C. Taylor Pickett; Chief Executive Officer, Director; Omega Healthcare Investors Inc
Michael Griffin; Analyst; Citigroup Global Markets, Inc.
Alec Feygin; Analyst; Robert W. Baird & Co. Inc.
(audio in progress) Narrowed and increased our 2024 AFFO guidance to a range of $2.84 and $2.86 per share. We have issued a significant amount of equity to fund our robust pipeline, which is bolstered our liquidity and further dilevered the balance sheet.
1%As Dan will discuss, key tenant occupancy and rent coverage metrics are strong while the under one times EBITDA coverage operator metric has no material risks or concerns.
During the first three quarters of 2024, we have issued over $800 million in equity. And year to date, we've invested over $900 million.
The pipeline remains very active. Our annual revenue run rate now exceeds $1.1 billion. With 25% of that revenue coming from our large and growing senior housing portfolio, we are well positioned to continue to deploy capital accretively, increasing our revenue, AFFO, FAD, and dividend coverage.
I will now turn the call over to Bob.
Thanks, Taylor, and good morning. Turning to our financials for the third quarter, revenue for the third quarter was $276 million compared to $242 million for the third quarter of 2023.
The year-over-year increase is primarily the result of the timing and impact of operator restructurings, transitions and revenue from new investments completed throughout 2023 and 2024, partially offset by asset sales completed during that same time period.
Our Nareit FFO for the third quarter was $196 million, or $0.71 per share as compared to $161 million or $0.63 per share for the third quarter of 2023. Our adjusted FFO was $203 million, or $0.74 per share for the quarter, and our FAD was $192 million, or $0.70 per share. And both excludes several items outlined in our Nareit FFO, adjusted FFO, and FAD reconciliations to net income found in our earnings release, as well as our third quarter financial supplemental posted to our website.
Our third quarter FAD was $0.02 greater than our second quarter FAD as highlighted in yesterday's earnings press release for the [repayment], an additional $3 million in the third quarter. I saved continue to pay monthly rent of $3 million per month starting in June. We paid $3 million in rent for the month as of October as well. Maplewood paid $12.1 million in rent in the third quarter versus $11.8 million in the second quarter. In October, Maplewood paid $4.05 million in rent.
And lastly, we continue to issue equity to both pre-fund acquisitions and prepare for our$ 400 million bond maturing in January 2025. We generated almost $2 million or $900,000 in incremental short term interest income over the second quarter as we ended the quarter with $307 million of incremental balance sheet cash over the second quarter.
Our balance sheet continues to remain strong. In the third quarter, we completed $467 million in new investments, including CapEx and funded investments through a combination of cash from operations, the assumption of $243 million in debt, and the issuance of $14.2 million shares of common stock or over a $0.5 billion equity proceeds.
1%We ended the quarter with over $340 million in cash on the balance sheet and a fully available credit facility with a borrowing capacity of $1.45 billion. At September 30, 95% of our $4.9 billion in debt was at fixed rates. And our net funded debt to annualized adjusted EBITDA was 4.23 times, down from 4.76 times in the second quarter and our fixed charge coverage ratio was 4.6 times. As Taylor mentioned, we increased our full year adjusted FFO guidance to a range between $2.84 to $2.86 per share.
A few of the key fourth quarter assumptions are we're assuming no change in our revenue related to operators on an accrual basis of revenue recognition.
We're assuming LaVie continues to pay at the existing rate of $3 million per month and Maplewood's ability to pay contractual rent continues to improve were assuming the new operator of the Guardian transition properties continues to pay $2.9 million in rent per quarter, consistent with the third quarter. We're assuming $31 million in asset sales in the fourth quarter related to the sale of a portion of the facilities classified as held for sale at the end of the third quarter, for which we recorded $200,000 in revenue in the third quarter.
We've included the impact of the $119 million of new investments completed in October, which were funded with equity. We project our quarterly G&A expense to continue to run between $11.5 million and $13.5 million in the fourth quarter. We assume no material changes in market interest rates as they relate to either the interest earned on balance sheet cash or interest expense charge on credit facility by borrowings.
