What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-03 · 371 added, 224 removed, 679 unchanged (47% of the section changed)

30 unchanged sentences

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

Common stock $ 0.10 par value authorized – 350,000 shares, issued and outstanding – 234,346 shares as of March 31, 2023 and 234,252 shares as of December 31, 2022

Common stock $ 0.10 par value authorized – 350,000 shares, issued and outstanding – 240,991 shares as of June 30, 2023 and 234,252 shares as of December 31, 2022

Additional paid-in capital

12 unchanged sentences

Three Months Ended

Six Months Ended

Rental income

8 unchanged sentences

Impairment on real estate properties

(Recovery) provision for credit losses

Provision (recovery) for credit losses

Interest expense

5 unchanged sentences

Total other income

Income before income tax benefit (expense) and income from unconsolidated joint ventures

Income tax benefit (expense)

Income before income tax expense and income from unconsolidated joint ventures

Income tax expense

Income from unconsolidated joint ventures

9 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss)

1 unchanged sentence

Cash flow hedges

Total other comprehensive income

Total other comprehensive income (loss)

Comprehensive income

4 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended March 31, 2023 and 2022

Three Months Ended June 30, 2023 and 2022

(in thousands, except per share amounts)

2 unchanged sentences

Noncontrolling

Balance at March 31, 2023

( 6,344,413 )

Stock related compensation

Issuance of common stock

Common dividends declared ($ 0.67 per share)

Vesting/exercising of Omega OP Units

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Net change in noncontrolling interest holder in consolidated JV

Other comprehensive income

Balance at June 30, 2023

( 6,501,899 )

Balance at March 31, 2022

( 5,714,595 )

Stock related compensation

Issuance of common stock

Repurchase of common stock

Common dividends declared ($ 0.67 per share)

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Other comprehensive loss

Balance at June 30, 2022

( 5,872,269 )

See notes to consolidated financial statements.

OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

Six Months Ended June 30, 2023 and 2022

(in thousands, except per share amounts)

Comprehensive

Stockholders’

Noncontrolling

Income (Loss)

5 unchanged sentences

Vesting/exercising of Omega OP Units

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

Capital contribution from noncontrolling interest holder in consolidated JV

Net change in noncontrolling interest holder in consolidated JV

Other comprehensive income

Balance at March 31, 2023

Balance at June 30, 2023

( 6,501,899 )

6 unchanged sentences

Vesting/exercising of Omega OP Units

Conversion and redemption of Omega OP Units to common stock

Omega OP Units distributions

1 unchanged sentence

Other comprehensive income

Balance at March 31, 2022

Balance at June 30, 2022

( 5,872,269 )

3 unchanged sentences

Unaudited (in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

3 unchanged sentences

Provision for rental income

(Recovery) provision for credit losses

Provision for credit losses

Amortization of deferred financing costs and loss on debt extinguishment

17 unchanged sentences

Collection of loan principal

Investments in unconsolidated joint ventures

Distributions from unconsolidated joint ventures in excess of earnings

1 unchanged sentence

Receipts from insurance proceeds

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

5 unchanged sentences

Dividends paid

Noncontrolling members’ contributions to consolidated joint venture

Net payments to noncontrolling members of consolidated joint venture

Proceeds from derivative instruments

Redemption of Omega OP Units

Distributions to Omega OP Unit Holders

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effect of foreign currency translation on cash, cash equivalents and restricted cash

(Decrease) increase in cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

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

As of 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.

As of June 30, 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.

Basis of Presentation and Principles of Consolidation

13 unchanged sentences

Additionally, we are subject to risks and uncertainties as a result of changes affecting operators of nursing home facilities due to the actions of governmental agencies and insurers to limit the rising cost of healthcare services.

Recent Accounting Pronouncements

ASU – 2020-04, Financial Instruments – Reference Rate Reform (Topic 848)

On March 12, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, which contains optional practical expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”).

The guidance may be elected over time until December 31, 2022, as reference rate reform activities occur.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which extended the practical expedients under ASU 2020-04 to December 31, 2024.

The Company had several derivative instruments that referenced LIBOR which were terminated during the second quarter of 2023 (see Note 16 – Derivatives and Hedging).

The Company also had a $ 1.45 billion senior unsecured multicurrency revolving credit facility and a $ 50.0 million senior unsecured term loan facility (see Note 15 – Borrowing Activities and Arrangements) that referenced LIBOR.

During the second quarter of 2023, the Company amended its $ 1.45 billion senior unsecured multicurrency revolving credit facility and $ 50.0 million senior unsecured term loan facility to adjust the interest on each loan from a LIBOR based interest rate to a Secured Overnight Financing Rate (“SOFR”) based interest rate.

For both loans we have elected to apply the optional expedient pursuant to Topic 848.

As such we will account for the amendments as if the modifications were not substantial and thus a continuation of the existing contract resulting in no change to the current loan carrying values or the related deferred financing costs.

NOTE 2 – REAL ESTATE ASSETS

At March 31, 2023, our leased real estate properties included 660 SNFs, 175 ALFs, 19 ILFs, 16 specialty facilities and one medical office building.

At June 30, 2023, our leased real estate properties included 660 SNFs, 175 ALFs, 19 ILFs, 17 specialty facilities and one medical office building.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Rental income – operating leases

3 unchanged sentences

Asset Acquisitions

The following table summarizes the asset acquisitions that occurred during the three months ended March 31, 2023:

The following table summarizes the asset acquisitions that occurred during the six months ended June 30, 2023:

Total Real Estate

4 unchanged sentences

(1) Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price.

(2) In connection with this acquisition, the Company recorded $ 9.9 million of right-of-use (“ROU”) assets and lease liabilities associated with ground leases assumed in the acquisition.

(2) In connection with this acquisition, the Company recorded $ 9.9 million of right-of-use assets and lease liabilities associated with ground leases assumed in the acquisition.

(3) In connection with this acquisition, the Company also provided $ 104.6 million of mezzanine financing discussed further in Note 5 – Real Estate Loans Receivable and Note 6 – Non-Real Estate Loans Receivable.

Construction in Progress and Capital Expenditure Investments

We invested $ 10.1 million and $ 18.2 million under our construction in progress and capital improvement programs during the three months ended March 31, 2023 and 2022, respectively.

We invested $ 17.8 million and $ 27.9 million under our construction in progress and capital improvement programs during the three and six months ended June 30, 2023, respectively.

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

During the second quarter of 2023, we purchased land located in Virginia (not reflected in the table above) for approximately $ 0.8 million that we plan to develop into a SNF.

Concurrent with the acquisition, we amended our lease with an existing operator to include the land in the lease.

We are committed to a maximum funding of $ 15.2 million for the development of the land.

NOTE 3 – ASSETS HELD FOR SALE, DISPOSITIONS AND IMPAIRMENTS

3 unchanged sentences

Amount of assets held for sale (in thousands)

During the first quarter of 2023, we entered into an agreement to sell five facilities leased to Guardian Healthcare (“Guardian”) for estimated gross proceeds of $ 23.8 million.

We reclassified those five facilities to held for sale during the first quarter of 2023.

As discussed in Note 21 – Subsequent Events, these five facilities previously leased to Guardian were sold during the second quarter of 2023.

During the three months ended March 31, 2023, we sold two facilities, one SNF and one medical office building, subject to operating leases, for approximately $ 17.6 million in net cash proceeds.

As a result of these sales, we recognized a net gain of approximately $ 13.6 million.

During the three months ended March 31, 2022, we sold 27 facilities, subject to operating leases, for approximately $ 332.6 million in net cash proceeds, recognizing a net gain of approximately $ 113.6 million.

The proceeds and gain primarily related to the sale of the 22 facilities that were previously leased and operated by Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) and were included in assets held for sale as of December 31, 2021.

The net cash proceeds from the sale, including related costs accrued for as of the end of the first quarter of 2022, were $ 304.0 million, and we recognized a net gain of approximately $ 113.5 million.

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

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

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

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

During the three and six months ended June 30, 2023, we sold ten facilities ( nine SNFs and one ILF) and 12 facilities ( ten SNFs, one ILF and one medical office building) subject to operating leases, for approximately $ 44.7 million and $ 62.3 million in net cash proceeds, respectively.

As a result of these sales, we recognized net gains of approximately $ 12.2 million and $ 25.9 million, respectively.

The proceeds for the three and six months ended June 30, 2023 primarily relate to the sale of five facilities in the second quarter of 2023 that were previously leased to Guardian Healthcare (“Guardian”) and were included in assets held for sale as of March 31, 2023.

The net cash proceeds from the sale were $ 23.8 million, and we did no t recognize any gain or loss on the sale because we had already impaired the facilities down to the estimated fair value less costs to sell during the first quarter of 2023.

