e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Quarterly period ended September 30, 2010
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
Commission File Number: 001-33549
Care Investment Trust Inc.
(Exact name of Registrant as specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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38-3754322
(IRS Employer
Identification Number)
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11
West 42nd Street, 12th Floor New York, New York 10017
(Address of Registrant’s principal executive offices)
(212) 771-0505
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2
under the Securities Exchange Act of 1934. Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practical date.
As
of November 9, 2010, there were 10,064,982 shares, par value $0.001, of the registrant’s
common stock outstanding.
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3
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3
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Condensed Consolidated Statements of Operations for the periods from August 13, 2010 to
September 30, 2010 (Successor, Unaudited) , from July 1, 2010 to August 12, 2010
(Predecessor, Unaudited), from January 1, 2010 to August 12, 2010 (Predecessor,
Unaudited) and for the Three and Nine Months Ended September 30, 2009 (Predecessor,
Unaudited)
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4
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5
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6
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7
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20
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24
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28
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30
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31
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32
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33
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EX-31.1
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EX-31.2
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EX-32.1
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EX-32.2
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2
Part I — Financial Information
ITEM 1. Financial Statements
Care Investment Trust Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
(dollars in thousands — except share and per share data)
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September 30,
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December 31,
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2010
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2009
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(Successor)
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(Predecessor)
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Assets:
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Real Estate:
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Land
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$
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5,020
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$
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5,020
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Buildings and improvements
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102,016
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101,000
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Less: accumulated depreciation and amortization
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(517
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(4,481
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)
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Total real estate, net
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106,519
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101,539
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Cash and cash equivalents
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7,602
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122,512
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Investments in loans
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9,357
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25,325
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Investments in partially-owned entities
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41,652
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56,078
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Accrued interest receivable
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88
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177
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Deferred financing costs, net of accumulated amortization of $0 and $1,122, respectively
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—
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713
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Identified intangible assets — leases in place, net of accumulated amortization of $86 (successor) and $489, respectively
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6,607
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4,471
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Other assets
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967
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4,617
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Total assets
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$
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172,792
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$
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315,432
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Liabilities and Stockholders’ Equity
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Liabilities:
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Mortgage notes payable
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$
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81,991
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$
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81,873
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Accounts payable and accrued expenses
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2,605
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2,245
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Accrued expenses payable to related party
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2,563
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544
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Obligation to issue operating partnership units
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2,440
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2,890
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Other liabilities
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525
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1,087
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Total liabilities
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90,124
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88,639
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Commitments and Contingencies (Note 12)
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Stockholders’ Equity:
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Common stock: $0.001 par value, 250,000,000 shares authorized, 30,863,442 and
21,159,647 shares issued, respectively and 10,063,386 and 20,158,894 shares
outstanding, respectively
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10
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21
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Treasury stock (20,800,056 and 1,000,753 shares, respectively)
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—
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(8,334
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Additional paid-in capital
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83,042
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301,926
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Retained earnings/(accumulated deficit)
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(384
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(66,820
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Total Stockholders’ Equity
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82,668
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226,793
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Total Liabilities and Stockholders’ Equity
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$
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172,792
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$
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315,432
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See Notes to Condensed Consolidated Financial Statements.
3
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in thousands — except share and per share data)
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Successor
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Predecessor
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For the Period
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For the Period
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Three
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For the Period
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Nine
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from
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from
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Months Ended
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from
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Months Ended
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August 13, 2010 to
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July 1, 2010 to
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September 30,
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January 1, 2010 to
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September 30,
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September 30, 2010
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August 12, 2010
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2009
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August 12, 2010
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2009
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Revenue
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Rental revenue
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$
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1,804
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$
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1,479
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$
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3,177
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$
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7,880
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$
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9,518
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Income from investments in loans
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216
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201
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1,816
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1,348
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6,470
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Other income
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—
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—
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—
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—
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166
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Total revenue
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2,020
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1,680
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4,993
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9,228
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$
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16,154
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Expenses
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Management fee and buyout payment to related
party
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102
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173
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570
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8,477
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1,722
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Marketing, general and administrative (including
stock-based compensation of $8, $50, $388, $163
and $733, respectively)
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985
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6,836
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3,055
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11,021
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8,359
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Depreciation and amortization
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604
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389
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841
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2,072
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2,534
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Realized gain on sales and repayment of loan
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—
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—
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(1,158
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(4
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(1,180
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Adjustment
to valuation allowance on investments in loans
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—
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(28
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(1,706
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(858
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(4,873
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Operating expenses
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1,691
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7,370
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1,602
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20,708
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6,562
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Loss from investments in partially-owned entities
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474
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482
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1,160
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1,941
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3,369
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Net unrealized (gain)/loss on derivative instruments
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(492
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)
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(227
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)
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1,210
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41
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(314
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)
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Interest Income
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(5
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)
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(20
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(21
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)
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(99
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)
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(36
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)
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Interest expense, including amortization and
write-off of deferred financing costs
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736
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684
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1,472
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3,578
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5,041
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Net
(loss)/income
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$
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(384
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)
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$
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(6,609
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)
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$
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(430
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)
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$
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(16,941
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)
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$
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1,532
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Net
(loss)/income per share of common stock
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Net (loss)/income, basic and diluted
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$
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(0.04
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)
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$
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(0.33
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)
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$
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(0.02
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)
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$
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(0.84
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)
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$
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0.08
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Basic and diluted weighted average common shares
outstanding
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10,063,386
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20,235,636
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20,075,018
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20,221,329
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20,052,917
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Dividends
declared per common share
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$
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—
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$
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—
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$
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0.17
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$
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—
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$
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0.68
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See Notes to Condensed Consolidated Financial Statements.
4
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)
(dollars in thousands, except share data)
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Retained
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Earnings/
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Common Stock
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Treasury
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Additional
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(Accumulated
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Shares
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$
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Stock
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Paid-in Capital
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Deficit)
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Total
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Balance at December 31, 2009, Predecessor
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20,158,894
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$
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21
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$
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(8,334
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)
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$
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301,926
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|
$
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(66,820
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)
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$
|
226,793
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Net loss
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—
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|
—
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—
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—
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(16,941
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)
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(16,941
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)
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Stock-based compensation fair value (1)
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150,649
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—
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—
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—
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|
|
|
—
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|
|
|
—
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|
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Stock-based compensation to directors for
services rendered
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13,634
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*
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*
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|
163
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|
|
|
—
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|
163
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|
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Treasury purchases(2)
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(59,253
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)
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|
|
|
|
|
|
(490
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)
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|
|
|
|
|
|
|
|
|
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(490
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)
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Dividends accrued on performance shares (3)
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—
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|
|
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—
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|
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—
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|
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—
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(3
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)
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(3
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)
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Balance at August 12, 2010, Predecessor
|
|
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20,263,924
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|
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$
|
21
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$
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(8,824
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)
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$
|
302,089
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|
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$
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(83,764
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)
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|
$
|
209,522
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Adjustment
to additional paid-in capital to reflect fair value
|
|
|
—
|
|
|
|
—
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|
|
|
—
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|
22,669
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|
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—
|
|
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22,669
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|
|
Shares issued to Tiptree Financial Partners L.P.
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|
6,185,050
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|
|
|
6
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|
|
|
—
|
|
|
|
55,659
|
|
|
|
—
|
|
|
|
55,665
|
|
|
Elimination of predecessor additional paid-in
capital (net of shares not tendered), accumulated
deficit and treasury shares (4)
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|
|
(19,740,050
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)
|
|
|
(20
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)
|
|
|
8,824
|
|
|
|
(297,375
|
)
|
|
|
83,764
|
|
|
|
(204,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance at August 13, 2010, Successor
|
|
|
6,708,924
|
|
|
|
7
|
|
|
|
—
|
|
|
|
83,042
|
|
|
|
—
|
|
|
|
83,049
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(384
|
)
|
|
|
(384
|
)
|
|
Stock split,
three shares for two (5)
|
|
|
3,354,462
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010, Successor
|
|
|
10,063,386
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
83,042
|
|
|
$
|
(384
|
)
|
|
$
|
82,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Less than $500
|
|
|
|
(1)
|
|
Shares vested January 28, 2010 for which compensation was recognized in prior years (see Note
10).
|
|
|
|
(2)
|
|
Shares purchased from employees of CIT Healthcare LLC and its affiliates pursuant to the tax
withholding “net settlement” feature of Company equity incentive awards (see Note 10).
|
|
|
|
(3)
|
|
Amounts accrued based on performance share award targets.
|
|
|
|
(4)
|
|
Reflects adjustments related to recapitalization of the Company from series of transactions
for cash tender of shares and simultaneous sale of shares to Tiptree Financial Partners L.P.
|
|
|
|
(5)
|
|
The Company completed a three-for-two stock split in
September 2010 in the form of a stock dividend.
|
See Notes to Condensed Consolidated Financial Statements.
5
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
For the Nine
|
|
|
|
|
from August 13,
|
|
|
|
from January 1
|
|
|
Months
|
|
|
|
|
2010 to
|
|
|
|
2010 to
|
|
|
Ended
|
|
|
|
|
September 30,
|
|
|
|
August 12,
|
|
|
September 30,
|
|
|
|
|
2010
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$
|
(384
|
)
|
|
|
$
|
(16,941
|
)
|
|
$
|
1,532
|
|
|
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred rent receivable
|
|
|
(359
|
)
|
|
|
|
(1,375
|
)
|
|
|
(1,845
|
)
|
|
Realized gain on sales and repayment of loans
|
|
|
—
|
|
|
|
|
(4
|
)
|
|
|
(1,180
|
)
|
|
Loss from investments in partially-owned entities
|
|
|
474
|
|
|
|
|
1,941
|
|
|
|
3,369
|
|
|
Distribution of income from partially-owned entities
|
|
|
1,410
|
|
|
|
|
3,608
|
|
|
|
4,658
|
|
|
Amortization of loan premium paid on investments in loans
|
|
|
—
|
|
|
|
|
—
|
|
|
|
872
|
|
|
Amortization and write-off of deferred financing cost
|
|
|
—
|
|
|
|
|
80
|
|
|
|
657
|
|
|
Amortization of deferred loan fees
|
|
|
—
|
|
|
|
|
(15
|
)
|
|
|
(125
|
)
|
|
Stock-based non-employee compensation
|
|
|
—
|
|
|
|
|
163
|
|
|
|
733
|
|
|
Depreciation and amortization on real estate, including intangible assets
|
|
|
604
|
|
|
|
|
2,072
|
|
|
|
2,573
|
|
|
Unrealized (gain)/loss on derivative instruments
|
|
|
(492
|
)
|
|
|
|
41
|
|
|
|
(314
|
)
|
|
Adjustment to valuation allowance on investments in loans
|
|
|
—
|
|
|
|
|
(858
|
)
|
|
|
(4,873
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
39
|
|
|
|
|
50
|
|
|
|
709
|
|
|
Other assets
|
|
|
(313
|
)
|
|
|
|
643
|
|
|
|
344
|
|
|
Accounts payable and accrued expenses
|
|
|
(4,908
|
)
|
|
|
|
5,268
|
|
|
|
989
|
|
|
Other liabilities including payable to related party
|
|
|
(622
|
)
|
|
|
|
2,080
|
|
|
|
(3,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
|
(4,551
|
)
|
|
|
|
(3,247
|
)
|
|
|
4,625
|
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of
loans to CIT Healthcare LLC
|
|
|
—
|
|
|
|
|
—
|
|
|
|
42,249
|
|
|
Sale of loans to third party
|
|
|
—
|
|
|
|
|
5,880
|
|
|
|
24,845
|
|
|
Loan repayments
|
|
|
158
|
|
|
|
|
10,806
|
|
|
|
40,563
|
|
|
Investments in partially-owned entities
|
|
|
(185
|
)
|
|
|
|
(706
|
)
|
|
|
(1,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by investing activities
|
|
|
(27
|
)
|
|
|
|
15,980
|
|
|
|
106,538
|
|
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of shares to Tiptree Financial Partners L.P.
|
|
|
—
|
|
|
|
|
55,665
|
|
|
|
—
|
|
|
Share tender offer
|
|
|
—
|
|
|
|
|
(177,660
|
)
|
|
|
—
|
|
|
Principal payments under warehouse line of credit
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(37,781
|
)
|
|
Principal payments under mortgage notes payable
|
|
|
(59
|
)
|
|
|
|
(518
|
)
|
|
|
(148
|
)
|
|
Treasury stock purchases
|
|
|
—
|
|
|
|
|
(490
|
)
|
|
|
—
|
|
|
Dividends paid
|
|
|
—
|
|
|
|
|
(3
|
)
|
|
|
(10,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(59
|
)
|
|
|
|
(123,006
|
)
|
|
|
(48,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(4,637
|
)
|
|
|
|
(110,273
|
)
|
|
|
62,901
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
12,239
|
|
|
|
|
122,512
|
|
|
|
31,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
7,602
|
|
|
|
$
|
12,239
|
|
|
$
|
94,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
Cash interest paid for the period from August 13, 2010 to September 30, 2010, for the period from January 1, 2010 to August 12, 2010 and for the nine months
ended September 30, 2010 and 2009 is
approximately $0.5 million, $3.8 million and $4.3 million, respectively.
