Regional Health Properties, Inc.
Q3 2015 Earnings Call Transcript

Published: 12 Nov 2015

[Operator:]

Good day and welcome to the AdCare Health Systems Inc. Third Quarter 2015 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brett Maas of Hayden IR. Please go ahead.

[Brett Maas:]

Thank you. Good day. Joining me on the call today are Bill McBride, AdCare's Chairman and Chief Executive Officer; Allan Rimland, AdCare's President and Chief Financial Officer; Clinton Cain, AdCare's Vice President of Finance. I would also like to mention this call is being simulcast on the Company's website at www.adcarehealth.com. Any forward-looking statements made today are based on management’s current expectations, assumptions and beliefs about AdCare's business and the environment in which the company operates. These statements are subject to risks and uncertainties that could cause AdCare's actual results to materially differ from those expressed or implied on this call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review AdCare's SEC filings for a more complete discussion of the factors that could impact AdCare results. Except as required by Federal Securities Laws, AdCare does not undertake to publicly update or revise any forward-looking statements, where changes arise as a result of new information, future events, changing circumstances or for any other reason. Also AdCare’s supplemented GAAP reporting with non-GAAP metrics such as adjusted EBITDA, FFO and adjusted FFO. When reviewed together with AdCare's GAAP results, these measures can provide a more complete understanding of AdCare's businesses. This should not be relied upon to the exclusion of GAAP financial measures. A reconciliation of these measures to GAAP is available in today's press release. After management concludes their remarks they will respond to questions regarding the presentation. Now, I would like to turn the call over to Chairman and Chief Executive Officer of AdCare, Bill McBride. Bill, please go ahead.

[Bill McBride:]

Thanks, Brett. Good morning and thank you to everyone for joining us today. The third quarter was again another busy one and we continue to make progress on multiple fronts since our last earnings call. We signed a letter of intent to make an acquisition, completed operation transfers of 10 facilities, sold two faculties, modified and extended a number of leases and just this morning announced a share repurchase program. In September, we announced the execution of a letter of intent to purchase a 55 bed nursing facility in the Tampa Bay area, making this our first acquisition, post our strategic transition to a healthcare property holding and leasing company. This also included entry into the Florida market. We agreed to purchase the facility for $4.8 million net of cap expenditure reserves and are currently in our final due diligence phase. We remain on track for first quarter of 2016 closing of this significant transaction. Subject to the receipt of operator license and HUD approval. We have signed a letter of intent to lease this facility to one of our existing operators, upon purchase. The terms of the lease are expected to include a 15 year term, which exceeds our current portfolio average of just over 10 years, with year one cash rents of $420,000 with a 3% escalator in subsequent years. We intend to assume a very attractive long-term HUD debt that is currently in place on the facility totalling approximately $2.6 million at an interest rate of 2.4%. This transaction is expected to be immediately accretive to cash flow. Beyond this initial acquisition, I'm encouraged with a high number of attractive, high quality acquisition opportunities we are working on. We are carefully evaluating potential acquisition to make sure that they meet our criteria. We're generally seeing attractive opportunities in the skilled nursing area with the lease cap rate in the 10% rate that will continue to diversify our