<PAGE>
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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 March 31, 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)
Maryland 71-0720518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
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 April 30,
1997 - 22,767,898
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1
<PAGE>
LTC PROPERTIES, INC.
FORM 10-Q/A
MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- Financial Information
Item 1. Financial Statements
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.............................. 14
</TABLE>
2
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(RESTATED)
March 31, 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 - $13,540; 1996 - $11,640 $208,775 $199,591
Land 12,891 12,347
Mortgage loans receivable, held for sale, net of allowance
for doubtful accounts: 1997 - $1,000; 1996 - $1,000 236,083 177,262
REMIC Certificates, at estimated fair value 97,648 98,934
-------- --------
Real estate investments, net 555,397 488,134
Other Assets:
Cash and cash equivalents 1,602 3,148
Debt issue costs, net 2,978 4,150
Interest receivable 3,157 2,817
Prepaid expenses and other assets 2,545 2,289
-------- --------
10,282 12,404
-------- --------
Total assets $565,679 $500,538
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures due 1999 - 2004 $105,316 $135,828
Bank borrowings 57,000 79,400
Mortgage loans payable 54,098 54,205
Bonds payable and capital lease obligations 13,994 14,039
Accrued interest 3,750 6,015
Accrued expenses and other liabilities 3,634 3,041
Distributions payable 8,222 6,679
-------- --------
Total liabilities 246,014 299,207
Minority interest 10,239 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 - 22,766,486; 1996 -
19,484,208 228 195
Capital in excess of par value 247,187 195,297
Notes receivable from stockholders (5,412) -
Cumulative net income 78,448 71,914
Cumulative distributions (84,825) (76,603)
-------- --------
Total stockholders' equity 309,426 190,803
-------- --------
Total liabilities and stockholders' equity $565,679 $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)
Three months ended March 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $ 6,314 $ 4,134
Interest income from mortgage loans 6,143 5,164
Interest income from REMIC Certificates 3,716 2,798
Interest and other income 314 267
------- -------
Total revenues 16,487 12,363
Expenses:
Interest expense 5,707 4,654
Depreciation and amortization 1,919 1,267
Amortization of Founders' stock 19 38
Minority interest 297 155
Operating and other expenses 939 794
------- -------
Total expenses 8,881 6,908
------- -------
Operating income 7,606 5,455
Other income:
Unrealized holding gain/(loss) on estimated fair value of
REMIC Certificates (1,072) 6,376
------- -------
Net income 6,534 11,831
Preferred dividends 427 -
------- -------
Net income available to common stockholders $ 6,107 $11,831
======= =======
Net income available to common stockholders per share $ 0.27 $ 0.63
======= =======
Weighted average shares outstanding 22,454 18,840
======= =======
</TABLE>
See accompanying notes
4
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
(RESTATED)
Three Months Ended
March 31,
1997 1996
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,534 $ 11,831
Adjustments to reconcile net income to net cash provided by operating results:
Depreciation and amortization 2,367 1,600
Unrealized holding (gain)/loss on estimated fair value of REMIC Certificates 1,072 (6,376)
Non-cash charges 79 65
Net change in other assets and liabilities (2,324) (206)
-------- ---------
Net cash provided by operating activities 7,728 6,914
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 74,900 87,100
Repayment of bank borrowings (97,300) (135,570)
Distributions paid (6,679) (5,764)
Other (490) 105
-------- ---------
Net cash provided by (used in) financing activities 61,580 (25,176)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in real estate mortgages (59,148) (36,900)
Acquisitions of real estate properties, net (11,607) (33,244)
Proceeds from sale of REMIC Certificates, net - 86,874
Principal payments on mortgage loans payable and capital lease obligations (151) (75)
Restricted cash - 2,962
Principal payments on real estate mortgages 326 297
Deferred facility fee, net 51 661
Other (325) (1,150)
-------- ---------
Net cash (used in) provided by investing activities (70,854) 19,425
-------- ---------
(Decrease) increase in cash and cash equivalents (1,546) 1,163
Cash and cash equivalents, beginning of period 3,148 1,434
-------- ---------
Cash and cash equivalents, end of period $ 1,602 $ 2,597
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 7,674 $ 5,052
======== =========
Non-cash investing and financing transactions:
Conversion of debentures into common stock $ 30,512 $ 4,207
Notes receivable relating to exercise of employee stock options 4,908 -
Assumption of mortgage loans payable relating to acquisitions of real estate
properties - 5,106
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 - 2,735
</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 three-month periods ended
March 31, 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 three-month periods ended March 31, 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 months ended March 31, 1996, net income
increased by $6,376,000 ($0.34 per share).
