10-K: Annual report pursuant to Section 13 and 15(d)
Published on February 13, 2025
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
For the transition period from to
(Exact Name of Registrant as Specified in its Charter)
(Omega Healthcare Investors, Inc.) |
(Omega Healthcare Investors, Inc.) |
(Omega Healthcare Investors, Inc.) |
(State or other jurisdiction of incorporation or organization) |
(Commission file number) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(
(Telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Registrant |
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Title of Each Class |
Trading Symbol (s) |
Name of Exchange on |
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Omega Healthcare Investors, Inc. |
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ◻ |
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 twelve 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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one:)
Accelerated filer ◻ |
Non-accelerated filer ◻ |
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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 7(a)(2)(B) of the Securities Act.
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Yes ☐ No ☐
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes |
The aggregate market value of the common stock Omega Healthcare Investors, Inc. held by non-affiliates was $
As of February 7, 2025, there were on the
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2025 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2024, are incorporated by reference in Part III herein.
TABLE OF CONTENTS
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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 Annual Report on Form 10-K 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 this Annual Report on Form 10-K; |
| (2) | uncertainties relating to the business operations of the operators of our assets, including those relating to reimbursement by third-party payors, regulatory matters, occupancy levels and quality of care, including the management of infectious diseases; |
| (3) | the timing of our operators’ recovery from staffing shortages, increased costs and decreased occupancy resulting from inflation and the long-term impacts of the COVID-19 pandemic and the sufficiency of previous government support and current reimbursement rates to offset such costs and the conditions related thereto; |
| (4) | additional regulatory and other changes in the healthcare sector, including recently issued federal minimum staffing requirements for skilled nursing facilities (“SNFs”) that may further exacerbate labor and occupancy challenges for our operators; |
| (5) | the ability of our operators in bankruptcy to reject unexpired lease obligations, modify the terms of our mortgages and impede our ability to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor’s obligations, and other costs and uncertainties associated with operator bankruptcies; |
| (6) | changes in tax laws and regulations affecting real estate investment trusts (“REITs”), including as the result of any policy changes driven by the current focus on capital providers to the healthcare industry; |
| (7) | our ability to re-lease, otherwise transition, or sell underperforming assets or assets held for sale on a timely basis and on terms that allow us to realize the carrying value of these assets or to redeploy the proceeds therefrom on favorable terms, including due to the potential impact of changes in the SNF and assisted living facility (“ALF”) markets or local real estate conditions; |
| (8) | the availability and cost of capital to us; |
| (9) | changes in our credit ratings and the ratings of our debt securities; |
| (10) | competition in the financing of healthcare facilities; |
| (11) | competition in the long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs; |
| (12) | changes in the financial position of our operators; |
| (13) | the effect of economic, regulatory and market conditions generally and, particularly, in the healthcare industry and in jurisdictions where we conduct business, including the U.K.; |
| (14) | changes in interest rates and the impact of inflation; |
| (15) | the timing, amount and yield of any additional investments; |
| (16) | our ability to maintain our status as a REIT; and |
| (17) | the effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including natural disasters, health crises or pandemics, cyber threats and governmental action, particularly in the healthcare industry. |
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PART I
Item 1 – Business
Overview
Omega Healthcare Investors, Inc. (“Parent”) is a Maryland corporation that invests in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”), which investments comprise our one reportable segment. Omega became a publicly traded company listed on the New York Stock Exchange in 1992. Our primary objective is to provide strong returns to our investors, while serving as the preferred capital partner to our third-party healthcare operating companies and affiliates (collectively, our “operators”) and other third-party high quality healthcare operators so they can concentrate on providing a high level of care for their resident-patients.
Parent, 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 subsidiaries, “Omega OP”). As of December 31, 2024, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.
Property Types
Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings (“MOBs”). The following is a summary of our various property types.
| ● | Skilled nursing facilities – SNFs provide services that include daily nursing, therapeutic rehabilitation, social services, activities, housekeeping, nutrition, medication management and administrative services for individuals requiring certain assistance for activities in daily living. |
| ● | Assisted living facilities – ALFs provide services that include assistance for activities in daily living and permit residents to maintain some of their privacy and independence as they do not require constant supervision and assistance. Services usually include daily housekeeping, laundry, medical reminders and assistance with the activities of daily living, such as eating, dressing and bathing. |
| ● | Independent living facilities – ILFs are age-restricted multi-family properties with central dining facilities that provide services that include security, housekeeping, activities, nutrition and limited laundry services. |
| ● | Specialty facilities – Specialty facilities consist of specialty hospitals, long-term acute care hospitals, inpatient rehabilitation facilities, behavioral health substance facilities, behavioral health psychiatric facility and traumatic brain injury facilities. |
| ● | Medical office buildings – MOBs are facilities designed specifically for healthcare providers such as physicians, dentists and other clinicians. |
Investment Strategy & Types
We maintain a portfolio of long-term healthcare facilities, mortgages and other real estate loans on healthcare facilities located in the U.S. and the U.K. Our investments are generally geographically diverse and operated by a diverse group of operators that we believe meet our standards for quality and experience of management and creditworthiness. Our criteria for evaluating potential investments include but are not limited to:
· |
the quality and experience of management and the creditworthiness of the operator of the facility; |
· |
the facility’s historical and forecasted cash flow and its ability to meet operational needs, capital expenditure requirements and lease or debt service obligations; |
· |
the construction quality, condition and design of the facility and its environmental impact; |
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the location of the facility; |
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· |
the tax, growth, regulatory and reimbursement environment of the applicable jurisdiction; |
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the occupancy rate for the facility and demand for similar healthcare facilities in the same or nearby communities; and |
· |
the payor mix of private, Medicare and Medicaid patients at the facility. |
As healthcare delivery continues to evolve, we continuously evaluate potential investments, as well as our assets, operators and markets to position our portfolio for long-term success. As part of our evaluation, we may sometimes consider selling or transitioning assets that do not meet our portfolio criteria.
We prefer to invest in fee simple ownership of properties. Due to regulatory, tax or other considerations, we may pursue alternative investment structures, such as mortgages, other real estate loans and investments in joint ventures. While the market for long-term care real estate acquisitions in the U.S. remained competitive in 2024, we continued to seek and identify selective investments that are accretive to our portfolio. In addition to our U.S.-based investments, we expect to continue to pursue investments in alternative jurisdictions such as the U.K. As part of our continuous evaluation of our portfolio and in connection with certain operator workout transactions, we may opportunistically sell assets, or portfolios of assets, from time to time. In addition, as the long-term care industry evolves and adapts to new protocols, we have made and may continue to make select ancillary investments, including equity investments, in companies that enhance the technology and infrastructure of long-term care providers and our operators.
We typically seek substantial liquidity deposits, covenants regarding minimum working capital and net worth, liens on accounts receivable and other operating assets, and various provisions for cross-default, cross-collateralization and corporate and/or personal guarantees for our investments when appropriate.
The following summarizes our primary investment structures. The average annualized yields described below reflect obligations under existing contractual arrangements. However, due to the nature of the long-term care industry, we cannot assure that the operators of our facilities will meet their payment obligations in full or when due. Therefore, the annualized yields as of December 31, 2024, set forth below, are not necessarily indicative of future yields, which may be lower.
Real Estate Assets & Leases
Our real estate assets are primarily comprised of land, buildings and improvements and any furniture and equipment contained within our facilities. Substantially all of our leases are triple-net operating leases and require the operator to pay rent and all additional charges incurred in the operation of the leased facility. Additionally, our triple-net leases generally require our operators to fund a minimum amount of capital expenditures. At December 31, 2024, we had one direct financing lease. Our triple-net operating leases typically range from 5 to 15 years, plus renewal options. Our leases generally provide for minimum annual rents that are subject to annual escalators. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. At December 31, 2024, our average annualized yield from operating leases was approximately 10.0%. At December 31, 2024, approximately 85.4% of our operating leases have lease terms expiring after 2029. The majority of our leased real estate properties are leased under provisions of master lease agreements that govern more than one facility, and to a lesser extent, we lease facilities under single facility leases. Under our master leases, our operators are required to make one monthly payment that represents rent on all the properties that are subject to the master lease. Certain of our leases also contain operator purchase options or landlord put options.
We direct a significant amount of our capital back into existing assets, which we believe sets the stage for our long-term strategic success. Some of our leases provide our operators with advances for the construction of facilities or capital expenditures for strategic facility enhancements. Typically, these advances require the operator to pay a fixed percentage of the advances funded as capital expenditure rent under the lease. Construction and upgrades made under these lease clauses are capitalized within our real estate assets. Certain interest costs associated with funds used for the construction of facilities owned by us are capitalized. The amount capitalized into our real estate assets is based upon the amount advanced during the construction period using an interest rate that approximates our cost of financing. Interest expense is reduced by the amount capitalized. As of December 31, 2024, we had $210.9 million of investments related to the construction of new facilities and we are committed to construction and capital expenditures of $221.8 million under lease agreements.
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Real Estate Loans
Real estate loans consist of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien or a leasehold mortgage on, or an assignment of the partnership interest in, the related properties. Our real estate loans typically have a fixed interest rate for the loan term. We enter into real estate loans for existing facilities and for the construction of facilities. From time to time, we may provide loans that allow us to participate in the expected residual profits of a facility through the sale, refinancing or acquisition of the property. At December 31, 2024, our average annualized yield on real estate loan investments was approximately 10.9%. At December 31, 2024, approximately 60.8% of our real estate loans have maturity dates that expire after 2029.
Investments in Unconsolidated Joint Ventures
From time to time, we also acquire equity interests in joint ventures or entities that own or provide financing for real estate assets and/or support the long-term healthcare industry and our operators. These are investments in entities that we do not consolidate but for which we can exercise significant influence over operating and financial policies and are reported under the equity method of accounting. Our investments in unconsolidated entities generally represent interests ranging from 9% to 51%. Under the equity method of accounting, our share of the investee’s earnings or losses is included in our consolidated results of operations. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest inclusive of transaction costs.
Non-Real Estate Loans
Our portfolio includes non-real estate loans to our operators, their principals and/or asset purchasers. We make non-real estate loans on a limited basis, in connection with managing our overall credit risk. These loans may be either unsecured or secured by the collateral of the borrower and are typically short-term in nature. Collateral under secured non-real estate loans typically consists of the working capital of operator entities, personal guarantees or assets of the individual obligor. At December 31, 2024, our average annualized yield on these investments was approximately 9.6%. At December 31, 2024, approximately 24.8% of our non-real estate loans have maturity dates that expire after 2029.
Portfolio and Investment Summary
As of December 31, 2024, our portfolio of real estate investments included 1,026 healthcare facilities that are operated by 87 third-party operators in 42 states and the U.K. and consists of the following:
| ● | real estate assets, subject to operating leases, that include 588 SNFs, 290 ALFs, 19 ILFs, 18 specialty facilities and one MOB; |
| ● | an investment in a direct financing lease on one SNF; |
| ● | real estate loans, including first lien mortgages, on 52 SNFs, 43 ALFs, one specialty facility and one ILF; and |
| ● | 12 facilities held for sale. |
We also maintain investments in unconsolidated joint ventures that hold five SNFs, one ALF and one specialty facility. In addition, we maintain a portfolio of non-real estate loans, as noted in the table below.
Included below is a summary of our total investment assets, excluding accumulated depreciation, as of December 31, 2024 and 2023 (dollars in thousands):
As of December 31, |
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2024 |
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2023 |
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Real estate assets: |
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Real estate assets |
$ |
9,060,174 |
$ |
8,372,419 |
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Investments in direct financing leases – net |
|
9,453 |
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8,716 |
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Real estate loans receivable – net |
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1,428,298 |
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1,212,162 |
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Investments in unconsolidated joint ventures |
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88,711 |
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188,409 |
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Assets held for sale |
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56,194 |
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67,116 |
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Total real estate investments |
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10,642,830 |
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9,848,822 |
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Non-real estate loans receivable – net |
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332,274 |
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275,615 |
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Total investments |
$ |
10,975,104 |
$ |
10,124,437 |
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Revenues
The following table summarizes our revenues by investment category for 2024, 2023 and 2022 (dollars in thousands):
Year Ended December 31, |
|||||||||
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2024 |
|
2023 |
|
2022 |
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Real estate related income: |
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Rental income |
$ |
887,910 |
$ |
826,394 |
$ |
751,231 |
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Real estate loans interest income |
|
126,800 |
|
97,766 |
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110,322 |
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Total real estate related revenues |
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1,014,710 |
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924,160 |
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861,553 |
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Non-real estate loans interest income |
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30,407 |
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22,122 |
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13,597 |
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Miscellaneous income |
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6,273 |
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3,458 |
|
3,094 |
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Total revenues |
$ |
1,051,390 |
$ |
949,740 |
$ |
878,244 |
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The table set forth in Item 2 – Properties contains additional information regarding the geographic concentration of our facilities and investments as of December 31, 2024.
Borrowing Policies
We generally attempt to match the maturity of our indebtedness with the maturity of our investment assets and employ long-term, fixed-rate debt to the extent practicable in view of market conditions in existence. We may use the proceeds of new indebtedness to finance our investments in additional healthcare facilities. In addition, we may invest in properties subject to existing loans, secured by mortgages, deeds of trust or similar liens on properties.
Policies With Respect To Certain Activities
With respect to our capital requirements, we typically rely on equity offerings, debt financing and retention of cash flow (subject to provisions in the Internal Revenue Code of 1986, as amended (the “Code”) concerning taxability of undistributed REIT taxable income), or a combination of these methods. Our financing alternatives include bank borrowings, publicly or privately placed debt instruments, purchase money obligations to the sellers of assets or securitizations, any of which may be issued as secured or unsecured indebtedness. We have the authority to issue our common stock or other equity or debt securities in exchange for property and to repurchase or otherwise reacquire our securities. Subject to the percentage of ownership limitations and gross income and asset tests necessary for REIT qualification, we may invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such entities. We may engage in the purchase and sale of investments. We do not underwrite the securities of other issuers. Our officers and directors may change any of these policies without a vote of our stockholders. In the opinion of our management, our properties are adequately covered by insurance.
Competition
The healthcare industry is highly competitive and will likely become more competitive in the future. We face competition in making and pricing new investments from other public and private REITs, investment companies, private equity and hedge fund investors, healthcare operators, lenders, developers and other institutional investors, some of whom may have greater resources and lower costs of capital than us. In addition, a significant amount of our rental and loan interest income is generally derived from facilities in jurisdictions that require approval for development and expansion of healthcare facilities. We believe that such approvals may reduce competition for our operators and enhance the value of our properties. Our operators compete on a local and regional basis with operators of facilities that provide comparable services and, in certain cases, home and community health solutions. The basis of competition for our operators includes, amongst other factors, the quality of care provided, reputation, the physical appearance of a facility, price, the range of services offered, family preference, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location and the size and demographics of the population and surrounding areas.
Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our objectives. Our ability to compete is also impacted by global, national and local economic trends, availability of investment alternatives, availability and cost of capital, our financial condition, construction and renovation costs, existing laws and regulations, new legislation, healthcare trends and population trends.
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Taxation of Omega
Omega elected to be taxed as a REIT, under Sections 856 through 860 of the Code, beginning with our taxable year ended December 31, 1992. To continue to qualify as a REIT, we must continue to meet certain tests that, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than net capital gains) to our stockholders annually. Provided we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent such net income is distributed to our stockholders annually. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property. We believe that we were organized and have operated in such a manner as to qualify for taxation as a REIT. We intend to continue to operate in a manner that will allow us to maintain our qualification as a REIT, but no assurance can be given that we have operated or will be able to continue to operate in a manner so as to qualify or remain qualified as a REIT.
We have utilized, and may continue to utilize, one or more taxable REIT subsidiaries (“TRS”) to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Our TRSs generally are taxable as regular corporations, and therefore, subject to federal, foreign, state and local income taxes.
To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our “REIT taxable income,” as adjusted, we will be subject to tax thereon at regular corporate rates. If we were to fail to qualify as a REIT in any taxable year, as a result of a determination that we failed to meet the annual distribution requirement or otherwise, we would be subject to federal and state income tax, and any applicable alternative minimum tax on our taxable income at regular corporate rates with respect to each such taxable year for which the statute of limitations remains open. In addition, even if we continue to qualify as a REIT, we could become subject to certain excise taxes. Moreover, unless entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would significantly reduce our net earnings and cash flow because of our additional tax liability for the years involved, which could significantly impact our financial condition.
All of our investments are held directly or through entities owned by Omega OP. Omega OP is a pass through entity for U.S. federal income tax purposes, and therefore we are required to take into account our allocable share of each item of Omega OP’s income, gain, loss, deduction, and credit for any taxable year of Omega OP ending within or with our taxable year, without regard to whether we have received or will receive any distribution from Omega OP. Although a partnership agreement for pass through entities generally will determine the allocation of income and losses among partners, such allocations will be disregarded for tax purposes if they do not comply with the provisions of the Code and Treasury Regulations governing partnership allocations. If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership, which will be determined by considering all the facts and circumstances relating to the economic arrangement of the partners with respect to such item. While Omega OP should generally not be a taxable entity for federal income tax purposes, any state or local revenue, excise or franchise taxes that result from the operating activities of the Omega OP may be incurred at the entity level.
Investors are strongly urged to consult their own tax advisors regarding the potential tax consequences of an investment in us based on such investor’s particular circumstances.
Government Regulation and Reimbursement
The healthcare industry is heavily regulated. Our U.S.-based operators, which comprise the majority of our operators, are subject to extensive and complex federal, state and local healthcare laws and regulations; our U.K.-based operators are also subject to a variety of laws and regulations in their jurisdictions. 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 in the U.S., among others.
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The long-term care industry continues to recover from the impacts of the COVID-19 pandemic although a certain level of labor shortages, lower occupancy and certain expense increases that began during the COVID-19 pandemic persist, with certain operators continuing to experience these challenges in a much more profound way. In addition, the impact of these ongoing challenges such as labor pressures and inflationary cost increases may depend on future developments, including the ultimate scope, implementation timeline and impact of the federal minimum staffing rules for SNFs that were issued in April 2024, the sufficiency of reimbursement rate setting and the continued efficacy of infection control measures and regulations, all of which are uncertain and difficult to predict and may continue to adversely impact our business, results of operations, financial condition and cash flows.
A significant portion of our operators’ revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid in the U.S. and local authority funding in the U.K. As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors, such as the U.S. Centers for Medicare and Medicaid Services (“CMS”) push towards Medicare Advantage programs and the potential for Medicaid reforms, 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. Changes in presidential administrations and/or congressional makeup at the federal level can increase the political focus on entitlement program changes which can create uncertainty with respect to the level of reimbursement available or the extent of regulation of the industry.
In addition to quality and value-based reimbursement reforms, 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. 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. SNFs are required to comply with new reporting requirements, effective as of January 16, 2024, relating to ownership by and affiliations with private equity firms and REITs, as well as provide information for inclusion on the CMS Nursing Home Care Compare website regarding staffing and quality measures. Any of these reporting requirements may impact occupancy at our properties and our business, results of operations, financial condition and cash flows.
The following is a discussion of certain U.S. laws and regulations generally applicable to our operators, and in certain cases, to us.
Quality of Care and Staffing Initiatives. Several regulatory initiatives announced from 2020 to 2022 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes. In addition, the CMS Nursing Home Care Compare website and the Five Star Quality Rating System were updated to include revisions to the inspection process, adjustment of staffing rating thresholds, the implementation of new quality measures and the inclusion of a staff turnover percentage (over a 12-month period).
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Additionally, on April 22, 2024, CMS issued a final rule regarding minimum staffing requirements and increased inspections at SNFs, which CMS estimates exceed existing staffing standards in nearly all states. The final rule is being implemented on a staggered phase-in basis based on geographic location and will require nursing homes participating in Medicare and Medicaid to maintain a total nurse staffing standard of 3.48 hours per resident day (“HPRD”), which must include at least 0.55 HPRD of direct registered nurse care and 2.45 HPRD of direct nurse aide care. Facilities would be permitted to use any combination of nurse staff (registered nurse, licensed practical nurse and licensed vocational nurse or nurse aide) to account for the additional 0.48 HPRD required to comply with the total nurse staffing standard. In addition, the final rule requires SNFs to ensure a registered nurse is onsite 24 hours per day, seven days per week, although CMS indicated that a director of nursing role could fulfill such requirement. The final rule also provides possible hardship exemptions for qualifying facilities for some parts of these requirements based on workforce unavailability and other factors. The final rule was not accompanied by additional funding for our operators to offset the costs associated with meeting these increased staffing requirements in an industry that is already facing staffing shortages. Multiple lawsuits have been filed in federal court to overturn the minimum staffing requirements on the basis that CMS exceeded its authority. The increased staffing requirements, if not overturned legislatively or by legal action, or if not accompanied by increased state reimbursement to offset the increased financial burden, may have a future adverse impact on the financial condition of many of our operators, which may be material, but which likely would not be experienced until closer to the point of delayed implementation, ranging from within 90 days and five years of the final rule publication.
Further, on March 30, 2023, CMS issued a memorandum revising and enhancing enforcement efforts for infection control deficiencies found in nursing homes that are targeted at higher-level infection control deficiencies that result in actual harm or immediate jeopardy to residents. Similar to other serious survey deficiencies, penalties for the most serious infection control deficiencies include civil monetary penalties and discretionary payment denials for new resident admissions.
The Biden Administration additionally announced in March 2022 a focus on reviewing private equity investment specifically in the skilled nursing sector. On November 15, 2023, CMS issued a final rule, effective January 16, 2024, that requires SNFs participating in the Medicare or Medicaid programs to disclose certain ownership and managerial information regarding their relationships with certain entities that lease real estate to SNFs, including REITs. The CMS announcement noted concerns regarding the quality of care provided at SNFs owned by private equity firms, REITs and other investment firms. Further, in 2024, several U.S. senators proposed legislation that would, if enacted, restrict certain investors, including REITs and private equity firms, from investing in healthcare facilities or impose penalties on certain landlords or private equity investors in healthcare facilities whose operators subsequently enter into bankruptcy proceedings. On January 8, 2025, the State of Massachusetts enacted a law that requires notification for certain transactions involving SNFs and REITs and restricts new licenses to hospitals with certain facilities leased from REITs. In addition, in January 2025, HHS and the Senate Budget Committee issued reports that found private equity investment in healthcare has had negative consequences for patients and providers. These initiatives, as well as additional calls for federal and state governmental review of the role of private equity in the U.S. healthcare industry and proposed legislation related to certain SNF financial arrangements with REITs, if enacted, could result in additional requirements or restrictions on our operators or us. The likelihood of any of these measures passing at the federal level remains uncertain.
In addition, on April 22, 2024, CMS issued the Ensuring Access to Medicaid Services final rule, which requires that, beginning six years after the effective date of the final rule, states generally ensure that at least 80% of Medicaid home and community-based services (“HCBS”) payments be put toward compensation for direct care workers. The final rule also requires more transparency regarding how much states pay for HCBS and how those rates are set. It is uncertain what the ultimate impact of the final rule, as well as similar initiatives at the state level, will be on providers of Medicaid HCBS services, given uncertainty related to how HCBS providers are currently spending Medicaid dollars, how many providers fall below the required 80% threshold and how well regulators can measure and track spending by HCBS providers. In addition, it remains unclear whether similar requirements, including those establishing minimum allocations of Medicaid or other reimbursements to direct care workers, will be proposed for SNFs, ALFs and other senior care providers; any such requirements, if enacted, could have a material adverse impact on the financial condition of our operators.
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Reimbursement Generally
Medicaid. Most of our SNF operators derive a substantial portion of their revenue from state Medicaid programs. Whether and to what extent the level of Medicaid reimbursement covers the actual cost to care for a Medicaid eligible resident varies by state and depends on federal matching levels. 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 subject to changes based on state budgetary constraints and national and state level political factors, both of which could result in decreased or insufficient reimbursement to the industry even in an environment where costs are rising. Changes in presidential administrations and/or congressional makeup at the federal level can increase the political focus on entitlement program changes, which can create uncertainty with respect to the level of reimbursement available or the extent of regulation of the industry. Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement or increases in the percentage of Medicaid patients have 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 risk of insufficient Medicaid reimbursement rates or delays in such reimbursements, along with possible initiatives to push residents historically cared for in SNFs to alternative settings, labor shortages in certain areas and limited regulatory support for increased levels of reimbursement in certain states, may impact us more acutely in states where we have a larger presence. While state reimbursement rates have generally improved over the last several years, reimbursement support is not consistent across states, and it is difficult to assess whether the level of reimbursement support has or will continue to adequately keep pace with increased operator costs. We continue to monitor rate adjustment activity, particularly in states in which we have a meaningful presence.
Medicare. On July 31, 2024, CMS issued a final rule regarding the government fiscal year 2025 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by $1.4 billion, or 4.2%, for fiscal year 2025 compared to fiscal year 2024. This estimated reimbursement increase is attributable to a 4.2% net market basket update to the payment rates, which is based on a 3.0% SNF market basket increase plus a 1.7% market basket forecast error adjustment and less a 0.5% productivity adjustment. In addition to the payment rate update, CMS stated that it has rebased and revised the SNF market basket to reflect a 2022 base year. The annual update is reduced by 2% for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program. CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be $196.5 million in fiscal year 2025. While Medicare reimbursement rate setting, which takes effect annually each October, has historically included forecasted inflationary adjustments, the degree to which those forecasts accurately reflect current expense levels remains uncertain. Additionally, it remains uncertain whether these adjustments will ultimately be offset by other factors, including any adjustments related to the impact of various payment models, such as those described below.
Payments to providers continue to be increasingly tied to quality and efficiency. The Patient Driven Payment Model (“PDPM”), which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effective October 1, 2019. CMS has stated that it intended PDPM to be revenue-neutral to operators, with future Medicare reimbursement reductions possible if that was not the case. In August 2022, CMS issued a final rule providing that, to obtain revenue neutrality, it would utilize a PDPM parity adjustment factor of 4.6% for Medicare payment rates with a two-year phase-in period that would reduce SNF spending by 2.3%, or approximately $780 million, in each of fiscal years 2023 and 2024. Our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value-based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act. These reimbursement changes have had and may, together with any further reimbursement changes to the PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some of our operators and could adversely impact the ability of our operators to meet their obligations to us.
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 intended 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. The full 2% Medicare sequestration went into effect as of July 1, 2022 and gradually increases to 4% from 2030 through 2031.
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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 allowed for the facility to bill an originating site fee to CMS for telehealth services provided to Medicare Part B beneficiary residents of the facility when the services were provided by a physician from an alternate location, effective March 6, 2020 through May 11, 2023, the expiration of the public health emergency. The Consolidated Appropriations Act of 2023 extended the ability of occupational therapists, physical therapists and speech-language pathologists to continue to furnish these services via telehealth and bill as distant site practitioners until the end of 2024, which was further extended through March 31, 2025 by the American Relief Act.
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.
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 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.
Medicare and Medicaid Program Audits. Governmental agencies and their agents, such as the Medicare Administrative Contractors, fiscal intermediaries and carriers, as well as the OIG, CMS and state Medicaid programs, conduct audits of our operators’ billing practices from time to time. CMS contracts with Recovery Audit Contractors on a contingency basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program, to managed Medicare plans and in the Medicaid program. Regional Recovery Audit Contractor program auditors along with the OIG and DOJ are expected to continue their efforts to evaluate SNF Medicare claims for any excessive therapy charges. CMS also employs Medicaid Integrity Contractors to perform post-payment audits of Medicaid claims and identify overpayments. In addition, the state Medicaid agencies and other contractors have increased their review activities. To the extent any of our operators are found out of compliance with any of these laws, regulations or programs, their financial position and results of operations can be adversely impacted, which in turn could adversely impact us.
Fraud and Abuse. There are various federal and state civil and criminal laws and regulations governing a wide array of healthcare provider referrals, relationships and arrangements, including laws and regulations prohibiting fraud by healthcare providers. Many of these complex laws raise issues that have not been clearly interpreted by the relevant governmental authorities and courts.
These laws include: (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs; (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid Anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, such as services provided in a SNF; (iii) federal and state physician self-referral laws (commonly referred to as the Stark Law), which generally prohibit referrals by physicians to entities for designated health services (some of which are provided in SNFs) with which the physician or an immediate family member has a financial relationship; (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services and (v) federal and state privacy laws, including the privacy and security rules contained in the Health Insurance Portability and Accountability Act of 1996, which provide for the privacy and security of personal health information.
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Violations of healthcare fraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. Additionally, there are criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, as well as failing to refund overpayments or improper payments. Violation of the Anti-kickback statute or Stark Law may form the basis for a federal False Claims Act violation. These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or whistleblower actions, which have become more frequent in recent years.
Several of our operators have responded to subpoenas and other requests for information regarding their operations in connection with inquiries by the DOJ or other regulatory agencies.
Privacy. Our operators are subject to various federal, state and local laws and regulations designed to protect the confidentiality and security of patient health information, including the federal Health Insurance Portability and Accountability Act of 1996, as amended, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and the corresponding regulations promulgated thereunder (collectively referred to herein as “HIPAA”). The HITECH Act expanded the scope of these provisions by mandating individual notification in instances of breaches of protected health information, providing enhanced penalties for HIPAA violations, and granting enforcement authority to states’ Attorneys General in addition to the HHS Office for Civil Rights (“OCR”). Additionally, in a final rule issued in January 2013, HHS modified the standard for determining whether a breach has occurred by creating a presumption that any non-permitted acquisition, access, use or disclosure of protected health information is a breach unless the covered entity or business associate can demonstrate through a risk assessment that there is a low probability that the information has been compromised.
Various states have similar laws and regulations that govern the maintenance and safeguarding of patient records, charts and other information generated in connection with the provision of professional medical services. These laws and regulations require our operators to expend the requisite resources to secure protected health information, including the funding of costs associated with technology upgrades. Operators found in violation of HIPAA or any other privacy law or regulation may face significant monetary penalties. In addition, compliance with an operator’s notification requirements in the event of a breach of unsecured protected health information could cause reputational harm to an operator’s business.
Licensing and Certification. Our operators and facilities are subject to various federal, state and local licensing and certification laws and regulations, including laws and regulations under Medicare and Medicaid requiring operators of SNFs and ALFs to comply with extensive standards governing operations. Governmental agencies administering these laws and regulations regularly inspect our operators’ facilities and investigate complaints. Our operators and their managers receive notices of observed violations and deficiencies from time to time, and sanctions have been imposed from time to time on facilities operated by them. In addition, many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, expansion or closure of certain healthcare facilities, which has the potential to impact some of our operators’ abilities to expand or change their businesses.
Other Laws and Regulations. Additional federal, state and local laws and regulations affect how our operators conduct their operations, including laws and regulations protecting consumers against deceptive practices and otherwise generally affecting our operators’ management of their property and equipment and the conduct of their operations (including laws and regulations involving fire, health and safety); the Americans with Disabilities Act (the “ADA”), which imposes certain requirements to make facilities accessible to persons with disabilities, the costs for which we may be directly or indirectly responsible; the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the “Healthcare Reform Law”), which amended requirements for staff training, discharge planning, infection prevention and control programs, and pharmacy services, among others; staffing; quality of services, including care and food service; residents’ rights, including abuse and neglect laws; and health standards, including those set by the federal Occupational Safety and Health Administration (in the U.S.). Our operators may continue to face additional federal and state regulatory requirements related to the operation of their facilities. These requirements may continue to evolve and develop over lengthy periods of time.
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General and Professional Liability. Although arbitration agreements have been effective in limiting general and professional liabilities for SNF and long-term care providers, there have been numerous lawsuits in recent years challenging the validity of arbitration agreements in long-term care settings. On July 16, 2019, CMS issued a final rule lifting the prohibition on pre-dispute arbitration agreements offered to residents at the time of admission provided that certain requirements are met. The rule prohibits providers from requiring residents to sign binding arbitration agreements as a condition for receiving care and requires that the agreements specifically grant residents the explicit right to rescind the agreement within thirty calendar days of signing. A number of professional liability and employment related claims have been filed or are threatened to be filed against long-term care providers related to COVID-19. While such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation, an adverse resolution of any of legal proceeding or investigations against our operators may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on our operators’ reputation, business, results of operations and cash flows.
