LTC Properties, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited financial amounts below are in millions of dollars unless otherwise noted.
Business context
LTC is a healthcare REIT investing in seniors housing and healthcare properties through leases, mortgage loans, and structured financing. At September 30, its portfolio included 159 owned properties and 22 properties securing mortgage loans, across 27 states and 29 operators. Owned properties were 60.8% assisted living and 38.4% skilled nursing by gross investment; mortgage loans were concentrated in skilled nursing and secured by properties operated by one operator.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $38.2 | $47.1 | $113.1 | $138.8 |
| Net income attributable to LTC | $12.2 | $27.2 | $77.7 | $68.0 |
| Net income available to common stockholders | $12.1 | $27.1 | $77.4 | $67.7 |
| Basic EPS | $0.31 | $0.68 | $1.97 | $1.71 |
| NAREIT FFO per diluted share | $0.58 | $0.77 | $1.63 | $2.26 |
- Revenue and earnings: Q3 revenue fell about 19% year over year, primarily reflecting rent collectibility write-offs, reduced rent from the Preferred Care portfolio sale, and operator rent shortfalls, abatements, and deferrals. Q3 common-stockholder net income declined about 55%. Nine-month net income rose despite lower revenue, principally because of a $44.1 million gain on property sales.
- Cash flow: Operating cash flow was $85.6 million for the first nine months, down from $90.1 million. Investing activities provided $52.0 million, including $72.1 million of property-sale proceeds; financing activities used $119.0 million, including $67.9 million of dividends, debt repayments, and $18.0 million of share repurchases. Cash and cash equivalents were $22.8 million at period-end.
- Debt and liquidity: Total debt was $664.3 million, comprising $89.9 million of bank borrowings and $574.4 million of senior unsecured notes. Weighted-average rates were 1.33% on bank borrowings and 4.36% on notes; the overall reported rate was 3.95%. The company had $510.1 million available on its revolving facility and reported compliance with all covenants. Debt to gross asset value was 36.5%; interest and fixed-charge coverage were each 4.8x.
- Equity and distributions: Total equity was $778.8 million. The company declared and paid $0.57 per share in Q3 and $1.71 per share for the first nine months. It declared monthly dividends of $0.19 per share for October through December 2020.
- Margins: The filing does not provide a directly comparable operating-margin measure. FFO, a non-GAAP REIT performance measure, fell to $22.8 million in Q3 from $30.8 million and to $64.1 million for nine months from $90.3 million.
Material changes and unusual items
- During Q1, LTC sold 21 Preferred Care skilled nursing properties for $74.8 million, recognizing a $44.1 million gain. The sales reduced the portfolio and rental income.
- LTC recorded $23.0 million of rent-receivable and lease-incentive write-offs during the first nine months, including $17.7 million related to Senior Lifestyle in Q2 and $4.3 million related to Genesis in Q3. The Q3 rental-income adjustment also included write-offs for Genesis and another operator. Senior Lifestyle’s lease moved to cash-basis accounting effective July.
- A $0.9 million impairment was recorded on an assisted living community; the community closed in October and LTC was evaluating its options. LTC also recorded a $0.4 million gain on property insurance proceeds.
- COVID-19-related rent deferrals were approximately $1.2 million for April–September and $0.6 million for October. Through October, $0.6 million had been collected; the remaining deferred balance was $1.2 million, due over 24 months or upon operators’ receipt of CARES Act funds.
- The board terminated its share-repurchase plan on March 25, citing uncertainty and COVID-19 impacts. LTC had repurchased 615,827 shares for $18.0 million before termination.
Outlook, risks, and management commentary
Management stated that available cash, operating cash flow, borrowing capacity, and potential capital-market access were expected to be sufficient for operating costs, debt obligations, and dividends at least at a level necessary to maintain REIT status. It also said it believed liquidity was adequate for corporate expenses and additional capital investments in 2020 and 2021. These are expectations, not guarantees; the filing provides no earnings or FFO guidance.
The principal uncertainty is COVID-19’s impact on operators’ occupancy, costs, cash flow, and ability to pay rent. LTC said the pandemic made it unable to determine the effect on collectibility for some leases and will continue quarterly assessments. Two operators accounted for 30.2% of rental and mortgage interest revenue and 28.2% of assets: Prestige Healthcare (19.8% of revenue) and Senior Lifestyle (10.4%). Senior Lifestyle paid $5.3 million of $9.1 million contractual rent for April–September; its $2.7 million receivable was covered by $3.6 million of letter-of-credit and security-deposit protection. LTC was evaluating re-leasing or selling some or all of those properties. Genesis had disclosed going-concern doubt but was current on rent through October. Anthem was current through October, though LTC noted pandemic-related payment risk.
Other risks include operator bankruptcies or financial deterioration, dependence on government healthcare reimbursement and regulation, access to capital and interest-rate changes, and potential further rent collectibility adjustments. The company reported no material change in market risk during the nine-month period, and management concluded disclosure controls were effective.
Key facts for investors to verify
- Subsequent rent collections, deferred-rent repayments, and quarterly collectibility assessments for Senior Lifestyle, Genesis, Anthem, and other operators.
- Whether the $0.57 quarterly dividend is supported by recurring FFO and operating cash flow, excluding property-sale gains and nonrecurring items.
- Future portfolio strategy and proceeds for Senior Lifestyle properties and the assisted living community that closed in October.
- Debt maturities, covenant compliance, and actual access to the revolving facility and capital markets as the pandemic and operating conditions evolve.
- Realization of remaining proceeds from the joint-venture liquidation and fulfillment of outstanding investment commitments.