Item 9A. Controls and Procedures
Item 9A – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Form 10-K as of and for the year ended December 31, 2021, management evaluated the effectiveness of the design and operation of disclosure controls and procedures of the Company as of December 31, 2021. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company were effective at the reasonable assurance level as of December 31, 2021.
48
Table of Contents
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
In connection with the preparation of this Form 10-K, our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making that assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (“2013 framework”). Based on management’s assessment, management believes that, as of December 31, 2021, the Company’s internal control over financial reporting was effective based on those criteria.
The independent registered public accounting firm’s attestation reports regarding the Company’s internal control over financial reporting is included in the 2021 financial statements under the caption entitled Report of Independent Registered Public Accounting Firm and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2021 identified in connection with the evaluation of their disclosure controls and procedures described above that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Item 9B – Other Information
On February 2, 2022, we issued an earnings release reporting our financial and operating results for the fourth quarter and full year ended December 31, 2021. A copy of the earnings release was furnished to the SEC as Exhibit 99.1 to our Current Report on Form 8-K on February 2, 2022. The earnings release inadvertently included an error in the table presenting the tax treatment of 2021 dividends paid to shareholders. Specifically, for all dividends paid in 2021 (on February 16th, May 17th, August 13th and November 15th) the correct percentage of dividends taxable as a return on capital was 4.3802% (rather than 21.4776% stated in the earnings release) and the correct percentage of dividends taxable as a capital gain was 21.4776% (rather than 4.3802% stated in the earnings release). This inadvertent error had no impact on our financial statements or operating results reported in the earnings release. Additionally, this information was correctly included in the 1099 forms provided to shareholders and on our website at www.omegahealthcare.com under the “Investor Relations” tab under “Dividend Taxation.” A corrected earnings release is posted on our website under the “Investors Relations” tab under “Press Releases”.
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Table of Contents
PART III
Item 10 – Directors, Executive Officers of the Registrant and Corporate Governance
The information required by this item is incorporated herein by reference to our Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
For information regarding executive officers of our Company, see Item 1 – Business – Information about our Executive Officers.
Code of Business Conduct and Ethics
We have adopted a written Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all of our directors and employees, including our chief executive officer, chief financial officer, chief accounting officer and controller. A copy of our Code of Ethics is available on our website at www.omegahealthcare.com. Any amendment to our Code of Ethics or any waiver of our Code of Ethics that is required to be disclosed will be provided on our website at www.omegahealthcare.com promptly following the date of such amendment or waiver.
Item 11 – Executive Compensation
The information required by this item is incorporated herein by reference to our Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to our Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A, except as set forth below.
The following table provides information about shares available for future issuance under our equity compensation plans as of December 31, 2021:
Equity Compensation Plan Information
(c)
Number of securities
(a)
(b)
remaining available for
Number of securities to
Weighted-average
future issuance under
be issued upon exercise
exercise price of
equity compensation plans
of outstanding options,
outstanding options,
excluding securities
Plan category
warrants and rights (1)
warrants and rights (2)
reflected in column (a) (3)
Equity compensation plans approved by security holders
3,125,423
$
—
3,321,935
Equity compensation plans not approved by security holders
—
—
—
Total
3,125,423
$
—
3,321,935
(1) Reflects (i) 272,752 time-based restricted stock units (“RSUs”) and profit interest units (“PIUs”), (ii) 2,222,048 shares related to performance-based RSUs ( “PRSUs”) and performance-based PIUs that could be issued if certain performance conditions are achieved and (iii) 630,623 shares in respect of outstanding deferred stock units.
(2) No exercise price is payable with respect to the RSUs and PRSUs.
(3) Reflects (i) 2,838,290 shares of common stock under our 2018 Stock Incentive Plan and (ii) 483,645 shares of common stock under the Omega Healthcare In vestors, Inc. Employee Stock Purchase Plan.
Item 13 – Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to our Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
Item 14 – Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to our Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
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PART IV
Item 15 – Exhibits and Financial Statement Schedules
(a)(1) Listing of Consolidated Financial Statements
Title of Document
Page
Number
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 )
F-1
Consolidated Financial Statements of Omega Healthcare Investors, Inc.
Consolidated Balance Sheets as of December 31, 2021 and 2020
F-5
Consolidated Statements of Operations for the three years ended December 31, 2021
F-6
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2021
F-7
Consolidated Statements of Changes in Equity for the three years ended December 31, 2021
F-8
Consolidated Statements of Cash Flows for the three years ended December 31, 2021
F-9
Notes to Consolidated Financial Statements
F-10
(a)(2) Listing of Financial Statement Schedules. The following consolidated financial statement schedules are included herein:
Schedule II – Valuation and Qualifying Accounts
F-62
Schedule III – Real Estate and Accumulated Depreciation
F-63
Schedule IV – Mortgage Loans on Real Estate
F-65
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or have been omitted because sufficient information has been included in the notes to the Consolidated Financial Statements.
(a)(3) Listing of Exhibits — See “ Index to Exhibits ” beginning on Page I-1 of this report.
(b)
Exhibits — See “ Index to Exhibits ” beginning on Page I-1 of this report.
(c)
Financial Statement Schedules — The following consolidated financial statement schedules are included herein:
Schedule II —Valuation and Qualifying Accounts
Schedule III — Real Estate and Accumulated Depreciation
Schedule IV — Mortgage Loans on Real Estate
Item 16 – Form 10-K Summary
None.
51
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Omega Healthcare Investors, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Omega Healthcare Investors, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2022 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-13
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for the measurement of credit losses on financial instruments in 2020 due to the adoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
F-1
Table of Contents
Collectibility of future lease payments
Description of the Matter
The Company recognized rental income of $924 million during 2021. As described in Note 2 to the consolidated financial statements, the timing and pattern of rental income recognition for operating leases is affected by the Company’s determination as to whether the collectibility of lease payments is probable.
Auditing the Company's accounting for rental income is complex due to the judgment involved in the Company’s determination of the collectibility of future lease payments from its operators. The determination involves consideration of the lessee’s payment history and recent payment trends, an assessment of the financial strength of the lessees and guarantors, where applicable, future contractual rents, historical and projected operating results of the lessees in such properties, and the timing of expected payments.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over the recognition of rental income, including controls over management’s assessment of the collectibility of future lease payments. For example, we tested controls over management’s consideration of the factors used in assessing collectibility and controls over the completeness and accuracy of the data used in management’s analyses.
To test the rental income recognized, we performed audit procedures that included, among others, evaluating the collectibility of lease payments. For example, we assessed the operators’ historical operating results in the properties, the financial condition of the operators and payment trends for a sample of operators. We also considered whether other information obtained throughout the course of our audit procedures corroborated or contradicted management’s analysis. In addition, we tested the completeness and accuracy of the data that was used in management’s analyses.
Accounting for acquisitions
Description of the Matter
As described in Note 2 to the financial statements, the Company invested $662.6 million in asset acquisitions, including the acquisition of the Healthpeak Properties, Inc. portfolio for $511.3 million.
Auditing the Company's accounting for its acquisitions was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of the acquired assets and liabilities, including the acquired properties and assumed lease. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to the underlying significant assumptions utilized in the measurement of the fair value of the acquired properties and lease. The Company used discounted cash flow analyses, market comparable data, and replacement cost data, to estimate the fair value of the acquired properties and assumed lease. The significant assumptions used to estimate the fair value of the acquired properties and assumed lease included lease coverage ratios, lease yields, market rents, land values per acre, discount rates, and replacement costs of furniture, fixtures, and equipment. Certain of these significant assumptions include consideration of future economic and market conditions.
F-2
Table of Contents
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls over the Company’s accounting for acquisitions. For example, we tested controls over the measurement of the acquired properties and assumed leases, including management’s review of the appropriateness of the valuation methodology and assumptions used in the valuation models.
To test the estimated fair value of the acquired properties and assumed lease, we involved our valuation specialists and performed procedures including, among others, evaluating the Company’s valuation methodology and testing the significant assumptions. For example, we compared the significant assumptions used to independent third-party data and the Company’s recent lease and acquisition transactions. Additionally, we tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates including through comparison to the related lease agreements.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1992.
Baltimore, Maryland
February 17, 2022
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Omega Healthcare Investors, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Omega Healthcare Investors, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Omega Healthcare Investors, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Omega Healthcare Investors, Inc. as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) and our report dated February 17, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Baltimore, Maryland
February 17, 2022
F-4
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31,
2021
2020
ASSETS
Real estate assets
Buildings and improvements
$
7,448,126
$
7,269,596
Land
916,328
883,765
Furniture and equipment
511,271
518,664
Construction in progress
74,062
30,129
Total real estate assets
8,949,787
8,702,154
Less accumulated depreciation
( 2,160,696 )
( 1,996,914 )
Real estate assets – net
6,789,091
6,705,240
Investments in direct financing leases – net
10,873
10,764
Mortgage notes receivable – net
835,086
885,313
7,635,050
7,601,317
Other investments – net
469,884
467,442
Investments in unconsolidated joint ventures
194,687
200,638
Assets held for sale
261,151
81,452
Total investments
8,560,772
8,350,849
Cash and cash equivalents
20,534
163,535
Restricted cash
3,877
4,023
Contractual receivables – net
11,259
10,408
Other receivables and lease inducements
251,815
234,666
Goodwill
651,417
651,737
Other assets
138,804
82,231
Total assets
$
9,638,478
$
9,497,449
LIABILITIES AND EQUITY
Revolving credit facility
$
—
$
101,158
Secured borrowings
362,081
369,524
Senior notes and other unsecured borrowings – net
4,891,455
4,698,570
Accrued expenses and other liabilities
268,516
280,824
Deferred income taxes
8,200
10,766
Total liabilities
5,530,252
5,460,842
Equity:
Preferred stock $ 1.00 par value authorized – 20,000 shares, issued and outstanding - none
—
—
Common stock $ .10 par value authorized – 350,000 shares, issued and outstanding – 239,061 shares as of December 31, 2021 and 231,199 shares as of December 31, 2020
23,906
23,119
Additional paid-in capital
6,427,566
6,152,887
Cumulative net earnings
3,011,474
2,594,735
Cumulative dividends paid
( 5,553,908 )
( 4,916,097 )
Accumulated other comprehensive loss
( 2,200 )
( 12,768 )
Total stockholders’ equity
3,906,838
3,841,876
Noncontrolling interest
201,388
194,731
Total equity
4,108,226
4,036,607
Total liabilities and equity
$
9,638,478
$
9,497,449
See accompanying notes.
F-5
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
2021
2020
2019
Revenues
Rental income
$
923,677
$
753,427
$
804,076
Income from direct financing leases
1,029
1,033
1,036
Mortgage interest income
91,661
89,422
76,542
Other investment income
44,721
44,864
43,400
Miscellaneous income
1,721
3,635
3,776
Total revenues
1,062,809
892,381
928,830
Expenses
Depreciation and amortization
342,014
329,924
301,683
General and administrative
64,628
59,889
57,869
Real estate taxes
12,260
12,316
14,933
Acquisition, merger and transition related costs
1,814
2,018
5,115
Impairment on real estate properties
44,658
72,494
45,264
(Recovery) impairment on direct financing leases
( 717 )
( 3,079 )
7,917
Provision for credit losses
77,733
37,997
—
Interest expense
234,604
223,389
208,715
Total expenses
776,994
734,948
641,496
Other income (expense)
Other (expense) income – net
( 581 )
( 879 )
814
Loss on debt extinguishment
( 30,763 )
( 13,340 )
—
Gain on assets sold – net
161,609
19,113
55,696
Total other income
130,265
4,894
56,510
Income before income tax expense and income from unconsolidated joint ventures
416,080
162,327
343,844
Income tax expense
( 3,840 )
( 4,925 )
( 2,844 )
Income from unconsolidated joint ventures
16,062
6,143
10,947
Net income
428,302
163,545
351,947
Net income attributable to noncontrolling interest
( 11,563 )
( 4,218 )
( 10,824 )
Net income available to common stockholders
$
416,739
$
159,327
$
341,123
Earnings per common share available to common stockholders:
Basic:
Net income available to common stockholders
$
1.76
$
0.70
$
1.60
Diluted:
Net income
$
1.75
$
0.70
$
1.58
See accompanying notes.
F-6
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
2021
2020
2019
Net income
$
428,302
$
163,545
$
351,947
Other comprehensive income (loss):
Foreign currency translation
( 1,842 )
7,762
8,114
Cash flow hedges
12,689
20,087
( 6,363 )
Total other comprehensive income
10,847
27,849
1,751
Comprehensive income
439,149
191,394
353,698
Comprehensive income attributable to noncontrolling interest
( 11,842 )
( 4,977 )
( 10,781 )
Comprehensive income attributable to common stockholders
$
427,307
$
186,417
$
342,917
See accompanying notes.
F-7
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share amounts)
Accumulated
Common
Additional
Cumulative
Other
Total
Stock
Paid ‑ in
Net
Cumulative
Comprehensive
Stockholders’
Noncontrolling
Total
Par Value
Capital
Earnings
Dividends
Loss (Income)
Equity
Interest
Equity
Balance at December 31, 2018
$
20,235
$
5,074,544
$
2,130,511
$
( 3,739,197 )
$
( 41,652 )
$
3,444,441
$
320,043
$
3,764,484
Cumulative effect of accounting change (see Note 2)
—
—
( 8,198 )
—
—
( 8,198 )
( 292 )
( 8,490 )
Stock related compensation
—
15,093
—
—
—
15,093
—
15,093
Issuance of common stock
2,132
795,092
—
—
—
797,224
—
797,224
Common dividends declared ($ 2.65 per share)
—
—
—
( 564,349 )
—
( 564,349 )
—
( 564,349 )
Vesting/exercising of OP units
—
( 6,648 )
—
—
—
( 6,648 )
6,648
—
Conversion and redemption of Omega OP Units to common stock
296
114,652
—
—
—
114,948
( 114,948 )
—
Omega OP Units distributions
—
—
—
—
—
—
( 21,294 )
( 21,294 )
Noncontrolling interest - consolidated joint venture
—
—
—
—
—
—
228
228
Other comprehensive income (loss)
—
—
—
—
1,794
1,794
( 43 )
1,751
Net income
—
—
341,123
—
—
341,123
10,824
351,947
Balance at December 31, 2019
22,663
5,992,733
2,463,436
( 4,303,546 )
( 39,858 )
4,135,428
201,166
4,336,594
Cumulative effect of accounting change (see Note 2)
—
—
( 28,028 )
—
—
( 28,028 )
( 757 )
( 28,785 )
Balance at January 1, 2020
22,663
5,992,733
2,435,408
( 4,303,546 )
( 39,858 )
4,107,400
200,409
4,307,809
Stock related compensation
—
19,064
—
—
—
19,064
—
19,064
Issuance of common stock
452
151,409
—
—
—
151,861
—
151,861
Common dividends declared ($ 2.68 per share)
—
—
—
( 612,551 )
—
( 612,551 )
—
( 612,551 )
Vesting/exercising of OP units
—
( 11,551 )
—
—
—
( 11,551 )
11,551
—
Conversion and redemption of Omega OP Units to common stock
4
1,232
—
—
—
1,236
( 1,236 )
—
Omega OP Units distributions
—
—
—
—
—
—
( 20,970 )
( 20,970 )
Other comprehensive income
—
—
—
—
27,090
27,090
759
27,849
Net income
—
—
159,327
—
—
159,327
4,218
163,545
Balance at December 31, 2020
23,119
6,152,887
2,594,735
( 4,916,097 )
( 12,768 )
3,841,876
194,731
4,036,607
Stock related compensation
—
21,578
—
—
—
21,578
—
21,578
Issuance of common stock
783
273,228
—
—
—
274,011
—
274,011
Common dividends declared ($ 2.68 per share)
—
—
—
( 637,811 )
—
( 637,811 )
—
( 637,811 )
Vesting/exercising of OP units
—
( 21,623 )
—
—
—
( 21,623 )
21,623
—
Conversion and redemption of Omega OP Units to common stock
4
1,496
—
—
—
1,500
( 1,579 )
( 79 )
Omega OP Units distributions
—
—
—
—
—
—
( 25,229 )
( 25,229 )
Other comprehensive income
—
—
—
—
10,568
10,568
279
10,847
Net income
—
—
416,739
—
—
416,739
11,563
428,302
Balance at December 31, 2021
$
23,906
$
6,427,566
$
3,011,474
$
( 5,553,908 )
$
( 2,200 )
$
3,906,838
$
201,388
$
4,108,226
See accompanying notes.
F-8
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2021
2020
2019
Cash flows from operating activities
Net income
$
428,302
$
163,545
$
351,947
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
342,014
329,924
301,683
Impairment on real estate properties
44,658
75,972
48,939
(Recovery) impairment on direct financing leases
( 717 )
( 3,079 )
7,917
Provision for rental income
38,806
146,608
11,120
Provision for credit losses
77,733
37,997
—
Amortization of deferred financing costs and loss on debt extinguishment
43,051
11,608
9,564
Accretion of direct financing leases
55
30
13
Stock-based compensation expense
21,415
18,822
15,359
Gain on assets sold – net
( 161,609 )
( 19,113 )
( 55,696 )
Amortization of acquired in-place leases – net
( 9,516 )
( 14,187 )
( 5,904 )
Effective yield payable (receivable) on mortgage notes
1,526
( 719 )
( 173 )
Interest paid-in-kind
( 7,496 )
( 7,718 )
( 7,160 )
(Income) loss from unconsolidated joint ventures
( 2,060 )
( 1,315 )
22
Change in operating assets and liabilities – net:
Contractual receivables
( 23,169 )
5,709
( 5,931 )
Straight-line rent receivables
( 52,206 )
( 28,968 )
( 46,580 )
Lease inducements
( 13,733 )
( 22,443 )
( 42,071 )
Other operating assets and liabilities
( 4,918 )
15,583
( 29,302 )
Net cash provided by operating activities
722,136
708,256
553,747
Cash flows from investing activities
Acquisition of a business, net of cash acquired
—
( 5,058 )
( 59,616 )
Acquisition of real estate
( 615,873 )
( 105,663 )
( 377,841 )
Acquisition deposit - net
( 5,730 )
( 2,500 )
—
Net proceeds from sale of real estate investments
318,529
180,851
219,262
Investments in construction in progress
( 95,064 )
( 75,111 )
( 139,678 )
Proceeds from sale of direct financing lease and related trust
717
15,414
93,730
Placement of mortgage loans
( 86,664 )
( 62,432 )
( 20,702 )
Collection of mortgage principal
45,167
9,867
54,529
Investments in unconsolidated joint ventures
( 10,484 )
( 2,471 )
( 103,963 )
Distributions from unconsolidated joint ventures in excess of earnings
17,868
6,291
9,079
Capital improvements to real estate investments
( 44,948 )
( 31,072 )
( 52,892 )
Receipts from insurance proceeds
5,993
897
8,170
Investments in other investments
( 164,793 )
( 167,936 )
( 100,312 )
Proceeds from other investments
111,109
149,866
91,281
Net cash used in investing activities
( 524,173 )
( 89,057 )
( 378,953 )
Cash flows from financing activities
Proceeds from long-term borrowings
2,275,128
1,852,209
2,001,985
Payments of long-term borrowings
( 2,178,311 )
( 1,838,155 )
( 2,081,322 )
Payments of financing related costs
( 48,989 )
( 18,183 )
( 4,787 )
Net proceeds from issuance of common stock
274,011
151,861
515,358
Dividends paid
( 637,648 )
( 612,310 )
( 564,127 )
Noncontrolling members’ contributions to consolidated joint venture
—
—
228
Redemption of Omega OP Units
( 79 )
—
—
Distributions to Omega OP Unit Holders
( 25,229 )
( 20,970 )
( 21,294 )
Net cash used in financing activities
( 341,117 )
( 485,548 )
( 153,959 )
Effect of foreign currency translation on cash, cash equivalents and restricted cash
7
527
874
(Decrease) increase in cash, cash equivalents and restricted cash
( 143,147 )
134,178
21,709
Cash, cash equivalents and restricted cash at beginning of period
167,558
33,380
11,671
Cash, cash equivalents and restricted cash at end of period
$
24,411
$
167,558
$
33,380
See accompanying notes.
F-9
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
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 the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings (“MOBs”). Our core portfolio consists of our long-term “triple-net” leases and mortgage loans with healthcare operating companies and affiliates (collectively, our “operators”). In addition to our core investments, we selectively make loans to operators for working capital and capital expenditures. From time to time, we also acquire equity interests in joint ventures or entities that support the long-term healthcare industry and our operators.
Omega has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes and is structured as an umbrella partnership REIT (“UPREIT”) under which all of Omega's assets are owned directly or indirectly by, and all of Omega's operations are conducted directly or indirectly through, its operating partnership subsidiary, OHI Healthcare Properties Limited Partnership (collectively with subsidiaries, “Omega OP”). Omega has exclusive control over Omega OP’s day-to-day management pursuant to the partnership agreement governing Omega OP. As of December 31, 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Consolidation
Omega’s consolidated financial statements include the accounts of (i) Parent, (ii) Omega OP, (iii) all direct and indirect wholly-owned subsidiaries of Omega and (iv) other entities in which Omega or Omega OP has a majority voting interest and control. All intercompany transactions and balances have been eliminated in consolidation, and Omega’s net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.
GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise, if any, is the primary beneficiary of variable interest entities (“VIEs”). A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary.
Our variable interests in VIEs may be in the form of equity ownership, leases, guarantees and/or loans with our operators. We analyze our agreements and investments to determine whether our operators or unconsolidated joint ventures are VIEs and, if so, whether we are the primary beneficiary.
F-10
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
We consolidate a VIE when we determine that we are its primary beneficiary. We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. Factors considered in determining whether we are the primary beneficiary of an entity include: (i) our voting rights, if any; (ii) our involvement in day-to-day capital and operating decisions; (iii) our risk and reward sharing; (iv) the financial condition of the operator or joint venture and (iv) our representation on the VIE’s board of directors. We perform this analysis on an ongoing basis. As of December 31, 2021 and 2020 we did not have any VIEs that we consolidated.
Revenue Recognition
Rental Income
Substantially all of our operating leases contain provisions for specified annual increases over the rents of the prior year and are generally computed in one of three methods depending on the specific provisions of each lease as follows: (i) a specific annual increase over the prior year’s rent, generally between 2.0 % and 3.0 % (which is the most prevalent in our lease portfolio); (ii) an increase based on the change in pre-determined formulas from year to year (e.g., increases in the Consumer Price Index); or (iii) specific dollar increases over prior years. Rental income from operating leases is generally recognized on a straight-line basis over the lease term when we have determined that the collectibility of substantially all of the lease payments is probable.
We assess the probability of collecting substantially all payments due under our leases on several factors, including, among other things, payment history, the financial strength of the lessee and/or borrower and any guarantors, historical operations and operating trends, current and future economic conditions, and expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern). If our evaluation of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. Provisions for uncollectible lease payments are recognized as a direct reduction to rental income. If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion, potentially resulting in increased volatility of rental income.
Our leased real estate properties are leased under provisions of single or master leases with initial terms typically ranging from 5 to 15 years . Some of our leases have options to extend, terminate or purchase the facilities, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including changes in an index until the specific events that trigger the variable payments have occurred.
Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties. Certain of our operating leases require the operators to reimburse us for property taxes and other expenditures that are not considered components of the lease and therefore no consideration is allocated to them as they do not result in the transfer of a good or service to the operators. We have determined that all of our leases qualify for the practical expedient to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as the lease components. We apply Accounting Standards Codification (“ASC”) 842, Leases (“Topic 842”) to the combined component.
Certain operators are obligated to pay directly their obligations under their leases for real estate taxes, insurance and certain other expenses. These obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our consolidated financial statements. To the extent any tenant responsible for these obligations under their respective lease defaults on its lease or if it is deemed probable that the tenant will fail to pay for such costs, we would record a liability for such obligation.