Finally, we assume we will continue to pre-fund acquisitions and prepare for our January 2025 $400 million bond maturity by issuing equity. As a reminder, for every 4 million shares issued, our quarterly adjusted FFO is negatively impacted by slightly less than $0.01 per share until the cash is put back to work in new investments.
Our 2024 adjusted FFO guidance does not include any additional investments or asset sales as well as any additional capital transactions other than what I just mentioned or what was included in the earnings release.
I will now turn the call over to Dan.
Daniel Booth
Thanks, Bob, and good morning, everyone. As of September 30, 2024 Omega had an operating asset portfolio of 962 facilities with approximately 90,000 operating beds. These facilities were spread across 81 third-party operators located within 42 states in the United Kingdom. Trailing 12-month operator EBITDA coverage for our core portfolio as of June 30, 2024, increased to 1.49 times versus 1.42 times for the trailing 12 month period ended March 31, 2024.
Turning to portfolio matters. As of today, Omega is currently not engaged in any restructuring activity with any of its material operators. The one exception being will be, which will be seeking confirmation of its plan of reorganization in mid-November.
Turning to new investments. During the third quarter of 2024, Omega completed a total of $467 million in new investments, inclusive of $27 million in CapEx. The new investments include the previously announced bio -- 51% JV partner in 63 care homes in the United Kingdom.
The 63 care homes are leased to establish UK operators with current annual rent of $43.6 million. Inclusive of Omega's third quarter investment of $365 million, Omega's total cash investment in the 63 care homes is $441 million, which results in a gross return of 9.9%.
The additional third quarter, new investments of $75 million have a weighted average cash yield of 10.1% and above seven facilities in three states and the United Kingdom. Subsequent to the third quarter of 2024, Omega closed on $119 million in additional new investments excluding CapEx. The investments in both three facilities in two states and 14 facilities in the United Kingdom and have a weighted average yield of 10.5%. Year to date through October for Omega has closed on $915 million in new investments, including CapEx through the third quarter.
I will now turn the call over to Megan.
Megan Krull
Thanks, Dan, and good morning, everyone. State reimbursement continues to be one of the keys to be improved metrics that Dan spoke to. While we applaud the fact that many states have and continue to step up in very meaningful ways, we also know that reimbursement support has a tendency to ebb and flow. And therefore, we would caution anyone from thinking that these levels that increases our guaranteed to continue in the long term.
Meanwhile, we are all anxiously awaiting the outcome of the various efforts against the staffing mandate. Plaintiffs including certain industry association, have filed a motion for summary judgment in Federal Court in the State of Texas with respect to their lawsuit against the mandate, which they argue overstep CMS's authority. Well, not guaranteed, the ruling on that could come as early as first quarter of 2025.
Additionally, 20 attorneys general have also filed suit against the staffing mandate in Federal Court in Iowa. While the overturning of the Chevron Doctrine by the Supreme Court earlier this year certainly appears to pave the way for a victory on the legal front, post-election legislative efforts also remain as the reversal of the rule would stand to save the federal government $22 billion over 10 years according to the Congressional Budget Office. With no federal funding specifically earmarked for the mandate and no imminent structural improvement that would improve staffing availability, we are hopeful that there will ultimately be returned and then any future regulatory changes, staffing, or otherwise will be introduced in a much more thoughtful way.
I will now open the call up for questions.
Operator
(Operator Instructions) Jonathan Hughes, Raymond James.
Jonathan Hughes
Looking at EBITDAR coverage, and it's now basically 1.5 times. That's, I think, the highest in the post-pandemic world. And the outlook for improving coverage is strong due to some favorable supply-demand dynamics that I think we all know about.
But I wanted to ask about the triple net lease structure. I know you don't necessarily get to participate in that EBITDAR upside, but the safety of the rent paid to you does increase. I don't believe I've ever asked a question about lease expirations. But for those few leases that do expire, what's the ability you have to either increase rent and maybe reset coverage back to, say, a historical 1.3, 1.4 times range? Or would you rather just renew them higher modestly and take the higher coverage and greater rent safety?
C. Taylor Pickett
That's a great question, Jonathan. If you look at -- we have a couple of maturities that are pretty big in 2027. And it's a good example of the structure in this industry where you typically have a 10- to 15-year lease that has renewals at the operator's option. So structurally, there's really not a big opportunity in most leases to reset. We have a handful with reset rights for various reasons.
But in terms of the overall model, you just don't -- that's not how this industry has evolved.
Jonathan Hughes
And then I'll stick with just one more and looking at leverage. So maybe for Bob or you, Taylor as well. I think the 4.2 times leverage today is a decade low. I don't know what the all-time low is, but it's lower than at any point, I think, since 2014.
The investment spreads today are really wide and accretive using equity that obviously never has to be refied.
So my question is, has there been any change to the leverage target of 4 to 5x? Or is it still that range? Maybe any consideration to running even lower to put you in a better position for opportunities over the next several years?
Robert Stephenson
We haven't changed the stated guidance. It's still between 4 and 5 times. But I think given the pipeline and given the equity currency and the spread that you just mentioned, I would -- you would think it would continue to go down.
Operator
Michael Griffin of Citi.
Michael Griffin
Just wanted to touch on occupancy for a bit. Obviously, it continues to increase on a sequential basis. And I'm curious if you can kind of give us some building blocks on what the drivers of this are? Is this due to facility staffing increasing? Is it due to greater resident penetration?
And do you think we're in a world and a scenario in the near term where we are at or above kind of your pre-COVID level of occupancy?
Megan Krull
Yes. I mean I think -- look, the occupancy is going to continue to go up. I think it's going to -- we've seen some increases in the last couple of months from where even that number is. But we're back to a time where there's sort of -- the cyclical times where in the summer months, it might go down a little bit. In the winter, it might go down a little bit.
But ultimately, I think, yes, staffing has improved a little bit. It's still a struggle in a lot of different areas. And so you'll see different occupancies in different areas depending on what's going on. But certainly, staffing continues to be a concern.
Michael Griffin
And then just maybe turning to the transaction activity and kind of your thoughts on the acquisition environment. Are you seeing a lot of these deals mostly driven by motivated sellers that have upcoming maturities they can't refi? Or has the market become more deep and liquid and bid-ask spreads have narrowed somewhat?
And then if you could comment maybe on the availability of any bridge to HUD lending, that would be helpful, too.
C. Taylor Pickett
Yeah. I mean, the market has been and continues to be awfully active. I think that there's no one reason to point to, to tell why that's become so active. But obviously, the rates have come down a little bit and people are seeing big dollars out there available. There is more capital now.
So I think overall, that's just creating a very active market. And I think we'll see that going forward here for the next at least 12 months.
Operator
John Kilichowski, Wells Fargo.
It's [Jes] on for John. Just outside of the minimum staffing, like what else is on the ballot here that we should be aware of? We've heard discussions around care at home, Medicare Advantage denying SNF claims at elevated levels, et cetera. And also, we'd just like your thoughts on how each candidate would impact the SNF landscape.
Megan Krull
I mean, look, at the end of the day, we can't really determine what's going to happen with the election or what would happen depending on who gets put into power. But this industry always does better when there's a balance of power. So regardless of who wins the presidency we will be looking at Congress to sort of balance that piece of it.
You mentioned a bunch of regulatory items and certainly, will those have an impact on the industry? Potentially. But really, nursing homes have already pushed everybody out to home health that could be there. It's really a needs-based industry. And I think you'll see stuff around the edges, but I don't think that there's going to be anything that would substantially change the industry.
And just a quick follow-up here. So just talk about the original expectations back in June for LaVie to emerge out of the bankruptcy process here with the restructured balance sheet and how you expect the situation to play out during 4Q as comments seem to indicate that you guys are expecting some resolution here come mid-November here. Is there going to be any loss of rent or downtime as a result of this transition?
C. Taylor Pickett
So they're currently scheduled for a plan of confirmation in mid-November. We do expect that to go through. The plan sponsor will assume the lease as it stands today, which includes monthly rent payments of $3 million, and that we expect to be the rent going forward. There is a difference in timing between confirmation and the effectiveness, but we expect to receive the full three months -- or the full $3 million in that period. And the effective date is relying upon regulatory approvals.
Operator
John Pawlowski, Green Street.
John Pawlowski
Megan, one for you on the regulatory front. I know state support has been a positive surprise for a while now. Have any of your major states reimbursement or kind of tied staffing service roles actually surprised negatively in recent months?
Megan Krull
Can you repeat that? Sorry, the end of that?
John Pawlowski
Yes. Have any states -- essentially has state support surprised negatively in any recent months in any of your states?
Megan Krull
I haven't seen anything negative. There have been some neutral ones where there's slightly positive to slightly negative, but most of what we've been seeing is pretty nice sizable increases.
John Pawlowski
And then any concerning staffing rules kind of in the realm of a Pennsylvania-like scenario rumored right now in the market in any other states?
Megan Krull
No. I mean, look, states are always looking at doing things like that, but I think everybody is holding off a little bit to see what happens with the staffing mandate.
Operator
Nick Yulico of Scotia Bank.
Elmer Chang
This is Elmer Chang on with Nick. I mean, just looking at your exposure to different segments, skilled nursing, senior housing, I mean, this is a function of what you've been investing in. But given exposure to skilled nursing ticked down this quarter, maybe below at least historical levels, how are you thinking about operational volatility and investments going forward between these two segments?
C. Taylor Pickett
Our investments are really driven by our -- principally by our operating partner relationships. So to the extent we can lever into any of those relationships with the right underwriting, that's where our capital is going to go. It happens that senior housing, we've driven a lot more capital into senior housing over the last couple of years, and you've seen those percentages change a little bit. And I think that trend probably continues, but there's no particular goal other than continuing to allocate capital with meaningful spreads to our existing relationships.
Elmer Chang
And then sticking to the investment side. You did add a skilled nursing facility development in Florida, I think -- I believe this quarter into the pipeline. How are you thinking about exposure to that market and maybe development as an investment avenue going forward depending on spreads you're seeing?
C. Taylor Pickett
Again, with the right operator, we'll continue to allocate into that market. But -- and the reimbursement has gotten much better in the state of Florida. So it's a lot friendlier environment than it was a few years ago. So if it fits our underwriting, we'll continue to allocate into that state.
Operator
Juan Sanabria, BMO Capital Markets.
This is [Robin Haneland] sitting in for Juan. I was just curious on Maplewood, what's the occupancy trend at the second out assets? And what's the outlook for stabilization at this point?
C. Taylor Pickett
So just a little note on Maplewood. We're done with the financial restructuring there. There's still some change of ownership and legal work around those documents. But just a note there. It's not -- there's no material financial restructuring, but Maplewood has a little more wood to chop on the legal side.
Inspir is now 72% occupied. And it's really -- it's a slow trudge up that hill. I don't know when they'll be to 85%, 90%, but they are adding net residents each month. It's just -- it takes -- it's going to take some time. So I'm hopeful sometime in 2025, we're talking about them being at those levels of occupancy, but remains to be seen.
Got it. On the DC development, what's the level of confidence there that Maplewood can increase incremental rents?
C. Taylor Pickett
Can you help me one more time? The level of confidence that we can increase?
Megan Krull
Incremental rent.
C. Taylor Pickett
Yes, DC is going to be net additive to our rent pretty meaningfully. It's 6%, 7%, 8% year-over-year, and our expectation is we'll be receiving them.
Okay. And just on the investment pipe, what's the appetite to do bigger deals at this point?
C. Taylor Pickett
I mean, there have been some bigger deals out there. We've had an opportunity to look at them. Maybe our underwriting is a little bit more disciplined than others. We've mostly passed on some of these bigger deals or, to some degree, we might still play some role in their cap structure on a go-forward basis.
Operator
Justin Haasbeek, RBC Capital Markets.
Justin Haasbeek
Just where do you see the best new investment opportunities? Should we still think about the best opportunities being in the U.K. care home market?
Daniel Booth
I think in the short run, meaning fourth quarter and maybe even first quarter, that will be a lot of what the pipeline is currently made up of. I think after that, we'll see. Obviously, the US pipeline or the US activity has picked up quite a bit throughout this year.
