Josh McLane - General Counsel and Secretary Gregory Stapley - Chairman and Chief Executive Officer William Wagner - Chief Financial Officer David Sedgwick - Vice President of Operations Mark Lamb - Director, Investments Eric Gillis - Director of Asset Management.

Jordan Sadler - Keybanc Capital Markets Paul Morgan - Canaccord Genuity Chad Vanacore - Stifel, Nicolaus & Co., Inc. Brian Hawthorne - RBC Capital Markets John Kim - BMO Capital Markets Joshua Raskin - Barclays Jonathan Hughes - Raymond James.

Welcome to CareTrust REIT's Q1 2017 Earnings Call. Please note that this call is being recorded. I would now like to turn the time over to Josh McLane, CareTrust REIT’s General Counsel and Secretary. Please go ahead..

Thank you, Suri, and good morning. Before we begin please be advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about our business and the environment in which it operates.

These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied here.

Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact results, as well as any financial or other statistical information required by SEC Regulation G.

In addition, during today’s call we will supplement our GAAP reporting with non-GAAP metrics such as EBITDA, normalized EBITDA, FFO, normalized FFO, FAD and normalized FAD.

When viewed together with its GAAP results, we believe these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports.

Except as required by laws, we in our affiliates do not undertake to publicly update or revise any forward-looking statements or changes arise as a result of new information, future events, changing circumstances or for any other reason.

Listeners are also advised that today - yesterday we filed our 10-Q and accompanying press release and our quarterly financial supplement each of which can be access on the Investor Relations section of our website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period.

At this time, I would like to turn the call over to Mr. Greg Stapley, our Chairman and CEO..

Thank you, Josh. Good morning, everyone, and thank you for joining us today.

With me today are Bill Wagner, our Chief Financial Officer; Dave Sedgwick, our Vice President of Operations, who joins us from our East Coast office; Mark Lamb, our Director of Investments; and Eric Gillis, our Director of Asset Management, who joins us from our new Midwest office from Kansas City.

CareTrust posted a good start to 2017 with $55 million in new investments in the quarter at an average blending cash yields of 9.2% and we have more in the pipeline.

We also further strengthened our balance sheet by responding to heavy demand for equity through our at-the-market equity program which moved approximately 7.2 million shares and generated about $108 million in net proceeds in the quarter.

We welcome the several new investors who have joined us through that avenue and thank them and all of you for your support. Also during the quarter and since, our credit rating outlooks were revised from stable to positive by both Moody’s and Standard & Poor’s offering the prospects of additional improvements to our cost of capital in the future.

And finally, we welcome Eric Gillis as our Director of Asset Management. Eric was one of our most well respected operating partners back in our Ensign days.

He comes to us with a wealth of knowledge and experience in both skilled nursing and seniors housing operations and his presence substantially bolsters our already strong by operators, for operators expertise and brand.

In addition to monitoring the health of our physical plants, Eric leads our effort to help our tenants identify untapped opportunities for improvement within their existing operations.

This has the potential to add great value for both our tenants and for our investors since any facility level and operational improvements directly strengthen the value of our portfolio. We are happy to have Eric on board today for his inaugural Asset Management Report.

So with that, I would like to turn it over to the team now for more details starting with Dave..

Thanks Greg. So Q1 was a nice start to the year as we were able to help one of our existing seniors housing operators, premier senior living, expand their footprint into Michigan.

And we also began a new relationship with WLC, a Skilled Nursing operator in Southern Illinois, led by industry veterans Wayne Kaplan and Bob Borsody, Premier runs 20 seniors housing locations in seven states.

WLC is run by Scott Stout who was the long time COO of the five facility Southern Illinois portfolio we acquired, making the transaction much like a sale leaseback with its minimal transition risk. Both Premier and WLC are outstanding operators and we look forward to growing with them.

In addition to these latest acquisitions, I want to take a moment to applaud our largest tenant the Ensign Group. On Monday, they announced very strong quality metrics and earnings posting record quarterly revenues yet again. Ensign is a company that is truly built to last with an exceptional core of leaders at all levels and a sterling balance sheet.

With respect to the broader skilled nursing industry, let me just take a minute to address the last weeks CMS announcement that appears to have mid, larger waves than we think it should. As long time operators ourselves, we've seen and managed through many changes from both CMS and the States.

