10-Q: Quarterly report [Sections 13 or 15(d)]
Published on May 14, 1996
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
__________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ______________ to ______________
Commission file number 1-11314
LTC PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Maryland 71-0720518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
(Address of principal executive offices)
(805) 981-8655
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
Shares of Registrant's common stock, $.01 par value,
outstanding at April 30, 1996 - 18,620,949
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LTC PROPERTIES, INC.
FORM 10-Q
MARCH 31, 1996
INDEX
PART I -- FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets....................... 3
Condensed Consolidated Statements of Income................. 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations... 10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 13
2
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
See accompanying notes
3
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
See accompanying notes
4
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
See accompanying notes
5
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(i) The condensed consolidated financial statements included herein have
been prepared by LTC Properties, Inc. (the "Company"), without audit, and
include all adjustments which are, in the opinion of management, necessary for a
fair presentation of the results of operations for the three-month periods ended
March 31, 1996 and 1995 pursuant to the rules and regulations of the Securities
and Exchange Commission. The accompanying consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries and
controlled partnerships. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures in the accompanying financial statements are adequate to make the
information presented not misleading. The results of operations for the three-
month periods ended March 31, 1996 and 1995 are not necessarily indicative of
the results for a full year.
(ii) No provision has been made for federal income taxes. The Company
qualifies as a real estate investment trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended. As such, the Company is
not taxed on its income provided that at least 95 percent of its taxable income
is distributed to its stockholders.
(iii) During the three-month period ended March 31, 1996, the Company
invested in mortgage loans totaling $36,900,000 secured by, among other things,
16 skilled nursing facilities located in seven states with a total of 1,613 beds
and certain guarantees. The mortgage loans, which individually range from
$1,200,000 to $11,250,000 in principal amount, have stated maturities of 7 to 15
years, generally have 25-year amortization schedules, have an initial weighted
average interest rate of 10.78%, generally provide for increases in the interest
rate and contain certain facility fees.
During the first quarter of 1996, the Company provided loans to three of its
wholly owned subsidiaries and to certain partnerships in which the Company was a
general partner totaling $31,525,000. The mortgage loans provided to the wholly
owned subsidiaries and partnerships are non-recourse to the Company. Concurrent
with the closing of the loans, the Company completed a real estate mortgage
investment conduit ("REMIC") transaction in which loans totaling $112,487,000,
including the $31,525,000 originated in 1996, were exchanged for mortgage pass-
through certificates for an equal amount. See note (iv).
In addition to the mortgage loans, the Company acquired for approximately
$14,380,000 eight assisted living residences ("ALFs) in Texas and Washington
with a total of 279 units. These residences have been leased to Assisted Living
Concepts, Inc. ("ALC") for a total annual rent of approximately $1,390,000
(subject to increases) pursuant to long-term non-cancelable agreements. Included
in the above purchases were two ALFs in Washington which had been financed by
the Company through the issuance of multi-family tax-exempt revenue bonds in
December 1995. As of May 1, 1996, the Company has acquired three of the
Washington ALFs generating an initial annual rent of approximately $514,100. See
note (ix). The remaining two
6
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Washington ALFs, whose bond funds are currently restricted, are presently in
various stages of development and/or construction and will be acquired by the
Company and leased to ALC as construction is completed, which is expected to
happen prior to June 30, 1996.
In addition, the Company acquired 11 skilled nursing facilities in Alabama,
Iowa and Texas for a total of approximately $26,705,000. These skilled nursing
facilities were acquired by three newly formed limited partnerships of which the
Company is the general partner. These facilities were purchased subject to
mortgage loans of approximately $5,106,000. Under the partnership agreements,
the Company has guaranteed payment of a 10% preferred return to the holders of
the $2,735,000 limited partnership interests. Under certain circumstances, the
limited partnership interests can be exchanged, at the option of the holder,
into 210,386 shares of the Company's common stock commencing in July 1997. The
mortgage loans of $5,106,000 assumed by the Company have an initial average
interest rate of 11.49% due in 2003 and 2005 and are currently owned by REMICs
formed by the Company in 1993 and 1994. In conjunction with these REMICs, the
Company sold senior certificates to third parties in 1993 and 1994 at a blended
interest rate of approximately 7.1% and 8.9%, respectively.
