LTC Properties, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; financial statements are unaudited. LTC is a healthcare REIT investing primarily in senior housing and long-term care properties through owned real estate, development, and mortgage loans. Its portfolio covered 29 states and 42 operators; about 99% of investments were in senior housing and long-term healthcare properties.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $25.7 million | $22.6 million |
| Income from continuing operations | $13.0 million | $12.9 million |
| Net income available to common stockholders | $12.1 million | $12.0 million |
| Diluted EPS | $0.40 | $0.40 |
| FFO available to common stockholders (non-GAAP) | $18.2 million; $0.59 diluted per share | $17.2 million; $0.56 diluted per share |
| Cash from operating activities | $17.4 million | $16.8 million |
Revenue increased 13.4%, primarily from acquisitions. Rental income rose $3.6 million to $24.5 million, while mortgage-loan interest income fell $0.5 million to $1.1 million. Total expenses increased 30.5% to $12.7 million. Continuing-operations income was nearly flat; its ratio to revenue was approximately 50.6%, versus 57.1% a year earlier. Interest expense rose $1.1 million and depreciation and amortization rose $1.0 million. General and administrative expense included a one-time $707,000 charge related to an executive’s retirement.
At March 31, 2013, total assets were $792.7 million, cash was $9.6 million, and total liabilities were $325.9 million. Debt comprised $117.5 million in bank borrowings, $185.8 million in senior unsecured notes, and $2.0 million in bonds payable. The company had $122.5 million available on its $240 million revolving credit facility, $100 million available under a private shelf agreement, and $167.6 million available under its effective securities shelf. It reported covenant compliance. Total cash dividends paid were $15.0 million, including $14.2 million on common stock and $0.8 million on preferred stock.
Investing activities used $6.7 million, including $6.3 million for development and capital improvements; financing activities used $8.2 million. Cash increased $2.4 million during the quarter. The filing reports no material change in market risk.
Material changes and management commentary
- Rental growth reflected acquisitions; mortgage interest income declined mainly due to loan payoffs and amortization. Other income also declined, primarily because the Skilled Healthcare Group notes had been redeemed in 2012.
- Debt costs increased with higher borrowings and credit-line pricing. Interest coverage was 7.1x, down from 9.9x in Q1 2012; fixed-charge coverage was 5.6x, down from 7.1x. These are company-presented non-GAAP measures.
- Common-stock proceeds from the equity distribution agreement were $4.9 million; $59.6 million remained available under that agreement. The common dividend was $0.155 per share per month for Q1, and the company declared the same monthly amount for April through June 2013.
- Management said available cash, operating cash flow, borrowing capacity, and potential capital-market access were sufficient for operating needs, debt service, distributions, and additional feasible investments in 2013. This is an expectation, not a guarantee.
- For existing leases, assuming no modifications, replacements, or new leased investments, management projected cash rental income of $95.4 million for 2013 and $97.6 million for 2014, while straight-line rental income was projected to decline from $3.3 million to $1.5 million. These are projections, not formal earnings guidance.
Commitments, risks, and unusual items
Remaining development, redevelopment, renovation, and expansion commitments were $54.0 million at quarter-end; a separate commitment permits up to $5.0 million annually through December 2014 for an existing operator, subject to conditions. Other remaining commitments included $7.1 million under a mortgage and construction loan and $1.3 million under operator loans and credit lines. In April, LTC funded $1.4 million of investment commitments and $60,000 of operator loans. A planned approximately $12 million Pennsylvania assisted-living acquisition, including assumption of a roughly $6.8 million HUD-insured loan, remained subject to approvals and other closing conditions.
Three operators each accounted for more than 10% of rental revenue and mortgage interest income; their respective shares were 10.7%, 10.7%, and 10.5%. Management warned that operator financial distress, healthcare reimbursement and regulatory changes, Medicare sequestration cuts, competition, economic conditions, and capital-market or interest-rate changes could affect collections, liquidity, and distributions. A related-party lessee associated with a director generated $1.1 million of Q1 rent; net straight-line rent receivable from that lessee was $3.2 million at quarter-end. The filing reports no material changes to previously disclosed risk factors and no legal proceedings considered material.
Important facts for investors to verify
- Operator credit quality and rent collection, particularly for the three operators each contributing more than 10% of rental and mortgage-interest revenue; also monitor the $27.9 million net straight-line rent receivable.
- Funding, completion, and expected returns of the $54.0 million remaining development and renovation commitments, alongside other lending and expansion commitments.
- Debt costs, coverage ratios, credit-facility availability, and continued compliance with covenants as borrowings and investment needs change.
- Whether projected rental trends and the declared $0.155 monthly common dividend remain supported by cash collections and operating cash flow.
- Potential effects on operators of Medicare and Medicaid reimbursement changes, including the 2% Medicare sequestration reduction effective April 1, 2013, and other healthcare regulation.