<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
__________
FORM 10-Q/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____ to ____
Commission file number 1-11314
LTC PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 71-0720518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
</TABLE>
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
(Address of principal executive offices)
(805) 981-8655
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No __
-
Shares of Registrant's common stock, $.01 par value, outstanding at July 31,
1997 - 23,220,532
<PAGE>
LTC PROPERTIES, INC.
FORM 10-Q/A
JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I -- Financial Information PAGE
----
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets.............................................................. 3
Condensed Consolidated Statements of Income........................................................ 4
Condensed Consolidated Statements of Cash Flows.................................................... 5
Notes to Condensed Consolidated Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................17
</TABLE>
2
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(RESTATED)
June 30, December 31,
1997 1996
----------------- ------------------
(unaudited) (audited)
(In thousands)
<S> <C> <C>
ASSETS
Real Estate Investments:
Buildings and improvements, net of accumulated depreciation and
amortization: 1997 - $15,738; 1996 - $11,640 $258,192 $199,591
Land 15,391 12,347
Mortgage loans receivable, held for sale, net of allowance for
doubtful accounts: 1997 - $1,000; 1996 - $1,000 231,506 177,262
REMIC Certificates, at estimated fair value 87,725 98,934
-------- --------
Real estate investments, net 592,814 488,134
Other Assets:
Cash and cash equivalents 5,894 3,148
Debt issue costs, net 2,805 4,150
Interest receivable 3,508 2,817
Prepaid expenses and other assets 8,135 2,289
-------- --------
20,342 12,404
-------- --------
Total assets $613,156 $500,538
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures due 1999 - 2004 $104,667 $135,828
Bank borrowings 104,000 79,400
Mortgage loans and notes payable 58,471 54,205
Bonds payable and capital lease obligations 13,948 14,039
Accrued interest 7,106 6,015
Accrued expenses and other liabilities 3,323 3,041
Distributions payable 610 6,679
-------- --------
Total liabilities 292,125 299,207
Minority interest 10,506 10,528
Commitments
Stockholders' equity:
Preferred stock: aggregate liquidation amount of $77,000,000,
10,000,000 shares authorized, shares issued and outstanding:
1997 - 3,080,000, 1996 - none 73,800 -
Common stock: $0.01 par value; 40,000,000 shares authorized;
shares issued and outstanding: 1997 - 23,045,810, 1996 - 230 195
19,484,208
Capital in excess of par value 250,779 195,297
Notes receivable from stockholders (7,565) -
Cumulative net income 88,374 71,914
Cumulative distributions (95,093) (76,603)
-------- --------
Total stockholders' equity 310,525 190,803
-------- --------
Total liabilities and stockholders' equity $613,156 $500,538
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION> (RESTATED) (RESTATED)
-------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
--------------------------- ------------------------------
1997 1996 1997 1996
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 7,561 $ 4,927 $13,875 $ 9,061
Interest income from mortgage loans 6,345 3,668 12,488 8,832
Interest income from REMIC Certificates 3,731 3,989 7,447 6,787
Interest and other income 478 336 792 603
------- ------- ------- -------
Total revenues 18,115 12,920 34,602 25,283
Expenses:
Interest expense 5,632 4,835 11,339 9,489
Depreciation and amortization 2,225 1,479 4,144 2,746
Amortization of Founders' stock 12 38 31 76
Minority interest 297 117 594 272
Operating and other expenses 1,006 834 1,945 1,628
------- ------- ------- -------
Total expenses 9,172 7,303 18,053 14,211
------- ------- ------- -------
Operating income 8,943 5,617 16,549 11,072
Other income/(loss):
Unrealized holding gain/(loss) on
estimated fair 872 (711) (200) 5,665
value of REMIC Certificates
Other income, net 111 - 111 -
------- ------- ------- -------
Total other income/(loss) 983 (711) (89) 5,665
Net income 9,926 4,906 16,460 16,737
Preferred dividends 1,828 - 2,255 -
------- ------- ------- -------
Net income available to common stockholders $ 8,098 $ 4,906 $14,205 $16,737
======= ======= ======= =======
Net income available to common stockholders
======= $0.26 $0.62 $0.89
per share $0.35 ======= ======= =======
=======
Weighted average shares outstanding 23,146 18,959 22,802 18,900
======= ======= ======= =======
</TABLE>
See accompanying notes
4
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
(RESTATED)
Six Months Ended June 30,
1997 1996
----------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,460 $ 16,737
Adjustments to reconcile net income to net cash provided by operating results:
Depreciation and amortization 5,049 3,532
Unrealized holding (gain)/loss on estimated fair value of REMIC 200 (5,665)
Certificates
Gain on sale of REMIC Certificates (1,231) -
Expense relating to vesting of restricted stock 1,120 -
Non-cash charges 102 83
Net change in other assets and liabilities 393 2,250
--------- ---------
Net cash provided by operating activities 22,093 16,937
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net 73,800 -
Proceeds from issuance of common stock, net 17,349 -
Proceeds from issuance of convertible debentures - 30,000
Debt issue costs (1,047)
Borrowings under the lines of credit 150,770 145,100
Repayments of bank borrowings (126,170) (135,570)
Repurchase of common stock - (1,831)
Distributions paid (24,554) (11,680)
Other (908) (54)
--------- ---------
Net cash provided by financing activities 90,287 24,918
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in real estate mortgages (66,088) (58,010)
Acquisitions of real estate properties, net (56,356) (77,048)
Proceeds from sale of REMIC Certificates 11,811 86,874
Principal payments on mortgage loans payable and capital lease obligations (825) (212)
Restricted cash - 8,300
Principal payments on real estate mortgages 2,854 1,452
Deferred facility fee, net 12 (42)
Other (1,042) (275)
--------- ---------
Net cash used in investing activities (109,634) (38,961)
--------- ---------
Increase in cash and cash equivalents 2,746 2,894
Cash and cash equivalents, beginning of period 3,148 1,434
--------- ---------
Cash and cash equivalents, end of period $ 5,894 $ 4,328
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 9,703 $ 6,960
========= =========
Non-cash investing and financing transactions:
Conversion of debentures into common stock $ 31,161 $ 4,710
Notes receivable relating to exercise of employee stock options 7,631 -
Conversion of mortgage loans to owned properties 11,545 -
Assumption of mortgage loans payable relating to acquisitions of real
estate properties - 9,641
Exchange of mortgage loans for REMIC Certificates - 80,962
Issuance of mortgage loans payable for REMIC Certificates - 31,525
Minority interest related to acquisitions of real estate properties - 8,932
</TABLE>
See accompanying notes
5
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(i) The condensed consolidated financial statements included
herein have been prepared by LTC Properties, Inc. (the "Company"), without
audit, and include all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the six
month periods ended June 30, 1997 and 1996 pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
condensed consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and controlled partnerships. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures in the accompanying financial statements are adequate to make
the information presented not misleading. The results of operations for the
six-month periods ended June 30, 1997 and 1996 are not necessarily
indicative of the results for a full year.
