What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-11-05 · 323 added, 457 removed, 541 unchanged (59% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30,

Real estate properties

Real estate investments

Real estate assets

Buildings and improvements

Furniture and equipment

Construction in progress

Total real estate assets

Less accumulated depreciation

1 unchanged sentence

( 2,160,696 )

Real estate investments – net

Real estate assets – net

Investments in direct financing leases – net

13 unchanged sentences

Accrued expenses and other liabilities

Deferred income taxes

Total liabilities

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 – 238,939 shares as of September 30, 2021 and 231,199 as of December 31, 2020

Common stock $ .10 par value authorized – 350,000 shares, issued and outstanding – 238,206 shares as of March 31, 2022 and 239,061 shares as of December 31, 2021

Additional paid-in capital

12 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Rental income

10 unchanged sentences

Recovery on direct financing leases

Provision for credit losses

Provision (recovery) for credit losses

Interest expense

3 unchanged sentences

Loss on debt extinguishment

Gain (loss) on assets sold – net

Total other income (expense)

Income (loss) before income tax expense and income from unconsolidated joint ventures

Gain on assets sold – net

Total other income

Income before income tax expense and income from unconsolidated joint ventures

Income tax expense

Income from unconsolidated joint ventures

Net income (loss)

Net (income) loss attributable to noncontrolling interest

Net income (loss) available to common stockholders

Net income attributable to noncontrolling interest

Net income available to common stockholders

Earnings per common share available to common stockholders:

Net income (loss) available to common stockholders

Net income (loss)

Net income available to common stockholders

See notes to consolidated financial statements .

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation

Cash flow hedges

Total other comprehensive (loss) income

Comprehensive income (loss)

Comprehensive (income) loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to common stockholders

Total other comprehensive income

Comprehensive income

Comprehensive income attributable to noncontrolling interest

Comprehensive income attributable to common stockholders

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended September 30, 2021 and 2020

Three Months Ended March 31, 2022 and 2021

(in thousands, except per share amounts)

2 unchanged sentences

Noncontrolling

Dividends Paid

Income (Loss)

Balance at June 30, 2021

( 5,232,692 )

Stock related compensation

Issuance of common stock

Common dividends declared ($ 0.67 per share)

Vesting/exercising of Omega OP Units

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Other comprehensive loss

Balance at September 30, 2021

( 5,393,284 )

Balance at June 30, 2020

( 4,610,828 )

Stock related compensation

Issuance of common stock

Common dividends declared ($ 0.67 per share)

Vesting/exercising of Omega OP Units

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Other comprehensive income

Balance at September 30, 2020

( 4,763,468 )

See notes to consolidated financial statements.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Nine Months Ended September 30, 2021 and 2020

(in thousands, except per share amounts)

Comprehensive

Stockholders’

Noncontrolling

Dividends Paid

Balance at December 31, 2021

2 unchanged sentences

Issuance of common stock

Repurchase of common stock

Common dividends declared ($ 0.67 per share)

Vesting/exercising of Omega OP Units

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Capital contribution from noncontrolling interest holder in consolidated JV

Other comprehensive income

Balance at September 30, 2021

Balance at March 31, 2022

( 5,714,595 )

1 unchanged sentence

( 4,916,097 )

Cumulative effect of accounting change

( 4,303,546 )

Stock related compensation

4 unchanged sentences

Omega OP Units distributions

Other comprehensive loss

Balance at September 30, 2020

Other comprehensive income

Balance at March 31, 2021

( 5,074,432 )

3 unchanged sentences

Unaudited (in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

4 unchanged sentences

Provision for rental income

Provision for credit losses

Provision (recovery) for credit losses

Amortization of deferred financing costs and loss on debt extinguishment

3 unchanged sentences

Amortization of acquired in-place leases – net

Effective yield payable (receivable) on mortgage notes

Effective yield payable on mortgage notes

Interest paid-in-kind

8 unchanged sentences

Acquisition of real estate

Refund of acquisition deposit

Acquisition deposit - net

Net proceeds from sale of real estate investments

9 unchanged sentences

Proceeds from other investments

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

4 unchanged sentences

Net proceeds from issuance of common stock

Repurchase of common stock

Dividends paid

Noncontrolling members’ contributions to consolidated joint venture

Distributions to Omega OP Unit Holders

Net cash used in financing activities

Net cash provided by financing activities

Effect of foreign currency translation on cash, cash equivalents and restricted cash

(Decrease) increase in cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

Omega Healthcare Investors, Inc.

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

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

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

Omega has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes and is structured as an umbrella partnership REIT (“UPREIT”) under which all of Omega’s assets are owned directly or indirectly by, and all of Omega’s operations are conducted directly or indirectly through, its operating partnership subsidiary, OHI Healthcare Properties Limited Partnership (collectively with subsidiaries, “Omega OP”).

(“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega,” the “Company,” “we,” “our,” or “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.

