<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
----------
FORM 10-Q
(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, 1999
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 August 6,
1999 - 27,389,507
<PAGE>
LTC PROPERTIES, INC.
FORM 10-Q
JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <C>
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 ..................... 9
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...................................15
Item 6. Exhibits and Reports on Form 8-K .....................................................15
</TABLE>
2
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Real Estate Investments:
Buildings and improvements, net of accumulated depreciation and
amortization: 1999 - $33,357: 1998 - $26,972 $ 382,913 $ 366,891
Land 17,695 16,796
Mortgage loans receivable held for sale, net of allowance for doubtful
accounts: 1999 - $1,250; 1998 - $1,250 162,023 179,714
REMIC Certificates 98,649 100,595
---------- -----------
Real estate investments, net 661,280 663,996
Other Assets:
Cash and cash equivalents 5,658 1,503
Debt issue costs, net 1,949 2,040
Interest receivable 4,079 3,350
Prepaid expenses and other assets 10,466 2,397
Marketable debt securities 13,462 -
Note receivable from LTC Healthcare, Inc. 18,515 16,528
---------- -----------
54,129 25,818
---------- -----------
Total assets $ 715,409 $ 689,814
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures due 1999-2001 $ 53,747 $ 56,667
Bank borrowings 138,500 100,000
Mortgage loans 55,212 55,432
Bonds payable and capital lease obligations 17,224 17,596
Accrued interest 3,254 3,135
Accrued expenses and other liabilities 3,095 4,085
Distributions payable 985 985
---------- -----------
Total liabilities 272,017 237,900
Minority interest 9,906 10,514
Commitments
Stockholders' equity:
Preferred stock $0.01 par value: 10,000,000 shares authorized;
shares issued and outstanding: 1999-7,080,000, 1998-7,080,000 165,500 165,500
Common stock: $0.01 par value; 40,000,000 shares authorized;
shares issued and outstanding: 1999-27,414,825, 1998-27,660,712 273 277
Capital in excess of par value 307,179 311,113
Notes receivable from stockholders (10,485) (11,200)
Cumulative net income 183,693 158,270
Accumulated comprehensive income (1,274) -
Cumulative distributions (211,400) (182,560)
---------- -----------
Total stockholders' equity 433,486 441,400
---------- -----------
Total liabilities and stockholders' equity $ 715,409 $ 689,814
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 11,475 $ 10,581 $ 22,655 $ 19,647
Interest income from mortgage loans
and notes receivable 4,976 5,963 10,101 13,139
Interest income from REMIC Certificates 4,381 4,364 8,805 7,743
Interest and other income 2,126 1,671 3,601 3,269
--------- --------- --------- ---------
Total revenues 22,958 22,579 45,162 43,798
--------- --------- --------- ---------
Expenses:
Interest expense 5,425 5,891 10,591 11,533
Depreciation and amortization 3,342 2,815 6,543 5,481
Minority interest 225 408 512 728
Operating and other expenses 1,083 1,422 2,093 2,564
--------- --------- --------- ---------
Total expenses 10,075 10,536 19,739 20,306
--------- --------- --------- ---------
Operating income 12,883 12,043 25,423 23,492
Other Income:
Gain on sale of real estate investments - 8,188 - 8,188
Unrealized loss on REMIC Certificates - (153) - (97)
--------- --------- --------- ---------
Total other income - 8,035 - 8,091
--------- --------- --------- ---------
Net income 12,883 20,078 25,423 31,583
Preferred dividends (3,771) (2,954) (7,543) (5,908)
--------- --------- --------- ---------
Net income available to common stockholders $ 9,112 $ 17,124 $ 17,880 $ 25,675
========= ========= ========= =========
Net Income per Common Share:
Basic $ 0.33 $ 0.64 $ 0.65 $ 0.97
========= ========= ========= =========
Diluted $ 0.33 $ 0.59 $ 0.65 $ 0.93
========= ========= ========= =========
Comprehensive Income:
Net income $ 12,883 $ 20,078 $ 25,423 $ 31,583
Unrealized loss on available for sale securities (738) - (1,274) -
--------- --------- --------- ---------
Total comprehensive income $ 12,145 $ 20,078 $ 24,149 $ 31,583
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,423 $ 31,583
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,543 5,481
Gain on sale of real estate investments - (8,188)
Other non-cash charges 170 745
Increase (decrease) in accrued interest 119 (633)
Net change in other assets and liabilities (2,498) 2,552
