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

Juan Sanabria - Bank of America Merrill Lynch Chad Vanacore - Stifel Nicolaus Nick Yulico - UBS Kevin Tyler - Green Street Advisors Tayo Okusanya - Jefferies Todd Stender - Wells Fargo Securities Ross Nussbaum - UBS.

Welcome to the Omega Healthcare First Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to 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 limitation, 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 2016 earnings conference call. Adjusted FFO for the fourth quarter is $0.83 per share. Adjusted funds available for distribution, FAD, for the quarter is $0.75 per share. We increased our quarterly common dividend to $0.58 per share.

This is a 2% increase from the last quarter and an 8% increase from the first quarter of 2015. We have now increased the dividend 15 consecutive quarters. The dividend pay-out ratio remains very conservative at 70% of adjusted FFO and 77% of FAD.

We're maintaining our 2016 adjusted FFO guidance range of $3.25 to $3.30 per share and 2016 FAD guidance range of $2.95 to $3 per share.

Although our first quarter run rate on an annualized basis exceeds the high end of the adjusted FFO guidance range, we have maintained our original guidance because it is possible that we will reduce our credit facility balance by issuing equity and/or issuing long term fixed-rate debt.

We will continue to evaluate the availability and attractiveness of the capital markets and if necessary, we will adjust guidance as appropriate. We've identified 25 facilities that we're marketing for sale. Six facilities relate to purchase options that have been exercised. The remaining 19 facilities are primarily legacy Aviv assets.

Assuming we redeploy the anticipated proceeds from the assets held for sale at yields of 7% or higher, the net effect of the disposition of these assets will be an increase in Omega rent.

As I stated in our press release, the value of the assets held for sale is not material as a percentage of our gross assets and the impairment charge related to those assets with a projected book loss will likely be partially, if not fully, offset by subsequent gains expected from the sale of non-impaired assets.

Turning to reimbursement in a changing payment environment, I would like to review the reimbursement and demographic trends that make us so bullish on the future of the SNF industry, but more importantly, very optimistic about the most sophisticated operators in our industry.

In the short term, the traditional reimbursement environment is benign, with CMS recently releasing a proposed 2.1% Medicare increase for FY17 which begins October 1, 2016. In addition, there are no significant Medicaid reimbursements facing the industry.

In the medium term, the combination of favorable demographics and the anticipated gradual shift of patient payer programs is compelling. Key data points supporting this view include, one, Medicare Advantage which was introduced 10 years ago, now has enrolled 31% of the Medicare population.

From now through 2020, this percentage is only projected to increase from 31% to 34%. Two, Accountable Care Organizations, introduced six years ago, currently account for 14% of the Medicare population. This percentage is only projected to grow to 16% by 2020.

Three, the Comprehensive Care for Joint Replacement pilot bundling program represents the beginning of mandatory episodic bundling programs projected to cover 12% of Medicare SNF days by 2020. These programs represent growth opportunities for good quality operators, as hospitals will be incentivized to network more selectively.

Turning to the demographic side of the equation, 42% of SNF residents are over 85 years of age. From 2015 to 2020, the age 85-plus population increases 6%, from 6.3 million to 6.7 million. From 2015 to 2020, the age 80 to 84 population increases 12%, from 5.8 million to 6.5 million.

In spite of reduced lengths of stay in Medicare Advantage programs, the overall SNF Medicare volume is expected to grow 11% from 2015 to 2020 as more beneficiaries require SNF services.

This combination of a methodical shift to episodic payment systems and surging demographics will result in stability and, in all likelihood, growth for the SNF industry. The most important dynamic is long term. CMS is working systematically to eliminate the fee-for-service system scheme by replacing it with episodic payments.

Omega, along with our operators, embrace this shift. It will reward quality and efficiency and it is the only way to address the dramatic and unprecedented demographic changes facing our healthcare system over the next 15 years.

Specifically and focusing on demographics, from 2020 to 2030, the age 85-plus population increases 36%, from 6.7 million to 9.1 million. From 2020 to 2030, the age 80 to 84 population increases 61%, from 6.5 million to 10.5 million.

