What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-02 · 296 added, 219 removed, 770 unchanged (40% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30,

Real estate assets

24 unchanged sentences

Preferred stock $ 1.00 par value authorized – 20,000 shares, issued and outstanding – none

Common stock $ 0.10 par value authorized – 350,000 shares, issued and outstanding – 234,102 shares as of June 30, 2022 and 239,061 shares as of December 31, 2021

Common stock $ 0.10 par value authorized – 350,000 shares, issued and outstanding – 234,176 shares as of September 30, 2022 and 239,061 shares as of December 31, 2021

Additional paid-in capital

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Rental income

10 unchanged sentences

Recovery on direct financing leases

(Recovery) provision for credit losses

Provision for credit losses

Interest expense

17 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive income (loss):

1 unchanged sentence

Cash flow hedges

Total other comprehensive (loss) income

Total other comprehensive income (loss)

Comprehensive income

3 unchanged sentences

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended June 30, 2022 and 2021

CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended September 30, 2022 and 2021

(in thousands, except per share amounts)

3 unchanged sentences

Income (Loss)

Balance at March 31, 2022

Balance at June 30, 2022

( 5,872,269 )

1 unchanged sentence

Issuance of common stock

Repurchase of common stock

Common dividends declared ($ 0.67 per share)

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Other comprehensive loss

Balance at June 30, 2022

Capital contribution from noncontrolling interest holder in consolidated JV

Other comprehensive income

Balance at September 30, 2022

( 6,029,603 )

Balance at March 31, 2021

Balance at June 30, 2021

( 5,232,692 )

6 unchanged sentences

Other comprehensive loss

Balance at June 30, 2021

Balance at September 30, 2021

( 5,393,284 )

1 unchanged sentence

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six Months Ended June 30, 2022 and 2021

CONSOLIDATED STATEMENTS OF EQUITY

Nine Months Ended September 30, 2022 and 2021

(in thousands, except per share amounts)

14 unchanged sentences

Other comprehensive income

Balance at June 30, 2022

Balance at September 30, 2022

( 6,029,603 )

8 unchanged sentences

Other comprehensive income

Balance at June 30, 2021

Balance at September 30, 2021

( 5,393,284 )

3 unchanged sentences

Unaudited (in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

53 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 30, 2022

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

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

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.

As of September 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.

Basis of Presentation and Principles of Consolidation

3 unchanged sentences

The results of operations for the interim periods reported herein are not necessarily indicative of results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the financial statements and the footnotes thereto included in our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2022.

These unaudited consolidated financial statements should be read in conjunction with the financial statements and the footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Omega’s consolidated financial statements include the accounts of (i) Parent, (ii) all direct and indirect wholly owned subsidiaries of Omega, including Omega OP, (iii) other entities in which Omega or Omega OP has a majority voting interest and control and (iv) variable interest entities (“VIEs”) of which Omega is the primary beneficiary.

3 unchanged sentences

Reclassification

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

Certain line items on our Consolidated Balance Sheets have been reclassified to conform to the current period presentation.

Risks and Uncertainties including COVID-19

14 unchanged sentences

The Company has several derivative instruments (See Note 16 – Derivatives and Hedging), a $ 1.45 billion senior unsecured multicurrency revolving credit facility, and a $ 50.0 million senior unsecured term loan facility (See Note 15 – Borrowing Activities and Arrangements) that reference LIBOR.

We also have a $ 25.0 million senior secured debtor-in-possession (“DIP”) facility loan with an operator that references LIBOR (See Note 6 – Other Investments), but it matures in 2022 prior to LIBOR being discontinued.

During the first quarter of 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

4 unchanged sentences

NOTE 2 – REAL ESTATE ASSETS

At June 30, 2022, our leased real estate properties included 672 SNFs, 163 ALFs, 20 ILFs, 16 specialty facilities and two medical office buildings.

At September 30, 2022, our leased real estate properties included 649 SNFs, 167 ALFs, 20 ILFs, 16 specialty facilities and two medical office buildings.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

Asset Acquisitions

The following table summarizes the asset acquisitions that occurred during the six months ended June 30, 2022:

The following table summarizes the asset acquisitions that occurred during the nine months ended September 30, 2022:

Total Real Estate

14 unchanged sentences

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

September 30,

Number of facilities held for sale

Amount of assets held for sale (in thousands)

During the three and six months ended June 30, 2022, we sold 13 and 40 facilities, subject to operating leases, 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 the 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 were included in assets held for sale as of December 31, 2021.

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

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

During the three months ended September 30, 2022, we reclassified 20 facilities that were leased and operated by Agemo Holdings, LLC (“Agemo”) to assets held for sale in connection with our restructuring negotiations surrounding Agemo’s lease agreement.

Nineteen of these facilities were subsequently sold during the fourth quarter of 2022 for aggregate gross cash proceeds of $ 315.8 million.

During the three and nine months ended September 30, 2022, we sold four and 44 facilities, subject to operating leases, for $ 51.4 million and $ 438.3 million in net cash proceeds, respectively.

As a result of these sales, we recognized net gains of $ 40.9 million and $ 179.7 million during the three and nine months ended September 30, 2022, respectively.

Our 2022 sales were primarily driven by restructuring transactions and negotiations related to our lease agreements with the following operators:

Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), Guardian Healthcare (“Guardian”) and Agemo.

In the first quarter of 2022, we sold 22 facilities that were previously leased and operated by Gulf Coast.

The net cash proceeds from the sale, including related costs accrued for as of the end of the third quarter, were $ 303.9 million, and we recognized a net gain of $ 113.5 million.

The agreement includes an earnout clause pursuant to which the buyer is obligated to pay an additional $ 18.7 million to Omega if certain financial metrics are achieved at the facilities in the three years following the sale.

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

We also sold nine facilities ( two facilities in the first quarter and seven in the second quarter) during the six months ended June 30, 2022 that were previously leased to Guardian for $ 39.5 million in net proceeds, which resulted in a net gain of approximately $ 13.7 million.

The sales were in connection with the restructuring of Guardian’s portfolio.

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

During the first and second quarter of 2022, we sold nine total facilities that were leased to Guardian for $ 39.5 million in net proceeds, which resulted in a net gain of $ 13.7 million.

In the third quarter of 2022, we sold two facilities that were previously leased to Agemo for $ 42.6 million in net proceeds, which resulted in a net gain of $ 35.6 million.

Real Estate Impairments

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 the carrying value exceeded the fair value.

During the three and nine months ended September 30, 2022, we recorded impairments on four and ten facilities of $ 10.0 million and $ 21.2 million, respectively.