---------- ----------
Net cash provided by operating activities 29,757 31,540
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the lines of credit 92,000 161,000
Repayments of bank borrowings (53,500) (133,500)
Principal payments on mortgage loans payable and capital lease obligations (592) (4,676)
Repurchase of common stock (4,368) -
Redemption of convertible subordinated debentures (2,263) -
Distributions paid (28,840) (25,872)
Other (404) (316)
---------- ----------
Net cash provided by (used in) financing activities 2,033 (3,364)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in real estate mortgages (8,383) (18,256)
Acquisitions of real estate properties, net (1,157) (125,880)
Proceeds form the sale of REMIC Certificates, net - 109,089
Proceeds from sale of real estate investments, net - 11,600
Investment in debt securities (13,097) -
Principal payments on mortgage loans receivable 2,943 982
Investment in LTC Healthcare, Inc. - (2,001)
Advances under note receivable from LTC Healthcare, Inc., net (5,072) (4,959)
Payments on note receivable from LTC Healthcare, Inc., net 3,085 -
Other (5,954) (662)
---------- ----------
Net cash used in investing activities (27,635) (30,087)
---------- ----------
Increase (decrease) in cash and cash equivalents 4,155 (1,911)
Cash and cash equivalents, beginning of period 1,503 4,974
---------- ----------
Cash and cash equivalents, end of period $ 5,658 $ 3,063
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 9,871 $ 11,301
Non-cash investing and financing transactions:
Conversion of debentures into common stock $ 300 $ 31,587
Notes receivable relating to exercise of employee stock options - 2,088
Assumption of mortgage loans payable for acquisitions of real estate properties - 11,224
Conversion of mortgage loans into owned properties 21,046 7,301
Minority interest related to acquisitions of real estate properties - 3,432
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. GENERAL
The condensed consolidated financial statements included herein have been
prepared by LTC Properties, Inc. (the "Company") without audit and in the
opinion of management include all adjustments necessary for a fair presentation
of the results of operations for the three and six months ended June 30, 1999
and 1998 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; however, 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 and six months ended
June 30, 1999 and 1998 are not necessarily indicative of the results for a full
year. Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
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 that is distributed to its stockholders.
2. REAL ESTATE INVESTMENTS
MORTGAGE LOANS. During the three months ended June 30, 1999, the Company
invested $1,932,000 in a mortgage loan secured by an assisted living facility
("ALF") with 28 units and advanced $727,000 for renovation and expansion under a
mortgage loan previously provided on an educational facility.
REMIC CERTIFICATES. As of June 30, 1999 the outstanding certificate principal
balance and the weighted average pass-through rate for the senior REMIC
certificates (all held by outside third parties) was $293,787,000 and 7.29%. As
of June 30, 1999, the carrying value of the subordinated REMIC certificates held
by the Company was $98,649,000. The effective yield on the subordinated REMIC
certificates held by the Company, based on expected future cash flows discounted
to give effect to potential risks associated with prepayments and unanticipated
credit losses was 17.40% at June 30, 1999.
Interest only certificates and certificates with an investment rating of "BB" or
higher are classified as available-for-sale and unrated certificates and
certificates with an investment rating "B" or lower are classified as
held-to-maturity. As of June 30, 1999, available-for-sale certificates were
recorded at their fair value of approximately $47,005,000. Unrealized holding
losses on available-for-sale certificates of $705,000 were included in
comprehensive income for the three months ended June 30, 1999. At June 30, 1999,
held-to-maturity certificates had a book value of $51,644,000 and a fair value
of $45,392,000. As of June 30, 1999, the effective yield on the
available-for-sale certificates and the held-to-maturity certificates, based on
expected future cash flows discounted to give effect to potential risks
associated with prepayments and unanticipated credit losses, was 23.2% and
11.9%, respectively.
