Item 7. Management’s Discussion and Analysis
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based primarily on the consolidated financial statements of Omega Healthcare Investors, Inc. presented in conformity with U.S. generally accepted accounting principles (“GAAP”) for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Forward-Looking Statements” and “Item 1A – Risk Factors” above.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:
● Business Overview
● Outlook, Trends and Other Conditions
● 2024 and Recent Highlights
● Results from Operations
● Funds from Operations
● Liquidity and Capital Resources
● Supplemental Guarantor Information
● Critical Accounting Policies and Estimates
Business Overview
Omega Healthcare Investors, Inc. (“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries has elected to be taxed as a REIT for federal income tax purposes. 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, Omega OP. As of December 31, 2024, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.
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Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”). Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings (“MOBs”). 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 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. These loans, which may be either unsecured or secured by the collateral of the borrower, are classified as non-real estate loans. From time to time, we also acquire equity interests in joint ventures or entities that support the long-term healthcare industry and our operators.
Our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) at December 31, 2024, included 1,026 healthcare facilities, located in 42 states and the U.K. that are operated by 87 third-party operators. Our real estate investment in these facilities, net of impairments and allowances, totaled approximately $10.1 billion at December 31, 2024, with approximately 98% of our real estate investments related to long-term healthcare facilities. The portfolio is made up of (i) 589 SNFs, (ii) 290 ALFs, (iii) 19 ILFs, (iv) 18 specialty facilities, (v) one MOB, (vi) real estate loans, including mortgages on 52 SNFs, 43 ALFs, one specialty facility and one ILF and (vii) 12 facilities that are held for sale. At December 31, 2024, we also held other real estate loans (excluding mortgages) receivable of $485.5 million and non-real estate loans receivable of $332.3 million, consisting primarily of secured loans to third-party operators of our facilities, and $88.7 million of investments in 11 unconsolidated joint ventures, which comprise 5 SNFs, one ALF and one specialty facility.
As healthcare delivery continues to evolve, we continuously evaluate potential investments, our assets, operators and markets to position our portfolio for long-term success. As part of our evaluation, we may from time to time consider selling or transitioning assets that do not meet our portfolio criteria.
Outlook, Trends and Other Conditions
Our industry continues to recover from the impacts 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 remain negatively impacted by these factors in a much more profound way. In addition, our operators have been and continue to be adversely affected by inflation-related cost increases, which may exacerbate labor shortages and increase labor costs, among other impacts, and may be adversely impacted by immigration restrictions and changes to immigration enforcement policy to the extent they contribute to labor shortages. 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. 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 Item 1 – Business – Government Regulation and Reimbursement for additional information.
We continue to monitor these impacts as well as the impacts of other regulatory changes, as discussed in Item 1 – Business – Government Regulation and Reimbursement, 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. As discussed further in “Collectibility Issues” below, in 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 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 noted above may continue to have an impact on certain of our operators and their financial conditions.
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2024 and Recent Highlights
Investments
● We acquired 114 facilities for total consideration of $740.5 million in 2024. 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%. Of the 114 facilities acquired during 2024, 63 facilities relate to our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024 for total consideration of $364.9 million. See Note 3 – Real Estate Asset Acquisitions and Development for additional information.
● We invested $106.7 million under our construction in progress and capital improvement programs in 2024.
● We funded $370.2 million under 29 new real estate loans with a weighted average interest rate of 10.5% in 2024. We also advanced $7.9 million under existing real estate loans in 2024. We received principal repayments of $77.9 million on real estate loans during 2024.
Dispositions and Impairments
● In 2024, we sold 21 facilities (14 SNFs, six ALFs and one specialty facility) for approximately $95.0 million in net cash proceeds, recognizing a net gain of approximately $13.2 million.
● In 2024, we recorded impairments on real estate properties of approximately $23.8 million on 14 facilities. Of the $23.8 million, $10.9 million related to six facilities that were classified as held for sale for which the carrying value exceeded the fair value less costs to sell, and $12.9 million related to eight held for use facilities (of which $7.2 million relates to four closed facilities) for which the carrying values exceeded the estimated fair value. Of the $12.9 million, $5.3 million related to three facilities that were subsequently sold during the year but did not meet the criteria to be classified as held for sale when the impairments were recognized.
