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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 151 added, 117 removed, 255 unchanged (51% of the section changed)

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(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;

(6) changes in tax laws and regulations affecting real estate investment trusts (“REITs”), including as the result of any policy changes driven by the current focus on capital providers to the healthcare industry;

(7) our ability to re-lease, otherwise transition or sell underperforming assets or assets held for sale on a timely basis and on terms that allow us to realize the carrying value of these assets or to redeploy the proceeds therefrom on favorable terms, including due to the potential impact of changes in the SNF and ALF markets or local real estate conditions;

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(15) the timing, amount and yield of any additional investments;

(15) changes in tax laws and regulations affecting real estate investment trusts (“REITs”);

(16) our ability to maintain our status as a REIT;

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● Government Regulation and Reimbursement

● First Quarter of 2024 and Recent Highlights

● Second Quarter of 2024 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 March 31, 2024, Parent owned 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned 3% of the outstanding Omega OP Units.

As of June 30, 2024, Parent owned 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned 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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See “Government Regulation and Reimbursement” for additional information.

As discussed further in “Collectibility Issues” below, in 2023 and the first quarter of 2024, 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.

As discussed further in “Collectibility Issues” below, in 2023 and the second quarter of 2024, 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.

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.

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

These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act 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, lower occupancy 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 ultimate scope, implementation timeline and impact of recently issued 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 are uncertain and difficult to predict and may continue to adversely impact our business, results of operations, financial condition and cash flows.

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In addition, federal legislation made other forms of financial assistance available to healthcare providers, which impacted our operators to varying degrees.

We do not expect our operators will receive any additional funding from HHS in connection with the pandemic, although certain of our operators continue to receive distributions at the state level from funding appropriated under the CARES Act and the American Rescue Plan Act of 2021.

Among these forms of financial assistance, on March 18, 2020, the Families First Coronavirus Response Act (“FFCRA”) was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s FMAP reimbursement, which was phased out as of December 31, 2023 following the expiration of the public health emergency in May 2023.

We do not expect our operators will receive any additional funding from HHS in connection with the pandemic, although certain of our operators have, over the last year, continued to receive distributions at the state level from funding appropriated under the CARES Act and the American Rescue Plan Act of 2021.

Among these forms of financial assistance, the Families First Coronavirus Response Act (“FFCRA”) was enacted in the U.S.

on March 18, 2020, which provided a temporary 6.2% increase to each qualifying state and territory’s FMAP reimbursement until it was phased out as of December 31, 2023 following the expiration of the public health emergency in May 2023.

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

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The final rule was not accompanied by additional funding for our operators to offset the costs associated with meeting these increased staffing requirements in an industry that is already facing staffing shortages.

Accordingly, these increased staffing requirements, if not overturned legislatively or by legal action, or if not accompanied by increased state reimbursement to offset the increased financial burden, may have a future adverse impact on the financial condition of many of our operators, which may be material, but which likely would not be experienced until closer to the point of delayed implementation.

In May 2024, multiple SNF industry groups, along with several Texas facilities, filed suit in federal court to overturn the minimum staffing requirements on the basis that CMS exceeded its authority.

The increased staffing requirements, if not overturned legislatively or by legal action, or if not accompanied by increased state reimbursement to offset the increased financial burden, may have a future adverse impact on the financial condition of many of our operators, which may be material, but which likely would not be experienced until closer to the point of delayed implementation which ranges from within 90 days of the final rule publication and five years of the final rule publication, depending on the geographic location.

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

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healthcare system, including the impact on quality of care provided within the skilled nursing industry, the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic.

Further, in 2024, several U.S.

senators proposed legislation that would, if enacted, restrict certain investors, including REITs and private equity firms, from investing in healthcare facilities or impose penalties on certain landlords of or private equity investors in healthcare facilities whose operators subsequently enter into bankruptcy proceedings.

In addition, in 2024, the Department of Justice (“DOJ”), HHS, and the Federal Trade Commission published a Request for Information seeking public comment on the effects of mergers and other transactions in the healthcare industry, with a focus on consolidation among health care providers, facilities, and ancillary products or services.

These initiatives, as well as additional calls for government review, at the state and federal level, of the role of private equity in the U.S.

healthcare industry and proposed legislation related to certain SNF financial arrangements with REITs, could result in additional requirements on our operators.

healthcare industry and proposed legislation related to certain SNF financial arrangements with REITs, could result in additional requirements on our operators or restrictions on REITs.

In addition, on April 22, 2024, CMS issued the Ensuring Access to Medicaid Services final rule, which requires that, beginning six years after the effective date of the final rule, states generally ensure that at least 80% of Medicaid home and community-based services (“HCBS”) payments be put toward compensation for direct care workers.

