What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-03 compared with 2020-08-07 · 340 added, 228 removed, 1080 unchanged (34% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30,

Real estate properties

22 unchanged sentences

Total liabilities

Common stock $ .10 par value authorized – 350,000 shares, issued and outstanding – 226,943 shares as of June 30, 2020 and 226,631 as of December 31, 2019

Common stock $ .10 par value authorized – 350,000 shares, issued and outstanding – 226,980 shares as of September 30, 2020 and 226,631 as of December 31, 2019

Common stock – additional paid-in capital

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Rental income

12 unchanged sentences

Total operating expenses

Other operating income

Gain (loss) on assets sold – net

Operating income

Other operating (loss) income

(Loss) gain on assets sold – net

Operating (loss) income

Other income (expense)

2 unchanged sentences

Interest – amortization of deferred financing costs

Interest – refinancing costs

Realized gain (loss) on foreign exchange

Total other expense

Income before income tax expense and income from unconsolidated joint ventures

(Loss) income before income tax expense and income from unconsolidated joint ventures

Income tax expense

Income from unconsolidated joint ventures

Net income attributable to noncontrolling interest

Net income available to common stockholders

Net (loss) income

Net loss (income) attributable to noncontrolling interest

Net (loss) income available to common stockholders

Earnings per common share/unit available to common stockholders:

Net income available to common stockholders

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

Net (loss) income available to common stockholders

Net (loss) income

See notes to consolidated financial statements .

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

Three Months Ended

Six Months Ended

Other comprehensive (loss) income:

Nine Months Ended

September 30,

Net (loss) income

Other comprehensive income (loss):

Foreign currency translation

Cash flow hedges

Total other comprehensive (loss) income

Comprehensive income

Comprehensive income attributable to noncontrolling interest

Comprehensive income attributable to common stockholders

Total other comprehensive income (loss)

Comprehensive (loss) income

Comprehensive loss (income) attributable to noncontrolling interest

Comprehensive (loss) income attributable to common stockholders

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended June 30, 2020 and 2019

Three Months Ended September 30, 2020 and 2019

(in thousands, except per share amounts)

3 unchanged sentences

Dividends Paid

Balance at March 31, 2020

Balance at June 30, 2020

( 4,610,828 )

Grant of restricted stock to company directors

Stock-based compensation expense

9 unchanged sentences

Cash flow hedges

Total comprehensive income

Balance at June 30, 2020

( 4,610,828 )

Balance at March 31, 2019

Total comprehensive loss

Balance at September 30, 2020

( 4,763,468 )

Cumulative effect of accounting change

Balance at April 1, 2019

Balance at June 30, 2019

( 4,013,116 )

Grant of restricted stock to company directors

Stock-based compensation expense

3 unchanged sentences

Equity Shelf Program

Issuance of common stock - merger related

Vesting/exercising of Omega OP Units

6 unchanged sentences

Total comprehensive income

Balance at June 30, 2019

Balance at September 30, 2019

( 4,156,613 )

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six Months Ended June 30, 2020 and 2019

Nine Months Ended September 30, 2020 and 2019

(in thousands, except per share amounts)

21 unchanged sentences

Total comprehensive income

Balance at June 30, 2020

Balance at September 30, 2020

( 4,763,468 )

2 unchanged sentences

Cumulative effect of accounting change

Balance at April 1, 2019

Balance at March 31, 2019

( 3,739,197 )

15 unchanged sentences

Total comprehensive income

Balance at June 30, 2019

Balance at September 30, 2019

( 4,156,613 )

3 unchanged sentences

Unaudited (in thousands)

September 30,

Cash flows from operating activities

8 unchanged sentences

Stock-based compensation expense

(Gain) loss on assets sold – net

Gain on assets sold – net

Amortization of acquired in-place leases – net

1 unchanged sentence

Interest paid-in-kind

Income from unconsolidated joint ventures

Loss from unconsolidated joint ventures

Change in operating assets and liabilities – net:

19 unchanged sentences

Proceeds from other investments

Net cash used in investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

1 unchanged sentence

Payments on credit facility borrowings

( 1,485,100 )

Receipts of other long-term borrowings

Payments of other long-term borrowings

Payments of financing related costs

Receipts from dividend reinvestment plan

13 unchanged sentences

(in thousands)

September 30,

Real estate properties

32 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Rental income

12 unchanged sentences

Total operating expenses

Other operating income

Gain (loss) on assets sold – net

Operating income

Other operating (loss) income

(Loss) gain on assets sold – net

Operating (loss) income

Other income (expense)

2 unchanged sentences

Interest – amortization of deferred financing costs

Interest – refinancing costs

Realized gain (loss) on foreign exchange

Total other expense

Income before income tax expense and income from unconsolidated joint ventures

(Loss) income before income tax expense and income from unconsolidated joint ventures

Income tax expense

Income from unconsolidated joint ventures

Net (loss) income

Net loss attributable to noncontrolling interest

Net income available to owners

Net (loss) income available to owners

Earnings per unit:

Net income available to owners'

Weighted-average Omega OP Units outstanding, basic

Weighted-average Omega OP Units outstanding, diluted

Net (loss) income available to owners’

Net (loss) income

See notes to consolidated financial statements .

OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

Three Months Ended

Six Months Ended

Other comprehensive (loss) income:

Nine Months Ended

September 30,

Net (loss) income

Other comprehensive income (loss):

Foreign currency translation

Cash flow hedges

Total other comprehensive (loss) income

Comprehensive income

Total other comprehensive income (loss)

Comprehensive (loss) income

Comprehensive loss attributable to noncontrolling interest

Comprehensive income attributable to owners

Comprehensive (loss) income attributable to owners

See notes to consolidated financial statements .

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS’ EQUITY

Three Months Ended June 30, 2020 and 2019

Three Months Ended September 30, 2020 and 2019

(in thousands, except per unit amounts)

1 unchanged sentence

Noncontrolling

Balance at March 31, 2020

Balance at June 30, 2020

Contributions from partners

5 unchanged sentences

Cash flow hedges

Net income (loss)

Total comprehensive income

Total comprehensive loss

Balance at September 30, 2020

Balance at June 30, 2019

Balance at March 31, 2019

Cumulative effect of accounting change

Balance at April 1, 2019

Contributions from partners

6 unchanged sentences

Total comprehensive income

Balance at June 30, 2019

Balance at September 30, 2019

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS’ EQUITY

Six Months Ended June 30, 2020 and 2019

Nine Months Ended September 30, 2020 and 2019

(in thousands, except per unit amounts)

9 unchanged sentences

Cash flow hedges

Net income (loss)

Total comprehensive income

Balance at June 30, 2020

Balance at September 30, 2020

Balance at December 31, 2018

Cumulative effect of accounting change

Balance at April 1, 2019

Balance at March 31, 2019

Contributions from partners

7 unchanged sentences

Total comprehensive income

Balance at June 30, 2019

Balance at September 30, 2019

See notes to consolidated financial statements.

2 unchanged sentences

Unaudited (in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities

8 unchanged sentences

Stock-based compensation expense

(Gain) loss on assets sold – net

Gain on assets sold – net

Amortization of acquired in-place leases – net

1 unchanged sentence

Interest paid-in-kind

Income from unconsolidated joint ventures

Loss from unconsolidated joint ventures

Change in operating assets and liabilities – net:

19 unchanged sentences

Proceeds from other investments

Net cash used in investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

2 unchanged sentences

Repayment of intercompany loans payable to Omega

( 1,585,100 )

Payment of financing related costs incurred by Omega

Noncontrolling members’ contributions to consolidated joint venture

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

September 30, 2020

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

Omega Healthcare Investors, Inc.

(“Omega”) was formed as a real estate investment trust (“REIT”) and incorporated in the State of Maryland on March 31, 1992.

(“Omega”) was incorporated in the State of Maryland on March 31, 1992 and has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes.

Omega is structured as an umbrella partnership REIT (“UPREIT”) under which all of Omega’s assets are owned directly or indirectly by, and all of Omega’s operations are conducted directly or indirectly through, its operating partnership subsidiary, OHI Healthcare Properties Limited Partnership (“Omega OP”).

4 unchanged sentences

Our core portfolio consists of long-term leases and mortgage agreements.

