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Executives

Jillian Fountain - Corporate Secretary

Tim Lukenda - President and CEO

Dylan Mann - SVP and CFO

Analysts

Jonathan Kelcher - TD Securities

Alex Avery – CIBC

Michael Smith - RBC Capital Markets

Murray McKeown - CIBC Wood Gundy

Extendicare, Inc. (OTCPK:EXETF) Q2 2014 Results Earnings Conference Call August 7, 2014 10:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Extendicare, Inc. Second Quarter Results Conference Call. Please be advised, that this call is being recorded.

I would now like to turn the meeting over to Ms. Jillian Fountain. Please go ahead.

Jillian Fountain

Thank you, Wayne. Good morning, everyone, and welcome to Extendicare’s 2014 second quarter results conference call. With me today are Tim Lukenda, our President and Chief Executive Officer; Dylan Mann, our Senior Vice President and CFO, as well as other members of our management team.

The 2014 second quarter news release was disseminated yesterday and is available on our website along with the supplemental information package. The audio webcast of today's call is also available on our website along with accompanying slide presentation, which viewers may advance themselves. A replay of the call will be available from noon today until midnight on August 22nd. The replay numbers and passcode have been provided in our press release. And an archived recording of this call will be available on our website.

Before we get started, please be reminded that today’s call may include forward-looking statements regarding our future operations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our public filings with the Securities Commissions and suggest that you refer to those filings.

As we discuss our performance, please bear in mind that all figures are in Canadian dollars unless otherwise noted.

With that, I'll turn the call over to Tim Lukenda.

Tim Lukenda

Thanks, Jillian, and good morning, everyone. We are generally pleased with our overall results in the second quarter of 2014. Revenue, adjusted EBITDA and EBITDA margin all improved over Q2 2013, despite the challenging environment in the U.S.

AFFO was down year-over-year due to fewer tax losses and credits in the current year and a charge for withholding tax this quarter on the transfer of funds from the U.S. to pay off the Canadian convertible debentures.

In order to resolve the previously disclosed investigations by the U.S. government that have been outstanding since 2010 and relate as far back as 2007, we have agreed to a tentative settlement that will, once finalized, fully and finally resolve these maters.

In doing so, we have expressly denied any wrong-doing by our employees or the company. The cost of the settlement was weighed relative to the expense, distraction and uncertainty resulting from the broad ongoing investigations, and to avoid the possibility of protracted litigation.

We strongly believe that it is in the best interest of the company to put these mattes behind us, and we look forward to focusing on the future. The tentative settlement is expected to be completed in the third or fourth quarter.

As a standard of such settlement with the government, we have agreed to enter into a five-year Corporate Integrity Agreement or CIA. The CIA involves commitments to undertake certain training, monitoring and reporting activities, which we estimate will cause between US$1.5 million and US$3.5 million for each year of the CIA.

We are confident that this arrangement will assist us in our continuing quality efforts. We are very proud of our quality results, which have consistently improved over the years as demonstrated by our five-star quality ratings and by the AHCA Quality Awards that we continue to earn as shown on slide three.

The results of our independent actuarial review completed during the 2014 second quarter, necessitated the continued strengthening of our reserves in the quarter. The increase of US$4 million this quarter from Q1 2014 was primarily due to an increase in Pennsylvania-based claims.

Aggressive, famous attorneys soliciting claims in the state are creating undue litigation risks for the company. We are pleased to say that we did not experience any adverse developments in Kentucky. And given the passage of time since our exit from operations in that state, we are hopeful that this is now behind us.

We also announced that we have entered into a letter of intent to lease all of our skilled nursing center operations in Pennsylvania where we own and operate 20 centers, along with our centers in Delaware and West Virginia through an experienced third-party operator.

We believe this is a good transaction for both parties, and our decision to pursue it is not a reflection on the many dedicated team members who have provided diligent care to our residents in these centers.

