UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
or
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OMEGA HEALTHCARE INVESTORS, INC.
(Exact name of registrant as specified in its charter)
| | |
Maryland | 1-11316 | 38-3041398 |
(State or other jurisdiction of incorporation or | (Commission file number) | (IRS Employer Identification No.) |
303 International Circle, Suite 200, Hunt Valley, MD 21030
(Address of principal executive offices)
(410) 427-1700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.10 par value | OHI | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
| |
Yes ☒ No ☐ | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| |
Yes ☒ No ☐ | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | |
Large accelerated filer | Accelerated filer ◻ | Non-accelerated filer ◻ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ | No ☒ | | |
As of October 31, 2022,2023, there were 234,182,805244,993,589 shares of common stock outstanding.
OMEGA HEALTHCARE INVESTORS, INC.
FORM 10-Q
September 30, 20222023
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TABLE OF CONTENTS | ||
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Financial Statements of Omega Healthcare Investors, Inc. (Unaudited): | | |
| 2 | |
| September 30, | |
| 3 | |
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| Nine months ended |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I – FINANCIAL INFORMATION
Item 1 - Financial Statements
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| | | | | | | | | | | | |
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | (Unaudited) | | | | | (Unaudited) | | | | ||
ASSETS | | | | | | | | | | | ||
Real estate assets |
| |
|
| |
|
| |
|
| |
|
Buildings and improvements | | $ | 7,217,231 |
| $ | 7,448,126 | | $ | 7,119,240 |
| $ | 7,347,853 |
Land | | | 908,424 | | | 916,328 | | | 901,282 | | | 923,605 |
Furniture and equipment | | | 498,473 | | | 511,271 | | | 471,164 | | | 499,902 |
Construction in progress | | | 84,884 | | | 74,062 | | | 120,243 | | | 88,904 |
Total real estate assets | | | 8,709,012 | | | 8,949,787 | | | 8,611,929 | | | 8,860,264 |
Less accumulated depreciation | |
| (2,246,659) |
|
| (2,160,696) | |
| (2,419,324) |
|
| (2,322,773) |
Real estate assets – net | |
| 6,462,353 |
|
| 6,789,091 | |
| 6,192,605 |
|
| 6,537,491 |
Investments in direct financing leases – net | |
| 10,560 |
|
| 10,873 | |
| 8,984 |
|
| 8,503 |
Mortgage notes receivable – net | |
| 669,533 |
|
| 835,086 | ||||||
| | | 7,142,446 | | | 7,635,050 | ||||||
Other investments – net | |
| 608,190 |
|
| 469,884 | ||||||
Real estate loans receivable – net | |
| 1,121,460 |
|
| 1,042,731 | ||||||
Investments in unconsolidated joint ventures | |
| 176,556 |
|
| 194,687 | |
| 187,541 |
|
| 178,920 |
Assets held for sale | |
| 190,723 |
|
| 261,151 | |
| 67,530 |
|
| 9,456 |
Total real estate investments | | | 7,578,120 | | | 7,777,101 | ||||||
Non-real estate loans receivable – net | |
| 245,001 |
|
| 225,281 | ||||||
Total investments | |
| 8,117,915 |
|
| 8,560,772 | |
| 7,823,121 |
|
| 8,002,382 |
| | | | | | | | | | | | |
Cash and cash equivalents | |
| 134,855 |
|
| 20,534 | |
| 554,705 |
|
| 297,103 |
Restricted cash | |
| 3,323 |
|
| 3,877 | |
| 3,212 |
|
| 3,541 |
Contractual receivables – net | |
| 9,945 |
|
| 11,259 | |
| 9,511 |
|
| 8,228 |
Other receivables and lease inducements | | | 266,890 | ��� | | 251,815 | | | 199,530 | | | 177,798 |
Goodwill | |
| 648,948 |
|
| 651,417 | |
| 643,335 |
|
| 643,151 |
Other assets | |
| 293,829 |
|
| 138,804 | |
| 191,899 |
|
| 272,960 |
Total assets | | $ | 9,475,705 |
| $ | 9,638,478 | | $ | 9,425,313 |
| $ | 9,405,163 |
| | | | | | | | | | | | |
LIABILITIES AND EQUITY | |
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Revolving credit facility | | $ | 17,861 |
| $ | — | | $ | 19,530 |
| $ | 19,246 |
Secured borrowings | |
| 368,405 |
|
| 362,081 | |
| 289,615 |
|
| 366,596 |
Senior notes and other unsecured borrowings – net | |
| 4,898,609 |
|
| 4,891,455 | |
| 4,982,127 |
|
| 4,900,992 |
Accrued expenses and other liabilities | |
| 295,454 |
|
| 276,716 | |
| 276,711 |
|
| 315,047 |
Total liabilities | |
| 5,580,329 |
|
| 5,530,252 | |
| 5,567,983 |
|
| 5,601,881 |
| | | | | | | | | | | | |
Equity: | |
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|
| |
| ||||||
Preferred stock $1.00 par value authorized – 20,000 shares, issued and outstanding – none | | | — | | | — | | | — | | | — |
Common stock $0.10 par value authorized – 350,000 shares, issued and outstanding – 234,176 shares as of September 30, 2022 and 239,061 shares as of December 31, 2021 | |
| 23,417 |
| | 23,906 | ||||||
Common stock $0.10 par value authorized – 350,000 shares, issued and outstanding – 244,989 shares as of September 30, 2023 and 234,252 shares as of December 31, 2022 | |
| 24,498 |
| | 23,425 | ||||||
Additional paid-in capital | |
| 6,305,089 |
| | 6,427,566 | |
| 6,657,211 |
| | 6,314,203 |
Cumulative net earnings | |
| 3,392,822 |
| | 3,011,474 | |
| 3,625,580 |
| | 3,438,401 |
Cumulative dividends paid | |
| (6,029,603) |
| | (5,553,908) | |
| (6,666,439) |
| | (6,186,986) |
Accumulated other comprehensive income (loss) | |
| 6,243 |
| | (2,200) | ||||||
Accumulated other comprehensive income | |
| 28,143 |
| | 20,325 | ||||||
Total stockholders’ equity | |
| 3,697,968 |
| | 3,906,838 | |
| 3,668,993 |
| | 3,609,368 |
Noncontrolling interest | |
| 197,408 |
| | 201,388 | |
| 188,337 |
| | 193,914 |
Total equity | |
| 3,895,376 |
| | 4,108,226 | |
| 3,857,330 |
| | 3,803,282 |
Total liabilities and equity | | $ | 9,475,705 |
| $ | 9,638,478 | | $ | 9,425,313 |
| $ | 9,405,163 |
See notes to consolidated financial statements.
2
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended |
| | Three Months Ended | | Nine Months Ended | ||||||||||||||||
|
| September 30, |
| | September 30, | |
| September 30, |
| September 30, | ||||||||||||||||
|
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | | $ | 207,588 | | $ | 247,164 |
| | $ | 635,899 | | $ | 705,880 | | | $ | 209,948 | | $ | 207,588 |
| $ | 618,126 | | $ | 635,899 |
Income from direct financing leases | |
| 256 | |
| 257 |
| |
| 768 | |
| 772 | | |
| 254 | |
| 256 |
|
| 762 | |
| 768 |
Mortgage interest income | |
| 17,234 | |
| 23,047 |
| |
| 57,380 | |
| 70,693 | | ||||||||||||
Other investment income | |
| 14,110 | |
| 10,780 |
| |
| 36,481 | |
| 34,245 | | ||||||||||||
Interest income | |
| 30,623 | |
| 31,344 |
|
| 88,275 | |
| 93,861 | ||||||||||||||
Miscellaneous income | |
| 242 | |
| 424 |
| |
| 2,866 | |
| 1,270 | | |
| 1,207 | |
| 242 |
|
| 3,258 | |
| 2,866 |
Total revenues | |
| 239,430 | |
| 281,672 |
| |
| 733,394 | |
| 812,860 | | |
| 242,032 | |
| 239,430 |
|
| 710,421 | |
| 733,394 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses | |
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Depreciation and amortization | |
| 82,709 | |
| 86,097 |
| |
| 248,668 | |
| 256,745 | | |
| 80,798 | |
| 82,709 |
|
| 244,008 | |
| 248,668 |
General and administrative | |
| 18,242 | |
| 15,372 |
| |
| 53,402 | |
| 46,724 | | |
| 20,287 | |
| 18,242 |
|
| 62,971 | |
| 53,402 |
Real estate taxes | | | 4,175 | | | 3,272 | | | | 11,495 | | | 9,002 | | | | 3,892 | | | 4,175 | | | 11,814 | | | 11,495 |
Acquisition, merger and transition related costs | |
| 185 | |
| — |
| |
| 5,658 | |
| 1,814 | | |
| 121 | |
| 185 |
|
| 1,183 | |
| 5,658 |
Impairment on real estate properties | |
| 10,015 | |
| 4,942 |
| |
| 21,221 | |
| 42,453 | | |
| 27,890 | |
| 10,015 |
|
| 87,992 | |
| 21,221 |
Recovery on direct financing leases | |
| — | |
| — |
| |
| — | |
| (717) | | ||||||||||||
Provision for credit losses | |
| 4,106 | |
| 25,511 |
| |
| 4,367 | |
| 28,023 | | |
| 2,733 | |
| 4,106 |
|
| 11,643 | |
| 4,367 |
Interest expense | |
| 58,238 | |
| 58,979 |
| |
| 174,755 | |
| 176,379 | | |
| 58,778 | |
| 58,238 |
|
| 176,100 | |
| 174,755 |
Total expenses | |
| 177,670 | |
| 194,173 |
| |
| 519,566 | |
| 560,423 | | |
| 194,499 | |
| 177,670 |
|
| 595,711 | |
| 519,566 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other income (expense) | |
| | |
|
|
| |
| | |
|
| | |
| | |
|
|
|
| | |
|
|
Other (expense) income – net | |
| (176) | |
| (767) |
| |
| (5,038) | |
| 4 | | ||||||||||||
Other income (expense) – net | |
| 5,402 | |
| (176) |
|
| 9,151 | |
| (5,038) | ||||||||||||||
Loss on debt extinguishment | |
| (376) | |
| (642) |
| |
| (389) | |
| (30,707) | | |
| — | |
| (376) |
|
| (6) | |
| (389) |
Gain on assets sold – net | | | 40,930 | | | 56,169 | | | | 179,747 | | | 160,634 | | | | 44,076 | | | 40,930 | | | 69,956 | | | 179,747 |
Total other income | |
| 40,378 | |
| 54,760 |
| |
| 174,320 | |
| 129,931 | | |
| 49,478 | |
| 40,378 |
|
| 79,101 | |
| 174,320 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income tax expense and income from unconsolidated joint ventures | |
| 102,138 | |
| 142,259 |
| |
| 388,148 | |
| 382,368 | | |
| 97,011 | |
| 102,138 |
|
| 193,811 | |
| 388,148 |
Income tax expense | |
| (1,191) | |
| (976) |
| |
| (3,535) | |
| (2,873) | | |
| (1,758) | |
| (1,191) |
|
| (2,092) | |
| (3,535) |
Income from unconsolidated joint ventures | |
| 4,117 | |
| 1,552 |
| |
| 7,522 | |
| 14,569 | | ||||||||||||
(Loss) income from unconsolidated joint ventures | |
| (1,345) | |
| 4,117 |
|
| 555 | |
| 7,522 | ||||||||||||||
Net income | |
| 105,064 | |
| 142,835 |
| |
| 392,135 | |
| 394,064 | | |
| 93,908 | |
| 105,064 |
|
| 192,274 | |
| 392,135 |
Net income attributable to noncontrolling interest | |
| (2,790) | |
| (3,888) |
| |
| (10,787) | |
| (10,616) | | |
| (2,527) | |
| (2,790) |
|
| (5,095) | |
| (10,787) |
Net income available to common stockholders | | $ | 102,274 | | $ | 138,947 |
| | $ | 381,348 | | $ | 383,448 | | | $ | 91,381 | | $ | 102,274 |
| $ | 187,179 | | $ | 381,348 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per common share available to common stockholders: | |
|
| |
|
|
| |
|
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|
| | |
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|
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Basic: | |
|
| |
|
|
| |
|
| |
| | | |
|
| |
|
|
|
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| |
| |
Net income available to common stockholders | | $ | 0.44 | | $ | 0.58 |
| | $ | 1.61 | | $ | 1.62 | | | $ | 0.37 | | $ | 0.44 |
| $ | 0.78 | | $ | 1.61 |
Diluted: | |
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| |
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| |
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|
| | |
|
| |
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Net income | | $ | 0.43 | | $ | 0.58 |
| | $ | 1.60 | | $ | 1.62 | | ||||||||||||
Net income available to common stockholders | | $ | 0.37 | | $ | 0.43 |
| $ | 0.78 | | $ | 1.60 |
See notes to consolidated financial statements.
3
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | Three Months Ended | | Nine Months Ended | |||||||||||||||
|
| | September 30, |
| | September 30, | September 30, |
| September 30, | ||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
Net income | | $ | 105,064 | | $ | 142,835 | | $ | 392,135 | | $ | 394,064 | $ | 93,908 | | $ | 105,064 | | $ | 192,274 | | $ | 392,135 |
Other comprehensive income (loss): | |
| | |
|
| |
| | |
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Other comprehensive income (loss) |
| | |
|
| |
| | |
|
| ||||||||||||
Foreign currency translation | |
| (14,753) | |
| (5,027) | |
| (47,903) | |
| (2,901) |
| (18,634) | |
| (14,753) | |
| 5,366 | |
| (47,903) |
Cash flow hedges | |
| 17,573 | |
| 1,895 | |
| 56,595 | |
| 17,529 |
| 5,041 | |
| 17,573 | |
| 2,690 | |
| 56,595 |
Total other comprehensive income (loss) | |
| 2,820 | |
| (3,132) | |
| 8,692 | |
| 14,628 | |||||||||||
Total other comprehensive (loss) income |
| (13,593) | |
| 2,820 | |
| 8,056 | |
| 8,692 | ||||||||||||
Comprehensive income | |
| 107,884 | |
| 139,703 | |
| 400,827 | |
| 408,692 |
| 80,315 | |
| 107,884 | |
| 200,330 | |
| 400,827 |
Comprehensive income attributable to noncontrolling interest | |
| (2,868) | |
| (3,803) | |
| (11,036) | |
| (11,000) |
| (2,144) | |
| (2,868) | |
| (5,333) | |
| (11,036) |
Comprehensive income attributable to common stockholders | | $ | 105,016 | | $ | 135,900 | | $ | 389,791 | | $ | 397,692 | $ | 78,171 | | $ | 105,016 | | $ | 194,997 | | $ | 389,791 |
See notes to consolidated financial statements.
4
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended September 30, 20222023 and 20212022
Unaudited
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | | | | | | | | |
| | Common | | Additional | | Cumulative | | Cumulative | | Other | | Total | | | | | ||||||||
| | Stock | | Paid-in | | Net | | Dividends | | Comprehensive | | Stockholders’ | | Noncontrolling | | Total | ||||||||
|
| Par Value |
| Capital |
| Earnings |
| Paid |
| Income (Loss) |
| Equity |
| Interest |
| Equity | ||||||||
Balance at June 30, 2022 | | $ | 23,410 | | $ | 6,295,907 | | $ | 3,290,548 | | $ | (5,872,269) | | $ | 3,501 | | $ | 3,741,097 | | $ | 199,615 | | $ | 3,940,712 |
Stock related compensation | | | — | | | 6,855 | | | — | | | — | | | — | | | 6,855 | | | — | | | 6,855 |
Issuance of common stock | | | 7 | | | 2,327 | | | — | | | — | | | — | | | 2,334 | | | — | | | 2,334 |
Common dividends declared ($0.67 per share) | | | — | | | — | | | — | | | (157,334) | | | — | | | (157,334) | | | — | | | (157,334) |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,080) | | | (5,080) |
Capital contribution from noncontrolling interest holder in consolidated JV | | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 2,742 | | | 2,742 | | | 78 | | | 2,820 |
Net income | | | — | | | — | | | 102,274 | | | — | | | — | | | 102,274 | | | 2,790 | | | 105,064 |
Balance at September 30, 2022 | | $ | 23,417 | | $ | 6,305,089 | | $ | 3,392,822 | | $ | (6,029,603) | | $ | 6,243 | | $ | 3,697,968 | | $ | 197,408 | | $ | 3,895,376 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2021 | | $ | 23,756 | | $ | 6,377,238 | | $ | 2,839,236 | | $ | (5,232,692) | | $ | 4,523 | | $ | 4,012,061 | | $ | 197,965 | | $ | 4,210,026 |
Stock related compensation | | | — | | | 5,750 | | | — | | | — | | | — | | | 5,750 | | | — | | | 5,750 |
Issuance of common stock | | | 134 | | | 47,572 | | | — | | | — | | | — | | | 47,706 | | | — | | | 47,706 |
Common dividends declared ($0.67 per share) | | | — | | | — | | | — | | | (160,592) | | | — | | | (160,592) | | | — | | | (160,592) |
Vesting/exercising of Omega OP Units | | | — | | | (5,596) | | | — | | | — | | | — | | | (5,596) | | | 5,596 | | | — |
Conversion and redemption of Omega OP Units to common stock | | | 3 | | | 756 | | | — | | | — | | | — | | | 759 | | | (759) | | | — |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,125) | | | (5,125) |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | (3,047) | | | (3,047) | | | (85) | | | (3,132) |
Net income | | | — | | | — | | | 138,947 | | | — | | | — | | | 138,947 | | | 3,888 | | | 142,835 |
Balance at September 30, 2021 | | $ | 23,893 | | $ | 6,425,720 | | $ | 2,978,183 | | $ | (5,393,284) | | $ | 1,476 | | $ | 4,035,988 | | $ | 201,480 | | $ | 4,237,468 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | | | | | | | | |
| | Common | | Additional | | Cumulative | | Cumulative | | Other | | Total | | | | | ||||||||
| | Stock | | Paid-in | | Net | | Dividends | | Comprehensive | | Stockholders’ | | Noncontrolling | | Total | ||||||||
|
| Par Value |
| Capital |
| Earnings |
| Paid |
| Income |
| Equity |
| Interest |
| Equity | ||||||||
Balance at June 30, 2023 | | $ | 24,099 | | $ | 6,526,367 | | $ | 3,534,199 | | $ | (6,501,899) | | $ | 41,353 | | $ | 3,624,119 | | $ | 188,473 | | $ | 3,812,592 |
Stock related compensation | | | — | | | 8,810 | | | — | | | — | | | — | | | 8,810 | | | — | | | 8,810 |
Issuance of common stock | | | 399 | | | 125,734 | | | — | | | — | | | — | | | 126,133 | | | — | | | 126,133 |
Common dividends declared ($0.67 per share) | | | — | | | — | | | — | | | (164,540) | | | — | | | (164,540) | | | — | | | (164,540) |
Vesting/exercising of Omega OP Units | | | — | | | (3,704) | | | — | | | — | | | — | | | (3,704) | | | 3,704 | | | — |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,984) | | | (5,984) |
Net change in noncontrolling interest holder in consolidated JV | | | — | | | 4 | | | — | | | — | | | — | | | 4 | | | — | | | 4 |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | (13,210) | | | (13,210) | | | (383) | | | (13,593) |
Net income | | | — | | | — | | | 91,381 | | | — | | | — | | | 91,381 | | | 2,527 | | | 93,908 |
Balance at September 30, 2023 | | $ | 24,498 | | $ | 6,657,211 | | $ | 3,625,580 | | $ | (6,666,439) | | $ | 28,143 | | $ | 3,668,993 | | $ | 188,337 | | $ | 3,857,330 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2022 | | $ | 23,410 | | $ | 6,295,907 | | $ | 3,290,548 | | $ | (5,872,269) | | $ | 3,501 | | $ | 3,741,097 | | $ | 199,615 | | $ | 3,940,712 |
Stock related compensation | | | — | | | 6,855 | | | — | | | — | | | — | | | 6,855 | | | — | | | 6,855 |
Issuance of common stock | | | 7 | | | 2,327 | | | — | | | — | | | — | | | 2,334 | | | — | | | 2,334 |
Common dividends declared ($0.67 per share) | | | — | | | — | | | — | | | (157,334) | | | — | | | (157,334) | | | — | | | (157,334) |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,080) | | | (5,080) |
Capital contribution from noncontrolling interest holder in consolidated JV | | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 2,742 | | | 2,742 | | | 78 | | | 2,820 |
Net income | | | — | | | — | | | 102,274 | | | — | | | — | | | 102,274 | | | 2,790 | | | 105,064 |
Balance at September 30, 2022 | | $ | 23,417 | | $ | 6,305,089 | | $ | 3,392,822 | | $ | (6,029,603) | | $ | 6,243 | | $ | 3,697,968 | | $ | 197,408 | | $ | 3,895,376 |
See notes to consolidated financial statements.
5
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Nine Months Ended September 30, 20222023 and 20212022
Unaudited
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | | | | | | | | |
| | Common | | Additional | | Cumulative | | Cumulative | | Other | | Total | | | | | ||||||||
| | Stock | | Paid-in | | Net | | Dividends | | Comprehensive | | Stockholders’ | | Noncontrolling | | Total | ||||||||
|
| Par Value |
| Capital |
| Earnings |
| Paid |
| Income (Loss) |
| Equity |
| Interest |
| Equity | ||||||||
Balance at December 31, 2021 | | $ | 23,906 | | $ | 6,427,566 | | $ | 3,011,474 | | $ | (5,553,908) | | $ | (2,200) | | $ | 3,906,838 | | $ | 201,388 | | $ | 4,108,226 |
Stock related compensation | | | — | | | 20,652 | | | — | | | — | | | — | | | 20,652 | | | — | | | 20,652 |
Issuance of common stock | | | 32 | | | 5,793 | | | — | | | — | | | — | | | 5,825 | | | — | | | 5,825 |
Repurchase of common stock | | | (521) | | | (141,746) | | | — | | | — | | | — | | | (142,267) | | | — | | | (142,267) |
Common dividends declared ($2.01 per share) | | | — | | | — | | | — | | | (475,695) | | | — | | | (475,695) | | | — | | | (475,695) |
Vesting/exercising of Omega OP Units | | | — | | | (7,176) | | | — | | | — | | | — | | | (7,176) | | | 7,176 | | | — |
Conversion and redemption of Omega OP Units to common stock | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,704) | | | (9,704) |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (15,418) | | | (15,418) |
Capital contribution from noncontrolling interest holder in consolidated JV | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,930 | | | 2,930 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 8,443 | | | 8,443 | | | 249 | | | 8,692 |
Net income | | | — | | | — | | | 381,348 | | | — | | | — | | | 381,348 | | | 10,787 | | | 392,135 |
Balance at September 30, 2022 | | $ | 23,417 | | $ | 6,305,089 | | $ | 3,392,822 | | $ | (6,029,603) | | $ | 6,243 | | $ | 3,697,968 | | $ | 197,408 | | $ | 3,895,376 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | $ | 23,119 | | $ | 6,152,887 | | $ | 2,594,735 | | $ | (4,916,097) | | $ | (12,768) | | $ | 3,841,876 | | $ | 194,731 | | $ | 4,036,607 |
Stock related compensation | | | — | | | 17,032 | | | — | | | — | | | — | | | 17,032 | | | — | | | 17,032 |
Issuance of common stock | | | 771 | | | 271,658 | | | — | | | — | | | — | | | 272,429 | | | — | | | 272,429 |
Common dividends declared ($2.01 per share) | | | — | | | — | | | — | | | (477,187) | | | — | | | (477,187) | | | — | | | (477,187) |
Vesting/exercising of Omega OP Units | | | — | | | (16,966) | | | — | | | — | | | — | | | (16,966) | | | 16,966 | | | — |
Conversion and redemption of Omega OP Units to common stock | | | 3 | | | 1,109 | | | — | | | — | | | — | | | 1,112 | | | (1,112) | | | — |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (20,105) | | | (20,105) |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 14,244 | | | 14,244 | | | 384 | | | 14,628 |
Net income | | | — | | | — | | | 383,448 | | | — | | | — | | | 383,448 | | | 10,616 | | | 394,064 |
Balance at September 30, 2021 | | $ | 23,893 | | $ | 6,425,720 | | $ | 2,978,183 | | $ | (5,393,284) | | $ | 1,476 | | $ | 4,035,988 | | $ | 201,480 | | $ | 4,237,468 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | | | | | | | | |
| | Common | | Additional | | Cumulative | | Cumulative | | Other | | Total | | | | | ||||||||
| | Stock | | Paid-in | | Net | | Dividends | | Comprehensive | | Stockholders’ | | Noncontrolling | | Total | ||||||||
|
| Par Value |
| Capital |
| Earnings |
| Paid |
| Income (Loss) |
| Equity |
| Interest |
| Equity | ||||||||
Balance at December 31, 2022 | | $ | 23,425 | | $ | 6,314,203 | | $ | 3,438,401 | | $ | (6,186,986) | | $ | 20,325 | | $ | 3,609,368 | | $ | 193,914 | | $ | 3,803,282 |
Stock related compensation | | | — | | | 26,457 | | | — | | | — | | | — | | | 26,457 | | | — | | | 26,457 |
Issuance of common stock | | | 1,071 | | | 326,673 | | | — | | | — | | | — | | | 327,744 | | | — | | | 327,744 |
Common dividends declared ($2.01 per share) | | | — | | | — | | | — | | | (479,453) | | | — | | | (479,453) | | | — | | | (479,453) |
Vesting/exercising of Omega OP Units | | | — | | | (10,633) | | | — | | | — | | | — | | | (10,633) | | | 10,633 | | | — |
Conversion and redemption of Omega OP Units to common stock | | | 2 | | | 542 | | | — | | | — | | | — | | | 544 | | | (621) | | | (77) |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (20,751) | | | (20,751) |
Net change in noncontrolling interest holder in consolidated JV | | | — | | | (31) | | | — | | | — | | | — | | | (31) | | | (171) | | | (202) |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 7,818 | | | 7,818 | | | 238 | | | 8,056 |
Net income | | | — | | | — | | | 187,179 | | | — | | | — | | | 187,179 | | | 5,095 | | | 192,274 |
Balance at September 30, 2023 | | $ | 24,498 | | $ | 6,657,211 | | $ | 3,625,580 | | $ | (6,666,439) | | $ | 28,143 | | $ | 3,668,993 | | $ | 188,337 | | $ | 3,857,330 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | $ | 23,906 | | $ | 6,427,566 | | $ | 3,011,474 | | $ | (5,553,908) | | $ | (2,200) | | $ | 3,906,838 | | $ | 201,388 | | $ | 4,108,226 |
Stock related compensation | | | — | | | 20,652 | | | — | | | — | | | — | | | 20,652 | | | — | | | 20,652 |
Issuance of common stock | | | 32 | | | 5,793 | | | — | | | — | | | — | | | 5,825 | | | — | | | 5,825 |
Repurchase of common stock | | | (521) | | | (141,746) | | | — | | | — | | | — | | | (142,267) | | | — | | | (142,267) |
Common dividends declared ($2.01 per share) | | | — | | | — | | | — | | | (475,695) | | | — | | | (475,695) | | | — | | | (475,695) |
Vesting/exercising of Omega OP Units | | | — | | | (7,176) | | | — | | | — | | | — | | | (7,176) | | | 7,176 | | | — |
Conversion and redemption of Omega OP Units to common stock | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,704) | | | (9,704) |
Omega OP Units distributions | | | — | | | — | | | — | | | — | | | — | | | — | | | (15,418) | | | (15,418) |
Capital contribution from noncontrolling interest holder in consolidated JV | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,930 | | | 2,930 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 8,443 | | | 8,443 | | | 249 | | | 8,692 |
Net income | | | — | | | — | | | 381,348 | | | — | | | — | | | 381,348 | | | 10,787 | | | 392,135 |
Balance at September 30, 2022 | | $ | 23,417 | | $ | 6,305,089 | | $ | 3,392,822 | | $ | (6,029,603) | | $ | 6,243 | | $ | 3,697,968 | | $ | 197,408 | | $ | 3,895,376 |
See notes to consolidated financial statements.
