Michael Costa - VP Finance and Controller Richard Matros - CEO Harold Andrews - CFO.

Juan Sanabria - Bank of America Smedes Rose - Citi Josh Raskin - Barclays Chad Vanacore - Stifel Omotayo Okusanya - Jefferies Todd Stender - Wells Fargo.

Good day ladies and gentlemen and welcome to the Sabre Healthcare REIT 3Q 2016 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the conference over to Michael Costa. 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, 2015 that is 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 also 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, Mike. Appreciate it. Thanks for joining us everybody. Hope you have a good day. Let me start by reaffirming our guidance. As you know we reported quarter in arrears on our current statistics give the complete confidence that we need to reaffirm guidance. I'll move on now to Genesis.

Yesterday Genesis announced the deal that we view is very favorable for them. Real estate is being sold by Welltower 92 facilities operator will be getting a rent cut and we think that bodes well for them in terms of going forward and we’ll have an immediate impact on them as well, they will have better coverage.

It will affect our fixed charge coverage ratio as we look into the future.

As far as the Genesis sales process for our facilities are concerned, things are coming in, we have LOIs on five facilities and that relates to the facilities that we had previously announced we are going to sell last year and at the current group we are getting bids in on most of the facilities and bids are coming in and meeting our expectation.

So we still anticipate that all of those sales will not be completed until about the end of second-quarter 2017, but the bids are coming in a little bit more quickly than expected and again, we're meeting our expectations.

In terms of investment activities, during the third quarter we closed 113.5 million of investments with a weighted average cash yield of 7.9%. For the year we’re at 121 million at an average cash yield of 8.06%. 71 million of that total is senior housing, we anticipate closing on an additional 44 million in senior housing investments by year end.

Our pipeline which excludes our development investment and we’ll talk a little bit more about that later on continues to increase. Our pipeline currently stands at approximately 500 million of which 90% of that is senior housing. In terms of the competitive environment, it’s pretty much we’ve been talking up for the last couple of quarters.

On the senior housing sides is where we see the most competition and that’s particularly because the P-E firms are bidding extraordinarily high prices for the facilities and we’re just not going to compete with that.

That said, where it hurts us from a competitive perspective is when the entire business is being sold because it’s obviously going to go to the highest bidder in the P-E and is always going to outbid pretty much any REIT.

That said, when it comes to sales leasebacks, we can compete because the operator typically does not want to enter into an agreement with the P-E and would prefer to have a long-term arrangement with a capital partner they can count on. And so when it comes to sales leasebacks, that’s where we see that we are able to compete and compete effectively.

And when I talk about the pipeline increasing to 500 million, we are seeing more sale leaseback opportunities, we have more LOIs out and CAs signed over the past few months and we had the first six months in total. Things seem to be picking up there and hopefully that will allow us to get off to a decent start in 2017.

In terms of our operating statistics, our skilled transitional care portfolio performance was extremely strong. Our EBITDAR coverage improved to 1.49 from 1.28 and that’s the result of a couple of things. We’ve been repositioning our skilled portfolio and this excludes the Genesis assets.

We’ve been selling to Medicaid shops over the past couple of years and our acquisitions strategy has focused on those operators, better preparing for the shift in reimbursement as we get -- as we start moving towards bundling over the next number of years and these health providers who are very, very high acuity, have exceptionally high skill mix, are much less depending upon Medicaid, tend to be in more urban markets and they just basically get it.

And so if you look at our portfolio overall as opposed to same store, that’s a function of both selling off some Medicaid shops and again bringing in the providers that we really think understand the paradigm shifts and are moving in that direction.

And from an operating perspective and as you all know, it was an operator my whole That’s exactly the direction I was taking Sun prior to the split and exactly what I will be doing as an operator.

So, I would encourage you all, I think it’s important to look at same-store and the skill facility that you look at the other statistics as well including focusing on the skill mix which hit a new high of 43.7% and I want to be a little more specific here, skill mix is Medicaid and Medicaid advantage.

When people talk about quality mix, quality mix is not a statistic that makes any sense anymore, I’ve stopped using almost 15 years ago. Quality mix includes all non-Medicaid revenues including private pay.

The issue is private pay is not an important metrics any longer in the skill sector as it pertains to specifically skill facility certainly on senior housing. And as people understood with the help of attorneys how to transfer out this normal people qualified for Medicaid.

And if you look at Medicaid rates over 50 states you’ll see that there is not much of the different enrolling between Medicaid rate and private pay rate, in some states there is more of a different, in some states there is less of a difference. But quality mix is not a metric that is an important indicator of where the business is going in skill mix.

Our occupancy also picked up to 87.3% in our sale transitional care portfolio.

