What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 166 added, 122 removed, 234 unchanged (55% of the section changed)

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(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;

(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, the extent to which continued government support may be available to operators to offset such costs and the conditions related thereto, and the extent to which support may terminate upon termination of the federally declared public health emergency;

(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;

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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.

As of June 30, 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.”).

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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.

In addition to our core investments, we make loans to operators and/or their principals.

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

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

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.

As discussed further in “Collectibility Issues” below, during the year we have had several operators that have failed to make contractual payments under their lease and loan agreements, and we have agreed to short-term deferrals and/or allowed the application of security deposits or letters of credit to pay rent for several operators.

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.

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.

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.

We believe that the incidence and severity of COVID-19 at our operators among their residents and employees, based on reporting by our operators, tend to correlate with levels of incidence experienced by the community.

It remains uncertain to what extent vaccination programs for COVID-19 and any booster doses will continue to mitigate the effects of COVID-19 in our facilities, particularly with regard to any 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.

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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 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 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.

In addition, operators who do not achieve full compliance with applicable vaccination and infection control 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.

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

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;

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will ultimately support reimbursement to our operators.

While certain states have provided pandemic-related relief measures and/or reimbursement increases, there remains uncertainty as to how widespread these measures will continue to be and to what extent they may be distributed to and benefit our operators, especially when the federally declared public health emergency expires or previously released federal funds to states have been fully utilized.

Likewise, while certain states may in the course of routine rate-setting of Medicaid rates address inflationary factors and other expense-related items, there can be no assurance that these changes will be sufficient to offset existing increased inflation and expenses.

See the “Government Regulation and Reimbursement” section below for additional information.

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.

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

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

Other Trends and Conditions

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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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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 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.

This declaration, which has been extended through October 13, 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.

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This assistance includes Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash flow to providers.

These payments are loans that providers are scheduled to repay beginning one year from the issuance date of each provider’s or supplier’s accelerated or advance payment, with repayment made through automatic recoupment of 25% of Medicare payments otherwise owed to the provider or supplier for eleven months, followed by an increase to 50% for another six months, after which any outstanding balance would be repaid subject to an interest rate of 4%.

These payments are loans that providers were scheduled to repay beginning one year from the issuance date of each provider’s or supplier’s accelerated or advance payment, with repayment made through automatic recoupment of 25% of Medicare payments otherwise owed to the provider or supplier for eleven months, followed by an increase to 50% for another six months, after which any outstanding balance would be repaid subject to an interest rate of 4%.

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, 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.

The Budget Control Act of 2011 established a Medicare Sequestration of 2%, which is an automatic reduction of certain federal spending as a budget enforcement tool.

Originally, the sequester was supposed to be in effect from FY 2013 to FY 2021.

However, most recently, the Infrastructure Investment and Jobs Act extended the sequester through FY 2031.

Additional legislation, including the CARES Act and the Protecting Medicare and American Farmers Act, suspended the application of the sequester to Medicare from May 1, 2020, through March 30, 2022.

It also limited Medicare reductions to 1% from April 1, 2022 through June 30, 2022.

The full 2% Medicare sequestration is scheduled to be back in effect as of July 1, 2022.

The sequestration is currently extended through fiscal year 2031.

Per the Protecting Medicare and American Farmers from Sequester Cuts Act, the Medicare sequester percentage in FY 2030 will be 2.25% during the first 6 months of the FY 2030 and 3% for the next 6 months.

Per the Infrastructure Investment and Jobs Act, the Medicare sequester percentage in FY 2031 will be 4% during the first 6 months of the FY 2031 sequestration order and 0% for the next 6 months (October 2031 through March 2032).

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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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.

Although the American Rescue Plan Act did not allocate specific funds to SNF or ALF providers, certain funds were allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs and to the CDC for 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 2021.

The Select Subcommittee continued to be active throughout the remainder of 2020 and 2021 and the first half of 2022.