In addition to the long expected 1% rate increase that was negotiated and know in 2015 in connection with the Doc Fix, CMS also issued an advanced notice the proposed rule making commonly referred to as a pre rule that may or may not be adopted in time.

Experience has taught us that a pre rule will almost always change dramatically announced to the time when and if it is ever implemented.

This particular pre rule is based on the ongoing SNF payment models research project, which is really just part of a larger perpetual dialogue between providers and payers around continuing efforts to improve our healthcare system. This particular iteration explores possible alternatives to the current reimbursement for rehab patients.

Among other things that includes proposals that could lessen the regulatory burden on providers and thereby potentially lowering the cost of care, but at this stage it's simply too early to estimate the potential impact of a pre rule that will surely involve before it's implemented if it is ultimately implemented.

To the extent that it is, remember the CMS historically gives operators plenty of lead time to prepare for any material changes in regulation or reimbursement. Ensign CEO Christopher Christensen spoke positively about this development during their earnings call on Monday.

We echo his sentiment which essentially is that to the extent that reimbursement changes align incentives for better care. The better operators will welcome and benefit from it just as Ensign has over the last couple of years.

To our part, we're staying in front of these developments as well as similar discussions around value-based systems and other changes. This allows us to actively and intelligently monitor our current and prospective operators ongoing preparations to manage smoothly through whatever changes these discussions might eventually produce.

So we remain optimistic about the industry and its prospects. Most importantly, some really outstanding operators in our portfolio and several others waiting in the wings. With that, I'll turn it to Mark to provide some more color on both our recent investments and the pipeline.

Mark?.

Thanks Dave, and hello, everyone. As Greg mentioned we kicked off the year with $55.3 million in new investments. The first was a $26.1 million acquisition of two senior housing communities located in the Milwaukee metro area for existing tenant Premier Senior Living.

Milwaukee investment generates annual cash rent of $2.16 million for an initial cash yield of 8.3%. In March, we added a five building skilled nursing portfolio located in Southern Illinois with WLC Management.

The $29.2 million investment produces initial cash rent of $2.9 million for a growing in cash yield is 10%, combined these investments yield 9.2% on an initial cash basis and carry CPI-based escalators for future years. We currently have other properties under contract that we anticipate closing within the second quarter.

In fact, some of these have already completed diligence and are merely awaiting licensure from the state and we are of course working on much more beyond that. High level, we have tightened our underwriting standards again since the first of the year with a five bip increase in our target going into lease coverages and yield targets about the same.

So as of now we benchmarked our senior housing deals to a target coverage of 1.25 times with yields in the low-8s and our SNF deal to a coverage of 1.45 times with yields in the mid-9's. We then adjust those targets slightly based on things like operator, location, condition of the physical plants and other relevant factors.

Regarding coverage, please remember that when we started with the Ensign portfolio which runs coverage at over two times and Ensign is now under 50% of total revenues.

Coming from this high level as we continue to diversify our tenant base with market rate deals, we will naturally and inevitably see our overall coverages decline, but we continue to seek solid individual coverage with sound tenants and as Eric [indiscernible] working with our tenants to be sure those coverages are where we expect them to be.

The acquisition market continues to be competitive for both senior housing and skilled nursing assets, but we're seeing a slight decrease in the volume of opportunities coming across our desks.

Our current acquisition pipeline which includes both on and off market deals remains in the $100 million range with a mix of both senior housing and skilled nursing assets. It includes some potential new operators to us as well as new states.

Please remember that when we quote our pipe, we only quote deals that we are actively pursuing which meet the yield and coverage underwriting standards I just described. And then only if we have a reasonable level of confidence that we can lock them up and close them. And with that, I will hand it to Eric to discuss asset management..

Thanks Mark and hello, everyone. There has been plenty to do since my arrival at CareTrust in February, but let me start by saying how excited I am with what we are doing here and how enthusiastic we are to support our great tenant operators.

Consistent with our by operators, for operators philosophy, our approach to asset management involves far more than just making sure the properties themselves are kept up by our tenants, because the long-term value of our portfolio is meaningfully influenced by the operational performance of our tenants.

We delve deeply into their businesses, doing so with that level of understanding that can only come from our long and deep backgrounds and operations. And when we do, we inevitably see things that our tenants can do to improve their operations and by extension out of these coverage.

To date I have been able to personally meet almost all of our 17 tenants and towards sizable chunk of the non-ensign assets in our portfolio. And with respect to Ensign after eight years, and the tranche is there like other trusts, I know many of their facilities quite well.

