Omega Healthcare Investors Inc (OHI) 2016 Q3 法說會逐字稿

Welcome to the Omega Healthcare third-quarter 2016 earnings call and webcast.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Ms. Michelle Reiber. Ms. Reiber, the floor is yours, ma'am.

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 conditions 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 measures 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 third-quarter 2016 earnings conference call. Adjusted FFO for the third quarter is $0.83 per share. Funds available for distribution, FAD, for the quarter is $0.75 per share. We increased our quarterly common dividend to $0.61 per share. Consistent with our plan, as discussed during the last quarter call, we've returned to our normal $0.01 per quarter increase.

We've now increased the dividend 17 consecutive quarters. The dividend payout ratio remains very conservative at 73% of adjusted FFO and 81% of FAD. Our third-quarter adjusted FFO was at the low end of our guidance range, as the bulk of our anticipated $400 million-plus in new investment activity occurred at the very end of the quarter.

We have increased the low end of the fourth-quarter guidance range, revising the range from $0.83 to $0 86 per share, up to $0.85 to $0.86 per share. This reflects our anticipated run rate, including all of the acquisitions completed to date. We are adjusting our 2016 full-year adjusted FFO guidance range to $3.38 to $3.39 per share, which reflects the new fourth quarter guidance.

On August 15, we posted updated evolving revenue model slides to our website. Three important slides were added as Pages 27 through 29 of the presentation. These slides break down total Medicare payments for 2014 by major diagnostic category and bundles. The analysis compares the national breakdown and Omega for each major category.

We can now accurately predict Medicare revenue that may be subject to existing or proposed bundling programs. The current Comprehensive Care For Joint Replacement Pilot, CJR, began on April 1, 2016, and covers hip and knee joint replacement which, in 2014, represented 7% of all SNF Medicare revenue nationally and 5% of all Medicare revenue within Omega facilities.

On July 1, 2017, CJR expands to cover hip and femur fractures which, in 2014, represented 6% of all SNF Medicare revenue nationally and 5% of all Medicare revenue within Omega facilities. A new cardiac bundle pilot also commences on July 1, 2017, for heart attacks and bypass surgeries which, in 2014, represented 2% of all SNF Medicare revenue nationally.

As CMS introduces potential new bundling pilots, this data will allow us to immediately determine Medicare revenue that will be subject to the new proposed programs. For those of you interested in the detail, I encourage you to review the presentation on our website. Bob will now review our third-quarter financial results.

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $162.6 million, or $0.80 per share for the quarter as compared to $147.5 million, or $0.76 per share for the third quarter of 2015. Our adjusted FFO was $169.9 million, or $0.83 per share for the quarter; and excludes the impact of $3.7 million of non-cash stock-based compensation expense; $2.3 million of acquisition and merger-related costs; $1.8 million in interest refinancing expense; and $448,000 of revenue recorded as a result of transferring a single-leased facility to a new operator.

Operating revenue for the quarter was $224.6 million versus $202 million for the third quarter of 2015. The increase was primarily a result of incremental revenue from over $1.3 billion of new investments completed since September of 2015. The $225 million of revenue for the quarter includes approximately $18 million of non-cash revenue.

Our G&A was $8.8 million for the quarter and we project our fourth quarter G&A expense to be approximately $8.5 million. In addition, we expect our fourth-quarter non-cash stock-based compensation expense to be approximately $3.7 million. Interest expense for the quarter, excluding non-cash deferred financing costs and refinancing costs, was $42.9 million versus $38.2 million for the same period in 2015.

This $4.7 million increase in interest expense resulted from higher debt balances associated with financings related to our 2015 and 2016 investments. As Taylor stated in our earnings release, we continue to aggressively prune underperforming assets and non-strategic relationships. During the quarter, we sold six facilities for approximately $21 million, recognizing a gain of slightly over $5 million.

In addition, during the quarter, we recorded $17.3 million in provisions for impairment, and moved 13 facilities to assets held for sale. At September 30, 2016, we have 31 facilities classified as assets held for sale. We expect to sell these assets over the next several quarters for over $100 million.

