Good day ladies and gentlemen and welcome to the Sabra Health Care REIT Inc. Third 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. Ms. Nevo.

Thanks Diana. 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 and our Form 10-Q for the quarter ended September 30, 2014, that are on file with the SEC, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included at the end of our earnings press release and the supplemental information materials included as Exhibits 99.1 and 99.2 respectively to the Form 8-K we furnished to the SEC yesterday. These materials can be accessed in the Investor Relations section of our web site at www.sabrahealth.com. And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks Talya and thanks everybody for joining us this morning. I know you guys have a lot of calls on top of the [indiscernible], so we really appreciate your time and attention. We delivered another strong quarter, a 34% revenue growth, 9% normalized FFO growth per share, 19% normalized AFFO growth per share. We increased our dividend 2.6%. We have done $863 million in investments to-date, and we have included in that number as $82 million that we have done since quarter end. Included in that $82 million, one of the things I want to highlight is, we did a skilled nursing deal in Oklahoma, three facilities that are really transitional camp facilities, [indiscernible] the license and skilled nursing facilities. The company has vision, and essentially what they did was they booked traditional nursing facilities, they gutted them, put it in almost all private payrooms in two of the facilities, and the third facility is still in process as far as that goes. Two of the facilities have de-certified the Medicaid program. The third facility only has two Medicaid patient [indiscernible]. So these are really the new model. They are short stay, all Medicare, managed care, primarily private payrooms, very nice accommodations inside, and these are the kind of facilities that we'd like to do more of, but there really aren't very many operators that are in this for long in terms of developing the model, so they are sort of few and far in between, but we are happy to be partnering with Vision as the new tenant, and they are looking to grow the company, so we anticipate more of this model with them and we refer to them really as traditional care facilities, because that's what they are. Individuals go there for surgery, they do that for…

Thanks Rick and thanks everybody for joining this morning. I am going to provide an overview of the results of operations for the third quarter of 2014, and our finance position as of September 30, 2014, including pro forma information to take into account activity during and subsequent to the quarter. For the three months ended September 30, 2014, we recorded revenues of $44 million, compared to $32.9 million for the same period in 2013, an increase of 33.6%. Interest and other income totaled $5.8 million for the quarter, and included $4.6 million of interest, income and $0.5 million of preferred returns on our total investments in loan receivable and other investments, $250.7 million. Pro forma for transactions completed after September 30, 2014, 35.9% of our revenue is derived from our leases to subsidiaries at Genesis. This is down from 60.6% a year ago. FFO for the quarter was $24.4 million and on a normalized basis, was $24.6 million or $0.51 per diluted common share, normalized to exclude the $0.2 million loss on extinguishment of debt. This normalized FFO compares to $17.9 million or $0.47 per diluted common share for the third quarter of 2013, an increase of 8.5% on a per share basis. FFO for the quarter, included acquisition pursuit costs that were higher than what we have historically incurred, which totaled $2 million or $0.04 per diluted common share. Such costs primarily related to the acquisition of the holiday portfolio. Normalized FFO would have been $0.56 per diluted common share, excluding such costs. AFFO, which excludes from FFO acquisition pursuit costs and certain non-cash revenues and expenses was $24.6 million or $0.51 per diluted common share, compared to $16.3 million or $0.43 per diluted common share for the third quarter of 2013, a 19% increase on a per…

Thanks Howard. Why don't we open it up to Q&A now?

Thank you. (Operator Instructions). We will hear first from Joshua Raskin from Barclays.

Hey Josh.

Hi, this is actually Rachana Fellinger on behalf of Josh. Thanks for taking my questions.

Sure.

Just a couple of questions; the first one, can you help us differentiate the Holiday assets from other kind of your housing assets, and what are some short term opportunities to increase your NOI there?

