Omega Healthcare Investors, Inc. (OHI) Earnings Call Transcript & Summary

Thank you, everyone. My name is Karen, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Omega Healthcare Investors First Quarter Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Michele Reber. Please go ahead.

Thank you, and good morning. With me today is Omega's CEO, Taylor Pickett; President, Matthew Gourmand; CFO, Bob 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. 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.

Thanks, Michele. Good morning, and thank you for joining our first quarter 2025 earnings conference call. Today, I will discuss our first quarter financial results and certain key operating trends. First quarter adjusted funds from operations of $0.75 per share and FAD, funds available for distribution of $0.71 per share reflects continued revenue and EBITDA growth, funded primarily with equity, which has allowed us to reduce leverage to 3.7x debt-to-EBITDA. We raised and narrowed our 2025 AFFO guidance from a range of $2.90 to $2.98, up to $2.95 to $3.01, which reflects our strong first quarter 2025 earnings tempered by the dilutive impact of our significant year-to-date share issuances. In March, Genesis did not pay its contractual rent of $4.2 million, and we partially pulled a letter of credit to cover the full shortfall. Genesis paid full contractual rent in April and has remained current on all interest obligations due on our secured term loan. The balance of our letter of credit is $3.5 million. Genesis management has indicated that their current liquidity issues stem from a tightening of their borrowing base by their asset base lender and legacy general and professional liability obligations. Omega's credit position with Genesis is strong. Our trailing 12-month cash flow to rent coverage exceeds 1.6x. We believe that our $118 million term loan is fully secured by our priority lien in all of the Genesis ancillary businesses, which includes the AlignMed physician practice, they're accountable care organization, Powerback Rehab and the equity ownership in ShiftMed as a result of the prior career staff sale. Turning to revenue mix within the portfolio. Over the last decade, we have driven a meaningful shift in our sources of revenue through both U.S. and U.K. senior housing capital allocation. The percentage of private pay and other revenue has increased from 8% 10 years ago to 39% today. Based on our current pipeline and current tenant mix, we expect that the private and other revenue percentage will continue to grow. I will now turn the call over to Bob.

