What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-03 · 354 added, 258 removed, 644 unchanged (49% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30,

Real estate properties

22 unchanged sentences

Preferred stock $ 1.00 par value authorized – 20,000 shares, issued and outstanding - none

Common stock $ .10 par value authorized – 350,000 shares, issued and outstanding – 237,570 shares as of June 30, 2021 and 231,199 as of December 31, 2020

Common stock $ .10 par value authorized – 350,000 shares, issued and outstanding – 238,939 shares as of September 30, 2021 and 231,199 as of December 31, 2020

Additional paid-in capital

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Rental income

14 unchanged sentences

Other income (expense)

Other income (expense) – net

Other (expense) income – net

Loss on debt extinguishment

Gain on assets sold – net

Total other income

Income before income tax expense and income from unconsolidated joint ventures

Gain (loss) on assets sold – net

Total other income (expense)

Income (loss) 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 income (loss)

Net (income) loss attributable to noncontrolling interest

Net income (loss) available to common stockholders

Earnings per common share available to common stockholders:

Net income available to common stockholders

Net income (loss) available to common stockholders

Net income (loss)

See notes to consolidated financial statements .

3 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss):

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive (loss) income:

Foreign currency translation

Cash flow hedges

Total other comprehensive income (loss)

Comprehensive income

Comprehensive income attributable to noncontrolling interest

Comprehensive income attributable to common stockholders

Total other comprehensive (loss) income

Comprehensive income (loss)

Comprehensive (income) loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to common stockholders

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended June 30, 2021 and 2020

Three Months Ended September 30, 2021 and 2020

(in thousands, except per share amounts)

4 unchanged sentences

Income (Loss)

Balance at March 31, 2021

Balance at June 30, 2021

( 5,232,692 )

6 unchanged sentences

Other comprehensive loss

Balance at June 30, 2021

Balance at September 30, 2021

( 5,393,284 )

Balance at March 31, 2020

Balance at June 30, 2020

( 4,610,828 )

5 unchanged sentences

Omega OP Units distributions

Other comprehensive loss

Balance at June 30, 2020

Other comprehensive income

Balance at September 30, 2020

( 4,763,468 )

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

(in thousands, except per share amounts)

12 unchanged sentences

Other comprehensive income

Balance at June 30, 2021

Balance at September 30, 2021

( 5,393,284 )

10 unchanged sentences

Other comprehensive loss

Balance at June 30, 2020

Balance at September 30, 2020

( 4,763,468 )

3 unchanged sentences

Unaudited (in thousands)

Nine Months Ended September 30,

Cash flows from operating activities

12 unchanged sentences

Interest paid-in-kind

Income from unconsolidated joint ventures

(Income) loss from unconsolidated joint ventures

Change in operating assets and liabilities – net:

24 unchanged sentences

Payments of financing related costs

Receipts from dividend reinvestment plan

Taxes paid on vested restricted stock

Net proceeds from issuance of common stock

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 30, 2021

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

Omega Healthcare Investors, Inc.

(“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”).

Unless stated otherwise or the context otherwise requires, the terms “Omega”, the “Company,” “we,” “our” and “us” refer to Omega Healthcare Investors, Inc.

and its consolidated subsidiaries, including Omega OP, references to “Parent” refer to Omega Healthcare Investors, Inc.

without regard to its consolidated subsidiaries, and references to “Omega OP” mean OHI Healthcare Properties Limited Partnership and its consolidated subsidiaries.

Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”).

Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings.

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.

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.

Our other investment income derives from fixed and variable rate loans to our operators and/or their principals to fund working capital and capital expenditures.

These loans, which may be either unsecured or secured by the collateral of the borrower, are classified as other investments.

(“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega”, the “Company”, “we”, “our”, “us”) invests in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”).

Our core business is to provide financing and capital to operators (we use the term “operator” to refer to our tenants and mortgagors and their affiliates who manage and/or operate our properties) within the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings.

Our core portfolio consists of long-term “triple net” leases and mortgage agreements.

Omega has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes and 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 (collectively with subsidiaries, “Omega OP”).

Omega has exclusive control over Omega OP’s day-to-day management pursuant to the partnership agreement governing Omega OP.

As of June 30, 2021, Parent owned approximately 97 % of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3 % of the outstanding Omega OP Units.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S.

As of September 30, 2021, Parent owned approximately 97 % of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3 % of the outstanding Omega OP Units.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by U.S.

generally accepted accounting principles (“GAAP”) for complete financial statements.

4 unchanged sentences

All intercompany transactions and balances have been eliminated in consolidation, and Omega’s net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.

We conduct our operations and report financial results as one business segment.

The presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which our Chief Operating Decision Maker (CODM), our Chief Executive Officer, evaluates performance and makes resource and operating decisions for the business.

Reclassification

Certain line items on our Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation.

Impact of COVID-19

Risks and Uncertainties including COVID-19

The Company is subject to certain risks and uncertainties affecting the healthcare industry, including those stemming from the novel coronavirus (“COVID-19”) global pandemic described below, which has disproportionately impacted the senior care sector, as well as those stemming from healthcare legislation and changing regulation by federal, state and local governments.

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.

In addition to experiencing outbreaks of positive cases and deaths of residents and employees during the pandemic, our operators have been required to, and continue to, adapt their operations rapidly throughout the pandemic to manage the spread of the COVID-19 virus as well as the implementation of new treatments and vaccines, and to implement new requirements relating to infection control, staffing levels, personal protective equipment (“PPE”), quality of care, visitation protocols, and reporting, among other regulations, throughout the pandemic while facing staffing shortages that have accelerated during the pandemic and that may impede the delivery of care.

It remains uncertain when and to what extent vaccination programs for COVID-19, which have been implemented in most of our facilities, will continue to mitigate the effects of COVID-19 in our facilities, or how effective existing vaccines will be against variants of the COVID-19 virus;

the impact of these programs will depend in part on the continued speed, distribution, efficacy and delivery of the vaccine in our facilities, as well as participation levels in vaccination programs among the residents and employees of our operators.

In addition to the risks associated with managing the spread of the virus, delivery of the vaccines and care of their patients and residents, many of our operators reported incurring, and may continue to incur, significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases.

We believe these increases primarily stem from elevated labor costs, in part due to staffing shortages, including the increased use of overtime and bonus pay and reliance on agency staffing, as well as a significant increase in both the cost and usage of PPE, testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs.

In addition, many of our operators have reported experiencing declines, in some cases that are material, in occupancy levels as a result of the pandemic.

While these declines on average appear to be stabilizing and even marginally improving in recent months, it remains unclear when demand and occupancy levels will return to pre-COVID-19 levels.

We believe these occupancy declines may be in part due to staffing shortages, which in some cases have required operators to limit admissions, as well as COVID-19 related fatalities at our facilities, the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension and/or postponement of elective hospital procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs.

We continue to monitor the impact of occupancy declines at many of our operators, and it remains uncertain whether and when demand, staffing and occupancy levels will return to pre-COVID-19 levels.

While substantial government support has been allocated to SNFs and to a lesser extent to ALFs, further government support will likely be needed to continue to offset these impacts and it is unclear whether and to what extent such government support has been and will continue to be sufficient and timely to offset these impacts.

Further, to the extent the impacts of the pandemic continue or accelerate and are not offset by continued government relief that is sufficient and timely, we anticipate that the operating results of certain of our operators would be materially and adversely affected, some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable to restructure such obligations on terms as favorable to us as those currently in place.

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 COVID-19 pandemic, including potential patient litigation and decreased demand for their services, loss of business due to an interruption in their operations, workforce challenges, new regulatory restrictions, or other liabilities related to gathering restrictions, quarantines, reopening plans, vaccine distribution or delivery, spread of infection or other related factors.

