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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-02 · 177 added, 149 removed, 257 unchanged (56% of the section changed)

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(1) those items discussed under “Risk Factors” in Part I, Item 1A to our Annual Report on Form 10-K and Part II, Item 1A herein;

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

(3) the long-term impacts of the COVID-19 pandemic on our business and the business of our operators, including 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 recently issued federal minimum staffing requirements for SNFs that may further exacerbate labor and occupancy challenges for our operators;

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

(3) the timing of our operators’ recovery from staffing shortages, increased costs and decreased occupancy arising from the COVID-19 pandemic, and the sufficiency of previous government support and current reimbursement rates to offset such costs and the conditions related thereto;

(4) additional regulatory and other changes in the healthcare sector, including recently issued federal minimum staffing requirements for skilled nursing facility (“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;

(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;

(8) the availability and cost of capital to us;

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

(17) the effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including natural disasters, other health crises or pandemics and governmental action;

particularly in the healthcare industry.

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

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● Government Regulation and Reimbursement

● Second Quarter of 2024 and Recent Highlights

● Third 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 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.

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

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

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

In addition to our core investments, we make loans to operators and/or their principals.

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Outlook, Trends and Other Conditions

Our industry continues to face the long-term impact of the COVID-19 pandemic, which significantly and adversely impacted SNFs and long-term care providers during the height of the pandemic due to the higher rates of virus transmission and fatality among the elderly and frail populations that these facilities serve.

In addition, the pandemic contributed to occupancy declines, labor shortages and staffing expense increases, and other cost increases that have not yet returned to pre-pandemic levels and which continue to significantly impact our operators post-pandemic.

There continues to be uncertainty regarding the duration of these impacts, particularly given uncertainty as to whether reimbursement increases from the federal government, the states and the U.K.

Our industry has begun to recover from the long-term impact of the COVID-19 pandemic, which significantly and adversely impacted SNFs and long-term care providers during the height of the pandemic due to the higher rates of virus transmission and fatality among the elderly and frail populations that these facilities serve.

While certain of our operators have experienced a level of recovery from pandemic-driven challenges such as occupancy declines, labor shortages, staffing expense increases, and other cost increases, certain of our other operators have not yet experienced returns to pre-pandemic levels and remain impacted by these factors post-pandemic.

There continues to be uncertainty regarding the duration of these impacts for those operators, particularly given uncertainty as to whether reimbursement increases from the federal government, the states and the U.K.

will be effective in offsetting these incremental costs and lost revenues.

the impact of potential regulatory changes, including the ultimate scope and impact of recently issued U.S.

federal minimum staffing rules for our industry;

and the continued ability of our operators to manage infectious diseases in our facilities.

In addition, there remains uncertainty as to the impact of potential regulatory changes, including the ultimate scope and impact of recently issued U.S.

federal minimum staffing rules for our industry, and the continued ability of our operators to manage infectious diseases in our facilities.

See “Government Regulation and Reimbursement” for additional information.

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.

While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we remain cautious as some of the long-term impacts of the COVID-19 pandemic noted above may continue to have a significant impact on our operators and their financial conditions.

In addition to the long-term impacts of COVID-19 and regulatory requirements discussed above, our operators have been and are likely to continue to be adversely affected by inflation-related cost increases, which may exacerbate labor shortages and increase labor costs, among other impacts.

As discussed further in “Collectibility Issues” below, in 2023 and the first nine months 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 payment deferrals, lease and portfolio restructurings and/or allowed several operators to apply security deposits or letters of credit to pay rent.

While a number of our operators have begun to experience labor, cost and occupancy improvements since the pandemic, to the extent the ongoing cost and occupancy impacts on certain of our other 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 these 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.

While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we remain cautious as some of the long-term impacts of the pandemic noted above may continue to have an impact on certain of our operators and their financial conditions.

In addition to the long-term impacts of the pandemic and regulatory requirements discussed above, our operators have been and are likely to continue to be adversely affected by inflation-related cost increases, which may exacerbate labor shortages and increase labor costs, among other impacts.

We continue to monitor these impacts as well as 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.

On February 21, 2024, Change Healthcare, a unit of UnitedHealth Group, was impacted by a cybersecurity incident involving its information technology systems that disrupted processing of claims, among other transaction services it provides.

Certain of our operators that directly or indirectly utilize Change Healthcare’s services experienced reimbursement delays due to the incident and may continue to experience delays until it is resolved.

