Please standby, we are about to begin. Good day, ladies and gentlemen. And welcome to the Sabra Health Care REIT’s First Quarter 2015 Earnings Conference Call. This call is being recorded. I would now like to turn the call over to Talya Nevo, Chief Investment Officer. Please go ahead, Ms. Nevo.

Thank you. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our acquisition and investment plans, our acquisitions regarding our financing plans and our expectations regarding our future results of operations. These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2014 that is on filed with the SEC, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligations to update our forward-looking statements to reflect subsequent events or circumstances and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included at the end of our earnings press release and the supplemental information materials included as Exhibits 99.1 and 99.2, respectively, to the Form 8-K we furnished to the SEC yesterday. These materials can also be accessed in the Investor Relations tab of our website at www.sabrahealth.com. And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks, Talya. And thanks everybody for joining us for first quarter earnings call. I will go through my talking points, kick it over to Harold Andrews, our CFO and then we’ll go to Q&A after that. For the quarter, our revenues increased 36% on a year-over-year basis, normalized FFO and AFFO increased 45% and 46%, respectively, but was essentially flat on a per diluted common share due to the approximate 60% increase in share count since first quarter 2014. Our pipeline currently stands at approximately $1 billion, of which 65% to 70% at senior housing. When we -- the size of our pipeline, it reflects deal that actually seriously spending time on. If we included everything that we get passed on to us or shown to us the pipeline would actually be a lot larger. So this is a real time increase from where the pipeline has been for really over year, as you recall from past quarters our pipeline generally is in the $350 million to $400 million range, so this is a significant increase in the size of the pipeline. While we haven’t announced any deals that have closed in the first quarter. Our deal activity is very, very strong right now. We actually did close very recently on a small senior housing deal of $6.7 million. We funded approximately $12 million in our development pipeline for the first Phoenix Group and have approximately $153 million an additional senior housing investment that will be closing in the near-term. There is one large deal there and one small deal. So, all-in, we are approximately $172 million to $175 million in deals that we will have closing -- we will be closing in the near-term, which will put us slightly ahead of where we were at this time last year…

Thanks Rick and thanks everybody for joining the call today. I’ll provide overview of the results of operations for the first quarter of 2015 and our financial position as of the end of that quarter. For three-months ended March 31, 2015, we recorded revenues of $55.6 million compared to $40.9 million for the first quarter of 2014, an increase of 36%. As of March 31, 2015, 36.1% of our revenues were derived from our leases to subsidiaries of Genesis, down from 47.7% in the first quarter of 2014. In addition, 53.4% of our revenues were derived from skilled nursing, transitional care facilities, that being down from 69.9% in the first quarter of 2014. FFO for the quarter was $31 million and on a normalized basis was $31.4 million or $0.53 per diluted common share; normalized to exclude $348,000 million of nonrecurring facility operating costs associated with transitioning two assets to new operators. This normalized FFO compares to $21.7 million or $0.55 per diluted common share of normalized FFO for the first quarter of 2014. The funding of operating cost for the two assets declined from $1.7 million in the fourth quarter of 2014 and is expected to decline in the second quarter. We are into a new lease on one of the assets in late 2014 and we expect to enter into a new lease on the second asset in the next few months. AFFO, which excludes from the FFO acquisition pursue costs and certain non-cash revenues and expenses was $30.5 million and on a normalized basis was $30.9 million or $0.52 per diluted common share compared to $21.1 million or $0.53 per diluted common share for the first quarter of 2014. AFFO being normalized in 2015 to exclude the same nonrecurring costs impacting FFO. Net income attributable to common…

Thanks, Harold. Why don’t we go to Q&A now?

[Operator Instructions] And we will move first to Juan Sanabria with Bank of America.

Hi. Good morning, guys.

Hi, Juan.

Hi. Just hoping you could talk a little bit more about Forrest Park and what really drove the change, I guess from a structural or the potential management of that and why do they feel the need to give the more breathing room? Are they missing any targets currently under the current structure? And I just wanted to confirm that sort of the revenue that’s flowing through your P&L that won’t necessarily be impacted by this or this is just sort of a deferred like a one-time non-cash item?