Not sure what you mean by differentiating them. We weren't operating them, so they aren't really -- but we provided the rent -- the fixed charge coverage, but we weren't operating them yet. So you will see more data on those on a going forward basis. But in terms of the NOI opportunity going forward. Remember these are -- they are all triple net lease. So the NOI opportunity is, unlike the other holiday deals that were done, this one, we have no cap on our rent escalators. So we are 4% in years two and three, with 3.5% thereafter. But again, there is no cap. But that's -- the material difference we think, versus the other deals that were done with the Holiday portfolio, and helped it online to mitigate the cap impression that had occurred between last set of deals and the deal that we did. Beyond that, we see quite a bit of operational opportunity, more so in the seven more recently acquired facilities of the 21, but still operational upside in the other 14. That simply will give the operator more push relative to rent coverage, and to absorb those escalators on a go forward basis. So really what you should anticipate is, again, NOI growth of 4% for the two years, 3.5% thereafter, and then as interest rates go up, if CPI exceeds that 3.5%, then there will be that much more NOI growth.

Okay, great. Are you seeing any changes in SNIP pricing, especially after the recent OHI and Aviv announcement?

Yeah, a little bit. But there was already some cap rate compression on SNIPs. I mean, basically whether you look at the larger portfolios or sort of the under $100 million deals that are our primary focus and as well as some of our peers, there has been a 50 to 100 basis point cap compression depending on the deal, right? So to be a little bit more specific on our Oklahoma deal for example, now those are very high end skilled nursing facilities as I said, and we got a 8.5% cap rate on those. A year ago, probably 9% cap rate, maybe a little bit higher, so that's kind of the difference. So the best in class, I think we have seen a 50 plus basis point cap rate compression. For the more traditional long term care facilities that still have a very health percentage of Medicaid patients, I think they are still closer to around 10% cap rates, 89.5%, and before you've never seen them below 10%. So I'd say 9.5% to 10% range on those.

Okay, great. Thanks a lot.

Yes.

We will take our next question from Emmanuel Korchman with Citigroup.

Thanks. Its Archena for Manny.

Yeah, hi Archena.

Hey. So on the earnings release, you guys have talked about some of the bread and butter deals, and we can expect additional transactions by the year end, could you give us a bit of color on the composition of the pipeline going forward?

Yeah, well the transactions that we expect to complete by year end are going to be material at this point. We got most of it done. But the composition of the pipeline is really identical pretty much to where it has been, I'd say over the last 15 months or so Talya?

I think that's right.

That was 65% senior housing. But we'd say senior housing in our pipeline, its almost all assisted living memory care, not independent living. And then the other 35% is skilled nursing, and again on the skilled nursing stuff that we are seeing, its more traditional skilled nursing as opposed to the Oklahoma portfolio, which kind of as I mentioned earlier. Its really where the model's going, so most operators just aren't there yet.

Okay, great. Thanks. And also the additional coverage, fixed coverage has been very helpful, could you give us some color as to why the Holiday portfolio is at that 1.25? It seems very much in line with the Genesis portfolio. Is there something additional that we should kind of keep in mind, or do we see that pick up a little forward going forward?

Well I think our view is for -- include Holidays in the tenant living, the 1.25 coverage is pretty strong. For Genesis, we would like to see it get a little bit stronger. We expected to post the skilled merger and once you get to the integration of that merger. The skilled facility portfolio, its just a more complex portfolio and as you know over the past few years, they have gone through rate changes and recovery from rate changes, and then they had the integration of the Sun portfolio. So we are comfortable with the Genesis coverage. We do expect to get better. The Holiday coverage is actually pretty strong we think at 1.25.

Okay, great. Thanks for that color.

Yes.

We will hear next from Paul Morgan with MLV Company.

Hey Paul.

Hi, good morning. So for the -- you know, in thinking about the acquisition mix that are post-Holiday, does it make you more inclined to pursue more SNIP deals, since you have had your objective to raise the private pay share before? I mean, do you think now we will see sort of this steady, like you say 65-35 mix where maybe before you had a [indiscernible] growth in the private pay share?

