Omega Healthcare Investors, Inc. (OHI) Q1 2023 Earnings Call Transcript

Omega Healthcare Investors, Inc. (NYSE:OHI) Q1 2023 Earnings Conference Call May 3, 2023 10:00 AM ET

Company Participants

Michele Reber - Senior Director, Asset Management

Taylor Pickett - Chief Executive Officer

Bob Stephenson - Chief Financial Officer

Dan Booth - Chief Operating Officer

Megan Krull - Senior Vice President, Operations

Conference Call Participants

Jonathan Hughes - Raymond James

Connor Siversky - Wells Fargo Securities

Michael Griffin - Citi

Steven Valiquette - Barclays

Joshua Dennerlein - Bank of America Merrill Lynch

Vikram Malhotra - Mizuho

Tayo Okusanya - Credit Suisse

Operator

Greetings, and welcome to the Omega Healthcare Investors First Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Michele Reber. You may begin.

Michele Reber

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, contemplated 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.

Taylor Pickett

Thanks, Michele. Good morning. And thank you for joining our first quarter 2023 earnings conference call. Today, I will discuss our first quarter financial results, operator restructurings and certain key operating trends. As expected, our first quarter per share FAD, Funds Available for Distribution of $0.60 per share was less than our quarterly dividend of $0. 67 per share, resulting in a dividend payout ratio of 112%. We expect that the dividend payout ratio will rapidly improve as Agemo resumed paying quarterly rent and interest of $6.5 million on April 1.

In addition, after our four-month rent deferral, Healthcare Homes began paying full contractual rent on May 1. And all of the assets related to the previously disclosed 2.4% and 2.2% operators have been fully transitioned to new operators. These completed restructurings along with progress related to the LaVie restructuring, provide us with strong FAD momentum in the next few quarters.

Turning to positive operating trends. Fourth quarter operator EBITDAR coverage, excluding CARES Act support, was strong at 1. 09 times. This level of coverage reflects continued occupancy improvement, strong state reimbursement rates and some moderation in the still difficult labor market. The under 1.0 times EBITDAR operators declined accordingly to 29.1%. We can break the 29.1% into a handful of buckets. Operators representing 6% of the 29.1% are sitting on extremely strong balance sheets, and therefore, payment of rent should not be an issue.

Operators representing 6.1% have fourth quarter EBITDAR coverage above 1.0 times. 9. 6% of the 29.1% represents LaVie. LaVie's fourth quarter EBITDAR coverage when excluding the anticipated sale or transition of 23 facilities is also above 1.0 times. That leaves operators representing 7.4%, of which operators representing 4.9% are in active restructurings, which leaves a balance of only 2.5%, representing eight modestly sized operating relationships.

Lastly, we acknowledge and mourn the loss of two important leaders in the senior housing industry. The first, George Chapman, was the former CEO of Welltower REIT and until his passing, the CEO of ReNew REIT. George was an important and influential leader within the healthcare and real estate industries. The second, Greg Smith, was the CEO of Maplewood. We had a great professional and personal relationship with Greg. He was a forward-thinking entrepreneur who envisioned and then created Maplewood's unparalleled clinical excellence combined with five-star hotel-like hospitality, our condolences to the family, friends and associates of these two important leaders.

I will now turn the call over to Bob.

Bob Stephenson

Thanks, Taylor, and good morning. Turning to our financials for the first quarter. Revenue for the first quarter was $218 million before adjusting for certain nonrecurring items, compared to $249 million for the first quarter of 2022. The year-over-year decrease is primarily the result of timing related to operator restructurings, as Dan will discuss, and asset sales completed in 2022.

Our NAREIT FFO for Q1 was $146 million or $0.60 per share as compared to $171 million or $0.69 per share for the first quarter of 2022. Our adjusted FFO was $160 million or $0.66 per share for the quarter, and our FAD was $147 million or $0.60 per share and both exclude several items consistent with historical practices and outlined in our adjusted FFO and FAD reconciliation to net income found in our earnings release as well as our first quarter financial supplemental posted to our website. The $0.60 of FAD for Q1 was $0.10 less than our Q4 FAD.

