10-Q: Quarterly report [Sections 13 or 15(d)]
Published on August 14, 1996
================================================================================
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 June 30, 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 July
31, 1996 - 18,639,694
================================================================================
LTC PROPERTIES, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
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 CONDENSED 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 and six-month
periods ended June 30, 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 and six-month periods ended June 30, 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 six-month period ended June 30, 1996, the Company
invested in mortgage loans totaling $57,010,000 secured by, among other things,
23 skilled nursing facilities located in 11 states with a total of 2,884 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 10.55%, generally provide for increases in the interest
rate and contain certain facility fees. In addition, the Company provided a
$1,000,000 additional advance on a previously existing loan.
In March 1996, the Company provided non-recourse mortgage loans
secured by long-term care facilities to three of its wholly owned subsidiaries
and to certain partnerships in which the Company was a general partner totaling
$31,525,000. 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 $27,430,000 14 assisted living residences ("ALFs") in Alabama,
Texas and Washington with a total of 509 units. Thirteen of these ALFs were
purchased for a total of $26,180,000 and have been leased to Assisted Living
Concepts, Inc. ("ALC") for a total annual rent of approximately $2,485,000
(subject to increases) pursuant to long-term non-cancelable agreements. Included
in the leases to ALC were five ALFs in Washington which were purchased for
$11,280,000 and had been financed by the Company through the issuance of
6
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
$8,300,000 of multi-family tax-exempt revenue bonds in December 1995 that have a
total cost of funds of approximately 5.9%. As of June 30, 1996, the Company had
acquired all five of the Washington ALFs and had leased them to ALC generating
an initial annual rent of approximately $948,000. The Company also acquired for
$14,450,000 four skilled nursing facilities in Alabama, Georgia and Tennessee
with a total of 472 beds.
During the six months ended June 30, 1996, six newly formed limited
partnerships, of which the Company is the general partner, acquired 16 skilled
nursing facilities in Alabama, Arizona, Iowa and Texas for a total of
approximately $53,741,000. These facilities were purchased subject to mortgage
loans of approximately $9,641,000. Under the partnership agreements, the Company
has guaranteed payment of a 10% preferred return to the holders of the
$8,932,000 in limited partnership interests. Under certain circumstances, the
limited partnership interests can be exchanged, at the option of the holder,
into 628,511 shares of the Company's common stock commencing in January and July
1997. The mortgage loans of $9,641,000 assumed by the Company have an initial
average interest rate of 11.64%, are due in 2002-2005 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, and retained
the remaining certificates.
(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, and are
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
interest rate swap agreement entered into in May 1995 was terminated at a cost
of approximately $1,500,000. Because the purpose of the agreement 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. The Certificates retained by the Company have a weighted
average effective yield of approximately 18.0%.
7
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The mortgage-backed securities owned by the Company, which at June
30, 1996 had a carrying value of $92,731,000, are subordinated to approximately
$222,600,000 of senior Certificates which carry a weighted average interest rate
of 7.81%. The Company's mortgage-backed securities have a weighted average
effective yield of approximately 16.65%.
(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 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 six-month period ended June 30, 1996, holders of
$1,258,000 in principal amount of 9.75% Convertible Subordinated Debentures due
2004 elected to convert the debentures into 125,800 shares of common stock at
$10.00 per share. During the six months ended June 30, 1996, holders of
$3,069,000 in principal amount of 8.5% Convertible Subordinated Debentures due
2000 elected to convert into 204,598 shares of common stock at $15.00 per share.
In addition, holders of $383,000 in principal amount of 8.5% Convertible
Subordinated Debentures due 2001 elected to convert the debentures into 24,709
shares of common stock at $15.50 per share. The conversions during the six
months ended June 30, 1996 resulted in an additional equity of approximately
$4,570,000, net of unamortized issuance costs of approximately $140,000. There
was approximately $83,000 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) In 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 Amended and Restated 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) During the six months ended June 30, 1996, the Company repurchased
and retired 120,000 shares of common stock for an aggregate purchase price of
approximately $1,830,800.
