10-Q: Quarterly report [Sections 13 or 15(d)]
Published on May 15, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
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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, 2000
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
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Shares of Registrant's common stock, $.01 par value, outstanding at May 5, 2000
- 26,053,254
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LTC PROPERTIES, INC.
FORM 10-Q
March 31, 2000
INDEX
2
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
SEE ACCOMPANYING NOTES
3
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
SEE ACCOMPANYING NOTES
4
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SEE ACCOMPANYING NOTES
5
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
LTC Properties, Inc. (the "Company"), a Maryland corporation, is a real estate
investment trust ("REIT") that invests primarily in long term care facilities
through mortgage loans, facility lease transactions and other investments.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit and in the opinion of management include
all adjustments necessary for a fair presentation of the results of operations
for the three months ended March 31, 2000 and 1999 pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
condensed 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 reclassifications have been made to the prior year financial statements
to conform to the current year presentation. 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; however, 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
months ended March 31, 2000 and 1999 are not necessarily indicative of the
results for a full year.
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 that is distributed to its stockholders.
2. REAL ESTATE INVESTMENTS
MORTGAGE LOANS. During the three months ended March 31, 2000, prepayments
totaling $5,558,000 were made on two mortgage loans originally scheduled to
mature in 2006 to 2007. A mortgage loan with a net investment balance of
approximately $350,000 was converted to an owned property as a result of a
foreclosure. At March 31, 2000, the Company had 54 mortgage loans secured by
first mortgages on 52 skilled nursing facilities with a total of 5,621 beds and
10 assisted living residences with a total of 580 units located in 23 states. At
March 31, 2000, the mortgage loans had interest rates ranging from 9.0% to 13.5%
and maturities ranging from 2000 to 2018. In addition, the loans contain certain
guarantees, provide for certain facility fees and generally have 25-year
amortization schedules. The majority of the mortgage loans provide for annual
increases in the interest rate based upon a specified increase of 10 to 25 basis
points.
REMIC CERTIFICATES. As of March 31, 2000 the outstanding certificate principal
balance and the weighted average pass-through rate for the senior REMIC
certificates (all held by outside third parties) was $273,819,000 and 7.22%. As
of March 31, 2000, the carrying value of the subordinated REMIC certificates
held by the Company was $97,351,000. The effective yield on the subordinated
REMIC certificates held by the Company, based on expected future cash flows
discounted to give effect to potential risks associated with prepayments and
unanticipated credit losses was 17.35% at March 31, 2000.
Interest only certificates and certificates with an investment rating of "BB" or
higher are classified as available-for-sale and unrated certificates and
certificates with an investment rating of "B" or lower are classified as
held-to-maturity. As of March 31, 2000, available-for-sale certificates were
recorded at their fair value of approximately $45,276,000. Unrealized holding
gains on available-for-sale certificates of $274,000 were included in
comprehensive income for the three months ended March 31, 2000. At
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LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
March 31, 2000 held-to-maturity certificates had a book value of $52,080,000 and
a fair value of $44,866,000. As of March 31, 2000, the effective yield on the
available-for-sale certificates and the held-to-maturity certificates, based on
expected future cash flows discounted to give effect to potential risks
associated with prepayments and unanticipated credit losses, was 23.0% and
11.9%, respectively.
3. RELATED PARTY TRANSACTIONS
As of March 31, 2000, 33 real estate properties with a gross carrying value of
$79,763,000 or 8.73% of the Company's gross real estate investment portfolio
(adjusted to include mortgage loans underlying the REMIC Certificates) were
operated by LTC Healthcare Inc. ("Healthcare"). The Company recorded rental
income of approximately $2,042,000 from Healthcare during the three months ended
March 31, 2000.
At March 31, 2000 the Company held 239,900 shares of Healthcare common stock
that was recorded at its fair value of approximately $255,000. An unrealized
holding loss of $225,000 was included in comprehensive income for the three
months ended March 31, 2000.
