Michelle Reiber - IR Taylor Pickett - CEO Bob Stephenson - CFO Dan Booth - COO Steve Insoft - Chief Corporate Development Officer.

Tayo Okusanya - Jefferies Chad Vanacore - Stifel.

Good day, and welcome to the Omega Healthcare Second Quarter Earnings Call and Webcast 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 that this event is being recorded.

I would now like to turn the conference over to Ms. Michelle Reiber. Please go ahead..

Thank you and good morning. With me today are Omega's CEO, Taylor Pickett; CFO, Bob Stephenson; 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 Web site 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 second quarter 2015 earnings conference call. Adjusted FFO for the first quarter is $0.77 per share, adjusted funds available for distribution, FAD for the quarter is $0.70 per share.

We increased our quarterly common dividend rate to $0.55 per share which is a 2% increase from last quarter and an 8% increase from the second quarter of 2014. We've now increased the dividend 12 consecutive quarters.

Our second quarter actual results are ahead of our adjusted FFO guidance of $0.74 to $0.75 per share and our FAD guidance of $0.68 to $0.69 per share. We have increased the lower end of our third and fourth quarter adjusted FFO guidance by a $0.01 and have maintained our third and fourth quarter FAD guidance.

The integration of Aviv is substantially complete and we have already begun to cross-market both offices' capabilities amongst all of our combined operators in an effort to maximize our expertise and resources. As we have discussed previously, the Aviv merger further diversified our operator base and geography.

At the end of the quarter no operator exceeded 7% of total investments and no state exceeded 10% of total investments. On the personnel front, last week we announced that Lee Crabill, our Senior Vice President of Operations retired. Lee was a valuable member of our team for 14 years.

His responsibilities have been divided among members of our Chicago and Hunt Valley offices. Lee has agreed to stay on as a consultant through the end of the year to ensure a smooth transition. Bob will now review our second quarter financial results..

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $100.7 million or $0.52 per share for the quarter as compared to $79.7 million or $0.63 per share for the second quarter of 2014.

Our adjusted FFO was $149.7 million or $0.77 per share for the quarter and excludes the impact of $47.1 million of expenses associated with acquisitions; $2.9 million of non-cash stock-based compensation expense and a $1 million gain related to interest refinancing expense.

Operating revenue for the quarter was $197.7 million versus $128.8 million for the second quarter of 2014.

The increase was primarily a result of incremental revenue from a combination of the Aviv acquisition and other new investments completed since the second quarter of 2014, capital improvements made to our facility and lease amendments made during that same time period.

The $197.7 million of revenue for the quarter includes approximately $15 million of non-cash revenue.

Operating expense for the second quarter of 2015, when excluding acquisition related cost, stock-based compensation expense, impairments and provisions for uncollectible accounts receivable was $31.3 million greater than our second quarter of 2014 due to the Aviv merger and other acquisitions.

Our G&A was $7.4 million for the quarter and we project our G&A expense to be between $7 million and $7.5 million per quarter with a growth over 2014 related to the Aviv merger and the completion of other new investments. In addition, we expect our non-cash stock-based compensation expense to be approximately $2.9 million per quarter.

Interest expense for the quarter when excluding non-cash deferred financing cost and refinancing cost was $38.2 million versus $29.4 million for the same period in 2014.

The $8.8 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 Aviv's debt on April 1. Turning to the balance sheet for 2015, in April, we completed the Aviv acquisition via merger.

The transaction was a stock-for-stock swap with each share of Aviv being exchanged for 0.9 shares of Omega. As a result, Omega exchanged $48.6 million of Aviv common share for $43.7 million of Omega common shares and also exchanged $10.2 million of Aviv partnership units for $9.2 million Omega partnership units.

Also in April, Omega used credit facility borrowings to complete $178 million investment in the U.K., which Dan will cover in more detail.

As I mentioned, the Aviv acquisition was a stock-for-stock swap, however, simultaneous with the acquisition Omega repaid Aviv's outstanding credit facility and senior notes with cash generated from a combination of a March $700 million, 4.5% senior unsecured note due 2027 issuance and a February unwritten public offering of 10.925 million common shares of Omega stock that generated $439 million of proceeds.

In addition, during the first six months of 2015, we redeemed our 200 million, 7.5% senior notes due 2020.

We repaid $156 million to retire 22 mortgage notes guaranteed by the Department of Housing and Urban Development and under our dividend reinvestment and common stock purchase plan we issued 813,000 shares of common stock generating gross proceeds of $30 million.

