I first wrote about Care Investment Real Estate Trust (OTC:CVTR) or “Care”) in April 2011. I followed this up with a second piece in May, when the company reinstated its dividend as predicted in the April article.
Two events that occurred in the final few months of 2011 make it worth revisiting Care. First, on September 21, 2011 the Care announced the acquisition of a portfolio of senior housing facilities. And second, on November 30, 2011 Care announced the sale of its preferred investment in its Cambridge Medical Office Portfolio.
It its most recent 10-Q CVTR describes itself as “an equity REIT that invests in healthcare facilities including assisted-living, skilled nursing and other senior care facilities, medical office buildings and other healthcare-related real estate assets.”
The 10-Q also describes CVTR’s assets as of September 30, 2011:
“As of September 30, 2011, we maintained a diversified investment portfolio consisting of approximately $29.1 million (18%) in unconsolidated joint ventures that own real estate, approximately $124.2 million (78%) in wholly owned real estate and approximately $6.3 million (4%) in mortgage loans. Due to the Tiptree Transaction and our election to utilize push-down accounting, our existing portfolio was revalued as of August 13, 2010 based on the estimated fair market value of each asset on such date. As of September 30, 2011, Care’s portfolio of assets consisted of wholly-owned real estate of senior housing facilities and joint-ventures which own senior-housing facilities and medical office properties as well as a mortgage loan on senior housing facilities and healthcare related assets. Our wholly-owned senior housing facilities are leased, under “triple-net” leases, which require the tenants to pay all property-related expenses.”
CVTR is trading at $6.18 per share, which implies a market capitalization of $62 million. With a quarterly dividend of $0.135 per share the company offers a dividend yield of 8.74%. On it 9/30/2011 balance sheet CVTR’s shareholders’ equity is $79mm or $7.82 per weighted average diluted share. This implies that the company is trading at 0.8x book value.
On November 30, 2011 CVTR announced the sale of its preferred investment in Cambridge Medical Office Portfolio. This was the result of an agreement between CVTR and Cambridge through which Cambridge had the option to purchase all of CVTR’s interest in the assets before December 9, 2011 for $42mm.
On its latest (9/30/2011) balance sheet CVTR has $29.1mm of investments in partially-owned entities, the majority of which was their investment in the Cambridge portfolio, which they have now sold for $42mm.
This has several implications.
It means that CVTR’s cash balance is now $51mm or approximately $5 per share. While the 10-Q does not reveal the tax basis of CVTR’s investment in Cambridge it is fair to assume they will have a gain on the sale, which will run through their fourth quarter income statement. Importantly, their balance sheet cash now represents 81% of their current stock price. This allows the company ample flexibility to acquire more assets similar to the Greenfield deal they executed in September. They could also return capital to shareholders.
CVTR’s management team is solid. It’s Chairman, Michael Barnes, the CEO and Chairman of Tiptree (note Tiptree owns 91% of CVTR) and a founding partner of Tricadia Holdings, L.P., is a seasoned investment professional who, through Tiptree’s investment in Care, is clearly incented to maximize value for Care’s shareholders.
The opportunity to buy into a platform like Care’s below book value at 1.25x cash is rare. I would expect fourth quarter earnings to be a catalyst for the stock.