Certain of our operators that directly or indirectly utilize Change Healthcare’s services experienced reimbursement delays due to the incident.

This incident and the resulting reimbursement delays affecting our operators may cause delays in the timing of our operators’ payments to us if not remedied timely.

We are continuing to monitor the impact of the incident but at this time do not believe the incident is reasonably likely to materially impact the Company’s financial condition or results of operations.

We are continuing to monitor the impact of the incident, but at this time we do not believe the incident is reasonably likely to materially impact the Company’s financial condition or results of operations.

Government Regulation and Reimbursement

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The healthcare industry is heavily regulated.

Our operators, which are primarily based in the U.S., are subject to extensive and complex federal, state and local healthcare laws and regulations;

we also have several U.K.-based operators that are subject to a variety of laws and regulations in their jurisdiction.

Our U.S.-based operators, which comprise the majority of our operators, are subject to extensive and complex federal, state and local healthcare laws and regulations;

our U.K.-based operators are also subject to a variety of laws and regulations in their jurisdiction.

These laws and regulations are subject to frequent and substantial changes resulting from the adoption of new legislation, rules and regulations, and administrative and judicial interpretations of existing law.

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Changes in laws and regulations impacting our operators, in addition to regulatory non-compliance by our operators, can have a significant effect on the operations and financial condition of our operators, which in turn may adversely impact us.

There is the potential that we may be subject directly to healthcare laws and regulations because of the broad nature of some of these regulations, such as the Anti-kickback Statute and False Claims Act, among others.

The COVID-19 public health emergency that was declared by the U.S.

Department of Health and Human Services (“HHS”) in January 2020 and expired in May 2023, allowed HHS to provide temporary regulatory waivers and new reimbursement rules, such as a temporary increase in the Medicaid Federal Medical Assistance Percentage (the “FMAP”) and other rules designed to equip providers with flexibility to respond to the COVID-19 pandemic by suspending various Medicare patient coverage criteria and documentation and care requirements, including, for example, suspension of the three-day prior hospital stay coverage requirement and expanding the list of approved services which may be provided via telehealth.

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

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

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 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.

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

Department of Health and Human Services (“HHS”) in January 2020 and expired in May 2023 allowed HHS to provide temporary regulatory waivers and new reimbursement rules, such as a temporary increase in the Medicaid Federal Medical Assistance Percentage (the “FMAP”) and other rules designed to equip providers with flexibility to respond to the pandemic by suspending various Medicare patient coverage criteria and documentation and care.

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

Following the expiration of the public health emergency, federal and state regulators generally have resumed enforcement of those regulations that were waived or otherwise not enforced during the public health emergency.

While our industry has begun to recover from some of the long-term impacts of the pandemic, which included prolonged labor shortages, lower occupancy and expense increases, the extent of the recovery will depend on future developments, including the availability of labor, the ultimate scope, implementation timeline and impact of recently issued federal minimum staffing rules for SNFs, the sufficiency and timeliness of reimbursement rate setting in offsetting cost increases, and the continued efficacy of infection control measures and regulations, 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.

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

As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue.

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Quality of Care and Staffing Initiatives .

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

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

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

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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.

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.

Since CMS issued the final rule, multiple lawsuits have been filed 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.

Further, on November 15, 2023, CMS issued a final rule, effective January 16, 2024, that requires SNFs participating in the Medicare or Medicaid programs to disclose certain ownership and managerial information regarding their relationships with certain entities that lease real estate to SNFs, including REITs.

On November 15, 2023, CMS issued a final rule, effective January 16, 2024, that requires SNFs participating in the Medicare or Medicaid programs to disclose certain ownership and managerial information regarding their relationships with certain entities that lease real estate to SNFs, including REITs.

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

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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.

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 regulatory support in certain states, may impact us more acutely in states where we have a larger presence.

While state reimbursement rates have generally improved over the last several years, reimbursement support is not consistent across states, and it is difficult to assess whether the level of reimbursement support has or will continue to adequately keep pace with increased operator costs.

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CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be $196.5 million in fiscal year 2025.

While Medicare reimbursement rate setting, which takes effect annually each October, has historically included forecasted inflationary adjustments, the degree to which those forecasts accurately reflect current inflation rates remains uncertain.

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.

Additionally, it remains uncertain whether these adjustments will ultimately be offset by other 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 Patient Driven Payment Model (“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 August 2022, CMS issued a final rule providing that, to obtain revenue neutrality, it would utilize a PDPM parity adjustment factor of 4.6% for Medicare payment rates, 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.