U.K. Regulations. The U.K. also imposes very high levels of regulation on our U.K.-based operators. In England, where the majority of our U.K. operators are based, the Care Quality Commission (“CQC”) has regulatory oversight authority over the health and social care sectors and is responsible for approving, registering and inspecting our operators and the properties where they provide services. There is also a detailed legislative and regulatory framework in the U.K. designed to protect the vulnerable (whether by virtue of age or physical and/or mental impairment) and to prevent abuse. Each of these regulatory regimes carries significant enforcement powers, including the ability to criminally prosecute offending operators and facilities, impose fines or revoke registrations. Additionally, under the purview of the Competition and Markets Authority, local authorities are tasked with providing and funding the care needs of eligible residents within the applicable local authority area. There is ongoing debate and uncertainty within the U.K. as to how growing care needs will be met and funded in the future, and it is not clear at this stage what, if any, or the extent of such, impact will be on our U.K.-based operators.
Additionally, there has been significant legislation passed and guidance issued in the U.K. resulting from the COVID-19 pandemic. Much of the legislation or guidance sets out the additional precautions, measures or restrictions which were required in the care sector, including infection control measures and vaccination requirements for care sector workers. While the U.K. has transitioned to a post-COVID-19 pandemic position with lessened regulation across the U.K as a whole, the care sector remains subject to specific COVID-19 guidance and requirements issued by the CQC and the U.K. government’s Department for Health and Social Care, including in relation to infection control measures, the use of personal protective equipment and testing. As a result, our U.K.-based operators still face significantly increased regulatory burdens under which they must deliver services and continue to experience significant impacts on their operations and financial condition, which has been somewhat offset by the level of stimulus provided.
Corporate Sustainability Program
We prioritize corporate responsibility initiatives that matter most to our business and shareholders. Our Nominating and Corporate Governance Committee of our Board of Directors (“Board”) has been charged with primary oversight of these efforts. The Company has established a steering committee, with senior representation from all divisions of the company, that is responsible for advancing the Company’s corporate sustainability programs, including environmental, governance and social responsibility programs. The Nominating and Corporate Governance Committee exercises oversight of this steering committee.
As a triple-net landlord, our third-party operators maintain operational control and responsibility for our real estate on a day-to-day basis. While our ability to mandate environmental changes to their operations is limited, our tenants are contractually bound to preserve and maintain our properties in good working order and condition. In connection with this, they are required to meet or exceed annual expenditure thresholds on capital improvements and enhancements of our properties, which in some cases may facilitate improvements in the environmental performance of our properties and reduces energy usage, water usage, and direct and indirect greenhouse gas emissions. Beginning in 2021, we have also implemented a capital expenditure sustainability initiative to encourage operators to invest in financially beneficial and environmentally enhancing investment projects. The goal is to incentivize operators to invest in sustainable capital projects that provide a favorable return on investment while reducing the environmental footprint of these operations. Our due diligence on real estate acquisitions generally includes environmental assessments as part of our analysis to understand the environmental condition of the property, and to determine whether the property meets certain environmental standards. Similarly, during the due diligence process, we seek to evaluate the risk of physical, natural disaster or extreme weather patterns on the properties we are looking to acquire and to assess their compliance with building codes, which often results in remediations that incorporate sustainable improvements into our properties.
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We are committed to providing a positive and engaging work environment for our employees and taking an active role in the betterment of the communities in which our employees live and work. See also “Human Capital Management” immediately below.
Additional information regarding our corporate sustainability programs and initiatives is available in the Corporate Sustainability section of our website at www.omegahealthcare.com. Information on our website, including our Corporate Sustainability Report or sections thereof, is not incorporated by reference into this Annual Report.
Human Capital Management
Our success is based on the focused passion and dedication of our people. We believe our employees’ commitment to Omega provides better service to our tenants and stakeholders, supports an inclusive and collegial working environment and generates long-term value for our shareholders and the communities which we serve. As of February 1, 2025, we had 60 employees including the executive officers listed below, none of whom is subject to a collective bargaining agreement. Due to the size and nature of our business, our future performance depends to a significant degree upon the continued contributions of our executive management team and other key employees. As such, the ability to attract, develop and retain qualified personnel will continue to be important to the Company’s long-term success.
We have a long-standing commitment to being an equal opportunity employer. The Company has expanded its recruitment practices to reach more diverse candidates for employment and Board positions and has developed an internship program that supports our local community, including underrepresented and underserved communities, and developing a talent pipeline for Omega. The Company requires employees and Board members to certify its Code of Business Conduct & Ethics periodically, and from time to time, conducts compliance training for all employees and Directors. As of February 1, 2025, at the executive level, one of the Company’s five executive officers is a woman and brings ethnic diversity to the team and one other of the Company’s five executive officers also brings ethnic diversity to the team. As of February 1, 2025, on the senior management team, 29% are women and 29% bring ethnic diversity to the team. We regularly conduct pay equity reviews as we seek for women and men, on average, at various roles and levels of the Company, to be paid equitably for their roles and contributions to our success.
We are committed to providing a positive and engaging work environment for our employees and taking an active role in the betterment of the communities in which our employees live and work. Our full-time employees are provided a competitive benefits program, including comprehensive healthcare benefits and a 401(k) plan with a matching contribution from the Company, the opportunity to participate in our employee stock purchase program, bonus and incentive pay opportunities, competitive paid time-off benefits and paid parental leave, wellness programs, continuing education and development opportunities, and periodic engagement surveys. In addition, we believe that giving back to our community is an extension of our mission to improve the lives of our stockholders, our employees, and their families. The Company has implemented a matching program for charitable contributions of employees, provides annual charitable donations to our local Baltimore community and has implemented scholarship, mentorship and internship programs.
Information about our Executive Officers
Biographical information regarding our executive officers and their ages as of February 1, 2025 are set forth below:
C. Taylor Pickett (63) is our Chief Executive Officer and has served in this capacity since June 2001. Mr. Pickett has also served as Director of the Company since May 30, 2002. Mr. Pickett has also been a member of the board of trustees of COPT Defense Properties, an office REIT focusing on U.S. government agencies and defense contractors, since November 2013. From January 1993 to June 2001, Mr. Pickett served as a member of the senior management team of Integrated Health Services, Inc., most recently as Executive Vice President and Chief Financial Officer. Prior to joining Integrated Health Services, Inc. Mr. Pickett held various positions at PHH Corporation and KPMG Peat Marwick.
Matthew Gourmand (49) is our President and has served in this capacity since January 2025. Mr. Gourmand previously served as Senior Vice President of Corporate Strategy & Investor Relations since October 2017. Prior to this, Mr. Gourmand spent ten years as an equity portfolio manager at Millenium Partners and Stevens Capital Management. Mr. Gourmand spent three years as an equity research analyst at UBS and six years in the audit department of Deloitte where he qualified as a Chartered Accountant and a Certified Public Accountant. Mr. Gourmand also holds the Chartered Financial Analyst designation.
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Vikas Gupta (44) is our Chief Investment Officer and has served in this capacity since January 2025. Mr. Gupta joined the Company in July 2011 and most recently served as our Senior Vice President of Acquisitions & Development since April 2015. From 2003 to July 2011, Mr. Gupta served in various roles at CapitalSource Finance, most recently as a Senior Loan Officer/Vice President, where he oversaw a portfolio of healthcare assets.
Robert O. Stephenson (61) is our Chief Financial Officer and has served in this capacity since August 2001. From 1996 to July 2001, Mr. Stephenson served as the Senior Vice President and Treasurer of Integrated Health Services, Inc. Prior to joining Integrated Health Services, Inc., Mr. Stephenson held various positions at CSX Intermodal, Inc., Martin Marietta Corporation and Electronic Data Systems.
Gail D. Makode (49) is our Chief Legal Officer, General Counsel and has served in this capacity since September 2019. Previously, she served as Senior Vice President, General Counsel and Corporate Secretary of IES Holdings, Inc., from October 2012 to September 2019. Prior to IES, she served in various legal capacities at MBIA Inc., including as General Counsel and member of the board at MBIA Insurance Corporation and Chief Compliance Officer of MBIA Inc., from 2006 to 2012. Earlier in her career, she served as Vice President and Counsel for Deutsche Bank AG, and as an associate at Cleary, Gottlieb, Steen, & Hamilton, where she specialized in public and private securities offerings and mergers and acquisitions.
Available Information
Our website address is www.omegahealthcare.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available on our website, free of charge, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the U.S. Securities and Exchange Commission (“SEC”). Additionally, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us, at www.sec.gov.
Item 1A – Risk Factors
This section discusses material risk factors that may affect our business, operations and financial condition. It does not describe all risks and uncertainties applicable to us, our industry or ownership of our securities. If any of the following risks, or any other risks and uncertainties that are not addressed below or that we have not yet identified, actually occur, we could be materially adversely affected and the value of our securities could decline.
Risks Related to the Operators of Our Facilities
Our financial position could be weakened and our ability to make distributions and fulfill our obligations with respect to our indebtedness could be limited if our operators, or a portion thereof, become unable to meet their obligations to us or fail to renew or extend their relationship with us as their lease terms expire or their mortgages mature, or if we become unable to lease or re-lease our facilities or make mortgage loans on economically favorable terms. We have no operational control over our operators.
The bankruptcy or insolvency of our operators could limit or delay our ability to recover on our investments.
We are exposed to the risk that a distressed or insolvent operator may not be able to meet its lease, loan, mortgage or other obligations to us or other third parties. This risk is heightened during a period of economic or political instability. Although our lease and loan agreements typically provide us with the right to terminate, evict an operator, foreclose on our collateral, demand immediate payment and exercise other remedies upon the bankruptcy or insolvency of an operator, title 11 of the U.S. Code (the “Bankruptcy Code”) would limit or, at a minimum, delay our ability to collect unpaid pre-bankruptcy rents and mortgage payments and to pursue other remedies against a bankrupt operator.
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Leases. A bankruptcy filing by one of our lessee operators would typically prevent us from collecting unpaid pre-bankruptcy rents or evicting the operator, absent approval of the bankruptcy court. The Bankruptcy Code provides a lessee with the option to assume or reject an unexpired lease within certain specified periods of time. Generally, a lessee is required to pay all rent that becomes payable between the date of its bankruptcy filing and the date of the assumption or rejection of the lease (although such payments will likely be delayed as a result of the bankruptcy filing). If one of our lessee operators chooses to assume its lease with us, the operator must promptly cure all monetary defaults existing under the lease (including payment of unpaid pre-bankruptcy rents) and provide adequate assurance of its ability to perform its future lease obligations. Even where a lessee operator assumes its lease with us, it will first often threaten to reject that lease to obtain better lease terms from us, and we sometimes have to consider making, or we do make, such economic concessions to avoid rejection of the lease and our taking a closed facility back. If one of our lessee operators opts to reject its lease with us, we would have a claim against such operator for unpaid and future rents payable under the lease, but such claim would be subject to a statutory “cap” under the Bankruptcy Code, and would likely result in a recovery substantially less than the face value of such claim. Although the operator’s rejection of the lease would permit us to recover possession of the leased facility, we would likely face losses, costs and delays associated with repairs and/or maintenance of the facility and then re-leasing the facility to a new operator, or costs associated with selling the facility. In any event, re-leasing a facility or selling it could take a material amount of time, and the pool of interested and qualified tenants or buyers will be limited due to the unique nature of our properties, which may depress values and our eventual recovery. Finally, whether a lease operator in bankruptcy ends up assuming or rejecting our lease, we will incur legal and collection costs, which can be difficult or impossible to recover.
Several other factors could impact our rights under leases with bankrupt operators. First, the operator could seek to assign its lease with us to a third party. The Bankruptcy Code disregards anti-assignment provisions in leases to permit the assignment of unexpired leases to third parties (provided all monetary defaults under the lease are promptly cured and the assignee can demonstrate its ability to perform its obligations under the lease). Second, in instances in which we have entered into a master lease agreement with an operator that operates more than one facility, the bankruptcy court could determine that the master lease was comprised of separate, divisible leases (each of which could be separately assumed or rejected), rather than a single, integrated lease (which would have to be assumed or rejected in its entirety). Finally, the bankruptcy court could re-characterize our lease agreement as a disguised financing arrangement, which could require us to receive bankruptcy court approval to foreclose or pursue other remedies with respect to the facility.
Mortgages. A bankruptcy filing by an operator to which we have made a loan secured by a mortgage would typically prevent us from collecting unpaid pre-bankruptcy mortgage payments and foreclosing on our collateral, absent approval of the bankruptcy court. As an initial matter, we could ask the bankruptcy court to order the operator to make periodic payments or provide other financial assurances to us during the bankruptcy case (known as “adequate protection”), but the ultimate decision regarding “adequate protection” (including the timing and amount of any “adequate protection” payments) rests with the bankruptcy court. In addition, we would need bankruptcy court approval before commencing or continuing any foreclosure action against the operator’s collateral (including a facility). The bankruptcy court could withhold such approval, especially if the operator can demonstrate that the facility or other collateral is necessary for an effective reorganization and that we have a sufficient “equity cushion” in the facility or that we are otherwise protected from any diminution in value of the collateral. If the bankruptcy court does not either grant us “adequate protection” or permit us to foreclose on our collateral, we may not receive any loan payments until after the bankruptcy court confirms a plan of reorganization for the operator. In addition, in any bankruptcy case of an operator to which we have made a loan, the operator may seek bankruptcy court approval to pay us (i) over a longer period of time than the terms of our loan, (ii) at a different interest rate, and/or (iii) for only the value of the collateral, instead of the full amount of the loan. Finally, even if the bankruptcy court permits us to foreclose on the facility, we would still be subject to the losses, costs and other risks associated with a foreclosure sale, including possible successor liability under government programs, indemnification obligations and suspension or delay of third-party payments. Should such events occur, our income and cash flow from operations would be adversely affected.
Personal Guarantees and Loans. While we sometimes have third-party guarantees of an operator’s lease or loan obligations, and while from time to time we may make loans to individual obligors, such guarantees or loans can be expensive to enforce, and have their own risks of collection against the guarantors or obligors or the estates or successors of such obligors.
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Failure by our operators to comply with government regulations may adversely impact their ability to make debt or lease payments to us.
Our operators are subject to numerous federal, state and local laws and regulations in the U.S. and, for certain operators, in the U.K., including those described in Item 1 – Business – Government Regulation and Reimbursement. Laws and regulations impacting our operators include, without limitation, those relating to reimbursement (including Medicare and Medicaid reimbursement programs in the U.S.), quality of care initiatives (including the implementation of proposed federal minimum staffing requirements in the U.S.), licensing and certification of our operators, fraud and abuse laws and regulations, and privacy and security laws. We cannot predict the effect that the costs of complying with these laws may have on the revenues of our operators, and thus their ability to meet their obligations to us. In addition, requirements applicable to our operators are subject to frequent and substantial changes (sometimes applied retroactively) resulting from new legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law, and any changes in the regulatory framework could have a material adverse effect on our tenants, operators, guarantors and managers. Any of these changes may be more pronounced following governmental leadership changes, particularly following a change in presidential administrations. The ultimate timing or effect of these changes cannot be predicted. These changes may have a dramatic effect on our operators’ costs of doing business and on the amount of reimbursement by both government and other third-party payors. The failure of any of our operators to comply with these laws, requirements and regulations could adversely affect their ability to meet their obligations to us. If we fail to effectively implement or appropriately adjust our operational and strategic initiatives with respect to the implementation of new laws and regulations, or do not do so as effectively as our competitors, our results of operations may be materially adversely affected.
Our operators depend on reimbursement from governmental and other third-party payors, and reimbursement rates from such payors may be reduced, modified or delayed, including through reductions to the Medicare and Medicaid programs for U.S. operators.
Changes in the reimbursement rate or methods of payment from governmental and other third-party payors, including the Medicare and Medicaid programs for U.S. operators, or the implementation of other measures to reduce reimbursements for services provided by our operators has in the past, and could in the future, result in a substantial reduction in our operators’ revenues and operating margins. Reimbursement from governmental and other third-party payors could be reduced or delayed as part of spending cuts and tax reform and governmental efficiency initiatives that impact Medicare, Medicaid or Medicare Advantage Plans, or as part of retroactive adjustments during claims settlement processes or as a result of post-payment audits. Further, alternative payment models, as well as other regulatory initiatives, have the potential to affect Medicare payments to SNFs, including, but not limited to, provisions changing the payment methodology, setting reimbursement caps, implementing value-based purchasing and payment bundling, and studying the appropriateness of restrictions on payments for healthcare acquired conditions. Any of these changes may be more pronounced following governmental leadership changes, particularly following a change in presidential administrations. In some cases, states have enacted or are considering enacting measures designed to reduce Medicaid expenditures or freeze Medicaid rates, to allocate funding available for reimbursement away from SNFs in favor of home health agencies and community-based care, and to make changes to private healthcare insurance. Several commercial payors have expressed an intent to pursue certain value-based purchasing models and initiatives. Since our operators’ profit margins on Medicaid patients are generally relatively low, more than modest reductions or delays in Medicaid reimbursement to our SNF operators and an increase in the number of Medicaid patients could place some operators in financial distress, which in turn could adversely affect us. If funding for Medicare and/or Medicaid is reduced, it could have a material adverse effect on our operators’ results of operations and financial condition, which could adversely affect our operators’ ability to meet their obligations to us. Significant limits on the scope of services reimbursed and on reimbursement rates, as well as changes in reimbursement policies or other measures altering payment methodologies or delaying reimbursements for services provided by our operators, could have a material adverse effect on our operators’ results of operations and financial condition, which could cause the revenues of our operators to decline and negatively impact their ability to meet their obligations to us.
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We may be unable to find a replacement operator for one or more of our leased properties.
From time to time, we need to find a replacement operator for one or more of our leased properties for a variety of reasons, including upon the expiration of the lease term or the occurrence of an operator default. While we are attempting to locate one or more replacement operators, we sometimes experience and may in the future experience a decrease or cessation of rental payments on the applicable property or properties. We cannot assure you that any of our current or future operators will elect to renew their respective leases with us upon expiration of the terms thereof. Similarly, we cannot assure you that we will be able to locate a suitable replacement operator or, if we are successful in locating a replacement operator, that the rental payments from the new operator would not be significantly less than the existing rental payments. Our ability to locate a suitable replacement operator may be significantly delayed or limited by various state licensing, receivership, certificate of need or other laws, as well as by Medicare and Medicaid change-of-ownership rules. We also may incur substantial additional expenses in connection with any such licensing, receivership or change-of-ownership proceedings. Any such delays, limitations and expenses could materially delay or impact our ability to collect rent, obtain possession of leased properties or otherwise exercise remedies for default.
Our operators may be subject to significant legal actions that could result in their increased operating costs and substantial uninsured liabilities, which may affect their ability to meet their obligations to us; and we may become party to such legal actions.
Our operators may be subject to claims for damages relating to the services that they provide. While we are unable to predict the scope of future federal, state and local regulations and legislation, including the Medicare and Medicaid statutes and regulations, we believe that long-term care providers will continue to be the focus of governmental investigations, particularly in the area of Medicare/Medicaid false claims and in the use of COVID-19 related funds, including the Employee Retention Credit, and compliance with infection control and quality standards. We can give no assurance that the insurance coverage maintained by our operators will cover all claims made against them or continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional and general liability claims and/or litigation may not, in certain cases, be available to operators due to state law prohibitions or limitations of availability. As a result, our operators operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits.
Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on an operator’s financial condition and its ability to meet its obligations to us, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our stockholders.
In addition, we may in some circumstances be named as a defendant in litigation involving the services provided by our operators. In the past, we and several of our wholly-owned subsidiaries have been named as defendants in professional liability and general liability claims related to our owned and operated facilities, and we could be named as defendants in similar suits in the future. In these suits, patients of our operators have alleged significant damages, including punitive damages, against the defendants. Although we generally have no involvement in the services provided by our operators, and our standard lease and loan agreements generally require our operators to indemnify us and carry insurance to cover us in certain cases, a significant judgment against us in such litigation could exceed our and our operators’ insurance coverage, which would require us to make payments to cover the judgment.
Increased competition as well as increased operating costs result in lower revenues for some of our operators and may affect the ability of our operators to meet their obligations to us.
The long-term healthcare industry is highly competitive, and we expect that it may become more competitive in the future. Our operators are competing with numerous other companies providing similar healthcare services or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. Our operators compete on several different levels including the quality of care provided, reputation, the physical appearance of a facility, price, the range of services offered, family preference, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location and the size and demographics of the population in the surrounding areas. Our operators may encounter increased competition in the future that could limit their ability to attract residents or expand their businesses and therefore affect their ability to pay their lease or mortgage payments and meet their obligations to us.
In addition, the market for qualified personnel is highly competitive. Our operators have experienced and may continue to experience difficulties in attracting and retaining such personnel, in particular due to labor constraints and, in some cases, wage increases, which have been elevated since the beginning of the COVID-19 pandemic and may remain elevated. These labor constraints may also be adversely impacted by immigration restrictions and changes to immigration enforcement policy to the extent they impact our operators’ workforces and by minimum staffing requirements that have been established in certain states and proposed at the federal level. Increases in labor costs could affect our operators’ ability to meet their obligations to us.
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We may be unable to successfully foreclose on the collateral securing our loans, and even if we are successful in our foreclosure efforts, we may be unable to successfully find a replacement operator, or operate or occupy the underlying real estate, which may adversely affect our ability to recover our investments.
If an operator defaults under one of our mortgage or other loans, we may foreclose on the loan or otherwise protect our interest by acquiring title to the property or collateral. In such a scenario, we may be required to make substantial improvements or repairs to maximize the facility’s investment potential. Operators may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against our exercise of enforcement or other remedies and/or bring claims for lender liability in response to actions to enforce mortgage obligations. Even if we are able to successfully foreclose on the collateral securing our loans, we may be unable to expeditiously find a replacement operator, if at all, or otherwise successfully operate or occupy the property, which could adversely affect our ability to recover our investment.
Inflation could adversely impact our operators and our results of operations.
Inflation, both real or anticipated, as well as any responsive governmental policies, has and may continue to adversely affect the economy and the costs of labor, goods and services to our operators or borrowers. Inflation may also be adversely impacted by the imposition of additional tariffs by the U.S. federal government, which have been proposed and the impacts of which remain uncertain. 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 our 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 have had, and may continue to have, an adverse impact on our operators and borrowers if increases in their operating expenses exceed increases in their reimbursements, which has and may continue to 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 reimbursements to increase at least with inflation could adversely impact our operators’ and our financial condition and our results of operations.
Uninsured losses or losses in excess of our operators’ insurance coverage could adversely affect our financial position and our cash flow.
Under the terms of our leases, our operators are generally required to maintain comprehensive general liability, fire, flood, earthquake, boiler and machinery, nursing home or long-term care professional liability and extended coverage insurance with respect to our properties with policy specifications set forth in the leases or other written agreements between us and the operator. However, our properties may be adversely affected by casualty or other losses which exceed insurance coverages and reserves. In addition, we cannot provide any assurances that our tenants will maintain the required coverages, that we will continue to require the same levels of insurance under our leases, or that such insurance will be available at a reasonable cost in the future or that the policies maintained will fully cover all losses on our properties upon the occurrence of a catastrophic event. We also cannot make any guaranty as to the future financial viability of the insurers that underwrite the policies maintained by our tenants, or, alternatively if our tenants utilize captive or self-insurance programs, that such programs will be adequately funded.
Should an uninsured loss or a loss in excess of insured limits occur, we could lose both our investment in, and anticipated profits and cash flows from, the property, and disputes over insurance claims could arise. Even if it were practicable to restore the property to its condition prior to the damage caused by a major casualty, the operations of the affected property would likely be suspended for a considerable time.
Our development and redevelopment projects may not yield anticipated returns.
We consider and, when appropriate, invest in various development and redevelopment projects. In deciding whether to make an investment in a particular project, we make certain assumptions regarding the expected future performance of the property. Our assumptions are subject to risks generally associated with development and redevelopment projects, including, among others, that:
| ● | Our operators may not be able to complete the project on schedule or within budgeted amounts; |
| ● | Our operators may encounter delays in obtaining or fail to obtain all necessary zoning, land use, building, occupancy, environmental and other governmental permits and authorizations, or underestimate the costs necessary to develop or redevelop the property to market standards; |
| ● | Volatility in the price of construction materials or labor may increase project costs; |
| ● | The builders may fail to perform or satisfy the expectations of our operators; |
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| ● | We may incorrectly forecast risks associated with development in new geographic regions; |
| ● | Demand for our project may decrease prior to completion, due to competition from other developments; and |
| ● | New facilities may take longer than expected to reach stabilized operating levels, if at all. |
If any of the risks described above occur, our development and redevelopment projects may not yield anticipated returns, which could have a material adverse effect on us.
Risks Related to Us and Our Operations
Severe respiratory disease seasons, epidemics, pandemics or other widespread illnesses could adversely affect our properties, and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Our business and operations were significantly impacted by the COVID-19 pandemic and are exposed to continuing risks from COVID-19, severe respiratory disease seasons or the occurrence of other epidemics, pandemics or other widespread illnesses. Our revenues and our operators’ revenues are dependent on occupancy, and the occupancy of our properties could significantly decrease in the event of a severe respiratory disease season, a resurgence of COVID-19 or other epidemics or widespread illnesses. Such a decrease would affect the operating income of our properties and the ability of our operators to make payments to us. As we experienced during the COVID-19 pandemic, a future respiratory disease or other epidemic or pandemic could significantly increase the cost burdens faced by our operators, including if they are required to implement quarantines for residents, as well as cause a reduction in occupancy, each of which could adversely affect their ability to meet their obligations to us, which could have a material adverse effect on our financial results.
The effect of a pandemic or other future widespread illness on our and our operators’ operational and financial performance will depend on future developments, including the ability to control the spread of the outbreak generally and in our facilities, and the delivery and efficacy of and participation in vaccination programs and other treatments, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic or illness.
There are no assurances of our ability to pay dividends in the future.
Our ability to pay dividends may be adversely affected upon the occurrence of any of the risks described herein. Our payment of dividends is subject to compliance with restrictions contained in our credit agreements, the indentures governing our senior notes and any preferred stock that our Board of Directors (“Board”) may from time to time designate and authorize for issuance. All dividends will be paid at the discretion of our Board and will depend upon our earnings, our financial condition, maintenance of our REIT status and such other factors as our Board may deem relevant from time to time. There are no assurances of our ability to pay dividends in the future. In addition, our dividends in the past have included, and may in the future include a return of capital.
We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future investments necessary to grow our business or meet maturing commitments.
As a REIT under the Code, we are required to, among other things, distribute at least 90% of our REIT taxable income each year to our stockholders. Because of this distribution requirement, we may not be able to fund, from cash retained from operations, all future capital needs, including capital needed to make investments and to satisfy or refinance maturing commitments. As a result, we rely on external sources of capital, including debt and equity financing. If we are unable to obtain needed capital at all or only on unfavorable terms from these sources, we might not be able to make the investments needed to grow our business, or to meet our obligations and commitments as they mature, which could negatively affect the ratings of our debt and even, in extreme circumstances, affect our ability to continue operations. We may not be in a position to take advantage of future investment opportunities in the event that we are unable to access the capital markets on a timely basis or we are only able to obtain financing on unfavorable terms.
Our ability to raise capital through equity sales is dependent, in part, on the market price of our common stock, and our failure to meet market expectations with respect to our business, or other factors we do not control, could negatively impact such market price and availability of equity capital.
As with other publicly-traded companies, the availability of equity capital will depend, in part, on the market price of our common stock which, in turn, will depend upon various market conditions and other factors, some of which we cannot control, that may change from time to time including:
| ● | the extent of investor interest; |
| ● | the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; |
| ● | our financial performance and that of our operators; |
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| ● | concentrations in our investment portfolio by operator and facility type; |
| ● | concerns about our operators’ financial condition due to uncertainty regarding reimbursement from governmental and other third-party payor programs; |
| ● | our credit ratings and analyst reports on us and the REIT industry in general, including recommendations, and our ability to meet our guidance estimates or analysts’ estimates; |
| ● | general economic, global and market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions, or the impacts of a future pandemic or global conflicts on our operators; |
| ● | our failure to maintain or increase our dividend, which is dependent, to a large part, on the increase in funds from operations, which in turn depends upon increased revenues from additional investments and rental increases; and |
| ● | other factors such as governmental regulatory action and changes in REIT tax laws, as well as changes in litigation and regulatory proceedings. |
The market value of the equity securities of a REIT is generally based upon the market’s perception of the REIT’s growth potential and its current and potential future earnings and cash distributions. Our failure to meet the market’s expectations with regard to future earnings and cash distributions would likely adversely affect the market price of our common stock and, as a result, the availability of equity capital to us.
We are subject to risks associated with debt financing, including changes in our credit ratings, which could negatively impact our business and limit our ability to make distributions to our stockholders and to repay maturing debt.
The current high interest rate environment has been increasing interest costs on new and existing variable rate debt. Such increases in the cost of capital, and any further increases resulting from future interest rate hikes, could adversely impact our ability to finance operations, acquire and develop properties, and refinance existing debt. Additionally, increased interest rates may also result in less liquid property markets, limiting our ability to sell existing assets. Higher interest rates may also lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock and could result in increased capitalization rates, which may lead to reduced valuation of our assets.
The financing required to make future investments and satisfy maturing commitments may be provided by borrowings under our credit facilities, private or public offerings of debt or equity, the assumption of secured indebtedness, mortgage financing on a portion of our owned portfolio or through joint ventures. To the extent we must obtain debt financing from external sources to fund our capital requirements, we cannot guarantee such financing will be available on favorable terms, if at all. In addition, if we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, our cash flow may not be sufficient to make distributions to our stockholders and repay our maturing debt. Furthermore, if prevailing interest rates, changes in our debt credit ratings or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to that refinanced indebtedness would increase, which could reduce our profitability and the amount of dividends we are able to pay. Factors that may affect our credit ratings include, among other things, our financial performance, our success in raising sufficient equity capital, adverse changes in our debt and fixed charge coverage ratios, our capital structure and level of indebtedness and pending or future changes in the regulatory framework applicable to our operators and our industry. Further, additional debt financing increases the amount of our leverage. The degree of leverage could have important consequences to stockholders, including affecting our investment grade ratings and our ability to obtain additional financing in the future, and making us more vulnerable to a downturn in our results of operations or the economy generally.
We may from time to time seek to manage our exposure to interest rate volatility with hedging arrangements, which involve additional risks, including the risks that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes, that the amount of income we earn from hedging transactions may be limited by federal tax provisions governing REITs, and that these arrangements may reduce the benefits to us if interest rates decline. Developing and implementing an interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations and there can be no assurance that our hedging activities will be effective. Failure to hedge effectively against interest rate risk, if we choose to engage in such activities, could adversely affect our business, financial condition and results of operations.
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We may be subject to additional risks in connection with our acquisitions of long-term care facilities.
We may be subject to additional risks in connection with our acquisitions of long-term care facilities, including but not limited to the following:
| ● | our limited prior business experience with certain of the operators of the facilities we have recently acquired or may acquire in the future, or inability to diversify our operator relationships to support future acquisitions or re-leasing of properties; |
| ● | the facilities may underperform due to various factors, including unfavorable terms and conditions of the lease agreements that we assume, disruptions caused by the management of the operators of the facilities or changes in economic conditions impacting the facilities and/or the operators; |
| ● | large acquisitions or investments could place significant additional demands on, and require us to expand, our management, resources and personnel, as well as to adapt our administrative, accounting and operational systems to integrate and manage the long-term care facilities we have acquired or may acquire in a timely manner; |
| ● | diversion of our management’s attention away from other business concerns; |
| ● | exposure to any undisclosed or unknown potential liabilities relating to the facilities; and |
| ● | potential underinsured losses on the facilities. |
We cannot assure you that we will be able to manage our recently acquired facilities, or the future growth in our business, without encountering difficulties or that any such difficulties will not have a material adverse effect on us. Our growth could also increase our capital requirements, which may require us to issue potentially dilutive equity securities and incur additional debt.
Our assets, including our real estate and loans, are subject to impairment charges, and our valuation and reserve estimates are based on assumptions and may be subject to adjustment.
Our asset portfolio primarily consists of real estate and real estate loans, which are subject to write-downs in value. From time to time, we close facilities and actively market such facilities for sale. To the extent we are unable to sell these properties for our book value, we may be required to take a non-cash impairment charge or loss on the sale, either of which would reduce our net income. In addition, we periodically, but not less than annually, evaluate our real estate investments and other assets for impairment indicators, and we establish general and specific reserves for our issued loans at least quarterly. The quarterly evaluation of our investments for impairment may result in significant fluctuations in our provision for credit losses or real estate impairments from quarter to quarter, impacting our results of operations. Judgments regarding the existence of impairment indicators or loan reserves are based on a number of factors, including market conditions, operator performance and legal structure, and these factors may involve estimates. If we determine that a significant impairment has occurred, we are required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations. Our estimates of loan reserves, and other accounting estimates, are inherently uncertain and may be subject to future adjustment, leading potentially to an increase in reserves.