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

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The American Rescue Plan Act contains several provisions designed to increase coverage, expand benefits, and adjust federal financing for state Medicaid programs.

For example, the American Rescue Plan Act increases the FMAP by 10 percentage points for state home and community-based services expenditures beginning April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings.

For example, the American Rescue Plan Act increased the FMAP by 10 percentage points for state home and community-based services expenditures beginning April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings.

As a condition for receiving the FMAP increase, states must enhance, expand, or strengthen their Medicaid home and community-based services program during this period.

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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 and in March 2022, a revised state budget for 2022-23, which takes effect October 1, 2022, increased Medicaid reimbursement rates by 7.8% to fund, in part, increased wages for certain nursing home staff.

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.

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On July 29, 2022, CMS issued a final rule regarding the government fiscal year 2023 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by $904 million, or 2.7%, for fiscal year 2023 compared to fiscal year 2022.

This estimated reimbursement increase is attributable to a 2.7% market basket increase factor less a 0.8 percentage point forecast error adjustment and a 0.7 percentage point productivity adjustment, and a $1.2 million decrease due to the proposed reduction to the SNF prospective payment system rates to account for the recent blood-clotting factors exclusion.

This estimated reimbursement increase is attributable to a 3.9% market basket increase factor plus a 1.5 percentage point market basket forecast error adjustment and less a 0.3 percentage point productivity adjustment, as well as a $780 million decrease in the SNF prospective payment system rates as a result of the recalibrated parity adjustment described below, which is being phased in over two years.

The annual update is reduced by two percentage points for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program.

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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.

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

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

After considering the feedback received in the rulemaking cycle, CMS is finalizing recalibration of the PDPM parity adjustment factor of 4.6% with a two-year phase-in period that would reduce SNF spending by 2.3%, or approximately $780 million, in each of fiscal years 2023 and 2024.

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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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.

On June 29, 2022, CMS issued new and updated guidance to provide additional clarity to surveyors on regulatory requirements for participation of long term care facilities in the Medicare program and to address how compliance will be assessed.

This included guidance related to, among other things, infection control and prevention, and staffing, as well as recommendations related to resident room capacity.

Other Regulation:

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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.

● We acquired $108.5 million of real estate assets which included 30 facilities during the six months ended June 30, 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.

● We invested $16.0 million and $34.2 million under our construction-in-progress and capital improvement programs during the three and six months ended June 30, 2022, respectively.

● We advanced $2.2 million and $4.9 million under existing mortgage loans during the three and six months ended June 30, 2022, respectively.

● During the three months ended June 30, 2022, Ciena Healthcare (“Ciena”) repaid $113.7 million under six mortgages.

Concurrent with these repayments, we released the mortgage liens on six facilities in exchange for the partial repayment and extended the maturity date of all of the Ciena mortgage notes to June 30, 2030 (with exception of two loans with an aggregate principal balance of $34.3 million with maturity dates in 2022 and 2023).

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.

● During the three and six months ended June 30, 2022, we sold 13 and 40 facilities for approximately $54.3 million and $386.9 million in net cash proceeds, recognizing net gains of approximately $25.2 million and $138.8 million, respectively.

The proceeds and gain for the six months ended June 30, 2022 primarily relate to the sale of 22 facilities in the first quarter of 2022 that were previously leased and operated by Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) and the sale of nine facilities (two facilities in the first quarter and seven in the second quarter) that were previously leased to Guardian Healthcare (“Guardian”) in connection with the restructuring of Guardian’s portfolio.

● During the three and six months ended June 30, 2022, we recorded impairments on four and six facilities of approximately $7.7 million and $11.2 million, respectively.

Of the $11.2 million, $3.5 million related to two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell, and $7.7 million related to four held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

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.

During the three and six months ended June 30, 2022, the Company repurchased 4.2 million shares, at an average price of $27.19 per share, and 5.2 million shares, at an average price of $27.32 per share, of our outstanding common stock, respectively.

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.