We have elected to exclude sales and other similar taxes from the measurement of lease revenue and expense.
F-11
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Mortgage Interest Income and Other Investment Income
Mortgage interest income and other investment income is recognized as earned over the terms of the related mortgage notes or other investment. Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected using the effective interest method. In applying the effective interest method, the effective yield on a loan is determined based on its contractual payment terms, adjusted for prepayment terms.
Direct Financing Lease Income
As of December 31, 2021, we have one lease for a facility that is classified as a direct financing lease. For leases accounted for as direct financing leases, we record the present value of the future minimum lease payments (utilizing a constant interest rate over the term of the lease agreement) as a receivable and record interest income based on the contractual terms of the lease agreement. Costs related to originating direct financing leases are deferred and amortized on a straight-line basis as a reduction to income from direct financing leases over the term of the direct financing leases.
Fair Value Measurement
The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
● Level 1 - quoted prices for identical instruments in active markets;
● Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
● Level 3 - fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities which are required to be measured at fair value. When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1. In some instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and classifies such items in Level 2.
If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and/or market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, these items could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash flow and Monte Carlo valuation models.
F-12
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Risks and Uncertainties including COVID-19
The Company is subject to certain risks and uncertainties affecting the healthcare industry, including those stemming from the novel coronavirus (“COVID-19”) global pandemic, which has disproportionately impacted the senior care sector, as well as, those stemming from healthcare legislation and changing regulation by federal, state and local governments. Additionally, we are subject to risks and uncertainties as a result of changes affecting operators of nursing home facilities due to the actions of governmental agencies and insurers to limit the rising cost of healthcare services.
Real Estate Acquisitions
Upon acquisition of real estate properties, we evaluate the acquisition to determine if it is a business combination or an asset acquisition. Our real estate acquisitions are generally accounted for as asset acquisitions as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
If the acquisition is determined to be an asset acquisition, the Company records the purchase price and other related costs incurred to the acquired tangible assets and identified intangible assets and liabilities on a relative fair value basis. In addition, costs incurred for asset acquisitions including transaction costs, are capitalized.
If the acquisition is determined to be a business combination, we record the purchase of properties to net tangible and identified intangible assets acquired and liabilities assumed at fair value. Goodwill is measured as the excess of the fair value of the consideration transferred over the fair value of the identifiable net assets. Transaction costs are expensed as incurred as part of a business combination.
In making estimates of fair value for purposes of recording asset acquisitions and business combinations, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company determines the fair value of acquired assets and liabilities as follows:
● Land is determined based on third-party appraisals which typically include market comparables.
● Buildings and site improvements acquired are valued using a combination of discounted cash flow projections that assume certain future revenues and costs and consider capitalization and discount rates using current market conditions as well as the residual approach.
● Furniture and fixtures are determined based on third-party appraisals which typically utilize a replacement cost approach.
● Mortgages and other investments are valued using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings.
● Investments in joint ventures are valued based on the fair value of the joint ventures’ assets and liabilities. Differences, if any, between the Company’s basis and the joint venture’s basis are generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of earnings (losses) of the joint venture.
● Intangible assets and liabilities acquired are valued using a combination of discounted cash flow projections as well as other valuation techniques based on current market conditions for the intangible asset or liability being acquired. When evaluating below market leases we consider extension options controlled by the lessee in our evaluation.
● Other assets acquired and liabilities assumed are typically valued at stated amounts, which approximate fair value on the date of the acquisition.
● Assumed debt balances are valued by discounting the remaining contractual cash flows using a current market rate of interest.
F-13
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
● Noncontrolling interests are valued using a stock price on the acquisition date.
Real Estate Properties
Real estate properties are carried at initial recorded value less accumulated depreciation. The costs of significant improvements, renovations and replacements, including interest are capitalized. Our interest expense reflected in the Consolidated Statements of Operations has been reduced by the amounts capitalized. For the years ended December 31, 2021, 2020 and 2019, we capitalized $ 1.5 million, $ 10.0 million and $ 13.9 million, respectively, of interest to our projects under development. In addition, we capitalize leasehold improvements when certain criteria are met, including when we supervise construction and will own the improvement. Expenditures for maintenance and repairs are expensed as they are incurred.
Depreciation is computed on a straight-line basis over the estimated useful lives ranging from 20 to 40 years for buildings, eight to 15 years for site improvements, and three to ten years for furniture and equipment. Leasehold interests are amortized over the shorter of the estimated useful life or term of the lease.
Management evaluates our real estate properties for impairment indicators at each reporting period, including the evaluation of our assets’ useful lives. The judgment regarding the existence of impairment indicators is based on factors such as, but not limited to, market conditions, operator performance including the current payment status of contractual obligations and expectations of the ability to meet future contractual obligations, legal structure, as well as our intent with respect to holding or disposing of the asset. If indicators of impairment are present, management evaluates the carrying value of the related real estate investments in relation to management’s estimate of future undiscounted cash flows of the underlying facilities. The estimated future undiscounted cash flows are generally based on the related lease which relates to one or more properties and may include cash flows from the eventual disposition of the asset. In some instances, there may be various potential outcomes for a real estate investment and its potential future cash flows. In these instances, the undiscounted future cash flows used to assess the recoverability of the assets are probability-weighted based on management’s best estimates as of the date of evaluation. Impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows based on our intended use of the property are determined to be less than the carrying values of the assets. An adjustment is made to the net carrying value of the real estate investments for the excess of carrying value over fair value. The fair value of the real estate investment is determined based on current market conditions and considers matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. Additionally, our evaluation of fair value may consider valuing the property as a nursing home or other healthcare facility as well as alternative uses. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new value assigned to the asset. Management’s impairment evaluation process, and when applicable, impairment calculations involve estimation of the future cash flows from management’s intended use of the property as well as the fair value of the property. Changes in the facts and circumstances that drive management’s assumptions may result in an impairment to our assets in a future period that could be material to our results of operations.
Assets Held for Sale
We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we expect the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
Real Estate Sales
We recognize gains related to the sale of real estate when we transfer control of the property and when it is probable that we will collect substantially all of the related consideration.
F-14
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Lessee Accounting
Omega leases real estate (corporate headquarters and certain other facilities), office equipment and is party to certain ground leases on our owned facilities. We determine if an arrangement is or contains a lease at inception. Leases are classified as either finance or operating at inception of the lease. Short-term leases, defined as leases with an initial term of 12 months or less that do not contain a purchase option, are not recorded on the balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. As of December 31, 2021 and 2020, all of the leases where we are the lessee were classified as operating leases.
We have leases that contain both lease and non-lease components and have elected, as an accounting policy, to not separate lease components and non-lease components. Operating and finance lease right of use ("ROU") assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our ROU assets and lease liabilities are included in other assets and accrued expenses and other liabilities, respectively, on our Consolidated Balance Sheets. The lease liability is calculated as the present value of the remaining minimum rental payments for existing leases using either the rate implicit in the lease or, if none exists, the Company's incremental borrowing rate, as the discount rate. Certain leases have options to extend, terminate or purchase the asset and have been considered in our analysis of the lease term and the measurement of the right-of-use assets and lease liabilities.
On a quarterly basis, we remeasure our lease liabilities at the present value of the future lease payments using the discount rate determined at lease commencement. Rental expense from operating leases is generally recognized on a straight-line basis over the lease term. Lease expense derived from our operating leases is recorded in general and administrative in our Consolidated Statements of Operations. We do not include in our measurement of our lease liability certain variable payments, including changes in an index until the specific events that trigger the variable payments have occurred.
We record on a straight-line basis rental income and ground lease expense for those assets we lease and are reimbursed by our operators and/or are paid for directly by our operators.
In-Place Leases
In-place lease assets and liabilities result when we assume a lease as part of an asset acquisition or business combination. The fair value of in-place leases consists of the following components, as applicable (1) the estimated cost to replace the leases and (2) the above or below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place at the time of acquisition to projected cash flows of comparable market-rate leases.
Above market leases, net of accumulated amortization, are included in other assets on our Consolidated Balance Sheets. Below market leases, net of accumulated amortization, are included in accrued expenses and other liabilities on our Consolidated Balance Sheets. The net amortization related to the above and below market leases is included in our Consolidated Statements of Operations as an adjustment to rental income over the estimated remaining term of the underlying leases. Should a tenant terminate the lease, the unamortized portion of the lease intangible is recognized immediately as an adjustment to rental income.
Allowance for Credit Losses
The allowance for credit losses reflects our current estimate of the potential credit losses on our mortgage notes, other investment loans, and our investment in direct financing leases and is recorded as a valuation account as a direct offset against these financial instruments on our Consolidated Balance Sheets. Expected credit losses inherent in non-cancelable unfunded loan commitments are accounted for as separate liabilities included in accrued expenses and other liabilities on the Consolidated Balance Sheets. The Company has elected to not measure an allowance for credit losses on accrued interest receivables related to all of its mortgage notes and other investment loans because we write off uncollectible accrued interest receivable in a timely manner pursuant to our non-accrual policy, described below. Changes to the allowance for credit losses on loans resulting from quarterly evaluations are recorded through provision for credit losses on the Consolidated Statements of Operations.
F-15
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
We assess the creditworthiness of our borrowers on a quarterly basis. For purposes of determining our allowance for credit loss, we pool financial assets that have similar risk characteristics. We aggregate our financial assets by financial instrument type (i.e. mortgage, other investment, etc.) and by internal risk rating. Our internal credit ratings consider several factors including the collateral and/or security, the performance of borrowers underlying facilities, if applicable, available credit support (e.g., guarantees), borrowings with third parties, and other ancillary business ventures and real estate operations of the borrower. Our internal ratings range between 1 and 7. An internal rating of 1 reflects the lowest likelihood of loss and a 7 reflects the highest likelihood of loss. The characteristics associated with each risk rating is as follows:
● Risk Rating 1 through 3 – Instruments with minimal to marginally acceptable risk.
● Risk Rating 4 - Instruments with potential weaknesses identified (Special mention).
● Risk Rating 5 - Instruments with well-defined weaknesses that may result in possible losses (Substandard).
● Risk Rating 6 – Instruments that are unlikely to be repaid in full and will probably result in losses (Doubtful).
● Risk Rating 7 – Instrument that will not be repaid in full and losses will occur (Loss).
We have a limited history of incurred losses and consequently have elected to employ external data to perform our expected credit loss calculation. We utilize a probability of default (“PD”) and loss given default (“LGD”) methodology. Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration along with Standards & Poor’s one-year global corporate default rates. Our historical loss rates revert to historical averages after 36 periods. Our model’s current conditions and supportable forecasts consider internal credit ratings, current and projected U.S. unemployment rates published by the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis and the weighted average life to maturity of the underlying financial asset.
Periodically, the Company may identify an individual loan for impairment. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreements. Our assessment of collectibility considers several factors, including, among other things, payment history, the financial strength of the borrower and any guarantors, historical operations and operating trends, current and future economic conditions, expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern) and the value of the underlying collateral of the agreement, if any. Consistent with this definition, all loans on non-accrual status may be deemed impaired. To the extent circumstances improve and the risk of collectibility is diminished, we will return these loans to full accrual status. When we identify a loan impairment, the loan is written down to the present value of the expected future cash flows. In cases where expected future cash flows are not readily determinable, the loan is written down to the fair value of the underlying collateral. We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the sale of the collateral. Financial instruments are charged off against the allowance for credit losses when collectibility is determined to be permanently impaired.
We account for impaired loans using (a) the cost-recovery method, and/or (b) the cash basis method. We generally utilize the cost-recovery method for impaired loans for which impairment reserves were recorded. Under the cost-recovery method, we apply cash received against the outstanding loan balance prior to recording interest income. Under the cash basis method, we apply cash received to principal or interest income based on the terms of the agreement.
Investments in Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures using the equity method of accounting as we exercise significant influence, but do not control the entities.
F-16
Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Under the equity method of accounting, the net equity investments of the Company are reflected in the accompanying Consolidated Balance Sheets and the Company’s share of net income and comprehensive income from the joint ventures are included in the accompanying Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income, respectively.
On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in the unconsolidated joint ventures may be other-than-temporarily-impaired. An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such a decline in value is deemed to be other than-temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. The estimated fair value of the investment is determined using a discounted cash flow model which is a Level 3 valuation. We consider a number of assumptions that are subject to economic and market uncertainties including, among others, rental rates, operating costs, capitalization rates, holding periods and discount rates.
No impairment losses on our investments in unconsolidated joint ventures were recognized during the years ended December 31, 2021, 2020 and 2019.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with a maturity date of three months or less when purchased. These investments are stated at cost, which approximates fair value. The majority of our cash, cash equivalents and restricted cash are held at major commercial banks. Certain cash account balances exceed FDIC insurance limits of $ 250,000 per account and, as a result, there is a concentration of credit risk related to amounts in excess of the insurance limits. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash, cash equivalents or restricted cash.
Restricted Cash
Restricted cash consists primarily of liquidity deposits escrowed for tenant obligations required by us pursuant to certain contractual terms and other deposits required by the U.S. Department of Housing and Urban Development (“HUD”) in connection with our mortgage borrowings guaranteed by HUD.
Deposits
We obtain liquidity deposits and other deposits, security deposits and letters of credit from certain operators pursuant to our lease and mortgage agreements. These generally represent the rental and/or mortgage interest for periods ranging from three to six months with respect to certain of our investments or the required deposits in connection with our HUD borrowings. At December 31, 2021 and 2020, we held $ 3.9 million and $ 4.0 million, respectively, in liquidity and other deposits and $ 46.1 million and $ 43.2 million, respectively, in security deposits. We also had the ability to draw on $ 38.1 million and $ 52.5 million of letters of credit at December 31, 2021 and 2020, respectively.
The liquidity deposits and other deposits, security deposits and the letters of credit may be used in the event of lease and/or loan defaults, subject to applicable limitations under bankruptcy law with respect to operators filing under Chapter 11 of the U.S. Bankruptcy Code. Liquidity deposits and other deposits are recorded as restricted cash on our Consolidated Balance Sheets with the offset recorded as a liability in accrued expenses and other liabilities on our Consolidated Balance Sheets. Security deposits related to cash received from the operators are primarily recorded in cash and cash equivalents on our Consolidated Balance Sheets with a corresponding offset in accrued expenses and other liabilities on our Consolidated Balance Sheets. Additional security for rental and mortgage interest revenue from operators is provided by covenants regarding minimum working capital and net worth, liens on accounts receivable and other operating assets of the operators, provisions for cross-default, provisions for cross-collateralization and by corporate or personal guarantees.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Goodwill Impairment
We test goodwill for potential impairment at least annually in the fourth quarter, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the net assets of the reporting unit. In evaluating goodwill for impairment, we may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we bypass the qualitative assessment, or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we perform a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount.
In evaluating goodwill for impairment, we assess qualitative factors such as a significant decline in real estate valuations, current macroeconomic conditions, state of the equity and capital markets and our overall financial and operating performance or a significant decline in the value of our market capitalization, to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. Goodwill is not deductible for tax purposes. We have had no goodwill impairment charges for the last three fiscal years.
Income Taxes
Omega and its wholly-owned subsidiaries were organized to qualify for taxation as a REIT under Section 856 through 860 of the Internal Revenue Code (“Code”). As long as we qualify as a REIT; we will not be subject to federal income taxes on the REIT taxable income that we distributed to stockholders, subject to certain exceptions. However, with respect to certain of our subsidiaries that have elected to be treated as taxable REIT subsidiaries (“TRSs”), we record income tax expense or benefit, as those entities are subject to federal income tax similar to regular corporations. Omega OP is a pass-through entity for United States federal income tax purposes.
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carry-forwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
We are subject to certain state and local income tax, franchise taxes and foreign taxes. The expense associated with these taxes are included in income tax expense on the Consolidated Statements of Operations.
Stock-Based Compensation
We recognize stock-based compensation expense adjusted for estimated forfeitures to employees and directors, in general and administrative in our Consolidated Statements of Operations on a straight-line basis over the requisite service period of the awards.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Deferred Financing Costs and Original Issuance Premium and/or Discounts for Debt Issuance
External costs incurred from the placement of our debt are capitalized and amortized on a straight-line basis over the terms of the related borrowings which approximates the effective interest method. Deferred financing costs related to our revolving line of credit are included in other assets on our Consolidated Balance Sheets and deferred financing costs related to our other borrowings are included as a direct deduction from the carrying amount of the related liability on our Consolidated Balance Sheets. Original issuance premium or discounts reflect the difference between the face amount of the debt issued and the cash proceeds received and are amortized on a straight-line basis over the term of the related borrowings. All premiums and discounts are recorded as an addition to or reduction from debt on our Consolidated Balance Sheets. Amortization of deferred financing costs and original issuance premiums or discounts totaled $ 12.3 million, $ 10.1 million and $ 9.6 million in 2021, 2020 and 2019, respectively, and are recorded in interest expense on our Consolidated Statements of Operations. When financings are terminated, unamortized deferred financing costs and unamortized premiums or discounts, as well as charges incurred for the termination, are recognized as expense or income at the time the termination is made. Gains and losses from the extinguishment of debt are presented in loss on debt extinguishment on our Consolidated Statements of Operations.
Earnings Per Share
The computation of basic earnings per share/unit (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the relevant period. Diluted EPS is computed using the treasury stock method, which is net income divided by the total weighted-average number of common outstanding shares plus the effect of dilutive common equivalent shares during the respective period. Dilutive common shares reflect the assumed issuance of additional common shares pursuant to certain of our share-based compensation plans, including restricted stock and profit interest units, performance restricted stock and profit interest units, the assumed issuance of additional shares related to Omega OP Units held by outside investors.
Noncontrolling Interests and Redeemable Limited Partnership Unitholder Interests
Noncontrolling interests is the portion of equity not attributable to the respective reporting entity. We present the portion of any equity that we do not own in consolidated entities as noncontrolling interests and classify those interests as a component of total equity, separate from total stockholders’ equity on our Consolidated Balance Sheets. We include net income attributable to the noncontrolling interests in net income in our Consolidated Statements of Operations.
As our ownership of a controlled subsidiary increases or decreases, any difference between the aggregate consideration paid to acquire the noncontrolling interests and our noncontrolling interest balance is recorded as a component of equity in additional paid-in capital, so long as we maintain a controlling ownership interest.
The noncontrolling interest for Omega represents the outstanding Omega OP Units held by outside investors and interests in a consolidated real estate joint venture not fully owned by Omega. Each of the Omega OP Units (other than the Omega OP Units owned by Omega) is redeemable at the election of the Omega OP Unit holder for cash equal to the then-fair market value of one share of Omega common stock, par value $ 0.10 per share (“Omega Common Stock”), subject to Omega’s election to exchange the Omega OP Units tendered for redemption for unregistered shares of Omega Common Stock on a one -for-one basis, subject to adjustment as set forth in Omega OP’s partnership agreement. As of December 31, 2021, Omega owns approximately 97 % of the issued and outstanding Omega OP Units, and investors own approximately 3 % of the outstanding Omega OP Units.
Foreign Operations
The U.S. dollar (“USD”) is the functional currency for our consolidated subsidiaries operating in the U.S. The functional currency for our consolidated subsidiaries operating in the U.K. is the British Pound (“GBP”). Total revenues from our consolidated U.K. operating subsidiaries were $ 38.1 million, $ 34.8 million and $ 33.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Our consolidated U.K. operating subsidiaries held long-lived assets of $ 387.2 million and $ 395.2 million as of December 31, 2021 and 2020, respectively.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
For our consolidated subsidiaries whose functional currency is not the USD, we translate their financial statements into the USD. We translate assets and liabilities at the exchange rate in effect as of the financial statement date. Revenue and expense accounts are translated using an average exchange rate for the period. Gains and losses resulting from translation are included in accumulated other comprehensive income (loss) (“AOCI”), as a separate component of equity and a proportionate amount of gain or loss is allocated to noncontrolling interests, if applicable.
We and certain of our consolidated subsidiaries may have intercompany and third-party debt that is not denominated in the entity’s functional currency. When the debt is remeasured against the functional currency of the entity, a gain or loss can result. The resulting adjustment is reflected in results of operations, unless it is intercompany debt that is deemed to be long-term in nature in which case the adjustments are included in AOCI and a proportionate amount of gain or loss is allocated to noncontrolling interests, if applicable.
Derivative Instruments
We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our investments in the U.K. and interest rate risk related to our capital structure. As a matter of policy, we do not use derivatives for trading or speculative purposes. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, interest rate swaps and debt issued in foreign currencies to offset a portion of these risks.
To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objectives and strategy for undertaking various hedge transactions. This process includes designating all derivatives that are part of a hedging relationship to specific forecasted transactions as well as recognized liabilities or assets on the Consolidated Balance Sheets. In addition, at the inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with the Company’s related assertions. The Company recognizes all derivative instruments, including embedded derivatives required to be bifurcated, as assets or liabilities on the Consolidated Balance Sheets at fair value which is determined using a market approach and Level 2 inputs. Changes in the fair value of derivative instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are recognized in earnings. For derivatives designated in qualifying cash flow hedging relationships, the gain or loss on the derivative is recognized in AOCI as a separate component of equity and a proportionate amount of gain or loss is allocated to noncontrolling interest, if applicable.
If it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company discontinues its cash flow hedge accounting prospectively and records the appropriate adjustment to earnings based on the current fair value of the derivative instrument. For net investment hedge accounting, upon sale or liquidation of our U.K. investment, the cumulative balance of the remeasurement value is reclassified to earnings.
Segments
We conduct our operations and report financial results as one business segment. The presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which our Chief Operating Decision Maker (CODM), our Chief Executive Officer, evaluates performance and makes resource and operating decisions for the business.
Reclassification
Certain line items on our Consolidated Balance Sheets, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows and have been reclassified to conform to the current period presentation.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Recently Adopted Accounting Pronouncements
ASU – 2021 -05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments
On July 19, 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-05. This guidance requires lessors to classify leases with variable lease payments, that do not depend on an index or rate, as an operating lease on the commencement date of the lease if specified criteria are met. The guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We early adopted this guidance prospectively effective July 1, 2021. The adoption of the guidance did not have an impact on our consolidated financial statements.
ASU – 2020-04, Financial Instruments – Reference Rate Reform (Topic 848)
On March 12, 2020, the FASB issued ASU 2020-04, which contains optional practical expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). The guidance may be elected over time until December 31, 2022, as reference rate reform activities occur. The Company has several derivative instruments (See Note 15 – Derivatives and Hedging), a $ 1.45 billion senior unsecured multicurrency revolving credit facility, and a $ 50 million senior unsecured term loan facility (See Note 14 – Borrowing Arrangements) that reference LIBOR. We also have a $ 25.0 million senior secured DIP facility loan with an operator that references LIBOR (See Note 8 – Other Investments), but it matures in 2022 prior to LIBOR being discontinued. During the first quarter of 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. Our credit facilities that reference LIBOR contain customary LIBOR replacement language, including, but not limited to, the use of rates based on the secured overnight financing rate. The Company is evaluating: (i) how the transition away from LIBOR will impact the Company, (ii) whether the any additional optional expedients provided by the standards will be adopted, and (iii) the impact that adopting ASU 2020-04 will have on our consolidated financial statements.
ASU – 2016-13, Financial Instruments - Credit Losses (Topic 326)
In June 2016, the FASB issued ASU 2016-13, which changed the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for credit losses. The new approach requires the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized cost, including loans, as well as certain off-balance sheet credit exposures such as unfunded loan commitments. The allowance for credit loss on the loans is a valuation amount that is deducted from the amortized cost basis of the loans not held at fair value to present the net amount expected to be collected over the contractual term of the loans.
