Good morning. And welcome to the Omega Healthcare Investors Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Michele Reber. Please go ahead.

Thank you and good morning. With me today are Omega’s CEO, Taylor Pickett; COO, Dan Booth; CFO, Bob Stephenson; 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, dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplate acquisitions, dispositions or transitions and our business and portfolio outlook generally. These forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially. Please see our press releases and our filings with the Securities and Exchange Commission, including, without limitation, our most recent report on Form 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, 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, as well as an explanation of the usefulness of the non-GAAP measures are available under the Financial Information section of our website at www.omegahealthcare.com and in the case of NAREIT FFO and adjusted FFO, in our recently issued press release. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor.

Thanks, Michele. Good morning. And thank you for joining our fourth quarter 2022 earnings conference call. Today I will discuss our fourth quarter financial results, operator restructurings and our expectations related to funds available for distribution. Our fourth quarter adjusted FFO is $0.73 per share and funds available for distribution are $0.70 per share. We have maintained our quarterly dividend of $0.67 per share. The dividend payout ratio is 92% of adjusted FFO and 96% of funds available for distribution. As expected, year-to-date FAD of $2.77 per share exceeded our year-to-date dividend paid of $2.68 per share. Turning to operator restructurings, we have successfully concluded a number of operator restructurings, which have generally resulted in limited or no diminution in longer-term funds available for distribution. Later, Dan will review some of our new and ongoing restructuring activity. As these are in process, the ultimate outcome is difficult to predict. However, based on operator discussions to date, we believe our first quarter 2023 FAD will be less than our current dividend of $0.67 per share. We believe as these current restructurings are resolved and already completed restructurings, principally Agemo begin paying restructured rent, we will again return to a FAD run rate in excess of our current dividend. While we remain optimistic regarding the long-term skilled nursing facility industry prospects, we continue to remain cautious in the near term as our operators contend with staffing issues and occupancy slowly heads back to pre-pandemic levels. Fortunately, some states have recognized the inflationary pressures facing our operators and have responded with supportive rate increases. We are appreciative and thankful for their support. I will now turn the call over to Bob.

