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EX-32 - EX-32 - LTC PROPERTIES INCltc-20160930xex32.htm
EX-31.2 - EX-31.2 - LTC PROPERTIES INCltc-20160930ex312411f98.htm
EX-31.1 - EX-31.1 - LTC PROPERTIES INCltc-20160930ex311e1b001.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

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.)

 

2829 Townsgate Road, Suite 350

Westlake Village, California  91361

(Address of principal executive offices, including zip code)

 

(805) 981-8655

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether registrant (1) has filed all reports required 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a
smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐  No  ☑

 

The number of shares of common stock outstanding on October 28, 2016 was 39,221,681.

 


 


 

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

    

September 30, 2016

    

December 31, 2015

 

 

 

(unaudited)

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Land

 

$

114,630

 

$

106,841

 

Buildings and improvements

 

 

1,177,829

 

 

1,091,845

 

Accumulated depreciation and amortization

 

 

(266,581)

 

 

(251,265)

 

Real property investments, net

 

 

1,025,878

 

 

947,421

 

Mortgage loans receivable, net of loan loss reserve: 2016—$2,360; 2015—$2,190

 

 

234,347

 

 

217,529

 

Real estate investments, net

 

 

1,260,225

 

 

1,164,950

 

Investments in unconsolidated joint ventures

 

 

23,932

 

 

24,042

 

Investments, net

 

 

1,284,157

 

 

1,188,992

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

3,613

 

 

12,942

 

Debt issue costs related to bank borrowings

 

 

2,112

 

 

2,865

 

Interest receivable

 

 

8,434

 

 

4,536

 

Straight-line rent receivable, net of allowance for doubtful accounts: 2016—$907; 2015—$833

 

 

50,092

 

 

42,685

 

Prepaid expenses and other assets

 

 

20,779

 

 

21,443

 

Notes receivable

 

 

4,199

 

 

1,961

 

Total assets

 

$

1,373,386

 

$

1,275,424

 

LIABILITIES

 

 

 

 

 

 

 

Bank borrowings

 

$

77,000

 

$

120,500

 

Senior unsecured notes, net of debt issue costs: 2016—$1,038; 2015—$1,095

 

 

512,262

 

 

451,372

 

Accrued interest

 

 

3,616

 

 

3,974

 

Accrued incentives and earn-outs

 

 

12,514

 

 

12,722

 

Accrued expenses and other liabilities

 

 

27,363

 

 

27,654

 

Total liabilities

 

 

632,755

 

 

616,222

 

EQUITY

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding:   2016—39,222; 2015—37,548

 

 

392

 

 

375

 

Capital in excess of par value

 

 

837,889

 

 

758,676

 

Cumulative net income

 

 

992,777

 

 

928,328

 

Accumulated other comprehensive income

 

 

8

 

 

47

 

Cumulative distributions

 

 

(1,090,435)

 

 

(1,028,224)

 

Total equity

 

 

740,631

 

 

659,202

 

Total liabilities and equity

 

$

1,373,386

 

$

1,275,424

 

 

See accompanying notes.

 

 

3


 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

  

2016

  

2015

  

2016

  

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

33,753

 

$

28,531

 

$

98,705

 

$

82,325

 

Interest income from mortgage loans

 

 

6,958

 

 

6,117

 

 

20,347

 

 

15,777

 

Interest and other income

 

 

131

 

 

295

 

 

390

 

 

708

 

Total revenues

 

 

40,842

 

 

34,943

 

 

119,442

 

 

98,810

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

6,836

 

 

4,296

 

 

19,586

 

 

11,916

 

Depreciation and amortization

 

 

9,155

 

 

7,365

 

 

26,623

 

 

21,121

 

Provision for doubtful accounts

 

 

43

 

 

31

 

 

245

 

 

463

 

Transaction costs

 

 

2

 

 

570

 

 

96

 

 

632

 

General and administrative expenses

 

 

4,464

 

 

3,708

 

 

12,864

 

 

11,094

 

Total expenses

 

 

20,500

 

 

15,970

 

 

59,414

 

 

45,226

 

Operating income

 

 

20,342

 

 

18,973

 

 

60,028

 

 

53,584

 

Income from unconsolidated joint ventures

 

 

289

 

 

674

 

 

839

 

 

1,543

 

Gain on sale of real estate, net

 

 

1,780

 

 

 —

 

 

3,582

 

 

 —

 

