OMEGA HEALTHCARE INVESTORS INC

Previous wording

Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”). Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on SNFs, ALFs, and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings. Our core portfolio consists of our long-term leases and real estate loans with healthcare operating companies and affiliates (collectively, our “operators”). Real estate loans consist of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien or a leasehold mortgage on, or an assignment of the partnership interest in the related properties. 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.

Current wording

Omega has one reportable segment consisting of investments in healthcare-related real estate properties located in the United States (“U.S.”) and the United Kingdom (“U.K.”). Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on SNFs, ALFs, and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office buildings. Our core portfolio consists of our long-term leases and 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.

Previous wording

Our industry continues to face the long-term impact of the COVID-19 pandemic, which significantly and adversely impacted SNFs and long-term care providers during the height of the pandemic due to the higher rates of virus transmission and fatality among the elderly and frail populations that these facilities serve. In addition, the pandemic contributed to occupancy declines, labor shortages and staffing expense increases, and other cost increases that have not yet returned to pre-pandemic levels and which continue to significantly impact our operators post-pandemic. There continues to be uncertainty regarding the duration of these impacts, particularly given uncertainty as to whether reimbursement increases from the federal government, the states and the U.K. will be effective in offsetting these incremental costs and lost revenues; the impact of potential regulatory changes, including the ultimate scope and impact of recently issued U.S. federal minimum staffing rules for our industry; and the continued ability of our operators to manage infectious diseases in our facilities. See “Government Regulation and Reimbursement” for additional information.

Current wording

Our industry has begun to recover from the long-term impact of the COVID-19 pandemic, which significantly and adversely impacted SNFs and long-term care providers during the height of the pandemic due to the higher rates of virus transmission and fatality among the elderly and frail populations that these facilities serve. While certain of our operators have experienced a level of recovery from pandemic-driven challenges such as occupancy declines, labor shortages, staffing expense increases, and other cost increases, certain of our other operators have not yet experienced returns to pre-pandemic levels and remain impacted by these factors post-pandemic. There continues to be uncertainty regarding the duration of these impacts for those operators, particularly given uncertainty as to whether reimbursement increases from the federal government, the states and the U.K. will be effective in offsetting these incremental costs and lost revenues. In addition, there remains uncertainty as to the impact of potential regulatory changes, including the ultimate scope and impact of recently issued U.S. federal minimum staffing rules for our industry, and the continued ability of our operators to manage infectious diseases in our facilities. See “Government Regulation and Reimbursement” for additional information.

Previous wording

As discussed further in “Collectibility Issues” below, in 2023 and the second quarter of 2024, we have had several operators that have failed to make contractual payments under their lease and loan agreements, and we have agreed to short-term deferrals, lease and portfolio restructurings and/or allowed the application of security deposits or letters of credit to pay rent for several operators. To the extent the cost and occupancy impacts on our operators do not recover or are not offset by continued government relief or reimbursement rates that are sufficient and timely, we anticipate that the operating results of additional operators may be materially and adversely affected, and some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable to restructure such obligations on terms as favorable to us as those currently in place. While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we remain cautious as some of the long-term impacts of the COVID-19 pandemic noted above may continue to have a significant impact on our operators and their financial conditions.

Current wording

As discussed further in “Collectibility Issues” below, in 2023 and the first nine months of 2024, we have had several operators that have failed to make contractual payments under their lease and loan agreements, and we have agreed to short-term payment deferrals, lease and portfolio restructurings and/or allowed several operators to apply security deposits or letters of credit to pay rent. While a number of our operators have begun to experience labor, cost and occupancy improvements since the pandemic, to the extent the ongoing cost and occupancy impacts on certain of our other operators do not recover or are not offset by continued government relief or reimbursement rates that are sufficient and timely, we anticipate that the operating results of these operators may be materially and adversely affected, and some may be unwilling or unable to pay their contractual obligations to us in full or on a timely basis and we may be unable to restructure such obligations on terms as favorable to us as those currently in place. While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we remain cautious as some of the long-term impacts of the pandemic noted above may continue to have an impact on certain of our operators and their financial conditions.