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.

These reimbursement changes have had and may, together with any further reimbursement changes to the PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some of our operators and could adversely impact the ability of our 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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More recently, the OIG has conducted increased oversight activities and issued additional guidance regarding its findings related to identified problems with the quality of care and the reporting and investigation of potential abuse or neglect at group homes, nursing homes and SNFs.

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

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

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

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

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

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

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

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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 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.

Third Quarter of 2024 and Recent Highlights

● During the three and nine months ended September 30, 2024, we acquired 66 facilities and 102 facilities for aggregate consideration of $445.7 million and $561.8 million, respectively.

Of these 66 facilities acquired during the three months ended September 30, 2024, 63 facilities relate to our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024 (see Note 2 – Real Estate Assets for additional information).

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 $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.

● We invested $25.4 million and $81.6 million under our construction in progress and capital improvement programs during the three and nine months ended September 30, 2024, respectively.

● During the three and nine months ended September 30, 2024, we financed $54.9 million and $209.0 million, respectively, of real estate loans originated during 2024 with a weighted average interest rate of 10.2%.

We also advanced $0.4 million and $3.8 million under existing real estate loans during the three and nine months ended September 30, 2024, respectively.

Dispositions and Impairments

● 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.

● During the three and nine months ended September 30, 2024, we sold six facilities (four ALFs and two SNFs) and 15 facilities (11 SNFs and four ALFs) for $23.9 million and $68.8 million in net cash proceeds, respectively, recognizing a net loss of $0.2 million and a net gain of $11.3 million, respectively.

● During the three and nine months ended September 30, 2024, we recorded impairments on five and 12 facilities of $8.6 million and $22.1 million, respectively.

Of the $22.1 million, $13.0 million related to eight held for use facilities (of which $7.2 million related to four closed facilities) for which the carrying value exceeded the fair value, and $9.1 million related to four facilities that were classified as held for sale for which the carrying values exceeded the estimated fair value less costs to sell.

Financing Activities

● 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”).

● During the third quarter of 2024, we terminated our 2021 $1.0 billion At-The-Market Offering Program (the “2021 ATM Program”) and entered into a new ATM Equity Offering Sales Agreement pursuant to which shares of common stock having an aggregate gross sales price of up to $1.25 billion (the “2024 ATM Program,” and together with the 2021 ATM Program, the “ATM Programs”) may be sold from time to time.

● During the three and nine months ended September 30, 2024, we sold 14.2 million and 22.9 million shares of common stock under our ATM Programs and Dividend Reinvestment and Common Stock Purchase Plan (“DRCSPP”), generating aggregate gross proceeds of $530.2 million and $808.3 million, respectively.

Other Highlights

● 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.

● During the three and nine months ended September 30, 2024, we financed $23.5 million and $33.9 million, respectively, of non-real estate loans that were originated during 2024 with a weighted average interest rate of 9.9%.

We also advanced $0.4 million and $14.1 million under existing non-real estate loans during the three and nine months ended September 30, 2024, respectively.

We received principal repayments of $37.4 million and $90.2 million on non-real estate loans during the three months and nine months ended September 30, 2024, respectively.

● As of June 30, 2024, we held a 49% interest in the Cindat Joint Venture, an unconsolidated joint venture that owns 63 facilities in the U.K., which we accounted for using the equity method of accounting.

In July 2024, we acquired the remaining 51% interest in the Cindat Joint Venture for (i) $98.9 million of cash consideration including direct transaction costs, (ii) the assumption of a £188.6 million mortgage loan with an estimated fair value of $264.0 million and (iii) deferred contingent consideration with an estimated fair value of $2.0 million.

The deferred contingent consideration payment, which will be between zero and $3.0 million, becomes payable to the sellers in December 2024 if certain contingencies are satisfied.

As part of the acquisition, we assumed a £188.6 million mortgage loan that matures in August 2026 but can be repaid without a prepayment penalty beginning November 2025.

The mortgage loan bears interest at SONIA plus an applicable margin of 5.38%.

As part of the transaction, we assumed four interest rate cap contracts that ensure the annual interest rate does not exceed 10.38%.

Collectibility Issues

● 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.

● During the nine months ended September 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 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.

We also did not have any straight-line receivable write-offs through rental income as a result of placing operators on a cash basis during the three months and nine months ended September 30, 2024.

