Business Context and Reporting Period
Company: Care Investment Trust Inc. (Note: Input metadata referenced "TIPTREE INC.", but the filing is for Care Investment Trust Inc., a healthcare REIT controlled by Tiptree Financial Partners, L.P.)
Reporting Period: Quarter ended March 31, 2011 (Successor period following the August 2010 change of control to Tiptree).
Business Overview: A healthcare equity REIT owning senior housing, skilled nursing facilities, medical office properties, and mortgage liens. The company operates under a hybrid management structure with internal senior management and a services agreement with TREIT Management, LLC (an affiliate of Tiptree).
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenue | $3,521 | $3,959 |
| Net Loss | $(1,113) | $(8,430) |
| Net Loss Per Share (Basic/Diluted) | $(0.11) | $(0.28) |
| Cash and Cash Equivalents | $8,346 | $136,586 |
| Total Assets | $166,563 | $166,876 |
| Mortgage Notes Payable | $81,479 | $81,684 |
| Net Cash Provided by Operating Activities | $2,427 | $(1,030) |
| Funds From Operations (FFO) | $2,342 | $(5,293) |
| Adjusted FFO (AFFO) | $2,034 | $(5,790) |
Material Changes vs. Prior Period
- Net Loss Improvement: Net loss decreased significantly from $8.4 million in Q1 2010 to $1.1 million in Q1 2011. This improvement is primarily due to the absence of a $7.5 million buyout payment to the former manager (CIT Healthcare) recorded in Q1 2010.
- Revenue Decline: Total revenue decreased by approximately $0.4 million. Rental income increased slightly ($3.3M vs $3.2M), but income from investments in loans dropped from $0.7 million to $0.2 million due to a lower average outstanding principal balance following loan sales and maturities.
- Expense Reduction: Management and buyout fees dropped from $7.9 million to $0.1 million. However, the company incurred a new $0.3 million incentive fee to the current advisor (TREIT) and $0.4 million in employee compensation, which were not present in the prior period when the company was externally managed.
- Liquidity: Cash balances decreased from $136.6 million to $8.3 million, reflecting the deployment of capital in the prior year and normal operating cash flows.
Guidance, Outlook, and Risks
- Management Commentary: Management believes the company has adequate liquidity to meet current needs. The company is transitioning from a mortgage-focused strategy to an equity-focused strategy in healthcare real estate.
- Subsequent Events:
- Cambridge Restructuring: On April 14, 2011, the company entered an Omnibus Agreement settling litigation with Cambridge Holdings. The investment was restructured from an 85% equity interest to a fixed dollar investment of $40 million with a 14% preferred return. The obligation to issue operating partnership units was reduced, and the obligation to fund $0.9 million in tenant improvements was eliminated.
- Dividend: A cash dividend of $0.135 per share was declared on May 9, 2011.
- SMC Sale: Three of four properties in the Senior Management Concepts (SMC) joint venture were sold in May 2011 for net proceeds of $6.2 million.
- Risks and Contingencies:
- Loan Extension: The remaining mortgage loan investment ($7.3 million) has been extended to July 20, 2011. Default interest accrues but is not recognized until received.
- Legal Proceedings: A class-action lawsuit regarding the IPO was settled in January 2011 with no financial penalty. Litigation with Cambridge was settled in April 2011.
- Interest Rate Risk: The remaining loan is variable rate (LIBOR + 4.06%). A 100 basis point increase in LIBOR would increase annual income by approximately $116,000.
Key Facts for Investor Verification
- Change of Control Accounting: Verify the impact of "push-down accounting" adopted in August 2010, which revalued assets and liabilities to fair value, affecting comparability with pre-August 2010 periods.
- Cambridge Portfolio Restructuring: Confirm the financial impact of the April 2011 Omnibus Agreement, specifically the shift to a fixed dollar investment and the elimination of the operating partnership unit derivative liability.
- Loan Concentration: The company holds only one remaining mortgage loan ($7.3 million) which is extended to July 2011; verify the credit quality and repayment status of this single asset.
- FFO vs. Net Loss: Note the significant divergence between GAAP Net Loss ($1.1M) and FFO ($2.3M) due to non-cash depreciation and amortization charges.
- Dividend Coverage: Assess whether the declared dividend of $0.135 per share is sustainable given the cash flow from operations and the requirement to distribute 90% of REIT taxable income.