Forward-Looking Statements and Factors Affecting Future Results
Unless otherwise indicated or except where the context otherwise requires, the
terms "we," "us" and "our" and other similar terms in this Quarterly Report on
Form 10-Q refer to Omega Healthcare Investors, Inc. and its consolidated
subsidiaries.
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this document. This document
contains "forward-looking statements" within the meaning of the federal
securities laws. These statements relate to our expectations, beliefs,
intentions, plans, objectives, goals, strategies, future events, performance and
underlying assumptions and other statements other than statements of historical
facts. In some cases, you can identify forward-looking statements by the use of
forward-looking terminology including, but not limited to, terms such as "may,"
"will," "anticipates," "expects," "believes," "intends," "should" or comparable
terms or the negative thereof. These statements are based on information
available on the date of this filing and only speak as to the date hereof and no
obligation to update such forward-looking statements should be assumed.
Our actual results may differ materially from those reflected in the
forward-looking statements contained herein as a result of a variety of factors,
including, among other things:
(1) those items discussed under "Risk Factors" in Part I, Item 1A to our Annual
Report on Form 10-K ;
uncertainties relating to the business operations of the operators of our
(2) assets, including those relating to reimbursement by third-party payors,
regulatory matters and occupancy levels;
the impact of the COVID-19 pandemic on our business and the business of our
operators, including without limitation, the extent and duration of the
COVID-19 pandemic, increased costs, staffing shortages and decreased
occupancy levels experienced by operators of skilled nursing facilities
(3) ("SNFs") and assisted living facilities ("ALFs") in connection therewith, the
ability of operators to comply with infection control and vaccine protocols,
the long-term impact of vaccination on facility infection rates, and the
extent to which continued government support may be available to operators to
offset such costs and the conditions related thereto;
the ability of our operators in bankruptcy to reject unexpired lease
obligations, modify the terms of our mortgages and impede our ability to
(4) collect unpaid rent or interest during the pendency of a bankruptcy
proceeding and retain security deposits for the debtor's obligations, and
other costs and uncertainties associated with operator bankruptcies;
our ability to re-lease, otherwise transition, or sell underperforming assets
(5) or assets held for sale on a timely basis and on terms that allow us to
realize the carrying value of these assets;
(6) the availability and cost of capital to us;
(7) changes in our credit ratings and the ratings of our debt securities;
(8) competition in the financing of healthcare facilities;
(9) competition in the long-term healthcare industry and shifts in the perception
of various types of long-term care facilities, including SNFs and ALFs;
(10) additional regulatory and other changes in the healthcare sector;
(11) changes in the financial position of our operators;
(12) the effect of economic and market conditions generally and, particularly, in
the healthcare industry;
(13) changes in interest rates and the impact of inflation;
(14) the timing, amount and yield of any additional investments;
(15) changes in tax laws and regulations affecting real estate investment trusts
("REITs");
the potential impact of changes in the SNF and ALF markets or local real
(16) estate conditions on our ability to dispose of assets held for sale for the
anticipated proceeds or on a timely basis, or to redeploy the proceeds
therefrom on favorable terms;
(17) our ability to maintain our status as a REIT; and
the effect of other factors affecting our business or the businesses of our
(18) operators that are beyond our or their control, including natural disasters,
other health crises or pandemics and governmental action; particularly in
the healthcare industry.
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Overview
Omega Healthcare Investors, Inc. ("Parent") is a Maryland corporation that,
together with its consolidated subsidiaries (collectively, "Omega," or
"Company," "we," "our," or "us") has elected to be taxed as a REIT for federal
income tax purposes. Omega is structured as an umbrella partnership REIT
("UPREIT") under which all of Omega's assets are owned directly or indirectly
by, and all of Omega's operations are conducted directly or indirectly through,
its operating partnership subsidiary, OHI Healthcare Properties Limited
Partnership (collectively with its subsidiaries, "Omega OP"). As of March 31,
2022, Parent owned approximately 97% of the issued and outstanding units of
partnership interest in Omega OP ("Omega OP Units"), and other investors owned
approximately 3% of the outstanding Omega OP Units.
Omega has one reportable segment consisting of investments in healthcare-related
real estate properties located in the United States ("U.S.") and the United
Kingdom ("U.K."). Our core business is to provide financing and capital to the
long-term healthcare industry with a particular focus on SNFs, ALFs, and to a
lesser extent, independent living facilities ("ILFs"), rehabilitation and acute
care facilities ("specialty facilities") and medical office buildings. Our core
portfolio consists of our long-term leases and mortgage loans with healthcare
operating companies and affiliates (collectively, our "operators"). All of our
mortgages are secured by first liens on the underlying real estate and personal
property of the operators. In addition to our core investments, we selectively
make loans to operators for working capital and capital expenditures. These
loans, which may be either unsecured or secured by the collateral of the
borrower, are classified as other investments. From time to time, we also
acquire equity interests in joint ventures or entities that support the
long-term healthcare industry and our operators.
COVID-19 Pandemic Update
The COVID-19 pandemic has continued to significantly and adversely impact SNFs
and long-term care providers due to the higher rates of virus transmission and
fatality among the elderly and frail populations that these facilities serve. As
a result, many of our operators have been and may continue to be significantly
impacted by the pandemic. Agemo Holdings, LLC ("Agemo"), Guardian Healthcare
("Guardian") and Gulf Coast Health Care LLC (together with certain affiliates,
"Gulf Coast"), three operators that failed to make contractual payments under
their lease and loan agreements for periods of 2021, continued to not make
payments during the first quarter of 2022. During the first quarter of 2022, two
new operators, representing an aggregate of 6.1% of total revenue (excluding the
impact of write-offs) for the three months ended March 31, 2022, missed
contractual rent payments during the period, and we have agreed to short term
deferrals with these two operators, as well as allowed one of these operators to
apply its security deposit to pay rent, as discussed further in "Collectibility
Issues" below. Additionally, we allowed three other operators, representing an
aggregate 2.5% of total revenue (excluding the impact of write-offs) for the
three months ended March 31, 2022, to apply $1.3 million of their security
deposits to pay rent to accommodate short term liquidity issues, with regular
rent payments required to resume shortly thereafter.