● During the three and six months ended June 30, 2022, we made $55.6 million and $81.4 million of new other investment loans with a weighted average interest rate of 12% and 10.9%, respectively.

Our 2022 new other investment loans include $35.6 million related to a mezzanine loan entered into in the second quarter of 2022 with an existing operator that bears interest at a fixed rate of 12% per annum and matures on June 30, 2025, and $25 million related to a term loan entered into in the first quarter of 2022 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 three and six months ended June 30, 2022, we also advanced $42.7 million and $114.9 million, respectively, under existing other investment loans.

Of the $42.7 million and $114.9 million, $7.1 million and $54.5 million, respectively, related to a revolving working capital loan which also had repayments of $12.4 million and $60.6 million during the three and six months ended June 30, 2022, respectively.

● 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.

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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.

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

We have not recorded any rental income or interest income related to Agemo during the three and six months ended June 30, 2022.

We continue to have discussions with Agemo regarding restructuring the lease and loan agreements.

In the first and second quarters of 2022, we recorded an additional provision for credit losses of $4.7 million and $1.3 million, respectively, related to the $25.0 million secured working capital loan (the “Agemo WC Loan”) as a result of a reduction in the fair value of the underlying collateral assets supporting the current carrying values.

● Guardian did not make rent and interest payments under its lease and loan agreements during the first quarter of 2022 but resumed making contractual rent and interest payments during the second quarter of 2022, in accordance with the restructuring terms discussed further below.

Guardian is on a cash basis of revenue recognition for lease purposes and we recorded rental income of $3.8 million for the three months ended June 30, 2022 for contractual rent payments that were made.

Additionally, the mortgage loan is on non-accrual status, and is being accounted for under the cost recovery method, so the $1.4 million of interest payments that we received during the three months ended June 30, 2022 were applied directly against the principal balance outstanding.

We have recorded recoveries for credit losses of $1.4 million and $6.5 million related to Guardian during the three and six months ended June 30, 2022, primarily due to a large paydown of the Guardian mortgage loan in the first quarter of 2022.

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

Additionally, during the six months ended of June 30, 2022, we sold nine facilities previously leased to Guardian and three facilities previously subject to the Guardian mortgage loan.

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

As part of the restructuring agreement and related agreements, Omega agreed to, among other terms, allow for the retrospective deferral of $18.0 million of aggregate contractual rent and interest, with repayment required after September 30, 2024 and to reduce the combined rent and mortgage interest to an aggregate of $24.0 million per year as of July 1, 2022.

● From January through March 2022, an operator representing 3.8% and 3.4% of total revenue (excluding the impact of write-offs) for both the three months and six months ended June 30, 2022 and 2021, respectively, 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.

This operator paid the contractual amount due under its lease agreement from April through June 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.

The operator remains current on its $20.0 million revolving credit facility, which is fully drawn as of June 30, 2022, and is secured by a first lien on the operator’s accounts receivable.

● In March 2022, another operator, representing 1.0% and 2.1% of total revenue (excluding the impact of write-offs) for the three months ended June 30, 2022 and 2021, respectively, and 1.6% and 2.1% of total revenue (excluding the impact of write-offs) for the six months ended June 30, 2022 and 2021, respectively, 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.

This operator paid contractual rent in May 2022, but failed to make the full contractual rent payment for June 2022.

We placed this operator on a cash basis of revenue recognition during the second quarter of 2022 as collection of substantially all contractual lease payments due from them was no longer deemed probable.

As a result, we wrote-off approximately $8.3 million of straight-line rent receivables through rental income during the three months ended June 30, 2022.

● In June 2022, another operator, representing 2.2% and 1.0% of total revenue (excluding the impact of write-offs) for the three months ended June 30, 2022 and 2021, respectively, and 2.2% and 2.1% of total revenue (excluding the impact of write-offs) for the six months ended June 30, 2022 and 2021, respectively, short-paid the contractual rent amount due under its lease agreement by $0.6 million.

