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Source: CareTrust REIT, Inc.

CareTrust REIT Announces Second Quarter 2017 Operating Results

Conference Call Scheduled for Thursday, August 3, 2017 at 12:00 pm ET

SAN CLEMENTE, Calif., Aug. 02, 2017 (GLOBE NEWSWIRE) -- CareTrust REIT, Inc. (NASDAQ:CTRE) reported today operating results for the second quarter of 2017, as well as other recent events.

During the quarter, CareTrust REIT:

  • Posted net income of $0.03, normalized FFO of $0.28 and normalized FAD of $0.30, all per diluted weighted-average common share;

  • Sold 3.4 million shares under its at-the-market equity offering program, raising $63.9 million of gross proceeds which were used to fund acquisitions and reduce borrowings under its $400 million revolving credit facility to zero as of quarter-end;

  • Invested approximately $35.8 million (inclusive of transaction costs) at a blended initial cash yield of 9.3%, including three skilled nursing facilities and one assisted living and memory care facility;

  • Issued $300 million of new 5.25% senior notes due 2025, the net proceeds of which were used to redeem CareTrust REIT’s existing $260 million 5.875% senior notes due 2021 and repay borrowings under the revolving credit facility; and

  • Reduced its debt-to-EBITDA ratio to 3.72x and its debt-to-enterprise value to 22%, each as of quarter-end.

Laying the Groundwork for Future Growth

Greg Stapley, CareTrust REIT’s Chairman and Chief Executive Officer, reported that the company made significant progress toward its long-term goals in the quarter. “We believe we have laid the groundwork for a solid second half of 2017, and a great start to 2018,” he said. “With our new 5.25% senior notes and our new $300 million at-the-market program, we have lowered our cost of capital, reduced the balance on our $400 million revolving credit line to zero, and significantly extended our debt maturity ladder,” he added.

He further reported that, in the quarter and since, CareTrust REIT completed $51.3 million in new acquisitions at a blended initial cash yield of 9.2%, investing in both existing and new tenant relationships. “Our continuously improving cost of capital has positioned us to be an even stronger player in an increasingly-active market for quality healthcare assets, and our current pipeline is the strongest it has ever been” he said. “That said, our team remains committed to our disciplined ‘operator-first’ investment approach, and we continue to be optimistic about CareTrust REIT’s ability to create long-term shareholder value,” he concluded.

Financial Results for the Quarter Ended June 30, 2017

Chief Financial Officer Bill Wagner reported that for the quarter, CareTrust REIT generated net income of $2.0 million, or $0.03 per diluted weighted-average common share, normalized FFO of $20.6 million, or $0.28 per diluted weighted-average common share, and normalized FAD of $21.7 million, or $0.30 per diluted weighted-average common share. He noted that the adjustments to net income in the quarter included one-time adjustments related to the refinancing of CareTrust REIT’s 5.875% senior notes, offset slightly by interest received and gain on the disposition of its preferred equity investment in a newly-constructed Colorado assisted living and memory care facility.

Capital Events and Liquidity

Discussing CareTrust REIT’s current liquidity, Mr. Wagner highlighted the company’s $300 million issuance of new 5.25% senior notes due 2025. “Through this issuance we were able to fully redeem our old 5.875% senior notes due 2021, thereby reducing our interest expense and extending our runway,” he said.

He also reported significant activity in the company’s new $300 million at-the-market equity offering program. During the quarter, CareTrust REIT issued approximately 3.4 million shares of common stock through the program at an average price of $18.82 per share, for $63.9 million in gross proceeds. "Our ATM continues to draw solid investor interest and provides an excellent source of liquidity to match-fund our small-to-medium sized transactions,” said Mr. Wagner.

Mr. Wagner further reported a zero outstanding balance under CareTrust REIT’s $400 million unsecured revolving credit facility at quarter-end, and noted that the revolving credit facility continues to remain undrawn at present. He added that CareTrust REIT’s debt-to-EBITDA ratio was approximately 3.72x, and its debt-to-enterprise value was 22%, each at quarter-end. He also noted that CareTrust REIT continues to have no property-level debt and, taking into account existing extension rights, no debt maturing before 2023.