Of the $ 21.2 million, $ 3.5 million related to two facilities that were classified as held for sale (and subsequently sold) for which the carrying values exceeded the estimated fair values less costs to sell, and $ 17.7 million related to eight held-for-use facilities for which the carrying value exceeded the fair value.

The impairments recorded on four facilities during the three months ended September 30, 2022 relate to the 2.2 % Operator discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements.

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

5 unchanged sentences

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

September 30,

(in thousands)

4 unchanged sentences

Other receivables and lease inducements

Agemo Holdings, LLC

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.

Our lease payments from Agemo are on a cash basis of revenue recognition for lease purposes, so no rental income was recorded related to Agemo during the three and six months ended June 30, 2022.

Additionally, no interest income was recognized during the three and six months ended June 30, 2022 on the two loans with Agemo because these loans are on non-accrual status and we are utilizing the cost recovery method, under which any payments received are applied against the principal amount.

Cash basis operators and straight-line receivable write-offs

We review our collectability assumptions related to our operator leases on an ongoing basis.

During the three and nine months ended September 30, 2022, we placed three and five additional operators, respectively, on a cash basis of revenue recognition, as collection of substantially all contractual lease payments due from them was no longer deemed probable.

In connection with moving these operators to a cash basis, we recognized $ 13.2 million and $ 23.6 million in total straight-line accounts receivable and lease inducement write-offs through rental income during the three and nine months ended September 30, 2022, respectively.

These amounts include the operators discussed in further detail below.

As of September 30, 2022, we had 17 operators on a cash basis for revenue recognition.

These operators represent 15.3 % of our total revenues (excluding the impact of write-offs) for the nine months ended September 30, 2022.

We also wrote-off $ 3.2 million of straight-line rent receivable balances through rental income during the nine months ended September 30, 2022, as a result of transitioning 6 facilities between existing operators in the first quarter of 2022.

Operator updates

Agemo continued to not pay contractual rent and interest due under its lease and loan agreements during the nine months ended September 30, 2022.

Agemo is on a cash basis of revenue recognition for lease purposes, so no rental income was recorded related to Agemo during the three and nine months ended September 30, 2022.

Additionally, no interest income was recognized during the three and nine months ended September 30, 2022 on the two loans with Agemo because these loans are on non-accrual status and we are utilizing the cost recovery method, under which any payments, if received, are applied against the principal amount.

See Note 6 – Other Investments.

For the three and six months ended June 30, 2021, revenue from Agemo represented approximately 4.9 % and 4.7 %, respectively, of our total revenues (excluding the impact of write-offs).

During the six months ended June 30, 2022, we extended the forbearance period related to Agemo’s defaults under its lease and loan agreements to August 31, 2022.

We are in on-going discussions with Agemo regarding restructuring the lease and loan agreements.

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

Guardian Healthcare

Guardian Healthcare (“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.

Our lease payments from Guardian are 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, as discussed further in Note 5 – Mortgage Notes Receivable, no mortgage interest income has been recognized on the Guardian mortgage loan during the three and six months ended June 30, 2022 as we are accounting for this loan under the cost recovery method.

For the nine months ended September 30, 2021, revenue from Agemo represented approximately 4.7 % of our total revenues (excluding the impact of write-offs).

On September 30, 2021, the Company entered a forbearance agreement related to Agemo’s defaults under its lease and loan agreements.

The forbearance period under the agreement has been extended multiple times and the most recent amendment on October 31, 2022 extended the forbearance period through November 30, 2022 .

Additionally, the Company had previously entered a restructuring agreement on May 7, 2018, with Agemo (the “2018 Restructuring”), that among other things, allowed for the deferral of $ 6.3 million of rent per annum for a 3-year period.

The deferral period was extended multiple times, and the most recent amendment extending the deferral through April 2022, after which time the deferral period terminated, with the Company remaining subject to its forbearance agreement through November 30, 2022.

As of September 30, 2022, the aggregate rent deferred under the Agemo lease agreement was $ 25.2 million.

The Company is currently in ongoing negotiations to restructure and amend Agemo’s lease and loan agreements.

Guardian did not make rent and interest payments under its lease and loan agreements during the first quarter of 2022 but resumed paying contractual rent and interest during the second quarter of 2022 and continued such payments in the third 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 $ 3.7 million and $ 7.5 million for the three and nine months ended September 30, 2022, respectively, for the contractual rent payments that were received.

Additionally, as discussed further in Note 5 – Mortgage Notes Receivable, no mortgage interest income has been recognized on the Guardian mortgage loan during the three and nine months ended September 30, 2022, as we are accounting for this loan under the cost recovery method.

During the first and second quarters of 2022, we completed significant restructuring activities related to the Guardian lease and loan portfolio.

2 unchanged sentences

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:

● Extend the lease and loan terms from January 31, 2027 to December 31, 2031 and allow Guardian the option to extend the maturity date for both the lease and loan through September 30, 2034 , subject to certain conditions,

● reduce the combined rent and mortgage interest to an aggregate $ 24.0 million per year as of July 1, 2022 ( $ 15.0 million in rent and $ 9.0 million in interest) with annual escalators of 2.25 % beginning in January 2023 and

● allow Guardian to retrospectively defer $ 18.0 million of aggregate contractual rent and interest that they failed to pay during the period from October 2021 through March 2022 (consisting of $ 12.2 million of deferred rent and $ 5.8 of million deferred interest), with repayment required after September 30, 2024 based on certain financial metrics and in full by December 31, 2031, or the earlier termination of the lease for any reason.

As of June 30, 2022, we have $ 7.4 million of letters of credit from Guardian as collateral.

Revenue from Guardian represented approximately 1.5 % and 3.3 % of our total revenues (excluding the impact of straight-line write-offs) for the three months ended June 30, 2022 and 2021, respectively and 0.7 % and 3.3 % of our total revenues (excluding the impact of straight-line write-offs) for the six months ended June 30, 2022 and 2021, respectively.

Other operator updates

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.

As part of the restructuring agreement and related agreements, Omega agreed to, among other things:

● Extend the lease and loan maturity dates from January 31, 2027 to December 31, 2031 and allow Guardian the option to extend the maturity date for both the lease and loan through September 30, 2034 , subject to certain conditions;

● allow Guardian to retrospectively defer $ 18.0 million of aggregate contractual rent and interest that it failed to pay from October 2021 through March 2022 (consisting of $ 12.2 million of deferred rent and $ 5.8 of million deferred interest), with repayment required beginning after September 30, 2024, based on certain financial metrics, and in full by December 31, 2031, or the earlier termination of the lease for any reason.

As of September 30, 2022, we have $ 7.4 million of letters of credit from Guardian as collateral.