Net income

 

 

22,411

 

 

19,647

 

 

64,449

 

 

55,127

 

Income allocated to participating securities

 

 

(90)

 

 

(121)

 

 

(296)

 

 

(370)

 

Income allocated to preferred stockholders

 

 

 —

 

 

(818)

 

 

 —

 

 

(2,454)

 

Net income available to common stockholders

 

$

22,321

 

$

18,708

 

$

64,153

 

$

52,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

$

0.53

 

$

1.68

 

$

1.48

 

Diluted

 

$

0.57

 

$

0.52

 

$

1.68

 

$

1.47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,057

 

 

35,341

 

 

38,161

 

 

35,306

 

Diluted

 

 

39,335

 

 

37,352

 

 

38,455

 

 

37,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$

0.54

 

$

0.51

 

$

1.62

 

$

1.53

 

 

See accompanying notes.

 

 

4


 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

Nine Months Ended 

 

 

 

September 30, 

 

September 30, 

 

 

  

2016

  

2015

  

2016

  

2015

 

Net income

 

$

22,411

 

$

19,647

 

$

64,449

 

$

55,127

 

Reclassification adjustment (Note 6)

 

 

(6)

 

 

(9)

 

 

(39)

 

 

(26)

 

Comprehensive income

 

$

22,405

 

$

19,638

 

$

64,410

 

$

55,101

 

 

See accompanying notes.

5


 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

  

2016

  

2015

 

OPERATING ACTIVITIES:

 

 

    

 

 

    

 

Net income

 

$

64,449

 

$

55,127

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26,623

 

 

21,121

 

Stock-based compensation expense

 

 

3,149

 

 

3,093

 

Gain on sale of assets, net

 

 

(3,582)

 

 

 —

 

Income from unconsolidated joint ventures

 

 

(839)

 

 

(1,543)

 

Income distributions from unconsolidated joint ventures

 

 

1,409

 

 

289

 

Straight-line rental income

 

 

(8,201)

 

 

(7,060)

 

Amortization of lease incentive

 

 

1,446

 

 

1,163

 

Provision for doubtful accounts

 

 

245

 

 

463

 

Non-cash interest related to contingent liabilities

 

 

538

 

 

205

 

Other non-cash items, net

 

 

909

 

 

670

 

Increase in interest receivable

 

 

(3,898)

 

 

(2,787)

 

Decrease in accrued interest payable

 

 

(358)

 

 

(1,002)

 

Net change in other assets and liabilities

 

 

(2,245)

 

 

795

 

Net cash provided by operating activities

 

 

79,645

 

 

70,534

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Investment in real estate properties

 

 

(73,449)

 

 

(171,185)

 

Investment in real estate developments

 

 

(35,623)

 

 

(14,460)

 

Investment in real estate capital improvements

 

 

(5,566)

 

 

(6,192)

 

Capitalized interest

 

 

(1,193)

 

 

(481)

 

Proceeds from sale of real estate, net

 

 

17,369

 

 

 —

 

Investment in real estate mortgage loans receivable

 

 

(19,113)

 

 

(53,427)

 

Principal payments received on mortgage loans receivable

 

 

2,117

 

 

4,281

 

Investments in unconsolidated joint ventures

 

 

(481)

 

 

(20,143)

 

Payment of working capital reserve

 

 

(2,325)

 

 

 —

 

Advances under notes receivable

 

 

(2,328)

 

 

(1,464)

 

Principal payments received on notes receivable

 

 

90

 

 

 —

 

Net cash used in investing activities

 

 

(120,502)

 

 

(263,071)

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Bank borrowings

 

 

83,500

 

 

267,000

 

Repayment of bank borrowings

 

 

(127,000)

 

 

(101,500)

 

Proceeds from issuance of senior unsecured notes

 

 

77,500

 

 

100,000

 

Principal payments on senior unsecured notes

 

 

(16,667)

 

 

(29,167)

 

Proceeds from common stock issued

 

 

78,592

 

 

 —

 

Stock option exercises

 

 

159

 

 

79

 

Distributions paid to stockholders

 

 

(62,211)

 

 

(56,842)

 

Financing costs paid

 

 

(130)

 

 

(195)

 

Other

 

 

(2,215)

 

 

(346)

 

Net cash provided by financing activities

 

 

31,528

 

 

179,029

 

Decrease in cash and cash equivalents

 

 

(9,329)

 

 

(13,508)

 

Cash and cash equivalents, beginning of period

 

 

12,942

 

 

25,237

 

Cash and cash equivalents, end of period

 

$

3,613

 

$

11,729

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

19,004

 

$

12,230

 

Contingent Liabilities related to real estate investments

 

$

2,000

 

$

 —

 

Mortgage loan receivable applied against purchase price to acquire real estate (Note 2)

 

$

 —

 

$

10,600

 

Reclassification of pre-development loans (Note 4)

 

$

 —

 

$

716

 

 

See accompanying notes.