Among other things, our asset management team is currently focused on our Ohio operator, Pristine Senior Living which took over the operations of our 16-Property Liberty Acquisition about 18 months ago.

Since then Pristine has worked hard to improve clinical outcomes, remedy deferred maintenance, build census, growth skilled mix, increased revenues and improved star ratings with some notable successes.

Several of their facilities are doing just fine, but following inter county and Medicaid rate cut in the Cincinnati market last year and few of the more southerly operations have struggled to keep pace.

This as well as some other external and internal challenges including the resignation of their former CFO after the unexpected passing of his wife last year has caused the transition of that portfolio from a pure Medicaid play to more of a short-stay rehab model to take longer than originally anticipated.

In response, we had helped them identify key areas of opportunities for improvement.

In addition, following an inadvertent failure to pay some property taxes after the loss of the CFO, we've also implemented and held through the bed tax and property tax income system to assure both Pristine and ourselves that those important obligations are fulfilled.

With this inputs and assistance, Pristine has cracked the clear and achievable points to improve operations which we are monitoring and we will continue to provide help and insights to them and our other tenants as needed. And with that, I'll turn it over to Bill..

One, no additional investments nor any further debt or equity issuances this year. Our outstanding balance on our $400 million dollar revolving line today is $37 million. No rent escalations for any of our releases. Our total rental revenues for the year again including only acquisitions announced today are projected at approximately $111.5 million.

Our three operated independent living facilities are projected to do about 400,000 in NOI this year.

Interest income of approximately 620,000 on the two preferred equity deals that we closed in Q3 of 2016, interest expense of approximately $23.5 million in our calculations we have assumed a libel rate of 1% that plus the current grid base LIBOR margin rates of 185 bps on the revolver and 205 bps on the seven year term loan make up the floating rates on a revolver and term loan.

Interest expense also includes roughly 2.3 million of amortization of deferred financing fees. And lastly we're projecting G&A of the $29.1 million and $10.1 million, which equates to under 8% of total revenues and again without reference to any additional growth in our asset base or revenues this year.

We have driven that percentage down every year and intend to continue doing so. Our G&A projection also include roughly $2.4 million of amortization of stock comp.

As for our credit stats, calculated on a run rate basis as of today, our debt-to-EBITDA is approximately 3.75 times, leverage is about 24% of enterprise value and our fixed charge coverage ratio is approximately 5 times. We also have approximately 12 million in cash on hand. And with that I'll turn it back to Greg..

Thanks Bill. Bill discussion has been helpful. We thank you again for your continued interest and support. And with that, we’ll be happy to answer questions, Suri..

Thank you. [Operator Instructions] First question comes from Jordan Sadler with Keybanc Capital Markets..

Thank you and good morning.

So first question is regarding the pipeline, any insight you can offer into any changes in pricing or a seller expectations in the wake of the CMSs announcement?.

Jordan, this is Mark. It's way too early. Obviously that was just announced last week. So a lot of the brokers are getting their arms around, what the changes are and frankly we just haven't – we haven't seen or heard of this come up at all. So it’s way too early for sellers to even contemplate this..

And what about for buyers, I mean so in terms of your underwriting you've got $100 million pipeline plus it sounds like you’ve got quite a bit behind it.

Even though the second part of the announcement that the pre rule that you guys ran through, how does that factor into your underwriting?.

Jordan, this is Greg. We can't tell you how other buyers are going to behave. But for us our behaviors probably not going to change much and that's because we're already very operator focused to begin with. We look at an acquisition first question is who's going to run it, whether the sale leaseback or somebody else does to be transitioned in.

And one of the first questions we always ask about those operators is how sophisticated are they? Are they stay in the front end of the changes that are constantly happening in the history whatever they are in are they will equipped to handle them. So I for us this really doesn't hose any kind of big challenge or change..

Is that more of a function of the types of assets that you guys have chosen to pursue meaning by the assets that you’re focused on just less exposed to even what's proposed by the pre rule?.

Well, that's a good question because some of the assets for example liberty portfolio that Eric just talked about was pretty much of pure Medicaid portfolio we took it over and when you do take a Medicaid portfolio over it doesn't really matter. If you've got an operator in there who's going to shifted to more of a short stay rehab model.

Everything they do on that front is great. And so it is really matter what is going on in the Medicare program as long as you're confident that the operator knows it and knows what to do about it. So really again just always comes back to the operator is in held how well they are able to execute on their plan whatever it is..