Thank you, Taylor, and good morning. Turning to our financials for the fourth quarter, our NAREIT FFO for the fourth quarter was a loss of $30 million or a loss of $0.13 per share, as compared to $124 million or $0.50 per share for the fourth quarter of 2021. Our adjusted FFO was $177 million or $0.73 per share for the quarter and our FAD was $171 million or $0.70 per share and both exclude several items as outlined in our adjusted FFO and FAD reconciliation to net income found in our earnings release, as well as our fourth quarter financial supplemental posted to our website. Revenue for the fourth quarter was $145 million before adjusting for certain non-recurring items, compared to $250 million for the fourth quarter of 2021. The year-over-year decrease is primarily the result of incremental write-offs of straight-line accounts receivable and lease inducements in 2022 as a result of placing LaVie, Maplewood and two additional operators on a cash basis for revenue recognition. Consistent with historical practices, the $96 million of straight-line accounts receivable and lease inducements written off in the fourth quarter is excluded from our fourth quarter adjusted FFO and FAD calculations. Our fourth quarter 2022 FAD was flat compared to our third quarter 2022 FAD, as the decrease in cash revenues related to payments made by operators on a cash basis was offset by lower or favorable G&A expense due to the timing of professional services, as well as higher interest income from short-term balance sheet cash investments. In keeping with previous earnings calls, I will provide revenue, adjusted FFO and FAD commentary on certain operators, including updates on LaVie, Maplewood and Healthcare Homes, which were discussed in our January investor presentation. Dan will provide contractual and operational updates on these operators in his prepared talking points. First, regarding LaVie, in the fourth quarter of 2022, we placed LaVie on a cash basis of revenue recognition, recorded the $24.8 million received for rent in the quarter and wrote off approximately $58 million of straight-line rent receivables and lease inducements through rental income. On December 30, we sold 11 LaVie facilities to a third party for a sales price of $130 million, in which we provided $105 million in seller financing. In January 2023, LaVie paid $2.5 million or 34% in rent pursuant to the deferral agreement and we will only recognize revenue adjusted FFO and FAD in Q1 2023 to the extent cash is received from LaVie. As the LaVie 11 facility sale transaction, which included the $105 million in seller financing did not meet the accounting criteria to be recognized as a sale for GAAP purposes the assets will remain on our balance sheet and the cash interest payments received on the seller’s note will not be included in revenue. However, the cash received will be added back when calculating adjusted FFO and FAD as the loan is paid in arrears. In Q1 2023, we would expect to receive and include approximately $1.4 million in adjusted FFO and FAD. Turning to Maplewood, as a result of our fourth quarter 2022 and first quarter of 2023 negotiations, during the fourth quarter of 2022, we placed Maplewood on a cash basis of revenue recognition. We recorded $20.2 million received for the fourth quarter rent and interest, and wrote-off approximately $29 million of straight-line rent receivables and lease inducements to rental income. In January 2023, Maplewood paid its full contractual rent of $5.8 million and one month of interest of $1.5 million on our secured revolving credit facility. As Maplewood is on a cash basis, we will only recognize revenue, adjusted FFO and FAD to the extent cash is received. Interest for the remainder of 2023 will be paid-in-kind and excluded from both adjusted FFO and FAD calculations. Agemo, starting in April of 2023, we expect Agemo to resume paying approximately $27.9 million in annual rent and interest, and both adjusted FFO and FAD will be reported as cash is received. Healthcare Homes, during the fourth quarter of 2022, Healthcare Homes paid all its contractual rent of approximately £5 million. Assuming Healthcare Homes defers all of its Q1 2023 rent and remains on a straight-line basis for revenue recognition, we would include the deferred revenue in NAREIT FFO and adjusted FFO. However, we will only recognize FAD based on cash received. In previous earnings releases and conference calls, we discussed Guardian and an operator representing 3.4% of Q1 2022 annualized contractual rent and mortgage interest. Both operators paid all contractual rent and interest due in the fourth quarter and remain current through January. Also, as discussed in previous calls, an operator representing 2.4% of our Q1 2022 contractual annualized rent and mortgage interest revenue was placed on a cash basis in the second quarter of 2022. In both the third and fourth quarters, the operator continued to underpay its rents, paying $2.5 million in Q3 and $1.5 million in Q4, which was recorded on a cash basis for both adjusted FFO and FAD purposes. Of the $2 million in January contractual rent owed, $500,000 was collected and we will only recognize revenue, adjusted FFO and FAD in Q1 2023 to the extent cash is received by this operator. Finally, we have previously discussed an operator representing 2.2% of our second quarter 2022 annualized contractual rent and mortgage interest. In the third and fourth quarter of 2022, we recorded $5.5 million and $3.8 million to both adjusted FFO and FAD after application of security deposits. This operator paid $310,000 in rent payments in January. As the operator is on a cash basis and all security deposits have been exhausted, we will only recognize revenue, adjusted FFO and FAD in Q1 2023 to the extent cash is received. Turning to our balance sheet, as highlighted in previous calls, our balance sheet continues to remain strong. Thanks to the steps we have taken since the start of the pandemic to further improve our liquidity, capital stack, maturity ladder and overall cost of debt. At December 31, 2022, we had approximately all of our $1.45 billion revolving credit facility available for use, as well as $297 million in cash. Our next debt maturity is $350 million of 4.375% notes due in August. In 2020, we entered into $400 million of 10-year interest rate swaps at an average swap rate of 0.8675%. These swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bonds. The swaps are valued at approximately $90 million as of December 31st. At December 31st, 98% of our $5.3 billion in debt was at fixed rates and our net funded debt to annualized EBITDA was 5.3 times, consistent with all previous quarters this year and our fixed charge coverage ratio was 3.9 times. It’s important to note, similar to NAREIT FFO, adjusted FFO and FAD, EBITDA and these liquidity calculations include our ability to apply collateral and recognize revenue related to the operator’s non-payments previously discussed. To the extent that collateral becomes exhausted, a decrease in EBITDA will impact our liquidity ratios. Lastly, as a housekeeping item, effective for the fourth quarter of 2022, we adjusted our presentation of certain financial statement line items on our consolidated balance sheet to better align with similar companies in the healthcare real estate sector. Mortgage notes receivable has been renamed real estate loans receivable, other investments has been renamed non-real estate loans receivable and certain loans have been reclassified out of other investments into real estate loans receivable based on their underlying collateral. We provided a table in the press release reconciling the prior presentation with the current presentation. I will now turn the call over to Dan.

