Care Investment Trust Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing identifies the registrant as Care Investment Trust Inc.; it describes a healthcare-focused equity REIT with a hybrid internal/advisor management structure. The company trades on OTCQX under CVTR. Financial statements reflect push-down accounting following Tiptree’s 2010 change of control. Accordingly, reported 2011 and 2010 successor/predecessor periods use different accounting bases; the filing also presents a non-GAAP combined 2010 comparison.
Financial performance and position
| Metric | FY 2011 / Dec. 31, 2011 | Comparable information |
|---|---|---|
| Revenue | $14.5 million | $14.9 million in the filing’s combined, unaudited 2010 presentation |
| Net income (loss) | $16.5 million; $1.63 basic and $1.60 diluted per share | $(19.4) million in the combined 2010 presentation |
| FFO / AFFO | $8.3 million / $7.3 million; $0.81 / $0.71 per basic share | $(6.7) million / $(9.2) million in 2010 |
| Cash from operations | $7.8 million | 2010 combined cash-flow comparison is not clearly provided; audited split-period statements show cash used |
| Cash and cash equivalents | $52.3 million | $5.0 million at year-end 2010 |
| Total assets / equity | $194.2 million / $93.6 million | $166.9 million / $81.0 million at year-end 2010 |
| Mortgage notes payable | $96.1 million carrying value; $95.6 million principal outstanding before unamortized premium | $81.7 million carrying value at year-end 2010 |
| Cash distributions | $0.135 per share in each of Q2–Q4; $0.54 for the year | No distributions in 2010 or Q1 2011 |
The $16.5 million 2011 GAAP profit included a $15.3 million gain on sale of the Cambridge investment and $1.1 million of realized derivative gains. Thus, reported earnings were materially affected by transactions and are not a straightforward measure of recurring property operations. FFO and AFFO are non-GAAP measures; the company cautions that neither represents operating cash flow or funds available for distributions.
Rental revenue rose about $0.7 million to $13.7 million, primarily due to the Greenfield properties acquired in September 2011. Loan income fell about $1.1 million to $0.8 million as the average loan balance declined. Management and G&A expenses fell substantially versus the combined 2010 comparison, largely because 2010 included the $7.4 million CIT Healthcare termination payment and transaction-related costs. Interest expense was approximately $5.8 million.
Portfolio, debt and liquidity
- At year-end, the portfolio included 17 wholly owned senior housing properties, one remaining SMC joint-venture property, and one mortgage loan. The company reported approximately $129.2 million in wholly owned real estate, $2.5 million in unconsolidated joint ventures and $5.8 million in loans. It owned no medical office buildings after selling its Cambridge interest.
- The 14-property Bickford portfolio had 87.9% weighted average occupancy. The three Greenfield facilities had 96.9% occupancy and a 12-year triple-net lease with first-year rent of approximately $1.65 million and 2.75% annual escalations. The remaining SMC property had 85.8% occupancy.
- Debt comprised approximately $80.3 million of Bickford mortgage principal, fixed at 6.845% and 7.17%, maturing in July 2015, plus a $15.3 million floating-rate KeyBank bridge loan for Greenfield at LIBOR plus 4%, maturing June 20, 2012. The bridge loan had a conditional three-month extension. Bickford debt is cross-collateralized and has prepayment restrictions.
- The company planned to refinance the bridge loan with fixed-rate Freddie Mac financing. It said cash on hand could be used to repay the bridge loan if refinancing failed or proceeds were insufficient. It had no revolving credit facility or other credit line.
- Cash increased by $47.3 million during 2011, mainly from the Cambridge sale and SMC property sales. Operating, investing and financing cash flows were approximately $7.8 million, $29.3 million and $10.2 million, respectively. Approximately $52.3 million of cash was held at one major financial institution.
Material changes, outlook and risks
- Cambridge sold the company’s investment for approximately $42 million in November 2011, producing a reported $15.3 million gain. The transaction settled related litigation and canceled the remaining Cambridge OP units and warrant. In May, the sale of three SMC properties generated approximately $6.6 million gross proceeds.
- The Greenfield acquisition cost $20.8 million, funded with about $15.5 million of bridge financing and cash. Management said it continued to seek small senior-housing portfolios when suitable risk-adjusted opportunities arise, but provided no quantified earnings or acquisition guidance.
- The remaining Louisiana loan was restructured in November 2011 into a five-year term loan maturing November 1, 2016, with a 25-year amortization schedule and limited cash sweep. Its rate steps up from LIBOR plus 6% in years one through three to 8% in year four and 10% in year five. The carrying value was $5.8 million; no gain or loss was recorded on restructuring.
- Two Bickford properties had previously triggered a lease coverage covenant default, which also constituted a mortgage default. The lease was amended and the mortgage servicer waived the default; the company reported compliance at year-end. This remains a tenant and collateral risk to monitor.
- Management considered short-term liquidity adequate, but future distributions remain discretionary and dependent on earnings, cash needs and the board. Healthcare reimbursement reductions, regulation, tenant/operator financial health, occupancy, refinancing access, interest rates, geographic concentration, environmental liabilities, REIT qualification and related-party conflicts are among the disclosed risks.
- The company recorded $2.4 million of 2011 incentive fee expense payable to TREIT, an affiliate of Tiptree; approximately $1.9 million was payable in cash and $0.5 million in stock. The filing also describes a short Treasury position related to planned Greenfield financing, closed in October for a realized gain of about $0.65 million; a further $15.5 million Treasury short position was entered into in February 2012 in connection with the refinancing application.
Investor verification priorities
- Filing completeness: The 10-K states it is incomplete because audited financial statements for significant lessee Bickford Master I, LLC were unavailable and would be filed by amendment. The included lessee statements are unaudited. Verify whether the amendment and required auditor consents and certifications were subsequently filed.
- Bridge-loan refinancing: Verify completion, final terms and proceeds of the planned Freddie Mac refinancing, and whether the June 2012 maturity was extended or repaid.
- Recurring earnings and distributions: Separate the Cambridge disposal gain and derivative gains from ongoing lease and loan income; review cash available for distributions and the sustainability of the $0.135 quarterly dividend.
- Tenant credit and occupancy: Review Bickford’s financial condition and covenant performance, Greenfield’s ability to meet lease obligations, and occupancy trends at all portfolios. The filing notes that Greenfield financial information was provided by the operator and not independently verified.
- Debt and liquidity: Reconcile the $96.1 million balance-sheet debt figure with principal maturities and contractual payments, including the large July 2015 Bickford balloon and refinancing constraints.
- Comparability and related parties: Account for the non-comparable push-down accounting periods and scrutinize the TREIT incentive-fee calculation, affiliate relationships and cash concentration at one institution.