What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-03 · 238 added, 159 removed, 239 unchanged (62% of the section changed)

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Properties, Inc.

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

Forward-Looking Statements and Factors Affecting Future Results

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(ii) uncertainties relating to the business operations of the operators of our assets, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels;

(iii) the impact of the novel coronavirus (“COVID-19”) on our business and the business of our operators, including without limitation, the extent and duration of the COVID-19 pandemic, increased costs, staffing shortages and decreased occupancy levels experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection therewith, the ability of operators to comply with new infection control and vaccine protocols, the long-term impact of vaccination on facility infection rates, and the extent to which continued government support may be available to operators to offset such costs and the conditions related thereto;

(iii) the impact of the novel coronavirus (“COVID-19”) on our business and the business of our operators, including without limitation, the extent and duration of the COVID-19 pandemic, increased costs, staffing shortages and decreased occupancy levels experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection therewith, the ability of operators to comply with infection control and vaccine protocols, the long-term impact of vaccination on facility infection rates, and the extent to which continued government support may be available to operators to offset such costs and the conditions related thereto;

(iv) the ability of any of Omega’s operators in bankruptcy to reject unexpired lease obligations, modify the terms of Omega’s mortgages and impede the ability of Omega to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor’s obligations, and other costs and uncertainties associated with operator bankruptcies;

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particularly in the healthcare industry.

Omega was incorporated in the State of Maryland on March 31, 1992 and has elected to be taxed as a 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, Omega OP.

As of June 30, 2021, 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 Omega OP Units.

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 SNFs and 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.

Omega Healthcare Investors, Inc.

(“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 SNFs, 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 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 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.

COVID-19 Pandemic Update

For the year ended December 31, 2020 and for the first quarter of 2021, we collected substantially all of the contractual rents and mortgage interest payments owed to us from our operators (other than operators under a forbearance agreement prior to the pandemic).

However, in June 2021, we were informed by an operator, which represents approximately 3% of our revenue for the six months ended June 30, 2021 and 2020 (excluding the impact of the straight-line write-offs in 2021), that it would be unable to pay rent to us in the foreseeable future.

As of June 30, 2021, we have been unable to collect approximately $2.5 million of contractual rents due from this operator, which represents one month of contractual rent under the lease agreement, and have applied $2.5 million of the operator’s security deposit funds against their uncollected receivables.

As such, we placed the operator on a cash basis for revenue recognition based on our evaluation of the collectibility of future rent payments due under its lease agreement, and in connection with this, we wrote off approximately $17.4 million of straight-line receivables to rental income during the quarter.

We believe this operator was impacted by, among other things, reduced revenue as a result of lower occupancy and increased expenses, both as a result of the COVID-19 pandemic.

As discussed in Note 2 – Contractual Receivables and Other Receivables, we also placed a smaller operator on a cash basis in the first quarter due to collectability concerns as a result of the impacts of the COVID-19 pandemic.

With respect to our other operators, we collected substantially all contractual rents and mortgage interest payments due to us from our operators during the second quarter of 2021;

however, we remain cautious as the COVID-19 pandemic continues to have a significant impact on our operators and their financial conditions, particularly given continued uncertainty regarding the availability of sufficient government support, the persistence of staffing shortages that continue to impact our operators’ occupancy levels and profitability, and the commencement in April 2021 for many of our operators of the repayment of accelerated payments of Medicare funds that were previously received as Advanced Medicare payments in 2020.

As of July 27, 2021, our operators reported cases of COVID-19 within 153, or 16%, of our 949 operating facilities as of December 31, 2020, which includes cases involving employees and residents.

This represents a meaningful decline in cases from the 614 facilities with cases, or 64% of our 959 operating facilities, that our operators reported as of December 22, 2020, and from the 212 facilities with cases, or 22%, of our 949 operating facilities, that our operators reported as of April 27, 2021.

The COVID-19 pandemic has significantly and adversely impacted SNFs and long-term care providers due to the higher rates of virus transmission and fatality among the elderly and frail populations that these facilities serve.

As a result, many of our operators have been and may continue to be significantly impacted by the pandemic.

During the third and fourth quarters of 2020, four of our operators, including Agemo Holdings, LLC (“Agemo”) and Genesis Healthcare, Inc.

(“Genesis”), indicated in their financial statements substantial doubt regarding their ability to continue as going concerns, citing in part the impact of the COVID-19 pandemic and uncertainties regarding the continuing availability of sufficient government support.

This resulted in placing these operators on a cash basis of revenue recognition and a corresponding write-off of approximately $143.0 million in aggregate of contractual receivables, straight-line receivables, and lease inducements to rental income during fiscal year 2020.

During the nine months ended September 30, 2021, Agemo, Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) and one other operator either failed to make contractual rent or interest payments for a period or have informed us that they would be unable to pay us rent for the foreseeable future.

As of September 30, 2021, we have placed four operators, inclusive of Gulf Coast and the one other non-paying operator noted above, on a cash basis of revenue recognition during 2021 as collection of substantially all contractual lease payments with these four operators was no longer probable.

On October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the United States Bankruptcy Code.

See “Receivables, Other Investments and Operator Collectibility – Gulf Coast” below.

Additionally, in October 2021, Guardian Healthcare (“Guardian”), excluded from the discussion above, 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.