We estimate that the completion of this transaction will result in an improvement in our EBITDA and AFFO of over US$10 million annually, primarily related to the elimination of future liability costs.

Turning to our U.S. operations performance metrics. Our Medicare rates increased by 0.6% over Q1 '14, mainly due to changes in Acuity Mix; and increased by 1.8% over Q2 '13, mainly due to the October 2013 market basket increase. Likewise, we realized similar improvements in our Managed Care rates at 0.2% over Q1 '14 and 1.6% over Q2 '13.

CMS has confirmed a net market basket increase of 2% effective October 1, 2014, which we estimate will improve our annual revenue by US$7.1 million.

With regard to our U.S. census levels we experienced the sequential downturn consistent with annual seasonal trend, however it was less so than in 2013. Overall, census softness is an industry-wide trend reported by other operators as well, and is the result of overall economic weakness combined with government initiatives to reduce healthcare spending by diverting long-term care patients to more home and community-based settings.

Our same facility average daily census this quarter was 44 below Q2 2013 level due to a decline in Quality Mix, partially offset by higher Medicaid ADC. In comparison to Q1 2014, our average daily census declined by 149 this quarter, primarily due to lower Skilled Mix.

Turning now to our Canadian operations on slide nine. Our average daily revenue rates increased by 2% over Q2 2013 and our occupancy rates remained unchanged at 98%. Our same facility adjusted EBITDA improved by 2% over Q2 2013. However, our AFFO declined slightly, primarily due to the timing of planned maintenance CapEx spending.

With respect to funding announcements in Canada, in Alberta increases on April 1 and July 1 will provide us with additional funding of approximately $1.4 million per annum. In Ontario, our April 1 and July 1 funding announcements have been delayed due to the election and late passing of the Ontario budget.

However, the government has announced an increase similar to last year in the preferred accommodation rates effective September 1, 2014 that is applicable only to new admissions in the new and Class A homes.

In addition, as part of the recently passed Ontario budget, the government announced it's intension to provide funding to encourage the redevelopment of about 30,000 long-term care beds, and to increase the license terms of the new and A beds by five years.

Unfortunately, details have yet to be provided as to the funding, the timing for redevelopment and any extension of license terms on the B and C beds. We, along with other operators in the sector, look forward to an economically viable program that will be completed on a timely basis.

Turning now to slide 12 and our Canadian homecare operations. Our Ontario volumes this quarter increased by 7.9% over Q2, 2013, and increased sequentially from Q1 2014 by 4.4%. The Ontario government has publicly stated its intention to continue to expand access to homecare for more seniors in the province.

In addition, as part of the 2014 Ontario budget, the government has indicated its intension to increase the hourly wage rate for personal support workers in homecare by $4 an hour over three years. However, no details have been provided on funding for the incremental cost for travel and benefits, which we currently estimate could be as much as $1.40 per hour on top of the $4 base wage increase.

We applaud the government's recognition of the contributions of PSW's and its plans to grow community-based care. And we anticipate that our superior quality service delivery will ensure continued growth in our volumes. We believe ParaMed is an important part of our company's strategy going forward.

With that I will turn things over to Dylan for a more detailed look at our financial performance. Dylan?

Dylan Mann

Thanks, Tim, and good morning. On slide 13 is a summary of our 2014 second quarter results compared to Q2 2013. In reviewing our results I have removed the effect of foreign exchange.

Revenue improved by $12.3 million with improvements from both our U.S. and Canadian operations. Adjusted EBITDA improved by $2.8 million and as a percentage of revenue was 8.6% this quarter versus 8.3% last year.

EBITDA from our U.S. operations improved by US$1.7 million, primarily due to revenue rate improvements and prior period settlement adjustments, partially offset by higher labor cost and increase in the provision for self insured liabilities and lower census levels.

EBITDA from our Canadian operations improved by $1 million from Q2 2013, of which $400,000 was from same facility operations, due to funding enhancements in the higher home healthcare volumes.

