What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-03 · 216 added, 227 removed, 184 unchanged (71% of the section changed)

11 unchanged sentences

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

(3) the impact of the COVID-19 pandemic on our business and the business of our operators, including without limitation, the duration of the federally declared public health emergency and related government and regulatory support, the levels of staffing shortages, increased costs and decreased occupancy experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection with the pandemic, the ability of our operators to comply with infection control and vaccine protocols and to manage facility infection rates, and the sufficiency of government support and reimbursement rates to offset such costs and the conditions related thereto;

(3) the long-term impacts of the COVID-19 pandemic on our business and the business of our operators, including without limitation, the announced termination of the federally declared public health emergency and related government and regulatory support scheduled for May 11, 2023, the levels of staffing shortages, increased costs and decreased occupancy experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) arising from the pandemic, the ability of our operators to comply with infection control and vaccine protocols and to manage facility infection rates or future infectious diseases, and the sufficiency of government support and reimbursement rates to offset such costs and the conditions related thereto;

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

14 unchanged sentences

particularly in the healthcare industry.

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

● Business Overview

● Outlook, Trends and Other Conditions

● Government Regulation and Reimbursement

● First Quarter of 2023 and Recent Highlights

● Results from Operations

● Funds from Operations

● Liquidity and Capital Resources

● Critical Accounting Policies and Estimates

Business Overview

Omega Healthcare Investors, Inc.

1 unchanged sentence

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

As of 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.

As of March 31, 2023, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.

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

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

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

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

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 other investments.

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.

COVID-19 Pandemic Update

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

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

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

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

We remain cautious as the COVID-19 pandemic continues to have a significant impact on our operators and their financial conditions, particularly given 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, genetic mutations of the virus into new variants, and 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.

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.

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 or when the federally declared public health emergency expires.

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.

Outlook, Trends and Other Conditions

The effects of the COVID-19 pandemic have 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;

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 operators were impacted by, among other things, reduced revenue as a result of lower occupancy, increased expenses, uncertainties regarding adequate reimbursement levels, and changes to government and regulatory support due to the announced termination of the federally declared public health emergency scheduled for May 11, 2023.

The expense increases have been offset to some extent by enhanced reimbursement due to skilling in place, which was permitted via waiver during the pandemic, but which will be discontinued when the federally declared public health emergency expires as scheduled on May 11, 2023.

We believe the expense 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.

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

We remain cautious as these factors may continue to have a significant impact on our operators and their financial conditions, particularly given the 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 the risk of future infectious diseases or pandemics.

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

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

Occupancy in our facilities has generally improved on average since early 2021;

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

1 unchanged sentence

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, which may take the form of stimulus or reimbursement rate adjustments to reflect sustained cost changes experienced by operators.

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.

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 normal rate setting has not or does not adjust for this phase out or expenses are not reduced.

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”) or other Medicare or Medicaid reimbursement rates changes in the U.S.

will ultimately support reimbursement to our operators.

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

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

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

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

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 continued impact of vaccination programs, including booster doses, and participation levels in those 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 and the states will continue to offset these incremental costs as well as lost revenues.

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

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.

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 effects of the industry’s recovery 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 and management of infectious diseases in 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.

We expect that heightened clinical protocols for infection control within facilities will continue for some period;

however, we do not know if future reimbursement rates or equipment provided by governmental agencies will be sufficient to cover the increased costs of enhanced infection control and monitoring.

1 unchanged sentence

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.

Other Trends and Conditions

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

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

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

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.

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.

10 unchanged sentences

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

This declaration, which has been extended through January 11, 2023, allows HHS to provide temporary regulatory waivers and new reimbursement rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

This declaration, which has been extended through its scheduled expiration date of May 11, 2023, allows HHS to provide temporary regulatory waivers and new reimbursement rules, such as a temporary increase in the Medicaid Federal Medical Assistance Percentage and other rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

The three-day prior hospital stay waiver was a significant benefit to the skilled nursing industry during the height of the pandemic, as the reimbursement associated with the ability to skill in place helped to offset some of the increased costs connected with managing the pandemic.

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

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

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

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

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

however, the adverse impact on our business, results of operations, financial condition and cash flows could be material.

The public health emergency declaration is scheduled to terminate on May 11, 2023;

at that time, we believe federal and state regulators will resume enforcement of those regulations which have been waived or otherwise not been enforced during the public health emergency.

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

The extent of the COVID-19 pandemic’s continued effect, including through prolonged labor shortages, slow occupancy recovery, and expense increases, on the Company’s and our operators’ operational and financial performance will depend on future developments, including the recovery in occupancy and availability of labor, the ability of our operators to manage the impact of the termination of public health emergency and temporary relief thereunder, the sufficiency and timeliness of additional governmental relief and reimbursement rate setting in offsetting cost increases, and the continued efficacy of vaccination, treatment and infection control programs relating to COVID-19, all of which developments and impacts are uncertain and difficult to predict and may continue to adversely impact our business, results of operations, financial condition and cash flows.

A significant portion of our operators’ revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid.

11 unchanged sentences

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

On March 18, 2020, the Families First Coronavirus Response Act was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s Medicaid Federal Medical Assistance Percentage (“FMAP”) effective January 1, 2020.

The temporary FMAP increase will extend through the last day of the calendar quarter in which the public health emergency terminates.

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

On March 18, 2020, the Families First Coronavirus Response Act (“FFCRA”) was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s Medicaid Federal Medical Assistance Percentage (“FMAP”) effective January 1, 2020.

The temporary FMAP increase was set to extend through the last day of the calendar quarter in which the public health emergency terminates.

