Good morning and welcome to the Omega Healthcare First Quarter 2017 Earnings Conference Call. [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Michelle Reiber. Please go ahead.

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 and SVP Operations, Jeff Marshall. 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 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 EBIDTA. Reconciliations of these non-GAAP measures to the most comparable measures 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, good morning and thank you for joining Omega's first quarter 2017 earnings conference call. Adjusted FFO for the first quarter is $0.86 per share, funds available for distribution; FAD for the quarter was $0.77 per share. We increased our quarterly common dividend by $0.01 to $0.63 per share. We've now increased the dividend 19 consecutive quarters. The dividend payout ratio remains very conservative at 73% of adjusted FFO and 82% of FAD. Our adjusted FFO guidance for 2017 remains unchanged at $3.40 to $3.44 per share. We continue to work with our operators to identify opportunities to improve portfolios via asset repositioning including sales and asset transfers. Our balance sheet leverage and debt maturity stack was further improving - with the issuance of $700 million in new bonds and the redemption of our last $400 million high yield bonds and the reduction of nearly $300 million in variable rate debt. Our offering was well received, it reflects our ongoing commitment to an extremely de-risk balance sheet with no bond maturity prior to 2024. On our last call, I discussed a number of issues our operators are managing through this year. Labor incentives both continue to be challenges and as expected our operators have generally managed to maintain cash flows through via expense management and active marketing and quality programs which is resulted in a small increase in trailing 12-month coverage. Turning to the Department of Justice investigations that we reported last year, we've been advised of one more top 10 operator that has been contacted by the DOJ. One top 10 operator is now in discussions with the Department of Justice with a respective potential settlement. At this time, it is too early to determine the outcome of this operator settlement discussions or any of the other DOJ inquiries. I've asked Jeff Marshall, our Senior Vice President, Operations to join us today to discuss skilled nursing facility payment reform. In addition to his role in the operations department, Jeff leads our efforts on the reimbursement front. Jeff will speak after Bob who will now review our first quarter financial results.

Thanks Taylor and good morning. Our reportable FFO on a diluted basis was $181 million or $0.88 per share for the quarter as compared to $153.6 million or $0.77 per share for the first quarter of 2016. Our adjusted FFO was $176.7 million or $0.86 per share for the quarter and excludes the impact of $10.4 million contractual settlement, $2.4 million in provisions for uncollectible accounts, $3.7 million of non-cash stock-based compensation expense and $41,000 of acquisition cost. Operating revenue for the quarter was approximately $232 million versus $213 million for the first quarter of 2016. The increase was primarily a result of incremental revenue from over $800 million of new investments completed since the first quarter of 2016. The $234 million of revenue for the quarter includes approximately $18 million of non-cash revenue. Our G&A was $8.8 million for the quarter and is in line with our 2017 quarterly G&A expense guidance of $8 million to $9 million per quarter as provided in our February earnings call. In addition, we expect our 2017 quarterly non-cash stock-based compensation expense to be approximately $3.7 million consistent with our first quarter. As Taylor stated, we continue to work with our operators to identify opportunities to improve portfolios via asset repositioning including sales and asset transfers. As a result, in the first quarter, we reported $2.4 million in provisions for uncollectible accounts to reduce seven assets classified as direct financing lease assets to estimated selling price of approximately $34 million and we recorded $7.6 million in real estate impairments to reduce three additional facilities to their estimated selling price. Interest expense for the quarter when excluding non-cash deferred financing costs and refinancing costs was $45 million versus $37.2 million for the same period in 2016. The $7.8 million increase in interest expense resulted…