All of our leases are “triple-net” leases, which require the operators (we use the term “operator” to refer to our tenants and mortgagors and their affiliates who manage and/or operate our properties) to pay all property-related expenses.

All of our leases are “triple-net” leases, which require the operators (we use the term “operator” to refer to our tenants, mortgagors and their affiliates who manage and/or operate our properties) 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.

3 unchanged sentences

Omega has exclusive control over Omega OP’s day-to-day management pursuant to the Partnership Agreement.

As of June 30, 2020, Omega owned approximately 97 % of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and investors owned approximately 3 % of the outstanding Omega OP Units.

As of September 30, 2020, Omega owned approximately 97 % of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and investors owned approximately 3 % of the outstanding Omega OP Units.

Basis of Presentation

12 unchanged sentences

Additionally, we are subject to risks and uncertainties as a result of changes affecting operators of nursing home facilities due to the actions of governmental agencies and insurers to limit the rising cost of healthcare services.

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic.

The COVID-19 pandemic has led governments and other authorities in the U.S., U.K.

and around the world to impose measures intended to control its spread, including but not limited to, the mandated use of personal protective equipment, restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders, etc.

While certain regions have entered various phases of reopening, there continues to be a wide range of government restrictions in place and uncertainty around the potential duration of the pandemic.

As of July 16, 2020, less than half of our facilities have reported a positive case of COVID-19 among the residents and/or operator employee populations.

A range of government restrictions remain in place along with continuing uncertainty around the potential duration of the pandemic.

As of October 22, 2020, approximately half of our facilities have reported one or more positive cases of COVID-19 among the residents and/or operator employee populations.

Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases.

3 unchanged sentences

Even if operators are able to avail themselves of government relief to offset some of these costs, they may face challenges in complying with the terms and conditions of government support and may face longer-term adverse impacts to their personnel and business operations from the pandemic, including potential patient litigation and decreased demand for their services.

The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19 and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict.

Due to the speed with which the situation is changing, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ultimate duration, spread and intensity of the outbreak, which may depend on factors such as the development and implementation of an effective vaccine and treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, all of which are uncertain and difficult to predict.

Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

Variable Interest Entities

17 unchanged sentences

We perform this analysis on an ongoing basis.

As of June 30, 2020, we have not consolidated any VIEs, as we do not have the power to direct the activities of any VIEs that most significantly impact their economic performance and we do not have the obligation to absorb losses or receive benefits of the VIEs that could be significant to the entity.

As of September 30, 2020, we have not consolidated any VIEs, as we do not have the power to direct the activities of any VIEs that most significantly impact their economic performance and we do not have the obligation to absorb losses or receive benefits of the VIEs that could be significant to the entity.

Real Estate Investments and Depreciation

27 unchanged sentences

Changes in the facts and circumstances that drive management’s assumptions may result in an impairment to our assets in a future period that could be material to Omega’s results of operations.

For the three months ended June 30, 2020 and 2019, we recognized impairment on real estate properties of approximately $ 12.0 million and $ 5.7 million, respectively.

For the six months ended June 30, 2020 and 2019, we recognized impairment on real estate properties of approximately $ 15.6 million and $ 5.7 million, respectively.

In July of 2020, we executed a Forbearance and Transition Agreement with Daybreak which, among other things, sets forth the parties’ plan to sell or re-lease the Daybreak portfolio, which plan contemplates the potential sale of 28 facilities currently leased to Daybreak to a non-Omega party for $ 100 million, and the Company’s agreement to forbear from exercising certain default remedies during the transition period.

As of June 30, 2020, the 28 facilities have a net book value of approximately $ 147 million.

As of August 7, 2020, we have not entered into a definitive agreement for the sale of these facilities.

We evaluated the facilities for impairment as of June 30, 2020 and concluded that the facilities were not currently impaired, as we believe our projected probability-weighted cash flows exceeded the current net book value of the 28 facilities.

In projecting the probability-weighted cash flows, we considered the potential sale of the facilities for $ 100 million and the potential transition of the facilities to other operators to the extent that the sale to the third party does not ultimately close.

As of June 30, 2020, we estimated a lower probability of the contemplated sale due to lack of a definitive sale agreement and evidence of buyer financing.

To the extent that our assessment of the probability of a potential sale increases in the future, we may be required to record an impairment of approximately $ 47 million on the 28 facilities to reduce the net book value of the 28 facilities to their estimated fair value or fair value less cost to sell and/or record a loss on the sale.

On May 26, 2020, we executed an Agreement of Purchase and Sale to sell an acute care hospital located in Nevada to an unrelated third-party for $ 56.5 million.

Pursuant to the Agreement of Purchase and Sale, the sale remains subject to a 60-day due diligence period which expired in July 2020.

For the three months ended September 30, 2020 and 2019, we recognized impairment on real estate properties of approximately $ 28.1 million and $ 3.8 million, respectively.

For the nine months ended September 30, 2020 and 2019, we recognized impairment on real estate properties of approximately $ 43.7 million and $ 9.5 million, respectively.

In July 2020, we executed a Forbearance and Transition Agreement with Daybreak Venture LLC (“Daybreak”) which, among other things, set forth the parties’ plan to sell or re-lease the Daybreak portfolio (which plan contemplated the potential sale of 28 facilities currently leased to Daybreak to a non-Omega party for $ 100 million), and the Company’s agreement to forbear from exercising certain default remedies during the transition period.

During the third quarter of 2020, discussions terminated on the contemplated sale transaction for $ 100 million, and in October 2020 the Forbearance and Transition Agreement was amended and restated to continue the forbearance.

The Company is in negotiations with other third-party operators to re-lease these 28 facilities, along with three additional facilities.

Further, the Company expects to re-lease or sell one additional Daybreak facility with a net book value of $ 0.1 million either in connection with or separate from these transactions.

As of September 30, 2020, the 31 facilities subject to current re-lease negotiations have a net book value of approximately $ 147 million.

We evaluated the facilities for impairment as of September 30, 2020 and concluded that the facilities were not impaired, as we believe that our expected annual nominal cash flows from re-leasing these facilities exceed our current net book value of the 31 facilities.

To the extent certain of these 31 facilities are not re-leased to a third-party operator and are instead identified for sale, we may be required to record an impairment to the extent the sales price for a facility is less than its net book value.

On May 26, 2020, we executed an agreement to sell an acute care hospital located in Nevada to an unrelated third-party for $ 56.5 million.

The agreement provided that the sale was subject to a 60-day due diligence period which expired in July 2020.

During the second quarter of 2020, we recorded an impairment of approximately $ 2.2 million related to this facility to reduce its net book value to its fair value less costs to sell of approximately $ 55.3 million and reclassified the facility to assets held for sale.

In July of 2020, we agreed with the third-party buyer to lower the purchase price to approximately $ 49.0 million.

The reduction in the purchase price will result in an additional impairment and/or loss on sale of approximately $ 7.4 million during the third quarter of 2020.

In July 2020, we agreed with the third-party buyer to lower the purchase price to approximately $ 49.0 million.

The reduction in the purchase price resulted in an additional impairment of approximately $ 7.4 million in July 2020, and the facility was subsequently sold in September 2020.

Allowance for Losses on Mortgages, Other Investments and Direct Financing Leases

6 unchanged sentences

To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status.

When management identifies potential loan impairment indicators, the loan is written down to the present value of the expected future cash flows.

When management identifies a loan impairment, the loan is written down to the present value of the expected future cash flows.

In cases where expected future cash flows are not readily determinable, the loan is written down to the fair value of the underlying collateral.

5 unchanged sentences

Under the cash basis method, we apply cash received to principal or interest income based on the terms of the agreement.

As of June 30, 2020 and December 31, 2019, we had $ 35.1 million and $ 5.1 million, respectively, of reserves on our loans.

As of September 30, 2020 and December 31, 2019, we had $ 61.0 million and $ 5.1 million, respectively, of reserves on our loans.

For additional information see “Accounting Pronouncements Adopted in 2020,” Note 3 – Direct Financing Leases, Note 4 – Mortgage Notes Receivable, and Note 5 – Other Investments.