Thanks, Bob, and good morning, everyone. As of December 31, 2022, Omega had an operating asset portfolio of 901 facilities with approximately 90,000 operating beds. These facilities were spread across 65 third-party operators and located within 42 states in the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of September 30, 2022, decreased to 1.37 times and 1.04 times, respectively, versus 1.39 times and 1.06 times, respectively, for the trailing 12-month period ended June 30, 2022. During the third quarter of 2022, our operators cumulatively recorded approximately $18.6 million in federal stimulus funds as compared to approximately $29 million recorded during the second quarter. Trailing 12-month operator EBITDARM and EBITDAR coverage would have decreased during the third quarter of 2022 to 1.21 times and 0.88 times, respectively, as compared to 1.23 times and 0.90 times, respectively, for the second quarter when excluding the benefit of any federal stimulus funds. EBITDAR coverage for the standalone quarter ended 9/30/2022 for our core portfolio was 0.91 times, including federal stimulus and 0.83 times excluding the $18.6 million of federal stimulus funds. This compares to the standalone second quarter of 0.96 times and 0.84 times with and without $29 million in federal stimulus funds, respectively. Occupancy for our core portfolio has continued to trend up from a low of 74.6% in January of 2022 to 78.3% as of mid-January 2023 based upon preliminary reports from our operators. Turning to our senior housing portfolio. Today, our overall senior housing investment comprises 184 assisted living, independent living and memory care assets in the U.S. and the U.K. This portfolio on a pure-play basis had its trailing 12-month EBITDAR lease coverage increased to 0.97 times at the end of the third quarter, as compared to the end of the second quarter, which covered at 0.94 times. Based upon preliminary results, occupancy for this portfolio has remained steady at 85.3% as of mid-January 2023 versus 83% in January of 2022. Turning to portfolio matters, Agemo. The restructuring of Agemo concluded in the fourth quarter of 2022. In all, 22 facilities were sold to third parties for $366 million. The remaining portfolio consisting of 11 facilities in Kentucky and 18 facilities in Tennessee are contractually obligated to resume rent and interest in April of 2023 in the amount of $27.9 million per annum. As part of the overall restructuring, the master lease with Agemo extended from December 31, 2030, to December 31, 2036. LaVie, during the latter part of 2022, LaVie, Omega’s largest tenant, while continuing to pay full rent throughout 2022, began to anticipate imminent liquidity concerns as occupancy improvements were slower to materialize, labor costs continue to pose ongoing challenges, particularly in the widespread use of agency personnel, and many other operating expenses such as food costs and supplies continue to increase in the face of inflationary pressures. Accordingly, during the fourth quarter, Omega and LaVie began earnest discussions around a portfolio restructuring that would involve an overall reduction in certain underperforming facilities. As part of that restructuring, Omega divested 11 facilities, 10 in Florida and one in Louisiana via sale to a third party for a gross sales price of $130 million, of which Omega provided seller financing in the amount of $105 million. The seller financing is collateralized by mortgages on the 11 facilities, bears a fixed rate of interest of 8% and matures in five years. It is anticipated that as part of our restructuring, Omega would potentially sell an additional 16 facilities in the first half of 2023, subject to a host of conditions, including documentation, regulatory and other governmental approvals and third-party due diligence to name a few. Also, as part of this restructuring, Omega has agreed to a partial rent deferral in the first four months of 2023. The rent deferral equates to an approximately 66% discount to the full contractual rent. It should be noted that these restructuring discussions are ongoing and that the future outcome cannot be definitively quantified. Healthcare Homes, Healthcare Homes, Omega’s largest operator in the U.K. with 42 care homes and annual rent of approximately £20 million, started dealing with liquidity issues in late 2022. These liquidity issues are predominantly driven by increased utility costs, increased agency costs and occupancy levels slightly below pre-pandemic levels. The increased utility costs are due to the timing of the expiration of their previous utility contracts in September of 2022. Even with government support, Healthcare Homes' utility costs increased by over four-fold after the expiration of their previous in-place contracts. To assist Healthcare Homes with these liquidity issues, Omega has agreed to allow up to four months of rent deferral from January 2023 through April 2023. Omega will continue to monitor Healthcare Homes' liquidity needs to evaluate the potential for any future deferrals, as well as review certain underperforming facilities as potential divestiture candidates. Maplewood, in January of 2023, Omega restructured the Maplewood relationship, which is comprised of 17 high-end senior housing facilities in upscale urban and suburban locations, predominantly located in the Northeast region of the United States. The restructuring was done to better align Maplewood’s current cash flows with rent and interest obligations due to Omega. Although occupancy has now largely recovered at the Maplewood facilities, the pandemic caused a decline in their occupancy and similar to other operators, a long-term increase in labor costs. Also, as previously announced, construction constraints during the pandemic resulted in delayed openings and elevated costs at the Manhattan and Princeton developments. As part of our restructuring, Omega has agreed to, one, defer rent escalators through year-end 2025, two, defer interest payments due on our secured credit facility by permitting payment-in-kind until cash flow permits future payments anticipated to begin in 2024, and three, increased the secured credit facility by $13 million to support near-term liquidity needs for lease-up at the Carnegie Hill facility in Manhattan and the Princeton facility. Please note, Maplewood’s credit facility is secured by their contractual right to a portion of the net profits upon a sale of the portfolio. Omega anticipates all deferred payments will be repaid either through improved cash flow upon stabilization of the portfolio or through an allocation of proceeds from a sale of the portfolio. Both Carnegie Hill and Princeton continue to lease up as projected, based on the actual in-service dates with current occupancy levels of 57% and 86%, respectively. Other operators, as previously mentioned, an existing Omega operator representing approximately 2.4% of total rent, began to experience liquidity issues during 2022. Accordingly, this operator has failed to pay full contractual rent since March, and as such, Omega has utilized the security deposit in the amount of approximately $2 million to offset a portion of this rent shortfall. Omega is currently in discussions with this operator, which will likely result in the transition of this portfolio to a third party sometime during the first quarter of 2023. In the second quarter of 2022, another Omega operator, representing approximately 2.2% of Omega’s total rent began making only partial monthly rent payments, thus causing Omega to begin utilizing the existing $5.4 million security deposit to offset shortfalls. As such, Omega and this operator began having discussions concerning potential sales and/or releases of this operator’s portfolio. To that end, in the fourth quarter of 2022, Omega released three facilities to an unrelated third party for an initial annual rent of $1.6 million. So far, in the first quarter of 2023, Omega has released an additional 16 facilities to third-party operators for an initial annual rent of $11.2 million, thus leaving only four remaining facilities with this operator. It is expected that these four facilities will likely be released in the coming months. As a result of these releases, including the remaining four facilities, Omega expects to receive new rent of roughly 77% of the previous operator's former contractual rent or $17.3 million versus $22.4 million. Turning to new investments. On December 1, 2022, Omega closed on a $78 million purchase lease transaction for six facilities in North Carolina with an existing operator. Also on December 1, 2022, Omega closed on a sale-leaseback transaction for one facility in Pennsylvania with the same operator. Concurrently with these acquisitions, Omega amended the existing operator’s master lease to include the seven facilities at an initial cash yield of 9%, with 2% annual escalators. Omega’s new investments and capital expenditures for the quarter totaled $103 million. In 2022, Omega made new investments totaling $403 million, including $70 million for capital expenditures. Turning to dispositions, during the fourth quarter of 2022, Omega divested 33 facilities for a total sales price of $421 million. These sales numbers include 11 LaVie facilities and 20 of the 22 Agemo facilities mentioned earlier. In 2022, Omega sold a total of 77 facilities for approximately $859 million.