Yeah it’s a good question. I think we still want to focus more on senior housing and skilled nursing. We really love the Oklahoma portfolio, because its so sort of far ahead of the curve in terms of where the model is going. So when you see skilled nursing facilities that have an excess of 40% skilled mix, you're really going in the right direction. So for us we are trying to be a little bit picky, I'd guess, in terms of trying to find -- knowing that we are not going to see -- in our remaining portfolios like the Oklahoma, where they are all skilled mix. But trying to find facilities that either have demonstrated that they are actually changing their model to more short stay, or they have the potential to be there, so they have got a good management team in place, they have the right strategy in the right markets to do so. So skilled mix maybe lighter on the day we buy it, but we see the upside there. So that's I think the main thing for us, and we are happy to do a bunch of that if we can find it, but that's really the criteria. And so if we can lot of skills, assets, such that kind of criteria, and that means instead of doing 35% skilled facilities, we do over 40%, and that's kind of the way it will play out. But we want to really look at it [indiscernible].

Okay, great. That's helpful. And then on the hospitals, I noticed you took out the coverage reporting and looks like the gap really [indiscernible] it down a little bit, maybe just a little color on how those hospitals have been going through the transition process you talked about before, and actually whether more recently, there has been any dislocation because of the ebola in Dallas and whether that's diverted admissions towards to your hospitals, of course, following procedures etcetera?

Yeah nothing on your ebola piece, because the Frisco Hospital, and as well as the Dallas Hospital, which we don't own yet, we just have the mortgage on full private pays are just -- I think that was a particular [indiscernible], but I just don't think that population is going to those hospitals; because those hospitals focus on procedures that are really short staged from an in-patient basis, they are all rehab oriented. So it’s a very different kind of population. In terms of the physical facilities, so we really have two hospitals, the Tenet facility, which is TRCS [ph] covered with the fixed charge coverage. On the Frisco facility, they are now all in network, and basically what we found is, knowing that as they were from out of network to in-network, until their volumes started picking up, that rent coverage wasn't yet light, and just reporting rent coverage on the one hospital really created -- we felt it was unnecessary consternation, and so what we will tell you is that, it has now been three months since they have gone fully in network, in those three months, they have had the three best volume months that they have ever had, and each month has been better than the rest. But because we report on a trailing 12 month basis, its going to take a while for that to sort of pick up. So we are fine with the hospitals that are going exactly in the direction that we expect them to. The volumes are picking up as we expected them to, with all the payors in network now, and once that kinds of smoothes out on a trailing 12 month basis, and its really stabilized, then we will go back to reporting that at the facility level.

Okay, makes sense. Great, thanks.

Yes.

We will take our next question from Juan Sanabria with Bank of America.

Hi, good morning.

Hey Juan.

I was just hoping you could give us a little sense of a couple of things on the balance sheet side. I guess first on the ATM, what do you think you could raise, all else being equal on a quarterly or annual run rate to kind of help delever and then secondly, just on the timing of when do you think you could get an investment grade rating, post the Holiday transaction?

Sure. So on the ATM program, obviously the recent equity offerings that we have done have made the ATM more productive, given that its increasing our volume and will increase our volume of shares trading on a daily basis. So that's a positive from the equity offerings, in addition just to raising the capital. And so, looking forward, first of all, we can't do anything on the ATM until our lockup period is closed for the equity offering for the next 30 days or so. So you won't see a ton of activity in the fourth quarter, if -- once December comes around, we can kick it back off, and you have to keep in mind, we can only use it about seven months out of the year, seven months out of the 12, the rest time we are in blackout periods. So somewhere interest he $20 million to $30 million range per month is doable, its possible, and so you could extrapolate from that, doing something around $125 million to $175 million between and the end of next year is possible, subject to our -- obviously our share price holding up and being at an attractive level. And that can get our leverage back down; if we were to do that and continue to make acquisitions consistent with what we did this year, excluding the holiday portfolio. So that can get our leverage moving back down to around five or below five times; and so that would be a nice place to get from a leverage perspective and we had that opportunity, again without having to go out and do anything that would affect the stock price on a large scale. That level of $125 million to $175 million would be counted right in the sweet spot around doing something that wouldn't have this significant impact. And from the perspective of investment grade rating, I think we are still ways away. I think we are getting close to the above one level, but obviously, the rating agencies won't telegraph to you a specific time, and even really specific details of what they are requiring, because there is some subjectivity around the concentrations in the size. All our stats indicated, we should be rated higher, and with this transaction with Holiday, we will expect the next go around. We have a really good shot at having another bump that would still leave us one notch below investment grade. So if I am guessing, its probably 18 months out before we could see something like that, kind of given our normal acquisition pace. But its speculation.