Turning to the balance sheet, in June, we priced $700 million, 4.375% senior unsecured seven-year notes that were issued July 12. Proceeds from the issuance were used to repay all outstanding borrowings on our credit facility. In July, we purchased the outstanding $180 million secured term loan we assumed with the Aviv Merger.

We recorded $1.8 million of interest refinancing expense related to that purchase. Under our dividend reinvestment and common stock purchase plan, in the third quarter, we issued 4 million shares of our common stock, generating gross cash proceeds of approximately $137 million.

Our balance sheet remains extremely strong for the three months ended September 30, 2016. Our net debt to adjusted pro forma annualized EBITDA was just under 4.9 times and our fixed-charge coverage ratio was 4.6 times. I will now turn the call over to Dan.

Thanks, Bob, and good morning everyone. As of the end of the third-quarter of 2016, Omega had an operating asset portfolio of 1,001 facilities, with approximately 101,000 operating beds. These facilities were distributed among 81 third-party operators located within 41 states and the United Kingdom.

Trailing 12-month operator EBITDARM and EBITDAR coverage for our portfolio dipped slightly during the second-quarter of 2016 to 1.72 and 1.34 times, respectively, versus 1.75 and 1.37 times, respectively, for the trailing 12-month period ended March 31, 2016.

Turning to new investments, during the third-quarter of 2016, Omega completed seven separate transactions, totaling $428 million, plus an additional $38 million of capital expenditures. Two of these transactions, a $48 million term loan to subsidiaries of Genesis Healthcare, and the acquisition of a $4 million ALF in Florida were discussed as subsequent events in our previous earnings call.

Additionally, during the quarter, Omega closed five other transactions, including a $337 million purchase lease transaction for 31 facilities located in Florida, Kentucky, and Tennessee, with over 4,000 operating beds. The facilities were leased to affiliates of Signature Healthcare and an existing Omega operator pursuant to a 12-year master lease with an initial cash yield of 9%.

The other four transactions completed during the quarter totaled $39 million and involved two SNFs and two ALFs located in four separate states. Year-to-date investments for Omega through the end of September totaled $1.25 billion, including capital expenditures.

Turning to our Genesis relationship. As of September 30, 2016, Genesis Healthcare was our third largest tenant in terms of revenue, at just under 7% and our eighth largest investment. We currently lease 57 facilities in 13 states with annualized second quarter rent of approximately $55 million.

As mentioned on our last call, EBITDARM and EBITDAR coverage for the 12-month period ended June 30, was 1.72 and 1.35 times, up slightly from the March 2016 trailing 12-months, which was 1.71 and 1.34 times, respectively. Overall, Genesis's rent coverages, occupancy and quality mix has remained very consistent over the last four quarters. As of today, Omega has over $1.1 billion in cash and a revolver availability to fund future investments. I will now turn the call over to Steven.

Thanks, Dan. And thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, we commenced abatement related and construction activity in the third quarter on our planned 200,000 square foot ALF, memory care high-rise at 2nd Avenue and 93rd Street in Manhattan.

Demolition activity of existing structures is imminent, the foundation work scheduled for Q1 2017. The project is scheduled to open in the first half of 2019. Our commitment to reinvest in our assets continue. Not only did we invest $38 million in the third quarter in new construction and strategic reinvestment, we currently have over 90 active capital reinvestment projects in planning or processed at the end of Q3.

14 of these projects represent new construction, with a total budget of approximately $480 million, inclusive of Manhattan, and are actively being funded. We have $157 million of construction in process on our balance sheet as of September 30, 2016. 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 leased to those operators best suited to succeed in the evolving marketplace.

Thanks, Steven. Mike, can we please open the call for questions?

(Operator Instructions)

Tayo Okusanya, Jefferies.

Just a quick question around, again, the rent coverages on the SNF portfolio are pretty stable this quarter but again, just given all the concern around skilled nursing, how do you see the rent coverages kind of progressing as we start to think about 2017, given concerns about bundling, given concerns about the shift over to Medicare Part A? And what are you hearing from your tenants at this point about how they are addressing that?