See “Portfolio and Recent Developments – Guardian” below.

We believe these operators were impacted by, among other things, reduced revenue as a result of lower occupancy and increased expenses resulting from the COVID-19 pandemic and uncertainties regarding the continuing availability of sufficient government support.

In connection with these developments, we wrote off approximately $20.8 million in aggregate of straight-line receivables to rental income for the nine months ended September 30, 2021.

Additionally, in the third quarter of 2021, we have recorded impairment charges of $16.7 million related to two loans outstanding with Agemo.

The operators that have missed rent or interest payments, stopped paying rent or that were placed on a cash basis prior to the end of the third quarter of 2021 collectively represent 7.6% and 9.3%, respectively, of our total revenues (excluding the impact of the write-offs in 2021 and 2020) for the nine months ended September 30, 2021 and 2020.

We remain cautious as the COVID-19 pandemic continues to have a significant impact on our operators and their financial conditions, particularly given continued uncertainty regarding the availability of sufficient government support, the persistence of staffing shortages that continue to impact our operators’ occupancy levels and profitability, the impact of governmental vaccine mandates for staff on these ongoing staffing shortages, other factors that may impact virus transmission in our facilities, the commencement in April 2021 for many of our operators of the repayment of accelerated payments of Medicare funds that were previously received as Advanced Medicare payments in 2020 and the expected commencement in December 2021 of repayment of deferred FICA obligations.

As of October 27, 2021, our operators reported cases of COVID-19 within 263, or 27.7%, of our 949 operating facilities as of December 31, 2020, which includes cases involving employees and residents.

This represents a meaningful decline in cases from the 614 facilities with cases, or 64% of our 959 operating facilities, that our operators reported as of December 22, 2020, but an increase from the 153 facilities with cases, or 16%, of our 949 operating facilities, that our operators reported as of July 27, 2021.

Consistent with national trends, we experienced a slight downturn in the number of COVID-19 cases in our facilities during September 2021.

We caution that we have not independently validated any such facility virus incidence information, it may be reported on an inconsistent basis by our operators, and we can provide no assurance regarding its accuracy or that there have not been any changes since the time the information was obtained from our operators;

we also undertake no duty to update this information.

While we believe the declines in reported cases noted above is due in large part to vaccination programs for COVID-19 which have been implemented in most of our facilities, it remains uncertain when and to what extent these vaccination programs 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.

Our operators have continued to report considerable variation in participation levels among both employees and residents, which we believe may change over time with additional vaccination education efforts.

While we believe the decline noted above in reported cases since late 2020 is due in large part to vaccination programs for COVID-19 which have been implemented in most of our facilities, it remains uncertain when and to what extent vaccination programs for COVID-19 and any booster doses will continue to mitigate the effects of COVID-19 in our facilities, the impact of governmental vaccine mandates for staff on ongoing staffing shortages in our facilities, other factors that impact virus transmission in our facilities, or how effective existing vaccines or booster doses will be against the 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 and booster doses in our facilities, compliance with staff vaccination requirements as well as participation levels in vaccination programs among the residents and employees of our operators.

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.

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.

These increases have been offset to some extent by increases in reimbursements due to increased skilling in place, which has been necessitated by pandemic-related protocols and which may decrease when such protocols subside.

We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay and reliance on agency staffing due to staffing shortages, 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 and the extent to which 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 the 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.

The federal government announced in August and September 2021 that it would be requiring SNF and health care workers to be vaccinated against COVID-19 and issued an emergency implementing regulation effective November 5, 2021 requiring covered health care facilities to ensure eligible staff have received a first vaccine dose as of December 5, 2021 and a second dose of a two-dose vaccine as of January 4, 2022, with certain permitted exemptions in alignment with federal law.

While we expect vaccination rates in our facilities to increase once such requirements are implemented, significant uncertainty remains regarding the potential impact such mandates may have on ongoing staffing shortages in our facilities.

In addition, our facilities, on average, have experienced declines, in some cases that are material, in occupancy levels as a result of the pandemic.

While these declines have improved on average during 2021, average occupancy has not returned to pre-pandemic levels and improvements in occupancy levels remain uneven;

it remains unclear when and the extent to which demand and occupancy levels will return to pre-COVID-19 levels.

We believe these challenges to occupancy recovery 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 the 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.

While substantial government support, primarily through the federal CARES Act in the U.S.

and distribution of PPE, vaccines and testing equipment by federal and state governments, 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 distribution of PPE, vaccines and testing equipment by federal and state governments, was allocated to SNFs and to a lesser extent to ALFs in 2020, federal relief efforts have been limited in 2021 as have relief efforts in certain states, and further government support will likely be needed to continue to offset these impacts.

It is unclear whether and to what extent such government support will continue to be sufficient and timely to offset these impacts.

In particular, it remains unclear as to whether unallocated funds under the Public Health and Social Services Emergency Fund (“Provider Relief Fund”) will be distributed to our operators in any meaningful way, whether additional funds will be added to the Provider Relief Fund or otherwise allocated to health care operators or our operators, or whether additional Medicaid funds under the recently enacted American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) in the U.S.

