10-Q: Quarterly report [Sections 13 or 15(d)]
Published on May 15, 1998
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, 1998
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 May 8, 1998
- - 26,738,742
LTC PROPERTIES, INC.
FORM 10-Q
MARCH 31, 1998
INDEX
2
SEE ACCOMPANYING NOTES
3
SEE ACCOMPANYING NOTES
4
SEE ACCOMPANYING NOTES
5
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements included herein have been
prepared by LTC Properties, Inc. (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, 1998 and 1997 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 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, 1998 and 1997 are not
necessarily indicative of the results for a full year. Certain
reclassifications have been made to the prior year financial statements to
conform to the current year presentation.
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 which is distributed to its stockholders.
2. REAL ESTATE INVESTMENTS
The Company's Board of Directors has authorized the Company to invest up to
30% of its adjusted gross real estate investment portfolio (adjusted to
include the mortgage loans to third parties underlying the $87,650,000
investment in REMIC Certificates) in assisted living facilities ("ALFs"). In
addition, the Board of Directors has authorized the Company to invest up to
20% of its adjusted gross real estate investment portfolio in properties
operated by Assisted Living Concepts, Inc. ("ALC"). At March 31, 1998, the
Company's adjusted gross real estate portfolio was approximately $816,886,000
of which the Company had investments in ALFs and in properties operated by
ALC of approximately $182,920,000 and $85,292,000, respectively or 22.4% and
10.4%, respectively, of the Company's total adjusted gross real estate
investment portfolio.
MORTGAGE LOANS. During the three months ended March 31, 1998, the Company
invested $1,950,000 in a single mortgage loan secured by a skilled nursing
facility with 120 beds. In addition, sale/lease-back financing was provided
on an assisted living facility that was previously financed with a
construction loan of approximately $1,667,000 and an additional $284,000 of
financing was provided on ALFs under construction.
OWNED PROPERTIES. During the three months ended March 31, 1998, the Company
acquired six skilled nursing facilities with a total of 550 beds and five
ALFs with a total of 423 units for approximately $41,322,000. Included in
this amount was one assisted living facility with 42 units that was purchased
for approximately $1,171,000 net of the construction loan of $1,667,000
discussed above. Three of the skilled nursing facilities were acquired
through the formation of a limited partnership and five of the skilled
nursing facilities, including two of the facilities acquired through the
partnership, were purchased subject to mortgage loans of approximately
$7,018,000.
6
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Subsequent to March 31, 1998, the Company completed investments in mortgage
loans of approximately $7,200,000 and owned properties of approximately
$29,600,000.
REMIC CERTIFICATES. As of March 31, 1998, the outstanding certificate
principal balance and the weighted average pass-through rate for the senior
REMIC Certificates (all held by outside third parties) was $188,817,000 and
7.86%. As of March 31, 1998, the face value, unamortized cost and the
estimated fair value of the subordinated REMIC Certificates held by the
Company was $74,800,000, $81,148,000 and $87,650,000, respectively. The
effective yield on the subordinated REMIC Certificates held by the company,
based on expected future cash flows with no unscheduled prepayments was 16.7%
at March 31, 1998.
Subsequent to March 31, 1998, the Company completed the securitization of
approximately $129,300,000 of mortgage loans with a weighted average interest
rate of 10.2% and $26,400,000 face amount of subordinated certificates,
retained from a securitization completed in 1993, with an interest rate of
9.78% (the "1998-1 Pool). As part of the securitization, the Company sold
approximately $121,400,000 face amount of senior certificates at a weighted
average pass-through rate of 6.3% and retained $34,300,000 face amount of
subordinated certificates along with the interest only certificates.
Included in the 1998-1 Pool were 40 mortgage loans, including mortgage loans
of approximately $25,700,000 provided to wholly owned subsidiaries and
limited partnerships of the Company. Net proceeds from the above
securitization will be used to repay borrowings outstanding under the
Company's line of credit.
COMMITMENTS. As of May 8, 1998, the Company had outstanding commitments
aggregating approximately $248,000,000 of which $50,000,000 are due to expire
in each of 1999 and 2000.
3. DEBT OBLIGATIONS
BANK BORROWINGS. As of March 31, 1998, $121,000,000 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. The Revolving
Credit Facility pricing varies between LIBOR plus 1.25% and LIBOR plus 1.5%
depending on the Company's leverage ratio. Currently the pricing is LIBOR
plus 1.25%. The Revolving Credit Facility contains financial covenants
including, but not limited to, maximum leverage ratios, minimum debt service
coverage ratios, cash flow coverage ratios and minimum consolidated tangible
net worth.
CONVERTIBLE SUBORDINATED DEBENTURES. During the three months ended March 31,
1998, holders of approximately $18,109,000 in principal amount of convertible
subordinated debentures elected to convert the debentures into 1,160,452
shares of common stock at prices ranging from $10.00 to $17.25 per share.
