LTC Properties, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. LTC is a healthcare REIT investing in seniors housing and healthcare properties through leases, mortgage loans, and structured financing. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $28.5 | $46.3 | $74.9 | $91.7 |
| Net income attributable to LTC | $1.9 | $20.4 | $65.5 | $40.8 |
| Net income available to common stockholders | $1.8 | $20.4 | $65.2 | $40.6 |
| Diluted EPS | $0.05 | $0.51 | $1.66 | $1.02 |
| NAREIT FFO per diluted share | $0.31 | $0.75 | $1.05 | $1.50 |
- Q2 rental income was $20.3 million, including a $17.7 million write-off of straight-line rent receivable and lease incentives tied to Senior Lifestyle. Base and variable cash rental income together were $37.5 million. Mortgage interest income was $7.8 million.
- First-half net income benefited from a $44.0 million gain on sale of real estate, primarily the sale of 21 Preferred Care skilled nursing properties. First-half FFO, which excludes real-estate sale gains, declined to $41.3 million from $59.6 million.
- Operating cash flow for the first half was $55.6 million, versus $61.7 million a year earlier. Investing activities provided $61.8 million, mainly reflecting $72.1 million of property-sale proceeds and $17.5 million from liquidation of a joint-venture investment. Financing used $71.4 million, including $45.5 million of shareholder distributions and $18.0 million of repurchases.
- At June 30, cash was $50.4 million; total assets were $1.51 billion; total equity was $787.3 million. Debt was $689.5 million: $89.9 million of bank borrowings and $599.6 million of senior notes. The weighted-average debt rate was 4.10%; the company reported covenant compliance and $510.1 million available on its revolving facility.
- Debt to gross asset value was 37.4%; interest and fixed-charge coverage were each 4.8x year to date. The common dividend was $0.19 per share monthly, or $1.14 per share in the first half.
Material changes and operating developments
- Q2 revenue fell 38.4% year over year, principally due to the Senior Lifestyle collectibility write-off and reduced rent following Preferred Care property sales. Q2 common-stockholder earnings fell to $1.8 million from $20.4 million; diluted EPS declined to $0.05 from $0.51.
- During Q1, LTC sold 21 Preferred Care properties for $74.8 million, recording a $44.0 million gain. The dispositions reduced the portfolio and contributed substantially to first-half GAAP earnings and investing cash flow.
- Senior Lifestyle, which operates 23 properties, paid only $1.8 million of $4.6 million contractual Q2 rent. The $2.8 million receivable was supported by a $3.6 million letter of credit and security deposit. LTC wrote off $17.7 million of related lease balances, moved the operator to cash-basis accounting effective July, and was evaluating re-leasing and/or sale options.
- Prestige Healthcare and Senior Lifestyle together accounted for 31.3% of revenue and 27.6% of assets. Prestige alone represented 19.9% of revenue. This operator exposure makes tenant performance a key financial risk.
- LTC repurchased 615,827 shares for $18.0 million at an average $29.25 per share, then terminated the repurchase plan on March 25 due to COVID-19 uncertainty.
Outlook, risks, and other items
- The filing gives no specific earnings or FFO guidance. Management said available cash, operating cash flow, borrowing capacity, and potential capital-market access were expected to support operating costs, debt service, investment needs, and dividends at least sufficient to maintain REIT status. Management cautioned that COVID-19 could affect liquidity, covenant compliance, capital access, and dividend payments.
- COVID-19 threatens operators through occupancy declines, resident departures, delayed move-ins, and rising costs, potentially impairing their ability to pay rent. LTC deferred approximately $0.9 million of rent for April–June and another $0.1 million for July; $0.3 million had been received by July, with the balance due over 24 months or upon receipt of government funds.
- Anthem Memory Care remained current on rent through July but had been in default since 2017; LTC anticipated $9.9 million of 2020 cash rent and warned COVID-19 could impair payment capacity. Senior Care emerged from bankruptcy in March 2020 and was current on rent and related deposits through the period described.
- Other notable items: a 78-unit Oregon development completed but its opening was postponed because of the pandemic; LTC consolidated its four Brookdale leases and extended their term to December 31, 2021; a $2.6 million mezzanine-loan paydown was received after quarter-end. The quarterly dividend of $0.19 per share was declared for July, August, and September.
- Management reported no material market-risk changes, effective disclosure controls, and no legal proceedings expected to be material. It emphasized that pandemic duration and effects remain uncertain.
Most important facts for investors to verify
- Whether Senior Lifestyle resumes full contractual rent, and the recoverability of outstanding rent and any remaining lease balances; monitor re-leasing or disposition plans.
- Whether COVID-19, occupancy trends, reimbursement changes, and operating costs weaken tenants’ ability to meet rent and loan obligations—especially among major operators.
- Underlying recurring performance: compare cash rent, FFO, and operating cash flow with GAAP earnings, which were materially affected by the $17.7 million lease write-off and $44.0 million property-sale gain.
- Dividend coverage and liquidity, including the effect of continued rent deferrals, investment commitments, debt maturities, and access to the revolving facility and capital markets.