Financing Activities
● In 2024, we sold 33.8 million shares of common stock under our ATM Program (defined below) and Dividend Reinvestment and Common Stock Purchase Plan (“DRCSPP”), generating aggregate gross proceeds of $1.2 billion.
● 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 first quarter of 2024, the remaining nine HUD mortgages with outstanding principal of $41.6 million were paid off. The payoff included a $1.3 million prepayment fee that was recognized as a loss on extinguishment of debt.
● 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 during the first quarter of 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. and U.K. subsidiary.
● 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 sale price of up to $1.25 billion (the “2024 ATM Program,” and together with the 2021 ATM Program, the “ATM Program”) may be sold from time to time.
● As part of the Cindat JV acquisition in July 2024, we assumed a £188.6 million mortgage loan that matures in August 2026 (the “2026 Mortgage Loan”) but can be repaid without a prepayment penalty beginning November 2025. The 2026 Mortgage Loan bears interest at the Sterling Overnight Index Average (“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%.
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Other Highlights
● During 2024, we advanced $60.6 million under 13 new non-real estate loans with a weighted average interest rate of 8.4%. We also advanced $14.8 million under existing non-real estate loans during 2024. We received principal repayments of $119.7 million on non-real estate loans during 2024. Please see a description of our non-real estate loans in Item 1 – Business – Investment Strategy & Types.
Collectibility Issues
● During the year ended December 31, 2024, we placed one existing operator and three new operators, which Omega did not previously have a relationship with prior to 2024, on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was not deemed probable. There was a $2.8 million straight-line rent receivable write-off associated with placing the existing operator on a cash basis of revenue recognition. The lease agreements with the three new operators were executed in 2024 as part of the transition of facilities from other operators, and we placed them on a cash basis concurrent with the lease commencement dates, so there were no straight-line rent receivable write-offs associated with placing these operators on a cash basis. As of December 31, 2024, 21 operators are on a cash basis. These operators represent an aggregate 20.5% and 22.1% of our total revenues for the years ended December 31, 2024 and 2023, respectively. This includes the impact of straight-line rent receivable, lease inducement and effective yield interest write-offs of $4.2 million and $20.6 million for the years ended December 31, 2024 and 2023, respectively.
● Throughout 2024, Maplewood Senior Living (along with affiliates, “Maplewood”) continued to short-pay the contractual rent amount due under its lease agreement, paying $47.5 million of contractual rent, a short pay of $21.8 million of the $69.3 million due under its lease agreement. In addition, Maplewood did not pay the $2.7 million of contractual interest due under its secured revolving credit facility (the “Maplewood Revolver”) agreement during 2024. As Maplewood is on a cash basis of revenue recognition, we have recorded $47.5 million of revenue related to Maplewood for the year ended December 31, 2024 for the contractual rent payments that we received. 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. As discussed in Note 5 – 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 with Omega, including Mr. 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, demanded immediate repayment of past due contractual rent and replenishment of the security deposit and accelerated all principal and accrued interest due under the Maplewood Revolver. 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”), their designee(s) or another designee of Omega’s choosing, 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 the Maplewood Revolver 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 Maplewood Revolver up to the amortized cost basis of the loan. As of December 31, 2024, the amortized cost basis of the Maplewood Revolver was $263.6 million, which represents 17.8% of the total amortized cost basis of all of Omega’s real estate loan receivables. See Note 7 – Real Estate Loans Receivable. In January 2025, Maplewood short-paid the contractual rent and interest amounts due under its lease and loan agreements by $1.5 million.
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● During the first quarter of 2024, we continued the process of restructuring our portfolio with LaVie Care Centers, LLC (“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. In June 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. On December 5, 2024, a plan of reorganization was confirmed by the Bankruptcy Court, pursuant to which the LaVie master lease agreement will be assumed and assigned by certain of the reorganized debtor(s) upon the effective date of the plan. 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 $9.6 million provision for credit losses during 2024 on LaVie’s $25.0 million secured term loan and DIP financing loan as a result of insufficient collateral supporting the loans. 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, which continued through the fourth quarter of 2024 with LaVie making a full contractual rent payment of $9.1 million. As LaVie is on a cash basis of revenue recognition for lease purposes, only the $28.6 million of contractual rent payments that we received from LaVie were recorded as rental income during the year ended December 31, 2024.