Turning to our year-end results -- year-to-date results, excuse me. Revenue improved by $13.1 million, of which $10.9 million was realized from our Canadian operations and the balance from our U.S. operations. Adjusted EBITDA improved by $4 million, and as a percentage of revenue was 8.4% this year versus 8.1% last year. The majority of this improvement came from our U.S. operations.

EBITDA from our U.S. operations increased by US$3.4 million, primarily due to revenue rate improvements, favorable prior period settlement adjustments, and a slight decline in the provision for self insured liabilities, partially offset by lower census levels and higher labor cost.

EBITDA from our Canadian operations was relatively unchanged with funding enhancements and higher home healthcare volumes offset by higher labor cost.

Slide 15 represents our AFFO by quarter, which breaks out the component parts of our U.S. and Canadian operations exclusive of maintenance CapEx spending, and lastly the impact of foreign exchange.

In addition, in the table below the bar graph, we've reported the quarterly income tax figures. Excluding the impact of foreign exchange, our AFFO in Q2 2014 of $15.5 million declined by $6.9 million over Q2 2013, primarily due to the U.S operations, while the Canadian operations were relatively unchanged.

Despite the improvement in EBITDA, our AFFO declined primarily due to higher current taxes which totaled $11 million this quarter compared to $900,000 in Q2 2013. About $6 million of this was due to withholding taxes on the cross-border dividends to settle the 2014 debentures, and the balance was primarily due to fewer tax loss carry forwards and credits.

Despite the increase in current taxes this quarter, we still anticipate an annual effective tax rate on FFO for 2014 of between 23% and 26%. Our maintenance CapEx spending was relatively unchanged from Q2 2013 at $5.9 million or 1.1% of revenue this quarter. Our CapEx spending ramps up through the year, and we anticipate spending between 1.5% and 2% of revenue for the year.

For the first half of 2014, we reported AFFO of $0.42 and declared dividends of $0.24 per share representing a payout ratio 57%.

Turning now to our balance sheet; and specifically changes in our long-term debt during the quarter. In June, we issued US$100 million in mortgages on 19 centers at a rate of LIBOR plus 475 basis points, and distributed the proceeds of the Canadian operations via a dividend to settle the 5.7% convertible debentures that matured at the end of June.

In addition, we terminated our former U.S. credit facility that was secured with 20 centers and replaced it with a new US$35 million revolving line of credit that's secured by eligible accounts receivable.

At the end of June, we had US$8.3 million under letters of credit against the revolver and US$16.1 million available to be drawn. Following these transactions we have 58 unencumbered U.S. homes at an estimated value of between US$250 million and US$300 million.

Slide 18 summarizes our cash and long-term debt balances. Our cash position is $94 million at June, down slightly from $96 million at year-end. Our total debt at the end of June was $1.2 billion and is about $24 million below the opening balance for the year. Debt in our U.S. operations has increased by US$92 million and debt in our Canadian operations has declined by $124 million.

With the exception of our new US$100 million of mortgages and the U.S. revolver, our debt is at fixed rates carrying weighted average rate of 4.9% and term to maturity of 19 years. Our interest coverage ratio based on a trailing 12 months at the end of June 2014 was 2.7 times. Our consolidated leverage ratio was 7.2 times.

I’ll now turn the presentation back to Tim for his closing remarks.

Tim Lukenda

Thanks, Dylan. I would like to conclude by addressing the status of our Board's strategic review process. As we disclosed last year, the Board, through its strategic committee, has been undertaking a review of strategic alternatives relating to the separation of the company's Canadian and U.S. businesses that would be in the best interest of the company and would reasonably be expected to enhance shareholder value.

I would like to confirm today that the company is actively involved in negotiations towards a transaction involving a sale of the U.S. business. And now that the government investigation has been tentatively resolved, it is expected that such negotiations will proceed more expeditiously.

