(Mark One) | ||
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016 | |
OR | ||
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Delaware (State or Other Jurisdiction of Incorporation or Organization) | 37-1781195 (I.R.S. Employer Identification No.) |
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Class of Common Stock: | Outstanding at November 8, 2016: | |
Common Stock, $0.01 par value | 83,960,353 |
Page | ||||
Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 | ||||
September 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Real estate investments: | |||||||
Land and improvements | $ | 261,987 | $ | 287,193 | |||
Buildings and improvements | 2,757,240 | 2,984,257 | |||||
Construction in progress | 42,186 | 33,646 | |||||
Acquired lease intangibles | 94,125 | 101,869 | |||||
3,155,538 | 3,406,965 | ||||||
Accumulated depreciation and amortization | (670,117 | ) | (704,210 | ) | |||
Net real estate property | 2,485,421 | 2,702,755 | |||||
Net investment in direct financing lease | 22,416 | 22,075 | |||||
Net real estate investments | 2,507,837 | 2,724,830 | |||||
Secured and unsecured loans receivable, net | 65,679 | 29,727 | |||||
Cash | 22,477 | 16,995 | |||||
Goodwill | 128,673 | 145,374 | |||||
Other assets | 74,495 | 38,043 | |||||
Total assets | $ | 2,799,161 | $ | 2,954,969 | |||
Liabilities and equity | |||||||
Liabilities: | |||||||
Term loans, senior notes and other debt | $ | 1,439,473 | $ | 1,524,863 | |||
Tenant deposits | 47,232 | 57,974 | |||||
Lease intangible liabilities, net | 115,191 | 130,348 | |||||
Accounts payable and other liabilities | 39,772 | 24,048 | |||||
Deferred income taxes | 1,932 | 1,889 | |||||
Total liabilities | 1,643,600 | 1,739,122 | |||||
Commitments and contingencies | |||||||
Equity: | |||||||
Preferred stock, $0.01 par value; 10,000 shares authorized, unissued at September 30, 2016 and December 31, 2015 | — | — | |||||
Common stock, $0.01 par value; 300,000 shares authorized, 83,970 and 83,803 shares issued at September 30, 2016 and December 31, 2015, respectively | 840 | 838 | |||||
Additional paid-in capital | 1,271,168 | 1,264,650 | |||||
Dividends in excess of net income | (108,709 | ) | (51,056 | ) | |||
Treasury stock, 11 and 0 shares at September 30, 2016 and December 31, 2015, respectively | (329 | ) | — | ||||
Accumulated other comprehensive income | (8,742 | ) | — | ||||
Total CCP equity | 1,154,228 | 1,214,432 | |||||
Noncontrolling interest | 1,333 | 1,415 | |||||
Total equity | 1,155,561 | 1,215,847 | |||||
Total liabilities and equity | $ | 2,799,161 | $ | 2,954,969 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues: | |||||||||||||||
Rental income, net | $ | 82,428 | $ | 80,595 | $ | 246,095 | $ | 237,100 | |||||||
Income from investments in direct financing lease and loans | 1,893 | 955 | 4,530 | 2,680 | |||||||||||
Real estate services fee income | 1,897 | 763 | 5,080 | 763 | |||||||||||
Interest and other income | 1,073 | 4 | 1,791 | 67 | |||||||||||
Total revenues | 87,291 | 82,317 | 257,496 | 240,610 | |||||||||||
Expenses: | |||||||||||||||
Interest | 14,271 | 4,090 | 35,210 | 4,075 | |||||||||||
Depreciation and amortization | 25,494 | 27,752 | 82,324 | 80,688 | |||||||||||
Impairment on real estate investments and associated goodwill | 12,397 | 3,750 | 17,925 | 16,648 | |||||||||||
General, administrative and professional fees | 9,477 | 9,216 | 26,317 | 21,499 | |||||||||||
Deal costs | 490 | 991 | 2,516 | 4,746 | |||||||||||
Loss on extinguishment of debt | 4,359 | — | 5,461 | — | |||||||||||
Other expenses, net | 3,700 | 158 | 3,919 | 1,278 | |||||||||||
Total expenses | 70,188 | 45,957 | 173,672 | 128,934 | |||||||||||
Income before income taxes, real estate dispositions and noncontrolling interests | 17,103 | 36,360 | 83,824 | 111,676 | |||||||||||
Income tax expense | (229 | ) | (1,024 | ) | (779 | ) | (1,024 | ) | |||||||
Gain on real estate dispositions | 2,143 | 856 | 2,895 | 856 | |||||||||||
Net income | 19,017 | 36,192 | 85,940 | 111,508 | |||||||||||
Net income attributable to noncontrolling interests | 7 | 26 | 13 | 138 | |||||||||||
Net income attributable to CCP | $ | 19,010 | $ | 36,166 | $ | 85,927 | $ | 111,370 | |||||||
Net income | 19,017 | 36,192 | 85,940 | 111,508 | |||||||||||
Other comprehensive gain (loss) - derivatives | 3,193 | — | (8,742 | ) | — | ||||||||||
Total comprehensive income | 22,210 | 36,192 | 77,198 | 111,508 | |||||||||||
Comprehensive income attributable to noncontrolling interests | 7 | 26 | 13 | 138 | |||||||||||
Comprehensive income attributable to CCP | $ | 22,203 | $ | 36,166 | $ | 77,185 | $ | 111,370 | |||||||
Earnings per common share: | |||||||||||||||
Basic: | |||||||||||||||
Net income attributable to CCP | $ | 0.23 | $ | 0.43 | $ | 1.03 | $ | 1.33 | |||||||
Diluted: | |||||||||||||||
Net income attributable to CCP | $ | 0.23 | $ | 0.43 | $ | 1.03 | $ | 1.33 | |||||||
Dividends declared per common share | $ | 0.57 | $ | 0.57 | $ | 1.71 | $ | 0.57 | |||||||
Weighted average shares used in computing earnings per common share: | |||||||||||||||
Basic | 83,609 | 83,488 | 83,583 | 83,488 | |||||||||||
Diluted | 83,752 | 83,558 | 83,674 | 83,558 |
Net Parent Investment | Common Stock Par Value | Additional Paid-In Capital | Dividends in Excess of Net Income | Treasury Stock | Accumulated Other Comprehensive Income | Total CCP Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
Balance, January 1, 2015 | 2,118,216 | — | — | — | — | — | 2,118,216 | 4,863 | 2,123,079 | ||||||||||||||||||||||||||
Net income attributable to CCP | 98,700 | — | — | 44,466 | — | — | 143,166 | — | 143,166 | ||||||||||||||||||||||||||
Net change in noncontrolling interests | — | — | — | — | — | — | — | (225 | ) | (225 | ) | ||||||||||||||||||||||||
Acquisition of noncontrolling interest | — | — | 123 | — | — | — | 123 | (3,223 | ) | (3,100 | ) | ||||||||||||||||||||||||
Net contribution from parent prior to separation | 306,629 | — | — | — | — | — | 306,629 | — | 306,629 | ||||||||||||||||||||||||||
Distribution to parent | (1,273,000 | ) | — | — | — | — | — | (1,273,000 | ) | — | (1,273,000 | ) | |||||||||||||||||||||||
Issuance of common stock at separation | — | 835 | — | — | — | — | 835 | — | 835 | ||||||||||||||||||||||||||
Issuance of common stock for acquisition | — | 3 | 11,543 | — | — | — | 11,546 | — | 11,546 | ||||||||||||||||||||||||||
Transfer of remaining net parent investment to additional paid-in capital | (1,250,545 | ) | — | 1,250,545 | — | — | — | — | — | — | |||||||||||||||||||||||||
Stock-based compensation | — | — | 2,439 | — | — | — | 2,439 | — | 2,439 | ||||||||||||||||||||||||||
Dividends to common stockholders - $1.14 per share | — | — | — | (95,522 | ) | — | — | (95,522 | ) | — | (95,522 | ) | |||||||||||||||||||||||
Balance, December 31, 2015 | $ | — | $ | 838 | $ | 1,264,650 | $ | (51,056 | ) | $ | — | $ | — | $ | 1,214,432 | $ | 1,415 | $ | 1,215,847 | ||||||||||||||||
Net income attributable to CCP | — | — | — | 85,927 | — | — | 85,927 | — | 85,927 | ||||||||||||||||||||||||||
Net change in noncontrolling interest | — | — | — | — | — | — | — | (82 | ) | (82 | ) | ||||||||||||||||||||||||
Issuance of common stock for acquisition | — | 2 | 1,371 | — | — | — | 1,373 | — | 1,373 | ||||||||||||||||||||||||||
Stock-based compensation | — | — | 5,147 | — | (329 | ) | — | 4,818 | — | 4,818 | |||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | (8,742 | ) | (8,742 | ) | — | (8,742 | ) | |||||||||||||||||||||||
Dividends to common stockholders - $1.71 per share | — | — | — | (143,580 | ) | — | — | (143,580 | ) | — | (143,580 | ) | |||||||||||||||||||||||
Balance, September 30, 2016 | $ | — | $ | 840 | $ | 1,271,168 | $ | (108,709 | ) | $ | (329 | ) | $ | (8,742 | ) | $ | 1,154,228 | $ | 1,333 | $ | 1,155,561 |
For the Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 85,940 | $ | 111,508 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, amortization and impairment on real estate investments and associated goodwill | 97,287 | 94,170 | |||||
Decrease in value of damaged property, net of estimated insurance proceeds | 3,570 | — | |||||
Amortization of above and below market lease intangibles, net | (5,905 | ) | (6,835 | ) | |||
Amortization of deferred financing fees | 3,548 | 646 | |||||
Accretion of direct financing lease | (1,120 | ) | (996 | ) | |||
Amortization of leasing costs and other intangibles | 2,912 | 3,166 | |||||
Amortization of stock-based compensation | 4,323 | 1,760 | |||||
Straight-lining of rental income, net | (62 | ) | (125 | ) | |||
Gain on real estate dispositions | (2,895 | ) | (856 | ) | |||
Loss on extinguishment of debt | 5,461 | — | |||||
Income tax expense (benefit) | 45 | (42 | ) | ||||
Other | (76 | ) | (102 | ) | |||
Changes in operating assets and liabilities: | |||||||
Increase in other assets | (3,282 | ) | (3,789 | ) | |||
(Decrease) increase in tenant deposits | (7,171 | ) | 6,601 | ||||
Increase in accounts payable and other liabilities | 6,340 | 935 | |||||
Net cash provided by operating activities | 188,915 | 206,041 | |||||
Cash flows from investing activities: | |||||||
Net investment in real estate property | — | (454,832 | ) | ||||
Investment in loans receivable | (63,321 | ) | (20,091 | ) | |||
Proceeds from real estate dispositions | 94,400 | 1,510 | |||||
Proceeds from loans receivable | 57,523 | 1,040 | |||||
Development project expenditures | (29,391 | ) | (12,629 | ) | |||
Capital expenditures | (3,612 | ) | (13,504 | ) | |||
Net cash provided by (used in) investing activities | 55,599 | (498,506 | ) | ||||
Cash flows from financing activities: | |||||||
Net change in borrowings under revolving credit facility | (93,000 | ) | 138,000 | ||||
Proceeds from debt | 935,000 | 1,400,000 | |||||
Repayment of debt | (926,000 | ) | — | ||||
Payment of deferred financing costs | (10,400 | ) | (20,209 | ) | |||
Distributions to noncontrolling interests | (94 | ) | (266 | ) | |||
Cash distribution to common stockholders | (143,580 | ) | (47,754 | ) | |||
Distribution to parent | — | (1,273,000 | ) | ||||
Purchase of treasury stock | (958 | ) | — | ||||
Net contribution from parent prior to separation | — | 103,714 | |||||
Net cash (used in) provided by financing activities | (239,032 | ) | 300,485 | ||||
Net increase in cash | 5,482 | 8,020 | |||||
Cash at beginning of period | 16,995 | 2,424 | |||||
Cash at end of period | $ | 22,477 | $ | 10,444 | |||
Supplemental schedule of non-cash activities: | |||||||
Other acquisition-related investment activities for acquisitions prior to August 17, 2015 | $ | — | $ | 152,179 | |||
Transfer of real estate to receivables | 31,712 | — | |||||
Issuance of common stock for acquisition of specialty valuation firm | — | 11,546 | |||||
Transfer of remaining net parent investment to additional paid-in capital | — | 1,250,545 | |||||
Settlement of accrued acquisition costs via transfer of stock | 1,373 | — | |||||
Change in accrued capital expenditures | 347 | — | |||||
Transfer of liability accounted stock-based compensation awards to equity | 1,453 | — | |||||
Changes in tenant deposits | (4,739 | ) | — |
• | Land—We determine the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analyses of recently acquired and existing comparable properties within our portfolio. |
• | Buildings—We estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over the estimated remaining life of the building, generally not to exceed 35 years. |
• | Other tangible fixed assets—We determine the fair value of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciate such value over the assets' estimated remaining useful lives as determined at the applicable acquisition date. |
• | In-place lease intangibles—The fair value of in-place leases reflects our estimate of the cost to obtain tenants and an estimated value of the absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant. We amortize these intangibles through amortization expense over the remaining life of the associated lease plus assumed bargain renewal periods, if any. |
• | Market lease intangibles—We estimate the fair value of any above and/or below market leases by discounting the difference between the estimated market rent and in-place lease rent. We amortize these intangibles to revenue over the remaining life of the associated lease plus assumed bargain renewal periods, if any. If a lease is terminated prior to its stated expiration or not renewed upon expiration, we recognize all unamortized lease-related intangibles associated with that lease in operations at that time. |
• | Purchase option intangibles—We estimate the fair value of purchase option intangible liabilities by discounting the difference between the applicable property's acquisition date fair value and an estimate of its future option price. We do not amortize the resulting intangible liability over the term of the lease, but rather adjust the recognized value of the asset or liability upon sale. |
• | Goodwill—Goodwill represents the excess of the purchase price paid over the fair value of the acquired net assets. We do not amortize goodwill. |
• | Cash—The carrying amount of cash reported on our consolidated balance sheets approximates fair value. |
• | Loans receivable—We estimate the fair value of loans receivable using Level 2 and Level 3 inputs: we discount future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings. |
• | Term loans, senior notes and other debt—We estimate the fair value of term loans, senior notes and other debt using Level 2 inputs: we discount the future cash flows using current interest rates and credit spreads at which we could obtain similar borrowings. See “Note 9—Borrowing Arrangements and Derivatives and Hedging Activities.” |
• | Derivatives—We estimate the fair value of our derivatives using Level 2 inputs. See “Note 9—Borrowing Arrangements and Derivatives and Hedging Activities.” |
Land and improvements | $ | 38,361 | ||
Buildings and improvements | 515,620 | |||
Acquired lease intangibles | 14,138 | |||
Goodwill (1) | 56,275 | |||
Other assets | 8,034 | |||
Total assets acquired | 632,428 | |||
Tenant deposits | 8,801 | |||
Lease intangible liabilities | 3,729 | |||
Accounts payable and other liabilities | 1,343 | |||
Total liabilities assumed | 13,873 | |||
Net assets acquired | $ | 618,555 | ||
(1) | As it relates to the HCT acquisition, goodwill was allocated to us on a relative fair value basis from total goodwill recognized by Ventas. A $1.8 million reduction of the original amount of goodwill due to HCT was recognized in 2015. |
For the Three Months Ended September 30, | For the None Months Ended September 30, | ||||||||||||||
2016 | 2015 (1) | 2016 | 2015 (1) | ||||||||||||
(In thousands) | |||||||||||||||
Revenues: | |||||||||||||||
Real estate services fee income | $ | 1,897 | $ | 763 | $ | 5,080 | $ | 763 | |||||||
Total revenues | 1,897 | 763 | 5,080 | 763 | |||||||||||
Expenses: | |||||||||||||||
Depreciation and amortization | 184 | 94 | 551 | 94 | |||||||||||
General, administrative and professional fees | 1,351 | 704 | 4,076 | 704 | |||||||||||
Total expenses | 1,535 | 798 | 4,627 | 798 | |||||||||||
Income before income taxes | 362 | (35 | ) | 453 | (35 | ) | |||||||||
Income tax expense | 127 | (42 | ) | 230 | (42 | ) | |||||||||
Net income | $ | 235 | $ | 7 | $ | 223 | $ | 7 |
September 30, 2016 | December 31, 2015 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Secured loans receivable, net | $ | 9,425 | $ | 8,940 | $ | 5,255 | $ | 4,494 | ||||||||
Unsecured loans receivable, net | 56,254 | 55,793 | 24,472 | 24,188 | ||||||||||||
Total secured and unsecured loans receivable, net | $ | 65,679 | $ | 64,733 | $ | 29,727 | $ | 28,682 | ||||||||
September 30, 2016 | December 31, 2015 | ||||||||||
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 | $ | 58,716 | 11.2 | $ | 64,516 | 11.4 | |||||
In-place lease intangibles | 35,409 | 12.9 | 37,353 | 13.4 | |||||||
Tradename, technology and customer relationships | 2,950 | 3.8 | 2,950 | 4.5 | |||||||
Accumulated amortization | (43,689 | ) | N/A | (45,390 | ) | N/A | |||||
Goodwill | 128,673 | N/A | 145,374 | N/A | |||||||
Net intangible assets | $ | 182,059 | 11.6 | $ | 204,803 | 12.3 | |||||
Intangible liabilities: | |||||||||||
Below market lease intangibles | $ | 182,914 | 14.7 | $ | 194,141 | 14.9 | |||||
Above market ground lease intangibles | 1,907 | 52.2 | 1,907 | 52.9 | |||||||
Accumulated amortization | (75,176 | ) | N/A | (75,052 | ) | N/A | |||||
Purchase option intangibles | 5,546 | N/A | 9,352 | N/A | |||||||
Net intangible liabilities | $ | 115,191 | 15.3 | $ | 130,348 | 15.5 |
Balance as of January 1, 2015 | $ | 88,959 | |
Additions | 56,992 | ||
Disposals | (577 | ) | |
Balance as of December 31, 2015 | 145,374 | ||
Additions | — | ||
Disposals and reclassifications to assets held for sale | (16,701 | ) | |
Balance as of September 30, 2016 | $ | 128,673 |
September 30, 2016 | December 31, 2015 | ||||||
(In thousands) | |||||||
Straight-line rent receivables, net | $ | 642 | $ | 579 | |||
Deferred lease costs | 5,570 | 6,895 | |||||
Assets held for sale | 49,145 | 15,035 | |||||
Other assets, net | 19,138 | 15,534 | |||||
Total other assets | $ | 74,495 | $ | 38,043 |
September 30, 2016 | December 31, 2015 | |||||||
(In thousands) | ||||||||
Unsecured revolving credit facility | $ | 50,000 | $ | 143,000 | ||||
Unsecured term loan due 2017 | — | 600,000 | ||||||
Secured term loan due 2019 | 135,000 | — | ||||||
Unsecured term loan due 2020 | 474,000 | 800,000 | ||||||
Unsecured term loan due 2023 | 200,000 | — | ||||||
5.125% senior notes due 2026 | 500,000 | — | ||||||
5.38% senior notes due 2027 | 100,000 | — | ||||||
Total | 1,459,000 | 1,543,000 | ||||||
Unamortized debt issuance costs | 19,527 | 18,137 | ||||||
Term loans, senior notes and other debt | $ | 1,439,473 | $ | 1,524,863 | ||||
Principal Amount Due at Maturity | Revolver (1) | Total Maturities | |||||||
(In thousands) | |||||||||
2016 | $ | — | $ | — | $ | — | |||
2017 | — | — | — | ||||||
2018 | — | — | — | ||||||
2019 | 135,000 | 50,000 | 185,000 | ||||||
2020 | 474,000 | — | 474,000 | ||||||
Thereafter | 800,000 | — | 800,000 | ||||||
Total Maturities | $ | 1,409,000 | $ | 50,000 | $ | 1,459,000 |
Liability Derivative | ||||
Derivatives Designated as Hedging Instruments | Balance Sheet Location | September 30, 2016 Fair Value | ||
Interest rate contracts | Accounts payable and other liabilities | $ | 8,742 |
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 September 30, 2016 | |||||||
Interest rate contracts | $ | 1,948 | Interest expense | $ | (1,245 | ) | |
Nine months ended September 30, 2016 | |||||||
Interest rate contracts | $ | (12,215 | ) | Interest expense | $ | (3,473 | ) |
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 September 30, 2016 | |||||||||
Derivative financial instrument liability | $ | — | $ | 8,742 | $ | — | $ | 8,742 |
For The Three Months Ended September 30, | For The Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
Numerator for basic and diluted earnings per share: | |||||||||||||||
Net income attributable to CCP | $ | 19,010 | $ | 36,166 | $ | 85,927 | $ | 111,370 | |||||||
Denominator: | |||||||||||||||
Denominator for basic earnings per share—weighted average shares | 83,609 | 83,488 | 83,583 | 83,488 | |||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options | 11 | 70 | 3 | 70 | |||||||||||
Restricted stock | 132 | — | 88 | — | |||||||||||
Denominator for diluted earnings per share—adjusted weighted average shares | 83,752 | 83,558 | 83,674 | 83,558 | |||||||||||
Basic earnings per share: | |||||||||||||||
Net income attributable to CCP | $ | 0.23 | $ | 0.43 | $ | 1.03 | $ | 1.33 | |||||||
Diluted earnings per share: | |||||||||||||||
Net income attributable to CCP | $ | 0.23 | $ | 0.43 | $ | 1.03 | $ | 1.33 |
• | the ability and willingness of our tenants, borrowers and other counterparties to satisfy their obligations under their respective contractual arrangements with us, including, in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; |
• | the ability of our tenants and borrowers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including obligations under their existing credit facilities and other indebtedness; |
• | our success in executing our business strategy and our ability to identify, underwrite, finance, consummate and integrate suitable acquisitions and investments; |
• | macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; |
• | the nature and extent of competition in the markets in which our properties are located; |
• | the impact of pending and future healthcare reform and regulations, including cost containment measures, quality initiatives and changes in reimbursement methodologies, policies, procedures and rates; |
• | increases in our borrowing costs as a result of changes in interest rates and other factors; |
• | the ability of our tenants to operate our properties in compliance with applicable laws, rules and regulations (and the cost of such compliance), to deliver high-quality services, to hire and retain qualified personnel, to attract residents and patients, and to participate in government or managed care reimbursement programs; |
• | changes in general economic conditions or economic conditions in the markets in which we may, from time to time, compete for investments, capital and talent, and the effect of those changes on our earnings and financing sources; |
• | our ability to pay down, refinance, restructure or extend future indebtedness as it becomes due; |
• | our ability and willingness to maintain our qualification as a REIT in light of economic, market, legal, tax and other considerations; |
• | final determination of our taxable net income for the current and future years; |
• | the ability and willingness of our tenants to renew their leases with us upon expiration of the leases, our ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations, including indemnification obligations, we may incur in connection with the replacement of an existing tenant; |
• | year-over-year changes in the Consumer Price Index (“CPI”) and the effect of those changes on the rent escalators contained in our leases and on our earnings; |
• | our ability and the ability of our tenants and borrowers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; |
• | the impact of increased operating costs and uninsured professional liability claims on our and our tenants’ and borrowers’ liquidity, financial condition and results of operations and our ability and the ability of our tenants and borrowers to accurately estimate the magnitude of those costs and claims; |
• | consolidation in the healthcare industry resulting in a change of control of, or a competitor’s investment in, one or more of our tenants or borrowers or significant changes in the senior management of any of our tenants or borrowers; |
• | the impact of litigation or any financial, accounting, legal or regulatory issues, including government investigations, enforcement proceedings and punitive settlements, that may affect us or our tenants or borrowers; and |
• | changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on our earnings. |
• | In January 2016, we entered into a Term Loan and Guaranty Agreement (the “Term Loan Agreement”) with a syndicate of banks that provides for a $200 million unsecured term loan due 2023 (the “$200 million Term Loan”). Also in January 2016, we entered into agreements to swap a total of $600 million of outstanding indebtedness, 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. |
• | In February 2016, we issued 56,377 shares of our common stock, valued at $1.4 million, to the sellers as additional consideration for the acquisition of our specialty healthcare and seniors housing valuation firm pursuant to the purchase agreement. |
• | In February 2016, we transitioned three SNFs from the existing tenant to a new operator under the same rental terms. |
• | In February 2016, we sold seven SNFs for aggregate consideration of $9.9 million. 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. |
• | On March 31, 2016, we paid the first quarterly installment of our 2016 dividend in the amount of $0.57 per share to the holders of record of our common stock on March 21, 2016. |
• | In March 2016, we entered into a transition and settlement agreement regarding a consensual transition of 14 SNFs from the existing tenant to two replacement operators. The tenant had ceased paying rent to us beginning January 1, 2016. Also in March 2016, we entered into separate master leases with the replacement operators to become effective upon receipt of the required state regulatory approvals, and the replacement operators assumed management of the properties pursuant to management agreements with the tenant. In connection with these transitions, we made or purchased certain working capital loans, of which $8.6 million aggregate principal amount was outstanding at September 30, 2016. Subsequent to the transition through September 30, 2016, we recognized a total of $2.0 million of past due rent due attributable to the previous operator. |
• | 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”) through a private placement in reliance on the exemption from registration provided by Section 4(a)(2) of 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 LP’s general partner, Care Capital Properties GP, LLC (“Care Capital GP”). |
• | In May 2016, we sold seven properties pursuant to the exercise of tenant purchase options for aggregate consideration of $95.1 million. Concurrently with this sale, we made a four-year mezzanine loan to an affiliate of the purchasers in the amount of $25.0 million. |
• | In June 2016, we sold one SNF to the existing operator for $1.5 million. |
• | On June 30, 2016, we paid the second quarterly installment of our 2016 dividend in the amount of $0.57 per share to the holders of record of our common stock on June 10, 2016. |
• | 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 Regulations 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. |
• | Also in July 2016, certain wholly owned subsidiaries of Care Capital LP entered into a Loan Agreement with a syndicate of banks providing for a $135 million term loan (the “$135 million Term Loan”) that bears interest at a fluctuating rate per annum equal to LIBOR for a one-month interest period plus 1.80% and matures in July 2019. The $135 million Term Loan is secured by first lien mortgages and assignments of leases and rents on specified facilities owned by the borrowers. The payment and performance of the borrowers’ obligations under the $135 million Term Loan are guaranteed by CCP and Care Capital LP. |
• | In July 2016, we sold two SNFs for aggregate proceeds of $11.0 million. |
• | In September 2016, we sold one specialty hospital for proceeds of $6.4 million. |
• | On September 30, 2016, we paid the third quarterly installment of our 2016 dividend in the amount of $0.57 per share to the holders of record of our common stock on September 16, 2016. |
• | We entered into definitive agreements to sell a total of 23 properties in two separate transactions for aggregate proceeds of approximately $151 million. We expect to complete the sale of three properties in November and we expect to complete the second transaction in the first half of 2017, subject, in each case, to the satisfaction of customary closing conditions. However, we cannot assure you as to whether or when the closings will occur. |
• | In November 2016, we entered into a definitive agreement to acquire five SNFs and three seniors housing communities for $39 million in a sale leaseback transaction with an existing operator. We expect to complete the acquisition, which remains subject to our due diligence review and other customary closing conditions, by December 31, 2016, although we cannot assure you as to whether or when the closing will occur. |
• | A prohibition on the use of pre-dispute binding arbitration agreements with residents, effective as of November 28, 2016; |
• | The requirement that long-term care facility staff members be properly trained to care for residents with dementia and to prevent elder abuse; |
• | Ensuring that long-term care facilities take into consideration the health of residents when determining staff levels; |
• | Improved care planning, including consideration of the residents’ wishes, provision of necessary information for follow-up after discharge, and transmission of discharge plans to receiving facilities; |
• | Allowing dietitians and therapy providers to write orders in their areas of expertise when physicians delegate that responsibility to them and state licensing laws allow it; and |
• | Updates to long-term care facilities’ infection prevention and control programs, including requiring infection prevention and control officers and antibiotic stewardship programs. |
Number of Properties Owned at September 30, 2016 | Average Occupancy For the Trailing 12 Months Ended June 30, 2016 (1) | ||||
SNFs | 279 | 78.3 | % | ||
Specialty hospitals and healthcare assets | 15 | 84.8 | |||
Seniors housing communities and campuses (2) | 14 | 81.2 |
(1) | Excludes certain properties for which we do not receive occupancy information. |
(2) | Campuses are defined as multi-level properties. |
For the Three Months Ended September 30, | Increase (Decrease) to Net Income | |||||||||||||
2016 | 2015 | $ | % | |||||||||||
(Dollars in thousands) | ||||||||||||||
Revenues: | ||||||||||||||
Rental income, net | $ | 82,428 | $ | 80,595 | $ | 1,833 | 2.3 | % | ||||||
Income from investments in direct financing lease and loans | 1,893 | 955 | 938 | 98.2 | ||||||||||
Real estate services fee income | 1,897 | 763 | 1,134 | 148.6 | ||||||||||
Interest and other income | 1,073 | 4 | 1,069 | nm | ||||||||||
Total revenues | 87,291 | 82,317 | 4,974 | 6.0 | ||||||||||
Expenses: | ||||||||||||||
Interest | 14,271 | 4,090 | (10,181 | ) | nm | |||||||||
Depreciation and amortization | 25,494 | 27,752 | 2,258 | 8.1 | ||||||||||
Impairment on real estate investments and associated goodwill | 12,397 | 3,750 | (8,647 | ) | nm | |||||||||
General, administrative and professional fees | 9,477 | 9,216 | (261 | ) | (2.8 | ) | ||||||||
Deal costs | 490 | 991 | 501 | 50.6 | ||||||||||
Loss on extinguishment of debt | 4,359 | — | (4,359 | ) | nm | |||||||||
Other expenses, net | 3,700 | 158 | (3,542 | ) | nm | |||||||||
Total expenses | 70,188 | 45,957 | (24,231 | ) | (52.7 | ) | ||||||||
Income before income taxes, real estate dispositions and noncontrolling interests | 17,103 | 36,360 | (19,257 | ) | (53.0 | ) | ||||||||
Income tax expense | (229 | ) | (1,024 | ) | 795 | 77.6 | ||||||||
Gain on real estate dispositions | 2,143 | 856 | 1,287 | 150.4 | ||||||||||
Net income | 19,017 | 36,192 | (17,175 | ) | (47.5 | ) | ||||||||
Net income attributable to noncontrolling interests | 7 | 26 | 19 | 73.1 | ||||||||||
Net income attributable to CCP | $ | 19,010 | $ | 36,166 | (17,156 | ) | (47.4 | ) |
For the Three Months Ended September 30, | Increase (Decrease) to Rental Income, Net | |||||||||||||
2016 | 2015 | $ | % | |||||||||||
(Dollars in thousands) | ||||||||||||||
Rental income | $ | 73,765 | $ | 71,464 | $ | 2,301 | 3.2 | % |
For the Nine Months Ended September 30, | Increase (Decrease) to Net Income | |||||||||||||
2016 | 2015 | $ | % | |||||||||||
(Dollars in thousands) | ||||||||||||||
Revenues: | ||||||||||||||
Rental income, net | $ | 246,095 | $ | 237,100 | $ | 8,995 | 3.8 | % | ||||||
Income from investments in direct financing lease and loans | 4,530 | 2,680 | 1,850 | 69.0 | ||||||||||
Real estate services fee income | 5,080 | 763 | 4,317 | 148.6 | ||||||||||
Interest and other income | 1,791 | 67 | 1,724 | nm | ||||||||||
Total revenues | 257,496 | 240,610 | 16,886 | 7.0 | ||||||||||
Expenses: | ||||||||||||||
Interest | 35,210 | 4,075 | (31,135 | ) | nm | |||||||||
Depreciation and amortization | 82,324 | 80,688 | (1,636 | ) | (2.0 | ) | ||||||||
Impairment on real estate investments and associated goodwill | 17,925 | 16,648 | (1,277 | ) | nm | |||||||||
General, administrative and professional fees | 26,317 | 21,499 | (4,818 | ) | (22.4 | ) | ||||||||
Deal costs | 2,516 | 4,746 | 2,230 | 47.0 | ||||||||||
Loss on extinguishment of debt | 5,461 | — | (5,461 | ) | nm | |||||||||
Other expenses, net | 3,919 | 1,278 | (2,641 | ) | (206.7 | ) | ||||||||
Total expenses | 173,672 | 128,934 | (44,738 | ) | (34.7 | ) | ||||||||
Income before income taxes, real estate dispositions and noncontrolling interests | 83,824 | 111,676 | (27,852 | ) | (24.9 | ) | ||||||||
Income tax expense | (779 | ) | (1,024 | ) | 245 | 77.6 | ||||||||
Gain on real estate dispositions | 2,895 | 856 | 2,039 | 150.4 | ||||||||||
Net income | 85,940 | 111,508 | (25,568 | ) | (22.9 | ) | ||||||||
Net income attributable to noncontrolling interests | 13 | 138 | 125 | 90.6 | ||||||||||
Net income attributable to CCP | $ | 85,927 | $ | 111,370 | (25,443 | ) | (22.8 | ) |
For the Nine Months Ended September 30, | Increase (Decrease) to Rental Income, Net | |||||||||||||
2016 | 2015 | $ | % | |||||||||||
(Dollars in thousands) | ||||||||||||||
Rental income | $ | 189,213 | $ | 185,241 | $ | 3,972 | 2.1 | % |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(In thousands) | |||||||||||||||
Net income attributable to CCP | $ | 19,010 | $ | 36,166 | $ | 85,927 | $ | 111,370 | |||||||
Adjustments: | |||||||||||||||
Real estate depreciation and amortization | 25,302 | 27,617 | 81,758 | 80,367 | |||||||||||
Real estate depreciation related to noncontrolling interests | (32 | ) | (68 | ) | (106 | ) | (202 | ) | |||||||
Impairment on real estate investments and associated goodwill | 12,397 | 3,750 | 17,925 | 16,648 | |||||||||||
Gain on real estate dispositions | (2,143 | ) | (856 | ) | (2,895 | ) | (856 | ) | |||||||
FFO attributable to CCP | 54,534 | 66,609 | 182,609 | 207,327 | |||||||||||
Adjustments: | |||||||||||||||
Income tax expense | 229 | 1,024 | 779 | 1,024 | |||||||||||
Stock-based compensation expense associated with spin-related conversion of awards | — | 542 | — | 542 | |||||||||||
Transition services fee expense | 401 | 293 | 1,605 | 293 | |||||||||||
Deal costs | 490 | 991 | 2,516 | 4,746 | |||||||||||
Initial debt rating agency costs | — | 477 | — | 477 | |||||||||||
Amortization of other intangibles | 173 | 89 | 516 | 89 | |||||||||||
Loss on extinguishment of debt | 4,359 | — | 5,461 | — | |||||||||||
Non-cash items included in interest and other income and other expenses, net | 2,498 | — | 1,821 | — | |||||||||||
Lease modification fee | (17 | ) | — | 227 | — | ||||||||||
Normalized FFO attributable to CCP | $ | 62,667 | $ | 70,025 | $ | 195,534 | $ | 214,498 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(In thousands) | |||||||||||||||
Net income | $ | 19,017 | $ | 36,192 | $ | 85,940 | $ | 111,508 | |||||||
Adjustments for investments and dispositions during the period | (190 | ) | — | (2,980 | ) | — | |||||||||
Adjusted net income | 18,827 | 36,192 | 82,960 | 111,508 | |||||||||||
Add back: | |||||||||||||||
Interest | 14,271 | 4,090 | 35,210 | 4,075 | |||||||||||
Income tax expense | 229 | 1,024 | 779 | 1,024 | |||||||||||
Depreciation and amortization | 25,494 | 27,752 | 82,324 | 80,688 | |||||||||||
Impairment on real estate investments and associated goodwill | 12,397 | 3,750 | 17,925 | 16,648 | |||||||||||
Stock-based and other compensation adjustments | 2,196 | 2,341 | 5,004 | 2,341 | |||||||||||
Deal costs | 490 | 991 | 2,516 | 4,746 | |||||||||||
Loss on extinguishment of debt | 4,359 | — | 5,462 | — | |||||||||||
Gain on real estate dispositions | (2,143 | ) | (856 | ) | (2,895 | ) | (856 | ) | |||||||
Non-cash items included in interest and other income and other expenses, net | 2,498 | — | 1,821 | — | |||||||||||
Transition services fee expense | 401 | 293 | 1,605 | 293 | |||||||||||
Initial debt rating agency costs | — | 477 | — | 477 | |||||||||||
Lease modification fee | (17 | ) | — | 227 | — | ||||||||||
Adjusted EBITDA | $ | 79,002 | $ | 76,054 | $ | 232,938 | $ | 220,944 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(In thousands) | |||||||||||||||
Net income | $ | 19,017 | $ | 36,192 | $ | 85,940 | $ | 111,508 | |||||||
Adjustments: | |||||||||||||||
Real estate services fee income | (1,897 | ) | — | (5,080 | ) | — | |||||||||
Interest and other income | (1,073 | ) | (4 | ) | (1,791 | ) | (67 | ) | |||||||
Interest | 14,271 | 4,090 | 35,210 | 4,075 | |||||||||||
Depreciation and amortization | 25,494 | 27,752 | 82,324 | 80,688 | |||||||||||
Impairment on real estate investments and associated goodwill | 12,397 | 3,750 | 17,925 | 16,648 | |||||||||||
General, administrative and professional fees | 9,477 | 9,216 | 26,317 | 21,499 | |||||||||||
Deal costs | 490 | 991 | 2,516 | 4,746 | |||||||||||
Loss on extinguishment of debt | 4,359 | — | 5,461 | — | |||||||||||
Other expenses, net | 3,700 | 158 | 3,919 | 1,278 | |||||||||||
Income tax expense | 229 | 1,024 | 779 | 1,024 | |||||||||||
Gain on real estate dispositions | (2,143 | ) | (856 | ) | (2,895 | ) | (856 | ) | |||||||
NOI | $ | 84,321 | $ | 82,313 | $ | 250,625 | $ | 240,543 |
As of September 30, 2016 | As of December 31, 2015 | ||||
Investment mix by asset type (1): | |||||
SNFs | 87.9 | % | 88.3 | % | |
Seniors housing communities and campuses (2) | 7.1 | 7.3 | |||
Specialty hospitals and healthcare assets | 5.0 | 4.4 | |||
Investment mix by tenant (1): | |||||
Senior Care Centers, LLC | 20.7 | 19.2 | |||
Avamere Group, LLC | 11.0 | 10.0 | |||
Signature HealthCARE, LLC | 8.7 | 8.5 | |||
All other | 59.7 | 62.3 |
(1) | Ratios are based on the gross book value of tangible real estate property (excluding assets classified as held for sale) as of each reporting date. |
(2) | Campuses are defined as multi-level properties. |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Operations mix by asset type (1): | |||||||||||
SNFs | 86.1 | % | 88.9 | % | 87.3 | % | 89.7 | % | |||
Seniors housing communities and campuses (2) | 4.9 | 5.1 | 5.1 | 4.4 | |||||||
Specialty hospitals and healthcare assets | 3.4 | 3.9 | 3.3 | 4.5 | |||||||
All other | 5.6 | 2.1 | 4.3 | 1.4 | |||||||
Operations mix by tenant (1): | |||||||||||
Senior Care Centers, LLC | 16.0 | 13.2 | 16.2 | 10.3 | |||||||
Avamere Group, LLC | 10.8 | 10.8 | 10.7 | 10.1 | |||||||
Signature HealthCARE, LLC | 14.1 | 9.9 | 14.2 | 9.9 | |||||||
All other | 59.1 | 66.1 | 58.9 | 69.7 |
(1) | Ratios are based on revenues for each period presented. |
(2) | Campuses are defined as multi-level properties. |
For the Nine Months Ended September 30, | Increase (Decrease) to Cash | |||||||||||||
2016 | 2015 | $ | % | |||||||||||
(Dollars in thousands) | ||||||||||||||
Cash at beginning of period | $ | 16,995 | $ | 2,424 | $ | 14,571 | nm | |||||||
Net cash provided by operating activities | 188,915 | 206,041 | (17,126 | ) | (8.3 | )% | ||||||||
Net cash provided by (used in) investing activities | 55,599 | (498,506 | ) | 554,105 | 111.2 | |||||||||
Net cash (used in) provided by financing activities | (239,032 | ) | 300,485 | (539,517 | ) | (179.5 | ) | |||||||
Cash at end of period | $ | 22,477 | $ | 10,444 | 12,033 | nm |
Number of Shares Repurchased (1) | Average Price Per Share | ||||
July 1 through July 31 | — | $ | — | ||
August 1 through August 31 | 11,184 | 29.51 | |||
September 1 through September 30 | — | — |
(1) | Repurchases represent shares withheld to pay taxes on the vesting of restricted stock granted to employees under our 2015 Incentive Plan. The value of the shares withheld is the closing price of our common stock on the date the vesting occurred (or, if not a trading day, the immediately preceding trading day). |
Exhibit Number | Description of Document | Location of Document | |
4.1 | Indenture dated as of July 14, 2016 by and among Care Capital LP, as issuer, CCP and Care Capital GP, as guarantors, and Regions Bank, as trustee. | Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed on July 15, 2016. | |
4.2 | Registration Rights Agreement dated as of July 14, 2016 among Care Capital LP, CCP, Care Capital GP and the initial purchasers named therein. | Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K, filed on July 15, 2016. | |
10.1 | Purchase Agreement, dated July 7, 2016, among CCP, Care Capital LP, Care Capital GP and the Initial Purchasers named therein. | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 8, 2016. | |
10.2 | Loan Agreement dated as of July 25, 2016 by and among Capital One, National Association, as administrative agent, co-lead arranger and book runner, Regions Capital Markets, as co-lead arranger, the lenders identified therein, and wholly owned subsidiaries of Care Capital LP listed on Exhibit B thereto, as borrowers. | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 29, 2016. | |
10.3 | Guaranty of Payment and Performance dated July 25, 2016 by CCP and Care Capital LP for the benefit of Capital One, National Association, as administrative agent. | Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on July 29, 2016. | |
10.4 | Employee Protection and Non-Competition Agreement dated as of October 4, 2016 between CCP and Anna N. Fitzgerald. | Incorporated by reference to Exhibit 10.1 to our current Report on Form 8-K, filed on September 27, 2016. | |
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. | ||
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 Number | Description of Document | Location of Document | |
4.1 | Indenture dated as of July 14, 2016 by and among Care Capital LP, as issuer, CCP and Care Capital GP, as guarantors, and Regions Bank, as trustee. | Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed on July 15, 2016. | |
4.2 | Registration Rights Agreement dated as of July 14, 2016 among Care Capital LP, CCP, Care Capital GP and the initial purchasers named therein. | Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K, filed on July 15, 2016. | |
10.1 | Purchase Agreement, dated July 7, 2016, among CCP, Care Capital LP, Care Capital GP and the Initial Purchasers named therein. | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 8, 2016. | |
10.2 | Loan Agreement dated as of July 25, 2016 by and among Capital One, National Association, as administrative agent, co-lead arranger and book runner, Regions Capital Markets, as co-lead arranger, the lenders identified therein, and wholly owned subsidiaries of Care Capital LP listed on Exhibit B thereto, as borrowers. | Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 29, 2016. | |
10.3 | Guaranty of Payment and Performance dated July 25, 2016 by CCP and Care Capital LP for the benefit of Capital One, National Association, as administrative agent. | Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on July 29, 2016. | |
10.4 | Employee Protection and Non-Competition Agreement dated as of October 4, 2016 between CCP and Anna N. Fitzgerald. | Incorporated by reference to Exhibit 10.1 to our current Report on Form 8-K, filed on September 27, 2016. | |
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. | |
(Dollars in thousands) | For the Nine Months Ended September 30, 2016 | ||
Income before income taxes, real estate dispositions and noncontrolling interest | $ | 83,824 | |
Interest expense | |||
Term loans, senior notes and other debt | 35,210 | ||
Earnings | $ | 119,034 | |
Interest | |||
Term loans, senior notes and other debt expense | $ | 35,210 | |
Fixed charges | $ | 35,210 | |
Ratio of Earnings to Fixed Charges | 3.4 |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report, any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Raymond J. Lewis |
Raymond J. Lewis Chief Executive Officer |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report, any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Lori B. Wittman |
Lori B. Wittman Executive Vice President and Chief Financial Officer |
/s/ Raymond J. Lewis |
Raymond J. Lewis Chief Executive Officer |
/s/ Lori B. Wittman |
Lori B. Wittman Executive Vice President and Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Nov. 08, 2016 |
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Document and Entity Information [Abstract] | ||
Entity Registrant Name | Care Capital Properties, Inc. | |
Entity Central Index Key | 0001639947 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 83,960,353 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2016 |
Dec. 31, 2015 |
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Statement of Financial Position [Abstract] | ||
Preferred stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock shares issued (in shares) | 0 | 0 |
Common stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock shares authorized (in shares) | 300,000,000 | 300,000,000 |
Common stock shares issued (in shares) | 83,970,000 | 83,803,000 |
Treasury stock (in shares) | 11,000 | 0 |
COMBINED CONSOLIDATED STATEMENTS OF EQUITY (Parenthetical) - $ / shares |
9 Months Ended | 12 Months Ended | |||
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Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Sep. 30, 2016 |
Dec. 31, 2015 |
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Statement of Stockholders' Equity [Abstract] | |||||
Dividends paid in cash (in dollars per share) | $ 0.57 | $ 0.57 | $ 0.57 | $ 1.71 | $ 0.57 |
Accounting Policies |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies | Accounting Policies The accompanying combined consolidated financial statements have been prepared in accordance with GAAP for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the 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 (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim periods have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying combined consolidated financial statements and related notes should be read in conjunction with our audited combined consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 10, 2016. Principles of Combination and Consolidation and Basis of Presentation Our unaudited combined consolidated financial statements for periods prior to our separation from Ventas do not represent the financial position and results of operations of a legal entity, but rather a combination of entities under common control that have been “carved out” of Ventas’s consolidated financial statements, and reflect significant assumptions and allocations. All intercompany transactions and balances have been eliminated in consolidation, and our net income is reduced by the portion of net income attributable to noncontrolling interests. For periods prior to the separation, the combined consolidated financial statements include the attribution of certain assets and liabilities that were historically held at the Ventas corporate level, but which were specifically identifiable or attributable to us. All transactions between us and Ventas were considered to be effectively settled in the combined consolidated financial statements at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected as net contribution from or distribution to parent in the combined consolidated statements of cash flows as a financing activity. No other related party transactions or relationships are reflected in the combined consolidated financial statements for those periods. For periods prior to the separation, the combined consolidated financial statements also include an allocation of expenses related to certain Ventas corporate functions, including executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and investor relations. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata primarily on the basis of revenue, headcount or other measures. We consider the expense methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for those periods. We believe that the assumptions and estimates used in preparation of the underlying combined consolidated financial statements are reasonable. However, the combined consolidated financial statements herein do not necessarily reflect what our financial position, results of operations or cash flows would have been if we had been a standalone company during the full periods presented, nor are they necessarily indicative of our future results of operations, financial position or cash flows. Our consolidated financial statements for periods subsequent to our separation from Ventas include our accounts and the accounts of our wholly owned subsidiaries and the joint venture entities over which we exercise control. All intercompany transactions and balances have been eliminated in consolidation, and our net income is reduced by the portion of net income attributable to noncontrolling interests. Noncontrolling Interests We present the portion of any equity that we do not own in entities that we control (and thus consolidate) as noncontrolling interests and classify such interests as a component of consolidated equity, separate from total equity, on our consolidated balance sheets. For consolidated joint ventures with pro rata distribution allocations, we allocate net income or loss between the joint venture partners based on their respective stated ownership percentages. We account for purchases or sales of equity interests that do not result in a change of control as equity transactions, either through net parent investment for periods prior to our separation from Ventas or through additional paid-in capital for periods subsequent to our separation from Ventas. In addition, we include net income or loss attributable to noncontrolling interests in net income in our combined consolidated statements of income and comprehensive income. As of September 30, 2016 and December 31, 2015, we had a controlling interest in one joint venture entity that owned one SNF. The noncontrolling interest percentage for this joint venture was 49.0% at September 30, 2016 and December 31, 2015. Accounting Estimates The preparation of combined consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Net Real Estate Property Our investment in net real estate property is recorded on our consolidated balance sheets at historical cost, less accumulated depreciation and amortization. These real estate assets are initially measured upon their acquisition. We account for acquisitions using the acquisition method and allocate the cost of the businesses acquired among tangible and recognized intangible assets and liabilities based upon their estimated fair values as of the acquisition date.
Impairment of Long-Lived and Intangible Assets and Goodwill We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to the retention or disposition of the asset. We adjust the net carrying value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sale proceeds, is less than carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period. If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset's carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period. We test goodwill for impairment at least annually, and more frequently if indicators arise. We assess qualitative factors, such as current macroeconomic conditions, state of the capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of the reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we proceed with the two-step approach to evaluating impairment. First, we estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value. If the carrying value exceeds fair value, we proceed with the second step, which requires us to assign the fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied value of goodwill and is used to determine the amount of impairment. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period. Additionally, when we classify our real estate assets as assets held for sale, we evaluate the entire disposal group, including the associated goodwill, for impairment. Estimates of fair value used in our evaluation of goodwill, real estate investments and intangible assets are based upon discounted future cash flow projections or other acceptable valuation techniques that are based, in turn, upon Level 3 inputs in the fair value hierarchy (as described below), such as revenue and expense growth rates, capitalization rates, discount rates or other available market data. Our ability to accurately predict future operating results and cash flows and to estimate and allocate fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. Assets Held for Sale and Discontinued Operations We expect to sell properties from time to time for various reasons, including favorable market conditions or the exercise of purchase options by tenants. We classify certain long-lived assets as held for sale once the criteria, as defined by GAAP, have been met. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell and are no longer depreciated. Net Investment in Direct Financing Lease We lease one SNF under an agreement that is classified as a direct financing lease, as the tenant has a purchase obligation at the end of the lease term. The net investment in direct financing lease is recorded as a receivable on our consolidated balance sheets and represents the total undiscounted rental payments (including the tenant's purchase obligation), plus the estimated unguaranteed residual value, less the unearned lease income. Unearned lease income represents the excess of the minimum lease payments and residual values over the cost of the investment. Unearned lease income is deferred and amortized to income over the lease term to provide a constant yield when collectibility of the lease payments is reasonably assured. Income from our net investment in direct financing lease was $0.6 million and $0.6 million for the three months ended September 30, 2016 and 2015, respectively, and $1.9 million and $1.8 million for the nine months ended September 30, 2016 and 2015, respectively. Loans Receivable We determine the fair value of loans receivable acquired in connection with a business combination by discounting the estimated future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings. We do not establish a valuation allowance at the acquisition date, as the amount of estimated future cash flows reflects our judgment regarding their uncertainty. We recognize the difference between the acquisition date fair value and the total expected cash flows as interest income using the effective interest method over the life of the applicable loan. We immediately recognize in income any unamortized balances if the loan is repaid before its contractual maturity. Subsequent to the acquisition date, we evaluate changes regarding the uncertainty of future cash flows and the need for a valuation allowance, as appropriate. We regularly evaluate the collectibility of loans receivable based on factors such as corporate and facility-level financial and operational reports, compliance with financial covenants set forth in the applicable loan agreement, the financial strength of the borrower and any guarantors, the payment history of the borrower and current economic conditions. If our evaluation of these factors indicates it is probable that we will not be able to collect all amounts due under the terms of the applicable loan agreement, we provide a reserve against the portion of the receivable that we estimate may not be collected. Centralized Cash Management For periods prior to our separation from Ventas, we and our wholly owned subsidiaries had been subject to Ventas’s centralized cash management system. All payments were controlled and made by Ventas, resulting in intercompany transactions between us and Ventas that did not settle in cash. The net effect of these intercompany transactions is reflected in net contribution from or net distribution to parent on our combined consolidated statements of cash flows and combined consolidated statements of equity. Subsequent to the separation, we maintain our own centralized cash management system, in addition to separate cash accounts associated with our joint venture entities. Tenant Deposits Tenant deposits consist of security deposits and amounts provided by our tenants for future real estate taxes, insurance expenditures and tenant improvements related to our properties and their operations. Fair Values of Financial Instruments Fair value is a market-based measurement, not an entity-specific measurement, and we determine fair value based on the assumptions that we expect market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets and other inputs for the asset or liability that are observable at commonly quoted intervals, such as interest rates and yield curves. Level 3 inputs are unobservable inputs for the asset or liability, which typically are based on our own assumptions, because there is little, if any, related market activity. If the determination of the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. If the volume and level of market activity for an asset or liability has decreased significantly relative to the normal market activity for such asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that a transaction for an asset or liability is not orderly, little, if any, weight is placed on that transaction price as an indicator of fair value. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We use the following methods and assumptions in estimating the fair value of our financial instruments.
Revenue Recognition Triple-Net Leased Properties Certain of our triple-net leases provide for periodic and determinable increases in base rent. We recognize base rental revenues under these leases on a straight-line basis over the applicable lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our consolidated balance sheets. Our remaining leases provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term. Other We recognize income from other rent, lease termination fees and all other income when all of the following criteria are met in accordance with SEC Staff Accounting Bulletin 104: (i) the applicable agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) collectibility is reasonably assured. Allowances We assess our rent receivables, including straight-line rent receivables, to determine whether an allowance is appropriate. We base our assessment of rent receivables (other than straight-line rent receivables) on several factors, including, among other things, payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, if any, and current economic conditions, including government reimbursement. If our evaluation of these factors indicates that we may not be able to recover the full value of the receivable, we provide an allowance against the portion of the receivable that we estimate may not be recovered. We also base our assessment of straight-line rent receivables on several factors, including, among other things, the financial strength of the tenant and any guarantors, the historical operations and operating trends of the property, the historical payment pattern of the tenant and the type of property. If our evaluation of these factors indicates that we may not be able to collect the rent payments due in the future, we provide an allowance against the recognized straight-line rent receivable asset for the portion, up to its full value, that we estimate may not be collected. 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. Interest Income We recognize interest income from loans, including discounts and premiums, using the effective interest method when collectibility is reasonably assured. We apply the effective interest method on a loan-by-loan basis and recognize discounts and premiums as yield adjustments over the related loan term. Federal Income Tax Ventas elected to be treated as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), for every year beginning with the year ended December 31, 1999. Accordingly, with respect to periods prior to our separation from Ventas, Ventas generally was not subject to federal income tax. We elected to be treated as a REIT under the applicable provisions of the Code, beginning with the year ended December 31, 2015. Segment Reporting As of September 30, 2016 and December 31, 2015, we operated through a single reportable business segment: triple-net leased properties. We invest in SNFs and other healthcare properties throughout the United States and lease those properties to healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses. Derivative Instruments and Hedging Activities We record all derivative financial instruments on our consolidated balance sheets at fair value as of the reporting date. Our accounting for changes in the fair value of derivative financial instruments depends on our intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for matching of the timing of gain or loss recognition on the hedging instrument with the recognition of changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or to the earnings effect of the hedged forecasted transactions in a cash flow hedge. In accordance with the FASB’s fair value measurement guidance in Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820), we have elected to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. We do not use our derivative financial instruments for trading or speculative purposes. Our derivatives were 100% effective, and, therefore, we did not record any hedge ineffectiveness in earnings during the three and nine months ended September 30, 2016. We did not offset our derivative financial instrument liability against any derivative financial instrument assets as of September 30, 2016. 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. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In July 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which will become effective for us beginning January 1, 2018. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our combined consolidated financial statements, as substantially all of our revenue consists of rental income from triple-net leasing arrangements, which are specifically excluded from ASU 2014-09. 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. ASU 2016-02 supersedes Topic 840, Leases, and is effective for us for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method for all entities. We are continuing to evaluate the application of this guidance and its effect on our combined consolidated financial statements. 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. |
Description of Business |
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Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business | 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 secured and unsecured loans, made primarily to our SNF operators and other post-acute care providers. As of September 30, 2016, our portfolio consisted of 340 properties operated by 38 private regional and local care providers, spread across 36 states and containing a total of approximately 38,000 beds/units. We conduct all of our operations through our wholly owned operating partnership, Care Capital Properties, LP (“Care Capital LP”), and its subsidiaries. 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”). Effective as of 11:59 p.m. on August 17, 2015, Ventas completed its spin-off of the CCP Business by distributing one share of our common stock for every four shares of Ventas common stock held as of the close of business on August 10, 2015. As a result, we began operating as an independent public company and our common stock commenced trading on the New York Stock Exchange under the symbol “CCP” on August 18, 2015. Prior to the spin-off, CCP was a wholly owned subsidiary of Ventas. Prior to or concurrently with the spin-off, Ventas engaged in certain reorganization transactions to consolidate the ownership of its interests in 355 properties and certain loans receivable that comprised the CCP Business and transfer those interests to us. For periods prior to our separation from Ventas, references herein to “we,” “us,” or “our” refer to the CCP Business after giving effect to the transfer of the assets and liabilities from Ventas in connection with the separation. In connection with the spin-off, we entered into a separation and distribution agreement, as well as a transition services agreement, a tax matters agreement and an employee matters agreement, with Ventas. Under the transition services agreement, Ventas provided us with various accounting, tax and information technology services on a transitional basis through August 31, 2016, in exchange for a fee of $2.5 million, paid in four quarterly installments. At the time of the separation and distribution, we had not conducted any business as a separate company and had no material assets or liabilities. We elected to be treated as a REIT for federal income tax purposes, beginning with our tax year ended December 31, 2015, and since the distribution have been operating in a manner that we believe will allow us to qualify as a REIT. The operations of the CCP Business transferred to us by Ventas are presented herein as if the transferred business was our business for all historical periods described and at the carrying value of such assets and liabilities reflected in Ventas’s books and records. Subject to the limitation under the REIT asset test rules, we are permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries (“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. For periods prior to our separation from Ventas, our combined consolidated financial statements included in this Quarterly Report on Form 10-Q reflect Ventas’s interests in 358 properties (including two properties that ultimately were not transferred to us as part of the separation and one property that was sold during the second quarter of 2015). The combined consolidated financial statements for periods prior to the separation have been prepared on a standalone basis from Ventas’s consolidated financial statements and accounting records and reflect the financial position, results of operations and cash flows of the CCP Business as it was operated as part of Ventas prior to the distribution, in conformity with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements for the three and nine months ended September 30, 2016 reflect our financial position, results of operations and cash flows in conformity with GAAP. For periods prior to our separation from Ventas, our equity balance (net parent investment) in the combined consolidated financial statements represents the excess of total assets over total liabilities, including the intercompany balances between us and Ventas. Net parent investment is primarily impacted by contributions from Ventas, which are the result of treasury activities and net funding provided by or distributed to Ventas prior to the separation. For periods subsequent to our separation from Ventas, our equity balance in the consolidated financial statements represents our equity activity starting August 18, 2015. |
Triple-Net Lease Arrangements |
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Sep. 30, 2016 | |
Leases [Abstract] | |
Triple-Net Lease Arrangements | Triple-Net Lease Arrangements Our properties were located in 36 states as of September 30, 2016, with properties in only one state (Texas) accounting for more than 10% of our total revenues for the three months then ended. As of September 30, 2016, Senior Care Centers, LLC (together with its subsidiaries, “SCC”) and Avamere Group, LLC (together with its subsidiaries, “Avamere”) operated approximately 20.7% and 10.9% respectively, of our real estate investments based on gross book value. For the three months ended September 30, 2016, approximately 16.0%, 14.1% and 10.8% of our total revenues were derived from our lease and loan agreements with SCC, Signature HealthCARE, LLC (together with its subsidiaries, “Signature”) and Avamere, respectively. For the three months ended September 30, 2015, approximately 13.2% and 10.8% of our total revenues were derived from our lease and loan agreements with SCC and Avamere, respectively. For the nine months ended September 30, 2016, approximately 16.2%, 14.2% and 10.7% of our total revenues were derived from our lease and loan agreements with SCC, Signature and Avamere, respectively. For the nine months ended September 30, 2015, approximately 10.3% and 10.1% of our total revenues were derived from our lease and loan agreements with SCC and Avamere, respectively. Each of our leases with SCC, Signature and Avamere is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures. Our leases with SCC and Signature have guaranty and/or cross-default provisions tied to other leases with the same tenant or its affiliates, and our lease with Avamere is a pooled multi-facility master lease. If SCC, Signature or Avamere becomes unable or unwilling to satisfy its obligations to us or to renew its leases with us upon expiration of the terms thereof, our financial condition and results of operations could decline significantly. We cannot assure you that SCC, Signature or Avamere will be able to effectively conduct its operations, operate our properties profitably or maintain and improve our properties, nor can we assure you that it will have sufficient assets, income, access to financing and/or insurance coverage to enable it to satisfy its respective obligations to us and third parties. Any failure, inability or unwillingness by SCC, Signature or Avamere to meet its obligations could have a material adverse effect on our business, financial condition, results of operations and liquidity. We also cannot assure you that SCC, Signature or Avamere will elect to renew its respective leases with us upon expiration of the leases or that we will be able to reposition any non-renewed properties on a timely basis or on the same or better economic or other terms, if at all. Our straight-line rent receivable balance was $0.6 million and $0.6 million, net of allowances of $93.7 million and $87.4 million, as of September 30, 2016 and December 31, 2015, respectively. We recognized charges for straight-line rent allowances within rental income, net in our combined consolidated statements of income and comprehensive income of $3.2 million and $5.9 million for the three months ended September 30, 2016 and 2015, respectively, and $14.4 million and $19.5 million for the nine months ended September 30, 2016 and 2015, respectively. |
Acquisitions and Dispositions of Real Estate Property |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions and Dispositions of Real Estate Property | Acquisitions and Dispositions of Real Estate Property Acquisitions On December 31, 2015, we completed the acquisition of the 6.82% noncontrolling interest in one of our former joint ventures for $3.1 million. On September 1, 2015, we completed the acquisition of eight properties (seven SNFs and one campus with both skilled nursing and assisted living facilities) and simultaneously entered into a long-term master lease with SCC to operate the acquired portfolio. We purchased the assets for approximately $190 million in cash and made a $20 million five-year, fully amortizing loan to SCC, resulting in a total transaction value of approximately $210 million. We funded this transaction through cash on hand and borrowings under our unsecured revolving credit facility and term loans (see “Note 9—Borrowing Arrangements and Derivatives and Hedging Activities”). On August 14, 2015, we completed the acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock. This specialty valuation firm subsidiary represents our TRS. Pursuant to the purchase agreement, we agreed to issue additional shares to the sellers to the extent that the value of the common stock originally issued to the sellers based on the volume-weighted average price (“VWAP”) of the common stock over the 30 days immediately prior to the six-month anniversary of the closing of the acquisition was less than approximately $11.5 million. In February 2016, we issued 56,377 shares of our common stock, valued at $1.4 million, to the sellers as additional consideration pursuant to the purchase agreement. In January 2015, Ventas completed the acquisition of American Realty Capital Healthcare Trust, Inc. (“HCT”) in a stock and cash transaction, which included 14 SNFs, two specialty hospitals and four seniors housing properties that were transferred to us in connection with the separation. Also in January 2015, Ventas completed the acquisition of 12 SNFs for an aggregate purchase price of $234.9 million, all of which were transferred to us in connection with the separation and are currently operated by SCC. Estimated Fair Value We accounted for our 2015 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, which we determined using Level 2 and Level 3 inputs (in thousands):
Deal Costs Deal costs for both periods consist of expenses primarily related to transactions, whether consummated or not, and operator transitions. These costs are expensed as incurred in the applicable periods. For the nine months ended September 30, 2016 and 2015, we expensed $2.5 million and $4.7 million, respectively, of these costs, of which $0.3 million and $4.7 million, respectively, related to acquisitions completed during the year ended December 31, 2015. Deal costs for the nine months ended September 30, 2015 include an allocation of expenses incurred by Ventas related to the HCT acquisition based on relative property net operating income (“NOI”). Assets Held for Sale and Dispositions As of September 30, 2016 and December 31, 2015, we classified 32 properties and 10 properties, respectively, as assets held for sale, which are included in other assets on our consolidated balance sheets. In September 2016, we sold one specialty hospital, which was classified as held for sale, for proceeds of $6.4 million. We recognized a gain on the sale of this asset of $2.2 million. In July 2016, we sold two SNFs, which were classified as held for sale, for aggregate proceeds of $11.0 million. We did not recognize a gain or loss on the sales of these assets. In June 2016, we sold one SNF, which was classified as held for sale, for proceeds of $1.5 million. We did not recognize a gain or loss on the sale of this asset. In May 2016, we sold seven properties, which were classified as held for sale, in a single transaction for aggregate consideration of $95.1 million. We recognized a gain on the sale of these assets of $0.8 million. Concurrently with the sale, we made a mezzanine loan to an affiliate of the purchasers in the amount of $25.0 million. See “Note 6—Loans Receivable.” In February 2016, we sold seven SNFs, which were classified as held for sale, for aggregate consideration of $9.9 million. We recognized a loss on the sales of these assets of $0.1 million. 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.” In the fourth quarter of 2015, we sold four SNFs, which were classified as held for sale, for aggregate proceeds of $4.5 million. We recognized a loss on the sales of these assets of $0.2 million. Of the properties sold in the quarter, two were acquired in the HCT transaction and transferred to us in connection with the separation. Six properties acquired in the HCT transaction were classified as held for sale as of December 31, 2015. In August 2015, we sold one SNF for proceeds of $1.5 million and recognized a gain on the sale of $0.9 million. In June 2015, we sold one SNF at its carrying value, resulting in neither a gain nor a loss. For the three and nine months ended September 30, 2016, we recognized a $3.6 million net loss related to one SNF located in West Virginia that sustained property damage due to a casualty. Subsequent to the casualty, we received notice from the state that we would be unable to restore the property to its intended use. The net loss reflects a decline in the carrying value of the asset, offset by the estimated insurance proceeds we expect to recover. This amount is included in other expenses, net on our combined consolidated income statements. |
Summary Specialty Valuation Firm Statement of Operations |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Specialty Valuation Firm Statement of Operations | Summary Specialty Valuation Firm Statement of Operations Below is a summary of the statement of operations for the specialty valuation firm we acquired in August 2015 for the three and nine months ended September 30, 2016 and 2015:
(1) Amounts relate only to the period from the date of our acquisition through September 30, 2015. |
Loans Receivable |
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Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans Receivable | Loans Receivable Below is a summary of our loans receivable as of September 30, 2016 and December 31, 2015.
Secured loans receivable, net represents one loan that has a stated interest rate of 9.75% per annum, matures in 2018 and is secured by one SNF and one loan that has a stated interest rate of 10.0% per annum, matures in 2017 and is also secured by one SNF. In August 2016, we made a $3.0 million working capital loan to an existing operator in connection with the transition of three SNFs to that operator. The loan bears interest at an annual rate of 5.0%. As of September 30, 2016, this working capital loan had an outstanding principal balance of $1.6 million. In May 2016, we sold seven properties for $95.1 million. Concurrently with the sale, we made a four-year mezzanine loan to an affiliate of the purchasers in the amount of $25.0 million that has a stated interest rate of 10.0% per annum. This loan is secured by equity interests in subsidiaries of the borrower and is cross-collateralized and cross-defaulted to our lease agreements with affiliates of the borrower. In March 2016, in connection with the transition of 14 SNFs from our existing tenant to two replacement operators, we agreed to make working capital loans in an aggregate amount of up to $13.0 million to the replacement operators. In addition, we purchased a $7.3 million self-liquidating working capital loan secured by accounts receivable of the former tenant that has been repaid in full. The outstanding working capital loans bear interest at an annual rate of LIBOR plus 3.5%, and as of September 30, 2016, this working capital loan had an outstanding principal balance of $8.6 million. In February 2016, we sold one SNF to the existing operator for $4.5 million. In connection with the sale, we made a $4.5 million loan to the purchaser that has a stated interest rate of 10.0% per annum and matures in 2017. This loan is secured by the property and is cross-collateralized and cross-defaulted to our lease agreements with affiliates of the borrower. For GAAP accounting purposes, interest payments on the note represent unrecognized profit, which is presented net against the loan receivable amount. In December 2015, we made a $1.0 million, four-year fully amortizing loan to Signature in connection with its acquisition from Elmcroft Senior Living, Inc. of the operations of 18 SNFs owned by us. The loan has a stated interest rate of 8.0% per annum. In September 2015, we made a $20.0 million five-year, fully amortizing loan to SCC. The loan bears interest at an annual rate of LIBOR plus 5%, which is subject to periodic increase over the term of the loan. As of September 30, 2016, this loan had an outstanding principal balance of $16.0 million. Fair value estimates as reflected in the table above are subjective in nature and based upon several important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts we would realize in a current market exchange. |
Intangibles and Goodwill |
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Intangible Assets, Intangible Liabilities, And Goodwill Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangibles and Goodwill | Intangibles and Goodwill The following is a summary of our intangibles and goodwill as of September 30, 2016 and December 31, 2015:
N/A—Not Applicable. Above market lease intangibles and in-place lease intangibles are included in acquired lease intangibles within real estate investments on our 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 nine months ended September 30, 2016 and 2015, our net amortization related to all of these intangibles was $3.6 million and $4.5 million, respectively. The estimated net amortization related to these intangibles for the remainder of 2016 and the subsequent four years is as follows: remainder of 2016 - $1.0 million; 2017 - $4.0 million; 2018 - $3.9 million; 2019 - $4.4 million; and 2020 - $4.2 million. The following table displays a rollforward of the carrying amount of goodwill from January 1, 2015 to September 30, 2016 (in thousands):
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Other Assets |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Assets | Other Assets The following is a summary of our other assets as of September 30, 2016 and December 31, 2015:
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Borrowing Arrangements and Derivatives and Hedging Activities |
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Borrowing Arrangements and Derivatives and Hedging Activities | Borrowing Arrangements and Derivatives and Hedging Activities Borrowing Arrangements The following is a summary of our term loans, senior notes and other debt as of September 30, 2016 and December 31, 2015:
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 LP’s general partner, Care Capital Properties GP, LLC (“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. We used the net proceeds from the sale of the Notes due 2026 to repay all of the remaining indebtedness outstanding under our $600 million unsecured term loan due 2017 (the “$600 million Term Loan”) and a portion of the indebtedness outstanding under our $800 million unsecured term loan due 2020 (the “$800 million Term Loan”). Also 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 (the “$135 million Term Loan”) that bears interest at a fluctuating rate per annum equal to LIBOR for a one-month interest period plus 1.80% and matures in July 2019. The $135 million Term Loan is secured by first lien mortgages and assignments of leases and rents on specified facilities owned by the Borrowers. The payment and performance of the Borrowers’ obligations under the $135 million Term Loan are guaranteed by CCP and Care Capital LP. We used the net proceeds from the $135 million Term Loan to repay a portion of the indebtedness outstanding under the $800 million Term Loan. Although there can be no assurances, we expect to refinance the $135 million Term Loan using proceeds of a loan obtained from The Department of Housing and Urban Development (HUD). 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”) through a private placement in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (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. We used the net proceeds from the issuance and sale of the Notes due 2027 to repay a portion of the indebtedness outstanding under the $600 million Term Loan. In January 2016, Care Capital LP, as borrower, and CCP and 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 (the “$200 million Term Loan”) 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 September 30, 2016. We used the net proceeds from borrowings under the $200 million Term Loan to repay a portion of the indebtedness outstanding under the $600 million Term Loan. Also in January 2016, we entered into agreements to swap a total of $600 million of outstanding indebtedness, 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. On August 17, 2015, Care Capital Properties, LP, as borrower, and CCP, Care Capital GP and certain subsidiaries of Care Capital LP, as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”), comprised of a $600 million unsecured revolving credit facility (the “Revolver”), the $600 million Term Loan and the $800 million Term Loan (together with the Revolver and the $600 million Term Loan, the “Facility”). The Revolver has an initial term of four years, but may be extended, at Care Capital LP’s option subject to compliance with the terms of the Credit Agreement and payment of a customary fee, for two additional six-month periods. The $600 million and$800 million Term Loans mature in August 2017 and August 2020, respectively. The Credit Agreement also includes an accordion feature that permits Care Capital LP to increase the aggregate borrowing capacity under the Facility to $2.5 billion. In September 2015, subsidiaries of Care Capital LP were released as guarantors under the Credit Agreement. Borrowings under the Facility bear interest at a fluctuating rate per annum equal to LIBOR plus an applicable margin based on Care Capital LP’s unsecured long-term debt ratings. At September 30, 2016, the applicable margin was 1.30% for Revolver borrowings and 1.50% for Term Loan borrowings, and we had approximately $550 million of unused borrowing capacity available under the Revolver. As of September 30, 2016, the fair value and carrying value of our term loans and other debt were both $1.5 billion. As of September 30, 2016, our indebtedness had the following maturities:
(1) As of September 30, 2016, we had $22.5 million of cash, resulting in $27.5 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. 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. 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 September 30, 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 nine months ended September 30, 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 12 months, we estimate that an additional $3.8 million will be reclassified as an increase to interest expense. The table below presents the fair value of our derivative financial instruments, as well as their classification on our consolidated balance sheet as of September 30, 2016 (in thousands):
The table below presents the effect of our derivative financial instruments on our consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2016 (in thousands):
Our derivatives were 100% effective, and therefore, we did not record any hedge ineffectiveness in earnings during the three and nine months ending September 30, 2016. We did not offset our derivative financial instrument liability against any derivative financial instrument assets as of September 30, 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. As of September 30, 2016, the fair value of our derivatives was a liability of $9.1 million, which includes accrued interest but excludes any adjustment for nonperformance risk, but we were not required to, nor did we, post any collateral related to these agreements. If we had breached any of our derivative agreements at September 30, 2016, we could have been required to settle our obligations under the agreements at their termination value of $9.1 million. Fair Value Disclosure of Derivative Financial Instruments Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments 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). Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs (such as estimates of current credit spreads) to evaluate the likelihood of default by us and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of September 30, 2016 were classified as Level 2 of the fair value hierarchy. We did not hold any derivatives as of December 31, 2015. The table below presents our derivative financial instrument liability measured at fair value on a recurring basis as of September 30, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
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Income Taxes |
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Sep. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes We elected to be treated as a REIT under the Code, beginning with the taxable year ended December 31, 2015. So long as we qualify as a REIT under the Code, we generally will not be subject to federal income tax. We test our compliance with the REIT 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 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 nine months ended September 30, 2016, the related federal income tax liability may increase in future periods. Our consolidated provision for income taxes for the three and nine months ended September 30, 2016 was an expense of $0.2 million and $0.8 million, respectively. Our consolidated provision for income taxes for each of the three and nine months ended September 30, 2015 was an expense of $1.0 million. Our net deferred tax liabilities totaled $1.9 million as of September 30, 2016 and primarily reflect differences between the financial reporting and tax bases of fixed and intangible assets. The net deferred tax liability was also $1.9 million as of December 31, 2015. Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service (“IRS”) for the year ended December 31, 2015 and subsequent years. As of September 30, 2016 and December 31, 2015, we had no uncertain tax positions which would require us to record a tax exposure liability. |
Stock-Based Compensation |
9 Months Ended |
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Sep. 30, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Stock-Based Compensation Prior to our separation from Ventas, certain of our employees participated in stock-based compensation plans administered by Ventas. In connection with the spin-off, outstanding Ventas equity awards held by our employees were converted into awards of our common stock. In August 2015, we adopted the Care Capital Properties, Inc. 2015 Incentive Plan (the “Plan”), pursuant to which options to purchase common stock, shares of restricted stock or restricted stock units and other equity awards may be granted to our employees, directors and consultants. A total of 7,000,000 shares of our common stock was reserved initially for issuance under the Plan. During the nine months ended September 30, 2016, we granted stock-based compensation awards to employees and directors under the Plan having a grant date fair value of $6.0 million. Awards 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. Awards to directors vest in full on the day immediately preceding our next annual meeting of stockholders. |
Earnings Per Share |
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Earnings Per Share | Earnings Per Share Basic and diluted earnings per share for the portion of the three and nine months ended September 30, 2015 prior to our separation from Ventas were retroactively restated for the number of basic and diluted shares outstanding immediately following the separation. The following table shows the amounts used in computing our basic and diluted earnings per common share:
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Stockholders’ Equity |
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Sep. 30, 2016 | |
Equity [Abstract] | |
Stockholders’ Equity | Stockholders’ Equity Equity Effective as of 11:59 p.m. on August 17, 2015, Ventas completed its spin-off of the CCP Business by distributing one share of our common stock for every four shares of Ventas common stock held as of the close of business on August 10, 2015. As a result, we began operating as an independent public company and our common stock commenced trading on the New York Stock Exchange under the symbol “CCP” as of August 18, 2015. On August 14, 2015, we completed the acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock. Pursuant to the purchase agreement, we agreed to issue additional shares to the sellers to the extent the value of the common stock originally issued to the sellers based on the VWAP of the common stock over the 30 days immediately prior to the six-month anniversary of the closing of the acquisition was less than approximately $11.5 million. In February 2016, we issued 56,377 shares of our common stock, valued at $1.4 million, to the sellers as additional consideration pursuant to the purchase agreement. Dividends On September 30, 2016, we paid a cash dividend in the amount of $0.57 per share to the holders of record of our common stock as of September 16, 2016. On June 30, 2016, 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 10, 2016. On March 31, 2016, 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 21, 2016. |
Litigation |
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Sep. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Litigation | Litigation We are involved from time to time in various legal proceedings that arise in the ordinary course of our business, including, but not limited to commercial disputes, environmental matters, and litigation in connection with transactions including acquisitions and divestitures. We believe that such litigation, claims and administrative proceedings will not have a material adverse impact on our financial position or our results of operations. We record a liability when a loss is considered probable and the amount can be reasonably estimated. Our tenants and, in some cases, their affiliates may be required by the terms of their leases and other agreements with us to indemnify, defend and hold us harmless against certain actions, investigations and claims arising in the ordinary course of their business and related to the operations of our properties. In addition, third parties from whom we acquired certain of our assets and, in some cases, their affiliates may be required by the terms of the related conveyance documents to indemnify, defend and hold us harmless against certain actions, investigations and claims related to the acquired assets and arising prior to our ownership or related to excluded assets and liabilities. In some cases, a portion of the purchase price consideration is held in escrow for a specified period of time as collateral for these indemnification obligations. We cannot provide any assurance that our tenants, their affiliates or other obligated third parties will defend us in any such matters, that our tenants, their affiliates or other obligated third parties will have sufficient assets, income and access to financing to enable them to satisfy their defense and indemnification obligations to us or that any purchase price consideration held in escrow will be sufficient to satisfy claims for which we are entitled to indemnification. |
Subsequent Events |
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Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events We entered into definitive agreements to sell a total of 23 properties in two separate transactions for aggregate proceeds of approximately $151 million. The sale of three properties is expected to close in November, and the closing of the second transaction is expected to occur in the first quarter of 2017. In November 2016, we entered into a definitive agreement to acquire five SNFs and three seniors housing communities for $39 million in a sale leaseback transaction with an existing operator. The transaction is expected to close before year end. Completion of each of our pending transactions is subject to the satisfaction of customary closing conditions. We cannot assure you that any of these transactions will close or, if they do, when the closings will occur. |
Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
Basis of Accounting | The accompanying combined consolidated financial statements have been prepared in accordance with GAAP for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the 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 (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim periods have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying combined consolidated financial statements and related notes should be read in conjunction with our audited combined consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 10, 2016. |
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Principles of Combination and Consolidation and Basis of Presentation | Principles of Combination and Consolidation and Basis of Presentation Our unaudited combined consolidated financial statements for periods prior to our separation from Ventas do not represent the financial position and results of operations of a legal entity, but rather a combination of entities under common control that have been “carved out” of Ventas’s consolidated financial statements, and reflect significant assumptions and allocations. All intercompany transactions and balances have been eliminated in consolidation, and our net income is reduced by the portion of net income attributable to noncontrolling interests. For periods prior to the separation, the combined consolidated financial statements include the attribution of certain assets and liabilities that were historically held at the Ventas corporate level, but which were specifically identifiable or attributable to us. All transactions between us and Ventas were considered to be effectively settled in the combined consolidated financial statements at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected as net contribution from or distribution to parent in the combined consolidated statements of cash flows as a financing activity. No other related party transactions or relationships are reflected in the combined consolidated financial statements for those periods. For periods prior to the separation, the combined consolidated financial statements also include an allocation of expenses related to certain Ventas corporate functions, including executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and investor relations. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata primarily on the basis of revenue, headcount or other measures. We consider the expense methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for those periods. We believe that the assumptions and estimates used in preparation of the underlying combined consolidated financial statements are reasonable. However, the combined consolidated financial statements herein do not necessarily reflect what our financial position, results of operations or cash flows would have been if we had been a standalone company during the full periods presented, nor are they necessarily indicative of our future results of operations, financial position or cash flows. Our consolidated financial statements for periods subsequent to our separation from Ventas include our accounts and the accounts of our wholly owned subsidiaries and the joint venture entities over which we exercise control. All intercompany transactions and balances have been eliminated in consolidation, and our net income is reduced by the portion of net income attributable to noncontrolling interests. |
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Noncontrolling Interest | Noncontrolling Interests We present the portion of any equity that we do not own in entities that we control (and thus consolidate) as noncontrolling interests and classify such interests as a component of consolidated equity, separate from total equity, on our consolidated balance sheets. For consolidated joint ventures with pro rata distribution allocations, we allocate net income or loss between the joint venture partners based on their respective stated ownership percentages. We account for purchases or sales of equity interests that do not result in a change of control as equity transactions, either through net parent investment for periods prior to our separation from Ventas or through additional paid-in capital for periods subsequent to our separation from Ventas. In addition, we include net income or loss attributable to noncontrolling interests in net income in our combined consolidated statements of income and comprehensive income. |
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Accounting Estimates | Accounting Estimates The preparation of combined consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. |
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Net Real Estate Property | Net Real Estate Property Our investment in net real estate property is recorded on our consolidated balance sheets at historical cost, less accumulated depreciation and amortization. These real estate assets are initially measured upon their acquisition. We account for acquisitions using the acquisition method and allocate the cost of the businesses acquired among tangible and recognized intangible assets and liabilities based upon their estimated fair values as of the acquisition date.
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Impairment of Long-Lived and Intangible Assets and Goodwill | Impairment of Long-Lived and Intangible Assets and Goodwill We periodically evaluate our long-lived assets, primarily consisting of investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to the retention or disposition of the asset. We adjust the net carrying value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows, including sale proceeds, is less than carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period. If impairment indicators arise with respect to intangible assets with finite useful lives, we evaluate impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then we estimate the fair value of the asset and compare the estimated fair value to the intangible asset's carrying value. We recognize any shortfall from carrying value as an impairment loss in the current period. We test goodwill for impairment at least annually, and more frequently if indicators arise. We assess qualitative factors, such as current macroeconomic conditions, state of the capital markets and our overall financial and operating performance, to determine the likelihood that the fair value of the reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we proceed with the two-step approach to evaluating impairment. First, we estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value. If the carrying value exceeds fair value, we proceed with the second step, which requires us to assign the fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination at the date of the impairment test. The excess fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied value of goodwill and is used to determine the amount of impairment. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period. Additionally, when we classify our real estate assets as assets held for sale, we evaluate the entire disposal group, including the associated goodwill, for impairment. Estimates of fair value used in our evaluation of goodwill, real estate investments and intangible assets are based upon discounted future cash flow projections or other acceptable valuation techniques that are based, in turn, upon Level 3 inputs in the fair value hierarchy (as described below), such as revenue and expense growth rates, capitalization rates, discount rates or other available market data. Our ability to accurately predict future operating results and cash flows and to estimate and allocate fair values impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. |
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Assets Held for Sale and Discontinued Operations | Assets Held for Sale and Discontinued Operations We expect to sell properties from time to time for various reasons, including favorable market conditions or the exercise of purchase options by tenants. We classify certain long-lived assets as held for sale once the criteria, as defined by GAAP, have been met. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell and are no longer depreciated. |
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Net Investment in Direct Financing Lease | Net Investment in Direct Financing Lease We lease one SNF under an agreement that is classified as a direct financing lease, as the tenant has a purchase obligation at the end of the lease term. The net investment in direct financing lease is recorded as a receivable on our consolidated balance sheets and represents the total undiscounted rental payments (including the tenant's purchase obligation), plus the estimated unguaranteed residual value, less the unearned lease income. Unearned lease income represents the excess of the minimum lease payments and residual values over the cost of the investment. Unearned lease income is deferred and amortized to income over the lease term to provide a constant yield when collectibility of the lease payments is reasonably assured. |
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Loans Receivable | Loans Receivable We determine the fair value of loans receivable acquired in connection with a business combination by discounting the estimated future cash flows using current interest rates at which similar loans with the same terms and length to maturity would be made to borrowers with similar credit ratings. We do not establish a valuation allowance at the acquisition date, as the amount of estimated future cash flows reflects our judgment regarding their uncertainty. We recognize the difference between the acquisition date fair value and the total expected cash flows as interest income using the effective interest method over the life of the applicable loan. We immediately recognize in income any unamortized balances if the loan is repaid before its contractual maturity. Subsequent to the acquisition date, we evaluate changes regarding the uncertainty of future cash flows and the need for a valuation allowance, as appropriate. We regularly evaluate the collectibility of loans receivable based on factors such as corporate and facility-level financial and operational reports, compliance with financial covenants set forth in the applicable loan agreement, the financial strength of the borrower and any guarantors, the payment history of the borrower and current economic conditions. If our evaluation of these factors indicates it is probable that we will not be able to collect all amounts due under the terms of the applicable loan agreement, we provide a reserve against the portion of the receivable that we estimate may not be collected. |
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Centralized Cash Management | Centralized Cash Management For periods prior to our separation from Ventas, we and our wholly owned subsidiaries had been subject to Ventas’s centralized cash management system. All payments were controlled and made by Ventas, resulting in intercompany transactions between us and Ventas that did not settle in cash. The net effect of these intercompany transactions is reflected in net contribution from or net distribution to parent on our combined consolidated statements of cash flows and combined consolidated statements of equity. Subsequent to the separation, we maintain our own centralized cash management system, in addition to separate cash accounts associated with our joint venture entities. |
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Tenant Deposits | Tenant Deposits Tenant deposits consist of security deposits and amounts provided by our tenants for future real estate taxes, insurance expenditures and tenant improvements related to our properties and their operations. |
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Fair Values of Financial Instruments | Fair Values of Financial Instruments Fair value is a market-based measurement, not an entity-specific measurement, and we determine fair value based on the assumptions that we expect market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets and other inputs for the asset or liability that are observable at commonly quoted intervals, such as interest rates and yield curves. Level 3 inputs are unobservable inputs for the asset or liability, which typically are based on our own assumptions, because there is little, if any, related market activity. If the determination of the fair value measurement is based on inputs from different levels of the hierarchy, the level within which the entire fair value measurement falls is the lowest level input that is significant to the fair value measurement in its entirety. If the volume and level of market activity for an asset or liability has decreased significantly relative to the normal market activity for such asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that a transaction for an asset or liability is not orderly, little, if any, weight is placed on that transaction price as an indicator of fair value. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We use the following methods and assumptions in estimating the fair value of our financial instruments.
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Revenue Recognition | Revenue Recognition Triple-Net Leased Properties Certain of our triple-net leases provide for periodic and determinable increases in base rent. We recognize base rental revenues under these leases on a straight-line basis over the applicable lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a straight-line rent receivable that is included in other assets on our consolidated balance sheets. Our remaining leases provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term. Other We recognize income from other rent, lease termination fees and all other income when all of the following criteria are met in accordance with SEC Staff Accounting Bulletin 104: (i) the applicable agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) collectibility is reasonably assured. Allowances We assess our rent receivables, including straight-line rent receivables, to determine whether an allowance is appropriate. We base our assessment of rent receivables (other than straight-line rent receivables) on several factors, including, among other things, payment history, the financial strength of the tenant and any guarantors, the value of the underlying collateral, if any, and current economic conditions, including government reimbursement. If our evaluation of these factors indicates that we may not be able to recover the full value of the receivable, we provide an allowance against the portion of the receivable that we estimate may not be recovered. We also base our assessment of straight-line rent receivables on several factors, including, among other things, the financial strength of the tenant and any guarantors, the historical operations and operating trends of the property, the historical payment pattern of the tenant and the type of property. If our evaluation of these factors indicates that we may not be able to collect the rent payments due in the future, we provide an allowance against the recognized straight-line rent receivable asset for the portion, up to its full value, that we estimate may not be collected. 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. Interest Income We recognize interest income from loans, including discounts and premiums, using the effective interest method when collectibility is reasonably assured. We apply the effective interest method on a loan-by-loan basis and recognize discounts and premiums as yield adjustments over the related loan term. |
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Federal Income Tax | Federal Income Tax Ventas elected to be treated as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), for every year beginning with the year ended December 31, 1999. Accordingly, with respect to periods prior to our separation from Ventas, Ventas generally was not subject to federal income tax. We elected to be treated as a REIT under the applicable provisions of the Code, beginning with the year ended December 31, 2015. |
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Segment Reporting | Segment Reporting As of September 30, 2016 and December 31, 2015, we operated through a single reportable business segment: triple-net leased properties. We invest in SNFs and other healthcare properties throughout the United States and lease those properties to healthcare operating companies under “triple-net” or “absolute-net” leases that obligate the tenants to pay all property-related expenses. |
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Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities We record all derivative financial instruments on our consolidated balance sheets at fair value as of the reporting date. Our accounting for changes in the fair value of derivative financial instruments depends on our intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for matching of the timing of gain or loss recognition on the hedging instrument with the recognition of changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or to the earnings effect of the hedged forecasted transactions in a cash flow hedge. In accordance with the FASB’s fair value measurement guidance in Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820), we have elected to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. We do not use our derivative financial instruments for trading or speculative purposes. Our derivatives were 100% effective, and, therefore, we did not record any hedge ineffectiveness in earnings during the three and nine months ended September 30, 2016. We did not offset our derivative financial instrument liability against any derivative financial instrument assets as of September 30, 2016. |
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Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. |
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Recently Issued or Adopted Relevant Accounting Standards | 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. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In July 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which will become effective for us beginning January 1, 2018. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our combined consolidated financial statements, as substantially all of our revenue consists of rental income from triple-net leasing arrangements, which are specifically excluded from ASU 2014-09. 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. ASU 2016-02 supersedes Topic 840, Leases, and is effective for us for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method for all entities. We are continuing to evaluate the application of this guidance and its effect on our combined consolidated financial statements. 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. |
Acquisitions and Dispositions of Real Estate Property (Tables) |
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Schedule of Acquisition Estimated Fair Value | The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which we determined using Level 2 and Level 3 inputs (in thousands):
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Summary Specialty Valuation Firm Statement of Operations (Tables) |
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition, Pro Forma Information | Below is a summary of the statement of operations for the specialty valuation firm we acquired in August 2015 for the three and nine months ended September 30, 2016 and 2015:
(1) Amounts relate only to the period from the date of our acquisition through September 30, 2015. |
Loans Receivable (Tables) |
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Loans Receivable | Below is a summary of our loans receivable as of September 30, 2016 and December 31, 2015.
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Intangibles and Goodwill (Tables) |
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, Intangible Liabilities, And Goodwill Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Finite-Lived Intangible Assets | The following is a summary of our intangibles and goodwill as of September 30, 2016 and December 31, 2015:
N/A—Not Applicable. |
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Schedule of Indefinite-Lived Intangible Assets | The following is a summary of our intangibles and goodwill as of September 30, 2016 and December 31, 2015:
N/A—Not Applicable. |
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Schedule of Goodwill | The following table displays a rollforward of the carrying amount of goodwill from January 1, 2015 to September 30, 2016 (in thousands):
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Other Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Other Assets | The following is a summary of our other assets as of September 30, 2016 and December 31, 2015:
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Borrowing Arrangements and Derivatives and Hedging Activities (Tables) |
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term Loans and Other Debt | The following is a summary of our term loans, senior notes and other debt as of September 30, 2016 and December 31, 2015:
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Contractual Obligation, Fiscal Year Maturity Schedule | As of September 30, 2016, our indebtedness had the following maturities:
(1) As of September 30, 2016, we had $22.5 million of cash, resulting in $27.5 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. |
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Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The table below presents the fair value of our derivative financial instruments, as well as their classification on our consolidated balance sheet as of September 30, 2016 (in thousands):
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Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location | The table below presents the effect of our derivative financial instruments on our consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2016 (in thousands):
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Fair Value, Measurement Inputs, Disclosure | The table below presents our derivative financial instrument liability measured at fair value on a recurring basis as of September 30, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The following table shows the amounts used in computing our basic and diluted earnings per common share:
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Description of Business (Details) bed in Thousands, $ in Millions |
1 Months Ended | 3 Months Ended | 9 Months Ended | |
---|---|---|---|---|
May 31, 2016
property
|
Sep. 30, 2015
property
|
Sep. 30, 2016
subsidiary
property
state
provider
bed
|
Aug. 17, 2015
USD ($)
property
installment
|
|
Real estate properties | ||||
Number of properties | 340 | |||
Number of private providers | provider | 38 | |||
Number of states properties are located in | state | 36 | |||
Number of units in real estate property, beds | bed | 38 | |||
Spin-off common stock conversion | 0.25 | |||
Number of subsidiaries treated as taxable REIT | subsidiary | 1 | |||
Number of properties sold | 7 | |||
Ventas, Inc. | ||||
Real estate properties | ||||
Number of properties | 358 | 355 | ||
Number of real estate properties not transferred | 2 | |||
Number of properties sold | 1 | |||
Net Parent Investment | ||||
Real estate properties | ||||
Proceeds from borrowings under the Term Loans to Ventas | $ | $ 2.5 | |||
Number of quarterly installments due to Ventas | installment | 4 |
Accounting Policies (Noncontrolling Interests) (Details) |
Sep. 30, 2016
property
joint_venture
|
Dec. 31, 2015
property
joint_venture
|
---|---|---|
Noncontrolling Interest [Line Items] | ||
Number of joint ventures CCP had controlling interest | joint_venture | 1 | 1 |
Percentage of noncontrolling interest ownership of joint venture | 49.00% | 49.00% |
Skilled Nursing Facilities | ||
Noncontrolling Interest [Line Items] | ||
Number of Skilled Nursing Facilities (SNFs) | property | 1 | 1 |
Accounting Policies (Net Real Estate Property) (Details) |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Buildings | Maximum | |
Property, Plant and Equipment [Line Items] | |
Useful life (generally not to exceed) | 35 years |
Accounting Policies (Net Investment in Direct Financing Lease) (Details) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2016
USD ($)
property
|
Sep. 30, 2015
USD ($)
|
Sep. 30, 2016
USD ($)
property
|
Sep. 30, 2015
USD ($)
|
Dec. 31, 2015
property
|
|
Financing Lease [Line Items] | |||||
Income from investments in direct financing leases | $ | $ 0.6 | $ 0.6 | $ 1.9 | $ 1.8 | |
Skilled Nursing Facilities | |||||
Financing Lease [Line Items] | |||||
Number of skilled nursing facilities (SNFs) under direct financing lease | property | 1 | 1 | 1 |
Acquisitions and Dispositions of Real Estate Property (Estimated Fair Value) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2016 |
Dec. 31, 2014 |
|
Business Acquisition [Line Items] | |||
Goodwill | $ 145,374 | $ 128,673 | $ 88,959 |
American Realty Capital Healthcare Trust | |||
Business Acquisition [Line Items] | |||
Goodwill increase (decrease) | (1,800) | ||
2015 Acquisitions | |||
Business Acquisition [Line Items] | |||
Land and improvements | 38,361 | ||
Buildings and improvements | 515,620 | ||
Acquired lease intangibles | 14,138 | ||
Goodwill | 56,275 | ||
Other assets | 8,034 | ||
Total assets acquired | 632,428 | ||
Tenant deposits | 8,801 | ||
Lease intangible liabilities | 3,729 | ||
Accounts payable and other liabilities | 1,343 | ||
Total liabilities assumed | 13,873 | ||
Net assets acquired | $ 618,555 |
Intangibles and Goodwill (Goodwill) (Details) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Goodwill [Roll Forward] | ||
Goodwill, beginning balance | $ 145,374 | $ 88,959 |
Additions | 0 | 56,992 |
Disposals and reclassifications to assets held for sale | (16,701) | (577) |
Goodwill, ending balance | $ 128,673 | $ 145,374 |
Other Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Straight-line rent receivables, net | $ 642 | $ 579 |
Deferred lease costs | 5,570 | 6,895 |
Assets held for sale | 49,145 | 15,035 |
Other assets, net | 19,138 | 15,534 |
Total other assets | $ 74,495 | $ 38,043 |
Borrowing Arrangements and Derivatives and Hedging Activities (Summary of Long Term Debt) (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
May 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|
Debt Instrument [Line Items] | |||
Debt amount | $ 1,459,000 | $ 1,543,000 | |
Unamortized debt issuance costs | 19,527 | 18,137 | |
Term loans, senior notes and other debt | 1,439,473 | 1,524,863 | |
Unsecured revolving credit facility | |||
Debt Instrument [Line Items] | |||
Debt amount | 50,000 | 143,000 | |
Unsecured term loan due 2017 | |||
Debt Instrument [Line Items] | |||
Debt amount | 0 | 600,000 | |
Secured term loan due 2019 | |||
Debt Instrument [Line Items] | |||
Debt amount | 135,000 | 0 | |
Unsecured term loan due 2020 | |||
Debt Instrument [Line Items] | |||
Debt amount | 474,000 | 800,000 | |
Unsecured term loan due 2023 | |||
Debt Instrument [Line Items] | |||
Debt amount | 200,000 | 0 | |
5.125% senior notes due 2026 | |||
Debt Instrument [Line Items] | |||
Debt amount | 500,000 | 0 | |
Interest rate | 5.125% | ||
5.38% senior notes due 2027 | |||
Debt Instrument [Line Items] | |||
Debt amount | $ 100,000 | $ 0 | |
Interest rate | 5.38% |
Borrowing Arrangements and Derivatives and Hedging Activities (Maturities) (Details) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016
USD ($)
extension
|
Dec. 31, 2015
USD ($)
|
|
Long-term Debt, Fiscal Year Maturity [Abstract] | ||
2016 | $ 0 | |
2017 | 0 | |
2018 | 0 | |
2019 | 185,000 | |
2020 | 474,000 | |
Thereafter | 800,000 | |
Total Maturities | 1,459,000 | $ 1,543,000 |
Cash | 22,477 | 16,995 |
Term Loans and Senior Notes | ||
Long-term Debt, Fiscal Year Maturity [Abstract] | ||
2016 | 0 | |
2017 | 0 | |
2018 | 0 | |
2019 | 135,000 | |
2020 | 474,000 | |
Thereafter | 800,000 | |
Total Maturities | 1,409,000 | |
Revolver | ||
Long-term Debt, Fiscal Year Maturity [Abstract] | ||
2016 | 0 | |
2017 | 0 | |
2018 | 0 | |
2019 | 50,000 | |
2020 | 0 | |
Thereafter | 0 | |
Total Maturities | 50,000 | $ 143,000 |
Cash | 22,500 | |
Debt outstanding excluding cash held | $ 27,500 | |
Debt extensions available | extension | 2 | |
Extension periods | 6 months |
Borrowing Arrangements and Derivatives and Hedging Activities (Derivatives) (Details) $ in Millions |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
derivative
| |
Derivative [Line Items] | |
Number of interest rate derivatives held | derivative | 8 |
Effective derivatives | 100.00% |
Derivative liability | $ 9.1 |
Derivative liability, termination value | 9.1 |
Derivatives Designated as Hedging Instruments | |
Derivative [Line Items] | |
Derivative, notional amount | 600.0 |
Interest expense | |
Derivative [Line Items] | |
Derivative instruments, loss reclassified from accumulated OCI into income, effective portion | $ 3.8 |
Borrowing Arrangements and Derivatives and Hedging Activities (Balance Sheet Location) (Details) $ in Thousands |
Sep. 30, 2016
USD ($)
|
---|---|
Derivatives Designated as Hedging Instruments | Interest rate contracts | Accounts payable and other liabilities | |
Derivatives, Fair Value [Line Items] | |
Liability Derivative | $ 8,742 |
Borrowing Arrangements and Derivatives and Hedging Activities (Income Statement Location) (Details) - Cash Flow Hedging - Interest expense - Interest rate contracts - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2016 |
|
Derivative Instruments, Gain (Loss) [Line Items] | ||
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | $ 1,948 | $ (12,215) |
Amount of Loss Reclassified from AOCI into Income (Effective Portion) | $ (1,245) | $ (3,473) |
Borrowing Arrangements and Derivatives and Hedging Activities (Financial Instrument Liability) (Details) - Fair Value - Fair Value, Measurements, Recurring $ in Thousands |
Sep. 30, 2016
USD ($)
|
---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Derivative financial instruments liability | $ 8,742 |
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Derivative financial instruments liability | 0 |
Significant Other Observable Inputs (Level 2) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Derivative financial instruments liability | 8,742 |
Significant Unobservable Inputs (Level 3) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Derivative financial instruments liability | $ 0 |
Income Taxes (Details) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2015
USD ($)
|
Sep. 30, 2016
USD ($)
subsidiary
|
Sep. 30, 2015
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Income Tax Disclosure [Abstract] | |||||
Number of subsidiaries treated as taxable REIT | subsidiary | 1 | ||||
Income tax expense | $ 229,000 | $ 1,024,000 | $ 779,000 | $ 1,024,000 | |
Deferred income taxes | 1,932,000 | 1,932,000 | $ 1,889,000 | ||
Liability for uncertain tax positions | $ 0 | $ 0 | $ 0 |
Stock-Based Compensation (Details) $ in Millions |
9 Months Ended | |
---|---|---|
Sep. 30, 2016
USD ($)
installment
|
Aug. 31, 2015
shares
|
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of annual installments of vesting shares | installment | 3 | |
Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of common stock was reserved initially for issuance (in shares) | shares | 7,000,000 | |
Restricted Stock | Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares granted, value | $ | $ 6.0 |
Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Numerator for basic and diluted earnings per share: | ||||
Net income attributable to CCP | $ 19,010 | $ 36,166 | $ 85,927 | $ 111,370 |
Denominator: | ||||
Denominator for basic earnings per share—weighted average shares (in shares) | 83,609 | 83,488 | 83,583 | 83,488 |
Effect of dilutive securities: | ||||
Stock options (in shares) | 11 | 70 | 3 | 70 |
Restricted stock (in shares) | 132 | 0 | 88 | 0 |
Denominator for diluted earnings per share—adjusted weighted average shares (in shares) | 83,752 | 83,558 | 83,674 | 83,558 |
Basic earnings per share: | ||||
Net income attributable to CCP (in dollars per share) | $ 0.23 | $ 0.43 | $ 1.03 | $ 1.33 |
Diluted earnings per share: | ||||
Net income attributable to CCP (in dollars per share) | $ 0.23 | $ 0.43 | $ 1.03 | $ 1.33 |
Stockholders Equity (Details) $ / shares in Units, $ in Millions |
1 Months Ended | 9 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|---|
Sep. 30, 2016
$ / shares
|
Jun. 30, 2016
$ / shares
|
Mar. 31, 2016
$ / shares
|
Aug. 14, 2015
USD ($)
shares
|
Feb. 29, 2016
USD ($)
shares
|
Sep. 30, 2016
$ / shares
|
Dec. 31, 2015
$ / shares
|
Aug. 17, 2015 |
|
Business Acquisition [Line Items] | ||||||||
Spin-off common stock conversion | 0.25 | |||||||
Dividends paid in cash (in dollars per share) | $ / shares | $ 0.57 | $ 0.57 | $ 0.57 | $ 1.71 | $ 0.57 | |||
Specialty Healthcare and Seniors Housing Valuation Firm | Common Stock Par Value | ||||||||
Business Acquisition [Line Items] | ||||||||
Acquisition completed for exchange of CCP shares (in shares) | shares | 339,602 | 56,377 | ||||||
Duration of days prior to the six-month anniversary of the closing | 30 days | |||||||
Duration of the time after the closing of acquisition | 6 months | |||||||
Value of the common stock issued | $ 11.5 | |||||||
Value of shares issued in relation to acquisition | $ 1.4 |
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