Additionally, we sold one facility, also previously leased to Guardian, for a sales price of $ 12.0 million, which was fully financed by Omega through a $ 12.0 million first lien mortgage on the facility.

The one facility sale and related seller financing did not meet the contract criteria to be recognized under ASC 610-20.

During the three months ended June 30, 2023, we received interest of $ 0.2 million related to the seller financing, which was deferred and recorded as a contract liability within accrued expenses and other liabilities on our Consolidated Balance Sheets.

During the three and six months ended June 30, 2022, we sold 13 and 40 facilities, subject to operating leases, for approximately $ 54.3 million and $ 386.9 million in net cash proceeds, respectively.

As a result of these sales, we recognized net gains of approximately $ 25.2 million and $ 138.8 million during the three and six months ended June 30, 2022, respectively.

Our 2022 sales were primarily driven by restructuring transactions and negotiations related to our lease agreements with Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”) and Guardian.

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

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

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

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

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

The 11-facility sale does not meet the contract criteria to be recognized under ASC 610-20.

During the three months ended March 31, 2023, we received interest of $ 2.1 million related to the $ 104.8 million in senior seller financing, which was deferred and recorded as a contract liability within accrued expenses and other liabilities on our Consolidated Balance Sheets.

During the three and six months ended June 30, 2023, we received interest of $ 2.1 million and $ 4.2 million, respectively, related to the $ 104.8 million in senior seller financing, which was deferred and recorded as a contract liability within accrued expenses and other liabilities on our Consolidated Balance Sheets.

Real Estate Impairments

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

Of the $ 39.0 million, $ 37.0 million related to two held-for-use facilities for which the carrying value exceeded the fair value and $ 2.0 million related to two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair value less costs to sell.

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

During the three months ended March 31, 2022, we recorded impairments of approximately $ 3.5 million on two facilities that were classified as held for sale during the quarter for which the carrying values exceeded the estimated fair values less costs to sell.

During the three and six months ended June 30, 2023, we recorded impairments on four and six facilities of approximately $ 21.1 million and $ 60.1 million, respectively.

Of the $ 60.1 million, $ 57.5 million related to four held-for-use facilities (of which $ 48.0 million relates to three facilities that were closed during the year) for which the carrying value exceeded the fair value and $ 2.6 million related to two facilities that were classified as held for sale for which the carrying value exceeded the estimated fair value less costs to sell.

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

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

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

13 unchanged sentences

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

During the three months ended March 31, 2023, we did no t place any additional operators on a cash basis of revenue recognition.

We transitioned 43 facilities subject to leases with three cash basis operators, including 34 facilities related to the 1.2 % Operator and 2.0 % Operator discussed below, to new leases with four operators during the three months ended March 31, 2023.

We are recognizing revenue on a straight-line basis for the leases associated with these four operators.

Subsequent to quarter end, we transitioned five facilities subject to a lease with one cash basis operator to a new lease with one new operator for which we are recognizing revenue on a straight-line basis.

During the three months ended March 31, 2022, we placed two new operators on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was not deemed probable.

The new lease agreements with these operators were executed in the first quarter of 2022 and we placed them on a cash basis concurrent with the lease commencement, so there was no straight-line rent write-offs associated with moving these operators to cash basis.

As of March 31, 2023, we had 17 operators on a cash basis for revenue recognition, which represent 25.1 % and 32.2 % of our total revenues (excluding the impact of write-offs) for the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2022, we also wrote-off $ 3.2 million of straight-line rent receivable balances through rental income as a result of transitioning six facilities between existing operators.

During the three and six months ended June 30, 2023, we placed two new operators, which Omega has not previously had relationships with prior to the second quarter of 2023, on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was not deemed probable.

The new lease agreements with each of these operators were executed in the second quarter of 2023 as part of transitions of facilities from other operators, and we placed them on a cash basis concurrent with the respective lease commencement dates, so there were no straight-line rent write-offs associated with moving these operators to a cash basis.

During the three and six months ended June 30, 2022, we placed two and four operators, respectively, on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from such operators was not deemed probable.

In connection with moving these operators to a cash basis, we recognized $ 10.4 million in total straight-line accounts receivable write-offs through rental income during the three and six months ended June 30, 2022.

During the six months ended June 30, 2023, we transitioned the portfolios of four cash basis operators with an aggregate of 48 facilities, including 14 facilities related to the operator referred to as the “ 1.2 % Operator” in our Annual Report on Form 10-K for the year ended December 31, 2022 and 20 facilities related to the operator referred to as the “ 2.0 % Operator” in our Annual Report on Form 10-K for the year ended December 31, 2022, to new or amended leases with five operators.

We are recognizing revenue on a straight-line basis for the leases associated with these five operators.

The aggregate initial contractual rent related to the 48 facilities following the transition to other operators is $ 48.0 million per annum.

In connection with the transition of the 14 facilities, Omega made or agreed to make termination payments of $ 15.5 million in aggregate that were recorded as initial direct costs related to the lease with the new operator of the 14 transitioned facilities in the first quarter of 2023.

These termination payments are deferred and recognized within depreciation and amortization expense on a straight-line basis over the term of the master lease.

During the six months ended June 30, 2023 and 2022, we also wrote-off $ 0.9 million and $ 3.2 million, respectively, of straight-line rent receivable balances through rental income as a result of transitioning facilities between existing operators.

As of June 30, 2023, we had 18 operators on a cash basis for revenue recognition, which represent 25.8 % and 32.3 % of our total revenues (excluding the impact of write-offs) for the six months ended June 30, 2023 and 2022, respectively.

Rent Deferrals and Application of Collateral

During the three months ended March 31, 2023 and 2022, we allowed eight operators and six operators, respectively, to defer $ 24.4 million and $ 19.3 million, respectively, of contractual rent and interest.

The deferrals during the first quarter of 2023 primarily related to the following operators:

During the six months ended June 30, 2023 and 2022, we allowed nine operators and seven operators, respectively, to defer $ 33.6 million and $ 24.0 million, respectively, of contractual rent and interest.

The deferrals during the six months ended June 30, 2023 primarily related to the following operators:

LaVie ($ 19.0 million), Healthcare Homes Limited (“Healthcare Homes”) ($ 8.2 million), Agemo Holdings, LLC (“Agemo”) ($ 1.9 million) and Maplewood Senior Living (along with affiliates, “Maplewood”) ($ 0.7 million).

Additionally, we allowed three operators and four 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 and 2022, respectively.

The total collateral applied to contractual rent and interest was $ 5.2 million and $ 3.3 million for the three months ended March 31, 2023 and 2022, respectively.

Additionally, we allowed four operators and five operators to apply collateral, such as security deposits or letters of credit, to contractual rent and interest during the six months ended June 30, 2023 and 2022, respectively.

The total collateral applied to contractual rent and interest was $ 5.5 million and $ 4.7 million for the six months ended June 30, 2023 and 2022, respectively.

Operator Collectibility Updates

5 unchanged sentences

● refinance and restructure the $ 25.0 million secured working capital loan (the “Agemo WC Loan”), the $ 32.0 million term loan (the “Agemo Term Loan”) and the aggregate deferred rent balance of $ 25.2 million into two replacement loans to Agemo that mature on December 31, 2036 , with aggregate principal of $ 82.2 million and an annual interest rate of 5.63 % through October 2024, which increases to 5.71 % until maturity.

Agemo did not pay rent or interest during the three months ended March 31, 2023 and 2022.

Agemo is on a cash basis of revenue recognition for lease purposes, so no rental income was recorded related to Agemo during the three months ended March 31, 2023 and 2022.

Additionally, no interest income was recognized during the three months ended March 31, 2023 and 2022 on the two loans with Agemo because these loans are on non-accrual status and we are utilizing the cost recovery method, under which any payments, if received, are applied against the principal amount.

See Note 6 – Non-Real Estate Loans Receivable for further discussion on the impact of the restructuring on the loans.

Agemo resumed making contractual rent payments during the second quarter of 2023 in accordance with the restructuring terms discussed above.

Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $ 5.8 million for the three and six months ended June 30, 2023 for the contractual rent payments that were received.

Additionally, no interest income was recognized during the three and six months ended June 30, 2023 and 2022 on the two loans with Agemo because these loans are on non-accrual status and we are utilizing the cost recovery method, under which any payments, if received, are applied against the principal amount.

See Note 6 – Non-Real Estate Loans Receivable for further discussion on the impact of the restructuring on the loans.

In the first quarter of 2023, Omega continued the process of restructuring our portfolio with LaVie and entered into lease amendments that allow for 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.

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

Since LaVie was placed on a cash basis of revenue recognition for lease purposes in the fourth quarter of 2022, the $ 7.4 million of contractual rent payments that we received was recorded as rental income during the three months ended March 31, 2023.

