Business Context and Reporting Period
Company: Care Investment Trust Inc. (Note: Metadata listed "TIPTREE INC." but the filing is for Care Investment Trust Inc., a healthcare REIT managed by CIT Healthcare LLC).
Reporting Period: Quarterly Report (Form 10-Q) for the period ended June 30, 2010.
Business Overview: The Company is an externally managed REIT investing in healthcare-related real estate and mortgage debt. As of June 30, 2010, the portfolio consisted of $100.0 million in wholly-owned real estate, $51.8 million in joint venture real estate, and $9.6 million in mortgage loans.
Strategic Status: On January 28, 2010, shareholders approved a plan of liquidation. However, on March 16, 2010, the Company entered into a definitive agreement with Tiptree Financial Partners, L.P. for a potential change in control involving a cash tender offer and equity investment at $9.00 per share. Financial statements are presented on a going concern basis pending the outcome of the Tiptree transaction.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenue | $7.5 million | $11.2 million |
| Net Loss | $(10.3) million | $2.0 million (Income) |
| Net Loss Per Share (Basic/Diluted) | $(0.51) | $0.10 |
| Cash and Cash Equivalents | $134.9 million | $53.8 million |
| Total Assets | $306.3 million | $315.4 million |
| Total Liabilities | $90.2 million | $88.6 million |
| Stockholders' Equity | $216.1 million | $226.8 million |
| Net Cash Used in Operating Activities | $(2.6) million | $6.2 million (Provided) |
| Net Cash Provided by Investing Activities | $15.9 million | $60.4 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by approximately $3.6 million (32%) compared to the prior year. This was primarily driven by a $3.5 million decrease in income from investments in loans due to loan repayments, sales, and a strategic shift away from mortgage lending toward real estate equity.
- Net Loss: The Company reported a net loss of $10.3 million, a reversal from the $2.0 million net income in the prior year. The loss was significantly impacted by a $7.5 million buyout payment expense to the Manager and a $1.5 million loss from investments in partially-owned entities.
- Loan Portfolio Reduction: Investments in loans held at LOCOM decreased from $25.3 million to $9.6 million following repayments of $10.7 million and a sale of $5.9 million.
- Liquidity Increase: Cash and cash equivalents increased by $12.4 million to $134.9 million, driven by proceeds from loan repayments and sales, offset by operating losses and financing activities.
Guidance, Outlook, Risks, and Unusual Items
- Tiptree Transaction: The Company is pursuing a transaction with Tiptree Financial Partners involving a tender offer at $9.00 per share. A special shareholder meeting is scheduled for August 13, 2010, to approve the abandonment of the liquidation plan. If the transaction fails, the Company may proceed with liquidation or seek other strategic alternatives.
- Unusual Items:
- Manager Buyout: A $7.5 million buyout payment was recorded to the Manager (CIT Healthcare LLC) under an amended agreement, replacing a previous $15.4 million termination fee. $5.0 million was paid in the first half of 2010; $2.5 million remains accrued.
- Valuation Adjustments: An $0.8 million adjustment to the valuation allowance on loans held at LOCOM was recorded as a gain (reduction of expense) in the current period.
- Legal Proceedings:
- Class Action: A securities class action regarding the 2007 IPO is ongoing. Defendants filed a motion for summary judgment in July 2010; no loss provision has been accrued.
- Saada Parties Litigation: The Company is involved in litigation with Jean-Claude Saada and affiliates regarding the Cambridge portfolio. Counterclaims seek damages of $100 million or more. The Company denies the claims and has not accrued a loss.
- Market Risk: The Company is exposed to interest rate risk on its variable-rate loan portfolio. A 100 basis point increase in LIBOR would increase annual income from loans by approximately $0.135 million.
Investor Verification Checklist
- Tender Offer Status: Verify the outcome of the shareholder vote on August 13, 2010, regarding the Tiptree transaction and the abandonment of the liquidation plan.
- Litigation Exposure: Monitor the summary judgment ruling in the IPO class action and the status of the Saada Parties counterclaims, which assert damages exceeding $100 million.
- Manager Compensation: Confirm the payment schedule and conditions for the remaining $2.5 million buyout payment to the Manager.
- Loan Portfolio Yield: Assess the impact of low LIBOR rates on the remaining $9.6 million loan portfolio, which has an effective yield of 4.65%.
- Liquidity Runway: Evaluate the $134.9 million cash balance against potential liquidation costs if the Tiptree transaction is not consummated.