Previous wording

In addition to the long-term impacts of COVID-19 and regulatory requirements discussed above, our operators have been and are likely to continue to be adversely affected by inflation-related cost increases, which may exacerbate labor shortages and increase labor costs, among other impacts. We continue to monitor these impacts as well as the impacts of other regulatory changes, as discussed below, including any significant limits on the scope of services eligible for reimbursement and on reimbursement rates and fees, which could have a material adverse effect on an operator’s results of operations and financial condition, which could adversely affect the operator’s ability to meet its obligations to us.

Current wording

In addition to the long-term impacts of the pandemic and regulatory requirements discussed above, our operators have been and are likely to continue to be adversely affected by inflation-related cost increases, which may exacerbate labor shortages and increase labor costs, among other impacts. We continue to monitor these impacts as well as the impacts of other regulatory changes, as discussed below, including any significant limits on the scope of services eligible for reimbursement and on reimbursement rates and fees, which could have a material adverse effect on an operator’s results of operations and financial condition, which could adversely affect the operator’s ability to meet its obligations to us.

Previous wording

On February 21, 2024, Change Healthcare, a unit of UnitedHealth Group, was impacted by a cybersecurity incident involving its information technology systems that disrupted processing of claims, among other transaction services it provides. Certain of our operators that directly or indirectly utilize Change Healthcare’s services experienced reimbursement delays due to the incident and may continue to experience delays until it is resolved. This incident and the resulting reimbursement delays affecting our operators may cause delays in the timing of our operators’ payments to us if not remedied timely. We are continuing to monitor the impact of the incident but at this time do not believe the incident is reasonably likely to materially impact the Company’s financial condition or results of operations.

Current wording

On February 21, 2024, Change Healthcare, a unit of UnitedHealth Group, was impacted by a cybersecurity incident involving its information technology systems that disrupted processing of claims, among other transaction services it provides. Certain of our operators that directly or indirectly utilize Change Healthcare’s services experienced reimbursement delays due to the incident. This incident and the resulting reimbursement delays affecting our operators may cause delays in the timing of our operators’ payments to us if not remedied timely. We are continuing to monitor the impact of the incident, but at this time we do not believe the incident is reasonably likely to materially impact the Company’s financial condition or results of operations.

Previous wording

The healthcare industry is heavily regulated. Our operators, which are primarily based in the U.S., are subject to extensive and complex federal, state and local healthcare laws and regulations; we also have several U.K.-based operators that are subject to a variety of laws and regulations in their jurisdiction. These laws and regulations are subject to frequent and substantial changes resulting from the adoption of new legislation, rules and regulations, and administrative and judicial interpretations of existing law. The ultimate timing or effect of these changes, which may be applied retroactively, cannot be predicted. Changes in laws and regulations impacting our operators, in addition to regulatory non-compliance by our operators, can have a significant effect on the operations and financial condition of our operators, which in turn may adversely impact us. There is the potential that we may be subject directly to healthcare laws and regulations because of the broad nature of some of these regulations, such as the Anti-kickback Statute and False Claims Act, among others.

Current wording

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 jurisdiction. These laws and regulations are subject to frequent and substantial changes resulting from the adoption of new legislation, rules and regulations, and administrative and judicial interpretations of existing law. The ultimate timing or effect of these changes, which may be applied retroactively, cannot be predicted. Changes in laws and regulations impacting our operators, in addition to regulatory non-compliance by our operators, can have a significant effect on the operations and financial condition of our operators, which in turn may adversely impact us. There is the potential that we may be subject directly to healthcare laws and regulations because of the broad nature of some of these regulations, such as the Anti-kickback Statute and False Claims Act in the United States, among others.

Previous wording

These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act discussed below, have had a significant impact on the operations and financial condition of our operators. The extent of the COVID-19 pandemic’s continued effect, including through prolonged labor shortages, lower occupancy and expense increases, on the Company’s and our operators’ operational and financial performance will depend on future developments, including the recovery in occupancy and availability of labor, the ultimate scope, implementation timeline and impact of recently issued federal minimum staffing rules for SNFs, the sufficiency and timeliness of additional governmental relief and reimbursement rate setting in offsetting cost increases, and the continued efficacy of infection control measures, all of which are uncertain and difficult to predict and may continue to adversely impact our business, results of operations, financial condition and cash flows.