operator mix and our increase and diversify our geographic presence. We are looking at individual facilities, primarily with our current operators and others, small portfolios with existing and potentially new operators and larger transactions. Our actual pipeline is growing steadily and we expect to announce additional acquisitions in the near future. Turning to the transition for a moment, during the quarter we sold one property and transitioned nine to third party operators. Subsequent to the end of the quarter, we completed the operations transfer of one facility in Arkansas and completed the sale of one facility in Oklahoma. What remains are the operation transfers of two facilities in Oklahoma which we expect to occur by the end of the fourth quarter of 2015, subject to the receipt of state regulatory approval. As we've previously announced and discussed, Oklahoma state regulatory process moves methodically and slowly and this process takes longer than it does in other states. As a key component of our transition plan, we are significantly reducing our G&A expense, both in terms of headcount and other expenses. We've seen key planned reductions in headcount as our operations have begin winding down and we've been a building team with the necessary talent, which will be focused on growing and managing AdCare and completing the transition process. We continue to look for opportunities to increase the returns on our existing facility portfolio by extending lease terms, increasing rental payments and annual rent escalators. By renegotiating terms with selected operators, we not only aim to improve returns, but also to improve the predictability of our cash flow, reduced lease renewal risks and increased portfolio stability. We seek to form strong long-term working relationships with our operators and we will continue to do what we can to ensure their success. As we methodically move through the transition we have consistently aimed to create a business model that is predictable, clear and returns value to our shareholders. Earlier this, our board declared our first cash dividend on our common stock of $0.05 per share based largely on the progress we were making with the transition. This dividend was raised to $0.055 per share in the second quarter and on September 30, 2015, the board declared a cash dividend of $0.06 per common share. This quarterly dividend represented an annualized dividend of $0.24 a share or a dividend yield of 7.5% based on the closing price of the stock on November 11, 2015. As we mentioned in prior earnings call, we continue to expect the dividends paid in our common and preferred stock to be treated as a return of capital to stockholders to the extent available for federal income tax purposes until such time the company may have positive current or accumulated earnings and profits. Investors of course should consult their tax advisors. Our board continues to be focused on maximizing shareholder value; to that end we announced this morning that the board has authorized a common stock repurchase program of up to 500,000 shares over the next 12 months. We continue to believe that our current and future acquisitions pipeline will provide opportunities that increase shareholder value but we wanted the flexibility to repurchase stock as marketing conditions may warrant. Finally as we have previously discussed, we have included proposals in our annual meeting proxy to shareholders to declassify the Board of Directors and to adopt the REIT rule in our articles and bylaws. These proposals are of course subject to shareholder approval. The projects we have made in the transition process has provided us with a clarity to provide guidance for our post-transition financial model. I'll walk through the details of this model after our Allan reviews the financial results for the quarter. With that, I will now turn the call over to Allan Rimland, our President and CFO to provide these details.

