What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-05 · 217 added, 338 removed, 139 unchanged (80% of the section changed)

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Forward-Looking Statements and Factors Affecting Future Results

Unless otherwise indicated or except where the context otherwise requires, the terms “we,” “us” and “our” and other similar terms in this Quarterly Report on Form 10-Q refer to Omega Healthcare Investors, Inc.

and its consolidated subsidiaries .

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this document.

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Our actual results may differ materially from those reflected in the forward-looking statements contained herein as a result of a variety of factors, including, among other things:

(i) those items discussed under “Risk Factors” in Part I, Item 1A to our annual report on Form 10-K ;

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

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

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

(v) our ability to re-lease, otherwise transition, or sell underperforming assets or assets held for sale on a timely basis and on terms that allow us to realize the carrying value of these assets;

(vi) the availability and cost of capital to us;

(vii) changes in our credit ratings and the ratings of our debt securities;

(viii) competition in the financing of healthcare facilities;

(ix) competition in long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs;

(x) additional regulatory and other changes in the healthcare sector;

(xi) changes in the financial position of our operators;

(xii) the effect of economic and market conditions generally and, particularly, in the healthcare industry;

(xiii) changes in interest rates;

(xiv) the timing, amount and yield of any additional investments;

(xv) changes in tax laws and regulations affecting real estate investment trusts (“REITs”);

(xvi) the potential impact of changes in the SNF and ALF markets or local real estate conditions on our ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to redeploy the proceeds therefrom on favorable terms;

(xvii) our ability to maintain our status as a REIT;

(xviii) the effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including natural disasters, other health crises or pandemics and governmental action;

(1) those items discussed under “Risk Factors” in Part I, Item 1A to our Annual Report on Form 10-K ;

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

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

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

(5) our ability to re-lease, otherwise transition, or sell underperforming assets or assets held for sale on a timely basis and on terms that allow us to realize the carrying value of these assets;

(6) the availability and cost of capital to us;

(7) changes in our credit ratings and the ratings of our debt securities;

(8) competition in the financing of healthcare facilities;

(9) competition in the long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs;

(10) additional regulatory and other changes in the healthcare sector;

(11) changes in the financial position of our operators;

(12) the effect of economic and market conditions generally and, particularly, in the healthcare industry;

(13) changes in interest rates and the impact of inflation;

(14) the timing, amount and yield of any additional investments;

(15) changes in tax laws and regulations affecting real estate investment trusts (“REITs”);

(16) the potential impact of changes in the SNF and ALF markets or local real estate conditions on our ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to redeploy the proceeds therefrom on favorable terms;

(17) our ability to maintain our status as a REIT;

(18) the effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including natural disasters, other health crises or pandemics and governmental action;

particularly in the healthcare industry.

Omega Healthcare Investors, Inc.

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

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

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

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

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

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

(“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega,” or “Company,” “we,” “our,” or “us”) has elected to be taxed as a REIT for federal income tax purposes.

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

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.

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

Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on SNFs, 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 our long-term leases and mortgage loans with healthcare operating companies and affiliates (collectively, our “operators”).

All of our mortgages are secured by first liens on the underlying real estate and personal property of the operators.

In addition to our core investments, we selectively make loans to operators for working capital and capital expenditures.

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

From time to time, we also acquire equity interests in joint ventures or entities that support the long-term healthcare industry and our operators.

COVID-19 Pandemic Update

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

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

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

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

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

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

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

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

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

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

Additionally, in October 2021, Guardian Healthcare (“Guardian”), excluded from the discussion above, failed to make contractual rent and interest payments under its lease agreement for 26 operating facilities and on its $112.5 million mortgage loan agreement.

See “Portfolio and Recent Developments – Guardian” below.

Agemo Holdings, LLC (“Agemo”), Guardian Healthcare (“Guardian”) and Gulf Coast Health Care LLC (together with certain affiliates, “Gulf Coast”), three operators that failed to make contractual payments under their lease and loan agreements for periods of 2021, continued to not make payments during the first quarter of 2022.

During the first quarter of 2022, two new operators, representing an aggregate of 6.1% of total revenue (excluding the impact of write-offs) for the three months ended March 31, 2022, missed contractual rent payments during the period, and we have agreed to short term deferrals with these two operators, as well as allowed one of these operators to apply its security deposit to pay rent, as discussed further in “Collectibility Issues” below.