Thanks, Dan, and good morning, everyone. While the announcement this week at the end, the public health emergency effective May 11th of this year, is perhaps not unexpected, it is not particularly ideal given some of the benefits that it provided the long-term care industry, which is still deeply entrenched in post-pandemic recovery phase. Specifically, the three-day stay waiver was still tied to the PHE and will now end on May 11th. This waiver was a huge benefit to the industry during the height of the pandemic as the reimbursement associated with the ability to scale in place helped to offset some of the increased costs connected with managing COVID outbreaks. That said, the other major benefit of the PHE was the continuation of the enhanced 6.2% FMAP add-on. However, that had already been delinked from the PHE as a result of the Consolidated Appropriations Act of 2023, which passed in late 2022. That act provided for a phase-down of the add-on throughout 2023 from 6.2% in the first quarter to 5% in the second quarter, 2.5% in the third quarter and down to 1.5% in the fourth quarter with no add-on provided after 2023. It is too soon to tell what the impact of those reductions will have on the FMAP rate add-ons that certain states like Texas had been providing to skilled nursing providers. In terms of recovery, while occupancy is continuing to slowly rebound, not unexpectedly, the recovery has tapered off slightly in these winter months. However, 31% of core facilities have now recovered from an occupancy perspective, up from 29% in the second quarter, while another 24% of core facilities that have not yet fully recovered are at or above 84% occupancy. Based on the January 2023 jobs report for Long-Term Care, ACA reported that as of December 2022, nursing homes are still down 13.3% of their workforce as compared to February 2020, with assisted living facilities faring somewhat better at a loss of 0.9%, with the rate of new job added slowed a bit to 2,740 jobs per month added from July 2022 through December 2022. But many of our operators are becoming more cautiously optimistic as despite the fact that the staffing shortages are still causing self-imposed admission bans, they are experiencing a moderation of agency usage and staffing turnover easing in general of late. While agency expense on a per patient day basis for our core portfolio for the third quarter of 2022 continues to be elevated at six times what it was in 2019, similar to where it was in the second quarter of 2022, the preliminary results we are seeing for September through November 2022 show slightly more than a $2 per patient day decrease in agency expense over where it was in the third quarter. We also continue to keep a close eye on Medicaid rate setting, particularly Texas, and we are encouraged by recent payouts or announcement of payouts of American Rescue Act funds in both Texas and Ohio. Our hope is that as we exit the PHE and the enhanced FMAP winds down, the states, in particular, will rate set on pace with inflation or in excess thereof, if they have not already and that the federal government will not make any hasty move to provide for unfunded mandates. I will now open the call up for questions.