In order to accommodate this increased population, assuming the 85-plus population care needs are similar to today, the SNF lengths of stay will need to decline at a similar rate, assuming the supply of SNFs remains constant.

All constituents MedPAC, hospitals, etcetera continue to acknowledge that SNFs are the most cost-efficient, site-neutral setting for post-acute care requiring 24-hour nursing or intensive therapy. The demographics that will challenge our delivery system are undeniable. CMS's response to this challenge has been measured and thoughtful.

The best SNF providers are uniquely positioned to solve the potential supply crisis and maintain or even more likely improve, their profitability. Bob will now review our first quarter financial results..

Thank you, Taylor and good morning. Our reportable FFO on a diluted basis was $153.6 million or $0.77 per share for the quarter, as compared to $79.6 million or $0.59 per share for the first quarter of 2015.

Our adjusted FFO was $165.4 million or $0.83 per share for the quarter and excludes the impact of $5.1 million in provisions for uncollectible straight-line receivables, $3.8 million of acquisition- and merger-related costs, $2.8 million of non-cash stock-based compensation expense, $298,000 in interest refinance expense and $235,000 in one-time miscellaneous revenue.

Operating revenue for the quarter was $212.9 million versus $133.4 million for the first quarter of 2015.

The increase was primarily a result of incremental revenue from a combination of the 2015 Aviv acquisition and other new investments since March 31, 2015, capital improvements made to our facilities and lease amendments made during that same time period.

The $213 million of revenue for the quarter includes approximately $17 million of non-cash revenue.

Operating expense for the first quarter of 2016, when excluding acquisition-related costs, stock-based compensation expense, impairments and provisions for uncollectible accounts receivables, was $35 million greater than our first quarter of 2015 due to the Aviv merger and over $1 billion in new investments completed since March of 2015.

As outlined in our earnings press release, during the first quarter we moved 24 facilities to held for sale, bringing our total held-for-sale assets to 25 facilities at quarter end. The breakout of the 25 facilities is as follows, 14 facilities were impaired, approximately $35 million, to reduce their net book value to their estimated selling price.

Six facilities were moved to held for sale as a result of their operators notifying Omega of their intent to exercise contractual purchase options. Those six facilities have a purchase option price of $46 million on a net book value of $26 million. The remaining five facilities currently have an estimated sales price in excess of their book value.

In summary, the 25 held-for-sale facilities are expected to sell throughout 2016 for roughly $95 million and have a book value of approximately $74 million.

Also as noted in the press release, on April 29, four of the 25 held-for-sale facilities were sold for $24 million, resulting in approximately $9 million of gains that will be recorded in the second quarter of 2016.

In addition, that operator also paid approximately $55 million to Omega to retire approximately $50 million in mortgages and other notes. As a result, we will record fee income of approximately $5 million during the second quarter related to the prepayment of these mortgages and other notes.

In the first quarter, we also recorded $5.1 million in provisions for uncollectible straight-line receivables. The non-cash charge resulted from repositioning several facilities from one existing operator to another existing operator, requiring the write-off of straight-line receivables.

Our G&A was $7.76 million for the quarter and we project our quarterly G&A expense for 2016 to be approximately $7.5 million to $8 million per quarter. In addition, we expect our non-cash stock-based compensation expense will be approximately $3.7 million per quarter.

Interest expense for the quarter, when excluding non-cash deferred financing costs and refinancing costs, was $37.2 million versus $32.4 million for the same period in 2015. The $4.8 million increase in interest expense resulted from higher debt balances associated with financings related to our 2016 investments, as well as our 2015 Aviv acquisition.

Turning to the balance sheet for the quarter, in January we entered into a new $350 million five-year term loan currently priced at LIBOR plus 150 basis points. Under our dividend reinvestment and common stock purchase plans, we issued 660,000 shares of our common stock, generating gross proceeds of $20 million.

I would like to point out one balance sheet item. In order to close our $114 million UK acquisition on April 1, 2016, we were required to deposit the anticipated purchase price with a UK law firm on March 31. Those funds were classified as other assets on our March 31 balance sheet.

