015, the fair value of the consideration exchanged was approximately $2.3 billion.
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(in thousands)
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Estimated fair value of assets acquired:
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Land and buildings
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$ | 3,108,078 | ||
Investment in direct financing leases
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26,823 | |||
Mortgages notes receivable
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19,246 | |||
Other investments
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23,619 | |||
Total investments
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3,177,766 | |||
Goodwill
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630,404 | |||
Accounts receivables and other assets
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15,500 | |||
Cash acquired
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84,858 | |||
Accrued expenses and other liabilities assumed
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$ | (221,631 | ) | |
Debt assumed
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(1,410,637 | ) | ||
Fair value of net assets acquired
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$ | 2,276,260 |
3.
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Please characterize “Funds from operations available to common stockholders” as “Funds from operations” in future filings to the extent that net income attributable to noncontrolling interest is included in the measure.
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the Company is responsible for the adequacy and accuracy of the disclosure in the filing;
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staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
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the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
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