Revenue from Guardian represented approximately 1.0 % and 3.2 % of our total revenues (excluding the impact of straight-line write-offs) for the nine months ended September 30, 2022 and 2021, respectively.

3.7 % Operator

From January through March 2022, an operator (the “3.7% Operator”) representing 3.7 % and 3.3 % of total revenue (excluding the impact of write-offs) for the nine months ended September 30, 2022 and 2021, respectively, did not pay its contractual amounts due under its lease agreement.

In March 2022, the lease with the 3.7 % Operator was amended to allow for a short-term rent deferral for January through March 2022.

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

This operator paid the contractual amount due under its lease agreement from April 2022 through June 2022.

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

We have provided a $ 20.0 million revolving credit facility to this operator, and the operator has paid contractual interest under the facility from January through June 2022.

As of June 30, 2022, the total outstanding principal due under the credit facility was $ 20.0 million.

The 3.7 % Operator paid the contractual amount due under its lease agreement from April 2022 through September 2022.

Omega holds a $ 1.0 million letter of credit and a $ 150 thousand security deposit from the 3.7 % Operator as collateral under its lease agreement.

The 3.7 % Operator remains on a straight-line basis of revenue recognition.

In July 2018, we entered into a $ 20.0 million revolving credit facility with the 3.7 % Operator, and the 3.7 % Operator paid contractual interest under the facility from January through September 2022.

The 3.7 % Operator drew $ 4.0 million under the facility during the second quarter of 2022, and the line of credit under the facility was fully drawn as of June 30, 2022.

As of September 30, 2022, the total outstanding principal due under the credit facility remains $ 20.0 million.

The credit facility is secured by a first lien on the 3.7 % Operator’s accounts receivable.

In March 2022, an 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 toward payment of March 2022 rent and to allow for a short-term rent deferral for April 2022 with regular rent payments required to resume in May 2022.

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.

1.4 % Operator

In March 2022, an operator (the “1.4% Operator”), representing 1.4 % and 2.1 % of total revenue (excluding the impact of write-offs) for the nine months ended September 30, 2022 and 2021, respectively, did not pay its contractual amounts due under its lease agreement.

In April 2022, the lease with the 1.4 % Operator was amended to allow the operator to apply its $ 2.0 million security deposit toward payment of March 2022 rent and to allow for a short-term rent deferral for April 2022 with regular rent payments required to resume in May 2022.

The 1.4 % Operator paid contractual rent in May 2022, but it failed to pay the full contractual rent for June 2022 on a timely basis.

We placed the 1.4 % Operator on a cash basis of revenue recognition during the second quarter of 2022, as collection of substantially all contractual lease payments due from the operator was no longer deemed probable.

As a result, we wrote-off approximately $ 8.3 million of straight-line rent receivables through rental income.

In June 2022, an 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 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 an 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.

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.

During the three months ended September 30, 2022, the 1.4 % Operator made partial contractual rent payments of $ 2.5 million in the aggregate, which were recorded in rental income.

2.2 % Operator

In June 2022, an operator (the “2.2% Operator”), representing 2.2 % and 2.0 % of total revenue (excluding the impact of write-offs) for the nine months ended September 30, 2022 and 2021, respectively, short-paid the contractual rent amount due under its lease agreement by $ 0.6 million.

In July 2022, we drew the full $ 5.4 million letter of credit that was held as collateral from the 2.2 % Operator and applied $ 0.6 million of the proceeds to pay the unpaid portion of June 2022 rent.

In the third quarter of 2022, the 2.2 % Operator continued to short-pay the contractual amount due under its lease agreement.

As such, we applied $ 3.3 million of the remaining proceeds of the letter of credit to pay the unpaid portion of July, August and September 2022 rent.

We are in discussions to sell or release to another operator a portion of the facilities included in the 2.2 % Operator’s master lease.

We placed the 2.2 % Operator on a cash basis of revenue recognition during the third quarter of 2022, as collection of substantially all contractual lease payments due from the operator was no longer deemed probable.

As a result of placing the 2.2 % Operator on a cash basis, we wrote-off approximately $ 10.5 million of straight-line rent receivables and lease inducements through rental income.

As of September 30, 2022, $ 1.5 million of proceeds from the letter of credit remain as collateral to the master lease.

0.5 % Operator

In June 2022, we placed an operator (the “0.5% Operator”), representing approximately 0.5 % of total revenue (excluding the impact of write-offs) for the nine months ended September 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 the 0.5 % Operator was 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 the 0.5 % Operator on a cash basis, we wrote-off approximately $ 2.1 million of straight-line rent receivables through rental income.

All facilities included in the 0.5 % Operator’s master lease are included in assets held for sale as of September 30, 2022.

Other Operators

During the nine months ended September 30, 2022, we allowed four other operators, representing an aggregate 2.8 % and 3.1 % of total revenue (excluding the impact of write-offs) for the nine months ended September 30, 2022 and 2021, respectively, to apply an aggregate of $ 3.4 million of their security deposits to pay rent to accommodate short term liquidity issues, with regular rent payments required to resume shortly thereafter.

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

Other straight-line receivables and write-offs

In the first quarter of 2022, we transitioned six facilities between existing operators.

The transition resulted in the removal of the facilities from the original operator’s lease agreement and consequently the write-off of $ 3.2 million of straight-line rent receivable balances through rental income.

The facilities were added to the new operator’s lease agreement.

Additionally, we granted two of these operators short-term deferrals for a portion of their respective rent due during the nine months ended September 30, 2022.

As of September 30, 2022, two of the four operators that were allowed to apply security deposits to rent are current on their respective lease obligations.

The two operators that are not current on contractual obligations are on a cash basis of revenue recognition as of September 30, 2022.

We placed one of the operators on a cash basis of revenue recognition during the third quarter of 2022.

As a result of placing that operator on a cash basis during the third quarter of 2022, we wrote-off approximately $ 2.6 million of straight-line rent receivables through rental income.

NOTE 5 – MORTGAGE NOTES RECEIVABLE

As of June 30, 2022, mortgage notes receivable relate to seven fixed rate mortgage notes on 54 facilities.

As of September 30, 2022, mortgage notes receivable relate to seven fixed rate mortgage notes on 52 facilities.

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

2 unchanged sentences

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

September 30,

(in thousands)

7 unchanged sentences

Total mortgage notes receivable – net

(1) Approximates the weighted average interest rate on 39 facilities as of June 30, 2022.

(2) Other mortgage notes outstanding have a weighted average interest rate of 8.85 % per annum as of June 30, 2022 and maturity dates ranging from 2023 through 2032 .

(1) Approximates the weighted average interest rate on 37 facilities as of September 30, 2022.

(2) Other mortgage notes outstanding have a weighted average interest rate of 8.85 % per annum as of September 30, 2022 and maturity dates ranging from 2023 through 2032 .