We believe these operators were impacted by, among other things, reduced revenue
as a result of lower occupancy and increased expenses resulting from the
COVID-19 pandemic and uncertainties regarding the continuing availability of
sufficient government support. We remain cautious as the COVID-19 pandemic
continues to have a significant impact on our operators and their financial
conditions, particularly given continued uncertainty regarding the availability
of sufficient government support and trend of reduced federal support to our
operators beginning in 2021, the persistence of staffing shortages that continue
to impact our operators' occupancy levels and profitability, the impact of
governmental vaccine mandates for staff on these ongoing staffing shortages,
other factors that may impact virus transmission in our facilities, including
genetic mutations of the virus into new variants, the commencement in April 2021
for many of our operators of the repayment of accelerated payments of Medicare
funds that were previously received as Advanced Medicare payments in 2020 and
the commencement in December 2021 of repayment of deferred FICA obligations.
As of April 27, 2022, our operators have reported a decline in cases of COVID-19
involving employees and residents from the high caseload experienced in January
2022 driven by the Omicron variant. Our operators reported, as of April 27,
2022, cases of COVID-19 within 151, or 16.1%, of our 939 operating facilities as
of December 31, 2021, which includes cases involving employees and residents.
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We caution that we have not independently validated any such facility virus
incidence information, which may be reported on an inconsistent basis by our
operators, and we can provide no assurance regarding the information's accuracy
or that there have not been any changes since the time it was obtained from our
operators; we also undertake no duty to update this information. It remains
uncertain to what extent vaccination programs for COVID-19 and any booster doses
will mitigate the effects of COVID-19 in our facilities, particularly with
regard to new variants of the virus, the impact of governmental vaccine mandates
for staff on ongoing staffing shortages in our facilities and other factors that
impact virus transmission in our facilities. The impact of these programs will
depend in part on the continued efficacy and delivery of the vaccine and booster
doses in our facilities, compliance with staff vaccination requirements and
participation levels in vaccination programs among the residents and employees
of our operators and in the communities in which they operate.
In addition to experiencing outbreaks of positive cases and deaths of residents
and employees during the pandemic, our operators have been required to, and
continue to, adapt their operations to manage the spread of the COVID-19 virus
as well as the implementation of new treatments and vaccines, and to implement
new requirements relating to infection control, staffing levels, personal
protective equipment ("PPE"), testing mandates, quality of care, visitation
protocols and reporting, among other regulations, throughout the pandemic while
facing staffing shortages that have accelerated during the pandemic and that may
impede the delivery of care. Many of our operators have reported incurring
significant cost increases as a result of the COVID-19 pandemic, with dramatic
increases for facilities with positive cases. These increases have been offset
to some extent by increases in reimbursements due to increased skilling in
place, which has been necessitated by pandemic-related protocols and may
decrease when such protocols subside. We believe these increases primarily stem
from elevated labor costs, including increased use of overtime and bonus pay and
reliance on agency staffing due to staffing shortages, as well as a significant
increase in both the cost and usage of PPE, testing equipment and processes and
supplies, as well as implementation of new infection control protocols and
vaccination programs.
The federal government announced in August and September 2021 that it would be
requiring SNF and healthcare workers to be vaccinated against COVID-19 and
issued an emergency implementing regulation effective November 5, 2021 requiring
covered healthcare facilities to ensure eligible staff have received a first
vaccine dose as of December 5, 2021 and a second dose of a two-dose vaccine as
of January 4, 2022, with certain permitted exemptions in alignment with federal
law, which were subsequently extended by the U.S. Centers for Medicare and
Medicaid Services by between one to two months depending on the applicable
state. Our operators have reported increases in staff vaccination rates during
the first quarter of 2022; however, we expect that such mandates may exacerbate
ongoing staffing shortages in skilled nursing and senior housing facilities. In
addition, operators who do not achieve full compliance with the requirements may
face potential survey issues and penalties. At this time, there is significant
uncertainty regarding the impact of such developments.
In addition, our facilities, on average, have experienced declines, in some
cases that are material, in occupancy levels as a result of the pandemic.
Occupancy in our facilities has generally improved on average since early 2021,
with a slight reduction in growth in late 2021 and early 2022 due to the impact
of new variants; however, average occupancy has not returned to pre-pandemic
levels. It remains unclear when and the extent to which demand and occupancy
levels will return to pre-COVID-19 levels. We believe these challenges to
occupancy recovery may be in part due to staffing shortages, which in some cases
have required operators to limit admissions, as well as COVID-19 related
fatalities at the facilities, the delay of SNF placement and/or utilization of
alternative care settings for those with lower level of care needs, the
suspension and/or postponement of elective hospital procedures, fewer discharges
from hospitals to SNFs and higher hospital readmittances from SNFs.
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While substantial government support, primarily through the federal CARES Act in
the U.S. and distribution of PPE, vaccines and testing equipment by federal and
state governments, was allocated to SNFs and to a lesser extent to ALFs in 2020,
federal relief efforts were limited in 2021 as have been relief efforts in
certain states. We believe further government support will be needed to continue
to offset these impacts, which may take the form of stimulus or reimbursement
rate adjustments to reflect sustained cost changes experienced by operators. It
is unclear whether and to what extent such government support will continue to
be sufficient and timely to offset these impacts. In particular, while $25.5
billion in federal funding for healthcare providers impacted by COVID-19 was
announced in September 2021 with distributions beginning in late 2021, it
remains unclear the extent to which these funds or remaining unallocated funds
under the Public Health and Social Services Emergency Fund ("Provider Relief
Fund") will be distributed to our operators in any meaningful way, whether
additional funds will be added to the Provider Relief Fund or otherwise
allocated to healthcare operators or our operators, or whether additional
Medicaid funds under the American Rescue Plan Act of 2021 (the "American Rescue
Plan Act") or other Medicare or Medicaid reimbursement rates changes in the U.S.
will ultimately support reimbursement to our operators. Further, to the extent
the cost and occupancy impacts on our operators continue or accelerate and are
not offset by continued government relief that is sufficient and timely, we
anticipate that the operating results of additional operators may be materially
and adversely affected, some may be unwilling or unable to pay their contractual
obligations to us in full or on a timely basis and we may be unable to
restructure such obligations on terms as favorable to us as those currently in
place.
