Good day ladies and gentlemen and welcome to the Sabre Healthcare REIT Second Quarter 2016 Earnings Conference Call. This call is being recorded. I would now like to turn the call over to Talya Nevo-Hacohen Chief Investment Officer. Please go ahead.

Thank you. Good morning. 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 expectations regarding our financing plans, our expectations regarding our tenant relationships, 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, 2015 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 obligation 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 section 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. Thanks for joining us today everybody. So, we reported another strong quarter last night, we had solid operational results and lower leverage. We’ve updated our guidance, which Harold will provide specifics on. We also announced the planned disposition of a significant number of Genesis facilities. These dispositions will reduce our exposure to our largest tenant and it will leave us with 43 Genesis facilities, which is half the number we started with at the time of the split and leaving us with stronger assets that will see increased rent coverage over time as Genesis will be able to focus on their best performing assets rather than have a disc portion to the management times spent on more challenging assets, which is a trap that operators always get caught it. Our lease expirations will now occur ratably rather than be front loaded. Harold will provide the specifics on that as well. I’d also not that this is just one piece of a number of larger strategic initiatives that I’m sure Genesis will be talking about on their call going forward and I think those initiatives will give the market great comfort relative to what Genesis is doing on a go forward basis and we will strengthen them from a balance sheet perspective and operational perspective and an increased statement perspective. In terms of investments, our investment activity has slowly been picking up. We’ve invested just under 95 million today and have agreed to terms on another 22 million in the senior housing campus and I want to point out also that our investment activity and the timing of the fact that it’s picking us has nothing to do with anything else that we have been addressing in the company whether it was the Forest Park staff or the Genesis…

Thanks, Rick. And thanks everybody for joining the call today. Today, I will provide an overview of the results of operations for the second quarter of 2016 and our financial position as of the end of the quarter, as well as provide some additional color on the final resolution of the Forest Park investments and the agreement we recently entered into with Genesis as well as our updated guidance for 2016. I’ll start with a recent Genesis agreement. First, I will remind everyone that we already have in place two other agreements with Genesis to divest 8 facilities of which two have been completed. My comments will incorporate the impact from all three of the agreements that are now in place, which includes the new agreement to jointly divest a total of 37 skilled nursing facilities across 10 states. Once all of the divestitures are completed, the number of facilities leased to Genesis will decrease from 78 today to 43. First, I would like to reiterate the key benefits from these agreements. Number one, its acceleration of our objective to diversify our portfolio and reduce our concentration in revenues from Genesis through this joint divestiture of assets. Number two, improve our portfolio quality to the elimination of less desirable assets, rent real occasions to better align rents with facility performance and improvement in total portfolio coverage over time to additional rent adjustments which will occur at the end of 2020 and 2021. Number three, improved flexibility for future portfolio management through enhancements to the corporate guarantees of all leases with Genesis. Such that those guarantees will survive and attach to any future asset divestitures Sabra may pursue that are subject to leases with Genesis. And finally, number four, significantly improved the laddering of lease maturities to extensions of certain lease…

Thanks, Andrews.

[Operator Instructions] We’ll have our first question from Juan Sanabria, Bank of America.

Hi, good morning out there on the West Coast.

Good morning.

Just hoping you could talk to a couple things on Genesis. Firstly, what was your guys rationale or I’m not sure what the arrangement was there for not participating in the term loan?

Well, if you look at the total dollars, it wasn’t a huge amount of money and they already got covered with HCA and no magnitude, so there was no reason and our need for us to to participate. And for us we’re completely focused on reducing our exposure at this point, bigger issue for us obviously and it is the other guys.

Understood. And then just a question on the extension of the lease duration. Was that on the – on your whole pool of the assets, or just the assets up for sale?

On the lease extension, the way it works was obvious it’s a – it’s master leases and several master leases, but they’re individual leases, and so there were staggered maturities. And when originally at the time of split was set, those maturities were pretty front-end loaded. So what we did is, we just looked at the overall portfolio and said, we want these maturities too. Once we exit these assets that are being sold, we want it to be more routable over a period of time rather than front-end loaded. And so that, along with creating an opportunity to reduce some of the rents at that time and keep the maturities more stable over time rather than front-end loaded, those are the two things that drove the decision to do that.

And what was your rent adjustment, you referenced, I didn’t see that stipulated in the release?

Yes, so what’s going to happen is, if you look at the rents that we have with Genesis by leases, we’ve agreed to give them in the assets they were selling anyways additional rent reductions, again across the portfolio in 2020, 2021. What that does by adjusting the rents maturities at the same time, it really has no effect – no negative effect on us, and ultimately takes from 77% of the maturities happening early on pushes that out or reduces that to 30%. So that’s a combination of spreading rents and providing a rent reduction at that time.