● Beginning in August 2023, Guardian Healthcare (“Guardian”) did not pay its contractual amounts 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 $8.3 million related to the lease with the new operator during the year ended December 31, 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 2024. Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $23.8 million for the year ended December 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 $4.8 million of interest payments that we received during the year ended December 31, 2024 were applied directly against the principal balance outstanding.
Dividends
● Quarterly cash dividends paid during 2024 aggregated to $2.68 per share. On January 29, 2025, the Board of Directors declared a cash dividend of $0.67 per share. The dividend will be paid on February 18, 2025 to stockholders of record as of the close of business on February 10, 2025.
Results of Operations
The following is our discussion of the consolidated results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023. For a discussion of our results of operation for the year ended December 31, 2023 as compared to the year ended December 31, 2022, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).
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Comparison of results of operations for the years ended December 31, 2024 and 2023 (dollars in thousands):
Year Ended December 31,
2024
2023
Variance
Revenues:
Rental income
$
887,910
$
826,394
$
61,516
Interest income
157,207
119,888
37,319
Miscellaneous income
6,273
3,458
2,815
Expenses:
Depreciation and amortization
304,648
319,682
(15,034)
General and administrative
88,001
81,504
6,497
Real estate taxes
14,561
15,025
(464)
Acquisition, merger and transition related costs
11,615
5,341
6,274
Impairment on real estate properties
23,831
91,943
(68,112)
(Recovery) provision for credit losses
(15,483)
44,556
(60,039)
Interest expense
221,716
235,529
(13,813)
Other income (expense):
Other income – net
6,826
20,297
(13,471)
Loss on debt extinguishment
(1,749)
(492)
(1,257)
Gain on assets sold – net
13,168
79,668
(66,500)
Income tax expense
(10,858)
(6,255)
(4,603)
Income (loss) from unconsolidated joint ventures
7,916
(582)
8,498
Revenues
Following is a description of certain of the changes in revenues for the year ended December 31, 2024 compared to 2023:
● The increase in rental income was primarily the result of (i) a $59.5 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations, (ii) an increase related to a one-time option termination payment of $12.5 million to Maplewood that was recorded as a reduction to rental income during the first quarter of 2023 and (iii) a $4.0 million increase as a result of fewer straight-line rent receivable write-offs in 2024 compared to 2023, partially offset by a $15.2 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 $39.2 million increase related to new and refinanced loans and additional fundings to existing operators made throughout 2023 and 2024, partially offset by (i) a $2.6 million decrease related to early principal payments on our loans during 2023 and 2024 and (ii) a $0.8 million net decrease related to loans placed on non-accrual status, primarily the Maplewood Revolver , in which we have recognized less interest income period over period as a result of receiving less cash payments or the loans converting to PIK interest. As noted above, during the year ended December 31, 2024, we funded $378.1 million in new or existing real estate loans and $75.4 million in new or existing non-real estate loans.
Expenses
Following is a description of certain of the changes in our expenses for the year ended December 31, 2024 compared to 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 (i) a $3.2 million increase in payroll and benefits, (ii) a $1.6 million increase in stock-based compensation expense (see Note 19 – Stock-Based Compensation to the Consolidated Financial Statements for a full summary of stock-compensation movements over the last three years) and (iii) a $0.5 million increase in professional service costs.
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● 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 six facilities that were classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell and eight held for use facilities for which the carrying value exceeded the fair value. The 2023 impairments were recognized in connection with two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair value less costs to sell and 23 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 operators.
● The change in (recovery) provision for credit losses primarily relates to (i) decreases in the general reserve recorded primarily resulting from decreases in loss rates utilized in the estimate of expected credit losses for loans partially offset by increases in loan balances, and a net decrease in aggregate specific provisions recorded during 2024 compared to specific provisions recorded during 2023 (see Note 9 – Allowance for Credit Losses to the Consolidated Financial Statements for a full summary of allowance movements over the last three years).