Additionally, we allowed three other operators, representing an aggregate 2.5% of total revenue (excluding the impact of write-offs) for the three months ended March 31, 2022, 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.

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

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

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

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

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

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

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

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

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

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

As of April 27, 2022, our operators have reported a decline in cases of COVID-19 involving employees and residents from the high caseload experienced in January 2022 driven by the Omicron variant.

Our operators reported, as of April 27, 2022, cases of COVID-19 within 151, or 16.1%, of our 939 operating facilities as of December 31, 2021, which includes cases involving employees and residents.

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

we also undertake no duty to update this information.

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

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

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

It remains uncertain to what extent vaccination programs for COVID-19 and any booster doses will mitigate the effects of COVID-19 in our facilities, particularly with regard to new variants of the virus, the impact of governmental vaccine mandates for staff on ongoing staffing shortages in our facilities and other factors that impact virus transmission in our facilities.

The impact of these programs will depend in part on the continued efficacy and delivery of the vaccine and booster doses in our facilities, compliance with staff vaccination requirements and participation levels in vaccination programs among the residents and employees of our operators and in the communities in which they operate.

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

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

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

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

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

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

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

Centers for Medicare and Medicaid Services by between one to two months depending on the applicable state.

Our operators have reported increases in staff vaccination rates during the first quarter of 2022;

however, we expect that such mandates may exacerbate ongoing staffing shortages in skilled nursing and senior housing facilities.

In addition, operators who do not achieve full compliance with the requirements may face potential survey issues and penalties.

At this time, there is significant uncertainty regarding the impact of such developments.

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

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

Occupancy in our facilities has generally improved on average since early 2021, with a slight reduction in growth in late 2021 and early 2022 due to the impact of new variants;

however, average occupancy has not returned to pre-pandemic levels.

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

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

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

and distribution of PPE, vaccines and testing equipment by federal and state governments, was allocated to SNFs and to a lesser extent to ALFs in 2020, federal relief efforts were limited in 2021 as have been relief efforts in certain states.

We believe further government support will be needed to continue to offset these impacts, which may take the form of stimulus or reimbursement rate adjustments to reflect sustained cost changes experienced by operators.

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

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

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

will ultimately support reimbursement to our operators.

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

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

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

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

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

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

Other Trends and Conditions

In addition to the impacts of COVID-19 discussed above, our operators have been and are likely to continue to be adversely affected by labor shortages and increased labor costs.

In addition, our operations have also been and are likely to continue to be impacted by increased competition for the acquisition of facilities in the U.S., which has decreased the number of investment opportunities that would be accretive to our portfolio.

As part of our continuous evaluation of our portfolio and in connection with certain operator restructuring transactions, we expect to continue to opportunistically sell assets, or portfolios of assets, from time to time.

Government Regulation and Reimbursement

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Our operators, which are primarily based in the U.S., are subject to extensive and complex federal, state and local healthcare laws and regulations;

we also have several U.K.-based operators that are impacted by a variety of laws and regulations in their jurisdiction.

we also have several U.K.-based operators which are subject to a variety of laws and regulations in their jurisdiction.

These laws and regulations are subject to frequent and substantial changes resulting from the adoption of new legislation, rules and regulations, and administrative and judicial interpretations of existing law.

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

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

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

This declaration, which has been extended through July 15, 2022, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

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

It remains uncertain when federal and state regulators will resume enforcement of those regulations which are waived or otherwise not being enforced during the public health emergency due to the exercise of enforcement discretion.

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

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

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

Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business;

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Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates could therefore have a material adverse effect on our operators’ results of operations and financial condition.

Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government health care programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.

Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government healthcare programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.

In addition to quality and value based reimbursement reforms, the U.S.

Centers for Medicare and Medicaid Services (“CMS”) has implemented a number of initiatives focused on the reporting of certain facility specific quality of care indicators that could affect our operators, including publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under the CMS “Five Star Quality Rating System.” Facility rankings, ranging from five stars (“much above average”) to one star (“much below average”) are updated on a monthly basis.

SNFs are required to provide information for the CMS Nursing Home Compare website regarding staffing and quality measures.

These rating changes have impacted referrals to SNFs, and it is possible that changes to this system or other ranking systems could lead to future reimbursement policies that reward or penalize facilities on the basis of the reported quality of care parameters.