 

 

6


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

1.General

LTC Properties, Inc., a health care real estate investment trust (or REIT), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending.  We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing centers (or SNF), assisted living communities (or ALF), independent living communities (or ILF), memory care communities (or MC) and combinations thereof. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property classification and form of investment.

We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (or SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (or GAAP) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results for a full year.

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation, including changes as a result of the application of accounting guidance for properties classified as held-for-sale.

No provision has been made for federal or state income taxes. Our company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As such, we generally are not taxed on income that is distributed to our stockholders.

New Accounting Pronouncements.

In May 2014, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update (or ASU) 2014-09, Revenue from Contracts with Customers, which requires revenue to be based upon the consideration expected from customers for promised goods or services.  The new standard, effective on January 1, 2018, permits either the retrospective or cumulative effects transition method and allows for early adoption on January 1, 2017.  We expect to adopt this standard effective on January 1, 2018.  We do not believe this standard will have a material impact on our results of operations or financial condition.

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements— Going Concern (Subtopic 205-40):  Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going

7


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

Concern. The amendments in this update define management’s responsibility under GAAP to evaluate when and how substantial doubt about the organization’s ability to continue as a going concern should be disclosed in the financial statement footnotes. This ASU expands disclosure requirements about principal conditions or events that raise substantial doubt. It also requires disclosing management’s evaluation of the significance of those conditions or events in relationship to the organization’s ability to meet its obligations, and management’s plans that are intended to either alleviate substantial doubt or to mitigate conditions or events that raise substantial doubt. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements or disclosures.

In February 2015, FASB issued ASU No. 2015-02 (or ASU 2015-02), Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 amends the consolidation guidance for variable interest entities and voting interest entities, among other items, by eliminating the consolidation model previously applied to limited partnerships, emphasizing the risk of loss when determining a controlling financial interest and reducing the frequency of the application of related-party guidance when determining a controlling financial interest. ASU 2015-02 is effective for periods beginning after December 15, 2015, for public companies. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 (or ASU 2016-02), Leases (Topic 842). ASU 2016-02 modifies existing guidance for off-balance sheet treatment of a lessees’ operating leases by requiring lessees to recognize lease assets and lease liabilities. Under ASU 2016-02, lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects of this ASU on our consolidated financial statements.

In March 2016, FASB issued ASU No. 2016-07 (or ASU 2016-07), Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 eliminates retroactive adjustment of an investment upon an investment qualifying for the equity method of accounting and requires the equity method investor to adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the effects of this ASU on our consolidated financial statements.

In March 2016, FASB issued ASU No. 2016-09 (or ASU 2016-09), Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects of this ASU on our consolidated financial statements.

In August 2016, FASB issued authoritative guidance that reduces the diversity in practice of the classification of certain cash receipts and cash payments within the statement of cash flows. This guidance is effective for fiscal periods beginning after December 15, 2017 and allows for early adoption.

8


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

The anticipated impact of the adoption of this guidance on the Company’s financial statements is still being evaluated.

 

 

2.Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF). Range of care communities (or ROC) property classification consists of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services.

Any reference to the number of properties, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Owned Properties. The following table summarizes our investments in owned properties at September 30, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Percentage

 

Number

 

Number of

 

Investment

 

 

 

Gross

 

of

 

of

 

SNF

 

ALF

 

per

 

Type of Property

    

Investments

    

Investments

    

Properties(1)

    

Beds

    

Units

    

Bed/Unit

 

Assisted Living

 

$

681,365

 

52.7

103

 

 —

 

5,607

 

$

121.52

 

Skilled Nursing

 

 

535,460

 

41.4

%  

69

 

8,611

 

 —

 

$

62.18

 

Range of Care

 

 

43,907

 

3.4

7

 

634

 

274

 

$

48.36

 

Under Development(2)

 

 

21,511

 

1.7

 —

 

 —

 

 —

 

 

 —

 

Other(3)

 

 

10,216

 

0.8

1

 

118

 

 —

 

 

 —

 

Totals

 

$

1,292,459

 

100.0

180

 

9,363

 

5,881

 

 

 

 


(1)

We own properties in 28 states that are leased to 27 different operators.