Our indebtedness could adversely affect our financial condition.
We have a material amount of indebtedness and we may increase our indebtedness in the future. Our level and type of indebtedness could have important consequences for our stockholders. For example, it could:
| ● | increase our vulnerability to adverse changes in general economic, industry and competitive conditions; |
| ● | limit our ability to borrow additional funds, on satisfactory terms or at all, for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business plan or other general corporate purposes; |
| ● | increase our cost of borrowing; |
| ● | require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; |
| ● | limit our ability to make material acquisitions or take advantage of business opportunities that may arise; |
| ● | limit our ability to make distributions to our stockholders, which may cause us to lose our qualification as a REIT under the Code or to become subject to federal corporate income tax on any REIT taxable income that we do not distribute; |
| ● | expose us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest; |
| ● | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and |
| ● | place us at a competitive disadvantage compared to our competitors that have less debt. |
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Further, we have the ability to incur additional debt, including secured debt, which could intensify the risks above. In addition, if we are unable to refinance any of our floating rate debt, we would continue to be subject to interest rate risk. The short-term nature of some of our debt also subjects us to the risk that market conditions may be unfavorable or may prevent us from refinancing our debt at or prior to their existing maturities. In addition, our cash flow from operations may not be sufficient to repay all of our outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, if at all, to refinance our debt.
Covenants in our debt documents limit our operational flexibility, and a covenant breach could materially adversely affect our operations.
The terms of our credit agreements and note indentures require us to comply with a number of customary financial and other covenants that may limit our management’s discretion by restricting our ability to, among other things, incur additional debt, redeem our capital stock, enter into certain transactions with affiliates, pay dividends and make other distributions, make investments and other restricted payments, engage in mergers and consolidations, create liens, sell assets or engage in new lines of business. In addition, our credit facilities require us to maintain compliance with specified financial covenants, including those relating to maximum total leverage, maximum secured leverage, maximum unsecured leverage, minimum fixed charge coverage, minimum consolidated tangible net worth and minimum unsecured interest coverage. Any additional financing we may obtain could contain similar or more restrictive covenants. Our continued ability to incur indebtedness, conduct our operations, and take advantage of business opportunities as they arise is subject to compliance with these financial and other covenants. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, in addition to any other indebtedness cross-defaulted against such instruments. Any such breach could materially adversely affect our business, results of operations and financial condition.
We are subject to particular risks associated with real estate ownership, which could result in unanticipated losses or expenses.
Our business is subject to many risks that are associated with the ownership of real estate. For example, if our operators do not renew their leases, we may be unable to re-lease the facilities at favorable rental rates, if at all. Other risks that are associated with real estate acquisition and ownership include, without limitation, the following:
| ● | general liability, property and casualty losses, some of which may be uninsured; |
| ● | the inability to purchase or sell our assets rapidly to respond to changing economic conditions, due to the illiquid nature of real estate and the real estate market; |
| ● | leases that are not renewed or are renewed at lower rental amounts at expiration; |
| ● | contingent rent escalators tied to changes in the Consumer Price Index or other parameters; |
| ● | the exercise of purchase options by operators resulting in a reduction of our rental revenue; |
| ● | costs relating to maintenance and repair of our facilities and the need to make expenditures due to changes in governmental regulations, including the Americans with Disabilities Act; |
| ● | environmental hazards created by prior owners or occupants, existing tenants, mortgagors or other persons for which we may be liable; and |
| ● | acts of God or terrorism affecting our properties. |
Our real estate investments are relatively illiquid.
Real estate investments are relatively illiquid and generally cannot be sold quickly. The real estate market is affected by many factors which are beyond our control, including general economic conditions, availability of financing, interest rates and supply and demand. Additional factors that are specific to our industry also tend to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. For example, all of our properties are “special purpose” properties that cannot be readily converted into general residential, retail or office use. In addition, transfers of operations of nursing homes and other healthcare-related facilities are subject to extensive regulatory approvals. We cannot predict whether we will be able to sell any property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property, or that we will have funds available to make necessary repairs and improvements to a property held for sale. To the extent we are unable to sell any properties for our book value, we may be required to take a non-cash impairment charge or loss on the sale, either of which would reduce our net income.
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We face possible risks and costs associated with severe weather conditions, natural disasters or the physical effects of climate change.
A large number of our properties are located in areas particularly susceptible to revenue loss, cost increase or damage caused by severe weather conditions or natural disasters such as hurricanes, earthquakes, tornadoes, fires and floods, as well as the effects of climate change. To the extent that climate change impacts changes in weather patterns, our markets could experience more frequent and severe natural disasters. Operationally, such events could cause a major power outage, leading to a disruption of our operators’ operations or require them to incur additional cost associated with evacuation plans. Over time, any of these conditions could result in increased operator costs, delays in construction, resulting in increased construction costs, or in the inability of our operators to operate our facilities at all. Climate change and severe weather may also have indirect effects on our business by increasing the costs to our operators of, or decreasing the availability to our operators of, property insurance on terms they find acceptable, and by increasing the cost of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties. In the event of a loss in excess of insured limits, we could lose our incremental capital invested in the affected property.
Although Congress has not yet enacted comprehensive federal legislation to address climate change, numerous states and municipalities, as well as the U.K., have adopted laws and policies on climate change and emission reduction targets. Changes in legislation and regulation within the U.S. and U.K. based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties (for example, to improve their energy efficiency and/or resistance to severe weather) without a corresponding increase in revenue, resulting in adverse impacts to our net income. There can be no assurance that climate change and severe weather will not have a material adverse effect on our properties, operations or business.
As an owner or lender with respect to real property, we may be exposed to possible environmental liabilities.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real property or a secured lender may be liable in certain circumstances for the costs of investigation, removal or remediation of certain hazardous or toxic substances at such property, as well as certain other potential related costs, including government fines and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. As a result, liability may be imposed on the owner in connection with the activities of an operator of the property, and the owner’s liability could exceed the value of the property and/or the assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect an operators’ ability to attract additional residents and our ability to sell or rent such property or to borrow using such property as collateral which, in turn, could negatively impact our revenues.
Although our leases and mortgage loans generally require the lessee and the mortgagor to indemnify us for certain environmental liabilities, they may be unable to fulfill their indemnification obligations to us, and the scope of such obligations may be limited. For instance, most of our leases do not require the lessee to indemnify us for environmental liabilities arising before the lessee took possession of the premises.
The industry in which we operate is highly competitive. Increasing investor interest in our sector and consolidation at the operator or REIT level could increase competition and reduce our profitability.
Our business is highly competitive, and we expect that it may become more competitive in the future. We compete for healthcare facility investments with other healthcare investors, including other REITs, some of which have greater resources and lower costs of capital than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our business goals. If we cannot capitalize on our development pipeline, identify and purchase a sufficient quantity of healthcare facilities at favorable prices, identify appropriate operators to lease our facilities or are unable to finance such acquisitions on commercially favorable terms, our business, results of operations and financial condition may be materially adversely affected. In addition, if our cost of capital should increase relative to the cost of capital of our competitors, the spread that we realize on our investments may decline if competitive pressures limit or prevent us from charging higher lease or mortgage rates.
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Our charter and bylaws contain significant anti-takeover provisions which could delay, defer or prevent a change in control or other transactions that could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock.
Our charter and bylaws contain various procedural and other requirements which could make it difficult for stockholders to effect certain corporate actions. Our Board has the authority to issue additional shares of preferred stock and to fix the preferences, rights and limitations of the preferred stock without stockholder approval. In addition, our charter contains limitations on the ownership of our capital stock intended to ensure we continue to meet the requirements for qualification as a REIT. For example, our charter, among other restrictions, prohibits the beneficial or constructive ownership (as defined for federal income tax purposes) by any person of more than 9.8% in value or in number of shares of the outstanding shares of any class or series of our capital stock, unless our Board grants an exemption or modifies the ownership limit for such person and certain conditions are satisfied. These provisions could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities and/or result in the delay, deferral or prevention of a change in control or other transactions that could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock.
Ownership of property outside the U.S. may subject us to different or greater risks than those associated with our U.S. investments, including currency fluctuations.
We have investments in the U.K. and may from time to time may seek to acquire other properties in the U.K. or otherwise outside the U.S. International development, investment, ownership and operating activities involve risks that are different from those we face with respect to our U.S. properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the income tests that we must satisfy annually in order to qualify and maintain our status as a REIT; fluctuations in the exchange rates between USD and the British Pound Sterling (“GBP”), or other foreign currencies in which we may transact in the future, which we may be unable to protect against through hedging; changes in foreign political, regulatory, and economic conditions, including increases in energy prices, such as those experienced in the U.K. resulting in part from the conflict in Ukraine and sanctions imposed on Russia; challenges in managing international operations and enforcing obligations in other countries; challenges of complying with a variety of foreign laws and regulations, including those relating to real estate, healthcare operations, environmental, climate impacts, taxes, employment and legal proceedings; financial risks to our operators, including differences in expenses and government reimbursement practices, as well as funding challenges in the public sector; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and economic instability; and changes in applicable laws and regulations in the U.S. that affect foreign operations. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected.
Our assets are concentrated in the long-term care industry and face geographic and operator concentration risk.
Our assets are generally not diversified by industry and face risks associated with the long-term care industry. In addition, at December 31, 2024, one operator represented greater than 10% of our investments, and the three states in which we had our highest concentration of investments were Texas (9.2%), Indiana (6.2%) and California (5.7%). In addition, our concentration of investments in the U.K. is 14.1%. As a result, we are subject to increased exposure to adverse conditions affecting these operators and regions, with regional risks including unfavorable Medicaid reimbursements rates for SNFs, downturns in the local economies, local real estate conditions, staffing challenges, increased competition or decreased demand for our facilities, regional climate events, and unfavorable legislative or regulatory developments, which could adversely affect our business and results of operations.
Our primary assets are the units of partnership interest in Omega OP and, as a result, we will depend on distributions from Omega OP to pay dividends and expenses.
The Company is a holding company and has no material assets other than units of partnership interest in Omega OP. We intend to cause the partnership to make distributions to its partners, including the Company, in an amount sufficient to allow us to qualify as a REIT for U.S. federal income tax purposes and to pay all of our expenses. To the extent we need funds and the partnership is restricted from making distributions under applicable law or otherwise, or if the partnership is otherwise unable to provide such funds, the failure to make such distributions could materially adversely affect our liquidity and financial condition.
26
Members of our management and Board hold partnership interests in Omega OP, and their interests may differ from those of our public stockholders.
Some members of our management and Board hold partnership interests in Omega OP. Those unitholders may have conflicting interests with holders of the Company’s common stock. For example, such unitholders of Omega OP Units may have different tax positions from the Company or holders of our common stock, which could influence their decisions in their capacities as members of management regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness and how to structure future transactions.
Our investments in joint ventures or other equity investments could be adversely affected by shared decision-making authority, our counterparty’s financial condition, and our exposure to potential losses from the actions of our counterparties.
As of December 31, 2024, we have ownership interests in one consolidated joint venture and several unconsolidated joint ventures, and we manage other equity investments. These joint ventures and investments involve additional risks, including the following:
| ● | we may be unable to take actions that are opposed by our counterparties under arrangements that require us to share decision-making authority over major decisions affecting the ownership or operation of the joint venture or investment and any property or assets owned thereby, such as the sale or financing of the property or assets, our ability to sell or transfer our interest in a joint venture or investment or the making of additional capital contributions for the benefit of the property or assets; |
| ● | for joint ventures or investments in which we have a noncontrolling interest, our joint venture partners or other counterparties may take actions that we oppose; |
| ● | our joint venture partners or other counterparties may become bankrupt or fail to fund their share of required capital contributions, which could delay construction or development of a property or increase our financial commitment to the joint venture or investment; |
| ● | our joint venture partners or other counterparties may have business interests or goals with respect to a property that conflict with our business interests and goals, including with respect to the timing, terms and strategies for investment, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property; |
| ● | disagreements with our joint venture partners or other counterparties could result in litigation or arbitration that increases our expenses, distracts our officers and directors, and disrupts the day-to-day operations of the property or assets, including by delaying important decisions until the dispute is resolved; and |
| ● | we may suffer losses resulting from actions taken by our joint venture partners or other counterparties with respect to our joint venture or other investments. |
Risks Related to Taxation
Qualifying as a REIT involves highly technical and complex provisions of the Code; failure to qualify as a REIT would subject us to increased taxes and impair our ability to expand our business and make distributions; and complying with REIT requirements may affect our profitability. Certain subsidiaries might fail to qualify or remain qualified as a REIT.
We were organized to qualify for taxation as a REIT under Sections 856 through 860 of the Code. See Item 1 – Business – Taxation of Omega. Qualification as a REIT involves the application of technical and intricate Code provisions for which there are only limited judicial and administrative interpretations, and which involve the determination of various factual matters and circumstances not entirely within our control. We cannot assure that we will at all times satisfy these rules and tests. Even a technical or inadvertent violation could jeopardize our REIT qualification.
If we were to fail to qualify as a REIT in any taxable year, as a result of a determination that we failed to meet the annual distribution requirement or otherwise, we would be subject to federal corporate income tax, and any applicable alternative minimum tax with respect to each such taxable year for which the statute of limitations remains open, as well certain excise taxes on nonqualified REIT income, or disqualification from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would significantly reduce our net earnings and cash flow because of our additional tax liability for the years involved, which could significantly impact our financial condition. We generally must distribute annually at least 90% of our taxable income to our stockholders to maintain our REIT status. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our “REIT taxable income,” as adjusted, we will be subject to tax thereon at regular corporate rates. As a result of all these factors, our failure to maintain our qualification as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to you.
27
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our stockholders. Thus, we may be required to liquidate otherwise attractive investments from our portfolio or be unable to pursue investments that would be otherwise advantageous to us, to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution (e.g., if we have assets which generate mismatches between taxable income and available cash). Having to comply with the distribution requirement could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on unfavorable terms; or (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. As a result, satisfying the REIT requirements could have an adverse effect on our business results and profitability.
We own interests in a number of entities that intend to operate as REITs for U.S. federal income tax purposes, some of which we consolidate for financial reporting purposes but each of which is treated as a separate REIT for federal income tax purposes (each a “Subsidiary REIT”). To qualify as a REIT, each Subsidiary REIT must independently satisfy all of the REIT qualification requirements under the Code, together with all other rules applicable to REITs. Provided that each Subsidiary REIT qualifies as a REIT, our interests in the Subsidiary REITs will be treated as qualifying real estate assets for purposes of the REIT asset tests. If a Subsidiary REIT fails to qualify as a REIT in any taxable year, such Subsidiary REIT would be subject to federal and state income taxes and would not be able to qualify as a REIT for the four subsequent taxable years following the year during which it was disqualified. Any such failure could have an adverse effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify as a REIT, unless we are able to avail ourselves of certain relief provisions.
There is a risk of changes in the tax law applicable to REITs.
The Internal Revenue Service, the U.S. Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be adopted. Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us, our properties, or our shareholders.
Risks Related to Our Stock and Capital Structure
Our issuance of additional capital stock, warrants or debt securities, whether or not convertible, may reduce the market price for our outstanding securities, including our common stock, and dilute the ownership interests of existing stockholders, and we may issue securities with greater dividend, liquidation and other rights than our common stock.
We cannot predict the effect, if any, that future sales of our capital stock, warrants or debt securities, or the availability of our securities for future sale, will have on the market price of our securities, including our common stock. Sales of substantial amounts of our common stock or preferred shares, warrants or debt securities convertible into or exercisable or exchangeable for common stock in the public market, or the perception that such sales might occur, could negatively impact the market price of our stock and the terms upon which we may obtain additional equity financing in the future. Our Board has the authority to designate and issue preferred stock that may have dividend, liquidation and other rights that are senior to those of our common stock.
Any debt securities, preferred shares, warrants or other rights to acquire shares or convertible or exchangeable securities that we issue in the future may have some rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. Our preferred shares, if issued, could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability pay dividends or other distributions to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk that our future offerings could reduce the per share trading price of our common stock and dilute their interest in us.
General Risk Factors
Our success depends in part on our ability to retain key personnel and our ability to attract or retain other qualified personnel.
Our performance depends to a significant degree upon the continued contributions of our executive management team and other key employees, the loss of whom could have an adverse impact on our operations. Although we have entered into employment agreements with the members of our executive management team, these agreements may not assure their continued service. In addition, our failure to successfully attract, hire, retain and train qualified personnel may impede our ability to implement our business strategy.
28
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology, including related to artificial intelligence, could harm our business. Privacy and security laws and regulations may also increase costs for our business.
We rely on information technology networks and systems, including the Internet and including services that may incorporate artificial intelligence technologies, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, tenant and lease data. In addition, we may, from time to time, make investments in unconsolidated entities that offer technology services, some of which may rely on artificial intelligence technologies, to operators, which may involve storage of customer or resident data. We purchase some of our information technology from vendors, on whom our systems depend. We generally rely on third-party systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential tenant and other customer information, such as individually identifiable information, including information relating to financial accounts. It is possible that our safety and security measures or other controls will not be able to prevent the systems’ improper functioning, the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks, or other security or integrity challenges, including as a result of the rapid development and increased adoption of artificial intelligence technologies, which may also heighten our information technology security risks by making cyberattacks more difficult to detect, contain and mitigate. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems, and the privacy of the data we store, or failure to comply with related regulations, could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations. The regulatory environment related to cyber and information security, artificial intelligence, data collection and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business or to which we may become subject, including certain U.S. state laws and E.U. data protection legislation, such as they General Data Protection Regulation, or the GDPR, and the U.K.’s Data Protection Act, which impose significant data protection requirements and penalties for noncompliance. Compliance with any of these requirements may result in additional costs and could impact how we conduct in business in new jurisdictions.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, results of operations, financial condition and stock price.
We are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. Changes to our business will necessitate ongoing changes to our internal control systems and processes, and internal control over financial reporting may not prevent or detect misstatements due to inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls or to implement required new or improved controls, our business, results of operations and financial condition could be materially adversely harmed, we could fail to meet our reporting obligations and there could be a material adverse effect on our stock price. In addition, we may be adversely impacted by new accounting pronouncements which change our lease recognition or other accounting practices or otherwise alter how we report our financial results, or which require that we change our internal control and operating procedures, which we may be unable to do in a timely manner.
Item 1B – Unresolved Staff Comments
None.
Item 1C – Cybersecurity
Governance
29
Our Board, in coordination with our Audit Committee, oversees our management of cybersecurity risk, with the Audit Committee reviewing and discussing with management quarterly matters related to our Cybersecurity Program as related to financial reporting.
Risk Management and Strategy
Technical Safeguards
As of our Cybersecurity Program, the Company deploys technical safeguards that are designed to protect our information systems from cybersecurity threats, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.
Risk Assessment
Third-Party Risk Management
We also maintain designed to identify and mitigate cybersecurity threats related to our of material third-party vendors. This includes reviewing the internal controls of certain third-party service providers to assess their procedures to mitigate material security risks.
Incident Response and Recovery Planning
We maintain an Information Security Incident Response Plan (the “Response Plan”) governing prevention, detection, mitigation and remediation of cybersecurity incidents and threats.
External Assessments
We obtain periodic assessments by third party experts to assess our vulnerability management and security controls and to assist us in identifying and mitigating security risks.
Education and Awareness
We provide cybersecurity training for all directors, officers and employees and periodic additional training of senior management through our cyber insurance carrier.
As of the date of this report, we are of any risks from cybersecurity threats that have materially affected the Company, including our business strategy, results of operations, or financial condition. For information regarding cybersecurity risks that may materially affect our Company, see the risk factor titled “We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology, including related to artificial intelligence, could harm our business. Privacy and security laws and regulations may also increase costs for our business.” under “Risk Factors” in Part I, Item 1A to this Annual Report on Form 10-K.
Item 2 – Properties
At December 31, 2024, our real estate investments include SNFs and ALFs and to a lesser extent ILFs, specialty facilities and MOBs, in the form of (i) owned facilities that are leased to operators or their affiliates, (ii) investments in direct financing leases to operators or their affiliates and (iii) real estate loans, including mortgages on facilities that are operated by the mortgagors or their affiliates. Our facilities related to these investments are located in 42 states and the U.K.
30
The following table presents the concentration of our gross real estate assets, assets held for sale, gross investment in direct financing leases and gross mortgage notes receivables (included within our real estate loans receivable) by state and the U.K. as of December 31, 2024:
|
||||||||||
Gross |
% of |
|
||||||||
Number of |
Number of |
Investment |
Gross |
|
||||||
Location |
|
Operating Beds |
|
Facilities |
|
(in thousands) |
|
Investment |
|
|
United Kingdom |
|
12,829 |
|
244 |
$ |
1,426,940 |
|
14.1 |
% |
|
Texas |
|
10,429 |
|
101 |
|
926,014 |
|
9.2 |
% |
|
Indiana |
|
6,988 |
|
68 |
|
623,238 |
|
6.2 |
% |
|
California |
|
4,244 |
|
51 |
|
571,565 |
|
5.7 |
% |
|
Michigan |
|
3,947 |
|
40 |
|
543,779 |
|
5.4 |
% |
|
Florida |
|
6,398 |
|
53 |
|
532,161 |
|
5.3 |
% |
|
Ohio |
|
4,109 |
|
42 |
|
458,846 |
|
4.5 |
% |
|
Virginia |
|
3,466 |
|
27 |
|
428,163 |
|
4.2 |
% |
|
Pennsylvania |
|
3,805 |
|
40 |
|
424,630 |
|
4.2 |
% |
|
North Carolina |
|
4,660 |
|
45 |
|
410,421 |
|
4.1 |
% |
|
Remaining States |
|
31,409 |
|
315 |
|
3,763,996 |
|
37.1 |
% |
|
92,284 |
1,026 |
$ |
10,109,753 |
100.0 |
% |
|||||
Item 3 – Legal Proceedings
See Note 20 – Commitments and Contingencies – Litigation to the Consolidated Financial Statements - Part IV, Item 15, which is hereby incorporated by reference in response to this item.
Item 4 – Mine Safety Disclosures
None.
31
PART II
Item 5 – Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Shares of Omega Healthcare Investors, Inc. (together with its consolidated subsidiaries, collectively, “Omega” or the “Company”) common stock are traded on the New York Stock Exchange under the symbol “OHI.” As of February 7, 2025, there were 2,512 registered holders and 281,837 thousand shares of Omega common stock outstanding.
Performance Graph
The graph and table below compare the cumulative total return of Omega, the FTSE NAREIT Equity Health Care Index (Ticker: FN11-FTX), the MSCI US REIT Index (Ticker: RMZ), the S&P 500 Index, and the Russell 2000 from January 1, 2020 to December 31, 2024. We have included the FTSE NAREIT Equity Health Care Index and the MSCI US REIT Index because we believe that they are representative of the industry in which we compete and are relevant to an assessment of our performance. Total cumulative return is based on a $100 investment in Omega common stock and in each of the indices at the close of trading on December 31, 2019 and assumes quarterly reinvestment of dividends. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
12/31/2019 |
12/31/2020 |
12/31/2021 |
12/31/2022 |
12/31/2023 |
12/31/2024 |
|||||||||||||
Omega Healthcare Investors, Inc. |
$ |
100.00 |
$ |
93.06 |
$ |
81.87 |
$ |
84.83 |
$ |
101.73 |
$ |
135.99 |
||||||
FTSE NAREIT Equity Health Care Index |
$ |
100.00 |
$ |
90.14 |
$ |
104.85 |
$ |
81.59 |
$ |
92.96 |
$ |
115.44 |
||||||
MSCI US REIT Index |
$ |
100.00 |
$ |
92.43 |
$ |
132.23 |
$ |
99.82 |
$ |
113.54 |
$ |
123.47 |
||||||
S&P 500 Index |
$ |
100.00 |
$ |
118.40 |
$ |
152.39 |
$ |
124.79 |
$ |
157.59 |
$ |
197.02 |
||||||
Russell 2000 Index |
$ |
100.00 |
$ |
119.96 |
$ |
137.74 |
$ |
109.59 |
$ |
128.14 |
$ |
142.93 |
||||||
32
Issuer Purchases of Equity Securities
On January 27, 2022, the Board of Directors authorized the repurchase of up to $500 million of the Company’s outstanding common stock from time to time through March 2025. The Company is authorized to repurchase shares of 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. Omega did not repurchase any shares of its outstanding common stock during 2024.
Unregistered Sales of Equity Securities
From time to time, Omega 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 units of partnership interest in OHI Healthcare Properties Limited Partnership (collectively with subsidiaries, “Omega OP”). During the quarter ended December 31, 2024, Omega issued an aggregate of 2,943 shares of Omega common stock in exchange for an equivalent number of Omega OP Units tendered to Omega OP for redemption in accordance with the provisions of the partnership agreement governing Omega OP in reliance on this exemption.
Item 6 – [Reserved]
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based primarily on the consolidated financial statements of Omega Healthcare Investors, Inc. presented in conformity with U.S. generally accepted accounting principles (“GAAP”) for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Forward-Looking Statements” and “Item 1A – Risk Factors” above.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:
| ● | Business Overview |
| ● | Outlook, Trends and Other Conditions |
| ● | 2024 and Recent Highlights |
| ● | Results from Operations |
| ● | Funds from Operations |
| ● | Liquidity and Capital Resources |
| ● | Supplemental Guarantor Information |
| ● | Critical Accounting Policies and Estimates |
Business Overview
Omega Healthcare Investors, Inc. (“Parent”) is a Maryland corporation that, together with its consolidated subsidiaries has elected to be taxed as a REIT for federal income tax purposes. Omega is structured as an umbrella partnership REIT (“UPREIT”) under which all of Omega’s assets are owned directly or indirectly by, and all of Omega’s operations are conducted directly or indirectly through, its operating partnership subsidiary, Omega OP. As of December 31, 2024, Parent owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and other investors owned approximately 3% of the outstanding Omega OP Units.
33
Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”). Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”), and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings (“MOBs”). Our core portfolio consists of our long-term leases and real estate loans with healthcare operating companies and affiliates (collectively, our “operators”). Real estate loans consist of mortgage loans and other real estate loans that are primarily collateralized by a first, second or third mortgage lien or a leasehold mortgage on, or an assignment of the partnership interest in the related properties. In addition to our core investments, we make loans to operators and/or their principals. These loans, which may be either unsecured or secured by the collateral of the borrower, are classified as non-real estate loans. From time to time, we also acquire equity interests in joint ventures or entities that support the long-term healthcare industry and our operators.
Our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) at December 31, 2024, included 1,026 healthcare facilities, located in 42 states and the U.K. that are operated by 87 third-party operators. Our real estate investment in these facilities, net of impairments and allowances, totaled approximately $10.1 billion at December 31, 2024, with approximately 98% of our real estate investments related to long-term healthcare facilities. The portfolio is made up of (i) 589 SNFs, (ii) 290 ALFs, (iii) 19 ILFs, (iv) 18 specialty facilities, (v) one MOB, (vi) real estate loans, including mortgages on 52 SNFs, 43 ALFs, one specialty facility and one ILF and (vii) 12 facilities that are held for sale. At December 31, 2024, we also held other real estate loans (excluding mortgages) receivable of $485.5 million and non-real estate loans receivable of $332.3 million, consisting primarily of secured loans to third-party operators of our facilities, and $88.7 million of investments in 11 unconsolidated joint ventures, which comprise 5 SNFs, one ALF and one specialty facility.
As healthcare delivery continues to evolve, we continuously evaluate potential investments, our assets, operators and markets to position our portfolio for long-term success. As part of our evaluation, we may from time to time consider selling or transitioning assets that do not meet our portfolio criteria.
Outlook, Trends and Other Conditions
Our industry continues to recover from the impacts of the COVID-19 pandemic, which significantly and adversely impacted SNFs and long-term care providers during the height of the pandemic due to the higher rates of virus transmission and fatality among the elderly and frail populations that these facilities serve. While certain of our operators have experienced a level of recovery from pandemic-driven challenges such as occupancy declines, labor shortages, staffing expense increases, and other cost increases, certain of our other operators remain negatively impacted by these factors in a much more profound way. In addition, our operators have been and continue to be adversely affected by inflation-related cost increases, which may exacerbate labor shortages and increase labor costs, among other impacts, and may be adversely impacted by immigration restrictions and changes to immigration enforcement policy to the extent they contribute to labor shortages. There continues to be uncertainty regarding the duration of these impacts for those operators, particularly given uncertainty as to whether reimbursement increases from the federal government, the states and the U.K. will be effective in offsetting these incremental costs and lost revenues. In addition, there remains uncertainty as to the impact of potential regulatory changes, including the ultimate scope and impact of recently issued U.S. federal minimum staffing rules for our industry, and the continued ability of our operators to manage infectious diseases in our facilities. See Item 1 – Business – Government Regulation and Reimbursement for additional information.
We continue to monitor these impacts as well as the impacts of other regulatory changes, as discussed in Item 1 – Business – Government Regulation and Reimbursement, including any significant limits on the scope of services eligible for reimbursement and on reimbursement rates and fees, which could have a material adverse effect on an operator’s results of operations and financial condition, which could adversely affect the operator’s ability to meet its obligations to us. As discussed further in “Collectibility Issues” below, in 2024, we have had several operators that have failed to make contractual payments under their lease and loan agreements, and we have agreed to short-term payment deferrals, lease and portfolio restructurings and/or allowed several operators to apply security deposits or letters of credit to pay rent. While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we remain cautious as some of the long-term impacts noted above may continue to have an impact on certain of our operators and their financial conditions.