The following is a discussion of certain U.S.

laws and regulations generally applicable to our operators, and in certain cases, to us.

Reimbursement Changes Related to COVID-19:

Federal Stimulus Funds and Financial Assistance for Health Care Providers.

Federal Stimulus Funds and Financial Assistance for Healthcare Providers .

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

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

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

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

As part of the $178 billion, in May 2020, HHS announced that approximately $9.5 billion in targeted distributions would be made available to eligible SNFs, approximately $2.5 billion of which were composed of performance-based incentive payments tied to a facility’s infection rate.

Further, in September 2021, HHS announced the release of $25.5 billion in provider funding, including $17 billion of the $178 billion previously authorized through the CARES Act and $8.5 billion for rural providers, including those with Medicaid and Medicare patients, through the American Rescue Plan Act.

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

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

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

Approximately $8.5 billion in additional funds were added to the Provider Relief Fund through the American Rescue Plan Act enacted on March 11, 2021;

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

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

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

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

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

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

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

There are substantial uncertainties regarding the extent to which our operators will receive additional funding from HHS.

The CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential to impact our operators to varying degrees.

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We believe these repayments commenced for many of our operators in April 2021 and have adversely impacted, and will continue to adversely impact, operating cash flows of these operators.

Additionally, the Centers for Medicare and Medicaid Services (“CMS”) suspended Medicare sequestration payment adjustments, which would have otherwise reduced payments to Medicare providers by 2%, from May 1, 2020 through December 31, 2021, but also extended sequestration through 2030.

Additionally, CMS suspended Medicare sequestration payment adjustments, which would have otherwise reduced payments to Medicare providers by 2%, from May 1, 2020 through December 31, 2020, but also extended sequestration through 2030.

The Bipartisan-Bicameral Omnibus COVID Relief Deal that passed in December 2020 further extended the suspension of the Medicare sequestration until March 31, 2021, and it most recently has been further extended from December 31, 2021 through March 31, 2022, resulting in a 1% cut in Medicare reimbursement for the three months starting April 1, 2022 and the full 2% sequester resuming July 1, 2022.

While not limited to healthcare providers, the CARES Act additionally provided payroll tax relief for employers, allowing them to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020 through December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred until December 31, 2022.

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

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

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

Additionally, the Biden Administration announced a focus on implementing minimum staffing requirements and increased inspections as part of the nursing home reforms announced in the 2022 State of the Union Address.

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

On June 16, 2020, the U.S.

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

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

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

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

health care system, including the impact on quality of care provided within the skilled nursing industry.

These hearings, as well as additional calls for government review of the role of private equity in the U.S.

healthcare system, including the impact on quality of care provided within the skilled nursing industry.

The Biden Administration additionally announced in March 2022 a focus on reviewing private equity investment specifically in the skilled nursing sector.

These initiatives, as well as additional calls for government review of the role of private equity in the U.S.

healthcare industry, could result in legislation imposing additional requirements on our operators.

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

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

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

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

In Florida, while added support to our operators during the pandemic has generally been limited, approximately $100 million in additional FMAP funds for nursing homes was approved by the State in November 2021, with the funds to be distributed through increased Medicaid payment rates over a three-month period.

In addition, on April 6, 2022, the State of Florida enacted staffing reforms for SNFs that may provide additional flexibility to our operators in meeting minimum staffing requirements by using supplemental staff.

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

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CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be $184.25 million in fiscal year 2022.

While Medicare reimbursement rate setting, which takes effect annually each October, has historically included forecasted inflationary adjustments, the degree to which those forecasts accurately reflect current inflation rates remains uncertain.

Additionally, it remains uncertain whether these adjustments will ultimately be offset by non-inflationary factors, including any adjustments related to the impact of various payment models, such as those described below.

Payments to providers continue to be increasingly tied to quality and efficiency.

The Patient Driven Payment Model (“PDPM”), which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019.

CMS intended PDPM to be revenue-neutral to operators, with future Medicare reimbursement reductions possible if that was not the case.

In April 2022, CMS put out a proposal for comment, which included an adjustment to obtain that revenue neutrality as early as the 2023 rate setting period;

however, that proposal may change significantly prior to adoption.

Prior to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some had reported early positive results.

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

On May 27, 2020, CMS added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF as a part of the COVID-19 1135 waiver provisions.