6
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (in thousands)
| | | | | | | | | | | | | |
|
| Nine Months Ended September 30, | |
| Nine Months Ended September 30, | ||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 | ||||
Cash flows from operating activities |
| |
|
| |
|
|
| |
|
| |
|
Net income | | $ | 392,135 | | $ | 394,064 | | | $ | 192,274 | | $ | 392,135 |
Adjustment to reconcile net income to net cash provided by operating activities: | |
| | |
|
| | |
| | |
|
|
Depreciation and amortization | |
| 248,668 | |
| 256,745 | | |
| 244,008 | |
| 248,668 |
Impairment on real estate properties | |
| 21,221 | |
| 42,453 | | |
| 87,992 | |
| 21,221 |
Recovery on direct financing leases | |
| — | |
| (717) | | ||||||
Provision for rental income | |
| 28,625 | |
| 22,357 | | |
| 20,633 | |
| 28,625 |
Provision for credit losses | |
| 4,367 | |
| 28,023 | | |
| 11,643 | |
| 4,367 |
Amortization of deferred financing costs and loss on debt extinguishment | |
| 10,086 | |
| 39,832 | | |
| 9,998 | |
| 10,086 |
Accretion of direct financing leases | |
| 57 | |
| 37 | | |
| 80 | |
| 57 |
Stock-based compensation expense | |
| 20,515 | |
| 16,913 | | |
| 26,306 | |
| 20,515 |
Gain on assets sold – net | |
| (179,747) | |
| (160,634) | | |
| (69,956) | |
| (179,747) |
Amortization of acquired in-place leases – net | |
| (3,560) | |
| (8,452) | | |
| (8,911) | |
| (3,560) |
Effective yield payable on mortgage notes | |
| 1,537 | |
| 1,085 | | ||||||
Straight-line rent and effective interest receivables | |
| (31,414) | |
| (53,026) | |||||||
Interest paid-in-kind | | | (6,979) | | | (5,422) | | | | (7,992) | | | (6,979) |
Income from unconsolidated joint ventures | | | (2,601) | | | (1,530) | | ||||||
Loss (income) from unconsolidated joint ventures | | | 2,327 | | | (2,601) | |||||||
Change in operating assets and liabilities – net: | |
| | |
|
| | |
| | |
|
|
Contractual receivables | |
| 1,313 | |
| (6,250) | | |
| (1,283) | |
| 1,313 |
Straight-line rent receivables | |
| (54,563) | |
| (38,401) | | ||||||
Lease inducements | |
| 5,780 | |
| 4,556 | | |
| (11,970) | |
| 5,780 |
Other operating assets and liabilities | |
| (14,809) | |
| (19,052) | | |
| (10,979) | |
| (14,809) |
Net cash provided by operating activities | |
| 472,045 | |
| 565,607 | | |
| 452,756 | |
| 472,045 |
Cash flows from investing activities | |
| | |
| | | |
| | |
| |
Acquisition of real estate | |
| (141,361) | |
| (615,907) | | |
| (211,216) | |
| (141,361) |
Acquisition deposit – net | |
| — | |
| 2,500 | | ||||||
Net proceeds from sale of real estate investments | |
| 438,279 | |
| 310,849 | | |
| 261,288 | |
| 438,279 |
Investments in construction in progress | |
| (12,753) | |
| (91,923) | | |
| (29,068) | |
| (12,753) |
Proceeds from sale of direct financing lease and related trust | | | — | | | 717 | | ||||||
Placement of mortgage loans | |
| (9,030) | |
| (84,012) | | ||||||
Collection of mortgage principal | |
| 187,161 | |
| 44,039 | | ||||||
Placement of loan principal | |
| (242,627) | |
| (314,253) | |||||||
Collection of loan principal | |
| 135,963 | |
| 338,350 | |||||||
Investments in unconsolidated joint ventures | | | (113) | | | (10,484) | | | | (12,178) | | | (113) |
Distributions from unconsolidated joint ventures in excess of earnings | |
| 1,335 | |
| 17,671 | | |
| 3,016 | |
| 1,335 |
Capital improvements to real estate investments | |
| (37,721) | |
| (28,955) | | |
| (23,305) | |
| (37,721) |
Receipts from insurance proceeds | |
| 658 | |
| 5,948 | | |
| 6,033 | |
| 658 |
Investments in other investments | |
| (305,223) | |
| (94,222) | | ||||||
Proceeds from other investments | |
| 151,189 | |
| 91,627 | | ||||||
Net cash provided by (used in) investing activities | |
| 272,421 | |
| (452,152) | | ||||||
Net cash (used in) provided by investing activities | |
| (112,094) | |
| 272,421 | |||||||
Cash flows from financing activities | |
|
| |
|
| | |
|
| |
|
|
Proceeds from long-term borrowings | |
| 597,403 | |
| 2,220,128 | | |
| 507,072 | |
| 597,403 |
Payments of long-term borrowings | |
| (587,394) | |
| (2,121,429) | | |
| (507,250) | |
| (587,394) |
Payments of financing related costs | |
| (389) | |
| (48,934) | | |
| (3,333) | |
| (389) |
Net proceeds from issuance of common stock | |
| 5,825 | |
| 272,429 | | |
| 327,744 | |
| 5,825 |
Repurchase of common stock | |
| (142,267) | |
| — | | | | — | | | (142,267) |
Dividends paid | |
| (475,557) | |
| (477,068) | | |
| (479,301) | |
| (475,557) |
Noncontrolling members’ contributions to consolidated joint venture | | | 27 | | | — | | ||||||
Redemption of OP Units | | | (9,704) | | | — | | ||||||
Net payments to noncontrolling members of consolidated joint venture | |
| (202) | |
| 27 | |||||||
Proceeds from derivative instruments | | | 92,577 | | | — | |||||||
Redemption of Omega OP Units | | | (77) | | | (9,704) | |||||||
Distributions to Omega OP Unit Holders | |
| (15,418) | |
| (20,105) | | |
| (20,751) | |
| (15,418) |
Net cash used in financing activities | |
| (627,474) | |
| (174,979) | | |
| (83,521) | |
| (627,474) |
Effect of foreign currency translation on cash, cash equivalents and restricted cash | |
| (3,225) | |
| (29) | | |
| 132 | |
| (3,225) |
Increase (decrease) in cash, cash equivalents and restricted cash | |
| 113,767 | |
| (61,553) | | ||||||
Increase in cash, cash equivalents and restricted cash | |
| 257,273 | |
| 113,767 | |||||||
Cash, cash equivalents and restricted cash at beginning of period | |
| 24,411 | |
| 167,558 | | |
| 300,644 | |
| 24,411 |
Cash, cash equivalents and restricted cash at end of period | | $ | 138,178 | | $ | 106,005 | | | $ | 557,917 | | $ | 138,178 |
See notes to consolidated financial statements.
7
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
September 30, 20222023
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Overview and Organization
Omega Healthcare Investors, Inc. (“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega,” the “Company,” “we,” “our,” or “us”) invests 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. Our core portfolio consists of long-term “triple net” leases and mortgagereal estate loans with healthcare operating companies and affiliates (collectively, our “operators”). In addition to our core investments, we make loans to operators and/or their principals. From time to time, we also acquire equity interests in joint ventures or entities that support the long-term healthcare industry and our operators.
Omega has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes and 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”). Omega has exclusive control over Omega OP’s day-to-day management pursuant to the partnership agreement governing Omega OP. As of September 30, 2022,2023, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim periods reported herein are not necessarily indicative of results to be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the financial statements and the footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Omega’s consolidated financial statements include the accounts of (i) Parent, (ii) all direct and indirect wholly owned subsidiaries of Omega, including Omega OP, (iii) other entities in which Omega or Omega OP has a majority voting interest and control and (iv) variable interest entities (“VIEs”) of which Omega is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation, and Omega’s net earnings are reduced by the portion of net earnings attributable to noncontrolling interests.
Segments
We conduct our operations and report financial results as one business segment. The presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which our Chief Operating Decision Maker (CODM), our Chief Executive Officer, evaluates performance and makes resource and operating decisions for the business.
Reclassification
Certain line items on our Consolidated Statements of Operations and Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation.
8
Reclassification
Certain line items on our Consolidated Balance Sheets have been reclassified to conform to the current period presentation.
Risks and Uncertainties including COVID-19
The Company is subject to certain risks and uncertainties affecting the healthcare industry, including those stemmingthat arose from the novel coronavirus (“COVID-19”) global pandemic, described below, which has disproportionately impacted the senior care sector, as well as those stemming from healthcare legislation and changing regulation by federal, state and local governments. Additionally, we are subject to risks and uncertainties as a result of changes affecting operators of nursing home facilities due to the actions of governmental agencies and insurers to limit the rising cost of healthcare services.
Recent Accounting Pronouncements
ASU – 2022-02, Financial Instruments – Credit Losses (Topic 326)2023-05 - Business Combinations—Joint Venture Formations (Subtopic 805-60): Troubled Debt RestructuringsRecognition and Vintage DisclosuresInitial Measurement
On March 31, 2022,August 23, 2023, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05 requiring certain joint ventures, upon formation, to apply a new basis of accounting and initially measure most of their assets and liabilities at fair value in their financial statements. ASU 2022-02, which eliminates2023-05 does not affect the recognition and measurementaccounting by the joint venture’s investors. The guidance is effective for troubled debt restructurings (“TDRs”) and requires additional disclosures for certain loan modifications. ASU 2022-02 also requires entities to disclose gross write-offs of financing receivables and net investments in leases by year of origination. Omega elected to early adopt ASU 2022-02all joint ventures with a formation date on a prospective basis effectiveor after January 1, 2022. In2025, and early adoption is permitted either prospectively or retrospectively. The Company is still evaluating its adoption timeline, methodology and the second quarter of 2022, we had one loan modification to a borrower experiencingimpact on its consolidated financial difficulty pursuant to ASU 2022-02, Guardian Healthcare (“Guardian”), that requires additional disclosures. The required disclosures for this loan are included in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements and Note 5 – Mortgage Notes Receivable. We have disclosed our gross write-offs of financing receivables and direct financing leases by year of origination in Note 7 – Allowance for Credit Losses.statements.
ASU – 2020-04, Financial Instruments – Reference Rate Reform (Topic 848)
On March 12, 2020, the FASB issued ASU 2020-04, which contains optional practical expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). The guidance may be elected over time until December 31, 2022, as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the practical expedients under ASU 2020-04 to December 31, 2024. The Company hashad several derivative instruments (Seethat referenced LIBOR which were terminated during the second quarter of 2023 (see Note 16 – Derivatives and Hedging),. The Company also had a $1.45 billion senior unsecured multicurrency revolving credit facility and a $50.0 million senior unsecured term loan facility (See(see Note 15 – Borrowing Activities and Arrangements) that referencereferenced LIBOR. During the firstsecond quarter of 2020,2023, the Company amended its $1.45 billion senior unsecured multicurrency revolving credit facility and $50.0 million senior unsecured term loan facility to adjust the interest on each loan from a LIBOR based interest rate to a Secured Overnight Financing Rate (“SOFR”) based interest rate. For both loans we have elected to apply the hedge accounting expedients relatedoptional expedient pursuant to probabilityTopic 848. As such we will account for the amendments as if the modifications were not substantial and thus a continuation of the assessments of effectiveness for future LIBOR indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. Our credit facilities that reference LIBOR contain customary LIBOR replacement language, including, but not limitedexisting contract resulting in no change to the use of rates based oncurrent loan carrying values or the secured overnightrelated deferred financing rate. The Company continues to evaluate: (i) how the transition away from LIBOR will impact the Company, (ii) whether any additional optional expedients provided by the standards will be adopted, and (iii) the impact that adopting ASU 2020-04 will have on our consolidated financial statements.costs.
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NOTE 2 – REAL ESTATE ASSETS
At September 30, 2022,2023, our leased real estate properties included 649622 SNFs, 167189 ALFs, 2019 ILFs, 1618 specialty facilities and twoone medical office buildings.building. The following table summarizes the Company’s rental income from operating leases:
| | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | ||||||||||
| | (in thousands) | | (in thousands) | | (in thousands) | | (in thousands) | ||||||||||||||||||
Rental income – operating leases | | $ | 203,456 | | $ | 243,831 | | $ | 624,844 | | $ | 697,140 | | $ | 206,197 | | $ | 203,456 | | $ | 606,831 | | $ | 624,844 | ||
Variable lease income – operating leases | | | 4,132 | | | 3,333 | | | 11,055 | | | 8,740 | | | 3,751 | | | 4,132 | | | 11,295 | | | 11,055 | ||
Total rental income | | $ | 207,588 | | $ | 247,164 | | $ | 635,899 | | $ | 705,880 | | $ | 209,948 | | $ | 207,588 | | $ | 618,126 | | $ | 635,899 |
Our variable lease income primarily represents the reimbursement of real estate taxes and ground lease expenses by operators that Omega pays directly.
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Asset Acquisitions
The following table summarizes the asset acquisitions that occurred during the nine months ended September 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Number of | | | | Total Real Estate | | Initial | | | Number of | | | | Total Real Estate | | Initial | | |||||
|
| Facilities |
| |
| Assets Acquired |
| Annual | |
| Facilities |
| |
| Assets Acquired |
| Annual | | |||||
Period | | SNF | ALF | Specialty | | Country/State | | (in millions) | | Cash Yield(1) | | | SNF | ALF | | Country/State | | (in millions) | | Cash Yield(1) | | ||
Q1 |
| — | 1 | — |
| U.K. | | $ | 8.7 | (2) | 8.0 | % |
| — | 6 |
| U.K. | | $ | 26.4 | (2) | 8.0 | % |
Q1 | | — | 1 | — | | U.K. | | | 5.0 | | 8.0 | % | |||||||||||
Q1 | | — | 27 | — | | U.K. | | | 86.6 | (2) | 8.0 | % | |||||||||||
Q1 | | 1 | — | — | | MD | | | 8.2 | (3) | 9.5 | % | |||||||||||
Q2 | | 4 | — | | WV | | | 114.8 | (3) | 9.5 | % | ||||||||||||
Q2 | | 1 | — | | WV | | | 13.7 | | 10.0 | % | ||||||||||||
Q3 | | 1 | — | | VA | | | 15.6 | | 10.0 | % | ||||||||||||
Q3 | | — | 4 | — | | U.K. | | | 28.2 | | 8.0 | % | | — | 14 | | U.K. | | | 39.5 | | 10.2 | % |
Total |
| 1 | 33 | — |
|
| | $ | 136.7 |
| | |
| 6 | 20 |
|
| | $ | 210.0 |
| | |
(1) | Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price. |
(2) |
(3) |
Construction in Progress and Capital Expenditure Investments
We invested $24.5 million and $52.4 million under our construction in progress and capital improvement programs during the three and nine months ended September 30, 2023, respectively. We invested $16.3 million and $50.5 million under our construction in progress and capital improvement programs during the three and nine months ended September 30, 2022, respectively. During the second quarter of 2023, we purchased land located in Virginia (not reflected in the table above) for approximately $0.8 million that we plan to develop into a SNF. Concurrent with the acquisition, we amended our lease with an existing operator to include the land in the lease. We are committed to a maximum funding of $15.2 million for the development of the land.
NOTE 3 – ASSETS HELD FOR SALE, DISPOSITIONS AND IMPAIRMENTS
Periodically we sell facilities to reduce our exposure to certain operators, geographies and non-strategic assets or due to the exercise of a tenant purchase option.
The following is a summary of our assets held for sale:
| | | | | | | | | ||
| September 30, | | December 31, | September 30, | | December 31, | ||||
| 2022 |
| 2021 | 2023 |
| 2022 | ||||
Number of facilities held for sale | | 34 | | 41 | | 14 | | 2 | ||
Amount of assets held for sale (in thousands) | $ | 190,723 | | $ | 261,151 | $ | 67,530 | | $ | 9,456 |
During the three months ended September 30, 2022,2023, we reclassified 20 facilities that were leased and operated by Agemo Holdings, LLC (“Agemo”)13 SNFs, with an aggregate net book value of $66.1 million, to assets held for sale as a result of the exercise of a purchase option by an operator on a cash basis for revenue recognition. The estimated fair value of the facilities, based on the fixed purchase option price, less costs to sell, exceeds the net book value and as a result, no impairment was recorded in connection with our restructuring negotiations surrounding Agemo’s lease agreement. Nineteen ofreclassifying these facilities were subsequently soldassets to held for sale during the fourth quarter of 2022 for aggregate gross cash proceeds of $315.8 million.three months ended September 30, 2023.
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Asset Sales
During the three and nine months ended September 30, 2023, we sold 25 facilities (25 SNFs) and 37 facilities (35 SNFs, one ILF and one medical office building) subject to operating leases for $199.0 million and $261.3 million in net cash proceeds, respectively. As a result of these sales, we recognized net gains of $44.1 million and $70.0 million, respectively. Our 2023 facility sales were primarily driven by restructuring transactions and negotiations related to our lease agreements with Guardian Healthcare (“Guardian”) and LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care). In the second quarter of 2023, we sold five facilities that were previously leased to Guardian and were included in assets held for sale as of March 31, 2023. The net cash proceeds from the sale were $23.8 million, and we did not recognize any gain or loss on the sale because we had already impaired the facilities down to the estimated fair value less costs to sell during the first quarter of 2023. Additionally, we sold one facility, also previously leased to Guardian, for a sales price of $12.0 million during the second quarter of 2023, which was fully financed by Omega through a $12.0 million first lien mortgage on the facility. The one facility sale during the second quarter of 2023 and related seller financing did not meet the contract criteria to be recognized under ASC 610-20. During the three and nine months ended September 30, 2023, we received interest of $0.3 million and $0.5 million, respectively, related to such seller financing, which was deferred and recorded as a contract liability within accrued expenses and other liabilities on our Consolidated Balance Sheets.
In the third quarter of 2023, we sold seven facilities subject to operating agreements with LaVie for $84.4 million in purchase consideration, which included cash proceeds of $14.8 million and an aggregate $69.6 million pay-off of the outstanding principal and accrued interest on seven HUD mortgages on the sold properties made by the buyer, on Omega’s behalf. The sale resulted in a net loss of $5.5 million. Also in the third quarter of 2023, we recognized the sale of 11 facilities, previously leased to LaVie, related to a December 2022 transaction that did not meet the contract criteria to be recognized under ASC 610-20 at the legal sale date. In December 2022, in connection with restructuring negotiations with LaVie, we sold 11 facilities previously leased to LaVie to a third party for a sales price of $129.8 million. Omega provided $104.8 million in senior seller financing, collateralized by first lien mortgages on the 11 facilities, to fund a portion of the purchase price. During the third quarter of 2023, Omega received an aggregate $104.8 million of principal prepayments for the mortgage from the seller. As a result of the principal prepayments, the Company determined the transaction met the contract criteria under ASC 610-20 and recognized the sale, resulting in a $50.2 million gain during the three months ended September 30, 2023, which includes the $25 million contract liability and $5.7 million of deferred interest income received to date.
During the three and nine months ended September 30, 2022, we sold four and 44 facilities subject to operating leases for $51.4 million and $438.3 million in net cash proceeds, respectively. As a result of these sales, we recognized net gains of $40.9 million and $179.7 million during the three and nine months ended September 30, 2022, respectively. Our 2022 sales were primarily driven by restructuring transactions and negotiations related to our lease agreements with the following operators: Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), Guardian Healthcareand Agemo Holdings, LLC (“Guardian”Agemo”) and Agemo.
. In the first quarter of 2022, we sold 22 facilities that were previously leased and operated by Gulf Coast. The net cash proceeds from the sale, including previously accrued for related costs, accrued for as of the end of the third quarter, were $303.9$304.0 million, and we recognized a net gain of $113.5 million. The agreement includes an earnout clause pursuant to which the buyer is obligated to pay an additional $18.7 million to Omega if certain financial metrics are achieved at the facilities in the three years following the sale. As we have determined it is not probable that we will receive any additional funds, we have not recorded any income related to the earnout clause.
During the first and second quarter of 2022, we sold nine total facilities that were leased to Guardian for $39.5 million in net proceeds, which resulted in a net gain of $13.7 million.
In the third quarter of 2022, we sold two facilities that were previously leased to Agemo for $42.6 million in net proceeds, which resulted in a net gain of $35.6 million.
Real Estate Impairments
During the three and nine months ended September 30, 2023, we recorded impairments on 19 and 25 facilities of approximately $27.9 million and $88.0 million, respectively. Of the $88.0 million, $85.4 million related to 23 held for use facilities (of which $48.0 million relates to three facilities that were closed during the year) for which the carrying value exceeded the fair value and $2.6 million related to two facilities that were classified as held for sale for which the carrying value exceeded the estimated fair value less costs to sell.
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During the three and nine months ended September 30, 2022, we recorded impairments on four and ten facilities of approximately $10.0 million and $21.2 million, respectively. Of the $21.2 million, $3.5 million related to two facilities that were classified as held for sale (and subsequently sold) for which the carrying values exceeded the estimated fair values less costs to sell, and $17.7 million related to eight held-for-useheld for use facilities for which the carrying value exceeded the fair value. The impairments recorded on four facilities during the three months ended September 30, 2022 relate to the 2.2% Operator discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements.
To estimate the fair value of the facilities for the impairments noted above, we utilized a market approach that considered binding sale agreements (a Level 1 input), or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).
NOTE 4 – CONTRACTUAL RECEIVABLES AND OTHER RECEIVABLES AND LEASE INDUCEMENTS
Contractual receivables relate to the amounts currently owed to us under the terms of our lease and loan agreements. Effective yield interest receivables relate to the difference between the interest income recognized on an effective yield basis over the term of the loan agreement and the interest currently due to us according to the contractual agreement. Straight-line rent receivables relate to the difference between the rental revenue recognized on a straight-line basis and the amounts currently due to us according to the contractual agreement. Lease inducements result from value provided by us to the lessee, at the inception, modification or renewal of the lease, and are amortized as a reduction of rental income over the non-cancellable lease term.
A summary of our net receivables and lease inducements by type is as follows:
| | | | | | | | | | | | | | |
|
| September 30, | | December 31, | |
| September 30, | | December 31, | | ||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||
| | (in thousands) | | | (in thousands) | | ||||||||
Contractual receivables – net | | $ | 9,945 | | $ | 11,259 | | | $ | 9,511 | | $ | 8,228 | |
| | | | | | | | | | | | | | |
Effective yield interest receivables | | $ | 6,208 | | $ | 9,590 | | | $ | 3,865 | | $ | 5,696 | |
Straight-line rent receivables | |
| 173,266 | |
| 148,455 | | |
| 190,155 | |
| 166,061 | |
Lease inducements | |
| 87,416 | |
| 93,770 | | |
| 5,510 | |
| 6,041 | |
Other receivables and lease inducements | | $ | 266,890 | | $ | 251,815 | | | $ | 199,530 | | $ | 177,798 | |
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Cash basis operatorsBasis Operators and straight-line receivable write-offsStraight-Line Receivable Write-Offs
We review our collectabilitycollectibility assumptions related to our operator leases on an ongoing basis. During the nine months ended September 30, 2023, we placed two new operators, which Omega had not previously had relationships with prior to the second quarter of 2023, on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was not deemed probable. The new lease agreements with each of these operators were executed in the second quarter of 2023 as part of transitions of facilities from other operators, and we placed them on a cash basis concurrent with the respective lease commencement dates, so there were no straight-line rent write-offs associated with moving these operators to a cash basis.
During the three and nine months ended September 30, 2022, we placed three and five additional operators, respectively, on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from themsuch operators was no longernot deemed probable. In connection with moving these operators to a cash basis, we recognized $13.2 million and $23.6 million in total straight-line accounts receivable and lease inducement write-offs through rental income during the three and nine months ended September 30, 2022, respectively.
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During the nine months ended September 30, 2023, we transitioned the portfolios of four cash basis operators with an aggregate of 48 facilities, including 14 facilities related to the operator referred to as the “1.2% Operator” in our Annual Report on Form 10-K for the year ended December 31, 2022 and 20 facilities related to the operator referred to as the “2.0% Operator” in our Annual Report on Form 10-K for the year ended December 31, 2022, to new or amended leases with five operators. We are recognizing revenue on a straight-line basis for the leases associated with these five operators. The aggregate initial contractual rent related to the 48 facilities following the transition to other operators is $48.0 million per annum. In connection with the transition of the 14 facilities, Omega made or agreed to make termination payments of $15.5 million in aggregate that were recorded as initial direct costs related to the lease with the new operator of the 14 transitioned facilities in the first quarter of 2023. These amounts includetermination payments are deferred and recognized within depreciation and amortization expense on a straight-line basis over the operators discussed in further detail below. term of the master lease.
During the nine months ended September 30, 2023 and 2022, we also wrote-off $8.1 million and $3.2 million, respectively, of straight-line rent receivable balances through rental income as a result of transitioning facilities between existing operators.
As of September 30, 2022,2023, we had 1718 operators on a cash basis for revenue recognition. These operatorsrecognition, which represent 15.3%25.1% and 32.8% of our total revenues (excluding the impact of write-offs) for the nine months ended September 30, 2022.2023 and 2022, respectively.
We also wrote-off $3.2Rent Deferrals and Application of Collateral
During each of the nine months ended September 30, 2023 and 2022, we allowed nine operators to defer $35.0 million and $25.5 million, respectively, of straight-linecontractual rent receivable balances through rental incomeand interest. The deferrals during the nine months ended September 30, 2022,2023 primarily related to the following operators: LaVie ($19.0 million), Healthcare Homes Limited (“Healthcare Homes”) ($8.2 million), Agemo ($1.9 million) and Maplewood Senior Living (along with affiliates, “Maplewood”) ($1.3 million).
Additionally, we allowed six operators and seven operators to apply collateral, such as a resultsecurity deposits or letters of transitioning 6 facilities between existing operators in the first quarter of 2022.
Operator updates
Agemo
Agemo continuedcredit, to not pay contractual rent and interest due under its lease and loan agreements during the nine months ended September 30, 2022.2023 and 2022, respectively. The total collateral applied to contractual rent and interest was $11.4 million and $9.4 million for the nine months ended September 30, 2023 and 2022, respectively.
Operator Collectibility Updates
Agemo
In the first quarter of 2023, Omega and Agemo entered into a restructuring agreement, an amended and restated master lease and a new loan agreement for two replacement loans. As part of the restructuring agreement and related agreements, Omega agreed to, among other things:
● | forgive and release Agemo from previously written off past due rent and interest obligations related to certain periods prior to the 2018 Agemo restructuring and from August 2021 through January 2023, with contractual rent under the lease agreement and contractual interest under the loan agreements scheduled to resume on April 1, 2023; |
● | reduce monthly contractual base rent from $4.8 million to $1.9 million following the sales of 22 facilities, previously leased and operated by Agemo, that occurred in the third and fourth quarters of 2022; |
● | extend the initial Agemo lease term from December 31, 2030, to December 31, 2036 with three consecutive tenant 10-year extension options; and |
● | refinance and restructure the $25.0 million secured working capital loan (the “Agemo WC Loan”), the $32.0 million term loan (the “Agemo Term Loan”) and the aggregate deferred rent balance of $25.2 million into two replacement loans to Agemo that mature on December 31, 2036, with aggregate principal of $82.2 million and an annual interest rate of 5.63% through October 2024, which increases to 5.71% until maturity. |
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Agemo resumed making contractual rent and interest payments during the second quarter of 2023 in accordance with the restructuring terms discussed above. Agemo is on a cash basis of revenue recognition for lease purposes, so noand we recorded rental income was recorded related to Agemo duringof $5.8 million and $11.6 million for the three and nine months ended September 30, 2022.2023, respectively, for the contractual rent payments that were received. Additionally, no interest income was recognized during the three and nine months ended September 30, 2023 and 2022 on the two loans with Agemo because these loans are on non-accrual status and we are utilizing the cost recovery method, under which any payments if received, are applied against the principal amount. See Note 6 – Other Investments. For the nine months ended September 30, 2021, revenue from Agemo represented approximately 4.7% of our total revenues (excludingNon-Real Estate Loans Receivable for further discussion on the impact of write-offs).the restructuring on the loans.
On September 30, 2021,LaVie
During 2023, we continued the Company enteredprocess of restructuring our portfolio with LaVie by amending the lease agreements with LaVie to allow for a forbearance agreement related to Agemo’s defaults under its lease and loan agreements. The forbearance period under the agreement has been extended multiple times and the most recent amendment on October 31, 2022 extended the forbearance period through November 30, 2022. Additionally, the Company had previously entered a restructuring agreement on May 7, 2018, with Agemo (the “2018 Restructuring”), that among other things, allowedpartial rent deferral of $19.0 million for the deferralfirst four months of $6.3 million of rent per annum for a 3-year period. The deferral period was extended multiple times, and the most recent amendment extending the deferral through April 2022, after which time the deferral period terminated, with the Company remaining2023, transitioning two facilities previously subject to its forbearance agreement through November 30, 2022. As of September 30, 2022, the aggregate rent deferred under the Agemomaster lease agreement was $25.2 million. The Company is currently in ongoing negotiationswith LaVie to restructure and amend Agemo’s lease and loan agreements.
Guardian
Guardian did not make rent and interest payments under its lease and loan agreements during the first quarter of 2022 but resumed paying contractual rent and interestanother operator during the second quarter of 20222023 and continued such payments inselling seven facilities previously subject to the master lease with LaVie to a third party during the third quarter of 2022, in accordance with2023. In the restructuring terms discussed further below. Guardian isthird quarter of 2023, LaVie paid $7.4 million of contractual rent, a short pay of $13.3 million of the $20.7 million due under its lease agreement. As LaVie was placed on a cash basis of revenue recognition for lease purposes and we recorded rental incomein the fourth quarter of $3.72022, only the $7.4 million and $7.5$31.7 million for the three and nine months ended September 30, 2022, respectively, for theof contractual rent payments that we received from LaVie were received. Additionally,recorded as discussed further in Note 5 – Mortgage Notes Receivable, no mortgage interestrental income has been recognized on the Guardian mortgage loan during the three and nine months ended September 30, 2022, as2023, respectively. As discussed further in Note 21 – Subsequent Events, we are accounting for this loan under the cost recovery method.
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During the first and second quarters of 2022, we completed significant restructuring activities relatedsold 29 facilities previously subject to the Guardianmaster lease with LaVie during the fourth quarter of 2023 and loan portfolio. amended its master lease agreement to reduce monthly rent to $3.4 million. Revenue from LaVie represents approximately 4.3% and 11.4% of our total revenues (excluding the impact of write-offs) for the nine months ended September 30, 2023 and 2022, respectively.