ASU 2016-13 specifically excludes from its scope receivables arising from operating leases accounted for under Topic 842. We adopted ASU 2016-13 on January 1, 2020 using the modified retrospective approach and we recorded an initial $ 28.8 million allowance for expected credit losses with a corresponding adjustment to equity. Included below is a summary of impact of the adoption on our Consolidated Balance Sheets.
Pre-adoption balance as of
Impact of adopting
Post-adoption balance as of
Financial Statement Line Item
December 31, 2019
Topic 326
January 1, 2020
(in thousands)
Mortgage notes receivable - net
$
773,563
$
( 21,386 )
$
752,177
Investment in direct financing leases - net
11,488
( 611 )
10,877
Other investments - net
419,228
( 6,688 )
412,540
Off-balance sheet commitments
20,777
( 100 )
20,677
Total
$
1,225,056
$
( 28,785 )
$
1,196,271
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
ASU – 2016-02, Leases (Topic 842)
On January 1, 2019, we adopted ASC 842, Leases (“Topic 842”) using the modified retrospective method. Topic 842 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). At the inception of a lease and over its term, we evaluate each lease to determine the proper lease classification. Certain of these leases provide our operators or us the contractual right to use and economically benefit from all of the physical space specified in the lease, therefore we have determined that they should be evaluated as lease arrangements.
Upon adoption of Topic 842, we applied the package of practical expedients that allowed us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Furthermore, we applied the optional transition method, which allowed us to initially apply Topic 842 at the adoption date and recognize a cumulative effect adjustment to the opening balance of equity in the period of adoption. During the year ended December 31, 2019, we made an adjustment of approximately $ 8.5 million to the equity balance to reflect our assessment of the collectibility of certain operator’s future contractual lease payments based on the facts and circumstances that existed as of January 1, 2019. In addition, we recorded total initial non-cash ROU assets and lease liabilities of approximately $ 11.1 million.
NOTE 3 – REAL ESTATE ACQUISITIONS
2021 Acquisitions and Other
The following table summarizes the significant asset acquisitions that occurred in 2021:
Number of
Total Real Estate
Initial
Facilities
Assets Acquired (1)
Annual
Period
SNF
ALF
Specialty
Country/State
(in millions)
Cash Yield (2)
Q1
—
17
7
AZ, CA, FL, IL, NJ, OR, PA, TN, TX, VA, WA
$
511.3
8.43
%
Q1
6
—
—
FL
83.1
9.25
%
Q3
—
2
—
U.K.
9.6
7.89
%
Total
6
19
7
$
604.0
(1) Excludes $ 10.6 million of land acquisitions, $ 58.6 million of non-cash acquisitions of facilities previously subject to mortgage loans with Omega in which principal amounts under the loan agreements were reduced or settled in exchange for title to the facilities (See Note 7 – Mortgage Notes Receivable), and $ 1.2 million of transaction costs incurred related to the non-cash acquisitions.
(2) Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price.
On January 20, 2021, we acquired 24 senior living facilities from Healthpeak Properties, Inc. for $ 511.3 million. The acquisition involved the assumption of an in-place master lease with Brookdale Senior Living Inc. We recognized approximately $ 45.0 million of rental income for the year ended December 31, 2021 under this master lease, which includes 24 facilities representing 2,552 operating units.
Construction in progress investments
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 (along with affiliates, “Maplewood”) through August 31, 2045. For accounting purposes, the lease will commence upon the substantial completion of construction of the ALF, which is currently expected to be in the first quarter of 2025. The lease provides for the accrual of financing costs at a rate of 5 % per annum during the construction phase. The lease provides for an annual cash yield of 6 % in the first year following the completion of construction, increasing to 7 % in year two and 8 % in year three with 2.5 % annual escalators thereafter. We are committed to a maximum funding of $ 177.7 million for the redevelopment of the real estate property, subject to ordinary development related cost changes (see Note 20 - Commitments and Contingencies).
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
2020 Acquisitions
The following table summarizes the significant asset acquisitions that occurred in 2020:
Number of
Total Real Estate
Initial
Facilities
Assets Acquired
Annual
Period
SNF
ALF
Country/State
(in millions)
Cash Yield (1)
Q1
—
2
U.K.
$
12.1
8.00
%
Q1
1
—
IN
7.0
9.50
%
Q2
1
—
OH
6.9
9.50
%
Q4
6
1
VA
78.4
9.50
%
Total
8
3
$
104.4
(1) Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price.
2019 Acquisitions and Other
The following table summarizes the significant transactions that occurred in 2019:
Number of
Total Real Estate
Initial
Facilities
Assets Acquired
Annual
Period
SNF
ALF
Specialty
MOB
Country/State
(in millions)
Cash Yield (1)
Q1
1
—
—
—
OH
$
11.9
(3)
12.00
%
Q2
20
1
11
1
CA, CT, IN, NV, SC, TN, TX
440.7
(2)
9.82
%
Q2
7
1
3
—
PA, VA
131.8
(3)
9.35
%
Q3
3
—
—
—
NC, VA
24.9
9.50
%
Q4
58
2
—
—
FL, ID, KY, LA, MS, MO, MT, NC
735.2
8.71
%
Total
89
4
14
1
$
1,344.5
(1) Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price.
(2) The acquisition was accounted for as a business combination. The other 2019 acquisitions were accounted for as asset acquisitions.
(3) Acquired via a deed-in-lieu of foreclosure.
Encore Portfolio Acquisition
On October 31, 2019, we completed the $ 757 million portfolio acquisition of 60 facilities (the “Encore Portfolio”). Consideration consisted of approximately $ 369 million of cash and the assumption of approximately $ 389 million in mortgage loans guaranteed by HUD. See Note 14 – Borrowing Arrangements for additional information.
The following table highlights the fair value of the assets acquired and liabilities assumed on October 31, 2019:
(in thousands)
Fair value of net assets acquired:
Real estate assets
$
735,182
Other investments
600
Contractual receivables
2,216
Cash
227
Other assets
28,173
Total investments
766,398
Secured borrowings
( 388,627 )
Accrued expenses and other liabilities
( 8,978 )
Fair value of net assets acquired
$
368,793
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
MedEquities Merger
On May 17, 2019, we completed our acquisition by merger of MedEquities (the “MedEquities Merger”) and its subsidiary operating partnership and the general partner of its subsidiary operating partnership.
In connection with the MedEquities Merger, we issued approximately 7.5 million shares of Omega common stock and paid approximately $ 63.7 million of cash consideration to former MedEquities stockholders. We borrowed approximately $ 350 million under our existing senior unsecured revolving credit facility to fund the cash consideration and the repayment of MedEquities’ previously outstanding debt. As a result of the MedEquities Merger, we acquired 33 facilities subject to operating leases, four mortgages, three other investments and an investment in an unconsolidated joint venture. We also acquired other assets and assumed debt and other liabilities. Based on the closing price of our common stock on May 16, 2019, the fair value of the consideration exchanged approximated $ 346 million.
Our purchase price allocation was finalized during the second quarter of 2020, with no material adjustments recorded. The following table highlights the final fair value of the assets acquired and liabilities assumed on May 17, 2019:
(in thousands)
Fair value of net assets acquired:
Real estate assets
$
440,690
Mortgage notes receivable
108,097
Other investments
19,192
Investment in unconsolidated joint venture
73,834
Cash
4,067
Contractual receivables
1,002
Other assets (1)
7,698
Total investments
654,580
Debt (2)
( 285,100 )
Accrued expenses and other liabilities (3)
( 23,931 )
Fair value of net assets acquired
$
345,549
(1) Includes approximately $ 2.5 million in above market lease assets.
(2) In connection with the MedEquities Merger on May 17, 2019, we assumed a $ 125.0 million term loan and outstanding borrowings of $ 160.1 million under MedEquities’ previous revolving credit facility. We repaid the total outstanding balance on both the term loan and the revolving credit facility and terminated the related agreements on May 17, 2019.
(3) Includes approximately $ 1.1 million in below market lease liabilities.
The MedEquities facilities acquired in 2019 are included in our results of operations from the date of acquisition. For the period from May 17, 2019 through December 31, 2019, we recognized approximately $ 35.2 million of total revenue from the assets acquired in connection with the MedEquities Merger. For the year ended December 31, 2019, we incurred approximately $ 5.1 million of acquisition and merger related costs associated with the MedEquities Merger.
Pro Forma Acquisition Results
The following unaudited pro forma information presents consolidated financial information as if the MedEquities Merger occurred on January 1, 2019. In the opinion of management, all significant necessary adjustments to reflect the effect of the merger have been made. The following pro forma information is not indicative of future operations.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Pro Forma
Year Ended December 31, 2019
(in thousands, except per share amounts, unaudited)
Pro forma revenues
$
950,318
Pro forma net income
$
362,220
Earnings per share – diluted:
Net income – as reported
$
1.58
Net income – pro forma
$
1.60
NOTE 4 – ASSETS HELD FOR SALE, DISPOSITIONS AND IMPAIRMENTS
Periodically, we will sell facilities to reduce our concentration in certain operators, geographies, and non-strategic assets or due to the exercise of a tenant purchase option.
In December 2021, we entered into an agreement to sell 22 facilities that were previously leased and operated by Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) for estimated gross proceeds of $ 317.5 million. We elected to exit these facilities following Gulf Coast commencing the Chapter 11 bankruptcy process in October 2021, as discussed further in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements. The agreement includes an earnout clause pursuant to which the buyer is obligated to pay an additional $ 18.7 million to Omega if certain financial metrics are achieved at the facilities in the five years following the sale. We reclassified the 22 facilities subject to the agreement to Assets held for sale in the fourth quarter of 2021.
As of February 7, 2022, the remaining 19 facilities in held for sale are all under sales agreements which provide for estimated gross proceeds of $ 88.8 million, subject to terms and conditions of such agreements.
The following is a summary of our assets held for sale:
December 31,
December 31,
2021
2020
Number of facilities held for sale
41
22
Amount of assets held for sale (in thousands)
$
261,151
$
81,452
Asset Sales
During the year ended December 31, 2021, we sold 48 facilities, subject to operating leases, for approximately $ 318.5 million in net cash proceeds, recognizing a net gain of approximately $ 161.6 million.
During the year ended December 31, 2020, we sold 43 facilities for approximately $ 180.9 million in net cash proceeds, recognizing a net gain of approximately $ 19.1 million.
During the year ended December 31, 2019, we sold 34 facilities for approximately $ 219.3 million in net cash proceeds, recognizing a net gain of approximately $ 55.7 million.
Real Estate Impairments
During the year ended December 31, 2021, we recorded impairments of approximately $ 44.7 million on 14 facilities which were sold or classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
During the year ended December 31, 2020, we recorded impairments of approximately $ 41.5 million on 14 facilities which were sold or classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell. Additionally, during the year ended December 31, 2020, we recorded an impairment of approximately $ 34.5 million on 11 held for use facilities for which it was determined that the carrying value exceeded the fair value. The $ 34.5 million relates to facilities subject to a lease with Daybreak Ventures, LLC (“Daybreak”) (see Note 5 – Contractual Receivables and Other Receivables and Lease Inducements), which were planned for resale or transitioned to another existing operator and it was determined that the new cash flows were not sufficient to support the carrying value of the facility. Our impairments were offset by approximately $ 3.5 million of insurance proceeds received related to a facility that was previously destroyed and impaired.
During the year ended December 31, 2019, we recorded impairments of approximately $ 14.5 million on 9 facilities which were sold or classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell. Additionally, during the year ended December 31, 2019, we recorded an impairment of approximately $ 34.5 million on 13 held for use facilities for which it was determined that the carrying value exceeded the fair value. Of the $ 34.5 million, the $ 28.3 million relates to 11 facilities subject to a lease with Daybreak which were planned for resale or transitioned to another existing operator and it was determined that the new cash flows were not sufficient to support the carrying value of the facility. Our impairments were offset by approximately $ 3.7 million of insurance proceeds received related to two facilities that were previously destroyed and impaired.
To estimate the fair value of the facilities determined to be held for sale, for the impairments noted above, we utilized a market approach which considered binding sale agreements (a Level 1 input) or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).
NOTE 5 – CONTRACTUAL RECEIVABLES AND OTHER RECEIVABLES AND LEASE INDUCEMENTS
Contractual receivables relate to the amounts currently owed to us under the terms of our lease and loan agreements. Effective yield interest receivables relate to the difference between the interest income recognized on an effective yield basis over the term of the loan agreement and the interest currently due to us according to the contractual agreement. Straight-line rent receivables relate to the difference between the rental revenue recognized on a straight-line basis and the amounts currently due to us according to the contractual agreement. Lease inducements result from value provided by us to the lessee, at the inception, modification or renewal of the lease, and are amortized as a reduction of rental income over the non-cancellable lease term.
A summary of our net receivables by type is as follows:
December 31,
December 31,
2021
2020
(in thousands)
Contractual receivables – net
$
11,259
$
10,408
Effective yield interest receivables
$
9,590
$
12,195
Straight-line rent receivables
148,455
139,046
Lease inducements
93,770
83,425
Other receivables and lease inducements
$
251,815
$
234,666
Agemo Holdings, LLC
From August 2021 through October 2021 and in December 2021, Agemo Holdings, LLC (“Agemo”), failed to pay contractual rent and interest due under their lease and loan agreements, but paid rent and interest in November 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.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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. As a result, we wrote-off approximately $ 75.3 million of contractual rent receivables, straight-line rent receivables, and lease inducements to rental income during the third quarter of 2020. Agemo continued to make their rental and interest payments to us until August 2021. During the third and fourth quarters of 2021, we recorded $ 8.7 million of revenue by collecting rental and interest payments and we recorded $ 8.5 million of revenue by drawing on the letter of credit and through application of the security deposit balance. See Note 8 – Other Investments for additional details on our loans with Agemo. For the years ended December 31, 2021, 2020 and 2019, Agemo generated approximately 3.9 %, 5.6 % and 6.9 %, respectively, of our total revenues (excluding the impact of write-offs).
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 year ended December 31, 2021, the Agemo lease was amended to allow for the extension of the rent deferral through January 2022, which represents an additional deferral of approximately $ 4.7 million of rent. Additionally, during the year ended December 31, 2021, 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 January 31, 2022. The forbearance period and rent deferral period were subsequently extended to February 28, 2022.
Guardian Healthcare
From October 2021 through December 2021, Guardian Healthcare (“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 ongoing liquidity issues. The Company is currently in on-going negotiations to restructure and amend Guardian’s lease and loan agreements. As part of the restructuring negotiations, on December 30, 2021, we acquired 2 facilities, previously subject to the Guardian mortgage loan, in consideration for a reduction of $ 8.7 million in the mortgage principal and added the facilities to the master lease agreement. Subsequent to year end, in February 2022, we completed additional restructuring activities related to Guardian, including selling and re-leasing certain facilities as discussed further in Note 23 – Subsequent Events.
As a result of Guardian’s non-payment of contractual rent and the anticipated restructuring noted above, in the fourth quarter of 2021, we placed Guardian on a cash basis of revenue recognition and wrote-off approximately $ 14.0 million of straight-line rent receivables and lease inducements through rental income. As of December 31, 2021, we have $ 7.4 million of letters of credit from Guardian as collateral which could be applied against our uncollected rent and interest receivables. See Note 7 – Mortgage Notes Receivable for additional details on our mortgage with Guardian. Guardian represents approximately 2.5 %, 3.5 % and 3.8 % of our total revenues (excluding the impact of straight-line write-offs) for the years ended December 31, 2021, 2020 and 2019, respectively.
Gulf Coast
During the second quarter of 2021, Gulf Coast stopped paying contractual rent under its master lease agreement because of on-going liquidity issues. Gulf Coast operates 24 facilities subject to a master lease with Omega and represents approximately 3.3 %, 2.8 % and 2.7 % of Omega’s total revenues (excluding the impact of write-offs) for the years ended December 31, 2021, 2020 and 2019, respectively.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
As a result of Gulf Coast’s default under its master lease agreement, in August 2021, we exercised our right to accelerate the full amount of rent due under Gulf Coast’s master lease agreement. On October 14, 2021, Gulf Coast commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The payment of our accelerated rent will be subject to the Bankruptcy Code and approval of the bankruptcy court in Gulf Coast’s Chapter 11 cases. As described in Gulf Coast’s filings with the Bankruptcy Court, we have entered into a Restructuring Support Agreement (the “Support Agreement”) that forms the basis for Gulf Coast’s intended restructuring and liquidation. The Support Agreement establishes a timeline for the implementation of Gulf Coast’s planned restructuring and liquidation, including the transition of management of the operations of the facilities to a third-party operator. As part of the Support Agreement, we committed to provide up to $ 25 million of senior secured debtor-in-possession (“DIP”) financing to Gulf Coast, which is discussed in further detail in Note 8 – Other Investments. In November 2021, Gulf Coast entered into management and operations transfer agreements (“MOTAs”) with a new manager (“New Manager”), pursuant to which the management of 23 of the 24 facilities subject to the master lease with Omega would be performed by New Manager during an interim period until the license for the facilities subject to the MOTAs could be obtained by a new operator (“New Operator”). During the interim period, no rent is being paid by Gulf Coast, and we have provided a $ 20 million working capital loan to New Manager, discussed in further detail in Note 8 – Other Investments. The Bankruptcy Court approved the MOTAs on November 24, 2021 and the operations were transitioned effective December 1, 2021.
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 $ 24.6 million of rental income over the remaining period of 2021, 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, a subsidiary of Omega (“Omega Obligor”) 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 14 – 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 Obligor’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 December 31, 2021, we have offset $ 1.3 million of accrued interest and $ 20.0 million of principal under the Subordinated Debt against the uncollected rent under the master lease with Gulf Coast. Following the application of these offsets, Omega has no further obligations under the Subordinated Debt.
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 Obligor under the Subordinated Debt, and that all principal and interest due and owing under the Subordinated Debt may be (and was) 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 that Omega Obligor 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.
Daybreak
During the third quarter of 2017, we placed Daybreak on a cash basis for revenue recognition as a result of nonpayment of funds owed to us. During the fourth quarter of 2017, we executed a Settlement and Forbearance Agreement with Daybreak which permitted Daybreak to defer payments up to 23 % of their contractual rent until January 2018, subject to certain conditions. During the fourth quarter of 2018, Daybreak was no longer in compliance with the 2017 Settlement and Forbearance Agreement.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
On January 30, 2019, we entered into a Second Amendment to the Settlement and Forbearance Agreement under which we agreed to defer approximately $ 4.2 million of rent in the fourth quarter of 2018 and approximately $ 2.5 million (or approximately one month’s rent) in each of the first two quarters of 2019. Except for $ 1.1 million in required real estate tax escrows, Daybreak met their contractual payment obligations through the second quarter of 2019; however, during the second half of 2019, Daybreak did not meet their full contractual payment obligations to us as we received approximately $ 1.3 million of cash rent.
During 2020, as part of our plan to transition and sell our Daybreak facilities, we transitioned 31 Daybreak facilities to existing operators. The total annual contractual rent from the 31 transitioned facilities was approximately $ 12.4 million. In 2021, we transitioned 14 additional facilities to existing operators with annual contractual rent of approximately $ 4.0 million and sold the remaining four Daybreak facilities. The transition and sale of these facilities completed our exit from our relationship with Daybreak.
Other straight-line receivables and write-offs
In addition to the Guardian and Gulf Coast straight-line receivable write-offs in 2021 discussed above, we wrote-off straight-line rent receivable balances of $ 5.9 million through rental income in 2021 primarily due to placing four other operators ( one operator in the first quarter, two operators in the third quarter and one operator in the fourth 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 and the one operator placed on a cash basis of revenue recognition during the fourth quarter are current with rent payments as of December 31, 2021. The four operators collectively represent approximately 0.8 %, 1.0 % and 1.0 %, respectively, of our total revenues (excluding the impact of write-offs) for the years ended December 31, 2021, 2020 and 2019.
In addition to the write-off of Agemo’s contractual receivables, straight-line rent receivables, and lease inducements in the third quarter of 2020 discussed above, we wrote-off approximately $ 67.7 million of contractual receivables, straight-line rent receivables, and lease inducements through rental income in 2020 as a result of placing three operators (excluding Agemo discussed above) on a cash basis resulting from a change in our evaluation of the collectibility of future rent payments due under the respective lease agreements. In part, our conclusions were based on information the Company received from these three operators during the third and fourth quarters of 2020 regarding substantial doubt as to their ability to continue as a going concern. Of the $ 67.7 million, $ 64.9 million related to Genesis Healthcare, Inc. (“Genesis”) and $ 2.8 million related to two other operators which lease five facilities from the Company. During 2020, we also wrote-off approximately $ 3.6 million of straight-line rent receivables to rental income as a result of transitioning facilities to other existing operators. In addition, during 2020, we received a one-time rent payment of approximately $ 55.4 million from Maplewood, in conjunction with the restructuring of its master lease and loans with Omega (see Note 8 – Other Investments). This payment was accounted for as an adjustment to straight-line rent receivables and is being amortized over the remaining term of the master lease.
During 2019, we wrote-off approximately $ 11.1 million of contractual receivables, straight-line rent receivables and lease inducements to rental income, of which $ 9.9 million resulted from placing five operators on a cash basis of revenue recognition due to changes in our evaluation of the collectibility of future rent payments due under the respective lease agreements. The remaining $ 1.2 million write-off of straight-line rent receivables to rental income resulted from transitioning a facility to another existing operator.
Lease Inducements
For the years ended December 31, 2021, 2020 and 2019, we provided fundings of $ 22.3 million, $ 34.1 million, and $ 50.8 million, respectively, to our operators subject to operating leases, which were accounted for as lease inducements and will be amortized as a reduction to rental income over the remaining term of the leases. Of the $ 22.3 million funded in 2021, $ 20 million was paid to Consulate Health Care (“Consulate”), $ 2.3 million was paid to four other existing operators. Of the $ 34.1 million funded in 2020, $ 23.9 million was paid to Maplewood for development and start-up related costs and the remaining $ 10.2 million was paid to three other operators. Of the $ 50.8 million funded in 2019, $ 15.0 million was paid to Genesis and the remaining $ 35.8 million was paid to seven other existing operators.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 6 –LEASES
Lease Income
The following table summarizes the Company’s rental income from operating leases:
Year Ended December 31,
2021
2020
2019
(in thousands)
Rental income – operating leases
$
911,701
$
741,681
$
792,010
Variable lease income – operating leases
11,976
11,746
12,066
Total rental income
$
923,677
$
753,427
$
804,076
Our variable lease income primarily represents the reimbursement of real estate taxes and ground lease expenses by operators that Omega pays directly.
The following amounts reflect the future minimum lease payments due to us for the remainder of the initial terms of our operating leases as of December 31, 2021:
(in thousands)
2022
$
820,565
2023
838,780
2024
852,632
2025
861,586
2026
871,072
Thereafter
4,192,976
Total
$
8,437,611
Lease Costs
As of December 31, 2021, the Company is a lessee under ground leases and/or facility leases related to 11 SNFs and two offices. For the years ended December 31, 2021, 2020 and 2019, the expenses associated with these operating leases were $ 2.2 million, respectively and are included within general and administrative expense on the Statement of Operations.
