Tiptree Inc (TIPT) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Care Investment Trust First Quarter 2009 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)

This conference is being recorded today, Monday, May 11, 2009. I would now like to turn the call over to Leslie Loyet. Please go ahead, ma'am.

Thank you. I'd like to thank everyone for joining us today. This morning, we sent out a press release, outlining the results for first quarter 2009. 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.

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 forward-looking statements, see the Risk Factors section in the Company's Form 10-K for the period ended December 31, 2008, 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, May 11, 2009, and on the Company's website, again, at carereit.com, by selecting the press release regarding the Company's first-quarter earnings.

At this time, I'd 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 first-quarter results. Joining us on the call today are Paul Hughes, our Chief Financial Officer, Mike McDugall, our Chief Investment Officer, Torey Riso, our Chief Compliance Officer, and [Suman Sarma], Vice-President in Healthcare Finance.

Today, we will discuss our financial results for the quarter, review our portfolio's continued strong performance, walk through Care's current liquidity position, and wrap up by talking about how we are situated to address the current market environment. Care generated a little more than $6.1 million of total revenues during the first quarter. These were approximately comprised of rental revenue of $3.2 million, $2.9 million of interest income from our mortgage portfolio, and other income of approximately $100,000.

Other income included interest earned on cash balances and miscellaneous fees. Operating expenses during the quarter approached $1.9 million -- approximately $2.3 million, related to marketing, general and administrative expense. Other operating expenses included approximately $645,000 in management fees, and a little more than $835,000 in depreciation expense related to wholly owned real estate.

The components of operating expense identified so far aggregate to a total of approximately $3.8 million. This amount was offset by a positive adjustment of $1.9 million to the carrying value on our books of our mortgage investments that we previously marked to the lower of cost or market.

The discount-to-face value that we booked in the fourth quarter of 2008, when we first adjusted the carrying value of these assets, decreases as the individual loans approach their respective maturity dates. This resulted in a recovery of $1.9 million during the quarter.

Loss from investments in partially owned entities was a little less than $950,000 for the quarter. This included a $1.2 million loss related to our investment in the Cambridge properties that resulted from a non-cash depreciation charge of $2.4 million. This result also included equity income of about $300,000 from Care's investment in the senior-management concepts properties.

Care also booked a $1.3 million gain on derivative instruments, largely resulting from a revaluation of our obligation to issue operating partnership units relating to Cambridge. This revaluation was primarily driven by the decrease in Care's stock during the quarter.

Interest expense, including amortization and write-off of deferred financing costs associated with the payoff enclosure of our line of credit with Column Financial totaled $2.1 million. This was comprised of $1.4 million of interest related to the mortgage debt supporting the Bickford acquisition, a $500,000 non-cash write-off in connection with the termination of our warehouse line, and $200,000 in interest charges on amounts outstanding under the line, prior to its payoff.

Care's effective interest rate on borrowings for the quarter was approximately 1.44% under our line of credit, and 6.88% for debt related to the Bickford properties. Consequently, net income for the quarter equaled $2.5 million, or $0.12 per share, while FFO equaled $5.7 million, or $0.29 per share. The difference between these metrics results primarily from the add-back of depreciation and amortization to derive FFO.

Adjusted funds from operations, or AFFO, equaled $2.4 million, or $0.12 per share. The AFFO metric reflects additional adjustments for non-cash income and expense items, including stock-based compensation, the non-cash effects of straight-lining of lease revenue, the unrealized gain or loss resulting from revaluation of the partnership units, issued in the Cambridge transaction, the non-cash write-off of deferred financing costs related to the pay-down and termination of our warehouse line, and significantly this quarter, the $1.9 million gain associated with updating for the quarter, the marking of our mortgage portfolio to the lower of costs or market.

Portfolio metrics were excellent for the quarter. 100% of payments due for the quarter were collected, and portfolio cash flows produced strong debt-service coverage ratios. Debt-service coverage on the mortgage portfolio, as of March 31, 2009, averaged more than 1.7 times, after deducting an imputed 5% management fee, and $300 per bed for capital expenditures, from the cash flows of the outsets available to service our loans. Care has no loans on non-accrual.