Our core portfolio consists of 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 exclusive control over Omega OP’s day-to-day management pursuant to the partnership agreement governing Omega OP.

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

As of March 31, 2022, Parent owned approximately 97 % of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3 % of the outstanding Omega OP Units.

Basis of Presentation and Principles of Consolidation

9 unchanged sentences

Reclassification

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

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

Risks and Uncertainties including COVID-19

1 unchanged sentence

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.

Accounting Pronouncements Adopted in 2021

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

Lessors – Certain Leases with Variable Lease Payments .

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

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

Early adoption is permitted.

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

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

NOTE 2 – REAL ESTATE INVESTMENTS

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

September 30,

(in thousands)

Furniture and equipment

Site improvements

Construction in progress

Total real estate investments

Less accumulated depreciation

( 2,174,546 )

( 1,996,914 )

Real estate investments – net

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Recent Accounting Pronouncements

ASU – 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures

On March 31, 2022, the FASB issued ASU 2022-02, which eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) and requires additional disclosures for certain loan modifications.

ASU 2022-02 also requires entities to disclose gross write-offs of financing receivables and net investments in leases by year of origination.

The TDR guidance can be adopted using either a prospective or modified retrospective transition approach and the additional disclosure requirements are made prospectively.

ASU 2022-02 would be effective for Omega’s first quarter of 2023, and early adoption is permitted.

We are still evaluating the impact that adopting ASU 2022-02 will have 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 16 – Derivatives and Hedging), a $ 1.45 billion senior unsecured multicurrency revolving credit facility, and a $ 50 million senior unsecured term loan facility (See Note 15 – Borrowing Activities and Arrangements) that reference LIBOR.

We also have a $ 25.0 million senior secured debtor-in-possession (“DIP”) facility loan with an operator that references LIBOR (See Note 6 – 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 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.

NOTE 2 – REAL ESTATE ASSETS

At March 31, 2022, our leased real estate properties included 674 SNFs, 163 ALFs, 20 ILFs, 16 specialty facilities and two medical office buildings.

The following table summarizes the Company’s rental income from operating leases:

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Total rental income

Our variable lease income primarily represents the reimbursement of real estate taxes and ground lease expenses by operators that Omega pays directly.

Asset Acquisitions

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

The following table summarizes the asset acquisitions that occurred during the first three months of 2022:

Total Real Estate

Assets Acquired

Country/State

(in millions)

Cash Yield (1)

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

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

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

The acquisition involved the assumption of an in-place master lease with Brookdale Senior Living Inc.

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

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

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

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

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

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

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

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

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

(2) The total consideration paid for this one facility U.K.

acquisition and the 27 -facility U.K.

acquisition was $ 8.2 million and $ 100.0 million, respectively.

In connection with these acquisitions, we allocated $ 0.5 million of the purchase consideration to a deferred tax liability related to this one facility U.K.

acquisition, and $ 13.4 million to a deferred tax asset related to the 27 -facility U.K.

See Note 13 – Taxes for additional information.

(3) Total consideration for the 1 facility Maryland acquisition was paid on December 30, 2021, but the closing of the acquisition did not occur until January 1, 2022.

NOTE 3 – ASSETS HELD FOR SALE, DISPOSITIONS AND IMPAIRMENTS

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

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

In March 2022, we reclassified seven facilities leased to Guardian Healthcare (“Guardian”) to held for sale in connection with the transactions outlined in the restructuring agreement that was executed in April 2022 with Guardian, as discussed further in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements.

We also entered into agreements to sell seven of these held for sale facilities in March and April 2022 for estimated gross proceeds of $ 36.5 million.

As of March 31, 2022, the remaining 19 facilities in held for sale are all under sales agreements which provide for estimated proceeds of $ 83.1 million, subject to terms and conditions of such agreements.

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

September 30, 2021

December 31, 2020

Number of facilities held for sale

Amount of assets held for sale (in thousands)

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

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

During the three months ended March 31, 2022, we sold 27 facilities, subject to operating leases, for approximately $ 332.6 million in net cash proceeds, recognizing a net gain of approximately $ 113.6 million.

One of these facilities was sold to the joint venture that was consolidated in the first quarter of 2022, as discussed further in Note 8 – Variable Interest Entities.

The proceeds and gain primarily relate to the sale of the 22 facilities that were previously leased and operated by Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) and were included in assets held for sale as of December 31, 2021.

The net cash proceeds from the sale, including related costs accrued for as of the end of the first quarter, were $ 304.0 million, and we recognized a net gain of approximately $ 113.5 million.

We elected to exit these facilities following Gulf Coast commencing the Chapter 11 bankruptcy process in October 2021.

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 three years following the sale.

As we have determined it is not probable that we will receive any additional funds, we have not recorded any income related to the earnout clause.

Two of the facilities sold during the three months ended March 31, 2022 were previously leased to Guardian and were sold for $ 3.0 million in gross proceeds, which resulted in a net gain of approximately $ 0.5 million, in connection with on-going restructuring negotiations and were included in held for sale as of December 31, 2021.

