LTC Properties, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing; the filing also reports fourth-quarter results. LTC is a healthcare REIT investing mainly in skilled nursing, assisted living and other senior housing through property leases and mortgage loans.
Financial results and position
| Metric | FY 2011 | FY 2010 | Change / context |
|---|---|---|---|
| Total revenue | $85.2 million | $73.7 million | Up 15.6%, principally from acquisitions and higher rent |
| Rental income | $77.6 million | $64.4 million | Up $13.3 million |
| Mortgage interest income | $6.4 million | $7.5 million | Down $1.1 million, mainly from loan payoffs, amortization and conversion to owned property |
| Income from continuing operations | $49.7 million | $45.9 million | Up 8.3%; approximately 58.3% of revenue |
| Net income | $49.4 million | $46.1 million | Includes discontinued-operations loss of $0.2 million in 2011 |
| Net income available to common stockholders | $39.8 million | $29.6 million | Up $10.2 million, substantially reflecting lower preferred-stock allocations after redemptions |
| Diluted EPS | $1.36 | $1.21 | Up 12.4% |
| Cash from operations | $70.8 million | $65.3 million | Up $5.5 million |
| Cash used in investing | $97.4 million | $87.4 million | Primarily property investment and improvements |
| Cash from financing | $24.1 million | $20.1 million | Included equity issuance, borrowings, debt issuance and distributions |
| Total assets | $647.1 million | $561.3 million | Up $85.8 million |
| Total debt | $159.2 million | $91.4 million | Up $67.8 million; debt to book capitalization was 25.4% |
Fourth-quarter 2011 revenue was $22.3 million and net income available to common stockholders was $11.7 million, or $0.39 per diluted share. The filing does not provide a clear quarter-to-quarter comparable for all key measures in the supplied text.
Interest expense increased to $6.4 million from $2.7 million, chiefly because of greater borrowings, $50 million of new senior notes and non-cash accretion on acquisition earn-outs. Fixed-charge coverage was 6.3x for the year; interest coverage was 11.7x.
At year-end, cash was $4.4 million. LTC had $56 million drawn and $154 million available on its $210 million revolving credit facility, plus $100 million available under its private shelf agreement. It also reported $64.6 million available under its equity distribution agreement and $167.6 million under its effective shelf registration. The company reported compliance with debt covenants and no off-balance-sheet arrangements.
Portfolio and material changes
- Gross real estate investments were $779.0 million across 207 properties or investments in 30 states and with 41 operators. Senior housing and long-term care represented approximately 98% of the investment portfolio.
- FY 2011 acquisitions totaled $106.5 million, including seven skilled nursing properties and two other senior housing properties, plus land. The company also invested $3.1 million in expansions and renovations.
- Rental income accounted for 91.2% and mortgage interest income for 7.5% of total gross revenue. Approximately 99% of revenue came from real-property leases and mortgage payments.
- LTC issued 3.99 million common shares for net proceeds of $103.6 million and redeemed all remaining Series F preferred stock. The redemption generated a $3.6 million preferred-stock redemption charge; preferred dividends fell to $5.5 million from $13.7 million.
- Common distributions were $1.68 per share for 2011, compared with $1.58 in 2010. In January 2012, the company declared a monthly dividend of $0.145 per share, a 3.6% increase from $0.14.
Outlook, risks and unusual items
- Management expected cash rental income from leases in place to rise from $74.6 million in 2011 to $81.1 million in 2012, assuming no lease changes and no new investments. Straight-line rental income was projected to decline from $3.7 million to $2.4 million under the same assumptions. These are conditional estimates, not formal earnings guidance.
- Management said available liquidity was sufficient for operations, debt service, distributions and some financially feasible investments. Growth and investment capacity remain sensitive to capital-market access, interest rates and the cost of capital.
- Major risks include operator and tenant payment capacity, dependence on a small number of operators, competition, property illiquidity, and changes to Medicare and Medicaid reimbursement or healthcare regulation. CMS had finalized an average 11.1% reduction in skilled-nursing Medicare rates for FY 2012; the filing warns that payment cuts may pressure operators and ultimately rent and loan collections.
- Three operator groups each represented roughly 12%–14% of 2011 rental and mortgage-interest revenue. The filing also identifies potential effects of federal budget reductions and Medicare sequestration, then scheduled to begin in 2013.
- Four Texas skilled nursing properties were acquired with contingent earn-outs of up to $11.0 million, dependent on operating performance. The remaining earn-out liability was $6.3 million at year-end, including $0.5 million of non-cash accretion expense during 2011.
- No impairment charges on real estate held and used or mortgage loans were recorded in 2011. The company reported an unqualified audit opinion and effective internal control over financial reporting.
Important facts for investors to verify
- Whether operators can absorb reimbursement reductions and meet lease and mortgage obligations, particularly the three largest operator groups.
- Whether the projected 2012 cash-rent increase materialized and how straight-line rent receivables are being collected; the year-end balance was $23.8 million net of reserves.
- Debt growth, refinancing needs and covenant headroom, especially the $56 million revolving balance due at the April 2015 facility maturity and the debt maturities shown for 2015.
- Whether the dividend remains supported by recurring cash generation after distributions, acquisitions, capital commitments and financing costs.
- Performance against conditions for the remaining earn-outs and completion and funding of the planned Texas skilled nursing development.
- Related-party exposure: LTC held $6.5 million face value of Skilled Healthcare Group notes and received rent from an operator whose CEO served on LTC’s board.