LTC PROPERTIES, INC. 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-leasebacks, mortgage financing, joint
ventures, construction financing and structured finance solutions. We seek 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
facilities ("SNF"), assisted living facilities ("ALF"), independent living
facilities ("ILF"), memory care communities ("MC") and combinations thereof. We
conduct and manage our business as one operating segment for internal reporting
and internal decision-making purposes. For purposes of this Annual Report on
Form 10-K and other presentations, we generally include ALF, ILF, and MC in the
ALF property classification. We have been operating since August 1992 .
The following graph summarizes our gross investments as of
[[Image Removed: Graphic]]
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. 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.
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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-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, 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
OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of coronavirus ("COVID-19") as a pandemic, and onMarch 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, includingthe 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 creating 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$1.1 million and rent deferrals for certain operators totaling$2.5 million between April andDecember 2020 , of which$1.5 million subsequently has been paid. The$2.1 million in rent abatements and deferrals, net with repayments, represented approximately 2% of our April throughDecember 2020 contractual rent. The remaining balance of deferred rent is due to LTC over the next 24 months or upon receipt of government funds from theU.S. Coronavirus Aid, Relief, and Economic Security (the "CARES Act"). Subsequent toDecember 31, 2020 , we proactively provided additional financial support to the majority of our operators by reducing by 50% 2021 rent escalations. This support is provided in the form of a credit to the majority of our operating partners. The one time rent escalation reduction is expected to have an approximate$0.5 million impact on our 2021 GAAP revenue. 30 Table of Contents Portfolio Overview
The following tables summarize our real estate investment portfolio as of
Twelve Months Ended
Percentage December 31, 2020 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 $ 880,172 51.4 % $ 70,889 $ - 42.9 % 107 - 6,103
Skilled Nursing 560,469 32.7 % 62,098 - 37.5 % 51 6,277 212
Other (4) 11,360 0.7 % 970 - 0.6 % 1 118 -
Total Owned Properties 1,452,001 84.8 % 133,957 - 81.0 % 159 6,395 6,315
Mortgage Loans
Skilled Nursing 259,843 15.2 % - 31,396 19.0 % 22 2,804 -
Total Mortgage Loans 259,843 15.2 % - 31,396 19.0 % 22 2,804 -
Total Portfolio $ 1,711,844 100.0 % $ 133,957 $ 31,396 100.0 % 181 9,199 6,315
Twelve Months Ended
Percentage December 31, 2020 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$ 880,172 51.4 %$ 70,889 $ - 42.9 % 107 - 6,103 Skilled Nursing 820,312 47.9 % 62,098 31,396 56.5 % 73 9,081 212 Other (4) 11,360 0.7 % 970 - 0.6 % 1 118 - Total Portfolio$ 1,711,844 100.0 %$ 133,957 $ 31,396 100.0 % 181 9,199 6,315
(1) Excludes variable rental income from lessee reimbursement and sold
properties.
(2) We have investments in 27 states leased or mortgaged to 29 different
operators.
(3) See Item 2. Properties for discussion of bed/unit count.
(4) Includes three parcels of land held-for-use and one behavioral health care
hospital.
As ofDecember 31, 2020 , we had$1.4 billion in carrying value of net real estate investments, consisting of$1.1 billion or 81.1% invested in owned and leased properties and$0.3 billion or 18.9% invested in mortgage loans secured by first mortgages. For the year endedDecember 31, 2020 , rental income and interest income from mortgage loans represented 79.1% and 19.7%, respectively, of total gross revenues. In most instances, our lease structure contains annual rental escalations. Our leases that contain fixed annual rental escalations and/or have annual rental escalations that are contingent upon changes in the Consumer Price Index, 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. During the years endedDecember 31, 2020 , we recognized$0.1 million of contingent rental income. For the year endedDecember 31, 2020 , we recognized$1.8 million in straight-line rental income and$0.6 million in amortization of lease incentives. For the remaining leases in place atDecember 31, 2020 , assuming no modification or replacement of existing leases and no new leased investments are added to our portfolio, except for the subsequent lease extensions and the leases reported below under Update on Certain Operators, we currently expect that the non-cash straight-line rent portion of rental income will decrease from$1.8 million in 2020 to$0.2 million for projected annual 2021. Our cash rental income is projected to increase from$148.0 million in 2020 to$153.1 million for projected annual 2021. AtDecember 31, 2020 , the straight-line rent receivable balance on the consolidated balance sheet was$24.5 million . Many of our existing leases contain renewal options that, if exercised, could result in the amount of rent payable upon renewal being greater or less than that currently being paid. During the year endedDecember 31, 2020 , there were no lease renewals. During the year endedDecember 31, 2020 , we consolidated four separate lease agreements into a single consolidated master lease withBrookdale Senior Living Communities, Inc ("Brookdale") and extended the lease maturity date by one year toDecember 31, 2021 . Also, during year endedDecember 31, 2020 , we consolidated our two 31 Table of Contents master leases with an operator into one combined master lease. See Update on Certain Operators below for more information related to our consolidated master leases with this operator and Brookdale. Some of our lease agreements provide purchase options allowing the lessees to purchase the properties they currently lease from us. See Item 8. FINANCIAL STATEMENTS- Note 5. Real Estate Investments.Owned Properties for a table that includes information about purchase options included in our lease agreements.