Maplewood
In the first quarter of 2022, we transitioned eight facilities previously leased to Guardian to two other operators as part of the planned restructuring. Additionally, during the six months ended June 30, 2022, we sold nine facilities previously leased to Guardian and three facilities previously subject to the Guardian mortgage loan. In the second quarter of 2022,2023, we agreed to a formal restructuring agreement, master lease amendments and mortgage loan amendments with Guardian.Maplewood. As part of the restructuring agreement and related agreements, Omega agreed to, among other things:
● |
● | fix contractual rent at $69.3 million per annum (December 2022 rent annualized) and |
● | fund $22.5 million of capital expenditures through December 31, 2025; |
● | extend the maturity date of the secured revolving credit facility from June 2030 to June 2035, with one borrower 2-year extension option; |
● | increase the capacity of the secured revolving credit facility from $250.5 million to $320.0 million, inclusive of payment-in-kind (“PIK”) interest applied to principal; |
● | convert the 7% per annum cash interest due on the secured revolving credit facility to all PIK interest in 2023, 1% cash interest and 6% PIK interest in 2024, and 4% cash interest and 3% PIK interest in 2025 and through the maturity date; |
● | pay a one-time option termination fee of $12.5 million to Maplewood; and |
● | reduce Maplewood’s share of any future potential sales proceeds (in excess of our gross investment) by the |
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Maplewood short-paid the contractual rent amount due under its lease agreement by $1.0 million in June 2023, and continued to short-pay the contractual rent amount due under its lease agreement by $1.0 million for eachmonth during the third quarter of 2023. During the third quarter of 2023, we applied $3.0 million of Maplewood’s security deposit toward the unpaid portion of rent for June 2023 through August 2023. Following the application of the security deposit in the third quarter of 2023, we had a $1.8 million security deposit remaining as of September 30, 2022,2023, which can be applied to future rent shortfalls. In October 2023, Maplewood short-paid the contractual rent amount due under its lease agreement by $1.0 million. We continue to take actions to preserve our rights and are in discussions with Maplewood to address the deficiency.
Maplewood is on a cash basis of revenue recognition for lease purposes, and we have $7.4recorded rental income of $17.3 million and $50.9 million for the three and nine months ended September 30, 2023, respectively, for the contractual rent payments that were received from Maplewood and through the application of Maplewood’s security deposit. The $12.5 million option termination fee payment made in the first quarter of 2023 in connection with the restructuring agreement was accounted for as a lease inducement. As Maplewood is on a cash basis of revenue recognition, the inducement was immediately expensed and was recorded as a reduction to the $50.9 million of letters of credit from Guardian as collateral. Revenue from Guardian represented approximately 1.0% and 3.2% of our total revenues (excluding the impact of straight-line write-offs)rental income recognized for the nine months ended September 30, 2023.
As discussed further in Note 5 – Real Estate Loans Receivable, we recorded interest income of $1.5 million on the secured revolving credit facility during the three months ended March 31, 2023 for the contractual interest payment received related to December 2022, as the loan was placed on non-accrual status for interest recognition during the fourth quarter of 2022. Revenue from Maplewood represents approximately 7.2% and 2021, respectively.
3.7% Operator
From January through March 2022, an operator (the “3.7% Operator”) representing 3.7% and 3.3%9.1% of our total revenuerevenues (excluding the impact of write-offs) for the nine months ended September 30, 2023 and 2022, and 2021, respectively, did not pay its contractual amounts due under its lease agreement. respectively.
Healthcare Homes
In MarchDecember 2022, the lease with the 3.7% Operator was amendedwe agreed to allow forHealthcare Homes, a short-term rent deferral for January through March 2022. The deferred rent balance accrues interest monthly at a rateU.K.-based operator representing 3.1% and 2.9% of 5% per annum. The 3.7% Operator paid the contractual amount due under its lease agreement from April 2022 through September 2022. Omega holds a $1.0 million letter of credit and a $150 thousand security deposit from the 3.7% Operator as collateral under its lease agreement. The 3.7% Operator remains on a straight-line basis of revenue recognition.
In July 2018, we entered into a $20.0 million revolving credit facility with the 3.7% Operator, and the 3.7% Operator paid contractual interest under the facility from January through September 2022. The 3.7% Operator drew $4.0 million under the facility during the second quarter of 2022, and the line of credit under the facility was fully drawn as of June 30, 2022. As of September 30, 2022, theour total outstanding principal due under the credit facility remains $20.0 million. The credit facility is secured by a first lien on the 3.7% Operator’s accounts receivable.
1.4% Operator
In March 2022, an operator (the “1.4% Operator”), representing 1.4% and 2.1% of total revenuerevenues (excluding the impact of write-offs) for the nine months ended September 30, 2023 and 2022, respectively, the ability to defer up to £6.7 million of contractual rent from January 2023 through April 2023 with regular payments required to resume in May 2023. The deferred rent balance accrues interest monthly at a rate of 8% per annum and 2021,must be fully repaid by December 31, 2024. During the three and six months ended June 30, 2023, Healthcare Homes elected to defer £1.7 million ($2.1 million in USD) and £6.7 million ($8.2 million in USD), respectively, of contractual rent in accordance with the December 2022 agreement. In May 2023, Healthcare Homes resumed making full contractual rent payments. Healthcare Homes has remained on a straight-line basis of revenue recognition.
Guardian
In August and September 2023, Guardian, an operator that was already on a cash basis of revenue recognition, did not pay its contractual amounts due under its lease agreement. In April 2022,During the lease with the 1.4% Operator was amended to allow the operator to apply its $2.0third quarter of 2023, we applied $2.9 million of Guardian’s security deposit toward payment of March 2022 rent and to allow for a short-term rent deferral for April 2022 with regular rent payments required to resume in May 2022. The 1.4% Operator paid contractual rent in May 2022, but it failed to payfund the full contractual rent for June 2022 on a timely basis. We placed the 1.4% Operatorunpaid rent. As Guardian is on a cash basis of revenue recognition, during the second quarterwe recorded rental income of 2022, as collection of substantially all contractual lease payments due from the operator was no longer deemed probable. As a result, we wrote-off approximately $8.3$4.4 million of straight-line rent receivables through rental income. Duringfor the three months ended September 30, 2022,2023 for the 1.4% Operator made partial contractual rent payments that were received from Guardian and through the application of $2.5 millionGuardian’s security deposit. Following the application of the security deposit in the aggregate,third quarter of 2023, we had a $4.4 million security deposit remaining as of September 30, 2023, which were recordedcan be applied to future rent shortfalls. We are in rental income.
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2.2% Operator
In June 2022, an operator (the “2.2% Operator”), representing 2.2%$1.5 million. Revenue from Guardian represents approximately 1.7% and 2.0%1.0% of our total revenuerevenues (excluding the impact of write-offs) for the nine months ended September 30, 2023 and 2022, and 2021, respectively, short-paid the contractual rent amount due under its lease agreement by $0.6 million. In July 2022, we drew the full $5.4 million letter of credit that was held as collateral from the 2.2% Operator and applied $0.6 million of the proceeds to pay the unpaid portion of June 2022 rent. In the third quarter of 2022, the 2.2% Operator continued to short-pay the contractual amount due under its lease agreement. As such, we applied $3.3 million of the remaining proceeds of the letter of credit to pay the unpaid portion of July, August and September 2022 rent. We are in discussions to sell or release to another operator a portion of the facilities included in the 2.2% Operator’s master lease. We placed the 2.2% Operator on a cash basis of revenue recognition during the third quarter of 2022, as collection of substantially all contractual lease payments due from the operator was no longer deemed probable. As a result of placing the 2.2% Operator on a cash basis, we wrote-off approximately $10.5 million of straight-line rent receivables and lease inducements through rental income. As of September 30, 2022, $1.5 million of proceeds from the letter of credit remain as collateral to the master lease.
0.5% Operator
In June 2022, we placed an operator (the “0.5% Operator”), representing approximately 0.5% of total revenue (excluding the impact of write-offs) for the nine months ended September 30, 2022 and 2021, respectively, on a cash basis of revenue recognition. The change in our evaluation of the collectability of future rent payments due from the 0.5% Operator was a result of information received from the operator during the second quarter of 2022 regarding substantial doubt as to its ability to continue as a going concern. As a result of placing the 0.5% Operator on a cash basis, we wrote-off approximately $2.1 million of straight-line rent receivables through rental income. All facilities included in the 0.5% Operator’s master lease are included in assets held for sale as of September 30, 2022.
Other Operators
During the nine months ended September 30, 2022, we allowed four other operators, representing an aggregate 2.8% and 3.1% of total revenue (excluding the impact of write-offs) for the nine months ended September 30, 2022 and 2021, respectively, to apply an aggregate of $3.4 million of their security deposits to pay rent to accommodate short term liquidity issues, with regular rent payments required to resume shortly thereafter. These operators also are required to begin replenishing their security deposits in 2023. Additionally, we granted two of these operators short-term deferrals for a portion of their respective rent due during the nine months ended September 30, 2022. As of September 30, 2022, two of the four operators that were allowed to apply security deposits to rent are current on their respective lease obligations. The two operators that are not current on contractual obligations are on a cash basis of revenue recognition as of September 30, 2022. We placed one of the operators on a cash basis of revenue recognition during the third quarter of 2022. As a result of placing that operator on a cash basis during the third quarter of 2022, we wrote-off approximately $2.6 million of straight-line rent receivables through rental income.
NOTE 5 – MORTGAGE NOTES RECEIVABLE
As of September 30, 2022, mortgage notes receivable relate to seven fixed rate mortgage notes on 52 facilities. The mortgage notes are secured by first mortgage liens on the borrowers’ underlying real estate and personal property. The mortgage notes receivable relate to facilities located in six states that are operated by six independent healthcare operating companies. We monitor compliance with the terms of our mortgages and when necessary have initiated collection, foreclosure and other proceedings with respect to certain outstanding mortgage notes.
14
The principal amounts outstanding of mortgage notes receivable, net of allowances, were as follows:
| | | | | | | |
| | September 30, | | December 31, | | ||
|
| 2022 |
| 2021 |
| ||
| | (in thousands) | | ||||
Mortgage note due 2031; interest at 11.02% | | $ | 78,309 | | $ | 103,762 | |
Mortgage notes due 2030; interest at 10.96%(1) | |
| 503,440 |
| | 653,564 | |
Other mortgage notes outstanding(2) | |
| 149,641 |
| | 151,361 | |
Mortgage notes receivable, gross | |
| 731,390 |
| | 908,687 | |
Allowance for credit losses on mortgage notes receivable | |
| (61,857) |
| | (73,601) | |
Total mortgage notes receivable – net | | $ | 669,533 | | $ | 835,086 | |
Mortgage Note due 2031
As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, Guardian did not make rent and interest payments under its lease and loan agreements during the first quarter of 2022 but resumed making contractual rent and interest payments during the second and third quarters of 2022, in accordance with the restructuring terms agreed to in the second quarter of 2022. The mortgage loan is on non-accrual status and is being accounted for under the cost recovery method, so the $2.3 million and $3.7 million of interest payments that we received during the three and nine months ended September 30, 2022, respectively, were applied directly against the principal balance outstanding.
On February 15, 2022, Guardian completed the sale of three facilities subject to the Guardian mortgage loan with Omega. Concurrent with the sale, Omega agreed to release the mortgage liens on these facilities in exchange for a partial paydown of $21.7 million. In connection with the partial paydown, we recorded a $5.1 million recovery for credit losses in the first quarter of 2022 related to the Guardian mortgage loan.
In the second quarter of 2022, we agreed to a formal restructuring agreement and amendments to the master lease and mortgage loan with Guardian, which among other adjustments, extended the loan maturity and allowed for the deferral of certain contractual interest as discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements. These amendments were treated as a loan modification.
In the third quarter of 2022, we reserved an additional $1.0 million through provision for credit losses due to a decrease in the estimated fair value of the four facilities that are collateral under the mortgage.
As of September 30, 2022, the amortized cost basis of the Guardian mortgage loan is $78.3 million, which represents 10.8% of the total amortized cost basis of all mortgage receivables. As of September 30, 2022, the mortgage loan is secured by three SNFs and one ALF located in Pennsylvania.
Mortgage Notes due 2030
On June 30, 2022, Ciena Healthcare (“Ciena”) repaid $57.1 million under the $415.0 million amortizing mortgage (the “Ciena Master Mortgage”), $15.1 million under the $44.7 million mortgage and $41.5 million under four additional mortgages. Concurrent with these repayments, we released the mortgage liens on six facilities in exchange for the partial repayment and extended the maturity date of all of the Ciena mortgage notes to June 30, 2030 (with exception of two loans with an aggregate principal balance of $37.7 million with maturity dates in 2022 and 2023).
On September 9, 2022, Ciena repaid $35.3 million under the Ciena Master Mortgage and $9.5 million under three additional mortgages. Concurrently with these partial repayments, we released the mortgage liens on two facilities in exchange for such partial repayments.respectively.
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NOTE 65 – OTHER INVESTMENTSREAL ESTATE LOANS RECEIVABLE
Our other investmentsReal estate loans consist of fixedmortgage notes and variable rateother real estate loans to our operators and/which are primarily collateralized by a first, second or their principals. These loans may be either unsecuredthird mortgage lien or secured by the collaterala leasehold mortgage on, or an assignment of the borrower. A number of the secured loans are collateralized by leasehold mortgages on, or assignments or pledges of the membershippartnership interest in the related properties, corporate guarantees and/or personal guarantees. We deem these to be “real estate related loans” that are included as qualifying assets under our quarterly REIT asset tests.properties. As of September 30, 2022, we had 392023, our real estate loans receivable consists of eight fixed rate mortgage notes on 49 long-term care facilities and 14 other real estate loans. The mortgage notes relate to facilities located in six states that are operated by seven independent healthcare operating companies. We monitor compliance with 20 different operators. A summaryour real estate loans and, when necessary, have initiated collection, foreclosure and other proceedings with respect to certain outstanding real estate loans.
The principal amounts outstanding of our other investments isreal estate loans receivable, net of allowances, were as follows:
| | | | | | | |
|
| September 30, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
| | (in thousands) | | ||||
Other investment notes due 2024; interest at 13.17% (1) | | $ | 96,456 |
| $ | 90,752 | |
Other investment note due 2030; interest at 7.00% | |
| 236,218 |
| | 201,613 | |
Other investment note due 2024; interest at 12.00% (2) | |
| — | | | 40,232 | |
Other investment notes due 2022-2025; interest at 12.03% (1) | | | 44,200 | | | 9,992 | |
Other investment notes outstanding (3) | |
| 20,000 |
| | 12,084 | |
Real estate related loans – other investments, gross | | | 396,874 | | | 354,673 | |
Other investment notes due 2024-2025; interest at 8.12% (1) | | | 55,791 |
| | 55,791 | |
Other investment notes due 2022-2028; interest at 10.49% (1) | | | 53,560 | | | 22,142 | |
Other investment notes outstanding (4) | |
| 163,026 |
| | 106,672 | |
Non-real estate related loans – other investments, gross | | | 272,377 | | | 184,605 | |
Total other investments, gross | | | 669,251 | | | 539,278 | |
Allowance for credit losses on other investments | | | (61,061) | | | (69,394) | |
Total other investments – net | | $ | 608,190 | | $ | 469,884 | |
| | | | | | | |
| | September 30, | | December 31, | | ||
|
| 2023 |
| 2022 |
| ||
| | (in thousands) | | ||||
Mortgage notes due 2030; interest at 11.16%(1) | | $ | 512,616 |
| $ | 506,321 | |
Mortgage note due 2031; interest at 11.27% | | | — | | | 76,049 | |
Mortgage note due 2037; interest at 10.50%(2) | | | 72,420 | | | 72,420 | |
Mortgage note due 2025; interest at 7.85% | | | 62,477 | | | 63,811 | |
Other mortgage notes outstanding(3) | |
| 25,622 |
| | 12,922 | |
Mortgage notes receivable – gross | |
| 673,135 |
| | 731,523 | |
Allowance for credit losses on mortgage notes receivable | | | (39,977) | | | (83,393) | |
Mortgage notes receivable – net | | | 633,158 | | | 648,130 | |
Other real estate loan due 2035; interest at 7.00% | | | 263,520 | | | 250,500 | |
Other real estate loans due 2024; interest at 13.19%(1) | | | 104,648 | | | 98,440 | |
Other real estate loans due 2023-2030; interest at 11.75%(1) | | | 110,891 | | | 43,628 | |
Other real estate loans outstanding(4) | | | 32,757 | | | 20,000 | |
Other real estate loans – gross | | | 511,816 | | | 412,568 | |
Allowance for credit losses on other real estate loans | |
| (23,514) |
| | (17,967) | |
Other real estate loans – net | | | 488,302 | | | 394,601 | |
Total real estate loans receivable – net | | $ | 1,121,460 | | $ | 1,042,731 | |
(1) | Approximates the weighted average interest rate on facilities as of September 30, |
(2) | During the |
(3) |
Other |
(4) | Other real estate loans outstanding have a weighted average interest rate of 12% as of September 30, 2023, with maturity dates ranging from 2027 through 2031. |
Interest revenue on other investmentreal estate loans is included within other investmentinterest income on the Consolidated StatementStatements of Operations. A summary of our other investments income by real estateOperations and non-real estate loans, as defined above, is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||
| 2022 |
| 2021 | | 2022 |
| 2021 | 2023 |
| 2022 | | 2023 |
| 2022 | ||||||||
| (in thousands) | | (in thousands) | (in thousands) | | (in thousands) | ||||||||||||||||
Real estate related loans – interest income | $ | 10,566 |
| $ | 8,036 | | $ | 27,987 |
| $ | 23,628 | |||||||||||
Non-real estate related loans – interest income |
| 3,544 |
| | 2,744 | |
| 8,494 |
| | 10,617 | |||||||||||
Total other investment income | $ | 14,110 | | $ | 10,780 | | $ | 36,481 | | $ | 34,245 | |||||||||||
Mortgage notes – interest income | $ | 17,332 |
| $ | 17,234 | | $ | 50,878 |
| $ | 57,380 | |||||||||||
Other real estate loans – interest income |
| 7,566 |
| | 10,566 | |
| 21,396 |
| | 27,987 | |||||||||||
Total real estate loans interest income | $ | 24,898 | | $ | 27,800 | | $ | 72,274 | | $ | 85,367 |
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Other investmentMortgage note due 20302031
On June 22,In the second quarter of 2022, we agreed to a formal restructuring agreement and amended the secured revolving credit facilitymortgage loan with Maplewood Senior Living (togetherGuardian, which among other adjustments, extended the loan’s maturity date and allowed for the deferral of certain contractual interest. The loan amendment was treated as a loan modification provided to a borrower experiencing financial difficulty. Following the execution of the restructuring agreement, Guardian resumed paying contractual rent and interest during the second quarter of 2022 and continued such payments throughout the remainder of 2022 and the first three quarters of 2023, in accordance with its affiliates, “Maplewood”) to increase the maximum commitmentrestructuring terms. The mortgage loan was on non-accrual status and was being accounted for under the facility from $220.5 million to $250.5 million. Advances madecost recovery method, under this facility bear interest at a fixed rate of 7% per annum, andwhich any payments received were applied against the facility matures on June 30, 2030. As of September 30, 2022, $236.2 million remains outstanding on this credit facility to Maplewood. Maplewood was determined to be a VIE when this loan was originated in 2020. Please see further discussion in Note 8 – Variable Interest Entities.
Other investment notes due 2024-2025
Agemo continued to not pay contractual rent under its lease agreement and interest on the Agemo WC Loan and the Agemo Term Loan during the nine months ended September 30, 2022. We have continued to monitor the fair value of the collateral associated with the Agemo WC Loan on a quarterly basis.principal amount. During the three and ninesix months ended SeptemberJune 30, 2022,2023, we recorded an additional provisionreceived $1.6 million and $3.9 million, respectively, of interest payments from Guardian that we applied against the outstanding principal of the loan and recognized a recovery for credit losses of $4.8 million and $10.8 million, respectively, relatedloss equal to the Agemo WC Loan becauseamount of payments applied against principal.
In the second quarter of 2023, Guardian completed the sale of the four remaining facilities subject to the mortgage note with Omega. Guardian used $35.2 million of proceeds from the sale of the facilities to make a reductionprincipal repayment to Omega, in the fair valuesame amount, against the mortgage note. Following the repayment, Omega agreed to release the mortgage liens on these facilities and forgive the remaining $46.8 million of outstanding principal due under the underlying collateral assets supporting the current carrying values. mortgage note. We had previously established an allowance for credit loss to reserve this loan down to $35.2 million in anticipation of this settlement.
Other real estate loan due 2035
As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, in the Company is currently in ongoing negotiations to restructurefirst quarter of 2023, Omega entered into a restructuring agreement and amend Agemo’s leasea loan amendment with Maplewood that modified Maplewood’s secured revolving credit facility. As part of the restructuring agreement and loan agreements.
16
Tableamendment, Omega agreed to extend the maturity date of Contentsthe facility to June 2035, increase the capacity of the secured revolving credit facility from $250.5 million to $320.0 million, including PIK interest applied to the principal, and to convert the 7% cash interest due on the secured revolving credit facility to all PIK interest in 2023, 1% cash interest and 6% PIK interest in 2024, 4% cash interest and 3% PIK interest in 2025 and through the maturity date. The maximum PIK interest allowable under credit facility, as amended, is $52.2 million. This amendment was treated as a loan modification provided to a borrower experiencing financial difficulty.
During the three months ended March 31, 2023, we recorded interest income of $1.5 million on the secured revolving credit facility for the contractual interest payment received related to December 2022, as the loan was placed on non-accrual status for interest recognition during the fourth quarter of 2022. We did not record any interest income related to the PIK interest during the three and nine months ended September 30, 2023. As of September 30, 2023, the amortized cost basis of this loan was $263.5 million, which represents 22.2% of the total amortized cost basis of all real estate loan receivables. As of September 30, 2023, the remaining commitment under the secured revolving credit facility, including the unrecognized PIK interest, was $43.9 million.
Other investment notesreal estate loans due 2022-20252023-2030
On June 28, 2022,April 14, 2023, we entered into a $35.6two mezzanine loans, with principal balances of $68.0 million mezzanine loanand $6.6 million, respectively, with an existing operator related to new operations undertaken byand its affiliates in connection with the operator.operator’s acquisition of 13 SNFs in West Virginia. The $68.0 million loan matures on April 13, 2029 and bears interest at a fixedvariable rate that results in a blended interest rate of 12% per annum across this loan and matures on June 30, 2025.three other loans, including the $6.6 million mezzanine loan and both $15.0 million mezzanine loans discussed under Notes due 2023-2029 in Note 6 – Non-Real Estate Loans Receivable. The $68.0 million loan also requires quarterly principal payments of $1.0 million commencing on JanuaryJuly 1, 2023 and additional payments contingent on the operator’s achievement of certain metrics. The $68.0 million loan is secured by a leasehold mortgage and a pledge of the operator’s equity interest in a joint venture.
Other investment notes due 2022-2028
In connection withsubsidiaries of the $35.6operator. The $6.6 million mezzanine loan discussed above, we also entered into a short-term $90.0 million revolving line of credit with the same operator to finance working capital requirements of the new operations. The line of credit consists of two $45.0 million tranches that bearmatures on April 14, 2029 and bears interest at fixed ratesa rate of 10%8% per annum and 12% per annum and mature on June 30, 2023 and June 1, 2023 (or earlier based on certain state reimbursement conditions), respectively.annum. The revolving line of credit is secured by a first priority interest on the operator’s accounts receivable related$6.6 million mezzanine loan was made to the new operations. As of September 30, 2022, the outstanding principal under this revolving line of credit was $30.0 million.
Other investment notes outstanding – real estate related loans
Preferred Equity Investment in Joint Venture - $20 million
On June 2, 2022, we made a $20.0 million preferred equity investment, which is treated as a loan for accounting purposes, in a new real estate joint venture, that was formed to acquire an acute care hospital in New York. Omega’s preferred equity investment bears a 12% return per annum and must be mandatorily redeemed by the joint venture at the earlier of December 2027 or the occurrence of certain significant events within the joint venture. We have determined that the joint venture is a VIE, but we are not the primary beneficiary as we do not have the power to direct the activities that most significantly impact the joint venture’s economic performance. Please see further discussion in Note 8 – Variable Interest Entities.
Other investment notes outstanding – non-real estate related loans
Working Capital Loan –$20 million
During the three and nine months ended September 30, 2022, we recognized provisions for credit losses of $0.9 million and $3.2 million, respectively, related to a $20.0 million working capital loan (the “$20.0 million WC loan”)RCA NH Holdings RE Co., LLC, that we entered intoformed in November 2021April 2023 with anthe acquiring operator that managed,(see Note 9 – Investments in Joint Ventures for additional information on an interim basis for a 4-month period, the operations of 23 facilities formerly leased to Gulf Coast. The $20.0 million WC Loan is secured by the accounts receivables of these facilities during the interim period of operation. The remaining accounts receivable outstanding that collateralize the loan is insufficient to support the current outstanding balance, and as a result, we recorded the additional reserves to reduce the carrying value of the loan to the fair value of the collateral. The $20.0 million WC Loan is on non-accrual status and is being accounted for under the cost recovery method, so the $32.7 thousand of interest payments that we received during the three months ended September 30, 2022 were applied directly against the principal balance outstanding. As of September 30, 2022, the outstanding principal under this loan was $5.8 million.
Term Loan –$25 million
On March 25, 2022, we entered into a $25.0 million term loan with LaVie Care Centers, LLC (“LaVie,” f/k/a Consulate Health Care) that bears interest at a fixed rate of 8.5% per annum and matures on March 31, 2032. This term loan requires quarterly principal payments of $1.3 million commencing January 1, 2028 and is secured by a second priority lien on the operator’s accounts receivable. As of September 30, 2022, the outstanding principal under this term loan was $25.0 million.joint venture).
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Mezzanine Loan - $40 millionNOTE 6 – NON-REAL ESTATE LOANS RECEIVABLE
OnOur non-real estate loans consist of fixed and variable rate loans to operators and/or principals. These loans may be either unsecured or secured by the collateral of the borrower, which may include the working capital of the borrower. As of September 1,30, 2023, we had 40 loans with 21 different borrowers. A summary of our non-real estate loans is as follows:
| | | | | | | |
|
| September 30, | | December 31, | | ||
|
| 2023 |
| 2022 | | ||
| | (in thousands) | | ||||
Notes due 2023-2029; interest at 11.25%(1) | | $ | 89,513 | | $ | 55,981 | |
Notes due 2036; interest at 5.63% | | | 79,023 |
| | 55,791 | |
Notes due 2036; interest at 2.00% | | | 32,308 | | | 32,539 | |
Note due 2024; interest at 7.95%(2) | | | 54,999 | | | 47,999 | |
Note due 2027; interest at 12.00%(3) | | | — | | | 39,653 | |
Other notes outstanding(4) | |
| 107,393 |
| | 77,186 | |
Non-real estate loans receivable – gross | | | 363,236 | | | 309,149 | |
Allowance for credit losses on non-real estate loans receivable | | | (118,235) | | | (83,868) | |
Total non-real estate loans receivable – net | | $ | 245,001 | | $ | 225,281 | |
(1) | Approximates the weighted average interest rate as of September 30, 2023. |
(2) | During the third quarter of 2023, the interest rate was amended to increase the interest rate on borrowings in excess of $45 million to 10% through October 15, 2023, and to 12% thereafter. The interest rate remains at 7.5% for borrowings that do not exceed $45 million. The interest rate above represents the weighted average interest rate as of September 30, 2023. |
(3) | During the first quarter of 2023, this loan was fully repaid. |
(4) | Other notes outstanding have a weighted average interest rate of 7.72% as of September 30, 2023, with maturity dates ranging from 2023 through 2030 (with $18.1 million maturing in 2023). Three of the other notes outstanding with an aggregate principal balance of $10.4 million are past due and have been written down to the estimated fair value of the underlying collateral of $0.5 million, through our allowance for credit losses. |
For the three months ended September 30, 2023 and 2022, non-real estate loans generated interest income of $5.7 million and $3.5 million, respectively. For the nine months ended September 30, 2023 and 2022, non-real estate loans generated interest income of $16.0 million and $8.5 million, respectively. Interest income on non-real estate loans is included within interest income on the Consolidated Statements of Operations.
Notes due 2023-2029
During the second quarter of 2023, we entered into a $40.0two $15.0 million mezzanine loans with an existing operator and its affiliates in connection with the operator’s acquisition of 13 SNFs in West Virginia (discussed in Note 5 – Real Estate Loans Receivable). The first $15.0 million mezzanine loan with(the “2028 Mezz Loan”) matures on April 1, 2028 and bears interest at a new operator.variable rate based on the one-month termSOFR plus 8.6% per annum. The 2028 Mezz Loan requires monthly principal payments commencing on May 1, 2023 and is secured by a pledge of the operator’s equity interest in its subsidiaries. The second $15.0 million mezzanine loan (the “2029 Mezz Loan”) matures on April 13, 2029 and bears interest at a fixed rate of 12% per annum and matures on September 14, 2027.annum. The loan2029 Mezz Loan also requires semi-annualquarterly principal payments of $1.7 million in January and July, commencing on JanuaryJuly 1, 2023 and additional payments contingent on the occurrenceoperator’s achievement of certain conditions.metrics. The loan2029 Mezz Loan is secured by ana pledge of the operator’s equity interest in subsidiariesits subsidiaries. In connection with the 2028 Mezz Loan and 2029 Mezz Loan, we also provided a $3.3 million working capital loan to a new joint venture, WV Pharm Holdings, LLC, which we formed in April 2023 with the acquiring operator (see Note 9 – Investments in Joint Ventures for additional information on this joint venture).
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Notes due 2036; interest at 5.63%
As discussed in Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, in the first quarter of 2023, Omega entered into a restructuring agreement and a replacement loan agreement that modified the existing Agemo loans. Under the restructuring agreement, previously written off contractual unpaid interest related to the Agemo WC Loan and the Agemo Term Loan was forgiven. The outstanding principal of the operator.Agemo Term Loan was refinanced into a new $32.0 million loan (“Agemo Replacement Loan A”). The outstanding principal of the Agemo WC Loan and the aggregate rent deferred and outstanding under the Agemo lease agreement was combined and refinanced into a new $50.2 million loan (“Agemo Replacement Loan B” and with Agemo Replacement Loan A, the “Agemo Replacement Loans”). The Agemo Replacement Loans bear interest at 5.63% per annum through October 2024, which increases to 5.71% per annum until maturity. The Agemo Replacement Loans mature on December 31, 2036. Interest payments were scheduled to resume on April 1, 2023, contingent upon Agemo’s compliance with certain conditions of the restructuring agreement; however, Agemo had the option to defer the interest payment due on April 1, 2023. Beginning in January 2025, Agemo will be required to make principal payments on the Agemo Replacement Loans dependent on certain metrics. These amendments were treated as loan modifications provided to a borrower experiencing financial difficulty. Both of these loans are on non-accrual status, and we are utilizing the cost recovery method, under which any payments, if received, are applied against the principal amount.
