Good day ladies and gentlemen and welcome to the Sabra Healthcare REIT Inc Second Quarter 2014 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. 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 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, 2013 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 refurnished to the SEC yesterday. These materials can 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 Healthcare REIT.

Thanks Talya. Thanks everybody for joining us this morning. We appreciate it. So for the quarter we recorded 33% revenue growth quarter-over-quarter, 39% normalized FFO growth, 29% normalized AFFO growth. We’ve closed on 184 million in investments to date. Our pipeline currently stands where it has, which is approximately 400 million, of that 400 million 65% of that is senior housing. I’ll try to be a little bit more specific. So, that’s where we are on a go forward basis, about 400 in the pipeline we are actively working on 260 million, of that 260 million, 235 million in traditional sale leasebacks. So the year is shaping up actually to be quite a bit different than last year where a lot of the investments were focused on development opportunities this year and now the majority of our investments in more traditional sale leasebacks and more of our bread and butter. In terms of cap rates and competition, there has been some compression on cap rates and really we think for at least one specific reason. Historically, we saw the non-traded REITs bid up properties, but they got big enough and at least for us and I think some of the peers that we compete with, they weren’t playing sort of in the same circle that we were, so there was really no price dislocation. Now we’re seeing financial buyers come in who seem to think that it’s a great time to enter senior housing and in all likelihood they will be a little bit surprise when they have to exit those properties five to seven years out. But they’re clearly bidding up for properties and they’re bidding up smaller portfolios, so we do see some of those guys. Now they usually are competitive only in circumstances where the entire business…

Thanks Rick and thanks everybody for joining the call today. I’m going to provide an overview of the results of operations for the second quarter and then our financial position at the end of the quarter and then I’ll talk a little bit about our revolving credit agreement. For the three month ended June 30, 2014, we recorded revenues of $43 million compared to $32.3 million for the same period of 2013, an increase of 33.1%. Interests and other income totaled $5.5 million for the quarter and included $4.1 million of interest income and $0.4 million of preferred returns on our total investments in loans receivable and other investments of $225.8 million. As of June 30, 2014, 46.8% of our revenues were derived from our leases to subsidiaries of Genesis down from 60.8% a year ago. FFO for the quarter was $22 million and on a normalized basis was $25.1 million or $0.57 per diluted common share, normalized to exclude a $2.9 million write-off of straight line or rental income primarily associated with the lease amendment we entered into with Tenet Healthcare for our Texas Regional Medical Center investment that we had announced earlier this quarter. In addition a $0.2 million loss on extinguishment of debt was normalized out of FFO related to debt refinancing activities that occurred during the year. This normalized FFO compares to $15.6 million or $0.41 per diluted common share for the second quarter of 2013, an increase of 39% on a per share basis. AFFO which again excludes from FFO acquisition pursuit costs and certain noncash revenues and expenses was $23.5 million and on a normalized basis was $23.6 million or $0.53 per diluted common share compared to $15.7 million or $0.41 per diluted common share for the second quarter of 2013, a 29.3% increase…

Thanks, Harold. Why don’t we open it up to Q&A now?

(Operator Instructions) We’ll hear first from Emmanuel Korchman from Citi.

Can you provide an update on the Forest Park Dallas deal, the one that had the put option in light of sort of what’s happening with Frisco with the change from that network to network and the volume shift there?

Yes, no different than what we’ve talked about earlier. They’re just working on getting their volumes up. They’re almost completely in network now, but not all the way there. So we’ve got plenty of time on that mortgage. So we’ll exercise the option whenever, we see coverage get to probably something in excess of two times. There’s no rush on our part to do it. That mortgage is in place for a few years. Obviously, we expect to exercise it before that and the purchase price as you recall of 168 of which we -- the mortgage is 110 -- the maximum purchase price. And so that could -- if they get to coverage level that of 2-1/2 times and we still feel comfortable enough to exercise the purchase option. We in fact may wind up paying less than the 168. So if we’re getting a good return on our mortgage, we’re happy to live with that for the time being and when it’s appropriate, we’ll exercise it.

Great and then going back to your commentary on sale leasebacks or sort of more traditional investing making up the remainder of the process for this year rather than development pipelines, a couple of questions there. Are these going to be sort of structured the same way they’ve been able to structure things with pipelines and their slow development component? And the second question is, is there anything sort of changing your view that you want to do more sale leasebacks rather than developments or is that just sort of the opportunity set and you’re taking advantage?