Update on Certain Operators
An affiliate ofSenior Lifestyle Corporation ("Senior Lifestyle") operates 23 properties under a master lease with a combination of independent living, assisted living and memory care units. Senior Lifestyle was provided deferred rent in the amount of$0.4 million inApril 2020 which has since been fully repaid, however, they failed to pay full rent during the second quarter of 2020. In accordance with ASC 842, we evaluated the collectibility of receiving substantially all of our lease payments from the Senior Lifestyle master lease through maturity and determined that we did not have the level of certainty required by the standard. Accordingly, we wrote-off a total$17.7 million of straight-line rent receivable and lease incentives related to this master lease during the second quarter of 2020 and accounted for the Senior Lifestyle master lease on a cash basis effectiveJuly 2020 . During April throughDecember 2020 , we received$9.2 million of Senior Lifestyle's$13.8 million contractual rent due and applied their letter of credit and deposits totaling$3.7 million to the remaining$0.8 million balance of fourth quarter rent,$0.2 million to unaccrued past due third quarter rent,$2.5 million to accrued second quarter rent receivable and$0.1 million to notes receivable. AtDecember 31, 2020 , Senior Lifestyle owed us$1.0 million in past due unaccrued rent. Also, during the fourth quarter of 2020, we recorded an impairment charge of$3.0 million related to a memory care community that was operated by Senior Lifestyle. Subsequent toDecember 31, 2020 , we transitioned 11 assisted living communities previously leased to Senior Lifestyle to two operators. These communities are located inIllinois ,Ohio andWisconsin . Total cash rent expected under these master lease agreements is$5.3 million for the first lease year,$7.1 million for the second lease year and$7.3 million for the third lease year, escalating 2% annually thereafter. We are currently evaluating our options for the remaining 12 assisted communities operated by Senior Lifestyle, which may include re-leasing or selling some or all of the properties. During the third quarter of 2020, an operator paid$0.5 million of its contractual rent of$1.3 million . In accordance with ASC 842, we evaluated the collectibility of receiving substantially all of our lease payments form the operator master lease through maturity and determined that we did not have the level of certainty required by the standard. Accordingly, we wrote-off$1.2 million of straight-line rent receivable related to this master lease during the third quarter of 2020. EffectiveSeptember 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$0.6 million of third quarter rent along with$0.1 million that had been deferred in second quarter of 2020. Additionally, the new combined master lease allows the operator to defer rent as needed throughMarch 31, 2021 . During the fourth quarter of 2020, we granted a$1.1 million deferral of rent of the operator's$1.3 million contractual rent. The remaining deferred balance due from the operator is$0.4 million as ofDecember 31, 2020 . We also recorded an impairment charge of$0.9 million related to an assisted living community that was operated by the operator. The community was closed inOctober 2020 . We are currently evaluating our options to sell this property. OnAugust 10, 2020 , in its Quarterly Report on Form 10-Q, Genesis Healthcare, Inc. ("Genesis") reported doubt regarding its ability to continue as a going concern. Accordingly, we evaluated the collectibility of receiving substantially all of our lease payments from the Genesis master lease through maturity in accordance with ASC 842, and determined that we did not have the level of certainty required by the standard. 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 in third quarter of 2020. Genesis is current on rent payments throughFebruary 2021 .Anthem Memory Care ("Anthem") operates 11 memory care communities under a master lease and was placed in default in 2017 resulting from Anthem's partial payment of its minimum rent. However, we did not enforce our rights and remedies pertaining to the event of default, under the stipulation that Anthem achieves sufficient performance and pays agreed upon rent. In accordance with ASC 842 lease accounting guidance, atJanuary 1, 2019 , we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Anthem and determined that it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as ofJanuary 1, 2019 , as required by the ASC 842 transition guidance. Anthem paid us annual cash rent of$9.9 million in 2020. We receive regular financial performance updates from Anthem and 32 Table of Contents
continue to monitor their performance obligations under the master lease
agreement. Anthem has paid their agreed upon rent through
