Q4 2024 Omega Healthcare Investors Inc Earnings Call
Thank you for standing by my name is Kate and I will be your conference operator today.
Speaker Change: 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.
Speaker Change: The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Michele Reber. Please go ahead.
Michele Reber: Thank you and good morning with me today is Omega CEO Taylor Pickett, President Matthew Gourmand, CFO, Bob Stephenson, CIO, Vickers scooped up and Megan Kroll Senior Vice President of operations.
Michele Reber: 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.
Michele Reber: 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 F. F O adjusted F F O Fad and EBITDA.
Michele Reber: 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.
Taylor: I will now turn the call over to Taylor.
Taylor: Thanks Michelle.
Speaker Change: Good morning, and thank you for joining our fourth quarter 2024 earnings conference call.
Speaker Change: Today, I will discuss our fourth quarter financial results management changes and certain key operating trends fourth quarter Fad funds available for distribution of <unk> 70 per share reflects continued revenue and EBITDA growth, which has allowed us to reduce leverage to below 4.0 times.
Speaker Change: <unk> to EBITDA, while continuing to deliver that growth in 2024.
Speaker Change: Our 2025 <unk> guidance is $2 90 per share to $2 98 per share.
Speaker Change: Which reflects the first quarter 2025 dilutive impact of our significant fourth quarter share issuances offset by escalators and other opportunities throughout 2025.
Speaker Change: We recently announced management changes with Matthew Gourmand named President.
Speaker Change: And Vikas Gupta named Chief Investment Officer.
Speaker Change: I am extremely confident in their ability to lead our exceptional team in the upcoming years.
Speaker Change: I would also like to thank Dan Booth.
Dan Booth: The opportunity to work with Dan for over 30 years 23 years here at Omega.
Dan Booth: <unk> many contributions to Omega were an important driver of Omega outperformance.
Dan Booth: Not only other healthcare reach but all rights over the last 23 years.
Lastly in 2024, the team did a great job staying disciplined whilst singing closing 36 transactions deploying approximately 1.1 billion in capital.
Dan Booth: The 2025 acquisition pipeline remains active.
Bob: I'll now turn the call over to Bob.
Bob: Thanks, Taylor and good morning.
Speaker Change: Turning to our financials for the fourth quarter revenue.
Speaker Change: Revenue for the fourth quarter was $279 million compared to $239 million for the fourth quarter of 2023 the.
Speaker Change: The year over year increase is primarily the result of the timing and impact our revenue from new investments completed throughout 2024, operator, restructurings and transitions, partially offset by asset sales completed during that same time period.
Speaker Change: Our NAREIT <unk> for the fourth quarter was $196 million or <unk> 68 per share as compared to $129 million or <unk> 50 per share for the fourth quarter of 2023.
Speaker Change: Our adjusted <unk> was $214 million or <unk> 74 per share for the quarter and our fad was $202 million or <unk> 70 per share and both excludes several items outlined in our NAREIT <unk> adjusted <unk> and Fad reconciliation to net income down in our earnings release.
Speaker Change: As well as our fourth quarter financial supplemental posted to our website.
Speaker Change: Our Q4 Fad was just under a half penny greater.
Speaker Change: And our Q3 sad, which is impressive if you remember in Q3, we issued 14 million shares for $530 million in gross proceeds at an average price of $37 32 per share. These 14 million shares issued at the end of the third quarter were not fully included within the weighted average third quarter share count.
Speaker Change: As outlined.
Speaker Change: Find in our earnings press release during the fourth quarter, we completed $340 million of new investments and funded the investments through the issuance of an additional 11 million shares of equity for gross proceeds totaling $438 million at an average price of $40 19 per share.
Speaker Change: Our balance sheet remains strong at year end as we ended the year with over $500 million in cash that was used to repay a $400 million bond on January 15th 2025.
Speaker Change: We ended the month of January with over $240 million in cash the full borrowing capacity over one four of $5 billion credit facility and approximately $820 million available under our ATM program already to deploy as needed and new investments.
