LTC Properties, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. Although the request identifies 2016 Q4, this is an annual filing; it also reports unaudited fourth-quarter results. LTC is a healthcare REIT investing mainly in senior housing and healthcare properties through leases, mortgages, development and structured financing.
Business context and portfolio
- At year-end, the portfolio comprised approximately $1.3 billion of net investments: 81.7% in owned and leased properties and 18.3% in first-mortgage loans. Gross investment exposure was $1.534 billion across skilled nursing, assisted living, range-of-care, development and other assets.
- The portfolio covered 212 properties in 30 states and 31 operators. Owned properties generally have triple-net leases, typically with initial terms of 10–15 years and contractual rent increases.
- Rental income and mortgage interest together represented approximately 99.5% of 2016 revenue. Skilled nursing represented 54.6% of portfolio revenue; assisted living represented 41.2%.
Financial performance and liquidity
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Total revenue | $161.6 million | $136.2 million | +$25.4 million, 18.6% |
| Operating income | $80.4 million | $70.7 million | +$9.7 million |
| Net income | $85.1 million | $73.1 million | +$12.0 million |
| Net income available to common stockholders | $84.7 million | $70.1 million | +$14.6 million |
| Diluted EPS | $2.21 | $1.94 | +$0.27 |
| NAREIT FFO per diluted share | $3.06 | $2.77 | +10.5% |
| Cash from operating activities | $105.7 million | $102.3 million | +$3.4 million |
- Revenue growth reflected acquisitions, completed developments and capital improvements, as well as mortgage originations. Operating income grew more slowly than revenue as expenses rose, notably interest, depreciation and G&A.
- Calculated from reported figures, operating margin was approximately 49.8% and net margin approximately 52.7%. Net income included a $3.6 million net gain on real estate sales and a $0.8 million impairment charge.
- Cash used in investing was $139.9 million, versus $326.8 million in 2015; cash provided by financing was $29.2 million, versus $212.2 million. Year-end cash was $8.0 million, down from $12.9 million.
- Total debt was $609.4 million at year-end, compared with $571.9 million in 2015. Management reported debt to gross asset value of 36.4%, interest coverage of 5.2x and compliance with debt covenants.
- Year-end liquidity included $492.9 million available on the revolver and $22.5 million under the Prudential shelf. After year-end, LTC issued $100 million of 15-year notes at 4.5% and used proceeds to repay its $107.1 million revolver balance; it then reported $600 million of revolver availability, $36.7 million of shelf availability and $185.2 million remaining under its $200 million equity distribution agreement.
- Common distributions were $2.19 per share for 2016, up from $2.07 in 2015. Quarterly 2016 revenue was $42.1 million and net income available to common stockholders was $20.6 million; the comparable 2015 fourth quarter was $37.4 million and $17.8 million, respectively.
Material changes and outlook
- FY2016 acquisitions totaled $77.0 million, versus $219.7 million in 2015. LTC also invested $42.3 million in development and $6.8 million in property improvements; mortgage loan originations/funding were $20.7 million, versus $67.1 million in 2015.
- Interest expense rose to $26.4 million from $17.5 million, primarily due to additional debt and lower capitalized interest. G&A increased to $17.4 million from $15.0 million.
- Management gave no formal earnings or FFO guidance. Assuming no lease changes or new leased investments, it projected 2017 cash rental income of $133.3 million versus $122.0 million in 2016, while straight-line rental income was expected to decline to $8.8 million from $13.5 million. These are projections, not guaranteed results.
- Management said liquidity appeared sufficient for operations, debt service, distributions and some future investment, subject to capital-market access and investment feasibility. It described a conservative approach to liquidity and investment timing.
Risks, contingencies and unusual items
- Operator performance and concentration are material: four operators accounted for 48.1% of combined rental and mortgage-interest revenue. The company depends on lessees and borrowers meeting payment obligations.
- Medicare and Medicaid reimbursement, regulation, operating costs, competition, insurance availability, interest rates and capital-market access could affect operators’ financial health, LTC’s collections and its ability to maintain distributions. The filing also highlights uncertainty about potential changes to the Affordable Care Act and Medicaid policy.
- At year-end, remaining commitments for real estate, mortgage loans, joint ventures and other items totaled $126.0 million. Contingent legal claims were described as ordinary-course matters not expected to be material; LTC stated it intended to defend them.
- A Texas range-of-care property was written down by $0.8 million after LTC entered a subsequent contingent sale agreement for $1.2 million. The company also reported a $3.6 million net gain on 2016 property sales.
- The $55.3 million straight-line rent receivable is a significant non-cash accounting balance; LTC recorded $13.5 million of straight-line rental income in 2016 and a $0.1 million reserve.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management reported effective disclosure controls and internal controls.
Important facts for investors to verify
- Operator-level rent coverage, liquidity and payment status—especially among the four operators producing 48.1% of combined rental and mortgage-interest revenue.
- Whether projected 2017 cash rent, lease collections and straight-line rent receivable remain consistent with actual results.
- How the $126.0 million of remaining commitments are funded and whether development projects meet cost, timing and occupancy assumptions.
- Debt maturity and refinancing plans, covenant headroom, interest-rate exposure and the effect of subsequent note issuance and equity sales.
- Dividend coverage by recurring cash flow and the distinction between GAAP earnings, FFO and cash available for distribution.