Preferred Care, Inc. ("Preferred Care") and affiliated entities filed for Chapter 11 bankruptcy in 2017 as a result of a multi-million-dollar judgment in a lawsuit inKentucky against Preferred Care and certain affiliated entities. Preferred Care leased 24 properties under two master leases from us and the Preferred Care operating entities that subleased those properties did not file for bankruptcy. In accordance with ASC 842 lease accounting guidance, atJanuary 1, 2019 , we evaluated the collectibility of straight-line rent receivable and lease incentive balances related to Preferred Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as ofJanuary 1, 2019 , as required by the ASC 842 transition guidance. Preferred Care did not affirm our master leases and subsequently filed for Chapter 7 bankruptcy in 2019. During the fourth quarter of 2019, we entered into multiple contracts to sell the 24 properties leased by Preferred Care and completed the sales by the end of the first quarter of 2020. The combined net proceeds from the sales, including the 2019 transactions, was approximately$77.9 million resulting in a total gain of approximately$44.0 million . The 24 properties leased by Preferred Care had a combined net book value of$35.6 million . The 21 properties sold in the first quarter of 2020, which included 2,411 beds inArizona ,Colorado ,Iowa ,Kansas andTexas , were sold through multiple transactions and generated net proceeds of$72.1 million . These 21 properties had a combined net book value of$29.1 million and resulted in total gain on sale of$44.1 million .Senior Care Centers, LLC and affiliates and subsidiaries ("Senior Care") filed for Chapter 11 bankruptcy as a result of lease terminations from certain landlords and on-going operational challenges inDecember 2018 . Senior Care did not pay usDecember 2018 rent and accordingly, inDecember 2018 , we placed Senior Care on a cash basis. In accordance with ASC 842 lease accounting guidance, atJanuary 1, 2019 , we evaluated the collectibility of the straight-line rent receivable and lease incentive balance related to Senior Care and determined it was not probable that we would collect substantially all of the contractual lease obligations through maturity. Accordingly, we wrote-off the balances to equity as ofJanuary 1, 2019 , as required by the ASC 842 transition guidance. During 2019, we received theDecember 2018 unpaid rent, late fees and legal cost reimbursement totaling$1.6 million from Senior Care. InMarch 2020 , Senior Care emerged from bankruptcy and affirmed our master lease. We continue to evaluate the collectibility of our Senior Care master lease on a quarterly basis. Senior Care is current on rent payments throughFebruary 2021 . During the year endedDecember 31, 2020 , we consolidated four separate lease agreements into a single consolidated master lease with Brookdale and extended the lease maturity date by one year toDecember 31, 2021 . The new 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 notice period for the first renewal option isJanuary 1, 2021 toApril 30, 2021 . The economic rent terms remain the same as the consolidated rent terms under the previous four separate lease agreements. In addition, we have extended a$4.0 million capital commitment to Brookdale, which is available throughDecember 31, 2021 at a 7% yield. As ofDecember 31, 2020 , we funded$1.7 million under this commitment with a remaining commitment of$2.3 million . Brookdale is current on rent payments throughFebruary 2021 . 33 Table of Contents 2020 Transactions Overview
The following tables summarizes our transactions in 2020 (dollar amounts in thousand):
Investment in
Number Type Number Initial Total Total
of of of Cash Purchase Transaction AcquisitionState Properties Properties Beds/Units Yield Price Costs Costs Texas 1 SNF 140 8.5 %$ 13,500 $ 81$ 13,581 Sold Properties Type Number Number of of of Sales Carrying Net State Properties Properties Beds/Units Price Value Gain N/A N/A - - $ - $ -$ 129 (1) Arizona SNF 1 194 12,550 2,229 10,293 Colorado SNF 3 275 15,000 4,271 10,364 Iowa SNF (2) 7 544 14,500 4,886 9,051 Kansas SNF 3 250 9,750 7,438 1,993 Texas SNF 7 1,148 23,000 10,260 12,287 21 2,411$ 74,800 $ 29,084 $ 44,117 (3)
Gain recognized from the
from the holdback under the expected value model per ASC Topic 606, Contracts
with Customers ("ASC 606").
This transaction includes a holdback of $838 which is held in aninterest-bearing account with an escrow holder on behalf of the buyer for (2) potential specific losses. Using the expected value model per ASC 606, we
estimated and recorded the holdback value of
December 31, 2020 , the estimated holdback value was$609 .
(3) Properties sold within the Preferred Care portfolio.
Development Projects
Developments Improvements
Assisted Living Communities $ 4,491 $ 6,842
Skilled Nursing Centers 12,208 71
Total $ 16,699 $ 6,913
Completed Developments
Number Type Number
of of of Total
Properties Property Beds/Units State Investment
1 ALF/MC 78 Oregon $ 18,447
1 SNF 90 Missouri 16,587
2 168 $ 35,034 Investment in Mortgage Loans
Originations and funding under mortgage loans receivable
(1,065)
Mortgage loan premium amortization (4)
Provision for loan loss reserve (32)
Net increase in mortgage loans receivable $ 3,152
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Investments in
Type Type Total Contractual Number Cash
of of Preferred Cash of Investment Carrying Capital Income Interest
State Properties Investment Return Portion Beds/ Units Commitment Value Contribution Recognized Received
Arizona ALF/MC/ILF Preferred Equity N/A % N/A % (1) - $ - $ - (1) $ 58 $ 231 $ 231
Washington (2) UDP Preferred Equity (2) 12 % 7 % - - 6,340 6,340 169 169
Washington (3) UDP Preferred Equity (3) 12 % 8 % - 13,000 5,000 5,000 32 32
- $ 13,000 $ 11,340 $ 11,398 $ 432 $ 432 We had a preferred equity investment in an unconsolidated joint venture that
owned four communities providing independent living, assisted living and (1) memory care services. During 2020, the four properties comprising the joint
venture were sold. Accordingly, we received liquidation proceeds of
As a result of the recoverability analysis, we impaired the investment by
$5,500 in 2019 and recorded an additional $758 loss in 2020.