 

(2)

Represents three development projects consisting of a 66-unit memory care community, a 108-unit independent living community and  a 143-bed skilled nursing center.

 

(3)

Includes three parcels of land held-for-use, and one behavioral health care hospital. The behavioral health care hospital has two licensed skilled nursing beds and 116 acute care hospital beds which represents an investment of $78.39 per bed.

 

Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

(i)

a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%;  

(ii)

a calculation based on the Consumer Price Index;

(iii)

as a percentage of facility net patient revenues in excess of base amounts; or

(iv)

specific dollar increases.

 

9


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

Acquisitions and Development: The following table summarizes our acquisitions for the nine months ended September 30, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Total

    

Number

    

Number

 

 

Purchase

 

Transaction

 

Acquisition

 

of

 

of

Type of Property

 

Price

 

Costs(1)

 

Costs

 

Properties

 

Beds/Units

Skilled Nursing(2)

 

$

16,000

 

$

45

 

$

16,045

 

1

 

126

Assisted Living(3)

 

 

53,550

 

 

411

 

 

53,961

 

4

 

250

Land(4)

 

 

5,425

 

 

63

 

 

5,488

 

 —

 

 —

Totals

 

$

74,975

 

$

519

 

$

75,494

 

5

 

376

(1)

Represents cost associated with our acquisitions; however, depending on the accounting treatment of our acquisitions, transaction costs may be capitalized to the properties’ basis and, for our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Additionally, transaction costs may include costs related to the prior year due to timing and terminated transactions.

 

(2)

We acquired a newly constructed 126-bed skilled nursing center in Texas.

 

(3)

We acquired a newly constructed memory care community in Kentucky for $14,250 including a $2,000 holdback, a newly constructed assisted living and memory care community in Georgia for $14,300 and two memory care communities in Kansas for an aggregate purchase price of $25,000.

 

(4)

We acquired a parcel of land and improvements and entered into a development commitment of up to $24,325, including the land and bed rights purchase, for the development of a 143-bed skilled nursing center in Kentucky.

 

Subsequent to September 30, 2016, we purchased a parcel of land in Illinois and entered into a development commitment to construct a memory care community. The commitment totals approximately $14,500,000, including the land purchase.

The following table summarizes our acquisitions for the nine months ended September 30, 2015 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Total

    

Number

    

Number

 

 

Purchase

 

Transaction

 

Acquisition

 

of

 

of

Type of Property

 

Price

 

Costs

 

Costs

 

Properties

 

Beds/Units

Skilled Nursing(1)

 

$

13,946

 

$

 —

 

$

13,946

 

1

 

106

Assisted Living(2)

 

 

156,097

 

$

325

 

 

156,422

 

11

 

951

Land(3)

 

 

13,533

 

 

97

 

 

13,630

 

 —

 

 —

Totals

 

$

183,576

 

$

422

 

$

183,998

 

12

 

1,057

(1)

We purchased and equipped the property by exercising our purchase option under a $10,600 mortgage and construction loan.

 

(2)

We acquired a newly constructed 60-unit memory care property for $14,250 including a $2,000 working capital reserve. We also acquired a portfolio comprised of 10 independent, assisted living and memory care propertied for $142,000.

 

(3)

We acquired parcels of land and entered into four development commitments in an amount not to exceed $55,529, including the land purchases, for the development of two MC, an ILF and a combination ALF and MC. Additionally, we acquired land and existing improvements on a MC and entered a development commitment up to $12,182 to complete the development of the property.