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 ability to control the spread of the outbreak generally and in our facilities and the delivery and efficacy of and participation in vaccination programs and other 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, as well as the future demand for needs-based skilled nursing care and senior living facilities, 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.

Derivative Instruments

Cash flow hedges

During our normal course of business, we may use certain types of derivative instruments for the purpose of managing interest rate and currency risk.

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

To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge.

In addition, at the inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with our related assertions.

The Company recognizes all derivative instruments, including embedded derivatives required to be bifurcated, as assets or liabilities in the Consolidated Balance Sheets at their fair value which is determined using a market approach and Level 2 inputs.

Changes in the fair value of derivative instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are recognized in earnings.

For derivatives designated in qualifying cash flow hedging relationships, the gain or loss on the derivative is recognized in accumulated other comprehensive income (“AOCI”) as a separate component of equity and a proportionate amount of gain or loss is allocated to noncontrolling interest, if applicable.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objectives and strategy for undertaking various hedge transactions.

This process includes designating all derivatives that are part of a hedging relationship to specific forecasted transactions as well as recognized liabilities or assets on the Consolidated Balance Sheets.

We also assess and document, both at inception of the hedging relationship and on a quarterly basis thereafter, whether the derivatives are highly effective in offsetting the designated risks associated with the respective hedged items.

If it is determined that a derivative ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, we discontinue hedge accounting prospectively and record the appropriate adjustment to earnings based on the current fair value of the derivative.

At June 30, 2021 and December 31, 2020, $ 0.5 million and $ 1.0 million, respectively, of qualifying cash flow hedges were recorded at fair value in accrued expenses and other liabilities on our Consolidated Balance Sheets.

At June 30, 2021 and December 31, 2020, $ 34.1 million and $ 17.0 million, respectively, of qualifying cash flow hedges were recorded at fair value in other assets on our Consolidated Balance Sheets.

Net investment hedges

We are exposed to fluctuations in the British Pound (“GBP”) against its functional currency, the U.S.

Dollar (“USD”), relating to our investments in healthcare-related real estate located in the U.K.

For derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported in AOCI as part of the cumulative translation adjustment in our Consolidated Balance Sheets.

For nonderivative financial instruments that are designated and qualify as net investment hedges, the foreign currency transaction gain or loss on the nonderivative financial instrument is reported in AOCI as a part of the cumulative translation adjustment in our Consolidated Balance Sheets.

Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.

From the issuance date of our GBP borrowings through the prepayment date in March 2021, we used a nonderivative, GBP-denominated term loan and line of credit totaling £ 174 million to hedge a portion of our net investments in foreign operations.

During March 2021 and concurrent with the prepayment of our GBP-denominated term loan and line of credit, we entered into four foreign currency forwards that mature on March 8, 2024 to hedge a portion of our net investments in foreign real estate, effectively replacing the terminated net investment hedge.

At June 30, 2021, $ 0.3 million of qualifying net investment hedges were recorded at fair value in other assets on our Consolidated Balance Sheets.

NOTE 2 – PROPERTIES AND INVESTMENTS

Leased Property

Accounting Pronouncements Adopted in 2021

On July 19, 2021, the Financial Accounting Standards Board issued ASU 2021-05, Leases (Topic 842):

Lessors – Certain Leases with Variable Lease Payments .

This guidance requires lessors to classify leases with variable lease payments, that do not depend on an index or rate, as an operating lease on the commencement date of the lease if specified criteria are met.

The guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted.

We early adopted this guidance prospectively effective July 1, 2021.

The adoption of the guidance did not have an impact on our unaudited consolidated financial statements .

NOTE 2 – REAL ESTATE INVESTMENTS

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, 2021, our leased real estate properties included 728 SNFs, 132 ALFs, 35 specialty facilities and two medical office buildings.

Three Months Ended June 30,

Six Months Ended June 30,

At September 30, 2021, our leased real estate properties included 715 SNFs, 134 ALFs, 35 specialty facilities and two medical office buildings.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Total rental income

The following table summarizes the significant asset acquisitions that occurred during the first six months of 2021:

Asset Acquisitions

The following table summarizes the significant asset acquisitions that occurred during the first nine months of 2021:

(in millions)

5 unchanged sentences

During the second quarter of 2021, we acquired one parcel of land (not reflected in the table above) for approximately $ 10.4 million.

Asset Sales and Impairments

During the first quarter of 2021, we sold 24 facilities subject to operating leases for approximately $ 188.3 million in net cash proceeds, recognizing a net gain of approximately $ 100.3 million.

In addition, we recorded impairments on four facilities of approximately $ 28.7 million ( three were subsequently reclassified to assets held for sale in the first quarter of 2021).

During the second quarter of 2021, we sold six facilities subject to operating leases for approximately $ 12.9 million in net cash proceeds, recognizing a net gain of approximately $ 4.1 million.

In addition, we recorded impairments on three facilities of approximately $ 8.8 million (all three were subsequently reclassified to assets held for sale in the second quarter of 2021).

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

We reduced the net book value of the impaired facilities to their estimated fair values or, with respect to the facilities reclassified to held for sale, to their estimated fair values less costs to sell.

To estimate the fair value of the facilities, we utilized a market approach which considered binding sale agreements (a Level 1 input) and/or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).

During the third quarter of 2021, we purchased a real estate property located in Washington, D.C.

(not reflected in the table above) for approximately $ 68.0 million and plan to redevelop the property into a 174 bed ALF.

Concurrent with the acquisition, we entered into a single facility lease for this property with Maplewood Senior Living (“Maplewood”) through August 31, 2045.

For accounting purposes, the lease will commence upon the substantial completion of construction of the ALF, which is currently expected to be in the first quarter of 2025.

The lease provides for the accrual of financing costs at a rate of 5 % per annum during the construction phase.

The lease provides for an annual cash yield of 6 % in the first year following the completion of construction, increasing to 7 % in year two and 8 % in year three with 2.5 % annual escalators thereafter.

We are committed to a maximum funding of $ 177.7 million for the redevelopment of the real estate property, subject to ordinary development related cost changes (see Note 18 - Commitments and Contingencies).

NOTE 3 – ASSETS HELD FOR SALE, DISPOSITIONS AND IMPAIRMENTS

Periodically we will sell facilities to reduce our concentration in certain operators, geographies, and non-strategic assets or due to the exercise of a tenant purchase option.

The following is a summary of our assets held for sale:

September 30, 2021

December 31, 2020

Number of Facilities Held for Sale

Amount of Assets Held for Sale (in thousands)

(1) Number of facilities excludes one parcel of land.

During the three and nine months ended September 30, 2021, we sold 15 and 45 facilities, subject to operating leases, for approximately $ 109.7 million and $ 310.8 million in net cash proceeds, recognizing net gains of approximately $ 56.2 million and $ 160.6 million.

Real Estate Impairments

During the three and nine months ended September 30, 2021, we recorded impairments on six and 13 facilities of approximately $ 4.9 million and $ 42.5 million, respectively.

Our recorded impairments were primarily the result of reclassifying 12 facilities to assets held for sale for which the carrying values exceeded the estimated fair values less costs to sell.

We also recognized an impairment on one held for use facility because of the closure of the facility in the first quarter.

To estimate the fair value of these facilities, we utilized a market approach which considered binding sale agreements (a Level 1 input) or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).

NOTE 4 – CONTRACTUAL RECEIVABLES AND OTHER RECEIVABLES AND LEASE INDUCEMENTS

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

September 30,

(in thousands)

4 unchanged sentences

Other receivables and lease inducements

During the first and second quarters of 2021, we wrote-off approximately $ 2.7 million and $ 17.4 million, respectively, of straight-line rent receivables to rental income as a result of transitioning one facility and placing two operators on a cash basis due to changes in our evaluation of the collectibility of future rent payments due under the lease agreements.