Further details relating to the outcome of the strategic review process will be disclosed when appropriate. There is no certainty that any transaction will be completed. In the meantime, we will continue to focus on delivering quality care and operating performance outcomes for all of our stakeholders.

This concludes our prepared remarks. We would now be happy to address your questions.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. (Operator Instructions) Our first question is from Jonathan Kelcher from TD Securities. Please go ahead.

Jonathan Kelcher - TD Securities

Thanks. Good morning.

Tim Lukenda

Good morning, Jonathan.

Jonathan Kelcher - TD Securities

First question, just your thoughts behind leasing out Pennsylvania properties, well, it sounds like you're pretty close to a sell of the overall U.S. business.

Tim Lukenda

Well, Jonathan, the opportunity came about to enter into a transaction to lease the Pennsylvania buildings. And we felt independent of a bigger strategic transaction it was the right move for the company in that it would discontinue the liability expense going forward, as well as enhancing overall value in terms of increasing the EBITDA. It doesn't prevent us certainly from doing a larger transaction, but we felt it was a consistent move and something that would add value in a larger transaction to the extent that we pursue one.

Jonathan Kelcher - TD Securities

Is it -- would that have been something you ran by the buyer you're negotiating with.

Tim Lukenda

Well, I can't specifically disclose that, but I would say that we were certainly cognizant of that and wanted to make sure that what we did was aligned with other possible strategic outcomes.

Jonathan Kelcher - TD Securities

Okay. Fair enough. And it is just the same one buyer that you were previously negotiating with?

Tim Lukenda

Well, we have had a number of parties' expressed interest in different structures and different transactions, but we are presently continuing to work with one party towards a transaction that we think presents the most beneficial opportunity for our shareholders.

Jonathan Kelcher - TD Securities

Okay. If the sale does, for whatever reason, falls through would you still look at splitting the U.S. and Canadian operations, or would you look at leasing out the majority of your U.S. properties similar to what you've done in Kentucky and Pennsylvania?

Tim Lukenda

That hasn't been determined at this time. We are pursuing the transaction that I referred to. And it is the goal of the Board to separate the Canadian-U.S. businesses, but we'd explore the best means and opportunity for doing that at the time.

Jonathan Kelcher - TD Securities

Okay. And one last question. If and when the sale goes through, what can we expect in terms of tax implications? There'd be any firm tax considerations here?

Tim Lukenda

Well, I would just say at this point, Jonathan, that in evaluating our different alternative options one of the considerations and an important consideration was doing it in a manner that maximize after tax proceeds.

So we are conscious of that and pursuing a transaction that we feel will hopefully result in such. So that we're mindful of the tax and other considerations and looking at different deals, and we feel that the one that we're pursuing would result, if completed, in the greatest realization of after tax proceeds recognizing all of those matters.

Jonathan Kelcher - TD Securities

Okay. Is there any way you can give us an order of magnitude of what the tax here might be, percentage or?

Tim Lukenda

I don't think we can at this time, Jonathan.

Jonathan Kelcher - TD Securities

Okay. Thanks. I'll turn it back.

Tim Lukenda

Thank you.

Operator

Thank you. The following question is from Alex Avery from CIBC. Please go ahead.

Alex Avery - CIBC

Thank you, and congratulations on the resolving the investigation and also your Pennsylvania transaction; now, quite a bit of the progress this quarter.

Tim Lukenda

Thank you, Alex. We're pleased with the progress this quarter. We still have a lot of work to do, but we feel like we're getting some positive momentum.

Alex Avery - CIBC

Yeah. That's good. So let me -- the Pennsylvania transaction, I was just wondering you've noted that it’s a letter of intent. And I'm just wondering at what stage this would be at. Has it passed the negotiation stage, or is this still something where we could see some of the metrics change?