2017 FFO and FAD Guidance Revised Upward

Updating CareTrust REIT's previously-issued 2017 earnings guidance, Mr. Wagner reported that, on a per-diluted weighted-average common share basis, CareTrust REIT expects net income of approximately $0.50 to $0.52. He also reported that, notwithstanding the significant equity issuances in the quarter, the company has increased its guidance ranges for normalized FFO to approximately $1.13 to $1.15, and for normalized FAD to approximately $1.19 to $1.21, both on a per-diluted weighted-average common share basis. This 2017 guidance assumes no new acquisitions beyond those made to date, no new debt incurrences or additional equity issuances, and no future CPI-based rent escalators under CareTrust REIT’s long-term net-leases beyond those made to date.

Dividend

During the quarter, CareTrust REIT declared a quarterly dividend of $0.185 per common share. “On an annualized basis, our quarterly dividend represents a payout ratio of approximately 65% based on the midpoint of our 2017 normalized FFO guidance,” said Mr. Wagner. “At this level, our dividend remains among the best-protected of all our industry peers, while giving us ample additional growth capital to reinvest and providing a solid overall return to our shareholders,” he added.

Conference Call

A conference call will be held on Thursday, August 3, at 12:00 p.m. Eastern Time (9:00 a.m. Pacific Time), during which CareTrust REIT’s management will discuss second quarter results, recent developments and other matters affecting CareTrust REIT’s business and prospects. The dial-in number for this call is (844) 220-4972 (U.S.) or (317) 973-4053 (International). The conference ID number is 61282740. 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 164 net-leased healthcare properties and three operated seniors housing properties in 23 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 our 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 our 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. Our forward-looking statements are based on our 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 we believe that the assumptions underlying these forward-looking statements are reasonable, they are not guarantees and we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our 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 our tenants to meet and/or perform their obligations under the triple-net leases we have 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 us in connection with such spin-off, including its triple-net long-term leases with us, and any of its obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities; (iii) the ability and willingness of our tenants to comply with laws, rules and regulations in the operation of the properties we lease to them; (iv) the ability and willingness of our tenants, including Ensign, to renew their leases with us upon expiration and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant, and obligations, including indemnification obligations, that we 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 our outstanding indebtedness; (vii) access to debt and equity capital markets; (viii) fluctuating interest rates; (ix) the ability to retain our key management personnel; (x) the ability to maintain our 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 our filings with the Securities and Exchange Commission (“SEC”), including those in our Annual Report on Form 10-K for the year ended December 31, 2016 under the heading entitled “Risk Factors,” as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC.

Information in this press release or the related conference call is provided as of June 30, 2017, unless specifically stated otherwise.  We expressly disclaim 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 our 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 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.



CARETRUST REIT, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(unaudited)
  Three Months Ended June 30, Six Months Ended June 30,
  2017 2016 2017 2016
Revenues:       
 Rental income$28,511  $22,781  $55,850  $43,678 
 Tenant reimbursements2,389  1,929  4,710  3,726 
 Independent living facilities789  730  1,582  1,411 
 Interest and other income1,140  261  1,295  515 
 Total revenues32,829  25,701  63,437  49,330 
Expenses:       
 Depreciation and amortization9,335  7,892  18,411  15,185 
 Interest expense6,219  5,440  12,098  11,301 
 Loss on the extinguishment of debt11,883    11,883  326 
 Property taxes2,389  1,929  4,710  3,726 
 Independent living facilities644  598  1,305  1,218 
 Impairment of real estate investment890    890   
 General and administrative2,977  2,211  5,367  4,441 
 Total expenses34,337  18,070  54,664  36,197 
Other income:       
 Gain on disposition of other real estate investment3,538    3,538   
Net income$2,030  $7,631  $12,311  $13,133 
         
Earnings per common share:       
 Basic$0.03  $0.13  $0.17  $0.25 
 Diluted$0.03  $0.13  $0.17  $0.25 
         