Yes, it’s not a matter of doing anything really by design this year. Last year it was because last year we were really focused on getting as many development partners lined up as possible. And so we have six now with formal and informal pipelines, and so a lot of projects are sort of breaking ground within relatively short periods of time and so there was a lot of investment activity related to that. Now, it’s going to take time for those things to mature for us to exercise options. And you’ll see these properties come on more sort of one at a time and space out. So that’s really why there’s less development investment if you will and there’s actually, we’ve actually seen more sale leaseback opportunity this year than last year so. We’re just taking advantage of that and it’s pretty much our bread and butter, the fact that those opportunities are more towards the senior housing side and the SNF side, plays to where we want to go anyway.

We’ll take our next question from Juan Sanabria from Bank of America.

Hi, good morning guys.

Good morning.

I was just wondering for some clarification in terms of what is or isn’t included in guidance with regards to the future acquisition in that pipeline you’ve noted and within that pipeline if you could just give us a sense of clarity as to what may be related to options for future take outs that you currently have in place versus sort of new incremental acquisitions.

Well the guidance as we stated after we reaffirmed the equity offering only assumes a small amount of investment regardless of whether that investment is development related or sale leaseback related. So, our expectation is that if we hit our numbers which we expect to hit relative to the amount of volume this year, we could exceed guidance. That’s going to depend on sort of the timing of those acquisitions. It’s really just a function of that. So I think the opportunity is there for us to exceed guidance, a function of how much and timing. But however you cut it as well as we hit our numbers, we expect to in terms of total investments for the year, it’s really going to bode well for 2014 because our year-over-year growth 2014 over 2013 is going to be really strong, as a hazard obviously with almost 40% normalized FFO growth as you saw in the current quarter. Does that answer your question Juan?

Yes, and does the pipeline include any I guess options, many sort of asked about the Forest Park, is there anything else? That doesn’t sound like it -- that pipeline.

No, the pipeline is almost entirely sale leaseback.

Okay.

And of the 260 that we’re working on, 235 of that is sale leaseback, but there is no assumption on the Dallas Hospital being exercised this year in that pipeline.

Okay. And can you talk at all about any cost pressures some of your operators may be seeing on the senior housing side either on the labor or the food cost or maybe insurance as well, is that an issue that has come up at all with your discussions with the operators?

No, not at all. Their coverage has been really steady, occupancies improved really nicely as our senior housing portfolios maturing some show - we haven’t seen any issues on the cost side and haven’t gotten that feedback either.

Okay. And I guess just...

Let me just clarify one thing there. I think they would expect some labor cost increases but that’s just in line with acuity going up and they should be capturing that on service charges. So that’s just sort of the natural evolution of the model, but nothing apart aside from that.

Okay. And then just going back to one of the previous questions on sort of development versus sale leaseback, do you have sort of a target that you feel comfortable with that you’re willing to have as a percentage of total investment dollars or what have you as sort of a ceiling for development type investments whether it’s preferred equity investments or construction loans or anything like that just as a way to help us frame your exposure there?

We really don’t have a target, the exposures never going to be very much even with all the development that we’re doing and, obviously we have a lot going on and the reason it’s never going to be very much is really two fold, one sale leaseback is always a primary focus because our most important goal here still is to diversify a way for Genesis to keep getting that number down and to diversify asset class. Secondly, the amount of investment on every preferred equity strip, which is how we typically provide financing to these development projects is minimal. So, if you look at any individual project that may be $10 million to $15 million, you’re looking at $2 million to $4 million in preferred equity on any one of those projects. We can be doing three dozen of those projects and it’s still going to be dwarfed by our other investment activity and traditional sale leasebacks.

Okay, great. Thank you very much.

Yes.

We’ll take our next question from Josh Raskin from Barclays.

Hi, thanks.

Hi Josh.

Hi Rick. We’re here with Jack as well. So, I appreciate all the commentary on the pipeline and the current investments but I guess on your current operators, we’re seeing better trends from the hospitals in terms of admissions and I’m wondering is it too early to see some of that downstream effect on some of the SNFs I don’t know if you want to break out Genesis separately, but are you seeing any additional volumes at your operator level?

