Michelle Reiber - IR Taylor Pickett - CEO Robert Stephenson - CFO Daniel Booth - COO.

Nick Yulico - UBS Juan Sanabria - Bank of America Chad Vanacore - Stifel Kevin Tyler - Green Street Advisors George Hoglund - Jefferies Todd Stender - Wells Fargo.

Good day, and welcome to the Omega Healthcare First Quarter Earnings Call for 2015. All participants will be in listen-only mode [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Michelle Reiber. Mrs. Reiber the floors is yours ma'am..

Thank you and good morning. With me today are Omega's CEO, Taylor Pickett; CFO, Bob Stephenson; and COO, Dan Booth and our Chief Corporate Development Officer, Steven Insoft.

Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructuring, rent payments, financial condition or prospects of our operators, contemplated acquisitions and our business and portfolio outlook generally.

These forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially.

Please see our press releases and our filings with the Securities and Exchange Commission, including without limitations our most recent report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

During the call today, we will refer to some non-GAAP financial measures such as FFO, adjusted FFO, FAD and EBITDA.

Reconciliations of these non-GAAP measures to the most comparable measure under Generally Accepted Accounting Principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the Financial Information section of our website at www.omegahealthcare.com, and in the case of FFO and adjusted FFO, in our press release issued today.

I will now turn the call over to Taylor..

Thanks, Michelle. Good morning and thank you for joining Omega's First Quarter 2015 Earnings Conference Call. Adjusted FFO for the first quarter is $0.71 per share, adjusted funds available for distribution FAD for the quarter is $0.65 per share. We increased our quarterly common dividend to $0.54 per share.

This is a 2% increase from the last quarter and an 8% from the first quarter 2014. We've now increased the dividend 11 consecutive quarters. On April 15, we press released our 2015 annual guidance. We broke this guidance down by quarter and compared the guidance to our actual 2014 quarterly results.

It is important to analyze guidance on a quarterly basis because our first quarter results were diluted by our mid-February $459 million equity offering and to a lesser extent our early March $690 million bond offering.

If we compare the midpoint of our fourth quarter 2015 guidance to fourth quarter 2014 actual results both adjusted funds from operations and FAD are approximately 10% higher in 2015. Our growth over the next few quarters and into 2016 will be fueled principally by acquisitions. Our pipeline continues to be active.

The Aviv merger closed on April 1, we will begin reporting the combined company tenant and other information in the second quarter. The innovation of the company has proceeded as plan with all the company financial and tenant data analysis migrating Hunt Valley.

Our Chicago team is focused on new acquisitions, capital improvements to our existing real estate and new construction projects. Bob will now review our first quarter financial results..

Thank you Taylor and good morning. Our reportable FFO on a diluted basis was $79.7 million or $0.59 per share for the quarter as compared to $84.4 million or $0.68 per share for the first quarter of 2014.

Our adjusted FFO was $95.5 million or $0.71 per share for the quarter and excludes the impact of $9.4 million of interest refinance expenses, $4.9 million or expenses associated with acquisitions and $1.6 million of non-cash stock based compensation expense.

Further information regarding the calculation of FFO and adjusted FFO is included in our earnings release and on our website. Operating revenue for the quarter was $133.4 million versus $121 million for the first quarter of 2014.

The increase was primarily a result of incremental revenue from a combination of new investments completed since the first quarter of '14, capital improvements made to our facilities and lease amendments made during that same time period. The $133.4 million of revenue for the quarter includes approximately $9.4 million of non-cash revenue.

Operating expense for the first quarter of 2015 when excluding acquisition related cost, stock based compensation expense, impairments and provisions for uncollectible accounts receivable was $35 million and slightly less than our first quarter of 2014.

Our G&A $4.4 million for the quarter and we project our 2015 annual G&A expense will be between $26 million to $27 million with a growth primarily related to the Aviv merger and the completion investments. In addition we expect our 2015 annual non-cash stock based compensation expense to be approximately $10 million.

Interest expense for the quarter when excluding non-cash deferred financing costs and refinancing costs were $32.4 million versus $27.1 million for the same period in 2014, a $5.3 million increase in interest expense resulted from higher debt balances associated with financings related to our 2014 investments and 2015 financings that positioned Omega to refinance of these debts on April 1st.

Turning to the balance sheet for 2015 in February we completed an underwritten public offering of 10.925 million shares of common stock at $42 per share generating net proceeds of approximately $439 million.

The proceeds reduced to redeem our $200 million 7.5% senior notes due 2020 in connection with the redemption during the first quarter of 2015 we reported approximately $11.7 million of cost and expenses that are classified as interest refinancing expenses on our income statement.