Prior to the restructuring, the principal of the Agemo WC Loan and the Agemo Term Loan were written down to $5.9 million and zero, respectively, the fair value of the underlying collateral of these loans. No changes to the collateral supporting the loans were made because of the refinancing of these loans into the Agemo Replacement Loans. Additional principal of $25.2 million related to deferred rent due under the master lease was combined with the principal of the Agemo WC Loan under Agemo Replacement Loan B. This deferred rent balance was previously written off when the Agemo master lease was taken to a cash basis of revenue recognition in 2020. We believe it is not probable that we will collect the additional $25.2 million of principal balance associated with the deferred rent under Agemo Replacement Loan B. As such, we added an additional allowance for credit losses of $25.2 million related to Agemo Replacement Loan B concurrent with the increase in loan principal during the first quarter of 2023. There is no income statement impact as a result of this additional reserve due to the balance previously being written off.
Agemo exercised its option to defer the interest payment due on April 1, 2023 and resumed making interest payments in May 2023 in accordance with the restructuring terms discussed above. During the three and nine months ended September 30, 2023, we received $1.2 million and $2.0 million, respectively, of interest payments from Agemo that we applied against the outstanding principal of the loans and recognized a recovery for credit loss equal to the amount of payments applied against principal. As of September 30, 2023, the amortized cost basis of these loans was $79.0 million, which represents 21.8% of the total amortized cost basis of all non-real estate loan receivables. The total reserve as of September 30, 2023 related to the Agemo Replacement Loans was $73.1 million.
Notes due 2036; interest at 2.00%Revolving Credit Facility - $45
During the fourth quarter of 2022, we amended an $8.3 million term loan and a $25.0 million term loan with LaVie to, among other things, extend the loan maturity dates to November 30, 2036 to align with the lease term, and starting in January 2023, reduce the interest rates to 2%, remove the requirement for LaVie to make any principal payments until the maturity dates and convert from monthly cash interest payments to PIK interest. These amendments were treated as loan modifications provided to a borrower experiencing financial difficulty. Both of these loans are on non-accrual status, and we are utilizing the cost recovery method, under which any payments made by LaVie are applied against the principal amount outstanding. During the nine months ended September 30, 2023, we applied an aggregate $0.2 million of interest payments received to the $25.0 million term loan principal balance and the $8.3 million term loan principal balance outstanding.As of September 30, 2023, the amortized cost basis of these loans was $32.3 million, which represents 8.9% of the total amortized cost basis of all non-real estate loan receivables. The total reserve as of September 30, 2023 related to the LaVie loans was $28.7 million.
19
Note due 2024
On August 25, 2022,July 8, 2019, the Company amended the terms ofentered into a $15 million unsecured revolving credit facility agreement with a principal of an operator that was previously issued in July 2019, bearingbears interest at a fixed rate of 7.5% per annum and maturingoriginally matured on July 8, 2022. ThisDuring 2022, this revolving credit facility was subsequently amended during the nine months ended September 30, 2022multiple times to increase the maximum principal to $45$48 million, extend the maturity date to December 31, 2024 and require monthly principal payments. During 2023, this revolving credit facility was further amended to increase the maximum principal to $55 million, increase the interest rate on certain borrowings as discussed above and modify the principal payment schedule. During the third quarter of 2023, the borrower failed to make aggregate contractual principal payments of $0.5$3.0 million beginningdue under the revolving credit facility. We are currently in July 2022, which increasediscussions with the borrower to $1.0amend the revolving credit facility agreement to extend the repayment schedule for the $55.0 million of principal outstanding.
Other notes outstanding
$10.0 million Mezzanine Loan and Working Capital Loan
On June 30, 2023, the Company entered into a $10.0 million mezzanine loan and a revolving working capital loan with an existing operator in November 2022,connection with the operator’s acquisition of a portfolio of facilities in Pennsylvania. The $10.0 million mezzanine loan matures on June 30, 2028 and bears interest at a fixed rate of 11% per annum. The $10.0 million mezzanine loan also requires monthly amortizing payments of principal and interest in the amount of $0.2 million. The $10.0 million mezzanine loan is secured by an equity interest in a subsidiary of the operator. The working capital loan matures on June 30, 2026 and bears interest at a fixed rate of 10% per annum. The working capital loan has a maximum principal of $34.0 million for the first year that decreases to $1.5$20.0 million in Junethereafter. The working capital loan is secured by the accounts receivable of the acquired facilities. As of September 30, 2023, and to $2.5 million in October 2023. the revolving working capital loan has an outstanding principal balance of $12.0 million.
20
NOTE 7 – ALLOWANCE FOR CREDIT LOSSES
A rollforward of our allowance for credit losses for the nine months ended September 30, 20222023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rating | | Financial Statement Line Item | Allowance for Credit Loss as of December 31, 2021 | | Provision (recovery) for Credit Loss for the nine months ended September 30, 2022 | | Write-offs charged against allowance for the nine months ended September 30, 2022 | | Allowance for Credit Loss as of September 30, 2022 | | Financial Statement Line Item | Allowance for Credit Loss as of December 31, 2022 | | Provision (recovery) for Credit Loss for the nine months ended September 30, 2023 | | Write-offs charged against allowance for the nine months ended September 30, 2023 | | Other additions to the allowance for the nine months ended September 30, 2023 | | Allowance for Credit Loss as of September 30, 2023 | |||||||||
| | | (in thousands) | | | (in thousands) | |||||||||||||||||||||||
1 | | Real estate loan receivable | $ | 162 | | $ | 373 | | $ | — | | $ | — | | $ | 535 | |||||||||||||
2 | | Mortgage notes receivable | $ | 15 | | $ | (3) | | $ | — | | $ | 12 | | Real estate loans receivable | | 157 | | | (106) | | | — | | | — | | | 51 |
3 | | Mortgage notes receivable | | 1,973 | | | (345) | | | — | | | 1,628 | | Real estate loans receivable | | 15,110 | | | (9,113) | | | — | | | — | | | 5,997 |
4 | | Mortgage notes receivable | | 19,461 | | | (5,746) | | | — | | | 13,715 | | Real estate loans receivable | | 33,666 | | | 11,792 | | | — | | | — | | | 45,458 |
5 | | Mortgage notes receivable | | 135 | | | (86) | | | — | | | 49 | ||||||||||||||||
6 | | Mortgage notes receivable | | 52,017 | | | (5,564) | | (1) | — | | | 46,453 | | Real estate loans receivable | | 52,265 | | | (3,860) | | | (36,955) | (1) | | — | | | 11,450 |
| | Sub-total | | 73,601 | | | (11,744) | | | — | | | 61,857 | | Sub-total | | 101,360 | | | (914) | | | (36,955) | | | — | | | 63,491 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
3 | | Investment in direct financing leases | | 530 | | | (530) | | | — | | | — | ||||||||||||||||
4 | | Investment in direct financing leases | | - | | | 785 | | | — | | | 785 | ||||||||||||||||
5 | | Investment in direct financing leases | | 2,816 | | | (561) | | | — | | | — | | | 2,255 | |||||||||||||
| | Sub-total | | 530 | | | 255 | | | — | | | 785 | | Sub-total | | 2,816 | | | (561) | | | — | | | — | | | 2,255 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | | Other investments | | — | | | 212 | | | — | | | 212 | ||||||||||||||||
2 | | Other investments | | 29 | | | 247 | | | — | | | 276 | | Non-real estate loans receivable | | 859 | | | (453) | | | — | | | — | | | 406 |
3 | | Other investments | | 4,600 | | | 3,010 | | (2) | — | | | 7,610 | | Non-real estate loans receivable | | 2,079 | | | (991) | | | — | | | — | | | 1,088 |
4 | | Other investments | | 1,172 | | | 157 | | | — | | | 1,329 | | Non-real estate loans receivable | | 634 | | | (239) | | | — | | | — | | | 395 |
5 | | Other investments | | 7,861 | | | 12,522 | | (3) | — | | | 20,383 | | Non-real estate loans receivable | | 18,619 | | | (1,168) | | | — | | | 25,200 | (2) | | 42,651 |
6 | | Other investments | | 55,732 | | (5) | (1,966) | | (4) | (22,515) | (5) | | 31,251 | | Non-real estate loans receivable | | 61,677 | | | 12,018 | | | — | | | — | | | 73,695 |
| | Sub-total | | 69,394 | | | 14,182 | | | (22,515) | | | 61,061 | | Sub-total | | 83,868 | | | 9,167 | | | — | | | 25,200 | | | 118,235 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2 | | Off-balance sheet note commitments | | 7 | | | 94 | | | — | | | 101 | | Off-balance sheet real estate loan commitments | | — | | | 4 | | | — | | | — | | | 4 |
3 | | Off-balance sheet note commitments | | 458 | | | (209) | | | — | | | 249 | | Off-balance sheet real estate loan commitments | | — | | | 186 | | | — | | | — | | | 186 |
4 | | Off-balance sheet note commitments | | 216 | | | (216) | | | — | | | — | | Off-balance sheet real estate loan commitments | | 84 | | | 3,722 | | | — | | | — | | | 3,806 |
2 | | Off-balance sheet non-real estate loan commitments | | 207 | | | 29 | | | — | | | — | | | 236 | |||||||||||||
3 | | Off-balance sheet non-real estate loan commitments | | 29 | | | (14) | | | — | | | — | | | 15 | |||||||||||||
4 | | Off-balance sheet mortgage commitments | | 117 | | | (102) | | | — | | | 15 | | Off-balance sheet non-real estate loan commitments | | — | | | 24 | | | — | | | — | | | 24 |
6 | | Off-balance sheet note commitments | | 143 | | (7) | 2,107 | | (6) | (2,250) | | (7) | — | ||||||||||||||||
| | Sub-total | | 941 | | | 1,674 | | | (2,250) | | | 365 | | Sub-total | | 320 | | | 3,951 | | | — | | | — | | | 4,271 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | $ | 144,466 | | $ | 4,367 | | $ | (24,765) | | $ | 124,068 | | Total | $ | 188,364 | | $ | 11,643 | | $ | (36,955) | | $ | 25,200 | | $ | 188,252 |
(1) |
(2) | This amount relates to the additional $25.2 million allowance recorded during the first quarter of 2023 to reserve the aggregate deferred rent amount that is included within Agemo Replacement Loan B. See Note 6 – Non-Real Estate Loans Receivable for additional details. |
21
A rollforward of our allowance for credit losses for the nine months ended September 30, 2022 is as follows:
| | | | | | | | | | | | | |
Rating | | Financial Statement Line Item | Allowance for Credit Loss at December 31, 2021 | | Provision (recovery) for Credit Loss for the nine months ended September 30, 2022 | | Write-offs charged against allowance for the nine months ended September 30, 2022 | | Allowance for Credit Loss as of September 30, 2022 | ||||
| | | (in thousands) | ||||||||||
1 | | Real estate loans receivable | $ | — | | $ | 212 | | $ | — | | $ | 212 |
2 | | Real estate loans receivable | | 14 | | | (2) | | | | | | 12 |
3 | | Real estate loans receivable | | 5,367 | | | 23 | | | — | | | 5,390 |
4 | | Real estate loans receivable | | 20,577 | | | (6,058) | | | — | | | 14,519 |
5 | | Real estate loans receivable | | 136 | | | (87) | | | — | | | 49 |
6 | | Real estate loans receivable | | 56,480 | | | (5,564) | (1) | | (4,463) | (2) | | 46,453 |
| | Sub-total | | 82,574 | | | (11,476) | | | (4,463) | | | 66,635 |
| | | | | | | | | | | | | |
3 | | Investment in direct financing leases | | 530 | | | (530) | | | — | | | — |
4 | | Investment in direct financing leases | | — | | | 785 | | | — | | | 785 |
| | Sub-total | | 530 | | | 255 | | | — | | | 785 |
| | | | | | | | | | | | | |
2 | | Non-real estate loans receivable | | 29 | | | 247 | | | — | | | 276 |
3 | | Non-real estate loans receivable | | 1,206 | | | 2,642 | (3) | | — | | | 3,848 |
4 | | Non-real estate loans receivable | | 56 | | | 469 | | | — | | | 525 |
5 | | Non-real estate loans receivable | | 7,861 | | | 12,522 | (4) | | — | | | 20,383 |
6 | | Non-real estate loans receivable | | 51,269 | | | (1,966) | | | (18,052) | (5) | | 31,251 |
| | Sub-total | | 60,421 | | | 13,914 | | | (18,052) | | | 56,283 |
| | | | | | | | | | | | | |
3 | | Off-balance sheet real estate loan commitments | | 251 | | | (83) | | | — | | | 168 |
4 | | Off-balance sheet real estate loan commitments | | 117 | | | (102) | | | — | | | 15 |
2 | | Off-balance sheet non-real estate loan commitments | | 7 | | | 94 | | | — | | | 101 |
3 | | Off-balance sheet non-real estate loan commitments | | 207 | | | (126) | | | — | | | 81 |
4 | | Off-balance sheet non-real estate loan commitments | | 216 | | | (216) | | | — | | | — |
6 | | Off-balance sheet non-real estate loan commitments | | 143 | | | 2,107 | | | (2,250) | (5) | | — |
| | | | 941 | | | 1,674 | | | (2,250) | | | 365 |
| | | | | | | | | | | | | |
| | Total | $ | 144,466 | | $ | 4,367 | | $ | (24,765) | | $ | 124,068 |
(1) | This amount primarily relates to the recoveries, net of provision, recorded on the Guardian mortgage loan during the nine months ended September 30, 2022. |
(2) |
During the third quarter of 2022, we wrote-off the loan balance and reserve for |
(4) | This provision includes an additional $10.8 million allowance recorded on the Agemo WC Loan during the nine months ended September 30, 2022. |
(5) | In the second quarter of 2022, we recorded an additional reserve of $2.2 million related to the remaining commitment under the $25.0 million senior secured DIP |
1822
A rollforward of our allowance for credit losses for the nine months ended September 30, 2021 is as follows:
| | | | | | | | | | | | | |
Rating | | Financial Statement Line Item | Allowance for Credit Loss at December 31, 2020 | | Provision (recovery) for Credit Loss for the nine months ended September 30, 2021 | | Write-offs charged against allowance for the nine months ended September 30, 2021 | | Allowance for Credit Loss as of September 30, 2021 | ||||
| | | (in thousands) | ||||||||||
2 | | Mortgage notes receivable | $ | 88 | | $ | (65) | | $ | — | | $ | 23 |
3 | | Mortgage notes receivable | | 954 | | | 1,603 | | | — | | | 2,557 |
4 | | Mortgage notes receivable | | 26,865 | | | (1,825) | (1) | | — | | | 25,040 |
5 | | Mortgage notes receivable | | 433 | | | 9,025 | (1) | | — | | | 9,458 |
6 | | Mortgage notes receivable | | 4,905 | | | — | | | — | | | 4,905 |
| | Sub-total | | 33,245 | | | 8,738 | | | — | | | 41,983 |
| | | | | | | | | | | | | |
3 | | Investment in direct financing leases | | 694 | | | (35) | | | — | | | 659 |
| | Sub-total | | 694 | | | (35) | | | — | | | 659 |
| | | | | | | | | | | | | |
2 | | Other investments | | 94 | | | (38) | | | — | | | 56 |
3 | | Other investments | | 5,113 | | | 628 | | | — | | | 5,741 |
4 | | Other investments | | 24,397 | | | (22,675) | (2) | | — | | | 1,722 |
5 | | Other investments | | 1,853 | | | 6,260 | (3) | | (95) | | | 8,018 |
6 | | Other investments | | — | | | 35,954 | (2) | | — | | | 35,954 |
| | Sub-total | | 31,457 | | | 20,129 | | | (95) | | | 51,491 |
| | | | | | | | | | | | | |
2 | | Off-balance sheet note commitments | | 116 | | | (90) | | | — | | | 26 |
3 | | Off-balance sheet note commitments | | 2,305 | | | (1,300) | | | — | | | 1,005 |
4 | | Off-balance sheet note commitments | | — | | | 373 | | | — | | | 373 |
4 | | Off-balance sheet mortgage commitments | | 24 | | | 208 | | | — | | | 232 |
| | Sub-total | | 2,445 | | | (809) | | | — | | | 1,636 |
| | | | | | | | | | | | | |
| | Total | $ | 67,841 | | $ | 28,023 | | $ | (95) | | $ | 95,769 |
A summary of our amortized cost basis by year of origination and credit quality indicator is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rating | Financial Statement Line Item | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 & older | Revolving Loans | Balance as of September 30, 2022 | Financial Statement Line Item | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 & older | Revolving Loans | Balance as of September 30, 2023 | ||||||||||||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||||||||||||||||
1 | Mortgage notes receivable | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 64,243 | $ | — | $ | 64,243 | Real estate loans receivable | $ | — | $ | 20,000 | $ | — | $ | — | $ | — | $ | — | $ | 62,477 | $ | — | $ | 82,477 |
2 | Mortgage notes receivable | | — | | — | | 21,325 | | — | | — | | — | | — | | — | | 21,325 | Real estate loans receivable | | 7,700 | | — | | — | | 21,325 | | — | | — | | — | | — | | 29,025 |
3 | Mortgage notes receivable | | — | | 72,420 | | — | | — | | — | | — | | — | | — | | 72,420 | Real estate loans receivable | | 82,859 | | 32,600 | | 72,420 | | — | | — | | — | | 432 | | — | | 188,311 |
4 | Mortgage notes receivable | | 122 | | 25,021 | | 89,501 | | 5,084 | | 29,147 | | 11,291 | | 321,948 | | — | | 482,114 | Real estate loans receivable | | 12,757 | | 210 | | 34,779 | | 89,612 | | 5,099 | | 133,727 | | 332,512 | | 263,520 | | 872,216 |
5 | Mortgage notes receivable | | — | | — | | — | | — | | — | | — | | 6,602 | | — | | 6,602 | |||||||||||||||||||
6 | Mortgage notes receivable | | — | | — | | — | | — | | — | | — | | 84,686 | | — | | 84,686 | Real estate loans receivable | | — | | — | | — | | — | | — | | — | | 12,922 | | — | | 12,922 |
| Sub-total | | 122 | | 97,441 | | 110,826 | | 5,084 | | 29,147 | | 11,291 | | 477,479 | | — | | 731,390 | Sub-total | | 103,316 | | 52,810 | | 107,199 | | 110,937 | | 5,099 | | 133,727 | | 408,343 | | 263,520 | | 1,184,951 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
4 | Investment in direct financing leases | | — | | — | | — | | — | | — | | — | | 11,345 | | — | | 11,345 | |||||||||||||||||||
5 | Investment in direct financing leases | | — | | — | | — | | — | | — | | — | | 11,239 | | — | | 11,239 | |||||||||||||||||||
| Sub-total | | — | | — | | — | | — | | — | | — | | 11,345 | | — | | 11,345 | Sub-total | | — | | — | | — | | — | | — | | — | | 11,239 | | — | | 11,239 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 | Other Investments | | 20,000 | | — | | — | | — | | — | | — | | — | | — | | 20,000 | |||||||||||||||||||
2 | Other investments | | 30,000 | | — | | — | | — | | — | | — | | — | | 51,799 | | 81,799 | Non-real estate loans receivable | | 900 | | — | | — | | — | | — | | — | | — | | 120,249 | | 121,149 |
3 | Other investments | | 35,600 | | — | | — | | 14,563 | | 10,800 | | — | | 1,756 | | 251,565 | | 314,284 | Non-real estate loans receivable | | 40,211 | | 21,899 | | — | | — | | 3,656 | | 10,800 | | — | | 9,050 | | 85,616 |
4 | Other investments | | 39,614 | | — | | — | | 2,422 | | 96,456 | | — | | 1,000 | | 20,000 | | 159,492 | Non-real estate loans receivable | | — | | — | | — | | — | | 1,335 | | — | | 1,000 | | 25,500 | | 27,835 |
5 | Other investments | | 25,000 | | 8,235 | | — | | — | | 24,548 | | — | | — | | — | | 57,783 | Non-real estate loans receivable | | — | | — | | — | | — | | 2,197 | | 48,546 | | — | | — | | 50,743 |
6 | Other investments | | — | | — | | — | | — | | 4,650 | | — | | 31,243 | | — | | 35,893 | Non-real estate loans receivable | | 6,352 | | 24,457 | | 7,851 | | — | | — | | 4,092 | | 30,477 | | 4,664 | | 77,893 |
| Sub-total | | 150,214 | | 8,235 | | — | | 16,985 | | 136,454 | | — | | 33,999 | | 323,364 | | 669,251 | Sub-total | | 47,463 | | 46,356 | | 7,851 | | — | | 7,188 | | 63,438 | | 31,477 | | 159,463 | | 363,236 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 150,336 | $ | 105,676 | $ | 110,826 | $ | 22,069 | $ | 165,601 | $ | 11,291 | $ | 522,823 | $ | 323,364 | $ | 1,411,986 | Total | $ | 150,779 | $ | 99,166 | $ | 115,050 | $ | 110,937 | $ | 12,287 | $ | 197,165 | $ | 451,059 | $ | 422,983 | $ | 1,559,426 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year to date gross write-offs | $ | — | $ | (18,052) | $ | — | $ | — | $ | (4,463) | $ | — | $ | — | $ | — | $ | (22,515) | Year to date gross write-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (36,955) | $ | — | $ | (36,955) |
19
Interest Receivable on MortgageReal Estate Loans and Other InvestmentNon-Real Estate Loans
We have elected the practical expedient to exclude interest receivable from our allowance for credit losses. As of September 30, 2023 and December 31, 2022, $10.0we have excluded $9.4 million and $8.2 million, respectively, of contractual interest receivable is recorded in contractual receivables – net, and $6.2$3.9 million and $5.7 million, respectively, of effective yield interest receivables is recorded in other receivables and lease inducements on our Consolidated Balance Sheets, both of which are excluded from our allowance for credit losses. We write-off contractual interest receivablereceivables to provision for credit losses in the period we determine the interest is no longer considered collectible.
During the three months ended September 30, 2022, we recognized $5.1 million of interest income related to loans on non-accrual status as of September 30, 2023. During the nine months ended September 30, 2023 and 2022, we recognized $1.6 million and $14.1 million, respectively, of interest income related to loans on non-accrual status as of September 30, 2023.
NOTE 8 – VARIABLE INTEREST ENTITIES
Unconsolidated Variable Interest Entities
We hold variable interests in several VIEs through our investing and financing activities, which are not consolidated, as we have concluded that we are not the primary beneficiary of these entities as we do not have the power to direct activities that most significantly impact the VIE’s economic performance and/or the variable interest we hold does not obligate us to absorb losses or provide us with the right to receive benefits from the VIE which could potentially be significant.
23
Below is a summary of our assets, liabilities, collateral and collateralmaximum exposure to loss associated with these unconsolidated VIEs as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | September 30, | | December 31, | | ||||
| | 2022 | | 2021 | | | 2023 | | 2022 | | ||||
| | (in thousands) | | | (in thousands) | | ||||||||
Assets | | | | | | | | | | | | | | |
Real estate assets – net | | $ | 988,173 | | $ | 1,144,851 | | | $ | 987,396 | | $ | 982,721 | |
Assets held for sale | | | 129,239 | | 191,016 | | | | 66,130 | | — | | ||
Other investments – net | |
| 264,473 | | | 230,768 | | |||||||
Real estate loans receivable – net | |
| 315,573 | | | 270,500 | | |||||||
Investments in unconsolidated joint ventures | | | 8,870 | | | — | | |||||||
Non-real estate loans receivable – net | |
| 8,779 | | | 5,929 | | |||||||
Contractual receivables – net | |
| 1,485 | | | 1,227 | | |
| 249 | | | 114 | |
Other receivables and lease inducements | |
| 29,311 | | | 22,795 | | |||||||
Other assets | | | 746 | | | — | | | | 711 | | | 1,499 | |
Total assets | |
| 1,413,427 |
| | 1,590,657 | | |
| 1,387,708 |
| | 1,260,763 | |
| | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | |
Net in-place lease liability | | | (286) | | | (305) | | |||||||
Security deposit | | | (4,829) | | | (4,715) | | |||||||
Contingent liability | | | (43,915) | | | (43,915) | | |||||||
Other liabilities | | | (746) | | | — | | |||||||
Accrued expenses and other liabilities | | | (47,807) | | | (50,522) | | |||||||
Total liabilities | |
| (49,776) |
| | (48,935) | | |
| (47,807) |
| | (50,522) | |
| | | | | | | | | | | | | | |
Collateral | |
|
|
| |
| | |
|
|
| |
| |
Letters of credit | |
| — | | | — | | |||||||
Personal guarantee | |
| (48,000) | | | (48,000) | | |
| (48,000) | | | (48,000) | |
Other collateral(1) | |
| (1,117,412) | | | (1,335,867) | | |
| (1,066,225) | | | (982,721) | |
Total collateral | |
| (1,165,412) | | | (1,383,867) | | |
| (1,114,225) | | | (1,030,721) | |
| | | | | | | | | | | | | | |
Maximum exposure to loss | | $ | 198,239 | | $ | 157,855 | | | $ | 225,676 | | $ | 179,520 | |
(1) | Amount excludes accounts receivable that Omega has a security interest in as collateral under the |
In determining our maximum exposure to loss from the unconsolidated VIEs, we considered the underlying carrying value of the real estate subject to leases with the operator and other collateral, if any, supporting our other investments, which may include accounts receivable, security deposits, letters of credit or personal guarantees, if any, as well as other liabilities recognized with respect to these operators.
20
The table below reflects our total revenues from the operators that are considered unconsolidated VIEs for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||
| | | 2022 | | 2021 | | 2022 | | 2021 | 2023 | | 2022 | | 2023 | | 2022 | ||||||||
| (in thousands) | | (in thousands) | |||||||||||||||||||||
Revenue | |
| |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
|
Rental income | | | $ | 21,120 | | $ | 33,392 | | $ | 63,222 | | $ | 95,292 | $ | 26,968 | | $ | 21,120 | | $ | 62,768 | | $ | 63,222 |
Other investment income | | |
| 4,839 | |
| 3,551 | |
| 12,940 | |
| 11,726 | |||||||||||
Interest income |
| 1,108 | |
| 4,839 | |
| 4,193 | |
| 12,940 | |||||||||||||
Total | | | $ | 25,959 | | $ | 36,943 | | $ | 76,162 | | $ | 107,018 | $ | 28,076 | | $ | 25,959 | | $ | 66,961 | | $ | 76,162 |
Consolidated VIEs
During the first quarter of 2022, we entered intoWe own a partial equity interest in a joint venture which owns two ALFs, for a $3.2 million cash contribution, representing 52.4% of the outstanding equity of the joint venture. We also sold an ALF to the joint venture for $7.7 million in net proceeds during the first quarter of 2022. The joint venturethat we have determined is a VIE. We have consolidated this VIE andbecause we have concluded that we are the primary beneficiary of this VIE based on a combination of our ability to direct the activities that most significantly impact the joint venture’s economic performance and our rights to receive residual returns or theand obligation to absorb losses arising from the joint venture. Accordingly, this joint venture has been consolidated. Omega is not required to make any additional capital contributions to the joint venture, and it is expected to be funded from the ongoing operations of the underlying properties. As of September 30, 2023 and December 31, 2022, this joint venture has $25.6$26.8 million and $25.8 million, respectively, of total assets and $20.2$20.4 million and $19.8 million, respectively, of total liabilities, which are included in our Consolidated Balance Sheets. As a result
24
During the joint venture, in the firstfourth quarter of 2022, we recordedacquired seven facilities using a $2.9 million noncontrolling interestreverse like-kind exchange structure pursuant to reflect the contributionsSection 1031 of the minority interest holderCode (a “reverse 1031 exchange”). We completed the reverse 1031 exchange for three of the joint venture. No gain or loss was recognized onacquired facilities in the initial consolidationfourth quarter of 2022. During the second quarter of 2023, the remaining four facilities were released from the possession of the VIE or uponExchange Accommodation Titleholders (“EATs”), as we did not identify any qualifying exchange transactions. The EATs were classified as VIEs as they did not have sufficient equity investment at risk to permit the saleentity to finance its activities. The Company consolidated the EATs because it had the ability to control the activities that most significantly impacted the economic performance of the ALF toEATs and was, therefore, the joint venture.
primary beneficiary of the EATs. The properties held by the EATs were reflected as real estate with a carrying value of $55.2 million as of December 31, 2022. The EATs also held cash of $23.9 million as of December 31, 2022.
