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Item 7. Management’s Discussion and Analysis

2023-02-14 compared with 2022-02-17 · 204 added, 190 removed, 200 unchanged (66% of the section changed)

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Other important factors are identified in “Forward-Looking Statements” and “Item 1A – Risk Factors” above.

Overview and Outlook

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:

● Business Overview

● Outlook, Trends and Other Conditions

● 2022 and Recent Highlights

● Results from Operations

● Funds from Operations

● Liquidity and Capital Resources

● Supplemental Guarantor Information

● Critical Accounting Policies and Estimates

Business Overview

Omega Healthcare Investors, Inc.

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Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings (“MOBs”).

Our core portfolio consists of our long-term leases and mortgage loans with healthcare operating companies and affiliates (collectively, our “operators”).

All of our leases to our operators are “triple-net” leases, which require the operators to pay all property-related expenses.

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

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

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

Our core portfolio consists of our long-term leases and real estate loans with healthcare operating companies and affiliates (collectively, our “operators”).

Real estate loans consist of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien or a leasehold mortgage on, or an assignment of the partnership interest in the related properties.

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 non-real estate loans.

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

Our portfolio of investments at December 31, 2021, included 960 healthcare facilities, located in 42 states and the U.K.

Our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) at December 31, 2022, included 926 healthcare facilities, located in 42 states and the U.K.

that are operated by 67 third-party operators.

Our real estate investment in these facilities totaled approximately $9.5 billion at December 31, 2022, with approximately 97% of our real estate investments related to long-term healthcare facilities.

The portfolio is made up of (i) 685 SNFs, (ii) 133 ALFs, (iii) 20 ILFs, (iv) 16 specialty facilities, (v) two MOBs, (vi) fixed rate mortgages on 59 SNFs, two ALFs and two specialty facilities and (vii) 41 facilities that are held for sale.

At December 31, 2021, we held other investments of approximately $469.9 million, consisting primarily of secured loans to third-party operators of our facilities and $194.7 million of investments in six unconsolidated joint ventures.

The portfolio is made up of (i) 665 SNFs, (ii) 169 ALFs, (iii) 20 ILFs, (iv) 16 specialty facilities, (v) two MOBs, (vi) real estate loans, including mortgages on 48 SNFs, two ALFs and two specialty facilities and (vii) two facilities that are held for sale.

At December 31, 2022, we also held other real estate loans (excluding mortgages) receivable of $394.6 million and non-real estate loans receivable of $225.3 million, consisting primarily of secured loans to third-party operators of our facilities, and $178.9 million of investments in six unconsolidated joint ventures.

As healthcare delivery continues to evolve, we continuously evaluate potential investments, our assets, operators and markets to position our portfolio for long-term success.

Our strategy includes applying data analytics to our investment underwriting and asset management, as well as selling or transitioning assets that do not meet our portfolio criteria.

COVID-19 Pandemic Update

Outlook, Trends and Other Conditions

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

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

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

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

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

During the year ended December 31, 2021, Agemo, Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), Guardian Healthcare (”Guardian”) and one other operator either failed to make contractual rent or interest payments for a period or have informed us that they would be unable to pay us rent for the foreseeable future.

See “Portfolio and Recent Developments – Guardian” below.

In addition, on October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the U.S.

Bankruptcy Code.

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

As of December 31, 2021, we have placed six operators, inclusive of Gulf Coast, Guardian and the one other non-paying operator noted above, on a cash basis of revenue recognition during 2021 as collection of substantially all contractual lease payments with these six operators was no longer probable.

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

In connection with these developments, we wrote off approximately $36.0 million in aggregate of straight-line receivables and lease inducements to rental income for the year ended December 31, 2021 (in connection with the six operators placed on a cash basis during the year).

We have also have taken impairments of $83.4 million for the year ended December 31, 2021 in connection with loans outstanding with Agemo, Gulf Coast and Guardian, all of whom are non-paying operators.

The six operators that were placed on a cash basis during 2021 collectively represent 6.6% and 7.3%, respectively, of our total revenues (excluding the impact of the write-offs in 2021 and 2020) for the years ended December 31, 2021 and 2020.

We remain cautious as the COVID-19 pandemic continues to have a significant impact on our operators and their financial conditions, particularly given continued uncertainty regarding the availability of sufficient government support, the persistence of staffing shortages that continue to impact our operators’ occupancy levels and profitability, the impact of governmental vaccine mandates for staff on these ongoing staffing shortages, other factors that may impact virus transmission in our facilities, 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 January 26, 2022, our operators reported cases of COVID-19 within 713, or 75.5%, of our 944 operating facilities as of September 30, 2021, which includes cases involving employees and residents.

This represents a significant increase from the 263 facilities with cases, or 27.7%, of our 949 operating facilities, that our operators reported as of October 27, 2021.

Consistent with national trends, we experienced a slight downturn in the number of COVID-19 cases in our facilities from September to November of 2021, followed by a slight increase in December and a meaningful increase in January driven by new variants.

The January 2022 case counts are consistent with case rates that were experienced in January 2021, which represented an increase over the December 22, 2020 cases in 614 facilities, or 64% of our 959 operating facilities.

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

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

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

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

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

Notwithstanding these extensions, vaccination rates have increased in anticipation of the full implementation of the requirements and we expect them to further increase once such requirements are fully implemented.

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, the pandemic contributed to occupancy declines, labor shortages and cost increases which continue to significantly impact our operators.

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, lease and portfolio restructurings and/or allowed the application of security deposits or letters of credit to pay rent for several operators.

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 personal protective equipment (“PPE”), testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs.

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.

While these declines have generally improved on average during 2021, new variants have caused improvement in occupancy to stall towards the end of 2021 and average occupancy has not returned to pre-pandemic levels.

We remain cautious as the COVID-19 pandemic continues to have a significant impact on our operators and their financial conditions, particularly given the trend of reduced pandemic-related federal support to our operators beginning in 2021, the persistence of staffing shortages that continue to impact our operators’ occupancy levels and profitability, uncertainty as to whether Medicare and Medicaid reimbursement rates will be sufficient to address longer-term cost increases faced by operators, factors that may impact future virus transmission in our facilities, including vaccination rates and efficacy of the vaccine for staff members and residents at our facilities and genetic mutations of the virus into new variants, and the commencement in December 2021 of repayment of deferred FICA obligations.

We believe that the incidence and severity of COVID-19 among our operators’ residents and employees, based on reporting by our operators, tend to correlate with levels of incidence and severity experienced by the applicable community in which such operators’ are located, and it remains uncertain whether certain of our facilities will be impacted by future community spread of the virus.