● 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 2026 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 $66.5 million decrease in gain on assets sold resulting from the sale of 21 facilities in 2024 compared to the sale of 69 facilities in 2023 as we continue to exit certain facilities, operator relationships and/or states to improve the strength of our overall portfolio and (ii) a $13.5 million change in other income (expense) – net primarily related to decreased interest income on short-term investments due to lower invested cash in 2024 and foreign currency and fair value losses on financial instruments 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 and (ii) 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 change in income (loss) income from unconsolidated joint ventures was primarily due to one unconsolidated joint venture, OMG Senior Holdings, LLC, which sold one facility during the third quarter of 2024 for a $12.9 million gain ($6.5 million of which represents the Company’s share of the gain).
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Funds From Operations
We use funds from operations (“Nareit FFO”), a non-GAAP financial measure, as one of several criteria to measure the operating performance of our business. We calculate and report Nareit FFO in accordance with the definition of Funds from Operations and interpretive guidelines issued by the National Association of Real Estate Investment Trusts (“Nareit”). Nareit FFO is defined as net income (computed in accordance with GAAP), adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairment on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures and changes in the fair value of warrants. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. Revenue recognized based on the application of security deposits and letters of credit or based on the ability to offset against other financial instruments is included within Nareit FFO. We believe that Nareit FFO is an important supplemental measure of our operating performance. As real estate assets (except land) are depreciated under GAAP, such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions. Nareit FFO was designed by the real estate industry to address this issue. Nareit FFO herein is not necessarily comparable to Nareit FFO of other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us.
We further believe that by excluding the effect of depreciation, amortization, impairment on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Nareit FFO can facilitate comparisons of operating performance between periods and between other REITs. We offer this measure to assist the users of our financial statements in evaluating our financial performance under GAAP, and Nareit FFO should not be considered a measure of liquidity, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP. 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 reconciliation for the years ended December 31, 2024, 2023 and 2022:
Year Ended December 31,
2024
2023
2022
(in thousands)
Net income (1)
$
417,804
$
248,796
$
438,841
Deduct gain from real estate dispositions
(13,168)
(79,668)
(359,951)
Deduct gain from real estate dispositions - unconsolidated joint ventures
(6,260)
—
(93)
398,376
169,128
78,797
Elimination of non-cash items included in net income:
Depreciation and amortization
304,648
319,682
332,407
Depreciation – unconsolidated joint ventures
7,057
10,423
10,881
Add back impairments on real estate properties
23,831
91,943
38,451
Nareit FFO
$
733,912
$
591,176
$
460,536
(1) The years ended December 31, 2024, 2023 and 2022 include the application of $2.2 million, $17.6 million and $11.0 million, respectively, of security deposits (letter of credit and cash deposits) in revenue.
Liquidity and Capital Resources
Sources and Uses
Our primary sources of cash include rental income and interest receipts, existing availability under our Revolving Credit Facility, proceeds from our DRCSPP and 2024 ATM Program, facility sales, the issuance of additional debt, including unsecured notes and term loans, and proceeds from real estate loan and non-real estate loan payoffs. We anticipate that these sources will be adequate to fund our cash flow needs through the next twelve months, which include common stock dividends and distributions to noncontrolling interest members, debt service payments (including principal and interest), real estate investments (including facility acquisitions, capital improvement programs and other capital expenditures), real estate loan and non-real estate loan advances and normal recurring G&A expenses (primarily consisting of employee payroll and benefits and expenses relating to third parties for legal, consulting and audit services).
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Capital Structure
At December 31, 2024, we had total assets of $9.9 billion, total equity of $4.7 billion and total debt of $4.9 billion in our consolidated financial statements, with such debt representing approximately 50.7% of total capitalization.
Debt
At December 31, 2024 and 2023, the weighted average annual interest rate of our debt was 4.6% and 4.4%, respectively. Additionally, as of December 31, 2024, approximately 95% of our debt with outstanding principal balances has fixed interest payments after reflecting the impact of interest rate swaps that are designated cash flow hedges. As of December 31, 2024, Omega’s debt obligations consisted of the following:
● $4.2 billion of senior unsecured notes with staggered maturity dates ranging from 2025 to 2033. These notes bear fixed interest rates between 3.25% and 5.25% per annum.