Well, the good news is, while we have seen a slight dip in the coverages, it's not related to revenue. It's really more expense driven. It's really relegated to just a couple of operators who have had some management change-overs but so far, we really haven't seen any dramatic impact in either if in revenue at all or in occupancy or payer mix shifts.

So we feel pretty good about that. We feel that our operators are holding pretty firm in terms of where they are coming out with their coverages. Obviously, 2017 is a new year but at this point, we are hopeful that they will be able to maintain our current coverages, or at least close to it.

Okay. Are you hearing -- are they doing anything dramatically different, though, in anticipation of this real change in how they are reimbursed over the next two to three years?

We've seen -- every operator has a slightly different approach. If you can look at a Genesis, which kind of went both feet in, in terms of preparing their entire organization for bundling. And we have some of our more regional operators that have taken more of a rifle shot approach and in markets where it's more intense, have changed their model and shifted. The interesting thing is, both approaches seem to have been effective.

I don't know that there's necessarily a right answer. The other thing I would point out is, the next round of bundling, as we mentioned in our prepared comments, is mid-2017, it's July 1 expansion of the CJR and the new cardiac program, which for our portfolio is another 7% of Medicare revenue. So, there's this -- there's a shift and a shift in mindset.

But it's been gradual and I think that's the expectation we have that any changes in coverages are going to be gradually available to monitor them pretty effectively. I think to be fair though, to think about coverages going up is the wrong way to look at the equation. From our perspective, it's sort of flat, possibly modest, but predictable declines. We don't see big seismic shifts.

Okay, that's helpful. And against that backdrop, how do you think about acquisitions going forward? Are you still pretty interested in doing a bunch of deals, as kind of given they are still very accretive to your bottom line? And on that -- from that front, do you see yourself doing more senior housing to try to diversify a little bit more away from skilled nursing?

I think it's going to be, Tayo, what we've done -- it's going to be continuing to support our existing relationships as much as we can. So where there are opportunities to augment markets that makes sense, we're going to continue to deploy capital that way. And we have three senior housing providers now in the portfolio that are all active. So we will continue to deploy capital in that direction but unless we found a new operator in the senior housing world, it's really going to be with the three active tenants that we have today.

And I will say just because I know there will be a comment about this, the pipeline today for deals isn't that active. And I think it reflects the election. It reflects year-end, which we see all the time, and it reflects a little bit of uncertainty around interest rates which are obviously, to some extent, tied to the election and the economy in general; so all of that is creating a little bit of a gap in pipeline. Maybe 2017 rolls around and we see that pick up as there's a little more clarity around all those issues.

Fair enough. Thank you.

Michael Knott, Green Street Advisors.

Nice to see the pick-up in investment activity. It's good for you guys. Question for you on coverage. One area of uncertainty, when I speak with a lot of investors is, how your coverage would break out between skilled only and assisted living? So I just wanted to give you guys a chance to maybe help everyone understand how that number would maybe differentiate between those two buckets in your portfolio?

We have looked at that, and the answer is, believe it or not, not materially. One of our larger ALF operators has quite high coverage for an ALF operator, and so it's -- it really makes the difference between our SNF portfolio and our ALF portfolio relatively immaterial.

Okay, thanks for that color. That's helpful. And then just thinking about on the investment side a couple of questions. I think you just commented that the pipeline is not that active right now. Do you care to quantify it and then also, was that comment, for both skilled and assisted living, or just skilled?

It's -- the comment relates to both. And when we think about our pace for 2016, at $1.3 billion, and I look at the pipeline today, I -- we don't see that type of pace today in our pipeline. Now, come January 2017, does that change? Yes. But not nearly the type of pace we've seen the last 12 months.

And then -- that's helpful, thanks. And then any color on the direction of lease yields? It looked like it was pretty clear the activity you had this quarter, that skilled was 9%. Lease yield and assisted living was an 8%. Do you sense any that, that has changed in the last few months or maybe going forward, do you expect those types of levels or anything different from that?

