Unless stated otherwise or the context otherwise requires, the terms "Omega", the "Company," "we," "our" and "us" refer toOmega Healthcare Investors, Inc. and its consolidated subsidiaries, including Omega OP, references to "Parent" refer toOmega Healthcare Properties, Inc. without regard to its consolidated subsidiaries, and references to "Omega OP" meanOHI Healthcare Properties Limited Partnership and its consolidated subsidiaries.
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. 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 ; uncertainties relating to the business operations of the operators of our
(ii) assets, including those relating to reimbursement by third-party payors,
regulatory matters and occupancy levels; 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, staffing shortages and
decreased occupancy levels experienced by operators of skilled nursing
(iii) 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;
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
(iv) 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;
our ability to re-lease, otherwise transition, or sell underperforming assets
(v) or assets held for sale on a timely basis and on terms that allow us to
realize the carrying value of these assets;
(vi) the availability and cost of capital to us;
(vii) changes in our credit ratings and the ratings of our debt securities;
(viii) competition in the financing of healthcare facilities;
(ix) competition in long-term healthcare industry and shifts in the perception of
various types of long-term care facilities, including SNFs and ALFs;
(x) additional regulatory and other changes in the healthcare sector;
(xi) changes in the financial position of our operators;
(xii) the effect of economic and market conditions generally and, particularly,
in the healthcare industry;
(xiii) changes in interest rates;
(xiv) the timing, amount and yield of any additional investments;
(xv) changes in tax laws and regulations affecting real estate investment trusts
("REITs"); the potential impact of changes in the SNF and ALF markets or local real
(xvi) 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;
(xvii) our ability to maintain our status as a REIT; and
the effect of other factors affecting our business or the businesses of
(xviii) 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. 31 Table of Contents Overview Omega was incorporated in theState of Maryland onMarch 31, 1992 and has elected to be taxed as a REIT for federal income tax purposes. Omega is structured as an umbrella partnership REIT ("UPREIT") under which all of Omega's assets are owned directly or indirectly by, and all of Omega's operations are conducted directly or indirectly through, its operating partnership subsidiary, Omega OP. As ofJune 30, 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 inthe United States ("U.S.") and theUnited Kingdom ("U.K."). Our core business is to provide financing and capital to the long-term healthcare industry with a particular focus on SNFs and ALFs, and to a lesser extent, independent living facilities ("ILFs"), rehabilitation and acute care facilities ("specialty facilities") and medical office buildings. Our core portfolio consists of 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 affiliateswho 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.
COVID-19 Pandemic Update
For the year endedDecember 31, 2020 and for the first quarter of 2021, we collected substantially all of the contractual rents and mortgage interest payments owed to us from our operators (other than operators under a forbearance agreement prior to the pandemic). However, inJune 2021 , we were informed by an operator, which represents approximately 3% of our revenue for the six months endedJune 30, 2021 and 2020 (excluding the impact of the straight-line write-offs in 2021), that it would be unable to pay rent to us in the foreseeable future. As ofJune 30, 2021 , we have been unable to collect approximately$2.5 million of contractual rents due from this operator, which represents one month of contractual rent under the lease agreement, and have applied$2.5 million of the operator's security deposit funds against their uncollected receivables. As such, we placed the operator on a cash basis for revenue recognition based on our evaluation of the collectibility of future rent payments due under its lease agreement, and in connection with this, we wrote off approximately$17.4 million of straight-line receivables to rental income during the quarter. We believe this operator was impacted by, among other things, reduced revenue as a result of lower occupancy and increased expenses, both as a result of the COVID-19 pandemic. As discussed in Note 2 - Contractual Receivables and Other Receivables, we also placed a smaller operator on a cash basis in the first quarter due to collectability concerns as a result of the impacts of the COVID-19 pandemic. With respect to our other operators, we collected substantially all contractual rents and mortgage interest payments due to us from our operators during the second quarter of 2021; however, we remain cautious as the COVID-19 pandemic continues to have a significant impact on our operators and their financial conditions, particularly given continued uncertainty regarding the availability of sufficient government support, the persistence of staffing shortages that continue to impact our operators' occupancy levels and profitability, and the commencement inApril 2021 for many of our operators of the repayment of accelerated payments of Medicare funds that were previously received as Advanced Medicare payments in 2020. 32
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As ofJuly 27, 2021 , our operators reported cases of COVID-19 within 153, or 16%, of our 949 operating facilities as ofDecember 31, 2020 , which includes cases involving employees and residents. This represents a meaningful decline in cases from the 614 facilities with cases, or 64% of our 959 operating facilities, that our operators reported as ofDecember 22, 2020 , and from the 212 facilities with cases, or 22%, of our 949 operating facilities, that our operators reported as ofApril 27, 2021 . We caution that we have not independently validated any 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 declines in reported cases noted above is due in large part to vaccination programs for COVID-19 which have been implemented in most 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 continued to report considerable variation in participation levels among both employees and residents, which we believe may change over time with additional vaccination education efforts. 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, staffing levels, personal protective equipment ("PPE"), quality of care, visitation protocols, and reporting, among other regulations, throughout the pandemic while facing staffing shortages that have accelerated during the pandemic and that may impede the delivery of care. Many of our operators have reported incurring significant cost increases as a result of the COVID-19 pandemic, with dramatic increases for facilities with positive cases. We believe these increases primarily stem from elevated labor costs, including increased use of overtime and bonus pay and reliance on agency staffing due to staffing shortages, as well as a significant increase in both the cost and usage of PPE, testing equipment and processes and supplies, as well as implementation of new infection control protocols and vaccination programs. In addition, many of our operators have reported experiencing declines, in some cases that are material, in occupancy levels as a result of the pandemic. While these declines on average appear to be stabilizing and even marginally improving in recent months, it remains unclear when and the extent to which demand and occupancy levels will return to pre-COVID-19 levels. We believe these occupancy declines may be in part due to staffing shortages, which in some cases have required operators to limit admissions, as well as COVID-19 related fatalities at the facilities, the delay of SNF placement and/or utilization of alternative care settings for those with lower level of care needs, the suspension and/or postponement of elective hospital procedures, fewer discharges from hospitals to SNFs and higher hospital readmittances from SNFs. While substantial government support, primarily through the federal CARES Act in theU.S. and distribution of PPE, vaccines 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. It is unclear whether and 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 thePublic Health and Social Services Emergency Fund ("Provider Relief Fund ") will be distributed to our operators in any meaningful way, whether additional funds will be added to theProvider 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 theU.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. 33 Table of Contents 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 as well as lost revenues. Notwithstanding vaccination programs, we expect that heightened clinical protocols for infection control within facilities will continue for some period; however, we do not know if future reimbursement rates or equipment provided by governmental agencies will be sufficient to cover the increased costs of enhanced infection control and monitoring. While we continue to believe that longer term demographics will drive increasing demand for needs-based skilled nursing care, we expect the uncertainties to our business described above to persist at least for the near term until we can gain more information as to the level of costs our operators will continue to experience and for how long, and the level of additional governmental support that will be available to them, the potential support our operators may request from us and the future demand for needs-based skilled nursing care and senior living facilities. We continue to monitor the impact of occupancy declines at many of our operators, and it remains uncertain whether and when demand, staffing availability and occupancy levels will return to pre-COVID-19 levels. We continue to monitor the impacts of other regulatory changes, as discussed below, including any significant limits on the scope of services reimbursed and on reimbursement rates and fees, which could have a material adverse effect on an operator's results of operations and financial condition, which could adversely affect the operator's ability to meet its obligations to us.
Government Regulation and Reimbursement
The following information supplements and updates, and should be read in
conjunction with, the information contained under the caption Item 1. Business -
Government Regulation and Reimbursement in our Annual Report on Form 10-K
for the year ended
The healthcare industry is heavily regulated. Our operators, which are primarily based in theU.S. , are subject to extensive and complex federal, state and local healthcare laws and regulations; we also have severalU.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. TheU.S. Department of Health and Human Services ("HHS") declared a public health emergency onJanuary 31, 2020 following theWorld Health Organization's decision to declare COVID-19 a public health emergency of international concern. This declaration, which has been extended throughOctober 17, 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. 34 Table of Contents These temporary changes to regulations and reimbursement, as well as emergency legislation, including the CARES Act enacted onMarch 27, 2020 and discussed below, continue to have a significant impact on the operations and financial condition of our operators. The extent of the COVID-19 pandemic's effect on the Company's and our operators' operational and financial performance will depend on future developments, including the sufficiency and timeliness of additional governmental relief, the duration, spread and intensity of the outbreak, the impact of new vaccine distributions on our operators and their populations, as well as the difference in how the pandemic may impact SNFs in contrast to ALFs, all of which developments and impacts are uncertain and difficult to predict. Due to these uncertainties, we are not able at this time to estimate the effect of these factors on our business; however, the adverse impact on our business, results of operations, financial condition and cash flows could be material. A significant portion of our operators' revenue is derived from government-funded reimbursement programs, consisting primarily of Medicare and Medicaid. As federal and state governments continue to focus on healthcare reform initiatives, efforts to reduce costs by government payors will likely continue. Significant limits on the scope of services reimbursed and/or reductions of reimbursement rates could therefore have a material adverse effect on our operators' results of operations and financial condition. Additionally, new and evolving payor and provider programs that are tied to quality and efficiency could adversely impact our tenants' and operators' liquidity, financial condition or results of operations, and there can be no assurance that payments under any of these government health care programs are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses.
Reimbursement Changes Related to COVID-19:
U.S. Federal Stimulus Funds, through theCARES Act and Provider Relief Fund , Appropriating$178 billion to Health Care Providers. In response to the pandemic,Congress enacted a series of economic stimulus and relief measures throughout 2020. OnMarch 18, 2020 , the Families First Coronavirus Response Act was enacted in theU.S. , providing a temporary 6.2% increase to each qualifying state and territory's Medicaid Federal Medical Assistance Percentage ("FMAP") effectiveJanuary 1, 2020 . The temporary FMAP increase will extend through the last day of the calendar quarter in which the public health emergency terminates. States will make individual determinations about how this additional Medicaid reimbursement will be applied to SNFs, if at all. In a further response to the pandemic, the CARES Act authorized approximately$178 billion to be distributed through theProvider Relief Fund to reimburse eligible healthcare providers for health care related expenses or lost revenues that are attributable to coronavirus.The Provider Relief Fund is administered under the broad authority and discretion of HHS and recipients are not required to repay distributions received to the extent they are used in compliance with applicable requirements. HHS began distributingProvider Relief Fund grants inApril 2020 and has made grants available to various provider groups in three general phases. InMay 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 which were composed of performance-based incentive payments tied to a facility's infection rate. Approximately$8.5 billion in additional funds were added to theProvider Relief Fund through the American Rescue Plan Act enacted onMarch 11, 2021 ; however, these funds are limited to rural providers and suppliers. As ofMarch 15, 2021 , based on data published by HHS, it appears that less than$29 billion of theProvider Relief Fund remains unallocated. HHS continues to evaluate and provide allocations of, and issue regulations and guidance regarding, grants made under the CARES Act and related legislation. There are substantial uncertainties regarding the extent to which our operators will receive funds which have not been allocated, whether additional funds will be allocated to theProvider Relief Fund , health care providers or senior care providers and whether additional payments will be distributed to providers, the financial impact of receiving any of these funds on their 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. 35 Table of Contents The CARES Act and related legislation also made other forms of financial assistance available to healthcare providers, which have the potential to impact our operators to varying degrees. This assistance includes Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash flow to providers. These payments are loans that providers are scheduled to repay beginning one year from the issuance date of each provider's or supplier's accelerated or advance payment, with repayment made through automatic recoupment of 25% of Medicare payments otherwise owed to the provider or supplier for eleven months, followed by an increase to 50% for another six months, after which any outstanding balance would be repaid subject to an interest rate of 4%. We believe these repayments commenced for many of our operators inApril 2021 and have adversely impacted, and will continue to adversely impact, operating cash flows of these operators. Additionally, theCenters for Medicare and Medicaid Services ("CMS") suspended Medicare sequestration payment adjustments, which would have otherwise reduced payments to Medicare providers by 2%, fromMay 1, 2020 throughDecember 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 employerSocial Security taxes that are otherwise owed for wage payments made afterMarch 27, 2020 throughDecember 31, 2020 toDecember 31, 2021 with respect to 50% of the payroll taxes owed, with the remaining 50% deferred untilDecember 31, 2022 .
Quality of
In addition to COVID-19 reimbursement changes, several regulatory initiatives announced in 2020 and the first quarter of 2021 focused on addressing quality of care in long-term care facilities, including those related to COVID-19 testing and infection control protocols, vaccine protocols, staffing levels, reporting requirements, and visitation policies, as well as increased inspection of nursing homes. For example, recent updates to the Nursing Home Care website and the Five Star Quality Rating System include revisions to the inspection process, adjustment of staffing rating thresholds and the implementation of new quality measures. Although the American Rescue Plan Act did not allocate specific funds to SNF or assisted living facility providers, approximately$200 million was allocated to quality improvement organizations to provide infection control and vaccination uptake support to SNFs. OnJune 16, 2020 , theU.S. House of Representatives Select Subcommittee on the Coronavirus Crisis announced the launch of an investigation into the COVID-19 response of nursing homes and the use of federal funds by nursing homes during the pandemic. The Select Subcommittee continued to be active throughout the remainder of 2020 and the first quarter of 2021. InMarch 2021 , the Oversight Subcommittee of theHouse Ways and Means Committee held a hearing on examining the impact of private equity in theU.S. health care system, including the impact on quality of care provided within the skilled nursing industry. These hearings, as well as additional calls for government review of the role of private equity in theU.S. healthcare industry, could result in legislation imposing additional requirements on our operators. 36 Table of Contents 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 beginningApril 1, 2021 throughMarch 30, 2022 in an effort to assist seniors and people with disabilities to receive services safely in the community rather than in nursing homes and other congregate care settings. As a condition for receiving the FMAP increase, states must enhance, expand, or strengthen their Medicaid home and community-based services program during this period. These potential enhancements to Medicaid reimbursement funding may be offset in certain states by state budgetary concerns, the ability of the state to allocate matching funds and to comply with the new requirements, the potential for increased enrollment in Medicaid due to unemployment and declines in family incomes resulting from the COVID-19 pandemic, and the potential allocation of state Medicaid funds available for reimbursement away from SNFs in favor of home and community-based programs. These challenges may particularly impact us in states where we have a larger presence, includingFlorida andTexas . InTexas