Okay, great. And then on the hospital side, on the Forest Park assets were, you have the opportunity down the track to buy those assets. Are those assets now transitioned to interest networks that are in network, and are you seeing the same sort of stats from a volume perspective and a coverage perspective to where you'd expect that when you had those options, that you'd be comfortable executing those opportunities to acquire those assets?

Well, the Fort Worth facility, the construction really just finished. So we are a long way away on that one. But other than that I would say that, because Dallas is a first facility with every facility that would be opened after that, they just sort of got better at it, and they went in network more quickly, so we would expect Fort Worth to get off to a quicker start. Dallas has taken the longest, because it’s the largest hospital and it stayed out of network the longest, but we are seeing similar trends there to what we saw -- to what we are seeing right now at Frisco, where as -- regarding network, volumes are starting to increase, but Frisco is doing really well in that regard. So -- and we have got, I think about a year and a half left on the auction on Dallas, so we still have plenty of time there. Although we would expect that they'd kind of be there before them.

Okay. And then on the sort of transitional care Oklahoma portfolio, just what's your sense of how long it takes a product or a new asset to stabilize, given the shorter length of stay? Sort of what's required from a staffing level to kind of get the volume in and get the referrals from hospitals to make the model work?

So I think with the Oklahoma facilities, and its probably a relatively decent proxy; they almost had to empty the facilities, when they were guiding them, and I would say, it took them up to a couple of years to fully stabilize, to the point where they are -- at the point that we acquire them, maybe a year and a half. A part of that -- maybe there are a couple of factors that go into it. It’s the markets that you're in. They pick good markets, and it really did a good job kind of ahead of time, developing relationships with the primary referral sources, and then it’s the execution of the management team, with the management team good enough to go there. But I think the way they did it, made it a little bit easier, because they were -- most facilities in this sector are getting rid of their three bedrooms, they are going with two bedrooms. But these guys gutted the facilities completely, and they still own private rooms in place, and that made them more attractive more quickly. But I would say so -- so they took a very different approach, especially regarding the facility and started from scratch with the new building, where 99% of the rest of the sector is just doing it through attrition. They are putting new clinical programs in place, as the Medicaid population kind of attritions out of the facility, then they are focused on just doing Medicare and managed care units, and for most of the operators in our skilled portfolio, including Genesis, over 80% of their admissions are currently short stay patients. You still have a long term care patient that's in those buildings, that's still going to be there for a while, and those are…

Thank you.

We will hear next from Chad Vanacore from Stifel Nicolaus.

Hey, good morning.

Hey Chad. Good morning.

Looks like you're running right at your asset right now. Is that something we should expect to grow in the portfolio [ph] going forward?

That asset is part of our first Phoenix development platform that was the first pipeline that we did, includes 10 facilities. Its never going to -- even when its all 10 facilities are stabilized, its never going to be much, because the way we structure that RIDEA, is we own 100% of the real estate, and only the [indiscernible] JV and that's 50-50. So its just never going to be material. And that's all we have in the portfolio that's right there.

Okay. And then speaking of the NRI portfolio, you shifted your mix a lot this quarter, just doing your bread and butter deals, where do you see your target, ultimate target is going to, and how long you think it takes to get there?

So I don't know that we have an ultimate target mix, but I would say over the next 12 months, just doing our normal stuff, we will get Genesis to 30% or better, and we want to keep sort of again, that number down closer to 20%. We like to get killed nursing under 50%, and its pretty close right now, so we are just doing our normal bread and butter stuff on that. Over the next 12 months, we could get there that quickly, depending on sort of what their mix is of the deals that we do. And then we will see. We have a stronger target I think for Genesis now and for getting skilled nursing down. So once we get it done at 50%, maybe the next target is 40%. But we also don't want to shy away from doing good skilled nursing deals.