As previously disclosed in the current and prior periods, the
Company has securitized portions of its mortgage loan portfolio and
retained a portion of the resulting REMIC Certificates to hold as long-term
investments. Historically, the Company has accounted for its REMIC
Certificate investments at amortized cost and provided fair value
disclosures because of the highly specialized nature of the collateral
underlying the REMIC Certificates, the lack of marketability of the
Certificates and the Company's intent and investment posture to hold its
real estate investments for long-term purposes. Moreover, the Company
believes that the fair value accounting provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"), which require the recognition
of unrealized gains or losses resulting from temporary changes in the fair
value of originated mortgage-backed securities (the REMIC Certificates)
that are retained by the Company, may reflect equity or earnings in the
Company's financial statements that may not be ultimately realized and
portray a level of liquidity with respect to its REMIC Certificates that
may not exist. Furthermore, the Company believed that the accounting
literature supported the accounting for the REMIC Certificates at amortized
cost. However, after reconsideration following discussions with the Staff
of the Securities and Exchange Commission, the Company decided to restate
its financial statements and adopt the fair value accounting provisions of
SFAS 115 as opposed to the amortized cost accounting the Company believed
applicable under SFAS 115. The fair value accounting provisions require the
recognition in earnings of temporary changes in the fair values of the
Company's REMIC Certificates investments, irrespective of the Company's
reservations about the realizability of such earnings. Accordingly,
previously filed financial statements have been restated to reflect the
adjustment to fair value of the Company's REMIC Certificate investments. As
a result of the restatement, cumulative net income increased by $1,872,000
($0.12 per share), decreased by $1,656,000 ($0.09 per share) and increased
by $6,173,000 ($0.32 per share) for the years ended December 31, 1994, 1995
and 1996, respectively. For the three and six months ended June 30, 1996,
net income decreased by $711,000 ($0.04 per share) and increased by
$5,665,000 ($0.30 per share), respectively.
(ii) No provision has been made for federal income taxes. The
Company qualifies as a real estate investment trust ("REIT") under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended. As such,
the Company is not taxed on its income provided that at least 95 percent of
its taxable income is distributed to its stockholders.
(iii) During the six-month period ended June 30, 1997, the Company
invested $66,088,000 in mortgage loans. Approximately $45,940,000 of these
loans are secured by, among other things, 17 skilled nursing facilities
located in nine states with a total of 1,829 beds and contain certain
guarantees. These mortgage loans, which individually range from $1,200,000
to $10,000,000 in principal amount, have stated maturities of 10 to 20
years, have an initial interest rate ranging from 9.8% to 11.57% and
generally have 25 year amortization schedules. The remaining $20,148,000 of
mortgage loans are secured by 14 assisted living facilities ("ALFs")
located in two states with a total of 620 units. Of the total loans made on
ALFs, approximately $14,510,000 was made to Assisted Living Concepts, Inc.
("ALC"), a developer-owner, operator of ALFs. The loans to ALC are secured
by mortgages on seven ALFs with 258 units, bear interest at 10.14% per
annum and will be repaid out of the proceeds of sale-leaseback transactions
with the Company. See note (x). Also included in the ALF loan amounts was
$5,435,000 of additional financing on five ALFs which are under
construction, net of $2,197,000 which converted into an owned property as
discussed below.
During the six months ended June 30, 1997, the Company acquired six
skilled nursing facilities with a total of 463 beds and nine ALFs with a
total of 376 units for approximately $27,853,000. Included in this amount
were three skilled nursing facilities purchased for $3,100,000 on which the
Company had a first mortgage loan of $2,798,000 and one ALF that was
purchased for $2,223,000 and previously financed with a construction loan of
$2,197,000. Two of the ALFs were purchased for a total of $4,875,000 and
have been leased to ALC for a total initial annual rent of approximately
$491,000 pursuant to long-term non-cancelable agreements. The Company also
added 36 beds to one of its owned skilled nursing facilities at a total cost
of approximately $1,693,000 and 9 units to one of its ALFs for $450,000.
During the second quarter of 1997, the Company converted $26,360,000 of
mortgage loans on ALFs into sale lease-back transactions with ALC.
At June 30, 1997, the outstanding certificate principal balance and
the weighted average pass-through rate for the senior REMIC Certificates
(all held by outside third parties) was $197,861,000 and 7.86%,
respectively. As of June 30, 1997 the unamortized cost basis and the
estimated fair value of the subordinated REMIC Certificates held by the
Company were $81,536,000 and $87,725,000, respectively.
6
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(iv) During the first quarter of 1997, the Company completed two
public offerings. In January 1997, the Company completed the sale of
1,000,000 shares of common stock in a public offering at $17.75 per share. In
March 1997, the Company sold 3,080,000 shares of 9.5% Series A Cumulative
Preferred Stock ("Series A Preferred Stock"). Dividends on the Series A
Preferred Stock are cumulative from the date of original issue and are
payable monthly, commencing April 15, 1997, to stockholders of record on the
first day of each month at the rate of 9.5% per annum of the $25 liquidation
preference per share (equivalent to a fixed amount of $2.375 per share). The
Series A Preferred Stock is not redeemable prior to April 1, 2001, except in
certain circumstances relating to preservation of the Company's qualification
as a REIT. The net proceeds from these offerings were used to repay short-
term borrowings outstanding under the Company's lines of credit.
(v) During the six-month period ended June 30, 1997, holders of
$31,161,000 in principal amount of convertible subordinated debentures
elected to convert the debentures into 1,910,136 shares of common stock at
prices ranging from $10.00 to $17.25 per share. Subsequent to June 30, 1997,
an additional $2,790,000 in principal amount of convertible subordinated
debentures converted into 185,222 shares of the Company's common stock at
prices ranging from $10.00 to $17.25 per share.
(vi) In March 1997, the Board of Directors adopted a loan program
designed to encourage executives, key employees, consultants and directors to
acquire common stock through the exercise of options. Under the program, the
Company will make full recourse, secured loans to participants equal to the
exercise price of vested options plus up to 50% of the taxable income
resulting from the exercise of options. Such loans will bear interest at the
then current Applicable Federal Rate (the minimum rate necessary to avoid
"unstated interest" under Section 483 of the Internal Revenue Code) and be
payable in installments over nine years. For the first five-years of such
loans, interest and principal will be payable quarterly. The amount of
principal due each quarter will be equal to 50% of the difference between the
cash dividends received on the shares purchased and the quarterly interest
that is due. In addition, 25% of any cash bonuses received by the borrower
must be used to reduce the principal balance of any such loan. At the end of
five years, such loans will convert to fully amortizing loans with 16
quarterly payments beginning in year six. The loans must be repaid within 90
days after termination of employment for any reason, other than in connection
with a change in control of the Company. In 1997, the Company's management,
consultants and directors purchased 585,166 of the Company's common stock
under the loan program. At June 30, 1997, the remaining loan amounts
available and the loans outstanding under such program, which bear interest
ranging from 6.27% to 6.63% per annum and are secured by a pledge of the
shares of Common Stock acquired on the exercise of options, were $759,000 and
$7,565,000, respectively. The market value of the common stock securing these
loans was $10,606,000 at June 30, 1997.
(vii) On April 24, 1997, the Company filed a shelf registration
statement with the Securities and Exchange Commission covering up to
$150,000,000 of debt and equity securities to be sold from time to time in
the future. The registration statement was declared effective on May 6, 1997.
7
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(viii) In June 1997, the Board of Directors declared a monthly cash
dividend of $.1979 per share on the Series A Preferred Stock payable on July
15, 1997 to stockholders of record on July 1, 1997. The dividend amount has
been reflected as distributions payable in the accompanying financial
statements as of June 30, 1997. In addition, the Board of Directors declared
a quarterly dividend of $.365 per share on its outstanding common stock to
stockholders of record on June 15, 1997 which was paid on June 30, 1997.
(ix) In June 1997, the Company sold $11,811,000 face amount of its
rated REMIC Certificates recognizing a gain of approximately $1,231,000. Also
in June 1997, the Company recognized $1,120,000 of expense resulting from the
accelerated vesting of 64,000 shares of restricted common stock held by
executives, certain management and non-employee directors of the Company.
