LTC Properties, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; financial statements are unaudited. LTC Properties is a health care REIT investing primarily in seniors housing and health care real estate through property leases, mortgage loans and structured financing. At quarter-end, it reported 177 owned properties and 22 mortgage-financed properties across 28 states.
Key financial results
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Total revenue | $35.9 million | $41.8 million | Down $6.0 million, approximately 14%; rental income fell while mortgage interest income increased. |
| Net income attributable to common stockholders | $20.3 million | $20.3 million | Nearly unchanged. |
| Diluted earnings per share | $0.51 | $0.51 | Unchanged. |
| NAREIT FFO per diluted share | $0.75 | $0.75 | FFO was $29.9 million versus $29.7 million. |
| Cash provided by operating activities | $26.8 million | $21.6 million | Up $5.2 million. |
| Cash used in investing activities | $28.4 million | $19.3 million | Greater investment in properties and notes receivable. |
| Dividends per common share | $0.57 | $0.57 | $0.19 monthly; dividend exceeded reported EPS. Q1 cash distributions were $22.9 million. |
Operating income was $19.3 million versus $19.7 million. The filing does not provide a directly stated operating margin. Results include material lease-accounting effects described below, so reported revenue and expense comparisons are not entirely like-for-like.
Balance sheet, debt and liquidity
- Total assets were $1.50 billion and total equity was $788.2 million at March 31, 2019.
- Debt obligations were $675.8 million: $146.9 million of bank borrowings and $528.9 million of senior unsecured notes, net of issuance costs. Weighted average interest rate was 4.35%; debt to gross asset value was 37.1%.
- Cash and cash equivalents were $6.7 million; cash, cash equivalents and restricted cash totaled $8.8 million. The company had $453.1 million available under its revolving credit facility and $98.0 million available under its senior note shelf agreement.
- The $600 million revolving credit facility matures June 27, 2022, with a one-year extension option, and may be increased subject to terms to $1.0 billion. The company reported compliance with all debt covenants.
- Management said current cash, operating cash flow, borrowing capacity and potential capital-market access should be sufficient for operating costs, debt obligations and dividends, and that liquidity was adequate for additional 2019 investments.
Material changes and unusual items
- ASC 842 adoption: Effective January 1, 2019, the company wrote off $42.8 million of straight-line rent receivables and lease incentives related to leases where collection of substantially all contractual payments through maturity was not considered probable. The cumulative adjustment reduced opening equity; prior periods were not restated.
- Under the new accounting, $9.6 million of cash rent received from Anthem, Thrive, Preferred Care and Senior Care was recorded as a recovery of previously written-off straight-line rent receivable, presented as a contra-expense rather than rental revenue. The company also recorded operator reimbursements of real estate taxes as rental income with corresponding property tax expense.
- Rental income decreased to $28.0 million from $34.5 million, including lower rent from properties sold in 2018 and the accounting presentation of rent recoveries. Mortgage interest income rose to $7.3 million from $6.8 million. Interest expense declined to $7.5 million from $7.8 million.
- Cash flow from operations increased despite lower revenue. Investing outflows rose to $28.4 million, including property, development and note-receivable investment; financing inflows included $36.9 million of new bank borrowings.
- One 74-unit assisted living/memory care property was acquired through a joint venture; a 143-bed skilled nursing development was completed. The company also reported $80.0 million of remaining investment commitments.
Outlook, commentary and risks
- No specific earnings or FFO guidance was provided. Management’s liquidity outlook depends substantially on collecting rent and loan payments and on operators’ successful operation of their facilities.
- Operator credit and collection issues remain significant. Anthem operates 11 communities; LTC estimated it would pay $7.5 million of 2019 cash rent, about half the contractual amount. Thrive had not paid January through April 2019 rent, and LTC issued a notice of default after quarter-end.
- Senior Care was in Chapter 11 and had until July 2, 2019 to assume or reject LTC’s lease. It missed December 2018 rent but paid January through April 2019 rent and deposits. Preferred Care was also in bankruptcy; its operating entities continued to pay rent. LTC was evaluating transition, re-leasing or sale options for affected properties.
- Operator concentration is meaningful: Prestige Healthcare accounted for 17.9% and Senior Lifestyle Corporation 11.6% of combined rental and mortgage interest revenue; Brookdale accounted for 9.4%. The filing notes that operator financial distress or non-renewal could adversely affect cash flow and distributions.
- Other risks include changes to Medicare and Medicaid reimbursement and regulation, interest rates and capital-market access, borrower and lessee performance, and the relative illiquidity of real estate investments. Management reported no material change in market risk or previously disclosed risk factors; disclosure controls were effective.
- After quarter-end, LTC declared $0.19 per share monthly dividends for April, May and June 2019.
Most important facts for investors to verify
- Whether Anthem, Thrive, Senior Care and Preferred Care resume or sustain contractual payments, and the impact of any defaults, lease rejection, re-leasing or property sales.
- How ASC 842 cash-basis treatment and recoveries affect recurring rental income, cash collections and comparisons with prior periods.
- Whether operating cash flow and available borrowing or equity capacity can support the dividend, debt service and remaining investment commitments.
- Debt maturities, variable-rate exposure and covenant headroom; the filing gives aggregate debt and facility terms but not a complete maturity schedule in the provided text.
- Exposure to major operators and health-care reimbursement or regulatory changes that could weaken facility performance and payments to LTC.