LTC Properties(LTC) - 2020 Q1 - Quarterly Report

PART I Financial Statements The financial statements for the quarter ended March 31, 2020, detail the company's financial position, performance, and cash flows, highlighting a significant increase in net income to $63.7 million primarily due to a real estate sale Consolidated Balance Sheets As of March 31, 2020, total assets slightly increased to $1.52 billion, driven by a rise in cash, while total liabilities decreased and total equity increased Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,524,785 | $1,514,209 | | Real estate investments, net | $1,372,241 | $1,390,915 | | Cash and cash equivalents | $30,888 | $4,244 | | Total Liabilities | $718,730 | $728,783 | | Bank borrowings | $89,900 | $93,900 | | Senior unsecured notes, net | $599,527 | $599,488 | | Total Equity | $806,055 | $785,426 | Consolidated Statements of Income and Comprehensive Income For the three months ended March 31, 2020, net income significantly increased to $63.7 million, primarily due to a $43.9 million gain on real estate sale, with diluted EPS rising to $1.60 Q1 2020 vs Q1 2019 Income Statement (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenues | $46,410 | $45,456 | | Rental income | $38,035 | $37,624 | | Interest income from mortgage loans | $7,777 | $7,311 | | Total Expenses | $26,773 | $26,114 | | Gain on sale of real estate, net | $43,854 | $— | | Net Income | $63,722 | $20,427 | | Diluted EPS | $1.60 | $0.51 | Consolidated Statements of Cash Flows In Q1 2020, operating activities provided $23.9 million, investing activities generated $51.7 million mainly from property sales, and financing activities used $48.9 million for dividends and stock repurchases, resulting in a $26.6 million cash increase Q1 2020 vs Q1 2019 Cash Flows (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,854 | $26,787 | | Net cash provided by (used in) investing activities | $51,660 | $(28,416) | | Net cash (used in) provided by financing activities | $(48,870) | $5,688 | | Increase in cash | $26,644 | $4,059 | - Key financing activities in Q1 2020 included a $18.0 million stock repurchase and $23.2 million in distributions paid to stockholders[18] Notes to Consolidated Financial Statements The notes detail accounting policies, including the adoption of new credit loss standards, updates on real estate investments such as the $43.9 million gain from the Preferred Care portfolio sale, debt obligations, and equity activities like the terminated stock repurchase plan - The company adopted ASU 2016-13 (Credit Losses) on January 1, 2020, which did not have a material impact on the financial statements as historical reserves approximated the new expected credit loss model's output[25] - In Q1 2020, the company completed the sale of 21 properties from the Preferred Care portfolio, generating net proceeds of approximately $71.9 million and a gain of $43.9 million[38] - Due to the COVID-19 pandemic, the company granted rent deferrals totaling $772,000 for April 2020, representing about 7% of April's contractual rent[43] - Two major operators, Prestige Healthcare and Senior Lifestyle Corporation, accounted for 17.7% and 10.9% of total revenue, respectively, highlighting significant operator concentration[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's healthcare REIT strategy, the significant impact of COVID-19 on operators, and an overview of its real estate portfolio, attributing the large net income increase to a gain on sale while confirming sufficient liquidity despite pandemic risks Executive Overview and COVID-19 The company, a healthcare REIT, acknowledges the significant adverse impact of the COVID-19 pandemic on its operators, leading to increased costs and potential occupancy declines, and responded by providing rent deferrals - The company's primary business is investing in seniors housing and health care properties through sale-leasebacks, mortgage financing, and other structured finance solutions[90] - The COVID-19 pandemic is adversely affecting operators through rising costs and potential decreases in occupancy, with the full extent of the impact remaining uncertain[95][96] - LTC granted rent deferrals totaling $0.8 million for April 2020 to assist certain operators, of which $0.1 million was returned[95] Real Estate Portfolio and Operator Updates As of March 31, 2020, the real estate portfolio totaled $1.7 billion, primarily in owned properties (84.8%) split between Assisted Living (51.7%) and Skilled Nursing (47.2%), with updates on key operator activities including the Preferred Care portfolio sale and Senior Care's emergence from bankruptcy Gross Investment