Our first question is from Jonathan Hughes with Raymond James. Please proceed.

Hey. Good morning. Question for Bob and just to simplify for us listening, because there are a lot of moving pieces driven by revenue from operators, either resuming paying rent, no longer paying rent, and the application of security deposits. But can you give us the expected change in FAD from $171 million in the fourth quarter last year to the first quarter of this year and then maybe also the expected G&A in the first quarter?

Sure, Jonathan. I'll summarize, though it’s a bit complex due to the numerous factors involved. First, regarding the operators discussed in our presentation or press release, LaVie paid us $24.8 million in Q4, and they paid $2.5 million in January, reflecting 34% as per the deferral agreement. This suggests about $7.5 million for Q1. Additionally, there's the seller financing note, with notes being paid in arrears, adding another $1.4 million in Q1, leading to a total of approximately $9 million related to LaVie from a FAD perspective in Q1. For Maplewood, they contributed $20.2 million in Q4 from combined rent and interest, with $5.8 million for rent and $1.5 million in interest in January, totaling $7.2 million. This results in $17.3 million in rent and an additional $1.5 million in interest, which we expect to accumulate to around $18.8 million in FAD related to Maplewood in Q1. Agemo did not pay us anything in Q4 or Q1, so we do not expect any payments in Q1; however, they will begin paying at an annual rate of $27.9 million starting in April. Healthcare Homes paid £5 million in Q4, roughly equivalent to $5.9 million. We have agreed to defer rent until April, so there will be no FAD in Q1. We will recognize AFFO and revenue under a straight-line basis. The 2.4% operator paid us $1.5 million in Q4 and $0.5 million in January, and we will only report FAD as cash is received. Dan mentioned we expect this portfolio to transition in Q1. The 2.2% operator paid us $3.8 million in Q4 and $310,000 in January, and similarly, we will only recognize FAD as it is collected. Dan anticipated this portfolio’s transition in Q1 could translate to about $1.5 million in cash received, depending on the timing of the transition. Lastly, regarding G&A, it was $8.8 million in Q4, and it typically ranges from $9 million to $12 million per quarter, with the first quarter generally being higher due to various factors such as payroll taxes and the timing of professional services as we complete our 10-K and prepare for a proxy. I hope this sufficiently addresses your question.

I will need to review the numbers, but I believe we can understand how our performance will shift from the fourth quarter to the first quarter. Thank you for that. I have a follow-up question for Taylor regarding dividend coverage. You mentioned in yesterday’s press release an anticipated increase in the payout ratio and discussed a potential shortfall in dividend coverage for the first quarter in your earlier remarks. Bob, you just outlined the contributing factors. Considering that operators are expected to come back online in the second quarter and potentially more in the latter half of the year, does this trajectory of improving cash flow give the Board confidence to maintain the current dividend? We are trying to better understand their perspective on balancing temporary shortfalls against returning capital to shareholders. Thank you.

It certainly provides me with reassurance. I won’t speak for the entire Board since we make decisions every quarter based on what we observe. However, if you consider the foundational elements that Bob mentioned, the next step is linking the results from Q1 to Q2. In Q1, there were several operators that weren't fully paying or were partially paying, and we expect to see a significant improvement in Q2. This is the aspect that is currently lacking. With Agemo returning and the transition of the 2.4% operator expected to align with the contractual rent, there should be minimal reduction. These are important factors that will help us return to a reasonably comfortable cash flow available for distribution from a dividend standpoint.

All right. Thanks for the time.

The next question is from Michael Griffin with Citi. Please go ahead.

Great. Thanks. Just going back to the LaVie rent deferrals. I mean, how concerned should we be that down the road, this could turn into, I guess, some form of rent reduction. And then have you gamed out a scenario, where you could allow X amount of rent reductions and still kind of keep the dividend intact?

Yeah. So on the LaVie question, we did identify, if you will, sort of the bottom tier of their assets in their portfolio and we discussed we have sold some of those already and we anticipate selling some other ones here in the first half of the year. And we think those two sales will bring the overall portfolio back into the black, back in the coverage that we have seen historically and that the rent deferrals will have a finite period of time.

Got you. That’s helpful. And then just maybe on those potential asset sales that you mentioned. I mean it looks like there’s still private appetite out there, but just maybe it’s cooled so much given sort of lack of bridge to HUD financing out there. I am curious what you are seeing in the transaction market and if any of these potential sales occur in the future, could we see seller financing to act on similar to the sale earlier this year, end of last year?

The capital markets have definitely cooled, and interest rates have increased, making things more challenging, which is why we utilized seller take-back financing in the fourth quarter. Currently, most of our restructures are focused on re-leases rather than sales. Therefore, the capital markets are not a significant factor at this time, and we expect to see more transitions through re-leases instead of actual asset sales in the future. We aim to avoid reliance on the capital markets, and our new operators will also not depend on them.

All right. That’s it for me. Thanks for the time.

The next question is from Steven Valiquette with Barclays. Please go ahead.

Thanks, and good morning, everyone. Thanks for taking the question here. So, I guess, kind of similar to the first question in the Q&A, it is a little bit challenging to keep track of all the exact timing of some of the remedies and restructuring of the various operators. I guess, my question is the number of operators with rent coverage below 1.0, improving from 27 to 26 through September 30th. I guess if we did just try to fast forward beyond September 30th to today, you just think about all the announcements and restructurings you have disclosed in recent months. But if nothing else changed, but just taking those into account, what would the number of operators be in the sub-1.0 rent coverage category today pro forma for all your announced within restructuring, again, assuming no other changes to the other operators? Thanks.

Specifically, I don’t have the exact number of operators, but we obviously added some new restructurings in this quarter, so the number will increase.

And bear in mind, those numbers don’t include some of these rate increases that kicked in, in the latter half of last year and into this year. So there’s just a lot of moving parts.

Okay. All right. That’s fair. Separate question, I think you touched a little bit on some of the rate updates, but just curious if you can provide just a little more color on any particular state level skilled nursing rate update for 2023 for your SNF operators in some of your key states that really stood out that could be some potential positive relief as we think about the evolution of 2023? Thanks.

Yeah. So if we look at our top 10 states, five of the states either in the latter half of last year or expected at some point this year, Indiana, Ohio, Michigan, Pennsylvania, Virginia, again, not all of those are set in Ohio, not quite yet, are looking at least a 10%-plus increase in rates and some of those, like Pennsylvania kicked in January, that was 17.5%. So we have got quite a few here in the mid- to high-teens as well. And then you have got California and North Carolina, who have FMAP funds still running through there and expecting to potentially put that into their rates in the future. So we don’t see anything big on the horizon for those other than potentially FMAP converting into rates. New York is in our top 10, obviously, we don’t have a SNF presence there and that leaves Florida and Texas. So, Florida, as you know, did a 7.8% increase in October of 2022. That helped several of our operators moved quite substantially in their coverage. But in the grand scheme of things wasn’t quite as large as some of what these other states are doing. So we are watching them carefully. They are doing rate setting right now. So we are just hoping that they keep pace with inflation or beat it. But that’s too soon to tell at this point. And then you have Texas, right? So you have got the FMAP potentially going away there. We think we are cautiously optimistic with the rate setting that’s going to be happening in April, May and what’s sort of been proposed at this point that, that will likely stay in place come September 1st when the rates kick in and it could be substantially higher than that, there’s still some lobbying efforts going on and too soon to tell there. But those are our top 10 states.

Okay. All right. Great. Appreciate the color. Thanks.

The next question is from Joshua Dennerlein with Bank of America. Please go ahead.

Hi, everyone. I'm curious about the 2.2% operator transition. It seems like there might be a rent cut associated with it. Could you clarify whether there's a rent cut and what the amount is? Additionally, I'd like to know if this is indicative of the support that operators under 1-time coverage might need.

The new rent, after all the transitions including the four still to come, is about 77% of what it was previously. This amounts to $17.3 million compared to the old rent of $22.4 million, indicating a reduction of approximately $5 million.

To address the second part of your question, I caution against generalizing that situation to other restructurings. The 2.4% operator is currently undergoing a transition, with no rent affecting that at the moment. We've also executed a smaller restructuring related to Colorado assets, which involved a discount significantly less than what we observed in this portfolio. The 2.2% portfolio is quite old and required substantial care, so we’re pleased to have moved it. However, I wouldn’t apply the same perspective to our other operations.

Okay. That’s good color. And then I wanted to kind of ask on the public health emergency ending. It sounds like the FMAP funding got decoupled from that ending. Could you kind of provide more color on that and maybe how the end and the phase out of the FMAP that might impact your tenants in your portfolio?

Yeah. I mean the FMAP is interesting, right, because the fact that they decoupled it from the public health emergency is actually beneficial, because then they can sort of have it phased down throughout the year. We don’t know what the states will do with that, right? Some of the states like Texas still have it in their language, have the FMAP tied to the public health emergency ending. So they will have to do something further to get that additional funding through the end of the year. But on the FMAP side, you have got a, in our top 10 states, we have got Florida, Indiana, Ohio, Michigan, Pennsylvania, so five of our states that really didn’t have any FMAP rate. They might have given lump sums in the past or potentially those rates expired previously. So there’s nothing affecting those ones. California had previously already announced that they were extending their 10% FMAP through the end of the year, so regardless of the public or the decoupling there through the end of the year. So they are good. Virginia has previously taken their FMAP rate and put it into their base rate and quality add-ons. So they had already sort of solved that problem previously, because at New York, we don’t have a skilled presence. So that leaves Texas and North Carolina, which is the 2 that we are watching. Both of them have pretty substantial FMAP that ramp with the public health emergency. Texas, as I have mentioned, has it slated to continue or to go into their rate with the September 1, rate setting. We will see if that gets finalized, but we are pretty hopeful that it does. There might be a gap period, but I think Texas will probably step up on that piece of it now that there’s additional funding. And then you have North Carolina, which is the 2 that we are watching. Both of them have pretty substantial FMAP that ramp with the public health emergency. Texas, as I have mentioned, has it slated to continue or to go into their rate with the September 1, rate setting. We will see if that gets finalized, but we are pretty hopeful that it does.

Thanks.

The next question is from Georgi Dinkov with Mizuho. Please go ahead.

Hi. Thank you for taking my question. Just going back to the PHE, I remember you just mentioned some of the waivers could go away. But I was wondering, do you expect any of the levers to stay in place and become permanent going forward?

We don’t. I mean, we hope that at some point in time, the ability to skill in place that three-day stay waiver would become policy, because it is good policy. But at this point, no, we don’t expect anything to stay in place the PHE.

Great. Thank you. And just going back to LaVie, we noticed that the new rate is 2%. Can you provide more color what was that rate prior to the cut?

8.1%.

Blended 8.1%.

8.1%. Okay. Thank you. And just last one for me, can you provide more color on acquisition opportunities and pricing in the U.S. and the U.K., and I guess, what is your plan for the year and where do you see opportunities?

We have noticed an increase in activity recently. While it isn't yet strong, it has improved in both the U.S. and the U.K. Although we cannot predict the specific deals we will pursue this year, we have been active during these restructures and expect to remain engaged.

Great. That is all for me.

The next question is from Tayo Okusanya with Credit Suisse. Please go ahead.

Hi. Yes. Good morning, all. Just following up on that acquisition question, the deals you guys did during the quarter pretty attractive cap rates there on a cash or GAAP basis. Just kind of curious, is that kind of what the market looks like when you are kind of doing deals that kind of 10%-plus GAAP yield, and if that’s the case, how does one think about what your acquisition activity could look like in 2023?

So the deals that we did in the fourth quarter, a lot of those deals had been in process, if you will, for quite some time, so that the yields that were could have been quoted back in even as far back as the second quarter. Our overall cap rates have gone up and so now we are quoting deals at probably about a 1% higher cap rate throughout 2023. So that’s kind of what we are looking at in terms of changes in the market. Does that helpful, Tayo.

Got you. Yeah. Given the cap rates and your applied cost of capital, it seems like as you reach the cumulative transaction, does that make you more interested in deal activity this year or not?

I don’t think it changes. I think it's just a matter of sourcing good deals with quality credits and getting a return that makes sense in the current capital market.

The one thing I would say, Tayo, just to add to what Dan spoke about is, I’d love to put our $300 million of cash to work at 10%. So we are looking pretty hard at those type of opportunities. As you can model out, that’s versus the overnight rate of something like 3%. That’s pretty powerful.

Got you. And then if you look in those one more on the regulatory front, one of the popular topics last year was Biden trying to push for minimum staffing levels at skilled nursing facilities. I have not heard much about that in 2023. Just curious if you could give any update on that initiative and kind of what you are hearing on that front?

I mean it’s still operating in the background and you still have ACA pushing for something that is reasonable and funded and I think that’s the big piece of it, right? It needs to be funded, because just there’s not much staffing out there to begin with and so that problem needs to be solved. But we haven’t heard anything substantial there.