For the three months ended March 31, 2016, our funded debt to adjusted pro forma annualized EBITDA was 4.9 times and our adjusted cash fixed-charge coverage ratio was 5 times. I'll now turn the call over to Dan..

Thanks, Bob and good morning, everyone. As of the end of the first quarter of 2016, Omega had an operating asset portfolio of 969 facilities with approximately 97,000 operating beds. These facilities were distributed among 83 third-party operators located within 41 states and the United Kingdom.

Trailing 12-month operator EBITDARM and EBITDAR coverage for our portfolio remained stable during the fourth quarter at 1.8 and 1.4 times, respectively. Turning to new investments, during the first quarter of 2016 Omega completed $494 million of new investments, plus an additional $31 million of capital expenditures.

The new investments included five separate purchase lease transactions totaling $437 million and two mezzanine loan investments totaling $57 million. The combined purchases included 31 skilled nursing facilities and 4 ALFs with 3,680 beds across five states and the UK. Details of each transaction can be found in Omega's 10-Q.

Subsequently, in April of 2016, Omega completed four additional transactions totaling $220 million, plus an additional $10 million of capital expenditures.

These transactions included the acquisition of 10 care homes in the UK which were leased to our existing UK tenant; the acquisition of three assisted-living facilities in Texas which were leased to a new Omega operator; the acquisition of three skilled nursing facilities, two in Colorado, one in Missouri which were added to an existing operator's current master lease; and lastly, an $8.5 million mezzanine loan to an existing operator.

Year-to-date investments through the end of April totaled $755 million, including capital expenditures. As of today, Omega has approximately $750 million of cash and availability to fund new investments. I will now turn the call over to Steven..

Thanks, Dan. Thanks, everybody, for joining. As discussed last quarter, we remain selectively active in the senior housing space. Among our first quarter investment activity, we closed our first investment with two separate regional senior housing operators.

As a reminder, we, in conjunction with Maplewood Senior Living, anticipate construction commencing in Q3 of this year on our planned 200,000-square-foot assisted living and memory care high-rise at Second Avenue and 93rd Street in Manhattan. We will continue to reinforce our commitment to reinvesting in our assets.

Not only did we invest $31 million in the first quarter in new construction and strategic reinvestment, we currently have 108 active capital investment projects in process or planning at the end of Q1.

18 of these involve new construction projects, including our project in Manhattan, while 90 of them involve strategic reinvestment in our existing portfolio. Taylor's opening remarks related to the shifts in demographics and evolving changes in payment models provide further support for the importance of this effort.

As we allocate capital to these projects, we use the same discipline and knowledge of operators' physical assets in markets that we employ when we acquire assets.

Our reinvestment strategy prioritizes the allocation of capital to those facilities that are not only in markets that present the highest potential for success, but also lease to those operators. As Taylor mentioned, that's suited to succeed in the evolving marketplace.

This commitment to programmatic reinvestment in our portfolio provides us superior risk-adjusted returns, both in the short and long run, as we position our assets and operators to be leaders in their respective markets..

Thanks, Steven. We'll now open the call up for questions..

[Operator Instructions]. The first question comes from Juan Sanabria of Bank of America. Please go ahead..

Taylor, could you just hit on - I think you opened with thoughts around balance sheet management, either issuing long term debt or equity.

Could you kind of repeat what's assumed in guidance or how you think about the different options between equity and long term debt and what the cost of long term debt is today for you guys?.

Sure. We're looking forward at either issuing equity and/or bonds to take down the revolver and open it up more fully. That's all going to be predicated on the market, where our stock is training, what debt rate we can get. To answer your question about debt rates, I think the less quote we got was just under 5% for 10-year bonds.

That gives you a little bit of an idea. The final piece is pipeline and looking forward to the rest of the year in terms of pipeline and pricing there and whether we can use equity efficiently to do new transactions. The reason we haven't moved guidance is we just don't know which direction all that's going to head.

