LTC Properties, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Amounts are in millions except per-share data.
Business context
LTC is a healthcare real estate investment trust investing primarily in seniors housing and healthcare through property leases, mortgage loans, joint ventures and other financing. At quarter-end, its portfolio included 152 owned properties and investments across 29 states, with seniors housing and healthcare representing approximately 98.6% of gross investments.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $43.5 | $37.5 | $127.3 | $115.9 |
| Operating income | $13.0 | $10.7 | $81.3 | $42.3 |
| Net income attributable to LTC | $13.3 | $11.0 | $82.1 | $43.0 |
| Net income available to common stockholders | $13.2 | $10.9 | $81.6 | $42.7 |
| Diluted EPS | $0.32 | $0.28 | $2.04 | $1.09 |
| NAREIT FFO per diluted share | $0.60 | $0.45 | $1.83 | $1.64 |
- Q3 revenue growth reflected higher rental income and mortgage-loan interest, plus $0.4 million of income from a new financing receivable. Q3 operating margin was approximately 29.9%, versus 28.7% a year earlier.
- Nine-month earnings included $37.8 million of net gains on real estate sales, compared with $7.4 million in the prior-year period. This materially boosted reported net income; nine-month FFO, which excludes real estate sale gains and impairment, was $73.3 million versus $64.1 million.
- Nine-month operating cash flow was $72.8 million, compared with $69.6 million. Investing activities used $110.5 million, primarily reflecting new property and financing investments; financing activities provided $39.1 million. Cash ended at $6.5 million.
- Quarterly dividends were $0.57 per share; nine-month dividends were $1.71 per share. The company declared $0.19 monthly dividends for October through December 2022.
Financial position and liquidity
- Total assets were $1,652.0 million and total equity was $825.2 million at September 30, 2022.
- Debt obligations were $793.8 million: $151.0 million drawn on the revolving line, $99.5 million in term loans and $543.3 million in senior unsecured notes. Debt increased from $722.7 million at December 31, 2021. The weighted-average stated interest rate was 4.04%; Q3 interest expense was $7.9 million.
- The company had $249.0 million available under its revolving facility and $160.3 million remaining capacity under its equity distribution agreements. Management said liquidity was sufficient for operating needs, debt service and dividends, while noting capital access and cash flows are sensitive to interest rates and market conditions.
- Debt to gross asset value was 38.9%; interest and fixed-charge coverage ratios were each 4.2x for the quarter. The company reported compliance with all debt covenants.
Material changes, outlook and risks
- During Q3, LTC invested $61.7 million through a joint venture in three Florida skilled nursing centers, recorded as a financing receivable because the seller-lessee has a purchase option. The investment generated $0.4 million of quarterly interest income and a $0.8 million credit-loss provision.
- Nine-month property sales generated $74.3 million in proceeds and $37.8 million in net gains. A Kentucky assisted living property classified as held for sale incurred a $1.3 million impairment charge.
- Credit-loss provisions rose to $1.5 million for the first nine months from $0.1 million in the prior-year period. The filing also reports $44.3 million of interest receivable, including $42.9 million of effective interest receivable on mortgage loans; accrued interest receivable is not included in the expected-credit-loss allowance measurement.
- Operator support and transitions remain important: LTC forgave a former operator’s $7.1 million unaccrued deferred-rent balance and paid a $0.5 million termination fee when transitioning 12 assisted living communities. Anthem remained in default under its master lease; 2022 rent collection was contingent in part on stimulus funds and improved operations. Brookdale’s lease was extended through December 2023.
- Prestige Healthcare represented 19.7% of combined rental and mortgage interest revenue and 16.0% of assets, creating operator concentration exposure. Management highlighted COVID-19 effects, inflation and labor costs, operator finances, healthcare reimbursement and regulation, interest rates, and access to capital as risks. No quantified earnings guidance was provided.
Important facts for investors to verify
- Whether operators, especially Anthem and other tenants receiving rent relief, meet lease obligations and whether deferred or reduced rent is ultimately collected.
- The collectability and credit quality of the mortgage, financing and notes receivable portfolios, including accrued interest and recorded credit-loss reserves.
- How much reported earnings growth is recurring operating performance versus gains on property sales.
- Debt costs, covenant headroom, refinancing needs and liquidity under changing interest-rate and capital-market conditions.
- The sustainability of the $0.19 monthly dividend relative to FFO, cash flows and future operator support needs.