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

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

While the CARES Act provided for a 6.2% FMAP add-on to the Medicaid program during the public health emergency, which was phased out as of December 31, 2023, only certain states passed 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.

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

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

As indicated above, 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 that was phased out as of December 31, 2023, only certain states passed any of this benefit directly to SNF operators either via an enhanced rate or lump sum payments.

The risk of insufficient Medicaid reimbursement rates, along with possible initiatives to push residents historically cared for in SNFs to alternative settings, labor shortages in certain areas and limited pandemic support in certain states, may impact us more acutely in states where we have a larger presence.

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On July 31, 2024, CMS issued a final rule regarding the government fiscal year 2025 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by $1.4 billion, or 4.2%, for fiscal year 2025 compared to fiscal year 2024.

This estimated reimbursement increase is attributable to a 6.4% net market basket update to the payment rates, which is based on a 3.0% SNF market basket increase plus a 3.6% market basket forecast error adjustment and less a 0.2% productivity adjustment, as well as a negative 2.5%, or approximately $789 million, decrease in the fiscal year 2024 SNF Medicare payment rates as a result of the second phase of the Patient Driven Payment Model (“PDPM”) parity adjustment recalibration described below, which was being phased in over two years.

This estimated reimbursement increase is attributable to a 4.2% net market basket update to the payment rates, which is based on a 3.0% SNF market basket increase plus a 1.7% market basket forecast error adjustment and less a 0.5% productivity adjustment.

In addition to the payment rate update, CMS stated that it has rebased and revised the SNF market basket to reflect a 2022 base year.

The annual update is reduced by 2% for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program.

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Additionally, it remains uncertain whether these adjustments will ultimately be offset by non-inflationary factors, including any adjustments related to the impact of various payment models, such as those described below.

Payments to providers continue to be increasingly tied to quality and efficiency.

The PDPM, which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019.

CMS has stated that it intended PDPM to be revenue-neutral to operators, with future Medicare reimbursement reductions possible if that was not the case.

In April 2022, CMS issued a proposal for comment, which included an adjustment to obtain that revenue neutrality as early as the 2023 rate setting period.

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.

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.

These reimbursement changes have had and may, together with any further reimbursement changes to PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.

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.

These reimbursement changes have had and may, together with any further reimbursement changes to the Patient Driven Payment Model (“PDPM”) or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.

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

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SNFs are under intense scrutiny for ensuring the quality of care being rendered to residents and appropriate billing practices conducted by the facility.

The Department of Justice (“DOJ”) has historically used the False Claims Act to civilly pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard.

The DOJ has historically used the False Claims Act to civilly pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard.

For example, California prosecutors announced in March 2021 an investigation into a skilled nursing provider that is affiliated with one of our operators, alleging the chain manipulated the submission of staffing level data in order to improve its Five Star rating.

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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.

First Quarter of 2024 and Recent Highlights

● During the three months ended March 31, 2024, we acquired two facilities for aggregate consideration of $13.3 million.

Second Quarter of 2024 and Recent Highlights

● During the three and six months ended June 30, 2024, we acquired 34 facilities and 36 facilities for aggregate consideration of $114.7 million and $128.0 million, respectively.

The initial cash yield (the initial annual contractual cash rent divided by the purchase price) on these asset acquisitions was between 9.5% and 11.5%.

● We invested $21.4 million under our construction in progress and capital improvement programs during the three months ended March 31, 2024.

● We financed $41.2 million of new real estate loans with a weighted average interest rate of 9.6% during the three months ended March 31, 2024.

We also advanced $2.8 million under existing real estate loans during the three months ended March 31, 2024.

● We invested $34.8 million and $56.2 million under our construction in progress and capital improvement programs during the three and six months ended June 30, 2024, respectively.

● We financed $112.9 million and $154.1 million of new real estate loans with a weighted average interest rate of 11.5% and 10.2% during the three and six months ended June 30, 2024, respectively.

We also advanced $0.6 million and $3.4 million under existing real estate loans during the three and six months ended June 30, 2024, respectively.

Dispositions and Impairments

● During the three months ended March 31, 2024, we sold four SNFs for $10.1 million and in net cash proceeds, recognizing a net loss of $1.4 million.

● During the three months ended March 31, 2024, we recorded impairments on three facilities of $5.3 million.

The $5.3 million relates to three held for use facilities (of which $1.3 million relates to a closed facility) for which the carrying value exceeded the fair value.

● During the three and six months ended June 30, 2024, we sold five facilities and nine facilities for $34.8 million and $44.9 million in net cash proceeds, recognizing net gains of $12.9 million and $11.5 million, respectively.