In particular, while $25.5 billion in federal funding for health care providers impacted by COVID-19 was announced in September 2021, it remains unclear the extent to which these funds or remaining unallocated funds under the Public Health and Social Services Emergency Fund (“Provider Relief Fund”) will be distributed to our operators in any meaningful way, whether additional funds will be added to the Provider Relief Fund or otherwise allocated to health care operators or our operators, or whether additional Medicaid funds under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) in the U.S.

will ultimately support reimbursement to our operators.

Further, to the extent the cost and occupancy impacts on our operators 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.

Citing in part the impact of the COVID-19 pandemic and uncertainties regarding the continuing availability of sufficient government support, during the third and fourth quarters of 2020, four of our operators indicated in their financial statements substantial doubt regarding their ability to continue as going concerns.

There are a number of uncertainties we face as we consider the potential impact of COVID-19 on our business, including how long census disruption and elevated COVID-19 costs will last, the impact of vaccination programs and participation levels in those programs in reducing the spread of COVID-19 in our facilities, and the extent to which funding support from the federal government and the states will continue to offset these incremental costs as well as lost revenues.

There are a number of uncertainties we face as we consider the potential impact of COVID-19 on our business, including how long census disruption and elevated COVID-19 costs will last, the impact of vaccination programs, including booster doses, and participation levels in those programs in reducing the spread of COVID-19 in our facilities, the impact of vaccine mandates on ongoing staffing shortages in our facilities, and the extent to which funding support from the federal government and the states will continue to offset these incremental costs as well as lost revenues.

Notwithstanding vaccination programs, we expect that heightened clinical protocols for infection control within facilities will continue for some period;

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While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the uncertainties to our business described above to persist at least for the near term until we can gain more information as to the level of costs our operators will continue to experience and for how long, and the level of additional governmental support that will be available to them, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior living facilities.

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

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

We continue to monitor the impacts of other regulatory changes, as discussed below, including any significant limits on the scope of services reimbursed and on reimbursement rates and fees, which could have a material adverse effect on an operator’s results of operations and financial condition, which could adversely affect the operator’s ability to meet its obligations to us.

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Department of Health and Human Services (“HHS”) declared a public health emergency on January 31, 2020 following the World Health Organization's decision to declare COVID-19 a public health emergency of international concern.

This declaration, which has been extended through October 17, 2021, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

This declaration, which has been extended through January 16, 2022, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

These regulatory actions could contribute to a change in census volumes and skilled nursing mix that may not otherwise have occurred.

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These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act enacted on March 27, 2020 and discussed below, continue to have a significant impact on the operations and financial condition of our operators.

The extent of the COVID-19 pandemic’s effect on the Company’s and our operators’ operational and financial performance will depend on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity of the outbreak, the impact of new vaccine distributions on our operators and their populations, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict.

The extent of the COVID-19 pandemic’s effect on the Company’s and our operators’ operational and financial performance will depend on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity of the outbreak, the impact of vaccine distributions and booster doses on our operators and their populations, the impact of vaccine mandates on staffing shortages at our operators, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts 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;

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Reimbursement Changes Related to COVID-19:

Federal Stimulus Funds, through the CARES Act and Provider Relief Fund, Appropriating $178 billion to Health Care Providers.

In response to the pandemic, Congress enacted a series of economic stimulus and relief measures throughout 2020.

Federal Stimulus Funds and Financial Assistance for Health Care Providers.

In response to the pandemic, Congress has enacted a series of economic stimulus and relief measures.

On March 18, 2020, the Families First Coronavirus Response Act was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s Medicaid Federal Medical Assistance Percentage (“FMAP”) effective January 1, 2020.

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States will make individual determinations about how this additional Medicaid reimbursement will be applied to SNFs, if at all.

In a further response to the pandemic, the CARES Act authorized approximately $178 billion to be distributed through the Provider Relief Fund to reimburse eligible healthcare providers for health care related expenses or lost revenues that are attributable to coronavirus.

In further response to the pandemic, in 2020, the CARES Act authorized approximately $178 billion to be distributed through the Provider Relief Fund to reimburse eligible healthcare providers for health care related expenses or lost revenues that are attributable to coronavirus, and in September 2021, HHS announced the availability of $25.5 billion in provider funding through the CARES Act and American Rescue Plan Act.

The Provider Relief Fund is administered under the broad authority and discretion of HHS and recipients are not required to repay distributions received to the extent they are used in compliance with applicable requirements.

HHS began distributing Provider Relief Fund grants in April 2020 and has made grants available to various provider groups in three general phases.

HHS began distributing Provider Relief Fund grants in April 2020 and has made grants available to various provider groups in four general phases.

In May 2020, HHS announced that approximately $9.5 billion in targeted distributions would be made available to eligible skilled nursing facilities, approximately $2.5 billion of which were composed of performance-based incentive payments tied to a facility’s infection rate.

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however, these funds are limited to rural providers and suppliers.

As of March 15, 2021, based on data published by HHS, it appears that less than $29 billion of the Provider Relief Fund remains unallocated.

HHS continues to evaluate and provide allocations of, and issue regulations and guidance regarding, grants made under the CARES Act and related legislation.

There are substantial uncertainties regarding the extent to which our operators will receive funds which have not been allocated, whether additional funds will be allocated to the Provider Relief Fund, health care providers or senior care providers and whether additional payments will be distributed to providers, the financial impact of receiving any of these funds on their operations or financial condition, and whether operators will be able to meet the compliance requirements associated with the funds.

