LTC Properties, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. LTC Properties is a health care REIT investing primarily in seniors housing and health care properties through leases, mortgage loans, and structured financing. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $42.6 | $38.6 | Up $4.0, about 10.4% |
| Operating income | $21.1 | $19.6 | Up $1.5 |
| Net income | $21.5 | $19.9 | Up $1.7 |
| Net income available to common stockholders | $21.4 | $19.8 | Up $1.7 |
| Diluted EPS | $0.54 | $0.53 | Up $0.01 |
| NAREIT FFO per diluted share | $0.78 | $0.76 | Up $0.02 |
| Cash from operating activities | $21.1 | $19.6 | Up $1.4 |
- Rental income rose to $35.0 million from $31.9 million, primarily reflecting acquisitions, completed developments, and capital improvements. Mortgage-loan interest income was $6.7 million, compared with $6.6 million. Interest and other income increased to $0.8 million from $0.1 million, mainly due to mezzanine-loan income and prepayment premiums.
- Interest expense increased to $7.5 million from $6.0 million, while depreciation and amortization increased to $9.4 million from $8.6 million. General and administrative expense was $4.7 million versus $4.3 million.
- Cash used in investing activities was $0.9 million, versus $37.6 million used in Q1 2016, when acquisition and loan investment outlays were higher. Financing activities used $21.2 million, compared with $29.3 million provided in the prior-year quarter. Cash increased $0.7 million to $8.7 million.
- At March 31, total assets were $1.392 billion, total liabilities $638.5 million, and stockholders’ equity $753.1 million. Net real estate investments were $1.287 billion, including $1.021 billion in real property and $223.3 million in mortgage loans.
Debt, liquidity, and distributions
- Debt carrying value was $597.9 million, all in senior unsecured notes; there were no revolver borrowings at quarter-end. The company had $600 million available under its revolving credit facility and $36.7 million available under its senior note shelf agreement.
- During the quarter, LTC issued $100 million of 15-year senior unsecured notes at a fixed 4.5% rate, maturing February 2032, and used the proceeds to reduce revolving-credit borrowings. The revolver matures October 2018, with a one-year extension option. The company reported compliance with all debt covenants.
- LTC sold 312,881 common shares for $14.6 million net proceeds under its equity distribution agreement, also using the proceeds to pay down the revolver. Remaining capacity under that agreement was $185.2 million.
- Debt to gross asset value was 35.6%, down from 38.5% a year earlier; interest coverage was 5.0x versus 5.1x. Management’s coverage measure uses Adjusted EBITDA, a non-GAAP measure.
- The company declared and paid monthly common dividends of $0.19 per share during Q1, totaling $22.6 million. It declared the same monthly dividend for April, May, and June. Dividends declared per share exceeded GAAP EPS for the quarter; FFO per share was $0.78.
Material changes and portfolio
- Revenue grew about 10.4% year over year and net income about 8.3%; diluted EPS rose about 1.9%, with weighted-average basic shares increasing to 39.4 million from 37.4 million.
- At quarter-end, the portfolio included 181 owned properties and investments across 29 states and 28 operators, plus mortgage investments. Seniors housing and long-term health care represented approximately 99.3% of the real estate investment portfolio.
- Three major operators accounted for 37.9% of combined rental and mortgage interest revenue and 34.2% of total assets. Prestige Healthcare represented 16.3% of revenue; Senior Lifestyle Corporation 12.0%; and Brookdale Senior Living 9.6%.
- Development investment was $3.4 million, with $0.7 million spent on capital improvements. Mortgage funding was $4.4 million, while payoffs were $10.8 million. Subsequent to quarter-end, two additional mortgage loans were paid off for $5.9 million plus accrued interest.
Outlook, risks, and other notable items
- No specific company earnings or FFO guidance was provided. Management stated that available cash, operating cash flow, borrowing capacity, and potential capital-market access were expected to be sufficient for operating costs, debt obligations, investment needs, and dividends at least sufficient to maintain REIT status.
- Management identified rent and loan collection as dependent on operator performance. Risks include operator financial distress, concentration among major operators, health care reimbursement and regulatory changes, competition, capital-market access, interest rates, and the ability to re-lease properties. CMS proposed a 1.0% increase in aggregate SNF Medicare payments for fiscal 2018; the filing cautions that policy changes may affect operators’ ability to pay.
- Remaining disclosed commitments totaled $110.6 million, including real estate, mortgage-loan, joint-venture, lease-incentive, and contingent earn-out commitments. The company had $58.1 million of net straight-line rent receivable on its balance sheet.
- Ordinary-course claims and lawsuits were not expected by management to be material. The filing reported no material changes to previously disclosed risk factors or market risk, and management concluded disclosure controls were effective.
Investor facts to verify
- Monitor the financial condition and payment performance of the three largest operators, which together generated 37.9% of rental and mortgage interest revenue.
- Assess dividend sustainability against operating cash flow and FFO, including the $0.19 monthly dividend and Q1 FFO of $0.78 per share.
- Review debt maturities, revolver terms, interest-rate exposure, covenant headroom, and the effect of future financing needs.
- Track collection and realization of the $58.1 million straight-line rent receivable and the funding and timing of remaining commitments.
- Confirm the impact of post-quarter mortgage payoffs and monitor changes in Medicare, Medicaid, and other health care regulations affecting tenants and borrowers.