LTC Properties, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited. LTC Properties is a healthcare REIT investing primarily in seniors housing and healthcare through property leases, mortgage loans, joint ventures and other lending.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $40.8 million | $40.3 million; up 1.3% |
| Rental income | $30.3 million | $32.0 million; down $1.6 million |
| Mortgage-loan interest income | $9.6 million | $7.9 million; up $1.7 million |
| Operating income | $14.1 million | $13.6 million; operating margin approximately 34.6% versus 33.7% |
| Net income attributable to LTC | $14.4 million | $13.8 million |
| Net income available to common stockholders; diluted EPS | $14.3 million; $0.36 | $13.6 million; $0.35 |
| NAREIT FFO per diluted share | $0.60 | $0.62; total FFO decreased to $23.6 million from $24.3 million |
| Operating cash flow | $18.6 million | $21.3 million |
| Total debt; weighted-average stated rate | $762.8 million; 3.55% | Debt to gross asset value was 39.6%, up from 38.4% at year-end 2021 |
At March 31, cash was $4.4 million and revolving-credit availability was $242.1 million. After subsequent borrowing and repayment, the company reported $208.1 million available. Total assets were $1.54 billion and total equity was $742.6 million. The company reported compliance with all credit-facility covenants. Its 4.4x interest and fixed-charge coverage ratios are non-GAAP measures.
Cash distributions to common stockholders were $22.5 million, versus $18.6 million of operating cash flow. The quarterly dividend was $0.57 per share ($0.19 monthly), unchanged from Q1 2021. The filing does not provide a formal operating-margin guidance target.
Material changes and activity
- Rental income declined, primarily reflecting portfolio transitions, abatements and deferrals, a sold skilled nursing property, and a lease-incentive write-off. Higher mortgage interest income, chiefly from prior-period loan originations, offset the rental decline.
- Notes receivable increased to $61.5 million from $28.3 million at year-end, including a new $25 million mezzanine loan. Credit-loss provision was $354,000, compared with a $9,000 recovery in Q1 2021.
- Investing cash outflow was $35.5 million, largely due to $34.8 million of advances and originations under notes receivable. Financing cash flow was positive $16.1 million, including $47 million of revolving-credit borrowings and $22.5 million of stockholder distributions.
- After quarter-end, LTC acquired four Texas skilled nursing centers for $51.5 million, under a 10-year lease with an initial cash yield of 8%. It also funded $1.9 million of a working-capital loan to the operator.
- After quarter-end, LTC sold a 74-unit Virginia assisted-living community for $16.9 million, received a $1.2 million lease-termination fee, and expected to recognize an approximately $1.3 million gain in Q2.
Outlook, risks and unusual items
- Management said current cash, operating cash flow, borrowing capacity and potential capital-market access were expected to support operating costs, debt obligations and dividends sufficient to maintain REIT status. This is not a quantitative earnings or FFO forecast.
- COVID-19-related operator pressure remained a collection risk. In Q1, LTC agreed to $720,000 of rent abatements and $1.295 million of rent deferrals, together approximately 5.4% of quarterly contractual rent. Across April 2020–March 2022, net abatements and deferrals were $12.2 million after repayments.
- Operator and tenant health is material: Prestige Healthcare represented 20.4% of combined rental revenue and mortgage interest income and 17.2% of assets. Anthem advised it might not pay all agreed Q2 rent; management expected approximately $10.8 million of cash rent from Anthem for 2022. Senior Lifestyle had not paid rent or other master-lease obligations since 2021. Another operator’s deferred balance was $6.6 million as of April 2022.
- Healthcare reimbursement, occupancy, staffing and operating costs, inflation, interest rates, access to capital, and operator solvency could affect collections and distributions. CMS’s proposed FY2023 rule projected a $320 million aggregate decrease in Medicare Part A payments to skilled nursing facilities; the filing cautions that reimbursement changes could affect operators.
- Interest-rate swaps with $100 million notional value hedged the term loans; their $4.9 million fair-value increase was recorded in other comprehensive income, not operating earnings. No material changes in market risk or risk factors were reported, and management stated disclosure controls were effective.
Investor facts to verify
- Rent collection, deferred-rent repayment and the financial condition of major operators, particularly Prestige, Anthem and former Senior Lifestyle properties.
- Whether new lending and post-quarter acquisitions generate expected returns while credit-loss reserves remain adequate.
- Dividend coverage, given distributions exceeded operating cash flow in Q1 and FFO per share declined year over year.
- Debt and liquidity after post-quarter revolving-credit activity, including borrowing costs and covenant headroom.
- Whether the Virginia sale gain and lease-termination fee were recognized as anticipated, and the effect of reimbursement or regulatory changes on operators.