● A $1.45 billion Revolving Credit Facility that bears interest at Secured Overnight Financing Rate (“SOFR”) plus an adjustment of 0.11448% per annum ( or in the case of loans denominated in GBP, the SONIA reference rate plus an adjustment of 0.1193% per annum) plus an applicable percentage (with a range of 95 to 185 basis points) based on our credit ratings. The Revolving Credit Facility matures on April 30, 2025, subject to Omega’s option to extend such maturity date for two six-month periods. As of December 31, 2024, Omega had zero outstanding on the Revolving Credit Facility. In January 2025, Omega provided notification to extend the maturity date to October 30, 2025.
● A $428.5 million senior unsecured term loan facility (the “2025 Term Loan”) that bears interest at SOFR plus an adjustment of 0.1% per annum plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings. We have 11 interest rate swaps designated as cash flow hedges, with notional value of $428.5 million, that effectively fix the SOFR-based portion of the 2025 Term Loan interest rate at 4.047%. The 2025 Term Loan matures on August 8, 2025, subject to Omega’s option to extend such maturity date for two sequential 12-month periods.
● The 2026 Mortgage Loan with £184.6 million or $231.1 million outstanding that bears interest at SONIA plus an applicable margin of 5.38%. We have four interest rate cap contracts that ensure the annual interest rate on the 2026 Mortgage Loan does not exceed 10.38%. The 2026 Mortgage Loan matures in August 2026.
● A $50.0 million senior unsecured term loan facility (the “OP Term Loan”) that bears interest at SOFR plus an adjustment of 0.11448% per annum plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings. We have an interest rate swap designated as a cash flow hedge , with a notional value of $50.0 million, that effectively fixes the SOFR-based portion of the OP Term Loan at 3.957%. The OP Term Loan matures on April 30, 2025, subject to Omega OP’s option to extend such maturity date for two six-month periods. In January 2025, Omega provided notification to extend the maturity date to October 30, 2025.
As of December 31, 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. For example, our Revolving Credit Facility accrues interest and fees at a rate per annum equal to SOFR plus a margin that depends upon our credit rating. 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.
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As of December 31, 2024, we had $400 million of 4.50% senior notes due January 2025 (which were repaid on January 15, 2025 using available cash). Our Revolving Credit Facility, OP Term Loan and 2025 Term Loan also mature in 2025. As noted above, we have remaining options under each of these loans to extend the maturity dates beyond 2025. We will evaluate market conditions during the course of 2025 and determine if it is advantageous to further extend the terms of, refinance and/or pay off these loans. As of December 31, 2024, we had approximately $518.3 million of cash and cash equivalents on our Consolidated Balance Sheets and $1.45 billion of availability under our Revolving Credit Facility. Our next senior note maturity is the $600 million of 5.25% senior notes due January 2026. As discussed below, we also have $821.0 million of potential sales remaining under the ATM Program. This combination of liquidity sources, along with cash from operating activities, provides us with ability to repay the senior notes due in January 2026. We also could elect to refinance these notes based on our evaluation of market conditions at maturity.
Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of December 31, 2024 and 2023, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.
Equity
At December 31, 2024, we had 279,129 thousand shares of common stock outstanding, and our shares had a market value of $10.6 billion. As of December 31, 2024, we had the following equity programs in place that we can utilize to raise capital:
● The 2024 ATM Program under which shares of common stock having an aggregate gross sales price of up to $1.25 billion may be sold from time to time. The 2024 ATM Program has a forward sale provision that generally allows Omega to lock in a price on the sale of shares of common stock when sold by the forward sellers but defer receiving the net proceeds from such sales until the shares of our common stock are issued at settlement on a later date. We have not utilized the forward provisions under the ATM Program. We have $821.0 million of sales remaining under the 2024 ATM Program as of December 31, 2024.
● We have a DRCSPP that allows for the reinvestment of dividends and the optional purchase of our common stock.
Dividends
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. In addition, if we dispose of any built-in gain asset during a recognition period, we will be required to distribute at least 90% of the built-in gain (after tax), if any, recognized on the disposition of such asset. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration. In addition, such distributions are required to be made pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that such class is entitled to such a preference. To the extent that we do not distribute all of our net capital gain or 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.