Speaker Change: As long as your equity currency remains favorable we will continue to pre fund investments by issuing equity.
Speaker Change: At December 31, 95% of our $4 9 billion and debt was at fixed rates and our fixed charge coverage ratio was four seven times and our net funded debt to annualized adjusted normalized EBITDA was 396 times, which is the lowest our leverage has been in 10 years.
Speaker Change: We still have a target leverage range between four to five times with the sweet spot being between four and a half to 475 times.
Speaker Change: As we continue to fund acquisitions Accretively with equity we position ourselves for outsized <unk> growth once we decided to reenter the bond market.
Speaker Change: As Taylor mentioned, we provided our full year adjusted <unk> guidance of a range between $2 90.
Speaker Change: 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 an accrual basis of revenue recognition as a note over 75% of our operators are currently on a straight line basis of accounting, which meet any growth in revenue through annual escalators.
Speaker Change: We will not yield further growth in adjusted <unk>, but growth in cash flow were assuming maple woods ability to pay contractual rent continues to improve.
Speaker Change: While the $260 million in mortgages and other real estate backed investments contractually maturing in 2025 $124 million will convert from loans to fee simple real estate and $28 million will be repaid throughout 2025, we are assuming the balance of the loans will be extended.
Speaker Change: Beyond 2025.
Speaker Change: We're assuming $56 million in asset sales related to assets classified as held for sale, which we recorded $1 $9 million of revenue in the fourth quarter.
We've included the impact of new investments completed as of February 5th.
Speaker Change: We project, our quarterly G&A expense to run between 12 million to $14 million in 2025, with the first quarter typically being the highest quarter.
Speaker Change: We assume we will repay our $230 million of secured debt in November 2025.
Speaker Change: We assume no material changes in market interest rates as they relate to either interest earned on balance sheet cash for interest expense charge or credit facility borrowings.
Speaker Change: Finally, consistent with how we ended 2024, we assume we will position ourselves with enough cash on the balance sheet by the end of 2025 to repay our January 2026 $600 million bond maturity.
Speaker Change: As a reminder to the extent our equity currency remains favorable and we continue to pre fund investments or prepare for debt maturities.
Speaker Change: For every 4 million shares issued.
Speaker Change: Sumi shares are issued at prices consistent with 2024, our quarterly adjusted <unk> is negatively impacted by slightly less than one penny per share, while our leverage improves or is reduced by approximately one.
Speaker Change: <unk> five times until the cash is put back to work in new investments.
Speaker Change: Our 2025 adjusted <unk> guidance does not include any additional investments or asset sales as well as any additional capital transactions.
Speaker Change: Other than what I, just mentioned or what was included in the earnings release.
Vegas: I will now turn the call over to Vegas.
Vegas: Thank you Bob and good morning, everyone.
Vegas: Today, we are discussing the most recent performance trends for Mag is operating portfolio and Omega investment activity in 2024 and share insight into Omega pipeline for 2025.
Vegas: Turning to portfolio performance trailing 12 month, operator, EBITDAR coverage for our core portfolio as of September 32024 increased to one five times versus 149 times for the trailing 12 month period ended June 32024.
Vegas: We wanted to highlight the most recent quarters performance is a continuation of trailing 12 month coverage improvement across our portfolio over the past year.
Vegas: These ongoing improvements were reflective of the strength and expertise of Omega is operating partners. The resolution of nearly all of our <unk> portfolio restructurings over recent years and the disciplined allocation of new investment capital over the past year. Despite continued pressures from sub optimal labor in reimbursement levels in select markets the industry.
Vegas: It continues to improve as a result of the growing aging population and our operator's ability to serve an increasingly complex resident population.
However, with occupancy now approaching pre COVID-19 levels, we would expect any future coverage increases to be more modest.
Vegas: As of today, the only major operator, Mega is engaged and restructuring activity, which is lumpy.