I want to to be clear, there’s no rent decreases here, if there’s no rent cuts that are really happening or being contemplated, there’s nothing like that.

Yes, all of this, Juan, is that at the end of those leases, we allow those risks to go down as they would have gone down. They didn’t reduce…

You just kind of marketing to market based on coverage?

No, it’s based on the rents that were allocated to those assets previously. So, yes, the leases that were allowing them to exit, the excess rents we expect will be there once we get the credit, those are going to go away when they basically would have gone away anyhow.

Okay.

No immediate rent cuts.

Okay. And just a quick question on the – the last question on the rent coverage of the assets you’re selling versus the remaining pool. Could you just give us a sense, if any on the difference in the rent coverage on a facility level?

Yes, there’s – net-net, there’s not much of a difference on day one. There are facilities that are in the package that actually perform really well. But Genesis, I think smartly is choosing to get out of the entire markets and states, which will allow them to reduce infrastructure more materially and leave them in markets that are more aligned with their operational strategy. So it’s not that every facility in the package is an underperforming facility there. There are actually some good performing facilities as well, and that’s going to help to enhance the sale process as well.

Thank you.

Yep.

We’ll go next to Chad Vanacore, Stifel Nicolaus.

Hey, good morning.

Good morning, Chad.

I’m just trying to unpack the increased guidance. What would you say the pro rata split between the collection of Forest Park proceeds and the impact from new investments offset by any Genesis dispositions?

Well, the Genesis dispositions, as we said are reflected in the guidance other than the original agreement we had, where they paid us a $20 million fee and we would reduce rents, but a lot of that doesn’t occur until 2017. So you can kind of – that’s very immaterial. If you look at the impact of Forest Park for the year and then our guidance, as we talked about, it’s pretty significant, and with the acquisitions, we’re – I think completing happening towards the second-half of the year. The vast majority of the guidance is the Forest Park stuff, as far as the increase that we’re showing, but there’s still a few pennies related to the acquisitions as well. But the Forest Park is clearly a big chunk of it.

Okay. And then just thinking about in light of the challenges for Genesis, how is the NMS portfolio performing? And then if that’s the real driver for improved skilled mix in that portfolio?

Yes, it’s the big driver for improved skilled mix, but part of that is the acquisition of Vision that was originally pushing our skilled mix up, because Vision is – has no Medicaid business at all. So it’s all – it’s a 100% skilled mix. So NMS performance is holding up, they’re doing great. They’re just great operators, it’s holding up really well. And I’d make a couple of comments about Genesis. When I say this completely from an operator’s point of view, I’d say, I’m not speaking for them, this is just my sort of perspective on the whole thing. Obviously, they’ve got a really large company, and when you look at the small – our smaller sophisticated operators, they can kind of move on a dime. So if things unfold, they can get involved and it’s easier to put new clinical products in place. There – it’s easier to bring in IT investments, because they’re small. Genesis is a battleship. And I think that the conscious decision that they’ve made to aggressively get involved in the BPCI program and a number of the other initiatives they’ve got is really the right thing for them to do and despite any sort of short-term pressures in doing that from an operating perspective by the time all this rolls out over the next several years, they’re going to be ready. And if they were to wait and be less aggressive, and therefore, maybe have less and less short-term pressures, they’ll be in a much worst position several years out. So I think what they’re doing operationally in the strategic perspective and then you add all these other initiatives that they – that we’ve talked about and I’ll be talking a lot more of that, because it will on the Sabra portfolio and I think well positions as well. So and I admire the fact that they’re doing it the way they’re doing it.

All right, thanks for the extra color.

Yes.

We’ll go next to Smedes Rose, Citi.

Hi, thank you. I wanted to ask you mentioned a large disconnect between the public markets and private markets when it comes to the skilled nursing facilities and I was just wondering what do you think of some of the largest differences in perception of how the market is changing or why is the private market seeing so much more value on a relative basis?

Yes, so I think the private markets, these are guys have always been involved with skilled nursing industry. I think they understand the underlying business. We do respect generally in the general market does and certainly real estate investors do the obvious reasons. And for them to – they have facilities in the right market and their point of view is the same really as our point of view and that is in an environment, where you’re going to have bundling for the first time in the history of the skilled sector or the post-acute sector, I should say not the skilled sector. The entire post-acute sector, there is going to be a level of playing field. So, no longer that our SNF going to be disadvantaged on higher acuity patients because IRS tax get paid more money. It’s one of the reasons that reimbursement hasn’t been there, over SNF take reputations for the month of March. It’s not a clinical issue. It’s a reimbursement. And these private buyers, many of whom are strategic, not always financial buyers as well understand how well-positioned SNFs are, because at the lowest cost providers. So basic five facilities that have been underperforming and are in good markets and they can bring the right operator in, there is a huge upside to them in those facilities. And so that’s why I think there is a good connect now and this isn’t new for the private market. But private market has been remarkably consistent and how it’s approach SNF assets over the many years that outside the operating side of the business. The public markets two years ago, SNFs really frankly no discernible reason were sort of the darlings then that was extreme in that regards and I think the negative reaction now is extreme as well. So I think the public markets react to headlines and complexity and uncertainty, and the private market reacts to the facts on the ground that are different than with the public market is.