Revenue from LaVie represents approximately 3.2 % and 11.3 % of our total revenues (excluding the impact of write-offs) for the three months ended March 31, 2023 and 2022, respectively.

Subsequent to quarter end, we transitioned two facilities, previously subject to the master lease with LaVie, to another operator.

During the three and six months ended June 30, 2023, LaVie elected to defer $ 4.7 million and $ 19.0 million, respectively, of contractual rent.

Since LaVie was placed on a cash basis of revenue recognition for lease purposes in the fourth quarter of 2022, the $ 16.9 million and $ 24.3 million of contractual rent payments that we received from LaVie to satisfy the remaining contractual obligations after utilizing the deferral were recorded as rental income during the three and six months ended June 30, 2023, respectively.

During the second quarter of 2023, we transitioned two facilities, previously subject to the master lease with LaVie, to another operator.

In July 2023, LaVie paid $ 2.5 million of contractual rent, a short pay of $ 4.7 million of the $ 7.2 million due under its lease agreement.

Revenue from LaVie represents approximately 5.1 % and 11.3 % of our total revenues (excluding the impact of write-offs) for the six months ended June 30, 2023 and 2022, respectively.

In the first quarter of 2023, we agreed to a formal restructuring agreement, master lease amendments and loan amendments with Maplewood.

8 unchanged sentences

● reduce Maplewood’s share of any future potential sales proceeds (in excess of our gross investment) by the unpaid deferred rent balance, the $ 22.5 million of capital expenditures and the $ 12.5 million option termination fee payment.

Maplewood is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $ 17.3 million for the three months ended March 31, 2023 for the contractual rent payments that were received.

Maplewood short-paid the contractual rent amount due under its lease agreement in each of June 2023 and July 2023 by $ 1.0 million each.

During the third quarter of 2023, we applied $ 2.0 million of Maplewood’s security deposit toward the unpaid portion of June 2023 rent and July 2023 rent.

Following the application of the security deposit, we have a $ 2.8 million security deposit remaining.

We are taking actions to preserve our rights and are in discussions with Maplewood to address the deficiency.

Maplewood is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $ 16.3 million and $ 33.6 million for the three and six months ended June 30, 2023, respectively, for the contractual rent payments that were received.

The $ 12.5 million option termination fee payment made in the first quarter of 2023 was accounted for as a lease inducement and recorded as a reduction to rental income since Maplewood is on a cash basis of revenue recognition.

Additionally, as discussed further in Note 5 – Real Estate Loans Receivable, we recorded interest income of $ 1.5 million on the secured revolving credit facility during the three months ended March 31, 2023 for the contractual interest payment received related to December 2022, as the loan was placed on non-accrual status for interest recognition during the fourth quarter of 2022.

Revenue from Maplewood represents approximately 8.2 % and 9.0 % of our total revenues (excluding the impact of write-offs) for the three months ended March 31, 2023 and 2022, respectively.

Revenue from Maplewood represents approximately 7.3 % and 9.0 % of our total revenues (excluding the impact of write-offs) for the six months ended June 30, 2023 and 2022, respectively.

Healthcare Homes

In December 2022, we agreed to allow Healthcare Homes, a U.K.

based operator representing 3.1 % and 3.0 % of our total revenues (excluding the impact of write-offs) for the three months ended March 31, 2023 and 2022, respectively, the ability to defer up to £ 6.7 million of contractual rent from January 2023 through April 2023 with regular payments required to resume in May 2023.

In December 2022, we agreed to allow Healthcare Homes, a U.K.-based operator representing 3.1 % and 2.9 % of our total revenues (excluding the impact of write-offs) for the six months ended June 30, 2023 and 2022, respectively, the ability to defer up to £ 6.7 million of contractual rent from January 2023 through April 2023 with regular payments required to resume in May 2023.

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

During the first quarter of 2023, Healthcare Homes elected to defer £ 5.0 million ($ 6.1 million in USD) of contractual rent in accordance with the December 2022 agreement.

During the three and six months ended June 30, 2023, Healthcare Homes elected to defer £ 1.7 million ($ 2.1 million in USD) and £ 6.7 million ($ 8.2 million in USD), respectively, of contractual rent in accordance with the December 2022 agreement.

Healthcare Homes is on a straight-line basis of revenue recognition.

In May 2023, Healthcare Homes resumed making full contractual rent payments.

1.2 % Operator

Omega transitioned 14 facilities, previously subject to a lease with an operator that had collectability concerns during 2022 (referred to as the “1.2% Operator” in our Annual Report on Form 10-K for the year ended December 31, 2022), to another existing operator on March 1, 2023.

Following the transition, we have no further relationship with the 1.2 % Operator.

We recorded rental income of $ 0.5 million for the contractual rent payments that were received from the 1.2 % Operator during the three months ended March 31, 2023.

The initial contractual rent related to the 14 facilities following the transition to another operator is $ 23.8 million per annum.

In connection with this transition, Omega made or agreed to make termination payments of $ 15.5 million in aggregate that were recorded as initial direct costs related to the lease with the new operator of the 14 transitioned facilities.

These payments are deferred and recognized within depreciation and amortization expense on a straight-line basis over the term of the master lease.

2.0 % Operator

Omega transitioned 20 facilities, previously subject to a lease with an operator that that had collectability concerns during 2022 (referred to as the “2.0% Operator” in our Annual Report on Form 10-K for the year ended December 31, 2022), to three other operators during the first quarter of 2023.

Following the transition, we have no further relationship with the 2.0 % Operator.

We recorded rental income of $ 0.9 million for the contractual rent payments that were received from the 2.0 % Operator during the three months ended March 31, 2023.

The initial aggregate contractual rent related to the 20 facilities following the transition to other operators is $ 14.5 million per annum.

NOTE 5 – REAL ESTATE LOANS RECEIVABLE

Real estate loans consist of mortgage notes 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.

As of March 31, 2023, our real estate loans receivable consist of eight fixed rate mortgage notes on 53 long-term care facilities and 10 other real estate loans.

The mortgage notes relate to facilities located in seven states that are operated by seven independent healthcare operating companies.

As of June 30, 2023, our real estate loans receivable consists of eight fixed rate mortgage notes on 49 long-term care facilities and 12 other real estate loans.

The mortgage notes relate to facilities located in six states that are operated by seven independent healthcare operating companies.

We monitor compliance with our real estate loans and, when necessary, have initiated collection, foreclosure and other proceedings with respect to certain outstanding real estate loans.

20 unchanged sentences

Other real estate loan outstanding (4)

Leasehold mortgages and other real estate loans – gross

Allowance for credit losses on leasehold mortgages and other real estate loans

Leasehold mortgages and other real estate loans – net

Other real estate loans – gross

Allowance for credit losses on other real estate loans

Other real estate loans – net

Total real estate loans receivable – net

(1) Approximates the weighted average interest rate on facilities as of March 31, 2023.

(2) Subsequent to quarter end, this mortgage note was extended to December 31, 2037.

(3) Other mortgage notes outstanding have a weighted average interest rate of 9.00 % as of March 31, 2023, with maturity dates ranging from 2023 through 2026 (with $ 12.9 million maturing in 2023 ).

One of these mortgage notes with a principal balance of $ 6.4 million is past due and has been written down to the fair value of its collateral of $ 1.5 million.

(4) As of March 31, 2023 and December 31, 2022, includes one real estate loan with an interest rate of 12.00 % and a maturity date of December 2, 2027 .

(1) Approximates the weighted average interest rate on facilities as of June 30, 2023.

(2) During the second quarter of 2023, this mortgage note was extended from December 31, 2032 to December 31, 2037.

(3) Other mortgage notes outstanding have a weighted average interest rate of 8.6 % as of June 30, 2023, with maturity dates ranging from 2023 through 2026 .

Two of the mortgage notes with an aggregate principal balance of $ 12.9 million are past due and have been written down, through our allowance for credit losses, to the estimated fair value of the underlying collateral of $ 1.5 million.

(4) As of June 30, 2023 and December 31, 2022, includes one other real estate loan that bears interest at a rate of 12 % and matures on December 2, 2027 .

Interest revenue on real estate loans is included within interest income on the Consolidated Statements of Operations and is summarized as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Mortgage notes – interest income

Leasehold mortgages and other real estate loans – interest income

Other real estate loans – interest income

Total real estate loans interest income

2 unchanged sentences

The loan amendment was treated as a loan modification provided to a borrower experiencing financial difficulty.

Following the execution of the restructuring agreement, Guardian resumed paying contractual rent and interest during the second quarter of 2022 and continued such payments throughout the remainder of 2022 and the first quarter of 2023, in accordance with the restructuring terms.

