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OFFON

LTC PROPERTIES, INC.

(LTC)
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LTC PROPERTIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/29/2021 | 04:40pm EDT

Cautionary Statement Regarding Forward-Looking Statements


This quarterly report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, adopted pursuant to the Private
Securities Litigation Reform Act of 1995. Statements that are not purely
historical may be forward-looking. You can identify some of the forward-looking
statements by their use of forward-looking words, such as "believes," "expects,"
"may," "will," "could," "would," "should," "seeks," "approximately," "intends,"
"plans," "estimates" or "anticipates," or the negative of those words or similar
words. Forward-looking statements involve inherent risks and uncertainties
regarding events, conditions and financial trends that may affect our future
plans of operation, business strategy, results of operations and financial
position. A number of important factors could cause actual results to differ
materially from those included within or contemplated by such forward-looking
statements, including, but not limited to, our dependence on our operators for
revenue and cash flow; the duration and extent of the effects of the COVID-19
pandemic; government regulation of the health care industry; federal and state
health care cost containment measures including reductions in reimbursement from
third-party payors such as Medicare and Medicaid; required regulatory approvals
for operation of health care facilities; a failure to comply with federal,
state, or local regulations for the operation of health care facilities; the
adequacy of insurance coverage maintained by our operators; our reliance on a
few major operators; our ability to renew leases or enter into favorable terms
of renewals or new leases; operator financial or legal difficulties; the
sufficiency of collateral securing mortgage loans; an impairment of our real
estate investments; the relative illiquidity of our real estate investments; our
ability to develop and complete construction projects; our ability to invest
cash proceeds for health care properties; a failure to qualify as a REIT; our
ability to grow if access to capital is limited; and a failure to maintain or
increase our dividend. For a discussion of these and other factors that could
cause actual results to differ from those contemplated in the forward-looking
statements, please see the discussion under "Risk Factors" contained in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in
our publicly available filings with the Securities and Exchange Commission. We
do not undertake any responsibility to update or revise any of these factors or
to announce publicly any revisions to forward-looking statements, whether as a
result of new information, future events or otherwise.

Executive Overview

Business and Investment Strategy


We are a real estate investment trust ("REIT") that invests in seniors housing
and health care properties through sale-leaseback transactions, mortgage
financing, joint ventures, construction financing and structured finance
solutions including mezzanine lending. 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.

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The following graph summarizes our gross investments as of June 30, 2021:

[[Image Removed: Diagram Description automatically generated]]


Our primary seniors housing and health care property classifications include
skilled nursing centers ("SNF"), assisted living communities ("ALF"),
independent living communities ("ILF"), memory care communities ("MC") and
combinations thereof. We conduct and manage our business as one operating
segment, rather than multiple operating segments, for internal reporting and
internal decision-making purposes. For purposes of this quarterly report and
other presentations, we generally include ALF, ILF, MC, and combinations thereof
in the ALF classification. As of June 30, 2021, seniors housing and long-term
health care properties comprised approximately 99.3% of our real estate
investment portfolio. We have been operating since August 1992.

Substantially all of our revenues and sources of cash flows from operations are
derived from operating lease rentals, interest earned on outstanding loans
receivable and income from investments in unconsolidated joint ventures. Income
from our investments in owned properties and mortgage loans represent our
primary source of liquidity to fund distributions and are dependent upon the
performance of the operators on their lease and loan obligations and the rates
earned thereon. To the extent that the operators experience operating
difficulties and are unable to generate sufficient cash to make payments to us,
there could be a material adverse impact on our consolidated results of
operations, liquidity and/or financial condition. To mitigate this risk, we
monitor our investments through a variety of methods determined by property type
and operator. Our monitoring process includes periodic review of financial
statements for each facility, periodic review of operator credit, scheduled
property inspections and review of covenant compliance.

In addition to our monitoring and research efforts, we also structure our
investments to help mitigate payment risk. Some operating leases and loans are
credit enhanced by guaranties and/or letters of credit. In addition, operating
leases are typically structured as master leases and loans are generally cross-

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defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.

Depending upon the availability and cost of external capital, we anticipate
making additional investments in health care related properties. New investments
are generally funded from cash on hand, proceeds from periodic asset sales,
temporary borrowings under our unsecured revolving line of credit and internally
generated cash flows. Our investments generate internal cash from rent and
interest receipts and principal payments on mortgage loans receivable. Permanent
financing for future investments, which replaces funds drawn under our unsecured
revolving line of credit, is expected to be provided through a combination of
public and private offerings of debt and equity securities and secured and
unsecured debt financing. The timing, source and amount of cash flows provided
by financing activities and used in investing activities are sensitive to the
capital markets' environment, especially to changes in interest rates. Changes
in the capital markets' environment may impact the availability of
cost-effective capital.

