Tiptree Inc (TIPT) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Care Investment Trust Inc. Second Quarter 2008 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.

(OPERATING INSTRUCTIONS)

This conference call is being recorded today, Tuesday, August 12, 2008. I will now like to turn the conference over to Leslie Loyet with Financial Relations Board. Please go ahead.

Thank you. I'd like to thank everyone for joining us today. Earlier in the day, we sent out a press release outlining the results for second quarter 2008. 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 then we'll open the call up to your questions.

But 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, see the risk factors section in the Company's Form 10-K for the period ended December 31, 2007 filed with the SEC.

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 in the press release issued this morning, August 12, 2008, and on the Company's website again at carereit.com by selecting the press release regarding the Company's second quarter earnings. With that said, I'd like to now introduce F. Scott Kellman, President and Chief Executive Officer of Care Investment Trust. Please go ahead.

Thank you, Leslie. Thanks to everyone who joined us this morning to talk about Care's second quarter results. I would like to start today by introducing Frank Plenskofski, our new Chief Financial Officer. Frank's experience marries a strong accounting background with extensive capital markets expertise and we feel extremely fortunate that he has joined our team.

I also want to take a moment to thank Bob O'Neill, our former CFO, for his dedication in helping to bring Care public and for guiding our financial reporting through our first year of operations. With us this morning are Mike McDugall, our Chief Investment Officer, who heads our risk and underwriting functions, and Tory Riso, who serves as our Chief Compliance Officer.

Also today, with us is one of our Board members, Walter Owens.

Before we begin our usual quarterly review, I'd like to make sure that everyone on the call is aware of the exciting events we disclosed in a press release across the wire approximately 90 minutes ago. That release describes an agreement in principal with CIT Healthcare pursuant to which CIT Healthcare will purchase mortgage assets from Care's portfolio and reduce the management fee it receives for acting as Care's external manager. Under this agreement, Care will receive an option to require CIT Healthcare to purchase up to $125 million of mortgage assets on an individual basis at any time over the next 12 months.

The assets will be sold at the fair market value at the time of sale as determined by an independent third party. Care's management fee payable to CIT Healthcare shall be reduced from 1.75% to 0.875% of book equity. This will decrease current expenses by approximately $2.5 million per annum and add approximately $0.12 per share to Care's AFFO annual run rate. As consideration for these changes, Care will issue 400,000 ten year warrants at a strike price of $17 per share to CIT Healthcare under our manager equity plan. On an immediate basis, this establishes a current adjusted funds from operations run rate of $0.86 per annum per share.

More importantly, these steps ensure that Care will have the liquidity and the cash flow to accelerate the Company's transformation to a growing healthcare equity REIT. The Company has an attractive pipeline of investment opportunities which we can now aggressively pursue with the liquidity provided by these new arrangements.

Moreover, the option to sell mortgages at any time eliminates the lost income from timing differences between the liquidation of portfolio assets and the redeployment of the repatriated capital. At their core, these initiatives provide Care the flexibility to accelerate the disposition of our mortgage assets with a concurrent reinvestment of the liberated capital into owned health care real estate.

I look forward to addressing your questions regarding these exciting events during the Q&A, but first I would like to briefly summarize this quarter's activities.

Obviously the highlight of the quarter was clearly the $100.8 million purchase leaseback of 12 high quality senior living facilities operated by affiliates of Bickford Senior Living Group.

This transaction carries annual base rents of 8.2% with 26 basis points of additional accruing rent and 3% annual escalators. This investment increases on our run rate for adjusted funds from operations by more than $0.16 per annum. The effect on second quarter results was negligible as the investment closed four days before the end of the quarter.

Care generated slightly less than $3.8 million of total revenues during the second quarter approximately comprised of $3.470 million of interest income from the mortgage portfolio and other income of about $208,000. Other income resulted primarily from interest earned on invested cash during the quarter. Total operating expenses during the quarter slightly exceeded $1.8 million.

These included about $1.3 million in management fees and a little more than $900,000 in marketing, general and administrative expenses offset by a reversal of stock-based compensation of about $424,000. We also booked $46,000 of depreciation expense related to the four days of the second quarter during which we owned the Bickford properties. In addition, Care incurred $466,000 of interest expense during the quarter. Loss from investments and partially owned entities approached $1.1 million for the quarter.

