NOTE 15 – DERIVATIVES AND HEDGING

We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our investments in the U.K. and interest rate risk related to our capital structure. As a matter of policy, we do not use derivatives for trading or speculative purposes. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, interest rate swaps and debt issued in foreign currencies to offset a portion of these risks.

Derivatives Designated as Hedging Instruments

As of December 31, 2025, we have nine interest rate swaps with $300.0 million in notional value. The swaps are designated as cash flow hedges of the interest payments on one of Omega’s variable interest loans. Additionally, we have 11 foreign currency forward contracts with £258.0 million in notional value issued at a weighted average GBP-USD forward rate of 1.2899 that are designated as net investment hedges.

Cash Flow Hedges of Interest Rate Risk

We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements are used to hedge the variable cash flows associated with variable-rate debt.

On March 27, 2020, we entered into five forward starting swaps totaling $400 million, indexed to 3-month LIBOR, that were issued at a weighted average fixed rate of approximately 0.8675% and were subsequently designated 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 had an effective date of August 1, 2023 and an expiration date of August 1, 2033. In conjunction with the October 2020 issuance of $700 million of 3.375% Senior Notes due 2031 and the March 2021 issuance of $700 million aggregate principal amount of our 3.25% Senior Notes due 2033, we applied hedge accounting for these five forward starting swaps and began amortization. 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 were 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). As a result of these transactions, the aggregate unrealized gain of $41.2 million ($9.5 million gain related to the October 2020 issuance and $31.7 million gain related to the March 2021 issuance) included within accumulated other comprehensive income at the time of the bond issuances is being ratably reclassified as a reduction to interest expense, net over 10 years. On May 30, 2023, the five forward starting swaps were terminated, and Omega received a net cash settlement of $92.6 million from the swap counterparties. The incremental $51.4 million of gains related to the forward swaps, recorded in accumulated other comprehensive income, were frozen at the time of termination and will be recognized ratably over 10 years in earnings when the next qualifying debt issuance occurs. Consistent with our accounting policy and historical practice, the $92.6 million net cash settlement from the forward swap termination is reflected within net cash used in financing activities in the Consolidated Statements of Cash Flows. The $600 million of 2030 Senior Notes that were issued in June 2025, as discussed further in Note 14 – Borrowing Arrangements, were determined to be a qualifying issuance, and amortization of the $51.4 million began as of the issuance date of the 2030 Senior Notes. The amortization is recorded as a reduction to interest expense.

In August 2023, we entered into ten interest rate swaps with $400.0 million in notional value. The swaps are effective August 14, 2023 and terminate on August 6, 2027. The interest rate swaps were originally designated as hedges against our exposure to changes in interest payment cash flows as a result of the variable interest rate on the 2026 Term Loan. In September 2023, in connection with the exercise of the accordion feature on the 2026 Term Loan, we entered into one additional interest rate swap with $28.5 million in notional value to hedge the additional $28.5 million under the 2026 Term Loan. This swap was effective September 29, 2023 and terminates on August 6, 2027. These 11 interest rate swap contracts effectively converted our $428.5 million 2026 Term Loan to a new combined aggregate fixed rate of approximately 5.597% until the 2026 Term Loan was amended in the third quarter of 2025 to reduce the interest rate margins by 35 basis points, resulting in a new combined aggregate fixed rate of approximately 5.247%. Upon the repayment of the 2026 Term Loan in the fourth quarter of 2025, we redesignated nine of the interest rate swaps, with $300 million of notional value, as hedges against our exposure to changes in interest payment cash flows on the 2028 Term Loan. These nine interest rate swap contracts effectively convert our 2028 Term Loan to a new combined aggregate fixed rate of approximately 5.219% through its maturity. We terminated two of the interest rates swaps with notional value of $128.5 million and paid our swap counterparty $1.7 million that is recorded within other income – net in the Consolidated Statements of Operations for the year ended December 31, 2025.

Foreign Currency Forward Contracts and Debt Designated as Net Investment Hedges

We have historically used debt denominated in GBP and foreign currency forward contracts to hedge a portion of our net investments, including certain intercompany loans, in the U.K. against fluctuations in foreign exchange rates.

In March 2021, we entered into four foreign currency forward contracts with notional amounts totaling £174.0 million, that matured on March 8, 2024, to hedge a portion of our net investments in the U.K., including an intercompany loan and an investment in our U.K. JV, effectively replacing the terminated net investment hedge. The forwards were issued at a weighted average GBP-USD forward rate of 1.3890. On December 27, 2023, we terminated two of these foreign currency forward contracts with notional amounts totaling £104.0 million. Omega received a net cash settlement of $11.4 million as a result of termination, which is included within net cash used in investing activities in the Consolidated Statements of Cash Flows. On February 27, 2024, we terminated the remaining two foreign currency forward contracts that were entered into in March 2021 with notional amounts totaling £70.0 million. Omega received a net cash settlement of $8.4 million as a result of termination. Both cash settlements are included within net cash used in investing activities in the Consolidated Statements of Cash Flows. The aggregate $19.8 million related to the terminations will remain in accumulated other comprehensive income until the underlying hedged items are liquidated.

On May 17, 2022, we entered into two foreign currency forward contracts with notional amounts totaling £76.0 million and a GBP-USD forward rate of 1.3071, each of which mature on May 21, 2029. On December 27, 2023, we entered into six foreign currency forward contracts with notional amounts totaling £104.0 million and a GBP-USD forward rate of 1.2916, each of which mature between March 8, 2027 and March 8, 2030. On February 27, 2024, we entered into three foreign currency forward contracts with notional amounts totaling £78.0 million and a GBP-USD forward rate of 1.2707, each of which mature between March 8, 2027 and March 7, 2031. The aforementioned foreign currency forward contracts hedge a portion of our net investments in U.K. subsidiaries, including an intercompany loan.

Derivatives Not Designated as Hedging Instruments

We enter into foreign currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the USD, our reporting currency, and GBP. These derivative contracts generally mature within one year and are not designated as hedge instruments for accounting purposes.

In connection with funding a $344.2 million acquisition in the U.K. (see Note 3 – Real Estate Asset Acquisitions and Development), in April 2025, Omega entered a GBP/USD currency forward with a notional value of £90.0 million and a GBP-USD forward rate of 1.2733. The swap was settled on the closing date of the acquisition, and we recorded a $5.2 million gain from its termination within other income – net in the Consolidated Statements of Operations for the year ended December 31, 2025.

In the third quarter of 2025, Omega entered into six GBP/USD currency forwards with notional amounts totaling £108.0 million and a weighted average GBP-USD rate of 1.3600, each of which mature between October 2, 2025 and January 5, 2027. We recognized unrealized gains of $1.0 million and realized gains of $0.9 million related to these swaps that are recorded within other income – net in the Consolidated Statements of Operations for the year ended December 31, 2025. As of December 31, 2025, we have five GBP/USD currency forwards remaining with notional amounts totaling £81.0 million and a weighted average GBP-USD rate of 1.3615, each of which mature between January 5, 2026 and January 5, 2027.

The location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:

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The fair value of the interest rate swaps and foreign currency forwards is derived from observable market data such as yield curves and foreign exchange rates and represents a Level 2 measurement on the fair value hierarchy.