(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 three-month period ended March 31, 1997, the Company
invested $56,060,000 in mortgage loans. Approximately $19,650,000 of these
loans are secured by, among other things, eight skilled nursing facilities
located in five states with a total of 875 beds and contain certain guarantees.
These mortgage loans, which individually range from $1,200,000 to $6,000,000 in
principal amount, have stated maturities of 10 to 20 years, have an initial
weighted average interest rate of 10.92% and generally have 25 year amortization
schedules. The remaining $36,410,000 of mortgage loans are secured by 17
assisted living facilities ("ALFs") located in four states with a total of 790
units. Of the total loans made on assisted living facilities, approximately
$34,010,000 were made to Assisted Living Concepts, Inc. ("ALC"), a developer-
owner, operator of ALFs. The loans to ALC are secured by mortgages on 15 ALFs
with 563 units, bear interest at 9.9% per annum and will be repaid out of the
proceeds of sale-leaseback transactions with the Company. See note (ix). In
addition to the above mortgage loans, the Company provided $3,088,000 of
additional financing on four ALFs which are under construction.
During the three months ended March 31, 1997, the Company acquired two
skilled nursing facilities with a total of 213 beds and two ALFs with a total of
76 units for approximately $9,914,000. One of these ALFs was purchased for a
total of $2,340,000 and has been leased to ALC for a total annual rent of
approximately $231,660 (subject to increases) pursuant to a long-term non-
cancelable agreement. The Company also added 36 beds to one of its owned
skilled nursing facilities at a total cost of approximately $1,693,000.
At March 31, 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 $187,967,000 and 7.76%, respectively. As of March
31, 1997 the unamortized cost basis and the estimated fair value of the
subordinated REMIC Certificates held by the Company were $92,331,000 and
$97,648,000, respectively.
(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
6
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 three-month period ended March 31, 1997, holders of
$30,512,000 in principal amount of convertible subordinated debentures due in
various periods elected to convert the debentures into 1,869,412 shares of
common stock at prices ranging from $10.00 to $17.25 per share. Subsequent to
March 31, 1997, an additional $15,000 in principal amount of Convertible
Subordinated Debentures converted into 912 shares of the Company's common stock.
(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. On April 1,
1997, the remaining loan amounts available and the loans outstanding under such
program, which bear interest at 6.27% per annum and are secured by a pledge of
the shares of Common Stock acquired on the exercise of options, were $541,137
and $5,411,927, respectively.
(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.
(viii) In March 1997, a quarterly dividend of $0.34 per share of common
stock aggregating approximately $7,795,000 was declared by the Board of
Directors payable on April 15, 1997 to stockholders of record on March 31, 1997.
In addition, the Board of Directors also declared a cash dividend of $.1385 per
share on the Series A Preferred Stock. This first Series A Preferred Stock
dividend, totaling approximately $427,000, which was also payable on April 15,
1997, represented a partial period from March 10, 1997 to March 31, 1997 and was
payable to stockholders of record on April 1, 1997. Both dividend amounts have
been reflected as distributions payable in the accompanying financial statements
as of March 31, 1997.
(ix) 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
7
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 $692,830,000, on a cost basis, as of March 31, 1997). Currently,
two of the Company's executive officers serve as members of the Board of
Directors of ALC. As of May 1, 1997, three executive officers of the Company
owned approximately 5.5% of ALC's common stock.