Thanks Bob and good morning. With so much attention paid in the past year to government payment reform affecting skilled nursing facilities. We thought it would be appropriate to briefly summarize the status of such payment and regulatory reform and the changes we were seeing with the CMS administration so far in 2017. In the federal government's efforts to reduce the annual escalation in Medicare cost in both acute and post-acute sectors while encouraging an emphasis on value over volume of services several alternative payment models have been initiated to-date. First Medicare advantage managed care, which commenced in 2006 as part C programs and now accounts for about 33% of SNF Medicare beneficiaries. Second, accountable care organization which commenced in 2010 under the Affordable Care Act and now account for about 16% of SNF Medicare beneficiaries. Third, CMS's Medicare fee-for-service bundling programs starting in 2013 with a voluntary bundled payments for care improvement of BPCI program involving selected diagnoses and about 5% of the nation's SNFs. Continuing in April 2016 with a mandatory comprehensive care for joint replacements or CJR bundles that cover about 7% of Medicare fee-for-service revenue and most recently, with the July 2017 mandatory episode payment models for heart attacks, bypass surgery and surgical hip and femur fracture surgery that cover about 8% of Medicare fee-for-service revenue. Fourth, a quality reporting program under the 2015 impact legislation that penalizes Medicare payments by 2% commencing in October 2017 for any SNFs failure to report on specified new quality measures. And fifth, a value-based purchasing program under the 2014 PAMA legislation that discounts SNF Medicare fee-for-service payments by 2% commencing October, 2018 was reimbursement of discounts to SNFs based on comparative re-hospitalization metrics. On the regulatory front, CMS is most comprehensive overhaul of SNF operating and compliance guidelines in…

Thanks Jeff and good morning, everyone. As of March 31, 2017 Omega had an operating asset portfolio of 972 facilities with approximately 99,000 operating beds. These facilities were spread across 77, third-party operators and located within 41 states in the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our portfolio increased slightly during the fourth quarter of 2016 to 1.69 and 1.33 times respectively versus 1.68 and 1.31 times respectively for the trailing 12-month period ended September 30, 2016. The pressure is on portfolio performance experienced in 2016 such as increased labor cost and decreased lengths of stay have begun to show some signs of stability in the fourth quarter results as well as year-to-date results in the first quarter. One private top 10 operator of note however, felt the performance pressure more than most. This was exacerbated in 2016 by complete replacement of senior management early in the year. The new management team well-known and respected by Omega worked throughout 2016 to transform the culture of the company which includes changing out many facility level management teams. During this transition period, the company's operational performance suffered such that the portfolio dipped below one times EBITDAR coverage for the trailing 12 months ended December 31, 2016. In an effort to assisted [ph] company during this transitional period, Omega embarked on an effort to sell off the company's Northwest region which consisted of seven facilities. This region has struggled off late and given its geographical remoteness has been difficult to oversee. We anticipate the sale of all seven facilities in that region to be completed while the second quarter of 2017 with three facilities having already been sold. We continue to work with our operators to provide support for the challenges we're currently facing in our industry. Accordingly, to-date in 2017 Omega has repositioned a number of assets within our portfolio including the sale of 20 facilities and the closing of two additional facilities. We expect to continue these repositioning efforts throughout 2017. New investments during the first quarter of 2017, were limited to the purchase of single 60-unit assisted living facility for $7.5 million. In addition, Omega funded $30 million of capital expenditures. As of today Omega has approximately $1.28 billion of combined cash and revolver availability to fund future investments and provide capital funds to our existing tenant base. I will now turn the call over to Steven.