In September 2021, HHS announced the release of $25.5 billion of funding, including $17 billion in Phase 4 Provider Relief Fund payments for a broad range of healthcare providers who can document revenue loss and expenses associated with the pandemic between July 1, 2020 and March 31, 2021, as well as release of the $8.5 billion in funding for rural providers, including those with Medicaid and Medicare patients.

In addition, in September 2021, the CDC announced it would allocate $500 million to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.

Given that HHS has announced that a portion of the Provider Relief Fund is being allocated to reimbursement of the testing, treatment and vaccination of uninsured patients, it remains unclear the extent to which any additional amounts from the Provider Relief Fund will be released to support healthcare providers.

In general, there are substantial uncertainties regarding the extent to which our operators will receive funds under the additional funding announced in September 2021, or will receive funds which have not been allocated, whether additional funds will be allocated to the Provider Relief Fund, health care providers or senior care providers and whether additional payments will be distributed to providers, the financial impact of receiving any of these funds on their operations or financial condition, and whether operators will be able to meet the compliance requirements associated with the funds.

HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

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Quality of Care Initiatives and Additional Requirements Related to COVID-19:

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and the first quarter of 2021 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.

For example, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds and the implementation of new quality measures.

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and 2021 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.

In August 2021, CMS announced it was developing an emergency regulation requiring staff vaccinations within the nation’s more than 15,000 Medicare and Medicaid-participating nursing homes, and in September 2021, CMS further announced that the scope of the regulation will be expanded to include workers in hospitals, dialysis facilities, ambulatory surgical settings, and home health agencies.

In addition, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds and the implementation of new quality measures.

Although the American Rescue Plan Act did not allocate specific funds to SNF or assisted living facility providers, approximately $200 million was allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs and $500 million has been allocated by the CDC to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.

On June 16, 2020, the U.S.

House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation into the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic.

The Select Subcommittee continued to be active throughout the remainder of 2020 and the first quarter of 2021.

The Select Subcommittee continued to be active throughout the remainder of 2020 and the third quarter of 2021.

In March 2021, the Oversight Subcommittee of the House Ways and Means Committee held a hearing on examining the impact of private equity in the U.S.

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In Texas in particular, several of our operators have historically experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs.

Our operators in Texas may also be adversely impacted by the expected expiration, upon expiration of the federally declared public health emergency, of an add-on by the state to the daily reimbursement rate for Medicaid patients during the pandemic.

In Florida, added support to our operators during the pandemic has generally been limited, and our operators in the state may be additionally adversely impacted by the scheduled expiration in December 2021 of a three-year temporary Medicaid reimbursement rate increase by the state.

Our operators in Texas may also be adversely impacted by the expected expiration, to be effective upon expiration of the federally declared public health emergency, of an add-on by the state to the daily reimbursement rate for Medicaid patients during the pandemic.

In Florida, while added support to our operators during the pandemic has generally been limited, we expect our operators in the state may receive some additional support through the state’s approval on November 4, 2021, of approximately $100 million in additional FMAP funds for nursing homes, to be distributed through increased Medicaid rates over a three-month period .

Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement or an increase in the percentage of Medicaid patients has in the past and may in the future adversely affect our operators’ results of operations and financial condition, which in turn could adversely impact us.

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Given the ongoing impacts of COVID-19, many operators are and may continue to be restricted from pursuing concurrent and group therapy and unable to realize these benefits.

Additionally, our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act, which became effective on October 1, 2018.

These reimbursement changes have had and may, together with any further reimbursement changes to PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.

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An adverse resolution of any of these enforcement activities or investigations incurred by our operators may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on their reputation, business, results of operations and cash flows.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S.

Our preparation of the financial statements requires us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and accompanying footnotes.

Future events and their effects cannot be determined with absolute certainty.

Therefore, the determination of estimates requires the exercise of judgment.

Actual results inevitably will differ from those estimates, and such differences may be material to the consolidated financial statements.

We have described our accounting policies in Note 2 – Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our critical accounting policies or estimates since December 31, 2020.

Results of Operations

The following is our discussion of the consolidated results of operations, financial position and liquidity and capital resources, which should be read in conjunction with our unaudited consolidated financial statements and accompanying notes.

Three Months Ended June 30, 2021 and 2020

Our revenues for the three months ended June 30, 2021 totaled $257.4 million, an increase of approximately $1.0 million over the same period in 2020.

The $1.0 million increase was primarily the result of (i) a $30.4 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions and (ii) a $3.2 million increase in mortgage interest income and other investment income primarily related to new and refinanced mortgages or notes and additional funding to existing operators offset by principal payments.

These increases were partially offset by (i) a $21.5 million decrease in rental income primarily resulting from placing certain operators on a cash basis for revenue recognition, (ii) a $2.4 million decrease in rental income resulting from the acceleration of certain in-place lease liabilities, (iii) a $6.8 million decrease in rental income resulting from facility sales and facility transitions and (iv) a $1.6 million decrease in miscellaneous income which is primarily related to an operator’s late fees and reduced management fees.

Expenses for the three months ended June 30, 2021 totaled $175.1 million, an increase of approximately $7.1 million over the same period in 2020.

