FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2018

NOTE 14 - FINANCIAL INSTRUMENTS

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

At December 31, 2018 and 2017, the net carrying amounts and fair values of other financial instruments were as follows:


	December 31, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(in thousands)
Assets:
Investments in direct financing leases – net	$	132,262	$	132,262	$	364,965	$	364,965
Mortgage notes receivable – net		710,858		735,892		671,232		686,772
Other investments – net		504,626		503,907		276,342		281,031
Total	$	1,347,746	$	1,372,061	$	1,312,539	$	1,332,768
Liabilities:
Revolving line of credit	$	313,000	$	313,000	$	290,000	$	290,000
U.S. term loan		423,065		425,000		422,498		425,000
Sterling term loan		127,394		127,990		134,360		135,130
Omega OP term loan(1)		99,553		100,000		99,423		100,000
2015 term loan		248,713		250,000		248,390		250,000
4.375% notes due 2023 – net		694,643		700,062		693,474		711,190
4.95% notes due 2024 – net		394,691		406,386		393,680		420,604
4.50% notes due 2025 – net		395,402		392,122		394,640		399,874
5.25% notes due 2026 – net		595,027		605,700		594,321		625,168
4.50% notes due 2027 – net		687,981		671,555		686,516		681,007
4.75% notes due 2028 – net		540,883		537,508		539,882		550,667
HUD debt – net(1)		—		—		53,098		51,817
Subordinated debt – net		20,270		22,589		20,376		23,646
Other		—		—		1,500		1,500
Total	$	4,540,622	$	4,551,912	$	4,572,158	$	4,665,603

(1)These amounts represent borrowings that were incurred by Omega OP or wholly owned subsidiaries of Omega OP.

Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument (see Note 2 – Summary of Significant Accounting Policies). The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts.

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

Direct financing leases: The fair value of the investments in direct financing leases, excluding those related to Orianna, are estimated using a discounted cash flow analysis, using interest rates being offered for similar leases to borrowers with similar credit ratings (Level 3). For the Orianna direct financing lease as of December 31, 2018, the Company estimated the fair value of its investment based on the expected liquidating payments from the Trust as further described in Note 4 – Direct Financing Leases (Level 3). For the Orianna direct financing lease as of December 31, 2017, the Company estimated the fair value of its investment based on the collateral using an income approach considering inputs such as, current and projected operating performance of the facilities, projected rent, prevailing capitalization rates and/or coverages and bed values (Level 3).

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

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

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

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

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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