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;

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

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

We believe these challenges to occupancy recovery may be in part due to staffing shortages, which in some cases have required operators to limit admissions, as well as COVID-19 related fatalities at the facilities, the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension and/or postponement of elective hospital procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs.

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

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

We believe further government support will be needed to continue to offset these impacts.

While substantial government support was allocated to SNFs and to a lesser extent to ALFs in 2020, federal relief efforts have been limited since 2021 as have been relief efforts in certain states.

The additional 6.2% FMAP reimbursement in connection with the pandemic is being phased out in 2023 pursuant to the Consolidated Appropriations Act of 2023 as further discussed under “Government Regulation – Reimbursement Changes Related to COVID-19” under “Item 1 – Business.” The additional 6.2% FMAP provided some of our operators with significant support, based on which states they are located in, and the phase out of such support may adversely affect their operations to the extent that expenses are not reduced or other support is not provided.

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

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

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

will ultimately support reimbursement to our operators.

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

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

In particular, while $25.5 billion in federal funding for healthcare providers impacted by COVID-19 was announced in September 2021 with distributions beginning in late 2021 pursuant to the Public Health and Social Services Emergency Fund (“Provider Relief Fund”), we do not expect additional Provider Relief Funds to be allocated to healthcare operators or our operators, and it remains uncertain whether additional Medicaid funds under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) or other changes in Medicare or Medicaid reimbursement rates in the U.S., or U.K.

reimbursement and relief programs for our U.K.

operators, 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 as scheduled on May 11, 2023 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 or that all states will address these items.

See the “Government Regulation and Reimbursement” section 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 or reimbursement rates that are sufficient and timely, we anticipate that the operating results of additional operators may be materially and adversely affected, some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable to restructure such obligations on terms as favorable to us as those currently in place.

There are a number of uncertainties we face as we consider the continuing impact of COVID-19 on our business, including how long census disruption and elevated COVID-19 costs will last, the ability of our operators to manage the impact of the termination of public health emergency and temporary relief thereunder, the continued efficacy of vaccination programs in reducing the spread and severity of COVID-19 in our facilities, the impact of genetic mutations of the virus into new variants on our facilities, and the extent to which funding support from the federal government, the states and the U.K.

will continue to offset these incremental costs as well as lost revenues.

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

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We continue to monitor the 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 in Item 1.

Business – Government Regulation and Reimbursement, including any significant limits on the scope of services reimbursed and on reimbursement rates and fees, which could have a material adverse effect on an operator’s results of operations and financial condition, which could adversely affect the operator’s ability to meet its obligations to us.

Other Trends and Conditions

In addition to the impacts of COVID-19 discussed above, our operations have also been and may continue to be impacted by increased competition for the acquisition of facilities in the U.S., which has decreased the number of investment opportunities that would be accretive to our portfolio.

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

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

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

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

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.

2022 and Recent Highlights

● We acquired 32 facilities for an aggregate consideration of $604.0 million during the year ended December 31, 2021.

● We acquired 41 facilities for an aggregate consideration of $225.2 million in 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%.

This includes the acquisition of 24 facilities from Healthpeak Properties, Inc.

(“Healthpeak”) for $511.3 million in the first quarter.

We also had $58.6 million of non-cash acquisitions of facilities previously subject to mortgage loans with Omega in which principal amounts under the loan agreements were reduced or settled in exchange for title to the facilities.

● We invested $140.0 million under our construction-in-progress and capital improvement programs during the year ended December 31, 2021.

This includes the purchase of a real estate property located in Washington, D.C.

in the third quarter for approximately $68.0 million that Omega, in conjunction with Maplewood Senior Living (along with affiliates, “Maplewood”), plans to redevelop into a 174-bed ALF and lease back to Maplewood.

● We financed $82.5 million of new mortgage loans for eight facilities with a weighted average interest rate of 10.3%.

In 2021, we also advanced $4.2 million under existing mortgage loans.

● We invested $64.4 million under our construction-in-progress and capital improvement programs in 2022.

● We financed $56.2 million of new real estate loans with a weighted average interest rate of 12% in 2022.

Our 2022 new real estate loans primarily relate to two new loans that we entered into during the year.

We also advanced $60.0 million under existing real estate loans in 2022.

● During 2022, Ciena Healthcare (“Ciena”) made $158.5 million of early principal payments under its mortgage loans.

In connection with the partial repayments, the maturity date of all the Ciena mortgage notes was extended to June 30, 2030 (with exception of two loans with an aggregate principal balance of $40.4 million with maturity dates in 2023).

Dispositions and Impairments

● In 2022, we sold 66 facilities for approximately $759.0 million in net cash proceeds, recognizing a net gain of approximately $360.0 million.

● In 2021, we recorded impairments on real estate properties of approximately $44.7 million on 14 facilities primarily as a result of reclassifying facilities to held for sale.

● In 2021, we terminated the Daybreak Ventures, LLC (“Daybreak”) master lease and fully exited our relationship after transitioning 14 Daybreak facilities to existing operators and selling the four remaining Daybreak facilities.

● In December 2021, we entered into an agreement to sell 22 facilities that were previously leased and operated by Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) for estimated gross proceeds of $317.5 million.

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

The sale is targeted to close on or around April 1, 2022.

See “Collectibility Issues” below for further developments related to Gulf Coast.

Our sales during 2022 were primarily driven by restructuring transactions associated with facilities formerly leased to the following operators:

Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) – 22 facilities, Guardian Healthcare (“Guardian”) – nine facilities, and Agemo Holdings, LLC (“Agemo”) – 22 facilities.

● In December 2022, in connection with restructuring negotiations with LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care ), we sold 11 facilities previously leased to LaVie for a sales price of $129.8 million.

Omega provided $104.8 million in senior seller financing, collateralized by first lien mortgages on the 11 facilities, to fund a portion of the purchase price.

The senior note has a December 29, 2027 maturity date and bears interest at 8% with required monthly interest payments (due in arrears beginning February 1, 2023), with no principal payments are due until the maturity date.

The remaining consideration received under the purchase agreement is the assumption of a $25.0 million liability, incurred by Omega as part of the transaction, by the buyer from Omega.

The 11-facility sale does not meet the contract criteria to be recognized as a sale for accounting purposes and we will continue to account for these facilities on our Consolidated Balance Sheets and depreciate the facilities until the sale recognition requirements are met.

A contract liability will be recognized on our Consolidated Balance Sheets within accrued expenses and other liabilities for the $25.0 million liability assumed, which will be relieved when the sale is recognized.