Thanks, Taylor and good morning. Turning to our financials for the first quarter of 2025. Revenue for the first quarter was $277 million compared to $243 million for the first quarter of 2024. The year-over-year increase is primarily a result of the timing and impact of revenue from new investments completed throughout 2024 and '25 operator restructurings and transitions and annual escalators, partially offset by asset sales completed during that same time period. Our net income for the first quarter was $112 million or $0.33 per common share, compared to $69 million or $0.27 per common share for the first quarter of 2024. Our NAREIT FFO for Q1 was $184 million or $0.62 per share as compared to $153 million or $0.60 per share for the first quarter of 2024. Our adjusted FFO was $221 million or $0.75 per share for the quarter, and our FAD was $211 million or $0.71 per share, and both exclude several items outlined in our NAREIT FFO, adjusted FFO and FAD reconciliations to net income found in our earnings release as well as our first quarter financial supplemental posted to our website. Our Q1 2025 FAD was $0.013 greater than our Q4 '24 FAD with the increase resulting from incremental revenue related to the timing and completion of $340 million in fourth quarter 2024 new investments and $78 million in Q1 '25 new investments. In addition, Maplewood paid $15.6 million in rent in the first quarter of '25, an increase of $3.3 million, inclusive of $2.1 million of rent related to the opening of the Washington D.C. facility in February of '25. And we had reduced interest expense as we repaid $400 million of 4.5% senior unsecured notes that matured January 15, 2025, using balance sheet cash. These were partially offset by the first quarter issuance of 7 million shares of equity for gross proceeds totaling $264 million as we continue to prefund our investment pipeline. Our balance sheet remains strong as we ended the first quarter with $368 million in cash and the full borrowing capacity of our $1.45 billion credit facility. Our balance sheet cash was used to fund the $344 million U.K. and Jersey acquisition on April 25th that Vikas will be discussing. Additionally, in April, we repaid our $50 million term loan and officially extended our credit facility maturity to the end of October. At March 31, 95% of our $4.5 billion in debt was at fixed rates and our fixed charge coverage ratio was 5.2x, and our funded debt to annualized adjusted normalized EBITDA was 3.72x, which is the lowest our leverage has been in over 10 years. We still have a target leverage range between 4 to 5x with the sweet spot being between 4.5 to 4.75x. Given our equity currency, we have the flexibility to accretively fund investments with equity as we have for the past several quarters, thereby positioning ourselves for outsized adjusted FFO growth as we opportunistically look to the debt and banking markets if coupons and rates become more favorable. Turning to guidance. As Taylor mentioned, we raised and narrowed our full year adjusted FFO guidance to a range between $2.95 to $3.01 per share. A few of the key 2025 full year 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 means any growth in revenue through annual escalators will not yield further growth in adjusted FFO, but would yield cash flow growth. We're assuming Maplewood's ability to pay contractual rent continues to improve. We're assuming Genesis continues to pay full contractual rent and interest. Of the $247 million in mortgages and other real estate-backed investments contractually maturing in 2025, we're assuming $84 million will convert from loans to fee simple real estate and $68 million will be repaid throughout 2025. We are assuming the balance of the loans will be extended beyond 2025. We've included the impact of the new investments completed as of April 30. We project our quarterly G&A expense to run between $12 million to $14 million in 2025. We assume we will repay our $238 million of secured debt in November 2025 with equity. We assume no material changes in market interest rates, as they relate to either interest earned on the balance sheet cash or interest expense charge or credit facility borrowings. Finally, consistent with how we ended 2024, we assume we will position ourselves with enough cash on the balance sheet by year-end of '25 to repay our January 2026, $600 million bond maturity. As a reminder, to the extent our equity currency remains favorable, and we continue to prefund investments or prepare for debt maturities for every 4 million shares issued, assuming shares are issued at a price consistent with the first quarter, our quarterly adjusted FFO is negatively impacted by slightly less than $0.01 per share, while our leverage improves or is reduced by approximately 0.15 turns 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 was included in the earnings release. I will now turn the call over to Vikas.