There are a number of uncertainties we face as we consider the continuing impact
of COVID-19 on our business, including how long census disruption and elevated
COVID-19 costs will last, the impact of vaccination programs, including booster
doses, and participation levels in those programs in reducing the spread of
COVID-19 in our facilities, the impact of genetic mutations of the virus into
new variants on our facilities, the impact of vaccine mandates on ongoing
staffing shortages in our facilities, and the extent to which funding support
from the federal government and the states will continue to offset these
incremental costs as well as lost revenues. Notwithstanding vaccination
programs, we expect that heightened clinical protocols for infection control
within facilities will continue for some period; however, we do not know if
future reimbursement rates or equipment provided by governmental agencies will
be sufficient to cover the increased costs of enhanced infection control and
monitoring.
While we continue to believe that longer term demographics will drive increasing
demand for needs-based skilled nursing care, we expect the uncertainties to our
business described above to persist at least for the near term until we can gain
more information as to the level of costs our operators will continue to
experience and for how long, and the level of additional governmental support
that will be available to them, the potential support our operators may request
from us and the future demand for needs-based skilled nursing care and senior
living facilities. We continue to monitor the rate of occupancy recovery at many
of our operators, and it remains uncertain whether and when demand, staffing
availability and occupancy levels will return to pre-COVID-19 levels.
We continue to monitor the impacts of other regulatory changes, as discussed
below, including any significant limits on the scope of services reimbursed 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.
Other Trends and Conditions
In addition to the impacts of COVID-19 discussed above, our operators have been
and are likely to continue to be adversely affected by labor shortages and
increased labor costs. In addition, our operations have also been and are likely
to continue to be impacted by increased competition for the acquisition of
facilities in the U.S., which has decreased the number of investment
opportunities that would be accretive to our portfolio. As part of our
continuous evaluation of our portfolio and in connection with certain operator
restructuring transactions, we expect to continue to opportunistically sell
assets, or portfolios of assets, from time to time.
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Government Regulation and Reimbursement
The following information supplements and updates, and should be read in
conjunction with, the information contained under the caption Item 1. Business -
Government Regulation and Reimbursement in our Annual Report on Form 10-K
for the year ended December 31, 2021.
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 which
are subject to a variety of laws and regulations in their jurisdiction. These
laws and regulations are subject to frequent and substantial changes resulting
from the adoption of new legislation, rules and regulations, and administrative
and judicial interpretations of existing law. The ultimate timing or effect of
these changes, which may be applied retroactively, cannot be predicted. Changes
in laws and regulations impacting our operators, in addition to regulatory
non-compliance by our operators, can have a significant effect on the operations
and financial condition of our operators, which in turn may adversely impact us.
There is the potential that we may be subject directly to healthcare laws and
regulations because of the broad nature of some of these regulations, such as
the Anti-kickback Statute and False Claims Act, among others.
The U.S. Department of Health and Human Services ("HHS") declared a public
health emergency on January 31, 2020 following the World Health Organization's
decision to declare COVID-19 a public health emergency of international concern.
This declaration, which has been extended through July 15, 2022, allows HHS to
provide temporary regulatory waivers and new reimbursement rules designed to
equip providers with flexibility to respond to the COVID-19 pandemic by
suspending various Medicare patient coverage criteria and documentation and care
requirements, including, for example, suspension of the three-day prior hospital
stay coverage requirement and expanding the list of approved services which may
be provided via telehealth. These regulatory actions have contributed, and may
continue to contribute, to a change in census volumes and skilled nursing mix
that may not otherwise have occurred. It remains uncertain when federal and
state regulators will resume enforcement of those regulations which are waived
or otherwise not being enforced during the public health emergency due to the
exercise of enforcement discretion.
These temporary changes to regulations and reimbursement, as well as emergency
legislation, including the CARES Act enacted on March 27, 2020 and discussed
below, continue to have a significant impact on the operations and financial
condition of our operators. The extent of the COVID-19 pandemic's effect on the
Company's and our operators' operational and financial performance will depend
on future developments, including the sufficiency and timeliness of additional
governmental relief, the duration, spread and intensity of the outbreak, the
impact of genetic mutations of the virus into new variants, the impact of
vaccine distributions and booster doses on our operators and their populations,
the impact of vaccine mandates on staffing shortages at our operators, as well
as the difference in how the pandemic may impact SNFs in contrast to ALFs, all
of which developments and impacts are uncertain and difficult to predict. Due to
these uncertainties, we are not able at this time to estimate the effect of
these factors on our business; however, the adverse impact on our business,
results of operations, financial condition and cash flows could be material.
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.
SNFs are required to provide information for the CMS Nursing Home Compare
website regarding staffing and quality measures. These rating changes have
impacted referrals to SNFs, and it is possible that changes to this system or
other ranking systems could lead to future reimbursement policies that reward or
penalize facilities on the basis of the reported quality of care parameters.
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The following is a discussion of certain U.S. laws and regulations generally
applicable to our operators, and in certain cases, to us.
Reimbursement Changes Related to COVID-19:
U.S. Federal Stimulus Funds and Financial Assistance for Healthcare Providers.
In response to the pandemic, Congress has enacted a series of economic stimulus
and relief measures. On March 18, 2020, the Families First Coronavirus Response
Act was enacted in the U.S., providing a temporary 6.2% increase to each
qualifying state and territory's Medicaid Federal Medical Assistance Percentage
("FMAP") effective January 1, 2020. The temporary FMAP increase will extend
through the last day of the calendar quarter in which the public health
emergency terminates. States will make individual determinations about how this
additional Medicaid reimbursement will be applied to SNFs, if at all.
