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

Thank you. Good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our acquisition and investment plans, our expectations regarding our financing plans, our expectations regarding our Forest Park investments and our expectations regarding our future results of operations. These forward-looking statements are based on Management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2015, that is on filed with the SEC, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included at the end of our earnings press release and the supplemental information materials included as Exhibits 99.1 and 99.2, respectively, to the Form 8-K we furnished to the SEC yesterday. These materials can also be accessed in the Investor Relations section of our website at www.sabrahealth.com. And with that, let me turn the call over to Rick Matros, Chairman and CEO, of Sabra Health Care REIT.

Thanks, Talya and thank you for everybody for joining us. The music was in honor of Prince - his music was a gift to the world. Now on to the business at hands. We didn't mention anything about guidance, but guidance was reiterated, which is nothing has really changed since we initially issued guidance. We did announce the acquisition of the NMS facility $50 million. So that should close at the end of June and that will be accretive to guidance so anybody that’s modeling could add that to guidance. But we thought we - given the acquisition activity that we have right now that we're focused on, we wanted to wait a little longer before we updated guidance to see if there was anything else that we are going to be pursuing. We’ve raised our quarterly dividend as announced in the press release and just want to comment that regardless of how high the current yields, it is business as usual as that pertains to the company’s dividend policy and will remain that way. As disclosed in our press release is we're on track to a complete disposition of the Forest Park assets with the potential resulting in a positive cash return on those investments. As previously stated proceeds will be used to pay down debt, fund acquisitions allowing us to move forward without having to tap the equity market. The ATM remains shutdown. Even considering and excluding the Forest Park assets the Company's private pay concentration stands at 50%. We expect this to improve with our primary focus being the acquisition to private pay senior housing and notwithstanding the acquisition of the skilled nursing facility. We would anticipate that it is unlikely we will do more skilled nursing for the remainder of the year. So our focus will…

Thanks, Rick. This morning I will provide an overview of the results of operations for the first quarter of 2016 and our financial position as of the end of the quarter. For the three months ended March 31, 2016 we recorded revenues of $62.6 million compared to $55.6 million for the first quarter of 2015, an increase of 12.6%. Genesis revenues declined to 33.9% of our total revenues as of the end of the first quarter after excluding from total revenues, $2.7 million of interest recorded on the Forest Park Fort Worth mortgage loan during the quarter. This is down from 41% in Q1 of 2015 when you exclude any Forest Park revenues in that quarter. FFO for the quarter was $33.9 million and on a normalized basis was $36.9 million or $0.56 per share. Normalized to exclude $2.4 million provision for doubtful accounts and loan losses primarily associated with our DIP loan in Frisco as well as a $0.6 million loss on extinguishment of debt associated with our refinancing of the revolving credit facility in term loans in January of this year. This normalized FFO compares to $31.6 million or $0.53 per share of normalized FFO for the first quarter of 2015, an increase of 5.7%. AFFO which excludes from FFO acquisition pursuit costs and certain non-cash revenues and expenses was $34.8 million or $0.53 per share compared to normalized AFFO of $30.9 million or $0.52 per share in Q1 2015. For the quarter, we recorded a net loss attributable to common stockholders of $18.3 million compared to a net income attributable to common stockholders of $18.3 million compared to a net income attributable to common stock holders of $16.9 million for the first quarter of 2015. Included in this loss for 2016 was an impairment of real estate…

Thanks Harold. We will go to our Q&A now.

Thank you. [Operator Instructions] And we will first go to Juan Sanabria from Bank of America.

Hi, good morning there on the west coast. Just a question on use of proceeds for Forest Park. How do you guys think about permanently deleveraging the balance sheet and really not using any of the proceeds to earmark for acquisitions given some of the premiums from a cost of capital perspective you see for some of your more lowly levered peers?

So I think we - our first priority is to do delever the balance sheet. To the extent that we can find good senior housing deals at the right price. We are still going to want to do those but we’re going to be mindful of our leverage and keep it below the caps that we previously stated. So we’re not going to let it get as high as it was at year-end for example, but there is plenty of room there for us to get some deals done without tapping the equity markets. We don't see any reason to let good opportunities passes by at this point in time. We can do that and still have leverage lower than it was for us last year.