I certainly wouldn't expect the last -- and I think some of it's going to be relationship driven and how important certain assets are to components of our portfolio, but I would think that 9% is kind of the bottom, and we may see 9.5%s and perhaps pushing back towards 10% and similar to the ALF portfolio for us, 8%-plus.

Okay, that's interesting. Thanks. I will get back in the queue.

Chad Vanacore, Stifel.

This is Seth Canetto on for Chad. I know you guys last quarter and once again this quarter, the number of operators below 1 times EBITDAR coverage improved. Just looking at the 1 times, the 1.2 times range, it looks like as a percentage of rent, that moved higher sequentially, but there's five fewer operators in that bucket, so can you just give some color on what's going on there?

So the percentage in that bucket from first quarter to second quarter went from 20.5% to 21.2%, just to put some quantity around that number. Some of the operators from the first quarter to the second quarter, some of them moved actually down. Some of them moved up. We sold a few assets, so they went away. There was -- we've got a couple of our bigger operators in that bucket, that 1 times to 1.2 times.

One of them we discussed on the last call; it's one of our larger operators that had some pretty significant managerial change-overs, which started at the very top and then really trickled down across all facility level management and that's taking some time and that's run through their numbers. You had one other operator where it was just above 1.2 times that fell just under 1.2 times, so that added to the percentage a little bit. But other than that, there wasn't any other real material changes and the percentages are virtually the same.

Okay, thanks. That's great and then just looking at the number of operators, it looks like it dropped from 84 to 81. I know you guys had mentioned you will dispose the non-core facilities and prune your portfolio. Can you give us an idea on, really, just how you decided to end those relationships with operators and how you are thinking about your dispositions? And also your plan for the $100 million proceeds, what you will put that towards? Thanks.

Sure. Well, the $100 million -- our expectation is, even though I mentioned the pipeline is not very active, it's active enough that we feel comfortable that $100 million will go back to work in acquisitions so, really, once that's put back to work, it's a push on the revenue line. And then in terms of exiting -- typically, it involves smaller relationships where there's not likely to be a growth opportunity, and occasionally, we are pushing the issue.

But very often, it's in conjunction with the operator, where we have a discussion about where they are headed, what their desires are. You have a debt market that is still reasonably open to regional operators and a couple of these exits have been just sales back to the operator where they've been able to finance. So it's -- these aren't big, but I think in terms of number of operators, we went from 84 to 81 and probably next year, you'll see a number in the 70s.

All right. Great. Thanks for the answers.

Nick Yulico, UBS.

So, just going to that Page 6, where you give the different buckets on the coverage. If you add up all the rent and debt service listed there, it gets to -- it looks like $680 million. I guess this is an annual number and then if I go to your just quarterly revenue, it looks like you reported $225 million, multiply that by four, you get to $900 million.

So it looks like on that coverage page, that you're only reporting coverage in those buckets for 75% of your revenue. Is my math wrong because I'm trying to reconcile that with what you say here, which is the 92% stat, which I'm not sure what that means. Thanks.

Nick, it should be 92%. There's no doubt I am wondering if we're comparing different time periods. And I'm not exactly sure where you are pulling your numbers from. This is -- the stats that you see on Page 6 are specific to TTM ended 6/30, right, versus -- (multiple speakers) fourth quarter annualized.

Okay. So, but I mean, what you're saying is that the 6 -- so if I add up all the rent and debt service on this page, trailing 12-months as of second-quarter 2016, it is $680 million, what you're saying is it equals 92% of your, what, trailing 12-month revenue, at second-quarter 2016? Is that -- that's the way to look at this?

Yes, that's exactly right.

Okay. So then anything else that was added or shuffled around, transitioned after that period is not on this coverage page?

No. How could it? I mean, we don't report -- we only go through second quarter on coverages, right? We don't have operator data through the third quarter. We are always a one-quarter lag.