Mortgage Note due 2031

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, 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 agreed to in the second quarter of 2022.

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.

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, 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 and third quarters of 2022, in accordance with the restructuring terms agreed to in the second quarter of 2022.

The mortgage loan is on non-accrual status and is being accounted for under the cost recovery method, so the $ 2.3 million and $ 3.7 million of interest payments that we received during the three and nine months ended September 30, 2022, respectively, were applied directly against the principal balance outstanding.

On February 15, 2022, Guardian completed the sale of three facilities subject to the Guardian mortgage loan with Omega.

3 unchanged sentences

These amendments were treated as a loan modification.

Following the mortgage paydown and recoveries, the amortized cost basis of the loan is $ 80.6 million.

The amortized cost basis of the loan represents 10.4 % of the total amortized cost basis of all mortgage receivables.

As of June 30 2022, the mortgage loan is secured by three SNFs and one ALF located in Pennsylvania.

In the third quarter of 2022, we reserved an additional $ 1.0 million through provision for credit losses due to a decrease in the estimated fair value of the four facilities that are collateral under the mortgage.

As of September 30, 2022, the amortized cost basis of the Guardian mortgage loan is $ 78.3 million, which represents 10.8 % of the total amortized cost basis of all mortgage receivables.

As of September 30, 2022, the mortgage loan is secured by three SNFs and one ALF located in Pennsylvania.

Mortgage Notes due 2030

On June 30, 2022, Ciena Healthcare (“Ciena”) repaid $ 57.1 million under the $ 415.0 million amortizing mortgage (the “Master Mortgage”), $ 15.1 million under the $ 44.7 million mortgage and $ 41.5 million under four other additional mortgages.

On June 30, 2022, Ciena Healthcare (“Ciena”) repaid $ 57.1 million under the $ 415.0 million amortizing mortgage (the “Ciena Master Mortgage”), $ 15.1 million under the $ 44.7 million mortgage and $ 41.5 million under four additional 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 $ 37.7 million with maturity dates in 2022 and 2023 ).

On September 9, 2022, Ciena repaid $ 35.3 million under the Ciena Master Mortgage and $ 9.5 million under three additional mortgages.

Concurrently with these partial repayments, we released the mortgage liens on two facilities in exchange for such partial repayments.

NOTE 6 – OTHER INVESTMENTS

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

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

A number of the secured loans are collateralized by leasehold mortgages on, or assignments or pledges of the membership interest in, the related properties, corporate guarantees and/or personal guarantees.

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

As of June 30, 2022, we had 39 loans with 19 different operators.

As of September 30, 2022, we had 39 loans with 20 different operators.

A summary of our other investments is as follows:

September 30,

(in thousands)

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Total other investments – net

(1) Approximates the weighted average interest rate as of June 30, 2022.

(2) During the second quarter of 2022, the maturity date on this loan was extended from May 31, 2023 to May 31, 2024 .

(3) Other investment notes that are real estate related loans have a weighted average interest rate of 11.43 % as of June 30, 2022 with maturity dates ranging from 2022 through 2027 (with $ 10.0 million maturing in 2022 ).

(4) Other investment notes that are non-real estate related loans have a weighted average interest rate of 7.77 % as of June 30, 2022 with maturity dates ranging from 2022 through 2032 (with $ 55.3 million maturing in 2022 ).

(1) Approximates the weighted average interest rate as of September 30, 2022.

(2) During the third quarter of 2022, this loan was fully repaid.

(3) As of September 30, 2022, includes one real estate related loan with an interest rate of 12.00 % and a maturity date of December 2, 2027 .

(4) Other investment notes that are non-real estate related loans have a weighted average interest rate of 8.20 % as of September 30, 2022 with maturity dates ranging from 2022 through 2032 (with $ 10.5 million maturing in the remainder of 2022).

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

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Advances made under this facility bear interest at a fixed rate of 7 % per annum, and the facility matures on June 30, 2030 .

As of June 30, 2022, $ 225.7 million remains outstanding on this credit facility to Maplewood.

As of September 30, 2022, $ 236.2 million remains outstanding on this credit facility to Maplewood.

Maplewood was determined to be a VIE when this loan was originated in 2020.

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Other investment notes due 2024-2025

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

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

In the first 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 Agemo WC Loan as a result of a reduction in the fair value of the underlying collateral assets supporting the current carrying values.

The reduction in fair value of the collateral assets in the first and second quarter was driven by a reduction in Agemo’s working capital accessible to Omega as collateral, after considering other liens on the assets.

Agemo continued to not pay contractual rent under its lease agreement and interest on the Agemo WC Loan and the Agemo Term Loan during the nine months ended September 30, 2022.

We have continued to monitor the fair value of the collateral associated with the Agemo WC Loan on a quarterly basis.

During the three and nine months ended September 30, 2022, we recorded an additional provision for credit losses of $ 4.8 million and $ 10.8 million, respectively, related to the Agemo WC Loan because of a reduction in the fair value of the underlying collateral assets supporting the current carrying values.

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, the Company is currently in ongoing negotiations to restructure and amend Agemo’s lease and loan agreements.

Other investment notes due 2022-2025

On June 28, 2022, we entered into a $ 35.6 million mezzanine loan with an existing operator.

On June 28, 2022, we entered into a $ 35.6 million mezzanine loan with an existing operator related to new operations undertaken by the operator.

The loan bears interest at a fixed rate of 12 % per annum and matures on June 30, 2025 .

The loan also requires quarterly principal payments of $ 1.0 million commencing on January 1, 2023 and additional payments contingent on achievement of certain metrics.

The loan also requires quarterly principal payments of $ 1.0 million commencing on January 1, 2023 and additional payments contingent on the operator’s achievement of certain metrics.

The loan is secured by a leasehold mortgage and a pledge of the operator’s equity interest in a joint venture.

Other investment notes due 2022-2028

In connection with the $ 35.6 million mezzanine loan discussed above, we also entered into a short-term $ 90.0 million revolving line of credit with the same operator to finance working capital requirements.

The line of credit consists of two $ 45.0 million tranches that bear interest at fixed rates of 10 % per annum and 12 % per annum and mature on June 30, 2023 and June 1, 2023 (or earlier based on certain state reimbursement conditions), respectively.

The revolving line of credit is secured by a first priority interest on the operator’s accounts receivable.

As of June 30, 2022, the revolving line of credit has not been drawn on.

The revolving line of credit is secured by a first priority interest on the operator’s accounts receivable related to the new operations.

As of September 30, 2022, the outstanding principal under this revolving line of credit was $ 30.0 million.