Sure. So going back to sort of beginning, Forrest-Frisco, first of all, they continued to make progress since they have gone fully in network, their volumes continued to improve. Their case mix isn’t where it needs to be from a maturity perspective. The other issue is while they have been improving, they have been improving really slow and as we spend more time on it, our conclusion was that it was really an issue on the execution side. Their costs were too high. The management company that was providing all the shared services to the platform generally launches Frisco simply wasn’t doing a good job from our perspective and we had engaged in conversations with the physicians, regional partners and with the developer as well, who continues to develop additional properties. They have got hospitals now that they developed in Austin and in San Antonio, which had nothing to do with us. But the platform continues to grow. And we all came to the same conclusion and that was that management just wasn’t getting it done. And then frankly, they were making the progress that they were making despite the fact that management wasn’t executing properly with the appropriate changes in place and things had a lot more upside there. So that’s what really precipitated the initiative to start looking at other options. And while we are looking other options, we were getting unsolicited interest from different hospital systems in Texas as well, because the platform is becoming well known and I think between the quality of the real estate and the model, there has just been a lot of interest there. So we’ve been going down a particular pathway with a group that basically took out some of the management, partnered up with one of the principal doctors, changed…

It does. And then just on the options you have on the other sort of related assets outside of Frisco, does that change -- would that change at all? Are you still looking at that as opportunities to acquire or does this kind of make you a little bit more hesitant about that opportunity?

No, it doesn’t change. We’ve got obviously more time in those because of the options at Fort Worth facility. It was completed not that long ago. We will have I think almost a year and half left on the Dallas options, so there is plenty of time there. So we have a lot of flexibility there. So in other words, if things go the way we would expect them to, then we’re in good shape and we will upsize the options and go from there. And if you look at the combined value of just funding the real estate for the construction on Fort Worth and the mortgage at $110 million on Dallas, if in fact we did like the way things are going, we are in a very good position to recoup our investments on those if things shouldn’t go the way we want. So there is plenty of time on those. But at this point, there is no reason for us to think that we are going to do anything other than exercise those options at the appropriate time. Again, we have plenty of time there and that’s one of the things that’s good for us with the other two assets while we own Frisco and we want to make things happen sooner than later. We’ve got more time on the other two assets.

A follow-up question on the $1 billion pipeline you referenced. Could you talk about what makes it up? Is it largely single asset or small portfolio deals? Or is there something big and chunky? And if there is kind of how you would view transacting on that? Could it have to be accretive day one sort of with long-term financing in mind with regard to debt and equity? So how should we be thinking about that mix? And if you could give us any sense of pricing or cap rates on that that would be fantastic? Thanks.

Sure. I would say that there are no transformational deals like the holiday transaction in that $1 billion. There are several large portfolio deals. There are -- of which there are platform deals, in other words where there is essentially divestiture of a platform of healthcare real estate investors. Those are opportunities if we were to buy the assets. And so we are looking very hard at several of those. To balance our small portfolios one to four assets call it and there is a lot of those. Right now I will tell you that aside from development pipelines and transactions and funding associated with our pipelines, most of the transactions we are seeing aren’t being marketed broadly. There is lot of product on the market and the brokerages are making sure they are finding everything that could possibly be on the market and represent sellers.

The other point I would make is whereas before we would automatically discard any skilled deal under $100 million. That’s not really the case any more. Now that we have got another skilled portfolio and with the investments that we expect to be closing on are skilled explosions and we are just about 50%. We could afford to do skilled deals at a larger than $100 million and still stay where we want to stay which is around the 50% level and not get off track with a focus on getting to investment grades. So that opens things up for us a little bit as well.

Thank you.

And we will now take a question from Josh Raskin with Barclays.

Hi. Thanks.

Hey, Josh.

Hi. How are you, Rick. Thinking on the pipeline and maybe the one third that’s not in this housing, sounds like there is some skilled assets in there. These parts have larger bundles that are getting sharper or are these sort of one-off. And I’m just curious if these big operators of these Mom-and-Pop just where you’re seeing this skilled opportunity?

They are small operators. They are regional operators. The only -- frankly, the only large portfolio that we are interested in looking just pieces, as you know, HCP and HCR are looking to move about 50 assets. We don’t believe at this point that anybody is going to grab all of it. You never know what’s going to happen. There were some good assets in that portfolio that we think was the right operator who can do really well. So we would be interested in looking at pieces of that but certainly not the whole thing.

Okay.

So I would say the deal size is kind of a switch that we’re looking at is kind of between call it $20 million and $250 million.

Okay, okay. So it’s small as a couple of deals. All right. And then you made a comment Rick about the two midnight rule. And I know the enforcement is coming in but the rules been in place, so were you insinuating that you thought hospitals might actually behave differently under the enforcement period and that could have some sort of trickle down effect for the skilled nursing facilities?

Well, the rule is in place but it wasn’t enforced. So it was essentially delayed. So there has been no impact from the rules. So in October, they’re actually going to enforce it but as I talk to guys on the traded association side and the skilled side, their concern is that some percentage of the hospitals out there will refuse to comply with the enforcement of the rule. And that, of course, how we feel that’s going to their react to their lack of compliance, no one really knows. This whole deal with the rules is to get around the rack audits for the hospitals. And so there is some concern that by going along with the enforcement, they still going to have rack order issues. So that’s why it’s hard to predict. So in other words, we look at what happened to our skilled mix which is pretty reflective of the sector generally over the past couple of years, its dropped pretty dramatically. Occupancy has been stable because operators have replaced those patients with Medicaid patients, which kind of goes through the margin, goes through the rent coverage issues. So you’d like to be able to say that yes, come October there’s going to be full enforcement and we should see a material part in skilled mix but there is a question mark there in how compliant the hospital sector is going to be.

Yeah. I got you. And then just on the hospital themselves, any change in thoughts? Have you been looking that you haven’t sort of mentioned hospitals and the mix. And I don’t know if Arden changed your mind or where you thought CapEx were but any updated thoughts on the hospitals on the asset class?

No. We like the hospitals as an asset class. We’d be interested in doing other things. We haven’t seen anything of real interest. So it’s not been a function that I wanted to pursue. I think the other thing is in order to do more hospital deals, we’d really like to do deals with partners that have some real scope. And so, we’ve got the one hospital with tenants and that’s actually that transactions worked really well for us. That hospital TRMC is doing very well. Tenant just recently put that and few of their other facilities into a joint venture with -- in the Dallas area. So that’s proved to be a really good investment for us. So we’d like to do it that way. One of the reasons that we’re interested in pursuing some of these options with Forest Park is to improve the strength of the platforms that they have more leverage with the insurer. So hospital deal that we’ve seen is sort of one offs at this point don’t interest us anymore. I think we’ve learned some things from that. And we’re going to make sure that we are assuming that with a larger platform if in fact we do additional a few hospital deals but we do like the asset class.

Okay, okay. Got it. Thank you.

Sure.

And we’ll now move to our next question from Michael Carroll with RBC Capital Markets.

Hey, Mike.

Hey, can you give us some color on the management changes at Forest Park. Did one of the founding three physicians actually leave the practice or is this a different entity that’s managing the property?

One of the founding physicians bought out the other guys in conjunction with the business partner. The other guys are still there and they’re still part of the Dartbrook and they’re still practicing. So there is no change there in terms of the day-to-day for the physicians. It was just the management company and they wanted to take out the individual who is the CEO which they did. So we’re happy that that occurred. We don’t know that that’s the absolute best answer at the end of the day which is why we’re still -- we're talking to this other group as well and maybe the best answer. Then we’re certainly doing some good things in terms of taking out costs and looking at case mix. So they’re making some good news there that we -- and what I say we, I sort of mean it collectively here. So Sabra, there’s another REIT that owns South Lake, one of the other hospitals in the Forest Park platform. There are docs involved, so when I say, we, it’s a collective we that we haven’t determined that the group that’s currently run the show is the absolute best answer, although they maybe.

Okay. And then I thought the Frisco asset was the one that was largely stabilized and that’s why you’re willing to do a feasible ownership on that. Has operations to that asset declined or has something occurred that you didn’t fully expect to occur.

Yeah. It’s not that, except that you recall at the time we acquired that it was still primarily out of network. And so really wasn’t until the end of the third quarter that they were fully in network and so that transition has been difficult.

Okay. And then the…

Their volume has improved as you would expect, so going from out of network to in network, the insurers are now willing to refer a lot more cases than we’re referring before and they’ve hit new highs on their volume. Where the two issues that they’ve had and so their performance is very up and down. They have really good months and they’ll have weak months and there are really two issues associated with it. One issue is on the cost side and that was really a function of the shared service, corporate management structure that was in place. So that’s being addressed kind of as we speak. And the other issue even though volume is up in each case mix to be strong and even little bit longer life to stay and that’s got to do with achieving the kind of case that you take, so that’s the other piece of it need to be addressed. And I think actually -- go ahead, I’m sorry.

Okay. Could you kind of talk a little bit about the capital infusion that’s need to be pull in that there is debt capital or equity capital? And why does the operator need capital?

It’s an AR line, everybody needs an AR line and they’ve been operating really without much of one. So everybody -- every business seems revolve and so it’s really as simple as that. The businesses were so new and there were so many that were in development, they were having a hard time getting an adequate revolver. Now that they’ve got a couple of hospitals that running, well, they’ve got three hospitals that are running. They’ve got three newly developed hospitals and I think that's occurred. There is much more interest in having a revolver that makes more sense in terms of the capital needs for the hospitals. There are two hospitals that are also going to get some equipment financing and that's pretty standard as well. So it’s really a function of a very sort of new platform having difficulty early on, getting a capital they need. Now that they are going to run for awhile, there’s much more than interest with and to these providing capital sources for them.

Okay. And with the offer at least the interest from the other health system to purchase the entire platform, would that make Sabra whole if that did occur?

We never pursued it.

Okay. And then last question is Forest Park paying their rent in full right now and do you expect to receive all the differed rent in the future that you’ve already differed currently?

The work days, the rent that was deferred at the end of the quarter continues to be differed until they get this capital partner put in place. And so we expect to get, as I said in the call, big chunk when that's done and then there maybe some left over that we get paid overtime as operations improve.

Okay.

The other point I will make Mike. Just in terms of our number. So it’s clear for everybody that when we take a look internally at our projections and if we assume really bad case for the hospital which again is going to soon be into that 5% of our revenues and assume very conservative case on investments through the year, we are comfortable with that we will take consensus through the year, not just guidance, but consensus for the year.

Okay. And then do you expect you have to do another reserve next quarter?

It’s too soon to tell. But relative to the comment that, because a lot of its timing, the work that these guys are doing are bringing the capital sources in. So hopefully we won’t have to. But in terms of the comment I made earlier relative to our outlook for the rest of the year. We actually assume that that does happens. So we’ve made sort of worst case scenario assumptions in our own projections and since we are comfortable we are relative to just consensus for the year.

Great. Thank you.

We’ll now take a question from Chad Vanacore with Stifel.

Hi there. So staying with Forest Park for a second, can you give us an update on how big your development commitment pipeline, what it looks like today? And then how much of that is Forest Park?

Yeah. Forest Park, everything has already been expanded, nothing more with Forest Park. So we funded the construction loans for full work that's done. So there’s really nothing else there. So in terms of the rest of our pipeline so we’ve got about seven partners and if you exclude Forest Park completely over the next few years, we are looking at approximately 400 million or so in stabilized assets that are coming into the portfolio. So the bulk by far, most of our development pipeline is senior housing and to a lesser extent skilled nursing. And so that's in terms of new assets coming into the portfolio, it’s a pretty nice number given the size of our portfolio. So Forest Park becomes a pretty small piece of the whole thing and obviously lots more as we continue to grow. And just to provide some more details on what’ve closed and what we will be closing, so we have a $160 million that we’ll be closing in short order. We have $23 million that we’ve closed on. That’s comprised primarily in two pieces, one small senior housing facility for about $7.6 million and the other four development funding primarily with First Phoenix. So all-in will be closed two based on what we sort of have in the bank right now. We have about just under $185 million in investments that we either close or will be closing on and we’ll provide -- as we close on the larger deal, we’ll provide separate press release with all the details on that. So that 100 -- approximately $185 million will put us about $20 million ahead of where we were at the same time last year.

All right. Then just switching to your coverage. So what’s the coverage on the Genesis assets that are being sold? And what do the planned transactions, what does it due do Genesis portfolio coverage and revenue mix overall for you?

Well, the coverage on the assets that have been moved is negligible. It’s pretty weak, I don’t have the specifics and we haven’t been giving out the specific facility level at Genesis. They are pretty weak. But as I said, the pop that Genesis gets isn’t out of the Sabra deal, it’s out of combined deal with all the REITs. And we don’t have the details exactly what they do with the other REITs. So Genesis will provide more color on that on their call on Friday. So you know that there’s going to be a nice improvement in the fixed charge coverage both as a result of two things. One that what was really a blip in the fourth quarter that they already felt they’re recovering from effective January, so you’ll see recovery there. And then based on the deals that they’ve cut with the other REITs that's where the rest of it comes, but that's not our deals. So I can’t speak to how that affects Genesis overall other than Genesis’ communication to us that they feel very good that it’s going to provide some nice uplift -- a fixed charge coverage into their balance sheet. But we would expect to get more color from them on that when they announce on Friday.

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

Yes.

We’ll now take a question from [Sumit Rai] [ph] with Citi.

Hi. Thanks. I wanted to ask you on the -- on your opening remarks you mentioned that the pipeline, it sounds like accelerated significantly from the fourth quarter and it sounds like there’s a lot of products in the market. And is there anything in particular that you see that's driving an uptick in the amount of stuff for sale? Is it -- is pricing so good for the sellers or is it interest rate related or what are your thoughts around that?

Yes. I think it’s all about pricing. I think as you all know, cap rates have compressed. And so basically every broker out there is calling everybody whether they had an intent on selling or not and telling them this is a time to sell. So shaking the trees would be putting it mildly. They may be putting up 1800 billboards all over the place like [Indiscernible] liability cases.

Okay. All right. That's helpful. I was just wondering, so when you look at the first quarter, I mean were you surprised that you weren’t able to close on more in the quarter? I mean I realized these things have a lot of maybe some flexibility around timing, but I mean had you hoped to close more in the first quarter?

Not really. I think we felt good enough that what we’re working on and a lot of the things that we’re working on in the first quarter sort of coming around in the first quarter. So by the time you look at stuff, bid on stuff, get awarded stuff, get due diligence and close, it just takes some time. So last year was a little bit different for us than the first quarter because the things that we closed in the fourth quarter we actually had done a lot of work on those in the fourth quarter. So we are never really concerned about where we’d be in terms of investment activity because of the level of activity and at the pace that we’re getting awarded things and certainly with where we are right now. It’s going to put us in really good shape for the year. And this will be the stronger start that we’ve had to any year since we’ve been in existence.

Okay. Thank you.

Yes.

[Operator Instructions] We’ll now move to Jonathan Lo with Raymond James & Associates.

Hi. Good afternoon, guys.

Hi, Jon.

I think you’re primarily focused on acquiring senior housing assets going forward. But have you seen any greater competition for skilled nursing assets, maybe from new entrants like care capital, went up, spinoff or nontraded or private equity? And then secondly, are there any hospital deals in the $1 billion pipeline you talked about today?