4 unchanged sentences

Earnings Per Share/Unit

The computation of basic earnings per share/unit (“EPS” or “EPU”) is computed by dividing net income available to common stockholders/Omega OP Unit holders by the weighted-average number of shares of common stock/Omega OP Units outstanding during the relevant period.

Diluted EPS/EPU is computed using the treasury stock method, which is net income divided by the total weighted-average number of common outstanding shares/Omega OP Units plus the effect of dilutive common equivalent shares/units during the respective period.

The computation of basic earnings per share/unit (“EPS” or “EPU”) is computed by dividing net (loss) income available to common stockholders/Omega OP Unit holders by the weighted-average number of shares of common stock/Omega OP Units outstanding during the relevant period.

Diluted EPS/EPU is computed using the treasury stock method, which is net (loss) income divided by the total weighted-average number of common outstanding shares/Omega OP Units plus the effect of dilutive common equivalent shares/units during the respective period.

Dilutive common shares/Omega OP Units reflect the assumed issuance of additional common shares pursuant to certain of our share-based compensation plans, including restricted stock and profit interest units, performance restricted stock and profit interest units, the assumed issuance of additional shares related to Omega OP Units held by outside investors.

Dilutive Omega OP Units reflect the assumed issuance of additional Omega OP Units pursuant to certain of our share-based compensation plans, including, restricted stock and profit interest units, performance restricted stock and profit interest units.

To the extent we have a net loss, potential common shares/units are not included in the computation of diluted earnings per share as the effect would be an antidilutive per share amount.

Noncontrolling Interests

29 unchanged sentences

As a matter of policy, we do not use derivatives for trading or speculative purposes.

At June 30, 2020 and December 31, 2019, the fair value of certain qualifying cash flow hedges was $ 13.5 million and $ 3.7 million, respectively, and are included in accrued expenses and other liabilities on our Consolidated Balance Sheets.

At June 30, 2020, the fair value of certain qualifying cash flow hedges was $ 2.4 million and is included in other assets on our Consolidated Balance Sheets.

At September 30, 2020 and December 31, 2019, the fair value of certain qualifying cash flow hedges was $ 12.0 million and $ 3.7 million, respectively, and are included in accrued expenses and other liabilities on our Consolidated Balance Sheets (see Note 19 – Subsequent Events).

At September 30, 2020, the fair value of certain qualifying cash flow hedges was $ 6.6 million and is included in other assets on our Consolidated Balance Sheets (see Note 14 – Borrowing Activities and Arrangements).

Net investment hedge

7 unchanged sentences

Lease inducements result from value provided by us to the lessee, at the inception, modification, or renewal of the lease, and are amortized as a reduction of rental revenue over the non-cancellable lease term.

We assess the probability of collecting substantially all payments under our leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends and current and future economic conditions and expectations of performance.

If our evaluation of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected.

We assess the probability of collecting substantially all payments under our leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends, current and future economic conditions and expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern).

If our evaluation of these factors indicates it is probable that we will be unable to collect substantially all rents, we place that operator on a cash basis and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected.

As a result of placing an operator on a cash basis, we may recognize a charge to rental income for any contractual rent receivable, straight-line rent receivable and lease inducements.

If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion.

4 unchanged sentences

A summary of our net receivables by type is as follows:

September 30,

(in thousands)

8 unchanged sentences

Of the $ 12.9 million, $ 11.0 million was funded to an operator for development and start-up related costs.

Reclassification

The six months ended June 30, 2019 Consolidated Statements of Changes in Equity and the six months ended June 30, 2019 Consolidated Statements of Changes in Owners’ Equity have been reclassified to conform to current period presentation.

During the third quarter of 2020, we wrote-off approximately $ 142.3 million of contractual receivables, straight-line rent receivables, and lease inducements to rental income as a result of placing three operators on a cash basis resulting from a change in our evaluation of the collectability of future rent payments due under the respective lease agreements as we considered information the Company received from these three operators regarding substantial doubt as to their ability to continue as a going concern.

Of the $ 142.3 million, $ 64.9 million related to Genesis Healthcare, Inc.

(“Genesis”), $ 75.3 million related to Agemo Holdings, LLC (“Agemo”) and $ 2.1 million related to another operator which leases two facilities from the Company.

During the third quarter of 2020, we also wrote-off approximately $ 1.0 million of straight-line rent receivable to rental income as a result of transitioning facilities to another existing operator.

In addition, during the third quarter of 2020, we received a one-time rent payment of approximately $ 55.4 million from Maplewood Real Estate Holdings, LLC (“Maplewood”), in conjunction with the restructuring of its master lease and loans with Omega (see Note 5 – Other Investments).

This payment was accounted for as an adjustment to straight-line rent receivables and is being amortized over the remaining term of the master lease.

Accounting Pronouncements Adopted in 2020

25 unchanged sentences

Revolving Loans

Balance as of June 30, 2020

Balance as of September 30, 2020

(in thousands)

13 unchanged sentences

We have elected a probability of default (“PD”) and loss given default (“LGD”) methodology.

Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration (the “FHA”) along with Standards & Poor’s one-year global corporate default rates.

Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration (“FHA”) along with Standards & Poor’s one-year global corporate default rates.

Our historical loss rates revert to historical averages after 36 periods.

6 unchanged sentences

Allowance for Credit Loss on January 1, 2020

Provision for Credit Loss for the three months ended June 30, 2020

Provision for Credit Loss for the six months ended June 30, 2020

Allowance for Credit Loss as of June 30, 2020

Provision for Credit Loss for the three months ended September 30, 2020

Provision for Credit Loss for the nine months ended September 30, 2020

Allowance for Credit Loss as of September 30, 2020

(in thousands)

9 unchanged sentences

Other Investments

Off-Balance Sheet Commitments

As of June 30, 2020, $ 13.6 million of contractual interest receivable is recorded in contractual receivables – net on our Consolidated Balance Sheets.

No interest receivable has been reserved for during the six month period ended June 30, 2020.

Off-Balance Sheet Mortgage Commitments

Off-Balance Sheet Note Commitments

As of September 30, 2020, $ 10.3 million of contractual interest receivable is recorded in contractual receivables – net on our Consolidated Balance Sheets.

We have elected the practical expedient to exclude interest receivable from our allowance for credit losses.

We write-off interest receivable to provision for credit losses in the period we determine the interest is no longer considered collectible.

During the third quarter of 2020, we determined that interest receivable of $ 3.8 million (related to the Agemo term loans, see Note 5 – Other Investments) was no longer considered collectible.

As such, we reserved approximately $ 3.8 million of interest receivable through the provision for credit losses during the three month period ended September 30, 2020.

The $ 3.8 million reserve for interest receivable is excluded from the table above.

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848).

7 unchanged sentences

A summary of our investments in real estate properties subject to operating leases is as follows:

September 30,

(in thousands)

7 unchanged sentences

Real estate investments – net

At June 30, 2020, our leased real estate properties included 766 SNFs, 114 ALFs, 28 specialty facilities and two MOBs.

Three Months Ended June 30,

Six Months Ended June 30,

At September 30, 2020, our leased real estate properties included 754 SNFs, 114 ALFs, 28 specialty facilities and two MOBs.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Total lease income

The following tables summarize the significant asset acquisitions that occurred during the first six months of 2020:

The following table summarizes the significant asset acquisitions that occurred during the first nine months of 2020:

Building & Site

2 unchanged sentences

(1) The initial annual cash yield reflects the initial annual cash rent divided by the purchase price.

During the third quarter of 2020, we acquired one parcel of land (not reflected in the table above) for approximately $ 1.3 million.

MedEquities Merger

23 unchanged sentences

(2) Includes approximately $ 1.1 million in below market lease liabilities.

The MedEquities facilities acquired in 2019 are included in our results of operations from the date of acquisition.

For the three and six months ended June 30, 2020, we recognized approximately $ 13 million and $ 26 million, respectively of total revenue from the assets acquired in connection with the MedEquities Merger.

Pro Forma Acquisition Results

1 unchanged sentence

In the opinion of management, all significant, necessary adjustments to reflect the effect of the merger have been made.

The following pro forma information is not indicative of future operations.

Three Months Ended

Six Months Ended

(in thousands, except per share amounts, unaudited)

Nine Months Ended

September 30,

Pro forma revenues

6 unchanged sentences

In addition, we recorded impairments on three facilities of approximately $ 3.6 million ( one was subsequently reclassified to assets held for sale).

