Care Capital Properties, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - Care Capital Properties, Inc.	ccp20170630exhibit322cfoce.htm
EX-32.1 - EXHIBIT 32.1 - Care Capital Properties, Inc.	ccp20170630exhibit321ceoce.htm
EX-31.2 - EXHIBIT 31.2 - Care Capital Properties, Inc.	ccp20170630exhibit312cfoce.htm
EX-31.1 - EXHIBIT 31.1 - Care Capital Properties, Inc.	ccp20170630exhibit311ceoce.htm
EX-12.1 - EXHIBIT 12.1 - Care Capital Properties, Inc.	ccp20170630exhibit121.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 JUNE 30, 2017
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.)

191 North Wacker Drive, Suite 1200

Chicago, Illinois

(Address of Principal Executive Offices)

60606

(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 x	Accelerated filer ¨	Non-accelerated filer ¨ (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 by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 August 1, 2017:
Common Stock, $0.01 par value		84,070,493

CARE CAPITAL PROPERTIES, INC.

FORM 10-Q

INDEX




		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements of Care Capital Properties, Inc. (unaudited)
	Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	1
	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016	2
	Consolidated Statements of Equity for the Six Months Ended June 30, 2017 and the Year Ended December 31, 2016	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016	4
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	34
Signatures		35

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARE CAPITAL PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)



	June 30, 2017			December 31, 2016
Assets
Real estate investments:
Land and improvements	$	310,356		$	262,064
Buildings and improvements	3,116,676			2,785,166
Construction in progress	23,026			45,892
Acquired lease intangibles	101,064			92,431
	3,551,122			3,185,553
Accumulated depreciation and amortization	(738,071		)	(702,809		)
Net real estate property	2,813,051			2,482,744
Net investment in direct financing lease	22,750			22,531
Net real estate investments	2,835,801			2,505,275
Loans receivable, net	80,990			62,264
Cash	12,094			15,813
Restricted cash	4,585			—
Goodwill	123,884			123,884
Other assets	128,106			105,132
Total assets	$	3,185,460		$	2,812,368
Liabilities and equity
Liabilities:
Term loans, senior notes and other debt	$	1,758,501		$	1,414,534
Tenant deposits	56,338			42,574
Lease intangible liabilities, net	71,010			103,182
Dividends payable	—			47,861
Accounts payable and other liabilities	38,999			37,177
Deferred income taxes	1,715			1,852
Total liabilities	1,926,563			1,647,180
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 10,000 shares authorized, unissued at June 30, 2017 and December 31, 2016	—			—
Common stock, $0.01 par value; 300,000 shares authorized, 84,071 and 83,970 shares issued at June 30, 2017 and December 31, 2016, respectively	841			840
Additional paid-in capital	1,275,309			1,272,642
Dividends in excess of net income	(28,699		)	(119,750		)
Treasury stock, 0 and 11 shares at June 30, 2017 and December 31, 2016, respectively	(3		)	(330		)
Accumulated other comprehensive income	10,188			10,476
Total common stockholders’ equity	1,257,636			1,163,878
Noncontrolling interest	1,261			1,310
Total equity	1,258,897			1,165,188
Total liabilities and equity	$	3,185,460		$	2,812,368

See accompanying notes to the consolidated financial statements.

CARE CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share amounts)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Revenues:
Rental income, net	$	84,880		$	82,316		$	163,101		$	163,667
Income from investments in direct financing lease and loans	2,217			1,455			4,164			2,637
Real estate services fee income	1,458			1,478			2,683			3,183
Interest and other income	250			413			573			718
Net gain on lease termination	22,628			—			23,743			—
Total revenues	111,433			85,662			194,264			170,205
Expenses:
Interest	16,783			10,872			31,968			20,939
Depreciation and amortization	28,917			28,189			53,813			56,830
Impairment on real estate investments and associated goodwill	—			29			—			5,528
General, administrative and professional fees	8,602			8,839			17,330			16,840
Deal costs	8,280			866			8,477			2,026
Loss on extinguishment of debt	386			345			386			1,102
Other expenses, net	(1,513		)	125			(600		)	219
Total expenses	61,455			49,265			111,374			103,484
Income before income taxes, real estate dispositions and noncontrolling interests	49,978			36,397			82,890			66,721
Income tax expense	(172		)	(129		)	(411		)	(550		)
Gain on real estate dispositions	72,175			872			104,420			752
Net income	121,981			37,140			186,899			66,923
Net income attributable to noncontrolling interests	8			(11		)	17			6
Net income attributable to common stockholders	$	121,973		$	37,151		$	186,882		$	66,917

Net income	121,981			37,140			186,899			66,923
Other comprehensive loss - derivatives	(2,283		)	(6,144		)	(288		)	(11,935		)
Total comprehensive income	119,698			30,996			186,611			54,988
Comprehensive income attributable to noncontrolling interests	8			(11		)	17			6
Comprehensive income attributable to common stockholders	$	119,690		$	31,007		$	186,594		$	54,982

Earnings per common share:
Basic:
Net income attributable to common stockholders, excluding dividends on unvested restricted shares	$	1.45		$	0.44		$	2.23		$	0.80
Diluted:
Net income attributable to common stockholders, excluding dividends on unvested restricted shares	$	1.45		$	0.44		$	2.23		$	0.80

Dividends declared per common share	$	0.57		$	0.57		$	1.14		$	1.14

Weighted average shares used in computing earnings per common share:
Basic	83,724			83,595			83,697			83,569
Diluted	83,854			83,672			83,827			83,639

See accompanying notes to the consolidated financial statements.

CARE CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Six Months Ended June 30, 2017 and the Year Ended December 31, 2016

(Unaudited)

(In thousands, except per share amounts)



	Common Stock Par Value		Additional Paid-In Capital			Dividends in Excess of Net Income			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Common Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, January 1, 2016	$	838	$	1,264,650		$	(51,056	)	$	—		$	—		$	1,214,432		$	1,415		$	1,215,847
Net income attributable to common stockholders	—		—			122,743			—			—			122,743			—			122,743
Net change in noncontrolling interests	—		—			—			—			—			—			(105		)	(105		)
Issuance of common stock for acquisition	2		1,371			—			—			—			1,373			—			1,373
Stock-based compensation	—		6,621			—			(330		)	—			6,291			—			6,291
Other comprehensive income	—		—			—			—			10,476			10,476			—			10,476
Dividends to common stockholders - $2.28 per share	—		—			(191,437		)	—			—			(191,437		)	—			(191,437		)
Balance, December 31, 2016	$	840	$	1,272,642		$	(119,750	)	$	(330	)	$	10,476		$	1,163,878		$	1,310		$	1,165,188
Net income attributable to common stockholders	—		—			186,882			—			—			186,882			—			186,882
Net change in noncontrolling interests	—		—			—			—			—			—			(49		)	(49		)
Issuance of common stock	1		(1		)	—			—			—			—			—			—
Stock-based compensation	—		2,668			—			327			—			2,995			—			2,995
Other comprehensive income	—		—			—			—			(288		)	(288		)	—			(288		)
Dividends to common stockholders - $1.14 per share	—		—			(95,831		)	—			—			(95,831		)	—			(95,831		)
Balance, June 30, 2017	$	841	$	1,275,309		$	(28,699	)	$	(3	)	$	10,188		$	1,257,636		$	1,261		$	1,258,897

See accompanying notes to the consolidated financial statements.

CARE CAPITAL PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	For the Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	186,899		$	66,923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment	49,463			60,360
Proceeds from insurance settlement	(2,474		)	—
Amortization of above and below market lease intangibles, net	(3,060		)	(3,982		)
Amortization of deferred financing fees	2,081			2,527
Accretion of direct financing lease	(816		)	(733		)
Amortization of leasing costs and other intangibles	4,288			1,966
Amortization of stock-based compensation	2,907			2,921
Straight-lining of rental income, net	(408		)	(41		)
Gain on real estate dispositions	(104,420		)	(752		)
Net gain on lease termination	(23,743		)	—
Loss on extinguishment of debt	386			1,102
Deferred income tax (benefit) expense	(137		)	131
Other	(27		)	(52		)
Changes in operating assets and liabilities, net of effects of acquisitions:
Increase in other assets	(4,251		)	(2,260		)
Increase (decrease) in tenant deposits	2,496			(3,445		)
Decrease in accounts payable and other liabilities	(4,519		)	(3,844		)
Net cash provided by operating activities	104,665			120,821
Cash flows from investing activities:
Net investment in real estate property	(371,840		)	—
Proceeds from real estate disposals	93,718			76,990
Investment in loans receivable	(63,684		)	(37,996		)
Proceeds from loans receivable	45,818			35,226
Development project expenditures	(7,645		)	(19,473		)
Capital expenditures	(3,733		)	(2,700		)
Proceeds from insurance settlement	2,474			—
Net cash (used in) provided by investing activities	(304,892		)	52,047
Cash flows from financing activities:
Net change in borrowings under revolving credit facility	378,000			(80,500		)
Proceeds from debt	—			300,000
Repayment of debt	(36,500		)	(298,000		)
Payment of deferred financing costs	—			(2,009		)
Distributions to noncontrolling interest	(66		)	(62		)
Purchase of treasury stock	(1,234		)	(654		)
Cash distribution to common stockholders	(143,692		)	(95,724		)
Net cash provided by (used in) financing activities	196,508			(176,949		)
Net decrease in cash	(3,719		)	(4,081		)
Cash at beginning of period	15,813			16,995
Cash at end of period	$	12,094		$	12,914

Supplemental disclosure of cash flow information:
Interest paid	$	32,946		$	17,836
Income taxes (net refunded) paid	(12		)	505
Supplemental schedule of non-cash activities:
Transfer of real estate to receivables	68,764			29,432
Settlement of accrued acquisition costs via transfer of stock	—			1,373
(Decrease) increase in accrued capital expenditures	(2,568		)	996
Transfer of liability accounted stock-based compensation awards to equity	1,322			1,379
Other acquisition-related investing activities	(9,760		)	—
Proceeds from sales of real estate received in restricted cash	4,585			—

See accompanying notes to the consolidated financial statements.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Description of Business

Care Capital Properties, Inc. (together with its consolidated subsidiaries, unless the context otherwise requires or indicates, “we,” “us,” “our,” “our company” or “CCP”) is a self-administered, self-managed real estate investment trust (“REIT”) with a diversified portfolio of skilled nursing facilities (“SNFs”) and other healthcare assets operated by private regional and local care providers. We generate our revenues primarily by leasing our properties to unaffiliated tenants under long-term 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 loans, made primarily to our SNF operators and other post-acute care providers.