Genesis coverage is steady coming at 1.24 as we expected, as we noted on the last quarter -- probably the last two quarters we expect to be in the mid one, twos for the next several quarter with Genesis, and then we expect to see an upturn after that and we expect to see an upturn really for a couple of reasons.

One as a result of all the things they are doing to rationalize the portfolio, they’re getting out of a numbers of states as you are aware of with the new deal they have with Welltower, they’re going to have reduce rents and better rent coverage.

And most importantly to my perspective, then again I talked about this from an operating perspective, they spent the last number of years just doing acquisition after acquisition after acquisition, and while there were good reasons for doing that and I don’t -- I’m not critical of that at all it always creates a diversion and you’re operations always tends to suffer somewhat while you’re focused on integrating all these acquisitions.

So, they’re at a point in time in their development cycle where they’re rationalizing what’s happening, they’re focused on the organic business, they’re realigning themselves to be in the markets they want to be in, and I think everybody should expect to see an upturn in their operation performance, as a result.

So we feel really very good about that and also thought it was terrific that in that deal they announced yesterday that Omega increased their exposure to Genesis, because Omega understands the business very well, and so we saw that as a real positive.

In terms of senior housing coverage, we were at 1.13 that was down from 1.28 and I think we’ve talked about in the last couple of quarters that is specifically due to the fact that our current statistics include independent living beds that we’ve acquired that weren’t included on a year-over-year basis.

So, the independent living is underwritten at a lower level than assisted living and memory care. If you look at same store senior housing we are up at 1.36 which is very strong. Our same-stores senior housing staff only have one independent living facility in there, that’s primarily all assisted living and memory care.

Holiday coverage was flat at 1.17 as expected. Occupancy in the senior housing portfolio was down 89.5% from 90.7% that was specifically due to two portfolios that we acquired in the middle of 2015, that weren’t in last year’s statistics. So, if you exclude those, our occupancy would have been essentially flat 90.6%.

Now we’re going to move on to something that’s been an important focus of ours and we’re now getting to a point where we want to make sure that everybody is paying the appropriate amount of attention to it and that is our proprietary development pipeline.

Started focusing on developing the proprietary development pipeline at the energy 2012 and for a couple of reason. One, we believe that there is an obsolescence factor to some percentage of senior housing assets that were built in the 90s and the early 2000s, particularly those facilities that were built by multi-family guys.

The model has changed dramatically when you look at AL and you look at memory care, it's now what nursing used to be, you’ve got individuals who were about 10 years older than the historically have been, they have cognitive issues, they have comorbidities, they have physical issues that 10 years ago weren’t apparent in assisted living facilities.

So you now have a medical model in place, you have nursing round the clock, you have rehab services, you have hospital services. And as such a different physical plans is required to provide appropriate care to the residents that currently exist in the assisted living.

So we like the idea of building purposeful build facilities that are resident centric.

And in terms of being resident centric, it isn’t just a benefit to residence so that they can navigate to the facility much more easily than in some of the older facilities, but because you now have a lot more staffing than you historically have, the line of sight that staff has with resident is critical.

And so having a physical plan that lends itself to easy execution on the medical model and easy access from staff residence is important. So that was one of the primary reasons that we wanted to engage in having a proprietary development pipeline.

Secondly, we wanted that so we would be less dependent up the external acquisition market and depend on new products coming in that we could count on for year-over-year growth and I’ll drill down some of those numbers in a second.

So those are the two primary reasons, we also had a goal to have a high percentage of total assets in our portfolio being new assets -- let me restate that, that our intention is to have a high percentage of new assets in our portfolio overall to improve the quality of assets in our portfolio.

In terms of the development pipeline, we’ve acquired six projects to date, five senior housing facilities, one skilled transitional facilities for $82.5 million. We currently have an additional 33 projects in the development pipeline for an anticipated real estate value of 584 million.

In 2017, we’ll see more of these projects stabilizing and coming online. We currently expect to purchase six to nine of these facilities with a value of 95 million to a 143 million depending on timing and stabilization in 2017. The bulk of the rest of the projects that we’ve currently green lighted, we expect to see come on board in 2018 and 2019.

This fixed demand that we expect to acquire next year includes one skilled nursing facility and the rest are a combination of assisted living and memory care facilities. And with that, I will turn it over to Harold and then we’ll go to Q&A..

Thanks Rick. Thanks everybody for joining this morning. Our earnings for the quarter were in line with our expectations. For the three months ended September 30th 2016 we recorded revenues of $61.9 million compared to $59.9 million for the same period in 2015, an increase of 3.3%.

FFO for the quarter was $38.4 million or $0.59 per diluted common share compared to $35.6 million in 2015 or $0.55 per diluted common share, a 7.3% increase on a per share basis.

FFO in the third quarter of 2016 and 2015 included certain income and expense items we don’t believe are indicative of our ongoing operations and are therefore eliminated from normalized to FFO.

