CareTrust REIT Announces Third Quarter 2018 Operating Results; Updates 2018 Guidance


Conference Call Scheduled for Tuesday, November 6, 2018 at 2:00 pm ET

SAN CLEMENTE, Calif., Nov. 05, 2018 (GLOBE NEWSWIRE) -- CareTrust REIT, Inc. (Nasdaq:CTRE) today reported operating results for the quarter ended September 30, 2018, as well as other recent events.

For the quarter, CareTrust REIT reported:

  • Net income of $14.5 million, an increase of 28% over the prior year quarter, and net income per diluted weighted-average common share of $0.18, up approximately 20% over the same period;
  • Normalized FFO of $25.8 million, an increase of 20%, and normalized FFO per diluted weighted-average common share of $0.32, an increase of 14% over Q3 2017;
  • Normalized FAD of $26.6 million, an increase of 20%, and normalized FAD per diluted weighted-average common share of $0.33, an increase of 14% over Q3 2017;
  • A net debt-to-normalized EBITDA ratio of 3.5x and a debt-to-enterprise value of 25%, each as of quarter-end.

Continuing Progress

Commenting on the company’s progress in the quarter, Greg Stapley, CareTrust REIT’s Chairman and Chief Executive Officer, said, “In contrast to the first half of 2018, the third quarter brought a return to the steady deal flow to which we’re accustomed.” He reported that, in the quarter and since, the company acquired $41 million in new assets, added two new operators to its expanding tenant pool and match-funded its recent and anticipated near-term growth in part with $84 million in proceeds from its at-the-market equity program. “More importantly, we are staying close to our tenants, and are happy to report solid performance across their operations,” he added.

Mr. Stapley also discussed the company’s prospects looking forward. “Our leverage is at an all-time low, earnings are at an all-time high, and our pipeline is in the best shape we’ve seen in over a year,” he said. He added that CareTrust’s skilled nursing operators appear poised to benefit from the 2019 implementation of the new Patient-Driven Payment Model and other industry tailwinds. “With these changes underway, we and our operators are not only doing well this year, we are especially well-positioned for an outstanding 2019,” he concluded.

Financial Results for Quarter Ended September 30, 2018

Chief Financial Officer Bill Wagner reported that, for the third quarter, CareTrust REIT generated net income of $14.5 million, or $0.18 per diluted weighted-average common share, normalized FFO of $25.8 million, or $0.32 per diluted weighted-average common share, and normalized FAD of $26.6 million, or $0.33 per diluted weighted-average common share. “We are pleased to be delivering a quarter-over-quarter increase in normalized FFO per share of 14%,” said Mr. Wagner.

Liquidity

Discussing the company’s balance sheet, Mr. Wagner reported that CareTrust’s net debt-to-normalized EBITDA ratio was 3.5x and its debt-to-enterprise value was 25%, each at quarter-end, which is actually under management’s target leverage range. He said that the company used a combination of retained FFO and proceeds of equity sales under its at-the-market program to reduce the outstanding balance under CareTrust’s $400 million revolving credit line to approximately $95 million as of today. He also noted that CareTrust REIT continues to have no property-level debt and, taking into account existing extension rights, no debt maturing before 2020.

Mr. Wagner also reported that CareTrust issued approximately 4.8 million shares of common stock through the at-the-market program during the quarter at an average price of $17.62 per share, for $84 million in gross proceeds. “Our ATM program remains a significant instrument in the company’s capital-raising repertoire, as it significantly enhances our ability to match-fund the smaller acquisitions that have been our bread and butter,” he said. He added that the program has approximately $104 million in authorization remaining at present. He also noted that the revolving credit facility includes an additional $250 million “accordion” feature that can be exercised by the company if additional liquidity is needed.

2018 Guidance Updated

Mr. Wagner updated CareTrust REIT's 2018 earnings guidance, projecting on a per-diluted weighted-average common share basis, net income of approximately $0.72 to $0.73, normalized FFO of approximately $1.27 to $1.28, and normalized FAD of approximately $1.32 to $1.33. He noted that the 2018 guidance is based on a diluted weighted-average common share count of 79.4 million shares and assumes no new acquisitions beyond those made to date, no new debt incurrences or new equity issuances, and 2.0% CPI-based rent escalators under CareTrust REIT's long-term net leases.