[Allan Rimland:]

Thank you, Bill and good morning everyone. As a reminder, the presentation of our third quarter financials includes the reclassification of operating results of facilities that have transferred operations to discontinued operations in both current and prior year's periods. Our third quarter results again included mix of results and facilities that we operated as well as leased to third party operator. Although leasing activities are a significant component of our financial results, patient care revenues and expenses are included for facilities that were operated throughout the period. For facilities that were transferred during the period, patient care revenues and related expenses have been reclassified as discontinued operations up to the date of transfer. Beginning on the date of transfer, the rental revenues were recognized. While still bit of a mixed bag we're getting increasing visibility into the underlying business' operations transfers of an increasing number of properties become effective. Having said that, let's take a look at the financial results. Starting with the quarterly results, rental and other revenues for the third quarter were $6.1 million and represented approximately 59% of total revenues. Redefined rental and other revenues, as rental revenues, management fees and interest income from lease inducements. On a year-to-date basis, rental and other revenues were $12.1 million and represented 49% of total revenues. As noted earlier, rental and other revenues that not include rental facilities for the full quarter, if operations transfers occurred during the quarter. Noted they included rent from facilities that are transferred after quarter end. General, administrative expenses were $2.1 million for the third quarter, inclusive of $200,000 to stock-based compensation and $7.8 million year-to-date inclusive of $700,000 of stock-based compensation. As Bill noted, we continue to expect additional reductions in SG&A under our new operating model. During the third quarter of 2015, adjusted EBITDA from continuing operations was approximately $2.4 million and $1.1 million year-to-date. A reconciliation of this metric to our GAAP numbers is available in the press release we distributed today. Net loss from continuing operations for the third quarter was $1.9 million or a loss of $0.17 per basic and diluted shares and $13 million for the nine months of the year. Moving on to review of our balance sheet. Cash and cash equivalents of September 30, totalled $4.3 million compared to $10.7 million at December 31, 2014. Total restricted cash at September 30 totalled $12.2 million as compared to $8.8 million at December 31st. The changes in cash and cash equivalents was driven by overall deleveraging of the balance sheet, in particular the pay down of lines of credit backed by patient accounts receivable. Tenant investments both capital expenditures and short-term working capital loans as general AdCare working capital needs. Total debt at September 30th was $134.5 million, which includes $4 million in liabilities of disposal group, held for sale and $5.9 million in liabilities of the VIE held for sale compared to $151.4 million at year-end, which includes liabilities of disposal group held for sale of $5.2 million and liabilities of the VIE held for sale of $6 million. A brief moment of looking at the balance sheet, as many of you have seen our balance sheet, we have approximately $39 million of current debt outstanding. Relative to our second quarter, which was at $6 million that was an increase of approximately $33 million, to be a change in the current debt, included three private bank loans that became current during the quarter, that mature in September of next year totalling approximately $30 million. A few points on that, against those $30 million of private bank debt, we have $2 million of restricted cash. Our plan to refinancing those is two-pronged, first we've submitted one application to HUD currently and one is - should be submitted in next couple of weeks, totalling $12 million. In addition, we're beginning a dialog with private banks to extend those loans as well as, reaching out with other lenders in terms of refinancing that debt. Subsequent to quarter end, we also announced the closing of our sale of a facility in Oklahoma, which further reduces our debt by $3 million. As noted, we continue to work to refinance certain properties with HUD and our conventional mortgage debt helping us to secure lower interest rates and more favourable terms including longer maturities and more favourable amortization. As I said, one property has been submitted to HUD and we expect another before year-end. Also as Bill mentioned today we announced that our board has approved a share repurchase program of up to 500,000 shares over the next 12 months reinforcing our commitment to returning capital to our shareholders. Under the program management has the flexibility to repurchase shares either in open market transactions or in privately negotiated transactions. In summary, the underlying strength of our property holding and leasing business models beginning to be reflected in our financial results. Going forward, we remain focused on increasing shareholder value to the acquisition of additional properties and to a lesser extent by further optimization of our real estate portfolio and our balance sheet. I will now turn the call back over to Bill.

[Bill McBride:]

Thanks, Allan. Not only do we remain committed to returning value to our shareholders, we're also committed to providing clarity with regards to our expectation for our post-transition financial model. We provided this preliminary outlook along with our second quarter 2015 earnings release. As a reminder our forward-looking financial expectations do not include the benefit of any acquisition. With another quarter behind us, we have further refined our expectations. We are reaffirming our guidance of adjusted FFO per share between $0.25 and $0.30 excluding the effects of any acquisition. In today's press release, we also provided an updated outlook, which includes adjustments to both rental revenue and rent expense to reflect a number of the lease modifications with AdCare's tenant, as well as, the Foster, Omega and Covington lease modifications and extensions. These changes results in a slight increase over the prior guidance on a net basis. I encourage you to review the press release to see this updated outlook. In summary, I'm unsatisfied with the progress to date, the direction we are headed in the numerous opportunities before us. For those of you that do not reviewed your proxy, we've scheduled our annual meeting for 10 a.m. on December 10th in our office in Roswell, Georgia and I look forward to seeing some of you there and updating our progress again at that time. We're now ready to answer any questions you may have. Operator, can you open it up?

[Operator:]

[Operator Instructions] And we'll take our first question from Chris Doucet of Doucet Asset Management.

[Chris Doucet:]

Hey good morning guys.

[Bill McBride:]

Good morning, Chris.

[Chris Doucet:]

Few quick questions. Bill, you talk a little bit in your remarks about the pipeline and the fact that you're trying to find some things that lease cap rates in the 10 cap rate range. Can you give us some real evidence that you plan to buy things. I mean, is it something that anecdotally you can point to that talks about how the pipeline perhaps is building and the likelihood of you buying something else of any substance before the year is over.