In the third quarter of 2016, we recorded onetime or unusual items that increased FFO by $3 million compared to 2015 were such items reduced FFO by $2.4 million, as such normalized FFO for the third quarter 2016 was $35.4 million or $0.54 per share compared to $38 million or $0.58 per share for the third quarter of 2015.

This $2.6 million decreased in normalized FFO is primarily the result of higher non-cash stock compensation expense of $1.8 million and higher interest expense of $0.6 million. As noted above, revenue growth was somewhat muted due to our loss revenues because of the complete exit from the Forest Park investments prior to this quarter.

Specifically no Forest Park revenues were reported in the third quarter of 2016 compared to $3.3 million recorded in the same period of 2015.

AFFO which excludes from the FFO acquisition pursuit cost and certain non-cash revenues and expenses was $38.4 million or $0.58 per share compared with $34.5 million in 2015 or $0.53 per share a 9.4% increase on a per share basis.

AFFO in the third quarter of 2016 included $3.5 million of onetime or unusual items that increased earnings while no such items were recorded in 2015.

Accordingly, normalize AFFO was $35 million or $0.53 per share for the third quarter of both 2016 and 2015, flat on a comparative basis most notably due to the revenue growth through acquisitions being muted by the loss of Forest Park investment revenues discussed previously.

For the third quarter of 2016, we reported net income attributable to common stockholders of $22.7 million or $0.35 per share compared to $15.5 million or $0.24 per share in 2015. G&A cost for the quarter totaled $6.2 million and included stock based compensation expenses of $2.5 million and acquisition pursued cost of $1.1 million.

Our ongoing corporate level G&A cost was $2.6 million representing 4.3% revenues for the quarter. Interest expense for the quarter totaled $15.8 million compared to $15.2 million for the same period in 2015, and included amortization of deferred financing cost of $1.3 million in each period.

Based on debt outstanding as of September 30, 2016, our weighted average interest rate excluding borrowings under our unsecured revolving credit facility was 4.54% compared to 4.74% at the end of 2015, a 20bip improvement.

This improvement is in part due to the payoff during the quarter of a 10.7 million mortgage loan having an interest rate of 5.6% as well as lower interest cost on our term loans.

During the quarter we took steps to further reduce our exposure to interest rate fluctuations through two new interest rate swaps and the termination of our existing interest rate cap contract. In end results being no variable rate debt exposure as of September 30th, 2016. During the third quarter of 2016, we reported other income of $2.9 million.

$2.6 million of this is in the amount earned during the quarter related to payments from Genesis under the first of the three memorandums of understanding with Genesis.

This agreement relates to our releasing Genesis for lease obligations for five assets which will result in an aggregate $2.1 million reduction in rents from Genesis in exchange for a $20 million lease termination fee. As of September 30, 2016 we have received $10 million as scheduled and rents have been reduced by $0.3 million per year.

The remaining $10 million payment is not scheduled to be paid until after 2016 and at which time the full rent reduction will occur. We have sold two of these properties to date and expect to sell the remaining three in the near future.

Just quickly, I want to provide some clarification because there seems to be some confusion around the number of Genesis assets that are in the MoUs for the sale and the status of those sales. Currently and consistent with last quarter, there are 35 Genesis assets in our portfolio to be sold. 29 are from the latest MoU announced last quarter.

The number we are selling has not changed and we did not sell any of these assets in the third quarter.

32 of those 35 assets are currently in the market as Rick has stated and we continue to be very optimistic about the estimated value we described to these assets and our expectations of completing these sales by the end of the second quarter in 2017.

Five of these assets are under LOI and some of those could close the four year end or shortly thereafter. Moving on, we sold one skilled nursing assets during the quarter for $10 million resulting in a $1.5 million gain on sale. This asset was not probably Genesis portfolio.

Our investment activity for the quarter of $113.5 million, included the acquisition of three senior housing assets and one skilled nursing transitional care asset along with incremental investments and our proprietary development pipeline. This activity was funded with the available cash.

Following up on Rick’s comments about our development pipeline, you will note in our third quarter supplemental, new disclosures for our proprietary development pipeline and new assets we own in our real estate portfolio. Six of which were acquired as part of the proprietary development pipeline. Here are few highlights from these new disclosures.

First, and very importantly the way in which our development activities are typically structured to smaller investments in each project as either the loan investment, preferred equity investment or forward purchase commitment in which case no investment is made prior to acquiring the completed project.

These small investments and forward purchase commitments allow us to tie up a large number of assets for future acquisition without tying up significant dollars during development. Through these structures, we now have 23 active projects out of the 33 total projects in the pipeline that Rick referred to earlier.

With an estimated value at completion of $487 million or 83% of the $584 million total pipeline value that Rick referenced. Our invested dollars today in preferred equity and loans totaled $93.2 million or just over $4 million per asset.