The loan receivable associated with the seller financing will not be recorded on our Consolidated Balance Sheets until the sale is recognized, and any cash interest received will be deferred and recorded as a contract liability within accrued expenses and other liabilities on our Consolidated Balance Sheets.

No interest income or gain or loss will be recognized until the sale recognition requirements are met.

● In 2022, we recorded impairments on real estate properties of approximately $38.5 million on 22 facilities.

Of the $38.5 million, $3.5 million related to two facilities that were classified as held for sale and $35.0 million related to 20 held-for-use facilities of which $17.2 million relates to 12 facilities leased to and operated by LaVie that are expected to be impacted by the on-going restructuring negotiations.

Financing Activities

● On March 10, 2021, the Company issued $700 million aggregate principal amount of its 3.250% Senior Notes due 2033.

The notes were sold at a public offering price of 99.304% of their face value before the underwriters’ discount.

The Company’s net proceeds from the offering were used to repay $350 million of aggregate principal of our 4.375% Senior Notes due 2023 on March 18, 2021 and partially repay borrowings under the Company’s then outstanding revolving credit facility and term loans.

As a result of the notes retirement, the Company recorded approximately $30.8 million in early extinguishment of debt charges.

● On April 30, 2021, the Company entered into a new four-year $1.45 billion senior unsecured credit facility (the “Revolving Credit Facility”).

The Revolving Credit Facility replaced a $1.25 billion senior unsecured credit facility that was scheduled to mature on May 25, 2021.

● On April 30, 2021, the Company’s operating partnership subsidiary entered into a new four-year $50 million senior unsecured term loan facility (the “OP Term Loan”).

The OP Term Loan replaced a $50 million senior unsecured term loan that was scheduled to mature on May 25, 2022.

● On May 13, 2021, we established a $1.0 billion at-the-market program (the “2021 ATM Program”) to sell shares of our common stock from time to time in an at-the-market offering.

The 2021 ATM Program replaced our $500 million Equity Shelf Program that was entered into in 2015 (the “2015 ATM Program”).

● We sold 7.6 million shares of common stock under our 2015 ATM Program, 2021 ATM Program and Dividend Reinvestment and Common Stock Purchase Plan (“DRSPP”) during the year ended December 31, 2021.

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

For the year ended December 31, 2022, we repurchased 5.2 million shares of our outstanding common stock at an average price of $27.32 per share.

● We sold 0.3 million shares of common stock under our Dividend Reinvestment and Common Stock Purchase Plan (“DRSPP”) during the year ended December 31, 2022.

Aggregate net proceeds from these sales generated $9.2 million during 2022.

Other Highlights

● 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 2021, we made $62.1 million of new other investment loans with a weighted average interest rate of 9.3%.

In 2021, we also advanced $88.4 million under existing other investment loans.

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

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

Through our investment, we obtained preferred shares representing 5% of the outstanding equity of SafelyYou and warrants to purchase SafelyYou common stock representing an additional 5% of outstanding equity as of the date of our investment, which are subject to vesting conditions based on SafelyYou’s deployment of our invested capital to support Omega facilities and operators.

As part of our investment strategy, we will continue to evaluate investments in companies that provide complementary products and services that improve the quality of our facilities and allow our operators to improve care.

● During 2022, we made $126.1 million of new non-real estate loans with a weighted average interest rate of 10.2%.

We also advanced $124.8 million under existing non-real estate loans.

Of the $124.8 million, an aggregate $105.9 million related to two revolving working capital loans that also had aggregate repayments of $80.0 million during 2022.

● In 2022, Omega was 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 second quarter of 2021, Gulf Coast stopped paying contractual rent under its master lease agreement for 24 facilities because of on-going liquidity issues.

On October 14, 2021, Gulf Coast commenced voluntary cases under chapter 11 of the U.S.

Bankruptcy Code.

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

Subsequent to placing Gulf Coast on a cash basis of revenue recognition in June 2021, we recognized $24.6 million of contractual rent during the remaining period of 2021, based on our ability to offset any uncollected rent receivables against Gulf Coast’s security deposit and against certain debt obligations of Omega.

In connection with the bankruptcy, we agreed to provide up to $25.0 million in senior secured debtor-in-possession (“DIP”) financing to Gulf Coast, subject to certain conditions, to provide liquidity and assist with the transition of operations in our 23 open facilities.

Operations of the 23 open facilities were transitioned to a new manager on December 1, 2021 for an interim period until the license for the facilities could be obtained by a new operator.

In the fourth quarter of 2021, we funded $20.5 million under the DIP facility and fully reserved for the loan principal through the provision for credit losses.

During the Interim Period, no rent is being paid by Gulf Coast, and we have provided a $20.0 million working capital loan to the new manager, discussed in further detail in Note 8 – Other Investments to our Consolidated Financial Statements.

● From August 2021 through October 2021 and December 2021, Agemo Holdings, LLC (“Agemo”) failed to pay contractual rent and interest due under their lease and loan agreements, but paid rent and interest in November 2021.

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

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

During the third and fourth quarters of 2021, we recorded $8.7 million of revenue by collecting rental and interest payments and we recorded $8.5 million of revenue by drawing on the letter of credit and through application of the security deposit balance.

● From October 2021 through December 2021, Guardian Healthcare (“Guardian”) failed to make contractual rent and interest payments under its lease agreement for 26 operating facilities and on its $112.5 million mortgage loan agreement, bearing interest at 10.81%, for nine facilities, due to ongoing liquidity issues.

As a result of Guardian’s non-payment of contractual rent, in the fourth quarter of 2021, we placed Guardian on a cash basis of revenue recognition and wrote off approximately $14.0 million of straight-line rent receivables and lease inducements through rental income.

As of December 31, 2021, we have $7.4 million of letters of credit from Guardian as collateral which could be applied against our uncollected rent and interest receivables.

On December 30, 2021, we acquired two facilities, previously subject to the Guardian mortgage loan, in consideration for a reduction of $8.7 million in the mortgage principal and added the facilities to the master lease agreement.

During the fourth quarter of 2021, we concluded that the $112.5 million first mortgage loan was impaired.

We recorded a provision for credit loss of $38.2 million during the fourth quarter of 2021 to reduce the carrying value of this loan to the fair value of the underlying collateral.

See Note 9 – Allowance for Credit Losses to our Consolidated Financial Statements.

● In addition to the Gulf Coast and Guardian straight-line receivable write-offs in 2021 discussed above, during the year ended December 31, 2021, we wrote off straight-line rent receivable balances of $5.9 million through rental income primarily due to placing four other operators (one operator in the first quarter, two operators in the third quarter and one operator in the fourth quarter) on a cash basis of revenue recognition.