NOTE 9 – INVESTMENTS IN JOINT VENTURES
Unconsolidated Joint Ventures
The following is a summary of our investments in unconsolidated joint ventures (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Carrying Amount | | | | | | | | | | | | | Carrying Amount | ||||||||
| | Ownership | | Initial Investment | | | | | Facility | | Facilities at | | September 30, | | December 31, | | Ownership | | Initial Investment | | | | | Facility | | Facilities at | | September 30, | | December 31, | ||||
Entity | | % | | Date | | | Investment(1) | | Type | | 9/30/2022 | | 2022 |
| 2021 | | % | | Date | | Investment(1) | | Type | | September 30, 2023 | | 2023 |
| 2022 | |||||
Second Spring Healthcare Investments | | 15% | | 11/1/2016 | | $ | 50,032 | | SNF | | — | | $ | 10,849 |
| $ | 11,355 | | 15% | | 11/1/2016 | | $ | 50,032 | | SNF | | — | | $ | 8,862 |
| $ | 10,975 |
Second Spring II LLC | | 15% | | 3/10/2021 | | | 10,330 | | SNF | | — | | | — |
| | 8 | |||||||||||||||||
Lakeway Realty, L.L.C. | | 51% | | 5/17/2019 | | | 73,834 | | Specialty facility | | 1 | | | 70,465 | | | 71,286 | | 51% | | 5/17/2019 | | | 73,834 | | Specialty facility | | 1 | | | 69,247 | | | 70,151 |
Cindat Joint Venture | | 49% | | 12/18/2019 | | | 105,688 | | ALF | | 65 | | | 94,870 | | | 111,792 | | 49% | | 12/18/2019 | | | 105,688 | | ALF | | 63 | | | 96,633 | | | 97,382 |
OMG Senior Housing, LLC | | 50% | | 12/6/2019 | | | — | | Specialty facility | | 1 | |
| — |
| | — | | 50% | | 12/6/2019 | | | — | | Specialty facility | | 1 | |
| — |
| | — |
OH CHS SNP, Inc. | | 9% | | 12/20/2019 | | | 1,013 | | N/A | | N/A | | | 372 | | | 246 | | 9% | | 12/20/2019 | | | 1,013 | | N/A | | N/A | | | 686 | | | 412 |
RCA NH Holdings RE Co., LLC(2)(3) | | 20% | | 4/14/2023 | | | 3,400 | | SNF | | 5 | | | 3,400 | | | — | |||||||||||||||||
WV Pharm Holdings, LLC(2)(3) | | 20% | | 4/14/2023 | | | 3,000 | | N/A | | N/A | | | 3,000 | | | — | |||||||||||||||||
OMG-Form Senior Holdings, LLC(3)(4) | | 49% | | 6/15/2023 | | | 2,535 | | ALF | | 1 | | | 2,470 | | | — | |||||||||||||||||
CHS OHI Insight Holdings, LLC | | 25% | | 8/17/2023 | | | 3,242 | | N/A | | N/A | | | 3,243 | | | — | |||||||||||||||||
| | | | | | $ | 240,897 | | | | | | $ | 176,556 | | $ | 194,687 | | | | | | $ | 242,744 | | | | | | $ | 187,541 | | $ | 178,920 |
(1) | Our investment includes our transaction costs, if any. |
(2) | These joint ventures were entered into in connection with an existing operator’s acquisition of SNFs in West Virginia during the second quarter of 2023, as discussed in Note 5 and Note 6. The acquiring operator in the transaction is the majority owner of these joint ventures. As of September 30, 2023, we have an aggregate of $8.5 million of loans outstanding with these joint ventures. |
(3) | These joint ventures are unconsolidated VIEs and therefore are included in the tables in Note 8 – Variable Interest Entities. |
(4) | During the second quarter of 2023, we funded $7.7 million under a mortgage loan with this joint venture. |
The following table reflects our income (loss) from unconsolidated joint ventures for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||
Entity | | 2022 |
| 2021 | | 2022 |
| 2021 | | 2023 |
| 2022 | | 2023 |
| 2022 | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Second Spring Healthcare Investments | | $ | 300 | | $ | 309 | | $ | 882 | | $ | 12,013 | | $ | 270 | | $ | 300 | | $ | 851 | | $ | 882 |
Second Spring II LLC | | | — | | | (1) | | | (2) | | | (757) | | | — | | | — | | | — | | | (2) |
Lakeway Realty, L.L.C. | | | 656 |
| | 637 | | | 1,976 |
| | 1,923 | | | 674 |
| | 656 | | | 2,030 |
| | 1,976 |
Cindat Joint Venture | |
| 3,339 |
| | 707 | |
| 4,972 |
| | 1,839 | |
| (2,330) |
| | 3,339 | |
| (2,233) |
| | 4,972 |
OMG Senior Housing, LLC | |
| (140) |
| | (105) | |
| (319) |
| | (309) | |
| (123) |
| | (140) | |
| (302) |
| | (319) |
OH CHS SNP, Inc. | |
| (38) |
| | 5 | |
| 13 |
| | (140) | |
| 184 |
| | (38) | |
| 274 |
| | 13 |
OMG-Form Senior Holdings, LLC | | | (20) | | | — | | | (65) | | | — | ||||||||||||
Total | | $ | 4,117 | | $ | 1,552 | | $ | 7,522 | | $ | 14,569 | | $ | (1,345) | | $ | 4,117 | | $ | 555 | | $ | 7,522 |
(1) | The |
2125
Asset Management Fees
We receive asset management fees from certain joint ventures for services provided. For the three months ended September 30, 20222023 and 2021,2022, we recognized approximately $0.1 million and $0.2 million, respectively, of asset management fees. For the nine months ended September 30, 20222023 and 2021,2022, we recognized approximately $0.5 million and $0.7 million, respectively, of asset management fees. These fees are included in miscellaneous income in the accompanying Consolidated Statements of Operations.
NOTE 10 – GOODWILL AND OTHER INTANGIBLES
The following is a summary of our goodwill as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | |
|
| (in thousands) |
| (in thousands) | ||
Balance as of December 31, 2021 | | $ | 651,417 | |||
Balance as of December 31, 2022 | | $ | 643,151 | |||
Foreign currency translation | |
| (2,469) | |
| 184 |
Balance as of September 30, 2022 | | $ | 648,948 | |||
Balance as of September 30, 2023 | | $ | 643,335 |
The following is a summary of our intangibles as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | |
|
| September 30, | | December 31, | |
| September 30, | | December 31, | | ||||
|
| 2022 |
| | 2021 | |
| 2023 |
| | 2022 | | ||
| | (in thousands) | | | (in thousands) | | ||||||||
Assets: |
| |
|
| | | |
| |
|
| | | |
Above market leases | | $ | 5,929 | | $ | 5,929 | | | $ | 4,214 | | $ | 5,929 | |
Accumulated amortization | |
| (4,445) |
|
| (4,313) | | |
| (3,518) |
|
| (4,484) | |
Net above market leases | | $ | 1,484 | | $ | 1,616 | | | $ | 696 | | $ | 1,445 | |
| | | | | | | | | | | | | | |
Liabilities: | |
| |
|
| | | |
| |
|
| | |
Below market leases | | $ | 71,072 | | $ | 66,324 | | | $ | 51,956 | | $ | 66,433 | |
Accumulated amortization | |
| (47,093) |
|
| (38,091) | | |
| (39,111) |
|
| (44,595) | |
Net below market leases | | $ | 23,979 | | $ | 28,233 | | | $ | 12,845 | | $ | 21,838 | |
Above market leases, net of accumulated amortization, are included in other assets on our Consolidated Balance Sheets. Below market leases, net of accumulated amortization, are included in accrued expenses and other liabilities on our Consolidated Balance Sheets. The net amortization related to the above and below market leases is included in our Consolidated Statements of Operations as an adjustment to rental income.
For the three months ended September 30, 20222023 and 2021,2022, our net amortization related to intangibles was $1.0$2.1 million and $1.1$1.0 million, respectively. For the nine months ended September 30, 20222023 and 2021,2022, our net amortization related to intangibles was $3.6$8.9 million and $8.5$3.6 million, respectively. The estimated net amortization related to these intangibles for the remainder of 20222023 and the next four years is as follows: remainder of 2022 – $ 1.0 million; 2023 – $3.9$0.5 million; 2024 – $3.7$2.2 million; 2025 – $3.5$2.2 million; 2026 – $1.9 million and 20262027 – $2.7$1.6 million. As of September 30, 2022,2023, the weighted average remaining amortization period of above market lease assets is approximately ten14 years and below market lease liabilities is approximately seveneight years.
22
NOTE 11 – CONCENTRATION OF RISK
As of September 30, 2022,2023, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of 941913 healthcare facilities, located in 42 states and the U.K. and operated by 6570 third-party operators. Our investment in these facilities, net of impairments and allowances, totaled approximately $9.6$9.3 billion at September 30, 2022,2023, with approximately 97% of our real estate investments related to long-term healthcare facilities. Our portfolio is made up of (i) 650623 SNFs, 167189 ALFs, 2019 ILFs, 1618 specialty facilities and twoone medical office buildings,building, (ii) fixed rate mortgages on 4844 SNFs, twothree ALFs and two specialty facilities, and (iii) 3414 facilities that are held for sale. At September 30, 2022,2023, we also held other investmentsreal estate loans receivable (excluding mortgages) of approximately $608.2$488.3 million, consisting primarilynon-real estate loans receivable of secured loans to third-party operators of our facilities$245.0 million and $176.6$187.5 million of investments in sixnine unconsolidated joint ventures.
At26
As of September 30, 2023 and December 31, 2022, we had investments with two operatorsone operator or managersmanager that approximated or exceeded 10% of our total investments: Maplewood and LaVie.Maplewood. Maplewood generated approximately 9.3%6.9% and 7.9%9.3% of our total revenues (excluding the impact of write-offs) for the three months ended September 30, 20222023 and 2021,2022, respectively, and 7.2% and 9.1% of our total revenues for the nine months ended September 30, 2023 and 2022, respectively. During the three and nine months ended September 30, 2023, we also have one operator with total revenues (excluding the impact of write-offs) that exceeded 10% of our total revenues: CommuniCare Health Services, Inc. (“CommuniCare”). CommuniCare generated approximately 12.1% and 8.2% of our total revenues (excluding the impact of write-offs) for the three months ended September 30, 2023 and 2022, respectively, and 10.9% and 7.7% of our total revenues for the nine months ended September 30, 2023 and 2022, and 2021, respectively. LaVie generatedAs of September 30, 2023, CommuniCare represented approximately 11.5% and 9.3%9.0% of our total revenues for the three months endedinvestments.
As of September 30, 2022 and 2021, respectively, and 11.4% and 9.3% of our total revenues for the nine months ended September 30, 2022 and 2021, respectively.
At September 30, 2022,2023, the three states in which we had our highest concentration of investments were Florida (13.1%Texas (10.2%), Texas (10.3%Florida (8.9%) and Indiana (6.6%(6.8%).
NOTE 12 – STOCKHOLDERS’ EQUITY
$500 Million Stock Repurchase Program
On January 27, 2022,We had no share repurchases during the Company authorized the repurchase of up to $500 million of our outstanding common stock from time to time through March 2025. The Company is authorized to repurchase shares of its common stock in open marketthree and privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or in any other manner as determined by the Company’s management and in accordance with applicable law. The timing and amount of stock repurchases will be determined, in management’s discretion, based on a variety of factors, including but not limited to market conditions, other capital management needs and opportunities and corporate and regulatory considerations. The Company has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time. Under Maryland law, shares repurchased become authorized but unissued shares. The Company reduced the common stock at par value and to the extent the cost acquired exceeds par value, it is recorded through additional paid-in capital on our Consolidated Balance Sheets and Consolidated Statements of Equity.nine months ended September 30, 2023. The following is a summary of the shares repurchased for the three and nine months ended September 30, 2022 (in millions except average price per share):
| | | | | | |
| | | Average Price | | | |
| Period Ended | Shares Repurchased | Per Share(1) | Repurchase Cost(1) | ||
Three Months Ended | September 30, 2022 | — | $ | — | $ | — |
Nine Months Ended | September 30, 2022 | 5.2 | | 27.32 | | 142.3 |
(1) | Average price per share and repurchase cost includes the cost of commissions. |
Dividends
The following is a summary of our declared cash dividends on common stock:
| | | | | |
Record | | Payment | | Dividend per | |
Date |
| Date |
| Common Share | |
February 7, 2022 | | February 15, 2022 | | $ | 0.67 |
May 2, 2022 | | May 13, 2022 | | | 0.67 |
August 1, 2022 | | August 15, 2022 | | | 0.67 |
November 1, 2022 | | November 15, 2022 | | | 0.67 |
| | | | | |
Record | | Payment | | Dividend per | |
Date |
| Date |
| Common Share | |
February 6, 2023 | | February 15, 2023 | | $ | 0.67 |
May 1, 2023 | | May 15, 2023 | | | 0.67 |
July 31, 2023 | | August 15, 2023 | | | 0.67 |
October 31, 2023 | | November 15, 2023 | | | 0.67 |
Dividend Reinvestment and Common Stock Purchase Plan
The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and nine months ended September 30, 2023 and 2022 (in millions):
| | | | | |
| Period Ended | Shares issued | | Gross Proceeds | |
Three Months Ended | September 30, 2022 | 0.1 | | $ | 2.4 |
Three Months Ended | September 30, 2023 | 3.5 | | | 111.9 |
Nine Months Ended | September 30, 2022 | 0.3 | | | 7.0 |
Nine Months Ended | September 30, 2023 | 3.7 | | | 116.4 |
2327
Dividend Reinvestment and Common Stock Purchase Plan
The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and nine months ended September 30, 2022 and 2021 (in millions):
| | | | | |
| Period Ended | Shares issued | | Gross Proceeds | |
Three Months Ended | September 30, 2021 | 1.3 | | $ | 47.2 |
Three Months Ended | September 30, 2022 | 0.1 | | | 2.4 |
Nine Months Ended | September 30, 2021 | 3.3 | | | 124.5 |
Nine Months Ended | September 30, 2022 | 0.3 | | | 7.0 |
At-The-Market Offering Programs
The following is a summary of the shares issued under our former $500 million 2015$1.0 billion At-The-Market Offering Program (“2015 ATM Program”) and our current $1.0 billion 2021 At-The-Market Offering Program (“2021 ATM Program”) for the three and nine months ended September 30, 20222023 and 20212022 (in millions except average price per share):
| | | | | | | | | | | | | | | | | | | | | |
| | | Average Net Price | | | | | | | | | | Average Net Price | | | | | | | ||
| Period Ended | Shares issued | Per Share(1) | Gross Proceeds | Commissions | Net Proceeds | | Period Ended | Shares issued | Per Share(1) | Gross Proceeds | Commissions | Net Proceeds | ||||||||
Three Months Ended | September 30, 2021 | 0.1 | $ | 32.82 | $ | 1.3 | $ | 0.1 | $ | 1.2 | |||||||||||
Three and Nine Months Ended | | September 30, 2022 | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Three Months Ended | September 30, 2022 | — | | — | | — | | — | | — | | September 30, 2023 | 0.5 | | 30.46 | | 14.4 | | 0.2 | | 14.2 |
Nine Months Ended | September 30, 2021 | 4.2 | | 36.56 | | 155.1 | | 3.3 | | 151.8 | | September 30, 2023 | 7.0 | | 30.22 | | 213.8 | | 2.4 | | 211.4 |
Nine Months Ended | September 30, 2022 | — | | — | | — | | — | | — |
(1) | Represents the average price per share after commissions. |
We did not utilize the forward provisions under the 2021 ATM Program during the nine months ended September 30, 2022.
Accumulated Other Comprehensive Income (Loss)
The following is a summary of our accumulated other comprehensive income (loss), net of tax where applicable:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| As of and for the |
| As of and for the | | As of and for the |
| As of and for the | ||||||||||||||||
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Foreign Currency Translation: |
| |
|
| |
| | |
|
| |
| | |
|
| |
| | |
|
| |
|
Beginning balance | | $ | (79,670) | | $ | (13,608) | | $ | (24,012) | | $ | (18,427) | | $ | (51,948) | | $ | (79,670) | | $ | (85,004) | | $ | (24,012) |
Translation loss | |
| (45,873) | |
| (12,646) | |
| (100,253) | |
| (8,515) | | |||||||||||
Translation (loss) gain |
| (25,911) | |
| (45,873) | |
| 6,979 | |
| (100,253) | |||||||||||||
Realized (loss) gain | |
| (153) | |
| (18) | |
| (1,431) | |
| 670 | |
| (107) | |
| (153) | |
| 59 | |
| (1,431) |
Ending balance | |
| (125,696) | |
| (26,272) | |
| (125,696) | |
| (26,272) | |
| (77,966) | |
| (125,696) | |
| (77,966) | |
| (125,696) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Instruments: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Cash flow hedges: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Beginning balance | |
| 69,429 | |
| 33,352 | |
| 30,407 | |
| 17,718 | |
| 84,005 | |
| 69,429 | |
| 86,356 | |
| 30,407 |
Unrealized gain | |
| 16,499 | |
| 1,116 | |
| 53,481 | |
| 15,407 | | |||||||||||
Unrealized gain (loss) |
| 3,967 | |
| 16,499 | |
| (532) | |
| 53,481 | |||||||||||||
Realized gain(1) | |
| 1,074 | | | 779 | |
| 3,114 | | | 2,122 | |
| 1,074 | | | 1,074 | |
| 3,222 | | | 3,114 |
Ending balance | |
| 87,002 | |
| 35,247 | |
| 87,002 | |
| 35,247 | |
| 89,046 | |
| 87,002 | |
| 89,046 | |
| 87,002 |
Net investment hedges: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Beginning balance | |
| 12,920 | |
| (16,024) | |
| (9,588) | |
| (13,331) | |
| 9,578 | |
| 12,920 | |
| 18,634 | |
| (9,588) |
Unrealized gain | |
| 31,273 | |
| 7,637 | |
| 53,781 | |
| 4,944 | | |||||||||||
Unrealized gain (loss) |
| 7,384 | |
| 31,273 | |
| (1,672) | |
| 53,781 | |||||||||||||
Ending balance | |
| 44,193 | |
| (8,387) | |
| 44,193 | |
| (8,387) | |
| 16,962 | |
| 44,193 | |
| 16,962 | |
| 44,193 |
Total accumulated other comprehensive income before noncontrolling interest | |
| 5,499 | |
| 588 | |
| 5,499 | |
| 588 | |
| 28,042 | |
| 5,499 | |
| 28,042 | |
| 5,499 |
Add: portion included in noncontrolling interest | |
| 744 | |
| 888 | |
| 744 | |
| 888 | |
| 101 | |
| 744 | |
| 101 | |
| 744 |
Total accumulated other comprehensive income for Omega | | $ | 6,243 | | $ | 1,476 | | $ | 6,243 | | $ | 1,476 | | $ | 28,143 | | $ | 6,243 | | $ | 28,143 | | $ | 6,243 |
(1) | Recorded in interest expense on the Consolidated Statements of Operations. |
24
NOTE 13 – TAXES
Omega was organized, has operated and intends to continue to operate in a manner that enables Omega to qualify for taxation as a REIT under Sections 856 through 860 of the Code. On a quarterly and annual basis, we perform several analyses to test our compliance within the REIT taxation rules. If we fail to meet the requirements for qualification as a REIT in any tax year, we will be subject to federal income tax on our taxable income at regular corporate rates and may not be able to qualify as a REIT for the four subsequent years, unless we qualify for certain relief provisions that are available in the event we fail to satisfy any of the requirements.
28
We are also subject to federal taxation of 100% of the net income derived from the sale or other disposition of property, other than foreclosure property, that we held primarily for sale to customers in the ordinary course of a trade or business. We believe that we do not hold assets for sale to customers in the ordinary course of business and that none of the assets currently held for sale or that have been sold would be considered a prohibited transaction within the REIT taxation rules.
As a REIT under the Code, we generally will not be subject to federal income taxes on the REIT taxable income that we distribute to stockholders, subject to certain exceptions. In 2021,2022, we distributed dividends in excess of our taxable income.
We currently own stock in certain subsidiary REITs. These subsidiaries are required to individually satisfy all of the rules for qualification as a REIT. If we fail to meet the requirements for qualification as a REIT for any of these subsidiaries,the subsidiary REITs, it may cause Omega to fail the requirements for qualification as a REIT also.
We have elected to treat certain of our active subsidiaries as taxable REIT subsidiaries (“TRSs”). Our domestic TRSs are subject to federal, state and local income taxes at the applicable corporate rates. Our foreign TRSs are subject to foreign income taxes and may cause us to be subject to current-year income inclusion relating to ownership of a controlled foreign corporation for U.S. income tax purposes.
As of September 30, 2022,2023, one of our domestic TRSs that is subject to income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately $10.2$9.9 million. Our domestic NOL carry-forward was fullypartially reserved as of September 30, 2022,2023, with a valuation allowance due to uncertainties regarding realization. Under current law, NOL carry-forwards generated up through December 31, 2017, may be carried forward for no more than 20 years, and NOL carry-forwards generated in taxable years ended after December 31, 2017, may be carried forward indefinitely. We do not anticipate that such changes will materially impact the computation of Omega’s taxable income, or the taxable income of any Omega entity, including our TRSs.
Our foreign subsidiaries are subject to foreign income taxes and withholding taxes. As discussed in Note 2 – Real Estate Assets, in connection with the acquisition of September 30, 2023, one of our U.K. entity in the first quarter of 2022, we acquired foreign net operating losses of $55.0 million resulting insubsidiaries had a NOL deferred tax assetcarryforward of $13.4approximately $38.4 million. The NOLs have no expiration date and may be available to offset future taxable income. We believe these foreign NOLs are realizable under a “more likely than not” measurement and have not recorded a valuation allowance against the deferred tax asset.
25
TableThe majority of Contentsour U.K. portfolio elected to enter the U.K. REIT regime with an effective date of April 1, 2023. In connection with entering the U.K. REIT regime, we recognized several adjustments to our deferred tax balances in the first quarter of 2023 as summarized below.
The following is a summary of deferred tax assets and liabilities (which are recorded in other assets and accrued expenses and other liabilities respectively, in our Consolidated Balance Sheets):
| | | | | | | | | | | | |
| | September 30, | | December 31, | | September 30, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
| | (in thousands) | | (in thousands) | ||||||||
U.S. Federal net operating loss carryforward | | $ | 2,138 | | $ | 2,221 | | $ | 2,079 | | $ | 2,138 |
Valuation allowance on deferred tax asset | |
| (2,138) | |
| (2,221) | |
| (2,038) | |
| (2,138) |
Foreign net operating loss carryforward | | | 10,456 | | | — | | | 9,601 | | | 11,268 |
Foreign deferred tax liability (1) | |
| (5,331) | |
| (8,200) | |
| — | |
| (5,373) |
Net deferred tax asset (liability) | | $ | 5,125 | | $ | (8,200) | ||||||
Net deferred tax asset | | $ | 9,642 | | $ | 5,895 | ||||||
| | | | | | | ||||||
Foreign deferred tax liability (2) | | $ | 1,116 | | $ | — | ||||||
Net deferred tax liability | | $ | 1,116 | | $ | — |
(1) | The deferred tax liability primarily resulted from inherited basis differences resulting from our acquisition of entities in the U.K. Subsequent adjustments to these accounts result from GAAP to tax differences related to depreciation, indexation and revenue recognition. The foreign deferred tax liabilities were eliminated upon the majority of our U.K. portfolio entering the U.K. REIT regime. |
(2) | The deferred tax liability resulted from book to tax differences recorded in the U.S. relating to depreciation and revenue recognition in the U.K. recognized upon the majority of our U.K. portfolio entering the U.K. REIT regime. |
29
The following is a summary of our provision for income taxes:
| | | | | | | | | | | | | |||||||||||
| | Three Months Ended |
| Nine Months Ended | | | | | | | | | | | | ||||||||
|
| September 30, |
| September 30, | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | (in millions) | (in millions) | ||||||||||||||||||||
Provision for federal, state and local income taxes | | $ | 0.3 |
| $ | 0.4 |
| $ | 0.9 |
| $ | 1.0 | |||||||||||
Provision for foreign income taxes | | | 0.9 |
| | 0.6 |
| | 2.6 |
| | 1.9 | |||||||||||
Total provision for income taxes (1) | | $ | 1.2 | | $ | 1.0 | | $ | 3.5 | | $ | 2.9 | |||||||||||
Federal, state and local income tax expense | $ | 0.2 |
| $ | 0.3 |
| $ | 0.8 |
| $ | 0.9 | ||||||||||||
Foreign income tax expense | | 1.6 |
| | 0.9 |
| | 1.3 |
| | 2.6 | ||||||||||||
Total income tax expense (1) | $ | 1.8 | | $ | 1.2 | | $ | 2.1 | | $ | 3.5 |
(1) | The above amounts do not include gross income receipts or franchise taxes payable to certain states and municipalities. |
NOTE 14 – STOCK-BASED COMPENSATION
The following is a summary of our stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022, and 2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | | ||||||||||||||||
|
| September 30, |
| September 30, |
|
| September 30, |
| September 30, |
| ||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
|
| (in thousands) | |
| (in thousands) | | ||||||||||||||||||||
Stock-based compensation expense |
| $ | 6,809 |
| $ | 5,706 |
| $ | 20,515 |
| $ | 16,913 |
|
| $ | 8,756 | | $ | 6,809 |
| $ | 26,306 |
| $ | 20,515 |
|
Stock-based compensation expense is included within general and administrative expenses on our Consolidated Statements of Operations.
We granted 31,685 time-based restricted stock units (“RSUs”) and 170,294254,777 time-based profits interest units (“PIUs”) during the first quarter of 20222023 to certain officers and key employees, and those units vest on December 31, 20242025 (three years after the grant date), subject to continued employment and vesting in connection with certain other events.
We also granted 1,545,0702,049,878 performance-based PIUs during the first quarter of 20222023 to certain officers and key employees, which are earned based on the level of performance over the performance period (normally three years) and vest quarterly in the fourth year, subject to continued employment and vesting in connection with certain other events. We also granted 59,684 performance-based restricted stock units (“RSUs”) during the first quarter of 2023 to certain employees, which are earned based on the level of performance over the performance period (normally three years) and vest on December 31, 2025, subject to continued employment.
We granted 26,254 time-based PIUs and 25,224 time-based RSUs to directors during the second quarter of 2023, and those units vest on Omega’s 2024 annual meeting date, subject to the director’s continued service and vesting in connection with certain other events.
Time-based and performance-based grants made to named executive officers and key employees that meet certain conditions under the Company’s retirement policy (length of service, age, etc.) vest on an accelerated basis pursuant to the 2018 Stock Incentive Plan.
2630
NOTE 15 – BORROWING ACTIVITIES AND ARRANGEMENTS
The following is a summary of our borrowings:
| | | | | | | | | | | | | | | | | | | | | | |
|
| |
| Annual |
| | | | | | |
| |
| Annual |
| | | | | | |
| | | | Interest Rate | | | | | | | | | | | Interest Rate | | | | | | | |
| | | | as of | | | | | | | | | | | as of | | | | | | | |
| | | | September 30, | | | September 30, | | December 31, | | | | September 30, | | | September 30, | | December 31, | ||||
|
| Maturity |
| 2022 |
| | 2022 |
| 2021 |
| Maturity |
| 2023 |
| | 2023 |
| 2022 | ||||
|
| |
| |
| | (in thousands) |
| |
| |
| | (in thousands) | ||||||||
Secured borrowings: |
|
|
|
|
| | |
|
| |
|
|
|
|
|
| | |
|
| |
|
HUD mortgages(1)(2) | | 2046-2052 | | 3.01 | % | | $ | 346,606 | | $ | 359,806 | | 2046-2052 | | 3.00 | %(3) | | $ | 269,619 | | $ | 344,708 |
2023 term loan |
| 2023 |
| 6.75 | % | | | 2,161 | | | 2,275 |
| 2023 |
| N/A | | | | — | | | 2,161 |
2024 term loan |
| 2024 |
| 8.02 | % | | | 19,638 | | | — |
| 2024 |
| 10.83 | % | | | 19,996 | | | 19,727 |
Total secured borrowings | | | | | | | | 368,405 | | | 362,081 | | | | | | | | 289,615 | | | 366,596 |
| | | | | | | | | | | | | | | | | | | | | | |
Unsecured borrowings: |
|
|
|
| | |
|
| |
|
|
|
|
|
| | |
|
| |
|
|
Revolving credit facility |
| 2025 |
| 4.32 | % | |
| 17,861 | |
| — |
| 2025 |
| 6.63 | % | |
| 19,530 | |
| 19,246 |
| | | | | | | | | | | | | | | | | | | 19,530 | | | 19,246 |
Senior notes and other unsecured borrowings: | | | | | | | | | | | | | | | | | | | | | | |
2023 notes |
| 2023 |
| 4.375 | % | |
| 350,000 | |
| 350,000 |
| 2023 |
| N/A | | |
| — | |
| 350,000 |
2024 notes |
| 2024 |
| 4.950 | % | |
| 400,000 | |
| 400,000 |
| 2024 |
| 4.95 | % | |
| 400,000 | |
| 400,000 |
2025 notes |
| 2025 |
| 4.500 | % | |
| 400,000 | |
| 400,000 |
| 2025 |
| 4.50 | % | |
| 400,000 | |
| 400,000 |
2026 notes |
| 2026 |
| 5.250 | % | |
| 600,000 | |
| 600,000 |
| 2026 |
| 5.25 | % | |
| 600,000 | |
| 600,000 |
2027 notes |
| 2027 |
| 4.500 | % | |
| 700,000 | |
| 700,000 |
| 2027 |
| 4.50 | % | |
| 700,000 | |
| 700,000 |
2028 notes |
| 2028 |
| 4.750 | % | |
| 550,000 | |
| 550,000 |
| 2028 |
| 4.75 | % | |
| 550,000 | |
| 550,000 |
2029 notes |
| 2029 |
| 3.625 | % | |
| 500,000 | |
| 500,000 |
| 2029 |
| 3.63 | % | |
| 500,000 | |
| 500,000 |
2031 notes | | 2031 | | 3.375 | % | | | 700,000 | | | 700,000 | | 2031 | | 3.38 | % | | | 700,000 | | | 700,000 |
2033 notes | | 2033 | | 3.250 | % | | | 700,000 | | | 700,000 | | 2033 | | 3.25 | % | | | 700,000 | | | 700,000 |
OP term loan(7)(8) |
| 2025 |
| 4.57 | % | |
| 50,000 | |
| 50,000 | |||||||||||
2025 term loan(6)(9) | | 2025 |
| 5.60 | % | |
| 428,500 | |
| — | |||||||||||
OP term loan(10)(11) |
| 2025 |
| 5.52 | % | |
| 50,000 | |
| 50,000 | |||||||||||
Deferred financing costs – net |
|
|
| | | |
| (23,451) | |
| (26,980) |
|
|
| | | |
| (21,916) | |
| (22,276) |
Discount – net |
|
|
|
| | |
| (27,940) | |
| (31,565) |
|
|
|
| | |
| (24,457) | |
| (26,732) |
Total senior notes and other unsecured borrowings – net |
|
|
|
| | |
| 4,898,609 | |
| 4,891,455 |
|
|
|
| | |
| 4,982,127 | |
| 4,900,992 |
| | | | | | | | | | | | | | | | | | | | | | |
Total unsecured borrowings – net |
|
|
|
| | |
| 4,916,470 | |
| 4,891,455 |
|
|
|
| | |
| 5,001,657 | |
| 4,920,238 |
| | | | | | | | | | | | | | | | | | | | | | |
Total secured and unsecured borrowings – net(9)(10) |
|
|
|
| | | $ | 5,284,875 | | $ | 5,253,536 | |||||||||||
Total secured and unsecured borrowings – net(12)(13) |
|
|
|
| | | $ | 5,291,272 | | $ | 5,286,834 |
(1) | Reflects the weighted average annual contractual interest rate on the mortgages at September 30, |
(2) | Wholly owned subsidiaries of Omega OP are the |
(3) | Excludes fees of approximately 0.65% for mortgage insurance premiums. |
(4) | Borrowing |
Borrowing is the debt of the consolidated joint venture discussed in Note 8 – Variable Interest Entities which was formed in the first quarter of 2022. The borrowing is secured by two ALFs, which are owned by the joint venture. |
Guaranteed by Omega OP. |
During the second quarter of 2023, the Company transitioned its benchmark interest rate for its $1.45 billion senior unsecured multicurrency revolving credit facility from LIBOR to SOFR. As of September 30, |
On August 1, 2023, the Company repaid the $350 million of 4.375% senior notes that matured on August 1, 2023 using available cash. |
(9) | The weighted average interest rate of the $428.5 million 2025 term loan has been adjusted to reflect the impact of the interest rate swaps that effectively fix the SOFR-based portion of the interest rate at 4.047%. |
(10) | Omega OP is the obligor on this borrowing. |
All borrowings are direct borrowings of Parent unless otherwise noted. |
Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of September 30, |
2731
Unsecured Borrowings
2025 Term Loan
On August 8, 2023, Omega entered into a credit agreement (the “2025 Omega Credit Agreement”) providing it with a new $400 million senior unsecured term loan facility (the “2025 Term Loan”). The 2025 Omega Credit Agreement contains an accordion feature permitting us, subject to compliance with customary conditions, to increase the maximum aggregate commitments thereunder to $500 million by requesting an increase in the aggregate commitments under the 2025 Term Loan. On September 27, 2023, Omega exercised the accordion feature to increase the aggregate commitment under the 2025 Term Loan by $28.5 million. The 2025 Term Loan bears interest at SOFR plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit rating. The 2025 Term Loan matures on August 8, 2025, subject to Omega’s option to extend such maturity date for two sequential 12-month periods. We recorded $3.3 million of deferred financing costs and a $1.4 million discount in connection with the 2025 Omega Credit Agreement.
