LTC Properties, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. LTC is a healthcare REIT investing primarily in seniors housing and skilled nursing properties through leases, mortgage loans, development and joint ventures. The audited financial statements received an unqualified opinion; management and the auditor reported effective internal control over financial reporting.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $185.3 million | $168.6 million |
| Net income | $80.9 million | $155.1 million |
| Net income available to common stockholders | $80.1 million | $154.4 million |
| Diluted EPS | $2.02 | $3.89 |
| NAREIT FFO attributable to common stockholders | $122.7 million; $3.10 per diluted share | $121.2 million; $3.06 per diluted share |
| Cash provided by operating activities | $122.5 million | $115.5 million |
| Total debt | $693.4 million | $645.0 million |
| Cash and cash equivalents at year-end | $4.2 million | $2.7 million |
Revenue rose 9.9%, reflecting higher rental and mortgage interest income. Net income fell substantially, chiefly because 2018 included $70.7 million of property-sale gains, compared with $2.1 million in 2019; 2019 also included a $5.5 million impairment of a joint-venture investment. FFO, a supplemental non-GAAP measure, increased modestly. Conventional operating margin is not separately presented in the filing.
Rental income was $152.8 million and mortgage-loan interest income was $30.0 million. Cash flow from investing activities was negative $79.0 million, mainly reflecting property acquisitions, development and other investments; financing activities used $44.0 million. LTC paid $90.9 million in common dividends, or $2.28 per share, unchanged from 2018. FFO exceeded dividends paid, but FFO is not GAAP cash flow or necessarily cash available for distributions.
Portfolio, debt and liquidity
- At year-end, the portfolio included 177 owned properties in 28 states, leased to 30 operators, and 22 skilled nursing properties securing four mortgage loans. Gross portfolio investment was $1.74 billion; net real estate investments were $1.39 billion.
- Owned properties generated 82.2% of portfolio revenues and mortgage loans 17.8%. Lease and interest income together accounted for approximately 98.6% of revenue.
- Total assets were $1.51 billion and total equity was $785.4 million. Debt to gross asset value was 37.2%; interest and fixed-charge coverage ratios were each 4.9x.
- Debt comprised $93.9 million of revolving bank borrowings and $599.5 million of senior unsecured notes, net of issuance costs. Weighted average stated rates were 3.14% on bank borrowings and 4.39% on notes. The company reported covenant compliance.
- At year-end, $506.1 million remained available under the $600 million revolving facility. After an additional $18 million borrowing subsequent to year-end, availability was $488.1 million. The company also had $200 million available under its equity distribution agreement.
Material changes, outlook and risks
- Lease accounting and collectibility: Adoption of ASC 842 on January 1, 2019 resulted in a $42.8 million cumulative reduction to equity for lease receivables and incentives deemed not probable of collection. For certain tenants, LTC recorded rent on a cash basis. It also recognized $16.0 million of reimbursed real estate taxes as rental income with a corresponding property-tax expense, affecting comparability with 2018.
- Operator stress: Anthem paid $7.5 million in 2019, about half its contractual rent. Preferred Care paid $55,000 monthly against contractual rent of about $1.0 million; LTC applied its security deposit and classified 20 properties under sale agreements as held for sale at year-end. Senior Care was in Chapter 11, but its master lease was affirmed; it paid rent, tax and maintenance deposits through February 2020. Thrive no longer operated LTC properties after transitions to other operators.
- Other unusual items: The company recognized a $2.1 million gain from property insurance proceeds, following remediation and sale of a damaged property. A further $1.9 million straight-line rent receivable write-off was recorded against 2019 rental income after a lease termination.
- Near-term outlook: Based on leases in place and stated assumptions, management projected 2020 cash rental income of $150.8 million versus $150.6 million in 2019, and straight-line rental income of $2.5 million versus $4.5 million. These estimates exclude potential changes and are not earnings guidance. Subsequent to year-end, LTC acquired a 140-bed Texas skilled nursing facility for approximately $13.5 million and declared monthly dividends of $0.19 per share for January through March 2020.
- Principal risks: Dependence on tenant and borrower performance, operator and property-type concentration, bankruptcies and lease transitions, Medicare and Medicaid reimbursement and regulatory changes, labor and operating-cost pressures, interest rates and LIBOR transition, access to capital, property illiquidity, development execution, impairment and maintaining REIT qualification. The filing notes that three operators generated approximately 35.8% of revenue from leases and real estate investment interest.
Important facts for investors to verify
- Progress, proceeds and timing for the 20 Preferred Care properties classified as held for sale, and whether remaining rent or other claims are collectible.
- Current payment performance and lease status for Anthem, Senior Care and other operators; confirm whether post-year-end payments continued as reported.
- Actual 2020 rent collections and portfolio results against management’s cash-rent and straight-line-rent estimates.
- Liquidity, debt maturities, borrowing costs and covenant headroom, including the effects of subsequent borrowings and capital-market access.
- The status and ultimate recovery from the impaired joint-venture investment, and whether additional impairments or rent-receivable write-offs arise.