And to put some numbers around that once we get the three Forest Park assets taking care of. We should see first of all we'll just use the proceeds to delever by paying down the revolver. So we don't have current plans to pay off any of our permanent financing at this time. But we will be able to pay the revolver down to zero and actually most likely put some cash on the balance sheet to fund acquisition. So we do have a period of time we’re making acquisitions without adding leverage. And then we can continue to make acquisitions just using the revolver and I think we talked about it last quarter. Probably somewhere between $200 million to $250 million worth of investments and keep our leverage down below 5.5 times. So that the deleveraging will happen quickly and immediately with the proceeds and then we’ll manage to deleverage within that range we've always talked about with a longer-term view of lowering it down closer to five times.

And I take you for while we discuss it internally here is the kind of the issue that we talk about. There are sort of things from our perspective that account for us trading at some discount to our peers; one is the leverage given our size and second is the Genesis exposure now. If you look at the discount that we're currently at, there's no rationalization for it, it’s just ridiculous even given Forest Park and certainly with the cloud here at Forest Park there's no justification for that but that said it's true that that our peers were in a lower leverage traded a higher multiple but we still have to be mindful about getting Genesis exposure down. And what we think about sort of the path that we need to be able to get to investment grade our leverage is not an issue in terms of our credit starts with the agencies our Genesis exposure is so that part is that’s still a priority for us. And so again is how that will be mindful - of the leverage and keep it that it was last year. But if we see good deals we like to do them but we’re not going to overpay so if we have to full tight and just be patient and just let the leverage fall and we’re contempt to do that as well.

Thanks and then just a follow up on question on Forest Park I should say. Could you just clarify two things how much rental income or interest income was in the first quarter results? I think you said 2.7 for Fort Worth. And then secondly what are the expectations for proceeds around Dallas relative to the $100 million mortgage?

We don’t want to certainly negotiate publicly though rather not make any comments about the Dallas mortgage.

To answer your first question the only income in the core was the Forest Park Fort Worth interest income of $2.7 million. So there was no interest income on Dallas and there was no rent income on Frisco.

Thanks guys.

Okay.

And we will now move to Smedes Rose from Citi.

Hi, guys. This is [indiscernible] for Smedes. I know that you guys talked about Medicare Advantage growing slowly, but just on a more broader sense. Are you seeing like what are your thoughts around the recent CMS announcement on 2017, policy changes and possible effect of bundling on SNF Medicare reimbursements? Are you seeing some of the hospitals trying to circumvent the SNF and go directly to hospitals? Are you seeing that relationship play a more important factor now?

No, what actually in that - well firstly go to the CMS announcement, so the rate increase was terrific. In terms of the other things I talked about which were the quality for payment criteria that's been expected for quite some time and the industry has been in a process to getting prepared for that. And for the providers that get it right, there is going to be some nice upside there. In terms of bundling, it’s still too far down the road. We're not seeing hospitals do anything unusual in their activity right now in terms of whether they're referring more to home health than they were before. That's pretty much - they're doing what they’ve always done. I think over the past number of years there's been some increase of that. And for skilled nursing providers, transitional care providers that understand how the paradigm is changing. They shouldn't be accepting patients that could be taken care of at home anyway. And I think when you look at our skilled mix improving the way it is, specifically new phenomenon to us. If you go back, our total numbers going back to the first quarter of 2014. Our skilled mix on a year-over-year basis has been improving every single quarter on a year-over-year, so it’s been a trend for our operators and it's been a trend because our operators - we believe our operators that really understand have been really selective in terms of who we've been acquiring and even if you look at it on a same-store basis because we’ve divested some of our small operators over the past couple of years that we thought we’re just too traditional in their thinking when we look at our skilled mix growth over the last couple of years. On a same-store basis all in you see continued improvement on a year-over-year basis. So that tells us that at least the operators that we've chosen as partners understand that and to the extent hospitals do refer as many people to home health as they can and it’s not really affecting our operators. That said, it’s going to be like any business, right, they're going to be some winners and losers, and I think the losers are going to be the true mom-and-pop, the generational kind of providers who have always done the traditional Medicaid long-term care. They want to take the low acuity patients. Those are the ones that are going to really be hurt by the transition to bundled payments and that should also provide some opportunity from an acquisition perspective both for buyers like Sabra and for strategic buyers as well to pick up those kinds of facilities and transform them into a model that reflects the current paradigm shift.

Okay. And that’s really helpful color. On a separate note on the senior housing side you noticed that coverage kind of pick down a little bit. Is there anything moving in or out from those pieces or they able to sustain like rent bumps across let’s say for the next five to 10 years?