34
2024 and Recent Highlights
Investments
| ● | We acquired 114 facilities for total consideration of $740.5 million in 2024. The initial cash yield (the initial annual contractual cash rent divided by the purchase price) on these asset acquisitions was between 9.5% and 11.5%. Of the 114 facilities acquired during 2024, 63 facilities relate to our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024 for total consideration of $364.9 million. See Note 3 – Real Estate Asset Acquisitions and Development for additional information. |
| ● | We invested $106.7 million under our construction in progress and capital improvement programs in 2024. |
| ● | We funded $370.2 million under 29 new real estate loans with a weighted average interest rate of 10.5% in 2024. We also advanced $7.9 million under existing real estate loans in 2024. We received principal repayments of $77.9 million on real estate loans during 2024. |
Dispositions and Impairments
| ● | In 2024, we sold 21 facilities (14 SNFs, six ALFs and one specialty facility) for approximately $95.0 million in net cash proceeds, recognizing a net gain of approximately $13.2 million. |
| ● | In 2024, we recorded impairments on real estate properties of approximately $23.8 million on 14 facilities. Of the $23.8 million, $10.9 million related to six facilities that were classified as held for sale for which the carrying value exceeded the fair value less costs to sell, and $12.9 million related to eight held for use facilities (of which $7.2 million relates to four closed facilities) for which the carrying values exceeded the estimated fair value. Of the $12.9 million, $5.3 million related to three facilities that were subsequently sold during the year but did not meet the criteria to be classified as held for sale when the impairments were recognized. |
Financing Activities
| ● | In 2024, we sold 33.8 million shares of common stock under our ATM Program (defined below) and Dividend Reinvestment and Common Stock Purchase Plan (“DRCSPP”), generating aggregate gross proceeds of $1.2 billion. |
| ● | We repaid the $400 million of 4.95% senior notes on the April 1, 2024 maturity date using available cash and proceeds from our $1.45 billion senior unsecured multicurrency revolving credit facility (“Revolving Credit Facility”). |
| ● | During the first quarter of 2024, the remaining nine HUD mortgages with outstanding principal of $41.6 million were paid off. The payoff included a $1.3 million prepayment fee that was recognized as a loss on extinguishment of debt. |
| ● | During the first quarter of 2024, we terminated two foreign currency forward contracts that were entered into in March 2021 with notional amounts totaling £70.0 million. Omega received a net cash settlement of $8.4 million as a result of termination. Concurrent with the termination of the two foreign currency forward contracts, also during the first quarter of 2024, we entered into three new foreign currency forward contracts with notional amounts totaling £78.0 million and a GBP-USD forward rate of 1.2707, each of which mature between March 8, 2027 and March 7, 2031. The new currency forward contracts hedge an intercompany loan between a U.S. and U.K. subsidiary. |
| ● | During the third quarter of 2024, we terminated our 2021 $1.0 billion At-The-Market Offering Program (the “2021 ATM Program”) and entered into a new ATM Equity Offering Sales Agreement pursuant to which shares of common stock having an aggregate gross sale price of up to $1.25 billion (the “2024 ATM Program,” and together with the 2021 ATM Program, the “ATM Program”) may be sold from time to time. |
| ● | As part of the Cindat JV acquisition in July 2024, we assumed a £188.6 million mortgage loan that matures in August 2026 (the “2026 Mortgage Loan”) but can be repaid without a prepayment penalty beginning November 2025. The 2026 Mortgage Loan bears interest at the Sterling Overnight Index Average (“SONIA”) plus an applicable margin of 5.38%. As part of the transaction, we assumed four interest rate cap contracts that ensure the annual interest rate does not exceed 10.38%. |
35
Other Highlights
| ● | During 2024, we advanced $60.6 million under 13 new non-real estate loans with a weighted average interest rate of 8.4%. We also advanced $14.8 million under existing non-real estate loans during 2024. We received principal repayments of $119.7 million on non-real estate loans during 2024. Please see a description of our non-real estate loans in Item 1 – Business – Investment Strategy & Types. |
Collectibility Issues
| ● | During the year ended December 31, 2024, we placed one existing operator and three new operators, which Omega did not previously have a relationship with prior to 2024, on a cash basis of revenue recognition as collection of substantially all contractual lease payments due from them was not deemed probable. There was a $2.8 million straight-line rent receivable write-off associated with placing the existing operator on a cash basis of revenue recognition. The lease agreements with the three new operators were executed in 2024 as part of the transition of facilities from other operators, and we placed them on a cash basis concurrent with the lease commencement dates, so there were no straight-line rent receivable write-offs associated with placing these operators on a cash basis. As of December 31, 2024, 21 operators are on a cash basis. These operators represent an aggregate 20.5% and 22.1% of our total revenues for the years ended December 31, 2024 and 2023, respectively. This includes the impact of straight-line rent receivable, lease inducement and effective yield interest write-offs of $4.2 million and $20.6 million for the years ended December 31, 2024 and 2023, respectively. |
| ● | Throughout 2024, Maplewood Senior Living (along with affiliates, “Maplewood”) continued to short-pay the contractual rent amount due under its lease agreement, paying $47.5 million of contractual rent, a short pay of $21.8 million of the $69.3 million due under its lease agreement. In addition, Maplewood did not pay the $2.7 million of contractual interest due under its secured revolving credit facility (the “Maplewood Revolver”) agreement during 2024. As Maplewood is on a cash basis of revenue recognition, we have recorded $47.5 million of revenue related to Maplewood for the year ended December 31, 2024 for the contractual rent payments that we received. Following the missed interest payments in the first quarter of 2024, we reviewed the characteristics associated with the loan and borrower and adjusted the internal risk rating on the loan, utilized as a component of our allowance for credit loss calculation, from a 4 to a 5 to reflect the increased risk associated with the loan. As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, in May 2024, Omega sent a demand letter to Maplewood notifying it of multiple events of default under its lease, loan and related agreements with Omega, including Mr. Smith’s guaranty, including failure to pay full contractual rent and interest for periods in 2023 and 2024. Omega exercised its contractual rights in connection with these defaults, demanded immediate repayment of past due contractual rent and replenishment of the security deposit and accelerated all principal and accrued interest due under the Maplewood Revolver. On July 31, 2024, we entered into a settlement agreement (the “Settlement Agreement”) with the Greg Smith estate (the “Estate”) and submitted it to the probate court for approval. The Settlement Agreement, among other things, grants Omega the right to direct the assignment of Mr. Smith’s equity to the key members of the existing Maplewood management team (the “Key Principals”), their designee(s) or another designee of Omega’s choosing, with the Estate remaining liable under Mr. Smith’s guaranty until the transition is complete or one year from the court’s approval date, if earlier, and requires Omega to refrain from exercising contractual rights or remedies in connection with the defaults. In the proposed transition, the Key Principals would become the new majority equity holders in the Maplewood entities, which would maintain the Maplewood lease agreement and the Maplewood Revolver provided by Omega. On August 26, 2024, the probate court approved the Settlement Agreement, and in October 2024, following the probate court’s final and non-appealable order approving the Settlement Agreement, we requested and were granted a dismissal without prejudice of our lawsuit against, among others, the Estate. We are still awaiting regulatory approvals related to licensure of the operating assets before the transition will be completed. There is no certainty that the regulatory approvals will be received or that this transition will be completed as intended, on a timely basis, or at all. If the proposed transition plan is not completed, we may incur a substantial loss on the Maplewood Revolver up to the amortized cost basis of the loan. As of December 31, 2024, the amortized cost basis of the Maplewood Revolver was $263.6 million, which represents 17.8% of the total amortized cost basis of all of Omega’s real estate loan receivables. See Note 7 – Real Estate Loans Receivable. In January 2025, Maplewood short-paid the contractual rent and interest amounts due under its lease and loan agreements by $1.5 million. |
36
| ● | During the first quarter of 2024, we continued the process of restructuring our portfolio with LaVie Care Centers, LLC (“LaVie”) by selling two facilities and transitioning two facilities to another operator, all of which were previously subject to the master lease with LaVie. Concurrent with the sales and transitions, we amended the master lease agreement with LaVie to reduce monthly rent to $3.2 million. In the first quarter of 2024, LaVie paid $4.4 million of contractual rent, a short pay of $5.5 million of the $9.9 million due under its lease agreement. In June 2024, LaVie commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Georgia, Atlanta Division (the “Bankruptcy Court”). LaVie will continue to operate, as a debtor-in-possession, the 30 facilities subject to a master lease agreement with Omega, unless and until LaVie’s leasehold interest under the master lease agreement is rejected or assumed and assigned. On December 5, 2024, a plan of reorganization was confirmed by the Bankruptcy Court, pursuant to which the LaVie master lease agreement will be assumed and assigned by certain of the reorganized debtor(s) upon the effective date of the plan. As described in LaVie’s filings with the Bankruptcy Court, we committed to provide, along with another lender, $10 million of a $20 million junior secured debtor-in-possession (“DIP”) financing to LaVie. Omega recognized an aggregate $9.6 million provision for credit losses during 2024 on LaVie’s $25.0 million secured term loan and DIP financing loan as a result of insufficient collateral supporting the loans. Prior to its bankruptcy filing, LaVie paid Omega $1.5 million in April 2024 and $1.5 million in May 2024. The April 2024 and May 2024 payments were short of full contractual rent by $1.7 million and $1.5 million, respectively. Following the bankruptcy filing, LaVie paid contractual rent of $2.9 million in June 2024, which reflects full contractual rent prorated for the period after LaVie entered bankruptcy and a $0.1 million short pay for the several days prior to the filing. In the third quarter of 2024, LaVie resumed making full contractual rent payments of $9.2 million due under its lease agreement, which continued through the fourth quarter of 2024 with LaVie making a full contractual rent payment of $9.1 million. As LaVie is on a cash basis of revenue recognition for lease purposes, only the $28.6 million of contractual rent payments that we received from LaVie were recorded as rental income during the year ended December 31, 2024. |
| ● | Beginning in August 2023, Guardian Healthcare (“Guardian”) did not pay its contractual amounts due under its lease agreement. In April 2024, we transitioned the remaining six facilities previously included in Guardian’s master lease to a new operator for minimum initial contractual rent of $5.5 million per annum with the potential to increase contractual rent dependent on revenue received by the operator. We recorded rental income of $8.3 million related to the lease with the new operator during the year ended December 31, 2024. |
| ● | Following Omega and Agemo Holdings, LLC (“Agemo”) entering into a restructuring agreement during the first quarter of 2023, Agemo resumed making contractual rent and interest payments during the second quarter of 2023 and continued to make the required contractual rent and interest payments throughout the remainder of 2023 and 2024. Agemo is on a cash basis of revenue recognition for lease purposes, and we recorded rental income of $23.8 million for the year ended December 31, 2024 for the contractual rent payments that were received. Additionally, as Agemo’s loans are on non-accrual status and are being accounted for under the cost recovery method, the $4.8 million of interest payments that we received during the year ended December 31, 2024 were applied directly against the principal balance outstanding. |
Dividends
| ● | Quarterly cash dividends paid during 2024 aggregated to $2.68 per share. On January 29, 2025, the Board of Directors declared a cash dividend of $0.67 per share. The dividend will be paid on February 18, 2025 to stockholders of record as of the close of business on February 10, 2025. |
Results of Operations
The following is our discussion of the consolidated results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023. For a discussion of our results of operation for the year ended December 31, 2023 as compared to the year ended December 31, 2022, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).
37
Comparison of results of operations for the years ended December 31, 2024 and 2023 (dollars in thousands):
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
Variance |
|||||
Revenues: |
|||||||||
Rental income |
$ |
887,910 |
$ |
826,394 |
$ |
61,516 |
|||
Interest income |
|
157,207 |
|
119,888 |
37,319 |
||||
Miscellaneous income |
|
6,273 |
|
3,458 |
2,815 |
||||
Expenses: |
|
|
|
|
|||||
Depreciation and amortization |
|
304,648 |
|
319,682 |
(15,034) |
||||
General and administrative |
|
88,001 |
|
81,504 |
6,497 |
||||
Real estate taxes |
14,561 |
15,025 |
(464) |
||||||
Acquisition, merger and transition related costs |
|
11,615 |
|
5,341 |
6,274 |
||||
Impairment on real estate properties |
|
23,831 |
|
91,943 |
(68,112) |
||||
(Recovery) provision for credit losses |
|
(15,483) |
|
44,556 |
(60,039) |
||||
Interest expense |
|
221,716 |
|
235,529 |
(13,813) |
||||
Other income (expense): |
|
|
|
|
|||||
Other income – net |
|
6,826 |
|
20,297 |
(13,471) |
||||
Loss on debt extinguishment |
|
(1,749) |
|
(492) |
(1,257) |
||||
Gain on assets sold – net |
13,168 |
79,668 |
(66,500) |
||||||
Income tax expense |
|
(10,858) |
|
(6,255) |
(4,603) |
||||
Income (loss) from unconsolidated joint ventures |
|
7,916 |
|
(582) |
8,498 |
||||
Revenues
Following is a description of certain of the changes in revenues for the year ended December 31, 2024 compared to 2023:
| ● | The increase in rental income was primarily the result of (i) a $59.5 million increase related to facility acquisitions made throughout 2023 and 2024, lease extensions and other rent escalations, (ii) an increase related to a one-time option termination payment of $12.5 million to Maplewood that was recorded as a reduction to rental income during the first quarter of 2023 and (iii) a $4.0 million increase as a result of fewer straight-line rent receivable write-offs in 2024 compared to 2023, partially offset by a $15.2 million net decrease in rental income from cash basis operators, including Maplewood and LaVie, as a result of not recording straight-line lease revenue and/or receiving lower cash rent payments period over period from these operators. |
| ● | The increase in interest income was primarily due to a $39.2 million increase related to new and refinanced loans and additional fundings to existing operators made throughout 2023 and 2024, partially offset by (i) a $2.6 million decrease related to early principal payments on our loans during 2023 and 2024 and (ii) a $0.8 million net decrease related to loans placed on non-accrual status, primarily the Maplewood Revolver, in which we have recognized less interest income period over period as a result of receiving less cash payments or the loans converting to PIK interest. As noted above, during the year ended December 31, 2024, we funded $378.1 million in new or existing real estate loans and $75.4 million in new or existing non-real estate loans. |
Expenses
Following is a description of certain of the changes in our expenses for the year ended December 31, 2024 compared to 2023:
| ● | The decrease in depreciation and amortization expense primarily relates to facility sales and facilities reclassified to assets held for sale, partially offset by facility acquisitions and capital additions. |
| ● | The increase in general and administrative (“G&A”) expense primarily relates to (i) a $3.2 million increase in payroll and benefits, (ii) a $1.6 million increase in stock-based compensation expense (see Note 19 – Stock-Based Compensation to the Consolidated Financial Statements for a full summary of stock-compensation movements over the last three years) and (iii) a $0.5 million increase in professional service costs. |
38
| ● | The increase in acquisition, merger and transition related costs primarily relates to costs incurred related to (i) transition costs following our acquisition of the remaining 51% interest in the Cindat Joint Venture and (ii) the transition of facilities with troubled operators. |
| ● | The 2024 impairments were recognized in connection with six facilities that were classified as held for sale for which the carrying values exceeded the estimated fair values less costs to sell and eight held for use facilities for which the carrying value exceeded the fair value. The 2023 impairments were recognized in connection with two facilities that were classified as held for sale for which the carrying values exceeded the estimated fair value less costs to sell and 23 held for use facilities for which the carrying value exceeded the fair value. The 2024 and 2023 impairments were primarily the result of decisions to exit certain non-strategic facilities and/or operators. |
| ● | The change in (recovery) provision for credit losses primarily relates to (i) decreases in the general reserve recorded primarily resulting from decreases in loss rates utilized in the estimate of expected credit losses for loans partially offset by increases in loan balances, and a net decrease in aggregate specific provisions recorded during 2024 compared to specific provisions recorded during 2023 (see Note 9 – Allowance for Credit Losses to the Consolidated Financial Statements for a full summary of allowance movements over the last three years). |
| ● | The decrease in interest expense primarily relates to (i) the repayment of $350 million of 4.375% senior notes in August 2023, (ii) the repayment of $400 million of 4.95% senior notes in April 2024 and (iii) the payoff of all remaining HUD mortgages in the first quarter of 2024. The overall decrease was partially offset by increases due to (i) the issuance of a $428.5 million term loan in the third quarter of 2023, (ii) the assumption of the 2026 Mortgage Loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024 and (iii) increased borrowings on our Revolving Credit Facility during 2024. |
Other Income (Expense)
The decrease in total other income (expense) was primarily due to (i) a $66.5 million decrease in gain on assets sold resulting from the sale of 21 facilities in 2024 compared to the sale of 69 facilities in 2023 as we continue to exit certain facilities, operator relationships and/or states to improve the strength of our overall portfolio and (ii) a $13.5 million change in other income (expense) – net primarily related to decreased interest income on short-term investments due to lower invested cash in 2024 and foreign currency and fair value losses on financial instruments in 2024.
Income Tax Expense
The increase in income tax expense was primarily due to (i) adjustments made to our deferred tax assets and liabilities in the first quarter of 2023 as a result of the majority of our U.K. portfolio entering into the U.K. REIT regime effective April 1, 2023 and (ii) an increase in taxable income in the U.K. as a result of acquisitions in 2023 and 2024 including our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024.
Income (Loss) from Unconsolidated Joint Ventures
The change in income (loss) income from unconsolidated joint ventures was primarily due to one unconsolidated joint venture, OMG Senior Holdings, LLC, which sold one facility during the third quarter of 2024 for a $12.9 million gain ($6.5 million of which represents the Company’s share of the gain).
39
Funds From Operations
We use funds from operations (“Nareit FFO”), a non-GAAP financial measure, as one of several criteria to measure the operating performance of our business. We calculate and report Nareit FFO in accordance with the definition of Funds from Operations and interpretive guidelines issued by the National Association of Real Estate Investment Trusts (“Nareit”). Nareit FFO is defined as net income (computed in accordance with GAAP), adjusted for the effects of asset dispositions and certain non-cash items, primarily depreciation and amortization and impairment on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures and changes in the fair value of warrants. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. Revenue recognized based on the application of security deposits and letters of credit or based on the ability to offset against other financial instruments is included within Nareit FFO. We believe that Nareit FFO is an important supplemental measure of our operating performance. As real estate assets (except land) are depreciated under GAAP, such accounting presentation implies that the value of real estate assets diminishes predictably over time, while real estate values instead have historically risen or fallen with market conditions. Nareit FFO was designed by the real estate industry to address this issue. Nareit FFO herein is not necessarily comparable to Nareit FFO of other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us.
We further believe that by excluding the effect of depreciation, amortization, impairment on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Nareit FFO can facilitate comparisons of operating performance between periods and between other REITs. We offer this measure to assist the users of our financial statements in evaluating our financial performance under GAAP, and Nareit FFO should not be considered a measure of liquidity, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP. Investors and potential investors in our securities should not rely on this measure as a substitute for any GAAP measure, including net income.
The following table presents our Nareit FFO reconciliation for the years ended December 31, 2024, 2023 and 2022:
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
(in thousands) |
|||||||||
Net income (1) |
$ |
417,804 |
$ |
248,796 |
$ |
438,841 |
|||
Deduct gain from real estate dispositions |
(13,168) |
(79,668) |
(359,951) |
||||||
Deduct gain from real estate dispositions - unconsolidated joint ventures |
|
(6,260) |
|
— |
|
(93) |
|||
|
398,376 |
|
169,128 |
|
78,797 |
||||
Elimination of non-cash items included in net income: |
|
|
|
|
|
|
|||
Depreciation and amortization |
|
304,648 |
|
319,682 |
|
332,407 |
|||
Depreciation – unconsolidated joint ventures |
|
7,057 |
|
10,423 |
|
10,881 |
|||
Add back impairments on real estate properties |
23,831 |
91,943 |
38,451 |
||||||
Nareit FFO |
$ |
733,912 |
$ |
591,176 |
$ |
460,536 |
|||
| (1) | The years ended December 31, 2024, 2023 and 2022 include the application of $2.2 million, $17.6 million and $11.0 million, respectively, of security deposits (letter of credit and cash deposits) in revenue. |
Liquidity and Capital Resources
Sources and Uses
Our primary sources of cash include rental income and interest receipts, existing availability under our Revolving Credit Facility, proceeds from our DRCSPP and 2024 ATM Program, facility sales, the issuance of additional debt, including unsecured notes and term loans, and proceeds from real estate loan and non-real estate loan payoffs. We anticipate that these sources will be adequate to fund our cash flow needs through the next twelve months, which include common stock dividends and distributions to noncontrolling interest members, debt service payments (including principal and interest), real estate investments (including facility acquisitions, capital improvement programs and other capital expenditures), real estate loan and non-real estate loan advances and normal recurring G&A expenses (primarily consisting of employee payroll and benefits and expenses relating to third parties for legal, consulting and audit services).
40
Capital Structure
At December 31, 2024, we had total assets of $9.9 billion, total equity of $4.7 billion and total debt of $4.9 billion in our consolidated financial statements, with such debt representing approximately 50.7% of total capitalization.
Debt
At December 31, 2024 and 2023, the weighted average annual interest rate of our debt was 4.6% and 4.4%, respectively. Additionally, as of December 31, 2024, approximately 95% of our debt with outstanding principal balances has fixed interest payments after reflecting the impact of interest rate swaps that are designated cash flow hedges. As of December 31, 2024, Omega’s debt obligations consisted of the following:
| ● | $4.2 billion of senior unsecured notes with staggered maturity dates ranging from 2025 to 2033. These notes bear fixed interest rates between 3.25% and 5.25% per annum. |
| ● | A $1.45 billion Revolving Credit Facility that bears interest at Secured Overnight Financing Rate (“SOFR”) plus an adjustment of 0.11448% per annum (or in the case of loans denominated in GBP, the SONIA reference rate plus an adjustment of 0.1193% per annum) plus an applicable percentage (with a range of 95 to 185 basis points) based on our credit ratings. The Revolving Credit Facility matures on April 30, 2025, subject to Omega’s option to extend such maturity date for two six-month periods. As of December 31, 2024, Omega had zero outstanding on the Revolving Credit Facility. In January 2025, Omega provided notification to extend the maturity date to October 30, 2025. |
| ● | A $428.5 million senior unsecured term loan facility (the “2025 Term Loan”) that bears interest at SOFR plus an adjustment of 0.1% per annum plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings. We have 11 interest rate swaps designated as cash flow hedges, with notional value of $428.5 million, that effectively fix the SOFR-based portion of the 2025 Term Loan interest rate at 4.047%. The 2025 Term Loan matures on August 8, 2025, subject to Omega’s option to extend such maturity date for two sequential 12-month periods. |
| ● | The 2026 Mortgage Loan with £184.6 million or $231.1 million outstanding that bears interest at SONIA plus an applicable margin of 5.38%. We have four interest rate cap contracts that ensure the annual interest rate on the 2026 Mortgage Loan does not exceed 10.38%. The 2026 Mortgage Loan matures in August 2026. |
| ● | A $50.0 million senior unsecured term loan facility (the “OP Term Loan”) that bears interest at SOFR plus an adjustment of 0.11448% per annum plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings. We have an interest rate swap designated as a cash flow hedge, with a notional value of $50.0 million, that effectively fixes the SOFR-based portion of the OP Term Loan at 3.957%. The OP Term Loan matures on April 30, 2025, subject to Omega OP’s option to extend such maturity date for two six-month periods. In January 2025, Omega provided notification to extend the maturity date to October 30, 2025. |
As of December 31, 2024, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. For example, our Revolving Credit Facility accrues interest and fees at a rate per annum equal to SOFR plus a margin that depends upon our credit rating. A downgrade in credit ratings by Moody’s, S&P Global and/or Fitch may have a negative impact on the interest rates and fees for our Revolving Credit Facility, OP Term Loan and 2025 Term Loan.
41
As of December 31, 2024, we had $400 million of 4.50% senior notes due January 2025 (which were repaid on January 15, 2025 using available cash). Our Revolving Credit Facility, OP Term Loan and 2025 Term Loan also mature in 2025. As noted above, we have remaining options under each of these loans to extend the maturity dates beyond 2025. We will evaluate market conditions during the course of 2025 and determine if it is advantageous to further extend the terms of, refinance and/or pay off these loans. As of December 31, 2024, we had approximately $518.3 million of cash and cash equivalents on our Consolidated Balance Sheets and $1.45 billion of availability under our Revolving Credit Facility. Our next senior note maturity is the $600 million of 5.25% senior notes due January 2026. As discussed below, we also have $821.0 million of potential sales remaining under the ATM Program. This combination of liquidity sources, along with cash from operating activities, provides us with ability to repay the senior notes due in January 2026. We also could elect to refinance these notes based on our evaluation of market conditions at maturity.
Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of December 31, 2024 and 2023, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings.
Equity
At December 31, 2024, we had 279,129 thousand shares of common stock outstanding, and our shares had a market value of $10.6 billion. As of December 31, 2024, we had the following equity programs in place that we can utilize to raise capital:
| ● | The 2024 ATM Program under which shares of common stock having an aggregate gross sales price of up to $1.25 billion may be sold from time to time. The 2024 ATM Program has a forward sale provision that generally allows Omega to lock in a price on the sale of shares of common stock when sold by the forward sellers but defer receiving the net proceeds from such sales until the shares of our common stock are issued at settlement on a later date. We have not utilized the forward provisions under the ATM Program. We have $821.0 million of sales remaining under the 2024 ATM Program as of December 31, 2024. |
| ● | We have a DRCSPP that allows for the reinvestment of dividends and the optional purchase of our common stock. |
Dividends
As a REIT, we are required to distribute dividends (other than capital gain dividends) to our stockholders in an amount at least equal to (A) the sum of (i) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and our net capital gain), and (ii) 90% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income. In addition, if we dispose of any built-in gain asset during a recognition period, we will be required to distribute at least 90% of the built-in gain (after tax), if any, recognized on the disposition of such asset. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration. In addition, such distributions are required to be made pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that such class is entitled to such a preference. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our “REIT taxable income” as adjusted, we will be subject to tax thereon at regular corporate rates.
42
Material Cash Requirements
The following table shows our material cash requirements, described below, as of December 31, 2024:
Payments due by period |
|||||||||||||||
|
|
Less than |
|
|
|
More than |
|||||||||
|
Total |
|
1 year |
|
Years 2-3 |
|
Years 4-5 |
|
5 years |
||||||
|
(in thousands) |
||||||||||||||
Debt(1)(2)(3) |
$ |
4,859,648 |
$ |
878,500 |
$ |
1,531,148 |
$ |
1,050,000 |
$ |
1,400,000 |
|||||
Interest payments on long-term debt(2)(3)(4) |
|
719,568 |
|
201,764 |
|
259,592 |
|
142,063 |
|
116,149 |
|||||
Operating lease and other obligations(2)(5) |
|
80,520 |
|
3,082 |
|
5,446 |
|
5,289 |
|
66,703 |
|||||
Total |
$ |
5,659,736 |
$ |
1,083,346 |
$ |
1,796,186 |
$ |
1,197,352 |
$ |
1,582,852 |
|||||
| (1) | The $4.9 billion of debt outstanding includes: (i) $50 million under the OP Term Loan due April 2025, (ii) $428.5 million under the 2025 Term Loan due August 2025, (iii) $400 million of 4.50% Senior Notes due January 2025 (which were repaid on January 15, 2025 using available cash), (iv) $600 million of 5.25% Senior Notes due January 2026, (v) $700 million of 4.5% Senior Notes due April 2027, (vi) $550 million of 4.75% Senior Notes due January 2028, (vii) $500 million of 3.625% Senior Notes due October 2029, (viii) $700 million of 3.375% Senior Notes due February 2031, (ix) $700 million of 3.25% Senior Notes due April 2033 and (x) $231.1 million under the 2026 Mortgage Loan. Other than the $50 million outstanding under the OP Term Loan and the $231.1 million outstanding under the 2026 Mortgage Loan, Parent is the obligor of all outstanding debt. |
| (2) | Based on foreign currency exchange rates in effect as of December 31, 2024. |
| (3) | Does not include the impact of Omega providing notification to extend the maturity date of the OP Term Loan to October 30, 2025 in January 2025. |
| (4) | Based on variable interest rates in effect as of December 31, 2024 and including the impact of interest rate swaps designated as cash flow hedges. |
| (5) | See Note 6 – Leases to our consolidated financial statements for additional information. |
Capital Expenditures and Funding Commitments
In addition to the obligations in the table above, as of December 31, 2024, we also had $221.8 million of commitments to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments. Additionally, we have commitments to fund $50.4 million of advancements under existing other real estate loans and $65.7 million of advancements under existing non-real estate loans. These commitments are expected to be funded over the next several years and are dependent upon the operators’ election to use the commitments.
Other Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 11 to the Consolidated Financial Statements – Investments in Joint Ventures. Our risk of loss is generally limited to our investment in the joint venture and any outstanding loans receivable.
We also hold variable interests in certain unconsolidated entities through our loan and other investments. See disclosures regarding our risk of loss associated with these entities within Note 10 to the Consolidated Financial Statements – Variable Interest Entities.
We use derivative instruments to hedge interest rate and foreign currency exchange rate exposure as discussed in Note 15 to the Consolidated Financial Statements – Derivatives and Hedging.
Cash Flow Summary
The following is a summary of our sources and uses of cash flows for the year ended December 31, 2024 as compared to the year ended December 31, 2023 (dollars in thousands):
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
Increase/(Decrease) |
|||||
Net cash provided by (used in): |
|||||||||
Operating activities |
$ |
749,430 |
$ |
617,736 |
$ |
131,694 |
|||
Investing activities |
|
(671,164) |
|
(770) |
(670,394) |
||||
Financing activities |
|
26,319 |
|
(473,310) |
499,629 |
||||
43
For a discussion of our consolidated cash flows for the year ended December 31, 2023 as compared to the year ended December 31, 2022, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K.
Cash, cash equivalents and restricted cash totaled $548.7 million as of December 31, 2024, an increase of $104.0 million as compared to the balance at December 31, 2023. The following is a discussion of changes in cash, cash equivalents and restricted cash due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows.
Operating Activities –The increase in net cash provided by operating activities is primarily driven by an increase of $83.7 million of net income, net of $85.3 million of non-cash items, primarily due to a year over year increase in rental income and interest income, as discussed in our material changes analysis under Results of Operations above. The $48.0 million change in the net movements of the operating assets and liabilities also contributed to the overall increase in cash provided by operating activities.
Investing Activities –The increase in cash used in investing activities related primarily to (i) a $490.0 million decrease in proceeds from the sales of real estate investments due to significant restructuring activities related to Guardian and LaVie in 2023, (ii) a $146.2 million increase in real estate acquisitions driven by several large portfolio acquisitions in the U.K. in 2024, (iii) a $24.2 million increase in capital improvements to real estate investments and construction in progress primarily as a result of on-going construction of an ALF in Washington D.C., (iv) a $7.8 million decrease in distributions from unconsolidated joint ventures in excess of earnings, (v) a $7.0 million increase in loan placements, net of repayments due to new loans advanced in 2024 partially offset by significant paydowns on loans during 2024, (vi) a $3.7 million decrease in receipts from insurance proceeds and (vii) a $2.9 million decrease in proceeds from net investment hedges, partially offset by an $11.4 million decrease in investments in unconsolidated joint ventures.
Financing Activities –The change in cash provided by (used in) financing activities was primarily related to a $899.2 million increase in cash proceeds from the issuance of common stock as a result of increased volume under our ATM Program and DRSCPP, partially offset by (i) a $259.6 million increase in repayments on other long-term borrowings, net of proceeds, primarily due to repayment of $400 million of 4.95% senior notes in April 2024, (ii) a $92.6 million decrease in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023, (iii) a $41.6 million increase in dividends paid primarily related to share issuances during 2024, (iv) a $3.2 million increase in payment of financing related costs related to costs incurred in connection with the assumption of the 2026 Mortgage Loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture and (v) a $2.9 million increase in distributions to Omega OP Unit holders.
Supplemental Guarantor Information
Parent has issued approximately $4.2 billion aggregate principal of senior notes outstanding at December 31, 2024 that were registered under the Securities Act of 1933, as amended. The senior notes are guaranteed by Omega OP.
The SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities, such as our senior notes. As a result of these amendments, registrants are permitted to provide certain alternative financial and non-financial disclosures, to the extent material, in lieu of separate financial statements for subsidiary issuers and guarantors of registered debt securities. Accordingly, separate consolidated financial statements of Omega OP have not been presented. Parent and Omega OP, on a combined basis, have no material assets, liabilities or operations other than financing activities (including borrowings under the outstanding senior notes, Revolving Credit Facility and term loans) and their investments in non-guarantor subsidiaries.
Omega OP is currently the sole guarantor of our senior notes. The guarantees by Omega OP of our senior notes are full and unconditional and joint and several with respect to the payment of the principal and premium and interest on our senior notes. The guarantees of Omega OP are senior unsecured obligations of Omega OP that rank equal with all existing and future senior debt of Omega OP and are senior to all subordinated debt. However, the guarantees are effectively subordinated to any secured debt of Omega OP. As of December 31, 2024, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.
44
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to the Consolidated Financial Statements. These policies were followed in preparing the Consolidated Financial Statements for all periods presented. Actual results could differ from those estimates.
We have identified the following accounting policies that we believe are critical accounting policies. These critical accounting policies are those that have the most impact on the reporting of our financial condition and those requiring significant assumptions, judgments and estimates. With respect to these critical accounting policies, we believe the application of assumptions, judgments and estimates is consistently applied and produces financial information that fairly presents the results of operations for all periods presented. The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate:
Nature of Critical Accounting Estimate |
Assumptions/Approach Used |
Revenue Recognition |
|
Rental income from our operating leases is generally recognized on a straight-line basis over the lease term when we have determined that the collectibility of substantially all of the lease payments is probable. If we determine that it is not probable that substantially all of the lease payments will be collected, we account for the revenue under the lease on a cash basis. |
We assess the probability of collecting substantially all payments under our leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends, current and future economic conditions and expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern). If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all rents, we place that operator on a cash basis and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. As a result of placing an operator on a cash basis, we may recognize a charge to rental income for any contractual rent receivable, straight-line rent receivable and lease inducements. |
45
Nature of Critical Accounting Estimate |
Assumptions/Approach Used |
Real Estate Investment Impairment |
|
Assessing impairment of real property involves subjectivity in determining if indicators of impairment are present and in estimating the future undiscounted cash flows. The estimated future undiscounted cash flows are generally based on the related lease which relates to one or more properties and may include cash flows from the eventual disposition of the asset. In some instances, there may be various potential outcomes for a real estate investment and its potential future cash flows. In these instances, the undiscounted future cash flows used to assess the recoverability are probability-weighted based on management’s best estimates as of the date of evaluation. These estimates can have a significant impact on the undiscounted cash flows. |
We evaluate our real estate investments for impairment indicators at each reporting period, including the evaluation of our assets’ useful lives. The judgment regarding the existence of impairment indicators is based on factors such as, but not limited to, market conditions, operator performance including the current payment status of contractual obligations and expectations of the ability to meet future contractual obligations, legal structure, as well as our intent with respect to holding or disposing of the asset. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to our estimate of future undiscounted cash flows of the underlying facilities to determine if an impairment charge is necessary. This analysis requires us to use judgment in determining whether indicators of impairment exist, probabilities of potential outcomes and to estimate the expected future undiscounted cash flows or estimated fair values of the facility which impact our assessment of impairment, if any.
