Omega Healthcare Investors (OHI) Q4 2024 Earnings Call Transcript

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Omega Healthcare Investors (NYSE: OHI)
Q4 2024 Earnings Call
Feb 06, 2025, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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. [Operator instructions] I would now like to turn the call over to Michele Reber.

Please go ahead.

Michele Reber -- Senior Director, Asset Management

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 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.

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Taylor C. Pickett -- Chief Executive Officer

Thanks, Michele. 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 per share to $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.

I had the opportunity to work with Dan for over 30 years, 23 years here at Omega. Dan's many contributions to Omega are 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 forcing 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 Bob.

Robert O. Stephenson -- Chief Financial Officer

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. 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 found 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. As outlined 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. 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 prefund investments by issuing equity. At December 31, 95% of our $4.9 billion in debt was at fixed rates. And our fixed charge coverage ratio was 4.7 times and our net funded debt to annualized adjusted normalized EBITDA was 3.96 times, which is the lowest our leverage has been in 10 years. We still have a target leverage range between four to five times with the sweet spot being between 4.5 to 4.75 times.

As we continue to fund acquisitions accretively with equity, we position ourselves for outsized AFFO growth once we decided to reenter the bond market. As Taylor mentioned, we provided our full year adjusted FFO guidance of a range between $2.90 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 meets 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 5. 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. 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 charge on credit facility borrowings.

Finally, consistent with how we ended 2024, we assume we will position ourselves with enough cash on the balance sheet by the end of 2025 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 prices consistent with 2024 or quarterly adjusted FFO is negatively impacted by slightly less than $0.01 per share, while our leverage improves or it was reduced by approximately 0.15x 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 -- Chief Investment Officer

Thank you, Bob, and good morning, everyone. Today, we'll be discussing the most recent performance trends for Omega's operating portfolio and Omega's investment activity in 2024 and share insight into Omega's piping for 2025. Turning to portfolio performance. Trailing 12-month operator EBITDAR coverage for our core portfolio as of September 30, 2024, increased to 1.5 times versus 1.49 times 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 were reflective of the strength and expertise of Omega's operating partners, the resolution or nearly all of Omega's portfolio restructurings over recent years, and the disciplined allocation of new investment capital over the past year. Despite continued pressures from suboptimal labor and reimbursement levels in select markets, the industry landscape continues to improve as a result of the growing aging population and our operators' ability to serve an increasingly complex resident population. However, with occupancy now approaching pre-COVID levels, we would expect any future coverage increases to be more modest.

As of today, the only major operator, Omega is engaged in restructuring activity with is Levi. Levi continues to work toward 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. These transactions varied in size and nature and demonstrate Omega's ability to adapt to the evolving investment landscape in the long-term care industry. In 2004, 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. Also, the UK was a large driver of our 2024 new investments, totaling over $782 million or 68% of our total new investments. We have been investing in the UK for over a decade now and have accumulated a strong bench of operators and other relationships there, which lead us to highly accretive investment opportunities. Looking at the fourth quarter of 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 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. 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 US 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, it is our expectation that we will continue to receive inquiries for real estate loans while we continue to evaluate and engage in select loan opportunities, primarily for existing operator relationships, our priority will always be to allocate capital toward accretive owned real estate deals to grow our balance sheet.

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

Megan Krull -- Senior Vice President, Operations

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.

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 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. We are still very hopeful that the rule will ultimately be overturned, and we hope that any future rule-making 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.

Questions & Answers:

Operator

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

Jonathan Hughes -- Analyst

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

Vikas Gupta -- Chief Investment Officer

Yes. 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 UK, but that can change as things progress.

And we're mostly looking at small midsized 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

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

Vikas Gupta -- Chief Investment Officer

Yes, Jonathan, this is Vikas again. So we did a few loans last year knowing that they would convert to leases. And that was done primarily due to regulatory timing in the UK It takes a long time to get those approvals in the UK So we structure 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 the leases -- real estate leases.

Operator

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

Michael Griffin -- Citi -- Analyst

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, Operations

Yes. I mean, look, the 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 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 at this time.

Michael Griffin -- Citi -- Analyst

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 it change in kind of underwriting from that perspective?

