Omega Healthcare Investors Q4 2024 Earnings Report

Omega Healthcare Investors EPS Results

• Actual EPS: $0.74
• Consensus EPS: $0.41
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: N/A

Omega Healthcare Investors Revenue Results

• Actual Revenue: $279.32 million
• Expected Revenue: $226.22 million
• Beat/Miss: Beat by +$53.10 million
• YoY Revenue Growth: N/A

Omega Healthcare Investors Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 10:00AM ET

Omega Healthcare Investors (NYSE:OHI) is a real estate investment trust (REIT) that specializes in the ownership and management of healthcare-related facilities. The company’s core business involves acquiring and leasing long-term care properties, including skilled nursing facilities and assisted living communities, under net lease agreements. Its portfolio is designed to provide stable, inflation-protected cash flows from operators responsible for day-to-day property management.

Founded in 1992 and headquartered in Hunt Valley, Maryland, Omega Healthcare Investors has grown its holdings to encompass hundreds of facilities across the United States, with a smaller presence in select international markets. The company focuses on sale-leaseback transactions and portfolio acquisitions, partnering with leading healthcare providers to expand or reposition their real estate. Its portfolio diversification by geography and operator credit quality aims to mitigate market concentration risk.

Omega Healthcare Investors is led by a management team with extensive experience in real estate investment, healthcare operations, and capital markets. The board and senior leadership oversee strategic capital allocation, asset acquisitions, and lease structuring to maintain a high-quality portfolio. Through disciplined underwriting and active asset management, the company seeks to deliver long-term growth and income to its shareholders.

Omega Healthcare Investors Q4 2024 Earnings Call Transcript

Key Takeaways

• Q4 FAD of $0.70 per share reflects continued revenue and EBITDA growth while leverage dropped below 4.0× debt/EBITDA.
• 2025 AFFO guidance of $2.90–$2.98 per share assumes first-quarter dilution from share issuances offset by rent escalators and other opportunities.
• Omega deployed approximately $1.1 billion across 36 transactions in 2024 and reports an active acquisition pipeline entering 2025.
• Year-end liquidity remained strong with over $500 million in cash, a fully available $1.45 billion credit facility, and net funded debt/EBITDA at 3.96×—the lowest in ten years.
• Ongoing legal cases and potential federal policy changes around staffing mandates and Medicaid reform create regulatory uncertainty for operators.

Presentation

[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. After 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, Managing Director of Operations at Omega Healthcare Investors]

Thank you, and good morning. With me today is Omega CEO, Taylor Pickett, President, Matthew Gourmand, CFO, Rob Stephenson, CIO, Vikas Gupta, 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, 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. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement.

[Michele Reber, Managing Director of Operations at Omega Healthcare Investors]

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.

[Taylor Pickett, CEO at Omega Healthcare Investors]

Thanks, Michelle. Good morning, and thank you for joining our fourth quarter 2024 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 $0.70 per share, reflects continued revenue and EBITDA growth, which has allowed us to reduce leverage to below 4.0x debt to EBITDA while continuing to deliver FAD growth in 2024. Our 2025 AFFO guidance is $2.90-$2.98 per share, which reflects the first quarter 2025 dilutive impact of our significant fourth quarter share issuances, offset by escalators and other opportunities throughout 2025. We recently announced management changes with Matthew Gourmand 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.

[Taylor Pickett, CEO at Omega Healthcare Investors]

I had the opportunity to work with Dan for over 30 years, 23 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 23 years. Lastly, in 2024, the team did a great job staying disciplined while sourcing and closing 36 transactions, deploying approximately $1.1 billion in capital. The 2025 acquisition pipeline remains active. I will now turn the call over to Rob.

[Robert Stephenson, CFO at Omega Healthcare Investors]

Thanks, Taylor, and good morning. Turning to our financials for the fourth quarter, revenue for the fourth quarter was $279 million compared to $239 million for the fourth quarter of 2023. 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 million or $0.68 per share as compared to $129 million or $0.50 per share for the fourth quarter of 2023.