NOTE 16 – DERIVATIVES AND HEDGING
We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our investments in the U.K. and interest rate risk related to our capital structure. As a matter of policy, we do not use derivatives for trading or speculative purposes. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, interest rate swaps and debt issued in foreign currencies to offset a portion of these risks. As of September 30, 2022,2023, we have one interest rate swap with $50.0 million in notional value that was entered into during the second quarter of 2023 and 11 interest rate swaps with $428.5 million in notional value that were entered into during the third quarter of 2023 (discussed further below). The swaps are designated as cash flow hedges. Additionally, we have six foreign currency forward contracts with £250.0 million in notional value issued at a weighted average GBP-USD forward rate of 1.3641 that are designated as net investment hedges.
In August 2023, we entered into ten interest rate swaps with $400.0 million in notional value. The swaps are effective August 14, 2023 and terminate on August 6, 2027. The interest rate swaps are designated as hedges against our exposure to changes in interest payment cash flows as a result of the variable interest rate on the 2025 Term Loan. The interest rate swap contracts effectively convert our $400.0 million 2025 Term Loan to an aggregate fixed rate of approximately 5.565%. In September 2023, in connection with the exercise of the accordion feature on the 2025 Term Loan, we entered into one additional interest rate swap with $28.5 million in notional value to hedge the additional $28.5 million under the 2025 Term Loan. This swap is effective September 29, 2023 and terminates on August 6, 2027. These 11 interest rate swap contracts effectively convert our $428.5 million 2025 Term Loan to a new combined aggregate fixed rate of approximately 5.597% through its maturity. The effective fixed rate achieved by the combination of the 2025 Omega Credit Agreement and the interest rate swaps could fluctuate up by 40 basis points or down by 60 basis points based on future changes to our credit ratings.
In June 2023, we entered into an interest rate swap with a notional amount of $50.0 million. The swap is effective June 30, 2023 and terminates on April 30, 2027. This interest rate swap is designated as a hedge against our exposure to changes in interest payment cash flow fluctuations in the variable interest rates on the OP Term Loan. The interest rate swap contract effectively converts our $50.0 million OP Term Loan to an aggregate fixed rate of approximately 5.521% through its maturity. The effective fixed rate achieved by the combination of the 2021 Omega OP Credit Agreement and the interest rate swaps could fluctuate up by 40 basis points or down by 60 basis points based on future changes to our credit ratings.
32
In March 2020, we entered into five forward starting swaps with $400.0$400 million in notional value, indexed to 3-month LIBOR, that were issued at a weighted average fixed rate of 0.8675% and arewere subsequently designated as cash flow hedges. Additionally,In conjunction with the October 2020 issuance of $700 million of 3.375% Senior Notes due 2031 and the March 2021 issuance of $700 million of 3.25% Senior Notes due 2033, we have six foreign currencyapplied hedge accounting for these five forward contractsstarting swaps and began amortization. Simultaneously with £250.0these issuances, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments for a future forecasted issuance of long-term debt. As a result of these transactions, the aggregate unrealized gain of $41.2 million in notional valued issued($9.5 million gain related to the October 2020 issuance and $31.7 million gain related to the March 2021 issuance) included within accumulated other comprehensive income at the time of the bond issuances is being ratably reclassified as a weighted average GBP-USD forward rate of 1.3641 (including the two new foreign currency forwards discussed below) that are designated asreduction to interest expense, net investment hedges.
over 10 years. On May 17, 2022, we entered into two new foreign currency30, 2023, the five forward contractsstarting swaps were terminated, and Omega received a net cash settlement of $92.6 million from the swap counterparties. The incremental $51.4 million of gains related to the forward swaps, recorded in accumulated other comprehensive income, were frozen at the time of termination and will be recognized ratably over 10 years in earnings when the next qualifying debt issuance occurs. Consistent with notional amounts totaling £76.0our accounting policy and historical practice, the $92.6 million and a GBP-USDnet cash settlement from the forward rate of 1.3071, each of which mature on May 21, 2029. These currency forward contracts hedge a portion of ourswap termination is reflected within net investmentscash used in U.K. subsidiaries and our U.K. joint venture.
On February 10, 2022, two of our interest rate swaps that we entered into in May 2019 with aggregate notional amounts of $50.0 million matured. These interest rate swap contracts were designated as hedges against our exposure to changes in interest payment cash flow fluctuationsfinancing activities in the variable interest rates on the OP term loan.Consolidated Statements of Cash Flows.
The location and fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:
| | | | | | | | | ||
| September 30, | | December 31, | September 30, | | December 31, | ||||
| 2022 |
| 2021 | 2023 |
| 2022 | ||||
Cash flow hedges: | (in thousands) | (in thousands) | ||||||||
Other assets | $ | 92,561 | | $ | 32,849 | $ | 6,410 | | $ | 92,990 |
Accrued expenses and other liabilities | $ | — | | $ | 96 | $ | 83 | | $ | — |
| | | | | | | | | ||
Net investment hedges: | | | | | | | | | ||
Other assets | $ | 60,536 | | $ | 6,754 | $ | 33,304 | | $ | 34,977 |
The fair value of the forward starting swapsinterest rate swap and foreign currency forwards is derived from observable market data such as yield curves and foreign exchange rates and represents a Level 2 measurement on the fair value hierarchy.
NOTE 17 – FINANCIAL INSTRUMENTS
The net carrying amount of cash and cash equivalents, restricted cash, contractual receivables, other assets and accrued expenses and other liabilities reported in the Consolidated Balance Sheets approximates fair value because of the short maturity of these instruments (Level 1).
2833
At September 30, 20222023 and December 31, 2021,2022, the net carrying amounts and fair values of our other financial instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 | ||||||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair | ||||||||
|
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value | ||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in direct financing leases – net | | $ | 10,560 | | $ | 10,560 |
| $ | 10,873 | | $ | 10,873 | | $ | 8,984 | | $ | 8,984 |
| $ | 8,503 | | $ | 8,503 |
Mortgage notes receivable – net | |
| 669,533 | | | 671,387 | | | 835,086 | | | 869,715 | ||||||||||||
Other investments – net | |
| 608,190 | | | 614,646 | | | 469,884 | | | 476,664 | ||||||||||||
Real estate loans receivable – net | |
| 1,121,460 | | | 1,130,144 | | | 1,042,731 | | | 1,080,890 | ||||||||||||
Non-real estate loans receivable – net | |
| 245,001 | | | 246,587 | | | 225,281 | | | 228,498 | ||||||||||||
Total | | $ | 1,288,283 | | $ | 1,296,593 | | $ | 1,315,843 | | $ | 1,357,252 | | $ | 1,375,445 | | $ | 1,385,715 | | $ | 1,276,515 | | $ | 1,317,891 |
Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Revolving credit facility | | $ | 17,861 | | $ | 17,861 |
| $ | — | | $ | — | | $ | 19,530 | | $ | 19,530 |
| $ | 19,246 | | $ | 19,246 |
2023 term loan | | | 2,161 | | | 2,161 | | | 2,275 | | | 2,275 | | | — | | | — | | | 2,161 | | | 2,275 |
2024 term loan | |
| 19,638 | | | 19,750 | | | — | | | — | |
| 19,996 | | | 19,750 | | | 19,727 | | | 19,750 |
2025 term loan | | | 424,075 | | | 428,500 | | | — | | | — | ||||||||||||
OP term loan | |
| 49,737 | | | 50,000 | | | 49,661 | | | 50,000 | |
| 49,839 | | | 50,000 | | | 49,762 | | | 50,000 |
4.375% notes due 2023 – net | |
| 349,527 | | | 348,366 | | | 349,100 | | | 365,243 | ||||||||||||
4.38% notes due 2023 – net | |
| — | | | — | | | 349,669 | | | 347,998 | ||||||||||||
4.95% notes due 2024 – net | |
| 398,483 | | | 395,592 | | | 397,725 | | | 427,184 | |
| 399,494 | | | 397,164 | | | 398,736 | | | 394,256 |
4.50% notes due 2025 – net | |
| 398,256 | | | 389,844 | | | 397,685 | | | 427,440 | |
| 399,017 | | | 388,736 | | | 398,446 | | | 388,920 |
5.25% notes due 2026 – net | |
| 597,671 | | | 580,884 | | | 597,142 | | | 667,524 | |
| 598,377 | | | 584,766 | | | 597,848 | | | 589,104 |
4.50% notes due 2027 – net | |
| 693,472 | | | 649,523 | | | 692,374 | | | 766,003 | |
| 694,936 | | | 652,113 | | | 693,837 | | | 657,468 |
4.75% notes due 2028 – net | |
| 544,664 | | | 504,383 | | | 543,908 | | | 607,249 | |
| 545,672 | | | 508,997 | | | 544,916 | | | 507,425 |
3.625% notes due 2029 – net | | | 491,588 | | | 406,855 | | | 490,681 | | | 519,430 | ||||||||||||
3.375% notes due 2031 – net | | | 684,935 | | | 533,484 | | | 683,592 | | | 705,810 | ||||||||||||
3.63% notes due 2029 – net | | | 492,797 | | | 416,805 | | | 491,890 | | | 411,090 | ||||||||||||
3.38% notes due 2031 – net | | | 686,725 | | | 547,253 | | | 685,382 | | | 540,386 | ||||||||||||
3.25% notes due 2033 – net | | | 690,276 | | | 493,640 | | | 689,587 | | | 683,151 | | | 691,195 | | | 512,260 | | | 690,506 | | | 507,976 |
HUD mortgages – net | | | 346,606 | | | 269,508 | | | 359,806 | | | 394,284 | | | 269,619 | | | 185,705 | | | 344,708 | | | 266,161 |
Total | | $ | 5,284,875 | | $ | 4,661,851 | | $ | 5,253,536 | | $ | 5,615,593 | | $ | 5,291,272 | | $ | 4,711,579 | | $ | 5,286,834 | | $ | 4,702,055 |
Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument (see Note 2 – Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2021)2022). The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts.
The following methods and assumptions were used in estimating fair value disclosures for financial instruments.
● |
● |
● | Revolving credit facility, OP term loan, 2023 term loan, 2024 term loan and |
● | Senior notes: The fair value of the senior unsecured notes payable was estimated based on (Level 1) publicly available trading prices. |
34
● | HUD mortgages: The fair value of our borrowings under HUD debt agreements are estimated using an expected present value technique based on quotes obtained by HUD debt brokers (Level 2). |
29
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Litigation
Shareholder Litigation
The Company and certain of its officers, C. Taylor Pickett, Robert O. Stephenson, and Daniel J. Booth, arewere named as defendants in a purported securities class action lawsuit pending in the U.S. District Court for the Southern District of New York (the “Securities Class Action”). Brought by lead plaintiff Royce Setzer and additional plaintiff Earl Holtzman, the Securities Class Action purportspurported to assert claims for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act, and seekssought monetary damages, interest, fees and expenses of attorneys and experts, and other relief. The Securities Class Action allegesalleged that the defendants violated the Exchange Act by making materially false and/or misleading statements, and by failing to disclose material adverse facts about the Company’s business, operations, and prospects, including the financial and operating results of one of the Company’s operators, the ability of such operator to make timely rent payments, and the impairment of certain of the Company’s leases and the uncollectibility of certain receivables. The initial complaint was dismissed with prejudice by the U.S. District Court, but the dismissal was overturned by the U.S. Court of Appeals for the Second Circuit in 2020. Thereafter, the plaintiffs filed a Second Consolidated Amended Complaint in August 2020. In November 2020, the Company and the officers named in the Securities Class Action filed a Motion to Dismiss the Second Consolidated Amended Complaint. On September 28, 2021, the Court issued an order denying the motion to dismiss insofar as it requested dismissal of the entire action on grounds of loss causation, and granting it insofar as it sought dismissal of any claims arising out of defendants’ statements in February 2017. Because the dismissed claims were the basis for defendants’ efforts to begin the alleged class period in February 2017, the decision means that the alleged class period runs from May 3, 2017 to October 31, 2017.
Following a mediation, the plaintiffs and defendants reachedexecuted a stipulation of settlement dated December 9, 2022 (“Settlement”), which provided for dismissal and release of all claims against the defendants by a class of persons and/or entities who purchased or otherwise acquired Company securities from February 8, 2017 through October 31, 2017 without any admission of wrongdoing or liability on the part of the Company or the individual defendants. On April 25, 2023, following notice to class members and a hearing, the Court entered judgment approving the Settlement, which became effective May 25, 2023, upon the expiration of the period for appealing the Court’s judgment. Upon the effective date of the Settlement, the Settlement payment of $30.75 million was permitted to be transmitted from an agreement in principle in October 2022 onescrow account funded by the Company’s directors and officers insurers to a settlement fund to be distributed to class members by a third party administrator. In the second quarter of 2023, after the Securities Class Action. The Company fulfilled all of its obligations pursuant to the Court-approved Settlement, the Company reversed the previously recorded a $31 million legal reserve, related to the Securities Class Action in the third quarter of 2022, which iswas included within accrued expenses and other liabilities on the Consolidated Balance Sheets. AsSheets, and the Company anticipates thatrelated $31 million receivable related to the settlement proceeds will be paid by insurance we concurrently recorded a receivable for $31 millionreimbursement, which was included within other assets on the Consolidated Balance Sheet, and consequently there is no impact to the Consolidated Statement of Operations related to this matter. The settlement agreement in principle is subject to negotiation of a definitive settlement agreement, and also subject to the approval of the District Court. The District Court has suspended deadlines under the Scheduling Order in the case, pending a definitive agreement and the court approval process.Sheets.
Certain derivative actions have also been brought against the officers named in the Securities Class Action, and certain current and former directors of the Company, alleging claims relating to the matters at issue in the Securities Class Action. These derivative actions are currently stayed pending certain developments in the Securities Class Action.
In 2018, Stourbridge Investments LLC, a purported stockholder of the Company, filed a derivative action purportedly on behalf of the Company in the U.S. District Court for the Southern District of New York, alleging violations of Section 14(a) of the Exchange Act and state-law claims including breach of fiduciary duty. The complaint alleges, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna Health Systems (“Orianna”), the alleged non-disclosures that arewere also the subject of the Securities Class Action described above. The plaintiff did not make a demand on the Company to bring the action prior to filing it, but rather alleges that demand would have been futile. The case has been stayed pending the entry of judgment or a voluntary dismissal with prejudice in the Securities Class Action.
30
In 2019, purported stockholder Phillip Swan by his counsel, and stockholders Tom Bradley and Sarah Smith by their counsel, filed derivative actions in the Baltimore City Circuit Court of Maryland, purportedly on behalf of the Company, asserting claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment against the named defendants. The complaints allege, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna. Those actions have been consolidated and stayed in the Maryland court pending completion of fact discovery in the Securities Class Action.were consolidated. Prior to filing suit, each of these stockholders had made demands on the Board of Directors in 2018 that the Company bring such lawsuits. After an investigation and due consideration, and in the exercise of its business judgment, the Board of Directors determined that it is not in the best interests of the Company to commence litigation against any current or former officers or directors based on the matters raised in the demands.
35
In addition, in late 2020, Robert Wojcik, a purported shareholder of the Company, filed a derivative action in the U.S. District Court for the District of Maryland, purportedly on behalf of the Company, asserting violations of Section 14(a) of the Exchange Act, Sections 10(b) and 21D of the Exchange Act, as well as claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The complaint alleges, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna, as well as certain alleged discriminatory conduct and lack of diversity concerning the Company. Wojcik also did not make a demand on the Company prior to filing suit. The case has been stayed pending the entry of judgment or a voluntary dismissal with prejudice in the Securities Class Action.
The Company believesand individual defendants have reached an agreement in principle with each of the derivative plaintiffs to resolve these derivative actions, as reflected by written memoranda of understanding. The proposed settlements contemplate the Company’s adoption of certain non-monetary corporate governance enhancements and initiatives. The parties are currently negotiating formal stipulations of settlement that will incorporate the claims asserted against it in these lawsuitssubstantive terms of the memoranda of understanding and detail the proposed settlements’ operational terms, which will be subject to court approval. The settlements are without merit.any admission of the allegations in the complaints, which the defendants deny.
Other
Gulf Coast Subordinated Debt
In August 2021, we filed suit in the Circuit Court for Baltimore County (the “Court”) against the holders of certain Subordinated Debt (the “Debt Holders”) associated with our Gulf Coast master lease agreement, following an assertion by the holdersDebt Holders that our prior exercise of offset rights in connection with Gulf Coast’s non-payment of rent had resulted in defaults under the terms of the Subordinated Debt. The suit seeks a declaratory judgment to, among other items, declare that the aggregate amount of unpaid rent due from Gulf Coast under the master lease agreement exceeds all amounts which otherwise would be due and owing by an indirect subsidiary of Omega (“Omega Obligor”) under the Subordinated Debt, and that all principal and interest due and owing under the Subordinated Debt may be (and was) offset in full as of December 31, 2021. In October 2021, the defendants in the caseDebt Holders filed a motion to dismiss for lack of personal jurisdiction. On November 2,3, 2022, the Court indicated its intention to grantgranted the noteholders’Debt Holders’ motion to dismiss for lack of personal jurisdiction. A decision has not been made whether tojurisdiction, and Omega filed a timely appeal this order, if it is issued.of the ruling. While Omega believes Omega Obligor is entitled to the enforcement of the offset rights sought in the action, Omega cannot predict the outcome of the declaratory judgment action, irrespective of whether (a) it is ultimately litigated in the Court if Omega Obligor prevails in its appeal or (b) if the order granting the motion to dismiss for lack of personal jurisdiction is issued,affirmed and the issues are litigated in the Delaware Court (as defined below).
On or if it is issued and upheld on appealabout January 19, 2023, the Debt Holders served a lawsuit against the Omega Obligor in another court.
Lakeway Realty, L.L.C.
In September 2016, MedEquities received a Civil Investigative Demand (“CID”) from the U.S. Department of Justice (“DOJ”), which indicates that it is conducting an investigation regarding alleged violationsSuperior Court of the False Claims Act, Stark LawState of Delaware (the “Delaware Court”), asserting claims for (i) breach of the instruments evidencing the Subordinated Debt, (ii) declaratory judgment, and Anti-Kickback Statute(iii) unjust enrichment, all claims that are factually based on the claims that are the subject of Omega Obligor’s suit in the Court and that are now on appeal. On February 8, 2023, Omega Obligor filed a motion to dismiss or, in the alternative, to stay this action pending the outcome of the above-referenced lawsuit in Maryland. On July 10, 2023, the Delaware state court case stayed the proceeding pending further developments in the Maryland litigation. Omega believes that the claims are baseless and is evaluating procedural and substantive legal options in connection with claims that may have been submitted to Medicare and other federal payors for services rendered to patients at Lakeway Hospital or by providers with financial relationships with Lakeway Hospital. As a result of the acquisition of MedEquities, the Company owns a 51% interest in an unconsolidated limited liability company that owns Lakeway Hospital, Lakeway Realty, L.L.C. The CID requested certain documents and information relatedthis recently filed suit to the acquisition and ownership of Lakeway Hospital through Lakeway Realty, L.L.C. The Company has learned thatextent the DOJstay is investigating, among other items, MedEquities’ conduct in connection with its investigation of financial relationships related to Lakeway Hospital, including allegations by the DOJ that these relationships violate and continue to violate the Anti-Kickback Statute and, as a result, related claims submitted to federal payors violated and continue to violate the False Claims Act. The Company is cooperating fully with the DOJ in connection with the CID and has produced all of the information that has been requested to date.
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On September 29, 2020, the Department of Justice announced it had reached a settlement of a False Claims Act case with Lakeway Regional Medical Center wherein Lakeway Regional Medical Center agreed to pay $1.1 million for inducing certain physicians to refer patients by offering a low risk and high return investment in the form of a joint venture to purchase and then lease back the hospital to Lakeway Regional Medical Center. A MedEquities subsidiary was a party to this transaction but was not included in settlement discussions, and we understand that the settlement did not fully resolve the investigation referenced in the CID. The documents relating to the settlement are not publicly available.
While the Company believes that the acquisition, ownership and leasing of Lakeway Hospital through the Lakeway Partnership was and is in compliance with all applicable laws, in the second quarter of 2022, the Company recorded a $3.0 million legal reserve related to this matter which is included within accrued expenses and other liabilities on the Consolidated Balance Sheets with the related expense included in other (expense) income – net on the Consolidated Statements of Operations.
Other
In addition to the matters above, we are subject to various other legal proceedings, claims and other actions arising out of the normal course of business. While any legal proceeding or claim has an element of uncertainty, management believes that the outcome of each lawsuit, claim or legal proceeding that is pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial position or results of operations.
36
Indemnification Agreements
In connection with certain facility transitions, we have agreed to indemnify certain operators in certain events. As of September 30, 2022,2023, our maximum funding commitment under these indemnification agreements was approximately $3.9$9.1 million. Claims under these indemnification agreements generally may be made within 18 months to 72 months of the transition date. These indemnification agreements were provided to certain operators in connection with facility transitions and generally would be applicable in the event that the prior operators do not perform under their transition agreements.
Commitments
We have committed to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments. We expect the funding of these commitments to be completed over the next several years. Our remaining commitments at September 30, 2022,2023, are outlined in the table below (in thousands):
| | | | | |
| | | | ||
Construction and capital expenditure mortgage loan commitments |
| $ | 10,381 | | |
Lessor construction and capital commitments under lease agreements | |
| 189,757 | | |
Other investment loan commitments (1) | |
| 88,004 | | |
Total remaining commitments (2) | | $ | 288,142 | | |
| | | | | |
| | | | ||
Lessor construction and capital commitments under lease agreements | | $ | 194,048 | | |
Non-real estate loan commitments | |
| 43,143 | | |
Other real estate loan commitments | |
| 51,003 | | |
Construction and capital expenditure mortgage loan commitments |
| | 5,946 | | |
Total remaining commitments (1) | | $ | 294,140 | | |
(1) |
Includes finance costs. |
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NOTE 19 – EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
|
| September 30, |
| September 30, | |
| September 30, |
| September 30, | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | (in thousands, except per share amounts) | | | (in thousands, except per share amounts) | ||||||||||||||||||||
Numerator: |
| |
|
| |
| | |
|
| |
| |
| |
|
| |
| | |
|
| |
|
Net income | | $ | 105,064 | | $ | 142,835 | | $ | 392,135 | | $ | 394,064 | | ||||||||||||
Deduct: net income attributable to noncontrolling interests | |
| (2,790) | |
| (3,888) | | | (10,787) | |
| (10,616) | | ||||||||||||
Net income available to common stockholders | | $ | 102,274 | | $ | 138,947 | | $ | 381,348 | | $ | 383,448 | | ||||||||||||
Net income available to common stockholders – basic | | $ | 91,381 | | $ | 102,274 | | $ | 187,179 | | $ | 381,348 | |||||||||||||
Add: net income attributable to OP Units | |
| 2,647 | |
| 2,790 | | | 5,462 | |
| 10,787 | |||||||||||||
Net income available to common stockholders – diluted | | $ | 94,028 | | $ | 105,064 | | $ | 192,641 | | $ | 392,135 | |||||||||||||
Denominator: | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
|
|
Denominator for basic earnings per share | |
| 234,788 | |
| 239,282 | |
| 236,721 | |
| 236,027 | | |
| 245,033 | |
| 234,788 | |
| 238,740 | |
| 236,721 |
Effect of dilutive securities: | |
| | |
| | | �� | | |
| | | |
| | |
| | |
| | |
| |
Common stock equivalents | |
| 1,744 | |
| 634 | |
| 1,138 | |
| 903 | | |
| 3,825 | |
| 1,744 | |
| 2,701 | |
| 1,138 |
Noncontrolling interest – Omega OP Units | |
| 6,752 | |
| 6,701 | |
| 6,863 | |
| 6,547 | | |
| 7,097 | |
| 6,752 | |
| 6,974 | |
| 6,863 |
Denominator for diluted earnings per share | |
| 243,284 | |
| 246,617 | |
| 244,722 | |
| 243,477 | | |
| 255,955 | |
| 243,284 | |
| 248,415 | |
| 244,722 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per share – basic: | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
|
|
Net income available to common stockholders | | $ | 0.44 | | $ | 0.58 | | $ | 1.61 | | $ | 1.62 | | | $ | 0.37 | | $ | 0.44 | | $ | 0.78 | | $ | 1.61 |
Earnings per share – diluted: | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| |
Net income | | $ | 0.43 | | $ | 0.58 | | $ | 1.60 | | $ | 1.62 | | ||||||||||||
Net income available to common stockholders | | $ | 0.37 | | $ | 0.43 | | $ | 0.78 | | $ | 1.60 |
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NOTE 20 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
The following are supplemental disclosures to the Consolidated Statements of Cash Flows for the nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | |
|
| Nine Months Ended September 30, | |
| Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||
|
| (in thousands) | |
| (in thousands) | | ||||||||
Reconciliation of cash and cash equivalents and restricted cash: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 134,855 | | $ | 102,664 | | | $ | 554,705 | | $ | 134,855 | |
Restricted cash | |
| 3,323 | |
| 3,341 | | |
| 3,212 | |
| 3,323 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 138,178 | | $ | 106,005 | | | $ | 557,917 | | $ | 138,178 | |
| | | | | | | | | | | | | | |
Supplemental information: | |
| | |
| | | |
| | |
| | |
Interest paid during the period, net of amounts capitalized | | $ | 171,057 | | $ | 166,934 | | | $ | 178,101 | | $ | 171,057 | |
Taxes paid during the period | | $ | 4,627 | | $ | 5,028 | | | $ | 2,120 | | $ | 4,627 | |
| | | | | | | | | | | | | | |
Non-cash investing activities: | |
|
| |
|
| | |
|
| |
|
| |
Non-cash acquisition of real estate | | $ | (9,818) | | $ | (49,857) | | | $ | — | | $ | (9,818) | |
Non-cash placement of mortgages | | $ | — | | $ | (7,000) | | |||||||
Non-cash collection of mortgage principal | | $ | — | | $ | 49,587 | | |||||||
Non-cash proceeds from other investments | | $ | — | | $ | 7,000 | | |||||||
| | | | | | | | | | | | | | |
Non-cash financing activities: | |
|
| |
|
| | |
|
| |
|
| |
Non-cash contribution from noncontrolling interest holder in consolidated joint venture | | $ | 2,903 | | $ | — | | |||||||
Change in fair value of cash flow hedges | | $ | 113,590 | | $ | 28,450 | | |||||||
Non-cash contribution from noncontrolling member of consolidated joint venture | | $ | — | | $ | 2,903 | | |||||||
Change in fair value of hedges | | $ | 4,242 | | $ | 113,590 | | |||||||
Remeasurement of debt denominated in a foreign currency | | $ | (5,462) | | $ | 3,010 | | | $ | 283 | | $ | (5,462) | |
33
NOTE 21 – SUBSEQUENT EVENTS
In the fourth quarter of 2022, the Company entered into three unsecured loans with principal amounts of $17.0 million, $2.5October 2023, we acquired one facility in Maryland for $22.5 million and $5.0 million.amended a lease with an existing operator to add the acquired facility. The $17initial annual cash yield is approximately 10%, 2% of which can be deferred and includes annual escalators of 2.5%.
