In October, 2014, we entered into an agreement to sell PFG to Blackstone. A significant portion of the Company’s 2014 net income was generated from our PFG subsidiary, which has been classified as “discontinued operations” in our financial statements. PFG’s net income for 2013 has also been reclassified as “discontinued operations.” The sale of PFG to Blackstone is expected to close in the third quarter of 2015. Based on a total purchase price of $165 million, we estimate that the GAAP pretax gain over December 31, 2014 book value will be approximately $35.2 million for the Company. We estimate Tiptree Financial’s incremental tax provision at the time of sale to be approximately $11.1 million. The incremental provision would bring total provisions for PFG related tax to approximately $26.5 million, which includes the deferred tax liability of $15.4 million already recorded as of December 31, 2014. The sale agreement specifies any results generated by PFG in 2015 will remain with PFG when sold.
Previously, the Company did not elect to fair value the debt issued by the CLOs, which resulted in potentially significant movements in the net income attributable to CLOs as a result of the mark-to-market valuation of the assets of the CLOs but not the mark-to-market valuation of the debt issued by the CLOs.
The Company’s five operating segments are: insurance and insurance services, specialty finance, asset management, real estate and our corporate and other segment. See Note 6-Operating Segment Data, of the accompanying consolidated financial statements for a more detailed description of our segments.
Segment Results - year ended December 31, 2014 compared to year ended December 31, 2013
Fortegra earned $196 thousand of interest income in the period on its $171 million investment portfolio, comprised primarily of U.S. Treasury securities, obligations of U.S. government authorities and agencies and municipal and corporate securities. The average remaining maturity of this portfolio was 4.2 years and the average annualized yield on the portfolio was 2%.
Expenses of Luxury totaled $12.8 million in the period, primarily payroll and commission costs of $8.2 million, of which $4.8 million was employee salaries, incentive compensation and employee benefits and $3.3 million in commissions paid to Luxury’s loan officers. Employee commissions are based on the volume of mortgage transactions originated. For the eleven month period ended December 31, 2014, Luxury originated mortgage loans with a total face value of $538.7 million.
Total revenues for real estate operations were $29.3 million for 2014, compared with $8.9 million for 2013, an increase of $20.4 million. The increase in revenues was partly due to realized and unrealized gains of $7.0 million attributable to the net gain of $7.9 million from the 2014 repayment of the Westside Loan, which had previously been carried at lower carrying value, offset by $0.9 million in unrealized losses on interest rate swaps. Rental income increased to $19.7 million for 2014 compared with $5.8 million for 2013. The significant increase in rental income was principally due to the increase in number of the properties owned by Care in 2014, compared to 2013. As of December 31, 2014, Care owned properties with a total area of approximately 879,000 square feet compared with 576,000 square feet as of December 31, 2013.
Other revenues earned by Care were $1.1 million in 2014, compared to $413 thousand in 2013. Revenues in 2014 included resident fees of $547 thousand and reimbursable escrow earnings of $507 thousand. In 2013, resident fees exclusive of rental revenue were $95 thousand and reimbursable escrow earnings were $319 thousand. The increase in other revenues in 2014 was due to the increased number of properties owned by Care.
Other expenses were $1.3 million in 2014 and $977 thousand in 2013. The other expenses primarily consisted of insurance, shareholder support, office rent and other office costs and travel expenses. In 2014, there were slight increases in these items largely driven by an increase of $0.2 million in insurance and $0.1 million in office rent.
The Company initially records all assets and liabilities acquired in purchase acquisitions, including goodwill, indefinite lived intangibles and other intangibles, in accordance with ASC 805 Business Combinations. Goodwill, indefinite-lived intangibles
Tiptree Financial is a holding company that is the sole managing member, and owns approximately 25%, of Operating Company. As the sole managing member of Operating Company, Tiptree Financial operates and controls all of the business and affairs of Operating Company and its subsidiaries and consolidates the financial results of Operating Company and its subsidiaries. TFP owns approximately 75% of Operating Company. As of December 31, 2014, Tiptree Financial owned approximately 68% of TFP. As a result, Tiptree Financial’s combined direct and indirect ownership of Operating Company is approximately 77% as of December 31, 2014. The remainder is reflected as a non-controlling interest in Tiptree Financial’s consolidated financial statements. See “Item 1. Business - Overview” and Notes 1-Organization and Note 18-Stockholders’ Equity, within the accompanying consolidated financial statements for further discussion of the Company’s capital and ownership structure.