The next question is from David Rodgers with Baird. Please go ahead.

Yeah. Good morning, everybody. Just a couple of quick ones for me, I guess, excluding the named tenants, the 3%, 2.4% and the 2.2%, are you in active negotiations with any other tenants and what percentage of the portfolio would that be for either deferral, rent reductions, forgiveness loans, et cetera?

There are ongoing negotiations, but they are all small and involve operators that would account for less than 1% of revenue.

But in the aggregate, I guess, nothing that we should be worried about here in the near-term?

Nothing that adds up to any material number.

Not off the top of my head. Again, because some of these, as Dan mentioned, like LaVie, part of that is still going on with that negotiation, as well as some of these others. And from FAD, remember that’s only based on cash received. So I am not worried about the accrual side of it.

Okay. All right. Thanks, guys.

The next question is from John Pawlowski with Green Street Advisors. Please go ahead.

Thanks. Good morning. My apologies if I missed this. Could you provide the average value per bed for the first 11 LaVie dispositions and the average value per bed anticipated on the next tranche of the dispositions?

They are just north of 100,000 of that, I believe, on both.

For the first group of sales that has already closed, how much lower do you think the price would have been if you had not provided seller financing, or would it have been possible to find another buyer without it?

At the end of the day, we needed to get across the finish line with this buyer.

Okay. Last one for me. Megan, just as the months roll along and occupancy stays pretty low, are there any pockets of the portfolio, either regionally or kind of urban versus suburban, where you just think occupancy is structurally lower now in any part of the portfolio versus pre-COVID levels?

I don’t know that I would necessarily say structurally lower. I do think that there are certain areas that have more severe staffing issues that’s affecting occupancy, and over time, if that gets corrected, you should see that come back. But I mean we have over 50% of the portfolio that’s either fully recovered or is 84% and above as they haven’t recovered and so I think that’s pretty telling as to where folks can get to. But I mean you have states like Florida has really bad staffing issues and they are not as recovered as the rest of the portfolio and we see that in various different places as well.

Okay. Thanks for the time.

The next question is from Nick Yulico with Scotiabank. Please go ahead.

Thanks. I want to go back to the interest income question and maybe ask it for the fourth quarter, the $25 million of interest income and then the $5 million on the non-real estate loans. How much of that is non-cash?

Nick, again, not off the top of my head, I think, $2 million is non-cash and that is a little bit of pick. So, on the last answer, if an operator is on straight-line accounting, we do count that taken bad, as Nick, you and I have discussed in the past, but it’s a very small number, it’s $2 million.

Thank you, Bob. I have a question regarding the LaVie transaction. I'm trying to understand the rationale behind any fees paid to LaVie. It appears that no cash was received from the sale, only seller financing. The buyer covered part of the fee owed to LaVie, and I'm unclear why there would be any payment to LaVie if they aren't paying rent or are set to take over your term loan. Can you explain why LaVie is receiving money in this transaction?

So there’s no pick on the term loan. I am not sure what you meant there, but, yeah, there was the termination fee, if you will, was paid to LaVie to help them with their wind-down costs. I mean whenever there’s a transition, there’s associated obligations and liabilities associated with those buildings, so that was to sort of help them to operate and also help them pay out some of those wind-down costs.

Okay, I want to clarify my understanding. In the fourth quarter, you had $36 million in costs related to acquisition merger transitions that were included in your expenses. Is the $10 million fee paid to LaVie something that you added back, meaning it won't affect AFFO or FAD?

That’s correct.

Okay. I guess I am just wondering why that’s, like, how that makes sense. If you book the rent, the $25 million of rent, but effectively you paid $10 million to LaVie, why wouldn’t it be a net $15 million of rent cash from LaVie?

But there was no tax revenue on that piece.

There’s no cash revenue. Sorry, I thought you guys booked $25 million of cash revenue in the fourth quarter?

That is correct. That’s what we were paid.

Okay. All right. Thank you.

The next question is a follow-up from Tayo Okusanya with Credit Suisse. Please go ahead.

Hi. Thank you for taking my follow-up. Maplewood, the expansion of the loan commitment there to $320 million, could you talk a little bit about what the reason for that was?

So $13 million of it, as I indicated, was the increase in the line itself and the other delta of $53-odd million is the pick.

This concludes our question-and-answer session. I would like to turn the conference back over to Taylor Pickett for any closing remarks.

Thank you. Thanks everyone for joining our call today. As always feel free to reach out to Matthew and Bob with follow-up questions. Have a great day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.