LTC Properties, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; compared with Q1 2011. LTC Properties is a healthcare REIT investing primarily in senior housing and long-term care properties through leases and mortgage loans. Approximately 98% of its investment portfolio was in these sectors.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $22.64 million | $20.25 million |
| Income from continuing operations | $12.95 million | $12.27 million |
| Net income attributable to LTC | $12.92 million | $12.11 million |
| Net income available to common stockholders | $12.01 million | $5.39 million |
| Diluted earnings per common share | $0.40 | $0.20 |
| Net cash from operating activities | $16.84 million | $15.69 million |
| Cash used in investing activities | $17.68 million | $51.92 million |
Revenue rose 11.8%, mainly from higher rental income following acquisitions; mortgage-loan interest income declined modestly. Rental income was $20.87 million and mortgage interest income was $1.53 million. Total expenses increased to $9.69 million from $7.98 million, including higher interest expense ($2.03 million versus $1.10 million) and depreciation and amortization ($5.17 million versus $4.43 million). The filing does not present a standalone margin measure. EBITDA, a non-GAAP measure, was $20.12 million; interest coverage was 9.9x and fixed-charge coverage was 7.1x.
The increase in common-stockholder income and EPS primarily reflects lower preferred-stock allocations: Q1 2011 included a $3.57 million Series F preferred redemption charge, and Series F shares were redeemed during 2011. Basic weighted-average shares increased to 30.19 million from 26.31 million.
Balance sheet, debt and liquidity
- At March 31, 2012, total assets were $658.60 million, total liabilities $193.23 million and total equity $465.38 million. Cash was $3.30 million.
- Debt consisted of $73.0 million in bank borrowings, $100.0 million in senior unsecured notes and $2.64 million in bonds payable. Bank borrowings rose $17.0 million during the quarter; $137.0 million remained available under the $210 million revolving credit facility. The company reported compliance with all covenants.
- Management also cited $100 million available under an uncommitted private shelf agreement, $64.6 million remaining under its equity distribution agreement and $167.6 million available under its effective shelf registration. It believed liquidity was sufficient for operations, debt service, distributions and financially feasible investments.
- Operating cash flow exceeded cash distributions paid to stockholders of $14.04 million. Cash declined $1.11 million during the quarter, after $17.68 million of investing outflows and $17.0 million of new bank borrowings.
- Debt-to-book-capitalization was 27.4%, up from 25.3% at year-end 2011, primarily reflecting higher bank borrowing. Debt and preferred stock to book capitalization was 33.4%.
Portfolio activity and material changes
- Purchased a 144-bed Texas skilled nursing property for $18.6 million and added it to an existing master lease at a stated incremental GAAP yield of 10.8%. Sold a 140-bed Texas skilled nursing property for $1.25 million, recognizing a $16,000 gain.
- Gross real estate investments were $741.0 million and mortgage investments were $53.3 million at quarter-end. The direct portfolio spanned 30 states and 41 operators; skilled nursing and assisted living represented 51.0% and 38.9% of gross investments, respectively.
- Common dividends paid were $13.23 million; the monthly common dividend was $0.145 per share. The company declared the same monthly rate for April through June 2012.
- Three major operators—Extendicare/ALC, Brookdale and Preferred Care—each contributed roughly 12% of rental and mortgage interest income. The filing notes that operator financial difficulties could impair rent and loan collections.
Outlook, risks and unusual items
- For leases in place at quarter-end, assuming no changes or new investments, management projected cash rental income of $82.3 million for 2012 and $84.8 million for 2013, while straight-line rental income was projected to decline from $2.7 million to $1.7 million. These are projections, not company-wide earnings guidance.
- Management said it expected liquidity to support additional capital investments in 2012, subject to access to cost-effective capital. No specific earnings or revenue guidance was provided.
- Risks include operator and borrower performance, concentration among major operators, Medicare/Medicaid reimbursement and regulatory changes, healthcare competition and operating costs, interest-rate and capital-market conditions, and continued REIT qualification. The filing highlighted the 11.1% reduction in average Medicare skilled nursing facility rates for fiscal 2012 and potential Medicare payment reductions under sequestration beginning in 2013.
- At quarter-end, contingent earn-out liabilities were $6.41 million, tied to acquired skilled nursing properties and payable if stipulated rent-coverage thresholds are achieved. Fair value relies on significant unobservable inputs.
- SHG, whose CEO served on LTC’s board, announced after quarter-end that it would redeem its notes at par plus accrued interest. LTC held $6.5 million face value; expected redemption was May 12, 2012. LTC also reported related-party rent and straight-line rent receivable from SHG subsidiaries.
- Subsequent to quarter-end, LTC received $2.40 million plus accrued interest from two early mortgage payoffs and $347,000 from a Sunwest bankruptcy settlement. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether major operators can sustain rent and loan payments, particularly given reimbursement reductions and operator concentration.
- Realization and timing of the $6.41 million contingent earn-out liability, and the performance assumptions underlying its valuation.
- Completion and final asset allocation for the $18.6 million property acquisition, and actual returns relative to the stated 10.8% yield.
- Liquidity and leverage trends, including facility availability, financing costs and the ability to maintain distributions while funding investments.
- Completion of SHG’s announced note redemption and receipt of the related proceeds by LTC.