This results from the depreciation falling from the Cambridge properties, which drove a $1.4 million accounting loss counterbalanced by $300,000 of income from our equity investment in Senior Management Concepts. Unrealized gain on derivative instruments equaled $240,000. $195,000 of this figure related to Cambridge. Consequently, net income equaled $0.03 per share while funds from operations equaled $0.15 per share. This results primarily from the add-back of depreciation to derived FFO.

Adjusted funds from operations or AFFO, equaled $0.12 per share. The AFFO metric subtracts from FFO the non-cash stock compensation adjustment and the non-cash pick up resulting from revaluation of the partnership units issued in the Cambridge transaction. Because both of these numbers represented non-cash contributions or add-backs to FFO in the second quarter, they are actually subtracted from FFO to derived AFFO, which is a closer proxy for actual cash available for distribution.

The portfolio was in excellent condition at quarter 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 June 30, 2008 averaged more than 1.7 times after deducting our standard imputed 5% management fee and $300 per bed for capital expenditures from the cash flows of the assets available to service our loans. This is slightly up from the prior quarter. Care had no loans on non-accrual and has had no impairments on the loan portfolio since our inception.

Yield volume appears to be increasing, which is good news for our pipeline. We are current -- currently reviewing over $350 million of investment opportunities. Last quarter, if you remember, we acknowledged that we were in discussions with an assisted living operator that was interested in taking back operating units exchangeable for Care's stock through a down reach structure for the equity in their properties.

We noted that, if executed, this transaction could be sized in the $50 million to $60 million area and would probably be supported by agency debt. Those discussions continue. Now we also referenced a hospital transaction that I was quite enthusiastic about and after continuing the underwriting, we have decided not to pursue that transaction. Other potential deals involve medical office, assisted living and transitional care opportunities. While we are very enthusiastic about many of these opportunities, there is no assurance that any of these deals will close in the near-term or at all.

Now while the agreement with CIT Healthcare provides care with a committed capital option, management remains dedicated to sourcing additional multiple pools of capital to support our strategic plan. Care currently holds $18.3 million in cash. We are required to retain $5 million for general liquidity purposes under our recently amended Column Financial line. This leaves us with immediate cash of $13.3 million available to invest. We also have approximately $99 million of collateral in the form of mortgages that are not pledged under our Column Financial line.

Last quarter we noted that a lender had issued preliminary terms under which it was interested in advancing capital against a secured interest in this collateral. Indications were for approximately $50 million at LIBOR plus 225 basis points to 250 basis points, with a line outstanding for a 17 month term. As recently as last week, this lender confirmed its continued interest in this transaction. That being said, we have no formal commitment and this lender could withdraw at any time.

We are in discussions with other lenders as well seeking more attractive terms. We have been advised by two borrowers of approximately $53 million in our mortgage portfolio that they are pursuing HUD refinancings and hope to repay Care in the late third or early fourth quarter. While this is very exciting and we would welcome the repayments if they occurred, once again, there is no assurance that they will occur in that timeframe or at all.

Operator, that wraps up our prepared remarks. Could you please open the line for questions?

Thank you, sir. Ladies and gentlemen, at this time we will begin the question and answer session.

(OPERATING INSTRUCTIONS)

One moment please for the first question. Our first question comes from the line of Jerry Doctrow with Stifel Nicolaus. Please go ahead.

Good morning.

Good morning, Jerry.

Yes. A handful of things. On the -- on the -- well, congratulations first on restructuring with -- with CIT, that's certainly a big step. On that, the one thing, I guess, I was curious about as to why you -- it's still based on sort of book equities, so presumably as you seek additional equity or the Company grows you have the fee -- the management fee actually will go up. And I was wondering if that was discussed or what -- what the thinking was on keeping it book equity based as opposed to -- based on assets or something else?

It's a good question, Jerry. Here is -- here is how we view it. When we originally went public we were viewing ourselves as primarily a mortgage real estate investment trust. As such, our anticipated capitalization was 20% to 25% equity and the remainder debt. To the extent that we transformed ourselves to an equity REIT, we now anticipate that our long-term equity capitalization will be 50% of our total capital.

So by cutting the management fee in half, what we've essentially done is, over time, as we grow our equity base, CIT will receive the same amount of compensation on a percentage basis because our equity percentage of our total composition of our total capital will increase twofold over what we had originally anticipated.