Weighted average shares outstanding:       
 Basic72,564  57,478  69,773  52,789 
 Diluted72,564  57,478  69,773  52,789 
         
Dividends declared per common share$0.185  $0.17  $0.37  $0.34 
         


CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES
 (in thousands, except per share amounts)
 (unaudited)
    Three Months Ended June 30, Six Months Ended June 30,
    2017 2016 2017 2016
           
Net income $2,030  $7,631  $12,311  $13,133 
 Depreciation and amortization 9,335  7,892  18,411  15,185 
 Interest expense 6,219  5,440  12,098  11,301 
 Amortization of stock-based compensation 600  437  1,136  868 
EBITDA 18,184  21,400  43,956  40,487 
 Loss on the extinguishment of debt 11,883    11,883  326 
 Deferred preferred return (544)   (544)  
 Impairment of real estate investment 890    890   
 Gain on disposition of other real estate investment (3,538)   (3,538)  
Normalized EBITDA $26,875  $21,400  $52,647  $40,813 
           
Net income $2,030  $7,631  $12,311  $13,133 
 Real estate related depreciation and amortization 9,309  7,867  18,359  15,137 
 Impairment of real estate investment 890    890   
 Gain on disposition of other real estate investment (3,538)   (3,538)  
Funds from Operations (FFO) 8,691  15,498  28,022  28,270 
 Deferred preferred return (544)   (544)  
 Effect of the senior unsecured notes payable redemption 12,475    12,475   
 Write-off of deferred financing fees       326 
Normalized FFO $20,622  $15,498  $39,953  $28,596 
           
Net income $2,030  $7,631  $12,311  $13,133 
 Real estate related depreciation and amortization 9,309  7,867  18,359  15,137 
 Amortization of deferred financing fees 529  561  1,090  1,117 
 Amortization of stock-based compensation 600  437  1,136  868 
 Straight-line rental income (43)   (115)  
 Impairment of real estate investment 890    890   
 Gain on disposition of other real estate investment (3,538)   (3,538)  
Funds Available for Distribution (FAD) 9,777  16,496  30,133  30,255 
 Deferred preferred return (544)   (544)  
 Effect of the senior unsecured notes payable redemption 12,475    12,475   
 Write-off of deferred financing fees       326 
Normalized FAD $21,708  $16,496  $42,064  $30,581 
           
FFO per share $0.12  $0.27  $0.40  $0.53 
Normalized FFO per share $0.28  $0.27  $0.57  $0.54 
           
FAD per share $0.13  $0.29  $0.43  $0.58 
Normalized FAD per share $0.30  $0.29  $0.60  $0.58 
           
Diluted weighted average shares outstanding [1] 72,803 57,667 69,984 52,954
           
 [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 amounts)
(unaudited)
 QuarterQuarterQuarterQuarterQuarter
 EndedEndedEndedEndedEnded
 June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
Revenues:     
Rental income$22,781 $24,179 $25,269 $27,339 $28,511 
Tenant reimbursements1,929 2,089 2,031 2,321 2,389 
Independent living facilities730 766 793 793 789 
Interest and other income261 72 150 155 1,140 
Total revenues25,701 27,106 28,243 30,608 32,829 
Expenses:     
Depreciation and amortization7,892 8,248 8,532 9,076 9,335 
Interest expense5,440 5,743 5,829 5,879 6,219 
Loss on the extinguishment of debt    11,883 
Property taxes1,929 2,089 2,031 2,321 2,389 
Independent living facilities598 708 623 661 644 
Impairment of real estate investment    890 
Acquisition costs 203 2   
General and administrative2,211 2,283 2,573 2,390 2,977 
Total expenses18,070 19,274 19,590 20,327 34,337 
Other income (expense):     
Loss on sale of real estate  (265)  
Gain on disposition of other real estate investment    3,538 
Net income$7,631 $7,832 $8,388 $10,281 $2,030 
      
Diluted earnings per common share$0.13 $0.13 $0.14 $0.15 $0.03 
      
Diluted weighted average shares outstanding57,478 57,595 60,875 66,951 72,564 
      


CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES - 5 QUARTER TREND
 (in thousands, except per share amounts) 
 (unaudited)
 QuarterQuarterQuarterQuarterQuarter
 EndedEndedEndedEndedEnded
 June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
      
