LTC Properties, Inc. — 2018 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2018, with fourth-quarter results included. LTC is a healthcare REIT investing in seniors housing and healthcare real estate through property ownership and leases, mortgage loans, joint ventures, and mezzanine financing.
At year-end, the portfolio included 175 owned properties in 28 states and first-mortgage loans secured by 22 skilled nursing properties. Gross portfolio investments were $1.67 billion; owned properties generated 82.5% of portfolio revenue and mortgage loans 17.5%.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $168.6 million | $168.1 million |
| Net income available to common stockholders | $154.4 million | $87.0 million |
| Diluted earnings per share | $3.89 | $2.20 |
| NAREIT FFO attributable to common stockholders | $121.2 million; $3.07 per diluted share | $122.7 million; $3.10 per diluted share |
| Cash provided by operating activities | $115.5 million | $105.3 million |
| Total debt at year-end | $645.0 million | $667.5 million |
| Common dividend per share | $2.28 | $2.28 |
Fourth-quarter 2018 revenue was $43.6 million and net income available to common stockholders was $30.6 million, or $0.78 per diluted share; fourth-quarter 2017 figures were $41.7 million, $19.8 million, and $0.50, respectively. Year-end total assets were $1.51 billion, total liabilities $680.6 million, and equity $833.0 million. Cash and cash equivalents were $2.7 million, plus $2.1 million restricted cash.
Debt comprised $112.0 million of revolving bank borrowings and $533.0 million of senior unsecured notes, net of issuance costs. Weighted-average stated rates were 3.69% and 4.50%, respectively. Debt-to-gross-asset value was 35.2%; interest coverage was 4.8x. The company reported $488.0 million available on its revolver and $93.8 million available under its private shelf agreement at year-end.
Material changes versus the prior comparable period
- Revenue increased only 0.3%, as lower rental income from property sales and Senior Care’s missed December rent largely offset higher mortgage interest and other income.
- Net income rose substantially, chiefly because net gains on real estate sales increased to $70.7 million from $3.8 million. LTC sold six assisted-living and four skilled-nursing properties. The gain is not recurring operating income.
- FFO declined 1.2% to $121.2 million, and diluted FFO per share fell from $3.10 to $3.06, despite the increase in reported GAAP earnings.
- Operating cash flow increased $10.2 million. Investing cash use fell to $3.6 million from $92.0 million, reflecting $92.7 million of net property-sale proceeds; financing cash use rose to $112.4 million, including $90.4 million of common dividends.
- Year-end debt decreased $22.5 million. The company amended and extended its $600 million unsecured credit facility to June 2022, with a one-year extension option.
Outlook, commentary, risks, contingencies, and unusual items
- Management said available cash, operating cash flow, borrowing capacity, and potential capital-market access should support operations, debt service, dividends, and financially feasible investments. It expects 2019 cash rental income of approximately $133.7 million versus $127.9 million in 2018, while straight-line rental income is projected to decline from $9.6 million to $4.1 million, based on stated assumptions.
- The monthly dividend remained $0.19 per share for January–March 2019. Future distributions remain subject to board approval and financial conditions.
- Operator and tenant credit is a significant risk. Senior Care Centers filed for Chapter 11 in December 2018 and missed December rent, but paid January and February 2019 rent. LTC holds about $6.0 million in letters of credit and escrows securing the lease.
- Thrive Senior Living short-paid November 2018 rent and did not pay December rent; LTC placed it on a cash basis and reported it had not received January or February 2019 rent. The $0.7 million accrued was estimated collectible by management. Anthem Memory Care paid agreed cash rent of $5.2 million in 2018; it agreed to pay at least $7.5 million annual cash rent through 2019. Preferred Care was in bankruptcy, but its operating entities continued paying rent as of the filing.
- Three operators generated 37.8% of lease revenue. The filing also identifies exposure to government reimbursement and healthcare regulation, operator financial distress, refinancing and interest-rate conditions, property illiquidity, development execution, and REIT qualification.
- A Senior Lifestyle lease amendment removed a contingent incentive and related earn-out liability, producing approximately $3.0 million of income. No impairment charge was recorded in 2018; 2017 included $1.9 million of impairment charges.
- The company adopted the new revenue standard in 2018 with no material impact and expected to adopt lease accounting standard ASC 842 on January 1, 2019. No off-balance-sheet arrangements were reported. The auditor gave an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether Senior Care, Thrive, Anthem, and other major operators meet lease and loan obligations, and whether rent concessions or restructurings become necessary.
- Whether recurring FFO and operating cash flow support the $2.28 annual dividend, separately from gains on property sales.
- Whether the projected 2019 cash-rent increase is achieved and how the decline in straight-line rent affects reported revenue.
- Debt maturities, borrowing costs, covenant headroom, and actual liquidity after subsequent borrowing and scheduled note repayments.
- Concentration exposure: top three operators accounted for 37.8% of lease revenue; portfolio revenue remained highly dependent on lease and mortgage payments.