LTC Properties, Inc. — 2012 Form 10-K Summary
Business context and reporting period
LTC Properties is a healthcare real estate investment trust (REIT) investing mainly in skilled nursing, assisted living and related senior-housing properties through ownership, leases, development and mortgage loans. This annual report covers the fiscal year ended December 31, 2012; quarterly figures below are for Q4 2012. The company reports one operating segment.
Financial and operating highlights
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $94.0 million | $85.2 million |
| Income from continuing operations | $51.3 million | $49.5 million |
| Net income available to common stockholders | $47.6 million | $39.8 million |
| Basic / diluted EPS | $1.58 / $1.57 | $1.36 / $1.36 |
| FFO available to common stockholders (non-GAAP) | $69.8 million; $2.31 basic / $2.26 diluted per share | $59.5 million; $2.04 basic / $2.01 diluted per share |
| Cash from operating activities | $76.7 million | $70.5 million |
| Common dividends per share | $1.79 | $1.68 |
Revenue increased 10.4% year over year, primarily from acquisitions; common-stockholder net income rose 19.6%. Rental income was $87.6 million and mortgage-loan interest income was $5.5 million. Q4 2012 revenue was $24.5 million and net income available to common stockholders was $11.9 million, or $0.39 per share; the Q4 dividend was $0.465 per share.
At year-end, total assets were $789.6 million, including $740.8 million of net real estate investments, and total debt was $303.9 million, versus $159.2 million a year earlier. Debt comprised $115.5 million of bank borrowings, $185.8 million of senior unsecured notes and $2.6 million of bonds payable. Cash was $7.2 million. The company reported $124.5 million available on its $240 million revolving credit facility, plus $100 million of possible private-shelf notes, $64.6 million of equity-distribution capacity and $167.6 million available under its effective shelf registration. These financing capacities are subject to their terms and market access.
Net cash used in investing activities was $158.5 million; net cash provided by financing activities was $84.6 million. LTC acquired nine properties and land for total acquisition costs of $167.5 million, and reported $59.6 million of remaining development, redevelopment and expansion commitments at year-end. Annual common dividends totaled $54.5 million.
Material changes versus the prior comparable period
- Rental income grew $9.9 million, mainly due to acquisitions; mortgage-loan interest income declined $0.9 million, principally reflecting loan payoffs and amortization.
- Interest expense increased $3.5 million and depreciation and amortization increased $2.6 million, reflecting higher debt and the larger investment portfolio.
- Total debt rose to $303.9 million from $159.2 million, primarily to fund investments. LTC issued $85.8 million of 12-year notes at 5.0% and expanded and extended its revolving credit facility.
- Common dividends increased from $1.68 to $1.79 per share. Preferred-stock allocations fell after redemption of Series F preferred stock in 2011; Series C preferred stock remained outstanding.
Outlook, management commentary, risks and unusual items
Management expected 2013 cash rental income of approximately $95.4 million for leases in place at year-end, assuming no new leased investments and no lease modifications, replacements or extensions. It projected straight-line rental income of $3.3 million under the same no-new-investment assumption. Management said available liquidity was sufficient for operations, debt service, dividends and financially feasible future investments, and noted continued interest in acquisitions and development. These are expectations, not guarantees.
- Cash flows depend heavily on tenants and borrowers: approximately 99% of 2012 revenue came from lease income and mortgage payments. Three operators each represented more than 10% of rental and mortgage-interest revenue.
- Healthcare reimbursement reductions, Medicaid budget constraints, regulation, operator competition and changes in care delivery could weaken tenants’ ability to pay. The filing discussed Medicare rate changes and potential sequestration, delayed for two months by legislation signed in January 2013.
- Other material risks include operator concentration, limited liquidity of specialized real estate, refinancing and interest-rate exposure, development execution, impairment and straight-line rent collectability, and maintaining REIT qualification.
- A $6.7 million contingent earn-out liability related to a prior acquisition is remeasured using estimates and may affect earnings. The filing reports no off-balance-sheet arrangements and no impairment charges in the financial-statement note, but a real-estate schedule footnote describes a $4.19 million impairment charge against four facilities; this inconsistency warrants review.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal financial reporting controls were effective.
Important facts for investors to verify
- Reconcile the $4.19 million impairment statement in Schedule III with the note stating no 2012 impairment charges.
- Assess tenant credit and concentration, especially the largest operators, and review rent coverage, payment status and lease-renewal exposure.
- Review debt maturities and refinancing needs, revolving-credit covenant headroom, floating-rate exposure and the increased year-end leverage.
- Compare recurring cash rent and operating cash flow with dividends, development commitments and reported FFO; FFO is non-GAAP and is not equivalent to cash available for distribution.
- Evaluate delivery, cost and leasing risks for development projects and the collectability of the $27.0 million net straight-line rent receivable.