The following table summarizes the balance sheet information related to leases where the Company is a lessee:
December 31,
December 31,
December 31,
2021
2020
2019
(in thousands)
Other assets - right of use assets
$
16,117
$
16,526
$
17,533
Accrued expenses and other liabilities – lease liabilities
$
17,180
$
17,349
$
18,033
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Direct Financing Leases
The components of investments in direct financing leases consist of the following:
December 31,
December 31,
2021
2020
(in thousands)
Minimum lease payments receivable
$
24,863
$
25,947
Less unearned income
( 13,460 )
( 14,489 )
Investment in direct financing leases
11,403
11,458
Less allowance for credit losses on direct financing leases
( 530 )
( 694 )
Investment in direct financing leases – net
$
10,873
$
10,764
Properties subject to direct financing leases
1
1
Number of direct financing leases
1
1
Orianna Direct Financing Lease
On January 11, 2019, pursuant to a bankruptcy court order, affiliates of Orianna Health Systems (“Orianna”) purchased the remaining 15 SNFs subject to the direct financing lease with Orianna for $ 176 million of consideration, comprised of $ 146 million in cash received by Orianna and a $ 30.0 million seller note held by the Company. On the same date, Orianna repaid $ 25.0 million of our then outstanding debtor in possession financing, including all related interest. The $ 30.0 million note, which was repaid during the third quarter of 2021, bore interest at 6 % per annum and had a maturity date of January 11, 2026.
On January 16, 2019, the bankruptcy court confirmed Orianna’s plan of reorganization, creating a Distribution Trust (the “Trust”) to distribute the proceeds from Orianna’s sale of the remaining 15 SNFs, as well as the Trust’s collections of Orianna’s accounts receivable portfolio. In January 2019, we reclassified our net investment in direct financing lease of $ 115.8 million from the Trust to other assets on our Consolidated Balance Sheets. For the period from January 16, 2019 through December 31, 2019, we received approximately $ 94 million from the Trust as a partial liquidation.
In March 2019, we received updated information from the Trust indicating diminished collectibility of the accounts receivable owed to us. As a result, we recorded an additional $ 7.7 million allowance. As of December 31, 2019, our remaining receivable from the Trust was approximately $ 14.1 million which was recorded in other assets on our Consolidated Balance Sheets. During 2020, we received approximately $ 17.2 million from the Trust of which approximately $ 3.1 million is recorded in (recovery) impairment on direct financing leases on our Consolidated Statements of Operations. During 2021, we received approximately $ 0.7 million from the Trust which is recorded in (recovery) impairment on direct financing leases on our Consolidated Statement of Operations.
NOTE 7 - MORTGAGE NOTES RECEIVABLE
As of December 31, 2021, mortgage notes receivable relate to seven fixed rate mortgages on 63 long-term care facilities. The mortgage notes are secured by first mortgage liens on the borrowers’ underlying real estate and personal property. The mortgage notes receivable relate to facilities located in six states, operated by six independent healthcare operating companies. We monitor compliance with mortgages and when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding mortgage notes.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The principal amounts outstanding of mortgage notes receivable, net of allowances, were as follows:
December 31,
December 31,
2021
2020
(in thousands)
Mortgage note due 2027 ; interest at 10.81 %
$
103,762
$
112,500
Mortgage notes due 2029 ; interest at 10.79 % (1)
653,564
670,015
Other mortgage notes outstanding (2)
151,361
136,043
Mortgage notes receivable, gross
908,687
918,558
Allowance for credit losses on mortgage notes receivable
( 73,601 )
( 33,245 )
Total mortgage notes receivable — net
$
835,086
$
885,313
(1) Approximates the weighted average interest rate on 45 facilities as of December 31, 2021.
(2) Other mortgage notes outstanding have a weighted average interest rate of 8.84 % per annum as of December 31, 2021 and maturity dates ranging from 2023 through 2032 .
Mortgage Note due 2027
On January 17, 2014, we entered into a $ 112.5 million first mortgage loan with Guardian. The loan was originally secured by seven SNFs and two ALFs located in Pennsylvania and Ohio. The mortgage is cross-defaulted and cross-collateralized with our existing master lease with the operator. In March 2018, we extended the maturity date to January 31, 2027 and provided an option to extend the maturity for a five year period through January 31, 2032 and a second option to extend the maturity through September 30, 2034 . As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, Guardian failed to pay contractual rent and interest to us from October 2021 through December 2021 due to on-going liquidity issues. The Company is currently in on-going negotiations to restructure and amend Guardian’s lease and loan agreements. As part of the restructuring negotiations, on December 30, 2021, we acquired two facilities, previously subject to the Guardian mortgage loan, in consideration for a reduction of $ 8.7 million in the mortgage principal and added the facilities to the master lease agreement. Subsequent to year end, in February 2022, we completed additional restructuring activities related to Guardian, including selling and re-leasing certain facilities as discussed further in Note 23 – Subsequent Events.
As discussed in Note 9 – Allowance for Credit Losses, we reduced the risk rating on the mortgage loan from a 4 to a 5 during the third quarter of 2021, primarily due to the increased likelihood of a restructuring that would result in the modification of the mortgage loan terms. The reduction in risk rating increased our reserve on the mortgage loan, determined using our PD and LGD credit loss model, to $ 8.9 million as of the end of the third quarter. Following Guardian’s non-payment of rent and interest during the fourth quarter of 2021 and further negotiations with Guardian in the fourth quarter, we elected to further reduce the risk rating on the loan from a 5 to a 6 in the fourth quarter of 2021 and to evaluate the risk of loss on the loan on an individual basis. As the fair value of the 7 properties that collateralize the mortgage loan were estimated to be less than the remaining principal of $ 103.8 million, we reserved an additional $ 38.2 million through provision for credit losses in the fourth quarter. The total reserve on December 31, 2021, related to the mortgage loan is $ 47.1 million and reduces to the loan carrying value, to the estimated fair value of the collateral of $ 56.7 million. We also fully reserved approximately $ 1.0 million of contractual interest receivable related to the mortgage loan with Guardian in the fourth quarter of 2021 (see Note 9 – Allowance for Credit Losses). The mortgage loan was also placed on non-accrual status for interest recognition in October 2021 and we will utilize the cost recovery method for any proceeds received on the mortgage loan.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Mortgage Notes due 2029
At December 31, 2021, the $ 653.6 million of Mortgages Notes with Ciena Healthcare (“Ciena") consisted of the following:
● $ 415 million amortizing mortgage (the “Master Mortgage”) that matures in 2029 . The Master Mortgage note bore an initial interest rate of 9.0 % per annum which increases by 0.225 % per annum. In May 2020, we amended the Master Mortgage to increase the interest rate by 54 basis points from 10.13 % per annum to 10.67 % per annum and we sold eight SNFs and one ALF located in Michigan to Ciena for $ 83.5 million (as discussed below). As of December 31, 2021, the outstanding principal balance of the Master Mortgage note is approximately $ 372.8 million and is secured by 25 facilities. The interest rate on the Master Mortgage was 11.13 % at December 31, 2021.
● Additional borrowings in the form of incremental facility mortgages, construction and/or improvement mortgages with maturities through 2029 (with exception to one construction mortgage with principal of $ 9.3 million that matures in 2023 ) with initial annual interest rates ranging between 8.5 % and 10 % and fixed annual escalators of 2 % or 2.5 % over the prior year’s interest rate, or a fixed increase of 0.225 % per annum. As of December 31, 2021, the outstanding principal balance of these mortgage notes which are secured by five facilities is approximately $ 132.4 million. During the second quarter of 2021, one construction mortgage, included in the mortgage notes described above, with an original maturity date of 2021 was extended to 2029 and converted into a facility mortgage. During the third quarter of 2021, we acquired a facility which was previously subject to a $ 13.9 million construction mortgage, also included in the notes described above, and subsequently leased the property back to Ciena.
● $ 44.7 million mortgage note related to five SNFs located in Michigan. The mortgage note matures on June 30, 2029 and bears an initial annual interest rate of 9.5 % which increases each year by 0.225 %. The interest rate on the mortgage note was 10.18 % at December 31, 2021. As of December 31, 2021, the outstanding principal balance of this mortgage note is approximately $ 43.8 million. Additionally, the Company committed to fund an additional $ 9.6 million to Ciena if certain performance metrics are achieved by the portfolio.
● $ 83.5 million mortgage note related to eight SNFs and one ALF located in Michigan. These nine facilities were formerly leased to Ciena and were sold to Ciena by issuance of a first mortgage on May 1, 2020. In connection with this sale, we recorded a loss of $ 3.6 million related to the write-off of the nine facilities’ straight-line rent receivable. The mortgage note matures on June 30, 2029 and bears an initial annual interest rate of 10.31 % which increases each year by 2 % . The interest rate on the mortgage note was 10.52 % at December 31, 2021. As of December 31, 2021, the outstanding principal balance of this mortgage note is approximately $ 83.2 million.
● $ 21.3 million mortgage note related to one SNF located in Ohio. The mortgage note matures on March 31, 2022 and bears an initial annual interest rate of 9.5 % . In January 2022, we amended the mortgage note to increase the interest rate to 9.74 % beginning April 1, 2022 and to extend the maturity date to December 31, 2022 . As of December 31, 2021, the outstanding principal balance of this mortgage note is approximately $ 21.3 million.
The mortgage notes with Ciena are cross-defaulted and cross-collateralized with our existing master lease and other investment notes with the operator.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Other mortgage notes outstanding
Mortgage Note due 2032 ; interest at 10.50 %
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 %. As of December 31, 2021, the outstanding principal balance of this mortgage note is approximately $ 72.4 million.
Mortgage Note due 2025 ; interest at 7.85 %
In connection with the MedEquities Merger on May 17, 2019, the Company acquired a first mortgage lien issued to Lakeway Realty, L.L.C, an unconsolidated joint venture discussed in Note 11 – Investments in Joint Ventures, in the original principal amount of approximately $ 73.0 million bearing interest at 8 % per annum based on a 25-year amortization schedule and maturing on March 20, 2025 . We determined the acquisition date fair value of the acquired mortgage was $ 69.1 million. As of December 31, 2021 and 2020, this mortgage has a carrying value of $ 65.5 million and $ 67.0 million, respectively.
NOTE 8 - OTHER INVESTMENTS
Our other investments consist of fixed and variable rate loans to our operators and/or their principals to fund working capital and capital expenditures. These loans may be either unsecured or secured by the collateral of the borrower. Interest revenue on these loans is included within other investment income on the Consolidated Statement of Operations. As of December 31, 2021, we had 34 loans with 18 different operators. A summary of our other investments is as follows:
December 31,
December 31,
2021
2020
(in thousands)
Other investment notes due 2024 ; interest at 13.15 % (1)
$
90,752
$
83,636
Other investment notes due 2024 - 2025 ; interest at 8.12 % (1)
55,791
56,987
Other investment note due 2023 ; interest at 12.00 %
40,232
49,973
Other investment notes due 2030 ; interest at 7.00 %
201,613
147,148
Other investment notes outstanding (2)
150,890
161,155
Total other investments, gross
539,278
498,899
Allowance for credit losses on other investments
( 69,394 )
( 31,457 )
Total other investments - net
$
469,884
$
467,442
(1) Approximate weighted average interest rate as of December 31, 2021.
(2) Other investment notes have a weighted average interest rate of 8.46 % as of December 31, 2021 with maturity dates ranging from 2022 through 2031 (with $ 81.9 million maturing in 2022 ).
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Other investment notes due 2024
Our other investment notes due in 2024 consists of two secured term loans with Genesis with initial borrowings of $ 48.0 million and $ 16.0 million at issuance. The $ 48.0 million term loan was issued in July 2016 (the “2016 Term Loan”), with subsequent amendments in 2018, 2019 and 2021, and currently bears interest at a fixed rate of 14 % per annum, of which 9 % per annum is paid-in-kind. The 2016 Term Loan was initially scheduled to mature on July 29, 2020 , but through the amendments noted above, the maturity date of this loan was extended to January 1, 2024 . The $ 16.0 million secured term loan was issued on March 6, 2018 (the “2018 Term Loan”), and amended in 2021, and bears interest at a fixed rate of 10 % per annum, of which 5 % per annum is paid-in-kind. The 2018 Term Loan was initially scheduled to mature on July 29, 2020 , but through the amendments noted above was extended to January 1, 2024 . Both the 2016 and 2018 Term Loans are secured by a first priority lien on and security interest in certain collateral of Genesis. As of December 31, 2021, there was approximately $ 71.4 million and $ 19.4 million outstanding on the 2016 and 2018 Term Loans, respectively. We evaluated our 2016 and 2018 Term Loans with Genesis for impairment during 2021 and 2020, with no incremental provision for credit loss recognized given the underlying collateral value.
Other investment notes due 2024-2025
Our other investment notes due in 2024-2025 consist of a $ 32 million secured term loan (the “Agemo Term Loan”) and a $ 25.0 million secured working capital loan (the “Agemo WC Loan”) with Agemo. The Agemo Term Loan was acquired in 2016 and bears interest at 9 % per annum. The Agemo Term Loan matures on December 31, 2024 and is secured by a security interest in certain collateral of Agemo. The Agemo WC Loan was issued on May 7, 2018 and bears interest at 7 % per annum. The Agemo WC Loan matures on April 30, 2025 and is primarily secured by a collateral package that includes a second lien on the accounts receivable of the Agemo. The proceeds of the Agemo WC Loan were used to pay operating expenses, settlement payments, fees, taxes and other costs approved by the Company. 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 also fully reserved approximately $ 3.8 million of contractual interest receivable related to the Agemo Term Loan in the third quarter of 2020 (see Note 9 – Allowance for Credit Losses).
As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, Agemo failed to pay contractual rent and interest to us from August 2021 through October 2021 and in December 2021. 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 loss 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 that supported the value of the Agemo Term Loan to Omega’s uncollected receivables and a reduction in Agemo’s working capital accessible to Omega as collateral, after considering other liens on the assets. Additionally, the loan has been placed on non-accrual status and we will use the cost recovery method and will apply any interest and fees received directly against the principal of the loan. As of December 31, 2021, we have received $ 1.2 million of interest payments and applied against the principal.
We previously had two other loans with Agemo affiliates that were repaid during 2020: $ 1.7 million term loan (which was added to Agemo Term Loan) that was issued on November 5, 2019 and a $ 3.5 million term loan that was issued on February 28, 2020. The $ 1.7 million term loan and $ 3.5 million term loan bore interest at fixed rates of 9 % and 10 % per annum, respectively.
At December 31, 2021, the total carrying value of our loans outstanding with Agemo and its affiliates, net of allowances for credit losses, is approximately $ 16.7 million.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Other investment note due 2023
Our other investment note due in 2023 consists of a $ 60.0 million mezzanine loan, with an operator, that was acquired and financed in 2016 and subsequently amended and refinanced in May 2018. As amended, the mezzanine loan bears interest at a fixed interest rate of 12 % per annum and matures on May 31, 2023 . The mezzanine loan requires semi-annual principal payments of $ 2.5 million commencing December 31, 2018 and is secured by an equity interest in subsidiaries of the borrower. As of December 31, 2021, our total other investments outstanding with this borrower was approximately $ 40.2 million.
Other investment notes due 2030
In 2015 and 2017, we entered into two separate $ 50.0 million and $ 15.0 million secured revolving credit facilities with Maplewood and its subsidiaries. These revolving credit facilities bore interest at approximately 6.66 % per annum and 9.5 % per annum, respectively, and were initially scheduled to mature in 2023. As a part of an overall restructuring with this operator, we entered into a $ 220.5 million secured revolving credit facility with Maplewood on July 31, 2020, of which $ 132.1 million was drawn at closing. The funds drawn at closing were used to repay our prior credit facilities with Maplewood, as well as other lease obligations owed to us, of which approximately $ 55.4 million was scheduled to be repaid at termination of the master lease. Loan proceeds under the new credit facility may also be used to fund Maplewood’s working capital needs. Loans made under this facility bear interest at a fixed rate of 7 % per annum and mature on June 30, 2030 . As of December 31, 2021, $ 201.6 million remains outstanding on this credit facility to Maplewood.
As a result of entering into the $ 220.5 million secured revolving credit facility in July 2020, we reassessed our relationship with Maplewood and concluded that Maplewood was a VIE.
Other investment notes outstanding
As of December 31, 2021, our other investment notes outstanding represents 28 loans to operators that primarily consists of term loans and working capital loans or revolving credit facilities. Many of these loans are not individually significant and the use of proceeds of these loans can vary. Included below are the significant new loans entered into in 2021 and significant updates to any existing loans.
Gulf Coast – DIP Facility
As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, in October 2021, we provided an up to $ 25.0 million senior secured DIP facility (the “DIP Facility”) with Gulf Coast, in order to provide liquidity for the operations of the Gulf Coast facilities during its Chapter 11 cases. A portion of the funding under the DIP Facility is tied to certain milestones and other conditions, including the transition of the management of the operations of the facilities. At December 31, 2021, these milestones and conditions had been met and the full capacity of the DIP Facility was available to be borrowed upon by Gulf Coast. The DIP Facility bears interest at LIBOR (subject to a 1 % floor) plus 12 % per annum and has an unused commitment fee equal to .50 % of the average daily balance of the undrawn commitments. Interest and fees are payable monthly and the principal is due at maturity, unless the amount outstanding thereunder is accelerated prior to maturity. Currently, the DIP Facility matures on the earlier of (i) June 18, 2022 , (ii) the effective date of a plan of reorganization or liquidation in the Chapter 11 Cases or (iii) upon an event of default as defined in the DIP Facility agreement. The DIP financing is guaranteed by all debtors in Gulf Coast’s Chapter 11 cases and is secured by liens on substantially all of their assets, including post-petition accounts receivable, subject in certain cases to other priorities or exceptions. As of December 31, 2021, $ 20.5 million was outstanding under the DIP Facility, which was fully reserved for as discussed further below.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Given the uncertainty and complexity surrounding the bankruptcy process and the deteriorated credit of Gulf Coast, we evaluated the DIP facility on an individual basis and elected to measure the risk of loss on the DIP Facility based on the fair value of the collateral. Based on the cash forecasts provided by Gulf Coast as part of the Support Agreement and on-going monthly reporting, we estimate that the collateral will have insufficient value to support the loan at maturity and that we will be unable to collect on substantially all principal amounts advanced to Gulf Coast under the DIP Facility. Upon funding, we fully reserved all principal amounts advanced under the DIP Facility. In the fourth quarter of 2021, we recorded reserves of $ 20.0 million (the principal outstanding after considering interest payments applied to principal discussed below) related to the DIP facility through the provision for credit losses on December 31, 2021. Please see further discussion within Note 9 – Allowance for Credit Losses. Additionally, we have placed the loan on non-accrual status and will use the cost recovery method and will apply any interest and fees received directly against the principal of the loan. As of December 31, 2021, we have received $ 0.5 million of interest and fee payments and applied against the principal.
Working Capital Loan - $ 20 million
As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, in November 2021, we entered into a $ 20.0 million working capital loan with New Manager of 23 of the 24 Gulf Coast facilities as part of the MOTAs that became effective on December 1, 2021. The working capital loan bears interest at 3 % per annum. The maturity date of the loan is the earlier of (i) December 31, 2022 , (ii) the date of the termination of one or more of the MOTAs, or (iii) the date that New Manager requests that the loan be terminated. Advances under the working capital loan are not required to be repaid until maturity. The working capital loan is collateralized by the post-transition accounts receivable of the 24 facilities. As of December 31, 2021, the outstanding principal under this loan was $ 12.5 million.
Revolving Credit Facility - $ 20 million
On October 1, 2021, the Company amended the terms of a $ 15 million revolving credit facility with an operator that was previously issued in December 2020 and had a maturity date of December 1, 2022 . The revolving credit facility, as amended, has an increased maximum principal of $ 20 million, bears interest at 5 % for the first year and 6 % thereafter and has a maturity date of September 30, 2024 . The credit facility is secured by a first lien on the accounts receivable of the operator. Following the amendment in the fourth quarter, this operator drew $ 7.8 million under the credit facility. As of December 31, 2021, the outstanding principal under this loan was $ 16.0 million.
As discussed in Note 23 – Subsequent Events, in January and February 2022, this operator paid contractual interest under the credit facility but failed to pay contractual rent due under its lease agreement. The operator has asked for a short-term rent deferral, and negotiations are on-going.
Second Spring Healthcare Investments
On April 17, 2020, we provided a $ 17.6 million unsecured loan to a subsidiary of Second Spring Healthcare Investments (an entity in which we have an approximate 15 % ownership interest, see Note 11 – Investments in Joint Ventures) bearing interest at the greater of the prime interest rate or 3-month LIBOR plus 2.75 % per annum which was due on demand. This loan was repaid in 2021.
Sellers Note - $30 million
In connection with transitioning facilities associated with Orianna Health Systems, a former operator, in January 2019 we issued a $ 30 million sellers note that bore interest at a fixed rate of 6 % per annum. The $ 23.5 million in principal outstanding on this loan was repaid in September 2021.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 9 – ALLOWANCE FOR CREDIT LOSSES
A rollforward of our allowance for credit losses, summarized by financial instrument type and internal credit risk rating, for the years ended December 31, 2021 and 2020 is as follows:
Rating
Financial Statement Line Item
Allowance for Credit Loss as of December 31, 2020
Provision (recovery) for Credit Loss for the year ended December 31, 2021
Write-offs charged against allowance for the year ended December 30, 2021
Allowance for Credit Loss as of December 31, 2021
(in thousands)
2
Mortgage notes receivable
$
88
$
( 73 )
$
—
$
15
3
Mortgage notes receivable
954
1,019
—
1,973
4
Mortgage notes receivable
26,865
( 7,404 )
(1)
—
19,461
5
Mortgage notes receivable
433
( 298 )
—
135
6
Mortgage notes receivable
4,905
47,112
(1)
—
52,017
Sub-total
33,245
40,356
—
73,601
3
Investment in direct financing leases
694
( 164 )
—
530
Sub-total
694
( 164 )
—
530
2
Other investments
94
( 65 )
—
29
3
Other investments
5,113
( 513 )
—
4,600
4
Other investments
24,397
( 23,225 )
(2)
—
1,172
5
Other investments
1,853
6,103
(3)
( 95 )
7,861
6
Other investments
—
55,732
(4)
—
55,732
Sub-total
31,457
38,032
( 95 )
69,394
2
Off-balance sheet note commitments
116
( 109 )
—
7
3
Off-balance sheet note commitments
2,305
( 1,847 )
—
458
4
Off-balance sheet note commitments
—
216
—
216
4
Off-balance sheet mortgage commitments
24
93
—
117
6
Off-balance sheet mortgage commitments
—
143
—
143
Sub-total
2,445
( 1,504 )
—
941
Total
$
67,841
$
76,720
$
( 95 )
$
144,466
(1) Amount reflects the movement of reserves associated with a $ 112.5 million mortgage for 9 facilities with Guardian due to a reduction of our internal risk rating on the loan from a 4 to a 5 in the third quarter of 2021, which was primarily due to the increased likelihood of a restructuring that would result in the modification of the mortgage loan terms, and from a 5 to a 6 during the fourth quarter of 2021, which was primarily due to Guardian’s non-payment of rent and interest during the fourth quarter of 2021 due to on-going liquidity issues (as discussed further in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements) and further negotiations with Guardian in the fourth quarter. As discussed in Note 7 – Mortgage Notes Receivable, we elected to evaluate the risk of loss on the loan on an individual basis, which resulted in recording an additional $ 38.2 million reserve on the mortgage loan.
(2) Amount reflects the movement of $ 27.2 million of reserves from Other Investments with a rating of 4 to Other Investments with a rating of 6 as a result of a reduction of our internal credit rating from a 4 to a 6 on the Agemo Term Loan and one other loan during the third quarter of 2021.
(3) The provision includes an additional $ 7.9 million allowance recorded on the Agemo WC Loan during the third quarter of 2021. We also reduced the internal rating on the Agemo WC Loan from a 4 to a 5 during the third quarter of 2021. See Note 8 – Other Investments for additional information on the conditions that drove the Agemo WC Loan impairment and rating reduction.