In March we issued 700 million 4.5% senior unsecured notes due 2027, proceeds from this offering were used to repay the outstanding balances under our credit facility to pre-finance the payoff of the Aviv debt and to repay $147 million to retire 21 mortgage loans guaranteed by HUD which had a blended interest rate of 5.33%.

The payoff of the HUD debt resulted in a $2.3 million net gain for the early extinguishment of debt and is also classified under interest refinancing expense on our income statement.

For the three period ended March 31, 2015 our dividend reinvestment in common stock purchase plan we issued 135,000 shares of common stock generating gross cash proceeds of over $5 million.

As outlined in our press release issued yesterday on April 1st we completed the Aviv merger and repaid all of Aviv's outstanding unsecured debt in addition we assumed $100 million of secured 4% debt.

Today we have $3.4 billion of funded debt on our balance sheet which includes 265 million of borrowings under our credit facility, in addition we have $28 million of cash. For the three months ended March 31, 2015 our funded net debt to adjusted pro forma annualized EBITDA was 3.7 times and our fixed charge coverage ratio was 3.8 times.

I will now turn the call over to Dan..

Thanks Bob and good morning everyone. As of the end of the first quarter of 2015 Omega had a core asset portfolio of 560 facilities with approximately 61,000 operating beds distributed among 50 third-party operators located within 37 states.

Post the Aviv merger Omega's core portfolio has grown to 908 facilities with approximately 91,000 beds distributed among 81 third-party operators located in 41 states. Trailing 12-month operator EBITDAR for the Omega portfolio remained stable during the fourth quarter at 1.8 times as of December 31, 2014 versus 1.8 times as of September 30 2014.

Trailing 12 months operator EBITDAR coverage also remained stable at 1.4 times for the fourth quarter versus 1.4 times as of September 30. We are currently in the process of incorporating historical operating results for all the former Aviv facilities on consistent basis with Omega's reporting and tracking systems.

Beginning with our second quarter earnings results we will report operator coverages for the combine Omega Aviv portfolio for the trailing 12 months period ended March 31, 2015.

Turning to new investments during the first quarter of 2015 Omega completed $21.3 million of new investments which included $6.3 million sale lease backed transaction for one skilled nursing facility operated by a current Omega operator.

The company also invested approximately 15 million under its capital renovation and construction programs in the first quarter of 2015. Additionally Omega is in the process of closing an approximately $175 million sales leaseback transaction for 23 care homes located in the United Kingdom and operated by Healthcare Homes Holding Limited.

As part of the transaction Omega will acquire title to the 23 care homes and lease them back to Healthcare Homes pursuant to a 12 year master lease with an initial cash yield of 7% and annual escalators of 2.5%.

This is Omega's first foray into the UK in many years and with precipitated primarily by the strength of healthcare home's management team led by [indiscernible]. We believe Healthcare Homes will provide an excellent platform for future growth in terms of both new acquisitions and capital expenditures.

Turning to our current pipeline, as a result of the Aviv merger Omega now has acquisition and development teams in both Chicago and Hunt Valley Maryland. Both teams will continue to source transaction from our existing operator based while opportunistically seeking to broaden upon our already diverse group of professional regional operators.

Our current pipeline remains robust as our existing portfolio of operators remain actively acquisitive in terms of both new investment opportunities and capital expenditure projects. .

Thank you Dan. That concludes our prepared comments. We will now open the calls for questions..

[Operator Instruction]. The first question we have from Nick Yulico of UBS. Please go ahead. .

Can you just go over again the UK acquisition what was the dollar amount and cash yield on that?.

Sure first half I just want to point on it, it is not closed it is eminent. We expect it to close either at the end of this week or early next week. It's approximately $175 million and the initial cash yield is 7%. It's predominantly a private pay it's really assisted living for the most part..

Are you guys going to file a supplemental I didn’t see one yet?.

It will be filed today..

And is that going to have -- I mean you guys are going to have some sort of pro forma balance sheet information after the merger closing.

I know you gave the debt was on the balance sheet but are you guys giving more information on that?.

It will not have that in at this time Nick, we're going through purchasing accounting as we speak which is a very complicated process of course which have to close the [indiscernible] balance sheet. So we will not today have that in there..

And then I guess the other question was on the -- you had this situation where the private equity sponsors of Aviv sold their stock after the merger. Have you got any sense for the OP unitholders in Aviv which is I guess mostly the family founders of Aviv.

Do you have any conversations with them about what their plans for holding your stock versus Aviv's?.

We’re not aware of anybody who has talk about exiting. So we've haven’t heard anything..