Frankly, if the equity market isn't attractive and we can't get the kind of yields we would need to use our equity for future transactions, we'll hold tight. Which means you might have a run rate beyond the guidance and we will have to adjust it. That's the point.

We will adjust the guidance once it becomes clear which direction we had, issuing equity and having more deals in the pipeline or if it's just not attractive then we're going to hold tight..

On the UK, could you just talk about your exposure to government reimbursements? Obviously some pressure I think there from higher wages from the national wage and what the split is between private and public and how big you anticipate the UK investments growing as a percentage of the overall pie?.

Right now we have a little bit of a unique situation in that the facilities that we have with our current UK operator represent 70% private agents. Their local authority, I guess, exposure is limited relative to some other folks over there.

They were able to deal already with the national labor wage increases in that they basically past those along to their residents even before it occurred and they had almost no headwinds on that. They had no people that left their facilities. They had very few complaints. They really just passed it through to their patient population.

As far as exposure goes, I think we're just going to continue to be opportunistic. I think to the extent that we find deals that make sense that still have the high private pay mix and we have it and we deal with our existing operator or if we find a new operator that we like as well, we will look to do those type of deals.

But we don't have a huge pipeline right now of UK deals and we're just going to continue to be opportunistic..

Just a last question on Manhattan, on the development.

Could you just remind us of how you spent to date, what's left to spend and when should that be completed and maybe an expected yield on that?.

Sure. To-date we have effectively bought the land about $107 million, plus or minus. The other spend, Juan, to date has been a little bit of planning, engineering and architectural cost but nothing material. The real expenditure of the construction will start sometime in Q3 when we start moving dirt.

There was a second part of that question, if you don't mind repeating it..

The total CapEx expected - quarter and the yield..

About $245 million, plus or minus and a yield of 8% with 3% escalators..

The next question comes from Chad Vanacore of Stifel. Please go ahead..

It looks like a flurry of acquisitions, dispositions, expected over the next few months.

How can we expect that impact overall portfolio rent coverage?.

I think at this point there should be no impact. If there is any, it will be very, very minimal..

Okay, you are at 1.4.

You expect to maintain that longer term? That sounds about right?.

Yes. As far as with the acquisitions and dispositions do, I don't that to move the dial. As long as looking over time in the existing portfolio, it's hard to predict but we have been stable for I don't know how many quarters in a row but several years now and I anticipate that to remain stable..

In general, you are looking at underwriting skilled nursing somewhere around 1.4 times EBITDA sounds about right?.

Yes..

And then sticking with coverage for a second, I think this is the first quarter you haven't had to report Genesis coverage.

Could you just give us an update where that is and then since Siena has actually moved up to your largest operator, can you give us that Siena coverage as well?.

Genesis coverage, yes, I think we actually did report on their coverage in the fourth quarter which is the latest quarter we have for their results. They had and EBITDARM and EBITDAR of 1.72 and 1.76, respectively.

It's important to note that we don't push down any corporate savings or synergies into those numbers and we don't push down the rehab profits into those numbers. It's strictly facility-level coverage ratios. Also we're talking about a 5% management fee between the EBITDARM and EBITDAR.

We don't have results yet for the first quarter, obviously, for our whole portfolio, nor for Genesis specifically. Coverage ratios for Siena, I don't have those at my fingertip but they generally run in the 1.5 plus coverage ratios..

Little bit above our average..

Yes..

And then just think about your UK care homes, the yields you're getting on those are 7% compared to the U.S. SNFs that you're doing of say 8.5%. Is that really because they are closer to what AL in the U.S.

would be?.

Yes, we look at them very much like an AL. The facilities that we have are virtually all private-room facilities with private bathrooms. The level of care is much more like assisted living and obviously the payment class is predominantly private. Yes, that's how we look at it.

I will say that we have telegraphed to our UK operator and others who we have had conversations with that 7% yields are no longer what we can provide in that it's we're talking closer to 8% or above..

The next question comes from Nick Yulico of UBS. Please go ahead..