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Material Cash Requirements
The following table shows our material cash requirements, described below, as of December 31, 2024:
Payments due by period
Less than
More than
Total
1 year
Years 2-3
Years 4-5
5 years
(in thousands)
Debt (1)(2)(3)
$
4,859,648
$
878,500
$
1,531,148
$
1,050,000
$
1,400,000
Interest payments on long-term debt (2)(3)(4)
719,568
201,764
259,592
142,063
116,149
Operating lease and other obligations (2)(5)
80,520
3,082
5,446
5,289
66,703
Total
$
5,659,736
$
1,083,346
$
1,796,186
$
1,197,352
$
1,582,852
(1) The $4.9 billion of debt outstanding includes: (i) $50 million under the OP Term Loan due April 2025, (ii) $428.5 million under the 2025 Term Loan due August 2025, (iii) $400 million of 4.50% Senior Notes due January 2025 (which were repaid on January 15, 2025 using available cash), (iv) $600 million of 5.25% Senior Notes due January 2026, (v) $700 million of 4.5% Senior Notes due April 2027, (vi) $550 million of 4.75% Senior Notes due January 2028, (vii) $500 million of 3.625% Senior Notes due October 2029, (viii) $700 million of 3.375% Senior Notes due February 2031, (ix) $700 million of 3.25% Senior Notes due April 2033 and (x) $231.1 million under the 2026 Mortgage Loan. Other than the $50 million outstanding under the OP Term Loan and the $231.1 million outstanding under the 2026 Mortgage Loan, Parent is the obligor of all outstanding debt.
(2) Based on foreign currency exchange rates in effect as of December 31, 2024.
(3) Does not include the impact of Omega providing notification to extend the maturity date of the OP Term Loan to October 30, 2025 in January 2025.
(4) Based on variable interest rates in effect as of December 31, 2024 and including the impact of interest rate swaps designated as cash flow hedges.
(5) See Note 6 – Leases to our consolidated financial statements for additional information.
Capital Expenditures and Funding Commitments
In addition to the obligations in the table above, as of December 31, 2024, we also had $221.8 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments. Additionally, we have commitments to fund $50.4 million of advancements under existing other real estate loans and $65.7 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.
Other Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 11 to the Consolidated Financial Statements – Investments in Joint Ventures. Our risk of loss is generally limited to our investment in the joint venture and any outstanding loans receivable.
We also hold variable interests in certain unconsolidated entities through our loan and other investments. See disclosures regarding our risk of loss associated with these entities within Note 10 to the Consolidated Financial Statements – Variable Interest Entities.
We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 to the Consolidated Financial Statements – Derivatives and Hedging.
Cash Flow Summary
The following is a summary of our sources and uses of cash flows for the year ended December 31, 2024 as compared to the year ended December 31, 2023 (dollars in thousands):
Year Ended December 31,
2024
2023
Increase/(Decrease)
Net cash provided by (used in):
Operating activities
$
749,430
$
617,736
$
131,694
Investing activities
(671,164)
(770)
(670,394)
Financing activities
26,319
(473,310)
499,629
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For a discussion of our consolidated cash flows for the year ended December 31, 2023 as compared to the year ended December 31, 2022, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K .
Cash, cash equivalents and restricted cash totaled $548.7 million as of December 31, 2024, an increase of $104.0 million as compared to the balance at December 31, 2023. The following is a discussion of changes in cash, cash equivalents and restricted cash due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows.
Operating Activities –The increase in net cash provided by operating activities is primarily driven by an increase of $83.7 million of net income, net of $85.3 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 $48.0 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 related primarily to (i) a $490.0 million decrease in proceeds from the sales of real estate investments due to significant restructuring activities related to Guardian and LaVie in 2023, (ii) a $146.2 million increase in real estate acquisitions driven by several large portfolio acquisitions in the U.K. in 2024, (iii) a $24.2 million increase in capital improvements to real estate investments and construction in progress primarily as a result of on-going construction of an ALF in Washington D.C., (iv) a $7.8 million decrease in distributions from unconsolidated joint ventures in excess of earnings, (v) a $7.0 million increase in loan placements, net of repayments due to new loans advanced in 2024 partially offset by significant paydowns on loans during 2024, (vi) a $3.7 million decrease in receipts from insurance proceeds and (vii) a $2.9 million decrease in proceeds from net investment hedges, partially offset by an $11.4 million decrease in investments in unconsolidated joint ventures.