We believe our business model has enabled and will continue to enable us to
maintain the integrity of our property investments, including in response to
financial difficulties that may be experienced by operators. Traditionally, we
have taken a conservative approach to managing our business, choosing to
maintain liquidity and exercise patience until favorable investment
opportunities arise.

COVID-19


On March 11, 2020, the World Health Organization declared the outbreak of
coronavirus ("COVID-19") as a pandemic, and on March 13, 2020, the United States
declared a national emergency with regard to COVID-19. The COVID-19 pandemic has
had repercussions across regional and global economies and financial markets.
The outbreak of COVID-19 in many countries, including the United States, has
significantly and adversely impacted public health and economic activity, and
has contributed to significant volatility, dislocations and liquidity
disruptions in financial markets.

The operations and occupancy levels at our properties have been adversely
affected by COVID-19 and could be further adversely affected by COVID-19 or
another pandemic especially if there are infections on a large scale at our
properties. The impact of COVID-19 has included, and another pandemic could
include, early resident move-outs, our operators delaying accepting new
residents due to quarantines, potential occupants postponing moves to our
operators' facilities, and/or hospitals cancelling or significantly reducing
elective surgeries thereby there were fewer people in need of skilled nursing
care. Additionally, as our operators have responded to the pandemic, operating
costs have begun to rise. A decrease in occupancy, ability to collect rents from
residents and/or increase in operating costs could have a material adverse
effect on the ability of our operators to meet their financial and other
contractual obligations to us, including the payment of rent. In recognition of
the pandemic impact affecting our operators, we have agreed to rent abatements
totaling $2.8 million and rent deferrals for certain operators totaling $4.8
million between April 2020 and June 2021, of which $1.5 million subsequently has
been repaid. The $6.1 million in rent abatements and deferrals, net of
repayments, represented approximately 2% of our April 2020 through June 2021
contractual rent and interest. The remaining balance of deferred rent is due to
us over the next 24 months or upon receipt of government funds from the U.S.
Coronavirus Aid, Relief, and Economic Security (the "CARES Act").

During the six months ended June 30, 2021, we proactively provided additional
financial support to the majority of our operators by reducing 2021 rent and
interest escalations by 50%. The rent and interest escalation reduction were
given in the form of a rent and interest credit in recognition of operators'
increased costs due to COVID-19. During six months ended June 30, 2021, we
recognized a decrease of $0.5 million of GAAP revenue and a decrease of $1.3
million of cash revenue. We expect the

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escalation reductions to have a de minimis effect on GAAP revenue during the third and fourth quarters of 2021.

Real Estate Portfolio Overview


The following tables summarize our real estate investment portfolio by owned
properties and mortgage loans and by type, as of June 30, 2021 (dollar amounts
in thousands):


                                                          Six Months Ended
                                        Percentage         June 30, 2021         Percentage         Number            Number of
                            Gross           of           Rental      Interest        of               of           SNF         ALF
Owned Properties         Investments    Investments    Income (1)     Income      Revenues      Properties (2)   Beds (3)   Units (3)
Assisted Living          $    840,502          50.2 % $     26,586   $       -         37.3 %              102          -       5,799
Skilled Nursing               560,467          33.5 %       28,399           -         39.8 %               51      6,277         212
Other (4)                      11,360           0.7 %          483           -          0.7 %                1        118           -
Total Owned Properties      1,412,329          84.4 %       55,468           -         77.8 %              154      6,395       6,011

Mortgage Loans
Skilled Nursing               259,641          15.6 %            -      15,855         22.2 %               22      2,739           -
Total Mortgage Loans          259,641          15.6 %            -      15,855         22.2 %               22      2,739           -
Total Portfolio          $  1,671,970         100.0 % $     55,468   $  15,855        100.0 %              176      9,134       6,011





                                                                 Six Months Ended
                                               Percentage         June 30, 2021         Percentage         Number            Number of
                                   Gross           of           Rental      Interest        of               of           SNF         ALF

Summary of Properties by Type Investments Investments Income (1)

 Income      Revenues      Properties (2)   Beds (3)   Units (3)
Assisted Living                 $    840,502          50.2 %  $    26,586   $       -         37.3 %              102          -       5,799
Skilled Nursing                      820,108          49.1 %       28,399      15,855         62.0 %               73      9,016         212
Other (4)                             11,360           0.7 %          483           -          0.7 %                1        118           -
Total Portfolio                 $  1,671,970         100.0 %  $    55,468   $  15,855        100.0 %              176      9,134       6,011

(1) Excludes variable rental income from lessee reimbursement and rental income

    from sold properties.