Invested
ALF/MC in
increasing to 9% in year four until the internal rate of return ("IRR") is
8%. After achieving an 8% IRR, the cash rate drops to 8% with an IRR ranging
between 12% to 14%.
Entered into
investment earns an initial cash rate of 8% with an IRR of 12%. Our
investment represents 11.6% of the estimated total investment.
Investment in Notes Receivable
Advances under notes receivable$ 2,078 (1)
Principal payments received under notes receivable (5,275) (2) Reclassed to real estate under development
(300) (3)
Notes receivable reserve 35
Net decrease in notes receivable $ (3,462) (1) Funding under working capital notes with interest ranging between 5.0% to
7.5% and maturities between 2025 and 2030.
(2) Subsequent to
receivable.
Represents an interim working capital loan related to a development project (3) which matured upon completion of the development project and commencement of
the lease.
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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 real estate 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 real estate investments that are real property or mortgage loans. Investment mix measures the portion of our investments that relate to our various property types. Operator mix measures the portion of our real estate investments that relate to our top five operators. Geographic mix 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):
12/31/20 9/30/20 6/30/20 3/31/20 12/31/19
Asset mix:
Real property $ 1,452,001 $ 1,448,764 $ 1,445,691 $ 1,438,177 $ 1,484,571
Loans receivable 259,843 260,267 258,649 256,959 256,659
Real estate investment mix:
Skilled nursing centers $ 820,312 $ 817,364 $ 812,637 $ 807,457 $ 857,187
Assisted living communities 880,172 880,307 880,343 876,319 872,683
Other (1) 11,360 11,360 11,360 11,360 11,360
Operator mix:
Prestige Healthcare (1) $ 272,976 $ 273,399 $ 271,781 $ 270,091 $ 269,792 Senior Lifestyle Corporation (2) 188,586 191,622 191,622
191,622 191,283
Senior Care Centers 138,109 138,109 138,109 138,109 138,109
Anthem Memory Care 136,483 136,483 136,483 136,483 136,484Carespring Health Care Management 102,520 102,520 102,520
102,520 102,520
Remaining operators 873,170 866,898 863,825 856,311 903,042
Geographic mix:
Michigan $ 281,963 $ 282,103 $ 279,821 $ 277,063 $ 276,742
Texas 273,287 273,075 273,075 273,075 284,697
Wisconsin 149,403 149,403 149,403 149,405 149,290
California 105,163 104,924 104,687 103,970 103,240
Colorado 104,090 106,879 106,879 106,879 114,923
Remaining states 797,938 792,647 790,475 784,744 812,338
As of
and are managed by Prestige.
(2) Subsequent to
Lifestyle to two operators.
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 sheet 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
National Association of Real Estate Investment Trusts ("NAREIT"). EBITDAre is
calculated as net income (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. Adjusted EBITDAre is calculated
as EBITDAre adjusted for non-recurring items. 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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Balance Sheet Metrics
Year Ended Quarter Ended
12/31/20 12/31/20 9/30/20 6/30/20 3/31/20 12/31/19
Debt to gross asset value 35.8 % 35.8 % (1) 36.5 % (1) 37.4 % 37.3 % 37.2 %
Debt to market capitalization ratio 29.8 % 29.8 % (2) 32.7 % (4) 31.8 % (5) 36.3 % (4) 28.0 %
Interest coverage ratio (6) 4.9 x 5.3 x (3) 4.8 x 4.9 x 4.7 x 4.9 x
Fixed charge coverage ratio (6) 4.9 x 5.3 x (3) 4.8 x 4.9 x 4.7 x 4.9 x
(1) Decreased due to decrease in outstanding debt partially offset by decrease in
gross value.
(2) Decreased due to decrease in outstanding debt and increase in market
capitalization.
(3) Increased due to decrease in interest expense and increase in rental income.
(4) Increased due to decrease in market capitalization, partially offset by
decrease in outstanding debt.
(5) Decreased due to increase in market capitalization.
In calculating our interest coverage and fixed charge coverage ratios above,
we use EBITDAre, which is a financial measure not derived in accordance with
measure). EBITDAre and Adjusted EBITDAre are not alternatives to net income, (6) operating income or cash flows from operating activities as calculated and
presented in accordance with GAAP. You should not rely on EBITDAre and
Adjusted EBITDAre as a substitute for any such GAAP financial measures or
consider it in isolation, for the purpose of analyzing our financial
performance, financial position or cash flows. Net income is the most
directly comparable GAAP measure to EBITDAre and Adjusted EBITDAre.
