Business Context and Reporting Period
Company: LTC Properties, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: LTC Properties is a self-administered health care real estate investment trust (REIT) investing primarily in long-term care properties (skilled nursing and assisted living) through mortgage loans and property lease transactions. As of year-end 2008, the portfolio consisted of 62 owned skilled nursing properties (7,209 beds), 85 owned assisted living properties (3,884 units), and 43 mortgage loans secured by 39 skilled nursing and 16 assisted living properties.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenues | $69.4 million | $74.8 million |
| Net Income (Total) | $43.0 million | $47.8 million |
| Net Income Available to Common Stockholders | $28.6 million | $30.8 million |
| Diluted EPS (Common) | $1.24 | $1.32 |
| Total Assets | $506.1 million | $544.1 million |
| Total Debt | $36.8 million | $52.3 million |
| Cash and Cash Equivalents | $21.1 million | $42.6 million |
| Net Cash Provided by Operating Activities | $56.4 million | $58.6 million |
| Common Dividends Declared (Per Share) | $1.56 | $1.50 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 7.3% to $69.4 million. This was primarily driven by non-payment of rental and interest income from Sunwest Management, Inc. (approximately $1.0 million in rental income and $0.1 million in interest income not recorded), mortgage loan payoffs, and lower interest income from cash investments due to lower rates.
- Net Income Decline: Net income available to common stockholders decreased 7.3% to $28.6 million. This decline was offset partially by a $1.0 million gain on the repurchase of Series F preferred stock and a $1.5 million decrease in preferred stock dividends.
- Debt Reduction: Total debt decreased significantly to $36.8 million from $52.3 million, largely due to the payoff of a $14.2 million mortgage loan secured by four assisted living properties in Ohio.
- Asset Impairment/Write-offs: The company wrote off $0.1 million of straight-line rent receivable related to the Sunwest lease default. No impairment charges were recorded for real estate assets in 2008.
Guidance, Outlook, Risks, and Unusual Items
Unusual Items and Key Transactions
- Sunwest Management Default: Sunwest failed to make payments on two mortgage loans and a master lease covering four properties. LTC Properties foreclosed on one property (Fort Worth, TX) and reassigned another loan to non-Sunwest equity investors. Two California properties were re-leased to a third party in December 2008.
- Preferred Stock Repurchase: The company repurchased 636,300 shares of Series F preferred stock for $14.3 million, resulting in a $1.0 million gain recognized in net income.
Outlook and Liquidity
- Liquidity Position: As of December 31, 2008, the company held $21.1 million in cash and had $80.0 million available under an unsecured revolving credit facility (maturing July 2011).
- Capital Markets: Management noted that current turmoil in debt and equity markets precludes determining the availability of cost-effective long-term capital for significant additional investments in 2009. However, they believe current liquidity is sufficient to meet obligations and maintain REIT status.
- Dividend Policy: The company declared a monthly common dividend of $0.13 per share for the first quarter of 2009.
Risks and Contingencies
- Concentration Risk: Three operators (Extendicare REIT/ALC, Alterra/Brookdale, and Preferred Care) each represent over 10% of total assets and rental revenue.
- Regulatory Risk: The company is heavily exposed to changes in Medicare and Medicaid reimbursement policies, which could adversely affect the ability of borrowers and lessees to make payments.
- Interest Rate Risk: The company is exposed to interest rate fluctuations regarding its mortgage loans receivable and variable-rate debt.
Investor Verification Checklist
- Sunwest Exposure: Verify the status of the re-leased California properties and the performance of the new lessee to ensure the $26.2 million investment is stabilized.
- Operator Concentration: Monitor the financial health of the top three operators (Extendicare, Brookdale, Preferred Care), as their distress would materially impact revenue.
- Debt Maturities: Confirm the company's ability to refinance or pay down $24.8 million in debt maturing in 2009, specifically the $8.1 million due in October and $15.8 million due in December.
- Capital Markets Access: Assess the company's ability to raise new capital for growth given the stated uncertainty in credit markets.
- REIT Compliance: Verify that dividend distributions continue to meet the 90% taxable income requirement to maintain tax-advantaged REIT status.