OMEGA HEALTHCARE INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020

Unaudited

(in thousands, except per share amounts)


									Accumulated																Accumulated
	Common		Additional		Cumulative				Other		Total						Common		Additional		Cumulative				Other		Total
	Stock		Paid-in		Net		Cumulative		Comprehensive		Stockholders’		Noncontrolling		Total		Stock		Paid-in		Net		Cumulative		Comprehensive		Stockholders’		Noncontrolling			Total
	Par Value		Capital		Earnings		Dividends Paid		Loss		Equity		Interest		Equity		Par Value		Capital		Earnings		Dividends Paid		Income (Loss)		Equity		Interest		��	Equity
Balance at December 31, 2019	$	22,663	$	5,992,733	$	2,463,436	$	(4,303,546)	$	(39,858)	$	4,135,428	$	201,166	$	4,336,594
Cumulative effect of accounting change (see Note 1)		-		-		(28,028)						(28,028)		(757)		(28,785)
		22,663		5,992,733		2,435,408		(4,303,546)		(39,858)		4,107,400		200,409		4,307,809
Stock-based compensation expense		—		4,635		—		—		—		4,635		—		4,635
Balance at December 31, 2020																	$	23,119	$	6,152,887	$	2,594,735	$	(4,916,097)	$	(12,768)	$	3,841,876	$	194,731		$	4,036,607
Stock related compensation																		2		5,431		—		—		—		5,433		—			5,433
Vesting/exercising of equity compensation plan, net of tax withholdings		9		(3,158)		—		—		—		(3,149)		—		(3,149)		13		(2,525)		—		—		—		(2,512)		—			(2,512)
Dividend reinvestment and stock purchase plan		9		3,738		—		—		—		3,747		—		3,747		42		15,450		—		—		—		15,492		—			15,492
Deferred compensation directors		—		59		—		—		—		59		—		59
Equity Shelf Program																		162		59,985		—		—		—		60,147		—			60,147
Vesting/exercising of Omega OP Units																		—		(4,767)		—		—		—		(4,767)		4,767			—
Common dividends declared ($0.67 per share)																		—		—		—		(158,335)		—		(158,335)		—			(158,335)
Conversion and redemption of Omega OP Units to common stock																		—		82		—		—		—		82		(82)			—
Omega OP Units distributions																		—		—		—		—		—		—		(9,855)			(9,855)
Comprehensive income:
Foreign currency translation																		—		—		—		—		1,153		1,153		33			1,186
Cash flow hedges																		—		—		—		—		34,845		34,845		956			35,801
Net income																		—		—		159,978		—		—		159,978		4,388			164,366
Total comprehensive income																																	201,353
Balance at March 31, 2021																	$	23,338	$	6,226,543	$	2,754,713	$	(5,074,432)	$	23,230	$	3,953,392	$	194,938		$	4,148,330


Balance at December 31, 2019																	$	22,663	$	5,992,733	$	2,463,436	$	(4,303,546)	$	(39,858)	$	4,135,428	$	201,166		$	4,336,594
Cumulative effect of accounting change																		—		—		(28,028)		—		—		(28,028)		(757)			(28,785)
																		22,663		5,992,733		2,435,408		(4,303,546)		(39,858)		4,107,400		200,409			4,307,809
Stock related compensation																		—		4,694		—		—		—		4,694		—			4,694
Vesting/exercising of equity compensation plan, net of tax withholdings																		9		(3,158)		—		—		—		(3,149)		—			(3,149)
Dividend reinvestment and stock purchase plan																		9		3,738		—		—		—		3,747		—			3,747
Equity Shelf Program		5		1,826		—		—		—		1,831		—		1,831		5		1,826		—		—		—		1,831		—			1,831
Vesting/exercising of Omega OP Units		—		(2,608)		—		—		—		(2,608)		2,608		—		—		(2,608)		—		—		—		(2,608)		2,608			—
Common dividends declared ($0.67 per share)		—		—		—		(154,661)		—		(154,661)		—		(154,661)		—		—		—		(154,661)		—		(154,661)		—			(154,661)
Conversion and redemption of Omega OP Units to common stock		—		336		—		—		—		336		(336)		—		—		336		—		—		—		336		(336)			—
Omega OP Units distributions		—		—		—		—		—		—		(7,290)		(7,290)		—		—		—		—		—		—		(7,290)			(7,290)
Comprehensive income:
Foreign currency translation		—		—		—		—		(18,288)		(18,288)		(483)		(18,771)		—		—		—		—		(18,288)		(18,288)		(483)			(18,771)
Cash flow hedges		—		—		—		—		(7,642)		(7,642)		(202)		(7,844)		—		—		—		—		(7,642)		(7,642)		(202)			(7,844)
Net income		—		—		89,915		—		—		89,915		2,364		92,279		—		—		89,915		—		—		89,915		2,364			92,279
Total comprehensive income																65,664																	65,664
Balance at March 31, 2020	$	22,686	$	5,997,561	$	2,525,323	$	(4,458,207)	$	(65,788)	$	4,021,575	$	197,070	$	4,218,645	$	22,686	$	5,997,561	$	2,525,323	$	(4,458,207)	$	(65,788)	$	4,021,575	$	197,070		$	4,218,645


Balance at December 31, 2018	$	20,235	$	5,074,544	$	2,130,511	$	(3,739,197)	$	(41,652)	$	3,444,441	$	320,043	$	3,764,484
Stock-based compensation expense		—		4,070		—		—		—		4,070		—		4,070
Vesting/exercising of equity compensation plan, net of tax withholdings		9		(2,288)		—		—		—		(2,279)		—		(2,279)
Dividend reinvestment and stock purchase plan		89		32,196		—		—		—		32,285		—		32,285
Deferred compensation directors		—		53		—		—		—		53		—		53
Equity Shelf Program		222		76,325		—		—		—		76,547		—		76,547
Vesting/exercising of Omega OP Units		—		(298)								(298)		298		—
Common dividends declared ($0.66 per share)		—		—		—		(136,687)		—		(136,687)		—		(136,687)
Conversion and redemption of Omega OP Units to common stock		145		56,112		—		—		—		56,257		(56,257)		—
Omega OP Units distributions		—		—		—		—		—		—		(7,013)		(7,013)
Noncontrolling interest - consolidated joint venture		—		—		—		—		—		—		228		228
Comprehensive income:
Foreign currency translation		—		—		—		—		4,321		4,321		154		4,475
Cash flow hedges		—		—		—		—		(2,610)		(2,610)		(93)		(2,703)
Net income		—		—		69,702		—		—		69,702		2,480		72,182
Total comprehensive income																73,954
Balance at March 31, 2019	$	20,700	$	5,240,714	$	2,200,213	$	(3,875,884)	$	(39,941)	$	3,545,802	$	259,840	$	3,805,642

See notes to consolidated financial statements.

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NOTE 7 – INVESTMENTS IN JOINT VENTURES

Unconsolidated Joint Ventures

Omega owns an interest in the following entities that are accounted for under the equity method (dollars in thousands):

Carrying Amount

Ownership

Initial Investment

Initial

Facility

Facilities at

March 31,

December 31,
Entity ⁽¹⁾

%

Date

Investment⁽²⁾

Type

3/31/2020

2020

2019
Second Spring Healthcare Investments

15%

11/1/2016

$
50,032

SNF

37

$
23,080

$
22,504
Lakeway Realty, L.L.C.

51%

5/17/2019

73,834

Specialty facility

1

73,094

73,273
Cindat Joint Venture

49%

12/18/2019

104,184

ALF

67

98,064

103,976
OMG Senior Housing, LLC

50%

12/6/2019

—

ILF

1

—


—
OH CHS SNP, Inc.

9%

12/20/2019

1,650

N/A

N/A

169

131

$
229,700

$
194,407

$
199,884


							Carrying Amount
	Ownership	Initial Investment			Facility	Facilities at	March 31,		December 31,
Entity ⁽¹⁾	%	Date		Investment⁽²⁾	Type	3/31/2021	2021		2020
Second Spring Healthcare Investments⁽³⁾	15%	11/1/2016	$	50,032	SNF	—	$	10,624	$	17,700
Second Spring II LLC⁽⁴⁾	15%	3/10/2021		10,330	SNF	5		9,873		—
Lakeway Realty, L.L.C.	51%	5/17/2019		73,834	Specialty facility	1		72,077		72,318
Cindat Joint Venture	49%	12/18/2019		105,688	ALF	67		111,871		110,360
OMG Senior Housing, LLC	50%	12/6/2019		—	Specialty facility	1		—		—
OH CHS SNP, Inc.	9%	12/20/2019		859	N/A	N/A		201		260
			$	240,743			$	204,646	$	200,638

(1)

These entities and their subsidiaries are not consolidated by the Company because it does not control, through voting rights or other means, the joint venture.

(2)

Our initial investment includes our transaction costs, if any.

(3)

During the first quarter of 2021, this joint venture sold 16 SNFs to an unrelated third party for approximately $328 million in net proceeds and recognized a gain on sale of approximately $102.2 million ($14.9 million of which represents the Company’s share of the gain). During the first quarter of 2021, this joint venture also sold 5 SNFs to Second Spring II LLC for approximately $70.8 million in net proceeds.

(4)

We acquired approximately a 15% interest in Second Spring II LLC for approximately $10.3 million. During the first quarter of 2021, this joint venture acquired 5 SNFs from Second Spring Healthcare Investments for approximately $70.8 million.

The following table reflects our income (loss) from unconsolidated joint ventures for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended March 31,
Entity

2020

2019

(in thousands)
Second Spring Healthcare Investments

$
570

$
657
Lakeway Realty, L.L.C.

610


—
Cindat Joint Venture

646


—
OMG Senior Housing, LLC

(161)


—
OH CHS SNP, Inc.

(105)


—
Total

$
1,560

$
657


	Three Months Ended March 31,
Entity	2021		2020

	(in thousands)
Second Spring Healthcare Investments⁽¹⁾	$	11,411	$	570
Second Spring II LLC		(457)		—
Lakeway Realty, L.L.C.		645		610
Cindat Joint Venture		486		646
OMG Senior Housing, LLC		(101)		(161)
OH CHS SNP, Inc.		(154)		(105)
Total	$	11,830	$	1,560

(1)

The income from this unconsolidated joint venture includes a $14.9 million gain on sale of real estate investments.

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Asset Management Fees

We receive asset management fees from certain joint ventures for services provided. For each of the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we recognized approximately $0.2 million of asset management fees. These fees are included in miscellaneous income in the accompanying Consolidated Statements of Operations.

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NOTE 8 – ASSETS HELD FOR SALE

The following is a summary of our assets held for sale:


	Properties Held For Sale			Properties Held For Sale
	Number of	Net Book Value		Number of	Net Book Value
	Properties	(in thousands)		Properties	(in thousands)
December 31, 2019	6	$	4,922
December 31, 2020				22	$	81,452
Properties sold ⁽¹⁾	(4)		(4,341)	(21)		(81,252)
Properties added ⁽²⁾	6		23,544	5		7,722
March 31, 2020 ⁽³⁾	8	$	24,125
March 31, 2021⁽³⁾				6	$	7,922

(1)	In the first quarter of ~~2020,~~2021, we sold ~~four~~21 facilities for approximately ~~$4.2~~$187.6 million in net cash proceeds recognizing a net ~~loss~~gain on sale of approximately ~~$0.5~~$100.3 million.

(2)	In the first quarter of ~~2020,~~2021, we recorded approximately ~~$1.9~~$16.9 million of impairment expense to reduce ~~one facility’s~~3 facilities’ book value to ~~its~~their estimated fair value less costs to sell before ~~it was~~they were reclassified to assets held for sale.

(3) We plan to sell the facilities classified as assets held for sale at March 31, ~~2020~~2021 within the next twelve months.

NOTE 9 – INTANGIBLES

The following is a summary of our intangibles as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


	March 31,		December 31,		March 31,		December 31,
	2020			2019	2021			2020

	(in thousands)				(in thousands)
Assets:
Goodwill	$	643,536	$	644,415

Above market leases	$	49,240	$	49,240	$	22,822	$	22,822
Accumulated amortization		(21,946)		(21,227)		(20,966)		(20,882)
Net intangible assets	$	27,294	$	28,013
Net above market leases					$	1,856	$	1,940

Liabilities:
Below market leases	$	147,292	$	147,292	$	139,100	$	139,515
Accumulated amortization		(89,165)		(87,154)		(107,301)		(100,996)
Net intangible liabilities	$	58,127	$	60,138
Net below market leases					$	31,799	$	38,519

Above market leases, net of accumulated amortization, are included in other assets on our Consolidated Balance Sheets. Below market leases, net of accumulated amortization, are included in accrued expenses and other liabilities on our Consolidated Balance Sheets. The net amortization related to the above and below market leases is included in our Consolidated Statements of Operations as an adjustment to rental income. As disclosed in Note 2 – Properties and Investments, certain above market lease assets and below market lease liabilities acquired in the MedEquities Merger are subject to further adjustment pending completion of the purchase accounting.

~~Table of Contents~~

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, our net amortization related to intangibles was ~~$1.3~~$6.2 million and ~~$1.8~~$1.3 million, respectively. The estimated net amortization related to these intangibles for the remainder of ~~2020~~2021 and the subsequent four years is as follows: remainder of ~~2020 – $3.5 million;~~ 2021 – ~~$4.7~~$3.3 million; 2022 – ~~$4.4~~$4.2 million; 2023 – ~~$4.2~~$4.0 million; 2024 – $3.9 million and ~~2024~~2025 – ~~$4.0~~$3.6 million. As of March 31, ~~2020,~~2021, the weighted average remaining amortization period of above market lease assets is ~~eleven~~approximately ten years and below market lease liabilities is approximately ~~nine~~eight years.

The following is a summary of our goodwill as of March 31, ~~2020:~~2021:


	(in thousands)		(in thousands)
Balance as of December 31, 2019	$	644,415
Balance as of December 31, 2020			$	651,737
Add: foreign currency translation		(879)		(58)
Balance as of March 31, 2020	$	643,536
Balance as of March 31, 2021			$	651,679

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NOTE 10 – CONCENTRATION OF RISK

As of March 31, ~~2020,~~2021, our portfolio of real estate investments consisted of ~~985~~974 healthcare facilities, located in 4042 states and the U.K. and operated by 70 third-party operators. Our investment in these facilities, net of impairments and allowances, totaled approximately ~~$9.7~~$10.2 billion at March 31, ~~2020,~~2021, with approximately 97% of our real estate investments related to ~~long-term care~~healthcare facilities. Our portfolio is made up of ~~778~~(i) 735 SNFs, ~~115~~133 ALFs, 2935 specialty facilities, 2 medical office buildings, (ii) fixed rate mortgages on 4757 SNFs, 23 ALFs and 43 specialty facilities, and 8(iii) 6 facilities that are held for sale. At March 31, ~~2020,~~2021, we also held other investments of approximately ~~$424.7~~$444.7 million, consisting primarily of secured loans to third-party operators of our facilities and ~~$194.4~~$204.6 million of investments in ~~five~~6 unconsolidated joint ventures.

At March 31, ~~2020~~2021 we had investments with 1 operator/or manager that exceeded 10% of our total investments: ~~Ciena Healthcare~~Consulate Health Care (“~~Ciena”~~Consulate”). ~~Ciena~~Consulate also generated approximately 9% and 10% of our total revenues for the three months ended March 31, 2021 and 2020, ~~and 2019.~~ respectively.

At March 31, ~~2020,~~2021, the three states in which we had our highest concentration of investments were Florida ~~(14%~~(15%), Texas (10%) and Michigan ~~(7%~~(6%).

NOTE 11 – STOCKHOLDERS’~~/OWNERS’~~ EQUITY

~~$200 Million Stock Repurchase Program~~

On March 20, 2020, Omega’s Board of Directors authorized the repurchase of up to $200 million of its outstanding common stock from time to time over the twelve months ending March 20, 2021. We are authorized to repurchase shares of our common stock in open market and privately negotiated transactions or in any other manner as determined by Omega’s management and in accordance with applicable law. The timing and amount of stock repurchases will be determined, in management’s discretion, based on a variety of factors, including but not limited to market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. Omega has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time. Omega did 0t repurchase any of its outstanding common stock through March 31, 2020.

Dividends

The Board of Directors has declared cash dividends on common stock ~~dividends~~ as set forth below:


Record	Payment	Dividend per		Payment	Dividend per
Date	Date	Common Share		Date	Common Share
January 31, 2020	February 14, 2020	$	0.67
April 30, 2020	May 15, 2020	$	0.67
February 8, 2021				February 16, 2021	$	0.67
May 3, 2021				May 17, 2021		0.67

On$500 Million Equity Shelf Program

The table below presents information regarding the ~~same dates listed above, Omega OP Unit holders received~~shares issued under the ~~same distributions per unit as those paid to~~Equity Shelf Program for the ~~common stockholders of Omega.~~three months ended March 31, 2020 and 2021:


	Shares issued	Average Price		Net Proceeds
Three Months Ended	(in millions)	Per Share		(in millions)
March 31, 2020	0.1	$	37.58	$	1.8
March 31, 2021	1.6		37.16		60.1

Dividend Reinvestment and Common Stock Purchase Plan

The table below presents information regarding the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three months ended March 31, 2020 and 2021:


	Shares issued	Gross Proceeds
Three Months Ended	(in millions)	(in millions)
March 31, 2020	0.1	$	3.7
March 31, 2021	0.4		15.5

2923

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~~$500 Million Equity Shelf Program~~

For the three months ended March 31, 2020 and 2019, we issued approximately 49 thousand and 2.2 million, respectively, shares of our common stock at an average price of $37.58 per share and $34.46 per share, respectively, net of issuance costs, generating net proceeds of $1.8 million and $76.5 million, respectively, under our $500 million Equity Shelf Program.

~~Dividend Reinvestment and Common Stock Purchase Plan~~

On March 23, 2020, we announced that we suspended our Dividend Reinvestment and Common Stock Purchase Plan. For the three months ended March 31, 2020 and 2019, we issued approximately 90 thousand and 0.9 million, respectively, shares of our common stock at an average price of $41.80 per share and $36.19 per share, respectively, through our Dividend Reinvestment and Common Stock Purchase Plan for gross proceeds of approximately $3.7 million and $32.3 million, respectively.