Taylor and Dan's comments this morning, along with our operator updates provided in the press release filed yesterday include many details on specific operators. Instead of being repetitive, I want to summarize quarterly FAD changes and provide some color related to Q2 and Q3.

For the operators discussed, including Agemo, LaVie, Healthcare Homes, Maplewood, our 2.4% operator, or 2.2% operator as well as two small operator transitions that Dan will discuss, our Q4 2022 FAD related to these operators was $57.2 million and our FAD-related disease operators in Q1 2023 was $35 million, a $22.2 million decrease in FAD or approximately $0.09 per share with an increase in Q1 G&A due to expense timing, representing an additional $0.01 decrease in Q1 FAD.

We anticipate our FAD related to the same pool of operators in Q2 2023 to be approximately $47 million with the full run rate of these operators in Q3 2023 at approximately $53 million. In each case, based on the contractual rent provided for the restructurings and transitions executed to date with the exception of LaVie. As we are in current negotiations with LaVie, I have assumed only a monthly run rate of $2.5 million. The amount they paid us in each of the first four months this year. When comparing Q4 2022 to Q3 2023, the projected $4.5 million decrease in FAD related to this pool of operators equates to only $0.02 drop in FAD. It's worth noting this $0.02 decrease doesn't factor in the final LaVie restructuring. It's also important to note that most of these operators are on a cash basis, and therefore, we will only record FAD to the extent payments are received.

Additionally, as outlined in the press release, we completed $276 million in new investments year-to-date. These investments are expected to produce incremental FAD of approximately $2.8 million in the second quarter and $3.4 million of FAD in the third quarter or almost $0.01 to $0.02 of incremental FAD.

In short, although we are not yet providing full year guidance, we anticipate we will return to a FAD payout ratio under 100% in Q3 with a path to return to a normalized payout ratio in the high 80s to low 90s in 2024.

Turning to the balance sheet. As highlighted in previous calls, our balance sheet continues to remain strong, thanks to the steps we've taken since the start of the pandemic to further improve our liquidity, capital stack, maturity ladder and help protect our overall cost of debt.

At March 31, 2023, we had $1.43 billion in availability under our revolving credit facility as well as $245 million in cash. The majority of the cash was used to complete the second quarter acquisitions. Our next debt maturity is $350 million of 4.375% [ph] 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 upcoming bonds. The swaps are valued at $85 million as of March 31, we plan to repay the $350 million of notes due in August using a combination of available cash and proceeds from our revolving credit facility. We do not plan to terminate the swaps at this time. At March 31, 98% of our $5.3 billion in debt was at fixed rates and our net funded debt to annualized adjusted EBITDA was 5.9 times, and our fixed charge coverage ratio was 3.6 times.

I will now turn the call over to Dan.

Dan Booth

Thanks, Bob, and good morning, everyone. As of March 31, 2023, Omega had an operating asset portfolio of 906 facilities with approximately 90,000 operating beds. These facilities were spread across 66 third-party operators and located within 42 states in the United Kingdom.

Turning to 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of December 31, 2022, remained flat at 1.38% and 1.04 times, respectively, versus 1. 37 times and 1.04 times, respectively, for the trailing 12-month period ended September 30, 2022.

During the fourth quarter of 2022, our operators cumulatively recorded approximately $20 million in federal stimulus funds as compared to approximately $18.6 million recorded during the third quarter.

Trailing 12-month operator EBITDARM and EBITDAR coverage would have increased during the fourth quarter of 2022 to 1.26 times and 0.92 times, respectively, as compared to 1.21 times and 0.88 times, respectively, for the third quarter when excluding the benefit of any federal stimulus funds. EBITDAR coverage for the stand-alone quarter ended 12/31/22, for our core portfolio was 1.19 times, including federal stimulus and 1.09 times excluding the $20 million of federal stimulus funds. This compares favorably to the stand-alone third quarter of 0.91 times and 0.83 times with and without $18.6 million in federal stimulus funds, respectively.

Occupancy for our overall core portfolio has continued to trend up from a low of 74.6% in January of 2022 to 79.8% as of mid-April 2023 based upon preliminary reporting from our operators.