Thanks Dan and thanks to everyone on the phone for joining today. In conjunction with Maplewood Senior Living, we finished demolition on our plan 215,000 square foot AOF memory care high rise at Second Avenue in 93rd Street in Manhattan. The project is expected to cost approximately $250 million and is scheduled to open in mid-2019. While we're very excited about the prospects of the New York City project, it is also very important to highlight that at the end of the first quarter. Omega Senior Housing portfolio totaled $1.3 billion of investment on our balance sheet. While anchored by our growing relationship with Maplewood Senior Living and their best in class properties as well as healthcare homes in the UK. Our overall senior housing investment comprises 115 assisted living, independent living in memory care assets. On a standalone basis, this portfolio not only covers its lease obligations at approximately 1.2 times EBITDAR but also represents one of the larger senior housing portfolios amongst the publicly listed healthcare REITs. Our ability to successfully continue to grow this important component of our portfolio as highlighted by the 12 Maplewood facilities in the related pipeline is predicated on coupling our tenants operating capabilities, with our commitment to having in-house design and construction expertise. Through the same capability, we invested $30 million in the first quarter in new construction and strategic reinvestment. We currently have over 90 active capital reinvestment projects at the end of Q1. 14 of these projects represent new construction with a total budget of approximately $500 million inclusive of Manhattan and are actively being funded. We have $184 million of construction in process on our balance sheet as of 3/31/17. The remaining projects encompass $166 million of committed capital, $110 million of which has been funded through the end of the first quarter.

Thanks, Steven. This concludes our prepared comments. We will now open the call up for questions.

[Operator Instructions] today's first question comes from Chad Vanacore of Stifel. Please go ahead.

So just thinking about in respect to the large tenant covered split under one time, does the sale of those facilities that you mentioned does that address most of the issues and then, where does coverage go from there?

Yes, I can speak a little bit. I'd just like to expand a bit on not just the management changes, but the business changes that occurred on our last 12 months. Really what happened was tenant wasn't reimbursement driven. They rebranded their business and moved the corporate headquarters, they implemented a centralized referral and admissions call center, they modified their care delivery staffing model and they changed the entire culture to one, personal accountability and those changes are major and took a fairly long time and there was some disruption in cash flows, which we see coming through coverage, but to answer your question a little more specifically. Our preliminary first quarter results for the tenant show coverage of 1.09 that is exclusive of the northwest and we think that 1.09 trend should continue to be favorable as they fully implement all the things we just talked about.

All right, so it doesn't sound like basically it's wide spread, sounds like it's contained. What about the cash collection issue? It seemed to appear that on the supplemental that they were in arrears, where is cash collection now?

Well it's still where it was we're about 45 days past due in terms of lease recognition. We expect that will be caught up over the course of the next several months, but that remains to be seen.

All right. And then just thinking about your overall portfolio, if you have to say, what percentage of facilities were underperforming compared to, which ones are improving. How would you break that down?

When you quarter-to-quarter well over half of our tenant base actually improved quarter-to-quarter but it's right on the margins, you're not seeing big movement and so, we feel pretty good that we're seeing a reasonably stable environment and just to reiterate. The one tenant that moved a lot is fairly big, so it has a little bit of an impact on the overall coverages. So frankly our coverages look pretty good from our perspective and the one tenant that moved didn't have anything to do with the external environment from a reimbursement perspective and frankly their revenues are fairly stable, all these changes you see flowing principally through the expense line. So we're up and down, but it's all on the margin. It's very, very consistent among our tenants.

All right, I think that's it for me. Thank you.

And our next question comes from Nick Yulico of UBS. Please go ahead.

On your cash flow statement, your operating cash flow was down year-over-year. You also had a big, it looks like there was an issue something with your accounts receivable. Can you explain, what's going on there?

Nick, I'll give you a call offline on that. I don't have the statement in front me to go through all the little details because there's number of little details, but one piece is what we just talked about on debt receivable.

Okay, so but was this a situation where you gave any sort of lease inducement?

No, no not at all.

Okay and so going back to this tenant who is not current on rent, it sounds like they missed a rent payment in the first quarter. I'm confused as to why then your guidance for the year doesn't get reflected. Why wasn't the guidance reduced, if you have a tenant that's not paying rent and still hasn't paid rent.

Well they're 45 days past due, so it's month and half, we spent an enormous amount of time understanding the plan and we look at Q1, with 1.09 coverage once the Northwest sales executed which were halfway through and we look at their plan going out throughout the rest of the year and it's pretty clear they hit their plan, that we're going to be back to current. But frankly at 45 days past due to start fiddling around with guidance just doesn't make any sense. We feel pretty comfortable that they're going to come back with coverages at their previous level, which is at our mean [ph].