Dividend Declared

During the quarter, CareTrust REIT declared a quarterly dividend of $0.205 per common share. “On an annualized basis, our quarterly dividend represents a payout ratio of approximately 64% based on the third quarter 2018 normalized FFO, and 62% on normalized FAD,” said Mr. Wagner. “At this level, our dividend remains among the best-protected of all our industry peers, while simultaneously providing additional growth capital for reinvestment and a solid overall return to our shareholders,” he added.

Acquisitions in the Quarter and Since

During the third quarter CareTrust acquired Prairie Heights Healthcare Center, a 99-bed skilled nursing facility in Aberdeen, South Dakota, in the first leg of a two-property transaction. It completed the second leg, acquiring The Meadows on University, a 110-bed skilled nursing facility in Fargo, North Dakota, subsequent to quarter end. Both facilities were formerly operated by affiliates of HCR ManorCare, and the staggered closing was necessitated by the differing timelines for obtaining regulatory approvals in the two states. The total investment was approximately $14.4 million, inclusive of transaction costs, CareTrust added the properties to its existing master lease with Salt Lake Citybased Eduro Healthcare, LLC, producing an annual cash rent increase of approximately $1.294 million. CareTrust funded the acquisition using cash on hand.

Also in the quarter, CareTrust acquired The Villas at Saratoga, a 112-bed/unit skilled nursing and assisted living campus in Saratoga, Springs, California. The property was formerly owned and operated by a religious non-profit, requiring an extra layer of government approval for the transfer of operations to a for-profit operator. The total initial investment was approximately $18.9 million, inclusive of transaction costs. The facility was leased to affiliates of Kalesta Healthcare LLC, a San Jose-area-based skilled nursing and seniors housing operator, at a cash rent for the first two years of $3.4 million, with annual CPI-based escalations thereafter. Additionally, CareTrust has committed to fund approximately $1.4 million in revenue-producing capital expenditures over the first 24 months of the 15-year master lease term. The acquisition was funded using cash on hand.

Also subsequent to quarter end, CareTrust acquired Madison Park Healthcare, a 55-bed/unit skilled nursing and assisted living campus in Huntington, West Virginia, in a sale-leaseback transaction. The transaction allowed the operator, Tennessee-based Providence Health Group, Inc., to recapitalize the facility and acquire the portion of the operation it did not own. The total investment was approximately $7.2 million, inclusive of transaction costs, and the new master lease carries an annual cash rent of approximately $676,000. CareTrust funded the acquisition using cash on hand and $5.0 million in borrowings under our revolving credit facility. 

Conference Call

A conference call will be held on Tuesday, November 6, 2018, at 2:00 p.m. Eastern Time (11:00 a.m. Pacific Time), during which CareTrust REIT’s management will discuss third quarter 2018 results, recent developments and other matters. The dial-in number for this call is (844) 220-4972 (U.S.) or (317) 973-4053 (International). The conference ID number is 5468787. To listen to the call online, or to view any financial or other statistical information required by SEC Regulation G, please visit the Investors section of the CareTrust REIT website at http://investor.caretrustreit.com. The call will be recorded, and will be available for replay via the website for 30 days following the call.

About CareTrust REITTM

CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition and leasing of seniors housing and healthcare-related properties. With 192 net-leased healthcare properties and three operated seniors housing properties in 27 states, CareTrust REIT is pursuing opportunities across the nation to acquire properties that will be leased to a diverse group of local, regional and national seniors housing operators, healthcare services providers, and other healthcare-related businesses. More information about CareTrust REIT is available at www.caretrustreit.com

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

This press release contains, and the related conference call will include, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include all statements that are not historical statements of fact and statements regarding the Company’s intent, belief or expectations, including, but not limited to, statements regarding future financial and financing positions, business and acquisition strategies, growth prospects, operating and financial performance, expectations regarding the making of distributions, payment of dividends, compliance with and changes in governmental regulations, and the performance of the Company’s tenants and operators and their respective facilities.