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

● In January and February 2022, an operator, representing 3.4% of total revenue (excluded the impact of write-offs) for the year ended December 31, 2021, did not pay its contractual amounts due under its lease agreement.

The operator asked for a short-term rent deferral and negotiations with the operator are on-going.

Omega holds a $1.0 million letter of credit 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, as discussed further in Note 8 – Other Investments to our Consolidated Financial Statements.

● On January 27, 2022, the Board of Directors declared a cash dividend for the quarter ended December 31, 2021 of $0.67 per share.

● During the year ended December 31, 2022, we placed nine operators on a cash basis of revenue recognition.

These include LaVie, Maplewood Senior Living (along with affiliates, “Maplewood”), and operators representing 0.4% (“0.4% Operator”), 1.2% (“1.2% Operator”) and 2.0% (“2.0% Operator”) of total revenue (excluding the impact of write-offs), respectively, for the year ended December 31, 2022.

In connection with placing these operators on a cash basis, we recognized $119.8 million in total straight-line accounts receivable write-offs through rental income.

As of December 31, 2022, 20 operators are on a cash basis.

These operators represent an aggregate 36.5% of our total revenues (excluding the impact of write-offs) for the year ended December 31, 2022.

● During the year ended December 31, 2022, we allowed ten operators to defer $27.0 million of contractual rent and interest.

The deferrals primarily related to the following operators:

Agemo, Guardian, the 3.7% Operator (defined below) and the 1.2% Operator.

Additionally, we allowed seven operators to apply collateral, such as security deposits or letters of credit, to contractual rent and interest during the year ended December 31, 2022.

The total collateral applied to contractual rent and interest was $11.0 million for the year ended December 31, 2022.

These applications of collateral to contractual rent and interest primarily relate to the 2.0% Operator and the 1.2% Operator.

● Agemo, a cash basis operator, continued to not pay contractual rent and interest due under its lease and loan agreements during the year ended December 31, 2022.

We have not recorded any rental income or interest income related to Agemo during the year ended December 31, 2022.

Subsequent to year end, we entered into a restructuring agreement with Agemo.

See Note 5 – Contractual Receivables and Other Receivables and Lease Inducements to the Consolidated Financial Statements - Part I, Item 15 hereto for additional details.

● Guardian did not make rent and interest payments under its lease and loan agreements during the first quarter of 2022, but it resumed making contractual rent and interest payments during the second quarter of 2022, and it continued making such payments in the third and fourth quarters 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 $11.3 million for the year ended December 31, 2022 for contractual rent payments that were received.

Additionally, Guardian’s mortgage loan is on non-accrual status and is being accounted for under the cost recovery method and therefore the $6.0 million of interest payments that we received during the year ended December 31, 2022 were applied directly against the principal balance outstanding.

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 things, allow for the retrospective deferral of $18.0 million of aggregate contractual rent and interest, with repayment required after September 30, 2024, and reduce the combined rent and mortgage interest to an aggregate of $24.0 million per year effective as of July 1, 2022.

● In the fourth quarter of 2022, Omega began the process of restructuring our portfolio with LaVie, which primarily consists of two master lease agreements and two term loan agreements.

On December 30, 2022, we sold 11 facilities previously subject to one of two lease agreements with LaVie.

See further discussion on the sale and the accounting treatment in Dispositions and Impairments above.

Concurrent with the sale, we also amended the lease agreement impacted by the sale and our loan agreements with LaVie.

As part of the lease amendments, Omega agreed to, among other terms, remove the 11 sold facilities from the lease agreement and reduce monthly contractual rent from $8.3 million to $7.3 million.

We amended the loans to, among other terms, extend the loan maturities to November 30, 2036 to align with the lease term, and starting in January 2023, reduce the interest rates to 2%, remove the requirement to make any principal payments until the maturity dates and to convert from monthly cash interest payments to interest paid-in-kind.

The restructuring discussions are still ongoing and subject to change, but we anticipate additional restructuring activity related to this operator in 2023.

As a result of the restructuring activities during 2022 and future expected restructuring activities, during the fourth quarter of 2022, we placed LaVie on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was deemed no longer probable.

As a result, we wrote-off approximately $58.0 million of straight-line rent receivables and lease inducements to rental income during the fourth quarter of 2022.

In the first quarter of 2023, as part of the restructuring, we have agreed to a partial rent deferral in the first four months of 2023.

In doing so, we agreed to allow LaVie to defer up to $10.0 million of contractual rent from January 2023 through April 2023 under one of our lease agreements for 32 facilities.

Omega is in discussions to allow LaVie to defer up to $9.1 million of contractual rent from January 2023 through April 2023 under another lease agreement for 41 facilities.

In January 2023, as a result, LaVie deferred the full contractual payment of $2.5 million under the 32-facility lease and paid $2.5 million of the $4.7 million of contractual rent due under the 41-facility lease.

● During the fourth quarter of 2022, we placed Maplewood on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was deemed no longer probable based on the proposed restructuring of our lease and loan agreements with Maplewood.

As a result, we wrote-off approximately $29.3 million of straight-line rent receivables and lease inducements to rental income during the fourth quarter of 2022.

Subsequent to year end, we entered into a restructuring agreement with Maplewood.

See Note 5 - Contractual Receivables and Other Receivables and Lease Inducements to the Consolidated Financial Statements - Part I, Item 15 hereto for additional details surrounding the restructuring.

● In December 2022, we agreed to allow Healthcare Homes Limited (“Healthcare Homes”), a U.K.

based operator, the ability to defer up to £6.7 million of contractual rent from January 2023 through April 2023 with regular payments scheduled to resume in May 2023.

The deferred rent balance accrues interest monthly at a rate of 8% per annum and must be fully repaid by December 31, 2024.

Healthcare Homes has had near-term liquidity issues in connection with increased staffing and utility costs.

Healthcare Homes remains current as of December 31, 2022 and is on a straight-line basis of revenue recognition.

● From January through March 2022, an operator (the “3.7% Operator”) representing 3.7% of total revenue (excluding the impact of write-offs) for the year ended December 31, 2022, 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 3.7% Operator paid the contractual amount due under its lease agreement from April through December 2022.

Omega holds a $1.0 million letter of credit and a $150 thousand security deposit from the 3.7% Operator.

The 3.7% Operator remains current on its $25.0 million revolving credit facility, which is fully drawn as of December 31, 2022 and is secured by a first lien on the 3.7% Operator’s accounts receivable.

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

● Quarterly cash dividends paid during 2022 aggregated to $2.68 per share.

On January 26, 2023, the Board of Directors declared a cash dividend of $0.67 per share.