That being said, there's a short term shortfall until we issue additional equity that CIT is taking a direct hit to their bottom line in their compensation for what they currently do.

And as everyone on this call knows, when you're small, you incur more fixed costs relative to your overall assets, your overall income. So we felt that the restructuring by cutting it in half more appropriately reflected the economics of an equity REIT strategy, but we still do receive extensive benefits from our relationship with CIT and we want them to continue currently as our external manager. So we certainly have to pay them and, quite frankly, a $2.5 million payment is not -- is not substantial, given the services that they render.

So that was the thinking that actually went into cutting it in half but allowing it to grow over time as a percentage of equity. The recent Capsource filing indicates that they are actually charging 50 basis points on assets, I believe, which is actually a hair above the 8.75% on equity, assuming that our equity is 50% of our asset base. So I think we're in the ballpark to what comparable equity REITs are doing in the marketplace today.

Okay, thanks. That's helpful. Let's see, you talked about a number of sort of pots of potential capital, one obviously the $125 million sale to CIT. I think secondly -- I think our numbers had about $30 million of debt maturing -- or mortgages maturing over the next 12 months, and then I think you separately talked about this $53 million of, I guess, potential sort of prepayments.

And what I was trying to kind of sort out in my mind is -- is -- and then you also talked about $99 million or so that's secured to the Column Financial line. So what I was trying to figure out is how much potential capital there is. You know, some of those things may -- may -- may overlap. So if you -- well let's take them in pieces. If you sold $125 million to CIT, would the $30 million in prepayments presumably be on top of that amount?

Yes. Jerry, --

Or are they just scheduled payments issues?

No, it's very good. First of all, we have no current maturities in the coming 12 months.

Okay.

So I -- I -- that may have been either one of the prepayments that actually occurred --

Okay.

-- or that might simply be a miscommunication.

Okay.

But we have $214 million of outstanding mortgages currently and, if we deduct $125 million from that, then you're pretty much at that $99 million of un-pledged collateral in terms of nominal value.

Okay.

Now what we could do is the un-pledged collateral of $99 million is what we would pledge to this other lender if -- if we decided to pursue that or at LIBOR plus $225 million to $250 million on a 17 month term and we believe that we could recover approximately a 50% advance rate on that. So that would provide maybe, let's say, $44 million of additional capital to the $125 million that CIT is willing to provide us through the repurchase of the mortgages.

Okay.

So when you take those together, that pretty much is the sum total of our access to capital from secured lending agreements or from sale of assets. Now we could turn around and continue to sell additional assets in the open market and we have received some inquiries, but those are nowhere near the level of specificity that we have on the CIT arrangement.

Okay. Now that's -- that's helpful. And then the -- there are two other things. One is just is do you have a sense when the Q is going to be filed because there's some other stuff that I don't know that I want to get into over the phone, but just on balance sheet and stuff we'd love to see. So is the Q forthcoming or otherwise maybe we'll come back to you offline on some of that.

Jerry, this is Frank Plenskofski. We're looking to file the Q by Thursday.

Okay. Maybe we'll come back to you for just some basic balance sheet items if we can. And then just -- the other -- last one I have is just on sort of the stock based comp, there was, I guess, some reversals or whatever I guess is the way I was reading it on the quarter. Could you just kind of explain a little bit better what -- what's going on there.

Sure. We have -- we had a couple of employees who left. One was Flint Besecker who continues to serve as a Director but used to serve as -- as President of CIT Healthcare. And the other was one of our senior originators in the medical office arena.

And because of those two non-employees because technically all of our employees are employees of CIT Healthcare, we actually had a reversal when they forfeited their -- their stock based compensation upon leaving -- that caused a reversal. And then in addition the stock price at the end of the second quarter was somewhat lower than at the end of the first quarter, which caused an additional revaluation.

Okay. And -- and there's not -- we shouldn't anticipate any more, obviously, people leaving, I think that's -- that's stable. So all of that was played out in the quarter.

That's correct.

Okay. That's all from me. Thanks.

Super. Thanks, Jerry.

Thank you. Our next question comes from the line of Jason Deleeuw with Piper Jaffray. Please go ahead.

Thanks and good morning.

Good morning, Jason.

