Business context and reporting period
Care Investment Trust Inc. filed this audited Form 10-K for the year ended December 31, 2012, with 2011 as the comparable year. Care was a healthcare-focused equity REIT, primarily owning senior-housing properties leased on a triple-net basis. At year-end, its portfolio comprised approximately $125.1 million of wholly owned real estate, $2.5 million invested in an unconsolidated joint venture, and a $5.5 million loan investment. The filing identifies the registrant as Care Investment Trust Inc.; it describes a proposed transaction that could result in a combined company named Tiptree Financial Inc.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $16.0 million | $14.5 million |
| Net income (loss) | $(0.5) million | $16.5 million |
| Basic EPS | $(0.05) | $1.63 |
| FFO | $3.4 million; $0.33 per basic share | $8.3 million; $0.81 per basic share |
| AFFO | $3.0 million; $0.29 per basic share | $7.3 million; $0.71 per basic share |
| Cash and cash equivalents, year-end | $46.4 million | $52.3 million |
| Mortgage notes payable, year-end | $95.2 million | $96.1 million |
- Rental income rose to $13.8 million from $12.4 million, primarily because the Greenfield properties were included for a full year in 2012. Loan interest income declined to $0.7 million from $0.8 million.
- Operating expenses were $10.6 million versus $11.4 million. G&A increased to $4.8 million from $3.6 million, mainly due to transaction and professional fees; the $2.4 million 2011 incentive fee to the related-party adviser did not recur in 2012.
- The 2011 net profit included a $15.3 million gain on the sale of the Cambridge investment. Lower 2012 earnings therefore reflect both the absence of that gain and reduced income from partially owned investments.
- The audited cash-flow statement reports $0.6 million provided by operating activities in 2012, compared with $7.8 million in 2011. Investing activities provided $0.4 million; financing activities used $6.9 million. Cash declined by $5.9 million.
- Year-end total assets were $185.8 million and stockholders’ equity was $88.0 million. The filing reports $6.3 million of interest expense. No wholly owned real-estate impairment was recorded in 2012.
- Care declared quarterly dividends of $0.135 per share during 2012, or $0.54 for the year; the fourth-quarter dividend was declared in March 2013 and payable in April. The filing says 2012 distributions were treated as return of capital for tax purposes.
Material changes versus the prior year
- Revenue increased 10%, while reported net income shifted from $16.5 million profit to a $0.5 million loss. FFO and AFFO fell approximately 59% and 59%, respectively.
- Rental revenue benefited from a full year of Greenfield rent. Interest expense rose to $6.3 million from $5.8 million, principally reflecting Greenfield financing.
- Care refinanced the Greenfield bridge loan in April 2012 with approximately $15.7 million of fixed-rate debt at 4.76%, amortizing over 30 years and maturing in May 2022.
- Care terminated a proposed $106.5 million Juniper acquisition in October 2012 and recovered its $0.5 million earnest-money deposit; the filing reports approximately $1.0 million in related transaction expenses.
- Cash declined from $52.3 million to $46.4 million, while mortgage debt declined modestly from $96.1 million to $95.2 million.
Outlook, risks and unusual items
- Proposed contribution transaction: Under the December 31, 2012 agreement, Care and majority owner Tiptree proposed contributing substantially all assets and liabilities to a new operating subsidiary, with Care expected to hold approximately 25% and Tiptree 75%. The transaction was subject to stockholder, limited-partner and other approvals; closing was anticipated in the first half of 2013, but was not assured. Care expected the combined company to lose REIT tax status effective January 1, 2013, potentially ending the 90% REIT distribution requirement and allowing lower distributions.
- Debt refinancing risk: Approximately $77.5 million of principal was scheduled for repayment in 2015, mainly the Bickford mortgage loans. Those loans had prepayment restrictions before maturity. Total contractual mortgage principal and interest payments were $115.3 million.
- Tenant concentration and credit: Bickford operates 14 facilities and is a significant lessee. Weighted-average occupancy for its portfolio was 83% at year-end; Greenfield’s three facilities were 96% occupied. Bickford Master I’s auditors reported substantial doubt about its ability to continue as a going concern. Care cited lease guarantees, pledged collateral and rent priority, but tenant distress could still threaten rent collection.
- Healthcare and property risks: Tenant performance may be affected by reimbursement changes, healthcare regulation, staffing requirements, local occupancy and operating costs. Environmental liabilities, competition, access to financing and real-estate values are also risks. Care reported no material litigation other than ordinary-course matters.
- Liquidity commentary: Management said liquidity was adequate for short-term needs, but Care had no revolving credit facility. The filing’s MD&A says operating activities used approximately $0.6 million in 2012, whereas the audited cash-flow statement reports $0.6 million provided; verify this discrepancy.
- Subsequent events: In February 2013, Care acquired a 75% interest in a joint venture owning two New York senior-housing buildings valued at $23.3 million; the properties carried approximately $18.3 million of debt. In March 2013, Care bought the remaining approximately two-thirds interest in its syndicated loan for $17.3 million.
Important facts for investors to verify
- Whether the proposed Tiptree contribution transaction closed, its final terms, resulting ownership and governance, and the actual tax and distribution consequences.
- The refinancing plan and available liquidity for the substantial 2015 Bickford debt maturities.
- Bickford Master I’s financial condition, the status and enforceability of its lease guarantees and collateral, and subsequent occupancy and rent-payment performance.
- The audited cash-flow statement’s positive operating cash flow against the MD&A’s negative description, and the components underlying the change from 2011.
- The performance, valuation and credit status of the Louisiana loan investment, especially after Care acquired the remaining syndicated-loan interest in March 2013.
- The financial impact and financing structure of the Calamar joint venture and whether its acquisition accounting was completed in subsequent filings.