The values of certain assets and liabilities acquired in acquisitions are preliminary in nature, and are subject to adjustment as additional information is obtained, including, but not limited to, the valuation of separately identifiable intangibles, fixed assets, deferred taxes and deferred revenue. The valuations will be finalized as soon as practicable after the close of the acquisition. When the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in adjustments to separately identifiable intangible assets and goodwill. A change to the acquisition date value of the identifiable net assets during the measurement period (up to one year from the acquisition date) affects the amount of the purchase price allocated to goodwill.
The Company invests in real estate-related equity interests that allow it to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of the investment, it must be determined whether such investment should be accounted for as a loan, joint venture or as real estate. For the years ended December 31, 2014 and 2013, the Company held one real estate-related investment and accounted for such investment under the equity method.
Real estate is carried at cost, net of accumulated depreciation and amortization. Betterments, major renewals and certain costs directly related to the acquisition, improvement and leasing of real estate are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is calculated on a straight-line basis over the assets’ estimated useful lives which range from 9 to 40 years.
The Company defers certain debt issuance costs associated with its debt. These costs are classified as an asset and are amortized over the life of the particular debt instrument.
The Company defers certain costs of acquiring new and renewal business. These costs are limited to direct costs that resulted from successful contract transactions and would not have been incurred by the Company's insurance company subsidiaries had the transactions not occurred. These capitalized costs are amortized as the related premium is earned.
Service Fees. Service fee revenue is recognized as the services are performed. These services include fulfillment, software development, and claims handling for our customers. Collateral tracking fee income is recognized when the service is performed and billed. Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined probable. During the year ended December 31, 2014, the Company has not incurred a loss with respect to a specific significant service fee contract.
During the year ended December 31, 2014, management changed its reportable operating segments. The Company now has five reportable operating segments. The Company’s five operating segments are: insurance and insurance services, specialty finance, asset management, real estate and our corporate and other segment. The Company’s operating segments are organized in a manner that reflects how management views these strategic business units.
The following table presents the Company's available for sale securities as of:
The following table presents identifiable intangible assets, accumulated amortization, and goodwill by segment:
(2) Reflects the reversal of above market leases due to the Bickford properties discontinued operations as of December 31, 2013 (see Note 5 -Dispositions, Assets Held for Sale and Discontinued Operations).
The Company recorded $8,566 and $540 in amortization expense associated with its intangibles for each of the periods ended December 31, 2014 and 2013, respectively.
(1) Tranche A-2 Notes in Telos 6 have a fixed rate of 3.46% over the life of the CLO.
Effective February 2013, in connection with Care’s acquisition of the Calamar Properties, affiliates of Care entered into two separate loans from Liberty Bank with an aggregate balance of $17,688 as of December 31, 2014. Both of these loans amortize over a thirty year period at a weighted average fixed rate of 4.21%. These loans are secured by separate first priority mortgages on each of the properties.
In December 2013, affiliates of Care refinanced an internal bridge loan for the Terraces Portfolio, by entering into two separate loans from First Niagara Bank with an aggregate balance of $15,641 as of December 31, 2014. Both of these loans
For the year ended December 31, 2013, the Company declared and paid quarterly cash dividends in the first three quarters of $0.135, $0.02 and $0.02 per common share of Class A stock totaling $1,803.
As of December 31, 2014, no common shares remain for future issuance under the 2007 Equity Plan.
Included in vested shares for 2014 are 9,323 shares surrendered to pay taxes on behalf of the employees with shares vesting.