Sure. There is no hospital deal in the $1 billion pipeline. In terms of skilled, I would say, one, just to reiterate that we are looking at them more than we’re before, just because we have gotten our skilled exposures down so much and we want to take advantage of the yields. But in terms of increased competition, we really haven’t seen -- it’s hasn’t changed much. There has been cap rates compression. But the competition hasn’t changed much. The Ventas Spinoff hasn’t closed yet, so we haven’t seen them in anything that we would expect to certainly see them at some point in time. When you are doing the spin, as we found when we were doing ours, it’s hard to get deals done before the spin actually closes. We certainly tried in 2010, doesn’t mean that the capital makes it more difficult. So at this time no additional competition. And actually, when you think of that because Omega acquired Avid, the Ventas spin just kind of replaces that. So before we’d see, Ventas or not Ventas, Omega, Aviv, maybe NHI or LTC but non-trade, we trend to look at bigger deals not the smaller deals. With CPEs on the senior housing side, we don’t really see them to a certain extent on the skill side. So basically, Aviv goes away and share capital comes in. So net-net, there is no change there.

Okay. And then just a quick numbers question. Stock-based comp, what’s a good run rate for that for the rest of the year, just trying to get some more color on that.

Yeah. It does move around a bit depending on our stock price. And so, I think somewhere around $2.5 million to $3 million is kind of what we think about, whether it could fluctuates kind of between those two collars if you will.

Okay. That’s it for me. Thanks, guys.

Yes.

We’ll now take a follow-up from Juan Sanabria.

Hey, guys. Thanks for giving me the time. Just with regards to your comment, Rick, about being comfortable hitting consensus, what are you assuming in that for funding of transactions for the balance of the year and I guess specifically to the 160 to 180 you’re talking about closing, sort of imminently?

We assume that beyond the 160 that we’re closing on, that will close on another 350 or so for the remainder of the year. And that plus some negative assumptions on additional reserves as far as Park get us to consensus.

And then what should we assume, sort of funding from that equity, that perspective for that 160 plus the 3?

Every deal that we’re looking at, we look for a couple of things. One, we look at it on a balance sheet neutral basis. So, I think to the point someone made earlier in Q&A, everything that we’re looking at is accretive on day one, regardless of how we happen to fund it at that time. So you look at it sort of 50-50, kind of overall as opposed to 60-40. Depending on any giving deal, we may use the revolver to fund the existing deal. And so leverage picks up a little bit on the short-term and then we match them with the ATM and use that to fund primarily to the next few deals. It depends on the stock price things and that sort of things. But overall, 50-50 is the way to think about it, Juan. And again, everything will be accretive on day one.

Okay. And then it seems from your commentary that you think pricing is maybe a little bit aggressive or at least the brokers are trying to be aggressive in trying to show product to everybody and that $1 billion pipeline is a lot of, I guess broker deals. I mean, why the need or the confidence or the desire to do that, given how competitive it seems and I guess for the deals that you’re penciling in for the remainder of the year, what should we be thinking of in terms of cap rates?

One, they are still really good assets out there and with good operators. And you might rather buy a skilled deal with a nine handle. If you can get an eight and a half handle, it still a good deal and if it’s still attacking well with the right operator in place, we should do that deal and the same applies to senior housing. So, I think for skilled deals, the way to think about cap rates is kind of 8.5-ish to 9. And senior housing deals, depending on whether it’s AL or IL or memory care that’s a wider range I think from 6 to 7.5.

Thanks. That’s very helpful.

Yes.

And there are no further questions at this time. I’d like to turn the conference back over to Mr. Matros for any additional or closing remarks.

Thank you for your time today. We really had a lot going on in the quarter, despite that we were light on investment just with everything else going on with Genesis and Forest Park. And hopefully, you come away feeling comfortable with where we are going to the year with the level of activity we have and the proactive steps that we’re taking to strengthen the platform with the hospitals. And as always, we’re always available for additional questions and calls. So, we look forward to talking with you shortly. Have a great day.

And once again, that does conclude today’s conference. We thank you all for your participation.