[Robert Stephenson, CFO at Omega Healthcare Investors]

Our Adjusted FFO was $214 million or $0.74 per share for the quarter, and our FAD was $202 million or $0.70 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 $0.005 greater than our Q3 FAD, 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.

[Robert Stephenson, CFO at Omega Healthcare Investors]

As outlined in our earnings press release, during the fourth quarter, we completed $340 million in 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. Our balance sheet remained 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 15, 2025. We ended the month of January with over $240 million in cash, the full borrowing capacity of our $1.45 billion credit facility, and approximately $820 million 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.

[Robert Stephenson, CFO at Omega Healthcare Investors]

At December 31st, 95% of our $4.9 billion in debt was at fixed rates, and our fixed charge coverage ratio was 4.7x, and our net funded debt to annualized adjusted normalized EBITDA was 3.96x, which is the lowest our leverage has been in 10 years. We still have a target leverage range between four to five times, with the sweet spot being between 4.5-4.75x. As we continue to fund acquisitions accretively with equity, we position ourselves for outsized AFFO growth once we decide to re-enter the bond market. As Taylor mentioned, we provided our full-year adjusted FFO guidance of a range between $2.90-$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.

[Robert Stephenson, CFO at Omega Healthcare Investors]

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. Of 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 beyond 2025. 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.

[Robert Stephenson, CFO at Omega Healthcare Investors]

We project our quarterly G&A expense to run between $12-$14 million in 2025, with the first quarter typically being the highest quarter. We assume we will repay our $230 million 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 charged 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 2025 to repay our January 2026 $600 million bond maturity.

[Robert Stephenson, CFO at Omega Healthcare Investors]

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 four million shares issued, assuming shares are issued at prices consistent with 2024, our quarterly adjusted FFO is negatively impacted by slightly less than one penny 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. I will now turn the call over to Vikas.

[Vikas Gupta, CIO at Omega Healthcare Investors]

Thank you, Rob, and good morning, everyone. Today, I'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 12-month operator EBITDA coverage for our core portfolio as of September 30, 2024, increased to 1.5x vs 1.49x for the trailing 12-month period ended June 30, 2024. We want to highlight that the most recent quarter's performance is a continuation of trailing 12-month coverage improvement across our portfolio over the past year. These ongoing improvements are 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.

[Vikas Gupta, CIO at Omega Healthcare Investors]

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' abilities 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 LaVie. LaVie continues to work towards exiting bankruptcy in the second quarter of 2025, but the effective date of such exit is conditioned upon the rulings on pending motions before the bankruptcy court. In the interim, Omega expects to continue to receive full contractual rent of $3.1 million per month or $37.5 million per annum. Turning to new investments. As Taylor previously mentioned, Omega's transaction pipeline in 2024 was very strong, with over $1.1 billion in new investments.

[Vikas Gupta, CIO at Omega Healthcare Investors]

These transactions varied in size and nature, but 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. Specifically, of the approximately $359 million, or 31%, of Omega's new investments in 2024 that were real estate loans, over $124 million, 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.

[Vikas Gupta, CIO at Omega Healthcare Investors]

Also, the U.K. was a large driver of our 2024 new investments, totaling over $782 million, or 68%, of our total new investments. We've been investing in the U.K. 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 2024, Omega completed a total of $363 million in new investments, inclusive 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 9.9%, and $162 million in real estate loans, which have a weighted average interest rate of 10.9%. A large portion of these new real estate loans, $101 million, or 62%, provide Omega with the opportunity to acquire the underlying real estate upon maturity.

[Vikas Gupta, CIO at Omega Healthcare Investors]

Subsequent to the fourth quarter of 2024, 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 9.9% via a new lease with a new operator and a $15.4 million mortgage to an existing operator for two facilities with an 11% interest rate. Turning to the pipeline, 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. Based on the current lending environment, it is our expectation that we will continue to receive inquiries for real estate loans.