Turning to our senior housing portfolio. Today, our overall senior housing investment comprises 191 assisted living, independent living and memory care assets in the United States and the UK. This portfolio on a pure-play basis had its trailing 12-month EBITDAR lease coverage increased 0.98 times at the end of the fourth quarter as compared to the end of the third quarter, which covered at 0.97 times. Based upon preliminary results, occupancy for this portfolio has remained steady at 87% as of mid-April 2023 versus 83% in January of 2022.

Turning to portfolio matters. Agemo. As Taylor mentioned, in April of this year, Agemo resume its contractual rent and interest of $27.9 million per annum, on its remaining portfolio consisting of 11 facilities in Kentucky and 18 facilities in Tennessee. LaVie, as mentioned previously, during the fourth quarter, Omega and LaVie began earnest discussions around the portfolio restructuring that would involve an overall reduction in certain underperforming facilities.

To date, 13 facilities have been transitioned and potentially an additional 23 facilities are in the process of either being sold or released to third parties. The 23 facility transitions include multiple transactions and are 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 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, as previously discussed, Omega agreed to allow a four-month rent deferral from January 2023 through April 2023, in order for Healthcare Homes to continue to build census and assist with its tight liquidity position. Thus achieved Healthcare Homes resumed rent payments in May of 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. In prior quarters, we have discussed two operators, one representing 2.4% of revenue and one representing 2.2% of revenue. During the first quarter, all 34 facilities associated with these two operators were transitioned to third parties.

The new combined rent equals $38.3 million per annum, representing a relatively modest decline from the previous combined contractual rent of $44.9 million per annum. Also during the first quarter and subsequently in the second quarter, Omega successfully transitioned 14 facilities from two smaller tenants and two facilities from LaVie to new third-party operators. The new combined annual rent of $11.7 million compares favorably to the historical annual rent of $11.2 million. In addition to the aforementioned restructuring and transitions, Omega is working with several other relatively small operators on various restructurings.

Turning to new investments. On March 31, 2023, Omega closed on a $26 million sale leaseback transaction for six care homes in the United Kingdom. Concurrently with the acquisition, Omega entered into a master lease for the care homes with a new operator with an initial cash yield of 8% with 2.5% annual escalators. Subsequent to the first quarter, Omega closed on two notable transactions. On April 14, 2023, Omega closed on a $219 million transaction, which consisted of a $114 million purchase lease transaction for four facilities in West Virginia, and $104.6 million mezzanine financing transaction. Concurrently with these acquisitions, Omega amended an existing operator's master lease to include the four facilities at an initial cash yield of 9.5% with 2.5% annual escalators. The mezzanine financing was given to the same existing operator, bears an interest rate of 12% and was part of the capital stack to purchase 13 additional facilities in West Virginia.

Also in the second quarter, on May 1, 2023, Omega purchased an additional one facility in West Virginia for $13.7 million. The facility was added to an existing operator's master lease with an initial cash yield of 10% with 2.5% annual escalators. Inclusive of these two transactions and $11.4 million in capital expenditures, Omega's year-to-date new investments totaled $276 million.

Turning to dispositions. During the first quarter of 2023, Omega divested two facilities for a total of $18 million in proceeds.

I will now turn the call over to Megan.

Megan Krull

Thanks, Dan, and good morning, everyone. After the tapering off of occupancy recovery towards the end of 2022, in 2023, we have seen the return to slow, but steady occupancy increases. The number of core facilities now recovered from an occupancy perspective is 33%, up slightly from the 31% reported in third quarter, while another 25% of core facilities that have not yet fully recovered, are at/or above 84% occupancy.

While the sector has clearly not recovered from a staffing perspective, we continue to hear about positive momentum from our operators with certain markets better off than others. Agency expense on a per patient day basis for our core portfolio for fourth quarter 2022 decreased to five times where it was in 2019 versus six times last quarter.

This is not to say that the industry is out of the woods just yet, but certainly, any move in the right direction is welcome, especially on the heels of the announcement of the end of the public health emergency. We continue to closely monitor Medicaid rate setting in light of the wind down of the FMAP add-on through year-end. Specifically, we are paying close attention to Texas and Florida, which rates should be finalized in the coming weeks. We are cautiously optimistic given what we have seen in other states, but obviously, it is too soon to tell. And that leaves perhaps the elephant in the room, the staffing mandate.