Real Estate Impairments

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

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

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

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

During the three months ended March 31, 2022, we recorded impairments of approximately $ 3.5 million on two facilities that were classified as held for sale during the quarter for which the carrying values exceeded the estimated fair values less costs to sell.

To estimate the fair value of the facilities determined to be held for sale for the impairments noted above, we utilized a market approach that considered binding sale agreements (a Level 1 input) or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).

NOTE 4 – CONTRACTUAL RECEIVABLES AND OTHER RECEIVABLES AND LEASE INDUCEMENTS

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

September 30,

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 and lease inducements by type is as follows:

(in thousands)

5 unchanged sentences

Agemo Holdings, LLC

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

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

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

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

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

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

Agemo Holdings, LLC (“Agemo”) continued to not pay contractual rent and interest due under its lease and loan agreements during the first quarter of 2022.

As we already placed Agemo on a cash basis of revenue recognition during the third quarter of 2020, no revenue was recorded during the three months ended March 31, 2022.

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

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

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

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

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

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

Gulf Coast Health Care, LLC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For the three months ended March 31, 2021, Agemo generated approximately 4.6 %, respectively, of our total revenues (excluding the impact of write-offs in the first quarter of 2021).

During the three months ended March 31, 2022, the Agemo lease was amended to allow for the extension of the rent deferral through April 2022, which represents an additional deferral of approximately $ 1.6 million of rent.

Additionally, in the first quarter of 2022, we extended the forbearance period from February 28, 2022 to April 30, 2022.

The forbearance period was subsequently extended to May 31, 2022.

Guardian Healthcare

Guardian Healthcare (“Guardian”) continued to not make contractual rent and interest payments under its lease and loan agreements during the first quarter of 2022.

As we already placed Guardian on a cash basis of revenue recognition in the fourth quarter of 2021, no revenue was recorded during the three months ended March 31, 2022.

In the first quarter of 2022, we transitioned eight facilities previously leased to Guardian to two other operators as part of the planned restructuring.

Additionally, we also sold two facilities previously leased to Guardian and three facilities previously subject to the Guardian mortgage loan in the first quarter of 2022 as part of on-going restructuring activities.

In April 2022, we agreed to a formal restructuring agreement, master lease amendment and mortgage loan amendment with Guardian.

As part of the restructuring agreement and amendments, Omega and Guardian agreed to the following:

● Extend the lease and loan terms to December 31, 2031 and allow Guardian the option to extend the maturity date for both the lease and loan through September 30, 2034 ,

● sell 6 facilities subject to the master lease agreement to other operators in exchange for a reduction in base rent equal to 9.5 % of the agreed upon fair value of these facilities,

● require Guardian to purchase one leased facility for $ 3.5 million before June 30, 2022, with a corresponding reduction in base rent equal to 9.5 % of the proceeds,

● reduce the combined rent and mortgage interest to an aggregate $ 24.0 million following the completion of sale of the six leased facilities and Guardian repurchase of the one leased facility are completed and

● allow for the deferral of up to $ 18.0 million of aggregate rent and interest, effective retrospectively, from October 1, 2021 through April 1, 2022 based on the existence of certain financial conditions, with repayment required after September 30, 2024 based on certain financial metrics and in full by the current lease termination date of December 31, 2031, or the earlier termination of the lease for any reason.

Guardian elected to utilize the allowed deferral in the restructuring agreement for unpaid contractual rent and interest during the period from October 2021 through March 2022 and for a portion of rent and interest in April 2022.

In April 2022, Guardian made a partial payment after exhausting the maximum allowable deferral of $ 18.0 million under the restructuring agreement.

Guardian is required to make contractual rent and interest payments going forward under the restructuring agreements.

As discussed in Note 3 – Assets Held for Sale, Dispositions and Impairments, the seven leased facilities expected to be sold based on the terms within the restructuring agreement are included in assets held for sale as of March 31, 2022.

As of March 31, 2022, 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 5 – Mortgage Notes Receivable for additional details on our mortgage with Guardian.

For the three months ended March 31, 2021, Guardian generated approximately 3.2 % of our total revenues (excluding the impact of straight-line write-offs in the first quarter of 2021).

Other operator updates

From January through March 2022, an operator representing 3.8 % and 3.3 %, respectively, of total revenue (excluding the impact of write-offs) for the three months ended March 31, 2022 and 2021, did not pay its contractual amounts due under its lease agreement.

In March 2022, the lease with this operator was amended to allow for a short-term rent deferral for January through March 2022.

The deferred rent balance accrues interest monthly at a rate of 5 % per annum.

This operator paid the contractual amount due under its lease agreement in April 2022.

The operator is required to repay the deferred rent balance and accrued interest by December 31, 2022.

Omega holds a $ 1.0 million letter of credit and a $ 150.0 thousand security deposit from this operator.

We also have a $ 20.0 million revolving credit facility with this operator, and the operator paid contractual interest under the facility from January through April 2022.