(2) We have investments in owned properties and mortgage loans in 27 states

    leased or mortgaged to 31 different operators.



(3) See Item 1. Financial Statements - Note 2. Real Estate Investments for

    discussion of bed/unit count.



(4) Includes three parcels of land held-for-use and one behavioral health care

    hospital.




As of June 30, 2021, we had $1.3 billion in net carrying value of real estate
investments, consisting of $1.1 billion or 80.4% invested in owned and leased
properties and $0.3 billion or 19.6% invested in mortgage loans secured by first
mortgages. Our investment in mortgage loans mature in 2043 and beyond and
contain interest rates between 9.3% and 10.1%.

For the six months ended June 30, 2021, rental income represented 78.8% of total
gross revenues, interest income represented 20.2% of total gross revenues and
other investments represented 1.0% of total gross revenues. In most instances,
our lease structure contains fixed annual rental escalations and/or annual
rental escalations that are contingent upon changes in the Consumer Price Index,
which are generally recognized on a straight-line basis over the minimum lease
period. Certain leases have annual rental escalations that are contingent upon
changes in the gross operating revenues of the property. This revenue is not
recognized until the appropriate contingencies have been resolved.

For the six months ended June 30, 2021, we recorded $0.7 million in
straight-line rental income and amortization of lease incentive cost of $0.2
million. During the six months ended June 30, 2021, we received $62.1 million of
cash rental income, which includes $7.1 million of operator reimbursements for
our real estate taxes. At June 30, 2021, the straight-line rent receivable
balance, net of write-offs for uncollectible amounts, on the balance sheet
was
$24.4 million.

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Update on Certain Operators

Senior Care Centers, LLC


Senior Care Centers, LLC and affiliates and subsidiaries ("Senior Care") filed
for Chapter 11 bankruptcy in December 2018. During 2019, while in bankruptcy,
Senior Care assumed LTC's master lease and, in March 2020, Senior Care emerged
from bankruptcy. Concurrent with their emergence from bankruptcy, in accordance
with the order confirming Senior Care's plan of reorganization, Abri Health
Services, LLC ("Abri Health") was formed as the parent company of reorganized
Senior Care and became co-tenant and co-obligor with reorganized Senior Care
under our master lease. In March 2021, as a result of Senior Care's and Abri
Health's (collectively, the "Lessee") unpaid lease obligations under the master
lease, we sent a notice of default and applied proceeds from letters of credit
to certain obligations owed under the master lease. Furthermore, on April 7,
2021, we sent the Lessee a notice of termination of the master lease to be
effective April 17, 2021. On April 16, 2021, the Lessee filed for Chapter 11
bankruptcy, which bankruptcy proceeding(s) remain pending.

Brookdale Senior Living Communities, Inc


During the third quarter of 2020, we consolidated our four leases with Brookdale
Senior Living Communities, Inc ("Brookdale") into one master lease and extended
the term by one year to December 31, 2021. The master lease provides three
renewal options consisting of a four-year renewal option, a five-year renewal
option and a 10-year renewal option. The economic terms of rent remain the same
as the consolidated rent terms under the previous four separate lease
agreements. During the first quarter of 2021, the Brookdale master lease was
amended to extend the current term by one year to December 31, 2022. The notice
period for this renewal option is January 1, 2022 to April 30, 2022. Brookdale
is current on rent payments through July 2021.

Senior Lifestyle Corporation

An affiliate of Senior Lifestyle Corporation ("Senior Lifestyle") operated 23 of
our properties under a master lease with a combination of independent living,
assisted living and memory care units. Senior Lifestyle failed to pay full rent
to us during the second quarter of 2020. Accordingly, we wrote-off a total $17.7
million of straight-line rent receivable and lease incentives related to this
master lease and transitioned rental revenue recognition to cash basis effective
July 2020. During 2020, Senior Lifestyle paid us $13.8 million of their $18.4
million contractual rent and we applied their letter of credit and deposits
totaling $3.7 million to past due rent of $3.6 million and to their outstanding
notes receivable of $0.1 million. Accordingly, we recognized $17.4 million of
rental revenue from Senior Lifestyle in 2020. To date in 2021, Senior Lifestyle
has not paid rent or its other obligations under the master lease.