I'm just wondering now that you are in this agreement with CIT Healthcare, the loans are held for investment right now. Would they have to be transferred and held for sale, and would you have to mark those to market? How -- what's the accounting treatment going to be for these loans going forward?

That's a great question. We -- we've looked at this and what we have at Care is a pure option. And I do not believe at this time that we are going to have to exercise that option. This provides us with a committed pool of capital, it gives us certainty of execution if we have investment opportunities where we need the immediate liquidity.

But at the current time, I believe that through our other pools of capital from lenders, as well as through anticipated run off in our portfolio, that in the near-term we have no intention of selling these assets. Now if we -- if we choose to do so, then certainly those will -- will transfer at market. But because it's a pure option on our part, we have received accounting advice that as of now, though there's continuing examination of this issue, and I won't say it with 100% definitiveness, but our current perspective is that we will not reclassify these mortgages as held for sale, and we will not mark them for market.

All right. So then I guess if you started to see a side -- a more sizeable amount of attractive equity opportunities, you know, that would be something that you would want to -- then you would want to take action on those loans and sell them, or at least part of them. Would that be the main driver then to -- to transferring them to held for sale?

That's correct. And we have a number of very exciting investment opportunities. But if you think about it, most of what we have the opportunity to invest in is owned real estate that comes with either agency debt or third party dedicated asset specific debt.

So we can leverage our equity dollars two or three times to one in the open market and, if indeed, we receive the $53 million of prepayments that we've identified and the people have come to us and told them that they anticipate doing in the next two to three months, then we should be able to time our investments to coincide with the repatriation of that capital. But you're absolutely right. If indeed we have exciting opportunities that are accretive, we will not hesitate to hit the mark on these options and liquidate the portfolio to take advantage of those opportunities.

Okay. Thanks. That's helpful. And then I'm just trying to get a feel for the core earnings power this quarter. The AFFO was $0.12 now but you had the reversal of the stock comp, stock based compensation. But that's because of the employees leaving. Is that kind of viewed as more of a -- a one time or not expected to -- to continue?

That's certainly a one time event. We had a reduction -- a significant reduction in the cash flows derived from our mortgage portfolio, given the drops in LIBOR. I don't anticipate LIBOR going down any more, but you never know. What I think we need to take away from this call is that our AFFO run rate on an annual basis currently, from things that are currently in place, is $0.86 per share, and if we do any additional accretive investments before the end of the year, then that will increase.

Now if LIBOR goes to zero, then to the extent that we retain mortgages, we will have a hit. But you have to make an estimation of what you think that risk is within the context of current financial markets.

Okay. Thanks. And that was my next question -- is that $0.86, that includes the fee reduction and the Bickford invest -- investment?

Exactly. That's correct.

All right. Thank you very much.

Thank you.

Thank you.

(OPERATING INSTRUCTIONS)

Our next question comes from the line of [Ryan Zacharia] with [GM Partners]. Please go ahead.

Hi, Scott. How are you doing?

Hey, good morning.

So if you guys are finding attractive equity investment opportunities that you can finance kind of outside of your warehouse line, would you guys every consider using the additional liquidity provided by the put option to buy back stock, another accretive investment?

This is something that the Board has extensively considered and analyzed. And here are my general thoughts on -- on this issue. On an initial basis, a stock buy back program would have the immediate effect of increasing our leverage and cannibalizing our remaining liquidity for new investments. So I have a visceral initial negative, quite frankly.

But we have taken a disciplined approach and run the analysis with our stock at its current level and our conclusion currently is that share repurchases would be far less accretive than investing our capital in the opportunities that we are currently seeing in the marketplace.

And if you think about it, quite frankly, while share repurchase would retire stock that trades below book value currently, because a substantial amount of our initial equity investments were in medical office buildings that were bought at a relatively low cap rate because they were of such extraordinarily high quality and the market is now offering much higher yields on equity investments, a share buy back basically is investing in that lower cap rate asset and it would not generate nearly as much AFFO as a new investment would.

And then finally the last thing that I have to consider when I look at deploying my equity is we have no capacity to leverage our capital pursuing a share buy back. We take one dollar of equity and we get one share of stock. While new equity investment, as I referenced in response to Jason previously, can be leveraged two to three to one, and so we receive additional accretion from that leverage.