Thank you, Bob, and good morning, everyone. Today, I will be discussing the most recent performance trends for Omega's operating portfolio and Omega's investment activity in the first quarter of 2025, as well as provide an update on Omega's pipeline and market trends for the remainder of 2025. First, turning to portfolio performance. Trailing 12-month operator EBITDAR coverage for our core portfolio as of December 31, 2024, increased to 1.51x versus 1.50x for the trailing 12-month period ended September 30, 2024. The most recent quarter's performance is another quarter of modest but continued trailing 12-month coverage improvement across our portfolio. Omega's operating partners continue to showcase their expertise and resilience in a fluid regulatory and reimbursement environment. Omega and our operating partners continue to work towards the common goal of making disciplined and sustainable investment decisions, while serving an increasingly complex resident population across various asset types and markets. Omega is currently not engaged in restructuring activity with any of our major operators. However, I did want to share a few positive updates for two of our larger operators, LaVie and Maplewood. LaVie continues to work towards exiting bankruptcy during the second quarter of 2025, at which time the Omega LaVie master lease will be assumed and assigned to a new entity known as Avartis. The timeline for closing is based on final regulatory approvals and legal documentation between Avartis, the various landlords and the working capital lender. Omega is currently receiving full contractual rent of $3.1 million per month or $37.5 million per annum and no changes to rent are expected at the time the lease is assigned to Avartis. Turning to Maplewood. Occupancy for the core 17 facility in Maplewood portfolio inclusive of Inspire Carnegie Hill in New York City has reached a level of 94% as of April 2025. Maplewood paid $13.5 million in rent in the first quarter for this portfolio which is an improvement of $1.3 million from the fourth quarter of 2024 and an improvement of $2.3 million from the first quarter of 2024. The Inspire Embassy Row facility in Washington, D.C. opened in February 2025. This new facility comprises 174 units and is located in the historic and highly desired Embassy Row area downtown Washington, D.C. The facility is in the process of leasing up with an occupancy of 20% as of the end of April. Maplewood paid $2.1 million of incremental rent in the first quarter for Inspire Embassy Row, for a total rent payment of $15.6 million in the first quarter. In April 2025, Maplewood paid total rent of $5.8 million, of which $1 million was attributable to Embassy Row. Turning to new investments. Omega's 2025 transaction activity through the end of April was very strong with over $423 million in new real estate investments and $34 million of CapEx investments funded in the first quarter, or total new investment activity of over $457 million. During the first quarter, Omega completed a total of $112 million in new investments, inclusive of $34 million in CapEx. The new investments include $58 million in real estate acquisitions via two separate transactions. A purchase lease transaction of two senior housing communities in Texas, which were leased to a new operator; and a purchase leaseback transaction of four care homes in the U.K. leased to an existing operator. Both transactions have an initial cash yield of 10% with annual escalators ranging from 2% to 2.5%. In addition, Omega invested $20 million in new real estate loans in the first quarter, which have a weighted average interest rate of 10.8%. Subsequent to the first quarter of 2025, Omega closed on a $344 million investment for our portfolio of 45 care homes across the U.K. and Jersey. Omega leased the 45 care homes to four existing and two new operators with an initial cash yield of 10%. The U.K. continued to be a large driver of our 2025 new investment activity, totaling approximately 392 or 93% of our total new investments, excluding CapEx. As I have mentioned previously, we've accumulated a strong bench of operators and other relationships in the U.K. that lead us to highly accretive investment opportunities. Additionally, as a result of our scale, reputation and strong operator base across the U.K., we were able to quickly evaluate, structure and close on complex transactions like the 45 care home transaction we closed in April. It is important to highlight that while these transactions varied in size and nature and were comprised of both real estate investments and real estate loans, approximately $402 million, excluding CapEx or 95%, were owned real estate investments leased to third-party operators under long-term triple-net lease structures. 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. Turning to the pipeline. Omega's pipeline and transaction outlook for the remainder of 2025 continues to be favorable. We continue to see marketed opportunities both in the U.S. and the U.K., while also benefiting from off-market opportunities that our operating partners and other relationships bring us. Additionally, while we continue to see inquiries for real estate loans due to the restricted lending environment, we are seeing a material increase in opportunities to acquire real estate in 2025. Specifically in the U.S., with opportunities ranging this spectrum of individual sellers to regional owner operators and institutional real estate sellers. We will continue to evaluate and engage in select loan opportunities, primarily for existing operator relationships, but our priority will always be allocating capital towards accretive owned real estate deals that grow our balance sheet. I will now turn the call over to Meg.

Thanks, Vikas, and good morning, everyone. I'll start today with news that, while not unexpected, is very much appreciated. In early April, the federal judge in the Texas court case brought against the staffing mandate found in favor of the summary judgment filed by the industry associations amongst others. The court found that CMS lacked the authority to issue a regulation requiring registered nurses 24/7 and 3.48 hours per resident day of nurse staffing time, which would have effectively replaced a statute already in place. As a reminder, the Congressional Budget Office had scored the reversal of this rule as saving the federal government $22 billion over 10 years. We are extremely grateful to finally see some conclusion on this front and applaud the efforts of all those involved. Also in April, both the Senate and House passed respective budget solutions, which, amongst other things, task the House Energy and Commerce Committee with reducing spending by $880 billion over 10 years. While not specifically calling out cuts to the federally funded portion of Medicaid, it is largely believed that in order to meet the requirement, some level of Medicaid reform will need to occur. We continue to believe that the Medicaid expansion population, those able-bodied adults that were added with the Affordable Care Act are likely the largest target of these spending cuts given that the federal government covers a higher percentage of that Medicaid spend, 90% than the traditional Medicaid population, approximately 63% on average. However, while spending cuts there may cover a vast amount of the required cuts, there may still be some action that would impact the traditional Medicaid population. There is no way to tell at this time what will ultimately happen. All of that said, with overall coverage strong, fundamentals continuing to improve and a President that stood by this industry during COVID essentially recognizing that it was too important to fail, we feel well-positioned and are hopeful that no attempt at draconian cuts in this space will be proposed. I will now open the call up for questions.