See Notes to Condensed Consolidated Financial Statements.
6
Care Investment Trust Inc. and Subsidiaries
—
Notes to
Condensed Consolidated Financial Statements (Unaudited)
September 30, 2010
Note 1
—
Organization
Care Investment Trust Inc. (together with its subsidiaries, the “Company” or “Care” unless
otherwise indicated or except where the context otherwise requires, “we”, “us” or “our”) is a real
estate investment trust (“REIT”) with a geographically diverse portfolio of senior housing and
healthcare-related assets in the United States. Since its inception, Care has been externally
managed and advised by CIT Healthcare LLC (“CIT Healthcare”). See Note 2. As of September 30, 2010, Care’s
portfolio of assets consisted of real estate and mortgage related assets for senior housing
facilities, skilled nursing facilities, medical office properties and first mortgage liens on
healthcare related assets. Our owned senior housing facilities are leased, under “triple-net”
leases, which require the tenants to pay all property-related expenses.
Care elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable
year ended December 31, 2007. To maintain our tax status as a REIT, we are required to distribute
at least 90% of our REIT taxable income to our stockholders. At present, Care does not have any
taxable REIT subsidiaries (“TRS”), but in the normal course of business expects to form such
subsidiaries as necessary.
Note 2
—
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
On August 13, 2010, Care completed the sale of control of the Company to Tiptree Financial
Partners, L.P. (“Tiptree”) through a combination of a $55.7 million equity investment by Tiptree in
newly issued common stock of the Company at $9.00 per share, and a cash tender (the “Tender Offer”)
by the Company for all of the Company’s previously issued and outstanding shares of common stock (the “Tiptree Transaction”). 97.4% of
previously existing shareholders tendered their shares in connection
with the Tiptree Transaction, and the Company simultaneously issued to Tiptree 6,185,050 newly issued
shares of the Company’s common stock, representing ownership of
approximately 92.2% of the Company. Pursuant to the Tiptree Transaction, CIT Healthcare will cease
to manage the Company as of November 16, 2010. Thereafter, Care shall be managed through a
combination of internal management and a services agreement with
TREIT Management LLC (“TREIT”) an affiliate of Tiptree.
The
Tiptree Transaction was accounted for as a purchase in accordance
with ASC 805
(“Business
Combinations,”)
(“ASC 805”) and the purchase price was pushed
down to the Company’s
financial statements in accordance with SEC Staff Accounting Bulletin Topic 5J
(“New Basis of
Accounting Required in Certain Circumstances”.)
When using the push down basis of accounting, the
acquired company’s separate financial statements reflects the new accounting basis recorded by the
acquiring company. Accordingly, Tiptree's purchase
accounting adjustments have been reflected in the Company’s
condensed consolidated financial statements for
the period commencing on August 13, 2010. The new basis of accounting reflects the estimated fair
value of the Company’s assets and liabilities as of the date of the Tiptree Transaction.
As a result of the Tiptree Transaction, the periods prior to August 13, 2010, for which the
Company’s results of operations, financial position and cash flows are presented, are reported as
the “Predecessor” periods. The period from August 13, 2010 through September 30, 2010, for which
the Company’s results of operations, financial position, and cash flows are presented, is reported
as the “Successor” period.
The following table shows fair value of assets and liabilities on the date of the Tiptree
transaction resulting in an adjustment
to paid-in capital of $22.7
million:
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
|
Fair Value as of
|
|
|
Item
|
|
|
|
|
|
August 13, 2010
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Real Estate, Net
|
|
|
|
|
|
$
|
107,022
|
|
|
Cash
|
|
|
|
|
|
|
12,239
|
|
|
Investments in loans
|
|
|
|
|
|
|
9,553
|
|
|
Investments in partially-owned entities
|
|
|
|
|
|
|
43,350
|
|
|
Accrued interest receivable
|
|
|
|
|
|
|
127
|
|
|
Identified intangible assets — leases in place
|
|
|
|
|
|
|
6,693
|
|
|
Other assets
|
|
|
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
179,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
|
|
|
|
|
82,074
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
7,512
|
|
|
Accrued expenses payable to related party
|
|
|
|
|
|
|
3,186
|
|
|
Obligation to issue operating partnership units
|
|
|
|
|
|
|
2,932
|
|
|
Other liabilities
|
|
|
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
$
|
96,229
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
of net assets acquired
|
|
|
|
|
|
$
|
83,049
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid by Tiptree for 6,185,050 shares at $9.00 per share
|
|
|
|
|
|
|
55,665
|
|
|
Shares not
tendered, 523,874 shares at $9.00 per share
|
|
|
|
|
|
|
4,715
|
|
|
Adjustment
to additional paid-in capital to reflect fair value
|
|
|
|
|
|
|
22,669
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
$
|
83,049
|
|
|
|
|
|
|
|
|
|
|
7
For purposes of determining estimated fair value of the assets and liabilities of the Company
as of August 13, 2010, historical values were used for cash and cash equivalents as well as short
term receivables and payables. For real estate, investments in loans, investments in
partially-owned entities, leases in place and mortgage notes payable, the value for each such item was independently
determined using a combination of internal models based on historical operating performance in
order to determine projections for future performance and applying available current market data,
including but not limited to, published industry discount and capitalization rates for similar or
comparable items, historical appraisals and applicable interest rates on newly originated mortgage
financing as adjusted to take into consideration other relevant
variables,
The accompanying condensed consolidated financial statements are unaudited. In our opinion,
all adjustments (which include fair value adjustments related to the acquisition and normal
recurring adjustments) necessary to present fairly the financial position, results of operations
and cash flows have been made. The condensed consolidated balance sheet as of December 31, 2009 has
been derived from the audited consolidated balance sheet as of that date. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”) have been omitted
in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. These condensed
consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the year
ended December 31, 2009, as filed with the Securities and Exchange Commission (“SEC”). The
predecessor results of operations for the period
from January 1, 2010 to August 12, 2010 and the
successor results of operations for the period from August 13, 2010 to September 30, 2010 are not
necessarily indicative of the operating results for the full year.
The Company has no items of other comprehensive income, and accordingly, net income or loss is
equal to comprehensive income or loss for all periods presented.
Note 3
—
Recently Issued Accounting Pronouncements
Accounting Standards Codification (“ASC”)
In June 2009, the FASB issued a pronouncement establishing the FASB Accounting Standards
Codification as the source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with GAAP. The standard explicitly
recognizes rules and interpretive releases of the SEC under federal securities laws as
authoritative GAAP for SEC registrants. This standard is effective for financial statements issued
for fiscal years and interim periods ending after September 15, 2009. The Company adopted this
standard in the third quarter of 2009.
Disclosures about Fair Value of Financial Instruments
On July 21, 2010, the FASB issued ASU 2010-20 which amends ASC 310 by requiring more robust
and disaggregated disclosures about the credit quality of an entity’s financing receivables and its
allowance for credit losses. For purposes of ASU 2010-20, financing receivables includes mortgage
loans. This standard is effective for financial statements issued for fiscal years and interim
periods ending after December 15, 2010. The Company is currently evaluating the impact of this
provision on its financial statements.
Loans
In July 2010, the FASB issued ASU 2010-20, which amends ASC 310 by requiring additional
information about the credit quality of an entity’s financing receivables, including loans, and its
allowance for losses. New disclosures that relate to information as of the end of a reporting
period will be effective for the first interim or annual reporting periods ending on or after
December 15, 2010. The Company is evaluating whether or not the adoption of the standard will have
a material effect on its consolidated financial statements and will adopt it when it becomes
effective.
8
Note 4
—
Investments in Partially-Owned Entities
For the successor company period from August 13, 2010 to September 30, 2010 and for the
predecessor company periods from January 1, 2010 to August 12, 2010 and from July 1, 2010 to August
12, 2010, the net loss in our equity interest related to the Cambridge Holdings, Inc. (“Cambridge”)
portfolio amounted to approximately $0.6 million, $2.7 million and $0.6 million, respectively. This
included $5.6 million for the period from January 1, 2010
to August 12, 2010, $1.2 million for the period from
July 1, 2010 to August 12, 2010 (predecessor) and $1.2 million for
the period from August 13, 2010 to September 30, 2010 (successor), attributable to our share of the
depreciation and amortization expense associated with the Cambridge properties.
For the periods from January 1, 2010 to August 12, 2010 and
August 13, 2010 to September 30, 2010 (successor),
the Company invested approximately $705,000 and
$185,000, respectively, in tenant improvements related to
the Cambridge properties. The Company’s investment in the Cambridge entities was $32.9 million at
September 30, 2010, and $49.3 million at December 31,
2009. For the periods from January 1, 2010 to August 12, 2010 (predecessor) and
August 13, 2010 to September 30, 2010,
we received approximately $2.9 million and $1.2 million,
respectively, of distributions
related to our share of distributions for the fourth quarter of 2009
and the first and second quarters of 2010.
For the successor company period from August 13, 2010 to September 30, 2010 and for the
predecessor company periods from January 1, 2010 to August 12, 2010 and from July 1, 2010 to August
12, 2010, we recognized approximately $0.1 million, $0.9 million and $0.2 million, respectively, in
equity income from our interest in Senior Management Concepts, LLC (“SMC”) and received
approximately $0.1 million, $0.9 million and $.2 million, respectively, in distributions. Our
agreements with SMC require that SMC pay a preferred return to the Company. In accordance with ASC
970-323, the payment of the preferred return to Care represents income to us that will be recorded
whether SMC has net income or net loss for any period. The Company’s investment in SMC was $8.7
million at September 30, 2010, and $6.8 million at
December 31, 2009.