Yes. The only reason it ticked down is because the acquisitions we don't get more independent living beds in that number that we have before in coverage as well in an attempt [indiscernible] is on assisted living and memory care. If you look at our same-store coverage for senior housing which doesn’t reflect those additional independent living beds, coverage actually ticked up. So we’re seeing a pretty stable environment out there and no pressure on occupancy relative to rate increases.

Okay. That’s great. Thank you, guys.

Paul Morgan from Canaccord has our next question.

Hi, good morning.

Hi, Paul.

Just in terms of how you - a little bit on more on kind of the SNF coverage side of things obviously kind of the numbers we get are in a rear. So maybe you could just give some color on how you think this year could evolve, we saw good progress in there kind of reported number for the first quarter, but in the context of Genesis specifically and then kind of more broadly, what you think the MM looks like.

I would expect our skilled mix to continue to be strong and it will tick down in the third quarter as it normally does. It actually starts ticking down towards the end of the second quarter as you get into that seasonality through the end of the third quarter then picks up. But on a year-over-year basis it should be favorable there. I would expect there to be some decline in overall occupancy as skilled mix continues to grow, but that’s something that we're comfortable with. And I think we have about the highest skilled occupancy in the space. So we've got a lot of room there as well on an occupancy perspective.

Great, thanks. And then as you look at reinvesting some of the proceeds from Forest Park and senior housing, you talk about couple of things. First, Canada how are you looking about potentially kind of growing your business up there I see you're going to a conference kind of later this week up there. And then in the U.S., if you look at kind of the NIC data, it looks like some of the commentary maybe about seeing kind of a peak in new starts, is there any kind of - anything going on in terms of kind of the complexion where you're looking to do deals in any markets that are off the table or is it much more kind of asset in submarket by submarket specifically?

Talya here, so first of all I think it’s very market specific, we are seeing less development, opportunities come across our desk I think the developments that are looking for capital have been circulating for some time, so I think we're perceiving a slowdown in construction initiatives, okay, so that's one and that's a positive. There's obviously a fair amount of supply coming online in different markets and it becomes a very market specific analysis. In terms of where we're looking to buy I think we're seeing properties come up across the country, there is nothing specific right now in terms of location and there's nothing we are avoiding, we are really focused on addressing everything on an asset by asset basis.

And I’ll also say that even though we are seeing less development probably just come across our desk. Our proprietary development pipeline is pretty robust, as we talked about in the past we have around 30 projects that we greenlighted that over the next several years as they become stabilized, we exercised our purchase options, bring somewhere around them just using round figures right now. That’s $600 million stabilized assets into the portfolio, so we got a really robust development pipeline. We have been pretty picky on it historically anyway. The other point I'd make on the development pipeline is also as we talked in the past, we focused our activity in secondary and tertiary markets. So we try to stay away from where most of the development has been. We stay away from the top MSA from a development perspective. So I think that’s’ one of the reason we haven’t seen much activity there as well.

Great. And then just anything specific on Canada?

Yes, so on Canada, we do want to continue to grow Canada, as we said we still have an opportunity there for small like ourselves to partner up with very fragmented market up there, but it’s going to be slow and there is - I also believe anything in our current pipeline that has indicating deals.

Actually there is one we are looking at.

So one, we expect it to slow, it’s never going to be material percentage of portfolio, it’s simply we never have an useful growth and I’m sure when Talya speaks at the conference next year it will be - an amazing amount of deals coming in after people [indiscernible] got to say to us.

If people from Canada like to remind us and that it’s 38 million people there not 380 million people and you’ve got a couple of large U.S. healthcare REIT’s which are big in Canada and so while there is definitely room for someone [indiscernible] scale to provide the service that we provide in the United States to provide in Canada, it’s more diffuse [indiscernible] rather large.

Sure, okay great. Thanks.

Our next question comes from Chad Vanacore from Stifel.

Hey, Chad.

Hey, good morning. So just thinking about that pipeline increase is quite a bit. I think you took it from $200 million last quarter to $400 million this quarter, are you out there looking for more deals or they coming to you and then just because you are previously capital constrained and things have loosened up?