The next question we have comes from Juan Sanabria Bank of America..

Could you just speak a little bit more about the UK opportunities and how we should be thinking about it? You're targeting overtime a certain percentage of your portfolio that you like overseas and in the UK would you look to be more private paying.

And then any way does that speak to sort of a more limited opportunities set in the U.S it just seems like a curious initial for it not being in the traditional skilled nursing set what you focused in the US and how you've talked about having a robust pipeline here. Just curious if that is the rationale.

And also how you're hedging that, are you looking to hedge that over time?.

Yes the, the foray into the UK began about a year ago, when it was marketed through [KPMG Maverick] and you know our view was that we were going to the UK with the right operator relationship which we found a management team that is excellent and will be acquisitive, so we will lever it to them just like we have with our tenant base here.

You know we talked in the past about assisted living, we do have assisted living platforms via the Aviv transaction and via a transaction we did in the end of the fourth quarter.

So for us it really is just a natural expansion of the model that we've run for a long time which has defined the operators that you know you can grow with that are quality operators and the opportunity to go to UK has just presented itself, it's great from our perspective..

Did you talk about the rent coverage there at all?.

We didn’t but it's in line with what we look at when we look at our portfolio, it was like a year in the north of 1 to 1..

1.1..

I am sorry 1.1 to 1..

Right..

Okay, great, thanks.

And then on the balance sheet, if I could just ask what the thought process is longer term on I think it's $500 million of term loans how should we be thinking about that I guess over the balance of the year in terms of what's incorporated -- beyond that and then maybe beyond that any thoughts about terming out that debt?.

No that will stay in place throughout the year that the term loan and you know our financial policy hasn’t changed, we'll use the credit facility to lever up and then we will put permanent financing in place as well as use the ATM..

Okay.

And just kind of one quick question with regards to just the level of competition, have you guys seen any greater competition in the US for [indiscernible] assets, have you seen the new Ventas go in the market, any thoughts on that would be helpful and any views on kind of where you think cap rates are for the balance of '15 for your pipeline?.

We really haven’t seen a change in terms of competition for assets and the interesting thing I think to think about with [indiscernible] Care Capital Trust I believe is what they've named it, is like similar to our portfolio a lot of our activity comes through our tenant base and we have a few overlapping tenants but not an enormous number so I would expect that their miles are going to be similar to ours where a lot of activity through the existing tenant base of course in a big marketed transaction [incremental] but not unlike pre our merger you know was Omega Aviv and a private guys.

In terms of cap rates we are still looking at smaller deals in nines for skilled nursing facilities and larger deals in the high eights in terms of yields..

Next, Chad Vanacore of Stifel..

Alright.

Can you give us an idea of the size of your pipeline and what kind of assets are in there and whether these are larger deals and how much senior housing versus skilled nursing you are looking at right now?.

I mean the pipeline is sizeable but when we talk about the pipeline it's really just everything that’s on our plate that we're looking at. No we don’t really separate by what we have term sheets signed on and what we're in the process of doing sale agreements on, so our universe of what we're looking at in excess of a $1 billion.

For the most part it's sourcing off of our existing tenants on the skilled nursing side. There are however some assisted living assets and there are a number of assisted living development transactions that we're looking at as well.

If I were to -- I don't off the top of my head have a good percentage breakdown it's heavily weighted toward the [SNIP] sector but there is a fair amount of balance particularly as it relates to development projects..

Okay because it seems like you’ve been more minimal to doing more senior housing in the assisted living side.

All right, and then can you give us an average cost of debt on the current outstanding debt?.

No I think it's, the average cost is under 5..

Got you..

Just under 5..

Kevin Tyler, Green Street Advisors..

Aviv's revenue that was covered last quarter less than one time so I think it jumped to about 23% are you expecting any change as you integrate or incorporate Aviv's facility this quarter to your 1.4 times coverage?.

Not as we sit here today, you know remember the Aviv coverage has historically been the same as Omega's. As we sit here today and again we're working through our process, I would expect that it's going to be fairly consistent..

Okay and anything since specifically that you could point to Aviv can point to that explains the jump last quarter -- the 23%..

Larger percentage of that was driven by two situations. One where we had an operator who literally went from about 0.1 times to 0.99 times, so just fell into a different cohort for a couple of basis point.

The other half of it by and large an operator we've been buying value at opportunities with where their coverages was going down but not because of their deteriorating operations but because we're adding value add [indiscernible]..

The last one from me just going back to the external growth that you're forecasting I think that you said about 650 million. Two things one is that 175 in the UK in there and then if you aggregate the 650 and you compare it to last year for Omega alone excluding AVIV.