3. INVESTMENT IN DEBT SECURITIES
During the three months ended June 30, 1999, the Company purchased $500,000 face
amount of Assisted Living Concepts, Inc. ("ALC") 5.625% convertible subordinated
debentures and $620,000 face amount of ALC 6.0% convertible subordinated
debentures for an aggregate purchase price of $638,000. The
6
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ALC convertible subordinated debentures have a weighted average effective
yield of 23.7%. The Company accounts for its investment in ALC convertible
subordinated debentures at amortized cost as held-to-maturity securities. At
June 30, 1999, the Company's total investment in ALC convertible subordinated
debentures had an amortized cost of $13,462,000 and a fair value of
$11,366,000.
4. DEBT OBLIGATIONS
As of June 30, 1999, $113,500,000 was outstanding under the Company's
$170,000,000 Senior Unsecured Revolving Line of Credit (the "Revolving Credit
Facility") which expires on October 3, 2000. During the three months ended June
30, 1999, pricing under the Revolving Credit Facility was LIBOR plus 1.25%. The
Company has effectively fixed the interest rate on $50,000,000 notional amount
of LIBOR based variable rate debt by entering into an interest rate swap
agreement whereby the Company will be credited interest at three month LIBOR and
will incur interest at a fixed rate of 4.74%. The notional amount of the
interest rate swap is used to measure interest to be paid or received and does
not represent the amount of exposure to credit loss. The differential paid or
received on the interest rate swap is recognized as an adjustment to interest
expense. The interest rate swap expires in November 2000.
As of June 30, 1999, $25,000,000 was outstanding under a term loan that bears
interest at LIBOR plus 1.25% and matures on October 2, 2000.
During the three months ended June 30, 1999, $120,000 in principal amount of
convertible subordinated debentures converted into 7,150 shares of the Company's
common stock at prices ranging from $15.50 to $17.25 per share.
5. STOCKHOLDERS EQUITY
During the three months ended June 30, 1999, the Company repurchased and retired
23,000 shares of common stock for an aggregate purchase price of $260,000.
During the three months ended June 30, 1999, the Company declared and paid cash
dividends on its Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock totaling $1,829,000, $1,125,000, $817,000, respectively. During
the three months ended June 30, 1999, the Company declared and paid cash
dividends of $.39 per share on its common stock totaling $10,683,000.
6. LTC HEALTHCARE, INC.
During the three months ended June 30, 1999, the Company recorded interest
income of $442,000 on the average outstanding principal balance under the
unsecured line of credit it provided to LTC Healthcare, Inc. ("Healthcare") and
Healthcare reimbursed the Company $242,000 for administrative and management
advisory services.
At June 30, 1999, the Company held 264,900 shares of Healthcare common stock
which is accounted for at fair value as available-for-sale securities. As of
June 30, 1999, the Healthcare common stock was recorded at its fair value of
approximately $513,000. An unrealized holding loss of $201,000 was included in
comprehensive income for the three months ended June 30, 1999.