Current wording

The COVID-19 public health emergency that was declared by the U.S. Department of Health and Human Services (“HHS”) in January 2020 and expired in May 2023 allowed HHS to provide temporary regulatory waivers and new reimbursement rules, such as a temporary increase in the Medicaid Federal Medical Assistance Percentage (the “FMAP”) and other rules designed to equip providers with flexibility to respond to the pandemic by suspending various Medicare patient coverage criteria and documentation and care. These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act discussed below, had a significant impact on the operations and financial condition of our operators. Following the expiration of the public health emergency, federal and state regulators generally have resumed enforcement of those regulations that were waived or otherwise not enforced during the public health emergency. While our industry has begun to recover from some of the long-term impacts of the pandemic, which included prolonged labor shortages, lower occupancy and expense increases, the extent of the recovery will depend on future developments, including the availability of labor, the ultimate scope, implementation timeline and impact of recently issued federal minimum staffing rules for SNFs, the sufficiency and timeliness of reimbursement rate setting in offsetting cost increases, and the continued efficacy of infection control measures and regulations, all of which are uncertain and difficult to predict and may continue to adversely impact our business, results of operations, financial condition and cash flows.

Previous wording

A significant portion of our operators’ revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid. As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue. Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates could therefore have a material adverse effect on our operators’ results of operations and financial condition. Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government healthcare programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses. In addition to quality and value-based reimbursement reforms, the U.S. Centers for Medicare and Medicaid Services (“CMS”) has implemented a number of initiatives focused on the reporting of certain facility specific quality of care indicators that could affect our operators, including publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under the CMS “Five Star Quality Rating System.” Facility rankings, ranging from five stars (“much above average”) to one star (“much below average”) are updated on a monthly basis. 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.

Current wording

In addition to quality and value-based reimbursement reforms, the U.S. Centers for Medicare and Medicaid Services (“CMS”) has implemented a number of initiatives focused on the reporting of certain facility-specific quality of care indicators that could affect our operators, including publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under the CMS “Five Star Quality Rating System.” Facility rankings, ranging from five stars (“much above average”) to one star (“much below average”) are updated on a monthly basis. 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.

Previous wording

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

Current wording

Quality of Care and Staffing Initiatives. In addition to pandemic-related reimbursement changes, several regulatory initiatives announced from 2020 to 2022 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes. In addition, the CMS Nursing Home Care Compare website and the Five Star Quality Rating System were updated to include revisions to the inspection process, adjustment of staffing rating thresholds, the implementation of new quality measures and the inclusion of a staff turnover percentage (over a 12-month period).

Previous wording

Additionally, on April 22, 2024, CMS issued a final rule regarding minimum staffing requirements and increased inspections at nursing homes, 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 nursing homes 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. In May 2024, multiple SNF industry groups, along with several Texas facilities, filed suit in federal court to overturn the minimum staffing requirements on the basis that CMS exceeded its authority. The increased staffing requirements, if not overturned legislatively or by legal action, or if not accompanied by increased state reimbursement to offset the increased financial burden, may have a future adverse impact on the financial condition of many of our operators, which may be material, but which likely would not be experienced until closer to the point of delayed implementation which ranges from within 90 days of the final rule publication and five years of the final rule publication, depending on the geographic location.

Current wording

Additionally, on April 22, 2024, CMS issued a final rule regarding minimum staffing requirements and increased inspections at nursing homes, 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 nursing homes 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. Since CMS issued the final rule, multiple lawsuits have been filed in federal court to overturn the minimum staffing requirements on the basis that CMS exceeded its authority. The increased staffing requirements, if not overturned legislatively or by legal action, or if not accompanied by increased state reimbursement to offset the increased financial burden, may have a future adverse impact on the financial condition of many of our operators, which may be material, but which likely would not be experienced until closer to the point of delayed implementation, which ranges from within 90 days of the final rule publication and five years of the final rule publication, depending on the geographic location.