● During the three and six months ended June 30, 2024, we recorded impairments on four facilities and seven facilities of $8.2 million and $13.5 million, respectively.

Of the $13.5 million, $8.1 million related to five held for use facilities (of which 4.0 million relates to three closed facilities) for which the carrying value exceeded the fair value and $5.4 million related to two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair value costs to sell.

Financing Activities

● During the three months ended March 31, 2024, we sold 1.1 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 $33.2 million.

● During the first quarter of 2024, the remaining nine HUD mortgages with outstanding principal of $41.6 million were paid off.

The payoff also included a $1.3 million prepayment fee.

● During the first quarter of 2024, we terminated two foreign currency forward contracts that were entered into in March 2021 with notional amounts totaling £70.0 million.

Omega received a net cash settlement of $8.4 million as a result of termination.

Concurrent with the termination of the two foreign currency forward contracts, also on February 27, 2024, we entered into three new foreign currency forward contracts with notional amounts totaling £78.0 million and a GBP-USD forward rate of 1.2707, each of which mature between March 8, 2027 and March 7, 2031.

The new currency forward contracts hedge an intercompany loan between a U.S.

● During the three and six months ended June 30, 2024, we sold 7.6 million and 8.7 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 $244.9 million and $278.1 million, respectively.

● We repaid the $400 million of 4.95% senior notes on the April 1, 2024 maturity date using available cash and proceeds from our $1.45 billion senior unsecured multicurrency revolving credit facility (“Revolving Credit Facility”).

Other Highlights

● We advanced $4.1 million under existing non-real estate loans during the three months ended March 31, 2024.

● We financed $10.4 million of new non-real estate loans with a weighted average interest rate of 10.0% during the three and six months ended June 30, 2024, respectively.

We also advanced $9.6 million and $13.7 million under existing non-real estate loans during the three and six months ended June 30, 2024, respectively.

We received principal repayments of $45.9 million and $52.8 million on existing non-real estate loans during the three months and six months ended June 30, 2024, respectively.

Collectibility Issues

● During the three months ended March 31, 2024, we entered into a lease with a new operator as part of the transition of facilities from another operator.

● During the six months ended June 30, 2024, we entered into a lease with a new operator as part of the transition of facilities from another operator.

As we had no previous relationship with this new operator and collection of substantially all contractual lease payments due from the new operator was not deemed probable, we placed the new operator on a cash basis of revenue recognition.

We also did not have any straight-line receivable write-offs through rental income during the three months ended March 31, 2024.

As of March 31, 2024, 20 operators are on a cash basis.

These operators represent an aggregate 18.4% and 20.5% of our total revenues for the three months ended March 31, 2024 and 2023, respectively.

● Maplewood continued to short-pay the contractual rent amount due under its lease agreement during the first quarter of 2024, with Maplewood paying $11.3 million of contractual rent, a short pay of $6.0 million of the $17.3 million due under its lease agreement.

In addition, Maplewood did not pay the $0.5 million due under its loan agreement during the first quarter of 2024.

Following the missed interest payments in the first quarter of 2024, we reviewed the characteristics associated with the loan and borrower and adjusted the internal risk rating on the loan, utilized as a component of our allowance for credit loss calculation, from a 4 to a 5 to reflect the increased risk associated with the loan.

We continue to take actions to preserve our rights and are in discussions with Maplewood to address the payment deficiencies noted above.

As Maplewood is on a cash basis of revenue recognition, we have recorded $11.3 million of revenue related to Maplewood for the three months ended March 31, 2024 for the contractual rent payments that we received.

In April 2024, Maplewood short-paid the contractual rent and interest amounts due under its lease and loan agreements by $2.2 million.

● During the first quarter of 2024, we continued the process of restructuring our portfolio with LaVie by selling two facilities and transitioning two facilities to another operator, all of which were previously subject to the master lease with LaVie.

Concurrent with the sales and transitions, we amended the master lease agreement with LaVie to reduce monthly rent to $3.2 million.

In the first quarter of 2024, LaVie paid $4.4 million of contractual rent, a short pay of $5.5 million of the $9.9 million due under its lease agreement.

As LaVie is on a cash basis of revenue recognition for lease purposes, only the $4.4 million of contractual rent payments that we received from LaVie were recorded as rental income during the three months ended March 31, 2024.

In April 2024, LaVie paid $1.5 million of contractual rent, a short pay of $1.7 million of the $3.2 million due under its lease agreement.

● Guardian did not pay its contractual amounts due under its lease agreement in the third quarter of 2023, which continued throughout the remainder of 2023 and into the first quarter of 2024.

During the first quarter of 2024, we applied the remaining $0.1 million of Guardian’s security deposit to fund a portion of the unpaid rent.