At June 30, 2022, we held a $5.4 million of letter of credit as collateral from this operator.

In July 2022, we drew the full amount of the letter of credit and applied $0.6 million of the proceeds to pay the unpaid portion of June rent.

We are in discussions with this operator to allow the application of a portion of the remaining proceeds from the letter of credit towards future contractual rent for a short-term period.

● In June 2022, we placed another operator, representing approximately 0.4% and 0.3% of our total revenues (excluding the impact of write-offs) for the three months ended June 30, 2022 and 2021, respectively, and 0.5% and 0.5% of total revenue (excluding the impact of write-offs) for the six months ended June 30, 2022 and 2021, respectively, on a cash basis of revenue recognition.

The change in our evaluation of the collectability of future rent payments due from this operator was as a result of information received from the operator during the second quarter of 2022 regarding substantial doubt as to its ability to continue as a going concern.

As a result of placing this operator on a cash basis, we wrote-off approximately $2.1 million of straight-line rent receivables through rental income during the three months ended June 30, 2022.

All facilities included in this operator’s master lease are included in assets held for sale as of June 30, 2022.

● During the six months ended June 30, 2022, we allowed three other operators, representing an aggregate 2.3% and 2.7% of total revenue (excluding the impact of write-offs) for the three months ended June 30, 2022 and 2021, respectively, and 2.4% and 2.7% of total revenue (excluding the impact of write-offs) for the six months ended June 30, 2022 and 2021, respectively, to apply an aggregate of $2.2 million of their security deposits to pay rent to accommodate short term liquidity issues, with regular rent payments required to resume shortly thereafter.

Additionally, we granted one of these operators a short-term deferral for a portion of its rent due during the six months ended June 30, 2022.

As of June 30, 2022, all of these operators are current on their respective lease obligations due to the application of security deposits.

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

● On July 21, 2022, the Board of Directors declared a cash dividend for the quarter ended June 30, 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 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:

Three Months Ended June 30, 2022 and 2021

Our revenues for the three months ended June 30, 2022 totaled $244.6 million, a decrease of approximately $12.8 million over the same period in 2021.

Included below is a description of the material changes in revenues for the three months ended June 30, 2022 compared to the same period in 2021:

● Rental income was $211.4 million, a decrease of $9.5 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.

The decrease was primarily the result of (i) a $12.3 million decrease relating to Agemo, a cash basis operator from which we received no rental payments and recorded no rental income for in the second quarter of 2022;

(ii) a $7.3 million decrease relating to the sale of 22 facilities formerly leased and operated by Gulf Coast, which was completed in the first quarter of 2022;

(iii) a $3.3 million decrease related to one of the operators placed on a cash basis of revenue recognition during the second quarter of 2022 that only paid a portion of the contractual rent amount due during the second quarter of 2022;

and (iv) a $2.1 million decrease related to the restructuring of the Guardian lease agreement, which included the sale or transition of 17 facilities in 2022 with corresponding reductions in base rent.

The overall decrease in rental income was partially offset by (i) a $7.0 million increase due to a net reduction in straight-line rent receivable and lease inducement write-offs in the second quarter of 2022 compared to 2021, as we had a $17.4 million straight-line rent receivable write-off associated with Gulf Coast in the second quarter of 2021 as a result of placing it on a cash basis for revenue recognition;

(ii) a $4.2 million increase due to additional rental income in the second quarter of 2022 from acquisitions and construction in progress facilities being placed in service;

and (iii) a net increase of $3.8 million due to lease extensions, facility transitions and capital expenditures.

● Mortgage interest income was $19.6 million, a decrease of $4.4 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:

The decrease was primarily the result of (i) a $3.1 million decrease related to Guardian as a result of recognizing no interest income in the second quarter of 2022 on the $80.6 million mortgage loan, as we are accounting for the loan using the cost recovery method with interest payments applied to principal amounts outstanding and (ii) a $1.2 million write-off of effective interest in connection with the $113.7 million partial principal paydown on the Ciena mortgages during the second quarter of 2022.