Performance of our owned properties continues to demonstrate strength as well. Occupancy in Cambridge's medical office buildings continues to track slightly above our underwritten assumptions, which is very positive in these difficult times. Our investments in assisted living continue to demonstrate considerable strength as well, with both our Bickford and senior-management portfolios showing slight upticks in occupancy.

At March 31, 2009, Care held $17.4 million in cash and cash equivalents. Subsequent to the end of the first quarter, we received approximately $29 million from the sale of a mortgage investment. During the quarter, we repaid all outstanding balances under our line of credit with Column Financial, and terminated all obligations under the credit facility. As a result, our mortgage portfolio is now entirely unencumbered, and we currently hold cash and cash equivalents of approximately $46 million, and have no debt maturities prior to 2015.

Care currently sits with substantial free cash on our balance sheet, and no debt maturities for six years. We hold a strong portfolio of performing assets, and enjoy significant balance sheet flexibility.

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

Thank you, sir.

(Operator Instructions)

And our first question comes from the line of Jerry Doctrow, with Stifel Nicolaus. Please go ahead.

Good morning, Scott.

Good morning, Jerry.

Just -- I kind of had a couple things. One, I was wondering if we could get a little more color on kind of the MOB and senior housing assets. I think you touched on some of it, maybe, as you went thorough your remarks.

And then, the second thing, obviously -- I think, I'm wondering and everybody else is wondering is, with all this capital, what are you going to do with it? Is -- do you have a sort of a business strategy go forward? Or, do you consider a liquidation? What's -- is there a broader game plan that you can share with us at all?

Sure. The MOBs -- when we originally underwrote the MOBs with Cambridge, they remained in a state where there was some additional occupancy gains to come in the next couple of years. So, we had to estimate those gains. And to protect ourselves against those gains being slower than what we anticipated, we actually issued approximately $10 million in operating-partnership units, which are proxies for our stock.

And, we -- or we had an obligation. We agreed to issue them upon a certain point in time, and we actually ended up with an estimation of what the ramp-up in those assets would be, and how quickly it would occur. Cambridge's performance economically has exceeded what we have anticipated, or what we anticipated at the time that we underwrote the transaction.

In fact, we have canceled fewer operating-partnership units to secure our preferred yield than we had originally anticipated. And we anticipate that they will be free of the escrow and the possibility of canceling operating-partnership units earlier than we had originally projected with our underwriting. So, those facilities are doing quite well.

In addition, the assisted-living facilities are also doing well. The senior-management concepts properties have always done well. 12 units at one of the larger properties were taken out of commission so as to reposition them and improve their physical appearance in the light of a competitor opening up nearby.

But that renovation project, which took 12 units offline and thus decreased occupancy for a short period of time, should be done in the next couple of months. And we anticipate strong demand for those, because that facility was 100% occupied prior to us not filling up the units as people exited, so that we could make this transition and improve the physical plan of the facility. And Bickford has had a couple of its best months in its history, in terms of occupancy. So, both of those are doing quite nicely.

Moving to the broader issue of the strategic orientation of Care's Board. The Board, Jerry, continues to evaluate all the options at its disposal to optimize shareholder returns. I think that the priority of the Board was to ensure that, in these tumultuous times, there was no rift. And as a result, we repatriated quite a bit of capital from the sale, or simply the repayment, through some of our borrowers accessing government programs such as HUD -- some of the mortgages that we had on our balance sheet.

I think that now is the time that the Board will look to what happens next. And, I do not believe that a firm decision has been made as to what direction -- what the best opportunity is. But, I think that the Board is continuing to evaluate that on a go-forward basis. But beyond that, I can't really identify -- I can't really articulate a defined strategy.

There are many options open to the Board, and they're the obvious ones that you've mentioned. The question becomes, in this market, given our current size and the state of the market and the opportunities out there, what is the best direction for us to go? And, now, we have the balance-sheet flexibility to evaluate that in a more considered fashion and I think that that's what the Board is going to do.

And it makes sense about what the timeframe would be for a decision, because you're kind of in a bit of a limbo state here, while people sort of try and sort out where the Company is headed.

