Tiptree Inc (TIPT) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you so much for standing by and welcome to the Care Investment Trust Inc. fourth-quarter 2007 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today on Tuesday the 11th of March, 2008. I would now like to turn the conference over to Ms. Leslie Loyet of the Financial Relations Board. Please go ahead.

Thank you. I would like to thank everyone for joining us today. Earlier in the day, we sent out a press release outlining the results for the fourth quarter and for the period from June 22, 2007, our commencement of operations, through December 31, 2007. If anyone has not received the release, please visit Care's website at www.carereit.com to retrieve a copy. Management will provide an overview of the quarter and year and then we will open the call up to your questions.

Before I turn the call over to management, I need to inform you that certain statements made in the press release and on this conference call that are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For a discussion of the risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, please see Risk Factors in the Company's filings with the SEC, including its form 10-Q for the period ended September 30, 2007 and the Company's registration statement on Form S-11 related to its initial public offering. All forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such events.

Also during today's conference call, the Company may discuss funds from operations or FFO or adjusted funds from operations or AFFO, both of which are non-GAAP financial measures as defined by the SEC Regulation G. A reconciliation of each non-GAAP financial measure and the comparable GAAP financial measure or net income can be found on the [ad] six page of the press release issued this morning, March 11, 2008 and on the Company's website at carereit.com by selecting the press release regarding the Company's fourth-quarter earnings.

With that said, I would now like to introduce Scott Kellman, President and Chief Executive Officer of Care Investment Trust. Scott, please go ahead.

Thank you, Leslie and thank you to everyone who joined us this morning to talk about Care's fourth-quarter results. With me this morning are Bob O'Neill, our Chief Financial Officer and shortly, Mike McDugall, our Chief Investment Officer who heads our risk and underwriting functions, will join us.

In the midst of the turmoil in the current capital markets, it is extremely gratifying to be able to look back over Care's fourth quarter and reflect upon solid, consistent financial results, a strong safe portfolio of booked assets and equity investments in over $320 million of high-quality, medical office and senior housing real estate. I would like to touch upon each of these elements and then address your specific questions during the Q&A.

Let's start by reviewing the financial results for the quarter. During the fourth quarter, Care funded approximately $1.9 million to existing portfolio clients and received an early loan payoff from one borrower in the amount of $34.5 million. We also invested $73.4 million in two joint ventures, which own approximately $324 million worth of medical office buildings and senior housing facilities. However, because these investments closed on the last day of 2007, they had no impact on our financial results for the fourth quarter.

Care generated $6.2 million of total revenues during the fourth quarter, comprised of $4.8 million of interest income from our mortgage portfolio and other income of $1.4 million. Other income resulted primarily from a termination fee on an early loan payoff and from interest earned on invested cash during the quarter.

Total expenses during the quarter approach $2.6 million. These included $1.3 million in management fees, $200,000 of nonemployee stock-based compensation, slightly less than $100,000 of interest expense and $1 million in marketing, general and administrative expenses. Consequently, net income and funds from operations for Q4 each totaled $3.6 million. Adjusted funds from operations were $3.8 million. The slight difference between the AFFO and the FFO resulted from the add-back of non-cash stock compensation, which was included in the AFFO metric. This resulted in $0.17 per share for net income in FFO while AFFO rounded up to $0.18 per share for the quarter.

The portfolio was in excellent condition at year-end. 100% of payments due for the quarter were collected and portfolio cash flows produced strong debt service coverage ratios. In fact, debt service coverage on the portfolio as of December 31, 2007 averaged over 1.6 times and this was after deducting from available cash flows, an imputed 5% management fee, as well as $300 per bed for capital expenditures from the cash flows of the assets available to service our loans. Care had no loans on non-accrual and has had zero impairments on the loan portfolio since our inception in June of last year.

Now during the third-quarter conference call, we strongly emphasized Care's intent to refocus our investment strategy on the acquisition of high-quality real estate with safe, sustainable income streams that grow over time. We noted that asset-specific debt remained available for quality facilities, while the securitized debt markets, which we had intended to access to fund our investments in senior mortgages, had all but disappeared. The changing market conditions dictated that we employ the flexibility inherent in our platform to convert to an equity focus.

Care implemented its new investment focus by acquiring equity interest in over $320 million of top quality, healthcare real estate in the fourth quarter of 2007. We deployed approximately $73.4 million of equity in two significant transactions. Each was capitalized with large levels of secured debt from third parties. Now, we have reviewed the specifics of the Cambridge transaction, which involved nine Class A medical office buildings and was valued at $263 million, as well as the Senior Management Concepts deal involving four Utah assisted and independent seniors housing facilities worth approximately $61 million on previous calls. I will be glad to discuss them in more depth when we get to the Q&A if you have additional questions.

But what I want to stress in relationship to these transactions is that of equal importance to the quality of the underlying real estate which we acquired is the structure of these two deals. Each was crafted to align the partners' interests, as well as to prioritize Care's return as the provider of the real estate capital over the interests of the operators. We view our alignment with Cambridge to be of great strategic importance. Care's option to acquire an additional $232 million of Cambridge properties in fill-up or development evidences the strength of this alliance. Similarly, we are optimistic that our close ties with Senior Management Concepts will result in opportunities for future acquisitions.

The key takeaway from these transactions is that the quality of the assets, as well as the strength of these relationships is of considerable importance to Care. Care ended 2007 with $25 million of balance sheet leverage. While a conservative leverage profile is certainly prudent in chaotic markets, Care's minimal leverage combined with the variable return on our mortgage assets leaves our earnings vulnerable in falling rate environments. In short, declines in LIBOR negatively impact Care's earnings.