In exchange for receiving the enhanced federal funding, the FFCRA included a requirement that Medicaid programs keep beneficiaries enrolled through the end of the month in which the public health emergency terminates.

However, as part of the Consolidated Appropriations Act of 2023 signed into law on December 29, 2022, Congress decoupled the Medicaid continuous enrollment from the public health emergency and terminates this provision effective March 31, 2023.

Additionally, starting April 1, 2023, states that comply with federal rules regarding conducting renewals may begin the phase-down of the enhanced federal funding according to the following schedule:

6.2 percentage points through March 2023;

5 percentage points through June 2023;

2.5 percentage points through September 2023 and 1.5 percentage points through December 2023.

States cannot restrict eligibility standards, methodologies, and procedures and states cannot increase premiums as required in FFCRA.

Primarily due to the continuous enrollment provision, Medicaid enrollment has grown substantially compared to before the pandemic and the uninsured rate has dropped.

The extent to which this increase in Medicaid enrollment is sustained following the discontinuation of the continuous enrollment provision is uncertain.

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

Funds have been allocated since 2020 in targeted and general distributions, the latter over four phases.

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

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

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

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

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

We do not expect our operators will receive additional funding from HHS.

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

1 unchanged sentence

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

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

We believe these repayments commenced for many of our operators in April 2021 and have impacted operating cash flows of these operators in 2021 and 2022.

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

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

4 unchanged sentences

The full 2% Medicare sequestration went into effect as of July 1, 2022.

The sequestration is currently extended through fiscal year 2031.

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

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

The sequestration is currently extended through fiscal year 2031, and gradually increases to 4% from 2030 through 2031.

Quality of Care Initiatives and Additional Requirements Related to COVID-19 .

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and 2021 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced from 2020 to 2022 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes.

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

In addition, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds, the implementation of new quality measures and the inclusion of a staff turnover percentage (over a 12-month period).

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

Although the American Rescue Plan Act did not allocate specific funds directly to SNF or ALF providers, certain funds were allocated to states who then distributed a portion of these funds to SNF and ALF providers.

In addition, the American Rescue Plan Act allocated funds to quality improvement organizations to provide infection control and vaccination uptake support to SNFs and to the CDC for staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks.

Additionally, the Biden Administration announced a focus on implementing minimum staffing requirements and increased inspections as part of the nursing home reforms announced in the 2022 State of the Union Address, and in July 2022, CMS announced it was evaluating a proposed federal staffing mandate for SNFs.

It is uncertain whether such a mandate will be implemented and, if it is, whether it will be accompanied by additional funding to offset any increased staffing requirements for our operators;

an unfunded mandate to increase staff in SNFs may have a material and adverse impact on the financial condition of our operators.

Of note, the Biden Administration issued an executive order on April 18, 2023 that directed HHS to consider issuing several regulations and guidance documents to build on the minimum staffing standards for nursing homes and condition a portion of Medicare payments on how well a nursing home retains workers.

Many questions surrounding the execution of the proposed actions, such as how Medicare rates will exactly be impacted if nursing homes fail to retain a certain level of workers, remained unanswered, particularly in light of CMS still considering the above-referenced federal minimum staffing standard.

On June 16, 2020, the U.S.

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

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

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

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

1 unchanged sentence

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

Further, on February 13, 2023, CMS issued a proposed rule that would require SNFs participating in the Medicare or Medicaid programs to disclose certain information regarding entities such as REITs that lease real estate to SNFs.

The CMS announcement noted concerns regarding the quality of care provided at SNFs owned by private equity firms, REITs and other investment firms.

We are currently reviewing the proposed rule, which was open for public comment through April 14, 2023.

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

1 unchanged sentence

Reimbursement Generally:

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

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

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

These potential enhancements to Medicaid reimbursement funding may be offset in certain states by state budgetary concerns, the ability of the state to allocate matching funds and to comply with the new requirements, the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 pandemic, and the potential allocation of state Medicaid funds available for reimbursement away from SNFs in favor of home and community-based programs.

These challenges may particularly impact us in states where we have a larger presence, including Florida and Texas.

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

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

In Florida, while added support to our operators during the pandemic has generally been limited, approximately $100 million in additional FMAP funds for nursing homes was approved by the State in November 2021, with the funds to be distributed through increased Medicaid payment rates over a three-month period and in March 2022, a revised state budget for 2022-23, which took effect October 1, 2022, increased Medicaid reimbursement rates by 7.8% to fund, in part, increased wages for certain nursing home staff.

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

Most of our SNF operators derive a substantial portion of their revenue from state Medicaid programs.

Whether and to what extent the level of Medicaid reimbursement covers the actual cost to care for a Medicaid eligible resident varies by state.

While periodic rate setting occurs and, in most cases, has an inflationary component, the state rate setting process does not always keep pace with inflation or, even if it does, there is a risk that it may still not be sufficient to cover all or a substantial portion of the cost to care for Medicaid eligible residents.

Additionally, rate setting is also subject to changes based on state budgetary constraints and political factors, both of which could result in decreased or insufficient reimbursement to the industry even in an environment where costs are rising.

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

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

While the CARES Act provided for a 6.2% FMAP add-on to the Medicaid program during the public health emergency, only certain states passed any of that specifically on to SNF operators either via an enhanced rate or lump sum payments.

Additionally, the American Rescue Plan Act provided for a 10% FMAP add-on for state home and community-based service expenditures from April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings.

Both of these programs came with conditions that states had to meet to be eligible for the FMAP add-on.

There may be future initiatives proposed to allocate funding available for reimbursement away from SNFs in favor of home health agencies and community-based care.

