LTC Properties, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. LTC is a healthcare REIT investing primarily in senior housing and long-term care properties through owned real estate, development and mortgage loans.
Financial results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $29.4 million | $25.7 million |
| Net income | $17.0 million | $13.0 million |
| Net income available to common stockholders | $16.1 million | $12.1 million |
| Basic / diluted EPS | $0.47 / $0.46 | $0.40 / $0.40 |
| FFO per diluted share | $0.63 | $0.59 |
| Cash from operating activities | $19.8 million | $17.6 million |
Revenue growth was led by mortgage-loan interest income, which rose to $4.1 million from $1.1 million, primarily following a $124.4 million mortgage origination in Q4 2013. Rental income increased 3% to $25.3 million. Net income increased 31%; management attributed the improvement primarily to higher investment income and lower general and administrative expense. The filing does not separately state a profit margin.
Investing activities used $15.9 million, mainly for development and capital improvements; financing activities used $3.1 million. Cash increased $0.8 million to $7.5 million. Common dividends were $0.17 per share monthly in Q1, or $0.51 per share for the quarter; the company declared the same monthly rate for April through June 2014.
Balance sheet, debt and liquidity
At March 31, 2014, total assets were $942.2 million, net real estate investments were $894.0 million, and total equity was $631.8 million. Debt comprised $41.0 million of revolving-credit borrowings, $251.6 million of senior unsecured notes and $1.4 million of bonds payable. The credit facility had $199.0 million available; the company also cited $30.0 million available under a private shelf agreement and an $800 million securities shelf registration. It reported compliance with all debt covenants.
Debt to gross asset value was 25.2%, and interest and fixed-charge coverage were 8.3x and 6.6x, respectively. Management said available cash, operating cash flow and financing sources were sufficient for operations, debt service, distributions and planned 2014 investment needs.
Material changes, outlook and risks
- Q1 investment spending and mortgage-loan balances increased; the company completed a 106-bed replacement skilled nursing facility during the quarter.
- Investment commitments for development, redevelopment, renovation and expansion totaled $80.8 million at quarter-end, with $44.3 million remaining. After $2.4 million of April funding, the remaining amount was $41.8 million. Additional borrower and operator commitments also apply.
- For leases in place at quarter-end, management projected cash rental income of $97.5 million in 2014 and $85.1 million in 2015, and straight-line rental income of $2.2 million and $1.7 million, respectively. These estimates assume no lease renewals—including the Extendicare/Enlivant lease—no replacement or modification of existing leases, and no new leased investments; they are not company-wide earnings guidance.
- The Extendicare/Enlivant master lease covering 37 assisted living properties expires December 31, 2014. The portfolio generated approximately 9.3% of combined rental and mortgage interest income in Q1. LTC retained an adviser to assist with marketing and re-leasing; it cautioned that timely re-leasing and comparable rents are not assured.
- Operator concentration is a risk: Prestige Healthcare and Senior Care each generated more than 10% of combined rental and mortgage interest income in Q1. The company also cited operator credit and collection risk, healthcare reimbursement and regulatory changes, capital-market access and interest rates as material uncertainties.
- No material changes to previously disclosed risk factors or market risks were reported. The filing states there were no remaining contingent acquisition liabilities at quarter-end.
Key facts for investors to verify
- Progress, timing and achievable rents for re-leasing the 37 Extendicare/Enlivant communities before the year-end lease expiration.
- Borrower and lessee financial condition, especially the concentrated exposures to Prestige Healthcare and Senior Care.
- Funding, completion and expected returns on the remaining development and lending commitments.
- Whether cash-flow and dividend capacity withstand lower rent collections, reimbursement changes or higher financing costs.
- The assumptions behind management’s 2014–2015 rental-income projections and the effect of any lease renewals or new investments.