I think that's right. But I think that things change from day to day. So I think that, at times, even if you explore one avenue, and you believe that you're going in a direction, you don't want to articulate it too much, because if that doesn't work, then you want to have flexibility to go in other directions. I think at this point in time, that's all that I can provide you, in terms of guidance, Jerry. I'm sorry.

Okay. All right, thanks.

Thank you. Our next question comes from the line of [Tim Swet] with [F&G Capital]. Please go ahead.

Hi. I was just curious, again -- trying to understand what you might do with all the cash. And, maybe, you could just say -- what are some of the things that the Board would be considering specifically? And, maybe you could say something about -- what circumstances would you not pay the dividend, or increase the dividend, buy back shares, anything of that sort.

I guess I would leave that to the Board, as opposed to me speculating on what their collective wisdom would come to a decision, in terms of a path forward. But some of the possibilities are -- Jerry mentioned liquidation. There's obviously a possibility -- and I'm not articulating that this is something that the Board is considering or -- but a sale is always a possibility.

Focusing on opportunistic acquisitions in the market is always a possibility. Dividending the cash out to the shareholders is always a possibility. Buying back stock is always a possibility. And so, if you look at all of those and you try to assess which is the most reasonable and advantageous for the very shareholders that we have at this time, I think the Board is very dedicated to doing that on an ongoing basis, and is trying to assess those issues and choose the most opportunistic path.

Thank you.

Thank you.

(Operator Instructions)

And our next question comes from the line of Jason Deleeuw with Piper Jaffray. Please go ahead.

Thank you. I was just wondering, on the advisor fees that you were -- incurred this quarter -- do you expect to incur those again in this quarter and any upcoming quarters, as long as the Board is doing this review?

Hi, Jason. We incurred this expense this quarter in connection with our ongoing consideration of all of the options to maximize shareholder value. We'll have a final, but much, much smaller portion of this expense show up and be paid this quarter. But, I don't anticipate that we'll have ongoing fees of the same nature in future quarters.

Okay. And, then, on the dividend -- what is the plan, here, to paying up the dividend -- or for this quarter and future quarters? Or, is that still contingent on the outcome of the review?

We paid a dividend just last month. So in spacing our dividends and considering the payment of dividends, the Board will convene in June and evaluate the dividend policy at that point in time. And I think that that's the timeframe that would allow us to actually pay a dividend in a sequential and relatively evenly spaced manner, if the Board decides to do so at that time. But I wouldn't read anything into the fact that we're not currently declaring a dividend. It's just a timing issue as of now.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of [Eric Chrome] with [Chrome Investments]. Please go ahead.

Good morning, guys. I just wanted to confirm -- the mortgage-notes payable -- is that property-specific -- no recourse to the trust?

The mortgages are actually investments that we've made. It's -- or are you talking about the mortgage payable on the Bickford?

On the Bickford, correct.

No. The Bickford is property-specific. It's a Fannie Mae debt, which runs to the property.

Okay. Thank you very much, guys.

Sure.

Thank you. Our next question comes from the line of Douglas Harter, with Credit Suisse. Please go ahead.

Thanks. Scott, I was wondering if you could talk about your outlook and sort of ability to see additional loan repayments, in addition to the one you talked about already for the second quarter.

We have a number of borrowers who have talked about exploring government or other refinancing options. But I have to say that, right now, we have no visibility as to additional repayments. I think the government programs remain attractive to all borrowers in the senior-housing space, but we don't currently have any borrowers who have come to us and told us that they are going to repay in the near future.

And what's the maturity profile look like? So, when do the loans start maturing?

Some, this year. One -- but it could be extended. There is an extension option. They start extending -- they start maturing more frequently next year, and they all run off over the next three years, even if people choose to extend.

Thank you.

Welcome.

Thank you. And at this time, there are no further questions. I'd like to turn the call back over to Mr. Kellman for any closing remarks.

I'd just like to say thank you for joining us. There are some signs that the market is getting better out there. And, hopefully, that will be a good thing for all of us. And thank you so much, and have a good day.

Thank you, ladies and gentlemen. This concludes the Care Investment Trust First Quarter 2009 Conference Call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030, or 1-800-406-7325, followed by a pass-code of 4064279. ACT would like to thank you for your participation, and you may now disconnect.