[Vikas Gupta, CIO at Omega Healthcare Investors]

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. So I'll now turn the call over to Megan.

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

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. 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.

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

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, among 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 a preliminary injunction, their case continues moving forward as well. 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 billion over 10 years, according to the Congressional Budget Office.

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

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]

At this time, I would like to remind everyone, in order to ask a question, please use your handset, and 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. Your first question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

[Jonathan Hughes, Analyst at Raymond James]

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 vs loans.

[Vikas Gupta, CIO at Omega Healthcare Investors]

Yeah. Thanks, Jonathan. So the pipeline, as I said in my prepared remarks, looks strong. It's a little bit more heavily weighted right now in the U.K., 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 going to continue to pursue more than loans at this time. But again, all of that can change as things play out.

[Jonathan Hughes, Analyst at Raymond James]

Okay. I think I heard in the maybe Rob'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?

[Vikas Gupta, CIO at Omega Healthcare Investors]

Yeah, 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 U.K. It takes a long time to get those approvals in the U.K.. So we structured the loans so our operators, borrowers could get the deals done. And then the terms are short. They're all within this year. They'll convert to leases, real estate leases.

[Operator]

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

[Michael Griffin, Analyst at Citi]

Great. Thanks. 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 that your operators are seeing, and is there any worry that potential immigration reform could impact the labor pool and maybe further pressure wages?

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

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, 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.

[Michael Griffin, Analyst at Citi]

Thanks, Megan. 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 SNF operators and maybe financial, and tenant health is coming more into the focus. I'm curious if you've seen more scrutiny on underwriting prospective deals, whether it's from a rent coverage perspective, just given maybe there could be some potential issues or worries around operator health. 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?

[Vikas Gupta, CIO at Omega Healthcare Investors]

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 Kilichowski with Wells Fargo. Please go ahead.

[John Kilichowski, Analyst at Wells Fargo]

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 any of those?

[Vikas Gupta, CIO at Omega Healthcare Investors]

Yeah. I mean, we aren't seeing a big change in competitive environment. I mean, there are family offices, private investors, both in the U.S. and the U.K. We're seeing less competition in the U.K. right now due to the lack of capital there. But otherwise, we're not seeing a big change in competition. As for yields, we're staying where we've always stayed, close to 10%, and we're able to deploy capital there.

[John Kilichowski, Analyst at Wells Fargo]

Understood. And then maybe one for Rob here, just on balance sheet fortification. You're leveraged at four times, long-term target of four to five times. So not a pressing need to be leveraged here. But according to the guide, there's going to be some material equity issuance here to deliver in the back half for a 2026 maturity. 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 current cost of 10-year paper versus what it's been historically?

[Robert Stephenson, CFO at Omega Healthcare Investors]

That's a correct statement, what you just said, so they hit 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 at that maturity coming due in 2026, similar to what we did for the one we just paid off. Given our cost of equity right now, if we're taking advantage, that will 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 turns around and we can issue bonds, 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 Sanabria with BMO Capital Markets. Please go ahead.

[Juan Sanabria, Analyst at BMO Capital Markets]

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 2026 January maturity you referenced?

[Robert Stephenson, CFO at Omega Healthcare Investors]

We're not giving out the exact share count one, but it's really going to be to get to the $600 million. The share count's going to be driven by the price and the timing that I issue that equity to get to $600 million, 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, we fund it, and we'll be at the lower end of the guidance.

[Juan Sanabria, Analyst at BMO Capital Markets]

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

[Robert Stephenson, CFO at Omega Healthcare Investors]

That's correct. Yeah.

[Operator]

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

[Nicholas Yulico, Analyst at Scotiabank]

Thanks. A 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.

[Vikas Gupta, CIO at Omega Healthcare Investors]

Yeah. 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 at 85%. 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. 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.

[Nicholas Yulico, Analyst at Scotiabank]

Okay. Thanks. 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 the higher level.