The Company has provided Healthcare with a $20,000,000 unsecured line of credit
that bears interest at 10% and matures in March 2008. As of March 31, 2000 and
December 31, 1999, $17,543,000 and $6,337,000, respectively, was outstanding
under the line of credit. During the three months ended March 31, 2000, the
Company recorded interest income of $293,000 on the average outstanding
principal balance under the line of credit.
As provided for under the administrative services agreement with Healthcare,
Healthcare reimbursed the Company for administrative and management advisory
services during the three months ended March 31, 2000 and 1999 of $175,000 and
$173,000, respectively.
4. DEBT OBLIGATIONS
As of March 31, 2000 $148,000,000 was outstanding under the Company's
$170,000,000 Senior Unsecured Revolving Line of Credit (the "Revolving Credit
Facility") which expires on October 3, 2000. During the three months ended March
31, 2000, pricing under the Revolving Credit Facility was LIBOR plus a range of
1.25% to 1.375%. As of March 31, 2000, $25,000,000 was outstanding under a term
loan that bears interest at LIBOR plus 1.375% and matures on October 2, 2000.
5. STOCKHOLDERS EQUITY
During the three months ended March 31, 2000, the Company repurchased and
retired 1,005,600 shares of common stock for an aggregate purchase price of
approximately $7,969,000. In addition, during the three months ended March 31,
2000 the Company granted 23,000 shares of restricted stock. On March 31, 2000,
the Company granted 387,500 stock options at an exercise price of $5 3/8. The
options vest over five years and expire the earlier of seven years from the date
of vesting and ten years from the date of grant.
During the three months ended March 31, 2000, the Company declared and paid cash
dividends on its Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock totaling $1,829,000, $1,125,000, and $818,000 respectively.
During the three months ended March 31, 2000 the Company declared and paid cash
dividends of $ 0.29 per share on its common stock totaling $7,581,000.
7
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. MAJOR OPERATORS
At March 31, 2000, Sun Healthcare, Inc. ("Sun") operated 40 facilities
representing 11.9% ($108.6 million) of the Company's gross real estate
investment portfolio. Sun is currently operating its business as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. As of
March 31, 2000 Sun is not current on principal and interest payments on two
mortgage loans with a combined principal balance of $9,043,000 that are secured
by five properties. As a result, the Company has placed these loans on
non-accrual status and did not record any interest income during the three
months ended March 31, 2000.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income
per share (in thousands, except per share amounts):
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues for the three months ended March 31, 2000 increased to $22,506,000 from
$22,204,000 for the same period in 1999. Same store rental income, properties
owned for the three months ended March 31, 2000 and the three months ended March
31,1999, increased $129,800 due to the receipts of contingent rents and rental
increases as provided for in the lease agreements. Rental income for the three
months ended March 31, 2000 increased $1,802,000 compared to the same period of
1999 as a result of the acquisition of 15 properties and the receipt of rental
increases as provided for in the lease agreements. Ten of these properties were
leased to LTC Healthcare, Inc. ("Healthcare") beginning September 1999, October
1999 and January 2000. The other five properties were leased to third party
payors. The decrease in interest income from mortgage loans and notes receivable
is largely the result of the mortgage loans which converted to owned properties
and were then leased to third parties as discussed above. Interest income from
REMIC certificates for the three months ended March 31, 2000 decreased $130,000
compared to the same period of 1999. Interest and other income decreased $94,000
compared to the same period in 1999.
Interest expense increased by $1,355,000 to $6,521,000 for the three months
ended March 31, 2000 from $5,166,000 during the same period in 1999 due to an
increase in debt outstanding along with general increases in interest rates.
Depreciation and amortization increased primarily as a result of the acquisition
of properties as discussed above. The increase in general and administrative
expenses is attributable to an increase in the number of full time employees.
