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Medical Properties Trust, Inc. (NYSE:MPW)

Q2 2008 Earnings Call Transcript

August 7, 2008 11:00 am ET

Executives

Mike Stewart – EVP and General Counsel

Ed Aldag – Chairman, President and CEO

Steven Hamner – EVP and CFO

Analysts

Karin Ford – KeyBanc Capital Markets

Steve Swett – KBW

Peter Costa – FTN Midwest Securities:

Tayo Okusanya – UBS

Michael Mueller – J.P. Morgan

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2008 Medical Properties Trust Inc. earnings conference call. My name is Latisha and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this call. (Operator instructions) I would now like to turn the presentation over to your host for today’s call, Mike Stewart, Executive Vice President and General Counsel. Please proceed sir.

Mike Stewart

Good morning. Thank you for joining the Medical Properties Trust conference call to review the company's announcement today regarding its results for the second quarter of 2008. With me today are Edward K. Aldag, Jr., Chairman, President and CEO of the company and Steven Hamner, our Executive Vice President and Chief Financial Officer.

During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only and except as required by the federal securities laws, the company disclaims any obligation to update any such information.

In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please refer to our web site at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliation.

I will now turn the call over to our Chief Executive Officer, Ed Aldag.

Ed Aldag

Thank you, Mike, and good morning to all of you and thank all of you for joining us today. We are delighted to be able to report today that our financial, strategic, and operational plans for MPT are right on track. Steve will go into more detail about the specific financial performance of the company but it is important to note that in following with our original goals for the company we have achieved tremendous success in 2008. To date for 2008 we have invested over $425 million more than $200 million above our budget in various healthcare projects. This achievement has gone a long way to increasing the credit strength of our company, diversifying our tenant base, diversifying our geographic base, and probably more importantly diversifying our property base.

In addition and very important for our investors, we have greatly improved the dividend pay out ratio. We now have 49 properties and none of the properties represent more than 5.9% of our total portfolio. In fact only 4 properties represent more than 5% each of our total portfolio. On average our properties each represent 2% of the total portfolio. One of our goals is to continue to strengthen these numbers to lessen the potential impact any one property could have on our portfolio as a whole.

We continue to make good progress on tenant diversification. We added 7 new tenants in the second quarter making our largest tenants currently Prime at 33%, Vibra at 11%, HealthSouth at 8%, (inaudible), CHS and North Cypress at 5% each. We also greatly increased our geographic diversification in the second quarter adding 11 new states and 2 more just after the quarter closed bringing the total number of states to 21. While April, May, and June are often slow months for healthcare facilities, our portfolio performed very well. When comparing all of our facilities including those just acquired in the second quarter, every category had a better coverage in the second quarter of 2008 when compared to the first quarter of 2008 except the rehab hospitals which accounted slightly with still soft coverage of approximately 4.3 times.

In addition each category saw increases from coverage from the second quarter of 2007 to the second quarter of 2008 again with the exception of a rehab hospitals, which were slightly down .The total coverage for acute care hospitals increased to 4.65 times in the second quarter from 4.17 times in the first quarter of 2008 and 3.27 times in the second quarter of 2007.

The total coverage for the LTAC increased to 1.8 times in the second quarter of 2008 from 1.63 times in the first quarter of 2008 and 1.38 times in the second quarter of 2007. We only had one rehab hospital after taking into account the facilities sold to Vibra in the second quarter of this year in the first quarter of 2008 and the second quarter of 2007. We now have 3 rehab facilities with coverages of approximately 4.8 times, 5.7 times, and 3 times respectively for the second quarter of 2008.

The previously mentioned numbers include all of our facilities including those that are still in the ramp up stage like Bucks and Monroe and includes River Oaks, which had a negative coverage in the second quarter and announced their closing on June 23.

Several particular hospitals we are pulling out. Centinela, which was acquired by Prime late in 2007 and underwent a reorganization of its services as you will recall had a negative coverage in the first quarter of 2008. Prime has completed the repositioning of this facility and it generated coverage in the second quarter of 2008 of approximately 2.5 times.