In further response to the pandemic, the CARES Act authorized approximately $178
billion to be distributed through the Provider Relief Fund to reimburse eligible
healthcare providers for healthcare related expenses or lost revenues that were
attributable to coronavirus. As part of the $178 billion, in May 2020, HHS
announced that approximately $9.5 billion in targeted distributions would be
made available to eligible SNFs, approximately $2.5 billion of which were
composed of performance-based incentive payments tied to a facility's infection
rate. Further, in September 2021, HHS announced the release of $25.5 billion in
provider funding, including $17 billion of the $178 billion previously
authorized through the CARES Act and $8.5 billion for rural providers, including
those with Medicaid and Medicare patients, through the American Rescue Plan Act.
The Provider Relief Fund is administered under the broad authority and
discretion of HHS and recipients are not required to repay distributions
received to the extent they are used in compliance with applicable requirements.
Also in September 2021, the Centers for Disease Control and Prevention ("CDC")
announced it would allocate $500 million to staffing, training and deployment of
state-based nursing home and long-term care "strike teams" to assist facilities
with known or suspected COVID-19 outbreaks.
HHS continues to evaluate and provide allocations of, and issue regulation and
guidance regarding, grants made under the CARES Act. There are substantial
uncertainties regarding the extent to which our operators will receive
additional funding from HHS.
The CARES Act and related legislation also made other forms of financial
assistance available to healthcare providers, which have the potential to impact
our operators to varying degrees. This assistance includes Medicare and Medicaid
payment adjustments and an expansion of the Medicare Accelerated and Advance
Payment Program, which made available accelerated payments of Medicare funds in
order to increase cash flow to providers. These payments are loans that
providers are scheduled to repay beginning one year from the issuance date of
each provider's or supplier's accelerated or advance payment, with repayment
made through automatic recoupment of 25% of Medicare payments otherwise owed to
the provider or supplier for eleven months, followed by an increase to 50% for
another six months, after which any outstanding balance would be repaid subject
to an interest rate of 4%. We believe these repayments commenced for many of our
operators in April 2021 and have adversely impacted, and will continue to
adversely impact, operating cash flows of these operators.
Additionally, CMS suspended Medicare sequestration payment adjustments, which
would have otherwise reduced payments to Medicare providers by 2%, from May 1,
2020 through December 31, 2020, but also extended sequestration through 2030.
The Bipartisan-Bicameral Omnibus COVID Relief Deal that passed in December 2020
further extended the suspension of the Medicare sequestration until March 31,
2021, and it most recently has been further extended from December 31, 2021
through March 31, 2022, resulting in a 1% cut in Medicare reimbursement for the
three months starting April 1, 2022 and the full 2% sequester resuming July 1,
2022. While not limited to healthcare providers, the CARES Act additionally
provided payroll tax relief for employers, allowing them to defer payment of
employer Social Security taxes that are otherwise owed for wage payments made
after March 27, 2020 through December 31, 2020 to December 31, 2021 with respect
to 50% of the payroll taxes owed, with the remaining 50% deferred until December
31, 2022.
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Quality of Care Initiatives and Additional Requirements Related to COVID-19. In
addition to COVID-19 reimbursement changes, several regulatory initiatives
announced in 2020 and 2021 focused on addressing quality of care in long-term
care facilities, including those related to COVID-19 testing and infection
control protocols, vaccine protocols, staffing levels, reporting requirements,
and visitation policies, as well as increased inspection of nursing homes. In
August 2021, CMS announced it was developing an emergency regulation requiring
staff vaccinations within the nation's more than 15,000 Medicare and
Medicaid-participating nursing homes, and in September 2021, CMS further
announced that the scope of the regulation will be expanded to include workers
in hospitals, dialysis facilities, ambulatory surgical settings, and home health
agencies. In addition, recent updates to the Nursing Home Care website and the
Five Star Quality Rating System include revisions to the inspection process,
adjustment of staffing rating thresholds, the implementation of new quality
measures and the inclusion of a staff turnover percentage (over a 12-month
period). Additionally, the Biden Administration announced a focus on
implementing minimum staffing requirements and increased inspections as part of
the nursing home reforms announced in the 2022 State of the Union Address.
Although the American Rescue Plan Act did not allocate specific funds to SNF or
ALF providers, approximately $200 million was allocated to quality improvement
organizations to provide infection control and vaccination uptake support to
SNFs and $500 million has been allocated by the CDC to staffing, training and
deployment of state-based nursing home and long-term care "strike teams" to
assist facilities with known or suspected COVID-19 outbreaks.
On June 16, 2020, the U.S. House of Representatives Select Subcommittee on the
Coronavirus Crisis announced the launch of an investigation into the COVID-19
response of nursing homes and the use of federal funds by nursing homes during
the pandemic. The Select Subcommittee continued to be active throughout the
remainder of 2020 and 2021. In March 2021, the Oversight Subcommittee of the
House Ways and Means Committee held a hearing on examining the impact of private
equity in the U.S. healthcare system, including the impact on quality of care
provided within the skilled nursing industry. The Biden Administration
additionally announced in March 2022 a focus on reviewing private equity
investment specifically in the skilled nursing sector. These initiatives, as
well as additional calls for government review of the role of private equity in
the U.S. healthcare industry, could result in legislation imposing additional
requirements on our operators.