Other investment notes outstanding – real estate related loans

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Working Capital Loan – $ 20 million

In the second quarter of 2022, we recognized a provision for credit losses of $ 2.3 million on a $ 20.0 million working capital loan that was entered into in November 2021 with an operator that managed, on an interim basis for a 4-month period, the operations of 23 facilities formerly leased to Gulf Coast.

The working capital loan is secured by the accounts receivables of these facilities during the interim period of operation.

The remaining accounts receivable outstanding that collateralizes the loan is insufficient to support the current outstanding balance, and as a result, we recorded the additional reserve in the second quarter of 2022 to reduce the carrying value of the loan to the fair value of the collateral.

As of June 30, 2022, the outstanding principal under this loan was $ 6.4 million.

During the three and nine months ended September 30, 2022, we recognized provisions for credit losses of $ 0.9 million and $ 3.2 million, respectively, related to a $ 20.0 million working capital loan (the “$ 20.0 million WC loan”) that we entered into in November 2021 with an operator that managed, on an interim basis for a 4-month period, the operations of 23 facilities formerly leased to Gulf Coast.

The $ 20.0 million WC Loan is secured by the accounts receivables of these facilities during the interim period of operation.

The remaining accounts receivable outstanding that collateralize the loan is insufficient to support the current outstanding balance, and as a result, we recorded the additional reserves to reduce the carrying value of the loan to the fair value of the collateral.

The $ 20.0 million WC Loan is on non-accrual status and is being accounted for under the cost recovery method, so the $ 32.7 thousand of interest payments that we received during the three months ended September 30, 2022 were applied directly against the principal balance outstanding.

As of September 30, 2022, the outstanding principal under this loan was $ 5.8 million.

Term Loan – $ 25 million

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

As of June 30, 2022, the outstanding principal under this term loan was $ 25.0 million.

As of September 30, 2022, the outstanding principal under this term loan was $ 25.0 million.

Mezzanine Loan - $ 40 million

On September 1, 2022, we entered into a $ 40.0 million mezzanine loan with a new operator.

The loan bears interest at a fixed rate of 12 % per annum and matures on September 14, 2027 .

The loan also requires semi-annual principal payments of $ 1.7 million in January and July, commencing on January 1, 2023, and additional payments contingent on the occurrence of certain conditions.

The loan is secured by an equity interest in subsidiaries of the operator.

Revolving Credit Facility - $ 45 million

On August 25, 2022, the Company amended the terms of a $ 15 million revolving credit facility that was previously issued in July 2019, bearing interest at a fixed rate of 7.5 % per annum and maturing on July 8, 2022 .

This revolving credit facility was subsequently amended during the nine months ended September 30, 2022 to increase the maximum principal to $ 45 million, extend the maturity date to December 31, 2024 and require monthly principal payments of $ 0.5 million beginning in July 2022, which increase to $ 1.0 million in November 2022, to $ 1.5 million in June 2023 and to $ 2.5 million in October 2023.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

A rollforward of our allowance for credit losses for the six months ended June 30, 2022 is as follows:

A rollforward of our allowance for credit losses for the nine months ended September 30, 2022 is as follows:

Financial Statement Line Item

Allowance for Credit Loss as of December 31, 2021

Provision (recovery) for Credit Loss for the three months ended June 30, 2022

Write-offs charged against allowance for the three months ended June 30, 2022

Provision (recovery) for Credit Loss for the six months ended June 30, 2022

Write-offs charged against allowance for the six months ended June 30, 2022

Allowance for Credit Loss as of June 30, 2022

Provision (recovery) for Credit Loss for the nine months ended September 30, 2022

Write-offs charged against allowance for the nine months ended September 30, 2022

Allowance for Credit Loss as of September 30, 2022

(in thousands)

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Investment in direct financing leases

Other investments

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Off-balance sheet note commitments

(1) Amount relates to recoveries recorded on the Guardian mortgage loan during the first and second quarters of 2022 in connection with the paydown of the mortgage in the first quarter of 2022 and the application of interest payments received against the principal in the second quarter of 2022, as we are accounting for the loan using the cost recovery method.

(1) Amount relates to the recoveries, net of provision, recorded on the Guardian mortgage loan during the nine months ended September 30, 2022.

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

(2) This provision includes an additional $ 2.3 million allowance recorded on the $ 20 million working capital loan during the second quarter of 2022 as discussed in Note 6 – Other Investments.

(3) This provision includes an additional $ 4.7 million allowance recorded on the Agemo WC Loan during the first quarter of 2022 and an additional $ 1.3 million allowance recorded on the Agemo WC Loan during the second quarter of 2022.

(2) Reflects additional provisions of $ 0.9 million and $ 3.2 million recorded on the $ 20 million WC loan during the three and nine months ended September 30, 2022 as discussed in Note 6 – Other Investments.

(3) Reflects additional provisions of $ 4.8 million and $ 10.8 million recorded on the Agemo WC Loan during the three and nine months ended September 30, 2022.

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

(4) During the three and six months ended June 30, 2022, we received $ 0.8 million and $ 1.5 million, respectively, of interest and fee payments from Gulf Coast under the $ 25.0 million senior secured DIP facility, the outstanding principal of which was fully reserved against in the fourth quarter of 2021.

The DIP facility is on non-accrual status, and the payments received in the three and six months ended June 30, 2022 have been applied against the outstanding principal using the cost recovery method.

In the three and six months ended June 30, 2022, we recorded a recovery for credit loss equal to the amount of payments applied against the principal.

(4) During the three and nine months ended September 30, 2022, we received $ 0.5 million and $ 2.0 million, respectively, of interest and fee payments from Gulf Coast under the $ 25.0 million senior secured DIP facility, the outstanding principal of which was fully reserved against in the fourth quarter of 2021.

The DIP facility is on non-accrual status, and the payments received in the three and nine months ended September 30, 2022 have been applied against the outstanding principal using the cost recovery method.

In the three and nine months ended September 30, 2022, we recorded a recovery for credit loss equal to the amount of payments applied against the principal.

(5) During the third quarter of 2022, we wrote-off the loan balance and reserve for two loans (the $ 25.0 million senior secured DIP facility and one other loan) that expired during the quarter which had previously been fully reserved.

(6) During the second quarter of 2022, we recorded an additional reserve of $ 2.2 million related to the remaining commitment under the $ 25.0 million senior secured DIP facility.

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

(7) During the third quarter of 2022, the remaining commitment under the $ 25.0 million senior secured DIP facility was funded, and the facility expired, which resulted in a write-off of the loan and reserve balances.