The COVID-19 1135 waiver provisions also allow for the facility to bill an originating site fee to CMS for telehealth services provided to Medicare Part B beneficiary residents of the facility when the services are provided by a physician from an alternate location, effective March 6, 2020 through the end of the public health emergency.

Other Regulation:

Department of Justice and Other Enforcement Actions .

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

2022 and Recent Highlights

● We acquired $108.5 million of real estate assets which included 30 facilities during the three months ended March 31, 2022.

The initial cash yield (the initial annual contractual cash rent divided by the purchase price) on these asset acquisitions was between 8% and 9.5%.

● We invested $18.2 million under our construction-in-progress and capital improvement programs during the three months ended March 31, 2022.

● In the first quarter of 2022, we advanced $2.8 million under existing mortgage loans.

Dispositions and Impairments

● In the first quarter of 2022, we sold 27 facilities 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.

The proceeds and gain primarily relate to the sale of 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 certain costs accrued as of the end of the first quarter, were $304.0 million, and we recognized a net gain of approximately $113.5 million.

● In the first quarter of 2022, we recorded impairments on real estate properties of approximately $3.5 million on two facilities primarily as a result of reclassifying facilities to held for sale.

● In March 2022, we reclassified seven facilities leased to Guardian Healthcare (“Guardian”) to held for sale in connection with the planned restructuring.

We also entered into agreements to sell seven of these held for 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.

Financing Activities

● In January 2022, our Board authorized the repurchase of up to $500 million of our outstanding common stock, from time to time, through March 2025.

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.

In April 2022, the Company repurchased 3.9 million of our outstanding common stock for $106.1 million.

Other Highlights

● During the first quarter of 2022, we made $25.8 million of new other investment loans with a weighted average interest rate of 8.5%.

Of the $25.8 million, $25 million relates to a term loan entered into 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.

During the first quarter of 2022, we also advanced $72.2 million under existing other investment loans.

Of the $72.2 million, $47.4 million related to a revolving working capital loan which also had repayments of $48.1 million during the first quarter of 2022.

● In 2022, Omega was again included in the Bloomberg Gender-Equality Index (GEI) – one of only 418 companies worldwide, and fewer than 15 U.S.

REITs, to be included in the 2022 index.

Collectibility Issues

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

As Agemo was already placed 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.

In the first quarter of 2022, we recorded a provision for credit losses of $4.7 million related to the $25.0 million secured working capital loan as a result of a reduction in the fair value of the underlying collateral assets supporting the current carrying values.

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

As Guardian was already placed 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.

We recorded a $5.1 million recovery for credit losses in the first quarter of 2022 on the Guardian mortgage loan in connection with a $21.7 million principal repayment on the loan from the proceeds of the sale of three of the mortgage facilities.

We also transitioned or sold 10 facilities that were previously leased to Guardian in the first quarter of 2022 in connection with 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, among other things, allow for the deferral of up to $18.0 million of aggregate rent and interest, effective retrospectively, with repayment required after September 30, 2024 and to reduce the combined rent and mortgage interest to an aggregate $24.0 million following the completion of the sale of those seven facilities.

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

● From January through March 2022, an operator, representing 3.8% and 3.3%, respectively, of total revenue (excluded 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.

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

Omega holds a $1.0 million letter of credit and a $150 thousand security deposit from this operator.

The operator remains current on its loan obligations, which are 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 in order to pay 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, each representing 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 in order 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 are required to begin replenishing their security deposits in 2023.

● 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.

● On April 21, 2022, the Board of Directors declared a cash dividend for the quarter ended March 31, 2022 of $0.67 per share.

Results of Operations

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

Three Months Ended September 30, 2021 and 2020

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

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

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

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

The $18.0 million decrease was primarily due to:

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

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

Other Income (Expense)

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

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

Nine Months Ended September 30, 2021 and 2020

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

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

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

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

The $18.0 million increase was primarily due to:

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

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

Three Months Ended March 31, 2022 and 2021

Our revenues for the three months ended March 31, 2022 totaled $249.3 million, a decrease of approximately $24.5 million over the same period in 2021.

Included below is a description of the material changes in revenues for three months ended March 31, 2022 compared to the same period in 2021:

● Rental income was $216.9 million, a decrease of $20.9 million over the same period in 2021.

