Care Capital Properties, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - SECTION 302 CFO CERTIFICATION - Care Capital Properties, Inc.	ccp-ex312_2015930.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - Care Capital Properties, Inc.	ccp-ex322_2015930.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - Care Capital Properties, Inc.	ccp-ex321_2015930.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - Care Capital Properties, Inc.	ccp-ex311_2015930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015
OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-37356

Care Capital Properties, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Delaware (State or Other Jurisdiction of Incorporation or Organization)		37-1781195 (I.R.S. Employer Identification No.)

353 N. Clark Street, Suite 2900

Chicago, Illinois

(Address of Principal Executive Offices)

60654

(Zip Code)

(312) 881-4700

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class of Common Stock:		Outstanding at November 10, 2015:
Common Stock, $0.01 par value		83,802,271

CARE CAPITAL PROPERTIES, INC.

FORM 10-Q

INDEX




		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements of Care Capital Properties, Inc. and Predecessors (unaudited)
	Combined Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	1
	Combined Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014	2
	Combined Consolidated Statements of Equity for the Nine Months Ended September 30, 2015 and the Year Ended December 31, 2014	3
	Combined Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	4
	Notes to Combined Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
Signatures		40

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

COMBINED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)



	September 30, 2015			December 31, 2014
Assets
Real estate investments:
Land and improvements	$	288,199		$	249,504
Buildings and improvements	3,010,206			2,446,688
Construction in progress	19,457			10,433
Acquired lease intangibles	102,130			87,194
	3,419,992			2,793,819
Accumulated depreciation and amortization	(685,727		)	(602,578		)
Net real estate property	2,734,265			2,191,241
Net investment in direct financing lease	21,960			21,626
Secured loans receivable, net	5,253			5,249
Net real estate investments	2,761,478			2,218,116
Cash	10,444			2,424
Goodwill	146,017			88,959
Other assets	53,332			22,251
Total assets	$	2,971,271		$	2,331,750
Liabilities and equity
Liabilities:
Term loans and other debt	$	1,518,437		$	—
Tenant deposits	67,334			57,362
Lease intangible liabilities, net	135,354			145,640
Accounts payable and other liabilities	13,493			5,669
Deferred income taxes	2,341			—
Total liabilities	1,736,959			208,671
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 10,000 shares authorized, unissued at September 30, 2015	—			—
Common stock, $0.01 par value; 300,000 shares authorized, 83,801 shares issued at September 30, 2015	838			—
Additional paid-in capital	1,263,848			—
Dividends in excess of net income	(35,084		)	—
Net parent investment	—			2,118,216
Total CCP equity	1,229,602			2,118,216
Noncontrolling interests	4,710			4,863
Total equity	1,234,312			2,123,079
Total liabilities and equity	$	2,971,271		$	2,331,750

See Accompanying Notes to the Combined Consolidated Financial Statements.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

COMBINED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Rental income, net	$	80,595		$	72,421		$	237,100		$	221,849
Income from investments in direct financing lease and loans	955			856			2,680			2,542
Real estate services fee income	763			—			763			—
Interest and other income	4			1			67			2
Total revenues	82,317			73,278			240,610			224,393
Expenses:
Interest	4,090			—			4,075			—
Depreciation and amortization	31,502			27,880			97,336			77,492
General, administrative and professional fees	9,216			5,712			21,499			18,314
Merger-related expenses and deal costs	991			561			4,746			964
Other	158			5,815			1,278			7,251
Total expenses	45,957			39,968			128,934			104,021
Income before income taxes, real estate dispositions and noncontrolling interests	36,360			33,310			111,676			120,372
Income tax expense	(1,024		)	—			(1,024		)	—
Gain (loss) on real estate dispositions	856			(61		)	856			(61		)
Net income	36,192			33,249			111,508			120,311
Net income attributable to noncontrolling interests	26			47			138			137
Net income attributable to CCP	$	36,166		$	33,202		$	111,370		$	120,174
Earnings per common share:
Basic:
Net income attributable to CCP	$	0.43		$	0.40		$	1.33		$	1.44
Diluted:
Net income attributable to CCP	$	0.43		$	0.40		$	1.33		$	1.44
Weighted average shares used in computing earnings per common share:
Basic	83,488			83,488			83,488			83,488
Diluted	83,558			83,488			83,558			83,488
Dividends declared per common share	$	0.57		$	—		$	0.57		$	—

See Accompanying Notes to the Combined Consolidated Financial Statements.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

COMBINED CONSOLIDATED STATEMENTS OF EQUITY

For the Nine Months Ended September 30, 2015 and the Year Ended December 31, 2014

(Unaudited)

(In thousands, except per share amounts)



	Net Parent Investment			Common Stock Par Value		Additional Paid-In Capital		Dividends in Excess of Net Income			Total CCP Equity			Noncontrolling Interests			Total Equity
Balance, January 1, 2014	$	2,186,201		$	—	$	—	$	—		$	2,186,201		$	5,099		$	2,191,300
Net income attributable to CCP	157,595			—		—		—			157,595			—			157,595
Net change in noncontrolling interests	—			—		—		—			—			(236		)	(236		)
Net distribution to parent	(225,580		)	—		—		—			(225,580		)	—			(225,580		)
Balance, December 31, 2014	2,118,216			—		—		—			2,118,216			4,863			2,123,079
Net income attributable to CCP	98,700			—		—		12,670			111,370			—			111,370
Net change in noncontrolling interests	—			—		—		—			—			(153		)	(153		)
Net contribution from parent prior to separation	306,629			—		—		—			306,629			—			306,629
Distribution to parent	(1,273,000		)	—		—		—			(1,273,000		)	—			(1,273,000		)
Issuance of common stock at separation	—			835		—		—			835			—			835
Issuance of common stock for acquisition	—			3		11,543		—			11,546			—			11,546
Transfer of remaining net parent investment to additional paid-in capital	(1,250,545		)	—		1,250,545		—			—			—			—
Stock-based compensation	—			—		1,760		—			1,760			—			1,760
Dividends to common stockholders - $0.57 per share	—			—		—		(47,754		)	(47,754		)	—			(47,754		)
Balance, September 30, 2015	$	—		$	838	$	1,263,848	$	(35,084	)	$	1,229,602		$	4,710		$	1,234,312

See Accompanying Notes to the Combined Consolidated Financial Statements.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	For the Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net income	$	111,508		$	120,311
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	94,170			73,653
Amortization of above and below market lease intangibles, net	(6,835		)	(8,770		)
Amortization of deferred financing fees	646			—
Accretion of direct financing lease	(996		)	(890		)
Amortization of leasing costs and other intangibles	3,166			3,838
Stock-based compensation	1,760			—
Straight-lining of rental income, net	(125		)	(242		)
Gain on real estate disposition	(856		)	—
Income tax benefit	(42		)	—
Other	(102		)	118
Changes in operating assets and liabilities, net of effects of the September acquisition
Increase in other assets	(3,789		)	(2,570		)
Increase in tenant deposits	6,601			2,712
Decrease in accounts payable and other liabilities	935			(5,087		)
Net cash provided by operating activities	206,041			183,073
Cash flows from investing activities:
Net investment in real estate property	(454,832		)	(12,598		)
Investment in loans receivable	(20,091		)	(800		)
Proceeds from real estate disposals	1,510			975
Proceeds from loans receivable	1,040			917
Development project expenditures	(12,629		)	(6,657		)
Capital expenditures	(13,504		)	(3,416		)
Net cash used in investing activities	(498,506		)	(21,579		)
Cash flows from financing activities:
Net change in borrowings under credit facility	1,538,000			—
Payment of deferred financing costs	(20,209		)	—
Distributions to noncontrolling interests	(266		)	(288		)
Net contribution from (distribution to) parent prior to separation	103,714			(160,677		)
Distribution to parent	(1,273,000		)	—
Cash distribution to common stockholders	(47,754		)	—
Net cash provided by (used in) financing activities	300,485			(160,965		)
Net increase in cash	8,020			529
Cash at beginning of period	2,424			2,167
Cash at end of period	$	10,444		$	2,696

Supplemental schedule of non-cash activities:
Issuance of common stock for acquisition of specialty valuation firm	$	11,546		$	—
Other acquisition-related investing activities	$	152,179		$	—
Transfer of remaining net parent investment to additional paid-in capital	$	1,250,545		$	—

See Accompanying Notes to the Combined Consolidated Financial Statements.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Description of Business

Care Capital Properties, Inc. (together with its subsidiaries, unless otherwise indicated or except where the context otherwise requires, “CCP”, “we,” “us” or “our”) is a recently formed Delaware corporation that was created to hold the post-acute/skilled nursing facility (“SNF”) portfolio of Ventas, Inc. (“Ventas”) and its subsidiaries operated by regional and local care providers (the “CCP Business”).

Effective as of 11:59 p.m. on August 17, 2015, Ventas completed its spin-off of the CCP Business by distributing one share of our common stock for every four shares of Ventas common stock held as of the close of business on August 10, 2015. As a result, we began operating as an independent public company and our common stock commenced trading on the New York Stock Exchange under the symbol “CCP” as of August 18, 2015.

Prior to our separation from Ventas, CCP was a wholly owned subsidiary of Ventas. Prior to or concurrently with the separation, Ventas engaged in certain reorganization transactions that were designed to consolidate the ownership of its interests in 355 properties and certain loans receivable that comprise the CCP Business and transfer such interests to us. For periods prior to the separation, references to “we,” “us,” or “our” refer to the CCP Business after giving effect to the transfer of the assets and liabilities from Ventas in connection with the separation.

In connection with the spin-off, we entered into a separation and distribution agreement with Ventas, as well as a transition services agreement, a tax matters agreement, and an employee matters agreement with Ventas contemplated by the separation and distribution agreement, to provide a framework for our ongoing relationship with Ventas. Under the transition services agreement, Ventas has agreed to provide us with various accounting, tax and information technology services on a transitional basis until August 31, 2016 in exchange for a fee of $2.5 million, payable in four quarterly installments.

At the time of the separation and distribution, we had not conducted any business as a separate company and had no material assets or liabilities. We intend to elect to be treated as a real estate investment trust (“REIT”), and, therefore, subsequent to the distribution, we are operating in a manner consistent with a REIT with a diversified portfolio of SNFs and other healthcare properties located throughout the United States. The operations of the CCP Business transferred to us by Ventas are presented herein as if the transferred business was our business for all historical periods described and at the carrying value of such assets and liabilities reflected in Ventas’s books and records.

Subject to the limitation under the REIT asset test rules, we are permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries (“TRS” or “TRS entities”). We have elected for one of our subsidiaries to be treated as a TRS, which is subject to federal, state and local income taxes.

For periods prior to our separation from Ventas, the unaudited combined consolidated financial statements in this Quarterly Report on Form 10-Q reflect Ventas’s interest in 358 properties (including two properties that were not transferred to us as part of the separation, one property that was sold during the second quarter of 2015, one property that was sold on August 18, 2015 and five properties that were classified as held for sale as of August 18, 2015). For periods subsequent to our separation from Ventas, the unaudited combined consolidated financial statements in this Quarterly Report on Form 10-Q reflect our interest in 362 properties (including 12 properties that were classified as held for sale as of September 30, 2015). We also originate and manage a small portfolio of secured and unsecured loans, made primarily to SNF operators or secured by SNF assets.