[Robert Stephenson, CFO at Omega Healthcare Investors]

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

[Robert Stephenson, CFO at Omega Healthcare Investors]

Your next question comes from the line of Farrell Granath with Bank of America. Please go ahead.

[Farrell Granath, Analyst at Bank of America]

Hi, good morning. Thank you for the question. I wanted to touch on the EBITDA coverage. 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 when tying in? I also see the less than one times coverage had a larger ding on a small rent percentage.

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

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 SNF. It's not an ALF. 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.

[Farrell Granath, Analyst at Bank of America]

Great. And also on that mix, I also saw there's a 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?

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

It's just highly dependent on the 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.

[Michael Carroll, Analyst at RBC Capital Markets]

Yep. 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 EBITDA now versus the beginning of 2024? I mean, if you look at the 2024 rent, I think the quarterly rent increased by roughly $1 million between 1Q and 4Q 2024. I mean, should we expect a similar ramp up in 2025, or given that the development in New York, occupancy is improving, that it could be higher than that?

[Vikas Gupta, CIO at Omega Healthcare Investors]

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

[Michael Carroll, Analyst at RBC Capital Markets]

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 U.S. 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? Have you seen anything like that occurring?

[Vikas Gupta, CIO at Omega Healthcare Investors]

No. We've not seen any dramatic changes today. As Megan 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 Hagen with Baird. Please go ahead.

[Alex Hagen, Analyst at Baird]

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

[Matthew Gourmand, President at Omega Healthcare Investors]

Hi, Alex. 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 U.K. is a highly compelling investment opportunity at this point in time. You have very similar dynamics as you have in the U.S. SNF 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, we evaluate it in the mix of everything. But I don't think we have a threshold over which we would want to go.

[Matthew Gourmand, President at Omega Healthcare Investors]

I think it's just going to be based on what opportunities we see in the U.S. and U.K. markets.

[Alex Hagen, Analyst at Baird]

All right. Thank you. Does Omega have a plan to maybe hedge the U.K. cash flows as it grows?

[Matthew Gourmand, President at Omega Healthcare Investors]

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 ticking 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.

[Emily Meckler, Analyst at Green Street]

Thank you very much. Have the increased employment taxes and increased minimum wage in the U.K. had a noticeable impact on coverage levels for your U.K. portfolio? And does this kind of change your underwriting criteria moving forward there?

[Vikas Gupta, CIO at Omega Healthcare Investors]

Hi, this is Vikas. No, we've seen no dramatic changes due to those changes in the U.K. at this time.

[Emily Meckler, Analyst at Green Street]

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?

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

I do not have that information. I'm not sure. I do know that, obviously, 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.

[Jonathan Hughes, Analyst at Raymond James]

Thanks for the follow-up. Rob, I was hoping you could give us some details on FAD 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 vs today. And I know that's because some operators are moving from cash to accrual, but just any color there would be great. Thanks.

[Robert Stephenson, CFO at Omega Healthcare Investors]

Yeah. 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 revenue is on a straight line basis. So as escalators hit, they don't impact AFFO, but they do impact FAD. 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.

[Jonathan Hughes, Analyst at Raymond James]

Thank you.

[Operator]

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

[Vikram Malhotra, Analyst at Mizuho]

Morning. Thanks for the question. I guess just first back on the U.K., could you just talk about how much of the push in the U.K., kind of in 2025, 2026, maybe perhaps a little bit of a hedge against changes in potential changes in Medicaid or other changes here, and then in the U.K. itself, what about raising debt in the U.K. also vs the U.S.?

[Matthew Gourmand, President at Omega Healthcare Investors]

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 U.K. right now to transact with quality operators. And so we're taking advantage of that market. And so I feel like our U.S. Medicaid, how we feel about the U.S. Medicaid market hasn't 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 you look at a lot of the transactions we were doing earlier 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.

[Matthew Gourmand, President at Omega Healthcare Investors]

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. Candidly, the numbers that were 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've continued 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.