Our company was originally formed in April 2015 to hold the post-acute/SNF portfolio of Ventas, Inc. (“Ventas”) and its subsidiaries operated by regional and local care providers (the “CCP Business”). 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 applicable record date, and, 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 May 2017, we entered into a definitive agreement with Sabra Health Care REIT, Inc. (“Sabra”) pursuant to which our two companies will combine in an all stock transaction. Under the terms of the agreement, at the effective time of the merger, our stockholders will receive 1.123 shares of Sabra common stock for each share of our common stock they own. The transaction is subject to customary closing conditions, including receipt of the approval of both companies’ shareholders. We and Sabra will each hold a special meeting of our respective stockholders on August 15, 2017 in connection with the merger and related transactions. The transaction is expected to close during the third quarter of 2017.

As of June 30, 2017, our portfolio consisted of 331 properties operated by 39 private regional and local care providers, spread across 37 states and containing a total of approximately 36,000 beds/units. We conduct all of our operations through our wholly owned operating partnership, Care Capital Properties, LP (“Care Capital LP”), and its subsidiaries.

Note 2—Accounting Policies

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 Securities and Exchange Commission (“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 considered necessary for a fair statement of results for the interim periods have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The accompanying consolidated financial statements and related notes should be read in conjunction with our audited combined consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 1, 2017. Please refer to our audited consolidated financial statements for the year ended December 31, 2016, as certain note disclosures contained in such audited consolidated financial statements have been omitted from these interim consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued or Adopted Relevant Accounting Standards

In 2014, the FASB 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. This new guidance is effective January 1, 2018, with early adoption permitted beginning January 1, 2017, and will replace existing revenue recognition standards. The sale of investment property and any non-lease components contained within lease agreements will be required to follow the new guidance; however, lease components of lease contracts will be excluded from this guidance. This pronouncement allows either a full or a modified retrospective method of adoption. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this guidance. While we anticipate additional disclosure, we do not expect the adoption of this pronouncement will have a material effect on our consolidated financial statements, as substantially all of our revenue consists of rental income from leasing arrangements,

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

which is specifically excluded from ASU 2014-09; however, we will continue to evaluate this assessment until the guidance becomes effective. We are currently in the process of reviewing our revenue contracts and lease agreements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which, among other things, requires lessees to recognize most leases on the balance sheet and, therefore, will increase reported assets and liabilities of such lessees. This new guidance is effective January 1, 2019, with early adoption permitted, and will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases. For leases with a term of twelve months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The pronouncement requires a modified retrospective method of adoption, with some optional practical expedients. Upon adoption, we will recognize a lease liability and a right-of-use asset for operating leases where we are the lessee, such as ground leases and office leases. We will continue to evaluate the impact of this guidance until it becomes effective.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides for an impairment model that is based on expected losses rather than incurred losses. Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses. ASU 2016-13 is effective for us beginning January 1, 2020. We are continuing to evaluate this guidance; however, we do not expect its adoption will have a significant effect on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), that addresses eight classification issues related to the statement of cash flows. ASU 2016-15 is effective for us for fiscal years beginning after December 15, 2017. We are continuing to evaluate the application of this guidance and its effect on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not considered a business and, thus, accounted for as an asset acquisition (or disposition) as opposed to a business combination. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not considered a business. We elected to early adopt ASU 2017-01 on a prospective basis as of January 1, 2017. Under this new guidance, we expect that most acquisitions of investment property will not meet the definition of a business and, thus, will be accounted for as asset acquisitions. We allocate the purchase price of each acquired investment property that is accounted for as an asset acquisition based upon the relative fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, (v) any assumed financing that is determined to be above or below market, and (vi) the value of customer relationships. Asset acquisitions do not give rise to goodwill, and the related transaction costs are capitalized and included with the allocated purchase price.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. ASU 2017-04 is effective for us for fiscal years beginning after December 15, 2019. We are continuing to evaluate the application of this guidance and its effect on our consolidated financial statements.

Note 3—Triple-Net Lease Arrangements

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 consolidated balance sheets.

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 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 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

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

trends of the property, the historical payment pattern of the tenant, the type of property and government reimbursement. If our evaluation of these factors indicates that we may not be able to receive the increases in rent payments due in the future, we provide an allowance against the recognized straight-line rent receivable asset that we estimate may not be received. 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.

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.

Our accounts receivable balance was $6.0 million and $2.9 million, net of allowances of $5.6 million and $3.7 million, respectively, as of June 30, 2017 and December 31, 2016. We recognized charges (benefit) for rental income allowances within rental income, net in our consolidated statements of income and comprehensive income of $0.6 million and $(1.0) million, respectively, for the three months ended June 30, 2017 and 2016 and $2.1 million and $0.9 million, respectively, for the six months ended June 30, 2017 and 2016.

Our straight-line rent receivable balance was $1.1 million and $0.7 million, net of allowances of $100.7 million and $97.1 million, respectively, as of June 30, 2017 and December 31, 2016. We recognized charges for straight-line rent allowances within rental income, net in our consolidated statements of income and comprehensive income of $4.1 million and $3.8 million, respectively, for the three months ended June 30, 2017 and 2016 and $4.8 million and $11.1 million, respectively, for the six months ended June 30, 2017 and 2016.

Our properties were located in 37 states as of June 30, 2017, with properties in only one state (Texas) accounting for more than 10% of our total revenues for the three months then ended.

As of June 30, 2017, Senior Care Centers, LLC (together with its subsidiaries, “SCC”), Signature Healthcare Services, LLC (“SHS”) and Avamere Group, LLC (together with its subsidiaries, “Avamere”) operated approximately 18.4%, 10.6% and 10.2%, respectively, of our real estate investments based on gross book value.

For the three and six months ended June 30, 2017, approximately 16.1%, 13.8% and 11.0% and 16.7%, 13.1% and 11.3% of our total revenues excluding net gain on lease termination were derived from our lease and loan agreements with SCC, Signature HealthCARE, LLC (together with its subsidiaries, “Signature”) and Avamere, respectively. For the three and six months ended June 30, 2016, approximately 16.2%, 14.2% and 10.7% and 16.3%, 14.2%, and 10.7% of our total revenues were derived from our lease and loan agreements with SCC, Signature and Avamere, respectively.

Note 4—Acquisitions of Real Estate Property

In April 2017, we completed the acquisition of six behavioral health hospitals from affiliates of Signature Healthcare Services, LLC (“SHS”) for a total purchase price of $378.6 million, which included a fair market value purchase option, exercisable beginning in October 2018, to purchase one additional building. We funded a portion of this transaction with restricted cash held in an Internal Revenue Code of 1986, as amended (the “Code”), Section 1031 exchange escrow account. Concurrent with the closing of the transaction, we entered into a long-term triple-net lease with affiliates of SHS to operate the acquired properties at an initial contractual annual base rent of $30.3 million.

In March 2017, we completed the acquisition of one SNF for $3.0 million as part of the $39 million sale-leaseback transaction with an existing operator that was partially consummated in December 2016. In December 2016, we acquired four SNFs, one seniors housing communities and one campus (consisting of one SNF and one seniors housing community) from the operator for $36.0 million. As of March 31, 2017, all seven properties were held in a Code Section 1031 exchange escrow account with a qualified intermediary, and as of June 30, 2017, the properties had been released from the escrow account.

Estimated Fair Value

We accounted for our 2017 and 2016 acquisitions under the acquisition method in accordance with ASC 805.

The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed during 2017 and 2016 (in thousands):

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	For the Six Months Ended June 30, 2017		For the Year Ended December 31, 2016
Land and improvements	$	49,384	$	2,240
Buildings and improvements	320,561		31,640
Acquired lease intangibles	15,176		2,120
Total assets acquired	385,121		36,000
Tenant deposits	10,757		765
Accounts payable and other liabilities	2,524		—
Total liabilities assumed	13,281		765
Net assets acquired	$	371,840	$	35,235

Aggregate Revenue and NOI

For the three and six months ended June 30, 2017, aggregate revenues and net operating income (“NOI”) derived from our 2017 real estate acquisitions during our period of ownership were both $5.8 million. We did not complete any acquisitions during the three or six months ended June 30, 2016.