No, we really haven’t seen it yet I would expect that to be the case, but there is a real problem here with the observation date and I know I keep talking about that on every call and I don’t mean to harp on it but it’s a real issue. It’s a real problem and that’s why we’re sort of cautiously optimistic about this latest potential legislation from congress, because as long as there is a three day qualifying space in order for people to qualify for Medicare in a skilled nursing facility then the observation date just killed that. And facilities don’t want to take patients from hospitals that are too high acuity if all they’re going to get a Medicaid for it.

I mean because of anniversary in another quarter here in the next quarter. So I assume, it seems like there’s just a little bit of a lag, right. The hospital admins comment and then it flows downstream so, are you guys optimistic more around the fourth quarter then?

I’m not going to be completely optimistic until the observation date issue is -- I mean if you look back two years ago to where skill mix is going in our sector generally, it was going up on a regular basis. So, there might be some trickle down in the fourth quarter, which we would then report in the first quarter, but I don’t think there’s going to be a real improvement in the top line until the observation date issue is resolved. I do think that it’s just a matter of when and not if only because it is a beneficiary issue. It’s not a provider issue. If it’s a provider issue then congress is going to be less sensitive to it, but as a beneficiary issue, as these numbers continue to grow in terms of people that are being denied benefits that are theirs the, the public outcry is going to start to become greater and the actions being taken now with lobbying group and congress simply because there’s no better time than an election year to try to take advantage of the beneficiary issue.

Got it and hey guys. This is Jack. I had one more question on the operations on the SNF side. One of the things we’ve been tracking is managed long term care and one of the states that switched earlier this year was Florida. I was wondering if your operators in that state have seen something. Do you usually see some sort of step function or is that just a longer term trend we’re seeing where that population’s getting more managed?

Yes, that’s a longer term trend. We’re not seeing anything yet at this point. It’s still a pretty small percentage of the overall occupancy in the facilities, and yes so it’s going to take some time I think. And it’s -- the operators are going to always prefer to take those residents or those patients over Medicaid and that by the way is unaffected by observation date, so there’s an advantage there. Now, the managed care rates are going to be at something of a discount to Medicare rates, but they’re still going to be pretty good. But it’s going to take a while for it to filter down I think.

We’ll take our next question from Paul Morgan with MLV Investment Bank.

Just on the Genesis EBITDAR coverage change that you mentioned is that just -- I think of just that being a step up or is there, would the trend look any different once you, once you report it the new way?

I mean directionally this still would have been a lighter quarter before trailing 12 months in the previous quarter, but it sort of had a higher base to begin with. Is that what you’re asking?

Yes, I’m just wondering if the fact that the costs were being allocated differently, if that component in the business would have meant that, the directionality of the coverage would be slightly different or rather just you’re just going to start reporting slightly higher numbers really?

Yes, I don’t think, it would be different directionally, but the numbers will be higher on a go forward basis.

Okay, great. And then, you’ve talked a lot about diversifying into private pay and lowering the Genesis share. I mean, how do you think about, when you think about assisted living and memory care, the supply picture when you’re underwriting some of the new investments you’ve been doing like in Texas and Colorado kind of managing, kind of the risks of that side of the equation versus your efforts to boost the private pay share?

So, our focus all along has been to -- one we keep an eye on the development that’s happening in the areas that we go into knowing that that’s never going to be a complete picture because in certain states there are lower barriers to entry than other states, Texas being a prime example. But we have tended to focus our development opportunities in secondary and tertiary areas and that’s where we do think we have a little bit of a hedge there because we are sticking with local or regional operators that really know those markets. They’re smaller MSA’s and so the big guys tend not to go there and land’s cheaper. Construction costs are cheaper. You can build a 60 unit facility and fill it more easily with private pay. You don’t have to build 150 or 200 unit facility. So, we’re trying to hedge our bets a little bit by just being cautious about where we’re building and trying to pick our spots where our operators really are known in those communities. And so they have a little bit of a leg up and again the big guys are -- it’s not going to be as desirable for them to go in there.

Okay, thanks and then just lastly -- just kind of setting expectations for the hospital coverage. I mean I know that there’s moving pieces in terms of how the in-network contracts get negotiated and volumes start to increase. But if I think of the back half of the year, I mean is it right to think of a boost in coverage coming out of the rent change at Texas Regional and then maybe starting in Q4 maybe not until early of next year kind of improvements coming out of Frisco?