[Bill McBride:]

I mean, I can tell you we've had a number of meetings with potential acquisition opportunities with individuals willing to either sell their properties from people that where we know in the marketplace. Obviously, we've looked at packages through brokers. We have been given opportunities by our existing tenant for properties and we continue to review and evaluate them. Obviously, we like the Florida transaction that we've already announced for a number of reasons; one, we liked the geographic presence of a facility. Two, it was brought to us by one of our existing tenants or at least they were aware of the property, so we can cross collateralize it, cross default it with some of our existing leases with him. And third, it has some attractive financing in place that would allow us to get the return on equity that we're looking to get, given where our stock price is trading today. We continue to look at other deals like that. There are several that we are looking at now, that have existing HUD financing on them. Obviously, they're attractive to us because of the return on equity increase, getting the low interest rate financing on the debt, but a number of the other reasons such are not as interested in them for whatever reasons, a lot of the REIT, they don't really like dealing with HUD properties. There is a little bit more sort of work associated with them in the back office related to administering those HUD loans. And the operators have to be familiar with operating the properties with a HUD loan. Our operators for the most part are, so it gives us a little bit of an advantage in those kind of properties. So that's an area that we are looking at and are reasonably close on a couple of those to getting a deal done. We're reluctant, as you know when I first came on board here , I mean, pretty conservative, I sort of delayed the process of what I thought I could get things done and we've been able to get these buildings out, generally along the timetable that I've laid out and I'm conservative in announcing deals. I think that there's a number of them out there, there are a number of them that will get announced. But I'm not going to out until we're really ready and got them locked up and I feel comfortable with them.

[Chris Doucet:]

Okay. And you announced a stock buyback plan this morning and I applaud the announcement. I assume it's because you think your stock is undervalued to your building stockholder value by buying things on the open market versus perhaps buying things that are tin capped [ph] through an acquisition. Does this also suggest that you might be willing to sell the business, if you're not able to gain traction through the pipeline that you have and perhaps buying properties.

[Bill McBride:]

I mean, I think I've discussed this before on calls and with the board and that, I want to create shareholder value however we need to do that. We're looking to make deals, if that makes sense to know they're accretive and grow and create shareholder value, we'll do it that way. If for whatever reason the market isn't giving us credit for that relative to stock price, we will buy back stock and have no qualms about doing that with the cash flow. While at the same time, trying to return a reasonable amount of cash with dividend to shareholders as well, but we're not opposed to doing that and will do that if we're not being rewarded in the marketplace. And frankly as the portfolio matures again if we're not being rewarded in the marketplace than I certainly would be a proponent to discuss with the board whether or not this company would be better off merging with somebody else at that point in time. I mean, we either need to create the value or let somebody else create the value and so that's how I view it.

[Chris Doucet:]

Okay. I'll ask two more questions and step back in the queue --

[Bill McBride:]

And one last things relating to that Chris, sorry. Relating to letting the portfolio mature, I mean, Allan, mentioned a little bit briefly about the private bank portfolio. We could sit down, could have and can sit down with private bank, any time really publicly and restructure that portfolio. One of the things that we're waiting for is, obviously, those properties for the most part are in Arkansas and South Carolina. The two South Carolina buildings have improved considerably, since we transferred operations in the operating performance of those buildings, the cash flow of those buildings, which has enabled us to take those two properties at HUD, one has already been submitted, one will be submitted shortly. The other properties are Arkansas property. They are three loans of private bank and those properties were transferred to Aria in May and they continue to improve, although at a slower rate unfortunately than the South Carolina properties, but it continue to improve. As time goes on you know during some time in the first quarter and we'll obviously like to get this done before we issue our 10-K. We'll have the first quarter results from those properties with the further expected improvements that will enable us to get a better deal from private bank. We have now $2 million of cash collateral posted against those and we'd like to free that up in connection with that refinancing. And so that's why we really haven't gone and got that deal done yet. And we can take that money and either invest it in another property buyback stock or whatever the most accretive to the company at that point in time. So that's kind of the strategy there. And that goes hand-in-hand with a strategy of letting this portfolio mature relative to whatever we look to decide to do with the company and make sense.