Our expenses for the three months ended June 30, 2022 totaled $174.2 million, a decrease of approximately $0.9 million over the same period in 2021.

Included below is a description of the material changes in expenses for the three months ended June 30, 2022 compared to the same period in 2021:

● Our depreciation and amortization expense was $83.2 million, a $2.6 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.

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

● Our general and administrative expense was $18.8 million, a $3.6 million increase over the same period in 2021.

The increase primarily relates to (i) a $1.3 million increase in outside services primarily related to consulting, (ii) a $1.0 million increase in stock-based compensation expense and (iii) a $0.6 million increase in payroll and benefits.

● Our acquisition, merger and transition related costs were $4.0 million, an increase of $4.0 million over the same period in 2021.

This increase primarily relates to costs incurred related to the transition of facilities with troubled operators.

● Our recovery for credit losses was $1.6 million, a $5.1 million change over the same period in 2021.

The change was primarily as a result of (i) changes in loan balances and decreases in loss rates, utilized in the estimate of expected losses for loans, in the second quarter of 2022 compared to the same period in 2021 and (ii) recoveries for cash collections received on loans reserved down to the fair value of the collateral, partially offset by (i) provisions recorded on the Agemo WC Loan, the $20.0 million working capital loan that was entered into in November 2021 and the $25.0 million Gulf Coast debtor-in-possession (“DIP”) facility.

Other Income (Expense)

For the three months ended June 30, 2022, total other income was $20.8 million, an increase of approximately $16.5 million over the same period in 2021.

The increase was mainly due to a $21.1 million increase in gain on assets sold related to the sale of 13 facilities in the second quarter of 2022 compared to the sale of six facilities during the same period in 2021 partially offset by a $3.0 million legal reserve recorded in other (expense) income – net discussed in Note 18 – Commitments and Contingencies.

Six Months Ended June 30, 2022 and 2021

Our revenues for the six months ended June 30, 2022 totaled $494.0 million, a decrease of approximately $37.2 million over the same period in 2021.

Included below is a description of the material changes in revenues for the six months ended June 30, 2022 compared to the same period in 2021:

● Rental income was $428.3 million, a decrease of $30.4 million over the same period in 2021.

The decrease was primarily the result of (i) a $23.8 million decrease relating to Agemo, a cash basis operator, from which we received no rental payments and recorded no rental income during the first and second quarters of 2022;

(ii) a $14.6 million decrease due to recognizing no rental income related to Gulf Coast, a cash basis operator, in 2022, as we received no contractual payments in the first quarter related to the lease with this operator, and we sold or transitioned 23 of the facilities subject to the Gulf Coast lease in March 2022;

(iii) an $8.1 million decrease relates to Guardian, due to the restructuring of the lease agreement (discussed under “ Three Months Ended June 30, 2022 and 2021 – Revenues ” above) and as a result of only receiving three months of payments from Guardian during 2022.

The overall decrease in rental income was partially offset by (i) a $10.7 million increase due to additional rental income in the second quarter of 2022 from acquisitions and construction in progress facilities being placed in service and (ii) a $6.6 million increase due to a net reduction in straight-line rent receivable and lease inducement write-offs in the six months ended June 30, 2022, as we had a $17.4 million straight-line rent receivable write-off associated with Gulf Coast in the second quarter of 2021 as a result of placing it on a cash basis for revenue recognition.

● Mortgage interest income was $40.1 million, a $7.5 million decrease over the same period in 2021.

The decrease was primarily the result of (i) a $6.1 million decrease related to Guardian as a result of recognizing no interest income in 2022 on the $80.6 million mortgage loan, as we are accounting for the loan using the cost recovery method with interest payments applied to principal amounts outstanding and (ii) a $1.2 million write-off of effective interest receivables, that is recorded as a reduction to mortgage interest income, in connection with the $113.7 million partial principal paydown on the Ciena mortgages during the second quarter of 2022.

