LTC Properties, Inc. — Q1 2023 Form 10-Q
Business and reporting period. LTC Properties is a healthcare REIT investing in seniors housing and healthcare through owned properties, financing receivables, mortgage loans, notes, and joint ventures. This unaudited report covers the three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. At quarter-end, the portfolio comprised 212 properties or investments across 29 states and 30 operators; seniors housing and healthcare represented approximately 99.3% of gross investments.
Financial and operating highlights
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $49.5 million | $40.8 million |
| Net income attributable to LTC | $33.1 million | $14.4 million |
| Net income available to common stockholders | $32.9 million; $0.80 per diluted share | $14.3 million; $0.36 per diluted share |
| NAREIT FFO attributable to common stockholders | $27.2 million; $0.66 per diluted share | $23.6 million; $0.60 per diluted share |
| Cash from operating activities | $18.0 million | $18.6 million |
| Dividends declared and paid | $0.57 per share; $23.6 million | $0.57 per share; $22.5 million |
| Debt outstanding | $901.0 million | $767.9 million at December 31, 2022 |
| Cash and cash equivalents | $5.5 million | $10.4 million at December 31, 2022 |
Revenue growth reflected higher rental income, new financing-receivable income, increased mortgage-loan interest, and higher interest and other income. Expenses rose to $31.7 million from $26.8 million, including interest expense of $10.6 million versus $7.1 million and credit-loss provisions of $1.7 million versus $0.4 million. The filing does not present a conventional operating margin measure.
Material changes and unusual items
- GAAP net income benefited substantially from a $15.4 million gain on sale of three properties. The comparable prior-year gain was $0.1 million. FFO, which excludes real estate sale gains and adds back real estate depreciation, was $0.66 per share versus $0.60.
- Investing cash outflow was $132.2 million, mainly reflecting $112.7 million invested in a financing receivable and $53.2 million in mortgage loans, partly offset by $31.6 million of net real estate sale proceeds. Financing activities provided $109.4 million, including net revolver borrowings.
- LTC’s $121.3 million transaction involving 11 assisted-living and memory-care communities was accounted for as a financing receivable because the seller-lessee received purchase options. The initial cash yield is 7.25%, rising to 7.5% in year three, then subject to CPI-linked increases; the operator has staged purchase options with a 9% exit IRR.
- Mortgage-loan balances increased to $453.0 million net from $389.7 million at year-end. Notes receivable declined to $46.5 million from $58.4 million, including repayments and conversion of a mezzanine loan into a participating mortgage interest.
- Quarter-end debt included $270.1 million on the revolving line, $99.5 million in term loans, and $531.4 million in senior unsecured notes. The reported weighted-average rate was 4.58%; the revolver rate was 5.95%. Interest coverage and fixed-charge coverage were each 3.6x, down from 4.4x at year-end 2022. Debt to gross asset value was 41.0%, up from 37.4%.
- Liquidity included $129.9 million of revolver availability and $128.8 million remaining under the equity distribution agreements. Subsequent to quarter-end, LTC repaid $6.0 million on the revolver, leaving $264.1 million outstanding and $135.9 million available. LTC stated that available liquidity and other resources were expected to support operations, debt service, dividends, and planned investments in 2023 and 2024.
Outlook, risks, and contingencies
- No specific earnings or FFO guidance was provided. Management expects to consider additional investments depending on capital availability and cost, and describes liquidity as sufficient for current needs, dividends, and additional investment. Common dividends of $0.19 per share monthly were declared for April, May, and June 2023.
- Brookdale elected not to renew its master lease, which expires in December 2023. LTC plans to sell approximately half of the 35-community portfolio and re-lease the remainder. Brookdale was current on rent through April 2023.
- Prestige Healthcare, LTC’s largest operator, represented 16.4% of revenue and 14.7% of assets. After quarter-end, LTC agreed to defer up to $1.5 million of interest payments from May through September 2023 on a loan secured by 15 skilled nursing centers.
- LTC reported rent abatements and deferrals for other operators, including assistance to an operator transitioning an eight-community portfolio. Operator financial difficulties, occupancy and labor costs, inflation, reimbursement changes, regulation, and access to capital could affect collections and distributions.
- Brookdale’s lease decision and subsequent operator assistance highlight lease renewal and collectability risks. The filing also identifies $48.1 million of interest receivable; it does not include accrued interest receivable in its expected-credit-loss allowance, instead recording write-offs or credit-loss expense as incurred. No accrued-interest write-offs were reported in the quarter.
- At March 31, LTC was in compliance with applicable debt covenants. It recorded a $0.4 million impairment on a Florida assisted-living property classified as held for sale; after quarter-end, it was sold for $4.85 million. The filing says there were no material changes to previously disclosed risk factors, no material market-risk changes, and no material legal proceedings.
Investor verification priorities
- Assess recurring performance separately from the $15.4 million property-sale gain; compare GAAP EPS with FFO per share.
- Track cash rent and interest collections, credit-loss provisions, and the status of operator assistance, particularly Prestige and the Brookdale lease transition.
- Verify execution and economics of the Brookdale portfolio sale and re-leasing plan, and the transition of the eight-community portfolio.
- Monitor leverage, interest costs, covenant headroom, revolver availability, and refinancing needs as debt increased and coverage ratios declined.
- Review the performance and credit assumptions underlying new financing receivables and mortgage loans, including purchase options, collateral, and the treatment of accrued interest receivable.