During 2024, we recorded impairments on real estate properties of approximately $23.8 million on 14 facilities. During 2023, we recorded impairments on real estate properties of approximately $91.9 million on 25 facilities. |
Asset Acquisitions |
|
We believe that our real estate acquisitions are typically considered asset acquisitions. The assets acquired and liabilities assumed are recognized by allocating the cost of the acquisition, including transaction costs, to the individual assets acquired and liabilities assumed on a relative fair value basis. Tangible assets consist primarily of land, building and site improvements and furniture and equipment. Identifiable intangible assets and liabilities primarily consist of the above or below market component of in-place leases. |
The allocation of the purchase price to the related real estate acquired (tangible assets and intangible assets and liabilities) involves subjectivity as such allocations are based on a relative fair value analysis. In determining the fair values that drive such analysis, we estimate the fair value of each component of the real estate acquired which generally includes land, buildings and site improvements, furniture and equipment, and the above or below market component of in-place leases. Significant assumptions used to determine such fair values include comparable land sales, capitalization rates, discount rates, market rental rates and property operating data, all of which can be impacted by expectations about future market or economic conditions. Our estimates of the values of these components affect the amount of depreciation and amortization we record over the estimated useful life of the property or the term of the lease. |
Allowance for Credit Losses on Real Estate Loans, Non-real Estate Loans and Direct Financing Leases |
|
|
For purposes of determining our allowance for credit loss, we pool financial assets that have similar risk characteristics. We aggregate our financial assets by financial instrument type and by internal risk rating. Our internal ratings range between 1 and 7. An internal rating of 1 reflects the lowest likelihood of loss and a 7 reflects the highest likelihood of loss.
We have a limited history of incurred losses and consequently have elected to employ external data to perform our expected credit loss calculation. We utilize a probability of default (“PD”) and loss given default (“LGD”) methodology.
Periodically, the Company may identify an individual loan for impairment. When we identify a loan impairment, the loan is written down to the present value of the expected future cash flows. In cases where expected future cash flows are not readily determinable, the loan is written down to the fair value of the underlying collateral. We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the sale of the collateral. |
We assess our internal credit ratings on a quarterly basis. Our internal credit ratings consider several factors including the collateral and/or security, the performance of borrowers underlying facilities, if applicable, available credit support (e.g., guarantees), borrowings with third parties, and other ancillary business ventures and real estate operations of the borrower.
Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration (“FHA”) along with Standards & Poor’s one-year global corporate default rates. Our historical loss rates revert to historical averages after 36 periods. Our model’s current conditions and supportable forecasts consider internal credit ratings, current and projected U.S. unemployment rates published by the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis and the weighted average life to maturity of the underlying financial asset. During 2024 and 2023, we recorded a (recovery) provision for credit losses of approximately ($15.5) million and $44.6 million, respectively. As of December 31, 2024 and 2023, we had a total allowance for credit loss of $198.6 million and $222.2 million, respectively. A 10% increase or decrease in the FHA default rates as of December 31, 2024 would result in an additional provision or recovery for credit losses of $3.2 million. If the weighted average yield to maturity on our portfolio increases or decreases by 10%, this will result in an additional provision or recovery for credit losses of $6.9 million or $7.0 million, respectively. |
46
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We use financial derivative instruments to hedge our interest rate exposure as well as our foreign currency exchange rate exposure. We do not enter into our market risk sensitive financial instruments and related derivative positions (if any) for trading or speculative purposes. The following disclosures discuss potential fluctuations in interest rates and foreign currency exchange rates and 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. Readers are cautioned that many of the statements contained in these paragraphs are forward-looking and should be read in conjunction with our disclosures under the heading “Forward-Looking Statements” set forth above. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange.
Interest Rate Risk
We borrow debt at a combination of variable and fixed rates. Movements in interest rates on our variable rate borrowings would change our future earnings and cash flows but not significantly affect the fair value of those instruments. During the year ended December 31, 2024, we incurred interest expense of $14.9 million related to variable rate borrowings outstanding under our Revolving Credit Facility, one term loan and the 2026 Mortgage Loan, after considering the impact of interest rate swaps. Assuming no changes in outstanding balances, and inclusive of the impact of interest rate swaps and interest rate caps designated as cash flow hedges noted below, a hypothetical 1% increase in interest rates would result in a $0.6 million increase in our annual interest expense. A hypothetical 1% decrease in interest rates would result in a $1.3 million decrease in our annual interest expense. As of December 31, 2024, only our Revolving Credit Facility and 2026 Mortgage Loan have variable rate borrowings, when considering the impact of interest rate swaps that are designated as cash flow hedges for the 2025 Term Loan and the OP Term Loan. As of December 31, 2024, the interest rate on the 2026 Mortgage Loan was variable as SONIA did not exceed the cap rate.
A change in interest rates will not affect the interest expense associated with our long-term fixed rate borrowings but will affect the fair value of our long-term fixed rate borrowings. The estimated fair value of our total long-term fixed-rate borrowings at December 31, 2024 was approximately $3.9 billion, which includes our senior notes. A hypothetical 1% increase in interest rates would result in a decrease in the fair value of long-term fixed-rate borrowings by approximately $235.0 million at December 31, 2024. A hypothetical 1% decrease in interest rates would result in an increase in the fair value of long-term fixed-rate borrowings by approximately $254.8 million at December 31, 2024.
At December 31, 2024, we have $478.5 million of interest rate swaps outstanding and £190.0 million of interest rate caps outstanding that are recorded at fair value in other assets and accrued expenses and other liabilities on our Consolidated Balance Sheets. The interest rate swaps and interest rate caps hedge the interest rate risk associated with interest payments on the 2025 Term Loan, the OP Term Loan and the 2026 Mortgage Loan.
Foreign Currency Risk
We are exposed to foreign currency risk through our investments in the U.K. Increases or decreases in the value of the British Pound Sterling relative to the U.S. Dollar impact the amount of net income we earn from our investments in the U.K. Based solely on our results for the year ended December 31, 2024, if the applicable exchange rate were to increase or decrease by 10%, our net income from our consolidated U.K.-based investments would increase or decrease, as applicable, by $3.2 million.
To hedge a portion of our net investments in the U.K., at December 31, 2024, we have 11 foreign currency forward contracts with notional amounts totaling £258.0 million that mature between 2027 and 2031.
Item 8 – Financial Statements and Supplementary Data
The consolidated financial statements listed under Item 15 – Exhibits and Financial Statement Schedules and the report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on such financial statements are filed as part of this report beginning on page F-1. There have been no retrospective changes to our Consolidated Statements of Operations for any of the quarters within the two most recent fiscal years that are individually or in the aggregate material.
47
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A – Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Form 10-K as of and for the year ended December 31, 2024, management evaluated the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) of the Company as of December 31, 2024. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company were effective at the reasonable assurance level as of December 31, 2024.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
In connection with the preparation of this Form 10-K, our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making that assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (“2013 framework”). Based on management’s assessment, management believes that, as of December 31, 2024, the Company’s internal control over financial reporting was effective based on those criteria.
The independent registered public accounting firm’s attestation reports regarding the Company’s internal control over financial reporting is included in the 2024 financial statements under the caption entitled Report of Independent Registered Public Accounting Firm and is incorporated by reference herein.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2024 identified in connection with the evaluation of their disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) described above that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
48
Item 9B – Other Information
(a) Amendment and Restatement of Omega OP Partnership Agreement
Effective February 11, 2025, Omega entered into that certain Third Amended and Restated Agreement of Limited Partnership governing Omega OP (the “Partnership Agreement”) to, among other things (i) provide for option units, a special class of units of Omega OP that are structured in a manner intended to qualify as profits interests (“Option Units”), which may be used for incentive compensation awards, subject to vesting, forfeiture and additional restrictions on transfer, all as determined by Omega, as general partner, and Omega OP, in their sole discretion, prior to any grant of Option Units and set forth in an applicable vesting agreement and (ii) make other updates to the Partnership Agreement primarily relating to the ownership of subsidiary REITs, changes in applicable law and ministerial and conforming changes.
The description of the Partnership Agreement contained in this Annual Report on Form 10-K is qualified in its entirety by reference to the Partnership Agreement, a copy of which is filed herewith as Exhibit 3.5 and is incorporated herein by reference.
(b) Rule 10b5-1 Trading Plans
No officers or directors, as defined in Rule 16a-1(f), ,and/or a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the fourth quarter of 2024.
Item 9C – Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
49
PART III
Item 10 – Directors, Executive Officers of the Registrant and Corporate Governance
For information regarding executive officers of our Company, see Item 1 – Business – Information about our Executive Officers.
The other information required by this item is incorporated herein by reference to the “Proposal 1 – Election of Directors,” “Board Committees and Corporate Governance” and “Audit Committee and Independent Auditor Matters” sections of Company’s definitive proxy statement for the 2025 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
Code of Business Conduct and Ethics
We have adopted a written Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all of our directors and employees, including our chief executive officer, chief financial officer, chief accounting officer and controller. A copy of our Code of Ethics is available on our website at www.omegahealthcare.com. Any amendment to our Code of Ethics or any waiver of our Code of Ethics that is required to be disclosed will be provided on our website at www.omegahealthcare.com promptly following the date of such amendment or waiver.
Insider Trading Policy
We have an Insider Trading Policy that governs the purchase, sale and/or other dispositions of our securities by our directors, officers and employees, as well as the Company, that is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the New York Stock Exchange listing standards applicable to us. A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Equity Award Grant Policy
The Compensation Committee of our Board of Directors approves all equity awards granted to the executive officers. Approval of the equity awards for the executive officers generally occurs at the Compensation Committee’s regularly scheduled quarterly meeting for the fourth quarter of each year, although the Compensation Committee retains the right to approve them at any time. The Company has not historically issued stock options or stock appreciation awards.
Item 11 – Executive Compensation
The information required by this item is incorporated herein by reference to the “Compensation Discussion and Analysis” and “Executive Compensation Tables and Related Information” sections of our Company’s definitive proxy statement for the 2025 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the “Stock Ownership Information” section of our Company’s definitive proxy statement for the 2025 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A, except as set forth below.
50
The following table provides information about shares available for future issuance under our equity compensation plans as of December 31, 2024:
Equity Compensation Plan Information
(c) |
|||||||
Number of securities |
|||||||
(a) |
(b) |
remaining available for |
|||||
Number of securities to |
Weighted-average |
future issuance under |
|||||
be issued upon exercise |
exercise price of |
equity compensation plans |
|||||
of outstanding options, |
outstanding options, |
excluding securities |
|||||
Plan category |
|
warrants and rights (1) |
|
warrants and rights (2) |
|
reflected in column (a) (3) |
|
Equity compensation plans approved by security holders |
|
7,333,538 |
$ |
— |
|
4,215,990 |
|
Equity compensation plans not approved by security holders |
|
— |
|
— |
|
— |
|
Total |
|
7,333,538 |
$ |
— |
|
4,215,990 |
|
| (1) | Reflects (i) 564,901 time-based restricted stock units (“RSUs”) and profit interest units (“PIUs”), (ii) 6,100,651 shares related to performance-based RSUs (“PRSUs”) and performance-based PIUs that could be issued if certain performance conditions are achieved and (iii) 667,986 shares in respect of outstanding deferred stock units. |
| (2) | No exercise price is payable with respect to the RSUs and PRSUs. |
| (3) | Reflects (i) 3,766,787 shares of common stock under our 2018 Stock Incentive Plan and (ii) 449,203 shares of common stock under the Omega Healthcare Investors, Inc. Employee Stock Purchase Plan. |
Item 13 – Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the “Proposal 1 – Election of Directors” and “Board Committees and Corporate Governance” sections of our Company’s definitive proxy statement for the 2025 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
Item 14 – Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the “Audit Committee and Independent Auditor Matters” section of our Company’s definitive proxy statement for the 2025 Annual Meeting of Stockholders, to be filed with the SEC pursuant to Regulation 14A.
51
PART IV
Item 15 – Exhibits and Financial Statement Schedules
(a)(1) Listing of Consolidated Financial Statements
(a)(2) Financial Statement Schedules. The following consolidated financial statement schedules are included herein:
F-71 |
||
F-73 |
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or have been omitted because sufficient information has been included in the notes to the Consolidated Financial Statements.
(a)(3) Exhibits — See “Index to Exhibits” beginning on Page I-1 of this report.
Item 16 – Form 10-K Summary
None.
52
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Omega Healthcare Investors, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Omega Healthcare Investors, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 13, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-1
Collectibility of future lease payments |
|
Description of the Matter |
During 2024, the Company recognized rental income of $887.9 million and has recorded straight-line rent and lease inducement receivables of $247.5 million at December 31, 2024. As described in Note 2 to the consolidated financial statements, the timing and pattern of rental income recognition for operating leases is affected by the Company’s determination as to whether the collectibility of substantially all lease payments is probable. Auditing the Company's accounting for rental income is complex due to the judgment involved in the Company’s determination of the collectibility of future lease payments. The determination involves consideration of the lessee’s payment history, an assessment of the financial strength of the lessee and any guarantors, where applicable, historical operations and operating trends, current and future economic conditions, and expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern). |
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over the recognition of rental income, including controls over management’s assessment of the collectibility of future lease payments. For example, we tested controls over management’s consideration of the factors used in assessing collectibility and controls over the completeness and accuracy of the data used in management’s analyses. To test the rental income recognized, we performed audit procedures that included, among others, evaluating the collectibility of future lease payments. For example, we assessed the lessee’s payment history, historical operating results of the properties, and factors contributing to the financial strength of the lessee, including current and future economic conditions, as well as management’s assessment of the expectation of performance of a sample of operators. We also considered whether other information obtained throughout the course of our audit procedures corroborated or contradicted management’s analysis. In addition, we tested the completeness and accuracy of the data that was used in management’s analyses. |
/s/
We have served as the Company’s auditor since 1992.
February 13, 2025
F-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Omega Healthcare Investors, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Omega Healthcare Investors, Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Omega Healthcare Investors, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Omega Healthcare Investors, Inc. as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) and our report dated February 13, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Baltimore, Maryland
February 13, 2025
F-3
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31, |
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2024 |
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2023 |
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ASSETS |
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Real estate assets |
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|
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||
Buildings and improvements |
$ |
|
|
$ |
|
Land |
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|
|||
Furniture and equipment |
|
|
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Construction in progress |
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Total real estate assets |
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|
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Less accumulated depreciation |
|
( |
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|
( |
Real estate assets – net |
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Investments in direct financing leases – net |
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|
Real estate loans receivable – net |
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|
Investments in unconsolidated joint ventures |
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Assets held for sale |
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Total real estate investments |
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Non-real estate loans receivable – net |
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Total investments |
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Cash and cash equivalents |
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Restricted cash |
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Contractual receivables – net |
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Other receivables and lease inducements |
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Goodwill |
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Other assets |
|
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Total assets |
$ |
|
|
$ |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
Revolving credit facility |
$ |
— |
|
$ |
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Secured borrowings |
|
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|
Senior notes and other unsecured borrowings – net |
|
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|
Accrued expenses and other liabilities |
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Total liabilities |
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Preferred stock $ |
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Common stock $ |
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Additional paid-in capital |
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|
Cumulative net earnings |
|
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|
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|
Cumulative dividends paid |
|
( |
|
( |
|
Accumulated other comprehensive income |
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|
Total stockholders’ equity |
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|
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|
Noncontrolling interest |
|
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|
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|
Total equity |
|
|
|
|
|
Total liabilities and equity |
$ |
|
|
$ |
|
See accompanying notes.
F-4
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
Revenues |
|||||||||
Rental income |
$ |
|
$ |
|
$ |
|
|||
Interest income |
|
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|
|
|||
Miscellaneous income |
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Total revenues |
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Expenses |
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Depreciation and amortization |
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General and administrative |
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|
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Real estate taxes |
|
|
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Acquisition, merger and transition related costs |
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|
|||
Impairment on real estate properties |
|
|
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|
|
|
|||
(Recovery) provision for credit losses |
|
( |
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|
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Interest expense |
|
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|
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Total expenses |
|
|
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||
Other income (expense) |
|
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||
Other income (expense) – net |
|
|
|
|
|
( |
|||
Loss on debt extinguishment |
|
( |
|
( |
|
( |
|||
Gain on assets sold – net |
|
|
|
||||||
Total other income |
|
|
|
||||||
Income before income tax expense and income (loss) from unconsolidated joint ventures |
|
|
|
|
|
|
|
||
Income tax expense |
|
( |
|
( |
|
( |
|||
Income (loss) from unconsolidated joint ventures |
|
|
|
( |
|
|
|||
Net income |
|
|
|
|
|
|
|
||
Net income attributable to noncontrolling interest |
|
( |
|
( |
|
( |
|||
Net income available to common stockholders |
$ |
|
$ |
|
|
$ |
|
||
Earnings per common share available to common stockholders: |
|
|
|
|
|
|
|
||
Basic: |
|
|
|
|
|
||||
Net income available to common stockholders |
$ |
|
$ |
|
$ |
|
|||
Diluted: |
|
|
|
|
|
|
|||
Net income available to common stockholders |
$ |
|
$ |
|
$ |
|
|||
See accompanying notes.
F-5
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31, |
||||||||
2024 |
|
2023 |
|
2022 |
||||
Net income |
$ |
|
$ |
|
$ |
|
||
Other comprehensive income (loss) |
|
|
|
|
|
|
||
Foreign currency translation |
|
( |
|
|
|
( |
||
Cash flow hedges |
|
|
|
( |
|
|
||
Total other comprehensive (loss) income |
|
( |
|
|
|
|
||
Comprehensive income |
|
|
|
|
|
|
||
Comprehensive income attributable to noncontrolling interest |
|
( |
|
( |
|
( |
||
Comprehensive income attributable to common stockholders |
$ |
|
$ |
|
$ |
|
||
See accompanying notes.
F-6
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per share amounts)
Accumulated |
|
|||||||||||||||||||||||
Common |
Additional |
Cumulative |
Other |
Total |
|
|||||||||||||||||||
Stock |
Paid‑in |
Net |
Cumulative |
Comprehensive |
Stockholders’ |
Noncontrolling |
Total |
|||||||||||||||||
|
Par Value |
|
Capital |
|
Earnings |
|
Dividends |
|
Income (Loss) |
|
Equity |
|
Interest |
|
Equity |
|||||||||
Balance at December 31, 2021 |
|
|
|
( |
( |
|
|
|
||||||||||||||||
Stock related compensation |
|
— |
|
— |
— |
— |
|
|
|
— |
|
|
||||||||||||
Issuance of common stock |
|
|
|
— |
— |
— |
|
|
|
— |
|
|
||||||||||||
Repurchase of common stock |
( |
( |
— |
— |
— |
( |
— |
( |
||||||||||||||||
Common dividends declared ($ |
— |
— |
— |
( |
— |
( |
— |
( |
||||||||||||||||
Vesting/exercising of OP units |
— |
( |
— |
— |
— |
( |
|
— |
||||||||||||||||
Conversion and redemption of Omega OP Units to common stock |
|
— |
— |
— |
— |
— |
|
— |
|
( |
|
( |
||||||||||||
Omega OP Units distributions |
|
— |
— |
— |
— |
— |
|
— |
|
( |
|
( |
||||||||||||
Net change in noncontrolling interest holder in consolidated JV |
— |
— |
— |
— |
— |
— |
|
|
||||||||||||||||
Other comprehensive income |
|
— |
— |
— |
— |
|
|
|
|
|
|
|
||||||||||||
Net income |
|
— |
— |
|
— |
— |
|
|
|
|
|
|
||||||||||||
Balance at December 31, 2022 |
|
|
|
( |
|
|
|
|
||||||||||||||||
Stock related compensation |
— |
|
— |
— |
— |
|
— |
|
||||||||||||||||
Issuance of common stock |
|
|
— |
— |
— |
|
— |
|
||||||||||||||||
Common dividends declared ($ |
— |
— |
— |
( |
— |
( |
— |
( |
||||||||||||||||
Vesting/exercising of OP units |
— |
( |
— |
— |
— |
( |
|
— |
||||||||||||||||
Conversion and redemption of Omega OP Units to common stock |
|
|
— |
— |
— |
|
( |
( |
||||||||||||||||
Omega OP Units distributions |
— |
— |
— |
— |
— |
— |
( |
( |
||||||||||||||||
Net change in noncontrolling interest holder in consolidated JV |
— |
( |
— |
— |
— |
( |
( |
( |
||||||||||||||||
Other comprehensive income |
— |
— |
— |
— |
|
|
|
|
||||||||||||||||
Net income |
— |
— |
|
— |
— |
|
|
|
||||||||||||||||
Balance at December 31, 2023 |
|
|
|
( |
|
|
|
|
||||||||||||||||
Stock related compensation |
— |
|
— |
— |
— |
|
— |
|
||||||||||||||||
Issuance of common stock |
|
|
— |
— |
— |
|
— |
|
||||||||||||||||
Common dividends declared ($ |
— |
— |
— |
( |
— |
( |
— |
( |
||||||||||||||||
Vesting/exercising of OP units |
— |
( |
— |
— |
— |
( |
|
— |
||||||||||||||||
Conversion and redemption of Omega OP Units to common stock |
|
|
— |
— |
— |
|
( |
( |
||||||||||||||||
Omega OP Units distributions |
— |
— |
— |
— |
— |
— |
( |
( |
||||||||||||||||
Net change in noncontrolling interest holder in consolidated JV |
— |
— |
— |
— |
— |
— |
|
|
||||||||||||||||
Other comprehensive loss |
— |
— |
— |
— |
( |
( |
( |
( |
||||||||||||||||
Net income |
— |
— |
|
— |
— |
|
|
|
||||||||||||||||
Balance at December 31, 2024 |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
See accompanying notes.
F-7
OMEGA HEALTHCARE INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, |
||||||||
2024 |
|
2023 |
|
2022 |
||||
Cash flows from operating activities |
|
|
|
|
|
|||
Net income |
$ |
|
$ |
|
$ |
|
||
Adjustment to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|||
Impairment on real estate properties |
|
|
|
|
|
|||
Provision for rental income |
|
|
|
|
|
|||
(Recovery) provision for credit losses |
( |
|
|
|
|
|||
Amortization of deferred financing costs and loss on debt extinguishment |
|
|
|
|
|
|||
Accretion of direct financing leases |
|
|
|
|
|
|||
Stock-based compensation expense |
|
|
|
|
|
|||
Gain on assets sold – net |
( |
|
( |
|
( |
|||
Amortization of acquired in-place leases – net |
( |
|
( |
|
( |
|||
Straight-line rent and effective interest receivables |
( |
( |
( |
|||||
Interest paid-in-kind |
( |
( |
( |
|||||
Loss from unconsolidated joint ventures |
|
|
|
|||||
Change in operating assets and liabilities – net: |
|
|
||||||
Contractual receivables |
( |
|
( |
|
|
|||
Lease inducements |
( |
|
( |
|
|
|||
Other operating assets and liabilities |
|
|
|
|
|
|||
Net cash provided by operating activities |
|
|
|
|
|
|||
Cash flows from investing activities |
|
|
|
|
|
|||
Acquisition of real estate |
( |
|
( |
|
( |
|||
Net proceeds from sale of real estate investments |
|
|
|
|
|
|||
Investments in construction in progress |
( |
|
( |
|
( |
|||
Placement of loan principal |
( |
|
( |
|
( |
|||
Collection of loan principal |
|
|
|
|
|
|||
Investments in unconsolidated joint ventures |
( |
( |
( |
|||||
Distributions from unconsolidated joint ventures in excess of earnings |
|
|
|
|
|
|||
Capital improvements to real estate investments |
( |
|
( |
|
( |
|||
Proceeds from net investment hedges |
|
|
|
|
— |
|||
Receipts from insurance proceeds |
|
|
|
|
|
|||
Net cash (used in) provided by investing activities |
( |
|
( |
|
|
|||
Cash flows from financing activities |
|
|
|
|
|
|||
Proceeds from long-term borrowings |
|
|
|
|
|
|||
Payments of long-term borrowings |
( |
|
( |
|
( |
|||
Payments of financing related costs |
( |
|
( |
|
( |
|||
Net proceeds from issuance of common stock |
|
|
|
|
|
|||
Repurchase of common stock |
— |
— |
( |
|||||
Dividends paid |
( |
|
( |
|
( |
|||
Net payments to noncontrolling members of consolidated joint venture |
|
|
( |
|
||||
Proceeds from derivative instruments |
— |
|
— |
|||||
Redemption of Omega OP Units |
( |
( |
( |
|||||
Distributions to Omega OP Unit Holders |
( |
|
( |
|
( |
|||
Net cash provided by (used in) financing activities |
|
|
( |
|
( |
|||
Effect of foreign currency translation on cash, cash equivalents and restricted cash |
( |
|
|
|
( |
|||
Increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
|||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|||
Cash, cash equivalents and restricted cash at end of period |
$ |
|
$ |
|
$ |
|
||
See accompanying notes.
F-8
NOTE 1 - ORGANIZATION
Omega Healthcare Investors, Inc. (“Parent”), is a Maryland corporation that, together with its consolidated subsidiaries (collectively, “Omega”, the “Company”, “we”, “our”, “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 (“MOBs”). Our core portfolio consists of our long-term “triple-net” leases and real 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 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 December 31, 2024, Parent owned approximately
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of Omega Healthcare Investors, Inc, its wholly-owned subsidiaries, joint venture (“JVs”) and variable interest entities (“VIEs”) that it controls, through voting rights or other means. All intercompany transactions and balances have been eliminated in consolidation.
GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise, if any, is the primary beneficiary of VIEs. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary.
Our variable interests in VIEs may be in the form of equity ownership, leases and/or loans with our operators. We analyze our agreements and investments to determine whether our operators or unconsolidated joint ventures are VIEs and, if so, whether we are the primary beneficiary.
F-9
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
We consolidate a VIE when we determine that we are its primary beneficiary. We identify the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. Factors considered in determining whether we are the primary beneficiary of an entity include: (i) our voting rights, if any; (ii) our involvement in day-to-day capital and operating decisions; (iii) our risk and reward sharing; (iv) the financial condition of the operator or joint venture and (iv) our representation on the VIE’s board of directors. We perform this analysis on an ongoing basis. As of December 31, 2024 and 2023, we have
Revenue Recognition
Rental Income
Rental income from operating leases is recognized on a straight-line basis, inclusive of fixed annual escalators, over the lease term when we have determined that the collectibility of substantially all of the lease payments is probable. Certain of our operating leases contain provisions for an increase based on the change in pre-determined formulas from year to year (e.g., increases in the Consumer Price Index). We do not include in our measurement of our lease receivables these variable increases until the specific events that trigger the variable payments have occurred. Certain payments made to operators are treated as lease inducements and are amortized as a reduction of revenue over the lease term. Our leased real estate properties are leased under provisions of single or master leases with initial terms typically ranging from
We assess the probability of collecting substantially all payments due under our leases on several factors, including, among other things, payment history, the financial strength of the lessee and any guarantors, as applicable, historical operations and operating trends, current and future economic conditions, and expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern). If our evaluation of these factors indicates it is not probable that we will be able to collect substantially all rents, we recognize a charge to rental income to write off straight-line rent receivables, contractual receivables and lease inducements and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. Provisions for uncollectible lease payments are recognized as a direct reduction to rental income. If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion, potentially resulting in increased volatility of rental income.
Under the terms of our leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties. Certain of our operating leases require the operators to reimburse us for property taxes and other expenditures that are not considered components of the lease and therefore no consideration is allocated to them as they do not result in the transfer of a good or service to the operators. We have determined that all of our leases qualify for the practical expedient, under Accounting Standards Codification (“ASC”) 842, Leases (“Topic 842”), to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as the lease components.
Certain operators are obligated to pay directly their obligations under their leases for real estate taxes, insurance and certain other expenses. These obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our consolidated financial statements. To the extent any tenant responsible for these obligations under their respective lease defaults on its lease or if it is deemed probable that the tenant will fail to pay for such costs, we would record a liability for such obligation.
We have elected to exclude sales and other similar taxes from the measurement of lease revenue and expense.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Loan Interest Income
Interest income is recognized as earned over the term of the related real estate and non-real estate loans receivable. Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected using the effective interest method. In applying the effective interest method, the effective yield on a loan is determined based on its contractual payment terms, adjusted for prepayment terms.
Direct Financing Lease Income
As of December 31, 2024 and 2023, we have
Real Estate Sales
We recognize gains on the disposition of real estate when the recognition criteria have been met, generally at the time the risks and rewards and title have transferred, and we no longer have substantial continuing involvement with the real estate sold. Gains on the sale of real estate are recognized pursuant to provisions under Accounting Standards Codification (“ASC”) 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets. Under ASC 610-20, we determine whether the transaction is a sale to a customer or non-customer. As a REIT, we do not sell real estate within the ordinary course of our business and therefore, expect that our sale transactions will not be contracts with customers. ASC 610-20 refers to the revenue recognition principles under ASC 606, Revenue from Contracts with Customers. Under ASC 610-20, if we determine we do not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, we will dispose of the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. If we determine a sale has not occurred under ASC 610-20, we continue to record the asset on the Consolidated Balance Sheets and related depreciation expense on the Consolidated Statements of Operations.
Fair Value Measurement
The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
| ● | Level 1 - quoted prices for identical instruments in active markets; |
| ● | Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
| ● | Level 3 - fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities which are required to be measured at fair value. When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1. In some instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and classifies such items in Level 2.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and/or market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, these items could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash flow and Monte Carlo valuation models.
Real Estate Acquisitions
Upon acquisition of real estate properties, we evaluate the acquisition to determine if it is a business combination or an asset acquisition. Our real estate acquisitions are generally accounted for as asset acquisitions as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
If the acquisition is determined to be an asset acquisition, the Company records the purchase price and other related costs incurred to the acquired tangible assets and identified intangible assets and liabilities on a relative fair value basis. In addition, costs incurred for asset acquisitions, including transaction costs, are capitalized.
If the acquisition is determined to be a business combination, we record the purchase of properties to net tangible and identified intangible assets acquired and liabilities assumed at fair value. Goodwill is measured as the excess of the fair value of the consideration transferred over the fair value of the identifiable net assets. Transaction costs are expensed as incurred as part of a business combination.
In making estimates of fair value for purposes of recording asset acquisitions and business combinations, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company determines the fair value of acquired assets and liabilities as follows:
| ● | Land is determined based on third-party appraisals which typically include market comparables. |
| ● | Buildings and site improvements acquired are valued using a combination of discounted cash flow projections that assume certain future revenues and costs and consider capitalization and discount rates using current market conditions as well as the residual approach. |
| ● | Furniture and fixtures are determined based on third-party appraisals which typically utilize a replacement cost approach. |
| ● | Real estate loans and non-real estate loans are valued using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings. |
| ● | Investments in joint ventures are valued based on the fair value of the joint ventures’ assets and liabilities. Differences, if any, between the Company’s basis and the joint venture’s basis are generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of earnings (losses) of the joint venture. |
| ● | Intangible assets and liabilities acquired are valued using a combination of discounted cash flow projections as well as other valuation techniques based on current market conditions for the intangible asset or liability being acquired. When evaluating below market leases we consider extension options controlled by the lessee in our evaluation. |
| ● | Other assets acquired and liabilities assumed are typically valued at stated amounts, which approximate fair value on the date of the acquisition. |
| ● | Assumed debt balances are valued by discounting the remaining contractual cash flows using a current market rate of interest. |
| ● | Noncontrolling interests are valued using a stock price, if available, or by other methods to estimate the fair value on the acquisition date. |
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Real Estate Properties
Real estate properties are carried at initial recorded value less accumulated depreciation. The costs of significant improvements, renovations and replacements, including interest are capitalized. Our interest expense reflected in the Consolidated Statements of Operations has been reduced by the amounts capitalized. For the years ended December 31, 2024, 2023 and 2022, we capitalized $
Depreciation is computed on a straight-line basis over the estimated useful lives ranging from
Management evaluates our real estate properties for impairment indicators at each reporting period, including the evaluation of our assets’ useful lives. The judgment regarding the existence of impairment indicators is based on factors such as, but not limited to, market conditions, operator performance including the current payment status of contractual obligations and expectations of the ability to meet future contractual obligations, legal structure, as well as our intent with respect to holding or disposing of the asset. If indicators of impairment are present, management evaluates the carrying value of the related real estate investments in relation to management’s estimate of future undiscounted cash flows of the underlying facilities. The estimated future undiscounted cash flows are generally based on the related lease which relates to one or more properties and may include cash flows from the eventual disposition of the asset. In some instances, there may be various potential outcomes for a real estate investment and its potential future cash flows. In these instances, the undiscounted future cash flows used to assess the recoverability of the assets are probability-weighted based on management’s best estimates as of the date of evaluation. Impairment losses related to long-lived assets are recognized when expected future undiscounted cash flows based on our intended use of the property are determined to be less than the carrying values of the assets. An adjustment is made to the net carrying value of the real estate investments for the excess of carrying value over fair value. The fair value of the real estate investment is determined based on current market conditions and considers matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties, and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. Additionally, our evaluation of fair value may consider valuing the property as a nursing home or other healthcare facility as well as alternative uses. All impairments are taken as a period cost at that time, and depreciation is adjusted going forward to reflect the new value assigned to the asset. Management’s impairment evaluation process, and when applicable, impairment calculations involve estimation of the future cash flows from management’s intended use of the property as well as the fair value of the property. Changes in the facts and circumstances that drive management’s assumptions may result in an impairment to our assets in a future period that could be material to our results of operations.