Based on our evaluation of the collectibility of future rent payments due under the lease agreements for the two operators discussed above, we do not believe it is probable that we will be able to collect substantially all rents due.

These two operators generated approximately 3 % of our total revenues (excluding the impact of straight-line rent receivable write-offs in 2021) for the six months ended June 30, 2021 and 2020.

For the six months ended June 30, 2021, we have been unable to collect approximately $ 3.5 million of contractual rents due from these operators.

We have applied $ 2.5 million of one of the operator’s security deposit funds against their uncollected receivables, which represents one month of contractual rent under the lease agreement.

We have subordinated debt to a third party with an outstanding principal balance of $ 20 million that matures in December 2021 (see Note 13 – Borrowing Arrangements in our Annual Report on Form 10-K for the year ended December 31, 2020).

However, that indebtedness (interest and, under some circumstances, principal) is subject to offset if contractual rent is not paid when due by one of the subject operators.

Agemo Holdings, LLC

In August and September 2021, Agemo Holdings, LLC (“Agemo”), a nonconsolidated variable interest entity (“VIE”), failed to pay contractual rent and interest due under their lease and loan agreements.

Subsequent to quarter end, Agemo also failed to make contractual payments in October 2021.

Agemo was formed in May 2018 by Signature Healthcare, LLC, as part of an out-of-court restructuring agreement, to be the holding company of their leases and loans with Omega.

We placed Agemo on a cash basis of revenue recognition during the third quarter of 2020 as collection of substantially all contractual lease payments due from them was deemed no longer probable because of information received regarding substantial doubt of their ability to continue as a going concern.

Agemo continued to make their rental and interest payments to us until August 2021.

During August and September 2021, we recorded $ 8.4 million of revenue by drawing on the letter of credit and through application of the security deposit balance.

See Note 6 – Other Investments for additional details on our loans with Agemo.

For the nine months ended September 30, 2021 and 2020, Agemo generated approximately 4.7 % and 6.0 %, respectively, of our total revenues (excluding the impact of write-offs in 2020).

As part of the 2018 restructuring agreement with Agemo discussed above, Omega agreed to, among other terms, defer rent of $ 6.3 million per annum through April 2021.

During the nine months ended September 30, 2021, the Agemo lease was amended to allow for the extension of the rent deferral through October 2021, which represents an additional deferral of approximately $ 3.2 million of rent.

Additionally, in the third quarter, we entered into a forbearance agreement with Agemo pursuant to which we agreed to forbear from exercising remedies under our lease and loan agreements until October 31, 2021.

The forbearance period and rent deferral period were subsequently extended to November 30, 2021.

Gulf Coast Health Care, LLC

During the second quarter of 2021, Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) stopped paying contractual rent under its master lease agreement for 24 facilities because of on-going liquidity issues.

As discussed further in Note 21 - Subsequent Events, on October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the United States Bankruptcy Code.

Gulf Coast represents approximately 2.6 % and 2.8 % of our total revenues (excluding the impact of write-offs in 2021) for the nine months ended September 30, 2021 and 2020, respectively.

As a result of Gulf Coast’s non-payment of contractual rent, in the second quarter of 2021, we placed Gulf Coast on a cash basis of revenue recognition and wrote-off straight-line rent receivable balances of $ 17.4 million through rental income.

Subsequent to placing Gulf Coast on a cash basis of revenue recognition in June 2021, we recognized $ 9.8 million of contractual rent during the second and third quarters, based on our ability to offset any uncollected rent receivables against Gulf Coast’s security deposit and against certain debt obligations of Omega, as discussed further below.

We held a security deposit of $ 3.3 million from Gulf Coast, which we have applied against Gulf Coast’s obligations in the second and third quarters of 2021.

In relation to Gulf Coast, Omega, through subsidiaries, is the obligor on five notes due to third parties with aggregate outstanding principal of $ 20.0 million (collectively, the “Subordinated Debt”) that bear interest at 9 % per annum with a maturity date of December 21, 2021 (see Note 15 – Borrowing Activities and Arrangements).

Under the terms of the Subordinated Debt, to the extent Gulf Coast fails to pay rent when due to us under its master lease, Gulf Coast’s unpaid rent can be used to offset Omega’s obligations under the Subordinated Debt (on a quarterly basis with respect to interest and, under some circumstances, on an annual basis with respect to principal).

As of September 30, 2021, we have offset $ 0.9 million of accrued interest under the Subordinated Debt against the uncollected receivables of Gulf Coast.

We intend to offset any unpaid contractual receivables, after reflecting the application of security deposits and interest offsets, against the principal of the Subordinated Debt in the fourth quarter of 2021.

As of September 30, 2021, we have $ 5.6 million of contractual rent receivables outstanding from Gulf Coast, after reflecting the application of security deposits and interest offsets, and without giving effect to our legal acceleration of rent discussed below.

As a result of Gulf Coast’s non-payment of contractual rent, in August 2021, we exercised our right to accelerate the full amount of rent due under Gulf Coast’s master lease agreement, payment of which will be subject to the Bankruptcy Code and approval of the bankruptcy court in Gulf Coast’s chapter 11 cases.

In August 2021, following an assertion by the holders of the Subordinated Debt that our prior exercise of offset rights had resulted in defaults under the terms of the Subordinated Debt, we also filed suit in the Circuit Court for Baltimore County against the holders of the Subordinated Debt seeking a declaratory judgment to, among other items, declare that the aggregate amount of unpaid rent due from Gulf Coast under the master lease agreement exceeds all amounts which otherwise would be due and owing by Omega under the Subordinated Debt, and that all principal and interest due and owing under the Subordinated Debt are to be offset in full as of December 31, 2021.

In October 2021, the defendants in the case filed a motion to dismiss for lack of personal jurisdiction.

While Omega believes it is entitled to the enforcement of the offset rights sought in the action, the outcome of litigation is unpredictable, and Omega cannot predict the outcome of the declaratory judgment action.

Other straight-line receivables and write-offs

In addition to the Gulf Coast straight-line receivable write-off in the second quarter discussed above, during the nine months ended September 30, 2021, we wrote-off straight-line rent receivable balances of $ 3.4 million through rental income primarily due to placing three other operators ( 1 operator in the first quarter and 2 operators in the third quarter) on a cash basis of revenue recognition.

We determined that collection of substantially all contractual lease payments with these operators was no longer probable for various reasons.

The placement of an operator on a cash basis of revenue recognition during the first quarter was because the operator stopped paying contractual rent under our lease agreement.

The two operators placed on a cash basis of revenue recognition during the third quarter are current with rent payments as of September 30, 2021.

The three operators collectively represent approximately 0.3 % and 0.5 % , respectively, of our total revenues (excluding the impact of write-offs in 2021) for the nine months ended September 30, 2021 and 2020.

NOTE 5 – MORTGAGE NOTES RECEIVABLE

As of June 30, 2021, mortgage notes receivable relate to seven fixed rate mortgage notes on 63 facilities.

As of September 30, 2021, mortgage notes receivable relate to six fixed rate mortgage notes on 65 facilities.

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

The mortgage notes receivable relate to facilities located in seven states that are operated by six independent healthcare operating companies.

The mortgage notes receivable relate to facilities located in six states that are operated by six independent healthcare operating companies.

We monitor compliance with the terms of our mortgages and when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding mortgage notes.

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

September 30,

(in thousands)

7 unchanged sentences

Total mortgages — net

(1) Approximates the weighted average interest rate on 46 facilities as of June 30, 2021.