Okay, just so I make sure I understand, even if their coverage comes back they still miss the whole rent payment, right? So why would they - just because if their coverage gets improves, going forward why does that give you confidence that they'll be able repay the rent payment that they already missed.

Because by definition if their coverage comes back, they have in excess of rental obligation which is cash that would then be paid to us, we're first in line, they can't move that cash outside their entity [indiscernible].

Okay. Just one of the questions is on Consulate. They're one of your tenants, they've had some issues, with some verdicts against them. Can you just explain what's your comfort level with that tenant right now and whether they're also, facing any sort of issue, where they may not have paid rent or there is a worry, that they might be able to pay rent.

Their current - our portfolio with them is small relative to all Consulate. It performs extremely well, so we don't think there will be any, but the rent payment is going to continue to repaid, there won't be any interruption in that payment stream. As you know, they're going through the court process in Florida, they filed a motion to dismiss. The judge is going hear that, but in the meantime the judge is also state any action has made the statement. I'm not going to affect lives of 15,000 residents in the State of Florida.

Okay and then just going back to the cash solution. I mean it will be pretty I think important to explain because if I'm looking at this, your operating cash flow was down about 10% year-over-year and yet your EBITDA was up 10% year-over-year. So there is something big seems like that happened in the first quarter, I don't know if it's just from missed tenant or something else that would be helpful to explain. Thanks.

Nick, it's Bob. I'll call you offline and we'll walk through statement and on the summary level. I'll go through all the detail with you.

Thanks.

[Operator Instructions] today's next question comes from Tayo Okusanya of Jefferies. Please go ahead.

Just two from me, first of all could you just talk a little bit about your acquisition outlook going forward. I mean, you only did $7.5 million worth of deals this quarter and you just talk a little bit about the pricing environment, kind of what you're seeing and how confident you're about deal flow this year?

So we think of the first quarter as a little bit of anomaly in terms of just the lack [ph] of deals that we did, we still have a pretty active pipeline. I would say that in the fourth quarter perhaps because of the election or perhaps for other reasons. There was a slowdown in the number of deals that were put out to market. And of course these deals, there was a lot of lag time, they take six, nine, 12 months from the time that we see until the time that they close. So there is a little bit of delayed effect there. So I mean I think that we'll see a pickup in deals over the course of the year. Once again, I think the first quarter was an anomaly, but it's not as robust so far as it was say this time last year.

Got you. And next part of what's driving that in 1Q just, the pricing environment there's like this pricing is still pretty aggressive which is why you're backing off.

That's part of it. Yes, we're seeing some pretty aggressive pricing and we're not going to chase deals. I think we can be patient. I think it's just also, they're just not as much in the market right now, once again, as we've seen historically in this time last year.

Got you. Okay that's helpful. Second question, there's potential change in methodology that CMS is proposing for [indiscernible] 2019 kind of churning off rugs for and kind of putting on this RCS systems, when you just take a look some of their estimates out there, it's clear that they're really kind of trying to target the ultra-high and high therapy reimbursement. Could you just talk a little bit about your tenant based on your exposure to that particular sub-sector where CMS seems to be going after really hard with this proposed change?

Well we think that the change to the resident classification system is, as I said earlier budget neutral by design and we don't think that there should be a great deal of impact when the system is finally rolled out. Principally because a lot of our operators who do a lot of short-term post-acute care are already involved in bundling programs, managed care and so have already figured out how to manage in an environment where payments are reduced and length of stay is incentivized to be little lower and that would be impact of the RCS system. Keep in mind that they're CMS's invitation to stakeholders to comment on this system, says that there will be a lot of changes before it's finally issued, if it does come out next year.