First off, I wanted to see if you could give us a feel for how your portfolio is doing on a same-store cash NOI growth basis, since you don't report that metric. You've had various operator transitions in the last year. You're selling assets. It's a little bit hard to feel how your core portfolio is doing..

Because we have fixed rent escalators, same-store has run consistently in that 2.3%, 2.4% range for many years. It's a little different than a [indiscernible] where you say, here's my shop numbers. From our perspective, that successful layer has been consistent..

Going to this $5 million charge for writing off straight-line rent, does that relate to the $170 million acquisition which is was the related party transaction?.

It does. A piece of it does. There's really two components and I outlined both of them earlier. A piece of it is moving from one operator to an operator and that transaction resulted in about $3.5 million, $3.6 million of that. That's not collecting future straight-line rent because when you switch operators you have to write it off.

But that will start building up with the new operator. The second component was to the straight-line receivables associated with the mortgage and other notes being paid off. We had to write that piece off. But again, as I've mentioned, we're going to record $5 million of prepayment penalties in the second quarter..

Can you talk a little bit more about that acquisition? This was a related party transaction involving a long-time Board member of [indiscernible]. That Board member is now retiring.

How is this acquisition beneficial to OHI shareholders? How did it come about? It looks like you bought additional facilities from Laurel then you helped facilitate the buy-out of the purchase of the op-co and you took a straight-line rent charge in the whole process.

What's the benefit for OHI shareholders versus the Board member?.

I think the important thing is that Board member was recused from every aspect of the transaction. Actually wasn't involved in that business in any significant way.

We disclosed this related part because of his relationship but the negotiation was completely independent as a portfolio that we were interested in and we had the right operating partner to take it over. They were preparing to exit. It was going to go out to the market one way or the other..

Okay. This portfolio, how has the coverage changed through this whole process of transitioning from Laurel to Siena? Did it get better or worse? It looks like it's not included in your overall EBITDAR coverage metrics for your operators because it's a transaction portfolio.

Is that right?.

No, well that and it also occurred after the quarter. You're talking about first quarter transaction. We didn't report on first quarter activity of coverages so it wouldn't be in there. The coverages are still at or above are mean for the overall portfolio for this portfolio..

Okay. Lastly, the question was on the CMS star ratings of your facilities. You guys don't disclose the property list. I'd like to hear some more about why you don't disclose the property list.

Secondly, if you have any idea what, how many of your facilities have a one- or two-star rating from the nursing home compare database since there's a obviously the SGR proposal that will take effect in the next couple of years, facilities with one- or two-star ratings may have some issues under that model..

Yes, we didn't bring that data in for this call but we can certainly circle back with you with the data in it..

I guess, let me ask you this then. We did our own work on this. We built up all your acquisitions and the Aviv properties using real capital analytics and it looks like for half your portfolio, we were able to capture it and you have 30% facilities with a two-star rating and almost 20% with a one-star rating.

Do you think that's reflect of your overall portfolio?.

I don't want to answer that because I don't have the data in front of me I'd like to have. We can certainly circle up with you..

Okay.

Just lastly, what's the rationale for not disclosing a property list?.

That's something that we've never done. But I will say that when you have 83 operators, all of whom are principally private operators, that's a separate discussion with each of those operators in terms of the amount of information that you disclose. It runs through a variety of things..

I guess just - going back to Taylor's point to the beginning of the call that the quality operators are somehow going to benefit over the next 10 years in skilled nursing. It's very hard to tell whether you actually do have quality operators if you're not disclosing that property list publicly..

Yes, I think you also have, without getting into the details on this call, because we only have a certain amount of time, you have to be very, very careful using five star as the barometer of quality. I think that's another component of this. Again, there's a lot more detail to get into in terms of how quality is measured.

We know that CMS realizes that because we're going to a different set of quality indicators on a going-forward basis. We're going to re-hospitalizations, return to the community and improved ADLs during this stay. I think CMS realizes that those are the indicators of quality that we need to looking at on a forward basis.

Maybe five star is out there is a measure than anybody knows about but I think to focus on that as the only quality indicator that we're going to look at and think about a portfolio is just wrong and misleading. Frankly, CMS knows it, that's why we have three new indicators coming..

