Business context and reporting period
LTC Properties, Inc. is a healthcare REIT investing in seniors housing and healthcare properties through owned real estate, mortgage loans, joint ventures and other financing. This unaudited Form 10-Q covers the three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020.
At quarter-end, the portfolio included 158 owned properties and mortgage investments secured by 22 properties, across 27 states. Seniors housing and long-term healthcare represented approximately 99.3% of the real estate portfolio.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $40.3 million | $46.4 million; down 13.2% |
| Rental income | $32.0 million | $38.0 million |
| Net income | $13.9 million | $63.7 million |
| Net income available to common stockholders | $13.6 million; $0.35 diluted EPS | $63.4 million; $1.60 diluted EPS |
| NAREIT FFO attributable to common stockholders | $24.3 million; $0.62 per share | $29.2 million; $0.74 per share |
| Cash from operating activities | $21.3 million | $23.9 million |
| Cash and cash equivalents at quarter-end | $8.2 million | $7.8 million at December 31, 2020 |
| Total debt at quarter-end | $659.4 million | $649.4 million at December 31, 2020 |
| Total assets / total equity at quarter-end | $1.455 billion / $764.8 million | $1.459 billion / $775.8 million at December 31, 2020 |
Interest expense was $7.0 million, down from $7.7 million. The filing does not provide a conventional gross-margin measure. The company declared and paid $0.57 per common share in quarterly dividends ($23.2 million total); diluted GAAP EPS was $0.35 and FFO per share was $0.62.
Debt comprised $106.9 million of revolving bank borrowings and $552.5 million of senior unsecured notes. The revolver had $493.1 million available, with a June 2022 maturity and a one-year extension option; senior notes mature from 2021 through 2032. Weighted average debt interest rate was 3.87%. Debt to gross asset value was 36.3%, and interest and fixed-charge coverage were each 4.5x. The company reported compliance with all debt covenants. It also had $200 million available under equity distribution agreements. Subsequent to quarter-end, it repaid $5 million on the revolver.
Material changes versus the prior comparable period
- Revenue declined $6.1 million, principally reflecting reduced or unpaid rent, abatements and deferrals, a $758,000 straight-line rent receivable write-off, and a 50% reduction in 2021 rent and interest escalations. Increased rent from acquisitions, completed developments and contractual increases partly offset the decline.
- Net income fell sharply, primarily because Q1 2020 included a $43.9 million gain on real estate sales. Q1 2021 recorded a $773,000 net loss on property sales. FFO also declined, by $4.9 million.
- Operating cash flow decreased $2.6 million. Investing activities used $4.1 million in Q1 2021, compared with $51.7 million provided in Q1 2020, when property-sale proceeds were $71.9 million. No property acquisitions or development spending were reported in Q1 2021; capital improvements were $1.0 million.
- Debt increased by approximately $10.0 million from year-end: the company drew $17 million on its revolver and repaid $7 million of senior notes.
Outlook, management commentary, risks and unusual items
- Management said available cash, operating cash flow, borrowing capacity and potential capital-market access were expected to support operating costs, debt obligations, dividends sufficient to maintain REIT status, and 2021 capital needs. This is not earnings or FFO guidance.
- COVID-19 continued to affect operators’ occupancy, costs and rent-paying capacity. From April 2020 through March 2021, rent abatements and deferrals, net of repayments, totaled $3.9 million, about 2% of contractual rent and interest. In Q1 2021, abatements and deferrals totaled approximately $1.7 million, about 4% of contractual rent. Management agreed to up to $0.8 million of additional abatements and deferrals for each of May and June 2021.
- The 50% reduction in 2021 rent and interest escalations reduced Q1 GAAP revenue by $292,000 and funds available for distribution by $1.2 million. Management estimated further GAAP revenue reductions of approximately $200,000 in Q2, $34,000 in Q3 and $32,000 in Q4 2021; estimated Q2 funds-available-for-distribution impact was $100,000.
- Sixteen operators were accounted for on a cash basis at March 31. The filing states that the company lacked sufficient information to assess COVID-19’s effect on collectibility of substantially all lease payments through maturity; rent collection estimates remain subject to reassessment.
- Senior Care Centers and its affiliate filed for Chapter 11 on April 16, 2021, after rent defaults and a lease-termination notice. LTC was transitioning the portfolio to a new operator, with completion targeted by the end of Q2. Senior Lifestyle had not paid rent or other obligations in 2021; LTC had transitioned 11 communities and was evaluating options for remaining properties.
- Prestige Healthcare accounted for 20.6% of combined rental and mortgage interest revenue and 18.3% of assets. Operator concentration, financial distress or bankruptcy, healthcare reimbursement and regulation, COVID-19 effects, refinancing and capital-market access, and dividend sustainability are principal risks identified in the filing.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material change in market risk and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Rent collections, deferred-rent repayments and operator financial condition, especially for Senior Care, Senior Lifestyle and other cash-basis operators.
- Progress and economics of the Senior Care transition and the remaining Senior Lifestyle property transitions, sales or closures.
- Whether reported FFO and operating cash flow support the $0.57 quarterly dividend per share as rent concessions and COVID-related costs evolve.
- Debt maturities and refinancing plans, particularly the 2022 revolver maturity and senior notes beginning to mature in 2021; confirm covenant headroom and liquidity availability.
- Assumptions behind rent collectibility, straight-line rent receivables and loan-loss estimates, including the $34.5 million accrued-interest receivable excluded from expected credit-loss measurement.