Okay. And then just one other question on this coverage issue is, how can we think about your coverage on a same-store basis, since the pool is changing so much? I mean you have a fair amount of assets sold or put into assets held for sale. How can we get a sense for what your portfolio is looking like on a coverage basis from a same-store basis?

We -- well, it's going to be about the same. And obviously, we haven't included that data. But we are happy to actually -- maybe not prepare it as a slide in our supplemental but to include it in our prepared comments on the next call. It's very consistent.

Okay, thanks.

Eric Fleming, SunTrust.

I am just going to go back to Steve. Can you just go back through the numbers on capital -- the CapEx reinvestment numbers that you're seeing? I just wasn't able to write it fast enough.

Absolutely. We invested $38 million --

I'm sorry, just the future stuff. You were saying there's 90 projects in the works? Is that --

Approximately 90 active budgets of varying sizes with the Manhattan one being on the largest. (multiple speakers)

And I would encourage you to -- Page 7 of the supplement. We added a new -- some new data, which is new build and major renovation and CapEx projects, so we are breaking it down with our newbuilds, which was [2014] and then the big -- then the CapEx projects, so that might be helpful.

And of that, you were just saying without getting into math, you were getting to $400 million-plus remaining in investment for that?

Yes, the remaining commitment is $318 million.

Okay. Thanks.

Things will drop off that are finished and things will get added next quarter.

We've got stuff in the queue.

Thanks a lot, guys.

Juan Sanabria, Bank of America.

I was just hoping you could talk to rent coverage levels you are underwriting to for skilled nursing acquisitions at this point in time, if that's changed at all? There's a little bit more uncertainty and, yes, if you could just start there?

Yes. I mean, coverages -- what we underwrite to has moved around over the last 10 or 12 years. It was really at 1.35 or 1.40 and sort of the go-go late 1990s, it got down to 1.25, and now it's really back up to the 1.4 coverage ratio, after 5% management fee.

Okay. And why not increase that, particularly in a market where there is, I guess, a lower volume flow, given the uncertainty from the traditional target ranges? Why not give yourselves more of a buffer?

I think there's a little bit -- if it were an absolutely new credit relationship, we would probably think a lot harder about it, but where it's an existing relationship and we are typically adding to a small piece of the pie to a much bigger relationship, so think about 1.5 versus 1.4 in a portfolio that's going to add 20% to the overall asset base for an individual operator.

That's not moving the dial. So to answer your question, if we were looking at a brand-new relationship, we might be a little more aggressive in our thoughts around coverages out-of-the-box, but the vast majority of what we are buying, we're adding to existing relationships, so you're not going to move the dial that much going from 1.4 to, say, 1.5.

Okay. And then the assets you're looking to sell, that $100 million, any kind of trend in those numbers? Is it like below average rent coverage numbers that you are trying to sell, and if you could give us any sense of what the coverage levels are there and maybe how we should think about dispositions kind of on a go-forward basis, as we start thinking about 2017.

Yes, it's a little bit of a mixed bag but the coverages are below our average. They are below 1.3, all combined. And then the disposition activity, it's -- we've got 31 assets in held for sale. There's not a clear pathway to, say, we have another 30. We will continue to identify one-offs as we go but this year we got a little more aggressive.

We had spent a full year post-merger. We really had a good view of the portfolio, and we attacked it pretty aggressively in terms of assets we wanted to move. There's not a long list where we sit there and go -- there's another 30 behind it, at least, as I sit here today.

Okay, great and just one last quick one for me. There's some change potentially coming on the way customers or patients can litigate disputes, not having to go to arbitration. Any thoughts on how that may impact cost structures or coverage levels at all?

We may see it come through professional liability rates to some extent, but it's very early to predict how that might affect insurance costs. The other thing is, just to be clear, in most -- in a wrongful death claim, which tend to be the big claims, most jurisdictions don't allow arbitration provisions because the patient isn't the claimant. It's the family, and they haven't signed the arbitration, so it is not quite as -- it's an interesting dynamic, but the fact of the matter is, it's a little -- it's a subset of all potential lawsuits that our operators face.