Following the execution of the restructuring agreement, Guardian resumed paying contractual rent and interest during the second quarter of 2022 and continued such payments throughout the remainder of 2022 and the first and second quarters of 2023, in accordance with the restructuring terms.

The mortgage loan is on non-accrual status and is being accounted for under the cost recovery method, under which any payments, if received, are applied against the principal amount.

During the first quarter of 2023, we received $ 2.3 million of interest payments from Guardian that we applied against the outstanding principal of the loan and recognized a recovery for credit loss equal to the amount of payments applied against principal.

As of March 31, 2023, the amortized cost basis of the Guardian mortgage loan is $ 73.8 million, which represents 6.4 % of the total amortized cost basis of all real estate loan receivables.

The amortized cost basis of the loan, net of reserves, is $ 35.2 million.

As of March 31, 2023, the mortgage loan is secured by three SNFs and one ALF located in Pennsylvania.

The mortgage loan was paid off during the second quarter of 2023, as discussed in Note 21 – Subsequent Events.

During the three and six months ended June 30, 2023, we received $ 1.6 million and $ 3.9 million, respectively, of interest payments from Guardian that we applied against the outstanding principal of the loan and recognized a recovery for credit loss equal to the amount of payments applied against principal.

In the second quarter of 2023, Guardian completed the sale of the four remaining facilities subject to the mortgage note with Omega.

Guardian used $ 35.2 million of proceeds from the sale of the facilities to make a principal repayment to Omega, in the same amount, against the mortgage note.

Following the repayment, Omega agreed to release the mortgage liens on these facilities and forgive the remaining $ 46.8 million of outstanding principal due under the mortgage note.

We had previously established an allowance for credit loss to reserve this loan down to $ 35.2 million in anticipation of this settlement.

Other real estate loan due 2035

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During the three months ended March 31, 2023, we recorded interest income of $ 1.5 million on the secured revolving credit facility for the contractual interest payment received related to December 2022, as the loan was placed on non-accrual status for interest recognition during the fourth quarter of 2022.

We did not record any interest income related to the PIK interest in the first quarter of 2023.

As of March 31, 2023, the amortized cost basis of this loan was $ 259.0 million, which represents 22.5 % of the total amortized cost basis of all real estate loan receivables.

As of March 31, 2023, the remaining commitment under the secured revolving credit facility, including the unrecognized PIK interest, was $ 58.1 million.

We did not record any interest income related to the PIK interest during the three and six months ended June 30, 2023.

As of June 30, 2023, the amortized cost basis of this loan was $ 263.5 million, which represents 22.7 % of the total amortized cost basis of all real estate loan receivables.

As of June 30, 2023, the remaining commitment under the secured revolving credit facility, including the unrecognized PIK interest, was $ 48.8 million.

Other real estate loans due 2023-2029

On April 14, 2023, we entered into two mezzanine loans, with principal balances of $ 68.0 million and $ 6.6 million, respectively, with an existing operator and its affiliates in connection with the operator’s acquisition of 13 SNFs in West Virginia.

The $ 68.0 million loan matures on April 13, 2029 and bears interest at a variable rate that results in a blended interest rate of 12 % per annum across this loan and three other loans, including the $ 6.6 million mezzanine loan and both $ 15.0 million mezzanine loans discussed under Notes due 2023-2029 in Note 6 – Non-Real Estate Loans Receivable.

The $ 68.0 million loan requires quarterly principal payments of $ 1.0 million commencing on July 1, 2023 and additional payments contingent on certain metrics.

The $ 68.0 million loan is secured by a leasehold mortgage and a pledge of the operator’s equity interest in subsidiaries of the operator.

The $ 6.6 million mezzanine loan matures on April 14, 2029 and bears interest at a rate of 8 % per annum.

The $ 6.6 million mezzanine loan was made to a new real estate joint venture, RCA NH Holdings RE Co., LLC, that we formed in April 2023 with the acquiring operator (see Note 9 – Investments in Joint Ventures for additional information on this joint venture).

NOTE 6 – NON-REAL ESTATE LOANS RECEIVABLE

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These loans may be either unsecured or secured by the collateral of the borrower, which may include the working capital of the borrower.

As of March 31, 2023, we had 34 loans with 19 different borrowers.

As of June 30, 2023, we had 39 loans with 22 different borrowers.

A summary of our non-real estate loans is as follows:

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Total non-real estate loans receivable – net

(1) Approximates the weighted average interest rate as of March 31, 2023.

(1) Approximates the weighted average interest rate as of June 30, 2023.

(2) During the first quarter of 2023, this loan was fully repaid.

(3) Other notes outstanding have a weighted average interest rate of 7.00 % as of March 31, 2023, with maturity dates ranging from 2023 through 2030 (with $ 17.2 million maturing in 2023 ).

We have two loans within other notes outstanding with principal of $ 5.0 million and $ 4.2 million, respectively, that were to mature in 2022 but remained outstanding as of March 31, 2023.

We have fully reserved the $ 5.0 million loan and have written down the $ 4.2 million loan down to the fair value of its collateral of $ 1.0 million.

For the three months ended March 31, 2023 and 2022, non-real estate loans generated interest income of $ 5.0 million and $ 2.2 million, respectively.

(3) Other notes outstanding have a weighted average interest rate of 7.39 % as of June 30, 2023, with maturity dates ranging from 2023 through 2030 (with $ 19.6 million maturing in 2023 ).

We have one loan within other notes outstanding with principal of $ 4.1 million that matured in 2022 but remained outstanding as of June 30, 2023.

We wrote the $ 4.1 million loan down to the fair value of its collateral of $ 1.0 million during the first quarter of 2023.

For the three months ended June 30, 2023 and 2022, non-real estate loans generated interest income of $ 5.3 million and $ 2.8 million, respectively.

For the six months ended June 30, 2023 and 2022, non-real estate loans generated interest income of $ 10.3 million and $ 5.0 million, respectively.

Interest income on non-real estate loans is included within interest income on the Consolidated Statements of Operations.

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The Agemo Replacement Loans mature on December 31, 2036 .

Interest payments are scheduled to resume on April 1, 2023, contingent upon Agemo’s compliance with certain conditions of the restructuring agreement;

however, Agemo has the option to defer the interest payment due on April 1, 2023.

Interest payments were scheduled to resume on April 1, 2023, contingent upon Agemo’s compliance with certain conditions of the restructuring agreement;

however, Agemo had the option to defer the interest payment due on April 1, 2023.

Beginning in January 2025, Agemo will be required to make principal payments on the Agemo Replacement Loans dependent on certain metrics.

1 unchanged sentence

Both of these loans are on non-accrual status, and we are utilizing the cost recovery method, under which any payments, if received, are applied against the principal amount.

Agemo exercised its option to defer the interest payment due on April 1, 2023 and resumed making interest payments in May 2023 in accordance with the restructuring terms discussed above.

Prior to the restructuring, the principal of the Agemo WC Loan and the Agemo Term Loan were written down to $ 5.9 million and zero , respectively, the fair value of the underlying collateral of these loans.

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We believe it is not probable that we will collect the additional $ 25.2 million of principal balance associated with the deferred rent under Agemo Replacement Loan B.

As such, we added an additional allowance for credit losses of $ 25.2 million related to Agemo Replacement Loan B concurrent with the increase in loan principal.

As such, we added an additional allowance for credit losses of $ 25.2 million related to Agemo Replacement Loan B concurrent with the increase in loan principal during the first quarter of 2023.

There is no income statement impact as a result of this additional reserve due to the balance previously being written off.

As of March 31, 2023, the amortized cost basis of these loans was $ 81.0 million, which represents 26.6 % of the total amortized cost basis of all non-real estate loan receivables.

The total reserve as of March 31, 2023 related to the Agemo Replacement Loans was $ 75.1 million.

Agemo exercised its option to defer the interest payment due on April 1, 2023 and resumed making interest payments in May 2023 in accordance with the restructuring terms discussed above.

During the three months ended June 30, 2023, we received $ 0.8 million of interest payments from Agemo that we applied against the outstanding principal of the loans and recognized a recovery for credit loss equal to the amount of payments applied against principal.

As of June 30, 2023, the amortized cost basis of these loans was $ 80.2 million, which represents 23.3 % of the total amortized cost basis of all non-real estate loan receivables.

The total reserve as of June 30, 2023 related to the Agemo Replacement Loans was $ 74.3 million.

Notes due 2023 - 2029

During the second quarter of 2023, we entered into two $ 15.0 million mezzanine loans with an existing operator and its affiliates in connection with the operator’s acquisition of 13 SNFs in West Virginia (discussed in Note 5 – Real Estate Loans Receivable).

The first $ 15.0 million mezzanine loan (the “2028 Mezz Loan”) matures on April 1, 2028 and bears interest at a variable rate based on the one month term SOFR plus 8.6 % per annum.