As of March 31, 1997, the Company had investments in ALFs totaling
approximately $107,442,000 and in properties operated by ALC of approximately
$76,958,000 or 15.51% or 11.11%, 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.
(x) 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 primary earnings per share for the first quarter
ended March 31, 1997 and March 31, 1996 of $.01 per share, respectively. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these quarters is not expected to be material.
(xi) Subsequent to March 31, 1997, the Company completed investments
totaling $18,530,000. As of May 1, 1997, the Company had outstanding
commitments aggregating approximately $60,512,000 consisting of approximately
$21,095,000 in mortgage loans and $39,417,000 in owned facilities. Included in
these amounts were commitments to ALC for approximately $26,966,000 which, if
completed, would bring the Company's total investments in ALC to approximately
15% of its current adjusted gross real estate investment portfolio.
In April 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 May 15, 1997 to stockholders of record on May 1, 1997. In addition,
the Board of Directors also declared an increase in the Company's quarterly cash
dividend to $0.365 per share on its outstanding common stock from
8
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
$0.34 per share paid in the first quarter of 1997. The dividend will be paid on
June 30, 1997 to stockholders of record as of June 15, 1997.
9
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three months 1997 Compared to Three months 1996
Revenues for the three months ended March 31, 1997 were $16,487,000 versus
$12,363,000 for the same period in 1996. Revenues increased $4,124,000 or
approximately 33% primarily as a result of increased rental income of
$2,180,000, increased interest income on mortgage loans of $979,000, including
interest income of $440,000 resulting from the termination of an interest rate
swap agreement, and increased interest income of $918,000 from REMIC Certificate
investments. The increase in rental income of 2,180,000 was due primarily to
increases in rents of $2,070,000 resulting from properties acquired since March
31, 1996 and $59,000 resulting from the full period impact of facilities
acquired during the first quarter of 1996. Rental revenue also increased
$51,000 from "same store" facilities (facilities owned in both the first quarter
of 1996 and 1997) resulting from rental increases tied to changes in Consumer
Price Indices (CPI). Interest income on mortgage loans increased by
approximately $2,306,000 due to new investments completed since March 1996 and
by and $491,000 resulting from the full period effect of mortgages made during
the quarter ended March 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 reduction of approximately
$2,258,000 relating to the sale of 34 mortgages in connection with the REMIC
securitization completed in March 1996. Interest income on the REMIC
Certificates increased by $918,000 due to the additional Certificates retained
from the securitization in March 1996. The remaining increase in total revenues
of $47,000 resulted primarily from certain prepayment fees.
Total expenses for the three months ended March 31, 1997 were $8,881,000
versus $6,908,000 for the same period in 1996, an increase of $1,973,000 or 29%.
The increase is due in large part to an increase of $1,053,000 in interest
expense. Interest expense increased by $553,000 due to the issuance of
convertible subordinated debentures in August 1996 in the amount of $30,000,000.
Interest expense also increased by $836,000 primarily as a result of the multi-
family tax-exempt revenue bond financing and assumption of capital leases and
mortgage loans by the Company. The remaining increase of $309,000 was due to
interest on borrowings under the Company's lines of credit which was offset by a
decrease of $645,000 as a result of conversions of previously issued convertible
subordinated debentures since March 31, 1996. Depreciation and amortization
expense increased by $633,000 primarily due to the acquisition of 27 additional
skilled nursing and assisted living facilities in the past year. Operating and
other expenses increased by $145,000 principally due to increased staffing. The
remaining increase in total expenses of $142,000 related to the minority
interest.
Total expenses for the three months ended March 31, 1997, as a percentage
of revenues, decreased by approximately 4% compared to the prior period.
Interest expense, as a percentage of revenues, decreased approximately 8% 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 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.
10
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other income (loss) decreased as a result of a decrease in the estimated
fair value of the Company's REMIC Certificates for the first three months of
1997 as compared to the unrealized gain that existed at the end of the prior
period. The difference between the periods was due to the effect of the 1996
securitization which impacted the 1996 results as opposed to the 1997 results.