So currently, and knock wood, we -- we don't intend to buy back shares. But I will assure you that as recently as our last Board meeting, the Board had extensive conversations about this and should the market decide to value our stock at a level where it makes sense based upon our models, we would not hesitate to reconsider this issue.

And was that level -- is that level not kind of sub $9? It doesn't make sense, in other words?

It doesn't have to get as low as $9 for it to make sense. But I don't really want to be specific because that basically would put a floor beneath our stock.

Right. Okay. Thank you.

Thank you.

Thank you. And your next question comes from the line of Scott Bommer with SAB Capital Management. Please go ahead.

Hey, Scott. How are you?

I'm well, Scott. Thanks for calling in.

Yes, thank you. Hey, a couple comments and a couple questions. I guess, first and foremost, congratulations on this long and tortuous negotiation with CIT and driving this across the finish line. And it looks like a very valuable deal. And I guess secondly; you guys, I think, as we and a number of other shareholders have -- have reflected into you over the last year -- I think made just outstanding strategic progress early on when this market changed a year ago.

Both you and Flint and the Board were very quick to shift focus away from the mortgage REIT model last July and August. You prevented yourselves from getting over levered. You stopped the mortgage deployment at Capital. I think you receive really top, top marks for that.

Really for the last nine to eleven months that progress has largely stalled in pursuing sort of strategic alternatives for the Company and the number of public private conversations to the point where, I think, several months ago one of your largest shareholders wrote a public letter to the Board. And here we sit a year later, and you've now negotiated an option to sell mortgages back to CIT in a business that, a year ago, your Board decided that it was not in the best interest of the Company to be in.

And your comments to the point of not wanting to exit the business and the value of the option as you see it are that you can hold the money in those mortgages and not lose the accretive value for a period of time, and you have no intent to hit that bid at the current time, how can it be really construed as anything other than gambling to not exercise that option immediately?

You're holding mortgages in a business the Board's decided you don't want to be in. t GM Partners. They're low return. We're in an environment that -- that despite the good credit underwriting you've done, I think any objective party would say that's a risky line of business to be in. You're not price protected, it's fair market value, so if the fair market value today is $0.90 and in six months it's $0.70, you've not bought yourself price protection.

How can -- so my first question is how can you and any member of the Board in good conscience, if you're representing Care shareholders, not hit that option immediately? And then secondly, to that previous gentleman's question, in all due respect, I think that the primary problem for your business model right now is you've been struggling with it for the last year is not one of slight increments to AFFO; you know, your point on share buy backs that they're slightly less accretive to deals.

The -- the point really is that we're at a strategic crossroads and we -- and I think it's incumbent on the Board needs to decide, can you get to the business model of Eventus and HCP and HR? Can you get a turn of debt that will allow you to lever two times asset to equity and drive your ROE to 15% and put up that $1.60, $1.70, $1.80 of FFO that will allow the stock to be worth a high teens number?

And if you can't and you know that you have $14, $13.75 of NAV, the burden of at hand today, how it not be -- if you can't get to that leverage -- how can it not be the most attractive option at the moment to buy back your stock and push for some sort of an exit from your business if you can't achieve your business model? Thanks.

Sure. I'm going to try and remember, but -- but come back to me, Scott, if I -- if I leave things out. Let's talk about the mortgages first because, quite frankly, there's a perception -- I think your question is -- starts out with is the -- is it risky to hold onto the mortgages on a go forward basis, given the uncertainties in the markets and how the markets might end up valuing these mortgages at less than they're currently -- we would currently be able to put them to CIT.

And there's always a risk of some catastrophic event in the marketplace occurring. And it's a balance as to what the sale of the mortgages would -- would do to our current returns and as well as the certainty of our possibility of receiving total value or par value for those mortgages, and in some cases par value plus a prepayment penalty. So as I look at our portfolio with an average of over 1.7 times coverage and every quarter amortization occurring, which increases that coverage even if operating performance doesn't increase.

And I look at the fact that these mortgages are primarily skilled nursing and the federal government just gave a market basket increase on Medicare of over 3%, which was extraordinary. And every operator is literally jumping up and down. I expect our mortgage portfolio, which is extraordinarily strong, to continue at its -- at its current level. And, quite frankly, half of the mortgage portfolio, possibly more -- I'd have to draw down on it -- has floors in the seven plus range that provide us compelling returns on that.