Our expenses for the six months ended June 30, 2022 totaled $341.9 million, an increase of approximately $24.4 million over the same period in 2021.

Included below is a description of the material changes in expenses for the six months ended June 30, 2022 compared to the same period in 2021:

● Our depreciation and amortization expense was $166.0 million, a $4.7 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 and the nine Guardian facilities that were sold in the first and second quarters of 2022, partially offset by facility acquisitions and capital additions.

● Our general and administrative expense was $35.2 million, a $3.8 million increase over the same period in 2021.

The increase primarily relates to (i) a $2.5 million increase in stock-based compensation expense and (ii) a $1.2 million increase in outside services primarily related to consulting.

● Our acquisition, merger and transition related costs were $5.5 million, an increase of $3.7 million over the same period in 2021.

This increase primarily relates to costs incurred related to the transition of facilities with troubled operators.

● Our impairment on real estate properties was $11.2 million, a decrease of $26.3 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).

The 2022 impairments were recognized in connection with two facilities that were classified as held-for-sale for which the carrying values exceeded the estimated fair values less costs to sell and four held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

The 2021 impairments were recognized in connection with six facilities that were classified as held-for-sale for which the carrying values exceeded the estimated fair values less costs to sell and one held-for-use facility for which it was determined that the carrying value exceeded the fair value.

● Our provision for credit losses was $0.3 million, a $2.3 million decrease over the same period in 2021.

The decrease was primarily as a result of recoveries for cash collections and paydowns received on the Guardian mortgage, partially offset by (i) net provisions recorded on the Agemo WC Loan, the $20.0 million working capital loan that was entered into in November 2021 and the Gulf Coast DIP facility and (ii) an increase in balances, loss rates and weighted average years to maturity.

See further discussion on specific loan reserves in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Collectibility Issues.

Other Income (Expense)

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.

For the six months ended June 30, 2022, total other income was $133.9 million, an increase of approximately $58.8 million over the same period in 2021.

The increase was mainly due to (i) a $34.4 million increase in gain on assets sold related to the sale of 40 facilities compared to the sale of 30 facilities during the same period in 2021 and (ii) a $30.1 million decrease in loss on debt extinguishment primarily related to fees, premiums, and expenses related to the early redemption of $350 million of principal of the 4.375% Senior Notes due 2023 during the first quarter of 2021, partially offset by a $3.0 million legal reserve recorded in other (expense) income – net discussed in Note 18 – Commitments and Contingencies.

Income from Unconsolidated Joint Ventures

For the six months ended June 30, 2022, income from unconsolidated joint ventures was $3.4 million, a decrease of approximately $9.6 million over the same period in 2021.

The decrease was primarily due to one of the joint ventures realizing a $14.9 million gain on sale of real estate investments during the first quarter of 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 months ended March 31, 2022 and 2021:

The following table presents our Nareit FFO results for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

Six Months Ended

(in thousands)

Deduct gain from real estate dispositions

Deduct gain from real estate dispositions - unconsolidated joint ventures

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

Elimination of non-cash items included in net income:

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Add back impairments on real estate properties - unconsolidated joint ventures

Add back unrealized loss on warrants

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

Liquidity and Capital Resources

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.

Our primary sources of cash include rental income and interest receipts, existing availability under our revolving credit facility, proceeds from our Dividend Reinvestment and Common Stock Purchase Plan (“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.

At June 30, 2022, we had total assets of $9.5 billion, total equity of $3.9 billion and total debt of $5.4 billion in our consolidated financial statements, with such debt representing approximately 57.7% of total capitalization.

At June 30, 2022, the weighted-average annual interest rate of our debt was 4.1%.

Additionally, as of June 30, 2022, 98% of our debt with outstanding principal balances has fixed interest payments.

As of June 30, 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.

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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.