During the second quarter of 2020, we sold 15 facilities subject to operating leases and one facility subject to a direct financing lease for approximately $ 38.0 million in net cash proceeds recognizing a net gain of approximately $ 12.8 million.

During the second quarter of 2020, we sold 15 facilities (also see Note 4 – Mortgages Notes Receivable) subject to operating leases and one facility subject to a direct financing lease for approximately $ 38.0 million in net cash proceeds, recognizing a net gain of approximately $ 12.8 million.

In addition, we recorded impairments on 10 facilities of approximately $ 12.0 million ( two were subsequently reclassified to assets held for sale).

During the third quarter of 2020, we sold six facilities and a parcel of land subject to operating leases for approximately $ 61.0 million in net cash proceeds, recognizing a net loss of approximately $ 0.7 million.

In addition, we recorded impairments on seven facilities of approximately $ 28.1 million ( six were subsequently reclassified to assets held for sale during the third quarter of 2020).

Our impairments for the third quarter of 2020 were offset by approximately $ 3.5 million of insurance proceeds related to a facility that was previously destroyed and impaired.

Our recorded impairments were primarily the result of decisions to exit certain non-strategic facilities and/or operators.

3 unchanged sentences

The components of investments in direct financing leases consist of the following:

September 30,

(in thousands)

8 unchanged sentences

As of December 31, 2019, our remaining receivable was approximately $ 14.1 million which was recorded in other assets on our Consolidated Balance Sheets.

Approximately $ 0.8 million of the overall proceeds were recorded in recovery (impairment) of direct financing leases on our Consolidated Statements of Operations for the three and six months ended June 30, 2020.

Approximately $ 0.8 million of the overall proceeds of $ 14.9 million were recorded in recovery (impairment) of direct financing leases.

During the third quarter of 2020, we received additional proceeds of approximately $ 0.3 million from the Trust, which were recorded in recovery (impairment) of direct financing leases on our Consolidated Statements of Operations.

In March 2019, we received updated information from the Trust indicating diminished collectability of the accounts receivable owed to us.

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NOTE 4 – MORTGAGE NOTES RECEIVABLE

As of June 30, 2020, mortgage notes receivable relate to ten fixed rate mortgage notes on 64 facilities.

As of September 30, 2020, mortgage notes receivable relate to ten fixed rate mortgage notes on 64 facilities.

The mortgage notes are secured by first mortgage liens on the borrowers’ underlying real estate and personal property.

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The principal amounts outstanding of mortgage notes receivable, net of allowances, were as follows:

September 30,

(in thousands)

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Total mortgages — net

(1) Approximates the weighted average interest rate on 47 facilities as of June 30, 2020.

(1) Approximates the weighted average interest rate on 47 facilities as of September 30, 2020.

Two notes totaling approximately $ 28.6 million are construction mortgages with maturities in 2021.

Two mortgages notes totaling $ 43.1 million mature in 2021 and the remaining loan balance matures in 2029 .

(2) Other mortgages outstanding have a weighted average interest rate of 9.47 % per annum as of June 30, 2020 and maturity dates through 2028 .

Two mortgage notes totaling $ 43.2 million mature in 2021 and the remaining loan balance matures in 2029 .

(2) Other mortgages outstanding have a weighted average interest rate of 9.40 % per annum as of September 30, 2020 and maturity dates through 2028 .

$ 672 Million Mortgage Notes due 2029

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The mortgage note matures on June 30, 2029 and bears an initial annual interest rate of 10.31 % which increases each year by 2 %.

As of June 30, 2020, the outstanding principal balance of this mortgage note is approximately $ 83.4 million.

As of September 30, 2020, the outstanding principal balance of this mortgage note is approximately $ 83.4 million.

In June 2020, we entered into a loan agreement with subsidiaries of Ciena to provide $ 43.2 million of mortgage notes related to two SNFs located in Ohio.

The mortgage notes mature on June 30, 2021 and bear an initial annual interest rate of 9.5 %.

As of June 30, 2020, the outstanding principal balance of these mortgage notes is approximately $ 43.2 million.

As of June 30, 2020, our total outstanding mortgages notes receivable with Ciena total $ 665.4 million.

As of September 30, 2020, the outstanding principal balance of these mortgage notes is approximately $ 43.2 million.

As of September 30, 2020, our total outstanding mortgage notes receivable with Ciena total $ 672.4 million.

NOTE 5 – OTHER INVESTMENTS

A summary of our other investments is as follows:

September 30,

(in thousands)

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Total other investments - net

(1) Approximate weighted average interest rate as of June 30, 2020.

(2) Other investment notes have a weighted average interest rate of 7.96 % as of June 30, 2020 and maturity dates through 2028 .

(1) Approximate weighted average interest rate as of September 30, 2020.

(2) Other investment notes have a weighted average interest rate of 7.92 % as of September 30, 2020 and maturity dates through 2028 .

Other Investment Notes due 2021

On February 28, 2020, we provided an affiliate of Agemo Holdings LLC (“Agemo”) a $ 3.5 million term loan bearing interest at a fixed rate of 10 % per annum and maturing on February 28, 2021 .

As of June 30, 2020, $ 3.5 million is outstanding on this term loan.

Our total loans outstanding with Agemo and its affiliates at June 30, 2020 approximate $ 62.2 million.

On July 29, 2016, we provided Genesis a $ 48.0 million secured term loan bearing interest at a rate equal to the Eurodollar base rate (determined using reference rates, subject to a floor of 1.0 %) or an alternative base rate (determined using reference rates, subject to a floor of 2.0 %), plus in each case a specified applicable margin.

The initial applicable margin for the Eurodollar base rate loans is 13.0 % per annum and the initial applicable margin for the alternative base rate loans is 12.0 % per annum.

This loan was initially scheduled to mature on July 29, 2020 .

On May 9, 2019, we extended the maturity of this loan to November 30, 2021 .

This term loan (and the 2018 term loan discussed below) is secured by a first priority lien on and security interest in certain collateral of Genesis.

On March 6, 2018, we amended certain terms of the 2016 term loan to Genesis.

Commencing February 22, 2018, the 2016 term loan bears interest at a fixed rate of 14 % per annum, of which 9 % per annum shall be paid-in-kind.

Additionally, the amended term loan does not require monthly payments of principal.

All principal and accrued and unpaid interest will be due at maturity on November 30, 2021.

Prior to the amendment, the term loan had required monthly principal payments of $ 0.25 million through July 2019, and $ 0.5 million from August 2019 through maturity, with a portion of the monthly interest accrued to the outstanding principal balance of the loan.

In addition, in November 2017, we had provided Genesis forbearance through February 2018, which had allowed for the deferral of principal payments and permitted Genesis to accrue all interest due to the outstanding principal balance of the loan.

As of September 30, 2020, approximately $ 63.8 million is outstanding on this term loan.

Also on March 6, 2018, we provided Genesis an additional $ 16.0 million secured term loan bearing interest at a fixed rate of 10 % per annum, of which 5 % per annum is paid-in-kind, that was initially scheduled to mature on July 29, 2020 .

On May 9, 2019, we extended the maturity of this loan to November 30, 2021 .

As of September 30, 2020, approximately $ 18.2 million is outstanding on this term loan.

As of September 30, 2020, our total other investments outstanding with Genesis approximate $ 81.9 million.

We evaluated our loans with Genesis for impairment during the third quarter of 2020, with no incremental provision for credit loss recognized given the underlying collateral value.

Other Investment Notes due 2021-2025

On September 30, 2016, we acquired and amended a term loan of approximately $ 37.0 million with Agemo.

A $ 5.0 million tranche of the term loan that bore interest at 13 % per annum was repaid in August 2017.

The remaining $ 32.0 million tranche of the term loan (the “$ 32.0 million term loan”) bears interest at 9 % per annum and matures on December 31, 2024 .

The $ 32.0 million term loan and the $ 1.7 million term loan (discussed below) are secured by a security interest in certain collateral of Agemo.

On November 5, 2019, we provided Agemo a $ 1.7 million term loan (which was added to the $ 32.0 million term loan) that bears interest at a fixed rate of 9 % per annum and was initially scheduled to mature on March 31, 2020 .

