Business Context and Reporting Period
Company: LTC Properties, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: LTC Properties is a self-administered Real Estate Investment Trust (REIT) investing primarily in senior housing and long-term care properties (skilled nursing, assisted living, independent living) via mortgage loans and triple-net lease transactions. As of March 31, 2011, the portfolio consisted of 90% owned/leased properties and 10% mortgage loans.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenues | $20,254 | $17,736 |
| Net Income | $12,154 | $10,570 |
| Net Income Available to Common Stockholders | $5,393 | $6,694 |
| Diluted EPS (Common) | $0.20 | $0.29 |
| Net Cash Provided by Operating Activities | $15,818 | $14,973 |
| Cash and Cash Equivalents (End of Period) | $23,390 | $19,210 |
| Total Debt (Bank Borrowings + Notes + Bonds) | $53,200 | $91,430 |
| EBITDA (Non-GAAP) | $17,779 | $14,831 |
Note: Debt figures exclude preferred stock redemption liability. Interest expense was $1,104 for Q1 2011 vs $401 for Q1 2010.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14.2% to $20.3 million, driven primarily by a $2.7 million increase in rental income due to acquisitions in 2010 and 2011. This was partially offset by a decrease in interest income from mortgage loans due to payoffs and a 2010 foreclosure.
- Profitability: While Net Income increased to $12.2 million, Net Income available to common stockholders decreased 19.4% to $5.4 million. This decline was primarily caused by a $3.6 million preferred stock redemption charge related to the Series F preferred stock.
- Expense Variance: Interest expense increased significantly ($0.7 million) due to new senior unsecured notes and higher bank borrowings. Provisions for doubtful accounts decreased by $1.1 million compared to Q1 2010, which included a specific charge for a Minnesota school property.
- Balance Sheet: Total assets grew to $635.4 million from $561.3 million. The company paid off its entire $37.7 million bank borrowing balance during the quarter, reducing total liabilities significantly before accounting for the new preferred stock redemption liability.
Guidance, Outlook, and Material Events
Capital Markets and Liquidity
- Equity Offering: Sold 3.99 million shares of common stock for net proceeds of $103.8 million. Proceeds were used to redeem all Series F preferred stock and pay down the credit facility.
- Preferred Stock Redemption: Announced redemption of all 3.54 million shares of Series F preferred stock effective April 25, 2011, at $25.1333 per share. A liability of $88.4 million was recorded on the balance sheet.
- Debt Facility: Subsequent to March 31, 2011, the company entered a new $210 million Unsecured Credit Agreement (expandable to $250 million) maturing in 2015. They borrowed $70 million under this new facility shortly after the quarter-end.
Acquisitions and Investments
- Property Acquisitions: Acquired two senior housing properties in South Carolina ($11.5 million) and four skilled nursing properties in Texas ($50.8 million). The Texas deal included $41 million cash and up to $11 million in contingent earn-out payments.
- Capital Improvements: Invested $1.6 million in renovations for six existing properties.
Risks and Outlook
- Regulatory Environment: The Affordable Care Act and potential changes in Medicare/Medicaid reimbursement rates pose risks to lessee/borrower financial health, which could impact rent collection.
- Concentration Risk: Three major operators (Extendicare/ALC, Preferred Care, Brookdale) represent significant portions of assets and revenue. Financial difficulties at these operators could materially affect the company.
- Dividends: Declared a monthly cash dividend of $0.14 per common share for April, May, and June 2011.
Investor Verification Checklist
- Preferred Stock Redemption: Verify the execution of the Series F preferred stock redemption and the impact on future dividend obligations.
- Debt Covenants: Confirm compliance with the new $210 million credit facility covenants (Total Indebtedness/Asset Value < 0.5; EBITDA/Fixed Charges > 1.5).
- Acquisition Performance: Monitor the performance of the newly acquired Texas properties to ensure they meet the rent coverage ratios required for the $11 million earn-out payments.
- Operator Health: Review the financial stability of major operators (Brookdale, Extendicare, Preferred Care) given the concentration risk.
- Regulatory Impact: Assess the specific impact of the Affordable Care Act on the reimbursement rates of the company's skilled nursing lessees.