Year to Date Quarter Ended
12/31/20 12/31/20 9/30/20 6/30/20 3/31/20 12/31/19
Net income $ 95,677 $ 17,665 $ 12,338 $ 1,952 $ 63,722 $ 12,631
Less/Add: (Gain)/ loss on sale (44,117) (44) (30) (189) (43,854) 4,630
Add: Loss on unconsolidated joint ventures 758 138
- 620 - -
Add: Impairment loss 3,977 3,036 941 - - 5,500
Add: Interest expense 29,705 7,088 7,361 7,546 7,710 7,578Add: Depreciation and amortization 39,071 9,839 9,766 9,797 9,669 9,817 EBITDAre$ 125,071 $ 37,722 $ 30,376 $ 19,726 $ 37,247 $ 40,156 Add (less): Non-recurring one-time items 22,841 -
5,099 17,742 - (2,111) Adjusted EBITDAre$ 147,912 $ 37,722 $ 35,475 $ 37,468 $ 37,247 $ 38,045 Interest expense$ 29,705 $ 7,088 $ 7,361 $ 7,546 $ 7,710 $ 7,578
Add: Capitalized interest 354 -
77 86 191 167
Interest incurred $ 30,059 $ 7,088 $ 7,438 $ 7,632 $ 7,901 $ 7,745
Interest coverage ratio 4.9 x 5.3 x 4.8 x 4.9 x 4.7 x 4.9 x
Interest incurred $ 30,059 $ 7,088 $ 7,438 $ 7,632 $ 7,901 $ 7,745
Total fixed charges $ 30,059 $ 7,088 $ 7,438 $ 7,632 $ 7,901 $ 7,745 Fixed charge coverage ratio 4.9 x 5.3 x
4.8 x 4.9 x 4.7 x 4.9 x
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We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to:
? The status of the economy;
? The status of capital markets, including prevailing interest rates;
? Compliance with and changes to regulations and payment policies within the
health care industry;
? Changes in financing terms;
? Competition within the health care and seniors housing industries;
? Changes in federal, state and local legislation;
? The duration, spread and severity of the COVID-19 outbreak.
Management regularly monitors the economic and other factors listed above. We develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends.
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Operating Results
Year ended December 31, 2020 compared to year ended December 31, 2019 (in
thousands):
Years ended December 31,
2020 2019 Difference
Revenues:
Rental income $ 126,094 $ 152,755 $ (26,661) (1)Interest income from mortgage loans 31,396 29,991 1,405 (2) Interest and other income 1,847 2,558 (711) (3) Total revenues 159,337 185,304 (25,967) Expenses: Interest expense 29,705 30,582 877 (4) Depreciation and amortization 39,071 39,216 145 Impairment loss from real estate investments 3,977 - (3,977) (5) (Recovery) provision for doubtful accounts (3) 166 169 Transaction costs 299 365 66 Property tax expense 15,065 16,755 1,690 (6) General and administrative expenses 19,710 18,453 (1,257) (7) Total expenses 107,824 105,537 (2,287) Other operating income: Gain on sale of real estate, net 44,117 (8) 2,106 (9) 42,011 Operating income 95,630 81,873 13,757 Gain from property insurance proceeds 373 (10) 2,111 (10) (1,738) Loss on unconsolidated joint ventures (758) (11) - (758) Impairment loss from investments in unconsolidated joint ventures - (5,500) (12) 5,500 Income from unconsolidated joint ventures 432 2,388 (1,956) (13) Net income 95,677 80,872 14,805 Income allocated to non-controlling interests (384) (346) (38) Net income attributable to LTC Properties, Inc. 95,293 80,526 14,767 Income allocated to participating securities (422) (391) (31) Net income available to common stockholders$ 94,871
$ 80,135 $ 14,736 Decreased primarily due to the$23,214 write-off of straight-line rent
receivable and lease incentive balances during 2020, reduction in rent (1) related to the sale of the Preferred Care portfolio, reduced revenue from
Senior Lifestyle, and abated and deferred rent, partially offset by increased
rent from contractual escalations, acquisitions and completed development
projects.
(2) Increased primarily due to additional mortgage and capital improvement
funding offset by scheduled principal paydowns.
(3) Decreased primarily due to the partial paydown of a mezzanine loan.
Decreased primarily due to lower outstanding balance and interest rates on (4) our line of credit in 2020, partially offset by increased interest from sale
of $100,000 senior unsecured notes during the fourth quarter of 2019.
(5) Represents
$941 impairment loss related to a 61-unit ALF inFlorida .
(6) Decreased primarily due to the timing of Senior Lifestyle property tax escrow
receipts and the payment of related taxes.
(7) Increased primarily due to higher incentive compensation expense in 2020 and
prior year's legal fee reimbursement from Senior Care.
Represents gain on sale of 21 SNFs within the Preferred Care portfolio and (8) recognition of additional gain due to quarterly evaluation of funds held in
escrow from previously sold properties.
Represents the net gain resulting from sale of three SNFs and an ALF during
(9) 2019. Additionally, represents an additional
receipt of funds held in escrow related to a portfolio of six ALFs sold in
2018.
(10) Relates to insurance proceeds related to properties sold.
(11) Relates to the sale of properties comprising a joint venture in which we had
a preferred equity investment. Also, see (12) below.