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

These operators represent an aggregate 18.6% of our total revenues for the nine months ended September 30, 2024.

● During the third quarter of 2024, Maplewood Senior Living (along with affiliates, “Maplewood”) continued to short-pay the contractual rent amount due under its lease agreement, paying $12.1 million of contractual rent, a short pay of $5.2 million of the $17.3 million due under its lease agreement.

In addition, Maplewood did not pay the $0.8 million of contractual interest due under its loan agreement during the third quarter of 2024.

As Maplewood is on a cash basis of revenue recognition, we have recorded $12.1 million and $35.2 million of revenue related to Maplewood for the three and nine months ended September 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.

Smith’s guaranty, 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.

On July 31, 2024, we entered into a settlement agreement (the “Settlement Agreement”) with the Greg Smith estate (the “Estate”) and submitted it to the probate court for approval.

The Settlement Agreement, among other things, grants Omega the right to direct the assignment of Mr.

Smith’s equity to the key members of the existing Maplewood management team (the “Key Principals”) or their designee(s), with the Estate remaining liable under Mr.

Smith’s guaranty until the transition is complete or one year from the court’s approval date, if earlier, and requires Omega to refrain from exercising contractual rights or remedies in connection with the defaults.

In the proposed transition, the Key Principals 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.

On August 26, 2024, the probate court approved the Settlement Agreement, and in October 2024, following the probate court’s final and non-appealable order approving the Settlement Agreement, we requested and were granted a dismissal without prejudice of our lawsuit against, among others, the Estate.

We are still awaiting regulatory approvals related to licensure of the operating assets before the transition will be completed.

There is no certainty that the 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.

As of September 30, 2024, the amortized cost basis of this loan was $263.6 million, which represents 18.9% of the total amortized cost basis of all of Omega’s real estate loan receivables.

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.

In October 2024, Maplewood short-paid the contractual rent and interest amounts due under its lease and loan agreements by $1.9 million.

● In June 2024, LaVie Care Centers, LLC (“LaVie”) commenced voluntary cases under Chapter 11 of the U.S.

Bankruptcy Code in the U.S.

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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.

Prior to its bankruptcy filing, LaVie paid Omega $1.5 million in April 2024 and $1.5 million in May 2024.

The April 2024 and May 2024 payments were short of full contractual rent by $1.7 million and $1.5 million, respectively.

Following the bankruptcy filing, LaVie paid contractual rent of $2.9 million in June 2024, which reflects full contractual rent prorated for the period after LaVie entered bankruptcy and a $0.1 million short pay for the several days prior to the filing.

In the third quarter of 2024, LaVie resumed making full contractual rent payments of $9.2 million due under its lease agreement.

As LaVie is on a cash basis of revenue recognition for lease purposes, only the $9.2 million and $19.5 million of contractual rent payments that we received from LaVie were recorded as rental income during the three and nine months ended September 30, 2024, respectively.

In October 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 Healthcare’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 and $5.8 million, respectively, related to the lease with the new operator during the three and nine months ended September 30, 2024.

Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $6.0 million and $17.9 million, respectively, for the three and nine months ended September 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 $3.6 million, respectively, of interest payments that we received during the three and nine months ended September 30, 2024 were applied directly against the principal balance outstanding.

● On October 25, 2024, the Board of Directors declared a cash dividend of $0.67 per share.

The dividend will be paid on November 15, 2024 to stockholders of record as of the close of business on November 4, 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 and six months ended June 30, 2024 and 2023 (dollars in thousands):

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Rental income

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Other income (expense):

Other income – net

Other (expense) income – net

Loss on debt extinguishment

Gain on assets sold – net

(Loss) gain on assets sold – net

Income tax expense

Income from unconsolidated joint ventures

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.

Income (loss) from unconsolidated joint ventures

Three Months Ended September 30, 2024 and 2023

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

● The increase in rental income was primarily the result of (i) an $18.3 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations, (ii) a $6.1 million increase as a result of fewer straight-line rent receivable write-offs in the third quarter of 2024 compared to the same period in 2023 and (iii) a $0.7 million net increase related to impact of facility transitions, primarily from non-paying cash basis operators to straight-line basis operators.

The increase was partially offset by a $3.7 million net decrease in rental income from cash basis operators, primarily related to Maplewood, 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 $9.2 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:

As noted above, during the three months ended September 30, 2024, we funded $55.3 million in new or existing real estate loans and $23.9 million in new or existing non-real estate loans.

