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, 2011
OR
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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: 000-54474
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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780 Third Avenue, 21st Floor, New York, New York
(Address of Registrant’s Principal Executive Offices)
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10017
(Zip Code)
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(212) 446-1410
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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
o
No
þ
(Explanatory Note: The registrant is a voluntary filer and is not subject to the filing
requirements of the Securities Exchange Act of 1934. Although not subject to these filing
requirements, Care Investment Trust Inc. 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.)
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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
þ
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
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Accelerated
filer
þ
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Non-accelerated filer
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Smaller reporting
company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes
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No
þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: As of November 4, 2011, there were 10,162,938 shares, par value
$0.001, of the registrant’s common stock outstanding.
Care Investment Trust Inc.
INDEX
2
Part I — Financial Information
ITEM 1. Financial Statements.
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(dollars in thousands — except share and per share data)
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September 30,
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December 31,
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2011
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2010
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(Successor)
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(Successor)
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Assets:
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Real estate:
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Land
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$
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7,330
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$
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5,020
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Buildings and improvements
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120,492
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102,002
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Less: accumulated depreciation and amortization
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(3,637
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(1,293
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Total real estate, net
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124,185
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105,729
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Investment in loans
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6,285
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8,552
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Investments in partially-owned entities
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29,121
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39,200
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Identified intangible assets — leases in place, net
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6,089
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6,477
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Cash and cash equivalents
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8,907
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5,032
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Accrued interest receivable
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18
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64
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Other assets
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4,025
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1,822
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Total Assets
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$
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178,630
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$
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166,876
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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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96,495
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$
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81,684
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Accounts payable and accrued expenses
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1,742
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1,570
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Accrued expenses payable to related party
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281
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39
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Obligation to issue operating partnership units
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450
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2,095
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Other liabilities
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590
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525
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Total Liabilities
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99,558
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85,913
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Commitments and Contingencies
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Stockholders’ Equity
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Preferred stock: $0.001 par value, 100,000,000
shares authorized, none issued or outstanding
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—
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—
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Common stock: $0.001 par value, 250,000,000 shares
authorized 10,161,249 and 10,064,982 shares issued
and outstanding, respectively
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11
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11
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Additional paid-in capital
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83,779
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83,416
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Accumulated deficit
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(4,718
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(2,464
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Total Stockholders’ Equity
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79,072
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80,963
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Total Liabilities and Stockholders’ Equity
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$
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178,630
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$
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166,876
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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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Three Months
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For the Period From
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For the Period From
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Nine Months Ended
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For the Period From
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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, 2011
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September 30, 2010
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August 12, 2010
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2011
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August 12, 2010
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(Successor)
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(Successor)
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(Predecessor)
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(Successor)
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(Predecessor)
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Revenue:
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Rental income
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$
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3,371
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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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9,923
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$
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7,880
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Income from investments in loans
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146
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216
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201
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589
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1,348
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Total Revenue
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3,517
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2,020
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1,680
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10,512
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9,228
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Expenses
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Base management and services fees
and buyout payments to related
party
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100
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102
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173
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303
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8,477
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Incentive fee to related party
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237
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—
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—
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718
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—
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Marketing, general and
administrative (including
stock-based compensation of $11,
$8, $50, $56 and $163,
respectively)
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1,367
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985
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6,836
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3,705
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11,021
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Depreciation and amortization
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883
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604
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389
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2,620
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2,072
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Realized gain on sales and
repayments of loans
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—
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—
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—
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—
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(4
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Adjustment to valuation allowance
on loans held at LOCOM
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—
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—
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(28
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—
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(858
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Operating Expenses
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2,587
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1,691
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7,370
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7,346
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20,708
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(Income) or loss from investments
in partially-owned entities, net
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(1,009
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474
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482
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(1,779
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1,941
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Net unrealized (gain) or loss on
derivative instruments
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—
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(492
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(227
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255
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41
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Impairment of investments
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—
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—
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—
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77
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—
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Interest income
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(7
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(5
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(20
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(15
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(99
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Interest expense including
amortization and write-off of deferred
financing costs
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1,411
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736
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684
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4,139
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3,578
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Net income (loss)
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$
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535
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$
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(384
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$
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(6,609
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$
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489
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$
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(16,941
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Net income or (loss) per share of
common stock
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Net income (loss), basic
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$
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0.05
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$
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(0.04
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$
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(0.22
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)
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$
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0.05
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$
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(0.56
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)
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Net income (loss), diluted
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$
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0.05
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$
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(0.04
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$
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(0.22
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$
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0.05
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$
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(0.56
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Weighted average common
shares outstanding, basic
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10,159,098
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10,063,386
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30,353,454
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10,149,763
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30,331,994
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Weighted average common
shares outstanding, diluted
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10,187,605
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10,063,386
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30,353,454
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10,160,202
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30,331,994
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Dividends declared per common share
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$
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0.135
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$
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—
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$
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—
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$
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0.27
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$
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—
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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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Additional
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Common Stock
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Paid-in
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Accumulated
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Shares
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$
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Capital
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Deficit
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Total
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Balance at December 31, 2010
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10,064,982
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$
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11
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$
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83,416
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$
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(2,464
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)
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$
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80,963
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Net income
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—
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—
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—
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489
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489
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Stock-based compensation to
Directors for services
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8,164
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*
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45
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—
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45
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Stock-based compensation to
Employees (1)
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73,999
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*
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*
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—
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—
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Issuance of stock for related
party incentive fee (2)
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14,104
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*
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96
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—
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96
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Warrant issued
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—
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—
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222
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—
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222
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Dividends
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—
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—
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—
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(2,743
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)
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(2,743
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Balance at September 30, 2011
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10,161,249
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$
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11
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$
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83,779
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$
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(4,718
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)
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$
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79,072
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*
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Less than $500
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(1)
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Shares issued to employees on January 3, 2011, pursuant
to 2010 employment agreements, which was recognized as
compensation expense during the fourth quarter of 2010.
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(2)
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9,245 shares issued on May 16, 2011 and 4,859 shares
issued on August 9, 2011 to TREIT Management LLC as
part of an incentive fee pursuant to the Services
Agreement for the three-month periods ended March 31,
2011 and June 30, 2011, respectively.
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See Notes to Condensed Consolidated Financial Statements
5
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
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For the Nine
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For the Period From
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For the Period From
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Months Ended
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August 13, 2010 to
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January 1, 2010 to
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September 30, 2011
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September 30, 2010
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August 12, 2010
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(Successor)
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
489
|
|
|
$
|
(384
|
)
|
|
$
|
(16,941
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred rent receivable
|
|
|
(1,520
|
)
|
|
|
(359
|
)
|
|
|
(1,375
|
)
|
|
Realized gain on sale and repayment of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
(Income) loss from investments in partially-owned entities
|
|
|
(1,779
|
)
|
|
|
474
|
|
|
|
1,941
|
|
|
Impairment of investments
|
|
|
77
|
|
|
|
—
|
|
|
|
—
|
|
|
Distribution of income from partially-owned entities
|
|
|
4,041
|
|
|
|
1,410
|
|
|
|
3,608
|
|
|
Amortization of above-market leases
|
|
|
155
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization and write-off of deferred financing costs
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
Amortization of deferred loan fees
|
|
|
—
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
Stock-based compensation
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation — non-employee
|
|
|
—
|
|
|
|
—
|
|
|
|
163
|
|
|
Non-cash incentive fee
|
|
|
96
|
|
|
|
—
|
|
|
|
—
|
|
|
Depreciation and amortization on real estate and fixed
assets, including intangible assets
|
|
|
2,620
|
|
|
|
604
|
|
|
|
2,072
|
|
|
Unrealized (gain) loss on derivative instruments
|
|
|
255
|
|
|
|
(492
|
)
|
|
|
41
|
|
|
Adjustment to valuation allowance on investment in loans
held at LOCOM
|
|
|
—
|
|
|
|
—
|
|
|
|
(858
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
46
|
|
|
|
39
|
|
|
|
50
|
|
|
Other assets
|
|
|
(382
|
)
|
|
|
(313
|
)
|
|
|
643
|
|
|
Accounts payable and accrued expenses
|
|
|
172
|
|
|
|
(4,908
|
)
|
|
|
5,268
|
|
|
Other liabilities including payable to related parties
|
|
|
276
|
|
|
|
(622
|
)
|
|
|
2,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
4,591
|
|
|
|
(4,551
|
)
|
|
|
(3,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of loans to third parties
|
|
|
—
|
|
|
|
—
|
|
|
|
5,880
|
|
|
Fixed asset purchases
|
|
|
(257
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Loan repayments
|
|
|
2,267
|
|
|
|
158
|
|
|
|
10,806
|
|
|
Return of investment in partially owned entities
|
|
|
6,093
|
|
|
|
—
|
|
|
|
|
|
|
Investment in real estate
|
|
|
(20,800
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Investments in partially-owned entities
|
|
|
—
|
|
|
|
(185
|
)
|
|
|
(706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(12,697
|
)
|
|
|
(27
|
)
|
|
|
15,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of shares to Tiptree Financial Partners L.P.
|
|
|
—
|
|
|
|
—
|
|
|
|
55,665
|
|
|
Share tender offer
|
|
|
—
|
|
|
|
—
|
|
|
|
(177,660
|
)
|
|
Principal payments under mortgage notes payable
|
|
|
(574
|
)
|
|
|
(59
|
)
|
|
|
(518
|
)
|
|
Borrowings under mortgage notes payable
|
|
|
15,498
|
|
|
|
—
|
|
|
|
—
|
|
|
Financing
Costs
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Repurchases of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(490
|
)
|
|
Dividends paid
|
|
|
(2,743
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
11,981
|
|
|
|
(59
|
)
|
|
|
(123,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
3,875
|
|
|
|
(4,637
|
)
|
|
|
(110,273
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,032
|
|
|
|
12,239
|
|
|
|
122,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
8,907
|
|
|
$
|
7,602
|
|
|
|
12,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,767
|
|
|
$
|
500
|
|
|
$
|
3,800
|
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant issued
|
|
$
|
222
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Modification of Operating Partnership Units
|
|
$
|
(1,870
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
See Notes to Condensed Consolidated Financial Statements
6
Care Investment Trust Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements (Unaudited)
September 30, 2011
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 of America. From inception through November 16,
2010, Care was externally managed and advised by CIT Healthcare LLC (“CIT Healthcare”). Upon
termination of CIT Healthcare as our external manager, Care moved to a hybrid management structure
whereby it internalized its senior management and entered into a services agreement (the “Services
Agreement”) with TREIT Management, LLC (“TREIT”), which is an affiliate of Tiptree Capital
Management, LLC (“Tiptree Capital”), by which Tiptree Financial Partners, L.P. (“Tiptree”) is
externally managed. Tiptree acquired control of Care on August 13, 2010, as discussed further in
Note 2 to the Condensed Consolidated Financial Statements. As of September 30, 2011, Care’s
portfolio of assets consisted of owned real estate of senior housing facilities and medical office
properties as well as mortgage loans on senior housing facilities and 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 we expect 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 through a
combination of approximately $55.7 million equity investment by Tiptree in newly issued common
stock of the Company at $9.00 per share (prior to the Company’s announcement of a three-for-two
stock split in September 2010), 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”).
Approximately 97.4% of previously existing stockholders tendered their shares in connection with
the Tiptree Transaction, and the Company simultaneously issued to Tiptree approximately 6.19
million newly issued shares of the Company’s common stock, representing ownership of approximately
92.2% of the outstanding common stock of the Company. Pursuant to the Tiptree Transaction, CIT
Healthcare ceased management of the Company as of November 16, 2010. Since such time, Care has been
managed through a combination of internal management and a services agreement with TREIT.
The Tiptree Transaction was accounted for as a purchase in accordance with Accounting
Standards Codification (“ASC”) 805
Business Combinations,
(“ASC 805”) and the purchase price was
pushed-down to the Company’s consolidated 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
reflect the new accounting basis recorded by the acquiring company. Accordingly, Tiptree’s purchase
accounting adjustments have been reflected in the Company’s 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 period from January 1, 2010 to August 12, 2010
(including the results of operation for the period from July 1, 2010 to August 12, 2010), for which
the Company’s results of operations and cash flows are presented, is reported as the “Predecessor”
period. The period from August 13, 2010 through September 30, 2010 and January 1, 2011 through
September 30, 2011, for which the Company’s results of operations and cash flows are presented, is
reported as the “Successor” period as well as the Company’s financial position as of September 30,
2011 and December 31, 2010.
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 approximately $22.7 million:
7
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
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, which approximated fair value. 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 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 estimates and 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, 2010 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 generally accepted accounting principles 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, 2010, 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 July 1, 2010 to August 12, 2010, and the successor results of operations from the period
from August 13, 2010 to September 30, 2010 and the three and nine months ended September 30, 2011
are not necessarily indicative of the operating results for the full year ending December 31, 2011.
Consolidation
The consolidated financial statements include our accounts and those of our subsidiaries,
which are wholly-owned or controlled by us. All intercompany balances and transactions have been
eliminated. Our consolidated financial statements are prepared in accordance with GAAP, which
requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ materially from those estimates.
Comprehensive Income
The Company has no items of other comprehensive income, and accordingly net income (loss) is
equal to comprehensive income (loss) for all periods presented.
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less
from the date of purchase to be cash equivalents. Included in cash and cash equivalents at
September 30, 2011 and December 31, 2010, are tenant
deposits of approximately $0.1 million and $0.5 million,
respectively, which are maintained in an unrestricted account.
Real Estate and Identified Intangible Assets
Real estate and identified intangible assets are carried at cost, net of accumulated
depreciation and amortization. Betterments, major
8
renewals and certain costs directly related to
the acquisition, improvement and leasing of real estate are capitalized. Maintenance and repairs
are charged to operations as incurred. Depreciation is provided on a straight-line basis over the
assets’ estimated useful lives, which range from 9 to 40 years.
Our properties, including any related intangible assets, are regularly reviewed for impairment
under ASC 360-10-35-15,
Impairment or Disposal of Long-Lived Assets
, (“ASC 360-10-35-15”).
Impairment exists when the carrying amount of an asset exceeds its fair value. An impairment loss
is measured based on the excess of the carrying amount over the fair value. We determine fair value
by using a discounted cash flow model and appropriate discount and capitalization rates. Estimates
of future cash flows are based on a number of factors including the historical operating results,
known trends, and market/economic conditions that may affect the property. The evaluation of
anticipated cash flows is subjective and is based, in part, on assumptions regarding future
occupancy, rental rates and capital requirements that could differ materially from actual results.
If our anticipated holding periods change or estimated cash flows decline based on market
conditions or otherwise, an impairment loss may be recognized.
Investments in Loans
We account for our investment in loans in accordance with ASC 948,
Financial Services —
Mortgage Banking
(“ASC 948”), which codified the Financial Accounting Standards Board’s (“FASB”)
Accounting for Certain Mortgage Banking Activities
. Under ASC 948, loans expected to be held for
the foreseeable future or to maturity should be held at amortized cost, and all other loans should
be held at lower of cost or market (“LOCOM”), measured on an individual basis. In accordance with
ASC 820,
Fair Value Measurements and Disclosures
(“ASC 820”), the Company includes nonperformance
risk in calculating fair value adjustments. As specified in ASC 820, the framework for measuring
fair value is based on independent observable, if available, or unobservable inputs of market data.
The Company determined and recorded the fair value of its remaining loan as of August 13, 2010
in conjunction with the Company’s decision to adopt push-down accounting following the Tiptree
Transaction, and such loan is carried on the September 30, 2011 and December 31, 2010 balance
sheets at its cost basis, net of principal payments received and an allowance recorded in the
fourth quarter of 2010 for unrealized losses of approximately $0.4 million, in accordance with the
Company’s intent to hold the loan to maturity.
For loans held-for-investment, interest income is recognized using the interest method or on a
basis approximating a level rate of return over the term of the loan. Nonaccrual loans are those on
which the accrual of interest has been suspended. Loans are placed on nonaccrual status and
considered nonperforming when full payment of principal and interest is in doubt, or when principal
or interest is 90 days or more past due and collateral, if any, is insufficient to cover principal
and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status
is reversed against interest income. In addition, the amortization of net deferred loan fees is
suspended. Interest income on nonaccrual loans may be recognized only to the extent it is received
in cash. However, where there is doubt regarding the ultimate collectability of loan principal,
cash receipts on such nonaccrual loans are applied to reduce the carrying value of such loans.
Nonaccrual loans may be returned to accrual status when repayment is reasonably assured and there
has been demonstrated performance under the terms of the loan or, if applicable, the restructured
terms of such loan. The Company did not have any loans on non-accrual status as of September 30,
2011 and December 31, 2010.
Currently, our intent is to hold our remaining
loan investment, in which we are a one-third participant in a term loan credit facility, to maturity, and we have therefore reflected
this investment at its adjusted cost basis on the September 30, 2011
and December 31, 2010 consolidated balance sheets. The investments
in loan amounted to approximately $6.3 million and approximately $8.6 million at September 30, 2011 and December 31, 2010, respectively.
Coupon interest on the loans is recognized as revenue when earned. Receivables are evaluated
for collectability. If the fair value of a loan held at LOCOM during the Predecessor period was
lower than its amortized cost, changes in fair value (gains and losses) were
9
reported through the
consolidated statement of operations. Loans previously written down may be written up based upon
subsequent
recoveries in value, but not above their cost basis.