Vegas: While we continue to work towards exiting bankruptcy in the second quarter of 2025 with the effective date of such exit is conditioned upon the rulings on pending motions before the bankruptcy court in the interim Mega expects to continue to receive full contractual rent of $3 1 million per month or $37 5 million per annum.
Vegas: Turning to new investments as Taylor previously mentioned Omega transaction pipeline in 2024 was very strong with over $1 1 billion in new investments. These transactions varied in size and nature, we demonstrated <unk> ability to adapt to the evolving investment landscape in the long term care industry in 2024, we continue to support that.
Vegas: Growth of our existing and new operators by focusing on strong credit backed real estate investments and real estate loans with exceptional returns, but also will provide a megawatts the ultimate opportunity for real estate ownership specifically.
Vegas: <unk> will be approximately $359 million or 31% of Omega as new investments in 2024, there were real estate loans.
Vegas: Over $124 million or one third of those loans provide a mega 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.
Vegas: <unk> acquisitions of distressed assets at prices well below replacement cost.
Vegas: The UK was a large driver over our 2024, new investments totaling over $782 million 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 a highly accretive investment opportunities.
Vegas: Looking at the fourth quarter of 2024 Mega completed a total of $363 million in new investments.
Vegas: <unk> of $23 million in Capex, the new investments include $179 million in real estate acquisitions across four transactions, which have an average initial annual cash yield of nine 9% and $162 million in real estate loans, which have a weighted average interest rate of 10, 9% a large portion of.
Vegas: These new real estate loans of $101 million or 62% provide a mega with the opportunity to acquire the underlying real estate upon maturity.
Vegas: Subsequent to the fourth quarter of 2020 for Omega closed on $26 million in new investments. Excluding Capex. These investments include a $10 $6 million acquisition of two facilities with an initial cash yield of nine 9% via a new lease with a new operator, and a $15 $4 million mortgage to an existing operator for <unk>.
Vegas: Two facilities with an 11% interest rate.
Vegas: Turning to the pipeline <unk> pipeline and transaction outlook for 2025 continues to be quite healthy we continue to see marketed opportunities both in the U S and the UK, while also benefiting from off market opportunities that our existing operating partners and other relationships bring us based on the current lending environment is our expectation that we will continue.
Vegas: 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 to grow our balance sheet.
Meg: I will now turn the call over to Meg.
Thanks, Nick and good morning, everyone as at 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.
Meg: I think it's mentioned coverages are the strongest they've been in years, which is reflective of the continuing recovery from the pandemic.
Meg: The industry is still grapples with the overhang of many issues, most notably staffing shortages.
Meg: For now things appear relatively stable.
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-19.
Meg: We hope that understanding of the importance of this industry Hasnt been lost.
Meg: We continue to monitor the various efforts against the staffing mandate as I noted last quarter. Our motion for summary judgment was filed in the Federal Court case, and 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.
Meg: While the 20 attorneys general have filed suit against the mandate in Federal Court in Iowa lost their plea for a preliminary <unk> Chen their case continues moving forward as well.
Meg: Irrespective of the court cases are legislative repeal is still very much a possibility given that the reversal of the rule would stand to save the federal government $22 billion over 10 years. According to the congressional budget office.
Meg: We are still very helpful that the rule will ultimately be overturned and we hope that any future rulemaking surrounding reimbursement for regulation is done with an even hand and an understanding of what is truly at stake I will now open the call up for questions.
Meg: At this time I would like to remind everyone in order to ask a question. Please use your handset. Please press star then the number one on your telephone keypad, we ask you to limit yourselves to one question and one follow up we will pause for just a moment to compile the Q&A roster.
Meg: Sure.
Speaker Change: Your first question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.
Jonathan Hughes: Hi, good morning, Thanks for the prepared remarks, and commentary and congrats Matthew in Vegas on their new roles and Dan on that.
Speaker Change: Great career.
Speaker Change: Victor I was hoping you could share some more details of what the investment pipeline looks like today.