The risks of insufficient Medicaid reimbursement rates along with possible initiatives to push residents historically cared for in SNFs to alternative settings may impact us more acutely in states where we have a larger presence, including Florida and Texas, our states with the largest concentration of investments.

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

The state did provide for a sizeable increase in rate during the public health emergency based on the FMAP add-on;

however, there is a risk that this increase won’t be captured in normal rate setting when the FMAP add-on expires.

In Florida, added support to our operators during the pandemic has generally been limited, with approximately $100 million in additional FMAP funds announced in November 2021, payable over a three-month period through increased Medicaid rates.

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

We continue to monitor rate adjustment activity in other states in which we have a meaningful presence, and it is too early to assess whether rates will generally keep pace with increased operator costs.

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

14 unchanged sentences

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

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

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

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

On March 30, 2023, CMS issued a memorandum revising and enhancing enforcement efforts for infection control deficiencies found in nursing homes that are targeted at higher-level infection control deficiencies that result in actual harm or immediate jeopardy to residents.

Penalties for the most serious deficiencies include civil monetary penalties and discretionary payment denials for new resident admissions.

Other Regulation:

Office of the Inspector General Activities .

The Office of Inspector General (“OIG”) of HHS has provided long-standing guidance for SNFs regarding compliance with federal fraud and abuse laws.

More recently, the OIG has conducted increased oversight activities and issued additional guidance regarding its findings related to identified problems with the quality of care and the reporting and investigation of potential abuse or neglect at group homes, nursing homes and SNFs.

The OIG has additionally reviewed the staffing levels reported by SNFs as part of its August 2018 and February 2019 Work Plan updates, and included a review of involuntary transfers and discharges from nursing homes in the June 2019 Work Plan updates.

In August 2020, the OIG released its findings regarding its review of staffing levels in SNFs from 2018.

The OIG recommended that CMS enhance efforts to ensure nursing homes meet daily staffing requirements and explore ways to provide consumers with additional information on nursing homes’ daily staffing levels and variability.

The OIG indicated that while the review was initiated before the COVID-19 pandemic emerged, the pandemic reinforces the importance of sufficient staffing for nursing homes, as inadequate staffing can make it more difficult for nursing homes to respond to infectious disease outbreaks like COVID-19.

It is unknown what impact, if any, enhanced scrutiny of staffing levels by OIG and CMS will have on our operators.

Department of Justice and Other Enforcement Actions .

5 unchanged sentences

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

2022 and Recent Highlights

● During the three and nine months ended September 30, 2022, we acquired $28.2 million and $136.7 million of real estate assets, which included four facilities and 34 facilities, respectively.

The initial cash yield (the initial annual contractual cash rent divided by the purchase price) on these asset acquisitions was between 8.0% and 9.5%.

● We invested $16.3 million and $50.5 million under our construction in progress and capital improvement programs during the three and nine months ended September 30, 2022, respectively.

● We advanced $3.6 million and $8.5 million under existing mortgage loans during the three and nine months ended September 30, 2022, respectively.

● During the three and nine months ended September 30, 2022, Ciena Healthcare (“Ciena”) repaid $44.8 million and $158.5 million 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 $37.7 million with maturity dates in 2022 and 2023).

First Quarter of 2023 and Recent Highlights

● We acquired six facilities for an aggregate consideration of $26.4 million during the three months ended March 31, 2023.

The initial cash yield (the initial annual contractual cash rent divided by the purchase price) on this asset acquisition was 8.0%.

● We invested $10.1 million under our construction in progress and capital improvement programs during the three months ended March 31, 2023.

● We financed a $5.0 million new real estate loan with an interest rate of 9% during the three months ended March 31, 2023.

We also advanced $10.7 million under existing real estate loans during the three months ended March 31, 2023.

Dispositions and Impairments

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

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

Our sales during the nine months ended September 30, 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”) – two facilities.

In the fourth quarter of 2022, we completed the sale of an additional 19 facilities related to the ongoing Agemo restructuring activities for aggregate gross cash proceeds of $315.8 million.

● During the three and nine months ended September 30, 2022, we recorded impairments on four and 10 facilities of approximately $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 $17.7 million related to eight held-for-use facilities.

● During the three months ended March 31, 2023, we sold two facilities, one SNF and one medical office building, for approximately $17.6 million in net cash proceeds, recognizing a net gain of approximately $13.6 million.

● During the three months ended March 31, 2023, we recorded impairments on real estate properties of approximately $39.0 million on four facilities.

Of the $39.0 million, $37.0 million related to two held-for-use facilities and $2.0 million related to two facilities that were classified as held for sale.

Of the $37.0 million, $27.5 million relates to one held-for-use facility which was closed during the quarter.

Financing Activities

● 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.

During the nine months ended September 30, 2022, we repurchased 5.2 million shares, at an average price of $27.32 per share, of our outstanding common stock, respectively.

No shares were repurchased during the third quarter of 2022.

● We sold 0.1 million shares of common stock under our Dividend Reinvestment and Common Stock Purchase Plan (“DRSPP”) during the three months ended March 31, 2023, generating aggregate gross proceeds of $2.3 million.

Other Highlights

● During the three and nine months ended September 30, 2022, we made $70.0 million and $151.4 million of new other investment loans with a weighted average interest rate of 11.1% and 11.0%, respectively.

Our 2022 new other investment loans primarily relate to five new loans that we entered into during the nine months ended September 30, 2022.

During the three and nine months ended September 30, 2022, we also advanced $34.3 million and $149.2 million, respectively, under existing other investment loans.