During the six months ended June 30, 2021, we transitioned 12 assisted living
communities previously leased to Senior Lifestyle to three operators. These
communities are located in Illinois, Ohio, Colorado and Wisconsin. Total cash
rent expected under these three master lease agreements is $5.3 million for the
first lease year, $7.3 million for the second lease year and $7.6 million for
the third lease year, escalating 2% annually thereafter. Additionally, we sold
three assisted living communities located in Wisconsin and a closed community
located in Nebraska previously leased to Senior Lifestyle for a total sales
price of $35.9 million. We received total combined proceeds of $34.8 million and
recorded a net gain on sale of $5.4 million.



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Subsequent to June 30, 2021, we transitioned an assisted living community in
Wisconsin, previously leased to Senior Lifestyle, to a regionally based operator
new to us. The lease has a 10-year term with three 5-year renewal terms. Cash
rent under the new lease is $0.9 million in the first lease year, $1.2 million
in the second lease year, $1.3 million in the third lease year, and escalating
2% annually thereafter. Also, we entered into the following two lease agreements
covering a total of six communities in the Senior Lifestyle portfolio:

three assisted living communities to an existing operator. Two properties are

? located in Pennsylvania, and one in New Jersey. The lease has a 2-year term

with zero cash rent for the first three months then cash rent will be based on

mutually agreed fair market rent.

three assisted living communities in Nebraska to an existing operator. The

? lease has a 2-year term with zero cash rent for the first three months then

cash rent will be based on mutually agreed fair market rent.

Genesis Healthcare, Inc


On August 10, 2020, in the Quarterly Report on Form 10-Q, Genesis Healthcare,
Inc. ("Genesis") reported doubt regarding its ability to continue as a going
concern. As a result, we wrote-off $4.3 million of straight-line rent receivable
related to this master lease during the third quarter of 2020 and transitioned
rental revenue recognition to cash basis effective September 2020. On March 3,
2021, Genesis announced its three-part strategic restructuring plan to
strengthen its liquidity position and capital structure. As part of its plan,
Genesis delisted its Class A common stock from the New York Stock Exchange and
deregistered its Class A Common Stock under the Securities Exchange Act of 1934,
during the first quarter of 2021. Genesis is current on rent payments through
July 2021.

Other Operators

During the third quarter of 2020, an operator failed to pay its full contractual
rent. Accordingly, we wrote-off $1.2 million of straight-line rent receivable
related to this master lease. Effective September 1, 2020, we consolidated our
two master leases with the operator into one combined master lease. Under the
new combined master lease, we agreed to abate $0.7 million of rent and allow the
operator to defer rent as needed through March 31, 2021. During the first
quarter of 2021, the new combined master lease was amended to extend the
deferral period another three months starting April 1, 2021. During the second
quarter of 2021, the combined master lease was further amended to extend the
deferral period through September 30, 2021. During the six months ended June 30,
2021, the operator deferred $2.1 million of rent and, at June 30, 2021, the
remaining deferred rent balance due from the operator was $2.5 million. In July
2021, the operator deferred $0.4 million and has a total deferred rent balance
of $2.9 million. The operator can defer rent up to $0.4 million for each of
August and September 2021. During 2020, we recorded an impairment charge of $1.0
million related to an assisted living community that was operated by the
operator. The community was closed in October 2020 and sold during the first
quarter of 2021. As a result of this transaction, we recognized a net loss on
sale of $0.9 million during the first quarter of 2021.



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2021 Rent deferrals, net of repayments, and abatements (in thousands):



                                                      Three Months Ended    

Three Months Ended

                                                        March 31, 2021         June 30, 2021        July 2021
Rent deferrals, net of repayments                   $              1,122   $              1,121   $       366
Rent abatements                                                      600                  1,069           323
50% reduction of 2021 rent & interest escalations                  1,204   
                133             -
                                                    $              2,926   $              2,323   $       689

We have agreed to provide rent deferrals up to $0.5 million and abatements up to $0.3 million for each of August and September 2021.