Expense for credit losses in connection with loan investments is a charge to earnings to
increase the allowance for credit losses to the level that management estimates to be adequate to
cover probable losses considering delinquencies, loss experience and collateral quality. Impairment
losses are taken for impaired loans based on the fair value of collateral on an individual loan
basis. The fair value of the collateral may be determined by an evaluation of operating cash flow
from the property during the projected holding period, and/or estimated sales value computed by
applying an expected capitalization rate to the stabilized net operating income of the specific
property, less selling costs. Whichever method is used, other factors considered relate to
geographic trends and project diversification, the size of the portfolio and current economic
conditions. Based upon these factors, we will establish an allowance for credit losses when
appropriate. When it is probable that we will be unable to collect all amounts contractually due,
the loan would be considered impaired.
Investment in Partially-Owned Entities
We invest in preferred equity interests that allow us to participate in a percentage of the
underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the
inception of the investment, we must determine whether such investment should be accounted for as a
loan, joint venture or as real estate. As of September 30, 2011 and December 31, 2010, Care held
two equity investments and accounts for both such investments under the equity method.
The Company assesses whether there are indicators that the value of its partially owned
entities may be impaired. An investment’s value is impaired if the Company determines that a
decline in the value of the investment below its carrying value is other than temporary. To the
extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of
the investment over the estimated value of the investment. The Company recognized an impairment on
investments of its partially owned entities of approximately none and $0.1 million for the three
and nine month periods ended September 30, 2011, respectively, related to the Company’s SMC investment due to
lower occupancy in the SMC property.
Derivative Instruments — Obligation to issue Operating Partnership Units
We account for derivative instruments in accordance with ASC 815,
Derivatives and Hedging
(“ASC 815”). In the normal course of business, we may use a variety of derivative instruments to
manage, or hedge, interest rate risk. We will require that hedging derivative instruments be
effective in reducing the interest rate risk exposure they are designated to hedge. This
effectiveness is essential for qualifying for hedge accounting. Some derivative instruments may be
associated with an anticipated transaction. In those cases, hedge effectiveness criteria also
require that it be probable that the underlying transaction will occur. Instruments that meet these
hedging criteria will be formally designated as hedges at the inception of the derivative contract.
To determine the fair value of derivative instruments, we may use a variety of methods and
assumptions that are based on market conditions and risks existing at each balance sheet date. For
the majority of financial instruments including most derivatives, long-term investments and
long-term debt, standard market conventions and techniques such as discounted cash flow analysis,
option-pricing models, replacement cost, and termination cost are likely to be used to determine
fair value. All methods of assessing fair value result in a general approximation of fair value,
and such value may never actually be realized.
Unrealized gain or loss on the change in the value of a derivative instrument, to the extent
it is determined to be an effective hedge, is included in other comprehensive income. Realized
gain or loss on a derivative instrument, as well as the unrealized
gain or loss on a derivative
instrument, or the portion thereof, which is not an effective hedge, will be included in net income
(loss) from operations.
We may use a variety of commonly used derivative products that are considered “plain vanilla”
derivatives. These derivatives typically include interest rate swaps, caps, collars and floors.
Similarly, we may also sell or “short” U.S. Treasury
securities in anticipation of entering into a fixed
rate mortgage of approximately equal duration. We expressly prohibit the use of unconventional
derivative instruments and using derivative instruments for trading or speculative purposes.
Further, we have a policy of only entering into contracts with major financial institutions based
upon their credit ratings and other factors; therefore, we do not anticipate nonperformance by any
of our counterparties.
As of and for the periods ending September 30, 2011 and December 31, 2010, we were not party
to any derivative instruments, except for the operating partnership units issued in conjunction
with the Cambridge investment as described in Note 5 to the Condensed Consolidated Financial
Statements.
Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended. To qualify as a REIT, we must meet certain organizational and operational
requirements, including a requirement to distribute at least 90% of our REIT taxable income to
stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income
that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we
will then be subject to federal income tax on our taxable income at regular corporate rates and we
will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four
years following the year during which qualification is lost unless the Internal Revenue Service
grants us relief under certain
10
statutory provisions. Such an event could materially adversely affect our net income and
net cash available for distributions to stockholders. However, we believe that we will continue to
operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes. We
may, however, be subject to certain state and local taxes.
All tax years from 2008 forward remain open for examination by Federal, state and local taxing
authorities. The Company does not have any uncertain tax positions as of September 30, 2011.
Earnings per Share
We present basic earnings per share or EPS in accordance with ASC 260,
Earnings per Share
(“ASC 260”). Basic EPS excludes dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur, if securities or other contracts to issue common stock were exercised or
converted into common stock where such exercise or conversion would result in a lower EPS amount.
For the nine months ended September 30, 2011, the original operating partnership units issued at
the time we acquired the Cambridge investment (and which are no longer convertible into the
Company’s common stock as of April 15, 2011) were not dilutive to EPS. For the three and nine month
periods ended September 30, 2010, basic and diluted EPS did not include operating partnership units
that were outstanding prior to April 15, 2011 as they were anti-dilutive. For the three and nine
month periods ended September 30, 2011, diluted EPS included the Warrant (as defined in Note 5 to
the Condensed Consolidated Financial Statements) issued to Cambridge as part of the restructuring
of our investment because the average market price was more than the exercise price.
As described in Note 5 to the Condensed Consolidated Financial Statements, on April 14, 2011
(effective April 15, 2011), our Cambridge investment was restructured and the operating partnership
units issued in connection with the Cambridge investment are no longer redeemable for or
convertible into shares of our common stock.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Significant estimates are made for the valuation of real estate, allowance on
investment in loans, valuation of financial instruments, fair value assessments with respect to the
Company’s decision to implement push-down accounting as part of its change of control and
impairment assessments and fair value assessments with respect to purchase price allocations.
Actual results could differ from those estimates.
Concentrations of Credit Risk
Real estate and financial instruments, primarily consisting of cash, mortgage loan investments
and interest receivable, potentially subject us to concentrations of credit risk. We may place our
cash investments in excess of insured amounts with high quality financial institutions. We perform
ongoing analysis of credit risk concentrations in our real estate and loan investment portfolios by
evaluating exposure to various markets, underlying property types, investment structure, term,
sponsors, tenant mix and other credit metrics. The collateral securing our investments in loans are
real estate properties located in the United States of America.
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.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current
period
presentation.
Recent Accounting Pronouncements
In April 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-02,
Receivables (Topic
310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring
(“ASU
2011-02”). ASU 2011-02 provides amendments to Topic 310 to clarify which loan modifications
constitute troubled debt restructurings. It is intended to assist creditors in determining whether
a modification of the terms of a receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss and for disclosure of troubled
debt restructurings. For public companies, the new guidance is effective for interim and annual
periods beginning on or after June 15, 2011, and applies retrospectively to restructurings
occurring on or after the beginning of the fiscal year of adoption. Early adoption is permitted.
The adoption of this standard did not have a material effect on the consolidated financial
statements.
In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
(“ASU 2011-04”). The amendments in
ASU 2011-04 change the
11
wording used to describe many of the requirements in GAAP for measuring fair
value and for disclosing information about fair value measurements. The amendments are intended to
create comparability of fair value measurements presented and disclosed in financial statements
prepared in accordance with GAAP and International Financial Reporting Standards. ASU 2011-04 is
effective for interim and annual periods beginning after December 15, 2011. The Company does not
expect the adoption of this standard to have a material effect on its consolidated financial
statements.
In June 2011, the FASB issued ASU 2011-05,
Presentation of Comprehensive Income
(“ASU
2011-05”
)
, which requires an entity to present the total of comprehensive income, the components of
net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05
eliminates the option to present components of other comprehensive income as part of the statement
of equity. This ASU does not change the items that must be reported in other comprehensive income.
ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. The
Company does not expect the adoption of this standard to have a material effect on its consolidated
financial statements.
Note 3
—
Investments in Real Estate
As of September 30, 2011 and December 31, 2010, we owned 17 and 14 senior living properties,
respectively. In 2008, we acquired 14 senior living properties located in four (4) states, of which
six (6) are in Iowa, five (5) in Illinois, two (2) in Nebraska and one (1) in Indiana. These 14
properties were acquired in two separate transactions from Bickford
Senior Living Group, LLC, an
unaffiliated party. The initial transaction was completed on June 26, 2008, whereby we acquired 12
of the aforementioned 14 senior living properties for approximately $100.8 million. Concurrent with
that purchase, we leased those properties to Bickford Master I, LLC (the “Master Lessee” or
“Bickford”), for an initial annual base rent of approximately $8.3 million and additional base rent
of approximately $0.3 million, with fixed escalations of 3.0% per annum for 15 years. The lease
provides for four (4) renewal options of ten (10) years each. The additional base rent was deferred
and accrued for the first three (3) years of the initial lease term and then is paid over a 24
month period commencing with the first month of the fourth year (July 2011). We funded this
acquisition using cash on hand and mortgage financing of approximately $74.6 million (see Note 7 to
the Condensed Consolidated Financial Statements).
On September 30, 2008, we purchased the remaining two (2) Bickford senior living properties
for approximately $10.3 million. Concurrent with the purchase, we amended the aforementioned lease
with Bickford (the “Bickford Master Lease”) to include these two (2) properties at an initial
annual base rent of approximately $0.8 million and additional base rent of approximately $0.03
million with fixed escalations of 3% per annum for 14.75 years (the remaining term of the Bickford
Master Lease). The additional base rent was deferred and accrued for the first 33 months of the
initial lease term and then is paid over a 24 month period starting with the first month of the
fourth year (July 2011). We funded this acquisition using cash on hand and mortgage financing of
approximately $7.6 million (see Note 7 to the Condensed Consolidated Financial Statements).
As an enticement for the Company to enter into the leasing arrangement for the properties,
Care received additional collateral and guarantees of the lease obligation from parties affiliated
with Bickford who act as subtenants under the Bickford Master Lease. The additional collateral
pledged in support of Bickford’s obligation to the lease commitment included properties and
ownership interests in affiliated companies of the subtenants. In June 2011, Care released its 49%
equity pledge on one (1) of these properties in exchange for: (i) a 49% equity pledge on a
different Bickford property located in Sioux City, Iowa and (ii) purchase options on three (3)
additional Bickford properties located in Iowa and a fourth Bickford property located in Indiana.
Additionally, as part of the June 26, 2008 transaction, we sold back a property acquired on
March 31, 2008 from Bickford Senior Living Group, LLC. The property was sold at its net carrying
amount, which did not result in a gain or a loss to the Company.
In connection with the Tiptree Transaction discussed in Note 2 to the Condensed Consolidated
Financial Statements, the Company completed an assessment of the allocation of the fair value of
the acquired assets (including land, buildings, equipment and in-place leases) in accordance with
ASC 805 and ASC 350,
Intangibles — Goodwill and Other
. Based upon that assessment, the allocation
of the fair value on August 13, 2010 of the Bickford assets acquired was as follows (in millions):
|
|
|
|
|
|
|
Buildings and improvements
|
|
$
|
95.6
|
|
|
Furniture, fixtures and equipment
|
|
|
6.4
|
|
|
Land
|
|
|
5.0
|
|
|
Identifiable intangibles — leases in-place including above market leases
|
|
|
6.7
|
|
|
|
|
|
|
|
Total
|
|
$
|
113.7
|
|
|
|
|
|
|
As of September 30, 2011, the properties owned by Care and leased to Bickford were
100% operated by Bickford Senior Living Group, LLC. Due to low occupancy at two (2) of the 14
properties, there is a covenant default under the Bickford Master Lease as net operating income
(“NOI”) was not sufficient to satisfy the NOI to lease payment coverage ratio
covenant. Under the Company’s mortgage documents with its secured lender for these properties, a
default under the Bickford Master Lease constitutes a default under
both mortgages. The Company has
presented a lease modification proposal to the mortgage loan servicer which would remedy this
situation. Based on guidance received from the mortgage loan
servicer, we anticipate that
such proposal will
be accepted. To date, the Company has not been provided with or received a
notice of default with regard to the Bickford mortgages and based on
the foregoing, does
not believe a notice of default is forthcoming. Accordingly,
12
the Company is of the opinion that
such covenant default will not have a material impact on the financial statements, results of operations
and/or the liquidity of the Company. Notwithstanding the foregoing, potential lender actions as a
result of the default include an acceleration of the mortgages.
The Company continues to actively monitor the acceptance and approval of its proposed lease modification in order to resolve this issue.
The Bickford assets consist of the following at each period end (in millions):
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|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
Land
|
|
$
|
5.0
|
|
|
$
|
5.0
|
|
|
Buildings and improvements
|
|
|
102.0
|
|
|
|
102.0
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(3.6
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
Total real estate, net
|
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$
|
103.4
|
|
|
$
|
105.7
|
|
|
|
|
|
|
|
|
|
In
September, 2011, the Company acquired three (3) assisted living and memory care facilities located
in Virginia from affiliates of Greenfield Senior Living, Inc. (“Greenfield”). The aggregate
purchase price for the three (3) properties was $20.8 million, of which approximately $15.5 million
was funded with the proceeds of a first mortgage bridge loan (see Note 7 to the Condensed
Consolidated Financial Statements), and the balance with cash on hand. Concurrent with the
acquisition, the properties were leased to three (3) wholly-owned affiliates of Greenfield, which
are responsible for operating each of the properties pursuant to a triple net master lease (the
“Greenfield Master Lease”). The initial term of the Greenfield Master Lease is 12 years with two
(2) renewal options of ten years each. Rent payments during the
first year are $1,650,000, or a lease rate of approximately 7.9%, with
annual rental increases of 2.75% during the initial term of the lease. At the end of the initial
term, Greenfield, subject to certain conditions, holds a one-time purchase option which provides
the right to acquire all three of the properties at the then fair market value. Greenfield has guaranteed
the obligations of the tenants under the Greenfield Master Lease.
We completed a preliminary assessment of the allocation of the fair value of the acquired
assets from Greenfield (including land, buildings, and equipment) in accordance with ASC 805
Business Combinations.
The allocation of the purchase price is preliminary pending the receipt of
information necessary to identify and measure the real estate and
intangible assets acquired. The Company does not expect the
finalization of these items to materially impact the purchase price allocation. The preliminary
allocation of the purchase price to the fair values of the assets acquired is as follows (in
millions):
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|
|
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|
|
Buildings, improvements and equipment
|
|
$
|
18.0
|
|
|
Furniture, fixtures and equipment
|
|
|
0.5
|
|
|
Land
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
$
|
20.8
|
|
|
|
|
|
|
Depreciation was recognized on buildings and improvements from the date of acquisition
through September 30, 2011.
Note 4 — Investments in Loans
As of September 30, 2011 and December 31, 2010, we maintained our loan investment of
approximately $6.3 million and $8.6 million, respectively. The face value of the loan investment at
September 30, 2011 and December 31, 2010 was $10.7 million and $12.9
million, respectively. Prior to September 30, 2010, we carried our loan investments at LOCOM. Our
intent is to hold our remaining loan investment to maturity, and
therefore we have reflected this
loan at its adjusted cost basis, subject to impairment, on the September 30, 2011 and December 31,
2010 balance sheets. The principal amortization portion of payments received is applied to the
carrying value of the loan.
Our loan investments have historically included senior loans and participations secured
primarily by real estate and other collateral in the form of pledges of ownership interests, direct
liens or other security interests and have been in various geographic markets in the United States.
Our remaining loan investment at September 30, 2011 and December 31, 2010, in which we are a one-third
participant in a term loan credit facility, is a variable rate loan that was originally scheduled to mature on February
1, 2011. Negotiations to restructure the loan have been ongoing since its initial maturity date and as part of these
discussions, the term loan credit facility and related revolving loan credit facility have been extended several times,
most recently until October 28, 2011. During the course of negotiations for a potential restructuring of the credit
facilities, certain borrowers under the credit facilities and certain related party entities filed a lawsuit in which the
direct lenders and certain related parties (not including the Company) in the credit facilities were named. While
Care is not named in the lawsuit, the Company may have certain indemnification obligations to one of the named
syndicated lenders (See Note 12 to the Condensed Consolidated Financial Statements). As part of an earlier
extension of the credit facilities, the borrowers agreed to continue to make timely payments of scheduled principal
and interest, and agreed that default interest due on the credit facilities would contractually accrue and not be
payable currently. Accordingly amounts attributable to default interest shall not be recognized until received. In
addition, in February 2011, the lender consortium agreed to liquidate an existing capital expense reserve account.
The Company’s share of this reserve was approximately $1.0 million, which we received in February 2011 and
treated as a partial principal paydown. In addition, two (2) properties securing the credit facilities were sold in
September and October of 2011. We received two (2) payments of approximately $0.5 million in each month,
respectively, from the proceeds of the sales, which were treated as partial principal paydowns.
13
The lender consortium and the borrowers continue to have negotiations surrounding a potential
restructuring of the credit facilities. There can be no assurances regarding the terms or timing or outcome of a
potential restructuring of the credit facilities. The Company continues to monitor the status of the credit facilities.