Of the $34.3 million and $149.2 million, an aggregate $20.3 million and $100.8 million, respectively, related to two revolving working capital loans that also had aggregate repayments of $2.8 million and $78.9 million during the three and nine months ended September 30, 2022, respectively.

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

REITs, to be included in the 2022 GEI index.

● During the three months ended March 31, 2023, we made $10.4 million of new non-real estate loans with a weighted average interest rate of 6%.

Collectibility Issues

● 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.

These include operators representing 0.5% (“0.5% Operator”), 1.4% (“1.4% Operator”) and 2.2% (“2.2% Operator”) of total revenue (excluding the impact of write-offs), respectively, for the nine months ended September 30, 2022.

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

As of September 30, 2022, we had 17 total operators for which we are recording revenue on a cash basis.

These 17 cash basis operators represent an aggregate 15.3% of our total revenues (excluding the impact of write-offs) for the nine months ended September 30, 2022.

● During the three and nine months ended September 30, 2022, we allowed four and eight operators to defer $1.4 million and $25.4 million of contractual rent and interest, respectively.

● During the three months ended March 31, 2023, we did not place any additional operators on a cash basis of revenue recognition.

We transitioned 43 facilities associated with three cash basis operators to leases with operators on a straight-line basis of revenue recognition.

As of March 31, 2023, 17 operators are on a cash basis.

These operators represent an aggregate 25.1% of our total revenues (excluding the impact of write-offs) for the three months ended March 31, 2023.

● During the three months ended March 31, 2023, we allowed eight operators to defer $24.4 million in aggregate of contractual rent and interest.

The deferrals primarily related to the following operators:

Agemo, Guardian, the 3.7% Operator (defined below) and the 1.4% Operator.

Additionally, we allowed five and seven operators to apply collateral, such as security deposits or letters of credit, to contractual rent and interest during the three and nine months ended September 30, 2022, respectively.

The total collateral applied to contractual rent and interest was $5.3 million and $9.4 million for the three and nine months ended September 30, 2022, respectively.

These applications of collateral to contractual rent and interest primarily relate to the 2.2% Operator and the 1.4% Operator.

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

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

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

See Note 4 - Contractual Receivables and Other Receivables and Lease Inducements to the Consolidated Financial Statements - Part I, Item 1 hereto.

● 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 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 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, 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.

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.

● 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 3.7% Operator paid the contractual amount due under its lease agreement from April through September 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 $20.0 million revolving credit facility, which is fully drawn as of September 30, 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.

● On October 21, 2022, the Board of Directors declared a cash dividend for the quarter ended September 30, 2022 of $0.67 per share.

LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care)($14.3 million), Healthcare Homes Limited (“Healthcare Homes”)($6.1 million), Agemo Holdings, LLC (“Agemo”)($1.9 million) and Maplewood Senior Living (along with affiliates, “Maplewood”)($0.4 million).

Additionally, we allowed three operators to apply collateral, such as security deposits or letters of credit, to contractual rent and interest during the three months ended March 31, 2023.

The total collateral applied to contractual rent and interest was $5.2 million for the three months ended March 31, 2023.

● In the first quarter of 2023, Omega and Agemo, a cash basis operator, entered into a restructuring agreement, an amended and restated master lease and a new loan agreement for two replacement loans.

As part of the restructuring agreement and related agreements, Omega agreed to, among other things, forgive and release Agemo from previously written off past due rent and interest obligations, with contractual rent and interest scheduled to resume on April 1, 2023, reduce monthly contractual base rent from $4.8 million to $1.9 million, extend the initial Agemo lease term to December 31, 2036 and modify the existing Agemo loans into two replacement loans.

We have not recorded any rental income or interest income related to Agemo during the three months ended March 31, 2023.

● In the first quarter of 2023, Omega continued the process of restructuring our portfolio with LaVie and agreed to a partial rent deferral for the first four months of 2023.

In doing so, we agreed to allow LaVie to defer up to $19.1 million of contractual rent from January 2023 through April 2023 under our lease agreements.

As a result, in the first quarter of 2023, LaVie paid $7.4 million of contractual rent due under the leases and elected to defer the remaining $14.3 million of the full contractual payment due of $21.7 million.

● In the first quarter of 2023, we entered into a restructuring agreement, master lease amendments and loan amendments with Maplewood, a cash basis operator.

As part of the restructuring agreement and related agreements, Omega agreed to, among other things, extend the maturity date of the master lease to December 2037, fix contractual rent at $69.3 million per annum and defer the 2.5% annual escalators under our lease agreement through December 31, 2035, pay a $12.5 million option termination fee to Maplewood, extend the maturity date of the secured revolving credit facility to June 2035, increase the capacity of the secured revolving credit facility to $320.0 million and convert the 7% per annum cash interest due on the secured revolving credit facility to all PIK interest in 2023, 1% cash interest and 6% PIK interest in 2024, and 4% cash interest and 3% PIK interest in 2025 and through the maturity date.

We have recorded $18.8 million of revenue related to Maplewood for the three months ended March 31, 2023 for the contractual rent and interest payments that we received during the quarter.

● On April 20, 2023, the Board of Directors declared a cash dividend of $0.67 per share.

The dividend will be paid on May 15, 2023 to stockholders of record as of the close of business on May 1, 2023.

Results of Operations

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

Three Months Ended September 30, 2022 and 2021

Our revenues for the three months ended September 30, 2022 totaled $239.4 million, a decrease of approximately $42.2 million over the same period in 2021.

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

● Rental income was $207.6 million, a decrease of $39.6 million over the same period in 2021.