Paradise Valley, which in 2007 was slow to turn around than we had expected continues to perform exceptionally well. You will recall that in the first quarter of 2008 it had coverage just over 3 times. In the second quarter its coverage was more than twice that amount. Monroe Hospital continues to show dramatic improvement. In the second quarter of 2007 it had negative coverage of almost 2 times. In this last quarter it was essentially at a break-even before rent, a significant increase over the same period last year. In addition, Monroe recently closed on the purchase of a substantial primary care practice in the Bloomington area, which added 5 new primary care positions to the base. More importantly the increase of this last practice brings the total number of patients seen by Monroe Hospital Primary Care Physicians from approximately 39,000 a year to over 70,000 a year.

In addition, despite the normal slowdown in summer months, Monroe Hospital saw an increase in its patient revenue of 29% from the first quarter to the second quarter. While the most dramatic improvement has been Bucks County. The operations have improved so dramatically the original developer operator, DSI, is considering taking the property off the market and continuing to operate it themselves. The surgical volumes increased from 243 in the first quarter to 275 in the second quarter, but even more compelling are the cash collections numbers.

In the fourth quarter of 2007, cash collections were just over $900,000. In the second quarter of 2008 they were over $3.5 million. The one disappointing event we had in the second quarter was the closing of the River Oaks facility by Hospital Partners of America. MPT was giving very little notice of their intent to close the facility. HPA’s equity provider notified MPT in late May that they were replacing the senior management of HPA and making sweeping changes to the direction of the company. We tried to work with them to bring in a new operator before the facility closed and we are very close to doing so, but time ran out. We have hired Cushman & Wakefield to market the two River Oak campuses in Houston for us. Together with these facilities and our cross collateral in another HPA facility in Redding, California, we expect to recover 100% of our investment in River Oaks.

The MPT portfolio is as strong as it has ever been despite some of the worst credit times this country has ever seen and certainly a seriously sour REIT stock market. Our properties continue to not only perform well but to improve. Our credit position has improved each year and is stronger today than it is has ever been .We continue to see outstanding opportunities. Some of these opportunities have been a direct result of the current credit markets and we hope to be able to take advantage of them. Any additional acquisitions or investments that we make will be accretive to the company and will increase our credit quality and continue our diversification efforts. We are as exited about the future of this company as we have ever been.

At this time, Steve will go over the detailed performance of our second quarter and update our normalized run rate. Steve.

Steve Hamner

Thank you, Ed and thank you all. I have just a few brief remarks and then we will go right to any questions that you may have. This morning, we reported second quarter 2008 normalized funds from operations of $0.38 per diluted share and adjusted FFO also of $0.38 per share. For the six months ended June 30 the normalized FFO and adjusted FFO were $0.68 and $0.69 respectively per share. Under any measure these are substantial increases over the same amounts in 2007, even though the share count increased substantially from 2007 to 2008.

This was a very active quarter for us from all perspectives with numerous acquisitions, dispositions, and financing transactions. Including the early July acquisitions of the last 2 properties in the HCP portfolio, we invested in 24 separate properties valued at over $425 million. We sold 3 properties realizing cash proceeds of $105 million. We completed the issuance of $82 million in Exchangeable Notes and we completed the initial $30 million funding of a new credit facility that maybe expanded to up to $75 million.

As Ed described, the results of all of this activity is that we are a much stronger company than we were as we entered 2008. However, this kind of activity makes for what has come to be known as a noisy quarter for reporting purposes. So, I want to try to explain a little bit of the noise.

Our reported $0.38 per share normalized FFO is adjusted to account for 3 transactions, the effects of which are unrelated to our current property operations and which we believe are generally non-recurring. Number one the write-off as we previously announced and quantified last quarter of approximately $9.5 million or $0.14 per share of accrued straight-line rent related to the 3 Vibra properties that we sold during the quarter. Number 2, the write-off again as we previously announced of approximately $3.2 million or $0.05 per share in fees related to the backup bridge loan that we needed to be able to commit to the HCP transactions. We very successfully avoided using that bridge facility and terminated it during the quarter taking the write-off. Number 3, the write-off of the uncollected amount of patient receivables that we financed for the Houston Town and Country Hospital for the period between lease terminations in October of 2006 and final shutdown and disposition of the hospital upon its sale. We only recently substantially finalized our Medicare cost reporting reconciliation and we believe any additional collection is speculative. These receivables have been previously reported as assets of discontinued operations and this $2.1 million or $0.03 per share write-off is charged to discontinued operations.