[Vikram Malhotra, Analyst at Mizuho]

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've had conversations with folks in D.C., kind of what route could the minimum staffing take legislatively versus legal? And then any thought on what's being proposed by the Republican Party in terms of whether it's FMAP changes or adjustments to including quality measures or even block grants? Just maybe give the bigger picture. I know there's a lot being thrown out there. We don't know what's going to happen. But just specifically on those, kind of what's your view on those changes?

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

Yeah. I mean, look, on the staffing mandate, we think the Chevron doctrine being gone away is going to help us with 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 AHCA. In terms of what else could happen, 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. AHCA would very much so push for some sort of per capita cap so that if enrollment increases, the funding increases as well.

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

They would look for some sort of inflationary increases on the long-term care side plus some factor above that. So AHCA is very involved in all of that and the lobbying effort. So we feel very good about 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. 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.

[Megan Krull, Senior Vice President at Omega Healthcare Investors]

And then when we talk about 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. So that's over 25% of that spend. And that constitutes 90% of the federal government money is going towards Medicaid 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 Sanabria with BMO Capital Markets. Please go ahead.

[Juan Sanabria, Analyst at BMO Capital Markets]

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 2025? And how should we think about the delta between the rate that you're getting as a lender versus what you get as you convert it to traditional fee simple?

[Vikas Gupta, CIO at Omega Healthcare Investors]

Yeah, well, this is Vikas here. As I said in my prepared comments, we have $124 million 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 million all to convert this year.

[Juan Sanabria, Analyst at BMO Capital Markets]

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 cuts, or anybody that you're looking to retain as part of maturities?

[Robert Stephenson, CFO at Omega Healthcare Investors]

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

[Operator]

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

[Nicholas Yulico, Analyst at Scotiabank]

Thanks. Yeah. Just follow-up, Rob, 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 million, how we should think about the incremental debt equity that would be raised for that? Because it does feel like there's some pre-funding of capital that's already in your guidance this year, but the investments aren't.

[Robert Stephenson, CFO at Omega Healthcare Investors]

You are correct. So the pre-funding is the $230 million of secured debt that we're going to pay off in November and getting the $600 million. But 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 pre-fund acquisitions as the pipeline gets closer. It's just not in the guidance because the acquisition's not in the guidance. So you have to take both of those into consideration there. I know that doesn't answer it, Nick. Yeah.

[Nicholas Yulico, Analyst at Scotiabank]

Yeah. It's helpful. I guess just one follow-up there is on, is there a way to give us a feel for 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.

[Robert Stephenson, CFO at Omega Healthcare Investors]

Yeah. Well, 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 million of cash, over $200 million of cash at the end of January. But we do have a big dividend payment coming up. And so I would think first quarter will be the lower quarters. And this 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 million. And in reality, as you're building up, you're going to use it for acquisitions. So it's really hard, Nick. I apologize, but it's hard.

[Nicholas Yulico, Analyst at Scotiabank]

Okay. Yeah. Thanks for that, Rob.

[Operator]

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

[Taylor Pickett, CEO at Omega Healthcare Investors]

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.

Participants

Executives

• Matthew Gourmand, President
• Megan Krull, Senior Vice President
• Taylor Pickett, CEO
• Vikas Gupta, CIO
• Michele Reber, Managing Director of Operations

Analysts

• Michael Carroll, Analyst at RBC Capital Markets
• Vikram Malhotra, Analyst at Mizuho
• Michael Griffin, Analyst at Citi
• Jonathan Hughes, Analyst at Raymond James
• Emily Meckler, Analyst at Green Street
• Juan Sanabria, Analyst at BMO Capital Markets
• Farrell Granath, Analyst at Bank of America
• Nicholas Yulico, Analyst at Scotiabank
• Robert Stephenson, CFO at Omega Healthcare Investors
• Alex Hagen, Analyst at Baird
• John Kilichowski, Analyst at Wells Fargo