LTC Properties, Inc. — Q2 2023 Form 10-Q
Business context and period. LTC is a healthcare REIT investing in seniors housing and healthcare properties through leases, financing receivables, mortgage loans, notes and joint ventures. This unaudited filing covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
- Q2 revenue: $48.2, up 12.1% from $43.0. Rental income was broadly flat at $31.5; new financing receivables contributed $3.8, and mortgage-loan interest rose to $11.9 from $10.1.
- Q2 earnings: Net income attributable to LTC was $6.2, versus $54.4; diluted EPS was $0.15 versus $1.36. The comparison reflects $38.1 of real-estate sale gains in Q2 2022 versus $0.3 in Q2 2023, and a $12.1 impairment charge in Q2 2023. Six-month net income attributable to LTC was $39.3 versus $68.8; diluted EPS was $0.95 versus $1.73.
- FFO: NAREIT FFO attributable to common stockholders was $27.2, or $0.66 per diluted share, in Q2 versus $25.4, or $0.64, in 2022. For the first half, FFO was $54.4, or $1.32 per diluted share, versus $49.0, or $1.24. FFO is a non-GAAP supplemental measure.
- Cash flow: First-half operating cash flow was $46.5 versus $48.4. Investing used $187.4, including $112.7 in financing receivable investments and $70.6 in mortgage loans; financing provided $137.5, principally reflecting net revolver borrowings. Cash declined $3.4 to $7.0.
- Debt and liquidity: June 30 debt was $953.4, including $326.4 drawn on the revolver, $99.6 in term loans and $527.5 in senior notes. Weighted average stated borrowing rate was 4.80%; the revolver rate was 6.35%. Revolver availability was $73.7 at quarter-end. Total assets were $1.86 billion and total equity $859.6. Debt to gross asset value was 42.1%; interest and fixed-charge coverage were each 3.5x. LTC reported compliance with debt covenants.
- Dividends: $0.19 per share monthly, or $1.14 per share for the first half. The company declared the same monthly rate for July–September 2023.
- Margins: The filing does not provide a clear operating-margin measure. Earnings comparisons are materially affected by asset-sale gains and the 2023 impairment charge.
Material changes and notable items
- First-half revenue increased $13.9, supported by financing-receivable income, higher mortgage interest and rental growth; higher interest expense ($21.9 versus $14.7) and impairment charges partly offset these gains.
- LTC recorded $12.1 of Q2 impairment on two assisted living communities it was negotiating to sell. It also recorded a $0.4 impairment in Q1 on a Florida community sold during Q2.
- During the first half, LTC invested $117.5 through a joint venture in 11 assisted living and memory care communities, accounted for as financing receivables, and expanded mortgage-loan investments. It also invested $45.0 in an Ohio senior-housing joint venture.
- Five properties were sold for $39.1 in aggregate proceeds, producing $15.7 of first-half net gains. Two Pennsylvania assisted living properties were under contract for $11.5; management expected a Q3 close and approximately $5.2 net gain.
- Brookdale declined to renew its master lease, which expires in December 2023. LTC plans to sell 14 of the 35 properties and re-lease the remainder; it estimated net sale proceeds of $35–$40 and said it expected to replace the portfolio’s rent through sales proceeds invested earlier in 2023 and re-leasing.
Outlook, risks and contingencies
- Management stated current cash, operating cash flow, borrowing capacity and potential capital-market access should support operating costs, debt service, dividends sufficient to maintain REIT status, and planned investments in 2023–2024. No earnings or FFO guidance was provided.
- Prestige Healthcare represented 16.7% of revenue and 14.3% of assets. LTC agreed to defer up to $1.5 of interest payments on a loan secured by 15 skilled nursing centers; $0.6 was deferred in Q2 and $0.3 in July. Management cited occupancy challenges and anticipated Medicaid rate increases and retroactive settlements.
- Other operator support included $1.3 of abated rent in the first half for one operator, with additional assistance agreed for the balance of 2023. LTC also transitioned eight assisted living communities to Encore; rent under the new two-year lease is based on mutually agreed fair market rent beginning in September 2023.
- Key risks include tenant and borrower creditworthiness, operator concentration, healthcare reimbursement and regulatory changes, labor and inflation costs, interest rates, access to capital, property impairments and the ability to maintain dividends. The filing states risk factors were not materially changed from the 2022 Form 10-K.
- Commitments totaled $89.1, including property, loan and lease-incentive commitments. Subsequent to quarter-end, LTC borrowed $34.0 on its revolver and paid $17.2 of scheduled senior-note principal; reported revolver availability consequently fell to $39.7.
Important facts for investors to verify
- Progress on Brookdale’s December 2023 lease expiration, planned asset sales, re-leasing and rent replacement.
- Prestige’s deferred interest, occupancy, Medicaid reimbursement and ability to resume timely payments.
- Collectability of rent, loan interest and receivables, including the $50.6 interest-receivable balance and the adequacy of credit-loss reserves.
- Sale timing and realized proceeds for the two Pennsylvania properties and the communities subject to impairment review.
- Debt costs, revolver headroom, covenant compliance and the sustainability of the $0.19 monthly dividend amid investment and capital requirements.