The dividend will be paid on February 15, 2023 to stockholders of record as of the close of business on February 6, 2023.

Results of Operations

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For a discussion of our results of operation for the year ended December 31, 2021 as compared to the year ended December 31, 2020, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).

Our revenues for the year ended December 31, 2021 totaled $1.1 billion, an increase of $170.4 million over the same period in 2020.

Comparison of results of operations for the years ended December 31, 2022 and 2021 (dollars in thousands):

Year Ended December 31,

Increase/(Decrease)

Rental income

Income from direct financing leases

Interest income

Miscellaneous income

Depreciation and amortization

General and administrative

Real estate taxes

Acquisition, merger and transition related costs

Impairment on real estate properties

Recovery on direct financing leases

Provision for credit losses

Interest expense

Other income (expense):

Other expense – net

Loss on debt extinguishment

Gain on assets sold – net

Income tax expense

Income from unconsolidated joint ventures

Following is a description of certain of the changes in revenues for the year ended December 31, 2022 compared to 2021:

● Rental income was $923.7 million, an increase of $170.3 million over the same period in 2020.

The increase was primarily the result of (i) $109.3 million increase due to a net reduction in straight-line rent receivable and lease inducement write-offs in 2021 following significant write-offs associated with Agemo and Genesis in the third quarter of 2020 as a result of placing these operators on a cash basis for revenue recognition, (ii) a $101.4 million increase related to facility acquisitions made in 2021 (primarily the 24 facilities acquired from Healthpeak in the first quarter), the completion of the construction of certain facilities that were placed in service in 2021 (primarily related to developmental projects with Maplewood), and incremental revenue as a result of transitioning facilities previously associated with Daybreak to other operators, (iii) a $7.7 million increase related to Gulf Coast as a result of accelerating rent due to a default under its master lease agreement and (iv) a $5.5 million one-time rent payment from a cash basis operator for past due contractual amounts owed under its lease agreement partially offset by a (a) $49.5 million decrease in rental income resulting from not recording straight-line rent for operators placed on a cash basis for revenue recognition in 2020 and 2021 and resulting from facility sales and (b) $4.7 million decrease related to the acceleration of the amortization of in-place lease intangibles resulting from facility transitions and lease terminations.

● Mortgage interest income totaled $91.7 million, an increase of $2.2 million over the same period in 2020.

The increase was primarily due to new and refinanced mortgages and additional funding to existing operators made throughout 2020 and 2021, offset by principal payments.

As noted above, in 2021, we funded $86.7 million for new or existing mortgages loans.

Our expenses for the year ended December 31, 2021, totaled $777.0 million, an increase of approximately $42.0 million over the same period in 2020.

● The decrease in rental income was primarily the result of (i) a $85.7 million decrease as a result of a net increase in straight-line rent receivable and lease inducement write-offs in 2022 primarily due to placing operators LaVie, Maplewood and seven other operators on a cash basis for revenue recognition due to collectibility concerns, (ii) a $67.2 million net decrease in rental income from 13 cash basis operators, including Agemo, as a result of not recording straight-line lease revenue and/or receiving less cash rent payments period over period from these operators, (iii) a $36.8 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 and April 2022 and (iv) a $7.1 million decrease related to facility sales, transitions and lease terminations , partially offset by (i) a $18.3 million increase related to facility acquisitions made in 2022 and (ii) a $3.1 million increase related to a lease extension with one operator.

● The decrease in interest income was primarily due to (i) a $17.0 million decrease related to principal payments received during 2021 and 2022, including those on the Ciena mortgage loans discussed above, and (ii) a $12.4 million decrease related to loans placed on non-accrual status, primarily the Guardian mortgage loan, during 2021 and 2022, partially offset by a $16.9 million increase related to new and refinanced loans and additional funding to existing operators made throughout 2021 and 2022.

As noted above, in 2022, we funded $116.2 million for new or existing real estate loans and $250.9 million for new or existing non-real estate loans.

Following is a description of certain of the changes in our expenses for the year ended December 31, 2022 compared to 2021:

● Our depreciation and amortization expense was $342.0 million for the year ended December 31, 2021, compared to $329.9 million for the same period in 2020.

The increase primarily relates to the timing of facility acquisitions and capital expenditures, partially offset by a reduction in depreciation expense related to facility sales and facilities reclassified to assets held for sale.

● Our general and administrative (“G&A”) expense was $64.6 million, compared to $59.9 million for the same period in 2020.

The increase primarily related to (i) a $2.6 million increase in stock-based compensation expense (see Note 19 – Stock-Based Compensation to the Consolidated Financial Statements for a full summary of stock-compensation movements over the last three years) and (ii) a $1.6 million increase in professional service costs related to the Gulf Coast bankruptcy and related matters.

● Our impairment on real estate properties was $44.7 million, compared to $72.5 million for the same period in 2020.

The 2021 impairments primarily related to 14 facilities to reduce their net book value to their estimated fair value less costs to sell or fair value.

The 2020 impairments primarily related to 25 facilities to reduce their net book value to their estimated fair value less costs to sell or fair value.

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

● The increase in general and administrative (“G&A”) expense primarily relates to a $5.9 million increase in stock-based compensation expense (see Note 19 – Stock-Based Compensation to the Consolidated Financial Statements for a full summary of stock-compensation movements over the last three years) partially offset by a $2.6 million decrease in payroll and benefits and severance expenses.

● The increase in acquisition, merger and transition related costs primarily relates to costs incurred related to the transition of facilities with LaVie (as discussed further in “Collectibility Issues” above) and other troubled operators.

● 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 20 held-for-use facilities for which the carrying value exceeded the fair value.

The 2021 impairments were recognized in connection with 13 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 because of the closure of the facility in the first quarter.

The 2022 and 2021 impairments were primarily the result of decisions to exit certain non-strategic facilities and/or operators.

● Our recovery on direct financing leases was approximately $0.7 million, compared to $3.1 million for the same period in 2020.

Our recovery on direct financing leases primarily relates to the Orianna Health Systems bankruptcy and proceeds received from the Trust (See Note 6 – Leases to the Consolidated Financial Statements for further information regarding Orianna Health Systems).

● Our $39.7 million increase in provision for credit losses primarily relates to increase in the amount of specific reserves recorded against loans in 2021 compared to 2020.

In 2021, we recorded provisions of $16.7 million (in the third quarter) related to Agemo’s loans, $20.0 million (in the fourth quarter) related to the Gulf Coast DIP facility, and $38.2 million (in the fourth quarter) related to Guardian’s mortgage loan.