Okay, understand. That’s helpful. I wanted to ask you to you mentioned. So as you point out in your senior housing, on a same-store basis sequential coverage ticks-up a little bit. But when does the independent living acquisition, when do those start getting layered into your same-store numbers and then – would we then expect to coverage than just start to ratcheting down.

Harold?

Yes, I think they’ll start coming into next quarter into our same-store numbers, because a lot of that was as Rick said, those investments we made last year.

And so that will start pulling down your same-store coverage?

Correct.

Right.

Okay, all right. Thank you.

We’re underwriting AL memory care minimally went to not a little bit higher or underwriting IL at 11, which is consistent with how everybody underwrites obviously on these assets. That’s the issue.

Okay, thank you.

[Operator Instructions] We’ll go next to Todd Stender, Wells Fargo.

Hi, thanks.

Hi, Todd.

Within the memorandum with Genesis, how was this 7.5% rate arrived at? And if what if you do better than that rate on the asset sale? Does that impact Genesis rent going forward?

So just to be clear, the 7.5% was arrived at first of all because what we – as we look at it, we said, we don’t want to take long-term dilution on this transaction. So what we want to think about is as we reinvest those dollars in the future, we want to make sure we can replace that revenue stream. We’ll tend to be investing in lower cap rates, private pay senior housing. So that’s how we arrived itself at 7.5%. If you look at the acquisitions, we just completed there and kind of that range of 7.5%. So we want to make sure we could fully replace the revenue, so we didn’t take long-term dilution. And the question you’re asking, I don’t really think applies in this situation because it’s just the function of proceeds we get. So if we get $200 million of proceeds will give them a rent credit of $15 million. It does not impact, but the rents that are allocated to those buildings today are irrelevant. We evaluated this on an overall rent basis is not looking at each individual asset and trying to figure out. Can we replace that rents? We’re looking at just replacing the rent at 7.5% on an overall basis. So I don’t know that answers your first part of your question, but…

Yes, sure it does. Thank you, Harold. And then post-sale, do you know what the rend covers looks like, I guess on a remaining assets to get the number you gives in the 40 asset range, I want to say? What is the rent coverage look like I guess on a facility level basis?

Yes, so the rent – to the earlier comment, the rent – these facilities that are sell over some period of time, because even though someone wants to buy the whole thing it’s unlikely that’s going to happen. But say for example, if it all sold on Monday, on that day the rent coverage really wouldn’t change. On the whole idea here is that it will improve over time, simply because they’re going to be sharing so many underperforming assets that it’s taking a disproportionate amount of their time and they can be able to focus on the markets in the assets that are better suited to their strategy and have a lot more upside. And that happens to all operators over time. We all spend a disproportionate amount of time of the lowest performing asset. So everything wouldn’t sell one day, there will be no change in coverage, but we would expect coverage to improve over time and they have more nimble company if you will.

Got it. Thank you, Rick. And then just last lastly here, can we hear a little bit more color on the skilled nursing facility required in Silver Spring, Maryland? Just seems like a – big price tag for only 93 beds, just want to hear a little bit more about that?

Yes, so that’s another internet facility. So that’s a facility that we looked at when we bought the four last year, they didn’t just acquire that and it was an underperforming facility they acquired within nine months. They had at a 30% margins. And so the way to think about it is really to look at it in the context of the four facilities that we acquired last year. It’s a hard. I mean I don’t really pay much attention per bed on skilled nursing because it sell market specific on individuals this facility specific. But it is a high number of out per day basis. But these are facilities that really reflect what the whole sector will be somewhere down the line. When you look at this business, and then they have two operating models in their facilities, it basically we’re operating in IRF and in LTAC under its skilled nursing license. They can do that because in the state of Maryland, Maryland is one of the states that provide the specialized Medicaid rate for their patients that is equivalent of Medicare. So for most skilled nursing provider isn’t back up, reimbursement rates and Medicare, if you will – if you are going to bed patient, who isn’t readable after 100 days, you’re stuck with that patient at called $200 Medicaid rate instead of the $700 Medicare rate, and you’re getting killed. And then was my earlier comment with bundling where people follow the money. It’s not a clinical issue. It’s not an inability on the product skilled nursing. Take care of certainly sort of patients, but until the reimbursement is there and allow them to do it. They’re not going to invest in the infrastructure that’s required. S0 in the cases and that’s if you look at their revenue, it isn’t just field mix, which for end of that because of the Medicaid generated rate, the Medicaid revenue is as potent as their Medicaid revenue. And the reason to states to incentive item to do this and a number of states that Maryland is that the only state we have two skilled nursing facilities and Pennsylvania that do the exact same thing. They do everything with LTAC does under SNF license. It’s because LTACs are only in a handful of states. So in most states these are patients that are staying in hospitals, for a long period of time and cost and also lot of money obviously and so the state creates incentives for them to be discharged, so just having to be better taking care of in this case.

No, I’ll take it. Great.

Okay.

Thank you.

Yes.

We’ll go next to Juan Sanabria, Bank of America.

Hey, guys I just wanted to follow-up on the rent adjustment, I wasn’t quite clear if, for Genesis if basically you’re not cutting rents today, but agreeing to cut them in the future, I just wasn’t quite clear on the explanation, apologies for not understanding?

Sure, I’ll try to make as clear as I can. As you said there’s no rent cuts today, but the leases – the assets that are being sold. Have rents associated with those it would have gone away in 2020, 2021. So, we get out to those dates we’re basically providing them with a rent adjustment rent reduction at that time, okay they would equal whatever it would have been had they walked away from those particular leases, which presumably they would have done since they’re exiting them today. However, we’ve also extended leases and change maturities such that it really has no impact on our rent. It’s actually the improvement on our rent going forward, because we’re pushing maturity dates of other leases further out. So net-net it’s a positive, but it’s part of the big picture around restructuring and maturities. And I think that the benefit that I think we do get out of it as well is you will get even better rent coverage at that time where previously they would have likely just walked away from those assets and our rent coverage wouldn’t have improved, now it will improve at that day.

And to say maybe a little bit differently. So for those facilities that we anticipate keeping, there is no rent cuts for those facilities. Either now or then zero.

But those remaining facilities will get a rent cut equivalent to what the rent is for the ones you’re selling?

The overall portfolio will – haven’t, let’s put it this way. Rents will mature associated with those old leases as if they would have just gone away at that date.

If you have 10 facilities and you’re going to keep seven facilities and you know three years from now the other three facilities, the leases are up and your operative is going to walk away that rent will go away.

Yes.

Right. For those three facilities the seven facilities that are being retained there’s no rent cut there.

And what’s the rent associated with the facilities you’re selling then so we know what, when it will go down in 2020, 2021?

But we, still a lot of it depends on exactly how much credit we get. So we don’t know right at this time. But suffice it to say I think the right way to look at it is before we had 77% of our rents tied to 2020 and 2021 going away. Now it’s only 30%. And all the things would go and in addition to that our rent coverage will go up at that time. So those are the two benefits that we get out of that. And there really is no cost to us and having that occur, and today there are no rent reductions at all.

Okay, but I mean isn’t the rent of these assets are paying today that is going away in 2020. I understand that it’s being offset by an increased term in the rest of the portfolio that you’re keeping, isn’t that rent number known today. How is that dependent on the proceeds I thought that was two different pieces?

I’m not sure I follow the question, say it one more time?

You said the rent reduction or however you want to phrase it, it’s going to happen in 2020 and 2021 is based on a credit I wasn’t clear on what that meant?

I’m not exactly sure, but let me let me say it this way.

Well, do you have a dollar amount that the rent is going to go down in 2020 and 2021?

The rent credit that we’re giving them today, the rent credit that they’re going to get when we sell the assets we don’t know what that rent credit is today, because the…

Okay, but that’s based on the proceeds, but this is a different piece right this is another rent reduction?

It’s not a different piece it’s not of different piece, because we know how much rent as associated with those buildings today we don’t know how much is going to go down from the sale of assets therefore we don’t know how much it might go down in 2021 when we give them the additional relief they would have gotten anyways that make sense.

No.

So late.

Okay. So you’re getting a reduction in rents or Genesis is getting a reduction in rents based on the proceeds, or based on the 7.5, which isn’t agreed to. But is there another rent reduction in 2020 on top of that and are they tied together?

Okay, so the rent reduction in 2020 is tied to the rent reduction that we’ll get immediately, so let’s just talk to give you an example if there was a $100 of rent being paid today and they’re going to get a credit of $50 based on the 7.5%, beginning in 2020 or 2021 they’ll get the other $50, but they will only get $25, it will be $75, but ultimately when you fill that in the mix of all the other rent adjustments we have, our rents are only going to go down 30% in 2020 instead of 77% in 2020. And keep in mind some of that we didn’t spend a lot of time talking about, but the part of this, the reason it’s a little confusing is first of all we view these leases kind of on an aggregate basis. We’ve reallocated rents across the portfolio rents in almost every building are changing as part of this agreement. I alluded to that that we’re reallocating rents to better reflect the performance of the assets. And so looking of this building or that building is kind of hard to, hard for us to even think about. We look at it on an aggregate basis, but the rents as of yesterday are completely different from what they will be tomorrow once we get all these rents reallocated over the next few weeks. So it’s a little bit.

Is there a range you can give for that reduction in 2020 of what the dollars are?

I’ll say it this way, our rents are going to go down if they walk away from leases in 2020, 2021 by 30% that’s what will happen.

I’ll follow-up offline Thanks guys.

Okay. Thanks.

We’ll go next to Michael Carroll RBC Capital Markets.

Yes thanks Rick or Harold. Can you guys talk a little bit about the differences between the asset that Sabra and Genesis are keeping versus the ones that you’re selling, I believe you touched on this earlier in the call. But is it more based on the location of those assets or the age of the assets or the size. And believe you said location. But can you expand on that a little bit?

It’s Mike it’s all market oriented. There are certain markets that they don’t think fits with where they want to be strategically. And typically what most operators do when they want to, they’ll sell assets here or there and they wind up keeping underperforming assets. Because even underperforming assets can, they will cover your overhead costs for particular region. So, now they’ve done as many acquisition as they’ve done, they are taking a look at their whole map and saying, which of the markets are the most conducive for us to be in. And there are some states that they just don’t want to be in, because for example they maybe high liability states. And one of its, and so that that was taken into consideration as well. So it’s all markets and environment and strategic decisions relative to what they’re trying to do with the company. It’s got nothing to do with the age of the asset, as we said earlier some of them actually performed pretty well, but they want to get into the whole market and because they’re able to, because they’re going to be exiting entire market and or state they’re going to be able to have a much bigger impact on infrastructure reduction as well.

Okay great. And then on the 29 assets that that you kind of highlighted have you, are all those markets or assets currently on the market for sale right now or are you starting to put them on the market for sale?

They will be going up for sale shortly they have not been marketed yet. [indiscernible]

Is it going to stockholder…

They’re actually going to be marketed by like Genesis. But we’ll obviously be a part of that but they’re going to market those assets for sale.

Okay and then congrats on the Forest Park disposition. Can you guys talk a little bit about I know you touched on this, the personal guarantees, I mean have you put out a proposal or a settlement offer and they just have to accept or try to renegotiate that. And you just don’t know what the timing of that is, is that how we should think about that piece?

You should think about this way, we’ve put out an offer very, very recently. We’ve given them some period of time to think it through. And then we’ll hear back from them and either they will accept or they won’t, and if they don’t accept it then we’ll pursue our remedies. And we think it’s a very fair offer, we spent a lot of time working through looking at the benefits that were provided by the docs. As we went to them and see all those things were factored and giving them some discounts.

Okay great. Thank you.

Okay.

We’ll go to Rich Anderson, Mizuho Securities.

Okay, can you conference me into the call of Juan, because I need to understand that too. And I’m not going to spend more time, but I don’t understand. I think that’s kind of par for the course right now.

I can give you a call.

Yes, okay, I appreciate that. And Harold you said, I think you said a lease termination fee in the second quarter of $5 million related to Genesis, did you say that or did you say that for the year. I wasn’t clear what that number was?

Well the lease termination fee we recorded for the year – during the quarter was about $2.1 million.

Right. Yes, I see that.

But it doesn’t mention the payments they’ve made about $10 million of the payments to-date out of $20 million, but GAAP required us to record that over a period of time. So it’s really $2.1 million recorded during the quarter, even though we’ve got $10 million in cash so far.

All right. So there will be more than the rest of the year then if you’re looking at?

Right. Hopefully through probably the first quarter of next year, we’ll record the full $20 million.

Okay, okay 1Q 2017, all right. So when I think about this fixed well, I’ll call lease yield, the 7.5%, it reminds me of what HDP did when they were selling the HCR ManorCare assets last year. And so for there not to be a reduction in rent coverage, you have to sell these assets, you and Genesis have to sell these assets at a cap rate. So property level cap rate below that 7.5% right, is that correct? If you sell above that then your coverage would actually mathematically go down. Am I thinking about that correctly?

Sorry, I didn’t mean to stump you. So let’s – so like [Multiple Speakers] well, I don’t – I think I’m right. So let me just do it this way. EBITDAR divided by rent is your rent coverage right? Let’s say, EBITDAR and so for – you want the numerator to go down less than the denominator for coverage to go up right? So that means EBITDAR has to be a 5% reduction just use a number and rent is going to go down 7.5% thereby getting an increased rent coverage. So to me to say that there won’t be any impact on coverage requires that the assets be sold at a property level quote unquote cap rate below the 7.5% lease rate. Does that make sense? So maybe another thing offline, but I just I feel like this.

[Multiple Speakers] that offline, we can explore some more. So I think the way I think about it is, there’s a mixed bag of coverages to those assets that we’re selling at. Some coverages are strong, some coverages aren’t strong. If we’re selling assets that had negative EBITDAR, we’re getting rate of all negative EBITDAR number, that’s going to improve the coverage.

Absolutely, 100% I agree with that.

Okay. We’re getting rid of a high-performing asset and we only get 7.5%. Do we might have a lower coverage. And so it’s a mix of all that. And ultimately, when you look at all, it’s kind of basically a little flat, it’s pretty flat as Rick said.

Right.

Okay. So it may average to 7.5%. But you’re going to have some that are good and some that are bad. It’s going to depend on what the market is willing to pay for that that EBITDA right? I mean, that’s what it comes down.

Yes, just in average, we look at every one of the facilities in that bucket. And we assume should be the traditional and existing cap rates that currently being paid for skilled nursing facility. So we’re not making any sort of aggressive assumptions and not at all we’re looking at what’s happening on the market currently. We’re looking at the skilled nursing facility that we’ve been selling over the past couple of years, and the beginning to go. So we’re taking sort of an average ton of cap rate. It’s really the number of facilities in the portfolio that underperforms that caused the entire portfolio to come out basically to review that.

Okay. So I also wanted to explore the question of why do you have any Forest Park interest income in any guidance number if it’s done with?

Because what we’re providing is guidance for the full-year of 2016, not just the balance of the future, it’s the full-year. So what’s our full-year look like.

Yes, I know, but it just seems like it’s one-time and back out of all, but that’s semantics, I guess. And then the last question, you get to 24% Genesis after this is all said and done. Is that, Rick, you – is that the right number, or do you see that kind of meaningfully lower in the next few years whether you’re selling more Genesis or buying other assets?

We say it is meaningful – meaningfully lower. I mean what it does for us, so there was never sort of, we want to get them as lower as we can get a period, which isn’t a reflection on Genesis. But you see how the market reacts to our stockholders tactics shift, it’s enough, it’s an uncontrollable for us, and it doesn’t matter whether I think the market, particularly when it comes to real thing that just understands this or not, it still is affecting us. So we’re going to get that number as low as possible, because this is a lighter year for us from an acquisition perspective. This basically accelerates where we were going to be anyway. And this always the 24% all of these earning and that’s where a lot of proceeds we get from the sales. We’re going to continue to grow this company as we have been growing it. And so over the course of that or the time it takes to sell these assets in all likelihood, the number may be lower than 24%, because we’re going to reinvest the 200, we’re getting from these assets plus we’re going to be buying and we’re also buying. So there isn’t going to – there isn’t any sort of level where okay, we get down to 20%, that’s good enough. I will do other things with Genesis and we’ll just sort of keep at that level. We don’t like being in a position, where subject and our shareholders get affected by things that are out of our control for whatever the reasons maybe perception wise and the loss whatever it happens to be.

Okay. And then final question for me, just it could be one word answer. Is cardiac bundling worst or less worse than CJR to the skilled nursing business?

Okay. I’ll give you more than a one-word answer, because...

Wow.

I had a discussion on it, and I disagree with the promise. First of all, IRS are really initiatives 1,200 or so IRS is 15,000 from these. Many other states that IRS just been, there’s only one IRS in a state. So in most markets, IRS are actually not an alternative, this for closer to cardio patients.

Okay.

Secondly, if you look at where IRS are, they tend to be closer to as you would expect in urban markets, where the sniff providers are most expert at doing high acuity, because those markets are much different than world secondary, tertiary kind of markets. And remember that much of the sniff business is still kind of mom and pop. I mean. it’s not the most sophisticated providers. And in those markets that are more rural, it’s going to take longer for all these changes to happen anyway. So and I also look to make cap reports that I talk about how great the outcomes out of sniff and how comparable they are to IRS. So I just don’t think you can do that in broad strokes. It’s very market specific, I think, it’s I think it’s informative to look at a map of the U.S. and look where all the sniffs are and look where all the IRS are, and that will help, I think, you start to draw in different conclusions. The other point I make is that, as you get – as bundling expand, and these bundle programs expand, I’d like say the comment that I did earlier. Operators always follow the money, always have, always will. As this – as the reimbursement becomes accessible to them, they will invest in the clinical infrastructure that was – that’s required for them to do it. And if you look at where the sector is today versus 10 years ago, it’s already dramatically different. I mean, so much of the sector has moved away from traditional long-term care towards to post acute, post surgical acute care patients that are high acuity and long-term complex medical patients. So I disagree with the thesis.

Okay. Well, let’s turn off. Harold, I look forward to hearing from you like I said you can help me with one.

[Multiple Speakers]

Okay, great. Thanks.

We’ll go next to Omotayo Okusanya, Jefferies.

Hi, most of my questions have been answered, but just a couple of quick ones. First of all, I just wanted to make sure that the rent coverage and the Genesis coverage statistics we’re looking at this quarter are apples-to-apples versus last quarter. None of the 29 assets been sold or been excluded from that number or anything on that sort?

Apples-to-apples.

With apples-to-apples, perfect, okay. Then the second question is a broader one for you, Rick. I mean, today, we’ve just had a lot of conversations around bundling around Medicare Advantage, a whole bunch of different things going on now. How Genesis was trying to react to these things? How you’re trying to help support their initiatives? But when you do think on a longer-term basis of all these changes happening over the next, whether it’s three years, five years, what have you, how exactly do you think that ultimately ends up impacting skilled nursing real estate? And how does Sabra end up preparing for that? I mean is the idea that you pivot more towards in your housing, is it like what is at ultimately when you kind of think about what you need to do, just kind of given all the uncertainty around skilled nursing over the next few years?

So couple of things, one, we’re always going to be focused on increasing our senior housing and has the company gets larger and cost of capital improves, we may consider other asset classes as well. But in terms of SNFs, we like the full asset class. It’s really a function of are you aligned with operators that understands what they have to do strategically to shift their business model to be inline with the changes. At the general principle, the sector is very well-positioned and that’s not to say there won’t be some lose, then I think the losers in this case are going to be a traditional mom-and-pop, who have always run Medicaid businesses and various cost focus, they do traditional long-term care. Some of them may provide a much longer period of time if they are in secondary to tertiary markets, but certainly in the urban markets, they’re just not going to make it. And that there will be acquisition opportunities and as a result – and we’ve prudent our core – non-Genesis portfolio outside to shut ourselves at those assets that we don’t think can get that and we focused our acquisition strategy at the pretending skilled nursing on those provider that completely get it and I think you see the results in our SNFs tax as a result when you look at rent coverage or you look at skilled mix. And as deep in operating bench as we have here, I think we’re very well positioned to differentiate between those operators that get it and those that don’t get it. So overall, I think the SNF sector is doing fine. So we will continue to accentuate other asset class, as we’ve been doing, but we’re not afraid to do SNF acquisitions and that makes sense. I’d…

So that’s actually very helpful color. I mean just kind or give me your viewpoint, this will be expecting worldwide, you may do things you’re dealing with Genesis to actually start seeing you do able with some other operators as well?

Well, yes, because the other operators are all pretty small, right. They’ve got two builds or five building and we haven’t had them to that one. So we have – which has been too small for anybody has done. But we sold facilities here and there over the past couple of years and sold SNFs in Texas and we’re looking at Oklahoma. We sold SNFs in Connecticut, and so we sold some SNFs here and there, where we just don’t think if there’s the right combination of factors in there to serve us well going forward and with the private market being so good – as we just gain profit and take new advantage of that. So all the – so if you look at the NMS or SNF, operators are now. We thought really great providers during really interesting things and extremely high acuity. We’ve got the guys in Pennsylvania that everything with LTAC does. We’ve talked about NMS. We’ve got vision in Oklahoma that there is no Medicaid business, which 100% skilled nursing to all short saying high acuity. We’ve got KVM, which is the first big deal we did that in 2011 is that the largest venue in the state of Delaware. So we feel really good about, the guys that we currently have as our partners with SNF side and that we’re looking to partner going forward. Now that said, if you own a whole lot of those guys out there, as reimbursement continues to evolve and people do start borrowing the money, building more of those operators here is today and certainly three or four years with a lot more those operators that have developed the expertise, which have been pretty particular right now.

All right, that’s helpful. Thank you very much.

Yes.

We’ll go next to Paul Morgan, Canaccord.

Hi, good morning. Just way back into the Genesis a little bit more. You said $200 million to $250 million was the – was that gross proceeds or net proceeds?

As we have net proceeds, but there is not a lot of difference between net and gross, I mean this closing cost, those kinds of things.

Yes, okay. So pretty much the same, so just to see if I might understand this, is the reduction in 2020 due to the difference between your $7.5 million and what will actually sell it for and it’s like a catch up for that number. So if they were to sell it at to say $9.5 million then there will be like a 200 basis points additional cut to reflect that?

The catch up is the difference between the $7.5 million and what those leases had as of today. So we’re only getting if the rent credit is left and they’re paining in rent, almost the stories today that difference goes away. We’re gone away anyway in 2020, 2021, that’s the difference.

Okay, and then is there also – okay and so there is no type of an additional catch up for the period between 2016 and 2020 the year sort differing until 2020?

No.

Okay, and is there a straight line impact of all of that?

I think the accounting will accounting will be – we just reach straight line. There is no right of a straight line rents, just will adjust straight lines rents going forward based on all the changes that we’re making.

Okay.

Part of the way to think about this is all is Genesis what’s streamline their company. So lot of this is about why rate are until these leases is just start naturally expiring, let’s get a head of that and such streamline in the company now is going to waiting until 2020. And so we will to do cooperatively with them is to do certain things that were benefit us including once we had agreement on those assets that we all wanted to stay in together that they wouldn’t expire much more ratably, then they were originally or we’re going to portfolio in first year.

Right.

Yes, again it’s all potentially losing. They may have extended those leases. They may not have, now we have certainty that will go on to a longer period of time, with those assets we want to keep.

Yes, okay. And then I’m sorry if I missed this earlier, but what’s the $2.4 million in the other income line, what is that?

That’s primarily $2.1 million fee that we recognize relative to the older agreement, which has to sell the aid assets. The $10 million payment they made that’s the vast majority of it.

$2.1 million.

Okay, all right. Great, that’s it for me. Thanks.

Yep.

And we’ll have a follow-up from Smedes Rose, Citi.

Hey, it’s Michael Bilerman. Just two quick follow-ups, there’s a lot been going away in 2021. If it just simply that Genesis would have walk away from these leases at that point and you would have to remarket depend to others investors, other operate?

I think that – this is Rick. I think well said was that they were going to go – they were going to leave these leases anyhow. We let them accelerate that, but we didn’t let out the full rent until they would have walk until the end of those leases anyhow.

Right. And in exchange for that – in exchange for that, you made other adjustments in other places, but the effect of – you had the majority of these leases maturing or certainly was 77% of the lease is maturing in 2020, 2021 by facing that and staggering that a little bit, that was sort of the give back that they had to you for the flexibility in doing it?

That’s correct.

Yes, and the other just comment I would make Michael is that, we look at these assets. We asked ourselves, do we want to release these to other operators now, same question we would have asked ourselves in 2020, but we asked ourselves that question now. And we didn’t see good enough reason for us to do that and looking everyone what you would have thought definitely in 2020. So you do what you do, but we did make that conscious decision now in the context of the agreement that we prefer to just exit everything with Genesis as opposed to staying some of these assets with other operators.

And then do you have a sense of like how much of a 50 basis point move one way or the others, if you were to – if the assets were being and they cap versus – I think cap versus 7.5% credit. How much that differential means to result in coverage of the remaining pool of assets that you have?

It’s not that significant. We’ve done a sensitivity analysis around it. And you can go up or down 1% or 2% from our estimates, and it’s just not that significant.

It’s not that big a number billing in the context of what we do.

Right. And then, Rick, you made a comment in terms of operators spending a disproportionate amount of time with their most difficult assets. And I’m curious if you think introspectively to your own company the amount of time that you’ve had to spend on Forest Park and Genesis. I guess, where have you lost time? What have you not been able to deal with when you’ve had so much time to deal with these issues? And how is that going to change, I think going forward about maybe the types of investment strategy and the diversity and things like that in terms of what you’re willing to do. I know, sometimes you don’t. You don’t know it’s going to become a problem until after the fact, but I’m just curious how this whole episode has gone in terms of your own time?

So, this – I may have touched on this on past calls, Michael. The Vision is a real disconnect here. We have not been distracted by any of these things to the point where it affected us anyway. Last year which was when most of the time was spent on resolving Forest Park, we did $550 million of investments. On a deal basis that wasn’t as big of the year because of the holiday deal. But it was more deals than we’ve ever done at the same time, we would deal with Forest Park. We hired really good attorneys to deal with this for us. You have a call with them once a week. I have a board member who runs the restructuring practice through cap. And I’ve got pretty deep experience on restructurings myself. It just wasn’t that much of a distraction and neither is Genesis, we had a couple – we had a series of discussions with Genesis to come to a deal, but growth is going to be higher than the other marketing assets. We have a lot of capacity here. The deal attributed this year is a function of the acquisition market. And our discipline relative to what we will pay from a pricing perspective has gotten nothing to do with anything else. And we – and in terms of Forest Park, we just have sort of comments and we said on past calls, even though, obviously no one bought it, we were always completely comfortable and we are on the record for the past year on us. We are really completely comfortable that the two debt investments were really well collaterlized, well underwritten, and we had a problem with an operator, every regions had problems with operators, don’t mean to make light of it, but…

All right.

It’s just not the case. We have a lot of capacity in ourselves here. And it’s – just was really – wasn’t fine.

Thanks for the color.

Okay.

At this time I’ll turn the conference back to Mr. Rick Matros for any additional or closing remarks.

Thank you. Thanks for joining us today. So anybody that still wants more time to get their arms wrapped around the Genesis deal, Harold is happy to spend time review on that and happy to spend time on the models as well, because I think you start actually modeling it everything will become a little bit clearer. I know Harold and Michael would be happy to spend time on that as well and I’m available. So I look forward to seeing you guys while we are out on the road and talking to you. Thanks very much. Have a great day.

That does conclude today’s conference. Thank you for your participation. You may now disconnect.