[Operator Instructions] Our first question comes from the line of Jonathan Hughes of Raymond James.

Thanks for the prepared remarks and commentary. I was hoping you could share some more details on Genesis and then not paying rent and interest in March, but then paying in April. I know that was surprising as we haven't really heard from them in a few years, but the shortfall was driven by their ABL lender. Can you just remind us of the Genesis corporate capital structure if they're on accrual or cash accounting and then the geographic footprint of your Genesis portfolio?

Yes. Jonathan, it's Taylor. So just slightly bigger picture. The Genesis has a weak balance sheet. And so to the extent that their principal capital partner is their ABL lender, if they squeeze down on availability affects liquidity. I think it's just a onetime thing. From our perspective, they should continue to pay. The coverage is great. Our mezz loan is collateralized by an enormous amount of ancillary assets. So I would expect they'll continue to pay. And for some reason, their situation becomes more difficult. We're in a fine spot. I mean we've been through these a million times. So I'm not worried at all. In terms of geography, it's principally Mid-Atlantic. We used to have some Northeast presence. We still have a tiny bit in that area. Mid-Atlantic all the way down into West Virginia. And then in terms of accounting, Genesis is on a cash basis because for, I don't know, 3, 4 years, they've had an accounting opinion. [indiscernible] And I don't expect that changes any time soon.

Yes, Jonathan. So on the lease, it's on a cash basis. It's been there for since 2020. The loans that Taylor mentioned, given the fact that collateral supports the loan, usually supports loans, that's on an accrual basis.

Okay. That's great color. I appreciate that. And then I've got more Genesis questions, but I'll save those, and I'll ask one about acquisitions. Can you maybe share more details on the U.K. portfolio acquisition. We've seen a lot more interest lately in U.K. health care real estate from various capital sources. So, yes, I was pleasantly surprised to see the attractive 10% yield on that transaction. Can you just talk about how that deal evolved and share some details on composition of that portfolio?

Yes. Jonathan, this is Vikas. So that deal is an example of our -- how strong our platform is in the U.K. There was a seller looking to exit completely, and we were able to come in with six different operators and give them a solution, and a very quick timeline. They wanted to close everything on the same day, and we were able to deliver that. I mean, to be honest, I don't think there's a ton of competition because there's not a lot of people who could do that. So -- and these assets fit well. They're all over the U.K., Scotland and Jersey and all of our operators took them, better taking them. It fits really well in their geographies and good quality assets that have a very good useful life.

Our next question comes from the line of Seth Bergey from Citibank.

I guess, have you seen any immigration impact on labor availability and wage pressures?

Yes. We haven't seen that at this point. I mean there's a potential there could be an indirect impact down the road, but we really haven't seen anything at this point.

Great. And then I guess, for my follow-up, just coming back to Genesis. Do you have any sense of if their operating fundamentals are improving? Or do you have any metrics you could provide there?

Well, the coverage metric is the big one. The big driver, and our portfolio has been consistently above 1.5x. Directionally, it moved up through as COVID improved, and it's kind of leveled out like the rest of the portfolio at that -- for them north of 1.6 compared to the whole portfolio of 1.5.

Our next question comes from the line of Juan Sanabria from BMO Capital Markets.

Just on Genesis, on the loan portion, how much, I guess, PIK interest or other kind of noncash is there where if that has to switch for whatever reason, you have a lot of credit behind that would be potentially at risk.