On February 10, 2020, we extended the maturity of this loan to January 1, 2021 .

During the third quarter of 2020, the Company concluded that both the $ 32.0 million term loan and $ 1.7 million term loan were impaired, based in part on our consideration of information the Company received from the operator regarding substantial doubt as to its ability to continue as a going concern.

We recorded a provision for credit loss of $ 24.4 million to reduce the carrying value of these loans to the fair value of the underlying collateral, which was limited to our $ 9.3 million letter of credit (a Level 1 input).

We also fully reserved approximately $ 3.8 million of contractual interest receivable related to the $ 32.0 million term loan (see Note 1 – Basis of Presentation and Significant Accounting Policies).

As of September 30, 2020, approximately $ 9.3 million is outstanding on these term loans.

On September 1, 2020, we placed both the $ 32.0 million and the $ 1.7 million term loans on a cash basis for purposes of revenue recognition.

On May 7, 2018, the Company provided Agemo a $ 25.0 million secured working capital loan bearing interest at 7 % per annum and matures on April 30, 2025 .

The working capital loan is primarily secured by a collateral package that includes a second lien on the accounts receivable of the borrowers.

The proceeds of the working capital loan were used to pay operating expenses, settlement payments, fees, taxes and other costs approved by the Company.

As of September 30, 2020, approximately $ 25.0 million is outstanding on this working capital loan.

During the third quarter of 2020, no incremental provision for credit loss was recorded for this loan given the underlying collateral value.

On February 28, 2020, we provided an affiliate of Agemo a $ 3.5 million term loan bearing interest at a fixed rate of 10 % per annum (with the interest paid-in-kind) and matures on February 28, 2021 .

As of September 30, 2020, $ 3.5 million is outstanding on this term loan.

During the third quarter of 2020, no incremental provision for credit loss was recorded for this loan given the underlying collateral value.

At September 30, 2020, the total carrying value of our loans with Agemo and its affiliates, net of allowances for credit losses, is approximately $ 37.8 million.

Other Investment Notes due 2030

In 2015 and 2017, we entered into two separate $ 50.0 million and $ 15.0 million secured revolving credit facilities with Maplewood and its subsidiaries.

These revolving credit facilities bore interest at approximately 6.66 % per annum and 9.5 % per annum, respectively, and were initially scheduled to mature in 2023.

As a part of an overall restructuring with this operator, the Company entered into a $ 220.5 million secured revolving credit facility with Maplewood on July 31, 2020, of which $ 132.1 million was drawn at closing.

The funds drawn at closing were used to repay the prior credit facilities with Maplewood, as well as other lease obligations owed to the Company, of which approximately $ 55.4 million was scheduled to be repaid at termination of the master lease.

Loan proceeds under the new credit facility may also be used to fund Maplewood’s working capital needs.

Loans made under this facility bear interest at a fixed rate of 7 % per annum and mature on June 30, 2030 .

As of September 30, 2020, $ 132.1 million remains outstanding on this credit facility to Maplewood.

As a result of entering into the $ 220.5 million secured revolving credit facility in July 2020, the Company reassessed its relationship with Maplewood and concluded that Maplewood was a VIE (see Note 6 – Variable Interest Entities).

Other Investment Notes Outstanding

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The loan bears interest at the greater of the prime interest rate or 3-month LIBOR plus 2.75 % per annum and is due on demand.

As of June 30, 2020, the loan bears interest at 3.25 % per annum and has a total outstanding balance of $ 17.6 million.

As of September 30, 2020, the loan bears interest at 3.25 % per annum and has a total outstanding balance of $ 17.6 million.

NOTE 6 – VARIABLE INTEREST ENTITIES

As of June 30, 2020 and December 31, 2019, Agemo is a VIE.

Below is a summary of our assets and collateral associated with this operator as of June 30, 2020 and December 31, 2019:

As of September 30, 2020 and December 31, 2019, Agemo is a VIE.

As of September 30, 2020, Maplewood is also a VIE.

Below is a summary of our assets, liabilities and collateral associated with these operators as of September 30, 2020 and December 31, 2019:

September 30, 2020

December 31, 2019

(in thousands)

Real estate investments – net

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Lease inducement

Net in-place lease liability

Contingent liability

Letters of credit

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Maximum exposure to loss

In determining our maximum exposure to loss from the VIE, we considered the underlying value of the real estate subject to leases with the operator and other collateral, if any, supporting our other investments, which may include accounts receivable, security deposits, letters of credit or personal guarantees, if any.

See Note 5 – Other Investments regarding the terms of the other investments with Agemo and Note 16 – Commitments and Contingencies, regarding our commitment to provide capital expenditure funding to our operators which includes Agemo.

In May 2018, we reached an out-of-court restructuring agreement with Agemo that provided for the deferral of rent, the extension of the maturity of our lease and loans, and a working capital loan.

If Agemo is unable to meet their contractual obligations to us, we may be required to account for rental income from them on a cash basis and reserve approximately $ 78.2 million of contractual receivables, straight-line rent receivables and lease inducements.

The table below reflects our total revenues from Agemo for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30

Six Months Ended June 30,

In determining our maximum exposure to loss from the VIE, we considered the underlying carrying value of the real estate subject to leases with the operator and other collateral, if any, supporting our other investments, which may include accounts receivable, security deposits, letters of credit or personal guarantees, if any, as well as other liabilities recognized with respect to these operators.

See Note 5 – Other Investments regarding the terms of the other investments with Agemo and Maplewood.

The table below reflects our total revenues from Agemo and Maplewood for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Other investment income

(1) For the three months ended June 30, 2020 and 2019, we received cash from Agemo of approximately $ 13.1 million and $ 13.2 million, respectively, pursuant to our lease and other investment agreements.

For the six months ended June 30, 2020 and 2019, we received cash from Agemo of approximately $ 26.8 million and $ 26.2 million, respectively, pursuant to our lease and other investment agreements.

(1) The rental income related to Agemo for the three and nine months ended September 30, 2020, reflects the write-off of approximately $ 75.3 million of contractual rent receivable, straight-line rent receivable and lease inducements (see Note 1 – Basis of Presentation and Significant Accounting Policies).

(2) For the three months ended September 30, 2020 and 2019, we received cash from Agemo of approximately $ 13.4 million and $ 13.5 million, respectively, pursuant to our lease and other investment agreements.

For the nine months ended September 30, 2020 and 2019, we received cash from Agemo of approximately $ 40.1 million and $ 39.7 million, respectively, pursuant to our lease and other investment agreements.

For the three months ended September 30, 2020 and 2019, we received cash rental income and other investment income from Maplewood of approximately $ 17.5 million and $ 11.4 million, respectively.

For the nine months ended September 30, 2020 and 2019, we received cash rental income and other investment income from Maplewood of approximately $ 51.4 million and $ 31.7 million, respectively.

NOTE 7 – INVESTMENTS IN JOINT VENTURES

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Facilities at

September 30,

Investment (2)

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See Note 5 – Other Investments.

The following table reflects our income (loss) from unconsolidated joint ventures for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

The following table reflects our income (loss) from unconsolidated joint ventures for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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We receive asset management fees from certain joint ventures for services provided.

For the three months ended June 30, 2020 and 2019, we recognized approximately $ 0.5 million and $ 0.3 million, respectively of asset management fees.

For the six months ended June 30, 2020 and 2019, we recognized approximately $ 0.7 million and $ 0.5 million, respectively of asset management fees.

For the three months ended September 30, 2020 and 2019, we recognized approximately $ 0.3 million and $ 0.2 million, respectively of asset management fees.

For the nine months ended September 30, 2020 and 2019, we recognized approximately $ 1.0 million and $ 0.7 million, respectively of asset management fees.

These fees are included in miscellaneous income in the accompanying Consolidated Statements of Operations.

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June 30, 2020

Properties sold (1)

Properties added (2)

September 30, 2020 (3)

(1) In the first quarter of 2020, we sold four facilities for approximately $ 4.2 million in net cash proceeds recognizing a net loss on sale of approximately $ 0.5 million.

In the second quarter of 2020, we sold five facilities for approximately $ 38.4 million in net cash proceeds recognizing a net gain on sale of approximately $ 16.7 million.