Unaudited Pro Forma

The following table illustrates the effect on revenues and net income attributable to common stockholders as if we had consummated the acquisitions completed during the six months ended June 30, 2017 as of January 1, 2016:



	For the Six Months Ended June 30,
	2017		2016
	(Unaudited)
	(In thousands, except per share amounts)
Revenues	$	204,989	$	364,418
Net income attributable to common stockholders	193,729		133,430
Net income attributable to common stockholders, per basic share	$	2.31	$	1.60
Net income attributable to common stockholders, per diluted share	2.31		1.60

Deal Costs

Effective January 1, 2017, we adopted ASU 2017-01 and will capitalize acquisition costs associated with completed asset acquisitions. For the three and six months ended June 30, 2017, deal costs consist of expenses associated with transactions that were not consummated, operator transitions and merger-related costs. For the three and six months ended June 30, 2016, deal costs consist of expenses primarily related to transactions, whether consummated or not, and operator transitions. Deal costs were $8.3 million and $0.9 million for the three months ended June 30, 2017 and 2016, respectively, and $8.5 million and $2.0 million for the six months ended June 30, 2017 and 2016, respectively. Included in deal costs for the three and six months ended June 30, 2017 is a lease termination fee of $2.0 million incurred in connection with the transition of fifteen SNFs to new operators.

Note 5—Assets Held For Sale and Dispositions of Real Estate Property

As of June 30, 2017 and December 31, 2016, we classified twelve properties and thirty properties, respectively, as assets held for sale. The corresponding assets are included in other assets on our consolidated balance sheets and the corresponding liabilities are included in accounts payable and other liabilities on our consolidated balance sheets.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Rollforward of Assets Held For Sale
	Number of Properties		Net Book Value
			(In thousands)
December 31, 2016	30		$	66,871
Properties added	4		5,264
Properties sold	(22	)	(53,767		)
June 30, 2017	12		$	18,368

During the three months ended June 30, 2017, we sold thirteen SNFs for aggregate consideration of $103.0 million. During the six months ended June 30, 2017, we sold twenty-two SNFs for aggregate consideration of $172.0 million, of which $4.0 million is contingent consideration. We recognized a total gain of $72.2 million and $104.4 million, respectively, on the dispositions for the three and six months ended June 30, 2017. We also recognized a deferred gain of $8.0 million as of June 30, 2017, which is reflected in accounts payable and other liabilities. In connection with the sale of thirteen SNFs, we made a $8.0 million loan to an affiliate of the purchasers. See “Note 6—Loans Receivable, Net.” All twenty-two SNFs sold were previously classified as held for sale. As of June 30, 2017, a portion of the net proceeds from these sales were held in a Code Section 1031 exchange escrow account with a qualified intermediary and reflected in restricted cash on our consolidated balance sheets.

During the three and six months ended June 30, 2016, we sold eight and fifteen SNFs for aggregate consideration of $96.6 million and $106.5 million, respectively. We recognized a net gain of $0.9 million and $0.8 million, respectively, on the dispositions for the three and six months ended June 30, 2016. In connection with the sale of seven SNFs, we made a mezzanine loan to an affiliate of the purchasers in the amount of $25.0 million. And in connection with the sale of one SNF, we made an 18-month secured loan to the purchaser in the amount of $4.5 million. See “Note 6—Loans Receivable, Net.” All fifteen SNFs sold were previously classified as held for sale.

For the three and six months ended June 30, 2017, we did not recognize any impairment charges. For the three and six months ended June 30, 2016, we recognized a $0.0 million and $5.5 million impairment on real estate assets and goodwill, respectively, as a result of our decision to pursue the sale or transition of certain properties in our portfolio. The fair value was estimated based on the intended purchase price of the property or based on a market approach and Level 3 inputs.

During the three and six months ended June 30, 2017, we received $2.5 million in insurance proceeds in excess of our estimated recovery related to one SNF located in West Virginia that sustained property damage due to casualty in 2016. We recognized the estimated net loss of $3.6 million in the year ended December 31, 2016, which was reflected in the other expenses, net line on our consolidated statements of income.

Note 6—Loans Receivable, Net

Below is a summary of our loans receivable as of June 30, 2017 and December 31, 2016.



	June 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
Mortgage loans receivable, net	$	9,428	$	8,994	$	9,313	$	8,746
Other loans receivable, net	71,562		70,923		52,951		52,288
Total loans receivable, net	$	80,990	$	79,917	$	62,264	$	61,034

Mortgage Loans Receivable, Net

Mortgage loans receivable, net represents two loans. One loan, with a principal amount of $5.6 million and a net carrying value of $5.3 million, is secured by one SNF, has a stated interest rate of 9.75% per annum and matures in 2018. The other loan, with a principal amount of $4.5 million and a net carrying value of $4.2 million, is secured by one SNF, has a stated interest rate of 10.0% per annum, and was previously scheduled to mature in 2017. This loan was made to the purchaser of the property in February 2016 and was cross-collateralized and cross-defaulted to our lease agreements with affiliates of the borrower. In February 2017, we converted the loan to a secured construction loan and committed funds up to approximately $19.0 million to finance the redevelopment of the SNF to a behavioral healthcare facility. The converted loan has a stated interest rate of 10.0% per annum and matures in 2027. Interest on the loan represents unrecognized profit.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Loans Receivable, Net

During the three and six months ended June 30, 2017, we made two loans to existing operators, one of which has a principal amount of $5.4 million, matures in June 2022 and has a stated interest rate of 10.0% per annum and the other of which has a principal amount of $7.0 million, matures in October 2017 and has a stated interest rate of 10.0%. In addition, we made an $8.0 million loan that matures in June 2019 with a stated interest rate of 10.0% per annum to an affiliate of the purchasers of thirteen disposed SNFs. In connection with operator transitions during the three and six months ended June 30, 2017, we made three working capital loans, of which $2.1 million principal amount was outstanding at June 30, 2017.

During the three months ended June 30, 2016, we made a four-year mezzanine loan in the amount of $25.0 million and maturing in 2020 to an affiliate of the purchasers of seven properties we sold. The loan has a stated interest rate of 10.0% per annum. It is secured by equity interests in subsidiaries of the borrower and cross-collateralized and cross-defaulted to our lease agreements with affiliates of the borrower. During the six months ended June 30, 2016, in connection with the transition of fourteen SNFs from our existing tenant to two replacement operators, we made or purchased working capital loans, of which $2.2 million principal amount was outstanding at June 30, 2017.

The remaining loans receivable balance of $21.8 million as of June 30, 2017 consists of eight loans with various operators with interest rates ranging from 5.0% to 11.3% per annum and maturity dates through 2027.

Interest income on loans receivable, net for the three months ended June 30, 2017 and 2016 was $1.5 million and $0.8 million, respectively. Interest income on net loans receivable for the six months ended June 30, 2017 and 2016 was $2.8 million and $1.4 million, respectively.

Fair value estimates as reflected in the table above are subjective in nature and based upon Level 3 inputs and 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.

Note 7—Intangible Assets and Liabilities and Goodwill

The following is a summary of our intangible assets and liabilities and goodwill as of June 30, 2017 and December 31, 2016:



	June 30, 2017				December 31, 2016
	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	$	52,716		9.1	$	56,570		11.1
In-place lease intangibles	48,348			10.8	35,861			12.8
Tradename, technology and customer relationships	2,950			3.0	2,950			3.5
Accumulated amortization	(46,690		)	N/A	(44,511		)	N/A
Goodwill	123,884			N/A	123,884			N/A
Net intangible assets	$	181,208		10.0	$	174,754		11.5
Intangible liabilities:
Below market lease intangibles	$	132,182		11.5	$	167,789		15.0
Above market ground lease intangibles	1,907			51.4	1,907			51.9
Accumulated amortization	(68,625		)	N/A	(72,060		)	N/A
Purchase option intangibles	5,546			N/A	5,546			N/A
Net intangible liabilities	$	71,010		12.7	$	103,182		15.7

N/A—Not Applicable.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Above market lease intangibles and in-place lease intangibles are included in acquired lease intangibles within real estate investments on our 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 consolidated balance sheets. Tradename, technology and customer relationships are associated with our specialty valuation firm subsidiary and included in other assets on our consolidated balance sheets. For the three months ended June 30, 2017 and 2016, our net accretion related to all of these intangibles was $0.4 million and $1.2 million, respectively. For the six months ended June 30, 2017 and 2016, our net accretion related to all of these intangibles was $1.4 million and $2.4 million, respectively. The estimated net accretion related to these intangibles for the remainder of 2017 and the subsequent four years is as follows: remainder of 2017 - $0.2 million; 2018 - $0.6 million; 2019 - $1.1 million; 2020 - $1.6 million; and 2021 - $0.6 million.

For the three and six months ended June 30, 2017, we recognized revenues of $22.6 million and $23.7 million, respectively, due to the accelerated amortization of above and below market rent intangibles as a result of the lease termination with respect to properties transitioned to new operators, which is recorded in net gain on lease termination. In addition, for the transitioned properties, depreciation and amortization increased by $1.9 million and $2.1 million for the three and six months ended June 30, 2017, respectively, due to accelerated amortization of in-place lease intangibles. As a result of the operator transition and lease termination, we incurred a lease termination fee of $2.0 million, which is reflected in deal costs on the consolidated statements of income.

Note 8—Other Assets

The following is a summary of our other assets as of June 30, 2017 and December 31, 2016:



	June 30, 2017		December 31, 2016
	(In thousands)
Straight-line rent receivables, net	$	1,065	$	657
Deferred lease costs, net	5,963		5,471
Assets held for sale	21,240		70,103
Derivative fair value asset	10,188		10,476
Other assets, net	89,650		18,425
Total other assets	$	128,106	$	105,132

Other assets, net includes a $68.8 million receivable pertaining to sale proceeds held in an escrow account as of June 30, 2017.