Okay. And then just following up on the conversation regarding Pristine Senior Living.

Will there be there or has there been any rent abatement are any fallout that we should be aware of as it relates to the overall I guess the master lease and then can you give us an update on what the in place coverage is there?.

This is Greg again, there's been no rent abatement, they not miss the rent payment or anything like that. And they have a great plan who are working through the challenges that Eric discussed in his part of the call.

And in terms of their coverage I think what we've always told the market is this from when we acquired the liberty portfolio that they run back in October of 2015.

It was a pure Medicaid portfolio they do intend in our working on transforming it to more of a short stay rehub model they have had some successes on that front and I think there's more to come and we are always been clear that our expectation was that they would take that starting coverage they have which was fairly low and actually take a couple of steps back before they got the changes they needed to make implemented and started moving forward.

So what we don't give out individual coverages on an individual tenants. They are covering our rent they are paying our rent and we are very optimistic about both their near and long-term futures..

And then just one last one if I may on the assumption in guidance maybe for you Bill. I thought you said you're assuming no increase in terms of the CPI escalators and I just want to clarify you know we should be if we want to just try and model this is precisely as possible.

We should be focused on the April or May CPI print for the increased it - let's say Ensign would say?.

That's correct. And currently on our latest renewals that we've been doing we've been getting between 2% and 2.5% CPI bumps for leases. And right now if you - from a sensitivity standpoint of 1% increase in CPI on leases remaining to have bumps the rest of the year were generate 1% increase would generate a $0.01 increase to guidance.

And then a 2.5% CPI bump would generate about $0.02. So it's no longer one for one it's 1% and then 2.5% for $0.02..

Okay. Thank you, sir..

Thanks Jordan..

Thank you. Our next question comes from Paul Morgan with Canaccord..

Hi, good morning, just following up on that question about CPI bump.

So the 2.5% that and your $0.02 guidance that's not annualize number that's just for fiscal 2017 correct?.

That's correct..

Okay.

And that includes not just the Ensign bumps that would be later in the year for this strong portfolio?.

Yes, correctly. We've got pretty much three large tenants left this year that have CPI bumps, Ensign goes in June, Pristine goes in on 10/1 and then PMG goes on 12/1..

Yes, okay.

And then you mentioned in terms of your kind of the investment pipeline, you still got the help the amount that kinds of in your near-term pipeline but you also alluded to there may be a little bit of a slowdown in kind of what you're seeing out there? Is there anything I mean you can attribute to that I know earlier any year you talk about your maybe trying to underwrite slightly higher coverage in the SNFs portfolio and the morning it push back on pricing or just kind of the number of opportunity you are seeing?.

Yes. I think that there been some portfolio that have bounced back to the market and just from a transaction volume stuff hasn’t closed and so we're seeing deals come back, but for the most part just the velocity has slowed down over the last month or two.

I mean there continues to be – there's some big portfolios out there that are being chased, but they don't fit our coverage and yield metrics. So that's why we're sticking to the ones and twos and looking to tack those on to our existing operator base..

I think it was in the fourth quarter where you – one of your deals currently came back to you.

Are any of the things going to coming back to market something that you could execute on?.

Yes. I think there are probably a few that should bounce back that we are currently looking at and are hopeful on..

Okay, great. And just kind of lastly on Pristine.

I mean is it too early to say that, I mean our coverage is recorded in arrears and I'm just thinking about the first quarter, I mean is it a little early to just kind of make a judgment whether your coverage will trough are you getting more confident is that’s the case?.

Paul, would you answer that question one more time?.

Just in terms of the Pristine portfolio, I was asking whether it's kind of too early to make a judgment whether the coverage there kind of will be trotting obviously with the numbers we're looking at it for the fourth quarter actually coming out a little bit more than that.

Any kind of thoughts about how this year might look in terms of their coverage?.

This is Greg, Paul. Again, as we said from the outset, we expected that coverage to pull back as they repositioned that portfolio to move into the new environment. And we've seen that indeed occurring.

We think that they have hit bottom and they've kind of bumping along that bottom for a couple of quarters now and we see them now is being poised to grow again. Bottom was extended by the things that Eric mentioned unexpected rather a large Medicaid rate cut in about half of the portfolio and then some challenges associated with the back office.