 

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The following table summarizes our investment in development and improvement projects for the nine months ended September 30, 2016 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2016

 

Nine months ended September 30, 2015

 

 

 

 

Expansion,

 

 

 

Expansion,

 

 

 

 

Renovation and

 

 

 

Renovation and

 

    

Development

    

Improvements

    

Development

    

Improvements

Assisted Living Communities

 

$

35,623

 

$

2,134

 

$

12,630

 

$

3,843

Skilled Nursing Centers

 

 

 —

 

 

3,432

 

 

1,830

 

 

2,349

 

 

$

35,623

 

$

5,566

 

$

14,460

 

$

6,192

 

 

The following table summarizes our completed projects during the nine months ended September 30, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Number

    

 

    

Number

    

 

    

 

 

 

 

 

of

 

Type of

 

of

 

 

 

 

 

 

Type of Project

 

Properties

 

Property

 

Beds/Units

 

State

 

Total Funding

 

Development

 

1

 

ALF

 

66

 

Illinois

 

$

12,178

 

Development

 

1

 

ALF

 

56

 

Texas

 

 

11,776

 

Development

 

1

 

ALF

 

66

 

Illinois

 

 

11,886

 

Development

 

1

 

ALF

 

66

 

California

 

 

11,405

 

Development

 

1

 

ALF

 

89

 

South Carolina

 

 

13,974

 

Improvement

 

1

 

SNF

 

160

 

Arizona

 

 

4,672

 

 

 

6

 

 

 

503

 

 

 

$

65,891

 

 During the nine months ended September 30, 2016, we sold a 48-unit assisted living community located in Florida for $1,750,000 which was previously written down to its estimated sale price in the fourth quarter of 2015. Additionally, we sold two skilled nursing centers in Texas and an assisted living community in Florida for an aggregate price of $11,850,000. As a result of these sales, we recognized a net gain on sale of $3,775,000.  Also, we sold a school in New Jersey for $3,850,000 and recorded a net loss on sale in the amount of $193,000.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at September 30, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

Number

 

Number

 

Number of

 

Investment

 

 

 

Gross

 

of

 

of

 

of

 

SNF

 

ALF

 

per

 

Type of Property

 

Investments

 

Investments

 

Loans

 

Properties(1)

 

Beds

 

Units

 

Bed/Unit

 

Skilled Nursing

  

$

222,030

  

93.8

%  

12

  

28

  

3,644

  

 —

  

$

60.93

 

Assisted Living

 

 

13,468

 

5.7

%  

3

 

8

 

 —

 

270

 

$

49.88

 

Other(2)

 

 

1,209

 

0.5

%  

1

 

 —

 

 —

 

 —

 

 

 —

 

Totals

 

$

236,707

 

100.0

%  

16

 

36

 

3,644

 

270

 

 

 

 


(1)

We have investments in properties located in seven states that include mortgages to 10 different operators.

 

(2)

Includes a parcel of land secured under a short-term mortgage loan.

 

At September 30, 2016, the mortgage loans had interest rates ranging from 7.3% to 13.9% and maturities ranging from 2016 to 2045. In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20-year to 30-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.

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The following table summarizes our mortgage loan activity for the nine months ended September 30, 2016 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

Origination/Funding (1)

 

$

19,113

 

$

53,427

 

Pay-offs

 

$

746

 

$

2,487

 

Scheduled principal payments received

 

$

1,371

 

$

1,794

 


(1)

Secured by skilled nursing centers

During the nine months ended September 30, 2015, we purchased and equipped a 106-bed skilled nursing center in Wisconsin for a total of $13,946,000 by exercising our purchase option under a $10,600,000 mortgage and construction loan.     

3.Investment in Unconsolidated Joint Ventures

 

We have made a preferred equity investment in an entity (or the JV) that owns four Arizona properties providing independent, assisted living and memory care services. At closing, we provided an initial preferred capital contribution of $20,143,000 and have committed to provide an additional preferred capital contribution of $5,507,000 for a total preferred capital contribution of $25,650,000. As the preferred member of the JV, we are entitled to receive a 15% preferred return, a portion of which is paid in cash and a portion of which is deferred if the cash flow of the JV is insufficient to pay all of the accrued preferred return. The unpaid accrued preferred return is accrued up to the common member’s capital account balance in the underlying JV (as determined in accordance with GAAP).  We did not accrue the deferred portion of the preferred return during the nine months ended September 30, 2016. We continue to evaluate our claim on the estimated net assets of the underlying joint venture quarterly. Any unpaid accrued preferred return, whether recorded or unrecorded by us, is due and payable upon redemption.

The JV is intended to be self-financing and other than our preferred capital contributions, we are not required to provide any direct support and we are not entitled to share in the JV’s earnings or losses. As a result, we believe our maximum exposure to loss related to our investment in the JV would be limited to our preferred capital contributions plus any unpaid accrued preferred return. We have concluded that the JV meets the accounting criteria to be considered a variable interest entity (or VIE). However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for our JV investment using the equity method. During the nine months ended September 30, 2016, we provided an additional preferred capital contribution of $481,000. Accordingly, we have a remaining preferred capital contribution commitment of $5,026,000. During the nine months ended September 30, 2016, we recognized $839,000 in income and received $1,409,000 of cash from our preferred equity investment in the JV. 