Financing Activities –The change in cash provided by (used in) financing activities was primarily related to a $899.2 million increase in cash proceeds from the issuance of common stock as a result of increased volume under our ATM Program and DRSCPP, partially offset by (i) a $259.6 million increase in repayments on other long-term borrowings, net of proceeds, primarily due to 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 $41.6 million increase in dividends paid primarily related to share issuances during 2024, (iv) a $3.2 million increase in payment of financing related costs related to costs incurred in connection with the assumption of the 2026 Mortgage Loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture and (v) a $2.9 million increase in distributions to Omega OP Unit holders.
Supplemental Guarantor Information
Parent has issued approximately $4.2 billion aggregate principal of senior notes outstanding at December 31, 2024 that were registered under the Securities Act of 1933, as amended. The senior notes are guaranteed by Omega OP.
The SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities, such as our senior notes. As a result of these amendments, registrants are permitted to provide certain alternative financial and non-financial disclosures, to the extent material, in lieu of separate financial statements for subsidiary issuers and guarantors of registered debt securities. Accordingly, separate consolidated financial statements of Omega OP have not been presented. Parent and Omega OP, on a combined basis, have no material assets, liabilities or operations other than financing activities (including borrowings under the outstanding senior notes, Revolving Credit Facility and term loans) and their investments in non-guarantor subsidiaries.
Omega OP is currently the sole guarantor of our senior notes. The guarantees by Omega OP of our senior notes are full and unconditional and joint and several with respect to the payment of the principal and premium and interest on our senior notes. The guarantees of Omega OP are senior unsecured obligations of Omega OP that rank equal with all existing and future senior debt of Omega OP and are senior to all subordinated debt. However, the guarantees are effectively subordinated to any secured debt of Omega OP. As of December 31, 2024, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the Consolidated Financial Statements. These policies were followed in preparing the Consolidated Financial Statements for all periods presented. Actual results could differ from those estimates.
We have identified the following accounting policies that we believe are critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant assumptions, judgments and estimates. With respect to these critical accounting policies, we believe the application of assumptions, judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented. The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate:
Nature of Critical Accounting Estimate
Assumptions/Approach Used
Revenue Recognition
Rental income from our operating leases is generally recognized on a straight-line basis over the lease term when we have determined that the collectibility of substantially all of the lease payments is probable. If we determine that it is not probable that substantially all of the lease payments will be collected, we account for the revenue under the lease on a cash basis.
We assess the probability of collecting substantially all payments under our leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends, current and future economic conditions and expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern). If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all rents, we place that operator on a cash basis and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. As a result of placing an operator on a cash basis, we may recognize a charge to rental income for any contractual rent receivable, straight-line rent receivable and lease inducements.
As of December 31, 2024 and 2023, we had outstanding straight-line rent receivables of $238.7 million and $202.7 million, respectively, and lease inducements of $8.8 million and $8.8 million, respectively. During 2024, we wrote-off approximately $2.8 million of contractual receivables, straight-line rent receivables and lease inducements to rental income primarily as a result of placing one existing operator on a cash-basis. Also, during 2024, we placed three new operators on a cash-basis concurrent with the lease commencement dates, so there were no straight-line rent receivable write-offs in connection with these operators. During 2023, we placed three operators on a cash-basis but did not write-off any contractual receivables, straight-line rent receivables and lease inducements to rental income in connection with these operators, as two related to new lease agreements and one related to an operator with a lease that had no rent escalators. Changes in the assessment of probability are accounted for on a cumulative basis as if the lease had always been accounted for based on the current determination of the likelihood of collection, potentially resulting in increased volatility of rental income.
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Nature of Critical Accounting Estimate
Assumptions/Approach Used
Real Estate Investment Impairment
Assessing impairment of real property involves subjectivity in determining if indicators of impairment are present and in estimating the future undiscounted cash flows. The estimated future undiscounted cash flows are generally based on the related lease which relates to one or more properties and may include cash flows from the eventual disposition of the asset. In some instances, there may be various potential outcomes for a real estate investment and its potential future cash flows. In these instances, the undiscounted future cash flows used to assess the recoverability are probability-weighted based on management’s best estimates as of the date of evaluation. These estimates can have a significant impact on the undiscounted cash flows.