But one of those challenges they've absorbed now, they're still working on filling the slot in their back office, but they do have an excellent plan and they are out now executing on it and how well they execute is remains to be seen, but we're monitoring..

Great. Thanks..

Thank you. Our next question comes from Chad Vanacore with Stifel..

Hi, how are you doing today?.

Good.

Chad how are you?.

Good.

So you mentioned a hot M&A market or at least competitive one and competition from operators, but also a slowdown of pipelines how do we reconcile that? Is that just specifically to markets or subset of opportunities that you're looking at that are slowing?.

Yes. I would just say right now we're seeing a lot of kind of non-strategic assets that are currently flooding the market whether it be other REIT’s divesting or operators that are just cutting and call it they are non-strategic facility that they for whatever reason want to go in a different direction.

So we're seeing a lot of opportunities there not stable, not great coverage, some buildings losing money. So that’s kind of what we're seeing right now. There are portfolios out there and small portfolio that do have good coverage and those are regarding our premium. So we're just not seeing the velocity that we have seen call it 12 months from now..

Yes. Maybe I could put a little more context on that for you Chad. Last year, our underwriting team underwrote 393 deals, I mean that's an astronomical number and we picked a dozen or so.

Right now may be well Phase II to underwrite 250 or 300 deals, so for us it feel little thin, but that doesn’t mean we won’t sign the dozen result that we want this year. We are watching and it will come..

You are not the winner of these portfolios as it not strategic assets choose the buyer for them?.

Yes, I mean a lot of its private money. Folks are looking to the bridge-to-HUD a little bit of arbitrage there. And then and there are other reach, so we here are chasing those as well..

Okay. And then just thinking about you mention as former operators yourself, you can be – you can add to an operator strategy.

So what are some of ways you're helping operator to navigate to a tough period for skilled nursing?.

Chad, this is Eric. So we were able to really go and be a partner with them at the ground level.

So during the last couple of months and some of our operators have been – we’ve been able to go in, watch the buildings with them and be that’s second or third set of highs for them as well and be able to create improvement plans upon that and because of our operating background – one of us in the room has definitely seen the challenges that they might be facing and then we can offer that expertise [indiscernible] and continue to help them.

So we've been able to do a lot of that over the last couple months, myself that obviously the team has been doing that since the inception of our Company because of the background that we had..

Okay. And then just one more question, it looks like you open up use of the ATM.

Can reach that you to use that more then say secondary offerings, just to kind of match fund as we go forward?.

Yes. Hey Chad, it’s Bill. We used up the first ATM that we filed was for $125 million and we've issued $124 million. So we're kind of on the sidelines right now with an ATM.

But you can accept fact us in the coming weeks to put another ATM up and the ATM is just another tool in our toolbox to raise money to fund our pipe if we collectively put together some investments that totaled to big enough number. I’d say in the equity markets where they're for us.

I’d say we probably go out, do a secondary to the match fund against those as opposed to the ATM, where our volume isn’t high enough to cobble together, enough to match fund against a collection of an investment..

All right. Thanks for taking my questions..

Thank you. Our next question comes from Brian Hawthorne with RBC Capital Markets..

Hi.

So what was levels up, while within your long-term target? Going forward how are you planned fund future acquisition?.

Brian, this is Greg. Obviously with the inherent liquidity that we have right now, we could fund a lot of our coming acquisitions simply off of with own credit line, its $400 million line and $27 million drawn at the end of the quarter. And our leverage is at an all time low.

So we could go run a long way before we ever get outside our target four to five times debt-to-EBITDA range..

Sure.

Okay, and then you look at your operators, have you seen anything that would cause them to be put on you guys are like internal watch list and then I guess kind of when you look at them, what are the requirements I would get an operator put on that list?.

As a hard question to answer because it is seems that you have some tenants you don't watch and we want all our tenants. Who still relatively small firms and we have the – even though we're a relatively small management team as well. We have the bandwidth and the expertise to watch these folks very closely. So we're constantly interfacing with them.

In the addition of Eric has been a nice supplement to that because he is out in actually is they would be on the ground with them more often than we were able to.

So everybody's on our watch list and we worry about every single one of them every day and do our very best provide them with the insights that our backgrounds might provide us because it's sometimes when you're out running operations day-to-day, it's really tough to see the forest for the trees and as Eric just said that that second third set of eyes is can be very helpful just an identifying the opportunities around it..

Sure. Okay. That’s all question I had. Thank you, guys..

