Omega Healthcare Investors (OHI) Q4 2022 Earnings Call Transcript

Omega Healthcare Investors (OHI 0.72%)
Q4 2022 Earnings Call
Feb 03, 2023, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Omega Healthcare Investors fourth-quarter 2022 earnings conference call. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michele Reber.

Please go ahead.

Michele Reber -- Senior Director, Asset Management

Thank you and good morning. With me today are Omega 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 identifies 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 -- Chief Executive Officer

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've 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 restructure rent, we will again return to a flat 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.

Bob Stephenson -- Chief Financial Officer

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 nonrecurring 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 inducement 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 inducement 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 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 a $24.8 million received for rent in the quarter and wrote off approximately $58 million of straight-line rent receivables and lease inducement through rental income.

On December 30th, 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 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 inducement to rental income.

In January 2023, Maplewood paid its full contractual rent of $5.8 million and one-month interest of $1.5 million on their 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 recorded 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 and 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 rent, 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've previously discussed an operator representing 2.2% of our second-quarter 2022 annualized contractual rent and mortgage interest. In the third and fourth quarters 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've taken since the start of the pandemic to further improve our liquidity, capital stack, maturity ladder, and overall cost of debt.

At December 31st, 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 3/8% 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 rate, 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 in these liquidity calculations includes our ability to apply collateral and recognize revenue related to operators' nonpayments 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.

Dan Booth -- Chief Operating Officer

Thanks, Bob, and good morning, everyone. As of December 31st, 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 and the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of September 30th, 2022 decreased to 1.37 and 1.04 times, respectively, versus 1.39 and 1.06 times, respectively, for the trailing 12-month period ended June 30th, 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 and 0.88 times, respectively, as compared to 1.23 and 0.90 times, respectively, for the second quarter when excluding the benefit of any federal stimulus funds. EBITDAR coverage for the stand-alone 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 stand-alone 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 UK.

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 was extended from December 31st, 2030 to December 31st of 2036.

LaVie. During the latter part of 2022, LaVie, Omega's largest tenant, while continued to pay full rent throughout 2022, began to anticipate imminent liquidity concerns as occupancy improvements were slower to materialize; labor costs continued to pose ongoing challenges, particularly in the widespread use of agency personnel; and many other operating expenses, such as food costs and supplies, continued 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 a 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, there is a fixed rate of interest of 8%, and matures in five years. It is anticipated that as part of a 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, America's largest operator in the UK, 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 fourfold 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 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.

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, increase 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 a 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 a 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 total rent, began making only partial monthly rent payments, thus causing Omega to begin utilizing 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 1st, 2022, Omega closed on a $78 million purchase lease transaction for six facilities in North Carolina with an existing operator. Also, on December 1st, 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. I will now turn the call over to Megan.

Megan Krull -- Senior Vice President, Operations

Thanks, Dan, and good morning, everyone. While the announcement this week of the end of the public health emergency affected 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 the 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, AHCA 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 jobs added slowed a bit to 2,740 jobs per month added from July 2022 through December 2022. While 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 third-quarter 2022 continues to be elevated at six times what it was in 2019, similar to where it was in second-quarter 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 third quarter. We also continue to keep a close eye on Medicaid rate setting, particularly Texas. And we're 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, that 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 moves to provide for unfunded mandates.

I will now open the call up for questions.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] At this time, we will pause momentarily to assemble our roster. Our first question is from Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes -- Raymond James -- Analyst

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 this year, and then maybe also the expected G&A in the first quarter?

Bob Stephenson -- Chief Financial Officer

Yeah, Jonathan, I'll try to summarize it. It's not that easy because you're right, there are a lot of moving parts. And I'm only going to address the operators that we talked about on the -- you know, in our presentation or in the press release. So, the first, LaVie, so, they paid us $24.8 million in Q4.

I stated they paid $2.5 million in January, which was 34% pursuant to the deferral agreement. That equates to roughly $7.5 million for Q1. Plus, there's the seller financing note. And remember, notes are paid in arrears.

