Business context and reporting period
Care Investment Trust Inc. (Care), a healthcare-property REIT controlled by Tiptree Financial Partners, reported unaudited results for the quarter and nine months ended September 30, 2012. The filing’s registrant is Care Investment Trust Inc., not Tiptree Inc.; investors should verify the intended issuer. Care’s portfolio included 17 senior-housing facilities, one partially owned senior-living investment, and one loan investment. Its wholly owned facilities were leased under triple-net arrangements. The company reported one operating segment and was a voluntary filer not subject to Exchange Act reporting requirements.
Financial performance and position
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2011 periods.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $4.00 | $3.52 | $11.95 | $10.51 |
| Net income (loss) | $(0.09) | $0.54 | $(0.03) | $0.49 |
| Net income (loss) per share | $(0.01) | $0.05 | $(0.01) | $0.05 |
| FFO | $0.89 | $1.40 | $2.88 | $5.67 |
| AFFO | $0.68 | $1.40 | $2.53 | $4.94 |
Revenue rose mainly because the Greenfield properties acquired in September 2011 contributed for a longer period. Net results weakened principally because 2011 included income from the Cambridge investment that was sold in November 2011, while interest expense and general and administrative costs increased. Q3 operating expenses were $2.62 million; interest expense was $1.57 million. Nine-month interest expense was $4.75 million. No company-defined margin guidance was provided.
At September 30, 2012, total assets were $187.75 million, including $46.65 million of cash and cash equivalents, compared with $52.31 million at year-end 2011. Mortgage notes payable were $95.57 million and total liabilities were $97.95 million; stockholders’ equity was $89.80 million. Nine-month operating cash flow was a use of $0.60 million, investing cash flow provided $0.29 million, and financing cash flow used $5.35 million. Cash declined $5.66 million over the period. Dividends paid were $4.18 million.
Quarterly dividends were $0.135 per share. A further $0.135 dividend for Q3 was declared November 7, payable December 5, 2012. Care stated it believed liquidity was adequate for short-term needs, but had no revolving credit facility or other credit line. Contractual obligations totaled $112.6 million, including mortgage principal and interest; $81.4 million was scheduled for 2015, primarily reflecting the Bickford loan maturity. Reported debt carrying value does not equal the disclosed $110.5 million of scheduled principal and interest payments.
Material changes versus the prior comparable period
- Q3 revenue increased about 14%, while net income shifted from $0.54 million profit to a $0.09 million loss. Nine-month net income similarly declined from $0.49 million profit to a $0.03 million loss.
- FFO and AFFO declined in both the quarter and nine-month period. The prior-year comparison included Cambridge preferential distributions and other Cambridge-related results; that investment was sold in November 2011.
- Greenfield added rental revenue and debt service costs. In April 2012, Care refinanced its $15.5 million floating-rate bridge loan with approximately $15.7 million of fixed-rate loans at 4.76%, maturing in 2022.
- Cash from operations moved from $4.59 million provided in the first nine months of 2011 to $0.60 million used in 2012, reflecting lower distributions from partially owned investments and higher transaction/professional costs, among other factors.
- Care’s remaining loan investment fell to $5.54 million from $5.77 million at year-end. It had no loans on nonaccrual status.
Outlook, risks, contingencies, and unusual items
- No specific earnings or acquisition guidance was provided. Management described potential future healthcare-property acquisitions as dependent on suitable opportunities, financing availability, and risk-adjusted returns.
- A proposed $106.5 million purchase of seven Juniper senior-living facilities was terminated by Care on October 12, 2012; Care sought return of the $0.5 million earnest-money deposit. Approximately $0.3 million of deferred loan costs had been recorded and were expected to be expensed in Q4.
- Tenant concentration is significant: Bickford and Greenfield accounted for approximately 95% of revenue in Q3 and the first nine months of 2012. Tenant financial condition, lease performance, and healthcare-sector conditions are key exposures.
- The Bickford loans, totaling about $79.6 million at quarter-end, mature in July 2015 and have prepayment restrictions before 2015. Their loans are cross-collateralized and cross-defaulted. Care reported covenant compliance for both Bickford and Greenfield debt at quarter-end.
- Management cited economic weakness, tenant defaults, volatile capital markets, refinancing and acquisition-financing access, interest rates, healthcare regulation, joint-venture reliance, related-party conflicts, and REIT qualification as risks. The company must distribute at least 90% of REIT taxable income to maintain REIT status; future dividends are discretionary and may be reduced or suspended.
- No material litigation or material off-balance-sheet arrangements were reported. No real-estate impairment was recognized for the periods presented. A $0.1 million realized gain on a Treasury short position was recorded in 2012; no derivatives were outstanding at September 30.
- Care reported effective disclosure controls and no material change in internal control over financial reporting during Q3.
Important facts for investors to verify
- Confirm the intended issuer: this supplied 10-Q is for Care Investment Trust Inc., although the request identifies Tiptree Inc.
- Assess the concentration of revenue in Bickford and Greenfield tenants and the tenants’ ability to meet lease obligations.
- Review refinancing plans and available liquidity ahead of the large 2015 Bickford debt maturity, given the absence of a credit line.
- Reconcile the continuing quarterly dividend with negative nine-month operating cash flow and declining cash balances.
- Check the final disposition of Juniper earnest money and the Q4 expense treatment of deferred loan costs.
- Interpret FFO and AFFO as non-GAAP measures: the filing cautions that neither represents GAAP operating cash flow or funds necessarily available for distributions.