As Guardian is on a cash basis of revenue recognition, we recorded rental income of $0.1 million for the three months ended March 31, 2024 through the application of Guardian’s security deposit in the first quarter of 2024.

In April 2024, we transitioned the remaining six facilities previously included in Guardian’s master lease to a new operator for minimum initial contractual rent of $5.5 million per annum with the potential to increase contractual rent up to $12.4 million dependent on revenue received by the operator.

● Following Omega and Agemo entering into a restructuring agreement during the first quarter of 2023, Agemo resumed making contractual rent and interest payments during the second quarter of 2023 and continued to make the required contractual rent and interest payments throughout the remainder of 2023 and the first quarter of 2024.

Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $6.0 million for the three months ended March 31, 2024 for the contractual rent payments that were received.

Additionally, as Agemo’s loans are on non-accrual status and are being accounted for under the cost recovery method, the $1.2 million of interest payments that we received during the three months ended March 31, 2024 were applied directly against the principal balance outstanding.

● On April 18, 2024, the Board of Directors declared a cash dividend of $0.67 per share.

The dividend will be paid on May 15, 2024 to stockholders of record as of the close of business on April 30, 2024.

We also did not have any straight-line receivable write-offs through rental income during the three months and six months ended June 30, 2024.

As of June 30, 2024, 18 operators are on a cash basis.

These operators represent an aggregate 18.6% our total revenues for the six months ended June 30, 2024.

● Maplewood Senior Living (along with affiliates, “Maplewood”) continued to short-pay the contractual rent amount due under its lease agreement during the second quarter of 2024, with Maplewood paying $11.8 million of contractual rent, a short pay of $5.5 million of the $17.3 million due under its lease agreement.

In addition, Maplewood did not pay the $0.7 million of contractual interest due under its loan agreement during the second quarter of 2024.

As Maplewood is on a cash basis of revenue recognition, we have recorded $11.8 million and $23.1 million of revenue related to Maplewood for the three and six months ended June 30, 2024, respectively, for the contractual rent payments that we received.

In view of Maplewood liquidity concerns, Omega and Maplewood entered into a comprehensive restructuring of Maplewood’s lease and loan agreements on January 31, 2023.

Shortly after the restructuring was completed, on March 31, 2023, Greg Smith, the principal and chief executive officer of Maplewood passed away.

As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, in May 2024, Omega sent a demand letter to Maplewood notifying it of multiple events of default under its lease, loan, and related agreements, including Mr.

Smith’s guaranty, with Omega, including failure to pay full contractual rent and interest for periods in 2023 and 2024.

Omega exercised its contractual rights in connection with these defaults and demanded immediate repayment of past due contractual rent and replenishment of the security deposit, and accelerated all principal and accrued interest due under the revolving credit facility.

Omega entered into a settlement agreement on July 31, 2024, subject to approval of the probate court overseeing administration of Mr.

Smith’s estate and regulatory approvals related to the licensure, with Mr.

Smith’s estate to transition the controlling ownership of Maplewood to key members of the existing Maplewood management team.

In the proposed transaction, these management team members would become the new majority equity holders in the Maplewood entities, which would maintain the Maplewood lease agreement and secured revolving credit facility provided by Omega.

There is no certainty that the court and regulatory approvals will be received or that this transition will be completed as intended, on a timely basis, or at all.

If the proposed transition plan is not completed, we may incur a substantial loss on the revolving loan with Maplewood up to the amortized cost basis of the loan.

As of June 30, 2024, the amortized cost basis of this loan was $263.6 million, which represents 18.0% of the total amortized cost basis of all real estate loan receivables of Omega.

See Note 5 – Real Estate Loans Receivable.

In July 2024, Maplewood short-paid the contractual rent and interest amounts due under its lease and loan agreements by $2.0 million.

● In the second quarter of 2024, LaVie Care Centers, LLC (“LaVie”) paid $5.9 million of contractual rent, a short pay of $3.3 million of the $9.2 million due under its lease agreement.

As LaVie is on a cash basis of revenue recognition for lease purposes, only the $5.9 million and $10.3 million of contractual rent payments that we received from LaVie were recorded as rental income during the three and six months ended June 30, 2024, respectively.

On June 2 and 3, 2024, LaVie commenced voluntary cases under Chapter 11 of the U.S.

Bankruptcy Code in the U.S.

Bankruptcy Court for the Northern District of Georgia, Atlanta Division (the “Bankruptcy Court”).

LaVie will continue to operate, as a debtor-in-possession, the 30 facilities subject to a master lease agreement with Omega, unless and until LaVie’s leasehold interest under the master lease agreement is rejected or assumed and assigned.

As described in LaVie’s filings with the Bankruptcy Court, we committed to provide, along with another lender, $10 million of a $20 million junior secured debtor-in-possession (“DIP”) financing to LaVie.