As of March 31, 2022, the total outstanding principal due under the credit facility was $ 16.0 million.

In April 2022, this operator borrowed an additional $ 1.8 million under the credit facility.

The credit facility is secured by a first lien on the accounts receivable of the operator.

In March 2022, another operator, representing 2.3 % and 2.1 %, respectively, of total revenue (excluding the impact of write-offs) for the three months ended March 31, 2022 and 2021, did not pay its contractual amounts due under its lease agreement.

In April 2022, the lease with this operator was amended to allow the operator to apply its $ 2.0 million security deposit toward payment of March 2022 rent and to allow for a short-term rent deferral for April, 2022 with regular rent payments required to resume in May 2022.

During the first quarter of 2022, we allowed three other operators, representing an aggregate 2.5 % and 2.7 %, respectively, of total revenue (excluding the impact of write-offs) for the three months ended March 31, 2022 and 2021 to apply $ 1.3 million of their security deposits to pay rent to accommodate short term liquidity issues, with regular rent payments required to resume shortly thereafter.

As of April 30, 2022, all of these operators are current on their lease obligations.

These operators also are required to begin replenishing their security deposits in 2023.

Other straight-line receivables and write-offs

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

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

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

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

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

During the first quarter of 2022, we wrote-off straight-line rent receivable balances of $ 3.2 million through rental income as a result of transitioning six facilities to another existing operator.

NOTE 5 – MORTGAGE NOTES RECEIVABLE

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

As of March 31, 2022, mortgage notes receivable relate to seven fixed rate mortgage notes on 60 facilities.

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

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

September 30,

(in thousands)

6 unchanged sentences

Allowance for credit losses on mortgage notes receivable

Total mortgages — net

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

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

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

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

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

Other mortgage notes outstanding

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

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

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

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

Total mortgage notes receivable — net

(1) Approximates the weighted average interest rate on 45 facilities as of March 31, 2022.

(2) Other mortgage notes outstanding have a weighted average interest rate of 8.84 % per annum as of March 31, 2022 and maturity dates ranging from 2023 through 2032 .

Mortgage Note due 2027

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, Guardian continued to not pay contractual rent and interest to us during the first quarter of 2022.

During the first quarter of 2022, we continued our on-going negotiations to restructure and amend Guardian’s lease and loan agreements.

As part of the restructuring negotiations, on February 15, 2022, Guardian completed the sale of three facilities, subject to the Guardian mortgage loan with Omega.

Concurrent with the sale, Omega agreed to release the mortgage liens on these facilities in exchange for a partial paydown of $ 21.7 million.

In connection with the partial paydown, we recorded a $ 5.1 million recovery for credit losses in the first quarter of 2022 related to the Guardian mortgage loan.

Following the mortgage paydown and recovery, Omega has reserves of $ 42.0 million against the loan that reduces the loan carrying value to the estimated fair value of the collateral of $ 40.0 million.

As of March 31, 2022, the mortgage loan is secured by three SNFs and one ALF located in Pennsylvania.

In April 2022, we agreed to a formal restructuring agreement and amendments to the master lease and mortgage loan with Guardian.

See Note 4 – Contractual Receivables and Other Receivables and Lease Inducements.

NOTE 6 – OTHER INVESTMENTS

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

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

A number of the secured loans are collateralized by a leasehold mortgage on, or an assignment or pledge of the membership interest in, the related properties, corporate guarantees and/or personal guarantees.

We deem these to be “real estate related loans” that are included as qualifying assets under our quarterly REIT asset tests.

As of March 31, 2022, we had 37 loans with 18 different operators.

A summary of our other investments is as follows:

September 30,

(in thousands)

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interest at 12.00 %

Other investment notes outstanding (2)

Real estate related loans - other investments, gross

Other investment notes due 2024 - 2025 ;

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Other investment notes outstanding (3)

Non-real estate related loans - other investments, gross

Total other investments, gross

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Total other investments - net

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

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

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

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

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

(1) Approximates the weighted average interest rate as of March 31, 2022.

(2) Other investment notes that are real estate related loans have a weighted average interest rate of 11.20 % as of March 31, 2022 with maturity dates ranging from 2022 through 2023 (with $ 10.4 million maturing in 2022 ).

(3) Other investment notes that are non-real estate related loans have a weighted average interest rate of 8.08 % as of March 31, 2022 with maturity dates ranging from 2022 through 2032 (with $ 70.5 million maturing in 2022 ).

Interest revenue on other investment loans is included within other investment income on the Consolidated Statement of Operations.

A summary of our other investments income by real estate and non-real estate loans, as defined above, is as follows:

Three Months Ended March 31,

(in thousands)

Real estate related loans - interest income

Non-real estate related loans - interest income

Total other investment income

Other investment notes due 2024-2025

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

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

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

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

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

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

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

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

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, Agemo continued to not pay contractual rent and interest to us during the first quarter of 2022.