The $7.1 million increase was primarily due to:

(i) a $3.5 million increase in provision for credit losses primarily resulting from a $4.5 million reserve related to a term loan, (ii) a $3.6 million increase in interest expense primarily resulting from the issuance during the fourth quarter of 2020 of the $700 million of Senior Notes due 2031 and the issuance during the first quarter of 2021 of the $700 million of Senior Notes due 2033, partially offset by the retirement of term loans in the fourth quarter of 2020 and (iii) a $2.2 million increase in depreciation expense primarily resulting from facility acquisitions and capital additions, offset by facility sales and facilities reclassified to assets held for sale.

These increases were partially offset by a $3.2 million decrease in impairment on real estate properties related to three facilities in the second quarter of 2021 compared to 10 facilities during the same period in 2020.

Three Months Ended September 30, 2021 and 2020

Our revenues for the three months ended September 30, 2021 totaled $281.7 million, an increase of approximately $162.5 million over the same period in 2020.

The $162.5 million increase was primarily the result of (i) a $142.2 million increase in rental income due to a net reduction in straight-line rent receivable and lease inducement write-offs in 2021 following significant write-offs associated with Agemo and Genesis in the third quarter of 2020 as a result of placing these operators on a cash basis for revenue recognition and (ii) a $28.1 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions.

These increases were partially offset by (i) a $2.6 million decrease in rental income resulting from the acceleration of certain in-place lease liabilities, (ii) a $1.1 million decrease in rental income due to facility sales and (iii) a $1.5 million decrease in mortgage interest income and other investment income primarily related to loan settlements, and principal payments made against outstanding loans.

Expenses for the three months ended September 30, 2021 totaled $194.2 million, a decrease of approximately $18.0 million over the same period in 2020.

The $18.0 million decrease was primarily due to:

(i) a $6.6 million decrease in provision for credit losses primarily as a result of lower reserves taken against loans outstanding to Agemo (see Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Receivables, Other Investments and Operator Collectibility– Agemo) in the third quarter of 2021 compared to the same period in 2020 and (ii) a $23.2 million decrease in impairment on real estate properties related to six facilities in the third quarter of 2021 compared to seven facilities during the same period in 2020.

These decreases were partially offset by (i) a $5.0 million increase in depreciation expense primarily resulting from facility acquisitions and capital additions, offset by facility sales and facilities reclassified to assets held for sale and (ii) a $4.7 million increase in interest expense primarily resulting from the issuance during the fourth quarter of 2020 of the $700 million of Senior Notes due 2031 and the issuance during the first quarter of 2021 of the $700 million of Senior Notes due 2033, partially offset by the retirement of term loans in the fourth quarter of 2020 and lower average borrowings under the revolving credit facility.

Other Income (Expense)

For the three months ended June 30, 2021, total other income was $4.3 million, a decrease of approximately $8.7 million over the same period in 2020.

The decrease was mainly due to an $8.7 million decrease in gain on assets sold related to the sale of six facilities in the second quarter of 2021 compared to the sale of 15 facilities during the same period in 2020.

Six Months Ended June 30, 2021 and 2020

Our revenues for the six months ended June 30, 2021 totaled $531.2 million, an increase of approximately $21.8 million over the same period in 2020.

The $21.8 million increase was primarily the result of (i) a $54.7 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions and (ii) an $8.2 million increase in mortgage interest income and other investment income primarily related to new and refinanced mortgages or notes and additional funding to existing operators.

These increases were partially offset by (i) a $29.4 million decrease in rental income resulting from operators placed on a cash basis for revenue recognition, (ii) a $5.3 million decrease in rental income resulting from facility sales and facility transitions, and (iii) a $2.1 million decrease in miscellaneous income which is primarily related to an operator’s late fees and reduced management fees.

Expenses for the six months ended June 30, 2021 totaled $366.3 million, an increase of approximately $36.0 million over the same period in 2020.

For the three months ended September 30, 2021, total other income was $54.8 million, an increase of approximately $56.5 million over the same period in 2020.

The decrease was mainly due to a $56.9 million increase in gain on assets sold related to the sale of 15 facilities in the third quarter of 2021 compared to the sale of six facilities during the same period in 2020.

Nine Months Ended September 30, 2021 and 2020

Our revenues for the nine months ended September 30, 2021 totaled $812.9 million, an increase of approximately $184.3 million over the same period in 2020.

The $184.3 million increase was primarily the result of (i) a $123.7 million increase in rental income due to a net reduction in straight-line rent receivable and lease inducement write-offs in 2021 following significant write-offs associated with Agemo and Genesis in the third quarter of 2020 as a result of placing these operators on a cash basis for revenue recognition, (ii) a $83.1 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions and (iii) an $6.7 million increase in mortgage interest income and other investment income primarily due to new and refinanced mortgages and notes and additional funding to existing operators partially offset by principal payments.

These increases were partially offset by (i) a $25.9 million decrease in rental income resulting from not recording straight-line rent for operators placed on a cash basis for revenue recognition in 2020 and facility sales and (ii) a $2.0 million decrease in miscellaneous income which is primarily related to an operator’s late fees and reduced management fees.

Expenses for the nine months ended September 30, 2021 totaled $560.4 million, an increase of approximately $18.0 million over the same period in 2020.