All fresh loans and preferred equity investments come with an options to purchase the assets upon stabilization and a pre-negotiated lease yield on actual operating performance at stabilization.

This proprietary development pipeline of 23 assets today is 87% private paid senior housing and 13% skilled nursing transitional care, and will provide us with the weighted average initial cash yield of 7.7% when the assets are required.

We now expect to make significant additional investments to complete these developments as the developers have secured other financing sourcing including construction financing.

Because these investments are typically structured to eliminate stabilization risk by setting the acquisition date at stabilization is difficult to predict with accuracy the timing of the acquisitions. As Rich stated though we do expect to see up to nine assets coming on board in 2017.

Finally the new supplemental disclosure summarizes 11 new assets already in our real estate portfolio. These 11 new assets aggregate a total gross booked value of a $154 million. These assets being defined as assets build since the inception of Sabra in 2010.

These metrics of new assets and the portfolio will continue to increase over time as we complete the acquisition of the assets in our proprietary development pipeline. Now switching to our cash flows and balance sheet.

We generated $39.3 million of cash flows from operating activities during the quarter compared to $27.8 million in 2015 and paid quarterly preferred and common dividend totaling $30 million in the third quarter of 2016. On November 2nd, our board declared a $0.42 cash dividend to be paid to common stockholders on November 30, 2016.

This common dividend representing 72% of AFFO and 79% of normalized AFFO for the quarter. We have no capital market activities during the quarter and continue to expect to fund near-term acquisitions with cash generated from assets sales and borrowings on our line of credit.

As of September 30, 2016, we had total liquidity of $519.6 million consisting of currently available funds under our revolving credit facility of $500 million and available cash and cash equivalents of $19.6 million which excludes cash charge help in our RIDEA-compliant joint venture.

Finally, we continue to be in complaints as the all debt covenants under our senior notes and debentures, our unsecured revolving line of credit agreement and our term notes as of September 30, 2016. Our leverage continues to be within our desired range of 4.5 times to 5.5 times sitting at 5.29 times. Other credit stats were as follows.

Consolidated fixed charge coverage ratio 3.17 times, minimum interest coverage ratio of 3.99 times, total debt-to-asset value of 44% and secured debt-to-asset value of 6%, ratio of unencumbered assets to unsecured debt 246%. And with that I’ll turn it back to Rick and open it up to questions. .

Thanks Harold. Why don’t we open it up for Q&A now. .

Thank you. [Operator Instruction] And we’ll go first to Juan Sanabria with Bank of America..

I was just hoping you could talk to your views of your cost to capital. Obviously your balance sheet is now at a much stronger position post, the Fortress proceeds. We have you trading kind of in the 8% plus implied cap rate.

Any thoughts about selling some assets outside of the Genesis assets up for sale to buyback some stock or just curious on your thoughts around that..

Yeah, actually that question has come up particularly when our stock is down and it’s not something that we’re entertaining at this point.

I think where we sit today with the sales of assets from Genesis and with the availability on our revolving line of credit, we can be very patient in raising equity and at the same time we do not want to be buying back -- it would be a very short term pop of benefit for us from our perspective.

We think it’s really important for us to continue to get more liquidity in our stock, to expand our shareholder base overtime. So it’s kind of working contrary to that, but we’re sure we don’t have to raise equity this time to fund acquisition. And so you won’t see us saying that as well..

And to buy enough stock back to make it have any sort of impact of liquidity substantive. It would cause our leverage to go up and we worked pretty hard at getting our level down to much more management levels.

And we think, that, that trade will also be negative for us, certainly the rating, agencies will look at it very negatively, but we would as well..

And Brookdale had some pretty strong comments about the surprise impact of new suppliers in senior housing and secondary market. Could you just give us a sense of what you guys are seeing, what gives you comfort on the holiday, rent coverage numbers or the fixed charge being sustainable.

And how should we think about the risk to the $500 million plus pipeline of the new supply. .

Okay, so a couple of things. The holiday in Brookdale, apple and oranges, because holiday is all independent living and you are not seeing very much new supply on independent living at all. You may see some CCRC development where they maybe some cottages or some AL units, but most of the development growth is in AL and memory are.

So I wouldn’t draw that comparison. Secondly, the $500 million pipeline is all stabilized assets, that’s certainly step that is coming online. That a new certainly product. In terms of we’re seeing in our markets and senior housing, we, even though a lot of our -- most of our senior housing assets are in secondary attrition in markets.

We’re not seeing that pressure at all and I think our same store statistics bear that out. Our occupancy was stable and our rent coverage of actions is better..

Didn’t the occupancy go down, I think it was like 60 basis points quarter-over-quarter, any color on what drove that?.