Omega recognized an aggregate $7.8 million provision for credit losses in the second quarter of 2024 on LaVie’s $25.0 million secured term loan and DIP financing loan as a result of insufficient collateral supporting the loans.

In July 2024, LaVie paid full contractual rent of $3.0 million due under its lease agreement.

● In April 2024, we transitioned the remaining six facilities previously included in Guardian’s master lease to a new operator for minimum initial contractual rent of $5.5 million per annum with the potential to increase contractual rent dependent on revenue received by the operator.

We recorded rental income of $2.9 million related to the lease with the new operator during the three months ended June 30, 2024.

● Following Omega and Agemo Holdings, LLC (“Agemo”) entering into a restructuring agreement during the first quarter of 2023, Agemo resumed making contractual rent and interest payments during the second quarter of 2023 and continued to make the required contractual rent and interest payments throughout the remainder of 2023 and the second quarter of 2024.

Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $6.0 million and $11.9 million, respectively, for the three and six months ended June 30, 2024 for the contractual rent payments that were received.

Additionally, as Agemo’s loans are on non-accrual status and are being accounted for under the cost recovery method, the $1.2 million and $2.4 million respectively, of interest payments that we received during the three and six months ended June 30, 2024 were applied directly against the principal balance outstanding.

● On July 24, 2024, the Board of Directors declared a cash dividend of $0.67 per share.

The dividend will be paid on August 15, 2024 to stockholders of record as of the close of business on August 5, 2024.

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 months ended March 31, 2024 and 2023 (dollars in thousands):

Comparison of results of operations for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Three Months Ended

Increase/(Decrease)

Six Months Ended

Rental income

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Impairment on real estate properties

Provision (recovery) for credit losses

(Recovery) provision for credit losses

Interest expense

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Loss on debt extinguishment

(Loss) gain on assets sold – net

Income tax (expense) benefit

Gain on assets sold – net

Income tax expense

Income from unconsolidated joint ventures

The following is a description of certain of the changes in revenues for the three months ended March 31, 2024 compared to the same period in 2023:

● The increase in rental income was primarily the result of (i) a $12.5 million option termination fee payment to Maplewood that was recorded as a reduction to rental income in the first quarter of 2023, (ii) a $11.5 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations and (iii) a $1.2 million net increase related to impact of facility transitions, primarily from non-paying cash basis operators to straight-line basis operators, and sales, partially offset by (i) a $8.2 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 increase in interest income was primarily due to a $10.2 million increase related to new loans and additional fundings on existing loans made throughout 2023 and 2024, partially offset by (i) a $1.5 million decrease related to loans on non-accrual status, primarily 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 payment-in-kind (“PIK”) interest and being on non-accrual status and (ii) a $1.3 million decrease related to principal payments on our loans during 2023 and 2024.

As noted above, during the three months ended March 31, 2024, we funded $44.0 million in new or existing real estate loans and $4.1 million in existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the three months ended March 31, 2024 compared to the same period in 2023:

Three Months Ended June 30, 2024 and 2023

The following is a description of certain of the changes in revenues for the three months ended June 30, 2024 compared to the same period in 2023:

● The decrease in rental income was primarily the result of a $15.4 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.

The decrease was partially offset by (i) a $8.5 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations and (ii) a $1.7 million net increase related to impact of facility transitions, primarily from non-paying cash basis operators to straight-line basis operators.

● The increase in interest income was primarily due to a $8.8 million increase related to new loans and additional fundings on existing loans made throughout 2023 and 2024.

As noted above, during the three months ended June 30, 2024, we funded $113.5 million in new or existing real estate loans and $20.0 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, 2024 compared to the same period in 2023:

● 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 $0.9 million increase in payroll and benefits.

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

● The 2024 impairments were recognized in connection with three 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 two held for use facilities for which the carrying value exceeded the fair value.

● The 2024 impairments were recognized in connection with two facilities that were classified as held for sale for which the carrying values exceeded the fair value less costs to sell and two held for use facilities for which the carrying value exceeded the fair value.

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

The 2024 and 2023 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 increases in the general reserve recorded primarily resulting from (i) a reduction in the internal risk rating for the Maplewood loan (see Note 5 – Real Estate Loans Receivable) and (ii) 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 first quarter of 2024 compared to same period in 2023.

● The change in provision for credit losses primarily relates to a decrease in the general reserve recorded primarily resulting from decreases in loss rates utilized in the estimate of expected credit losses for loans, partially offset by a net increase in aggregate specific provisions recorded during the second quarter of 2024 compared to same period in 2023.