(x) In 1997, the Company's Board of Directors authorized an
increase in the Company's investment in ALFs from 20% to 30% of its adjusted
gross real estate investment portfolio (adjusted to include the mortgage
loans to third parties underlying the investment in REMIC Certificates). In
addition, the Board of Directors also authorized an increase in the Company's
investment in properties operated by ALC from 10% to 15% of its adjusted
gross real estate investment portfolio (which was approximately $741,758,000,
cost basis, as of June 30, 1997). Currently, two of the Company's executive
officers serve as members of the Board of Directors of ALC. As of August 1,
1997, three executive officers of the Company owned approximately 3.5% of
ALC's common stock.
As of June 30, 1997, the Company had investments in ALFs totaling
approximately $130,514,000 and in properties operated by ALC of approximately
$86,820,000 or 17.6% and 11.7%, respectively, of the Company's total adjusted
gross real estate investment portfolio.
In July 1996, the Company provided a $50,180,000 commitment to
purchase assisted living facilities through sale leaseback transactions with
ALC. In connection with the commitment, the Company entered into a one-year
forward ten-year interest rate swap agreement (the "November 1996
Agreement"). The terms of the commitment provide for an initial lease term of
twelve years and an lease rate of 9.90% on each facility acquired. The
Company will finance this commitment with fixed rate financing, and as such,
utilized an interest rate swap to "lock-in" the rate at which such financing
will be obtained. Interest rate swaps are contractual agreements between the
Company and third parties to exchange fixed and floating interest payments
periodically without the exchange of the underlying principal amounts
(notional amounts). Under the November 1996 Agreement, the Company will be
credited with interest at the three-month LIBOR and will incur interest at a
fixed rate of 6.835% on a $40,000,000 notional amount beginning on November
7, 1997. On March 10, 1997, the Agreement was terminated concurrently with
the completion of the equity offerings discussed in Note (iv). The Company
recognized interest income of approximately $440,000 from the termination of
the swap agreement.
(xi) In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact
is expected to result in an increase in
8
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LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLDATED FINANCIAL STATEMENTS
(continued)
primary earnings per share for the three-month and six-month periods ended
June 30, 1997 of $0.01 and $0.01 per share, respectively, and for the three-
month and six-month periods ended June 30, 1996 of $0.00 and $0.01 per share,
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these periods is not expected to be material.
(xii) Subsequent to June 30, 1997, the Company completed
investments totaling $16,094,000. In conjunction with these investments,
$4,286,000 of construction loans made by the Company matured and were repaid.
In addition, the Company sold one skilled nursing facility for $4,530,000 and
issued a $3,171,000 first mortgage loan in connection with such sale. As of
August 12, 1997, the Company had outstanding commitments aggregating
approximately $167,000,000. Included in these amounts were commitments to ALC
for approximately $16,460,000 and Home and Community Care, Inc. ("HCI") for
$50,000,000. HCI was formed to own, operate and develop assisted living
residences and to provide home health and hospice care services. The Company
owns 2,000,000 shares of non-voting common stock of HCI which it acquired for
$5,000,000 in the form of a demand note, of which $518,300 had been funded as
of June 30, 1997. HCI had 2,610,000 shares of voting common stock outstanding
at June 30, 1997, in addition to the 2,000,000 shares of non-voting common
stock that is owned by the Company. Currently, two of the Company's executive
officers and directors serve as executive officers and directors of HCI. As
of August 1, 1997, three executive officers of the Company owned
approximately 58% of HCI's outstanding voting common stock (34% of voting and
nonvoting common stock).
(xiii) In July 1997, the Company's Board of Directors declared a
monthly cash dividend of $.1979 per share on the Series A Preferred Stock.
The dividend will be paid on August 15, 1997 to stockholders of record on
August 1, 1997.
(xiv) In August 1997, the Company completed the sale of 500,000
shares of the Company's common stock at $18.50 per share in a public
offering. The net proceeds of approximately $9,025,000 from the sale were
used to pay down borrowings under the Company's lines of credit.
(xv) In August 1997, the Company obtained a 90-day $10,000,000 bank
loan at LIBOR plus 3% with no commitment fees. In addition, in order to
further hedge a securitization transaction the Company anticipates to
complete during the fourth quarter of 1997, a Treasury Lock agreement entered
into which has a settlement date of December 15, 1997. Under this agreement,
the Company locked into a rate of 6.39% on the seven-year Treasury Note Rate
on a notional amount of $65,000,000. This Treasury Lock, which is being
accounted for as a hedge, effectively "locked in" the net interest margin on
$65,000,000 principal amount of additional senior certificates the Company
anticipates will be sold in connection with the securitzation. Upon
settlement of the Treasury Lock agreement, the Company will either receive or
make a payment based on the change in the seven year Treasury Note Rate on
the settlement date. The Treasury Lock will be extended until the
consummation of the securitization transaction, therefore, any associated
gains or losses will be included as a component of the fair value of the
assets received in the transaction.
9
<PAGE>
LTC PROPERTIES, INC.
MANAGMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Results
Six months 1997 Compared to Six months 1996
Revenues for the six months ended June 30, 1997 were $34,602,000 versus
$25,283,000 for the same period in 1996. Revenues increased $9,319,000 or
approximately 37% primarily as a result of increased rental income of
$4,814,000, increased interest income on mortgage loans of $3,656,000 and
increased interest income on the REMIC certificates of $660,000. Rental income
increased $2,327,000 as a result of additional properties acquired since June
30, 1996 and $2,478,000 from the full period impact of facilities acquired
during the first half of 1996. Rental revenue also increased $112,000 from
"same store" facilities (facilities owned in both the first half of 1996 and
1997) resulting from rental increases tied to changes in Consumer Price Indices
(CPI) and by $134,000 due to contingent rents received from certain facilities
based on increases in the facilities' incremental revenues (as defined in the
respective leases). These rent increases were offset by a decrease in rent of
$237,000 due to the sale of four Texas properties in the second quarter of 1997.
Interest income on mortgage loans increased by approximately $4,065,000 due to
investments completed since June 30, 1996 and by $1,409,000 due to the full
impact on the current period of loans originated during the six month period in
1996. Additionally, $440,000 of interest income was recognized relating to the
termination of an interest rate swap. These increases in interest income were
offset by a decrease of $2,258,000 relating to the sale of mortgage loans to the
REMIC in the first quarter of 1996. Interest income on the REMIC Certificates
increased $660,000 primarily as a result of the third securitization transaction
which closed in March 1996. The remaining increase of $189,000 resulted
primarily from certain prepayment fees.
Total expenses for the six months ended June 30, 1997 were $18,053,000
versus $14,211,000 for the same period in 1996, an increase of $3,842,000 or
27%. The increase is due in large part to an increase of $1,850,000 in interest
expense. Interest expense increased by $1,092,000 due to the issuance of
convertible subordinated debentures in August 1996 in the amount of $30,000,000.
Interest expense also increased by $845,000 primarily as a result of
consummation of tax-exempt revenue bond, capital leases and mortgage loans
financings by the Company. The remaining increase of $1,482,000 was due to
interest on borrowings under the Company's lines of credit which was offset by a
decrease of $1,569,000 as a result of conversions of previously issued
convertible subordinated debentures since June 30, 1996. Depreciation and
amortization expense increased by $1,398,000 primarily due to the acquisitions
of skilled nursing and assisted living facilities in the past year. Operating
and other expenses increased by $317,000 principally due to increased staffing
and administrative costs. The remaining increase in total expenses of $277,000
related primarily to the minority interest.