7
<PAGE>
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net income
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $12,883 $20,078 $25,423 $31,583
Preferred dividends (3,771) (2,954) (7,543) (5,908)
------- ------- ------- -------
Net income for basic net income per share 9,112 17,124 17,880 25,675
Effect of dilutive securities:
7.75% convertible debentures due 2002 - 152 - 322
8.50% convertible debentures due 2001 - 537 - 1,138
8.50% convertible debentures due 2000 - 366 - 764
9.75% convertible debentures due 2004 - 15 - 28
8.25% convertible debentures due 1999 206 215 415 430
8.25% convertible debentures due 2001 - 440 - 906
Convertible partnership units 66 374 22 657
------- ------- ------- -------
Net income for diluted net income per share $ 9,384 $19,223 $18,317 $29,920
======= ======= ======= =======
Shares for basic net income per share 27,411 26,763 27,466 26,395
Effect of dilutive securities:
Stock options 24 4 16 21
7.75% convertible debentures due 2002 - 457 - 476
8.50% convertible debentures due 2001 - 1,491 - 1,589
8.50% convertible debentures due 2000 - 835 - 1,009
9.75% convertible debentures due 2004 - 49 - 52
8.25% convertible debentures due 1999 645 645 645 645
8.25% convertible debentures due 2001 - 1,134 - 1,167
Convertible partnership units 193 950 35 912
------- ------- ------- -------
Shares for diluted net income per share 28,273 32,328 28,162 32,266
======= ======= ======= =======
Basic net income per share $ 0.33 $ 0.64 $ 0.65 $ 0.97
======= ======= ======= =======
Diluted net income per share $ 0.33 $ 0.59 $ 0.65 $ 0.93
======= ======= ======= =======
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues for the three months ended June 30, 1999 increased to $22,958,000 from
$22,579,000 for the same period in 1998. The increase in revenues resulted from
increased rental income of $894,000, increased interest income from REMIC
certificates of $17,000 and an increase in interest and other income of $455,000
which was somewhat offset by a decrease in interest from mortgage loans and
notes receivable of $987,000.
Rental income increased $2,150,000 as a result of property acquisitions.
"Same-store" rents increased $222,000 due to the receipt of contingent rents and
rental increases as provided for in the lease agreements. Partially offsetting
the above increases in rental income were decreases of $1,298,000 related to the
contribution of properties to LTC Healthcare, Inc. ("Healthcare") in September
1998 and $180,000 resulting from the disposition of properties. Interest on the
Assisted Living Concepts, Inc. convertible debentures accounted for the increase
in interest and other income. Interest income from mortgage loans decreased due
to the sale of mortgage loans in connection with a REMIC securitization that was
completed in May 1998.
Total expenses as a percent of total revenues decreased to 44% in 1999 from 47%
in 1998. The decrease as a percent of revenues is largely due to a reduction in
interest expense resulting from the conversion of subordinated debentures.
Depreciation and amortization increased as a result of a larger investment base
in owned properties in 1999 as compared to 1998. The decrease in general and
administrative expenses is due to the reimbursement of administrative and
management advisory services by LTC Healthcare, Inc.
Preferred dividends increased as a result of dividends on the Series C
Convertible Preferred Stock which was issued in September 1998.
Net income available to common shareholders decreased to $9,112,000 for the
three months ended June 30, 1999 from $17,124,000 for the same period in 1998.
Excluding the gain on the sale of real estate investments in 1998, net income
available to common shareholders increased to $9,112,000 for the three months
ended June 30, 1999 from $8,936,000 for the same period in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues for the six months ended June 30, 1999 increased to $45,162,000 from
$43,798,000 for the same period in 1998. The increase in revenues resulted from
increased rental income of $3,008,000, increased interest income from REMIC
certificates of $1,062,000 and an increase in interest and other income of
$332,000 which was somewhat offset by a decrease in interest from mortgage loans
and notes receivable of $3,038,000.
Rental income increased $4,978,000 as a result of property acquisitions.
"Same-store" rents increased $425,000 due to the receipt of contingent rents and
rental increases as provided for in the lease agreements. Partially offsetting
the above increases in rental income were decreases of $2,003,000 related to the
contribution of properties to LTC Healthcare, Inc. ("Healthcare") in September
1998 and $392,000 resulting from the disposition of properties. Interest on the
Assisted Living Concepts, Inc. convertible debentures accounted for the increase
in interest and other income. Interest income from mortgage loans decreased due
to the sale of mortgage loans in connection with a REMIC securitization
9
<PAGE>
that was completed in May 1998. The decrease was partially mitigated by an
increase in interest income from REMIC certificates from the retention of
certificates originated in the May 1998 securitization.