Well I said earlier in my opening comments and that is we acquired two new portfolios in the middle of 2015, that had lower occupancy when we acquired them and then rest of that is portfolio. In last year’s numbers, because it was a new acquisition, they weren’t in the numbers, now they’re in the numbers.

That’s why I’ve pointed out, if you look at the same store numbers as opposed to the all in numbers, you’d see that differential specifically due to those two portfolios. If you exclude those two portfolios, our occupancy was at 90.6%. So essentially it’s flat..

Thank you..

That makes sense?.

Yeah. .

And we’ll take our next question from Smedes Rose with Citi..

I wanted to ask you, just on your development pipeline when you look at the new supply that is under development in senior housing, it seems like you are implying a lot of it is not being built to the kind of the new specification that you talked about, about the stuff in your pipeline is being built to, or is that a far characterization?.

My point is let me say it a little bit differently. In the skilled nursing sector if you have 40 odd facility in the right market, and you have the capital to put into it to modernize that facility, you’re good to go, because you got the relationships in place, you already have a medical model in place.

On senior housing, if you have a brand new facility going into a market that’s got a lot of old product particularly if that product was still more apartment like which is the case in a lot of markets, the new products automatically has an advantage.

In terms of our pipeline, our pipelines project are in smaller markets where we are not seeing the big guys going in to develop, where the markets where there are 30,000 people, where land is cheaper and building is less expensive and you can build a 60 unit facility and have it do real well you don't need 170 units to make the economics work.

So, and we’re building with guys that are in those market, they live in those markets they have those relationships and typically we only see a couple of others senior housing facilities. We only have one facility in our entire portfolio that’s been impacted by new entrance.

Is that answer your question?.

Okay. Yeah, it does.

So, you’re, are you working with these developers from the ground off like sort of instigating the development in these smaller markets that’s to be at sort of higher standards, I guess?.

Yeah. So and let me talk a little bit about the process, so we certainly do not do construction financing when we have -- maybe we have once or twice. But generally we do not do construction financing.

We align ourselves with a group that sometimes it is integrated operator and developers, if they’re not an integrated operator and developer they are an operator or developer that have an ongoing relationship with each other. So, we will never do anything with just a developer, because we think too often they just don’t get it.

And when we get involved in the project its starts at where the actual site is going to be, so we signed off on where the actual facilities is going to be build. So it's absolute sort of from day one and we provide a number of you know preferred equity strip that has a 10% to 15% return.

And you get construction financing from typically a regional bank that takes into 65% or so of the cashback, our preferred equity strip takes about 90% of the cashback, the operated than and kicks in equity at their own to finish out the cashback. So that everybody’s interest sort of aligns.

It’s not the structure -- I think I believe we were the first one in this space to start putting that structure in place, back about four years ago.

So, the beauty of it for us is we’ve got interest aligned there is an event of stabilization that is defined typically sometime after the facility has time to stabilize and that has a predetermined price -- exercise price, and coverage.

And so, we’re not only building all this new products, but we’re building it at caps rate at that range and senior housing sites at 7.5% to 8% which is actually more favorable than a lot of the stuff that’s being sold today that’s a lot older. And we typically preferred structure, we have very little exposure in anyone facility.

$3 million and that’s allowed us to do a lot of projects as you can see by the total number of projects that we’ve moonlighted, because we don’t have much exposure in anyone project.

And if we aren’t happy with the operator, than we just bring in another operator, because the point for us is we’ve got a brand new facility, in the market that we think is viable and that’s clearly the goal. So, hopefully that additional of color helps..

It does, it does. I was just wondering too, so when you’re working with these folks do you have any kind of sense of how regional banks are feeling in general about lending to this asset class. I mean we just sort of heard from others that there's been a little bit of a pull back, I was just wondering if you're seeing that as well..

There seems a little bit of a pullback, it hasn't been material, but there's been some pullback. But they’ve always had pretty tight credit limits. So they were even when you had more of them coming in they were still being a little bit cautious by having pretty tight credit limits, but yes there's been some pullback.

For us if this slows down, the number of new projects we can bring in we've got so many projects in the hopper right now, we're in pretty good shape. I think we're doing -- we’ve got more projects than I think anybody else in the space, at least for senior housing. So we'll kind of see how it goes with the banks, yes there's been some pullbacks..

Great, thank you..

And we'll take our next question from Josh Raskin with Barclays..

First question just you mentioned the 44 million of senior housing investments in the fourth quarter, what were the yields on that, and then any color on the assets as well?.

Yes, the yield was, I think we averaged around [multiple speakers] I'll get you the specific number. In terms of color on the assets they are -- they tend to be under a 100 units, they tend to be assets that were built in the early 2000s and primarily assisted living, with a little bit of memory care..

Yes, they were kind of in the mid-sevens with one of them being in the 6 NOI [ph]. So about 7.5% all in..