(12) Relates to a preferred equity investment in a joint venture comprised of
four ALFs which we wrote-down to its estimated fair value.
(13) Decreased due to (12) above and payoff of a mezzanine loan in 2019. Offset
by two preferred equity investments in 2020.
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Year ended December 31, 2019 compared to year ended December 31, 2018 (in
thousands)
Years ended December 31,
2019 2018 Difference
Revenues:
Rental income $ 152,755 $ 135,405 $ 17,350 (1) (2)
Interest income from mortgage loans 29,991 28,200 1,791 (3) Interest and other income 2,558 5,040 (2,482) (4) Total revenues 185,304 168,645 16,659 Expenses: Interest expense 30,582 30,196 (386)
Depreciation and amortization 39,216 37,555 (1,661) (5) Provision for doubtful accounts 166
87 (79) Transaction costs 365 84 (281) Property tax expense 16,755 - (16,755) (2)
General and administrative expenses 18,453
19,193 740 (6) Total expenses 105,537 87,115 (18,422) Other operating income:
Gain on sale of real estate, net 2,106 (7) 70,682 (8) (68,576) Operating income 81,873 152,212 (70,339) Gain from property insurance proceeds 2,111 - 2,111 (9) Impairment loss from investments in unconsolidated joint ventures (5,500) - (5,500) (10) Income from unconsolidated joint ventures 2,388 2,864 (476) Net income 80,872 155,076 (74,204) Income allocated to non-controlling interests (346) (95) (251) Net income attributable to LTC Properties, Inc. 80,526 154,981 (74,455) Income allocated to participating securities (391) (625) 234
Net income available to common stockholders
Increased due to (2) below and increased rent from acquisitions and (1) developments partially offset by decreased rent from sold properties and
properties transitioned to other operators.
Increased due to recording
our operators as rental income with a corresponding property tax expense. We (2) adopted ASC 842 using a modified retrospective approach as of the adoption
date of January 1, 2019 . Accordingly, we are not required to report the
expense and revenue stream for periods prior to January 1, 2019 .
(3) Increased primarily due to mortgage originations and capital improvement
funding.
Decreased primarily due to net impact of the write-off of an earn-out (4) liability and the related lease incentive asset during 2018 partially offset
by increase in other income during 2019 due to mezzanine loan originations.
(5) Increased due to acquisitions and completed developments partially offset by
sold properties.
(6) Decreased primarily due to lower accrual of incentive compensation in 2019.
Represents the net gain resulting from sale of three SNFs and an ALF during
(7) 2019. Additionally, represents an additional
receipt of funds held in escrow related to a portfolio of six ALFs sold in
2018. See (8) below.
(8) Represents the net gain on sale related to six ALFs and four SNFs during
2018.
(9) Relates to insurance proceeds from a property sold in 2019.
(10) Relates to a preferred equity investment in a joint venture comprised of
four ALFs which we wrote-down to its estimated fair value.
Funds From Operations
Funds from Operations ("FFO") attributable to common stockholders, basic FFO
attributable to common stockholders per share and diluted FFO attributable to
common stockholders per share are supplemental measures of a REIT's financial
performance that are not defined by GAAP. Real estate values historically rise
and fall with market conditions, but cost accounting for real estate assets in
accordance with GAAP assumes that the value of real estate assets diminishes
predictably over time. We believe that by excluding the effect of historical
cost depreciation, which
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may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods.
We use FFO as a supplemental performance measurement of our cash flow generated
by operations. FFO does not represent cash generated from operating activities
in accordance with GAAP, and is not necessarily indicative of cash available to
fund cash needs and should not be considered an alternative to net income
available to common stockholders.
We calculate and report FFO in accordance with the definition and interpretive
guidelines issued by the NAREIT. FFO, as defined by NAREIT, means net income
available to common stockholders (computed in accordance with GAAP) excluding
gains or losses on the sale of real estate and impairment write-downs of
depreciable real estate plus real estate depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. Our
calculation of FFO may not be comparable to FFO reported by other REITs that do
not define the term in accordance with the current NAREIT definition or that
have a different interpretation of the current NAREIT definition from us;
therefore, caution should be exercised when comparing our FFO to that of other
REITs.
The following table reconciles net income available to common stockholders to
FFO attributable to common stockholders (unaudited, amounts in thousands, except
per share amounts):
For the year ended December 31,
2020 2019 2018
GAAP net income available to common stockholders
39,071 39,216 37,555
Add: Impairment loss from investments 3,977 5,500 -
Add: Loss on unconsolidated joint ventures 758 - -
Less: Gain on sale of real estate, net (44,117) (2,106) (70,682)
NAREIT FFO attributable to common stockholders $ 94,560 $ 122,745 $ 121,229
NAREIT FFO attributable to common stockholders
per share:
Basic $ 2.41 $ 3.10 $ 3.07
Diluted $ 2.41 $ 3.08 (1) $ 3.06 (1)
Weighted average shares used to calculate NAREIT
FFO per share:
Basic 39,179 39,571 39,477
Diluted 39,264 (2) 39,921 (3) 39,839 (3)
(1) Includes the effect of participating securities.