I guess that's helpful. But I think the point I'm trying to get out is, although it's meant to be budget neutral, if we just kind of take a look at what some of CMS's initial analysis is around, the changes. If you are a SNF that historically has done a lot of billing for the ultra-high therapy sector. It means that kind of suggesting that your payments could come down almost 10%. So I'm guess just trying to get a sense of again while its budget neutral it seems like, there are going to be couple of SNF out there that will get hit really hard and some other I mean actually benefit from it and I'm just trying to get the sense of your exposure to ease the bucket.

I mean, I think in general the more sophisticated providers and we have a bunch of them tend to have focused on therapy because of the profitability of those activities, so I think it's fair to think about our portfolio weighted reasonably heavily in the therapy area. But you also have to think about how this industry modifies its behavior based on where the profitability is. So the reason you see therapy as a focus, this is fairly profitable I think and you need to be very careful to say okay, the patient base is going to be completely static and you're not going to target a different patient base, but the rates move around. So I can't give you the precise number but I can say, my view is are more sophisticated guys are going to be more focused on therapy, than less sophisticated guys and part of the sophistication is an asset. In it they'll identify clinically complex, if that's becomes an area that has more profitability.

There are two things to remember, the resident classification system anticipates on the front end of therapy stays, the payments will actually be higher on a per day basis than they're currently and they taper off and the budget neutrality is achieved by shifting the dollars from therapy over to complex nursing. So as Taylor said you'll find operators who will basically target more of the complex nursing like Septicemia or COPD and some other conditions that are currently emphasized in the same fashion that the industry adjusted to changes when the PPS came out many years ago and became profitable with that. So I think there is a lot to be seen before we understand the impact to all of nursing homes.

Okay, that's fair. Thank you.

And our next question comes from Juan Sanabria of Bank of America. Please go ahead.

Just help me, if you could help us quantify the exposure with regards to DOJ and discussions some of your tenants are having. Could you just give us an overall sense of the percentage of NOI that those tenants represent?

Well you have three top 10, so you're probably 20% of NOI and then one outside the top 10 something like that.

On a fine exposure that we can't do that.

What do you mean by that sorry? In terms of dollar exposure that the DOJ may go after.

Yes.

Got you. Fair enough. With regards to I guess with Signature [ph] just by looking at exposure in the rents. Could you just comment on their overall capital structure what other debt they may outstanding and how that's placed and are you leases I guess senior to that or equivalent to any sort of debt they may have outstanding and are they current on their debt?

I'm sure they have a specific questions about operators or hard to manage, but I can tell you that they have a working capital line, I'm sure they're current on that. They don't have really any significant third party debt per se, they have different silos with different landlords and then there is some mortgage debt or leasehold mortgage debt on some of their facilities, but there is no material outside debt associated with that company.

And just to, the other part of your questions. Yes our lease payment is senior to everything [ph].

Okay and then just a quick question on your coverage expectations for the balance of this year or the next 12 months or what have you. With these assets sales, what do you guys think EBITDAR rent coverage moves to and is there way to strip out, what the coverage is excluding seniors housing or way to help us back into that at all.

Well when you think about the senior housing at 1.2, and 11% a year I haven't done the algebra but we can do the math. It's going to move the 133 for the SNF side up to I don't know, I'm just guessing 134 or 5 little bit. And then in terms of our outlook, we were happy with Q4 the preliminary results for Q1 looks steady so the important thing from our perspective, is we appear to be seeing an environment that's reasonably stable right now.

And with the asset sales, would you expect to an uptick in coverage or kind of holding the line.

Relatively speaking to the $10 million balance sheet, they're just not material. So they're just not going to move the dial much at all. I mean individually they do, we talked about the one tenant, but when you think about the whole, the global portfolio at a move coverage from asset sales, you'd have to have a very meaningful chunk of asset sales.

And just one last quick one for me. Could you comment or provide the disposition cap rates for what you did in the first quarter and expectations for what's left to do?