Total expenses for the six months ended June 30, 1997, as a percentage of
revenues, decreased by approximately 7% compared to the prior period. The
decrease in expenses as percentage of revenues was primarily due to the decrease
in interest expense, as a percentage of revenues, which decreased approximately
12% due primarily to the reduction of debt associated with the subordinated debt
conversions and the two equity offerings the Company completed during the first
quarter of 1997. Depreciation expense, as percentage of rental revenues, was
comparable
10
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERTAIONS
(Continued)
between the periods at 30%. Minority interest was comparable, as
percentage of revenues, in both periods, while operating and other expenses
decreased slightly due the higher revenue base and relative stability of
operating expenses.
Other income (loss) decreased primarily as a result of the effect of the
increase in the REMIC Certificates' estimated fair value which resulted in an
unrealized holding gain during the prior period as compared to the current
period's unrealized loss of $200,000. Also contributing to the decrease in the
current period was $1,120,000 of expense the Company recognized in connection
with the accelerated vesting of 64,000 shares of restricted common stock held by
executives, certain management and non-employee directors of the Company. This
decrease was offset by gain of $1,231,000 recognized on the sale of one of the
Company's rated REMIC certificates in June 1997. The sale of the certificate
also reduced the amount of the unrealized gain on the REMIC Certificates which
contributed to the unrealized loss position for the six months ended June 30,
1997. On an overall basis, the REMIC Certificates' estimated fair value was
approximately $308,000 higher at June 30, 1997 than at June 30, 1996.
Second Quarter 1997 Compared to Second Quarter 1996
Revenues for the three months ended June 30, 1997 were $18,115,000 versus
$12,920,000 for the same period in 1996. Revenues increased $5,195,000 or
approximately 40% primarily as a result of increased rental income of
$2,634,000, increased interest income on mortgage loans of $2,677,000 which was
offset by slight decrease in income on the REMIC certificates of $258,000.
Rental income increased approximately $1,567,000 as a result of additional
properties acquired since June 30, 1996 and $1,109,000 from the full period
impact of facilities acquired during the second quarter of 1996. Rental revenue
also increased $61,000 from "same store" facilities (facilities owned in both
the first half of 1996 and 1997) resulting from rental increases tied to changes
in Consumer Price Indices (CPI) and by $134,000 due to contingent rents received
from certain facilities based on increases in the facilities' incremental
revenues (as defined in the respective leases). These rent increases were
offset by a decrease in rent of $237,000 due to the sale of four Texas
properties in the second quarter of 1997. Interest income on mortgage loans
increased by approximately $2,524,000 due to investments completed since June
30, 1996 and by $153,000 due to the full impact on the current period of loans
originated during the second quarter in 1996. Interest income on the REMIC
Certificates decreased slightly by $258,000 primarily as a result of periodic
yield adjustments made since June 1996. The remaining increase of $142,000
resulted primarily from certain prepayment fees.
Total expenses for the three months ended June 30, 1997 were $9,172,000
versus $7,303,000 for the same period in 1996. The increase of $1,869,000 was
due in large part to an increase in interest expense of $797,000. Interest
expense increased primarily due to the issuance of convertible subordinated debt
in August 1996 and debt assumed by the Company as previously described.
Depreciation and amortization expense increased by $746,000 primarily due to the
acquisition of additional skilled nursing and assisted living facilities in the
past year. Operating and other expenses increased by $172,000 principally due
to higher administrative costs. The remaining increase in total expenses of
$154,000 related primarily to the minority interest.
11
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total expenses for the three months ended June 30, 1997, as a percentage of
revenues, decreased by approximately 10% compared to the prior period. The
decrease in expenses as percentage of revenues was primarily due to the decrease
in interest expense, as a percentage of revenues, which decreased approximately
16% due primarily to the reduction of debt associated with the subordinated debt
conversions and the two equity offerings the Company completed during the first
quarter of 1997 as discussed above. Depreciation expense, as percentage of
rental revenues, was comparable between the periods at 30%. Minority interest
was comparable, as percentage of revenues, in both periods, while operating and
other expenses decreased slightly due the higher revenue base and relative
stability of operating expenses.
Other income (loss) decreased primarily as a result of the effect of the
increase in the REMIC Certificate's estimated fair value which resulted in a
larger unrealized holding gain during the prior period as compared to the
current period's unrealized gain of $872,000. Also contributing to the decrease
in the current period was $1,120,000 of expense the Company recognized in
connection with the accelerated vesting of 64,000 shares of restricted common
stock held by executives, certain management and non-employee directors of the
Company. This decrease was offset by gain of $1,231,000 recognized on the sale
of one of the Company's rated REMIC certificates in June 1997. On an overall
basis, the REMIC Certificates' estimated fair value was approximately $308,000
higher at June 30, 1997 than at June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company's real estate investment portfolio
consisted of approximately $289,321,000 invested in owned skilled nursing and
assisted living facilities (before accumulated depreciation of $15,738,000),
approximately $232,506,000 invested in mortgage loans (before allowance for
doubtful accounts of $1,000,000) and approximately $87,725,000 at fair value
invested in REMIC Certificates. The Company's portfolio consists of 267 skilled
nursing facilities and 62 assisted living facilities in 32 states.
During the six-month period ended June 30, 1997, the Company completed
approximately $122,444,000 in new net investments. The investments which closed
consisted of approximately $48,340,000 in mortgage loans, approximately
$17,748,000 in mortgage loans that will be converted into owned properties and
approximately $56,356,000 in owned properties. The Company financed its
investments through the sale of 1,000,000 shares of common stock in a public
offering at $17.75 per share, the sale of 3,080,000 shares of 9.5% Series A
Cumulative Preferred Stock at $25.00 per share, short-term borrowings and cash
on hand.
In July 1996, the Company provided a $50,180,000 sale leaseback financing
commitment to ALC. In connection with the commitment, the Company entered into
a one-year forward ten-year interest rate swap agreement (the "November 1996
Agreement"). The terms of the commitment provide for an initial lease term of
twelve years and an lease rate of 9.90% on each facility acquired. The Company
will finance this commitment with fixed rate financing, and as such, utilized an
interest rate swap to "lock-in" the rate at which such financing will be
obtained. Interest rate swaps are contractual agreements between the Company
and third parties to exchange fixed and floating interest
12
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
payments periodically without the exchange of the underlying principal amounts
(notional amounts). Under the November 1996 Agreement, the Company will be
credited with interest at the three-month LIBOR and will incur interest at a
fixed rate of 6.835% on a $40,000,000 notional amount beginning on November 7,
1997. On March 10, 1997, the Agreement was terminated concurrently with the
completion of the equity offerings discussed above. The Company recognized
interest income of approximately $440,000 from the termination of the swap
agreement.
The Company has the option to redeem, without penalty, its outstanding
$699,000 aggregate principal amount of 9.75% Convertible Subordinated Debentures
at any time. Since such debentures are convertible into common stock of the
Company at a conversion price of $10.00 per share, the Company anticipates that
substantially all of such debentures will be converted if it elects to redeem
the debentures.
Subsequent to June 30, 1997, the Company completed investments totaling
$16,094,000. In conjunction with these investments, $4,286,000 of construction
loans made by the Company matured and were repaid. In addition, the Company
sold one skilled nursing facility for $4,530,000 and issued a $3,171,000 first
mortgage loan in connection with such sale. As of August 12, 1997, the Company
had outstanding commitments aggregating approximately $167,000,000. Included in
these amounts were commitments to ALC for approximately $16,460,000 and HCI for
$50,000,000.