For the three months ended June 30, 2015, our funded debt to adjusted pro forma annualized EBITDA was 4.5x and our adjusted cash fixed charge coverage ratio was 4.3x. I will now turn the call over to Dan..

Thanks, Bob, and good morning everyone. As of the end of the second quarter of 2015, Omega had a core asset portfolio of 923 facilities with approximately 92,000 operating beds distributed among 84 third-party operators located within 41 states and the United Kingdom.

Trailing 12-month operator EBITDAR for the entire current portfolio, which now includes all of the former Aviv facilities remained stable during the first quarter at 1.8x as of March 31, 2015 versus 1.8x for the Omega standalone portfolio as of December 31, 2014.

Correspondingly trailing 12-month operator EBITDAR coverage also remained stable at 1.4x for our current portfolio as of March 31 versus 1.4x for the Omega standalone portfolio as of December 31, 2014.

Turning to new investments; in addition to the Aviv merger, which was consummated on April 1, Omega completed a $178 million new investment and the United Kingdom during the quarter. This transaction involved a sale lease back of 23 care homes in the East Anglia region of the U.K.

The facilities were leased back to healthcare homes a new Omega tenant pursuant to a 12-year master lease agreement with an initial cash yield of 7% and annual escalators of 2.5%. During the quarter, the company also invested approximately $80 million under its capital renovation and construction programs.

Turning to subsequent events, in July of 2015, Omega closed on five additional investments totaling $184 million. Four of the five transactions totaled $72 million involved 12 facilities in four states with annual cash yields ranging from 8% to 9.25%.

Further details on these transactions can be found in our press release and on our second quarter 10-Q filing. The fifth transaction involved a $112 million real estate acquisition for assisted living development project in the Upper East Side of Manhattan. This project will be co-developed with and leased Maplewood senior living.

Currently Omega's third largest tenant and the operator of 11 existing assisted living facilities, one skilled nursing facility and two [house] [ph] currently under construction and located in the states of Connecticut, Massachusetts and Ohio.

In a moment, I will turn the call over to Steven Insoft, Omega's Chief Corporate Development Officer to discuss Maplewood on the Upper East Side project in more detail.

Concluding with our pipeline discussion, both the Chicago and Hunt Valley acquisitions teams have been actively reviewing and underwriting a significant number of investment opportunities.

At this point, we are comfortable reaffirming our acquisition target of $650 million of new investments for the year with the opportunity of perhaps exceeding that target. As of today, Omega currently has approximately $770 million of cash and availability to fund new investments.

As mentioned at this point, I would like to turn the call over to Steven to give an overview of Maplewood and the aforementioned Manhattan assisted living development project.

Steven?.

Thanks Dan. And our outgoing effort to leverage our new construction capabilities and our long-term relationships with Maplewood senior living, we are excited to announce that we have acquired a development site in New York City to complement our existing Maplewood pipeline.

The site costing a $112 million is a [sandwich] [ph] of properties located in Manhattan on Second Avenue between 93rd and 94th streets. Our intend is to build a 214 unit, 201,000 square foot 20-story ALF and memory care facility with a total project cost of $246 million inclusive of the land acquisition price.

We expect the project to open in early 2018. Maplewood has considered many sites in the New York City market with this particular opportunity striking the right balance of cost and neighborhood appropriateness for this use.

Maplewood senior living based in Westport Connecticut as facilities in Connecticut, Massachusetts and Ohio, with their Connecticut facilities concentrated in the Metro New York City suburbs of Fairfield County.

As such, the New York City market presents a strategic extension of Maplewood's footprint and the Manhattan market in particular allows Maplewood to feel a long time void of purpose-built assisted living and memory care facilities with its best in class service in real estate offerings.

While each of Maplewood's facilities are designed and programmed to accommodate the local market they are in, all of their facilities have an extremely high level of focus on design, décor and service that the residents and their families in these communities have come to value.

This market acceptance of their business plan has translated into average portfolio monthly realized rents in excess of $8000 in their suburban New York City location and the memory care rates in these markets are in excess of $9300 per month.

Based upon Maplewood's experience and our market research, we are comfortable that the Manhattan market will fully embrace Maplewood's level of design and service. Maplewood's Second Avenue was included in Maplewood's 15-year master lease.

