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

Jordan Sadler - KeyBanc Capital Markets Michael Carroll - RBC Capital Markets LLC Jonathan Hughes - Raymond James.

Welcome to CareTrust REIT's Q3 2017 Earnings Call. Please note that this call is being recorded. 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 CareTrust REIT’s 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 in.

Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust 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.

During the call the company will reference non-GAAP metrics such as EBITDA, normalized EBITDA, FFO, normalized FFO, FAD and normalized FAD.

When viewed together with its GAAP results, the Company believes these measures can provide a more complete understanding of it’s business, but cautious that they should not be relied upon the exclusion of GAAP reports.

Except as required by law, CareTrust REIT and its 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 CareTrust filed its Form 10-Q and accompanying press release and its quarterly financial supplement each of which can be access on the Investor Relations section of our CareTrust website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period.

I would now turn the call over to Greg Stapley, CareTrust REIT’s Chairman and CEO..

Thanks, Dylan. Good morning and welcome everyone. With me are Bill Wagner, our Chief Financial Officer; Dave Sedgwick, our Vice President of Operations; Mark Lamb, our Director of Investments; and Eric Gillis, our Director of Asset Management. We've been very busy since the quarter began.

Nearly a year's worth of hard work has produced over $200 million in new investments in Q3 and since, bringing our total year-to-date to a record $300 million plus and pushing our enterprise value north of $2 billion for the first time.

Most importantly, the groundwork we've been laying all year for future growth has produced some tremendous fruit with projected normalized FFO per share for the fourth quarter jumping from $0.28 to $0.31 to $0.32 on a sequential basis, which equates to $1.24 to $1.28 going into 2018.

On the asset management front, lease coverages with several of our newer operators had been rising nicely partly as a result of our asset management team's efforts. And we've resolved the only significant problem in our portfolio.

Specifically, we are pleased to report that we've implemented a meaningful long-term solution to the challenges we've been talking about over the past nine months with respect to our 16-property Ohio portfolio.

Since the initial property tax payments earlier this year , Pristine Senior Living has been a subject particularly intenstive asset management work. As a result, Pristine has been showing steady and we believe sustainable operational improvements since late spring.

Nevertheless, in pursuit of a more definitive solution for the portfolio, we've agreed to give Pristine some short-term rent relief, which will immediately improve our lease opportunity with them. In exchange, they have agreed to relinquish 7 of the 16 properties and start stepping the rent back up in the coming months and years.

The 7 properties will be transferred to our existing tenant Trillium Healthcare, a successful operator of our assets in Georgia and parts of Iowa. These changes position our Ohio assets for better success as the two operators focus more closely on a smaller subset of the assets and the improvement opportunities that they still contain.

Moreover, the deal lowers our exposure to Pristine from 15.1% to just 7.7% over our September 30 run rate revenues, offsetting Trillium of about 9.5% and those percentages have declined further with our Q4 acquisitions. Both tenants are excited about the future prospects for these assets as are we.

It's important to note that while the near-term cash rent reduction will total around $2.2 million over the coming year. Due to the effects of GAAP straight lining; these transactions do not significantly impact the rental income we will record this quarter and over the next few years.

Plus, our yield on the overall Ohio investment is still a GAAP normalized 9.6%, and the going in pro forma lease coverage from Pristine will be about 1.25 times on their first year cash rent versus their T3 annualized EBITDAR, assuming no additional operational improvements.

For Trillium, the going in coverage will be about 1.22 times on their initial cash rent for the seven facilities and 1.3 times on their overall portfolio with us. While we hate to give up the short-term cash rents, we couldn't be more pleased with the long-term solution here.

We recognize that all real estate investors, ourselves included, will experience problems once in a while but it’s not whether you'll have them, but how you'll handle them that counts. The Pristine resolution is example of thea creative solution that we with our deep understanding of our tenant operations can craft when true challenges arise.

And as I mentioned, while all of this was well underway, we were still able to close a number of great new properties and set yet another annual record for investments, plus we started loading the pipeline for 2018 as well. I'd like the team to tell you more about that and more and so I'll turn it over to them now starting with Dave.

Dave?.

Thanks, Greg. So as Greg mentioned, in Q3 and thus far in Q4, we’ve closed on $214 million of investments at an average net yield of 9.04%, all of these acquisitions were true to our strategy of placing facilities in stronger hands, operators who can give the time and attention needed to provide sustainable, clinical, and financial excellence.