As of June 30, 2021, the carrying amount includes two mortgages that mature in 2021, a construction mortgage with an outstanding principal balance of $ 13.9 million and a facility mortgage with an outstanding principal balance of $ 21.3 million, with the remaining loan balance maturing in 2029.

(1) Approximates the weighted average interest rate on 45 facilities as of September 30, 2021.

As of September 30, 2021, the carrying amount includes a construction mortgage that was originated during the third quarter of 2021 with an outstanding principal balance of $ 7.4 million that matures in 2023 and a facility mortgage with an outstanding principal balance of $ 21.3 million that matures in 2021 , with the remaining loan balance maturing in 2029 .

During the second quarter of 2021, one construction mortgage with an original maturity date of 2021 was extended to 2029 and converted into a facility mortgage.

(2) Other mortgages outstanding have a weighted average interest rate of 9.38 % per annum as of June 30, 2021 and maturity dates ranging from 2023 through 2032 .

During the third quarter of 2021, we acquired a facility which was previously subject to a $ 13.9 million construction mortgage and subsequently leased the property back to the operator that was the borrower under the mortgage.

(2) Other mortgages outstanding have a weighted average interest rate of 8.84 % per annum as of September 30, 2021 and maturity dates ranging from 2023 through 2032 .

Other mortgage notes outstanding

On July 1, 2021, we financed six SNFs in Ohio and amended an existing $ 6.4 million mortgage, inclusive of 2 Ohio SNFs, to include the six facilities in a consolidated $ 72.4 million mortgage for eight Ohio facilities bearing interest at an initial rate of 10.5 % per annum.

In conjunction with this transaction, we also acquired three Maryland facilities that were previously subject to a mortgage issued by Omega bearing interest at 13.75 % per annum with a principal balance of $ 36.0 million that was included in other mortgage notes outstanding.

The purchase price for these three facilities was equal to the remaining mortgage principal amount, and the three acquired Maryland facilities were subsequently leased back to the seller for a term expiring on December 31, 2032 , assuming Omega exercises the options under the agreement.

The base rent in the initial year is approximately $ 5.0 million and includes annual escalators of 2.5 %.

NOTE 6 – OTHER INVESTMENTS

Our other investments consist of fixed and variable rate loans to our operators and/or their principals to fund working capital and capital expenditures.

These loans may be either unsecured or secured by the collateral of the borrower.

Interest income related to other investments is recorded as other investment income in the consolidated statement of operations.

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, 2021.

(2) Other investment notes have a weighted average interest rate of 8.37 % as of June 30, 2021 and maturity dates ranging from 2021 through 2028 .

(1) Approximates the weighted average interest rate as of September 30, 2021.

(2) Includes two term loans, secured by a first priority lien and a security interest in certain collateral, with Genesis Healthcare, Inc.

that have outstanding principal amounts of $ 69.8 million and $ 19.1 million, as of September 30, 2021.

These loans both were scheduled to mature on July 29, 2020 , but the maturity dates were extended to January 1, 2024 during the first quarter of 2021.

(3) Other investment notes have a weighted average interest rate of 8.81 % as of September 30, 2021 with maturity dates ranging from 2021 through 2031 .

Other investment notes due 2024-2025

On March 6, 2018, we amended certain terms of our $ 48.0 million secured term loan with Genesis Healthcare, Inc.

The $ 48.0 million term loan bears interest at a fixed rate of 14 % per annum, of which 9 % per annum is paid-in-kind and was initially scheduled to mature on July 29, 2020 .

The maturity date of this loan was extended during the first quarter of 2021 to January 1, 2024 .

This term loan (and the $ 16.0 million term loan discussed below) is secured by a first priority lien on and security interest in certain collateral of Genesis.

As of June 30, 2021, approximately $ 68.2 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, and was initially scheduled to mature on July 29, 2020 .

The maturity date of this loan was extended during the first quarter of 2021 to January 1, 2024 .

As of June 30, 2021, approximately $ 18.9 million is outstanding on this term loan.

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, Agemo failed to pay contractual rent and interest to us from August 2021 through October 2021.

As of September 30, 2021, we have two loans outstanding to Agemo, a term loan with remaining principal of $ 32.0 million that bears interest at 9 % per annum and matures on December 31, 2024 (the “Agemo Term Loan”) and a $ 25.0 million secured working capital loan bearing interest at 7 % per annum that matures on April 30, 2025 (the “Agemo WC Loan”).

The Agemo Term Loan is secured by a security interest in certain collateral of Agemo and the Agemo WC Loan is secured by a collateral package that includes a second lien on the accounts receivable of Agemo.

During the third quarter of 2020, we evaluated both loans for impairment upon receiving information from Agemo regarding substantial doubt of its ability to continue as a going concern.

Based on our evaluation, we recorded a provision for credit loss of $ 22.7 million in the third quarter of 2020 to reduce the carrying value of the loans to the fair value of the underlying collateral.

We have continued to monitor the fair value of the collateral associated with these loans on a quarterly basis.

In the third quarter of 2021, we recorded an additional provision for credit losses of $ 16.7 million related to these loans as a result of a reduction in the fair value of the underlying collateral assets supporting the current carrying values.

The reduction in fair value of the collateral assets was primarily driven by the application of Agemo’s $ 9.3 million letter of credit to Omega’s uncollected receivables, that supported the value of the Agemo Term Loan, and a reduction in Agemo’s working capital accessible to Omega as collateral, after considering other liens on the assets.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

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Louis and the weighted average life to maturity of the underlying financial asset.

As of June 30, 2021, $ 10.2 million of contractual interest receivable is recorded in contractual receivables – net and $ 11.6 million of effective yield interest receivables is recorded in other receivables and lease inducements on our Consolidated Balance Sheets, both of which are excluded from our allowance for credit losses.

As of September 30, 2021, $ 10.6 million of contractual interest receivable is recorded in contractual receivables – net and $ 10.0 million of effective yield interest receivables is recorded in other receivables and lease inducements on our Consolidated Balance Sheets, both of which are excluded from our allowance for credit losses.

During the third quarter of 2020, we determined that interest receivable of $ 3.8 million (related to the Agemo term loans) 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.

Periodically, the Company may identify an individual loan for impairment.

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We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the sale of the collateral.

A rollforward of our allowance for credit losses for the six months ended June 30, 2021 is as follows:

A rollforward of our allowance for credit losses for the nine months ended September 30, 2021 is as follows:

Financial Statement Line Item

Allowance for Credit Loss as of December 31, 2020

Provision (recovery) for Credit Loss for the three months ended June 30, 2021

Write-offs charged against allowance for the three months ended June 30, 2021

Provision (recovery) for Credit Loss for the six months ended June 30, 2021

Write-offs charged against allowance for the six months ended June 30, 2021

Allowance for Credit Loss as of June 30, 2021

Provision (recovery) for Credit Loss for the three months ended September 30, 2021

Write-offs charged against allowance for the three months ended September 30, 2021

Provision (recovery) for Credit Loss for the nine months ended September 30, 2021

Write-offs charged against allowance for the nine months ended September 30, 2021

Allowance for Credit Loss as of September 30, 2021

(in thousands)

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Other Investments

Off-Balance Sheet Mortgage Commitments

Other Investments

Off-Balance Sheet Note Commitments

(1) This provision primarily relates to a $ 4.5 million reserve recorded on a term loan during the second quarter of 2021.

A rollforward of our allowance for credit losses for the six months ended June 30, 2020 is as follows:

Off-Balance Sheet Note Commitments

Off-Balance Sheet Mortgage Commitments

(1) Amount reflects the movement of reserves associated with a $ 112.5 million mortgage for 9 facilities with Guardian Healthcare (“Guardian”) due to a reduction of our internal risk rating from a 4 to a 5 on the loan in the third quarter of 2021.

