LTC Properties, Inc. — Q2 2022 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. LTC is a healthcare REIT investing in seniors housing and healthcare properties through owned properties, mortgage loans, notes and joint ventures.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $43.0 million | $38.1 million | $83.8 million | $78.4 million |
| Net income attributable to common stockholders | $54.1 million | $18.1 million | $68.4 million | $31.8 million |
| Diluted EPS | $1.36 | $0.46 | $1.73 | $0.81 |
| NAREIT FFO attributable to common stockholders | $25.4 million | $22.2 million | $49.0 million | $46.5 million |
| Diluted NAREIT FFO per share | $0.64 | $0.57 | $1.24 | $1.19 |
- Q2 revenue rose about 13%; six-month revenue increased about 7%. Mortgage-loan interest income and interest and other income increased, while six-month rental income was nearly flat.
- Reported earnings rose sharply, chiefly because the company recorded a $38.1 million net gain on real estate sales in Q2, versus $5.5 million in the prior-year quarter. The gain included sales of a California skilled nursing facility and three assisted living communities in California and Virginia, plus reassessments of prior sale holdbacks. FFO, which excludes real estate sale gains, increased more modestly.
- Q2 interest expense was $7.5 million, up from $6.9 million. Six-month interest expense was $14.7 million versus $13.8 million. Property tax expense and general and administrative costs also increased; management cited inflationary pressures among the reasons for higher administrative costs.
- Six-month operating cash flow was $48.4 million, approximately unchanged from $48.6 million. Investing activities used $45.8 million, including property and loan investments, and financing activities used $1.4 million. Cash at June 30 was $6.4 million.
Balance sheet, debt and liquidity
- At June 30, total assets were $1.58 billion, total liabilities $767.7 million and total equity $810.5 million. Net investments were $1.49 billion.
- Debt obligations totaled $734.9 million: $56.0 million drawn on the revolving credit facility, $99.4 million in term loans and $579.4 million in senior unsecured notes, net of debt costs. Weighted-average stated interest rate was 3.93%. The revolver had $344.0 million available at quarter-end.
- Subsequent to quarter-end, LTC borrowed $20.5 million on the revolver and paid $20.2 million in scheduled note principal. It reported $76.5 million drawn and $323.5 million available on the revolver after those transactions.
- Debt to gross asset value was 37.6%; interest and fixed-charge coverage were each 4.3x for the quarter. LTC reported compliance with all applicable debt covenants.
- Cash dividends were $0.19 per share monthly, or $0.57 per share for the quarter; $1.14 per share was declared and paid in the first half. The company also sold 909,800 shares for $34.2 million net proceeds during the first half.
Material developments, outlook and risks
- During the first half, LTC acquired four Texas skilled nursing centers for $51.8 million and leased them under a 10-year lease with an initial 8% cash yield. It also originated $33.9 million of mortgage loans and advanced $36.8 million under notes receivable, including a $25 million mezzanine loan.
- Four properties were sold for $73.9 million in the first half, generating a reported $38.2 million net gain. The company’s investment portfolio was spread across 29 states and 32 operators; one operator, Prestige Healthcare, represented 20.0% of combined rental and mortgage interest revenue.
- COVID-related rent abatements and deferrals from April 2020 through June 2022 totaled $14.1 million net of repayments. During the first half of 2022 alone, abatements and deferrals net of repayments were $3.9 million, about 5.2% of contractual rent for that period.
- After quarter-end, LTC terminated a master lease covering 12 assisted living communities, forgave $7.1 million of outstanding unaccrued deferred rent and paid a $0.5 million termination fee. The replacement two-year lease provides no rent for the first four months; later cash rent is to be based on mutually agreed fair market rent. LTC also disclosed further rent deferrals and abatements for other operators.
- Management said current cash, operating cash flow, borrowing capacity and potential capital-market access were expected to be adequate for operating costs, debt obligations, investment needs and dividends. The filing provides no specific earnings or investment guidance.
- Key risks include operator financial distress and rent collectability, COVID-related occupancy and cost pressures, healthcare reimbursement and regulatory changes, inflation, interest rates, access to capital, and reliance on major operators. CMS proposed a fiscal 2023 payment update estimated to reduce Medicare Part A payments to skilled nursing facilities by about $320 million industry-wide; the filing notes potential adverse effects on operators and, in turn, LTC.
- Interest-rate swaps with $100 million notional value hedge term-loan exposure; their fair value was a $6.1 million asset at June 30, versus a $0.2 million liability at year-end 2021. The company stated there were no material changes in market risk during the first half.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring property and loan income versus the $38.1 million real estate-sale gain; compare GAAP earnings with FFO.
- Collection prospects for deferred, abated and forgiven rent, particularly the post-quarter transition of the 12-community lease and rent levels under its replacement lease.
- Financial condition and rent or interest payment performance of major operators, especially Prestige Healthcare and operators receiving rent assistance.
- Returns and credit quality of the increased mortgage, mezzanine and working-capital loan exposures, including the substantial accrued interest receivable balance.
- Liquidity, borrowing costs and covenant headroom as rates and capital-market conditions change, alongside ongoing dividend and investment commitments.