We have included in normalized FFO the previously announced $7 million or $0.11 per share early lease termination fee that we received as a result of the Vibra sale. As we have stated in previous calls, we continue to find opportunities to realize unscheduled fees and other revenue as a natural offshoot of our investing activities. And while we are unable to predict the amount and timing of any future such fees, we do believe we will periodically generate more of them making this an appropriate component of FFO.

Having said that had we not sold the 3 Vibra properties, and all other things equal had not received the $7 million, the $0.11 per share fee, we expect that we would have reported normalized FFO of approximately $0.30 per share because we would have of course continued to receive the rents from Vibra. So, however, if one considers the early termination fee, we had a very successful quarter and as we will reiterate momentarily we expect more of the same in the near-term. We believe it is also helpful to our investors to consider the further adjustments of backing out current straight-line rent, loan cost amortization, and share based compensation to calculate what we and others call adjusted FFO. And as you all will have noted from the press release those adjustments also result in adjusted FFO for the second quarter of $0.38 per share.

Last quarter we updated our estimate of annualized FFO that we believe our existing portfolio should generate. If you remember, we based our estimate on completion of some pending acquisitions and on reinvestment of the Vibra sale proceeds. As of today we have completed those transactions and investments and we reiterate our estimate that our in place annualized FFO run rate approximates $1.21 per share. This includes no estimate for any possible early termination or similar fees and also does not include the effect of CPI escalators in excess of the minimums provided for in our existing leases. Our interest expense is of course another significant variable.

Finally, we believe our G&A annualized run rate approximates $18 million, but the quarterly amounts are expected to fluctuate particularly with respect to the calculation of share-based compensation. For example, this quarter’s share-based compensation aggregated approximately $1.8 million but by the fourth quarter of this year we expect that to decline to $1.3 million and approximately half of that amount relates to performance based awards that GAAP requires us to expense even though we have not met the performance targets yet, and may in fact not meet the performance targets at all.

Let me give you a few metrics that maybe common to many of your models and then we will go into questions. These amounts are as of today. If any of you need the details as of the quarter end we will take your phone calls later today. Feel free to call Charles or myself. Total fixed rate debt is approximately $341 million with a rate of approximately 7.5%. Total variable debt is approximately $265 million with a weighted average rate of approximately 4.5%. In addition to the nominal interest rates I described we expect to amortize approximately $600,000 of loan fees and costs on a quarterly basis. None of our credit facilities have a maturity earlier than November 2010. As of today there are 66,338,724 shares outstanding. The weighted average shares outstanding during the second quarter were 64,991,168 and for the first six months of 2008 was 59,013,695. We have no plans at this time to issue additional common shares. We have approximately $32 million of cash and availability under our credit facility.

At this point operator we will be happy to open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Karin Ford from KeyBanc Capital Markets. Please proceed.

Karin Ford – KeyBanc Capital Markets

Hi, good morning.

Ed Aldag

Good morning Karin.

Karin Ford – KeyBanc Capital Markets

First question is just on Bucks County, did – can you tell us what the coverage is currently given the improved operations and whether or not you will expect the terms of the rent to change if the operator decides not to sell?

Ed Aldag

Karin the property has reached a break-even before rent. So it is not covering the rent at this particular point from an operational standpoint. The terms of the transaction should not change unless we decide to take advantage of the President’s change in the law that was signed about a couple of weeks ago.

Karin Ford – KeyBanc Capital Markets

In which case, you guys would –

Ed Aldag

May take an equity position.

Karin Ford – KeyBanc Capital Markets

Okay, is the current on rent today?

Ed Aldag

Pardon me.

Karin Ford – KeyBanc Capital Markets

Is the operator current on the rent payments as of today?

Steve Hamner

No not today. They would be, they are prepared to be. It is only recently literally within the last week or so that they have decided there probably is something they want to do to take the property of the market. We had been negotiating with a replacement tenant and part of the negotiation was to bring all the rent current and as we have changed – or are considering changing (inaudible) I guess is more accurate. We may take some of that rent that they would otherwise pay and put it into the equity of the operation, which would be a very attractive way for us in fact to increase our returns over and above the rent rate that we would otherwise get and participate in the growth and the value of that company which we think is likely to be substantial.

Ed Aldag

Karin you remember that we have a guarantee there, their parent company, which is very substantial.