Assets Held for Sale
We consider properties to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and we expect the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that is reasonable given our estimate of current market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
Lessee Accounting
Omega leases real estate (corporate headquarters and certain other facilities), office equipment and is party to certain ground leases on our owned facilities. We determine if an arrangement is or contains a lease at inception. Leases are classified as either finance or operating at inception of the lease. Short-term leases, defined as leases with an initial term of 12 months or less that do not contain a purchase option, are not recorded on the balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. As of December 31, 2024 and 2023, all of the leases where we are the lessee were classified as operating leases.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
We have leases that contain both lease and non-lease components and have elected, as an accounting policy, to not separate lease components and non-lease components. Operating and finance lease right-of-use ("ROU") assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our ROU assets and lease liabilities are included in other assets and accrued expenses and other liabilities, respectively, on our Consolidated Balance Sheets. The lease liability is calculated as the present value of the remaining minimum rental payments for existing leases using either the rate implicit in the lease or, if none exists, the Company's incremental borrowing rate, as the discount rate. Certain leases have options to extend, terminate or purchase the asset and have been considered in our analysis of the lease term and the measurement of the ROU assets and lease liabilities.
On a quarterly basis, we record our lease liabilities at the present value of the future lease payments using the discount rate determined at lease commencement. Rental expense from operating leases is generally recognized on a straight-line basis over the lease term. Lease expense derived from our operating leases is recorded in general and administrative in our Consolidated Statements of Operations. We do not include in our measurement of our lease liability certain variable payments, including changes in an index until the specific events that trigger the variable payments have occurred.
We record on a straight-line basis rental income and ground lease expense for those assets we lease and are reimbursed by our operators and/or are paid for directly by our operators.
In-Place Leases
In-place lease assets and liabilities result when we assume a lease as part of an asset acquisition or business combination. The fair value of in-place leases consists of the following components, as applicable (1) the estimated cost to replace the leases and (2) the above or below market cash flow of the leases, determined by comparing the projected cash flows of the leases in place at the time of acquisition to projected cash flows of comparable market-rate leases.
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 over the estimated remaining term of the underlying leases. Should a tenant terminate the lease, the unamortized portion of the lease intangible is recognized immediately as an adjustment to rental income.
Allowance for Credit Losses
The allowance for credit losses reflects our current estimate of the potential credit losses on our real estate loans, non-real estate loans, and our investment in direct financing leases and is recorded as a valuation account as a direct offset against these financial instruments on our Consolidated Balance Sheets. Expected credit losses inherent in non-cancelable unfunded loan commitments are accounted for as separate liabilities included in accrued expenses and other liabilities on the Consolidated Balance Sheets. The Company has elected to not measure an allowance for credit losses on accrued interest receivables related to all of its real estate loans and non-real estate loans because we write off uncollectible accrued interest receivable in a timely manner pursuant to our non-accrual policy, described below. Changes to the allowance for credit losses on loans resulting from quarterly evaluations are recorded through provision for credit losses on the Consolidated Statements of Operations.
We assess the creditworthiness of our borrowers on a quarterly basis. For purposes of determining our allowance for credit loss, we pool financial assets that have similar risk characteristics. We aggregate our financial assets by financial instrument type (i.e. real estate loan, non-real estate loan, etc.) and by our internal risk rating. Our internal credit ratings consider several factors including the collateral and/or security, the performance of borrowers underlying facilities, if applicable, available credit support (e.g., guarantees), borrowings with third parties, and other ancillary business ventures and real estate operations of the borrower. Our internal ratings range between 1 and 7. An internal rating of 1 reflects the lowest likelihood of loss and a 7 reflects the highest likelihood of loss. The characteristics associated with each risk rating is as follows:
| ● | Risk Rating 1 through 3 – Instruments with minimal to marginally acceptable risk. |
| ● | Risk Rating 4 - Instruments with potential weaknesses identified (Special mention). |
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
| ● | Risk Rating 5 - Instruments with well-defined weaknesses that may result in possible losses (Substandard). |
| ● | Risk Rating 6 – Instruments that are unlikely to be repaid in full and will probably result in losses (Doubtful). |
| ● | Risk Rating 7 – Instrument that will not be repaid in full and losses will occur (Loss). |
We have a limited history of incurred losses and consequently have elected to employ external data to perform our expected credit loss calculation. We utilize a probability of default (“PD”) and loss given default (“LGD”) methodology. Our model’s historic inputs consider PD and LGD data for residential care facilities published by the Federal Housing Administration along with Standards & Poor’s one-year global corporate default rates. Our historical loss rates revert to historical averages after 36 months. Our model’s current conditions and supportable forecasts consider internal credit ratings, current and projected U.S. unemployment rates published by the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis and the weighted average life to maturity of the underlying financial asset.
Periodically, the Company may identify an individual loan for impairment. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreements. Our assessment of collectibility considers several factors, including, among other things, payment history, the financial strength of the borrower and any guarantors, historical operations and operating trends, current and future economic conditions, expectations of performance (which includes known substantial doubt about an operator’s ability to continue as a going concern) and the fair value of the underlying collateral of the agreement, a Level 3 measurement, if any. Consistent with this definition, all loans on non-accrual status may be deemed impaired. To the extent circumstances improve and the risk of collectibility is diminished, we will return these loans to full accrual status. When we identify a loan impairment, the loan is written down to the present value of the expected future cash flows or to the fair value of the underlying collateral. Financial instruments are charged off against the allowance for credit losses when collectibility is determined to be permanently impaired.
We account for impaired loans using (a) the cost-recovery method, and/or (b) the cash basis method. We generally utilize the cost-recovery method for impaired loans for which impairment reserves were recorded. Under the cost-recovery method, we apply cash received against the outstanding loan balance prior to recording interest income. Under the cash basis method, we apply cash received to principal or interest income based on the terms of the agreement.
Investments in Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures using the equity method of accounting as we exercise significant influence, but do not control the entities.
Under the equity method of accounting, the net equity investments of the Company are reflected in the accompanying Consolidated Balance Sheets and the Company’s share of net income and comprehensive income from the joint ventures are included in the accompanying Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income, respectively.
On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in the unconsolidated joint ventures may be other-than-temporarily-impaired. An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such a decline in value is deemed to be other than-temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. The estimated fair value of the investment is determined using a discounted cash flow model which is a Level 3 valuation. We consider a number of assumptions that are subject to economic and market uncertainties including, among others, rental rates, operating costs, capitalization rates, holding periods and discount rates.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In Substance Real Estate Investments
We provide loans to third parties for the acquisition, development and construction of real estate. Under these arrangements, it is possible that we will participate in the expected residual profits of the project through the sale, refinancing or acquisition of the property. We evaluate the characteristics of each arrangement, including its risks and rewards, to determine whether they are more similar to those associated with a loan or an investment in real estate. Arrangements with characteristics implying loan classification are presented as real estate loans receivable and result in the recognition of interest income. Arrangements with characteristics implying real estate joint ventures are treated as in substance real estate investments and presented as investments in unconsolidated joint ventures and are accounted for using the equity method. The classification of each arrangement as either a real estate loan receivable or investment in unconsolidated joint venture involves judgment and relies on various factors, including market conditions, amount and timing of expected residual profits, credit enhancements in the form of guarantees, estimated fair value of the collateral, and significance of borrower equity in the project, among others. The classification of such arrangements is performed at inception, and periodically reassessed when significant changes occur in the circumstances or conditions described above.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with a maturity date of three months or less when purchased. The majority of our cash, cash equivalents and restricted cash are held at major commercial banks. Certain cash account balances exceed FDIC insurance limits of $
Restricted Cash
Restricted cash consists primarily of liquidity deposits escrowed for tenant obligations required by us pursuant to certain contractual terms and other deposits required by our lenders in connection with financing arrangements.
Deposits
We obtain liquidity deposits and other deposits, security deposits and letters of credit from certain operators pursuant to our lease and mortgage agreements. These generally represent the rental and/or mortgage interest for periods ranging from to
The liquidity deposits and other deposits, security deposits and the letters of credit may be used in the event of lease and/or loan defaults, subject to applicable limitations under bankruptcy law with respect to operators filing under Chapter 11 of the U.S. Bankruptcy Code. Liquidity deposits and other deposits are recorded as restricted cash on our Consolidated Balance Sheets with the offset recorded as a liability in accrued expenses and other liabilities on our Consolidated Balance Sheets. Security deposits related to cash received from the operators are primarily recorded in cash and cash equivalents on our Consolidated Balance Sheets with a corresponding offset in accrued expenses and other liabilities on our Consolidated Balance Sheets. Additional security for rental and loan interest revenue from operators is provided by covenants regarding minimum working capital and net worth, liens on accounts receivable and other operating assets of the operators, provisions for cross-default, provisions for cross-collateralization and by corporate or personal guarantees.
Goodwill
We test goodwill for potential impairment at least annually in the fourth quarter, or more frequently if an event or other circumstance indicates that we may not be able to recover the carrying amount of the net assets of the reporting unit. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit’s fair value. Goodwill is not deductible for tax purposes. We have had
F-16
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Income Taxes
Omega and its wholly-owned subsidiaries were organized to qualify for taxation as a REIT under Section 856 through 860 of the Internal Revenue Code (“Code”). As long as we qualify as a REIT, we will not be subject to federal income taxes on the REIT taxable income that we distributed to stockholders, subject to certain exceptions. However, with respect to certain of our subsidiaries that have elected to be treated as taxable REIT subsidiaries (“TRSs”), we record income tax expense or benefit, as those entities are subject to federal income tax similar to regular corporations. Omega OP is a pass-through entity for U.S. federal income tax purposes.
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carry-forwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
We are subject to certain state and local income tax, franchise taxes and foreign taxes. The expense associated with these taxes are included in income tax expense on the Consolidated Statements of Operations.
Stock-Based Compensation
We recognize stock-based compensation expense to employees and directors, in general and administrative in our Consolidated Statements of Operations on a straight-line basis over the vesting period. Forfeitures of share-based awards are recognized as they occur.
Deferred Financing Costs, Discounts and Premiums
External costs incurred from the placement of our debt are capitalized and amortized on a straight-line basis over the terms of the related borrowings which approximates the effective interest method. Deferred financing costs related to our revolving line of credit are included in other assets on our Consolidated Balance Sheets and deferred financing costs related to our other borrowings are included as a direct deduction from the carrying amount of the related liability on our Consolidated Balance Sheets. Original issuance premium or discounts reflect the difference between the face amount of the debt issued and the cash proceeds received and are amortized on a straight-line basis over the term of the related borrowings. Any difference between fair value and stated value of debt, assumed in an assets acquisition or business combination, is recorded as a discount or premium and amortized over the remaining term of the loan. All premiums and discounts are recorded as an addition to or reduction from debt on our Consolidated Balance Sheets. Net amortization of deferred financing costs and premiums or discounts totaled $
Earnings Per Share
The computation of basic earnings per share/unit (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the relevant period. Diluted EPS is computed using the treasury stock method, which is net income divided by the total weighted-average number of common outstanding shares plus the effect of dilutive common equivalent shares during the respective period. Dilutive common shares reflect the assumed issuance of additional common shares pursuant to certain of our share-based compensation plans, including restricted stock and profit interest units, performance restricted stock and profit interest units, the assumed issuance of additional shares related to Omega OP Units held by outside investors.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Noncontrolling Interests and Redeemable Limited Partnership Unitholder Interests
Noncontrolling interests is the portion of equity not attributable to the respective reporting entity. We present the portion of any equity that we do not own in consolidated entities as noncontrolling interests and classify those interests as a component of total equity, separate from total stockholders’ equity on our Consolidated Balance Sheets. We include net income attributable to the noncontrolling interests in net income in our Consolidated Statements of Operations.
As our ownership of a controlled subsidiary increases or decreases, any difference between the aggregate consideration paid to acquire the noncontrolling interests and our noncontrolling interest balance is recorded as a component of equity in additional paid-in capital, so long as we maintain a controlling ownership interest.
The noncontrolling interest for Omega primarily represents the outstanding Omega OP Units held by outside investors. Each of the Omega OP Units (other than the Omega OP Units owned by Omega) is redeemable at the election of the Omega OP Unit holder for cash equal to the then-fair market value of one share of Omega common stock, par value $
Foreign Operations
The U.S. dollar (“USD”) is the functional currency for our consolidated subsidiaries operating in the U.S. The functional currency for our consolidated subsidiaries operating in the U.K. is the British Pound (“GBP”). Total revenues from our consolidated U.K. operating subsidiaries were $
For our consolidated subsidiaries whose functional currency is not the USD, we translate their financial statements into the USD. We translate the balance sheet accounts at the exchange rate in effect as of the financial statement date. The income statement accounts are translated using an average exchange rate for the period. Gains and losses resulting from translation are included in accumulated other comprehensive income (loss) (“AOCI”), as a separate component of equity and a proportionate amount of gain or loss is allocated to noncontrolling interests, if applicable.
We and certain of our consolidated subsidiaries may have intercompany and third-party debt that is not denominated in the entity’s functional currency. When the debt is remeasured against the functional currency of the entity, a gain or loss can result. The resulting adjustment is reflected in results of operations within other income (expense) - net, unless it is intercompany debt that is deemed to be long-term in nature in which case the adjustments are included in AOCI and a proportionate amount of gain or loss is allocated to noncontrolling interests, if applicable.
Derivative Instruments
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, interest rate caps and debt issued in foreign currencies to offset a portion of these risks.
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OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objectives and strategy for undertaking various hedge transactions. This process includes designating all derivatives that are part of a hedging relationship to specific forecasted transactions as well as recognized liabilities or assets on the Consolidated Balance Sheets. In addition, at the inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with the Company’s related assertions. The Company recognizes all derivative instruments, including embedded derivatives required to be bifurcated, as assets or liabilities on the Consolidated Balance Sheets at fair value which is determined using a market approach and Level 2 inputs. Changes in the fair value of derivative instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are recognized in the Consolidated Statements of Operations. For derivatives designated in qualifying cash flow hedging relationships, the gain or loss on the derivative is recognized in AOCI as a separate component of equity and a proportionate amount of gain or loss is allocated to noncontrolling interest, if applicable.
If it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company discontinues its cash flow hedge accounting prospectively and records the appropriate adjustment to earnings based on the current fair value of the derivative instrument. For net investment hedge accounting, upon sale or liquidation of our U.K. investment, the cumulative balance of the remeasurement value is reclassified to the Consolidated Statements of Operations.
Reclassifications
Certain amounts in the prior year period have been reclassified to conform to the current period presentation. Income from direct financing leases, which was previously reported separately on our Consolidated Statements of Operations, is now included in rental income for all periods presented. In addition, we previously reported assets held for sale of $
Recent Accounting Pronouncements
ASU – 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the financial statements. The guidance is effective for the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. The amendments in this update are to be applied on a prospective basis, with the option for retrospective application. Early adoption is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and disclosures.
ASU – 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, which modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (iii) income tax expense or benefit from continuing operations (separated by federal, state and foreign). The guidance also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The guidance should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and disclosures.
F-19
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
ASU – 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, which is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses, as well as how the Chief Operating Decision Maker (CODM) uses the reported measure(s) of segment profit or loss in assessing performance. We have adopted the guidance in the fourth quarter of 2024 and have included the required disclosures for all periods presented within Note 23 – Segments. The adoption of the new guidance and related codification improvements did not have a material impact to the Company’s financial position, results of operations and cash flows.
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 had several derivative instruments that referenced LIBOR which were terminated during the second quarter of 2023 (see Note 15 – Derivatives and Hedging). The Company also had a $
F-20
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 3 – REAL ESTATE ASSET ACQUISITIONS AND DEVELOPMENT
2024 Acquisitions
The following table summarizes the significant asset acquisitions that occurred in 2024:
Number of |
Total Real Estate |
Initial |
|||||||||
|
Facilities |
|
|
Assets Acquired |
|
Annual |
|||||
Period |
SNF |
ALF |
Country/State |
(in millions) |
Cash Yield(1) |
||||||
Q1 |
|
— |
|
WV |
$ |
|
|
% |
|||
Q1 |
— |
|
U.K. |
|
|
% |
|||||
Q2 |
|
— |
MI |
|
|
% |
|||||
Q2 |
— |
|
U.K. |
|
(2) |
|
% |
||||
Q2 |
|
— |
LA |
|
|
% |
|||||
Q3 |
— |
|
U.K. |
|
(3) |
|
%(4) |
||||
Q3 |
— |
|
U.K. |
|
|
% |
|||||
Q3 |
|
— |
NC |
|
|
% |
|||||
Q3 |
— |
|
U.K. |
|
|
% |
|||||
Q4 |
— |
|
U.K. |
|
|
% |
|||||
Q4 |
— |
|
OR |
|
|
% |
|||||
Q4 |
|
— |
TX |
|
|
% |
|||||
Q4 |
— |
|
U.K. |
|
|
% |
|||||
Total |
|
|
|
|
$ |
|
|
||||
| (1) | Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price. |
| (2) |
Total consideration paid for this acquisition was $ |
| (3) |
Relates to our acquisition of the remaining |
| (4) | Reflects the yield based on cash consideration, the assumption of a mortgage loan, deferred contingent consideration and the previously held equity interest in the unconsolidated real estate joint venture. See “Cindat Portfolio Acquisition” below for additional information. |
Cindat Portfolio Acquisition
As of December 31, 2023, we held a
In July 2024, we acquired the remaining
Following the acquisition, we own
F-21
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following table summarizes the assets and liabilities recorded as part of the acquisition as of the date of the acquisition:
(in thousands) |
|||
Costs to be allocated: |
|||
|
$ |
|
|
Consideration for additional |
|
||
Fair market value of debt assumed |
|
||
Total acquisition cost to be allocated |
$ |
|
|
Net assets acquired: |
|||
Real estate assets |
$ |
|
|
Non-real estate loans receivable |
|
||
Cash and cash equivalents |
|
||
Restricted cash |
|
||
Contractual receivables |
|
||
Other assets |
|
||
Total assets |
|
||
Accrued expenses and other liabilities |
( |
||
Net assets acquired |
$ |
|
|
2023 Acquisitions
The following table summarizes the significant asset acquisitions that occurred in 2023:
Number of |
Total Real Estate |
Initial |
|||||||||
|
Facilities |
|
|
Assets Acquired |
|
Annual |
|||||
Period |
SNF |
ALF |
Country/State |
(in millions) |
Cash Yield(1) |
||||||
Q1 |
|
— |
|
|
U.K. |
$ |
|
(2) |
|
% |
|
Q2 |
|
— |
WV |
|
(3) |
|
% |
||||
Q2 |
|
— |
WV |
|
|
% |
|||||
Q3 |
|
— |
VA |
|
|
% |
|||||
Q3 |
— |
|
U.K. |
|
|
% |
|||||
Q4 |
|
— |
MD |
|
|
%(4) |
|||||
Q4 |
— |
|
U.K. |
|
|
% |
|||||
Q4 |
|
— |
LA |
|
|
% |
|||||
Total |
|
|
|
|
|
$ |
|
|
|||
| (1) | Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price. |
| (2) |
In connection with this acquisition, the Company recorded $ |
| (3) |
In connection with this acquisition, the Company also provided $ |
| (4) |
Of the |
F-22
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
2022 Acquisitions
The following table summarizes the significant asset acquisitions that occurred in 2022:
Number of |
Total Real Estate |
Initial |
||||||||||
|
Facilities |
|
|
Assets Acquired |
|
|
Annual |
|||||
Period |
SNF |
ALF |
Country/State |
(in millions) |
Cash Yield(1) |
|||||||
Q1 |
|
— |
|
|
U.K. |
$ |
|
(2) |
|
|
% |
|
Q1 |
— |
|
U.K. |
|
|
% |
||||||
Q1 |
|
— |
|
|
U.K. |
|
|
(2) |
|
|
% |
|
Q1 |
|
— |
MD |
|
(3) |
|
% |
|||||
Q3 |
— |
|
U.K. |
|
|
% |
||||||
Q4 |
|
|
|
|
PA, NC |
|
|
(4) |
|
|
% |
|
Total |
|
|
|
|
|
$ |
|
|
|
|||
| (1) | Initial annual cash yield reflects the initial annual contractual cash rent divided by the purchase price. |
| (2) |
The total consideration paid for the one-facility U.K. acquisition and the |
| (3) |
Total consideration for the |
| (4) |
During the fourth quarter of 2022, we acquired |
Construction in progress and capital expenditure investments
We invested $
During the second quarter of 2023, we purchased land located in Virginia (not reflected in the table above) for approximately $
F-23
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
During the third quarter of 2021, we purchased a real estate property located in Washington, D.C. for approximately $
NOTE 4 – ASSETS HELD FOR SALE, DISPOSITIONS AND IMPAIRMENTS
We periodically sell facilities to reduce our concentration in 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:
December 31, |
December 31, |
||||
2024 |
|
2023 |
|||
Number of facilities held for sale |
|
|
|||
Amount of assets held for sale (in thousands) |
$ |
|
$ |
|
|
Asset Sales
2024 Activity
During the year ended December 31, 2024, we sold
2023 Activity
During the year ended December 31, 2023, we sold
F-24
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In the third quarter of 2023, we sold
In the fourth quarter of 2023, we sold
2022 Activity
During the year ended December 31, 2022, we sold
In the first quarter of 2022, we sold
During the first and second quarter of 2022, we sold
In the third and fourth quarter of 2022, we sold
Sales Not Recognized
As of December 31, 2024 and 2023, we had
F-25
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Real Estate Impairments
2024 Activity
During the year ended December 31, 2024, we recorded impairments of approximately $
2023 Activity
During the year ended December 31, 2023, we recorded impairments of approximately $
2022 Activity
During the year ended December 31, 2022, we recorded impairments of approximately $
To estimate the fair value of the facilities, for the impairments noted above, we utilized a market approach which 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 5 – 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 by type is as follows:
|
December 31, |
December 31, |
|||||
|
2024 |
|
2023 |
|
|||
(in thousands) |
|||||||
Contractual receivables – net |
$ |
|
$ |
|
|||
Effective yield interest receivables |
$ |
|
$ |
|
|||
Straight-line rent receivables |
|
|
|
|
|||
Lease inducements |
|
|
|
|
|||
Other receivables and lease inducements |
$ |
|
$ |
|
|||
F-26
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Cash basis operators and straight-line rent receivable write-offs
We review our collectibility assumptions related to our operator leases on an ongoing basis. During the year ended December 31, 2024, we placed
During the year ended December 31, 2023, we placed
During the year ended December 31, 2023, we transitioned the portfolios of
During the year ended December 31, 2022, we placed
During the years ended December 31, 2024, 2023 and 2022, we also wrote-off $
As of December 31, 2024, we had
Rent Deferrals and Application of Collateral
During the years ended December 31, 2024, 2023 and 2022, we allowed
F-27
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Additionally, we allowed
Operator updates
Agemo
Agemo, an operator on a cash basis of revenue recognition, did not pay contractual rent and interest due under its lease and loan agreements during the year ended December 31, 2022. Omega had previously entered into a forbearance agreement related to Agemo’s defaults under its lease and loan agreements (the “Agemo Forbearance Agreement”) in 2021. As part of a May 2018 restructuring agreement, we also agreed to, among other things, allow for the deferral of $
In the first quarter of 2023, Omega and Agemo entered into a restructuring agreement, an amended and restated master lease and a replacement 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 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 $ |
| ● |
extend the initial Agemo lease term from |
| ● |
refinance and restructure the $ |
Agemo resumed making contractual rent and interest payments during the second quarter of 2023 in accordance with the restructuring terms discussed above. We recorded rental income of $
F-28
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
LaVie
In the fourth quarter of 2022, Omega began the process of restructuring the portfolio with LaVie, which primarily consists of two master lease agreements and two term loan agreements. On December 30, 2022, we sold
| ● |
remove the |
| ● | provide Omega the ability to enact a one-time rent reset on one of the lease agreements, if LaVie’s coverage exceeds a threshold, after February 1, 2027; and |
| ● |
require Omega to pay LaVie a $ |
As a result of the restructuring activities during 2022 and future expected restructuring activities, during the fourth quarter of 2022, we placed LaVie on a cash basis of revenue recognition and wrote-off approximately $
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 of $
LaVie began to short pay contractual rent during the third quarter of 2023, which continued into the fourth quarter of 2023 with LaVie paying $
LaVie continued to short pay contractual rent throughout the first quarter of 2024 and into the second quarter of 2024. In June 2024, LaVie commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Georgia, Atlanta Division (the “Bankruptcy Court”). LaVie will continue to operate, as a debtor-in-possession, the
F-29
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Prior to its bankruptcy filing, LaVie paid Omega $
Maplewood
During the fourth quarter of 2022, Omega began discussions with Maplewood to restructure its portfolio, which includes a lease agreement and a secured revolving credit facility (the “Maplewood Revolver”). During the fourth quarter of 2022, we placed Maplewood on a cash basis of revenue recognition and wrote-off approximately $
In the first quarter of 2023, we agreed to a formal restructuring agreement, master lease amendments and loan amendments with Maplewood. As part of the restructuring agreement and related agreements, Omega agreed to, among other things:
| ● |
extend the maturity date of the master lease from |
| ● |
fix contractual rent at $ |
| ● |
fund $ |
| ● | extend the maturity date of the Maplewood Revolver from June 2030 to June 2035 with one borrower 2-year extension option; |
| ● |
increase the capacity of the secured revolving credit facility from $ |
| ● |
convert the |
| ● |
pay a one-time option termination fee of $ |
| ● |
reduce Maplewood’s share of any future potential sales proceeds (in excess of our gross investment) by the unpaid deferred rent balance, the $ |
Shortly after the restructuring was completed, on March 31, 2023, Greg Smith, the principal and chief executive officer of Maplewood, passed away. Mr. Smith had been a guarantor of Maplewood’s contractual obligations pursuant to a $
F-30
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In order to accelerate a negotiated transition process, in May 2024, Omega sent a demand letter to Maplewood and the Estate notifying them of multiple events of default under Maplewood’s lease, loan and related agreements with Omega, including Mr. Smith’s guaranty, including failure to pay full contractual rent and interest for periods in 2023 and 2024. Omega exercised its contractual rights in connection with these defaults, demanded immediate repayment of past due contractual rent and replenishment of the security deposit and accelerated all principal and accrued interest due to Omega under the Maplewood Revolver, which had $
After sending the demand letter, in June 2024, Omega executed a non-binding term sheet with the Key Principals outlining the terms of the proposed transition, which includes maintaining the Maplewood lease agreement and the Maplewood Revolver provided by Omega. On July 31, 2024, we entered into a settlement agreement (the “Settlement Agreement”) with the Estate and submitted it to the probate court for approval. The Settlement Agreement, among other things, grants Omega the right to direct the assignment of Mr. Smith’s equity to the Key Principals, their designee(s) or another designee of Omega’s choosing, with the Estate remaining liable under Mr. Smith’s guaranty until the transition is complete or one year from the court’s approval date, if earlier, and requires Omega to refrain from exercising contractual rights or remedies in connection with the defaults. On August 26, 2024, the probate court approved the Settlement Agreement, and in October 2024, following the probate court’s final and non-appealable order approving the Settlement Agreement, we requested and were granted a dismissal without prejudice of our lawsuit against, among others, the Estate. We are still awaiting regulatory approvals related to licensure of the operating assets before the transition will be completed.
Maplewood began to short pay contractual rent during the second quarter of 2023, which continued throughout 2023 and 2024. For the year ended December 31, 2023, Maplewood paid total contractual rent of $
As discussed further in Note 7 – Real Estate Loans Receivable, we recorded interest income of
Guardian
Guardian, an operator on a cash basis of revenue recognition, did not pay contractual rent and interest due under its lease and mortgage loan agreements during the first quarter of 2022. During the first and second quarters of 2022, we completed significant restructuring activities related to the Guardian lease and loan portfolio. In the first quarter of 2022, we transitioned
| ● |
reduce the combined rent and mortgage interest to an aggregate $ |
F-31
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
| ● |
allow Guardian to retrospectively defer $ |
Following the execution of the restructuring agreement, Guardian resumed paying contractual rent and interest during the second quarter of 2022 and continued such payments for the remainder of 2022, in accordance with the restructuring terms. For the year ended December 31, 2022, we recorded rental income of $
In August 2023, Guardian failed to make the contractual rent payment due under its lease agreement and continued to fail to make the required contractual rent payments due under its lease agreement throughout the remainder of 2023. We applied $
Guardian continued to fail to make the contractual rent payment due under its lease agreement during the first quarter of 2024. As such, we only recorded rental income of $
Additionally, as discussed further in Note 7 – Real Estate Loans Receivable,
Healthcare Homes
In December 2022, we agreed to allow Healthcare Homes, a U.K. based operator, to defer £
In March 2022, an operator (the “1.2% Operator”), representing
F-32
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In June 2022, an operator (the “2.0% Operator”), representing
Lease Inducements
For the year ended December 31, 2024, we provided a funding of $
NOTE 6 –LEASES
Lease Income
The following table summarizes the Company’s rental income:
Year Ended December 31, |
||||||||
2024 |
2023 |
2022 |
||||||
(in thousands) |
||||||||
Fixed income from operating leases |
$ |
|
$ |
|
$ |
|
||
Variable income from operating leases |
|
|
|
|||||
Interest income from direct financing leases |
|
|
|
|||||
Total rental income |
$ |
|
$ |
|
$ |
|
||
Our variable lease income primarily represents the reimbursement of real estate taxes by operators that Omega pays directly.
Lessor – Operating Leases
The following amounts reflect the future minimum lease payments due to us for the remainder of the initial terms of our operating leases as of December 31, 2024:
(in thousands) |
||
2025 |
$ |
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
Thereafter |
|
|
Total |
$ |
|
F-33
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Lessor – Direct Financing Leases
The components of investments in direct financing leases consist of the following:
|
December 31, |
December 31, |
|||||
|
2024 |
|
2023 |
|
|||
(in thousands) |
|||||||
Minimum lease payments receivable |
$ |
|
$ |
|
|||
Less unearned income |
|
( |
|
( |
|||
Investment in direct financing leases |
|
|
|
|
|||
Less allowance for credit losses on direct financing leases |
|
( |
|
( |
|||
Investment in direct financing leases – net |
$ |
|
$ |
|
|||
Properties subject to direct financing leases |
|
|
|
|
|||
Number of direct financing leases |
|
|
|
|
|||
Lessee – Operating Leases
As of December 31, 2024, the Company is a lessee under ground leases and/or facility leases related to
The following table summarizes the balance sheet information related to leases where the Company is a lessee:
December 31, |
December 31, |
|||||
2024 |
2023 |
|||||
(in thousands) |
||||||
$ |
|
$ |
|
|||
$ |
|
$ |
|
|||
In connection with a 6-facility asset acquisition in the first quarter of 2023, the Company recorded $
NOTE 7 – REAL ESTATE LOANS RECEIVABLE
Real estate loans consist of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien or a leasehold mortgage on, or an assignment of the partnership interest in the related properties. As of December 31, 2024, our real estate loans receivable consists of
F-34
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
A summary of our real estate loans receivable by loan type and by borrower and/or guarantor is as follows:
December 31, |
December 31, |
||||||
|
2024 |
|
2023 |
|
|||
(in thousands) |
|||||||
Mortgage notes due |
$ |
|
|
$ |
|
||
Mortgage notes due |
|
— |
|||||
Mortgage notes due |
|
|
|||||
Mortgage note due |
|
|
|||||
Mortgage note due |
— |
|
|||||
Other mortgage notes outstanding(3) |
|
|
|
|
|||
Mortgage notes receivable – gross |
|
|
|
|
|||
Allowance for credit losses on mortgage notes receivable |
( |
( |
|||||
Mortgage notes receivable – net |
|
|
|||||
Other real estate loan due |
|
|
|||||
Other real estate loans due |
|
|
|||||
Other real estate loan due |
|
|
|||||
Other real estate loans outstanding(5) |
|
|
|||||
Other real estate loans – gross |
|
|
|||||
Allowance for credit losses on other real estate loans |
|
( |
|
( |
|||
Other real estate loans – net |
|
|
|||||
Total real estate loans receivable – net |
$ |
|
$ |
|
|||
| (1) | Approximates the weighted average interest rate on facilities as of December 31, 2024. |
| (2) |
All mortgage notes mature in 2030 with the exception of one mortgage note with an outstanding principal balance of $ |
| (3) |
Other mortgage notes outstanding consists of |
| (4) |
During the third quarter of 2024, we modified the priority of collateral available to use under the loan agreements for two loans with aggregate principal balances of $ |
| (5) |
Other real estate loans outstanding consists of |
Interest income on real estate loans is included within interest income on the Consolidated Statements of Operations and is summarized as follows:
|
Year Ended December 31, |
|||||||
2024 |
2023 |
2022 |
||||||
(in thousands) |
||||||||
Mortgage notes – interest income |
$ |
|
$ |
|
$ |
|
||
Other real estate loans – interest income |
|
|
|
|||||
Total real estate loans interest income |
$ |
|
$ |
|
$ |
|
||
During the year ended December 31, 2024, we funded $
F-35
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Mortgage Notes due
At December 31, 2024, Omega had $
| ● |
A Ciena master mortgage note with initial principal of $ |
| ● |
Multiple incremental facility mortgages, construction and/or improvement mortgages with maturities through |
| ● |
A mortgage note with initial principal of $ |
| ● |
A mortgage note with initial principal of $ |
In addition, Omega has a $
The mortgage notes with Ciena are cross-defaulted and cross-collateralized with our existing master lease and other non-real estate loans with Ciena.