The majority of the deals were with current CareTrust's operators as tuck on to their existing master leases.

Our operators are excited about these opportunities because each facility we acquired has a clear operational upside with potential to immediately or in the near-term strengthen their master lease coverage, expand their local market share or open new markets, and in every case materially enhance their bottom lines.

We were also fortunate to bring a new operator into the portfolio with a sale-leaseback deal in California we closed just a couple of weeks ago.

Providence Group, a thriving and effective skilled nursing company led by industry veterans Jason Murray and Mark Hancock, has a special mix of clinical and financial sophistication and the cultural commitment to its employees, residents, abd patients that are prerequisites for us in a new operator.

With over 40 facilities in California, Indiana and Kentucky and tremendous individual track record as successful operators, the Providence team is doing an outstanding job of delivering quality clinical outcomes while running a profitable and promising organization. We look forward to helping them grow for years to come.

On the regulatory front, the skill nursing sector is gearing up for a new Department of Health annual survey process that is supposed to be implemented next year.

We don't expect that our operators' financial performance will be materially impacted, but as part of potential implementation, all existing star ratings nationwide are supposed to be frozen for a year, which will temporarily benefit some and frustrate others if implemented.

And along with our operators, we continue to monitor the proposed change from a rehab utilization-based model of Medicare reimbursement or RUGS to the proposed patient characteristic- based model called RCS 1. That proposal has yet to be finalized.

So with that, I'll turn it over to Mark to talk about the acquisition landscape in general and our pipeline in particular..

Thanks Dave and hello every one. As Greg stated in his opening remarks, Q3 was extremely busy for us as we invested $67 million across both the skilled nursing and senior housing sectors. Since quarter end, we have closed on an additional $146 million in investments bringing our year-to-date total to just over $300 million.

We continue to see a steady stream of deals coming across our desks with the bulk of the volume weighted towards skilled nursing facilities versus senior housing. Deal sizing is predominantly one-off in small to midsized portfolios although a few larger portfolios have come to market in recent weeks.

As we sit here today, our pipeline has dropped back to the $75 million to $100 million range after closings this past month, which is at the low end of our typical range and a reflection of how busy we've been as we’ve focused intensively on recent closings.

The current pipeline includes both on and off market deals and the balance of both senior housing and skilled nursing deals that we intend to pair with existing and also new tenants to whom we will look to grow our bullpen of outstanding operating partners over the coming months.

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 we have in place from time to time, and then only if we have a reasonable level of confidence that we can walk them up and close them.

We're thrilled about the progress we've made in the third quarter in sense and we believe the first half of 2018 has some exciting opportunities for us and our operating partners. And now I’ll turn it over to Bill to discuss the financials..

Thanks Mark. For the quarter we are pleased to report that normalized FFO grew by 29% over the prior year quarter to $21 million and normalized FAD grew by 30% to $22 million. Normalized FFO per share was flat at $0.28 and normalized FAD per share was down $0.01 to $0.29.

Given our most recent dividend of $0.185 per share, this equates to a payout ratio of 66% on Q3 normalized FFO and 64% on normalized FAD, which again represents one of the best covered dividends in the healthcare REIT sector. Before I go on, let me walk you through the amended rent schedules with both Pristine and Trillium that Greg talked about.

Bottom line our rental revenue for Ohio changes from $18.6 million pre-deal to $18.4 million post. Let me explain the details. Pristine's new rent schedule contains multiple fixed bumps over the first 21months and then beginning on July 1, 2019 there are annual CPI bumps of at least 2% each year over the remaining term.

Trilliums amended rents schedule contains multiple fixed bumps over the first two years and then grows annually by CPI beginning on December 1, 2019. If you look at our supplemental and compare just the line items for Pristine and Trillium you see that the aggregate initial cash rent drops about $2.6 million from $18.6 million to $16 million.

But this is based on the first month's contractual cash rent which only last a few months before starting to bump up. On a cash basis year one cash rent for all of Ohio is now $16.3 million, year two is $17.4 million, years three is $17.6 million each subsequent year increases by about 200,000 plus whatever the CPI bumps are on the Trillium portion.

Straight lining these fixed bumps resulting GAAP rents in all future years of $18.4 million compared to prior contractual rent of $18.6 million before the deal.

We also reference in our 10-Q approximately $6 million in impound accounts and 750,000 in other deferred rent amounts that Pristine will begin paying back to us starting in October 2018 with interest. The impound receivable relates to property in bed taxes that we pre-funded into the impound account starting in Q1 of this year.