(4) Amount reflects the movement of $ 27.2 million of reserves from Other Investments with a rating of 4 to Other Investments with a rating of 6 as a result of a reduction of our internal credit rating from a 4 to a 6 on the Agemo Term Loan and one other loan during the third quarter of 2021. The amount also reflects $ 8.8 million of additional allowance recorded in the third quarter of 2021 to fully impair the remaining carrying value of the Agemo Term Loan and $ 20.0 million of additional allowance recorded in the fourth quarter of 2021 to fully impair the remaining carrying value of the Gulf Coast DIP Facility. See Note 8 – Other Investments for additional information on the conditions that drove the Agemo Term Loan impairment and ratings reduction and the Gulf Coast DIP Facility Impairment.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Rating
Financial Statement Line Item
Allowance for Credit Loss at December 31, 2019
Allowance for Credit Loss on January 1, 2020
Provision (recovery) for Credit Loss for the year ended December 31, 2020
Write-offs charged against allowance for the year ended December 30, 2020
Allowance for Credit Loss as of December 31, 2020
(in thousands)
2
Mortgage notes receivable
$
—
$
—
$
88
$
—
$
88
3
Mortgage notes receivable
—
901
53
—
954
4
Mortgage notes receivable
—
19,293
7,572
—
26,865
5
Mortgage notes receivable
—
829
( 396 )
—
433
6
Mortgage notes receivable
4,905
363
( 363 )
—
4,905
Sub-total
4,905
21,386
6,954
—
33,245
3
Investment in direct financing leases
217
611
83
( 217 )
694
Sub-total
217
611
83
( 217 )
694
2
Other investments
—
195
( 101 )
—
94
3
Other investments
—
1,434
3,679
—
5,113
4
Other investments
—
3,158
21,239
—
24,397
5
Other investments
—
1,901
( 48 )
—
1,853
Sub-total
—
6,688
24,769
—
31,457
2
Off-balance sheet note commitments
—
—
116
—
116
3
Off-balance sheet note commitments
—
—
2,305
—
2,305
4
Off-balance sheet mortgage commitments
—
100
( 76 )
—
24
Sub-total
—
100
2,345
—
2,445
Total
$
5,122
$
28,785
$
34,151
$
( 217 )
$
67,841
Included below is a summary of the amortized cost basis of our financial instruments, subject to the allowance for credit losses, by year of origination and our internal risk rating:
Rating
Financial Statement Line Item
2021
2020
2019
2018
2017
2016
2015 & older
Revolving Loans
Balance as of December 31, 2021
(in thousands)
1
Mortgage notes receivable
$
—
$
—
$
—
$
—
$
—
$
—
$
65,475
$
—
$
65,475
2
Mortgage notes receivable
—
21,325
—
—
—
—
—
—
21,325
3
Mortgage notes receivable
72,420
—
—
—
—
—
—
—
72,420
4
Mortgage notes receivable
16,776
89,349
5,034
44,308
46,377
39,713
390,681
—
632,238
5
Mortgage notes receivable
—
—
—
—
—
—
7,090
—
7,090
6
Mortgage notes receivable
—
—
—
—
—
—
110,139
—
110,139
Sub-total
89,196
110,674
5,034
44,308
46,377
39,713
573,385
—
908,687
3
Investment in direct financing leases
—
—
—
—
—
—
11,403
—
11,403
Sub-total
—
—
—
—
—
—
11,403
—
11,403
2
Other investments
—
—
—
—
—
—
—
21,500
21,500
3
Other investments
—
—
18,574
27,017
—
—
2,829
238,370
286,790
4
Other investments
2,690
—
10,859
90,752
—
41,232
—
—
145,533
5
Other investments
—
—
—
29,723
—
—
—
—
29,723
6
Other investments
20,026
—
—
4,463
—
31,243
—
—
55,732
Sub-total
22,716
—
29,433
151,955
—
72,475
2,829
259,870
539,278
Total
$
111,912
$
110,674
$
34,467
$
196,263
$
46,377
$
112,188
$
587,617
$
259,870
$
1,459,368
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Interest Receivable on Mortgage and Other Investment Loans
We have elected the practical expedient to exclude interest receivable from our allowance for credit losses. As of December 31, 2021 and 2020, $ 11.1 million and $ 10.0 million, respectively, of contractual interest receivable is recorded in contractual receivables – net on our Consolidated Balance Sheets. We write-off interest receivable to provision for credit losses in the period we determine the interest is no longer considered collectible. For the years ended December 31, 2021 and 2020, we wrote-off interest receivables of $ 1.0 million (related to the Guardian mortgage loan, see Note 7 – Mortgage Notes Receivable) and $ 3.8 million (related to the Agemo Term Loan, see Note 8 – Other Investments) through the provision for credit losses, respectively. These write-offs are not reflected in the rollforward of the allowance for credit losses above.
During the year ended December 31, 2021, we recognized $ 11.9 million of interest income related to loans on non-accrual status as of December 31, 2021.
NOTE 10 – VARIABLE INTEREST ENTITIES
We hold variable interests in several VIEs through our investing and financing activities. As of December 31, 2021, we have not consolidated any VIEs, as we have concluded that we are not the primary beneficiary of these entities as we either we do not have the power to direct activities that most significantly impact the VIE’s economic performance and/or the variable interest we hold does not obligate us to absorb losses or provide us with the right to receive benefits from the VIE which could potentially be significant.
Below is a summary of our assets, liabilities, collateral and maximum exposure to loss associated with these unconsolidated VIEs as of December 31, 2021 and 2020:
December 31,
December 31,
2021
2020
(in thousands)
Assets
Real estate assets – net
$
1,144,851
$
1,121,498
Assets held for sale
191,016
—
Other investments – net
230,768
181,401
Contractual receivables – net
1,227
1,233
Straight-line rent receivables
( 41,512 )
( 56,664 )
Lease inducement
64,307
69,666
Total assets
1,590,657
1,317,134
Liabilities
Net in-place lease liability
( 305 )
( 331 )
Security deposit
( 4,715 )
—
Contingent liability
( 43,915 )
( 43,915 )
Total liabilities
( 48,935 )
( 44,246 )
Collateral
Letters of credit
—
( 9,253 )
Personal guarantee
( 48,000 )
( 48,000 )
Other collateral (1)
( 1,335,867 )
( 1,121,498 )
Total collateral
( 1,383,867 )
( 1,178,751 )
Maximum exposure to loss
$
157,855
$
94,137
(1) Amount excludes accounts receivable amounts that Omega has a security interest in as collateral under the two working capital loans with operators that are VIEs. The fair value of the accounts receivable available to Omega was $ 29.2 million and $ 25.0 million as of December 31, 2021 and December 31, 2020, respectively.
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Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In determining our maximum exposure to loss from these VIEs, we considered the underlying carrying value of the real estate subject to leases with these operators and other collateral, if any, supporting our other investments, which may include accounts receivable, security deposits, letters of credit or personal guarantees, if any, as well as other liabilities recognized with respect to these operators.
The table below reflects our total revenues from the operators that are considered VIEs for the years ended December 31, 2021, 2020 and 2019:
Year Ended December 31,
2021
2020
2019
(in thousands)
Revenue
Rental income (1)
$
120,381
$
30,055
$
99,750
Other investment income
15,336
11,864
9,323
Total
$
135,717
$
41,919
$
109,073
(1) The rental income for the year ended December 31, 2020, reflects the write-off of approximately $ 75.3 million of contractual rent receivable, straight-line rent receivable and lease inducements related to Agemo (see Note 5 – Contractual Receivables and Other Receivables and Lease Inducements).
NOTE 11 – INVESTMENTS IN JOINT VENTURES
Unconsolidated Joint Ventures
Omega owns an interest in a number of joint ventures that are accounted for under the equity method. These entities and their subsidiaries are not consolidated by the Company because it does not control, through voting rights or other means, the joint venture. The following is a summary of our investments in unconsolidated joint ventures (dollars in thousands):
Carrying Amount
Ownership
Initial Investment
Facility
Facilities at
December 31,
December 31,
Entity
%
Date
Investment (1)
Type
12/31/2021
2021
2020
Second Spring Healthcare Investments (2)
15 %
11/1/2016
$
50,032
SNF
—
$
11,355
$
17,700
Second Spring II LLC (3)
15 %
3/10/2021
10,330
SNF
—
8
—
Lakeway Realty, L.L.C. (4)
51 %
5/17/2019
73,834
Specialty facility
1
71,286
72,318
Cindat Joint Venture (5)
49 %
12/18/2019
105,688
ALF
65
111,792
110,360
OMG Senior Housing, LLC
50 %
12/6/2019
—
Specialty facility
1
—
—
OH CHS SNP, Inc.
9 %
12/20/2019
900
N/A
N/A
246
260
$
240,784
$
194,687
$
200,638
(1) Our investment includes our transaction costs, if any.
(2) The Company made a loan of $ 17.6 million in April 2020 to the venture which is included in other investments. See Note 8 – Other Investments. During the first quarter of 2021, this joint venture sold 16 SNFs to an unrelated third-party for approximately $ 328 million in net proceeds and recognized a gain on sale of approximately $ 102.2 million ( $ 14.9 million of which represents the Company’s share of the gain). During the first quarter of 2021, this joint venture also sold five SNFs to Second Spring II LLC for approximately $ 70.8 million in net proceeds. During 2020, this joint venture sold 16 SNFs subject to an operating lease for approximately $ 259.1 million in net cash proceeds and recognized a gain on sale of approximately $ 40.4 million. During 2019, this joint venture sold 14 SNFs subject to an operating lease for approximately $ 311.8 million in net cash proceeds and recognized a gain on sale of approximately $ 64.0 million.
(3) We acquired a 15 % interest in Second Spring II LLC for approximately $ 10.3 million. During the first quarter of 2021, this joint venture acquired five SNFs from Second Spring Healthcare Investments for approximately $ 70.8 million. During the second and third quarters of 2021, this joint venture sold five SNFs to an unrelated third-party for approximately $ 65 million in net proceeds and recognized a loss on sale of approximately $ 0.4 million ( $ 0.1 million of which represents the Company’s share of the loss).
(4) We acquired an interest in a joint venture that owns the Lakeway Regional Medical Center (the “Lakeway Hospital”) in Lakeway, Texas. Our initial basis difference of approximately $ 69.9 million is being amortized on a straight-line basis over 40 years to income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations. The lessee of the Lakeway Hospital has an option to purchase the facility from the joint venture. The lessee also has a right of first refusal and a right of first offer in the event the joint venture intends to sell or otherwise transfer Lakeway Hospital.
(5) We acquired a 49 % interest in Cindat Ice Portfolio JV, GP Limited, Cindat Ice Portfolio Holdings, LP and Cindat Ice Portfolio Lender, LP. Cindat Ice Portfolio Holdings, LP owns 65 care homes leased to two operators in the U.K. pursuant to operating leases. Cindat Ice Portfolio Lender, LP holds loans to a third-party operator. Our investment in Cindat Joint Venture consists primarily of real estate. Our initial basis difference of approximately $ 35 million is being amortized on a straight-line basis over approximately 40 years to income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following table reflects our income (loss) from unconsolidated joint ventures for the years ended December 31, 2021, 2020 and 2019:
Year Ended December 31,
Entity
2021
2020
2019
(in thousands)
Second Spring Healthcare Investments (1)
$
12,323
$
2,807
$
9,490
Second Spring II LLC
( 757 )
—
—
Lakeway Realty, L.L.C.
2,562
2,483
1,479
Cindat Joint Venture
2,478
1,812
( 22 )
OMG Senior Housing, LLC
( 417 )
( 497 )
—
OH CHS SNP, Inc.
( 127 )
( 462 )
—
Total
$
16,062
$
6,143
$
10,947
(1) The income from this unconsolidated joint venture for the year ended December 31, 2021 includes a $ 14.9 million gain on sale of real estate investments.
Asset Management Fees
We receive asset management fees from certain joint ventures for services provided. For the years ended December 31, 2021, 2020 and 2019, we recognized approximately $ 0.8 million, $ 1.2 million and $ 0.9 million, respectively, of asset management fees. These fees are included in miscellaneous income in the accompanying Consolidated Statements of Operations.
Other Equity Investments
In the third quarter of 2021, we made an investment of $ 20.0 million in SafelyYou, Inc. (“SafelyYou”), a technology company that has developed artificial intelligence-enabled video that detects and helps prevent resident falls in ALFs and SNFs. Through our investment, we obtained preferred shares representing 5 % of the outstanding equity of SafelyYou and warrants to purchase SafelyYou common stock representing an additional 5 % of outstanding equity as of the date of our investment. SafelyYou has committed, for a specified period, to using the proceeds of our investment to install its technology in our facilities or other facilities of our operators. The vesting of the warrants is contingent upon SafelyYou’s attainment of certain installation targets in our facilities. To the extent these installation targets are not attained, the investment funds associated with the unvested warrants would be returned to Omega. The investment in the preferred shares and warrants are recorded within other assets on the Consolidated Balance Sheets.
NOTE 12 – GOODWILL AND OTHER INTANGIBLES
The following is a summary of our goodwill:
(in thousands)
Balance as of December 31, 2020
$
651,737
Foreign currency translation
( 320 )
Balance as of December 31, 2021
$
651,417
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following is a summary of our lease intangibles as of December 31, 2021 and 2020:
December 31,
December 31,
2021
2020
(in thousands)
Assets:
Above market leases
$
5,929
$
22,822
Accumulated amortization
( 4,313 )
( 20,882 )
Net above market leases
$
1,616
$
1,940
Liabilities:
Below market leases
$
66,324
$
139,515
Accumulated amortization
( 38,091 )
( 100,996 )
Net below market leases
$
28,233
$
38,519
For the years ended December 31, 2021, 2020 and 2019, our net amortization related to intangibles was $ 9.5 million, $ 14.2 million and $ 5.9 million, respectively. The estimated net amortization related to these intangibles for the subsequent five years is as follows: 2022 – $ 4.1 million; 2023 – $ 4.0 million; 2024 – $ 3.9 million; 2025 – $ 3.7 million; 2026 – $ 2.9 million and $ 8.1 million thereafter. As of December 31, 2021, the weighted average remaining amortization period of above market lease assets is approximately ten years and of below market lease liabilities is approximately eight years .
NOTE 13 - CONCENTRATION OF RISK
As of December 31, 2021, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, and assets held for sale) consisted of 960 healthcare facilities, located in 42 states and the U.K. and operated by 63 third-party operators. Our investment in these facilities, net of impairments and allowances, totaled approximately $ 10.1 billion at December 31, 2021, with approximately 98 % of our real estate investments related to healthcare facilities. Our portfolio is made up of (i) 685 SNFs, 133 ALFs, 20 ILFs, 16 specialty facilities, two MOBs, (ii) fixed rate mortgages on 59 SNFs, two ALFs and two specialty facilities, and (iii) 41 facilities that are held for sale. At December 31, 2021, we also held other investments of approximately $ 469.9 million, consisting primarily of secured loans to third-party operators of our facilities and $ 194.7 million of investment in six unconsolidated joint ventures.
At December 31, 2021, we had investments with two operators/or managers that approximated or exceeded 10% of our total investments: Maplewood and Consulate. Maplewood generated approximately 7.9 %, 5.4 % and 4.4 % of our total revenues (excluding the impact of write-offs) for the years ended December 31, 2021, 2020 and 2019, respectively. Consulate generated approximately 9.5 %, 9.4 % and 3.6 % of our total revenues (excluding the impact of write-offs) for the years ended December 31, 2021, 2020 and 2019, respectively.
At December 31, 2020, we had investments with one operator/or manager that exceeded 10% of our total investments: Ciena. Ciena generated approximately 9.3 %, 9.9 % and 10.5 % of our total revenues (excluding the impact of write-offs) for the years ended December 31, 2021, 2020 and 2019, respectively.
At December 31, 2021, the three states in which we had our highest concentration of investments were Florida ( 15 %), Texas ( 10 %) and Michigan ( 6 %).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 14 - BORROWING ARRANGEMENTS
The following is a summary of our long-term borrowings:
Annual
Interest Rate
as of
December 31,
December 31,
December 31,
Maturity
2021
2021
2020
(in thousands)
Secured borrowings
HUD mortgages (1)(2)
2046 - 2052
3.01
%
$
359,806
$
367,249
Term loan (3)
2022
3.75
%
2,275
2,275
Total secured borrowings
362,081
369,524
Unsecured borrowings
Revolving borrowings:
2017 Revolving credit facility (4)
N/A
N/A
—
101,158
Revolving credit facility (4)
2025
1.30
%
—
—
Total revolving borrowings
—
101,158
Senior notes and other unsecured borrowings:
2023 notes (4)(5)
2023
4.375
%
350,000
700,000
2024 notes (4)
2024
4.950
%
400,000
400,000
2025 notes (4)
2025
4.500
%
400,000
400,000
2026 notes (4)
2026
5.250
%
600,000
600,000
2027 notes (4)
2027
4.500
%
700,000
700,000
2028 notes (4)
2028
4.750
%
550,000
550,000
2029 notes (4)
2029
3.625
%
500,000
500,000
2031 notes (4)
2031
3.375
%
700,000
700,000
2033 notes (4)(6)
2033
3.250
%
700,000
—
Subordinated debt (2)
N/A
N/A
—
20,000
Sterling term loan (4)(7)
N/A
N/A
—
136,700
2017 OP term loan (8)
N/A
N/A
—
50,000
OP term loan (8)(9)
2025
3.29
%
50,000
—
Deferred financing costs – net
( 26,980 )
( 26,421 )
Discount – net
( 31,565 )
( 31,709 )
Total senior notes and other unsecured borrowings – net
4,891,455
4,698,570
Total unsecured borrowings – net
4,891,455
4,799,728
Total secured and unsecured borrowings – net (10)(11)
$
5,253,536
$
5,169,252
(1) Reflects the weighted average annual contractual interest rate on the mortgages at December 31, 2021. Secured by real estate assets with a net carrying value of $ 544.5 million as of December 31, 2021.
(2) Wholly owned subsidiaries of Omega OP are the obligor on these borrowings.
(3) Borrowing is the debt of a consolidated joint venture.
(4) Guaranteed by Omega OP.
(5) In March 2021, we used a portion of the proceeds from the 2033 Senior Notes offering to fund the tender offer to redeem $ 350 million of the 4.375 % Senior Notes due 2023 . In connection with this transaction, we recorded approximately $ 30.6 million in related fees, premiums, and expenses for the year ended December 31, 2021, which were recorded as Loss on debt extinguishment in our Consolidated Statement of Operations.
(6) We used the proceeds from this offering to pay down outstanding borrowings on the 2017 Revolving Credit Facility, repay the Sterling term loan, and fund the tender offer to purchase $ 350 million of the 4.375 % Senior Notes due 2023 and the payment of accrued interest and related fees, premiums and expenses.
(7) Actual borrowing is in GBP and remeasured to USD. The Sterling term loan was settled in March 2021 using proceeds from the 3.250 % 2033 Senior Notes offering.
(8) Omega OP is the obligor on this borrowing.
(9) The weighted average interest rate of the OP Term Loan has been adjusted to reflect the impact of the interest rate swaps that effectively fix the LIBOR based portion of the interest rate at 1.84 %
(10) All borrowings are direct borrowings of Parent unless otherwise noted.
(11) Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of December 31, 2021 and 2020, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings .
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Secured Borrowings
HUD Mortgage Debt
On October 31, 2019, we assumed approximately $ 389 million in mortgage loans guaranteed by HUD. The HUD loans have maturity dates between 2046 and 2052 with fixed interest rates ranging from 2.82 % per annum to 3.24 % per annum. The HUD loans may be prepaid subject to an initial penalty of 10 % of the remaining principal balances in the first year and the prepayment penalty decreases each subsequent year by 1 % until no penalty is required.
On August 26, 2020, we paid approximately $ 13.7 million to retire two mortgage loans guaranteed by HUD that were assumed in 2019 and had an average interest rate of 3.08 % per annum with maturities in 2051 and 2052 . The payoff included a $ 0.9 million prepayment fee which is included in loss on debt extinguishment on our Consolidated Statements of Operations.
All HUD loans are subject to the regulatory agreements that require escrow reserve funds to be deposited with the loan servicer for mortgage insurance premiums, property taxes, debt service and capital replacement expenditures. As of December 31, 2021, the Company has total escrow reserves of $ 27.5 million with the loan servicer that is reported within other assets on the Consolidated Balance Sheets.
Unsecured Borrowings
Revolving Credit Facility
On April 30, 2021, Omega entered into a credit agreement (the “2021 Omega Credit Agreement”) providing us with a new $ 1.45 billion senior unsecured multicurrency revolving credit facility (the “Revolving Credit Facility”), replacing our previous $ 1.25 billion senior unsecured 2017 multicurrency revolving credit facility (the “2017 Revolving Credit Facility”). The 2021 Omega Credit Agreement contains an accordion feature permitting us, subject to compliance with customary conditions, to increase the maximum aggregate commitments thereunder to $ 2.5 billion, by requesting an increase in the aggregate commitments under the Revolving Credit Facility or by adding term loan tranches.
The Revolving Credit Facility bears interest at LIBOR (or in the case of loans denominated in GBP, the Sterling overnight index average reference rate plus an adjustment of 0.1193 % per annum, and in the case of loans denominated in Euros, the Euro interbank offered rate, or EURIBOR) plus an applicable percentage (with a range of 95 to 185 basis points) based on our credit ratings. The Revolving Credit Facility matures on April 30, 2025 , subject to Omega’s option to extend such maturity date for two six-month periods. The Revolving Credit Facility may be drawn in Euros, GBP, Canadian Dollars (collectively, “Alternative Currencies”) or USD, with a $ 1.15 billion tranche available in USD and a $ 300 million tranche available in Alternative Currencies. For purposes of the Revolving Credit Facility, references to LIBOR include the Canadian dealer offered rates for amounts offered in Canadian Dollars and any other Alternative Currency rate approved in accordance with the terms of the 2021 Omega Credit Agreement for amounts offered in any other non-LIBOR quoted currency, as applicable. The Revolving Credit Facility includes customary LIBOR replacement language, including, but not limited to, the use of rates for U.S. dollar-denominated borrowings based on the secured overnight financing rate (“SOFR”) recommended by the Alternative Reference Rates Committee, a steering committee comprised of U.S. financial market participants, as a replacement rate for LIBOR. SOFR is a broad measure of the cost of borrowing cash in the overnight U.S. Treasury repo market, and is administered by the Federal Reserve Bank of New York.
We incurred $ 12.9 million of deferred costs in connection with the 2021 Omega Credit Agreement.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
OP Term Loan
On April 30, 2021, Omega OP entered into a credit agreement (the “2021 Omega OP Credit Agreement”) providing it with a new $ 50 million senior unsecured term loan facility (the “OP Term Loan”). The OP Term Loan replaces the $ 50 million senior unsecured term loan obtained in 2017 (the “2017 OP Term Loan”) and the related credit agreement. The OP Term Loan bears interest at LIBOR plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings. The OP Term Loan includes customary LIBOR replacement language, including, but not limited to, the use of rates based on SOFR. The OP Term Loan matures on April 30, 2025 , subject to Omega OP’s option to extend such maturity date for two , six-month periods.
We incurred $ 0.4 million of deferred costs in connection with the 2021 Omega OP Credit Agreement.
2017 Omega Credit Facilities
On May 25, 2017, Omega entered into a credit agreement (the “2017 Omega Credit Agreement”) for a new $ 1.8 billion senior unsecured revolving and term loan credit facility, consisting of a $ 1.25 billion senior unsecured multicurrency revolving credit facility (the “2017 Revolving Credit Facility”), a $ 425 million senior unsecured U.S. Dollar term loan facility (the “U.S. Term Loan”), and a £ 100 million senior unsecured British Pound Sterling term loan facility (the “Sterling Term Loan” and, together with the 2017 Revolving Credit Facility and the U.S. Term Loan Facility, collectively, the “2017 Omega Credit Facilities”).