in particular, several of our operators have historically experienced lower operating margins on their SNFs, as compared to other states, as a result of lower Medicaid reimbursement rates and higher labor costs. Our operators inTexas may also be adversely impacted by the expected expiration, upon expiration of the federally declared public health emergency, of an add-on by the state to the daily reimbursement rate for Medicaid patients during the pandemic. InFlorida , added support to our operators during the pandemic has generally been limited, and our operators in the state may be additionally adversely impacted by the scheduled expiration inDecember 2021 of a three-year temporary Medicaid reimbursement rate increase by the state. Since our operators' profit margins on Medicaid patients are generally relatively low, more than modest reductions in Medicaid reimbursement or an increase in the percentage of Medicaid patients has in the past and may in the future adversely affect our operators' results of operations and financial condition, which in turn could adversely impact us. Medicare. OnJuly 29, 2021 , CMS issued a final rule regarding the government fiscal year 2022 Medicare payment rates and quality payment programs for SNFs, with aggregate Medicare Part A payments projected to increase by$410 million , or 1.2%, for fiscal year 2022 compared to fiscal year 2021. This estimated reimbursement increase is attributable to a 2.7% market basket increase factor less a 0.8 percentage point forecast error adjustment and a 0.7 percentage point productivity adjustment, and a$1.2 million decrease due to the proposed reduction to the SNF prospective payment system rates to account for the recent blood-clotting factors exclusion. The annual update is reduced by two percentage points for SNFs that fail to submit required quality data to CMS under the SNF Quality Reporting Program. CMS has indicated that these impact figures did not incorporate the SNF Value-Based Program reductions that are estimated to be$184.25 million in fiscal year 2022. Payments to providers continue to be increasingly tied to quality and efficiency. The Patient Driven Payment Model ("PDPM"), which was designed by CMS to improve the incentives to treat the needs of the whole patient, became effectiveOctober 1, 2019 . Prior to COVID-19, we believed that certain of our operators could realize efficiencies and cost savings from increased concurrent and group therapy under PDPM and some had reported early positive results. Given the ongoing impacts of COVID-19, many operators are and may continue to be restricted from pursuing concurrent and group therapy and unable to realize these benefits. Additionally, our operators continue to adapt to the reimbursement changes and other payment reforms resulting from the value based purchasing programs applicable to SNFs under the 2014 Protecting Access to Medicare Act, which became effective onOctober 1, 2018 . These reimbursement changes have had and may, together with any further reimbursement changes to PDPM or value-based purchasing models, in the future have an adverse effect on the operations and financial condition of some operators and could adversely impact the ability of operators to meet their obligations to us. 37
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SNFs are under intense scrutiny for ensuring the quality of care being rendered to residents and appropriate billing practices conducted by the facility.The Department of Justice ("DOJ") has historically used the False Claims Act to civilly pursue nursing homes that bill the federal government for services not rendered or care that is grossly substandard. For example,California prosecutors announced inMarch 2021 an investigation into a skilled nursing provider that is affiliated with one of our operators, alleging the chain manipulated the submission of staffing level data in order to improve its Five Star rating. In 2020, the DOJ launched a National Nursing Home Initiative to coordinate and enhance civil and criminal enforcement actions against nursing homes with grossly substandard deficiencies. Such enforcement activities are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these enforcement activities or investigations incurred by our operators may involve injunctive relief and/or substantial monetary penalties, either or both of which could have a material adverse effect on their reputation, business, results of operations and cash flows.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles ("GAAP") in theU.S. Our preparation of the financial statements requires us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and accompanying footnotes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the consolidated financial statements. We have described our accounting policies in Note 2 - Summary of Significant Accounting Policies to our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our critical accounting policies or estimates sinceDecember 31, 2020 .
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
Revenues
Our revenues for the three months endedJune 30, 2021 totaled$257.4 million , an increase of approximately$1.0 million over the same period in 2020. The$1.0 million increase was primarily the result of (i) a$30.4 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions and (ii) a$3.2 million increase in mortgage interest income and other investment income primarily related to new and refinanced mortgages or notes and additional funding to existing operators offset by principal payments. These increases were partially offset by (i) a$21.5 million decrease in rental income primarily resulting from placing certain operators on a cash basis for revenue recognition, (ii) a$2.4 million decrease in rental income resulting from the acceleration of certain in-place lease liabilities, (iii) a$6.8 million decrease in rental income resulting from facility sales and facility transitions and (iv) a$1.6 million decrease in miscellaneous income which is primarily related to an operator's late fees
and reduced management fees. 38 Table of Contents Expenses Expenses for the three months endedJune 30, 2021 totaled$175.1 million , an increase of approximately$7.1 million over the same period in 2020. The$7.1 million increase was primarily due to: (i) a$3.5 million increase in provision for credit losses primarily resulting from a$4.5 million reserve related to a term loan, (ii) a$3.6 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 and (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. These increases were partially offset by a$3.2 million decrease in impairment on real estate properties related to three facilities in the second quarter of 2021 compared to 10 facilities during the same period in 2020.
Other Income (Expense)
For the three months endedJune 30, 2021 , total other income was$4.3 million , a decrease of approximately$8.7 million over the same period in 2020. The decrease was mainly due to an$8.7 million decrease in gain on assets sold related to the sale of six facilities in the second quarter of 2021 compared to the sale of 15 facilities during the same period in 2020.
Six Months Ended
Revenues
Our revenues for the six months endedJune 30, 2021 totaled$531.2 million , an increase of approximately$21.8 million over the same period in 2020. The$21.8 million increase was primarily the result of (i) a$54.7 million increase in rental income resulting from facility acquisitions, facilities placed in service, and facility transitions and (ii) an$8.2 million increase in mortgage interest income and other investment income primarily related to new and refinanced mortgages or notes and additional funding to existing operators. These increases were partially offset by (i) a$29.4 million decrease in rental income resulting from operators placed on a cash basis for revenue recognition, (ii) a$5.3 million decrease in rental income resulting from facility sales and facility transitions, and (iii) a$2.1 million decrease in miscellaneous income which is primarily related to an operator's late fees and reduced management fees. Expenses
Expenses for the six months endedJune 30, 2021 totaled$366.3 million , an increase of approximately$36.0 million over the same period in 2020. The$36.0 million increase was primarily due to: (i) a$21.9 million increase in impairment on real estate properties related to seven facilities compared to 13 facilities during the same period in 2020, (ii) a$6.9 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$4.4 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 (discussed in further detail below), (iv) a$1.8 million increase in acquisition, merger and transition related costs primarily resulting from the Daybreak transition, and (v) a$1.0 million increase in provision for credit losses primarily resulting from a$4.5 million reserve related to a term loan, increases in loan balances and increases in average time to maturity offset by decreases in loss rates compared to the
same period in 2020. Other Income (Expense) For the six months endedJune 30, 2021 , total other income was$75.2 million , an increase of approximately$61.2 million over the same period in 2020. The increase was mainly due to a$89.8 million increase in gain on assets sold related to the sale of 30 facilities compared to the sale of 21 facilities during the same period in 2020 offset by a$30.1 million increase in loss on debt extinguishment primarily related to fees, premiums, and expenses related to the purchase of$350 million of the 4.375% Senior Notes due 2023 during the
first quarter of 2021. 39 Table of Contents
National Association of Real Estate Investment Trusts Funds From Operations
Our funds from operations ("Nareit FFO") for the three months endedJune 30, 2021 was$180.8 million compared to$186.5 million for the same period in 2020. Our Nareit FFO for the six months endedJune 30, 2021 was$351.1 million compared to$367.5 million for the same period in 2020. We calculate and report Nareit FFO in accordance with the definition of Funds from Operations and interpretive guidelines issued by theNational 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. 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 and six months endedJune 30, 2021 and 2020: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (in thousands) Net income$ 86,863 $ 101,960 $ 251,229 $ 194,239 Deduct gain from real estate dispositions (4,123) (12,843) (104,465) (14,681) Add back loss (deduct gain) from real estate dispositions - unconsolidated joint ventures 177 (1,838)
(14,747) (1,955)
82,917 87,279 132,017 177,603 Elimination of non-cash items included in net income: Depreciation and amortization 85,799 83,586 170,648 166,229 Depreciation - unconsolidated joint ventures 3,067 3,550 6,428 7,182 Add back impairments on real estate properties 8,822 11,988 37,511 15,627 Add back impairments on real estate properties - unconsolidated joint ventures 252 - 4,430 - (Deduct) add back unrealized (gain) loss on warrants (29) 65 43 840 Nareit FFO$ 180,828 $ 186,468 $ 351,077 $ 367,481 40 Table of Contents
Portfolio and Recent Developments
The following table summarizes the significant asset acquisitions that occurred during the first six months of 2021:
Number of Total Initial Facilities Country/ Investment Annual
Period SNF ALF Specialty State
(in millions) Cash Yield(1) Q1 - 17 7 AZ, CA, FL, IL, NJ, OR, PA, TN, TX, VA, WA $ 511.3 (2) 8.43 % Q1 6 - - FL 83.1 9.25 % Total 6 17 7 $ 594.4
(1) The initial annual cash yield reflects the initial cash rent divided by the
purchase price.
On
(2) Inc. The acquisition involved the assumption of an in-place master lease with
Brookdale Senior Living Inc.
During the second quarter of 2021, we acquired one parcel of land (not reflected
in the table above) for approximately
Other Recent Developments
OnJuly 1, 2021 , the Company financed six SNFs inOhio and amended an existing$6.4 million mortgage to include the six facilities in a consolidated$72.4 million mortgage for eightOhio facilities bearing interest at an initial rate of 10.5% per annum. In conjunction with this transaction, the Company also acquired threeMaryland facilities that were previously subject to a mortgage issued by the Company bearing interest at 13.75% per annum with a principal balance of$36.0 million . The purchase price for these three facilities was equal to the remaining mortgage principal amount, and the three acquiredMaryland facilities were subsequently leased back to the seller for a term expiring onDecember 31, 2032 , assuming Omega exercises the options under the agreement. The base rent in the initial year is approximately$5.0 million and includes annual escalators of 2.5%. OnJuly 1, 2021 , the Company also entered into a$12.0 million revolving credit facility agreement with this operator for working capital expenses for the eightOhio facilities discussed above with a maturity date ofJune 30, 2022 . The credit facility bears interest at 10% per annum. OnJuly 14, 2021 , the Company acquired twoU.K. facilities for$9.5 million and entered into a lease with an existing operator with an initial term expiring onApril 23, 2027 . The base rent in the initial year is approximately$0.8 million and includes annual escalators of 2.5%.
Asset Sales, Impairments, Contractual Receivables and Other Receivables and Lease Inducements
Asset Sales
During the first quarter of 2021, we sold 24 facilities subject to operating leases for approximately$188.3 million in net cash proceeds, recognizing a net gain of approximately$100.3 million . During the second quarter of 2021, we sold six facilities subject to operating leases for approximately$12.9 million in net cash proceeds, recognizing a net gain of approximately$4.1 million . As ofJune 30, 2021 , we have nine facilities and one parcel of land, totaling$35.3 million , classified as assets held for sale. We expect to sell these facilities over the next twelve months. 41 Table of Contents Impairments During the first quarter of 2021, we recorded impairments on real estate properties of approximately$28.7 million on four facilities (three were subsequently reclassified to assets held for sale in the first quarter of 2021). During the second quarter of 2021, we recorded impairments on real estate properties of approximately$8.8 million on three facilities (all three were subsequently reclassified to assets held for sale in the second quarter of 2021). Our recorded impairments were primarily the result of decisions to exit certain non-strategic facilities and/or operators. We reduced the net book value of the impaired facilities to their estimated fair values or, with respect to the facilities reclassified to held for sale, to their estimated fair values less costs to sell. To estimate the fair value of the facilities, we utilized a market approach which considered binding sale agreements (a Level 1 input) and/or non-binding offers from unrelated third parties and/or broker quotes (a Level 3 input).
Contractual Receivables, Other Receivables and Lease Inducements
A summary of our net receivables by type is as follows:
June 30, December 31, 2021 2020 (in thousands) Contractual receivables - net$ 10,948 $ 10,408
Effective yield interest receivables
138,449 139,046 Lease inducements 79,506 83,425
Other receivables and lease inducements
During the first and second quarters of 2021, we wrote-off approximately$2.7 million and$17.4 million , respectively, of straight-line rent receivables to rental income as a result of transitioning one facility and placing two operators on a cash basis due to changes in our evaluation of the collectibility of future rent payments due under the lease agreements. Based on our evaluation of the collectibility of future rent payments due under the lease agreements for the two operators discussed above, we do not believe it is probable that we will be able to collect substantially all rents due. These two operators generated approximately 3% of our total revenues (excluding the impact of straight-line rent receivable write-offs in 2021) for the six months endedJune 30, 2021 and 2020. For the six months endedJune 30, 2021 , we have been unable to collect approximately$3.5 million of contractual rents due from these operators. We have applied$2.5 million of one of the operator's security deposit funds against their uncollected receivables, which represents one month of contractual rent under the lease agreement. We have subordinated debt to a third party with an outstanding principal balance of$20 million that matures inDecember 2021 (see Note 13 - Borrowing Arrangements in our Annual Report on
Form 10-K for the year ended
Other Investments
Genesis
OnMarch 6, 2018 , we amended certain terms of our$48.0 million secured term loan with Genesis Healthcare, Inc. ("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 was initially scheduled to mature onJuly 29, 2020 . The maturity date of this loan was extended during the first quarter of 2021 toJanuary 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 ofJune 30, 2021 , approximately$68.2 million is outstanding on this term loan. 42
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Also onMarch 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 was initially scheduled to mature onJuly 29, 2020 . The maturity date of this loan was extended during the first quarter of 2021 toJanuary 1, 2024 . As ofJune 30, 2021 , approximately$18.9 million is outstanding on this term loan. Daybreak
During the first quarter of 2021, we transitioned 14Daybreak Ventures, LLC ("Daybreak") facilities to existing operators and sold two Daybreak facilities. During the second quarter of 2021, we sold the two remaining Daybreak facilities. The total annual rent or rent equivalents achieved through transitioning the Daybreak portfolio equal$16.6 million . OnApril 6, 2021 , we terminated the Daybreak master lease and exited that relationship.
We continue to closely monitor the performance of all of our operators, as well as industry trends and developments generally.
Liquidity and Capital Resources
At
Financing Activities and Borrowing Arrangements
Revolving Credit Facility
OnApril 30, 2021 , Omega entered into a credit agreement (the "2021 Omega Credit Agreement") providing us with a new$1.45 billion senior unsecured multicurrency revolving credit facility (the "Revolving Credit Facility"), replacing our previous$1.25 billion senior unsecured 2017 multicurrency revolving credit facility (the "2017 Revolving Credit Facility"). The 2021 Omega Credit Agreement contains an accordion feature permitting us, subject to compliance with customary conditions, to increase the maximum aggregate commitments thereunder to$2.5 billion , by requesting an increase in the aggregate commitments under the Revolving Credit Facility or by adding term loan tranches. The Revolving Credit Facility bears interest at LIBOR (or in the case of loans denominated in GBP, the Sterling overnight index average reference rate plus an adjustment of 0.1193% per annum) plus an applicable percentage (with a range of 95 to 185 basis points) based on our credit ratings. The Revolving Credit Facility matures onApril 30, 2025 , subject to Omega's option to extend such maturity date for two six-month periods. The Revolving Credit Facility may be drawn in Euros, GBP, Canadian Dollars (collectively, "Alternative Currencies") orU.S. Dollars ("USD"), with a$1.15 billion tranche available in USD and a$300 million tranche available in Alternative Currencies. For purposes of the Revolving Credit Facility, references to LIBOR include the Canadian dealer offered rates for amounts offered in Canadian Dollars and any other Alternative Currency rate approved in accordance with the terms of the 2021 Omega Credit Agreement for amounts offered in any other non-London interbank offered rate quoted currency, as applicable.
We incurred
OP Term Loan OnApril 30, 2021 , Omega OP entered into a credit agreement (the "2021 Omega OP Credit Agreement") providing it with a new$50 million senior unsecured term loan facility (the "OP Term Loan"). The OP Term Loan replaces the$50 million senior unsecured term loan obtained in 2017 (the "2017 OP Term Loan") and the related credit agreement. The OP Term Loan bears interest at LIBOR plus an applicable percentage (with a range of 85 to 185 basis points) based on our credit ratings. The OP Term Loan matures onApril 30, 2025 , subject to Omega OP's option to extend such maturity date for two, six-month periods.
We incurred
43 Table of Contents
InMarch 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 onApril 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.
OnMarch 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 onAugust 1, 2023 and expire onAugust 1, 2033 and were issued at a fixed rate of approximately 0.8675%. InMarch 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 ("AOCI") 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 inMarch 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. DuringMarch 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 onMarch 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 AOCI as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI 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 atJune 30, 2021 that were registered under the Securities Act of 1933, as amended. The senior notes are guaranteed by Omega OP. TheSEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities, such as our senior notes. As a result of these amendments, registrants are permitted to provide certain alternative financial and non-financial disclosures, to the extent material, in lieu of separate financial statements for subsidiary issuers and guarantors of registered debt securities. Accordingly, separate consolidated financial statements of Omega OP have not been presented. Parent and Omega OP, on a combined basis, have no material assets, liabilities or operations other than financing activities (including borrowings under the outstanding senior notes, the Revolving Credit Facility and the OP Term Loan) and their investments in non-guarantor subsidiaries. 44
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Omega OP is currently the sole guarantor of our senior notes. The guarantees by Omega OP of our senior notes are full and unconditional and joint and several with respect to the payment of the principal and premium and interest on our senior notes. The guarantees of Omega OP are senior unsecured obligations of Omega OP that rank equal with all existing and future senior debt of Omega OP and are senior to all subordinated debt. However, the guarantees are effectively subordinated to any secured debt of Omega OP. As ofJune 30, 2021 , there were no significant restrictions on the ability of Omega OP to make distributions to Omega.
At-The-Market Offering Programs
During the third quarter of 2015, Omega entered into Equity Distribution Agreements with several financial institutions to sell$500.0 million of shares of common stock from time to time through an "at-the-market" ("ATM") offering program (the "2015 ATM Program"). During the second quarter of 2021, the we terminated the 2015 ATM Program and entered into a new ATM Equity Offering Sales Agreement pursuant to which shares of common stock having an aggregate gross sales price of up to$1.0 billion (the "2021 ATM Program") may be sold from time to time (i) by Omega through several financial institutions acting as a sales agent or directly to the financial institutions as principals, or (ii) by several financial institutions acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement. Under the 2021 ATM Program, compensation for sales of the shares will not exceed 2% of the gross sales price per share for shares sold through each financial institution. The use of forward sales under the 2021 ATM Program generally allows Omega to lock in a price on the sale of shares of common stock when sold by the forward sellers but defer receiving the net proceeds from such sales until the shares of our common stock are issued at settlement on a later date. We did not utilize the forward provisions under the 2021 ATM Program during the three months endedJune 30, 2021 .
The table below presents information regarding the shares issued under the 2021
and 2015 ATM Programs for the three and six months ended
Shares issued AverageNet Price Gross
Proceeds Commissions Net Proceeds
Period Ended (in millions) Per Share(1) (in millions) Three Months Ended June 30, 2020 - $ - $ - $ - $ - Three Months Ended June 30, 2021 2.5 36.23 92.4 1.9 90.5 Six Months Ended June 30, 2020 0.1 36.18 2.0 0.2 1.8 Six Months Ended June 30, 2021 4.1 36.60 153.8 3.2 150.6
(1) Represents the average price per share after commissions.
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 and six
months ended
Shares issued Gross Proceeds Period Ended (in millions) (in millions) Three Months Ended June 30, 2020 - $ - Three Months Ended June 30, 2021 1.6 61.8 Six Months Ended June 30, 2020 0.1 3.7 Six Months Ended June 30, 2021 2.0 77.3 45 Table of Contents 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 atJune 30, 2021 , are outlined in the table below (in thousands): Total commitments$ 539,528 Amounts funded to date (1) (415,281) Remaining commitments (2)$ 124,247
(1) Includes finance costs.
(2) This amount excludes our remaining commitments to fund under our other
investments of approximately
Dividends
As a REIT, we are required to distribute dividends (other than capital gain dividends) to our stockholders in an amount at least equal to (A) the sum of (i) 90% of our "REIT taxable income" (computed without regard to the dividends paid deduction and our net capital gain), and (ii) 90% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income. In addition, if we dispose of any built-in gain asset during a recognition period, we will be required to distribute at least 90% of the built-in gain (after tax), if any, recognized on the disposition of such asset. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration. In addition, such distributions are required to be made pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that such class is entitled to such a preference. To the extent that we do not distribute all of our net capital gain or do distribute at least 90%, but less than 100% of our "REIT taxable income" as adjusted, we will be subject to tax thereon at regular ordinary and capital gain corporate tax rates. For the six months endedJune 30, 2021 , we paid dividends of approximately$316.5 million to our common stockholders. OnFebruary 16, 2021 , we paid dividends of$0.67 per outstanding common share to the common stockholders of record as of the close of business onFebruary 8, 2021 . OnMay 17, 2021 , we paid dividends of$0.67 per outstanding common share to the common stockholders of record as of the close of business onMay 3, 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.
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.
46 Table of Contents 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$104.6 million as ofJune 30, 2021 , a decrease of$63.0 million as compared to the balance atDecember 31, 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$378.3 million of net cash flow for the six months endedJune 30, 2021 , as compared to$329.4 million for the same period in 2020, an increase of$48.9 million , which is primarily driven by an increase of$45.9 million of net income, adjusted for non-cash items, due to revenue growth as a result of facility acquisitions and transitions, investments in mortgages and other investments. A$3.0 million change in the net movements of the operating assets and liabilities, primarily driven by a reduction in lease inducements provided to our operators, also contributed to the overall increase in cash provided by operating activities. Investing Activities - Net cash flow from investing activities was an outflow of$387.1 million for the six months endedJune 30, 2021 , as compared to an outflow of$96.7 million for the same period in 2020. The$290.4 million change in cash flow from investing activities related primarily to (i) a$579.0 million increase in real estate acquisitions and (ii) a$8.5 million increase in investments in unconsolidated joint ventures, offset by (i) a$145.1 million increase in proceeds from the sales of real estate investments, (ii) a$79.6 million increase in mortgages collections, net of placements, (iii) a$38.5 million decrease in investment in construction in progress and capital expenditures, (iv) a$27.4 million increase in other investment proceeds, net of new investments, (v) a$3.1 million increase in receipts from insurance proceeds and (vi) 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 outflow of$54.3 million for the six months endedJune 30, 2021 , as compared to an outflow of$224.1 million for the same period in 2020. The$169.8 million change in cash provided by financing activities was primarily related to (i) a$148.9 million increase in cash proceeds from the issuance of common stock in 2021, as compared to the same period in 2020, (ii) a$73.5 million increase in net proceeds from our dividend reinvestment plan in 2021, as compared to the same period in 2020 and (iii)$7.8 million increase in proceeds from other long-term borrowings, net of repayments offset by (i) a$48.1 million increase in payment of financing related costs and (ii) a$9.4 million increase in dividends paid.
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