The 2028 Mezz Loan requires monthly principal payments commencing on May 1, 2023 and is secured by a pledge of the operator’s equity interest in its subsidiaries.

The second $ 15.0 million mezzanine loan (the “2029 Mezz Loan”) matures on April 13, 2029 and bears interest at a fixed rate of 12 % per annum.

The 2029 Mezz Loan also requires quarterly principal payments of $ 0.3 million commencing on July 1, 2023 and additional payments contingent on the operator’s achievement of certain metrics.

The 2029 Mezz Loan is secured by a pledge of the operator’s equity interest in subsidiaries of the operator.

In connection with the two mezzanine loans, we also provided a $ 3.3 million working capital loan to a new joint venture, WV Pharm Holdings, LLC, that we formed in April 2023 with the acquiring operator (see Note 9 – Investments in Joint Ventures for additional information on this joint venture).

Notes due 2036 ;

interest at 2.00 %

During the fourth quarter of 2022, we amended an $ 8.3 million term loan and a $ 25.0 million term loan with LaVie to, among other terms, extend the loan maturities to November 30, 2036 to align with the lease term, and starting in January 2023, reduce the interest rates to 2 %, remove the requirement to make any principal payments until the maturity dates and to convert from monthly cash interest payments to PIK interest.

During the fourth quarter of 2022, we amended an $ 8.3 million term loan and a $ 25.0 million term loan with LaVie to, among other terms, extend the loan maturities to November 30, 2036 to align with the lease term, and starting in January 2023, reduce the interest rates to 2 %, remove the requirement to make any principal payments until the maturity dates and convert from monthly cash interest payments to PIK interest.

These amendments were treated as loan modifications provided to a borrower experiencing financial difficulty.

Both of these loans are on non-accrual status, and we are utilizing the cost recovery method, under which any payments made by LaVie are applied against the principal amount outstanding.

During the quarter ended March 31, 2023, we applied an aggregate $ 0.2 million of interest payments received to the $ 25.0 million term loan principal balance and the $ 8.3 million term loan principal balance outstanding.

As of March 31, 2023, the amortized cost basis of these loans was $ 32.3 million, which represents 10.6 % of the total amortized cost basis of all non-real estate loan receivables.

The total reserve as of March 31, 2023 related to the LaVie loans was $ 24.8 million.

During the six months ended June 30, 2023, we applied an aggregate $ 0.2 million of interest payments received to the $ 25.0 million term loan principal balance and the $ 8.3 million term loan principal balance outstanding.

As of June 30, 2023, the amortized cost basis of these loans was $ 32.3 million, which represents 9.4 % of the total amortized cost basis of all non-real estate loan receivables.

The total reserve as of June 30, 2023 related to the LaVie loans was $ 24.8 million.

Note due 2024

On July 8, 2019, the Company entered into a $ 15 million unsecured revolving credit facility agreement with a principal of an operator that bears interest at a fixed rate of 7.5 % per annum and originally matured on July 8, 2022 .

During 2022, this revolving credit facility was amended multiple times to increase the maximum principal to $ 48 million, extend the maturity date to December 31, 2024 and require monthly principal payments.

During the second quarter of 2023, this revolving credit facility was further amended to increase the maximum principal to $ 52 million and modify the principal payment schedule.

Other notes outstanding

$ 10.0 million Mezzanine Loan and Working Capital Loan

On June 30, 2023, the Company entered into a $ 10.0 million mezzanine loan and a revolving working capital loan with an existing operator in connection with the operator’s acquisition of a portfolio of facilities in Pennsylvania.

The $ 10.0 million mezzanine loan matures on June 30, 2028 and bears interest at a fixed rate of 11 % per annum.

The $ 10.0 million mezzanine loan also requires monthly amortizing payments of principal and interest in the amount of $ 0.2 million.

The $ 10.0 million mezzanine loan is secured by an equity interest in a subsidiary of the operator.

The working capital loan matures on June 30, 2026 and bears interest at a fixed rate of 10 % per annum.

The working capital loan has a maximum principal of $ 34.0 million for the first year that decreases to $ 20.0 million thereafter.

The working capital loan is secured by the accounts receivable of the acquired facilities.

As of June 30, 2023, the revolving working capital loan has not been drawn on.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

A rollforward of our allowance for credit losses for the three months ended March 31, 2023 is as follows:

A rollforward of our allowance for credit losses for the six months ended June 30, 2023 is as follows:

Financial Statement Line Item

Allowance for Credit Loss as of December 31, 2022

Provision (recovery) for Credit Loss for the three months ended March 31, 2023

Write-offs charged against allowance for the three months ended March 31, 2023

Other additions to the allowance for the three months ended March 31, 2023

Allowance for Credit Loss as of March 31, 2023

Provision (recovery) for Credit Loss for the six months ended June 30, 2023

Write-offs charged against allowance for the six months ended June 30, 2023

Other additions to the allowance for the six months ended June 30, 2023

Allowance for Credit Loss as of June 30, 2023

(in thousands)

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Off-balance sheet non-real estate loan commitments

Off-balance sheet real estate loan commitments

Off-balance sheet non-real estate loan commitments

Off-balance sheet real estate loan commitments

(1) This amount relates to the write-off of the allowance for the Guardian mortgage note in connection with the settlement and partial forgiveness of the note in the second quarter of 2023.

See Note 5 – Real Estate Loans Receivable for additional details.

(2) This amount relates to the additional $ 25.2 million allowance recorded during the first quarter of 2023 in order to reserve the aggregate deferred rent amount that is included within Agemo Replacement Loan B.

See Note 6 – Non-Real Estate Loans Receivable for additional details.

A rollforward of our allowance for credit losses for the three months ended March 31, 2022 is as follows:

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

Financial Statement Line Item

Allowance for Credit Loss at December 31, 2021

Provision (recovery) for Credit Loss for the three months ended March 31, 2022

Write-offs charged against allowance for the three months ended March 31, 2022

Allowance for Credit Loss as of March 31, 2022

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

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

Allowance for Credit Loss as of June 30, 2022

(in thousands)

4 unchanged sentences

Real estate loans receivable

Investment in direct financing leases

10 unchanged sentences

Off-balance sheet non-real estate loan commitments

(1) This amount relates to a recovery recorded on the Guardian mortgage loan during the first quarter of 2022.

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

(1) This amount relates to a recovery recorded on the Guardian mortgage loan during the first and second quarters of 2022.

(2) This provision includes an additional $ 2.3 million allowance recorded on a $ 20 million working capital loan during the second quarter of 2022.

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

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

1 unchanged sentence

Revolving Loans

Balance as of March 31, 2023

Balance as of June 30, 2023

(in thousands)

4 unchanged sentences

Real estate loans receivable

Investment in direct financing leases

7 unchanged sentences

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

As of March 31, 2023 and December 31, 2022, we have excluded $ 8.0 million and $ 8.2 million, respectively, of contractual interest receivables and $ 5.2 million and $ 5.7 million, respectively, of effective yield interest receivables from our allowance for credit losses.

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

During the three months ended March 31, 2023 and 2022, we recognized $ 1.5 million and $ 4.2 million, respectively, of interest income related to loans on non-accrual status as of March 31, 2023.

As of June 30, 2023 and December 31, 2022, we have excluded $ 8.8 million and $ 8.2 million, respectively, of contractual interest receivables and $ 4.6 million and $ 5.7 million, respectively, of effective yield interest receivables from our allowance for credit losses.

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

During the three months ended June 30, 2023 and 2022, we recognized $ 0.1 million and $ 4.9 million, respectively, of interest income related to loans on non-accrual status as of June 30, 2023.

During the six months ended June 30, 2023 and 2022, we recognized $ 1.6 million and $ 9.0 million, respectively, of interest income related to loans on non-accrual status as of June 30, 2023.

NOTE 8 – VARIABLE INTEREST ENTITIES

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

Below is a summary of our assets, liabilities, collateral and maximum exposure to loss associated with these unconsolidated VIEs as of March 31, 2023 and December 31, 2022:

Below is a summary of our assets, liabilities, collateral and maximum exposure to loss associated with these unconsolidated VIEs as of June 30, 2023 and December 31, 2022:

(in thousands)

1 unchanged sentence

Real estate loans receivable – net

Investments in unconsolidated joint ventures

Non-real estate loans receivable – net

Contractual receivables – net

Net in-place lease liability

Security deposit

Contingent liability

Other liabilities

Accrued expenses and other liabilities

Total liabilities

6 unchanged sentences

Maximum exposure to loss

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

The fair value of the accounts receivable available to Omega was $ 5.9 million as of March 31, 2023 and December 31, 2022.