So, that would equate to another 1.4 million [Inaudible] in Q1, or $9 million combined, related to LaVie from a FAD standpoint in Q1. Looking at Maplewood, they paid us $20.2 million in Q4 of combined rent and interest. They paid, as I stated, $5.8 million in January for rent, 1.5 million in interest, or a combined $7.2 million. That equates to $17.3 million in rent, plus the $1.5 million in interest because, as we stated, that interest will be ticked for the remainder of the year.

Those two combined, roughly $18.8 million in FAD, is related to Maplewood in Q -- in Q1. Agemo, pretty simple. They paid us nothing in Q4 or Q1. Therefore, we don't anticipate Q1.

However, they will start paying at an annual rate of 27.9 million starting in April. Healthcare Homes, they paid us £5 million in Q4. That equates to about $5.9 million, plus or minus. We agreed to defer rent through April.

Therefore, no FAD in Q1. We will look AFFO and revenue as they remain on a straight-line revenue recognition basis. The 2.4% operator, it paid us 1.5 million in Q4. They paid us a $500,000 in January.

We'll only record FAD to the extent we get cash from them. Dan did mention we anticipate this portfolio to transition in Q1. The 2.2% operator, they paid us $3.8 million in Q4. They paid us $310,000 in January.

And similar to the 2.4, we'll only record FAD as it's collected. Dan mentioned we anticipate this portfolio to transition in Q1. It's not stated, but if you take Dan's numbers, I think that's going to translate to about $1.5 million of cash received, plus or minus, depending on the transition timing related to that operator in Q1. And I think, lastly, you did ask the G&A -- about G&A.

G&A was $8.8 million in Q4. You know, G&A runs roughly $9 million to $12 million per quarter. And historically, our first quarter is typically high due to a number of factors, payroll taxes, and really timing of professionals. As you know, we do our 10-K, prepare for a proxy, and things of that nature.

Hopefully, that was a short enough answer to your question.

Jonathan Hughes -- Raymond James -- Analyst

I'll have to go back and add up the numbers, but I think we can get a sense of where we'll shake out from fourth quarter, first quarter. So, appreciate that. And then, my one follow-up for -- would be for Taylor on dividend coverage. You mentioned in yesterday's press release for an expected increase in the payout ratio, and then, in your prepared remarks earlier, for an expected shortfall in the dividend coverage in the first quarter.

And, Bob, you just gave us the components to that. But given, you know, the building blocks of operators coming back online in the second quarter and, hopefully, more in the back half of the year, does that trajectory of improving cash flow give the board comfort to maintain the current dividend? And we're just trying to get a better sense of how they view the trade-offs between temporary shortfalls and returning that capital to shareholders. Thank you.

Taylor Pickett -- Chief Executive Officer

Yeah, it definitely gives me comfort. You know, I won't speak for the whole board because we make a decision every quarter based on what we see. But if you take the building blocks that Bob talked about, you know, the next step is to connect the dots from Q1 to Q2. And so, you have a number of operators in Q1 that are not paying or partially paying, and we should see a big pickup in Q2.

And so, that's the piece that's missing. But to the -- you know, with Agemo coming back on the transition to the 2.4% operator, which should go at approximately the contractual rent, very little diminution, those are big moving parts that are -- that get us back into a reasonably comfortable FAD zone from a dividend perspective.

Jonathan Hughes -- Raymond James -- Analyst

All right. Thanks for the time.

Operator

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

Michael Griffin -- Citi -- Analyst

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

Dan Booth -- Chief Operating Officer

Yeah. So, on the LaVie question, you know, we did identify, if you will, sort of their bottom tier of their assets and their portfolio. And we discussed we've 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 into coverages that we've seen historically, and that, you know, the rent deferrals will have a finite period of time.

Michael Griffin -- Citi -- Analyst

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 the lack of bridge to HUD financing out there.