And it would be difficult for me to feel comfortable selling it in the marketplace right now. And I believe that there is intrinsic value. The worst case that we have in these -- in these mortgages is that, if they do result in a future devaluation, we simply hold them and our investment activity slows a little bit, but we still receive the intrinsic value of those mortgages and the cash flows. And currently, I think that we can see a little bit around the corner in terms of what's happening because of our expertise in this market and make some pretty wise decisions about when we should hit that mark.

But with all that being said, the very issue that you just raised is the next issue that our Board of Directors agreed to review and which we will take up in our following discussions after this call, about how much if all or if a portion of the bid that we should hit on -- on these assets currently. So I'm not saying that we're not going to take on some of this capital and it may very well be prudent for us to do some of that, but we haven't made that determination as of -- as of this point in time. So that's -- that's the mortgage issue.

In terms of the strategy stalling, what has actually happened, in my view, is that LIBOR has dropped. And to the extent that LIBOR represents a significant component of our earnings due to the size of our mortgage portfolio, every action and activity that we can take to diminish the effects of LIBOR on our portfolio of returns, by selling or putting or -- or encouraging runoff, minimizes the impact that we have on a go forward basis.

And quite frankly, I think if you look at the assets and the investments that we've made, Bickford for example on its face at $0.16 per share per quarter to, what was at one time very recently, a run rate of $0.58 per share. So $0.16 is -- is to me, having been in this industry for 25 years, incredibly significant. And quite frankly, we're seeing other opportunities in the marketplace today of similar size and returns, which could continue to move the needle.

So when we consider whether or not it's appropriate to look for an exit or a strategic option of selling the Company currently, I take that $0.16 and I put a conservative multiple of 13 on it for equity healthcare rates currently, and I -- I -- I look at it and I see over $2 of additional value.

And with our recurrent -- current liquidity options and the pipeline of investments that I'm look at right now in a market that's been greatly abandoned by many of the traditional sources of capital, the Board currently believes that auctioning the Company now would leave tremendous value on the table.

And if, in the future -- because, quite frankly, I'm not saying that the Board has made a determination that they're never going to sell this -- this -- this Company, we've done extensive analyses comparing the IRRs of continuing to operate and -- versus selling the Company currently at what we believe we could receive for it; and we firmly believe that the best interest of the shareholders are best served by continuing to operate and pick up some of this low-hanging fruit.

So that if we do decide to sell in the future, it's at a higher defined AFFO that is passing. And I'm going to emphasize that this decision is reflective of the Board's current thinking at this precise point in time, and that no one should construe this as precluding alternatives, should we experience either liquidity constraints or if, in the future, we experience difficulty sourcing -- difficulty sourcing accretive investment opportunities, or if market dynamics change.

Of course, a response to that may be that if market dynamics changes, you won't have the opportunity to -- to sell the -- the assets. But given the fact that we're trading below book value and there are many healthcare REITs out there who, I think, are very interested in the type of assets that we have in our portfolio, which are not greatly dependent upon government reimbursement and are extraordinary high quality and relatively new, I think that we have ability and buffer against -- against the stock sinking much lower than it currently is.

If we were to sell now, the perception of the Board is that we wouldn't get any credit for the pipeline opportunities that we have for our current liquidity that we bring to the table, and that we would be leaving money on the table, given what we believe we can do over the next six months to drive AFFO.

That makes sense. I guess the following question that I would have is; you've got a lot of investors that invested at $15 with you at the IPO. It makes a ton of sense why your peers that trade at two times book value and have low cost to capital because of both their -- their stock valuations and their access to leverage, it makes a ton of sense for them to pursue deals and pursue accretion.

From your standpoint, the stock is at $11, your book value is $14, investors hurdles are $15. What do you think -- and I agree with you with your multiple of thirteen times being a little bit of discount to liquidity -- what do you -- what do you think you can do that's going to produce an acceptable return for investors that put money with you at $15? And what kind of FFO do you think you can get to that, when you apply a thirteen multiple to it, is going to give you a nice return or acceptable return on a $15 investment from a year ago?