Total expenses as a percent of total revenues decreased to 44% in 1999 from 46%
in 1998. The decrease as a percent of revenues is largely due to a reduction in
interest expense resulting from the conversion of subordinated debentures.
Depreciation and amortization increased as a result of a larger investment base
in owned properties in 1999 as compared to 1998. The decrease in general and
administrative expenses is due to the reimbursement of administrative and
management advisory services by LTC Healthcare, Inc.
On January 1, 1999, in accordance with recently issued accounting standards, the
Company reclassified its investment in REMIC certificates from trading
securities to available-for-sale and held-to-maturity securities. As a result of
the change in accounting for REMIC certificates, the Company no longer
recognizes unrealized gains or losses on changes in their fair value in current
period earnings.
Preferred dividends increased as a result of dividends on the Series C
Convertible Preferred Stock which was issued in September 1998.
Net income available to common shareholders decreased to $17,880,000 for the six
months ended June 30, 1999 from $25,675,000 for the same period in 1998.
Excluding the gain on the sale of real estate investments in 1998, net income
available to common shareholders increased to $17,880,000 for the six months
ended June 30, 1999 from $17,487,000 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company's real estate investment portfolio (before
accumulated depreciation and allowance for doubtful accounts) consisted of
$433,965,000 invested primarily in owned long-term care facilities, mortgage
loans of approximately $163,273,000 and subordinated REMIC certificates with a
weighted average effective yield of 17.4% of approximately $98,649,000. At June
30, 1999, the outstanding certificate principal balance and the weighted average
pass-through rate for the senior REMIC certificates (all held by outside third
parties) was $293,787,000 and 7.29%. The Company's portfolio consists of 271
skilled nursing facilities, 93 assisted living facilities and six schools in 36
states.
During the six months ended June 30, 1999, the Company had net cash provided by
operations of $29,757,000. In addition, the Company obtained a $25,000,000 term
loan and had net borrowings of $13,500,000 under its unsecured revolving credit
facility. The Company has effectively fixed the interest rate on LIBOR based
variable rate debt with an interest rate swap. Under the interest rate swap,
which expires in November 2000, the Company will be credited interest at three
month LIBOR and will incur interest at a fixed rate of 4.74% on a notional
amount of $50,000,000. The notional amounts of interest rate agreements are used
to measure interest to be paid or received and do not represent the amount of
exposure to credit loss.
During the six months ended June 30, 1999, the Company invested $6,678,000 in
mortgage loans secured by three assisted living facilities ("ALFs"), advanced
$1,705,000 for renovation and expansion under a mortgage loan previously
provided on an educational facility and invested $1,157,000 in owned properties
by completing the sale/leaseback of eight ALFs that it had previously financed
with mortgage loans. The Company also purchased $4,195,000 face amount of
Assisted Living Concepts, Inc. ("ALC") 5.625% convertible subordinated
debentures and $15,645,000 face amount of ALC 6.0% convertible subordinated
debentures for an aggregate purchase price of $13,097,000. The ALC convertible
subordinated debentures have a weighted average effective yield of 19.1%.
During the six months ended June 30, 1999, the Company repurchased and retired
339,800 shares of common stock for an aggregate purchase price of approximately
$4,368,000. During the six months
10
<PAGE>
ended June 30, 1999, the Company declared and paid cash dividends on its
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock totaling $3,658,000, $2,250,000, $1,635,000, respectively. In addition,
the Company declared and paid quarterly cash dividends totaling $.78 per
share on its common stock totaling $21,297,000.
As of June 30, 1999, borrowing capacity of $56,500,000 was available under the
Company's $170,000,000 unsecured revolving credit facility which matures in
October 2000. The revolving credit facility had pricing of LIBOR plus 1.25% at
June 30, 1999. In addition, at June 30, 1999 the Company had cash on hand of
$5,658,000 and, after giving effect to borrowing base requirements for
outstanding bank borrowings, $380,838,000 of available unencumbered real estate
investments. Available unencumbered real estate investments consisted of
$224,268,000 in owned properties (before accumulated depreciation), $57,921,000
of mortgage loans (before allowance for doubtful accounts) and $98,649,000 of
REMIC certificates.
