LTC Properties, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; filed February 17, 2022. LTC is a healthcare and seniors-housing REIT that earns primarily rental income and interest from leases, mortgage loans, and other investments. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal controls.
Business context and portfolio
- At year-end, the portfolio comprised 193 properties and financing investments across 28 states and 35 operators. Gross investments were $1.804 billion; net carrying value of investments was $1.426 billion.
- By gross investment, 51.4% was in assisted living and related properties, 47.2% in skilled nursing, and 1.4% in development or other assets. Owned properties generated 75.2% of portfolio revenue; mortgage loans generated 23.1%.
- The company relies on operators to manage facilities and make rent and loan payments. Three operators generated approximately 37.9% of 2021 lease and investment-interest revenue.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $155.3 million | $159.3 million | Down $4.0 million, or 2.5% |
| Net income available to common stockholders | $55.4 million | $94.9 million | Down $39.5 million |
| Diluted earnings per share | $1.41 | $2.42 | Down $1.01 |
| NAREIT FFO per diluted share | $2.20 | $2.41 | Down $0.21 |
| Cash from operating activities | $91.2 million | $116.1 million | Down $24.9 million |
- Rental income was $121.1 million, down $5.0 million; mortgage-loan interest income rose $1.4 million to $32.8 million. Interest expense fell $2.3 million to $27.4 million.
- Net income included $7.5 million of real-estate sale gains, compared with $44.1 million in 2020. The prior-year result also included $23.2 million of rent-receivable and lease-incentive write-offs, versus $0.8 million in 2021. FY2021 transaction costs were $4.4 million, primarily related to the Senior Care and Abri Health settlement.
- Investing activities used $69.8 million, principally reflecting $89.0 million of mortgage-loan funding, partly offset by $43.6 million of net real-estate sale proceeds. Financing activities used $24.0 million.
- Year-end cash was $5.2 million. Total assets were $1.505 billion, total liabilities $759.7 million, and equity $745.1 million. Debt was $722.7 million, with a 38.4% debt-to-gross-asset-value ratio and 4.4x interest and fixed-charge coverage.
- The company paid $2.28 per share in dividends for the year, or $90.5 million in total. That exceeded reported FFO of $86.2 million; FFO is a non-GAAP measure and is not equivalent to cash available for distribution.
Material changes and outlook
- Revenue and earnings were affected by operator payment defaults, rent abatements and deferrals, reduced rent escalations, property sales, and lower rent from properties previously leased to troubled operators. Mortgage-loan originations supported interest income.
- Senior Care and Abri Health defaulted and entered bankruptcy in 2021. LTC paid $3.3 million under a settlement and transitioned 11 skilled-nursing centers to HMG Healthcare. Senior Lifestyle defaulted on rent; LTC transitioned 18 communities to five operators and sold four properties for $35.9 million.
- Brookdale’s master lease was extended through December 31, 2022; Brookdale was current on rent through February 2022. Genesis was also current through February 2022, although the filing describes prior going-concern concerns.
- From April 2020 through December 2021, LTC reported $4.5 million of rent abatements and $7.4 million of deferrals, of which $1.7 million had subsequently been repaid. In 2021, it also reduced eligible operators’ rent and interest escalations by 50%, reducing cash revenue by $1.3 million.
- Management projected cash rental income of $126.9 million for 2022, compared with $122.0 million in 2021, assuming no lease modifications or other specified portfolio changes. This is a projection, not formal earnings guidance. Management said liquidity was sufficient for operations, debt service, dividends, and potential 2022 investments.
- Year-end revolving-credit availability was $289.1 million; subsequent to year-end, LTC borrowed $22.0 million, leaving $267.1 million available. The new credit agreement extends the revolving facility maturity to 2025; two $50 million term loans mature in 2025 and 2026. Interest-rate swaps hedge the term-loan exposure.
- Material risks include COVID-19 effects on occupancy, staffing costs and collections; operator concentration and financial distress; reimbursement and regulatory changes; inflation; lease renewals; property impairment; refinancing and interest-rate exposure; and REIT qualification and dividend capacity.
Important facts for investors to verify
- Current rent collections, deferred-rent repayments, and cash-basis accounting exposure: 19 operators were accounted for on a cash basis and represented 52.6% of 2021 rental income.
- Whether 2022 cash-rent projections are achieved, and the status of Brookdale’s renewal decision and other near-term lease expirations.
- Operator concentration, especially Prestige Healthcare’s 21.3% share of combined rent and mortgage-interest revenue, and the financial performance of operators with prior defaults or payment support.
- Dividend coverage using recurring cash flows and FFO, given 2021 dividends exceeded FFO.
- Debt maturities, covenant headroom, variable-rate exposure, and refinancing terms as the credit facility and LIBOR transition evolve.
- Completion and proceeds of announced property sales and purchase options, including the expected 2022 gains disclosed by management.