Speaker Change: Dollar size yields and then fee simple acquisitions versus loans.
Speaker Change: Yes.
Jonathan Hughes: Thanks, Jonathan So the pipeline as I said in my prepared remarks looks strong.
Speaker Change: It's a little bit more heavily weighted right now in the U K.
Jonathan Hughes: But that can change as things progress.
Jonathan Hughes: And we're mostly looking at small mid size deals at this time.
Jonathan Hughes: More real estate focused.
Jonathan Hughes: We're just going to continue to pursue more than loans at this time, but again all of that can change as things play out.
Jonathan Hughes: Okay, and I think I heard in the maybe Bob's prepared remarks, there were some loans that are converting to fee simple ownership. This year was was that always the plan for those or were those operators helpful to refi and due to the challenging lending environment. This is kind of the option that theyre left with.
Speaker Change: Yes, Jonathan this is I think it's again, so we did a few loans last year, knowing that they would convert to reserves and that was done primarily due to a regulatory timing in the U K. It takes a long time to get those approvals in the U K. So we structured them as loans. So our operators borrowers can get the deal done and then.
Speaker Change: The terms are short they're all within this year they'll convert Elisa <unk> real estate leases.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Michael Griffin with Citi. Please go ahead.
Michael Griffin: Great. Thanks, I appreciate 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, but your operators are seeing and is there any worry that potential immigration reform could impact.
Speaker Change: Our labor pool, and maybe further pressure wages.
Michael Griffin: Yeah.
Michael Griffin: Labor environment is still tough, especially in the more rural areas and that is probably going to be continue to be tough for a long time.
Michael Griffin: Unless something changes and some of the immigration policy is definitely calling to play into that.
The extent that we can legally bring an immigrant Ted Ted supplement the nursing horse that helps and we'll just have to wait to see how that progresses, but we haven't seen any impact from the immigration policy at this time.
Megan: Thanks Megan.
That's helpful. And then maybe a question for Zika is just getting back to the acquisition pipeline and the opportunity set there has been some news over the past couple of months just around sniff operators, and maybe financial and tenant health is coming more into focus I'm curious if you've seen.
Megan: More scrutiny on underwriting perspective deals, whether it's from a rent coverage perspective.
Megan: Just given maybe there could be some potential issue.
Megan: Issues or worries around operator health again, it's it seems like it's more idiosyncratic to certain tenant to certain operators, but have you seen a change in kind of underwriting from that perspective.
Megan: 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.
Megan: Yeah.
Speaker Change: Your next.
Speaker Change: <unk> comes from the line of John Kelly Ciotti with Wells Fargo. Please go ahead.
Speaker Change: Thank you maybe I'll just follow up Greg quickly on one more on the pipeline maybe could you talk more about the competitive landscape today and your expectation around going in yields.
Speaker Change: Yes, I mean, we aren't seeing a big change in competitive environment. I mean, there are family offset is private investors both in the U S and the U K, 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.
Speaker Change: Competition for.
Speaker Change: For yields were staying where we've always stayed close to 10% and we're able to deploy capital there.
Understood and then maybe one for Bob here, just on balance sheet fortification youre leveraged that four times long term target of 4% to five times, so not a pressing need to deleverage here.
Speaker Change: According to the guide there is going to be some material equity issuance here to de lever in the back half of 'twenty six maturity. One could you kind of give us the guide for what that number is obviously X.
Speaker Change: Any acquisition activity.
Speaker Change: And then maybe what are 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 <unk> yield to a current cost of 10 year paper versus what it's been historically.
Speaker Change: That's a correct statement what you just said so did they hit a couple of weeks or a couple of questions in there.
Speaker Change: So we're going to create the guidance similar to what we did in 24 be prepared to handle a debt maturity coming due in 'twenty six similar to what we did for the one we just paid off.
Speaker Change: Given our cost of equity right now.