For periods prior to our separation from Ventas, the accompanying combined consolidated financial statements have been prepared on a standalone basis, are derived from Ventas’s consolidated financial statements and accounting records and reflect our financial position, results of operations and cash flows as the CCP Business was operated as part of Ventas prior to the distribution, in conformity with U.S. generally accepted accounting principles (“GAAP”). For periods subsequent to our separation from Ventas, the combined consolidated financial statements reflect our financial position, results of operations and cash flows in conformity with GAAP.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For periods prior to our separation from Ventas, our equity balance (net parent investment) in the combined consolidated financial statements represents the excess of total assets over total liabilities, including the intercompany balances between us and Ventas. Net parent investment is primarily impacted by contributions from Ventas, which are the result of treasury activities and net funding provided by or distributed to Ventas prior to the separation. For periods subsequent to our separation from Ventas, our equity balance in the combined consolidated financial statements represents our equity activity starting August 18, 2015.

The following is a summary of net income for the three months ended September 30, 2015 on a disaggregated basis to show the respective amounts attributed to the periods prior and subsequent to our separation from Ventas:



	July 1, 2015 through August 17, 2015			August 18, 2015 through September 30, 2015			For the Three Months Ended September 30, 2015
	(In thousands)
Revenues:
Rental income, net	$	40,770		$	39,825		$	80,595
Income from investments in direct financing lease and loans	450			505			955
Real estate services fee income	—			763			763
Interest and other income	—			4			4
Total revenues	41,220			41,097			82,317
Expenses:
Interest	37			4,053			4,090
Depreciation and amortization	14,052			17,450			31,502
General, administrative and professional fees	3,302			5,914			9,216
Merger-related expenses and deal costs	178			813			991
Other	147			11			158
Total expenses	17,716			28,241			45,957
Income before income taxes, real estate dispositions and noncontrolling interests	23,504			12,856			36,360
Income tax expense	(1,004		)	(20		)	(1,024		)
Gain on real estate dispositions	—			856			856
Net income	22,500			13,692			36,192
Net income attributable to noncontrolling interests	8			18			26
Net income attributable to CCP	$	22,492
Net income attributable to common stockholders				$	13,674

Note 2—Accounting Policies

The accompanying combined consolidated financial statements have been prepared in accordance with GAAP for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the SEC instructions to Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim periods have been included. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The accompanying combined consolidated financial statements and related notes should be read in conjunction with our audited combined consolidated financial statements and notes thereto included in the Information Statement.

Principles of Combination and Consolidation and Basis of Presentation

For periods prior to our separation from Ventas, the accompanying unaudited combined consolidated financial statements of the CCP Business do not represent the financial position and results of operations of a legal entity, but rather a combination of entities under common control that have been “carved out” of Ventas’s consolidated financial statements and reflect significant assumptions and allocations. All intercompany transactions and balances have been eliminated in consolidation, and our net income is reduced by the portion of net income attributable to noncontrolling interests.

For periods prior to our separation from Ventas, the combined consolidated financial statements include the attribution of certain assets and liabilities that were historically held at the Ventas corporate level, but which were specifically identifiable or attributable to us. All transactions between us and Ventas were considered to be effectively settled in the combined consolidated financial statements at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected as net contribution from or distribution to parent in the combined consolidated statements of cash flows

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

as a financing activity and in the combined consolidated balance sheet as net parent investment. No other related party transactions or relationships are reflected in the combined consolidated financial statements.

For periods prior to our separation from Ventas, the combined consolidated financial statements include an allocation of expenses related to certain Ventas corporate functions, including executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and investor relations. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata primarily on the basis of revenue, headcount or other measures. We consider the expense methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for those periods. We believe that the assumptions and estimates used in preparation of the underlying combined consolidated financial statements are reasonable. However, the combined consolidated financial statements herein do not necessarily reflect what our financial position, results of operations or cash flows would have been if we had been a standalone company during the full periods presented, nor are they necessarily indicative of our future results of operations, financial position or cash flows.

For periods subsequent to our separation from Ventas, the accompanying consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries and the joint venture entities over which we exercise control. All intercompany transactions and balances have been eliminated in consolidation, and our net income is reduced by the portion of net income attributable to noncontrolling interests.

Noncontrolling Interests

We present the portion of any equity that we do not own in entities that we control (and thus consolidate) as noncontrolling interests and classify this interest as a component of consolidated equity, separate from total CCP equity, on our combined consolidated balance sheets. For consolidated joint ventures with pro rata distribution allocations, net income or loss is allocated between the joint venture partners based on their respective stated ownership percentages. We account for purchases or sales of equity interests that do not result in a change of control as equity transactions, through net parent investment for periods prior to our separation from Ventas and through capital in excess of par value for periods subsequent to our separation from Ventas. In addition, we include net income attributable to the noncontrolling interests in net income in our combined consolidated statements of income.

As of September 30, 2015 and 2014, we had controlling interests in two joint venture entities that owned a total of six SNFs. The noncontrolling interest percentages for these joint ventures were 6.82% and 49.0%, respectively, at September 30, 2015 and September 30, 2014.

Accounting Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain.

Net Real Estate Property

Our investment in net real estate property is recorded on our combined consolidated balance sheets at historical cost, less accumulated depreciation and amortization. These real estate assets are initially measured upon their acquisition. We account for acquisitions using the acquisition method and allocate the cost of the businesses acquired among tangible and recognized intangible assets and liabilities based upon their estimated fair values as of the acquisition date.


•	Land—We determine the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analyses of recently acquired and existing comparable properties within our portfolio.


•	Buildings—We estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over the estimated remaining life of the building, generally not to exceed 35 years.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


•	Other tangible fixed assets—We determine the allocated value of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciate such value over the assets' estimated remaining useful lives as determined at the applicable acquisition date.

•

In-place lease intangibles—The value of in-place leases reflects our estimate of the cost to obtain tenants and an estimated value of the absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant. We amortize these intangibles through amortization expense over the remaining life of the associated lease plus assumed bargain renewal periods, if any.

•

Market lease intangibles—We estimate the value of any above and/or below market leases by discounting the difference between the estimated market rent and in-place lease rent. We amortize these intangibles to revenue over the remaining life of the associated lease plus any assumed bargain renewal periods, if any. If a lease is terminated prior to its stated expiration or not renewed upon expiration, we recognize all unamortized amounts of lease-related intangibles associated with that lease in operations at that time.


•	Purchase option intangibles—We estimate the fair value of purchase option intangible liabilities by discounting the difference between the applicable property's acquisition date fair value and an estimate of its future option price. We do not amortize the resulting intangible liability over the term of the lease, but rather adjust the recognized value of the asset or liability upon sale.


•	Goodwill—Goodwill represents the excess of the purchase price paid over the fair value of the net assets of the acquired business. We do not amortize goodwill.

Impairment of Long-Lived and Intangible Assets and Goodwill

We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to the retention or disposition of the asset. We adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. We recognize any shortfall from carrying value as an impairment loss in the current period. We recognized impairments of $3.8 million and $4.3 million for the three months ended September 30, 2015 and 2014, respectively, and $16.7 million and $8.8 million for the nine months ended September 30, 2015 and 2014, respectively, which are recorded primarily as a component of depreciation and amortization.

If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset's carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period.

We test goodwill for impairment at least annually, and more frequently if indicators arise. We first assess qualitative factors, such as current macroeconomic conditions, state of the equity and capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of the reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we proceed with the two-step approach to evaluating impairment. First, we estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value. If the carrying value exceeds fair value, we proceed with the second step, which requires us to assign the fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied value of goodwill and is used to determine the amount of impairment. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.

Estimates of fair value used in our evaluation of goodwill, real estate investments and intangible assets are based upon discounted future cash flow projections or other acceptable valuation techniques that are based, in turn, upon level three inputs in the fair value hierarchy (as described below), such as revenue and expense growth rates, capitalization rates, discount rates or other available market data. Our ability to accurately predict future operating results and cash flows and to estimate and allocate fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets Held for Sale

We may sell properties from time to time for various reasons, including favorable market conditions or the exercise of purchase options by tenants. We classify certain long-lived assets as held for sale once the criteria, as defined by GAAP, have been met. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell and are no longer depreciated.

Net Investment in Direct Financing Lease

We own one SNF under a lease agreement that is classified as a direct financing lease, as the tenant has a purchase obligation at the end of the lease term. The net investment in direct financing lease is recorded as a receivable on our combined consolidated balance sheets and represents the total undiscounted rental payments (including the tenant's purchase obligation), plus the estimated unguaranteed residual value, less the unearned lease income. Unearned lease income represents the excess of the minimum lease payments and residual values over the cost of the investment. Unearned lease income is deferred and amortized to income over the lease term to provide a constant yield when collectability of the lease payments is reasonably assured. Income from our net investment in direct financing lease was $0.6 million and $0.6 million for the three months ended September 30, 2015 and 2014, respectively, and $1.8 million and $1.8 million for the nine months ended September 30, 2015 and 2014, respectively.

Loans Receivable

We determine the fair value of loans receivable acquired in connection with a business combination by discounting the estimated future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings. We do not establish a valuation allowance at the acquisition date, as the amount of estimated future cash flows reflects our judgment regarding their uncertainty. We recognize the difference between the acquisition date fair value and the total expected cash flows as interest income using the effective interest method over the life of the applicable loan. We immediately recognize in income any unamortized balances if the loan is repaid before its contractual maturity.

Subsequent to the acquisition date, we evaluate changes regarding the uncertainty of future cash flows and the need for a valuation allowance, as appropriate. We regularly evaluate the collectability of loans receivable based on factors such as corporate and facility-level financial and operational reports, compliance with financial covenants set forth in the applicable loan agreement, the financial strength of the borrower and any guarantors, the payment history of the borrower and current economic conditions. If our evaluation of these factors indicates it is probable that we will not be able to collect all amounts due under the terms of the applicable loan agreement, we provide a reserve against the portion of the receivable that we estimate may not be collected.

Centralized Cash Management

For periods prior to our separation from Ventas, we and our wholly owned subsidiaries had been subject to Ventas’s centralized cash management system. All payments were controlled and made by Ventas, resulting in intercompany transactions between us and Ventas that did not settle in cash. The net effect of these intercompany transactions is reflected in net contribution from or net distribution to parent on our combined consolidated statements of cash flows and combined consolidated statements of equity.

For periods prior to our separation from Ventas, the cash balances contained in our combined consolidated balance sheets relate to our joint venture entities that did not participate in the centralized cash management system. For periods subsequent to our separation from Ventas, we maintain our own centralized cash management system, in addition to the separate cash accounts associated with our joint venture entities.

Tenant Deposits

Tenant deposits consist of security deposits and amounts provided by our tenants for future real estate tax and insurance expenditures and tenant improvements related to our properties and their operations.

Fair Values of Financial Instruments

Fair value is a market-based measurement, not an entity-specific measurement, and we determine fair value based on the assumptions that we expect market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

are classified within levels one and two of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).

Level one inputs utilize unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. Level two inputs are inputs other than quoted prices included in level one that are directly or indirectly observable for the asset or liability. Level two inputs may include quoted prices for similar assets and liabilities in active markets and other inputs for the asset or liability that are observable at commonly quoted intervals, such as interest rates and yield curves. Level three inputs are unobservable inputs for the asset or liability, which typically are based on our own assumptions, because there is little, if any, related market activity. If the determination of the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. If the volume and level of market activity for an asset or liability has decreased significantly relative to the normal market activity for such asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that a transaction for an asset or liability is not orderly, little, if any, weight is placed on that transaction price as an indicator of fair value. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

We use the following methods and assumptions in estimating the fair value of our financial instruments.