Previous wording

The Biden Administration additionally announced in March 2022 a focus on reviewing private equity investment specifically in the skilled nursing sector. Further, on November 15, 2023, CMS issued a final rule, effective January 16, 2024, that requires SNFs participating in the Medicare or Medicaid programs to disclose certain ownership and managerial information regarding their relationships with certain entities that lease real estate to SNFs, including REITs. The CMS announcement noted concerns regarding the quality of care provided at SNFs owned by private equity firms, REITs and other investment firms. There have also been congressional hearings examining the impact of private equity in the U.S. healthcare system, including the impact on quality of care provided within the skilled nursing industry, the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic. Further, in 2024, several U.S. senators proposed legislation that would, if enacted, restrict certain investors, including REITs and private equity firms, from investing in healthcare facilities or impose penalties on certain landlords of or private equity investors in healthcare facilities whose operators subsequently enter into bankruptcy proceedings. In addition, in 2024, the Department of Justice (“DOJ”), HHS, and the Federal Trade Commission published a Request for Information seeking public comment on the effects of mergers and other transactions in the healthcare industry, with a focus on consolidation among health care providers, facilities, and ancillary products or services. These initiatives, as well as additional calls for government review, at the state and federal level, of the role of private equity in the U.S. healthcare industry and proposed legislation related to certain SNF financial arrangements with REITs, could result in additional requirements on our operators or restrictions on REITs.

Current wording

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. There have also been congressional hearings examining the impact of private equity in the U.S. healthcare system, including the impact on quality of care provided within the skilled nursing industry, the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic. Further, in 2024, several U.S. senators proposed legislation that would, if enacted, restrict certain investors, including REITs and private equity firms, from investing in healthcare facilities or impose penalties on certain landlords of or private equity investors in healthcare facilities whose operators subsequently enter into bankruptcy proceedings. In addition, in 2024, the Department of Justice (“DOJ”), HHS, and the Federal Trade Commission published a Request for Information seeking public comment on the effects of mergers and other transactions in the healthcare industry, with a focus on consolidation among health care providers, facilities, and ancillary products or services. These initiatives, as well as additional calls for government review, at the state and federal level, of the role of private equity in the U.S. healthcare industry and proposed legislation related to certain SNF financial arrangements with REITs, could result in additional requirements on our operators or restrictions on REITs.

Previous wording

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

Current wording

The risk of insufficient Medicaid reimbursement rates, along with possible initiatives to push residents historically cared for in SNFs to alternative settings, labor shortages in certain areas and limited regulatory support in certain states, may impact us more acutely in states where we have a larger presence. While state reimbursement rates have generally improved over the last several years, reimbursement support is not consistent across states, and it is difficult to assess whether the level of reimbursement support has or will continue to adequately keep pace with increased operator costs. We continue to monitor rate adjustment activity, particularly in states in which we have a meaningful presence.

Previous wording

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

Current wording

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.

Previous wording

Our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value-based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act. These reimbursement changes have had and may, together with any further reimbursement changes to the Patient Driven Payment Model (“PDPM”) or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us.

Current wording

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.

Previous wording

Office of the Inspector General Activities. The Office of Inspector General (“OIG”) of HHS has provided long-standing guidance for SNFs regarding compliance with federal fraud and abuse laws. More recently, the OIG has conducted increased oversight activities and issued additional guidance regarding its findings related to identified problems with the quality of care and the reporting and investigation of potential abuse or neglect at group homes, nursing homes and SNFs. The OIG has additionally reviewed the staffing levels reported by SNFs as part of its August 2018 and February 2019 Work Plan updates and included a review of involuntary transfers and discharges from nursing homes in the June 2019 Work Plan updates. In August 2020, the OIG released its findings regarding its review of staffing levels in SNFs from 2018. The OIG recommended that CMS enhance efforts to ensure nursing homes meet daily staffing requirements and explore ways to provide consumers with additional information on nursing homes’ daily staffing levels and variability. The OIG indicated that while the review was initiated before the COVID-19 pandemic emerged, the pandemic reinforces the importance of sufficient staffing for nursing homes, as inadequate staffing can make it more difficult for nursing homes to respond to infectious disease outbreaks like COVID-19. It is unknown what impact, if any, enhanced scrutiny of staffing levels by OIG and CMS will have on our operators.

Current wording

Office of the Inspector General Activities. The Office of Inspector General (“OIG”) of HHS has provided long-standing guidance for SNFs regarding compliance with federal fraud and abuse laws. More recently, the OIG has conducted increased oversight activities and issued additional guidance regarding its findings related to identified problems with the quality of care and the reporting and investigation of potential abuse or neglect at group homes, nursing homes and SNFs. The OIG also reviewed the staffing levels reported by SNFs as part of its August 2018 and February 2019 Work Plan updates and included a review of involuntary transfers and discharges from nursing homes in the June 2019 Work Plan updates. In August 2020, the OIG released its findings regarding its review of staffing levels in SNFs from 2018. The OIG recommended that CMS enhance efforts to ensure nursing homes meet daily staffing requirements and explore ways to provide consumers with additional information on nursing homes’ daily staffing levels and variability. The OIG indicated that while the review was initiated before the pandemic emerged, the pandemic reinforces the importance of sufficient staffing for nursing homes, as inadequate staffing can make it more difficult for nursing homes to respond to infectious disease outbreaks. It is unknown what impact, if any, enhanced scrutiny of staffing levels by OIG and CMS will have on our operators.