In 2020, we recorded provisions of $22.7 million against Agemo’s loans.

● Our interest expense was $234.6 million, compared to $223.4 million for the same period in 2020.

The increase primarily related to (i) interest on the $700 million senior notes issued in the fourth quarter of 2020 and (ii) interest on the $700 million senior notes issued in the first quarter of 2021, partially offset by the retirement of our previous $425 million senior unsecured U.S.

Dollar term loan facility and our previous $250 million senior unsecured term loan facility in the fourth quarter of 2020, the partial paydown of our previous $50 million senior unsecured term loan obtained in 2017 in the fourth quarter of 2020, the redemption of $350 million of the 4.375% Senior Notes due 2023 and the repayment of outstanding borrowings on the 2017 Revolving Credit Facility and the Sterling term loan in the first quarter of 2021 and lower average borrowings under the Revolving Credit Facility.

● The decrease in provision for credit losses primarily relates to a net decrease in aggregate specific provisions recorded in 2022 compared to specific provisions recorded in 2021, partially offset by increases in the general reserve recorded primarily resulting from increases in loss rates utilized in the estimate of expected losses for loans (see Note 9 – Allowance for Credit Losses to the Consolidated Financial Statements for a full summary of allowance movements over the last three years).

Other Income (Expenses)

For the year ended December 31, 2021, total other income was $130.3 million, an increase of approximately $125.4 million over the same period in 2020.

The increase was primarily due to a $142.5 million increase in gain on assets sold – net resulting from the sale of 48 facilities and 43 facilities during 2021 and 2020, respectively, as we continue to exit certain facilities, operator relationships and/or states to improve the strength of our overall portfolio, offset by a $30.8 million loss on debt extinguishment primarily resulting from fees, premiums, and expenses related to the redemption of $350 million of the 4.375% Senior Notes due 2023 during the first quarter of 2021.

The increase in total other income (expense) was primarily due to (i) a $198.3 million increase in gain on assets sold resulting from the sale of 66 facilities in 2022 compared to the sale of 48 facilities in 2021 as we continue to exit certain facilities, operator relationships and/or states to improve the strength of our overall portfolio and (ii) a $30.4 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.

Income Tax Expense

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As of December 31, 2022, one of our TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $10.2 million.

The loss carry-forward is fully reserved as of December 31, 2021 with a valuation allowance due to uncertainties regarding realization.

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

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) modified the NOL carryback rules to permit the use of NOLs arising after December 31, 2017 and before January 1, 2021 to be carried back to recover taxes paid in prior tax periods.

We do not anticipate that such changes will materially impact the computation of Omega’s taxable income, or the taxable income of any Omega entity, including our TRSs.

We also do not expect that Omega or any Omega entity, including our TRSs, will realize a material tax benefit as a result of the changes to the provisions of the Code made by the CARES Act.

Also, in connection with the acquisition of one U.K.

entity in the first quarter of 2022, we acquired foreign net operating losses of $55.0 million resulting in an NOL deferred tax asset of $13.4 million (see Note 3 – Real Estate Asset Acquisitions and Development and Note 17 – Taxes).

The $10.2 million NOL carry-forward was fully reserved as of December 31, 2022, with a valuation allowance due to uncertainties regarding realization.

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

For the year ended December 31, 2022, we recorded approximately $1.2 million of federal, state and local income tax provision and approximately $3.4 million of tax provision for foreign income taxes.

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Income from Unconsolidated Joint Ventures

For the year ended December 31, 2021, income from unconsolidated joint ventures was $16.1 million, an increase of approximately $9.9 million over the same period in 2020.

The increase was primarily due to one of the joint ventures realizing a $14.9 million gain on sale of real estate investments during 2021.

National Association of Real Estate Investment Trusts Funds From Operations

The decrease in income from unconsolidated joint ventures was primarily due to one of the joint ventures realizing a $14.9 million gain on sale of real estate investments during 2021.

Funds From Operations

We use funds from operations (“Nareit FFO”), a non-GAAP financial measure, as one of several criteria to measure the operating performance of our business.

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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 years ended December 31, 2021 and 2020:

The following table presents our Nareit FFO reconciliation for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

9 unchanged sentences

Add back unrealized loss on warrants

(1) The year ended December 31, 2021 includes the application of $11.8 million of Agemo and Gulf Coast security deposits (letter of credit and cash deposits) in revenue.

(1) The years ended December 31, 2022 and 2021 include the application of $11.0 million and $11.8 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

(2) The year ended December 31, 2021 includes $21.3 million of revenue related to Gulf Coast recognized based on our ability to offset uncollected rent against the interest and principal of certain debt obligations of Omega.

The $194.7 million decrease in Nareit FFO for the year ended December 31, 2022 compared to 2021 is primarily driven by the overall decrease in total revenue, which is discussed in more detail in the Results of Operations above.

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 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).

Our primary sources of cash include rental income and interest payment receipts on our loans, existing availability under our Revolving Credit Facility, proceeds from our DRSPP and the 2021 ATM Program, facility sales, and proceeds from mortgage and other investment payoffs.

We anticipate that these sources will be adequate to meet our principal cash flow needs through the next twelve months, which include:

funding dividends and distributions to our stockholders and non-controlling interest members, making debt service payments (including principal and interest), funding real estate investments (including facility acquisitions, capital improvement programs and other capital expenditures), funding new and committed loan investments and paying 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 December 31, 2021, we had total assets of $9.6 billion, total equity of $4.1 billion and total net debt of $5.3 billion, with such debt representing approximately 56.4% of total capitalization.

At December 31, 2022, we had total assets of $9.4 billion, total equity of $3.8 billion and total debt of $5.3 billion, with such debt representing approximately 58.4% of total capitalization.

At December 31, 2022, the weighted-average annual interest rate of our debt was 4.1%.

Additionally, as of December 31, 2021, 100% of our debt with outstanding principal balances has fixed interest payments (when considering the impact of cash flow hedges).

Additionally, as of December 31, 2022, 98% of our debt with outstanding principal balances has fixed interest payments.

Our high percentage of fixed interest debt has kept our interest expense relatively flat year over year despite rising interest rates.

As of December 31, 2022, Omega’s debt obligations consisted of the following:

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The Revolving Credit Facility matures on April 30, 2025, subject to Omega’s option to extend such maturity date for two six-month periods.

As of December 31, 2021, Omega had no borrowings on the Revolving Credit Facility.

As of December 31, 2022, Omega had $19.2 million outstanding on the Revolving Credit Facility.

● A $50.0 million OP Term Loan that bears interest at LIBOR plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings.