•	Cash—The carrying amount of cash reported on our combined consolidated balance sheets approximates fair value.


•	Loans receivable—We estimate the fair value of loans receivable using level two and level three inputs: we discount future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings.

Revenue Recognition

Triple-Net Leased Properties

Certain of our triple-net leases provide for periodic and determinable increases in base rent. We recognize base rental revenues under these leases on a straight-line basis over the applicable lease term when collectability is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our combined consolidated balance sheets.

Our remaining leases provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term.

We recognize income from rent, lease termination fees and all other income when all of the following criteria are met in accordance with SEC Staff Accounting Bulletin 104: (i) the applicable agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) collectibility is reasonably assured.

Allowances

We assess our rent receivables, including straight-line rent receivables, to determine whether an allowance is appropriate. We base our assessment of rent receivables (other than straight-line rent receivables) on several factors, including, among other things, payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, if any, and current economic conditions, including government reimbursement. If our evaluation of these factors indicates it is probable that we may not be able to recover the full value of the receivable, we provide an allowance against the portion of the receivable that we estimate may not be recovered. We also base our assessment of straight-line rent receivables on several factors, including, among other things, the financial strength of the tenant and any guarantors, the historical operations and operating trends of the property, the historical payment pattern of the tenant and the type of property. If our evaluation of these factors indicates it is probable that we may not be able to receive the rent payments due in the future, we provide an allowance against the recognized straight-line rent receivable asset for the portion, up to its full value, that we estimate may not be recovered. If we change our assumptions or estimates regarding the collectibility of future rent payments required by a lease, we may adjust the allowance to increase or reduce the rental revenue recognized in the period we make such change in our assumptions or estimates.

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Loans

We recognize interest income from loans, including discounts and premiums, using the effective interest method when collectability is reasonably assured. We apply the effective interest method on a loan-by-loan basis and recognize discounts and premiums as yield adjustments over the related loan term. We recognize interest income on an impaired loan to the extent our estimate of the fair value of the collateral is sufficient to support the balance of the loan, other receivables and all related accrued interest. When the balance of the loan, other receivables and all related accrued interest is equal to or less than our estimate of the fair value of the collateral, we recognize interest income on a cash basis. We provide a reserve against an impaired loan to the extent our total investment in the loan exceeds our estimate of the fair value of the loan collateral.

Federal Income Tax

Ventas elected to be treated as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), for every year beginning with the year ended December 31, 1999. Accordingly, with respect to periods prior to our separation from Ventas, Ventas generally was not subject to federal income tax. We intend to elect to be treated as a REIT under the applicable provisions of the Code, beginning with the year ending December 31, 2015.

Segment Reporting

As of September 30, 2015 and December 31, 2014, we operated through a single reportable business segment: triple-net leased properties. We invest in SNFs and other healthcare properties throughout the United States and lease those properties to healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses.

Recently Issued or Adopted Relevant Accounting Standards

In 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In July 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which is now effective for us beginning January 1, 2018. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our combined consolidated financial statements, as substantially all of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU 2014-09.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting model including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for us beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our combined consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We elected to adopt this new guidance as of August 18, 2015. As a result, our term loans and other debt is presented net of $19.6 million of unamortized debt issuance costs.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to take advantage of the benefits of this extended transition period and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. This election is irrevocable.

Note 3—Triple-Net Lease Arrangements

As of September 30, 2015, Senior Care Centers, LLC (together with its subsidiaries, “SCC”) and Avamere Group, LLC (together with its subsidiaries, “Avamere”) operated approximately 19.0% and 9.6% respectively, of our real estate investments

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

based on gross book value. Our properties were located in 38 states as of September 30, 2015, with properties in one state (Texas) accounting for more than 10% of our total revenues for the three months then ended.

For the three months ended September 30, 2015 and 2014, approximately 13.2% and 1.5%, respectively, of our total revenues were derived from our lease agreements with SCC, and approximately 10.8% and 9.2%, respectively, of our total revenues were derived from our lease agreements with Avamere. Each of our leases with SCC and Avamere is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures.

If SCC or Avamere becomes unable or unwilling to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof, our financial condition and results of operations could decline. We cannot assure you that SCC or Avamere will have sufficient assets, income and access to financing to enable it to satisfy its respective obligations to us, and any failure, inability or unwillingness by SCC or Avamere to do so could have a material adverse effect on our business, financial condition, results of operations and liquidity. We also cannot assure you that SCC or Avamere will elect to renew its respective leases with us upon expiration of the leases or that we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic terms, if at all.

Our straight-line rent receivable balance was $0.5 million and $0.8 million, net of allowances of $81.0 million and $58.0 million, as of September 30, 2015 and December 31, 2014, respectively. We recognized charges for straight-line rent allowances within rental income, net in our combined consolidated statements of income of $5.9 million and $6.6 million for the three months ended September 30, 2015 and 2014, respectively, and $19.5 million and $15.7 million for the nine months ended September 30, 2015 and 2014, respectively.

In July 2015, one of our operators notified us of its intention to exercise its purchase options with respect to seven SNFs. We expect these transactions, if completed, to occur in 2016, although they remain subject to various closing conditions.

Note 4—Acquisitions and Dispositions of Real Estate Property

Acquisitions

On September 1, 2015, we completed the acquisition of eight properties (seven SNFs and one campus with both skilled nursing and assisted living facilities) and simultaneously entered into a long-term master lease with SCC to operate the acquired portfolio. We purchased the assets for approximately $190 million in cash and made a $20 million five-year, fully amortizing loan to SCC, resulting in a total transaction value of approximately $210 million. We funded this transaction through cash on hand and borrowings under our unsecured revolving credit facility and term loans (see “Note 8—Borrowing Arrangements”).

On August 14, 2015, we completed the acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock. This specialty valuation firm subsidiary represents our TRS. If the value of the common stock issued to the sellers based on the volume-weighted average price (“VWAP”) of the common stock over the 30 days immediately prior to the six-month anniversary of the closing of the acquisition is less than approximately $11.5 million, we have agreed to issue additional shares of common stock to the sellers such that the total value of all shares issued to the sellers, based on that VWAP, is equal to approximately $11.5 million, except that the number of additional shares issued after the closing of the acquisition shall not exceed the number of shares issued at the closing.

In January 2015, Ventas completed the acquisition of American Realty Capital Healthcare Trust, Inc. (“HCT”) in a stock and cash transaction, which included 14 SNFs, two specialty hospitals and four seniors housing properties that were transferred to us in connection with the separation. Also in January 2015, Ventas completed the acquisition of 12 SNFs for an aggregate purchase price of $234.9 million, all of which were transferred to us in connection with the separation.

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimated Fair Value

We are accounting for our 2015 acquisitions under the acquisition method in accordance with ASC 805. Our initial accounting for acquisitions completed during the nine months ended September 30, 2015 remains subject to further adjustment. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which we determined using level two and level three inputs (in thousands):



Land and improvements	$	38,119
Buildings and improvements	515,702
Acquired lease intangibles	14,299
Goodwill (1)	56,408
Other assets	8,027
Total assets acquired	632,555
Tenant deposits	8,801
Lease intangible liabilities	3,729
Accounts payable and other liabilities	1,468
Total liabilities assumed	13,998
Net assets acquired	$	618,557


(1)	As it relates to the HCT acquisition, goodwill was allocated to us on a relative fair value basis from total goodwill recognized by Ventas.

As it relates to the HCT acquisition, the estimated fair values of the assets acquired and liabilities assumed has changed and is subject to further adjustment from the amounts reported in ‘‘Note 4—Acquisitions of Real Estate Property’’ of the Notes to Combined Consolidated Financial Statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on September 9, 2015. Such changes are due primarily to reclassification adjustments for presentation and adjustments to our preliminary valuation assumptions that are based on more accurate information concerning the subject assets and liabilities.

Transaction Costs

As of September 30, 2015, we had incurred a cumulative total of $6.1 million of acquisition-related costs related to the acquisitions completed during the nine months ended September 30, 2015. All of these costs were expensed as incurred and included in merger-related expenses and deal costs in our combined consolidated statements of income for the applicable periods. For the nine months ended September 30, 2015 and 2014, we expensed $4.7 million and $0.8 million, respectively, of these acquisition-related costs related to the acquisitions completed during the nine months ended September 30, 2015. Transaction costs incurred by Ventas relating to the HCT acquisition were allocated to us based on relative property net operating income (“NOI”).

Aggregate Revenue and NOI

For the nine months ended September 30, 2015, aggregate revenues and NOI derived from our 2015 real estate acquisitions during our period of ownership were both $22.3 million. In May 2015, we amended certain terms of a master lease agreement, including contractual rents, with the operator of eleven acquired properties.

Unaudited Pro Forma

The following table illustrates the effect on revenues and net income attributable to CCP as if we had consummated the acquisitions completed during the nine months ended September 30, 2015 as of January 1, 2014.



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands)
Revenues	$	86,198	$	86,498	$	257,683	$	264,835
Net income attributable to CCP	37,736		38,834		108,257		138,603

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Acquisition-related costs related to our completed 2015 acquisitions are not expected to have a continuing impact and, therefore, have been excluded from these pro forma results. The pro forma results also do not include the impact of any synergies that may be achieved in the acquisitions, any reduction in our borrowing costs resulting from the acquisitions or any strategies that management may consider in order to continue to efficiently manage our operations, nor do they give pro forma effect to any other acquisitions or dispositions that we completed during the periods presented. These pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

Summary Specialty Valuation Firm Statement of Income

Below is a summary of the statement of income for the specialty valuation firm we acquired in August 2015 for the period from acquisition through September 30, 2015 (in thousands):



Revenues:
Real estate services fee income	$	763
Total revenues	763
Expenses:
Depreciation and amortization	94
General, administrative and professional fees	704
Total expenses	798
Loss before income taxes	(35		)
Income tax benefit	42
Net income	$	7

Dispositions

In August 2015, we sold one SNF for proceeds of $1.5 million and recognized a gain on the sale of $0.9 million. In June 2015, we sold one SNF at its carrying value, resulting in neither a gain nor a loss. During 2014, we sold one SNF for proceeds of $0.9 million.

Note 5—Loans Receivable

Below is a summary of our loans receivable as of September 30, 2015 and December 31, 2014.



	September 30, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
Secured loans receivable, net	$	5,253	$	5,164	$	5,249	$	5,174
Unsecured loans receivable, net	24,227		24,125		4,242		4,106

Secured loans receivable, net represents one loan that has a stated interest rate of 9.75%, matures in 2018 and is secured by one SNF located in Florida. Unsecured loans are reported within other assets on our balance sheet.

In September 2015, we made a $20 million five-year, fully amortizing loan to SCC. The loan bears interest at an annual rate of LIBOR plus 5%, which is subject to periodic increase over the term of the loan.

Fair value estimates as reflected in the table above are subjective in nature and based upon several important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts we would realize in a current market exchange.