CMS is expected to release the proposed staffing mandate with the latest proposed payment rule, but instead decided to defer that until later in the spring. We can only hope that the delay in issuance of the proposed rule is as a result of moving towards a mandate that is less draconian than what otherwise might have been released. But where could this go? Many of you have heard of a 4.1 hour per patient day staffing mandate thrown around, which is a number that CMS had recommended back in 2001, although it's never been adopted likely for a reason.

ACA reports that 73% of facilities do not meet that level currently. If CMS is paying attention to that same data, which in fact is data that they collect, requiring that level of staffing seems unlikely as a final outcome. However, there are many levers available to CMS.

For instance, a tier system could be set with a level for basic care and one for exceptional care, or similar to what Florida did last year, the requirement could be set to include staff outside of just RNs, LPNs and CNAs. Whatever gets implemented could also be delayed until the industry has fully recovered from a staffing perspective, or could be rolled out over several years.

And then obviously, there's also the question of funding for any such mandate. It is too soon to tell the direction this will ultimately go, but what we can say is that we have all seen CMS proposed rules that can change substantially by the time a rule becomes final. Recall the payment rule last year, which had a full PDPM parity adjustment in it, get parity back to a lesser adjustment spread over two years.

So regardless of what ends up being proposed, I would remind everyone that ACA is working tirelessly to ensure that the government has a firm understanding of all the key issues here to make sure that the ultimate rule is something palatable. Nonetheless, we employ CMS to recognize that imposing any sort of draconian unfunded mandate at the height of a post-pandemic recovery when the staffing doesn't even exist and the majority of facilities not only don't meet, but can't meet such requirements under the circumstances is far from a solution, but rather a problem in and of itself.

I will now open the call up for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Our first question comes from Jonathan Hughes with Raymond James. Please proceed with your question.

Jonathan Hughes

Hey, good morning. Thanks for the detailed and prepared remarks and commentary and initiatives, those are very helpful. Question for Bob. I appreciate the FAD summary you detailed, but there were a lot of numbers in there. Could you just maybe repeat the trajectory of the FAD contribution from restructured operators from 4Q last year to kind of third quarter this year and maybe where we could exit by year-end.

Bob Stephenson

Hey, Jonathan, thank you. And I'll actually do it and after the call, if you want to go through details, I'll be happy to do that with anyone. So our Q1 FAD was, as I said, was $0.10 less than Q4 FAD and really was driven by LaVie and Healthcare Homes deferral and Maplewood interest that was converted to PIK.

So, then moving over to Q1 is really as a starting point. So, there were eight operators -- so our Q1 FAD was $147 million and 8 operators represented $35 million of that FAD. Just quickly, those eight operators Agemo, Healthcare Homes, Maplewood, the 2.4, the 2.2. And as Dan mentioned, two other operators that transitioned this year.

So, those operators represent $35 million of the $147 million of Q1 FAD. In Q2, we expect those eight operators to generate $47 million or $12 million of incremental FAD.

Agemo and Healthcare Homes represent $11 million of that $12 million to both resume making payments in Q2. The other $1 million was related to the remaining six operators.

In Q3, we expect an additional $6 million of incremental FAD or $53 million from those eight operators with healthcare homes generating $2 million incrementally and the other seven representing $4 million, and that's really just driven by timing of these transitions.

And remember, in these, we have some I'm going to say, meaningfully upside related to the fee depending on the timing of the restructuring. And then a lot of these operators are on a cash basis. So, cash timing may impact it.

Jonathan Hughes

Okay. Appreciate the color. I'm glad we have transcripts because I'll go back and read through that again. I appreciate the detail. And then just one more for me. What's the investment pipeline look like today in terms of size, yields, and mix between skilled nursing and assisted-living. And are you starting to see a pullback or have you already seen that pull back from private capital competitors that were still active in the SNF acquisition market over the past few years?

Taylor Pickett

So, I don't want to put dollar figures around it, but we certainly have seen our pipeline pick up. It's mostly SNF assets. It's both in the US and the UK. We're now quoting cap rates north of 9%. And while we don't directly compete with some of these private folks that you're talking about, we have seen that get quite as of the last few quarters.

Jonathan Hughes

All right. Appreciate the time.

Operator

Our next question is from Connor Siversky with Wells Fargo Securities. Please proceed with your question.

Connor Siversky

Good morning out there. I appreciate the color and the prepared remarks, particularly from Megan. I think that take on the minimum staffing requirements is very helpful. Just a little bit more on investment activity.

I'm wondering as we're kind of emerging from the worst of the COVID-19 environment. Have your underwriting targets changed at all, maybe related to rent coverage on new portfolios?

And then given the different responses by states and addressing the end of the PHE, some offering better Medicaid rate hikes than others, does this change how you're looking at certain geographies? Do any suddenly look more attractive than others, or any areas where you would seek to avoid or look to sell out of going forward?

Taylor Pickett

So, as part of our underwriting criteria, we're always looking at geography, right? That's a key component of it. There have or have not states have been forever and unfortunately, they change. Buckets from time-to-time, some states that were great become not so great, i. e., Florida. And so we do look at that carefully as part of our underwriting. Our coverage analysis really hasn't changed. We look to a 1.3 to 1.4 coverage. What does -- we look at a little bit more carefully is the credit behind the tenant. So if we're bidding a new deal with a new tenant, that's what we're looking at. If we're bidding a new deal with an existing tenant that has very, very strong underlying coverage, we might be willing to bid it at a slightly lower coverage. So that comes into play as well. I think that covered all.

Connor Siversky

Okay. Understood. Thanks for that. And then just quickly on LaVie, understanding that it's still going -- undergoing this restructuring process. And I'm wondering anecdotally, does that hurdle reflect in maybe subdued occupancy performance within that portfolio? And then for the assets that you're still looking to sell out of or perhaps transition in the event that 20-some-odd assets in the event that these are transitioned indication or any kind of color on what the rents could look like within those facilities?

Dan Booth

So actually, the occupancy for LaVie is ever so slightly higher than the median. It's a little bit above 80%. It's too early to quantify what we're looking at in terms of rent. We're looking at both sales and releases. So it will be a combination of both. I feel confident that will happen. The exact dollars that we receive it's just a little too early to predict that at this point in time. But I do see the material upside from what we’ve been reporting in the first quarter.

Connor Siversky

Okay. Understood. Thanks for the time.

Operator

Our next question is from Michael Griffin with Citi. Please proceed with your question.

Michael Griffin

Great. Thanks. Maybe just sticking on the external growth fund. I was curious -- I think it's the loan-to-own deal in West Virginia maybe it was a 12% mezz loan that's on there. I kind of read that as maybe almost negating the seller financing from LaVie last quarter that was an 8% rate. Am I thinking about that in the correct way? And is there a possibility that you could purchase these facilities at some point in the future?

Taylor Pickett

Just to be clear, that the Mezzanine we made, Michael, is traditional Mezz. So it's part of the cap stack. It's not a loan of -- obviously, we underwrite mezz with the idea that, if things go sideways are we willing to own it. But remember, we're bidding it based on where the mezz market is today, and that's why you see the 12% rate. And in terms of credit, it's all part of a much, much bigger credit within our portfolio that's crossed. So we feel very, very coupled that the credit behind that mezz loan is extremely solid. The 12% just represents where the market is for that type of financing.

Michael Griffin

And is there anything specific to West Virginia or is it just more operator specific, I mean, I know, there are other states out there that might not be in New York or California, but people don’t much think about it much as , is West Virginia is there like in expectation for higher Medicaid rate of or really just operating specific?

Taylor Pickett

It’s a little of both, it’s a great question. Reimbursement is strong, West Virginia supply is relatively low. So the supply-demand economics are strong. And it's with an operator. We have a great relationship with who has excellent coverage today. So you throw those three factors together, it's a pretty good underwriting an asset deal for us.

Michael Griffin

And then just maybe on the regulatory side, Megan has touched on this in her prepared remarks, apologies, but any update on – with the public health emergency ending, the Medicaid rate imbursement expectations in Texas. I found it was decoupled from the FMAP, I don’t know if it was decouple from the public health emergency, but I don't think states like Texas or North Carolina have made it permanent. So any color there would be helpful?

Megan Krull

Yeah. Those are two. Texas and North Carolina are the two states we're still watching because of our top 10 states recall, almost five of them didn't have any rate increase they just launch some payments. So it's really the end to the public health emergency doesn't have an impact there.

In Virginia and California had already included it in go-forward rates for a period of time, so Texas and North Carolina. I mean, we're still watching those closely. We're cautiously optimistic that we're going to see something good in both of those states, and we're keeping our price from the operators about those Texas, we should be hearing about in the next few weeks. That rate wouldn't kick until October 1st.

The association is also pushing for the state to step up and bridge them on that 1963 FMAP to October. So again, a little too soon to tell, but cautiously optimistic that we're going to see good days there.

Michael Griffin

Awesome. That’s it for me. Thanks for the time.

Operator

Our next question is from Steven Valiquette with Barclays. Please proceed with your question.

Steven Valiquette

Great. Thanks. Good morning everybody. So I guess for me, also coming back to those comments on the slow-and-steady occupancy gains so far in calendar 2023. I guess, I wasn't 100% sure whether those payments are related more to the overall, sort of, operators in both skilled nursing and senior housing or just one of the other, I guess, either way, just curious if you have any just color on whether or not the occupancy recovery trends are still different for senior housing versus SNF so far in 2023? Thanks.

Megan Krull

The SNF side really is where we're seeing more of an increase, I think the outside is steady but not quite the same as it had been. It had picked up earlier. So there's still a little bit of a difference, but positive growth in both.

Steven Valiquette

Okay. And just to dive into that a little bit deeper. I think anybody track in the hospital sector knows that there has been a very noticeable increase in inpatient volume growth so far in calendar 2023, and that should translate into greater post-acute volumes for SNF operators. So I'm wondering, if you can just comment maybe just on the general qualitative sentiment from your SNF operators just on progression of Medicare specific related post-acute occupancy gains? Is that where most of the gains are coming from? Just any color on that would be helpful, too, just on the Medicare specific component tied to post-acute. Thanks.

Megan Krull

We don't know that play yet. We're not seeing that increase in the quality mix related to that. But I will say, we're still dealing with some staffing issues out there that are preventing people from taking new residents on. So that is causing a bit of an issue still.

Steven Valiquette

Okay, got it. Okay. Thanks.

Operator

Our next question is from Joshua Dennerlein with Bank of America Merrill Lynch. Please proceed with your question.

Joshua Dennerlein

Yeah, hey, everyone. Thanks for the time. I'm just kind of curious what you guys are looking for before you really restart external growth. Is it just changes in the cap rates in the private market, something internally in your portfolio or just fundamentally. Just curious to hear your thoughts.

Taylor Pickett

From our perspective, we've restarted. And if you look at the $276 million that we've allocated now, the pipeline is active it's really driven a little bit by just returns to yields. And as Dan mentioned, we're quoting north of nine on all of our deals, and we're seeing SNFs deals at 10 and deals at 12 and at those levels, we can make the math work. So, we've opened the pipeline up, and I think we'll see more opportunities as it becomes clearer in the marketplace a lot of traditional financing sources just aren't available.

Joshua Dennerlein

Okay. So, I guess, from kind of our perspective, it seems like that wasn't one-off necessarily in the first quarter or year-to-date, it's something we should kind of continue to look for going forward?

Taylor Pickett

Yes. Well, at the pace we are with $270-plus million capital allocation through May 1st, and I think that's a pretty good pace. I'm not sure if it will be $600 million when the year is done, but at this pace, that's where it would be.

Joshua Dennerlein

I appreciate that. And then -- when we're thinking about the risk of the industry and just within your portfolio, do you think we're kind of past the trough at this point of paying with operators, or is there something else we should be watching out for that would maybe market the trough?

Taylor Pickett

I'm cautiously optimistic that we're past the trough. The fact that occupancy is closing in 80% which is, from our perspective, a pretty good indicator is important. The fact that we have for, in general, great state support is important. Megan has pointed out that minimum staffing could become an issue. I don't think it will -- and there are a lot of levers to pull there, many unknowns. But save for that, I don't see any other clouds on the horizon.