The risk rating reduction was primarily due to concerns regarding the fair value of the collateral associated with the mortgage loan as well as an increase in the probability of a modification to the loan that may result in a troubled debt restructuring.

As discussed further in Note 21 – Subsequent Events, in October 2021, Guardian stopped paying contractual rent and interest under its lease and loan agreements.

(2) Amount reflects the movement of $ 27.2 million of reserves from Other Investments with a rating of 4 to Other Investments with a rating of 6 as a result of a reduction of our internal credit rating from a 4 to a 6 on the Agemo Term Loan and one other loan during the third quarter of 2021.

The provision for Other Investments with a rating of 6 also reflects $ 8.8 million of additional allowance recorded in the third quarter of 2021 to fully impair the remaining carrying value of the Agemo Term Loan.

See Note 6 – Other Investments for additional information on the conditions that drove the Agemo Term Loan impairment and ratings reduction.

(3) The provision includes an additional $ 7.9 million of allowance recorded on the Agemo WC Loan during the third quarter of 2021.

We also reduced the internal rating on the Agemo WC Loan from a 4 to a 5 during the third quarter of 2021.

See Note 6 – Other Investments for additional information on the conditions that drove the Agemo WC Loan impairment and rating reduction.

A rollforward of our allowance for credit losses for the nine months ended September 30, 2020 is as follows:

Financial Statement Line Item

1 unchanged sentence

Allowance for Credit Loss on January 1, 2020

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

Write-offs charged against allowance for the three months ended June 30, 2020

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

Write-offs charged against allowance for the six months ended June 30, 2020

Allowance for Credit Loss as of June 30, 2020

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

Write-offs charged against allowance for the three months ended September 30, 2020

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

Write-offs charged against allowance for the nine months ended September 30, 2020

Allowance for Credit Loss as of September 30, 2020

(in thousands)

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Other Investments

Off-Balance Sheet Commitments

Off-Balance Sheet Note Commitments

Off-Balance Sheet Mortgage Commitments

A summary of our amortized cost basis by year of origination and credit quality indicator is as follows:

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Revolving Loans

Balance as of June 30, 2021

Balance as of September 30, 2021

(in thousands)

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Other Investments

NOTE 8 – VARIABLE INTEREST ENTITIES

As of June 30, 2021 and December 31, 2020, Agemo Holdings, LLC (“Agemo”) and Maplewood Real Estate Holdings, LLC (“Maplewood”) are both variable interest entities (“VIEs”).

As of June 30, 2021, we have not consolidated any VIEs, as we have concluded that we are not the primary beneficiary.

As of September 30, 2021 and December 31, 2020, Agemo and Maplewood are both VIEs.

As of September 30, 2021, we have not consolidated any VIEs, as we have concluded that we are not the primary beneficiary.

This conclusion is based on the fact that 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 entities.

Below is a summary of our assets, liabilities and collateral associated with these operators as of June 30, 2021 and December 31, 2020:

June 30, 2021

Below is a summary of our assets, liabilities and collateral associated with these operators as of September 30, 2021 and December 31, 2020:

September 30, 2021

December 31, 2020

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Assets held for sale

Other investments

Contractual receivables

Other investments – net

Contractual receivables – net

Straight-line rent receivables

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Contingent liability

Other liabilities

Total Liabilities

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Maximum exposure to loss

(1) As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, we applied Agemo’s entire letter of credit against their uncollected rent receivables during the third quarter of 2021.

As discussed in Note 6 – Other Investments and Note 7 – Allowance for Credit Loss, we recorded an additional reserve of $ 16.7 million on our loans with Agemo during the third quarter of 2021.

(2) Amount excludes Agemo’s accounts receivable that Omega has a second priority security interest on as collateral under the Agemo WC Loan.

The fair value of the accounts receivable available to Omega was $ 16.7 million and $ 25.0 million as of September 30, 2021 and December 31, 2020, respectively.

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.

In May 2018, we reached an out-of-court restructuring agreement with Agemo that, among other terms, provided for the deferral of rent up to $ 6.3 million per annum through April 2021.

During the second quarter of 2021, the Agemo lease was amended to allow for the deferral of four additional months of rent, representing $ 2.1 million, through August 2021.

As a result of concerns of our ability to collect all future rent payments, the Company had begun recognizing rental income related to Agemo on a cash basis in September 2020 and had written off all remaining contractual rent receivables, straight-line rent receivables, and lease inducements.

Our conclusion on collectibility was based on information the Company received from Agemo regarding substantial doubt as to their ability to continue as a going concern.

The table below reflects our total revenues from Agemo and Maplewood for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

The table below reflects our total revenues from Agemo and Maplewood for the three and nine months ended September 30, 2021 and 2020:

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, 2021 and 2020, we received cash from Agemo of approximately $ 14.0 million and $ 13.1 million, respectively, pursuant to our lease and other investment agreements.

For the six months ended June 30, 2021 and 2020, we received cash from Agemo of approximately $ 28.0 million and $ 26.8 million, respectively, pursuant to our lease and other investment agreements.

For the three months ended June 30, 2021 and 2020, we received cash from Maplewood of approximately $ 19.7 million and $ 17.2 million, respectively, pursuant to our lease and other investment agreements.

For the six months ended June 30, 2021 and 2020, we received cash from Maplewood of approximately $ 39.0 million and $ 33.9 million, respectively, pursuant to our lease and other investment agreements.

NOTE 8 – INVESTMENTS IN JOINT VENTURES

(1) For the three months ended September 30, 2021 and 2020, we received cash (including letter of credit funds and security deposit balance) from Agemo of approximately $ 14.1 million and $ 13.4 million, respectively, pursuant to our lease and other investment agreements.

For the nine months ended September 30, 2021 and 2020, we received cash (including letter of credit funds and security deposit balance) from Agemo of approximately $ 42.1 million and $ 40.1 million, respectively, pursuant to our lease and other investment agreements.

For the three months ended September 30, 2021 and 2020, we received cash from Maplewood of approximately $ 21.5 million and $ 17.5 million, respectively, pursuant to our lease and other investment agreements.

For the nine months ended September 30, 2021 and 2020, we received cash from Maplewood of approximately $ 60.5 million and $ 51.4 million, respectively, pursuant to our lease and other investment agreements.

NOTE 9 – INVESTMENTS IN JOINT VENTURES AND OTHER EQUITY INVESTMENTS

Unconsolidated Joint Ventures

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Facilities at

September 30,

Investment (1)

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During the first quarter of 2021, this joint venture acquired five SNFs from Second Spring Healthcare Investments for approximately $ 70.8 million.

During the second quarter of 2021, this joint venture sold four SNFs to an unrelated third party for approximately $ 50 million in net proceeds and recognized a loss on sale of approximately $ 0.3 million ( $ 0.1 million of which represents the Company’s share of the loss).

The following table reflects our income (loss) from unconsolidated joint ventures for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

During the second and third quarters of 2021, this joint venture sold five SNFs to an unrelated third-party for approximately $ 65 million in net proceeds and recognized a loss on sale of approximately $ 0.4 million ( $ 0.1 million of which represents the Company’s share of the loss).

The following table reflects our income (loss) from unconsolidated joint ventures for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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OH CHS SNP, Inc.

(1) The income from this unconsolidated joint venture for the six months ended June 30, 2021 includes a $ 14.9 million gain on sale of real estate investments.

(1) The income from this unconsolidated joint venture for the nine months ended September 30, 2021 includes a $ 14.9 million gain on sale of real estate investments.

Asset Management Fees

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

For each of the three months ended June 30, 2021 and 2020, we recognized approximately $ 0.3 million and $ 0.5 million, respectively, of asset management fees.

For each of the six months ended June 30, 2021 and 2020, we recognized approximately $ 0.5 million and $ 0.7 million, respectively, of asset management fees.