● The decrease in interest expense primarily relates to (i) the repayment of $400 million of 4.95% senior notes in April 2024, (ii) the repayment of $350 million of 4.375% senior notes in August 2023 and (iii) the payoff of all remaining HUD mortgages in the first quarter of 2024.

The overall decrease was partially offset by increases due to (i) the issuance of a $428.5 million term loan in the third quarter of 2023 and (ii) increased borrowings on our Revolving Credit Facility during the second quarter of 2024.

Other Income (Expense)

The decrease in total other income (expense) was primarily due to (i) a $15.0 million increase in (loss) gain on assets sold related to the sale of four facilities in the first quarter of 2024 compared to the sale of two facilities during the same period in 2023 and (ii) a $1.3 million increase in loss on debt extinguishment related to the early repayment of nine HUD mortgages during the first quarter of 2024, partially offset by a $2.6 million increase in other income – net primarily related to increased interest income on short-term investments due to higher invested cash and favorable interest rates in 2024.

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 first quarter of 2023 as a result of the majority of our U.K.

The increase in total other income (expense) was primarily due to (i) a $2.3 million increase in other income – net primarily related an unrealized fair value gain on an investment in the second quarter of 2024 and (ii) a $0.7 million increase in gain on assets sold related to the sale of five facilities in the second quarter of 2024 compared to the sale of ten facilities during the same period in 2023.

Six Months Ended June 30, 2024 and 2023

The following is a description of certain of the changes in revenues for the six months ended June 30, 2024 compared to the same period in 2023:

● The increase in rental income was primarily the result of (i) a $18.2 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations (ii) an increase related to $12.5 million option termination fee payment to Maplewood that was recorded as a reduction to rental income in the first quarter of 2023, and (iii) a $1.5 million net increase related to impact of facility transitions, primarily from non-paying cash basis operators to straight-line basis 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 increase in interest income was primarily due to a $19.2 million increase related to new loans and additional fundings on existing loans made throughout 2023 and 2024, partially offset by (i) a $1.5 million decrease related to loans on non-accrual status, primarily 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 payment-in-kind interest and being on non-accrual status and (ii) a $1.5 million decrease related to principal payments on our loans during 2023 and 2024.

As noted above, during the six months ended June 30, 2024, we funded $157.5 million in new or existing real estate loans and $24.1 million in new or existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the six months ended June 30, 2024 compared to the same period in 2023:

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

● The 2024 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 five 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 four held for use facilities for which the carrying value exceeded the fair value.

The 2024 and 2023 impairments were primarily the result of decisions to exit certain non-strategic facilities and/or terminate our relationships with certain non-strategic operators.

The overall decrease was partially offset by (i) a net increase in aggregate specific provisions recorded during the second quarter of 2024 compared to same period in 2023 and (ii) a reduction in the internal risk rating for the Maplewood loan (see Note 5 – Real Estate Loans Receivable) in the first quarter of 2024.

● The decrease in interest expense primarily relates to (i) the repayment of $350 million of 4.375% senior notes in August 2023, (ii) the repayment of $400 million of 4.95% senior notes in April 2024 and (iii) the payoff of all remaining HUD mortgages in the first quarter of 2024.

Other Income (Expense)

The decrease in total other income (expense) was primarily due to (i) a $14.4 million decrease in gain on assets sold related to the sale of nine facilities in 2024 compared to the sale of 12 facilities during the same period in 2023 and (ii) a $1.5 million increase in loss on debt extinguishment primarily related to the early repayment of nine HUD mortgages during the first quarter of 2024, partially offset by a $4.9 million increase in other income – net primarily related to increased interest income on short-term investments due to higher invested cash and favorable interest rates in 2024.

Income Tax Expense

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

portfolio entering into the U.K.

REIT regime effective April 1, 2023.

REIT regime effective April 1, 2023 and (ii) an increase in taxable income in the U.K.

as a result of acquisitions in 2023 and 2024.

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 months ended March 31, 2024 and 2023:

Three Months Ended March 31,

The following table presents our Nareit FFO results for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net income (1)

Add back loss (deduct gain) from real estate dispositions

Deduct gain from real estate dispositions

Elimination of non-cash items included in net income:

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Depreciation – unconsolidated joint ventures

Add back impairments on real estate properties

(1) Each of the three months ended March 31, 2024 and 2023 include the application of $0.5 million and $5.2 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

Add back provision for impairments on real estate properties

(1) The three and six months ended June 30, 2024 include the application of $0.1 million and $0.6 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

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

Liquidity and Capital Resources

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Capital Structure

At March 31, 2024, we had total assets of $9.0 billion, total equity of $3.7 billion and total debt of $5.1 billion in our consolidated financial statements, with such debt representing 57.8% of total capitalization.

