LTC Properties, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. LTC Properties is a healthcare REIT investing primarily in seniors housing and healthcare properties through leases, mortgage and other loans, financing receivables, and joint ventures. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance and position
- Revenue: $51.4, up 3.8% from $49.5. Rental income was $33.5 (up $1.8), mortgage-loan interest was $12.4 (up $1.2), financing-receivable interest was $3.8, and interest and other income was $1.5 (down $1.2).
- Profit: Net income was $24.7, down 26.4% from $33.6; net income attributable to LTC was $24.2 versus $33.1. Net income available to common stockholders was $24.1, or $0.56 per basic and diluted share, versus $32.9, or $0.80, a year earlier. Lower property-sale gains were the primary reason for the decline.
- FFO: NAREIT funds from operations attributable to common stockholders was $29.9, compared with $27.2. FFO is a non-GAAP supplemental measure and is not equivalent to operating cash flow.
- Cash flow: Operating activities provided $21.0, versus $18.0. Investing activities provided $21.2, largely reflecting $25.3 of net real-estate sale proceeds, compared with $132.2 used in the prior-year quarter. Financing activities used $53.4, including $24.6 of stockholder distributions and net debt repayments. Cash declined $11.3 to $9.0.
- Margins and costs: Total expenses were $30.3, down from $31.7. Interest expense rose to $11.0 from $10.6, while credit-loss provision fell to $0.02 from $1.7. Reported operating income was $24.3 versus $33.2 and included property-sale gains of $3.3 versus $15.4.
- Debt and liquidity: Debt carrying value was $860.2, down from $891.3 at year-end; the weighted-average stated interest rate was 4.77%. The revolving credit line had $277.1 outstanding and $123.0 available. Total assets were $1,818.4, total liabilities $899.6, and total equity $918.8. The company reported compliance with its financial covenants.
- Distributions and capital: The company declared and paid $0.57 per share during the quarter ($0.19 monthly), totaling $24.6. It sold 139,100 shares through its at-the-market program for $4.5 net proceeds and had $71.5 of capacity remaining at quarter-end.
Material changes and notable items
- Revenue rose modestly, but common-stockholder earnings and reported operating income declined as property-sale gains fell to $3.3 from $15.4. Excluding gains and real-estate depreciation and impairment under the NAREIT definition, FFO increased.
- Quarter-end debt was lower than at December 31, 2023, after net revolver repayments and $6.0 of senior-note principal payments. The revolver maturity was extended to November 19, 2026; the term loans mature in 2025 and 2026, and senior notes mature from 2024 through 2033.
- Q1 property sales generated $26.3 of gross proceeds and a $3.3 net gain. The company also acquired adjacent land in Kansas for $0.3 and funded $3.1 under mortgage loans.
- After quarter-end, LTC sold two closed Texas properties for approximately $0.4 net proceeds and originated a $12.7, five-year, interest-only loan at a current 9.15% rate to finance a Texas skilled-nursing and assisted-living campus. It will be accounted for as an unconsolidated joint venture.
- An 11-center Texas skilled-nursing master lease was extended to August 2024, and, after quarter-end, the company executed a term sheet to extend it through December 2028, with rent increases and two five-year renewal options. The operator is expected to repay $11.9 of a $13.5 working-capital note in Q2; the remaining balance is to be interest-free and repaid through 2028. Another operator exercised a five-year lease renewal after quarter-end.
Outlook, risks, and contingencies
- Management said cash, operating cash flow, borrowing capacity, and potential capital-markets access are expected to support operating costs, debt obligations, and dividends at least at a level sufficient to maintain REIT status. It also said liquidity is sufficient for the current dividend, corporate costs, and additional capital investments in 2024. The filing provides no specific earnings or FFO guidance.
- Operator performance is central to rental and loan collections. Prestige Healthcare is the largest operator concentration, representing 16.0% of revenue and 14.6% of assets. For one Prestige mortgage loan, the current-pay rate is 8.5% while the contractual rate remains 10.8%; security may be applied to the difference. LTC reported holding $4.0 of security and receiving contractual interest through April 2024, with expectations of full contractual cash interest through at least 2025.
- Credit exposure includes $55.8 of accrued interest receivable, which was excluded from the expected-credit-loss measurement under the company’s policy; no related write-offs were recorded in Q1. The company reported a $4.8 mortgage-loan credit-loss reserve and a $2.0 financing-receivable reserve at March 31.
- Commitments totaled $83.4, including real-estate, lease-incentive/earn-out, mortgage-loan, and notes-receivable commitments; $66.2 remained unfunded. Management identifies operator financial distress, reimbursement and healthcare regulation, staffing and labor costs, inflation, interest rates, access to capital, lease renewals, collateral values, and REIT qualification as risks.
- CMS’s April 2024 final rule established minimum staffing standards for long-term-care facilities, including a 24/7 registered-nurse requirement, with phased implementation and possible exemptions. LTC cautioned that litigation, legislation, or policy changes could affect implementation and that compliance costs or operating impacts could affect operators and payments to LTC.
- The company reported no material changes in risk factors from its 2023 Form 10-K, no material market-risk changes, and no legal proceedings expected to be material. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether operators, particularly Prestige and the Texas lease/note counterparty, meet payment, security, and repayment terms, and whether the post-quarter lease amendments are finalized.
- Collection of accrued interest and rent, including the $55.8 accrued-interest balance and the status of the loan and lease credit-loss assessments.
- Dividend coverage relative to recurring cash flow and FFO: Q1 distributions of $24.6 exceeded net income available to common stockholders of $24.1, while reported FFO was $29.9.
- Debt maturities, floating-rate exposure, covenant headroom, and available liquidity; the $123.0 revolver availability and equity-program capacity are not cash on hand.
- Potential effects of staffing rules, healthcare reimbursement changes, inflation, labor availability, and operator performance on collections and property values.
- Execution and returns on unfunded investment commitments, and the effect of future asset sales and equity issuance on recurring income and per-share results.