LTC Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited interim financial statements. Unless stated otherwise, financial amounts below are in millions of dollars; the filing presents most amounts in thousands.
Business context
LTC Properties is a healthcare real estate investment trust focused on seniors housing and healthcare properties, using operating leases, mortgage loans, joint ventures and other structured investments. At September 30, 2021, it owned 153 properties and had mortgage investments; its properties and loans spanned 26 states and 31 operators. Seniors housing and long-term healthcare represented approximately 99.2% of its real estate investment portfolio. One operator, Prestige Healthcare, accounted for 21.4% of rental and mortgage interest revenue and 18.3% of assets.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $37.5 | $38.2 | $115.9 | $113.1 |
| Net income attributable to LTC | $11.0 | $12.2 | $43.0 | $77.7 |
| Net income available to common stockholders | $10.9 | $12.1 | $42.7 | $77.4 |
| Diluted EPS | $0.28 | $0.31 | $1.09 | $1.97 |
| NAREIT FFO per diluted share | $0.45 | $0.58 | $1.64 | $1.63 |
| Cash provided by operating activities | Not provided by quarter | Not provided by quarter | $69.6 | $85.6 |
Nine-month revenue increased 2.5%, while net income available to common stockholders fell 44.8%. The decrease largely reflects substantially lower real estate sale gains: $7.4 million in 2021 versus $44.1 million in 2020. NAREIT FFO was nearly unchanged for the nine months, but declined in Q3. FFO is a supplemental, non-GAAP measure and is not equivalent to cash available for distributions.
Q3 operating income was $10.7 million, compared with $11.9 million a year earlier. Nine-month interest expense declined to $20.4 million from $22.6 million, while total expenses rose to $81.0 million from $79.2 million. The filing does not provide a single headline operating margin.
At September 30, total assets were $1.453 billion, total liabilities $700.2 million and total equity $752.9 million. Net investments were $1.339 billion, including $1.042 billion in net real property and $258.8 million in mortgage loans. Cash and cash equivalents were $45.5 million, up from $7.8 million at year-end 2020.
Total debt was $661.8 million: $134.4 million drawn on the revolving credit facility and $527.4 million of senior unsecured notes. The weighted-average debt rate was 3.71%. The revolver had $465.6 million available, matures June 27, 2022, and includes a one-year extension option subject to customary conditions. The company reported compliance with all debt covenants. Debt to gross asset value was 36.3%; interest and fixed-charge coverage were each 4.3x for Q3.
Nine-month operating cash flow was $69.6 million, down from $85.6 million. Investing activities provided $27.8 million, including $43.6 million in net property-sale proceeds; financing activities used $59.7 million. Dividends declared and paid were $0.19 per share monthly, or $0.57 for Q3 and $1.71 for the nine-month period. NAREIT FFO was $0.45 per share in Q3 and $1.64 for nine months.
Material changes and unusual items
- Q3 transaction costs rose to $4.0 million from $0.1 million, primarily due to the Senior Care/Abri Health bankruptcy settlement. LTC recorded a $3.25 million payment to the lessee’s affiliates as an expense and paid it in October 2021.
- Rental income was $29.3 million in Q3, down from $30.0 million. The filing cites unpaid rent from Senior Care/Abri Health and Senior Lifestyle, rent abatements and deferrals, and reduced rent from property sales, partly offset by properties re-leased from Senior Lifestyle and contractual increases.
- For the nine months, LTC sold six properties for $45.6 million and recognized a $7.4 million net gain. The comparable 2020 period included $44.1 million of net gains from sales of 21 skilled nursing properties.
- Twenty operators were accounted for on a cash basis at September 30, representing approximately 51% of Q3 rental income. The company said it lacked sufficient information to evaluate COVID-19’s effect on collectibility of lease payments through maturity.
- During the first nine months, LTC agreed to $2.6 million of rent abatements and $3.4 million of net rent deferrals. It also reduced eligible operators’ 2021 rent and interest escalations by 50%, decreasing nine-month GAAP revenue by $0.5 million and cash revenue by $1.3 million.
Outlook, risks and contingencies
Management said existing cash, operating cash flow, borrowing capacity and potential capital-market access should be sufficient for operating costs, debt obligations, dividends needed to maintain REIT status and debt repayment. It also said it believed liquidity was adequate for corporate expenses and additional capital investments in 2021 and 2022. The filing provides no earnings or FFO guidance.
COVID-19-related occupancy, operating-cost and reimbursement pressures could weaken operators and affect rent and loan collections. Inflation may raise operators’ labor and other costs; lease escalators and loan rate increases may not fully offset that pressure, particularly given 2021 concessions. Other stated risks include operator concentration and financial distress, healthcare regulation and reimbursement changes, lease renewals, collateral sufficiency, access to capital, interest rates and REIT qualification.
Senior Care and Abri Health filed for Chapter 11 in April 2021 after missing lease obligations. Following the settlement, 11 skilled nursing properties transitioned to HMG under a one-year master lease beginning October 1, 2021, with rent based on cash flows and deferral possible for up to six months. LTC also provided HMG a $25.0 million secured working-capital loan due September 2022. Subsequent to quarter-end, LTC funded mortgage loans of $27.0 million and $12.5 million to new regional operators; the latter includes a further $4.2 million conditional commitment.
Management reported effective disclosure controls and no material change in internal control over financial reporting. The company disclosed ordinary-course claims and lawsuits that it did not expect to be material.
Important facts for investors to verify
- Whether operators, particularly Senior Care/Abri Health, Senior Lifestyle and the largest revenue contributor, remain current and whether rent deferrals and abatements are collected or extended.
- Performance and stabilized rent under HMG’s new lease, and repayment and credit quality of the $25.0 million working-capital loan.
- Dividend coverage: distributions were $0.57 per share in Q3 versus $0.45 of NAREIT FFO, and $1.71 versus $1.64 for the first nine months.
- Liquidity and refinancing plans for the revolving credit facility maturing in June 2022, including use of its extension option and compliance with covenants.
- Credit quality of mortgage and notes receivable, including the collectibility of accrued interest receivable of $37.5 million and the impact of operator concentration.