No it’s got nothing to do with any of those, it’s all coming - I think it’s just a function of a couple of things. I assure it was really a sellers’ market and it just - there was I think deal fatigue, there were a number of deals because the brokers were pushing so much last year. There were - any number of deals that occurred last year under in a more normalized environment wouldn’t have happened until this year anyway. So I think it's just a natural - it just a certain amount and prior to think to build up again and it's not just a difference in the size of our pipeline, but the 200 million that we talked about in the last call was - that wasn’t very good and we're actually seeing much better quality stuff now and we're doing a lot more work on a lot more deals right now. But we're also not optimistic at this point that there is being enough cap rate compression or any cap rate compression that would put us in a position to actually get some things done. But things are moving at least in the right direction.

All right. And then just thinking about your NMS, how can you say that NMS acquisitions. Why do you think there are good investments in the skilled nursing space right now?

Because NMS is doing something that we haven't seen. We don't see anybody else doing. We see a lot of good operators doing short stay on transitional care post-surgery have on hips, knees all that sort of thing and certainly we've got quite a few operators like that in our portfolio. What NMS was doing that’s a little bit different is under SNF licenses, if you look at their business model one portion of their facility is focused on short stay traditional rehab. The other portion of the facility is focused on complex long-term medical care like ventilator patients. So in other words if you go into any NMS facility they're doing everything under a quick license that you'll see in LTAC or an IRF which sort of goes to the point that we've been making for a long as you guys have known me, which is SNFs are the best positioned asset class in the post-acute sector to take advantage of bundling for those providers that get it right. One of the reasons that NMS is they able to do that besides the fact that just really small guys who - fewer things are going is the Medicaid system in Maryland has specialized rates for ventilator patients that pays for long-term ventilator care at the same rate Medicare will pay on a short-term basis. So not the only state that do that. So a lot of the strategy is very state specific. There are any number of states that have specialized Medicaid rates because in other states, the state recognizes that they need to do something to keep people out of hire and saying acute hospitals and others, other settings as well. But if you look KEM which was our first large SNF acquisition back in 2011 is the largest ventilator unit in the state of Delaware. So that's really what we like about NMS. We underwrote this 157 coverage, the existing facility that we did last year are covering it about 1.7. Their margins are 30% or better, they're just really doing a fantastic job.

All right. And then one last one for me. Can you add some color to how the holiday portfolio is performing? It looks like fixed charge coverage was 118 from 115 sequentially and then just give us any color about the competition that they're facing in their markets?

Yes, it’s been actually very stable, there's nothing sort of remarkable to talk about this. It’s been stable, it’s kind of gets in business as usual and I did spend some time with the new CEO and felt really good about that meeting as well as with their COO. Because that really a thing that question on our mind and sure everybody else as with high leading effort everything he done with the Company sort of what happens next. So I walked away from the time, we spend together feeling doing good about that and the way she was approaching the business and the way she answer the questions. So there's really nothing remarkable going on it’s just kind of business as usual.

All right. Thanks a lot.

[Operator Instructions] We will now go to Rich Anderson from Mizuho Securities.

Thanks. Good morning out there.

Hi, Rich.

So if we can - just quickly on holiday. What would our facility level coverage be are you - and why is that you don't provide that?

We don’t provide facility level coverage with any of the tenants that we have corporate guarantees, it’s just the decision we made. One point we did, it actually seen because some confusion that the corporate guarantee is what is meaningful to us, because that’s our back our backstop. But it gets into that level of cap coverage is the independent living facility hallway is about one times.

One times, okay. Thanks for that. And then when I think about the senior housing coverage, the same-store versus the non same-store if you kind of do the math between what you - the good number in same-store and the decline you saw as you explain because of the independent living component. Does that mean we kind of back into that does that mean that the non same-store is currently under - well under one, if you go from you know the one, three whatever was for same-store to one to one.

No, that’s what that I mean. This is Harold. Because if you look at the calculation and the math that you're doing based on the information that's provided if you're using the revenues and trying to back into the coverage you can't do that because small revenues from holiday are included in that - those revenue numbers and there's no holiday coverage in either one of those either same-store or otherwise. And then there's also a handful of the assets that are not in the coverage either because they're not stabilized yet or there - I think there's one entrance for this, one that’s potentially being sold. So you can't back into the numbers, so no it is not well below one time.

So but if holidays not an either then what difference does that make?

That’s in the revenue number. If that’s how you're getting to the calculation, I’m not sure exactly what you are…

Okay, okay. Okay fair enough.

Out in the coverage number.

Okay.

We don’t our senior housing portfolio is well above one times. Those numbers are accurate numbers.