If we are able to increase our on-balance sheet leverage as we acquire additional assets then this impact should mitigate over time. In the interim, we intend to focus considerable effort on adjusting our capital structure to better accommodate an equity REIT execution going forward.

The close of the fourth quarter marked Care's first year-end as a public company. Care enters 2008 with a quality portfolio with low balance sheet leverage and with strong momentum in driving our equity strategy. This solid foundation was the result of considerable effort and I want to thank the employees of our manager, CIT Healthcare, for their dedication and their focus. We would be glad to address your questions at this time. Operator?

(OPERATOR INSTRUCTIONS). Douglas Harter, Credit Suisse.

Thanks, Scott. I was just wondering if you could elaborate a little bit more on sort of your efforts to reposition the capital structure of the Company?

Sure, Doug. We are in conversations with a number of financiers of other healthcare REITS, as well as some people who currently -- large institutions that don't finance healthcare REITs, but have expressed an interest in potentially working with us.

Along those lines, we may very well look for a corporate credit line that would take either a negative pledge on all of our assets or possibly a secured position on some of our assets and advance us or provide us availability under that line at greater levels than our current line, which Column Financial provides us. We have numerous conversations going on at this time and we are pursuing a number of alternatives in that regard.

Thanks. If you could just -- what is the current amount of leverage you could get on that line with Column?

Availability under our line is driven by the pledging of collateral and we typically pledge the collateral at the time we seek a drop. Column has the right under the facility, as warehouse lenders generally do, to pretty much decide in their sole discretion how much they advance or even whether to advance at the time that we pledge the collateral.

Under such circumstances, external marketing events can impact these decisions, so we assume no particular result given the volatility in the markets and we are aware that the views of warehouse lenders have been changing on a daily basis. Now as late as last week, after the Thornburg issue, mortgage issue, we contacted Credit Suisse and Column and they assured us that the line remains in place and that we are welcome to pledge additional collateral.

We currently have no need to pledge additional collateral, so we haven't tested the advance ratios that they would pursue if we were to do so. But given what is happening in the market, we have seen a number of REITs be limited in their ability to draw or in their advance ratios, the levels at which they can draw. And so it is extremely important that we get a line that is more concrete in place as quickly as we possibly can.

And the reason you would look to draw would be if you had another opportunity on the equity investment side?

Exactly, exactly.

(OPERATOR INSTRUCTIONS). Jason Deleeuw, Piper Jaffray.

Good morning and thanks for taking my question. The $10.2 million investment that you borrowed on the warehouse line to fund a new mortgage investment, can you just give some background on that and a little color on that?

Sure. Generally, we have articulated that we are going to focus on equity investments, so the logical question that arises from our $10.2 million investment with Ciena Healthcare out of the state of Michigan is why would you do a mortgage investment. Well, under state law in Michigan, skilled nursing facilities in the Medicaid system do not get reimbursed. The Medicaid system does not recognize rent as a capital expense. They only recognize interest payments on a mortgage as a reimbursable capital expense. And so it was necessary for us to structure the transaction in a fashion that would maximize the operating results at the skilled nursing facility operating level.

That being said, the structure of this transaction was such because we did bring it to Ciena and we introduced them to the opportunity that the returns are equivalent to what we would receive on an equity transaction. I believe the returns on this are 750 basis points over LIBOR. In addition, there is a floor of at least 11%. This is a very well-secured senior mortgage with a guarantee from the parent who is quite substantial and we also received two points upfront on this transaction. So while we did do an additional mortgage investment, it is consistent with our overall strategic focus and articulated investment strategy of seeking value where the market provides it or makes it available.

Okay, I appreciate the color on that. And then with short-term rates declining here, but you have the new investments, the equity investments I think contribute to earnings in the fourth quarter. Can you talk about their contribution going forward in relation and then compare that with what you are seeing here with short-term rates on the commercial mortgages?

Sure. The equity deals that we booked are twofold. The first was approximately $72 million between the operating partnership units and the cash invested in Cambridge. That has an 8% current pay preferred return on the invested capital. So it is true that if we had financed, as we drew down on the line to finance that equity investment that there is a benefit to rates going down because the differential between the fixed return of 8% and the decreasing cost on our LIBOR draws provides a benefit.

That benefit, however, is somewhat dwarfed by the size of our mortgage portfolio that we continue to retain where the mortgage portfolio is not leveraged and therefore, at the end of the day, every basis point reduction in LIBOR actually drives an equivalent reduction in our earnings.

The Senior Management Concepts transaction actually provides us with a little over a 16% current return on the $6.8 million that we invested there. There was also $54 million of dedicated Fannie Mae debt that came along with that transaction and that debt is held off balance sheet. But quite frankly, we have seen a rather dramatic decrease in LIBOR since the end of the year and that decrease in LIBOR will directly affect our mortgage portfolio.

All right, thank you very much.

I am not registering any questions at this time. Mr. Kellman, please continue with any closing comments.

We are very gratified to end the year with such a strong underlying foundation. We understand that the current credit markets are tumultuous and chaotic at best and we intend to continue with a disciplined investment approach, a sound underwriting approach and opportunistically seek investments where the market provides value. We thank you for joining us today and look forward to talking to you next quarter. Thank you.

Thank you, ladies and gentlemen. This does conclude the Care Investment Trust Inc. fourth-quarter 2007 conference call. If you would like to listen to a replay of tonight's call, please dial 1-800-405-2236 or 303-590-3000 and put the access code 11107327. Those numbers again, 1-800-405-2236 or 303-590-3000 and put the access code 11107327. [ACT] would like to thank you very much for your participation and at this time, you may disconnect. Have a very pleasant rest of your day.