We have continued to monitor the fair value of the collateral associated with Agemo’s $ 25.0 million secured working capital loan (the “Agemo WC Loan”) on a quarterly basis.

In the first quarter of 2022, we recorded an additional provision for credit losses of $ 4.7 million related to the Agemo WC Loan 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 driven by a reduction in Agemo’s working capital accessible to Omega as collateral, after considering other liens on the assets.

Other investment notes outstanding

Term Loan – $ 25 million

On March 25, 2022, we entered into a $ 25.0 million term loan with LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care) that bears interest at a fixed rate of 8.5 % per annum and matures on March 31, 2032 .

The term loan requires quarterly principal payments of $ 1.3 million commencing January 1, 2028 and is secured by a second priority lien on the accounts receivable of the operator.

As of March 31, 2022, the outstanding principal under this term loan was $ 25.0 million.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses on loans is measured using relevant information about past events, including historical credit loss experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the remaining cash flows over the contractual term of the loans.

We elected to disaggregate our financial assets within the scope of Accounting Standards Codification 326 based on the type of financial instrument.

These segments were further disaggregated based on our internal credit ratings.

We assess our internal credit ratings on a quarterly basis.

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.

We have a limited history of incurred losses and consequently have elected to employ external data to perform our expected credit loss calculation.

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

Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration 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.

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

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

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

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

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.

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

A rollforward of our allowance for credit losses for the three months ended March 31, 2022 is as follows:

Financial Statement Line Item

Allowance for Credit Loss as of December 31, 2021

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

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

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

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

Allowance for Credit Loss as of September 30, 2021

Provision (recovery) for Credit Loss for the three months ended March 31, 2022

Write-offs charged against allowance for the three months ended March 31, 2022

Allowance for Credit Loss as of March 31, 2022

(in thousands)

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Off-Balance Sheet Mortgage Commitments

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

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

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

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

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

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

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

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

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

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

Off-Balance Sheet Note Commitments

(1) This amount relates to a recovery recorded on the Guardian mortgage loan during the first quarter of 2022.

See Note 5 – Mortgage Notes Receivable for additional information on the recovery recorded.

(2) This provision includes an additional $ 4.7 million allowance recorded on the Agemo WC Loan during the first quarter of 2022.

See Note 6 – Other Investments for additional information on the Agemo WC Loan impairment.

(3) During the three months ended March 31, 2022, we received $ 0.7 million of interest and fee payments from Gulf Coast under the $ 25.0 million senior secured DIP facility, the outstanding principal of which was fully reserved against in the fourth quarter of 2021.

The DIP loan is on non-accrual status, and the payments received in the first quarter of 2022 have been applied against the outstanding principal using the cost recovery method.

In the first quarter of 2022, we recorded a recovery for credit loss equal to the amount of payments applied against the principal.

A rollforward of our allowance for credit losses for the three months ended March 31, 2021 is as follows:

Financial Statement Line Item

Allowance for Credit Loss at December 31, 2020

Allowance for Credit Loss on January 1, 2020

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

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

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

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

Allowance for Credit Loss as of September 30, 2020

Provision (recovery) for Credit Loss for the three months ended March 31, 2021

Write-offs charged against allowance for the three months ended March 31, 2021

Allowance for Credit Loss as of March 31, 2021

(in thousands)

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Revolving Loans

Balance as of September 30, 2021

Balance as of March 31, 2022

(in thousands)

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Other investments

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 March 31, 2022, $ 11.3 million of contractual interest receivable is recorded in contractual receivables – net, and $ 9.1 million of effective yield interest receivables is recorded in other receivables and lease inducements on our Consolidated Balance Sheets, both of which are excluded from our allowance for credit losses.

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

During the first quarter of 2022, we did no t recognize any interest income related to loans on non-accrual status as of March 31, 2022.

NOTE 8 – VARIABLE INTEREST ENTITIES

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

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

This conclusion is based on the fact that we do not have the power to direct the activities of any VIEs that most significantly impact their economic performance and we do not have the obligation to absorb losses or receive benefits of the VIEs that could be significant to the entities.

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

September 30, 2021

December 31, 2020

(in thousands)

Unconsolidated Variable Interest Entities

We hold variable interests in several variable interest entities (“VIEs”) through our investing and financing activities, which are not consolidated, as we have concluded that we are not the primary beneficiary of these entities as 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 and collateral associated with these unconsolidated VIEs as of March 31, 2022 and December 31, 2021:

(in thousands)

Real estate investments – net

Real estate assets – net

Assets held for sale

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Other collateral (1)

( 1,136,095 )

( 1,335,867 )

Total collateral

( 1,184,095 )

( 1,383,867 )

Maximum exposure to loss

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

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

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

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

(1) Amount excludes accounts receivable that Omega has a security interest in as collateral under the two working capital loans with operators that are unconsolidated VIEs.

The fair value of the accounts receivable available to Omega was $ 23.7 million and $ 29.2 million as of March 31, 2022 and December 31, 2021, respectively.