Note 9—Borrowing Arrangements

The following is a summary of our term loans, senior notes and other debt as of June 30, 2017 and December 31, 2016:



	June 30, 2017		December 31, 2016
	(In thousands)
Unsecured revolving credit facility	$	402,000	$	24,000
Secured term loan due 2019	98,500		135,000
Unsecured term loan due 2020	474,000		474,000
Unsecured term loan due 2023	200,000		200,000
5.125% senior notes due 2026	500,000		500,000
5.38% senior notes due 2027	100,000		100,000
Total	1,774,500		1,433,000
Unamortized debt issuance costs	15,999		18,466
Term loans, senior notes and other debt	$	1,758,501	$	1,414,534

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revolving Credit Facility and Unsecured Term Loans

Our unsecured credit facility (the “Facility”) is comprised of a $600 million revolving credit facility (the “Revolver”), a $600 million term loan due 2017 (which has been repaid in full) and an $800 million term loan due 2020. 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 June 30, 2017, the applicable margin was 1.30% for Revolver borrowings and 1.50% for term loan borrowings, and we had approximately $198 million of unused borrowing capacity available under the Revolver. For the three months ended June 30, 2017 and 2016, we recognized interest expense of $5.2 million and $6.6 million, respectively, related to the Facility. For the six months ended June 30, 2017 and 2016, we recognized interest expense of $8.5 million and $13.6 million, respectively, related to the Facility.

In January 2016, Care Capital LP, as borrower, and CCP and Care Capital Properties GP, LLC (“Care Capital GP”), as guarantors, entered into a Term Loan and Guaranty Agreement with a syndicate of banks that provides for a $200 million unsecured term loan due 2023 at an interest rate of LIBOR plus an applicable margin based on Care Capital LP’s unsecured long-term debt ratings, which was 1.80% at June 30, 2017. For the three months ended June 30, 2017 and 2016, we recognized interest expense of $1.4 million and $1.1 million, respectively, related to the $200 million term loan. For the six months ended June 30, 2017 and 2016, we recognized interest expense of $2.7 million and $1.9 million, respectively, related to the $200 million term loan.

Also in January 2016, we entered into agreements to swap a total of $600 million of indebtedness outstanding under our $200 million term loan and our $800 million term loan, effectively converting the interest on that debt from floating rates to fixed rates. The swap agreements have original terms of 4.6 years and seven years.

Secured Term Loan

In July 2016, certain wholly owned subsidiaries of Care Capital LP, as borrowers (the “Borrowers”), entered into a Loan Agreement with a syndicate of banks providing for a $135 million term loan due 2019 that bears interest at a fluctuating rate per annum equal to LIBOR for a one-month interest period plus 1.80%. The term loan is currently secured by first lien mortgages and assignments of leases and rents on ten facilities owned by the Borrowers. The payment and performance of the Borrowers’ obligations under the term loan are guaranteed by CCP and Care Capital LP. During the three months ended June 30, 2017, we repaid $36.5 million principal amount of the term loan. For the three and six months ended June 30, 2017, we recognized interest expense of $1.0 million and $1.8 million, respectively, related to this loan.

Senior Notes

In July 2016, Care Capital LP issued and sold $500 million aggregate principal amount of 5.125% Senior Notes due 2026 (the “Notes due 2026”) to qualified institutional buyers pursuant to Rule 144A and to certain persons outside of the United States pursuant to Regulation S, each under the Securities Act, for total proceeds of $500 million before the initial purchasers’ discount and expenses. The Notes due 2026 are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by CCP and Care Capital GP. Care Capital LP may, at its option, redeem the Notes due 2026 at any time in whole or from time to time in part at a redemption price equal to 100% of their principal amount, together with accrued and unpaid interest thereon, if any, to (but excluding) the date of redemption, plus, if redeemed prior to May 15, 2026, a make-whole premium. In February 2017, we completed an offer to exchange the Notes due 2026 with a new series of notes that are registered under the Securities Act of 1933, as amended (the “Securities Act”), and are otherwise substantially identical to the original Notes due 2026, except that certain transfer restrictions, registration rights and liquidated damages do not apply to the new notes. We did not receive any additional proceeds in connection with the exchange offer. For the three and six months ended June 30, 2017, we recognized interest expense of $6.4 million and $12.8 million, respectively, related to the Notes due 2026.

In May 2016, Care Capital LP issued and sold $100.0 million aggregate principal amount of 5.38% Senior Notes due May 17, 2027 (the “Notes due 2027”) in a private placement exempt from registration under the Securities Act, for total proceeds of $100.0 million before expenses. The Notes due 2027 are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by CCP and Care Capital GP. For the three and six months ended June 30, 2017, we recognized interest expense of $1.3 million and $2.7 million, respectively, related to the Notes due 2027. For the three and six months ended June 30, 2016, we recognized interest expense of $0.7 million and $0.7 million, respectively, related to the Notes due 2027.

Debt Maturities

As of June 30, 2017, our indebtedness had the following maturities:

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Principal Amount Due at Maturity		Revolver (1)		Total Maturities
	(In thousands)
2019	$	98,500	$	402,000	$	500,500
2020	474,000		—		474,000
2021	—		—		—
Thereafter	800,000		—		800,000
Total Maturities	$	1,372,500	$	402,000	$	1,774,500

(1) As of June 30, 2017, we had $12.1 million of unrestricted cash, resulting in $389.9 million of net borrowings outstanding under the Revolver. The Revolver may be extended, at Care Capital LP’s option, for two additional six-month periods.

Fair Value of Debt

As of June 30, 2017, the fair value and carrying value of our term loans, senior notes and other debt totaled $1.7 billion.

Note 10— Derivatives and Hedging Activities

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings. We recognized interest expense of $0.5 million and $1.3 million related to derivatives and hedging activities in the three months ended June 30, 2017 and 2016, respectively. We recognized interest expense of $1.2 million and $2.2 million related to derivatives and hedging activities in the six months ended June 30, 2017 and 2016, respectively.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. As of June 30, 2017 and December 31, 2016, we had eight outstanding interest rate swaps with a combined notional amount of $600 million that were designated as cash flow hedges of interest rate risk. During the six months ended June 30, 2017 and 2016, these derivatives were used to hedge the variable cash flows associated with existing variable rate debt.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. During the next twelve months, we estimate that an additional $0.4 million will be reclassified as a decrease to interest expense.

The table below presents the fair value of our derivative financial instruments, as well as their classification on our consolidated balance sheets as of June 30, 2017 and December 31, 2016 (in thousands):



	Asset Derivative
Derivatives Designated as Hedging Instruments	Balance Sheet Location	June 30, 2017 Fair Value		December 31, 2016 Fair Value
Interest rate contracts	Other assets	$	10,188	$	10,476

As of June 30, 2017 and December 31, 2016, we did not have any derivative instruments in a net liability position.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the effect of our derivative financial instruments on our consolidated statements of income and comprehensive income for the three and six months ended June 30, 2017 and 2016 (in thousands):



Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)			Location of Gain/Loss Reclassified from AOCI into Income (Effective Portion)	Amount of Loss Reclassified from AOCI into Income (Effective Portion)
Three months ended June 30, 2017
Interest rate contracts	$	(2,730	)	Interest expense	$	(447	)
Three months ended June 30, 2016
Interest rate contracts	$	(7,456	)	Interest expense	$	(1,312	)
Six months ended June 30, 2017
Interest rate contracts	$	(1,525	)	Interest expense	$	(1,237	)
Six months ended June 30, 2016
Interest rate contracts	$	(14,164	)	Interest expense	$	(2,229	)

Our derivatives were 100% effective, and therefore, we did not record any hedge ineffectiveness in earnings during the three or six months ended June 30, 2017 and 2016. We did not offset our derivative financial instrument asset against any derivative financial instrument liabilities as of June 30, 2017 or December 31, 2016.

Credit-Risk-Related Contingent Features

Our agreements with each of our derivative counterparties provide that we could be in default on our derivative obligations if the underlying indebtedness is accelerated by the lender due to our default on that indebtedness.

Fair Value Disclosure of Derivative Financial Instruments

The valuation of our interest rate swaps is determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates derived from observable market forward interest rate curves.

To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements (such as collateral postings, thresholds, mutual puts and guarantees).

The fair value of interest rate hedging instruments is the amount that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the reporting date. Our valuations of derivative instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative, and therefore fall into Level 2 of the fair value hierarchy. The valuations reflect the contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including forward curves. The fair values of interest rate hedging instruments also incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty's nonperformance risk.

The table below presents our derivative financial instrument asset measured at fair value on a recurring basis as of June 30, 2017, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at June 30, 2017
Derivative financial instrument asset	$	—	$	10,188	$	—	$	10,188

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents our derivative financial instrument asset measured at fair value on a recurring basis as of December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):



	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2016
Derivative financial instrument asset	$	—	$	10,476	$	—	$	10,476

Note 11—Income Taxes

We elected to be treated as a REIT under the Code, beginning with the taxable year ended December 31, 2015. As 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 requirements on a quarterly and annual basis. We also review our distributions and projected 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.

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 (“TRSs”). We have elected for one of our subsidiaries to be treated as a TRS, which is subject to federal, state and local income taxes.

Although the TRS will be required to pay minimal federal income taxes for the three months ended June 30, 2017, the related federal income tax liability may increase in future periods.

Our consolidated provision for income taxes for the three and six months ended June 30, 2017 was an expense of $0.2 million and $0.4 million, respectively. Our consolidated provision for income taxes for the three and six months ended June 30, 2016 was an expense of $0.1 million and $0.6 million, respectively.

As of June 30, 2017, we recognized a $0.4 million tax liability for an uncertain tax position, and as of December 31, 2016, we had no uncertain tax positions which would require us to record a tax exposure liability.

Note 12—Stock-Based Compensation

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 (“RSUs”), performance shares 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 and six months ended June 30, 2017, we granted 20,800 and 161,645 shares of restricted stock and 4,160 and 39,046 RSUs, including performance-based units, to employees and directors under the Plan having a grant date fair value of $0.7 million and $5.3 million, respectively. During the three and six months ended June 30, 2016, we granted 25,644 and 132,439 shares of restricted stock, 496,859 options to purchase common stock, and 0 and 41,626 RSUs, including performance-based units, to employees and directors under the Plan having a grant date fair value of $0.7 million and $19.6 million, respectively. The value of shares of restricted stock granted is the closing price of our common stock on the date of grant. Restricted stock and option awards granted to employees generally vest in three equal annual installments beginning on the date of grant or on the first anniversary of the date of grant. For shares with a graded vesting schedule that only require service, we recognize stock-based compensation expense on a straight-line basis over the requisite service period of the last separately vesting portion of the award. Performance-based RSUs granted to employees generally vest on the day on which our Compensation Committee meets to determine our level of achievement over the performance period.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13—Earnings Per Share

The following table shows the amounts used in computing our basic and diluted earnings per common share:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands, except per share amounts)
Numerator for basic and diluted earnings per share:
Net income attributable to common stockholders	$	121,973		$	37,151		$	186,882		$	66,917
Less: dividends on unvested restricted shares	(175		)	(191		)	(351		)	(382		)
Net income attributable to common stockholders excluding dividends on unvested restricted shares	$	121,798		$	36,960		$	186,531		$	66,535

Denominator:
Denominator for basic earnings per share—weighted average shares	83,724			83,595			83,697			83,569
Effect of dilutive securities:
Stock options	1			1			1			1
Restricted stock	129			76			129			69
Denominator for diluted earnings per share—adjusted weighted average shares	83,854			83,672			83,827			83,639
Basic earnings per share:
Net income attributable to common stockholders, excluding dividends on unvested restricted shares	$	1.45		$	0.44		$	2.23		$	0.80
Diluted earnings per share:
Net income attributable to common stockholders, excluding dividends on unvested restricted shares	$	1.45		$	0.44		$	2.23		$	0.80

Note 14—Stockholders’ Equity

In December 2016, we established an “at-the-market” (“ATM”) equity offering program through which we may sell from time to time up to an aggregate of $250 million of our common stock. During the six months ended June 30, 2017, we did not issue or sell any shares of common stock under the ATM program.

Dividends

On January 5, 2017, we paid the fourth quarterly installment of our 2016 cash dividend in the amount of $0.57 per share to the holders of record of our common stock on December 16, 2016.

On March 31, 2017, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of March 10, 2017.

On June 30, 2017, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of June 9, 2017.

Note 15—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.

CARE CAPITAL PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Between June 29 and July 10, 2017, five putative class action lawsuits were filed in the United States District Court for the District of Delaware, and were subsequently consolidated under the caption In re Care Capital Properties, Inc. Shareholder Litigation, Consolidated Case No. 1:17-cv-00859-LPS (the “Consolidated Delaware Litigation”). The Consolidated Delaware Litigation names us and our directors as defendants, and certain of the lawsuits also name as defendants Sabra, PR Sub, LLC, a wholly owned subsidiary of Sabra (“Merger Sub”), Care Capital LP, and Sabra Health Care Limited Partnership (“Sabra LP”). On June 30, 2017, a putative class action lawsuit (Douglas v. Care Capital Props., Inc., et al., Case No. 1:17-cv-04942) (the “Illinois Litigation”) was filed in the United States District Court for the Northern District of Illinois against us and our directors, and on July 28, 2017, the Court entered the parties’ voluntary stipulation staying the Illinois Litigation. All six lawsuits allege that the joint proxy statement/prospectus related to the proposed merger violated federal securities laws in purportedly omitting to disclose information necessary to make the statements therein not materially false or misleading. The lawsuits seek, among other things, an injunction of the proposed merger; dissemination of a revised registration statement; declarations that the registration statement violated federal securities laws; damages, including rescissory damages; and an award of costs and attorneys’ fees. The lawsuits are in a preliminary stage. We, our directors, Sabra, Merger Sub, Care Capital LP, and Sabra LP believe that each of these actions is without merit. Additional lawsuits arising out of or relating to the merger agreement or the merger may be filed in the future.

Note 16—Summarized Condensed Consolidating and Combining Information

CCP and Care Capital GP fully and unconditionally guaranteed the obligation to pay principal and interest with respect to Care Capital LP’s outstanding Notes due 2026. CCP, as limited partner, owns a 99% interest in Care Capital LP, and Care Capital GP, as general partner, owns a 1% interest in Care Capital LP. CCP is the sole member of Care Capital GP and, as a result, Care Capital LP is indirectly 100% owned by CCP. CCP consolidates Care Capital GP and Care Capital LP and Care Capital LP’s consolidated subsidiaries for financial reporting purposes and has no direct subsidiaries other than Care Capital GP and Care Capital LP. CCP’s assets and liabilities consist entirely of its investments in the General Partner and Care Capital LP, and CCP’s operations are conducted entirely through Care Capital LP. Therefore, the assets and liabilities of CCP and Care Capital LP are the same on their respective financial statements.

None of Care Capital LP’s subsidiaries are obligated with respect to the Notes due 2026. Under certain circumstances, however, contractual and legal restrictions, including those contained in the instruments governing Care Capital LP’s subsidiaries’ outstanding mortgage indebtedness, may restrict Care Capital LP’s ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including with respect to the Notes due 2026.

Note 17—Subsequent Events

Pursuant to our merger agreement with Sabra, on August 2, 2017, our Board of Directors declared a prorated third quarter 2017 dividend on our common stock, conditioned upon the completion of the merger. The dividend will be payable in cash to stockholders of record at the close of business on the last business day prior to the date on which the merger becomes effective (the “Effective Time”). The per share dividend amount payable by us will be equal to our most recent quarterly dividend rate ($0.57), multiplied by the number of days elapsed since our last dividend payment date (June 30, 2017) through and including the day immediately prior to the day on which the Effective Time occurs, divided by the actual number of days in the calendar quarter in which such dividend is declared (92). If the merger does not close, the prorated dividend will not be paid.

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

The following discussion provides information that management believes is relevant to an understanding and assessment of the financial condition and results of operations of Care Capital Properties, Inc. (together with its consolidated subsidiaries, unless the context otherwise requires or indicates, “we,” “us,” “our,” “our company” or “CCP”). You should read this discussion in conjunction with our consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

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 materially from our expectations. Except as required by law, we do not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

Factors that could cause our actual future results and trends to differ materially from those anticipated are discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017, and in Part II, Item IA of this Quarterly Report on Form 10-Q.

Company Overview

We are a self-administered, self-managed REIT with a diversified portfolio of skilled nursing facilities (“SNFs”) and other healthcare assets operated by private regional and local care providers. We primarily generate our revenues by leasing our properties to unaffiliated tenants under long-term 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 loans, made primarily to our SNF operators and other post-acute care providers.

2017 Highlights and Recent Developments

•

Investing Activities

•

In April 2017, we completed the acquisition of six behavioral health hospitals from affiliates of Signature Healthcare Services, LLC (“SHS”) for a total purchase price of $378.6 million, which included a fair market value purchase option, exercisable beginning in October 2018, to purchase one additional building. Concurrent with the closing of the transaction, we entered into a long-term triple-net lease with affiliates of SHS to operate the acquired properties at an initial contractual annual base rent of $30.3 million. This is a new operator relationship in our portfolio.


•	In March 2017, we completed the acquisition of one SNF for $3.0 million as part of the $39 million sale-leaseback transaction with an existing operator that was partially consummated in December 2016. In December 2016, we acquired four SNFs, one seniors housing communities and one campus (consisting of one SNF and one seniors housing community) from the operator for $36.0 million.

•

In June 2017, we sold thirteen SNFs for aggregate consideration of $103.0 million and recognized a total gain of $72.2 million on the dispositions. As part of the transaction, we provided a $8.0 million loan to an affiliate of the purchasers. During the three months ended March 31, 2017, we sold nine SNFs for aggregate consideration of $69.0 million, of which $4.0 million is contingent consideration, and recognized a total gain of $32.2 million on the dispositions. All of these SNFs were previously classified as held for sale. As of June 30, 2017, a portion of the net proceeds from these sales were held in an Internal Revenue Code of 1986, as amended (the “Code”), Section 1031 exchange escrow account with a qualified intermediary and reflected in restricted cash on our consolidated balance sheets.

Operating Activities


•	During the first half of 2017, we transitioned twenty-nine SNFs from existing tenants to replacement operators in consensual transactions. In connection with these transitions, we made certain working capital loans to the replacement operators.

•

In February 2017, we converted the mortgage loan that was made to the purchaser of a closed SNF in connection with the sale of the property in February 2016 to a secured construction loan and committed funds up to approximately $19.0 million to finance the redevelopment of the SNF to a behavioral healthcare facility. The converted loan has a stated interest rate of 10.0% per annum and matures in 2027.

Financing Activities


•	On January 5, 2017, we paid the fourth quarterly installment of our 2016 cash dividend in the amount of $0.57 per share to the holders of record of our common stock on December 16, 2016.


•	On March 31, 2017, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock on March 10, 2017.


•	On June 30, 2017, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock on June 9, 2017.

•

Results of Historical Operations

We evaluate our operating performance and allocate resources based on a single reportable business segment: triple-net leased properties. We generate our revenues primarily by leasing our properties to unaffiliated tenants under long-term 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 loans made primarily to our SNF operators and other post-acute providers.

Three and Six Months Ended June 30, 2017 and 2016

The table below shows our results of operations for the three and six months ended June 30, 2017 and 2016 and the effect of changes in those results from period to period on our net income attributable to common stockholders.



	For the Three Months Ended June 30,										For the Six Months Ended June 30,
						Increase (Decrease) to Net Income										Increase (Decrease) to Net Income
	2017			2016		$			%		2017			2016		$			%
	(Dollars in thousands)										(Dollars in thousands)
Revenues:
Rental income, net	$	84,880		$	82,316	$	2,564		3.1	%	$	163,101		$	163,667	$	(566	)	(0.3	)%
Income from investments in direct financing lease and loans	2,217			1,455		762			52.4		4,164			2,637		1,527			57.9
Real estate services fee income	1,458			1,478		(20		)	(1.4	)	2,683			3,183		(500		)	(15.7	)
Interest and other income	250			413		(163		)	(39.5	)	573			718		(145		)	(20.2	)
Net gain on lease termination	22,628			—		22,628			nm		23,743			—		23,743			nm
Expenses:
Interest	16,783			10,872		5,911			54.4		31,968			20,939		11,029			52.7
Depreciation and amortization	28,917			28,189		728			2.6		53,813			56,830		(3,017		)	(5.3	)
Impairment on real estate investments	—			29		(29		)	nm		—			5,528		(5,528		)	nm
General, administrative and professional fees	8,602			8,839		(237		)	(2.7	)	17,330			16,840		490			2.9
Deal costs	8,280			866		7,414			856.1		8,477			2,026		6,451			318.4
Loss on extinguishment of debt	386			345		41			11.9		386			1,102		(716		)	(65.0	)
Other expenses, net	(1,513		)	125		(1,638		)	nm		(600		)	219		(819		)	(374.0	)

Gain on real estate dispositions	72,175			872		71,303			nm		104,420			752		103,668			nm

nm - not meaningful

Rental Income, Net

Rental income increased during the three months ended June 30, 2017 compared to the same period last year primarily due to the acquisition of SHS in late April 2017. Rental income remained consistent during the six months ended June 30, 2017 compared to the prior year period due to property dispositions in late 2016 and 2017 and rent abatements or rent restructures on new and existing leases, offset by the December 2016 acquisition and contractual rent escalations.

Income from Investments in Direct Financing Lease and Loans

Income from investments in direct financing lease and loans, which represents the income from our direct financing lease and our loans receivable, increased during the three and six months ended June 30, 2017 over the same periods last year due to additional loans made in 2016 and 2017.

Real Estate Services Fee Income

Real estate services fee income represents revenue generated by our specialty valuation firm subsidiary for 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

Interest represents the interest expense and amortization of debt issuance costs incurred in connection with borrowings under our revolving credit facility, term loans and senior notes. The increase in the three and six months ended June 30, 2017 compared to the same periods last year is due to the refinancing in 2016 of certain indebtedness, as well as additional net borrowings under our revolving credit facility.

Depreciation and Amortization

Depreciation and amortization expense decreased during the three and six months ended June 30, 2017 compared to the same periods last year primarily due to dispositions completed in 2016, offset by properties acquired in late 2016 and the first half of 2017.

Impairment on Real Estate Investments and Associated Goodwill

We did not recognize any impairments on real estate investments during the three and six months ended June 30, 2017. For the three and six months ended June 30, 2016, we recognized impairments of $0.0 million and $5.5 million, respectively, as a result of reclassifying properties as held for sale and subsequently disposing of the assets.

General, Administrative and Professional Fees

General, administrative and professional fees for the three and six months ended June 30, 2017 include expenses incurred by our specialty valuation firm subsidiary in the amount of $1.4 million and $2.8 million, respectively. The general, administrative and professional fees for the three and six months ended June 30, 2017 compared to the prior year periods are consistent primarily due to additional headcount that offsets the expiration of the transition services agreement with Ventas, Inc. that occurred in August 2016.

Deal Costs

Effective January 1, 2017, we adopted ASU 2017-01 and will capitalize acquisition costs associated with completed asset acquisitions. For the three and six months ended June 30, 2017, deal costs consist of expenses associated with transactions that were not consummated, operator transitions and merger-related costs. In addition, during the three months ended June 30, 2017, we paid a lease termination fee of $2.0 million in connection with an operator transition of fifteen SNFs. For the three and six months ended June 30, 2016, deal costs consist of expenses primarily related to transactions, whether consummated or not, and operator transitions.

Loss on Extinguishment of Debt

In connection with our 2016 debt refinancings, we incurred a loss on extinguishment of debt for the three and six months ended June 30, 2016. This loss was due to the write-off of unamortized debt issuance costs associated with the repayment of a portion of indebtedness outstanding under our previous unsecured term loan due 2017. We incurred a loss on extinguishment of debt for the three and six months ended June 30, 2017 as a result of the $36.5 million repayment of a portion of our secured term loan.

Other Expenses, Net

Other expenses, net consists primarily of certain unreimbursable expenses, such as legal and other professional services, related to our triple-net leased portfolio. In addition, we received $2.5 million in insurance proceeds in excess of our estimated recovery related to one SNF located in West Virginia that sustained property damage due to casualty in 2016. We recognized the estimated net loss of $3.6 million in the year ended December 31, 2016, which was reflected in the other expenses, net line on our consolidated statements of income.

Gain on Real Estate Dispositions

This item represents the gains on the sales of thirteen and twenty-two assets, respectively, during the three and six months ended June 30, 2017 and eight and fifteen assets, respectively, during the three and six months ended June 30, 2016. We also recognized a deferred gain of $8.0 million as of June 30, 2017 which is reflected in accounts payable and other liabilities.

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 consolidated historical operating results, you should examine these measures in conjunction with net income as presented in our 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 believe that normalized FAD is useful because it allows investors, analysts and management to measure the quality of our earnings.

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 items which may be nonrecurring or recurring in nature and may not be consistent in amounts from period to period. Normalized FAD represents normalized FFO adjusted for amortization determined in accordance with GAAP reflected as income and/or expenses, as well as other expenditures, such as capital expenditures and acquisition costs.

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Net income attributable to common stockholders	$	121,973		$	37,151		$	186,882		$	66,917
Adjustments:
Real estate depreciation and amortization	28,708			27,999			53,410			56,455
Real estate depreciation related to noncontrolling interests	(32		)	(37		)	(65		)	(74		)
Impairment on real estate investments and associated goodwill	—			29			—			5,528
Gain on real estate dispositions	(72,175		)	(872		)	(104,420		)	(752		)
FFO attributable to common stockholders	78,474			64,270			135,807			128,074

Adjustments:
Income tax expense	172			129			411			550
Transition services fee expense	—			602			—			1,204
Deal costs	8,280			866			8,477			2,026
Amortization of other intangibles	171			171			341			342
Loss on extinguishment of debt	386			345			386			1,102
Net gain on lease termination	(22,628		)	—			(23,743		)	—
Other items, net	(2,372		)	(128		)	(2,257		)	(433		)
Normalized FFO attributable to common stockholders	62,483			66,255			119,422			132,865

Items included in Normalized FFO:
Amortization of above and below market and lease intangibles, net	(1,338		)	(1,950		)	(3,060		)	(3,982		)
Amortization of deferred financing fees	1,024			1,244			2,081			2,527
Accretion of direct financing lease	(416		)	(372		)	(816		)	(733		)
Other amortization	(27		)	(25		)	(53		)	(52		)
Straight-lining of rental income, net	(410		)	(21		)	(408		)	(41		)
Other adjustments:
Capital expenditures	(2,783		)	(672		)	(3,733		)	(2,699		)
Stock-based compensation	1,830			1,567			3,614			3,247
Deal costs	(8,280		)	(866		)	(8,477		)	(1,730		)
Acquisition costs	(1,465		)	—			(3,791		)	—
Other items, net	2,355			—			2,292			—
Normalized FAD attributable to common stockholders	$	52,973		$	65,160		$	107,071		$	129,402

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, and adjust for items which may be nonrecurring or recurring in nature and may not be consistent in amounts from period to period. In calculating this measure, we consider the effect on net income of our investments and dispositions that were completed during the periods shown, as if those transactions had been completed as of the beginning of the applicable period, as well as income related to completed transactions that are required to be treated as installment sales under GAAP. The following table sets forth a reconciliation of our Adjusted EBITDA to net income for the periods presented:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Net income	$	121,981		$	37,140		$	186,899		$	66,923
Adjustments for investments and dispositions during the period	(413		)	(806		)	1,255			(2,256		)
Adjusted net income	121,568			36,334			188,154			64,667

Add back:
Interest	16,783			10,872			31,968			20,939
Income tax expense	172			129			411			550
Depreciation and amortization	28,917			28,189			53,813			56,830
Impairment on real estate investments and associated goodwill	—			29			—			5,528
Stock-based compensation	1,830			1,567			3,614			3,247
Deal costs	8,280			866			8,477			2,026
Loss on extinguishment of debt	386			345			386			1,102
Gain on real estate dispositions	(72,175		)	(872		)	(104,420		)	(752		)
Net gain on lease termination	(22,628		)	—			(23,743		)	—
Other items, net	943			(128		)	3,806			(433		)
Transition services fee expense	—			602			—			1,204
Adjusted EBITDA	$	84,076		$	77,933		$	162,466		$	154,908

Net Operating Income (“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 real estate services fee income and 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 June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Net income	$	121,981		$	37,140		$	186,899		$	66,923
Adjustments:
Real estate services fee income	(1,458		)	(1,478		)	(2,683		)	(3,183		)
Interest and other income	(250		)	(413		)	(573		)	(718		)
Interest	16,783			10,872			31,968			20,939
Depreciation and amortization	28,917			28,189			53,813			56,830
Impairment on real estate investments and associated goodwill	—			29			—			5,528
General, administrative and professional fees	8,602			8,839			17,330			16,840
Deal costs	8,280			866			8,477			2,026
Loss on extinguishment of debt	386			345			386			1,102
Other expenses, net	(1,513		)	125			(600		)	219
Income tax expense	172			129			411			550
Net gain on lease termination	(22,628		)	—			(23,743		)	—
Gain on real estate dispositions	(72,175		)	(872		)	(104,420		)	(752		)
NOI	$	87,097		$	83,771		$	167,265		$	166,304

Liquidity and Capital Resources

As of June 30, 2017 and December 31, 2016, we had a total of $12.1 million and $15.8 million, respectively, of unrestricted cash and $4.6 million and $0.0 million, respectively, of restricted cash. The restricted cash is property sale proceeds being held in a Code Section 1031 exchange escrow account with a qualified intermediary. We also have a $68.8 million receivable pertaining to sale proceeds held in an escrow account as of June 30, 2017, which is reflected in other assets, net on our consolidated balance sheet.

During the six months ended June 30, 2017, our principal sources of liquidity were cash flows from operations, cash on hand, restricted cash held in a Code Section 1031 exchange escrow account, borrowings under our revolving credit facility, and dispositions of assets.

For the next twelve months, our principal liquidity needs are to: (i) fund operating expenses; (ii) meet our debt service requirements (estimated interest expense of $63.4 million); (iii) fund acquisitions, investments and commitments, including redevelopment 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 revolving credit facility, 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.

Cash Flows

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



	For the Six Months Ended June 30,						Increase (Decrease) to Cash
	2017			2016			$			%
	(Dollars in thousands)
Cash at beginning of period	$	15,813		$	16,995		$	(1,182	)	(7.0	)%
Net cash provided by operating activities	104,665			120,821			(16,156		)	(13.4	)
Net cash (used in) provided by investing activities	(304,892		)	52,047			(356,939		)	(685.8	)
Net cash provided by (used in) financing activities	196,508			(176,949		)	373,457			211.1
Cash at end of period	$	12,094		$	12,914		$	(820	)	(6.3	)

nm - not meaningful

Cash Flows from Operating Activities

Cash flows from operating activities decreased in 2017 over the prior year primarily due to increased interest expense as a result of our debt refinancing and increased deal costs, which primarily includes merger-related costs and a lease termination fee.

Cash Flows from Investing Activities

Cash used in investing activities in 2017 was primarily the result of our acquisition of the SHS portfolio. Cash provided by investing activities in 2016 was attributable to net proceeds from property dispositions offset by reinvestment in property development projects.

Cash Flows from Financing Activities

Cash provided by financing activities during the six months ended June 30, 2017 resulted from borrowing under the revolving credit facility in connection with the SHS acquisition and the timing of the fourth quarter 2016 cash distribution to common stockholders, which was declared in December 2016 and paid in January 2017. During the six months ended June 30, 2017 and 2016, cash distributions to common stockholders were $143.7 million and $95.7 million, respectively. Cash used in financing activities during the six months ended June 30, 2016 resulted from a net repayment under the revolving credit facility, as well as the quarterly cash distributions.

Unsecured Revolving Credit Facility and Term Loans

As of June 30, 2017, we had $402.0 million of borrowings outstanding under our unsecured revolving credit facility (the “Revolver”), $474 million of borrowings under our $800 million unsecured term loan due 2020, and $198.0 million of unused borrowing capacity available under the Revolver. The Revolver matures in August 2019, 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 credit agreement also includes an accordion feature that permits Care Capital LP to increase the aggregate borrowing capacity under the Revolver and term loan facility to $2.5 billion.

Also in January 2016, we entered into various agreements to swap $400 million principal amount of the $800 million term loan from LIBOR plus 1.50% into an all-in fixed interest rate of 2.73% and to swap the full principal amount of the $200 million term loan from LIBOR plus 1.80% into an all-in fixed interest rate of 3.25%. The swap agreements have original terms of 4.6 years and seven years.

Senior Notes

United States pursuant to Regulation S, each under the Securities Act, for total proceeds of $500 million before the initial purchasers’ discount and expenses. The Notes due 2026 are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by CCP and Care Capital GP. Care Capital LP may, at its option, redeem the Notes due 2026 at any time in whole or from time to time in part at a redemption price equal to 100% of their principal amount, together with accrued and unpaid interest thereon, if any, to (but excluding) the date of redemption, plus, if redeemed prior to May 15, 2026, a make-whole premium. In February 2017, we completed an offer to exchange the Notes due 2026 with a new series of notes that are registered under the Securities Act , and are otherwise substantially identical to the original Notes due 2026, except that certain transfer restrictions, registration rights and liquidated damages do not apply to the new notes. We did not receive any additional proceeds in connection with the exchange offer.

Secured Term Loan

In July 2016, certain wholly owned subsidiaries of Care Capital LP, as borrowers (the “Borrowers”), entered into a Loan Agreement with a syndicate of banks identified therein providing for a $135 million term loan due 2019 that bears interest at a fluctuating rate per annum equal to LIBOR for a one-month interest period plus 1.80%. During the six months ended June 30, 2017, we repaid $36.5 million principal amount of the term loan. The term loan is currently secured by first lien mortgages and assignments of leases and rents on ten facilities owned by the Borrowers. The payment and performance of the Borrowers’ obligations under the term loan are guaranteed by CCP and Care Capital LP.

Equity

In September 2016, we filed with the SEC an automatic shelf registration statement on Form S-3 relating to the sale, from time to time, of an indeterminable amount of common stock, preferred stock, depository shares, warrants and senior and subordinated notes.

Dividends

We elected to be treated as a REIT under the applicable provisions of the Code, beginning with the year ended 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 on both corporate and stockholder levels) that results from investments in a C corporation (i.e., a corporation generally subject to full corporate-level tax). In order for us to qualify to be taxed as a REIT, and assuming that certain other requirements are also satisfied, we generally must distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains, to our stockholders each year.

We expect that our cash flows 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 January 5, 2017, we paid the fourth quarterly installment of our 2016 cash dividend in the amount of $0.57 per share to the holders of record of our common stock on December 16, 2016.

On March 31, 2017, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of March 10, 2017.

On June 30, 2017, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of June 9, 2017.

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 borrowings under our Revolver.

Recent Developments Regarding Government Regulation

On December 20, 2016, the Centers for Medicare & Medicaid Service (“CMS”) finalized new bundled payment models for cardiac care and expanded the existing bundled payment model for hip replacements to other hip surgeries that continue its progress to shift Medicare payments from rewarding quantity to quality by creating strong incentives for hospitals to deliver better care to patients at a lower cost. For the new cardiac bundles, participants are hospitals in 98 metropolitan statistical areas (“MSAs”) that were randomly selected, and for the expanded hip bundles, participation is limited to the same 67 MSAs that were selected for the existing Comprehensive Care for Joint Replacement model. Implementation of the new and expanded models were to be phased in over a five-year period, beginning July 1, 2017; however, CMS delayed the applicability date of the expanded Comprehensive Care for Joint Replacement and new cardiac models from July 1, 2017 until October 1, 2017 through an interim final rule published on March 21, 2017. We are currently analyzing the potential impact of these rules on our SNF operators.

On May 4, 2017, the U.S. House of Representatives passed the American Health Care Act of 2017 (“AHCA”) in an effort to repeal and replace the Patient Protection and Affordable Care Act (together with its reconciliation measure, the Health Care and Education Reconciliation Act of 2010, the “Affordable Care Act”). We cannot predict whether, when or to what extent the AHCA will be approved by the Senate and ultimately signed into law, or how it would impact our SNF operators.

On July 31, 2017, CMS issued its final rule updating Medicare payments to SNFs under the prospective payment system (PPS) for federal fiscal year 2018 (October 1, 2017 through September 30, 2018). Under the final rule, which did not change from the proposed rule, SNF PPS rates for fiscal year 2018 would increase by 1.0%, which is the most allowed by statute under the Medicare Access and CHIP Reauthorization Act of 2015. CMS estimates that net payments to SNFs as a result of the final rule would increase by approximately $370 million in fiscal year 2018. In addition, CMS implemented a new “value based purchasing program” for 2019, which will link Medicare Part A payments to SNF re-hospitalization rates, and made no updates to proposed refinements to the PPS for Medicare reimbursement that were submitted for review and comment that will be implemented in fiscal year 2020. We are currently analyzing the potential impact of this rule on our SNF operators.

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 specific asset type or a particular tenant.

Our three largest operators in aggregate accounted for approximately 41.1% of our total revenues (excluding net gain on lease termination) for the six months ended June 30, 2017. The failure or inability of any of these tenants to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof could have a material adverse effect on our

business, financial condition, results of operations and liquidity. We cannot predict whether these tenants, and/or their respective subsidiaries or affiliates, will be able to effectively conduct their operations, operate our properties profitably or maintain and improve our properties, or that they they will have sufficient assets, equity, income, access to financing and/or insurance coverage to enable them to satisfy their respective lease and other obligations to us. We also cannot predict whether these tenants, and in particular our three largest operators, will elect to renew their leases with us upon expiration of their terms or whether we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic and other terms, if at all.

We regularly monitor and assess any changes in the relative credit risk of all of our tenants and related guarantors, although we pay particular attention to those tenants that we deem to present higher credit risks due to performance, concentration of our revenues, or recourse provisions contained in our leases. 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. Such facts and circumstances 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 (earnings before interest, taxes, depreciation, amortization and rent) or EBITDARM (earnings before interest, taxes, depreciation, amortization, rent and management fees), 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.

From time to time, our tenants, including some of our largest tenants, request financial accommodations, and in certain cases, we have granted or may grant accommodations to provide short-term liquidity. We cannot predict the timing or outcome of such discussions with our tenants, whether we will grant any such accommodations or what the impact might be on our financial results.

Triple-Net Lease Expirations

As our triple-net leases expire, we face the risk that our tenants may elect not to renew those leases and, in the event of non-renewal, we may be unable to reposition the applicable properties on a timely basis or on the same or better economic and other terms, if at all. Although our lease terms are staggered, the non-renewal of some or all of our triple-net leases in any given year could have a material adverse effect on our business, financial condition, results of operations and liquidity, our ability to service our indebtedness and other obligations and our ability to make distributions to our stockholders, as required for us to qualify as a REIT. During the six months ended June 30, 2017, we re-leased eleven properties whose leases had expired and were not renewed by the existing tenant and transitioned eighteen additional properties to replacement operators. None of these re-leasings or transitions, individually or in the aggregate, had a material impact on our financial condition or results of operations for the period.

Market Risk

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. We have entered into interest rate swaps with a notional amount of $600 million to mitigate a portion of this risk.

As of June 30, 2017 and December 31, 2016, the fair value of our loans receivable, based on our estimates of currently prevailing rates for comparable loans, was $79.9 million and $61.0 million, respectively. See “Note 6—Loans Receivable, Net” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Our consolidated financial statements included herein have been prepared in accordance with 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 our critical accounting policies 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 Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recently Issued or Adopted Relevant Accounting Standards

See “Note 2—Accounting Policies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information concerning recently issued accounting standards updates.

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.

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 June 30, 2017. 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 June 30, 2017.

Internal Control over Financial Reporting

During the second quarter of 2017, 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 15—Litigation” of the Notes to 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 our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 1A. RISK FACTORS

Risk Factors Related to the Proposed Merger with Sabra Health Care REIT, Inc.

The announcement and pendency of the proposed merger (the “Merger”) with Sabra Health Care REIT, Inc. (“Sabra”) may adversely affect our business, financial condition and results of operations.

Uncertainty about the effect of the proposed Merger on our employees, operators and other parties may have an adverse effect on our business, financial condition, and results of operations, regardless of whether the Merger is completed. These risks to our business include the following, all of which could be exacerbated by a delay in the completion of the proposed Merger:


•	the impairment of our ability to attract, retain, and motivate our employees, including key personnel;


•	the diversion of significant management time, attention and resources towards the completion of the proposed Merger;


•	the potential adverse effect on tenant and vendor relationships, operating results and business generally resulting from the proposed Merger;

•

the inability to pursue alternative business opportunities or make appropriate changes to our business because of requirements in the merger agreement that we conduct our business in the ordinary course of business consistent with past practice and not engage in certain kinds of transactions prior to the completion of the proposed Merger, including certain acquisitions, divestitures and lease arrangements;


•	legal proceedings relating to the proposed Merger and the costs related thereto; and


•	the incurrence of significant costs, fees, expenses and liabilities for professional services and other transaction costs in connection with the proposed Merger.

The number of shares of Sabra common stock that CCP stockholders will receive for each share of CCP common stock in the Merger is fixed and will not be adjusted in the event of any change in either our or Sabra’s stock prices.

The exchange ratio is fixed in the merger agreement and will not be adjusted for changes in the market price of either our common stock or Sabra’s common stock. Stock price changes may result from a variety of factors (many of which are beyond our control), including:


•	changes in our and Sabra’s respective businesses, operations, assets, liabilities and prospects;


•	changes in market assessments of the business, operations, financial position and prospects of either company or the combined company;


•	market assessments of the likelihood that the Merger will be completed;


•	interest rates, general market and economic conditions and other factors generally affecting the price of our or Sabra’s common stock;


•	federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and Sabra operate; and


•	other factors beyond our control, including those described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016.

Failure to consummate the proposed Merger within the expected timeframe or at all could have a material adverse impact on our business, financial condition, results of operations and reputation.

Consummation of the Merger is subject to specified conditions, including:


•	the affirmative vote of the holders of a majority of the outstanding shares of our common stock in favor of the adoption of the merger agreement and the approval of the transactions contemplated thereby;


•	the approval of the issuance of Sabra’s common stock in connection with the Merger by the affirmative vote of a majority of the votes cast by holders of Sabra’s common stock;


•	that no material statute, rule or regulation shall be in existence or shall have been enacted, promulgated, or entered by any governmental entity that renders the consummation of the Merger illegal;


•	the absence of any temporary restraining order, preliminary or permanent injunction or other order or legal restraint preventing the consummation of the Merger; and


•	other customary closing conditions.

We cannot provide any assurances that these conditions will be satisfied in a timely manner or at all or that the proposed Merger will occur.

The merger agreement also contains certain termination rights for both us and Sabra, and in certain specified circumstances upon such termination, we would be required to pay Sabra a termination fee of $38.5 million and for transaction expenses up to $15 million. If we are required to make these payments, doing so may materially adversely affect our business, financial condition, and results of operations.

We cannot provide any assurances that a remedy will be available to us in the event of a breach of the merger agreement by Sabra. Further, any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our tenants, vendors, operators and employees, could continue or accelerate in the event of a failed transaction. Also, we have incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other transaction costs in connection with the proposed Merger, for which we will have received little or no benefit if the Merger is not completed. Many of these fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger.

If the proposed Merger closes, we will face various additional risks.

If the proposed Merger closes, the combined company will face various additional risks, including, among others:


•	the combined company expects to incur substantial expenses related to the Merger;


•	following the Merger, the combined company may be unable to integrate the businesses of our company and Sabra successfully and realize the anticipated synergies and other benefits of the Merger or do so within the anticipated timeframe;


•	following the Merger, the combined company may be unable to implement its future plans;


•	following the Merger, the combined company may be unable to retain key employees;


•	the risks associated with Sabra’s business could impact the value ultimately received by our stockholders;


•	the amount of debt that will need to be refinanced or amended in connection with the proposed Merger and the ability to do so on acceptable terms; and


•	the future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the Merger.

ITEM 6. EXHIBITS




Exhibit Number	Description of Document	Location of Document
2.1	Purchase and Sale Agreement dated as of April 10, 2017 among California Life Properties, LLC, California Mental Health Care Network-San Diego, LLC, Vista Life Properties, LLC, Illinois Life Properties, LLC, Nevada Life Properties, LLC, and Arizona Life Properties, LLC, as Seller, and CCP Lakeshore 4000 LLC, CCP Glendale 4001 LLC, CCP Tempe 4002 LLC, CCP Covina 4003 LP, CCP Ventura 4004 LP, and CCP San Diego 4005 LP, as Buyer.	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on April 12, 2017.
2.2	Agreement and Plan of Merger, dated as of May 7, 2017, by and among Sabra Health Care REIT, Inc., Sabra Health Care Limited Partnership, PR Sub, LLC, Care Capital Properties, Inc. and Care Capital Properties, LP (the schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K; a copy of any omitted schedule or exhibit will be furnished supplementally to the SEC upon request).	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on May 8, 2017.
12.1	Statement Regarding Computation of Ratio of Earnings to Fixed Charges.	Filed herewith.
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: August 2, 2017



	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	Purchase and Sale Agreement dated as of April 10, 2017 among California Life Properties, LLC, California Mental Health Care Network-San Diego, LLC, Vista Life Properties, LLC, Illinois Life Properties, LLC, Nevada Life Properties, LLC, and Arizona Life Properties, LLC, as Seller, and CCP Lakeshore 4000 LLC, CCP Glendale 4001 LLC, CCP Tempe 4002 LLC, CCP Covina 4003 LP, CCP Ventura 4004 LP, and CCP San Diego 4005 LP, as Buyer.	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on April 12, 2017.
2.2	Agreement and Plan of Merger, dated as of May 7, 2017, by and among Sabra Health Care REIT, Inc., Sabra Health Care Limited Partnership, PR Sub, LLC, Care Capital Properties, Inc. and Care Capital Properties, LP (the schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K; a copy of any omitted schedule or exhibit will be furnished supplementally to the SEC upon request).	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on May 8, 2017.
12.1	Statement Regarding Computation of Ratio of Earnings to Fixed Charges.	Filed herewith.
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 - August 2, 2017

Attached files

Care Capital Properties, Inc. Reports