The decrease was primarily the result of (i) a $15.9 million aggregate net reduction in contractual rent payments received from two cash basis operators, Agemo and the 1.4% Operator;

(ii) a $12.6 million decrease due to a net increase in straight-line rent receivable and lease inducement write-offs in the third quarter of 2022 compared to 2021 as a result of placing the 2.2% Operator and 2 other operators on a cash basis;

(iii) a $7.4 million decrease relating to the sale of 22 facilities formerly leased and operated by Gulf Coast, which was completed in the first quarter of 2022;

(iv) a net decrease of $3.8 million due to facility transitions, facility sales and lease extensions related to several operators;

and (v) a $2.2 million decrease related to the restructuring of the Guardian lease agreement, which included the sale or transition of 17 facilities in 2022 with corresponding reductions in base rent.

The overall decrease in rental income was partially offset by a $2.8 million increase due to additional rental income in the third quarter of 2022 from acquisitions.

● Mortgage interest income was $17.2 million, a decrease of $5.8 million over the same period in 2021.

The decrease was primarily the result of (i) a $3.1 million decrease related to Guardian as a result of recognizing no interest income in the third quarter of 2022 on the Guardian mortgage loan, as we are accounting for the loan using the cost recovery method with interest payments applied to principal amounts outstanding and (ii) a $3.7 million decrease related to the aggregate $158.5 million of principal paydowns made on the Ciena mortgages during the second and third quarter of 2022.

These decreases were partially offset by a $1.1 million write-off of effective interest in the third quarter of 2021 related to the payoff of a mortgage with an operator.

● Other investment income was $14.1 million, an increase of $3.3 million over the same period in 2021.

The increase is largely due to an overall increase in the balance of our other investment loans from $434.0 million as of September 30, 2021 to $608.2 million as of September 30, 2022.

Our expenses for the three months ended September 30, 2022 totaled $177.7 million, a decrease of approximately $16.5 million over the same period in 2021.

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

● Our depreciation and amortization expense was $82.7 million, a $3.4 million decrease over the same period in 2021.

The decrease primarily relates to facility sales and facilities reclassified to assets held for sale, such as the 20 Agemo facilities reclassified to held for sale and the two Agemo facilities that were sold in the third quarter of 2022, partially offset by facility acquisitions and capital additions.

● Our general and administrative expense was $18.2 million, a $2.9 million increase over the same period in 2021.

The increase primarily relates to (i) a $1.1 million increase in stock-based compensation expense, (ii) a $0.6 million increase in outside services primarily related to legal and (iii) a $0.6 million increase in payroll and benefits.

● Our impairment on real estate properties was $10.0 million, an increase of $5.1 million over the same period in 2021.

The 2022 impairments were recognized in connection with four held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

The 2021 impairments were recognized in connection with six facilities that were classified as held-for-sale for which the carrying values exceeded the estimated fair values less costs to sell.

● Our provision for credit losses was $4.1 million, a $21.4 million decrease over the same period in 2021.

The decrease was primarily as a result of (i) a net decrease in aggregate specific provisions recorded during the third quarter of 2022 compared to specific provisions recorded during the same period in 2021 largely due to reserves on the loans with Agemo and (ii) changes in loan balances and decreases in loss rates and weighted average years to maturity (utilized in the estimate of expected losses for loans) in the third quarter of 2022 compared to the same period in 2021.

Other Income (Expense)

For the three months ended September 30, 2022, total other income was $40.4 million, a decrease of approximately $14.4 million over the same period in 2021.

The decrease was mainly due to a $15.2 million decrease in gain on assets sold related to the sale of four facilities in the third quarter of 2022 compared to the sale of 15 facilities during the same period in 2021.

Nine Months Ended September 30, 2022 and 2021

Our revenues for the nine months ended September 30, 2022 totaled $733.4 million, a decrease of approximately $79.5 million over the same period in 2021.

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

● Rental income was $635.9 million, a decrease of $70.0 million over the same period in 2021.

The decrease was primarily the result of (i) a $43.0 million aggregate net reduction in contractual rent payments received from two cash basis operators, Agemo and the 1.4% Operator;

(ii) a $22.0 million decrease due to recognizing no rental income related to Gulf Coast, a cash basis operator, in 2022, as we received no contractual payments in the first quarter related to the lease with this operator, and we sold or transitioned 23 of the facilities subject to the Gulf Coast lease in March 2022;

(iii) a $10.3 million decrease relates to Guardian, due to the restructuring of the lease agreement (discussed under “ Three Months Ended September 30, 2022 and 2021 – Revenues ” above) and as a result of only receiving six months of payments from Guardian during 2022;

(iv) a $6.0 million decrease due to a net increase in straight-line rent receivable and lease inducement write-offs in the nine months ended September 30, 2022;

and (v) a $4.9 million decrease resulting from the acceleration of certain in-place lease liabilities due to facility transitions.

The overall decrease in rental income was partially offset by (i) a $13.9 million increase due to additional rental income in the third quarter of 2022 from acquisitions and construction in progress facilities being placed in service and (ii) a $2.3 million increase related to an increase in real estate tax income related to construction in progress facilities being placed in service.

● Mortgage interest income was $57.4 million, a $13.3 million decrease over the same period in 2021.

The decrease was primarily the result of (i) a $9.2 million decrease related to Guardian as a result of recognizing no interest income in 2022 on the Guardian mortgage loan, as we are accounting for the loan using the cost recovery method with interest payments applied to principal amounts outstanding and (ii) a $5.7 million decrease related to the $158.5 million of aggregate principal paydowns on the Ciena mortgages during the second and third quarters of 2022.