Thank you..

Thank you. Our next question comes from John Kim with BMO Capital..

Thanks. Good morning. So the timing our underwriting standards by five basis points.

Can you just elaborate why you’ve done this it sounds like you are not really influence by CMS announcement? So to the supply concerns or your trends of Pristine or are there other factors?.

John, this is Mark Lamb.

I would say we just want to make sure oftentimes when you are taking a look at a SNF transition can take you know sometimes a little while longer actually depending on the story in those particular buildings and so oftentimes our operators will get in and need of a little bit more time and we can underwrite two says 140 coverage but it just gives us a little bit more margin of safety going to 145 and so we just found over the last you know three years that a little bit more coverage just puts a margin of safety there for incoming tenants..

Okay. And then on the experience with Pristine.

Are you saying basically that been like the primary driver of declining EBITDA coverage this quarter I'm trying to understand with the messages with this?.

Well, I think if you look at, what I alluded to in my remarks is as we're bringing more and more transactions end of the portfolio for instance the PMG transaction we did at the end of last year. That was underwritten the mid-to-high 30’s, 1.3 times range and so automatically that's going to full coverage down.

So as we continue to bring more transactions and especially if it's you know their senior housing and coverage is 1.2 times it's going to continue to pull our overall coverage down..

I see, okay. I think Dave mentioned in it's prepared remarks that 1% CMS rate increase was already agreed upon in the 2015 negotiation.

But can you might if there's already been agreement for the rate increase for 2019 or 2020?.

There hasn't 2018 I believe was the last year of that change..

Okay. So what’s the disappointing and the market was that there was the concern of the 1% would have increased or….

It's a good question. You're really shouldn’t been any disappointed in the market because it was expected by everybody in fact Mark Parkinson of the American Health Care Association mentioned that they were trilled that there wasn’t any decline in that range. So that should have been a newsworthy by them actually..

Okay.

And final question is on the use of the ATM, Bill what metric the primary look at when you decide to pull the trigger on it? Is it absolute share price or is that multiple or priced NAV or the curious what you really look at?.

We look at our NAV and we look at the Premium Network Trading and we can to put a limit price out there are with whoever's on our whoever's doing the selling and we won’t – below that limit which is in excess of our NAV..

Speak you'll also see us watching very closely for opportunities to match when those races to the deals we do need and any times we really good to first company our size. Because we can raise $5 or $10 or $15 million in a normal month off of it and that's a one good one of deal for..

Your stock price today is above the average selling price in the first quarter.

So would be fair to assume if you had that ability to do more you would use it or is your balance sheet strong enough that it's not really necessary?.

As we see here today. We haven't really talked about, because it's not an issue because we don't have an ATM out there right now. But as we sit here today I would tell you that we have plenty of right powder and no pressing need to raise any equity in the near-term..

Okay. Great, thank you..

Thank you. Our next question comes from Josh Raskin with Barclays..

Thanks. Good morning out there guys. Getting back to macro, I mean I understand everyone sort of announced in 2015 that 1% was coming, but now we're finally getting closer.

And so I'm curious about how your SNF tenants are thinking about it? Should we just expect that sort of temporary decline and coverage or do you think there's discussions around temporary escalators being held back or anything like that? Just from a financial perspective, how should we be thinking about it from the REIT side the 1% increase?.

This is Dave. As we are talking about – because CMS gives quite a bit of lead time before they make either changes or increases, our operators have enough time to make any adjustments that they need to, so we don't expect coverage to materially change.

There's no discussions at all about making any changes to rent or rent increases because of the 1% everybody expected that they've been prepared for it in this business as usual this year..

Okay. That's helpful.

And then on the WLC management deal, I guess two questions there; one just be hoping a little bit of background on that group on your new partners there and sort of what their size and scope is and what their plans are? And then understanding would you guys are underwriting just sort of a mid-9’s on the SNF side and these were a little bit higher.

What were some of the factors that pushed those a little bit and push that yield a little bit higher towards the 10?.

Yes, great question. So a little bit of color on the operator, like I said in my prepared remarks Scott Stout was the long time COO of that portfolio that we acquired and in fact he initiated the whole deal with an upmarket deal. We met him. He was one of these operators that we had kind of waiting in the wings to see if there was a deal in the future.

And he took the initiative to bring this deal to us and the owner of the portfolio to see if he can buy him out and start his own thing. The beauty of that is that the same team, the same back office, the transition as part of the residence and employees go from day one to the next is nothing going be.