8
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Subsequent to June 30, 1996, the Company invested in additional
mortgage loans totaling $3,000,000. These mortgage loans are secured by, among
other things, two skilled nursing facilities with a total of 173 beds. The loans
have an average initial interest rate of 11.58%, have maturities of 10 and 20
years and provide for increases in the interest rate.
Subsequent to June 30, 1996, an additional $1,010,000 in principal
amount of 9.75% Convertible Subordinated Debentures converted into 101,000
shares of the Company's common stock. In addition, approximately $50,000 in
principal amount of 8.5% Convertible Subordinated Debentures converted into
3,333 shares of the Company's common stock.
As of August 1, 1996, the Company had outstanding commitments to
provide mortgage loans totaling approximately $27,912,000 and to acquire 20
long-term care facilities for an aggregate purchase price of approximately
$50,634,000.
(x) A quarterly dividend of $0.34 per share aggregating approximately
$6,355,000 was declared by the Board of Directors payable on July 15, 1996 to
stockholders of record on June 30, 1996. The dividend has been reflected as
distributions payable in the accompanying financial statements as of June 30,
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 $92,731,000 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
$605,356,000 as of June 30, 1996). Currently, two of the Company's executive
officers serve as members of the Board of Directors of ALC. As of August 1,
1996, three executive officers of the Company own approximately 6.5% of ALC's
common stock. As of June 30, 1996, the Company had investments in ALFs and
properties operated by ALC of approximately 7.4% and 4.9%, respectively of the
Company's total adjusted gross real estate investment portfolio.
9
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Six months 1996 Compared to Six months 1995
During the six-months ended June 30, 1996, cash flow from operating
activities available for distribution or reinvestment was $14,687,000 versus
$12,205,000 for the comparable period in 1995. Revenues for the six months
ended June 30, 1996 were $25,283,000 versus $16,065,000 for the same period in
1995. Revenues increased $9,218,000 primarily as a result of increased rental
income of $4,862,000 and increased interest income on mortgage loans of
$3,534,000 attributable to investments of approximately $218,670,000 in long-
term care facilities the Company completed since June 30, 1995. Revenues also
increased $1,087,000 as a result of interest income from mortgage-backed
securities. These increases were offset by a decrease in other income of
$265,000.
Total expenses for the six months ended June 30, 1996 were $14,211,000
versus $6,148,000 for the same period in 1995. The increase of $8,063,000 is
due in large part to an increase of $6,072,000 in interest expense. Interest
expense increased by $3,842,000 due to the issuance of convertible subordinated
debentures in September 1995 and in February 1996. Interest expense also
increased by $2,150,000 as a result of the bond financing and assumption of
capital leases and mortgage loans by the Company. The remaining increase of
$836,000 was due to interest on borrowings under the Company's lines of credit
which was offset by a decrease of $756,000 as a result of conversions of the
9.75% Convertible Subordinated Debentures since June 30, 1995. Depreciation and
amortization expense increased by $1,335,000 primarily due to the acquisition of
43 additional skilled nursing and assisted living facilities in the past year.
Operating and other expenses increased by $384,000 principally due to higher
administrative costs. The remaining increase in total expenses of $272,000
related to the payments made to the holders of the limited partnership
interests.
Second Quarter 1996 Compared to Second Quarter 1995
During the three-months ended June 30, 1996, cash flow from operating
activities available for distribution or reinvestment was $7,567,000 versus
$6,345,000 for the comparable period in 1995. Revenues for the three months
ended June 30, 1996 were $12,920,000 versus $8,560,000 for the same period in
1995. Revenues increased $4,360,000 primarily as a result of increased rental
income of $2,803,000, increased interest income on mortgage-backed securities of
$1,407,000 and increased interest income on mortgage loans of $548,000. These
increases were offset by a decrease in other income of $398,000.