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

The fair value of the accounts receivable available to Omega was $ 8.7 million and $ 5.9 million as of June 30, 2023 and December 31, 2022, respectively.

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

The table below reflects our total revenues from the operators that are considered unconsolidated VIEs for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The table below reflects our total revenues from the operators that are considered unconsolidated VIEs for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Rental income

1 unchanged sentence

Consolidated VIEs

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

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

Accordingly, this joint venture has been consolidated.

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

As of March 31, 2023 and December 31, 2022, this joint venture has $ 27.0 million and $ 25.8 million, respectively, of total assets and $ 20.2 million and $ 19.8 million, respectively, of total liabilities, which are included in our Consolidated Balance Sheets.

We own 52.4 % of the outstanding equity of a joint venture, which owns two ALFs, that is a VIE.

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

As of June 30, 2023 and December 31, 2022, this joint venture has $ 26.7 million and $ 25.8 million, respectively, of total assets and $ 20.3 million and $ 19.8 million, respectively, of total liabilities, which are included in our Consolidated Balance Sheets.

During the fourth quarter of 2022, we acquired seven facilities using a reverse like-kind exchange structure pursuant to Section 1031 of the Code (a “reverse 1031 exchange”).

As of March 31, 2023, we had completed the reverse 1031 exchange for three of the acquired facilities and the remaining four acquired facilities remained in the possession of the Exchange Accommodation Titleholders (“EATs”).

The EATs were classified as VIEs as they do not have sufficient equity investment at risk to permit the entity to finance its activities.

We completed the reverse 1031 exchange for three of the acquired facilities in the fourth quarter of 2022.

During the second quarter of 2023, the remaining four facilities were released from the possession of the Exchange Accommodation Titleholders (“EATs”), as we did not identify any qualifying exchange transactions.

The EATs were classified as VIEs as they did not have sufficient equity investment at risk to permit the entity to finance its activities.

The Company consolidated the EATs because it had the ability to control the activities that most significantly impacted the economic performance of the EATs and was, therefore, the primary beneficiary of the EATs.

The properties held by the EATs were reflected as real estate with a carrying value of $ 54.6 million and $ 55.2 million as of March 31, 2023 and December 31, 2022, respectively.

The properties held by the EATs were reflected as real estate with a carrying value of $ 55.2 million as of December 31, 2022.

The EATs also held cash of $ 23.9 million as of December 31, 2022 .

6 unchanged sentences

Investment (1)

June 30, 2023

Second Spring Healthcare Investments

5 unchanged sentences

OH CHS SNP, Inc.

RCA NH Holdings RE Co., LLC (2)(3)

WV Pharm Holdings, LLC (2)(3)

OMG-Form Senior Holdings, LLC (3)(4)

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

The following table reflects our income (loss) from unconsolidated joint ventures for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(2) These joint ventures were entered into in connection with an existing operator’s acquisition of SNFs in West Virginia during the second quarter of 2023, as discussed in Note 5 and Note 6.

The acquiring operator in the transaction is the majority owner of these joint ventures.

As of June 30, 2023, we have an aggregate of $ 8.5 million of loans outstanding with these joint ventures.

(3) These joint ventures are unconsolidated VIEs and therefore are included in the tables in Note 8 – Variable Interest Entities.

(4) During the second quarter of 2023, we funded $ 7.7 million under a mortgage loan with this joint venture.

The following table reflects our income (loss) from unconsolidated joint ventures for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

5 unchanged sentences

OH CHS SNP, Inc.

OMG-Form Senior Holdings, LLC

(1) The assets held by this joint venture have been liquidated, and we have no remaining operations related to this joint venture.

1 unchanged sentence

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

For the three months ended March 31, 2023 and 2022, we recognized approximately $ 0.2 million of asset management fees.

For the three months ended June 30, 2023 and 2022, we recognized approximately $ 0.2 million of asset management fees.

For the six months ended June 30, 2023 and 2022, we recognized approximately $ 0.4 million of asset management fees.

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

NOTE 10 – GOODWILL AND OTHER INTANGIBLES

The following is a summary of our goodwill as of March 31, 2023 and December 31, 2022:

The following is a summary of our goodwill as of June 30, 2023 and December 31, 2022:

(in thousands)

1 unchanged sentence

Foreign currency translation

Balance as of March 31, 2023

The following is a summary of our intangibles as of March 31, 2023 and December 31, 2022:

Balance as of June 30, 2023

The following is a summary of our intangibles as of June 30, 2023 and December 31, 2022:

(in thousands)

8 unchanged sentences

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

For the three months ended March 31, 2023 and 2022, our net amortization related to intangibles was $ 6.1 million and $ 1.6 million, respectively.

For the three months ended June 30, 2023 and 2022, our net amortization related to intangibles was $ 0.7 million and $ 1.0 million, respectively.

For the six months ended June 30, 2023 and 2022, our net amortization related to intangibles was $ 6.8 million and $ 2.6 million, respectively.

The estimated net amortization related to these intangibles for the remainder of 2023 and the next four years is as follows:

3 unchanged sentences

2026 – $ 2.1 million and 2027 – $ 1.8 million.

As of March 31, 2023, the weighted average remaining amortization period of above market lease assets is approximately twelve years and below market lease liabilities is approximately seven years .

As of June 30, 2023, the weighted average remaining amortization period of above market lease assets is approximately fourteen years and below market lease liabilities is approximately eight years .

NOTE 11 – CONCENTRATION OF RISK

As of March 31, 2023, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of 931 healthcare facilities, located in 42 states and the U.K.

As of June 30, 2023, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of 923 healthcare facilities, located in 42 states and the U.K.

and operated by 71 third-party operators.

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.5 billion at March 31, 2023, with approximately 97 % of our real estate investments related to long-term healthcare facilities.

Our portfolio is made up of (i) 661 SNFs, 175 ALFs, 19 ILFs, 16 specialty facilities and one medical office building, (ii) fixed rate mortgages on 48 SNFs, three ALFs and two specialty facilities, and (iii) six facilities that are held for sale.

At March 31, 2023, we also held other real estate loans receivable (excluding mortgages) of $ 399.2 million, non-real estate loans receivable of $ 189.9 million, consisting primarily of secured loans to third-party operators of our facilities, and $ 181.3 million of investments in five unconsolidated joint ventures.

As of March 31, 2023 and December 31, 2022, we had investments with one operator or manager that approximated or exceeded 10% of our total investments:

Maplewood generated approximately 8.2 % and 9.0 % of our total revenues (excluding the impact of write-offs) for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the three states in which we had our highest concentration of investments were Florida ( 11.5 %), Texas ( 10.2 %) and Indiana ( 6.6 %).

Our investment in these facilities, net of impairments and allowances, totaled approximately $ 9.6 billion at June 30, 2023, with approximately 97 % of our real estate investments related to long-term healthcare facilities.

Our portfolio is made up of (i) 661 SNFs, 175 ALFs, 19 ILFs, 17 specialty facilities and one medical office building, (ii) fixed rate mortgages on 44 SNFs, three ALFs and two specialty facilities, and (iii) one facility that is held for sale.

At June 30, 2023, we also held other real estate loans receivable (excluding mortgages) of $ 466.6 million, non-real estate loans receivable of $ 227.9 million and $ 191.7 million of investments in eight unconsolidated joint ventures.

As of June 30, 2023 and December 31, 2022, we had investments with one operator or manager that approximated or exceeded 10% of our total investments:

Maplewood generated approximately 6.5 % and 9.0 % of our total revenues (excluding the impact of write-offs) for the three months ended June 30, 2023 and 2022, respectively, and 7.3 % and 9.0 % of our total revenues for the six months ended June 30, 2023 and 2022, respectively.

During the three and six months ended June 30, 2023, we also have one operator with total revenues (excluding the impact of write-offs) that exceeded 10% of our total revenues:

CommuniCare Health Services, Inc.

(“CommuniCare”).

CommuniCare generated approximately 11.4 % and 7.4 % of our total revenues (excluding the impact of write-offs) for the three months ended June 30, 2023 and 2022, respectively, and 10.3 % and 7.4 % of our total revenues for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, CommuniCare represented approximately 8.6 % of our total investments.

As of June 30, 2023, the three states in which we had our highest concentration of investments were Florida ( 11.4 %), Texas ( 10.2 %) and Indiana ( 6.6 %).

NOTE 12 – STOCKHOLDERS’ EQUITY

$500 Million Stock Repurchase Program

We had no share repurchases during the three and six months ended June 30, 2023.