The 750,000 of deferred rent is just under half of September's rent and represents the only contractual cash basis rent that Pristine has not paid to date. Pristine has paid all of October base rent under their amendment and is current on November base rent. Now on the guidance which takes into account these changes.

We have revised upward our 2017 guidance and now expect net income per share of $0.51 to $0.52 normalized FFO per share of $1.16 to $1.17 and normalized FAD per share of $1.21 to $1.22.

This guidance includes all investments and all shares issued under the ATM today is based on weighted average share count of 72.9 million shares and includes the anticipated effects of the Pristine and Trillium lease amendments.

As it the plan transfers had occurred on December 1, as schedule and relies on the following assumptions; one, no additional investments nor any further depth or equity issuances this year. Two, no rent escalations for any of our leases beyond those made to-date.

Our total rental revenues for the year again including only acquisitions made to-date are projected at approximately $117 million to $118 million and include approximately 630,000 of straight line rent. Three, our three independent living facilities are projected to do about 500,000 in NOI this year.

Four, interest income of approximately $1.9 million, Five, Interest expense of approximately $24.5 million, in our calculations we have assumed a LIBOR rate of 1.25%. That plus the current grid based LIBOR margin rates of 185 bps on the revolver and 205 bps on the seven-year term loan make up the floating rates on our revolver and term loan.

Interest expense also includes roughly $2.1 million of amortization of deferred financing fees. And six, we are projecting G&A of approximately $11.2 million to $11.4 million. Our G&A projection also include roughly 2.4 million of amortization of stock comp.

This is our results in Q4 guidance of $0.31 to $0.32 per FFO and $0.32 and $0.33 per FAD on an annualize basis going into 2018 $1.24 to $1.28 per FFO and $1.28 to $1.32 for FAD. As for our credits stats calculated on a run rate basis as of today, our debt to EBITDA is approximately 4.49 times, but our net debt to EBITDA is approximately 4.34 times.

Leverage is about 28% of enterprise value and our fixed charge coverage ratio is approximately 5 times. We also have almost $20 million of cash on hand. And with that, I'll turn it back to Greg..

Thanks Bill. We hope this discussion has been helpful. We thank you again for your continued support and with that we'll be happy to answer questions.

Dylan?.

Thank you, sir. [Operator Instructions] Our first question comes from Jordan Sadler of KeyBanc Capital Markets. Your question please..

Thanks. Good morning. I wanted to start off with the Pristine, Trillium transfer.

Can you maybe just offer up a little bit of insight in terms of what happened with Pristine over time that caused them to basically not perform at the level that was consistent with your expectations in underwriting? And then ultimately, maybe just a little bit of insight on Trillium as well your experience with them today, which gives you the confidence that they will have more success with the seven that they're picking up here?.

Sure. Jordan thanks. This is Greg. So you might remember the story. We've been telling it for a good solid year now. Pristine, when they came out of the gate, were in the process of building up their back office to accommodate the 16 facilities that we gave them. Their CFO was at the center of that.

In the middle of that process, you might recall that his wife contracted cancer and he was missing in action understandably for quite some time. She ultimately passed away and he ultimately resigned from the company.

In the midst of that, Pristine was attempting to shift what was largely – when we acquired them a set of pure Medicaid shops to more of a short-stay rehab model and doing so without the benefit of good solid real-time management data and financial data, which was a very, very difficult thing to do.

Then we came back and just said to the market, look, we think that we always predicted there was going to be some decline in their operations as they went through that transition before it started going up and then that decline started to become prolonged in the midst of that.

They sort of dug themselves a bit of a whole when we started the tax impound account last spring. And with that, our asset management team stepped in and started helping them to identify the opportunities in their portfolio to improve their operations. And those improvements have borne through. Starting last May, they steadily improved each month.

In the midst of that, their Medicaid rate in about third of portfolio, a little over a third of the portfolio went down in 2016 rebasing that was in the Cincinnati area to the tune of about $12 to $15 a day in some cases, which was difficult and additional setback.

But the operational improvements that they started making this year really started to help quite a bit. To the point whereby the end of this past summer, things were looking pretty good for them across the portfolio.

Nevertheless, they're still trying to dig out of some of that hole and came and asked us if we would consider some short-term rent relief. We were willing to do that, but not while they were still 15% of our total overall rental revenue.

And so we struck a deal with them where they got the rent relief, but we got half the buildings or almost half the buildings back and were able to hand them to another operator that was anxious and ready and willing and able to come in, that's Trillium.