Reimbursement Generally:
Medicaid. The American Rescue Plan Act contains several provisions designed to
increase coverage, expand benefits, and adjust federal financing for state
Medicaid programs. For example, the American Rescue Plan Act increases the FMAP
by 10 percentage points for state home and community-based services expenditures
beginning April 1, 2021 through March 30, 2022 in an effort to assist seniors
and people with disabilities to receive services safely in the community rather
than in nursing homes and other congregate care settings. As a condition for
receiving the FMAP increase, states must enhance, expand, or strengthen their
Medicaid home and community-based services program during this period. These
potential enhancements to Medicaid reimbursement funding may be offset in
certain states by state budgetary concerns, the ability of the state to allocate
matching funds and to comply with the new requirements, the potential for
increased enrollment in Medicaid due to unemployment and declines in family
incomes resulting from the COVID-19 pandemic, and the potential allocation of
state Medicaid funds available for reimbursement away from SNFs in favor of home
and community-based programs. These challenges may particularly impact us in
states where we have a larger presence, including Florida and Texas. In Texas in
particular, several of our operators have historically experienced lower
operating margins on their SNFs, as compared to other states, as a result of
lower Medicaid reimbursement rates and higher labor costs. Our operators in
Texas may also be adversely impacted by the expected expiration of an add-on by
the state to the daily reimbursement rate for Medicaid patients that will
terminate upon expiration of the federally declared public health emergency. In
Florida, while added support to our operators during the pandemic has generally
been limited, approximately $100 million in additional FMAP funds for nursing
homes was approved by the State in November 2021, with the funds to be
distributed through increased Medicaid payment rates over a three-month period.
In addition, on April 6, 2022, the State of Florida enacted staffing reforms for
SNFs that may provide additional flexibility to our operators in meeting minimum
staffing requirements by using supplemental staff. Since our operators' profit
margins on Medicaid patients are generally relatively low, more than modest
reductions in Medicaid reimbursement or an increase in the percentage of
Medicaid patients has in the past and may in the future adversely affect our
operators' results of operations and financial condition, which in turn could
adversely impact us.
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Medicare. On July 29, 2021, CMS issued a final rule regarding the government
fiscal year 2022 Medicare payment rates and quality payment programs for SNFs,
with aggregate Medicare Part A payments projected to increase by $410 million,
or 1.2%, for fiscal year 2022 compared to fiscal year 2021. This estimated
reimbursement increase is attributable to a 2.7% market basket increase factor
less a 0.8 percentage point forecast error adjustment and a 0.7 percentage point
productivity adjustment, and a $1.2 million decrease due to the proposed
reduction to the SNF prospective payment system rates to account for the recent
blood-clotting factors exclusion. The annual update is reduced by two percentage
points for SNFs that fail to submit required quality data to CMS under the SNF
Quality Reporting Program. CMS has indicated that these impact figures did not
incorporate the SNF Value-Based Program reductions that are estimated to be
$184.25 million in fiscal year 2022. 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.
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 intended PDPM to be revenue-neutral to operators,
with future Medicare reimbursement reductions possible if that was not the case.
In April 2022, CMS put out a proposal for comment, which included an adjustment
to obtain that revenue neutrality as early as the 2023 rate setting period;
however, that proposal may change significantly prior to adoption. Prior to
COVID-19, we believed that certain of our operators could realize efficiencies
and cost savings from increased concurrent and group therapy under PDPM and some
had reported early positive results. Given the ongoing impacts of COVID-19, many
operators are and may continue to be restricted from pursuing concurrent and
group therapy and unable to realize these benefits. Additionally, our operators
continue to adapt to the reimbursement changes and other payment reforms
resulting from the value-based purchasing programs applicable to SNFs under the
2014 Protecting Access to Medicare Act. These reimbursement changes have had and
may, together with any further reimbursement changes to PDPM or value-based
purchasing models, in the future have an adverse effect on the operations and
financial condition of some operators and could adversely impact the ability of
operators to meet their obligations to us.
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 allow 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 are provided by a
physician from an alternate location, effective March 6, 2020 through the end of
the public health emergency.
Other Regulation:
Department of Justice and Other Enforcement Actions. SNFs are under intense
scrutiny for ensuring the quality of care being rendered to residents and
appropriate billing practices conducted by the facility. The Department of
Justice ("DOJ") has historically used the False Claims Act to civilly pursue
nursing homes that bill the federal government for services not rendered or care
that is grossly substandard. For example, California prosecutors announced in
March 2021 an investigation into a skilled nursing provider that is affiliated
with one of our operators, alleging the chain manipulated the submission of
staffing level data in order to improve its Five Star rating. In 2020, the DOJ
launched a National Nursing Home Initiative to coordinate and enhance civil and
criminal enforcement actions against nursing homes with grossly substandard
deficiencies. Such enforcement activities are unpredictable and may develop over
lengthy periods of time. An adverse resolution of any of these enforcement
activities or investigations incurred by our operators may involve injunctive
relief and/or substantial monetary penalties, either or both of which could have
a material adverse effect on their reputation, business, results of operations
and cash flows.
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2022 and Recent Highlights
Investments
We acquired $108.5 million of real estate assets which included 30 facilities
? during the three months ended March 31, 2022. The initial cash yield (the
initial annual contractual cash rent divided by the purchase price) on these
asset acquisitions was between 8% and 9.5%.
? We invested $18.2 million under our construction-in-progress and capital
improvement programs during the three months ended March 31, 2022.
? In the first quarter of 2022, we advanced $2.8 million under existing mortgage
loans.
Dispositions and Impairments
In the first quarter of 2022, we sold 27 facilities for approximately $332.6
million in net cash proceeds, recognizing a net gain of approximately $113.6
million. One of these facilities was sold to the joint venture that was
consolidated in the first quarter of 2022. The proceeds and gain primarily
? relate to the sale of 22 facilities that were previously leased and operated by
Gulf Coast Health Care LLC (together with certain affiliates "Gulf Coast") and
were included in assets held for sale as of December 31, 2021. The net cash
proceeds from the sale, including certain costs accrued as of the end of the
first quarter, were $304.0 million, and we recognized a net gain of
approximately $113.5 million.
In the first quarter of 2022, we recorded impairments on real estate properties
? of approximately $3.5 million on two facilities primarily as a result of
reclassifying facilities to held for sale.
In March 2022, we reclassified seven facilities leased to Guardian Healthcare
("Guardian") to held for sale in connection with the planned restructuring. We
also entered into agreements to sell seven of these held for facilities in
? March and April 2022 for estimated gross proceeds of $36.5 million. As of March
31, 2022, the remaining 19 facilities in held for sale are all under sales
agreements which provide for estimated proceeds of $83.1 million, subject to
terms and conditions of such agreements.
Financing Activities
In January 2022, our Board authorized the repurchase of up to $500 million of
our outstanding common stock, from time to time, through March 2025. During the
? first quarter of 2022, the Company repurchased 980,530 shares of our
outstanding common stock at an average price of $27.84 per share. In April
2022, the Company repurchased 3.9 million of our outstanding common stock for
$106.1 million.
Other Highlights
During the first quarter of 2022, we made $25.8 million of new other investment
loans with a weighted average interest rate of 8.5%. Of the $25.8 million, $25
million relates to a term loan entered into with LaVie Care Centers, LLC
? ("LaVie," f/k/a Consulate Health Care) that bears interest at a fixed rate of
8.5% per annum and matures on March 31, 2032. During the first quarter of 2022,
we also advanced $72.2 million under existing other investment loans. Of the
$72.2 million, $47.4 million related to a revolving working capital loan which
also had repayments of $48.1 million during the first quarter of 2022.
In 2022, Omega was again included in the Bloomberg Gender-Equality Index (GEI)
? - one of only 418 companies worldwide, and fewer than 15 U.S. REITs, to be
included in the 2022 index.
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Collectibility Issues
During the first quarter of 2022, Agemo Holdings, LLC ("Agemo") continued to
not pay contractual rent and interest due under its lease and loan agreements.
As Agemo was already placed on a cash basis of revenue recognition during the
? third quarter of 2020, no revenue was recorded during the three months ended
March 31, 2022. In the first quarter of 2022, we recorded a provision for
credit losses of $4.7 million related to the $25.0 million secured working
capital loan as a result of a reduction in the fair value of the underlying
collateral assets supporting the current carrying values.
During the first quarter of 2022, Guardian Healthcare ("Guardian") continued to
not make contractual rent and interest payments under its lease and loan
agreements. As Guardian was already placed on a cash basis of revenue
recognition in the fourth quarter of 2021, no revenue was recorded during the
three months ended March 31, 2022. We recorded a $5.1 million recovery for
credit losses in the first quarter of 2022 on the Guardian mortgage loan in
connection with a $21.7 million principal repayment on the loan from the
proceeds of the sale of three of the mortgage facilities. We also transitioned
or sold 10 facilities that were previously leased to Guardian in the first
? quarter of 2022 in connection with on-going restructuring activities. In April
2022, we agreed to a formal restructuring agreement, master lease amendment and
mortgage loan amendment with Guardian. As part of the restructuring agreement
and amendments, Omega and Guardian agreed to, among other things, allow for the
deferral of up to $18.0 million of aggregate rent and interest, effective
retrospectively, with repayment required after September 30, 2024 and to reduce
the combined rent and mortgage interest to an aggregate $24.0 million following
the completion of the sale of those seven facilities. Guardian made a partial
payment in April 2022 after exhausting the maximum allowable deferral of $18.0
million under the restructuring agreement.
From January through March 2022, an operator, representing 3.8% and 3.3%,
respectively, of total revenue (excluded the impact of write-offs) for the
three months ended March 31, 2022 and 2021, did not pay its contractual amounts
due under its lease agreement. In March 2022, the lease with this operator was
? amended to allow for a short-term rent deferral for January through March 2022.
This operator paid the contractual amount due under its lease agreement in
April 2022. Omega holds a $1.0 million letter of credit and a $150 thousand
security deposit from this operator. The operator remains current on its loan
obligations, which are secured by a first lien on the accounts receivable of
the operator.
In March 2022, another operator representing 2.3% and 2.1%, respectively, of
total revenue (excluding the impact of write-offs) for the three months ended
March 31, 2022 and 2021, did not pay its contractual amounts due under its
? lease agreement. In April 2022, the lease with this operator was amended to
allow the operator to apply its $2.0 million security deposit in order to pay
March 2022 rent and to allow for a short-term rent deferral for April 2022,
with regular rent payments required to resume in May 2022.
During the first quarter of 2022, we allowed three other operators, each
representing 2.5% and 2.7%, respectively, of total revenue (excluding the
impact of write-offs) for the three months ended March 31, 2022 and 2021 to
? apply $1.3 million of their security deposits to pay rent in order to
accommodate short term liquidity issues, with regular rent payments required to
resume shortly thereafter. As of April 30, 2022, all of these operators are
current on their lease obligations. These operators are required to begin
replenishing their security deposits in 2023.
During the first quarter of 2022, we wrote off straight-line rent receivable
? balances of $3.2 million through rental income as a result of transitioning six
facilities to another existing operator.
Dividends
? On April 21, 2022, the Board of Directors declared a cash dividend for the
quarter ended March 31, 2022 of $0.67 per share.
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Results of Operations
The following is our discussion of the consolidated results of operations,
financial position and liquidity and capital resources, which should be read in
conjunction with our unaudited consolidated financial statements and
accompanying notes.
Three Months Ended March 31, 2022 and 2021
Revenues
Our revenues for the three months ended March 31, 2022 totaled $249.3 million, a
decrease of approximately $24.5 million over the same period in 2021. Included
below is a description of the material changes in revenues for three months
ended March 31, 2022 compared to the same period in 2021:
Rental income was $216.9 million, a decrease of $20.9 million over the same
period in 2021. The decrease was primarily the result of (i) a $17.4 million
decrease relating to two cash basis operators, Agemo and Guardian, from which
we received no rental payments and recorded no revenue for in the first quarter
of 2022; (ii) a $7.3 million decrease as a result of recognizing no rental
income associated with the 24 facilities previously leased to Gulf Coast in the
first quarter of 2022, as 23 of the facilities were temporarily transitioned to
? another operator in December 2021 that was not required to pay contractual rent
during the transition period, as a part of the chapter 11 bankruptcy process;
and (iii) a $4.6 million decrease resulting from the acceleration of certain
in-place lease liabilities due to facility transitions. The overall decrease in
rental income was partially offset by (i) a $6.4 million increase due to
additional rental income in the first quarter of 2022 from acquisitions and
construction in progress facilities being placed in service and (ii) a net
increase of $1.8 million due to lease extensions, facility transitions and
sales.