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2021 Activities Overview

The following tables summarize our transactions during the six months ended June 30, 2021 (dollar amounts in thousands):

Investment in Development and Improvement projects



                              Developments    Improvements
Assisted Living Communities   $           -   $       2,046


Properties Sold


               Type        Number       Number
                of           of           of         Sales      Carrying           Net
State (1)   Properties   Properties   Beds/Units     Price       Value       (Loss) gain (2)
   n/a         n/a                -            -   $      -   $        -   $             159 (3)
 Florida       ALF                1            -      2,000        2,625               (858)
Nebraska       ALF                1           40        900        1,079               (205)
Wisconsin      ALF                3          263     35,000       28,295               5,594
                                  5          303   $ 37,900   $   31,999   $           4,690

Subsequent to June 30, 2021, we sold a 123-bed SNF in Washington for $7,700. (1) We received proceeds of $7,200 and expect to recognize a gain on sale of

    $2,600.



(2) Calculation of net (loss) gain includes cost of sales.

We recognized additional gain due to the reassessment adjustment of the (3) holdbacks related to properties sold in 2019 and 2020 under the expected

value model per ASC Topic 606, Contracts with Customers ("ASC 606").

Investment in Mortgage Loans

Originations and funding under mortgage loans receivable $ 426 Scheduled principal payments received

                        (625)
Mortgage loan premium amortization                             (3)
Recovery of loan loss reserve                                    2
Net decrease in mortgage loans receivable                  $ (200)


Investment in Unconsolidated Joint Ventures


                    Type            Type              Total       Contractual       Number                         2021                          Cash
                     of              of             Preferred        Cash             of          Carrying       Capital          Income       Interest
State            Properties      Investment          Return         Portion
      Beds/ Units      Value       Contribution     Recognized     Received
Washington (1)      UDP       Preferred Equity (1)         12 %             7 %             -   $    6,340   $            -   $        225   $      187
Washington (2)      UDP       Preferred Equity (2)         12 %             8 %             -       13,000            8,000            440          353
                                                                                            -   $   19,340   $        8,000   $        665   $      540

Invested $6,340 of preferred equity in an entity that will develop and own a

95-unit ALF/MC in Washington. Our investment represents 15.5% of the (1) estimated total investment. The preferred equity investment earns an initial

cash rate of 7% increasing to 9% in year four until the internal rate of

return ("IRR") is 8%. After achieving an 8% IRR, the cash rate drops to 8%

    until achieving an IRR ranging between 12% to 14%.



Invested $13,000 of preferred equity in an entity that will develop and own a (2) 267-unit ILF/ALF in Washington. Our investment represents 11.6% of the

estimated total investment. The preferred equity investment earns an initial

    cash rate of 8% until achieving an IRR ranging between 12% and 14%.

Notes Receivable



Advances under notes receivable                       $   1,811 (1)

Principal payments received under notes receivable (2,553) Notes receivable loan loss reserve

                            7
Net increase in notes receivable                      $   (735)


(1) Funding under working capital notes and mezzanine loans with interest ranging

    between 5% and 8% and maturities between 2022 and 2030.




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Health Care Regulatory Climate


The Centers for Medicare & Medicaid Services ("CMS") annually updates Medicare
skilled nursing facility ("SNF") prospective payment system rates and other
policies. On July 30, 2019, CMS issued its final fiscal year 2020 Medicare
skilled nursing facility update. Under the final rule, CMS projected aggregate
payments to SNFs would increase by $851 million, or 2.4%, for fiscal year 2020
compared with fiscal year 2019. The final rule also addressed implementation of
the new Patient-Driven Payment Model case mix classification system that became
effective on October 1, 2019, changes to the group therapy definition in the
skilled nursing facility setting, and various SNF Value-Based Purchasing and
quality reporting program policies. On April 10, 2020, CMS issued a proposed
rule to update SNF rates and policies for fiscal year 2021, which started
October 1, 2020, and issued the final rule on July 31, 2020. CMS estimated that
payments to SNFs would increase by $750 million, or 2.2%, for fiscal year 2021
compared to fiscal year 2020. CMS also adopted revised geographic delineations
to identify a provider's status as an urban or rural facility and to calculate
the wage index, applying a 5% cap on any decreases in a provider's wage index
from fiscal year 2020 to fiscal year 2021. Finally, CMS also finalized updates
to the SNF value-based purchasing program to reflect previously finalized
policies, updated the 30-day phase one review and correction deadline for the
baseline period quality measure quarterly report, and announced performance
periods and performance standards for the fiscal year 2023 program year. On
April 8, 2021, CMS issued a proposed rule to update SNF rates and policies for
fiscal year 2022, which starts October 1, 2021. CMS estimates that under the
proposed rule, overall payments to SNFs under the SNF prospective payment system
in fiscal year 2022 are projected to increase by approximately $444 million, or
1.3%, compared with those in fiscal year 2021. The proposed rule also includes
proposals for the SNF Quality Reporting Program, and the SNF Value-Based Program
for fiscal year 2022.