Vikas Gupta -- Chief Investment Officer

No, we really haven't. We continue to underwrite where 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

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

Vikas Gupta -- Chief Investment Officer

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

But otherwise, we're not seeing a big change in competition. 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

Understood. And then, maybe one for Bob here. Just on balance sheet fortification. Your leverage is at four times long-term target of four to five times.

So not a pressing need to deleverage here. But according to the guide, there's going to be some material equity issuance here to delever in the back half or '26 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 the current cost of 10-year paper versus what it's been historically?

Robert O. Stephenson -- Chief Financial Officer

That's a correct statement, what you just said. So they hit a couple of -- there were a couple of questions in there. So we're going to treat the guidance similar to what we did in '24, be prepared to handle that debt maturity coming due in '26, similar to what we did for the one we just paid off. Given our cost of equity right now, we're taking advantage that we'll be opportunistic.

The guidance does not have future acquisitions in. 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 C. Sanabria -- Analyst

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 booked this year and then to prep for the '26 Jan maturity you referenced?

Robert O. Stephenson -- Chief Financial Officer

We give out the exact share count on, but it's really going to be -- to get to the $600 million, the share count is 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 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 still accretive to do it that way, we fund it, and we'll be at the lower end of the guidance.

Juan C. Sanabria -- Analyst

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

Robert O. Stephenson -- Chief Financial Officer

That's correct. Yes.

Operator

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

Nicholas Yulico -- Analyst

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 -- Chief Investment Officer

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

And Second Avenue itself is 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, will go up as occupancy increases in the second half 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

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

Robert O. Stephenson -- Chief Financial Officer

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

Operator

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

Farrell Granath -- Analyst

I wanted to touch on the EBITDAR 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 one tying in, I also see the less than 1x coverage had a larger ding on a small rent percentage?

Megan Krull -- Senior Vice President, Operations

Yes. 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 cost 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 a good performance from the rest of our portfolio and continuing to see everything moderate and be strong.

Farrell Granath -- Analyst

Great. And also on that mix, I also saw the -- there's a slight uptick in the private insurers kind of a larger one than I've seen in the last couple of quarters. I was curious what was driving that? Are you seeing the payer mix shifting more toward private?

Megan Krull -- Senior Vice President, Operations

It's just highly dependent on the deals that we do. So as we do more UK 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.

Michael Carroll -- Analyst

I wanted to circle back to Maplewood. I mean how is Maplewood positioned today? I mean, are they better positioned to really ramp up their EBITDAR now versus the beginning of 2024. I mean if you look at the 2024 rent, I think the quarterly rent increased by roughly $1 million between 1Q and 4Q '24. I mean should we expect a similar ramp up in 2025? Or given that the development in New York's occupancy is improving that it could be higher than that?

Vikas Gupta -- Chief Investment Officer

Yes. This is Vikas. I mean we see things getting better this year. Occupancy at Second Avenue now is at 85%.

The team feels in Maplewood, that we'll get to above 90% later this year. 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 will still take one to two years to stabilize the entire relationship.

Michael Carroll -- Analyst

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

Have you seen anything like that occurring?

Vikas Gupta -- Chief Investment Officer

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 Alec Feygin with Baird.

Alec Feygin -- Robert W. Baird and Company -- Analyst

So going to the UK exposure, I think it's about a little over 14%. What are you comfortable getting that up to?

Matthew Gourmand -- President

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

We have very similar dynamics as you have in the US 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. I think it's just going to be based on what opportunities we see in the US and UK markets.

Alec Feygin -- Robert W. Baird and Company -- Analyst

And does Omega have a plan to maybe hedge the UK cash flows as it grows?

Matthew Gourmand -- President

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 -- Green Street Advisors -- Analyst

Have the increased employment taxes and increased minimum wage in the UK had a noticeable impact on coverage level for your UK portfolio? And does this kind of change your underwriting criteria moving forward there?

Vikas Gupta -- Chief Investment Officer

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

Emily Meckler -- Green Street Advisors -- Analyst

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

Megan Krull -- Senior Vice President, Operations

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.

Jonathan Hughes -- Analyst

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

Robert O. Stephenson -- Chief Financial Officer

Yes, you're right. We don't give FAD guidance, but big picture, that relationship will be pretty similar to Q4. I think there's two points to remember open FAD. I already stated that 76% of our revenues on a straight-line basis.

