UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 24, 2011
CORNERSTONE HEALTHCARE PLUS REIT, INC.
(Exact name of registrant as specified in its charter)
         
Maryland
(State or Other Jurisdiction of Incorporation)
  000-53969
(Commission File Number)
  20-5721212
(I.R.S. Employer Identification
Number)
1920 Main Street, Suite 400
Irvine, CA 92614

(Address of principal executive offices)
(949) 852-1007
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 7.01 Regulation FD Disclosure
Supplementary Financial Information for the Four Quarters ended December 31, 2010.
     The information included in Item 7.01 of this Current Report on Form 8-K, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Funds from Operations and Modified Funds from Operations.
     Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We compute FFO in accordance with the definition outlined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by the accounting principles generally accepted in the United States of America (“GAAP”) , and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, noncontrolling interests and subsidiaries. Our FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance. Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on cash held in accounts pending investment, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. FFO should not be considered as an alternative to net income (loss), as an indication of our performance, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
     Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the amount of non-cash and non-operating items included in FFO, as defined. Therefore, we use modified funds from operations (“MFFO”), which excludes from FFO real estate acquisition expenses, and non-cash amounts related to straight line rent to further evaluate our operating performance. We compute MFFO in accordance with the definition suggested by the Investment Program Association (the “IPA”), the trade association for direct investment programs (including non-listed REITs). However, certain adjustments included in the IPA’s definition are not applicable to us and are therefore not included in the foregoing definition.
     We believe that MFFO is a helpful measure of operating performance because it excludes costs that management considers more reflective of investing activities or non-operating changes. Accordingly, we believe that MFFO can be a useful metric to assist management, investors and analysts in assessing the sustainability of our operating performance. As explained below, management’s evaluation of our operating performance excludes the items considered in the calculation based on the following considerations:
    Adjustments for straight line rents. Under GAAP, rental income recognition can be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the economic impact of our lease terms and presents results in a manner more consistent with management’s analysis of our operating performance.
 
    Real estate acquisition costs. In evaluating investments in real estate, including both business

 


 

combinations and investments accounted for under the equity method of accounting, management’s investment models and analysis differentiate costs to acquire the investment from the operations derived from the investment. These acquisition costs have been funded from the proceeds of our initial public offering and other financing sources and not from operations. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management’s analysis of the investing and operating performance of our properties. Real estate acquisition expenses include those paid to our advisor and to third parties.
     FFO or MFFO should not be considered as an alternative to net income (loss) nor as an indication of our liquidity. Nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and MFFO should be reviewed along with other GAAP measurements. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs. In addition, FFO and MFFO presented for different periods may not be directly comparable.
     We believe that MFFO is helpful as a measure of operating performance because it excludes costs that management considers more reflective of investing activities or non-operating changes.
Our calculations of FFO and MFFO for the years ended December 31, 2010 and 2009 are presented below:
                                 
    Three months ended  
    December 31,     September 30,     June 30,     March 31,  
    2010     2010     2010     2010  
Net loss
  $ (2,254,000 )   $ (1,648,000 )   $ (1,626,000 )   $ (943,000 )
Adjustments:
                               
Net (income) loss attributable to noncontrolling interests
    34,000       40,000       82,000       (4,000 )
Real estate depreciation & amortization
    1,319,000       1,183,000       930,000       640,000  
 
                       
Funds from operations (FFO)
  $ (901,000 )   $ (425,000 )   $ (614,000 )   $ (307,000 )
 
                       
Adjustments:
                               
Straight-line rent
    (140,000 )     (101,000 )     (73,000 )     (73,000 )
Real estate acquisition costs
    1,281,000       653,000       881,000       458,000  
 
                       
Modified funds from operations (MFFO)
  $ 240,000     $ 127,000     $ 194,000     $ 78,000  
 
                       
 
                               
Weighted average shares
    10,518,801       8,782,378       7,099,586       5,414,179  
 
                       
 
