Care Investment Trust Inc. Q2 2008 Earnings Call Transcript

Care Investment Trust Inc. (CRE)

Q2 2008 Earnings Call

August 12, 2008 11:00 am ET

Executives

Leslie Loyet - Financial Relations Board

F. Scott Kellman - President, Chief Executive Officer

Frank E. Plenskofski - Chief Financial Officer, Treasurer

Analysts

Jerry Doctrow - Stifel Nicolaus & Company

[Jason DeLu] - Piper Jaffray

[Ryan Sacaria - Jan Partners]

[Scott Palmer - SAB Capital Management]

Presentation

Operator

Welcome to the Care Investment Trust Inc. second quarter 2008 conference call. (Operator Instructions) I would now like to turn the conference over to Leslie Loyet with Financial Relations Board.

Leslie Loyet

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.

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 10K 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 www.carereit.com by selecting the press release regarding the company’s second quarter earnings.

With that said, I’d like to now introduce Scott Kellman, President and Chief Executive Officer of Care Investment Trust.

F. Scott Kellman

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’Neil 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 Tore 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 principle 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. In consideration for these changes Care will issue 400,000 ten-year warrants at a strike price of $17.00 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 insure 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 healthcare 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 $100.8 million purchase lease-back of 12 high quality senior living facilities operated by affiliates of Bickford Senior Living Group. This transaction carries annual base rent of 8.2% with 26 basis points of additional accruing rent and 3% annual escalators. This investment increases 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 $3,470,000 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 administration 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 in partially owned entities approached $1.1 million for the quarter. This results from the depreciation flowing from the Cambridge properties which drove a $1.4 million accounting loss counter-balanced by $300,000 of income from our equity investment in senior management concepts. Unrealized gain on derivative instruments equal $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 derive 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 pickup resulting from revaluation of the partnership unit issued in the Cambridge transaction. Because both of these numbers represented non-cash contributions or add-backs to FFO in the second quarter, they’re actually subtracted from FFO to derive 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.

Fuel volume appears to be increasing which is good news for our pipeline. We are 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 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.

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 the 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 refinancing 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 occur, once again there is no assurance that they will occur in that timeframe or at all.

That wraps up our prepared remarks. We will open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jerry Doctrow - Stifel Nicolaus & Company.

Jerry Doctrow - Stifel Nicolaus & Company

Congratulations on restructuring with CIT. That’s certainly a big step. On that, the one thing that I was curious about is to why it’s still based on book equity so presumably as you seek additional equity or the company grows, the management fee actually will go up. I was wondering if that was discussed or what the thinking was on keeping it book equity based as opposed to some based on assets or something else?

F. Scott Kellman

It’s a good question Jerry. Here’s 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’ve 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 two-fold 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 and 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 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 cap source 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 market place today.

Jerry Doctrow - Stifel Nicolaus & Company

You talked about a number of pots of potential capital, one obviously the $125 million sale to CIT. Secondly 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 prepayments. 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? Some of those things may overlap, so let’s take it in pieces. If you sold $125 million to CIT, would the $30 million of prepayments presumably be on top of that amount? Or schedule payments I should say.

F. Scott Kellman

Yes. First of all, we have no current maturities in the coming 12 months. That may have been either one of the prepayments that actually occurred or it might simply be a miscommunication. 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 unpledged collateral in terms of nominal value. Now what we could do is the unpledged collateral of $99 million is what we would pledge to this other lender if we decided to pursue that at LIBOR plus 225 to 250 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. But 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.

Jerry Doctrow - Stifel Nicolaus & Company

Do you have a sense of 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 would love to see? So is the Q forthcoming or otherwise we’ll come back to you offline on some of that?

Frank E. Plenskofski

We’re looking to file the Q by Thursday.

Jerry Doctrow - Stifel Nicolaus & Company

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

F. Scott Kellman

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

Jerry Doctrow - Stifel Nicolaus & Company

We shouldn’t anticipate any more obviously people leaving? I think that’s stable. So all of that was played out in the quarter?

F. Scott Kellman

That’s correct.

Operator

Your next question comes from [Jason DeLu] - Piper Jaffray.

[Jason DeLu] - Piper Jaffray

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 to held-for-sale and would you have to mark those to market? What’s the accounting treatment going to be for these loans going forward?

F. Scott Kellman

That’s a great question. We’ve looked at this and what we have at Care is a pure option. 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 choose to do so, then certainly those will transfer at market but because it’s a pure option on our part, we have received accounting advice that as of now those 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 to market.

[Jason DeLu] - Piper Jaffray

So if you started to see a more sizable amount of attractive equity opportunities, that would be something that 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 transferring them to held-for-sale?

F. Scott Kellman

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 assets 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 us 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.

[Jason DeLu] - Piper Jaffray

I’m just trying to get a feel for the core earnings power this quarter. The AFFO as $0.12 but you had the reversal to stock-based compensation. But that’s because of the employees leaving. Is that kind of viewed as more of a one-time or not expected to continue?

F. Scott Kellman

That’s certainly a one-time event. We had 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 0 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.

[Jason DeLu] - Piper Jaffray

That was my next question was the $0.86. That includes the fee reduction and the Bickford investment?

F. Scott Kellman

That’s correct.

Operator

Your next question comes from [Ryan Sacaria - Jan Partners].