(iv) On March 29, 1996, the Company securitized approximately $112,487,000
of loans by creating a REMIC which, in turn, issued mortgage pass-through
certificates for the same amount in the form of various classes of certificates
(the "Certificates"). As part of the securitization, the Company sold
approximately $90,552,000 of Certificates to third parties at an effective
interest rate of 7.19%. The Company retained the remaining $21,935,000 face
amount of such Certificates which are effectively subordinated in right of
payment to the Certificates sold to third parties. The net proceeds from the
REMIC transaction were used to repay borrowings outstanding under the Company's
lines of credit. The mortgage loans represented by the Certificates consists of
34 mortgage loans, including the loans provided to the Company's wholly owned
subsidiaries and to the limited partnerships totaling $31,525,000, secured by 55
skilled nursing facilities in 17 states. The mortgage loans in the REMIC pool
have an initial weighted average mortgage interest rate of 10.69% and a weighted
average remaining term to stated maturity of approximately 107 months.
Concurrently with the closing of the REMIC transaction, the Company's swap
agreement entered into in May 1995 was terminated at a cost of approximately
$1,500,000. Because the purpose of the interest rate swap was to hedge the
interest rate spread on the mortgages underlying a portion of the Certificates
sold to third parties, the costs of terminating the swap, along with other costs
of the transaction are reflected in the carrying value of the retained
Certificates. As of March 31, 1996, the Certificates retained by the Company
have a weighted average effective yield of approximately 18.0%.
(v) On February 5, 1996, the Company sold, through a public offering,
$30,000,000 aggregate principal amount of 7.75% Convertible Subordinated
Debentures due January 1, 2002. The debentures are convertible at any time prior
to maturity into shares of the Company's common stock at a conversion price of
$16.50 per share, subject to adjustments under certain
7
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
circumstances. Interest on the debentures is payable semi-annually on January 1
and July 1 each year, commencing on July 1, 1996. The net proceeds were used to
repay borrowings outstanding under the Company's lines of credit.
(vi) During the three-month period ended March 31, 1996, holders of
$1,223,000 in principal amount of 9.75% Convertible Subordinated Debentures due
2004 elected to convert the debentures into 122,300 shares of common stock at
$10.00 per share. During the first quarter, holders of $2,734,000 in principal
amount of 8.5% Convertible Subordinated Debentures due 2000 elected to convert
into 182,266 shares of common stock at $15.00 per share. In addition, holders of
$250,000 in principal amount of 8.5% Convertible Subordinated Debentures due
2001 elected to convert the debentures into 16,129 shares of common stock at
$15.50 per share. The conversions during the first quarter of 1996 resulted in
an additional equity of approximately $4,082,000, net of unamortized issuance
costs of approximately $125,000. In addition, there was approximately $65,000 of
non-cash interest expense that was accrued but was not required to be paid as a
result of the conversions of the debentures.
(vii) On March 15, 1996, the Company filed a shelf-registration statement
with the Securities and Exchange Commission covering up to $125,000,000 of debt
and equity securities to be sold from time to time in the future. The
registration statement was declared effective on April 4, 1996.
(viii) During the first quarter of 1996, the Company's board of directors
approved the issuance of 160,000 shares of restricted stock to certain employees
and non-employee directors pursuant to the Company's option plan. The restricted
shares will vest over seven years, beginning January 1998. Dividends are payable
on the restricted shares to the extent and on the same date as dividends are
paid on all of the Company's common stock.
(ix) Subsequent to March 31, 1996, the Company repurchased and retired
120,000 shares of common stock for an aggregate purchase price of approximately
$1,830,800.
Subsequent to March 31, 1996, the Company invested in additional mortgage
loans totaling $10,200,000. These mortgage loans are secured by, among other
things, three skilled nursing facilities with a total of 521 beds. The loans
have an average initial interest rate of 10.17%, generally have maturities of 10
to 15 years and provide for increases in the interest rate. In addition, the
Company purchased and leased to ALC three assisted living facilities (one of
which was in Washington) with a total of 125 units for an aggregate purchase
price of approximately $6,640,000. These three ALFs will generate initial annual
rents of approximately $662,000 (excluding rent increases).