In the third quarter of 2020, we sold four facilities and a parcel of land for approximately $ 60.7 million in net cash proceeds recognizing a net loss on sale of approximately $ 1.0 million.

During the third quarter of 2020, we recorded a $ 7.4 million impairment on one facility to reduce its net book value to its fair value less cost to sell.

(2) In the first quarter of 2020, we recorded approximately $ 1.9 million of impairment expense to reduce one facility’s book value to its estimated fair value less costs to sell before it was reclassified to assets held for sale.

In the second quarter of 2020, we recorded approximately $ 2.6 million of impairment expense to reduce two facilities’ book value to their estimated fair value less costs to sell before they were reclassified to assets held for sale.

(3) We plan to sell the facilities classified as assets held for sale at June 30, 2020 within the next twelve months.

In the third quarter of 2020, we recorded approximately $ 24.2 million of impairment expense to reduce six facilities’ book value to their estimated fair value less costs to sell before they were reclassified to assets held for sale.

(3) We plan to sell the facilities classified as assets held for sale at September 30, 2020 within the next twelve months.

NOTE 9 – INTANGIBLES

The following is a summary of our intangibles as of June 30, 2020 and December 31, 2019:

The following is a summary of our intangibles as of September 30, 2020 and December 31, 2019:

September 30,

(in thousands)

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The net amortization related to the above and below market leases is included in our Consolidated Statements of Operations as an adjustment to rental income.

For the three months ended June 30, 2020 and 2019, our net amortization related to intangibles was $ 3.5 million and $ 1.6 million, respectively.

For the six months ended June 30, 2020 and 2019, our net amortization related to intangibles was $ 4.8 million and $ 3.4 million, respectively.

For the three months ended September 30, 2020 and 2019, our net amortization related to intangibles was $ 3.7 million and $ 1.3 million, respectively.

For the nine months ended September 30, 2020 and 2019, our net amortization related to intangibles was $ 8.5 million and $ 4.7 million, respectively.

The estimated net amortization related to these intangibles for the remainder of 2020 and the subsequent four years is as follows:

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2023 – $ 5.6 million and 2024 – $ 5.4 million.

As of June 30, 2020, the weighted average remaining amortization period of above market lease assets is eight years and below market lease liabilities is approximately eight years .

The following is a summary of our goodwill as of June 30, 2020:

As of September 30, 2020, the weighted average remaining amortization period of above market lease assets is nine years and below market lease liabilities is approximately eight years .

The following is a summary of our goodwill as of September 30, 2020:

(in thousands)

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foreign currency translation

Balance as of June 30, 2020

Balance as of September 30, 2020

NOTE 10 – CONCENTRATION OF RISK

As of June 30, 2020, our portfolio of real estate investments consisted of 981 healthcare facilities, located in 40 states and the U.K.

As of September 30, 2020, our portfolio of real estate investments consisted of 976 healthcare facilities, located in 40 states and the U.K.

and operated by 69 third-party operators.

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.8 billion at June 30, 2020, with approximately 97 % of our real estate investments related to healthcare facilities.

Our portfolio is made up of 767 SNFs, 114 ALFs, 28 specialty facilities, two medical office buildings, fixed rate mortgages on 57 SNFs, three ALFs and four specialty facilities and six facilities that are held for sale.

At June 30, 2020, we also held other investments of approximately $ 434.7 million, consisting primarily of secured loans to third-party operators of our facilities and $ 195.5 million of investments in five unconsolidated joint ventures.

At June 30, 2020 we had investments with one operator/or manager that exceeded 10% of our total investments:

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.7 billion at September 30, 2020, with approximately 97 % of our real estate investments related to healthcare facilities.

Our portfolio is made up of (i) 755 SNFs, 114 ALFs, 28 specialty facilities, two medical office buildings, (ii) fixed rate mortgages on 57 SNFs, three ALFs and four specialty facilities, and (iii) 13 facilities that are held for sale.

At September 30, 2020, we also held other investments of approximately $ 464.5 million, consisting primarily of secured loans to third-party operators of our facilities and $ 196.2 million of investments in five unconsolidated joint ventures.

At September 30, 2020 we had investments with one operator/or manager that exceeded 10% of our total investments:

Ciena Healthcare (“Ciena”).

Ciena also generated approximately 10 % of our total revenues for the three and six months ended June 30, 2020.

Ciena generated approximately 11 % of our total revenues for the three and six months ended June 30, 2019.

At June 30, 2020, the three states in which we had our highest concentration of investments were Florida ( 14 %), Texas ( 9 %) and Michigan ( 7 %).

Ciena also generated approximately 11 % of our total revenues for the three and nine months ended September 30, 2020.

Ciena generated approximately 11 % of our total revenues for the three and nine months ended September 30, 2019.

At September 30, 2020, the three states in which we had our highest concentration of investments were Florida ( 14 %), Texas ( 9 %) and Michigan ( 7 %).

NOTE 11 – STOCKHOLDERS’/OWNERS’ EQUITY

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Omega has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time.

Omega did no t repurchase any of its outstanding common stock during the six months ended June 30, 2020.

Omega did no t repurchase any of its outstanding common stock during the nine months ended September 30, 2020.

The Board of Directors has declared common stock dividends as set forth below:

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August 14, 2020

November 2, 2020

November 16, 2020

On the same dates listed above, Omega OP Unit holders received the same distributions per unit as those paid to the common stockholders of Omega.

$ 500 Million Equity Shelf Program

For the three months ended June 30, 2020, no shares were issued under our $ 500 Million Equity Shelf Program.

For the three months ended June 30, 2019, we issued approximately 0.7 million shares of our common stock at an average price of $ 35.90 per share, net of issuance costs, generating net proceeds of $ 26.3 million under our $ 500 Million Equity Shelf Program.

For the six months ended June 30, 2020 and 2019, we issued approximately 49 thousand and 3.0 million, respectively, shares of our common stock at an average price of $ 36.18 per share and $ 34.82 per share, respectively, net of issuance costs, generating net proceeds of $ 1.8 million and $ 102.9 million, respectively, under our $ 500 Million Equity Shelf Program.

For the three months ended September 30, 2020, no shares were issued under our $ 500 Million Equity Shelf Program.

For the three months ended September 30, 2019, we issued approximately 0.1 million shares of our common stock at an average price of $ 33.91 per share, net of issuance costs, generating net proceeds of $ 4.2 million under our $ 500 Million Equity Shelf Program.

For the nine months ended September 30, 2020 and 2019, we issued approximately 49 thousand and 3.1 million, respectively, shares of our common stock at an average price of $ 34.64 per share and $ 34.78 per share, respectively, net of issuance costs, generating net proceeds of $ 1.7 million and $ 107.0 million, respectively, under our $ 500 Million Equity Shelf Program.

Dividend Reinvestment and Common Stock Purchase Plan

On March 23, 2020, we announced that we suspended our Dividend Reinvestment and Common Stock Purchase Plan.

For the three months ended June 30, 2020, no shares were issued under our Dividend Reinvestment and Common Stock Purchase Plan.

For the three months ended June 30, 2019, we issued approximately 0.6 million shares of our common stock at an average price of $ 37.02 per share through our Dividend Reinvestment and Common Stock Purchase Plan for gross proceeds of approximately $ 21.8 million.

For the six months ended June 30, 2020 and 2019, we issued approximately 90 thousand and 1.5 million, respectively, shares of our common stock at an average price of $ 41.80 per share and $ 36.52 per share, respectively, through our Dividend Reinvestment and Common Stock Purchase Plan for gross proceeds of approximately $ 3.7 million and $ 54.1 million, respectively.

For the three months ended September 30, 2020, no shares were issued under our Dividend Reinvestment and Common Stock Purchase Plan.

For the three months ended September 30, 2019, we issued approximately 1.0 million shares of our common stock at an average price of $ 37.87 per share through our Dividend Reinvestment and Common Stock Purchase Plan for gross proceeds of approximately $ 37.7 million.

For the nine months ended September 30, 2020 and 2019, we issued approximately 90 thousand and 2.5 million, respectively, shares of our common stock at an average price of $ 41.80 per share and $ 37.06 per share, respectively, through our Dividend Reinvestment and Common Stock Purchase Plan for gross proceeds of approximately $ 3.7 million and $ 91.8 million, respectively.