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6—Intangibles

The following is a summary of our intangibles as of September 30, 2015 and December 31, 2014:



	September 30, 2015				December 31, 2014
	Balance			Remaining Weighted Average Amortization Period in Years	Balance			Remaining Weighted Average Amortization Period in Years
	(Dollars in thousands)
Intangible assets:
Above market lease intangibles	$	64,516		15.1	$	60,251		11.1
In-place lease intangibles	37,614			15.1	26,943			12.9
Tradename, technology and customer relationships	2,861			4.8	—			N/A
Accumulated amortization	(42,594		)	N/A	(35,221		)	N/A
Goodwill	146,017			N/A	88,959			N/A
Net intangible assets	$	208,414		15.1	$	140,932		11.7
Intangible liabilities:
Below market lease intangibles	$	195,253		19.2	$	198,170		15.2
Above market ground lease intangibles	1,907			53.8	—			—
Accumulated amortization	(71,158		)	N/A	(61,882		)	N/A
Purchase option intangibles	9,352			N/A	9,352			N/A
Net intangible liabilities	$	135,354		19.7	$	145,640		15.2

N/A—Not Applicable.

Above market lease intangibles and in-place lease intangibles are included in acquired lease intangibles within real estate investments on our combined consolidated balance sheets. Below market lease intangibles, above market ground lease intangibles and purchase option intangibles are included in lease intangible liabilities, net on our combined consolidated balance sheets. Tradename, technology and customer relationships are associated with our specialty valuation firm subsidiary and included in other assets on our combined consolidated balance sheets. For the nine months ended September 30, 2015 and 2014, our net amortization related to all of these intangibles was $4.5 million and $6.2 million, respectively. The estimated net amortization related to these intangibles for the remainder of 2015 and the subsequent four years is as follows: remainder of 2015 - $1.0 million; 2016 - $3.9 million; 2017 - $3.9 million; 2018 - $3.7 million; and 2019 - $3.5 million.

Note 7—Other Assets

The following is a summary of our other assets as of September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014
	(In thousands)
Straight-line rent receivables, net	$	541	$	766
Unsecured loans receivable, net	24,227		4,242
Deferred lease costs	9,183		9,970
Assets held for sale	11,229		5,229
Other, net	8,152		2,044
Total other assets	$	53,332	$	22,251

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8—Borrowing Arrangements

The following is a summary of our term loans and other debt as of September 30, 2015:



	September 30, 2015
	(In thousands)
Unsecured revolving credit facility	$	138,000
Unsecured term loan due 2017	600,000
Unsecured term loan due 2020	800,000
Total	1,538,000
Unamortized debt issuance costs	19,563
Term loans and other debt	$	1,518,437

On August 17, 2015, Care Capital Properties, LP, our wholly owned subsidiary (“Care Capital LP”), as borrower, and CCP, Care Capital Properties GP, LLC and certain subsidiaries of Care Capital LP, as guarantors, entered into a Credit Agreement, comprised of a $600 million Revolver, a $600 million Term Loan and an $800 million Term Loan. The Revolver has an initial term of four years, but may be extended, at Care Capital LP’s option subject to compliance with the terms of the Credit Agreement and payment of a customary fee, for two additional six-month periods. The $600 million and $800 million Term Loans mature in August 2017 and August 2020, respectively. The Credit Agreement also includes an accordion feature that permits Care Capital LP to increase the aggregate borrowing capacity under the Facility to $2.5 billion. We consider the carrying value of our term loans and other debt to be consistent with fair market value.

Borrowings under the Facility bear interest at a fluctuating rate per annum equal to LIBOR plus an applicable margin based on Care Capital LP’s unsecured long-term debt ratings. At September 30, 2015, the applicable margin was 1.30% for Revolver borrowings and 1.50% for Term Loan borrowings, and we had approximately $462 million of unused borrowing capacity available under the Revolver.

In September 2015, subsidiaries of Care Capital LP were released as guarantors under the Credit Agreement.

Note 9—Income Taxes

Ventas elected to be treated as REIT under the Code, for every year beginning with the year ended December 31, 1999. Accordingly, with respect to periods prior to our separation from Ventas, Ventas generally was not subject to federal income tax.

We intend to elect to be treated as a REIT under the Code, beginning with the taxable year ending December 31, 2015. So long as we qualify as a REIT under the Code, we generally will not be subject to federal income tax. We test our compliance with the REIT rules on a quarterly and annual basis to ensure that we are in compliance. We also review our distributions and project distributions each year to ensure we have met and will continue to meet the annual REIT distribution requirements. However, as a result of our structure, we may be subject to income or franchise taxes in certain states and municipalities.

Although the TRS will be required to pay minimal federal income taxes for the three months ended September 30, 2015, its federal income tax liability may increase in future periods.

Our consolidated provision for income taxes for the three and nine months ended September 30, 2015 was an expense of $1.0 million.

Our net deferred tax liabilities totaled $2.3 million as of September 30, 2015 and primarily reflect differences between the financial reporting and tax bases of fixed and intangible assets.

Note 10—Stock-Based Compensation

Certain of our employees participated in stock-based compensation plans administered by Ventas. In connection with the spin-off, outstanding Ventas equity awards held by our employees were converted into awards with respect to CCP common stock. As a result of the conversion mechanics, the fair value of the converted awards exceeded the fair value of the Ventas

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NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

awards from which they were converted by $1.0 million, of which $0.5 million related to vested, but unexercised options. For the three months ended September 30, 2015, we recognized $0.5 million of expense associated with these vested, converted awards. The remaining $0.5 million will be amortized as stock-based compensation over the respective vesting terms of the converted awards.

In August 2015, we adopted the Care Capital Properties, Inc. 2015 Incentive Plan (the “Plan”), pursuant to which options to purchase common stock, shares of restricted stock or restricted stock units and other equity awards may be granted to our employees, directors and consultants. A total of 7,000,000 shares of our common stock was reserved initially for issuance under the Plan. During the three months ended September 30, 2015, we granted 173,126 shares of restricted stock to employees and directors under the Plan having a value of $5.6 million. These shares generally vest on the third anniversary of the date of grant or in three equal annual installments beginning on the first anniversary of the date of grant.

Note 11—Earnings Per Share

Basic and diluted earnings per share for the periods prior to our separation from Ventas were retroactively restated for the number of basic and diluted shares outstanding immediately following the separation. The following table shows the amounts used in computing our basic and diluted earnings per common share:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands, except per share amounts)
Numerator for basic and diluted earnings per share:
Net income attributable to CCP	$	36,166	$	33,202	$	111,370	$	120,174
Denominator:
Denominator for basic earnings per share—weighted average shares	83,488		83,488		83,488		83,488
Effect of dilutive securities:
Stock options	70		—		70		—
Denominator for diluted earnings per share—adjusted weighted average shares	83,558		83,488		83,558		83,488
Basic earnings per share:
Net income attributable to CCP	$	0.43	$	0.40	$	1.33	$	1.44
Diluted earnings per share:
Net income attributable to CCP	$	0.43	$	0.40	$	1.33	$	1.44

Note 12—Stockholders’ Equity

Equity

On August 14, 2015, we completed the acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock. If the value of the common stock issued to the sellers based on the VWAP of the common stock over the 30 days immediately prior to the six-month anniversary of the closing of the acquisition is less than approximately $11.5 million, we have agreed to issue additional shares of common stock to the sellers such that the total value of all shares issued to the sellers, based on that VWAP, is equal to approximately $11.5 million, except that the number of additional shares issued after the closing of the acquisition shall not exceed the number of shares issued at the closing.

Dividends

On September 30, 2015, we paid a full third quarter cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of September 14, 2015.

CARE CAPITAL PROPERTIES, INC. AND PREDECESSORS

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13—Litigation

We are involved from time to time in various legal proceedings that arise in the ordinary course of our business, including, but not limited to commercial disputes, environmental matters, and litigation in connection with transactions including acquisitions and divestitures. We believe that such litigation, claims and administrative proceedings will not have a material adverse impact on our financial position or our results of operations. We record a liability when a loss is considered probable and the amount can be reasonably estimated.

Our tenants and, in some cases, their affiliates may be required by the terms of their leases and other agreements with us to indemnify, defend and hold us harmless against certain actions, investigations and claims arising in the ordinary course of their business and related to the operations of our properties. In addition, third parties from whom we acquired certain of our assets and, in some cases, their affiliates may be required by the terms of the related conveyance documents to indemnify, defend and hold us harmless against certain actions, investigations and claims related to the acquired assets and arising prior to our ownership or related to excluded assets and liabilities. In some cases, a portion of the purchase price consideration is held in escrow for a specified period of time as collateral for these indemnification obligations. We cannot provide any assurance that our tenants, their affiliates or other obligated third parties will defend us in any such matters, that our tenants, their affiliates or other obligated third parties will have sufficient assets, income and access to financing to enable them to satisfy their defense and indemnification obligations to us or that any purchase price consideration held in escrow will be sufficient to satisfy claims for which we are entitled to indemnification.

Note 14—Subsequent Events

Subsequent to September 30, 2015, we sold two SNFs, which were classified as held for sale, for aggregate net proceeds of $1.3 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements regarding our or our tenants’ or borrowers’ expected future financial condition or performance, dividends or dividend plans, business strategies, acquisitions or other investment opportunities, dispositions, continued qualification as a real estate investment trust (“REIT”), and plans and objectives of management for future operations, and statements that include words such as “believe,” “expect,” “anticipate,” “intend,” “may,” “could,” “should,” “will,” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from our expectations. We do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

Our actual future results and trends may differ materially from expectations depending on a variety of factors discussed under the heading “Risk Factors” in the Information Statement dated July 31, 2015, included as Exhibit 99.1 to our Current Report on Form 8-K, furnished to the Securities and Exchange Commission (the “SEC”) on August 5, 2015 (the “Information Statement”), and our other filings with the SEC. These factors include without limitation:


•	the ability and willingness of our tenants, borrowers and other third parties to satisfy their obligations under their respective contractual arrangements with us, including, in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;


•	the ability of our tenants and borrowers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness;


•	our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate acquisitions and investments;


•	macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates;


•	the nature and extent of future competition, including new construction in the markets in which our properties are located;


•	the extent of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates;


•	increases in our borrowing costs related to future indebtedness as a result of changes in interest rates and other factors;


•	the ability of our tenants to comply with laws, rules and regulations in the operation of our properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients;


•	changes in general economic conditions or economic conditions in the markets in which we may, from time to time, compete, and the effect of those changes on our revenues, earnings and funding sources;


•	our ability to pay down, refinance, restructure or extend future indebtedness as it becomes due;


•	our ability and willingness to maintain our qualification as a REIT in light of economic, market, legal, tax and other considerations;


•	final determination of our taxable net income for the year ending December 31, 2015;


•	the ability and willingness of our tenants to renew their leases with us upon expiration of the leases, our ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant;


•	year-over-year changes in the Consumer Price Index (“CPI”) and the effect of those changes on the rent escalators contained in our leases and on our earnings;


•	our ability and the ability of our tenants and borrowers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers;


•	the impact of increased operating costs and uninsured professional liability claims on our liquidity, financial condition and results of operations or that of our tenants or borrowers and our ability and the ability of our tenants and borrowers to accurately estimate the magnitude of those claims;


•	consolidation in the healthcare industry resulting in a change of control of, or a competitor’s investment in, one or more of our tenants or borrowers or significant changes in the senior management of our tenants or borrowers;


•	the impact of litigation or any financial, accounting, legal or regulatory issues that may affect us or our tenants or borrowers; and


•	changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on our earnings.

Many of these factors are beyond our control and the control of our management.