These decreases were partially offset by a $1.1 million write-off of effective interest in the third quarter of 2021 related to the payoff of a mortgage with an operator.

● Other investment income was $36.5 million, an increase of $2.2 million over the same period in 2021.

The increase is largely due to an overall increase in the balance of our other investment loans from $434.0 million as of September 30, 2021, to $608.2 million as of September 30, 2022.

Our expenses for the nine months ended September 30, 2022 totaled $519.6 million, a decrease of approximately $40.9 million over the same period in 2021.

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

● Our depreciation and amortization expense was $248.7 million, an $8.1 million decrease over the same period in 2021.

The decrease primarily relates to facility sales and facilities reclassified to assets held for sale, such as the 22 Gulf Coast facilities that were sold in the first quarter of 2022 and the 20 Agemo facilities that were reclassified to held for sale in the third quarter of 2022, partially offset by facility acquisitions and capital additions.

● Our general and administrative expense was $53.4 million, a $6.7 million increase over the same period in 2021.

The increase primarily relates to (i) a $3.6 million increase in stock-based compensation expense and (ii) a $1.8 million increase in outside services primarily related to consulting.

● Our acquisition, merger and transition related costs were $5.7 million, an increase of $3.8 million over the same period in 2021.

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

● Our impairment on real estate properties was $21.2 million, a decrease of $21.2 million over the same period in 2021.

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 eight held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

The 2021 impairments were recognized in connection with 12 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.

● Our provision for credit losses was $4.4 million, a $23.7 million decrease over the same period in 2021.

(ii) changes in loan balances and decreases in loss rates and weighted average years to maturity (utilized in the estimate of expected losses for loans) in 2022 compared to the same period in 2021;

and (iii) recoveries for cash collections received on loan reserved down to the fair value of the collateral.

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

Comparison of results of operations for the three months ended March 31, 2023 and 2022 (dollars in thousands):

Three Months Ended March 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) provision for credit losses

Interest expense

Other income (expense):

For the nine months ended September 30, 2022, total other income was $174.3 million, an increase of approximately $44.4 million over the same period in 2021.

The increase was mainly due to (i) a $30.3 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 and (ii) a $19.1 million increase in gain on assets sold related to the sale of 44 facilities in 2022 compared to the sale of 45 facilities during the same period in 2021, partially offset by a $3.0 million legal reserve recorded in other (expense) income – net discussed in Note 18 – Commitments and Contingencies.

Other income (expense) – net

Loss on debt extinguishment

Gain on assets sold – net

Income tax benefit (expense)

Income from unconsolidated joint ventures

For the nine months ended September 30, 2022, income from unconsolidated joint ventures was $7.5 million, a decrease of approximately $7.0 million over the same period in 2021.

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

National Association of Real Estate Investment Trusts Funds From Operations

The following is a description of certain of the changes in revenues for the three months ended March 31, 2023 compared to the same period in 2022:

● The decrease in rental income was primarily the result of (i) a $45.5 million net decrease in rental income from cash basis operators, including Maplewood and LaVie, as a result of not recording straight-line lease revenue and/or receiving lower cash rent payments period over period from these operators, along with a one-time option termination payment of $12.5 million to Maplewood that was recorded as a reduction to rental income during the first quarter of 2023, partially offset by (i) a $9.2 million net increase related to impact of facility transitions and sales, (ii) a $4.6 million increase related to facility acquisitions made throughout 2022 and in the first quarter of 2023 and (iii) a $3.2 million increase as a result of a net decrease in straight-line rent receivable write-offs in the first quarter of 2023.

● The decrease in interest income was primarily due to (i) a $5.4 million decrease related to early principal payments on our mortgage loans with Ciena Healthcare during 2022 and the pay-off of other loans during 2022 and the first quarter of 2023 and (ii) a $2.6 million decrease related to loans placed on non-accrual status, primarily the LaVie loans and Maplewood loan, during 2022, partially offset by a $5.4 million increase related to new and refinanced loans and additional funding to existing operators made throughout 2022 and the first quarter of 2023.

As noted above, during the three months ended March 31, 2023, we funded $15.7 million for new or existing real estate loans and $10.4 million for new non-real estate loans.

The following is a description of certain of the changes in our expenses for the three months ended March 31, 2023 compared to the same period in 2022:

● The decrease in depreciation and amortization expense primarily relates to facility sales and facilities reclassified to assets held for sale, partially offset by facility acquisitions and capital additions.

● The increase in general and administrative expense primarily relates to (i) a $1.9 million increase in stock-based compensation expense, (ii) a $1.7 million increase in outside services primarily related to professional fees and (iii) a $1.0 million increase in payroll and benefits.

● The 2023 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 two held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

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.

The 2023 and 2022 impairments were primarily the result of decisions to exit certain non-strategic facilities and/or operators.

● The change in provision for credit losses primarily relates to decreases in the general reserve recorded primarily resulting from decreases in loss rates utilized in the estimate of expected credit losses for loans, partially offset by a net increase in aggregate specific provisions recorded during the first quarter of 2023 compared to specific provisions recorded during the same period in 2022.

Other Income (Expense)

The change in total other income (expense) was primarily due to a $100.0 million decrease in gain on assets sold related to the sale of two facilities in the first quarter of 2023 compared to the sale of 27 facilities, primarily associated with our exit of the facilities associated with Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), during the same period in 2022.

Income Tax Benefit (Expense)

The change in income tax benefit (expense) was primarily due to adjustments made to our deferred tax assets and liabilities in the first quarter of 2023 as a result of the majority of our U.K.

portfolio entering into the U.K.