Okay, that's perfect, and then just you know this snips valuation discussion you know public valuations are different or it seems like there's a bigger disconnect than usual versus the private.

So I guess one, would you sort of concur with that and then you know forget about what you're doing about it, but why do you think that, what do you think is causing that differential between the valuations?.

One there is a huge disconnect between the public market and the private market, there's always a disconnect.

The disconnect currently is much bigger than usual, I think the only time I never saw a disconnect was a couple of years ago when for some reason that was inexplicable, to me, SNFs all of a sudden became a darling to the public markets and exactly that was done in a positive way, it's exaggerating now in a negative way.

But the reason for the difference is pretty simple and that is the buyers for this assets on the private side are guys that are already in the business.

They're strategifiers, they're operators, they're finance sources that have been in the business for a long time, so they have a much better understanding of the business than the public side guys, because they've lived it for a long time.

When you talk about strategifiers and operators there see a lot an upside with all these paradigm shifts specifically because the one thing that skilled nursing sector has always wanted and never had is a level playing field.

And the other piece of it is that, CMS is actually taking a number of years for operators to acclimate to the BPCI pilots and CJR, we've got time to work on these things. Going to take a number of years, to actually to roll out going, it’s not going to happen tomorrow, it's not going to happen in a year and a half.

And typically CMS puts the following rule out and operators have 90 days to acclimate.

So, they’ve got time to strategically adjust their business and figure out what they want to do, they’ll have level playing field which puts them in a much better position as it pertains to competing with patients with IRS and then LPACs and then when you add to that the Medicaid beneficiary number going up 10% between now and 2020, you’ll have some additional volume coming in as well.

So, the private side sees all that and like it, and understands that if they’re aligned with the right operators, they’re going to be winner.

Certainly they’re going to be losers here, I don’t want to make light of that, but the losers are going to be the traditional mom and pops that have run Medicaid jobs and its work for that for years and it’s not going to work for them going forward.

So, we believe that kind of operators that we align with, we’ll have buying opportunities when those guys gets the point where they decide that they just don’t want to be in the business any longer. And I think I mentioned on the last call, every we have been selling some skill facilities outside of Genesis over the last few years.

Every time we put a facility in the market we have 10 bidders, very robust..

So, Rick, I guess on that question, you got more assets in the market now with Genesis, you’re pipeline I think you said was 90% seniors housing.

So, why is this not a good time -- is it just your current exposure and your want of diversification or is it your struggling to find better transitional care assets at reasonable prices?.

Well, there is a couple of things. One, there it’s actually not a price differential between sort of the higher end operators and the more traditional operators. It’s more a function of diversification for us, and there aren’t as many operators as you would like to see that really understand how the paradigm shift is going to affect them.

As time goes on there will be more and more these and because so much is the sectors is in secondary and tertiary markets some of those guys aren’t going to be effected for years. And in fact track of our portfolio is outside of the top 100 MSAs.

So, even though our non-Genesis portfolio was focused on these higher end operators, most of our portfolio is it really reflecting the industry which reflects our fellow REIT peers in that a lot of facilities are secondary and tertiary and even CMS things that only 50% of the facility are going to be really impacted by bundling.

So they have a lot of facilities out there that can sort of keep on going the way they have been going for quite some time. And I think the public market doesn’t really understand that, so for us it’s primarily diversification.

And the other point I would make is, really in defense of the public side the problem really is you guys have data points anymore. You got -- what you hear about the Medicare through HCP, and that's been a problem asset for six years.

You had the Genesis misstep of guidance earlier this year, you had a really good company in Ensign, you've had a little bit of softness. You don’t have -- those are the only data points that you guys have and the 90s you know there were over 2,000 publicly held companies.

So, if one or two of them are having problems everybody kind of blew it off because you had a better perspective of the whole sector.

So, the only perspective that you all really get is from the REITs, because we have much broader base that has -- that much better reflects the industry as a whole then just looking at Genesis or Ensign or HCR Medicare.

So, I think just put you guys in the really tough position, and I think that’s why when we have these calls and you hear from Omega, LTC and other guys, our portfolios are a much better representation of the whole sector because much of the sector really is in secondary and tertiary markets that don’t get effected the same way.

And if you look at our stats, our stats they’ve been great on the senior side. Our rent coverage isn't going up every quarter on a year-over-year basis. If you look at our all-in because that's how we're reshaping the portfolio, we’re up to two and a half years now and our skill mix continues to go up as well and it's at an all-time high now.

And that means you're less dependent on Medicaid and those markets that really are reflecting the shift in the paradigm..

Yes, it talks out to your point Rick, when it’s three for three in the public market, it’s tough to blow it off, but I agree with your commentary, thanks..

And we'll take our next question from Chad Vanacore with Stifel..

