Care Investment Trust Inc. — Q1 2012 Form 10-Q
Filing identity: The supplied filing is for Care Investment Trust Inc., a healthcare real estate investment trust (REIT), not Tiptree Inc. It states that Tiptree acquired control of Care in 2010. The unaudited reporting period ended March 31, 2012; income and cash-flow comparisons are with the three months ended March 31, 2011.
Business context and portfolio
Care owns and invests in senior housing and healthcare-related real estate, primarily through triple-net leases, as well as a loan and an equity-method investment. At quarter-end, its portfolio included 17 senior housing facilities and one remaining partially owned entity. Management described one reportable operating segment. Bickford and Greenfield tenants together generated approximately 95% of Q1 2012 revenue, indicating substantial tenant concentration.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Total revenue | $3.975 million | $3.521 million; up about 13% |
| Net income (loss) | $0.294 million | $(1.113) million |
| Basic and diluted EPS | $0.03 | $(0.11) |
| FFO / AFFO, non-GAAP | $1.262 million / $0.708 million | $2.342 million / $2.034 million |
| Net cash from operating activities | $(1.446) million | $2.427 million |
| Cash and cash equivalents, March 31 | $49.867 million | $52.306 million at December 31, 2011 |
| Mortgage notes payable, March 31 | $95.659 million | $96.079 million at December 31, 2011 |
Rental income rose to $3.442 million from $2.961 million, principally reflecting the Greenfield properties acquired in September 2011. Reimbursable income increased to $0.351 million from $0.315 million. Interest expense rose to $1.586 million from $1.354 million. The return to GAAP profitability reflected, among other items, a $0.420 million unrealized gain on a Treasury short position and a $0.081 million income contribution from partially owned entities, versus a $0.614 million loss from those entities in Q1 2011.
FFO and AFFO declined year over year despite the GAAP earnings improvement; the 2011 measures included substantial depreciation and amortization from the Cambridge portfolio. The filing cautions that these non-GAAP measures are not substitutes for GAAP earnings or operating cash flow.
Total assets were $192.200 million and stockholders’ equity was $94.288 million at March 31, 2012. Cash decreased by $2.439 million during the quarter. Investing activities used $0.546 million and financing activities used $0.447 million. Management stated that it believed liquidity was adequate for short-term needs; Care had no revolving credit facility or other credit line.
Material changes and unusual items
- Revenue growth primarily reflected the addition of Greenfield rental income. Greenfield’s three Virginia facilities were acquired in September 2011 for $20.8 million and leased under a 12-year triple-net master lease with 2.75% annual rent increases during the initial term.
- Care sold its interest in the Cambridge medical office portfolio in November 2011 for approximately $42 million, including about $1.2 million of income. Its exit explains the absence of Cambridge-related losses in Q1 2012 and reduced distributions from partially owned investments.
- Q1 2012 general and administrative expense increased by about $0.4 million, mainly due to higher professional fees and compensation. The related-party incentive fee expense was nil, compared with approximately $0.3 million in Q1 2011.
- Care refinanced the Greenfield bridge loan after quarter-end. On April 24, 2012, it entered into three loans totaling $15.68 million at a fixed 4.76%, amortizing over 30 years and maturing May 1, 2022. The loans are cross-collateralized and cross-defaulted, and are non-recourse except for customary carveouts.
- After quarter-end, Care declared a $0.135-per-share dividend for Q1 2012, payable June 7, 2012. It had also declared a $0.135-per-share dividend for Q4 2011, paid May 1, 2012. Future distributions remain discretionary and may be reduced or suspended.
Debt, outlook, and risks
The largest debt exposure is the Bickford mortgage debt, with fixed rates of 6.845% and 7.17%, cross-default provisions, and July 2015 maturities; the filing cites approximate balloon balances of $69.6 million and $7.1 million at maturity. Prepayment restrictions affect refinancing before 2015. The Greenfield bridge loan was due June 2012 and was refinanced as described above. Reported contractual payments for mortgage notes and related interest totaled $113.4 million as of March 31, 2012, including $80.4 million scheduled in 2015 in the detailed annual schedule.
Management planned to pursue additional healthcare real estate investments when suitable opportunities arose, and noted potential financing through cash, debt, equity, or joint ventures. The filing provides no specific earnings or acquisition guidance. Key risks include tenant and operator creditworthiness, concentration in Bickford and Greenfield, refinancing and interest-rate exposure, real estate market and economic weakness, access to capital, joint-venture dependence, conflicts involving Tiptree and its affiliates, and maintaining REIT qualification. Care reported no material litigation, no material off-balance-sheet arrangements, and no impairment of wholly owned real estate or intangibles in the quarter. Management concluded that disclosure controls were effective.
Most important facts for investors to verify
- Confirm the issuer: this is Care Investment Trust Inc.’s 10-Q, although the request identifies Tiptree Inc.
- Review tenant credit and lease performance given that Bickford and Greenfield accounted for about 95% of Q1 revenue.
- Assess the Bickford 2015 balloon maturities, prepayment restrictions, and the terms and guarantees of the Greenfield refinancing.
- Reconcile positive net income with negative operating cash flow and falling FFO/AFFO; review cash-flow drivers and the sustainability of distributions.
- Confirm post-quarter refinancing execution and dividend payments, and monitor management’s stated liquidity and capital-raising assumptions.