芬塔 (VTR) 2008 Q2 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Nationwide Health Properties second quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you. I will now turn the call over to Mr. Ron Hubbard, Vice President of Capital Markets and Investor Relations. Mr. Hubbard, you may begin your conference.

Good morning and thank you for joining us for Nationwide Health Properties second quarter 2008 earnings conference call. Certain statements made on this conference call are forward-looking in nature. These statements are based on reasonable expectations and information currently available. However, actual results could differ materially from those projected and/or contemplated by the forward-looking statements in the risks and uncertainties described from time to time in the SEC reports filed by the company. As this call will be available on our website for some time, it is also important to note that it includes time sensitive information that may only be accurate as of August 7, 2008.

Company believes that funds from operations are an important supplemental measure of operating performance. NHP's definition of FFO, the reasons for its importance, certain of its limitations, and reconciliation to net income are included in its earnings release dated August 6, 2008. As a reminder, NHP's complete second quarter 2008 earnings release package was filed yesterday as a Form 8-K and is available on the Investor Relations section of our website at www.nhp-reit.com. I would now like to turn the call over to Mr. Doug Pasquale, President and Chief Executive Officer of Nationwide Health Properties.

Thank you Ron. Good morning and thank you for your interest in Nationwide Health Properties. Joining me for today's call is NHP's senior management team. On Monday August 4, we announced the appointment of Dr. Jeffrey Rush and Richard Gilchrist to our board of directors. We are extremely fortunate to have these two highly regarded real estate executives join our board. Jeff is the Chairman of Pacific Medical Buildings, which as you know is a developer, owner, and manager of medical office buildings in the western United States. He was also a practicing board certified radiologist for 25 years. Jeff has over 20 years of MOB acquisition and development experience.

Rick Gilchrist is President of the Irvine Company's Investment Properties Group. The Irvine Company is a 140 year old privately held company well known as a master planner, investor, and operator of a large and diversified real estate portfolio. Rick has also served as Chief Executive and founder of several major public and private REITs and real estate operating companies. We look forward to their contribution in helping NHP continue to create shareholder value.

Now I will briefly highlight the important aspects of our detailed earnings release and supplemental analyst information. Compared to prior year results for both the second quarter and the first half of the year, NHP's revenue increased by approximately 25% and FFO increased by approximately 20%. Similarly, for both the second quarter and the first half of the year, FFO per share increased by about 10% and FAD per share increased by approximately 6%.

NHP has a strong balance sheet with ample capital available to make quality investments as they present themselves without a need to access the capital markets. During the second quarter of 2008, we issued 315,000 shares through our controlled equity offering program at an average price of $36 per share, resulting in net proceeds of approximately $11 million. On April 2, we closed on the sale of 23 facilities to Emeritus for $305 million, representing a 6.1% cap rate on 2008 in place rent. With $220 million net sale proceeds, we paid the entire outstanding balance on our credit facility.

NHP balance sheet is liquid with 100% availability on our $700 million credit facility and about $130 million of cash. Our current leverage remains conservative at 43% on an underappreciated book basis. Interest and fixed charge coverage ratios are 3.3 times and 3.0 times respectively.

Our investment volume for the second quarter was $250 million, of which $20 million was in senior housing with an initial yield of 8.4%, $32 million was in long term care facilities with an initial yield of 9.8%, and $198 million was invested in eight medical office buildings acquired from Pacific Medical Buildings at a 6.2% yield as part of our multi-year agreement. For the eight medical office buildings, we issued approximately $47 million of operating partnership units at approximately $32 per unit, assumed $97 million of debt at an average rate of 6%, and funded the balance from available cash. With our second quarter investment volume, year-to-date investment total now exceeds $300 million.

Potential sellers of healthcare real estate, particularly senior housing assets, are increasingly focused on improving operations and less so on selling assets. Accordingly, we believe identifying quality senior housing investments will remain a challenge for the foreseeable future. During last quarter's earnings call, we painted a less enthusiastic picture of the investment climate than most other healthcare REITs and our forecast remains that good senior housing investment opportunities will be limited.

With all that is happening on the economic and political fronts, I thought it would be a good time to review the state of our senior housing, long term care, and medical office building investments. In a nutshell, we continue to believe that all three of these asset classes have strong prospects for the long term, although there are likely to be short-term bumps in the road as evidenced by what we are seeing today in senior housing.

The current economic trends further support NHP's decision to diversify its portfolio SNFdue to its recession resistant non cyclical nature. NHP's growing medical office building portfolio, which is fast approaching $600 million and 3 million rentable square feet, continues to demonstrate solid performance with an average occupancy of 91%.