The next question comes from Kevin Tyler of Green Street Advisors. Please go ahead..

Bob, if you were to still have the properties that are being sold currently and they were contained in the operating bucket, what's the coverage ratio look like for the overall portfolio? Is it still around the 1.4 level? You may have hit on this earlier but I am trying to get at what the coverage was on the properties being sold..

I can tell you that I don't know the specifics but it doesn't move the dial at all. There were some properties that would be less, some more. It's a mixed bag..

So then what - if the coverage was above 1.4 aside from the purchase option piece, is it just that you are looking to monetize on a pretty attractive market? What's driving why are you selling them to do?.

It's mostly the purchase options pieces..

I think the non-purchase option properties, we're selectively trying to exit. It's really a mixed bag. Some of it's the entire operating relationship, they are small. A couple of facilities that we're saying it's time for us to exit. And then a handful of those held for sale are coming out of much bigger portfolios where it's selective properties.

As an example, we've got a handful in the Florida Medicaid waiver program that are not quality properties and we will likely exit. It's out of a bigger portfolio so it's even harder to think about allocated rents of those properties and related coverages.

For the most part, those non-purchase option properties are going to have coverages that are below the 1.4..

Okay, that makes sense, because you report your coverage for the overall portfolio which includes senior housing which I think is creeping up around 15% of investment currently and then also your skilled nursing assets, the coverage might otherwise look lower, if you were to back out a lower coverage senior housing assets.

I guess I'm wondering, how do you think about this and is it enough to move the needle at this point or does coverage still stick around that 1.4 level?.

Yes, it really doesn't move the dial because our senior housing coverages are strong. Even though they are becoming more meaningful percentage of if you pull them out, it's not going to move it 0.1, for sure.

At some point we will look at dividing that up but it's just not material at this point and it doesn't move the dial..

Taylor, the last one from you, we've heard some negative commentary around how the outlook for SNF from Health South and Kindred, suggesting SNFs will lose out to an IRF plus home health model. The combo of these alternatives might be more compelling for patients, at least that's what they're suggesting.

You provided some Omega views in the opening comments and in the past, but why are they talking so negatively currently about the future for SNFs and why are they wrong as it relates to you and your portfolio?.

I don't know why they're - well, I guess if your business is IRFs and home health then you are going to focus on that.

I'm not sure why there is such a negative sentiment as it relates to SNFs because I look at the demographics, without beating that horse too badly, but if there's not a shift in how we deliver care, there is not even nearly going to be enough beds. When you think about the number of beds in the IRF marketplace, it's not a dramatic number.

We have a dramatic number of patients being taking care of today in the SNF setting, with a lot more coming. I think a lot of it ultimately becomes anecdotal. If you are in the need of 24-hour nursing care, you're not going to go home.

We have to be very careful about anecdotally, here's a set of patients that can go from this setting to go home and IRF's better than SNF. We can argue about that a lot. I think it's been proven out that for many, many, many conditions IRFs versus SNFs, the amount of time, the lengths of stay can be the same..

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

Just wanted to spend a little bit more time on the increased exposure to assisted living, to senior housing and as well as the increased exposure to UK. How you guys think about that relative to - your historical business, has always been skilled nursing. You've done it very well. The stock's been rewarded for you guys being experts in skilled nursing.

Now you're kind of having a little bit of a change in your overall business.

How do you get investors comfortable about how you manage the risk associated with that kind of slight business strategy change?.

Yes, I think - and just to be clear, we've talked about this in prior calls. Our number one choice for allocation of capital is into the skilled nursing facility industry and to our current tenant base. But we've had opportunities to expand into senior housing, whether it's here or in the UK and we've taken advantage of it.

It still the same model, where we're focused on that operator relationship and our comfort level with the operator's capability to both run their existing business and identify new opportunities and to partner with them.

I think Maplewood here and Steven mentioned we added a couple new relationships and our relationship in the UK, the risk assessment isn't much different than you would have in the SNF world in terms of understanding the operating capabilities.