Omega will receive a 5% current yield on the $112 million land investment during the permitting and construction period and following the completion of construction in 2018, our year one lease yield will be 7%, our year two lease yield will be 8% and then we enjoy a 2.5% annual escalator thereafter.

All of Maplewood's facilities are owned by Omega and subject to one master lease. There are six stabilized facilities including their one SNF, have EBITDAR coverage of 1.44x. There are six Maplewood properties that are currently in fill-up and two more under construction exclusive of the Second Avenue site.

All of Maplewood's projects have met or exceeded projected fill-up and return expectations and as such we are every excited about the Second Avenue opportunity.

While we remain very much a SNF focused REIT, Maplewood is an example of how our emerging senior housing strategy allow us to leverage our internal turnkey construction capabilities when paired with best in class regional senior housing operators with whom we are looking to work..

Thanks Steve. And that concludes our prepared comments. We will now open the call to questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Nick Yulico of UBS. Please go ahead..

Hi, good morning. This is [indiscernible] for Nick.

First question was any of the FFO guidance increased due to more favorable accounting changes related to the Aviv merger?.

No..

Not at all? Okay. And then just kind of follow-up on the Maplewood deal, I want to make sure I jotted this down correctly.

The ultimate cost to construct the project is $261 million and you expect rents to be, is it anywhere between $8000 and $9300 a month?.

No. So the way to think about the total project cost will be about $246 million and that would include the land acquisition. The rental rates in Manhattan are going to be materially higher than they would be in Fairfield County to accommodate the higher real estate costs. While absolute rent has not been set yet.

I would think it would be reasonable to be in the range of 50% or better higher than the current run rate in the Fairfield County..

Okay. Thank you very much. I appreciate that..

Thank you..

The next question comes from Tayo Okusanya of Jefferies. Please go ahead..

Hi. Yes. Good morning. Congrats on a great quarter. I just wanted to talk a little bit about again, your investments in the U.K. and kind of your recent increased focus on senior housing.

I mean as we just kind of think about [indiscernible] as a company and again, for the longest time you have kind of been known as the classic pure play domestic SNF guys.

Again, as you start to do these bolt-on transactions, I mean it's – and you start to have a little bit of style drift, I mean how are you – how do you [carrying] [ph] of – leave that on top of just what people historically always kind of bought into the stock for.

Are you somewhat concerned, you maybe changing your stripes a little bit and alienating investor that have kind of known you as – this is what these guys do and do so well?.

From our perspective Tayo, it still begins with the tenants; the relationship with Maplewood started a number of years ago. The U.K. was new for us. But, we have talked about by putting our towel in the water as it relates to assisted living facilities and private pay.

When we think about how we allocate capital with 84 tenant relationships, 82 of them SNF driven tenant relationships and only 2 that are pure play significant assisted living facility relationships.

We are still going to dedicate the vast majority of our capital into those skilled nursing facility relationships to the extent that there is available product that's our number one priority.

That being said, we have identified a handful of tenants that fit the mold a bit we like which is, they need capital, they work exclusively with Omega and we are able to grow with them in an asset type that we like and we are getting rates that are favorable on terms from a yield perspective.

So it might be a little bit of style drift, but only style drift when you look at property type not how we run our business and how we think about tenant relationships as a broke mechanism going over the next decade..

That's helpful. And how big do you – could you see someone like the U.K.

getting for you, is this kind of really more of very specific to this one tenant and why you did?.

It was specific to the one tenant. We went over there. It was an opportunity. We really had a – hit it off well with the operator over there. We do expect to grow with them. They are acquisitive. They are looking at new deals today. But, I think we are really going to work off of their acquisitive nature to do new deals on the future..

Okay. Great. Thank you..

Thank you..

[Operator Instructions] The next question comes from Chad Vanacore of Stifel. Please go ahead..

Hey, good morning all..

Good morning, Chad..

Okay.

So just looking at your results, doesn't look like you issued anything in the ATM this quarter, should – how should we be thinking about your use of the ATM, and how you feel about equity issuance at these levels?.

We will – you are right. We didn't use the ATM this quarter. We look to use the ATM modestly and we see the stock move up a little bit, we will use it a little more aggressively. And it's really been driven off the pipeline, which as Dan mentioned is pretty active.

So to the extent that we start to see details principally issue activity through the ATM as we move forward..

All right. That's it for me. Thanks..

Thank you..

[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Taylor Pickett for any closing remarks..

Thank you. And thank you for joining the call this morning. Bob and me will be available for any follow-up questions you may have..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..