Statistics reflect that during the dot-com bust of 2000, the recession of 2001, and the jobless recovery of 2002 and 2003, asking rental rates for medical office space barely budged, while standard office rates fell by 21% from peak to trough. Although initial NOI yields are lower in MOBs than in senior housing and long term care, their stable and steady growth profiles make this asset class an attractive long term investment.

Similar to MOBs, long term care facilities represent another need driven component of NHP's portfolio. Long term care received good news last week when CMS announced better than expected final SNF MediCare reimbursement rules, including a 3.4% market basket increase. Massachusetts and Texas, the principal states in which we own SNFs, continue to offer favorable Medicaid reimbursement programs with no signs that will change anytime soon. So, with an already robust 2.1 time EBITDARM rent coverage, our overall SNF portfolio is in good shape.

That said, we do have a couple of small portfolio as well as a seven property trans healthcare portfolio with only a 0.8 time DARM coverage as shown in our supplemental analyst report. We have been actively monitoring these poor coverage portfolios for some time, all of which are current in their rent, and we'll continue to carefully do so. At this point we expect these tenants will continue to pay their rent in a timely manner.

The economic slowdown driven in large part by the housing crisis and now exacerbated by job losses is adversely impacting senior housing. The negative impact it's had on independent living occupancies is spilling over to assisted living facilities, largely it appears as a result of delayed move in decisions. Although most who follow the senior housing industry believe business fundamentals are basically sound, a view which we share, these are not the longed-for halcyon days anticipated when the industry emerged from the unfavorable supply demand imbalance six or so years ago, and we don't expect the current situation to correct quickly.

The poor stock market performance of senior housing operators suggests investors see no quick resolution either. NHP's senior housing portfolio has been impacted by the economic downturn, but it's generally performing well. And generally we expect it to continue to do so.

For our same property senior housing portfolio representing assets held for greater than 12 months, year-over-year occupancy has declined 130 basis points and EBITDARM rent coverage decreased by 4 basis points to 1.28 times. Our largest tenant, Brookdale, has seen its year-over-year portfolio occupancy drop 160 basis points, while EBITDARM coverage has remained relatively flat, decreasing 4 basis points from 1.51 times to 1.47 times. Our second largest tenant, Hearthstone, has seen its year-over-year occupancy drop 220 basis points, while its EBITDARM coverage has decreased 6 basis points from 1.23 times to 1.17 times. Hearthstone is our primary senior housing focus since it is one of our largest tenants and due to its unique situation.

In tandem with Hearthstone's failed attempted sale to Capital Senior Living, there have been management changes at Hearthstone resulting in Tim Hacker, its President and CEO, substantially increasing his ownership stake. Generally we believe Tim's increased ownership is good because he has historically been at the heart of the organization and a proven experienced operator.

Although market conditions have certainly contributed to less than optimal performance, we believe its attempt to sell the company resulted in a significant distraction. Intense focus on operations has only recently been restored. Consequently Hearthstone has real work to do to fully regain lost momentum. Fortunately, we believe Hearthstone has the capability and motivation to improve their operating results.

We have every expectation that NHP will collect its base rent from Hearthstone, which with two years of 3% rent increases, currently provides an attractive 8.5% rent yield. In addition, Hearthstone agreed to pay supplemental rent equal to a specified percentage of Hearthstone's annual gross revenue. This revenue based supplemental rent was negotiated to compensate NHP for underwritten investment risk and to sweeten our returns as Hearthstone grew its business. Payment of accrued supplemental rent totaling $1.6 million for the first 24 months of the lease was deferred until June 2008 when it became payable in 12 monthly installments of $132,000. It was not paid in June or July.

In addition, current supplemental rent initially projected at $127,000 per month is to be paid quarterly starting September 2008. We anticipate that as supplemental rent becomes due in increments later this year that it will not likely be paid, and Hearthstone has requested we renegotiate the terms of the lease. We in turn are considering our alternatives including modifying the lease terms or transferring the lease to a new tenant. The recently passed REIT Investment Diversification and Empowerment Act, permitting healthcare REITs to use taxable subsidiaries in the same manner as hotel REITs, also may provide us with interesting options.

The financial impact of the Hearthstone situation to NHP in 2008 is nil as we have recognized no revenue from supplemental rent. We have no Hearthstone rent accrued on our balance sheet except straight line non-cash rent which accounting rules require us to accrue totaling $4.9 million, and our guidance incorporates no expectation of supplemental rent being paid in 2008. Further, we have a $6 million letter of credit to support our lease.