[Chris Doucet:]

Which kind of brings me to my next question. Is there anything that you can tell me as far as occupancy is concerned that shows that occupancy may be has improved since we have adopted this new model a year ago?

[Bill McBride:]

Yeah, let me turn that over to Clinton. Clinton is kind of - he handles a lot of that for us in terms of tracking the facility performance based on information that we get from the operators. So Clinton do you want to comment on that?

[Clinton Cain:]

Yeah, I mean, some of our buildings has experienced a slight dip during some of the transition process. But taking over those operations with the new operators, which has been a definite improvement in occupancy and but in mix as well. As those operators get in and get traction.

[Chris Doucet:]

And what is overall occupancy of the portfolio now? Do you have any idea?

[Clinton Cain:]

Which portfolio?

[Chris Doucet:]

The portfolio - the 38 properties that we have.

[Clinton Cain:]

I have some of the information with traditional groupings but --

[Bill McBride:]

Yeah, you we tend to really look at it by operator, Chris so rather than overall that's one of the things, we're working on by year-end being able to provide the more information relative to by operator performance is the how the portfolio is doing. You use a number of the REIT that do that by state or by operator and we plan on doing that as part of the 10-K. We do look at individual facilities operations performance from a cash flow perspective and a mix perspective, but we haven't really aggregated in total for the whole portfolio.

[Chris Doucet:]

Okay. And last question, and I'll step back in the queue, Bill you mentioned in your remarks that or maybe Allan mentioned this that G&A for the quarter was a little over $2 million, I guess, $2 million when you back out stock comp expenses. And that your G&A was expected to be somewhere between $3.3 million and $3.5 million when you back-out stock comp, which is kind of more in line with what investors I think thought. When do you think we're going to start seeing that annualized cash G&A expense come down to $3.3 million to $3.5 million annualized?

[Allan Rimland:]

Well, first of all, Chris it Allan. Hello. The G&A on a cash basis that we've talked about post transition is roughly $4 million or so. I know that's been moved up and that's consistent with the guidance that we've talked about last quarter. As we said it is a post-transition guidance. Obviously, once we complete the operations transfer of our remaining two facilities, which we're hopeful that its moves in the next 45 days at year-end that we probably have one or two months of slightly higher G&A and we really sort of start, I'd say the February, March timeframe, we're at that level. There will still be a little bit of legacy cost in terms of the business, cleanup costs related to AR collections, some additional staff related to legacy businesses. But I would say someplace between middle of Q1 and middle of Q2 we're at that level. I would note that in terms of the headcount, one of the things that we manage, we have specific headcount reductions, plan reductions and Bill mentioned and we're on that target that we talked about last time for that kind of $1.5 million cash comp. We continue to work on the non-cash comp piece in terms of just other cost and again it is moving in the right direction. And as you noticed to me the deltas right now on Q3 we're at $8 million on a run rate basis heading to 4, 4.5 and I think we're on that target. One thing I might comment on relative to G&A is that, one of the - we have a contract with UVMC, we discussed previously to manage three of their properties in Ohio. That's very lucrative contract for us. We do quite well with it; we've had it for a number of years. We plan on continuing to do that. As a result of that and providing the management to service that contract, we have about $400,000 on an annual basis of costs that is really overhead, if you want to call it, it's grouped with overhead, the way it's done in our financials and included in overhead, relating to everything that management contract. So if we were say running this as a standalone REIT and didn't have that management contract, $400,000 of that overhead would go away. So when you're really looking at that, its incremental revenue above and beyond that, but it also adds to our overhead and the accounts do not let us sort of net out the overhead costs associated with that with the revenue that that management contract generates.