Joshua Dennerlein

Okay, awesome. Thanks.

Operator

Our next question is from Vikram Malhotra with Mizuho. Please proceed with your question.

Vikram Malhotra

Thanks for taking the question. Just maybe first one to clarify the -- your comments on sort of where the coverage -- the dividend coverage will end up at towards year-end. I think you said sub-100% towards 90%. Does that include income from acquisitions you've made, including sort of loan interest income coming through, but does it also bake in any incremental investment activity through year-end?

Taylor Pickett

Well, based on my comments Vikram, it's all the transitions that we've talked about and no, I'm not building in any of the pipeline to get below the 100%.

Vikram Malhotra

Okay. But it would include like whatever you've announced in terms of deals as well as loan?

Taylor Pickett

Yes, it includes all new investments completed to date that were in the press release.

Vikram Malhotra

Got it. Okay. And then just on the -- you talked about broadly bottoming trends, optimistic on, hopefully, the minimum staffing is phased, in Texas as well. Is there a scenario -- I mean, I know the environment stuff every asset plus cap rates moving there, but SNF cap rates have probably remained very steady for several years now?

So, I'm wondering, either on a per bed basis or a cap rate basis, is there a scenario where you could actually see values go up or cap rates go down over the next 12 months in for SNFs?

Taylor Pickett

I do not see that scenario. I see cap rates going up.

Vikram Malhotra

And what would you -- if you were to venture say, for skilled nursing today where cap rates are and -- or where per bed values are, what would that change be broadly over the next 6 to 12 months?

Dan Booth

That's a tough to predict. I can just tell you what we're quoting today, which is north of nine. Per bed value is very dramatically by state. So it's hard to quote per bed value in any given across the board, it would be an average that really would be meaningless.

Vikram Malhotra

Okay. Thanks so much.

Operator

Our next question is from Tayo Okusanya with Credit Suisse. Please proceed with your question.

Tayo Okusanya

Hello?

Taylor Pickett

Good morning, Tayo. Where you on mute? Listening you now.

Tayo Okusanya

Okay, perfect. Excellent. So two quick ones from me. Megan again, thank you for all the details around the reimbursement at the state level. One of your peers did mention some challenges that they had with Michigan during that quarter. It's one of your top five states. Could you just talk to what you're seeing in that data as it pertains to reimbursement, and the impact on any of your operators that have exposure to that state?

Megan Krull

Michigan from a rate setting perspective hasn't been too bad, and we're hoping for a moderate to good rate increase this year. There is should have been more delayed payments related to those increases, which does put a strain on operators. But thankfully, our one operator that's material is Michigan, and they are exposed to also Ohio, North Carolina, Virginia, which are all very strong states right now. So not too concerning from that perspective. But again, Michigan, I think it's just a catch-up of the stuff that they need today.

Tayo Okusanya

Got you. Okay. That's helpful. And then in regards to the investment pipeline, again, some of your peers that are heavily in the skilled nursing space have pivoted over to investing in behavioral health. Again, the argument there is a fast-growing sector. You're still getting SNF like cap rates, you may not have the same type of reimbursement risks on the behavioral health side. Just curious what your thoughts are on that space and if it's something that Omega would look at actively as another asset class to invest in?

Taylor Pickett

It's an interesting space. It -- you have a couple of different models, Tayo, that we're involved in. You have substance use disorder. You have geriatric psych and you have general psych. We have investments in geriatric psych and substance use disorder. We do not have a behavioral specific operator, but we have a handful of SNF operators that are in that space. So we understand it. We look at it.

Right now, we think with existing operators, we're seeing so much opportunity and they will lever into their credits is a better allocation of capital for us than looking at new behavioral type operators. So good space, but not a priority for us today.

Tayo Okusanya

Got you. Okay. Thank you.

Operator

[Operator Instructions] There are no further questions at this time. I'd like to turn the floor back over to Taylor Pickett for closing comments.

Taylor Pickett

Thanks, Rob. Thanks everyone for joining us today. As always, the team will be prepared to respond to any of your questions. Have a great day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time and we thank you for your participation.