When I was appointed CEO in April 2008 -- excuse me, 2004, it just seems like 2008 some days -- I made transparency a top priority for NHP, making a commitment to provide comprehensive disclosure on the strength of our financial position and the overall health of our real estate portfolio. Proactive portfolio management continues to be at the heart of our strategic initiatives. To that end, we continue to pay very close attention to any and all underperforming assets, particularly in challenging economic periods.

With respect to Hearthstone, while we are carefully considering all our options, Hearthstone currently represents no meaningful cash threat to NHP. The fundamental issue is that we are not getting the full return we expected for the risk we took. Overall, our investment in Hearthstone continues to perform, and we believe absent significant further deterioration in operations, it should continue to do so.

However, consistent with our commitment to transparency, we felt you appreciate knowing there are matters to be addressed. You will find additional information about Hearthstone and the supplemental rent in the MD&A of our Form 10-Q and the other factors that affect our business section, and of course we are pleased to answer any questions you might have.

Finally, we are increasing the floor of our full year 2008 FFO guidance range by $0.01 to $2.19 per share, resulting in an FFO guidance range of $2.19 to $2.23. In addition, we are increasing the floor and ceiling of our FAD guidance by $0.01 per share to a range of $2.11 to $2.15. Our guidance range incorporates no results from acquisitions except those completed or previously announced, nor does it incorporate the impact of any future impairments or capital transactions.

In summary, we've had a very good first half of 2008 with double digit growth in both revenue and FFO. We are getting more than our fair share of investments in a challenging market, which we expect to continue due in large part to our exclusive acquisition pipeline with Pacific Medical Buildings. Our portfolio is performing well. And most importantly our balance sheet is strong, with ample liquidity to take advantage of opportunities as we identify them. We are now pleased to answer your questions. Operator, please open the lines.

(OPERATOR INSTRUCTIONS) And your first question is from Jerry Doctrow of Stifel Nicolaus.

Thanks. A couple things. Is it right that your characterization of senior housing definition is a bit more sober than some of the others we've heard, some of the REITs, and Brookdale had their call this morning and talked about rebounding occupancy in June and July. And I was curious if I could get a bit more color -- Hearthstone obviously is a different price point, different area of the country, obviously I agree with you that the potential sale was a distraction. Any better sense about the environment out there? You definitely sound more sober and obviously I respect your experience in the business -- just trying to get a little bit of color.

Sure. We are glad to provide that. It's difficult and of course no one really knows, and the other opinions are being expressed by individuals that have a good sense of what is going on as well. I think for us, one, we are -- as people know conservative by nature. And so we are taking a cautious view of things because to us the facts don't yet suggest to us that the challenges are behind us.

And not terribly unlike the stock market where you have these bursts of recovery only to find that you get sucked back down to where you were, we are not convinced that pockets of occupancy increases over a short term mean that we are out of the period when occupancies will be challenged. Add those in my experience in running ARV and Atria for many years. A lot of times we saw what I'll call head-fakes for lack of a better description, where you would see short-term burst of occupancy, and you would feel that oh, we turned the corner and now we are back to the good times. That may be the case. That may be the case now. We may have a series of these bursts only to find occupancy softness following the burst.

We don't know, and we don't believe others really know. But if you subscribe to the notion that there is some connection to the housing industry, which we do -- we have said before -- at your conference, Jerry, in January, I said that there's a connection. And it's negative but I can't quantify it. I think we are seeing some quantification of that. As I mentioned, it impacted independent living and we think it's spilling over.

The job losses frighten me because the biggest competition I think for assisted living is other alternatives of family provided care. So because of that, we take a cautious perspective on things. We hope we're wrong, frankly we hope that the short burst that we are seeing of occupancy improvements are the real thing. But frankly it will take a couple of quarters of seeing that consistently for me to be convinced that this is all behind us.

Okay. That's really helpful. And then just on the financial restructuring and I guess even more broadly use of idea, I'm assuming that something with Hearthstone would be converting that supplemental rent into an equity investment in a TRS or joint venture and you capture upside -- more of the upside as those things turn around. Can you give me more color on that structure and do you see using it more elsewhere? If so, how?

Well, we don't know yet. We are obviously having discussions with Tim and have for a period of time. Hearthstone has had some real challenges, some that were self-inflicted, but we think that is behind them now and they are focused on things. We don't know how this is going to play out, Jerry, but we are going to know sooner rather than later. We need to have more discussions with Hearthstone.