At March 31, 2024 and December 31, 2023, the weighted average annual interest rate of our debt was 4.4%.

Additionally, as of March 31, 2024, 99% of our debt with outstanding principal balances has fixed interest payments after reflecting the impact of interest rate swaps that are designated as cash flow hedges.

At June 30, 2024, we had total assets of $8.8 billion, total equity of $3.9 billion and total debt of $4.7 billion in our consolidated financial statements, with such debt representing 54.6% of total capitalization.

At June 30, 2024 and December 31, 2023, the weighted average annual interest rate of our debt was 4.3% and 4.4%, respectively.

Additionally, as of June 30, 2024, 99% of our debt with outstanding principal balances has fixed interest payments after reflecting the impact of interest rate swaps that are designated as cash flow hedges.

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

As of March 31, 2024, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch.

As of June 30, 2024, 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, OP term loan and 2025 term loan.

As of March 31, 2024, we had $400 million of 4.95% senior notes due April 2024 (which were repaid on April 1, 2024 using available cash and proceeds from our revolving credit facility).

As of March 31, 2024, we had $361.8 million of cash and cash equivalents on our Consolidated Balance Sheets.

As of June 30, 2024, we had $35.2 million of cash and cash equivalents on our Consolidated Balance Sheets.

Our next senior note maturity is the $400 million of 4.50% senior notes due January 2025.

As of March 31, 2024, we had $675.9 million of potential common share issuances remaining under the ATM Program and $1.4 billion of availability under our revolving credit facility.

As of June 30, 2024, we had $443.9 million of potential common share issuances remaining under the ATM Program and $1.4 billion of availability under our Revolving Credit Facility.

This combination of liquidity sources, along with cash from operating activities, provides us with ability to repay the senior notes due in January 2025.

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

As of March 31, 2024 and December 31, 2023, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.

As of June 30, 2024 and December 31, 2023, 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 $4.6 billion aggregate principal of senior notes outstanding at March 31, 2024 that were registered under the Securities Act of 1933, as amended.

Parent has issued $4.2 billion aggregate principal of senior notes outstanding at June 30, 2024 that were registered under the Securities Act of 1933, as amended.

The senior notes are guaranteed by Omega OP.

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

As of March 31, 2024, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At March 31, 2024, we had 246.4 million shares of common stock outstanding, and our shares had a market value of $7.8 billion.

The following is a summary of activity under our equity programs during the three months ended March 31, 2024:

● We issued 1.0 million shares of common stock under our ATM Program for aggregate gross proceeds of $32.3 million during the three months ended March 31, 2024.

As of June 30, 2024, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

At June 30, 2024, we had 254.0 million shares of common stock outstanding, and our shares had a market value of $8.7 billion.

The following is a summary of activity under our equity programs during the three and six months ended June 30, 2024:

● We issued 7.2 million and 8.3 million shares of common stock under our ATM Program for aggregate gross proceeds of $231.9 million and $264.2 million during the three and six months ended June 30, 2024, respectively.

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

We have $675.9 million of sales remaining under the ATM Program as of March 31, 2024.

● We issued 29 thousand shares of common stock under the DRCSPP during the three months ended March 31, 2024.

Aggregate gross proceeds from these sales were $0.9 million during the three months ended March 31, 2024.

We have $443.9 million of sales remaining under the ATM Program as of June 30, 2024.

● We issued 413 thousand and 442 thousand shares of common stock under the DRCSPP during the three and six months ended June 30, 2024, respectively.

Aggregate gross proceeds from these sales were $13.0 million and $13.9 million during the three and six months ended June 30, 2024, 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 March 31, 2024.

We have $357.8 million remaining authorized for repurchases under the $500 Million Stock Repurchase Program as of June 30, 2024.

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 three months ended March 31, 2024, we paid dividends of $164.8 million to our common stockholders.

For the six months ended June 30 , 2024, we paid dividends of $330.7 million to our common stockholders.

On February 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 5, 2024.

On May 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on April 30, 2024.

Material Cash Requirements

During the three months ended March 31, 2024, 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, 2023.

As of March 31, 2024, we had $162.7 million of commitments to fund the construction of new facilities, capital improvements and other commitments under lease agreements.

During the six months ended June 30 , 2024, 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, 2023.

As of June 30, 2024, we had $163.4 million of commitments to fund the construction of new facilities, capital improvements and other commitments under lease agreements.

Additionally, we have commitments to fund $46.1 million of advancements under existing real estate loans and $41.7 million of advancements under existing non-real estate loans.

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

In the second quarter of 2024, we exercised an option that committed Omega to buy the remaining 51% equity interest in an unconsolidated joint venture owning 63 facilities in the U.K.

(the “Cindat Joint Venture”) and in which Omega held a 49% equity interest as of June 30, 2024.