Accumulated Other Comprehensive ~~Loss~~Income (Loss)

The following is a summary of our accumulated other comprehensive ~~loss,~~income (loss), net of tax where applicable:


	As of and for the				As of and for the
	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2020		2019		2021		2020

					(in thousands)
Foreign Currency Translation:
Beginning balance	$	(35,100)	$	(47,704)	$	(18,427)	$	(35,100)
Translation (loss) gain		(31,888)		6,769
Realized (loss) gain		(70)		26
Translation gain (loss)						3,530		(31,888)
Realized gain (loss)						666		(70)
Ending balance		(67,058)		(40,909)		(14,231)		(67,058)

Derivative Instruments:
Cash flow hedges:
Beginning balance		(2,369)		3,994		17,718		(2,369)
Unrealized loss		(7,526)		(3,011)
Realized (loss) gain ⁽¹⁾		(318)		308
Unrealized gain (loss)						35,191		(7,526)
Realized gain (loss)⁽¹⁾						610		(318)
Ending balance		(10,213)		1,291		53,519		(10,213)
Net investment hedge:
Beginning balance		(4,420)		70		(13,331)		(4,420)
Unrealized gain (loss)		13,187		(2,320)
Unrealized (loss) gain						(3,010)		13,187
Ending balance		8,767		(2,250)		(16,341)		8,767
Total accumulated other comprehensive loss for Omega OP⁽²⁾		(68,504)		(41,868)
Total accumulated other comprehensive income (loss) before noncontrolling interest						22,947		(68,504)
Add: portion included in noncontrolling interest		2,716		1,927		283		2,716
Total accumulated other comprehensive loss for Omega	$	(65,788)	$	(39,941)
Total accumulated other comprehensive income (loss) for Omega					$	23,230	$	(65,788)

(1)	Recorded in interest expense on the Consolidated Statements of Operations.

~~(2)~~

~~These amounts are included in Owners’ Equity.~~

NOTE 12 – TAXES

Omega ~~is a REIT for United States federal income tax purposes,~~ and Omega OP, isincluding their wholly owned subsidiaries were organized, have operated, and intend to continue to operate in a ~~pass through entity~~manner that enables Omega to qualify for ~~United States federal income tax purposes.~~

~~Table of Contents~~

~~Since our inception, Omega has elected to be taxed~~taxation as a REIT under ~~the applicable provisions~~Sections 856 through 860 of the ~~Internal Revenue Code (“Code”). A~~Code. On a quarterly and annual basis we perform several analyses to test our compliance within the REIT ~~is generally not~~taxation rules. If we fail to meet the requirements for qualification as a REIT in any tax year, we will be subject to federal income tax on ~~that portion of its REIT~~our taxable income ~~which is distributed~~at regular corporate rates and may not be able to ~~its stockholders, provided that at least 90% of such taxable income is distributed each tax year and certain other requirements are met, including asset and income tests. So long~~qualify as a REIT for the four subsequent years, unless we qualify asfor certain relief provisions that are available in the event we fail to satisfy any of the requirements.

We are also subject to federal taxation of 100% of the net income derived from the sale or other disposition of property, other than foreclosure property, that we held primarily for sale to customers in the ordinary course of a trade or business. We believe that we do not hold assets for sale to customers in the ordinary course of business and that none of the assets currently held for sale or that have been sold would be considered a prohibited transaction within the REIT taxation rules.

As a REIT under the Code, we generally will not be subject to federal income taxes on the REIT taxable income that we distribute to stockholders, subject to certain exceptions.

If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes on its taxable income at regular corporate rates and dividends paid to our stockholders will not be deductible by us in computing taxable income. Further, we would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied, unless the Internal Revenue Service grants us relief under certain statutory provisions. Failing to qualify as a REIT could materially and adversely affect our net income; however, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT. We test our compliance within the REIT taxation rules to ensure that we are in compliance with the REIT rules on a quarterly and annual basis. We review our distributions and projected distributions each year to ensure we have met and will continue to meet the annual REIT distribution requirements. In 2020, 2019, and 2018, we ~~expect to pay~~distributed dividends in excess of our taxable income.

~~Subject~~We currently own stock in an entity that has elected to ~~the limitation under the REIT asset test rules, we are permitted~~be taxed as a REIT. This subsidiary entity is required to ~~own up to 100%~~individually satisfy all of the ~~stock~~rules for qualification as a REIT.

Table of ~~1 or more taxable REIT subsidiaries (“TRSs”).~~ Contents

We have elected ~~for 5~~to treat certain of our active subsidiaries ~~to be treated~~ as TRSs. ~~NaN of our~~Our domestic TRSs ~~are domestic and~~ are subject to federal, state and local income taxes at the applicable corporate ~~rates and the other 2~~rates. Our foreign TRSs are subject to foreign income taxes. As of March 31, ~~2020,~~2021, 1 of our TRSs that is subject to ~~federal, state and local~~ income taxes at the applicable corporate rates had a net operating loss (“NOL”) carry-forward of approximately ~~$5.7~~$6.5 million. Up to 100% of the net operating loss carry-forwards arising in taxable years ending prior to January 1, 2018, may be used to reduce taxable income for any taxable year during the eligible carry-forward period. Changes made by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) limited the amount of net operating loss (“NOL”) carry-forward arising in tax years ending subsequent to December 31, 2018, to reduce 80% of taxable income for any taxable year during the eligible carry-forward period. Our NOL carry-forward was fully reserved as of March 31, ~~2020,~~2021, with a valuation allowance due to uncertainties regarding realization. Under current law, ~~our~~ NOL ~~carryforwards~~carry-forwards generated up through December 31, 2017 may be carried forward for no more than 20 years, and ~~our net operating loss carryforward~~NOL carry-forwards generated in our taxable years ended December 31, ~~2019~~2018 and ~~December 31, 2018~~after may be carried forward indefinitely.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) ~~signed into law on March 27, 2020~~ modified the NOL carryforward rules applicable to certain of the NOL carryforwards possessed by our TRSs. First, the Act defers the application of 80% of taxable income limitation, which was added to the Code by the 2017 Act, to our TRS’s taxable years ended December 31, 2021, in addition to modifying the computation of the 80% limitation. Additionally, the CARES Act permits the carryback of NOLs generated by our TRSs in 2018, 2019, and 2020 for up to five years to offset taxable income reported in any of those prior tax years and recover income taxes paid in such prior tax years. Other provisions of the CARES Act may also impact the computation of taxable income by any of our TRSs or Omega and Omega OP. The modifications to the NOL carryback rules ~~do not permit the carryback~~to limit recovery of ~~a NOL by a REIT and, thus, will not impact Omega.~~taxes paid in prior tax periods. We do not anticipate that such changes will materially impact the computation of Omega’s taxable income, or the taxable income of any Omega entity, including our TRSs. We also do not expect that Omega or any Omega entity, including our TRSs, will realize a material tax benefit as a result of the changes to the provisions of the Code made by the CARES Act.

For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we recorded approximately ~~$0.4~~$0.3 million and ~~$0.2~~$0.4 million, respectively, of state and local income tax provisions. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we recorded approximately ~~$0.6~~$0.7 million and ~~$0.5~~$0.6 million, respectively, of tax provisions for foreign income taxes. The expenses were included in income tax expense on our Consolidated Statements of Operations.

NOTE 13 – STOCK-BASED COMPENSATION

~~Stock-based~~The following is a summary of our stock-based compensation expense ~~was $4.6 million and $4.1 million~~ for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.


	Three Months Ended
	March 31,
	2021		2020

	(in thousands)
Stock-based compensation expense	$	5,396	$	4,635

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~~Time Based Restricted Equity Awards~~

~~Restricted stock,~~We granted 22,051 time based restricted stock units (“RSUs”) and 142,719 time based profits interest units (“PIUs”) ~~are subject to forfeiture if~~during the ~~holder’s service to us terminates prior to vesting, subject~~first quarter of 2021 to certain ~~exceptions for certain qualifying terminations of service or a change in control of~~officers and key employees, and those units vest on December 31, 2023 (three years after the Company. Prior to vesting, ownership of the shares/units cannot be transferred. The restricted stock has the same dividend and voting rights as our common stock. RSUs accrue dividend equivalents but have no voting rights. PIUs accrue distributions, which are equivalent to dividend equivalents, but have no voting rights. Once vested, each RSU is settled by the issuance of one share of Omega common stock and each PIU is settled by the issuance of one partnership unit in Omega OP (“Omega OP Unit”)grant date), subject to continued employment and vesting in certain ~~conditions. Restricted stock and RSUs are valued at~~other events.

We also granted 1,232,178 performance based PIUs during the ~~price~~first quarter of our common stock on the date of grant. The PIUs are valued using a Monte Carlo model to estimate fair value. We expense the cost of these awards ratably over their vesting period. We awarded 20,215 RSUs and 102,565 profit interest units to employees on January 1, 2020.

~~Performance-Based Restricted Equity Awards~~

Performance-based restricted equity awards include performance restricted stock units (“PRSUs”) and PIUs. PRSUs and PIUs are subject to forfeiture if the performance requirements are not achieved or if the holder’s service to us terminates prior to vesting, subject2021 to certain ~~exceptions for certain qualifying terminations of employment or a change in control of the Company. The PRSUs awarded in March 2016, January 2017, January 2018,~~officers and January 2019 and the PIUs awarded in March 2016, January 2017, January 2018, January 2019 and January 2020 have varying degrees of performance requirements to achieve vesting, and each PRSU and PIU award represents the right to a variable number of shares of common stock or partnership units. Each PIU once earned is convertible into one Omega OP Unit in Omega OP, subject to certain conditions. The vesting requirements are based on either the (i) total shareholder return (“TSR”) of Omega or (ii) Omega’s TSR relative to other real estate investment trusts in the FTSE NAREIT Equity Health Care Index for awards granted in or after 2016 (both “Relative TSR”). We expense the cost of these awards ratably over their service period.

Prior to vesting and the distribution of shares or Omega OP Units, ownership of the PRSUs or PIUs cannot be transferred. Dividends on the PRSUs are accrued and only paid to the extent the applicable performance requirements are met. While each PIU is unearned, the employee receives a partnership distribution equal to 10% of the quarterly approved regular periodic distributions per Omega OP Unit. The remaining partnership distributions (which in the case of normal periodic distributions is equal to the total approved quarterly dividend on Omega’s common stock) on the PIUs accumulate, and if the PIUskey employees, which are earned ~~the accumulated distributions are paid. We used a Monte Carlo model to estimate the fair value for the PRSUs and PIUs granted to the employees.~~

~~The number of shares or units earned under the TSR PRSUs or PIUs depends generally~~based on the level of ~~achievement of Omega’s TSR over the indicated~~ performance ~~period. We awarded 680,038 TSR PIUs to employees on January 1, 2020.~~

The number of shares or units earned under the Relative TSR PRSUs or PIUs depends generally on the level of achievement of Omega’s TSR relative to other real estate investment trusts in the FTSE NAREIT Equity Health Care Index TSR over the performance period ~~indicated. We awarded 528,499 Relative TSR PIUs~~(normally three years) and vest quarterly in the fourth year, subject to ~~employees on January 1, 2020.~~

continued employment and vesting in certain other events.

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NOTE 14 – BORROWING ACTIVITIES AND ARRANGEMENTS

The following is a summary of our borrowings:


		Annual									Annual
		Interest Rate									Interest Rate
		as of									as of
		March 31,		March 31,		December 31,					March 31,		March 31,		December 31,
	Maturity	2020		2020		2019		Net Proceeds		Maturity	2021		2021		2020

				(in thousands)				(in millions)					(in thousands)
Secured borrowings:
HUD mortgages⁽¹⁾⁽⁵⁾	2046-2052	3.01	%	$	385,560	$	387,405
Term loan⁽²⁾⁽⁵⁾	2021	3.25	%		2,275		2,275
HUD mortgages⁽¹⁾⁽²⁾										2046-2052	3.01	%	$	365,410	$	367,249
Term loan⁽³⁾										2022	3.75	%		2,275		2,275
					387,835		389,680							367,685		369,524
Unsecured borrowings:
Revolving line of credit⁽³⁾	2021	2.08	%		516,760		125,000
Revolving line of credit⁽⁴⁾⁽⁵⁾										2021	1.36	%		135,000		101,158

U.S. term loan	2022	2.44	%		350,000		350,000
Sterling term loan⁽⁴⁾⁽⁶⁾	2022	1.70	%		124,000		132,480			N/A	N/A			—		136,700
Omega OP term loan⁽⁵⁾⁽⁷⁾	2022	3.29	%		75,000		75,000			2022	3.29	%		50,000		50,000
2015 term loan	2022	3.80	%		250,000		250,000
Deferred financing costs – net⁽⁶⁾					(2,477)		(2,742)
Deferred financing costs – net														(86)		(351)
Total term loans – net					796,523		804,738							49,914		186,349

Senior Notes:⁽⁵⁾
2023 notes(8)	2023	4.375	%		700,000		700,000	$	692.0	2023	4.375	%		350,000		700,000
2024 notes	2024	4.950	%		400,000		400,000		394.3	2024	4.950	%		400,000		400,000
2025 notes	2025	4.500	%		400,000		400,000		397.7	2025	4.500	%		400,000		400,000
2026 notes	2026	5.250	%		600,000		600,000		594.4	2026	5.250	%		600,000		600,000
2027 notes	2027	4.500	%		700,000		700,000		683.0	2027	4.500	%		700,000		700,000
2028 notes	2028	4.750	%		550,000		550,000		540.8	2028	4.750	%		550,000		550,000
2029 notes	2029	3.625	%		500,000		500,000		487.8	2029	3.625	%		500,000		500,000
Subordinated debt	2021	9.000	%		13,541		13,541
2031 notes									680.5	2031	3.375	%		700,000		700,000
2033 notes⁽⁹⁾									689.3	2033	3.250	%		700,000		—
Subordinated debt⁽²⁾										2021	9.000	%		20,000		20,000
Discount – net					(22,218)		(23,041)							(35,128)		(31,709)
Deferred financing costs – net					(22,792)		(23,778)							(29,586)		(26,070)
Total senior notes and other unsecured borrowings – net					3,818,531		3,816,722							4,855,286		4,512,221

Total unsecured borrowings – net					5,131,814		4,746,460							5,040,200		4,799,728

Total secured and unsecured borrowings – net⁽⁷⁾				$	5,519,649	$	5,136,140
Total secured and unsecured borrowings – net⁽¹⁰⁾													$	5,407,885	$	5,169,252

(1)	Reflects the weighted average annual contractual interest rate on the mortgages at March 31, ~~2020; secured~~2021. Secured by real estate assets with a net carrying value of ~~$610.7~~$564.5 million as of March 31, ~~2020.~~2021.

(2)	~~Borrowing is the debt of a consolidated joint venture.~~

~~(3)~~

~~During the first quarter of 2020, we drew approximately $300 million on our existing $1.25~~ billion revolving credit facility as a precautionary measure due to the COVID-19 outbreak. This borrowing is included in cash and cash equivalents on our Consolidated Balance Sheets as of March 31, 2020.

~~(4)~~

~~Actual borrowing in British Pounds Sterling and remeasured to USD.~~

~~(5)~~

~~Omega OP or wholly~~Wholly owned subsidiaries of Omega OP are the obligor on these borrowings.

(3)	Borrowing is the debt of a consolidated joint venture.

(4)	On April 30, 2021, the Revolving line of credit (which was scheduled to mature on May 25, 2021) was terminated and replaced with a new four-year $1.45 billion senior unsecured credit facility (“Credit Facility”).

(5)	Guaranteed by Omega OP.

(6)	~~Includes $0.2 million of net deferred financing costs related~~Actual borrowing is in British Pounds Sterling and remeasured to USD. The Sterling term loan was settled in March 2021 using proceeds from the 3.250% 2033 Senior Notes offering.

(7)	Omega OP is the obligor on this borrowing.On April 30, 2021, the Omega OP term loan ~~as of March 31, 2020.~~facility (which was scheduled to mature on May 25, 2022) was terminated and replaced with a new four-year $50 million senior unsecured term loan facility (“OP Term Loan Facility”).

~~(7)~~(8)

In March 2021, we used a portion of the proceeds from the 2033 Senior Notes offering to fund the tender offer to purchase $350 million of the 4.375% Senior Notes due 2023. In connection with this transaction, we recorded approximately $29.7 million in related fees, premiums, and expenses which were recorded as Loss on debt extinguishment in our Consolidated Statement of Operations.

(9)

We used the proceeds from this offering to pay down outstanding borrowings on the Revolving Line of Credit, repay the Sterling term loan, and fund the tender offer to purchase $350 million of the 4.375% Senior Notes due 2023 and the payment of accrued interest and related fees, premiums and expenses.

(10)	All borrowings are direct borrowings of ~~Omega~~Parent unless otherwise noted.

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$400 Million Forward Starting Swaps

On March 27, 2020, we entered into 5 forward starting swaps totaling $400 million. We designated the forward starting swaps as cash flow hedges of interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt, initially expected to occur within the next five years. The swaps are effective on August 1, 2023 and expire on August 1, 2033 and were issued at a fixed rate of approximately 0.8675%. In March 2021, in conjunction with the issuance of $700 million aggregate principal amount of our 3.25% Senior Notes due 2033, we discontinued hedge accounting for these 5 forward starting swaps. Amounts reported in Accumulated Other Comprehensive Income related to these discontinued cash flow hedging relationships will be reclassified to interest expense over a ten year term. Simultaneously, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments on another forecasted issuance of long-term debt. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of 46 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

£174 Million Foreign Exchange Forward Starting Swaps

From the issuance date of our GBP borrowings through the prepayment date in March 2021, we used a nonderivative, GBP-denominated term loan and line of credit totaling £174 million to hedge a portion of our net investments in foreign operations. During March 2021 and concurrent with the settlement of our GBP-denominated term loan and repayment of our GBP denominated borrowings under our line of credit, we entered into 4 foreign currency forwards that mature on March 8, 2024 to hedge a portion of our net investments in foreign operations, effectively replacing the terminated net investment hedge. For these derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported in Accumulated Other Comprehensive Income as part of the cumulative translation adjustment. Amounts are reclassified out of Accumulated Other Comprehensive Income into earnings when the hedged net investment is either sold or substantially liquidated.