It slightly exceeds that run rate but when you lump Aviv into it, you get to a lower number. And I was just curious why that number has come down is it a function of a more challenging environment or the fact that you guys have had an acquisition on your plate now for the first quarter of the year..

I think there is an element of general conservatism. If you look back we never have given guidance as it relates to acquisition because they're so choppy just don’t know. But as far as the merger we put out guidance in our pro-forma 650 million and we reiterated our confidence with respect to that in our guidance going forward the year.

So I would just say it's conservative relative to the pipeline today but again deals are choppy and we can't predict the timing..

Omotayo Okusanya of Jefferies..

Hi this is George on for Omotayo.

Was the lack of deals in 1Q would you attribute that once again just to choppiness of deals or just a more effort being focused on closing the Aviv acquisition?.

I would say principally choppiness -- everyone in the room was still active creating the pipeline as an example the UK transaction, so I think principally choppiness but I will add now that merger is complete [indiscernible] and the team in Chicago is able to focus almost exclusively on acquisition and development where there was other activity that had never involved in previously.

I want to make one other little follow up to Kevin's question the 175 million for the UK deal is part of our 615 million in guidance..

Okay and then just one more on the CMS proposal for 1.4% increase for [SNIPS].

Is that sort of in line with what you guys were expecting and what you think the impact on the operators will be?.

It's in line with what we're expecting. I think that really just offset normal inflation that they're going to experience. So from a coverage perspective I think it wouldn’t expect any change in coverage from that rate change..

[Operator Instructions] Next we have Todd Stender of Wells Fargo. Please go ahead..

Can you talk about the economics around the new sniff you are going to build in Florida? This is going to replace the other three I just want to – people could assuming that you are going to sell those and really how fungible are those without a tenant..

So they are going to be close down in the licenses from those three facilities were actually going to be move out to the new building.

So they will not be sold as active operating sniffs and I don’t have a license that will be really just sold as vacant facilities for whatever used they might provide we wouldn’t expect to get any material proceeds from those.

However the ramp associated with those three buildings will not go away the rent for the new build will be additive to the old rent. So there is no rent going away..

Is there a going in yield you are able to assuming for that development?.

I think its 8.5 going in..

And how about the coverages on those three assets? What was that go from and what will that go to?.

Coverages on those three assets are not bad today actually they're pretty good, they're part of the bigger master lease. So we sort of the look at the overall but what we have is that we've got three facilities that are just physically obsolete in markets that are that are declining.

So this is just an opportunity that we saw and the operators saw to do a new building in a better market and with a new state-of-the-art building. .

So I think the answer is you're going to have increased rent for the incremental dollars spent to build the building and the coverages from the three buildings are going to be comparable to the new build. So no [indiscernible] economics on the incremental dollars being spent to develop the property at an 8.5% yield..

Okay, that's helpful.

And then just finally, post Aviv closing I guess just as a reminder what does your operator concentration look like for the top three tenants, as of March 31st they represent about 30%, now what does that go to?.

It goes to about 20, 20, 22 in that range. So all the top three in the way I have always sort of thought about we have, they are all 10% or below. You know we diluted it down to where -- we're not talking about any operators above 10%..

Next will be follow up from [indiscernible] Bank of America..

Hi, thanks guys for taking the extra time. Just a quick question with regards to, a theoretical kind of question here.

If you guys underwrite something and then you find that there may be some improper billing by the operator, whether it be for too high a therapy or what have you, would you guys have any recourse to the seller or the operator for underwriting numbers that may have not been representative of what should have been the case?.

Sure to the extent that you have reps and warranties and you know purchase and sell agreements you are going to have recourse for sure. I am not exactly..

It varies, I mean the survivability of those reps and warranties varies right, if it's something is picked 10 years down the road probably not if it's something that becomes apparent soon then you would have recourse, we just, we have not had that situation arise..

And just on that same topic, do you guys know of any investigations that may be happening with any of your operators obviously to the issues [indiscernible]. .

No..

Okay. And just to reiterate one of the points earlier, I am thinking would be helpful just to have the supplemental release in light of earnings just for our sake just help us go through the numbers et cetera so may be something we could have next time if possible? That's it for me thank you..

Okay. .

Well at this time we have no further questions. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to Mr. Taylor Pickett for any closing remarks.

Sir?.

Thank you for joining our first quarter conference call. Bob Stephenson will be available for any follow up questions. We thank sir and to the rest of the management team for your time. The conference call is now concluded. At this time you may disconnect your lines. Thank you and have a great day everyone..