Then it just comes down to the risk in senior housing is principally competition and new building if you have the right product and the operating model. Frankly, understanding that's not that difficult..

Lastly, remember all of our ALF deals are triple net..

In the UK again, can you just tell us - your operator out there, how much of their revenues actually are - is coming from local authorities versus private pay?.

30% versus 70%..

70% is private pay?.

Correct..

[Operator Instructions]. The next question comes from Todd Stender of Wells Fargo. Please go ahead..

Sorry if I missed this earlier in the call.

What were the ranges of rent coverages for the SNFs and the ALFs acquired in Q1?.

The ranges, I think the ALFs were in the 1, 1.5, 1.2 versus the SNFs that were closer to 1.4..

The ALFs - how about the annual rent escalators? What do they look like?.

I think they are all 2.5% with the exception of one which is 2%..

Fixed at 2.5%?.

They were all disclosed to the press release. I think one deal was at 2%. All the others were at 2.5%. There was a smaller deal that maybe had fixed bumps as opposed to percentages but they equated to the same..

On a big picture basis, how do you guys weigh doing business with large national SNF operators that benefit from scale when smaller operators that maybe have a better ability to maintain control and oversight over their facilities and has that changed at all over the years?.

I think you've described it well. The regional guys that are on the ground have relationships. I would not discount their capability. I wouldn't discount the fact that someone that's got 50 facilities doesn't have enough scale to get the benefit of an organization that's got 250 facilities.

I don't know that there's that much difference in the scale benefit, if you will. Obviously, from a capital allocation prospective, we deal - most of our relationships, we're the principal capital partner, that's where we're able to source new opportunity..

And we have a follow-up question from Nick Yulico of UBS..

It's Ross Nussbaum here with Nick. Two-part question, the first is the coverage ratios were flat for the quarter, I guess 1.4 on the EBITDAR. I guess that was a little, I should say, pleasantly surprising in so far as we obviously know what Genesis and ManorCare did performance-wise in the fourth quarter as a representation of the industry.

I'm just curious, were you guys expecting the coverage ratios to hold flat through, I guess, the trailing four quarters or was that a pleasant surprise?.

We hadn't received any indication from our operator base of pressure from a coverage perspective, so we weren't surprised by that. Interestingly, our Genesis portfolio continues, has and continues, to perform pretty well as - and obviously we're not a giant component of Genesis, but it's continued to do well..

The coverage for FY15 improved every single quarter for Genesis, sequentially. I'd also point out that we're not seeing revenue reductions. If you look across our top 10, only one operator actually had a reduction in revenue. Everybody else had increases in revenue.

A lot of any modest changes that we have in coverage, we don't see it from revenue reductions. We see it from changes in expenses and expense accruals..

Just a comment, I actually think that our portfolio is probably a better representation of the market, SNF market, then ManorCare plus Genesis. You are dealing with two companies that focus on high acuity, post-acute disproportionately in the market.

In some regards, what we're seeing across the 80-plus operators that Dan pointed out, is probably a better proxy for what's going on..

Okay and I guess a similar question. I don't know if you had a chance to look at Kindred's numbers last night. I know they're not a tenant but they had an 18% decline in EBITDA in their skilled nursing segment in the first quarter.

I'm just curious, in talking to your tenants, do you have a sense for whether or not they had anywhere near that level of a decline in Q1?.

We haven't seen - if I recall correctly, they reported a 0.8% decline in revenue and a 2.8% decline in census. Maybe they were drivers. They also reported some one-time transitional costs of $1.5 million.

Without knowing how they went from $37 million to $30 million of EBITDAR on, call it, $300-ish million of revenue, we don't know if it is expense driven. The top line move down a little bit. Occupancy moved down more. I think we'd have to understand the component parts a lot better.

But we're not - those drivers that were reported by Kindred, we have not yet seeing in our portfolio..

This concludes our question-and-answer session. I would now like to turn the conference back over to Taylor Pickett for closing remarks..

Thank you. Thank you for joining our call today. Bob Stephenson will be available for any follow-up that you may have..

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