The $18.0 million increase was primarily due to:

(i) a $21.9 million increase in impairment on real estate properties related to seven facilities compared to 13 facilities during the same period in 2020, (ii) a $6.9 million increase in interest expense primarily resulting from the issuance during the fourth quarter of 2020 of the $700 million of Senior Notes due 2031 and the issuance during the first quarter of 2021 of the $700 million of Senior Notes due 2033, partially offset by the retirement of term loans in the fourth quarter of 2020, (iii) a $4.4 million increase in depreciation expense primarily resulting from facility acquisitions and capital additions, offset by facility sales and facilities reclassified to assets held for sale (discussed in further detail below), (iv) a $1.8 million increase in acquisition, merger and transition related costs primarily resulting from the Daybreak transition, and (v) a $1.0 million increase in provision for credit losses primarily resulting from a $4.5 million reserve related to a term loan, increases in loan balances and increases in average time to maturity offset by decreases in loss rates compared to the same period in 2020.

(i) a $11.6 million increase in interest expense primarily resulting from the issuance during the fourth quarter of 2020 of the $700 million of Senior Notes due 2031 and the issuance during the first quarter of 2021 of the $700 million of Senior Notes due 2033, partially offset by the retirement of term loans in the fourth quarter of 2020 and lower average borrowings under the credit facility, (ii) a $9.4 million increase in depreciation expense primarily resulting from facility acquisitions and capital additions, offset by facility sales and facilities reclassified to assets held for sale (discussed in further detail below) and (iii) a $1.8 million increase in acquisition, merger and transition related costs primarily resulting from transitioning 14 facilities and selling 4 facilities associated with Daybreak Ventures, LLC (“Daybreak”).

These increases were partially offset by (i) a $1.3 million decrease in impairment on real estate properties related to 13 facilities compared to 18 facilities during the same period in 2020 and (ii) a $5.6 million decrease in provision for credit losses as a result of lower reserves taken against loans outstanding to Agemo (see Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Receivables, Other Investments and Operator Collectibility – Agemo) in the third quarter of 2021 compared to the same period in 2020.

Other Income (Expense)

For the six months ended June 30, 2021, total other income was $75.2 million, an increase of approximately $61.2 million over the same period in 2020.

For the nine months ended September 30, 2021, total other income was $129.9 million, an increase of approximately $117.6 million over the same period in 2020.

The increase was mainly due to a $146.7 million increase in gain on assets sold related to the sale of 45 facilities compared to the sale of 27 facilities during the same period in 2020 offset by a $29.8 million increase in loss on debt extinguishment primarily related to fees, premiums, and expenses related to the purchase of $350 million of the 4.375% Senior Notes due 2023 during the first quarter of 2021.

National Association of Real Estate Investment Trusts Funds From Operations

Our funds from operations (“Nareit FFO”) for the three months ended June 30, 2021 was $180.8 million compared to $186.5 million for the same period in 2020.

Our Nareit FFO for the six months ended June 30, 2021 was $351.1 million compared to $367.5 million for the same period in 2020.

We calculate and report Nareit FFO in accordance with the definition of Funds from Operations and interpretive guidelines issued by the National Association of Real Estate Investment Trusts (“Nareit”), and, consequently, Nareit FFO is defined as net income (computed in accordance with GAAP), adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairment on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures and changes in the fair value of warrants.

We use funds from operations (“Nareit FFO”), a non-GAAP financial measure, as one of several criteria to measure the operating performance of our business.

Nareit FFO is defined as net income (computed in accordance with GAAP), adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairment on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures and changes in the fair value of warrants.

Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis.

Revenue recognized based on the application of security deposits and letters of credit or based on the ability to offset against other financial instruments is included within Nareit FFO.

We believe that Nareit FFO is an important supplemental measure of our operating performance.

Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions.

As real estate assets (except land) are depreciated under GAAP, such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions.

Nareit FFO was designed by the real estate industry to address this issue.

Nareit FFO herein is not necessarily comparable to Nareit FFO of other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us.

Nareit FFO is a non-GAAP financial measure.

We use Nareit FFO as one of several criteria to measure the operating performance of our business.

We further believe that by excluding the effect of depreciation, amortization, impairment on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Nareit FFO can facilitate comparisons of operating performance between periods and between other REITs.

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Investors and potential investors in our securities should not rely on this measure as a substitute for any GAAP measure, including net income.

The following table presents our Nareit FFO results for the three and six months ended June 30, 2021 and 2020:

The following table presents our Nareit FFO results for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Deduct gain from real estate dispositions

(in thousands)

Net income (loss) (1)(2)

(Deduct gain) add back loss from real estate dispositions

Add back loss (deduct gain) from real estate dispositions - unconsolidated joint ventures

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Add back impairments on real estate properties - unconsolidated joint ventures

(Deduct) add back unrealized (gain) loss on warrants

Add back unrealized loss on warrants

(1) The three and nine months ended September 30, 2021 includes the application of $9.3 million and $11.7 million, respectively, of Agemo and Gulf Coast security deposits (letter of credit and cash deposits) in revenue.

(2) The three and nine months ended September 30, 2021 includes $6.5 million of revenue related to Gulf Coast recognized based on our ability to offset uncollected rent against the interest and principal (in the fourth quarter) of certain debt obligations of Omega.

Portfolio and Recent Developments

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

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

(in millions)

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AZ, CA, FL, IL, NJ, OR, PA, TN, TX, VA, WA

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

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

(2) On January 20, 2021, we acquired 24 facilities from Healthpeak Properties, Inc.