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

Average Price

Shares Repurchased

Per Share (1)

Repurchase Cost (1)

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2022

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

The following is a summary of our declared cash dividends on common stock:

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February 15, 2023

July 31, 2023

August 15, 2023

Dividend Reinvestment and Common Stock Purchase Plan

The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three months ended March 31, 2023 and 2022 (in millions):

The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and six months ended June 30, 2023 and 2022 (in millions):

Shares issued

Gross Proceeds

March 31, 2022

March 31, 2023

Three Months Ended

June 30, 2022

Three Months Ended

June 30, 2023

Six Months Ended

June 30, 2022

Six Months Ended

June 30, 2023

At-The-Market Offering Programs

The following is a summary of the shares issued under our $ 1.0 billion At-The-Market Offering Program (“ATM Program”) for the three and six months ended June 30, 2023 and 2022 (in millions except average price per share):

Average Net Price

Shares issued

Per Share (1)

Gross Proceeds

Three and Six Months Ended

June 30, 2022

Three and Six Months Ended

June 30, 2023

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

Accumulated Other Comprehensive Income (Loss)

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As of and for the

Three Months Ended March 31,

As of and for the

Three Months Ended

Six Months Ended

(in thousands)

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Beginning balance

Unrealized (loss) gain

Unrealized gain (loss)

Realized gain (1)

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Our domestic TRSs are subject to federal, state and local income taxes at the applicable corporate rates.

As of March 31, 2023, one of our TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 10.2 million.

Our NOL carry-forward was fully reserved as of March 31, 2023, with a valuation allowance due to uncertainties regarding realization.

As of June 30, 2023, one of our TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $ 10.2 million.

Our NOL carry-forward was fully reserved as of June 30, 2023, with a valuation allowance due to uncertainties regarding realization.

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

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Our foreign subsidiaries are subject to foreign income taxes and withholding taxes.

As of March 31, 2023, one of our U.K.

As of June 30, 2023, one of our U.K.

subsidiaries had a NOL carryforward of approximately $ 42.2 million.

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The following is a summary of our provision for income taxes:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Federal, state and local income tax expense

Foreign income tax (benefit) expense (1)

Total income tax (benefit) expense (2)

(1) The benefit for the three months ended March 31, 2023 primarily relates to adjustments made to our deferred tax assets and liabilities as a result of the majority of our U.K.

Foreign income tax expense (benefit) (1)

Total income tax expense (2)

(1) The benefit for the six months ended June 30, 2023 primarily relates to adjustments made to our deferred tax assets and liabilities as a result of the majority of our U.K.

portfolio electing to enter into the U.K.

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NOTE 14 – STOCK-BASED COMPENSATION

Stock-based compensation expense was $ 8.7 million and $ 6.9 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

The following is a summary of our stock-based compensation expense for the three and six months ended June 30, 2023 and 2022, respectively:

Three Months Ended

Six Months Ended

(in thousands)

Stock-based compensation expense

Stock-based compensation expense is included within general and administrative expenses on our Consolidated Statements of Operations.

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We also granted 59,684 performance-based restricted stock units (“RSUs”) during the first quarter of 2023 to certain employees, which are earned based on the level of performance over the performance period (normally three years ) and vest on December 31, 2025, subject to continued employment.

We granted 26,254 time-based PIUs and 25,224 time-based RSUs to directors during the second quarter of 2023, and those units vest on Omega’s 2024 annual meeting date, subject to the director’s continued service and vesting in certain other events.

Time-based and performance-based grants made to named executive officers and key employees that meet certain conditions under the Company’s retirement policy (length of service, age, etc.) vest on an accelerated basis pursuant to the 2018 Stock Incentive Plan.

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Total secured and unsecured borrowings – net (11)(12)

(1) Reflects the weighted average annual contractual interest rate on the mortgages at March 31, 2023.

Secured by real estate assets with a net carrying value of $ 476.5 million as of March 31, 2023.

(1) Reflects the weighted average annual contractual interest rate on the mortgages at June 30, 2023.

The mortgages are secured by real estate assets with a net carrying value of $ 470.8 million as of June 30, 2023.

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

(3) Excludes fees of approximately 0.65 % for mortgage insurance premiums.

(4) Borrowing is the debt of a consolidated joint venture.

(4) Borrowing was the debt of a consolidated joint venture.

(5) Borrowing is the debt of the consolidated joint venture discussed in Note 8 – Variable Interest Entities which was formed in the first quarter of 2022.

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(6) Guaranteed by Omega OP.

(7) As of March 31, 2023, borrowings under Omega’s $ 1.45 billion senior unsecured multicurrency revolving credit facility consisted of £ 16.0 million British Pounds Sterling (“GBP”).

The applicable interest rate on the US Dollar tranche and on the GBP borrowings under the alternative currency tranche of the credit facility were 6.04 % and 5.50 % as of March 31, 2023, respectively.

(7) During the second quarter of 2023, the Company transitioned its benchmark interest rate for its $ 1.45 billion senior unsecured multicurrency revolving credit facility from LIBOR to SOFR .

As of June 30, 2023, borrowings under Omega’s $ 1.45 billion senior unsecured multicurrency revolving credit facility consisted of £ 16.0 million British Pounds Sterling (“GBP”).

The applicable interest rate on the US Dollar tranche and on the GBP borrowings under the alternative currency tranche of the credit facility were 6.42 % and 6.25 % as of June 30, 2023, respectively.

(8) On August 1, 2023, the Company repaid the $ 350 million of 4.375 % senior notes that matured on August 1, 2023 using available cash.

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

(10) During the second quarter of 2023, the Company transitioned its benchmark interest rate for its $ 50.0 million senior unsecured term loan facility from LIBOR to SOFR .

The weighted average interest rate of the $ 50 million OP term loan has been adjusted to reflect the impact of the interest rate swaps that effectively fix the SOFR based portion of the interest rate at 3.957 % .

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

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

As of March 31, 2023 and December 31, 2022, we were in compliance with all applicable covenants for our borrowings .

As of June 30, 2023 and December 31, 2022, we were in compliance with all applicable covenants for our borrowings .

NOTE 16 – DERIVATIVES AND HEDGING

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

As of March 31, 2023, we have five forward starting swaps with $ 400.0 million in notional value, indexed to 3-month LIBOR, that were issued at a weighted average fixed rate of 0.8675 % and are designated as cash flow hedges.

As of June 30, 2023, we have one interest rate swap with $ 50.0 million in notional value that was entered into during the second quarter of 2023 (discussed further below).

The swap is designated as a cash flow hedge.

Additionally, we have six foreign currency forward contracts with £ 250.0 million in notional valued issued at a weighted average GBP-USD forward rate of 1.3641 that are designated as net investment hedges.

In June 2023, we entered into an interest rate swap with a notional amount of $ 50.0 million.

The swap is effective June 30, 2023 and terminates on April 30, 2027 .

This interest rate swap is designated as a hedge against our exposure to changes in interest payment cash flow fluctuations in the variable interest rates on the OP Term Loan.

The interest rate swap contract effectively converts our $ 50.0 million OP Term Loan to an aggregate fixed rate of approximately 5.52 % through its maturity.

The effective fixed rate achieved by the combination of the 2021 Omega OP Credit Agreement and the interest rate swaps could fluctuate up by 40 basis points or down by 60 basis points based on future changes to our credit ratings.

In March 2020, we entered into five forward starting swaps with $ 400 million in notional value, indexed to 3-month LIBOR, that were issued at a weighted average fixed rate of 0.8675 % and were subsequently designated as cash flow hedges.

In conjunction with the October 2020 issuance of $ 700 million of 3.375 % Senior Notes due 2031 and the March 2021 issuance of $ 700 million of 3.25 % Senior Notes due 2033, we applied hedge accounting for these five forward starting swaps and began amortization.

Simultaneously with these issuances, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments for a future forecasted issuance of long-term debt.

As a result of these transactions, the aggregate unrealized gain of $ 41.2 million ( $ 9.5 million gain related to the October 2020 issuance and $ 31.7 million gain related to the March 2021 issuance) included within accumulated other comprehensive income at the time of the bond issuances is being ratably reclassified as a reduction to interest expense, net over 10 years.

On May 30, 2023, the five forward starting swaps were terminated, and Omega received a net cash settlement of $ 92.6 million from the swap counterparties.

The incremental $ 51.4 million of gains related to the forward swaps, recorded in accumulated other comprehensive income, were frozen at the time of termination and will be recognized ratably over 10 years in earnings when the next qualifying debt issuance occurs.

Consistent with our accounting policy and historical practice, the $ 92.6 million net cash settlement from the forward swap termination is reflected within net cash used in financing activities in the Consolidated Statements of Cash Flows.

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

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Net investment hedges:

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

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

NOTE 17 – FINANCIAL INSTRUMENTS

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

At March 31, 2023 and December 31, 2022, the net carrying amounts and fair values of our other financial instruments were as follows:

March 31, 2023

At June 30, 2023 and December 31, 2022, the net carrying amounts and fair values of our other financial instruments were as follows:

June 30, 2023

December 31, 2022

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Stephenson, and Daniel J.