Yes, I think that’s exactly right. You’ll see the more immediate change in coverage at TRMC because of Tenet and not really just because of the rent change, but because of the contract rates that they’ll bring in with them. And the cost advantages that they’ll bring in with them. So it’s really a combination of like those three components. So even in the event that likely the same, you would still see the rent coverage improvement in the tenant facility. In terms of Frisco, that’s exactly right I think its earlier next year before we start to see improvement, because the last in network contract doesn’t come in place until, the third quarter is about halfway done. So, it’s going to take a while to build volume off of that.

Okay. Thanks.

We’ll move onto our next question from Tayo Okusanya from Jefferies.

Hi, good afternoon. Just a couple of quick ones. First of all G&A for the quarter just seemed a little bit higher than the usual run rate I was just wondering if we could get some backdrop on that?

Tayo, we hired a few people here it’s the company, we’ve added 20% or 30% to our workforce, which is like two people. So it is up a little bit from that perspective, but if you look at the, what I would call our run rate on the cash corporate level G&A cost, last year was around 1.7 million. This year it’s around 2 million. So, again accounting for some hires and things like that, but I think that area of around 2 million in cash, that should be kind of where we are kind of given where we’re at from a size perspective for the foreseeable few quarters. So it looks like there is a lot of moving parts there I tried to walk through a lot of that, but on a cash corporate level basis somewhere around 2 million is where we’re at and I think where we’ll be. And as a percent of revenue obviously that drops quite a bit because we’re still even adding, best in house and going from eight people to ten people in the last couple of years. It’s still a great leveraging, it’s still leveraging, because our pre tax EBITDA is so strong relative to our infrastructure does.

And what are these new employees, which areas do they go into, are they more financial reporting guys, operations guys?

Acquisition support and accounting support.

Okay, that’s helpful. And then second question, I’m just wondering if you guys have touched base with the rating agencies recently and kind of, the overall viewpoint in regards to you guys getting credit grading upgrades if that’s changed materially or how good you’re kind of feeling about hitting some of their metrics that kind of get you the investment grade rating that you want.

Yes, we haven’t yet Tayo. We’ve got meetings scheduled with them in September, so we’ll have an update in our next earnings call, but we stay in contact with them periodically throughout the year. The last meeting we had with them they obviously laid out some bogies for us for getting to the next level. I think what we’ve done this quarter moves us in that direction. It still continues to be very much driven by getting Genesis down and to some extent getting skilled nursing down as a percentage of our portfolio. So we still have some work to do to get to investment grade, but I think we’ve made good steps here and like I said we’ll have some more color on that next time next quarter and you should also expect us to bring - in at some point as well so we’ll have

Okay, great. That’s helpful. Then just one more from me, thanks for indulging me. And Rick, just again this idea of cap rate compressing, could you kind of talk for the more competitive deals kind of what you’re seeing regards to cap rates in the skilled nursing side as well as the senior housing side?

On the senior housing side where last year we could get a lot of things done at an eight cap, now we’re looking at, seven in a quarter, seven and half caps for facility memory care. For skilled nursing we’re seeing, we used to see sort of the best sort of class facility in the skilled nursing asset class at about 9%, but still a lot of the more traditional stuff closer to 10. Now we’re seeing pressure pushing it into the eights. Tayo Okusanya – Jefferies: Got it.

And that just to be clear, that’s lease particularly on the SNFs it’s relevant, that’s a lease rate and we use about a 1.5 times coverage typically to underwrite. So that’ll give you a gauge of where things are headed.

That’s very helpful. Thank you very much.

Yes, sure.

We’ll hear next from Rob Mains from Stiefel. Rob Mains – Stiefel: Yes, thanks. Good morning out there.

Hi Rob.

Rick, you talked about seeing financial buyers in the market, is that for senior housing or is that across asset classes?

It’s senior housing.

Yes, I haven’t really seen them show up in the skilled nursing segment for material at least materially, but then again we’re not looking at a lot of skilled nursing facilities these days. We know that have some of the PEs are in the hospital sector not that we haven’t come across them on our deals. It’s really that they’re driving very much into I’d say private pay senior housing across the care spectrum there or across acuity spectrum there.

Okay. And then in terms of competition from other REITs, has that changed at all?