● The increase in miscellaneous income primarily relates to a $3.0 million non-refundable deposit related to the potential sale of certain facilities that was recognized as income during the third quarter of 2024 when the sale was terminated.

The following is a description of certain of the changes in our expenses for the three months ended September 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 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 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 increase in general and administrative (“G&A”) expense primarily relates to (i) a $0.7 million increase in payroll and benefits and (ii) a $0.6 million increase in professional service costs.

● The increase in acquisition, merger and transition related costs primarily relates to costs incurred related to (i) transition costs following our acquisition of the remaining 51% interest in the Cindat Joint Venture and (ii) 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 fair value less costs to sell and three held for use facilities (one of which was closed) for which the carrying value exceeded the fair value.

The 2023 impairments were recognized in connection with 19 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 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 change in provision for credit losses primarily relates to (i) a decrease in the general reserve recorded primarily resulting from decreases in loss rates utilized in the estimate of expected credit losses for loans and (ii) a net decrease in aggregate specific provisions recorded during the third 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.

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) the assumption of the £188.6 million mortgage loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024.

Other Income (Expense)

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 decrease in total other income (expense) was primarily due to (i) a $6.4 million decrease in other (expense) income – net primarily related to realized fair value losses on financial instruments and decreased interest income on short-term investments due to lower invested cash in the third quarter of 2024 compared to the same period in 2023 and (ii) a $44.3 million decrease in gain on assets sold related to the sale of six facilities in the third quarter of 2024 compared to the sale of 25 facilities during the same period in 2023.

Income Tax Expense

The increase in income tax expense was primarily due to an increase in taxable income in the U.K.

as a result of acquisitions in 2023 and 2024, including our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024.

Income (loss) from unconsolidated joint ventures

The increase in income (loss) from unconsolidated joint ventures was primarily related to one unconsolidated joint venture, OMG Senior Housing, LLC., which sold one facility during the third quarter of 2024 for a gain.

Nine Months Ended September 30, 2024 and 2023

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

● The increase in rental income was primarily the result of (i) a $37.1 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations, (ii) an increase related to 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, (iii) a $7.0 million increase as a result of fewer straight-line rent receivable write-offs in the third quarter of 2024 compared to the same period in 2023 and (iv) a $0.4 million net increase related to the impact of facility transitions, primarily from non-paying cash basis operators to straight-line basis operators.

The increase was partially offset by a $23.3 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 $27.7 million increase related to new loans and additional fundings on existing loans made throughout 2023 and 2024, partially offset by (i) a $1.6 million decrease related to principal payments on our loans during 2023 and 2024 and (ii) a $0.9 million net 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 lower cash payments or the loans converting to payment-in-kind interest and being placed on non-accrual status.

As noted above, during the nine months ended September 30, 2024, we funded $212.8 million in new or existing real estate loans and $48.0 million in new or existing non-real estate loans.

The following is a description of certain of the changes in our expenses for the nine months ended September 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 increase in general and administrative (“G&A”) expense primarily relates to (i) a $2.9 million increase in payroll and benefits and (ii) a $1.2 million increase in stock-based compensation expense, partially offset by a $0.9 million decrease in professional service costs.

● The 2024 impairments were recognized in connection with four 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 (four of which were closed) 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 (three of which were closed) 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 overall decrease was partially offset by (i) an adjustment to the internal risk rating for the Maplewood loan (see Note 5 – Real Estate Loans Receivable) in the first quarter of 2024 and (ii) a net increase in aggregate specific provisions recorded during the third quarter of 2024 compared to same period in 2023.

● 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.

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, (ii) the assumption of the £188.6 million mortgage loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024 and (iii) increased borrowings on our Revolving Credit Facility during 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.

The decrease in total other income (expense) was primarily due to (i) a $58.7 million decrease in gain on assets sold related to the sale of 15 facilities in 2024 compared to the sale of 37 facilities during the same period in 2023, and (ii) a $1.6 million increase in loss on debt extinguishment primarily related to the early repayment of nine HUD mortgages during the first quarter of 2024.

Income Tax Expense

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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.

as a result of acquisitions in 2023 and 2024 including our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024.

Income (loss) from unconsolidated joint ventures

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, 2024 and 2023:

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, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

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Net income (1)

Deduct gain from real estate dispositions

Add back loss (deduct gain) from real estate dispositions

Deduct gain from real estate dispositions - unconsolidated joint ventures

Elimination of non-cash items included in net income:

2 unchanged sentences

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.