Tim Lukenda

We don't believe so. We have not finalized the documentation of the lease, but we believe we have a letter of intent that spells out the details in the economics and sufficient detail that we believe we have the meeting in the minds with respect to the important terms of the transaction. Now it's a matter of finishing, completing the documentation related to that.

Alex Avery - CIBC

And you would expect that that would take place by I guess -- or have the lease take effect by Q4 at some point?

Tim Lukenda

Yes. There is a number of regulatory approvals required, lender approvals, HoD, etcetera. So it may happen stages as it did in Kentucky where we moved some of the buildings, I believe, within three months. And others took upto five months with HoD approval. But we do intend to work expeditiously towards the completion of that and to get the approvals as soon as possible.

Alex Avery - CIBC

Okay. And then when you look out into 2015, assuming the sale doesn't take place of the U.S. business until the end of the year. In terms of the self insured liabilities related to Pennsylvania, is it reasonable to expect the similar experience to what happened in Kentucky in the four quarters after you leased those properties out?

Tim Lukenda

Well, what I would say was to reference that Alex is that, you know, our -- we go through a third-party actuarial process, as you know, on a regular basis. Our actuaries believe we are fully reserved presently for known and unknown claims. If circumstances change then obviously the actuary reflects that in future evaluations that they do, but as of now the actuary believes that we would as well that we are reserved appropriately for the Pennsylvania claims.

Alex Avery - CIBC

Has there been any change in the methodology of how they assess that situation from, say, a year ago or two years ago?

Tim Lukenda

No change in the methodology, just review of the increased volume of claims has had an impact on that. And we've had to allocate more reserves to that state and those claims as a result.

Alex Avery - CIBC

Okay. And I guess there would be no beyond you expect a faster progress in terms of your negotiations as now sort of timeline under which we may expect something to take place in the U.S. or any deadlines or dates that would be material in the negotiation of the sale of the U.S.

Tim Lukenda

No. We are going to work diligently towards the completion of a transaction, and as soon as we have something to announce we will do so.

Alex Avery - CIBC

And I guess just lastly, today is the first time you've announced the resolution with the investigation. At what point were you aware that you had an agreement in principle?

Tim Lukenda

We have been working towards this over the last little while, and literally right up until the disclosure yesterday we were trying up loose ends and make sure that all parties were on the same page. So it's been building, but confirmed with this quarterly release that we're at that point where certainly from an auditor perspective, there was a requirement to take the reserve, and from our standpoint a reason to announce that additionally we got Board approval for the settlement yesterday.

Alex Avery - CIBC

Okay. So, until yesterday really there wouldn't have been a lot more of clarity for the negotiation between yourselves and any potential buyers.

Tim Lukenda

No, although we've been, as I said, building towards the settlement for a while. And the status of the negotiation -- the status of the settlement with the government has been discussed with perspective party over that period of time. So they're aware of where we're heading.

Alex Avery - CIBC

Okay. That’s great. Thanks guys.

Tim Lukenda

Thank you, Alex.

Operator

Thank you. (Operator Instructions) The following question is from [indiscernible]. Please go ahead.

Unidentified Analyst

Thanks for the question. On the Pennsylvania lease transaction, it looks like the rent per bed is about little over $800. Can you give us a little more color on the mix of beds in the Pennsylvania facilities? Are these more Medicare related beds? And can we extrapolate this rent per bed per month of $800 to your other facilities as well?

Tim Lukenda

I think to start off with the rent per bed is not primarily we would look at it, but it certainly is an industry measure. These beds are generally very high occupancy beds. On a relative basis, they have similar mix to our overall portfolio. So can you extrapolate it?

I think, you know, there's a number of considerations and it's always dangerous to extrapolate across a wider portfolio, but one of the considerations here was the degree of the allocation of liability expense to this particular portfolio. And so, that part of the analysis isn't necessarily applicable to other states where we have a lower liability exposure.