The best way, the way we look at it is, we feel like we're able to redeploy the cash at 9% to 10% yields and it all sets any rent that's lot and interestingly, typically assets that are being sold have cash flows that are below the rent obligation, so you have cap rates that on their face look very aggressive, but that's typically because these assets are being sold into local operators sans who look at them and say, I can do certain things in my specific market to improve cash flow.

Is the rent then moved to rest of the assets under any sort of master piece?

Well there, the typical deal is I guess the answer is but again it's not moving the coverage side.

Thank you.

And our next question is a follow-up from Nick Yulico of UBS. Please go ahead.

Thanks. I just want to go back to this issue of, what's current on rent in the supplemental. So just to be clear here, so for these tenants that are listed here, the one that was 6.5% of rent. Is that - did you actually get a payment from that tenant in the first quarter?

Yes absolutely. Otherwise, we'd be more than 45 days past due.

I'm sorry, what?

Otherwise we'd obviously be waiting more than 45 days past due. We're in May.

Okay, so there was no, so for the tenants that are listed here, there was no. Was there any sort of lost rent in the first quarter?

No.

Okay, thank you.

And our next question comes from Michael Knott of Green Street Advisors. Please go ahead.

Can you just take a second to talk about the possibility of healthcare reform that apparently is being voted on today and just any thoughts you have on, how that could affect the SNF environment going forward?

Michael, I'm going to ask Jeff Marshall to address that.

As the American Healthcare Act is drafted currently and we do think that even though it passes their house that will undergo a number of changes in the senate, if it does pass there. But as currently drafted the impact on nursing homes related to the Medicaid per capita caps replacing the current federal matching percentage system of funding state Medicaid programs. If that comes into play first of all the Act anticipates that there will be at least three-year transition before the limitation on funding to Medicaid programs is enacted [ph], but also likely those caps are going to be higher for the aged and disabled populations that you find in nursing homes then for adults and children's who are also on Medicaid, so that's one separator. There would also be an opportunity for states to make positive changes to eligibility that could restore for example long-term care insurance as a funding source for nursing home. So lot has yet to be told on this, but it could be an opportunity for improved funding actually as Medicaid funding might be restricted in future decades.

So the cap on Medicaid would be offset through something else, it sounds like.

Well the cap could be established based on current spending that the federal government is providing to states for the Medicaid programs, so it started at base level that currently is this year's level and it would increase by the medical CPI year-after-year but that limitation on the increase in funding wouldn't occur until 2020 giving states plenty of time to adjust their eligibility and other guidelines. And it's hard to say how that parses down into the impact on Medicaid provider rates because it's just a small part - or no small part but it is just a part of the overall Medicaid programs for adults and children as well.

If I had parse through all that, that it sounds like you guys aren't terribly concerned that this is a big overhang negative for your industry.

At this point, no.

Okay, can I also ask about the coverage between SNF and senior housing. I think just a couple calls ago, I had asked that same question and I think the answer was, there is no difference. I think the exact words were its immaterial difference between senior housing and SNFs in terms of breaking out the coverage and it sounds like you're saying now that, senior housing coverage is below the portfolio average which would make SNFs higher but does that mean your senior housing coverage has declined in the last quarter or two.

One of the challenges Michael is that, the senior housing portfolio even at a 115 units as we're adding units particularly perhaps in Maplewood units as they stabilized come online are going to sort of converge those coverages. I mean the SNF and overall portfolios almost 1,000 properties the senior housing portfolio is a much smaller number which makes that number a little bit more volatile.

Okay, maybe we can circle up later. I'm not sure I hear what you're saying, but it just seems like the answer has changed quite a bit in a couple quarters.

The portfolio gives you along [ph] with it.

Okay. That's it for me. Thanks.

[Operator Instructions] I'm showing no further questions. I'd like to turn the conference back over to the management team for any final remarks.

Thank you and thank you for joining our call today.