As I said, we had, Taylor mentioned, we have those loans that have adequate collateral since the accounting required to keep on a full basis. In the quarter, we booked $2.4 million uptick.

Okay. Great. Just curious, there was one of your larger cap peers did a significant transaction first time in a while. Did you guys look at that? Or how do you -- do you see them in other deals? Or just curious on the state of competition for U.S. fee simple acquisitions here? And if there's been any impact as a result of DOGE cuts to financing availability from HUD or otherwise as a result of the government job cuts?

So Juan, are you talking about large cap peer? I'm not even sure peer. Welltower?

Yes. I think they would say the same thing, but, yes.

Okay. We don't see Welltower much. But when you think about it, the deal I've heard that they closed off was rather large. And it was cobbled together privately. It wasn't a marketed deal. So we were aware of some things happening, but we were never a part of a bid process.

Okay. And just as with the DOGE cuts, has there been any change to like the receptiveness or availability of HUD lending as a result of cuts? I don't know if like that particular department was downsized or what. But is that going to impact debt financing availability generally?

Yes. At this time, we haven't heard anything changing on the HUD front. But we'll keep our eyes -- we'll keep our ears close to the ground there, but nothing at this time.

Our next call comes from Emily Meckler from Green Street.

Can you provide a little more color on the PACS portfolio? And to what extent you'd be able to retenant the current facilities operated by the company? And how have coverage levels trended over the past couple of quarters?

Yes. This is Vikas. We have around 50 buildings with PACS, and they do extremely well. And so overall, we don't have to worry that we would not be able to retenant them at the current rent or even more. But at the current time, we've had discussions with PACS, and there's been no discussions of trying to exit our portfolio.

Okay. Great. And then just one on kind of turning to the transaction market. Has your underwriting criteria shifted over the past few months, typically in the U.S. given the potential changes to Medicaid repayment?

Again -- no, the answer is no, nothing's changed. But we are -- I mean, we're watching things closely. But at the current time, based on just all of the unknowns out there, we continue to underwrite the same way.

Our next question comes from Omotayo Okusanya from Deutsche Bank.

So on Genesis, again, you had mentioned earlier like it's just again, lending markets are a little bit tougher in general. Just kind of curious, again, what we're seeing with Genesis of the ABL lender reducing capacity? I mean are you starting to see that more broadly in the industry just because lending is getting tighter? Or do you really kind of really look at this more as a Genesis specific issue?

It's -- Tayo, it's the latter. This is Genesis specific. We haven't seen anything across the landscape. I will tell you, ABL lenders are notoriously difficult at this. But in terms of a trend, we're not seeing anything.

Okay. That's helpful. And then for the term loan book, the $118 million, if you were to hazard a guess of the LTV on those assets relative to the collateral, what would that number be?

That's really, really a guess, but I will tell you, I think we're substantially over-collateralized, substantially.

Got you. Okay. And then that's helpful. Maplewood, once it's all stabilized, what would be the run rate for the rent on Maplewood, when stabilized, Bob?

You mean our contractual?

Yes, the contractual -- yes. Like what do you get to at the end of it all?

So this is Matthew here. It's a little bit -- it's a little bit convoluted because we're growing in our D.C. assets. So the contractual rent on the portfolio outside of D.C. is currently $69 million. And then the D.C. project is going to be a 6% rate this year, going up to 7%, going up to 8% and then 2.5% escalated thereafter. So you can kind of do the math around that.

Our next question comes from the line of Nick Yulico from Scotiabank.

Just turning to LaVie. You talked about the entity, it should be the master lease assigned to a new entity, no change to rent expected. Can you just remind us, does that mean then that the escalator is going to kick back in? What is the escalator there? And then also -- is there any like straight-line rent that gets returned on and once they exit bankruptcy?

Yes, Nick, this is Vikas. So basically, nothing is going to change. We'll continue to get rent. We'll continue to get our kickers. I believe they're 2.5% on this lease. And so there's really nothing from a business perspective that will be changing on that lease after this assignment. We'll continue to get full rent and this portfolio has strong coverage above 1.4x.