Unidentified Analyst

Got it. Okay. And I think that the -- at least for Pennsylvania, it seems to be at premium relative to some -- towards the rest of the industry trades, or at least what the rest of the industry gets in a per bed basis. Any -- is it a result of the status of your facilities, the fact that you've put in a lot of capital into your facilities? Any sense as to you the premium you're getting relative to the industry?

Tim Lukenda

It's -- we believe it’s a good transaction for both parties. It's -- from our standpoint, it makes sense strategically for the operator who is an experienced long-term care operator that we're familiar with. It's a good fit for them and we think it's a win-win opportunity.

Unidentified Analyst

Got it. Okay. Thanks very much.

Tim Lukenda

Thank you.

Operator

Thank you. The following question is from Michael Smith from RBC Capital Markets. Please go ahead.

Michael Smith - RBC Capital Markets

Thank you, and good morning. Just in terms of your U.S. sale, is it fair to say that this is likely to happen in the next one to two months?

Tim Lukenda

Good morning, Michael. We're going to work diligently towards a transaction, but it's not really possible or appropriate to put a timeline on it. Because we don't know what issues might arise as we try and complete the negotiations in the transaction.

And as well, there's a lot of licensor and other things that would be involved, HoD approvals and that type of things. So we hope to get to an announcement as soon as possible, and then there will be a period of time following that where there'll be approvals and other things that will take a little more time. So I can't put a specific timeline on it other than to say its effect of.

Michael Smith - RBC Capital Markets

Okay. And just the purchaser of your U.S. business, he would have to assume the corporate integrity agreement. Can I assume that it's not too own risk as to prevent the sale.

Tim Lukenda

Yes. That would be a fair assumption. That is, first of all, your assumption is correct that an acquirer of any of our centers that have a corporate integrity agreement governing would assume the obligations under that corporate integrity agreement.

We were very mindful of that through the negotiations with the government and there are provisions that allow for -- that apply to the successors of any of the centers or any of the company as a whole. And we feel that we got to an acceptable point with the corporate integrity agreement that third party would be willing and able to assume the obligations under that and the economics of such obligations could be factored into the discussions of a transaction.

Michael Smith - RBC Capital Markets

Okay. And lastly, are you working on any other lease arrangements, or is it just full-blown let's just focus on the asset sale?

Tim Lukenda

The highest pressure point from a liability standpoint was the Pennsylvania centers. We decided to include West Virginia, Delaware. West Virginia is also a fairly high liability state, and Delaware, only because it made sense of a geographic standpoint to include that building as part of the group. We have no intentions to do, at this time to do any other leases of our -- parts of our business. We are focused on the overall strategic transaction.

Michael Smith - RBC Capital Markets

Thank you.

Tim Lukenda

Thank you.

Operator

Thank you. The following question is from Murray McKeown from CIBC Wood Gundy. Please go ahead.

Murray McKeown - CIBC Wood Gundy

Thanks. Hi, Tim. Just want to zero-in on the question that I believe was just asked previously by Michael on the lease rates in Pennsylvania. On a -- for given Quality Mix in Pennsylvania relative to the other states you operate, is there anything unique about the lease rates for Pennsylvania versus the other states for a given Quality Mix, the same Quality Mix?

Tim Lukenda

I don't know that I can answer that fairly, Murray. We haven't done -- other than our Kentucky transaction, we haven't done leases, or I don't really monitor the market for leasing operations closely in other states, so I can't really speak to that. The unique part of this evaluation and analysis is the liability cost as a variable in looking at the rents. And that's what may be say compelling transaction. And I can't speak to whether its representative of other states.

Murray McKeown - CIBC Wood Gundy

No. And I understand that. And I complement you on taking the action that you are. I guess it just goes to, if you don't know, heart of the matter of Extendicare as a lessee of properties and the value of the real estate versus Extendicare as an operator of the properties.

So, back of the envelop what this is suggesting is that you guys own something like 16,000 beds in United States, so if this transaction is indicative of what your other beds are valued from a lease perspective, you could effectively have a 60% bump in your EBITDA by transitioning your business to leasing your business.

You're getting $26 million on 2,700 beds. That implies a $160 million of EBITDA on our U.S. operations if that was indicative of the rest of your operations. You're only earning $100 million of EBITDA on those operations today. So it just points to this.

I guess what everybody saying is, if it’s the transaction happening where you're selling the real estate, I trust that this analysis will be done at the valuable receipt to reflect. Because otherwise we better do not bother selling it to somebody and just convert all our properties, become a lessee on the real estate, lease it out. We don't have any of the liability issues. They are all carried by someone else, and carry on. And I guess that's my point.

Tim Lukenda

Murray, I understand what you're saying and the analysis, the arithmetic of what your -- the analysis you're doing. I think it would be an aggressive assumption to think that this applies everywhere. I'll give just one measuring stick, our transaction in Kentucky we ended up basically holding our EBITDA steady. So we didn't gain EBITDA on that lease transaction, but we avoided growth in future liability cost and essentially maintained the same level of EBITDA.

In this one there is a pickup in the EBITDA because of the trajectory and degree to which the liability cost were growing and the occupancy is much higher NPA than our average building. It's closer to 95% compared to 85% for the balance of our centers.

So I understand what you're saying directionally, but I don't think it’s a safe assumption to just extrapolate the valuation of this particular portfolio across the organization. It's why frankly we picked this group out to do this. We thought it add a value to the overall entity more than doing it with other components of the business. But I do hear what you're saying.

Dylan Mann

Yeah. I guess just given the quantums that’s a significant spread, right. That's a $60 million spread. So all I'm rally saying is in the analysis of do we carry -- do we sell this, our assets down there.

Presumably the Board will be addressing this from an analytical perspective like this and going hey, what could we get in each state? What's the reasonable lease value that our real estate is worth, given -- because the other side of that going is, from an operator's perspective, the guy who is buying this property he still carries some liability list on the operations going forward that you just got off of. He still has some of those.

So presumably that gets priced into the model of what he is prepared to pay to because he knows it’s a bad state as well, right? So a state that's not a bad state you might actually get a better number because the operator knows that he doesn’t have that same risk.

So that's all. I'm just saying to make sure that that analysis will be done from that perspective when the Board addresses the value that they get for the property versus pursuing that -- continuing to this with more of your properties as a backup.

Murray McKeown - CIBC Wood Gundy

Fair enough.

Dylan Mann

We just want to create the most value, right, at the end of the day. And now I also would avoid deferred tax, right.

Tim Lukenda

I hear what you're saying, Murray. There are certainly different tax considerations that have to be evaluated depending on the type of transaction and the type of proceeds and the future streams all of that kind of stuff. It's all part of the analysis.

Murray McKeown - CIBC Wood Gundy

Right. But obviously doing this, Tim, avoids deferred tax, right. If you carried out on a program of doing this, you would avoid the tax. So it's a viable option.

Tim Lukenda

Retaining real estate in the U.S. and not selling it avoids deferred tax, yes.

Murray McKeown - CIBC Wood Gundy

Correct, correct. So that has to be factored into this whole analysis as well, right?

Tim Lukenda

We, over the period…

Murray McKeown - CIBC Wood Gundy

Anyway.

Tim Lukenda

At this we are looking at all the options, yes.

Murray McKeown - CIBC Wood Gundy

Okay. Thanks very much.

Tim Lukenda

Thank you, Murray.

Operator

Thank you. There are no following questions registered at this time. I would like to return the meeting to Ms. Jillian Fountain.

Jillian Fountain

Thank you, Wayne, and thank you everyone for joining us today. As a reminder, this presentation is available on our website as are the calling numbers for an archived recording. We look forward to discussing our second quarter results with you in November. Thank you. Good bye.

Operator

Thank you. That concludes today's conference call. Please disconnect your lines at this time. And we thank you for your participation.

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