Net income$7,631 $7,832 $8,388 $10,281 $2,030 
Depreciation and amortization7,892 8,248 8,532 9,076 9,335 
Interest expense5,440 5,743 5,829 5,879 6,219 
Amortization of stock-based compensation437 339 339 536 600 
EBITDA21,400 22,162 23,088 25,772 18,184 
Acquisition costs 203 2   
Loss on sale of real estate  265   
Loss on the extinguishment of debt    11,883 
Deferred preferred return    (544)
Impairment of real estate investment    890 
Gain on disposition of other real estate investment    (3,538)
Normalized EBITDA$21,400 $22,365 $23,355 $25,772 $26,875 
      
Net income$7,631 $7,832 $8,388 $10,281 $2,030 
Real estate related depreciation and amortization7,867 8,223 8,505 9,050 9,309 
Loss on sale of real estate  265   
Impairment of real estate investment    890 
Gain on disposition of other real estate investment    (3,538)
Funds from Operations (FFO)15,498 16,055 17,158 19,331 8,691 
Acquisition costs 203 2   
Deferred preferred return    (544)
Effect of the senior unsecured notes payable redemption    12,475 
Normalized FFO$15,498 $16,258 $17,160 $19,331 $20,622 
      


CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES - 5 QUARTER TREND (continued)
 (in thousands, except per share amounts)
 (unaudited)
 QuarterQuarterQuarterQuarterQuarter
 EndedEndedEndedEndedEnded
 June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
      
Net income$7,631 $7,832 $8,388 $10,281 $2,030 
Real estate related depreciation and amortization7,867 8,223 8,505 9,050 9,309 
Amortization of deferred financing fees561 561 561 561 529 
Amortization of stock-based compensation437 339 339 536 600 
Straight-line rental income (78)(72)(72)(43)
Loss on sale of real estate  265   
Impairment of real estate investment    890 
Gain on disposition of other real estate investment    (3,538)
Funds Available for Distribution (FAD)16,496 16,877 17,986 20,356 9,777 
Acquisition costs 203 2   
Deferred preferred return    (544)
Effect of the senior unsecured notes payable redemption    12,475 
Normalized FAD$16,496 $17,080 $17,988 $20,356 $21,708 
      
FFO per share$0.27 $0.28 $0.28 $0.29 $0.12 
Normalized FFO per share$0.27 $0.28 $0.28 $0.29 $0.28 
      
FAD per share$0.29 $0.29 $0.29 $0.30 $0.13 
Normalized FAD per share$0.29 $0.30 $0.29 $0.30 $0.30 
      
Diluted weighted average shares outstanding [1]57,667 57,739 61,028 67,133 72,803 
      
 [1]  For the periods presented, the diluted weighted average shares have been calculated using the treasury stock method.


CARETRUST REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
    June 30, 2017 December 31, 2016
    (unaudited)  
Assets    
Real estate investments, net$972,832  $893,918 
Other real estate investments5,192  13,872 
Cash and cash equivalents35,066  7,500 
Accounts and other receivables9,425  5,896 
Prepaid expenses and other assets5,282  1,369 
Deferred financing costs, net2,260  2,803 
   Total assets$1,030,057  $925,358 
       
Liabilities and Equity   
Senior unsecured notes payable, net$294,043  $255,294 
Senior unsecured term loan, net99,469    99,422
Unsecured revolving credit facility  95,000 
Accounts payable and accrued liabilities14,521  12,137 
Dividends payable14,048  11,075 
   Total liabilities422,081  472,928 
       
Equity:    
Common stock755  648 
Additional paid-in capital782,073  611,475 
Cumulative distributions in excess of earnings(174,852) (159,693)
   Total equity607,976  452,430 
   Total liabilities and equity$1,030,057  $925,358 
       