The interest on the OP Term Loan is effectively fixed at 3.29%, as we have interest rate swaps that effectively hedge the interest payments on this loan.

The OP Term Loan matures on April 30, 2025, subject to Omega OP’s option to extend such maturity date for two six-month periods.

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These notes bear fixed interest rates between 3.25% and 5.25% per annum.

● $362.1 million of secured borrowings consisting of HUD Mortgages and a term loan.

● $366.6 million of secured borrowings consisting of HUD Mortgages and two term loans.

We had $344.7 million of outstanding HUD Mortgages as of December 31, 2022, with weighted average interest rates of 3.01% per annum that mature from 2046 to 2052.

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

As of December 31, 2022 we have five forward starting swaps totaling $400 million that are indexed to 3-month LIBOR.

We designated the forward starting swaps as cash flow hedges of interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt.

The swaps are effective on August 1, 2023 and expire on August 1, 2033 and were issued at a weighted average fixed rate of approximately 0.8675%.

The fair value associated with these swaps was $93.0 million as of December 31, 2022.

At December 31, 2022, we had 234.3 million shares of common stock outstanding and our shares had a market value of $6.5 billion.

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In addition, such distributions are required to be made pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that such class is entitled to such a preference.

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.

In 2021, we paid dividends of $637.6 million to our common stockholders.

The Board has declared common stock dividends as set forth below:

February 8, 2021

February 16, 2021

August 2, 2021

August 13, 2021

November 5, 2021

November 15, 2021

February 7, 2022

February 15, 2022

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

Material Cash Requirements

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(1) The $5.3 billion of debt outstanding includes:

(i) $50 million under the OP Term Loan due April 2025, (ii) $350 million of 4.375% Senior Notes due August 2023, (iii) $400 million of 4.95% Senior Notes due April 2024, (iv) $400 million of 4.50% Senior Notes due January 2025, (v) $600 million of 5.25% Senior Notes due January 2026, (vi) $700 million of 4.5% Senior Notes due April 2027, (vii) $550 million of 4.75% Senior Notes due January 2028, (viii) $500 million of 3.625% Senior Notes due October 2029, (ix) $700 million of 3.375% Senior Notes due February 2031, (x) $700 million of 3.25% Senior Notes due April 2033, (xi) $2.3 million of 3.75% per annum debt held at a consolidated joint venture due February 2022 and (xii) $360 million of HUD debt at a 3.01% weighted average interest rate due between 2046 and 2052.

Other than the $50 million outstanding under the OP Term Loan, the $360 million of HUD debt and the $2.3 million of debt held at a consolidated joint venture, Parent is the obligor of all outstanding debt.

(i) $50 million under the OP Term Loan due April 2025, (ii) $350 million of 4.375% Senior Notes due August 2023, (iii) $400 million of 4.95% Senior Notes due April 2024, (iv) $400 million of 4.50% Senior Notes due January 2025, (v) $600 million of 5.25% Senior Notes due January 2026, (vi) $700 million of 4.5% Senior Notes due April 2027, (vii) $550 million of 4.75% Senior Notes due January 2028, (viii) $500 million of 3.625% Senior Notes due October 2029, (ix) $700 million of 3.375% Senior Notes due February 2031, (x) $700 million of 3.25% Senior Notes due April 2033, (xi) $2.2 million of 8.0% per annum debt held at a consolidated joint venture due February 2023, (xii) $19.8 million of 9.63% per annum debt held at a consolidated joint venture due February 2024 and (xiii) $344.7 million of HUD debt at a 3.01% weighted average interest rate due between 2046 and 2052.

Other than the $50 million outstanding under the OP Term Loan, the $344.7 million of HUD debt and the $22.0 million of debt held at consolidated joint ventures, Parent is the obligor of all outstanding debt.

(2) In connection with the adoption of Topic 842, we recognized lease liabilities in connection with ground and/or facility leases.

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We recognize rental income for ground and/or facility leases where the operator reimburses us, or pays the obligation directly to the landlord on our behalf.

Capital Expenditures and Funding Commitments

In addition to the obligations in the table above, as of December 31, 2022, we also had $210.9 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

Additionally, we have commitments to fund $50.1 million of advancements under existing other investment loans.

Additionally, we have commitments to fund $71.4 million of advancements under existing non-real estate loans.

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

Other Arrangements

We own interests in certain unconsolidated joint ventures as described in Note 11 to the Consolidated Financial Statements.

We own interests in certain unconsolidated joint ventures as described in Note 11 to the Consolidated Financial Statements – Investments in Joint Ventures.

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

We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 to the Consolidated Financial Statements.

We also hold variable interests in certain unconsolidated entities through our loan and other investments.

See disclosures regarding our risk of loss associated with these entities with Note 10 to the Consolidated Financial Statements – Variable Interest Entities.

We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 to the Consolidated Financial Statements – Derivatives and Hedging.

We have seen significant increases in fair value of our hedging instruments in 2022, primarily due to macroeconomic factors impacting interest rates and foreign currency rates.

Cash Flow Summary

The following is our discussion of our consolidated cash flows for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The following is a summary of our sources and uses of cash flows for the year ended December 31, 2022 as compared to the year ended December 31, 2021 (dollars in thousands):

Year Ended December 31,

Increase/(Decrease)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

For a discussion of our consolidated cash flows for the year ended December 31, 2021 as compared to the year ended December 31, 2020, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K .

Cash, cash equivalents and restricted cash totaled $24.4 million as of December 31, 2021, a decrease of $143.1 million as compared to the balance at December 31, 2020.

Cash, cash equivalents and restricted cash totaled $300.6 million as of December 31, 2022, an increase of $276.2 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 $722.1 million of net cash flow for the year ended December 31, 2021, as compared to $708.3 million for the same period in 2020, an increase of $13.9 million, which is primarily driven by an increase of $77.8 million of net income, adjusted for non-cash items, due to revenue growth as a result of facility acquisitions and transitions, investments in mortgages and other investments.

This increase was partially offset by a $63.9 million change in the net movements of the operating assets and liabilities, primarily driven by the change in receivables driven by operator collectibility issues with Agemo, Guardian and Gulf Coast.

Investing Activities – Net cash flow from investing activities was an outflow of $524.2 million for the year ended December 31, 2021, as compared to an outflow of $89.1 million for the same period in 2020.

