Omega Reports Second Quarter 2022 Results and Recent Developments

Completed $73 Million in New Investments

Omega Healthcare Investors, Inc. (NYSE: OHI) (the “Company” or “Omega”) announced today its results for the quarter ended June 30, 2022.

SECOND QUARTER 2022 AND OTHER HIGHLIGHTS

• Net income for the quarter of $92 million, or $0.38 per common share, compared to $87 million, or $0.36 per common share, for the same period in 2021.
• Nareit Funds From Operations (“Nareit FFO”) for the quarter of $161 million or $0.66 per common share, on 243 million weighted-average common shares outstanding, compared to $181 million, or $0.74 per common share, on 244 million weighted-average common shares outstanding, for the same period in 2021.
• Adjusted Funds From Operations (“Adjusted FFO” or “AFFO”) for the quarter of $185 million or $0.76 per common share, compared to $207 million, or $0.85 per common share, for the same quarter in 2021.
• Funds Available for Distribution (“FAD”) for the quarter of $172 million, compared to FAD of $197 million for the same quarter in 2021.
• Invested $56 million in two new loans that bear interest at 12.0% per annum.
• Funded $17 million in capital renovation and construction-in-progress projects.
• Repurchased 4.2 million common shares for $115 million.
• Sold 13 facilities for $54 million in cash proceeds, generating a $25 million gain.
• Declared a $0.67 per share quarterly cash dividend on common stock to be paid in August.

Nareit FFO, AFFO and FAD are supplemental non-GAAP financial measures that the Company believes are useful in evaluating the performance of real estate investment trusts (“REITs”). Reconciliations and further information regarding these non-GAAP measures are provided at the end of this press release.

CEO COMMENTS

Taylor Pickett, Omega’s Chief Executive Officer, stated, “The second quarter saw sequential improvement in both Adjusted FFO and FAD, as some restructured operators returned to paying their contractual rent obligations. However, our financial results continue to be impacted by nonpayment of rent by a few operators and, with both facility occupancy and profitability still meaningfully below pre-pandemic levels, the risk of further operator issues remains.”

Mr. Pickett continued, “Still, we remain constructive on the longer-term opportunities within this industry. The portfolio is seeing steady growth in occupancy, with the labor market also showing signs of improving. Further, we continue to see strong appetite for our assets, as evidenced by the robust transaction market, and we believe the long-term financial impact to the business from the resolution of these operator issues should be relatively modest.”

Mr. Pickett concluded, “We would once again like to highlight the incredible efforts of our operators and their heroic employees, who continue to work tirelessly and bravely to protect and care for their residents.”

SECOND QUARTER 2022 RESULTS

Revenues – Revenues for the quarter ended June 30, 2022 totaled $244.6 million, a decrease of $12.8 million over the same period in 2021. The decrease primarily resulted from (i) asset sales completed in 2021 and 2022, (ii) operator restructurings and (iii) no rental income or interest income recognized in the second quarter of 2022 from Agemo Holdings, LLC (“Agemo”); see “Operator Updates” below. The decrease was partially offset by revenue from new investments completed throughout 2021 and 2022.

Expenses – Expenses for the quarter ended June 30, 2022 totaled $174.2 million, a decrease of $0.9 million over the same period in 2021. The decrease primarily resulted from (i) a $5.1 million change in the (recovery) provision for credit losses and (ii) a $2.6 million decrease in depreciation and amortization expense related to facility sales and facilities reclassified as held for sale, partially offset by (i) a $4.0 million increase in acquisition, merger and transition costs resulting from the transition of facilities from troubled operators, (ii) a $2.5 million increase in general and administrative (“G&A”) expense related to consulting services and expense timing and (iii) a $1.0 million increase in stock-based compensation expense.

Other Income and Expense – Other income for the quarter ended June 30, 2022 totaled $20.8 million, an increase of $16.5 million over the same period in 2021. The increase primarily resulted from a $21.1 million increase in gain on assets sold related to the sale of 13 facilities in the second quarter of 2022 compared to the sale of six facilities during the same period in 2021, partially offset by a $3.0 million legal reserve recorded within other (loss) income – net in the second quarter of 2022. Seven of the facilities sold in the second quarter of 2022 were formerly leased to Guardian and sold in connection with the restructuring activities completed during the quarter (see “Operator Updates” below).

Net Income – Net income for the quarter ended June 30, 2022 totaled $91.9 million, an increase of $5.1 million over the same period in 2021. The increase primarily resulted from (i) a $16.5 million increase in other income and expense and (ii) a $0.9 million decrease in expenses, partially offset by a $12.8 million decrease in total revenues.

Funds from Operations – Nareit FFO for the quarter ended June 30, 2022 totaled $160.6 million, a decrease of $20.2 million over the same period in 2021. The decrease primarily resulted from (i) a $12.8 million decrease in total revenue, (ii) a $4.0 million increase in acquisition, merger and transition costs, (iii) an aggregate $4.9 million increase in other (loss) income – net, (iv) a $2.5 million increase in G&A expense and (v) a $1.0 million increase in stock-based compensation expense, partially offset by a $5.1 million change in (recovery) provision for credit losses.

Adjusted Funds from Operations – AFFO for the quarter ended June 30, 2022 totaled $185.4 million, a decrease of $21.4 million over the same period in 2021. The decrease primarily reflects the impact of reduced revenue as a result of assets sales, operator workouts and restructurings, and the timing of G&A expenses, partially offset by incremental revenue from new investments. AFFO refers to Nareit FFO after excluding the impact of non-cash stock-based compensation and certain revenue and expense items as set forth in the “Funds From Operations” reconciliation table.

FINANCING ACTIVITIES

$500 Million Stock Repurchase Program – The following is a summary of the shares repurchased for the three and six months ended June 30, 2022:

Dividend Reinvestment and Common Stock Purchase Plan – The following is a summary of the shares issued under the Dividend Reinvestment and Common Stock Purchase Plan for the three and six months ended June 30, 2022:

2022 SECOND QUARTER PORTFOLIO AND RECENT ACTIVITY

Operator Updates:

Agemo – The Company continued its ongoing restructuring discussions with Agemo. During the quarter, Agemo continued to not pay contractual rent and interest due under its lease and loan agreements, and as a result the Company did not recognize revenue related to this operator.

Guardian – In the second quarter of 2022, the Company sold seven facilities previously leased to Guardian and agreed to a formal restructuring agreement, master lease amendments and mortgage loan amendments on the remaining facilities leased to Guardian. As part of the restructuring agreement and amendments, Omega and Guardian agreed, among other terms, to (i) allow Guardian to retrospectively defer $18.0 million of aggregate contractual rent and interest that they failed to pay during 2021 and 2022, with repayment required after September 2024 and in full by the lease termination date and (ii) reduce the combined rent and mortgage interest to an aggregate $24.0 million per year beginning July 2022. Guardian resumed making contractual rent and interest payments during the second quarter of 2022 in accordance with the agreed-upon restructuring terms. In the second quarter, the Company recorded $5.2 million in income related to Guardian (on a cash basis for revenue recognition) consisting of $3.8 million of contractual rent payments received (recorded as rental income) and $1.4 million in interest payments received (recorded as a recovery against provision for credit losses).

Other Non-paying Operators – In January 2022, an operator representing 3.4% of the Company’s first quarter 2022 annualized contractual rent and mortgage interest revenue did not pay its first quarter contractual amounts due under its lease agreement; however, this operator continued to pay contractual interest amounts due under its $20 million revolving credit facility (fully drawn as of June 30, 2022). In March 2022, the lease with this operator was amended to allow for a short-term rent deferral for January through March 2022. This operator resumed paying the contractual amounts due under its lease agreement in April 2022. For the second quarter of 2022, the Company recognized $8.8 million of contractual rent and interest related to the operator. Omega holds $1.2 million in combined security deposits related to this operator.

In March 2022, another operator representing 2.4% of the Company’s first quarter 2022 annualized contractual rent and mortgage interest revenue did not pay its March contractual amounts due under its lease agreement. In April 2022, the lease with this operator was amended to allow the operator to apply its $2.0 million security deposit to its March 2022 contractual rental payment and to allow for a short-term rent deferral for April, with regular rental payments required to resume in May. This operator paid contractual rent in May 2022; however, this operator failed to make the full contractual rent payment for June 2022. The Company placed this operator on a cash basis of revenue recognition during the second quarter and wrote off $8.3 million of straight-line rent receivables through rental income. As the operator is on a cash basis, the Company only recognized the cash received in the second quarter of $2.5 million for revenue, AFFO and FAD purposes.

In June, another operator representing 2.2% of the Company’s second quarter 2022 annualized contractual rent and mortgage interest revenue underpaid the contractual rent amount due under its lease agreement by $0.6 million. At June 30, 2022, the Company held a $5.4 million letter of credit as collateral from this operator. In July 2022, the Company drew the full amount of the letter of credit and applied $0.6 million of the proceeds to pay the unpaid portion of June’s rent. For the second quarter of 2022, the Company recognized $5.5 million of contractual rent related to the operator. The Company is currently in portfolio restructuring discussions with the operator.