Mortgage interest income was $20.5 million, a decrease of $3.1 million over the
same period in 2021. The decrease was primarily the result of recognizing no
interest income in the first quarter of 2022 on the Guardian mortgage loan with
? $82.0 million of principal outstanding as of March 31, 2022. The loan was
placed on non-accrual status in the fourth quarter of 2021, with all payments
received (none in the first quarter of 2022) applied directly to principal
under the cost recovery method.
Expenses
Our expenses for the three months ended March 31, 2022 totaled $167.7 million, a
decrease of approximately $23.4 million over the same period in 2021. Included
below is a description of the material changes in expenses for three months
ended March 31, 2022 compared to the same period in 2021:
Our depreciation and amortization expense was $82.8 million, a $2.1 million
decrease over the same period in 2021. The decrease primarily relates to
? facility sales and facilities reclassified to assets held for sale, such as the
22 Gulf Coast facilities that were sold in the first quarter of 2022, partially
offset by facility acquisitions and capital additions.
Our impairment on real estate properties was $3.5 million, a decrease of $25.2
million over the same period in 2021. The 2022 impairments were recognized in
connection with reclassifying two facilities to held for sale in the first
? quarter to reduce their net book value to the estimated fair value less costs
to sell. The 2021 impairments related to four facilities, three of which were
recognized in connection with reclassifying the facilities to assets held for
sale.
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Our provision for credit losses was $1.8 million, a $2.8 million increase over
the same period in 2021. The increase was primarily as a result of additional
reserves taken against a loan outstanding to Agemo (see Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
? Collectibility Issues), increases in loan balances and increases in loss rates
in the first quarter of 2022 compared to the same period in 2021 partially
offset by recoveries for cash collections and paydowns received on the Guardian
mortgage (see Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Collectibility Issues).
Other Income (Expense)
For the three months ended March 31, 2022, total other income was $113.2
million, an increase of approximately $42.3 million over the same period in
2021. The decrease was mainly due to: (i) a $29.7 million loss on debt
extinguishment in the first quarter of 2021 primarily related to fees, premiums
and expenses related to the purchase of $350 million of the 4.375% Senior Notes
due 2023 during the first quarter of 2021 and (ii) $13.3 million increase in
gain on assets sold related to the sale of 27 facilities in the first quarter of
2022 compared to the sale of 24 facilities during the same period in 2021.
National Association of Real Estate Investment Trusts 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.
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The following table presents our Nareit FFO results for the three months ended
March 31, 2022 and 2021:
Three Months Ended
March 31,
2022 2021
(in thousands)
Net income $ 195,156 $ 164,366
Deduct gain from real estate dispositions (113,637) (100,342)
Deduct gain from real estate dispositions -
unconsolidated joint ventures - (14,924)
81,519 49,100
Elimination of non-cash items included in net income:
Depreciation and amortization
82,752 84,849
Depreciation - unconsolidated joint ventures 2,896 3,361
Add back impairments on real estate properties 3,511 28,689
Add back impairments on real estate properties -
unconsolidated joint ventures - 4,178
Add back unrealized loss on warrants - 72
Nareit FFO $ 170,678 $ 170,249Liquidity 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
DRSPP and the $1.0 billion 2021 At-The-Market Offering Program ("2021 ATM
Program"), facility sales, and proceeds from mortgage and other investment
payoffs. We anticipate that these sources will be adequate to fund our cash flow
needs through the next twelve months, which include common stock dividends, debt
service payments (including principal and interest), real estate investments
(including facility acquisitions, capital improvement programs and other capital
expenditures), mortgage and other investment loan advances and normal recurring
G&A expenses (primarily consisting of employee payroll and benefits and expenses
relating to third parties for legal, consulting and audit services).
Capital Structure
At March 31, 2022, we had total assets of $10.0 billion, total equity of $4.1
billion and total debt of $5.7 billion in our consolidated financial statements,
with such debt representing approximately 57.9% of total capitalization.
Debt
At March 31, 2022, the weighted-average annual interest rate of our debt was
3.96%. Additionally, as of March 31, 2022, 92% of our debt with outstanding
principal balances has fixed interest payments.
Two of our interest rate swaps that were entered into in May 2019 with aggregate
notional amounts of $50.0 million matured on February 10, 2022. These interest
rate swap contracts were designated as hedges against our exposure to changes in
interest payment cash flow fluctuations in the variable interest rates on the OP
term loan.
As of March 31, 2022, we had long-term credit ratings of Baa3 from Moody's and
BBB- from S&P Global and Fitch. Credit ratings impact our ability to access
capital and directly impact our cost of capital as well. For example, our
revolving credit facility accrues interest and fees at a rate per annum equal to
LIBOR plus a margin that depends upon our credit rating. A downgrade in credit
ratings by Moody's and S&P Global may have a negative impact on the interest
rates and fees for our revolving credit facility.
Certain of our other secured and unsecured borrowings are subject to customary
affirmative and negative covenants, including financial covenants. As of March
31, 2022 and December 31, 2021, we were in compliance with all affirmative and
negative covenants, including financial covenants, for our secured and unsecured
borrowings.
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Supplemental Guarantor Information
Parent has issued approximately $4.9 billion aggregate principal of senior notes
outstanding at March 31, 2022 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, the revolving credit facility and
the OP term loan) 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 March 31, 2022, there were
no significant restrictions on the ability of Omega OP to make distributions to
Omega.
Equity
At March 31, 2022, we had approximately 238.2 million shares of common stock
outstanding, and our shares had a market value of $7.4 billion. The following is
a summary of activity under our equity programs during the three months ended
March 31, 2022:
In January 2022, our Board authorized the repurchase of up to $500 million of
? our outstanding common stock, from time to time, through March 2025. During the
first quarter of 2022, the Company repurchased 980,530 shares of our
outstanding common stock at an average price of $27.84 per share.
We did not issue any shares of common stock under our 2021 ATM Program during
the three months ended March 31, 2022. We did not utilize the forward
? provisions under the 2021 ATM Program during the three months ended March 31,
2022. We have $929.9 million of sales remaining under the 2021 ATM Program as
of March 31, 2022.