We very much want the benefit of the bargain that we negotiated for, but there may be timing difference related to when we are going to be able realize that and there are likely some considerations and perhaps compromises that will need to be made. So we'll have to have more discussions with Tim. We'll sort out what fixes will work for him. We'll have to determine what is in our best interest and simultaneously we'll have to explore other alternatives, because you never can be 100% certain you're going to come to a satisfactory meeting of the minds. We hope that that's the case, and we don't know that that can't be the case. In fact we are optimistic that we'll find a way to make that happen. But we have to explore all alternatives.

Sure.

Among those, is the taxable REIT subsidiary. There may be a way -- to as you mentioned, capture part of the supplemental rent or what that return is supposed to represent to that vehicle. But there's complications with that and so we are going to have to get deeper into it to decide what that might be. But as soon as we do, we'll let the world know that.

In terms of taxable REIT subsidiaries in general, we took a go slow, cautious approach to that. We very much like options and we are very grateful that that bill has passed. We almost without question can say we will use that at some point in time.

We can't say how we would use that, but I would expect it might be used somehow with troubled assets where we have the opportunity to really capture some of the upside that is going to be created for underwriting the risk, and I still believe there may be opportunities to create value by assimilating small portfolios of assets and putting them in a larger portfolio -- so we have an ability to take a larger package of assets to favored tenants and say here's a group of assets that we put together in a nice portfolio and we'd like to lease them to you on these terms, what do you think? So those are couple of the many ways we think that can be used.

That's very helpful. Thanks.

You're welcome.

(OPERATOR INSTRUCTIONS) At this time there are no further questions in queue.

That was one hell of a script. We'll give it a few minutes.

We have a follow-up question from David Toti from Citi.

Hi, everyone. Sorry about that. I thought we were in the queue. I want to talk about the medical office building environment. You talked in some detail about the recent acquisitions, but can you speak about the asset class in general? Are you seeing any kind of distressed selling? And could you talk about the cap rate ranges on assets in general?

Sure. This is Don Bradley. As far as distressed selling, I can't say that we have seen anything like that. I'll prod my memory to see is there's anything that has come across my desk. No, I can't say that we have seen any distresses sales on MOBs. As far as cap rates go, they have been pretty sticky. They continue to hover around 7% on average with you paying a lot lower cap rate, 6 or less, for something that is very high quality, and seeing things that are higher for maybe things that are of lesser quality or not as strategically located.

Could you speak a little bit about your CapEx expectations for the acquisitions that were completed in the second quarter?

Abdo, do we have the budget on that available? Is that in the supplemental?

It's in our guidance, and it is showing about $0.05 for the rest of the year for total. I don't know how much of it was spent already, but we are a little behind on that $0.05 per share and it's mainly TI and CapEx. It's not only through CapEx.

Okay, great. One last question. With regard to your balance sheet, you guys are pretty -- you're leveraged a little below average relative to your peers. What is your comfort level in terms of the upper end of where you could see that going?

This is Abdo Khoury. We have always said that our comfort zone is to be about 50/50, so we are currently well below that, at 43%.

Okay. Lastly, could you speak a little bit about -- I know this is a thorny question, but -- could you speak a little bit about what you anticipate in 2009 to 2010 if there's a shift in power in the government towards the Democratic control and if there'd be any impact to your industry specifically?

We don't expect much to change irrespective of whether there's a Republican or Democratic administration, and history supports that thesis. The common perception is not really completely accurate and so we expect that that trend to continue. The scenario where there might be more change than has historically been represented would be if one party -- and I guess it would be more likely that it would be the Democratic party given their superior position in both houses of Congress -- that if they really swept everything and they had enough that they could override vetoes easily and prevent filibusters in the Senate and all those things that you might see more change than you would otherwise expect. But generally it's more talk than real substance in terms of there being big changes.

Thanks for the color.

Thank you very much.

Your next question is from Philip Martin from Cantor Fitzgerald.

Good morning.

Good morning.

I thought I was in the queue as well. I guess I hit the button again. A couple of questions. In terms of Hearthstone, can you talk a little bit about what their operating margins are -- where they were and where they are now? I know you talked about occupancy declining, but how about on the margin side?

The margins are quite high, among the best in the industry, which stems from I think a couple of things. One is that the double occupancy model facilitates the achievement of higher margins, which is one of the things that was attractive to us. The other thing is Hearthstone has historically has been really efficient operators and notwithstanding the distraction I think that they continue to generally be good operators.