                               
FFO per weighted average shares
  $ (0.09 )   $ (0.05 )   $ (0.09 )   $ (0.06 )
MFFO per weighted average shares
  $ 0.02     $ 0.01     $ 0.03     $ 0.01  
                                 
    Three months ended  
    December 31,     September 30,     June 30,     March 31,  
    2009     2009     2009     2009  
Net loss
  $ (1,244,000 )   $ (829,000 )   $ (958,000 )   $ (1,118,000 )
Adjustments:
                               
Net (income) loss attributable to noncontrolling interests
    (57,000 )     8,000       24,000       10,000  
Real estate depreciation & amortization
    409,000       406,000       351,000       201,000  
 
                       
Funds from operations (FFO)
  $ (892,000 )   $ (415,000 )   $ (583,000 )   $ (907,000 )
 
                       
Adjustments:
                               
Real estate acquisition costs
    713,000       252,000       344,000       505,000  
 
                       
Modified funds from operations (MFFO)
  $ (179,000 )   $ (163,000 )   $ (239,000 )   $ (402,000 )
 
                       
 
                               
Weighted average shares
    4,160,842       2,775,594       1,838,828       1,240,370  
 
                       
 
                               
FFO per weighted average shares
  $ (0.21 )   $ (0.15 )   $ (0.32 )   $ (0.73 )
MFFO per weighted average shares
  $ (0.04 )   $ (0.06 )   $ (0.13 )   $ (0.32 )


 

Distributions
     In order to meet the requirements for being treated as a REIT under the Internal Revenue Code, we must pay distributions to our shareholders each taxable year equal to at least 90% of our net ordinary taxable income. Until proceeds from our offerings are invested and generating operating cash flow sufficient to make distributions to stockholders, we intend to pay all or a substantial portion of our distributions from the proceeds of our offering and or from borrowings in anticipation of future cash flow. Our board generally declares distributions on a quarterly basis, which is paid on a monthly basis. Monthly distributions are paid based on daily record and distribution declaration dates so our investor will be entitled to be paid distributions beginning on the day that they purchase shares.
     During the years ended December 31, 2010 and 2009, we paid distributions, including any distributions reinvested, aggregating approximately $5.7 million and $1.7 million, respectively to our stockholders. The following table shows the distributions declared on daily record dates for each day during the period from January 1, 2009 through December 31, 2010, aggregated by quarter as follows:
                                         
    Distributions Declared     Cash Flow from        
Period   Cash     Reinvested     Total     Operations     FFO  
First quarter 2009
  $ 116,000     $ 122,000     $ 238,000     $ (601,000 )   $ (907,000 )
Second quarter 2009
    170,000       190,000       360,000       (461,000 )     (583,000 )
Third quarter 2009
    266,000       284,000       550,000       (321,000 )     (415,000 )
Fourth quarter 2009
    414,000       401,000       815,000       (1,540,000 )     (892,000 )
 
                             
 
  $ 966,000     $ 997,000     $ 1,963,000     $ (2,923,000 )   $ (2,797,000 )
 
                                       
First quarter 2010
  $ 525,000     $ 506,000     $ 1,031,000     $ 48,000     $ (307,000 )
Second quarter 2010
    696,000       665,000       1,361,000       (597,000 )     (614,000 )
Third quarter 2010
    857,000       834,000       1,691,000       436,000       (425,000 )
Fourth quarter 2010
    1,017,000       1,011,000       2,028,000       (2,981,000 )     (901,000 )
 
                             
 
  $ 3,095,000     $ 3,016,000     $ 6,111,000     $ (3,094,000 )   $ (2,247,000 )
     The declaration of distributions is at the discretion of our board of directors and our board will determine the amount of distributions on a regular basis. The amount of distributions will depend on our funds from operations, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors our board of directors deems relevant. We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days prior written notice to participants.

 


 

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  CORNERSTONE HEALTHCARE PLUS REIT, INC.
 
 
Dated: March 24, 2011  By:   /s/ Sharon C. Kaiser    
    Sharon C. Kaiser,   
    Chief Financial Officer