Booth , are defendants in a purported securities class action lawsuit pending in the U.S.

Booth , were named as defendants in a purported securities class action lawsuit in the U.S.

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

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

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

The plaintiffs and defendants reached an agreement in principle on a settlement of the Securities Class Action and thereafter executed a stipulation of settlement dated December 9, 2022 (“Settlement”).

On April 25, 2023, following notice to class members and a hearing, the Court entered judgment approving the Settlement, which becomes effective upon the expiration of the period for appealing the Court’s judgment.

Upon the effective date of the Settlement, the Settlement payment of $ 30.75 million will be transmitted from an escrow account funded by the Company’s directors and officers insurers to a settlement fund to be distributed to class members by a third party administrator.

The Settlement does not include any admission of wrongdoing or liability on the part of the Company or the individual defendants.

It provides for dismissal and release of all claims against the defendants by a class of persons and/or entities who purchased or otherwise acquired Company securities from February 8, 2017 through October 31, 2017.

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

As the Settlement proceeds are being paid by insurance, the Company concurrently recorded a receivable for $ 31 million within other assets on the Consolidated Balance Sheet, and consequently there is no impact to the Consolidated Statements of Operations related to this matter.

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

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

The plaintiffs and defendants executed a stipulation of settlement dated December 9, 2022 (“Settlement”), which provided for dismissal and release of all claims against the defendants by a class of persons and/or entities who purchased or otherwise acquired Company securities from February 8, 2017 through October 31, 2017 without any admission of wrongdoing or liability on the part of the Company or the individual defendants.

On April 25, 2023, following notice to class members and a hearing, the Court entered judgment approving the Settlement, which became effective May 25, 2023, upon the expiration of the period for appealing the Court’s judgment.

Upon the effective date of the Settlement, the Settlement payment of $ 30.75 million was permitted to be transmitted from an escrow account funded by the Company’s directors and officers insurers to a settlement fund to be distributed to class members by a third party administrator.

In the second quarter of 2023, after the Company fulfilled all of its obligations pursuant to the Court-approved Settlement, the Company reversed the previously recorded $ 31 million legal reserve, which was included within accrued expenses and other liabilities on the Consolidated Balance Sheets, and the related $ 31 million receivable related to the insurance reimbursement, which was included within other assets on the Consolidated Balance Sheets.

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

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District Court for the Southern District of New York, alleging violations of Section 14(a) of the Exchange Act and state-law claims including breach of fiduciary duty.

The complaint alleges, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna Health Systems, the alleged non-disclosures that are also the subject of the Securities Class Action described above.

The complaint alleges, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna Health Systems, the alleged non-disclosures that were also the subject of the Securities Class Action described above.

The plaintiff did not make a demand on the Company to bring the action prior to filing it, but rather alleges that demand would have been futile.

The case is stayed until July 25, 2023.

In 2019, purported stockholder Phillip Swan by his counsel, and stockholders Tom Bradley and Sarah Smith by their counsel, filed derivative actions in the Baltimore City Circuit Court of Maryland, purportedly on behalf of the Company, asserting claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment against the named defendants.

Those actions were consolidated and stayed in the Maryland court pending the close of fact discovery in the Securities Class Action.

Those actions were consolidated.

Prior to filing suit, each of these stockholders had made demands on the Board of Directors in 2018 that the Company bring such lawsuits.

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Wojcik also did not make a demand on the Company prior to filing suit.

The case was stayed until 30 days after the entry of judgment or a voluntary dismissal with prejudice in the Securities Class Action.

Gulf Coast Subordinated Debt

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On November 3, 2022, the Court granted the Debt Holders’ motion to dismiss for lack of personal jurisdiction, and Omega filed a timely appeal of the ruling.

While Omega believes Omega Obligor is entitled to the enforcement of the offset rights sought in the action, Omega cannot predict the outcome of the declaratory judgment action, irrespective of whether (a) it is ultimately litigated in the Court if Omega Obligor prevails in its appeal or (b) if the order granting the motion to dismiss for lack of personal jurisdiction is affirmed.

On or about January 19, 2023, the Debt Holders served a lawsuit against the Omega Obligor in the Superior Court of the State of Delaware, asserting claims for (i) breach of the instruments evidencing the Subordinated Debt, (ii) declaratory judgment, and (iii) unjust enrichment, all claims that are factually based on the claims that are the subject of Omega Obligor’s suit in the Court and that are now on appeal.

On or about January 19, 2023, the Debt Holders served a lawsuit against the Omega Obligor in the Superior Court of the State of Delaware (the “Delaware Court”), asserting claims for (i) breach of the instruments evidencing the Subordinated Debt, (ii) declaratory judgment, and (iii) unjust enrichment, all claims that are factually based on the claims that are the subject of Omega Obligor’s suit in the Court and that are now on appeal.

On February 8, 2023, Omega Obligor filed a motion to dismiss or, in the alternative, to stay this action pending the outcome of the above-referenced lawsuit in Maryland.

The motion is presently pending before the Delaware state court.

Omega believes that the claims are baseless and is evaluating procedural and substantive legal options in connection with this recently filed suit.

On July 10, 2023, the Delaware state court case stayed the proceeding pending a hearing in September 2023.

Omega believes that the claims are baseless and is evaluating procedural and substantive legal options in connection with this recently filed suit to the extent the stay is lifted.

In addition to the matters above, we are subject to various other legal proceedings, claims and other actions arising out of the normal course of business.

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

As of March 31, 2023, our maximum funding commitment under these indemnification agreements was approximately $ 8.8 million.

As of June 30, 2023, our maximum funding commitment under these indemnification agreements was approximately $ 9.1 million.

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

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

Our remaining commitments at March 31, 2023, are outlined in the table below (in thousands):

Construction and capital expenditure mortgage loan commitments

Our remaining commitments at June 30, 2023, are outlined in the table below (in thousands):

Lessor construction and capital commitments under lease agreements

Other real estate loan commitments

Non-real estate loan commitments

Other real estate loan commitments

Construction and capital expenditure mortgage loan commitments

Total remaining commitments (1)

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The following tables set forth the computation of basic and diluted earnings per share:

Three Months Ended March

Three Months Ended

Six Months Ended

(in thousands, except per share amounts)

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NOTE 20 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

(in thousands)

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Non-cash financing activities:

Non-cash contribution from noncontrolling interest holder in consolidated joint venture

Non-cash contribution from noncontrolling member of consolidated joint venture

Change in fair value of cash flow hedges

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NOTE 21 – SUBSEQUENT EVENTS

As discussed in Note 3 – Assets Held for Sale, Dispositions and Impairments, during the second quarter of 2023, we sold five facilities previously leased to Guardian that were classified as held for sale as of March 31, 2023 and one facility previously leased to Guardian that was not classified as held for sale as of March 31, 2023 for aggregate gross proceeds of $ 35.8 million.

In connection with the sale of the one facility that was not classified as held for sale as of March 31, 2023, we provided $ 12.0 million in seller financing, collateralized by a first lien mortgage on the facility.

In addition, Guardian completed the sale of the four facilities subject to the Guardian mortgage note with Omega during the second quarter of 2023.

Concurrent with the sale, Omega agreed to release the mortgage liens on these facilities in exchange for a paydown of $ 35.2 million, which is equal to the current amortized cost, net of credit loss reserves on the Guardian mortgage note at March 31, 2023.

Following the paydown in the second quarter of 2023, Guardian has no further obligations under the mortgage loan.

In April 2023, Omega committed to invest $ 222.6 million in connection with an existing operator’s acquisition of a West Virginia based operator that owns 17 SNFs.

Omega’s investment included $ 114.8 million for the acquisition of four of the facilities and up to $ 107.8 million for five loans to the operator primarily for the purpose of financing the acquisition of the remaining 13 West Virginia SNFs.

Concurrent with the acquisition, Omega added the 4 acquired SNFs to the operator’s master lease with an initial cash yield of 9.5 %, with 2.5 % annual escalators.

The weighted average interest rate of the five loans is 12 %.

In connection with the loans, Omega also received a 20 % equity ownership in two joint ventures.

On May 1, 2023, the Company acquired one SNF in West Virginia for $ 13.8 million and leased it to an existing operator.

The SNF was added to the operator’s master lease with an initial annual cash yield of 10 %, with 2.5 % annual escalators.

On August 1, 2023, the Company repaid its $ 350 million of 4.375 % senior notes that matured on August 1, 2023 using available cash.

The Company had $ 350.7 million in cash and cash equivalents recorded on our Consolidated Balance Sheets as of June 30, 2023.

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

What changed 10-Q

Item 1. Financial Statements