The $435.1 million change in cash used by investing activities related primarily to (i) a $510.2 million increase in real estate acquisitions, primarily related to the acquisition of 24 senior living facilities from Healthpeak in the first quarter of 2021, (ii) $8.0 million increase in investments in unconsolidated joint ventures primarily related to Second Spring II LLC, a new joint venture investment in 2021, (iii) a $33.8 million increase in capital improvements to real estate investments and construction in progress (including $68.0 million related to the purchase of a real estate property located in Washington, D.C.

that Omega, in conjunction with Maplewood, plans to redevelop), (iv) a $35.6 million increase in other investments, net of repayments driven by lower repayments in 2021 and (v) a $14.7 million decrease in proceeds from sale of direct financing lease assets and related trust related to Orianna.

Operating Activities –The decrease in net cash provided by operating activities is primarily driven by a decrease of $144.9 million of net income, net of $155.4 million of non-cash items, primarily due to a year over year reduction in rental income and interest income, as discussed in our material changes analysis under Results of Operations above.

The decrease was partially offset by a $48.4 million change in the net movements of the operating assets and liabilities.

Investing Activities –The change in cash used in investing activities related primarily to (i) a $440.5 million increase in proceeds from the sales of real estate investments driven by an attractive real estate market in which Omega elected to sell non-strategic assets, (ii) a $391.6 million decrease in real estate acquisitions, primarily related to the acquisition of 24 senior living facilities from Healthpeak in the first quarter of 2021, (iii) a $75.7 million decrease in capital improvements to real estate investments and construction in progress (including $68.0 million related to the purchase of a real estate property located in Washington, D.C.

in the third quarter of 2021 that Omega, in conjunction with Maplewood, plans to redevelop), (iv) a $68.9 million increase in loan repayments, net of placements which is primarily driven by higher repayments in 2022 and (v) a $10.4 million decrease in investments in unconsolidated joint ventures primarily related to Second Spring II LLC, a new joint venture investment in 2021.

Offsetting these changes were:

(i) a $11.1 million decrease in mortgage placements, net of repayments which is primarily driven by higher repayments in 2021, (ii) $137.7 million increase in proceeds from the sales of real estate investments driven by an attractive real estate market in which Omega elected to sell non-strategic assets, (iii) a $5.1 million decrease in business acquisitions and (iv) a $5.1 million increase in receipts from insurance proceeds.

Financing Activities – Net cash flow from financing activities was an outflow of $341.1 million for the year ended December 31, 2021, as compared to an outflow of $485.5 million for the same period in 2020.

The $144.4 million change in cash used in financing activities was primarily related to (i) a $82.8 million change in other long-term borrowings – net which is the result of greater additional long-term borrowings in 2021 (including the issuance of $700 million 3.25% Senior Notes due in 2033) as compared to 2020, partially offset by other long-term debt repayments in 2021 (including pay downs of $350 million on the 4.375% Senior Notes due in 2023, $138.4 million related to the Sterling term loan and $102.5 million on the 2017 Revolving Credit Facility), and (ii) a $122.2 million increase in cash proceeds from the issuance of common stock in 2021, as compared to the same period in 2020 primarily driven by $126.7 million of proceeds from the DRSPP in 2021, offset by (a) a $25.3 million increase in dividends paid primarily resulting from additional share issuances throughout 2020 and 2021 and (b) a $30.8 million increase in payment of financing related costs related to the redemption of $350 million of the 4.375% Senior Notes due 2023 and entering new debt facilities in 2021 such as the Revolving Credit Facility, the OP Term Loan and the 3.25% Senior Notes due 2033.

(i) a $14.5 million decrease in distributions from unconsolidated joint ventures 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 and (ii) a $4.7 million decrease in receipts from insurance proceeds.

Financing Activities –The change in cash used in financing activities was primarily related to (i) a $265.9 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 as a result of implementing a $500 million repurchase program in January 2022, (iii) a $88.7 million decrease in proceeds from other long-term borrowings, net of repayments and (iv) a $9.6 million increase in redemptions of OP units, partially offset by (i) a $48.6 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, (ii) a $4.8 million decrease in dividends paid primarily resulting from share repurchases throughout 2022 and (iii) a $4.7 million decrease in distributions to Omega OP Unit holders.

Supplemental Guarantor Information

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Actual results could differ from those estimates.

We have identified the following significant accounting policies that we believe are critical accounting policies.

We have identified the following accounting policies that we believe are critical accounting policies.

These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant assumptions, judgments and estimates.

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As of December 31, 2022 and 2021, we had outstanding straight-line rent receivables of $166.1 million and $148.5 million, respectively, and lease inducements of $6.0 million and $93.8 million, respectively.

During 2022, we wrote-off approximately $119.8 million of contractual receivables, straight-line rent receivables and lease inducements to rental income primarily as a result of placing nine operators on a cash-basis.

During 2021, we wrote-off approximately $36.0 million of contractual receivables, straight-line rent receivables and lease inducements to rental income primarily as a result of placing six operators on a cash-basis.

During 2020, we wrote-off approximately $143.0 million of contractual receivables, straight-line rent receivables and lease inducements to rental income as a result of placing four operators on a cash-basis.

If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion.

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During 2022 and 2021, we acquired real estate assets of approximately $225.2 million and $604.0 million, respectively.

Allowance for Credit Losses on Mortgages, Other Investments and Direct Financing Leases

These transactions were accounted for as asset acquisitions and the purchase price of each was allocated based on the relative fair values of the assets acquired and liabilities assumed.

Allowance for Credit Losses on Real Estate Loans, Non-real Estate Loans and Direct Financing Leases

For purposes of determining our allowance for credit loss, we pool financial assets that have similar risk characteristics.

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Louis and the weighted average life to maturity of the underlying financial asset.

During 2021 and 2020, we recorded a provision for credit losses of approximately $77.7 million and $38.0 million.

During 2022 and 2021, we recorded a provision for credit losses of approximately $68.7 million and $77.7 million, respectively.

As of December 31, 2022 and 2021, we had a total allowance for credit loss of $188.4 million and $144.5 million, respectively.

A 10% increase or decrease in the quarterly FHA default rates as of December 31, 2021 would result in a $1.0 million increase or decrease in the provision for credit losses.

If the weighted average yield to maturity on our portfolio increases or decreases by 1% or 10%, this will result in an additional provision or recover for credit losses of $0.8 million or $3.4 million, respectively.

If the weighted average yield to maturity on our portfolio decreases by 1% or 10%, this will result in a recovery of credit losses of $0.8 million or $3.3 million, respectively.

A 10% increase or decrease in the FHA default rates as of December 31, 2022 would result in an additional provision or recovery for credit losses of $10.1 million or $9.3 million, respectively.

If the weighted average yield to maturity on our portfolio increases or decreases by 10%, this will result in an additional provision or recovery for credit losses of $4.6 million or $5.4 million, respectively.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis