Omega Healthcare Investors Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2025

There are 16 speakers on the call.

Operator

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Omega Healthcare Investors Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Thank you.

Operator

I would now like to turn the call over to Michelle River. Please go ahead.

Speaker 1

Thank you and good morning. With me today is Omega's CEO, Taylor Pickett President, Matthew Gorman CFO, Bob Stevenson CIO, Vikas Gupta and Megan Kroll, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward looking statements, such as statements regarding our financial projections, potential transactions, operator prospects and outlook generally. Factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the company's filings with the SEC. During the call today, we will refer to some non GAAP financial measures, such as NAREIT FFO, adjusted FFO, FAD and EBITDA.

Speaker 1

Reconciliations of these non GAAP measures to the most comparable measure under Generally Accepted Accounting Principles are available in the quarterly supplement. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor.

Speaker 2

Thanks, Michelle. Good morning, and thank you for joining our fourth quarter twenty twenty four earnings conference call. Today, I will discuss our fourth quarter financial results, management changes and certain key operating trends. Fourth quarter FAD, funds available for distribution of $0.7 per share, reflects continued revenue and EBITDA growth, which has allowed us to reduce leverage to below four point zero times debt to EBITDA, while continuing to deliver that growth in 2024. Our 2025 AFFO guidance is $2.9 per share to $2.98 per share, which reflects the first quarter twenty twenty five dilutive impact of our significant fourth quarter share issuances offset by escalators and other opportunities throughout 2025.

Speaker 2

We recently announced management changes with Matthew Gorman named President and Vikas Gupta named Chief Investment Officer. I am extremely confident in their ability to lead our exceptional team in the upcoming years. I would also like to thank Dan Booth. I had the opportunity to work with Dan for over thirty years, twenty three years here at Omega. Dan's many contributions to Omega were an important driver of Omega's outperformance of not only other healthcare REITs, but all REITs over the last twenty three years.

Speaker 2

Lastly, in 2024, the team did a great job staying disciplined while sourcing and closing 36 transactions, deploying approximately $1,100,000,000 in capital. The 2025 acquisition pipeline remains active. I will now turn the call over to Bob.

Speaker 3

Thanks, Taylor, and good morning. Turning to our financials for the fourth quarter. Revenue for the fourth quarter was $279,000,000 compared to $239,000,000 for the fourth quarter of twenty twenty three. The year over year increase is primarily the result of the timing and impact of revenue from new investments completed throughout 2024, operator restructurings and transitions, partially offset by asset sales completed during that same time period. Our NAREIT FFO for the fourth quarter was $196,000,000 or $0.68 per share as compared to $129,000,000 or $0.5 per share for the fourth quarter of twenty twenty three.

Speaker 3

Our adjusted FFO was $214,000,000 or $0.74 per share for the quarter and our FAD was $2.00 $2,000,000 or $0.7 per share and both exclude several items outlined in our NAREIT FFO, adjusted FFO and FAD reconciliations to net income down in our earnings release as well as our fourth quarter financial supplemental posted to our website. Our Q4 FAD was just under $0.05 greater than our Q3 FAD, which is impressive. If you remember in Q3, we issued 14,000,000 shares for $530,000,000 in gross proceeds at an average price of $37.32 share. These 14,000,000 shares issued at the end of the third quarter were not fully included within the weighted average third quarter share count. As outlined in our earnings press release, during the fourth quarter, we completed $340,000,000 in new investments and funded the investments through the issuance of an additional 11,000,000 shares of equity for gross proceeds totaling $438,000,000 at an average price of $40.19 per share.

Speaker 3

Our balance sheet remains strong at year end as we ended the year with over $500,000,000 in cash that was used to repay a $400,000,000 bond on 01/15/2025. We ended the month of January with over $240,000,000 in cash, the full borrowing capacity of our $1,450,000,000 credit facility and approximately $820,000,000 available under our ATM program, all ready to deploy as needed in new investments. As long as our equity currency remains favorable, we will continue to pre fund investments by issuing equity. At December 31, '90 '5 percent of our $4,900,000,000 in debt was at fixed rates and our fixed charge coverage ratio was 4.7 times and our net funded debt to annualized adjusted normalized EBITDA was 3.96 times, which is the lowest our leverage has been in ten years. We still have a target leverage range between four to five times with the sweet spot being between 4.5 times to 4.75 times.

Speaker 3

As we continue to fund acquisitions accretively with equity, we position ourselves for outsized AFFO growth once we decide to reenter the bond market. As Taylor mentioned, we provided our full year adjusted FFO guidance of a range between $2.9 to $2.98 per share. A few of the key 2025 guidance assumptions are, we're assuming no change in our revenue related to operators on accrual basis of revenue recognition. As a note, over 75% of our operators are currently on a straight line basis of accounting, which means any growth in revenue through annual escalators will not yield further growth in adjusted FFO, but growth in cash flow. We're assuming Maplewood's ability to pay contractual rent continues to improve.

Speaker 3

Of the $260,000,000 in mortgages and other real estate backed investments contractually maturing in 2025, dollars '1 hundred and '20 '4 million will convert from loans to fee simple real estate and $28,000,000 will be repaid throughout 2025. We are assuming the balance of the loans will be extended beyond 2025. We're assuming $56,000,000 in asset sales related to assets classified as held for sale, which we recorded $1,900,000 of revenue in the fourth quarter. We've included the impact of new investments completed as of February 5. We project our quarterly G and A expense to run between $12,000,000 to $14,000,000 in 2025 with the first quarter typically being the highest quarter.

Speaker 3

We assume we will repay our $230,000,000 of secured debt in November 2025. We assume no material changes in market interest rates as they relate to either interest earned on balance sheet cash or interest expense charge on credit facility borrowings. Finally, consistent with how we ended 2024, we assume we will position ourselves with enough cash on the balance sheet by the end of twenty twenty five to repay our January 2026 '6 hundred million dollars bond maturity. As a reminder, to the extent our equity currency remains favorable and we continue to pre fund investments or prepare for debt maturities for every 4,000,000 shares issued, assuming shares are issued at prices consistent with 2024 our quarterly adjusted FFO is negatively impacted by slightly less than $0.01 per share, while our leverage improves or is reduced by approximately 0.15 times until the cash is put back to work in new investments. Our 2025 adjusted FFO guidance does not include any additional investments or asset sales as well as any additional capital transactions other than what I just mentioned or what was included in the earnings release.

Speaker 3

I will now turn the call over to Vikas.

Speaker 4

Thank you, Bob, and good morning, everyone. Today, we'll be discussing the most recent performance trends for Omega's operating portfolio and Omega's investment activity in 2024 and share insight into Omega's pipeline for 2025. Turning to portfolio performance. Trailing twelve month operator EBITDAR coverage for our core portfolio as of 09/30/2024, increased to 1.5x versus 1.49x for the trailing twelve month period ended 06/30/2024. We want to highlight that the most recent quarter's performance is a continuation of trailing twelve month coverage improvement across our portfolio over the past year.

Speaker 4

These ongoing improvements were reflective of the strength and expertise of Omega's operating partners, the resolution of nearly all of Omega's portfolio restructurings over recent years and the disciplined allocation of new investment capital over the past year. Despite continued pressures from suboptimal labor and reimbursement levels in select markets, the industry landscape continues to improve as a result of the growing aging population and our operators' ability to serve an increasingly complex resident population. However, with occupancy now approaching pre COVID levels, we would expect any future coverage increases to be more modest. As of today, the only major operator Omega is engaged in restructuring activity with is Lavee. Lavee continues to work towards exiting bankruptcy in the second quarter of twenty twenty five, but the effective date of such exit is conditioned upon the rulings on pending motions before the bankruptcy court.

Speaker 4

In the interim, Omega expects to continue to receive full contractual rent of $3,100,000 per month or $37,500,000 per annum. Turning to new investments. As Taylor previously mentioned, Omega's transaction pipeline in 2024 was very strong with over $1,100,000,000 in new investments. These transactions varied in size and nature to demonstrate Omega's ability to adapt to the evolving investment landscape in the long term care industry. In 2024, we continue to support the growth of our existing and new operators by focusing on strong credit backed real estate investments and real estate loans with exceptional returns that often provide Omega with the ultimate opportunity for real estate ownership.

Speaker 4

Specifically, of the approximately $359,000,000 or 31% of Omega's new investments in 2024 that were real estate loans, over $124,000,000 or one third of those loans provide Omega with the opportunity to acquire the underlying real estate upon maturity, with long term triple net lease structures already negotiated. The balance of new real estate loans made in 2024 supported existing operator relationships or facilitated our borrowers' acquisitions of distressed assets at prices well below replacement costs. Also, The UK was a large driver of our 2024 new investments, totaling over $782,000,000 dollars or 68% of our total new investments. We've been investing in The UK for over a decade now and have accumulated a strong bench of operators and other relationships there, which lead us to highly accretive investment opportunities. Looking at the fourth quarter of twenty twenty four, Omega completed a total of $363,000,000 in new investments, inclusive of $23,000,000 in CapEx.

Speaker 4

The new investments include $179,000,000 in real estate acquisitions across four transactions, which have an average initial annual cash yield of nine point nine percent and $162,000,000 in real estate loans, which have a weighted average interest rate of 10.9%. A large portion of these new real estate loans, $101,000,000 or 62% provide Omega with the opportunity to acquire the underlying real estate upon maturity. Subsequent to the fourth quarter of twenty twenty four, Omega closed on $26,000,000 in new investments, excluding CapEx. These investments include a $10,600,000 acquisition of two facilities with an initial cash yield of 9.9% via new lease with a new operator and a $15,400,000 mortgage to an existing operator for two facilities with an 11% interest rate. Turning to the pipeline.

Speaker 4

Omega's pipeline and transaction outlook for 2025 continues to be quite healthy. We continue to see marketed opportunities both in The U. S. And The U. K, while also benefiting from off market opportunities that our existing operating partners and other relationships bring us.

Speaker 4

Based on the current lending environment, it is our expectation that we will continue to receive inquiries for real estate loans. While we continue to evaluate and engage in select loan opportunities, primarily for existing operator relationships, our priority will always be to allocate capital towards accretive owned real estate deals that grow our balance sheet. I will now turn the call over to Megan.

Speaker 5

Thanks, Vikas, and good morning, everyone. As with the start of any new administration, there are a lot of unknowns before us. And while it is too soon to tell what lies ahead, there are many reasons to feel secure about where we currently stand. As Vikas mentioned, coverages are the strongest they've been in years, which is reflective of the continuing recovery from the pandemic. The industry still grapples with the overhang of many issues, most notably staffing shortages, but for now things appear relatively stable.

Speaker 5

While the Trump agenda specifically calls entitlement reform into the forefront of potential policy changes, we also know that President Trump supported this industry with government aid when it was the most critical during COVID. We hope that understanding of the importance of this industry hasn't been lost. We continue to monitor the various efforts against the staffing mandate. As I noted last quarter, a motion for summary judgment was filed in the federal court case in the state of Texas brought by certain industry associations amongst others, which we still hear could be decided as early as the end of this quarter or early next quarter. While the 20 attorneys general who filed suit against the mandate in federal court in Iowa lost their plea for preliminary injunction, their case continues moving forward as well.

Speaker 5

Irrespective of the court cases, a legislative repeal is still very much a possibility given that the reversal of the rule would stand to save the federal government $22,000,000,000 over ten years according to the Congressional Budget Office. We are still very hopeful that the rule will ultimately be overturned and we hope that any future rulemaking surrounding reimbursement or regulation is done so with an even hand and an understanding of what is truly at stake. I will now open the call up for questions.

Operator

Your first question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Speaker 6

Hi, good morning. Thanks for the prepared remarks and commentary and congrats to Matthew and Vikas on their new roles and Dan on a great career. Vikas, I was hoping you could share some more details of what the investment pipeline looks like today in terms of dollar size, yields and then fee simple acquisitions versus loans?

Speaker 4

Yes. Thanks, Jonathan. So the pipeline, as I said in my prepared remarks, looks strong.

Speaker 7

It's a

Speaker 4

little bit more heavily weighted right now in The UK, but that can change as things progress. And we're mostly looking at small, mid sized deals at this time. A bit more real estate focused, which we're just gonna continue to pursue more than loans at this time. But again, all of that can change as things play out.

Speaker 6

Okay. And I think I heard in maybe Bob's prepared remarks, there are some loans that are converting to fee simple ownership this year. Was that always the plan for those? Or were those operators hopeful to refi and due to the challenging lending environment, this is kind of the option that they're left with?

Speaker 4

Yes, Jonathan, this is Vikas again. So we did a few loans last year knowing that they would convert to leases. And that was done primarily due to regulatory timing in The UK. It takes a long time to get those approvals in The UK. So we struggled with loans so our operators, borrowers could get the deals done.

Speaker 4

And then, the terms are short, they're all within this year, they'll convert the leases, real estate leases.

Operator

Your next question comes from the line of Michael Griffin with Citi. Please go ahead.

Speaker 4

Great. Thanks. I appreciate

Speaker 8

the color kind of on the regulatory front and the potential implications of the new administration. Just wondering if you could give any insight into kind of the labor environment and demand there that your operators are seeing? And is there any worry that potential immigration reform could impact the labor pool and maybe further pressure wages?

Speaker 9

Yeah. I mean, look, the labor environment is still tough, especially in the more rural areas. And that is probably going to continue to be tough for a long time unless something changes. And so the immigration policy is definitely going to play into that. To the extent that we can legally bring in immigrants to supplement the nursing force, that helps.

Speaker 9

And we'll just have to wait to see how that all progresses. But we haven't seen any impact from the immigration policies as of this time.

Speaker 8

Thanks, Meghan. That's helpful. And then maybe a question for Vikas, just getting back to the acquisition pipeline and the opportunity set. There's been some news over the past couple of months just around sniff operators and maybe financial and tenant health is coming more into the focus. I'm curious if you've seen more scrutiny on underwriting perspective deals, whether it's from a rent coverage perspective, just given maybe there could be some potential issues or worries around operator health?

Speaker 8

Again, it seems like it's more idiosyncratic to certain tenants to certain operators, but have you seen a change in kind of underwriting from that perspective?

Speaker 4

No, we really haven't. We continue to underwrite the way we have historically. Credit based deals with strong operators. And I think I agree with your point, it is more idiosyncratic.

Operator

Your next question comes from the line of John Kilicchi with Wells Fargo. Please go ahead.

Speaker 10

Thank you. Maybe I'll just follow-up, Griff, quickly on one more on the pipeline. Maybe could you talk more about the competitive landscape today and your expectation around going to yields?

Speaker 4

Yes. I mean, we aren't seeing a big change in competitive environment. I mean, there are family offices, private investors, both in The US and The UK. We're seeing less competition in The UK right now due to lack of capital there. But otherwise, we're not seeing a big change in competition.

Speaker 4

As for yields, we're staying where we've always stayed, close to 10% and we're able to deploy capital there.

Speaker 10

Understood. And then maybe one for Bob here. Just on balance sheet fortification, Your leverage is at four times long term target of four to five times. So not a pressing needed to be leveraged here. But according to the guide, there's going to be some material equity issuance here to delever in the back half for a '26 maturity.

Speaker 10

One, could you kind of give us the guide for what that number is, obviously, ex any acquisition activity? And then maybe more your thoughts about the decision to firm up the balance sheet at the expense of maybe some incremental dilution here and what are you looking at? Is that the relative spread of your AFFO yield to the current cost of ten year paper versus what it's been historically? That's a correct statement

Speaker 3

of what you just said. So they hit a couple there were a couple of questions in there. So we're going to treat the guidance similar to what we did in 2024, be prepared to handle a debt maturity coming due in 2026, similar to what we did for the one we just paid off. Given our cost of equity right now, we're taking advantage that we'll be opportunistic. The guidance does not have future acquisitions in.

Speaker 3

But in order to get the $600,000,000 you need to issue the equity there. But we will be opportunistic. If the bond market turns around and we can issue bonds, we'll go we'll do that. I mean, we've always been in a position to readily hit either the equity or bond market.

Operator

Your next question comes from the line of Juan Zanabria with BMO Capital Markets. Please go ahead.

Speaker 11

Hi, good morning. Just following up there on that same line of questioning. What share count, I guess, is assumed or how much equity is assumed to raise as part of guidance to pay maturing loans both this year and then to prep for the twenty six Jan maturity you referenced?

Speaker 3

I don't we're not giving out the exact share count, Lon, but it's really going to be to get to the $600,000,000 the share count is going to be driven by the price and the timing that I issued that equity to get to $600,000,000 So the price is high, less equity needed. That's the upside of the guidance. And if the price goes down from where we are today or historically what we had in the third and fourth quarter and it's still accretive to do it that way and we fund it and we'll be at the lower end of the guidance.

Speaker 11

Okay. And you're assuming other remaining 25 debt maturities are also repaid with cashequity. Is that correct? Just to make sure.

Speaker 3

That's correct. Yes.

Operator

Your next question comes from the line of Nick Wildeko with Scotiabank. Please go ahead.

Speaker 7

Thanks. Couple of questions just on Maplewood and then the Guardian transition assets. If you could just give us a feel for kind of where you're at in terms of getting back to sort of a maximum rent on those operators? And I guess specifically on Maplewood, as we think about the Second Avenue asset, how that maybe an update on how that occupancy is trending and how important that is to get back to the full Maplewood rent?

Speaker 4

Yes. Nick, this is Vikas here. So on Maplewood, our total portfolio's occupancy is now at 91%. That includes Second Avenue. And Second Avenue itself is 85%.

Speaker 4

So things are looking good there for our core portfolio with Maplewood. They paid strong rent in January, and we feel like that rent is sustainable. If not, we'll go up as occupancy increases at Second Avenue. So overall, we feel very good about Maplewood at the moment. For Guardian, that transition happened last year to a new operator.

Speaker 4

They hit their high threshold of rent, and we will just see what happens in the future. But right now, everything is going as planned.

Speaker 7

Okay. And then just to be clear, the guidance for the year assumes that it's just both those operators pay existing rent that they're paying, that they're not paying a higher level?

Speaker 3

That is correct. If Maplewood is at the higher level, that's one of the components that takes it to our higher end of our guidance.

Operator

Your next question comes from the line of Farrell Granite with Bank of America. Please go ahead. Hi, good morning. Thank you for the question. I wanted to touch on the EBITDAR coverage.

Operator

I know that you made the comment that the increases may be a little bit more modest going forward. But can you go through a little bit of the moving pieces and maybe how that's looking if it wasn't a trailing four quarters, specifically one tying in? I also see the less than one times coverage had a larger ding on a small, rent percentage?

Speaker 9

Yeah. I mean, in terms of that one operator under one times, that's a one facility deal that we acquired as part of a larger transaction. It's not a typical asset class for us. It's not a sniff. It's not an ALF.

Speaker 9

It's a specialty hospital and they have very volatile earnings, so they bounce all around. So that I don't think is indicative of anything that you would expect to see in the rest of the portfolio. We continue to see good performance from the rest of our portfolio and continuing to see everything moderate and be strong.

Operator

Great. And also on that mix, I also saw the slight uptick in the private insurers, kind of a larger one than I've seen in the last couple of quarters. And I was curious, what was driving that? And are you seeing the payer mix shifting more towards private? It's just highly dependent on the

Speaker 9

deals that we do. So as we do more U. K. Deals that private pay is going to come up a bit.

Operator

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Speaker 12

Yes, thanks. I wanted to circle back to Maplewood. I mean, how is Maplewood positioned today? I mean, are they better positioned to really ramp up their EBITDAR now versus the beginning of twenty twenty four? I mean, if you look at the 2024 rent, I think the quarterly rent increased by roughly $1,000,000 between 1Q and 4Q twenty twenty four.

Speaker 12

I mean, should we expect a similar ramp up in 2025? Or given that the development in New York is occupancy is improving that it could be higher than that?

Speaker 4

Yes. This is Vikas. I mean, we see things getting better this year. Occupancy at Second Avenue now is at 85%. The team feels in Maplewood that we'll get to above 90% later this year.

Speaker 4

So things are in the right direction. I mean, we just have to see how this plays out over the next few months. But, I mean, it'll still take one to two years to stabilize the entire relationship.

Speaker 12

Okay. And then circle back, I think you probably touched on this a little bit related to the investment pipeline. But are any buyers or sellers acting differently today, specifically, for The US properties, just given the volatility we've seen in interest rates and the political environment discussing potential, I guess, Medicaid restructuring? Have people slowed down their investment activity? Have sellers been more aggressive trying to get out?

Speaker 12

Have you seen anything like that occurring?

Speaker 4

No, we have not seen any dramatic changes today. As Meghan said, I think we're all just waiting to see what plays out, if anything. But at the current time, we're underwriting. We think our peers are underwriting the same way they always have. So no material changes at this time.

Operator

Your next question comes from the line of Alex Fagan with Baird. Please go ahead.

Speaker 13

Hi. Hopefully, you guys can hear me. Thanks for taking my question. So going to The UK exposure, I think it's about a little over 14%. What are you comfortable getting that up to?

Speaker 13

Hi, Alex. It's Matthew here. I don't think we have a target in mind. I think we look at each deal on its own merits. We think that The UK is a highly compelling investment opportunity at this point in time.

Speaker 13

You have very similar dynamics as you have in The U. S. Sniff market in terms of very limited new supply, burgeoning growth opportunity in terms of an aging baby boomer demographic. And we've developed a really good platform of operators there that are keen to grow and have the financial and operational capability to do so. So I think we will continue to grow that portfolio obviously as it grows.

Speaker 13

We evaluate it in the mix of everything, but I don't think we have a threshold over which we would want to go. I think it's just going to be based on what opportunities we see in The U. S. And U. K.

Speaker 13

Markets. All right. Thank you. And does Omega have a plan to maybe hedge The U. K.

Speaker 13

Cash flows as it grows? It's definitely something we're talking about internally, yes. Given where the dollar has gone against the pound right now, you feel like you might be bottom taking the market a little bit. So I think it's something that we will continue to look at. But as of today, we haven't got any definitive decisions around that.

Operator

Your next question comes from the line of Emily Meckler with Green Street. Please go ahead.

Speaker 14

Thank you very much. Having increased employment taxes and increased minimum wage in The UK had a noticeable impact on coverage levels for your UK portfolio, and does this kind of change your underwriting criteria moving forward there?

Speaker 4

Hi. This is Vikas. No, we've seen no dramatic changes due to those changes in The UK at this time.

Speaker 14

Okay. Great. And then maybe one for Megan. Could you give us a sense for what percentage of workers in skilled nursing facilities are foreign born?

Speaker 9

You know, I do not have that information. I'm not sure. You know, I do know that obviously, you know, some of the legal immigration that's been happening over the last few years, some of our operators have brought folks in, but we don't know the percentages.

Operator

Your next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Speaker 6

Thanks for the follow-up. Bob, I was hoping you could give us some details on that or cash earnings expectations. Should that gap between AFFO and FAD be similar to last year? It's narrowed by about half over the past, call it, pre COVID versus today. So and I know that's because some operators have moved from cash to accrual, but just any color there would be great.

Speaker 6

Thanks. Yes,

Speaker 3

you're right. We don't give FAD guidance, but big picture, that relationship will be pretty similar to Q4. I think you just got to there's two points to remember in FAD. I already stated that 76% of our revenues on a straight line basis. So the escalators hit, they don't impact AFFO, but they do impact FAD.

Speaker 3

So that's 23% of that. We'll have some closing of the gap there. And then just remember with the Maplewood DC asset, that capped interest goes away as revenue we'll be recording revenue on those assets.

Operator

Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Speaker 15

Good morning. Thanks for taking the question. I guess just first back on The UK. Could you just talk about how much of the push in The UK kind of in 2025, '20 '20 '6 maybe perhaps a little bit of a hedge against changes in potential changes in Medicaid or other changes here? And then in The UK itself, what about raising debt in The U.

Speaker 15

K. Also versus The U. S?

Speaker 13

Sure. Thanks, Vikram. It's Matthew again. So on the first question, I don't think it's really a hedge effort on our part. I think it really is just that we're seeing a lot of opportunities in The UK right now to transact with quality operators.

Speaker 13

And so we're taking advantage of that market side. I feel like our U. S. Medicaid how we feel about The U. S.

Speaker 13

Medicaid market hasn't fundamentally changed over the last twelve months. And certainly even with the new administration, I think that Medicaid will continue to be a necessary part of the funding environment. If you look at a lot of the transactions we were doing early in the year in 2024, well, we really didn't know what the administration would look like. So it's really just a reflection of the fact that we're seeing good opportunities over there. In terms of the debt side of things, we continue to look at the best way to fund, both from a hedging standpoint and from an interest rate standpoint.

Speaker 13

Handedly, the numbers that we're often quoted initially in terms of the debt interest rates we could get are not what we're actually seeing when we look to potentially execute on stuff over there. So as a result, we'd continue to fund any debt in The U. S. Again, we'll keep looking at that should the opportunity exist to have a favorable interest rate in The U. K, we would obviously look to execute.

Speaker 15

Got it. And then just perhaps going back to potential regulation, I mean, do you have thoughts or just based on I guess if you had concessions with folks in D. C, kind of what route could the minimum staffing take legislatively versus legal? And then any thought on what's been proposed by the Republican Party in terms of whether it's SMAP changes or, you know, adjustments to, like, including quality measures or even block grants. Just maybe give us a bigger picture.

Speaker 15

I know there's a lot of there's a lot being thrown out there. We don't know what's gonna happen, but just on specifically on those, kind of, what's your view on those changes?

Operator

Yeah. I mean, look, on

Speaker 9

the staffing mandate, we think the Chevron doctrine, being gone away is going to help us with the the legal case. And certainly, if the legal case, depending on how that's decided, we think legislatively this is probably going to, go away given the price tag on it and the effort by the Republican Party to cut costs. So we're very hopeful on the staffing mandate side, as is ACCA. In terms of what else could happen, you know, it's really too soon to tell, what exactly would go on, and what would be passed congressionally. But if you think about block grants, I mean, there's been conversations about block grants for a long, long time.

Speaker 9

ACCA would very much so push for some sort of per capita cap so that if enrollment increases, that funding increases as well. And they would look for some sort of inflationary, increases on the long term care side plus some factor above that. So Aka is very involved in all of that and the lobbying efforts. So we feel very good about, you know, what they would be able to accomplish, but again, too soon to tell. But again, as I mentioned, we feel pretty good about where our coverages are.

Speaker 9

We feel good about the fact that we have a president who was very supportive of this industry during COVID. He really stepped up big time for us and really recognized that this industry is too important to fail. So we hope that that will continue and that understanding will continue and nothing draconian will happen. And then when we talk about, you know, where the federal spending is, if you think about total Medicaid spending, over 25% of the Medicaid, the federal portion of Medicaid spending is spent on Medicaid expansion, which is what came about via the Affordable Care Act. And so that covers non elderly adults that do not have children.

Speaker 9

So that's over 25 of that spend. And that is that constitutes 90% of the federal government money is going towards Medicaid expansion expansion as opposed to 60% going towards the rest of Medicaid. So we really view that Medicaid expansion as being the low hanging fruit. That's probably the first pass. It doesn't mean that the rest of Medicaid isn't semi at risk, but we feel pretty good about the position that we're in.

Operator

Your next question comes from the line of Juan Sanabrio with BMO Capital Markets. Please go ahead.

Speaker 11

Thanks for the time for the follow ups. Just going back to the deals that you've done both last year and historically, I guess what should we assume is baked and likely to convert in 'twenty five? And how should we think about the delta between the rate that you're getting as a lender versus what you get for as you convert it to traditional fee simple?

Speaker 4

Yes, well, this is Vikas here. As I said in my prepared comments, we have $124,000,000 that we plan to convert this year. And it is at basically the same rate. So I don't think there's any pickup there to the model. But, we plan for about $124,000,000 all to convert this

Speaker 11

year. Okay. And then just last question, anything on the loans or rents that are maturing that we should be factoring in the model whether rent increase, stable rent or step or cuts or anybody that you're looking to re tenant as part of maturities?

Speaker 3

Well, the $28,000,000 is being repaid. That cash will just sit on the balance sheet earning some interest. And then the other ones, as they get pushed, there's no change in the guidance there at the same rate.

Operator

Your next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Speaker 7

Thanks. Yes, just a follow-up, Bob, on the guidance and investments not being in it versus the cash on the balance at the end of the year assumed. Is there just a rough feel you can give us in terms of if you do a certain level of acquisitions, say $500,000,000 how we should think about the incremental debt equity that would be raised for that? Because it does feel like there's some like pre funding of capital that's already in your guidance this year, but the investments aren't.

Speaker 3

You are correct. So the pre funding is the $230,000,000 of secured debt that we're going to pay off in November and getting the $600,000,000 Remember, we do cash flow from operations, so you got to factor that in And we have the little bit of loan repayment we just talked about. Again, in my stated remarks that we are going to prefund acquisitions as the pipeline gets closer. It's just not in the guidance because the acquisition is not in the guidance. So you have to take both of those into consideration there.

Speaker 3

I know that doesn't answer it, Nick.

Speaker 7

Yes. That's helpful. I guess just one follow-up there is on, is there a way to give us a feel for like how your average cash balance might look through the year because there is some interest income benefit I'm guessing here in the guidance.

Speaker 3

Yes. It's hard again, that's what gets me to the high and the low end of my range. But as I stated on the call, we had $200,000,000 of cash over $200,000,000 of cash at the January, but we do have a big dividend payment coming up. And so I would think first quarter will be the lower quarters and just really gets back to what is our price, how quickly we based on that price do we issue equity to build up to that $600,000,000 And in reality, as you're building up, you're going to use it for acquisitions. So it's really hard, Dick.

Speaker 3

I apologize, but it's hard.

Speaker 7

Okay. Yes, thanks for that, Budd.

Operator

I will turn the call back over to Taylor Pickett for closing remarks.

Speaker 2

Thanks, everyone, for joining the call today. As usual, the team will be prepared for any follow-up questions you may have. Have a great day.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Omega Healthcare Investors Q4 2024
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