Mortgage Notes due
In May 2024, we funded an aggregate $
F-36
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
During the fourth quarter of 2024, we funded an additional $
Mortgage Notes due
In July 2021, we financed
Mortgage Note due
In December 2023, we funded a $
Mortgage Note due
In connection with our acquisition of MedEquities Realty Trust, Inc. in May 2019, the Company acquired a first mortgage lien issued to Lakeway Realty, L.L.C., an unconsolidated joint venture discussed in Note 11 – Investments in Joint Ventures. The loan had original principal of approximately $
Mortgage Note due
In January 2014, we entered into a $
Guardian did not pay contractual rent and interest due under its lease and mortgage loan agreements during the first quarter of 2022. In February 2022, Guardian completed the sale of
In the second quarter of 2023, Guardian completed the sale of the
F-37
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
During the years ended December 31, 2023 and 2022, we received $
Other mortgage notes outstanding
As of December 31, 2024, our other mortgage notes outstanding represent
Mortgage Note due 2027
In January 2024, we funded $
Mortgage Note due 2026
In October 2023, we funded a $
Other real estate loan due
In July 2020, we entered into the Maplewood Revolver with maximum borrowings of $
In the first quarter of 2023, Omega entered into a restructuring agreement and a loan amendment that modified the Maplewood Revolver. As part of the restructuring agreement and loan amendment, Omega agreed to extend the maturity date to June 2035, increase the capacity of the Maplewood Revolver from $
F-38
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Omega sent a demand letter to Maplewood during the second quarter of 2024 notifying Maplewood that due to multiple existing events of default under Maplewood’s lease, loan, and related agreements, Omega had exercised its contractual rights to immediately accelerate the outstanding principal and accrued interest under the Maplewood Revolver agreement. After sending the demand letter, in June 2024 Omega executed a non-binding term sheet with the Key Principals outlining the terms of a proposed transition, which includes the assignment of Mr. Smith’s equity in Maplewood to the Key Principals and maintaining the existing Maplewood lease agreement and the Maplewood Revolver (without reflecting the acceleration of the maturity) provided by Omega. On July 31, 2024, we entered into the Settlement Agreement with the Estate and submitted it to the probate court for approval. The Settlement Agreement, among other things, grants Omega the right to direct the assignment of Mr. Smith’s equity to the Key Principals, their designee(s) or another designee of Omega’s choosing, with the Estate remaining liable under Mr. Smith’s guaranty until the transition is complete or one year from the court’s approval date, if earlier, and requires Omega to refrain from exercising contractual rights or remedies in connection with the defaults. On August 26, 2024, the probate court approved the Settlement Agreement, and in October 2024, following the probate court’s final and non-appealable order approving the Settlement Agreement, we requested and were granted a dismissal without prejudice of our lawsuit against, among others, the Estate. We are still awaiting regulatory approvals related to licensure of the operating assets before the transition will be completed. There is no certainty that the regulatory approvals will be received or that this transition will be completed as intended, on a timely basis, or at all. If the proposed transition plan is not completed, we may incur a substantial loss on the Maplewood Revolver up to the amortized cost basis of the loan. We adjusted the internal risk rating on the Maplewood Revolver, utilized as a component of our allowance for credit loss calculation, from a 3 to a 4 in the second quarter of 2023 when Maplewood began to short-pay contractual rent under its lease agreement. In the first quarter of 2024, we again adjusted the internal risk rating from a 4 to 5 to reflect the increased risk of the Maplewood Revolver as a result of the missed interest payments in the first quarter of 2024, discussed below, and due to the status of the on-going negotiations with the Estate. We believe the internal risk rating of a 5 appropriately reflects the risks as of December 31, 2024. See the allowance for credit losses attributable to real estate loans with a 5 internal risk rating within Note 9 – Allowance for Credit Losses.
During the year ended December 31, 2024, Maplewood failed to make aggregate cash interest payments of $
Other real estate loans due
In June 2022, we entered into a $
In April 2023, we entered into two mezzanine loans, with principal balances of $
F-39
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Other real estate loans outstanding
As of December 31, 2024, our other real estate loans outstanding represent
Preferred Equity Investment in Joint Venture - $
In July 2024, we made a $
NOTE 8 – NON-REAL ESTATE LOANS RECEIVABLE
Our 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 and/or personal guarantees. As of December 31, 2024, we had
|
December 31, |
December 31, |
|||||
|
2024 |
|
2023 |
||||
(in thousands) |
|||||||
Notes due |
$ |
|
$ |
— |
|||
Notes due |
|
|
|||||
Note due |
|
|
|||||
Notes due |
|
|
|
||||
Note due |
|
|
|||||
Notes due |
|
|
|||||
Other notes outstanding(3) |
|
|
|
|
|||
Non-real estate loans receivable – gross |
|
|
|||||
Allowance for credit losses on non-real estate loans receivable |
( |
( |
|||||
Total non-real estate loans receivable – net |
$ |
|
$ |
|
|||
| (1) | Approximate weighted average interest rate as of December 31, 2024. |
| (2) |
During the second quarter of 2024, two working capital loans with maturity dates of June 30, 2024 were repaid in full. These two loans had an aggregate outstanding principal balance of $ |
| (3) |
Other notes outstanding have a weighted average interest rate of |
For the years ended December 31, 2024, 2023 and 2022, non-real estate loans generated interest income of $
During the year ended December 31, 2024, we funded $
F-40
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Notes due
Notes due in 2026 consists of two secured term loans with Genesis with initial borrowings of $
Notes due
As of December 31, 2022, Notes due 2036 consisted of a $
As discussed in Note 5 – Contractual Receivables and Other Receivables and Lease Inducements, Agemo did not pay contractual rent and interest due under its lease and loan agreements throughout 2022. The loans are on non-accrual status and are accounted for under the cost recovery method and whereby any interest and fees received directly against the principal of the loan. During the year ended December 31, 2022, we recorded additional provisions for credit losses of $
As discussed in Note 5 – 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 Agemo Term Loan was refinanced into a new $
F-41
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Prior to the restructuring, the principal of the Agemo WC Loan and the Agemo Term Loan were written down to $
Agemo exercised its option to defer the interest payments due on April 1, 2023 and resumed making interest payments in May 2023 in accordance with the restructuring terms discussed above. During the years ended December 31, 2024 and 2023, we received $
Note due
In December 2023, the Company entered into a $
Notes due
Notes due
During the second quarter of 2023, we entered into $
F-42
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Note due
On July 8, 2019, the Company entered into a $
Notes due
On September 1, 2021, we entered into an $
On March 25, 2022, we entered into a $
During the fourth quarter of 2022, we amended these with LaVie to, among other terms, extend the loan maturities to
F-43
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
On June 2 and 3, 2024, LaVie commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. As described in LaVie’s filings with the Bankruptcy Court, we provided $
Given the risks associated with the bankruptcy process, we elected to evaluate the risk of loss on the DIP loan on an individual basis. As the fair value of the collateral available to Omega was estimated to be less than the outstanding principal of $
As of December 31, 2024, the amortized cost basis of the three LaVie loans was $
Other notes outstanding
As of December 31, 2024, our other notes outstanding represent
Working Capital Loan – $
In November 2021, we entered into a $
During the year ended December 31, 2022, we recognized provisions for credit losses of $
F-44
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Gulf Coast – DIP Facility
In October 2021, we provided a $
During the year ended December 31, 2022, we recorded an additional net provision for credit losses of $
Revolving Credit Facility – $
On October 1, 2021, the Company amended the terms of a $
Promissory Notes – $
In the fourth quarter of 2022, the Company entered into three unsecured loans with a principal of an operator with principal amounts of $
$
On June 30, 2023, the Company entered into a $
F-45
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 9 – ALLOWANCE FOR CREDIT LOSSES
A rollforward of our allowance for credit losses, summarized by financial instrument type and internal credit risk rating, for the years ended December 31, 2024, 2023 and 2022 is as follows:
Rating |
Financial Statement Line Item |
Allowance for Credit Loss as of December 31, 2023 |
Provision (recovery) for Credit Loss for the year ended December 31, 2024(1) |
Write-offs charged against allowance for the year ended December 31, 2024 |
Other additions to the allowance for the year ended December 31, 2024 |
Allowance for Credit Loss as of December 31, 2024 |
||||||||||
(in thousands) |
||||||||||||||||
1 |
Real estate loans receivable |
$ |
|
$ |
( |
$ |
— |
$ |
— |
$ |
|
|||||
2 |
Real estate loans receivable |
|
|
— |
— |
|
||||||||||
3 |
Real estate loans receivable |
|
( |
— |
— |
|
||||||||||
4 |
Real estate loans receivable |
|
( |
(2) |
— |
— |
|
|||||||||
5 |
Real estate loans receivable |
— |
|
(2) |
— |
— |
|
|||||||||
6 |
Real estate loans receivable |
|
— |
— |
— |
|
||||||||||
Sub-total |
|
( |
— |
— |
|
|||||||||||
5 |
Investment in direct financing leases |
|
( |
— |
— |
|
||||||||||
Sub-total |
|
( |
— |
— |
|
|||||||||||
2 |
Non-real estate loans receivable |
|
( |
— |
— |
|
||||||||||
3 |
Non-real estate loans receivable |
|
( |
— |
— |
|
||||||||||
4 |
Non-real estate loans receivable |
|
|
— |
— |
|
||||||||||
5 |
Non-real estate loans receivable |
|
( |
— |
— |
|
||||||||||
6 |
Non-real estate loans receivable |
|
|
( |
— |
|
||||||||||
Sub-total |
|
|
(3) |
( |
— |
|
||||||||||
2 |
Unfunded real estate loan commitments |
|
( |
— |
— |
|
||||||||||
3 |
Unfunded real estate loan commitments |
|
|
— |
— |
|
||||||||||
4 |
Unfunded real estate loan commitments |
|
( |
(2) |
— |
— |
|
|||||||||
5 |
Unfunded real estate loan commitments |
— |
|
(2) |
— |
— |
|
|||||||||
2 |
Unfunded non-real estate loan commitments |
|
( |
— |
— |
|
||||||||||
3 |
Unfunded non-real estate loan commitments |
|
|
— |
— |
|
||||||||||
4 |
Unfunded non-real estate loan commitments |
|
|
— |
— |
|
||||||||||
5 |
Unfunded non-real estate loan commitments |
|
( |
— |
— |
— |
||||||||||
6 |
Unfunded non-real estate loan commitments |
— |
|
— |
— |
|
||||||||||
Sub-total |
|
( |
— |
— |
|
|||||||||||
Total |
$ |
|
$ |
( |
$ |
( |
$ |
— |
$ |
|
||||||
| (1) |
During the year ended December 31, 2024, we received proceeds of $ |
| (2) | Amount reflects the movement of reserves associated with the Maplewood Revolver due to an adjustment to the internal risk rating on the loan from 4 to a 5 during the first quarter of 2024. See Note 7 – Real Estate Loans Receivable for additional information. |
| (3) |
This amount includes cash recoveries of $ |
F-46
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Rating |
Financial Statement Line Item |
Allowance for Credit Loss at December 31, 2022 |
Provision (recovery) for Credit Loss for the year ended December 31, 2023(1) |
Write-offs charged against allowance for the year ended December 31, 2023 |
Other additions to the allowance for the year ended December 31, 2023 |
Allowance for Credit Loss as of December 31, 2023 |
||||||||||
(in thousands) |
||||||||||||||||
1 |
Real estate loans receivable |
$ |
|
$ |
|
$ |
— |
$ |
— |
$ |
|
|||||
2 |
Real estate loans receivable |
|
|
— |
— |
|
||||||||||
3 |
Real estate loans receivable |
|
( |
— |
— |
|
||||||||||
4 |
Real estate loans receivable |
|
|
— |
— |
|
||||||||||
6 |
Real estate loans receivable |
|
( |
( |
(2) |
— |
|
|||||||||
Sub-total |
|
|
( |
— |
|
|||||||||||
5 |
Investment in direct financing leases |
|
( |
— |
— |
|
||||||||||
Sub-total |
|
( |
— |
— |
|
|||||||||||
2 |
Non-real estate loans receivable |
|
|
— |
— |
|
||||||||||
3 |
Non-real estate loans receivable |
|
|
— |
— |
|
||||||||||
4 |
Non-real estate loans receivable |
|
|
— |
— |
|
||||||||||
5 |
Non-real estate loans receivable |
|
( |
— |
|
(3) |
|
|||||||||
6 |
Non-real estate loans receivable |
|
|
— |
— |
|
||||||||||
Sub-total |
|
|
— |
|
|
|||||||||||
2 |
Unfunded real estate loan commitments |
— |
|
— |
— |
|
||||||||||
3 |
Unfunded real estate loan commitments |
— |
|
— |
— |
|
||||||||||
4 |
Unfunded real estate loan commitments |
|
|
— |
— |
|
||||||||||
2 |
Unfunded non-real estate loan commitments |
|
|
— |
— |
|
||||||||||
3 |
Unfunded non-real estate loan commitments |
|
|
— |
— |
|
||||||||||
4 |
Unfunded non-real estate loan commitments |
— |
|
— |
— |
|
||||||||||
5 |
Unfunded non-real estate loan commitments |
— |
|
— |
— |
|
||||||||||
Sub-total |
|
|
— |
— |
|
|||||||||||
Total |
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
|
||||||
| (1) |
During the year ended December 31, 2023, we received proceeds of $ |
| (2) | This amount relates to the write-off of the allowance for the Guardian mortgage note in connection with the settlement and partial forgiveness of the note in the second quarter of 2023. See Note 7 – Real Estate Loans Receivable for additional provision includes an additional details. |
| (3) |
This amount relates to the additional $ |
F-47
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Rating |
Financial Statement Line Item |
Allowance for Credit Loss at December 31, 2021 |
Provision (recovery) for Credit Loss for the year ended December 31, 2022 |
Write-offs charged against allowance for the year ended December 31, 2022 |
Allowance for Credit Loss as of December 31, 2022 |
||||||||
(in thousands) |
|||||||||||||
1 |
Real estate loans receivable |
$ |
— |
$ |
|
$ |
— |
$ |
|
||||
2 |
Real estate loans receivable |
|
|
— |
|
||||||||
3 |
Real estate loans receivable |
|
|
— |
|
||||||||
4 |
Real estate loans receivable |
|
|
— |
|
||||||||
5 |
Real estate loans receivable |
|
( |
— |
— |
||||||||
6 |
Real estate loans receivable |
|
|
( |
(1) |
|
|||||||
Sub-total |
|
|
( |
|
|||||||||
3 |
Investment in direct financing leases |
|
( |
— |
— |
||||||||
5 |
Investment in direct financing leases |
- |
|
— |
|
||||||||
Sub-total |
|
|
— |
|
|||||||||
2 |
Non-real estate loans receivable |
|
|
— |
|
||||||||
3 |
Non-real estate loans receivable |
|
|
— |
|
||||||||
4 |
Non-real estate loans receivable |
|
|
— |
|
||||||||
5 |
Non-real estate loans receivable |
|
|
(2) |
— |
|
|||||||
6 |
Non-real estate loans receivable |
|
|
(3)(4) |
( |
(5) |
|
||||||
Sub-total |
|
|
( |
|
|||||||||
3 |
Unfunded real estate loan commitments |
|
( |
— |
— |
||||||||
4 |
Unfunded real estate loan commitments |
|
( |
— |
|
||||||||
2 |
Unfunded non-real estate loan commitments |
|
|
— |
|
||||||||
3 |
Unfunded non-real estate loan commitments |
|
( |
— |
|
||||||||
4 |
Unfunded non-real estate loan commitments |
|
( |
— |
— |
||||||||
6 |
Unfunded non-real estate loan commitments |
|
|
(5) |
( |
(5) |
— |
||||||
Sub-total |
|
|
( |
|
|||||||||
Total |
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
| (1) | During the third quarter of 2022, we wrote-off the loan balance and reserve for a loan that expired during the quarter which had previously been fully reserved. |
| (2) |
This provision includes an additional $ |
| (3) |
This provision includes an additional $ |
| (4) |
This provision includes an additional $ |
| (5) |
In the second quarter of 2022 we recorded an additional reserve of $ |
F-48
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Included below is a summary of the amortized cost basis of our financial instruments by year of origination and internal risk rating and a summary of our gross write-offs by year of origination:
Rating |
Financial Statement Line Item |
2024 |
2023 |
2022 |
2021 |
2020 |
2019 & older |
Revolving Loans |
Balance as of December 31, 2024 |
||||||||
(in thousands) |
|||||||||||||||||
1 |
Real estate loans receivable |
$ |
— |
$ |
— |
$ |
|
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
|
2 |
Real estate loans receivable |
|
|
— |
— |
|
— |
— |
|
||||||||
3 |
Real estate loans receivable |
|
|
|
|
— |
— |
— |
|
||||||||
4 |
Real estate loans receivable |
|
|
— |
|
|
|
— |
|
||||||||
5 |
Real estate loans receivable |
— |
— |
— |
— |
— |
— |
|
|
||||||||
6 |
Real estate loans receivable |
— |
— |
— |
— |
— |
|
— |
|
||||||||
Sub-total |
|
|
|
|
|
|
|
|
|||||||||
5 |
Investment in direct financing leases |
— |
— |
— |
— |
— |
|
— |
|
||||||||
Sub-total |
— |
— |
— |
— |
— |
|
— |
|
|||||||||
2 |
Non-real estate loans receivable |
— |
— |
— |
— |
— |
— |
|
|
||||||||
3 |
Non-real estate loans receivable |
|
|
|
— |
— |
|
|
|
||||||||
4 |
Non-real estate loans receivable |
|
— |
— |
— |
— |
|
|
|
||||||||
5 |
Non-real estate loans receivable |
|
|
— |
— |
— |
|
— |
|
||||||||
6 |
Non-real estate loans receivable |
|
|
|
|
— |
|
|
|
||||||||
Sub-total |
|
|
|
|
— |
|
|
|
|||||||||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
Year to date gross write-offs |
$ |
— |
$ |
( |
$ |
— |
$ |
— |
$ |
— |
$ |
( |
$ |
( |
$ |
( |
|
Interest Receivable on Real Estate Loans and Non-real Estate Loans
We have elected the practical expedient to exclude interest receivable from our allowance for credit losses. As of December 31, 2024 and 2023, we have excluded $
During the years ended December 31, 2024, 2023 and 2022, we recognized $
NOTE 10 – 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.
F-49
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
December 31, |
December 31, |
||||||
2024 |
2023 |
||||||
(in thousands) |
|||||||
Assets |
|||||||
Real estate assets – net |
$ |
|
$ |
|
|||
Assets held for sale |
— |
|
|||||
Real estate loans receivable – net |
|
|
|
||||
Investments in unconsolidated joint ventures |
|
|
|||||
Non-real estate loans receivable – net |
|
|
|
||||
Contractual receivables – net |
|
|
|
||||
Other assets |
|
|
|||||
Total assets |
|
|
|
|
|||
Liabilities |
|||||||
Accrued expenses and other liabilities |
( |
( |
|||||
Total liabilities |
|
( |
|
( |
|||
Collateral |
|
|
|
|
|||
Personal guarantee |
|
( |
( |
||||
Other collateral(1) |
|
( |
( |
||||
Total collateral |
|
( |
( |
||||
Maximum exposure to loss |
$ |
|
$ |
|
|||
| (1) |
Amount excludes accounts receivable amounts that Omega has a security interest in as collateral under the two working capital loans with entities that are unconsolidated VIEs. The fair value of the accounts receivable available to Omega was $ |
In determining our maximum exposure to loss from these VIEs, we considered the underlying carrying value of the real estate subject to leases with these entities 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 entities.
The table below reflects our total revenues from the entities that are considered unconsolidated VIEs, following the date they were determined to be VIEs, for the years ended December 31, 2024, 2023 and 2022:
Year Ended December 31, |
||||||||
2024 |
2023 |
2022 |
||||||
(in thousands) |
||||||||
Revenue |
||||||||
$ |
|
$ |
|
$ |
|
|||
Interest income |
|
|
|
|||||
Total |
$ |
|
$ |
|
$ |
|
||
| (1) |
The rental income for the year ended December 31, 2023, reflects the $ |
F-50
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Consolidated VIEs
We own a partial equity interest in a joint venture that we have determined is a VIE. We have consolidated this VIE because 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 and obligation to absorb losses arising from the joint venture. We also sold for $
In addition, as discussed in Note 3 – Real Estate Asset Acquisitions and Development, we consolidated the EATs that were classified as VIEs. See further discussion of EATs that were consolidated in Note 3 – Real Estate Asset Acquisitions and Development.
NOTE 11 – INVESTMENTS IN JOINT VENTURES
Unconsolidated Joint Ventures
Omega owns an interest in a number of joint ventures which generally invest in the long-term healthcare industry. The following is a summary of our investments in unconsolidated joint ventures (dollars in thousands):
Carrying Amount |
||||||||||||
Ownership |
Facility |
Facility |
December 31, |
December 31, |
||||||||
Entity |
% (1) |
Type |
Count (1) |
2024 |
|
2023 |
||||||
Lakeway Realty, L.L.C.(2) |
Specialty facility |
|
$ |
|
$ |
|
||||||
Second Spring Healthcare Investment |
N/A |
— |
|
|
|
|||||||
Cindat Joint Venture(3) |
N/A |
N/A |
N/A |
— |
|
|||||||
Other Real Estate JVs(4)(5)(6) |
Various |
|
|
|
|
|
||||||
Other Healthcare JVs(6)(7) |
N/A |
N/A |
|
|
||||||||
$ |
|
$ |
|
|||||||||
| (1) | Ownership percentages and facility counts are as of December 31, 2024. |
| (2) |
The joint venture owns the Lakeway Regional Medical Center (the “Lakeway Hospital”) in Lakeway, Texas. Our initial basis difference of approximately $ |
| (3) |
As of December 31, 2023, we held a |
| (4) |
Includes |
| (5) |
During the third quarter of 2024, one of the other real estate JVs, OMG Senior Holdings, LLC, sold one specialty facility to an unrelated third party for approximately $ |
| (6) |
As of December 31, 2024 and 2023, we had an aggregate of $ |
| (7) |
Includes |
NOTE 12 – GOODWILL AND OTHER INTANGIBLES
The following is a summary of our goodwill:
|
(in thousands) |
||
Balance as of December 31, 2023 |
$ |
|
|
Foreign currency translation |
|
( |
|
Balance as of December 31, 2024 |
$ |
|
|
F-51
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following is a summary of our lease intangibles as of December 31, 2024 and 2023:
|
December 31, |
December 31, |
|||||
|
2024 |
|
2023 |
||||
(in thousands) |
|||||||
Assets: |
|
|
|
||||
Above market leases(1) |
$ |
|
$ |
|
|||
Accumulated amortization |
|
( |
|
|
( |
||
Net above market leases |
$ |
|
$ |
|
|||
Liabilities: |
|
|
|
||||
Below market leases |
$ |
|
$ |
|
|||
Accumulated amortization |
|
( |
|
|
( |
||
Net below market leases |
$ |
|
$ |
|
|||
| (1) |
As of December 31, 2024, includes $ |
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 years ended December 31, 2024, 2023 and 2022, our net amortization related to intangibles was $
NOTE 13 - CONCENTRATION OF RISK
As of December 31, 2024, our portfolio of real estate investments (including properties associated with mortgages, direct financing leases, assets held for sale and consolidated joint ventures) consisted of
At December 31, 2024 and 2023, we had investments with
F-52
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
At December 31, 2024, the three states in which we had our highest concentration of investments were Texas (
NOTE 14 - BORROWING ARRANGEMENTS
The following is a summary of our long-term borrowings:
|
|
Annual |
|
||||||||
Interest Rate |
|||||||||||
as of |
|||||||||||
December 31, |
December 31, |
December 31, |
|||||||||
|
Maturity |
|
2024 |
|
2024 |
|
2023 |
||||
|
|
|
(in thousands) |
||||||||
Secured borrowings: |
|
|
|
|
|
|
|
|
|||
HUD mortgages(1) |
N/A |
$ |
— |
$ |
|
||||||
2024 term loan(2) |
|
|
N/A |
— |
|
||||||
2026 mortgage loan(1) |
|
|
|
% |
|
— |
|||||
Deferred financing costs – net |
|
|
|
|
( |
|
— |
||||
Premium – net |
|
|
|
|
|
|
|
— |
|||
Total secured borrowings |
|
|
|||||||||
Unsecured borrowings: |
|
|
|
|
|
|
|
|
|||
Revolving credit facility(3)(4) |
|
|
|
% |
|
— |
|
|
|||
— |
|
||||||||||
Senior notes and other unsecured borrowings: |
|||||||||||
2024 notes(3)(5) |
|
|
N/A |
|
— |
|
|
||||
2025 notes(3)(6) |
|
|
|
% |
|
|
|
|
|||
2026 notes(3) |
|
|
|
% |
|
|
|
|
|||
2027 notes(3) |
|
|
|
% |
|
|
|
|
|||
2028 notes(3) |
|
|
|
% |
|
|
|
|
|||
2029 notes(3) |
|
|
|
% |
|
|
|
|
|||
2031 notes(3) |
|
% |
|
|
|||||||
2033 notes(3) |
|
% |
|
|
|||||||
2025 term loan(3)(7) |
|
|
% |
|
|
|
|
||||
OP term loan(8)(9) |
|
|
|
% |
|
|
|
|
|||
Deferred financing costs – net |
|
|
|
|
( |
|
( |
||||
Discount – net |
|
|
|
|
|
( |
|
( |
|||
Total senior notes and other unsecured borrowings – net |
|
|
|
|
|
|
|
|
|||
Total unsecured borrowings – net |
|
|
|
|
|
|
|
|
|||
Total secured and unsecured borrowings – net(10)(11) |
|
|
|
|
$ |
|
$ |
|
|||
| (1) | Wholly owned subsidiaries of Omega OP are or were the obligor on these borrowings. |
| (2) |
Borrowing was 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 was secured by |
| (3) | Guaranteed by Omega OP. |
| (4) |
During the second quarter of 2023, the Company transitioned its benchmark interest rate for its Revolving Credit Facility from |
| (5) |
The Company repaid the $ |
| (6) |
Subsequent to December 31, 2024, the Company repaid the $ |
| (7) |
The weighted average interest rate of the $ |
| (8) | Omega OP is the obligor on this borrowing. |
| (9) |
During the second quarter of 2023, the Company transitioned its benchmark interest rate for its $ |
| (10) | All borrowings are direct borrowings of Parent unless otherwise noted. |
| (11) |
Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. |
F-53
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Secured Borrowings
HUD Mortgage Debt
On October 31, 2019, we assumed $
During 2020, we paid $
On August 31, 2022, we paid approximately $
In connection with the sales made in the third and fourth quarters of 2023 (as discussed further in Note 4 – Assets Held for Sale, Dispositions and Impairments),
During the fourth quarter of 2023, we paid approximately $
During the first quarter of 2024, the remaining
We recognized $
All HUD loans were subject to the regulatory agreements that require escrow reserve funds to be deposited with the loan servicer for mortgage insurance premiums, property taxes, debt service and capital replacement expenditures. As of December 31, 2023, the Company had total escrow reserves of $
2026 Mortgage Loan
As discussed in Note 3 – Real Estate Asset Acquisitions and Development, we assumed the 2026 Mortgage Loan as part of our acquisition of the remaining
F-54
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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 $
Revolving Credit Facility
On April 30, 2021, Omega entered into a credit agreement (the “Omega Credit Agreement”) providing us with a new Revolving Credit Facility, replacing our previous $
The Revolving Credit Facility bears interest at
We incurred $
OP Term Loan
On April 30, 2021, Omega OP entered into a credit agreement (the “Omega OP Credit Agreement”) providing it with a new OP Term Loan. The OP Term Loan replaces the $
We incurred $
General
F-55
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The required principal payments, excluding the premium or discount and deferred financing costs on our secured and unsecured borrowings, for each of the five years following December 31, 2024 and the aggregate due thereafter are set forth below:
|
(in thousands) |
||
2025 |
|
$ |
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
2029 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
|
NOTE 15 – 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 December 31, 2024, we have
Cash Flow Hedges of Interest Rate Risk
We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements are used to hedge the variable cash flows associated with variable-rate debt.
On
F-56
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
In June 2023, we entered into an interest rate swap with a notional amount of $
In August 2023, we entered into
As discussed in Note 3 – Real Estate Asset Acquisitions and Development, we assumed
Foreign Currency Forward Contracts and Debt Designated as Net Investment Hedges
We have historically used debt denominated in GBP and foreign currency forward contracts to hedge a portion of our net investments, including certain intercompany loans, in the U.K. against fluctuations in foreign exchange rates.
In March 2021, we entered into
On May 17, 2022, we entered into
On December 27, 2023, we terminated
F-57
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
On February 27, 2024, we terminated
The location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:
December 31, |
December 31, |
||||
2024 |
|
2023 |
|||
Cash flow hedges: |
(in thousands) |
||||
Other assets |
$ |
|
$ |
— |
|
Accrued expenses and other liabilities |
$ |
|
$ |
|
|
Net investment hedges: |
|||||
Other assets |
$ |
|
$ |
|
|
Accrued expenses and other liabilities |
$ |
— |
$ |
|
|
The fair value of the interest rate swaps 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 16 - 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).
F-58
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
At December 31, 2024 and 2023, the net carrying amounts and fair values of other financial instruments were as follows:
|
December 31, 2024 |
December 31, 2023 |
||||||||||
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|||||
|
Amount |
|
Value |
|
Amount |
|
Value |
|||||
(in thousands) |
||||||||||||
Assets: |
||||||||||||
Investments in direct financing leases – net |
|
$ |
|
$ |
|
|
$ |
|
|
$ |
|
|
Real estate loans receivable – net |
|
|
|
|
|
|
|
|
||||
Non-real estate loans receivable – net |
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
||||
Revolving credit facility |
$ |
— |
$ |
— |
$ |
|
$ |
|
||||
2026 mortgage loan |
|
|
|
|
|
— |
|
— |
||||
2024 term loan |
|
|
|
|
|
|
|
|
||||
2025 term loan |
|
|
|
|
||||||||
OP term loan |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
HUD mortgages – net |
— |
— |
|
|
||||||||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
||||
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). 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.
| ● | Real estate loans receivable: The fair value of the real estate loans receivable are estimated using a discounted cash flow analysis, using current interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3). |
| ● | Non-real estate loans receivable: Non-real estate loans receivable are primarily comprised of notes receivable. The fair values of notes receivable are estimated using a discounted cash flow analysis, using current interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3). |
| ● | Revolving Credit Facility, OP Term Loan, 2024 term loan and 2025 term loan: The carrying amount of these approximate fair value because the borrowings are interest rate adjusted. Differences between carrying value and the fair value in the table above are due to the inclusion of deferred financing costs in the carrying value. |
| ● |
2026 Mortgage Loan: The 2026 Mortgage Loan was recorded at fair market value in July 2024, as of the date we assumed it as part of our acquisition of the remaining |
F-59
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
| ● | Senior notes: The fair value of the senior unsecured notes payable was estimated based on publicly available trading prices (Level 1). |
| ● | 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). |
NOTE 17 – TAXES
Omega and Omega OP, including their wholly owned subsidiaries were organized, have operated, and intend 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 subsequent years, unless we qualify for certain relief provisions that are available in the event we fail to satisfy any of the requirements.