(1) The three and nine months ended September 30, 2024 include the application of $1.1 million and $1.7 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.

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

Liquidity and Capital Resources

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Capital Structure

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 June 30, 2024, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch.

At September 30, 2024, we had total assets of $9.6 billion, total equity of $4.4 billion and total debt of $4.9 billion in our consolidated financial statements, with such debt representing 52.6% of total capitalization.

At September 30, 2024 and December 31, 2023, the weighted average annual interest rate of our debt was 4.6% and 4.4%, respectively.

Additionally, as of September 30, 2024, 94.9% 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 fluctuations in interest rates.

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

As discussed above, as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024, we assumed a £188.6 million mortgage loan that matures in August 2026 but can be repaid without a prepayment penalty beginning November 2025.

The mortgage loan bears interest at SONIA plus an applicable margin of 5.38%.

As part of the transaction, we assumed four interest rate cap contracts that ensure the annual interest rate does not exceed 10.38%.

As of September 30, 2024, we had $342.4 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 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.

As of September 30, 2024, we had $1.2 billion of potential common share issuances remaining under the 2024 ATM Program and $1.45 billion of availability under our Revolving Credit Facility.

This combination of liquidity sources, along with cash from operating activities, provides us with the 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 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.

As of September 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 $4.2 billion aggregate principal of senior notes outstanding at June 30, 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 September 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 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 $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.

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

At September 30, 2024, we had 268.2 million shares of common stock outstanding, and our shares had a market value of $10.9 billion.

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

● We issued 11.6 million and 19.9 million shares of common stock under our ATM Programs for aggregate gross proceeds of $439.7 million and $703.9 million during the three and nine months ended September 30, 2024, respectively.

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

We have $1.2 billion of potential common share issuances remaining under the 2024 ATM Program as of September 30, 2024.

● We issued 2.6 million and 3.0 million shares of common stock under the DRCSPP during the three and nine months ended September 30, 2024, respectively.

Aggregate gross proceeds from these sales were $90.5 million and $104.4 million during the three and nine months ended September 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 June 30, 2024.

We have $357.8 million remaining authorized for repurchases under the $500 Million Stock Repurchase Program as of September 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 six months ended June 30 , 2024, we paid dividends of $330.7 million to our common stockholders.

For the nine months ended September 30 , 2024, we paid dividends of $504.0 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.

On August 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 August 5, 2024.

Material Cash Requirements

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.

Other than the debt service requirements associated with the assumption of a £188.6 million mortgage loan related to our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024, during the nine months ended September 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 September 30, 2024, we had $244.5 million of commitments to fund the construction of new facilities, capital improvements and other commitments under lease agreements.

Additionally, we have commitments to fund $40.9 million of advancements under existing real estate loans and $47.7 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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Cash Flow Summary

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,

Cash, cash equivalents and restricted cash totaled $360.3 million as of September 30 , 2024, a decrease of $84.4 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 nine months ended September 30 , 2024 as compared to the nine months ended September 30, 2023 (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 , 2024 compared to the six months ended June 30, 2023.

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

Operating Activities – The increase in net cash provided by operating activities is driven primarily by an increase of $40.8 million of net income, net of $68.3 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 $27.0 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.

Investing Activities – The increase in cash used in investing activities primarily related to (i) a $192.5 million decrease in proceeds from the sales of real estate investments, (ii) a $52.7 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, (iii) a $29.2 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., (iv) an $18.6 million increase in real estate acquisitions, including our acquisition of the remaining 51% interest in the Cindat Joint Venture, and (v) a $4.4 million decrease in receipts from insurance proceeds, partially offset by (i) an $11.8 million decrease in investments in unconsolidated joint ventures and (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.

Financing Activities – The increase in cash used in financing activities primarily related to (i) a $484.8 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 decrease in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023, (iii) a $24.7 million increase in dividends paid primarily related to share issuances during 2023 and 2024, (iv) a $3.6 million increase in payment of financing related costs related to costs incurred in connection with the assumption of the £188.6 million mortgage loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture and the early repayment of nine HUD mortgages during the first quarter of 2024 and (v) a $2.2 million increase in distributions to Omega OP Unit holders, partially offset by a $473.5 million increase in net proceeds from issuance of common stock as a result of increased volume under our ATM Programs and DRCSPP.

Critical Accounting Policies and Estimates

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There have been no material changes to our critical accounting policies or estimates since December 31, 2023.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

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