Care Investment Trust reports net income of $16.0M for fourth quarter 2011

Care Investment Trust Inc. (OTCQX: CVTR) ("Care" or the "Company"), a real estate investment and finance company that invests in healthcare-related real estate, today reported financial results for the fourth quarter and full year ended December 31, 2011, and announced that it has declared a quarterly dividend of $0.135 per share for the fourth quarter 2011. 

The Company reported net income of approximately $16.0 million, or $1.58 per basic and diluted share, for the fourth quarter 2011.  Net income includes the impact of a gain on sale of approximately $15.3 million related to the divestiture of the Company's interest in nine (9) medical office buildings, or $1.51 per basic and diluted share and non-cash depreciation charges from the Company's real estate investments of approximately $1.0 million, or $0.10 per basic and diluted share.  

For the fiscal year ended 2011, the Company reported net income of approximately $16.5 million, or $1.63 and $1.60 per basic and diluted share, respectively.  Net income for the year ended 2011 also includes the impact of a gain on sale related to the divestiture of Care's interest in a medical office portfolio of approximately $15.3 million, or $1.51 and $1.49 per basic and diluted share, respectively, and non-cash depreciation charges from the Company's real estate investments and joint ventures of approximately $6.2 million, or $0.61 and $0.60 per basic and diluted share, respectively. 

Funds From Operations (FFO) for the fourth quarter 2011 amounted to approximately $2.6 million, or $0.26 per basic and diluted share.  Adjusted Funds From Operations (AFFO) equaled approximately $2.3 million, or $0.23 per basic and diluted share in the fourth quarter of 2011.  FFO and AFFO exclude the Company's approximately $15.3 million gain on the sale of its interest in a medical office building portfolio and include a realized gain on derivative instruments of approximately $0.7 million, or $0.07 per basic and diluted share, related to a derivative hedge position the Company entered into in anticipation of obtaining permanent financing with respect to the Greenfield properties.  

For the fiscal year ended 2011, Funds From Operations (FFO) equaled approximately $8.3 million, or $0.81 and $0.80 per basic and diluted share, respectively, and Adjusted Funds From Operations (AFFO) amounted to approximately $7.3 million, or $0.71 and $0.70 per basic and diluted share, respectively.  FFO and AFFO are exclusive of the gain on sale of the Company's interest in its medical office portfolio and include a realized gain related to the derivative hedge position. 

FFO is computed by subtracting from net income (loss) gains related to sales of property, and adding back the Company's share of depreciation and amortization of real estate related to Care's investment in the Bickford and Greenfield properties and the medical office portfolio as well as an adjustment related to the portion of the incentive fee paid to Care's advisor related to the gain on sale of the Company's interest in the medical office portfolio.  AFFO reflects additional adjustments for other non-cash and related income and expense items including stock based compensation, stock issued to related parties, transaction charges, excess cash distributions from the Company's equity method investments, changes in the obligation to issue operating partnership units and straight-lining of lease revenue.  These adjustments are detailed in the attached Reconciliation of Non-GAAP Financial Measures. 

Portfolio Activity

Wholly-owned and Partially-owned Real Estate

Wholly-owned real estate totaled approximately $122.3 million at December 31, 2011, consisting of investments in 17 assisted living, independent living and alzheimer's facilities acquired in the Bickford (14 facilities) and Greenfield (3 facilities) transactions, all of which are triple net leased.  In addition, Care had real estate investments in partially-owned entities of approximately $2.5 million as of December 31, 2011, maintaining its joint venture interest in one independent / assisted living facility with Senior Management Concepts ("SMC").

Loan Investment

The net investment in Care's remaining loan investment was approximately $5.8 million as of December 31, 2011.  The weighted average spread on the loan investment, which is floating-rate, was 6.00% over 30-day London Interbank Offered Rate ("LIBOR") and had an effective interest rate of 7.20% as of December 31, 2011.  The remaining loan investment is part of a larger credit facility, in which we have an approximately one-third interest, and is secured by a total of ten (10) properties consisting of skilled nursing facilities, assisted living facilities and a multifamily property located in Louisiana.