Moreover, general market interest rates were higher at the end of the first
quarter of 1997 compared to the first quarter of 1996 which negatively impacted
the estimates of the Certificates' discounted cash flows. On an overall basis,
the REMIC Certificates' estimated fair value was approximately $1,275,000 lower
at March 31, 1997 than at March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's real estate investment portfolio
consisted of approximately $235,206,000 invested in owned skilled nursing and
assisted living facilities (before accumulated depreciation of $13,540,000),
approximately $237,083,000 invested in mortgage loans and approximately
$97,648,000 (at estimated fair value) invested in REMIC Certificates. The
Company's portfolio consists of 258 skilled nursing facilities and 52 assisted
living facilities in 32 states.
During the three month period ended March 31, 1997, the Company completed
approximately $70,755,000 in new investments. The investments which closed
consisted of approximately $59,148,000 in mortgage loans and approximately
$11,607,000 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. As of May 1, 1997,
the Company had $79,800,000 in borrowings outstanding under its secured and
unsecured lines of credit bearing a weighted average interest rate of
approximately 7.58%.
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 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
$839,000 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
11
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Company anticipates that substantially all of such debentures will be converted
if it elects to redeem the debentures.
Subsequent to March 31, 1997, the Company completed investments totaling
$18,530,000. As of May 1, 1997, the Company had outstanding commitments
aggregating approximately $60,512,000 consisting of approximately $21,095,000 in
mortgage loans and $39,417,000 in owned facilities. Included in these amounts
were commitments to ALC for approximately $26,966,000 which, if completed, would
bring the Company's total investments in ALC to approximately 15% of its
current adjusted gross real estate investment portfolio.
At May 1, 1997, the Company had approximately $150,000,000 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 $49,030,000 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 March 31, 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 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
March 31, 1997, the Company had an unrealized gain of approximately $1,437,000
on the September 1995 Agreement.
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
12
<PAGE>
LTC PROPERTIES, INC.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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 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.
The Company believes that its current cash from operations available for
distribution or reinvestment and its borrowing capacity are sufficient to
provide for payment of its operating costs, provide funds for distribution to
its stockholders and to fund additional 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.
13
<PAGE>
PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
March 31, 1997
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
The Current Report of the Company on Form 8-K was filed with the
Commission on March 7, 1997.
14
<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
15
<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 March 31,
1997 1996
---------- ---------
<S> <C> <C>
PRIMARY:
Net income applicable to common shares $ 6,107 $ 11,831
======== =========
Applicable common shares:
Weighted average outstanding shares during the period 21,990 18,415
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the
the treasury stock method) 464 425
--------- ---------
Total 22,454 18,840
========= =========
Net income per share of common stock $ 0.27 $ 0.63
========= =========
FULLY DILUTED:
Net income $ 6,107 $ 11,831
Add back minority interest -(a) -(a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 9.75% convertible subordinated debentures 21 52
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 $ 6,128 $ 11,883
========= =========
Applicable common shares:
Weighted average outstanding shares during the period 21,990 18,415
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options using the treasury
stock method) 457 426
Assumed conversion of partnership units -(a) -(a)
Assumed conversion of 9.75% convertible subordinated debentures 84 207
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 22,531 19,048
========= =========
Net income per share of common stock $ 0.27 $ 0.62
========= =========
</TABLE>
(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> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,602
<SECURITIES> 97,648
<RECEIVABLES> 237,083
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 235,206
<DEPRECIATION> 13,540
<TOTAL-ASSETS> 565,679
<CURRENT-LIABILITIES> 0
<BONDS> 8,300
0
73,800
<COMMON> 228
<OTHER-SE> 235,398
<TOTAL-LIABILITY-AND-EQUITY> 565,679
<SALES> 0
<TOTAL-REVENUES> 16,487
<CGS> 0
<TOTAL-COSTS> 8,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,707
<INCOME-PRETAX> 6,107
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,107
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