The decrease was primarily the result of (i) a $17.4 million decrease relating to two cash basis operators, Agemo and Guardian, from which we received no rental payments and recorded no revenue for in the first quarter of 2022;

(ii) a $7.3 million decrease as a result of recognizing no rental income associated with the 24 facilities previously leased to Gulf Coast in the first quarter of 2022, as 23 of the facilities were temporarily transitioned to another operator in December 2021 that was not required to pay contractual rent during the transition period, as a part of the chapter 11 bankruptcy process;

and (iii) a $4.6 million decrease resulting from the acceleration of certain in-place lease liabilities due to facility transitions.

The overall decrease in rental income was partially offset by (i) a $6.4 million increase due to additional rental income in the first quarter of 2022 from acquisitions and construction in progress facilities being placed in service and (ii) a net increase of $1.8 million due to lease extensions, facility transitions and sales.

● Mortgage interest income was $20.5 million, a decrease of $3.1 million over the same period in 2021.

The decrease was primarily the result of recognizing no interest income in the first quarter of 2022 on the Guardian mortgage loan with $82.0 million of principal outstanding as of March 31, 2022.

The loan was placed on non-accrual status in the fourth quarter of 2021, with all payments received (none in the first quarter of 2022) applied directly to principal under the cost recovery method.

Our expenses for the three months ended March 31, 2022 totaled $167.7 million, a decrease of approximately $23.4 million over the same period in 2021.

Included below is a description of the material changes in expenses for three months ended March 31, 2022 compared to the same period in 2021:

● Our depreciation and amortization expense was $82.8 million, a $2.1 million decrease over the same period in 2021.

The decrease primarily relates to facility sales and facilities reclassified to assets held for sale, such as the 22 Gulf Coast facilities that were sold in the first quarter of 2022, partially offset by facility acquisitions and capital additions.

● Our impairment on real estate properties was $3.5 million, a decrease of $25.2 million over the same period in 2021.

The 2022 impairments were recognized in connection with reclassifying two facilities to held for sale in the first quarter to reduce their net book value to the estimated fair value less costs to sell.

The 2021 impairments related to four facilities, three of which were recognized in connection with reclassifying the facilities to assets held for sale.

● Our provision for credit losses was $1.8 million, a $2.8 million increase over the same period in 2021.

The increase was primarily as a result of additional reserves taken against a loan outstanding to Agemo (see Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Collectibility Issues), increases in loan balances and increases in loss rates in the first quarter of 2022 compared to the same period in 2021 partially offset by recoveries for cash collections and paydowns received on the Guardian mortgage (see Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Collectibility Issues).

Other Income (Expense)

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

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

For the three months ended March 31, 2022, total other income was $113.2 million, an increase of approximately $42.3 million over the same period in 2021.

The decrease was mainly due to:

(i) a $29.7 million loss on debt extinguishment in the first quarter of 2021 primarily related to fees, premiums and expenses related to the purchase of $350 million of the 4.375% Senior Notes due 2023 during the first quarter of 2021 and (ii) $13.3 million increase in gain on assets sold related to the sale of 27 facilities in the first quarter of 2022 compared to the sale of 24 facilities during the same period in 2021.

National Association of Real Estate Investment Trusts Funds From Operations

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

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

The following table presents our Nareit FFO results for the three months ended March 31, 2022 and 2021:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss) (1)(2)

(Deduct gain) add back loss from real estate dispositions

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

Deduct gain from real estate dispositions

Deduct gain from real estate dispositions - unconsolidated joint ventures

Elimination of non-cash items included in net income:

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Add back unrealized loss on warrants

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

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

Portfolio and Recent Developments

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

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

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

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

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

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

Other Equity Investments

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

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

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

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

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

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

The investment in the preferred shares and warrants are recorded within other assets on the consolidated balance sheets.

Other Recent Developments

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

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

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

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

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

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

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

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

Asset Sales and Impairments

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

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

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

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

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

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

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

Real Estate Impairments

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

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

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

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

Receivables, Other Investments and Operator Collectibility

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

September 30,

(in thousands)

Contractual receivables – net

Effective yield interest receivables

Straight-line rent receivables

Lease inducements

Other receivables and lease inducements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As discussed below, on October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the United States Bankruptcy Code.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other straight-line receivables and write-offs

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

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

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

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

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

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

Liquidity and Capital Resources

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

Financing Activities and Borrowing Arrangements

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 U.S.