Bob, do you want to answer the straight line question?

Yes, was the answer. [indiscernible]

So there's going to be a straight-line rent benefit that gets starts to kick in again on the lease?

So -- I'm sorry, Nick. Bob, so the question is, will straight-line rent kick in with this initiation of the new lease?

Yes. Yes.

Okay. Great. Is there a way can you just remind us like quantify what that benefit is?

Well, it's going to be the length of the lease at 2.5% and then you divide it by the length of the lease. I just don't know the ending date of that.

Okay. Got it. We can follow-up. And then just the second question is, any high-level perspective you could share on provider tax? You talked about it a little bit and potential Medicaid changes are in flux. But just at a high level, like, anything you're hearing about what that could turn out to be a proposal? And any sort of early thoughts on impact to the portfolio?

Yes. I mean, look, I think we think of the largest impact out there on Medicaid being on the Medicaid expansion population. And within the last couple of days, that's actually come out that they're suggesting per capita caps on the expansion population only. The greatest risk to traditional Medicaid is provider taxes, as you said. Right now, provider taxes can go anywhere up to 6% of net patient revenues in about half the state, almost half the states in the U.S. who are at 6%, but then it goes down from there. Several states don't have any provider tax whatsoever. And we're not hearing that, that would be wiped out completely. It's more so that it might come down a 1% or 2%. In terms of the impact, it's really difficult to tell from a portfolio perspective. Every state is different. Certainly a certain number of states are going to step up and probably bridge that gap. And it's just too soon to tell what that would actually look like. But that is the greatest risk, which is probably a good thing when you look at the broad spectrum of the things they could do.

Our next call comes from the line of -- question, excuse me, comes from the line of John Kilichowski, from Wells Fargo.

Maybe on the disposition side, you did a lot in the quarter. I'm curious if that was just a cleanup of noncore assets or you're being opportunistic on a good deal. Just curious what prompted that?

Sure. So a little bit of both. We had some assets held for sale at the end of last quarter that we executed on. And then there was another portfolio that, quite frankly, we weren't necessarily envisioning selling, but somebody came along and made us an offer that would allow us to redeploy the capital effectively accretively and grow FAD. We felt that those assets were not necessarily core to the portfolio. They had been somewhat optimized in terms of the achievements that they realized in the coverage. And therefore, we took advantage of the price that was offered to us.

Got it. And then just in the opening remarks, it sounded like the commentary about the opportunities in the U.S. for your pipeline were improving because a lot of the activity we've seen is in the U.K. I'm curious what you think the rest of the year is going to look like in terms of acquisition opportunities between the U.S. and the U.K.

This is Vikas. Right now, the pipeline overall is healthy. It is a little bit more U.S. heavy at the moment, which is a change from where we have been historically the last year or so. But we'll see how things play out as the year progresses.

And I guess last thing just kind of piggybacking on that, has your underwriting changed for those deals in the U.S. based on what we've seen and kind of the overhang of the medical concerns?

No. As I previously said, we are still underwriting the same because there's just too many unknowns out there.

Our next call comes from the line of -- our next question comes from the line of Farrell Granath from Bank of America.

Going back to the U.K. market. I'm curious about -- how do you get coupled with extending into new operators? And can you just specifically characterize your platform and if it's any different than what you do in the U.S.?

This is Vikas again. That's a good question. So I mean, our platform is very similar to the U.S. where we've grown a bench of operators. Today, we have about 14 operators in the U.K. And to be honest, we underwrite the same. We look at real estate quality markets and the operator and see how they would fit into particular assets. So it is very much just taking our platform here and putting it out there, but it's been 10 years going now, and we believe that we finally have it at a good level.

And also your comment about the material change in the transaction market in the U.S. I'm curious when you're coming to deals, are you seeing greater competition? And is that changing any cap rates that are coming to the table?

Yes. I mean there's a pickup in volume right now due to the interest rate environment. But no, overall -- I mean, different players come in and out, private equity or the REITs into our space. But overall, the competition is about the same as it has been historically.

Our next question comes from Wes Golladay of Baird.

Can you talk about your FX exposure now?

Yes. So if you look at our U.K. from a hedging standpoint, what we look at, we tried to do net investment hedges and/or cost currency swaps when that all makes sense. But bigger picture is, we have a big portfolio of assets over there, and we collect rent in pound sterling. And as you know, looking at the pipeline and the acquisitions we just completed, we're paying pound sterling. So that's a net investment hedge, right? It's a perfect catch there.

Okay. And then you have been extending your credit facility. Are you looking to do something bigger at the end of the year?

I would like to get something done prior to the end of the year, hopefully mid-summer. And given our size, as you would expect we would hope that, that would increase the size.

Our next question comes from Richard Anderson of Wedbush Security.

In the beginning, you said you're not worried at all about Genesis, which is worrisome, I guess, the fact that you have to say. And this may all work out perfectly fine, but correct me if I'm wrong, and maybe this is the wrong way to look at it, but the $3.5 million that's remaining on the letter of credit seems little thin relative to the future. Is that a fair way to think about it? Or am I looking at it the wrong way?

I don't think -- well -- certainly, $3.5 million is less than a month, right? So to the extent that you want more than a month, it doesn't give you a lot of room to maneuver. On the flip side, if we don't get paid, it's a default. If there is a default, there's a process, and these assets are incredibly valuable. So -- look, it's unfortunate that we have a lot of noise because of the blip in the payment. But the reality from our perspective is we're not worked. And we'll work through the process, if need be.

Okay. All right. I guess I'll move on from that. The other thing I wanted to ask about was the 2.8 million -- 2.8% CMS recommendation for fiscal year 2026, and the value-based adjustment of 2%. I kind of queried about this and you all think that the right number to think about relative to the 4.2% of this year is 2.8%, putting aside the incentive component of value of the VBP. But -- some see it differently, and I'm wondering where you stand. Is the real number 2.8% or is it some fraction of that or some lower number of that when you take into account staffing, you take it into account wages, and you take into account, again, the VBP adjustment. What's the real number for 2026 in your mind?

I mean the true number is that 2.8%. We thought it was going to come in around 3%, so it's right around where we thought it was going to be. And quite frankly, normally what happens when you get a proposed rule by the time it becomes a final rule. There's probably maybe a little bit of a bump in there. But in terms of you're just talking total overall picture of what's going on in the nursing loans, I mean, yes, staffing obviously costs more, but things have sort of leveled off from that perspective as well. It's not as heated as it was over the last couple of years. And it's sort of too soon to tell even on the tariff side, what that's going to do to expenses. But really, when you think about it, the Medicare piece of the population is a very small percentage of our business, and we really tend to concentrate more on the Medicaid side of things, which has been very much so keeping pace with inflation, and we hope to see that going forward.

Okay. So is it overly simplistic to take the 2.8%, subtract the 2% and then assume that your operators will meet those thresholds and you'll end up at 2.8%. Is that the way to think about it? Or am I kind of oversimplifying?

I think you're probably oversimplifying. You're talking about the value-based piece where they potentially could pick up more is that.

Yes, that's what I'm asking you know that. How does that you kind of swing that one?

Yes, we tend to think of our operators as being pretty strong on the quality piece of it, and so they would pick up whatever they can from that aspect.

Our next question comes from Michael Carroll of RBC Capital Markets.

I guess, Megan, I wanted to circle back on the provider tax comments. I know the House Republicans initial menu of budget cuts included reducing the provider tax or potentially reducing the threshold to 3%? And I think you just said that they're talking about only reducing it by 100 to 200 basis points. I mean, has that changed? Or is it still kind of that evolving scenario where we just don't know yet, where they want to set it, even if they do want to redo something with it?

It is very much so evolving. So one day, you might hear they're going to cut it by 1%, and the next day, it might be 2%. So it's a little all over the place. It will be interesting to see what happens from an expansion perspective, right? The more they can pick up from that $880 billion from the expansion, the less they're going to have to pick up on the traditional Medicaid side.

Okay. That makes perfect sense. And then if I can just sneak one Genesis question in. Did they pay their May rent yet, I guess? Or how long do they have until they need to pay their May rent?

The May rent is due May 5, so still not due.

Our next question comes from Vikram Malhotra from Mizuho.

I guess just going back to Genesis and your conversations with them, like why did the ABL lender shrink the borrowing base? Did something change in the business or the collateral? Can you just clarify as if ABL lender done this with any other operator?

I have no idea, whether the ABL lenders done it with other operators. I believe it's related to a pool of collateral that was aging. Beyond that, I don't have any more color.

Okay. Just going back to the comments on the U.S. acquisition. I guess, last quarter and maybe even the quarter before that, you had sort of said you were much more focused on the U.S., less opportunities that make sense for you. So I'm wondering like apart from rates, like what else has changed for the pool to become larger, number one, and more attractive to Omega?

Yes. It's just where we see accretive opportunities and it's a little bit more heavy on the U.S. at the moment. We did close a large U.K. transaction. And at this point, there's more U.S. opportunities are coming to us. Again, we are focusing on accretive opportunities with current partners and new partners. So wherever we see them that's where we're heading towards.

Okay. Great. And then Bob, if I can just lastly clarify, you'd mentioned kind of having enough capital to deal with the 26 debt-payments. Correct me if I'm wrong, but -- does that essentially mean through the year, you'll be raising a fair amount of equity to kind of deal with that and acquisitions as well?

That is correct. And again, it's predicated on price out there.

Our next question comes from Omotayo Okusanya from Deutsche Bank.

Just a very quick follow-up for Megan. Are you hearing anything about the federal government maybe potentially filing an appeal against the judgment on minimum staffing?

I have not heard anything like that at this point. I mean -- but at the end of the day, regardless of the court case, right, the likelihood is, is that the mandate is going to end up in the budget as a $22 billion win for it being going away, so it will be handled one way or another.

Our next question comes from Juan Sanabria from BMO Capital Markets.

For Genesis, how should we think of what's the meaning behind the pool of collateral that was aging? Does that mean there's like a growing AR or bad debt balance for Genesis? Or is that the same collateral pool you guys have? Just hoping for a little bit more color if that if possible. This is with regards to the ABL question, sorry.

What do you look -- I'm trying to understand what it is you're looking for.

Sorry, I was basically following up on Vikram's question with regards to the ABL, the shrinking borrowing base? And you said the pool of collateral that was aging. I just I'm not sure what that means. I just hoping for a little bit of clarification.

Yes. So this is just what we've been told. I mean, I don't have -- I don't audit their ABL asset base. My understanding is their asset base is north of $400 million. The loan is less than $300 million. But ABL lenders can pull different toggles. So I don't have any more information than that, really not worried about it, but to the extent that they rely on the ABL lender for liquidity, it can create issues for the company.

Understood. Sorry about that. And just one quick one for me. How should we think of the cap rates or the yields for the first quarter dispositions?

It's tough. Some of those assets, we weren't receiving rent on. So it's effectively an infinite yield. But I think if you look back at what the rent was assigned on those facilities, you probably find it's in the 10% to 12% range on legacy rents. And then the opportunistic one was probably more like a 7% yield, which as you can see is why we wanted to take advantage of that because we're still getting tens in the marketplace. So the net number is probably below 10% once you look at the whole thing, but it's very difficult to parse that out, given the fact that we weren't receiving rent on some of those facilities.

[Operator Instructions] Great. That seems to be all of our questions. I will now turn the call back over to Taylor Pickett, CEO, for closing remarks.

Thanks. Thank you all joining our call today.

This concludes our call. You may disconnect. Have a great rest of the day.