Words such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “plan,” “seek,” “should,” “will,” “would,” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements, though not all forward-looking statements contain these identifying words. The Company’s forward-looking statements are based on management’s current expectations and beliefs, and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although the Company believes that the assumptions underlying these forward-looking statements are reasonable, they are not guarantees and the Company can give no assurance that its expectations will be attained. Factors which could have a material adverse effect on the Company’s operations and future prospects or which could cause actual results to differ materially from expectations include, but are not limited to:  (i) the ability to achieve some or all of the expected benefits from the completed spin-off from The Ensign Group, Inc. (“Ensign”);  (ii) the ability and willingness of Company tenants to meet and/or perform their obligations under the triple-net leases the Company has entered into with them and the ability and willingness of Ensign to meet and/or perform its obligations under the contractual arrangements that it entered into with the Company in connection with such spin-off, including its triple-net long-term leases with the Company, and any of its obligations to indemnify, defend and hold the Company harmless from and against various claims, litigation and liabilities; (iii) the ability and willingness of the Company’s tenants to comply with laws, rules and regulations in the operation of the properties the Company leases to them; (iv) the ability and willingness of the Company’s tenants, including Ensign, to renew their leases with the Company upon expiration and the ability to reposition Company properties on the same or better terms in the event of nonrenewal or in the event the Company replaces an existing tenant, and obligations, including indemnification obligations, that the Company may incur in connection with the replacement of an existing tenant; (v) the availability of and the ability to identify suitable acquisition opportunities and the ability to acquire and lease the respective properties on favorable terms; (vi) the ability to generate sufficient cash flows to service the Company’s outstanding indebtedness; (vii) access to debt and equity capital markets; (viii) fluctuating interest rates; (ix) the ability to retain key management personnel; (x) the ability to maintain the Company’s status as a real estate investment trust (“REIT”); (xi) changes in the U.S. tax laws and other state, federal or local laws, whether or not specific to REITs; (xii) other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and (xiii) any additional factors identified in the Company’s filings with the Securities and Exchange Commission (“SEC”), including those in the Company‘s Annual Report on Form 10-K for the year ended December 31, 2017 under the heading entitled “Risk Factors,” as such risk factors may be amended, supplemented or superseded from time to time by other reports the Company files with the SEC.

Information in this press release or the related conference call is provided as of September 30, 2018, unless specifically stated otherwise.  The Company expressly disclaims any obligation to update or revise any information in this press release or the related conference call (and replays thereof), including forward-looking statements, whether to reflect any change in the Company’s expectations, any change in events, conditions or circumstances, or otherwise.

As used in this press release or the related conference call, unless the context requires otherwise, references to “CTRE,” "CareTrust," “CareTrust REIT” or the “Company” refer to CareTrust REIT, Inc. and its consolidated subsidiaries. GAAP refers to generally accepted accounting principles in the United States of America.

Contact:
CareTrust REIT, Inc.
(949) 542-3130
ir@caretrustreit.com

 
CARETRUST REIT, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
(unaudited)
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2018 2017 2018 2017
Revenues:       
 Rental income$35,332  $29,404  $103,856  $85,254 
 Tenant reimbursements2,990  2,543  8,974  7,253 
 Independent living facilities871  825  2,515  2,407 
 Interest and other income317  176  1,235  1,471 
 Total revenues39,510  32,948  116,580  96,385 
Expenses:       
 Depreciation and amortization11,351  9,745  34,227  28,156 
 Interest expense6,805  5,592  21,182  17,690 
 Loss on the extinguishment of debt      11,883 
 Property taxes2,990  2,543  8,974  7,253 
 Independent living facilities766  698  2,226  2,003 
 Impairment of real estate investment      890 
 General and administrative3,088  3,059  9,638  8,426 
 Total expenses25,000  21,637  76,247  76,301 
Other income:       
 Gain on sale of real estate    2,051   
 Gain on disposition of other real estate investment      3,538 
Net income$14,510  $11,311  $42,384  $23,622 
         
Earnings per common share:       
 Basic$0.18  $0.15  $0.54  $0.33 
 Diluted$0.18  $0.15  $0.54  $0.33 
         
Weighted average shares outstanding:       
 Basic81,490  75,471  77,811  71,693 
 Diluted81,490  75,471  77,811  71,693 
         
Dividends declared per common share$0.205  $0.185  $0.615  $0.555 
                


 
CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
 (unaudited)
   Three Months Ended September 30, Nine Months Ended September 30,
   2018 2017 2018 2017
          
Net income $14,510  $11,311  $42,384  $23,622 
 Depreciation and amortization 11,351  9,745  34,227  28,156 
 Interest expense 6,805  5,592  21,182  17,690 
 Amortization of stock-based compensation 988  656  2,816  1,792 
EBITDA 33,654  27,304  100,609  71,260 
 Loss on the extinguishment of debt       11,883 
 Deferred preferred return       (544)
 Impairment of real estate investment       890 
 Gain on sale of real estate     (2,051)  
 Gain on disposition of other real estate investment       (3,538)
Normalized EBITDA $33,654  $27,304  $98,558  $79,951 
          