Note 5
— Summarized Financial Information — Partially-Owned Entities
Four of the eight Cambridge legal entities had a 2009 pre-tax loss which was greater than 20%
of the Company’s 2009 loss. Summarized financial data for those four entities individually and
aggregated for the remaining Cambridge entities with greater than
9
10% and less than 10% of the Company’s 2009 loss as of and for the three and nine months ended September 30, 2010 and
September 30, 2009 is as follows (in millions):
September 30, 2010
Balance Sheet Summary
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
|
>10% of Care’s
|
|
|
<10% of Care’s
|
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss (A)
|
|
|
2009 Loss (B)
|
|
|
Combined
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
56.5
|
|
|
$
|
20.4
|
|
|
$
|
35.1
|
|
|
$
|
12.9
|
|
|
$
|
52.4
|
|
|
$
|
20.6
|
|
|
$
|
197.8
|
|
|
Other Assets
|
|
|
4.9
|
|
|
|
1.9
|
|
|
|
3.1
|
|
|
|
1.5
|
|
|
|
8.3
|
|
|
|
1.9
|
|
|
|
21.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
61.4
|
|
|
$
|
22.3
|
|
|
$
|
38.2
|
|
|
$
|
14.4
|
|
|
$
|
60.7
|
|
|
$
|
22.5
|
|
|
$
|
219.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Debt
|
|
$
|
55.0
|
|
|
$
|
14.0
|
|
|
$
|
28.5
|
|
|
$
|
12.1
|
|
|
$
|
50.2
|
|
|
$
|
18.6
|
|
|
$
|
178.4
|
|
|
Other Liabilities
|
|
|
4.3
|
|
|
|
0.9
|
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
4.4
|
|
|
|
0.5
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
59.3
|
|
|
$
|
14.9
|
|
|
$
|
30.2
|
|
|
$
|
13.3
|
|
|
$
|
54.6
|
|
|
$
|
19.1
|
|
|
$
|
191.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
2.1
|
|
|
$
|
7.4
|
|
|
$
|
8.0
|
|
|
$
|
1.1
|
|
|
$
|
6.1
|
|
|
$
|
3.4
|
|
|
$
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
Balance Sheet Summary
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
|
>10% of Care’s
|
|
|
<10% of Care’s
|
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss (A)
|
|
|
2009 Loss (B)
|
|
|
Combined
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
58.8
|
|
|
$
|
20.6
|
|
|
$
|
36.7
|
|
|
$
|
13.7
|
|
|
$
|
53.8
|
|
|
$
|
21.3
|
|
|
$
|
204.9
|
|
|
Other Assets
|
|
|
5.1
|
|
|
|
2.1
|
|
|
|
3.2
|
|
|
|
1.5
|
|
|
|
10.5
|
|
|
|
1.8
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
63.9
|
|
|
$
|
22.7
|
|
|
$
|
39.9
|
|
|
$
|
15.2
|
|
|
$
|
64.3
|
|
|
$
|
23.1
|
|
|
$
|
229.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Debt
|
|
$
|
55.1
|
|
|
$
|
14.0
|
|
|
$
|
28.5
|
|
|
$
|
12.1
|
|
|
$
|
50.4
|
|
|
$
|
18.6
|
|
|
$
|
178.7
|
|
|
Other Liabilities
|
|
|
3.6
|
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
1.1
|
|
|
|
5.2
|
|
|
|
0.4
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
58.7
|
|
|
$
|
14.8
|
|
|
$
|
30.2
|
|
|
$
|
13.2
|
|
|
$
|
55.6
|
|
|
$
|
19.0
|
|
|
$
|
191.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
5.2
|
|
|
$
|
7.9
|
|
|
$
|
9.7
|
|
|
$
|
2.0
|
|
|
$
|
8.7
|
|
|
$
|
4.1
|
|
|
$
|
37.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Summary for the 9 months ended September 30, 2010
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
|
>10% of Care’s
|
|
|
<10% of Care’s
|
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss (A)
|
|
|
2009 Loss (B)
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenue
|
|
$
|
3.7
|
|
|
$
|
2.2
|
|
|
$
|
1.6
|
|
|
$
|
0.8
|
|
|
$
|
4.3
|
|
|
$
|
1.3
|
|
|
$
|
13.9
|
|
|
Operating Expense Reimbursements
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
4.1
|
|
|
Other Income
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.9
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
5.2
|
|
|
$
|
2.4
|
|
|
$
|
3.2
|
|
|
$
|
1.3
|
|
|
$
|
5.4
|
|
|
$
|
1.7
|
|
|
$
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
1.6
|
|
|
$
|
0.9
|
|
|
$
|
0.9
|
|
|
$
|
0.6
|
|
|
$
|
2.2
|
|
|
$
|
0.4
|
|
|
$
|
6.6
|
|
|
Depreciation and Amortization
|
|
|
2.2
|
|
|
|
1.0
|
|
|
|
1.4
|
|
|
|
0.7
|
|
|
|
2.2
|
|
|
|
0.6
|
|
|
|
8.1
|
|
|
Total Expenses
|
|
|
6.6
|
|
|
|
2.6
|
|
|
|
3.6
|
|
|
|
1.9
|
|
|
|
6.7
|
|
|
|
1.7
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1.4
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
—
|
|
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Income
Statement Summary for the 9 months ended September 30, 2009
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
|
>10% of Care’s
|
|
|
<10% of Care’s
|
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss (A)
|
|
|
2009 Loss (B)
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenue
|
|
$
|
3.5
|
|
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
0.8
|
|
|
$
|
4.4
|
|
|
$
|
1.3
|
|
|
$
|
13.2
|
|
|
Operating Expense Reimbursements
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
3.8
|
|
|
Other Income
|
|
|
0.3
|
|
|
|
—
|
|
|
|
0.8
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
5.1
|
|
|
$
|
1.7
|
|
|
$
|
3.1
|
|
|
$
|
1.2
|
|
|
$
|
5.5
|
|
|
$
|
1.8
|
|
|
$
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
1.6
|
|
|
$
|
0.8
|
|
|
$
|
0.9
|
|
|
$
|
0.6
|
|
|
$
|
2.1
|
|
|
$
|
0.3
|
|
|
$
|
6.3
|
|
|
Depreciation and Amortization
|
|
|
2.3
|
|
|
|
1.0
|
|
|
|
1.5
|
|
|
|
0.6
|
|
|
|
2.3
|
|
|
|
0.8
|
|
|
|
8.5
|
|
|
Total Expenses
|
|
|
6.7
|
|
|
|
2.5
|
|
|
|
3.8
|
|
|
|
1.8
|
|
|
|
6.7
|
|
|
|
2.0
|
|
|
|
23.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1.6
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Summary for the 3 Months ended September 30, 2010
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
|
>10% of Care’s
|
|
|
<10% of Care’s
|
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss (A)
|
|
|
2009 Loss (B)
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenue
|
|
$
|
1.2
|
|
|
$
|
0.8
|
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
$
|
4.3
|
|
|
$
|
0.5
|
|
|
$
|
7.6
|
|
|
Operating Expense Reimbursements
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
2.2
|
|
|
Other Income
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
1.7
|
|
|
$
|
0.9
|
|
|
$
|
1.1
|
|
|
$
|
0.5
|
|
|
$
|
5.3
|
|
|
$
|
0.7
|
|
|
$
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
0.7
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
2.2
|
|
|
$
|
0.1
|
|
|
$
|
3.9
|
|
|
Depreciation and Amortization
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
2.2
|
|
|
|
0.2
|
|
|
|
4.1
|
|
|
Total Expenses
|
|
|
2.3
|
|
|
|
0.9
|
|
|
|
1.2
|
|
|
|
0.7
|
|
|
|
6.6
|
|
|
|
0.6
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(0.6
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
—
|
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Summary for the 3 Months ended September 30, 2009
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
|
>10% of Care’s
|
|
|
<10% of Care’s
|
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss (A)
|
|
|
2009 Loss (B)
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenue
|
|
$
|
1.2
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
0.3
|
|
|
$
|
4.4
|
|
|
$
|
0.4
|
|
|
$
|
7.4
|
|
|
Operating Expense Reimbursements
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
1.9
|
|
|
Other Income
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
1.6
|
|
|
$
|
0.6
|
|
|
$
|
1.1
|
|
|
$
|
0.4
|
|
|
$
|
5.5
|
|
|
$
|
0.6
|
|
|
$
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
2.1
|
|
|
$
|
0.1
|
|
|
$
|
3.5
|
|
|
Depreciation and Amortization
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
2.3
|
|
|
|
0.3
|
|
|
|
4.4
|
|
|
Total Expenses
|
|
|
2.2
|
|
|
|
0.8
|
|
|
|
1.3
|
|
|
|
0.6
|
|
|
|
6.7
|
|
|
|
0.6
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(0.6
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
— Aggregated amounts for the following three entities whose 2009 significance
is between 10% and 20% to Care: Howell, Gorbutt and Westgate.
|
|
|
|
(B)
|
|
— Amounts for one entity, Southlake, whose 2009 significance is less than 10% to Care.
|
Summarized financial information as of and for the three and nine months ended September 30,
2010 and September 30, 2009, for the Company’s unconsolidated joint venture in SMC is as follows
(in millions):
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and
|
|
As of and
|
|
As of and
|
|
As of and
|
|
|
|
for the
|
|
for the
|
|
for the
|
|
for the
|
|
|
|
Three
|
|
Three
|
|
Nine
|
|
Nine
|
|
|
|
Months
|
|
Months
|
|
Months
|
|
Months
|
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
|
Sept 30,
|
|
Sept 30,
|
|
Sept 30,
|
|
Sept 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Assets
|
|
$
|
55.5
|
|
|
$
|
57.6
|
|
|
$
|
55.5
|
|
|
$
|
57.6
|
|
|
Liabilities
|
|
|
53.6
|
|
|
|
54.2
|
|
|
|
53.6
|
|
|
|
54.2
|
|
|
Equity
|
|
|
1.9
|
|
|
|
3.4
|
|
|
|
1.9
|
|
|
|
3.4
|
|
|
Revenue
|
|
|
1.3
|
|
|
|
1.2
|
|
|
|
4.0
|
|
|
|
3.7
|
|
|
Expenses
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
4.3
|
|
|
|
4.3
|
|
|
Net loss
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
Note 6 — Investments
in Loans
Investments
in loans amounted to $9.4 million at September 30, 2010 and $25.3
million at December 31, 2009. For the year ended December 31, 2009, we carried our loan investments at the lower of cost or market (“LOCOM”). Our intent is to hold our remaining loan investment to maturity, and we have therefore reflected this loan at its amortized cost basis on the September 30, 2010 balance sheet. The
principal amortization portion of payments received is applied to the carrying value at the ratio of
carrying value to original principal, and the remaining portion of the payment is recorded as
interest income.
Note 7 — Borrowings under Mortgage Notes Payable
On June 26, 2008, in connection with the acquisition of the twelve properties from Bickford
Senior Living Group LLC (“Bickford”), the Company entered into a mortgage loan with Red Mortgage
Capital, Inc. for $74.6 million. The terms of the mortgage require interest-only payments at a
fixed interest rate of 6.845% for the first twelve months. Commencing on July 2009 and
every month thereafter, the mortgage loan requires a fixed monthly payment of $0.5 million for both
principal and interest, until the maturity in July 2015 when
the then outstanding balance of $69.6 million is due and payable. The mortgage loan is
collateralized by the properties.
On September 30, 2008 with the acquisition of the two additional properties from Bickford, the
Company entered into an additional mortgage loan with Red Mortgage Capital, Inc. for $7.6 million.
The terms of the mortgage require payments based on a fixed interest rate of 7.17%. Commencing on
the first of November 2008 and every month thereafter, the mortgage loan requires a fixed monthly
payment of approximately $52,000 for both principal and interest until the maturity in July 2015
when the then outstanding balance of $7.1 million is due and payable. The mortgage loan is
collateralized by the properties.
In connection with the push down accounting from the Tiptree Transaction, the mortgage notes
payable were recorded at their fair value of $82.1 million, or an increase of approximately
$0.8 million, which is being amortized over the remaining period to maturity of the
debt.
Note 8 — Related Party Transactions
Management Agreement with CIT Healthcare
12
The
Company entered into an Amended and Restated Management Agreement,
dated as of January 15, 2010 (“A&R Management Agreement”) which amended the original Management
Agreement,
dated on June 27, 2007 (the “Management Agreement”), as amended by Amendment No. 1 to the Management Agreement. A&R Management Agreement became
effective upon approval by the Company’s stockholders of the plan of liquidation on January 28,
2010. Pursuant to its terms, the A&R Management Agreement was to
continue in effect until December 31, 2011, unless earlier terminated in
accordance with its terms. Effective February 1, 2010, the A&R Management Agreement also reduced the base
management fee to a monthly amount equal to $125,000 subject to
further reduction. In addition, the termination fee of $15.4 million
was replaced by a buyout payment of $7.5 million.
On
November 4, 2010, the Company entered into a Termination, Cooperation and Confidentiality
Agreement (the “CIT Termination Agreement”) with CIT Healthcare LLC.
Pursuant to the CIT Termination Agreement, the parties agreed to terminate the A&R
Management Agreement effective as of November 16, 2010 (the “Termination Effective Date”),
subject to extension of the Termination Effective Date under certain circumstances as set
forth in the CIT Termination Agreement. The CIT Termination Agreement also provides for an
180 day cooperation period beginning on the Termination Effective Date relating to the
transition of management of the Company from CIT Healthcare to the officers of the Company,
a two year mutual confidentiality period and a mutual release of all claims related to CIT
Healthcare’s management of the Company. Under the CIT Termination Agreement, the parties
agree that in lieu of the payments otherwise required under the termination provisions of
the A&R Management Agreement, the Company will pay to CIT Healthcare on the Termination
Effective Date $2.4 million plus any earned but unpaid monthly installments of the base
management fee due under the A&R Management Agreement.
This amount is included in accrued expenses payable to related party balance on the September 30, 2010 balance
sheet. The Company previously paid $5.0 million of this buyout fee during the first two quarters
of the year.
Services
Agreement with TREIT Management LLC
On November 4, 2010, the Company entered into a Services Agreement (the “Services Agreement”)
with TREIT pursuant to which TREIT will provide certain advisory services related to the Company’s
business beginning on the Termination Effective Date. For such services, the Company will pay TREIT
a monthly base services fee in arrears of one-twelfth of 0.5% of the Company’s Equity (as defined
in the Services Agreement) and a quarterly incentive fee of 15% of the Company’s
AFFO Plus Gain/(Loss) On Sale (as defined in the Services Agreement) so long as and to the extent
that the Company’s AFFO Plus Gain /(Loss) on Sale exceeds an
amount equal to Equity multiplied by the Hurdle Rate (as defined in the Services Agreement).
Twenty percent (20%) of any such incentive fee shall be paid in shares of common stock of the
Company, unless a greater percentage is requested by TREIT and approved by an independent committee
of directors. The initial term of the Services Agreement extends until December 31, 2013, unless
terminated earlier in accordance with the terms of the Services Agreement and will be automatically
renewed for one year periods following such date unless either party elects not to renew the
Services Agreement in accordance with its terms. If the Company elects to terminate without cause,
or elects not to renew the Services Agreement, a Termination Fee (as defined in the Services
Agreement) shall be payable by the Company to TREIT.