We are also subject to federal taxation of
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 2024, 2023 and 2022, we distributed dividends in excess of our taxable income.
We currently own stock in certain subsidiary REITs. These subsidiary entities 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 the subsidiary REITs, it may cause the Parent REIT to fail the requirements for qualification as a REIT also.
We have elected to treat certain of our active subsidiaries as 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 be subject to current-year income inclusion relating to ownership of a controlled foreign corporation for U.S. income tax purposes. As of December 31, 2024,
Our foreign subsidiaries are subject to foreign income taxes and withholding taxes. The majority of our 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. As discussed in Note 3 – Real Estate Asset Acquisitions and Development, we acquired foreign net operating losses of $
F-60
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, the U.K. has adopted legislation. We do not expect Pillar 2 to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.
The following is a summary of our provision for income taxes:
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
2022 |
|||||
(in millions) |
|||||||||
Federal, state and local income tax expense(1) |
$ |
|
$ |
|
$ |
|
|||
Foreign income tax expense(2) |
|
|
|
||||||
Total income tax expense (3) |
$ |
|
$ |
|
$ |
|
|||
| (1) |
For the years ended December 31, 2024, 2023 and 2022, income before income tax expense and income from unconsolidated joint ventures from domestic operations was $ |
| (2) |
For the years ended December 31, 2024, 2023 and 2022, income before income tax expense and income from unconsolidated joint ventures from foreign operations was $ |
| (3) | The above amounts do not include gross income receipts or franchise taxes payable to certain states and municipalities. |
The following is a summary of deferred tax assets and liabilities:
December 31, |
December 31, |
|||||
|
2024 |
|
2023 |
|||
(in thousands) |
||||||
U.S. Federal net operating loss carryforward |
$ |
|
$ |
|
||
Valuation allowance on deferred tax asset |
|
( |
|
( |
||
Foreign net operating loss carryforward |
|
|
||||
Foreign deferred tax asset (1) |
|
— |
||||
Net deferred tax asset |
$ |
|
$ |
|
||
Foreign deferred tax liability (1) |
$ |
— |
$ |
|
||
Net deferred tax liability |
$ |
— |
$ |
|
||
| (1) | The deferred tax asset and liability resulted from book to tax differences recorded in the U.S. relating to depreciation and revenue recognition in the U.K. |
NOTE 18 – STOCKHOLDERS’ EQUITY
Stock Repurchase Program
On January 27, 2022, the Company authorized the repurchase of up to $
F-61
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
At-The-Market Offering Program
During the second quarter of 2021, we entered into a new “at-the-market” (“ATM”) Equity Offering Sales Agreement pursuant to which shares of common stock having an aggregate gross sales price of up to $
During the third quarter of 2024, we terminated the 2021 ATM Program and entered into a new ATM Equity Offering Sales Agreement pursuant to which shares of common stock having an aggregate gross sales price of up to $
Average Net Price |
|||||||
Period Ended |
Shares issued |
Per Share(1) |
Gross Proceeds |
Net Proceeds |
|||
December 31, 2022 |
— |
$ |
— |
$ |
— |
$ |
— |
December 31, 2023 |
|
|
|
|
|||
December 31, 2024 |
|
|
|
|
|||
| (1) | Represents the average price per share after commissions. |
Dividend Reinvestment and Common Stock Purchase Plan
We have a Dividend Reinvestment and Common Stock Purchase Plan (the “DRCSPP”) that allows for the reinvestment of dividends and the optional purchase of our common stock.
Period Ended |
Shares issued |
Gross Proceeds |
||
December 31, 2022 |
|
$ |
|
|
December 31, 2023 |
|
|
||
December 31, 2024 |
|
|
||
Dividends
The Board of Directors has declared common stock dividends as set forth below:
Record |
Payment |
Dividend per |
|||
Date |
|
Date |
|
Common Share |
|
$ |
|
||||
|
|||||
|
|||||
|
|||||
|
|||||
F-62
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Per Share Distributions
Per share distributions by our Company were characterized in the following manner for income tax purposes (unaudited):
Year Ended December 31, |
|||||||||
Common |
|
2024 |
|
2023 |
|
2022 |
|||
Ordinary income |
$ |
|
$ |
|
$ |
|
|||
Return of capital |
|
|
|
|
|
|
|||
Capital gains |
|
|
|
|
|
|
|||
Total dividends paid |
$ |
|
$ |
|
$ |
|
|||
Pursuant to Treasury Regulation Section 1.1061-6(c), Omega Healthcare Investors Inc. is disclosing the following information to its shareholders. “One Year Amounts Disclosure” is
For additional information regarding dividends, see Note 17 – Taxes.
Accumulated Other Comprehensive Income (Loss)
The following is a summary of our accumulated other comprehensive income (loss), net of tax as of December 31, 2024 and 2023:
December 31, |
December 31, |
||||
2024 |
|
2023 |
|||
(in thousands) |
|||||
Foreign currency translation |
$ |
( |
|
$ |
( |
Derivative instruments designated as cash flow hedges(1) |
|
|
|||
Derivative instruments designated as net investment hedges |
|
|
|
|
|
Total accumulated other comprehensive income before noncontrolling interest |
|
|
|
|
|
Add: portion included in noncontrolling interest |
|
|
|
|
|
Total accumulated other comprehensive income for Omega |
$ |
|
$ |
|
|
(1) |
During the years ended December 31, 2024, 2023 and 2022, we reclassified $ |
NOTE 19 – STOCK-BASED COMPENSATION
At December 31, 2024, we maintained several stock-based compensation plans as described below. For the years ended December 31, 2024, 2023 and 2022, we recognized stock-based compensation of $
F-63
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Time-Based Restricted Equity Awards
Restricted stock, restricted stock units (“RSUs”) and profits interest units (“PIUs”) are subject to forfeiture if the holder’s service to us terminates prior to vesting, subject to certain exceptions for certain qualifying terminations of service or a change in control of the Company. Prior to vesting, ownership of the shares/units cannot be transferred. The restricted stock has the same dividend and voting rights as our common stock. RSUs accrue dividend equivalents but have no voting rights. PIUs accrue distributions, which are equivalent to dividend equivalents, but have no voting rights. Once vested, each RSU is settled by the issuance of
Performance-Based Restricted Equity Awards
Performance-based restricted equity awards include performance restricted stock units (“PRSUs”) and PIUs. PRSUs and PIUs are subject to forfeiture if the performance requirements are not achieved or if the holder’s service to us terminates prior to vesting, subject to certain exceptions for certain qualifying terminations of employment or a change in control of the Company. PRSUs and PIUs have varying degrees of performance requirements to achieve vesting, and each PRSU and PIU award represents the right to a variable number of shares of common stock or partnership units. Each PIU once earned is convertible into
Prior to vesting and the distribution of shares or Omega OP Units, ownership of the PRSUs or PIUs cannot be transferred. Dividend equivalents on the PRSUs are accrued and paid to the extent the applicable performance requirements are met. While each PIU is unearned, the employee receives a partnership distribution equal to
January 1, |
January 1, |
January 1, |
||||||||||
|
2024 |
|
2023 |
2022 |
||||||||
Closing price on date of grant |
$ |
|
$ |
|
$ |
|
||||||
Dividend yield |
|
|
% |
|
% |
|
% |
|||||
Risk free interest rate at time of grant |
|
|
% |
|
% |
|
% |
|||||
Expected volatility(1) |
|
|
% |
|
% |
|
% |
|||||
| (1) |
Expected volatility is using |
F-64
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following table summarizes the activity in restricted stock, RSUs, PRSUs, and PIUs for the years ended December 31, 2022, 2023 and 2024:
Time-Based |
Performance-Based |
||||||||||||
|
|
|
Weighted - |
|
|
Weighted - |
|
Total |
|||||
Number of |
Average Grant- |
Number of |
Average Grant- |
Compensation |
|||||||||
Shares/Omega |
Date Fair Value |
Shares/Omega |
Date Fair Value |
Cost (1) |
|||||||||
|
OP Units |
|
per Share |
OP Units |
|
per Share |
|
(in millions) |
|||||
Non-vested at December 31, 2021 |
|
|
$ |
|
|
$ |
|
|
|||||
Granted during 2022 |
|
|
|
|
|
|
|
$ |
|
||||
Cancelled during 2022 |
|
( |
|
|
( |
|
|
|
|
||||
Forfeited during 2022 |
— |
|
— |
( |
|
|
|||||||
Vested during 2022 |
|
( |
|
|
— |
|
— |
|
|
||||
Non-vested at December 31, 2022 |
|
|
|
|
|
|
|
||||||
Granted during 2023 |
|
|
|
|
|
|
|
$ |
|
||||
Cancelled during 2023 |
|
— |
|
— |
( |
|
|
|
|
||||
Forfeited during 2023 |
— |
|
— |
( |
|
|
|||||||
Vested during 2023 |
|
( |
|
|
( |
|
|
|
|
||||
Non-vested at December 31, 2023 |
|
|
|
|
|
|
|
||||||
Granted during 2024 |
|
|
|
|
|
|
|
$ |
|
||||
Cancelled during 2024 |
|
— |
|
— |
( |
|
|
|
|
||||
Vested during 2024(2) |
|
( |
|
|
( |
|
|
|
|
||||
Non-vested at December 31, 2024 |
|
|
$ |
|
|
$ |
|
|
|
||||
(1) |
Total compensation cost to be recognized on the awards based on grant date fair value. |
(2) |
PRSUs are shown as vesting in the year that the Compensation Committee determines the level of achievement of the applicable performance measures. |
As of December 31, 2024, unrecognized compensation costs related to unvested awards to employees is as follows:
| ● |
$ |
| ● |
$ |
| ● |
$ |
| ● |
$ |
In addition, we have a deferred stock compensation plan that allows employees and directors the ability to defer the receipt of stock awards (units). The deferred stock awards (units) participate in future dividend equivalents as well as the change in the value of the Company’s common stock. As of December 31, 2024 and 2023, the Company had
Tax Withholding for Stock Compensation Plans
Stock withheld to pay tax withholdings for equity instruments granted under stock-based payment arrangements for the years ended December 31, 2024, 2023 and 2022, was $
F-65
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Shares Available for Issuance for Compensation Purposes
On June 8, 2018, at the Annual Meeting of Stockholders, our stockholders approved the 2018 Stock Incentive Plan (the “2018 Plan”), which amended and restated the Company’s 2013 Stock Incentive Plan (the “2013 Plan”). The 2018 Plan is a comprehensive incentive compensation plan that allows for various types of equity-based compensation, including RSUs (including PRSUs), stock awards (including restricted stock), deferred RSUs, incentive stock options, non-qualified stock options, stock appreciation rights, dividend equivalent rights, performance unit awards, certain cash-based awards (including performance-based cash awards), PIUs and other stock-based awards. The 2018 Plan increased the number of shares of common stock available for issuance under the 2013 Plan by
As of December 31, 2024, approximately
NOTE 20 – COMMITMENTS AND CONTINGENCIES
Litigation
Shareholder Litigation Settlement
The Company and certain of its officers, C. Taylor Pickett, Robert O. Stephenson, and Daniel J. Booth, were named as defendants in a purported securities class action lawsuit in the U.S. District Court for the Southern District of New York (the “Securities Class Action”). The parties executed a stipulation of settlement dated December 9, 2022 (“Settlement”), which provided for a dismissal and release of all claims against the defendants without any admission of wrongdoing or liability on the part of the Company or the individual defendants. The Settlement became effective May 25, 2023, and the Settlement payment of $
Certain derivative actions were 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. In February 2024, formal stipulations of settlement incorporating the substantive terms of the memoranda of understanding and detailing the proposed settlements’ operational terms were submitted for court approval. The orders approving the formal stipulations of settlement became final and non-appealable in the second and third quarters of 2024, respectively, and the Company fulfilled all of its obligations pursuant to such stipulations of settlements. The settlements are without any admission of the allegations in the complaints, which the defendants deny. In the second quarter of 2024, the Company’s insurers funded $
F-66
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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 Debt 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 Debt Holders filed a motion to dismiss for lack of personal jurisdiction. On November 3, 2022, the Court granted the Debt Holders’ motion to dismiss for lack of personal jurisdiction, and Omega filed a timely appeal 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 affirmed and the issues are litigated in the Delaware Court (as defined below).
On or about January 19, 2023, the Debt Holders served a lawsuit against the Omega Obligor in the Superior Court of the State of Delaware (the “Delaware Court”), asserting claims for (i) breach of the instruments evidencing the Subordinated Debt, (ii) declaratory judgment, and (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 this recently filed suit to the extent the stay is lifted.
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.
Indemnification Agreements
In connection with certain facility transitions, we have agreed to indemnify certain operators in certain events. As of December 31, 2024, our maximum funding commitment under these indemnification agreements was approximately $
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.
Lessor construction and capital commitments under lease agreements |
$ |
|
|||
Non-real estate loan commitments |
|
|
|||
Real estate loan commitments |
|
|
|||
Total remaining commitments (1) |
$ |
|
|||
| (1) | Includes finance costs. |
F-67
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
During the third quarter of 2024, we amended the existing master lease with Brookdale Senior Living Inc. (“Brookdale”) to extend the maturity date from December 2027 to December 2037. As part of the amendment, we agreed to provide up to $
NOTE 21 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
The following are supplemental disclosures to the consolidated statements of cash flows for the years ended December 31, 2024, 2023 and 2022:
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
|
(in thousands) |
||||||||
Reconciliation of cash and cash equivalents and restricted cash: |
|||||||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
|||
Cash, cash equivalents and restricted cash at end of year |
$ |
|
$ |
|
$ |
|
|||
Supplemental information: |
|
|
|
|
|
|
|||
Interest paid during the year, net of amounts capitalized |
$ |
|
$ |
|
$ |
|
|||
Taxes paid during the year |
$ |
|
$ |
|
$ |
|
|||
Non-cash investing activities |
|
|
|
|
|
|
|||
Non-cash acquisition of real estate (see Note 3) |
$ |
( |
$ |
|
$ |
( |
|||
Non-cash proceeds from sale of business |
$ |
|
$ |
|
$ |
|
|||
Non-cash investment in non-real estate loans receivables (See Note 3) |
$ |
( |
$ |
|
$ |
|
|||
Non-cash investment in other investments |
$ |
|
$ |
|
$ |
( |
|||
Non-cash financing activities |
|
|
|
||||||
Assumption of debt (see Note 3 and Note 14) |
$ |
|
$ |
|
$ |
|
|||
Non-cash contribution from noncontrolling member in consolidated joint venture |
$ |
|
$ |
|
$ |
|
|||
Change in fair value of hedges |
$ |
|
$ |
( |
$ |
|
|||
Remeasurement of debt denominated in a foreign currency |
$ |
( |
$ |
|
$ |
( |
|||
F-68
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTE 22 - EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share:
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
(in thousands, except per share amounts) |
|||||||||
Numerator: |
|
|
|
|
|
|
|||
Net income available to common stockholders – basic |
$ |
|
$ |
|
$ |
|
|||
Add: net income attributable to OP Units |
|
|
|
|
|
|
|||
Net income available to common stockholders – diluted |
$ |
|
$ |
|
$ |
|
|||
Denominator: |
|
|
|
|
|
|
|||
Denominator for basic earnings per share |
|
|
|
|
|
|
|||
Effect of dilutive securities: |
|
|
|
|
|
|
|||
Common stock equivalents |
|
|
|
|
|
|
|||
Noncontrolling interest – Omega OP Units |
|
|
|
|
|
|
|||
Denominator for diluted earnings per share |
|
|
|
|
|
|
|||
Earnings per share – basic: |
|
|
|
|
|
|
|||
Net income available to common stockholders |
$ |
|
$ |
|
$ |
|
|||
Earnings per share – diluted: |
|
|
|
|
|
|
|||
Net income available to common stockholders |
$ |
|
$ |
|
$ |
|
|||
NOTE 23 – SEGMENTS
We conduct our operations and report financial results as
The reportable segment derives revenues from operators primarily through providing financing and capital to the long-term healthcare industry. Our core portfolio consists of long-term “triple net” leases and real estate loans with 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 derives revenue primarily in the U.S. and manages the business activities on a consolidated basis. The accounting policies of the business segment are the same as those described in the summary of significant accounting policies.
F-69
OMEGA HEALTHCARE INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The CODM evaluates performance and makes resource and operating decisions for the business based on net income that is reported on the Consolidated Statements of Operations. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets. The CODM uses net income to evaluate whether to make new investments, borrow or pay-off debt and/or issue or repurchase equity. The Company’s CODM periodically reviews interest expense and treats it as a significant segment expense. Interest expense is the largest recurring cash expense of the Company because debt is one of our primary sources of funds for new investments. Dependent on market conditions, our CODM seeks to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with long-term fixed rate borrowings to the extent possible.
Year Ended December 31, |
||||||||
2024 |
|
2023 |
|
2022 |
||||
(in thousands) |
||||||||
Interest expense |
$ |
|
$ |
|
$ |
|
||
Interest – amortization of deferred financing costs (1) |
|
|
|
|
|
|
||
Interest expense – net |
$ |
|
$ |
|
$ |
|
||
| (1) | Includes amortization of deferred financing costs, discounts and premiums. |
NOTE 24 – SUBSEQUENT EVENTS
Leadership Transition
In January 2025, the Company and Daniel J. Booth, Chief Operating Officer, mutually agreed that Mr. Booth’s employment agreement with the Company would terminate effective January 2, 2025. The Company entered into a Transition Agreement and Release (the “Transition Agreement”) as of January 1, 2025 with Mr. Booth in connection with his departure and transitioning of his responsibilities. The Transition Agreement provides that Mr. Booth will be entitled to receive the payments and benefits due in connection with a termination of employment by the Company without cause pursuant to his Employment Agreement, as amended, dated effective January 1, 2024, provided that vesting of his previously granted equity incentives shall be prorated through January 1, 2026, and he shall be entitled to certain continued benefits under his supplemental life insurance policy. In addition, in connection with the Transition Agreement, Mr. Booth will be eligible to receive a transition payment of $
We account for our stock-based awards in accordance with provisions of ASC 718, Compensation – Stock Compensation which includes guidance for accounting for a modification of existing stock-based compensation awards. In connection with the transition discussed above and the modification of certain of Mr. Booth’s equity awards, the Company will incur non-cash stock-based compensation expense of $
2025 New Investments
In January 2025, we funded a $
In January 2025, we acquired
F-70
OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 2024
Gross Amount at |
|||||||||||||||||||||||||||||||||
Initial Cost to |
Cost Capitalized |
Which Carried at |
Life on Which |
||||||||||||||||||||||||||||||
Company |
Subsequent to |
Close of Period (2) (4) |
Depreciation |
||||||||||||||||||||||||||||||
Acquisition |
(3) |
(6) |
in Latest |
||||||||||||||||||||||||||||||
Buildings and |
Carrying |
(5) |
(7) |
Buildings and |
Accumulated |
Date of |
Date |
Income Statements |
|||||||||||||||||||||||||
Description (1) |
Encumbrances |
Land |
|
Improvements |
|
Improvements |
|
Cost |
|
Other |
|
Land |
|
Improvements |
|
Total |
|
Depreciation |
|
Construction |
|
Acquired |
|
is Computed |
|||||||||
Alabama (SNF) |
$ |
|
$ |
|
$ |
|
$ |
— |
$ |
— |
$ |
|
$ |
|
$ |
|
$ |
( |
|
|
|
||||||||||||
Arizona (ALF, ILF, SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Arkansas (ALF, SNF) |
|
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
|||||||||||
California (ALF, SF, SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Colorado (ILF, SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Connecticut (ALF) |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Florida (ALF, ILF, SNF) |
|
|
|
|
|
|
|
|
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Georgia (ALF, SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Idaho (SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
||||||||||||||
Illinois (ALF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
||||||||||||||
Indiana (ALF, ILF, SF, SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Iowa (ALF, SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Kansas (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Kentucky (ALF, SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Louisiana (ALF, SNF) |
|
|
|
|
|
|
|
|
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Maryland (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Massachusetts (ALF, SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Michigan (SNF) |
|
|
|
|
|
— |
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Minnesota (ALF, ILF, SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Mississippi (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Missouri (SNF) |
|
|
|
|
|
— |
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Montana (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Nebraska (SNF) |
|
|
|
— |
( |
|
|
|
( |
||||||||||||||||||||||||
Nevada (SNF, SF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
New Hampshire (ALF, SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
New Jersey (ALF) |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
|
||||||||||||||
New Mexico (SNF) |
|
|
|
— |
— |
|
|
|
( |
|
|
||||||||||||||||||||||
New York (ALF) |
|
|
|
|
( |
|
|
|
( |
||||||||||||||||||||||||
North Carolina (ALF, SNF) |
|
|
|
|
( |
|
|
|
( |
|
|
||||||||||||||||||||||
Ohio (ALF, SNF, SF) |
|
|
|
|
( |
|
|
|
( |
|
|
||||||||||||||||||||||
Oklahoma (SNF) |
|
|
|
— |
— |
|
|
|
( |
|
|
||||||||||||||||||||||
Oregon (ALF, ILF, SNF) |
|
|
|
— |
— |
|
|
|
( |
|
|
||||||||||||||||||||||
Pennsylvania (ALF, ILF, SNF) |
|
|
|
— |
( |
|
|
|
( |
|
|
||||||||||||||||||||||
Rhode Island (SNF) |
|
|
|
— |
— |
|
|
|
( |
|
|
||||||||||||||||||||||
South Carolina (SNF) |
|
|
|
— |
— |
|
|
|
( |
|
|
||||||||||||||||||||||
Tennessee (ALF, SNF, SF) |
|
|
|
— |
— |
|
|
|
( |
|
|
||||||||||||||||||||||
Texas (ALF, ILF, MOB, SNF, SF) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
United Kingdom (ALF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Vermont (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Virginia (ALF, SNF) |
|
|
|
|
( |
|
|
|
( |
|
|
||||||||||||||||||||||
Washington (ALF, SNF) |
|
|
|
|
|
|
|
— |
|
( |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Washington DC (ALF) |
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
N/A |
|||||||||||||
West Virginia (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Wisconsin (SNF) |
|
|
|
|
|
|
|
— |
|
— |
|
|
|
|
|
|
|
( |
|
|
|
||||||||||||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
|
$ |
|
$ |
( |
|
|
|
|
|
|
|||||||||
| (1) | The real estate included in this schedule is being used in either the operation of skilled nursing facilities (“SNF”), assisted living facilities (“ALF”), independent living facilities (“ILF”), specialty facilities (“SF”) (consisting of specialty hospitals, long-term acute care hospitals, independent rehabilitation facilities, behavioral health substance facilities, behavioral health psychology facilities and traumatic brain injury facilities) or medical office buildings (“MOB”), located in the states or country indicated. |
F-71
OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION — continued
(in thousands)
December 31, 2024
(2)
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
Balance at beginning of period |
$ |
|
$ |
|
$ |
|
|||
Acquisitions (a) |
|
|
|
|
|
|
|||
Impairment |
|
( |
|
( |
|
( |
|||
Improvements |
|
|
|
|
|
|
|||
Disposals/other |
|
( |
|
( |
|
( |
|||
Balance at close of period |
$ |
|
$ |
|
$ |
|
|||
| (a) |
Includes approximately $ |
(3)
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
Balance at beginning of period |
$ |
|
$ |
|
$ |
|
|||
Provisions for depreciation |
|
|
|
|
|
|
|||
Dispositions/other |
|
( |
|
( |
|
( |
|||
Balance at close of period |
$ |
|
$ |
|
$ |
|
|||
(4) The reported amount of our real estate at December 31, 2024 is greater than the tax basis of the real estate by approximately $
(5) Reflects bed sales, impairments (including the write-off of accumulated depreciation), land easements and impacts from foreign currency exchange rates.
(6) To the extent that we acquired an entity previously owning the underlying facility, the acquisition date reflects the date that the entity acquired the facility.
(7) Includes $
F-72
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE
(in thousands)
December 31, 2024
Carrying |
|
|||||||||||||||||||||
Amount of |
|
|||||||||||||||||||||
Loans |
|
|||||||||||||||||||||
Face |
Carrying |
Subject to |
|
|||||||||||||||||||
Final |
Amount |
Amount |
Delinquent |
|
||||||||||||||||||
Interest |
Fixed/ |
Maturity |
Prior |
of |
of |
Principal |
|
|||||||||||||||
Grouping |
|
Description (1) |
|
Rate |
|
Variable |
|
Date |
|
Periodic Payment Terms |
|
Liens |
|
Mortgages |
|
Mortgages (3) (4) (6) |
|
or Interest |
|
|||
First Mortgages |
||||||||||||||||||||||
1 |
|
Michigan (36 SNFs and 1 ALF) |
|
|
% |
|
|
|
$ |
|
$ |
|
$ |
— |
||||||||
2 |
|
Ohio (8 SNFs) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
3 |
Ohio (2 SNFs) |
|
% |
|
|
— |
||||||||||||||||
4 |
|
Illinois (2 ALFs, 1 SNF and 1 ILF) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
5 |
|
Pennsylvania (4 ALFs) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
6 |
|
Michigan (1 ALF) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
7 |
Florida (1 ALF) |
|
% |
|
|
— |
||||||||||||||||
8 |
|
Tennessee (1 ALF) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
9 |
|
Oregon (1 ALF) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
10 |
|
Massachusetts (1 specialty facility) |
|
|
% |
|
|
|
|
|
|
— |
|
— |
(5) |
|||||||
11 |
|
Tennessee (1 SNF) |
|
|
% |
|
|
|
|
|
|
|
|
|
(5) |
|||||||
12 |
Connecticut (1 SNF) |
|
% |
|
|
|||||||||||||||||
13 |
Ohio (1 SNF) |
|
% |
|
|
— |
||||||||||||||||
14 |
Georgia (2 ALFs) |
|
% |
|
|
— |
||||||||||||||||
15 |
Georgia (2 SNFs, 1 ALF), Florida (1 SNF) |
|
% |
|
|
— |
||||||||||||||||
16 |
United Kingdom (1 ALF ) |
|
% |
|
|
— |
||||||||||||||||
17 |
United Kingdom (15 ALFs) |
|
% |
|
|
— |
||||||||||||||||
18 |
United Kingdom (11 ALFs) |
|
% |
|
|
— |
||||||||||||||||
19 |
Florida (1 ALF) |
|
% |
|
|
— |
||||||||||||||||
Capital Expenditure Mortgages |
||||||||||||||||||||||
20 |
Ohio |
|
% |
|
|
— |
||||||||||||||||
21 |
|
Michigan |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
22 |
Michigan |
|
% |
|
|
— |
||||||||||||||||
23 |
Michigan |
|
% |
|
|
— |
||||||||||||||||
Construction Mortgages |
||||||||||||||||||||||
24 |
|
United Kingdom (1 ALF) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
25 |
|
United Kingdom (1 ALF) |
|
|
% |
|
|
|
|
|
|
|
|
— |
||||||||
Allowance for credit loss on mortgage loans(8) |
( |
— |
||||||||||||||||||||
|
|
|
|
|
|
$ |
|
$ |
|
$ |
|
|||||||||||
| (1) | Loans included in this schedule represent first mortgages, capital expenditure mortgages and construction mortgages on facilities used in the delivery of long-term healthcare of which such facilities are located in the states indicated. |
| (2) | Interest on the loans escalates at a fixed rate. |
| (3) |
The aggregate cost for federal income tax purposes is approximately $ |
F-73
OMEGA HEALTHCARE INVESTORS, INC.
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE — continued
(in thousands)
December 31, 2024
(4)
Year Ended December 31, |
|||||||||
|
2024 |
|
2023 |
|
2022 |
||||
Balance at beginning of period |
$ |
|
$ |
|
$ |
|
|||
Additions during period - new mortgage loans or additional fundings (a) |
|
|
|
|
|
|
|||
Deductions during period - collection of principal/other (b) |
|
( |
|
( |
|
( |
|||
Allowance for credit loss on mortgage loans |
|
|
|
|
|
( |
|||
Balance at close of period |
$ |
|
$ |
|
$ |
|
|||
| (a) |
The 2024, 2023 and 2022 amounts include $ |
| (b) |
The 2023 and 2022 amounts include $ |
| (5) | Mortgage written down to the fair value of the underlying collateral. |
| (6) |
Mortgages included in the schedule which were extended during 2024 aggregated approximately $ |
| (7) | Subsequent to year end, this mortgage note was amended to extend the maturity date to December 31, 2025. |
| (8) | The allowance for credit loss on mortgage loans represents the allowance calculated utilizing a PD and LGD methodology. For mortgages that the risk of loss was evaluated on an individual basis, the allowance is included as a reduction to the carrying amount of the mortgage. |
F-74
I-1
4.1L |
|
4.2 |
|
4.2A |
|
4.2B |
|
4.2C |
|
4.2D |
|
4.2E |
|
4.2F |
|
4.2G |
|
4.2H |
|
4.2I |
|
4.2J |
|
4.3 |
|
4.3A |
|
4.3B |
|
4.3C |
|
4.3D |
|
4.3E |
I-2
4.3F |
|
4.3G |
|
4.3H |
|
4.4 |
|
4.4A |
|
4.4B |
|
4.4C |
|
4.4D |
|
4.4E |
|
4.5 |
|
4.5A |
|
4.5B |
|
4.6 |
|
4.7 |
|
4.7A |
|
4.8 |
|
4.9 |
|
10.1 |
|
10.2 |
I-3
10.3 |
|
10.3A |
|
10.4 |
|
10.4A |
|
10.5 |
|
10.6 |
|
10.6A |
|
10.6B |
|
10.6C |
|
10.6D |
|
10.6E |
|
10.6F |
|
10.6G |
|
10.6H |
|
10.6I |
|
10.6J |
|
10.6K |
|
10.6L |
|
10.6M |
|
10.6N |
|
10.7 |
|
10.8 |
Form of Employment Agreement for Company’s executive officers. +* |
I-4
10.9 |
|
10.10 |
|
10.11 |
|
10.12 |
|
19.1 |
|
21.1 |
|
22.1 |
|
23.1 |
Consent of Independent Registered Public Accounting Firm for Omega Healthcare Investors, Inc.* |
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.* |
97.1 |
|
101 |
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
* Exhibits that are filed or furnished herewith.
+ Management contract or compensatory plan, contract or arrangement.
I-5
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: |
February 13, 2025 |
By: |
/s/ C. Taylor Pickett |
|
C. Taylor Pickett |
||||
Chief Executive Officer |
||||
I-6
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Omega Healthcare Investors, Inc., for itself and in the capacities on the date indicated.
Signatures |
|
Title |
|
Date |
/s/ C. Taylor Pickett |
Chief Executive Officer |
February 13, 2025 |
||
C. Taylor Pickett |
(Principal Executive Officer) |
|||
/s/ Robert O. Stephenson |
Chief Financial Officer |
February 13, 2025 |
||
Robert O. Stephenson |
(Principal Financial Officer) |
|||
/s/ Neal A. Ballew |
Chief Accounting Officer |
February 13, 2025 |
||
Neal A. Ballew |
(Principal Accounting Officer) |
|||
/s/ Craig R. Callen |
Chair of the Board |
February 13, 2025 |
||
Craig R. Callen |
||||
/s/ Kapila K. Anand |
Director |
February 13, 2025 |
||
Kapila K. Anand |
||||
/s/ Dr. Lisa C. Egbuonu-Davis |
Director |
February 13, 2025 |
||
Dr. Lisa C. Egbuonu-Davis |
||||
/s/ Barbara B. Hill |
Director |
February 13, 2025 |
||
Barbara B. Hill |
||||
/s/ Kevin J. Jacobs |
Director |
February 13, 2025 |
||
Kevin J. Jacobs |
||||
/s/ C. Taylor Pickett |
Director |
February 13, 2025 |
||
C. Taylor Pickett |
||||
/s/ Stephen D. Plavin |
Director |
February 13, 2025 |
||
|
Stephen D. Plavin
/s/ Burke W. Whitman |
Director |
February 13, 2025 |
||
|
Burke W. Whitman
|
I-7