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|
|
|
|
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Blended
|
|
|
|
|
|
|
|
|
|
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|
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|
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Cost
|
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|
Base
|
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|
|
|
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Location
|
|
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Basis
|
|
|
Interest
|
|
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Maturity
|
|
|
Collateral Type
|
|
City
|
|
|
State
|
|
|
(millions)
|
|
|
Rate (1)
|
|
|
Date (2)
|
|
|
September 30, 2011
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Senior Nursing Facilities/
Senior Apartments/Assisted
Living Facilities
|
|
Various
|
|
Louisiana
|
|
$
|
6.3
|
|
|
|
L+4.00
|
%
|
|
|
10/28/11
|
|
|
Investments in Loans
|
|
|
|
|
|
|
|
|
|
$
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Nursing Facilities/
Senior Apartments/Assisted
Living Facilities
|
|
Various
|
|
Texas/Louisiana
|
|
$
|
9.0
|
|
|
|
L+4.06
|
%
|
|
|
2/21/11
|
|
|
Unrealized Loss on Investments
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
Investments in Loans
|
|
|
|
|
|
|
|
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Does not include default interest rate.
|
|
|
|
(2)
|
|
The original maturity date was February 1, 2011, which
was initially extended to February 21, 2011 and has
been subsequently extended to October 28, 2011. The lender
consortium and the borrowers continue to have negotiations surrounding
a potential restructuring of the credit facilities. There can be no
assurances regarding the terms or timing or outcome of a
restructuring of the credit facilities.
|
Note 5 —Investments in Partially Owned Entities
The Company has two investments in partially owned entities: Cambridge Medical Office Building
Portfolio and Senior Management Concepts Senior Living Portfolio as described below.
Cambridge Medical Office Building Portfolio
In December of 2007, we acquired an 85% equity interest in eight (8) limited partnerships that
own nine (9) Class A medical office buildings (the “Cambridge Portfolio”) developed and managed by
Cambridge Holdings, Inc. (“Cambridge”) in exchange for a total investment of approximately $72.4
million consisting of approximately $61.9 million of cash, of which $2.8 million was held back to
perform tenant improvements, and the commitment to issue to Cambridge 700,000 operating partnership
units (the “OP Units”) in ERC Sub, L.P. (the limited partnership through which we hold our
investment in the Cambridge portfolio) with a stated value of $10.5 million, subject to the
properties achieving certain performance hurdles. Total rentable area is approximately 767,000
square feet. Eight (8) of the properties are located in Texas and one (1) property is located in
Louisiana. The properties are situated on medical center campuses or adjacent to acute care
hospitals or ambulatory surgery centers, and are affiliated with and/or occupied by hospital
systems and doctor groups. Cambridge retained its ownership of the remaining 15% interest in each
of the limited partnerships and continues to operate the underlying properties pursuant to
long-term management contracts. Pursuant to the terms of our management agreements, Cambridge acts
as the manager and leasing agent of each medical office building, subject to certain removal rights
held by us. The properties were approximately 92% leased at September 30, 2011.
On April 14, 2011 (effective as of April 15, 2011) we entered into an Omnibus Agreement (the
“Omnibus Agreement”) with Cambridge and certain of its affiliates (the “Cambridge Parties”)
regarding our investment in the Cambridge Portfolio. Pursuant to the Omnibus Agreement, we
simultaneously entered into a settlement agreement with Cambridge in regard to the ongoing
litigation between ourselves and Cambridge. The economic terms of our investment in the Cambridge
Portfolio were amended by the Omnibus
Agreement as follows:
14
|
|
•
|
|
The number and terms of the OP Units were revised such
that Cambridge retains rights to 200,000 OP Units. These
OP Units are entitled to dividend equivalent payments
equal to any ordinary dividend declared and paid by Care
to its stockholders, but are no longer convertible into or
redeemable for shares of common stock of Care and have
limited voting rights in ERC Sub, L.P.;
|
|
|
|
|
•
|
|
We issued a warrant (the “Warrant”) to Cambridge to
purchase 300,000 shares of our common stock at $6.00 per
share;
|
|
|
|
|
•
|
|
Our obligation to fund up to approximately $0.9 million in
additional tenant improvements in the Cambridge Portfolio
was eliminated;
|
|
|
|
|
•
|
|
Our aggregate interest in the Cambridge Portfolio was
converted from a stated percentage interest of 85% to a
fixed dollar investment of $40 million with a preferred
return of 14%;
|
|
|
|
|
•
|
|
Retroactive to January 1, 2011, we are to receive a
preferential distribution of cash flow from operations
with a target distribution rate of 12% on our $40 million
fixed dollar investment with any cash flow from operations
in excess of the target distribution rate being retained
by Cambridge;
|
|
|
|
|
•
|
|
We have a preference with regard to any distributions from
special events, such as property sales, refinancings and
capital contributions, equal to the sum of our outstanding
fixed dollar investment plus our accrued but unpaid
preferred return;
|
|
|
|
|
•
|
|
Cambridge can purchase our interest in the Cambridge
Portfolio at any time during the term of the Omnibus
Agreement for an amount equal to the sum of our
outstanding fixed dollar investment plus our accrued but
unpaid preferred return plus a cash premium that increases
annually as well as the return to Care of the OP Units,
the Warrant and any Care stock acquired upon a cashless
exercise of the Warrant (the “Redemption Price” as defined
in the Omnibus Agreement);
|
|
|
|
|
•
|
|
Cambridge is required to purchase our interest in the
Cambridge Portfolio upon the earlier of: (i) the date when
our fixed dollar investment has been reduced to zero or
(ii) June 2, 2017, for an amount equal to the Redemption
Price; and
|
|
|
|
|
•
|
|
If prior to April 15, 2013, a medical office competitor,
as defined in the Omnibus Agreement, acquires control of
the Company, Cambridge may purchase our interest in the
Cambridge Portfolio for a fixed dollar price, with no
incremental premium, plus the return of the OP Units, the
Warrant and any Care stock acquired upon a cashless
exercise of the Warrant.
|
As stated above, certain provisions of the Omnibus Agreement are retroactive to January 1,
2011. The effects of the restructuring of the Cambridge investment
are partially reflected in the carrying
value of the investment. Those effects include an increase of approximately $0.2 million for the
valuation of the Warrant, a decrease of approximately $1.8 million for the change in the value of
the remaining restructured OP Units and a reduction of approximately $1.0 million for the cash
distribution for the first quarter in 2011. In addition, as stated above, our obligation for tenant
improvements related to the Cambridge properties of approximately $0.9 million was released as per
the terms of the Omnibus Agreement. Entering into the Omnibus Agreement in and of itself did not
effect our results of operations for the three and nine month periods ending September 30, 2011.
Notwithstanding the foregoing, subsequent to entering into the Omnibus Agreement, we are no longer
allocated 85% of the operating losses (income) from the Cambridge Portfolio. Instead, we increase our
Cambridge Portfolio investment by our share of cash from operations represented by the current pay portion of the preferred return, which is included in income in investments from partially owned entities. Upon
receipt of the current pay portion of our preferred return, we reduce our Cambridge Portfolio investment by a like amount. For the
three and nine months ending September 30, 2011 we reported
$0.9 million (received October 28, 2011) and $2.1 million, respectively, as the current pay portion of our preferred return.
The Company used the Black-Scholes option pricing model to measure the fair value of the
Warrant on April 15, 2011, the date of the issuance, in accordance with the Omnibus Agreement. The
Black-Scholes model valued the Warrant using the following assumptions:
|
|
|
|
|
|
|
Volatility
|
|
|
53.3
|
%
|
|
Expected Dividend Yield
|
|
|
10.29
|
%
|
|
Risk-free Rate of Return
|
|
|
1.87
|
%
|
|
Market Price (Date of Issuance)
|
|
$
|
5.25
|
|
|
Strike Price
|
|
$
|
6.00
|
|
|
Term of warrant
|
|
6.0 years
|
|
The table below provides information with respect to the Cambridge Portfolio as of September
30, 2011:
|
|
|
|
|
|
|
Weighted average rent per square foot
|
|
$
|
25.62
|
|
|
Average square foot per tenant
|
|
|
5,740
|
|
|
Weighted average remaining lease term
|
|
6.3 years
|
|
|
Largest tenant as percentage of total rental square feet
|
|
|
8.8
|
%
|
15
Lease Maturity Schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
Number of
|
|
|
|
|
|
Annual Rent
|
|
Rental
|
|
Year
|
|
tenants
|
|
Square Ft
|
|
(in millions)
|
|
Sq Ft
|
|
2011
|
|
|
9
|
|
|
|
10,583
|
|
|
$
|
2.4
|
|
|
|
1.3
|
%
|
|
2012
|
|
|
18
|
|
|
|
57,263
|
|
|
|
1.3
|
|
|
|
7.3
|
%
|
|
2013
|
|
|
21
|
|
|
|
75,585
|
|
|
|
1.6
|
|
|
|
8.9
|
%
|
|
2014
|
|
|
10
|
|
|
|
37,338
|
|
|
|
0.7
|
|
|
|
3.7
|
%
|
|
2015
|
|
|
21
|
|
|
|
117,580
|
|
|
|
2.5
|
|
|
|
13.6
|
%
|
|
2016
|
|
|
25
|
|
|
|
112,024
|
|
|
|
2.2
|
|
|
|
12.0
|
%
|
|
2017
|
|
|
10
|
|
|
|
53,764
|
|
|
|
2.0
|
|
|
|
11.3
|
%
|
|
Thereafter
|
|
|
12
|
|
|
|
241,879
|
|
|
|
7.6
|
|
|
|
41.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
Prior to April 15, 2011, we included 85% of the operating losses from the Cambridge
Portfolio in our statements of operations and reduced the value of our investment in the Cambridge
Portfolio based on such losses and the receipt of cash distributions. Under the previous structure,
credit support for our preferred return consisted of: (i) the cash flow otherwise attributable to
Cambridge’s 15% stake in the entities; (ii) the ordinary dividend equivalent payments or
distributions otherwise payable to Cambridge with respect to the OP Units currently held in escrow;
and (iii) a reduction in the total number of OP Units (held in escrow) otherwise payable to
Cambridge, when the cash flow attributable to our 85% stake in the entities was not sufficient to
meet the preferred return. The sources of credit support for our preferred return described in the
preceding sentence were utilized in the order presented. Accordingly, if our interest in the cash
flow generated by the properties was not sufficient to fully fund our preferred return, we first
looked to the cash flow otherwise allocable to Cambridge, subsequent to which we captured the
distributions otherwise payable on the OP Units should a shortfall still exist, and finally, we
reduced the number of OP Units otherwise payable to Cambridge in the future, to the extent required
to fully fund our preferred return.
The OP Units are accounted for as a derivative obligation on our balance sheet. Prior to April
15, 2011, the value of these OP Units was derived from our stock price (as each OP Unit was
redeemable for one share of our common stock, or at the cash equivalent thereof, at our option),
and the overall performance of the Cambridge Portfolio as the number of OP Units eventually payable
to Cambridge was subject to reduction to the extent such OP Units were utilized as credit support
for our preferred payment as described above. The modified OP Units are valued based on the
expected dividend equivalent payments equal to expected ordinary dividends declared and paid on our
common stock to be made during the expected term of the OP Units, discounted by a risk adjusted
rate.
On October 19, 2011, we entered into an agreement with Cambridge to amend the Omnibus
Agreement (the “First Amendment”). Pursuant to the First Amendment, Cambridge may purchase our
interest in the Cambridge Portfolio at any time up to December 9, 2011 for an amount equal to the
sum of our $40 million fixed dollar investment plus our accrued but unpaid preferred return
(approximately $2.0 million). Subsequent to December 9, 2011, the
purchase price reverts to that originally provided for in the Omnibus Agreement. As consideration
for the First Amendment, Cambridge will forfeit all of its rights and interests in the Warrant and
the OP Units upon the earlier of the closing of such purchase or December 9, 2011. In conjunction
with the First Amendment, Cambridge agreed that it will not exercise the Warrant. Concurrently with
the First Amendment, Cambridge stated its intent to exercise its purchase option, and to close the purchase on or before December 9,
2011. The Company is evaluating the impact of the amendment on
its financial statements.
Summarized Financial Information for the Cambridge Portfolio
Summarized financial information for the three and nine months ended September 30, 2011 and
September 30, 2010 of the Cambridge Portfolio is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Revenue (nine months)
|
|
$
|
19.0
|
|
|
$
|
19.2
|
|
|
Expenses (nine months)
|
|
|
23.8
|
|
|
|
23.1
|
|
|
Net Loss
before Preferred Return (nine months)
|
|
|
(3.4
|
)
|
|
|
(3.9
|
)
|
|
Net Loss
after Preferred Return (nine months)
|
|
|
(4.8
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (three months)
|
|
$
|
6.4
|
|
|
$
|
6.4
|
|
|
Expenses (three months)
|
|
|
7.0
|
|
|
|
7.9
|
|
|
Net Loss
before Preferred Return (three months)
|
|
|
(0.6
|
)
|
|
|
(1.5
|
)
|
|
Net Loss after Preferred Return (three months)
|
|
|
(2.0
|
)
|
|
|
(1.5
|
)
|
16
Note: The above table includes the results of operations of the Cambridge Portfolio.
Senior Management Concepts Senior Living Portfolio
Until May 2011, we owned interests in four (4) independent and assisted living facilities
located in Utah and operated by Senior Management Concepts, LLC (“SMC”), a privately held operator
of senior housing facilities. The four (4) private pay facilities contain 408 units of which 243
are independent living units and 165 are assisted living units. Four (4) affiliates of SMC each
entered into 15-year leases for the respective facilities that expire in 2022. We acquired our
interest in the SMC portfolio in December 2007, paying approximately $6.8 million in exchange for
100% of the preferred equity interests and 10% of the common equity interests in the four (4)
properties. At the time of our initial investment, we entered into an agreement with SMC that
provides for payments to us of an annual cumulative preferred return of 15.0% on our investment. In
addition, we are to receive a common equity return payable for up to ten (10) years equal to 10.0%
of budgeted free cash flow after payment of debt service and the preferred return as well as 10% of
the net proceeds from a sale of one or more of the properties. Subject to certain conditions being
met, our preferred equity interest in the properties is subject to redemption at par beginning on
January 1, 2010. If our preferred equity interest is redeemed, we have the right to put our common
equity interests to SMC within 30 days after notice at fair market value as determined by a
third-party appraiser. In addition, we have an option to put our preferred equity interest to SMC
at par any time beginning on January 1, 2016, along with our common equity interests at fair market
value as determined by a third-party appraiser.
In May 2011, with our prior consent, SMC sold three (3) of the four (4) properties. At the
time of closing, SMC was delinquent with respect to four (4) months of preferred and budgeted
common equity payments totaling approximately $0.4 million, as well as default interest of
approximately $50,000. At closing we received approximately $6.6 million of gross proceeds and $6.2
million of net proceeds (the offset corresponding to an approximately $0.4 million security deposit
held by us) consisting of approximately $5.2 million representing a partial return of our preferred
equity investment in the three (3) sold properties, approximately $0.9 million representing our 10%
common equity interest in the sold properties and approximately $0.4 million for the outstanding
delinquent and default interest payments. We received approximately $12,000 in excess of the cost
basis of our investment on the sale of the three (3) properties, which was impacted by the
Company’s election to utilize push-down accounting in conjunction with the Tiptree Transaction.
As of September 30, 2011 and subsequent to the aforementioned sale, we retain our 100%
preferred equity interest and 10% common equity interest in the remaining property, the Meadows, in
St. George, Utah. This facility contains 120 units of senior living and the current occupancy is
approximately 89%. Average occupancy during 2010 was approximately 92.5%.
Note 6 — Identified Intangible Assets — leases in-place, net
In connection with the Tiptree Transaction and the election to use push-down accounting, we
undertook an assessment of the allocation of the fair value of the acquired assets as discussed in
more detail in Note 3 to the Condensed Consolidated Financial Statements.
The following table summarizes the Company’s identified intangible assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Leases in-place — including above market leases of $2.7
|
|
$
|
6.7
|
|
|
$
|
6.7
|
|
|
Accumulated amortization
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6.1
|
|
|
$
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
The Company amortizes this intangible asset over the terms of the underlying leases
on a straight-line basis at the monthly amount of approximately $43,000 (or approximately $0.5
million annually through June 2023. The amortization for above-market leases reduced rental income
by approximately $52,000 and $155,000 for the three and nine months ended September 30, 2011,
respectively. The Company is determining the impact of its identified
intangible assets from the acquisition of the Greenfield properties
which the Company does not expect to materially impact the purchase
price allocation (see Note 3 to the Condensed Consolidated Financial
Statements).
Note 7 — Borrowings under Mortgage Notes Payable
On June 26, 2008, in connection with the acquisition of the initial 12 properties from
Bickford Senior Living Group LLC (discussed in Note 3 to the Condensed Consolidated Financial
Statements), the Company through a wholly-owned subsidiary entered into a mortgage loan with Red
Mortgage Capital, Inc. in the principal amount of approximately $74.6 million. The mortgage loan
has a fixed interest rate of 6.845% and provided for one year of interest only debt service.
Thereafter, as of July 2009, the mortgage loan requires a fixed monthly payment of approximately
$0.6 million for both principal and interest, until maturity in July 2015 at which time the then
outstanding balance of approximately $69.6 million is due and payable. In addition, we are required
to make monthly escrow payments for taxes and reserves for which we are reimbursed by Master Lessee
under the Bickford Master Lease. The
mortgage loan is collateralized by the 12 properties.