Speaker Change: We're taking advantage that we'll be opportunistic the guidance does not have future acquisitions in but in order to get the $600 million you need to issue the equity there, but we will be opportunistic if the bond market turned around and we can issue bonds will go we will do that I mean, we've always been in a position to readily hit the.
Speaker Change: The equity or bond market.
Speaker Change: Okay.
Hawaiian: Your next question comes from the line of Hawaiian scenario with BMO capital markets. Please go ahead.
Speaker Change: Hi, Good morning, just following up there on that same line of questioning what.
Hawaiian: The share count I guess is assumed.
Hawaiian: How much equity is assumed raised as part of guidance too.
Hawaiian: To pay maturing loans, both this year and then to prep for the 26th Gen mature that you referenced.
Hawaiian: No, we're not giving that the exact share count long, but.
Hawaiian: It's really going to be to get to the $600 million of share count's going to be driven by the price and the timing issue that equity to get to $600 million. So the price is high.
Hawaiian: Less equity needed.
Hawaiian: Outside 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.
Hawaiian: We funded and will be at the lower end of the guidance.
Hawaiian: Okay and Youre, assuming other remaining 25 debt maturities are also.
Hawaiian: Repaid with cash slash equity is that is that correct just a mixture.
Hawaiian: That's correct yes.
Speaker Change: Your next question comes from the line of Nick <unk> with Scotiabank. Please go ahead.
Hawaiian: Thanks.
Speaker Change: Couple of questions just on <unk>.
Speaker Change: Paper Wood and then the Guardian transition assets, if you could just give us a.
Speaker Change: Our feel for.
Speaker Change: Kind of where you're at in terms of getting back to a sort of a maximum.
Speaker Change: Rents.
Speaker Change: On those 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 be able to get back to the full maplewood red.
Speaker Change: Yeah. Nick this I think is here so maybe Boyd our total portfolio occupancy is now at 91% that includes second Avenue and second Avenue itself is 85%. So things are looking good therefore, our core portfolio with maplewood.
Speaker Change: Paid strong rent in January and we feel like that rent is sustainable if not we'll go up as occupancy increase in the second half. So overall, we feel very good about main point at the moment.
Speaker Change: Guardian that transition happened last year to a new operator, 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 Change: Okay. Thanks, and then just to be clear that the guidance for the year assumes that it's just both those operators.
Speaker Change: Hey, existing rents that theyre paying that theyre not paying a higher level.
Speaker Change: That is correct.
Speaker Change: I'll make one at the higher level, that's one component.
Speaker Change: That takes us to our higher end of our guidance.
Speaker Change: Your next question comes from the line of Sarah <unk> with Bank of America. Please go ahead.
Sarah: Hi, Good morning, Thank you for the question.
Sarah: I wanted to touch on the EBITDAR coverage I know that you made the comment that the increases maybe 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.
Sarah: Four corners, specifically, one tying in I also see that.
Sarah: The less than one times coverage holiday.
Sarah: Ding on us on a small.
Sarah: Percentage.
Speaker Change: Yeah, I mean in terms of that that one operator under one time Scott said.
Speaker Change: One facility deal that we acquired as part of a larger transaction.
Speaker Change: Not a typical asset class for us it's not a snap it's an analysis of specialty hospital and they are very volatile earnings. So they bounce all around so that I don't think its indicative of anything that you would expect to see in the rest of the portfolio we continue to see.
Speaker Change: Good performance from the rest of our portfolio and continuing to see.
Speaker Change: Everything moderate and be strong.
Speaker Change: Yes.
Speaker Change: And also on that mix I also saw the theres a slight uptick in the private insurers.
Speaker Change: And have 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.
Speaker Change: The payer mix shifting more towards private.
Speaker Change: It's just a highly dependent on the deals that we do so as we do more UK adl's that private pay is going to come off of that.
Speaker Change: Your next question comes from the line of Michael Carroll with RBC capital markets. Please go ahead.
Michael Carroll: Yes, Thanks, I wanted to circle back to Maplewood, I mean, how is maplewood position today, I mean are they better position to really ramp up their EBITDAR.