CARETRUST REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months Ended June 30,
 2017 2016
Cash flows from operating activities:   
Net income$12,311  $13,133 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization (including a below market ground lease)18,419  15,191 
Amortization of deferred financing costs1,131  1,117 
Loss on extinguishment of debt11,883  326 
Amortization of stock-based compensation1,136  868 
Straight-line rental income(115)  
Non-cash interest income(320) (515)
Interest income distribution from other real estate investment1,500   
Impairment of real estate investment890   
Change in operating assets and liabilities:   
Accounts and other receivables(3,414) (1,743)
Prepaid expenses and other assets(311) (291)
Accounts payable and accrued liabilities1,791  27 
Net cash provided by operating activities44,901
  28,113 
Cash flows from investing activities:   
Acquisitions of real estate(96,641) (144,149)
Improvements to real estate(598) (170)
Purchases of equipment, furniture and fixtures(233) (89)
Sale of other real estate investment7,500   
Escrow deposits for acquisitions of real estate(4,335)  
Net cash used in investing activities(94,307) (144,408)
Cash flows from financing activities:   
Proceeds from the issuance of common stock, net170,485  105,889 
Proceeds from the issuance of senior unsecured notes payable300,000   
Proceeds from the issuance of senior unsecured term loan  100,000 
Borrowings under unsecured revolving credit facility63,000  115,000 
Payments on senior unsecured notes payable(267,639)  
Payments on unsecured revolving credit facility(158,000) (92,000)
Payments on the mortgage notes payable  (95,022)
Payments of deferred financing costs(5,511) (1,332)
Net-settle adjustment on restricted stock(866) (515)
Dividends paid on common stock(24,497) (17,548)
Net cash provided by financing activities76,972  114,472 
Net increase (decrease) in cash and cash equivalents27,566  (1,823)
Cash and cash equivalents beginning of period7,500  11,467 
Cash and cash equivalents end of period$35,066  $9,644 
    


CARETRUST REIT, INC.
DEBT SUMMARY
(dollars in thousands)
(unaudited)
          
     June 30, 2017
 Interest Maturity  % ofDeferred Net Carrying
DebtRate Date PrincipalPrincipalLoan Costs Value
          
Fixed Rate Debt         
          
Senior unsecured notes payable5.250% 2025 $300,000 75.0%$(5,957) $294,043 
          
Floating Rate Debt         
          
Senior unsecured term loan3.176%[1]2023 100,000 25.0%(531) 99,469 
          
Unsecured revolving credit facility2.976%[2]2020[3] 0.0% [4] 
 3.176%   100,000 25.0%(531) 99,469 
          
Total Debt4.732%   $400,000 100.0%$(6,488) $393,512 
          
[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)
    
    
 2017 Guidance
    
    
  LowHigh
Net income$0.50  $0.52 
 Real estate related depreciation and amortization  0.51  0.51 
 Impairment of real estate investment  0.01  0.01 
 Gain on disposition of other real estate investment(0.05)(0.05)
Funds from Operations (FFO)  0.97   0.99 
 Deferred preferred return(0.01)(0.01)
 Effect of the senior unsecured notes payable redemption  0.17   0.17 
Normalized FFO$1.13  $1.15 
    
Net income$0.50  $0.52 
 Real estate related depreciation and amortization  0.51   0.51 
 Amortization of deferred financing fees  0.03   0.03 
 Amortization of stock-based compensation  0.03   0.03 
 Straight-line rental income(0.00(0.00)
 Impairment of real estate investment  0.01   0.01 
 Gain on disposition of other real estate investment(0.05)(0.05)
Funds Available for Distribution (FAD)  1.03   1.05 
 Deferred preferred return(0.01)(0.01)
 Effect of the senior unsecured notes payable redemption0.17 0.17 
Normalized FAD$1.19  $1.21 
Weighted average shares outstanding:  
 Diluted  72,959   72,959 

 

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, expensed acquisition costs, certain preferred returns, losses on the extinguishment of debt, and gains or losses from dispositions of real estate or other real estate. 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, 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 costs 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 written-off deferred financing fees, expensed acquisition costs, certain 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 and indebtedness, 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 costs, 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.