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

The table below reflects our total revenues from the operators that are considered unconsolidated VIEs for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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Other investment income

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

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

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

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

NOTE 9 – INVESTMENTS IN JOINT VENTURES AND OTHER EQUITY INVESTMENTS

Consolidated VIEs

During the first quarter of 2022, we entered into a joint venture, which owns two ALFs, for a $ 3.2 million cash contribution, representing 52.4 % of the outstanding equity of the joint venture.

Concurrent with entering the joint venture, we sold one of the ALFs to the joint venture for $ 7.7 million in net proceeds.

The joint venture is a VIE and we have concluded that we are the primary beneficiary of this VIE based on a combination of the ability to direct the activities that most significantly impact the joint venture’s economic performance and the rights to receive residual returns or the obligation to absorb losses arising from the joint venture.

Accordingly, this joint venture has been consolidated.

Omega is not required to make any additional capital contributions to the joint venture, and it is expected to be funded from the ongoing operations of the underlying properties.

As of March 31, 2022, this joint venture has $ 25.6 million of total assets and $ 19.6 million of total liabilities, which are included in our Consolidated Balance Sheets.

As a result of consolidating the joint venture, in the first quarter of 2022, we recorded a $ 2.9 million noncontrolling interest to reflect the contributions of the minority interest holder of the joint venture.

No gain or loss was recognized on the initial consolidation of the VIE or upon the sale of the ALF to the joint venture.

NOTE 9 – INVESTMENTS IN JOINT VENTURES

Unconsolidated Joint Ventures

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Facilities at

September 30,

Investment (1)

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(1) Our initial investment includes our transaction costs, if any.

(2) 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.

(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).

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table reflects our income (loss) from unconsolidated joint ventures for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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OH CHS SNP, Inc.

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

(1) The income from this unconsolidated joint venture for the three months ended March 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 each of the three months ended September 30, 2021 and 2020, we recognized approximately $ 0.2 million and $ 0.3 million, respectively, of asset management fees.

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

For each of the three months ended March 31, 2022 and 2021, we recognized approximately $ 0.2 million 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 10 – GOODWILL AND OTHER INTANGIBLES

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

The following is a summary of our goodwill as of March 31, 2022 and December 31, 2021:

(in thousands)

1 unchanged sentence

Foreign currency translation

Balance as of September 30, 2021

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

September 30,

Balance as of March 31, 2022

The following is a summary of our intangibles as of March 31, 2022 and December 31, 2021:

(in thousands)

8 unchanged sentences

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

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

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

For the three months ended March 31, 2022 and 2021, our net amortization related to intangibles was $ 1.6 million and $ 6.2 million, respectively.

The estimated net amortization related to these intangibles for the remainder of 2022 and the subsequent four years is as follows:

3 unchanged sentences

2025 – $ 3.5 million and 2026 – $ 2.8 million.

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

As of March 31, 2022, the weighted average remaining amortization period of above market lease assets is approximately ten years and below market lease liabilities is approximately seven years .

NOTE 11 – CONCENTRATION OF RISK

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

As of March 31, 2022, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of 962 healthcare facilities, located in 42 states and the U.K.

and operated by 65 third-party operators.

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

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

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

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

Maplewood and Consulate Health Care (“Consulate”).

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

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

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

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.9 billion at March 31, 2022, with approximately 97 % of our real estate investments related to long-term healthcare facilities.

Our portfolio is made up of (i) 675 SNFs, 163 ALFs, 20 ILFs, 16 specialty facilities and two medical office buildings, (ii) fixed rate mortgages on 56 SNFs, two ALFs and two specialty facilities, and (iii) 26 facilities that are held for sale.

At March 31, 2022, we also held other investments of approximately $ 506.9 million, consisting primarily of secured loans to third-party operators of our facilities and $ 192.2 million of investments in six unconsolidated joint ventures.

At March 31, 2022 we had investments with two operators or managers that approximated or exceeded 10% of our total investments:

Maplewood Senior Living (along with affiliates, “Maplewood”) and LaVie.

Maplewood generated approximately 9.0 % and 7.5 % of our total revenues for the three months ended March 31, 2022 and 2021, respectively.

LaVie generated approximately 11.3 % and 9.1 % of our total revenues for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, the three states in which we had our highest concentration of investments were Florida ( 13 %), Texas ( 10 %) and Michigan ( 7 %).

NOTE 12 – STOCKHOLDERS’ EQUITY

$ 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, pursuant to Rule 10b5-1 trading plans 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.

During the first quarter of 2022, the Company repurchased 980,530 shares of our outstanding common stock at an average price of $ 27.84 per share.

Under Maryland law, shares repurchased become authorized but unissued shares.

The Company reduced the common stock at par value and to the extent the cost acquired exceeds par value, it is recorded through additional paid-in capital on our Consolidated Balance Sheets and Consolidated Statements of Changes in Equity.