So I expect that will shift at some point in 2025.
Justin Haasbeek
Okay. And then you mentioned that there are some bigger portfolios on the market that you guys did see. Can you just provide some color on sort of the pipeline, the size of the pipeline right now and the asset mix and location?
Daniel Booth
It's a little bit of a mixed bag. As I said, we've got a number of deals still that we're looking at in the UK. The US pipeline activity has picked up. We're looking at mostly SNFs, but we've got some ALFs sprinkled in there as well.
So as far as size goes, we don't -- it's hard to comment on what exists inside the pipeline, but we're obviously looking at virtually every deal that's out there in the market, including the big ones.
Operator
Alec Feygin of Baird.
Alec Feygin
Kind of off the pipeline question, you already talked about the US versus UK, but can you talk about lending versus real estate acquisitions and where the pipeline is headed so far in 4Q? It looks like it's been weighted to the loan side.
Daniel Booth
Yes. I think for the most part, you'll still see us more heavily invested, obviously, in real estate acquisitions in the fee simple properties themselves. We have dabbled in the loan side a little bit as of late. Those loans have a lot of different attributes. There's mezz financing.
There's some loans to lease. There's some long-term loans that actually look like leases with lockout provisions. So you got a pretty vast mixed bag of what type of loans they are.
So we will do some of those. A lot of those are involved existing operators and just meeting some of their needs. Some of them are additive to the portfolio in terms of new operators, just getting -- finding a new operator potentially in a new space.
Alec Feygin
Okay. And maybe speak on the 15 assets that are currently held for sale? And then also how much of the portfolio can be a candidate for asset sales?
C. Taylor Pickett
Yes. We have 15 currently. It's made up of really three operators. As I said in my talking point, I expect half of that to be sold in the fourth quarter and the other half early next year. And there really is very limited.
We're always looking at ways to improve the portfolio and there might be sales opportunities, but there's not a lot of that within the existing portfolio as we sit here today.
Operator
Daniel Byun, Bank of America.
Daniel Byun
Just to go back on Maplewood. Do you provide any color on why you pushed back on the timing for the Maplewood development?
C. Taylor Pickett
The DC development, we were scheduled for December and now it looks like January. So it goes quarter-to-quarter, but this is really getting certificate buttoning up the last pieces of construction and getting the CO. We're talking about 30 days.
Operator
Joe Dickstein, Jefferies.
Joe Dickstein
It looks like a new SNF operator was added to the sub 1 times EBITDAR coverage list, representing 3.2% of rent. I guess, if you could just provide some color on maybe what drove the coverage decline and maybe where -- what states the operator is located in?
Megan Krull
Yes. We have one operator that is always sort of on that cusp of falling below or above 1.0 times, but they're primarily in the state of Florida, which is going to have a large rate increase. So we expect that to, over the next several quarters, work its way out of that bucket.
Operator
And your last question comes from the line of Juan Sanabria of BMO Capital Markets.
This is Robin here again. I just had a follow-up on Guarding actually. Curious why they paid slightly higher rents and what it would take going forward to unlock the full $12.4 million.
C. Taylor Pickett
Yes. I mean, we obviously were able to hit the higher rent for 2024. Obviously, we won't know until 2025 whether we hit the upper end of the rent range.
And Megan, just one for you. You mentioned there are some areas that are seeing staffing difficulties still. Could you maybe just elaborate on specific states or markets?
Megan Krull
I mean, look, Florida is tough at times, but I think with the rate increase they're getting, that hopefully helps things out a little bit. Texas is tough. Some of these rural areas are just a little bit tougher to find the staffing still. And so you do have people who are stuck in the hospital system who can't get pushed out because there's just not the ability to do that.
Operator
Thank you. And with that, that concludes our Q&A session. I'll now turn the conference back over to Taylor Pickett for closing remarks.
C. Taylor Pickett
Thanks, everyone, for joining today. Please direct any follow-up calls to the team. Have a great day.
Operator
This concludes today's conference call. You may now disconnect.