As of June 30, 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 March 31, 2022 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 June 30, 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 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 of June 30, 2022, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At June 30, 2022, we had approximately 234.1 million shares of common stock outstanding, and our shares had a market value of $6.6 billion.

The following is a summary of activity under our equity programs, excluding share repurchases, which are discussed in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financing Activities above, during the three and six months ended June 30, 2022:

● We did not issue any shares of common stock under our 2021 ATM Program during the three and six months ended June 30, 2022.

We did not utilize the forward provisions under the 2021 ATM Program during the three and six months ended June 30, 2022.

We have $929.9 million of potential sales remaining under the 2021 ATM Program as of June 30, 2022.

● We issued 84.6 thousand and 164.5 thousand shares of common stock under the DRSPP during the three and six months ended June 30, 2022.

Aggregate gross proceeds from these sales were $2.3 million and $4.6 million during the three and six months ended June 30, 2022, respectively.

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

For the six months ended June 30, 2022, we paid dividends of approximately $318.3 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 13, 2022, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on May 2, 2022.

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.

During the six months ended June 30, 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 June 30, 2022, we had $214.5 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

Additionally, we have commitments to fund $157.0 million of advancements under existing other investment loans, which includes $24.8 million related to the increased commitment on the Maplewood $250.5 million secured revolving credit facility and a $90.0 million short-term revolving line of credit to an existing operator on which no amount has been drawn as of June 30, 2022.

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

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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.

Cash, cash equivalents and restricted cash totaled $168.5 million as of June 30, 2022, an increase of $144.1 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 $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.

Operating Activities – Operating activities generated $305.2 million of net cash flow for the six months ended June 30, 2022, as compared to $378.3 million for the same period in 2021, a decrease of $73.1 million, which is primarily driven by a decrease of $59.9 million of net income, net of $95.8 million of non-cash items, primarily due to a year over year reduction in rental income and mortgage revenue, as discussed in our material changes analysis under Results of Operations above.

A $13.2 million change in the net movements of the operating assets and liabilities also contributed to the overall decrease in cash provided by operating activities.

Investing Activities – Net cash flow from investing activities was an inflow of $277.2 million for the six months ended June 30, 2022, as compared to an outflow of $387.1 million for the same period in 2021.

The $664.3 million change in cash flow from investing activities related primarily to (i) a $491.8 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 .

for $511.3 million in the first quarter of 2021, (ii) a $185.7 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 cash proceeds of $304.0 million in the first quarter of 2022, (iii) a $104.6 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 a $113.7 million partial principal paydown on the Ciena mortgages in the second 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 $106.0 million increase in other investments advances and placements, net of receipts driven by the new $35.6 million mezzanine loan with an existing operator entered into in the second quarter of 2022, the $25.0 million term loan to LaVie entered into in the first quarter of 2022 and additional draws on existing loans, (ii) a $14.3 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 $2.9 million decrease in receipts from insurance proceeds, (iv) a $2.5 million decrease in acquisition related deposits and (v) a $1.6 million increase in investment in construction in progress and capital expenditures.

Financing Activities – Net cash flow from financing activities was an outflow of $436.8 million for the six months ended June 30, 2022, as compared to an outflow of $54.3 million for the same period in 2021.

The $382.5 million change in cash flow from financing activities was primarily related to (i) a $221.2 million decrease in cash proceeds from the issuance of common stock in 2022 due to decreased issuances under our DRSPP and our 2021 ATM Program, as compared to the same period in 2021, (ii) $142.3 million of repurchases of shares of common stock in 2022, (iii) a $60.2 million decrease in proceeds from other long-term borrowings, net of repayments, (iv) a $9.7 million increase in redemptions of OP units and (v) a $1.7 million increase in dividends paid.

The overall increase in financing outflows was partially offset by (i) a $48.1 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 (ii) a $4.6 million decrease in distributions to Omega OP Unit holders .

Critical Accounting Policies and Estimates

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

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.

During the quarter ended June 30, 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