In August 1997, the Company completed the sale of 500,000 shares of the
Company's common stock at $18.50 per share in a public offering. The net
proceeds of approximately $9,025,000 from the sale were used to pay down
borrowings under the Company's lines of credit. As of August 12, 1997, the
Company had $95,500,000 in borrowings outstanding under its secured and
unsecured lines of credit bearing a weighted average interest rate of
approximately 7.40%. In August 1997, the Company obtained a 90-day bank loan at
LIBOR plus 3% with no commitment fees of which $10,000,000 was outstanding as of
August 12, 1997.
At August 12, 1997, the Company had approximately $140,750,000 available
under its shelf registration statement for future issuance of capital from time
to time. In addition, based on the current level of available collateral,
approximately $33,500,000 could be borrowed under its lines of credit.
The Company also anticipates completing a securitization transaction during
the year, the proceeds of which will be used to repay borrowings outstanding
under its repurchase agreement and its unsecured line of credit. In September
1995, the Company entered into a seven-year forward interest rate swap agreement
(the "September 1995 Agreement") to hedge the securitization which is expected
to be completed by the end of 1997. As of June 30, 1997, the Company believes
that it is probable that the securitization transaction will occur as scheduled.
Under the September 1995 Agreement, beginning on March 31, 1997 and continuing
semi-annually thereafter, the Company is to be credited interest at the six
month LIBOR and incur interest at a fixed rate of 6.64% on a notional amount of
$60,000,000 which is being accounted for as a hedge. This effectively "locked-
in" the net interest margin on $60,000,000 principal amount of senior
certificates the Company anticipates will be sold in the securitization
transaction. Concurrent with the closing of the hedged transaction, any gains
and losses associated with the interest rate swap will be included as a
component of the proceeds of the
13
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
transaction. The September 1995 Agreement will be terminated at the earlier of
(i) an anticipated securitization transaction to be completed during the second
half of 1997 or (ii) November 17, 1997. As of June 30, 1997, the Company had an
unrealized gain of approximately $156,000 on the September 1995 Agreement.
In addition, in order to further hedge the securitization transaction the
Company anticipates to complete during the fourth quarter of 1997, a Treasury
Lock agreement was entered into which has a settlement date of December 15,
1997. Under this agreement, the Company locked into a rate of 6.39% on the
seven-year Treasury Note Rate on a notional amount of $65,000,000. This
Treasury Lock, which is being accounted for as a hedge, effectively "locked in"
the net interest margin on $65,000,000 principal amount of additional senior
certificates the Company anticipates will be sold in connection with the
securitzation. Upon settlement of the Treasury Lock agreement, the Company will
either receive or make a payment based on the change in the seven year Treasury
Note Rate on the settlement date. The Treasury Lock and the September 1995
Agreement will be extended until the consummation of the securitization
transaction, therefore, any associated gains or losses will be included as a
component of the fair value of the assets received in the transaction.
The REMIC Certificates retained by the Company are subordinate in rank and
right of payment to the certificates sold to third-party investors and as such
would bear the first risk of loss in the event of an impairment to any of the
underlying mortgages. The returns on the Company's investment in REMIC
Certificates are subject to certain uncertainties and contingencies including,
without limitation, the level of prepayments, estimated future credit losses,
prevailing interest rates, and the timing and magnitude of credit losses on the
underlying mortgages collateralizing the securities that are a result of the
general condition of the real estate market or long-term care industry. As
these uncertainties and contingencies are difficult to predict and are subject
to future events that may alter management's estimations and assumptions, no
assurance can be given that current yields will not vary significantly in future
periods. To minimize the impact of prepayments, the mortgage loans underlying
the REMIC Certificates generally prohibit prepayment unless the property is sold
to an unaffiliated third party (with respect to the borrower). Additionally,
management believes it employs conservative underwriting policies and to date
there have been no credit losses on any of the mortgages underlying the
certificates nor are any credit losses currently anticipated.
The Certificates' fair values are estimated, in part, based on a spread
over the applicable U.S Treasury rate, and consequently, are inversely affected
by increases or decreases in such interest rates. There is no active market in
these securities from which to readily determine their value. The estimated
fair values of the Certificates, including the interest-only certificates, are
subject to change based on the estimate of future prepayments and credit losses,
as well as fluctuations in interest rates and market risk. Although the Company
is required to report its REMIC Certificate investments at fair value, many of
the factors considered in estimating their fair value are difficult to predict
and are beyond the control of the Company's management, consequently, changes in
the reported fair values may vary widely and may not be indicative of amounts
immediately realizable if the Company was forced to liquidate any of the
Certificates.
14
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company believes that its current cash from operations available for
distribution or reinvestment, its borrowing capacity, the pending REMIC
transaction, and the Company's ability to access the capital markets are
available to provide for payment of its operating costs, provide funds for
distribution to its stockholders and to fund additional investments. The
Company is considering various alternatives to raise funds to finance future
investments.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain information contained in this report includes forward looking
statements, which can be identified by the use of forward looking terminology
such as "may", "will", "expect", "should" or comparable terms or negative
thereof. These statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) the following: the
effect of economic and market conditions and changes in interest rates,
government policy relating to the health care industry including changes in
reimbursement levels under the Medicare and Medicaid programs, changes in
reimbursement by other third party payors, the financial strength of the
operators of the Company's facilities as it affects the continuing ability of
such operators to meet their obligations to the Company under the terms of the
Company's agreements with its borrowers and operators, the amount and the timing
of additional investments, access to capital markets and changes in tax laws and
regulations affecting real estate investment trusts.
15
<PAGE>
PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
JUNE 30, 1997
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C>
(a) EXHIBITS
10.1 Promissory note dated August 11,1997 for $10,000,000 between LTC Properties,
Inc. and Sanwa Bank California
10.2 Form of Swap Transaction Agreement dated August 12, 1997 between LTC Properties,
Inc. and Bank of America National Trust and Savings Association
11 Computation of earnings per share
27 Financial Data
In accordance with Item 601(b)(4)(iii) of Regulation S-K,
certain instruments pertaining to Registrant's long-term debt
have not been filed; copies thereof will be furnished to the
Securities and Exchange Commission upon request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
three months ended June 30, 1997.
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LTC PROPERTIES, INC.
Registrant
Dated: December 5, 1997 By: /s/ JAMES J. PIECZYNSKI
-----------------------
James J. Pieczynski
President and Chief Financial
Officer
17
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
$10,000,000 Los Angeles, California
August 11, 1997
For value received, LTC Properties, Inc. (the "Company")
unconditionally promises to pay to the order of Sanwa Bank California (the
"Bank"), at its principal office located at 601 S. Figueroa Street, 8th Floor,
Los Angeles, California 90017, the principal amount of TEN MILLION DOLLARS
($10,000,000.00) on November 10, 1997 (the "Maturity Date"); provided, however
-------------
that this Note shall become immediately due and payable upon (i) the occurrence
of any of the events set forth in Section 9 of the Second Amended and Restated
Revolving Credit Agreement dated as of May 21, 1996 among the Company, the Bank,
as agent, and the banks party thereto, as amended (the "Credit Agreement"), each
----------------
of the terms of which Section 9 are hereby incorporated herein mutatis mutandis
------- --------
or (ii) the filing by, or against, the Company of any petition for protection
under the United States Bankruptcy Code, or any similar statute.
Capitalized terms shall have the meanings assigned to such terms in
Annex I to this Note.