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Second Quarter of 2024 and Recent Highlights

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Third Quarter of 2024 and Recent Highlights

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

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

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

Current wording

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

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

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

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

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

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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.

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

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

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Our primary sources of cash include rental income and interest receipts, existing availability under our Revolving Credit Facility, proceeds from our DRCSPP and the 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).

Current wording

Our primary sources of cash include rental income and interest receipts, existing availability under our Revolving Credit Facility, proceeds from our DRCSPP and the 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).

Previous wording

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

Current wording

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

Previous wording

At June 30, 2024 and December 31, 2023, the weighted average annual interest rate of our debt was 4.3% and 4.4%, respectively. Additionally, as of June 30, 2024, 99% of our debt with outstanding principal balances has fixed interest payments after reflecting the impact of interest rate swaps that are designated as cash flow hedges. Our high percentage of fixed interest debt has kept our interest expense relatively flat year over year despite rising interest rates. As of June 30, 2024, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch. 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.

Current wording

At September 30, 2024 and December 31, 2023, the weighted average annual interest rate of our debt was 4.6% and 4.4%, respectively. Additionally, as of September 30, 2024, 94.9% of our debt with outstanding principal balances has fixed interest payments after reflecting the impact of interest rate swaps that are designated as cash flow hedges. Our high percentage of fixed interest debt has kept our interest expense relatively flat year over year despite fluctuations in interest rates. As of September 30, 2024, we had long-term credit ratings of Baa3 from Moody’s and BBB- from S&P Global and Fitch. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. 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.

Previous wording

As of June 30, 2024, we had $35.2 million of cash and cash equivalents on our Consolidated Balance Sheets. Our next senior note maturity is the $400 million of 4.50% senior notes due January 2025. As of June 30, 2024, we had $443.9 million of potential common share issuances remaining under the ATM Program and $1.4 billion of availability under our Revolving Credit Facility. This combination of liquidity sources, along with cash from operating activities, provides us with ability to repay the senior notes due in January 2025.

Current wording

As of September 30, 2024, we had $342.4 million of cash and cash equivalents on our Consolidated Balance Sheets. Our next senior note maturity is the $400 million of 4.50% senior notes due January 2025. As of September 30, 2024, we had $1.2 billion of potential common share issuances remaining under the 2024 ATM Program and $1.45 billion of availability under our Revolving Credit Facility. This combination of liquidity sources, along with cash from operating activities, provides us with the ability to repay the senior notes due in January 2025.

Previous wording

At June 30, 2024, we had 254.0 million shares of common stock outstanding, and our shares had a market value of $8.7 billion. The following is a summary of activity under our equity programs during the three and six months ended June 30, 2024:

Current wording

At September 30, 2024, we had 268.2 million shares of common stock outstanding, and our shares had a market value of $10.9 billion. The following is a summary of activity under our equity programs during the three and nine months ended September 30, 2024:

Previous wording

For the six months ended June 30, 2024, we paid dividends of $330.7 million to our common stockholders. On February 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 5, 2024. On May 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on April 30, 2024.

Current wording

For the nine months ended September 30, 2024, we paid dividends of $504.0 million to our common stockholders. On February 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on February 5, 2024. On May 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on April 30, 2024. On August 15, 2024, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of the close of business on August 5, 2024.

Previous wording

During the six months ended June 30, 2024, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Other than the debt service requirements associated with the assumption of a £188.6 million mortgage loan related to our acquisition of the remaining 51% interest in the Cindat Joint Venture in July 2024, during the nine months ended September 30, 2024, there were no significant changes to our material cash requirements from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

As of June 30, 2024, we had $163.4 million of commitments to fund the construction of new facilities, capital improvements and other commitments under lease agreements. Additionally, we have commitments to fund $46.1 million of advancements under existing real estate loans and $41.7 million of advancements under existing non-real estate loans. These commitments are expected to be funded over the next several years and are dependent upon the operators’ election to use the commitments.