Certain of our other secured and unsecured borrowings are subject to customary affirmative and negative covenants, including financial covenants. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, we were in compliance with all affirmative and negative covenants, including financial covenants, for our secured and unsecured borrowings. ~~Omega OP, the guarantor of Parent’s outstanding senior notes, does not directly own any substantive assets other than its interest in non-guarantor subsidiaries.~~

NOTE 15 – FINANCIAL INSTRUMENTS

The net carrying amount of cash and cash equivalents, restricted cash, contractual receivables, other assets and accrued expenses and other liabilities reported in the Consolidated Balance Sheets approximates fair value because of the short maturity of these instruments (Level 1).

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At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the net carrying amounts and fair values of our other financial instruments were as follows:


	March 31, 2020				December 31, 2019				March 31, 2021				December 31, 2020
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value		Amount		Value		Amount		Value

	(in thousands)								(in thousands)
Assets:
Investments in direct financing leases – net	$	10,850	$	10,850	$	11,488	$	11,488	$	10,757	$	10,757	$	10,764	$	10,764
Mortgage notes receivable – net		754,030		824,924		773,563		819,083		890,068		929,623		885,313		924,353
Other investments – net		424,723		424,217		419,228		412,934		444,719		452,848		467,442		474,552
Total	$	1,189,603	$	1,259,991	$	1,204,279	$	1,243,505	$	1,345,544	$	1,393,228	$	1,363,519	$	1,409,669
Liabilities:
Revolving line of credit	$	516,760	$	516,760	$	125,000	$	125,000	$	135,000	$	135,000	$	101,158	$	101,158
Term loan		2,275		2,275		2,275		2,275		2,275		2,275		2,275		2,275
U.S. term loan		348,994		350,000		348,878		350,000
Sterling term loan		123,622		124,000		132,059		132,480		—		—		136,453		136,700
Omega OP term loan		74,788		75,000		74,763		75,000		49,914		50,000		49,896		50,000
2015 term loan		249,120		250,000		249,038		250,000
4.375% notes due 2023 – net		696,104		695,854		695,812		749,693		348,674		379,864		696,981		770,635
4.95% notes due 2024 – net		395,955		394,852		395,702		442,327		396,966		445,362		396,714		441,194
4.50% notes due 2025 – net		396,353		387,127		396,163		430,529		397,114		436,262		396,924		444,652
5.25% notes due 2026 – net		595,908		597,502		595,732		675,078		596,614		685,558		596,437		697,993
4.50% notes due 2027 – net		689,811		691,063		689,445		759,475		691,275		770,272		690,909		794,294
4.75% notes due 2028 – net		542,143		589,872		541,891		602,967		543,152		607,222		542,899		633,950
3.625% notes due 2029 – net		488,565		430,573		488,263		500,792		489,774		511,116		489,472		532,248
3.375% notes due 2031 – net										682,250		693,896		681,802		731,541
3.25% notes due 2033 – net										689,405		671,583		—		—
HUD mortgages – net		385,560		399,835		387,405		379,866		365,410		384,979		367,249		409,004
Subordinated debt – net		13,691		14,547		13,714		15,253		20,062		21,207		20,083		21,599
Total	$	5,519,649	$	5,519,260	$	5,136,140	$	5,490,735	$	5,407,885	$	5,794,596	$	5,169,252	$	5,767,243

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Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument (see Note 2 – Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, ~~2019)~~2020). The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts.

The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

●

Direct financing leases: The fair value of the investments in direct financing leases are estimated using a discounted cash flow analysis, using interest rates being offered for similar leases to borrowers with similar credit ratings (Level 3).

●

Mortgage notes receivable: The fair value of the mortgage notes receivables are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).

●

Other investments: Other investments are primarily comprised of notes receivable. The fair values of notes receivable are estimated using a discounted cash flow analysis, using interest rates being offered for similar loans to borrowers with similar credit ratings (Level 3).

●

Revolving line of credit, secured borrowing and term loans: The fair value of our borrowings under variable rate agreements are estimated using a present value technique based on expected cash flows discounted using the current market rates (Level 3).

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●

Senior notes and subordinated debt: The fair value of our borrowings under fixed rate agreements are estimated using a present value technique based on inputs from trading activity provided by a third-party (Level 2).

●

HUD mortgages: The fair value of our borrowings under HUD debt agreements are estimated using an expected present value technique based on quotes obtained by HUD debt brokers (Level 2).

NOTE 16 – COMMITMENTS AND CONTINGENCIES

Litigation

~~On November 16, 2017, a purported securities class action complaint captioned~~ The Company and certain of its officers,~~Dror Gronich v. Omega Healthcare Investors, Inc.,~~ C. Taylor Pickett, Robert O. Stephenson, and Daniel J. Booth ~~was filed against the Company and certain of its officers~~, are defendants in a purported securities class action lawsuit pending in the ~~United States~~U.S. District Court for the Southern District of New York (the ~~“Court”~~“Securities Class Action”)~~, Case No. 1:17-cv-08983-NRB. On November 17, 2017, a second purported securities class action complaint captioned~~ ~~Steve Klein v. Omega Healthcare Investors, Inc., C. Taylor Pickett, Robert O. Stephenson, and Daniel J. Booth~~ was filed against the Company and the same officers in the United States District Court for the Southern District of New York, Case No. 1:17-cv-09024-NRB. Thereafter, the Court considered a series of applications. Brought by ~~various shareholders to be named~~ lead plaintiff ~~consolidated the two actions and designated~~ Royce ~~Setzer as the lead plaintiff.~~

~~Table of Contents~~

~~Pursuant to a Scheduling Order entered by the Court, lead plaintiff~~ Setzer and additional plaintiff Earl Holtzman, ~~filed a Consolidated Amended Class Action Complaint on May 25, 2018 (the “Securities Class Action”). The~~the Securities Class Action purports to ~~be a class action brought on behalf~~assert claims for violations of ~~shareholders who acquired the Company’s securities between May 3, 2017 and October 31, 2017. The Securities Class Action alleges that the defendants violated~~Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act, and seeks an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief. The Securities Class Action alleges that the defendants violated the Exchange Act by making materially false and/or misleading statements, and by failing to disclose material adverse facts about the Company’s business, operations, and prospects, including the financial and operating results of one of the Company’s operators, the ability of such operator to make timely rent payments, and the impairment of certain of the Company’s leases and the uncollectibility of certain receivables. The ~~Securities Class Action, which purports to assert claims~~initial complaint was dismissed with prejudice by the U.S. District Court, but the dismissal was overturned by the U.S Court of Appeals for ~~violations of Section 10(b) of~~ the ~~Exchange Act and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of~~Second Circuit in 2020. Thereafter, the ~~Exchange Act, seeks an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief. The~~plaintiffs filed a Second Consolidated Amended Complaint in August 2020. In November 2020, the Company and the officers named in the Securities Class Action filed a Motion to Dismiss on July 17, 2018. On March 25, 2019, the Court entered an order dismissing with prejudice all claims against all defendants. Plaintiffs have appealed the order to the United States Court of Appeals for the Second ~~Circuit. The appeal~~Consolidated Amended Complaint, which is fully briefed and ~~the Court of Appeals heard oral argument on November 13, 2019. The Company is awaiting a decision on the appeal. In~~pending before the District Court, on March 26, 2020, Plaintiffs filed a motion for an indicative ruling regarding relief from final judgement based on allegedly newly-discovered evidence and for leave to file an amended complaint. The Company believes thatCourt.

Certain derivative actions have also been brought against the ~~motion is without merit and filed an opposition on May 1, 2020.~~

The Board of Directors received a demand letter, dated April 9, 2018, from an attorney representing Phillip Swan (“Swan”), a purported current shareholder of the Company, relating to the subject matter covered byofficers named in the Securities Class Action, ~~(the “Swan Shareholder Demand”). The letter demanded that~~and certain current and former directors of the ~~Board of Directors conduct an investigation into~~Company, alleging claims relating to the ~~statements and other~~ matters at issue in the Securities Class ~~Action~~Action. These derivative actions are currently stayed pending certain developments in the Securities Class Action.

In 2018, Stourbridge Investments LLC, a purported stockholder of the Company, filed a derivative action purportedly on behalf of the Company in the United States District Court for the Southern District of New York, alleging violations of Section 14(a) of the Exchange Act and ~~commence legal proceedings against each party identified as being~~state-law claims including breach of fiduciary duty. The complaint alleges, among other things, that the named defendants are responsible for the Company’s failure to disclose the financial condition of Orianna Health Systems, the alleged ~~activities.~~non-disclosures that are also the subject of the Securities Class Action described above. The plaintiff did not make a demand on the Company to bring the action prior to filing it, but rather alleges that demand would have been futile. The case has been stayed pending the entry of judgement or a voluntary dismissal with prejudice in the Securities Class Action.

In 2019, purported stockholder Phillip Swan by his counsel, and stockholders Tom Bradley and Sarah Smith by their counsel, filed derivative actions in the Baltimore City Circuit Court of Maryland, purportedly on behalf of the Company, asserting claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment against the named defendants. Those actions have been consolidated and stayed in the Maryland court pending completion of fact discovery in the Securities Class Action. Prior to filing suit, each of these stockholders had made demands on the Board of Directors in 2018 that the Company bring such lawsuits. After an investigation and due consideration, and in the exercise of its business judgment, the Board determined that it is not in the best interests of the Company to commence litigation against any current or former officers or directors based on the matters raised in the ~~Swan Shareholder Demand.~~ demands.

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In November 2018, the Board also received shareholder demands from two additional purported shareholders, Tom Bradley (“Bradley”) and Sarah Smith (“Smith”), each represented by the same counsel as Swan, that were substantively identical to the Swan Shareholder Demand (the “Bradley/Smith Shareholder Demands”). The Board reached the same conclusion with respect to those demands as it reached with the Swan Shareholder Demand.

~~On August 22, 2018, Stourbridge Investments LLC,~~addition, in late 2020, Robert Wojcik, a purported ~~stockholder~~shareholder of the Company, filed a derivative action in the U.S. District Court for the District of Maryland, purportedly on behalf of the Company, ~~in the United States District Court for the Southern District of New York against the current directors of the Company as well as certain officers alleging~~asserting violations of Section 14(a) of the ~~Securities~~ Exchange Act, Sections 10(b) and 21D of ~~1934 and state-law~~the Exchange Act, as well as claims ~~including~~for breach of fiduciary ~~duty.~~ ~~Stourbridge Investments LLC v. Callen et al.,~~ ~~No. 1:18-cv-07638. The complaint alleges, among other things, that the defendants are responsible for the Company’s failure to disclose the financial condition~~duty, unjust enrichment, abuse of ~~Orianna Health Systems, the alleged non-disclosures that are~~control, gross mismanagement, and waste of corporate assets. Wojcik also the subject of the Securities Class Action described above. The defendants in the action are the three individual defendants named in the Securities Class Action (Messrs. Pickett, Booth and Stephenson), as well as the Company’s non-management directors. The plaintiff did not make a demand on the Company ~~to bring the action~~ prior to filing ~~it, but rather alleges that demand would have~~suit. The case has been ~~futile. The parties have entered into a stipulation in which they agreed to stay the case, including any response by defendants,~~stayed pending the entry of ~~judgment~~judgement or a voluntary dismissal with prejudice in the Securities Class Action. ~~The agreed-upon stipulation and order to stay the case were entered by the Court on October 25, 2018.~~

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On January 30, 2019, Swan filed a derivative action in the Baltimore City Circuit Court of Maryland, purportedly on behalf of the Company against certain current and former directors of the Company as well as certain officers, asserting claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment. ~~Swan v. Pickett, et al.,~~ No. 24-C-19-000573. Swan alleges that the Swan Shareholder Demand was wrongfully refused. On February 21, 2019, Bradley and Smith filed a derivative action in the Baltimore City Circuit Court of Maryland, purportedly on behalf of the Company against certain current and former directors of the Company as well as certain officers, asserting claims for breach of fiduciary duty, abuse of control, gross mismanagement, and unjust enrichment. ~~Bradley and Smith v. Callen, et al.~~, No. 24-c-19-000972. Bradley and Smith allege that the Bradley/Smith Shareholder Demands were wrongly refused. The derivative actions brought by Swan and Bradley and Smith have been consolidated under the heading of the ~~Swan~~ action. The parties in those actions have agreed to a stay of proceedings pending the issuance of a mandate from the Second Circuit Court of Appeals in the appeal of the dismissal of the Securities Class Action. On October 11, 2019, the Court issued an order adopting the stay of proceedings agreed to by the parties.

The Company believes that the claims asserted against it in these lawsuits are without merit and intends to vigorously defend against them.

Other

In September 2016, MedEquities received a Civil Investigative Demand (“CID”) from the U.S. Department of Justice (“DOJ”), which indicates that it is conducting an investigation regarding alleged violations of the False Claims Act, Stark Law and Anti-Kickback Statute in connection with claims that may have been submitted to Medicare and other federal payors for services rendered to patients at Lakeway ~~Regional Medical Center (the “Lakeway Hospital”)~~Hospital or by providers with financial relationships with Lakeway Hospital. As a result of the acquisition of MedEquities, the Company owns a 51% interest in an unconsolidated partnership that owns ~~the~~ Lakeway Hospital ~~(Lakeway~~(the “Lakeway Realty, L.L.C.”). The CID requested certain documents and information related to the acquisition and ownership of ~~the~~ Lakeway Hospital through Lakeway Realty, ~~L.L.C.~~L.L.C.. The Company has learned that the DOJ is investigating MedEquities’ conduct in connection with its investigation of financial relationships related to ~~the~~ Lakeway Hospital, including allegations by the DOJ that these relationships violate and continue to violate the Anti-Kickback Statute and, as a result, related claims submitted to federal payors violated and continue to violate the False Claims Act. The Company is cooperating fully with the DOJ in connection with the CID and has produced all of the information that has been requested to date.

~~Table~~On September 29, 2020 the Department of ~~Contents~~

Justice announced it had reached a settlement of a False Claims Act case with Lakeway Regional Medical Center wherein Lakeway Regional Medical Center agreed to pay $1.1 million for inducing certain physicians to refer patients by offering a low risk and high return investment in the form of a joint venture to purchase and then lease back the hospital to Lakeway Regional Medical Center. A MedEquities subsidiary was a party to this transaction but was not included in settlement discussions. The documents relating to the settlement are not publicly available.

The Company believes that the acquisition, ownership and leasing of ~~the~~ Lakeway Hospital through the Lakeway ~~Realty, L.L.C.~~Partnership was and is in compliance with all applicable laws. However, due to the uncertainties surrounding this matter and its ultimate outcome, we are unable to determine whether it is probable that any loss has been incurred.

In addition, we are subject to various other legal proceedings, claims and other actions arising out of the normal course of business. While any legal proceeding or claim has an element of uncertainty, management believes that the outcome of each lawsuit, claim or legal proceeding that is pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial position or results of operations.

Indemnification Agreements

In connection with certain facility transitions, we have agreed to indemnify certain operators in certain events. As of March 31, ~~2020,~~2021, our maximum funding commitment under these indemnification agreements was approximately ~~$13.1~~$8.1 million. Claims under these indemnification agreements may be made within 18 months to 72 months of the transition date. These indemnification agreements were provided to certain operators in connection with facility transitions and generally would be applicable in the event that the prior operators do not perform under their transition agreements. The Company does not expect to fund a material amount under these indemnification agreements.

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Commitments

We have committed to fund the construction of new leased and mortgaged facilities, capital improvements and other commitments. We expect the funding of these commitments to be completed over the next several years. Our remaining commitments at March 31, ~~2020,~~2021, are outlined in the table below (in thousands):



Total commitments	$	657,512	$	596,615
Amounts funded to date⁽¹⁾		(509,880)		(454,837)
Remaining commitments(2)	$	147,632	$	141,778

(1)

Includes finance costs.

(2)

This amount excludes our remaining commitments to fund under our other investments of approximately $81.0 million.

NOTE 17 – EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings per share:


	Three Months Ended
	March 31,
	2021		2020

	(in thousands, except per share amounts)
Numerator:
Net income	$	164,366	$	92,279
Deduct: net income attributable to noncontrolling interests		(4,388)		(2,364)

Net income available to common stockholders	$	159,978	$	89,915
Denominator:
Denominator for basic earnings per share		232,572		227,261
Effect of dilutive securities:
Common stock equivalents		944		1,261
Noncontrolling interest – Omega OP Units		6,391		5,984
Denominator for diluted earnings per share		239,907		234,506

Earnings per share - basic:
Net income available to common stockholders	$	0.69	$	0.40
Earnings per share – diluted:
Net income	$	0.69	$	0.39

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~~NOTE 17 – EARNINGS PER SHARE/UNIT~~

~~The following tables set forth the computation of basic and diluted earnings per share/unit:~~

Omega

Omega OP


Three Months Ended

Three Months Ended


March 31,

March 31,


2020

2019

2020

2019


(in thousands, except per share amounts)

Numerator:











Net income

$
92,279

$
72,182

$
92,279

$
72,182

(Less) add: net (income) loss attributable to noncontrolling interests

(2,364)

(2,480)

3

—

Net income available to common stockholders/Omega OP Unit holders

$
89,915

$
69,702

$
92,282

$
72,182

Denominator:









Denominator for basic earnings per share

227,261

204,558

233,245

211,835

Effect of dilutive securities:





Common stock equivalents

1,261

1,688

1,261

1,688

Noncontrolling interest – Omega OP Units

5,984

7,277

—

—

Denominator for diluted earnings per share/unit

234,506

213,523

234,506

213,523

Earnings per share/unit - basic:









Net income available to common stockholders/Omega OP Unit holders

$
0.40

$
0.34

$
0.40

$
0.34

Earnings per share/unit – diluted:

Net income

$
0.39

$
0.34

$
0.39

$
0.34

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NOTE 18 – SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS

The following are supplemental disclosures to the consolidated statements of cash flows for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,				Three Months Ended March 31,
	2020		2019		2021		2020

	(in thousands)				(in thousands)
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	347,965	$	40,028	$	51,376	$	347,965
Restricted cash		4,057		1,372		4,522		4,057
Cash, cash equivalents and restricted cash at end of period	$	352,022	$	41,400	$	55,898	$	352,022

Supplemental information:
Interest paid during the period, net of amounts capitalized	$	64,457	$	64,470	$	67,538	$	64,457
Taxes paid during the period	$	2,655	$	1,060	$	1,509	$	2,655

Non cash investing activities
Non cash acquisition of real estate (see Note 2)	$	—	$	(11,874)
Non cash collection of mortgage principal		—		11,874
Non cash investment of other investments		—		(20,211)
Non cash proceeds from other investments		—		18,242
Non cash proceeds from direct financing lease		—		4,970
Initial non cash right of use asset - ground leases		—		5,593
Initial non cash lease liability - ground leases		—		(5,593)

Non cash financing activities
Change in fair value of cash flow hedges	$	(7,844)	$	(2,680)		36,672		(7,844)
Remeasurement of debt denominated in a foreign currency		(13,187)		2,320		3,010		(13,187)

NOTE 19 – SUBSEQUENT EVENTS

On April 30, 2021, the Company closed a new four-year $1.45 billion senior unsecured credit facility (“Credit Facility”). The Credit Facility replaced a $1.25 billion senior unsecured credit facility that was scheduled to mature on May 25, 2021.