The Company believes that its current cash from operations available for
distribution or reinvestment, its borrowing capacity (including borrowings
against unencumbered real estate investments), and the Company's ability to
access the capital markets are sufficient to provide for payment of its
operating costs, provide funds for distribution to its stockholders and to fund
additional investments.
OTHER DEVELOPMENTS
At December 31, 1998, Sun Healthcare Group, Inc. ("Sun") operated 70 facilities
representing 19% ($174.3 million) of the Company's gross real estate investment
portfolio (adjusted to include mortgage loans to third parties securing the
investment in REMIC certificates). During the first quarter of 1999, Sun was
replaced as the operator at seven facilities which resulted in a $15.3 million
reduction in the Company's total investment in facilities operated by Sun to 17%
($159 million) of the Company's gross real estate investment portfolio. The
facilities operated by Sun as of June 30, 1999 consisted of approximately $78
million of direct investments and $81 million of investments in facilities owned
by independent parties that lease the property to Sun or contract with Sun to
manage the property.
At March 31, 1999, the Company had mortgage loans to Retirement Group, L.L.C.
("Retirement Group") secured by three skilled nursing facilities. In addition,
the mortgage loans securing the 1998-1 REMIC pool included one mortgage loan to
Retirement Group secured by two skilled nursing facilities. At March 31, 1999,
the aggregate outstanding principal on the direct loans to Retirement Group was
$8.5 million and the outstanding principal on the loan made to Retirement Group
securing the 1998- REMIC pool was $8.6 million. Retirement Group has leased the
properties securing the loans to Sun. The Company has been informed by Sun that
there is a dispute between Sun and Retirement Group and consequently Sun is
currently offsetting the lease payments due to Retirement Group on these
properties against certain alleged obligations of Retirement Group to Sun.
Retirement Group has informed the Company that because they have not received
the lease payments from Sun, Retirement Group is unable to make the mortgage
payments due to the Company. Consequently, the debt service payments due to the
Company and the 1998-1 REMIC pool from Retirement Group were 30 to 60 days past
due as of March 31, 1999. Sun has provided the Company with a guarantee of $1.7
million on the direct loans to Retirement Group and a guarantee of $2.1 million
on the loan securing the 1998-1 REMIC pool.
The Company initiated foreclosure proceedings against Retirement Group; however,
in May 1999, Retirement Group filed for Chapter 11 bankruptcy (reorganization)
and the bankruptcy court placed a temporary stay on the foreclosure proceedings.
Until Retirement Group emerges from bankruptcy protection and resumes making
mortgage payments, the direct loans to Retirement Group will be placed on
non-accrual status which will result in a decrease in interest income from
mortgage loans of approximately $235,000 per quarter. Based on the current fair
value of the properties securing the loans to Retirement Care and the value of
the loan guarantees by Sun, the Company anticipates that the impact,
11
<PAGE>
if any, of foreclosure of the Retirement Group loans on the Company's
financial position or results of operations would be immaterial.
At June 30, 1999, the Company leased three long term care facilities with a
current gross book value of $8.2 million to Newcare Health Corp ("Newcare") and
had mortgage loans to Newcare secured by three skilled nursing facilities with
an aggregate outstanding balance of $11.9 million. On June 22, 1999, Newcare
filed for Chapter 11 bankruptcy. Until Newcare emerges from bankruptcy
protection, the Newcare leases and mortgage loans have been placed on
non-accrual which will result in a decrease in interest income from mortgage
loans and rental income of approximately $504,000 per quarter.