Let's say, Scott, just for hypothetical purposes, that we're able to do another Bickford before the end of the year. And so we take $0.86 per share run rate and we add $0.16 to it, and so we're at $1.02. And so we're at $1.02 with nothing else being done and I assure you there are things in the pipeline that I -- I mean, my attorneys would tell me not to promise anything. So I'll say we have no assurances that they will be done -- but there are things in the pipeline that I am highly confident will -- will occur.

But that's $1.02. And so the question becomes, if -- if we receive the type of multiple that we're currently receiving, then we're -- we're very close to where we need to be to get to a -- a position where, if you or any other shareholder wants to hit the mark, I think -- I think you could -- you could exit the -- the stock, though I understand that some people hold very large positions, where we have the possibility of doing an add on equity issuance.

Most healthcare REITs equity rates trade at the -- the fourteen to fifteen times. So you're -- you're over $14 a share at that point in time and that's just on current run rates. Typically the $14 to $15 is on 2009, on the following year's anticipated run rate. We hit the end of the year and we have multiple increases embedded in our investments that we're in -- there is intrinsic escalators built into the investments, typically 2% to 3%. If you're leveraged 50%, that becomes 4% to 6% internal growth on your portfolio.

And quite frankly, your biggest bang for the buck in this industry -- and I started a healthcare REIT in '92, I joined a relatively small healthcare REIT of $160 million in assets in '93, which was the highest returning REIT for the following five years in the industry -- oh, four years in the industry.

And your biggest bang for the buck to your shareholders comes from going from the size that we're currently at to -- to a $1.5 billion to $2 billion, because every accretive investment really adds something to the bottom line. And in this environment, with all the pent-up demand and the lack of competition, we're seeing more and more opportunities and less and less and fewer and fewer competitors in the marketplace.

It's just hard for me to conceptualize giving up the business model by simply selling out when our models show that, if we're successful deploying our capital as we anticipate, that we will blow out the IRRs that would come to our shareholders from selling at the current price. And this all begs the question of what could we sell for? But -- but I'm fairly tied into the other major healthcare REITs. I worked for [Jay], I consider [Deb] a good friend.

You know, Taylor Pickett at Omega has my old job. I mean -- I mean, I know how people view us and I have a fairly good feeling for what they would be willing to pay and I don't want to make -- I don't want to get into specifics. I don't think that other people are in a position to do the analysis that we've done with the degree of information that we've done it.

Terrific. Well listen, that sounds like a fair response. I guess the only other suggestion I would make, the -- we and other shareholders would not have invested with you if we didn't have a fair degree of confidence in your ability to -- to do deals and make good judgments.

The only other suggestion I would have to throw into your process is, whether the Board would be willing to commit to a timeline to kind of go for the gold, you know, maybe as you view it in terms of the opportunities you think you have to blow it out. And whether that's three months, six months, nine months, end of the year, where if your stock isn't trading at some premium to the $14 NAV that -- that you draw a line in the sand and move in another direction.

I think that if you were willing to do that it would -- it would give shareholders some reassurance that -- you know, while you're greedy in the terms of the plan you see you're also realistic and in tune to people's needs to get returns over the medium-term.

You know, I will definitely raise that with the Board. The one thing I want to emphasize is that this Board has been incredibly responsive in its internal deliberations to the concerns of -- of shareholders. And I put a slash there and say close friends like you and the folks at Green Tree and the people who have tried to guide us and give us some feedback about -- about how we should navigate these difficult markets. And they, I'm certain without even talking to them that they will consider that -- that as -- as something they should look at closely.

Terrific. Thanks very much.

Thank you.

Thank you. And there are no further questions. Mr. Kellman, I'll turn it back to you for closing comments.

Thank you. I really appreciate everybody signing on to the call and engaging in the discussion with us. I'm very excited. We're actually seeing more activity and more opportunities in the pipeline than we've seen recently. I think some of the pent-up deal demand has started to break lose a little bit. Sellers are becoming more realistic in terms of their expectations.

And I particularly think that the model that we employ, which attempts to align incentives with our -- our partners, who are operators, while prioritizing the real estate returns over the operating returns, but providing the operator with an opportunity to earn out or gain more if they are successful, is particularly appropriate for today's market.

And with the liquidity provided by our external manager and our partner, CIT Healthcare, I think that we are well positioned to really take advantage of the current market. Thank you so much. Talk to you soon.

Thank you. And, ladies and gentlemen, that will conclude today's teleconference.

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