As of May 1, 1996, the Company had outstanding commitments to provide
mortgage loans totaling approximately $17,560,000. The mortgage loans, the
closings of which are
8
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
subject to completion of certain conditions, will be secured by five skilled
nursing facilities with a total of 591 beds. In addition, the Company has
commitments to acquire seven ALFs (including the two remaining Washington ALFs)
with a total of 271 units and four skilled nursing facilities with a total of
496 beds for an aggregate purchase price of approximately $29,735,000.
(x) A quarterly dividend of $0.315 per share aggregating approximately
$5,917,000 was declared by the Board of Directors payable on April 15, 1996 to
stockholders of record on March 31, 1996. The dividend has been reflected as
distributions payable in the accompanying financial statements as of March 31,
1996.
(xi) In 1996, the Company's Board of Directors authorized an increase in the
Company's investment in assisted living facilities ("ALFs") from 10% to 20% of
its adjusted gross real estate investment portfolio (adjusted to include the
mortgage loans to third parties underlying the $92,917,000 investment in
mortgage-backed securities). In addition, the Board of Directors also authorized
an increase in the Company's investment in properties operated by Assisted
Living Concepts, Inc. ("ALC"), an owner, operator and developer of ALFs whose
securities are listed on the American Stock Exchange, from 5% to 10% of its
adjusted gross real estate investment portfolio (which was approximately
$540,401,000 as of March 31, 1996). Currently, two of the Company's executive
officers serve as members of the Board of Directors of ALC. As of May 1, 1996,
three executive officers of the Company own approximately 16% of ALC's common
stock. As of March 31, 1996, the Company had investments in ALFs and properties
operated by ALC of approximately 5.4% and 3.3%, respectively of the Company's
total adjusted gross real estate investment portfolio. Since March 31, 1996, the
Company acquired and leased to ALC three additional ALFs in Texas and
Washington. See note (ix).
9
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three months 1996 Compared to Three months 1995
During the three-months ended March 31, 1996, cash flow from operating
activities available for distribution or reinvestment was $7,120,000 versus
$5,860,000 for the comparable period in 1995. Revenues for the three months
ended March 31, 1996 were $12,363,000 versus $7,505,000 for the same period in
1995. Revenues increased $4,858,000 primarily as a result of increased interest
income on mortgage loans of $2,986,000 and increased rental income of $2,059,000
attributable to investments of approximately $186,000,000 in long-term care
facilities the Company completed since March 31, 1995. These increases were
offset by a decrease in interest income from mortgage-backed securities of
approximately $320,000 primarily due to the sale of a portion of the Company's
mortgage-backed securities in 1995. The remaining increase of $133,000 was
primarily due to a fee received by the Company in 1996 for the prepayment of one
mortgage loan.
Total expenses for the three months ended March 31, 1996 were $6,908,000
versus $2,787,000 for the same period in 1995. The increase of $4,121,000 is due
in large part to an increase of $3,146,000 in interest expense. Interest expense
increased by $1,817,000 due to the issuance of convertible subordinated
debentures in September 1995 and in February 1996. Interest expense also
increased by $1,025,000 as a result of interest on borrowings under the
Company's lines of credit which was offset by a decrease of $396,000 as a result
of the conversions of the 9.75% Convertible Subordinated Debentures since March
31, 1995. The remaining increase in interest expense of $700,000 is largely due
to the interest expense on mortgage loans assumed by the Company. Depreciation
and amortization expense increased by $598,000 primarily due to the acquisition
of additional skilled nursing and assisted living facilities in the past year.
Operating and other expenses increased by $257,000 principally due to higher
administrative costs. The remaining increase in total expenses of $120,000
related primarily to the payments made to the holders of the limited partnership
interests.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's net real estate investment
portfolio consisted of approximately $116,792,000 invested in mortgage loans,
approximately $92,917,000 invested in mortgage-backed securities and
approximately $158,353,000 before accumulated depreciation of $6,733,000
invested in skilled nursing and assisted living facilities owned by the Company.