Speaker Change: Now versus the beginning of 2024 I mean, if you look at the 2020 for Ryan I think the quarterly.
Speaker Change: Rent increased by roughly $1 billion between <unk> and <unk> 24, I mean should we expect a similar ramp up in 2025 or are given that the development in New York as occupancy is improving that it could be higher than that.
Speaker Change: Yes. This is a guess.
Speaker Change: See things getting better this year occupancy in second Avenue now is that 85% of the team feels that May board that will get to above 90%. Later this year. So things are in the right direction.
Speaker Change: I mean, we just have to see how this plays out over the next few months, but.
Speaker Change: It will still take one to two years to stabilize the entire relationship.
Speaker Change: Okay, and then circle back I think.
Touched on this a little bit related to the investment pipeline, but are any buyers or sellers acting differently today, specifically for the U S properties, just given the volatility we've seen in interest rates and the political environment discussing potential I guess Medicaid.
Speaker Change: Restructuring.
Speaker Change: Have people slow down their investment activity a seller has been more aggressive trying to get out have you seen anything like that occurring.
Speaker Change: 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.
Speaker Change: Your next question comes from the line of Alex <unk> with Baird. Please go ahead.
Alex: Oh hi.
Speaker Change: Hopefully you guys can hear me.
Alex: Thanks for taking my question so.
Alex: Going to the UK exposure thing Thats about little over 14%.
Alex: What are you comfortable getting that up to.
Matthew Gourmand: Hi, Alex it's Matthew here.
Matthew Gourmand: 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, you have very similar dynamics as you have in the U S. Sniff market in terms of very limited new supply burgeoning growth opportunity.
Matthew Gourmand: <unk>.
Matthew Gourmand: An aging baby Boomer demographic.
Speaker Change: We've developed a really good platform of operators there that are keen to grow.
Speaker Change: And have the financial and operational capability to do so so I think we will continue to grow that portfolio. Obviously as it grows we evaluated 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 markets.
Speaker Change: Alright.
Speaker Change: Thank you Anne does Omega have a plan to maybe hedge the UK cash flows as it grows.
Speaker Change: It's definitely something we're talking about internally yes.
Speaker Change: Given where the dollar is going against the pound right now you feel like you might be bought them, taking the market a little bit.
Speaker Change: So I think it's something that we will continue to look at.
Speaker Change: But as of today, we haven't got any definitive decisions around that.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Emily Mcclure with Green Street. Please go ahead.
Speaker Change: Thank you very much and have increased employment taxes and increased minimum wage and the U K had a noticeable impact on coverage levels for your U K portfolio and that's kind of changed your underwriting criteria moving forward there.
Speaker Change: Hi, This is I guess no we've seen no dramatic changes due to this due to those changes in the UK at this time.
Okay, Great and then maybe one for Megan.
Speaker Change: Thanks for what percentage of workers in skilled nursing facilities are foreign born.
Speaker Change: I do not have that information.
Speaker Change: I'm not sure.
Speaker Change: You know that obviously some of the legal immigration that's been happening over the past few years some of our operators have but we don't know the percentages.
Jonathan Hughes: Your next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.
Speaker Change: Yes.
Jonathan Hughes: Thanks for the follow up Bob I was hoping you could give us some details on fad or cash earnings expectations should that gap between <unk> and <unk> similar to last year, it's it's narrow.
Jonathan Hughes: By about half over the past call it pre COVID-19 versus today so.
Jonathan Hughes: That's because some operators should move from cash to accrual, but just any color there would be great. Thanks.
Jonathan Hughes: Yes, you're right, we don't give <unk> guidance, but big picture that relationship will be pretty similar to.
Jonathan Hughes: Q4, I think you just got to there is two points to remember Fad I already stated that 76% of our.
Jonathan Hughes: Revenues on a straight line basis, so less escalators hit they don't impact <unk>, but they do impact that so that's 23% of that.