Dollars (“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.

$700 Million 3.250% Senior Notes due 2033

In March 2021, we issued $700 million aggregate principal amount of our 3.250% Senior Notes due 2033 (the “2033 Senior Notes”).

The 2033 Senior Notes mature on April 15, 2033.

The 2033 Senior Notes were sold at an issue price of 99.304% of their face value before the underwriters’ discount.

We used the proceeds from this offering to pay down outstanding borrowings on the Revolving Line of Credit, 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.

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.

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 there issuance in May 2017 until the settlement of the Sterling term loan and the repayment of the GBP denominated borrowings under the 2017 Revolving Credit Facility in March 2021.

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

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

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

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

is either sold or substantially liquidated.

Sources and Uses

Our primary sources of cash include rental income and interest receipts, existing availability under our revolving credit facility, proceeds from our DRSPP and the $1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”), facility sales, and proceeds from mortgage and other investment payoffs.

We anticipate that these sources will be adequate to fund our cash flow needs through the next twelve months, which include common stock dividends, debt service payments (including principal and interest), real estate investments (including facility acquisitions, capital improvement programs and other capital expenditures), mortgage and other investment loan advances and normal recurring G&A expenses (primarily consisting of employee payroll and benefits and expenses relating to third parties for legal, consulting and audit services).

Capital Structure

At March 31, 2022, we had total assets of $10.0 billion, total equity of $4.1 billion and total debt of $5.7 billion in our consolidated financial statements, with such debt representing approximately 57.9% of total capitalization.

At March 31, 2022, the weighted-average annual interest rate of our debt was 3.96%.

Additionally, as of March 31, 2022, 92% of our debt with outstanding principal balances has fixed interest payments.

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.

As of March 31, 2022, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch.

Credit ratings impact our ability to access capital and directly impact our cost of capital as well.

For example, our revolving credit facility accrues interest and fees at a rate per annum equal to LIBOR plus a margin that depends upon our credit rating.

A downgrade in credit ratings by Moody’s and S&P Global may have a negative impact on the interest rates and fees for our revolving credit facility.

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

As of March 31, 2022 and December 31, 2021, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

Supplemental Guarantor Information

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

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at March 31, 2022 that were registered under the Securities Act of 1933, as amended.

The senior notes are guaranteed by Omega OP.

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

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

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

Shares issued

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

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

Dividend Reinvestment and Common Stock Purchase Plan

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

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

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

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

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

Total commitments (1)

Amounts funded to date (2)

Remaining commitments (3)

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

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

(2) Includes finance costs.

(3) This amount excludes our remaining commitments to fund under our other investments of approximately $60.1 million.

As of March 31, 2022, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At March 31, 2022, we had approximately 238.2 million shares of common stock outstanding, and our shares had a market value of $7.4 billion.

The following is a summary of activity under our equity programs during the three months ended March 31, 2022:

● In January 2022, our Board authorized the repurchase of up to $500 million of our outstanding common stock, from time to time, through March 2025.

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.

● We did not issue any shares of common stock under our 2021 ATM Program during the three months ended March 31, 2022.

We did not utilize the forward provisions under the 2021 ATM Program during the three months ended March 31, 2022.

We have $929.9 million of sales remaining under the 2021 ATM Program as of March 31, 2022.

● We issued 79.9 thousand shares of common stock under DRSPP during the three months ended March 31, 2022.

Aggregate gross proceeds from these sales were $2.3 million during the first quarter of 2022.

As a REIT, we are required to distribute dividends (other than capital gain dividends) to our stockholders in an amount at least equal to (A) the sum of (i) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and our net capital gain), and (ii) 90% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income.

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

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

For the three months ended March 31, 2022, we paid dividends of approximately $160.6 million to our common stockholders.

On February 15, 2022, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 7, 2022.

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

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

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

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

We regularly review our liquidity needs, the adequacy of cash flow from operations, and other expected liquidity sources to meet these needs.

We believe our principal short-term liquidity needs are to fund:

● normal recurring expenses;

● debt service payments;

● capital improvement programs;

● common stock dividends;

● growth through acquisitions of additional properties.

The primary source of liquidity is our cash flows from operations.