Since the announcement of the COVID-19 pandemic and beginning as of March 13,
2020, CMS has issued numerous temporary regulatory waivers and new rules to
assist health care providers, including SNFs, respond to the COVID-19 pandemic.
These include waiving the SNF 3-day qualifying inpatient hospital stay
requirement, flexibility in calculating a new Medicare benefit period, waiving
timing for completing functional assessments, waiving requirements for health
care professional licensure, survey and certification, provider enrollment, and
reimbursement for services performed by telehealth, among many others. CMS also
announced a temporary expansion of its Accelerated and Advance Payment Program
to allow SNFs and certain other Medicare providers to request accelerated or
advance payments in an amount up to 100% of the Medicare Part A payments they
received from October-December 2019; this expansion was suspended April 26, 2020
in light of other CARES Act funding relief. The Continuing Appropriations Acts,
2021 and Other Extensions Act, enacted on October 1, 2020, amended the repayment
terms for all providers and suppliers that requested and received accelerated
and advance payments during the COVID-19 public health emergency. Specifically,
Congress gave providers and suppliers that received Medicare accelerated and
advance payment(s) one year from when the first loan payment was made to begin
making repayments. In addition, CMS has also enhanced requirements for nursing
facilities to report COVID-19 infections to local, state and federal
authorities. On July 19, 2021, HHS Secretary Becerra announced that he had
renewed, effective July 20, 2021, the declared public health emergency for an
additional 90-day period.

On March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief,
and Economic Security Act (the "CARES Act"), sweeping legislation intended to
bolster the nation's response to the COVID-19 pandemic. In addition to offering
economic relief to individuals and impacted businesses, the law expands coverage
of COVID-19 testing and preventative services, addresses health care workforce
needs, eases restrictions on telehealth services during the crisis, and
increases Medicare regulatory flexibility, among many other provisions. Notably,
the CARES Act temporarily suspended the 2% across-the-board "sequestration"
reduction during the period May 1, 2020 through December 31, 2020, and

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extends the current Medicare sequester requirement through fiscal year 2030. In
addition, the law provides $100 billion in grants to eligible health care
providers for health care related expenses or lost revenues that are
attributable to COVID-19. On April 10, 2020, CMS announced the distribution of
$30 billion in funds to Medicare providers based upon their 2019 Medicare fee
for service revenues. Eligible providers were required to agree to certain terms
and conditions in receiving these grants. In addition, the Department of Health
and Human Services ("HHS") authorized $20 billion of additional funding for
providers that have already received funds from the initial distribution of $30
billion. Unlike the first round of funds, which came automatically, providers
were required to apply for these additional funds and submit the required
supporting documentation, using the online portal provided by HHS. Providers
were required to attest to and agree to specific terms and conditions for the
use of such funds. HHS expressed a goal of allocating the whole $50 billion
proportionally across all providers based on those providers' proportional share
of 2018 net Medicare fee-for-service revenue, so that some providers will not be
eligible for additional funds. On May 22, 2020, HHS announced that it had begun
distributing $4.9 billion in additional relief funds to SNFs to offset revenue
losses and assist nursing homes with additional costs related to responding to
the COVID-19 public health emergency and the shipments of personal protective
equipment provided to nursing homes by the Federal Emergency Management Agency.
On June 9, 2020, HHS announced that it expected to distribute approximately $15
billion to eligible providers that participate in state Medicaid and Children's
Health Insurance Program ("CHIP") programs and have not received a payment from
the Provider Relief Fund General Allocation. On July 22, 2020, President Trump
announced that HHS would devote $5 billion in Provider Relief Funds to
Medicare-certified long-term care facilities and state veterans' homes to build
nursing home skills and enhance nursing homes' response to COVID-19, including
enhanced infection control. Nursing homes were required to t participate in the
Nursing Home COVID-19 training to qualify for this funding. On August 27, 2020,
HHS announced that it had distributed almost $2.5 billion to nursing homes to
support increased testing, staffing, and personal protective equipment needs. On
September 3, 2020, HHS announced a $2 billion performance-based incentive
payment distribution to nursing homes and SNFs. Finally, on October 1, 2020, the
Trump Administration announced $20 billion in additional funding for several
types of providers, including those who previously received, rejected, or
accepted a general distribution provider relief fund payment. The application
deadline for these Phase 3 funds was November 6, 2020.