The acquisition of the remaining 51% equity interest in the Cindat Joint Venture closed in July 2024 for total cash consideration of $97.4 million along with the assumption of a $243.2 million mortgage loan.

Other Arrangements

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

We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 – Derivatives and Hedging in our Annual Report on Form 10-K for the year ended December 31, 2023.

We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 16 – Derivatives and Hedging.

Cash Flow Summary

Cash, cash equivalents and restricted cash totaled $363.0 million as of March 31, 2024, a decrease of $81.7 million as compared to the balance at December 31, 2023.

The following is a summary of our sources and uses of cash flows for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 (dollars in thousands):

Three Months Ended March 31,

Cash, cash equivalents and restricted cash totaled $39.1 million as of June 30 , 2024, a decrease of $405.6 million as compared to the balance at December 31, 2023.

The following is a summary of our sources and uses of cash flows for the six months ended June 30 , 2024 as compared to the six months ended June 30, 2023 (dollars in thousands):

Six Months Ended June 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 three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Operating Activities – The increase in net cash provided by operating activities is driven primarily by a $22.1 million change in the net movements of the operating assets and liabilities.

The increase of $18.1 million of net income, net of $14.4 million of non-cash items, primarily due to a year over year increase in rental income and interest income as discussed in our material changes analysis under Results of Operations above, also contributed to the overall increase in cash provided by operating activities.

Investing Activities – The change in cash used in investing activities primarily related to (i) a $54.5 million decrease in loan repayments, net of placements due to significant paydowns on loans during the first quarter of 2023, (ii) an $11.3 million increase in capital improvements to real estate investments and construction in progress and (iii) a $7.5 million decrease in proceeds from the sales of real estate investments, partially offset by (i) a $13.1 million decrease in real estate acquisitions, (ii) an $8.4 million increase in proceeds from net investment hedges related to the termination of two foreign currency forward contracts during the first quarter of 2024 and (iii) a $1.2 million increase in receipts from insurance proceeds.

Financing Activities – The increase in cash used in financing activities primarily related to (i) a $40.0 million increase in repayments on long-term borrowings due to the early repayment of nine HUD mortgages during the first quarter of 2024, (ii) a $7.4 million increase in dividends paid primarily related to share issuances during 2023 and 2024, (iii) a $1.3 million increase in distributions to Omega OP Unit holders and (iv) a $1.3 million increase in payment of financing related costs related to the early repayment of nine HUD mortgages during the first quarter of 2024, partially offset by (v) a $30.4 million increase in net proceeds from issuance of common stock.

The following is a discussion of changes in cash, cash equivalents and restricted cash for the six months ended June 30 , 2024 compared to the six months ended June 30, 2023.

Operating Activities – The increase in net cash provided by operating activities is driven primarily by an increase of $27.5 million of net income, net of $60.6 million of non-cash items, primarily due to a year over year increase in rental income and interest income as discussed in our material changes analysis under Results of Operations above.

The $26.3 million change in the net movements of the operating assets and liabilities, also contributed to the overall increase in cash provided by operating activities.

Investing Activities – The increase in cash used in investing activities primarily related to (i) a $66.9 million increase in loan placements, net of repayments due to new loans advanced in 2024 and significant paydowns on loans during the second quarter of 2023, (ii) an $28.3 million increase in capital improvements to real estate investments and construction in progress primarily as a result of the on-going construction of an ALF in Washington D.C., (iii) a $17.4 million decrease in proceeds from the sales of real estate investments and (iv) a $2.1 million decrease in receipts from insurance proceeds, partially offset by (i) a $27.0 million decrease in real estate acquisitions, (ii) an $8.4 million increase in proceeds from net investment hedges related to the termination of two foreign currency forward contracts during the first quarter of 2024 and (iii) a $7.9 million decrease in investments in unconsolidated joint ventures.

Financing Activities – The increase in cash used in financing activities primarily related to (i) a $405.6 million increase in repayments on long-term borrowings, net of proceeds, primarily due to the repayment of $400 million of 4.95% senior notes in April 2024, (ii) 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, (iii) a $15.9 million increase in dividends paid primarily related to share issuances during 2023 and 2024, (iv) a $1.9 million increase in distributions to Omega OP Unit holders, and (v) a $1.9 million increase in payment of financing related costs related to the early repayment of nine HUD mortgages during the first quarter of 2024, partially offset by a $73.6 million increase in net proceeds from issuance of common stock as a result of increased volume under our ATM Program and DRCSPP.

Critical Accounting Policies and Estimates

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

During the quarter ended March 31, 2024, 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, 2023.

During the quarter ended June 30 , 2024, 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, 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 2. Management’s Discussion and Analysis