REIT regime effective April 1, 2023.

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.

7 unchanged sentences

Nareit FFO herein is not necessarily comparable to Nareit FFO of other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us.

We further believe that by excluding the effect of depreciation, amortization, impairment on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Nareit FFO can facilitate comparisons of operating performance between periods and between other REITs.

We offer this measure to assist the users of our financial statements in evaluating our financial performance under GAAP, and Nareit FFO should not be considered a measure of liquidity, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP.

We offer this measure to assist the users of our financial statements in evaluating our financial performance under GAAP, and Nareit FFO should not be considered a measure of liquidity or cash flow, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP.

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

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

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

The following table presents our Nareit FFO results for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

Deduct gain from real estate dispositions

(Deduct gain) add back loss from real estate dispositions – unconsolidated joint ventures

Elimination of non-cash items included in net income:

2 unchanged sentences

Add back impairments on real estate properties

Add back impairments on real estate properties – unconsolidated joint ventures

Add back unrealized loss on warrants

(1) The three and nine months ended September 30, 2022 includes the application of $5.3 million and $9.4 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

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

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

(1) The three months ended March 31, 2023 and 2022 includes the application of $5.2 million and $3.3 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

The $24.6 million decrease in Nareit FFO for the three months ended March 31, 2023 compared to the same period in 2022 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 Dividend Reinvestment and Common Stock Purchase Plan (“DRSPP”) and the $1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”), facility sales, and proceeds from mortgage and other investment payoffs.

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

Our primary sources of cash include rental income and interest receipts, existing availability under our revolving credit facility, proceeds from our DRSPP and the $1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”), facility sales, and proceeds from real estate loan and non-real estate loan 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), real estate loan and non-real estate loan advances and normal recurring G&A expenses (primarily consisting of employee payroll and benefits and expenses relating to third parties for legal, consulting and audit services).

Capital Structure

At September 30, 2022, we had total assets of $9.4 billion, total equity of $3.9 billion and total debt of $5.3 billion in our consolidated financial statements, with such debt representing approximately 57.8% of total capitalization.

At September 30, 2022 and December 31, 2021, the weighted-average annual interest rate of our debt was 4.1%.

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

At March 31, 2023, we had total assets of $9.3 billion, total equity of $3.7 billion and total debt of $5.3 billion in our consolidated financial statements, with such debt representing approximately 59.1% of total capitalization.

At March 31, 2023 and December 31, 2022, the weighted average annual interest rate of our debt was 4.1%.

Additionally, as of March 31, 2023, 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 September 30, 2022, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch.

As of March 31, 2023, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch.

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

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

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

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

We have $350 million of 4.375% senior notes due August 2023 and $400 million of 4.95% senior notes due April 2024.

As of March 31, 2023 we have $1.43 billion of availability under our revolving credit facility and approximately $245 million of cash on our consolidated balance sheet.

In addition, we have $400 million of forward interest rate swaps with a weighted average fixed rate of approximately 0.8675%.

This combination of liquidity sources provides us with flexibility to repay the senior notes due in August 2023 and April 2024.

We currently anticipate that we will repay the 4.375% senior notes due in August 2023 using available cash and proceeds from our revolving credit facility.

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

As of September 30, 2022 and December 31, 2021, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

As of March 31, 2023 and December 31, 2022, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

Supplemental Guarantor Information

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at September 30, 2022 that were registered under the Securities Act of 1933, as amended.

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at March 31, 2023 that were registered under the Securities Act of 1933, as amended.

The senior notes are guaranteed by Omega OP.

The SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities, such as our senior notes.

Securities and Exchange Commission (“SEC”) adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities, such as our senior notes.

As a result of these amendments, registrants are permitted to provide certain alternative financial and non-financial disclosures, to the extent material, in lieu of separate financial statements for subsidiary issuers and guarantors of registered debt securities.

5 unchanged sentences

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

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

At September 30, 2022, we had approximately 234.2 million shares of common stock outstanding, and our shares had a market value of $6.9 billion.

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

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

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

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

● We issued 71.2 thousand and 235.7 thousand shares of common stock under the DRSPP during the three and nine months ended September 30, 2022.

Aggregate gross proceeds from these sales were $2.4 million and $7.0 million during the three and nine months ended September 30, 2022, respectively.

As of March 31, 2023, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At March 31, 2023, we had approximately 234.3 million shares of common stock outstanding, and our shares had a market value of $6.4 billion.

The following is a summary of activity under our equity programs during the three months ended March 31, 2023:

● During the three months ended March 31, 2023, we did not issue any shares of common stock under our 2021 ATM Program and we did not utilize the forward provisions under the 2021 ATM Program.

We have $929.9 million of potential sales remaining under the 2021 ATM Program as of March 31, 2023.

● We issued 81.7 thousand shares of common stock under the DRSPP during the three months ended March 31, 2023.

Aggregate gross proceeds from these sales were $2.3 million during the three months ended March 31, 2023.

● During the three months ended March 31, 2023, we did not repurchase any shares of our outstanding common stock under the $500 Million Stock Repurchase Program.

We have $357.8 million remaining authorized for repurchases under the $500 Million Stock Repurchase Program as of March 31, 2023.

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

2 unchanged sentences

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.

For the nine months ended September 30, 2022, we paid dividends of approximately $475.6 million to our common stockholders.

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.

For the three months ended March 31, 2023, we paid dividends of approximately $157.4 million to our common stockholders.

On February 15, 2023, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 6, 2023.

On May 13, 2022, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on May 2, 2022.

On August 15, 2022, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on August 1, 2022.