A third part of it is maybe we are less comfortable with and we have to do some digging to find out about this, but when companies experience declines in occupancies -- and I would be shocked if this weren't occurring across the industry -- they tend to cut expenses because they know how to make money and when revenues go down, you look to cut expenses, and that's generally okay. You want to make sure you are cutting the right expenses and not bartering the future for the present. So that is something that we are monitoring.

Again, I think our backgrounds as operators facilitate our ability to do that. We want to make sure that all of our operators who have been cutting expenses are cutting the right ones. Our ability to control that is limited based on triple net leases, but we can have some influence over that. And certainly that will be one of the things we look at and discuss with Hearthstone next we get together.

In terms of where the margin is roughly, upper 30s, mid 30s?

We haven't published that I don't think before, Phil so we probably won't now, but I will tell you you can look at the public companies and see their margins, and it's among the best in the business and part of that has to be due to the occupancy model. But they are up there quite high and part of it is from the double occupancy model.

Your portfolio with them is at or above their overall average, would you say? It's at the higher end?

We have their entire portfolio.

So everything they own. Okay. The other thing -- in just an ever changing healthcare environment -- and this is speaking more to the medical office building side -- in the ever changing healthcare environment for doctors, are you finding different structures or different negotiating leverage points with doctors? Are they looking to get a little bit more creative or is there an ability or an opportunity to get more creative given the different pressures and stresses that doctors are having to deal with with their own practices and with the way they do business in an ever changing healthcare environment?

This is Don Bradley. Actually we are seeing a fair amount, and we like it. We are seeing doctors get involved with the MOBs. They want to take an ownership piece and we encourage that, as do folks like PMB. So that is something you are seeing quite a bit. It's not just in our portfolio, but you are seeing it in the industry in general.

Okay. And where -- well, I'll talk to you more about it offline because it is going to lead to 15 other questions. I appreciate the answers. Thank you.

Thank you.

Your next question is from Chris Pike with Merrill Lynch.

Good morning Chris.

Good morning, everybody. Don, you sound a little closer to the phone today. Usually you sound like you are across the room. I have a couple of questions. First with respect to the pipeline, I know you guys don't comment on acquisition volumes and you are obviously -- commend your cautious stance going forward, but can you comment on what the pipeline looks now relative to what it has looked in the past across various segments?

Sure, Chris. This is Don. And I am very close to the phone actually this time. On MOBs, it's quite robust. That area -- there are a lot of different reasons for that. It's getting a lot of attention. A lot of the hospital systems seem to be looking for ways to monetize their -- to generate funds for their operations and they are looking to their MOBs as a way to monetize their assets. It's not quite so unique anymore. It's becoming more the norm. So MOBs are quite robust.

Senior housing and skilled nursing for us is still Groundhog Day. It's really the same as it was in Q1. You see very few attractive opportunities, the kind of stuff that we like to underwrite in either segment, and you are really not -- on the senior housing side in particular, you are really not seeing opportunities that when they do come out, that are priced properly.

That's the question. Is the pipeline as robust -- ? (multiple

Thresholds -- it's nowhere near from your perspective where you would like to bid on assets.

It's as robust in the MOBs, if not more so. It's not as robust as in the past in senior housing and long term care.

Okay. And Abdo, you talked about -- or maybe Doug you guys talked about the excess cash on the balance sheet and your line is fully open. What is your total capital capacity? In other words I believe you have an accordion feature on the line and I wonder to what extent you have any availability vis a vis secured debt on your portfolio?

This is Abdo. We have a lot of unencumbered assets and we have plenty of room under our covenant. We have close to probably $900 million of additional debt in place before we get close to our covenant. We have quite a bit of capacity if needed.

So the $900 million, that includes the accordion -- ?

The accordion is $150 million.

So that brings you to $850 million. And then roughly speaking how much secured debt capacity do you have?

$900 million.

Another $900 million?

About $900 million or so. About $900 million of secured debt, yes.

So $850 million of line and another $130 million of cash and another $900 million of secured debt? That's the total number?

Yes. And we do have some loan pay offs, as well as [various] options -- I'm looking at the number. We expect about [$62 million] of -- (multiple speakers)

$62 million, I think.

Chris, we still have capacity. Looking just in terms of capacity, it feels we have the joint venture as well.

Yes. Okay. Last question maybe back to Don or Abdo. With respect to the coverage on the SNFs, the facility EBITDARM coverage at 2.08, understanding there is different same store pools quarter-over-quarter from Q1, but what drove the upside? Was it the Emeritus sale? Were those assets weighing you down last quarter? And now they are not in the portfolio, they are not in the same store pool this quarter?

This is Abdo. The Emeritus portfolio is actually assisted living.

I'm sorry. Okay. What drove -- why the sequential increase in EBITDARM? Is there anything to note there or is it just better operations at the SNF facilities?

Mainly better operations. That's where it's coming from. Better Q mix.

And also, Chris, some of those high quality assets that we acquired have now been around for a bit and we bought them with our underwriting coverage of around [1.4]. Somewhere around in there and now they've had a chance to season a little bit, and they're high quality with high Medicare, with high private pay so you are starting to see more impact from those.

Just in general -- go ahead.

The Q mix was like up from 44% to 46%. So that improves the margins a little bit.

Okay. Thanks a lot, gentlemen.

You're welcome.

Thank you.

Your next question is from Dustin Pizzo from Banc of America.

Good morning, guys. Doug, I guess two questions. First, what option do you have across the board whether it's Hearthstone or other situations to replace an operator? And then second, given the balance sheet flexibility, your background as operators, would you consider buying an operator in the TRS and switching out the tenant or is that not a business that you want to get back into here?

I'm sorry. I was concentrating on both parts and I lost the first one when I was thinking about the second one. Tell me the first part again?

The first part is what options do you have to actually go ahead and replace any of the tenants or operators in your portfolio if they were underperforming?

Most folks know the big operators out there, and you frankly have some options, but not always terrific options about transferring portfolios to some of the larger operators, although that possibility exists -- with Brookdale for example and Sunrise is another example. They have their own plans, and either your portfolio fits into their plans or it doesn't, but they are not likely to alter their plans.

Some of the more -- other operators that are really good operators like an Emeritus or private ones that are in our tenant pool -- you have some real opportunities to at least have discussions with them, and frankly it's a way to enhance customer relations if you can bring them additional business and the possibility of breaking larger portfolios into smaller ones. There's a lot of different things that you can do in that regard. But if you look at our industry, it's highly fragmented and there's only a couple dozen that really have any meaningful presence in terms of capacity. So you are limited in that regard. So you have to be a little careful about that, and we are mindful of it.

In terms of our capacity and whatnot, we really do understand the operating risk, and so it's true that you can harvest a really nice upside, but you want to be circumspect in how you evaluate the opportunity and make sure that you give full consideration to the risk involved and the downside involved. It's not difficult to try and get your arms around and rationalize the upside, which over the long term we believe is there, but it's easy to forget these pockets of difficult times and try to quantify what that really means.

So as we use the REIT subsidiaries, we will think about that. And as we identify things and make those public, we'll explain what our reasoning was and it will be impacted in part by timing a little bit among a variety of other factors that we have to take into consideration. So I think again over time you will see us exposing ourselves to that, but I see it more on a constrained situation specific basis as opposed to -- oh boy this is now available to us, we have a huge appetite for underwriting investment risk and taking the upside to that.

And then just taking advantage of the REIT subsidiary and whatever means that you ultimately end up using, is that something we could expect to see over the next six months or is it something that now that you have the option you are going to sit there and look at what is on the table and weigh it more carefully over a longer timeframe?

Well, we were thinking about it and have been thinking about it for some time. There was some clarity and comfort given to the fact that it had acceptability with the private letter rulings that were made public prior to the law being passed. With the law being passed, there is no risk from a tax standpoint about that. So we've been thinking about it for a while.

We just haven't seen the right opportunity to employ that yet. But we are mindful of it. We have been mindful of it. When we see the right opportunity, we'll jump at it. And it could be with Hearthstone or could be a small party with Hearthstone or could be something a couple years out.

And I don't mean to not give you the specific answer you may be looking for, but the fact is it really is situation specific and circumstance specific. And at this point we have not seen a situation or a set of circumstances that make us comfortable with utilizing that option. But you can never have too many arrows in your quiver, and we are really thrilled that that's one that we have. And I believe we will use it -- I just don't know when or how.

Thanks.

You're welcome.

(OPERATOR INSTRUCTIONS) At this time there are no further questions in queue.

Okay. Why don't we just wait ten seconds to make sure this isn't a false alarm? If there is none, we will tell everybody goodbye.

Okay.

Still showing no callers in the queue?

No, sir, there are no questions in queue right now.

Thank you so much. Have a good day.

This concludes our conference call, and you may now disconnect.