For each of the three months ended September 30, 2021 and 2020, we recognized approximately $ 0.2 million and $ 0.3 million, respectively, of asset management fees.

For each of the nine months ended September 30, 2021 and 2020, we recognized approximately $ 0.7 million and $ 1.0 million, respectively, of asset management fees.

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

NOTE 9 – ASSETS HELD FOR SALE

The following is a summary of our assets held for sale:

Facilities Held For Sale

Number of Facilities

(in thousands)

December 31, 2020

Facilities sold/other (1)

Facilities added (2)

March 31, 2021

Facilities sold/other (1)

Facilities added (2)(3)

June 30, 2021 (3)

(1) In the first quarter of 2021, we sold 21 facilities for approximately $ 187.6 million in net cash proceeds recognizing a net gain on sale of approximately $ 100.3 million.

In the second quarter of 2021, we sold four facilities for approximately $ 3.5 million in net cash proceeds recognizing a net gain on sale of approximately $ 1.9 million.

One facility classified as held for sale at March 31, 2021 was no longer considered held for sale during the second quarter of 2021 and was reclassified to leased property at approximately $ 0.2 million which represents the facility’s carrying value.

(2) In the first quarter of 2021, we recorded approximately $ 16.9 million of impairment expense to reduce three facilities’ book value to their estimated fair value less costs to sell before they were reclassified to assets held for sale.

In the second quarter of 2021, we recorded approximately $ 8.8 million of impairment expense to reduce three facilities’ book value to their estimated fair value less costs to sell before they were reclassified to assets held for sale.

(3) Number of facilities excludes one parcel of land.

Other Equity Investments

In the third quarter of 2021, we made an investment of $ 20.0 million in SafelyYou, Inc.

(“SafelyYou”), a technology company that has developed artificial intelligence-enabled video that detects and helps prevent resident falls in ALFs and SNFs.

Through our investment, we obtained preferred shares representing 5 % of the outstanding equity of SafelyYou and warrants to purchase SafelyYou common stock representing an additional 5 % of outstanding equity as of the date of our investment.

SafelyYou has committed, for a specified period, to using the proceeds of our investment to install its technology in our facilities or other facilities of our operators.

The vesting of the warrants is contingent upon SafelyYou’s attainment of certain installation targets in our facilities.

To the extent these installation targets are not attained, the investment funds associated with the unvested warrants would be returned to Omega.

The investment in the preferred shares and warrants are recorded within other assets on the Consolidated Balance Sheets.

NOTE 10 – GOODWILL AND OTHER INTANGIBLES

The following is a summary of our goodwill as of June 30, 2021:

The following is a summary of our goodwill as of September 30, 2021:

(in thousands)

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Foreign currency translation

Balance as of June 30, 2021

The following is a summary of our intangibles as of June 30, 2021 and December 31, 2020:

Balance as of September 30, 2021

The following is a summary of our intangibles as of September 30, 2021 and December 31, 2020:

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, 2021 and 2020, our net amortization related to intangibles was $ 1.1 million and $ 3.5 million, respectively.

For the six months ended June 30, 2021 and 2020, our net amortization related to intangibles was $ 7.3 million and $ 4.8 million, respectively.

For the three months ended September 30, 2021 and 2020, our net amortization related to intangibles was $ 1.1 million and $ 3.7 million, respectively.

For both the nine months ended September 30, 2021 and 2020, our net amortization related to intangibles was $ 8.5 million.

The estimated net amortization related to these intangibles for the remainder of 2021 and the subsequent four years is as follows:

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2024 – $ 3.9 million and 2025 – $ 3.7 million.

As of June 30, 2021, the weighted average remaining amortization period of above market lease assets is approximately ten years and below market lease liabilities is approximately eight years .

As of September 30, 2021, the weighted average remaining amortization period of above market lease assets is approximately ten years and below market lease liabilities is approximately eight years .

NOTE 11 – CONCENTRATION OF RISK

As of June 30, 2021, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, and assets held for sale) consisted of 970 healthcare facilities, located in 42 states and the U.K.

As of September 30, 2021, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, and assets held for sale) consisted of 963 healthcare facilities, located in 42 states and the U.K.

and operated by 63 third-party operators.

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 10.1 billion at June 30, 2021, with approximately 97 % of our real estate investments related to healthcare facilities.

Our portfolio is made up of (i) 729 SNFs, 132 ALFs, 35 specialty facilities, two medical office buildings, (ii) fixed rate mortgages on 58 SNFs, three ALFs and two specialty facilities, and (iii) nine facilities that are held for sale.

At June 30, 2021, we also held other investments of approximately $ 458.7 million, consisting primarily of secured loans to third-party operators of our facilities and $ 197.9 million of investments in six unconsolidated joint ventures.

At June 30, 2021 we had investments with one operator/or manager that exceeded 10% of our total investments:

Consulate Health Care (“Consulate”).

Consulate also generated approximately 10 % of our total revenues for the three and six months ended June 30, 2021 and 2020, respectively.

At June 30, 2021, the three states in which we had our highest concentration of investments were Florida ( 15 %), Texas ( 10 %) and Michigan ( 6 %).

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 10.2 billion at September 30, 2021, with approximately 98 % of our real estate investments related to healthcare facilities.

Our portfolio is made up of (i) 716 SNFs, 134 ALFs, 35 specialty facilities, two medical office buildings, (ii) fixed rate mortgages on 60 SNFs, three ALFs and two specialty facilities, and (iii) 11 facilities that are held for sale.

At September 30, 2021, we also held other investments of approximately $ 434.0 million, consisting primarily of secured loans to third-party operators of our facilities and $ 193.7 million of investments in six unconsolidated joint ventures.

At September 30, 2021 we had investments with two operators/or managers that approximated or exceeded 10% of our total investments:

Maplewood and Consulate Health Care (“Consulate”).

Maplewood generated approximately 8 % and 5 % of our total revenues for the three months ended September 30, 2021 and 2020, respectively, and 8 % and 5 % of our total revenues for the nine months ended September 30, 2021 and 2020, respectively.

Consulate generated approximately 9 % of our total revenues for the three months ended September 30, 2021 and 2020, respectively, and 9 % of our total revenues for the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021, the three states in which we had our highest concentration of investments were Florida ( 15 %), Texas ( 10 %) and Michigan ( 6 %).

NOTE 12 – STOCKHOLDERS’ EQUITY

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

The following is a summary of our declared cash dividends on common stock:

February 8, 2021

2 unchanged sentences

August 13, 2021

November 5, 2021

November 15, 2021

Dividend Reinvestment and Common Stock Purchase Plan

The table below presents information regarding the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and six months ended June 30, 2020 and 2021:

The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and nine months ended September 30, 2020 and 2021:

Shares issued

3 unchanged sentences

Three Months Ended

June 30, 2020

September 30, 2020

Three Months Ended

June 30, 2021

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2021

September 30, 2021

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2021

At-The-Market Offering Programs

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The use of forward sales under the 2021 ATM Program generally allows Omega to lock in a price on the sale of shares of common stock when sold by the forward sellers but defer receiving the net proceeds from such sales until the shares of our common stock are issued at settlement on a later date.

We did not utilize the forward provisions under the 2021 ATM Program during the three months ended June 30, 2021.

The table below presents information regarding the shares issued under the 2021 and 2015 ATM Programs for the three and six months ended June 30, 2020 and 2021:

We did not utilize the forward provisions under the 2021 ATM Program during the second or third quarter of 2021.

The following is a summary of the shares issued under the 2021 and 2015 ATM Programs for the three and nine months ended September 30, 2020 and 2021:

Shares issued

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Three Months Ended

June 30, 2020

September 30, 2020

Three Months Ended

June 30, 2021

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2021

September 30, 2021

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2021

(1) Represents the average price per share after commissions.