On September 30, 2008, we acquired two (2) additional properties from Bickford Senior Living
Group, LLC and through the aforementioned wholly-owned subsidiary entered into a second mortgage
loan with Red Mortgage Capital, Inc. in the principal amount of approximately $7.6 million. The
mortgage loan has a fixed interest rate of 7.17% and it provides for a fixed monthly debt service
payment of approximately $62,000 for principal and interest until the maturity in July 2015 when
the then outstanding balance of approximately $7.1 million is due and payable. In addition, we are
required to make monthly escrow payments for taxes and reserves for which we are reimbursed by the
Master Lessee under the Bickford Master Lease. The mortgage loan is collateralized by the two (2)
properties.
17
As a result of the election to utilize push-down accounting in connection with the Tiptree
Transaction, the aforementioned mortgage notes payable were recorded at their fair value of
approximately $82.1 million, an increase of approximately $0.8 million over the combined amortized
loan balances of approximately $81.3 million at August 13, 2010. As of September 30, 2011,
approximately $0.6 million remains to be amortized over the remaining term of the mortgage loans.
Both mortgage loans contain prepayment restrictions that materially impact our ability to
refinance either of the mortgage loans prior to 2015. The annual total debt service for the two (2)
loans is approximately $7.7 million.
Due to low occupancy at two (2) of the 14 properties, at September 30, 2011 there is a
covenant default under the Bickford Master Lease, as net operating income (“NOI”) was not sufficient to satisfy the NOI to lease payment coverage ratio covenant. Under the Company’s
mortgage documents with its secured lender for these properties, a default under the Bickford
Master Lease constitutes a default under both mortgages. The Company has presented a lease
modification proposal to the mortgage loan servicer which would remedy this situation. Based on
guidance received from the mortgage loan servicer, we anticipate that such proposal will
be accepted. To date, the Company has not been provided with or received a
notice of default with regard to the Bickford mortgages and based on the foregoing, does
not believe a notice of default is forthcoming. Accordingly, the
Company is of the opinion that such
covenant default will not have a material impact on the financial statements, results of operations and/or the
liquidity of the Company. Notwithstanding the foregoing, potential lender actions as a result of
the default include an acceleration of the mortgages. The Company
continues to actively monitor the
acceptance and approval of its proposed lease modification in order to resolve this issue.
On September 20, 2011, in connection with its acquisition of the Greenfield properties, the
Company entered into a mortgage bridge loan with KeyBank National Association (“KeyBank”) in the principal
amount of approximately $15.5 million (the “Bridge Loan”) (see Note 4 to the Condensed Consolidated
Financial Statements). The Bridge Loan is secured by separate cross-collateralized, cross-defaulted
first priority mortgages on each of the Greenfield properties. Care has guaranteed payment of up to
$5.0 million of the obligations under the Bridge Loan. The Bridge Loan bears interest at a floating
rate per annum equal to the London Interbank Offered Rate (LIBOR) plus 400 basis points, with no
LIBOR floor, and provides for monthly interest and principal payments commencing on October 1,
2011. The Bridge Loan will mature on June 20, 2012 and, subject to certain conditions, may be
extended for an additional three (3) months. We intend to refinance the Bridge Loan through fixed
rate permanent mortgage financing provided by the Federal Home Loan Mortgage Corporation or Freddie
Mac, with KeyBank acting as the sponsor of such refinancing. As of September 30, 2011, the Bridge
Loan had an effective yield of 4.25% and the Company was in
compliance with respect to the financial covenants related to the Bridge Loan.
Note 8 — Related Party Transactions
Management Agreement with CIT Healthcare LLC
In connection with our initial public offering, we entered into a management agreement (the
“Management Agreement”) with CIT Healthcare LLC (“CIT Healthcare”), which described the services to
be provided by our former manager and its compensation for those services. Under the Management
Agreement, CIT Healthcare, subject to the oversight of our Board of Directors, was required to
conduct our business affairs in conformity with the policies approved by our Board of Directors.
The Management Agreement had an initial term scheduled to expire on June 30, 2010, which would
automatically be renewed for one-year terms thereafter unless terminated by us or CIT Healthcare.
On September 30, 2008, we entered into an amendment (the “Amendment”) to the Management
Agreement. Pursuant to the terms of the Amendment, the Base Management Fee (as defined in the
Management Agreement) payable to CIT Healthcare under the Management Agreement was reduced from a
monthly amount equal to 1/12 of 1.75% of the Company’s Equity (as defined in the Management
Agreement) to a monthly amount equal to 1/12 of 0.875% of the Company’s Equity. In addition,
pursuant to the terms of the Amendment, the Incentive Fee (as defined in the Management Agreement)
payable to CIT Healthcare pursuant to the Management Agreement was eliminated and the Termination
Fee (as defined in the Management Agreement) payable to CIT Healthcare upon the termination or
non-renewal of the Management Agreement was amended to equal the average annual Base Management Fee
as earned by CIT Healthcare during the two (2) years immediately preceding the most recently
completed fiscal quarter prior to the date of termination times three (3), but in no event less
than $15.4 million. No Termination Fee would be payable if we terminated the Management Agreement
for cause.
In consideration of the Amendment and for CIT Healthcare’s continued and future services to
the Company, we granted CIT Healthcare a warrant (the “2008 Warrant”) to purchase 435,000 shares of
the Company’s common stock at $17.00 per share under the
Manager Equity Plan adopted by the Company on June 21, 2007 (the “Manager Equity Plan”). The 2008
Warrant, which is immediately exercisable expires on September 30, 2018 (see
“Other Transactions
with Related Parties”
below). As part of the Tiptree Transaction, Tiptree acquired the 2008 Warrant
from CIT Healthcare for $100,000, and the terms of the 2008 Warrant were subsequently adjusted to
provide for the purchase of 652,500 shares of the Company’s common stock at $11.33 per share as a
result of the three-for-two stock split announced by the Company in September 2010.
On January 15, 2010, we entered into an Amended and Restated Management Agreement (the “A&R
Management Agreement”) with CIT Healthcare. Pursuant to the terms of the A&R Management Agreement,
which became effective upon approval of the Company’s
18
plan of liquidation by our stockholders on
January 28, 2010, the Base Management Fee was reduced to a monthly amount equal to: (i) $125,000
from February 1, 2010 until the earlier of (x) June 30, 2010 and (y) the date on which four (4) of
the Company’s six (6) then-existing investments have been sold; then from such date (ii) $100,000
until the earlier of (x) December 31, 2010 and (y) the date on which five (5) of the Company’s six
(6) then-existing investments have been sold; then from such date (iii) $75,000 until the effective
date of expiration or earlier termination of the A&R Management Agreement by either of the Company
or CIT Healthcare; provided, however, that notwithstanding the foregoing, the Base Management Fee
was to remain at $125,000 per month until the later of: (a) ninety (90) days after the filing by
the Company of a Form 15 with the SEC; and (b) the date that the Company is no longer subject to
the reporting requirements of the Exchange Act. In addition, the termination fee payable to CIT
Healthcare upon the termination or non-renewal of the A&R Management Agreement was replaced by a
buyout payment of $7.5 million, payable in installments of: (i) $2.5 million upon approval of the
Company’s plan of liquidation by our stockholders; (ii) $2.5 million upon the earlier of (a) April
1, 2010 and (b) the effective date of the termination of the A&R Management Agreement by either of
the Company or CIT Healthcare; and (iii) $2.5 million upon the earlier of (a) June 30, 2011 and (b)
the effective date of the termination of the A&R Management Agreement by either the Company or CIT
Healthcare. The A&R Management Agreement also provided CIT Healthcare with an incentive fee of $1.5
million if: (i) at any time prior to December 31, 2011, the aggregate cash dividends paid to the
Company’s stockholders since the effective date of the A&R Management Agreement equaled or exceeded
$9.25 per share or (ii) as of December 31, 2011, the sum of: (x) the aggregate cash dividends paid
to the Company’s stockholders since the effective date of the A&R Management Agreement and (y) the
aggregate distributable cash equals or exceeds $9.25 per share. In the event that the aggregate
distributable cash equaled or exceeded $9.25 per share but for the impact of payment of a $1.5
million incentive fee, the Company shall have paid CIT Healthcare an incentive fee in an amount
that allows the aggregate distributable cash to equal $9.25 per share. Under the A&R Management
Agreement, the mortgage purchase agreement between us and CIT Healthcare was terminated and all
outstanding notices of our intent to sell additional loans to CIT Healthcare were rescinded. The
A&R Management Agreement was to continue in effect, unless earlier terminated in accordance with
the terms thereof, until December 31, 2011. The share prices discussed above are not adjusted for
the Company’s three-for-two stock split announced in September 2010.
On November 4, 2010, the Company entered into a Termination, Cooperation and Confidentiality
Agreement (the “CIT Termination Agreement”) with CIT Healthcare. Pursuant to the CIT Termination
Agreement, the parties terminated the A&R Management Agreement on November 16, 2010 (the
“Termination Effective Date”). The CIT Termination Agreement also provides for: (i) a 180 day
cooperation period beginning on the Termination Effective Date relating to the transition of Care
from an externally-managed REIT to a hybrid management structure consisting of senior management
becoming employees of the Company and the Company entering into a services agreement (the “Services
Agreement”) with TREIT Management, LLC (“TREIT”), which is an affiliate of Tiptree Capital
Management LLC (“Tiptree Capital” by which Tiptree is externally managed) as described in more
detail below; (ii) a two (2) year mutual confidentiality period; and (iii) a mutual release of all
claims related to CIT Healthcare’s management of the Company. Under the CIT Termination Agreement,
the parties agreed that in lieu of the payments otherwise required under the termination provisions
of the A&R Management Agreement, the Company would 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. Those amounts were paid in full in November 2010. The
Company previously paid $5.0 million of the buyout fee during the first two quarters of 2010.
For the three and nine months ended September 30, 2010, we recognized approximately $0.3
million and $8.6 million in management and buyout fees paid to CIT Healthcare, respectively.
Included within the payments to CIT Healthcare was reimbursement for certain expenses detailed in
the Management Agreement and subsequent amendments, such as rent, utilities, office furniture,
equipment, and overhead, among others, required for our operations.
Services Agreement with TREIT Management LLC
On November 4, 2010, the Company entered into a 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 (the “Services Agreement”).
For such services, the Company will: (i)
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) as adjusted to account for Equity Offerings (as defined in the
Services Agreement), (ii) provide TREIT with office space and certain office related services (as
provided in the Services Agreement and subject to a cost sharing agreement between the Company and
TREIT) and (iii) pay a quarterly incentive fee equal to the lesser of (a) 15% of the Company’s AFFO
Plus Gain/(Loss) On Sale (as defined in the Services Agreement) and (b) the amount by which the
Company’s AFFO Plus Gain /(Loss) on Sale exceeds an amount equal to Adjusted 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 its terms, the Services
Agreement will be automatically renewed for one year periods following such date unless either
party elects not to renew. 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. Such termination fee is not fixed and determinable and is calculated in
accordance with the terms of the Services Agreement.
For the three and nine months ended September 30, 2011, we incurred approximately $0.1 million
and $0.3 million, respectively, in service fee expense to TREIT. In addition, during the three
month period ended September 30, 2011, the Company incurred an incentive fee payable to TREIT of
approximately $0.2 million, of which 20% is payable in the Company’s common stock, during the
Company’s fourth fiscal quarter of 2011. The total incentive fee paid to TREIT for the first nine
months of 2011 was approximately
$0.7 million of which 20% is payable in the Company’s stock.
On November 9, 2011, we entered into an
amendment to the Services Agreement which clarified the basis upon which the Company calculates the quarterly incentive fee.
19
Other Transactions with Related Parties
In connection with the Tiptree Transaction, CIT Healthcare sold the 2008 Warrant to Tiptree,
which provides for the purchase of 435,000 shares of the Company’s common stock at $17.00 per share
under the Manager Equity Plan adopted by the Company on June 21, 2007. The 2008 Warrant, which was
granted to CIT Healthcare by the Company as consideration for amendments to earlier versions of the
Management Agreement, and which was immediately exercisable, expires on September 30, 2018 and was
adjusted to provide for the purchase of 652,500 shares of the Company’s common stock at $11.33 per
share as a result of the three for two stock split announced by the Company in September 2010.
In accordance with ASC 505-50, the Company used the Black-Scholes option pricing model to
measure the fair value of the 2008 Warrant on the date of the Tiptree Transaction. The
Black-Scholes model valued the 2008 Warrant using the following assumptions at the fair value date
of August 13, 2010:
|
|
|
|
|
|
|
Volatility
|
|
|
20.1
|
%
|
|
Expected Dividend Yield
|
|
|
7.59
|
%
|
|
Risk-free Rate of Return
|
|
|
3.6
|
%
|
|
Current Market Prices
|
|
$
|
8.96
|
|
Strike Price
|
|
$
|
17.00
|
|
Term of Warrant
|
|
8.14 years
|
|
The fair value of the 2008 Warrant was approximately $36,000 at August 13, 2010 and is
recorded as part of additional paid-in-capital in connection with this transaction.
Note 9
— Fair Value Measurements
The
Company has established processes for determining fair value
measurements. 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.
An
asset or liability’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:
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 assets and liabilities measured at fair value, as well as the general classification of such pursuant to the valuation hierarchy.
Real estate —
The estimated fair value of tangible and intangible assets and liabilities recorded in connection with
real estate properties acquired are based on Level 3 inputs. We estimated fair values utilizing income and market
valuation techniques. The Company may estimate fair values using market information such as recent sales data for
similar assets, income capitalization, or discounted cash flow models. Capitalization rates and discount rates
utilized in these models are estimated by management based upon rates that management believes to be within a
reasonable range of current market rates for the respective properties based upon an analysis of factors such as
property and tenant quality, geographical location and local supply and demand observations.
Investments in loans —
At September 30, 2011 and December 31, 2010, we valued our remaining
loan at adjusted cost, less allowances for unrealized losses. For purposes of both determining
value on August 13, 2010 and the amount of the subsequent allowance for unrealized losses, we
utilized internal modeling factors using Level 3 inputs. Prior to September 30, 2010, we valued our
investment in loans at LOCOM. Such valuations were determined primarily on appraisals from third
parties as 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.
Obligation to issue operating partnership units —
The fair value of our obligation to issue
OP Units is based on internally developed valuation models, as quoted market prices are not
available nor are quoted prices available for similar liabilities. Our model involves the use of
management estimates as well as some Level 2 inputs. The variables in the model prior to April 15,
2011 included the estimated release dates of the shares out of escrow, based on the expected
performance of the underlying properties, a discount factor of approximately 21% as of December 31,
2010, and the market price and expected quarterly dividend of Care’s common
shares at each measurement date. As discussed above in Note 5 to the Condensed Consolidated
Financial Statements
,
pursuant to the Omnibus Agreement as of April 15, 2011, the number of OP
Units outstanding was reduced to 200,000 and the terms of such OP Units were altered to eliminate
any conversion right and provided for forfeiture of the OP Units upon the occurrence of certain
events. Under the modified terms, as of September 30, 2011, the variables (Level 3 inputs) in the
model include the expected life of the units, and the expected dividend rate on our common stock
and a discount factor of 12%.
ASC 820
Fair Value Measurements
(“ASC 820”) requires disclosure of the amounts of significant
transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for the
transfers. In addition, ASC 820 requires entities to separately disclose, in their roll-forward
reconciliation of Level 3 fair value measurements, changes attributable to transfers in and/or out
of Level 3 and the reasons for those transfers. Significant transfers into a level must be
disclosed separately from transfers out of a level. We had no transfers
between levels for the
three and nine month periods ended September 30, 2011.
20
The
following table presents the Company’s assets and liabilities measured at fair value on a recurring basis on the
consolidated balance sheets as of September 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2011 (Successor)
|
|
|
(dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2010 (Successor)
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
2.1
|
|
|
|
|
|
|
(1)
|
|
For the nine month period ended September 30, 2011, we
recorded an unrealized loss of approximately $0.3
million on revaluation and for the twelve month period
ended December 31, 2010 an unrealized gain of
approximately $0.8 million on revaluation.
|
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 month periods ended September
30, 2011 and 2010. Level 3 instruments presented in the tables include a liability to issue OP
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, 2011 and 2010:
|
|
|
|
|
|
|
Level 3 Instruments
|
|
Obligation to
|
|
|
Fair Value Measurements
|
|
Issue
|
|
|
September 30, 2011
|
|
Partnership
|
|
|
(dollars in millions)
|
|
Units
|
|
|
Balance, December 31, 2010
|
|
$
|
(2.1
|
)
|
|
Modification of OP Units (offset against investment)
|
|
|
1.9
|
|
|
Net change in unrealized loss from obligations
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
Balance, September 30, 2011
|
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Instruments
|
|
|
|
|
|
Obligation to
|
|
|
Fair Value Measurements
|
|
Investments
|
|
|
Issue
|
|
|
September 30, 2010
|
|
In Loans
|
|
|
Partnership
|
|
|
(dollars in millions)
|
|
AT LOCOM
|
|
|
Units
|
|
|
|
|
Balance, December 31, 2009, Predecessor
|
|
$
|
25.3
|
|
|
$
|
(2.9
|
)
|
|
Repayment of loans
|
|
|
(10.7
|
)
|
|
|
—
|
|
|
Sale of loan to a third party
|
|
|
(5.9
|
)
|
|
|
—
|
|
|
Total unrealized gain included in statement of operations
|
|
|
0.7
|
|
|
|
—
|
|
|
|
|
|
|
Balance, August 12, 2010, Predecessor
|
|
$
|
9.4
|
|
|
$
|
(2.9
|
)
|
|
|
|
|
|
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
|
|
|
|
|
|
The Company recognized an impairment on investments of its partially owned entities of approximately none
and $0.1 million for the three and nine months ended September 30, 2011, respectively, related to the Company’s SMC investment due to lower
occupancy in the remaining SMC property.
