Care Capital Properties Reports Third Quarter 2016 Results

Care Capital Properties, Inc. (NYSE: CCP) (“CCP” or the “Company”), a company with a diversified portfolio of triple-net leased healthcare properties, focused on the post-acute sector, today announced operating results for the quarter ended September 30, 2016. The Company began operating as an independent, publicly traded company on August 18, 2015, following the completion of its spin-off from Ventas, Inc. (NYSE: VTR) (“Ventas”). A portion of the results reported for the prior year third quarter represent operating results that have been “carved-out” of Ventas’s consolidated financial statements.

“We are pleased to raise our 2016 guidance again as our performance continues to exceed our original expectations,” stated CCP Chief Executive Officer Raymond J. Lewis. “We are executing effectively on all of our strategic priorities, including the pursuit of value-enhancing acquisitions, as well as selective dispositions and transitions to optimize our portfolio. With our permanent capital structure in place and the conclusion of the transition services agreement with Ventas, our dedicated team is keenly focused on driving results for our stakeholders.”

Third Quarter and Year-to-Date Highlights

• Net income attributable to CCP for the quarter ended September 30, 2016 was $19 million, or $0.23 per diluted common share, compared to $36 million, or $0.43 per diluted common share, in the same prior year period.
• Normalized Funds from Operations (“FFO”) for the quarter ended September 30, 2016 was $63 million, or $0.75 per diluted common share, compared to $70 million, or $0.84 per diluted common share, in the same prior year period. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), was $55 million, or $0.65 per diluted common share, compared to $67 million, or $0.80 per diluted common share, in the same prior year period. The year-over-year decrease is attributable primarily to interest expense, as the Company had no debt prior to the spin-off, partially offset by investments completed in 2015 and 2016 and contractual rent escalations.
• Normalized Funds Available for Distribution (“FAD”) for the quarter ended September 30, 2016 was $62 million. For the nine months ended September 30, 2016, normalized FAD totaled $191 million and cash flow from operations after non-revenue-enhancing capital expenditures and dividends totaled approximately $42 million.
• During the quarter, CCP disposed of two skilled nursing facilities and one specialty hospital for total proceeds of $17.4 million and recognized a net gain of approximately $2 million on the sales. The Company also classified an additional 28 assets as held for sale in the third quarter. Impairment charges totaling approximately $12 million were recognized during the third quarter on two of those assets.
• Redevelopment and development investments in the quarter totaled approximately $10 million at an average initial cash yield of 8.2 percent.

Operating Results

Cash net operating income (“NOI”) for the 300 same-store properties increased 3.7 percent for the third quarter of 2016 compared to the third quarter of 2015. Cash NOI for the 308 same-store properties grew 1.2 percent on a sequential quarter basis.

For the quarter ended June 30, 2016 (the latest period available), trailing 12-month EBITDARM coverage for the total portfolio was 1.8x, EBITDAR coverage was 1.4x and Q-mix was 55 percent.

Balance Sheet and Capital Markets Activities

As previously announced, CCP’s wholly owned operating partnership, Care Capital Properties, LP (“Care Capital LP”), issued and sold $500 million of 5.125% Senior Notes due in 2026 in a private offering. The Company also entered into a $135 million three-year mortgage loan at a floating rate of LIBOR plus 1.80 percent. The mortgage loan is expected to be refinanced with a 35-year fixed rate mortgage loan from the Department of Housing and Urban Development (“HUD”). Net proceeds from these financings were used to repay the remaining balance of Care Capital LP’s $600 million term loan maturing in 2017 and a portion of its $800 million term loan maturing in 2020.

At September 30, 2016, CCP had $550 million of available borrowing capacity under its revolving credit facility. Net debt to Adjusted EBITDA was 4.5x as of September 30, 2016. The Company had less than 20 percent floating rate debt, a weighted average debt maturity of 6.6 years and a weighted average interest rate of 3.7 percent at the end of the third quarter.

Dividend

On September 30, 2016, the Company paid a cash dividend of $0.57 per share to stockholders of record as of September 16, 2016, representing a payout ratio of 76 percent of normalized FFO for the third quarter.

Subsequent Events

Subsequent to quarter end, CCP entered into a definitive agreement to acquire five skilled nursing facilities and three seniors housing communities for $39 million in a sale leaseback transaction with an existing customer. The initial cash yield on the transaction is 8.5 percent, and it is expected to close before year end.

In addition, the Company entered into definitive agreements to sell a total of 23 properties in two separate transactions for aggregate proceeds of approximately $151 million, representing a cap rate of just under nine percent. 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 half of 2017.

Completion of these transactions is subject to the satisfaction of customary closing conditions. There can be no assurance that the transactions will close or, if they do, when the closings will occur.

2016 Normalized FFO Guidance

The Company is raising its 2016 normalized FFO guidance range to $3.00 to $3.04 per diluted common share, from the prior range of $2.92 to $2.98 per diluted common share. The 2016 NAREIT FFO range is now expected to be between $2.85 and $2.89 per diluted common share. The increase in normalized FFO is due primarily to the Company’s revised timing in regards to dispositions and the portfolio optimization activities that are occurring later or with less impact than previously anticipated, resulting in higher rental income in 2016. Interest and other income is also higher than the prior guidance projected. This is offset by higher general and administrative expenses than anticipated in the prior guidance.