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

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February 15, 2022

August 2, 2021

August 13, 2021

November 5, 2021

November 15, 2021

Dividend Reinvestment and Common Stock Purchase Plan

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

The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three months ended March 31, 2022 and 2021 (in millions):

Three Months Ended

Shares issued

Gross Proceeds

(in millions)

Three Months Ended

September 30, 2020

Three Months Ended

September 30, 2021

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2021

March 31, 2021

March 31, 2022

At-The-Market Offering Programs

During the third quarter of 2015, Omega entered into Equity Distribution Agreements with several financial institutions to sell $ 500.0 million of shares of common stock from time to time through an “at-the-market” (“ATM”) offering program (the “2015 ATM Program”).

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 the second or third quarter of 2021.

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

Shares issued

The following is a summary of the shares issued under our former $ 500 million 2015 At-The-Market Offering Program (“2015 ATM Program”) and our current $ 1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”) for the three months ended March 31, 2022 and 2021 (in millions except average price per share):

Average Net Price

Gross Proceeds

(in millions)

Per Share (1)

(in millions)

Three Months Ended

September 30, 2020

Three Months Ended

September 30, 2021

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2021

Shares issued

Per Share (1)

Gross Proceeds

March 31, 2021

March 31, 2022

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

We did not utilize the forward provisions under the 2021 ATM Program during the first quarter of 2022.

Accumulated Other Comprehensive Income (Loss)

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As of and for the

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March

(in thousands)

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Unrealized gain

Realized gain (loss) (1)

Realized gain (1)

Ending balance

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Ending balance

Total accumulated other comprehensive income (loss) before noncontrolling interest

Total accumulated other comprehensive income before noncontrolling interest

portion included in noncontrolling interest

Total accumulated other comprehensive income (loss) for Omega

Total accumulated other comprehensive income for Omega

(1) Recorded in interest expense on the Consolidated Statements of Operations.

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In 2021, we distributed dividends in excess of our taxable income.

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

These subsidiary REITs are required to individually satisfy all of the rules for qualification as a REIT.

We currently own stock in certain subsidiary REITs.

These subsidiaries 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 these subsidiaries, it may cause Omega to fail the requirements for qualification as a REIT also.

We have elected to treat certain of our active subsidiaries as taxable REIT subsidiaries (“TRSs”).

Our domestic TRSs are subject to income taxes at the applicable corporate rates.

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

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

As of March 31, 2022, one of our domestic TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 10.3 million.

Our domestic NOL carry-forward was fully reserved as of March 31, 2022, 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.

As discussed in Note 2 – Real Estate Assets, in connection with the acquisition of one U.K.

entity in the first quarter of 2022, we acquired foreign net operating losses of $ 55.0 million resulting in a NOL deferred tax asset of $ 13.4 million.

The NOLs have no expiration date and may be available to offset future taxable income.

We believe these foreign NOLs are realizable under a “more likely than not” measurement and have not recorded a valuation allowance against the deferred tax asset.

The following is a summary of deferred tax assets and liabilities (which are recorded in other assets and accrued expenses and other liabilities, respectively, in our Consolidated Balance Sheets):

(in thousands)

Deferred tax assets:

Federal net operating loss carryforward

Foreign net operating loss carryforward

Deferred tax liability:

Foreign deferred tax liability (1)

Valuation allowance on deferred tax asset

Net deferred tax asset (liability)

(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.

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

Three Months Ended

Nine Months Ended

September 30,

(in millions)

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NOTE 14 – STOCK-BASED COMPENSATION

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

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Stock-based compensation expense

Stock-based compensation expense was $ 6.9 million and $ 5.4 million for the three months ended March 31, 2022 and 2021, respectively.

Stock-based compensation expense is included within general and administrative expenses on our Consolidated Statements of Operations.

We granted 31,685 time-based restricted stock units (“RSUs”) and 170,294 time-based profits interest units (“PIUs”) during the first quarter of 2022 to certain officers and key employees, and those units vest on December 31, 2024 ( three years after the grant date), subject to continued employment and vesting in certain other events.

We also granted 1,545,070 performance-based PIUs during the first quarter of 2022 to certain officers and key employees, which are earned based on the level of performance over the performance period (normally three years ) and vest quarterly in the four th year, subject to continued employment and vesting in certain other events.

Time-based and performance-based grants made to named executive officers and key employees that meet certain conditions under the Company’s retirement policy (length of service, age, etc.) vest on an accelerated basis pursuant to the 2018 Stock Incentive Plan.

NOTE 15 – BORROWING ACTIVITIES AND ARRANGEMENTS

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Interest Rate

September 30,

(in thousands)

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2022 term loan (3)

2024 term loan (4)

Total secured borrowings

Unsecured borrowings:

Revolving borrowings:

Revolving credit facility (5)(6)

Revolving credit facility (4)

Total revolving borrowings

Senior notes and other unsecured borrowings:

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2033 notes (5)

Subordinated debt (2)(7)

Sterling term loan (4)(8)

OP term loan (7)(8)

OP term loan (9)(10)

Deferred financing costs – net

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Total secured and unsecured borrowings – net (9)(10)

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

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

(1) Reflects the weighted average annual contractual interest rate on the mortgages at March 31, 2022.