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

Other Recent Developments

On July 1, 2021, the Company 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.

In conjunction with this transaction, the Company also acquired three Maryland facilities that were previously subject to a mortgage issued by the Company bearing interest at 13.75% per annum with a principal balance of $36.0 million.

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 Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Commitments).

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%.

On July 1, 2021, the Company 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, the Company 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%.

Asset Sales, Impairments, Contractual Receivables and Other Receivables and Lease Inducements

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.

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.

As of June 30, 2021, we have nine facilities and one parcel of land, totaling $35.3 million, classified as assets held for sale.

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 extend 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.

Other Recent Developments

During the second quarter of 2021, Gulf Coast stopped paying contractual rent under its master lease agreement for 24 facilities because of on-going liquidity issues.

On October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the United States Bankruptcy Code.

See “Receivables, Other Investments and Operator Collectibility – Gulf Coast” below.

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.

Asset Sales and Impairments

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.

As of September 30, 2021, we have 11 facilities and one parcel of land, totaling $21.5 million, classified as assets held for sale.

We expect to sell these facilities over the next twelve months.

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

During the second quarter of 2021, we recorded impairments on real estate properties of approximately $8.8 million on three facilities (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).

Contractual Receivables, Other Receivables and Lease Inducements

During the first quarter of 2021, we transitioned 14 Daybreak facilities to existing operators and sold two Daybreak facilities.

During the second quarter of 2021, we sold the two remaining Daybreak facilities.

The total annual rent or rent equivalents achieved through transitioning the Daybreak portfolio equal $16.6 million.

On April 6, 2021, we terminated the Daybreak master lease and exited that relationship.

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).

Receivables, Other Investments and Operator Collectibility

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

September 30,

(in thousands)

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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.

Other Investments

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.

During the first quarter of 2021, we transitioned 14 Daybreak Ventures, LLC (“Daybreak”) facilities to existing operators and sold two Daybreak facilities.

During the second quarter of 2021, we sold the two remaining Daybreak facilities.

The total annual rent or rent equivalents achieved through transitioning the Daybreak portfolio equal $16.6 million.

On April 6, 2021, we terminated the Daybreak master lease and exited that relationship.

In August and September 2021, 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.

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 related to this operator 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.

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.

During the second quarter of 2021, Gulf Coast stopped paying contractual rent under its master lease agreement for 24 facilities because of on-going liquidity issues.

As discussed below, 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 related to Gulf Coast 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.

As noted above, 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”).

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.

Omega’s collection of unpaid rent due from Gulf Coast, repayment of the DIP financing and ability to offset unpaid rent against amounts due under third-party debt are subject to risks.

These include limits that may be applied by the Bankruptcy Court to Omega’s ability to enforce its master lease, the Support Agreement, and DIP financing terms, including any potential caps imposed by the Bankruptcy Code on Omega’s rent claims, and the other risks described under the caption “The bankruptcy or insolvency of our operators could limit or delay our ability to recover on our investments” in Part I, Item1A – Risk Factors of our Form 10-K for the year ended December 31, 2020.

Omega’s ability to transfer and/or sell the leased facilities to third parties may be subject to delays that Omega cannot control.

If Omega is unable to transfer and/or sell the leased facilities in a timely manner or for sufficient consideration, we may experience a material adverse effect on our properties, operations, or business.

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 related to these operators in 2021) for the nine months ended September 30, 2021 and 2020.

We continue to closely monitor the performance of all of our operators, as well as industry trends and developments generally.

Liquidity and Capital Resources

At June 30, 2021, we had total assets of $9.8 billion, total equity of $4.2 billion and debt of $5.3 billion, representing approximately 55.9% of total capitalization.

At September 30, 2021, we had total assets of $9.8 billion, total equity of $4.2 billion and debt of $5.3 billion, representing approximately 55.7% of total capitalization.

Financing Activities and Borrowing Arrangements

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In connection with this transaction, we recorded approximately $29.7 million in related fees, premiums, and expenses which were recorded as Loss on debt extinguishment in our Consolidated Statement of Operations.

$400 Million Forward Starting Swaps

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.

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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

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 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 there 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.

Supplemental Guarantor Information

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at June 30, 2021 that were registered under the Securities Act of 1933, as amended.

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at September 30, 2021 that were registered under the Securities Act of 1933, as amended.

The senior notes are guaranteed by Omega OP.

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However, the guarantees are effectively subordinated to any secured debt of Omega OP.

As of June 30, 2021, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

As of September 30, 2021, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

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 table below presents information regarding 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.

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 table below presents information regarding 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

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)

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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 Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Portfolio and Recent Developments.

(2) Includes finance costs.

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To the extent that we do not distribute all of our net capital gain or do distribute at least 90%, but less than 100% of our “REIT taxable income” as adjusted, we will be subject to tax thereon at regular ordinary and capital gain corporate tax rates.

For the six months ended June 30, 2021, we paid dividends of approximately $316.5 million to our common stockholders.

For the nine months ended September 30, 2021, we paid dividends of approximately $477.1 million to our common stockholders.

On February 16, 2021, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 8, 2021.

On May 17, 2021, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on May 3, 2021.

On August 13, 2021, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on August 2, 2021.