FUNDS FROM OPERATIONS
The Company has adopted the definition of Funds From Operations ("FFO")
prescribed by the National Association of Real Estate Investment Trusts
("NAREIT"). FFO is defined as net income applicable to common stockholders
(computed in accordance with GAAP) excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation of real property and
after adjustments for unconsolidated entities in which a REIT holds an
interest. In addition, the Company excludes any unrealized gains or losses
resulting from temporary changes in the estimated fair value of its REMIC
Certificates from the computation of FFO.
The Company believes that FFO is an important supplemental measure of
operating performance. FFO should not be considered as an alternative to net
income or any other GAAP measurement of performance as indicator of operating
performance or as an alternative to cash flows from operations, investing or
financing activities as a measure of liquidity. The Company believes that FFO
is helpful in evaluating a real estate investment portfolio's overall
performance considering the fact that historical cost accounting implicitly
assumes that the value of real estate assets diminishes predictably over
time. FFO provides an alternative measurement criteria, exclusive of certain
non-cash charges included in GAAP income, by which to evaluate the
performance of such investments. FFO, as used by the Company in accordance
with the NAREIT definition may not be comparable to similarly entitled items
reported by other REITs that have not adopted the NAREIT definition.
The following table reconciles net income available to common stockholders to
FFO available to common stockholders (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income available to common stockholders $ 9,112 $ 17,124 $ 17,880 $ 25,675
Real estate depreciation 3,342 2,815 6,543 5,481
Gain on sale of real estate investments - (8,188) - (8,188)
Unrealized loss on REMIC Certificates - 153 - 97
-------- -------- -------- --------
FFO available to common stockholders $ 12,454 $ 11,904 $ 24,423 $ 23,065
======== ======== ======== ========
Basic FFO per share $ 0.45 $ 0.44 $ 0.89 $ 0.87
======== ======== ======== ========
Diluted FFO per share $ 0.44 $ 0.43 $ 0.87 $ 0.85
======== ======== ======== ========
</TABLE>
YEAR 2000
Currently many computer programs assume the first two digits of a year are
"19" and simply identify a year by the last two digits. It is widely
anticipated that, beginning in the year 2000 when the first two digits of a
year are "20" rather than "19", these computer programs will incorrectly
identify the year (i.e. the year 2000 will be incorrectly identified as
1900). Such miscalculations could result in the disruption of operations that
are reliant on these computer programs. Computer programs that identify a
year by
12
<PAGE>
four digits are deemed to be year 2000 compliant. The statements in this
section include year 2000 readiness disclosure within the meaning of the Year
2000 Information and Readiness Disclosure Act of 1998.
STATUS OF THE COMPANY'S INFORMATION TECHNOLOGY SYSTEMS AND NON-INFORMATION
TECHNOLOGY SYSTEMS. Our primary use of information technology systems is its
internal accounting and information management software (collectively the
"Systems"). We have evaluated the Systems to assess whether they will
function properly with respect to dates in the year 2000 and beyond. Systems
that were determined to be non-compliant with the year 2000 and beyond have
been upgraded or replaced. The total cost associated with modifications
required to become year 2000 compliant was not material to our financial
position, results of operations or liquidity. Due to our limited reliance on
complex Systems, we believe the year 2000 issue, as it relates to its
internal Systems, will not have a material adverse effect upon our financial
position, results of operations or liquidity.
We will also have year 2000 exposure in non-information technology areas as
it relates to owned properties and our leased corporate offices. There is a
risk that embedded chips in elevators, security systems, electrical systems
and similar technology-driven devices may stop functioning on January 1,
2000. All of our owned properties are leased under triple-net leases and as
such, the cost to repair any of these items will be paid by the lessee. While
any disruption in services at our corporate offices due to failure of
non-information technology systems may be inconvenient and disruptive to
day-to-day activities, it is not expected to have a material adverse effect
on our financial position, results of operations or liquidity.
EXPOSURE TO THIRD PARTY YEAR 2000 ISSUES. We depend upon the following third
parties:
- - our tenants and borrowers for rents and cash flows;
- - our financial institutions for availability of working capital and capital
markets financing; and
- - our transfer agent to maintain and track investor information.