Subsequent to March 31, 1998, an additional $240,000 in principal amount of
convertible subordinated debentures converted into 14,787 shares of the
Company's common stock at prices ranging from $15.00 to $16.50 per share.
MORTGAGE LOANS PAYABLE. During the three months ended March 31, 1998, the
Company acquired five skilled nursing facilities that were subject to
mortgage loans of approximately $7,018,000. These mortgage loans have a
current weighted average interest rate of 12%, are due in September 2002 and
are payable to a REMIC formed by the Company in 1993.
7
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. STOCKHOLDERS EQUITY
During the three months ended March 31, 1998, the Company's management and
directors purchased 146,500 shares of the Company's common stock under the
option loan program. At March 31, 1998, loans totaling $11,415,000 bearing
interest at rates ranging from 5.77% to 6.63% per annum were outstanding.
These loans are secured by a pledge of the shares of common stock acquired
through the exercise of options and are full recourse to the borrower. The
market value of the common stock securing these loans was approximately
$16,100,000 at March 31, 1998.
5. DISTRIBUTIONS
During the three months ended March 31, 1998, the Company declared and paid
cash dividends on the Series A Preferred Stock totaling $1,829,000. During
the three months ended March 31, 1998, the Company declared and paid cash
dividends on the Series B Preferred Stock totaling $1,125,000 and $912,000,
respectively. Dividends paid on the Series B Preferred Stock represent a
partial period dividend of $.0813 per share for the period from December 18
through December 31, 1997 and the regular monthly dividend of $.1875 per
share for subsequent periods.
During the three months ended March 31, 1998, the Company declared and paid
cash dividends on its common stock totaling $9,666,000. Dividends declared
on the Company's common stock represent the regular quarterly dividend of
$.365 per share for the quarter ended March 31, 1998. Subsequent to March
31, 1998, the Company's Board of Directors authorized an increase in the
regular quarterly dividend to $.39 per share.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share amounts):
8
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. INTEREST RATE SWAP AGREEMENTS
As of March 31, 1998, the Company was party to a seven-year forward interest
rate swap agreement under which the Company was credited interest at the six
month LIBOR and incurred interest at a fixed rate of 6.655% on a notional
amount of $60,000,000 and a Treasury lock agreement whereby the Company
locked into a rate of 6.484% on the seven year Treasury Note Rate on a
notional amount of $65,000,000. The interest rate swap agreement and the
Treasury lock agreements were scheduled to be settled by June 30, 1998 and
April 30, 1998, respectively. Upon settlement of the Treasury lock agreement
the Company will either receive or make a payment based on the change in the
seven year Treasury Note Rate. As of March 31, 1998, these agreements were
accounted for as hedges and were entered into to minimize the Company's
exposure to interest rate risk on mortgage loans that the Company intends to
transfer to a REMIC trust. The fair value or mortgage loans will vary with
changes in interest rates.
Subsequent to March 31, 1998, the interest rate swap and Treasury lock
agreements were terminated in connection with the transfer of mortgage loans
to a REMIC trust. Upon termination of these agreements, the Company made an
aggregate payment of approximately $5,000,000 that will be included in the
cost of the recently completed securitization transaction.
9
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues for the three months ended March 31, 1998 increased approximately
29% to $21,219,000 from $16,487,000 for the same period in 1997. The
increase in revenues resulted from increased rental income of $2,752,000,
increased interest income on mortgage loans of $1,033,000 and an increase in
interest and other income of $1,284,000. Partially offsetting the above
increases was a decrease of approximately $337,000 in interest income from
REMIC certificates. Rental income increased $2,270,000 as a result of
property acquisitions completed since during the later part of 1997 and
$425,000 due to the property acquisitions completed during the first three
months of 1998. "Same-store" rents increased $172,000 due to the receipt of
contingent rents and rental increases as provided for in the lease
agreements. Partially offsetting the above increases in rental income was a
decrease of $115,000 resulting from the sale of properties in the later part
of 1997. The increase in mortgage interest income resulted from the higher
mortgage investment base in 1998 compared to 1997. Increased interest and
other income for 1998 resulted from interest income on notes receivable from
stockholders and increased commitment fees. The decrease in interest income
from REMIC certificates is a result of the sale of $11,811,000 face amount of
subordinated certificates in June 1997.
Total expenses for the three months ended March 31, 1998 were 46% of net
revenues compared to 54% for the same period in 1997. The decrease is due to
a reduction in interest expense as a percent of net revenues. The reduction
in interest expense is primarily the result of conversions of subordinated
debentures during 1997 and 1998 and the utilization of equity to fund
financing activities in 1997. Depreciation and amortization as a percent of
rental income remained stable at 29% and 30% in 1998 and 1997, respectively.