Company Overview

Care Capital Properties, Inc. (together with its subsidiaries, unless otherwise indicated or except where the context otherwise requires, “CCP,” “we,” “us” or ‘our”) is a recently formed Delaware corporation that was created to hold the post-acute/skilled nursing facility (“SNF”) portfolio of Ventas, Inc. (“Ventas”) and its subsidiaries operated by regional and local care providers (the “CCP Business”).

In August 2015, we entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with a syndicate of banks that provides for a $600 million unsecured revolving credit facility (the “Revolver”), a $600 million unsecured term loan and an $800 million unsecured term loan (collectively, the “Term Loans” and together with the Revolver, the “Facility”). Pursuant to the separation and distribution agreement, we transferred approximately $1.3 billion of the proceeds from borrowings under the Term Loans to Ventas.

At the time of the separation and distribution, we had not conducted any business as a separate company and had no material assets or liabilities. We intend to elect to be treated as a REIT, and, therefore, subsequent to the distribution, we are operating in a manner consistent with a REIT with a diversified portfolio of SNFs and other healthcare properties located throughout the United States. The operations of the CCP Business transferred to us by Ventas are presented herein as if the transferred business was our business for all historical periods described and at the carrying value of such assets and liabilities reflected in Ventas’s books and records.

For periods prior to our separation from Ventas, the combined consolidated financial statements have been prepared on a standalone basis and are derived from Ventas’s consolidated financial statements and accounting records and reflect our financial position, results of operations and cash flows as the CCP Business was operated as part of Ventas prior to the distribution, in conformity with U.S. generally accepted accounting principles (“GAAP”). For periods subsequent to our separation from Ventas, the combined consolidated financial statements reflect our financial position, results of operations and cash flows in conformity with GAAP.

The following discussion provides information that management believes is relevant to an understanding and assessment of our combined consolidated financial condition and results of operations. You should read this discussion in conjunction with our combined consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview and Operating Environment

We have a diversified portfolio of SNFs and other healthcare properties operated by private and regional care providers and located throughout the United States. As of September 30, 2015, this portfolio included 100% ownership interests in 356 properties (including 12 properties that were classified as held for sale) and controlling joint venture interests in six properties.

We operate through one reportable business segment: triple-net leased properties. We primarily generate our revenues by leasing our properties to third-party operators under triple-net leases, pursuant to which the tenants are obligated to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. In addition, we originate and manage a small portfolio of secured and unsecured loans made primarily to SNF operators or secured by SNF assets.

2015 Highlights and Recent Developments

•


•	In August 2015, we completed our previously disclosed acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock, subject to a potential post-closing issuance of additional shares.

•

Also in August 2015, we entered into the Credit Agreement, comprised of a $600 million Revolver, a $600 million Term Loan and an $800 million Term Loan. See “Liquidity and Capital Resources—Unsecured Revolving Credit Facility and Term Loans.” Pursuant to the separation and distribution agreement with Ventas, we transferred approximately $1.3 billion of the proceeds from borrowings under the Term Loans to Ventas.


•	On August 17, 2015, Ventas completed its spin-off of the CCP Business by distributing one share of our common stock for every four shares of Ventas common stock held as of the close of business on August 10, 2015. As a result, we began operating as an independent public company and our common stock commenced trading on the New York Stock Exchange under the symbol “CCP” as of August 18, 2015.


•	In August 2015, we sold one SNF for proceeds of $1.5 million.

•

On September 1, 2015, we completed the acquisition of eight properties (seven SNFs and one campus with both skilled nursing and assisted living facilities) and simultaneously entered into a long-term master lease with Senior Care Centers, LLC (“SCC”) to operate the acquired portfolio. We purchased the assets for approximately $190 million in cash and made a $20 million five-year, fully amortizing loan to SCC, resulting in a total transaction value of approximately $210 million.


•	On September 30, 2015, we paid a full third quarter cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of September 14, 2015.


•	Subsequent to September 30, 2015, we sold two SNFs, which were classified as held for sale, for aggregate net proceeds of $1.3 million.

Recent Developments Regarding Government Regulation

On July 16, 2015, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule that would revise the requirements that long-term care facilities, including long-term acute care hospitals and SNFs, must meet to participate in the Medicare and Medicaid programs. The proposed rule outlines new quality and ethics requirements for facilities participating in Medicare and Medicaid, including, among other things, requirements for training staff, comprehensive person-centered care planning and the addition of behavioral health requirements. If the provisions in the proposed rule are finalized, they would require SNFs to: allow residents to choose their own roommates; offer visitation periods; limit bedrooms to no more than two residents; include a toilet, sink and shower in each room; and accommodate residents’ food allergies and religious and cultural preferences. This is a proposed rule and is not final. We are currently analyzing the financial implications of this proposed rule on our operators. The comment period has been extended until October 14, 2015, and we cannot assure you that the final rule issued by CMS will not materially adversely affect our operators, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and liquidity (a “Material Adverse Effect”).

Medicare Reimbursement: SNFs

On August 4, 2015, CMS published its final rule updating the prospective payment system for SNFs (“SNF PPS”) for the 2016 fiscal year (October 1, 2015 through September 30, 2016). Under the final rule, the SNF PPS standard federal payment rate would increase by 1.2% in fiscal year 2016, reflecting a 2.3% increase in the market basket index, less a 0.5% productivity adjustment and a 0.6% forecast error adjustment mandated by the Affordable Care Act. CMS estimates that net payments to SNFs as a result of the final rule will increase by approximately $430 million in fiscal year 2016. On October 5, 2015, CMS published a correction to the final rule correcting the calculations of certain wage rates in selected areas for SNFs and typographical errors. The overall rate increase of 1.2% remains unchanged.

We regularly assess the financial implications of CMS’s rules and other federal legislation on the operators of our SNFs, but we cannot assure you that current rules or future updates to SNF PPS or Medicare reimbursement for SNFs will not materially adversely affect our operators, which, in turn, could have a Material Adverse Effect on us.

State Medicaid Reimbursement: Texas

In August 2015, CMS and the Texas Health and Human Services Commission (“THHC”) began a three-year federal/state partnership to better serve individuals eligible for both Medicare and Medicaid (“Dual Eligible”). THHC entered into agreements with several Medicaid-Medicare Plans (“MMPs”) with the following goals: minimize cost sharing; align incentives; streamline the process for providers; and improve the quality of care. The program, which commenced in August 2015, covers dual eligible individuals located in six of Texas’ most populous counties, and two to three MMPs are assigned to each county. Eligible individuals will be passively enrolled and assigned to an MMP, unless they opt out.

Notably, under the terms of the agreements with the MMPs, skilled nursing services may be provided without a preceding stay in an acute care hospital as long as the stay was authorized by the MMP prior to the stay and the care is clinically appropriate. In addition, patients can be moved from Medicaid to Medicare without sending the patient to an acute care hospital. Potential risks of this program, however, are disruptions in reimbursement payments, complex billing procedures, greater negotiation of service rates that currently mirror resource utilization group (“RUGs”) levels and reduced length of stays for skilled nursing services over time.

While we regularly assess the ability of our operators in Texas and elsewhere to be able to operate profitably under these new rules, we cannot assure you that the current rules or future changes to state Medicaid programs will not materially adversely affect our operators in Texas, which, in turn, could have a Material Adverse Effect on us.

Critical Accounting Policies and Estimates

Our historical combined consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”). GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. We believe that the critical accounting policies described below, among others, affect our more significant estimates and judgments used in the preparation of our financial statements. For more information regarding our critical accounting policies, see “Note 2—Accounting Policies” of the Notes to Combined Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Principles of Combination and Consolidation and Basis of Presentation

For periods prior to our separation from Ventas, the combined consolidated financial statements include the attribution of certain asset and liabilities that were historically held at the Ventas corporate level, but which were specifically identifiable or attributable to us. All transactions between us and Ventas were considered to be effectively settled in the combined consolidated financial statements at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected as net contribution from or distibution to parent in the combined consolidated statements of cash flows as a financing activity and in the combined consolidated balance sheets as net parent investment. No other related party transactions or relationships are reflected in the combined consolidated financial statements.

Impairment of Long-Lived and Intangible Assets and Goodwill

asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period.

We test goodwill for impairment at least annually, and more frequently if indicators arise. We first assess qualitative factors, such as current macroeconomic conditions, state of the equity and capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of the reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we proceed with the two-step approach to evaluating impairment. First, we estimate the fair value of the reporting unit and compare it to the reporting unit’s carrying value. If the carrying value exceeds fair value, we proceed with the second step, which requires us to assign the fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied value of goodwill and is used to determine the amount of impairment. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.

Estimates of fair value used in our evaluation of goodwill, investments in real estate and intangible assets are based upon discounted future cash flow projections or other acceptable valuation techniques that are based, in turn, upon level three inputs in the fair value hierarchy, such as revenue and expense growth rates, capitalization rates, discount rates or other available market data. Our ability to accurately predict future operating results and cash flows and to estimate and allocate fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.

Revenue Recognition

Triple-Net Leased Properties

Certain of our triple-net leases provide for periodic and determinable increases in base rent. We recognize base rental revenues under these leases on a straight-line basis over the applicable lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our combined consolidated balance sheets.

Allowances

Loans

We recognize interest income from loans, including discounts and premiums, using the effective interest method when collectibility is reasonably assured. We apply the effective interest method on a loan-by-loan basis and recognize discounts and premiums as yield adjustments over the related loan term. We recognize interest income on an impaired loan to the extent our estimate of the fair value of the collateral is sufficient to support the balance of the loan, other receivables and all related

accrued interest. When the balance of the loan, other receivables and all related accrued interest is equal to or less than our estimate of the fair value of the collateral, we recognize interest income on a cash basis. We provide a reserve against an impaired loan to the extent our total investment in the loan exceeds our estimate of the fair value of the loan collateral.

Federal Income Tax

Ventas elected to be treated as a REIT under the applicable provisions of Code for every year beginning with the year ended December 31, 1999. Accordingly, with respect to periods prior to our separation from Ventas, Ventas generally was not subject to federal income tax. We intend to elect to be treated as a REIT under the applicable provisions of the Code, beginning with the year ending December 31, 2015.

Recently Issued or Adopted Relevant Accounting Standards

In 2014, the FASB also issued ASU No. 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In July 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which is now effective for us beginning January 1, 2018. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our combined consolidated financial statements, as substantially all of our revenue consists of rental income from leasing arrangements, which are specifically excluded from ASU 2014-09.

In 2015, the FASB ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting model including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for us beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our combined consolidated financial statements.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to take advantage of the benefits of this extended transition period and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. This election is irrevocable.

Components of Revenues and Expenses Following the Spin-Off

Rental Income, Net

Following the separation and distribution, our revenues are primarily attributable to rental income earned in connection with the leasing of our SNFs and other healthcare properties to third-party operators pursuant to triple-net leases. We generally do not expect to incur direct operating expenses in connection with these triple-net leases, as they obligate the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. However, from time to time, we may enter into agreements with our tenants to pay certain capital expenditures.

Our revenues generally consist of fixed rental amounts (subject to annual contractual escalations) received from our tenants in accordance with the applicable lease terms and do not vary based on the underlying operating performance of the properties. Therefore, while occupancy rates may affect the profitability of our tenants’ operations, they do not have a direct impact on our revenues or financial results.

The following table sets forth average continuing occupancy rates related to the properties we owned at September 30, 2015 for the second quarter of 2015 (which is the most recent information available to us from our tenants).



	Number of Properties Owned at September 30, 2015 (1)	Average Occupancy For the Three Months Ended June 30, 2015 (1)
SNFs	312	77.9	%
Specialty hospitals and healthcare assets	16	84.3
Seniors housing and campus(2)	14	80.3


(1)	Excludes properties classified as held for sale as of September 30, 2015 and certain properties for which we do not receive occupancy information.


(2)	Campus is defined as multi-level properties.

The occupancy data included in the table above has been obtained from third-party operators who may perform such computations using different methodologies and/or on an inconsistent basis from period to period. Furthermore, the occupancy data in the table above is based on licensed beds, which may be different from beds in operation at any point in time, and therefore generally lower. While we have no reason to believe that the information we receive from our operators is inaccurate in any material respect, we cannot and do not verify this information either through an independent investigation or otherwise.

Real Estate Services Fee Income

Our real estate services fee income is derived from the operations of our specialty valuation firm subsidiary and represents revenue resulting from the provision of services such as appraisal reports, preliminary market studies, market studies, self-contained appraisal reports for in-court tax appeals and in-court expert testimonials.

Interest Expense

Commencing August 17, 2015, we incur interest expense in connection with borrowings under our Credit Agreement and amortize debt issuance costs related to our indebtedness. Borrowings under the Facility bear interest at a fluctuating rate per annum equal to LIBOR plus an applicable margin based on our leverage or, if applicable, unsecured long-term debt ratings. At closing of the Facility, borrowings were based on our leverage and the applicable margin was 1.70% for Revolver borrowings and 1.60% for Term Loan borrowings. As of September 30, 2015, borrowings were based on our unsecured long-term debt ratings and the applicable margin was 1.30% for Revolver borrowings and 1.50% for Term Loan borrowings. Interest expense is inclusive of our interest costs, as well as amortization of our debt issuance costs.

General, Administrative and Professional Fees

For periods prior to our separation from Ventas, the combined consolidated financial statements included herein reflect our operating results and financial position as we were operated by Ventas, rather than as an independent company. We expect to incur additional expenses to operate as an independent company, including costs for various corporate headquarters functions and incremental costs to operate a standalone support services infrastructure.

In connection with the separation and distribution, we entered into a transition services agreement with Ventas pursuant to which Ventas has agreed to provide certain corporate support services for us on a transitional basis until August 31, 2016, for a fee of $2.5 million, payable in four quarterly installments. The services being provided under the transition services agreement are services that we have historically received from Ventas and will allow us to operate independently prior to establishing a standalone support services infrastructure.

Commencing August 18, 2015, our general administrative and professional fee expenses are direct expenses attributable to our operations. These expenses also include costs incurred under the transition services agreement with Ventas and the general, administrative and professional fee expenses incurred by our specialty valuation firm subsidiary. During the transition period, we expect to incur non-recurring expenses to expand our infrastructure, some of which may be redundant with costs incurred under the transition services agreement with Ventas.

Results of Historical Operations

Three Months Ended September 30, 2015 and 2014

The table below shows our results of operations for the three months ended September 30, 2015 and 2014 and the effect of changes in those results from period to period on our net income attributable to CCP.



	For the Three Months Ended September 30,						Increase (Decrease) to Net Income
	2015			2014			$			%
	(Dollars in thousands)
Revenues:
Rental income, net	$	80,595		$	72,421		$	8,174		11.3	%
Income from investments in direct financing leases and loans	955			856			99			11.6
Real estate services fee income	763			—			763			nm
Interest and other income	4			1			3			nm
Total revenues	82,317			73,278			9,039			12.3
Expenses:
Interest	4,090			—			(4,090		)	nm
Depreciation and amortization	31,502			27,880			(3,622		)	(13.0	)
General, administrative and professional fees	9,216			5,712			(3,504		)	(61.3	)
Merger-related expenses and deal costs	991			561			(430		)	(76.6	)
Other	158			5,815			5,657			97.3
Total expenses	45,957			39,968			(5,989		)	(15.0	)
Income before income taxes, real estate dispositions and noncontrolling interests	36,360			33,310			3,050			9.2
Income tax expense	(1,024		)	—			(1,024		)	nm
Gain (loss) on real estate dispositions	856			(61		)	917			nm
Net income	36,192			33,249			2,943			8.9
Net income attributable to noncontrolling interests	26			47			21			44.7
Net income attributable to CCP	$	36,166		$	33,202		2,964			8.9

nm - not meaningful

Rental Income, Net

Rental income increased during the three months ended September 30, 2015 over the prior year primarily due to rent attributable to properties acquired by Ventas in January 2015 that were transferred to us as part of the separation, rent atributable to our September 1, 2015 acquisition of eight properties and contractual rent escalations pursuant to the terms of our existing leases, partially offset by the re-establishment of market rent levels for certain properties that we re-leased to new operators during 2014 and 2015 as a result of the re-leasing and rent reallocation process described below.

The following table compares results of continuing operations for our 317 same-store properties. Throughout this discussion, “same-store” refers to properties that we owned for the full period in both comparison periods.



	For the Three Months Ended September 30,				Increase (Decrease) to Rental Income, Net
	2015		2014		$			%
	(Dollars in thousands)
Rental income	$	71,184	$	72,506	$	(1,322	)	(1.8	)%

Same-store rental income decreased during the three months ended September 30, 2015 over the prior year primarily as a result of the proactive process undertaken to re-lease to new operators certain properties whose leases with the former operator were scheduled to expire in 2014, partially offset by contractual rent escalations pursuant to the terms of our existing leases.

This re-leasing process was the result of a negotiated transaction that occurred upon a renewal transaction executed by Ventas. The process reflects a reallocation of rents, which resulted in rental increases for several properties that were retained by Ventas and rental decreases for a sizeable number of properties that were transferred to us. In the course of the re-leasing process, we acquired a significant number of new tenant relationships and effectively re-established market rental levels for the transitioned properties based on the expected future cash flows at those properties. Excluding these re-leased assets, same-store rental income increased in 2015.

Real Estate Services Fee Income

This item represents the real estate services fee income associated with the operations of the specialty valuation firm we acquired in August 2015.

Interest

This item represents the interest expense and amortization of debt issuance costs incurred in connection with borrowings under our Credit Agreement.

Depreciation and Amortization

Depreciation and amortization expense increased during the three months ended September 30, 2015 compared to the same period in 2014 primarily due to the properties acquired during 2015. In addition, we recognized a $3.8 million impairment on real estate assets during the three months ended September 30, 2015, compared to $4.3 million during the same period in 2014.

General, Administrative and Professional Fees

General, administrative and professional fees for the three months ended September 30, 2014 and the period from July 1, 2015 through August 17, 2015 represent an allocation of expenses related to certain Ventas corporate functions, including executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and investor relations. Commencing August 18, 2015, our general and administrative and professional fee expenses are direct expenses attributable to our operations, including expenses incurred by our specialty valuation firm subsidiary in the amount of $0.7 million. The period subsequent to our separation from Ventas also includes one-time costs of $0.3 million associated with debt rating agency fees, $0.5 million of stock-based compensation expense associated with the one-time conversion of outstanding Ventas equity awards to awards in respect of our common stock, and $0.3 million of expenses under the transition services agreement with Ventas.

Merger-Related Expenses and Deal Costs

Merger-related expenses and deal costs for both periods consist of transition, integration, deal and severance-related expenses primarily related to consummated transactions. The increase for the three months ended September 30, 2015 over the prior year is primarily due to costs incurred in connection with our September 1, 2015 acquisition of eight properties.

Other

Other consists primarily of certain unreimbursable expenses related to our triple-net leased portfolio.

Gain on Real Estate Dispositions

This item represents the gain on the sale of one SNF in August 2015.

Nine Months Ended September 30, 2015 and 2014

The table below shows our results of operations for the nine months ended September 30, 2015 and 2014 and the effect of changes in those results from period to period on our net income attributable to CCP.



	For the Nine Months Ended September 30,						Increase (Decrease) to Net Income
	2015			2014			$			%
	(Dollars in thousands)
Revenues:
Rental income, net	$	237,100		$	221,849		$	15,251		6.9	%
Income from investments in direct financing leases and loans	2,680			2,542			138			5.4
Real estate services fee income	763			—			763			nm
Interest and other income	67			2			65			nm
Total revenues	240,610			224,393			16,217			7.2
Expenses:
Interest	4,075			—			(4,075		)	nm
Depreciation and amortization	97,336			77,492			(19,844		)	(25.6	)
General, administrative and professional fees	21,499			18,314			(3,185		)	(17.4	)
Merger-related expenses and deal costs	4,746			964			(3,782		)	nm
Other	1,278			7,251			5,973			82.4
Total expenses	128,934			104,021			(24,913		)	(23.9	)
Income before income taxes, real estate dispositions and noncontrolling interests	111,676			120,372			(8,696		)	(7.2	)
Income tax expense	(1,024		)	—			(1,024		)	nm
Gain (loss) on real estate dispositions	856			(61		)	917			nm
Net income	111,508			120,311			(8,803		)	(7.3	)
Net income attributable to noncontrolling interests	138			137			(1		)	(0.7	)
Net income attributable to CCP	$	111,370		$	120,174		(8,804		)	(7.3	)

nm - not meaningful

Rental Income, Net

Rental income increased during the nine months ended September 30, 2015 over the prior year primarily due to rent attributable to properties acquired by Ventas in January 2015 that were transferred to us as part of the separation, rent attributable to our September 1, 2015 acquisition of eight properties and contractual rent escalations pursuant to the terms of our existing leases, partially offset by the re-establishment of market rent levels for certain properties that we re-leased to new operators during 2014 and 2015 as a result of the re-leasing and rent reallocation process described above.

The following table compares results of continuing operations for our 317 same-store properties.



	For the Nine Months Ended September 30,				Increase (Decrease) to Rental Income, Net
	2015		2014		$			%
	(Dollars in thousands)
Rental income	$	212,567	$	222,854	$	(10,287	)	(4.6	)%

Same-store rental income decreased during the nine months ended September 30, 2015 over the prior year primarily as a result of the re-leasing and rent reallocation process described above, partially offset by contractual rent escalations pursuant to the terms of our existing leases.

Real Estate Services Fee Income

This item represents the real estate services fee income associated with the operations of our specialty valuation firm.

Interest

This item represents the interest expense and amortization of debt issuance costs incurred in connection with borrowings under our Credit Agreement.

Depreciation and Amortization

Depreciation and amortization expense increased during the nine months ended September 30, 2015 compared to the same period in 2014 primarily due to the properties acquired during 2015. In addition, we recognized $16.7 million of impairments on real estate assets during the nine months ended September 30, 2015, compared to $8.8 million during the same period in 2014.

General, Administrative and Professional Fees

General, administrative and professional fees for the nine months ended September 30, 2014 and the period from July 1, 2015 through August 17, 2015 represent an allocation of expenses related to certain Ventas corporate functions, including executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and investor relations. Commencing August 18, 2015, our general and administrative and professional fee expenses are direct expenses attributable to our operations, including expenses incurred by our specialty valuation firm subsidiary in the amount of $0.7 million. The period subsequent to our separation from Ventas also includes one-time costs of $0.3 million associated with debt rating agency fees, $0.5 million of stock-based compensation expense associated with the one-time conversion of outstanding Ventas equity awards to awards in respect of our common stock, and $0.3 million of expenses under the transition services agreement with Ventas.

Merger-Related Expenses and Deal Costs

Merger-related expenses and deal costs for both periods consist of transition, integration, deal and severance-related expenses primarily related to consummated transactions. The increase for the nine months ended September 30, 2015 over the prior year is primarily due to costs allocated to us in connection with the HCT acquisition and costs incurred in connection with our September 1, 2015 acquisition of eight properties.

Other

Other consists primarily of certain unreimbursable expenses related to our triple-net leased portfolio.

Gain on Real Estate Dispositions

This item primarily represents the gain on the sale of one SNF in August 2015.

Non-GAAP Financial Measures

We believe that net income, as defined by GAAP, is the most appropriate earnings measurement. However, we consider certain non-GAAP financial measures to be useful supplemental measures of our operating performance. A non-GAAP financial measure is a measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are not excluded from or included in the most directly comparable measure calculated and presented in accordance with GAAP. Described below are the non-GAAP financial measures used by management to evaluate our operating performance and that we consider most useful to investors, together with reconciliations of these measures to the most directly comparable GAAP measures.

The non-GAAP financial measures we present herein may not be comparable to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. You should not consider these measures as alternatives to net income (determined in accordance with GAAP) as indicators of our financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of our liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. In order to facilitate a clear understanding of our combined consolidated historical operating results, you should examine these measures in conjunction with net income as presented in our combined consolidated financial statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.

Funds From Operations, Normalized Funds From Operations and Normalized Funds Available for Distribution

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient

by themselves. For that reason, we consider Funds From Operations (“FFO”), normalized FFO and Normalized Funds Available for Distribution (“FAD”) to be appropriate measures of operating performance of an equity REIT. In particular, we believe that normalized FFO is useful because it allows investors, analysts and our management to compare our operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by unanticipated items and other events such as transactions.

We use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO. NAREIT defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of real estate property and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for joint ventures. Adjustments for joint ventures will be calculated to reflect FFO on the same basis. We define normalized FFO as FFO excluding income taxes, stock-based compensation expense associated with the spin-related conversion of awards, transition services fee expense, merger-related expenses and deal costs, initial debt rating agency costs and amortization of other intangibles (which may be recurring in nature). Normalized FAD represents normalized FFO excluding amortization of above and below market lease intangibles, accretion of direct financing lease, other amortization, straight-line rental adjustments, non-revenue enhancing capital expenditures and stock-based compensation, but including merger-related expenses and deal costs.

The following table summarizes our FFO, normalized FFO and normalized FAD for the periods presented:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
	(In thousands)
Net income attributable to CCP	$	36,166		$	33,202		$	111,370		$	120,174
Adjustments:
Real estate depreciation and amortization	31,367			27,775			97,015			77,183
Real estate depreciation related to noncontrolling interests	(68		)	(107		)	(202		)	(321		)
(Gain) loss on real estate dispositions	(856		)	61			(856		)	61
FFO attributable to CCP	66,609			60,931			207,327			197,097
Adjustments:
Income tax expense	1,024			—			1,024			—
Stock-based compensation expense associated with spin-related conversion of awards	542			—			542			—
Transition services fee expense	293			—			293			—
Merger-related expenses and deal costs	991			561			4,746			964
Initial debt rating agency costs	477			—			477			—
Amortization of other intangibles	89			—			89			—
Normalized FFO attributable to CCP	70,025			61,492			214,498			198,061
Non-cash items included in Normalized FFO:
Amortization of above and below market and lease intangibles, net	(2,164		)	(2,679		)	(6,835		)	(8,770		)
Accretion of direct financing lease	(345		)	(297		)	(996		)	(890		)
Other amortization	(35		)	(26		)	(102		)	118
Straight-lining of rental income, net	(46		)	(56		)	(125		)	(242		)
Other adjustments:
Capital expenditures (1)	(5,368		)	(2,055		)	(13,653		)	(5,616		)
Stock-based compensation	1,799			—			1,799			—
Merger-related expenses and deal costs	(991		)	(561		)	(4,746		)	(964		)
Normalized FAD attributable to CCP	$	62,875		$	55,818		$	189,840		$	181,697


(1)	Capital expenditures for the three and nine months ended September 30, 2015 include amounts related to properties that transitioned operators during 2014 and 2015 and, as a result, were significantly higher than historical levels.

Adjusted EBITDA

We consider Adjusted EBITDA an important supplemental measure to net income because it provides an additional manner in which to evaluate our operating performance. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, excluding stock-based compensation, merger-related expenses and deal costs, gains (or losses) from sales of real estate property, transition services fee expense and initial debt rating agency costs. The following table sets forth a reconciliation of our Adjusted EBITDA to net income for the periods presented:



	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2015			2014		2015			2014
	(In thousands)
Net income	$	36,192		$	33,249	$	111,508		$	120,311
Adjustments:
Interest	4,090			—		4,075			—
Income tax expense	1,024			—		1,024			—
Depreciation and amortization	31,502			27,880		97,336			77,492
Stock-based compensation	2,341			—		2,341			—
Merger-related expenses and deal costs	991			561		4,746			964
(Gain) loss on real estate dispositions	(856		)	61		(856		)	61
Transition services fee expense	293			—		293			—
Initial debt rating agency costs	477			—		477			—
Adjusted EBITDA	$	76,054		$	61,751	$	220,944		$	198,828

NOI

We also consider NOI an important supplemental measure to net income because it enables investors, analysts and our management to assess our unlevered property-level operating results and to compare our operating results with the operating results of other real estate companies and between periods on a consistent basis. We define NOI as total revenues, less interest and other income. Cash receipts may differ due to straight-line recognition of certain rental income and the application of other GAAP policies. The following table sets forth a reconciliation of our NOI to net income for the periods presented:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
	(In thousands)
Net income	$	36,192		$	33,249		$	111,508		$	120,311
Adjustments:
Interest and other income	(4		)	(1		)	(67		)	(2		)
Interest	4,090			—			4,075			—
Depreciation and amortization	31,502			27,880			97,336			77,492
General, administrative and professional fees	9,216			5,712			21,499			18,314
Merger-related expenses and deal costs	991			561			4,746			964
Other	158			5,815			1,278			7,251
Income tax expense	1,024			—			1,024			—
(Gain) loss on real estate dispositions	(856		)	61			(856		)	61
NOI	$	82,313		$	73,277		$	240,543		$	224,391

Asset/Liability Management

Asset/liability management, a key element of enterprise risk management, is designed to support the achievement of our business strategy, while ensuring that we maintain appropriate and tolerable levels of market risk (primarily interest rate risk)

and credit risk. Effective management of these risks is a contributing factor to the absolute levels and variability of our FFO and net worth. The following discussion addresses our integrated management of assets and liabilities.

Market Risk

As of September 30, 2015 and December 31, 2014, the fair value of our loans receivable, based on our estimates of currently prevailing rates for comparable loans, was $29.3 million and $9.3 million, respectively. See “Note 5—Loans Receivable” of the Notes to Combined Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Concentration and Credit Risk

We use concentration ratios to identify, understand and evaluate the potential impact of economic downturns and other adverse events that may affect our asset types, geographic locations and tenants. We evaluate concentration risk in terms of real estate investment mix and operations mix. Investment mix measures the percentage of our investments that is concentrated in a specific asset type or that is operated by a particular tenant. Operations mix measures the percentage of our operating results that is attributed to a particular tenant or geographic location. The following tables reflect our concentration risk as of the dates and for the periods presented:



	As of September 30, 2015		As of December 31, 2014
Investment mix by asset type (1):
SNFs	88.7	%	91.1	%
Seniors housing and campus (2)	6.9		4.6
Specialty hospitals and healthcare assets	4.4		4.3
Investment mix by tenant (1):
Senior Care Centers, LLC	19.1		2.0
Avamere Group, LLC	9.6		8.2
Signature Healthcare, LLC	4.7		5.2
All other	66.6		84.6


(1)	Ratios are based on the gross book value of tangible real estate property (excluding assets classified as held for sale) as of each reporting date.


(2)	Campus is defined as multi-level properties.



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
Operations mix by tenant (1):
Senior Care Centers, LLC	13.2	%	1.5	%	10.3	%	1.5	%
Avamere Group, LLC	10.8		9.2		10.1		8.6
Signature Healthcare, LLC	9.9		9.4		9.9		6.7
All others	66.1		79.9		69.7		83.2
Operations mix by geographic location (1):
Texas	22.1		16.8		22.7		17.5
Massachusetts	8.5		10.4		8.7		10.1
Indiana	8.0		8.7		8.2		8.4
Kentucky	7.5		7.4		7.4		7.2
New York	5.3		5.8		5.5		5.7
All others	48.6		50.9		47.5		51.1


(1)	Ratios are based on revenues for each period presented.

We derive substantially all of our revenues by leasing assets under long-term triple-net leases with annual escalators, subject to certain limitations. Some of these escalators are contingent upon the satisfaction of specified facility revenue parameters or based on increases in the CPI, with caps, floors or collars.

Our three largest operators accounted for approximately 34% of our rental income for the three months ended September 30, 2015. On September 1, 2015, we completed the acquisition of eight properties (seven SNFs and one campus with both skilled nursing and assisted living facilities) and simultaneously entered into a long-term master lease with SCC to operate the acquired portfolio. We purchased the assets for approximately $190 million in cash and made a $20 million five-year, fully amortizing loan to SCC, resulting in a total transaction value of approximately $210 million.

This concentration of our revenues creates credit risk. Our financial condition and results of operations could be weakened and our ability to service any indebtedness and to make distributions to our stockholders could be constrained if any of our tenants becomes unable or unwilling to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof. We cannot assure you that these tenants will have sufficient assets, income and access to financing to enable them to satisfy their respective obligations to us, and any failure, inability or unwillingness by them to do so could have a Material Adverse Effect on us. We also cannot assure you that any of our tenants, and in particular our three largest operators, will elect to renew their respective leases with us upon expiration of the leases or that we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic terms, if at all.

We regularly monitor and assess any changes in the relative credit risk of all of our tenants, although we pay particular attention to those tenants that have recourse obligations under our triple-net leases and with whom we have a higher concentration of credit risk. The ratios and metrics we use to evaluate a tenant’s liquidity and creditworthiness depend on facts and circumstances specific to that tenant, including without limitation the tenant’s credit history and economic conditions related to the tenant, its operations and the markets and industries in which the tenant operates, that may vary over time. Among other things, we may (i) review and analyze information regarding the real estate, post-acute and healthcare industries generally, publicly available information regarding the tenant, and information required to be provided by the tenant under the terms of its lease agreements with us, including covenant calculations required to be provided to us by the tenant, (ii) examine monthly and/or quarterly financial statements of the tenant to the extent publicly available or otherwise provided under the terms of our lease agreements, and (iii) participate in periodic discussions and in-person meetings with representatives of the tenant. Using this information, we calculate multiple financial ratios (which may, but do not necessarily, include net debt to EBITDAR or EBITDARM, fixed charge coverage and tangible net worth), after making certain adjustments based on our judgment, and assess other metrics we deem relevant to an understanding of the tenant’s credit risk.

Liquidity and Capital Resources

For periods prior to our separation from Ventas, we and our wholly owned subsidiaries were subject to Ventas’s centralized cash management system. All payments were controlled and made by Ventas, resulting in intercompany transactions between us and Ventas that did not settle in cash.

For periods subsequent to our separation from Ventas, we maintained our own centralized cash management system in addition to the separate cash accounts associated with our joint venture entities.

As of September 30, 2015 and December 31, 2014, we had a total of $10.4 million and $2.4 million, respectively, of unrestricted cash. The cash balance at December 31, 2014 relates to our joint venture entities that did not participate in the centralized cash management system of Ventas.

During the nine months ended September 30, 2015, our principal sources of liquidity were cash flows from operations, cash on hand, borrowings under the Facility and contributions from Ventas (which were the result of treasury activities and net funding provided by Ventas prior to the separation).

For the next 12 months, our principal liquidity needs are to: (i) fund operating expenses; (ii) meet our debt service requirements; (iii) fund acquisitions, investments and commitments, including re-development activities; and (iv) make distributions to our stockholders, as required for us to qualify as a REIT. We expect that these liquidity needs generally will be satisfied by a combination of cash flows from operations, borrowings under our Revolver and Term Loans, dispositions of assets, and issuances of debt and equity securities. However, an inability to access liquidity through one or any combination of these capital sources concurrently could have an adverse effect on us.

We funded our acquisition of the specialty healthcare and seniors housing valuation firm in August 2015 through the issuance of 339,602 shares of CCP common stock, and we funded our September 1, 2015 acquisition of eight properties through cash on hand, as well as borrowings under our Revolver and Term Loans.

Unsecured Revolving Credit Facility and Term Loans

In August 2015, our wholly owned subsidiary, Care Capital LP, as borrower, and CCP, Care Capital Properties GP, LLC and certain subsidiaries of Care Capital LP, as guarantors, entered into the Credit Agreement, which provides for a $600 million Revolver and $600 million and $800 million Term Loans. The Revolver has an initial term of four years, but may be extended, at Care Capital LP’s option subject to compliance with the terms of the Credit Agreement and payment of a customary fee, for two additional six-month periods. The $600 million and $800 million Term Loans mature in August 2017 and August 2020, respectively. The Credit Agreement also includes an accordion feature that permits Care Capital LP to increase the aggregate borrowing capacity under the Facility to $2.5 billion.

Borrowings under the Facility currently bear interest at a fluctuating rate per annum equal to LIBOR plus an applicable margin based on Care Capital LP’s unsecured long-term debt ratings. At September 30, 2015, the applicable margin was 1.30% for Revolver borrowings and 1.50% for Term Loan borrowings, and we had $460 million of unused borrowing capacity available under our Revolver.

Equity

Dividends

Ventas elected to be treated as a REIT under the applicable provisions of the Code for every year beginning with the year ended December 31, 1999. Accordingly, with respect to periods prior to our separation from Ventas, Ventas generally was not subject to federal income tax. We intend to elect to be treated as a REIT under the applicable provisions of the Code, beginning with the year ending December 31, 2015. By qualifying for taxation as a REIT, we generally will not be subject to federal income tax on net income that we currently distribute to stockholders, which substantially eliminates the “double taxation” (i.e., taxation at both the corporate and stockholder levels) that results from investment in a C corporation (i.e., a corporation generally subject to full corporate-level tax).

We expect that our cash flows after the spin-off will exceed our REIT taxable income due to depreciation and other non-cash deductions in computing REIT taxable income and that we will be able to satisfy the 90% distribution requirement. However, from time to time, we may not have sufficient cash on hand or other liquid assets to meet this requirement or we may decide to retain cash or distribute such greater amount as may be necessary to avoid income and excise taxation. If we do not have sufficient cash on hand or other liquid assets to enable us to satisfy the 90% distribution requirement, or if we desire to retain cash, we may borrow funds, issue equity securities, pay taxable stock dividends, if possible, distribute other property or securities or engage in a transaction intended to enable us to meet the REIT distribution requirements or any combination of the foregoing.

On September 30, 2015, we paid a full third quarter cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of September 14, 2015.

Capital Expenditures

The terms of our triple-net leases generally obligate our tenants to pay all capital expenditures necessary to maintain and improve our triple-net leased properties. However, from time to time, we may fund the capital expenditures for our triple-net leased properties through loans to the tenants or advances, which may increase the amount of rent payable with respect to the properties in certain cases. In addition, from time to time, we may enter into agreements with our tenants to fund capital expenditures without reimbursement. We expect to fund any capital expenditures for which we may become responsible upon expiration of our triple-net leases or in the event that our tenants are unable or unwilling to meet their obligations under those leases with cash flows from operations or through additional borrowings.

Cash Flows

The following table sets forth our sources and uses of cash flows for the periods presented:



	For the Nine Months Ended September 30,						Increase (Decrease) to Cash
	2015			2014			$			%
	(Dollars in thousands)
Cash at beginning of period	$	2,424		$	2,167		$	257		11.9	%
Net cash provided by operating activities	206,041			183,073			22,968			12.5
Net cash used in investing activities	(498,506		)	(21,579		)	(476,927		)	(2,210.1	)
Net cash provided by (used in) financing activities	300,485			(160,965		)	461,450			286.7
Cash at end of period	$	10,444		$	2,696		7,748			287.4

Cash Flows from Operating Activities

Cash flows from operating activities increased in 2015 over the prior year primarily due to rent from properties acquired by Ventas in January 2015 that were transferred to us as part of the separation.

Cash Flows from Investing Activities

Cash used in investing activities during the nine months ended September 30, 2015 and 2014 consisted primarily of cash paid for our investments in real estate ($454.8 million and $12.6 million in 2015 and 2014, respectively), investment in loans receivable ($20.1 million and $0.8 million in 2015 and 2014, respectively), development project expenditures ($12.6 million and $6.7 million in 2015 and 2014, respectively) and capital expenditures ($13.5 million and $3.4 million in 2015 and 2014, respectively).

Cash Flows from Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2015 consisted primarily of proceeds from borrowings under the Facility, net of cash transferred to Ventas, as well as the payment of deferred financing costs, distributions to common stockholders and noncontrolling interests. Cash used in financing activities during the nine months ended September 30, 2014 consisted primarily of net distribution to parent ($160.7 million).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion of our exposure to various market risks contains forward-looking statements that involve risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in light of information currently available to us. Nevertheless, because of the inherent unpredictability of interest rates and other factors, actual results could differ materially from those projected in such forward-looking information.

As a result of entering into the Credit Agreement, we are exposed to market risk related to changes in interest rates with respect to borrowings under floating rate obligations. These market risks result primarily from changes in LIBOR rates or prime rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of September 30, 2015, at the reasonable assurance level.

Internal Control over Financial Reporting

During the third quarter of 2015, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained in “Note 13—Litigation” of the Notes to Combined Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. Except as set forth therein, there have been no new material legal proceedings and no material developments in any legal proceedings reported in the Information Statement.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 14, 2015, we completed the acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock, subject to a potential post-closing issuance of additional shares. The shares of common stock were issued solely to “accredited investors” (as such term is defined in Rule 501 under the Securities Act) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

ITEM 6. EXHIBITS




Exhibit Number	Description of Document	Location of Document
2.1	Separation and Distribution Agreement, dated as of August 17, 2015, by and between Ventas, Inc. and the Care Capital Properties, Inc.	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on August 21, 2015.
3.1	Amended and Restated Certificate of Incorporation of Care Capital Properties, Inc.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on August 21, 2015.
3.2	Amended and Restated Bylaws of Care Capital Properties, Inc.	Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on August 21, 2015.
10.1	Transition Services Agreement, dated as of August 17, 2015, by and between Ventas, Inc. and Care Capital Properties, Inc.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 21, 2015.
10.2	Tax Matters Agreement, dated as of August 17, 2015, by and between Ventas, Inc. and Care Capital Properties, Inc.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on August 21, 2015.
10.3	Employee Matters Agreement, dated as of August 17, by and between Ventas, Inc. and Care Capital Properties, Inc.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on August 21, 2015.
10.4	Credit and Guaranty Agreement, dated as of August 17, 2015, among Care Capital Properties, LP, as borrower, Care Capital Properties, Inc. and the other guarantors identified therein, as guarantors, the lenders identified therein, Bank of America, N.A., as administrative agent, Bank of America, N.A., JPMorgan Chase Bank, N.A., Barclays Bank PLC and Citizens Bank, National Association, as swing line lenders and L/C issuers, and various agents identified therein.	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on August 21, 2015.
10.5	Care Capital Properties, Inc. Non-Employee Director Deferred Stock Compensation Plan.	Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on August 21, 2015.
10.6	Care Capital Properties, Inc. 2015 Incentive Plan.	Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed on August 21, 2015.
10.7	Employment Agreement by and between the Company and Raymond J. Lewis, dated as of August 17, 2015.	Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K filed on August 21, 2015.
10.8	Form of Employee Protection and Noncompetition Agreement.	Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K filed on August 21, 2015.
31.1	Certification of Raymond J. Lewis, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
31.2	Certification of Lori B. Wittman, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
32.1	Certification of Raymond J. Lewis, Chief Executive Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.	Filed herewith.
32.2	Certification of Lori B. Wittman, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.	Filed herewith.
101	Interactive Data File.	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 12, 2015



	CARE CAPITAL PROPERTIES, INC.

	By:	/s/ RAYMOND J. LEWIS
		Raymond J. Lewis Chief Executive Officer

	By:	/s/ LORI B. WITTMAN
		Lori B. Wittman Executive Vice President and Chief Financial Officer

EXHIBIT INDEX




Exhibit Number	Description of Document	Location of Document
2.1	Separation and Distribution Agreement, dated as of August 17, 2015, by and between Ventas, Inc. and the Care Capital Properties, Inc.	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on August 21, 2015.
3.1	Amended and Restated Certificate of Incorporation of Care Capital Properties, Inc.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on August 21, 2015.
3.2	Amended and Restated Bylaws of Care Capital Properties, Inc.	Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on August 21, 2015.
10.1	Transition Services Agreement, dated as of August 17, 2015, by and between Ventas, Inc. and Care Capital Properties, Inc.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 21, 2015.
10.2	Tax Matters Agreement, dated as of August 17, 2015, by and between Ventas, Inc. and Care Capital Properties, Inc.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on August 21, 2015.
10.3	Employee Matters Agreement, dated as of August 17, by and between Ventas, Inc. and Care Capital Properties, Inc.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on August 21, 2015.
10.4	Credit and Guaranty Agreement, dated as of August 17, 2015, among Care Capital Properties, LP, as borrower, Care Capital Properties, Inc. and the other guarantors identified therein, as guarantors, the lenders identified therein, Bank of America, N.A., as administrative agent, Bank of America, N.A., JPMorgan Chase Bank, N.A., Barclays Bank PLC and Citizens Bank, National Association, as swing line lenders and L/C issuers, and various agents identified therein.	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on August 21, 2015.
10.5	Care Capital Properties, Inc. Non-Employee Director Deferred Stock Compensation Plan.	Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on August 21, 2015.
10.6	Care Capital Properties, Inc. 2015 Incentive Plan.	Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed on August 21, 2015.
10.7	Employment Agreement by and between the Company and Raymond J. Lewis, dated as of August 17, 2015.	Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K filed on August 21, 2015.
10.8	Form of Employee Protection and Noncompetition Agreement.	Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K filed on August 21, 2015.
31.1	Certification of Raymond J. Lewis, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
31.2	Certification of Lori B. Wittman, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.	Filed herewith.
32.1	Certification of Raymond J. Lewis, Chief Executive Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.	Filed herewith.
32.2	Certification of Lori B. Wittman, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350.	Filed herewith.
101	Interactive Data File.	Filed herewith.

Care Capital Properties, Inc. - FORM 10-Q - November 12, 2015

Attached files

Care Capital Properties, Inc. Reports