Webcast and Conference Call

The Company’s Third Quarter Webcast and Conference Call will be held today, November 10, 2016, at 10:00 A.M. Eastern Time (9:00 A.M. Central Time). The webcast will be live and can be accessed at CCP’s website at www.carecapitalproperties.com.

The dial-in number for the conference call is (888) 349-0115 or (412) 317-5143 for international callers and (855) 669-9657 for Canadian callers. Please ask to be joined to the Care Capital Properties, Inc. call.

Replay:

A replay of the call will be available at CCP’s website, or by calling (877) 344-7529 or (412) 317-0088 for international callers and (855) 669-9658 for Canadian callers, passcode 10094206, beginning on November 10, 2016 at approximately 12:00 P.M. Eastern Time, and will remain available until December 10, 2016.

About Care Capital Properties

Care Capital Properties, Inc. is a healthcare real estate investment trust with a diversified portfolio of triple-net leased properties, focused on the post-acute sector. The Company’s skilled management team is fully invested in delivering excellent returns by forging strong relationships with shareholders, operators, and employees.

Supplemental information about Care Capital Properties, Inc. can be found on the Company’s website under the “Investors” section at: www.carecapitalproperties.com/investors/financial-information/documents.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding CCP’s or its tenants’ or borrowers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, growth opportunities, expected lease income, continued qualification as a real estate investment trust (“REIT”), plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ materially from CCP’s expectations. Except as required by law, CCP does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

Factors that could cause CCP’s actual future results and trends to differ materially from those anticipated are discussed in its filings with the Securities and Exchange Commission and include, without limitation: (a) the ability and willingness of CCP’s tenants, borrowers and other counterparties to satisfy their obligations under their respective contractual arrangements with CCP, including, in some cases, their obligations to indemnify, defend and hold harmless CCP from and against various claims, litigation and liabilities; (b) the ability of CCP’s tenants and borrowers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness; (c) CCP’s success in implementing its business strategy and its ability to identify, underwrite, finance, consummate and integrate suitable acquisitions and investments; (d) 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; (e) the nature and extent of competition in the markets in which CCP’s properties are located; (f) 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; (g) increases in CCP’s borrowing costs as a result of changes in interest rates and other factors; (h) the ability of CCP’s tenants to operate CCP’s 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 and managed care reimbursement programs; (i) changes in general economic conditions or economic conditions in the markets in which CCP may, from time to time, compete for investments, capital and talent, and the effect of those changes on CCP’s earnings and financing sources; (j) CCP’s ability to repay, refinance, restructure or extend its indebtedness as it becomes due; (k) CCP’s ability and willingness to maintain its qualification as a real estate investment trust in light of economic, market, legal, tax and other considerations; (l) final determination of CCP’s taxable net income for the current and future years; (m) the ability and willingness of CCP’s tenants to renew their leases with CCP upon expiration of the leases, CCP’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event CCP exercises its right to replace an existing tenant, and obligations, including indemnification obligations, CCP may incur in connection with the replacement of an existing tenant; (n) year-over-year changes in the Consumer Price Index and the effect of those changes on the rent escalators contained in CCP’s leases and on CCP’s earnings; (o) CCP’s ability and the ability of its tenants and borrowers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; (p) the impact of increased operating costs and uninsured professional liability claims on CCP’s or its tenants’ or borrowers’ liquidity, financial condition and results of operations, and the ability of CCP and its tenants and borrowers to accurately estimate the magnitude of those costs and claims; (q) consolidation in the healthcare industry resulting in a change of control of, or a competitor’s investment in, one or more of CCP’s tenants or borrowers or significant changes in the senior management of CCP’s tenants or borrowers; (r) the impact of litigation or any financial, accounting, legal or regulatory issues, including government investigations, enforcement proceedings and punitive settlements, that may affect CCP or its tenants or borrowers; and (s) changes in accounting principles, or their application or interpretation, and CCP’s ability to make estimates and the assumptions underlying the estimates, which could have an effect on CCP’s earnings. Many of these factors are beyond the control of CCP and its management.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. However, since real estate values historically have risen or fallen with market conditions, many industry investors deem presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For that reason, CCP considers FFO, normalized FFO and normalized FAD to be appropriate measures of operating performance of an equity REIT. In particular, CCP believes that normalized FFO is useful because it allows investors, analysts and CCP management to compare CCP’s operating performance to the operating performance of other real estate companies and between periods on a consistent basis without having to account for differences caused by unanticipated items and other events such as transactions. CCP believes that normalized FAD is useful because it allows investors, analysts and CCP management to measure the quality of the Company’s earnings.

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

FFO, normalized FFO and normalized FAD presented herein may not be comparable to similar measures presented by other real estate companies due to the fact that not all real estate companies use the same definitions. FFO, normalized FFO and normalized FAD should not be considered as alternatives to net income (determined in accordance with GAAP) as indicators of CCP’s financial performance or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of CCP’s liquidity, nor are they necessarily indicative of sufficient cash flow to fund all of CCP’s needs. CCP believes that in order to facilitate a clear understanding of the consolidated historical operating results of CCP, FFO, normalized FFO and normalized FAD should be examined in conjunction with net income attributable to CCP as presented elsewhere herein.

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