So thinking about that development pipeline I wanted to give you -- you went through it quick and I want to make sure I understand it.

What was your actual capital commitment and what types of yields do you get on the development?.

And so on the developments themselves when you look at our preferred equity and you look at our investments we get about on average almost a 13% return on the preferred equity as it's invested and then on the loan a certain average of about 9% and then our total dollars that we've invested today, is about 90 -- I think I said $93 million, $94 million.

We don't have any significant future commitments the way Rick described it, also these guys have financing outside of our financing, we're just a part of the capital stack and so you won't see significant dollars growing into these particular investments because it’s kind of sits steady until they reach stabilization at which time we'll exercise our purchase option and bring them into the portfolio..

The other source [ph] we have in this Chad is, if you may recall a few quarters we mentioned a new development deal with the Silver companies, that's a forward purchase agreement.

So in that case we're able to strike a deal where we have no capital commitments that we're going to have to make, we'll simply have the opportunity to buy the facility once it’s stabilized and we're looking at about a half a dozen projects budget there..

Alright, and what qualifies as a stabilization level for you..

Stabilization level, typically for senior housing is 90% occupancy and 1.2 EBITDA coverage. And that's based on trailing earnings at the time and so the facility is then obviously completely capable of supporting that rent obligation..

And then just so I understand it, when you take this up and then if the rents will be around 7.5% yields for you..

I think on average it'll be about 7.7 because we've got a bunch of 8s and a bunch of 7.5. So I think the average based on everything we greenlighted at this point is 7.7. That's with branded product, obviously..

Alright, and then I just want to go back to the senior housing portfolio that you currently have which looks like that occupancy is waning and it went down sequentially.

Do what do you see is going on there with your operators and then are there any particular operators that are outperforming others in any trends by geography that you point to?.

No, so I think you need to look at two things Chad, if you look at our same store senior housing portfolio, occupancy was stable. If you look at the all-in portfolio, it was down, but it was down as I said because we acquired two portfolios in the middle of 2015 that had lower occupancies than the existing portfolio in Sabra.

Those numbers weren't included in the 2015 numbers because we had just acquired then, they're in the numbers now. So if you just take those two portfolios out and we bought them based on where they were operating. If you take those two portfolios out, our occupancy's at 90.6% all in versus 90.7%. .

So, back to the geography question anything that you can look or as far as trends on geography?.

No, no, none. We’re pretty stable across the board. .

All right.

And then does it looks like holidays faring well, even though they may or may not be new supply coming in the secondary markets that are the better and butter?.

Yeah. Well, I’d say that our holiday has been very stable. We expect them to be better than stable and with the management changes in the holiday we spend quite a bit of time with the new CEO and some of the new strategic things they’re doing. We actually would expect holiday performance to improve over time, but it been stable. .

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

Yeah. .

And we’ll take our next question from Omotayo Okusanya with Jefferies..

The Genesis MOU again, thanks for the color about when you kind of expect that to be completed. Could you just talk a little bit about what kind of interest you’re seeing in those assets, whether you kind of expect it to be kind of more one-off type of transaction.

Or is possible to kind of pull up-off a portfolio type deal?.

Yeah. We’re seeing I don’t expect that to be portfolio deal. The only possible portfolio deal maybe Kentucky because they’re nice new facilities in Kentucky. So, theoretically it’s possible that someone wants all of Kentucky.

But I would expect these to be a lot of smaller deals, there is a lot of interest so far, the LOI -- the bids are coming in really quickly. And the way that this broker works and this is a broker that’s actually our preferred broker in the space..

B:.

Okay..

And based on how the business coming in that seems to be that seems to bear out. .

Got you. And that’s helpful. And then with the Welltower deal that you commented on earlier on, again the new landlord there did give Genesis a bit of a rent breaks. I think there is some concern in the market that Genesis may get rent breaks from all its other tenants -- from all its other landlord.

Is that something that you could address?.

Yeah. So, one and I want to clarify it’s not just a rent breaks that’s helpful to them, they’re accelerated for that..

Lower accelerator yet. .

Right. And exceeding low accelerators that grow over time, but they peak out at 2%. So, we think that’s even actually more helpful than the just a rent breaks, which I think that’s about 5%. I can’t speak to any other tenants, no rental breaks from us. .

Okay..

And there has been, they haven’t even asked for a conversation Tayo. .

That’s helpful. .

And remember that, we would never the ones with the really high accelerators..

Yeah..

So, we just have a flat number in there and that’s what we agreed to at the time and one of those things that George Hager requested at the time we consented to the Sun deal was that we don’t have a greater of CTI and we agreed to that. So, we feel like we sort of did our thing with them the right way.

A few years ago and it's never even come up in conversation..

Okay, that's helpful, and lastly from me again you feel pretty good about your acquisition pipeline, could you talk a lot about the yen, just irrespective of where your stock is trading and the need to kind of fund those assets.