On April 30, 2021, the Company closed a new four-year $50 million senior unsecured term loan facility (“OP Term Loan Facility”) to its operating partnership subsidiary. The OP Term Loan Facility replaced a $50 million senior unsecured term loan facility that was scheduled to mature on May 25, 2022.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Factors Affecting Future Results

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this ~~document, including statements regarding potential future changes in reimbursement.~~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:

(i)

those items discussed under “Risk Factors” in Part I, Item 1A to our annual report on Form 10-K;

(ii)

uncertainties relating to the business operations of the operators of our assets, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels;

(iii)

the impact of the novel coronavirus (“COVID-19”) on our business and the business of our operators, including without limitation, the extent and duration of the COVID-19 pandemic, increased costs and decreased occupancy levels experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection therewith, the ability of operators to comply with new 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;

(iv)

the ability of any of Omega’s operators in bankruptcy to reject unexpired lease obligations, modify the terms of Omega’s mortgages and impede the ability of Omega to collect unpaid rent or interest during the pendency of a bankruptcy proceeding and retain security deposits for the debtor’s obligations, and other costs and uncertainties associated with operator bankruptcies;

~~(iv)~~(v)

our ability to re-lease, otherwise transition, or sell underperforming assets or assets held for sale on a timely basis and on terms that allow us to realize the carrying value of these assets;

~~(v)~~(vi)

the availability and cost of capital to us;

~~(vi)~~(vii)

changes in our credit ratings and the ratings of our debt securities;

~~(vii)~~(viii)

competition in the financing of healthcare facilities;

~~(viii)~~(ix)

competition in long-term healthcare industry and shifts in the ~~impact~~perception of ~~COVID-19 on our business~~various types of long-term care facilities, including SNFs and the business of our operators, including without limitation, the extent and duration of the COVID-19 pandemic, increased costs experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection therewith, and the extent to which government support may be available to operators to offset such costs and the conditions related thereto;ALFs;

~~(ix)~~(x)

additional regulatory and other changes in the healthcare sector;

~~(x)~~(xi)

changes in the financial position of our operators;

~~(xi)~~(xii)

the effect of economic and market conditions generally and, particularly, in the healthcare industry;

~~(xii)~~(xiii)

changes in interest rates;

~~(xiii)~~(xiv)

the timing, amount and yield of any additional investments;

~~(xiv)~~(xv)

changes in tax laws and regulations affecting real estate investment trusts (“REITs”);

~~(xv)~~(xvi)

the potential impact of changes in the SNF and ALF markets or local real estate conditions on our ability to dispose of assets held for sale for the anticipated proceeds or on a timely basis, or to redeploy the proceeds therefrom on favorable terms;

~~(xvi)~~(xvii)

our ability to maintain our status as a REIT; and

~~(xvii)~~(xviii)

the effect of other factors affecting our business or the businesses of our operators that are beyond our or their control, including natural disasters, other health crises or pandemics and governmental action; particularly in the healthcare industry.

Table of Contents

Overview

Omega Healthcare Investors, Inc. (“Omega”) was ~~formed as a real estate investment trust (“REIT”) and~~ incorporated in the State of Maryland on March 31, ~~1992.~~1992, and has elected to be taxed as a real estate investment trust (“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 (“Omega OP”). ~~Omega OP was formed as a limited partnership and organized in the State of Delaware on October 24, 2014.~~ Unless stated otherwise or the context otherwise requires, the terms “Omega”, the “Company,” “we,” “our” and “us” ~~means~~refer to Omega Healthcare Investors, Inc. and its consolidated subsidiaries, including Omega OP, ~~collectively.~~

~~Table~~references to “Parent” refer to Omega Healthcare Properties, Inc. without regard to its consolidated subsidiaries, and references to “Omega OP” mean OHI Healthcare Properties Limited Partnership and its consolidated subsidiaries. As of ~~Contents~~March 31, 2021, Omega owned approximately 97% of the issued and outstanding units of partnership interest in Omega OP (“Omega OP Units”), and investors owned approximately 3% of the 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 ~~skilled nursing facilities (“SNFs”)~~SNFs and ~~assisted living facilities (“ALFs”),~~ALFs, and to a lesser extent, independent living facilities (“ILFs”), rehabilitation and acute care facilities (“specialty facilities”) and medical office ~~buildings (“MOBs”).~~buildings. Our core portfolio consists of long-term leases and mortgage agreements. All of our leases are “triple-net” leases, which require the operators (we use the term “operator” to refer to our tenants and mortgagors and their affiliates who manage and/or operate our properties) to pay all property-related expenses. Our mortgage revenue derives from fixed rate mortgage loans, which are secured by first mortgage liens on the underlying real estate and personal property of the mortgagor. Our other investment income derives from fixed and variable rate loans to our operators and/or their principals to fund 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.

~~Omega OP is governed by~~COVID-19 Pandemic Update

For the Second Amended and Restated Agreement of Limited Partnership of OHI Healthcare Properties Limited Partnership, dated as of April 1, 2015 (the “Partnership Agreement”). Omega has exclusive control over Omega OP’s day-to-day management pursuant to the Partnership Agreement. As of Marchyear ended December 31, 2020 ~~Omega owned approximately 97% of the issued~~ and ~~outstanding units of partnership interest in Omega OP (“Omega OP Units”), and investors owned approximately 3% of the Omega OP Units.~~

Omega’s consolidated financial statements include the accounts of (i) Omega, (ii) Omega OP, (iii) all direct and indirect wholly owned subsidiaries of Omega and (iv) other entities in which Omega or Omega OP has a majority voting interest and control. All intercompany transactions and balances have been eliminated in consolidation, and Omega’s net earnings are reduced by the portion of net earnings attributable to noncontrolling interests. Omega OP’s consolidated financial statements include the accounts of (i) Omega OP, (ii) all direct and indirect wholly owned subsidiaries of Omega OP and (iii) other entities in which Omega OP has a majority voting interest and control. All intercompany transactions and balances have been eliminated in consolidation. Omega OP’s net earnings are reduced by the portion of net earnings attributable to the noncontrolling interest.

As of March 31, 2020, our portfolio of real estate investments consisted of 985 healthcare facilities, located in 40 states and the U.K. and operated by 70 third-party operators. Our investment in these facilities, net of impairments and allowances, totaled approximately $9.7 billion at March 31, 2020, with approximately 97% of our real estate investments related to long-term care facilities. Our portfolio is made up of 778 SNFs, 115 ALFs, 29 specialty facilities, two medical office buildings, fixed rate mortgages on 47 SNFs, two ALFs and four specialty facilities and eight facilities that are held for sale. At March 31, 2020, we also held other investments of approximately $424.7 million, consisting primarily of secured loans to third-party operators of our facilities and $194.4 million of investments in five unconsolidated joint ventures.

~~As of March 31, 2020 and December 31, 2019, we do not have any material properties or operators with facilities that are not materially occupied.~~

~~While the COVID-19 pandemic did not materially impact our rental revenue~~ for the first quarter ~~and~~of 2021, we have collected substantially all of ~~our~~the contractual rents ~~due in April,~~owed to us from our operators (other than operators under a forbearance agreement prior to the pandemic). However, the COVID-19 pandemic ~~is having~~continues to have a significant impact on our operators. As of April ~~30, 2020,~~27, 2021, our operators reported ~~4,136 total confirmed~~ cases of COVID-19 inwithin 212, or 22%, of our 949 operating facilities as of December 31, 2020, which includes cases involving employees and ~~residents, including patients known to be positive at~~residents. This represents a meaningful decline in cases from the ~~time~~614 facilities with cases, or 64% of ~~admission from a hospital or healthcare center. The total cases are within 250~~our 959 operating facilities, that our operators reported as of ~~April 30, 2020, or 25.9%, of our 966 operating facilities as of March 31,~~December 22, 2020. The total confirmed cases reported by our operators may not be adjusted downward for recoveries, discharges or deaths, and may be significantly lower than or different from actual cases based on the availability of testing and the lag time involved in testing and reporting, as well as the accuracy of reporting. We caution that we have not independently validated such facility virus incidence information, it may be reported on an inconsistent basis by our operators, and we can provide no assurance regarding its accuracy or that there have not been any changes since the time the information was obtained from our operators; we also undertake no duty to update this information. While we believe the decline in reported cases noted above is due in large part to vaccination programs for COVID-19 which have been implemented in many of our facilities, it remains uncertain when and to what extent these vaccination programs will continue to mitigate the effects of COVID-19 in our facilities, or how effective existing vaccines will be against variants of the COVID-19 virus. The impact of these programs will depend in part on the continued speed, distribution, efficacy and delivery of the vaccine in our facilities, as well as participation levels in vaccination programs among the residents and employees of our operators. Our operators have reported considerable variation in participation levels among both employees and residents, which may change over time as additional vaccination clinics are held.

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~~We believe many~~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 rapidly throughout the pandemic 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, personal protective equipment (“PPE”), quality of care, visitation protocols, staffing levels, and reporting, among other regulations, throughout the pandemic. Many of our operators have ~~incurred~~reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of ~~personal protective~~PPE, testing equipment and ~~supplies.~~processes and supplies, as well as implementation of new infection control protocols and vaccination programs. In ~~terms of occupancy levels, we believe~~addition, many of our operators ~~are~~have reported experiencing declines, in some cases that are material, in occupancy levels as a result of the pandemic, which declines on average appear to be stabilizing. We believe these declines may be in part due to COVID-19 related fatalities at the ~~elimination~~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, ~~which drive post-acute skilled nursing admissions.~~ fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs.

While ~~we cannot at this time estimate~~substantial government support, primarily through the ~~net impact going forward, we believe that government relief measures at~~federal CARES Act in the U.S. and distribution of PPE, vaccines and testing equipment by federal and state ~~levels, including expanded Medicaid reimbursements, may offer meaningful~~governments, has been allocated to SNFs and to a lesser extent to ALFs, further government support will likely be needed to continue to offset ~~a portion of~~ these ~~cost increases~~impacts. It is unclear whether and ~~impacts~~to what extent such government support will continue to be sufficient and timely to offset these impacts. In particular, it remains unclear as to whether unallocated funds under the 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 health care operators or our operators, or whether additional Medicaid funds under the recently enacted American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) 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 certain of our operators would 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. Citing in part the impact of the COVID-19 pandemic and uncertainties regarding the continuing availability of sufficient government support, during the third and fourth quarters of 2020, four of our operators indicated in their financial statements substantial doubt regarding their ability to continue as going concerns.

There are a number of uncertainties we face as we consider the potential impact of COVID-19 on our business, including how long census disruption and elevated COVID-19 costs will last, the impact of vaccination programs and participation levels in those programs in reducing the spread of COVID-19 in our facilities, and the extent to which funding support from the federal government and the states will continue to offset these incremental ~~costs. We also do not know the number of Omega facilities~~costs as well as lost revenues. Notwithstanding vaccination programs, we expect that will ultimately experience widespread, high-cost outbreaks of COVID-19, and while we have requested reporting from operators of their numbers of cases, and CMS has required additional reporting by operators, we may not receive accurate information on the number of cases and may experience a lag in reporting. We expect to see increasedheightened clinical protocols for infection control within facilities ~~and the monitoring of employees, guests and others entering 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.

~~As such, while~~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 ~~visibility into~~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, ~~as well as~~ the potential support our operators may request from ~~us.~~

~~Given this uncertainty, we have taken several steps during~~us and ~~following~~ the ~~first quarter~~future demand for needs-based skilled nursing care and senior living facilities. We continue to ~~enhance our capital position as a precautionary measure, including a partial draw on our $1.25 billion revolving credit facility in~~monitor the ~~amount~~impact of ~~$300 million during the first quarter, as well as entering into $400 million (notional amount) of 10-year interest rate swaps~~occupancy declines at ~~an average swap rate of 0.8675% that expire in 2024, which provides us with some cost certainty for the refinancing~~many of our ~~senior notes maturing in 2023. We believe our actions~~operators, and it remains uncertain whether and when demand and occupancy levels will return to date provide us with additional liquidity and flexibility to weather a potential pronounced and prolonged impact to our business, and as such, we maintained our dividend level of $0.67 per share for the first quarter dividend. However, we willpre-COVID-19 levels.

We continue to ~~evaluate~~monitor the impacts of other regulatory changes, as discussed in Item 1. Business – Government Regulation and Reimbursement, including any ~~additional steps that may be needed to maintain adequate liquidity.~~

~~Taxation~~

~~Omega is a REIT for United States federal income tax purposes, and Omega OP is a pass through entity for United States federal income tax purposes.~~

Since our inception, Omega has elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code (“Code”). A REIT is generally not subject to federal income tax on that portion of its REIT taxable income which is distributed to its stockholders, provided that at least 90% of such taxable income is distributed each tax year and certain other requirements are met, including asset and income tests. So long as we qualify as a REIT under the Code, we generally will not be subject to federal income taxessignificant limits on the ~~REIT taxable income that we distribute to stockholders, subject to certain exceptions.~~

~~If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes~~scope of services reimbursed and on ~~its taxable income at regular corporate~~reimbursement rates and ~~dividends paid to our stockholders will not be deductible by us in computing taxable income. Further, we would not be permitted to qualify for treatment as~~fees, which could have a ~~REIT for federal income tax purposes for four years following the year in~~material adverse effect on an operator’s results of operations and financial condition, which ~~qualification is denied, unless the Internal Revenue Service grants us relief under certain statutory provisions. Failing to qualify as a REIT~~ could ~~materially and~~ adversely affect ~~our net income; however, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT. We test our compliance within~~ the REIT taxation rules to ensure that we are in compliance with the REIT rules on a quarterly and annual basis. We review our distributions and projected distributions each year to ensure we have met and will continueoperator’s ability to meet ~~the annual REIT distribution requirements. In 2020, we expect~~its obligations to ~~pay dividends in excess of our taxable income.~~us.

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Subject to the limitation under the REIT asset test rules, we are permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries (“TRSs”). We have elected for five of our active subsidiaries to be treated as TRSs. Three of our TRSs are domestic and are subject to federal, state and local income taxes at the applicable corporate rates and the other two are subject to foreign income taxes. As of March 31, 2020, one of our TRSs that is subject to federal, state and local income taxes at the applicable corporate rates had a net operating loss carry-forward of approximately $5.7 million. Up to 100% of the net operating loss carry-forwards arising in taxable years ending prior to January 1, 2018, may be used to reduce taxable income for any taxable year during the eligible carry-forward period. Changes made by the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) limited the amount of net operating loss (“NOL”) carry-forward arising in tax years ending subsequent to December 31, 2018, to reduce 80% of taxable income for any taxable year during the eligible carry-forward period. Our NOL carry-forward was fully reserved as of March 31, 2020, with a valuation allowance due to uncertainties regarding realization. Under current law, our NOL carryforwards generated up through December 31, 2017 may be carried forward for no more than 20 years, and our net operating loss carryforward generated in our taxable years ended December 31, 2019 and December 31, 2018 may be carried forward indefinitely.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 modified the NOL carryforward rules applicable to certain of the NOL carryforwards possessed by our TRSs. First, the Act defers the application of 80% of taxable income limitation, which was added to the Code by the 2017 Act, to our TRS’s taxable years ended December 31, 2021, in addition to modifying the computation of the 80% limitation. Additionally, the CARES Act permits the carryback of NOLs generated by our TRSs in 2018, 2019, and 2020 for up to five years to offset taxable income reported in any of those prior tax years and recover income taxes paid in such prior tax years. Other provisions of the CARES Act may also impact the computation of taxable income by any of our TRSs or Omega and Omega OP. The modifications to the NOL carryback rules do not permit the carryback of a NOL by a REIT and, thus, will not impact Omega. We do not anticipate that such changes will impact materially the computation of Omega’s taxable income, or the taxable income of any Omega entity, including our TRSs. We also do not expect that Omega or any Omega entity, including our TRSs, will realize a material tax benefit as a result of the changes to the provisions of the Code made by the CARES Act.

For the three months ended March 31, 2020 and 2019, we recorded approximately $0.4 million and $0.2 million, respectively, of state and local income tax provisions. For the three months ended March 31, 2020 and 2019, we recorded approximately $0.6 million and $0.5 million, respectively, of tax provisions for foreign income taxes. The expenses were included in income tax expense on our Consolidated Statements of Operations.

Government Regulation and Reimbursement

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.~~regulations; we also have several U.K.-based operators that are impacted by 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.

~~Additionally,~~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, 2020. Except as discussed below, there have been no changes to the matters discussed therein that we believe materially impact us.

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 20, 2021, 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 could 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, ~~and temporary changes to regulations and reimbursement issued by the current administration in response to the 2019 novel coronavirus (“COVID-19”) pandemic~~ 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 ~~our~~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 new vaccine distributions on our operators and their populations, as well as the difference in how the pandemic may impact SNFs ~~as opposed~~in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict. Due to ~~the speed with which the situation is developing,~~these uncertainties, we are not able at this time to estimate the effect of these factors on our ~~business, but~~business; however, the adverse impact on our business, results of operations, financial condition and cash flows could be material.

