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8-K - FORM 8-K - CareTrust REIT, Inc.d215636d8k.htm

Exhibit 99.1

 

LOGO

CareTrust REIT, Inc. Announces Second Quarter 2016 Operating Results

Conference Call and Webcast Scheduled for Tuesday, August 9, 2016 at 1:00 pm ET

San Clemente, CA – (Globe Newswire – August 8, 2016) – CareTrust REIT, Inc. (NASDAQ:CTRE) today reported operating results for the second quarter of 2016, as well as other recent events. Quarter and other highlights include:

 

    Net income for the quarter was $0.13 per diluted weighted average share;

 

    Normalized FFO for the quarter was $0.27 per diluted weighted average share;

 

    Normalized FAD for the quarter was $0.29 per diluted weighted average share;

 

    During the quarter and since, CareTrust initiated four new net-lease tenant relationships and expanded two preexisting tenant relationships;

 

    During the quarter and since, CareTrust deployed approximately $120.1 million (inclusive of transaction costs), at a blended initial yield of 9.1%; and

 

    During the quarter, CareTrust announced that Moody’s raised its corporate credit rating on CareTrust, and its rating on CareTrust’s 5.875% Senior Unsecured Notes, to B1 from B2, with a stable outlook.

Approximately $120.1 Million in New Investments

Greg Stapley, CareTrust’s Chairman and Chief Executive Officer, remarked, “In the second quarter and since our team has again demonstrated CareTrust’s ability to meaningfully grow by consistently adding small and medium-sized acquisitions, with both our existing tenant base and new tenant relationships.” Mr. Stapley noted that the investments consisted of approximately 58% senior housing assets and 42% skilled nursing investments on a going-in cash rent basis. He also added that the company further diversified its portfolio into two new states, brought its tenant roster to 15 operators, and grew its total net-leased property footprint to 149 properties in 20 states.

Mr. Stapley further reported that CareTrust’s nationwide acquisition pipeline remains strong, with ample opportunities for continued growth at superior returns. “We are excited about our growth and progress to date, and we are more optimistic than ever about CareTrust’s future,” he concluded.

Financial Results for the Quarter Ended June 30, 2016

Chief Financial Officer Bill Wagner reported that CareTrust generated normalized FFO of $15.5 million or $0.27 per diluted weighted average share, and normalized FAD of $16.5 million or $0.29

 

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per diluted weighted average share. Mr. Wagner also discussed CareTrust’s usage of its $400 million unsecured revolver, noting that after the revolver draws to finance new investments, the facility’s outstanding balance, which was $68.0 million at quarter end, currently stands at $103.0 million (taking into account post-quarter activity). He further noted that CareTrust continues to have no property-level debt and, taking into account existing extension rights, no debt maturing before 2020. Mr. Wagner added that CareTrust’s debt-to-EBITDA ratio, which was 5.0x at quarter end, currently stands at approximately 5.1x (taking into account post-quarter activity).

2016 FFO Guidance Revised Upward

Mr. Wagner updated and increased CareTrust’s previously-issued 2016 earnings guidance, projecting normalized FFO per diluted weighted average share of approximately $1.08 to $1.10, and normalized FAD per diluted weighted average share of approximately $1.15 to $1.17. The increased guidance assumes no new acquisitions beyond those made to date, no new debt incurrences or new equity issuances, and no future rent escalations on CareTrust’s long-term leases.

Dividend Declared

During the quarter, CareTrust declared a quarterly dividend of $0.17 per share. “On an annualized basis, our quarterly dividend represents a payout ratio of approximately 59% based on the midpoint of our 2016 normalized FAD guidance,” said Mr. Wagner. “At this level, our dividend remains among the best-protected of all our industry peers, while giving us ample additional growth capital to reinvest and providing a solid overall return to our shareholders,” he added.

Ratings Upgrades

CareTrust also announced that Moody’s Investor Service raised its corporate credit rating on CareTrust to B1 from B2, with a stable outlook, and its rating on CareTrust’s 5.875% Senior Unsecured Notes to B1 from B2, also with a stable outlook. Commenting on the changes, Mr. Wagner said, “These ratings upgrades highlight the substantial progress we have made toward optimizing our balance sheet while significantly growing our portfolio in a responsible way.” CareTrust and its unsecured notes are also rated by Standard & Poor’s Rating Services at B+ and BB-, respectively, both with a stable outlook.

Conference Call

An earnings webcast will be held on Tuesday, August 9, 2016, at 1:00 p.m. Eastern Time, during which CareTrust’s management will discuss the Company’s second quarter 2016 results, recent developments and other matters affecting the Company’s business and prospects. To listen to the webcast, or to view any financial or other statistical information required by SEC Regulation G, please visit the Investors section of the CareTrust website at http://investor.caretrustreit.com. The webcast will be recorded, and will be available for replay via the website for one year following the call.

About CareTrustTM

CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition and leasing of seniors housing and healthcare-related properties. With 149 net-leased healthcare properties and three operated seniors housing properties in 20 states, CareTrust is pursuing opportunities nationwide to acquire properties that will be leased to a diverse group of local, regional and national seniors housing operators, healthcare services providers, and other healthcare-related businesses. More information about CareTrust is available at www.caretrustreit.com.

 

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This press release contains, and the related conference call and webcast will include, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical statements of fact and statements regarding our intent, belief or expectations, including, but not limited to, statements regarding future financial positions, business and acquisition strategies, growth prospects, operating and financial performance, and the performance of our operators and their respective facilities.

Words such as “anticipate,” “believe,” “could,” expect,” “estimate,” “intend,” “may,” “plan,” “seek,” “should,” “will,” “would,” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements, though not all forward-looking statements contain these identifying words. Our forward-looking statements are based on our current expectations and beliefs, and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying these forward-looking statements are reasonable, they are not guarantees and we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from expectations include, but are not limited to: (i) the ability to achieve some or all of the expected benefits from the completed spin-off from the Ensign Group, Inc. (“Ensign”); (ii) the ability and willingness of Ensign to meet and/or perform its obligations under the contractual arrangements that it entered into with us in connection with such spin-off, including its triple-net long-term leases with us, and any of its obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; (iii) the ability and willingness of our tenants to (a) comply with laws, rules and regulations in the operation of the properties we lease to them, and (b) renew their leases with us upon expiration, or in the alternative, (c) our ability to reposition and re-let our properties on the same or better terms in the event of nonrenewal or replacement of an existing tenant and any obligations, including indemnification obligations, that we may incur in replacing an existing tenant; (iv) the availability of, and the ability to identify and acquire, suitable acquisition opportunities and lease the same to reliable tenants on accretive terms; (v) the ability to generate sufficient cash flows to service our outstanding indebtedness; (vi) access to debt and equity capital markets; (vii) fluctuating interest rates; (viii) the ability to retain and properly incentivize key management personnel; (ix) the ability maintain our status as a real estate investment trust (“REIT”); (x) changes in the U.S. tax laws and other state, federal or local laws, whether or not specific to REITs; (xi) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xii) any additional factors identified in our filings with the SEC, including those in our Annual Report on Form 10-K under the heading entitled “Risk Factors.”

 

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Information in this press release or the related conference call and webcast is provided as of June 30, 2016, unless specifically stated otherwise. We expressly disclaim any obligation to update or revise any information in this press release or the related conference call and webcast (including forward-looking statements), whether to reflect any change in our expectations, any change in events, conditions or circumstances, or otherwise.

Contact Information

CareTrust REIT, Inc.

(949) 542-3130

ir@caretrustreit.com

 

4


CARETRUST REIT, INC.

CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

(unaudited)

 

 

 

     Three Months Ended June 30,      Six Months Ended June 30,  
             2016                      2015                      2016                      2015      

Revenues:

           

Rental income

   $ 22,781       $ 15,249       $ 43,678       $ 30,091   

Tenant reimbursements

     1,929         1,288         3,726         2,546   

Independent living facilities

     730         607         1,411         1,242   

Interest and other income

     261         232         515         455   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     25,701         17,376         49,330         34,334   
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

           

Depreciation and amortization

     7,892         5,679         15,185         11,278   

Interest expense

     5,440         5,989         11,627         11,890   

Property taxes

     1,929         1,288         3,726         2,546   

Independent living facilities

     598         566         1,218         1,168   

General and administrative

     2,211         1,588         4,441         3,148   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     18,070         15,110         36,197         30,030   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 7,631       $ 2,266       $ 13,133       $ 4,304   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share:

           

Basic

   $ 0.13       $ 0.07       $ 0.25       $ 0.13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.13       $ 0.07       $ 0.25       $ 0.13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding:

           

Basic

     57,478         31,278         52,789         31,268   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     57,478         31,278         52,789         31,268   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

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CARETRUST REIT, INC.

RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES

(in thousands, except per share amounts)

(unaudited)

 

 

 

     Quarter
Ended
June 30, 2016
     Quarter
Ended
June 30, 2015
 

Net income

   $ 7,631       $ 2,266   

Depreciation and amortization

     7,892         5,679   

Interest expense

     5,440         5,989   

Amortization of stock-based compensation

     437         294   
  

 

 

    

 

 

 

EBITDA

     21,400         14,228   
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 21,400       $ 14,228   
  

 

 

    

 

 

 

Net income

   $ 7,631       $ 2,266   

Real estate related depreciation and amortization

     7,867         5,668   
  

 

 

    

 

 

 

Funds from Operations (FFO)

     15,498         7,934   
  

 

 

    

 

 

 

Normalized FFO

   $ 15,498       $ 7,934   
  

 

 

    

 

 

 

Net income

   $ 7,631       $ 2,266   

Real estate related depreciation and amortization

     7,867         5,668   

Amortization of deferred financing fees

     561         555   

Amortization of stock-based compensation

     437         294   
  

 

 

    

 

 

 

Funds Available for Distribution (FAD)

     16,496         8,783   
  

 

 

    

 

 

 

Normalized FAD

   $ 16,496       $ 8,783   
  

 

 

    

 

 

 

FFO per share

   $ 0.27       $ 0.25   
  

 

 

    

 

 

 

Normalized FFO per share

   $ 0.27       $ 0.25   
  

 

 

    

 

 

 

FAD per share

   $ 0.29       $ 0.28   
  

 

 

    

 

 

 

Normalized FAD per share

   $ 0.29       $ 0.28   
  

 

 

    

 

 

 

Diluted weighted average shares outstanding (1)

     57,667         31,462   
  

 

 

    

 

 

 

 

(1) For the periods presented, the diluted weighted average shares have been calculated using the treasury stock method.

 

 

 

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CARETRUST REIT, INC.

CONSOLIDATED INCOME STATEMENTS - 5 QUARTER TREND

(in thousands, except per share amounts)

(unaudited)

 

 

 

     Quarter
Ended
June 30, 2015
     Quarter
Ended
September 30, 2015
     Quarter
Ended
December 31, 2015
     Quarter
Ended
March 31, 2016
     Quarter
Ended
June 30, 2016
 

Revenues:

              

Rental income

   $ 15,249       $ 15,778       $ 20,110       $ 20,897       $ 22,781   

Tenant reimbursements

     1,288         1,320         1,631         1,797         1,929   

Independent living facilities

     607         626         642         681         730   

Interest and other income

     232         261         249         254         261   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     17,376         17,985         22,632         23,629         25,701   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

              

Depreciation and amortization

     5,679         5,815         7,040         7,293         7,892   

Interest expense

     5,989         7,221         6,145         6,187         5,440   

Property taxes

     1,288         1,320         1,631         1,797         1,929   

Independent living facilities

     566         610         598         620         598   

General and administrative

     1,588         2,292         2,215         2,230         2,211   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     15,110         17,258         17,629         18,127         18,070   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 2,266       $ 727       $ 5,003       $ 5,502       $ 7,631   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.07       $ 0.02       $ 0.10       $ 0.11       $ 0.13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average shares outstanding

     31,278         39,125         47,660         48,101         57,478   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

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CARETRUST REIT, INC.

RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES - 5 QUARTER TREND

(in thousands, except per share amounts)

(unaudited)

 

 

 

     Quarter
Ended
June 30, 2015
     Quarter
Ended
September 30, 2015
     Quarter
Ended
December 31, 2015
     Quarter
Ended
March 31, 2016
     Quarter
Ended
June 30, 2016
 

Net income

   $ 2,266       $ 727       $ 5,003       $ 5,502       $ 7,631   

Depreciation and amortization

     5,679         5,815         7,040         7,293         7,892   

Interest expense

     5,989         7,221         6,145         6,187         5,440   

Amortization of stock-based compensation

     294         435         427         431         437   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     14,228         14,198         18,615         19,413         21,400   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 14,228       $ 14,198       $ 18,615       $ 19,413       $ 21,400   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 2,266       $ 727       $ 5,003       $ 5,502       $ 7,631   

Real estate related depreciation and amortization

     5,668         5,796         7,018         7,270         7,867   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Funds from Operations (FFO)

     7,934         6,523         12,021         12,772         15,498   

Write-off of deferred financing fees

     —           1,208         —           326         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Normalized FFO

   $ 7,934       $ 7,731       $ 12,021       $ 13,098       $ 15,498   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 2,266       $ 727       $ 5,003       $ 5,502       $ 7,631   

Real estate related depreciation and amortization

     5,668         5,796         7,018         7,270         7,867   

Amortization of deferred financing fees

     555         547         551         556         561   

Amortization of stock-based compensation

     294         435         427         431         437   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Funds Available for Distribution (FAD)

     8,783         7,505         12,999         13,759         16,496   

Write-off of deferred financing fees

     —           1,208         —           326         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Normalized FAD

   $ 8,783       $ 8,713       $ 12,999       $ 14,085       $ 16,496   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

FFO per share

   $ 0.25       $ 0.17       $ 0.25       $ 0.26       $ 0.27   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Normalized FFO per share

   $ 0.25       $ 0.20       $ 0.25       $ 0.27       $ 0.27   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

FAD per share

   $ 0.28       $ 0.19       $ 0.27       $ 0.29       $ 0.29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Normalized FAD per share

   $ 0.28       $ 0.22       $ 0.27       $ 0.29       $ 0.29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average shares outstanding (1)

     31,462         39,271         47,802         48,258         57,667   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) For the periods presented, the diluted weighted average shares have been calculated using the treasury stock method.

 

 

 

8


CARETRUST REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

     June 30,
2016
    December 31,
2015
 

Assets

    

Real estate investments, net

   $ 776,227      $ 645,614   

Other real estate investments

     8,992        8,477   

Cash and cash equivalents

     9,644        11,467   

Accounts receivable

     4,085        2,342   

Prepaid expenses and other assets

     1,197        2,083   

Deferred financing costs, net

     3,333        3,183   
  

 

 

   

 

 

 

Total assets

   $ 803,478      $ 673,166   
  

 

 

   

 

 

 

Liabilities and Equity

    

Senior unsecured notes payable, net

   $ 254,762      $ 254,229   

Senior unsecured term loan, net

     99,382        —     

Unsecured revolving credit facility

     68,000        45,000   

Mortgage notes payable, net

     —          94,676   

Accounts payable and accrued liabilities

     9,633        9,269   

Dividends payable

     9,847        7,704   
  

 

 

   

 

 

 

Total liabilities

     441,624        410,878   
  

 

 

   

 

 

 

Equity:

    

Common stock

     575        477   

Additional paid-in capital

     516,243        410,217   

Cumulative distributions in excess of earnings

     (154,964     (148,406
  

 

 

   

 

 

 

Total equity

     361,854        262,288   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 803,478      $ 673,166   
  

 

 

   

 

 

 

 

 

 

9


CARETRUST REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

     Six Months Ended
June 30,
 
     2016     2015  

Cash flows from operating activities:

    

Net income

   $ 13,133      $ 4,304   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     15,191        11,278   

Amortization of deferred financing costs

     1,117        1,102   

Write-off of deferred financing costs

     326        —     

Amortization of stock-based compensation

     868        660   

Non cash interest income

     (515     (455

Change in operating assets and liabilities:

    

Accounts receivable

     (1,743     (2,020

Accounts receivable due from related party

     —          2,275   

Prepaid expenses and other assets

     (291     (545

Accounts payable and accrued liabilities

     27        (1,013
  

 

 

   

 

 

 

Net cash provided by operating activities

     28,113        15,586   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Acquisition of real estate

     (144,149     (33,646

Improvements to real estate

     (170     (143

Purchases of equipment, furniture and fixtures

     (89     (227

Escrow deposits for acquisition of real estate

     —          (1,500
  

 

 

   

 

 

 

Net cash used in investing activities

     (144,408     (35,516
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from the issuance of common stock, net

     105,889        —     

Proceeds from the issuance of senior unsecured term loan

     100,000        —     

Borrowings under unsecured credit facility

     115,000        —     

Payments on unsecured credit facility

     (92,000     —     

Borrowings under senior secured revolving credit facility

     —          35,000   

Payments on the mortgage notes payable

     (95,022     (1,351

Payments of deferred financing costs

     (1,332     (139

Net-settle adjustment on restricted stock

     (515     —     

Dividends paid on common stock

     (17,548     (8,996
  

 

 

   

 

 

 

Net cash provided by financing activities

     114,472        24,514   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (1,823     4,584   

Cash and cash equivalents, beginning of period

     11,467        25,320   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 9,644      $ 29,904   
  

 

 

   

 

 

 

 

 

 

10


CARETRUST REIT, INC.

DEBT SUMMARY

(dollars in thousands)

(unaudited)

 

 

 

                        June 30, 2016  

Debt

  Collateral      Interest Rate/
Spread
    Maturity
Date
     Principal     Deferred Loan
Costs
          Net Carrying
Value
 

Fixed Rate Debt

                                           

Senior unsecured notes payable

    Unsecured         5.875%        2021       $ 260,000      $ (5,238     $ 254,762   

Floating Rate Debt

                                           

Senior unsecured term loan (1)

    Unsecured         L + 1.95%-2.60%        2023         100,000        (618       99,382   

Unsecured revolving credit facility (2)

    Unsecured         L + 1.75%-2.40%        2019         68,000        —          (3     68,000   
         

 

 

   

 

 

     

 

 

 
            168,000        (618       167,382   
         

 

 

   

 

 

     

 

 

 

Total Debt

          $ 428,000      $ (5,856     $ 422,144   
         

 

 

   

 

 

     

 

 

 

Debt Statistics

                                           

% Fixed Rate Debt

            60.7      

% Floating Rate Debt

            39.3      
         

 

 

       

Total

            100.0      
         

 

 

       

Weighted Average Interest Rates:

               

Fixed

            5.9      

Floating

            2.3      

Blended

            4.5      

 

(1) Funds can also be borrowed at the Base Rate (as defined) plus 0.95% to 1.6%.
(2) Funds can also be borrowed at the Base Rate (as defined) plus 0.75% to 1.4%.
(3) Deferred financing fees are not shown net for the unsecured revolving credit facility and are included in assets on the balance sheet.

 

 

 

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CARETRUST REIT, INC.

RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES

(shares in thousands)

(unaudited)

 

 

2016 Guidance

 

 

 

     Low      High  

Net income

   $ 0.51       $ 0.53   

Real estate related depreciation and amortization

     0.56         0.56   
  

 

 

    

 

 

 

Funds from Operations (FFO)

     1.07         1.09   

Write-off of deferred financing fees

     0.01         0.01   
  

 

 

    

 

 

 

Normalized FFO

   $ 1.08       $ 1.10   
  

 

 

    

 

 

 

Net income

   $ 0.51       $ 0.53   

Real estate related depreciation and amortization

     0.56         0.56   

Amortization of deferred financing fees

     0.04         0.04   

Amortization of stock-based compensation

     0.03         0.03   
  

 

 

    

 

 

 

Funds Available for Distribution (FAD)

     1.14         1.16   

Write-off of deferred financing fees

     0.01         0.01   
  

 

 

    

 

 

 

Normalized FAD

   $ 1.15       $ 1.17   
  

 

 

    

 

 

 

Weighted average shares outstanding:

     

Diluted

     55,443         55,443   
  

 

 

    

 

 

 

 

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Discussion of Non-GAAP Financial Measures

EBITDA represents net income before interest expense, amortization of deferred financing costs and stock-based compensation, and depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of core operating performance, such as costs associated with the spin-off, impairments, and gains or losses on the sale of real estate. EBITDA and Adjusted EBITDA do not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating the Company’s liquidity or operating performance. EBITDA and Adjusted EBITDA do not purport to be indicative of cash available to fund future cash requirements, including the Company’s ability to fund capital expenditures or make payments on its indebtedness. Further, the Company’s computation of EBITDA and Adjusted EBITDA may not be comparable to EBITDA and Adjusted EBITDA reported by other REITs.

Funds from Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), and Funds Available for Distribution (“FAD”) are important non-GAAP supplemental measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP.

FFO is defined by NAREIT as net income computed in accordance with GAAP, excluding gains or losses from real estate dispositions, real estate depreciation and amortization and impairment charges, and adjustments for unconsolidated partnerships and joint ventures. The Company computes FFO in accordance with NAREIT’s definition.

FAD is defined as FFO excluding non-cash expenses, such as stock-based compensation expense, amortization of deferred financing costs and the effects of straight-line rent. The Company considers FAD to be a useful supplemental measure to evaluate the Company’s operating results excluding these expense items to help investors, analysts and other interested parties compare the operating performance of the Company between periods or as compared to other companies on a more consistent basis.

In addition, the Company reports normalized FFO and normalized FAD, which adjust FFO and FAD for certain revenue and expense items that the Company does not believe are indicative of its ongoing operating results, such as costs associated with the spin-off and other unanticipated charges. By excluding these items, investors, analysts and our management can compare normalized FFO and normalized FAD between periods more consistently.

While FFO, normalized FFO, FAD and normalized FAD are relevant and widely-used measures of operating performance among REITs, they do not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating the Company’s liquidity or operating performance. FFO, normalized FFO, FAD and normalized FAD do not purport to be indicative of cash available to fund future cash requirements.

 

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Further, the Company’s computation of FFO, normalized FFO, FAD and normalized FAD may not be comparable to FFO, normalized FFO, FAD and normalized FAD reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define FAD differently than the Company does.

The Company believes that the use of EBITDA, Adjusted EBITDA, FFO, normalized FFO, FAD and normalized FAD, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. The Company considers EBITDA and Adjusted EBITDA useful in understanding the Company’s operating results independent of its capital structure and indebtedness, thereby allowing for a more meaningful comparison of operating performance between periods and against other REITs. The Company considers FFO, normalized FFO, FAD and normalized FAD to be useful measures for reviewing comparative operating and financial performance because, by excluding gains or losses from real estate dispositions, impairment charges and real estate depreciation and amortization, and, for FAD and normalized FAD, by excluding non-cash expenses such as stock-based compensation expense and amortization of deferred financing costs, FFO, normalized FFO, FAD and normalized FAD can help investors compare the Company’s operating performance between periods and to other REITs.

 

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