LTC Properties, Inc. — 2020 Form 10-K Summary
Business context and reporting period
LTC Properties is a healthcare and seniors-housing REIT. It owns and leases properties and provides mortgage and other financing. This annual filing covers the fiscal year ended December 31, 2020; quarterly figures are noted where relevant. At year-end, its portfolio included 159 owned properties and 22 mortgage-loan properties across 27 states, with 29 operators.
Financial performance and position
- Revenue: $159.3 million, down $26.0 million (14.0%) from $185.3 million in 2019. Rental income fell $26.7 million to $126.1 million; mortgage-loan interest income rose $1.4 million to $31.4 million.
- Profit: Net income was $95.7 million versus $80.9 million in 2019; net income available to common stockholders was $94.9 million, or $2.42 per diluted share, versus $80.1 million, or $2.02. The 2020 result included a $44.1 million gain on real-estate sales, primarily from selling 21 properties formerly leased to Preferred Care. Net margin was approximately 60%, but is not a clean measure of recurring performance given this gain.
- FFO: NAREIT FFO attributable to common stockholders was $94.6 million, or $2.41 per diluted share, down from $122.7 million, or $3.08 per diluted share, in 2019. The divergence from GAAP earnings reflects the impact of property-sale gains and other items.
- Cash flow: The consolidated cash-flow statement reports $116.1 million provided by operating activities, down from $122.5 million in 2019. Investing activities provided $43.9 million, including $72.1 million in net property-sale proceeds; financing activities used $156.5 million. Year-end cash and cash equivalents were $7.8 million.
- Dividends: The company declared and paid $2.28 per share for 2020, unchanged from 2019. Cash distributions to stockholders were approximately $90.3 million. The board declared monthly dividends of $0.19 per share for January–March 2021.
- Debt and liquidity: Total debt was $649.4 million, down from $693.4 million, with a 3.96% weighted-average rate. Debt equaled 35.8% of gross asset value; interest and fixed-charge coverage were each 4.9x for the year. The company had $510.1 million available on its revolving credit facility and $200 million available under its equity distribution agreement. It reported compliance with debt covenants.
- Assets: Total assets were $1.46 billion, compared with $1.51 billion in 2019; total equity was $775.8 million. Net real-estate investments were $1.36 billion.
Material changes versus 2019
- Revenue declined mainly due to $23.2 million of write-offs of straight-line rent receivables and lease incentives, lower rent after property sales, reduced collections from Senior Lifestyle, and rent abatements and deferrals.
- FFO per share fell 22%, even as GAAP net income increased, principally because the 2020 property-sale gain lifted reported earnings.
- The company sold 21 Preferred Care skilled nursing properties for $74.8 million, recognizing a $44.1 million gain. It acquired one Texas skilled nursing property for $13.5 million and completed two developments with total investment of $35.0 million.
- Real-estate impairment charges were $4.0 million in 2020. The company also recorded a $0.8 million loss on an unconsolidated joint venture.
Outlook, commentary, risks and unusual items
- Management provided no formal earnings or FFO guidance. It projected cash rental income of $153.1 million for 2021, compared with $148.0 million in 2020, before noting a subsequent 50% reduction in 2021 rent escalations for most operating partners. That concession is expected to reduce 2021 GAAP revenue by about $0.5 million.
- COVID-19 adversely affected operator occupancy and costs. From April through December 2020, LTC granted $1.1 million of rent abatements and $2.5 million of deferrals; $1.5 million of the deferrals had been repaid by year-end. Management cautioned that the pandemic’s duration and effects remained uncertain.
- Operator credit and rent collection are key risks. Three operators generated approximately 38.8% of lease and real-estate-loan interest revenue during 2020. Senior Lifestyle missed rent, prompting a $17.7 million write-off of rent receivables and incentives, cash-basis accounting, and a $3.0 million property impairment. LTC transitioned 11 of its communities to two operators after year-end and was evaluating the remaining 12.
- Genesis reported substantial doubt about its ability to continue as a going concern; LTC wrote off $4.3 million of straight-line rent receivables and moved its lease to cash-basis recognition. Senior Care and Brookdale were current on rent through February 2021, according to the filing. Anthem remained under a master lease following a prior default and paid $9.9 million of cash rent in 2020.
- Other principal risks include government reimbursement and regulatory changes, operator concentration, lease renewals and defaults, property impairment and illiquidity, interest-rate and refinancing exposure, and maintaining REIT qualification and dividends. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether operators—especially Senior Lifestyle, Genesis, and other major tenants—remain current and can sustain rent payments and occupancy.
- Whether projected 2021 cash rent is achieved after concessions, transitions, and unresolved Senior Lifestyle properties.
- Recurring earnings and dividend coverage using FFO and operating cash flow, excluding property-sale gains and rent-receivable write-offs.
- Debt maturities, covenant headroom, access to capital, and the effects of interest-rate or benchmark-rate changes.
- Potential further impairments, recoveries of deferred rent, and outcomes of properties being re-leased or considered for sale.