Current wording

As of September 30, 2024, we had $244.5 million of commitments to fund the construction of new facilities, capital improvements and other commitments under lease agreements. Additionally, we have commitments to fund $40.9 million of advancements under existing real estate loans and $47.7 million of advancements under existing non-real estate loans. These commitments are expected to be funded over the next several years and are dependent upon the operators’ election to use the commitments.

Previous wording

Cash, cash equivalents and restricted cash totaled $39.1 million as of June 30, 2024, a decrease of $405.6 million as compared to the balance at December 31, 2023. The following is a summary of our sources and uses of cash flows for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 (dollars in thousands):

Current wording

Cash, cash equivalents and restricted cash totaled $360.3 million as of September 30, 2024, a decrease of $84.4 million as compared to the balance at December 31, 2023. The following is a summary of our sources and uses of cash flows for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 (dollars in thousands):

Previous wording

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

Current wording

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

Previous wording

Operating Activities – The increase in net cash provided by operating activities is driven primarily by an increase of $27.5 million of net income, net of $60.6 million of non-cash items, primarily due to a year over year increase in rental income and interest income as discussed in our material changes analysis under Results of Operations above. The $26.3 million change in the net movements of the operating assets and liabilities, also contributed to the overall increase in cash provided by operating activities.

Current wording

Operating Activities – The increase in net cash provided by operating activities is driven primarily by an increase of $40.8 million of net income, net of $68.3 million of non-cash items, primarily due to a year over year increase in rental income and interest income as discussed in our material changes analysis under Results of Operations above. The $27.0 million change in the net movements of the operating assets and liabilities also contributed to the overall increase in cash provided by operating activities.

Previous wording

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

Current wording

Investing Activities – The increase in cash used in investing activities primarily related to (i) a $192.5 million decrease in proceeds from the sales of real estate investments, (ii) a $52.7 million increase in loan placements, net of repayments due to new loans advanced in 2024 and significant paydowns on loans during the second quarter of 2023, (iii) a $29.2 million increase in capital improvements to real estate investments and construction in progress primarily as a result of the on-going construction of an ALF in Washington D.C., (iv) an $18.6 million increase in real estate acquisitions, including our acquisition of theremaining 51% interest in the Cindat Joint Venture, and (v) a $4.4 million decrease in receipts from insurance proceeds, partially offset by (i) an $11.8 million decrease in investments in unconsolidated joint ventures and (ii) an $8.4 million increase in proceeds from net investment hedges related to the termination of two foreign currency forward contracts during the first quarter of 2024.

Previous wording

Financing Activities – The increase in cash used in financing activities primarily related to (i) a $405.6 million increase in repayments on long-term borrowings, net of proceeds, primarily due to the repayment of $400 million of 4.95% senior notes in April 2024, (ii) a $92.6 million increase in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023, (iii) a $15.9 million increase in dividends paid primarily related to share issuances during 2023 and 2024, (iv) a $1.9 million increase in distributions to Omega OP Unit holders, and (v) a $1.9 million increase in payment of financing related costs related to the early repayment of nine HUD mortgages during the first quarter of 2024, partially offset by a $73.6 million increase in net proceeds from issuance of common stock as a result of increased volume under our ATM Program and DRCSPP.

Current wording

Financing Activities – The increase in cash used in financing activities primarily related to (i) a $484.8 million increase in repayments on long-term borrowings, net of proceeds, primarily due to the repayment of $400 million of 4.95% senior notes in April 2024, (ii) a $92.6 million decrease in proceeds from derivative instruments as a result of the termination of our forward starting swaps in the second quarter of 2023, (iii) a $24.7 million increase in dividends paid primarily related to share issuances during 2023 and 2024, (iv) a $3.6 million increase in payment of financing related costs related to costs incurred in connection with the assumption of the £188.6 million mortgage loan as part of our acquisition of the remaining 51% interest in the Cindat Joint Venture and the early repayment of nine HUD mortgages during the first quarter of 2024 and (v) a $2.2 million increase in distributions to Omega OP Unit holders, partially offset by a $473.5 million increase in net proceeds from issuance of common stock as a result of increased volume under our ATM Programs and DRCSPP.