[Allan Rimland:]

And the rough numbers Chris, that management contract, the three facilities was about $1 million revenue business and the real requirement, management contract business is about 50% margin business. So actually we're doing a little better on it. So I think to your point, when you look at the overall G&A burden, the post-transition model includes about $400,000 or so of personnel and other related cost, we manage that, as Bill said, a very profitable contract and a contract we'd like to continue.

[Chris Doucet:]

Okay. Thanks guys.

[Operator:]

And we'll go next to Ephraim Fields of Echo Lake Capital.

[Ephraim Fields:]

Hi, guys. You should have a fair amount of restricted cash and I was wondering if you'd give us a sense for when some of that cash might become unrestricted or if we should just expect it to remain restricted for a while?

[Bill McBride:]

Yes, well a lot of the restricted cash that we have. We have about $4 million with private bank, about half of that is current and the reason for that is it tied up with operator level performance. And we've got various provisions outlined in our loan documents with private bank that outlined how that restricted cash is going to be released, but it's basically two consecutive quarters of certain minimum EBITDA. As we were mentioned earlier, these operators are getting in, they're getting their footing and they're their performance, so we expect compliance with those outline covenant coming in the next several quarters, we should give some of that money back, if not all of it.

[Allan Rimland:]

It's another tranche Ephraim from the related to HUD capital reserves. So even though we have very attractive HUD financing in terms of long-term money, low interest rates, some of the capital is tied up in terms of cash reserves. And lastly just on the comment that Clinton, mentioned in terms of reserves against the private bank loan. One of the potential approaches was we essentially net the restricted cash against the loan lower interest expense is one option. I think, I've used, we continue to monitor loan and as we think about the overall refinancing especially the private bank loans, we either have the cash released back to us on improved performance, but we netted out a reduced interest expense.

[Ephraim Fields:]

Okay. So it sounds like - go ahead.

[Allan Rimland:]

There's also a tranche that we still have is about $1.5 million --

[Bill McBride:]

Yeah, about $1.6 million --

[Allan Rimland:]

About, $1.6 million that we have posted it collateral for the company's workers comp program, the company was self-insured for workers' comp. Obviously, the majority of that relates to the facility level employees. Originally I believe we had about $3.5 million of restricted cash posted because when you're self-insured, the states required to post the bond to make sure you're going to be able to pay the workers' comp benefits. And of course, to get a bond we had to post the cash. So there was originally with private bank about $3.5 million. As a result of the operations transfers and the resulting reduction in that liability as we paid those worker's comp claims out, we were able already to get back about $2 million of that cash. It happened during the third quarter of this year and we expect some time in the first quarter of next year to be able to further reduce that. I'll ask for liability that we have on the books right now for worker's comp is about $500,000, $600,000 I believe and so, we've got about $1.5 million of cash posted against that. So we will go back to the insurance company and basically get that reduced sometime in the first quarter. There were a little bit reluctant to reduce it, it's usually after the fact. They want to see a couple of quarters of a lower liability before they'll do that. So you should see about at least $1 million of that coming back in the first quarter and private balance of that by the middle of the year.

[Ephraim Fields:]

Got it. And I think the buyback is a great idea, I'm curious if the board gave any consideration to buying back some of the preferred?

[Allan Rimland:]

It was discussed, but at this time it was sort of tabled and the board would continue to look at that as an option as we go forward.

[Ephraim Fields:]

Okay. And then why is it more attractive to buyback common as opposed to the much higher yielding preferred?

[Allan Rimland:]

I think the thought now was that the company - depending on where the preferred market goes on, if it comes back the company may want to access that market potentially at a higher, obviously not at the current price, but at a higher price, company may want to access that market for some additional liquidity or investment capital on a go forward basis and it didn't want to be in the position of buying back and then turning around and issuing. So I think right now, the company was looking more into the common stock purchases.