It's not every potential lawsuit, so wrongful death is always, in most jurisdictions, thrown out because the complainant didn't sign the form. So that's a long answer to -- there's a lot of moving parts around it but the thought today is, it's not going to be significant in terms of increased costs, but we don't have good data yet from the insurance companies.

Thanks, guys.

Todd Stender, Wells Fargo.

I'm not sure if I missed this. Can you guys give a little more detail on the 31 SNF portfolio you acquired? I think you may have said that the in-place operator was Signature?

That's correct. Yes. And we added those 31 buildings to an existing master lease that we had with Signature, bringing their grand total, I think, to 63 facilities.

Who was the seller, and can you go into since this -- if you can give the rent coverage, and if you can't, is it higher or lower than the Signature average?

The rent coverage is consistent with where they end up overall, which is right around the median for Omega. The seller, we don't comment on. It's really up to the seller.

How about any Genesis assets that you would consider adding to? Is that an operator you would add to at this point? You've got Welltower and Sabra being sellers? What's your appetite for Genesis?

We love Genesis as an operator, but they are already 7% of our revenue mix, so meaningful addition to the Genesis position today would be a little bit tough for us to look at.

Okay and then just looking at SNFs and ALFs at this point, what coverage ranges are you comfortable buying at, at this point?

I think once again, we commented on SNF coverages. We are looking for 1.4, but it's just as a rule of thumb. I mean, obviously, we'd look through to the underlying operations and make adjustments accordingly, whether they are positive or negative but -- so for SNFs, it's really a 1.4, and then for ALFs, it's really more of a 1.2.

Great, thank you.

Michael Knott, Green Street Advisors.

Given that the 2018 lease expirations are higher than your typical year, just curious if you have any early color or thoughts on that? Is any of that concerning to you or lower coverage?

So the majority of those lease expirations in 2018, are two operators and we're in conversations with both of those about extending out.

They both have coverages that are right around the mean. We have -- it would be stunning for either one of those relationships -- first of all, it's the bulk of the facility for each of those operator [drawdowns]. Second of all, the coverages are strong, so it would be stunning if we -- if those came back and, frankly that would be fine because we'd find alternative operators in the space.

And just in general and not specific to those situations, but if someone had an expiring lease at 1.3 times and you guys are underwriting to 1.4, that's probably reflective of market, would there likely be some kind of rent roll down in that type of generic situation, again, not to ask you to comment on those specific ones but in general, how would we think about that?

No, no, I don't think you would see a rent rolldown at all. We are aware of situations in the marketplace today where folks are leasing portfolios aggressively with coverages that are just above 1 times. So the point being, that you have operators that have appetite for leases that cover at much lower levels than we're comfortable underwriting for new deals.

Okay, thanks. And then just a couple of other quick ones. This follows on Juan's question a little bit on the dispositions. I'm just curious if the thought process on the pruning that you're undertaking -- it sounds like the coverage is below your average on those assets, not surprisingly, but is it sort of a multifaceted analysis that accounts for your thoughts on the operator and then also the specific real estate that is under those leases? Just curious if you comment on that process.

Yes, that's absolutely right and you have, really, an interesting mix, where many of these properties are two, three, or four properties out of a much bigger master lease relationships that we've identified with the operator -- you know what, these just don't make sense strategically going forward. And then on the other hand, you have a small two, three, four-facility operator relationship where you're exiting the whole relationship. And it is, as you said, multifaceted. Some of it is just property driven, geography driven, and some of it is operator strategic driven.

Okay and then last one for me is, can you just help me understand how you're thinking about further investment in the UK today, post-Brexit?

Yes, I mean, right now Brexit hasn't really had any impact on our UK operators, or our UK operator, I should say. We are still looking opportunistically in the UK for transactions. I don't -- as of yet, the Brexit move has not changed our investment perspective.

And it has not caused an increase in opportunities or any kind of disruptions in the financing environment that might help you?

We have not seen that. It hasn't created a disruption or a pick-up in transactions. Actually, it's created somewhat of a slowdown. Obviously the financing markets have changed, but at this point we're not looking at those with any real specificity, so --

Nick Yulico, UBS.