Operating cash flows have historically been determined by:

(i) the number of facilities we lease or have mortgages on;

(ii) rental and mortgage rates;

(iii) our debt service obligations;

(iv) general and administrative expenses and (v) our operators’ ability to pay amounts owed.

The timing, source and amount of cash flows provided by or used in financing activities and in investing activities are sensitive to the capital markets environment, especially to changes in interest rates.

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

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

Material Cash Requirements

During the three months ended March 31, 2022, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report.

As of March 31, 2022, we had $220.9 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

Additionally, we have commitments to fund $41.2 million of advancements under existing other investment loans.

These commitments are expected to be funded over the next several years and are dependent upon the operators’ election to use the commitments.

Other Arrangements

We own interests in certain unconsolidated joint ventures as described in Note 9 to the Consolidated Financial Statements – Investments in Joint Ventures.

Our risk of loss is generally limited to our investment in the joint venture and any outstanding loans receivable.

We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 – Derivatives and Hedging in our Annual Report on Form 10-K for the year ended December 31, 2021.

Cash Flow Summary

Cash, cash equivalents and restricted cash totaled $494.8 million as of March 31, 2022, an increase of $470.4 million as compared to the balance at December 31, 2021.

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

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

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

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

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

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

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

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

Operating Activities – Operating activities generated $132.2 million of net cash flow for the three months ended March 31, 2022, as compared to $176.0 million for the same period in 2021, a decrease of $43.8 million, which is primarily driven by a decrease of $30.2 million of net income, adjusted for non-cash items, primarily due to a year over year reduction in rental income and mortgage revenue related to three operators, as discussed in our material changes analysis under Results of Operations above.

A $13.6 million change in the net movements of the operating assets and liabilities, primarily driven by an increase in receivables, also contributed to the overall decrease in cash provided by operating activities.

Investing Activities – Net cash flow from investing activities was an inflow of $177.3 million for the three months ended March 31, 2022, as compared to an outflow of $396.3 million for the same period in 2021.

The $573.6 million change in cash flow from investing activities related primarily to (i) a $481.3 million decrease in real estate acquisitions driven by the acquisition of 24 senior living facilities from Healthpeak Properties, Inc.

for $511.3 million in the first quarter of 2021, (ii) a $144.3 million increase in proceeds from the sales of real estate investments largely driven by the sale of 22 facilities previously leased to Gulf Coast for net proceeds of $310.3 million in the first quarter of 2022, (iii) a $23.8 million increase in mortgage collections, net of placements driven by a $21.7 million partial principal paydown on the Guardian mortgage loan in the first quarter of 2022 and (iv) a $10.4 million decrease in investments in unconsolidated joint ventures driven by our $10.3 million investment in Second Spring II LLC in the first quarter of 2021, offset by (i) a $68.3 million increase in new other investments, net of other investments proceeds driven by the new $25.0 million term loan to LaVie and additional draws on existing loans, (ii) a $7.4 million decrease in distributions from unconsolidated joint venture in excess of earnings primarily related to the Second Spring Healthcare Investments joint venture due to significant facility sales in the first quarter of 2021, (iii) a $4.4 million increase in investment in construction in progress and capital expenditures, (iv) a $3.0 million decrease in receipts from insurance proceeds and (v) a $2.5 million decrease in acquisition related deposits.

Financing Activities – Net cash flow from financing activities was an inflow of $161.2 million for the three months ended March 31, 2022, as compared to an inflow of $108.6 million for the same period in 2021.

The $52.6 million change in cash flow from financing activities was primarily related to (i) $115.9 million increase in proceeds from other long-term borrowings, net of repayments as we had increased borrowings on our revolving credit facility in connection with funding acquisitions and loans, (ii) a $33.8 million decrease in payment of financing related costs due to fees and premiums paid in the first quarter of 2021 related to the early redemption of $350 million of principal of the 4.375% senior notes due 2023 and (iii) a $4.6 million decrease in distributions to Omega OP Unit holders.

The overall increase in financing inflows was partially offset by (i) a $72.0 million decrease in cash proceeds from the issuance of common stock in 2022 due to decreased issuances under our DRSPP and our ATM Programs, as compared to the same period in 2021, (ii) $27.3 million of repurchases of shares of common stock in the first quarter of 2022 and (iii) a $2.3 million increase in dividends paid .

Critical Accounting Policies and Estimates

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

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

During the quarter ended March 31, 2022, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis