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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-03 · 168 added, 128 removed, 305 unchanged (49% of the section changed)

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

(4) additional regulatory and other changes in the healthcare sector, including proposed federal minimum staffing requirements for SNFs that may further exacerbate labor and occupancy challenges for our operators;

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

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(10) competition in the long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs;

(10) additional regulatory and other changes in the healthcare sector;

(11) changes in the financial position of our operators;

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● Government Regulation and Reimbursement

● Second Quarter of 2023 and Recent Highlights

● Third Quarter of 2023 and Recent Highlights

● Results of Operations

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

As of 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.

As of September 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.

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

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

We believe these operators were impacted by, among other things, reduced revenue as a result of lower occupancy, increased expenses, uncertainties regarding adequate reimbursement levels, and changes to government and regulatory support.

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

We believe the expense increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay and reliance on agency staffing due to staffing shortages, as well as a significant increase in both the cost and usage of personal protective equipment, testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs.

In addition, operators who do not achieve full compliance with applicable infection control requirements may face potential survey issues and penalties.

We believe the expense increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay and reliance on agency staffing due to labor shortages, as well as implementation of new infection control protocols.

In addition, operators who do not achieve full compliance with applicable infection control requirements may face potential survey deficiencies and penalties.

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

We remain cautious as some of these factors may continue to have a significant impact on our operators and their financial conditions, particularly given the staffing shortages that continue to impact our operators’ occupancy levels and profitability, uncertainty as to whether Medicare and Medicaid reimbursement rates will be sufficient to address longer-term cost increases faced by operators, uncertainty regarding pending U.S.

federal minimum staffing rules for our industry, factors that may impact future virus transmission in our facilities, including vaccination rates and efficacy of the vaccine for staff members and residents at our facilities and the risk of future infectious diseases or pandemics.

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

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

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

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

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

We believe these challenges to occupancy recovery may be in part due to staffing shortages, which in some cases have required operators to limit admissions, as well as the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs.

While substantial government support was allocated to SNFs and to a lesser extent to ALFs in 2020, U.S.

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

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

federal minimum staffing rules, if not accompanied by additional government funding, will further increase expenses for our operators.

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

federal minimum staffing rules for SNFs, if not accompanied by additional government funding, will further increase expenses for our operators.

While certain states have provided pandemic-related relief measures, we expect such state relief measures to be limited going forward.

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

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

There are a number of uncertainties we face as we consider the effects of the industry’s recovery on our business, including how long census disruption and elevated costs will last, the continued management of infectious diseases in our facilities, and the extent to which reimbursement increases from the federal government, the states and the U.K.

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

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

There are a number of uncertainties we face as we consider the effects of the industry’s recovery on our business, including how long census disruption and elevated costs will last, the continued management of infectious diseases in our facilities, the extent to which reimbursement increases from the federal government, the states and the U.K.

will continue to offset these incremental costs, and lost revenues.

While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the uncertainties to our business described above to persist at least for the near term until we can gain more information as to the level of costs our operators will continue to experience, the duration of such increased costs, the adequacy of government reimbursement increases to cover such costs, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior living facilities.

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

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

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

Government Regulation and Reimbursement

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

Following termination of the public health emergency declaration on May 11, 2023, we believe federal and state regulators have resumed enforcement of those regulations which have been waived or otherwise not been enforced during the public health emergency.

Following termination of the public health emergency declaration, we believe federal and state regulators have resumed enforcement of those regulations which had been waived or otherwise not been enforced during the public health emergency.

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

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

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

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

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

Additionally, in March 2022, the Biden Administration announced a focus on implementing minimum staffing requirements and increased inspections at nursing homes, and in July 2022, CMS announced it was evaluating a proposed federal staffing mandate for SNFs.

It is uncertain when such a mandate will be announced or become effective, what level of staffing would be required thereunder, and whether any such mandate would be accompanied by additional funding to offset any increased staffing requirements for our operators.

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

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

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

Additionally, on September 1, 2023, CMS issued proposed rules regarding minimum staffing requirements and increased inspections at nursing homes.

Under the proposed rules, nursing homes participating in Medicare and Medicaid would be required to provide residents with a minimum of 0.55 hours of care from a registered nurse per resident per day, and 2.45 hours of care from a nurse aide per resident per day, which CMS estimates exceed existing standards in nearly all states.

In addition, nursing homes would be required to ensure a registered nurse is onsite 24 hours per day, seven days per week, and to complete facility assessments on staffing needs.

CMS also announced nursing home workforce initiatives, including investing $75 million in financial incentives such as scholarships and tuition reimbursement, as well as Medicaid institutional payment transparency initiatives related to reporting on compensation of workers as a percentage of Medicaid payments.

Further, CMS proposed enforcement initiatives, including expanding audits of nursing home data, increasing facility inspections, reviewing related party transactions, regulating certain prescription practices, and addressing nursing home emergency preparedness.

CMS proposed that implementation of the final requirements would occur in three phases over a three-year period for urban facilities, with registered nurse availability requirements beginning two years after rule publication and minimum staffing hour requirements beginning three years from publication.

For rural facilities, staffing requirements regarding registered nurse availability would begin three years from publication of the final rule and minimum staffing hour requirements would begin five years from rule publication.

It is uncertain when the proposed rules will be finalized and become effective, what the ultimate scope and timing of the staffing requirements will be thereunder, and whether any such requirements will be accompanied by additional funding to offset any increased costs associated with meeting these requirements for our operators.

Depending on the ultimate level of staffing required, an unfunded mandate to increase staff in SNFs may have a material and adverse impact on the financial condition of our operators, with CMS estimating that three quarters of nursing homes would have to increase staffing in their facilities under the proposed rules.

On June 16, 2020, the U.S.

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

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

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

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

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

During the COVID-19 pandemic, many operators were restricted from pursuing concurrent and group therapy and unable to realize these benefits.

Prior to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some had reported early positive results, though many operators were restricted during the pandemic from pursuing concurrent and group therapy and unable to realize these benefits.

Additionally, our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value-based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act.

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The COVID-19 1135 waiver provisions also allowed for the facility to bill an originating site fee to CMS for telehealth services provided to Medicare Part B beneficiary residents of the facility when the services were provided by a physician from an alternate location, effective March 6, 2020 through May 11, 2023, the expiration of the public health emergency.

The Consolidated Appropriations Act of 2023 extended the ability of occupational therapists, physical therapists and speech-language pathologists to continue to furnish these services via telehealth and bill as distant site practitioners until the end of 2024.

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

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

Second Quarter of 2023 and Recent Highlights

● During the three and six months ended June 30, 2023, we acquired five facilities and 11 facilities for an aggregate consideration of $128.6 million and $155.0 million, respectively.

Third Quarter of 2023 and Recent Highlights

● During the three and nine months ended September 30, 2023, we acquired 15 facilities and 26 facilities for aggregate consideration of $55.1 million and $210.0 million, respectively.

The initial cash yield (the initial annual contractual cash rent divided by the purchase price) on these asset acquisitions was between 8% and 10.2%.

● 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 financed $78.9 million and $83.9 million of new real estate loans with a weighted average interest rate of 11.8% and 11.6% during the three and six months ended June 30, 2023, respectively.

We also advanced $5.5 million and $16.2 million under existing real estate loans during the three and six months ended June 30, 2023, respectively.

● We invested $24.5 million and $52.4 million under our construction in progress and capital improvement programs during the three and nine months ended September 30, 2023, respectively.

● We financed $26.2 million and $110.1 million of new real estate loans with a weighted average interest rate of 12.0% and 11.3% during the three and nine months ended September 30, 2023, respectively.

We also advanced $2.8 million and $19.0 million under existing real estate loans during the three and nine months ended September 30, 2023, respectively.

Dispositions and Impairments

● During the three and six months ended June 30, 2023, we sold ten facilities (nine SNFs and one ILF) and twelve facilities (ten SNFs, one ILF and one medical office building) for approximately $44.7 million and $62.3 million in net cash proceeds, recognizing net gains of approximately $12.2 million and $25.9 million, respectively.

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

Of the $60.1 million recorded impairment, $57.5 million related to four facilities that were classified as held-for-use for which the carrying values exceeded the estimated fair values, and $2.6 million related to two held for sale facilities for which it was determined that the carrying value exceeded the fair value less costs to sell.

● During the three and nine months ended September 30, 2023, we sold 25 facilities (25 SNFs) and 37 facilities (35 SNFs, one ILF and one medical office building) for approximately $199.0 million and $261.3 million in net cash proceeds, recognizing net gains of approximately $44.1 million and $70.0 million, respectively.

These amounts include $100.3 million in net cash proceeds and a $50.2 million gain recognized on the sale of 11 facilities previously leased to LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care), related to a December 2022 transaction that did not meet the contract criteria to be recognized under ASC 610-20 at the legal sale date.

See Note 3 – Assets Held for Sale, Dispositions and Impairments for additional information.

● During the three and nine months ended September 30, 2023, we recorded impairments on 19 facilities and 25 facilities of approximately $27.9 million and $88.0 million, respectively.

Of the $88.0 million recorded impairment, $85.4 million related to 23 facilities that were classified as held for use for which the carrying values exceeded the estimated fair values, and $2.6 million related to two held for sale facilities for which it was determined that the carrying value exceeded the fair value less costs to sell.

Financing Activities

● During the three and six months ended June 30, 2023, we sold 6.6 million and 6.7 million shares of common stock under our $1.0 billion At-The-Market Offering Program (“ATM Program”) and Dividend Reinvestment and Common Stock Purchase Plan (“DRSPP”), generating aggregate gross proceeds of $201.6 million and $203.9 million, respectively.

● During the second quarter of 2023, we terminated our five forward starting swaps with $400 million in notional value that were designated cash flow hedges of interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt, and we received a $92.6 million net cash settlement from the swap counterparties.

● During the second quarter of 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.

● During the three and nine months ended September 30, 2023, we sold 4.0 million and 10.7 million shares of common stock under our $1.0 billion At-The-Market Offering Program (“ATM Program”) and Dividend Reinvestment and Common Stock Purchase Plan (“DRCSPP”), generating aggregate gross proceeds of $126.3 million and $330.2 million, respectively.

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

● On August 8, 2023, the Company entered into a credit agreement (the “2025 Omega Credit Agreement”) providing it with a new $400 million senior unsecured term loan facility (the “2025 Term Loan”).

The 2025 Omega Credit Agreement contains an accordion feature permitting us, subject to compliance with customary conditions, to increase the maximum aggregate commitments thereunder to $500 million, by requesting an increase in the aggregate commitments under the 2025 Term Loan.

The 2025 Term Loan bears interest at SOFR plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit rating.

The 2025 Term Loan matures on August 8, 2025, subject to Omega’s option to extend such maturity date for two sequential 12-month periods.

On September 27, 2023, Omega exercised the accordion feature to increase the aggregate commitment under the 2023 Term Loan by $28.5 million.

We recorded $3.3 million of deferred financing costs and a $1.4 million discount in connection with the 2025 Omega Credit Agreement.

● During the third quarter of 2023, we entered into 11 interest rate swaps with a notional amount of $428.5 million that terminate on August 6, 2027.

These interest rate swaps are designated as hedges against our exposure to changes in interest payment cash flows as a result of the variable interest rate on the 2025 Term Loan.

The interest rate swap contracts effectively convert our 2025 Term Loan to an aggregate fixed rate of approximately 5.597% through its maturity.

Other Highlights

● We made $62.0 million and $72.4 million of new non-real estate loans with a weighted average interest rate of 11.4% and 10.6% during the three and six months ended June 30, 2023, respectively.

We also advanced $5.0 million under existing non-real estate loans during the three and six months ended June 30, 2023.

● We made $16.9 million and $89.4 million of new non-real estate loans with a weighted average interest rate of 10.1% and 10.2% during the three and nine months ended September 30, 2023, respectively.

We also advanced $13.7 million and $18.7 million under existing non-real estate loans during the three and nine months ended September 30, 2023, respectively.

Collectibility Issues

● 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.

● During the nine months ended September 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 cash basis.

During the three and six months ended June 30, 2023, we transitioned the portfolios of one and four cash basis operators, respectively, with an aggregate of five facilities and 48 facilities, respectively, to leases with operators on a straight-line basis of revenue recognition.

As of June 30, 2023, 18 operators are on a cash basis.

These operators represent an aggregate 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.

● During the six months ended June 30, 2023, we allowed nine operators to defer $33.6 million in aggregate of contractual rent and interest.

During the nine months ended September 30, 2023, we transitioned the portfolios of four cash basis operators with an aggregate of 48 facilities to leases with operators on a straight-line basis of revenue recognition.

As of September 30, 2023, 18 operators are on a cash basis.

These operators represent an aggregate 25.1% and 32.8% of our total revenues (excluding the impact of write-offs) for the nine months ended September 30, 2023 and 2022, respectively.

● During the nine months ended September 30, 2023, we allowed nine operators to defer $35.0 million in aggregate of contractual rent and interest.

The deferrals primarily related to the following operators:

LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care) ($19.0 million), Healthcare Homes Limited ($8.2 million), Agemo Holdings, LLC (“Agemo”) ($1.9 million) and Maplewood Senior Living (along with affiliates, “Maplewood”) ($0.7 million).

Additionally, we allowed four 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.

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

LaVie ($19.0 million), Healthcare Homes Limited ($8.2 million), Agemo Holdings, LLC (“Agemo”) ($1.9 million) and Maplewood Senior Living (along with affiliates, “Maplewood”) ($1.3 million).

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

The total collateral applied to contractual rent and interest was $11.4 million for the nine months ended September 30, 2023.

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

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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, Agemo’s loans are on non-accrual status and are being accounted for under the cost recovery method, so the $0.8 million of interest payments that we received during the three and six months ended June 30, 2023 were applied directly against the principal balance outstanding.

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

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

As a result, during the three and six months ended June 30, 2023, LaVie paid $16.9 million and $24.3 million, respectively, of contractual rent due under the leases and elected to defer the remaining $4.7 million and $19.0 million, respectively, of the full contractual payment due of $21.6 million and $43.4 million, respectively.

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.

Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $5.8 million and $11.6 million for the three and nine months ended September 30, 2023, respectively, for the contractual rent payments that were received.

Additionally, Agemo’s loans are on non-accrual status and are being accounted for under the cost recovery method, so the $1.2 million and $2.0 million of interest payments that we received during the three and nine months ended September 30, 2023, respectively, were applied directly against the principal balance outstanding.

● During 2023, we continued the process of restructuring our portfolio with LaVie by amending the lease agreements with LaVie to allow for a partial rent deferral for the first four months of 2023, transitioning two facilities previously subject to the master lease with LaVie to another operator during the second quarter of 2023 and selling seven facilities previously subject to the master lease with LaVie to a third party during the third quarter of 2023.

LaVie elected to defer $19.0 million of contractual rent from January 2023 through April 2023.

In the third quarter of 2023, LaVie paid $7.4 million of contractual rent, a short pay of $13.3 million of the $20.7 million due under its lease agreement.

As LaVie is on a cash basis of revenue recognition, only the $7.4 million and $31.7 million of contractual rent payments that we received from LaVie were recorded as rental income during the three and nine months ended September 30, 2023, respectively.

Subsequent to quarter end, an additional 29 facilities previously leased to LaVie met the criteria to be classified as held for sale.

In November 2023, we sold these facilities for $305.2 million in purchase consideration, which consisted of gross cash proceeds of $91.9 million and an aggregate $213.3 million pay-off made by the buyer, on Omega’s behalf, of the outstanding principal and accrued interest on 22 HUD mortgages on the sold properties.

Concurrent with the sale, the Company amended the master lease with LaVie to reduce monthly rent to $3.4 million.

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

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Additionally, we agreed to 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 granted through the restructuring agreement and the $12.5 million option termination fee payment.

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

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

We have recorded $16.3 million and $35.1 million of revenue related to Maplewood for the three and six months ended June 30, 2023, respectively, for the contractual rent and interest payments that we received.

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.

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

The dividend will be paid on August 15, 2023 to stockholders of record as of the close of business on July 31, 2023.

Maplewood short-paid the contractual rent amount due under its lease agreement by $1.0 million in June 2023, and continued to short-pay the contractual rent amount due under its lease agreement by $1.0 million for each month during the third quarter of 2023.

During the third quarter of 2023, we applied $3.0 million of Maplewood’s security deposit toward the unpaid portion of rent for June 2023 through August 2023.

Following the application of the security deposit in the third quarter of 2023, we had a $1.8 million security deposit remaining as of September 30, 2023, which can be applied to future rent shortfalls.

In October 2023, Maplewood short-paid the contractual rent amount due under its lease agreement by $1.0 million.

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

We have recorded $17.3 million and $50.9 million of revenue related to Maplewood for the three and nine months ended September 30, 2023, respectively, for the contractual rent and interest payments that we received and through the application of Maplewood’s security deposit.

The $12.5 million option termination fee payment made in the first quarter of 2023 in connection with the restructuring agreement was accounted for as a lease inducement.

As Maplewood is on a cash basis of revenue recognition, the inducement was immediately derecognized and recorded as a reduction to the $50.9 million of rental income recognized for the nine months ended September 30, 2023.

● In August and September 2023, Guardian, an operator that was already on a cash basis of revenue recognition, did not pay its contractual amounts due under its lease agreement.

During the third quarter of 2023, we applied $2.9 million of Guardian’s security deposit to fund the unpaid rent.

As Guardian is on a cash basis of revenue recognition, we recorded rental income of $4.4 million for the three months ended September 30, 2023 for the contractual rent payments that were received from Guardian and through the application of Guardian’s security deposit.

Following the application of the security deposit in the third quarter of 2023, we had a $4.4 million security deposit remaining as of September 30, 2023, which can be applied to future rent shortfalls.

We are in discussions to sell or release to another operator the facilities included in Guardian’s master lease.

In October 2023, Guardian did not pay the contractual rent amount due under its lease agreement of $1.5 million.

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

The dividend will be paid on November 15, 2023 to stockholders of record as of the close of business on October 31, 2023.

Results of Operations

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

Comparison of results of operations for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):

Comparison of results of operations for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Rental income

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Impairment on real estate properties

Provision (recovery) for credit losses

Provision for credit losses

Interest expense

3 unchanged sentences

Gain on assets sold – net

Income tax (expense) benefit

Income from unconsolidated joint ventures

Three Months Ended June 30, 2023 and 2022

The following is a description of certain of the changes in revenues for the three months ended June 30, 2023 compared to the same period in 2022:

● The increase in rental income was primarily the result of (i) a $9.5 million increase as a result of a net decrease in straight-line rent receivable write-offs in the second quarter of 2023, (ii) a $7.1 million increase related to facility acquisitions made throughout 2022 and in the first and second quarters of 2023, (iii) a $2.3 million increase due to higher capital expenditure rent and the impact of lease extensions with existing operators and (iv) a $1.0 million net increase related to impact of facility transitions and sale, partially offset by a $12.0 million net decrease in rental income from cash basis operators, including Maplewood and LaVie, as a result of not recording straight-line lease revenue and/or receiving lower cash rent payments period over period from these operators

● The decrease in interest income was primarily due to (i) a $4.9 million decrease related to loans placed on non-accrual status, primarily the LaVie loans and the Maplewood loan, during 2022 and (ii) a $4.0 million decrease related to early principal payments on our mortgage loans with Ciena Healthcare during 2022 and the pay-off of other loans during 2022 and the first and second quarters of 2023, partially offset by a $6.8 million increase related to new and refinanced loans and additional funding to existing operators made throughout 2022 and the first and second quarters of 2023.

As noted above, during the three months ended June 30, 2023, we funded $84.4 million in new or existing real estate loans and $67.0 million in new or existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the three months ended June 30, 2023 compared to the same period in 2022:

Income tax expense

(Loss) income from unconsolidated joint ventures

Three Months Ended September 30, 2023 and 2022

The following is a description of certain of the changes in revenues for the three months ended September 30, 2023 compared to the same period in 2022:

● The increase in rental income was primarily the result of (i) a $7.7 million increase related to facility acquisitions made throughout 2022 and 2023, (ii) a $6.0 million increase as a result of a net decrease in straight-line rent receivable write-offs in the third quarter of 2023, (iii) a $4.5 million net increase related to impact of facility transitions, primarily from non-paying cash basis operators to straight-line basis operators, and sales and (iv) a $2.8 million increase due to higher capital expenditure rent and the impact of lease extensions with existing operators, partially offset by a $19.8 million net decrease in rental income from cash basis operators, including Maplewood and LaVie, as a result of not recording straight-line lease revenue and/or receiving lower cash rent payments period over period from these operators.

● The decrease in interest income was primarily due to (i) a $5.1 million decrease related to loans placed on non-accrual status, primarily the LaVie loans and the Maplewood loan, in which we have recognized less interest income period over period as a result of receiving less cash payments or the loans converting to PIK interest and (ii) a $1.4 million decrease related to early principal payments on our loans during 2022 and 2023, partially offset by a $5.8 million increase related to new and refinanced loans and additional fundings to existing operators made throughout 2022 and 2023.

As noted above, during the three months ended September 30, 2023, we funded $29.0 million in new or existing real estate loans and $30.6 million in new or existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the three months ended September 30, 2023 compared to the same period in 2022:

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

● The increase in general and administrative (“G&A”) expense primarily relates to a $2.0 million increase in stock-based compensation expense.

● The decrease in acquisition, merger and transition related costs primarily relates to costs incurred related to the transition of facilities with troubled operators in 2022.

● The 2023 impairments were recognized in connection with one facility that was classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell and three held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

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

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

● The change in provision for credit losses primarily relates to increases in the general reserve recorded primarily resulting from increases in loan balances and movements in other inputs utilized in our model, partially offset by (i) a net decrease in aggregate specific provisions recorded during the second quarter of 2023 compared to specific provisions recorded during the same period in 2022 and (ii) decreases in loss rates utilized in the estimate of expected credit losses for loans.

● The 2023 impairments were recognized in connection with 19 held for use facilities for which the carrying value exceeded the fair value.

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

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

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

Other Income (Expense)

The change in total other income (expense) was primarily due to a $12.9 million decrease in gain on assets sold related to the sale of ten facilities in the second quarter of 2023 compared to the sale of 13 facilities during the same period in 2022.

Six Months Ended June 30, 2023 and 2022

The following is a description of certain of the changes in revenues for the six months ended June 30, 2023 compared to the same period in 2022:

The change in total other income (expense) was primarily due to (i) a $5.6 million change in other income (expense) – net primarily related to a legal reserve recorded during the second quarter of 2022 that was settled in the fourth quarter of 2022 and increased interest on short-term investments due to increased interest rates and increased cash balances and (ii) a $3.1 million increase in gain on assets sold related to the sale of 25 facilities in the third quarter of 2023 compared to the sale of four facilities during the same period in 2022.

(Loss) income from unconsolidated joint ventures

The change in (loss) income from unconsolidated joint ventures was primarily due to higher interest rates on outstanding debt and fair value adjustments on derivative instruments within our Cindat Joint Venture.

Nine Months Ended September 30, 2023 and 2022

The following is a description of certain of the changes in revenues for the nine months ended September 30, 2023 compared to the same period in 2022:

● The decrease in rental income was primarily the result of a $66.4 million net decrease in rental income from cash basis operators, including Maplewood and LaVie, as a result of not recording straight-line lease revenue and/or receiving lower cash rent payments period over period from these operators, along with a one-time option termination payment of $12.5 million to Maplewood that was recorded as a reduction to rental income during the second quarter of 2023.

The overall decrease in rental income was partially offset by (i) a $12.7 million increase as a result of fewer straight-line rent receivable write-offs in the first and second quarters of 2023, (ii) a $11.6 million increase related to facility acquisitions made throughout 2022 and in the first and second quarters of 2023 and (iii) a $1.2 million net increase due to higher capital expenditure rent and the impact of lease extensions with existing operators, along with other movements.

● The decrease in interest income was primarily due to (i) a $9.4 million decrease related to early principal payments on our mortgage loans with Ciena Healthcare during 2022 and the pay-off of other loans during 2022 and the first and second quarters of 2023 and (ii) a $7.5 million decrease related to loans placed on non-accrual status, primarily the LaVie loans and Maplewood loan, during 2022, partially offset by a $12.2 million increase related to new and refinanced loans and additional funding to existing operators made throughout 2022 and the first and second quarters of 2023.

As noted above, during the six months ended June 30, 2023, we funded $100.1 million in new or existing real estate loans and $77.4 million in new or existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the six months ended June 30, 2023 compared to the same period in 2022:

The overall decrease in rental income was partially offset by (i) a $18.9 million increase related to facility acquisitions made throughout 2022 and 2023, (ii) a $18.6 million increase as a result of fewer straight-line rent receivable write-offs throughout 2023, (iii) a $8.1 million net increase related to impact of facility transition, primarily from non-paying cash basis operators to straight-line basis operators, and sales and (iv) a $2.2 million net increase due to higher capital expenditure rent and the impact of lease extensions with existing operators, along with other movements.

● The decrease in interest income was primarily due to (i) a $12.6 million decrease related to loans placed on non-accrual status, primarily the LaVie loans and Maplewood loan, in which we have recognized less interest income period over period as a result of receiving less cash payments or the loans converting to PIK interest and (ii) a $10.8 million decrease related to early principal payments on our mortgage loans with Ciena Healthcare during 2022 and the pay-off of other loans during 2022 and 2023, partially offset by a $17.7 million increase related to new and refinanced loans and additional fundings to existing operators made throughout 2022 and 2023.

As noted above, during the nine months ended September 30, 2023, we funded $129.1 million in new or existing real estate loans and $108.1 million in new or existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the nine months ended September 30, 2023 compared to the same period in 2022:

● The increase in G&A expense primarily relates to (i) a $3.8 million increase in stock-based compensation expense, (ii) a $1.3 million increase in payroll and benefits and (iii) a $0.9 million increase in outside services primarily related to professional fees.

● The increase in G&A expense primarily relates to (i) a $5.8 million increase in stock-based compensation expense and (ii) a $2.1 million increase in payroll and benefits.

● The decrease in acquisition, merger and transition related costs primarily relates to costs incurred related to the transition of facilities with troubled operators.

● The 2023 impairments were recognized in connection with two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell and four held-for-use facilities for which it was determined that the carrying value exceeded the fair value.

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

● The 2023 impairments were recognized in connection with two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell and 23 held for use facilities for which it was determined that the carrying value exceeded the fair value.

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

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

● The change in provision for credit losses primarily relates to (i) increases in the general reserve recorded primarily resulting from increases in loan balances and movements in other inputs utilized in our model and (ii) a net increase in aggregate specific provisions recorded during the second quarter of 2023 compared to specific provisions recorded during the same period in 2022, partially offset by decreases in loss rates utilized in the estimate of expected credit losses for loans.

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

Other Income (Expense)

The change in total other income (expense) was primarily due to a $112.9 million decrease in gain on assets sold related to the sale of 12 facilities in the six months ended June 30, 2023 compared to the sale of 40 facilities, primarily associated with our exit of the facilities associated with Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), during the same period in 2022.

Income Tax (Expense) Benefit

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

The change in total other income (expense) was primarily due to (i) a $109.8 million increase in gain on assets sold related to the sale of 37 facilities in the nine months ended September 30, 2023 compared to the sale of 44 facilities, primarily associated with our exit of the facilities associated with Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), during the same period in 2022 and (ii) a $14.2 million change in other income (expense) – net primarily related to a legal reserve recorded during the second quarter of 2022 that was settled in the fourth quarter of 2022 and increased interest on short-term investments due to increased interest rates and increased cash balances.

Income Tax Expense

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

portfolio entering into the U.K.

REIT regime effective April 1, 2023.

(Loss) income from unconsolidated joint ventures

The change in (loss) income from unconsolidated joint ventures was primarily due to higher interest rates on outstanding debt and fair value adjustments on our derivative instruments within our Cindat Joint Venture.

Funds from Operations

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

The following table presents our Nareit FFO results for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents our Nareit FFO results for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Deduct gain from real estate dispositions

Add back loss from real estate dispositions - unconsolidated joint ventures

Deduct gain from real estate dispositions - unconsolidated joint ventures

Elimination of non-cash items included in net income:

2 unchanged sentences

Add back impairments on real estate properties

(1) The three and six months ended June 30, 2023 includes the application of $0.3 million and $5.5 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

The three and six months ended June 30, 2022 includes the application of $1.4 million and $4.7 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

(1) The three and nine months ended September 30, 2023 includes the application of $5.9 million and $11.4 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

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

Liquidity and Capital Resources

Sources and Uses

Our primary sources of cash include rental income and interest receipts, existing availability under our revolving credit facility, proceeds from our DRSPP and the ATM Program, facility sales, and proceeds from real estate loan and non-real estate loan payoffs.

Our primary sources of cash include rental income and interest receipts, existing availability under our revolving credit facility, proceeds from our DRCSPP and the ATM Program, facility sales, and proceeds from real estate loan and non-real estate loan payoffs.

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

Capital Structure

At June 30, 2023, we had total assets of $9.4 billion, total equity of $3.8 billion and total debt of $5.3 billion in our consolidated financial statements, with such debt representing approximately 58.3% of total capitalization.

At June 30, 2023 and December 31, 2022, the weighted average annual interest rate of our debt was 4.2%.

Additionally, as of June 30, 2023, 99% of our debt with outstanding principal balances has fixed interest payments.

At September 30, 2023, we had total assets of $9.4 billion, total equity of $3.9 billion and total debt of $5.3 billion in our consolidated financial statements, with such debt representing approximately 58.0% of total capitalization.

At September 30, 2023 and December 31, 2022, the weighted average annual interest rate of our debt was 4.3% and 4.1%, respectively.

Additionally, as of September 30, 2023, 99% of our debt with outstanding principal balances has fixed interest payments.

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

As of June 30, 2023, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch.

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

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

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

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

As of June 30, 2023, we had approximately $350.7 million of cash and cash equivalents on our Consolidated Balance Sheets.

As of June 30, 2023, we have $400 million of 4.95% senior notes due April 2024.

As of June 30, 2023, we had $1.43 billion of availability under our revolving credit facility.

On August 8, 2023, Omega entered into the 2025 Omega Credit Agreement providing us with the 2025 Term Loan.

The 2025 Term Loan bears interest at SOFR plus 145 basis points, based on our current credit rating.

The 2025 Term Loan matures on August 8, 2025, subject to Omega’s option to extend such maturity date for two sequential 12-month periods.

On September 27, 2023, Omega exercised the accordion feature to increase the aggregate commitment under the 2023 Term Loan by $28.5 million.

We recorded $3.3 million of deferred financing costs and a $1.4 million discount in connection with the 2025 Omega Credit Agreement.

In August 2023, we entered into ten interest rate swaps with $400.0 million in notional value.

The swaps are effective August 14, 2023 and terminate on August 6, 2027.

These interest rate swaps are designated as hedges against our exposure to changes in interest payment cash flows as a result of the variable interest rate on the 2025 Term Loan.

The interest rate swap contracts effectively convert our $400.0 million 2025 Term Loan to an aggregate fixed rate of approximately 5.565% through its maturity.

In September 2023, in connection with the exercise of the accordion feature on the 2025 Term Loan, we entered into one additional interest rate swap with $28.5 million in notional value to hedge the additional $28.5 million under the 2025 Term Loan.

This swap is effective September 29, 2023 and terminates on August 6, 2027.

These 11 interest rate swap contracts effectively convert our $428.5 million 2025 Term Loan to a new combined aggregate fixed rate of approximately 5.597% through its maturity.

The effective fixed rate achieved by the combination of the 2025 Omega 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.

As of September 30, 2023, we have $400 million of 4.95% senior notes due April 2024.

As of September 30, 2023, we had approximately $554.7 million of cash and cash equivalents on our Consolidated Balance Sheets.

As of September 30, 2023, we had $1.4 billion of availability under our revolving credit facility.

As discussed below, we also have $716.1 million of potential sales remaining under the ATM Program.

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

As of June 30, 2023 and December 31, 2022, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

As of September 30, 2023 and December 31, 2022, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

Supplemental Guarantor Information

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at June 30, 2023 that were registered under the Securities Act of 1933, as amended.

Parent has issued approximately $4.6 billion aggregate principal of senior notes outstanding at September 30, 2023 that were registered under the Securities Act of 1933, as amended.

The senior notes are guaranteed by Omega OP.

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Accordingly, separate consolidated financial statements of Omega OP have not been presented.

Parent and Omega OP, on a combined basis, have no material assets, liabilities or operations other than financing activities (including borrowings under the outstanding senior notes, the revolving credit facility and the OP term loan) and their investments in non-guarantor subsidiaries.

Parent and Omega OP, on a combined basis, have no material assets, liabilities or operations other than financing activities (including borrowings under our outstanding senior notes, revolving credit facility and term loans) and their investments in non-guarantor subsidiaries.

Omega OP is currently the sole guarantor of our senior notes.

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

As of June 30, 2023, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At June 30, 2023, we had approximately 241.0 million shares of common stock outstanding, and our shares had a market value of $7.4 billion.

The following is a summary of activity under our equity programs during the three and six months ended June 30, 2023:

● We issued 6.5 million shares of common stock under our ATM Program for aggregate gross proceeds of $199.4 million.

As of September 30, 2023, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At September 30, 2023, we had approximately 245.0 million shares of common stock outstanding, and our shares had a market value of $8.1 billion.

The following is a summary of activity under our equity programs during the three and nine months ended September 30, 2023:

● We issued 0.5 million and 7.0 million shares of common stock under our ATM Program for aggregate gross proceeds of $14.4 million and $213.8 million during the three and nine months ended September 30, 2023, respectively.

We did not utilize the forward provisions under the ATM Program.

We have $730.5 million of potential sales remaining under the ATM Program as of June 30, 2023.

● We issued 0.1 million and 0.2 million shares of common stock under the DRSPP during the three and six months ended June 30, 2023, respectively.

Aggregate gross proceeds from these sales were $2.2 million and $4.5 million during the three and six months ended June 30, 2023, respectively.

● We issued 3.5 million and 3.7 million shares of common stock under the DRCSPP during the three and nine months ended September 30, 2023, respectively.

Aggregate gross proceeds from these sales were $111.9 million and $116.4 million during the three and nine months ended September 30, 2023, respectively.

● We did not repurchase any shares of our outstanding common stock under the $500 Million Stock Repurchase Program.

We have $357.8 million remaining authorized for repurchases under the $500 Million Stock Repurchase Program as of June 30, 2023.