The loan had an original maturity date of February 1, 2011.  During 2011, the maturity date was extended several times. In November 2011, in conjunction with the hiring of a new independent operator to manage the properties, the loan was restructured into a five (5) year term loan with a maturity date of November 1, 2016 and a 25 year amortization schedule and a limited cash sweep.  In addition, all outstanding litigation between the previous operator and the direct lenders (which did not include the Company) prior to the restructuring of the loan was resolved at this time. Subsequent to the restructuring, the interest rate on the loan was increased from LIBOR plus 4.00% to LIBOR plus 6.00% in years one through three, LIBOR plus 8.00% in year four and LIBOR plus 10.00% in year five. At the time of the restructuring, Care's portion of the loan had a notional balance of approximately $10.1 million. In conjunction with the restructuring, we received a revised note with a face amount of approximately $10.5 million. 

Acquisitions

In September 2011, Care acquired three (3) private pay assisted living / memory care facilities from affiliates of Greenfield Senior Living, Inc. for an aggregate purchase price of $20.8 million, expanding the Company's footprint to the Mid-Atlantic region of the US.  The portfolio contains 164 total licensed beds, consisting of 115 assisted living beds and 49 memory care beds, and has an average age of 14 years, with aggregate occupancy averaging in excess of 90% over the last two (2) full years. 

Simultaneously with the acquisition, Care leased the facilities back to affiliates of Greenfield pursuant to a triple-net master lease having an initial term of 12 years with two (2) ten-year renewal options.  GAAP revenues from the acquisition of the properties for the 2012 fiscal year are expected to be approximately $1.9 million, which includes a non-cash straight-line rent component of approximately $0.3 million in 2012.

Care funded the investment through cash on hand of approximately $5.3 million and approximately $15.5 million of first mortgage bridge financing from KeyBank N.A.  The bridge loan bears interest at a floating rate per annum equal to the London Interbank Offered Rate (LIBOR) plus 400 basis points, with no LIBOR floor, and provides for monthly interest and principal payments which commenced on October 1, 2011.  The bridge loan will mature on June 20, 2012 and, subject to certain conditions, may be extended for an additional three (3) months.  It is anticipated that permanent financing will be obtained through a KeyBank sponsored Freddie Mac refinancing.

Dispositions

In May 2011, with Care's prior consent, SMC sold three (3) of the four (4) properties in the joint-venture arrangement, which generated proceeds to Care of approximately $6.6 million.  Proceeds consisted of approximately $5.2 million representing a return of the Company's preferred equity investment related to the three (3) sold properties, approximately $0.9 million representing its 10% common equity interest in the sold properties and approximately $0.4 million which satisfied all outstanding delinquent preferred return and default interest payments.  In conjunction with the sale of the three (3) properties, the Company returned a security deposit of approximately $0.4 million which was held as payment collateral for those facilities.      

In November 2011, Care consummated the sale of its interest in its medical office portfolio for total cash consideration of approximately $42.0 million, which included approximately $1.2 million of income allocable to its preferred distribution of cash flow from operations.  Pursuant to the First Amendment to the Omnibus Agreement entered into in October 2011, the Company granted to Cambridge Holdings LLC and its affiliates ("Cambridge") the option to purchase all of Care's interest in the medical office portfolio at any time up to December 9, 2011, for an amount equal to the sum of the Company's $40.0 million preferred fixed dollar investment plus its accrued but unpaid preferred return of approximately $2.0 million.  In connection with the sale, the remaining 200,000 operating partnership units and a warrant to purchase 300,000 shares of the Company's common stock previously issued to Cambridge were canceled.

Operating Activities

Care generated total revenue from operations of approximately $4.0 million during the 2011 fourth quarter which included rental revenue of approximately $3.8 million associated with its Bickford and Greenfield investments along with interest income from investments in loans of approximately $0.2 million.

For the fiscal year ended 2011, the Company generated total revenues from operations of approximately $14.5 million which included rental revenue of approximately $13.7 million associated with its Bickford and Greenfield investments and interest income on investments from loans of approximately $0.8 million.

The Company incurred approximately $4.0 million in operating expenses during the three months ended December 31, 2011, which included approximately $0.1 million in base services fees, approximately $1.7 million in incentive fees payable to its advisor, TREIT Management, LLC, and approximately $1.2 million in marketing, general and administrative expenses.  General and Administrative expenses consist of fees for professional services, including audit, legal and investor relations; directors & officers and other insurance; general overhead costs for the Company and employee salaries and benefits as well as fees paid to the Company's directors and rent for its corporate offices.  The Company recognized approximately $0.4 million in employee compensation expense and approximately $0.2 million related to audit and legal fees, rent, and D&O insurance during the three months ended December 31, 2011.  Care also incurred approximately $0.9 million of depreciation and amortization expense relating to its investment in the Bickford and Greenfield properties during the quarter.    

Care incurred approximately $11.3 million in operating expenses during the fiscal year ended December 31, 2011, which included approximately $0.4 million in base services fees, approximately $2.4 million in incentive fees payable to its advisor, TREIT Management, LLC, and approximately $4.9 million in marketing, general and administrative expenses.  General and Administrative expenses consist of fees for professional services, including audit, legal and investor relations; directors & officers and other insurance; general overhead costs for the Company and employee salaries and benefits as well as fees paid to the Company's directors and rent for its corporate offices.  The Company recognized approximately $1.6 million in employee compensation expense and approximately $1.2 million related to audit and legal fees, rent, and D&O insurance during the three months ended December 31, 2011.  Care also incurred approximately $3.6 million of depreciation and amortization expense relating to its investment in the Bickford and Greenfield properties for the fiscal year.   

For the quarter and fiscal year ended December 31, 2011, income from partially-owned entities amounted to approximately $1.3 million and $3.1 million, respectively.  Prior to the sale of the Company's medical office portfolio in November 2011, Care received a preferential distribution of cash flow from operations (per the new economic terms as outlined in the Omnibus Agreement dated April 15, 2011), with a target distribution rate of 12% on its stated $40.0 million fixed dollar investment with any cash flow from operations in excess of the target distribution rate being retained by Cambridge.  As a result of entering into the Omnibus Agreement, Care was no longer allocated 85% of the operating income or loss (after depreciation and amortization) with respect to the medical office portfolio after April 15, 2011.  In addition, the Company recognized its share of equity income in the SMC investment of approximately $0.1 million and $0.8 million for the quarter and fiscal year ended December 31, 2011, respectively.  In May 2011 the Company consented to the sale of three (3) of the four (4) SMC properties.

Care realized a $1.1 million gain on derivative instruments for each of the quarter and fiscal year ended December 31, 2011.  During the quarter ended December 31, 2011, the Company entered into a transaction in which we sold short $15 million notional balance of the 2.125% U.S. Treasury Notes due August 15, 2021 in anticipation of entering into a ten-year fixed rate mortgage secured by the Greenfield properties, the interest on which would be determined by a fixed spread over the 10-year U.S. Treasury Note.  Due to volatility in the U.S. Treasury market, we elected to close this short position and realized a gain of approximately $0.7 million.  In addition, as a result of the sale of the Company's interest in its medical office portfolio in the fourth quarter of 2011 and the concurrent elimination of the remaining operating partnership units, we also realized a gain of approximately $0.4 million from the cancelation of a derivative instrument related to this investment.

Interest expense totaled approximately $1.6 million for the three months ended December 31, 2011, which related primarily to the mortgage debt incurred to finance the acquisition of the Bickford properties and also included interest expense pertaining to the Greenfield properties which were acquired in September 2011. 

For the fiscal year ended December 31, 2011, interest expense totaled approximately $5.8 million, which related primarily to the mortgage debt incurred to finance the acquisition of the Bickford properties and also included interest expense pertaining to the Greenfield properties which were acquired in September 2011.  The effective interest rate for the fourth quarter of 2011 on the Company's mortgage debt borrowings incurred to finance the acquisition of the Bickford and Greenfield properties was 6.88 percent and 4.31 percent, respectively.

Liquidity and Funding

During the fourth quarter of 2011 the Company received proceeds of approximately $42.0 million from the divestiture of its interest in its medical office portfolio.  At December 31, 2011, Care held in excess of $52.3 million in cash and cash equivalents. 

Dividends

On April 3, 2012, the Company's Board of Directors declared a dividend of $0.135 per share of common stock for the fourth quarter 2011.  The dividend is payable on May 1, 2012 to common shareholders of record on April 17, 2012.  During 2011, Care paid $0.405 per share in cash dividends, 100% of which are treated as capital gain distributions consisting entirely of unrecaptured Section 1250 gain for tax purposes.