Secured by real estate assets with a net carrying value of $ 537.8 million as of March 31, 2022.

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

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

(4) Borrowing is the debt of the consolidated joint venture discussed in Note 8 – Variable Interest Entities which was formed in the first quarter of 2022.

The borrowing is secured by two ALFs which are owned by the joint venture.

(5) 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 purchase $ 350 million of the 4.375 % Senior Notes due 2023 .

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

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

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

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

The Sterling term loan was settled in March 2021 using proceeds from the 3.250 % 2033 Senior Notes offering.

(6) As of March 31, 2022, borrowings under Omega’s $ 1.45 billion senior unsecured multicurrency revolving credit facility consisted of $ 110.0 million U.S.

dollars (“USD”) and £ 186.0 million British Pounds Sterling (“GBP”).

The interest rate presented reflects the weighted average interest rate on the borrowings under the revolving credit facility denominated in USD and GBP.

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

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

(8) The interest rate swaps, that were cash flow hedges of Omega OP’s $ 50.0 million senior unsecured term loan facility (the “OP term loan”) interest payments and that effectively fixed the interest rate at 3.29 % , matured on February 10, 2022 .

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

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

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

Unsecured Borrowings

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) 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-London interbank offered rate quoted currency, as applicable.

We incurred $ 12.9 million of deferred costs in connection with the 2021 Omega Credit Agreement.

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 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.

As of March 31, 2022 and December 31, 2021, we were in compliance with all applicable covenants for our borrowings .

NOTE 16 – DERIVATIVES AND HEDGING

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

Cash Flow Hedges of Interest Rate Risk

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

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

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

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

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.

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

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

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

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

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

Foreign Currency Forward Contracts and Debt Designated as Net Investment Hedges

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

against fluctuations in GBP against the USD.

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

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

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

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

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

is either sold or substantially liquidated.

As of March 31, 2022, we have five forward starting swaps with $ 400.0 million in notional value designated as cash flow hedges and four forward currency forwards with £ 174.0 million in notional value designated as net investment hedges.

Two of our interest rate swaps that were entered into in May 2019 with aggregate notional amounts of $ 50.0 million matured on February 10, 2022 .

These interest rate swap contracts were 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 location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:

September 30,

Cash flow hedges:

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Net investment hedges:

Accrued expenses and other liabilities

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

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

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

September 30, 2021

At March 31, 2022 and December 31, 2021, the net carrying amounts and fair values of our other financial instruments were as follows:

March 31, 2022

December 31, 2021

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Revolving credit facility

Sterling term loan

2017 OP term loan

2022 term loan

2024 term loan

4.375 % notes due 2023 – net

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HUD mortgages – net

Subordinated debt – net

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 in our Annual Report on Form 10-K for the year ended December 31, 2021).

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

● Revolving line of credit and OP Term loan:

● Revolving credit facility, OP term loan, 2022 term loan and 2024 term loan:

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

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Gulf Coast Subordinated Debt

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

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

In August 2021, we filed suit in the Circuit Court for Baltimore County (the “Court”) 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 a subsidiary of Omega (“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.

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

A hearing was held on such motion on February 25, 2022, but the decision was taken under advisement.

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, irrespective of whether it is litigated in the Court or, if the motion to dismiss for lack of personal jurisdiction is granted, in another court.

Lakeway Realty, L.L.C.

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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.”).

As a result of the acquisition of MedEquities, the Company owns a 51 % interest in an unconsolidated partnership that owns Lakeway Hospital, 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.

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

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

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.

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

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

As of March 31, 2022, 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.

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

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

Our remaining commitments at March 31, 2022, are outlined in the table below (in thousands):

Total commitments

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Remaining commitments (2)

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

discussed in Note 2 – Real Estate Investments.

(1) Includes finance costs.

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March

(in thousands, except per share amounts)

Net income (loss)

net (income) loss attributable to noncontrolling interests

Net income (loss) available to common stockholders

net income attributable to noncontrolling interests

Net income available to common stockholders

Denominator for basic earnings per share

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Earnings per share - basic:

Net income (loss) available to common stockholders

Net income available to common stockholders

Earnings per share – diluted:

Net income (loss) (1)

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

NOTE 20 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

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

Nine Months Ended September 30,

The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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Non-cash acquisition of real estate

Non cash proceeds from sale of real estate investments

Non cash placement of mortgages

Non cash collection of mortgage principal

Non cash investment in other investments

Non cash proceeds from other investments

Non-cash financing activities:

Non cash borrowing of other long-term borrowings

Non-cash contribution from noncontrolling interest holder in consolidated joint venture

Change in fair value of cash flow hedges

Remeasurement of debt denominated in a foreign currency

NOTE 21 – SUBSEQUENT EVENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What changed 10-Q

Item 1. Financial Statements