On November 15, 2021, we will pay dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on November 5, 2021.

We believe our liquidity and various sources of available capital, including cash from operations, our existing availability under our credit facilities, existing equity sales programs, facility sales and expected proceeds from mortgage and other investment payoffs are adequate to finance operations, meet recurring debt service requirements and fund future investments through the next twelve months.

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Changes in the capital markets environment may impact the availability of cost-effective capital and affect our plans for acquisition and disposition activity.

Cash, cash equivalents and restricted cash totaled $104.6 million as of June 30, 2021, a decrease of $63.0 million as compared to the balance at December 31, 2020.

Cash, cash equivalents and restricted cash totaled $106.0 million as of September 30, 2021, a decrease of $61.6 million as compared to the balance at December 31, 2020.

The following is a discussion of changes in cash, cash equivalents and restricted cash due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows.

Operating Activities – Operating activities generated $378.3 million of net cash flow for the six months ended June 30, 2021, as compared to $329.4 million for the same period in 2020, an increase of $48.9 million, which is primarily driven by an increase of $45.9 million of net income, adjusted for non-cash items, due to revenue growth as a result of facility acquisitions and transitions, investments in mortgages and other investments.

Operating Activities – Operating activities generated $565.6 million of net cash flow for the nine months ended September 30, 2021, as compared to $510.9 million for the same period in 2020, an increase of $54.7 million, which is primarily driven by an increase of $59.4 million of net income, adjusted for non-cash items, due to revenue growth as a result of facility acquisitions and transitions, investments in mortgages and other investments.

A $4.7 million change in the net movements of the operating assets and liabilities, primarily driven by a reduction in lease inducements provided to our operators, also contributed to the overall increase in cash provided by operating activities.

Investing Activities – Net cash flow from investing activities was an outflow of $387.1 million for the six months ended June 30, 2021, as compared to an outflow of $96.7 million for the same period in 2020.

The $290.4 million change in cash flow from investing activities related primarily to (i) a $579.0 million increase in real estate acquisitions and (ii) a $8.5 million increase in investments in unconsolidated joint ventures, offset by (i) a $145.1 million increase in proceeds from the sales of real estate investments, (ii) a $79.6 million increase in mortgages collections, net of placements, (iii) a $38.5 million decrease in investment in construction in progress and capital expenditures, (iv) a $27.4 million increase in other investment proceeds, net of new investments, (v) a $3.1 million increase in receipts from insurance proceeds and (vi) a $2.5 million refund of an acquisition related deposit in the first quarter of 2021.

Financing Activities – Net cash flow from financing activities was an outflow of $54.3 million for the six months ended June 30, 2021, as compared to an outflow of $224.1 million for the same period in 2020.

The $169.8 million change in cash provided by financing activities was primarily related to (i) a $148.9 million increase in cash proceeds from the issuance of common stock in 2021, as compared to the same period in 2020, (ii) a $73.5 million increase in net proceeds from our dividend reinvestment plan in 2021, as compared to the same period in 2020 and (iii) $7.8 million increase in proceeds from other long-term borrowings, net of repayments offset by (i) a $48.1 million increase in payment of financing related costs and (ii) a $9.4 million increase in dividends paid.

Investing Activities – Net cash flow from investing activities was an outflow of $452.2 million for the nine months ended September 30, 2021, as compared to an outflow of $56.0 million for the same period in 2020.

The $396.2 million change in cash flow from investing activities related primarily to (i) a $588.7 million increase in real estate acquisitions driven by the acquisition of 24 senior living facilities from Healthpeak Properties, Inc.

for $511.3 million in the first quarter of 2021, (ii) a $8.3 million increase in investments in unconsolidated joint ventures and (iii) a $31.9 million increase in investment in construction in progress and capital expenditures, offset by (i) a $193.7 million increase in proceeds from the sales of real estate investments, (ii) a $15.9 million increase in mortgages collections, net of placements, (iii) $14.6 million increase in other investment proceeds, net of new investments, (iv) a $5.6 million increase in receipts from insurance proceeds and (v) a $2.5 million refund of an acquisition related deposit in the first quarter of 2021.

Financing Activities – Net cash flow from financing activities was an outflow of $175.0 million for the nine months ended September 30, 2021, as compared to an outflow of $447.5 million for the same period in 2020.

The $272.5 million change in cash flow from financing activities was primarily related to (i) a $271.0 million increase in cash proceeds from the issuance of common stock in 2021 due to increased issuances under our Dividend Reinvestment and Common Stock Purchase Plan and our 2015 and 2021 ATM Programs, as compared to the same period in 2020 and (ii) $70.6 million increase in proceeds from other long-term borrowings, net of repayments offset by (i) a $48.0 million increase in payment of financing related costs and (ii) a $17.3 million increase in dividends paid .

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S.

Our preparation of the financial statements requires us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and accompanying footnotes.

Future events and their effects cannot be determined with absolute certainty.

Therefore, the determination of estimates requires the exercise of judgment.

Actual results inevitably will differ from those estimates, and such differences may be material to the consolidated financial statements.

We have described our accounting policies in Note 2 – Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our critical accounting policies or estimates since December 31, 2020.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

During the quarter ended June 30, 2021, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020.

During the quarter ended September 30, 2021, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020.

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 2. Management’s Discussion and Analysis