Okay. Harold what did you say that the Dallas timing was when there was some type of hearing I missed that. Is that May 4, no that’s past? Day after tomorrow?

Get the scheduled for tomorrow. That’s correct.

Oh, it is tomorrow, okay.

We’ll have an update Rich, after that and also just want to make a point there were a couple of questions about Fort Worth before we issued the press release. And so I just want to clarify, we will issue a press release after the court has approved something. Just because it's been filed doesn’t mean that it's approved. So there were a couple of notes that came out before our last press release. And it wasn’t a delay on all part of specifically detailed report haven’t approved yet. So just so you all are aware, we are not going to technically out there until the courts approved it.

Okay. And as far as the provision for doubtful accounts that you recorded. Does this then this would all basically go away or does the DIP stick say outstanding for some period of time?

So we’ve recorded a reserve based on how much of the Dip Loan was outstanding. And how much we collected at closing plus our expectations for collecting some of the collateral for the DIP, which is some of the [indiscernible] is recorded.

So that part can stick around for a bit is that fair?

Yes, the collection will happen over time. The collection will happen over time.

Okay. So there could be some additional charges or non-cash components for the next couple of quarters even after you finish everything?

Yes, I think go either way, we could there is a very, very small amount a couple of million dollars at play here, it’s unreserved and we expect to collect. But if we don't collected - you know it could be a slight charge and if we collect more than we expect there could be a slight obviously reduction.

Okay. And then one of the more refreshing things about this call is that we are having talked much about that. So that's good. So let me change the subject again. And Rick you mentioned MA is moving at a snail's pace in terms of its increased component to the story. What do you attribute that to? Why does that move so slow. Is there any risk that it could accelerate?

No. It's moving slow for a number of reasons. One of the primary reasons is the Medicare Advantage insurers are marketing to the 75 age population not the age of the population that typically resides in skilled nursing facilities. So that’s a big driver. And the reason they don't do it is because they can’t demand the rates that they demand for the 75-year old and apply that to the 85-year old. So they just don't like the margin on the 85-year old and part of what that means is, if they get put under pressure which I think they may - which is a possibility to start marketing more to the older patients they are going to have to be a little bit more liberal in their rates as well. So that's the primary thing. We also have I know in our portfolio and I would say the same thing [indiscernible] and operator. Our occupancy and are skill mix is good enough that if we don't like the rates that we're getting from an M&A provider, we just don't do business with them. So and then the third factor is the current generation of individuals that are going into skilled and transitional care facilities, grew up having a certain expectation relative to their Medicare benefit. They are not assigning their benefit to the Medicare advantage insurer. The next generation that has grown up in an environment where managed care is more prevalent. I think you'll see a greater number of those individuals assigning benefit. So I think post call it 2020 maybe that you’ll start to see some acceleration, but between now and then if not a little bit longer I don’t think you are going to see more than 1% increase a year.

Okay. My last question is just on Genesis, you mentioned rating agencies wanting to see that the concentration come down, so from your perspective that they did had this kind of risks statement in their filings for some time now about some preliminary activity with the DOJ. To what degree are you worried about that and is it something that you have some reasonable kind of insight on or you are kind of subject to whatever obviously are, but I just curious where you are in that in terms of how much it keep you up at night that kind of thing?

Yes, well it doesn’t keep me up at night, one of my daughters that’s goes to later that keeps me up at night, but seriously - and our discussions with Genesis that DOJ issued from their perspective is not a material issue at all and they are reserve for that, they think it’s conservative and obviously it’s not that bigger numbers, so and I think - and they are really [indiscernible] they are very conservative guys. So we feel very comfortable with their assessment of it and maybe it’s a function of the fact that I have been around too long, but just sort of take that deal that’s done as it comes those things happen. The real large ones are little bit more unusual, that are happening that often, but the smaller one happen.

Yes, okay. Got you. Thank you.

Tayo Okusanya from Jefferies has our next question.

Yes, good afternoon. First of all I love the prince tribute, but that's a tough song to pull off in an earnings call.

Thank you. I appreciate it.

Then just a little bit more focus on Genesis in general and again the Company did put out fourth quarter results that a lot of investors reacting negatively to, but here you are with your coverage getting better that now includes those fourth quarter results. HCN had a very similar circumstance this morning as well. Could you just kind of tell us what's different about your portfolio versus maybe the overall Genesis portfolio that's creating the outperformance in your portfolio relative to the overall operating results. And then again what you are expecting to see going into first quarter.