We are also responsible for reimbursing CIT Healthcare for its pro rata portion of certain
expenses detailed in the initial agreement and subsequent amendments, such as rent, utilities,
office furniture, equipment, and overhead, among others, required for our operations. Transactions
with CIT Healthcare during the nine months ended September 30, 2010 and September 30, 2009
included:
|
|
•
|
|
Our expense recognition of $7.4 million for the nine months ended September 30, 2010 for
the buyout payment obligation, of which $2.4 million is recorded as a liability as of
September 30, 2010.
|
|
|
|
|
•
|
|
Our expense recognition of $1.2 million and $1.7 million for the nine months ended
September 30, 2010 and September 30, 2009, respectively for
the base management fee.
|
|
|
|
|
•
|
|
On February 3, 2009, the Company closed on the sale of a loan to CIT Healthcare for
proceeds of $22.5 million.
|
|
|
|
|
•
|
|
On August 19, 2009, the Company closed on the sale of a loan to CIT Healthcare for proceeds of
$2.3 million.
|
|
|
|
|
•
|
|
On September 16, 2009, the Company closed on the sale of a loan to CIT Healthcare for proceeds
of $17.4 million.
|
Note 9 — Fair Value of Financial Instruments
The Company has established processes for determining fair values, and fair value is based on
quoted market prices, where available. If listed prices or quotes are not available, then fair
value is based upon internally developed models that primarily use inputs that are market-based or
independently-sourced market parameters.
A financial instrument’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The three levels of
valuation hierarchy are defined as follows:
13
Level 1 —
inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 —
inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 —
inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
The following describes the valuation methodologies used for the Company’s financial
instruments measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy.
Investments in loans at LOCOM—
the fair value of the portfolio is based primarily on
appraisals from third parties. Investing in healthcare-related commercial mortgage debt is
transacted through an over-the-counter market with minimal pricing transparency. Loans are
infrequently traded and market quotes are not widely available and disseminated. The Company also
gives consideration to its knowledge of the current marketplace and the credit worthiness of the
borrowers in determining the fair value of the portfolio.
Obligation to issue operating partnership units —
the fair value of our obligation to issue
operating partnership units is based on an internally developed valuation model, as quoted market
prices are not available nor are quoted prices for similar liabilities. Our model involves the use
of management estimates as well as some Level 2 inputs. The variables in the model include the
estimated release dates of the shares out of escrow, based on the expected performance of the
underlying properties, a discount factor of approximately 20% as of September 30, 2010 and 15% as
of December 31, 2009, and the market price and expected quarterly dividend of Care’s common shares
at each measurement date.
The following table presents the Company’s financial instruments carried at fair value on the
condensed consolidated balance sheets as of September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2010
|
|
|
(dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
|
(dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in loans at LOCOM
|
|
$
|
—
|
|
|
$
|
16.1
|
|
|
$
|
9.2
|
|
|
$
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present reconciliations for all assets and liabilities measured at fair value
on a recurring basis using significant Level 3 inputs during the nine months ended September 30,
2010. Level 3 instruments presented in the tables include a liability to issue operating
partnership units, which are carried at fair value. The Level 3 instruments were valued using
internally developed valuation models that, in management’s judgment, reflect the assumptions a
marketplace participant would use at September 30, 2010:
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
|
Instruments
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
Obligation to
|
|
|
Investments
|
|
|
|
|
issue
|
|
|
in
|
|
|
|
|
Partnership
|
|
|
Loans at
|
|
|
(dollars in millions)
|
|
Units
|
|
|
LOCOM
|
|
|
Balance, December 31, 2009, Predecessor
|
|
$
|
(2.9
|
)
|
|
$
|
25.3
|
|
|
Repayments of loans
|
|
|
—
|
|
|
|
(10.7
|
)
|
|
Sales of loan to a third party
|
|
|
—
|
|
|
|
(5.9
|
)
|
|
Total unrealized gain included in income statement
|
|
|
—
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Balance, August 12, 2010, Predecessor
|
|
$
|
(2.9
|
)
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain from obligations owed/investments held at August 12, 2010
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
|
|
Balance, September 30, 2010, Successor
|
|
$
|
(2.4
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net change
in unrealized gain from obligations owed/investments held at
September 30, 2010
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Estimates and other assets and liabilities in financial statements
In addition, we are required to disclose fair value information about financial instruments,
whether or not recognized in the financial statements, for which it is practical to estimate that
value. In cases where quoted market prices are not available, fair value is based upon the
application of discount rates to estimated future cash flows based on market yields or other
appropriate valuation methodologies. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts we could realize on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
In addition to the amounts reflected in the financial statements at fair value as noted above,
cash equivalents, accrued interest receivable, and accounts payable and accrued expenses reasonably
approximate their fair values due to the short maturities of these items. Management believes that
the remaining balance of mortgage notes payable of approximately $74.0 million and $7.5 million
that were incurred from the acquisitions of the Bickford properties on June 26, 2008 and September
30, 2008, respectively, have been recorded in connection with the purchase transaction at their
fair value of approximately $82.1 million on August 13, 2010, which approximates the fair value as
of September 30, 2010.
The Company is exposed to certain risks relating to its ongoing business. The primary risk
which can be managed by using derivative instruments is interest rate risk. Interest rate caps are entered into
to manage interest rate risk associated with the Company’s borrowings. The company has no interest
rate caps as of September 30, 2010 because the Company does not have any variable rate exposure on
existing debt.
We are required to recognize all derivative instruments as either assets or liabilities at
fair value in the statement of financial position. The Company has not designated any of its
derivatives as hedging instruments. The Company’s financial statements included the following fair
value amounts on derivative instruments (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Balance
|
|
Balance
|
|
|
Balance
|
|
|
|
|
Derivatives not designated as
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
|
hedging instruments
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Operating Partnership Units
|
|
Obligation to issue operating partnership units
|
|
$
|
(2,440
|
)
|
|
Obligation to issue operating partnership units
|
|
$
|
(2,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10
—
Stockholders’ Equity
Our authorized capital stock consists of 100,000,000 shares of preferred stock, $0.001 par
value and 250,000,000 shares of common stock, $0.001 par value. As of September 30, 2010, no shares
of preferred stock were issued and outstanding and 30,863,442 shares and 10,063,386 shares of
common stock were issued and outstanding, respectively.
15
On December 10, 2009, the Company granted special transaction performance share awards to plan
participants for an aggregate amount of 15,000 shares at target levels and an aggregate maximum amount of
30,000 shares. On February 23, 2010, the terms of the awards were modified such that the awards were triggered upon the execution, during 2010, of one or more of the following transactions that
resulted in liquidity to the Company’s stockholders within the parameters expressed in
the special transaction performance share awards agreement: (i) a merger or other business
combination resulting in the disposition of all of the issued and outstanding equity securities of
the Company, (ii) a tender offer made directly to the Company’s stockholders either by the Company
or a third party for at least a majority of the Company’s issued and outstanding common stock, or
(iii) the declaration of aggregate distributions by the Company’s Board equal to or exceeding $8.00
per share. 2,000 of these shares were forfeited and the maximum target level was reached
when the tender offer transaction and sale of shares to Tiptree was completed on August 13, 2010,
triggering the issuance of the aggregate maximum 28,000 shares on that day.
As of September 30, 2010, 238,110 shares remain available for future issuances under the
Equity Plan and 282,945 shares remain available for future issuances under the Manager Plan.
Shares Issued to Directors for Board Fees:
On
January 4, 2010, April 8, 2010, July 2, 2010 and
October 18, 2010, 8,030, 5,604, 5,772 and
1,596 shares of common stock with an aggregate fair value of approximately $170,500 were granted to
our independent directors as part of their annual retainer. Each independent director receives an
annual base retainer of $50,000, payable quarterly in arrears, of which 70% is paid in cash and 30%
in common stock of Care. Shares granted as part of the annual retainer vest immediately and are
included in general and administrative expense.
Note
11
—
(Loss)/income per Share (in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
|
|
For the period
|
|
|
For the period
|
|
|
|
|
|
from August 13,
|
|
|
from July 1, 2010
|
|
Three Months
|
|
|
|
2010 to
|
|
|
to
|
|
Ended
|
|
|
|
September 30, 2010
|
|
|
August 12, 2010
|
|
September 30, 2009
|
|
(Loss)/income per share, basic and diluted Numerator
|
|
$
|
(0.04
|
)
|
|
|
$
|
(0.33
|
)
|
|
$
|
(0.02
|
)
|
|
Net (loss)/income
|
|
$
|
(384
|
)
|
|
|
$
|
(6,609
|
)
|
|
$
|
(430
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding — basic and diluted (1)
|
|
|
10,063,386
|
|
|
|
|
20,235,636
|
|
|
|
20,075,018
|
|
|
|
|
|
|
(1)
|
|
The Company completed a three-for-two stock split in
September 2010 in the form of a stock dividend.
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
Predecessor
|
|
|
|
For the period
|
|
|
|
|
|
from January 1,
|
|
Nine Months
|
|
|
|
2010 to
|
|
Ended
|
|
|
|
August
12, 2010
|
|
September 30, 2009
|
|
(Loss)/income per share, basic and diluted Numerator
|
|
$
|
(0.84
|
)
|
|
$
|
0.08
|
|
|
Net (loss)/income
|
|
$
|
(16,941
|
)
|
|
$
|
1,532
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic and diluted
|
|
|
20,221,329
|
|
|
|
20,052,917
|
|
Note 12
—
Commitments and Contingencies
As of September 30, 2010, Care was obligated to provide approximately $1.0 million in tenant
improvements in 2010 related to our purchase of the Cambridge properties.
Under our Management Agreement,
as amended CIT Healthcare, subject to the oversight of the Company’s
board of directors, is required to manage the day-to-day activities of Care, for which CIT Healthcare
receives a base management fee.
The A&R Management Agreement
expires on the earlier of December 31, 2011 or upon its termination (as provided therein). The base management fee
is payable monthly in arrears. Prior to February 1, 2010, the base management fee was equal to 1/12
of 0.875% of the Company’s stockholders’ GAAP equity. Thereafter,
monthly fee was reduced to $125,000 which could decrease subject to additional provisions. In addition, under the
amended terms, the Company is required to pay CIT Healthcare a buyout payment of $7.5 million, payable in three
installments of $2.5 million. The first two installments were each paid when due on January 28,
2010 and April 1, 2010, respectively. The third and final
payment is payable on the earlier of June 30,
2011 or the effective date of the termination of the Management Agreement if earlier. As of September
30, 2010, we have accrued $2.4 million for the final payment as modified by the Termination Agreement.
CIT Healthcare
On November 4, 2010,
the Company entered into the CIT Termination Agreement with CIT Healthcare LLC.
Pursuant to the CIT Termination Agreement, the parties agreed to terminate the A&R Management Agreement
effective as of November 16, 2010, subject to extension of the Termination Effective Date under certain
circumstances as set forth in the CIT Termination Agreement. The CIT Termination Agreement also
provides for an 180 day cooperation period beginning on the Termination Effective Date relating to the
transition of management of the Company from CIT Healthcare to the officers of the Company, a two year
mutual confidentiality period and a mutual release of all claims related to CIT Healthcare’s
management of the Company. Under the CIT Termination Agreement, the parties agree that in lieu of the
payments otherwise required under the termination provisions of the A&R Management Agreement, the
Company will pay to CIT Healthcare on the Termination Effective Date
$2.4 million plus any earned
but unpaid monthly installments of the base management fee due under
the A&R Management Agreement. This amount is included in accrued
expenses payable to related party balance on the September 30, 2010 balance
sheet. The Company previously paid $5.0 million of this buyout fee during the first two quarters
of the year.