During 2015, we originated a $2,900,000 mezzanine loan to develop a 99-unit combination ALF, MC and ILF community. The loan matures on November 1, 2020 and bears interest at 10% for the first two years escalating to 12% until November 1, 2018 and, 15% thereafter. Interest is deferred for a period ending on the earlier of February 1, 2017 or the effective date of the certificate of occupancy. During this period, the borrower is not required to pay any interest; however, the unpaid deferred interest accrues to the loan principal balance. In addition to the interest payments, the borrower is required to make cash flow participation payments. We have evaluated this acquisition, development and construction (or ADC)

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arrangement and determined that the characteristics are similar to a jointly-owned investment or partnership, and accordingly, the investment is accounted for as an unconsolidated joint venture under the equity method of accounting instead of loan accounting.

4.Notes Receivable

Notes receivable consists of various loans and line of credit agreements. The following table summarizes our notes receivable activities for the nine months ended September 30, 2016 and 2015 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

Advances under notes receivable

$

2,328

 

$

1,464

 

 

Principal payments received under notes receivable

 

(90)

 

 

 —

 

 

Reclassed to real estate under development

 

 —

 

 

(716)

 

 

Net increase in notes receivable

$

2,238

 

$

748

 

 

 

During the three months ended September 30, 2016, we originated a $1,400,000 mezzanine loan funding $1,200,000 at closing with a commitment to fund an additional $200,000 upon achieving certain coverage ratios. The mezzanine loan is secured by a second mortgage on two skilled nursing centers located in Oregon totaling 146 beds. The mezzanine loan has a five year term and a rate of 15%. We have evaluated this ADC arrangement and determined that the characteristics are similar to a loan, and accordingly, the investment is recorded as a loan.

At September 30, 2016, we had six loans and line of credit agreements with on-going commitments totaling $3,525,000. As of September 30, 2016, we have remaining commitments of $1,714,000 under these agreements.

 

5.Debt Obligations

 

The following table sets forth information regarding debt obligations by component as of September 30, 2016 and December 31, 2015 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2016

 

At December 31, 2015

 

 

 

Applicable

 

 

 

Available

 

 

 

Available

 

 

 

Interest

 

Outstanding

 

for

 

Outstanding

 

for

 

Debt Obligations

    

Rate(1)

    

Balance

    

Borrowing

    

Balance

    

Borrowing

 

Bank borrowings

 

2.20%

 

$

77,000

 

$

523,000

 

$

120,500

 

$

479,500

 

Senior unsecured notes, net of debt issue costs

 

4.49%

 

 

512,262

 

 

12,500

 

 

451,372

 

 

33,333

 

Total

 

4.19%

 

$

589,262

 

 

 

 

$

571,872

 

 

 

 


(1)

Represents weighted average of interest rate as of September 30, 2016.

 

Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to $600,000,000.  The Unsecured Credit Agreement matures on October 14, 2018 and provides for a one-year extension option at our discretion, subject to customary conditions. Based on our leverage at September 30, 2016, the facility provides for interest annually at LIBOR plus 150 basis points and an unused commitment fee of 35 basis points. During the nine months ended September 30, 2016 and 2015 we borrowed $83,500,000 and $267,000,000, respectively, under our Unsecured Credit Agreement.

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Additionally, we repaid $127,000,000 and $101,500,000, respectively, under our unsecured revolving line of credit.  At September 30, 2016, we were in compliance with all covenants.

Senior Unsecured Notes. During the nine months ended September 30, 2016, we sold $37,500,000 senior unsecured term notes to affiliates and managed accounts of Prudential Investment Management, Inc. (or Prudential) with an annual fixed rate of 4.15%. The notes have an average 10-year life, scheduled principal payments and will mature in 2028. During the nine months ended September 30, 2016, we paid $16,667,000 in regular scheduled principal payments to Prudential. Accordingly, we have $12,500,000 available under our shelf agreement with Prudential. Additionally, we amended our agreement with AIG Asset Management (U.S.) LLC (or AIG) which provides for the possible issuance of up to an additional $40,000,000 unsecured notes. During the three months ended September 30, 2016, we sold $40,000,000 senior unsecured term notes under our amended agreement with AIG to affiliated insurance company investment advisory clients of AIG with a coupon of 3.99%. The notes have an average 10-year life, fixed interest rate and will mature in 2031.

