LTC Properties, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. LTC is a healthcare REIT investing mainly in seniors housing and healthcare properties through leases, mortgage loans and structured financing.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $42.5 million | $40.0 million | $85.1 million | $78.6 million |
| Operating income | $19.7 million | $20.1 million | $40.8 million | $39.7 million |
| Net income | $25.4 million | $22.2 million | $46.9 million | $42.0 million |
| Net income available to common stockholders | $25.3 million | $22.1 million | $46.7 million | $41.8 million |
| Diluted EPS | $0.64 | $0.58 | $1.18 | $1.11 |
| NAREIT FFO per diluted share | $0.79 | $0.77 | $1.57 | $1.52 |
| Dividends per common share | $0.57 | $0.54 | $1.14 | $1.08 |
Q2 revenue rose about 6% year over year, led by rental income growth from acquisitions, development and capital improvements. Operating income declined slightly as expenses increased. Net income included a $5.1 million property-sale gain and a $1.9 million receivables impairment. FFO is a non-GAAP supplemental measure.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $47.3 million, down from $50.8 million; investing cash outflow was $47.0 million, versus $108.6 million. Financing provided $1.0 million, compared with $62.6 million in 2016.
- Cash was $9.3 million at June 30, 2017. Total assets were $1.44 billion and equity was $757.2 million.
- Debt carrying value totaled $642.9 million: $45.0 million of bank borrowings and $597.9 million of senior unsecured notes. Debt was $609.4 million at December 31, 2016. The reported debt-to-gross-asset-value ratio was 37.1%; interest coverage was 5.1x year to date.
- The company reported $555.0 million available on its $600 million revolving credit facility and $36.7 million available under its Prudential note shelf at quarter-end. After quarter-end, it borrowed $5.0 million on the revolver and repaid $10.0 million of notes. The revolver matures October 2018, with a one-year extension option; the company reported covenant compliance.
- Six-month cash dividends paid were $45.1 million. The company declared monthly dividends of $0.19 per share for July–September 2017.
Material changes, outlook and risks
- During the first half, LTC acquired three assisted-living/memory-care properties for $54.7 million, sold four assisted-living communities for $14.3 million and recorded a $5.1 million gain. It invested $9.2 million in development and $2.2 million in capital improvements.
- A default notice was issued on a master lease covering 11 memory-care communities, including two under development. LTC wrote off $1.9 million of receivables relating to two operating properties, is negotiating transitions or other options for the portfolio, and will record subsequent rent from this operator on a cash basis. The lease generated about $11.7 million in annual rent; the properties’ net book value was about $111.6 million.
- Two assisted-living communities were scheduled to transition to another operator, subject to licensure. The related lease transition could result in a write-off of up to approximately $0.4 million of straight-line rent receivable.
- No company earnings or investment guidance was provided. Management said existing cash, operating cash flow, borrowing capacity and capital-market access were expected to support operations, debt service, distributions and investment needs. Results and distributions depend substantially on rent and loan collections and operators’ performance.
- Concentration is a key risk: Prestige Healthcare, Senior Lifestyle and Brookdale together represented 37.3% of rental and mortgage interest revenue. Other stated risks include healthcare reimbursement and regulatory changes, operator financial distress, capital-market access, interest rates and refinancing.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no material changes to previously disclosed risk factors or market risk.
Investor verification priorities
- Track the defaulted memory-care lease: operator negotiations, cash rent collections, potential transitions or sales, and any additional impairment.
- Verify that the planned assisted-living operator transition occurred and assess any related receivable write-off.
- Review operator concentration and facility-level coverage, particularly for the largest tenants and borrowers.
- Assess debt costs, the October 2018 revolver maturity and extension, and the company’s use of available borrowing and equity capacity.
- Compare recurring operating performance and cash generation with reported net income, which benefited from property-sale gains; evaluate dividend coverage using appropriate cash-flow and REIT measures.