Net income $14,510  $11,311  $42,384  $23,622 
 Real estate related depreciation and amortization 11,330  9,717  34,144  28,076 
 Impairment of real estate investment       890 
 Gain on sale of real estate     (2,051)  
 Gain on disposition of other real estate investment       (3,538)
Funds from Operations (FFO) 25,840  21,028  74,477  49,050 
 Deferred preferred return       (544)
 Effect of the senior unsecured notes payable redemption       12,475 
Normalized FFO $25,840  $21,028  $74,477  $60,981 
                 


 
CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES (continued)
 (in thousands, except per share data)
 (unaudited)
   Three Months Ended September 30, Nine Months Ended September 30,
   2018 2017 2018 2017
          
Net income $14,510  $11,311  $42,384  $23,622 
 Real estate related depreciation and amortization 11,330  9,717  34,144  28,076 
 Amortization of deferred financing fees 484  484  1,452  1,574 
 Amortization of stock-based compensation 988  656  2,816  1,792 
 Straight-line rental income (698) (2) (1,631) (117)
 Impairment of real estate investment       890 
 Gain on sale of real estate     (2,051)  
 Gain on disposition of other real estate investment       (3,538)
Funds Available for Distribution (FAD) 26,614  22,166  77,114  52,299 
 Deferred preferred return       (544)
 Effect of the senior unsecured notes payable redemption       12,475 
Normalized FAD $26,614  $22,166  $77,114  $64,230 
          
FFO per share $0.32  $0.28  $0.96  $0.68 
Normalized FFO per share $0.32  $0.28  $0.96  $0.85 
          
FAD per share $0.33  $0.29  $0.99  $0.73 
Normalized FAD per share $0.33  $0.29  $0.99  $0.89 
          
 Diluted weighted average shares outstanding [1] 81,687  75,659  77,985  71,896 
          
 [1] For the periods presented, the diluted weighted average shares have been calculated using the treasury stock method.
  


 
CARETRUST REIT, INC.
CONSOLIDATED INCOME STATEMENTS - 5 QUARTER TREND
(in thousands, except per share data)
(unaudited)
 QuarterQuarterQuarterQuarterQuarter
 EndedEndedEndedEndedEnded
 September 30,
2017
December 31,
2017
March 31,
2018
June 30,
2018
September 30,
2018
Revenues:     
Rental income$29,404 $32,379 $33,816 $34,708 $35,332 
Tenant reimbursements2,543 3,001 2,968 3,016 2,990 
Independent living facilities825 821 799 845 871 
Interest and other income176 396 518 400 317 
Total revenues32,948 36,597 38,101 38,969 39,510 
Expenses:     
Depreciation and amortization9,745 11,003 11,577 11,299 11,351 
Interest expense5,592 6,506 7,092 7,285 6,805 
Property taxes2,543 3,001 2,968 3,016 2,990 
Independent living facilities698 730 716 744 766 
Reserve for advances and deferred rent 10,414    
General and administrative3,059 2,691 3,192 3,358 3,088 
Total expenses21,637 34,345 25,545 25,702 25,000 
Other income:     
Gain on sale of real estate  2,051   
Net income$11,311 $2,252 $14,607 $13,267 $14,510 
      
Diluted earnings per share$0.15 $0.03 $0.19 $0.17 $0.18 
      
Diluted weighted average shares outstanding75,471 75,476 75,504 76,374 81,490 
           


 
CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES - 5 QUARTER TREND
(in thousands, except per share data)
 (unaudited)
 QuarterQuarterQuarterQuarterQuarter
 EndedEndedEndedEndedEnded
 September 30,
2017
December 31,
2017
March 31,
2018
June 30,
2018
September 30,
2018
      
Net income$11,311 $2,252 $14,607 $13,267 $14,510 
Depreciation and amortization9,745 11,003 11,577 11,299 11,351 
Interest expense5,592 6,506 7,092 7,285 6,805 
Amortization of stock-based compensation656 624 904 924 988 
EBITDA27,304 20,385 34,180 32,775 33,654 
Reserve for advances and deferred rent 10,414    
Gain on sale of real estate  (2,051)  
Normalized EBITDA$27,304 $30,799 $32,129 $32,775 $33,654 
      
Net income$11,311 $2,252 $14,607 $13,267 $14,510 
Real estate related depreciation and amortization9,717 10,973 11,549 11,265 11,330 
Gain on sale of real estate  (2,051)  
Funds from Operations (FFO)21,028 13,225 24,105 24,532 25,840 
Reserve for advances and deferred rent 10,414    
Normalized FFO$21,028 $23,639 $24,105 $24,532 $25,840 
                