The Company promises to pay interest on the unpaid balance of the
principal amount of this Note from and including the date of this Note to but
excluding the date this Note is paid in full at a rate per annum equal to the
Eurodollar Rate or, if applicable as provided below, the Base Rate.
The principal amount of this Note, plus all accrued interest, shall be
due and payable on the Maturity Date or such earlier date as provided in this
Note. Any amount of principal of or interest on this Note not paid when due
(whether by maturity, acceleration or otherwise) shall bear interest from and
including such date to but excluding the date paid in full, at a rate per annum
equal to 2.0% in excess of the rate set forth below (the "Post-Default Rate").
Accrued interest on each Loan shall be payable (i) in the case of a
Base Rate Loan, monthly on the last day of each month, (ii) in the case of a
Eurodollar Loan, on the last day of each Interest Period for such Loan and (iii)
in the case of any Loan, upon the payment or prepayment of such Loan or the
Conversion or Continuance of such Loan to a Loan of another Type (but only on
the principal amount so paid, prepaid, Converted or Continued), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Interest shall be calculated on the basis of a year of 360 days for the
actual number of days elapsed.
The Company shall have the right to prepay Loans, or to Convert Loans
of one Type into Loans of another Type or Continue Loans of one Type as Loans of
the same Type, at any time or from time to time; provided that: (a) the Company
--------
shall give the Bank notice of each such prepayment, Conversion or Continuation
as provided herein (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable hereunder);
(b) Eurodollar Loans may be Continued or Converted only on the last day of an
Interest Period for
<PAGE>
such Loans; and (c) Eurodollar Loans may only be prepaid on the last day of an
Interest Period for such Loans unless all costs to be paid pursuant to Section 5
---------
of the Credit Agreement (each of the terms, conditions and provisions of which
are hereby incorporated herein mutatis mutandis) as a result of such prepayment
------- --------
are paid simultaneously with such prepayment. Notwithstanding the foregoing,
and without limiting the rights and remedies of the Bank, in the event that any
default under this Note or under the Credit Agreement shall have occurred and be
continuing, the Bank may suspend the right of the Company to Convert any Loan
into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in which
event all Loans shall be Converted into (on the last day(s) of their respective
Interest Periods) into Base Rate Loans. In addition upon the occurrence of any
of the events set forth in Section 5 of the Credit Agreement precluding the
making of Eurodollar Loans, all Eurodollar Loans shall be Converted into Base
Rate Loans.
Notices by the Company to of Conversions, Continuations and optional
prepayments of Loans, of Types of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the Bank not
later than 12:00 noon Los Angeles time three Business Days prior to the date of
the relevant Conversion, Continuation or prepayment or the first day of such
Interest Period.
Each notice of Conversion, Continuation or optional prepayment shall
specify the Loans to be Converted, Continued or prepaid and the amount and Type
of each Loan to be Converted, Continued or prepaid (and, in the case of a
Conversion, the Type of Loan to result from such Conversion) and the date of
Conversion, Continuation or optional prepayment (which shall be a Business Day).
Each such notice of the duration of an Interest Period shall specify the Loans
to which such Interest Period is to relate. In the event that the Company fails
to select the Type of Loan, or the duration of any Interest Period for any
Eurodollar Loan, within the time period and otherwise as provided in this Note,
such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted
into a Base Rate Loan on the last day of the then current Interest Period for
such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not
then outstanding) will be made as, a Base Rate Loan.
Each Conversion and partial prepayment of principal of Loans shall be
in an aggregate amount at least equal to $1,000,000 (Conversions or prepayments
of or into Loans of different Types or, in the case of Eurodollar Loans, having
different Interest Periods at the same time to be deemed separate borrowings,
Conversions and prepayments for purposes of the foregoing, one for each Type or
Interest Period). Notwithstanding any other provision of this Agreement, the
aggregate principal amount of Eurodollar Loans of each Type having the same
Interest Period shall be in an amount at least equal to $1,000,000 and, if any
Eurodollar Loans would otherwise be in a lesser principal amount for any period,
such Loans shall be Base Rate Loans during such period.
No more than three separate Interest Periods in respect of Eurodollar
Loans from each Bank may be outstanding at any one time.
All payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds at the Bank's
principal office specified above. The Bank may (but shall not be obligated to)
debit the amount of any payment that is not made when due
-2-
<PAGE>
(whether by maturity, acceleration or otherwise) to any deposit account of the
Company with the Bank. This Note may be prepaid in full or in part without
penalty.
The Company waives presentment, notice of dishonor, protest and any
other notice or formality with respect to this Note.
The Company agrees to reimburse the Bank on demand for all costs,
expenses and charges (including, without limitation, attorneys' fees and
charges) in connection with the negotiation, documentation, interpretation,
performance or enforcement of this Note.
This Note shall be binding on the Company and its successors and
assigns and shall inure to the benefit of the Bank and its successors and
assigns; provided that the Company may not delegate any obligations under this
Note without prior written consent of the Bank.
The Company represents and warrants that:
It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland and has all requisite
corporate power, and has all material governmental approvals necessary, to
own its assets and to carry on its business as now being or as proposed to
be conducted;
The execution and delivery of this Note will not conflict with or
result in a breach of, or require any consent under, the charter or by-laws
of the Company or any applicable governmental regulation or the Credit
Agreement or any other material agreement or instrument to which the
Company is a party or to which it is subject, or constitute a default
under, or result in the termination of, or result in the acceleration or
mandatory prepayment of, any indebtedness evidenced by the Credit Agreement
or any such other agreement or instrument;
Each of the representations and warranties contained in the Credit
Agreement are true and correct prior to and after giving effect to the
execution and delivery of this Note and the incurrence of the indebtedness
evidenced hereby; and
The Company has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Note; the
execution, delivery and performance by the Company of this Note has been
duly authorized by all necessary corporate action on its part; and this
Note when executed and delivered by the Company for value will constitute,
its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
Each of the terms, conditions and provisions of Section 8 of the
Credit Agreement are hereby incorporated herein mutatis mutandis.
------- --------
All notices and communications to be given under this Note shall be
given or made in writing to the intended recipient at the address specified
below or, at such other address as shall be designated in a notice given to such
entity. All such communications shall be deemed to have been duly given when
transmitted by telex or telecopier, delivered to the telegraph or cable office
or
-3-
<PAGE>
personally delivered or, in the case of a mailed notice, upon receipt, in each
case, given or addressed as follows:
To the Company: LTC Properties, Inc.
300 Esplanade Drive
Suite 1860
Oxnard, California 93050
Attn: Mr. James Pieczynski
To the Bank: Sanwa Bank California
601 S. Figueroa Street
8th Floor
Los Angeles, California 90017
Attn: Mr. John C. Hyche
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
THE STATE OF CALIFORNIA. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF
CALIFORNIA AND OF ANY CALIFORNIA STATE COURT SITTING IN LOS ANGELES, CALIFORNIA
FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
-4-
<PAGE>
THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AMENDED AND RESTATED NOTE OR THE TRANSACTIONS
CONTEMPLATED BY THIS AMENDED AND RESTATED NOTE.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered as of the day and year first above written.
LTC PROPERTIES, INC.
By /s/ James J. Pieczynski
----------------------------
Name: James J. Pieczynski
Title: Senior VP & CFO
-5-
<PAGE>
ANNEX I
DEFINITIONS
-----------
"Base Rate" shall mean, for any day, a rate per annum equal to the
---------
higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Reference Rate for such day. Each interest rate that is to be based upon the
Base Rate shall change upon any change in the Base Rate, effective as of the
opening of business on the day of such change in the Base Rate.