Jonathan Hughes: Have some.
Jonathan Hughes: Closing of the gap there and then just remember with the Maplewood Dcs at that cap interest.
Jonathan Hughes: Goes away as revenue, we will be reporting revenue on those assets.
Thank you.
Speaker Change: Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra: Good morning, Thanks for taking the question.
Vikram Malhotra: Just first back on the U K.
Vikram Malhotra: Could you just talk about how much of the push in the U K.
Vikram Malhotra: And 'twenty five 'twenty, six 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.
Vikram Malhotra: What about raising debt.
Vikram Malhotra: The UK also versus the U S.
Vikram Malhotra: Sure. Thanks, Vikram, it's back to you again.
Vikram Malhotra: So on the first question I don't think its really.
Vikram Malhotra: 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.
Vikram Malhotra: So we're taking advantage of that market.
Vikram Malhotra: So I.
Vikram Malhotra: I feel like.
Vikram Malhotra: Our U S Medicaid.
Vikram Malhotra: Yes.
Vikram Malhotra: How we feel about the U S. Medicaid market Hasnt fundamentally changed over the last 12 months and certainly even with the New administration I think that Medicaid will continue to be a necessary part of the funding environment if.
Vikram Malhotra: If you look at a lot of the transactions we were doing earlier in the year in 2024, where 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.
Vikram Malhotra: We continue to look at the best way to fund.
Vikram Malhotra: Both from a hedging standpoint, and from an interest rate standpoint candidly.
Numbers that were often quoted initially in terms of the.
Vikram Malhotra: Net interest rates, we could get a not what we're actually seeing when we when we look to potentially execute on stuff over there. So as a result, we've continued to fund.
Vikram Malhotra: Any debt in the U S. Again, we will keep looking at that should the opportunity.
Vikram Malhotra: Exists to have a favorable interest rate in the U K, we would obviously look to execute.
Vikram Malhotra: Got it and then.
Vikram Malhotra: Just perhaps going back to potential regulation I mean.
Vikram Malhotra: Do you have thoughts so just based on that I guess, if you've had conversations with folks in D. C kind of what what route could be minimum staffing take legislatively versus legal and then any thought on whats being proposed by.
Vikram Malhotra: The public and party in terms of.
Vikram Malhotra: Whether it's S map changes are.
Vikram Malhotra: Adjustments to like including quality measures are even block grants, if maybe give the bigger picture I know, there's a lot of.
Vikram Malhotra: It is not being thrown out there we don't know what's going to happen, but just on specifically on kind of what's your view on those changes.
Yes, I mean look on the staffing mandate, we think the Chevron doctrine.
Vikram Malhotra: <unk>.
Vikram Malhotra: Gone away is going to help us with that.
Vikram Malhotra: Legal case.
Vikram Malhotra: And certainly at the legal case, depending on how that society. We think legislatively. This is probably going to sell.
Vikram Malhotra: Fell away given the price tag on it and the effort by the Republican Party that to cut costs. So we're very hopeful on the staffing mandate side assets aka.
Vikram Malhotra: In terms of what else could happen, it's really too soon to tell them what exactly would go on and what would be past congressionally, but if you think about it.
Vikram Malhotra: <unk> grants.
Vikram Malhotra: There's been conversations about block grants for a long long time.
Vikram Malhotra: Very much so pressure or some sort of per capita caps if enrollment increase funding.
Vikram Malhotra: Funding increases as well and they would look for some sort of inflationary increases on a long term care side, plus some factor above that so I can very involved in all of that in the lobbying efforts that we feel very good about what they would be able to accomplish but again to santos.
Vikram Malhotra: In a town.
Vikram Malhotra: But again as I mentioned, we feel pretty good about where our coverage is are we feel good about the fact that we have a president who was.
Vikram Malhotra: Very supportive that this industry during COVID-19.
Vikram Malhotra: Really stepped up big time for us and really recognize that this industry is just too important to fail.