On December 27, 2020, President Trump signed the Consolidated Appropriations
Act, 2021 (H.R. 133). The $1.4 trillion omnibus appropriations legislation funds
the government through September 30, 2021 and was attached to a $900 billion
COVID-19 relief package. Of the $900 billion in COVID-19 relief, $73 billion was
allocated to HHS. Notably, the bill adds an additional $3 billion to the
Provider Relief Fund, includes language specific to reporting requirements, and
allows providers to use any reasonable method to calculate lost revenue,
including the difference between such provider's budgeted and actual revenue
budget if such budget had been established and approved prior to March 27, 2020,
to demonstrate entitlement for these funds. This change reverts to HHS' previous
guidance from June 2020 on how to calculate lost revenues. The Consolidated
Appropriations Act, 2021, also extended the CARES Act's sequestration suspension
to March 31, 2021. On January 15, 2021, HHS announced that it would be amending
the reporting timeline for Provider Relief Funds and indicated that it was
working to update the Provider Relief Fund requirements to be consistent with
the passage of the Consolidated Appropriations Act, 2021.

On April 14, 2021, President Biden signed an Act to Prevent Across-the-Board
Direct Spending Cuts, and for Other Purposes (H.R. 1868), which extended the
sequestration suspension period to December 31, 2021. On June 11, 2021, HHS
issued revised reporting requirements for recipients of Provider Relief Fund
payments. The announcement included expanding the amount of time providers will
have to report information, aimed to reduce burdens on smaller providers, and
extended key deadlines for expending Provider Relief Fund payments for
recipients who received payments after June 30, 2020. The revised reporting
requirements would be applicable to providers who received one or more payments

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exceeding, in the aggregate, $10,000 during a single Payment Received Period
from the PRF General Distributions, Targeted Distributions, and/or Skilled
Nursing Facility and Nursing Home Infection Control Distributions. On July 1,
2021, HHS, through the Health Resources and Services Administration ("HRSA"),
notified recipients of Provider Relief Fund payments by e-mail that the Provider
Relief Fund Reporting Portal is now open for recipients who are required to
report on the use of funds in Reporting Period 1, as described by HHS's June 11,
2021 update to the reporting requirements.

On July 18, 2019, CMS published a final rule that eliminates the prohibition on
pre-dispute binding arbitration agreements between long-term care facilities and
their residents. The rule also strengthens the transparency of arbitration
agreements and makes other changes to arbitration requirements for long-term
care facilities. There can be no assurance that these rules or future
regulations modifying Medicare skilled nursing facility payment rates or other
requirements for Medicare and/or Medicaid participation will not have an adverse
effect on the financial condition of our borrowers and lessees which could, in
turn, adversely impact the timing or level of their payments to us.

Congress periodically considers legislation revising Medicare and Medicaid
policies, including legislation that could have the impact of reducing Medicare
reimbursement for SNFs and other Medicare providers, limiting state Medicaid
funding allotments, encouraging home and community-based long-term care services
as an alternative to institutional settings, or otherwise reforming payment
policy for post-acute care services. Congress continues to consider further
legislative action in response to the COVID-19 pandemic. There can be no
assurances that enacted or future legislation will not have an adverse impact on
the financial condition of our lessees and borrowers, which subsequently could
materially adversely impact our company.

Additional reforms affecting the payment for and availability of health care
services have been proposed at the federal and state level and adopted by
certain states. Increasingly, state Medicaid programs are providing coverage
through managed care programs under contracts with private health plans, which
is intended to decrease state Medicaid costs. State Medicaid budgets may
experience shortfalls due to increased costs in addressing the COVID-19
pandemic. Congress and state legislatures can be expected to continue to review
and assess alternative health care delivery systems and payment methodologies.
Changes in the law, new interpretations of existing laws, or changes in payment
methodologies may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business and
the amount of reimbursement by the government and other third-party payors.

Key Performance Indicators, Trends and Uncertainties


We utilize several key performance indicators to evaluate the various aspects of
our business. These indicators are discussed below and relate to concentration
risk and credit strength. Management uses these key performance indicators to
facilitate internal and external comparisons to our historical operating results
in making operating decisions and for budget planning purposes.