We have $357.8 million remaining authorized for repurchases under the $500 Million Stock Repurchase Program as of September 30, 2023.

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

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

For the six months ended June 30, 2023, we paid dividends of approximately $314.8 million to our common stockholders.

For the nine months ended September 30, 2023, we paid dividends of approximately $479.3 million to our common stockholders.

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

On May 15, 2023, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on May 1, 2023.

On August 15, 2023, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on July 31, 2023.

Material Cash Requirements

During the six months ended June 30, 2023, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, we had $238.2 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

During the nine months ended September 30, 2023, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, we had $200.0 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments.

Additionally, we have commitments to fund $51.0 million of advancements under existing other real estate loans and $43.1 million of advancements under existing non-real estate loans.

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Cash Flow Summary

Cash, cash equivalents and restricted cash totaled $356.5 million as of June 30, 2023, an increase of $55.9 million as compared to the balance at December 31, 2022.

The following is a summary of our sources and uses of cash flows for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 (dollars in thousands):

Six Months Ended June 30,

Cash, cash equivalents and restricted cash totaled $557.9 million as of September 30, 2023, an increase of $257.3 million as compared to the balance at December 31, 2022.

The following is a summary of our sources and uses of cash flows for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 (dollars in thousands):

Nine Months Ended September 30,

Increase/(Decrease)

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Financing activities

The following is a discussion of changes in cash, cash equivalents and restricted cash for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The following is a discussion of changes in cash, cash equivalents and restricted cash for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Operating Activities – The decrease in net cash provided by operating activities is driven primarily by a decrease of $2.8 million of net income, net of $197.1 million of non-cash items, primarily due to a year over year reduction in rental income and interest income, as discussed in our material changes analysis under Results of Operations above.

A $16.5 million change in the net movements of the operating assets and liabilities also contributed to the overall decrease in cash provided by operating activities.

Investing Activities – The change in cash used in investing activities primarily related to (i) a $324.6 million decrease in proceeds from the sales of real estate investments driven by the sale of the Gulf Coast facilities in the first quarter of 2022, (ii) a $96.9 million decrease in loan repayments, net of placements due to significant paydowns on the Ciena Healthcare mortgage loans and other loans during 2022, (iii) a $41.8 million increase in real estate acquisitions and (iv) an $8.1 million increase in investments in unconsolidated joint ventures primarily related to the three new joint venture investments in the second quarter of 2023, partially offset by (i) a $6.4 million decrease in capital improvements to real estate investments and construction in progress and (ii) a $3.2 million increase in receipts from insurance proceeds.

Financing Activities – The decrease in cash used in financing activities primarily related to (i) a $198.1 million increase in net proceeds from issuance of common stock, (ii) a $142.3 million decrease in repurchases of shares of common stock, (iii) a $92.6 million increase in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023, (iv) a $9.6 million decrease in redemptions of Omega OP units and (v) a $3.5 million decrease in dividends paid primarily related to share repurchases during 2022, partially offset by (i) a $46.3 million decrease in proceeds from long-term borrowings, net of repayments due to higher cash balances in the second quarter of 2023 as a result of common stock issuances, the termination of the forward starting swaps and significant facility sale proceeds received in 2022 and 2023 and (ii) a $4.4 million increase in distributions to Omega OP Unit holders.

Investing Activities – The change in cash used in investing activities primarily related to (i) a $177.0 million decrease in proceeds from the sales of real estate investments driven by the sale of the Gulf Coast facilities in the first quarter of 2022, (ii) a $130.8 million decrease in loan repayments, net of placements due to significant paydowns on the Ciena Healthcare mortgage loans and other loans during 2022, (iii) a $69.9 million increase in real estate acquisitions and (iv) a $12.1 million increase in investments in unconsolidated joint ventures primarily related to the four new joint venture investments in the second and third quarters of 2023 and (v) a $1.9 million increase in capital improvements to real estate investments and construction in progress, partially offset by (i) a $5.4 million increase in receipts from insurance proceeds and (ii) a $1.7 million increase in distributions from unconsolidated joint ventures in excess of earnings.

Financing Activities – The decrease in cash used in financing activities primarily related to (i) a $321.9 million increase in net proceeds from issuance of common stock, (ii) a $142.3 million decrease in repurchases of shares of common stock, (iii) a $92.6 million increase in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023 and (iv) a $9.6 million decrease in redemptions of Omega OP units, partially offset by (i) a $10.2 million decrease in proceeds from long-term borrowings, net of repayments due to higher cash balances in the third quarter of 2023 as a result of common stock issuances, the termination of the forward starting swaps and significant facility sale proceeds received in 2022 and 2023, (ii) a $5.3 million increase in distributions to Omega OP Unit holders, (iii) a $3.7 million increase in dividends paid primarily related to share issuances during 2023 and (iv) a $2.9 million increase in payment of financing related costs related to the Company entering into the 2025 Term Loan during the third quarter of 2023.

Critical Accounting Policies and Estimates

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

During the quarter ended June 30, 2023, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

During the quarter ended S eptember 30, 2023, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis