Omega Healthcare Investors, Inc. (OHI) Q2 2016 Earnings Report, Transcript and Summary

Good day, and welcome to the Omega Healthcare Investors’ Second Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michelle Reiber. Please go ahead.

Thank you and good morning. With me today are Omega’s CEO, Taylor Pickett; CFO, Bob Stephenson; COO, Dan Booth; and our Chief Corporate Development Officer, Steven Insoft. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructuring, rent payments, financial condition or prospects of our operators, contemplated acquisitions and our business and portfolio outlook generally. These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially. Please see our press releases and our filings with the Securities and Exchange Commission, including, without limitation, our most recent report on Form 10-K which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, such as FFO, adjusted FFO, FAD and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the financial information section of our website at www.omegahealthcare.com and in the case of FFO and adjusted FFO, in our press release issued today. I will now turn the call over to Taylor.

Thanks, Michelle. Thanks, Michelle. Good morning and thank you for joining Omega’s second quarter 2016 earnings conference call. Adjusted FFO for the second quarter is $0.87 per share. Funds available for distribution, FAD, for the quarter is $0.77 per share. We increased our quarterly common dividend to $0.60 per share, which is a 3% increase from last quarter and a 9% increase from the second quarter of 2015. We’ve now increased the dividend 16 consecutive quarters. The dividend payout ratio remains very conservative at 70% of adjusted FFO and 78% of FAD. We increased the quarterly dividend by $0.02 to ensure that we comply with REIT rules requiring that we distributed 90% of taxable income. Our plan is to return to increasing the quarterly dividend by $0.01, subject to continued FFO growth on a go-forward basis. We are adjusting our 2016 adjusted FFO guidance range up to $3.36 to $3.40 per share, an increase of 9% to 10% over 2015 adjusted FFO. In addition, we provided quarterly guidance, which reflects our July $700 million, 4 3/8% bond issuance and deploying balance sheet cash with budgeted new investments of approximately $400 million through year end. Dan will discuss our operator performance in more detail. But I will note that operator coverages continue to remain stable, and then our operators performing below one-time EBITDAR coverage dropped from 7.6% of total rent in the first quarter to 4.7% of total rent this quarter. Turning to Medicare reimbursement. The final 2017 Medicare rates were released by CMS, with a projected rate increase of 2.4% beginning on October 1, 2016. In addition, CMS has proposed expanding the mandatory joint replacement bundle to include surgical hip femur fracture treatment and to create a new mandatory bundle for cardiac care. The proposed expansion of mandatory bundling will be effective July 1, 2017. Our operators continue to proactively develop care plans to address, both voluntary and mandatory bundles in the same way that have historically interacted with HMOs and ACS. Bob will now review our second quarter financial results.

Thanks, Taylor, and good morning. Our reportable FFO on a diluted basis was $172.3 million, or $0.87 per share for the quarter, as compared to $100.7 million, or $0.52 per share for the second quarter of 2015. Our adjusted FFO was $173 million, or $0.87 per share for the quarter, and excludes the impact of $5.4 million in cash received or a prepayment penalty income from the early payoff of several mortgages and notes, $3.7 million of non-cash stock-based compensation expense, $3.5 million of acquisition and merger-related costs, and $1.2 million in a recovery from our previously written-off receivable. Operating revenue for the quarter was $228.8 million versus $197.7 million for the second quarter of 2015. The increase was primarily a result of incremental revenue from over $1 billion of new investments completed, since June of 2015. The $229 million of revenue included $5.4 million of prepayment penalty income, resulting from approximately $50 million of combined mortgages and notes that were prepaid by an existing operator. The $229 million of revenue for the quarter also includes approximately $20 million of non-cash revenue. During the quarter, we sold 11 facilities for approximately $41 million, recognizing a gain of slightly over $13 million. The breakout of the 11 facilities is as follows, five of the facility sales resulted from two separate operators exercising their contractual purchase options, the remaining six facilities were result of Omega and our tenets combined decision to exit those facilities. Three of the six facilities were closed facilities and we’re not being operated as SNFs. As outlined in our earnings press release, during the second quarter, we reported $6.9 million in provisions for impairment and moved four facilities to assets held for sale. At June 30, 2016, we had 22 facilities classified as assets held for sale. We expect to sell these assets over the next several quarters for approximately $53 million. In the second quarter, we reported a $1.2 million adjustment in provisions for uncollectible mortgages, notes, and straight-line receivables, which represented a recovery of a previously written-off receivable. Our G&A was $8.2 million for the quarter and we project our quarterly G&A expense for the remainder of 2016 to be approximately $7.5 million to $8.5 million per quarter. In addition, we expect our non-cash stock-based compensation expense will be approximately $3.7 million per quarter. Interest expense for the quarter when excluding non-cash deferred financial costs and refinancing costs was $39.7 million versus $38.2 million for the same period in 2015. The $1.5 million increase in interest expense resulted from higher debt balances associated with financings related to our 2015 and 2016 investments, including the Aviv acquisition in 2015. Turning to the balance sheet, in June we priced $700 million 4 3/8% senior unsecured notes due 2023 that were issued on July 12. Proceeds from the July issuance were used to repay all outstanding borrowings under our credit facility. Also in July, we purchased the outstanding $180 million secured term loan we assumed with the Aviv Merger. Under our Dividend Reinvestment and Common Stock Purchase Plan, in the second quarter we issued 2.2 million shares of our common stock, generating gross cash proceeds of approximately $74 million. As a result of our Q3 bond issuance and the payment of our outstanding credit facility balance and the repurchase of our outstanding secured term loan, we anticipate our Q3 interest expense will grow from $39.7 million to approximately $43 million, assuming no acquisitions. Our balance sheet remains exceptionally strong. For the three months ended June 30, 2016, our net debt to adjusted annualized EBITDA was 4.7 times, and our fixed-charge coverage ratio was 5.1 times. I’ll now turn the call over to Dan.

Thanks, Bob, and good morning. As of the end of the second quarter of 2016, Omega had an operating asset portfolio of 973 facilities, with approximately 97,000 operating beds. These facilities were distributed among 84 third-party operators located within 41 states in the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our portfolio dipped slightly during the first quarter of 2016 to 1.75 and 1.37 times, respectively, versus 1.78 and 1.40 times, respectively, for the trailing 12-month period ended 12/31/2015. Since first disclosing operator’s coverage ratios in the first quarter of 2002, Omega has reported coverages by rounding to the nearest decimal point. A number of recent request from our investors, analyst and other stakeholders has resulted in management revising that reporting metrics. Accordingly, as of this reporting quarter, we have amended our operator coverage reporting such that we will now report coverages by rounding to the second decimal point. Our selected portfolio information contained within today’s press release, shows coverage using this new methodology, dating back five quarters. We hope everyone finds this information helpful. Turning to new investments, during the second quarter of 2016, Omega completed four acquisitions, totaling $221 million – $220 million, plus an additional $28 million of capital expenditures. These transactions, all of which were discussed as subsequent events in our previous earnings calls, included the acquisition of 10 care homes in the UK, which were leased to our existing UK tenant, the acquisition of three ALFs in Texas, which were leased to a new Omega operator. The acquisition of three SNFs, two in Colorado, and one in Missouri, which were added on to an existing operators current master lease. And lastly, an $8.5 million mezzanine loan to an existing operator. Subsequently, in July of 2016, Omega completed two additional investments, including a $48 million term loan to subsidiaries of Genesis Healthcare and a $4.3 million acquisition of a 93 unit ALF in Florida. The $48 million term loan to Genesis was a 40% component of a $120 million term loan, which closed on July 28. Welltower provided the other $72 million, or 60%, of the overall loan. Proceeds of the loan, along with cash provided by Genesis was used to extinguish an existing $156 million term loan administered by Barclays. We believe this term loan, along with certain financial covenant modifications, will afford Genesis additional financial flexibility. As of June 30, 2016, Genesis Healthcare was our second largest tenant in terms of revenue, at just over 7% and our sixth largest investment. We currently lease 57 facilities in 13 states with annualized first quarter rent of approximately $52.8 million. EBITDARM and EBITDAR coverage for the 12-month period ended 6/30/16 was 1.72 and 1.3 times, up slightly from March 2016 trailing 12-month period, which was 1.71 and 1.34 times, respectively. Overall, Genesis’s rent coverages, occupancy, and payer mix has remained very consistent over the last four quarters. Year-to-date investments for Omega through the end of July, totaled $836 million, including capital expenditures. As of today, Omega has over – has $1.25 billion of revolver availability and approximately $190 million of cash to fund future investments. I will now turn the call over to Steven.

Thanks, Dan and thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, we anticipate construction commencing this quarter on our planned 200,000 square-foot ALF memory care high rise at Second Avenue and 93 Street in Manhattan. The project is scheduled to open in the first half of 2019. Our commitment to reinvest in our assets continues. Not only did we invest $28 million in the second quarter, a new construction and strategic reinvestment. We currently have over 100 active capital investment projects in planning or process at the end of Q2. Nine of these new construction projects, with a total budget of $360 million inclusive of Manhattan, are actively being funded and have $162 million of construction profits on our balance sheet as of June 30, 2016. The recently announced mandatory cardiac payment bundle commencing in mid 2017, in conjunction with the mandatory CJR pilot that commenced on April 1 of this year, highlights the importance of aligning with operators who embrace these changes as necessary to assure adequate healthcare access, while being paid appropriately for the services they provide. These changes bring risk, as well as opportunity for Omega and its operators. We believe that an understanding of the payment model is a start, but what sets us apart is our commitment to further understand how the models, which are driven by thoughtful proactive healthcare policy, impact each operator and facility in each of their respective markets. Our reinvestment strategy prioritizes the allocation of capital to those facilities that are not only in markets that present the highest potential for success, but also leased to those operators best suited to succeed in the evolving marketplace.

Thanks, Steven. That this concludes our opening remarks. We’ll now open the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] [Operator Instructions] The first question comes from Nick Yulico of UBS. Please go ahead.

Hi, thanks. Good morning, everyone. For the $400 million of investments that you’re hoping to get done that’s in the guidance, what are the assumptions for how you are going to fund that relative to the guidance?

Well, we’ll use the cash that’s sitting on the balance sheet today, which Dan remarked is $190 million today, with the balance being out of the revolver, so another $210 million out of revolver.

Okay. So, I guess, plans to sort of pay down the revolver wouldn’t be in your guidance this year. We should assume that that’s a 2017 event?

I think that’s a pretty good assumption, just given where the capital markets are today. So I would – yes, I would look at that $400 million and just assume that it’s cash on the balance sheet and revolver as we typically have done in the past.

Okay. And then for the – on the page six of your supplemental, where you give the different buckets of operator coverage, I guess, you talked about the number below 1, the number of operators below 1 times EBITDAR coverage got better. But if I sort of look at the 1 to 1.2 range there’s – that went up, as far as more operators falling in that bucket and more revenue. So how much of that is sort of issues with – on the skilled nursing side, where coverage is going down versus how much is the impact of, I guess, senior housing in that bucket, where maybe the coverage is already lower?

None of it is affected by senior housing, it’s all SNFs. But it really was boils down to three operators. One of them is – went from the lower bucket to below 1 to 1 to the 1 to 1.2, so that created that to be a – get a little larger. And then you had two other operators, both large top 10 operators that fell from the 1.2 and above bucket down to do that 1 to 1.2. One of them was right on the cusp in it, so it did not – its coverage did not fall materially and it’s been consistent coverage for quarter-after-quarter for a long, long time. That will bounce around, I would expect it could just as easily go back up in the next quarter. The other operator is a little bit more of a story there. In the beginning – or end of third quarter, early fourth quarter, the owners of that company, they changed over its entire senior management from the CEO on down. And that has sort of been a theme throughout going from that period of time even up through this last quarter, where that then filtered down to lower levels in the facilities that had I think that changed at over 20 administrators and numerous DONs and they’ve gone kind of a systematic house cleaning if you will. That has resulted in a reduced coverage and it will take few quarters for that to roll through, the operation changes that they made. But it’s all on the expense line. It’s not revenue. It’s not – it has nothing to do changes in reimbursement or bundling. It’s really just a changeover in the senior management, which has resulted in a changeover to many of the facility level management. We think that blip in coverages, if you will, is temporary. It might take another quarter or two to come through, but we definitely believe in this operator and that it will bounce back in subsequent quarters.

Okay. And then as far as the – I guess again on this page, you have 92% of I guess the whole portfolio is sort of in there and there is I guess 8% that’s not, which is various other reasons you cite here. How should we think – I mean what is that other 8% – what is the coverage look like for that other 8% that’s been excluded from this page? Where would they sort of fall on these buckets?

Some of them are new acquisitions and some of them are facilities that were recently completed and are – in fill-up some are facilities the transition from one operator to another. There’s a whole host of reasons of who gets put in that bucket, but for the most part its recent deals and deals that are in some way to say perform in transition. And the coverage for that we don’t really look at the coverage for that non-core if you will. So I don’t have that. But you can assume – it somewhere probably in the onetime bucket.

Okay. Yes, I guess I’m just a little confused why sort of recent acquisitions would be excluded. I mean what sort of the rationale for that?

Jut if it happened in mid-quarter, it’s not going to go into the – into some stratification, if you will.

Okay, I see. Okay, I guess just one last question is regarding your – the way you guys calculate your normalized or I guess you guys call it adjusted funds from operations. You’re one of the only – I’m not sure that I know of another that we cover that has – that actually add back stock-based compensation to your – not so like an FAD or AFFO number, but for normalized FFO number. I’m wondering why you guys think that I know you’ve historically done that. Why you think that’s appropriate and why you give any consideration to actually considering that to be sort of a real expense like most companies do for your funds from operations?

I think that really goes back to more than a decade ago Nick, when we started adding it back because it’s such a material number and it wasn’t clear whether any of it was ever going to be realized. So it’s just very consistent, and we make it very clear what we’re adding back. So that folks that decide to push it back through the numbers can do that. But it just goes to a legacy that started many, many years ago when that was a fairly large component of a very, very much smaller company.

Yes, so I mean would you guys give any thought to maybe changing that now and being more inline with how most of the REIT industry calculated to normalize that…?

Yes, I think we just need to – we haven’t heard that feedback from anyone else. I think everyone else is pretty comfortable and they understand how our numbers are calculated and they do their own math. If we had a lot of feedback about it, I don’t have a big issue with it either way. It’s just a legacy that’s been there. But I think it’s really simple to figure out what the meaning is and decide how you want to think about it.

Okay. Thanks everyone.

Thank you.

The next question comes from Juan Sanabria of Bank of America Merrill Lynch. Please go ahead.

Hi, good morning. I was just hoping you could speak to how you’re thinking about underwriting future SNF deals given the changes CMS outlined for bundling including the hip in femur and then cardio, which if you look at some of the operator presentations are bigger risk than CJR. Are you looking to have a bigger buffered than historical 1.3 to 1.4 EBITDAR or looking for higher cap rates?

Well, I think the first step in the underwriting is as always this understanding the market and what you’re seeing in terms of referral patterns and what the skilled nursing facility we’re interested in has and we actually have that data and access to that data and use it, to evaluate whether the market to coverage in a different rate just given the facility in its market. So that’s a piece of the equation. That digs down into the details of the underwriting and obviously we will take that into consideration.

Can you help us quantify how generally speaking you think about either NOI maybe at risk or percentage of NOI at risk or percentage of volumes at risk with the expanded bundling by CMS?

Well, I think it’s really early to start thinking about that particularly when you also have to look at the demographics in each market in terms of the population growth in the 80 plus category. So it’s really the intersection of those two lines. So I don’t know that you necessarily – every situation is going to be unique. There’s not to be a percentage of NOI that’s at risk.

Juan, if you look, it’s a period sort of over the last five years, which is the only thing we can hang our head on the demographics and Taylor was pointing out actually offsets by admission, in other with the demographics sort of is correlated very highly to the number of emissions going up in SNFs. And then when you look at the pressure that some of the operators are feeling with Medicare – kind of with the organizations pushing pressure on length of stay, it’s sort of remarkable and how it census has remained reasonably low, and I think that what I alluded to in my remarks was CMS is really trying to keep that capacity sort of inline. Some of these bundling things are going to do probably nothing more than offset the demographic shift going forward as we’ve seen over the last five years.

But don’t – the demographics really that doesn’t impact or meaningfully grow until the middle of next decade in the CMS bundling initiatives, just starting mid next year or new pieces were starting mid-next year?

Look at the 80 to 84 age cohort, the growth rate from 2010 to 2015 was actually flat because of the World War II phenomenon. There wasn’t lot of births. That age cohort actually goes from about 0.14% CAGR for the last four years to about 1.5%. I know that doesn’t sound like a lot, but it’s a lot of bodies, and the 85 plus population goes up at the same rate. Starting in 2020, that number doubles, so when we talk about these initiatives, they’re pilots, they don’t penetrate all the markets. In the cardiac initiative, by example, it doesn’t start till the middle of 2017. So I actually applaud CMS for sort of getting ahead of this because if you wait until the demographic bubble comes, you’re going to have healthcare access issues.

And I wanted to follow-up on Nick’s earlier question on the rent coverage levels from an EBITDAR perspective, what’s below 1.2? It looks like you had an extra $80 million plus that is now sub 1.2 times and if I look at year-to-date non-skilled nursing acquisitions, I assume like a 7% cap rate that’s significantly lower NOI that’s implied in that $80 million. So I’m just having a hard time reconciling and the fact that it’s not really related to any sort of deterioration in the skilled coverage?

I think Dan once again spoke to it. It’s related to two operators that are our top 10 that even described that over peak.

That are both SNF operators.

That are both SNF operators.

Okay.

But it’s not – I think the important point that Dan was making is this wasn’t a revenue occupancy driven change. One was an operator that was right on the cusp on and will float between that – right around that 1.2 number. And the other was as Dan described in detail, a dramatic management shift. And we applaud the owners of that portfolio for making it because they’re not a public company. They can step back and take a little bit of the pain of aligning their organization in a way. They think it’s going to benefit them in the future and they went did it in a meaningful way, and it’s going to take a quarter or two for them to work their way through that.

Okay, and last question for me, could you give us any cap rates for the second quarter dispositions as well as what’s held for sale? Or if – I know some of them aren’t generating NOI, maybe just how we should think about the NOI, which going to come off the books?

It’s not – we’ll have Bob circle back. Juan, I can tell you, it’s not meaningful NOI. It’s going to be a cap rate. We redeploy that cash at 9%. It’s going to end up being a push. But Bob will circle back and get you the exact numbers.

Thanks.

The next question comes from Tayo Okusanya of Jefferies. Please go ahead.

Hi, guys. Good morning, everyone. Two questions for me. First of all, just kind of give us some of the uncertainty around skilled nursing, it kind of seems, I know that’s coincidental, but you seem to be doing a much more in senior housing now with 10% of total revenues. I mean, when we think about the next two to three years, should we be thinking you guys diversifying more and how big does senior housing become as a percent of revenues two to three years from now?

Well, I think it really goes to something we’ve talked about in the past, and that’s supporting our tenant relationships. I mean, obviously, we have a very big one with Maplewood and we’ve developed a couple of additional relationships, which will continue to grow. But Maplewood is the big growth engine for senior housing for us and we’ll continue to find opportunities with them. So I think because it’s a relatively low percentage, you can assume it will continue to grow, but it’s going to be principally with the three or four dedicated tenants we have today.

Okay. That’s helpful. Then the second thing, within New York City, although there is not a new supplier in senior housing, I mean, kind of once your project was announced, HCN has also announced a project. I think there is also another very large private project going on as well. I mean, does that kind of create any concern that there are three very big senior housing projects kind of all going on at the same time in Manhattan?

Our current thinking is if you look at any sort of typical penetration rates of markets, that market could absorb well in excess of the three you are describing without putting a dent in it, and that’s before you get into the folks who will likely come in from outside that market to be with their children who live in Manhattan. The utilization penetration rates are off the charts low, given the population density there, so…

Okay. That’s helpful.

All of them are successful.

Okay, then thank you. And one more thing, the $400 million in additional acquisitions, I may have missed this, but could you talk about what that comprises of? Is it mainly skilled nursing? Is it mainly senior housing?

It’s principally skilled nursing. And as you know, Tayo, we don’t typically put out guidance unless we have a lot of visibility. So we feel pretty good right now about our visibility with respect to that pipeline.

Great. Thank you. Good quarter.

Thank you.

The next question comes from Chad Vanacore of Stifel. Please go ahead.

Hey, good morning, all. Could you give us some additional details on the new loan to Genesis [Technical Difficulty] and then what were the main lease covenant modifications granted?

So, as I indicated the term loan to Genesis, it was our loan and Welltower put together $120 million loan to pay off an existing $156 million loan, where the lenders maybe weren’t as understanding as other of their stakeholders. So we just thought it was good, sound business. In conjunction with that, we did make some covenant modifications. There are a number of them, there’s a fixed charge covenant, there’s leverage ratios, there’s interest coverage. We did have some modifications to those. Our lease covenant did not change at all that we have with our facility with Genesis and we have a corporate Genesis fixed charge coverage that was only slightly modified. But details of that, I think, we’re going to let Genesis talked to that on Friday, but that’s the main components of the transaction, it’s a four-year deal. It was really meant to assist Genesis and they needed a little bit of financial flexibility and we provided it.

All right, thanks, Dan. And so thinking about the $53 million in assets held for sale, are any of those associated with Genesis and should we expect any future dispositions like we’ve seen in other REITs with Genesis shed non-core assets?

None of the held for sales are Genesis assets.

We do have a handful of assets that we’ve agreed with Genesis that we would look to market, and either transition to a new operator or sell it, what is, Megan? Seven assets. And we have a year or so to work through that.

All right. And then just one quick one, probably for Steve. I think I missed the Maplewood development update [Technical Difficulty]. Then has that broken ground yet and how is that proceeding along with what you thought it would be?

It’s going according to time schedule and according to budget. And we’llwill break ground with construction activity in this quarter.

All right. I’ll hop back in the queue. Thanks.

Thank you.

The next question comes from Kevin Tyler of Green Street Advisors. Please go ahead.

Yes, good morning, guys. Thanks. Taylor, I was hoping to get your thoughts in the evolving revenue model deck that you guys have put together. I think you said a tiny portion of Medicare revenue on the national scale comes from joint replacement. So I think that exact number was 2%. I’m curious in your portfolio today and in your SNF operators’ business, what would you say that number is in terms of Medicare revenue coming from joints?