No, that hasn’t changed. It’s still sort of the same group of us that are focused on the smaller portfolio deals versus the larger deals. And then with the larger deals, I would say that some of us are also now looking at larger deals as well. And certainly for us, I think as I’ve mentioned on previous calls, our cost of capital’s decreased so dramatically. And now that we’ve deleveraged the quality that we are really have the opportunity to look at large deals and to at least be competitive. Whether we win or not today is one thing because there may always be someone especially the three bigs or a North Star that are willing to pay whatever it’s going to take to grab some earnings. But we’ll at least be able to be competitive and that’s a place that we wouldn’t have a year ago. Rob Mains – Stiefel: Okay. Then kind of a two part question because we’ve heard a lot about the competition in senior housing. What do you think is driving down cap rates for skilled nursing and why not do more in that sector in your view?

Well I’m not sure exactly what’s driving it down and clearly Omega’s done some big deals where they’ve paid up. And it’s a little bit different than what we saw in senior housing when in 2003 when the three big REIT’s were really competing for volume deals. The prices that they were paying up weren’t really translating down to our level. But the pricing that’s been paid for some of these bigger SNF deals does seem to be getting pushed down to the smaller portfolio level. We’ll see if it lasts but for us I would say that we’re always going to buy skilled nursing facilities. We just want to buy more senior housing facilities. And if we find a good skilled asset that a year ago was not in the quarter and now it’s going to be 875. It doesn’t mean that we won’t do that deal frankly because our cost of capital has come down enough that our spread’s still going to be really good. And we’re still going to be willing to pull the trigger on this. Rob Mains – Stiefel: Okay, thanks and last question. I just wanted to clarify the answer you gave Josh about the observation state. Is the issue that an entire state is being coded observation or there’s being split in patient observation and not getting the 72 hours inpatient?

Wait, say that one more time Rob. Rob Mains – Stiefel: The observation stay issue, do you have like a patient presents for like joint replacement that their entire stay is being coded as outpatient or as observation/outpatient or are they just not getting the 72 hours inpatient?

They’re just not getting the 72 hours inpatient. Rob Mains – Stiefel: So, some of it is inpatient, some of it’s out?

It may be. I mean I don’t know specifically. So it may be, it may or may not be but enough of it isn’t that they don’t qualify for the 72. Rob Mains – Stiefel: Got it. Okay, that’s all I needed. Thanks a lot

We’ll take our next question from Michael Carroll of RBC Capital Markets.

Thanks. Can you guys remind us how the price is decided on the senior housing development projects? Is that pre-negotiated?

Yes. What we do is when we in the context of a pipeline or in the context of any agreement, we pre-negotiate a formula that is based on an annualization of actual EBITDA at the time of the exercise. And we have a set coverage ratio and a formula for cap rate, so with typically a floor for the cap rate as well so it’s not less than.

So are you going to be able to buy these assets at better cap rates than I guess where some of these are trading at currently in the market?

Yes. Now whether that’s, I can answer the same with the same answer in 24 months, I don’t know, but today I would say yes.

And has that formula changed? I guess do you only have that predetermined with the two pipelines you have officially under contract? What about the ones that are not I guess official?

Even the non-pipeline deals whenever we have a forward purchase that is more than a few months out - we create a formula like that.

The only difference between the formal pipeline deals that we have and the informal is that the formal pipeline deals have their formal agreement in place, if you will for say ten projects where the other ones just don’t have that in place, but how we approach those projects are exactly the same. We just do them as they come as opposed to having a document that says we’re going to do ten with you.

Okay. Is there a reason why the Forest Park construction loan, there’s only about 50 million drawn on that? It seems like that the draw’s not coming as quickly as it should be.

To answer your question, I don’t think there’s any delay. In other words I think that the project is set to be completed in the next month or two. And so probably like any other project that I’ve seen, you’ve always got a hold back in your system delay in time for the final draws to come in. So I think that’s really what we’re seeing.

You pay, actually, you pay in ways after the work is completed and there’s always a timeline plus as Harold says, retainage until the very end to make sure that there’s succinct over the contractors.

No issue there Mike.

Okay and then my last question is related to the street line rent write-off. It seems like it was, I know it’s kind of modest, but it seems like it’s about 500,000 higher than what was previously reported, is there something different there?

Yes, we’ve got the two assets that we’re working through bringing in new operators and those straight line rents were also written off.

Okay. So it’s in addition to the hospital.

Yes, we have two SNFs that we’re bringing in new operators on and SNF material, but we have an opportunity to bring operators that we wanted to work with.

Okay, great. Thanks.

(Operator Instructions) And I’m showing we have no further questions.

Thanks everybody for your time today and Harold and Talya and I are available for any follow up that anyone may have and have a great day. Talk to you soon.