Portfolio as of March 31, 2020 (in thousands) | Investment Type | Gross Investment | Percentage | | :--- | :--- | :--- | | Owned Properties | $1,438,177 | 84.8% | | Mortgage Loans | $256,959 | 15.2% | | Total Portfolio | $1,695,136 | 100.0% | - The sale of the 24 properties leased to Preferred Care was completed in Q1 2020, generating total net proceeds of $77.9 million and a gain of $44.0 million[106] - Senior Care Centers emerged from bankruptcy in March 2020 and affirmed its master lease with LTC, and is current on all rent and other payments[107] Operating Results and Funds From Operations (FFO) Net income available to common stockholders for Q1 2020 significantly increased to $63.4 million, primarily due to a $43.9 million gain on real estate sale, while NAREIT FFO attributable to common stockholders was $29.2 million, or $0.74 per diluted share Reconciliation of Net Income to FFO (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | GAAP net income available to common stockholders | $63,370 | $20,254 | | Add: Depreciation and amortization | $9,669 | $9,607 | | Less: Gain on sale of real estate, net | $(43,854) | $— | | NAREIT FFO attributable to common stockholders | $29,185 | $29,861 | FFO Per Share | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Diluted FFO per share | $0.74 | $0.75 | Liquidity and Capital Resources As of March 31, 2020, the company maintained strong liquidity with $30.9 million in cash and $510.1 million available on its credit facility, sufficient for obligations, despite terminating a stock repurchase plan due to COVID-19 uncertainty - Total liquidity includes $30.9 million in cash and $510.1 million available on the unsecured revolving line of credit[140] - A stock repurchase plan was authorized in Q1 2020, under which 615,827 shares were purchased for approximately $18.0 million, but the plan was terminated on March 25, 2020, due to COVID-19 related uncertainty[153] - The company has a $200 million At-The-Market (ATM) program available, with no shares issued under it as of March 31, 2020[155] Quantitative and Qualitative Disclosures about Market Risk While no material changes in market risk occurred in Q1 2020, the company highlights the COVID-19 pandemic as a new significant risk factor with potential negative impacts on its business and operations - There were no material changes in market risk during Q1 2020, but the company noted that COVID-19 could negatively impact business and operations[160] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[162] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[163] PART II -- Other Information Legal Proceedings The company is involved in various claims and lawsuits in the ordinary course of business, which are not anticipated to have a material impact on its financial condition or results of operations, as liability for property-related claims rests with lessees and borrowers - The company is party to various claims and lawsuits arising in the ordinary course of business, which are not expected to be material[166] Risk Factors This section introduces a significant new risk factor detailing how the COVID-19 pandemic is adversely affecting and is expected to continue to adversely affect the business, operations, and financial condition of the company and its operators, potentially impacting revenues and cash flows - A new risk factor was added detailing the adverse effects of the COVID-19 pandemic on the company's business, results of operations, and financial condition[167] - The pandemic poses risks to operators through potential large-scale infections, delayed move-ins, and rising operating costs, which could impair their ability to pay rent to LTC[169] - The rapid development and fluidity of the pandemic create material uncertainty and risk, heightening many of the existing risk factors disclosed in the 2019 Form 10-K[172] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2020, the company repurchased 615,827 shares of common stock for approximately $18.0 million at an average price of $29.25 per share, before the Board of Directors terminated the plan on March 25, 2020 Q1 2020 Stock Repurchase Activity | Metric | Value | | :--- | :--- | | Total Shares Purchased (Plan) | 615,827 | | Average Price Paid per Share | $29.25 | | Total Purchase Price | ~$18.0 million | - The Board of Directors terminated the stock repurchase plan on March 25, 2020[175] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications required by the Sarbanes-Oxley Act, and Interactive Data Files (XBRL) - Lists exhibits filed with the report, including Articles of Restatement, Bylaws, and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[178]