LTC Properties, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. LTC Properties is a healthcare REIT investing primarily in seniors housing and healthcare real estate through leases, mortgage loans, joint ventures, and other financing arrangements.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $38.1 | $28.5 | $78.4 | $74.9 |
| Net income attributable to common stockholders | $18.1 | $1.8 | $31.8 | $65.2 |
| Diluted earnings per share | $0.46 | $0.05 | $0.81 | $1.66 |
| NAREIT FFO per diluted share | $0.57 | $0.31 | $1.19 | $1.05 |
| Dividends per common share | $0.57 | $0.57 | $1.14 | $1.14 |
- Q2 rental income was $29.8 million, mortgage-loan interest income was $7.9 million, and interest and other income was $0.4 million. Q2 expenses totaled $25.6 million, including $6.9 million of interest expense and $9.5 million of depreciation and amortization. The company recorded a $5.5 million gain on real estate sales.
- Six-month operating cash flow was $48.6 million, compared with $55.6 million a year earlier. Investing activities provided $29.8 million, including $36.5 million of net real estate sale proceeds. Financing activities used $80.5 million, including $45.6 million in stockholder distributions. Cash and cash equivalents were $5.7 million at June 30.
- At June 30, total assets were $1.416 billion, total liabilities $654.1 million, and total equity $762.4 million. Debt was $618.5 million: $65.9 million in bank borrowings and $552.6 million in senior unsecured notes. The weighted-average debt rate was 4.04%.
- The unsecured revolving credit facility had $534.1 million available at quarter-end and matures June 27, 2022, with a one-year extension option subject to conditions. The company reported compliance with its debt covenants. Subsequent to quarter-end, it reported $84.9 million drawn and $515.1 million available, and paid $25.2 million in scheduled note principal.
- Management reported debt to gross asset value of 34.8% and interest and fixed-charge coverage ratios of 4.3x for the quarter. These coverage measures use non-GAAP EBITDAre.
Changes versus the prior comparable period
- Q2 revenue rose $9.6 million year over year, and common-stockholder net income rose $16.4 million. The comparison is substantially affected by the prior-year $17.7 million write-off of straight-line rent receivables and lease incentives; Q2 2021 also included larger real estate sale gains.
- Six-month revenue increased $3.5 million, but common-stockholder net income fell $33.5 million. The main comparison factor was the $44.0 million of real estate sale gains recorded in the first half of 2020, versus $4.7 million in the first half of 2021.
- Six-month FFO per diluted share increased to $1.19 from $1.05, while GAAP diluted EPS decreased to $0.81 from $1.66. FFO excludes real estate sale gains and depreciation and is not a GAAP cash-flow measure.
- Debt declined from $649.4 million at December 31, 2020 to $618.5 million at June 30, 2021, reflecting net repayments. Operating cash flow was lower year over year, and cash declined from $7.8 million to $5.7 million.
- The company made no property acquisitions or development investments in the first half of 2021. It sold five properties for $37.9 million, recognizing a net gain of $4.7 million.
Outlook, commentary, and key risks
- No quantified earnings or investment guidance was provided. Management said liquidity was sufficient for operating costs, debt obligations, dividends at least sufficient to maintain REIT status, and planned 2021 capital investments; results remain subject to operator performance, COVID-19, capital markets, interest rates, and healthcare regulation.
- COVID-19 continued to affect operators through occupancy, operating costs, and rent-collection uncertainty. In the first half of 2021, the company granted $1.7 million of rent abatements and $2.2 million of net rent deferrals, and reduced eligible 2021 rent and interest escalations by 50%. These escalation credits reduced first-half GAAP revenue by $0.5 million and cash revenue by $1.3 million. The company expected a de minimis GAAP revenue effect in the second half of 2021.
- At June 30, 18 operators were accounted for on a cash basis, representing approximately 51% of Q2 rental income. Senior Lifestyle had not paid rent or other obligations in 2021 as of the filing; the company had written off $17.7 million of related receivables and lease incentives in 2020 and was transitioning, selling, or re-leasing properties. Senior Care and Abri Health filed for Chapter 11 bankruptcy in April 2021 after unpaid lease obligations. These matters create collection and re-leasing risks.
- Prestige Healthcare represented 21.1% of combined rental and mortgage interest revenue and 18.7% of total assets. The filing also identifies reliance on a limited number of operators as a risk. Brookdale and Genesis were current on rent through July 2021, according to the filing.
- Subsequent events included the sale of a Washington skilled nursing facility for $7.7 million, with $7.2 million net proceeds and an expected $2.6 million gain, plus new leases for certain former Senior Lifestyle properties. Some new agreements included three months of zero cash rent and rent thereafter based on mutually agreed fair market rent.
- Outstanding commitments totaled $49.2 million, including real estate, mortgage-loan, notes-receivable, and lease-incentive commitments. Management cited possible adverse effects from operator financial distress, pandemic impacts, reimbursement or regulatory changes, tenant concentration, facility occupancy, and access to capital. Ordinary-course claims were described as not material; the filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether troubled operators, particularly Senior Lifestyle and the bankrupt Senior Care/Abri Health, resume payments, repay deferrals, or are replaced on sustainable lease terms.
- How much of reported rental income and receivables is ultimately collectible, given cash-basis accounting for 18 operators and the $24.4 million straight-line rent receivable balance.
- Whether FFO and cash generation can support the $0.57 quarterly dividend per share; first-half FFO was $1.19 per share against $1.14 in dividends.
- The refinancing and extension plans for the revolving credit facility maturing in June 2022, alongside future scheduled senior-note principal payments.
- Whether property dispositions, re-leasing activity, and the $49.2 million of commitments affect portfolio returns, liquidity, or operator and property concentration.