The increase in operating and other expenses is due to increased salaries and
benefits attributable to an increase in full time employees.
Other income increased due to an decrease in the estimated fair value of
REMIC Certificates which resulted in an unrealized loss of $1,072,000 during
the prior period as compared to the current period's unrealized gain of
$56,000.
During the three months ended March 31, 1998, the Company declared dividends
of $2,954,000 representing a full quarter of dividends on its Series A
Cumulative Preferred Stock issued in March 1997 and its Series B Cumulative
Preferred Stock issued in December 1997. Dividends declared during the three
months ended March 31, 1997 represent a partial dividend on the Series A
Cumulative Preferred Stock issued in March 1997.
As a result of the changes in revenues and expenses discussed above, net
income available to common shareholders increased $2,444,000 to $8,551,000
for the three months ended March 31, 1998 from $6,107,000 for the same period
in 1997.
10
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company's real estate investment portfolio
consisted of approximately $361,859,000 invested in owned skilled nursing and
assisted living facilities (before accumulated depreciation of $22,623,000),
approximately $255,081,000 invested in mortgage loans (before allowance for
doubtful accounts of $1,000,000) and approximately $87,650,000 invested in
REMIC Certificates. As of March 31, 1998, the outstanding certificate
principal balance and the weighted average pass-through rate for the senior
REMIC Certificates (all held by outside third parties) was $188,817,000 and
7.86%. As of March 31, 1998, the face value, unamortized cost and the
estimated fair value of the subordinated REMIC Certificates held by the
Company was $74,800,000, $81,148,000 and $87,650,000, respectively. The
effective yield on the subordinated REMIC Certificates held by the Company,
based on expected future cash flows with no unscheduled prepayments was 16.7%
at March 31, 1998. The Company's portfolio consists of 275 skilled nursing
facilities and 81 assisted living facilities in 34 states.
During the three months ended March 31, 1998, the Company completed
approximately $43,556,000 in new investments in long-term care facilities
consisting of approximately $2,234,000 in mortgage loans and approximately
$41,322,000 in owned properties. The Company financed its investments
through the assumption of mortgage loans of $7,018,000 bearing interest at
12% and maturing in 2002, issuance of $3,432,000 in minority interests,
short-term borrowings and cash on hand.
As of March 31, 1998, $121,000,000 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. The Revolving Credit Facility
pricing varies between LIBOR plus 1.25% and LIBOR plus 1.5% depending on the
Company's leverage ratio. Currently the pricing is LIBOR plus 1.25%.
The Company currently has the option to redeem, at any time and without
penalty, its outstanding $507,000 aggregate principal amount of 9.75%
Convertible Subordinated Debentures due 2004 and $12,796,000 aggregate
principal amount of 8.5% Convertible Subordinated Debentures due 2000. Since
such debentures are convertible into common stock of the Company at
conversion prices of $10.00 and $15.00 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, 1998, the Company completed investments totaling
$36,800,000. As of May 8, 1998, the Company had outstanding commitments
aggregating approximately $248,000,000. Commitments of $50,000,000 are due to
expire in each of 1999 and 2000.
Subsequent to March 31, 1998, the Company completed the securitization of
approximately $129,300,000 of mortgage loans with a weighted average interest
rate of 10.2% and $26,400,000 face amount of subordinated certificates,
retained from a securitization completed in 1993, with an interest rate of
9.78% (the "1998-1 Pool). As part of the securitization, the Company sold
approximately $121,400,000 face amount of senior certificates at a weighted
average pass-through rate of 6.3% and retained $34,300,000 face amount of
subordinated certificates along with the interest only certificates.
Included in the 1998-1 Pool were 40 mortgage loans, including mortgage loans
of approximately $25,700,000 provided to wholly owned subsidiaries and
limited partnerships
11
LTC PROPERTIES, INC.
v
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(CONTINUED)
of the Company. Net proceeds from the above securitization will be used to
repay borrowings outstanding under the Company's line of credit.
The Company believes that its current cash from operations available for
distribution or reinvestment, its borrowing capacity, the proceeds from the
recently completed REMIC transaction, and the Company's ability to access the
capital markets are sufficient to provide for payment of its operating costs,
provide funds for distribution to its stockholders and to fund additional
investments.
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 affecting real estate investment trusts.
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PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
MARCH 31, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Senior Unsecured Revolving Line of Credit Agreement dated
October 3, 1997 between LTC Properties, Inc. and Banque
Nationale de Paris, Sanwa Bank California and The Sumitomo
Bank
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, 1998.
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 15 , 1998 By: /s/ JAMES J. PIECZYNSKI
-----------------------
James J. Pieczynski
President and Chief
Financial Officer
14