The calculation of the impairment was based on the sales price of the three SMC properties sold in May 2011 (Level 3 measurement)
As of September 30, 2011, the Company has completed a preliminary assessment of the
allocation of the fair value of the assets acquired from Greenfield utilizing Level 3 inputs. See Note 3 to the Condensed Consolidated Financial Statements.
Estimates
of 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.
21
In addition to the amounts reflected in the financial statements at fair value as provided
above, cash and cash equivalents, accrued interest receivable, accounts payable and other
liabilities reasonably approximate their fair values due to the short maturities of these items.
The mortgage notes payable of approximately $73.8 million and approximately $7.5 million that were
used to finance the acquisitions of the Bickford properties on June 26, 2008 and September 30,
2008, respectively, were revalued in connection with the Tiptree Transaction and our election to
utilize push-down accounting and were determined to have a combined fair value of approximately
$82.1 million on August 13, 2010 and a combined fair value of approximately $84.5 million as of
September 30, 2011. The fair value of the debt was calculated by determining the present value of
the agreed upon cash flows at a discount rate reflective of financing terms currently available to
us for collateral with the similar credit and quality characteristics (based on Level 2
measurements). The Bridge Loan used to finance the Greenfield acquisition is a floating rate
facility and closed on September 20, 2011. Accordingly, its historic value approximates fair market
value as of September 30, 2011.
The Company is exposed to certain risks relating to its ongoing business. The primary risk
that may be managed by using derivative instruments is interest rate risk. We may enter into
interest rate swaps, caps, floors or similar instruments to manage interest rate risk associated
with the Company’s borrowings. The Company has no interest rate derivatives in place as of
September 30, 2011 or December 31, 2010.
We are required to recognize all derivative instruments as either assets or liabilities at
fair value in the statement of financial position. As of September 30, 2011, the Company has only
one derivative instrument that pertains to the OP Units issued in conjunction with the Cambridge
investment. The Company has not designated this derivative instrument as a hedging instrument.
Accordingly, our consolidated financial statements include the following fair value amounts and
reflect gains and losses associated with the aforementioned derivative instrument (dollars in
millions):
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|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
(Successor)
|
|
(Successor)
|
|
|
|
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
|
|
$(0.5)
|
|
Obligation to issue operating partnership units
|
|
$(2.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) / Loss Recognized in Income on Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
For the Period
|
|
For the Period
|
|
|
|
From
|
|
|
|
|
|
|
|
From
|
|
From
|
|
Nine Months
|
|
January 1,
|
|
|
|
|
|
Three Months
|
|
August 13, 2010 to
|
|
July 1, 2010 to
|
|
Ended
|
|
2010
|
|
Derivatives not designated
|
|
Location of (Gain) / Loss
|
|
Ended
|
|
September 30,
|
|
August 12,
|
|
September 30,
|
|
August 12,
|
|
as hedging instruments
|
|
Recognized in Income on
|
|
September 30, 2011
|
|
2010
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
Derivative
|
|
(Successor)
|
|
(Successor)
|
|
(Predecessor)
|
|
(Successor)
|
|
(Predecessor)
|
|
|
|
Operating
Partnership Units
|
|
Unrealized loss / (gain) on
derivative instruments
|
|
$—
|
|
$(0.5)
|
|
$(0.2)
|
|
$0.3
|
|
$—
|
As discussed in Note 5 to the Condensed Consolidated Financial Statements, Cambridge will
forfeit all of its rights and interests in the OP Units upon the earlier of the closing of the
purchase of Care’s interest in the Cambridge Portfolio or December 9, 2011 pursuant to the First
Amendment to the Omnibus Agreement.
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, 2011, no shares
of preferred stock were issued and outstanding and 10,161,249 shares of common stock were issued
and outstanding.
On December 10, 2009, the Company granted special transaction performance share awards to plan
participants equal to 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
22
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. Two thousand of these shares were forfeited and the maximum target level was reached when
the Tiptree Transaction was completed on August 13, 2010, triggering the issuance of the aggregate
maximum 28,000 shares on that day. The performance share awards were settled prior to the Company’s
three-for-two stock split announced in September 2010.
On January 3, 2011, the Company awarded a total of 73,999 common shares to four of its
employees in accordance with their employment agreements. The issuance of such shares was treated
as compensation expense in the fourth quarter of 2010. These shares were issued under the Care
Investment Trust Inc. Equity Plan (“Equity Plan”).
On May 16, 2011 and August 9, 2011, the Company issued 9,245 and 4,859, respectively, common
shares to TREIT Management LLC in conjunction with its quarterly incentive fee due under the
Services Agreement (See Note 8 to the Condensed Consolidated Financial Statements). These shares
were issued under the Manager Equity Plan.
As of September 30, 2011, 276,406 common shares remain available for future issuances under
the Equity Plan and 192,814 shares remain available for future issuances under the Manager Equity
Plan. Per the terms of the respective plans, the amounts available for issuance under the Equity
Plan and the Manager Equity Plan were adjusted by the Company’s three-for-two stock split announced
in September 2010.
During the second and third quarters of fiscal 2011, the Company declared and paid a cash
dividend of $0.135 per common share of approximately $1.4 million in each of these quarters. On
November 3, 2011, the Company declared a third quarter cash dividend of $0.135 per common share to
be paid on December 1, 2011 to stockholders of record as of
November 17, 2011;.
Shares Issued to Directors for Board Fees:
On January 3, 2011, April 6, 2011, July 5, 2011 and October 3, 2011, 3,156; 2,912; 2,096; and
1,689 shares, respectively, of common stock with a combined aggregate fair value of approximately
$56,000 were granted to our independent directors as part of their annual retainer.
The shares were issued under the Equity Plan. 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
shares of Care common stock. Shares issued as part of the annual retainer vest immediately and are
included in general and administrative expense.
Note 11
—
Income (Loss) per Share (in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
For the Period From
|
|
|
For the Period From
|
|
|
Nine Months Ended
|
|
|
For the Period From
|
|
|
|
|
Ended
|
|
|
August 13, 2010 to
|
|
|
July 1, 2010 to
|
|
|
September 30,
|
|
|
January 1, 2010 to
|
|
|
|
|
September 30, 2011
|
|
|
September 30, 2010
|
|
|
August 12, 2010
|
|
|
2011
|
|
|
August 12, 2010
|
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
Net
income or (loss) per share of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic
|
|
$
|
0.05
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, diluted
|
|
$
|
0.05
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
535
|
|
|
$
|
(384
|
)
|
|
$
|
(6,609
|
)
|
|
$
|
489
|
|
|
$
|
(16,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, basic
|
|
|
10,159,098
|
|
|
|
10,063,386
|
|
|
|
30,353,454
|
|
|
|
10,149,763
|
|
|
|
30,331,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, diluted
|
|
|
10,187,605
|
|
|
|
10,063,386
|
|
|
|
30,353,454
|
|
|
|
10,160,202
|
|
|
|
30,331,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011 diluted income per share
includes the effect of 28,507 and 4,433 common shares, respectively, pertaining to the Warrant
issued to Cambridge on April 15, 2011 under the Omnibus Agreement. As described in
23
Note 5 to the Condensed Consolidated Financial Statements, pursuant to the First Amendment to the Omnibus
Agreement, the Warrant will be terminated on or before December 9, 2011. The 2008 Warrant
convertible into 652,500 common shares was excluded in diluted income per share because the
exercise price was more than the average market price and it is anti-dilutive for these periods.
For the three and nine month periods ended September 30, 2010, there were no outstanding
securities that were dilutive.
For the nine months ended September 30, 2011, the original operating partnership units did not
affect diluted net income (loss) per share. For the three and nine months ended
September 30, 2010, basic and diluted net income (loss) per
share
did not include operating partnership units that were outstanding prior to April 15, 2011, as they
were anti-dilutive.
As described in Note 5 to the Condensed Consolidated Financial Statements, on April 14, 2011
(effective April 15, 2011), our Cambridge investment was restructured and the OP Units issued in
connection with the Cambridge investment are no longer redeemable for or convertible into shares of
our common stock.
The weighted average common shares outstanding (basic and diluted) for the three and nine
months ended September 30, 2010 are adjusted to reflect the Company’s three-for-two stock split
announced in September 2010.
Note 12
—
Commitments and Contingencies
As discussed above in Note 5 to the Condensed Consolidated Financial Statements, as of April
15, 2011, Care’s previous obligation to provide approximately $0.9 million in tenant improvements
related to our purchase of the Cambridge properties was eliminated in conjunction with the
execution of the Omnibus Agreement.
On November 4, 2010, the Company entered into a Services Agreement with TREIT pursuant to
which TREIT will provide certain advisory services related to the Company’s business beginning upon
the effective termination of CIT Healthcare as our external manager on November 16, 2010. 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), as adjusted
to account for Equity Offerings (as defined in the Services Agreement), and quarterly incentive fee
equal to the lesser of: (a) 15% of the Company’s AFFO Plus Gain/(Loss) On Sale (as defined in the
Services Agreement) and (b) the amount by which the Company’s AFFO Plus Gain /(Loss) on Sale
exceeds an amount equal to Adjusted 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.
On November 9, 2011, we entered into an
amendment to the Services Agreement which clarified the basis upon which the
Company calculates the quarterly incentive fee.
In addition to the mortgage notes from our Bickford and Greenfield properties (See Note 7 to
the Condensed Consolidated Financial Statements), the table below
summarizes our annual remaining
contractual obligations as of September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
(in millions)
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
|
TREIT Base
service fee(1)
|
|
$
|
0.3
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Company Office Lease
|
|
$
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
|
|
|
(1)
|
|
Subject to increase based on increases in stockholders’
equity. In 2014 and 2015, TREIT will receive either (i)
the Termination Fee in the event of termination without
cause or non-renewal, or (ii) the base service fee in
the event of renewal by the Company. The Termination
Fee payable to TREIT in the event of termination
without cause or non-renewal of the Services Agreement
by the Company is not fixed and determinable and is,
therefore, not included in the table.
|
Litigation
Care is not presently involved in any material litigation or, 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.
Notwithstanding the foregoing, the Company, as discussed above in Note 4 to the Condensed
Consolidated Financial Statements, may have certain indemnification obligations with respect to a
lawsuit filed by certain borrowers and certain related party entities in our remaining loan investment in which Care was not named as a
defendant.
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
24
Saada and 13 of his companies (the “Saada Parties”), seeking
various declaratory judgments relating to our various partnership agreements with respect to the
Cambridge Portfolio. Saada brought a number of counterclaims against us.
On April 14, 2011 (effective April 15, 2011) we settled all litigation with the Saada Parties
and the Cambridge entities, and all litigation between the parties was dismissed with prejudice,
ending the litigation.
Shareholder IPO 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. The parties
filed various motions between April 2008 and July 2010. 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. Care
filed a motion for summary judgment on July 9, 2010. By Opinion and Order dated December 22, 2010,
the Court granted Care summary judgment motion in its entirety and directed the Clerk of the Court
to enter judgment accordingly.
On January 11, 2011, the parties entered into a stipulation ending the litigation. In the
stipulation: (i) plaintiffs waived any and all appeal rights that they had in the action,
including, without limitation, the right to appeal any portion of the Court’s Opinion and Order
granting Care’s summary judgment or the judgment entered by the Clerk; (ii) Care waived any and all
rights that they had to seek sanctions of any form against plaintiffs or their counsel in
connection with the action; and (iii) each party agreed it would bear its own fees and costs in
connection with the action. The stipulation was so ordered by the Court on January 12, 2011,
bringing the litigation to a close.
Note 13
—
Subsequent Events
Hedging Transactions
On
October 3, 2011, the Company sold short $15 million of the aggregate principal amount of the
2.125% U.S. Treasury Note due August 15, 2021 (the “10 Year U.S. Treasury”). Care entered into
this transaction in conjunction with its submission to the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) of its application for a ten-year fixed rate mortgage to be secured by the
Greenfield properties. Proceeds of the Freddie Mac mortgage will be used to repay the current
outstanding Bridge Loan secured by the Greenfield properties. The interest rate on the Freddie Mac
mortgage will be set shortly prior to closing at a fixed amount or spread over the then current
yield on the 10 Year U.S. Treasury. The Company closed the aforementioned short position on October
27, 2011 and realized a gain of approximately $0.7 million.
Dividend Declaration
On November 3, 2011, the Company declared a third quarter cash dividend of $0.135 per common
share to be paid on December 1, 2011 to stockholders of record
at the close of business as of November 17, 2011.
25
|
|
|
|
|
ITEM 2.
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
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 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
|
|
|
|
|
•
|
|
impact of technology on our operations and business.
|
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.
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” (“MD&A”) 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) is an equity REIT that invests in healthcare
facilities including assisted-living, skilled nursing and other senior care
26
facilities, medical office buildings and other healthcare-related real estate assets. The Company, which utilizes a
hybrid management structure containing components of both internal and external management, was
incorporated in Maryland in March 2007 and completed its initial public offering on June 22, 2007.
We were originally structured as an externally-managed REIT positioned to make mortgage
investments in healthcare-related properties and to invest in healthcare-related real estate
through the origination platform of our then external manager, CIT Healthcare LLC (“CIT
Healthcare”), a wholly-owned subsidiary of CIT Group Inc. (“CIT”). 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 equity investments in healthcare-related real estate. In 2008, we
completed this transition into becoming an equity REIT by making our mortgage loan portfolio
available for sale and fully shifting our strategy from investing in mortgage loans to acquiring
healthcare-related real estate.
On March 16, 2010, we entered into a definitive purchase and sale agreement with Tiptree
Financial Partners, L.P. (“Tiptree”) under which we agreed to sell a significant amount of newly
issued common stock to Tiptree (the “Tiptree Transaction”) at $9.00 per share (prior to the
Company’s announcement of a three-for-two stock split in September 2010) and to commence a cash
tender offer for up to all (the “Tender Offer”) of our outstanding common stock at $9.00 per share
(prior to the Company’s announcement of a three-for-two stock split in September 2010). This change
of control was completed on August 13, 2010. A total of approximately 19.74 million shares of our
common stock, representing approximately 97.4% of our outstanding common stock, were tendered by
our stockholders in the Tender Offer and approximately 6.19 million of newly issued shares of our
common stock, representing approximately 92.2% of our outstanding common stock, after taking into
consideration the effect of the tender offer, were issued to Tiptree in the Tiptree Transaction in
exchange for cash proceeds of approximately $55.7 million.
On November 4, 2010, in conjunction with the change of control, we entered into a termination,
cooperation and confidentiality agreement with CIT Healthcare terminating CIT Healthcare as our
external manager as of November 16, 2010. A hybrid management structure was put into place with
senior management becoming our employees and the Company entering into a services agreement with
TREIT Management, LLC (“TREIT,” which is an affiliate of Tiptree Capital Management, LLC (“Tiptree
Capital”), by which Tiptree is externally managed) pursuant to which certain administrative
services are provided to us.
As of September 30, 2011, we maintained a diversified investment portfolio consisting of
approximately $29.1 million (18%) in unconsolidated joint ventures that own real estate,
approximately $124.2 million (78%) in wholly owned real estate and approximately $6.3 million (4%)
in mortgage loans. Due to the Tiptree Transaction and our election to utilize push-down
accounting, our existing portfolio was revalued as of August 13, 2010 based on the estimated fair
market value of each asset on such date. As of September 30, 2011, Care’s portfolio of assets
consisted of wholly-owned real estate of senior housing facilities and joint-ventures which own
senior-housing facilities and medical office properties as well as a mortgage loan on senior
housing facilities and healthcare related assets. Our wholly-owned senior housing facilities are
leased, under “triple-net” leases, which require the tenants to pay all property-related expenses.
As a REIT, we are generally not subject to income taxes. To maintain our REIT status, we are
required to distribute annually as dividends at least 90% of our REIT taxable income, as defined by
the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders, among other
requirements. If we fail to qualify as a REIT in any taxable year, we would be subject to U.S.
federal income tax on our taxable income at regular corporate tax rates.
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, 2010 in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” There have been no significant changes to those policies
during the nine-month period ended September 30, 2011.