If our primary tenants or borrowers are not year 2000 compliant, or if they face
disruptions in their cash flows due to year 2000 issues, we could face
significant temporary disruptions in our cash flows after that date. These
disruptions could be compounded if the commercial banks that process our cash
receipts and disbursements are not year 2000 compliant. If there are significant
disruptions to the capital markets as a result of year 2000 issues, our ability
to access the capital markets to fund investments could be impaired.
Neither we nor our lessees or mortgagors can be assured that the federal and
state governments, upon which our lessees rely for Medicare and Medicaid
revenue, will be in compliance in a timely manner. The General Accounting Office
has reported that the Health Care Financing Administration, which runs Medicare,
is behind schedule in taking steps to deal with the year 2000 issue and that it
is highly unlikely that all of the Medicare systems will be compliant in time to
ensure the delivery of uninterrupted benefits and services into the year 2000.
The General Accounting Office has also reported that, based upon its survey of
the states, the District of Columbia and three territories, less than 16% of the
automated systems used by state and local government to administer Medicaid are
reported to be year 2000 compliant. Due to the general uncertainty surrounding
the readiness of third-party tenants and other third-parties, including the
federal and state governments, with which our lessees do business, we are unable
at this time to determine whether non-compliance with the year 2000 issue by
third-parties will have a material impact on our financial position, results of
operations or liquidity.
CONTINGENCY PLAN. In the event we experience a significant disruption in cash
receipts due to the a delay in Medicare or Medicaid receipts by our tenants or
due to other year 2000 non-compliance issues, we would seek additional liquidity
from our lenders and slow our investment activity.
13
<PAGE>
Readers are cautioned that forward-looking statements contained in the above
discussion regarding year 2000 compliance should be read in conjunction with the
disclosure under the heading "-Statement Regarding Forward Looking Disclosure"
set forth below.
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 negatives of
those terms. 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. Exhibit 99 to our Annual
Report on Form 10-K contains a more comprehensive discussion of risks and
uncertainties associated with our business.
14
<PAGE>
PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
JUNE 30, 1999
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
LTC Properties, Inc. held its Annual Meeting of Stockholders (the "Meeting") on
May 25, 1999, at which the Company's stockholders voted to elect the nominated
board of five directors for the ensuing year or until the election and
qualification of their respective successors.
Holders of record of the Company's common stock as of the close of business on
March 31, 1999 were entitled to vote at the Meeting. As of the close of business
on March 31, 1999, there were 27,407,096 shares of common stock outstanding and
entitled to vote and 25,600,942 of such shares were represented at the Meeting.
Each of the directors received 94% of the shares cast in favor of his or her
election.
The shares cast for each director were as follows: Andre C. Dimitriadis:
24,105,712 for and 1,495,230 withheld; James J. Pieczynski: 24,108,712 for and
1,492,230 withheld; Edmund C. King: 24,109,692 for and 1,490,980 withheld; Wendy
L Simpson; 24,107,739 for and 1,493,203 withheld; and Sam Yellen: 24,102,792 for
and 1,498,150 withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
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, 1999.
15
<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: August 16, 1999 By: /s/ JAMES J. PIECZYNSKI
-----------------------
James J. Pieczynski
President and Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LTC
PROPERTIES, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE
30,1999 FILED HEREWITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000887905
<NAME> LTC PROPERTIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,658
<SECURITIES> 98,649
<RECEIVABLES> 163,273
<ALLOWANCES> 1,250
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 433,965
<DEPRECIATION> 33,357
<TOTAL-ASSETS> 715,409
<CURRENT-LIABILITIES> 0
<BONDS> 11,992
0
165,500
<COMMON> 273
<OTHER-SE> 267,713
<TOTAL-LIABILITY-AND-EQUITY> 715,409
<SALES> 0
<TOTAL-REVENUES> 22,958
<CGS> 0
<TOTAL-COSTS> 10,075
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,425
<INCOME-PRETAX> 12,883
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,883
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,883
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.33
</TABLE>