In October 2023, we funded a $29.5 million mortgage loan and $2.5 milliona $8.7 mezzanine loan bear interest at 9% and mature on September 30, 2027.to a new operator for the purpose of acquiring two Pennsylvania facilities. The $5.0 millionmortgage loan bears interest at 10% and matures on October 1, 2026. The mezzanine loan bears interest at 7% and matures on October 1, 2028. Interest is payable monthly in arrears for both loans; however, under certain conditions prior to August 31, 2025, the borrower can elect to pay a portion of interest as PIK interest for both loans. The maximum PIK interest allowable under the mortgage loan and mezzanine loan is $3.0 million and $0.6 million, respectively. The loans are secured by first and second mortgage liens on the two facilities.
Subsequent to quarter end, an additional 29 2027. All three loans require quarterly principal payments commencing on January 3, 2022.
As discussed in Note 3 – Assets Held For Sale, Dispositions and Impairments and Note 4 – Contractual Receivables and Other Receivables and Lease Inducements, infacilities previously leased to LaVie met the fourth quarter of 2022criteria to be classified as held for sale. In November 2023, we sold 19these facilities that were leasedfor $305.2 million in purchase consideration, which consisted of gross cash proceeds of $91.9 million and operatedan aggregate $213.3 million pay-off made by Agemo in connectionthe buyer, on Omega’s behalf, of the outstanding principal and accrued interest on 22 HUD mortgages on the sold properties. Concurrent with our restructuring negotiations surrounding Agemo’sthe sale, the Company amended the master lease and loan agreements.with LaVie to reduce monthly rent to $3.4 million.
3438
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors Affecting Future Results
Unless otherwise indicated or except where the context otherwise requires, the terms “we,” “us” and “our” and other similar terms in this Quarterly Report on Form 10-Q refer to Omega Healthcare Investors, Inc. and its consolidated subsidiaries.
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this document. This document contains “forward-looking statements” within the meaning of the federal securities laws. These statements relate to our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, performance and underlying assumptions and other statements other than statements of historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology including, but not limited to, terms such as “may,” “will,” “anticipates,” “expects,” “believes,” “intends,” “should” or comparable terms or the negative thereof. These statements are based on information available on the date of this filing and only speak as to the date hereof and no obligation to update such forward-looking statements should be assumed.
Our actual results may differ materially from those reflected in the forward-looking statements contained herein as a result of a variety of factors, including, among other things:
(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 |
(4) | additional regulatory and other changes in the healthcare sector, including proposed federal minimum staffing requirements for SNFs that may further exacerbate labor and occupancy challenges for our operators; |
(5) | the ability of our operators in bankruptcy to reject unexpired lease obligations, modify the terms of our mortgages and impede our ability to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor’s obligations, and other costs and uncertainties associated with operator bankruptcies; |
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; |
the availability and cost of capital to us; |
changes in our credit ratings and the ratings of our debt securities; |
competition in the financing of healthcare facilities; |
competition in the long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs; |
(11) | changes in the financial position of our operators; |
(12) | the effect of economic and market conditions generally and, particularly, in the healthcare industry; |
(13) | changes in interest rates and the impact of inflation; |
(14) | the timing, amount and yield of any additional investments; |
(15) | changes in tax laws and regulations affecting real estate investment trusts (“REITs”); |
(16) | the potential impact of changes in the SNF and ALF markets or local real estate conditions on our ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to redeploy the proceeds therefrom on favorable terms; |
(17) | our ability to maintain our status as a REIT; and |
(18) | 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. |
3539
Summary
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:
● | Business Overview |
● | Outlook, Trends and Other Conditions |
● | Government Regulation and Reimbursement |
● | Third Quarter of 2023 and Recent Highlights |
● | Results of Operations |
● | Funds from Operations |
● | Liquidity and Capital Resources |
● | Critical Accounting Policies and Estimates |
Business Overview
Omega Healthcare Investors, Inc. (“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega” or “Company”) 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, OHI Healthcare Properties Limited Partnership (collectively with its subsidiaries, “Omega OP”). As of September 30, 2022,2023, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.
Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”). Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on SNFs, ALFs, and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings. Our core portfolio consists of our long-term leases and mortgagereal estate loans with healthcare operating companies and affiliates (collectively, our “operators”). AllReal estate loans consist of our mortgages are secured by first liens on the underlyingmortgage loans and other real estate and personal propertyloans which are primarily collateralized by a first, second or third mortgage lien or a leasehold mortgage on, or an assignment of the operators.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 other investments.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.
COVID-19 Pandemic UpdateOutlook, Trends and Other Conditions
The COVID-19 pandemic has continued to significantly and adversely impactimpacted 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. As a result, many ofIn addition, the pandemic contributed to occupancy declines, labor shortages and cost increases which continue to significantly impact our operators have been and may continue to be significantly impacted by the pandemic.post-pandemic. As discussed further in “Collectibility Issues” below, during the year we have had several operators that have failed to make contractual payments under their lease and loan agreements, and we have agreed to short-term deferrals, lease and portfolio restructurings and/or allowed the application of security deposits or letters of credit to pay rent for several operators.
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We believe these operators were impacted by, among other things, reduced revenue as a result of lower occupancy, and increased expenses, resulting from the COVID-19 pandemic and uncertainties regarding adequate reimbursement levels, and changes to government and regulatory financial support. The expense increases were offset to some extent by enhanced reimbursement due to skilling in place, which was permitted via waiver during the continuing availabilitypandemic, but which was discontinued when the federally declared public health emergency expired on May 11, 2023. We believe the expense increases primarily stem from elevated labor costs, including increased use of sufficient government support. overtime and bonus pay and reliance on agency staffing due to labor shortages, as well as implementation of new infection control protocols. In addition, operators who do not achieve full compliance with applicable infection control requirements may face potential survey deficiencies and penalties. At this time, there is uncertainty regarding the ultimate impact of such developments.
We remain cautious as the COVID-19 pandemic continuessome of these factors may continue to have a significant impact on our operators and their financial conditions, particularly given the trend of reduced pandemic-related federal support to our operators beginning in 2021, the persistence of staffing shortages that continue to impact our operators’ occupancy levels and profitability, uncertainty as to whether Medicare and Medicaid reimbursement rates will be sufficient to address longer-term cost increases faced by operators, uncertainty regarding the ultimate scope and impact of proposed U.S. federal minimum staffing rules for our industry, factors that may impact future virus transmission in our facilities, including vaccination rates and efficacy of the vaccine for staff members and residents at our facilities genetic mutations of the virus into new variants, and the commencement in April 2021 for manyrisk of our operators of the repayment of accelerated payments of Medicare funds that were previously received as Advanced Medicare payments in 2020 and the commencement in December 2021 of repayment of deferred FICA obligations.future infectious diseases or pandemics.
We believe that the incidence and severity of COVID-19 among our operators’ residents and employees, based on reporting by our operators, tend to correlate with levels of incidence and severity experienced by the applicable community in which such operators’ are located, and it remains uncertain whether certain of our facilities will be impacted by future community spread of the virus. These increases have been offset to some extent by increases in reimbursements due to increased skilling in place, which has been necessitated by pandemic-related protocols and may decrease when such protocols subside or when the federally declared public health emergency expires. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay and reliance on agency staffing due to staffing shortages, as well as a significant increase in both the cost and usage of personal protective equipment (“PPE”), testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs. In addition, operators who do not achieve full compliance with applicable vaccination and infection control requirements may face potential survey issues and penalties. At this time, there is significant uncertainty regarding the impact of such developments.
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Our facilities, on average, experienced declines, in some cases that arewere material, in occupancy levels as a result of the pandemic. Occupancy in our facilities has generally improved on average since early 2021, with a slight reduction in growth in late 2021 and early 2022 due to the impact of new variants;2021; however, average occupancy has not returned to pre-pandemic levels. It remains unclear when and the extent to which demand and occupancy levels will return to pre-COVID-19 levels. We believe these challenges to occupancy recovery may be in part due to staffing shortages, which in some cases have required operators to limit admissions, as well as COVID-19 related fatalities at the facilities, the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension and/or postponement of elective hospital procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs.needs.
While substantial government support primarily through the federal CARES Act in the U.S. and distribution of PPE, vaccines and testing equipment by federal and state governments, was allocated to SNFs and to a lesser extent to ALFs in 2020, U.S. federal relief efforts werehave been limited insince 2021 as have been relief efforts in certain states. The additional 6.2% Medicaid Federal Medical Assistance Percentage (the “FMAP”) reimbursement enacted in connection with the pandemic is being phased out in 2023 pursuant to the Consolidated Appropriations Act of 2023. The additional 6.2% FMAP provided some of our operators with significant support, based on the state, and the phase-out of such support may adversely affect their operations to the extent that normal rate setting has not or does not adjust for this phase-out or expenses are not reduced. We believe further government support will be needed to continue to offset these impacts on operators, which may takecould be in the form of stimulusdirect support or reimbursement rate adjustments to reflect sustained cost changes experienced by operators. It is unclear whether and to what extent such government support or reimbursements will continue to be sufficient and timely to offset these impacts. In particular, while $25.5 billion in federal funding for healthcare providers impacted by COVID-19 was announced in September 2021 with distributions beginning in late 2021, it remains unclear the extent to which these funds or remaining unallocated funds under the Public Health and Social Services Emergency Fund (“Provider Relief Fund”) will be distributed to our operators in any meaningful way, whether additional funds will be added to the Provider Relief Fund or otherwise allocated to healthcare operators or our operators,impacts or whether proposed U.S. federal minimum staffing rules for SNFs, if not accompanied by additional Medicaid funds under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) or other Medicare or Medicaid reimbursement rates changes in the U.S.government funding, will ultimately support reimbursement tofurther increase expenses for our operators.
While certain states have provided pandemic-related relief measures, and/or reimbursement increases, there remains uncertainty as to how widespread thesewe expect such state relief measures will continue to be and to what extent they may be distributed to and benefit our operators, especially when the federally declared public health emergency expires or previously released federal funds to states have been fully utilized.limited going forward. Likewise, while certain states mayhave in the course of routine rate-setting of Medicaid rates addressaddressed inflationary factors and other expense-related items, there can be no assurance that these changes will be sufficient to offset existing increased inflation and expenses.expenses or that all states will address these items. See the “Government Regulation and Reimbursement” section below for additional information. Further, to the extent the cost and occupancy impacts on our operators continuedo not recover or accelerate and are not offset by continued government relief or reimbursement rates that isare sufficient and timely, we anticipate that the operating results of additional operators may be materially and adversely affected, and some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable to restructure such obligations on terms as favorable to us as those currently in place.
There are a number of uncertainties we face as we consider the continuing impacteffects of COVID-19the industry’s recovery on our business, including how long census disruption and elevated COVID-19 costs will last, the continued impactmanagement of vaccination programs, including booster doses, and participation levels in those programs in reducing the spread and severity of COVID-19infectious diseases in our facilities, the impact of genetic mutations of the virus into new variants on our facilities, and the extent to which funding supportreimbursement increases from the federal government, the states and the statesU.K. will continue to offset these incremental costs, as well asand lost revenues. Notwithstanding vaccination programs, we expect that heightened clinical protocols for infection control within facilities will continue for some period; however, we do not know if future reimbursement rates or equipment provided by governmental agencies will be sufficient to cover the increased costs
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While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the uncertainties to our business described above to persist at least for the near term until we can gain more information as to the level of costs our operators will continue to experience, and for how long, and the levelduration of additional governmental support that will be availablesuch increased costs, the adequacy of government reimbursement increases to them,cover such costs, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior living facilities. We continue to monitor the rate of occupancy recovery at many of our operators, and it remains uncertain whether and when demand, staffing availability and occupancy levels will return to pre-COVID-19 levels.
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Other Trends and Conditions
In addition to the impacts of COVID-19 discussed above, our operators have been and are likely to continue to be adversely affected by labor shortages and increased labor costs. In addition, our operations have also been and are likely to continue to be impacted by increased competition for the acquisition of facilities in the U.S., which has decreased the number of investment opportunities that would be accretive to our portfolio. As part of our continuous evaluation of our portfolio and in connection with certain operator restructuring transactions, we expect to continue to opportunistically sell assets, or portfolios of assets, from time to time.costs, as well as other inflation-related cost increases.
We continue to monitor the impacts of other regulatory changes, as discussed below, including any significant limits on the scope of services reimbursedeligible for reimbursement and on reimbursement rates and fees, which could have a material adverse effect on an operator’s results of operations and financial condition, which could adversely affect the operator’s ability to meet its obligations to us.
Government Regulation and Reimbursement
The following information supplements and updates, and should be read in conjunction with, the information contained under the caption Item 1. Business – Government Regulation and Reimbursement in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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; weregulations. We also have several U.K.-based operators whichthat are 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. The ultimate timing or effect of these changes, which may be applied retroactively, cannot be predicted. 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 U.S. Department of Health and Human Services (“HHS”) declared a public health emergency on January 31, 2020, following the World Health Organization's decision to declare COVID-19 a public health emergency of international concern. This declaration, which has been extended through Januaryexpired on May 11, 2023, allowsallowed HHS to provide temporary regulatory waivers and new reimbursement rules, such as a temporary increase in 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 have contributed and may continue to contribute, to a change in census volumes and skilled nursing mix that may not otherwise have occurred. It remains uncertain whenFollowing termination of the public health emergency declaration, we believe federal and state regulators will resumehave resumed enforcement of those regulations which arehad been waived or otherwise not beingbeen enforced during the public health emergency due to the exerciseemergency.
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These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act enacted on March 27, 2020 and discussed below, continue to have had a significant impact on the operations and financial condition of our operators. The extent of the COVID-19 pandemic’s continued effect, including through prolonged labor shortages, slow occupancy recovery, and expense increases, on the Company’s and our operators’ operational and financial performance will depend on future developments, including the recovery in occupancy and availability of labor, the ability of our operators to manage the impact of the termination of public health emergency and temporary relief thereunder, the ultimate scope and impact of proposed federal minimum staffing rules for SNFs, the sufficiency and timeliness of additional governmental relief and reimbursement rate setting in offsetting cost increases, and the duration, spread and intensitycontinued efficacy of the outbreak, the impact of genetic mutations of the virus into new variants, the impact of vaccine distributions and booster doses on our operators and their populations, the impact of vaccine mandates on staffing shortages at our operators, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs,infection control measures, all of which developments and impacts are uncertain and difficult to predict. Duepredict and may continue to these uncertainties, we are not able at this time to estimate the effect of these factors on our business; however, the adverseadversely impact on our business, results of operations, financial condition and cash flows could be material.flows.
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A significant portion of our operators’ revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid. As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue. Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates could therefore have a material adverse effect on our operators’ results of operations and financial condition. Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government healthcare programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses. In addition to quality and value basedvalue-based reimbursement reforms, the U.S. Centers for Medicare and Medicaid Services (“CMS”) has implemented a number of initiatives focused on the reporting of certain facility specific quality of care indicators that could affect our operators, including publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under the CMS “Five Star Quality Rating System.” Facility rankings, ranging from five stars (“much above average”) to one star (“much below average”) are updated on a monthly basis. SNFs are required to provide information for the CMS Nursing Home Compare website regarding staffing and quality measures. These rating changes have impacted referrals to SNFs, and it is possible that changes to this system or other ranking systems could lead to future reimbursement policies that reward or penalize facilities on the basis of the reported quality of care parameters.
The following is a discussion of certain U.S. laws and regulations generally applicable to our operators, and in certain cases, to us.
Reimbursement Changes Related to COVID-19:
U.S. Federal Stimulus Funds and Financial Assistance for Healthcare Providers. In response to the pandemic, Congress has enacted a series of economic stimulus and relief measures. On March 18, 2020, the Families First Coronavirus Response Act (“FFCRA”) was enacted in the U.S., providing a temporary 6.2% increase to each qualifying state and territory’s Medicaid Federal Medical Assistance Percentage (“FMAP”)FMAP effective January 1, 2020. The temporary FMAP increase will extend2020, which expired on May 11, 2023 in connection with the expiration of the public health emergency. In exchange for receiving the enhanced federal funding, the FFCRA included a requirement that Medicaid programs keep beneficiaries enrolled through the last dayend of the calendar quartermonth in which the public health emergency terminates. However, as part of the Consolidated Appropriations Act of 2023 signed into law on December 29, 2022, Congress decoupled the Medicaid continuous enrollment from the public health emergency and terminated this provision effective March 31, 2023. Additionally, starting April 1, 2023, states that complied with federal rules regarding conducting renewals were eligible to begin the phase-down of the enhanced federal funding according to the following schedule: 6.2 percentage points through March 2023; 5 percentage points through June 2023; 2.5 percentage points through September 2023 and 1.5 percentage points through December 2023. States will make individual determinations about howcannot restrict eligibility standards, methodologies, and procedures and states cannot increase premiums as required in FFCRA. Primarily due to the continuous enrollment provision, Medicaid enrollment has grown substantially compared to before the pandemic and the uninsured rate has dropped. The extent to which this additionalincrease in Medicaid reimbursement will be applied to SNFs, if at all.enrollment is sustained following the discontinuation of the continuous enrollment provision is uncertain.
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In further response to the pandemic, the CARES Act authorized approximately $178 billion to be distributed through the Provider Relief Fund to reimburse eligible healthcare providers for healthcare related expenses or lost revenues that were attributable to coronavirus.coronavirus; in addition, the American Rescue Plan Act authorized $8.5 billion for rural providers with Medicaid and Medicare patients. Funds have beenwere generally allocated sincebeginning in 2020 in targeted and general distributions, the latter over four phases. In September 2021, HHS announced the release of $25.5 billion in phase four provider funding, including $17 billion of the $178 billion previously authorized through the CARES Act and $8.5 billion for rural providers, including those with Medicaid and Medicare patients, through the American Rescue Plan Act, with payments beginning in December 2021. The Provider Relief Fund iswas administered under the broad authority and discretion of HHS and recipients arewere not required to repay distributions received to the extent they arewere used in compliance with applicable requirements. Also in September 2021, the Centers for Disease Control and Prevention (“CDC”) announced it would allocate $500 million to staffing, training and deployment of state-based nursing home and long-term care “strike teams” to assist facilities with known or suspected COVID-19 outbreaks. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act. There are substantial uncertainties regarding the extent to whichWe do not expect our operators will receive additional funding from HHS.HHS in connection with the pandemic.
The CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential to impactimpacted our operators to varying degrees. This assistance includesincluded Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash flow to providers. These payments arewere loans that providers were scheduled to repay over a period of several years beginning one year from the issuance date of each provider’s or supplier’s accelerated or advance payment, with repayment made through automatic recoupment of 25% of Medicare payments otherwise owed to the provider or supplier for eleven months, followed by an increase to 50% for another six months, after which any outstanding balance would be repaid subject to an interest rate of 4%.payment. We believe these repayments commenced for many of our operators in April 2021 and have adversely impacted and will continue to adversely impact, operating cash flows of these operators.
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Tableoperators in 2021 and 2022. While not limited to healthcare providers, the CARES Act additionally provided payroll tax relief for employers, allowing them to defer payment of Contentsemployer Social Security taxes that were otherwise owed for wage payments made after March 27, 2020 through December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred until December 31, 2022.
The Budget Control Act of 2011 established a Medicare Sequestration of 2%, which is an automatic reduction of certain federal spending as a budget enforcement tool. Originally, the sequester was supposed to be in effect from FY 2013 to FY 2021. However, most recently, the Infrastructure Investment and Jobs Act extended the sequester through FY 2031. Additional legislation, including the CARES Act and the Protecting Medicare and American Farmers Act, suspended the application of the sequester to Medicare from May 1, 2020 through March 30, 2022. It also limited Medicare reductions to 1% from April 1, 2022 through June 30, 2022. The full 2% Medicare sequestration went into effect as of July 1, 2022. The sequestration is currently extended through fiscal year 2031, and gradually increases to 4% from 2030 through 2031. Per the Protecting Medicare and American Farmers from Sequester Cuts Act, the Medicare sequester percentage in FY 2030 will be 2.25% during the first 6 months of the FY 2030 and 3% for the next 6 months. Per the Infrastructure Investment and Jobs Act, the Medicare sequester percentage in FY 2031 will be 4% during the first 6 months of the FY 2031 sequestration order and 0% for the next 6 months (October 2031 through March 2032). While not limited to healthcare providers, the CARES Act additionally provided payroll tax relief for employers, allowing them to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020 through December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred until December 31, 2022.
Quality of Care Initiatives and Additional Requirements Related to COVID-19. In addition to COVID-19 reimbursement changes, several regulatory initiatives announced infrom 2020 and 2021to 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 August 2021, CMS announced it was developing an emergency regulation requiring staff vaccinations within the nation’s more than 15,000 Medicare and Medicaid-participating nursing homes, and in September 2021, CMS further announced that the scope of the regulation would be expanded to include workers in hospitals, dialysis facilities, ambulatory surgical settings, and home health agencies. In addition, recent updates to the Nursing Home Care 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). Additionally, the Biden Administration announced a focus on implementing minimum staffing requirements and increased inspections as part of the nursing home reforms announced in the 2022 State of the Union Address. Although the American Rescue Plan Act did not allocate specific funds directly to SNF or ALF providers, certain funds were allocated to quality improvement organizationsstates who then distributed a portion of these funds to SNF and ALF providers.
Additionally, on September 1, 2023, CMS issued proposed rules regarding minimum staffing requirements and increased inspections at nursing homes. Under the proposed rules, nursing homes participating in Medicare and Medicaid would be required to provide infection controlresidents with a minimum of 0.55 hours of care from a registered nurse per resident per day, and vaccination uptake support2.45 hours of care from a nurse aide per resident per day, which CMS estimates exceed existing standards in nearly all states. In addition, nursing homes would be required to SNFsensure a registered nurse is onsite 24 hours per day, seven days per week, and to the CDC forcomplete facility assessments on staffing training and deployment of state-basedneeds. CMS also announced nursing home workforce initiatives, including investing $75 million in financial incentives such as scholarships and long-term care “strike teams”tuition reimbursement, as well as Medicaid institutional payment transparency initiatives related to assistreporting on compensation of workers as a percentage of Medicaid payments. Further, CMS proposed enforcement initiatives, including expanding audits of nursing home data, increasing facility inspections, reviewing related party transactions, regulating certain prescription practices, and addressing nursing home emergency preparedness. CMS proposed that implementation of the final requirements would occur in three phases over a three-year period for urban facilities, with known or suspected COVID-19 outbreaks.registered nurse availability requirements beginning two years after rule publication and minimum staffing hour requirements beginning three years from publication. For rural facilities, staffing requirements regarding registered nurse availability would begin three years from publication of the final rule and minimum staffing hour requirements would begin five years from rule publication.
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It is uncertain when the proposed rules will be finalized and become effective, what the ultimate scope and timing of the staffing requirements will be thereunder, and whether any such requirements will be accompanied by additional funding to offset any increased costs associated with meeting these requirements for our operators. Depending on the ultimate level of staffing required, an unfunded mandate to increase staff in SNFs may have a material and adverse impact on the financial condition of our operators, with CMS estimating that three quarters of nursing homes would have to increase staffing in their facilities under the proposed rules.
On June 16, 2020, the U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation into the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic. The Select Subcommittee continued to be active throughout the remainder of 2020, 2021 and the first three quarters of 2022. In March 2021, the Oversight Subcommittee of the House Ways and Means Committee held a hearing on examining the impact of private equity in the U.S. healthcare system, including the impact on quality of care provided within the skilled nursing industry. The Biden Administration additionally announced in March 2022 a focus on reviewing private equity investment specifically in the skilled nursing sector. Further, on February 13, 2023, CMS issued a proposed rule that would require SNFs participating in the Medicare or Medicaid programs to disclose certain information regarding entities such as REITs that lease real estate to SNFs. The CMS announcement noted concerns regarding the quality of care provided at SNFs owned by private equity firms, REITs and other investment firms. These initiatives, as well as additional calls for government review of the role of private equity in the U.S. healthcare industry, could result in additional requirements on our operators.
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Reimbursement Generally:
Medicaid. The American Rescue Plan Act contains several provisions designed to increase coverage, expand benefits, and adjust federal financing forMost of our SNF operators derive a substantial portion of their revenue from state Medicaid programs. For example,Whether and to what extent the American Rescue Plan Act increasedlevel of Medicaid reimbursement covers the FMAPactual cost to care for a Medicaid eligible resident varies by 10 percentage pointsstate. While periodic rate setting occurs and, in most cases, has an inflationary component, the state rate setting process does not always keep pace with inflation or, even if it does, there is a risk that it may still not be sufficient to cover all or a substantial portion of the cost to care for Medicaid eligible residents. Additionally, rate setting is also subject to changes based on state homebudgetary constraints and community-based services expenditures beginning April 1, 2021 through March 30, 2022political factors, both of which could result in decreased or insufficient reimbursement to the industry even in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings. As a condition for receiving the FMAP increase, states must enhance, expand, or strengthen their Medicaid home and community-based services program during this period. These potential enhancements to Medicaid reimbursement funding may be offset in certain states by state budgetary concerns, the ability of the state to allocate matching funds and to comply with the new requirements, the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 pandemic, and the potential allocation of state Medicaid funds available for reimbursement away from SNFs in favor of home and community-based programs. These challenges may particularly impact us in statesenvironment where we have a larger presence, including Florida and Texas. In Texas in particular, several of our operators have historically experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs. Our operators in Texas may also be adversely impacted by the expected expiration of an add-on by the state to the daily reimbursement rate for Medicaid patients that will terminate upon expiration of the federally declared public health emergency. In Florida, while added support to our operators during the pandemic has generally been limited, approximately $100 million in additional FMAP funds for nursing homes was approved by the State in November 2021, with the funds to be distributed through increased Medicaid payment rates over a three-month period and in March 2022, a revised state budget for 2022-23, which took effect October 1, 2022, increased Medicaid reimbursement rates by 7.8% to fund, in part, increased wages for certain nursing home staff. In addition, on April 6, 2022, the State of Florida enacted staffing reforms for SNFs that may provide additional flexibility to our operators in meeting minimum staffing requirements by using supplemental staff.costs are rising. Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement or an increase in the percentage of Medicaid patients has in the past, and may in the future, adversely affect our operators’ results of operations and financial condition, which in turn could adversely impact us.
The CARES Act and American Rescue Plan Act contained several provisions designed to increase coverage, expand benefits, and adjust federal financing for state Medicaid programs. While the CARES Act provided for a 6.2% FMAP add-on to the Medicaid program during the public health emergency, only certain states passed on any of this benefit directly to SNF operators either via an enhanced rate or lump sum payments. Additionally, the American Rescue Plan Act provided for a 10% FMAP add-on for state home and community-based service expenditures from April 1, 2021 through March 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings. Both of these programs came with conditions that states had to meet to be eligible for the FMAP add-on. There may be future initiatives proposed to allocate funding available for reimbursement away from SNFs in favor of home health agencies and community-based care.
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The risks of insufficient Medicaid reimbursement rates along with possible initiatives to push residents historically cared for in SNFs to alternative settings may impact us more acutely in states where we have a larger presence, including Florida and Texas, our states with the largest concentration of investments. In Texas several of our operators have historically experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs. The state did provide for a sizeable increase in rate during the public health emergency based on the FMAP add-on. The Medicaid reimbursement rate has been approved to be increased effective September 1, 2023 by at least that same amount. In Florida, added support to our operators during the pandemic was generally limited, with approximately $100 million in additional FMAP funds announced in November 2021, payable over a three-month period through increased Medicaid rates. A revised state budget for 2023-2024 has been approved, which increases Medicaid reimbursement rates, effective October 1, 2023, by up to 5%, with a portion of such rate relating to a quality care add-on. This comes after a 7.8% increase effective October 1, 2022, which was somewhat offset by required increased wages for certain nursing home staff. In addition, on April 6, 2022, the State of Florida enacted staffing reforms for SNFs that may provide additional flexibility to our operators in meeting minimum staffing requirements by using supplemental staff. We continue to monitor rate adjustment activity in other states in which we have a meaningful presence; however, it is difficult to assess whether rates will generally keep pace with increased operator costs.
Medicare. On July 29, 2022,31, 2023, CMS issued a final rule regarding the government fiscal year 20232024 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by $904 million,$1.4 billion, or 2.7%4.0%, for fiscal year 20232024 compared to fiscal year 2022.2023. This estimated reimbursement increase is attributable to a 3.9%6.4% net market basket update to the payment rates, which is based on a 3.0% SNF market basket increase factor plus a 1.5 percentage point3.6% market basket forecast error adjustment and less a 0.3 percentage point0.2% productivity adjustment, as well as a $780negative 2.3%, or approximately $789 million, decrease in the fiscal year 2024 SNF prospectiveMedicare payment system rates as a result of the recalibratedsecond phase of the Patient Driven Payment Model (“PDPM”) parity adjustment recalibration described below, which iswas being phased in over two years. The annual update is reduced by two percentage points for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program. CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be $186$185 million in fiscal year 2023.2024. 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.