New Investments:

The following table presents real estate investment activity:

$36 Million Mezzanine Loan – On June 28, 2022, the Company entered into a $35.6 million loan with an affiliate of an existing operator. The loan bears interest at a fixed rate of 12% per annum and matures on June 30, 2025. The loan is secured by a leasehold mortgage and a pledge of the operator’s equity interest in a joint venture.

$20 Million Preferred Equity Investment – On June 2, 2022, the Company made a $20.0 million preferred equity investment in a joint venture formed to acquire an acute care hospital in New York. Omega’s preferred equity investment bears a 12% return per annum and must be redeemed at the earlier of December 2027 or the occurrence of certain significant events within the joint venture.

Asset Sales, Impairments and Mortgage Principal Repayments:

$54 Million in Asset Sales – In the second quarter of 2022, the Company sold 13 facilities for $54.3 million in cash, recognizing a gain of $25.2 million. Twelve (12) of these facilities were previously classified as held for sale.

Impairments and Assets Held for Sale – During the second quarter of 2022, the Company recorded a $7.7 million net impairment charge to reduce the net book value of four facilities to their estimated fair value.

As of June 30, 2022, the Company had 15 facilities classified as assets held for sale, totaling $61.6 million in net book value.

Mortgage Principal Repayments – During the second quarter of 2022, the Company received $113.7 million in principal repayments on outstanding mortgages.

OPERATOR COVERAGE DATA

The following tables present operator revenue mix, census and coverage data based on information provided by our operators for the indicated periods. We have not independently verified this information, and we are providing this data for informational purposes only.

BALANCE SHEET AND LIQUIDITY

As of June 30, 2022, the Company had $5.4 billion of outstanding indebtedness with a weighted-average annual interest rate of 4.17%. The Company’s indebtedness consisted of an aggregate principal amount of $4.9 billion of senior unsecured notes, a $50.0 million unsecured term loan, $378.0 million of secured debt and $38.0 million of borrowings outstanding under its unsecured revolving credit facility. As of June 30, 2022, total cash and cash equivalents were $164.9 million, and the Company had $1.4 billion of undrawn capacity on its unsecured revolving credit facility.

DIVIDENDS

On July 21, 2022, the Board of Directors declared a quarterly cash dividend of $0.67 per share, to be paid August 15, 2022, to common stockholders of record as of the close of business on August 1, 2022.

ADDITIONAL INFORMATION

Additional information regarding the Company can be found in its Second Quarter 2022 Financial Supplemental posted in the “Quarterly Supplements” section of Omega’s website. The information contained on, or that may be accessed through, our website, including the information contained in the aforementioned supplemental, is not incorporated by any reference into, and is not part of, this document.

CONFERENCE CALL

The Company will be conducting a conference call on Tuesday, August 2, 2022, at 10 a.m. Eastern time to review the Company’s 2022 second quarter results and current developments. Analysts and investors within the United States (“U.S.”) interested in participating are invited to call (877) 511-2891. The Canadian toll-free dial-in number is (855) 669-9657. All other international participants may use the dial-in number (412) 902-4140. Ask the operator to be connected to the “Omega Healthcare’s Second Quarter 2022 Earnings Call.”

To listen to the conference call via webcast, log on to www.omegahealthcare.com and click the “Omega Healthcare Investors, Inc. 2Q Earnings Call” hyper-link under “Upcoming Events” in the Investor Relations section on Omega’s website homepage. Webcast replays of the call will be available on Omega’s website for a minimum of two weeks following the call. Additionally, a copy of the earnings release will be available in the “Featured Documents” and “Press Releases” sections of Omega’s website.

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Omega is a REIT that invests in the long-term healthcare industry, primarily in skilled nursing and assisted living facilities. Its portfolio of assets is operated by a diverse group of healthcare companies, predominantly in a triple-net lease structure. The assets span all regions within the U.S., as well as in the United Kingdom.

Forward-Looking Statements and Cautionary Language

This press release includes forward-looking statements within the meaning of the federal securities laws. All statements regarding Omega’s or its tenants’, operators’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, facility transitions, growth opportunities, expected lease income, continued qualification as a REIT, plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from Omega’s expectations.

Omega’s actual results may differ materially from those reflected in such forward-looking statements as a result of a variety of factors, including, among other things: (i) uncertainties relating to the business operations of the operators of Omega’s properties, including those relating to reimbursement by third-party payors, regulatory matters and occupancy levels; (ii) the impact of the Novel coronavirus (“COVID-19”) pandemic on our business and the business of our operators, including without limitation, the extent and duration of the COVID-19 pandemic, increased costs, staffing shortages and decreased occupancy levels experienced by operators of skilled nursing facilities (“SNFs”) and assisted living facilities (“ALFs”) in connection therewith, the ability of operators to comply with infection control and vaccine protocols, the long-term impact of vaccinations 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, and the extent to which support may terminate upon termination of the federally declared public health emergency; (iii) 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) Omega’s ability to re-lease, otherwise transition or sell underperforming assets or assets held for sale on a timely basis and on terms that allow Omega to realize the carrying value of these assets; (v) the availability and cost of capital to Omega; (vi) changes in Omega’s credit ratings and the ratings of its debt securities; (vii) competition in the financing of healthcare facilities; (viii) competition in the long-term healthcare industry and shifts in the perception of various types of long-term care facilities, including SNFs and ALFs; (ix) additional regulatory and other changes in the healthcare sector; (x) changes in the financial position of Omega’s operators; (xi) the effect of economic and market conditions generally, and particularly in the healthcare industry; (xii) changes in interest rates or the impact of inflation; (xiii) the timing, amount and yield of any additional investments; (xiv) changes in tax laws and regulations affecting REITs; (xv) the potential impact of changes in the SNF and ALF market or local real estate conditions on the Company’s 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) Omega’s ability to maintain its status as a REIT; (xvii) the effect of other factors affecting our business or the businesses of Omega’s operators that are beyond Omega’s or operators’ control, including natural disasters, other health crises or pandemics and governmental action, particularly in the healthcare industry, and (xviii) other factors identified in Omega’s filings with the Securities and Exchange Commission. Statements regarding future events and developments and Omega’s future performance, as well as management’s expectations, beliefs, plans, estimates or projections relating to the future, are forward looking statements.

We caution you that the foregoing list of important factors may not contain all the material factors that are important to you. Accordingly, readers should not place undue reliance on those statements. All forward-looking statements are based upon information available to us on the date of this release. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Nareit Funds From Operations (“Nareit FFO”), Adjusted FFO and Funds Available for Distribution (“FAD”) are non-GAAP financial measures. For purposes of the Securities and Exchange Commission’s Regulation G, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that exclude amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the income statement, balance sheet or statement of cash flows (or equivalent statements) of the company, or include amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in this press release, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Regulation G, the Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

The Company calculates and reports Nareit FFO in accordance with the definition 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 impairments 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 will be calculated to reflect funds from operations on the same basis. Revenue recognized based on the application of security deposits and letters of credit or based on the ability to offset against other financial instruments is included within Nareit FFO. The Company believes that Nareit FFO, Adjusted FFO and FAD are important supplemental measures of its 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. The term funds from operations was designed by the real estate industry to address this issue. Funds from operations described herein is not necessarily comparable to funds from operations of other real estate investment trusts, or REITs, that do not use the same definition or implementation guidelines or interpret the standards differently from the Company.

Adjusted FFO is calculated as Nareit FFO excluding the impact of non-cash stock-based compensation and certain revenue and expense items (e.g., acquisition, merger and transition related costs, write-off of straight-line accounts receivable, recoveries and provisions for credit losses (excluding certain cash recoveries on impaired loans), severance, legal reserve expenses, etc.). FAD is calculated as Adjusted FFO less non-cash interest expense and non-cash revenue, such as straight-line rent. The Company believes these measures provide an enhanced measure of the operating performance of the Company’s core portfolio as a REIT. The Company’s computation of Adjusted FFO and FAD may not be comparable to the Nareit definition of funds from operations or to similar measures reported by other REITs, but the Company believes that they are appropriate measures for this Company.

The Company uses these non-GAAP measures among the criteria to measure the operating performance of its business. The Company also uses FAD among the performance metrics for performance-based compensation of officers. The Company further believes that by excluding the effect of depreciation, amortization, impairments 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, funds from operations can facilitate comparisons of operating performance between periods and between other REITs. The Company offers these measures to assist the users of its financial statements in analyzing its operating performance and not as measures of liquidity or cash flow. These non-GAAP measures are not measures of financial performance under GAAP and should not be considered as measures of liquidity, alternatives to net income or indicators of any other performance measure determined in accordance with GAAP. Investors and potential investors in the Company’s securities should not rely on these non-GAAP measures as substitutes for any GAAP measure, including net income.

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