Material Cash Requirements

During the nine months ended September 30, 2022, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report.

As of September 30, 2022, we had $200.1 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

Additionally, we have commitments to fund $88.0 million of advancements under existing other investment loans, which includes $14.3 million related to the increased commitment on the Maplewood $250.5 million secured revolving credit facility and $60.0 million related to a $90.0 million short-term revolving line of credit to an existing operator.

During the three months ended March 31, 2023, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of March 31, 2023, we had $228.5 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

Additionally, we have commitments to fund $58.1 million of advancements under existing other real estate loans and $95.4 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.

3 unchanged sentences

We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 – Derivatives and Hedging in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Cash, cash equivalents and restricted cash totaled $138.2 million as of September 30, 2022, an increase of $113.8 million as compared to the balance at December 31, 2021.

The following is a summary of our sources and uses of cash flows for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 (dollars in thousands):

Three Months Ended March 31,

Increase/(Decrease)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Cash, cash equivalents and restricted cash totaled $248.5 million as of March 31, 2023, a decrease of $246.3 million as compared to the balance at March 31, 2022.

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 $472.0 million of net cash flow for the nine months ended September 30, 2022, as compared to $565.6 million for the same period in 2021, a decrease of $93.6 million, which is primarily driven by a decrease of $90.4 million of net income, net of $88.5 million of non-cash items, primarily due to a year over year reduction in rental income and mortgage revenue, as discussed in our material changes analysis under Results of Operations above.

Operating Activities – The decrease in net cash provided by operating activities is driven primarily by a decrease of $11.9 million of net income, net of $146.4 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.

A $8.9 million change in the net movements of the operating assets and liabilities also contributed to the overall decrease in cash provided by operating activities.

Investing Activities – Net cash flow from investing activities was an inflow of $272.4 million for the nine months ended September 30, 2022, as compared to an outflow of $452.2 million for the same period in 2021.

The $724.6 million change in cash flow from investing activities related primarily to (i) a $474.5 million decrease in real estate acquisitions driven by the acquisition of 24 senior living facilities from Healthpeak Properties, Inc.

for $511.3 million in the first quarter of 2021, (ii) a $218.1 million increase in mortgage collections, net of placements driven by a $21.7 million partial principal paydown on the Guardian mortgage loan in the first quarter of 2022 and $158.5 million in partial principal paydowns on the Ciena mortgages in the second and third quarters of 2022, (iii) a $127.4 million increase in proceeds from the sales of real estate investments largely driven by the sale of 22 facilities previously leased to Gulf Coast for net cash proceeds of $303.9 million in the first quarter of 2022 and other 2022 sales related to the restructuring of Guardian and Agemo, (iv) a $70.4 million decrease in investment in construction in progress and capital expenditures related to a $68.0 million development project with Maplewood Senior Living (“Maplewood”) acquired in the third quarter of 2021 and (v) a $10.4 million decrease in investments in unconsolidated joint ventures driven by our $10.3 million investment in Second Spring II LLC in the first quarter of 2021, offset by (i) a $151.4 million increase in other investments advances and placements, net of receipts driven by the new $35.6 million mezzanine loan with an existing operator that we entered into in the second quarter of 2022, the $25.0 million term loan to LaVie Care Centers, LLC (f/k/a Consulate Health Care) that we entered into in the first quarter of 2022, the new $40.0 million mezzanine loan with a new operator that we entered into in the third quarter of 2022 and additional draws on existing loans, (ii) a $16.3 million decrease in distributions from unconsolidated joint venture in excess of earnings primarily related to the Second Spring Healthcare Investments joint venture due to significant facility sales in the first quarter of 2021, (iii) a $5.3 million decrease in receipts from insurance proceeds and (iv) a $2.5 million decrease in acquisition related deposits.

Financing Activities – Net cash flow from financing activities was an outflow of $627.5 million for the nine months ended September 30, 2022, as compared to an outflow of $175.0 million for the same period in 2021.

The $452.5 million change in cash flow from financing activities was primarily related to (i) a $266.6 million decrease in cash proceeds from the issuance of common stock in 2022 due to decreased issuances under our DRSPP and our 2021 ATM Program, as compared to the same period in 2021, (ii) $142.3 million of repurchases of shares of common stock in 2022, (iii) a $88.7 million decrease in proceeds from other long-term borrowings, net of repayments and (iv) a $9.7 million increase in redemptions of OP units.

The overall increase in financing outflows was partially offset by (i) a $48.5 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 $4.7 million decrease in distributions to Omega OP Unit holders and (iii) a $1.5 million decrease in dividends paid.

Investing Activities – The change in cash provided by investing activities primarily related to a $315.0 million decrease in proceeds from the sales of real estate investments driven by the sale of the Gulf Coast facilities in the first quarter of 2022, partially offset by (i) a $86.8 million decrease in real estate acquisitions, (ii) a $44.7 million decrease in loan placements, net of repayments and (iii) a $8.1 million decrease in capital improvements to real estate investments and construction in progress.

Financing Activities – The change in cash used in financing activities primarily related to (i) a $355.2 million decrease in proceeds from other long-term borrowings, net of repayments due to higher cash balances in the first quarter of 2023 as a result of significant facility sale proceeds received in 2022 and (ii) a $3.9 million increase in distributions to Omega OP Unit holders, partially offset by (i) a $27.3 million decrease in repurchases of shares of common stock and (ii) a $3.3 million decrease in dividends paid primarily related to share repurchases during 2022.

Critical Accounting Policies and Estimates

7 unchanged sentences

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

During the quarter ended September 30, 2022, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.

During the quarter ended March 31, 2023, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis