Q1 2023 Omega Healthcare Investors Inc Earnings Call
Speaker 1: And TR all.
Speaker 1: Nine.
Speaker 2: presentation, there will be a brief question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Michelle Reber. You may begin.
Speaker 3: Thank you and good morning. With me today are Omega's CEO , Taylor Pickett, COO Dan Booth, CFO Bob Stevenson, and Megan Krull, 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,
Speaker 3: dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplated acquisitions, dispositions or transitions, and our business and portfolio outlook generally. These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially.
Speaker 3: Please see our press releases and our filings with the Securities and Exchange Commission, including without limitation our most recent report on Form 10-K , which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures.
Speaker 3: such as NAIRIT FFO, adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the financial information section of our website.
Speaker 3: at www.OmegaHealthcare.com and, in the case of NARATE FFO and adjusted FFO, in our recently issued press release. 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 4: Thanks, Michelle. Good morning and thank you for joining our first quarter 2023 earnings conference call.
Speaker 4: Today I will discuss our first quarter financial results, operator restructuring, and certain key operating trends.
Speaker 4: As expected, our first quarter per share FAD, funds available for distribution, of 60 cents per share was less than our quarterly dividend of 67 cents per share, resulting in a dividend payout ratio of 112%.
Speaker 4: We expect that the dividend payout ratio will rapidly improve as a GMO resume paying quarterly rent and interest of six and a half million dollars on April 1st.
Speaker 4: In addition, after a four-month rent deferral, health care homes began paying full contractual rent on May 1st.
Speaker 4: and all of the assets related to the previously disclosed 2.4% and 2.2% operators have been fully transitioned to new operators.
Speaker 4: These completed restructurings, along with progress related to the L'Eve restructuring, provide us with strong FAD momentum in the next few quarters.
Speaker 4: Turning to positive operating trends.
Speaker 4: Fourth quarter operator EBITDA coverage, excluding CARES Act support, was strong at 1.09 times.
Speaker 4: This level of coverage reflects continued occupancy improvement, strong state reimbursement rates,
Speaker 4: some moderation in the still difficult labor market.
Speaker 4: The under 1.0 times EBITDA operators declined accordingly to 29.1%.
Speaker 4: We can break the 29.1% into a handful of buckets.
Speaker 4: Operators representing 6% of the 29.1% are sitting on extremely strong balance sheets.
Speaker 4: therefore payment of rent should not be an issue. Operators representing 6.1% have fourth-quarter EBITDA coverage above 1.0 times.
Speaker 4: 9.6% of the 29.1% represents Lavi. Lavi's fourth quarter EBITDA coverage, when excluding the anticipated sale or transition of 23 facilities, is also above 1.0 times.
Speaker 4: That leaves operators representing 7.4% of which operators representing 4.9%
Speaker 4: operators representing 7.4% of which operators representing 4.9% are in active restructuring.
Speaker 4: which leaves a balance of only 2.5%, representing 8 modestly sized operating relationships.
Speaker 4: Lastly, we acknowledge and mourn the loss of two important leaders in the senior housing industry.
Speaker 4: The first, George Chapman, was the former CEO of Welltower REIT and until his passing, the CEO of Renew REIT.
Speaker 4: George was an important and influential leader within the healthcare and real estate industries. The second, Greg Smith, was the CEO of Maplewood. We had a great professional and personal relationship with Greg.
Speaker 4: He was a forward-thinking entrepreneur who envisioned and then created Maplewood's unparalleled clinical excellence combined with five-star hotel-like hospitality.
Speaker 4: Our condolences to the family, friends, and associates.
Speaker 4: of these two important leaders.
Speaker 4: important leaders. I will now turn the call over to Bob.
Speaker 4: Thanks, Taylor, and good morning. Turning to our financials for the first quarter, revenue for the first quarter was $218 million before adjusting for certain non-recurring items compared to $249 million for the first quarter of 2022.
Speaker 4: The year-over-year decrease is primarily the result of timing related to operator restructurings as Dan will discuss.
Speaker 4: and asset sales completed in 2022. Our NAIRIT FFO for Q1 was $146 million or 60 cents per share as compared to $171 million or 69 cents per share for the first quarter of 2022. Our adjusted FFO was $160 million.
or 66 cents per share for the quarter, and our FAD was $147 million, or 60 cents per share, and both exclude several items consistent with historical practices and outlined in our adjusted FFO and FAD reconciliation to net income found in our earnings release, as well as our first quarter financial supplemental.
posted to our website. The 60 cents a fad for Q1 was 10 cents less than our Q4 fad.
Taylor and Dan's comments this morning, along with our operator updates provided in the press release files yesterday, include many details on specific operators.
Instead of being repetitive, I want to summarize the quarterly FAD changes and provide some color related to Q2 and Q3. For the operators discussed, including AGIMO, Levee, Healthcare Homes, Maplewood, our 2.4% operator, our 2.2% operator, as well as two small operator transitions that Dan will discuss.
Our Q4 2022 FAD related to these operators was $57.2 million. And our FAD related to these operators in Q1 2023 was $35 million.
a $22.2 million decrease in FAD, or approximately 9 cents per share, with an increase in Q1 GNA due to expense timing representing an additional 1 cent decrease in Q1 FAD.
We anticipate our FAD related to the same pool of operators in Q2 2023 to be approximately $47 million, with a full run rate of these operators in Q3 2023 at approximately $53 million.
In each case, based on the contractual rent provided for the restructurings and transitions executed to date, with the exception of LEVY.
As we are in current negotiations with Levee, I have assumed only a monthly run rate of $2.5 million.
the amount they paid us in each of the first four months this year.
When comparing Q4 2022 to Q3 2023, the projected $4.5 million decrease in FAD related to this pool of operators equates to only 2 cent drop in FAD. It's worth noting this 2 cents decrease.
doesn't factor in the final Levee restructuring.
It's also important to note that most of these operators are on a cash basis and therefore we will only record FAD to the extent payments are received. Additionally, as outlined in a press release, we completed $276 million in new investments year to date. These investments are expected to produce FAD.
incremental fad of approximately $2.8 million in the second quarter and $3.4 million of fad in the third quarter, or almost 1 to 2 cents of incremental fad.
In short, although we are not yet providing full year guidance, we anticipate we will return to a FAD payout ratio under 100% in Q3 with a path to return to a normalized payout ratio in the high 80s to low 90s in 2024.
Turning to the balance sheet, as highlighted in previous calls, our balance sheet continues to remain strong, thanks to the steps we've taken since the start of the pandemic, to further improve our liquidity, capital stack, maturity ladder, and help protect our overall cost of debt.
At March 31, 2023, we had $1.43 billion in availability under our revolving credit facility, as well as $245 million in cash.
The majority of the cash was used to complete the second quarter acquisitions.
Our next debt maturity is $350 million, a 4-3 8% note due in August .
In 2020, we entered into $400 million of 10-year interest rate swaps at an average swap rate of 0.8675%.
These swaps expire in 2024 and provide us with significant cost certainty when we refinance our upcoming bonds. The swaps are valued at $85 million as of March 31st.
We plan to repay the 350 million dollars of notes due in August using a combination of available cash and proceeds from our revolving credit facility. We do not plan to terminate the swaps at this time.
At March 31st, 98% of our $5.3 billion in debt was at fixed rates, and our net funded debt to annualize adjusted EBITDA was 5.9 times. And our fixed charge coverage ratio was 3.6 times.
I will now turn the call over to Dan.
Thanks, Bob, and good morning, everyone. As of March 31, 2023, Omega had an operating asset portfolio of 906 facilities with approximately 90,000 operating beds.
These facilities were spread across 66 third-party operators and located within 42 states in the United Kingdom. Training 12-month operator EBIT-DARM and EBIT-DAR coverage for a core portfolio as of December 31st, 2022 remained flat at 1.38 and 1.04 times respectively.
versus 1.37 and 1.04 times, respectively, for the trailing 12-month period ended September 30, 2022.
During the fourth quarter of 2022, our operators cumulatively recorded approximately $20 million in federal stimulus funds as compared to approximately $18.6 million recorded during the third quarter.
Trailing 12 month operator Eva Darm and Eva Dar coverage.
would have increased during the fourth quarter of 2022 to 1.26 and 0.92 times respectively, as compared to 1.21 and 0.88 times respectively for the third quarter, when excluding the benefit of any federal stimulus funds.
EBITDA coverage for the standalone quarter ended 12-31-22 for a core portfolio was 1.19 times including federal stimulus and 1.09 times excluding the $20 million of federal stimulus funds. EBITDA coverage for the standalone quarter ended 12-31-22 for a core portfolio was 1.09 times including the $20 million of federal stimulus funds.
This compares favorably to the standalone third quarter of 0.91 times and 0.83 times with and without $18.6 million in federal stimulus funds, respectively.
Occupancy for overall core portfolio has continued to trend up from a low of 74.6% in January of 2022 to 79.8% as of mid April 2023 based upon preliminary reporting from our operators.
Turning to our senior housing portfolio. Today, our overall senior housing investment comprises 191 assisted living, independent living, and memory care assets.
in the United States and the UK. This portfolio, on a pure-play basis, had its trailing 12-month EBITDA or lease coverage increased to 0.98 times at the end of the fourth quarter as compared to the end of the third quarter, which covered it 0.97 times. Based upon preliminary results, occupancy for this portfolio.
Has remained steady at 87% as of mid April 2023. Versus 83% in January of 2022.
Turning to Portfolio Matters.
As Taylor mentioned, in April of this year, AGIMO resumed paying its contractual rent and interest of $27.9 million per annum on its remaining portfolio, consisting of 11 facilities in Kentucky and 18 facilities in Tennessee. revenue sheet.
During the fourth quarter, Omega and Labib began earnest discussions around a portfolio restructuring that would involve an overall reduction in certain underperforming facilities. To date, 13 facilities have been transitioned and potentially an additional 23 facilities are in the process of either being sold or released to third parties.
The 23 facility transitions include multiple transactions.
and are subject to a host of conditions, including documentation, regulatory and other governmental approvals, and third-party due diligence, to name a few. Also as part of this restructuring, Omega agreed to a partial rent deferral in the first four months of 2023.
The rent deferral equates to an approximately 66% discount to the full contractual rent. It should be noted that these restructuring discussions are ongoing and that the future outcome cannot be definitively quantified. Healthcare homes as previously discussed, omega agreed to allow a 4 month rent deferral from January 2023 through April .
2023, in order for health care homes to continue to build census and assist with its tight liquidity position. Thus achieved, health care homes resumed rent payments in May of 2023.
OMEGA will continue to monitor health care homes' liquidity needs to evaluate the potential for any future deferrals, as well as review certain underperforming facilities as potential divestiture candidates.
In prior quarters, we have discussed two operators, one representing 2.4% of revenue and one representing 2.2% of revenue.
During the first quarter, all 34 facilities associated with these two operators were transitioned to third parties.
The new combined rent equals $38.3 million per annum, representing a relatively modest decline from the previous combined contractual rent of $44.9 million per annum.
Also, during the first quarter and subsequently in the second quarter, Omega successfully transitioned 14 facilities from two smaller tenants and two facilities from LABEE to new third-party operators.
The new combined annual rent of $11.7 million compares favorably to the historical annual rent of $11.2 million.
In addition to the aforementioned restructurings and transitions, Omega is working with several other relatively small operators on various restructurings. Turning to new investments. On March 31st, 2023, Omega closed on a $26 million sale lease-back transaction for six care homes in the United Kingdom. Concurrently with the acquisition, Omega entered into a master lease for the care homes. Omega is working with several other relatively small operators on various restructurings and transitions. On March 31st, 2023, Omega closed on a $26 million sale lease-back transaction for six care homes in the United Kingdom. Concurrently with the acquisition,
with a new operator with an initial cash yield of 8% with 2.5% annual escalators.
Subsequent to the first quarter, Omega closed on two notable transactions.
On April 14th, 2023, Omega closed on a $219 million transaction, which consisted of a $114 million purchase lease transaction for four facilities in West Virginia, and a $104.6 million mezzanine financing transaction.
Concurrently with these acquisitions, Omega amended an existing operator's master lease to include the four facilities at an initial cash yield of 9.5% with 2.5% annual escalators. The mezzanine financing was given to the same existing operator.
There's an interest rate of 12% and was part of the capital stack to purchase 13 additional facilities in West, Virginia also in the second quarter on May 1st 2023 Omega purchased an additional one facility in West Virginia for $13.7 million.
The facility was added to an existing operator's master lease with an initial cash yield of 10% with 2.5% annual escalators. Inclusive of these two transactions and $11.4 million in capital expenditures, Omega's year-to-date new investments totaled $276 million.
Turning to dispositions, during the first quarter of 2023, Omega divested two facilities for a total of $18 million in proceeds.
I will now turn the call over to Megan. Thanks, Dan, and good morning, everyone. After the tapering off of occupancy recovery towards the end of 2022, in 2023, we have seen the return to slow but steady occupancy increases. The number of core facilities now recovered from an occupancy perspective is 33%.
up slightly from the 31% reported in third quarter.
while another 25% of core facilities that have not yet fully recovered are at or above 84% occupancy.
While the sector has clearly not recovered from a staffing perspective, we continue to hear about positive momentum from our operators with certain markets better off than others. Agency expense on a per-patient-day basis for our core portfolio for fourth quarter 2022 decreased to five times where it was in 2019 versus six times last quarter.
Medicaid rate setting in light of the wind down of the FMAP add-on through year-end.
Specifically, we are paying close attention to Texas and Florida, which rates should be finalized in the coming weeks.
We are cautiously optimistic given what we have seen in other states, but obviously it is too soon to tell.
with the latest proposed payment rule, but instead decided to defer that until later in the spring. We can only hope that the delay in issuance of the proposed rule is as a result of moving towards a mandate that is less draconian than what otherwise might have been released.
So where could this go?
for a reason.
OCCRA reports that 73% of facilities do not meet that level currently. If CMS is paying attention to that same data, which in fact is data that they collect, requiring that level of staffing seems unlikely as a final outcome.
However, there are many levers available to CMS.
For instance, a tier system could be set with a level for basic care and one for exceptional care. Or similar to what Florida did last year, the requirement could be set to include staff outside of just RNs, LPNs, and CNAs.
Whatever gets implemented could also be delayed until the industry has fully recovered from a staffing perspective or could be rolled out over several years. And then obviously there's also the question of funding for any such mandate.
It is too soon to tell the direction this will ultimately go, but what we can say is that we have all seen CMS proposed rules that get changed substantially by the time a rule becomes final. Recall the payment rule last year, which had a full PDPM parity adjustment in it, get paired back to a lesser adjustment spread over two years.
So regardless of what ends up being proposed, I would remind everyone that ALCA is working tirelessly to ensure that the government has a firm understanding of all the key issues here to make sure that the ultimate rule is something palatable. Nonetheless, we implore CMS to recognize that imposing any sort of draconian unfunded mandate at the height of a post-pandemic recovery, when the staffing doesn't even exist and a majority of facilities not only don't meet but can't meet such requirements under the circumstances,
is far from a solution, but rather a problem in and of itself.
I will now open the call up for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. In confirmation, I will indicate your line is in the question queue.
You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit your questions to one question and one follow-up. One moment please while we poll for questions.
Our first question comes from Jonathan Hughes with Raymond James. Please proceed with your question.
Hey, good morning. Thanks for the detailed prepared remarks and commentary. Yesterday's release was all very helpful. Question for Bob. I appreciate the FAD summary you detailed, but there were a lot of numbers in there. Could you just maybe repeat the trajectory?
of the FAD contribution from restructured operators from 4Q last year to kind of third quarter this year and maybe where we could exit by year end.
Hey Jonathan, thank you, and I'll actually do it. After the call, if you want to go through details, I'll be happy to do that with anyone.
Q1 FAD was, as I said, was 10 cents less than Q4 FAD and really was driven by Levee and Healthcare Homes Deferral and Maplewood interest that was converted to PIC. So then moving over to Q1 is really at the starting point.
So, there were eight operators, so our Q1 fat was $147 million and eight operators represented $35 million of that fat. And just quickly, those eight operators, the GMO, the LGB, Healthcare Homes, Maplewood, the 2.4, the 2.2, and as Dan mentioned, two other operators that transitioned this year.
So those operators represent 35 million of the 147 of Q1 FAD. In Q2, we expect those eight operators to generate 47 million dollars or 12 million dollars of incremental FAD. AGIMO and healthcare homes represent 11 million dollars of that 12. We both resumed making payments in Q2.
The other million dollars was related to the remaining six operators. In Q3, we expect an additional six million dollars of incremental FAD, or $53 million dollars from those eight operators, with healthcare homes generating two million.
incrementally and the other seven representing four million dollars. That's really just driven by timing of these transitions. And remember in these we have some meaningfully upside related to the fee depending on the timing of the restructuring and then a lot of these operators are on.
cash basis so cash timing may impact it.
Okay, appreciate the color. I'm glad we have transcripts because I'll go back and read through that again. I appreciate the details.
And then just one more for me. What's the investment pipeline look like today in terms of?
you know, size, yields and mix between skilled nursing and assisted living? And are you starting to see a pullback or have you already seen that pullback from private capital competitors that were so active?
in the SNF acquisition market over the past few years? Thanks. So I don't want to put dollar figures around it, but we certainly have seen our pipeline pick up. You know, it's mostly SNF assets. It's both in the US and the UK.
You know, we're now quoting cap rates north of 9. And while we don't directly compete with some of these private folks that you're talking about, we have seen.
We have seen that get quite as of the last few quarters. All right. Appreciate the time.
get quiet as of the last few quarters. All right, appreciate the time.
Our next question is from Connor Sebusky with Wells Fargo Security. Please proceed with your question.
Good morning out there. Appreciate the color and prepared remarks, particularly from Megan. I think that take on the minimum staffing requirements very helpful. Just a little bit more on investment activity. You know, I'm wondering as we're kind of emerging from the worst of the. COVID-19 environment.
You know, have your underwriting targets changed at all, maybe related to rent coverage on new portfolios and then give in the different responses by states in addressing the end of the PHE, some offering better Medicaid rate hikes than others.
Does this change how you're looking at certain geographies? Do any suddenly look more attractive than others or any areas where you would seek to avoid or look to sell out of going forward? So, you know, as part of our underwriting criteria, we're always looking at geography, right? That's a key component of it. There are have and have not states, have been forever.
And unfortunately they change buckets from time to time. Some states that were great become not so great, i.e. Florida. And so we do look at that carefully as part of our underwriting. Our coverage analysis really hasn't changed. We look to a 1.3 to 1.4 coverage.
change buckets from time to time. Some states that were great become not so great, i.e. Florida. And so we do look at that carefully as part of our underwriting. Our coverage analysis really hasn't changed. We look to a 1.3 to 1.4 coverage.
What does, we look at it a little bit more carefully is the credit behind the tenant. So if we're bidding a new deal with a new tenant, that's what we're looking at. If we're bidding a new deal with an existing tenant that has very, very strong underlying coverage, we might be willing to bid it at a slightly lower coverage. So that comes into play as well.
look at a little bit more carefully is the credit behind the tenant. So if we're bidding a new deal with a new tenant, that's what we're looking at. If we're bidding a new deal with an existing tenant that has very, very strong underlying coverage, we might be willing to bid it at a slightly lower coverage. So that comes into play as well. I think that covered it.
Okay, understood. Thanks for that. And then just quickly on the understanding that it's still undergoing this restructuring process. And I'm wondering anecdotally, does that hurdle reflect in maybe subdued occupancy performance within that portfolio? And then, you know, for the assets that you're still looking to sell out of a perhaps transition, you know, in the future, you know, in the future, you know, in the future, you know, you're going to be able to get a better view of the future.
So a little bit above 80%.
It's too early to quantify what we're looking at in terms of rent. We're looking at both sales and releases, so it will be a combination of both. I feel confident that that will happen. The exact dollars that we receive, it's just a little too early to predict that at this point in time.
But I do see material upside from what we've been recording in the first quarter.
Okay, understood. Thanks for the time. Our next question is from Michael Griffin with Citi. Please proceed with your question. Great, thanks. Maybe just thinking on the external growth front, I was curious, I think it's the loan to own deal in West Virginia, maybe it was at 12%.
Future get just to be clear that that's one we made.
things go sideways are we willing to own it? But remember, we're bidding it based on where the mez market is today and that's why you see the 12% rate. And in terms of credit, it's all part of a much, much bigger credit within our portfolio that's crossed.
We feel very, very, very comfortable that the credit behind that loan is extremely solid. The 12% just represents where the market is for that type of financing. Is there anything specific to West Virginia or is it just more operator specific? I know there are other states out there that might not be in New York or California that people don't think about as much. Is West Virginia, is there an expectation for higher Medicaid rates or is it really just operator specific?
It's a little both, that's a great question. Reimbursement is strong in West Virginia, supply is relatively low, so the supply demand, economics are strong, and it's with an operator we have a great relationship with excellent coverage today.
So you throw those three factors together, it's a pretty good underwriting asset deal for us.
And then just maybe on the regulatory side, Megan touched on this in your prepared remarks, apologies, but any update on the public health emergency ending, the Medicaid rate, reimbursement, expectations in Texas, I know it was decoupled from the F&F funding was decoupled from the public health emergency.
but I don't think states like Texas or North Carolina made it permanent, so any color there would be helpful. Yeah, those are two. Texas and North Carolina are the two states we're still watching because of our top ten states. Recall, you know, most five of them didn't have any sort of rate increase they did months on payment, so it really...
the end so the public health emergency doesn't have an impact there. And Virginia and California had already, you know, included it in go forward rates at least for a period of time. So Texas and North Carolina, I mean, we're still watching those closely. We're cautiously optimistic that we're going to see something good in both of those states.
And we're keeping our price from the operators about those. Texas, we should be hearing about in the next few weeks. That rate wouldn't kick in until October 1st. The association is also pushing for the state to step up and bridge them on that 1963 F-map to October . So again, a little too soon to tell but cautiously optimistic that we're going to see good things there.
far in calendar 23. I guess I wasn't 100% sure whether those comments are related more to the overall set of operators in both skilled nursing and senior housing or just one or the other. I guess either way just curious if you have any you know just color on whether or not the occupancy recovery trends are still you know different for senior housing versus SNF so far in 23. Thanks.
You know the SNF side really is where we're seeing more of an increase. I think the ALF side is steady but not quite the same as it had been and had picked up earlier. So there's still a little bit of a difference but positive growth in both.
Okay, and just to dive into that a little bit deeper. I think anybody track in the hospital sector knows that there's been a very noticeable increase in inpatient volume growth so far in calendar 23, and that should translate into greater post-acute volumes for SNP operators. So I'm wondering if you could just comment maybe just on the general...
qualitative sentiment from your SNF operators just on progression of Medicare-specific related post-acute occupancy gains. Is that where most of the gains are coming from? Any color on that would be helpful too, just on the Medicare-specific component tied to post-acute. Thanks.
You know, we don't know that quite yet. We're not seeing that increase in the quality mix related to that, but I will say, you know, you're still dealing with some staffing issues out there that are preventing people from taking new residents on. So that is causing a bit of an issue still.
Okay, got it. Okay, thanks. Our next question is from Joshua Denerline with Bank of America Merrill Lynch. Please proceed with your question.
Yeah, hey everyone. Thanks for the time. I'm just kind of curious what you guys are looking for before you really restart external growth. Is it just changes in the cap rates in the private market, something internally in your portfolio, or just fundamentally? Just curious to hear your thoughts. From our perspective, we've restarted.
Mass deals at 12 and...
at those levels, we can make the math work. So we've opened the pipeline up and I think we'll see more opportunities as it becomes clearer in the marketplace that a lot of traditional financing sources just aren't available.
I guess from kind of our perspective, it seems like that wasn't one off necessarily in the first quarter or year to date.
It's something we should kind of continue to look for going forward. Well, at the pace we are with 270 plus million.
capital allocation through May 1st, I think that's a pretty good pace.
through May 1st and I think that's a pretty good pace. I'm not sure if it'll be...
600 million when the year is done, but at this pace, that's where it would be. I appreciate that. And then when we're thinking about the risk to the industry and just within your portfolio, do you think we're kind of past the trough at this point of pain with the operators, or is there something else we should be watching out for that would maybe mark the trough?
I'm cautiously optimistic that we're past the trough. The fact that occupancy is closing in on 80%, which is from our perspective a pretty good indicator, is important.
The fact that we have, in general, great state support is important. Megan has pointed out that minimum staffing is not a good thing.
could become an issue. I don't think it will. And there are a lot of levers to pull there and many unknowns. But save for that I don't see any other clouds or arise yeah yeah
Okay, awesome. Thanks. Our next question is from Vikram Mahatra with Mizzouho. Please proceed with your question. Thanks for taking the question. Just maybe first want to clarify your comments on sort of where the coverage, the different coverage will end up at towards.
Well, based on my comment, it's...
all the transitions that we've talked about, and now I'm not building in any of the pipeline to get below the 100%.
Okay, but it would it would include like whatever you've announced in terms of deals as well.
Yes, it includes all new investments completed to date that we're in a press release. Got it. Okay. And then just on the – you talked about broadly bottoming trends, optimistic on hopefully the minimum staffing is saved and Texas as well. Is there a scenario – I mean, I know the environment stuff, every asset class cap rate is moving higher. I think there is – what a physical
But SNF cap rates have probably remained very steady for several years now. So I'm wondering, either on a per bed basis or a cap rate basis, is there a scenario where you could actually see values go up or cap rates go down over the next 12 months in for SNFs?
I do not see that scenario. I see cap rates going up.
And what would you, if you were to venture say for skill nursing today, where cap rates are and or where per bed values are, what would the change be broadly over the next 6 to 12 months?
That's a tough one to predict. I can just tell you what we're quoting today, which is north of 9.
tough one to predict. I can just tell you what we're quoting today, which is north of 9. Her bed value is very
dramatically by state. So it's hard to quote a per bet value in any given, you know, across the board. It would be a an average that really would be meaningless. Okay, thanks so much.
Our next question is from Tio Acasana with Credit Suisse. Please proceed with your question.
Hello.
Morning, Ty. Were you on mute? Share you now.
Okay, perfect. Excellent. So two quick ones for me. Megan, again, thank you for all the details around that reimbursement at the state level. One of your peers did mention some challenges that they had with Michigan during their quarter. It's one of your top five states.
Could you just kind of talk through what you're seeing in that state as it pertains to reimbursement and the impact on any of your operators that have exposure to that state? You know, Michigan, from a rate setting perspective, hasn't been too bad, and we're hoping for a moderate to good rate increase.
this year. Their issue has been more delayed payments related to those increases, which does put a strain on operators. Thankfully, our one operator that's material in Michigan, and they are exposed to Ohio, North Carolina, Virginia, which are all very strong states right now.
So not too concerning from that perspective, but again, Michigan, I think it's just a catch-up of the stuff that they need today. Gotcha. Okay, that's helpful. And then in regards to the investment pipeline, again, some of your peers that are heavily in the skilled nursing space have kind of pivoted over to the nursing space.
investing in behavioral health. Again, the argument there is fast growing sector. You're still kind of getting SNF like cap rates. You may not have the same type of reimbursement risks, you know, on the behavioral health side. Just curious what your thoughts are, you know, on that space and if it's something that, you know, Omega would look at actively as another after class.
substance use disorder. We do not have a behavioral specific operator, but we have a handful of SNF operators that are in that space. So we understand it, we look at it. Right now we think with existing operators we're seeing so much opportunity.
and be able to lever into their credits is a better allocation of capital for us.
than looking at new behavioral type operators. So, good space, but not a priority for us today. Gotcha. Okay. Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for any additional questions.
There are no further questions at this time. I'd like to turn the floor back over to Taylor Pickett for closing comments.
Thanks, Rob. Thanks everyone for joining us today. As always, the team will be prepared to respond to any of your questions. Have a great day. This concludes today's teleconference. You may disconnect your lines at this time and we thank you for your participation.