Hi, everyone. This is Trent Trujillo on for Nick. Just a quick follow-up. Have you given any rent concessions to tenants year to date?

None.

Okay, thank you.

You're welcome.

Jeff Walkenhorst, Copeland Capital Management.

We appreciate the dividend growth and you continue to grow it consecutively and at a very healthy 9% pace year over year, which is among the best of many REITs, particularly in your peer group. But it seems like there's a disconnect given the share price performance and also, we appreciate the information that you published in the August slide deck. So maybe looking at the change in reimbursement environment, you have CJR bundle one, bundle two and the cardiac bundle.

If we had those up, we're looking at -- if it's based on the 2014 data, only 12% of the Medicare payments in your portfolio, at least at that time. So maybe you can help us reframe or understand the growth prospects. Is there a disconnect? Is there something that the market is missing or that is misunderstood in the story?

From our perspective, I think the biggest thing is the pace of change. And there's really two components. One is, none of this is -- none of the change that's going on now -- it began 10 years ago with Medicare Advantage. So we saw Medicare Advantage penetrate 30%-plus of the Medicare population and then ACOs were introduced and so now between Advantage and ACOs, you have almost half the Medicare population already in some form of capitated environment, and now Medicare is reaching out into fee for service, but very careful.

So I think the big disconnect for us is that this is something new and revolutionary as opposed to an evolution and CMS is being thoughtful, as you know. The rollout of the second phase of CJR and the cardiac pilot doesn't start until July 1, 2017. So we've already felt a lot of the impact of the pilot one in our numbers, and it hasn't been significant.

I think that's -- to me, that's the biggest disconnect, and then the second half of it is, all of this is necessary because the demographics coming our way in the next four years are massive. And really, it's sort of everyone. Our operators and CMS getting from here to there in the most efficient way.

Right. So you still -- you view that is positive, the changing reimbursement environment? I guess there's some unknowns and the market is seeing more risk, but it -- has it fundamentally changed the growth prospects and to the earlier question, would we expect rent rolldowns, or do you think it's -- the environment still will support annual rent escalators of 2%-plus for most of your portfolio?

We feel comfortable with the environment because I think it's already happened in our industry and it's just going to continue, which is the sorting between the folks that are sophisticated enough to handle the type of patients that are going to be coming through the settings that they are running. And we feel like we've identified that group.

So, from where we sit, we look at our escalators, which really track inflation, and we look at the opportunities for our top 10, our top 30, frankly, operators which make up the vast majority of our rents. They are going to be the folks that win in this process.

Right. Okay. One last one. In terms of the scale that you guys have put together with the [Aviv] acquisition versus other competitors or new supply that maybe coming online, has the environment gotten more difficult in terms of -- for Omega to -- or is it that - -is the scale an advantage to the Company, and the ability to work through the changing environment and to potentially grow the portfolio further?

I think the scale will be an Advantage. We can look at markets broadly. We can look at moving properties amongst our operators. We have a lot more flexibility than a portfolio nationally with one operator or 100 facilities spread out all over the place. It's -- our density is going to help us. And the number of operators will help us.

Has it worked to date, as you expected when, over the past year-and-a-half or so since you announced the deal and closed the deal?

Absolutely. You look at a lot of our acquisition activity. We are driving it through the new tenant base that we picked up with the merger, which is one of the things we talked about. Our model is driven off of our tenant relationships, and we picked up a number of them that have been very active in terms of continuing to consolidate the business.

Okay, thanks. Thanks so much. Good luck, guys.

(Operator Instructions)

At this time, there appears to be no further questions. We will go ahead and conclude today's Q&A. At this time, I would like to hand the conference back over to management for any closing remarks.

Thanks, Mike, and thanks everyone for joining the call today. Bob Stephenson will be available for any follow-up that you may have.

And we thank you, sir, and to the rest of the management team for your time also today. The conference call is now concluded. At this time, you may disconnect your lines. Again, we thank you for participating on today's conference call. Thank you. Take care. Have a great day.