6.Equity

 

Equity activity was as follows (in thousands):

 

 

 

 

 

 

 

Total

 

 

 

Equity

 

Balance at December 31, 2015

    

$

659,202

 

Net income

 

 

64,449

 

Proceeds from common stock issued, net of issuance costs

 

 

78,137

 

Stock-based compensation expense

 

 

3,149

 

Performance based stock units

 

 

(41)

 

Stock option exercise

 

 

159

 

Reclassification adjustment

 

 

(39)

 

Common stock dividends

 

 

(62,211)

 

Other

 

 

(2,174)

 

Balance at September 30, 2016

 

$

740,631

 

 

Preferred Stock.    We had 2,000,000 shares of our 8.5% Series C Cumulative Convertible Preferred Stock (or Series C preferred stock) outstanding. Our Series C preferred stock was convertible into 2,000,000 shares of our common stock at $19.25 per share and dividends were payable quarterly. During 2015, the sole holder of our Series C Preferred stock elected to convert all of its preferred shares into 2,000,000 shares of common stock. Accordingly, we had no preferred stock outstanding as of September 30, 2016.

Common Stock. During 2015, we entered into equity distribution agreements (or Original Agreements) to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our common shares. Sales of common shares are made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings. During the nine months ended September 30, 2016, we sold 1,643,017 shares of common stock for $78,600,000 in net proceeds under the Original Agreements. In conjunction with the sale of common stock, we reclassified $463,000 of accumulated costs associated with the Original Agreements to additional paid in capital. On August 1, 2016, we terminated the Original Agreements and entered into new equity distribution agreements (or Equity Distribution Agreements) to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our company common share. As of September 30, 2016, no shares were issued under these agreements. Accordingly, at September 30, 2016, we had $200,000,000 available under our Equity Distribution Agreements.

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Also, during the nine months ended September 30, 2016 and 2015, we acquired 49,094 shares and 4,609 shares respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Available Shelf Registrations. We had an automatic shelf registration statement which was filed in 2013 and provided us with the capacity to publicly offer up to $800,000,000 in common stock, preferred stock, warrants, debt, depositary shares, or units. In advance of the three-year expiration of the automatic shelf registration statement we filed in 2013, we filed a new automatic shelf registration statement with the SEC on January 29, 2016 to provide us with additional capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under the automatic registration statement we filed in 2016 (until its expiration on January 29, 2019) in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.

Distributions. We declared and paid the following cash dividends (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

September 30, 2016

 

September 30, 2015

 

 

 

 

Declared

 

Paid

 

Declared

 

Paid

 

 

Preferred Stock Series C

    

$

 —

    

$

 —

    

$

2,454

    

$

2,454

 

 

Common Stock

 

 

62,211

(1)

 

62,211

(1)

 

54,388

(2)

 

54,388

(2)

 

Total

 

$

62,211

 

$

62,211

 

$

56,842

 

$

56,842

 

 


(1)

Represents $0.18 per share per month for the nine months ended September 30, 2016.

 

(2)

Represents $0.17 per share per month for the nine months ended September 30, 2015.

In October 2016, we increased our common stock monthly cash dividend approximately 5.6% from $0.18 per share to $0.19 per share and declared monthly cash dividends on our common stock for the months of October, November and December, payable on October 31, November 30, and December 30, 2016, respectively, to stockholders of record on October 21, November 22, and December 22, 2016, respectively.

Accumulated Other Comprehensive Income. At September 30, 2016 and December 31, 2015, accumulated comprehensive income of $8,000 and $47,000, respectively, represents the net unrealized holding gains on available-for-sale REMIC Certificates recorded in 2005 when we repurchased the loans in the underlying loan pool. This amount is being amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC Pool.

Stock-Based Compensation.  During 2015, we adopted and our shareholders approved the 2015 Equity Participation Plan (or the 2015 Plan) which replaces the 2008 Equity Participation Plan (or the 2008 Plan). Under the 2015 Plan, 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its discretion. During the nine months ended September 30, 2016 and 2015, no stock options were granted.

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The stock options exercised during the nine months ended September 30, 2016 and 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

    

 

 

    

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Options

 

Exercise