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Beginning balance

Translation gain (loss)

Realized gain (loss)

Translation (loss) gain

Realized (loss) gain

Ending balance

2 unchanged sentences

Beginning balance

Unrealized (loss) gain

Unrealized gain

Realized gain (loss) (1)

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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.

In 2020, 2019, and 2018, we distributed dividends in excess of our taxable income.

In 2020, we distributed dividends in excess of our taxable income.

We currently own stock in entities that have elected to be taxed as a REIT.

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income tax purposes.

As of June 30, 2021, one of our TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 6.5 million.

Our NOL carry-forward was fully reserved as of June 30, 2021, with a valuation allowance due to uncertainties regarding realization.

As of September 30, 2021, one of our TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 6.5 million.

Our NOL carry-forward was fully reserved as of September 30, 2021, with a valuation allowance due to uncertainties regarding realization.

The following is a summary of our provision for income taxes:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

4 unchanged sentences

NOTE 14 – STOCK-BASED COMPENSATION

The following is a summary of our stock-based compensation expense for the three and six months ended June 30, 2021 and 2020, respectively.

The following is a summary of our stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020, respectively.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

5 unchanged sentences

Interest Rate

(in millions)

September 30,

(in thousands)

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Total secured and unsecured borrowings – net (11)(12)

(1) Reflects the weighted average annual contractual interest rate on the mortgages at June 30, 2021.

Secured by real estate assets with a net carrying value of $ 558.0 million as of June 30, 2021.

(1) Reflects the weighted average annual contractual interest rate on the mortgages at September 30, 2021.

Secured by real estate assets with a net carrying value of $ 551.3 million as of September 30, 2021.

(2) Wholly owned subsidiaries of Omega OP are the obligor on these borrowings.

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(6) We used the proceeds from this offering to pay down outstanding borrowings on the 2017 Revolving Credit Facility, repay the Sterling term loan, and fund the tender offer to purchase $ 350 million of the 4.375 % Senior Notes due 2023 and the payment of accrued interest and related fees, premiums and expenses.

(7) As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, to the extent Gulf Coast fails to pay rent when due to us under its master lease, this Subordinated debt is subject to offset.

(8) Actual borrowing is in GBP and remeasured to USD.

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(9) Omega OP is the obligor on this borrowing.

(10) The weighted average interest rate of the OP Term Loan has been adjusted to reflect the impact of the interest rate swaps that effectively fix the LIBOR based portion of the interest rate at 1.84 % .

(11) All borrowings are direct borrowings of Parent unless otherwise noted.

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

As of June 30, 2021 and December 31, 2020, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

As of September 30, 2021 and December 31, 2020, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings .

Unsecured Borrowings

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We incurred $ 0.4 million of deferred costs in connection with the 2021 Omega OP Credit Agreement.

$ 400 Million Forward Starting Swaps

NOTE 16 – DERIVATIVES AND HEDGING

We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our investments in the U.K.

and interest rate risk related to our capital structure.

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

Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, interest rate swaps and debt issued in foreign currencies to offset a portion of these risks.

Cash Flow Hedges of Interest Rate Risk

We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments.

These interest rate swap agreements are used to hedge the variable cash flows associated with variable-rate debt.

On March 27, 2020 , we entered into five forward starting swaps totaling $ 400 million.

2 unchanged sentences

In March 2021, in conjunction with the issuance of $ 700 million aggregate principal amount of our 3.25 % Senior Notes due 2033 , we discontinued hedge accounting for these five forward starting swaps.

Amounts reported in AOCI related to these discontinued cash flow hedging relationships will be reclassified to interest expense over a ten-year term.

Amounts reported in accumulated other comprehensive income (“AOCI”) related to these discontinued cash flow hedging relationships will be reclassified to interest expense over a ten-year term.

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).

£ 174 Million Foreign Exchange Forward Starting Swaps

During March 2021 and concurrent with the settlement of our GBP-denominated term loan and repayment of our GBP-denominated borrowings under our line of credit, we entered into four foreign currency forwards, that mature on March 8, 2024, to hedge a portion of our net investments in foreign operations, effectively replacing the terminated net investment hedge.

For these derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported in AOCI as part of the cumulative translation adjustment.

Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.

In addition to the forward swaps discussed above, we also have two interest rate swaps that were entered into in May 2019 with aggregate notional amounts of $ 50.0 million.

These interest rate swaps are designated as hedges against our exposure to changes in interest payment cash flow fluctuations in the variable interest rates on the OP Term Loan .

Foreign Currency Forward Contracts and Debt Designated as Net Investment Hedges

British pound (“GBP”) denominated borrowings under the Sterling term loan and the 2017 Revolving Credit Facility, were previously used to hedge a portion of our investments in the U.K.

against fluctuations in GBP against the USD.

The GBP denominated borrowings under both debt instruments were deemed an effective hedge from issuance in May 2017 until the settlement of the Sterling term loan and the repayment of the GBP denominated borrowings under the 2017 Revolving Credit Facility in March 2021.

Gains and losses associated with these nonderivative net investment hedges were recorded in foreign currency translation within other comprehensive income (loss) (“OCI”).

Concurrent with the settlement of the GBP denominated debt, we entered into four foreign currency forwards with notional amounts totaling £ 174.0 million, that mature on March 8, 2024 , to hedge a portion of our net investments in the U.K., effectively replacing the terminated net investment hedge.

The gains and losses associated with these foreign currency forwards are also recorded in foreign currency translation within OCI.

Amounts associated with these net investment hedges would be reclassified out of AOCI into earnings when our hedged net investment in the U.K.

is either sold or substantially liquidated.

The location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:

September 30,

Cash flow hedges:

(in thousands)

Accrued expenses and other liabilities

Net investment hedges:

Accrued expenses and other liabilities

The fair value of the interest rate swaps and foreign currency forwards is derived from observable market data such as yield curves and foreign exchange rates and represents a Level 2 measurement on the fair value hierarchy.

NOTE 17 – FINANCIAL INSTRUMENTS

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, 2021 and December 31, 2020, the net carrying amounts and fair values of our other financial instruments were as follows:

June 30, 2021

At September 30, 2021 and December 31, 2020, the net carrying amounts and fair values of our other financial instruments were as follows:

September 30, 2021

December 31, 2020

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The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

● Direct financing leases:

The fair value of the investments in direct financing leases are estimated using a discounted cash flow analysis, using interest rates being offered for similar leases to borrowers with similar credit ratings (Level 3).

● Mortgage notes receivable:

3 unchanged sentences

The fair values of notes receivable are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).

● Revolving line of credit, secured borrowing and term loan:

The fair value of our borrowings under variable rate agreements are estimated using a present value technique based on expected cash flows discounted using the current market rates (Level 3).

● Senior notes and subordinated debt:

The fair value of our borrowings under fixed rate agreements are estimated using a present value technique based on inputs from trading activity provided by a third-party (Level 2).

● Revolving line of credit and OP Term loan:

The carrying amount of these approximate fair value because the borrowings are interest rate adjusted.

Differences between carrying value and the fair value in the table above are due to the inclusion of deferred financing costs in the carrying value.

● Senior notes:

The fair value of the senior unsecured notes payable was estimated based on (Level 1) publicly available trading prices.

● Subordinated debt:

The fair value of our borrowings under these agreements are estimated using a present value technique based on inputs from trading activity provided by a third-party (Level 2).

● HUD mortgages:

1 unchanged sentence

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Shareholder Litigation

The Company and certain of its officers, C.

6 unchanged sentences

The initial complaint was dismissed with prejudice by the U.S.

District Court, but the dismissal was overturned by the U.S Court of Appeals for the Second Circuit in 2020.