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 the
2010 condensed consolidated financial statements for “predecessor” and “successor” periods. Our
predecessor periods relate to the accounting periods preceding the Tiptree Transaction. Our
successor periods relate to the accounting periods following the Tiptree Transaction in which we
have applied push down accounting. For purposes of this MD&A, to facilitate the discussion of
operations, 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
meaningful comparison of our consolidated results for the three months and nine months ended
September 30, 2011 and 2010, respectively, because it allows us to compare our consolidated results
over equivalent periods of time. Nonetheless a reader should bear in mind that the consolidated
financial statements for our successor and predecessor 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
successor and predecessor entities
27
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
|
|
|
|
|
Three Months
|
|
|
Ended September
|
|
|
Nine Months
|
|
|
Ended September
|
|
|
|
|
Ended September
|
|
|
30, 2010
|
|
|
Ended September
|
|
|
30, 2010
|
|
|
|
|
30, 2011
|
|
|
(Successor and
|
|
|
30, 2011
|
|
|
(Successor and
|
|
|
|
|
(Successor)
|
|
|
Predecessor)
|
|
|
(Successor)
|
|
|
Predecessor)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
3,371
|
|
|
$
|
3,283
|
|
|
$
|
9,923
|
|
|
$
|
9,684
|
|
|
Income from investments in loans
|
|
|
146
|
|
|
|
417
|
|
|
|
589
|
|
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
3,517
|
|
|
|
3,700
|
|
|
|
10,512
|
|
|
|
11,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base management and service fees and
buyout payments to related party
|
|
|
100
|
|
|
|
275
|
|
|
|
303
|
|
|
|
8,579
|
|
|
Incentive fee to related party
|
|
|
237
|
|
|
|
—
|
|
|
|
718
|
|
|
|
—
|
|
|
Marketing, general and administrative
|
|
|
1,367
|
|
|
|
7,821
|
|
|
|
3,705
|
|
|
|
12,006
|
|
|
Depreciation and amortization
|
|
|
883
|
|
|
|
993
|
|
|
|
2,620
|
|
|
|
2,676
|
|
|
Realized gain on sales and repayment
of loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
Adjustment to valuation allowance on
investments in loans
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
—
|
|
|
|
(858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,587
|
|
|
|
9,061
|
|
|
|
7,346
|
|
|
|
22,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) or loss from investments
in partially-owned entities, net
|
|
|
(1,009
|
)
|
|
|
956
|
|
|
|
(1,779
|
)
|
|
|
2,415
|
|
|
Net unrealized (gain)/loss on derivative
instruments
|
|
|
—
|
|
|
|
(719
|
)
|
|
|
255
|
|
|
|
(451
|
)
|
|
Impairment of investments
|
|
|
—
|
|
|
|
—
|
|
|
|
77
|
|
|
|
—
|
|
|
Interest income
|
|
|
(7
|
)
|
|
|
(25
|
)
|
|
|
(15
|
)
|
|
|
(104
|
)
|
|
Interest expense including amortization
and write-off of deferred financing
costs
|
|
|
1,411
|
|
|
|
1,420
|
|
|
|
4,139
|
|
|
|
4,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
535
|
|
|
$
|
(6,993
|
)
|
|
$
|
489
|
|
|
$
|
(17,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For reconciliation with the GAAP presentation, see the Condensed Consolidated Statement of
Operations.
Comparison of the three months ended September 30, 2011 and the three months ended September 30,
2010
Revenue
During the three month period ended September 30, 2011, we recognized approximately $3.4
million of rental revenue on the Bickford and Greenfield properties, as compared with approximately
$3.3 million related to the Bickford properties during the comparable period in 2010, an increase
of approximately $0.1 million. Included in the rental revenue for the three month period ended
September 30, 2011 was approximately $50,000 of rental revenue which represented rent from the
Greenfield properties which were acquired in September 2011. Also included in the revenue for each
period are approximately $0.3 million of taxes, insurance and other escrows that we collect on
behalf of our tenant in our Bickford properties and pass through to our mortgage lender to be paid
upon coming due. KeyBank does not require escrows on its Bridge Loan, and while we are escrowing for
taxes, insurance and replacements reserves on our Greenfield portfolio, no such amounts were
included income for three month period ended September 30, 2011.
We
earned investment income on our remaining loan investment of approximately $0.1 million for
the three month period ended September 30, 2011 as compared with approximately $0.4 million for the
three months ended September 30, 2010, a decrease of approximately $0.3 million. The decrease in
income related to our loan portfolio is primarily attributable to a lower average outstanding
principal loan balance during the three month period ended September 30, 2011, as compared with the
comparable period during 2010, which was the result of principal pay downs that occurred on our
remaining loan during the nine months ended September 30, 2011. In addition, as part of
an extension agreement with respect to our remaining loan investment, the borrowers agreed to
continue to pay scheduled principal and interest on a timely basis; however, payments of default
interest on the credit facility will contractually accrue and are not currently payable. Accordingly,
amounts attributable to default interest shall not be recognized until received. We recognized
approximately $27,000 of default interest for the three month period September 30, 2011, as
compared to the
28
period
ended September 30, 2010 during which approximately $0.2 million of default interest was
recognized as interest income. Our remaining mortgage loan is variable rate based on LIBOR.
At September 30, 2011, the loan had a weighted average spread of 4.00% over 30-Day LIBOR, with
an effective yield of 4.24%. The effective yield on our mortgage investment at the period ended
September 30, 2010 was 4.37%. As discussed in Notes 2 and 4 to our Condensed Consolidated
Financial Statements, the original maturity date of the loan was
February 1, 2011, which had been
extended several times, most recently until October 28, 2011.
The lender consortium and the borrowers continue to have negotiations surrounding a potential restructuring of the credit facilities.
There can be no assurance regarding the terms or timing or outcome of a potential restructuring of the credit facilities. The Company continues
to monitor the status of the credit facilities.
Expenses
For the three months ended September 30, 2011, we recorded base services fee expense payable
to our advisor, TREIT, under our Services Agreement of approximately $0.1 million as compared with
base management fee expense payable to our former manager, CIT Healthcare, under our Management
Agreement of approximately $0.3 million for the three month period ended September 30, 2010, a
decrease of approximately $0.2 million. The decrease in fee expense is primarily attributable to
the reduction in the monthly base fee arrangement with our current advisor as compared to our
former manager.
For the three month period ended September 30, 2011, we also incurred incentive fee expense
payable to TREIT of approximately $0.2 million, of which approximately $189,000 is to be paid in
cash and approximately $47,000 is to be paid in stock as stock-based compensation, during the
Company’s fourth fiscal quarter of 2011, pursuant to the terms of our Services Agreement. Such
expense did not occur during the three months ended September 30, 2010.
Marketing, general and administrative expenses were approximately $1.4 million for the quarter
ended September 30, 2011 and consist of fees for professional services, which include audit, legal
and investor relations; directors & officers (“D&O”) insurance and other insurance; general
overhead costs for the Company and employee salaries and benefits as well as fees paid to our
directors, as compared with approximately $7.8 million for the comparable period ended September
30, 2010, a decrease of approximately $6.4 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 and legal costs associated with the Tiptree Transaction and Cambridge
litigation of $1.5 million, none of which occurred in the comparable period in 2011. The decrease
in marketing, general and administrative expense is also a result of a reduction of our audit and
D&O insurance expenses for the period ended September 30, 2011 of approximately $1.6 million as
compared to the same period in 2010. Such cost reductions were offset primarily by employee
compensation expense of approximately $0.4 million during the period ended September 30, 2011,
which was incurred as a result of the Company’s internalization of management and other employees.
This expense did not occur during the comparable period in 2010 as the Company was
externally-managed and did not have any employees during that period. Also included in the
marketing, general and administrative expenses for each of the three month periods ended September
30, 2011 and 2010 are approximately $0.3 million of taxes, insurance and other escrows that we
collect on behalf of our master tenant in the Bickford portfolio and pass through to our mortgage
lender for this portfolio to be paid upon coming due. We also expensed approximately $11,000 for
the three month period ended September 30, 2011 consisting of the stock portion of the fees paid to
our independent directors as part of their compensation for their service on our board of directors
for the third quarter of 2011. For the comparable period in 2010, our stock-based compensation
expense for our independent directors was approximately $50,000, or approximately $39,000 more than
in the current period. The annual fees paid to our directors were reduced following the Tiptree
Transaction. Each independent director is now 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, services fees, incentive fees, expense reimbursements, and the
relationship between us and our former manager and our current advisor, TREIT, are discussed
further in Note 8 to the Condensed Consolidated Financial Statements.
Income or loss from investments in partially-owned entities
For the three month period ended September 30, 2011, income from investments in
partially-owned entities amounted to approximately $1.0 million as compared with a loss recognized
of approximately $1.0 million for the comparable period in 2010, a change of approximately $2.0
million. As a result of the new economic terms in our Cambridge investment (as outlined in the
Omnibus Agreement dated April 15, 2011, which was retroactive as of January 1, 2011) we receive a
preferential distribution of cash flow from operations with a target distribution rate of 12% of
our $40 million fixed dollar investment with any cash flow from operations in excess of the target
distribution rate being retained by Cambridge, and we no longer recognize 85% of the operating gain
or loss (inclusive of depreciation and amortization) with respect to the Cambridge Portfolio. As
per the new economic terms outlined in the Omnibus Agreement, we recognized in income $0.9 million
to reflect our share of available cash from operations for the three months ended
September 30, 2011. We also recognized our share of equity income in the remaining SMC property of
approximately $0.1million, for the three months ended September 30, 2011.
Unrealized gain or loss on derivative instruments
We did not recognize any income or loss on the fair value of our obligation to issue OP Units
related to the Cambridge transaction for
29
the three month period ended September 30, 2011, as
compared with an unrealized gain of approximately $0.7 million for the comparable period in 2010, a
difference of approximately $0.7 million. Pursuant to the terms of the Omnibus Agreement, the
valuation and accounting for the OP Units were modified on April 15, 2011. The number and terms of
the OP Units have been revised such that Cambridge retains rights to 200,000 OP Units, with the
balance having been canceled per the terms of the Omnibus Agreement. These remaining OP Units are
entitled to dividend equivalent payments equal to any ordinary dividend declared and paid by Care
to its stockholders, but no longer are convertible into or redeemable for shares of common stock of
Care. As a result of the reduction in the number of and change in the terms of the OP Units
resulting from the restructuring of our Cambridge investment, the liability associated with the
respect to the OP Units was reduced to approximately $0.5 million. Pursuant to the First Amendment
to the Cambridge Omnibus Agreement, the OP Units will cease to exist upon the earlier of Cambridge
purchasing our interest in the Cambridge Portfolio or
December 9, 2011. Concurrently with the First Amendment to the
Omnibus Agreement, Cambridge stated its intent to exercise its
purchase option, and to close the purchase on or
before December 9, 2011.
Interest Expense
We incurred interest expense of approximately $1.4 million for the three month period ended
September 30, 2011 as compared with interest expense of approximately $1.4 million for the three
month period ended September 30, 2010. Interest expense for both of these periods was related to
the interest payable on the mortgage debt that was incurred for the acquisition of the Bickford
properties. In addition, interest expense pertaining to the Greenfield properties, which were
purchased in September 2011, was included in interest expense for the three month period ended
September 30, 2011.
Comparison of the nine months ended September 30, 2011 and the nine months ended September 30, 2010
Revenue
During the nine month period ended September 30, 2011, we recognized approximately $9.9
million of rental revenue on the Bickford and Greenfield properties, as compared with approximately
$9.7 million during the comparable period in 2010 for the Bickford properties. Included in the
rental revenue for the nine month period ended September 30, 2011 was approximately $50,000 of
rental revenue which represented rent from the Greenfield properties purchased in September 2011.
Also included in the revenue for each period are approximately $0.9 million of taxes, insurance and
other escrows which we collect with respect to our Bickford properties and pass through to our
mortgage lender to be paid upon coming due. KeyBank does not require escrows on its Bridge Loan and
while we are escrowing for taxes, insurance and replacements reserves on our Greenfield portfolio,
no such amounts were included income for nine month period ended September 30, 2011.
We earned investment income on our investment in loans of approximately $0.6 million for the
nine month period ended September 30, 2011 as compared with approximately $1.6 million for the nine
months ended September 30, 2010, a decrease of approximately $1.0 million. The decrease in income
related to our mortgage portfolio is primarily attributable to a lower average outstanding
principal loan balance during the nine month period ended September 30, 2011, as compared with the
same period during 2010, which was the result of scheduled principal payments as well as loan
maturities and loan sales that occurred during 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
remaining loan is variable rate based on LIBOR, and at September 30, 2011, had a weighted
average spread of 4.00% over 30-day LIBOR, with an effective yield of 4.24%. The effective yield on
our loan portfolio at the period ended September 30, 2010 was 4.37%. As discussed in Notes 2
and 4 to our Condensed Consolidated Financial Statements, the original maturity date of the loan
was February 28, 2011 which had been extended several times, most recently until October 28, 2011.
The lender consortium and the borrowers continue to have negotiations surrounding a potential restructuring of the credit
facilities. There can be no assurance regarding the terms or timing or outcome of a potential restructuring of the
credit facilities. The Company continues
to monitor the status of the credit facilities.
Expenses
For the nine months ended September 30, 2011, we recorded base services fee expense payable to
our advisor, TREIT, under our Services Agreement of approximately $0.3 million as compared with
management fee expense payable to our former manager, CIT Healthcare, under our prior management
agreement of approximately $1.2 million for the nine month period ended September 30, 2010, a
decrease of approximately $0.9 million. The decrease in fee expense is primarily attributable to
the reduction in the monthly fee arrangement with our current advisor as compared to our former
manager. We also recorded a buyout payment expense of $7.4 million for the nine month period ended
September 30, 2010 in connection with our obligation to CIT Healthcare upon termination of the CIT
Management Agreement that did not recur during the comparable period in 2011.
For the nine month period ended September 30, 2011, we also incurred incentive fee expense
payable to TREIT of approximately $0.7 million, of which approximately $0.6 million was to be paid
in cash and approximately $0.1 million was to be paid in stock as per
the terms of our Services Agreement, which expense did not occur during the nine months ended
September 30, 2010.
Marketing, general and administrative expenses were approximately $3.7 million for the nine
month period ended September 30, 2011 and consist of fees for professional services, which include
audit, legal and investor relations; directors & officers (D&O) and other
30
insurance; general
overhead costs for the Company and employee salaries and benefits as well as fees paid to our
directors, as compared with approximately $12.0 million for the comparable period ended September
30, 2010, a decrease of approximately $8.3
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 and legal costs
associated with the Tiptree transaction and Cambridge litigation of $1.5 million, none of which
occurred in the comparable period in 2011. The decrease in marketing, general and administrative is
also a result of a reduction of our audit and D&O insurance expenses for the period ended September
30, 2011 of approximately $2.3 million as compared to the same period in 2010. Such cost
reductions were offset primarily by employee compensation expense of approximately $1.2 million
during the period ended September 30, 2011, which was incurred as a result of the Company’s
internalization of management and other employees. This expense did not occur during the
comparable period in 2010 as the Company was externally-managed and did not have any employees.
Also included in the marketing, general and administrative expenses for each of the nine month
periods ended September 30, 2011 and 2010 are approximately
$1.0 million and $1.1 million of taxes, insurance and
other escrows that we collect on behalf of our Bickford properties and pass through to our mortgage
lender to be paid upon coming due, respectively. We also recognized compensation expense of approximately
$41,000 for the nine month period ended September 30, 2011 consisting of the stock portion of the
fees paid to our independent directors as part of their compensation for their service on our board
of directors, compared with an expense of $163,000 for the nine months ended September 30, 2010, a
decrease of approximately $122,000. The annual fees paid to our directors were reduced following
the Tiptree Transaction. Each independent director is now 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, services fees, incentive fees, expense reimbursements, and the
relationship between us and our former Manager and our current advisor, TREIT, are discussed in
more detail in Note 8 to the Condensed Consolidated Financial Statements.
Income or loss from investments in partially-owned entities
For the nine month period ended September 30, 2011, income from investments in partially-owned
entities was approximately $1.8 million, as compared to a loss of approximately $2.4 million for
the comparable period in 2010, a difference of approximately $4.2 million. As a result of the new
economic terms in our Cambridge investment (as outlined in the Omnibus Agreement dated April 15,
2011, which was retroactive as of January 1, 2011), we receive a preferential distribution of cash
flow from operations with a target distribution rate of 12% of our $40 million fixed dollar
investment with any cash flow from operations in excess of the target distribution rate being
retained by Cambridge. We no longer recognize 85% of the operating income or loss (after
depreciation and amortization) with respect to the Cambridge
Portfolio. Our income for the nine
months ended September 30, 2011 consisted of a loss of approximately $1.1 million representing 85%
of the operating loss of Cambridge for the first quarter of 2011 and income of approximately $2.1
million representing our share of available cash from operations under the terms of the Omnibus Agreement for the
second and third quarter of 2011.
We now recognize income on the investment each period equal to
our preferential return. We recognized our share of equity income in our SMC investment of
approximately $0.7 million for the nine months ended September 30, 2011. This amount is lower than
the amount recognized during the comparable period in 2010 as three (3) of the four (4) SMC
properties were in sold in May 2011. In addition, an impairment loss of approximately $0.1 million,
was recognized on our SMC investment during the nine month period ended September 30, 2011.
Unrealized gain or loss on derivative instruments
We recognized approximately $0.3 million unrealized loss on the fair value of our obligation
to issue OP Units related to the Cambridge investment for the nine month period ended September 30,
2011, as compared with an unrealized gain of approximately $0.5 million for the comparable period
in 2010, a change of approximately $0.8 million. Pursuant to the terms of the Omnibus Agreement,
the valuation and accounting for the OP Units were modified on April 15, 2011. The number and
terms of the OP Units have been revised such that Cambridge retains rights to 200,000 OP Units,
with the balance having been canceled per the terms of the Omnibus Agreement. These remaining OP
Units are entitled to dividend equivalent payments equal to any ordinary dividend declared and paid
by Care to its stockholders, but no longer are convertible into or redeemable for shares of common
stock of Care. As a result of the reduction in the number of and change in the terms of the OP
Units resulting from the restructuring of our Cambridge investment, the liability associated with
the respect to the original OP Units was reduced to approximately $0.5 million. Pursuant to the
First Amendment to the Cambridge Omnibus Agreement, the OP Units will cease to exist upon the
earlier of Cambridge purchasing our interest in the Cambridge Portfolio or December 9, 2011.
Concurrently with the First
Amendment to the Omnibus Agreement, Cambridge stated its intent
to exercise its purchase option, and to close
the purchase on or before December 9, 2011.
Interest Expense
We incurred interest expense of approximately $4.1 million for the nine month period ended
September 30, 2011 as compared with interest expense of approximately $4.3 million for the nine
month period ended September 30, 2010, a decrease of approximately $0.2 million. Interest expense
for the nine month periods ended September 2011 and 2010 was related to the interest payable on the
mortgage debt that was incurred for the acquisition of the Bickford properties. In addition, the
nine month period ended September 30, 2011 included interest expense from the Greenfield properties
that were purchased in September 2011. The approximately $0.2 million decrease in interest expense
is primarily attributable to the amortization of the principal amount of the mortgage loans
pertaining to the Bickford properties offset by interest expense on the Bridge Loan secured by the
Greenfield properties and the amortization of premium related to the fair value of the mortgage
loans secured by the Bickford properties in conjunction with the Company’s recording of
31
purchase
accounting adjustments as part of the Tiptree Transaction in the nine month period ended
September 30, 2010.
Liquidity and Capital Resources
Short-term Liquidity Needs
Liquidity is a measurement of our ability to meet short and long-term cash needs. Our
principal current cash needs are: (1) to fund operating expenses, including potential expenditures for
repairs and maintenance of our properties and debt service on our outstanding mortgage loan
obligations; (2) to distribute 90% of our REIT taxable income to our stockholders in order to
maintain our REIT status, and (3) to fund other general ongoing business needs, as well as property
acquisitions and investments. As of September 30, 2011, we did not have any development and/or redevelopment
projects or any outstanding purchase agreements for the acquisition of additional assets. Our
primary sources of liquidity are our current working capital, rental income from our real estate
properties, distributions from our interests in non-consolidated partnerships, interest income
earned on our remaining loan investment and interest income earned from our available cash
balances. If Cambridge exercises its option to acquire our preferred interest in Cambridge Properties in accordance with
its stated intention, we expect to generate approximately $42 million of additional cash during the
fourth quarter of 2011. We also obtain liquidity from repayments of principal by our borrower in
connection with our remaining loan. Management currently believes that the Company has
adequate liquidity to meet its short-term capital needs.
We intend to invest in additional healthcare-related properties only as suitable opportunities
arise. In the short term, we intend to fund any future acquisitions, developments or
redevelopments with a combination of cash on hand, working capital and by entering into a credit
facility or other line of credit or third-party financing arrangement. In evaluating acquisition
opportunities, the Company takes into consideration its current and future cash needs as well as
the availability of third party financing.
In addition to day-to-day operations, other
foreseeable short-term liquidity needs which may arise during the next twelve months include the maturity of our Bridge Loan secured by
the Greenfield properties and the mortgage loan secured by the Bickford properties.
As discussed in Note 7 to the
Condensed Consolidated Financial Statements, the KeyBank Bridge Loan has a scheduled maturity date of
June 20, 2012 and, subject to certain conditions, may be extended for an additional three (3) months. We intend to refinance the Bridge Loan within approximately 90 days after closing through fixed rate permanent mortgage financing provided by the Federal Home Loan Mortgage Corporation or Freddie Mac, with KeyBank acting as the sponsor
of such refinancing, the proceeds of which will be used to satisfy the KeyBank Bridge Loan.
Due to low occupancy at two (2) of the 14 properties, at September 30, 2011 there is a covenant default under the
Bickford Master Lease, as net operating income (“NOI”) was not sufficient to satisfy the NOI to lease payment
coverage ratio covenant. Under the Company’s mortgage documents with its secured lender for these properties, a
default under the Bickford Master Lease constitutes a default under both mortgages. The Company has presented a
lease modification proposal to the mortgage loan servicer which would remedy this situation. Based on guidance
received from the mortgage loan servicer, we anticipate that such proposal will be accepted.
To date, the Company has not been provided with or received a notice of default with regard to the Bickford
mortgages and based on the foregoing, does not believe a notice of default is forthcoming. Accordingly, the
Company is of the opinion that such covenant default will not have a material impact on the financial statements,
results of operations and/or the liquidity of the Company. Notwithstanding the foregoing, potential lender actions as a result
of the default include an acceleration of the mortgages. The Company continues to actively monitor the
acceptance and approval of its proposed lease modification in order to resolve this issue.
Long-term Liquidity Needs
Our long-term liquidity requirements consist primarily of funds necessary for scheduled debt
maturities, property acquisitions, developments and redevelopments of health care facilities and
other non-recurring capital expenditures that are needed periodically for our properties. We
currently do not have a revolving credit facility or other credit line. As we grow our business, we
will likely seek additional capital from public and/or private offerings of common stock and/or
preferred stock and will likely seek to procure a revolving credit facility or other line of credit
or financing arrangement with one or more commercial banks. We may also pursue joint ventures with
institutional investors as a means of capitalizing property acquisitions. Finally, we may in the
future issue operating partnerships units in either UPREIT or DownREIT transactions, which units
could be convertible into our common stock. However, our ability to incur additional debt will be
dependent on a number of factors, including our degree of leverage, the value of our unencumbered
assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity
markets will be dependent on a number of factors as well, including general market conditions for
REITs and market perceptions about our Company. Nevertheless, we believe that these sources of
liquidity, in addition to existing working capital and cash provided by operations, will allow us
to meet our anticipated future liquidity needs.
We routinely review our liquidity requirements and believe that our current cash flows are
sufficient to allow us to continue operations, satisfy our contractual obligations and pay
dividends to our stockholders. Sources of cash and cash equivalents, cash flows provided by (used
in) operating activities, investing activities and financing activities are discussed below.
Cash and Cash Equivalents
Cash and cash equivalents were approximately $8.9 million at September 30, 2011 as compared
with $7.6 million at September 30, 2010, an increase of approximately $1.3 million. During the
first nine months of 2011, cash of approximately $4.4 million and approximately $12.2 million was
generated from operating activities and financing activities, respectively, and was offset by $12.7
million used in investing activities during the period.
Cash from Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2011
amounted to approximately $4.6 million as compared with approximately $7.8 million used in
operating activities for the nine months ended September 30,
2010, a change of approximately
$12.4 million. The positive change in cash from operating activities is primarily a result of the
buyout payment to our former manager of $7.5 million during the nine months ended September 30,
2010 and payments related to advisory services of $3.5 million and legal costs associated with the
Tiptree Transaction and Cambridge litigation of $1.5 million, none of which occurred during the
nine months ended September 30, 2011. Net income before adjustments was approximately $0.5 million
for the nine months ended September 30, 2011. Distributions from investments in partially-owned
entities added $4.0 million. Non-cash charges used for straight-line effects of lease revenue,
stock based compensation for shares issued to directors and related parties, income from
investments in partially-owned entities, impairment on investments, unrealized loss on derivative
instruments and depreciation and amortization used approximately $0.1 million. The net change
in operating assets used approximately $0.3 million and consisted of a decrease in accrued interest
receivable and an increase in other assets. The net change in operating liabilities provided
approximately $0.4 million and consisted of an increase in accounts payable and accrued expenses
and an increase in other liabilities, including amounts due to a related party.
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Cash from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2011 was
approximately $12.7 million as compared with approximately $16.0 million provided by investing
activities for the nine months ended September 30, 2010, a change of approximately $28.7 million.
The change is primarily attributable to the sale of a loan to a third party generating $5.9
million and loan repayments received of $11.0 million that occurred during the first nine months of
2010, as compared with loan repayments received of approximately $2.3 million along with an
increase in cash from a return on investment in partially-owned entities of $6.1 million associated
with the sale of three (3) of the Company’s four (4) properties in its SMC investment during the
comparable period in 2011, which was offset by in the acquisition of the Greenfield properties of
$20.8 million.
Cash from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2011 was
approximately $12.0 million as compared with net cash used in financing activities of approximately
$123.1 million for the nine months ended September 30,
2010, a change of approximately $135.1
million. The change is primarily attributable to the net cash used to consummate the Tiptree
Transaction for $122.0 million during the nine month period ended September 30, 2010, which did not
occur in the comparable period in 2011, along with borrowings related to the acquisition of the
Greenfield properties of $15.5 million during the nine month period ended September 30, 2011,
offset by dividends paid of approximately $2.7 million and
financing costs paid of approximately $0.2 million during the nine months ended September 30,
2011, which did not occur during the comparable period in 2010.
There have been no material changes to the Company’s Financial Condition from December 31,
2010.
Debt
On June 26, 2008, in connection with the acquisition of the initial 12 properties from
Bickford Senior Living Group LLC (discussed in Note 3 to the Condensed Consolidated Financial
Statements), we entered into a mortgage loan with Red Mortgage Capital, Inc. in the principal
amount of $74.6 million. The mortgage loan has a fixed interest rate of 6.845% and requires a fixed
monthly payment of approximately $0.6 million for both principal and interest, until maturity in
July 2015 at which time the then outstanding balance of approximately $69.6 million is due and
payable. In addition, we are required to make monthly escrow payments for taxes and reserves for
which we are reimbursed by the Master Lessee under the Bickford Master Lease. The mortgage loan is
collateralized by the 12 properties.
On September 30, 2008, we acquired two (2) additional properties from Bickford Senior Living
Group, LLC and entered into a second mortgage loan with Red Mortgage Capital, Inc. in the principal
amount of $7.6 million. The mortgage loan has a fixed interest rate of 7.17% and it provides for a
fixed monthly debt service payment of approximately $62,000 for principal and interest until the
maturity in July 2015 when the then outstanding balance of approximately $7.1 million is due and
payable. In addition, we are required to make monthly escrow payments for taxes and reserves for
which we are reimbursed by the Master Lessee under the Bickford Master Lease. The mortgage loan is
collateralized by the two (2) properties.
As a result of the election to utilize push-down accounting in connection with the Tiptree
Transaction, the aforementioned mortgage notes payable were recorded at their fair value of
approximately $82.1 million, an increase of approximately $0.8 million over the combined amortized
loan balances of approximately $81.3 million at August 13, 2010. As of September 30, 2011
approximately $0.6 million remains to be amortized over the remaining term of the mortgage loans.
Both mortgage loans contain prepayment restrictions that materially impact our ability to
refinance either of the mortgage loans prior to 2015. The annual total debt service for the two
loans is approximately $7.7 million.
Due to low occupancy at two (2) of the 14 properties, there is a covenant default under the
Bickford Master Lease as net operating income (“NOI”) was not sufficient to satisfy
the NOI to lease payment coverage ratio covenant. Under the Company’s mortgage documents with its
secured lender for these properties, a default under the Bickford Master Lease constitutes a
default under both mortgages. The Company has presented a lease modification proposal to the
mortgage loan servicer which would remedy this situation. Based on guidance received from the
mortgage loan servicer, we anticipate that such proposal will be accepted. To date, the Company has not been provided with or received a notice of default with
regard to the Bickford mortgages and based on the foregoing, management does not believe a notice
of default is forthcoming. Accordingly, the Company is of the opinion that such covenant default
will not have a material impact on the financial statements, results of operations and/or the liquidity of the
Company. Notwithstanding the foregoing, potential lender actions as a result of the default include
an acceleration of the mortgages. The Company continues to actively monitor the acceptance and
approval of its proposed lease modification in order to resolve this issue.
On September 20, 2011, we entered into the Bridge Loan with KeyBank in the principal amount of
approximately $15.5 million, pursuant to a Loan Agreement for the purpose of financing the purchase price
for the Greenfield acquisition. The Bridge Loan is secured by separate cross-collateralized,
cross-defaulted first priority mortgages on each of the Greenfield facilities. Care has guaranteed
payment of up to $5.0 million of the obligations under the Bridge Loan. The Bridge Loan bears
interest at a floating rate per annum equal to LIBOR plus 4.00% with no LIBOR floor, and
provides for monthly interest and principal payments commencing on October 1, 2011. As of September
30, 2011, the Bridge Loan had an effective yield of 4.25% and the Company was in compliance with respect to the financial covenants
related to the Bridge Loan. While the Bridge Loan does not require
escrows, we are escrowing for taxes, insurance and replacement reserves. The Bridge Loan will mature on June 20,
2012 subject to a three-month
33
extension at our option, so long as certain conditions are satisfied.
We intend to refinance the Bridge Loan within approximately 90 days after closing through
permanent mortgage financing backed by Freddie Mac, with KeyBank acting as the sponsor of such
mortgage financing.
The Company leases its corporate office space with monthly rental payments approximating
$20,000. The lease expires March 7, 2019.
Per the terms of the Services Agreement, the Company is obligated to: (i) pay TREIT a monthly base
services fee of one-twelfth of 0.5% of the Company’s Equity (as defined in the Services Agreement),
as adjusted to account for Equity Offerings (as defined in the Services Agreement), (ii) provide
TREIT with office space and certain office related services (as provided in the Services Agreement
and subject to a cost sharing agreement between the Company and TREIT) and (iii) pay a quarterly
incentive fee equal to the lesser of (a) 15% of the Company’s AFFO Plus Gain/(Loss) On Sale (as
defined in the Services Agreement) and (b) the amount by which the Company’s AFFO Plus Gain /(Loss)
on Sale exceeds an amount equal to Adjusted Equity multiplied by the Hurdle Rate (as defined in the
Services Agreement). (See Note 8 to the Condensed Consolidated Financial Statements). On November 9, 2011, we entered into an
amendment to the Services Agreement which clarified the basis upon which the Company calculates the quarterly incentive fee.
Equity
As of September 30, 2011, we had 10,161,249 shares of common stock and no shares of preferred
stock outstanding.
On
May 16, 2011 and August 9, 2011, the Company issued 9,245 and 4,859, respectively, common
shares to TREIT Management LLC in conjunction with its quarterly incentive fee due under the
Services Agreement. These shares were issued under the Manager Equity Plan.
As of September 30, 2011, 276,406 common shares remain available for future issuances under
the Equity Plan and 192,814 shares remain available for future issuances under the Manager Equity
Plan. Per the terms of the respective plans, the amounts available for issuance under the Equity
Plan and Manager Equity Plan were adjusted for the Company’s three-for-two stock split announced in
September 2010.
On January 3, 2011, April 6, 2011, July 5, 2011, and October 3, 2011, 3,156; 2,912; 2,096; and
1,689 shares, respectively, of common stock with a combined aggregate fair value of approximately
$56,000 were granted to our independent directors as part of their annual retainer. The shares
were issued under the Equity Plan. 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 shares of Care
common stock. Shares granted as part of the annual retainer vest immediately and are included in
general and administrative expense.
In connection with the Tiptree Transaction, CIT Healthcare sold the 2008 Warrant to purchase
435,000 shares of the Company’s common stock at $17.00 per share under the Manager Equity Plan. The
2008 Warrant, which was granted to CIT Healthcare by the Company as consideration for amendments to
earlier versions of the Management Agreement, and which was immediately exercisable, expires on
September 30, 2018 and was adjusted to provide for the purchase of 652,500 shares of the Company’s
common stock at $11.33 per share as a result of the three-for-two stock split announced by the
Company in September 2010.
As discussed above, under the terms of the Omnibus Agreement, on April 15, 2011, the Company
issued to the Cambridge Parties the Warrant to purchase 300,000 shares of the Company’s common
stock at an exercise price of $6.00 per share. Pursuant to its original terms, the Warrant was
scheduled to expire upon the earlier of the termination of the Omnibus Agreement or June 30, 2017.
On October 19, 2011, we entered into an agreement with Cambridge to amend the Omnibus Agreement
(the “First Amendment”). As consideration for entering into the First Amendment, Cambridge will
forfeit all of its rights and interests in the Warrant and the OP Units upon the earlier of the
closing of its acquisition of our interest in the Cambridge Portfolio or December 9, 2011. In
conjunction with the First Amendment, Cambridge agreed that it will not exercise the Warrant. See
Note 5 to the Condensed Consolidated Financial Statements.
Distributions
We are required to distribute 90% of our REIT taxable income (excluding the deduction for
dividends paid and capital gains) on an annual basis in order to qualify as a REIT for federal
income tax purposes. Accordingly, we intend to make, but are not contractually bound to make,
regular quarterly distributions to holders of our common stock and dividend equivalent payments to
holders of OP Units. All such distributions are authorized at the discretion of our board of
directors. We may make certain distributions consisting of both cash and shares to meet REIT
distribution requirements. We consider market factors and our performance in addition to REIT
requirements in determining distribution levels.
Our board of directors declared a first quarter dividend of $0.135 per share of common stock
for the quarter ended on March 31, 2011, which was paid to stockholders of record at the close of
business on May 9, 2011, as well as a second quarter dividend of $0.135 per share of common stock
for the quarter ended on June 30, 2011, which was paid to stockholders of record at the close of
business on September 1, 2011 to stockholders of record at the close of business on August 18,
2011. Additionally, our board of directors declared a third quarter dividend of $0.135 per share
of common stock for the quarter ended on September 30, 2011. The
dividend is payable on December 1, 2011 to stockholders of record at the close of business as of November
17, 2011.
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Current Market Conditions
Recent U.S. debt ceiling and budget deficit concerns, together with signs of deteriorating
sovereign debt conditions in Europe, have increased the possibility of additional credit-rating
downgrades and economic slowdowns. Although U.S. lawmakers passed legislation to raise the federal
debt ceiling, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on
the United States (the “U.S.”) from “AAA” to “AA+” in August 2011. The impact of this or any
further downgrades to the U.S. government’s sovereign credit rating, or its perceived
creditworthiness, and the impact of the current crisis in Europe with respect to the ability of
certain European Union countries to continue to service their sovereign debt obligations is
inherently unpredictable and could adversely affect the U.S. and global financial markets and
economic conditions. There can be no assurance that governmental or other measures to aid economic
recovery will be effective. These developments and the government’s credit concerns in general,
could cause interest rates and borrowing costs to rise, which may negatively impact our ability to
access the debt markets on favorable terms. Continued adverse economic conditions could have a
material adverse effect on our business, financial condition and results of operations.
Contractual Obligations
On September 21, 2011, Care acquired three assisted living and memory care facilities located
in Virginia (the “Facilities”) from affiliates of Greenfield. The Facilities were acquired for an
aggregate purchase price of $20.8 million, of which approximately $15.5 million was funded with the
proceeds of the Bridge Loan and the balance with working capital. Immediately upon acquisition by
Care, the Facilities were leased back to the sellers pursuant to the Greenfield Master Lease, which
has an initial term of 12 years, with two extension options of ten (10) years. See Note 3 of the
Condensed Consolidated Financial Statements for a more detailed description of the Greenfield
transaction and the Greenfield Master Lease. In connection with the purchase of the Greenfield
properties, we formed three (3) new special purpose subsidiaries. These newly formed Care
subsidiaries, in turn, entered into a loan agreement for the Bridge
Loan in the principal amount of approximately
$15.5 million, the proceeds of which were used to purchase the Greenfield properties. Care has
guaranteed payment on up to $5 million of the obligations under the terms of the Bridge Loan. See
Note 7 to the Condensed Consolidated Financial Statements for a more detailed description of the
Bridge Loan and the underlying loan documents.
Acquisitions and Dispositions
On September 21, 2011, Care acquired three assisted living and memory care facilities located
in Virginia (the “Facilities”) from affiliates of Greenfield Senior Living, Inc. The Facilities
were acquired for an aggregate purchase price of $20.8 million of which approximately $15.5 million
was funded with the proceeds of the Bridge Loan (see Note 7 to the Condensed Consolidated Financial
Statements), and the balance with working capital. The base rent for the initial year of the lease
is $1,650,000. In addition, during the nine month period ended September 30, 2011, Care consented
to the sale of three (3) of the four (4) properties underlying its SMC investment, which generated
cash of approximately $6.1 million (See Note 5 to the Condensed Consolidated Financial Statements).
As of September 30, 2011 the Company had not entered into any definitive purchase and sale
agreements with regard to any other real estate transactions. The Company regularly evaluates
potential real estate acquisitions and dispositions. While current and projected returns for a
subject property significantly influence the decision making process, other items, such as the
impact on the geographical diversity of the Company’s portfolio, the type of property, the
Company’s experience with and the overall reputation of the property operator and the availability
of mortgage financing are also taken into consideration. Applicable capitalization rates for such
acquisitions vary depending on a number of factors including, but not limited to, the type of
facility, its location, competition and barriers to entry in the particular marketplace, age and
physical condition of the facility, status and experience of the property operator and the
existence or availability of mortgage financing. The property net operating income for perspective
acquisitions is generally based upon the EBITDA for such property adjusted for market vacancy and
property management fees as well as applicable maintenance, operating and tax reserves.
Impact of Inflation
Inflation may affect us in the future by changing the underlying value of our real estate or
by impacting our cost of financing our operations. Our revenues are generated primarily from
long-term investments. Inflation has remained relatively low during recent periods. There can be no
assurance that future Medicare, Medicaid or private pay rate increases will be sufficient to offset
future inflation increases. Certain of our leases require increases in rental income based upon
increases in the revenues of the tenants.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements as of September 30, 2011 and December
31, 2010.
Recent Accounting Pronouncements
In April 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-02,
Receivables (Topic
310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring
(“ASU
2011-02”). ASU 2011-02 provides amendments to Topic 310 to clarify which loan modifications
constitute troubled debt restructurings. It is intended to assist creditors in determining whether
a modification of the terms of a receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss and for disclosure of troubled
debt restructurings. For public companies, the new guidance is effective
for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal year of adoption. Early adoption
is permitted. The adoption of this standard did not have a material
effect on the consolidated financial statements.
35
In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
(“ASU
2011-04”). The amendments in ASU 2011-04 change the wording used to describe many of the
requirements in GAAP for measuring fair value and for disclosing information about fair value
measurements. The amendments are intended to create comparability of fair value measurements
presented and disclosed in financial statements prepared in accordance with GAAP and International
Financial Reporting Standards. ASU 2011-04 is effective for interim and annual periods beginning
after December 15, 2011. The Company does not expect the adoption of this standard to have a
material effect on its consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05,
Presentation of Comprehensive Income
(“ASU
2011-05”), which requires an entity to present the total of comprehensive income, the components of
net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05
eliminates the option to present components of other comprehensive income as part of the statement
of equity. This ASU does not change the items that must be reported in other comprehensive income.
ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. The
Company does not expect the adoption of this standard to have a material effect on its consolidated
financial statements.
Non-GAAP Financial Measures
Funds from Operations
Funds From Operations, or 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, or NAREIT, which may not be comparable to
FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or
that interpret the NAREIT definition differently.
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, or 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, the effects
of straight lining lease revenue, plus the expenses associated with
depreciation and amortization on real estate assets, certain expenses associated with real estate
acquisitions (subject to future amortization), non-cash equity compensation expenses, and
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 and capitalized 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 one performance metric in the Company’s executive compensation
program as well as a variation of AFFO in calculating the Incentive Fee payable to its
advisor, TREIT (as adjusted pursuant to the Services Agreement). Additionally, the Company 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 by) 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), as 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.
The following is a reconciliation of FFO and AFFO to net income (loss), which is the most
directly comparable GAAP performance measure, for the three and nine month periods ended September
30, 2011 and 2010, respectively (in thousands, except share and per share data):
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
|
September 30, 2011
|
|
|
September 30, 2011
|
|
|
|
|
FFO
|
|
|
AFFO
|
|
|
FFO
|
|
|
AFFO
|
|
|
Net income
|
|
$
|
535
|
|
|
$
|
535
|
|
|
$
|
489
|
|
|
$
|
489
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization from partially-owned entities
|
|
|
—
|
|
|
|
—
|
|
|
|
2,601
|
|
|
|
2,601
|
|
|
Depreciation and amortization on owned properties
|
|
|
869
|
|
|
|
869
|
|
|
|
2,577
|
|
|
|
2,577
|
|
|
Stock-based compensation to directors
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
56
|
|
|
Amortization of above-market leases
|
|
|
—
|
|
|
|
52
|
|
|
|
—
|
|
|
|
155
|
|
|
Stock issued to related parties
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
96
|
|
|
Straight-line effect of lease revenue
|
|
|
—
|
|
|
|
(331
|
)
|
|
|
—
|
|
|
|
(1,520
|
)
|
|
Transaction charges
|
|
|
—
|
|
|
|
228
|
|
|
|
—
|
|
|
|
228
|
|
|
Excess cash distributions from the Company’s equity method
investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
Change in the obligation to issue OP Units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations and Adjusted Funds From Operations
|
|
$
|
1,404
|
|
|
$
|
1,399
|
|
|
$
|
5,667
|
|
|
$
|
4,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO and Adjusted FFO per share basic
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.56
|
|
|
$
|
0.49
|
|
|
FFO and Adjusted FFO per share diluted
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.56
|
|
|
$
|
0.49
|
|
|
Weighted average shares outstanding — basic(1)(2)
|
|
|
10,159,098
|
|
|
|
10,159,098
|
|
|
|
10,149,763
|
|
|
|
10,149,763
|
|
|
Weighted average shares outstanding — diluted(1)(2)
|
|
|
10,187,605
|
|
|
|
10,187,605
|
|
|
|
10,160,202
|
|
|
|
10,160,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2010
|
|
|
|
|
FFO
|
|
|
AFFO
|
|
|
FFO
|
|
|
AFFO
|
|
|
Net Loss
|
|
$
|
(6,993
|
)
|
|
$
|
(6,993
|
)
|
|
$
|
(17,325
|
)
|
|
$
|
(17,325
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization from partially-owned
entities
|
|
|
2,256
|
|
|
|
2,256
|
|
|
|
6,833
|
|
|
|
6,833
|
|
|
Depreciation and amortization on owned properties
|
|
|
993
|
|
|
|
993
|
|
|
|
2,676
|
|
|
|
2,676
|
|
|
Adjustment to valuation allowance for loans carried at
LOCOM
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
—
|
|
|
|
(858
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
163
|
|
|
Straight-line effect of lease revenue
|
|
|
—
|
|
|
|
(596
|
)
|
|
|
—
|
|
|
|
(1,734
|
)
|
|
Excess cash distributions from the Company’s equity
method investments
|
|
|
—
|
|
|
|
176
|
|
|
|
—
|
|
|
|
620
|
|
|
Obligation to issue OP Units
|
|
|
|
|
|
|
(718
|
)
|
|
|
|
|
|
|
(451
|
)
|
|
Gain on loans sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations and Adjusted Funds From Operations
|
|
$
|
(3,744
|
)
|
|
$
|
(4,910
|
)
|
|
$
|
(7,816
|
)
|
|
$
|
(10,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO and Adjusted FFO per share basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.56
|
)
|
|
Weighted average shares outstanding — basic and
diluted(1)(2)
|
|
|
13,395,879
|
|
|
|
13,395,879
|
|
|
|
17,919,249
|
|
|
|
17,919,249
|
|
|
|
|
|
|
(1)
|
|
The diluted FFO and AFFO per share calculations exclude
the dilutive effect of the 2008 Warrant convertible
into 652,500 and 435,000 common shares for the three
and nine month periods ended September 30, 2011 and
September 30, 2010, respectively, because the exercise
price was more than the average market price. The
diluted FFO and AFFO per share calculations include the
dilutive effect of the Warrant issued pursuant to the
Omnibus Agreement because the average market price was
more than the exercise price (see Note 5 to the
Condensed Consolidated Financial Statements)
convertible into 300,000 common shares for the three
month period ended September 30, 2011.
|
|
|
|
(2)
|
|
Does not include original operating partnership units
issued to Cambridge that were held in escrow and were
reduced and restructured in conjunction with the
Omnibus Agreement (see Note 5 to the Condensed
Consolidated Financial Statements).
|
37
|
|
|
|
|
ITEM 3.
|
|
Quantitative and Qualitative Disclosures about Market Risk.
|
Not applicable.
38
|
|
|
|
|
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.
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, 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
39
Part II. Other Information
|
|
|
|
|
Item 1.
|
|
Legal Proceedings.
|
Care is not presently involved in any material litigation or, 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.
Notwithstanding the foregoing, the Company, as discussed above in Notes 2, 4 and Note 12 to the
Condensed Consolidated Financial Statements, has certain indemnification obligations with respect
to a lawsuit filed by certain borrowers and certain related party entities in our remaining loan asset in which Care was not named
as a defendant.
|
|
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
None.
|
|
|
|
|
Item 3.
|
|
Defaults Upon Senior Securities.
|
As of September 30, 2011, the properties owned by Care and leased to Bickford were 100%
operated by Bickford Senior Living Group, LLC. Due to low occupancy at two (2) of the 14
properties, there is a covenant default under the Bickford Master Lease as net operating income
(“NOI”) was not sufficient to satisfy the NOI to lease payment coverage ratio
covenant. Under the Company’s mortgage documents with its secured lender for these properties, a
default under the Bickford Master Lease constitutes a default under
both mortgages. The Company has
presented a lease modification proposal to the mortgage loan servicer which would remedy this
situation. Based on guidance received from the mortgage loan servicer, management anticipates that
such proposal will be accepted and documented shortly. To date, the Company has not been provided
with or received a notice of default with regard to the Bickford mortgages and based on the
foregoing, does not believe a notice of default is forthcoming. Accordingly,
we are of the opinion that such covenant default will not have a material impact on the
financial statements, operations and/or the liquidity of the Company. Notwithstanding the
foregoing, potential lender actions as a result of the default include an acceleration of the
mortgages. Accordingly, the Company is actively pursuing acceptance and approval of its proposed
lease modification in order to resolve this issue.
|
|
|
|
|
Item 4.
|
|
[Removed and Reserved.]
|
|
|
|
|
|
Item 5.
|
|
Other Information.
|
On November 9, 2011, we entered into an amendment to the Services Agreement which clarified the basis
upon which the Company calculates the quarterly incentive fee.
40
(a) Exhibits
|
|
|
|
|
3.1
|
|
Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to the
Company’s Form 10-Q (File No. 001-33549), filed on August 14, 2007 and herein incorporated by
reference).
|
|
|
|
|
|
3.2
|
|
Second Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to
the Company’s Form 8-K (File No. 001-33549), filed on August 16, 2010 and herein incorporated by
reference).
|
|
|
|
|
|
3.3
|
|
Third Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to
the Company’s Form 8-K (File No. 001-33549), filed on September 3, 2010 and herein incorporated by
reference).
|
|
|
|
|
|
3.4
|
|
Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Company’s
Form 10-Q (File No. 001-33549), filed on August 14, 2007 and herein incorporated by reference).
|
|
|
|
|
|
3.5
|
|
Second Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the
Company’s Form 8-K (File No. 001-33549), filed on June 25, 2010 and herein incorporated by
reference).
|
|
|
|
|
|
3.6
|
|
Third Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.1 to the
Company’s Form 8-K (File No. 001-33549), filed on November 8, 2010 and herein incorporated by
reference).
|
|
|
|
|
|
4.1
|
|
Form of Certificate for Common Stock (previously filed as Exhibit 4.1 to the Company’s Form S-11,
as amended (File No.
333-141634), filed on June 7, 2007 and herein incorporated by reference).
|
|
|
|
|
|
10.1
|
|
First Amendment to Services Agreement (filed herewith)
|
|
|
|
|
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
|
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
|
|
|
|
|
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document*
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document*
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document *
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
|
|
|
|
|
*
|
|
Attached as Exhibit 101 to this Quarterly Report on Form
10-Q are the following materials, formatted in XBRL
(eXtensible Business Reporting Language): (i) the
Condensed Consolidated Balance Sheets at September 30,
2011 (unaudited) and December 31, 2010, (ii) the
Condensed Consolidated Statements of Operations
(unaudited) for the three and nine month periods ended
September 30, 2011 and 2010, (iii) the Condensed
Consolidated Statements of Stockholders’ Equity
(unaudited) for the nine month period ended September 30,
2011, (iv) the Condensed Consolidated Statements of Cash
Flows (unaudited) for the nine month periods ended
September 30, 2011 and 2010 and (v) the Notes to the
Consolidated Financial Statements.
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are
deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of
the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability
under those sections.
41
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.
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Care Investment Trust Inc.
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Date: November 9, 2011
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By:
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/s/ Salvatore (Torey) V. Riso, Jr.
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Salvatore (Torey) V. Riso, Jr.
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President and Chief Executive Officer
Care Investment Trust Inc.
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Date: November 9, 2011
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By:
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/s/ Steven M. Sherwyn
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Steven M. Sherwyn
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Chief Financial Officer and Treasurer
Care Investment Trust Inc.
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42
EXHIBIT INDEX
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Exhibit No.
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Description
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3.1
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Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to the
Company’s Form 10-Q (File No. 001-33549), filed on August 14, 2007 and herein incorporated by
reference).
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3.2
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Second Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to
the Company’s Form 8-K (File No. 001-33549), filed on August 16, 2010 and herein incorporated by
reference).
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3.3
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Third Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to
the Company’s Form 8-K (File No. 001-33549), filed on September 3, 2010 and herein incorporated by
reference).
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3.4
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Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the Company’s
Form 10-Q (File No. 001-33549), filed on August 14, 2007 and herein incorporated by reference).
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3.5
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Second Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.2 to the
Company’s Form 8-K (File No. 001-33549), filed on June 25, 2010 and herein incorporated by
reference).
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3.6
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Third Amended and Restated Bylaws of the Registrant (previously filed as Exhibit 3.1 to the
Company’s Form 8-K (File No. 001-33549), filed on November 8, 2010 and herein incorporated by
reference).
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4.1
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Form of Certificate for Common Stock (previously filed as Exhibit 4.1 to the Company’s Form S-11,
as amended (File No.
333-141634), filed on June 7, 2007 and herein incorporated by reference).
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10.1
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First Amendment to Services Agreement (filed herewith)
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31.1
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Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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31.2
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Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
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32.1
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Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
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32.2
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Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
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101.INS
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XBRL Instance Document*
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101.SCH
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XBRL Taxonomy Extension Schema Document*
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document*
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document *
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document*
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document*
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*
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Attached as Exhibit 101 to this Quarterly Report on Form
10-Q are the following materials, formatted in XBRL
(eXtensible Business Reporting Language): (i) the
Condensed Consolidated Balance Sheets at September 30,
2011 (unaudited) and December 31, 2010, (ii) the
Condensed Consolidated Statements of Operations
(unaudited) for the three and nine month periods ended
September 30, 2011 and 2010, (iii) the Condensed
Consolidated Statements of Stockholders’ Equity
(unaudited) for the nine month period ended September 30,
2011, (iv) the Condensed Consolidated Statements of Cash
Flows (unaudited) for the nine month periods ended
September 30, 2011 and 2010 and (v) the Notes to the
Consolidated Financial Statements.
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are
deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of
the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability
under those sections.
43