In 2020, we repaid the outstanding balance on our U.S. Term Loan and wrote-off $ 0.8 million of unamortized deferred costs to loss on debt extinguishment on our Consolidated Statements of Operations. In 2021, we repaid the outstanding balance on our 2017 Revolving Credit Facility and Sterling Term Loan using a portion of the proceeds from the 2033 Senior Notes offering and wrote-off $ 0.2 million of unamortized deferred costs relating to the Sterling Term Loan to loss on debt extinguishment on our Consolidated Statements of Operations. In April 2021, the 2017 Revolving Credit Facility was replaced by the Revolving Credit Facility.
2017 OP Term Loan
On May 25, 2017, Omega OP entered into a credit agreement (the “2017 Omega OP Credit Agreement”) providing it with a new $ 100 million senior unsecured term loan facility (the “2017 OP Term Loan”). The 2017 OP Term Loan bore interest at LIBOR plus an applicable percentage (with a range of 90 to 190 basis points) based on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings. At December 31, 2020, we had $ 50.0 million in outstanding borrowings under this facility. In April 2021, The 2017 OP Term loan was replaced by the OP Term Loan.
Amended 2015 Term Loan Facility
On May 25, 2017, Omega entered into an amended and restated credit agreement (the “Amended 2015 Credit Agreement”), which amended and restated our previous $ 250 million senior unsecured term loan facility (the “Amended 2015 Term Loan Facility”). The Amended 2015 Term Loan Facility bore interest at LIBOR plus an applicable percentage (with a range of 140 to 235 basis points) based on our ratings from Standard & Poor’s, Moody’s and/or Fitch Ratings. We repaid the Amended 2015 Term Loan Facility in October 2020 with proceeds from the senior notes issuance and wrote-off $ 0.7 million of unamortized deferred costs to loss on debt extinguishment on our Consolidated Statements of Operations.
Subordinated Debt
In connection with a 2010 acquisition, we assumed five separate $ 4.0 million subordinated notes bearing interest at 9 % per annum that mature on December 21, 2021 . Interest on these notes is due quarterly with the principal balance due at maturity. As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, to the extent that the operator of the facilities (Gulf Coast) fails to pay rent when due to us under our existing master lease, we have the right to offset the amounts owed to us against the amounts we owe to the lender under the notes. As of December 31, 2021, we have offset $ 1.3 million of accrued interest and $ 20.0 million of principal under the Subordinated Debt against the uncollected receivables of Gulf Coast. Following the application of these offsets, Omega has no further obligations under the Subordinated Debt.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
General
Parent and Omega OP, on a combined basis, have no material assets, liabilities or operations other than financing activities (including borrowings under the senior unsecured revolving and term loan credit facility, OP term loan and the outstanding senior notes) and their investments in non-guarantor subsidiaries. Substantially all of our assets are held by non-guarantor subsidiaries.
The required principal payments, excluding the premium or discount and deferred financing costs on our secured and unsecured borrowings, for each of the five years following December 31, 2021 and the aggregate due thereafter are set forth below:
(in thousands)
2022
$
9,945
2023
357,904
2024
408,144
2025
458,393
2026
608,648
Thereafter
3,469,047
Total
$
5,312,081
NOTE 15 – DERIVATIVES AND HEDGING
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.
As a result of exposure to interest rate movements associated with the Amended 2015 Term Loan Facility, on December 16, 2015, we entered into various forward-starting interest rate swap arrangements, which effectively converted $ 250 million of our variable-rate debt based on one-month LIBOR to an aggregate fixed rate of approximately 3.80 % effective December 30, 2016. The effective fixed rate achieved by the combination of the Amended 2015 Term Loan Facility and the interest rate swaps could fluctuate up by 55 basis points or down by 40 basis points based on future changes to our credit ratings. Each of these swaps had a scheduled maturity date of December 15, 2022 . In October 2020, we terminated these $ 250.0 million of notional value interest rate swaps in connection with the repayment of the Amended 2015 Term Loan Facility and paid our swap counterparties $ 10.3 million which is recorded in loss on debt extinguishment on our Consolidated Statements of Operations.
On March 27, 2020 , we entered into five forward starting swaps totaling $ 400 million. We designated the forward starting swaps as cash flow hedges of interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt, initially expected to occur within the next five years . The swaps are effective on August 1, 2023 and expire on August 1, 2033 and were issued at a fixed rate of approximately 0.8675 %. In March 2021, in conjunction with the issuance of $ 700 million aggregate principal amount of our 3.25 % Senior Notes due 2033 , we discontinued hedge accounting for these five forward starting swaps. Simultaneously, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments on another forecasted issuance of long-term debt. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of 46 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In addition to the forward swaps discussed above, we also assumed various interest rate swap contracts in connection with the MedEquities Merger on May 17, 2019. We designated the interest rate swap contracts as cash flow hedges of interest rate risk associated with the 2017 Omega OP Credit Agreement. The assumed interest rate swap contracts effectively converted $ 75 million of our 2017 Omega OP Credit Agreement to an aggregate fixed rate of approximately 3.29 % through February 10, 2022. The effective fixed rate achieved by the combination of the 2017 Omega OP Credit Agreement and the interest rate swaps could fluctuate up by 55 basis points or down by 45 basis points based on future changes to our credit ratings. In October 2020, we terminated $ 25.0 million of notional value interest rate swaps in connection with the partial repayment and paid our swap counterparty $ 0.6 million which is recorded in loss on debt extinguishment on our Consolidated Statements of Operations. As of December 31, 2021, we have two interest rate swaps remaining with aggregate notional amounts of $ 50.0 million that 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. The OP Term Loan will be unhedged for the period after February 10, 2022 through its maturity on April 30, 2025 .
Foreign Currency Forward Contracts and Debt Designated as Net Investment Hedges
We use debt denominated in GBP and foreign currency forward contracts to hedge a portion of our net investment in the U.K. against fluctuations in foreign exchange rates.
GBP denominated borrowings under the Sterling term loan and the 2017 Revolving Credit Facility, were previously used to hedge a portion of our investments in the U.K. against fluctuations in GBP against the USD. The GBP denominated borrowings under both debt instruments were deemed an effective hedge from issuance in May 2017 until the settlement of the Sterling term loan and the repayment of the GBP denominated borrowings under the 2017 Revolving Credit Facility in March 2021.
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 location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:
December 31,
December 31,
2021
2020
Cash flow hedges:
(in thousands)
Other assets
$
32,849
$
17,005
Accrued expenses and other liabilities
$
96
$
955
Net investment hedges:
Other assets
$
6,754
$
—
The fair value of the interest rate swaps and foreign currency forwards is derived from observable market data such as yield curves and foreign exchange rates and represents a Level 2 measurement on the fair value hierarchy.
NOTE 16 - FINANCIAL INSTRUMENTS
The net carrying amount of cash and cash equivalents, restricted cash, contractual receivables, other assets and accrued expenses and other liabilities reported in the Consolidated Balance Sheets approximates fair value because of the short maturity of these instruments (Level 1).
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
At December 31, 2021 and 2020, the net carrying amounts and fair values of other financial instruments were as follows:
December 31, 2021
December 31, 2020
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
(in thousands)
Assets:
Investments in direct financing leases – net
$
10,873
$
10,873
$
10,764
$
10,764
Mortgage notes receivable – net
835,086
869,715
885,313
924,353
Other investments – net
469,884
476,664
467,442
474,552
Total
$
1,315,843
$
1,357,252
$
1,363,519
$
1,409,669
Liabilities:
2017 Revolving credit facility
$
—
$
—
$
101,158
$
101,158
Revolving credit facility
—
—
—
—
Term loan
2,275
2,275
2,275
2,275
Sterling term loan
—
—
136,453
136,700
2017 OP term loan
—
—
49,896
50,000
OP Term loan
49,661
50,000
—
—
4.375 % notes due 2023 – net
349,100
365,243
696,981
770,635
4.95 % notes due 2024 – net
397,725
427,184
396,714
441,194
4.50 % notes due 2025 – net
397,685
427,440
396,924
444,652
5.25 % notes due 2026 – net
597,142
667,524
596,437
697,993
4.50 % notes due 2027 – net
692,374
766,003
690,909
794,294
4.75 % notes due 2028 – net
543,908
607,249
542,899
633,950
3.625 % notes due 2029 – net
490,681
519,430
489,472
532,248
3.375 % notes due 2031 – net
683,592
705,810
681,802
731,541
3.25 % notes due 2033 – net
689,587
683,151
—
—
HUD mortgages – net
359,806
394,284
367,249
409,004
Subordinated debt – net
—
—
20,083
21,599
Total
$
5,253,536
$
5,615,593
$
5,169,252
$
5,767,243
Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument (see Note 2 – Summary of Significant Accounting Policies). The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts.
The following methods and assumptions were used in estimating fair value disclosures for financial instruments.
● Mortgage notes receivable: The fair value of the mortgage notes receivables are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).
● Other investments: Other investments are primarily comprised of notes receivable. The fair values of notes receivable are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).
● Revolving credit facility and OP term loan: The carrying amount of these approximate fair value because the borrowings are interest rate adjusted. Differences between carrying value and the fair value in the table above are due to the inclusion of deferred financing costs in the carrying value.
● Senior notes: The fair value of the senior unsecured notes payable was estimated based on (Level 1) publicly available trading prices.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
● Subordinated debt: The fair value of our borrowings under fixed rate agreements are estimated using a present value technique based on inputs from trading activity provided by a third party (Level 2).
● HUD mortgages: The fair value of our borrowings under HUD debt agreements are estimated using an expected present value technique based on quotes obtained by HUD debt brokers (Level 2).
NOTE 17 – TAXES
Omega and Omega OP, including their wholly-owned subsidiaries were organized, have operated, and intend to continue to operate in a manner that enables Omega to qualify for taxation as a REIT under Sections 856 through 860 of the Code. On a quarterly and annual basis we perform several analyses to test our compliance within the REIT taxation rules. If we fail to meet the requirements for qualification as a REIT in any tax year, we will be subject to federal income tax on our taxable income at regular corporate rates and may not be able to qualify as a REIT for the four subsequent years, unless we qualify for certain relief provisions that are available in the event we fail to satisfy any of the requirements.
We are also subject to federal taxation of 100 % of the net income derived from the sale or other disposition of property, other than foreclosure property, that we held primarily for sale to customers in the ordinary course of a trade or business. We believe that we do not hold assets for sale to customers in the ordinary course of business and that none of the assets currently held for sale or that have been sold would be considered a prohibited transaction within the REIT taxation rules.
As a REIT under the Code, we generally will not be subject to federal income taxes on the REIT taxable income that we distribute to stockholders, subject to certain exceptions. In 2020, 2019, and 2018, we distributed dividends in excess of our taxable income.
We currently own stock in certain subsidiary REITs. These subsidiary entities are required to individually satisfy all of the rules for qualification as a REIT. If we fail to meet the requirements for qualification as a REIT for any of the subsidiary REITs, it may cause the Parent REIT to fail the requirements for qualification as a REIT also.
We have elected to treat certain of our active subsidiaries as TRSs. Our domestic TRSs are subject to federal, state and local income taxes at the applicable corporate rates. Our foreign TRSs are subject to foreign income taxes and may be subject to current-year income inclusion relating to ownership of a controlled foreign corporation for U.S. income tax purposes. As of December 31, 2021, one of our TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 10.6 million. Our NOL carry-forward was fully reserved as of December 31, 2021, with a valuation allowance due to uncertainties regarding realization. Under current law, NOL carry-forwards generated up through December 31, 2017 may be carried forward for no more than 20 years, and NOL carry-forwards generated in taxable years ended after December 31, 2017, may be carried forward indefinitely. We do not anticipate that such changes will materially impact the computation of Omega’s taxable income, or the taxable income of any Omega entity, including our TRSs.
The following is a summary of our provision for income taxes:
Year Ended December 31,
2021
2020
2018
(in millions)
Provision for federal, state and local income taxes
$
1.4
$
1.3
$
0.8
Provision for foreign income taxes
2.4
3.6
2.0
Total provision for income taxes (1)
$
3.8
$
4.9
$
2.8
(1) The above amounts do not include gross income receipts or franchise taxes payable to certain states and municipalities.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following is a summary of deferred tax assets and liabilities:
December 31,
December 31,
2021
2020
(in thousands)
Deferred tax assets:
Federal net operating loss carryforward
$
2,221
$
1,194
Deferred tax liability:
Foreign deferred tax liability (1)
( 8,200 )
( 10,766 )
Valuation allowance on deferred tax asset
( 2,221 )
( 1,194 )
Net deferred tax liability
$
( 8,200 )
$
( 10,766 )
(1) The deferred tax liability primarily resulted from inherited basis differences resulting from our acquisition of entities in the U.K. Subsequent adjustments to these accounts result from GAAP to tax differences related to depreciation, indexation and revenue recognition.
NOTE 18 – STOCKHOLDERS’ EQUITY
$300 Million 2019 Forward Equity Sale
In connection with a $ 300 million underwritten public offering, we entered into a forward equity sales agreement on September 9, 2019 to sell 7.5 million shares of our common stock at an initial net price of $ 40.01 per share, after underwriting discounts and commissions. On December 27, 2019, we settled the forward equity sale agreement by physical delivery of 7.5 million shares of common stock at $ 39.45 per share, net of dividends paid and interest received, for net proceeds of approximately $ 295.9 million.
$ 200 Million Stock Repurchase Program
On March 20, 2020, Omega’s Board of Directors authorized the repurchase of up to $ 200 million of its outstanding common stock from time to time over the twelve months ending March 20, 2021. Omega did no t repurchase any of its outstanding common stock under this announced program during 2020 or 2021.
At-The-Market Offering Program
On September 3, 2015, we entered into separate Equity Distribution Agreements with several financial institutions to sell $ 500 million of shares of our common stock from time to time through an “at-the-market” (“ATM”) offering program (the “2015 ATM Program”). Sales of the shares, if any, were made by means of ordinary brokers’ transactions on the New York Stock Exchange at market prices, or as otherwise agreed with the applicable Manager. We paid each Manager compensation for sales of the shares up to 2 % of the gross sales price per share for shares sold through such Manager under the applicable Equity Shelf Agreements.
During the second quarter of 2021, we terminated the 2015 ATM Program and entered into a new ATM Equity Offering Sales Agreement pursuant to which shares of common stock having an aggregate gross sales price of up to $ 1.0 billion (the “2021 ATM Program”) may be sold from time to time (i) by Omega through several financial institutions acting as a sales agent or directly to the financial institutions as principals, or (ii) by several financial institutions acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement. Under the 2021 ATM Program, compensation for sales of the shares will not exceed 2 % of the gross sales price per share for shares sold through each financial institution. 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 2021.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following is a summary of the shares issued under the 2021 and 2015 ATM Programs for each of the years ended December 31, 2019, 2020, and 2021 (in millions except average price per share):
Average Net Price
Year Ended
Shares issued
Per Share (1)
Gross Proceeds
Commissions
Net Proceeds
December 31, 2019
3.1
$
34.79
$
112.2
$
3.2
$
109.0
December 31, 2020
4.2
36.16
155.1
2.5
152.6
December 31, 2021
4.2
36.53
155.1
3.4
151.7
(1) Represents the average price per share after commissions.
Dividend Reinvestment and Common Stock Purchase Plan
We have a Dividend Reinvestment and Common Stock Purchase Plan (the “DRSPP”) that allows for the reinvestment of dividends and the optional purchase of our common stock. On March 23, 2020, we temporarily suspended the DRSPP and on December 17, 2020, we reinstated the DRSPP. The table below presents information regarding the shares issued under the DRSPP for each of the years ended December 31, 2019, 2020, and 2021 (in millions):
Year Ended
Shares issued
Gross Proceeds
December 31, 2019
3.0
$
115.1
December 31, 2020
0.1
3.7
December 31, 2021
3.4
126.7
Dividends
The Board of Directors has declared common stock dividends as set forth below:
Record
Payment
Dividend per
Date
Date
Common Share
February 8, 2021
February 16, 2021
$
0.67
May 3, 2021
May 17, 2021
0.67
August 2, 2021
August 13, 2021
0.67
November 5, 2021
November 15, 2021
0.67
February 7, 2022
February 15, 2022
0.67
Per Share Distributions
Per share distributions by our Company were characterized in the following manner for income tax purposes (unaudited):
Year Ended December 31,
Common
2021
2020
2019
Ordinary income
$
1.987
$
1.961
$
1.763
Return of capital
0.117
0.654
0.591
Capital gains
0.576
0.065
0.296
Total dividends paid
$
2.680
$
2.680
$
2.650
For additional information regarding dividends, see Note 17 – Taxes.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Accumulated Other Comprehensive Income (Loss)
The following is a summary of our accumulated other comprehensive income (loss), net of tax where applicable:
As of and for the
Year Ended December 31,
2021
2020
2019
(in thousands)
Foreign Currency Translation:
Beginning balance
$
( 18,427 )
$
( 35,100 )
$
( 47,704 )
Translation (loss) gain
( 6,302 )
16,595
12,646
Realized gain (loss)
717
78
( 42 )
Ending balance
( 24,012 )
( 18,427 )
( 35,100 )
Derivative Instruments:
Cash flow hedges:
Beginning balance
17,718
( 2,369 )
3,994
Unrealized gain (loss)
9,788
34,712
( 7,071 )
Realized gain (loss) (1)
2,901
( 14,625 )
708
Ending balance
30,407
17,718
( 2,369 )
Net investment hedges:
Beginning balance
( 13,331 )
( 4,420 )
70
Unrealized gain (loss)
3,743
( 8,911 )
( 4,490 )
Ending balance
( 9,588 )
( 13,331 )
( 4,420 )
Total accumulated other comprehensive loss before noncontrolling interest
( 3,193 )
( 14,040 )
( 41,889 )
Add: portion included in noncontrolling interest
993
1,272
2,031
Total accumulated other comprehensive loss for Omega
$
( 2,200 )
$
( 12,768 )
$
( 39,858 )
(1)
Expenses related to our effective cash flow hedges are recorded within interest expense. As noted in Note 15 – Derivatives and Hedging, we terminated $ 250.0 million of notional value interest rate swaps in October 2020 and reclassified the remaining balance in AOCI to loss on debt extinguishment on the Consolidated Statements of Operations.
NOTE 19 – STOCK-BASED COMPENSATION
At December 31, 2021, we maintained several stock-based compensation plans as described below. For the years ended December 31, 2021, 2020 and 2019, we recognized stock-based compensation of $ 21.4 million, $ 18.8 million and $ 14.9 million, respectively, related to these plans.
Time-Based Restricted Equity Awards
Restricted stock, restricted stock units (“RSUs”) and profits interest units (“PIUs”) are subject to forfeiture if the holder’s service to us terminates prior to vesting, subject to certain exceptions for certain qualifying terminations of service or a change in control of the Company. Prior to vesting, ownership of the shares/units cannot be transferred. The restricted stock has the same dividend and voting rights as our common stock. RSUs accrue dividend equivalents but have no voting rights. PIUs accrue distributions, which are equivalent to dividend equivalents, but have no voting rights. Once vested, each RSU is settled by the issuance of one share of Omega common stock and each PIU is settled by the issuance of one Omega OP Unit, subject to certain conditions. Restricted stock and RSUs are valued at the price of our common stock on the date of grant. The PIUs are valued using a Monte Carlo model to estimate fair value. We expense the cost of these awards ratably over their vesting period.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Performance-Based Restricted Equity Awards
Performance-based restricted equity awards include performance restricted stock units (“PRSUs”) and PIUs. PRSUs and PIUs are subject to forfeiture if the performance requirements are not achieved or if the holder’s service to us terminates prior to vesting, subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company. PRSUs and PIUs have varying degrees of performance requirements to achieve vesting, and each PRSU and PIU award represents the right to a variable number of shares of common stock or partnership units. Each PIU once earned is convertible into one Omega OP Unit in Omega OP, subject to certain conditions. The vesting requirements are based on either the (i) total shareholder return (“TSR”) of Omega or (ii) Omega’s TSR relative to other REITs in the FTSE NAREIT Equity Health Care Index (“Relative TSR”). We expense the cost of these awards ratably over their service period.
Prior to vesting and the distribution of shares or Omega OP Units, ownership of the PRSUs or PIUs cannot be transferred. Dividend equivalents on the PRSUs are accrued and paid to the extent the applicable performance requirements are met. While each PIU is unearned, the employee receives a partnership distribution equal to 10 % of the quarterly approved regular periodic distributions per Omega OP Unit. Partnership distributions (which in the case of normal periodic distributions is equal to the total approved quarterly dividend on Omega’s common stock), less the 10 % already paid, on the PIUs accumulate, and if the PIUs are earned, the accumulated distributions are paid. We used a Monte Carlo model to estimate the fair value for the PRSUs and PIUs granted to the employees. The following are the significant assumptions used in estimating the value of the awards for grants made on the following dates:
January 1,
January 1,
January 1,
2021
2020
2019
Closing price on date of grant
$
36.32
$
42.35
$
35.15
Dividend yield
7.38
%
6.33
%
7.51
%
Risk free interest rate at time of grant
0.04
%
to
0.18
%
1.63
%
to
1.68
%
2.45
%
to
2.57
%
Expected volatility
42.55
%
to
57.79
%
21.26
%
to
21.97
%
21.78
%
to
22.76
%
The following table summarizes the activity in restricted stock, RSUs, PRSUs, and PIUs for the years ended December 31, 2019, 2020 and 2021:
Time-Based
Performance-Based
Weighted -
Weighted -
Total
Number of
Average Grant-
Number of
Average Grant-
Compensation
Shares/Omega
Date Fair Value
Shares/Omega
Date Fair Value
Cost (1)
OP Units
per Share
OP Units
per Share
(in millions)
Non-vested at December 31, 2018
358,873
29.44
2,169,432
13.04
Granted during 2019
160,158
35.20
822,584
14.80
$
17.82
Cancelled during 2019
( 32,376 )
30.38
( 125,885 )
14.57
Vested during 2019
( 188,063 )
31.01
( 465,044 )
15.89
Non-vested at December 31, 2019
298,592
31.44
2,401,087
13.01
Granted during 2020
158,572
39.88
1,208,537
17.11
$
27.00
Cancelled during 2020
( 2,006 )
42.05
( 54,076 )
16.52
Vested during 2020
( 184,480 )
29.28
( 658,052 )
14.85
Non-vested at December 31, 2020
270,678
37.78
2,897,496
14.24
Granted during 2021
210,429
36.52
1,232,178
18.76
$
30.80
Cancelled during 2021
( 14,157 )
36.58
( 188,128 )
18.01
Forfeited during 2021
—
—
( 746,357 )
14.83
Vested during 2021 (2)
( 148,538 )
34.30
( 973,142 )
10.33
Non-vested at December 31, 2021
318,412
$
38.62
2,222,047
$
17.94
(1)
Total compensation cost to be recognized on the awards based on grant date fair value .
(2)
PRSUs are shown as vesting in the year that the Compensation Committee determines the level of achievement of the applicable performance measures .
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
As of December 31, 2021, unrecognized compensation costs related to unvested awards to employees is as follows:
● $ 5.3 million on RSUs and PIUs expected to be recognized over a weighted average period of approximately 36 months .
● $ 0.7 million on RSUs and PIUs expected to be recognized over a weighted average period of approximately 12 months .
● $ 12.4 million on TSR PRSUs and PIUs expected to be recognized over a weighted average period of approximately 47 months .
● $ 14.8 million on Relative TSR PRSUs and PIUs expected to be recognized over a weighted average period of approximately 46 months .
In addition, we have a deferred stock compensation plan that allows employees and directors the ability to defer the receipt of stock awards (units). The deferred stock awards (units) participate in future dividend equivalents as well as the change in the value of the Company’s common stock. As of December 31, 2021 and 2020, the Company had 630,623 and 537,236 deferred stock units outstanding.