We’re about a couple days away from having very good scrub data, not only on the Omega portfolio by every diagnostic group, but nationally. We’ve hired a consulting firm to do work for us called Xcenda. And what our plan is, I have – so I have some visibility on that, but I don’t want to talk to it, but we will publish in the next week or so an updated slide deck that incorporates a lot of that data. So I’m not dodging your question, but we are not quite prepared to release the data. I don’t think anybody has got it. We had to hire the consulting firm to dig it out of the CMS database. So we now have all the data by diagnostic groups, so everybody can think about bundling.

Okay. That would be helpful, look forward to seeing it. But I think just from a goalpost standpoint, you said that about 25% of your properties were in CJR geographies. Is that still about the right scaling or not ready to comment on that either?

Yes. Well, we’re 25% are in those 67 MSAs. That’s correct.

Okay, great. And then one more on this point. When CJR expands the cardiac bundle, into the cardiac side and on the CJR side, as well, clearly, it’s becoming more of a need for operators to track this data and then put the infrastructure in place to do it. I think we are seeing some of that spending come through on the expense side, but as this technology gets built out, is it a concern for you, with your operators? Are the regional operators more nimble, let’s say, than a larger operator and what kind of exposure do you see to the expense side of this in terms of building out the data tracking?

I don’t know that the expense exposure is going to be significant. And our guys are nimble. They are already working on care plans. And they really have in some – in dealing with some of the ACOs and HMOs have already done some of this. But I will tell you they are very, very proactive in developing care plans and many of them are already in the voluntary bundles, so they’re already ahead of the curve.

Okay, thanks. Bob, one for you just on the balance sheet side. And I think we touched on it a little bit earlier in the call. But can you talk through maybe some plans to bring down leverage over time? I know, it seems like it’s been a priority, but is there any kind of greater scale plan that you might have, either on the equity side or otherwise and how do you think that plays out over the next 18 months?

Yes, so in the second quarter, we did issued the $75 million worth of equity. In the guidance that we put out, it shows a year-end weighted average share count of about 200 million shares, which means we would have to issue to get there about another $100 million worth of equity throughout the third and fourth quarter to get to that weighted average share count number for the year. So with that said, we do plan or in our guidance, we plan to issue about $100 million worth of equity as we sit today, but it’s all going to be driven on what our stock price is.

Okay. Do you have a certain range that you would be considering in terms of stock price, or do you think about it in terms of what acquisitions might come through the pipeline and funding it…?

It’s really the latter. It’s the pipeline and the related yields and we correlate that all back into our stock price, and that’s part – that’s how we make our decisions in terms of allocating capital. But we’ve, as you know, we’ve stayed in that 4 to 5 times debt to EBITDA range and we are committed to that.

Okay. Thanks, guys.

Thank you.

And we have a follow-up from Tayo Okusanya of Jefferies. Please go ahead.

Yes, thanks for taking my question. Just another question around the UK in general, and also again from the perspective of diversification, why do this particular deal? Why was it so interesting? What kind of infrastructure you have in the UK? And again, how big can the UK now become as part of the overall portfolio?

Well, I think the – this goes to what we’ve talked about many times, which is supporting existing tenant relationships. We have one operator in the UK, Healthcare Homes with two principals that we have a great relationship with and will continue to grow with. I will tell you that they have now grown to 35 facilities in total from the 23 we originally had. And they have said to us, they are going to step back just a little bit and digest what they have. But for us, when we first went into the UK, it was the right operator relationship in a place with a great demographics and somebody we could continue to push capital towards and we have. We continue to find small opportunities and we may identify a second operator in the UK just like we have here in the States. We like to have multiple operators in our geographies, so we will look for that. I think there will be some opportunity in the UK. Obviously, there is a lot of turmoil around the whole Brexit issue. But frankly, our operators, their biggest issue in the UK and their biggest fear is labor. And so we are going to watch that carefully, but overall we like to – we continue to like the market a lot.

Gotcha. Thank you.

Thank you.

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

Thanks, Andrew. Thanks, everyone, for joining the call this morning. Bob Stephenson will be available for any follow-up questions you may have.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.