[Ryan Sacaria - Jan Partners]

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

F. Scott Kellman

This is something that the Board has extensively considered and analyzed. And here are my general thoughts 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’re currently seeing in the market place. 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 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 $1.00 of equity and we get one share of stock while a new equity investment as I referenced in response to Jason previously can be leveraged 2 to 3 to 1 and so we receive additional accretion from that leverage. So currently and knock wood 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 model, we would not hesitate to reconsider this issue.

[Ryan Sacaria - Jan Partners]

And is that level not kind of sub-$9.00? It doesn’t make sense in other words.

F. Scott Kellman

It doesn’t have to get as low as $9.00 for it to make sense but I don’t really want to be specific because that basically would put a floor beneath our stock.

Operator

Your next question comes from [Scott Palmer - SAB Capital Management].

[Scott Palmer - SAB Capital Management]

A couple comments and a couple questions. First and foremost, congrats on this long and torturous negotiation with CIT and driving across the finish line and it looks like a very valuable deal. Secondly, you guys I think as we and a number of other shareholders have reflected in to 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 of capital; and I think you receive really top top marks for that. Really for the last nine to 11 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 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 the 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; they’re low return; we’re in an environment 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 you and any member of the Board in good conscious if you’re representing Care shareholders not hit that option immediately? And 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. Your point on share buy-backs that they’re slightly less accretive to deals. 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 a [Ventoss], an HCP, an HR? Can you get a turn of debt that’ll allow you to lever two times assets to equity and drive your ROE to 15% and put up that $1.60 or $1.70 or $1.80 of FFO that’ll allow the stock to be worth a high teens number and if you can’t and you know that you have $14.00, $13.75, of NAV the bird in the hand today, 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?

F. Scott Kellman

I’m going to try and remember but come back to me Scott if I leave things out. Let’s talk about the mortgages first because quite frankly I think your question starts out with “Is it risky to hold on to the mortgages on a go-forward basis given the uncertainty in the markets and how the markets might end up valuing these mortgages at less than we would currently be able to put them to CIT?” And there’s always a risk of some catastrophic event in the market place occurring and it’s a balance as to what the sales of mortgages would do to our current returns 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 current level and quite frankly half of the mortgage portfolio, possibly more, I’d have to drill down on it, has floors in the 7+ range that provide us compelling returns on that and it would be difficult for me to feel comfortable selling it in the market place right now. I believe that there’s intrinsic value. If the worst case that we have 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 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.

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 these assets currently. 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 this point in time. So 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 returns by selling or putting or encouraging run-off that 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 to me having been in this industry for 25 years incredibly significant and quite frankly we’re seeing other opportunities in the market place 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 exist or a strategic option of selling the company currently, I take that $0.16, I put a conservative multiple of 13 on it for equity healthcare REITS currently, and I look at it and I see over $2.00 of additional value. And with our recurrent liquidity options and the pipeline of investments that I’m looking 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 company, we’ve done extensive analyses comparing the IRRs of continuing to operate versus selling the company currently at what we believe we could receive for it, and we firmly believe that the best interests 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 want 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 accretive investment opportunities or if market dynamics change. Of course our response to that might be that if market dynamics change, you won’t have the opportunity to sell 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 extraordinarily high quality and relatively new, I think that we have a built-in buffer 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.

[Scott Palmer - SAB Capital Management]

That makes sense. I guess the follow on question that I would have is, you’ve got a lot of investors that invested at $15.00 with you at the IPO. It makes a ton of sense why you’re peers that trade at two times book value and have low costs of capital because of both 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 $11.00, your book value is $14.00, investors hurdles are $15.00. And I agree with your multiple of 13 times being a little bit of a discount to liquidity. What do you think you can do that’s going to produce an acceptable return for investors who’ve put money with you at $15.00 and what kind of FFO do you think you can get to that when you apply a 13 multiple to it is going to give you a nice return or an acceptable return on a $15.00 investment from a year ago?

F. Scott Kellman

Let’s say just for hypothetical purposes that we’re able to do another Bickford before the end of the year. So we take $0.86 per share run rate and we add $0.16 to it and so we’re at $1.02 with nothing else being done. And I assure you there are things in the pipeline that 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 occur. But that’s $1.02. The question becomes if we receive the type of multiple that we’re currently receiving then we’re very close to where we need to be to get to a position where if you or any other shareholder wants to hit the mark, I think you could exit 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 14 to 15 times so you’re over $14.00 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. If we hit the end of the year and we have multiple increases imbedded in our investments that we’re in, there are intrinsic escalators built in to the investments, typically 2% to 3%. If you leverage 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 and I joined a relatively small healthcare REIT of $160 million in assets in 93 which was the highest returning REIT for the following four years in the industry, and your biggest bang for the buck to you shareholders comes from going from the size that we’re currently at to $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 fewer and fewer competitors in the market place. 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 should we sell for, but I’m fairly tied into the other major healthcare REITS, I worked for Jay, I consider a good friend, [Taylor Pickett] at Omega has my old job. I mean, I know how people view us and I have a fairly good feeling for what they would be willing to pay and while 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.

[Scott Palmer - SAB Capital Management]

That sounds like a fair response. The only other suggestion I would make is we and I think other shareholders would not have invested with you if we didn’t have a fair degree of conference in your ability 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 go for the gold 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 $14.00 NAV 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 give shareholders some reassurance that while you’re greedy in terms of the plan you see you’re also realistic and in tune to people’s needs to get returns over the medium term.

F. Scott Kellman

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

Operator

There are no further questions.

F. Scott Kellman

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 loose 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 partners who are operators while prioritizing the real estate returns over the operating returns by 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’re well positioned to really take advantage of the current market.

Thank you so much.

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