[Clinton Cain:]

Sort of follow-up I think if you look at it was disclosed with the board level. I think at some point as you know, there were some cross point, where well from a longer term perspective, we think that common is better value. So it's not as looking at kind of current yield zone on the common and the preferred.

[Bill McBride:]

And I want to reiterate relative, thanks for bringing that up Ephraim about the common program. This isn't for a lack of investment opportunity. I think what the company wants to do is have the ability to go out, to create shareholder value in all way. And obviously, nobody is happy with the stock, I'm not, the board's not, I'm sure a number of you are either. So you know out stock does not trade at a high volume and you'll see sometimes with very limited volume, the stock will move quite a bit and that could create some opportunities where you would be in a position of saying its more accretive to the company to buyback a few shares than to do a deal. And we want to be in position to take advantage of that, whether we grow the company, or sell the company, if we can do that on an accretive basis and create value, we'll all be rewarded for it. So it was putting another option in place for the company to create value other than just doing deals. And to send a message to the shareholders, that look, we're not to, at all cost grow a big REIT or just do deals, we'll do whatever makes sense to create value for our shareholders. And if that means, buying back the stock and not doing deals, we'll do that, if that means down the road, when the portfolios matures, looking at other options for the company we'll do that, that's our objective and nothing else.

[Ephraim Fields:]

Okay. I guess, my final point and I think you may be hearing through other shareholders is that it seems to me that the company's capital be much better spent. We're purchasing at stock considering, where the stock is trading and considering the yield on its comment, then it would be making acquisitions at 10% cap rate that you've discussed and that's --

[Bill McBride:]

Yeah, if our return was 10% on investing capital in a deal I'd buy back stock all day long. But actually if you look at the return on capital say for the Florida, it's high teens because when you couple the HUD debt at 2.6% or 2.4% amount combined with a 10 cap rate say on the lease and the amount of equity that we have to put in the deals, it puts your return on invested capital in the high teens. So --

[Ephraim Fields:]

When you're financing, I assume some of that - your purchases going forward will be funded with preferred stock, which is expensive capital, so --

[Bill McBride:]

Agreed, but even if you finance that deal with preferred stock, it would still be accretive. Even if you finance the difference between the HUD debt and the purchase price with preferred stock, which is our kind of --

[Ephraim Fields:]

I'm not going arguing, whether or not it would be accretive, I'll accept your math, that it will be accretive, I'm just saying what would be in shareholder's best interests and more accretive to FFO and I would suggest that buying back stock will generate higher returns for shareholders at this price or even at a higher price than acquisitions would. It's just an intellectual disagreement I have with the board and we don't have to discuss it anymore, but it's just an intellectual disagreement.

[Bill McBride:]

Well, I think that's something we'll keep in mind and that's one of the reasons the stock buyback program was put it in place. And I think we'll continue to evaluate both of those options. And really look to these deals versus buying back our stock as to what's in the best interest of shareholders and that's on the table as well.

[Ephraim Fields:]

Great. Thank you.

[Operator:]

And this concludes today's question-and-answer session. At this time, I will turn the call back to management for any additional or closing remarks.

[Bill McBride:]

Well, thanks for everyone joining us today. We look forward to updating you on our progress and --

[Brett Maas:]

We have two questions that did queue up, if that's all right.

[Bill McBride:]

Okay. Sure.

[Operator:]

And we'll take Frank De Christina [ph], a private investor. Hey, Bill and Allan, how are you doing

[Bill McBride:]

Very well. I have one question, and for sure, I've appreciated your conservative disciplined approach to this whole transition process. Don't shoot before you have your gun loaded and so forth. And at one time you had discussed once you got things kind of in order and I was wondering if we're close to that point, that you and Allan were going to go out, do some type of road show and tell the AdCare stories, so that other people could get excited about what this company and the undervalued portion of it. And I was wondering whether or not we were at that point and whether or not when that would occur?

[Allan Rimland:]

Frank, it's Allan and thanks for the question. I guess to make it very clear that we are absolutely ready, willing and plan to be in the road fairly shortly in terms of doing investor, investment bank research analyst outreach as yourself. As you know we've been involved in a number of our activities here in terms of the transition and I think Phil and the board in our view had let successfully transition the company of the operating business where we're collecting rent. At the same time, start to create that dialog and build that pipeline. As those activities have lessened a bit, I think now the story gets simpler and simpler, cleaner and where we could focusing on growth of this organization and do selective outreaches with investors on the institutional side, as well as, reaches out to get the word out. So we are ready and we're working with Hayden in terms of establishing that pattern of regular communications with investors in addition to these quarterly calls. You'll see updated slide shows in terms of investor presentations and outreaches in whatever city. We have had over the past month couple of months despite all the work that's we've been up to here had a number of conference calls with investors that are thinking and talking about possible investments as well as research analysts. Good. Thank you

[Operator:]

And we'll take our follow-up question Chris Doucet with Doucet Asset Management.

[Chris Doucet:]

Thanks for taking my follow-up question. And by the way I agree with the last caller, I think you guys have done a fantastic job, kind of getting the company back in order. I think you have a beautiful product now and I think you need to go out and sell it to the public. The last question I had was in regards to the assets held for sale. Bill you mentioned $5.9 million for the, I guess, that's the Hoover project. When is the expectation that that will close?

[Bill McBride:]

Believe the date right now is November 20.

[Chris Doucet:]

And will we get any cash back from that $5.9 million?

[Bill McBride:]

We will get some cash back. The company as to those of you that don't follow, the property that Chris is referring to is the property that accounted for by the us as a VIE variable interest entity under accounting rules, we have to consolidate the results of that property because and it only because we guarantee the debt. We don't own the buildings, we don't operate the buildings, but we guarantee the debt. And the result of that guarantee, we treat it as the VIE. And so the debt is on our books at $5.9 million that's going to get paid off at closing. We have advanced property taxes and such to that entity under the terms of the guarantee and those will get paid off at closing. So we will get some cash out of the deal and the debt will get repaid in full.

[Chris Doucet:]

And you mentioned a $4 million piece also what is that for and when will that close?

[Bill McBride:]

We have restricted cash of $4 million --

[Chris Doucet:]

I don't know, I thought you had mentioned that you had another piece of property for sale, but I wasn't aware of anything else that was for sale.

[Allan Rimland:]

That was our Companions facility in Oklahoma and as you know Chris, you got to do a cut off and September 30th is the cut off. Companions was held for sale at 9.30 [ph], so you have the debt of $3 million in the held for sale. And that's subsequently closed on October 30, so that is off the balance sheet.

[Chris Doucet:]

Okay. So your debt will go down to about $124 million or $125 million after the VIE closes?

[Allan Rimland:]

That's in February. That's exactly right, Chris. On a pro forma basis, if you eliminate the Riverchase and the Companion debt, the Companion debt is already up about 125 number that I kind of look at internally.

[Chris Doucet:]

Okay. And that's optically a much better number. Thank you. All right, congratulations and I'll step back in the queue.

[Bill McBride:]

Thanks Chris. Operator, could you hold for another minute for questions.

[Operator:]

[Operator Instructions].

[Bill McBride:]

Okay. I think that's it. Go ahead.

[Operator:]

And there are no further questions from the phone. I will now turn the call back to management for any additional or closing remarks.

[Bill McBride:]

Hi, thanks for joining us. Look forward to seeing of you hopefully at the annual meeting and I'll give a further update, hopefully with some acquisitions announcements at that time. Thanks again.

[Operator:]

And this does conclude today's conference, we thank you for your participation. You may now disconnect.