So that's great, it reduces the any transition risk that is inherent in an acquisition.

And the reason we were able to get an exceptional yield and an above market coverage at the same time is really because the market that is headed in State of Illinois which has some overhang on it because of the state dysfunction that’s there and the long time it takes to make Medicaid payments and also being in the very rural setting of Southern Illinois.

Those two factors kind of helped drive that cap rate. And the way we got comfortable with those is basically doing what adds up to a sale lease back since it’s the existing operators still running them..

Okay. That's perfect. Thank you so much..

You bet..

Thank you. Our next question comes from Jonathan Hughes with Raymond James..

Yes, good afternoon. Just two from me, Ensign mentioned they were closing some beds in facility due to CapEx burdens and putting those beds in other properties or new properties, and I think you add some bed capacity as well.

Could you just remind us if your views on development and if you see this as an avenue for growth in the future?.

Yes, Jonathan. It's Greg. So we did close one property that was in our portfolio.

Let me tell you exactly what that was? Three years ago back at Ensign, we've acquired a portfolio of assets included basically what was an old converted motel in Victoria, Texas and we always knew that debt property was did not have long to live and was going to be very difficult to keep up over the long-term and the day finally came when we basically just said look it's not worth, maintain a physical plant anymore.

Our network on it was small and they basically agreed that if we would let them close it, they would continue to pay for [master rent] and transfer the existing bed rights over to the other property that we own as – in that same community and so that was done.

With respect to those beds and the other beds that we have down in Harris County, we continue to preserve those beds. They are usable. We are exploring options for their redeployment and it actually made a little bit of progress on the Harris County beds since we last talked to you.

So we do have a small appetite for development and not a lot and we have some good development partners in the wings that can help us with that. So that they don't become a distraction for this team, and so we do anticipate doing a little bit..

Okay.

And that would be watch structure as maybe like a preferred paper when you take it out once it complete?.

Yes, so that's been a very effective methodology force us now. We did the Arvada deal back in 2014, which is now in stabilization and looks really good. We have the two prefer an equity deals underway in Idaho right now, one of which will come online later this year we believe, and we're excited about that.

And the Houston deals, we're currently working on exactly how those will be structured, but we have proposed a preferred equity deal with a very well known and experienced skilled nursing developer down in that state..

Okay, that’s helpful. And then may be just one more for Dave or Eric.

You touched on this in the past, but there have been some more news articles highlight nursing and labor shortages in the Midwest and the West Coast states, any of your partners concerned on outlook may impact their operations and are new concerned on how that may impact your coverage ratios? Any update there would be helpful..

Hey, Jonathan, it’s Dave. Yes, we’ve been talking with them about that issue. And I would say that – yes, that there is concern about the labor pressures. But not more than is necessarily more than usual. I mean since labor is by far the largest extent in these operations, it is always front and center for these guys.

We’ve seen in some cases a smattering of agency, we know the temporary nursing help that has to come in when labor gets really tight in some of the building, boss have seen that and go away after a brief introduction. I think as we have looked that labor costs going up annually somewhere between 1% and 2%.

I think now some of our markets are expected more like 2% to 3%. And so yes, it’s definitely an issue that are operators are wrestling with and it's never going to go away. It's always something that they have to work on..

Okay. That’s it for me. Thanks for taking my questions..

You bet..

Thank you. [Operator Instructions] We do have a follow-up question from Jordan Sadler with Keybanc Capital Markets..

Thanks.

I just wanted to clarify couple things, one, did you mention if there was any ATM completed in April?.

There was no ATM completed in April. We had issued all about the ATM through the middle of March..

Okay. And then one on coverage the skilled nursing campus coverage decline sequentially from 1.81 to 1.75. That you show on Page 6 of your supplement. Those are for the same 16 facilities I think.

Did you mention what was driving that specifically is that Pristine?.

We did not mention that and is part of it’s going to be Pristine.

I think maybe a good chance with Pristine, but we don’t get back you're exactly what that is?.

Okay. Thank you, guys. End of Q&A.

Thank you. Speakers I'm showing no further questions at this time. I’d now like to turn the call back over to Greg Stapley, Chairman and CEO..

Thanks Suri and thanks again everybody for being with us today and as always if you have any other questions always feel free to give us a ring. Thank you..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect and have a wonderful day..