In the midst of all that, we also reset – when we reset their rent, we reset it with some minimal fixed rent bumps in future years, which now has that rent stream being straight line such that our income, short-term isn't impacted very materially at least on a GAAP basis. And so we think it's a win-win all the way around.

With respect to Trillium, these guys are great operators, they’ve done a terrific job in portfolio that we have with them in Georgia and Iowa. Those are not the only assets that they have. They're industry veterans. They are -- actually I spoke with Pristine just this morning.

They are out in the road with the Trillium guys right now in the seven buildings that are going to be transitioned, introducing the Trillium team to staff in the community and making sure that that transition goes smoothly. So everybody's working together well.

We end up with no tenant in our portfolio besides Ensign, with more than 10% of our revenue, and we think it's, as I said, win-win all the way around.

Does that answers your question?.

It does, and I have one more, sorry to take up much of the time. But on Ensign, where you left off there, you've reduced the exposure there.

I think at the end of the quarter when they were well under 50% at this point and probably by the end of the year, there'll be probably driving down toward 40%, I would imagine, if you factor in the acquisition you made.

I'm curious what your appetite would be for incremental exposure or investments in real estate that is operated by Ensign?.

We've always – we love Ensign, [indiscernible]a new high today. They're great example of why the sky is not falling with respect to skilled nursing.

Yes, there are pockets or weakness across the industry, but Ensign has always been able to – even in its most difficult times and everybody has challenges, they've always been able to rebound and do stick to the fundamentals that make a nursing company successful. We would be thrilled to do more work with them.

And I think while we have been actively working to push that tenant concentration down, we've always said from the very beginning when we were 100% Ensign-concentrated, that if the right opportunity arose, that they were the right partner for it, we would absolutely do that deal with them, assuming they wanted to..

Thank you..

Thank you. Our next question comes from Michael Carroll of RBC Capital Markets. Question please..

Yes. Thanks Greg for the additional color on the background with the Pristine. I just had one quick follow-up.

Was there anything operationally that changed since last quarter? I believe last quarter, you indicated that things were heading in the right direction albeit maybe a little bit more solute than you would expect?.

I’ll let Eric, our Director of Asset Management to talk about that. He has been in those buildings a lot lately..

Yes, thanks for the question Michael. As Greg talked about some need and some leadership around the financial areas, they have been able to get that talent on their management team and they've done a tremendous job of really being able to get timely financials to their administrators and be able to really – be able to manage that labor better.

That's one of the things that they've been able to do on a daily basis and have been focused on but also managing the operational costs.

That has been something that they've done very, very well at the facility level, really have put a lot of training into the administrators there and being able to make those decisions at the ground level and they’ve been able to really right size their facilities each one. So they've done a great job there and continue to do a great job.

And as Greg said earlier, they had their – each facility has done better every month. We're seeing those performance improvements every month and excited for the continued growth of the portfolio that they still have..

I’ll add one thing to that Michael. One of the benefits of having a better back office and CFO in place now is that they've been able to get a little bit more visibility into their operations on a day-to-day basis. And one of the critical things that we've been concerned about that they finally figured out is their bad debt expense.

They've been running bad debt 2% versus as industry average of, say 1%, Ohio average of probably about 1% as well. And it's always been a bit of head-scratcher for us and they now from around figure out where the problems were actively making moves to address that.

So taking it that leg that is huge going forward and the coverage number we've given you still reflect the 2% bad debt calculation. So we think there is still some really good upside in this portfolio as they continue to short things up, and it could run more efficiently..

So things were heading in the right direction, why did they need or want a rent cut right away? Was it just getting overwhelming that they are too far behind and that they needed to bring on more people so their cost structure went up? I mean, what was the reason that they needed the rent cut for?.

They actually didn’t need to bring more people and ramp up their cost structure. But during that prolonged period when they were down, they did dig themselves down a bit of a hole and were behind some of their vendors and other things, and they just felt like they needed to take a step back in order to move forward again..

Okay, great. And then just one last question.

Is there a change in the strategy from the CPI bumps with the color on the cap? Or is that just a unique structure for this transaction?.

Say that again, I’m sorry to catch it..

On the annual rent bumps, I know you usually like the [UCTI] bumps. But with Trillium, you've provided a cap. And then with Pristine, you have a color on the rent bumps, kind of making them more fixed.

I mean, are you moving away from the CPI only rent bumps now?.