So less 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 will be recording revenue on those assets.

Operator

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

Vikram Malhotra -- Analyst

I guess just first, back on the UK, could you just talk about how much of the push in the UK kind of in '25, '26, maybe perhaps a little bit of a hedge against changes and potential changes in Medicaid or other changes here. And then, in the UK itself, what about raising debt in the UK also versus the US?

Matthew Gourmand -- President

Sure. Thanks, Vikram. It's Matthew again. So on the first question, I don't think it's really 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. And so, we're taking advantage of that market side. I feel like our US Medicaid -- how we feel about the US 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 early 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, 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 US, again, we'll keep looking at that. Should the opportunity exist to have a favorable interest rate in the UK, we will obviously look to execute.

Vikram Malhotra -- Analyst

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 concessions with folks in D.C., kind of what route could be minimum staffing take legislatively versus legal? And then any thought on what's been proposed by Republican party in terms of whether it's SNAP changes or adjustments to like including quality measures or even block grants. Just maybe give us a bigger picture, I know there's a lot of -- 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, Operations

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, at the legal case, depending on how that society, 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 stopping mandate side as is ACA. 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. ACA would very much so push for some sort of per capita cap so that if enrollment increases, the funding increases as well. And they would look for some sort of inflationary increases on the long-term care side plus some factor above that. So ACA's very involved in all of that in the lobbying efforts.

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 recognize that this industry is too important to fail. So we hope that, that will continue and that understanding will continue and nothing draconian will happen. And then, when we talk about 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 is -- that constitutes 90% of the federal government money is going toward Medicaid expansion as opposed to 60% going toward 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 is in 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.

Juan C. Sanabria -- Analyst

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

Vikas Gupta -- Chief Investment Officer

Yes. Well, this is Vikas. As I said in my prepared comments, we have $124 million that we plan to convert this year, and it is 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 C. Sanabria -- Analyst

OK. 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 rents or cuts or anybody that you're looking to retenant as part of maturities?

Robert O. Stephenson -- Chief Financial Officer

Well, the $28 million is being repaid, that cash will just sit on the balance sheet earnings from interest. And 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.

Nicholas Yulico -- Analyst

Just a follow-up, Bob, on the guidance and investments not being in 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 something like pre-funding of capital that's already in your guidance this year, but the investments aren't?

Robert O. Stephenson -- Chief Financial Officer

You are correct. So the prefunding is the $230 million of secured debt that we're going to pay off in November and getting to $600 million. Remember, we do cash flow from operations. So you got to factor that in and we had the -- a little bit of loan repayment we just talked about.

Again, in my stated remarks, that we are going to prefund acquisitions as the pipeline gets closer. It's just not in the guidance because the acquisition is not in the guidance. So you have to take both of those into consideration there. I know that doesn't answer --

Nicholas Yulico -- Analyst

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

I'm guessing here in the guidance.

Robert O. Stephenson -- Chief Financial Officer

Yes, it's hard. Again, that's what gets me to the high and the low end of my range. But as I stated on the call, we had $200 million of cash -- over $200 million in 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 that $600 million.

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

OK, yeah, thanks for that, Bob.

Operator

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

Taylor C. Pickett -- Chief Executive Officer

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

[Operator signoff]

Duration: 0 minutes

Call participants:

Michele Reber -- Senior Director, Asset Management

Taylor C. Pickett -- Chief Executive Officer

Robert O. Stephenson -- Chief Financial Officer

Vikas Gupta -- Chief Investment Officer

Megan Krull -- Senior Vice President, Operations

Jonathan Hughes -- Analyst

Michael Griffin -- Citi -- Analyst

John Kilichowski -- Analyst

Bob Stephenson -- Chief Financial Officer

Juan C. Sanabria -- Analyst

Juan Sanabria -- Analyst

Nicholas Yulico -- Analyst

Nick Yulico -- Analyst

Farrell Granath -- Analyst

Michael Carroll -- Analyst

Alec Feygin -- Robert W. Baird and Company -- Analyst

Matthew Gourmand -- President

Emily Meckler -- Green Street Advisors -- Analyst

Vikram Malhotra -- Analyst

Taylor Pickett -- Chief Executive Officer

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