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

Financial Statement Line Item

Allowance for Credit Loss at December 31, 2020

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

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

Provision (recovery) for Credit Loss for the six months ended June 30, 2021

Write-offs charged against allowance for the six months ended June 30, 2021

Allowance for Credit Loss as of June 30, 2021

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

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

Allowance for Credit Loss as of September 30, 2021

(in thousands)

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Other investments

Off-balance sheet note commitments

Off-balance sheet mortgage commitments

(1) This provision primarily related to a $ 4.5 million reserve recorded on a term loan during the second quarter of 2021.

(1) Amount reflects the movement of reserves associated with our mortgage loan with Guardian due to a reduction of our internal risk rating from a 4 to a 5 on the loan in the third quarter of 2021.

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

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

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

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

A summary of our amortized cost basis by year of origination and credit quality indicator is as follows:

1 unchanged sentence

Revolving Loans

Balance as of June 30, 2022

Balance as of September 30, 2022

(in thousands)

12 unchanged sentences

Other investments

Current-period gross write-offs

Year to date gross write-offs

Interest Receivable on Mortgage and Other Investment Loans

We have elected the practical expedient to exclude interest receivable from our allowance for credit losses.

As of June 30, 2022, $ 10.1 million of contractual interest receivable is recorded in contractual receivables – net, and $ 7.4 million of effective yield interest receivables is recorded in other receivables and lease inducements on our Consolidated Balance Sheets, both of which are excluded from our allowance for credit losses.

As of September 30, 2022, $ 10.0 million of contractual interest receivable is recorded in contractual receivables – net, and $ 6.2 million of effective yield interest receivables is recorded in other receivables and lease inducements on our Consolidated Balance Sheets, both of which are excluded from our allowance for credit losses.

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

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We hold variable interests in several VIEs through our investing and financing activities, which are not consolidated, as we have concluded that we are not the primary beneficiary of these entities as we do not have the power to direct activities that most significantly impact the VIE’s economic performance and/or the variable interest we hold does not obligate us to absorb losses or provide us with the right to receive benefits from the VIE which could potentially be significant.

Below is a summary of our assets, liabilities and collateral associated with these unconsolidated VIEs as of June 30, 2022 and December 31, 2021:

Below is a summary of our assets, liabilities and collateral associated with these unconsolidated VIEs as of September 30, 2022 and December 31, 2021:

September 30,

(in thousands)

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Contractual receivables – net

Straight-line rent receivables

Lease inducement

Other receivables and lease inducements

Net in-place lease liability

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

The fair value of the accounts receivable available to Omega was $ 14.5 million and $ 29.2 million as of June 30, 2022 and December 31, 2021, respectively.

The fair value of the accounts receivable available to Omega was $ 8.3 million and $ 29.2 million as of September 30, 2022 and December 31, 2021, respectively.

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

The table below reflects our total revenues from the operators that are considered unconsolidated VIEs for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

The table below reflects our total revenues from the operators that are considered unconsolidated VIEs for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

Rental income

2 unchanged sentences

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

We also sold the joint venture an ALF for $ 7.7 million in net proceeds during the first quarter of 2022.

We also sold an ALF to the joint venture for $ 7.7 million in net proceeds during the first quarter of 2022.

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

1 unchanged sentence

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

As of June 30, 2022, this joint venture has $ 25.4 million of total assets and $ 19.6 million of total liabilities, which are included in our Consolidated Balance Sheets.

As of September 30, 2022, this joint venture has $ 25.6 million of total assets and $ 20.2 million of total liabilities, which are included in our Consolidated Balance Sheets.

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

2 unchanged sentences

Unconsolidated Joint Ventures

Omega owns an interest in a number of joint ventures that are accounted for under the equity method.

These entities and their subsidiaries are not consolidated by the Company because it does not control, through voting rights or other means, the joint venture.

The following is a summary of our investments in unconsolidated joint ventures (dollars in thousands):

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Facilities at

September 30,

Investment (1)

8 unchanged sentences

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

The following table reflects our income (loss) from unconsolidated joint ventures for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

The following table reflects our income (loss) from unconsolidated joint ventures for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

OH CHS SNP, Inc.

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

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

Asset Management Fees

We receive asset management fees from certain joint ventures for services provided.

For the three months ended June 30, 2022 and 2021, we recognized approximately $ 0.2 million and $ 0.3 million, respectively, of asset management fees.

For the six months ended June 30, 2022 and 2021, we recognized approximately $ 0.4 million and $ 0.5 million, respectively, of asset management fees.

For the three months ended September 30, 2022 and 2021, we recognized approximately $ 0.1 million and $ 0.2 million, respectively, of asset management fees.

For the nine months ended September 30, 2022 and 2021, we recognized approximately $ 0.5 million and $ 0.7 million, respectively, of asset management fees.

These fees are included in miscellaneous income in the accompanying Consolidated Statements of Operations.

NOTE 10 – GOODWILL AND OTHER INTANGIBLES

The following is a summary of our goodwill as of June 30, 2022 and December 31, 2021:

The following is a summary of our goodwill as of September 30, 2022 and December 31, 2021:

(in thousands)

1 unchanged sentence

Foreign currency translation

Balance as of June 30, 2022

The following is a summary of our intangibles as of June 30, 2022 and December 31, 2021:

Balance as of September 30, 2022

The following is a summary of our intangibles as of September 30, 2022 and December 31, 2021:

September 30,

(in thousands)

8 unchanged sentences

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

For the three months ended June 30, 2022 and 2021, our net amortization related to intangibles was $ 1.0 million and $ 1.1 million, respectively.

For the six months ended June 30, 2022 and 2021, our net amortization related to intangibles was $ 2.6 million and $ 7.3 million, respectively.

For the three months ended September 30, 2022 and 2021, our net amortization related to intangibles was $ 1.0 million and $ 1.1 million, respectively.

For the nine months ended September 30, 2022 and 2021, our net amortization related to intangibles was $ 3.6 million and $ 8.5 million, respectively.

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

3 unchanged sentences

2025 – $ 3.5 million and 2026 – $ 2.7 million.

As of June 30, 2022, the weighted average remaining amortization period of above market lease assets is approximately ten years and below market lease liabilities is approximately seven years .

As of September 30, 2022, the weighted average remaining amortization period of above market lease assets is approximately ten years and below market lease liabilities is approximately seven years .

NOTE 11 – CONCENTRATION OF RISK

As of June 30, 2022, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of 943 healthcare facilities, located in 42 states and the U.K.

As of September 30, 2022, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of 941 healthcare facilities, located in 42 states and the U.K.

and operated by 65 third-party operators.

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.8 billion at June 30, 2022, with approximately 97 % of our real estate investments related to long-term healthcare facilities.

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.6 billion at September 30, 2022, with approximately 97 % of our real estate investments related to long-term healthcare facilities.