Karin Ford – KeyBanc Capital Markets

And how big potentially would that equity investment be?

Ed Aldag

We haven’t gotten that far in the discussion. It is early. This is just in the last couple of days.

Karin Ford – KeyBanc Capital Markets

Okay, can you give us an update on the sale of the Shasta Hospital?

Ed Aldag

Well, we are not involved in that sale. Just to make it perfectly clear HPA is managing that sale. They are communicating with us. And it is our understanding from them that they have gotten at least one letter of intent, the details of which we haven’t seen but we understand it is a relatively encouraging offer. They started marketing that property probably in mid June and so six weeks later is probably a little early to measure what the results maybe although as I say the initial results and of course of own evaluation of the value of that property remain encouraging.

Karin Ford – KeyBanc Capital Markets

What is your current basis on River Oaks?

Ed Aldag

Approximately $34.5 million.

Karin Ford – KeyBanc Capital Markets

So, your current estimate is that between the sale of River Oaks and your interest in the sale of Shasta you will recover the entire $34 million.

Ed Aldag

That is correct.

Karin Ford – KeyBanc Capital Markets

Okay, just a housekeeping item. Can you tell us which line items on your income statement all the charges were in, I guess you mentioned the one was in discontinued ops but can you just tell us where the other two were? The other two charges.

Ed Aldag

The $2.1 million that I mentioned was in discontinued ops. The write-off of the straight-line rent was in discontinued ops and the write-off of the loan fees was not.

Karin Ford – KeyBanc Capital Markets

Okay, and then finally what did you say your balance was on your line at the end of the quarter? I missed that.

Ed Aldag

Well, I don’t give particular balances on each of the facilities. We have in total $265 million in variable rate debt outstanding that is all under various lines. We have available about $32 million under those lines. So, we look at it kind of (inaudible).

Karin Ford – KeyBanc Capital Markets

Okay, thank you very much.

Ed Aldag

Thanks Karin.

Operator

Our next question comes from the line of Steve Swett from KBW. Please proceed.

Steve Swett – KBW

Thank you. Good morning.

Ed Aldag

Hi, Steve.

Steve Swett – KBW

Just a follow-up on the Houston River Oaks Hospital, is that rent going to be reflected in the third quarter or are you going to be able to make that up from the various other interests you have with HPA?

Steve Hamner

At present Steve, we continue to believe that there is more than sufficient collateral value for us to continue to accrue the rent.

Steve Swett – KBW

And then Ed, perhaps you could just provide a little more color on your comments on the acquisition environment, did – the types of facilities you are looking at and who if anybody out there maybe competing against you?

Ed Aldag

Steve, it continues to be the primary 3 types of products that make up the vast majority of our portfolio which are acute care hospitals, rehabs, and LTACs. We have a lot of opportunities that are more heavily weighted than it has been in the recent past on the rehab and LTAC portion. Some of that is designed to have the same dollars invested in smaller sized properties to help with our diversification both geographically, tenant, and a property base. There are some other unique opportunities that we are looking at that we certainly aren’t prepared to get into at this particular point that take advantage of some of the changes to the (inaudible).

Steve Swett – KBW

Okay thanks.

Operator

Our next question comes from the line of Jerry Doctrow from Stifel Nicolaus. Please proceed.

Jerry Doctrow – Stifel Nicolaus

Thanks. Just on CPI because you indicated that is a potential upside. Is CPI sort of with the fuel and stuff and in it and is sort of the core CPI that you are leases are tagged to?

Ed Aldag

I am sorry Jerry. I was distracted.

Jerry Doctrow – Stifel Nicolaus

Basically it is the core CPI or is it the CPI with the food and fuel that – which tend to be higher that your leases are tied to.

Ed Aldag

It is – my mind is blank on the label now. It is all US households, it is the full CPI. Includes food, fuel, and everything.

Steve Hamner

And just to provide you a little bit more background we have about $950 million of our investments, are subject to CPI increases. Of those though about $650 million, and I maybe off a little bit, are also subject to minimum escalations. Those minimum escalations have a weighted average of about 2.2%. So, when you take into account that you think inflation maybe for this year and how it may affect our portfolio included in our straight line rent of course are those minimum increases.

Jerry Doctrow – Stifel Nicolaus

Okay, and the 650 is within the 950 –

Ed Aldag

Yes that is correct. So, most of the leases of course have minimum escalators and as I said that is about 2.2% on about two-thirds to 70% of the portfolio.

Jerry Doctrow – Stifel Nicolaus

And I just had two other things. You know in terms of just I mean you said you are not – don’t need equity at this point but you had talked about other ways to sort of potentially raise capital joint ventures and other sorts of things. You know is there anything going on in that area or you know when you get to the point you spend the $32 million and you need additional capital, I guess you can expand the line but at some point does equity or are there other sources out there I guess for potential equity?

Steve Hamner

Yes, we continue to focus on certain limited property sales and that is an encouraging process for us because we discover more and more that our properties really are substantially – have substantially grown in value almost any way you look at it and there are market participants who are eager to talk to us about certain types of properties and we are further down the line on that with other potential properties than others. But that is probably the most optimistic now. And sales can take any number of forms. And as Ed said, we don’t have to buy necessarily new properties to improve our yields. With the new idea [ph] passing along with the President‘s housing bill we really have some very good opportunities to capture some significant potential upside. We are very encouraged about many parts of the market both generically across the healthcare market and specifically with respect to some of our properties and some of our tenants and other potential tenants who have actually come to us you know with the same types of thoughts.

Jerry Doctrow – Stifel Nicolaus

Okay, and just that brings me, I want to actually probe a little bit more, I mean – I am familiar with the basics of idea, so you would take say if we take Bucks as an example, that you mentioned you would take Bucks, you would buy, your would create a TRS that would lease that facility from you potentially at a lower rent. You would engage some party maybe the existing party as a manger but you would capture the upside to the extent the properties improved, and is that is basically what we are taking about?

Ed Aldag

It is Jerry, but more likely it would be a joint venture rather than seeing us on it 100%.

Jerry Doctrow – Stifel Nicolaus

Okay, so the TRS would be – you would create a joint venture that would lease its – the joint venture would lease the facility from you and you would have an equity interest in that entity?

Ed Aldag

That is correct.

Jerry Doctrow – Stifel Nicolaus

Okay, and so we would have the greater volatility potentially of the ups and downs of hospital operations, but potentially a lot bigger returns down the road, is that –

Ed Aldag

If we do it Jerry, it is going to make an awful lot of sense for us to do it.

Steve Hamner

And you are right on that incremental increase in potential revenue that there is clearly volatility, but we still would be capturing the real estate return and you are right it may involve some concession or comprise on our current lease rate but we would still have a very nice real estate return that would retain the volatility characteristics it has already. It is only the increment when we get into operating income that would have the incremental volatility.

Jerry Doctrow – Stifel Nicolaus

Okay, all right. Thanks that is all from me.

Ed Aldag

Thanks Jerry.

Operator

Our next question comes from the line of Peter Costa from FTN Midwest Securities. Please proceed.

Peter Costa – FTN Midwest Securities

Hi, a question regarding Prime Healthcare’s practice of dropping out of network when they buy hospitals and now they have been sued by the State of California for balance billing the patients. Do you have some way of quantifying the risk to you and have you been able to look at sort of whether their bad debts are in fact collectible or I am sorry their receivables are in fact collectible or are they bad debts. How do we do a comfort that something is not going to happen there to change Prime Healthcare’s practices either dropping out of network or balance billing the patients?

Ed Aldag

Yes, Peter obviously we pay an awful lot of attention to all of those questions you just asked and let me point out a clarification on that. They do not always cancel the managed care contracts. They normally will come in – they will always come in and cancel the managed care contracts that are losing money. The managed care contracts that you just absolutely cannot make money on, but they have a large number of managed care contracts currently at a number of their facilities. So, it is a misnomer to think that they come in and cancel them all. Now what effect would out of network strategy, by doing away with a network strategy have on the Prime Healthcare revenues, our analysis along with theirs is that it would have less than a 5% impact on their total patient revenues. So it is a very negligible impact. On the bad debt for the patient billings, none of the additional billings that they have done – they did for the patients that you are referring to were included on their books. So if they collected any dollars that would be additional benefit. There is no additional write-off there for – inability to collect any of it.

Steve Hamner

Another way of saying that is the coverages that Ed mentioned earlier to the extent they relate to Prime do not include any so called balance billed patient receivables.

Peter Costa – FTN Midwest Securities

That is great. Thank you very much.

Steve Hamner

Okay.

Operator

Our next question comes from the line of Tayo Okusanya from UBS. Please proceed.

Tayo Okusanya – UBS

Hi yes, good morning. Actually all my questions have been answered. So thank you very much.

Ed Aldag

Thanks Tayo.

Operator

Our next question comes from the line of Michael Mueller from J.P. Morgan. Please proceed.

Michael Mueller – J.P. Morgan

Yes. Hi, following up on the capital plan question from before, can you talk about whether or not you have an idea of any asset sales for ’08 already lined up. If so what a rough number could be that we should think of and is the strategy going to be more along the lines of selling assets, paying down debt to have some dry powder or is it going to more likely timed with new investment activity?

Ed Aldag

Yes, I think to answer the second part of your question first, Mike it would have been on the timing and the amount and we do believe that there is another property in the roughly $20 million to $30 million range that has some likelihood that we might sell in the foreseeable future. And whether we would match that up against another acquisition or pay down debt or something else you know I just can’t tell you right now. But beyond that there are other more significant amounts that we think we might be able to access through value increases in our portfolio.

Steve Hamner

But Mike all of them will be strategic and opportunistic that we do.

Michael Mueller – J.P. Morgan

Okay, and then any idea of the timing for the resolution with River Oaks, in terms of that?

Ed Aldag

You know, it could happen this quarter, it could happen – more likely you are probably that somewhere between now and the next 9 months.

Michael Mueller – J.P. Morgan

Okay thank you.

Ed Aldag

All right thanks Mike.

Operator

Our next question is a followup question from Karin Ford from KeyBanc Capital Markets. Please proceed.

Karin Ford – KeyBanc Capital Markets

Thanks. Does the $1.21 guidance for ’08 include any additional acquisition activity?

Ed Aldag

No, it is our existing portfolio today, which is very close to what you see on the financial statements. In July we closed on the last 2 HCP properties and that has been it.

Karin Ford – KeyBanc Capital Markets

Okay, what type of hurdle rates would you guys except to receive on an investment in an operator under RIDEA?

Ed Aldag

Karin we are just not prepared to get into that discussion at this point. To do it is not part of the law.

Karin Ford – KeyBanc Capital Markets

But would you say it is significantly in excess of sort of the 10% to 10.5% you guys are getting on?

Ed Aldag

Absolutely.

Steve Hamner

It needs to be in excess of a real estate return.

Ed Aldag

It needs to be an operating type return.

Karin Ford – KeyBanc Capital Markets

Okay. Are there any other properties other than the ones that you guys talked about today that you see could have any sort of operating issue other than River Oaks?

Ed Aldag

Well Karin as I said earlier, all of our properties are doing very well with the exceptions to the ones the ones that I went over. And all of those are doing much better than they were doing with the exception obviously of the River Oaks situation. We are not aware or even have a hint of any properties in any type of situation like that.

Karin Ford – KeyBanc Capital Markets

Okay and did your experience at River Oaks cause you to change your underwriting methods in any way given that you guys fairly recently acquired that asset?

Ed Aldag

Karin, we are still in the process of working with all of the parties involved in determining exactly all of the facts that happened at River Oaks. As I mentioned in my prepared remarks, the equity provider has come in and totally replaced all of the senior management and we are in the process of evaluating that.

Karin Ford – KeyBanc Capital Markets

Do you expect that you likely will change things that you do in your underwriting as a result of River Oaks?

Ed Aldag

Karin on the underwriting we knew that River Oaks was a turnaround facility and we underwrote it in such a manner that we were heavily collateralized. We have a closed facility that we still expect to receive 100% of our investment and cost from this closure back. So I think that we were – our underwriting was exactly right on target. We will have to wait and see what evolves and exactly what happened with the failure of River Oaks little bit further down the line.

Karin Ford – KeyBanc Capital Markets

Okay, thanks very much.

Ed Aldag

Right thank you.

Operator

At this time there are no more questions. I would like to turn the call back over to Edward Aldag. Please proceed.

Ed Aldag

Thank you operator and thank you all of you for listening again today, and as always please don’t hesitate to call anyone of us here at the company. Thank you very much.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.

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