Yes, so first of all it's not our portfolio, the number that we presented represents the entire Genesis portfolio in terms of the fourth quarter numbers that's sort of disconnect. I didn't think it was average quarter. They missed guidance, but if you looked at their number that they actually hit to the year, they missed it by very large. I just think that missing it by anything in conjunction with all the headlines that were occurring with the BPCI Models and the joint and hip replacement program and all sort of negative set placement that hit even though - the dollar of the space a year ago. I just thing - I really think it got exaggerated. I didn’t think that they are quarter was that weak I really didn’t. So and they are very focused on strengthening their balance sheet, they’re paying down some debt now they are looking at rates to rationalize the portfolio a little bit more and I think you know what are the advantages that Genesis has in addition to we think is a very strong management team. They have really active partner’s information there. Who you know have been with the business however portfolio is outside of Genesis and they are really working hand in hand with Genesis to create stronger entity. So you know for all those reasons we feel comfortable with it that the increased coverage is reflected of their entire portfolio. Not just the Sabra portfolio, which goes to my point that I think there was a real over reaction to the fourth quarter.

So the numbers that we see you guys reporting is the coverage for the entire portfolio not just your portfolio.

That's right yes because of the corporate guarantee, but I’d say that they are included in a skilled mix and occupancy numbers just our portfolio, right.

Got it. Okay. That’s helpful. And then just second question acquisitions it sounds again you're leaning a little bit more towards senior housing. But you have a world right now where again cap rates are still really low in that space. How do you really kind of think about pulling the trigger on additional senior housing transaction. And are you winning more towards triple-net versus RIDEA stuff?

Well, we've always been more focus on triple-net and RIDEA and some of it is just is practical there are a couple reasons that we're focused more on triple-net one is practical and that is because most of our senior housing deals are smaller most of the guys we do deals with aren't independent eligible contractors by the definition. So they don't even qualify for RIDEA. So that's one reason. The other reason is as you know I’ve been an operator my whole career. I prefer NOI has its ups and downs and businesses go through their ups and downs and I just rather not have to do much with RIDEA there is a volatility factor there. That at some point it’s going to hit you and I just say not so we've done a couple but they are immaterial so it really works, we will be open to it but it's never going to be a driver for us. In terms of your initial question on senior housing deals and I know that we’ve been really active over the last five years you know last year we did $550 million worth of deals and so people look at us - it’s been in our growth company which we all but we're willing to be patient here. The NMS deal is a good deal for us [indiscernible] may be the only deal we do this year, but it’s $50 million. We do think there is going to be cap rate expansion because even though PEs are still paying prices that are beyond us. Our public peers are being very disciplined about what they're doing. And deal volume continues to pick up the PE [indiscernible] everything and when guys want to do sale lease backs. They're less liable to do a…

Got it helpful thank you.

We will now go to Michael Carroll from RBC Capital Markets.

Hi, thanks. Rick can you give us some color on the uptick that you guys had in your skilled nursing facility coverage ratios. And then the sequential uptick was pretty big I mean how much of that was driven by stronger operations and how much was that driven by recent acquisitions.

It's all skill mix Mike. And as I mentioned earlier that skilled mix is a trend has been continuing for us. I just went back over two years and looked at every quarter on a quarter-over-quarter basis, it's been continual. And that's why I emphasize - it doesn’t matter what you look at all in portfolio or our same-store portfolio. The all-in portfolio does reflect the fact that we're doing acquisitions with operators that are really a little bit ahead of the curve in terms where the paradigm is. So the NMS deal we did last year the vision deal that we did in the fourth quarter of 2014 where in the case of the vision you know they don't - they are not Medicaid certified all skilled mix. So that’s really helped but when you look at our same-store you see the same trend there. And the 40 plus percent in skilled mix on a same-store basis is the highest that we can. So that’s a reflection of we think the operators that we have in place that really understand where the business is going coupled with the fact that we have sold skilled nursing facilities over the last couple of years that were more marginal from our perspective. Not necessarily marginal in terms that they weren’t good operators. But they were just more traditional in their thinking. And they were in market that we think are going to be changing and so - pricing which is really good at the time we decided to sell them and kind of get ahead of the curve a little bit. So it's really just a function of that and when you think of it and in terms of the actual coverage performance and it goes to their margins as well, because…

No that was great. I appreciate that. I mean on the expense side, was there expense benefits to that that drove the pick up or are you seeing labor costs is that kind of eating away on some of the pickup that you saw on the skilled mix?