The Company's owned skilled nursing and assisted living facilities are leased to
operators pursuant to non-cancelable long-term net leases.
10
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the three-month period ended March 31, 1996, the Company completed
investments totaling approximately $77,985,000 which consisted of purchases of
19 long-term care facilities for approximately $41,085,000 and mortgage loans
for approximately $36,900,000. The Company financed its investments through the
sale of $30,000,000 aggregate principal amount of 7.75% Convertible Subordinated
Debentures in February 1996, the sale of mortgage-backed securities in March
1996, the assumption of non-recourse mortgage loans totaling $5,106,000, short-
term borrowings and cash on hand.
The Company has the option to redeem, without penalty, its currently
outstanding $1,918,000 aggregate principal amount of 9.75% Convertible
Subordinated Debentures at any time. Since such debentures are convertible into
common stock of the Company at a conversion price of $10.00 per share, the
Company anticipates that substantially all of such debentures will be converted
if it elects to redeem the debentures.
Subsequent to March 31, 1996, the Company invested in additional mortgage
loans totaling $10,200,000. These mortgage loans are secured by, among other
things, three skilled nursing facilities with a total of 521 beds. The loans
have an average initial interest rate of 10.17%, generally have maturities of 15
years and provide for increases in the interest rate. In addition, the Company
purchased and leased to ALC three assisted living facilities (one of which was
in Washington) with a total of 125 units for an aggregate purchase price of
approximately $6,640,000. These three ALFs will generate total annual lease
payments of approximately $662,000 (excluding rent increases).
As of May 1, 1996, the Company had outstanding commitments to provide
mortgage loans totaling approximately $17,560,000. The mortgage loans, the
closings of which are subject to completion of certain conditions, will be
secured by five skilled nursing facilities with a total of 591 beds. In
addition, the Company has commitments to acquire seven ALFs (including the two
remaining Washington ALFs) with a total of 271 units and four skilled nursing
facilities with a total of 496 beds for an aggregate purchase price of
approximately $29,735,000.
As of May 1, 1996, the Company has available approximately $59,741,000 under
its lines of credit. In addition, the Company anticipates completing a
securitization transaction within the next year, the proceeds of which will be
used to repay borrowings outstanding under its repurchase agreement and its
unsecured line of credit. In connection with such securitization, the Company,
in September 1995, entered into a seven-year forward interest rate swap
agreement (the "September 1995 Agreement"), which effectively locked-in the net
interest margin on $60,000,000 principal amount of senior certificates that will
be sold. The September 1995 Agreement will be terminated at the earlier of (i)
the completion of the securitization or (ii) February 28, 1997 and has been
accounted for as a hedging transaction. The effect of any
11
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
change in the interest rate will be accounted for as an adjustment to the
carrying value of any retained interest in the mortgage-backed securities. As of
April 30, 1996, the Company had an unrealized gain of approximately $1,154,000
resulting from the transaction covered by the September 1995 Agreement.
The Company believes that its current cash from operations available for
distribution or reinvestment and its borrowing capacity are sufficient to
provide for payment of its operating costs, provide funds for distribution to
its stockholders and to fund additional investments.
12
PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
March 31, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Pooling and Servicing Agreement dated as of March 1, 1996,
among LTC REMIC Corporation, as depositor, GMAC
Commercial Mortgage Corporation, as Master Servicer,
LTC Properties, Inc., as Special Servicer and Originator,
LaSalle National Bank, as Trustee and ABN AMRO Bank
N.V., as fiscal agent
10.2 Transfer and Repurchase Agreement by and between
LTC Properties, Inc. and LTC REMIC Corporation dated
as of March 1, 1996
11.1 Computation of Net Income per share for the quarters ended
March 31, 1996 and 1995.
27 Financial Data Schedule
In accordance with Item 601(b)(4)(iii) of Regulation S-K, certain
instruments pertaining to Registrant's long-term debt have not
been filed; copies thereof will be furnished to the Securities and
Exchange Commission upon request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three
months ended March 31, 1996.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LTC PROPERTIES, INC.
Registrant
Dated: May 14, 1996 By: JAMES J. PIECZYNSKI
--------------------
James J. Pieczynski
Senior Vice President and
Chief Financial Officer
14