Accumulated Other Comprehensive Loss

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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NOTE 12 – TAXES

Omega is a REIT for United States federal income tax purposes, and Omega OP is a pass through entity for United States federal income tax purposes.

Since our inception, Omega has elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code (“Code”).

A REIT is generally not subject to federal income tax on that portion of its REIT taxable income which is distributed to its stockholders, provided that at least 90 % of such taxable income is distributed each tax year and certain other requirements are met, including asset and income tests.

A REIT is generally not subject to federal income tax on that portion of its REIT taxable income which is distributed to its stockholders, provided that at least 90 % of such taxable income is distributed each taxable year and certain other requirements are met, including asset and income tests.

So long as we qualify as a REIT under 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.

If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes on its taxable income at regular corporate rates and dividends paid to our stockholders will not be deductible by us in computing taxable income.

Further, we would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied, unless the Internal Revenue Service grants us relief under certain statutory provisions.

Failing to qualify as a REIT could materially and adversely affect our net income;

however, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT.

We test our compliance within the REIT taxation rules to ensure that we are in compliance with the REIT rules on a quarterly and annual basis.

We review our distributions and projected distributions each year to ensure we have met and will continue to meet the annual REIT distribution requirements.

In 2020, we expect to pay dividends in excess of our taxable income.

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”).

We have elected for certain of our active subsidiaries to be treated as TRSs.

We have elected to treat certain of our active subsidiaries as TRSs.

Our domestic TRSs are subject to federal, state and local income taxes at the applicable corporate rates.

Our foreign TSRs are subject to foreign income taxes.

As of June 30, 2020, one of our TRSs that is subject to federal, state and local income taxes at the applicable corporate rates had a net operating loss carry-forward of approximately $ 5.7 million.

Up to 100 % of the net operating loss carry-forwards arising in taxable years ending prior to January 1, 2018, may be used to reduce taxable income for any taxable year during the eligible carry-forward period.

Changes made by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) limited the amount of net operating loss (“NOL”) carry-forward arising in tax years ending subsequent to December 31, 2018, to reduce 80 % of taxable income for any taxable year during the eligible carry-forward period.

Our NOL carry-forward was fully reserved as of June 30, 2020, with a valuation allowance due to uncertainties regarding realization.

Under current law, our NOL carryforwards generated up through December 31, 2017 may be carried forward for no more than 20 years, and our net operating loss carryforward generated in our taxable years ended December 31, 2019 and December 31, 2018 may be carried forward indefinitely.

As of September 30, 2020, one of our TRSs that is subject to federal, state and local income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 5.7 million.

Up to 100 % of the NOL carry-forwards arising in taxable years ending prior to January 1, 2018, may be used to reduce taxable income for any taxable year during the eligible carry-forward period.

Changes made by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) limited the amount of taxable income that may be offset by a NOL carryforward to 80% of taxable income to the extent the NOL originated in tax years beginning after December 31, 2017 (the “80% Limitation”).

Our NOL carry-forward was fully reserved as of September 30, 2020, with a valuation allowance due to uncertainties regarding realization.

Under current law, our NOL carry-forwards generated up through December 31, 2017 may be carried forward for no more than 20 years, and our NOL carry-forwards generated in our taxable years ended December 31, 2019 and December 31, 2018 may be carried forward indefinitely.

However, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) modified the NOL carryback rules and deferred the application for the NOL carry-forward rules.

The CARES Act signed into law on March 27, 2020 modified the NOL carryforward rules applicable to certain of the NOL carryforwards possessed by our TRSs.

First, the CARES Act defers the application of 80% of taxable income limitation, which was added to the Code by the 2017 Act, to our TRSs until their taxable years ended December 31, 2021, in addition to modifying the computation of the 80% limitation.

Additionally, the CARES Act permits the carryback of NOLs generated by our TRSs in 2018, 2019, and 2020 for up to five years to offset taxable income reported in any of those prior tax years and recover income taxes paid in such prior tax years.

The CARES Act, which was signed into law on March 27, 2020, modified the NOL carry-forward rules applicable to certain of the NOL carry-forwards possessed by our TRSs.

First, the CARES Act defers the application of the 80% Limitation to our TRSs until their taxable years ended December 31, 2021, in addition to modifying the computation of the 80% Limitation.

Additionally, the CARES Act permits the carryback of NOLs generated by our TRSs in 2018, 2019, and 2020 for up to five years to offset taxable income reported in any of those prior taxable years and recover income taxes paid in such prior taxable years.

Other provisions of the CARES Act may also impact the computation of taxable income by any of our TRSs or Omega and Omega OP.

The modifications to the NOL carryback rules do not permit the carryback of a NOL by a REIT and, thus, will not impact Omega.

The modifications to the NOL carryback rules do not permit the carryback of an NOL by a REIT and, thus, will not impact Omega.

We do not anticipate that such changes will materially impact the computation of Omega’s taxable income, or the taxable income of any Omega entity, including our TRSs.

We also do not expect that Omega or any Omega entity, including our TRSs, will realize a material tax benefit as a result of the changes to the provisions of the Code made by the CARES Act.

For the three months ended June 30, 2020 and 2019, we recorded approximately $ 0.2 million and $ 0.3 million, respectively, of state and local income tax provisions.

For the six months ended June 30, 2020 and 2019, we recorded approximately $ 0.6 million and $ 0.4 million, respectively, of state and local income tax provisions.

For the three months ended June 30, 2020 and 2019, we recorded approximately $ 0.7 million and $ 0.5 million, respectively, of tax provisions for foreign income taxes.

For the six months ended June 30, 2020 and 2019, we recorded approximately $ 1.3 million and $ 1.1 million, respectively, of tax provisions for foreign income taxes.

For the three months ended September 30, 2020 and 2019, we recorded approximately $ 0.2 million and $ 0.3 million, respectively, of state and local income tax provisions.

For the nine months ended September 30, 2020 and 2019, we recorded approximately $ 0.8 million and $ 0.7 million, respectively, of state and local income tax provisions.

For the three months ended September 30, 2020 and 2019, we recorded approximately $ 0.5 million and $ 0.2 million, respectively, of tax provisions for foreign income taxes.

For the nine months ended September 30, 2020 and 2019, we recorded approximately $ 1.8 million and $ 1.3 million, respectively, of tax provisions for foreign income taxes.

The expenses were included in income tax expense on our Consolidated Statements of Operations.

NOTE 13 – STOCK-BASED COMPENSATION

The following is a summary of our stock-based compensation expense for the three and six months ended June 30, 2020 and 2019, respectively.

The following is a summary of our stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019, respectively.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

30 unchanged sentences

Interest Rate

September 30,

(in thousands)

15 unchanged sentences

Total secured and unsecured borrowings – net (7)

(1) Reflects the weighted average annual contractual interest rate on the mortgages at June 30, 2020;

secured by real estate assets with a net carrying value of $ 603.7 million as of June 30, 2020.

(1) Reflects the weighted average annual contractual interest rate on the mortgages at September 30, 2020;

secured by real estate assets with a net carrying value of $ 577.6 million as of September 30, 2020.

(2) Borrowing is the debt of a consolidated joint venture.

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(5) Omega OP or wholly owned subsidiaries of Omega OP are the obligor on these borrowings.

(6) Includes $ 0.2 million of net deferred financing costs related to the Omega OP term loan as of June 30, 2020.

(6) Includes $ 0.2 million of net deferred financing costs related to the Omega OP term loan as of September 30, 2020.

(7) All borrowings are direct borrowings of Omega unless otherwise noted.

HUD Mortgage Loan Payoffs

On August 26, 2020, we paid approximately $ 13.7 million to retire two mortgage loans guaranteed by HUD.

The loans were assumed as part of an acquisition in 2019, and had an average interest rate of 3.08 % per annum with maturities in 2051 and 2052 .

The payoff included a $ 0.9 million prepayment fee which is included in interest – refinancing costs on our Consolidated Statements of Operations.

Subordinated Debt

9 unchanged sentences

The swaps are effective on August 1, 2023 and expire on August 1, 2033 and were issued at a fixed rate of approximately 0.8675 %.

In October 2020, we issued $ 700 million aggregate principal amount of our 3.375 % Senior Notes due 2031 and discontinued hedge accounting.