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~~The following is a discussion of certain laws and regulations generally applicable to our operators, and in certain cases, to us.~~

~~Healthcare Reform~~. A substantial amount of rules and regulations have been issued under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the “Healthcare Reform Law”). The current administration has brought several Congressional efforts to repeal and replace the Affordable Care Act. We expect additional rules, regulations and judicial interpretations in response to legal and other constitutional challenges to be issued that may materially affect our operators’ financial condition and operations. Even if the Healthcare Reform Law is not ultimately amended or repealed, the current administration or Congress could propose changes impacting implementation of the Healthcare Reform Law. The ultimate composition and timing of any legislation enacted under the current administration that would impact the current implementation of the Healthcare Reform Law remains uncertain. Given the complexity of the Healthcare Reform Law and the substantial requirements for regulation thereunder, the impact of the Healthcare Reform Law on our operators or their ability to meet their obligations to us cannot be predicted, whether in its current form or as amended, repealed or interpreted.

~~Reform Requirements for Long-Term Care Facilities~~. As part of the Healthcare Reform Law, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule on October 4, 2016 modifying the conditions of participation in Medicare and Medicaid for SNFs. The extensive changes included provisions related to staff training, discharge planning, infection prevention and control programs, and pharmacy services, among others. While many of the regulations have become effective, the implementation and enforcement of some provisions, particularly with respect to the Quality Assurance Program Improvement (“QAPI”) and compliance and ethics related requirements of the Phase 3 regulations did not become effective until November 28, 2019.

~~Reimbursement Generally~~.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, which may result in reductions in reimbursement at both the federal and state levels. Additionally, new and evolving payor and provider programs, including but not limited to Medicare Advantage, dual eligible, accountable care organizations, and bundled payments could adversely impact our tenants’ and operators’ liquidity, financial condition or results of operations.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, which~~condition. Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely ~~affect~~impact our tenants’ and operators’ ~~ability~~liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government health care programs are currently, or will be in the future, sufficient to ~~meet~~fully reimburse the property operators for their ~~obligations~~operating and capital expenses.

The following is a discussion of recent developments regarding certain U.S. laws and regulations generally applicable to ~~us.~~ our operators, and in certain cases, to us, and their impact. This discussion supplements and should be read in conjunction with the information under the heading “Item 1. Business – Government Regulation and Reimbursement” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Reimbursement Changes Related to ~~COVID-19.~~ ~~SNFs have continued to be impacted by the Bipartisan Budget Act of 2018, which extended Medicare sequestration and Medicare reimbursement cuts to providers and plans by 2% across the board~~COVID-19:

U.S. Federal Stimulus Funds, through ~~2027. However,~~ the CARES Act ~~temporarily suspends Medicare sequestration for~~and Provider Relief Fund, Appropriating $178 Billion to Health Care Providers. In response to the ~~period~~pandemic, Congress enacted a series of May 1 through December 31, 2020, resulting in an increase in fee-for-service Medicare payments by approximately 2% as compared to what providers would have otherwise received during this period. In exchange for this temporary suspension, the CARES Act also extends the mandatory sequestration policy by an additional one year, i.e., through 2030.economic stimulus and relief measures throughout 2020. On March 18, 2020, the Families First Coronavirus Response Act was enacted ~~which provides~~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 ~~COVID-19~~ public health emergency ~~declared by~~terminates. States will make individual determinations about how this additional Medicaid reimbursement will be applied to SNFs, if at all.

In a further response to the U.S. Department of Health and Human Services (“HHS”), including any extensions, terminates. As part of the requirements for receiving the temporary FMAP increase, states must cover testing services and treatments for COVID-19 and may not impose deductibles, copayments, coinsurance or other cost sharing charges for any quarter in which the temporary increased FMAP is claimed.

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~~Additionally,~~pandemic, the CARES Act ~~allocates $100 billion~~authorized approximately $178 Billion to abe distributed through the Public Health and Social Services Emergency Fund (“Provider Relief Fund”) to ~~“reimburse, through grants or other mechanisms,~~reimburse eligible ~~health care~~healthcare providers for health care related expenses or lost revenues that are attributable to coronavirus.~~” Nursing facility operators participating in Medicare and Medicaid may be eligible to receive compensation for costs incurred in~~ The Provider Relief Fund is administered under the course of providing medical services, such as those related to obtaining personal protecting equipment, COVID-19 related testing supplies, and increased staffing or training, provided that such costs are not compensated by another source. While “lost revenue” is not defined in the CARES Act, it is anticipated that it could include lost revenue due to a decrease in resident census or a change in the margin of services provided to residents. The secretary of the Department of Health and Human Services has broad authority and discretion of HHS and recipients are not required to ~~determine payment eligibility~~repay distributions received to the extent they are used in compliance with applicable requirements.

HHS began distributing Provider Relief Fund grants in April 2020 and ~~the amount~~has made grants available to various provider groups in three general phases. In May 2020, HHS announced that approximately $9.5 Billion in targeted distributions would be made available to eligible skilled nursing facilities, approximately $2.5 Billion of ~~such payments. Further, Congress appropriated $75~~which were composed of performance-based incentive payments tied to a facility’s infection rate. Approximately $8.5 billion ~~for healthcare providers through the Paycheck Protection Program and Health Care Enhancement Act. HHS is distributing this money through~~in additional funds were added to the Provider Relief Fund through the American Rescue Plan Act enacted on March 11, 2021; however, these funds are limited to rural providers and ~~these payments do not need to be repaid. While we believe~~suppliers.

As of March 15, 2021, based on data published by HHS, it appears that ~~to date, the payouts under~~less than $29 billion of the Provider Relief Fund remains unallocated. HHS continues to evaluate and ~~Public Health~~provide allocations of, and ~~Social Services Emergency Fund have primarily benefited Medicare providers as opposed to Medicaid providers~~issue regulations and ~~have provided limited support to senior housing operators, we cannot predict~~guidance regarding, grants made under the CARES Act and related legislation. There are substantial uncertainties regarding the extent to which ~~any of~~ our operators will receive ~~such~~ funds which have not been allocated, whether additional funds will be allocated to the Provider Relief Fund, health care providers or senior care providers and ~~what~~whether additional payments will be distributed to providers, the financial impact of receiving ~~such~~any of these funds ~~would be~~ on their ~~operations.~~ operations or financial condition, and whether operators will be able to meet the compliance requirements associated with the funds. HHS continues to evaluate and provide allocations of, and issue regulation and guidance regarding, grants made under the CARES Act.

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 must repay. 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, 2021, but also extended sequestration through 2030. 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 ~~the end of the calendar year. Instead of depositing these taxes on a next-day or semi-weekly basis, the deposit due date for~~December 31, 2020 to December 31, 2021 with respect to 50% of the payroll taxes ~~is deferred to December 31, 2021,~~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 an effort to increase cash flow to providers impacted by COVID-19, CMS had temporarily expanded the Accelerated and Advance Payment Programs on March 28, 2020. CMS is authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider or supplier who submits a request to the appropriate Medicare Administrative Contractor (“MAC”) and meets the required qualifications. Traditionally repayment of these advance/accelerated payments is set to begin at 90 days, however CMS has extended the repayment of these accelerated/advance payments to begin 120 days after the date of issuance of the payment. However, CMS announced on April 26, 2020 that it would not be accepting any new applications for the Advance Payment Program and would be reevaluating all pending and new applications for Accelerated Payments in consideration of the direct payments made available to providers through the HHS Provider Relief Fund. We cannot predict the impact of these programs on the business or financial condition of any of our operators.

In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and the ~~current administration announced several~~first quarter of 2021 focused on addressing quality of care ~~related initiatives on April 30, 2020 related to addressing the COVID-19 pandemic~~ in long-term care ~~facilities. One~~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 ~~the initiatives is the formation of the Coronavirus Commission for Safety and Quality in Nursing Homes, a special task force created for the purpose of addressing the rising death toll of residents in~~ nursing homes. The task force will be composed of leading industry experts, doctors and scientists, resident and patient advocates, family members, infection and prevention control specialists, and state and local authorities. A second announcement was made which advised that the Federal Emergency Management Agency would begin shipping two weeks’ worth of personal protective equipment (“PPE”) to each of the nation’s 15,400 nursing homes, with all nursing homes receiving a total of 14 days’ worth of PPE no later than July 4, 2020. Quantities shipped will be based on facility staffing levels and PPE usage rates. The current administration additionally released an interim final regulation regarding the requirement for nursing home operators to report COVID-19-related data directlyFor example, recent updates to the ~~Centers for Disease Control~~Nursing Home Care website and ~~Prevention in addition~~the Five Star Quality Rating System include revisions to ~~CMS. Nursing home providers will be required to report infections~~the inspection process, adjustment of staffing rating thresholds and death data at least weekly to federal authorities, and by 5 p.m. the next day to residents and family members. An additional announcement was made that CMS will provide states with $81 million from the CARES Act to increase their inspections of nursing homes.

~~Medicaid. State budgetary concerns, coupled with~~ the implementation of ~~rules under~~new quality measures. Although the ~~Healthcare Reform Law,~~American Rescue Plan Act did not allocate specific funds to SNF or ~~prospective changes~~assisted living facility providers, approximately $200 million was allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs.

On June 16, 2020, the ~~Healthcare Reform Law under~~U.S. House of Representatives Select Subcommittee on the ~~current administration or Congress, may~~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 the first quarter of 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. health care system, including the impact on quality of care provided within the skilled nursing industry. These hearings could result in ~~significant changes~~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 ~~healthcare spending at~~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 ~~level. Additionally,~~to allocate matching funds and to comply with the ~~need to control Medicaid expenditures may be exacerbated by~~new requirements, the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 ~~pandemic.~~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. 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 ~~could~~has in the past and may in the future adversely affect our operators’ results of operations and financial condition, which in turn could ~~negatively~~adversely impact us.

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In the state of Florida, the average Medicaid reimbursement rate for SNFs decreased 4.5% effective July 1, 2019, resulting from the loss of one-time discretionary funding applied to October 1, 2018 Florida Medicaid reimbursement rates to cover the impact of hold-harmless provisions in the new, price-based Prospective Payment System (“PPS”) enacted by Florida at that time. However, the net impact of this rate decrease was to revert the average rate approximately to the pre-PPS, cost-based level as of September 30, 2018, which we believe operators can generally address with operational adjustments to maintain coverage levels. A smaller discretionary increase effective October 1, 2019 will increase the average rate by 0.7%. When the transition hold-harmless provisions expire on September 30, 2021, the PPS rates will no longer be dependent on discretionary funding levels. At March 31, 2020, 14% of our investments were in Florida.

Texas, which represents 10% of our investments as of March 31, 2020, presents a difficult operating environment for SNF operators as a result of lower statewide occupancy levels, as compared to other states, and a Medicaid rate reimbursement that we believe is among the lowest in the United States. Several of our operators have experienced lower operating margins on their SNFs in Texas, as compared to other states, as a result of the foregoing and labor costs.

Medicare.Additionally, in mid-November 2019, CMS proposed the Medicaid Fiscal Accountability Rule (“MFAR”), which would modify and refine the current federal portion of Medicaid funding for two programs commonly referred to as the upper payment limit (“UPL”) and provider taxes. As proposed, MFAR would further regulate and in some cases materially reform, eliminate or prompt the replacement of certain state Medicaid supplemental payment systems and other allowable financing arrangements that currently benefit healthcare providers. We have operators in two states, Indiana and Texas, that participate in UPL programs and operators in 36 states who received provider tax reimbursements as of March 31, 2020. Based on our analysis of MFAR and discussions with our operators and other industry leaders, we believe MFAR as proposed would eliminate the incremental UPL funds and that most, if not all, states are or will be able to become compliant under the revised provider tax program. We cannot estimate the ultimate potential impact of MFAR on our facilities in Indiana and Texas at this time, in part as we expect any reductions in revenues may be at least partially offset by expense reductions. The proposed MFAR is currently in a comment period and may be changed before a final rule is adopted, or may not be adopted at all. If ultimately implemented, MFAR could reduce reimbursement to our operators in those states affected by the rule, which could ultimately have a material adverse effect on the financial condition of those operators.

~~Medicare~~. On July 30, 2019, CMS issued a final rule regarding the government fiscal year (“FY”) 2020 Medicare payment rates and quality payment programs for SNFs, with aggregate payments projected to increase by $851 million, or 2.4 percent, for FY 2020 compared to FY 2019. This estimated reimbursement increase is attributable to a 2.8% market basket increase factor with a 0.4% reduction for the multifactor productivity adjustment mandated by the Improving Medicare Post-Acute Care Transformation Act of 2014 (“IMPACT Act”). 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 (“QRP”). The CMS also adopted two new quality measures in FY 2020 to assess whether certain health information is provided by the SNF at the time of transfer or discharge. The two measures are: 1) Transfer of Health Information to the Provider-Post-Acute Care and 2) Transfer of Health Information to the Patient-Post-Acute Care.

Payments to providers ~~are being~~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, ~~rather than the volume of services the patient receives,~~ became effective October 1, ~~2019 (FY 2020). The PDPM replaces the previous SNF prospective payment system~~2019. Prior to COVID-19, we believed that ~~utilized the Resource Utilization Group IV case-mix methodology to classify SNF patients based on the volume of services received with a methodology that utilizes the~~ ~~International Statistical Classification of Diseases and Related Health Problems (“~~ICD-10”) to classify SNF patients into certain payment groups based on their clinical disease state. Effective October 1, 2019, group therapy is defined as a qualified rehabilitation therapist or therapy assistant treating two to six patients at the same time who are performing the same or similar activities. Also effective October 1, 2019, CMS established a 25% cap for concurrent and group therapy. Additional changes to reimbursement for group therapy were included in the Bipartisan Budget Act of 2018, which permanently repealed the therapy caps that applied to Medicare Part B therapy services provided as of January 1, 2018 and reduced the reimbursement rate for Medicare Part B therapy services performed by therapy assistants to 85% of the physician fee schedule beginning January 1, 2022. The former cap amounts were retained as a threshold above which claims must include confirmation that services are medically necessary as justified by appropriate documentation in the medical record.

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~~While~~ certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some ~~have~~had reported ~~some~~ early positive ~~results, it is too early to assess the long-term impact of the PDPM.~~results. Given the ~~current and~~ 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~~value based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act, which became effective on October 1, 2018. These reimbursement changes ~~could~~have had and may, together with any further reimbursement changes to PDPM, in the future have an adverse effect on ~~our operators’~~the operations and financial condition of some operators and ~~operations,~~could adversely ~~impacting their~~impact the ability of operators to meet their obligations to us.

~~Quality~~Table of ~~Care Initiatives~~Contents

. In addition to quality or value based reimbursement reforms, CMS has implemented a number of initiatives focused on the reporting of certain facility specific quality of care indicators that could affect our operators. Since December 2008, CMS has publicly released quality ratings for all of the nursing homes that participate in Medicare or Medicaid under its “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.

Recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process and the implementation of new quality measures. It is possible that these rating changes or any other ranking system could lead to future reimbursement policies that reward or penalize facilities on the basis of the reported quality of care parameters.

~~Office of the Inspector General Activities~~. The Office of Inspector General (“OIG”) 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 skilled nursing facilities. 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. Regional Recovery Audit Contractor program auditors along with the OIG and Department of Justice ~~are expected to continue their efforts to evaluate SNF Medicare claims for any excessive therapy charges.~~ and Other Enforcement Actions:

~~Department of Justice~~. 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”) launched ten regional Elder Justice Task Forces in 2016 which are coordinating and enhancing efforts to pursue SNFs that provide grossly substandard care to their residents. These Task Forces are composed of representatives from the U.S. Attorneys’ Offices, State Medicaid Fraud Control Units, state and local prosecutors’ offices, HHS, State Adult Protective Services agencies, Long Term Care Ombudsmen programs, and law enforcement. The DOJ has indicated that it is seeking to enhance the work of the Elder Justice Initiative to identify potential criminal charges when they uncover false claims for government reimbursements of care. The DOJ’s civil division 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.

~~Medicare and Medicaid Program Audits.~~ Governmental agencies and their agents, such as the Medicare Administrative Contractors, fiscal intermediaries and carriers, as well as the OIG, CMS and state Medicaid programs, may conduct audits of our operators’ billing practices. Under the Recovery Audit Contractor (“RAC”) program, CMS contracts For example, California prosecutors announced in March 2021 an investigation into a skilled nursing provider that is affiliated with RACs on a contingency basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program, to managed Medicare plans and in the Medicaid program. CMS also employs Medicaid Integrity Contractors (“MICs”) to perform post-payment audits of Medicaid claims and identify overpayments. In addition to RACs and MICs, the state Medicaid agencies and other contractors have increased their review activities. Should anyone of our operators, ~~be found out~~alleging the chain manipulated the submission of ~~compliance~~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 ~~laws, regulations~~enforcement activities or ~~programs,~~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, ~~financial position and~~ results of operations ~~could be negatively impacted.~~

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~~Fraud~~ and ~~Abuse~~. There are various federal and state civil and criminal laws and regulations governing a wide array of healthcare provider referrals, relationships and arrangements, including laws and regulations prohibiting fraud by healthcare providers. Many of these complex laws raise issues that have not been clearly interpreted by the relevant governmental authorities and courts.cash flows.

These laws include: (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state healthcare programs; (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid Anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services, such as services provided in a SNF; (iii) federal and state physician self-referral laws (commonly referred to as the Stark Law), which generally prohibit referrals by physicians to entities for designated health services (some of which are provided in SNFs) with which the physician or an immediate family member has a financial relationship; (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services and (v) federal and state privacy laws, including the privacy and security rules contained in the Health Insurance Portability and Accountability Act of 1996, which provide for the privacy and security of personal health information.

Violations of healthcare fraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. Additionally, there are criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, as well as failing to refund overpayments or improper payments. Violation of the Anti-kickback statute or Stark Law may form the basis for a federal False Claims Act violation. These laws are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or whistleblower actions, which have become more frequent in recent years.

Several of our operators have responded to subpoenas and other requests for information regarding their operations in connection with inquiries by the Department of Justice or other regulatory agencies. In addition, MedEquities Realty Trust, Inc., which we acquired in May 2019, has responded to a Civil Investigative Demand from the Department of Justice in connection with Lakeway Regional Medical Center. See ~~Note 16 – Commitments and Contingencies~~.

~~Privacy~~. Our operators are subject to various federal, state and local laws and regulations designed to protect the confidentiality and security of patient health information, including the federal Health Insurance Portability and Accountability Act of 1996, as amended, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and the corresponding regulations promulgated thereunder (collectively referred to herein as “HIPAA”). The HITECH Act expanded the scope of these provisions by mandating individual notification in instances of breaches of protected health information, providing enhanced penalties for HIPAA violations, and granting enforcement authority to states’ Attorneys General in addition to the HHS Office for Civil Rights (“OCR”). Additionally, in a final rule issued in January 2013, HHS modified the standard for determining whether a breach has occurred by creating a presumption that any non-permitted acquisition, access, use or disclosure of protected health information is a breach unless the covered entity or business associate can demonstrate through a risk assessment that there is a low probability that the information has been compromised.

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Various states have similar laws and regulations that govern the maintenance and safeguarding of patient records, charts and other information generated in connection with the provision of professional medical services. These laws and regulations require our operators to expend the requisite resources to secure protected health information, including the funding of costs associated with technology upgrades. Operators found in violation of HIPAA or any other privacy law or regulation may face significant monetary penalties. In addition, compliance with an operator’s notification requirements in the event of a breach of unsecured protected health information could cause reputational harm to an operator’s business.

~~Licensing and Certification~~. Our operators and facilities are subject to various federal, state and local licensing and certification laws and regulations, including laws and regulations under Medicare and Medicaid requiring operators of SNFs and ALFs to comply with extensive standards governing operations. Governmental agencies administering these laws and regulations regularly inspect our operators’ facilities and investigate complaints. Our operators and their managers receive notices of observed violations and deficiencies from time to time, and sanctions have been imposed from time to time on facilities operated by them. In addition, many states require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, expansion or closure of certain healthcare facilities, which has the potential to impact some of our operators’ abilities to expand or change their businesses.

~~Americans with Disabilities Act (the “ADA”)~~. Our properties must comply with the ADA and any similar state or local laws to the extent that such properties are public accommodations as defined in those statutes. The ADA may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Should barriers to access by persons with disabilities be discovered at any of our properties, we may be directly or indirectly responsible for additional costs that may be required to make facilities ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. Our commitment to make readily achievable accommodations pursuant to the ADA is ongoing, and we continue to assess our properties and make modifications as appropriate in this respect.

~~Other Laws and Regulations~~. Additional federal, state and local laws and regulations affect how our operators conduct their operations, including laws and regulations protecting consumers against deceptive practices and otherwise generally affecting our operators’ management of their property and equipment and the conduct of their operations (including laws and regulations involving fire, health and safety; quality of services, including care and food service; residents’ rights, including abuse and neglect laws; and the health standards set by the federal Occupational Safety and Health Administration). It is anticipated that our operators will continue to face additional federal and state regulatory requirements related to the operation of their facilities in response to the COVID-19 pandemic.

~~General and Professional Liability.~~ Although arbitration agreements have been effective in limiting general and professional liabilities for SNF and long term care providers, there have been numerous lawsuits in recent years challenging the validity of arbitration agreements in long term care settings. Effective November 28, 2016, CMS had instituted a prohibition against the use of pre-dispute arbitration agreements between SNFs and residents, thereby increasing potential liabilities for SNFs and long-term care providers. On July 16, 2019, CMS lifted the ban on pre-dispute arbitration agreements offered to residents at the time of admission provided that certain requirements are met. The rule prohibits providers from requiring residents to sign binding arbitration agreements as a condition for receiving care and requires that the agreements specifically grant residents the explicit right to rescind the agreement within thirty calendar days of signing. In addition, certain states have enacted protections from certain types of liability in connection with the provision of COVID-19 related services provided by SNFs and other healthcare providers.

~~Table of Contents~~

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States, and a summary of our significant accounting policies is included in Note 2 – Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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 most critical accounting policies in our ~~2019~~2020 Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

There have been no material changes to our critical accounting policies or estimates since December 31, 2019, except for the changes that resulted from the adoption of the new credit loss accounting standard on January 1, 2020, as discussed in detail in Note 1 – Basis of Presentation and Significant Accounting Policies, section “Accounting Pronouncements Adopted in 2020” of these unaudited consolidated financial statements under Part 1, Item 1 of this report and the accompanying discussion of the credit loss accounting guidance below.2020. See also Note 2 – Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~Accounting Pronouncements Adopted in 2020~~

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 specifically excludes from its scope receivables arising from operating leases accounted for under Topic 842. We adopted ASU 2016-13 on January 1, 2020 using the modified retrospective approach. Upon adoption, we recorded an initial $28.8 million allowance for expected credit losses with a corresponding adjustment to equity.

~~Transition Impact of adopting Topic 326~~

Pre-adoption balance as of

Impact of adopting

Post-adoption balance as of
Financial Statement Line Item

December 31, 2019

Topic 326

January 1, 2020

(in thousands)
Mortgage Notes Receivable
$
773,563
$
(21,386)
$
752,177
Investment in Direct Financing Leases

11,488

(611)

10,877
Other Investments

419,228

(6,688)

412,540
Off-Balance Sheet Commitments

20,777

(100)

20,677
Total
$
1,225,056
$
(28,785)
$
1,196,271

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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, ~~2020~~2021 and ~~2019~~2020

~~Operating~~ Revenues

Our ~~operating~~ revenues for the three months ended March 31, ~~2020~~2021 totaled ~~$253.0~~$273.8 million, an increase of ~~$29.3~~approximately $20.7 million over the same period in ~~2019.~~2020. The ~~$29.3~~$20.7 million increase was primarily the result of (i) a ~~$10.3~~$26.8 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions, (ii) a $4.9 million increase in rental income resulting from the ~~May 17, 2019, merger with MedEquities Realty Trust, Inc. (the “MedEquities Merger”), $18.1~~acceleration of certain in-place lease liabilities, and (iii) a $1.0 million ofincrease in other investment income primarily related to new mortgages or notes and additional funding to existing operators. These increases were partially offset by (i) a $8.6 million decrease in rental income resulting from ~~the October 31, 2019, $735~~placing operators on cash basis of revenue recognition and (ii) a $3.6 million acquisition of 60 SNFs (the “Encore Portfolio Acquisition”) and $0.9 million of additional rental income from other facility acquisitions, facilities placed in service, facility transitions and lease amendments in 2019 and 2020, offset by decreasesdecrease in rental income resulting from facility sales and rent from cash basis operators and (ii) a $1.6 million increase in mortgage income primarily related to mortgages acquired in the MedEquities Merger and new loans or notes and additional funding to existing operators made throughout 2019 and 2020. These increases were partially offset by a $1.3 million decrease in other investment income primarily related to a deed in lieu transitioned to leased property offset by new loans or notes and additional funding to existing operators made throughout 2019 and 2020.facility transitions.

~~Operating~~ 39

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Expenses

~~Operating expenses~~Expenses for the three months ended March 31, ~~2020~~2021 totaled ~~$107.1~~$191.2 million, an increase of approximately ~~$5.6~~$28.8 million over the same period in ~~2019.~~2020. The ~~$5.6~~$28.8 million increase was primarily due to: (i) a ~~$11.8 million increase in depreciation expense primarily resulting from facilities acquired in the MedEquities Merger, the Encore Portfolio Acquisition and other facility acquisitions, (ii) a $3.6~~$25.1 million increase in impairment on real estate properties related to four facilities in the first quarter of 2021 (compared to three facilities during the same period in 2020) to reduce their book values to their estimated fair value less costs to sell or fair value, ~~and~~ (ii) a ~~$1.5~~$3.1 million increase in interest expense primarily resulting from the issuance during the fourth quarter of 2020 of the $700 million of Senior Notes due 2031 and the issuance during the first quarter of 2021 of the $700 million of Senior Notes due 2033, partially offset by the retirement of term loans in the fourth quarter of 2020, (iii) a $2.2 million increase in depreciation expense primarily resulting from facility acquisitions and capital additions, offset by facility sales and facilities reclassified to assets held for sale, and (iv) a $2.0 million increase in acquisition, merger and transition related ~~to our provision for credit losses.~~costs primarily resulting from the Daybreak transition. These increases were partially offset by (i) a ~~$3.2~~$1.0 million recovery for credit losses primarily resulting from decreases in average time to maturity, decreases in loss rates, and decreases in loan balances compared to a $1.5 million provision for credit losses during the same period in 2020 and (ii) a $0.9 million decrease in ~~acquisition~~real estate taxes primarily related to facility sales and ~~merger related costs from the MedEquities Merger and (ii) a $7.7 million decrease in impairments on our direct financing leases.~~transitions.

Other Income (Expense)

For the three months ended March 31, ~~2020,~~2021, total other ~~expenses were $56.0~~income was $70.9 million, an increase of approximately ~~$6.0~~$69.9 million over the same period in ~~2019.~~2020. The increase was mainly due to a ~~(i) $4.6~~$98.5 million increase in ~~interest expense~~gain on assets sold related to the sale of 24 facilities in the first quarter of 2021 compared to the sale of six facilities during the same period in 2020 offset by a $29.7 million increase in loss on debt extinguishment primarily related to ~~increased debt balances resulting from our investments during 2019, which includes the HUD debt assumed in the fourth quarter of 2019~~fees, premiums, and ~~(ii) a $1.1 million increase in interest income and other - net primarily~~expenses related to the ~~change in~~purchase of $350 million of the ~~fair value~~4.375% Senior Notes due 2023 during the first quarter of ~~warrants to acquire shares of another public company.~~2021.

National Association of Real Estate Investment Trusts Funds From Operations

Our funds from operations (“Nareit FFO”) for the three months ended March 31, ~~2020~~2021 was ~~$181.0~~$170.2 million compared to ~~$144.1~~$181.0 million for the same period in ~~2019.~~ 2020.

~~Table of Contents~~

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”), and, consequently, 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. We believe that Nareit FFO is an important supplemental measure of our operating performance. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), 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.

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Nareit FFO is a non-GAAP financial measure. We use Nareit FFO as one of several criteria to measure the operating performance of our business. We further believe that by excluding the effect of depreciation, amortization, impairment on real estate assets and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Nareit FFO can facilitate comparisons of operating performance between periods and between other REITs. We offer this measure to assist the users of our financial statements in evaluating our financial performance under GAAP, and Nareit FFO should not be considered a measure of liquidity, an alternative to net income or an indicator of any other performance measure determined in accordance with GAAP. Investors and potential investors in our securities should not rely on this measure as a substitute for any GAAP measure, including net income.

The following table presents our Nareit FFO results for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended

March 31,


2020

2019

(in thousands)
Net income

$
92,279

$
72,182
Deduct gain from real estate dispositions

(1,838)

(3)
Deduct gain from real estate dispositions - unconsolidated joint ventures

(117)

—

90,324

72,179
Elimination of non-cash items included in net income:


Depreciation and amortization

82,643

70,852
Depreciation – unconsolidated joint ventures

3,632

1,372
Add back impairments on real estate properties

3,639

—
Add back (deduct) unrealized loss (gain) on warrants

775

(284)
Nareit FFO ^(a)

$
181,013

$
144,119

~~(a)~~

~~Includes amounts allocated to Omega stockholders and Omega OP Unit holders.~~


	Three Months Ended
	March 31,
	2021		2020

	(in thousands)
Net income	$	164,366	$	92,279
Deduct gain from real estate dispositions		(100,342)		(1,838)
Deduct gain from real estate dispositions - unconsolidated joint ventures		(14,924)		(117)
		49,100		90,324
Elimination of non-cash items included in net income:
Depreciation and amortization		84,849		82,643
Depreciation – unconsolidated joint ventures		3,361		3,632
Add back impairments on real estate properties		28,689		3,639
Add back impairments on real estate properties - unconsolidated joint ventures		4,178		—
Add back unrealized loss on warrants		72		775
Nareit FFO	$	170,249	$	181,013

Portfolio and Recent Developments

The following ~~tables summarize~~table summarizes the significant asset acquisitions that occurred during the first three months of ~~2020:~~2021:



	Number of						Total				Building & Site		Furniture	Initial		Number of				Total			Initial
	Facilities				Country/	Investment			Land		Improvements		& Fixtures	Annual		Facilities			Country/	Investment			Annual
Period	SNF	ALF	Specialty	MOB	State		(in millions)							Cash Yield⁽¹⁾		SNF	ALF	Specialty	State	(in millions)			Cash Yield⁽¹⁾
Q1	—	2	—	—	UK	$	12.1	$	3.6	$	8.0	$	0.5	8.00	%	—	17	7	AZ, CA, FL, IL, NJ, OR, PA, TN, TX, VA, WA	$	511.3	⁽²⁾	8.43	%
Q1	1	—	—	—	IN		7.0		0.7		5.8		0.5	9.50	%	6	—	—	FL		83.1		9.25	%
Total	1	2	—	—		$	19.1	$	4.3	$	13.8	$	1.0			6	17	7		$	594.4

(1)

The initial annual cash yield ~~is based on~~reflects the initial cash rent divided by the purchase price.

(2)

On January 20, 2021, we acquired 24 facilities from Healthpeak Properties, Inc. The acquisition involved the assumption of an in-place master lease with Brookdale Senior Living Inc.

Other Recent Developments

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Asset Held for Sale

As of March 31, ~~2020,~~2021, we have ~~eight~~6 facilities, totaling ~~$24.1~~$7.9 million classified as assets held for sale. We expect to sell these facilities over the next twelve months.

Asset Sales, Impairments, Contractual Receivables and Other Receivables and Lease Inducements

Asset Sales

During the first quarter of ~~2020,~~2021, we sold ~~six~~24 facilities subject to operating leases for approximately ~~$18.1~~$188.3 million in net cash proceeds, recognizing a net gain of approximately ~~$1.8~~$100.3 million.

Impairments

During the first quarter of ~~2020,~~2021, we recorded impairments on real estate properties of approximately ~~$3.6~~$28.7 million on ~~three facilities.~~four facilities (three were subsequently reclassified to assets held for sale). Our recorded impairments were primarily the result of decisions to exit certain non-strategic facilities and/or operators. We reduced the net book value of the impaired facilities to their estimated fair ~~values.~~values or, with respect to the facilities reclassified to held for sale, to their estimated fair values less costs to sell. To estimate the fair value of the facilities, we utilized a market approach which considered binding sale agreements (a Level 1 input) and/or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).

Contractual Receivables, ~~and~~ Other Receivables and Lease Inducements

AsA summary of ~~March 31, 2020,~~our net receivables by type is as follows:


	March 31,		December 31,
	2021		2020

	(in thousands)

Contractual receivables – net	$	11,428	$	10,408

Effective yield interest receivables	$	11,884	$	12,195
Straight-line rent receivables		143,599		139,046
Lease inducements		81,186		83,425
Other receivables and lease inducements	$	236,669	$	234,666

During the first quarter of 2021, we ~~have~~wrote-off approximately $27.4 million of contractual receivables outstanding. Of the $27.4 million of contractual receivables outstanding, approximately $18.2 million relates to Agemo Holdings LLC (“Agemo,” an entity formed in May 2018 to silo the leases and loans formerly held by Signature Healthcare). In addition to the contractual receivables, we have approximately $57.7$2.7 million of straight-line rent receivables and/or lease inducements associated with Agemo as of March 31, 2020. In May 2018, we reached an out-of-court restructuring agreement with Agemo that provided for the deferral of rent, the extension of the maturity of our lease and loans, and a working capital loan. If Agemo’s operations deteriorate and they are unable to ~~meet their contractual obligations to us, we may be required to account for~~ rental income ~~from them~~as a result of transitioning one facility and placing one operator on a cash basis due to changes in our evaluation of the collectibility of future rent payments due under the lease agreement.

Other Investments

Genesis

On March 6, 2018, we amended certain terms of our $48.0 million secured term loan with Genesis. The $48.0 million term loan bears interest at a fixed rate of 14% per annum, of which 9% per annum is paid-in-kind and ~~reserve approximately $75.9 million~~was initially scheduled to mature on July 29, 2020. The maturity date of contractual receivables, straight-line rent receivables and lease inducements. For the three months ended March 31, 2020 and 2019, we recorded rental income of approximately $15.3 million and $14.8 million, respectively, and other investment income of $1.2 million and $1.0 million, respectively, from Agemo.

In addition, we have accounted for Daybreak Venture LLC (“Daybreak”) on a cash basis of accounting since 2017. See “Daybreak” below. We have written-off our contractual rents receivable, straight-line rents receivable and lease inducements, and therefore, we have no net receivables or inducements related to Daybreak as of March 31, 2020. For the three months ended March 31, 2020, we did not record any rental income from Daybreak. For the three months ended March 31, 2019, we recorded rental income of $5.4 million from Daybreak.

~~Daybreak~~

~~Daybreak did not pay any rent to us~~this loan was extended during the first quarter of ~~2020. Additionally, we recorded impairments~~2021 to January 1, 2024. This term loan (and the $16.0 million term loan discussed below) is secured by a first priority lien on and security interest in certain collateral of Genesis. As of March 31, 2021, approximately ~~$1.7~~$66.7 million is outstanding on two Daybreak facilities that we expect to sell in 2020. We transitioned five Daybreak facilities to existing operators and two additional facilities transitioned from Daybreak to one of those existing operators in the second quarter of 2020. During the fourth quarter of 2019, we transitioned two Daybreak facilities to an existing operator. The total annual contractual rent from the nine transferred facilities is approximately $4.0 million. Over the next several quarters, we intend to selectively downsize Daybreak’s portfolio through sales or releasing. Accordingly, we are in ongoing discussions with several other Texas-based operators about selling and/or leasing several of the facilities. Any such transitions, will of course, be subject to third-party operator due diligence, regulatory approvals, legal documentation and the cooperation of Daybreak.

this term loan.

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~~While the ultimate outcome~~Also on March 6, 2018, we provided Genesis an additional $16.0 million secured term loan bearing interest at a fixed rate of 10% per annum, of which 5% per annum is paid-in-kind, and ~~timing~~was initially scheduled to mature on July 29, 2020. The maturity date of this ~~process~~loan was extended during the first quarter of 2021 to January 1, 2024. As of March 31, 2021, approximately $18.6 million is ~~difficult~~outstanding on this term loan.