No, we still like CPI rent bumps and our rent bumps have always been bracketed by zero floor and 3 to 3.5 cap depending on the deal. In Trillium's case, they have a rent bump on this piece of the portfolio they have one coming in the year and then it basically goes to CPI after that.

We had to sort of mill their existing rent stream and the anticipated escalators and that one with the new rent stream on seven facilities, so we ended up structuring a two-year sort of rent schedule. But after that, it goes back to the CPI with zero floor and three cap.

With respect to the Pristine piece, the nine facilities they're retaining, it was important to us to put in the 2% floor on that piece of the portfolio because the initial cash discount that we were giving them was meaningful.

It's meaningful enough to help them with the hole that they were in as well as – but we wanted to be able to recognize the income that we’re going to be getting back over time. So we put in that 2% floor, it didn’t has 3% cap as well..

Okay, great. Thank you..

Thank you. Our next question comes from Jonathan Hughes of Raymond James. Your question please..

Hi, guys. Thanks for taking my questions. So switching from Pristine to another one of your operators OnPointe, yesterday another REIT who owns an OnPointe portfolio, noted, the EBITDAR coverage there, just below one time. Obviously, you only have two facilities leased to them, so it's a smaller proportion of the portfolio.

But are you seeing similar difficulties facing those facilities?.

Hey, Jonathan. It’s Mark. I think it’s important to distinguish that GreenPointe is a separate entity from OnPointe. The two primary principles of OnPointe own a percentage of the GreenPointe assets, and so our particular buildings are owned 100% by those two individuals.

I think we look at our two buildings, if you remember the building down in Brownsville was in a lease-up. It was built in 2015. It's the most recent constructed building by about 20 years. Brownsville, Texas is about 200,000 people, and this is, by far in a way the most attractive building in that marketplace.

And the Albuquerque building was built in 2015, and it's located directly across the street from the primary acute hospital. And so from a location and from a newbuild perspective, we bought these buildings right and in due diligence, as was talked about in the call yesterday.

The new management team, the new executive team, they're former colleagues of ours from our previous life. And we had an understanding of what was going on in these particular buildings. We understood the story of these buildings.

And we thought very good about these buildings as we made our investment in these assets, and they continue to trend in the right direction over the past months and quarter, so we feel good about these buildings..

Okay. So a bit of a different management agreement there, that's helpful. And then another question for you, has there been any change to underwriting skilled nursing acquisitions, just given the challenging environment out there? I think it was tightened to 1.45 times coverage earlier this year.

But has that gotten up to maybe 1.5 times or you plan to raise that at all going forward?.

It hasn't I mean each building we look at separately. Each building is going to have different opportunities for the incoming operators. We've seen buildings that were going to at 1.3 times grow to 1.6 times, 1.7 times.

So we start at 1.4 times, 1.45 times then adjust based on the characteristics of the specific asset so we continue to look at each and every opportunity with that land..

Okay. Got it. And then just one more from me for Bill on the balance sheet, your debt to EBITDA kind of 4.5 times, were you go higher? But you also get a multiple benefit in your stock with keeping debt so low.

To gain more to share prices relative to NAV, would it make sense to keep tapping the ATM to keep the revolver at full capacity and leverage, kind of the low target so you can capitalize and some of the product out there for sale. I am just curious your thoughts on that.

I noticed that there was no activity in the third quarter?.

Hi, Jonathan. There was no activity in the past quarter and that was mainly do even though we knew the pipe and some investments we’re coming to a close we didn't build real comfortable issuing shares under the ATM given the negotiations that were going on between us in Pristine..

Okay. So I mean, could that – can we see leverage though I mean what would it be fair to say that you're trying to keep it at the lower end of the target range. So you can….

Yes, we would like to keep leverage at the lower end of our stated range of 4 times to 5 times and now that all the disclosure is out in this we have the amendment signed and with Pristine you can expect the ATM to be turned back on..

Okay. Well, I appreciate the answer. That’s it for me. I’ll jump off. Thanks for the time..

Thank you. End of Q&A.

Thank you. I show no further questions in the queue. At this time, I would like to turn the call back over to Greg Stapley, Chairman and CEO. Please go ahead..

Thanks, Dylan. Thanks, everybody, for being on. We appreciate your time and interest and welcome you to call us if you have any further questions that we can answer. Take care..

Thank you. Ladies and gentlemen for attending today’s conference. This concludes the program. You may all disconnect. Good day..