Our portfolio is made up of (i) 650 SNFs, 167 ALFs, 20 ILFs, 16 specialty facilities and two medical office buildings, (ii) fixed rate mortgages on 48 SNFs, two ALFs and two specialty facilities, and (iii) 34 facilities that are held for sale.

At June 30, 2022, we also held other investments of approximately $ 560.9 million, consisting primarily of secured loans to third-party operators of our facilities and $ 183.7 million of investments in six unconsolidated joint ventures.

At June 30, 2022, we had investments with two operators or managers that approximated or exceeded 10% of our total investments:

At September 30, 2022, we also held other investments of approximately $ 608.2 million, consisting primarily of secured loans to third-party operators of our facilities and $ 176.6 million of investments in six unconsolidated joint ventures.

At September 30, 2022, we had investments with two operators or managers that approximated or exceeded 10% of our total investments:

Maplewood and LaVie.

Maplewood generated approximately 9.0 % and 7.7 % of our total revenues for the three months ended June 30, 2022 and 2021, respectively, and 9.0 % and 7.6 % of our total revenues for the six months ended June 30, 2022 and 2021, respectively.

LaVie generated approximately 11.4 % and 9.6 % of our total revenues for the three months ended June 30, 2022 and 2021, respectively, and 11.3 % and 9.3 % of our total revenues for the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022, the three states in which we had our highest concentration of investments were Florida ( 14 %), Texas ( 10 %) and Indiana ( 7 %).

Maplewood generated approximately 9.3 % and 7.9 % of our total revenues for the three months ended September 30, 2022 and 2021, respectively, and 9.1 % and 7.7 % of our total revenues for the nine months ended September 30, 2022 and 2021, respectively.

LaVie generated approximately 11.5 % and 9.3 % of our total revenues for the three months ended September 30, 2022 and 2021, respectively, and 11.4 % and 9.3 % of our total revenues for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, the three states in which we had our highest concentration of investments were Florida ( 13.1 %), Texas ( 10.3 %) and Indiana ( 6.6 %).

NOTE 12 – STOCKHOLDERS’ EQUITY

5 unchanged sentences

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

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

The following is a summary of the shares repurchased for the three and six months ended June 30, 2022 (in millions except average price per share):

The following is a summary of the shares repurchased for the three and nine months ended September 30, 2022 (in millions except average price per share):

Average Price

3 unchanged sentences

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2022

September 30, 2022

Nine Months Ended

September 30, 2022

(1) Average price per share and repurchase cost includes the cost of commissions.

4 unchanged sentences

August 15, 2022

November 1, 2022

November 15, 2022

Dividend Reinvestment and Common Stock Purchase Plan

The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and six months ended June 30, 2022 and 2021 (in millions):

The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and nine months ended September 30, 2022 and 2021 (in millions):

Shares issued

1 unchanged sentence

Three Months Ended

June 30, 2021

September 30, 2021

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2021

Six Months Ended

June 30, 2022

September 30, 2022

Nine Months Ended

September 30, 2021

Nine Months Ended

September 30, 2022

At-The-Market Offering Programs

The following is a summary of the shares issued under our former $ 500 million 2015 At-The-Market Offering Program (“2015 ATM Program”) and our current $ 1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”) for the three and six months ended June 30, 2022 and 2021 (in millions except average price per share):

The following is a summary of the shares issued under our former $ 500 million 2015 At-The-Market Offering Program (“2015 ATM Program”) and our current $ 1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”) for the three and nine months ended September 30, 2022 and 2021 (in millions except average price per share):

Average Net Price

3 unchanged sentences

Three Months Ended

June 30, 2021

September 30, 2021

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2021

Six Months Ended

June 30, 2022

September 30, 2022

Nine Months Ended

September 30, 2021

Nine Months Ended

September 30, 2022

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

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

We did not utilize the forward provisions under the 2021 ATM Program during the nine months ended September 30, 2022.

Accumulated Other Comprehensive Income (Loss)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Beginning balance

Translation (loss) gain

Translation loss

Realized (loss) gain

3 unchanged sentences

Beginning balance

Unrealized gain (loss)

Unrealized gain

Realized gain (1)

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Beginning balance

Unrealized gain (loss)

Unrealized gain

Ending balance

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income tax purposes.

As of June 30, 2022, one of our domestic TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 10.2 million.

Our domestic NOL carry-forward was fully reserved as of June 30, 2022, with a valuation allowance due to uncertainties regarding realization.

As of September 30, 2022, one of our domestic TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 10.2 million.

Our domestic NOL carry-forward was fully reserved as of September 30, 2022, with a valuation allowance due to uncertainties regarding realization.

Under current law, NOL carry-forwards generated up through December 31, 2017, may be carried forward for no more than 20 years, and NOL carry-forwards generated in taxable years ended after December 31, 2017, may be carried forward indefinitely.

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

September 30,

(in thousands)

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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NOTE 14 – STOCK-BASED COMPENSATION

The following is a summary of our stock-based compensation expense for the three and six months ended June 30, 2022 and 2021, respectively:

The following is a summary of our stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021, respectively:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Interest Rate

September 30,

(in thousands)

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

(1) Reflects the weighted average annual contractual interest rate on the mortgages at June 30, 2022.

Secured by real estate assets with a net carrying value of $ 531.0 million as of June 30, 2022.

(1) Reflects the weighted average annual contractual interest rate on the mortgages at September 30, 2022.

Secured by real estate assets with a net carrying value of $ 505.9 million as of September 30, 2022.

During the third quarter of 2022, we paid approximately $ 7.9 million to retire one mortgage loan guaranteed by HUD that was assumed in 2019 and had a fixed interest rate of 2.92 % per annum with a maturity date in 2051 .

The payoff included a $ 0.4 million prepayment fee which is included in loss on debt extinguishment on our Consolidated Statement of Operations.

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

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(5) Guaranteed by Omega OP.

(6) As of September 30, 2022, borrowings under Omega’s $ 1.45 billion senior unsecured multicurrency revolving credit facility consisted of £ 16.0 million British Pounds Sterling (“GBP”).

The applicable interest rate on the US Dollar tranche and on the GBP borrowings under the alternative currency tranche of the credit facility were 4.32 % and 3.51 % as of September 30, 2022, respectively.

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

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

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

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

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

As of June 30, 2022 and December 31, 2021, we were in compliance with all applicable covenants for our borrowings .

As of September 30, 2022 and December 31, 2021, we were in compliance with all applicable covenants for our borrowings .

NOTE 16 – DERIVATIVES AND HEDGING

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

As of June 30, 2022, we have five forward starting swaps with $ 400.0 million in notional value designated as cash flow hedges and six foreign currency forward contracts with £ 250.0 million (including the two new foreign currency forwards discussed below) in notional value designated as net investment hedges.