Daybreak

During the first quarter of 2021, we transitioned 14 Daybreak facilities to ~~ascertain,~~existing operators and sold two Daybreak facilities. As of March 31, 2021, we had two remaining Daybreak facilities with a net book value of approximately $0.7 million, which we expect to ~~derive~~sell during the second quarter of 2021. The total annual rent or rent equivalents ~~of between $15 million to $20 million annually from our~~achieved through transitioning the Daybreak portfolio ~~following~~equal $16.6 million. On April 6, 2021, we terminated the ~~restructuring. However, our ability to implement such restructuring~~Daybreak master lease and secure the approvals necessary to do so, the timing and impact on Daybreak’s liquidity from each of the expected benefits discussed above should the portfolio restructuring occur, and the ultimate rental income following any potential transition of select Daybreak facilities to other operators, may be less favorable than expected, and there can be no assuranceexited that ~~such benefits or transition will occur. Should they not occur, we could be required to impair our remaining assets currently leased to Daybreak.~~

relationship.

We continue to closely monitor the performance of all of ~~its~~our operators, as well as industry trends and developments generally.

Liquidity and Capital Resources

At March 31, ~~2020,~~2021, we had total assets of ~~$10.0~~$9.8 billion, total equity of ~~$4.2~~$4.1 billion and debt of ~~$5.6~~$5.5 billion, representing approximately 56.9% of total capitalization.

Financing Activities and Borrowing Arrangements

$700 Million 3.250% Senior Notes due 2033

In March 2021, we issued $700 million aggregate principal amount of our 3.250% Senior Notes due 2033 (the “2033 Senior Notes”). The 2033 Senior Notes mature on April 15, 2033. The 2033 Senior Notes were sold at an issue price of 99.304% of their face value before the underwriters’ discount. We used the proceeds from this offering to pay down outstanding borrowings on the Revolving Line of Credit, repay the Sterling term loan, and fund the tender offer to purchase $350 million of the 4.375% Senior Notes due 2023 and the payment of accrued interest and related fees, premiums and expenses. In connection with this transaction, we recorded approximately $29.7 million in related fees, premiums, and expenses which were recorded as Loss on debt extinguishment in our Consolidated Statement of Operations.

$400 Million Forward Starting Swaps

On March 27, 2020, we entered into five forward starting swaps totaling $400 million. We designated the forward starting swaps as cash flow hedges of interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt, initially expected to occur within the next five years. The swaps are effective on August 1, 2023 and expire on August 1, 2033 and were issued at a fixed rate of approximately 0.8675%. In March 2021, in conjunction with the issuance of $700 million aggregate principal amount of our 3.25% Senior Notes due 2033, we discontinued hedge accounting for these five forward starting swaps. Amounts reported in Accumulated Other Comprehensive Income related to these discontinued cash flow hedging relationships will be reclassified to interest expense over a ten year term. Simultaneously, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments on another forecasted issuance of long-term debt. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of 46 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

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£174 Million Foreign Exchange Forward Starting Swaps

From the issuance date of our GBP borrowings through the prepayment date in March 2021, we used a nonderivative, GBP-denominated term loan and line of credit totaling £174 million to hedge a portion of our net investments in foreign operations. During March 2021 and concurrent with the settlement of our GBP-denominated term loan and repayment of our GBP denominated borrowings under our line of credit, we entered into four foreign currency forwards that mature on March 8, 2024 to hedge a portion of our net investments in foreign operations, effectively replacing the terminated net investment hedge. For these derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported in Accumulated Other Comprehensive Income as part of the cumulative translation adjustment. Amounts are reclassified out of Accumulated Other Comprehensive Income into earnings when the hedged net investment is either sold or substantially liquidated.

Supplemental Guarantor Information

Parent has issued approximately $4.9 billion aggregate principal of senior notes outstanding at March 31, 2021 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 ~~guarantor of Parent’s~~senior unsecured revolving and term loan credit facility, Omega OP term loan and the outstanding senior ~~notes, does not directly own any substantive assets other than its interest~~notes) and their investments in non-guarantor subsidiaries.

~~$200 Million Stock Repurchase Program~~

~~On March 20, 2020, Omega’s Board of Directors authorized~~Omega OP is currently the ~~repurchase of up to $200 million of its outstanding common stock from time to time over the twelve months ending March 20, 2021. We are authorized to repurchase shares~~sole guarantor of our ~~common stock in open market~~senior notes. The guarantees by Omega OP of our senior notes are full and ~~privately negotiated transactions or in~~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 ~~other manner as determined by Omega’s management and in accordance with applicable law. The timing and amount~~secured debt of ~~stock repurchases will be determined, in management’s discretion, based on a variety~~Omega OP. As of factors, including but not limited to market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. Omega has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time. Omega did not repurchase any of its outstanding common stock through March 31, ~~2020.~~ 2021, there were no significant restrictions on the ability of Omega OP to make distributions to Omega.

$500 Million Equity Shelf Program

~~For~~The table below presents information regarding the shares issued under the Equity Shelf Program for the three months ended March 31, 2020 and 2019, we issued approximately 49 thousand and 2.2 million, respectively, shares of our common stock at an average price of $37.58 per share and $34.46 per share, respectively, net of issuance costs, generating net proceeds of $1.8 million and $76.5 million, respectively, under our $500 million Equity Shelf Program. 2021:


	Shares issued	Average Price		Net Proceeds
Three Months Ended	(in millions)	Per Share		(in millions)
March 31, 2020	0.1	$	37.58	$	1.8
March 31, 2021	1.6		37.16		60.1

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Dividend Reinvestment and Common Stock Purchase Plan

~~On March 23, 2020, we announced that we suspended our~~The table below presents information regarding the shares issued under the Dividend Reinvestment and Common Stock Purchase ~~Plan. For~~Plan for the three months ended March 31, 2020 and 2019, we issued approximately 90 thousand and 0.9 million, respectively, shares of our common stock at an average price of $41.80 per share and $36.19 per share, respectively, through our Dividend Reinvestment and Common Stock Purchase Plan for gross proceeds of approximately $3.7 million and $32.3 million, respectively. 2021:


	Shares issued	Gross Proceeds
Three Months Ended	(in millions)	(in millions)
March 31, 2020	0.1	$	3.7
March 31, 2021	0.4		15.5

Commitments



Total commitments	$	657,512	$	596,615
Amounts funded to date⁽¹⁾		(509,880)		(454,837)
Remaining commitments(2)	$	147,632	$	141,778

(1)	Includes finance costs.

(2)	This amount excludes our remaining commitments to fund under our other investments of approximately $81.0 million.

Dividends

~~In order to qualify as~~As a REIT, we are required to distribute dividends (other than capital gain dividends) to our stockholders in an amount at least equal to (A) the sum of (i) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and our net capital gain), and (ii) 90% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income. In addition, if we dispose of any built-in gain asset during a recognition period, we will be required to distribute at least 90% of the built-in gain (after tax), if any, recognized on the disposition of such asset. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration. In addition, such distributions are required to be made pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that such class is entitled to such a preference. To the extent that we do not distribute all of our net capital gain or do distribute at least 90%, but less than 100% of our “REIT taxable income” as adjusted, we will be subject to tax thereon at regular ordinary and capital gain corporate tax rates.

For the three months ended March 31, ~~2020,~~2021, we paid dividends of approximately ~~$154.6~~$158.3 million to our common stockholders. On ~~the 14~~^th of February ~~2020,~~16, 2021, we paid dividends of $0.67 per outstanding common share to the common stockholders of record as of ~~last~~the close of business day of January 2020. For the three months ended March 31, 2020, Omega OP paid distributions of approximately $7.3 million to holders of Omega OP Units other than Omega. The Omega OP Unit holders received the same distributions per unit as those paid to the common stockholders of Omega.on February 8, 2021.

Liquidity

We believe our liquidity and various sources of available capital, including cash from operations, our existing availability under our credit facilities, existing equity sales programs, facility sales and expected proceeds from mortgage and other investment payoffs are adequate to finance operations, meet recurring debt service requirements and fund future investments through the next twelve months.

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We regularly review our liquidity needs, the adequacy of cash flow from operations, and other expected liquidity sources to meet these needs. We believe our principal short-term liquidity needs are to fund:

●

normal recurring expenses;

●

debt service payments;

●

capital improvement programs;

●

common stock dividends; and

●

growth through acquisitions of additional properties.

The primary source of liquidity is our cash flows from operations. Operating cash flows have historically been determined by: (i) the number of facilities we lease or have mortgages on; (ii) rental and mortgage rates; (iii) our debt service obligations; (iv) general and administrative expenses and (v) our operators’ ability to pay amounts owed. The timing, source and amount of cash flows provided by or used in financing activities and in investing activities are sensitive to the capital markets environment, especially to changes in interest rates. Changes in the capital markets environment may impact the availability of cost-effective capital and affect our plans for acquisition and disposition activity.

Cash, cash equivalents and restricted cash totaled ~~$352.0~~$55.9 million as of March 31, ~~2020, an increase~~2021, a decrease of ~~$318.6~~$111.7 million as compared to the balance at December 31, ~~2019.~~2020. 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 ~~$139.1~~$176.0 million of net cash flow for the three months ended March 31, ~~2020,~~2021, as compared to ~~$110.1~~$139.1 million for the same period in ~~2019,~~2020, an increase of ~~$29.0~~$36.9 million, which is primarily due to facility acquisitions and transitions, ~~acquired~~investments in mortgages and other ~~investments.~~ investments, and a reduction in lease inducements provided to our operators.

Investing Activities – Net cash flow from investing activities was an outflow of ~~$55.2~~$396.3 million for the three months ended March 31, ~~2020,~~2021, as compared to an ~~inflow~~outflow of ~~$72.1~~$55.2 million for the same period in ~~2019.~~2020. The ~~$127.3~~$341.1 million change in cash ~~provided by~~flow from investing activities related primarily to ~~(i) an $86.7 million decrease in proceeds from sale of direct financing lease and related trust, (ii)~~ a ~~$45.0 million change in other investments – net and (iii) a $13.2~~$575.4 million increase in real estate ~~acquisitions. Offsetting these changes was primarily~~acquisitions, offset by (i) a ~~$17.7~~$170.2 million increase in proceeds from the sales of real estate ~~investments.~~investments, (ii) a $35.0 million change in other investments – net, (iii) a $26.7 million decrease in investment in construction in progress and capital expenditures and (iv) a $2.5 million refund of an acquisition related deposit in the first quarter of 2021.

Financing Activities – Net cash flow from financing activities was an inflow of ~~$235.2~~$108.6 million for the three months ended March 31, ~~2020,~~2021, as compared to an ~~outflow~~inflow of ~~$152.6~~$235.2 million for the same period in ~~2019.~~2020. The ~~$387.7~~$126.6 million change in cash ~~used in~~provided by financing activities was primarily related to (i) a ~~$514.5~~$364.0 million change in our credit facility borrowings ~~(of which $300~~– net, (ii) a $33.8 million ~~was drawn as~~increase in payment of financing related costs and (iii) a ~~precautionary measure~~$3.7 million increase in ~~connection with COVID-19, as previously disclosed) – net~~dividends paid, offset by (i) a ~~$74.7~~$206.8 million ~~decrease~~change in other long-term borrowings – net, (ii) a $58.3 million increase in cash proceeds from the issuance of common stock in ~~2020,~~2021, as compared to the same period in ~~2019, (ii)~~2020 and (iii) a ~~$28.5~~$11.7 million ~~decrease~~increase in net proceeds from our dividend reinvestment plan in ~~2020,~~2021, as compared to the same period in ~~2019, (iii) an $18.0 million increase in dividends paid and (iv) a $4.1 million change in other long-term borrowings – net.~~

2020.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

During the quarter ended March 31, ~~2020,~~2021, there were no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed under Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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Item 4 – Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of ~~this~~our Form 10-Q as of and for the quarter ended March 31, 2021, management evaluated the effectiveness of the design and operation of the disclosure controls and procedures of ~~Omega and Omega OP (for purposes of this Item 4,~~ the ~~“Companies”)~~Company as of March 31, ~~2020.~~2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures of the ~~Companies~~Company were effective at a reasonable assurance level as of March 31, ~~2020.~~2021.

Internal Control Over Financial Reporting

There were no changes in the ~~Companies’~~Company’s internal control over financial reporting ~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)~~ during the ~~period covered by this report~~quarter ended March 31, 2021 identified in connection with the evaluation of our disclosure controls and procedures described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

See Note 16 – Commitments and Contingencies in the Financial Statements - Part I, Item 1 hereto, which is hereby incorporated by reference in response to this item.

Item 1A – Risk Factors

In addition to the risk factors previously disclosed in Item 1A contained in Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, investors should carefully consider the following additional risk factor, which should be read in conjunction with the risk factors set forth in such Form 10-K and Form 10-Q and the other information contained in this report and our other filings with the Securities and Exchange Commission.

The ~~ongoing~~ COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.

~~On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic.~~ The COVID-19 pandemic has ~~led governments~~significantly adversely impacted, and may continue to so impact, SNFs and long term care providers generally, with higher rates of virus transmission and fatality among the elderly and frail populations these facilities serve. As a result, many of our operators have been and may continue to be significantly impacted by the pandemic. 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 rapidly throughout the pandemic 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, PPE, quality of care, visitation protocols, staffing levels, and reporting, among other ~~authorities~~regulations, throughout the pandemic. It remains uncertain when and to what extent vaccination programs for COVID-19, which have been implemented in many of our facilities, will continue to mitigate the ~~U.S., U.K.~~effects of COVID-19 in our facilities, or how effective existing vaccines will be against the variants of the COVID-19 virus; the impact of these programs will depend in part on the continued speed, distribution, efficacy and ~~around~~delivery of the ~~world to impose measures intended to control its spread, including restrictions on freedom~~vaccine in our facilities, as well as participation levels in vaccination programs among the residents and employees of ~~movement~~our operators. Our operators have reported considerable variation in participation levels among both employees and ~~business operations such~~residents, which may change over time as ~~travel bans, border closings, business closures, quarantines and shelter-in-place orders.~~

additional vaccination clinics are held.

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~~We believe~~In addition to the risks associated with managing the spread of the virus, delivery of the vaccines and care of their patients and residents, many of our operators ~~are~~reported incurring, and may continue to incur, significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay, as well as a significant increase in both the cost and usage of ~~personal protective~~PPE, testing equipment and ~~supplies.~~processes and supplies, as well as implementation of new infection control protocols and delivery of the vaccine. In ~~terms of occupancy levels, we believe~~addition, many of our operators ~~are~~have reported experiencing declines in occupancy levels as a result of the pandemic. We believe these declines may be in part due to COVID-19-induced fatalities at the ~~elimination~~facilities, the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension or postponement of elective hospital ~~procedures. To~~procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs. We continue to monitor the impact of occupancy declines at many of our operators, and it remains uncertain whether and when demand and occupancy levels will return to pre-COVID-19 levels.

While substantial government support, primarily through the federal CARES Act in the U.S. and distribution of PPE and testing equipment by federal and state governments, has been allocated to SNFs and to a lesser extent to ALFs, further government support will likely be needed to continue to offset these impacts and it is unclear whether and to what extent such government support has been and will continue to be sufficient and timely to offset these impacts. In particular, it remains unclear as to whether unallocated funds under the 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 health care operators or our operators, or whether additional Medicaid funds under the federal American Rescue Plan Act will ultimately support reimbursement to our operators. Further, to the extent ~~these trends~~the impacts of the pandemic continue or accelerate and are not offset by ~~sufficient or timely~~continued government relief that is sufficient and timely, we anticipate that the operating results of certain of our operators ~~are likely to~~would 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. Even if operators are able to avail themselves of government relief to offset some of these costs, they may face challenges in complying with the terms and conditions of government support and may face longer-term adverse impacts to their personnel and business operations from the COVID-19 pandemic, including potential patient litigation and decreased demand for their ~~services.~~

services, loss of business due to an interruption in their operations, workforce challenges, new regulatory restrictions, or other liabilities related to gathering restrictions, quarantines, reopening plans, vaccine distribution or delivery, spread of infection or other related factors.

Numerous state and local governments and the federal ~~and industry-initiated~~government have initiated efforts that may also affect landlords’ and/or mortgagees’ ability to collect payments due or enforce remedies for the failure to pay amounts due. ~~Certain~~Additionally, a growing number of ~~our operators and/~~professional liability and employment related claims have been filed or ~~mortgagors may incur significant costs or losses responding~~are threatened to be filed against long-term care providers related to the COVID-19 ~~pandemic, lose business due~~pandemic. While such claims may be subject to liability protection provisions within various state executive orders or legislation and/or federal legislation, an ~~interruption in their operations~~adverse resolution of any of legal proceeding or ~~incur other liabilities related to shelter-in-place orders, quarantines, infection or other related factors. Risks related to the downturn in business of~~investigations against our operators ~~are also described in~~may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on our ~~risk factor titled “The bankruptcy or insolvency~~reputation, business, results of ~~our operators could limit or delay our ability to recover our investments” under “Risk Factors—Risks Related to the Operators of Our Facilities” in our Annual Report on~~ ~~Form 10-K~~ ~~for the year ended December 31, 2019.~~

operations and cash flows.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. The pandemic has led governments and other authorities in the U.S., U.K. and around the world to impose measures intended to control its spread, including but not limited to, restrictions on freedom of movement and business operations which may remain in place along with continuing uncertainty around the potential duration of the pandemic. We cannot assure you that conditions in the bank lending, capital and other financial markets will not ~~continue to~~ deteriorate as a result of the COVID-19 pandemic, or that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancing. In addition, our employees may be impacted directly or indirectly by the pandemic and we may be required to make changes to our internal controls as a result of changes in our business processes or personnel; any such changes may increase our operational and financial reporting risks.

Table of Contents

The extent of the COVID-19 pandemic’s effect on our and our operators’ operational and financial performance will depend on future developments, including the ~~duration,~~ability to control the spread ~~and intensity~~ of the outbreak generally and in our facilities, and the delivery and efficacy of and participation in vaccination programs and other treatments for COVID-19, government funds and other support for the senior care sector and the efficacy of other policies and measures that may mitigate the impact of the pandemic, as well as the future demand for needs-based skilled nursing care and senior living facilities, all of which are uncertain and difficult to predict. Due to ~~the speed with which the situation is developing,~~these uncertainties, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. To the extent the COVID-19 pandemic adversely affects our or operators’ results of operations and financial condition, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our Annual Report on ~~Form 10-K~~ ~~for the year ended December 31, 2019.~~

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, ~~2020,~~2021, Omega issued an aggregate of ~~8,060~~2,221 shares of Omega common stock in exchange for an equivalent number of Omega OP Units tendered to Omega OP for redemption in accordance with the provisions of the Partnership Agreement. The Company issued these shares of Omega common stock in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, based upon factual representations received from the limited partners who received the Omega common stock.