We evaluate our real estate investments for impairment indicators at each reporting period, including the evaluation of our assets’ useful lives. The judgment regarding the existence of impairment indicators is based on factors such as, but not limited to, market conditions, operator performance including the current payment status of contractual obligations and expectations of the ability to meet future contractual obligations, legal structure, as well as our intent with respect to holding or disposing of the asset. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to our estimate of future undiscounted cash flows of the underlying facilities to determine if an impairment charge is necessary. This analysis requires us to use judgment in determining whether indicators of impairment exist, probabilities of potential outcomes and to estimate the expected future undiscounted cash flows or estimated fair values of the facility which impact our assessment of impairment, if any.
During 2024, we recorded impairments on real estate properties of approximately $23.8 million on 14 facilities. During 2023, we recorded impairments on real estate properties of approximately $91.9 million on 25 facilities.
Asset Acquisitions
We believe that our real estate acquisitions are typically considered asset acquisitions. The assets acquired and liabilities assumed are recognized by allocating the cost of the acquisition, including transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis. Tangible assets consist primarily of land, building and site improvements and furniture and equipment. Identifiable intangible assets and liabilities primarily consist of the above or below market component of in-place leases.
The allocation of the purchase price to the related real estate acquired (tangible assets and intangible assets and liabilities) involves subjectivity as such allocations are based on a relative fair value analysis. In determining the fair values that drive such analysis, we estimate the fair value of each component of the real estate acquired which generally includes land, buildings and site improvements, furniture and equipment, and the above or below market component of in-place leases. Significant assumptions used to determine such fair values include comparable land sales, capitalization rates, discount rates, market rental rates and property operating data, all of which can be impacted by expectations about future market or economic conditions. Our estimates of the values of these components affect the amount of depreciation and amortization we record over the estimated useful life of the property or the term of the lease.
During 2024 and 2023, we acquired real estate assets of approximately $740.5 million and $261.2 million, respectively. These transactions were accounted for as asset acquisitions and the purchase price of each was allocated based on the relative fair values of the assets acquired and liabilities assumed.
Allowance for Credit Losses on Real Estate Loans, Non-real Estate Loans and Direct Financing Leases
For purposes of determining our allowance for credit loss, we pool financial assets that have similar risk characteristics. We aggregate our financial assets by financial instrument type and by internal risk rating. Our internal ratings range between 1 and 7. An internal rating of 1 reflects the lowest likelihood of loss and a 7 reflects the highest likelihood of loss.
We have a limited history of incurred losses and consequently have elected to employ external data to perform our expected credit loss calculation. We utilize a probability of default (“PD”) and loss given default (“LGD”) methodology.
Periodically, the Company may identify an individual loan for impairment. When we identify a loan impairment, the loan is written down to the present value of the expected future cash flows. In cases where expected future cash flows are not readily determinable, the loan is written down to the fair value of the underlying collateral. We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the sale of the collateral.
We assess our internal credit ratings on a quarterly basis. Our internal credit ratings consider several factors including the collateral and/or security, the performance of borrowers underlying facilities, if applicable, available credit support (e.g., guarantees), borrowings with third parties, and other ancillary business ventures and real estate operations of the borrower.
Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration (“FHA”) along with Standards & Poor’s one-year global corporate default rates. Our historical loss rates revert to historical averages after 36 periods. Our model’s current conditions and supportable forecasts consider internal credit ratings, current and projected U.S. unemployment rates published by the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis and the weighted average life to maturity of the underlying financial asset. During 2024 and 2023, we recorded a (recovery) provision for credit losses of approximately ($15.5) million and $44.6 million, respectively. As of December 31, 2024 and 2023, we had a total allowance for credit loss of $198.6 million and $222.2 million, respectively. A 10% increase or decrease in the FHA default rates as of December 31, 2024 would result in an additional provision or recovery for credit losses of $3.2 million. If the weighted average yield to maturity on our portfolio increases or decreases by 10%, this will result in an additional provision or recovery for credit losses of $6.9 million or $7.0 million, respectively.
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