Thanks for your time.

We will take our next question from Tayo Okusanya with Jefferies.

Hey Tayo.

Hey everyone. Just a couple of quick ones. If you do end up with the credit rating up late some time next year. Could you tell us a little bit about how much of an impact it will have on your cost of debt?

Well it wouldn't have any impact on our current outstanding debt. On the revolver, if we could get to investment grade, then we will see cheaper borrowings on the revolver. We will have to have two out of the three. So the next step-up wouldn't affect the revolver borrowing. But as you think about doing our next bond offering, you could see anywhere from 75 to 100 basis point difference in pricing, and really in the last, call it 12 to 18 months, being a very highly rated non-investment grade borrower, it has actually been a pretty good spot because investors have been really looking for yield, and so it has been pretty tight to the lower rated investment grade borrowers. And so I think, just getting that mix above, again 75 to 100 basis points improvement possible, would be obviously a great thing for us. But again, we don't have any near term needs for borrowing, and so on the near term, it wouldn't have an impact on our borrowing costs.

The other thought I'd make Tayo was that, the interest rates are going to go up, even though they -- I think to a lot of people's surprise, haven't moved much the past couple of years. But they are going to go up, and so part of our desire to get to investment grade sooner than later, relative to all the activity we have been involved in, is -- what we have been raising debt at, creates 5.5%, that's historically investment grade. So as interest rates start moving up, once we get to investment grade, it may not be that much better than that at that point in time, we just want to make sure we are in the best place possible to access the lowest capital available. So we are trying to anticipate, that this environment is going to change, and position the company, so that its advantaged in that respect.

That's helpful. And then second of all, the hospitals that haven't gone in network? I know you're not providing the trailing 12 month coverage, but is there a -- we can get the number for the past three months, just in terms of how things have been progressing?

Well truly only one hospital that we have been talking about, and that's Frisco. So they are covering our rent, and so and its getting better -- each month has been better than the last month. So we'd like to see them get up over two times, that's going to take them a while longer to get there. But they are directionally ahead of that way, so just going to take a while.

And they're covering the rents right now?

Yes.

Okay, that's helpful. The last one for me, I appreciate [indiscernible]. With a major of these transactions, with them not becoming by far the largest player, are they going to still be focused on skilled nursing. How do you kind of think about how that's changing the landscape and how you can expect them to compete against the combined entity?

So I actually don't think it changed the landscape at all, and the reason is say that is because, Omega and Aviv have done a really-really good job at building a very broad tenant base, and if you would exclude some of the larger deals that Omega has done, all this deal activity that you see out of Omega and Aviv is repeat business with their existing tenants, and we are very successful doing that. So you have got two companies that are combined, that kind of do it the same way. So it doesn't really change anything competitively. I don't know if they are going to look at more external sets of deals rather than existing tenants, when they haven't done that before. The other thing I would say is that, other than the large portfolio of deals that Taylor has done, like everybody else, a large portfolio of dealers, you pay a premium for those portfolios that his normal stuff, like our normal stuff, we value those assets the same way. So when it comes to kind of the under $100 million deals at, $20 million, $30 million, $40 million portfolios, he is not going to -- I don't believe that he will just start paying up for those. He is going to pay the same cap rates that he has paid for those sized deals before. So I actually don't think it changes anything.

That's helpful. Thank you.

Sure.

(Operator Instructions). And at this time, I'd like to turn the call back to Rick Matros for closing comments.

Thanks for everybody's time, I appreciate it very much. Again, I know you guys have a crazy busy day with all the calls today and NAREIT starting tomorrow, and that we will be seeing a lot of you at NAREIT and look forward to that. And as always, Harold, Talya and I are available for additional calls, just email us or give us a call on our cells since we are traveling, and we will get back to you expeditiously. Thanks and have a great day.

This does conclude today's conference. We thank you for your participation. You may now disconnect.