Total expenses for the three months ended June 30, 1996 were $7,303,000
versus $3,361,000 for the same period in 1995. The increase of $3,942,000 is due
in large part to an increase of $2,926,000 in interest expense. Interest expense
increased primarily due to the issuance of convertible subordinated debentures
in September 1995 and in February 1996 and
10
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
debt assumed by the Company as previously described. Depreciation and
amortization expense increased by $772,000 primarily due to the acquisition of
additional skilled nursing and assisted living facilities in the past year,
including $95,621,000 invested in owned facilities during 1996. Operating and
other expenses increased by $127,000 principally due to higher administrative
costs. The remaining increase in total expenses of $117,000 related to the
payments made to the holders of the limited partnership interests.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's real estate investment portfolio
consisted of approximately $212,890,000 invested in skilled nursing and assisted
living facilities, approximately $137,652,000 invested in mortgage loans and
approximately $92,731,000 invested in mortgage-backed securities. The Company's
portfolio consists of 252 skilled nursing facilities and 23 assisted living
facilities in 30 states.
During the six-month period ended June 30, 1996, the Company completed
investments totaling approximately $153,631,000 which consisted of purchases of
34 long-term care facilities for approximately $95,621,000 and mortgage loans
for approximately $58,010,000. 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 $9,641,000, the
issuance of $8,932,000 in minority interests, short-term borrowings and cash on
hand.
The Company has the option to redeem, without penalty, its currently
outstanding $873,000 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 June 30, 1996, the Company invested in additional mortgage
loans totaling $3,000,000. These mortgage loans are secured by two skilled
nursing facilities with a total of 173 beds. The loans have an average initial
interest rate of 11.58%, have maturities of 10 and 20 years and provide for
increases in the interest rate.
As of August 1, 1996, the Company had outstanding commitments to provide
mortgage loans totaling approximately $27,912,000 and to acquire 20 long-term
care facilities for an aggregate purchase price of approximately $50,634,000.
The Company expects to fund at least $29,587,000 of these commitments by the end
of 1996.
11
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
In May 1996, the terms of the Company's unsecured line of credit were
amended, including certain financial covenants, to increase the amount of the
line from $35,000,000 to $45,000,000 and to extend the expiration date from
December 31, 1996 to May 31, 1998. As of August 1, 1996, the Company had
$56,700,000 borrowings outstanding under its secured and unsecured lines of
credit bearing a weighted average interest rate of approximately 7.18%.
At August 1, 1996, the Company had approximately $125,000,000 available
under its shelf registration statement for future issuance of capital from time
to time in accordance with then existing market conditions. In addition, based
on the current level of collateral, there was approximately $40,140,000
available under its lines of credit which will be increased to $72,300,000 when
additional collateral is accepted.
The Company also 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. As of June 28, 1996, the Company had an unrealized gain of
approximately $1,080,000 on the September 1995 Agreement.
In June 1996, the Financial Accounting Standards Board issued Statement
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" which will require the Company to classify its
investments in mortgage-backed securities, that contractually can be prepaid, to
be measured like investments in debt securities classified as available-for-sale
under Statement 115. Adoption of Statement No. 125 is not required until
January 1, 1997 and the effect of adoption cannot be assessed at this time.
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
June 30, 1996
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Amended and Restated By-Laws of the Company
10.1 Second Amended and Restated Revolving Credit Agreement between
LTC Properties, Inc. and Sanwa Bank California, as agent, dated
as of May 21, 1996
10.2 Guarantee Agreement between Kansas-LTC Corporation, L-Tex GP,
Inc., L-Tex LP, Inc., Rusk-Tex, LP, Inc., Texas-LTC Limited
Partnership, as guarantors, and Sanwa Bank California, as the
agent, dated as of May 21, 1996
11.1 Computation of earnings per share
27 Financial Data
In accordance with Item 601(b)(4)(iii) of Regulation S-K,
certain instruments pertaining to Registrants 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 June 30, 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: August 14, 1996 By: /s/ JAMES J. PIECZYNSKI
-----------------------------
James J. Pieczynski
Senior Vice President and
Chief Financial Officer
14