~~Table of Contents~~

Issuer Purchases of Equity Securities

On March 20, 2020, the Company authorized the repurchase of up to $200 million of our outstanding common stock from time to time over the twelve months ending March 20, 2021. The Company is authorized to repurchase shares of its common stock in open market and privately negotiated transactions or in any other manner as determined by the Company’s management and in accordance with applicable law. The timing and amount of stock repurchases will be determined, in management’s discretion, based on a variety of factors, including but not limited to market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The Company has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time.

During the first quarter of 2021, we did not purchase any shares of our outstanding common stock.


					Maximum
				Total Number of	Number (or
				Shares	Approximate
				Purchased as	Dollar Value) of
				Part of Publicly	Shares that may
	Total Number			Announced	be Purchased
	of Shares	Average Price		Plans or	Under these Plans
Period	Purchased	Paid per Share		Programs	or Programs
January 1, ~~2020 -~~2021 to January 31, ~~2020~~2021	—	$	—	—	—
February 1, ~~2020~~2021 to February ~~29, 2020~~28, 2021	—		—	—	—
March 1, ~~2020~~2021 to March 31, ~~2020~~ ⁽¹⁾2021	—		—	—	—
Total	—	$	—	—	—

(1) On March 20, 2020, the Company authorized the repurchase of up to $200 million of our outstanding common stock from time to time over the twelve months ending March 20, 2021. The Company is authorized to repurchase shares of its common stock in open market and privately negotiated transactions or in any other manner as determined by the Company’s management and in accordance with applicable law. The timing and amount of stock repurchases will be determined, in management’s discretion, based on a variety of factors, including but not limited to market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The Company has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be discontinued at any time.

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Item 6–Exhibits


Exhibit No.
3.1		Amended and Restated Bylaws of Omega Healthcare Investors, Inc. as of April 8, 2021 (incorporated by reference to Exhibit 3.1 on the Company’s Form 8-K, filed on April 14, 2021).
4.1		Indenture dated as of March 10, 2021, among Omega Healthcare Investors, Inc., OHI Healthcare Properties Limited Partnership, as Subsidiary Guarantor, and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 on the Company’s Form 8-K, filed on March 10, 2021).
10.1		~~Second~~Form of Amendment to ~~Credit~~Employment Agreement ~~dated~~for the Company’s executive officers, effective as of ~~October 28, 2019, among Omega Healthcare Investors, Inc., certain subsidiaries of Omega Healthcare Investors, Inc. identified therein as guarantors,~~January 1, 2021 for the lenders named therein and Bank of America, N.A., as administrative agent for such lenders.*Company’s executive officers (incorporated by reference to Exhibit 10.12 on the Company’s Form 10-K, filed on February 22, 2021).
~~10.2~~22.1		~~Second Amendment to Credit Agreement, dated as~~Subsidiary guarantors of October 28, 2019, among OHI Healthcare Properties Limited Partnership, the lenders named therein and Bank of America, N.A., as administrative agent for such lenders.*
~~10.3~~		Second Amendment to Amended and Restated Credit Agreement, dated as of October 28, 2019, among Omega Healthcare Investors, Inc., certain subsidiaries of Omega Healthcare Investors, Inc. identified therein as guarantors, the lenders named therein and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent for such lenders.guaranteed securities.*
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Omega Healthcare Investors, Inc.*
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Omega Healthcare Investors, Inc.*
~~31.3~~		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of OHI Healthcare Properties Limited Partnership.*
~~31.4~~		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of OHI Healthcare Properties Limited Partnership.*
32.1		Section 1350 Certification of the Chief Executive Officer of Omega Healthcare Investors, Inc.*
32.2		Section 1350 Certification of the Chief Financial Officer of Omega Healthcare Investors, Inc.*
~~32.3~~101		~~Section 1350 Certification~~The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of ~~the Chief Executive Officer~~Operations, (iii) Consolidated Statements of OHI Healthcare Properties Limited Partnership.*
~~32.4~~		~~Section 1350 Certification~~Comprehensive Income, (iv) Consolidated Statements of ~~the Chief~~Changes in Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial ~~Officer~~Statements, tagged as blocks of OHI Healthcare Properties Limited Partnership.*
~~101.INS~~		~~XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~
~~101.SCH~~		~~Inline XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~		~~Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~		~~Inline XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~		~~Inline XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~		~~Inline XBRL Taxonomy Extension Presentation Linkbase Document.~~text and including detailed tags.
104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).

* Exhibits that are filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OMEGA HEALTHCARE INVESTORS, INC.

Registrant

Date: May ~~8, 2020~~4, 2021	By:	/S/ C. TAYLOR PICKETT
		C. Taylor Pickett
		Chief Executive Officer

Date: May ~~8, 2020~~	~~By:~~	~~/S/ ROBERT O. STEPHENSON~~
		~~Robert O. Stephenson~~
		~~Chief Financial Officer~~

~~OHI HEALTHCARE PROPERTIES LIMITED PARTNERSHIP~~

~~Co-Registrant~~

~~By: Omega Healthcare Investors, Inc., its General Partner~~


~~Date: May 8, 2020~~	~~By:~~	~~/S/ C. TAYLOR PICKETT~~
		~~C. Taylor Pickett~~
		~~Chief Executive Officer~~

~~Date: May 8, 2020~~4, 2021	By:	/S/ ROBERT O. STEPHENSON
		Robert O. Stephenson
		Chief Financial Officer

6251


Maryland	1-11316	38-3041398
~~(Omega Healthcare Investors, Inc.)~~	~~(Omega Healthcare Investors, Inc.)~~	~~(Omega Healthcare Investors, Inc.)~~
~~Delaware~~	~~333-203447-11~~	~~36-4796206~~
(OHI Healthcare Properties Limited Partnership)	(OHI Healthcare Properties Limited Partnership)	(OHI Healthcare Properties Limited Partnership)
(State or other jurisdiction of incorporation or organization)	(Commission file number)	(IRS Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.10 par value	OHI	New York Stock Exchange


Large accelerated filer ⌧	Accelerated filer ◻	Non-accelerated filer ◻	Smaller reporting company ◻☐	Emerging growth company ◻


~~Large accelerated filer~~ ◻	~~Accelerated filer~~ ◻	~~Non-accelerated filer ⌧~~	~~Smaller reporting company~~ ◻	~~Emerging growth company~~ ◻☐


~~Omega Healthcare Investors, Inc.~~☒
~~Common Stock, $.10 par value~~	~~226,901,698~~

~~OHI Healthcare Properties Limited Partnership~~


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


~~Omega Healthcare Investors, Inc.~~ Yes ☒ No ☐	~~OHI Healthcare Properties Limited Partnership~~ ~~Yes~~☒No☐


TABLE OF CONTENTS
		Page No.
PART I	Financial Information

Item 1.	Financial Statements of Omega Healthcare Investors, Inc.:
	Consolidated Balance Sheets
	March 31, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	2
	Consolidated Statements of Operations (unaudited)
	Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	3
	Consolidated Statements of Comprehensive Income (unaudited)
	Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	4
	Consolidated Statements of Changes in Equity (unaudited)
	Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	5
	Consolidated Statements of Cash Flows (unaudited)
	Three months ended March 31, ~~2020~~2021 and ~~2019~~2020	6
	~~Financial Statements of OHI Healthcare Properties Limited Partnership~~:
	~~Consolidated Balance Sheets~~
	~~March 31, 2020 (unaudited) and December 31, 2019~~	7
	~~Consolidated Statements of Operations (unaudited)~~
	~~Three months ended March 31, 2020 and 2019~~	8
	~~Consolidated Statements of Comprehensive Income (unaudited)~~
	~~Three months ended March 31, 2020 and 2019~~	9
	~~Consolidated Statements of Changes in Owners’ Equity (unaudited)~~
	~~Three months ended March 31, 2020 and 2019~~	10
	~~Consolidated Statements of Cash Flows (unaudited)~~
	~~Three months ended March 31, 2020 and 2019~~	11
	Notes to Consolidated Financial Statements
	March 31, ~~2020~~2021 (unaudited)	127

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4133

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5746

Item 4.	Controls and Procedures	5847

PART II	Other Information

Item 1.	Legal Proceedings	5847

Item 1A.	Risk Factors	5847

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5949

Item 6.	Exhibits	6150


	General		Limited
	Partners’		Partners’		Total		General		Limited
	Omega		Omega		Omega		Partners’		Partners’		Total Owners'		Noncontrolling		Total
	OP Units		OP Units		OP Units		Equity		Equity		Equity		Interest		Equity
Balance at December 31, 2019		226,631		5,931		232,562	$	4,135,428	$	200,950	$	4,336,378	$	216	$	4,336,594
Cumulative effect of accounting change		—		—		—		(28,028)		(757)		(28,785)		—		(28,785)
Balance at January 1, 2020		226,631		5,931		232,562		4,107,400		200,193		4,307,593		216		4,307,809
Contributions from partners		235		—		235		7,459		—		7,459		—		7,459
Distributions to partners		—		—		—		(154,661)		(7,290)		(161,951)		—		(161,951)
Vesting/exercising of Omega OP Units		—		62		62		(2,608)		2,608		—		—		—
Omega OP Unit conversions		—		(8)		(8)		—		(336)		(336)		—		(336)
Comprehensive income
Foreign currency translation		—		—		—		(18,288)		(483)		(18,771)		—		(18,771)
Cash flow hedges		—		—		—		(7,642)		(202)		(7,844)		—		(7,844)
Net income		—		—		—		89,915		2,367		92,282		(3)		92,279
Total comprehensive income												65,667				65,664
Balance at March 31, 2020		226,866		5,985		232,851	$	4,021,575	$	196,857	$	4,218,432	$	213	$	4,218,645

Balance at December 31, 2018		202,346		8,714		211,060	$	3,444,441	$	320,043	$	3,764,484	$	—	$	3,764,484
Contributions from partners		4,655		—		4,655		166,933		—		166,933		—		166,933
Distributions to partners		—		—		—		(136,687)		(7,013)		(143,700)		—		(143,700)
Noncontrolling interest - consolidated joint venture		—		—		—		—		—		—		228		228
Vesting/exercising of Omega OP Units		—		9		9		(298)		298		—		—		—
Omega OP Unit conversions		—		(1,446)		(1,446)		—		(56,257)		(56,257)		—		(56,257)
Comprehensive income
Foreign currency translation		—		—		—		4,321		154		4,475		—		4,475
Cash flow hedges		—		—		—		(2,610)		(93)		(2,703)		—		(2,703)
Net income		—		—		—		69,702		2,480		72,182		—		72,182
Total comprehensive income												73,954				73,954
Balance at March 31, 2019		207,001		7,277		214,278	$	3,545,802	$	259,612	$	3,805,414	$	228	$	3,805,642


		Pre-adoption balance as of		Impact of adopting		Post-adoption balance as of
Financial Statement Line Item		December 31, 2019		Topic 326		January 1, 2020
		(in thousands)
Mortgage Notes Receivable	$	773,563	$	(21,386)	$	752,177
Investment in Direct Financing Leases		11,488		(611)		10,877
Other Investments		419,228		(6,688)		412,540
Off-Balance Sheet Commitments		20,777		(100)		20,677
Total	$	1,225,056	$	(28,785)	$	1,196,271



Rating	Financial Statement Line Item	2020		2019		2018		2017		2016		2015		2014 & older		Revolving Loans		Balance as of March 31, 2020
		(in thousands)
1	Mortgage Notes Receivable	$	-	$	-	$	-	$	-	$	-	$	68,064	$	-	$	-	$	68,064
3	Mortgage Notes Receivable		-		-		-		-		-		-		35,964		-		35,964
4	Mortgage Notes Receivable		-		8,497		44,385		44,448		34,984		9,374		501,231		-		642,919
5	Mortgage Notes Receivable		-		-		19,000		1,048		-		-		8,105		-		28,153
6	Mortgage Notes Receivable		-		-		-		-		-		-		6,376		-		6,376
	Sub-total		-		8,497		63,385		45,496		34,984		77,438		551,676		-		781,476

3	Investment in Direct Financing Leases		-		-		-		-		-		11,482		-		-		11,482
7	Investment in Direct Financing Leases		-		-		-		-		217		-		-		-		217
	Sub-total		-		-		-		-		217		11,482		-		-		11,699

2	Other Investments		8,000		-		-		-		-		2,082		-		26,980		37,062
3	Other Investments		-		23,457		33,869		-		-		434		4,560		74,040		136,360
4	Other Investments		3,500		14,688		109,637		3,026		85,865		-		-		5,000		221,716
5	Other Investments		-		21,667		14,337		-		-		-		-		605		36,609
	Sub-total		11,500		59,812		157,843		3,026		85,865		2,516		4,560		106,625		431,747

Total		$	11,500	$	68,309	$	221,228	$	48,522	$	121,066	$	91,436	$	556,236	$	106,625	$	1,224,922



Segment	Financial Statement Line Item	Allowance for Credit Loss at December 31, 2019		Allowance for Credit Loss on January 1, 2020		Provision for Credit Loss for the period ended March 31, 2020		Allowance for Credit Loss as of March 31, 2020
		(in thousands)
Segment A-4	Mortgage Notes Receivable	$	-	$	19,293	$	1,070	$	20,363
Segment B-3	Mortgage Notes Receivable		-		901		32		933
Segment C-5	Mortgage Notes Receivable		-		829		(13)		816
Segment E-6	Mortgage Notes Receivable		4,905		363		66		5,334
	Sub-total		4,905		21,386		1,155		27,446

Segment A-3	Investment in Direct Financing Leases		217		611		21		849
	Sub-total		217		611		21		849

Segment A-4	Other Investments		-		3,158		157		3,315
Segment B-3	Other Investments		-		1,434		29		1,463
Segment C-2	Other Investments		-		195		(10)		185
Segment D-5	Other Investments		-		1,901		160		2,061
	Sub-total		-		6,688		336		7,024

Segment A-4	Off-Balance Sheet Commitments		-		100		(26)		74
	Sub-total		-		100		(26)		74

	Total	$	5,122	$	28,785	$	1,486	$	35,393


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
	(in thousands)
Rental income – operating leases	$	218,340	$	188,402
Variable lease income – operating leases		3,160		3,775
Total lease income	$	221,500	$	192,177


	(in thousands)
Fair value of net assets acquired:
Real estate investments ⁽¹⁾	$	421,600
Mortgage notes receivable		108,097
Other investments		19,192
Investment in unconsolidated joint venture		73,834
Cash		4,067
Contractual receivables		1,461
Other assets ^{(1) (2)}		32,819
Total investments		661,070
Debt		(285,100)
Accrued expenses and other liabilities ⁽¹⁾⁽³⁾		(30,421)
Fair value of net assets acquired	$	345,549


	Pro Forma
	Three Months Ended				��
	March 31,
	2020			2019
		(in thousands, except per share amounts, unaudited)

Pro forma revenues	$	253,024	$	237,963
Pro forma net income	$	92,279	$	79,019

Earnings per share – diluted:
Net income – as reported	$	0.39	$	0.34
Net income – pro forma	$	0.39	$	0.36



Segment	Financial Statement Line Item	Allowance for Credit Loss as of December 31, 2020		(Recovery) Provision for Credit Loss for the period ended March 31, 2021		Write-offs charged against allowance for the period ended March 31, 2021		Allowance for Credit Loss as of March 31, 2021
		(in thousands)
Segment A-4	Mortgage Notes Receivable	$	26,865	$	(913)	$	-	$	25,952
Segment B-3	Mortgage Notes Receivable		954		(38)		-		916
Segment C-5	Mortgage Notes Receivable		433		(107)		-		326
Segment E-6	Mortgage Notes Receivable		4,905		-		-		4,905
Segment F-2	Mortgage Notes Receivable		88		(45)		-		43
	Sub-total		33,245		(1,103)		-		32,142

Segment A-3	Investment in Direct Financing Leases		694		(6)		-		688
	Sub-total		694		(6)		-		688

Segment A-4	Other Investments		24,397		413		-		24,810
Segment B-3	Other Investments		5,113		217		-		5,330
Segment C-2	Other Investments		94		(40)		-		54
Segment D-5	Other Investments		1,853		(10)		(95)		1,748
	Sub-total		31,457		580		(95)		31,942

Segment A-4	Off-Balance Sheet Mortgage Commitments		24		38		-		62
Segment B-3	Off-Balance Sheet Note Commitments		2,305		(538)		-		1,767
Segment C-2	Off-Balance Sheet Note Commitments		116		5		-		121
	Sub-total		2,445		(495)		-		1,950

	Total	$	67,841	$	(1,024)	$	(95)	$	66,722


	Three Months Ended				Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	March 31, 2020		March 31, 2019		Agemo		Maplewood		Agemo		Maplewood
	(in thousands)				(in thousands)
Revenue
Rental income	$	15,287	$	14,771	$	11,492	$	19,032	$	15,287	$	10,140
Other investment income		1,241		1,034		1,157		2,788		1,241		1,202
Total⁽¹⁾	$	16,528	$	15,805	$	12,649	$	21,820	$	16,528	$	11,342


	Omega				Omega OP
	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Numerator:
Net income	$	92,279	$	72,182	$	92,279	$	72,182
(Less) add: net (income) loss attributable to noncontrolling interests		(2,364)		(2,480)		3		—

Net income available to common stockholders/Omega OP Unit holders	$	89,915	$	69,702	$	92,282	$	72,182
Denominator:
Denominator for basic earnings per share		227,261		204,558		233,245		211,835
Effect of dilutive securities:
Common stock equivalents		1,261		1,688		1,261		1,688
Noncontrolling interest – Omega OP Units		5,984		7,277		—		—
Denominator for diluted earnings per share/unit		234,506		213,523		234,506		213,523

Earnings per share/unit - basic:
Net income available to common stockholders/Omega OP Unit holders	$	0.40	$	0.34	$	0.40	$	0.34
Earnings per share/unit – diluted:
Net income	$	0.39	$	0.34	$	0.39	$	0.34