(2) Diluted weighted average shares used to calculate FFO per share includes the
effect of performance-based stock units.
Diluted weighted average shares used to calculate FFO per share includes the (3) effect of stock option equivalents, participating securities and
performance-based stock units.
Critical Accounting Policies
See Item 8. FINANCIAL STATEMENTS-Note 2. Summary of Significant Accounting Policies.
Liquidity and Capital Resources
Sources and Uses of Cash
As of
We believe that our current cash balance, cash flow from operations available
for distribution or reinvestment, our borrowing capacity and our potential
ability to access the capital markets are sufficient to provide for payment of
our current operating costs, meet debt obligations and pay common dividends at
least sufficient to maintain our REIT status
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and repay borrowings at, or prior to, their maturity. The timing, source and
amount of cash flows used by financing and investing activities are sensitive to
the capital markets' environment, especially to changes in interest rates. In
addition, COVID-19 has adversely affected and is expected to continue to
adversely affect our operators' business, results of operations, cash flows and
financial condition which could, in turn, adversely affect our financial
position.
The operating results of the properties will be impacted by various factors over
which the operators/owners may have no control. Those factors include, without
limitation, the health of the economy, changes in supply of or demand for
competing seniors housing and health care properties, ability to control rising
operating costs, the potential for significant reforms in the health care
industry, and the impact of COVID-19. In addition, our future growth in net
income and cash flow may be adversely impacted by various proposals for changes
in the governmental regulations and financing of the health care industry, and
the impact of COVID-19 or other pandemic level viruses. We cannot presently
predict what impact these potential events may have, if any. We believe that
adequate provision has been made for the possibility of loans proving
uncollectible but we will continually evaluate the financial status of the
operations of the seniors housing and health care properties. In addition, we
will monitor our borrowers and the underlying collateral for mortgage loans and
will make future revisions to the provision, if considered necessary.
Depending on the duration, spread and the severity of the COVID-19 outbreak, our
borrowing capacity, compliance with financial covenants, ability to access the
capital markets, and the payment of dividends may be negatively impacted. We
continuously evaluate the availability of cost-effective capital and believe we
have sufficient liquidity for corporate expenses and additional capital
investments in 2021.
Our investments, principally our investments in owned properties and mortgage
loans, are subject to the possibility of loss of their carrying values as a
result of changes in market prices, interest rates and inflationary
expectations. The effects on interest rates may affect our costs of financing
our operations and the fair market value of our financial assets. Generally, our
leases have agreed upon annual increases and our loans have predetermined
increases in interest rates. Inasmuch as we may initially fund some of our
investments with variable interest rate debt, we would be at risk of net
interest margin deterioration if medium and long-term rates were to increase.
Our primary sources of cash include rent and interest receipts, borrowings under
our unsecured credit facility, public and private issuance of debt and equity
securities, proceeds from investment dispositions and principal payments on
loans receivable. Our primary uses of cash include dividend distributions, debt
service payments (including principal and interest), real property investments
(including acquisitions, capital expenditures and construction advances), loan
advances and general and administrative expenses. These sources and uses of cash
are reflected in our Consolidated Statements of Cash Flows as summarized below
(in thousands):
Year Ended December 31, Change
Cash provided by (used in): 2020 2019 $
Operating activities $ 118,980 $ 122,469 $ (3,489)
Investing activities 41,053 (78,988) 120,041
Financing activities (156,505) (44,001) (112,504)
Increase (decrease) in cash, cash equivalents
and restricted cash 3,528 (520) 4,048
Cash, cash equivalents and restricted cash,
beginning of period 4,244 4,764 (520)
Cash, cash equivalents and restricted cash, end
of period $ 7,772 $ 4,244 $ 3,528
Debt Obligations
Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to$600.0 million in aggregate commitment of the lenders and the opportunity to increase the commitment size of the credit agreement up to a total of$1.0 billion . The Unsecured Credit Agreement matures onJune 27, 2022 and provides for a one-year extension option at our discretion, subject to customary conditions. Based on our leverage atDecember 31, 2020 , the facility provides for interest annually at LIBOR plus 115 basis points and a facility fee of 20 basis points. AtDecember 31, 2020 , we were in compliance with all covenants. Senior Unsecured Notes. We have senior unsecured notes held by institutional investors with interest rates ranging from 3.85% to 5.03%. The senior unsecured notes mature between 2021 and 2032. 42 Table of Contents The debt obligations by component as ofDecember 31, 2020 are as follows (dollar amounts in thousands): Applicable Available Interest Outstanding for Debt Obligations Rate (1) Balance Borrowing Bank borrowings (2) 1.38%$ 89,900 $ 510,100 Senior unsecured notes, net of debt issue costs (2) 4.37% 559,482 - Total 3.96%$ 649,382 $ 510,100
(1) Represents weighted average of interest rate as of
Subsequent to
$501,100 available for borrowing under our unsecured revolving line of credit.