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Payments to providers continue to be increasingly tied to quality and efficiency. The Patient Driven Payment Model (“PDPM”),PDPM, which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019. CMS has stated that it intended PDPM to be revenue-neutral to operators, with future Medicare reimbursement reductions possible if that was not the case. In April 2022, CMS issued a proposal for comment, which included an adjustment to obtain that revenue neutrality as early as the 2023 rate setting period. After considering the feedback received in the rulemaking cycle, CMS finalized recalibration of the PDPM parity adjustment factor of 4.6% with a two-year phase-in period that would reduce SNF spending by 2.3%, or approximately $780 million, in each of fiscal years 2023 and 2024. Prior to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some had reported early positive results. Given the ongoing impacts of COVID-19,results, though many operators are and may continue to bewere restricted during the pandemic from pursuing concurrent and group therapy and unable to realize these benefits. Additionally, our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value-based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act. These reimbursement changes have had and may, together with any further reimbursement changes to PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.
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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. The COVID-19 1135 waiver provisions also allowallowed for the facility to bill an originating site fee to CMS for telehealth services provided to Medicare Part B beneficiary residents of the facility when the services arewere provided by a physician from an alternate location, effective March 6, 2020 through May 11, 2023, the endexpiration of the public health emergency. The Consolidated Appropriations Act of 2023 extended the ability of occupational therapists, physical therapists and speech-language pathologists to continue to furnish these services via telehealth and bill as distant site practitioners until the end of 2024.
On June 29, 2022,March 30, 2023, CMS issued newa memorandum revising and updated guidance to provide additional clarity to surveyors on regulatory requirementsenhancing enforcement efforts for participation of long term care facilities in the Medicare program and to address how compliance will be assessed. This included guidance related to, among other things, infection control deficiencies found in nursing homes that are targeted at higher-level infection control deficiencies that result in actual harm or immediate jeopardy to residents. Penalties for the most serious deficiencies include civil monetary penalties and prevention, and staffing, as well as recommendations related todiscretionary payment denials for new resident room capacity.admissions.
Other Regulation:
Office of the Inspector General Activities. The Office of Inspector General (“OIG”) of HHS has provided long-standing guidance for SNFs regarding compliance with federal fraud and abuse laws. 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. 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. It is unknown what impact, if any, enhanced scrutiny of staffing levels by OIG and CMS will have on our operators.
Department of Justice and Other Enforcement Actions. SNFs are under intense scrutiny for ensuring the quality of care being rendered to residents and appropriate billing practices conducted by the facility. The Department of Justice (“DOJ”) has historically used the False Claims Act to civilly pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard. For example, California prosecutors announced in March 2021 an investigation into a skilled nursing provider that is affiliated with one of our operators, alleging the chain manipulated the submission of staffing level data in order to improve its Five Star rating. In 2020, the DOJ launched a National Nursing Home Initiative to coordinate and enhance civil and criminal enforcement actions against nursing homes with grossly substandard deficiencies. Such enforcement activities are unpredictable and may develop over lengthy periods of time. 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.
2022Third Quarter of 2023 and Recent Highlights
Investments
● | During the three and nine months ended September 30, |
● | We invested |
4247
● | We |
Dispositions and Impairments
● | During the three and nine months ended September 30, |
● | During the three and nine months ended September 30, |
Financing Activities
Other Highlights
● | During the three and nine months ended September 30, |
● |
● | On August 8, 2023, the Company entered into a credit agreement (the “2025 Omega |
● | During the third quarter of 2023, we entered into 11 interest rate swaps with a notional amount of $428.5 million that terminate on August 6, 2027. These interest rate swaps are designated as hedges against our exposure to |
4348
Other Highlights
● | We made $16.9 million and $89.4 million of new non-real estate loans with a weighted average interest rate of 10.1% and 10.2% during the three and nine months ended September 30, 2023, respectively. We also advanced $13.7 million and $18.7 million under existing non-real estate loans during the three and nine months ended September 30, 2023, respectively. |
Collectibility Issues
● | During the |
● | During the |
● | In the first quarter of 2023, Omega and Agemo, a cash basis operator, |
49
● | During 2023, we continued the process of restructuring our portfolio with LaVie by amending the lease agreements with LaVie to allow for a partial rent deferral for the first four months of 2023, transitioning two facilities previously subject to the master lease with LaVie to another operator during the second quarter of |
● | In the first quarter of 2023, we entered into a restructuring agreement, master lease amendments and |
● | In August and |
4450
Dividends
● | On October |
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 nine months ended September 30, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | Nine Months Ended | | | | ||||||||
| September 30, | | Increase/ | | September 30, | | Increase/ | ||||||||||
| 2023 |
| 2022 | | (Decrease) | | 2023 |
| 2022 | | (Decrease) | ||||||
Revenues: | | | | | | | | | | | | | | | | | |
Rental income | $ | 209,948 | | $ | 207,588 | | $ | 2,360 | | $ | 618,126 | | $ | 635,899 | | $ | (17,773) |
Income from direct financing leases |
| 254 | |
| 256 | | | (2) | |
| 762 | |
| 768 | | | (6) |
Interest income |
| 30,623 | |
| 31,344 | | | (721) | |
| 88,275 | |
| 93,861 | | | (5,586) |
Miscellaneous income |
| 1,207 | |
| 242 | | | 965 | |
| 3,258 | |
| 2,866 | | | 392 |
Expenses: |
| | |
|
| | |
| |
| | |
|
| | | |
Depreciation and amortization |
| 80,798 | |
| 82,709 | | | (1,911) | |
| 244,008 | |
| 248,668 | | | (4,660) |
General and administrative |
| 20,287 | |
| 18,242 | | | 2,045 | |
| 62,971 | |
| 53,402 | | | 9,569 |
Real estate taxes | | 3,892 | | | 4,175 | | | (283) | | | 11,814 | | | 11,495 | | | 319 |
Acquisition, merger and transition related costs |
| 121 | |
| 185 | | | (64) | |
| 1,183 | |
| 5,658 | | | (4,475) |
Impairment on real estate properties |
| 27,890 | |
| 10,015 | | | 17,875 | |
| 87,992 | |
| 21,221 | | | 66,771 |
Provision for credit losses |
| 2,733 | |
| 4,106 | | | (1,373) | |
| 11,643 | |
| 4,367 | | | 7,276 |
Interest expense |
| 58,778 | |
| 58,238 | | | 540 | |
| 176,100 | |
| 174,755 | | | 1,345 |
Other income (expense): |
| | |
|
| | |
| |
| | |
|
| | | |
Other income (expense) – net |
| 5,402 | |
| (176) | | | 5,578 | |
| 9,151 | |
| (5,038) | | | 14,189 |
Loss on debt extinguishment |
| — | |
| (376) | | | 376 | |
| (6) | |
| (389) | | | 383 |
Gain on assets sold – net | | 44,076 | | | 40,930 | | | 3,146 | | | 69,956 | | | 179,747 | | | (109,791) |
Income tax expense |
| (1,758) | |
| (1,191) | | | (567) | |
| (2,092) | |
| (3,535) | | | 1,443 |
(Loss) income from unconsolidated joint ventures |
| (1,345) | |
| 4,117 | | | (5,462) | |
| 555 | |
| 7,522 | | | (6,967) |
Three Months Ended September 30, 20222023 and 20212022
Revenues
Our revenues for the three months ended September 30, 2022 totaled $239.4 million, a decrease of approximately $42.2 million over the same period in 2021. Included belowThe following is a description of certain of the material changes in revenues for the three months ended September 30, 20222023 compared to the same period in 2021:2022:
● |
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● |
Expenses
OurThe following is a description of certain of the changes in our expenses for the three months ended September 30, 2022 totaled $177.7 million, a decrease of approximately $16.5 million over the same period in 2021. Included below is a description of the material changes in expenses for the three months ended September 30, 20222023 compared to the same period in 2021:2022:
● |
45
● |
● |
● |
Other Income (Expense)
For the three months ended September 30, 2022,The change in total other income (expense) was $40.4 million, a decrease of approximately $14.4 million over the same period in 2021. The decrease was mainlyprimarily due to (i) a $15.2$5.6 million decreasechange in other income (expense) – net primarily related to a legal reserve recorded during the second quarter of 2022 that was settled in the fourth quarter of 2022 and increased interest on short-term investments due to increased interest rates and increased cash balances and (ii) a $3.1 million increase in gain on assets sold related to the sale of four25 facilities in the third quarter of 20222023 compared to the sale of 15four facilities during the same period in 2021.2022.
(Loss) income from unconsolidated joint ventures
The change in (loss) income from unconsolidated joint ventures was primarily due to higher interest rates on outstanding debt and fair value adjustments on derivative instruments within our Cindat Joint Venture.
52
Nine Months Ended September 30, 20222023 and 20212022
Revenues
Our revenues for the nine months ended September 30, 2022 totaled $733.4 million, a decrease of approximately $79.5 million over the same period in 2021. Included belowThe following is a description of certain of the material changes in revenues for the nine months ended September 30, 20222023 compared to the same period in 2021:2022:
● |
46
● |
Expenses
OurThe following is a description of certain of the changes in our expenses for the nine months ended September 30, 2022 totaled $519.6 million, a decrease of approximately $40.9 million over the same period in 2021. Included below is a description of the material changes in expenses for the nine months ended September 30, 20222023 compared to the same period in 2021:2022:
● |
● |
● |
● |
● |
4753
Other Income (Expense)
For the nine months ended September 30, 2022,The change in total other income (expense) was $174.3 million, an increase of approximately $44.4 million over the same period in 2021. The increase was mainlyprimarily due to (i) a $30.3 million decrease in loss on debt extinguishment primarily related to fees, premiums, and expenses related to the early redemption of $350 million of principal of the 4.375% Senior Notes due 2023 during the first quarter of 2021 and (ii) a $19.1$109.8 million increase in gain on assets sold related to the sale of 4437 facilities in 2022 compared to the sale of 45 facilities during the same period in 2021, partially offset by a $3.0 million legal reserve recorded in other (expense) income – net discussed in Note 18 – Commitments and Contingencies.
Income from Unconsolidated Joint Ventures
For the nine months ended September 30, 2023 compared to the sale of 44 facilities, primarily associated with our exit of the facilities associated with Gulf Coast Health Care LLC (together with certain affiliates “Gulf Coast”), during the same period in 2022 and (ii) a $14.2 million change in other income (expense) – net primarily related to a legal reserve recorded during the second quarter of 2022 that was settled in the fourth quarter of 2022 and increased interest on short-term investments due to increased interest rates and increased cash balances.
Income Tax Expense
The change in income tax expense was primarily due to adjustments made to our deferred tax assets and liabilities in 2023 as a result of the majority of our U.K. portfolio entering into the U.K. REIT regime effective April 1, 2023.
(Loss) income from unconsolidated joint ventures
The change in (loss) income from unconsolidated joint ventures was $7.5 million, a decrease of approximately $7.0 million over the same period in 2021. The decrease was primarily due to one of the joint ventures realizing a $14.9 million gainhigher interest rates on sale of real estate investments during the first quarter of 2021.outstanding debt and fair value adjustments on our derivative instruments within our Cindat Joint Venture.
National Association of Real Estate Investment Trusts Funds Fromfrom 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.periods. 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 or cash flow, 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.
4854
The following table presents our Nareit FFO results for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Nine Months Ended | | | | | | | | | | | | | | | ||||||||
| | September 30, | | September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 |
|
| 2023 |
| 2022 | | 2023 |
| 2022 |
| ||||||||
| | (in thousands) | | (in thousands) | | | (in thousands) | | (in thousands) | | ||||||||||||||||
Net income (1)(2) | | $ | 105,064 | | $ | 142,835 | | $ | 392,135 | | $ | 394,064 | | |||||||||||||
Net income (1) | | $ | 93,908 | | $ | 105,064 | | $ | 192,274 | | $ | 392,135 | | |||||||||||||
Deduct gain from real estate dispositions | | | (40,930) | | | (56,169) | | | (179,747) | | | (160,634) | | | | (44,076) | | | (40,930) | | | (69,956) | | | (179,747) | |
(Deduct gain) add back loss from real estate dispositions – unconsolidated joint ventures | |
| (346) | |
| 2 | |
| (93) | |
| (14,745) | | |||||||||||||
Deduct gain from real estate dispositions - unconsolidated joint ventures | |
| — | |
| (346) | |
| — | |
| (93) | | |||||||||||||
| |
| 63,788 | |
| 86,668 | |
| 212,295 | |
| 218,685 | | |
| 49,832 | |
| 63,788 | |
| 122,318 | |
| 212,295 | |
Elimination of non-cash items included in net income: | |
| | |
|
| |
| | |
|
| | |
| | |
|
| |
| | |
|
| |
Depreciation and amortization | |
| 82,709 | |
| 86,097 | |
| 248,668 | |
| 256,745 | | |
| 80,798 | |
| 82,709 | |
| 244,008 | |
| 248,668 | |
Depreciation – unconsolidated joint ventures | |
| 2,627 | |
| 2,951 | |
| 8,258 | |
| 9,379 | | |
| 2,514 | |
| 2,627 | |
| 7,941 | |
| 8,258 | |
Add back impairments on real estate properties | | | 10,015 | | | 4,942 | | | 21,221 | | | 42,453 | | | | 27,890 | | | 10,015 | | | 87,992 | | | 21,221 | |
Add back impairments on real estate properties – unconsolidated joint ventures | | | — | | | — | | | — | | | 4,430 | | |||||||||||||
Add back unrealized loss on warrants | |
| — | | | — | | | — | | | 43 | | |||||||||||||
Nareit FFO | | $ | 159,139 | | $ | 180,658 | | $ | 490,442 | | $ | 531,735 | | | $ | 161,034 | | $ | 159,139 | | $ | 462,259 | | $ | 490,442 | |
(1) | The three and nine months ended September 30, 2023 includes the application of $5.9 million and $11.4 million, respectively, of security deposits (letter of credit and cash deposits) in revenue. The three and nine months ended September 30, 2022 includes the application of $5.3 million and $9.4 million, respectively, of security deposits (letter of credit and cash deposits) in revenue. |
Liquidity and Capital Resources
Sources and Uses
Our primary sources of cash include rental income and interest receipts, existing availability under our revolving credit facility, proceeds from our Dividend Reinvestment and Common Stock Purchase Plan (“DRSPP”)DRCSPP and the $1.0 billion 2021 At-The-Market OfferingATM Program, (“2021 ATM Program”), facility sales, and proceeds from mortgagereal estate loan and other investmentnon-real estate loan payoffs. We anticipate that these sources will be adequate to fund our cash flow needs through the next twelve months, which include common stock dividends, debt service payments (including principal and interest), real estate investments (including facility acquisitions, capital improvement programs and other capital expenditures), mortgagereal estate loan and other investmentnon-real estate loan advances and normal recurring G&A expenses (primarily consisting of employee payroll and benefits and expenses relating to third parties for legal, consulting and audit services).
Capital Structure
At September 30, 2022,2023, we had total assets of $9.4 billion, total equity of $3.9 billion and total debt of $5.3 billion in our consolidated financial statements, with such debt representing approximately 57.8%58.0% of total capitalization.
Debt
At September 30, 20222023 and December 31, 2021,2022, the weighted-averageweighted average annual interest rate of our debt was 4.3% and 4.1%., respectively. Additionally, as of September 30, 2022, 98%2023, 99% of our debt with outstanding principal balances has fixed interest payments. Our high percentage of fixed interest debt has kept our interest expense relatively flat year over year despite rising interest rates. As of September 30, 2022,2023, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. For example, our revolving credit facility accrues interest and fees at a rate per annum equal to LIBOR plus a margin that depends upon our credit rating. A downgrade in credit ratings by Moody’s, and S&P Global and/or Fitch may have a negative impact on the interest rates and fees for our revolving credit facility.
4955
On August 8, 2023, Omega entered into the 2025 Omega Credit Agreement providing us with the 2025 Term Loan. The 2025 Omega Credit Agreement contains an accordion feature permitting us, subject to compliance with customary conditions, to increase the maximum aggregate commitments thereunder to $500 million, by requesting an increase in the aggregate commitments under the 2025 Term Loan. The 2025 Term Loan bears interest at SOFR plus 145 basis points, based on our current credit rating. The 2025 Term Loan matures on August 8, 2025, subject to Omega’s option to extend such maturity date for two sequential 12-month periods. On September 27, 2023, Omega exercised the accordion feature to increase the aggregate commitment under the 2023 Term Loan by $28.5 million. We recorded $3.3 million of deferred financing costs and a $1.4 million discount in connection with the 2025 Omega Credit Agreement.
In August 2023, we entered into ten interest rate swaps with $400.0 million in notional value. The swaps are effective August 14, 2023 and terminate on August 6, 2027. These interest rate swaps are designated as hedges against our exposure to changes in interest payment cash flows as a result of the variable interest rate on the 2025 Term Loan. The interest rate swap contracts effectively convert our $400.0 million 2025 Term Loan to an aggregate fixed rate of approximately 5.565% through its maturity. In September 2023, in connection with the exercise of the accordion feature on the 2025 Term Loan, we entered into one additional interest rate swap with $28.5 million in notional value to hedge the additional $28.5 million under the 2025 Term Loan. This swap is effective September 29, 2023 and terminates on August 6, 2027. These 11 interest rate swap contracts effectively convert our $428.5 million 2025 Term Loan to a new combined aggregate fixed rate of approximately 5.597% through its maturity. The effective fixed rate achieved by the combination of the 2025 Omega Credit Agreement and the interest rate swaps could fluctuate up by 40 basis points or down by 60 basis points based on future changes to our credit ratings.
As of September 30, 2023, we have $400 million of 4.95% senior notes due April 2024. As of September 30, 2023, we had approximately $554.7 million of cash and cash equivalents on our Consolidated Balance Sheets. As of September 30, 2023, we had $1.4 billion of availability under our revolving credit facility. As discussed below, we also have $716.1 million of potential sales remaining under the ATM Program. This combination of liquidity sources, along with cash from operating activities, provides us with flexibility to repay the senior notes due in April 2024.
Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of September 30, 20222023 and December 31, 2021,2022, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.
Supplemental Guarantor Information
Parent has issued approximately $4.9$4.6 billion aggregate principal of senior notes outstanding at September 30, 20222023 that were registered under the Securities Act of 1933, as amended. The senior notes are guaranteed by Omega OP.
The SECU.S. Securities and Exchange Commission (“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 theour outstanding senior notes, the revolving credit facility and the OP term loan)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 September 30, 2022,2023, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.
56
Equity
At September 30, 2022,2023, we had approximately 234.2245.0 million shares of common stock outstanding, and our shares had a market value of $6.9$8.1 billion. The following is a summary of activity under our equity programs excluding share repurchases, which are discussed in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financing Activities above, during the three and nine months ended September 30, 2022:2023:
● | We issued |
● | We issued 3.5 million and 3.7 million shares of common stock under the DRCSPP during the three and nine months ended September 30, 2023, respectively. Aggregate gross proceeds from these sales were $111.9 million and $116.4 million during the three and nine months ended September 30, 2023, respectively. |
● | We did not repurchase any shares of our outstanding common stock under the $500 Million Stock Repurchase Program. We have $357.8 million remaining authorized for repurchases under the $500 Million Stock Repurchase Program as of September 30, 2023. |
50
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 do distribute at least 90%, but less than 100% of our “REIT taxable income” as adjusted, we will be subject to tax thereon at regular ordinary and capital gain corporate tax rates.
For the nine months ended September 30, 2022,2023, we paid dividends of approximately $475.6$479.3 million to our common stockholders. On February 15, 2022,2023, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 7, 2022.6, 2023. On May 13, 2022,15, 2023, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on May 2, 2022.1, 2023. On August 15, 2022,2023, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on August 1, 2022.July 31, 2023.
Material Cash Requirements
During the nine months ended September 30, 2022,2023, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report.Report on Form 10-K for the year ended December 31, 2022.
As of September 30, 2022,2023, we had $200.1$200.0 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments. Additionally, we have commitments to fund $88.0$51.0 million of advancements under existing other investmentreal estate loans which includes $14.3and $43.1 million related to the increased commitment on the Maplewood $250.5 million secured revolving credit facility and $60.0 million related to a $90.0 million short-term revolving line of credit to anadvancements under existing operator.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.
57
Other Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 9 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 use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 – Derivatives and Hedging in our Annual Report on Form 10-K for the year ended December 31, 2021. We have seen significant increases in fair value of our hedging instruments in 2022, primarily due to macroeconomic factors impacting interest rates and foreign currency rates.2022.
Cash Flow Summary
Cash, cash equivalents and restricted cash totaled $138.2$557.9 million as of September 30, 2022,2023, an increase of $113.8$257.3 million as compared to the balance at December 31, 2021. 2022. The following is a summary of our sources and uses of cash flows for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 (dollars in thousands):
| | | | | | | | | |
| | Nine Months Ended September 30, | | | | ||||
|
| 2023 |
| 2022 | | Increase/(Decrease) | |||
Net cash provided by (used in): | | | | | | | | | |
Operating activities | | $ | 452,756 | | $ | 472,045 | | $ | (19,289) |
Investing activities | |
| (112,094) | |
| 272,421 | | | (384,515) |
Financing activities | |
| (83,521) | |
| (627,474) | | | 543,953 |
The following is a discussion of changes in cash, cash equivalents and restricted cash duefor the nine months ended September 30, 2023 compared to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows.
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Operating Activities – Operating activities generated $472.0 million of net cash flow for the nine months ended September 30, 2022, as compared to $565.6 million for the same period2022.
Operating Activities – The decrease in 2021, a decrease of $93.6 million, whichnet cash provided by operating activities is driven primarily driven by a decrease of $90.4$2.8 million of net income, net of $88.5$197.1 million of non-cash items, primarily due to a year over year reduction in rental income and mortgage revenue,interest income, as discussed in our material changes analysis under Results of Operations above. A $3.1$16.5 million change in the net movements of the operating assets and liabilities also contributed to the overall decrease in cash provided by operating activities.
Investing Activities – Net cash flow from investing activities was an inflow of $272.4 million for the nine months ended September 30, 2022, as compared to an outflow of $452.2 million for the same period in 2021. The $724.6 million change in cash flow fromused in investing activities primarily related primarily to (i) a $474.5$177.0 million decrease in real estate acquisitions driven by the acquisition of 24 senior living facilities from Healthpeak Properties, Inc. for $511.3 million in the first quarter of 2021, (ii) a $218.1 million increase in mortgage collections, net of placements driven by a $21.7 million partial principal paydown on the Guardian mortgage loan in the first quarter of 2022 and $158.5 million in partial principal paydowns on the Ciena mortgages in the second and third quarters of 2022, (iii) a $127.4 million increase in proceeds from the sales of real estate investments largely driven by the sale of 22 facilities previously leased tothe Gulf Coast for net cash proceeds of $303.9 millionfacilities in the first quarter of 2022, and other 2022 sales related to the restructuring of Guardian and Agemo, (iv)(ii) a $70.4$130.8 million decrease in investmentloan repayments, net of placements due to significant paydowns on the Ciena Healthcare mortgage loans and other loans during 2022, (iii) a $69.9 million increase in construction in progressreal estate acquisitions and capital expenditures related to(iv) a $68.0$12.1 million development project with Maplewood Senior Living (“Maplewood”) acquired in the third quarter of 2021 and (v) a $10.4 million decreaseincrease in investments in unconsolidated joint ventures driven by our $10.3 million investment in Second Spring II LLCprimarily related to the four new joint venture investments in the first quartersecond and third quarters of 2021,2023 and (v) a $1.9 million increase in capital improvements to real estate investments and construction in progress, partially offset by (i) a $151.4$5.4 million increase in other investments advances and placements, net of receipts driven by the new $35.6 million mezzanine loan with an existing operator that we entered into in the second quarter of 2022, the $25.0 million term loan to LaVie Care Centers, LLC (f/k/a Consulate Health Care) that we entered into in the first quarter of 2022, the new $40.0 million mezzanine loan with a new operator that we entered into in the third quarter of 2022 and additional draws on existing loans, (ii) a $16.3 million decrease in distributions from unconsolidated joint venture in excess of earnings primarily related to the Second Spring Healthcare Investments joint venture due to significant facility sales in the first quarter of 2021, (iii) a $5.3 million decrease in receipts from insurance proceeds and (iv)(ii) a $2.5$1.7 million decreaseincrease in acquisition related deposits.distributions from unconsolidated joint ventures in excess of earnings.
Financing Activities – Net cash flow from financing activities was an outflow of $627.5 million for the nine months ended September 30, 2022, as compared to an outflow of $175.0 million for the same period in 2021. The $452.5 million changedecrease in cash flow fromused in financing activities was primarily related to (i) a $266.6$321.9 million decreaseincrease in cashnet proceeds from the issuance of common stock, in 2022 due to decreased issuances under our DRSPP and our 2021 ATM Program, as compared to the same period in 2021, (ii) a $142.3 million ofdecrease in repurchases of shares of common stock, in 2022, (iii) a $88.7$92.6 million increase in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023 and (iv) a $9.6 million decrease in redemptions of Omega OP units, partially offset by (i) a $10.2 million decrease in proceeds from other long-term borrowings, net of repayments and (iv) a $9.7 million increase in redemptions of OP units. The overall increase in financing outflows was partially offset by (i) a $48.5 million decrease in payment of financing related costs due to fees and premiums paidhigher cash balances in the firstthird quarter of 2021 related to2023 as a result of common stock issuances, the early redemption of $350 million of principaltermination of the 4.375% senior notes dueforward starting swaps and significant facility sale proceeds received in 2022 and 2023, (ii) a $4.7$5.3 million decreaseincrease in distributions to Omega OP Unit holders, and (iii) a $1.5$3.7 million decreaseincrease in dividends paid.paid primarily related to share issuances during 2023 and (iv) a $2.9 million increase in payment of financing related costs related to the Company entering into the 2025 Term Loan during the third quarter of 2023.
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Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. Our preparation of the financial statements requires us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and accompanying footnotes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the consolidated financial statements. We have described our accounting policies in Note 2 – Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the year ended December 31, 2021.2022. There have been no material changes to our critical accounting policies or estimates since December 31, 2021.2022.
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Item 3 – Quantitative and Qualitative Disclosures about Market Risk
During the quarter ended SeptemberSeptember 30, 2022,2023, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 4 – Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In connection with the preparation of our Form 10-Q as of and for the quarter ended SeptemberSeptember 30, 2022,2023, management evaluated the effectiveness of the design and operation of the disclosure controls and procedures of the Company as of SeptemberSeptember 30, 2022.2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures of the Company were effective at a reasonable assurance level as of SeptemberSeptember 30, 2022.2023.
Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended SeptemberSeptember 30, 20222023 identified in connection with the evaluation of our disclosure controls and procedures described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
See Note 18 – Commitments and Contingencies to the Consolidated Financial Statements - Part I, Item 1 hereto, which is hereby incorporated by reference in response to this Item.
Item 1A – Risk Factors
In additionThere have been no material changes to theour risk factors as previously disclosed in Item 1A contained in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, investors should carefully consider the following additional risk factor, which should be read in conjunction with the risk factors set forth in such Form 10-K and the other information contained in this report and our other filings with the Securities and Exchange Commission. 2022.
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Inflation could adversely impact our operators and our results of operations.
Inflation, both real or anticipated, as well as any resulting governmental policies, could adversely affect the economy and the costs of labor, goods and services to our operators or borrowers. Our long-term leases and loans typically contain provisions such as rent and interest escalators that are designed to mitigate the adverse impact of inflation on Omega’s results of operations. However, these provisions may have limited effectiveness at mitigating the risk of high levels of inflation due to contractual limits on escalation that exist in substantially all of our escalation provisions. Our leases are triple-net and typically require the operator to pay all property operating expenses, and therefore, increases in property-level expenses at our leased properties generally do not directly affect us. However, increased operating costs resulting from inflation could have an adverse impact on our operators and borrowers if increases in their operating expenses exceed increases in their revenue, which may adversely affect our operators’ or borrowers’ ability to pay rent or other obligations owed to us.
An increase in our operators’ expenses and a failure of their revenues to increase at least with inflation could adversely impact our operators’ and our financial condition and our results of operations.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
From time to time, the Company issues shares of common stock in reliance on the private placement exemption under Section 4(a)(2) of the Securities Act of 1933, as amended, in exchange for Omega OP Units. During the quarter ended SeptemberSeptember 30, 2022,2023, Omega did not issue any shares of Omegaour common stock in exchange for Omega OP Units.
Issuer Purchases of Equity Securities
On January 27, 2022, the Board of Directors authorized the Company to repurchase of up to $500 million of our outstanding common stock from time to time through March 2025. The Company is authorized to repurchase shares of its common stock in open market and privately negotiated transactions or in any other manner as determined by the Company’s management and in accordance with applicable law. The timing and amount of stock repurchases will be determined, in management’s discretion, based on a variety of factors, including but not limited to market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The Company has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time.
During the third quarter of 2022,2023, we did not repurchase any shares of our outstanding common stock.
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Item 6–Exhibits
| | |
Exhibit No. | | |
| | |
31.1 | | |
31.2 | | |
32.1 | | Section 1350 Certification of the Chief Executive Officer of Omega Healthcare Investors, Inc.* |
32.2 | | Section 1350 Certification of the Chief Financial Officer of Omega Healthcare Investors, Inc.* |
101 | | The following financial statements (unaudited) from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, |
104 | | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). |
* Exhibits that are filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OMEGA HEALTHCARE INVESTORS, INC.
Registrant
Date: November 3, | By: | /S/ C. TAYLOR PICKETT |
| | C. Taylor Pickett |
| | Chief Executive Officer |
| | |
Date: November 3, | By: | /S/ ROBERT O. STEPHENSON |
| | Robert O. Stephenson |
| | Chief Financial Officer |
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