On May 17, 2022, we entered into two new foreign currency forward contracts with notional amounts totaling £ 76.0 million and a GBP-USD forward rate of 1.3071 , which mature on May 21, 2029 .

The currency forwards hedge a portion of our net investments in U.K.

As of September 30, 2022, we have five forward starting swaps with $ 400.0 million in notional value, indexed to 3-month LIBOR, that were issued at a weighted average fixed rate of 0.8675 % and are designated as cash flow hedges.

Additionally, we have six foreign currency forward contracts with £ 250.0 million in notional valued issued at a weighted average GBP-USD forward rate of 1.3641 (including the two new foreign currency forwards discussed below) that are designated as net investment hedges.

On May 17, 2022, we entered into two new foreign currency forward contracts with notional amounts totaling £ 76.0 million and a GBP-USD forward rate of 1.3071 , each of which mature on May 21, 2029 .

These currency forward contracts hedge a portion of our net investments in U.K.

subsidiaries and our U.K.

joint venture.

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

These interest rate swap contracts were designated as hedges against our exposure to changes in interest payment cash flow fluctuations in the variable interest rates on the OP term loan.

The location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:

The location and fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:

September 30,

Cash flow hedges:

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Net investment hedges:

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

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

NOTE 17 – FINANCIAL INSTRUMENTS

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

At June 30, 2022 and December 31, 2021, the net carrying amounts and fair values of our other financial instruments were as follows:

June 30, 2022

At September 30, 2022 and December 31, 2021, the net carrying amounts and fair values of our other financial instruments were as follows:

September 30, 2022

December 31, 2021

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The fair value of the senior unsecured notes payable was estimated based on (Level 1) publicly available trading prices.

● Subordinated debt:

The fair value of our borrowings under these agreements are estimated using a present value technique based on inputs from trading activity provided by a third-party (Level 2).

● HUD mortgages:

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District Court for the Southern District of New York (the “Securities Class Action”).

Brought by lead plaintiff Royce Setzer and additional plaintiff Earl Holtzman, the Securities Class Action purports to assert claims for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act, and seeks an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

Brought by lead plaintiff Royce Setzer and additional plaintiff Earl Holtzman, the Securities Class Action purports to assert claims for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act, and seeks monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

The Securities Class Action alleges that the defendants violated the Exchange Act by making materially false and/or misleading statements, and by failing to disclose material adverse facts about the Company’s business, operations, and prospects, including the financial and operating results of one of the Company’s operators, the ability of such operator to make timely rent payments, and the impairment of certain of the Company’s leases and the uncollectibility of certain receivables.

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Because the dismissed claims were the basis for defendants’ efforts to begin the alleged class period in February 2017, the decision means that the alleged class period runs from May 3, 2017 to October 31, 2017.

Following a mediation, the plaintiffs and defendants reached an agreement in principle in October 2022 on a settlement of the Securities Class Action.

The Company recorded a $ 31 million legal reserve related to the Securities Class Action in the third quarter of 2022, which is included within accrued expenses and other liabilities on the Consolidated Balance Sheets.

As the Company anticipates that the settlement proceeds will be paid by insurance, we concurrently recorded a receivable for $ 31 million within other assets on the Consolidated Balance Sheet, and consequently there is no impact to the Consolidated Statement of Operations related to this matter.

The settlement agreement in principle is subject to negotiation of a definitive settlement agreement, and also subject to the approval of the District Court.

The District Court has suspended deadlines under the Scheduling Order in the case, pending a definitive agreement and the court approval process.

Certain derivative actions have also been brought against the officers named in the Securities Class Action, and certain current and former directors of the Company, alleging claims relating to the matters at issue in the Securities Class Action.

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The case has been stayed pending the entry of judgment or a voluntary dismissal with prejudice in the Securities Class Action.

The Company believes that the claims asserted against it in these lawsuits are without merit and intends to vigorously defend against them.

The Company believes that the claims asserted against it in these lawsuits are without merit.

Gulf Coast Subordinated Debt

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

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

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

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

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

While Omega believes Omega Obligor is entitled to the enforcement of the offset rights sought in the action, the outcome of litigation is unpredictable, and Omega cannot predict the outcome of the declaratory judgment action, irrespective of whether it is litigated in the Court or, if the motion to dismiss for lack of personal jurisdiction is granted, in another court.

On November 2, 2022, the Court indicated its intention to grant the noteholders’ motion to dismiss for lack of personal jurisdiction.

A decision has not been made whether to appeal this order, if it is issued.

While Omega believes Omega Obligor is entitled to the enforcement of the offset rights sought in the action, Omega cannot predict the outcome of the declaratory judgment action, irrespective of whether it is ultimately litigated in the Court or, if the order granting the motion to dismiss for lack of personal jurisdiction is issued, or if it is issued and upheld on appeal in another court.

Lakeway Realty, L.L.C.

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

As of June 30, 2022, our maximum funding commitment under these indemnification agreements was approximately $ 5.6 million.

As of September 30, 2022, our maximum funding commitment under these indemnification agreements was approximately $ 3.9 million.

Claims under these indemnification agreements generally may be made within 18 months to 72 months of the transition date.

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

Our remaining commitments at June 30, 2022, are outlined in the table below (in thousands):

Our remaining commitments at September 30, 2022, are outlined in the table below (in thousands):

Construction and capital expenditure mortgage loan commitments

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Total remaining commitments (2)

(1) This amount includes the $ 90 million short-term revolving line of credit discussed in Note 6 – Other Investments.

(1) This amount includes $ 60.0 million related to the $ 90 million short-term revolving line of credit discussed in Note 6 – Other Investments.

(2) Includes finance costs .

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share amounts)

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NOTE 20 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

(in thousands)

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Non-cash placement of mortgages

Non-cash collection of mortgage principal

Non-cash proceeds from other investments

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Remeasurement of debt denominated in a foreign currency

NOTE 21 – SUBSEQUENT EVENTS

In the fourth quarter of 2022, the Company entered into three unsecured loans with principal amounts of $ 17.0 million, $ 2.5 million and $ 5.0 million.

The $ 17 million loan and $ 2.5 million loan bear interest at 9 % and mature on September 30, 2027 .

The $ 5.0 million loan bears interest at 10 % and matures on October 29, 2027 .

All three loans require quarterly principal payments commencing on January 3, 2022.

As discussed in Note 3 – Assets Held For Sale, Dispositions and Impairments and Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, in the fourth quarter of 2022 we sold 19 facilities that were leased and operated by Agemo in connection with our restructuring negotiations surrounding Agemo’s lease and loan agreements.

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

What changed 10-Q

Item 1. Financial Statements