 
CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES - 5 QUARTER TREND (continued)
 (in thousands, except per share data)
 (unaudited)
 QuarterQuarterQuarterQuarterQuarter
 EndedEndedEndedEndedEnded
 September 30,
2017
December 31,
2017
March 31,
2018
June 30,
2018
September 30,
2018
      
Net income$11,311 $2,252 $14,607 $13,267 $14,510 
Real estate related depreciation and amortization9,717 10,973 11,549 11,265 11,330 
Amortization of deferred financing fees484 485 484 484 484 
Amortization of stock-based compensation656 624 904 924 988 
Straight-line rental income(2)(227)(591)(342)(698)
Gain on sale of real estate  (2,051)  
Funds Available for Distribution (FAD)22,166 14,107 24,902 25,598 26,614 
Reserve for advances and deferred rent 10,414    
Normalized FAD$22,166 $24,521 $24,902 $25,598 $26,614 
      
FFO per share$0.28 $0.17 $0.32 $0.32 $0.32 
Normalized FFO per share$0.28 $0.31 $0.32 $0.32 $0.32 
      
FAD per share$0.29 $0.19 $0.33 $0.33 $0.33 
Normalized FAD per share$0.29 $0.32 $0.33 $0.33 $0.33 
      
Diluted weighted average shares outstanding [1]75,659 75,692 75,657 76,545 81,687 
      
[1]  For the periods presented, the diluted weighted average shares have been calculated using the treasury stock method.
 


 
CARETRUST REIT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 September 30, 2018 December 31, 2017
    
Real estate investments, net$1,189,449  $1,152,261 
Other real estate investments, net18,083  17,949 
Cash and cash equivalents15,745  6,909 
Accounts and other receivables, net12,384  5,254 
Prepaid expenses and other assets3,792  895 
Deferred financing costs, net904  1,718 
Total assets$1,240,357  $1,184,986 
    
Liabilities and Equity:   
Senior unsecured notes payable, net$294,963  $294,395 
Senior unsecured term loan, net99,588  99,517 
Unsecured revolving credit facility90,000  165,000 
Accounts payable and accrued liabilities18,510  17,413 
Dividends payable17,246  14,044 
Total liabilities520,307  590,369 
    
Equity:   
Common stock834  755 
Additional paid-in capital915,235  783,237 
Cumulative distributions in excess of earnings(196,019) (189,375)
Total equity720,050  594,617 
Total liabilities and equity$1,240,357  $1,184,986 
        


 
CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 For the Nine Months Ended September 30,
 2018 2017
Cash flows from operating activities:   
Net income$42,384  $23,622 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization (including a below-market ground lease)34,240  28,168 
Amortization of deferred financing costs1,453  1,615 
Loss on the extinguishment of debt  11,883 
Amortization of stock-based compensation2,816  1,792 
Straight-line rental income(1,631) (117)
Noncash interest income(228) (496)
Gain on sale of real estate(2,051)  
Interest income distribution from other real estate investment  1,500 
Impairment of real estate investment  890 
Change in operating assets and liabilities:   
Accounts and other receivables, net(5,499) (6,948)
Prepaid expenses and other assets(159) (182)
Accounts payable and accrued liabilities1,065  5,206 
  Net cash provided by operating activities72,390  66,933 
Cash flows from investing activities:   
Acquisitions of real estate(75,621) (222,463)
Improvements to real estate(5,401) (621)
Purchases of equipment, furniture and fixtures(1,262) (359)
Investment in real estate mortgage and other loans receivable(2,598)  
Principal payments received on real estate mortgage and other loans receivable893   
Sale of other real estate investment  7,500 
Escrow deposits for acquisitions of real estate(1,000) (1,000)
Net proceeds from the sale of real estate13,004   
  Net cash used in investing activities(71,985) (216,943)
Cash flows from financing activities:   
Proceeds from the issuance of common stock, net130,546  170,414 
Proceeds from the issuance of senior unsecured notes payable  300,000 
Borrowings under unsecured revolving credit facility60,000  158,000 
Payments on senior unsecured notes payable  (267,639)
Payments on unsecured revolving credit facility(135,000) (158,000)
Payments of deferred financing costs  (6,047)
Net-settle adjustment on restricted stock(1,288) (866)
Dividends paid on common stock(45,827) (38,544)
  Net cash provided by financing activities8,431  157,318 
Net increase in cash and cash equivalents8,836  7,308 
Cash and cash equivalents, beginning of period6,909  7,500 
Cash and cash equivalents, end of period$15,745  $14,808 
        