Tax Withholding for Stock Compensation Plans
Stock withheld to pay tax withholdings for equity instruments granted under stock-based payment arrangements for the years ended December 31, 2021, 2020 and 2019, was $ 4.6 million, $ 4.7 million and $ 4.8 million, respectively.
Shares Available for Issuance for Compensation Purposes
On June 8, 2018, at the Annual Meeting of Stockholders, our stockholders approved the 2018 Stock Incentive Plan (the “2018 Plan”), which amended and restated the Company’s 2013 Stock Incentive Plan (the “2013 Plan”). The 2018 Plan is a comprehensive incentive compensation plan that allows for various types of equity-based compensation, including RSUs (including PRSUs), stock awards (including restricted stock), deferred RSUs, incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, performance unit awards, certain cash-based awards (including performance-based cash awards), PIUs and other stock-based awards. The 2018 Plan increased the number of shares of common stock available for issuance under the 2013 Plan by 4.5 million.
As of December 31, 2021, approximately 2.8 million shares of common stock were reserved for issuance to our employees, directors and consultants under our stock incentive plans.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 20 – COMMITMENTS AND CONTINGENCIES
Shareholder Litigation
The Company and certain of its officers, C. Taylor Pickett, Robert O. Stephenson, and Daniel J. Booth , are defendants in a purported securities class action lawsuit pending in the U.S. District Court for the Southern District of New York (the “Securities Class Action”). Brought by lead plaintiff Royce Setzer and additional plaintiff Earl Holtzman, the Securities Class Action purports to assert claims for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act, and seeks an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief. The Securities Class Action alleges that the defendants violated the Exchange Act by making materially false and/or misleading statements, and by failing to disclose material adverse facts about the Company’s business, operations, and prospects, including the financial and operating results of one of the Company’s operators, the ability of such operator to make timely rent payments, and the impairment of certain of the Company’s leases and the uncollectibility of certain receivables. The initial complaint was dismissed with prejudice by the U.S District Court, but the dismissal was overturned by the U.S Court of Appeals for the Second Circuit in 2020. Thereafter, the plaintiffs filed a Second Consolidated Amended Complaint in August 2020. In November 2020, the Company and the officers named in the Securities Class Action filed a Motion to Dismiss the Second Consolidated Amended Complaint. On September 28, 2021, the Court issued an order denying the motion to dismiss insofar as it requested dismissal of the entire action on grounds of loss causation, and granting it insofar as it sought dismissal of any claims arising out of defendants’ statements in February 2017. Because the dismissed claims were the basis for defendants’ efforts to begin the alleged class period in February 2017, the decision means that the alleged class period runs from May 3, 2017 to October 31, 2017.
Certain derivative actions have also been brought against the officers named in the Securities Class Action, and certain current and former directors of the Company, alleging claims relating to the matters at issue in the Securities Class Action. These derivative actions are currently stayed pending certain developments in the Securities Class Action.
In 2018, Stourbridge Investments LLC, a purported stockholder of the Company, filed a derivative action purportedly on behalf of the Company in the U.S. District Court for the Southern District of New York, alleging violations of Section 14(a) of the Exchange Act and state-law claims including breach of fiduciary duty. The complaint alleges, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna Health Systems, the alleged non-disclosures that are also the subject of the Securities Class Action described above. The plaintiff did not make a demand on the Company to bring the action prior to filing it, but rather alleges that demand would have been futile. The case has been stayed pending the entry of judgment or a voluntary dismissal with prejudice in the Securities Class Action.
In 2019, purported stockholder Phillip Swan by his counsel, and stockholders Tom Bradley and Sarah Smith by their counsel, filed derivative actions in the Baltimore City Circuit Court of Maryland, purportedly on behalf of the Company, asserting claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment against the named defendants. Those actions have been consolidated and stayed in the Maryland court pending completion of fact discovery in the Securities Class Action. Prior to filing suit, each of these stockholders had made demands on the Board of Directors in 2018 that the Company bring such lawsuits. After an investigation and due consideration, and in the exercise of its business judgment, the Board of Directors determined that it is not in the best interests of the Company to commence litigation against any current or former officers or directors based on the matters raised in the demands.
In addition, in late 2020, Robert Wojcik, a purported shareholder of the Company, filed a derivative action in the U.S. District Court for the District of Maryland, purportedly on behalf of the Company, asserting violations of Section 14(a) of the Exchange Act, Sections 10(b) and 21D of the Exchange Act, as well as claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. Wojcik also did not make a demand on the Company prior to filing suit. The case has been stayed pending the entry of judgment or a voluntary dismissal with prejudice in the Securities Class Action.
The Company believes that the claims asserted against it in these lawsuits are without merit and intends to vigorously defend against them.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Other
Gulf Coast Subordinated Debt
In August 2021, we filed suit in the Circuit Court for Baltimore County against the holders of certain Subordinated Debt associated with our Gulf Coast master lease agreement, following an assertion by the holders that our prior exercise of offset rights in connection with Gulf Coast’s non-payment of rent had resulted in defaults under the terms of the Subordinated Debt. The suit seeks a declaratory judgment to, among other items, declare that the aggregate amount of unpaid rent due from Gulf Coast under the master lease agreement exceeds all amounts which otherwise would be due and owing by Omega Obligor under the Subordinated Debt, and that all principal and interest due and owing under the Subordinated Debt may be (and was) 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, with a hearing scheduled on the motion for February 25, 2022. While Omega believes Omega Obligor 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. See Note 5 – Contractual Receivables and Other Receivables and Lease Inducements – Gulf Coast Health Care, LLC.
Lakeway Realty, L.L.C.
In September 2016, MedEquities received a Civil Investigative Demand (“CID”) from the U.S. Department of Justice (“DOJ”), which indicates that it is conducting an investigation regarding alleged violations of the False Claims Act, Stark Law and Anti-Kickback Statute in connection with claims that may have been submitted to Medicare and other federal payors for services rendered to patients at Lakeway Hospital or by providers with financial relationships with Lakeway Hospital. As a result of the acquisition of MedEquities, the Company owns a 51 % interest in an unconsolidated partnership that owns Lakeway Hospital (the “Lakeway Realty, L.L.C.”). The CID requested certain documents and information related to the acquisition and ownership of Lakeway Hospital through Lakeway Realty, L.L.C. The Company has learned that the DOJ is investigating MedEquities’ conduct in connection with its investigation of financial relationships related to Lakeway Hospital, including allegations by the DOJ that these relationships violate and continue to violate the Anti-Kickback Statute and, as a result, related claims submitted to federal payors violated and continue to violate the False Claims Act. The Company is cooperating fully with the DOJ in connection with the CID and has produced all of the information that has been requested to date.
On September 29, 2020 the DOJ announced it had reached a settlement of a False Claims Act case with respect to certain aspects of the investigation with Lakeway Regional Medical Center wherein Lakeway Regional Medical Center agreed to pay $ 1.1 million for inducing certain physicians to refer patients by offering a low risk and high return investment in the form of a joint venture to purchase and then lease back the hospital to Lakeway Regional Medical Center. A MedEquities subsidiary was a party to this transaction but was not included in settlement discussions, and we understand that the settlement did not fully resolve the investigation referenced in the CID. The documents relating to the settlement are not publicly available.
The Company believes that the acquisition, ownership and leasing of Lakeway Hospital through the Lakeway Partnership was and is in compliance with all applicable laws. However, due to the uncertainties surrounding this matter and its ultimate outcome, we are unable to determine whether it is probable that any loss has been incurred.
In addition, we are subject to various other legal proceedings, claims and other actions arising out of the normal course of business. While any legal proceeding or claim has an element of uncertainty, management believes that the outcome of each lawsuit, claim or legal proceeding that is pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial position or results of operations.
Indemnification Agreements
In connection with certain facility transitions, we have agreed to indemnify certain operators in certain events. As of December 31, 2021, our maximum funding commitment under these indemnification agreements was approximately $ 5.6 million. Claims under these indemnification agreements may be made within 18 months to 72 months of the transition date. These indemnification agreements were provided to certain operators in connection with facility transitions and generally would be applicable in the event that the prior operators do not perform under their transition agreements.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Commitments
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 December 31, 2021, are outlined in the table below (in thousands):
Total commitments (1)
$
763,698
Amounts funded to date (2)
( 518,960 )
Remaining commitments (3)
$
244,738
(1) Includes our $ 177.7 million commitment relating to the redevelopment of the real estate property located in Washington, D.C. discussed in Note 3 – Real Estate Acquisitions.
(2) Includes finance costs.
(3) This amount excludes our remaining commitments to fund under our other investments of approximately $ 50.1 million.
Environmental Matters
As of December 31, 2021 and 2020, we had identified conditional asset retirement obligations primarily related to the future removal and disposal of asbestos that is contained within certain of our real estate investment properties. The asbestos is appropriately contained, and we believe we are compliant with current environmental regulations. If these properties undergo major renovations or are demolished, certain environmental regulations are in place, which specify the manner in which asbestos must be handled and disposed. We are required to record the fair value of these conditional liabilities if they can be reasonably estimated. As of December 31, 2021 and 2020, no liability for conditional asset retirement obligations was recorded on our accompanying Consolidated Balance Sheets.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 21 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
The following are supplemental disclosures to the consolidated statements of cash flows for the years ended December 31, 2021, 2020 and 2019:
Year Ended December 31,
2021
2020
2019
(in thousands)
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents
$
20,534
$
163,535
$
24,117
Restricted cash
3,877
4,023
9,263
Cash, cash equivalents and restricted cash at end of year
$
24,411
$
167,558
$
33,380
Supplemental information:
Interest paid during the year, net of amounts capitalized
$
214,406
$
216,206
$
205,943
Taxes paid during the year
$
6,288
$
6,974
$
5,097
Non cash investing activities
Non-cash acquisition of business
$
—
$
( 1,826 )
$
( 566,966 )
Non-cash acquisition of real estate
$
( 58,595 )
$
—
$
( 531,801 )
Non-cash proceeds from sale of real estate investments
$
—
$
83,910
$
—
Non-cash placement of mortgage principal
$
( 7,000 )
$
( 86,936 )
$
—
Non-cash collection of mortgage principal
$
58,595
$
—
$
—
Non-cash surrender of mortgage
$
—
$
—
$
11,874
Non-cash investment in other investments
$
—
$
( 121,139 )
$
( 27,408 )
Non-cash proceeds from other investments
$
7,000
$
68,025
$
149,542
Non-cash settlement of direct financing lease
$
—
$
—
$
4,970
Initial non-cash right of use asset - ground leases
$
—
$
—
$
5,593
Initial non-cash lease liability - ground leases
$
—
$
—
$
( 5,593 )
Non cash financing activities
Debt assumed in merger
$
—
$
—
$
285,100
Stock exchanged in merger
$
—
$
—
$
281,865
Acquisition of other long-term borrowings
$
—
$
—
$
388,627
Non-cash borrowing (repayment) of other long-term borrowings
$
( 20,000 )
$
6,459
$
( 6,459 )
Change in fair value of cash flow hedges
$
23,457
$
19,788
$
( 7,757 )
Remeasurement of debt denominated in a foreign currency
$
3,010
$
8,911
$
4,490
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 22 - EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share:
Year Ended December 31,
2021
2020
2019
(in thousands, except per share amounts)
Numerator:
Net income
$
428,302
$
163,545
$
351,947
Deduct: net income attributable to noncontrolling interests
( 11,563 )
( 4,218 )
( 10,824 )
Net income available to common stockholders
$
416,739
$
159,327
$
341,123
Denominator:
Denominator for basic earnings per share
236,933
227,741
213,404
Effect of dilutive securities:
Common stock equivalents
785
1,239
1,753
Net forward share contract
—
—
179
Noncontrolling interest – Omega OP Units
6,620
6,124
6,789
Denominator for diluted earnings per share
244,338
235,104
222,125
Earnings per share - basic:
Net income available to common stockholders
$
1.76
$
0.70
$
1.60
Earnings per share – diluted:
Net income
$
1.75
$
0.70
$
1.58
In September 2019, we entered into a forward equity sales agreement to sell up to an aggregate of 7.5 million shares of our common stock at an initial net price of $ 40.01 per share, after underwriting discounts and commissions. On December 27, 2019, we completed the forward equity sale and issued the 7.5 million shares of common stock at a net price of $ 39.45 per share, and received approximately $ 295.9 million of net proceeds. See Note 18 – Stockholders’ Equity – $ 300 Million Forward Equity Sale. The shares issuable prior to settlement of the forward equity sales agreement are reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of our common shares used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of common shares that would be issued upon full physical settlement of the forward equity sales agreement over the number of common shares that could be purchased by us in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period).
NOTE 23 – SUBSEQUENT EVENTS
Asset Acquisitions
On January 1, 2022, we acquired a Maryland SNF for $ 8.2 million and amended an operator’s existing lease, with an initial term expiring on December 31, 2032 , to include the acquired facility. The incremental base rent for the additional facility in the initial year is $ 0.8 million and includes annual escalators of 2.5 %.
On January 31, 2022, we acquired one care home facility in the U.K. (similar to ALFs in the U.S.) for approximately $ 8.2 million. The facility was added to an existing operator’s master lease with an initial cash yield of 8.0 % with 2.5 % annual escalators.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
$500 Million Stock Repurchase Program
On January 27, 2022, the Company authorized the repurchase of up to $ 500 million of our outstanding common stock from time to time through March 2025 . The Company is authorized to repurchase shares of its common stock in open market and privately negotiated transactions or in any other manner as determined by the Company’s management and in accordance with applicable law. The timing and amount of stock repurchases will be determined, in management’s discretion, based on a variety of factors, including but not limited to market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The Company has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time.
Operator Collectibility
In January and February 2022, an operator representing 3.4 % of total revenue (excluding the impact of write-offs) for the year ended December 31, 2021, did not pay its contractual amounts due under its lease agreement. The operator asked for a short-term rent deferral, and negotiations are on-going. Omega holds a $ 1.0 million letter of credit from this operator.
As discussed in Note 8 – Other Investments under “Revolving Credit Facility - $ 20 million”, we also have a $ 20.0 million revolving credit facility with this operator, and the operator paid contractual interest under the facility in January and February 2022. As of December 31, 2021, the total outstanding principal due under the credit facility was $ 16.0 million. The credit facility is secured by a first lien on the accounts receivable of the operator.
Guardian
In connection with on-going restructuring negotiations with Guardian, in February 2022, we completed the sale of two facilities for $ 3.1 million in gross proceeds, previously leased to Guardian, and included in held for sale as of December 31, 2021. In February 2022, we also agreed to re-lease 7 facilities, also previously leased to Guardian, to another operator. The new 7 facility lease has an initial term expiring January 31, 2027 . The base rent in the initial year is $ 0.9 million and increases to $ 1.2 million in the second year with annual escalators of 2.5 % thereafter.
On February 15, 2022, Guardian completed the sale of three facilities, subject to a mortgage loan with Omega (see Note – 8 Mortgage Notes Receivable). Concurrent with the sale, Omega agreed to release the mortgage liens on these facilities in exchange for a partial paydown of $ 21.7 million.
Guardian failed to make rent and interest payments in January and February 2022 and discussions on restructuring the remaining Guardian lease facilities are on-going.
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OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at
Charged to
Balance at
Beginning of
Provision
Deductions or
End of
Description
Period
Accounts
Other (1)
Period
Year Ended December 31, 2019:
Allowance for doubtful accounts:
Contractual receivables (2)
$
1,075
$
—
$
1,075
$
—
Mortgage notes receivable (3)
4,905
—
—
4,905
Direct financing leases (3)
103,200
7,917
110,900
217
Total
$
109,180
$
7,917
$
111,975
$
5,122
(1) Uncollectible accounts written off, net of recoveries or adjustments.
(2) The Company adopted Topic 842 on January 1, 2019. As a result of this adoption, lease related receivables are written off through rental income, as opposed to the provision account. As such, our lease receivables are no longer considered in the valuation and qualifying accounts.
(3) The Company adopted Topic 326 on January 1, 2020 which addressed expected credit losses on our mortgage notes receivables, other investments, and direct financing leases. As a result of this adoption, we have disclosed a rollforward of our allowance for credit loss related to these financial instruments for 2020 and 2021 in Note 9 – Allowance for Credit Losses.
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OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 2021
Gross Amount at
Initial Cost to
Cost Capitalized
Which Carried at
Life on Which
Company
Subsequent to
Close of Period (3) (5)
Depreciation
Acquisition
(4)
(7)
in Latest
Buildings and
Carrying
(6)
(8)
Buildings and
Accumulated
Date of
Date
Income Statements
Description (1)
Encumbrances
Land
Improvements
Improvements
Cost
Other
Land
Improvements
Total
Depreciation
Construction
Acquired
is Computed
Alabama (SNF)
$
1,817
$
33,356
$
12,916
$
—
$
—
$
1,817
$
46,272
$
48,089
$
( 39,724 )
1960 - 1982
1992 - 1997
31 years - 33 years
Arizona (ALF, SNF, ILF)
12,427
121,422
2,639
—
—
12,427
124,061
136,488
( 26,680 )
1949 - 1999
2005 - 2021
25 years - 40 years
Arkansas (ALF, SNF)
2,893
59,094
8,517
—
( 36 )
2,893
67,575
70,468
( 40,699 )
1967 - 1988
1992 - 2014
25 years - 31 years
California (ALF, SH, SNF)
85,645
475,027
5,671
—
( 478 )
85,645
480,220
565,865
( 125,678 )
1938 - 2013
1997 - 2021
5 years - 35 years
Colorado (ILF, SNF)
11,279
88,830
7,790
—
—
11,279
96,620
107,899
( 48,017 )
1925 - 1975
1998 - 2016
20 years - 39 years
Connecticut (ALF)
25,063
252,417
7,308
1,319
—
25,063
261,044
286,107
( 55,417 )
1968 - 2019
2010 - 2017
30 years - 33 years
Florida (ALF, SNF, ILF)
(2)
133,711
1,163,655
34,151
1,468
( 12,968 )
132,771
1,187,246
1,320,017
( 307,993 )
1940 - 2020
1993 - 2021
2 years - 39 years
Georgia (ALF, SNF)
7,573
58,535
5,071
—
—
7,573
63,606
71,179
( 25,967 )
1964 - 1997
1998 - 2016
20 years - 40 years
Idaho (SNF)
5,735
47,530
1,514
—
( 542 )
5,193
49,044
54,237
( 19,939 )
1920 - 2008
1997 - 2014
25 years - 39 years
Illinois (ALF)
1,830
13,967
1,054
—
—
1,830
15,021
16,851
( 660 )
1999
2021
25 years
Indiana (ALF, ILF, IRF, MOB, SH, SNF)
48,529
585,487
5,374
—
4,251
48,508
595,133
643,641
( 182,771 )
1942 - 2015
1992 - 2020
20 years - 40 years
Iowa (SNF)
590
9,757
—
—
—
590
9,757
10,347
( 5,280 )
1965
2010
23 years
Kansas (SNF)
4,092
38,693
14,219
—
—
4,092
52,912
57,004
( 21,379 )
1957 - 1977
2005 - 2011
25 years
Kentucky (ALF, SNF)
15,556
130,819
7,239
—
—
15,556
138,058
153,614
( 48,747 )
1964 - 2002
1999 - 2016
20 years - 33 years
Louisiana (ALF, SNF)
(2)
6,676
95,486
4,878
448
( 1,135 )
6,676
99,677
106,353
( 31,109 )
1957 - 2020
1997 - 2019
22 years - 39 years
Maryland (SNF)
15,053
124,671
6,038
—
—
15,053
130,709
145,762
( 42,393 )
1921 - 1985
2008 - 2011
25 years - 30 years
Massachusetts (ALF, SNF)
23,621
143,172
17,750
—
( 693 )
23,621
160,229
183,850
( 56,328 )
1964 - 2017
1997 - 2014
20 years - 33 years
Michigan (SNF)
380
16,120
—
—
—
380
16,120
16,500
( 7,243 )
1964 - 1973
2011
25 years
Minnesota (ALF, ILF, SNF)
10,502
52,585
5,972
—
—
10,502
58,557
69,059
( 17,921 )
1966 - 1983
2014
33 years
Mississippi (SNF)
(2)
8,803
191,448
827
—
—
8,803
192,275
201,078
( 34,596 )
1965 - 2008
2009 - 2019
20 years - 30 years
Missouri (SNF)
4,914
89,535
11,216
—
( 21,246 )
4,906
79,513
84,419
( 20,440 )
1955 - 1994
1999 - 2019
25 years - 33 years
Montana (SNF)
1,319
11,698
—
—
—
1,319
11,698
13,017
( 3,124 )
1963 - 1971
2005
33 years
Nevada (BHS, SH, SNF)
8,811
92,797
8,350
—
—
8,811
101,147
109,958
( 28,830 )
1972 - 2012
2009 - 2017
25 years - 33 years
New Hampshire (ALF, SNF)
1,782
19,837
1,463
—
—
1,782
21,300
23,082
( 11,365 )
1963 - 1999
1998 - 2006
33 years - 39 years
New Jersey (ALF)
12,953
58,199
157
1,559
—
12,953
59,915
72,868
( 1,702 )
1999 - 2021
2019 - 2021
25 years
New Mexico (SNF)
6,008
45,285
1,318
—
—
6,008
46,603
52,611
( 11,692 )
1960 - 1985
2005
33 years
New York (ALF)
118,606
176,921
—
40,543
—
118,606
217,464
336,070
( 12,823 )
2020
2015
25 years
North Carolina (SNF)
(2)
24,197
295,248
8,718
336
( 714 )
24,197
303,588
327,785
( 91,602 )
1964 - 2019
1994 - 2019
25 years - 36 years
Ohio (BHP, BHS, ALF, SH, SNF)
32,637
422,645
15,445
345
( 1,108 )
32,637
437,327
469,964
( 111,269 )
1929 - 2021
1994 - 2020
20 years - 39 years
Oklahoma (SNF)
2,296
19,934
—
—
—
2,296
19,934
22,230
( 9,931 )
1965 - 1993
2010 - 2013
20 years - 33 years
Oregon (ALF, SNF, ILF)
7,331
125,133
5,354
—
—
7,331
130,487
137,818
( 17,595 )
1959 - 2007
2005 - 2021
25 years - 33 years
Pennsylvania (ALF, ILF, SNF)
32,331
435,591
17,017
—
( 20,859 )
32,326
431,754
464,080
( 123,602 )
1873 - 2012
2004 - 2021
20 years - 39 years
Rhode Island (SNF)
3,299
23,487
3,805
—
—
3,299
27,292
30,591
( 15,085 )
1965 - 1981
2006
39 years
South Carolina (SNF)
8,480
76,912
2,860
—
—
8,480
79,772
88,252
( 23,166 )
1959 - 2007
2014 - 2016
20 years - 33 years
Tennessee (ALF, BHP, SNF)
12,976
268,846
6,634
—
—
12,976
275,480
288,456
( 97,816 )
1968 - 2018
1992 - 2021
20 years - 31 years
Texas (ALF, BHS, ILF, IRF, MOB, SH, SNF)
82,261
856,947
30,905
197
( 40,400 )
81,258
848,652
929,910
( 205,894 )
1949 - 2019
1997 - 2021
20 years - 40 years
United Kingdom (ALF)
90,275
369,310
8,729
—
( 20,739 )
88,304
359,271
447,575
( 74,447 )
1700 - 2012
2015 - 2021
25 years - 30 years
Vermont (SNF)
318
6,005
602
—
—
318
6,607
6,925
( 3,267 )
1971
2004
39 years
Virginia (ALF, SNF)
35,435
376,943
10,104
—
( 459 )
35,261
386,762
422,023
( 71,603 )
1964 - 2017
2010 - 2021
25 years - 40 years
Washington (ALF, SNF)
14,759
186,802
3,186
—
( 68 )
14,692
189,987
204,679
( 38,783 )
1930 - 2004
1999 - 2021
25 years - 33 years
Washington DC (ALF)
68,017
—
1,216
719
—
68,017
1,935
69,952
—
N/A
2021
N/A
West Virginia (SNF)
1,973
66,946
7,062
—
—
1,973
74,008
75,981
( 45,384 )
1961 - 1996
1994 - 2011
25 years - 39 years
Wisconsin (SNF)
399
4,581
2,153
—
—
399
6,734
7,133
( 2,735 )
1974
2005
33 years
Total
$
993,152
$
7,731,673
$
295,222
$
46,934
$
( 117,194 )
$
988,421
$
7,961,366
$
8,949,787
$
( 2,160,696 )
(1) The real estate included in this schedule is being used in either the operation of skilled nursing facilities (“SNF”), assisted living facilities (“ALF”), independent living facilities (“ILF”), specialty facilities (consisting of behavioral health substance facilities (“BHS”), behavioral health psychology facilities (“BHP”), independent rehabilitation facilities (“IRF”) and specialty hospitals (“SH”)) or medical office buildings (“MOB”), located in the states or country indicated.