Timing wise when you would generally kind of expect is that all the stuff that you could close quickly, is that a lot of stuff that's going to take a year to close. Just trying to get a sense of how that would impact 2017..

Well, we've only got think about 44 million we're going to close on through the end of this year, yes in 2017 we're going to have an awful lot of cash coming in from the Genesis proceeds.

So I mean the whole sector has been a little bit funky and we've had a crazy sell out today and maybe it's to the point that you made a second ago that because of the Welltower-Genesis announcement that people expect us to take a rent cut, because the activity phase has been really unusual.

So calling that out we actually haven't been in that bad a place, as Harold said we don't need to tap the equity markets based on you know the LOIs that we have out, we're going to be in pretty good shape for quite some time, given our current availability on the line and the proceeds from Genesis coming in.

So as we execute on these dispositions and people continue to see, you know stability in our operations, you know hopefully some of this noise will go away by the time we actually have to address the capital markets.

But the other point Harold mentioned is we saw the ATM turned off and unless we're going to do a really large deal which would justify going to the markets, you know given the size of the deals that we're looking at with these LOIs they're pretty small and at some point next year you're having to utilize the ATM just to match funds on a pretty small basis, you know that's not that big a deal..

Okay, that's helpful, thank you..

[Operator Instructions] we'll go next to Todd Stender with Wells Fargo..

Harold, just to clarify your Genesis comments at the beginning regarding the number of facilities you're selling. In the queue it says that, I think you sold two in the third quarter just wanted to see if that's a number we take that 29 minus to..

No. So, I am not sure where you're referencing in the queue, we could talk about it offline, but there were no Genesis assets sold during the quarter. We sold one skilled nursing asset, but it was not a Genesis asset during the second quarter.

So, there has been no change in the 35 assets that are being sold that we talked about last quarter, but there were discussions of two properties that have previously been sold that were part of the original MOU and so maybe that's what you're thinking about because that was done several quarters ago. There has been no change this quarter..

Okay, thank you for clarifying. And then it just sounds like Genesis is an operator it's obviously making the necessary changes as fast as it can. It's also at some point going to have access to the public equity markets. So it sounds like an operator that a REIT would want to partner with at some point.

So my question is, while everyone else is running away from Genesis, when does an opportunity exist maybe for you guys or for anyone else to partner up with Genesis. I know you're exiting states like Kentucky, but just want to get a sense of when that opportunity may present itself..

Well for one I think, the opportunity has already been taken advantage of in the case of Omega. They're a lot a bigger than we are right, so for us our Genesis exposure is still too high for us to be doing anything more with them, once we get them down into the team maybe that makes sense at that point.

So when you look at the when the when we’ve take hits on a stock, it’s been specifically due to Genesis related announcements. Whether it’s been negative on the guidance mix or positive on the disposition mix. And so we get affected more by Genesis specifically than our skilled nursing exposure generally.

So, I just think if we want to ensure that we won’t get into recovering the stock than we should announce that we're going to be doing more deals with Genesis. And I do think they’re doing all the right things as I stated and I think obviously Omega feels the same way and Welltower still keeping their foot in there with the JV.

But we still need to get our exposure down but that's a function of our investor base and us just doing what we think it’s a right thing to do by our Investor base and it’s not a reflection of Genesis. .

Got it. Thank you..

Yeah..

And we’ll take a follow up question from Omotayo Okusanya with Jefferies. .

Yes. Just a quick one, have you given out your expected proceeds from the Genesis MOU once it all done.

How much you could expect to get from that?.

Yeah. So, it somewhere around $226 million for the entire 35 assets including as I reference in my comments the $10 million payment..

Okay..

I think about the amount of lease, it is about that -- call it, $25 million to $30 of debt that’s going to be pay down. So, net proceeds after paying down and this is asset level debt that was going to be part of purchase price and it will probably go with the assets. It’s about 200 million..

Got you. Okay. Helpful. Thank you. .

Yeah..

And with no further questions, I’ll turn the call back over to Mr. Costa for any additional or closing remarks. .

This is Rich, not Mike. So anyway thanks for joining us today. Hopefully we provided clarity on a number of things. And again we did want to bring attention to the development pipeline because we think enough to materializing there that there is some real value that we currently and understandably don’t get credited for, that we could look forward to.

Secondly, hopefully there has been enough clarity on the disposition assets with Genesis. And Genesis generally and again I want to make the point reemphasize the point we are not going to be having any rent cut with Genesis and there has never even been discussion or question about it. So just want to be clear on that as well.

And as always Harold and I are available for additional follow up questions and look forward to seeing a lot of you guys at NAREIT. Take care..

Thank you. And that does conclude today’s conference. Thank you for your participation. You may now disconnect..