 
CARETRUST REIT, INC.
DEBT SUMMARY
(dollars in thousands)
(unaudited)
            
     September 30, 2018
 Interest Maturity   % of Deferred Net Carrying
DebtRate Date Principal Principal Loan Costs Value
            
Fixed Rate Debt           
            
Senior unsecured notes payable5.250% 2025 $300,000  61.2% $(5,037) $294,963 
            
Floating Rate Debt           
            
Senior unsecured term loan4.192%[1]2023 100,000  20.4% (412) 99,588 
            
Unsecured revolving credit facility3.992%[2]2020[3]90,000  18.4%  [4]90,000 
 4.097%   190,000  38.8% (412) 189,588 
            
Total Debt4.803%   $490,000  100.0% $(5,449) $484,551 
            
[1] Funds can be borrowed at applicable LIBOR plus 1.95% to 2.60% or at the Base Rate (as defined) plus 0.95% to 1.6%.
[2] Funds can be borrowed at applicable LIBOR plus 1.75% to 2.40% or the Base Rate (as defined) plus 0.75% to 1.4%.
[3] Maturity date assumes exercise of two 6-month extension options.
[4] Deferred financing fees are not shown net for the unsecured revolving credit facility and are included in assets on the balance sheet.
 


 
CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES
 (shares in thousands)
 (unaudited)
    
    
 2018 Guidance
    
    
 Low High
Net income$0.72  $0.73 
Real estate related depreciation and amortization0.58  0.58 
Gain on sale of real estate(0.03) (0.03)
Funds from Operations (FFO)1.27  1.28 
Normalized FFO$1.27  $1.28 
    
Net income$0.72  $0.73 
Real estate related depreciation and amortization0.58  0.58 
Amortization of deferred financing fees0.03  0.03 
Amortization of stock-based compensation0.05  0.05 
Straight-line rental income(0.03) (0.03)
Gain on sale of real estate(0.03) (0.03)
Funds Available for Distribution (FAD)1.32  1.33 
Normalized FAD$1.32  $1.33 
Weighted average shares outstanding:   
Diluted79,391  79,391 
      

Non-GAAP Financial Measures

EBITDA represents net income before interest expense (including amortization of deferred financing costs), amortization of stock-based compensation, and depreciation and amortization. Normalized EBITDA represents EBITDA as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of core operating performance, such as real estate impairment charges, certain deferred preferred return, losses on the extinguishment of debt, reserve for advances and deferred rent and gains or losses from dispositions of real estate or other real estate investments. EBITDA and Normalized EBITDA do not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating the Company’s liquidity or operating performance. EBITDA and Normalized EBITDA do not purport to be indicative of cash available to fund future cash requirements, including the Company’s ability to fund capital expenditures or make payments on its indebtedness. Further, the Company’s computation of EBITDA and Normalized EBITDA may not be comparable to EBITDA and Normalized EBITDA reported by other REITs.

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

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

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

In addition, the Company reports Normalized FFO and Normalized FAD, which adjust FFO and FAD for certain revenue and expense items that the Company does not believe are indicative of its ongoing operating results, such as losses on the extinguishment of debt, certain deferred preferred returns, the effect of the senior unsecured notes payable redemption and other unanticipated charges. By excluding these items, investors, analysts and our management can compare Normalized FFO and Normalized FAD between periods more consistently.

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

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

The Company believes that net income, as defined by GAAP, is the most appropriate earnings measure. The Company also believes that the use of EBITDA, Normalized EBITDA, FFO, Normalized FFO, FAD and Normalized FAD, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. The Company considers EBITDA and Normalized EBITDA useful in understanding the Company’s operating results independent of its capital structure, indebtedness and other charges that are not indicative of its ongoing results, thereby allowing for a more meaningful comparison of operating performance between periods and against other REITs. The Company considers FFO, Normalized FFO, FAD and Normalized FAD to be useful measures for reviewing comparative operating and financial performance because, by excluding gains or losses from real estate dispositions, impairment charges and real estate depreciation and amortization, and, for FAD and Normalized FAD, by excluding non-cash income and expenses such as amortization of stock-based compensation, amortization of deferred financing fees, and the effects of straight-line rent, FFO, Normalized FFO, FAD and Normalized FAD can help investors compare the Company’s operating performance between periods and to other REITs.