Net income available to common shareholders decreased to $6,903,000 for the
three months ended March 31, 2000 from $8,768,000 for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 the Company's real estate investment portfolio (before
accumulated depreciation and allowance for doubtful accounts) consisted of
$495,873,000 invested primarily in owned long-term care facilities, mortgage
loans of approximately $126,195,000 and subordinated REMIC certificates of
approximately $97,351,000 with a weighted average effective yield of 17.35%. At
March 31, 2000 the outstanding certificate principal balance and the weighted
average pass-through rate for the senior REMIC certificates (all held by outside
third parties) was $273,819,000 and 7.22%. The Company's portfolio consists of
263 skilled nursing facilities, 96 assisted living facilities and six schools in
36 states.
For the three months ended March 31, 2000, the Company had net cash provided by
operating activities of $11,386,000. The Company had additional bank borrowings
of $17,000,000 and repaid $4,000,000 for the three months ended March 31, 2000.
During the three months ended March 31, 2000, the Company repurchased and
retired 1,005,600 shares of common stock for an aggregate purchase price of
approximately $7,969,000. During the same period, the Company declared and paid
cash dividends on its Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock totaling $1,829,000, $1,125,000, and $818,000,
respectively. In addition, the Company paid quarterly cash dividends on its
common stock totaling $7,581,000.
During the three months ended March 31, 2000, net cash used in investing
activities were $4,928,000. The Company invested $1,602,000 in the expansion and
improvements of existing properties and provided Healthcare with an additional
$11,206,000 in borrowings under the $20,000,000 unsecured line of credit that
bears interest at 10% and matures in March 2008. In addition, principal payments
of $5,898,000 were received on mortgage loans receivable during the three months
ended March 31, 2000.
9
As of March 31, 2000 borrowing capacity of $22,000,000 was available under the
Company's $170,000,000 unsecured revolving credit facility that matures in
October 2000. The revolving credit facility had pricing of LIBOR plus 1.375% at
March 31, 2000. After giving effect to borrowing base requirements for
outstanding bank borrowings, the Company had $296,852,000 of available
unencumbered real estate investments at March 31, 2000. Available unencumbered
real estate investments consisted of $155,161,000 in owned properties (before
accumulated depreciation), $44,340,000 of mortgage loans (before allowance for
doubtful accounts) and $97,351,000 of REMIC certificates. As of March 31, 2000,
$25,000,000 was outstanding under a term loan that bears interest at LIBOR plus
1.375% and matures on October 2, 2000.
The Company expects its future income and ability to make distributions from
cash flows from operations to depend on the collectibility of its mortgage loans
receivable, REMIC Certificates and rents. The collection of these loans,
certificates and rents will be dependent, in large part, upon the successful
operation by the operators of the skilled nursing facilities, assisted living
residences and schools owned by or pledged to the Company. The operating results
of the facilities will depend on various factors over which the operators/owners
may have no control. Those factors include, without limitation, the status of
the economy, changes in supply of or demand for competing long-term care
facilities, ability to control rising operating costs, and the potential for
significant reforms in the long-term care industry. In addition, the Company's
future growth in net income and cash flow may be adversely impacted by various
proposals for changes in the governmental regulations and financing of the
long-term care industry. The Company cannot presently predict what impact these
proposals may have, if any. The Company believes that an adequate provision has
been made for the possibility of loans proving uncollectible but will
continually evaluate the status of the operations of the skilled nursing
facilities, assisted living facilities and schools. In addition, the Company
will monitor its borrowers and the underlying collateral for mortgage loans and
will make future revisions to the provision, if considered necessary.
The Company's investments, principally its investments in mortgage loans, REMIC
Certificates, and owned properties, are subject to the possibility of loss of
their carrying values as a result of changes in market prices, interest rates
and inflationary expectations. The effects on interest rates may affect the
Company's costs of financing its operations and the fair market value of its
financial assets. The Company generally makes loans that have predetermined
increases in interest rates and leases that have agreed upon annual increases.
In as much as the Company initially funds its investments with its Revolving
Credit Facility, the Company is at risk of net interest margin deterioration if
medium and long-term rates were to increase between the time the Company
originates the investment and replaces the short-term variable rate borrowings
with a fixed rate financing.