No, it’s been pretty stable. Because one of things to remember about skilled mix and just have business generally is 90% of their costs are fixed. When you think about the majority of their nursing cost and all their dietary, housekeeping, laundry, maintenance, administrative cost they’re all fixed, your property cost all that stuff. So when you're going for a higher skilled mix you're offering a higher acuity clinical products, your cost increases are incremental. So you're going to have more therapists, you're going to have more, you may have more RNs then you would might otherwise have but that all gets captured in those higher rates that you're getting. So your margins pull through, it’s still material, we're not on an organic basis we're not seeing any material uptick in supply costs or wage inflation or anything like that.

Okay. Great, thank you. I appreciate it.

Yes, thanks Mike.

We’ll now go to Eric Fleming from SunTrust.

Hey, guys. I just want to go back to the pipeline question. I mean - you great about the CMS proposed role on skilled nursing and you got NMS and then you turnaround today we're only going to do - we're going to focus on senior housing? Can you just give more detail on why there's not more skilled opportunities for you in the pipeline?

Yes, I think we could pursue more if we want to. We kind of seen all along that you know we're going to be better off in the long run both from a ratings perspective and a multiple of perspective and we saw that multiple happening before the Forest Park default happened that by expanding our asset base beyond skilled nursing and having more private pay is the right thing to do in terms of how we are building the Company. So it’s got less to do with our view of the skilled nursing sector and it does show how we want to build the Company and how we think we can get to investment grade faster and trade at a better multiple. And the other point I would make is historically people don’t understand skilled nursing that while they react badly to headlines or do they understand those headlines or not and those headlines are complicated and most people don’t understand. The headlines that they are not operators. Until about a year and a half prior to these last several months, skilled nursing was trading at highest multiples ever and people who completely support of those assets in the private pay would call us and say, hey, wanted to buy more skilled nursing now. And we said wait for the next headline. This is an anomaly. This is not where skilled nursing normally trades and even though I believe there’s been a growth over reaction to all these headlines about bundling BPCI and Medicare Advantage and all the stuff we’ve talking about on this call and the last call that is the reality. That is the reality of it. And so I think as you look at historically and you’ll see that in the future I just think will be better off if we have an increase in our senior housing. So it doesn’t - how we are going to do more skilled next year or whatever. And if we can find more operators like the operators that we've been acquiring and we're more likely to jump on those. But we’ve already pulled the Forest Park assets out of our portfolio while our senior housing as a percentage of our portfolio ticked up pretty nicely, on skilled nursing got pushed up to close to 60% and we had it down to about 50%. So we just want to get it down little bit more.

Okay. Just a quick follow-up on NMS I mean now you guys have basically all five other properties, is there more opportunity there are they pretty much constrained in this kind of filled out the Maryland state. They is really no benefit to expanding outside of Maryland given what you said about the rates?

Well, I think a couple of things. They're constrained because they chose to be constrained. And we'd love to bring the five buildings and even if you bought five buildings in Maryland so much as everything else they do outside of vent care is fantastic and we would love to have an operator that would do that like a number of other guy do at [indiscernible] talked about. They are extremely disciplined. They want to get one building, spend time to convert that building to their model. Run it for a while and once it stabilized and predictable then they'll move on to other building. So it's just really - they are discipline. And frankly it’s a same thing with vision and it’s same thing with the guys at Canadian [indiscernible] Pennsylvania. They got the same situation there with Medicaid that rate and those operators for us - if you walked in there, they do everything that you see happening in LTAC. But these guys are just want to do it right, just want to go slowly so it’s just kind of why it is to get to respect it right.

All right. Thanks. Appreciate it.

And it appears there are no further questions. I'll turn the conference back over to you, Rick, for any additional or closing remarks.

All right, thanks for your time today. I appreciate it. We really have tried on this call and the last call to be a little bit more educational and changes that are going on particularly in the skilled transitional care sector. But as always Harold and Talya and myself are available for as much time as you went spend on the phone. And we have - we will see everybody at REIT and then we’ve got Non-Deal Roadshow coming up in the couple of weeks on East Coast as well and we’ll see some of you there. Thanks again and have a great day.

This concludes today's presentation. Thank you for your participation.