District Court, but the dismissal was overturned by the U.S.

Court of Appeals for the Second Circuit in 2020.

Thereafter, the plaintiffs filed a Second Consolidated Amended Complaint in August 2020.

In November 2020, the Company and the officers named in the Securities Class Action filed a Motion to Dismiss the Second Consolidated Amended Complaint, which is fully briefed and pending before the District Court.

In November 2020, the Company and the officers named in the Securities Class Action filed a Motion to Dismiss the Second Consolidated Amended Complaint.

On September 28, 2021, the Court issued an order denying the motion to dismiss insofar as it requested dismissal of the entire action on grounds of loss causation, and granting it insofar as it sought dismissal of any claims arising out of defendants’ statements in February 2017.

Because the dismissed claims were the basis for defendants’ efforts to begin the alleged class period in February 2017, the decision means that the alleged class period runs from May 3, 2017 to October 31, 2017.

Certain derivative actions have also been brought against the officers named in the Securities Class Action, and certain current and former directors of the Company, alleging claims relating to the matters at issue in the Securities Class Action.

8 unchanged sentences

Prior to filing suit, each of these stockholders had made demands on the Board of Directors in 2018 that the Company bring such lawsuits.

After an investigation and due consideration, and in the exercise of its business judgment, the Board determined that it is not in the best interests of the Company to commence litigation against any current or former officers or directors based on the matters raised in the demands.

After an investigation and due consideration, and in the exercise of its business judgment, the Board of Directors determined that it is not in the best interests of the Company to commence litigation against any current or former officers or directors based on the matters raised in the demands.

In addition, in late 2020, Robert Wojcik, a purported shareholder of the Company, filed a derivative action in the U.S.

3 unchanged sentences

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

Gulf Coast Subordinated Debt

In August 2021, we filed suit in the Circuit Court for Baltimore County against the holders of certain Subordinated Debt associated with our Gulf Coast master lease agreement, following an assertion by the holders that our prior exercise of offset rights in connection with Gulf Coast’s non-payment of rent had resulted in defaults under the terms of the Subordinated Debt.

The suit seeks a declaratory judgment to, among other items, declare that the aggregate amount of unpaid rent due from Gulf Coast under the master lease agreement exceeds all amounts which otherwise would be due and owing by Omega under the Subordinated Debt, and that all principal and interest due and owing under the Subordinated Debt are to be offset in full as of December 31, 2021.

In October 2021, the defendants in the case filed a motion to dismiss for lack of personal jurisdiction.

See Note 4 – Contractual Receivables and Other Receivables and Lease Inducements – Gulf Coast Health Care, LLC.

Lakeway Realty, L.L.C.

In September 2016, MedEquities received a Civil Investigative Demand (“CID”) from the U.S.

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

As of June 30, 2021, our maximum funding commitment under these indemnification agreements was approximately $ 8.6 million.

As of September 30, 2021, our maximum funding commitment under these indemnification agreements was approximately $ 8.5 million.

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

These indemnification agreements were provided to certain operators in connection with facility transitions and generally would be applicable in the event that the prior operators do not perform under their transition agreements.

The Company does not expect to fund a material amount under these indemnification agreements.

We have committed to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

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

Our remaining commitments at June 30, 2021, are outlined in the table below (in thousands):

Our remaining commitments at September 30, 2021, are outlined in the table below (in thousands):

Total commitments (1)

1 unchanged sentence

Remaining commitments (3)

(1) Includes our $ 177.7 million commitment relating to the redevelopment of the real estate property located in Washington, D.C.

discussed in Note 2 – Real Estate Investments.

(2) Includes finance costs.

3 unchanged sentences

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

Net income (loss)

net (income) loss attributable to noncontrolling interests

Net income (loss) available to common stockholders

Denominator for basic earnings per share

4 unchanged sentences

Earnings per share - basic:

Net income available to common stockholders

Net income (loss) available to common stockholders

Earnings per share – diluted:

Net income (loss) (1)

(1) F or 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.

NOTE 20 – 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, 2021 and 2020:

Six Months Ended June 30,

The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

(in thousands)

7 unchanged sentences

Non cash investing activities

Non cash acquisition of real estate

Non cash proceeds from sale of real estate investments

Non cash placement of mortgages

Non cash collection of mortgage principal

Non cash investment in other investments

Non cash proceeds from other investments

4 unchanged sentences

NOTE 21 – SUBSEQUENT EVENTS

On July 1, 2021, we financed six SNFs in Ohio and amended an existing $ 6.4 million mortgage to include the six facilities in a consolidated $ 72.4 million mortgage for eight Ohio facilities bearing interest at an initial rate of 10.5 % per annum.

The purchase price for these three facilities was equal to the remaining mortgage principal amount, and the three acquired Maryland facilities were subsequently leased back to the seller for a term expiring on December 31, 2032, assuming Omega exercises the options under the agreement.

The base rent in the initial year is approximately $ 5.0 million and includes annual escalators of 2.5 % .

On July 1, 2021, we also entered into a $ 12.0 million revolving credit facility agreement with this operator for working capital expenses for the eight Ohio facilities discussed above with a maturity date of June 30, 2022 .

The credit facility bears interest at 10 % per annum.

On July 14, 2021, we acquired two U.K.

facilities for $ 9.5 million and entered into a lease with an existing operator with an initial term expiring on April 23, 2027.

The base rent in the initial year is approximately $ 0.8 million and includes annual escalators of 2.5 %.

On October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

Gulf Coast operates 24 facilities subject to a master lease with Omega and represents approximately 2.6 % of Omega’s total revenues (excluding the impact of write-offs in 2021) for the nine months ended September 30, 2021.

As described in Gulf Coast’s filings with the Bankruptcy Court, we have entered into a Restructuring Support Agreement (the “Support Agreement”) that is expected to form the basis for Gulf Coast’s restructuring and liquidation.

The Support Agreement establishes a timeline (subject to Gulf Coast’s assumption of the Support Agreement with the approval of the Bankruptcy Court) for the implementation of Gulf Coast’s planned restructuring and liquidation, including the potential transition of management of the operations of the facilities to a third-party operator.

In order to provide liquidity to Gulf Coast during its chapter 11 cases, we have committed to provide up to $ 25 million of senior secured debtor-in-possession (“DIP”) financing, a portion of which funding is tied to certain milestones, including the transition of the management of the operations of the facilities.

The DIP financing is guaranteed by all debtors and is secured by liens on substantially all of their assets, including post-petition accounts receivable, subject in certain cases to other priorities.

The Bankruptcy Court has approved on an interim basis the debtors’ borrowing of up to $ 15.75 million of DIP financing.

The Bankruptcy Court has scheduled a hearing to consider approval of all borrowings available under the DIP facility on a final basis on November 12, 2021.

See Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, for additional information on the financial statement impact of Gulf Coast’s nonpayment of rent during the third quarter of 2021 and the Company’s rights with respect to certain offsetting amounts.

In October 2021, Guardian failed to make contractual rent and interest payments under its lease agreement for 26 operating facilities and on its $ 112.5 million mortgage loan agreement, bearing interest at 10.81 %, for nine facilities, due to on-going liquidity issues.

We have had discussions with Guardian regarding restructuring certain lease and mortgage loan terms but have yet to reach an agreement.

As of September 30, 2021, we had $ 7.4 million of letters of credit from Guardian as collateral which may be applied against our uncollected rent and interest receivables.

As discussed in Note 7 – Allowance for Credit Losses, during the third quarter of 2021, we reduced the risk rating on the mortgage loan from a 4 to a 5.

Guardian represents approximately 3.2 % and 3.5 % of our total revenues (excluding the impact of straight-line write-offs) for the nine months ended September 30, 2021, and 2020, respectively.

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