Vikram Malhotra: We hope that that will continue and that understanding will continue at nothing draconian will happen.
Vikram Malhotra: And then when we talk about.
Vikram Malhotra: Where the federal spending is.
Vikram Malhotra: You think about total Medicaid spending.
Vikram Malhotra: Over 25% of the Medicaid the federal portion of Medicaid spending.
Vikram Malhotra: On Medicaid expansion, which is what came about the affordable care Act.
Vikram Malhotra: And so that covers non elderly adults that do not have children. 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 is being the low hanging fruit that's probably in the first half.
Vikram Malhotra: It doesn't mean that the rest of Medicaid.
Vikram Malhotra: Semi semi at RASK, but we feel pretty good about the position that brand.
Vikram Malhotra: Your next.
Speaker Change: Question comes from the line of for Juan Sanabria with BMO capital markets. Please go ahead.
Juan Sanabria: Thanks for the time for the follow ups, just going back to the deals that you've done both last year and historically.
Speaker Change: I guess what what.
Speaker Change: Should we assume this is baked and likely to convert and 25 and how should we think about the delta between the rate that youre getting as a lender versus what you get for.
Speaker Change: As you compare to traditional fee simple.
Vikram Malhotra: Yeah. This is Vic is here as I said in my prepared comments, we have a $124 million and we plan to convert this year and it is basically the same rate. So I don't think theres any pick up there our model, but we plan for about 124 million all to convert this year.
Speaker Change: Okay.
Speaker Change: And then just last question anything on the.
Speaker Change: Loans or rents that are maturing that we should be factoring into model, whether a rent increase.
Speaker Change: Table ranked first step.
Speaker Change: What's or anybody that you are looking to re tenant as part of maturities.
Speaker Change: Maturities.
Speaker Change: Well, the $28 million being repay debt net cash will just sit on our balance sheet earnings from interest and then the other ones.
Speaker Change: They get pushed or no change.
Speaker Change: And the guidance there at the same rate.
Speaker Change: Your next question comes from the line of Nick <unk> with Scotiabank. Please go ahead.
Speaker Change: Thanks, Yeah, just a follow up Bob on the guidance and.
Speaker Change: 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 million. How we should think about the incremental debt equity that would be raised for that because it does feel like there is some.
Speaker Change: Pre funding of capital that's already in your guidance this year, but the investments are.
Speaker Change: You are correct, we had a pre funding as the the $230 million of secured debt that we're going to pay off in November and getting the $600 million remember, we do cash flow from operations. So you can.
Speaker Change: Factor that in and we had the little bit of a loan repayment, we talked just talked about.
Speaker Change: Sure.
Speaker Change: Again, my stated remarks that we are going to pre fund.
Speaker Change: Acquisitions as the pipeline gets closer it's just not in the guidance because the acquisitions not in the guidance. So you have to take both of those in the consideration there.
Speaker Change: I know that doesn't answer it next year.
Speaker Change: Yeah.
Speaker Change: Yeah. It's it's it's it'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 so.
Speaker Change: Yes.
Speaker Change: It's hard to again, that's what gets me to the high and the low end of my range, but.
Speaker Change: As I stated on the call, we had $200 million of cash.
Speaker Change: $200 million of cash at the end of January.
Speaker Change: But we do have a big dividend payment coming up and so I would think first quarter will be.
Speaker Change: The lower quarters and this really gets back to what is our price how quickly we based on that price to issue equity to build up to that $600 million and in reality as Youre building up you're going to use it for acquisitions. So it's.
Speaker Change: It's really hard deck I apologize, but it's hard.
Speaker Change: Okay, Yes, it does thanks for that Bob.
Speaker Change: Okay.
Speaker Change: I will turn the call back over to Taylor Pickett for closing remarks.
Taylor Pickett: Thanks, everyone for joining the call today.
Taylor Pickett: As usual the team will be prepared for any follow up questions. You may have a great day.
Taylor Pickett: Okay.
Taylor Pickett: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Taylor Pickett: [music].