We issued 79.9 thousand shares of common stock under DRSPP during the three
? months ended March 31, 2022. Aggregate gross proceeds from these sales were
$2.3 million during the first quarter of 2022.
Dividends
As a REIT, we are required to distribute dividends (other than capital gain
dividends) to our stockholders in an amount at least equal to (A) the sum of (i)
90% of our "REIT taxable income" (computed without regard to the dividends paid
deduction and our net capital gain), and (ii) 90% of the net income (after tax),
if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. In addition, if we dispose of any built-in gain asset during a
recognition period, we will be required to distribute at least 90% of the
built-in gain (after tax), if any, recognized on the disposition of such asset.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our tax return for
such year and paid on or before the first regular dividend payment after such
declaration. In addition, such distributions are required to be made pro rata,
with no preference to any share of stock as compared with other shares of the
same class, and with no preference to one class of stock as compared with
another class except to the extent that such class is entitled to such a
preference. To the extent that we do not distribute all of our net capital gain
or do distribute at least 90%, but less than 100% of our "REIT taxable income"
as adjusted, we will be subject to tax thereon at regular ordinary and capital
gain corporate tax rates.
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For the three months ended March 31, 2022, we paid dividends of approximately
$160.6 million to our common stockholders. On February 15, 2022, we paid
dividends of $0.67 per outstanding common share to the common stockholders of
record as of the close of business on February 7, 2022.
Material Cash Requirements
During the three months ended March 31, 2022, there were no significant changes
to our material cash requirements from those disclosed in the section
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2021 Annual Report.
As of March 31, 2022, we had $220.9 million of commitments to fund the
construction of new leased and mortgaged facilities, capital improvements and
other commitments. Additionally, we have commitments to fund $41.2 million of
advancements under existing other investment 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 9
to the Consolidated Financial Statements - Investments in Joint Ventures. Our
risk of loss is generally limited to our investment in the joint venture and any
outstanding loans receivable. We use derivative instruments to hedge interest
rate and foreign currency exchange rate exposure as discussed in Note 15 -
Derivatives and Hedging in our Annual Report on Form 10-K for the year ended
December 31, 2021.
Cash Flow Summary
Cash, cash equivalents and restricted cash totaled $494.8 million as of March
31, 2022, an increase of $470.4 million as compared to the balance at December
31, 2021. 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 - Operating activities generated $132.2 million of net cash
flow for the three months ended March 31, 2022, as compared to $176.0 million
for the same period in 2021, a decrease of $43.8 million, which is primarily
driven by a decrease of $30.2 million of net income, adjusted for non-cash
items, primarily due to a year over year reduction in rental income and mortgage
revenue related to three operators, as discussed in our material changes
analysis under Results of Operations above. A $13.6 million change in the net
movements of the operating assets and liabilities, primarily driven by an
increase in receivables, also contributed to the overall decrease in cash
provided by operating activities.
Investing Activities - Net cash flow from investing activities was an inflow of
$177.3 million for the three months ended March 31, 2022, as compared to an
outflow of $396.3 million for the same period in 2021. The $573.6 million change
in cash flow from investing activities related primarily to (i) a $481.3 million
decrease in real estate acquisitions driven by the acquisition of 24 senior
living facilities from Healthpeak Properties, Inc. for $511.3 million in the
first quarter of 2021, (ii) a $144.3 million increase in proceeds from the sales
of real estate investments largely driven by the sale of 22 facilities
previously leased to Gulf Coast for net proceeds of $310.3 million in the first
quarter of 2022, (iii) a $23.8 million increase in mortgage collections, net of
placements driven by a $21.7 million partial principal paydown on the Guardian
mortgage loan in the first quarter of 2022 and (iv) a $10.4 million decrease in
investments in unconsolidated joint ventures driven by our $10.3 million
investment in Second Spring II LLC in the first quarter of 2021, offset by (i) a
$68.3 million increase in new other investments, net of other investments
proceeds driven by the new $25.0 million term loan to LaVie and additional draws
on existing loans, (ii) a $7.4 million decrease in distributions from
unconsolidated joint venture in excess of earnings primarily related to the
Second Spring Healthcare Investments joint venture due to significant facility
sales in the first quarter of 2021, (iii) a $4.4 million increase in investment
in construction in progress and capital expenditures, (iv) a $3.0 million
decrease in receipts from insurance proceeds and (v) a $2.5 million decrease in
acquisition related deposits.
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Financing Activities - Net cash flow from financing activities was an inflow of
$161.2 million for the three months ended March 31, 2022, as compared to an
inflow of $108.6 million for the same period in 2021. The $52.6 million change
in cash flow from financing activities was primarily related to (i) $115.9
million increase in proceeds from other long-term borrowings, net of repayments
as we had increased borrowings on our revolving credit facility in connection
with funding acquisitions and loans, (ii) a $33.8 million decrease in payment of
financing related costs due to fees and premiums paid in the first quarter of
2021 related to the early redemption of $350 million of principal of the 4.375%
senior notes due 2023 and (iii) a $4.6 million decrease in distributions to
Omega OP Unit holders. The overall increase in financing inflows was partially
offset by (i) a $72.0 million decrease in cash proceeds from the issuance of
common stock in 2022 due to decreased issuances under our DRSPP and our ATM
Programs, as compared to the same period in 2021, (ii) $27.3 million of
repurchases of shares of common stock in the first quarter of 2022 and (iii) a
$2.3 million increase in dividends paid.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP") in the U.S. Our preparation of the financial
statements requires us to make estimates and assumptions about future events
that affect the amounts reported in our financial statements and accompanying
footnotes. Future events and their effects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results inevitably will differ from those estimates, and such
differences may be material to the consolidated financial statements. We have
described our accounting policies in Note 2 - Summary of Significant Accounting
Policies to our Annual Report on Form 10-K for the year ended December 31,
2021. There have been no material changes to our critical accounting policies or
estimates since December 31, 2021.
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