Amounts reported in accumulated other comprehensive loss related to these discontinued cash flow hedging relationships will be reclassified to interest expense as interest payments are made on the Company’s debt.

Simultaneously, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments on another forecasted issuance of long-term debt.

We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of 46 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants.

As of June 30, 2020 and December 31, 2019, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

As of September 30, 2020 and December 31, 2019, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

Omega OP, the guarantor of Parent’s outstanding senior notes, does not directly own any substantive assets other than its interest in non-guarantor subsidiaries.

1 unchanged sentence

The net carrying amount of cash and cash equivalents, restricted cash, contractual receivables, other assets and accrued expenses and other liabilities reported in the Consolidated Balance Sheets approximates fair value because of the short maturity of these instruments (Level 1).

At June 30, 2020 and December 31, 2019, the net carrying amounts and fair values of our other financial instruments were as follows:

June 30, 2020

At September 30, 2020 and December 31, 2019, the net carrying amounts and fair values of our other financial instruments were as follows:

September 30, 2020

December 31, 2019

54 unchanged sentences

On August 3, 2020, the United States Court of Appeals for the Second Circuit issued a ruling reversing the District Court’s order of dismissal and remanding the case to the District Court for further proceedings.

In addition, in the District Court, on March 26, 2020, Plaintiffs filed a motion for an indicative ruling regarding relief from final judgment based on allegedly newly-discovered evidence and for leave to file an amended complaint.

The Company filed an opposition on May 1, 2020.

On August 3, 2020, after the Second Circuit Court of Appeals issued its Opinion, Plaintiffs requested that the District Court treat this motion as solely a motion to amend.

Pursuant to an agreed upon Stipulation, Plaintiffs filed a second amended complaint on August 28, 2020.

The second amended complaint extends the class period to include shareholders who acquired the Company’s securities between February 8, 2017 and October 31, 2017.

Pursuant to an agreed upon Stipulation and Order, the motion to dismiss the second amended complaint is due to be filed on November 24, 2020.

The Board of Directors received a demand letter, dated April 9, 2018, from an attorney representing Phillip Swan (“Swan”), a purported current shareholder of the Company, relating to the subject matter covered by the Securities Class Action (the “Swan Shareholder Demand”).

23 unchanged sentences

The derivative actions brought by Swan and Bradley and Smith have been consolidated under the heading of the Swan action.

The parties in those actions have agreed to a stay of proceedings pending the issuance of a mandate from the Second Circuit Court of Appeals in the appeal of the dismissal of the Securities Class Action.

On October 11, 2019, the Court issued an order adopting the stay of proceedings agreed to by the parties.

The parties in those actions have agreed to a stay of proceedings through the close of factual discovery in the Securities Class Action.

The Company believes that the claims asserted against it in these lawsuits are without merit and intends to vigorously defend against them.

5 unchanged sentences

The Company is cooperating fully with the DOJ in connection with the CID and has produced all of the information that has been requested to date.

On September 29, 2020 the Department of Justice announced it had reached a settlement of a False Claims Act case with Lakeway Regional Medical Center wherein Lakeway Regional Medical Center agreed to pay $ 1.1 million for inducing certain physicians to refer patients by offering a low risk and high return investment in the form of a joint venture to purchase and then lease back the hospital to Lakeway Regional Medical Center.

A MedEquities subsidiary was a party to this transaction but was not included in settlement discussions.

As of November 2, 2020, the documents relating to the settlement were not publicly available.

The Company believes that the acquisition, ownership and leasing of the Lakeway Hospital through Lakeway Realty, L.L.C.

5 unchanged sentences

In connection with certain facility transitions, we have agreed to indemnify certain operators in certain events.

As of June 30, 2020, our maximum funding commitment under these indemnification agreements was approximately $ 10.3 million.

As of September 30, 2020, our maximum funding commitment under these indemnification agreements was approximately $ 11.5 million.

Claims under these indemnification agreements may be made within 18 months to 72 months of the transition date.

3 unchanged sentences

We expect the funding of these commitments to be completed over the next several years.

Our remaining commitments at June 30, 2020, are outlined in the table below (in thousands):

Our remaining commitments at September 30, 2020, are outlined in the table below (in thousands):

Total commitments

2 unchanged sentences

(1) Includes finance costs.

NOTE 17 – EARNINGS PER SHARE/UNIT

(2) This amount excludes our remaining commitments to fund under our other investments of approximately $ 109.3 million.

NOTE 17 – (LOSS) EARNINGS PER SHARE/UNIT

The following tables set forth the computation of basic and diluted earnings per share/unit:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share amounts)

net income attributable to noncontrolling interests

Net income available to common stockholders/Omega OP Unit holders

Net (loss) income

net loss (income) attributable to noncontrolling interests

Net (loss) income available to common stockholders/Omega OP Unit holders

Denominator for basic earnings per share

1 unchanged sentence

Common stock equivalents

Net forward share contract

Noncontrolling interest – Omega OP Units

1 unchanged sentence

Earnings per share/unit - basic:

Net income available to common stockholders/Omega OP Unit holders

Net (loss) income available to common stockholders/Omega OP Unit holders

Earnings per share/unit – diluted:

Net (loss) income (1)

(1) For the three months ended September 30, 2020, approximately 904 potential common shares/units are not included in the computation of diluted earnings per share as a net loss exists and therefore the effect would be an antidilutive per share amount.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share amounts)

Net (loss) income

net loss attributable to noncontrolling interests

Net income available to Omega OP Unit holders

Net (loss) income available to Omega OP Unit holders

Denominator for basic earnings per unit

1 unchanged sentence

Omega OP Unit equivalents

Net forward share contract

Denominator for diluted earnings per unit

Earnings per unit - basic:

Net income available to Omega OP Unit holders

Net (loss) income available to Omega OP Unit holders

Earnings per unit - diluted:

Net (loss) income (1)

NOTE 18 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

The following are supplemental disclosures to the consolidated statements of cash flows for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

The following are supplemental disclosures to the consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30,

(in thousands)

12 unchanged sentences

Non cash collection of mortgage principal

Non cash investment of other investments

Non cash proceeds from other investments

Non cash investment in other investments (see Note 5)

Non cash proceeds from other investments (see Note 5)

Non cash proceeds from direct financing lease

7 unchanged sentences

Remeasurement of debt denominated in a foreign currency

NOTE 19 – SUBSEQUENT EVENT

During the third quarter of 2020, we amended our master lease with Maplewood Real Estate Holdings, LLC (“Maplewood”), an operator of primarily senior housing facilities, and provided a new credit facility to Maplewood.

The new credit facility expanded Maplewood’s borrowing capacity by approximately $ 100 million to $ 220 million, in part to provide Maplewood additional liquidity in view of expected ongoing delays and costs associated with COVID-19.

Maplewood refinanced existing notes and certain other funded obligations to us of approximately $ 120 million in aggregate via borrowings from the new credit facility.

NOTE 19 – SUBSEQUENT EVENTS

On November 1, 2020, we acquired seven facilities from an unrelated third-party for $ 78 million.

The seven facilities consist of six SNFs and one ALF representing 876 operating beds located in Virginia, were simultaneously added to an existing operator’s triple net master lease with initial annual contractual cash rent of $ 7.4 million.

On October 9, 2020, we issued $ 700 million aggregate principal amount of our 3.375 % Senior Notes due 2031 (the “2031 Senior Notes”).

The 2031 Senior Notes mature on February 1, 2031 .

The 2031 Senior Notes were sold at an issue price of 98.249 % of their face value before the underwriters’ discount.

Our net proceeds from the 2031 Senior Notes offering, after deducting underwriting discounts and expenses, were approximately $ 680.5 million.

We used the net proceeds from the 2031 Senior Notes offering to repay the outstanding balance on our U.S.

term loan and 2015 term loan and partially paydown the Omega OP term loan and revolving line of credit .

As a result of the repayment of the 2015 term loan and the partial paydown of the Omega OP term loan, on October 14, 2020, we settled certain interest rate swaps (interest rate swaps originated in 2015 and/or assumed in 2019) with an aggregate notional value of $ 275 million related to the 2015 term loan and the Omega OP term loan and paid our swap counterparties approximately $ 11 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements