Care Capital Properties, Inc. - 10-K filing on 2016-03-10

Acquisitions and Dispositions of Real Estate Property

12 Months Ended

Dec. 31, 2015

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 8—Borrowing Arrangements”).

On August 14, 2015, we completed the acquisition of a specialty healthcare and seniors housing valuation firm in exchange for the issuance of 339,602 shares of our common stock valued at $11.5 million. 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 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. As of December 31, 2015, we recognized a $1.1 million liability and expense reflecting the potential issuance of additional shares to the sellers (see “Note 16—Subsequent Events”).

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 at a value of $139.7 million 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 are accounting for our 2015 acquisitions under the acquisition method in accordance with ASC 805. Our initial accounting for acquisitions completed during the year ended December 31, 2015 remains subject to further adjustment. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which we determined using level two and level three inputs (in thousands):



Land and improvements	$	38,361
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 completed in 2015.

As it relates to the HCT acquisition, the estimated fair values of the assets acquired and liabilities assumed has changed and is different from the amounts reported in ‘‘Note 4—Acquisitions of Real Estate Property’’ of the Notes to Combined Consolidated Financial Statements included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 12, 2015. Such changes are due primarily to reclassification adjustments for presentation and adjustments to our preliminary valuation assumptions that are based on more accurate information concerning the subject assets and liabilities.

Transaction Costs

As of December 31, 2015, we had incurred a cumulative total of $7.3 million of acquisition-related costs related to the acquisitions completed during the year ended December 31, 2015. All of these costs were expensed as incurred and included in merger-related expenses and deal costs in our combined consolidated statements of income for the applicable periods. For the years ended December 31, 2015 and 2014, we expensed $5.9 million and $1.4 million, respectively, of these acquisition-related costs related to the acquisitions completed during the year ended December 31, 2015. Transaction costs incurred by Ventas relating to the HCT acquisition were allocated to us based on relative property net operating income (“NOI”).

Aggregate Revenue and NOI

For the year ended December 31, 2015, aggregate revenues and NOI derived from our 2015 real estate acquisitions during our period of ownership were both $34.8 million. During 2015, we restructured the lease terms and reduced the rent on 12 HCT properties, including those sold or classified as held for sale, in an aggregate amount of $5.7 million after the application of security deposits.

Unaudited Pro Forma

The following table illustrates the effect on revenues and net income attributable to CCP as if we had consummated the acquisitions completed during the year ended December 31, 2015 as of January 1, 2014.



	For the Years Ended December 31,
	2015		2014
	(Unaudited)
	(In thousands, except per share amounts)
Revenues	$	345,015	$	348,906
Net income attributable to CCP	148,392		180,152
Net income attributable to CCP, per basic share	$	1.78	$	2.16
Net income attributable to CCP, per diluted share	1.77		2.15

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

Summary Specialty Valuation Firm Statement of Income

Below is a summary of the statement of income for the specialty valuation firm we acquired in August 2015 for the period from acquisition through December 31, 2015 (in thousands):



Revenues:
Real estate services fee income	$	2,247
Total revenues	2,247
Expenses:
Depreciation and amortization	278
General, administrative and professional fees	2,048
Other expenses	16
Total expenses	2,342
Loss before income taxes	(95		)
Income tax benefit	23
Net income	$	(72	)

Dispositions

During 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 of $0.2 million in connection with those sales. 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. During 2014, we sold one SNF for proceeds of $0.9 million.