Concentration Risk. We evaluate by gross investment our concentration risk in
terms of asset mix, real estate investment mix, operator mix and geographic mix.
Concentration risk is valuable to understand what portion of our real estate
investments could be at risk if certain sectors were to experience downturns.
Asset mix measures the portion of our investments that are real property or
mortgage loans. The National Association of Real Estate Investment Trusts
("NAREIT"), an organization representing U.S. REITs and publicly traded real
estate companies, classifies a company with 50% or more of assets directly or
indirectly in the equity ownership of real estate as an equity REIT. Investment
mix measures the portion of our investments that relate to our various property
classifications. Operator mix measures the portion of our investments that
relate to our top five operators. Geographic mix

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measures the portion of our real estate investment that relate to our top five states.

The following table reflects our recent historical trends of concentration risk (gross investment, in thousands):



                                      6/30/21       3/31/21      12/31/20       9/30/20       6/30/20
Asset mix:
Real property                       $ 1,412,329   $ 1,449,062   $ 1,452,001   $ 1,448,764   $ 1,445,691
Loans receivable                        259,641       259,874       259,843       260,267       258,649
Real estate investment mix:
Skilled nursing centers             $   820,108   $   820,343   $   820,312   $   817,364   $   812,637
Assisted living communities             840,502       877,233       880,172       880,307       880,343
Other (1)                                11,360        11,360        11,360        11,360        11,360
Operator mix:
Prestige Healthcare (1)             $   272,773   $   273,007   $   272,976   $   273,399   $   271,781
Senior Care Centers/ Abri Health
Services                                138,109       138,109       138,109       138,109       138,109
Anthem Memory Care                      136,483       136,483       136,483       136,483       136,483
Carespring Health Care Management       102,520       102,520       102,520
      102,520       102,520
Brookdale Senior Living                 101,240       101,012       100,613        98,921        98,921
Remaining operators                     920,845       957,805       961,143       959,599       956,526
Geographic mix:
Michigan                            $   281,762   $   281,995   $   281,963   $   282,103   $   279,821
Texas                                   273,588       273,468       273,287       273,075       273,075
Wisconsin                               114,250       149,403       149,403       149,403       149,403
California                              105,892       105,352       105,163       104,924       104,687
Colorado                                104,347       104,307       104,090       106,879       106,879
Remaining states                        792,131       794,411       797,938       792,647       790,475

(1) Includes three parcels of land located adjacent to properties securing the

    Prestige Healthcare mortgage loan and are managed by Prestige.




Credit Strength. We measure our credit strength both in terms of leverage ratios
and coverage ratios. Our leverage ratios include debt to gross asset value and
debt to market capitalization. The leverage ratios indicate how much of our
Consolidated Balance Sheets capitalization is related to long-term obligations.
Our coverage ratios include interest coverage ratio and fixed charge coverage
ratio. The coverage ratios indicate our ability to service interest and fixed
charges (interest). The coverage ratios are based on earnings before interest,
taxes, depreciation and amortization for real estate ("EBITDAre") as defined by
NAREIT. EBITDAre is calculated as net income available to common stockholders
(computed in accordance with GAAP) excluding (i) interest expense, (ii) income
tax expense, (iii) real estate depreciation and amortization, (iv) impairment
write-downs of depreciable real estate, (v) gains or losses on the sale of
depreciable real estate, and (vi) adjustments for unconsolidated partnerships
and joint ventures. Leverage ratios and coverage ratios are widely used by
investors, analysts and rating agencies in the valuation, comparison, rating and
investment recommendations of companies. The following table reflects the recent
historical trends for our credit strength measures:



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  Table of Contents

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Sales 2021 156 M - -
Net income 2021 60,8 M - -
Net Debt 2021 618 M - -
P/E ratio 2021 20,8x
Yield 2021 7,00%
Capitalization 1 282 M 1 282 M -
EV / Sales 2021 12,1x
EV / Sales 2022 11,3x
Nbr of Employees 24
Free-Float 98,0%
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Managers and Directors
Wendy L. Simpson Chairman & Chief Executive Officer
Pamela J. Shelley-Kessler Co-President, Chief Financial Officer & Secretary
Clint B. Malin Co-President & Chief Investment Officer
Michael Bowden Vice President-Investments
Timothy J. Triche Independent Director
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