(2) Certain of the real estate indicated are security for the HUD loan borrowings totaling $ 359.8 million at December 31, 2021.
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Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION — continued
(in thousands)
December 31, 2021
(3)
Year Ended December 31,
2019
2020
2021
Balance at beginning of period
$
7,746,410
$
8,985,994
$
8,702,154
Acquisitions through foreclosure
143,753
—
Acquisitions (a)
1,201,924
125,060
742,486
Impairment
( 48,939 )
( 69,913 )
( 44,673 )
Improvements
170,997
88,130
60,953
Disposals/other
( 228,151 )
( 427,117 )
( 511,133 )
Balance at close of period
$
8,985,994
$
8,702,154
$
8,949,787
(a) Includes approximately $ 750.6 million, $ 19.1 million and $ 58.6 million of non-cash consideration exchanged and/or valuation adjustments during the years ended December 31, 2019, 2020 and 2021, respectively.
(4)
Year Ended December 31,
2019
2020
2021
Balance at beginning of period
$
1,562,619
$
1,787,425
$
1,996,914
Provisions for depreciation
301,177
329,508
341,497
Dispositions/other
( 76,371 )
( 120,019 )
( 177,715 )
Balance at close of period
$
1,787,425
$
1,996,914
$
2,160,696
(5) The reported amount of our real estate at December 31, 2021 is greater than the tax basis of the real estate by approximately $ 41.0 million.
(6) Reflects bed sales, impairments (including the write-off of accumulated depreciation), land easements and impacts from foreign currency exchange rates.
(7) To the extent that we acquired an entity previously owning the underlying facility, the acquisition date reflects the date that the entity acquired the facility.
(8) Includes $ 72.1 million of construction in progress related to land, all other amounts related to construction in progress are reflected in buildings and improvements.
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Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE
(in thousands)
December 31, 2021
Carrying
Amount of
Carrying
Loans
Face
Amount
Subject to
Final
Amount
of
Delinquent
Interest
Fixed/
Maturity
Prior
of
Mortgages
Principal
Grouping
Description (1)
Rate
Variable
Date
Periodic Payment Terms
Liens
Mortgages
(3) (4) (6)
or Interest
First Mortgages
1
Michigan (25 SNFs)
11.13
%
F (2)
2029
Interest plus approximately $ 166.0 of principal payable monthly with $ 352,454 due at maturity
None
$
415,000
$
372,789
$
—
2
Michigan (5 SNFs)
10.18
%
F (2)
2029
Interest plus approximately $ 12.0 of principal payable monthly with $ 42,341 due at maturity
None
44,200
43,808
—
3
Michigan (2 SNFs)
10.40
%
F (2)
2029
Interest plus approximately $ 3.0 of principal payable monthly with $ 10,460 due at maturity
None
11,000
10,864
—
4
Ohio (8 SNFs)
10.50
%
F (2)
2032
Interest payable monthly until maturity
None
72,420
72,420
—
5
Ohio (2 SNFs) and Pennsylvania (4 SNFs and 1 ALFs)
10.81
%
F (2)
2027
Interest payable monthly until maturity
None
103,762
56,650
56,650
(5)
6
Texas (1 specialty facility)
7.85
%
F
2025
Interest plus approximately $ 139.0 of principal payable monthly with $ 59,749 due at maturity
None
72,960
65,475
—
7
Massachusetts (1 specialty facility)
9.00
%
F
2023
Interest plus approximately $ 55.0 of principal payable monthly with $ 6,079 due at maturity
None
9,000
7,090
—
8
Tennessee ( 1 SNF)
8.35
%
F
2015
Past due
None
6,997
1,472
1,472
(5)
9
Michigan (1 SNF)
9.38
%
F (2)
2029
Interest payable monthly until maturity
None
14,045
14,045
—
10
Michigan (1 SNF)
10.40
%
F (2)
2029
Interest plus approximately $ 4.0 of principal payable monthly with $ 17,613 due at maturity
None
18,147
18,075
—
11
Ohio (1 SNF)
9.50
%
F
2022
Interest payable monthly until maturity
None
21,325
21,325
—
12
Michigan (8 SNFs and 1 ALF)
10.52
%
F (2)
2029
Interest plus approximately $ 15.0 of principal payable monthly with $ 81,302 due at maturity
None
83,454
83,208
—
13
Michigan (1 SNF)
10.40
%
F (2)
2029
Interest plus approximately $ 2.9 of principal payable monthly with $ 16,617 due at maturity
None
17,032
16,983
Capital Expenditure Mortgages
14
Michigan
10.49
%
F (2)
2029
Interest payable monthly until maturity
None
465
455
—
15
Michigan
12.18
%
F (2)
2029
Interest payable monthly until maturity
None
4,220
4,220
—
16
Michigan
11.89
%
F (2)
2029
Interest payable monthly until maturity
None
4,120
4,112
—
17
Michigan
11.60
%
F (2)
2029
Interest payable monthly until maturity
None
9,645
9,374
—
18
Michigan
10.75
%
F (2)
2029
Interest payable monthly until maturity
None
26,190
25,668
—
19
Michigan
10.18
%
F (2)
2029
Interest payable monthly until maturity
None
500
500
—
20
Michigan
9.98
%
F (2)
2029
Interest payable monthly until maturity
None
5,450
5,123
—
21
Michigan
9.36
%
F (2)
2029
Interest payable monthly until maturity
None
2,900
2,542
—
22
Michigan
9.74
%
F (2)
2029
Interest payable monthly until maturity
None
9,067
7,949
—
23
Michigan
10.49
%
F (2)
2029
Interest payable monthly until maturity
None
3,025
3,025
—
24
Michigan
9.50
%
F (2)
2029
Interest payable monthly until maturity
None
325
169
—
Construction Mortgages
25
Michigan (1 SNF)
9.50
%
F (2)
2023
Interest payable monthly until maturity
None
9,330
9,330
—
Allowance for credit loss on mortgage loans (7)
—
( 21,585 )
—
$
964,579
$
835,086
$
58,122
(1) Loans included in this schedule represent first mortgages, capital expenditure mortgages and construction mortgages on facilities used in the delivery of long-term healthcare of which such facilities are located in the states indicated.
(2) Interest on the loans escalates annually at a fixed rate.
(3) The aggregate cost for federal income tax purposes is approximately $ 909.3 million.
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Table of Contents
OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE — continued
(in thousands)
December 31, 2021
(4)
Year Ended December 31,
2019
2020
2021
Balance at beginning of period
$
710,858
$
773,563
$
885,313
Additions during period - new mortgage loans or additional fundings (a)
129,108
149,957
93,891
Deductions during period - collection of principal/other (b)
( 66,403 )
( 9,867 )
( 103,761 )
Allowance for credit loss on mortgage loans
—
( 28,340 )
( 40,357 )
Balance at close of period
$
773,563
$
885,313
$
835,086
(a) The 2019 amount includes $ 0.3 million of non-cash interest paid-in-kind. The 2020 amount includes $ 0.6 million of non-cash interest paid-in-kind and $ 86.9 million of non-cash placement of mortgage capital. The 2021 amount includes $ 0.2 million of non-cash interest paid-in-kind and $ 7.0 million of non-cash placement of mortgage principal.
(b) The 2019 amount includes $ 11.9 million of non-cash deed-in-lieu of foreclosure. The 2021 amount includes $ 58.6 million of non-cash principal reductions.
(5) Mortgage written down to the fair value of the underlying collateral.
(6) Mortgages included in the schedule which were extended during 2021 aggregated approximately $ 38.3 million.
(7) The allowance for credit loss on mortgage loans represents the allowance calculated utilizing a PD and LGD methodology. For mortgages that the risk of loss was evaluated on an individual basis, the allowance is included as a reduction to the carrying amount of the mortgage.
F-66
Table of Contents
INDEX TO EXHIBITS TO 2021 FORM 10-K
EXHIBIT NUMBER
DESCRIPTION
2.1
Agreement and Plan of Merger, dated as of January 2, 2019, by and among Omega Healthcare Investors, Inc., OHI Healthcare Properties Limited Partnership, MedEquities Realty Trust, Inc., MedEquities OP GP, LLC and MedEquities Realty Operating Partnership, LP together with First Amendment thereto dated March 26, 2019 (Incorporated by reference to Annex A of Amendment No. 1 to Form S-4, filed March 29, 2019).
3.1
Articles of Amendment and Restatement of Omega Healthcare Investors, Inc., as amended. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3ASR, filed September 3, 2015).
3.2
Articles Supplementary of Omega Healthcare Investors, Inc. filed with the State Department of Assessments and Taxation of Maryland on November 5, 2019 (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed November 8, 2019).
3.3
Amended and Restated Bylaws of Omega Healthcare Investors, Inc. as of January 27, 2022 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed January 27, 2022).
3.4
Certificate of Limited Partnership of OHI Healthcare Properties Limited Partnership (Incorporated by reference to Exhibit 3.121 to the Company’s Form S-4, filed April 16, 2015).
3.5
Second Amended and Restated Agreement of Limited Partnership by and among Omega Healthcare Investors, Inc., OHI Healthcare Properties Holdco, Inc., and Aviv Healthcare Properties Limited Partnership (Incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed April 3, 2015).
4.0
See Exhibits 3.1 to 3.5.
4.1
Indenture, dated as of March 11, 2014, by and among the Company, the guarantors named therein, and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 11, 2014).
4.1A
First Supplemental Indenture, dated as of June 27, 2014, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed August 6, 2014).
4.1B
Second Supplemental Indenture, dated as of November 25, 2014, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association, and that certain Third Supplemental Indenture, dated as of January 23, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4B to the Company’s Annual Report on Form 10-K, filed February 27, 2015).
4.1C
Fourth Supplemental Indenture, dated effective as of March 2, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3B to the Company’s Quarterly Report on Form 10-Q, filed May 8, 2015).
4.1D
Fifth Supplemental Indenture, dated as of April 1, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3C to the Company’s Quarterly Report on Form 10-Q, filed May 8, 2015).
4.1E
Sixth Supplemental Indenture, dated as of August 4, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q, filed November 6, 2015).
4.1F
Seventh Supplemental Indenture, dated as of November 9, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2F to the Company’s Annual Report on Form 10-K, filed February 29, 2016).
I-1
Table of Contents
4.1G
Eighth Supplemental Indenture, dated as of March 29, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2016).
4.1H
Ninth Supplemental Indenture, dated as of May 13, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, filed August 5, 2016).
4.1I
Tenth Supplemental Indenture, dated as of August 9, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, filed November 8, 2016).
4.1J
Eleventh Supplemental Indenture, dated as of November 10, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2J to the Company’s Annual Report on Form 10-K, filed February 24, 2017).
4.1K
Twelfth Supplemental Indenture, dated as of March 17, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, filed May 5, 2017).
4.1L
Thirteenth Supplemental Indenture, dated as of May 11, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.1M
Fourteenth Supplemental Indenture, dated as of May 25, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1A to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.2
Indenture, dated as of September 11, 2014, by and among the Company, the subsidiary guarantors named therein, and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed September 11, 2014).
4.2A
First Supplemental Indenture, dated as of November 25, 2014, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association, and that certain Second Supplemental Indenture, dated as of January 23, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5A to the Company’s Annual Report on Form 10-K, filed February 27, 2015).
4.2B
Third Supplemental Indenture, dated effective as of March 2, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2B to the Company’s Registration Statement on Form S-4, filed April 16, 2015).
4.2C
Fourth Supplemental Indenture, dated as of April 1, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2B to the Company’s Registration Statement on Form S-4, filed April 16, 2015).
4.2D
Fifth Supplemental Indenture, dated as of August 4, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed November 6, 2015).
4.2E
Sixth Supplemental Indenture, dated as of November 9, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3E to the Company’s Annual Report on Form 10-K, filed February 29, 2016).
4.2F
Seventh Supplemental Indenture, dated as of March 29, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2016).
4.2G
Eighth Supplemental Indenture, dated as of May 13, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q, filed August 5, 2016).
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4.2H
Ninth Supplemental Indenture, dated as of August 9, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q, filed November 8, 2016).
4.2I
Tenth Supplemental Indenture, dated as of November 10, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3I to the Company’s Annual Report on Form 10-K, filed February 24, 2017).
4.2J
Eleventh Supplemental Indenture, dated as of March 17, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q, filed May 5, 2017).
4.2K
Twelfth Supplemental Indenture, dated as of May 11, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.2L
Thirteenth Supplemental Indenture, dated as of May 25, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2A to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.3
Indenture, dated as of March 18, 2015, by and among the Company, the subsidiary guarantors named therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 24, 2015).
4.3A
First Supplemental Indenture, dated as of April 1, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5A to the Company’s Quarterly Report on Form 10-Q, filed May 8, 2015).
4.3B
Second Supplemental Indenture, dated as of August 4, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2A to the Company’s Registration Statement on Form S-4, filed October 6, 2015).
4.3C
Third Supplemental Indenture, dated as of November 9, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2B to the Amendment to the Company’s Registration Statement on Form S-4/A, filed November 12, 2015).
4.3D
Fourth Supplemental Indenture, dated as of March 29, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2016).
4.3E
Fifth Supplemental Indenture, dated as of May 13, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed August 5, 2016).
4.3F
Sixth Supplemental Indenture, dated as of August 9, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed November 8, 2016).
4.3G
Seventh Supplemental Indenture, dated as of November 10, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4G to the Company’s Annual Report on Form 10-K, filed February 24, 2017 ).
4.3H
Eighth Supplemental Indenture, dated as of March 17, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed May 5, 2017).
4.3I
Ninth Supplemental Indenture, dated as of May 11, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
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4.3J
Tenth Supplemental Indenture, dated as of May 25, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.3A to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.4
Indenture, dated as of September 23, 2015, by and among the Company, each of the subsidiary guarantors listed therein, and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed September 29, 2015).
4.4A
First Supplemental Indenture, dated as of November 9, 2015, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1A to the Company’s Registration Statement on Form S-4, filed November 12, 2015).
4.4B
Second Supplemental Indenture, dated as of March 29, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2016).
4.4C
Third Supplemental Indenture, dated as of May 13, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q, filed August 5, 2016).
4.4D
Fourth Supplemental Indenture, dated as of August 9, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q, filed November 8, 2016).
4.4E
Fifth Supplemental Indenture, dated as of November 10, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5E to the Company’s Annual Report on Form 10-K, filed February 24, 2017).
4.4F
Sixth Supplemental Indenture, dated as of March 17, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q, filed May 5, 2017).
4.4G
Seventh Supplemental Indenture, dated as of May 11, 2017 among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.4H
Eighth Supplemental Indenture, dated as of May 25, 2017 among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.4A to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.5
Indenture, dated as of July 12, 2016, by and among the Company, each of the subsidiary guarantors listed therein, and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed July 12, 2016).
4.5A
First Supplemental Indenture, dated as of August 9, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.6A to the Company’s Quarterly Report on Form 10-Q, filed November 8, 2016).
4.5B
Second Supplemental Indenture, dated as of November 10, 2016, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.6B to the Company’s Annual Report on Form 10-K, filed February 24, 2017).
4.5C
Third Supplemental Indenture, dated as of March 17, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q, filed May 5, 2017).
4.5D
Fourth Supplemental Indenture, dated as of May 11, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
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4.5E
Fifth Supplemental Indenture, dated as of May 25, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.5A to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.6
Indenture, dated as of April 4, 2017, by and among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed April 4, 2017).
4.6A
First Supplemental Indenture, dated as of May 11, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.6A to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.6B
Second Supplemental Indenture, dated as of May 25, 2017, among the Company, each of the subsidiary guarantors listed therein and U.S. Bank National Association (Incorporated by reference to Exhibit 4.6B to the Company’s Quarterly Report on Form 10-Q, filed August 9, 2017).
4.7
Indenture, dated as of September 20, 2019, among the Company, OHI Healthcare Properties Limited Partnership and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed September 20, 2019).
4.8
Indenture, dated as of October 9, 2020, among the Company, OHI Healthcare Properties Limited Partnership and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed October 9, 2020).
4.8A
First Supplemental Indenture, dated as of October 30, 2020, among the Company, OHI Healthcare Properties Limited Partnership and U.S. Bank National Association (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q, filed November 3, 2020).
4.9
Indenture, dated as of March 10, 2021, among the Company, OHI Healthcare Properties Limited Partnership and U.S. Bank National Association (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 10, 2021).
4.10
Description of Securities registered under Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 10-K, filed February 28, 2020).
10.1
Form of Directors and Officers Indemnification Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K, filed February 23, 2018).
10.2
Amended and Restated Deferred Stock Plan, dated October 16, 2012, and forms of related agreements (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed November 7, 2012).
10.3
Credit Agreement, dated as of April 30, 2021, among the Company, certain subsidiaries of the Company identified therein as guarantors, the lenders named therein and Bank of America, N.A., as administrative agent for such lenders (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed May 4, 2021).
10.4
Credit Agreement, dated as of April 30, 2021, among OHI Healthcare Properties Limited Partnership, the lenders named therein and Bank of America, N.A., as administrative agent for such lenders (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed May 4, 2021).
10.5
At-the Market Equity Offering Sales Agreement, dated May 20, 2021, among the Company, the Sales Agents, the Forward Sellers and the Forward Purchasers (Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed May 20, 2021).
10.6
Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 11, 2018). +
10.6A
2019 Form of Time-Based Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8A of the Company’s Annual Report on Form 10-K filed February 26, 2019). +
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10.6B
2019 Form of Time-Based Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8B of the Company’s Annual Report on Form 10-K filed February 26, 2019). +
10.6C
2019 Form of TSR-Based Performance Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8C of the Company’s Annual Report on Form 10-K filed February 26, 2019). +
10.6D
2019 Form of TSR-Based Performance Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8D of the Company’s Annual Report on Form 10-K filed February 26, 2019). +
10.6E
2019 Form of Relative TSR-Based Performance Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8E of the Company’s Annual Report on Form 10-K filed February 26, 2019). +
10.6F
2019 Form of Relative TSR-Based Performance Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8F of the Company’s Annual Report on Form 10-K filed February 26, 2019). +
10.6G
2020 Form of Time-Based Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8G to the Company’s Annual Report on Form 10-K, filed February 28, 2020). +
10.6H
2020 Form of Time-Based Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8H to the Company’s Annual Report on Form 10-K, filed February 28, 2020). +
10.6I
2020 Form of TSR-Based Performance Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8I to the Company’s Annual Report on Form 10-K, filed February 28, 2020). +
10.6J
2020 Form of TSR-Based Performance Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8J to the Company’s Annual Report on Form 10-K, filed February 28, 2020). +
10.6K
2020 Form of Relative TSR-Based Performance Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8K to the Company’s Annual Report on Form 10-K, filed February 28, 2020). +
10.6L
2020 Form of Relative TSR-Based Performance Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8L to the Company’s Annual Report on Form 10-K, filed February 28, 2020). +
10.6M
2022 Form of Time-Based Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan. +*
10.6N
2022 Form of Time-Based Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan. +*
10.6O
2022 Form of TSR-Based Performance Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan. +*
10.6P
2022 Form of TSR-Based Performance Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan. +*
10.6Q
2022 Form of Relative TSR-Based Performance Restricted Stock Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan. +*
10.6R
2022 Form of Relative TSR-Based Performance Profits Interest Units Agreement pursuant to the Omega Healthcare Investors, Inc. 2018 Stock Incentive Plan.+*
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10.7
Form of Officer Deferred Performance Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q, filed August 5, 2013). +
10.8
Form of Employment Agreement for Company’s executive officers, other than Ms. Makode, effective as of January 1, 2020 for the Company’s executive officers (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 20, 2019). +
10.9
Employment Agreement, effective as of January 1, 2020, between the Company and Gail Makode (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed December 20, 2019). +
10.10
Form of Annual Amendment to Employment Agreement for the Company’s executive officers. +*
10.11
Amended and Restated Phantom Partnership Unit Award Agreement, dated as of September 17, 2010, among Aviv Asset Management, L.L.C., Steven J. Insoft and Aviv Healthcare Properties Limited Partnership (Incorporated by reference to Exhibit 10.8 to Aviv REIT, Inc.’s Registration Statement on Form S-4, filed May 2, 2011). +
10.12
Omega Healthcare Investors, Inc. Deferred Cash Compensation Plan with form of Deferral Agreement pursuant to the Omega Healthcare Investors, Inc. Deferred Cash Compensation Plan (June 30, 2018) (Incorporated by reference to Exhibit 10.2 to Omega Healthcare Investor Inc.’s Form 10-Q filed August 8, 2018). +
21.1
Subsidiaries of the Registrant.*
22.1
Subsidiary guarantors of guaranteed securities.*
23.1
Consent of Independent Registered Public Accounting Firm for Omega Healthcare Investors, Inc.*
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Omega Healthcare Investors, Inc.*
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Omega Healthcare Investors, Inc.*
32.1
Section 1350 Certification of the Chief Executive Officer of Omega Healthcare Investors, Inc.*
32.2
Section 1350 Certification of the Chief Financial Officer of Omega Healthcare Investors, Inc.*
101
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
* Exhibits that are filed or furnished herewith.
+ Management contract or compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OMEGA HEALTHCARE INVESTORS, INC.
Registrant
Date:
February 17, 2022
By:
/s/ C. Taylor Pickett
C. Taylor Pickett
Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Omega Healthcare Investors, Inc., for itself and in the capacities on the date indicated.
Signatures
Title
Date
/s/ C. Taylor Pickett
Chief Executive Officer
February 17, 2022
C. Taylor Pickett
(Principal Executive Officer)
/s/ Robert O. Stephenson
Chief Financial Officer
February 17, 2022
Robert O. Stephenson
(Principal Financial Officer)
/s/ Neal A. Ballew
Chief Accounting Officer
February 17, 2022
Neal A. Ballew
(Principal Accounting Officer)
/s/ Craig R. Callen
Chair of the Board
February 17, 2022
Craig R. Callen
/s/ Kapila K. Anand
Director
February 17, 2022
Kapila K. Anand
/s/ Dr. Lisa C. Egbuonu-Davis
Director
February 17, 2022
Dr. Lisa C. Egbuonu-Davis
/s/ Barbara B. Hill
Director
February 17, 2022
Barbara B. Hill
/s/ Kevin J. Jacobs
Director
February 17, 2022
Kevin J. Jacobs
/s/ Edward Lowenthal
Director
February 17, 2022
Edward Lowenthal
/s/ C. Taylor Pickett
Director
February 17, 2022
C. Taylor Pickett
/s/ Stephen D. Plavin
Director
February 17, 2022
Stephen D. Plavin
/s/ Burke W. Whitman
Director
February 17, 2022
Burke W. Whitman
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