Curious what you're seeing in the transaction market. And, you know, if any of these potential sales occur in the future, could we see, you know, seller financing tacked on similar to the sales earlier this year and the last year?

Dan Booth -- Chief Operating Officer

Yeah. So, the government markets, obviously, have cooled. Rates have gone up. It's become more difficult and stuff.

The seller take back paper that we did in the fourth quarter. And right now, actually, our -- most of our restructures involve releases, not sales. So, the capital markets don't come into play. And that's kind of what we see out in the future, a little bit more and more transitions via releases than actual asset sales.

So, we're open not to rely -- and we're open -- our new operators will not have to rely on the capital markets.

Michael Griffin -- Citi -- Analyst

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

Operator

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

Steve Valiquette -- Barclays -- Analyst

Thanks. 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.

So, I guess my question is the, -- you know, the number of operators with rent coverage below 1.0 improving from, you know, 27 to 26 through September 30th. I guess if we did just try to fast forward beyond September 30th to today and just think about all the announcements and restructurings you've disclosed in recent months -- but, you know, 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? You know, pro forma for all your announcements and restructuring, again, assuming no other changes to the -- you know, the other operators. Thanks.

Dan Booth -- Chief Operating Officer

Specifically how many -- you know, there is -- we added, obviously, some new restructures in this quarter. So, the number will go up. The exact number of operators, like, I don't have that pro forma number.

Megan Krull -- Senior Vice President, Operations

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

Steve Valiquette -- Barclays -- Analyst

OK. All right. That's fair. Separate question.

If I could touch a little bit on some of the rate updates, but curious if you can provide us a little more color on, you know, any particular state level, you know, skilled nursing rate update for '23 for your SNF operators in some of your key states that really stood out that could be, you know, some potential positive relief as we think about the evolution of '23. Thanks.

Megan Krull -- Senior Vice President, Operations

Yeah. So, if we look at our, you know, top 10 states, you know, five of the states, either in the latter half of last year or expected at some point this year, that's Indiana, Ohio, Michigan, Pennsylvania, Virginia -- again, not all of those are set in stone, Ohio's not quite yet -- are looking at least a 10%-plus increase in rates. And some of those, you know, like Pennsylvania kicked in January, that was 17.5%. So, we've got quite a few there in the mid to high teens as well.

And then, you've 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 '22. That helped, you know, several of our operators, to move 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're watching them carefully. They're doing rate setting right now. So, we're 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've got the FMAP potentially going away there. We think -- we're cautiously optimistic with the rate setting that's going to be happening in April, May, and what sort of been proposed at this point that that will likely stay in place come September 1st and 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.

Steve Valiquette -- Barclays -- Analyst

OK. All right. Great. Appreciate the color.

Thanks.

Operator

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

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

Yeah. Hey, everyone. Just kind of curious on that 2.2% operator, where you did the transition. It's seems-it's a little hard to tell, but it seems like there's a rent cut associated with that transition.

Did you kind of -- could you clarify that -- if there is a rent cut and what the size is? And then, I'd be curious to know if that's kind of indicative of maybe how operators under one times covered, what kind of support they might need.

Dan Booth -- Chief Operating Officer

Yeah. So, I indicated, the cut was about -- well, the new rent, if you will, from all the transitions, including the four that are still to come, we end up with rent approximately 77% of what it was previously, which is $17.3 million versus the old rent of 22.4. So, $105 million.

Taylor Pickett -- Chief Executive Officer

And just to the second part of your question, is that indicative, I would be very careful, kind of taking that as a broad-brush analogy for other restructurings. I mentioned the 2.4% operator is in the process of transitioning and will be no diminution in rent there. We've done a smaller one that's so small we don't even talk about it. Our Colorado assets, it was very -- much less than the discount we saw in this portfolio.

This is a very old portfolio, the 2.2% of portfolios, a very old portfolio that needed a lot of care. And we're really happy to have moved it. But it's not -- I would paint that brush across the rest of what we're doing.

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

OK. That's good color. And then, wanted to kind of ask on the public health emergency ending. It sounds like the FMAP funding got decoupled from that.

And then, could you kind of provide more color on that and maybe how the end and the phase-out of the FMAP might impact your -- tenants in your portfolio?

Megan Krull -- Senior Vice President, Operations

Yeah. I mean, the FMAP's interesting, right, because the fact that they decouple that 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 if the states will do with that. Some of the states, like Texas, still have it in their language, have the FMAP tied to the public health emergency ending.

So, they'll have to do something further to get that additional funding through the end of the year. But on the FMAP side, we've got -- you know, in our top 10 states, we've got Florida, Indiana, Ohio, Michigan, Pennsylvania, so five of our states that really didn't have FMAP rate. They might have given lump sums in the past or potentially those rates expired previously. So, there's nothing, you know, 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 health emergency or the decoupling, they're there through the end of the year. So, they're good. Virginia had previously taken their FMAP rate and put it into their base rate and quality add-ons.

So, they had already started solved that problem previously. Because in New York we don't have a skilled presence, that leaves Texas and North Carolina, which are the two that we're watching. Both of them had, you know, pretty substantial FMAPs that ran with the public health emergency. Texas, you know, as I've mentioned, has related to continue or to go into their rate with the September 1st rate setting.

We'll see if that gets finalized. But, you know, we're 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, who there's a big push to get that into their July 1st rate setting of this year.

So, they'll get their FMAP through June as determined in that state already, and then, hopefully, they get it into rate July 1st. So, I think we're relatively covered there, those last few states step up.

Operator

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

Georgi Dinkov -- Mizuho Securities -- Analyst

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 expect any of the waivers to stay in place and become permanent going forward?

Megan Krull -- Senior Vice President, Operations

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

Georgi Dinkov -- Mizuho Securities -- Analyst

Great. Thank you. And just going back to LaVie. We notice that the new rate is 2%.

Can you provide more color what was the rate prior to the cut?

Unknown speaker

[Inaudible]

Dan Booth -- Chief Operating Officer

I don't know --

Bob Stephenson -- Chief Financial Officer

Blended, 8.1%.

Georgi Dinkov -- Mizuho Securities -- Analyst

OK. 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?

Dan Booth -- Chief Operating Officer

So, we've seen activity actually pick up as of late. I wouldn't call it robust at this point, but it has picked up. It's picked up both in the States and in the U.K. So, while we're not -- we don't predict what our -- what kind of deals we'll do in the year, you know, we've been active throughout these restructures.

We anticipate to continue to be active.

Georgi Dinkov -- Mizuho Securities -- Analyst

Great. Thank you. That is all for me.

Operator

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

Tayo Okusanya -- Credit Suisse -- Analyst

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, you know, on a cash or GAAP basis. Just kind of curious, is that kind of what the market looks like where you're kind of doing deals at 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?

Dan Booth -- Chief Operating Officer

So, the deals that we did in the fourth quarter, a lot of those deals have been, you know, in process, if you will, for quite some time, so 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're quoting deals that are probably about a 1% higher cap rate throughout 2023. So, that's kind of what we're looking at in terms of changes in the market, yeah.

Tayo Okusanya -- Credit Suisse -- Analyst

[Inaudible] And is that -- just kind of given what those cap rates are in your -- inside cost of capital, it still seems like, yeah, you can do pretty accretive transactions. So, does that make you more interested in deal activity this year, or no?

Dan Booth -- Chief Operating Officer

I -- you know, 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, you know, makes sense in the current capital markets.

Taylor Pickett -- Chief Executive Officer

So, 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're looking pretty hard at those type of opportunities. As you can model out, that's -- you know, versus the overnight rate of something in the -- like, three, you know, that's pretty powerful.

Tayo Okusanya -- Credit Suisse -- Analyst

Got you. Then if you would just indulge me, one more on the regulatory front. One of the popular topics last year was Biden's trying to push for minimum staffing levels of skilled nursing facilities. You know, I have not heard much about that in '23.

Just curious if you could give any update on that initiative and kind of what you're hearing on that front.

Megan Krull -- Senior Vice President, Operations

I mean, it's still operating in the background, and you still have AHCA pushing for something that, you know, is reasonable and funded. And I think that's the big piece of it, right? It needs to be funded because it's 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.

Tayo Okusanya -- Credit Suisse -- Analyst

Great. Thank you.

Operator

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

Dave Rodgers -- Robert W. Baird and Company -- Analyst

Yeah. Good morning, everybody. Just a couple of quick ones for me. I guess excluding the named tenants, the 3%, the 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 of rent reductions, forgiveness of loans, etc.?

Dan Booth -- Chief Operating Officer

So, yeah, there's active negotiations, but they're all small. They're all -- would be operators that would represent less than 1% of revenue.

Dave Rodgers -- Robert W. Baird and Company -- Analyst

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

Dan Booth -- Chief Operating Officer

Nothing that adds up to any material number.

Dave Rodgers -- Robert W. Baird and Company -- Analyst

OK. Thank you. And then, Bob, one for you maybe. As we model out interest income for the year in totality -- and you gave specific operators -- but I guess, maybe in totality, can you give us the sense of how much of that might be on non-accrual, how much is actual cash interest, and then the paid in kind component, I don't know, as a percentage or dollars, whatever is easiest?

Bob Stephenson -- Chief Financial Officer

Not off the top of my head. Again, because some of these, as Dan Mentioned, you know, like LaVie, part of that 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'm not worried about the accrual side of it.

Dave Rodgers -- Robert W. Baird and Company -- Analyst

OK. All right. Thanks, guys.

Operator

[Operator instructions] The next question is from John Pawlowski with Green Street Advisors. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

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

Dan Booth -- Chief Operating Officer

They're just north of 100,000 a bed, I believe, on both.

John Pawlowski -- Green Street Advisors -- Analyst

OK, for the first group of sales that have already closed, how much lower do you think you would have traded if you didn't provide seller financing? Or could you find another buyer at all without seller financing?

Dan Booth -- Chief Operating Officer

That's tough to predict what would have -- could have happened in the past. I don't know. It's difficult to say.

John Pawlowski -- Green Street Advisors -- Analyst

But there are other bidders in the tent with the financing? Or the seller financing needed to actually get it across the finish line?

Dan Booth -- Chief Operating Officer

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

John Pawlowski -- Green Street Advisors -- Analyst

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

Megan Krull -- Senior Vice President, Operations

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, you know, over 50% of the portfolio that's either fully recovered or is 84% and above, and 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, you know, 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.

John Pawlowski -- Green Street Advisors -- Analyst

OK. Thanks for the time.

Operator

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

Nick Yulico -- Scotiabank -- Analyst

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

Bob Stephenson -- Chief Financial Officer

Nick, again, not off the top of my head. I think $2 million is noncash and that is a little bit of PIK. So, on the last answer, if an operator is on straight-line accounting, we do count that PIK, in fact, as, Nick, you and I have discussed in the past. But it's a very small number.

It's $2 million.

Nick Yulico -- Scotiabank -- Analyst

OK. Thanks, Bob. The other question is on LaVie and the transaction that happened. So, I'm just wondering -- I'm trying to understand why there's any fee that was paid to LaVie in this, because it looks like what happened here is, if I'm reading this right, essentially, you got no cash-in from the sale.

You got seller financing, you had the buyer pay a portion of the fee that you owed LaVie, which I'm not sure why there's any, you know, fee to LaVie if they're not, you know, paying rent or not, you know -- they're going to be PIK on your term loan. Why is there -- or is there any money going to LaVie in this transaction?

Dan Booth -- Chief Operating Officer

So, there's no PIK on the term loan. I'm not sure what you meant there, but yeah, there was --

Nick Yulico -- Scotiabank -- Analyst

Sorry. It says on the new -- I thought it says on the -- you amended the term loan, so it's now payment in kind.

Dan Booth -- Chief Operating Officer

OK. I'm sorry. Yes, you're right. I thought you meant [Inaudible].

Nick Yulico -- Scotiabank -- Analyst

OK.

Dan Booth -- Chief Operating Officer

So, yeah, 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 -- legations and liabilities associated with those buildings. So, that was to sort of help them to operate and also to help them pay out some of the wind-down costs.

Nick Yulico -- Scotiabank -- Analyst

OK. So, I guess I'm just -- I want to make sure I understand this. And so -- and then, in the fourth quarter, you had this, you know, 36 million of acquisition, merger, transition-related costs that, you know, ran through expenses that you add back then. Is that fee, that net -- looks like it's like a net $10 million fee that you guys paid to LaVie that then just -- you guys just totally added that back, and it's not coming out of, you know, AFFO or FAD?

Bob Stephenson -- Chief Financial Officer

That's correct.

Nick Yulico -- Scotiabank -- Analyst

OK. I guess I'm just wondering why that's like -- how that makes sense. If you book the rent, you know, the 25 million of rent, but effectively, you paid 10 million to LaVie, why wouldn't it be in that, you know, 15 million of rent cash from LaVie?

Bob Stephenson -- Chief Financial Officer

I'm not following exactly what you're saying, Nick, but we paid 10 million in cash. You know, that piece is what you see in the FAD add-back as -- I'm sorry --

Nick Yulico -- Scotiabank -- Analyst

I was just wondering, like, if you got -- I mean, if you guys are paying over $10 million of cash as a fee, but then you're booking 25 million of revenue from them, cash revenue, right, I mean, isn't that -- shouldn't it really be $15 million because you paid them $10 million?

Bob Stephenson -- Chief Financial Officer

But there was no cash revenue with that piece.

Nick Yulico -- Scotiabank -- Analyst

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

Bob Stephenson -- Chief Financial Officer

No. Not on that. Not that component of it.

Nick Yulico -- Scotiabank -- Analyst

OK. I guess --

Bob Stephenson -- Chief Financial Officer

Yeah. I'll walk you through it, though. You're confusing the rental payment and the transition fee on those two -- 25.

Nick Yulico -- Scotiabank -- Analyst

OK. Because the rent, the 24.8 million of received for rent in the quarter, that was -- I thought that was a cash rent number.

Bob Stephenson -- Chief Financial Officer

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

Nick Yulico -- Scotiabank -- Analyst

OK. All right. Thank you.

Operator

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

Tayo Okusanya -- Credit Suisse -- Analyst

Hi. Yes, 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? 

Bob Stephenson -- Chief Financial Officer

Tayo, can you repeat that? I did not hear it.

Tayo Okusanya -- Credit Suisse -- Analyst

Yeah. Maplewood. So, the expansion of the loan commitment to Maplewood, I think the commitment was expanded to about 320 million, which is an increase of about 70 million versus where it was before. Could you just talk a little bit about that kind of additional commitment you've made to them and what that's about?

Dan Booth -- Chief Operating Officer

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

Tayo Okusanya -- Credit Suisse -- Analyst

Ah, OK. So, the 53 million is the PIK. OK. Understood.

Thank you.

Operator

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

Taylor Pickett -- Chief Executive Officer

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.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 0 minutes

Call 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

Jonathan Hughes -- Raymond James -- Analyst

Michael Griffin -- Citi -- Analyst

Steve Valiquette -- Barclays -- Analyst

Josh Dennerlein -- Bank of America Merrill Lynch -- Analyst

Georgi Dinkov -- Mizuho Securities -- Analyst

Unknown speaker

Tayo Okusanya -- Credit Suisse -- Analyst

Dave Rodgers -- Robert W. Baird and Company -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

Nick Yulico -- Scotiabank -- Analyst

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