The REMIC certificates retained by the Company are subordinate in rank and right
of payment to the certificates sold to third-party investors and as such would,
in most cases, bear the first risk of loss in the event of an impairment to any
of the underlying mortgages. The returns on the Company's investment in REMIC
certificates are subject to certain uncertainties and contingencies including,
without limitation, the level of prepayments, estimated future credit losses,
prevailing interest rates, and the timing and magnitude of credit losses on the
underlying mortgages collateralizing the securities that are a result of the
general condition of the real estate market or long-term care industry. As these
uncertainties and contingencies are difficult to predict and are subject to
future events that may alter management's estimations and assumptions, no
assurance can be given that current yields will not vary significantly in future
periods. To minimize the impact of prepayments, the mortgage loans underlying
the REMIC certificates generally prohibit prepayment unless the property is sold
to an unaffiliated third party (with respect to the borrower).
The Company believes that its current cash flow from operations available for
distribution or reinvestment and its current borrowing capacity are sufficient
to provide for payment of its operating costs and provide funds for distribution
to its stockholders. Difficult capital market conditions in the health care
industry have limited the Company's access to traditional forms of growth
capital. As a result of the tight capital markets for the health care industry,
the Company has continued to limit its investment activity in 2000. The Company
expects to refinance the borrowings outstanding under its unsecured credit
agreements and utilize cash from operations and additional borrowings under the
refinanced unsecured credit agreements to repay the convertible subordinated
debentures at maturity. If prevailing interest rates or other factors at the
time of refinancing (such as the reluctance of lenders to make commercial real
estate loans) result in
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higher rates upon refinancing, the interest expense relating to the refinanced
indebtedness would increase adversely affecting our financial condition and
results of operations.
FUNDS FROM OPERATIONS
The Company has adopted the definition of Funds From Operations ("FFO")
prescribed by the National Association of Real Estate Investment Trusts
("NAREIT"). FFO is defined as net income applicable to common stockholders
(computed in accordance with GAAP) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation of real property and
after adjustments for unconsolidated entities in which a REIT holds an interest.
In addition, the Company excludes any unrealized gains or losses resulting from
temporary changes in the estimated fair value of its REMIC Certificates from the
computation of FFO.
The Company believes that FFO is an important supplemental measure of operating
performance. FFO should not be considered as an alternative to net income or any
other GAAP measurement of performance as an indicator of operating performance
or as an alternative to cash flows from operations, investing or financing
activities as a measure of liquidity. The Company believes that FFO is helpful
in evaluating a real estate investment portfolio's overall performance
considering the fact that historical cost accounting implicitly assumes that the
value of real estate assets diminishes predictably over time. FFO provides an
alternative measurement criteria, exclusive of certain non-cash charges included
in GAAP income, by which to evaluate the performance of such investments. FFO,
as used by the Company in accordance with the NAREIT definition may not be
comparable to similarly entitled items reported by other REITs that have not
adopted the NAREIT definition.
The following table reconciles net income available to common stockholders to
FFO available to common stockholders (in thousands):
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain information contained in this report includes forward looking
statements, which can be identified by the use of forward looking terminology
such as "may", "will", "expect", "should" or comparable terms or negatives
thereof. These statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) the following: the
effect of economic and market conditions and changes in interest rates,
government policy relating to the health care industry including changes in
reimbursement levels under the Medicare and Medicaid programs, changes in
reimbursement by other third party payors, the financial strength of the
operators of the Company's facilities as it affects the continuing ability of
such operators to meet their obligations to the Company under the terms of the
Company's agreements with its borrowers and operators, the amount and the timing
of additional investments, access to capital markets and changes in tax laws and
regulations.
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PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
MARCH 31, 2000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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, 2000.
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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 15, 2000 By: /s/ JAMES J. PIECZYNSKI
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James J. Pieczynski
President and Chief Financial Officer
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