Subsequent to
under our senior unsecured notes.
Our debt borrowings and repayments during the year ended
Debt Obligations Borrowings Repayments Bank borrowings$ 24,000 $ (28,000) Senior unsecured notes - (40,160) Total$ 24,000 $ (68,160) Equity Non-controlling Interests. We may, enter into partnerships to develop and/or own real estate. Given that our limited members do not have substantive kick-out rights, liquidation rights, or participation rights, we have concluded that the partnerships are VIEs. Since we exercise power over and receive benefits from the VIEs, we are considered the primary beneficiary. Accordingly, we consolidate the VIEs and record the non-controlling interests at cost.
At
Common Stock. We have an equity distribution agreement with sales agents to issue and sell, from time to time, up to$200.0 million in aggregate offering price of our common shares. The equity distribution agreement provides for sales of common shares to be made by means of ordinary brokers' transactions, which may include block trades, or transactions that are deemed to be "at the market" offerings. AtDecember 31, 2020 , we had$200.0 million available under our equity distribution agreement. During 2020, we acquired 76,574 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent toDecember 31, 2020 , we declared a monthly cash dividend of$0.19 per share on our common stock for the months of January, February andMarch 2021 , payable onJanuary 29 ,February 26 andMarch 31, 2021 , respectively, to stockholders of record onJanuary 21 ,February 18 , andMarch 23, 2021 , respectively. Stock Repurchase Plan. During the first quarter of 2020, our Board of Directors authorized the repurchase of up to 5,000,000 outstanding shares of common stock. During the year endedDecember 31, 2020 , we purchased 615,827 shares at an average price of$29.25 per share, including commissions, for a total purchase price of$18.0 million . Due to the rising level of uncertainty in financial markets and the adverse effects of COVID-19 on the public health and our operators, our Board of Directors terminated the stock repurchase plan onMarch 25, 2020 . Stock Based Compensation Plans. During 2015, we adopted, and our stockholders approved the 2015 Equity Participation Plan (the "2015 Plan") which 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its 43 Table of Contents discretion.
Restricted Stock and Performance-based Stock Units. During 2020, we granted 167,375 shares of restricted common stock and performance-based stock units under the 2015 Plan as follows:
No. of Price per Shares Share Vesting Period 76,464$ 48.95 ratably over 3 years 66,027$ 49.98 TSR targets (1) 9,884$ 38.45 May 27, 2021 15,000$ 38.45 ratably over 3 years 167,375
(1) Vesting is based on achieving certain total shareholder return ("TSR")
targets in 4 years with acceleration opportunity in 3 years.
AtDecember 31, 2020 , the total number of restricted common stock shares that are scheduled to vest, and performance-based stock units that could possibly vest and remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as follows (dollar amounts in thousands):
Number Remaining
of Compensation
Vesting Date Awards Expense
2021 159,537 (1) $ 5,201
2022 117,417 (2) 2,729
2023 96,520 (3) 367
Total 373,474 $ 8,297 Includes 66,171 performance-based stock units. The performance-based stock (1) units are valued utilizing a lattice-binomial option pricing model based on
over the applicable vesting period as compensation expense.
(2) Includes 60,836 performance-based stock units. See (1) above for valuation
methodology.
(3) Includes 66,027 performance-based stock units. See (1) above for valuation
methodology.
Stock Options. We did not issue any stock options during the year endedDecember 31, 2020 . AtDecember 31, 2020 , we have 15,000 stock options outstanding and exercisable. Contractual Obligations We monitor our contractual obligations and commitments detailed above to ensure funds are available to meet obligations when due. The following table represents our long-term contractual obligations (scheduled principal payments and amounts due at maturity) as ofDecember 31, 2020 , excluding the effects of interest and debt issue costs (in thousands): Total 2021 2022 2023 2024 2025 Thereafter Bank borrowings$ 89,900 (1) $ -$ 89,900 $ - $ - $ - $ - Senior unsecured notes 560,140 (2) 47,160 (1) 48,160 49,160
49,160 49,500 317,000
$ 650,040 $ 47,160 $ 138,060 $ 49,160 $ 49,160 $ 49,500 $ 317,000 Subsequent to
$501,100 available for borrowing under our unsecured revolving line of credit.
Subsequent to
under our senior unsecured notes.
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The following table represents our projected interest expense, excluding
capitalized interest, amortization of debt issue costs and bank fees, as of
Total 2021 2022 2023 2024 2025 Thereafter
Bank borrowings $ 3,706 $ 2,478 $ 1,228 $ - $ - $ - $ -
Senior unsecured notes 135,393 23,565 21,281 19,003 16,747 14,536 40,261
$ 139,099 $ 26,043 $ 22,509 $ 19,003 $ 16,747 $ 14,536 $ 40,261 Also, see Item 8. FINANCIAL STATEMENTS- Note 11. Commitments and Contingencies for additional information regarding our contractual commitments.
Off-Balance Sheet Arrangements:
We had no off-balance sheet arrangements as of
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