Class-action litigation
On September 18, 2007, a class action complaint for violations of federal securities laws was
filed in the United States District Court, Southern District of New York alleging that the
Registration Statement relating to the initial public offering of shares of our common stock, filed
on June 21, 2007, failed to disclose that certain of the assets in the contributed portfolio were
materially impaired and overvalued and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the court entered an order appointing co-lead
plaintiffs and co-lead counsel. On February 19, 2008, the co-lead plaintiffs filed an amended
complaint citing additional evidentiary support for the allegations in the complaint. We believe
the complaint and allegations are without merit and intend to defend against the complaint and
allegations vigorously. We filed a motion to dismiss the complaint on April 22, 2008. The
plaintiffs filed an opposition to our motion to dismiss on July 9, 2008, to which we filed our
reply on September 10, 2008. On March 4, 2009, the court denied our motion to dismiss. Care filed
its answer on April 15, 2009. At a conference held on May 15, 2009, the Court ordered the parties
to make a joint submission (the “Joint Statement”) setting forth: (i) the specific statements that
Plaintiffs claim are false and misleading; (ii) the facts on which Plaintiffs rely as showing each
alleged misstatement was false and misleading and (iii) the facts on which Defendants rely as
showing those statements were true. The parties filed the Joint Statement on June 3, 2009. On July
31, 2009, the parties entered into a stipulation that narrowed the scope of the proceeding to the
single issue of the warehouse financing disclosure in the Registration Statement. Fact discovery
closed on April 23, 2010.
The Court ordered the parties to file an abbreviated joint pre-trial statement on June 9,
2010, and scheduled a pre-trial conference for June 11, 2010. At the conclusion of the pre-trial
conference, the Court asked the parties to agree on a summary judgment briefing schedule, which the
parties did. Defendants filed their motion for summary judgment on July 9, 2010. Summary judgment
briefing was completed on September 17, 2010. The Court has yet to rule on the motion. The outcome
of this matter cannot currently be
17
predicted. To date, Care has incurred approximately $1.0 million to defend against this
complaint and any incremental costs to defend will be paid by Care’s insurer. No provision for loss
related to this matter has been accrued at September 30, 2010.
Cambridge litigation
On November 25, 2009, we filed a lawsuit in the U.S. District Court for the Northern District
of Texas against Mr. Jean-Claude Saada and 13 of his companies (the “Saada Parties”), seeking
declaratory judgments that (i) we have the right to engage in a business
combination transaction involving our company or a sale of our wholly owned subsidiary that serves
as the general partner of the partnership that holds the direct investment in the portfolio without
the approval of the Saada Parties, (ii) the contractual right of the Saada Parties to put their
interests in the Cambridge medical office building portfolio has expired and (iii) the operating
partnership units held by the Saada Parties do not entitle them to receive any special cash
distributions made to our stockholders. We also brought affirmative claims for tortious
interference by the Saada Parties with a prospective contract and for their breach of the implied
covenant of good faith and fair dealing.
On January 27, 2010, the Saada Parties answered our complaint, and simultaneously filed
counterclaims that named our subsidiaries ERC Sub LLC and ERC Sub, L.P., external manager CIT
Healthcare LLC, and then board chairman Flint D. Besecker, as additional third-party defendants. The
Counterclaims seek four declaratory judgments construing certain contracts among the parties that
are largely the mirror image of our declaratory judgment claims. In addition, the Counterclaims
also seek monetary damages for purported breaches of fiduciary duty and the duty of good faith and
fair dealing, as well as fraudulent inducement, against us and the third-party defendants jointly
and severally.
The Counterclaims further request indemnification by ERC Sub, L.P., pursuant to a contract
between the parties, and the imposition of a “constructive trust” on our current assets to be
disposed as part of any future liquidation of Care, including all proceeds from those assets.
Although the Counterclaims do not itemize their asserted damages, they assign these damages a value
of $100 million “or more.” In addition, the Saada Parties filed a motion to dismiss our tortious
interference and breach of the implied covenant of good faith and fair dealing claims on January
27, 2010. In response to the Counterclaims, we filed on March 5, 2010, an omnibus motion to dismiss
all of the Counterclaims.
On March 22, 2010, we received a letter from Cambridge Holdings, which asserted that the
transactions with Tiptree were in violation of our agreements with the Saada Parties.
The Saada Parties filed their opposition to our omnibus motion to dismiss on March 26, 2010,
and we filed our response on April 9, 2010.
On April 14, 2010, the Saada Parties’ motion to dismiss was denied and our motion to dismiss
was also denied.
On April 27, 2010, we filed an answer to the Saada Parties’ third-party complaint. We continue
to believe that the arguments advanced by Cambridge Holdings lack merit. On May 28, 2010,
Cambridge Holdings filed a motion for leave to amend its previously-asserted counterclaims and
third-party complaint to include a new claim for breach of contract against Care. This proposed new
claim asserts that Cambridge Holdings and Care agreed, in October 2009, upon a sale of ERC Sub,
L.P.’s 85% limited partnership interest in the Cambridge properties back to Cambridge Holdings for
$20 million in cash plus certain other arrangements involving the cancellation of partnership units
and existing escrow accounts. The proposed new claim further asserts that Care reneged on this
purported agreement after having previously agreed to all of its material terms, thus “breaching”
the agreement. Further, the proposed new claim seeks specific performance of the purported
contract. Care denies that any agreement of the sort alleged by Cambridge Holdings was ever
reached, and Care also believes that the proposed new claim suffers from several deficiencies. Care
filed its opposition on June 18, 2010 and Cambridge Holdings replied on July 1, 2010. In the
meantime, on June 21, 2010, ERC Sub L.P. sought leave to amend its counterclaims to assert a breach of
contract action against Cambridge Holdings. Cambridge Holdings did not oppose ERC Sub L.P.’s motion. On
August 2, 2010, the Court granted the Saada Parties’ motion for leave to amend, and the Saada
Parties’ filed their Amended Answer, Counterclaims, and Third-Party Complaint on August 4, 2010.
On August 3, 2010, the Court also granted ERC Sub L.P.’s unopposed motion for leave to amend, and ERC
Sub L.P. filed its Amended Answer and Counterclaim on August 5, 2010. The Saada Parties answered ERC
Sub L.P.’s Counterclaim on August 23, 2010. Care moved to dismiss the Saada Parties’ new
breach-of-contract cause of action on August 18, 2010. The Saada Parties responded on September 3,
2010, and Care replied on September 14, 2010. The court denied Care’s motion to dismiss without
opinion on September 21, 2010. Care answered the amended counterclaim on October 6, 2010.
18
On August 20, 2010, pursuant to a court order, the parties jointly designated
a mediator. On September 9, 2010, the parties filed a joint motion asking the court to make
certain scheduling modifications to limit litigation activity and expense prior
to the mediation, including an extension of discovery deadlines. The Court granted the motion on
September 14, 2010. The parties held a court-ordered mediation session on October 19, 2010. To
date, a mediated resolution to the litigation has not been achieved.
The outcome of this matter cannot currently be predicted. To date, Care has incurred expense of approximately $1.8 million to defend against this
complaint. No provision for loss related to this
matter has been accrued at September 30, 2010.
Care is not presently involved in any other material litigation nor, to our knowledge, is any
material litigation threatened against us or our investments, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any, incurred by us related
to litigation will not materially affect our financial position, operating results or liquidity.
Note
13
—
New York Stock Exchange Suspension and Delisting
Following
the completion of the Company’s self-tender, Care’s publicly-held common stock fell below 600,000 shares, to
which the Company provided notice to the New York Stock Exchange (“NYSE”). The Company announced a three-for-two stock split
on September 1, 2010 in the form of a stock dividend in order to increase its publicly-held common stock above the 600,000 share threshold.
The Company received a letter dated August 27, 2010 from the NYSE
stating that (i) the common stock of the Company was suspended from the NYSE as of market close on
August 26, 2010 and (ii) an application by the NYSE to the SEC to delist the Company’s common stock was pending completion of applicable NYSE procedures, which included the
Company’s right to appeal the New York Stock Exchange Staff’s decision. The letter also stated that the NYSE decision
was made after having received the final results on the completion of the Company’s self tender
offer, which confirmed that fewer than 600,000 shares of the Company’s common stock remained
publicly held.
The Company appealed the NYSE Staff’s decision. In order to facilitate trading in its stock
during the pendency of the NYSE appeal process, the Company was listed on the OTCQX listing
platform.
On October 21, 2010 the NYSE Regulation, Inc. Board of Directors’ Committee for Review
rejected the Company’s appeal and affirmed the NYSE Staff’s decision to delist the Company’s common stock. Accordingly, the Company expects the NYSE Staff to
make an application to the SEC to delist the Company’s
common stock in the near future. The Company remains listed and trades on the OTCQX marketplace
under the ticker symbol CVTR.
19
|
|
|
|
|
ITEM 2.
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following should be read in conjunction with the consolidated financial statements and notes
included herein. This “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contains certain non-GAAP financial measures. See “Non-GAAP Financial Measures” and
supporting schedules for reconciliation of our non-GAAP financial measures to the comparable GAAP
financial measures.
Overview
Care Investment Trust Inc. (all references to “Care”, “the Company”, “we”, “us” and “our”
means Care Investment Trust Inc. and its subsidiaries) was initially structured as an
externally-managed real estate investment trust (“REIT”) formed principally to invest in
healthcare-related real estate and mortgage debt. Care was incorporated in Maryland in March 2007,
and we completed our initial public offering on June 22, 2007. We were originally positioned to
make mortgage investments in healthcare-related properties, and to opportunistically invest in real
estate through utilizing the origination platform of CIT Healthcare LLC (“CIT
Healthcare”). We acquired our initial portfolio of mortgage loan assets from CIT Healthcare in
exchange for cash proceeds from our initial public offering and common stock. In response to
dislocations in the overall credit market, and in particular the securitized financing markets, in
late 2007, we redirected our focus to place greater emphasis on high quality healthcare-related
real estate equity investments.
CIT Healthcare is a healthcare finance company that offers a full-spectrum of financing
solutions and related strategic advisory services to companies across the healthcare industry
throughout the United States. CIT Healthcare was formed in 2004 and is a wholly-owned subsidiary of
CIT Group Inc. (“CIT”), a leading middle market global commercial finance company that provides
financial and advisory services.
As of September 30, 2010, we maintained a diversified investment portfolio of $157.5 million
which was comprised of $41.6 million in real estate owned through unconsolidated joint ventures
(26%), $106.5 million in wholly-owned real estate (68%) and $9.4 million in investments in loans
(6%). Our current investments in healthcare real estate
include medical office buildings and assisted and independent living and Alzheimer facilities. Our
loan portfolio is composed of first mortgages on skilled nursing facilities, assisted living
facilities and senior apartments.
As a REIT, we generally will not be subject to federal taxes on our REIT taxable income to the
extent that we distribute our taxable income to stockholders and maintain our status as a qualified
REIT.
On March 16, 2010, we announced the entry into a definitive purchase and sale agreement with
Tiptree Financial Partners, L.P. (“Tiptree”) under which we agreed to sell newly issued common
stock to Tiptree at $9.00 per share which would result in a change in control of our company (the
“Tiptree Transaction”). Additionally, pursuant to the purchase and sale agreement and in
conjunction with the sale of newly issued common stock to Tiptree, we announced the launch of a
cash tender offer to all of our stockholders to purchase up to all of our common stock at $9.00 per
share (the “Tender Offer”).
On August 13, 2010 the Company completed the sale of control to Tiptree for total cash
consideration of approximately $55.7 million through the issuance of 6,185,050 newly issued shares
of the Company’s common stock, representing approximately 92.2% of the Company’s outstanding common
stock after taking into account the shares tendered by the stockholders to the Company in the
Tender Offer, which totaled approximately 19.74 million shares of common stock representing
approximately 97.4% of the outstanding shares of common stock of the Company eligible to be
tendered prior to the new issuance of common stock to Tiptree.
Following the completion of the Tiptree transaction, the Company approved a stock split in the
ratio of three-for-two to be effected in the form of a common stock dividend.
On November 4, 2010, the Company entered into the CIT
Termination Agreement with CIT Healthcare. Pursuant to the CIT Termination Agreement, the
Company and CIT Healthcare agreed to terminate the Amended and Restated Management Agreement dated
as of January 15, 2010 (the “Management Agreement”), between the parties as of November 16, 2010
(the “Termination Date”). As a result, effective as of the Termination Date, the Company shall no
longer be externally managed by CIT Healthcare, but instead by a combination of internal management
and a services agreement with TREIT.
20
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K
for the year ended December 31, 2009 in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” There have been no significant changes to those policies
during the three month period ended September 30, 2010.
Results of Operations
Although our Company continues to exist as the same legal entity after the Tiptree Transaction, as
a result of the application of push down accounting, we are required to present consolidated
financial statements for “predecessor” and “successor” periods. Our predecessor periods relate to
the accounting periods preceding the Tiptree Transaction in which we applied a historical basis of
accounting. Our successor periods relate to the accounting periods following the Tiptree
Transaction in which we have applied push down accounting. To enhance the comparability of our
consolidated results, we have mathematically combined our predecessor consolidated results for the
43 days and the 224 days ended August 12, 2010 and our successor consolidated results for the 49
days ended September 30, 2010. Although this presentation does not comply with GAAP, we believe it
provides the most meaningful comparison of our consolidated results for the three months and nine
months ended September 30, 2010 and September 30, 2009, respectively because it allows us to compare our consolidated results over
equivalent periods of time. Although we believe the foregoing presentation provides the most
meaningful presentation for comparing our results for such three and nine month periods, you should
nonetheless bear in mind that the consolidated financial statements for our predecessor and
successor periods have been prepared using different bases of accounting and, accordingly, are not
directly comparable to one another.
The following table is a non-GAAP presentation which combines the operating results of the
succesor and predecessor entities for the periods overlapping the 2010 third quarter as described
earlier (dollars in thousands — except share and per share data) (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
Ended September
|
|
|
Three Months
|
|
|
Ended September
|
|
|
Nine Months
|
|
|
|
|
30, 2010
|
|
|
Ended September
|
|
|
30, 2010
|
|
|
Ended September
|
|
|
|
|
Successor and
|
|
|
30, 2009
|
|
|
Successor and
|
|
|
30, 2009
|
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
3,283
|
|
|
$
|
3,177
|
|
|
$
|
9,684
|
|
|
$
|
9,518
|
|
|
Income from investments in loans
|
|
|
417
|
|
|
|
1,816
|
|
|
|
1,564
|
|
|
|
6,470
|
|
|
Other income
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
3,700
|
|
|
|
5,014
|
|
|
|
11,248
|
|
|
|
16,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and buyout payments to related party
|
|
|
275
|
|
|
|
570
|
|
|
|
8,579
|
|
|
|
1,722
|
|
|
Marketing, general and administrative
|
|
|
7,821
|
|
|
|
3,055
|
|
|
|
12,006
|
|
|
|
8,359
|
|
|
Depreciation and amortization
|
|
|
993
|
|
|
|
841
|
|
|
|
2,676
|
|
|
|
2,534
|
|
|
Realized gain on sales and repayment of loans
|
|
|
—
|
|
|
|
(1,158
|
)
|
|
|
(4
|
)
|
|
|
(1,180
|
)
|
|
Adjustment to valuation allowance on investments in loans
|
|
|
(28
|
)
|
|
|
(1,706
|
)
|
|
|
(858
|
)
|
|
|
(4,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
9,061
|
|
|
|
1,602
|
|
|
|
22,399
|
|
|
|
6,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investments in partially-owned entities
|
|
|
956
|
|
|
|
1,160
|
|
|
|
2,415
|
|
|
|
3,369
|
|
|
Net unrealized (gain)/loss on derivative instruments
|
|
|
(718
|
)
|
|
|
1,210
|
|
|
|
(450
|
)
|
|
|
(314
|
)
|
|
Interest income
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(104
|
)
|
|
|
(36
|
)
|
|
Interest expense including amortization and write-off of
deferred financing costs
|
|
|
1,420
|
|
|
|
1,472
|
|
|
|
4,314
|
|
|
|
5,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(6,994
|
)
|
|
$
|
(430
|
)
|
|
$
|
(17,324
|
)
|
|
$
|
1,532
|
|
Results for the Three Months Ended September 30, 2010
Revenue
During the three month period ended September 30, 2010, we recognized $3.3 million of rental
revenue on the 12 properties acquired in the Bickford transaction in June 2008 and the
acquisition of two additional properties from Bickford in September 2008, as compared with $3.2
million during the comparable three month period ended September 30, 2009.
We earned investment income on our portfolio of mortgage investments of $0.4 million for the
three month period ended September 30, 2010 as compared with $1.8 million for the comparable three
month period ended September 30, 2009, a decrease of approximately $1.4 million. Our investment in
one mortgage loan as of September 30, 2010 is floating based upon LIBOR. The decrease in income
related to this portfolio is primarily attributable to a lower average outstanding principal loan
balance during the three month period ended September 30, 2010 as compared with the comparable
period during 2009, which was the result of loan prepayments and loan sales that occurred during
the fourth quarter of 2009 and the first quarter of 2010 in connection with the company’s decision
to shift our operating strategy to place greater emphasis on acquiring high quality
healthcare-related real estate investments and away from mortgage investments. Our mortgage loan
investment is variable rate, and at September 30, 2010, had an effective yield of 4.37% and matures
on February 1, 2011. The effective yield on our mortgage portfolio at September 30, 2009 was
5.39%.
Expenses
For the three months ended September 30, 2010, we recorded management fee expense payable to
CIT Healthcare under our Management Agreement of $0.3 million as compared with $0.6 million for the
three month period ended September 30, 2009, a decrease of approximately $0.3 million. The
decrease in management fee expense is primarily attributable to the reduction in the monthly base
management fee in connection with the amended and restated Management Agreement with CIT
Healthcare.
Marketing, general and administrative expenses were $7.8 million for the quarter ended
September 30, 2010 and consist of fees for professional services, insurance, general overhead costs
for the Company and real estate taxes on our facilities as compared with $3.1 million for the three
month period ended September 30, 2009, an increase of approximately $4.7 million. Included in the marketing, general and administrative expenses for the quarter ended September 30, 2010 are predecessor costs for advisory services of $3.5 million, D&O insurance costs of $1.3 million and legal costs associated with the Tiptree transaction and Cambridge litigation of $1.5 million. The increase is
primarily a result of increased legal and advisory fees incurred in connection with the Tiptree Transaction. We recognized an expense of $50,000 and $75,000 related to shares of
our common stock earned by our independent directors as part of their compensation for the three
month periods ended September 30, 2010 and 2009, respectively. The decrease in stock-based
21
compensation to our directors was the result of fewer directors presiding on our Board of Directors
as well as a reduction in the director’s fees payable for services rendered effective August 13, 2010. Each independent
director is paid a base retainer of $50,000 annually, which is payable 70% in cash and 30% in
stock. Payments are made quarterly in arrears. Shares of our common stock issued to our
independent directors as part of their annual compensation vest immediately and are expensed by us
accordingly.
The management fees, expense reimbursements, and the relationship between CIT Healthcare and
us are discussed further in Note 8.
Loss from investments in partially-owned entities
For the three month period ended September 30, 2010, net loss from partially-owned entities
amounted to $1.0 million as compared with a loss of $1.2 million for the three month period ended
September 30, 2009, a decrease of approximately $0.2 million. Our equity in the non-cash operating
loss of the Cambridge properties for the quarter ended September 30, 2010 was $1.3 million, which
included $2.3 million attributable to our share of the depreciation and amortization expenses
associated with the Cambridge properties, which was partially offset by our share of equity income
in the SMC properties of $0.3 million. Notwithstanding the foregoing, total cash received from the Cambridge and SMC investments during the three months ended September 30, 2010 was approximately $1.5 million.
Unrealized gain on derivatives
We
recognized a $0.7 million unrealized gain on the fair value of our obligation to issue
partnership units related to the Cambridge transaction for the three month period ended September
30, 2010 as compared with an unrealized loss of $1.2 million for the three month period ended
September 30, 2009.
Interest Expense
We
incurred interest expense of $1.4 million for the three month period ended September 30,
2010 as compared with interest expense of $1.5 million for the three month period ended September
30, 2009. Interest expense for the quarter was related to the interest payable on the mortgage
debt which was incurred for the acquisition of 14 facilities from Bickford.
Results for the Nine Months Ended September 30, 2010
Revenue
During the nine months ended September 30, 2010, we recognized $9.7 million of rental revenue
on the twelve properties acquired in the Bickford transaction on June 26, 2008 and the acquisition
of two additional properties from Bickford on September 30, 2008, as compared with $9.5 million
during the comparable period ended September 30, 2009, an increase of approximately $0.2 million.
Such increase is the result of contractual increases pursuant to our master lease with Bickford.
We earned investment income on our portfolio of mortgage investments of approximately $1.6
million for the nine month period ended September 30, 2010 as compared to $6.5 million for the
comparable period in 2009, a decrease of approximately $4.9 million. Our mortgage portfolio is
floating rate based upon LIBOR. The decrease in income related to this portfolio is primarily
attributable to a lower average outstanding principal loan balance during the nine month period
ended September 30, 2010 as compared with the comparable period during 2009, which was the result
of loan prepayments and loan sales that occurred during the second half of 2009 and the first
quarter of 2010 in connection with the company’s decision to shift our operating strategy to place
greater emphasis on acquiring high quality healthcare-related real estate investments and away from
mortgage investments. The decrease in income related to our mortgage portfolio is also the result
of the decrease in average LIBOR during the nine months ended September 30, 2010 versus the
comparable period ended September 30, 2009. The average one month LIBOR during the nine month
period ended September 30, 2010 was 0.28% as compared with 0.37% for the nine month period ended
September 30, 2009.
Expenses
For the nine months ended September 30, 2010, we recorded management fee expense payable to
CIT Healthcare under our Management Agreement of approximately $1.2 million consisting of the base
management fee payable to CIT Healthcare under our Management Agreement as compared to $1.7 million
for the nine month period ended September 30, 2009, a decrease of approximately $0.5 million. The
decrease in management fee expense is primarily attributable to the reduction in the monthly base
22
management fee in connection with the January 2010 amendment to the Management Agreement with CIT
Healthcare, which also reduced the fee payable to CIT Healthcare upon termination of the Management
Agreement from $15.4 million to a buyout payment of $7.5 million (which was subsequently reduced to
$7.4 million), payable in three payments of $2.5 million, $2.5 million and $2.4 million. We
recorded a buyout payment expense of $7.4 million for the nine month period ended September 31,
2010 in connection with the obligation which includes $2.5 million paid in the 2010 first quarter,
$2.5 million which was paid in the 2010 second quarter, and the
final $2.4 million payment, which
is net of a $0.1 million reduction to the final portion of the
buyout fee, to be paid upon termination of the Management Agreement.
Marketing, general and administrative expenses were approximately $12.0 million for the nine
months ended September 30, 2010 and consist of fees for professional services, insurance, general
overhead costs for the Company and real estate taxes on our facilities as compared with $8.4
million for the comparative nine month period ended
September 30, 2009, a increase of $3.6 million.
The increase is primarily a result of increased legal and advisory fees incurred in connection
with the review of the Company’s strategic direction and the Tiptree Transaction. We recognized $163,000 and $225,000 related to shares
of our common stock earned by our independent directors as part of their compensation for the nine
month period ended September 30, 2010 and 2009, respectively. The decrease in stock-based
compensation to our directors was the result of fewer directors presiding on our Board of Directors
as well as a reduction in the director’s fees payable for
services rendered. Effective as of August 13, 2010, each independent
director is paid a base retainer of $50,000 annually, which is payable 70% in cash and 30% in
stock. Payments are made quarterly in arrears. Shares of our common stock issued to our
independent directors as part of their annual compensation vest immediately and are expensed by us
accordingly.
The management fees, expense reimbursements, and the relationship between CIT Healthcare and
us are discussed further in Note 8.
Loss from investments in partially-owned entities
For the nine months ended September 30, 2010, net loss from partially-owned entities amounted
to $2.4 million as compared to a net loss of $3.4 million for the nine months ended September 30,
2009. Our equity in the non-cash operating loss of the Cambridge properties for the nine month
period ended September 30, 2010 was $3.3 million, which included $6.8 million attributable to our
share of the depreciation and amortization expenses associated with the Cambridge properties,
partially offset by our share of equity income in SMC of $0.9 million.
Unrealized gains on derivatives
We recognized a $0.5 million unrealized gain on the fair value of our obligation to issue
partnership units related to the Cambridge transaction during the nine month period ended September
30, 2010 as compared to an unrealized gain of $0.3 million for the comparable period ended
September 30, 2009.
Interest Expense
We
incurred interest expense of $4.3 million for the nine month period ended September 30,
2010 as compared with interest expense of $5.0 million for the nine month period ended September
30, 2009, a decrease of approximately $0.7 million. Interest expense for the nine months ended
September 30, 2010 was related to the interest payable on the mortgage debt which was incurred for
the acquisition of 14 facilities from Bickford. The decrease in interest expense is attributable
to a $0.6 million write off of deferred financing charges incurred and $0.1 million related to the
borrowings under our terminated warehouse line of credit during the nine month period ended
September 30, 2009.
Cash Flows
Cash and cash equivalents were $7.6 million at September 30, 2010 as compared with $94.7
million at September 30, 2009, a decrease of approximately $87.1 million. Cash utilized during the
first nine months of 2010 was $123.1 million in our financing activities, primarily the
acquisition of stock as part of the Tiptree Transaction, and $7.8 million in operating activities.
23
Net cash used in operating activities for the nine months ended September 30, 2010 amounted to
$7.8 million as compared with $4.6 million provided by operating activities for the nine months
ended September 30, 2009, a decrease of approximately
$12.4 million. Net loss before adjustments
was $17.3 million. Equity in the operating results of, and distributions from, investments in
partially-owned entities added $7.4 million. Non-cash charges for straight-line effects of lease
revenue, push-down accounting gain, gains on sales of loans, adjustment to our valuation allowance on
investments in loans, amortization of deferred loan fees, amortization and write-off of deferred
financing costs, stock based compensation, unrealized loss on derivative instruments, and
depreciation and amortization used $0.2 million. The net change in operating assets and
liabilities provided $2.3 million and consisted of a decrease in accrued interest receivable and
other assets of $0.5 million along with an increase in accounts payable and accrued expenses of
$0.4 million and a $1.5 million increase in other liabilities including amounts due to a related
party.
Net
cash provided by investing activities for the nine months ended
September 30, 2010 was $16.0 million as compared with $106.5 million provided from investing activities for the nine months
ended September 30, 2009, a decrease of approximately $106.5 million. The decrease is primarily
attributable to investments in partially-owned entities of $0.9 million, offset by sales of
loans to third parties generating $5.9 million and loan repayments received of $11.0 million during
the first nine months of 2010, as compared with the sale of loans to CIT Healthcare for $42.2
million, sales of loans to third parties of $24.8 million and loan repayments received of $40.6
million, offset by investments in partially-owned entities of $1.1 million during the comparable
period in 2009.
Net
cash used in financing activities for the nine months ended September 30, 2010 was
$123.1 million as compared with net cash used in financing activities of $48.3 million for the nine
months ended September 30, 2009, a decrease of $74.8 million. The decrease is primarily
attributable to the cash used to consummate the purchase of our
common stock via tender offer of $122.0 million as compared with
the prior year repayment of $37.8 million and subsequent termination of our warehouse line of
credit and payment of dividends totaling $10.3 million during the nine month period ended September
30, 2009, which did not occur during the comparable period in 2010.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, fund and maintain loans and other investments, pay
dividends and other general business needs. Our primary sources of liquidity are rental income
from our real estate properties, distributions from our joint ventures, net interest income earned
on our portfolio of mortgage loans and interest income earned from our available cash balances. We
also obtain liquidity from repayments of principal by our borrowers in connection with our loans.
As
of September 30, 2010, the Company had $7.6 million in cash and cash equivalents. In October, the Company paid approximately $1.1
million of legal fees related to the Tiptree transaction and our
litigation with Cambridge. These fees were accrued by the predecessor and, as part
of the assessment of fair value of liabilities, were part of the successor’s liabilities as of September 30, 2010.
We believe that we have adequate liquidity to continue to operate and
execute our business plan for at least the
next twelve months. Care has a commitment to pay CIT Healthcare $2.4 million on November 16, 2010 in connection with the
termination of CIT Healthcare as the Company’s manager.
To maintain our status as a REIT under the Code, we must distribute annually at least 90% of
our REIT taxable income. These distribution requirements limit our ability to retain earnings and
thereby replenish or increase capital for operations.
Capitalization
As of September 30, 2010, we had 10,063,386 shares of common stock outstanding, which includes
a stock split in the ratio of three-for-two effected in the form of a common stock dividend during
the third quarter of 2010.
|
|
|
|
|
ITEM 3.
|
|
Quantitative and Qualitative Disclosures about Market Risk
|
Market risk includes risks that arise from changes in interest rates, commodity prices, equity
prices and other market changes that
24
affect market sensitive instruments. In pursuing our business plan, we expect that the
primary market risks to which we will be exposed are real estate and interest rate risks.
Real Estate Risk
The value of owned real estate, commercial mortgage assets and net operating income derived
from such properties are subject to volatility and may be affected adversely by a number of
factors, including, but not limited to, national, regional and local economic conditions which may
be adversely affected by industry slowdowns and other factors, local real estate conditions (such
as an oversupply of retail, industrial, office or other commercial space), changes or continued
weakness in specific industry segments, construction quality, age and design, demographic factors,
retroactive changes to building or similar codes, and increases in operating expenses (such as
energy costs). In the event net operating income decreases, or the value of property held for sale
decreases, a borrower may have difficulty paying our rent or repaying our loans, which could result
in losses to us. Even when a property’s net operating income is sufficient to cover the property’s
debt service, at the time an investment is made, there can be no assurance that this will continue
in the future.
The current turmoil in the residential and commercial mortgage markets may continue to have an
effect on the real estate industry in general.
Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including the availability of
liquidity, governmental monetary and tax policies, domestic and international economic and
political considerations and other factors beyond our control.
Our operating results will depend in large part on differences between the income from assets
in our real estate and mortgage loan portfolio and our borrowing costs. At present, our portfolio
of variable rate mortgage loans is funded by our equity as restrictive conditions in the
securitized debt markets have not enabled us to leverage the portfolio as we originally intended.
Accordingly, the income we earn on this loan is subject to variability in interest rates. At
current investment levels, changes in one month LIBOR at the magnitudes listed would have the
following estimated effect on our annual income from investments in loans (one month LIBOR was
0.26% at September 30, 2010):
|
|
|
|
|
|
|
|
|
Increase / (decrease) in
|
|
|
|
Income
|
|
|
|
from investments in loans
|
|
Increase / (decrease) in one-month LIBOR
|
|
(dollars in thousands)
|
|
(20) basis points
|
|
$
|
(27
|
)
|
|
(10) basis points
|
|
|
(13
|
)
|
|
Base interest rate
|
|
|
0
|
|
|
+100 basis points
|
|
|
133
|
|
|
+200 basis points
|
|
|
266
|
|
In the event of a significant rising interest rate environment and/or economic downturn,
delinquencies and defaults could increase and result in credit losses to us, which could adversely
affect our liquidity and operating results. Further, such delinquencies or defaults could have an
adverse effect on the spreads between interest-earning assets and interest-bearing liabilities.
Our funding strategy involves utilizing asset-specific debt to finance our real estate
investments. Currently, the availability of liquidity is constrained due to investor concerns over
dislocations in the debt markets, hedge fund losses, the large volume of unsuccessful leveraged
loan syndications and related impact on the overall credit markets. These concerns have materially
impacted liquidity in the debt markets, making financing terms for borrowers less attractive. We
cannot foresee when credit markets may stabilize and liquidity becomes more readily available.
Non-GAAP Financial Measures
Funds from Operations
Funds
From Operations (“FFO”), which is a non-GAAP financial measure, is a widely recognized
measure of REIT performance. We compute FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts
(“NAREIT”), which may not be comparable to
FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition,
25
or that interpret the NAREIT definition differently than we do.
The revised White Paper on FFO, approved by the Board of Governors of NAREIT in April 2002
defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint ventures.
Adjusted Funds from Operations
Adjusted
Funds From Operations (“AFFO”), is a non-GAAP financial measure. We calculate AFFO
as net income (loss) (computed in accordance with GAAP), excluding gains (losses) from debt
restructuring and gains (losses) from sales of property, plus the expenses associated with
depreciation and amortization on real estate assets, non-cash equity compensation expenses, the
effects of straight lining lease revenue, excess cash distributions from the Company’s equity
method investments and one-time events pursuant to changes in GAAP and other non-cash charges.
Proportionate adjustments for unconsolidated partnerships and joint ventures will also be taken
when calculating the Company’s AFFO.
We believe that FFO and AFFO provide additional measures of our core operating performance by
eliminating the impact of certain non-cash expenses and facilitating a comparison of our financial
results to those of other comparable REITs with fewer or no non-cash charges and comparison of our
own operating results from period to period. The Company uses FFO and AFFO in this way, and also
uses AFFO as i) one performance metric in the Company’s executive compensation program
and ii) to determine the incentive fee under the
services agreement with TREIT.
The Company
also believes that its investors also use FFO and AFFO to evaluate and compare the performance of
the Company and its peers, and as such, the Company believes that the disclosure of FFO and AFFO is
useful to (and expected of) its investors.
However, the Company cautions that neither FFO nor AFFO represent cash generated from
operating activities in accordance with GAAP, and they should not be considered as an alternative to
net income (determined in accordance with GAAP), or an indication of our cash flow from operating
activities (determined in accordance with GAAP), a measure of our liquidity, or an indication of
funds available to fund our cash needs, including our ability to make cash distributions. In
addition, our methodology for calculating FFO and / or AFFO may differ from the methodologies
employed by other REITs to calculate the same or similar supplemental performance measures, and
accordingly, our reported FFO and / or AFFO may not be comparable to the FFO and AFFO reported by
other REITs.
FFO and AFFO for the three and nine months ended September 30, 2010 were as follows (in thousands,
except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
September 30, 2010
|
|
|
|
|
FFO
|
|
|
AFFO
|
|
|
Net loss
|
|
$
|
(6,994
|
)
|
|
$
|
(6,994
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization from partially-owned entities
|
|
|
2,256
|
|
|
|
2,256
|
|
|
Depreciation and amortization on owned properties
|
|
|
993
|
|
|
|
993
|
|
|
Adjustment
to valuation allowance for investments in loans
|
|
|
—
|
|
|
|
(28
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
Straight-line effect of lease revenue
|
|
|
—
|
|
|
|
(596
|
)
|
|
Excess cash distributions from the Company’s equity method investments
|
|
|
—
|
|
|
|
176
|
|
|
Obligation to issue OP Units
|
|
|
—
|
|
|
|
(718
|
)
|
|
|
|
|
|
|
|
|
|
Funds From Operations and Adjusted Funds From Operations
|
|
$
|
(3,745
|
)
|
|
$
|
(4,911
|
)
|
|
FFO and Adjusted FFO per share basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(0.37
|
)
|
|
Weighted average shares outstanding — basic and diluted
|
|
|
13,395,879
|
|
|
|
13,395,879
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
|
|
|
|
|
September 30, 2010
|
|
|
|
|
FFO
|
|
|
AFFO
|
|
|
Net loss
|
|
$
|
(17,324
|
)
|
|
$
|
(17,324
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization from partially-owned entities
|
|
|
6,833
|
|
|
|
6,833
|
|
|
Depreciation and amortization on owned properties
|
|
|
2,676
|
|
|
|
2,676
|
|
|
Adjustment
to valuation allowance for investments in loans
|
|
|
—
|
|
|
|
(858
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
163
|
|
|
Straight-line effect of lease revenue
|
|
|
—
|
|
|
|
(1,735
|
)
|
|
Excess cash distributions from the Company’s equity method investments
|
|
|
—
|
|
|
|
620
|
|
|
Gain on sale and repayment of loans
|
|
|
—
|
|
|
|
(4
|
)
|
|
Obligation to issue OP Units
|
|
|
—
|
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
Funds From Operations and Adjusted Funds From Operations
|
|
$
|
(7,815
|
)
|
|
$
|
(10,079
|
)
|
|
FFO and Adjusted FFO per share basic and diluted
|
|
$
|
(0.43
|
)
|
|
$
|
(0.56
|
)
|
|
Weighted average shares outstanding — basic and diluted
|
|
|
17,919,249
|
|
|
|
17,919,249
|
|
FORWARD-LOOKING INFORMATION
We make forward looking statements in this Form 10-Q that are subject to risks and
uncertainties. These forward looking statements include information about possible or assumed
future results of our business and our financial condition, liquidity, results of operations, plans
and objectives. They also include, among other things, statements concerning anticipated revenues,
income or loss, capital expenditures, dividends, capital structure, or other financial terms, as
well as statements regarding subjects that are forward looking by their nature, such as:
|
|
•
|
|
our ability to transfer internal management
|
|
|
|
|
•
|
|
our business and financing strategy;
|
|
|
|
|
•
|
|
our ability to acquire investments on attractive terms;
|
|
|
|
|
•
|
|
our understanding of our competition;
|
|
|
|
|
•
|
|
our projected operating results;
|
|
|
|
|
•
|
|
market trends;
|
|
|
|
|
•
|
|
estimates relating to our future dividends;
|
|
|
|
|
•
|
|
completion of any pending transactions;
|
|
|
|
|
•
|
|
projected capital expenditures; and
|
|
|
|
|
•
|
|
the impact of technology on our operations and business.
|
27
The forward looking statements are based on our beliefs, assumptions and expectations of our
future performance, taking into account the information currently available to us. These beliefs,
assumptions, and expectations can change as a result of many possible events or factors, not all of
which are known to us. If a change occurs, our business, financial condition, liquidity, and
results of operations may vary materially from those expressed in our forward looking statements.
You should carefully consider this risk when you make a decision concerning an investment in our
securities, along with the following factors, among others, that could cause actual results to vary
from our forward looking statements:
|
|
•
|
|
the factors referenced in this Form 10-Q;
|
|
|
|
|
•
|
|
general volatility of the securities markets in which we invest and the market price of
our common stock;
|
|
|
|
|
•
|
|
uncertainty in obtaining stockholder approval, to the extent it is required, for a
strategic alternative;
|
|
|
|
|
•
|
|
changes in our business or investment strategy;
|
|
|
|
|
•
|
|
changes in healthcare laws and regulations;
|
|
|
|
|
•
|
|
availability, terms and deployment of capital;
|
|
|
|
|
•
|
|
availability of qualified personnel;
|
|
|
|
|
•
|
|
changes in our industry, interest rates, the debt securities markets, the general economy
or the commercial finance and real estate markets specifically;
|
|
|
|
|
•
|
|
the degree and nature of our competition;
|
|
|
|
|
•
|
|
the performance and financial condition of borrowers, operators and corporate customers;
|
|
|
|
|
•
|
|
increased rates of default and/or decreased recovery rates on our investments;
|
|
|
|
|
•
|
|
changes in governmental regulations, tax rates and similar matters;
|
|
|
|
|
•
|
|
legislative and regulatory changes (including changes to laws governing the taxation of
REITs or the exemptions from registration as an investment company);
|
|
|
|
|
•
|
|
the adequacy of our cash reserves and working capital and
|
|
|
|
|
•
|
|
the timing of cash flows, if any, from our investments.
|
When we use words such as “will likely result,” “may,” “shall,” “believe,” “expect,”
“anticipate,” “project,” “intend,” “estimate,” “goal,” “objective” or similar expressions, we
intend to identify forward looking statements. You should not place undue reliance on these forward
looking statements. We are not obligated to publicly update or revise any forward looking
statements, whether as a result of new information, future events or otherwise.
|
|
|
|
|
ITEM 4.
|
|
Controls and Procedures
|
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Notwithstanding the foregoing, no matter
how well a control system is designed and operated, it can provide only reasonable, not
absolute, assurance that it will detect or uncover failures within our company to disclose material
information otherwise required to be set forth in our periodic reports.
28
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and
our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three
months ended September 30, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
29
Part II. Other Information
|
|
|
|
|
ITEM 1.
|
|
Legal Proceedings
|
Class-action litigation
On September 18, 2007, a class action complaint for violations of federal securities laws was
filed in the United States District Court, Southern District of New York alleging that the
Registration Statement relating to the initial public offering of shares of our common stock, filed
on June 21, 2007, failed to disclose that certain of the assets in the contributed portfolio were
materially impaired and overvalued and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the court
entered an order appointing co-lead
plaintiffs and co-lead counsel. On February 19, 2008, the co-lead plaintiffs filed an amended
complaint citing additional evidentiary support for the allegations in the complaint. We believe
the complaint and allegations are without merit and intend to defend against the complaint and
allegations vigorously. We filed a motion to dismiss the complaint on April 22, 2008. The
plaintiffs filed an opposition to our motion to dismiss on July 9, 2008, to which we filed our
reply on September 10, 2008. On March 4, 2009, the court denied our motion to dismiss. Care filed
its answer on April 15, 2009. At a conference held on May 15, 2009, the Court ordered the parties
to make a joint submission (the “Joint Statement”) setting forth: (i) the specific statements that
Plaintiffs claim are false and misleading; (ii) the facts on which Plaintiffs rely as showing each
alleged misstatement was false and misleading and (iii) the facts on which Defendants rely as
showing those statements were true. The parties filed the Joint Statement on June 3, 2009. On July
31, 2009, the parties entered into a stipulation that narrowed the scope of the proceeding to the
single issue of the warehouse financing disclosure in the Registration Statement. Fact discovery
closed on April 23, 2010.
The Court ordered the parties to file an abbreviated joint pre-trial statement on June 9,
2010, and scheduled a pre-trial conference for June 11, 2010. At the conclusion of the pre-trial
conference, the Court asked the parties to agree on a summary judgment briefing schedule, which the
parties did. Defendants filed their motion for summary judgment on July 9, 2010. Summary judgment
briefing was completed on September 17, 2010. The Court has yet to rule on the motion.
Cambridge litigation
On November 25, 2009, we filed a lawsuit in the U.S. District Court for the Northern District
of Texas against Mr. Jean-Claude Saada and 13 of his companies (the “Saada Parties”), seeking
declaratory judgments that (i) we have the right to engage in a business
combination transaction involving our company or a sale of our wholly owned subsidiary that serves
as the general partner of the partnership that holds the direct investment in the portfolio without
the approval of the Saada Parties, (ii) the contractual right of the Saada Parties to put their
interests in the Cambridge medical office building portfolio has expired and (iii) the operating
partnership units held by the Saada Parties do not entitle them to receive any special cash
distributions made to our stockholders. We also brought affirmative claims for tortious
interference by the Saada Parties with a prospective contract and for their breach of the implied
covenant of good faith and fair dealing.
On January 27, 2010, the Saada Parties answered our complaint, and simultaneously filed
counterclaims that named our subsidiaries ERC Sub LLC and ERC Sub, L.P., external manager CIT
Healthcare LLC, and then board chairman Flint D. Besecker, as additional third-party defendants. The
Counterclaims seek four declaratory judgments construing certain contracts among the parties that
are largely the mirror image of our declaratory judgment claims. In addition, the Counterclaims
also seek monetary damages for purported breaches of fiduciary duty and the duty of good faith and
fair dealing, as well as fraudulent inducement, against us and the third-party defendants jointly
and severally.
The Counterclaims further request indemnification by ERC Sub, L.P., pursuant to a contract
between the parties, and the imposition of a “constructive trust” on our current assets to be
disposed as part of any future liquidation of Care, including all proceeds from those assets.
Although the Counterclaims do not itemize their asserted damages, they assign these damages a value
of $100 million “or more.” In addition, the Saada Parties filed a motion to dismiss our tortious
interference and breach of the implied covenant of good faith and fair dealing claims on January
27, 2010. In response to the Counterclaims, we filed on March 5, 2010, an omnibus motion to dismiss
all of the Counterclaims.
30
On March 22, 2010, we received a letter from Cambridge Holdings, which asserted that the
transactions with Tiptree were in violation of our agreements with the Saada Parties.
The Saada Parties filed their opposition to our omnibus motion to dismiss on March 26, 2010,
and we filed our response on April 9, 2010.
On April 14, 2010, the Saada Parties’ motion to dismiss was denied and our motion to dismiss
was also denied.
On April 27, 2010, we filed an answer to the Saada Parties’ third-party complaint. We continue
to believe that the arguments advanced by Cambridge Holdings lack merit. On May 28, 2010,
Cambridge Holdings filed a motion for leave to amend its previously-asserted counterclaims and
third-party complaint to include a new claim for breach of contract against Care. This proposed new
claim asserts that Cambridge Holdings and Care agreed, in October 2009, upon a sale of ERC Sub,
L.P.’s 85% limited partnership interest in the Cambridge properties back to Cambridge Holdings for
$20 million in cash plus certain other arrangements involving the cancellation of partnership units
and existing escrow accounts. The proposed new claim further asserts that Care reneged on this
purported agreement after having previously agreed to all of its material terms, thus “breaching”
the agreement. Further, the proposed new claim seeks specific performance of the purported
contract. Care denies that any agreement of the sort alleged by Cambridge Holdings was ever
reached, and Care also believes that the proposed new claim suffers from several deficiencies. Care
filed its opposition on June 18, 2010 and Cambridge Holdings replied on July 1, 2010. In the
meantime, on June 21, 2010, ERC Sub L.P. sought leave to amend its counterclaims to assert a breach of
contract action against Cambridge Holdings. Cambridge Holdings did
not oppose ERC Sub L.P.’s motion. On
August 2, 2010, the Court granted the Saada Parties’ motion for leave to amend, and the Saada
Parties’ filed their Amended Answer, Counterclaims, and Third-Party Complaint on August 4, 2010.
On August 3, 2010, the Court also granted ERC Sub L.P.’s unopposed motion for leave to amend, and ERC
Sub L.P. filed its Amended Answer and Counterclaim on August 5, 2010. The Saada Parties answered ERC
Sub L.P.’s Counterclaim on August 23, 2010. Care moved to dismiss the Saada Parties’ new
breach-of-contract cause of action on August 18, 2010. The Saada Parties responded on September 3,
2010, and Care replied on September 14, 2010. The court denied Care’s motion to dismiss without
opinion on September 21, 2010. Care answered the amended counterclaim on October 6, 2010.
On August 20, 2010, pursuant to a court order, the parties jointly designated
a mediator. On September 9, 2010, the parties filed a joint motion asking the court to make
certain scheduling modifications to limit litigation activity and expense prior
to the mediation, including an extension of discovery deadlines. The Court granted the motion on
September 14, 2010. The parties held a court-ordered mediation session on October 19, 2010. To
date, a mediated resolution to the litigation has not been achieved.
Care is not presently involved in any other material litigation nor, to our knowledge, is any
material litigation threatened against us or our investments, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any, incurred by us related
to litigation will not materially affect our financial position, operating results or liquidity.
|
|
|
|
|
ITEM 5.
|
|
Other Information
|
New York Stock Exchange Suspension and Delisting
Following
the completion of the Company’s self-tender, Care’s publicly-held common stock fell below 600,000 shares,
to which the Company provided notice to the New York Stock Exchange (“NYSE”).
The Company announced a three-for-two stock split on September 1,
2010 in the form of a stock dividend in order to increase its publicly-held common stock above the $600,000 share threshold.
The Company received a letter dated August 27, 2010 from the NYSE stating that (i)
the common stock of the Company was suspended from the NYSE as of market close on August 26, 2010 and (ii) an application by
the NYSE to the SEC to delist the Company’s common stock was pending completion of applicable NYSE procedures, which
included the Company’s right to appeal the New York Stock Exchange Staff’s decision.
The letter also stated that the NYSE decision was made after having received the final results on the completion of the
Company’s self tender offer, which confirmed that fewer than 600,000 shares of the Company’s common stock remained
publicly held.
The Company appealed the NYSE Staff’s decision. In order to facilitate trading in its stock during the pendency of the
NYSE appeal process, the Company was listed on the OTCQX listing platform.
On October 21, 2010 the NYSE Regulation, Inc. Board of Directors’ Committee for Review rejected the Company’s
appeal and affirmed the NYSE Staff’s decision to delist the Company’s common stock. Accordingly, the Company
expects the NYSE Staff to
31
make an application to the SEC to delist the Company’s common stock in the near future. The
Company remains listed and trades on the OTCQX marketplace under the ticker symbol CVTR.
Except as indicated by an asterisk (*), the following exhibits are filed herewith as part of
this Form 10-Q.
(a) Exhibits
|
|
|
|
|
3.1*
|
|
Second Articles of Amendment and Restatement (previously
filed as Exhibit 3.1 to the Company’s Form 8-K (File No. 001-33549), filed on August 13, 2010 and hereby
incorporated herein by reference).
|
|
3.2*
|
|
Third Articles of Amendment and Restatement
(previously filed as Exhibit 3.1 to the Company’s Form 8-K (File No. 001-33549), filed on September 3, 2010 and hereby
incorporated herein by reference).
|
|
10.1*
|
|
First Amendment to Purchase and Sale Agreement by and between Care Investment Trust Inc. and Tiptree Financial Partners, L.P., dated as of July 6, 2010 (previously filed as Exhibit 10.1 to
the Company’s Form 8-K (File No. 001-33549), filed on July 7, 2010 and hereby
incorporated herein by reference).
|
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
Care Investment Trust Inc.
|
|
|
November 9, 2010
|
By:
|
/s/ Steven M. Sherwyn
|
|
|
|
|
Steven M. Sherwyn
|
|
|
|
|
Chief Financial Officer
|
|
33
EXHIBIT INDEX
Except as indicated by an asterisk (*), the following exhibits are filed herewith as part of
this Form 10-Q.
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
3.1*
|
|
Second Articles of Amendment and
Restatement (previously filed as Exhibit 3.1 to the Company’s
Form 8-K (File No. 001-33549), filed on August 13, 2010 and hereby
incorporated herein by reference).
|
|
3.2*
|
|
Third Articles of Amendment and Restatement (previously filed as Exhibit 3.1 to the Company’s Form 8-K (File No. 001-33549), filed on September 3, 2010 and hereby
incorporated herein by reference).
|
|
10.1*
|
|
First Amendment to Purchase and Sale Agreement by and between Care Investment Trust Inc. and Tiptree Financial Partners, L.P., dated as of July 6, 2010 (previously filed as Exhibit 10.1 to the Company’s Form
8-K (File No. 001-33549), filed on July 7, 2010 and hereby
incorporated herein by reference).
|
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|