"Business Day" shall mean (a) any day on which commercial banks are
------------
not authorized or required to close in Los Angeles, California and (b) if such
day relates to a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice
by the Company with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, any day on which dealings in Dollar deposits are
carried out in the London interbank market.
"Continue," "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation of a Eurodollar Loan of one Type as a Eurodollar Loan of the same
Type from one Interest Period to the next Interest Period.
"Eurodollar Base Rate" shall mean, with respect to any Eurodollar Loan
--------------------
for any Interest Period for such Loan, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) as determined by the Bank at approximately
11:00 a.m. London time (or as soon thereafter as practicable) on the date two
Business Days prior to the first day of such Interest Period for the offering by
lenders to leading banks in the London interbank market of Dollar deposits
having a term comparable to such Interest Period and in an amount comparable to
the principal amount of the Eurodollar Loan to be made by the Bank for such
Interest Period.
"Eurodollar Loans" shall mean Loans that bear interest at rates based
----------------
on the Eurodollar Rate.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest
---------------
Period for such Loan, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined by the Bank to be equal to the sum of (a) the
Eurodollar Base Rate for such Loan for such Interest Period divided by 1 minus
the Reserve Requirement for such Loan for such Interest Period, plus 1.00%.
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
--------
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the
<PAGE>
average rate charged to the Bank on such Business Day on such transactions as
determined by the Bank.
"Interest Period" shall mean, with respect to any Eurodollar Loan,
---------------
each period commencing on the date such Eurodollar Loan is made or Converted
from a Loan of another Type or the last day of the next preceding Interest
Period for such Loan and ending on the numerically corresponding day in the
first, second or third calendar month thereafter, as the Company may select as
provided in the Note, except that each Interest Period that commences on the
last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may end after the
Maturity Date; (ii) each Interest Period that would otherwise end on a day which
is not a Business Day shall end on the next succeeding Business Day (or, in the
case of an Interest Period for a Eurodollar Loan, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest
Period for any Loan shall have a duration of less than one month and, if the
Interest Period for any Eurodollar Loan would otherwise be a shorter period,
such Loan shall not be available under this Agreement for such period.
"Loans" shall mean the initial $10,000,000 loan made hereunder and any
-----
Continuations or Conversions of such loan, which may be Base Rate Loans,
Eurodollar Loans or both.
"Reference Rate" shall mean the rate of interest from time to time
--------------
announced by the Bank as its reference rate. Such announced rate is not
necessarily the lowest rate offered by the Bank and any other extension of
credit by the Bank may be at rates above, below or at such announced rate.
"Reserve Requirement" shall mean, for any Interest Period for any
-------------------
Eurodollar Loan, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D).
Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Base Rate for
Eurodollar Loans is to be determined as provided in the definition of
"Eurodollar Base Rate" or (ii) any category of extensions of credit or other
assets that includes Eurodollar Loans.
"Type" with respect to a Loan, means whether such Loan is a Base Rate
----
Loan or a Eurodollar Loan, each of which constitutes a Type.
ii
<PAGE>
EXHIBIT 10.2
FORM OF SWAP TRANSACTION AGREEMENT
[Bank of America Logo]
TO: LTC Properties, Incorporated ("Counterparty")
Attn: Darrell Struck
Rapidfax: 805-981-8663
FROM: Bank of America National Trust and Savings Association ("BofA")
185 Berry Street
San Francisco, CA 94107
Derivative Products Operations
Phone No.: 415-624-1111
Rapidfax: 415-624-1101
DATE: August 12, 1997
RE: USD 65,000,000.00 Swap Transaction
Our Confirmation Reference: 1210 / 70808S3A
Dear Sir/Madam:
The purpose of this letter agreement is to confirm the terms and
conditions of the Transaction entered into between us on the Trade Date
specified below (the "Swap Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern.
1. The parties agree that the Swap Transaction described in this
Confirmation constitutes their binding obligations. Except as set forth in this
Confirmation, the Swap Transaction shall be subject to all the terms and
conditions of the form of the master agreement entitled "Master Agreement"
("Multicurrency-Cross Boarder" version) as published in 1992 by the
International Swaps and Derivatives Association, Inc., (and herein called the
"ISDA Agreement"), excluding the "Schedule" thereto. Counterparty and BofA
shall negotiate a Schedule and upon agreement shall sign the ISDA Agreement
whereupon this Confirmation shall be deemed automatically, without further
action of any party, to be a Confirmation under the Agreement; provided however,
that unless and until Counterparty of BofA agree upon and sign the Agreement,
the preceding sentence shall have full force and effect.
THIS FACSIMILE TRANSACTION WILL BE THE ONLY WRITTEN COMMUNICATION
REGARDING THIS SWAP TRANSACTION. Pursuant to ISDA guidelines, this facsimile
transmission will be sufficient for all purposes to evidence a binding
supplement to the Agreement. However, should you have an internal requirement
for confirmations with an original signature, we request that you sign and
return this Confirmation by facsimile, whereupon, we will add an original
signature to the fully executed Confirmation, and forward it to you by mail.
2. The terms of the particular Swap Transaction, which is a Treasury
Lock, to which this Confirmation relates are as follows:
Notional Amount: USD 65,000,000.00
Trade Date: August 8, 1997
Termination Date: December 15, 1997, 2:00 P.M. New York time
Fixed Rate Payer: Counterparty
<PAGE>
<TABLE>
<S> <C>
Fixed Rate: 6.3875%
Floating Rate Payer: BofA
Floating Rate: The Settlement Yield
Reference Security: Interpolated Seven-Year United States Government Treasury
Security based on (i) the most recently auctioned Five-Year
United States Government Treasury Security as of the
Termination Date (the "Five-Year Treasury") and (ii) the
most recently auctioned Ten-Year United States Government
Treasury Security as of the Termination Date (the "Ten-Year
Treasury"). For purposes of the interpolation, 60% of the
Five-Year Treasury will be used and 40% of the Ten-Year
Treasury will be used.
Settlement Yield: 60% of the yield to maturity of the Five-Year Treasury plus
40% of the yield to maturity of the Ten-Year Treasury on
the Termination Date.
Settlement Cash Flow: On the Termination Date, the Settlement Cash Flow shall
mean the amount calculated as the product of
(i) the difference, in basis points (i.e., .0001 = 1 basis
point) between the Settlement Yield and the Fixed Rate,
(ii) the Dollar Value of One Reference Security Basis
Point, as of Termination Date, and (iii) the Notional
Amount (expressed in units of $1MM).
Dollar Value of One Reference 60% of the price change, expressed in Dollars, which would
Security Basis Point: occur on one million face amount of (i ) the Five-Year
Treasury if the yield to maturity moves one basis point
away from the Settlement Yield.
If Settlement Yield is Greater than BofA Settlement Cash Flow to Counterparty
Fixed Rate:
If Settlement yield is Less than Counter party pays Settlement Cash Flow to BofA
Fixed Rate:
Payment Date: December 17, 1997
Rounding: To the nearest 1/1000 of the rate stated as a percent
Governing Law: New York
Settlement Yield and Settlement Cash BofA
Flow Determination Agent:
3. Account Details
Payments to BofA: FED FUNDS TO BANK OF AMERICA NT AND SA SAN FRANCISCO
ABA NO. 1210-0035-8 BISD ACCT NO. 33006-83980 ATTN:
INTERST RATE SWAP OPERATIONS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Payments to Counterparty: FED FUNDS TO SANWA BANK OF CALIFORNIA, ABA NO.
1220-0351-6, ACCT. LTC PROPERTIES, INCORPORATED,
ACCT NO. 0496-17539
4. Offices:
Office of BofA: The San Francisco Head Office
Office of Counterparty: Oxnard, CA
Other Provisions Applicable to BofA
- -----------------------------------
Specified Entities of BofA: None
Credit Support Document(s) Relating
to BofA: None
Credit Support Provider Relating to
BofA: None
Agreements of BofA: As per Section 4 of the ISDA Agreement.
Representations of BofA: As per Section 3 of the ISDA Agreement.
Other Provisions Applicable to
- ------------------------------
Counterparty
- ------------
Specified Entities of Counterparty: As may be indicated in the Agreement, if at all.
Credit Support Document(s) Relating
to Counterparty: As may be indicated in the Agreement, if at all.
Credit Support Provider Relating to
Counterparty: As may be indicated in the Agreement, if at all.
Agreements of Counterparty: As per Section 4 of the ISDA Agreement.
Representations of Counterparty: As per Section 3 of the ISDA Agreement.
Other Provisions (General)
- -------------------------
(A) Other Agreements: Corporate Resolution, Specimen Signature Certificate and
other documentation jas indicated in the Agreement, if at
all.
(B) Events of Default: As per Section 5 of the ISDA Agreement and Cross Default as
indicated in the Agreement, if at all.
(C) Termination Events: All the Termination Events specified in Section 5(b) of the
ISDA Agreement will apply (including Credit Event Upon
Merger).
(D) Early Termination: As per Section 6 of the ISDA Agreement, it being the
parties' intent that Section 6 apply to all outstanding Swap
Transactions before (as well as after) execution of the
Agreement.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(E) Tax Representations: Counterparty and BofA make the Payer Representations
contained in Part 2 of the Schedule to the ISDA Agreement.
Payee Representations may be indicated in Part 3 of the
Schedule to the Agreement, if applicable.
(F) Tax Agreements of BofA and
Counterparty: As may be indicated in the Agreement if at all.
(G) Variations to the ISDA Agreement: BofA has made certain amendments to the ISDA Agreement which
it believes are of a noncontentious nature. These
amendments will be specified in the draft Agreement to be
sent by BofA to Counterparty.
(H) Documentation: This Confirmation will constitute a binding agreement with
respect to the Swap Transaction described herein. Without
prejudice to the preceding sentence, Counterparty and BofA
will negotiate in good faith to enter into the Agreement as
soon as practicable after the date of this Confirmation.
</TABLE>
Please confirm your agreement to be bound by the terms stated herein by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us or by sending to us a telex or letter, within 24 hours of receipt of
this Confirmation to Bank of America NT & SA San Francisco Telex No. 249839
Answer Back OPRST UP or Rapidfax No. 415-624-1101 Attention: Derivative Products
Operations, substantially in the form below:
Quote
We acknowledge receipt of your rapidfax dated August 12, 1997 with respect to
the Swap Transaction entered into on August 8, 1997 between LTC Properties
Incorporated and Bank of America National Trust and Savings Association with a
Notional Amount of USD 65,000,000.00 and a Termination Date of December 15,
1997, and confirm our agreement to be bound by the terms specified in such
rapidfax.
Unquote
<PAGE>
EXHIBIT 11
LTC PROPERTIES, INC.
COMPUTATION OF NET INCOME PER SHARE (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
(RESTATED)
Three months ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY:
Net income applicable to common shares $8,098 $4,906
============== ==============
Applicable common shares:
Weighted average outstanding shares during the period 22,831 18,548
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
the treasury stock method) 315 411
-------------- --------------
Total 23,146 18,959
============== ==============
Net income per share of common stock $0.35 $0.26
============== ==============
FULLY DILUTED:
Net income $8,098 $4,906
Add back minority interest - (a) - (a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 9.75% convertible subordinated debentures 21 47
Reduction of interest and amortization expenses resulting from
assumed conversion of 8.5% convertible subordinated debentures - (a) - (a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 8.25% convertible subordinated debentures - (a) - (a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 7.75% convertible subordinated debentures - (a) - (a)
Less applicable income taxes - -
-------------- --------------
Adjusted net income applicable to common shares $8,119 $4,953
============== ==============
Applicable common shares:
Weighted average outstanding shares during the period 22,831 18,548
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
treasury stock method) 323 435
Assumed conversion of partnership units - (a) - (a)
Assumed conversion of 9.75% convertible subordinated 82 191
debentures
Assumed conversion of 8.5% convertible subordinated debentures - (a) - (a)
Assumed conversion of 8.25% convertible subordinated debentures - (a) - (a)
Assumed conversion of 7.75% convertible subordinated debentures - (a) - (a)
Less contingent shares - -
-------------- --------------
Total 23,236 19,174
============== ==============
Net income per share of common stock $0.35 $0.26
============== ==============
a) Conversion of partnership units and convertible subordinated debentures would be anti-dilutive and is
therefore not assumed in the computation of fully diluted net income per share of common stock.
</TABLE>
<PAGE>
EXHIBIT 11
LTC PROPERTIES, INC.
COMPUTATION OF NET INCOME PER SHARE (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
(RESTATED)
Six months ended June 30,
1997 1996
----------- ---------
<S> <C> <C>
PRIMARY:
Net income applicable to common shares $14,205 $16,737
======== =======
Applicable common shares:
Weighted average outstanding shares during the period 22,413 18,482
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
the treasury stock method) 389 418
-------- -------
Total 22,802 18,900
======== =======
Net income per share of common stock $0.62 $0.89
FULLY DILUTED:
Net income $14,205 $16,737
Add back minority interest - (a) - (a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 9.75% convertible subordinated debentures 42 99
Reduction of interest and amortization expenses resulting from
assumed conversion of 8.5% convertible subordinated debentures - (a) - (a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 8.25% convertible subordinated debentures - (a) - (a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 7.75% convertible subordinated debentures - (a) - (a)
Less applicable income taxes - -
-------- -------
Adjusted net income applicable to common shares $14,247 $16,836
======== =======
Applicable common shares:
Weighted average outstanding shares during the period 22,413 18,482
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
treasury stock method) 389 435
Assumed conversion of partnership units - (a) - (a)
Assumed conversion of 9.75% convertible subordinated debentures 83 199
Assumed conversion of 8.5% convertible subordinated debentures - (a) - (a)
Assumed conversion of 8.25% convertible subordinated debentures - (a) - (a)
Assumed conversion of 7.75% convertible subordinated debentures - (a) - (a)
Less contingent shares - -
-------- -------
Total 22,885 19,116
======== =======
Net income per share of common stock $0.62 $0.88
========= ========
a) Conversion of partnership units and convertible subordinated debentures would be anti-dilutive and is
therefore not assumed in the computation of fully diluted net income per share of common stock.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 0 5,894
<SECURITIES> 0 87,725
<RECEIVABLES> 0 232,506
<ALLOWANCES> 0 1,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 289,321
<DEPRECIATION> 0 15,738
<TOTAL-ASSETS> 0 613,156
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 8,300
0 0
0 73,800
<COMMON> 0 230
<OTHER-SE> 0 236,495
<TOTAL-LIABILITY-AND-EQUITY> 0 613,156
<SALES> 0 0
<TOTAL-REVENUES> 18,115 34,602
<CGS> 0 0
<TOTAL-COSTS> 9,172 18,053
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,632 11,339
<INCOME-PRETAX> 8,098 14,205
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 8,098 14,205
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,098 14,205
<EPS-PRIMARY> 0.35 0.62
<EPS-DILUTED> 0.35 0.62
</TABLE>
