<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 September 30, 2000
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 November 3,
2000 - 26,047,854.
================================================================================
<PAGE>
LTC PROPERTIES, INC.
FORM 10-Q
SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets....................................................... 3
Consolidated Statements of Income ................................................ 4
Consolidated Statements of Cash Flows ............................................ 5
Notes to Consolidated Financial Statements ....................................... 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations ........................12
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .....................................................16
</TABLE>
2
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Real Estate Investments:
Buildings and improvements, net of accumulated depreciation and
amortization: 2000 - $44,604; 1999 - $39,975 $417,406 $430,776
Land 23,499 24,162
Mortgage loans receivable, net of allowance for doubtful
accounts: 2000 - $1,250; 1999 - $1,250 112,592 131,193
REMIC Certificates 96,332 97,605
-------------- --------------
Real estate investments, net 649,829 683,736
Other Assets:
Cash and cash equivalents 2,267 2,655
Debt issue costs, net 888 1,699
Interest receivable 4,581 4,050
Prepaid expenses and other assets 8,287 9,144
Marketable debt securities 15,421 14,190
Due from LTC Healthcare, Inc. under line of credit 19,557 6,337
-------------- --------------
51,001 38,075
============== ==============
Total Assets $700,830 $721,811
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible subordinated debentures due 2001-2002 $ 24,642 $ 24,642
Bank borrowings 140,000 160,000
Mortgage loans and notes payable 103,612 90,536
Bonds payable and capital lease obligations 16,625 17,096
Accrued interest 1,857 2,794
Accrued expenses and other liabilities 5,719 7,247
Distributions payable 985 985
-------------- --------------
Total Liabilities 293,440 303,300
Minority interest 9,637 9,894
Stockholders' equity:
Preferred stock $0.01 par value: 10,000 shares authorized;
shares issued and outstanding: 2000 - 7,080; 1999 - 7,080 165,500 165,500
Common stock: $0.01 par value; 40,000 shares authorized;
shares issued and outstanding: 2000 - 26,048; 1999 - 27,036 260 270
Capital in excess of par value 296,568 304,527
Cumulative net income 220,914 190,097
Notes receivable from stockholders (10,066) (10,258)
Accumulated comprehensive income (1,156) (1,246)
Cumulative distributions (274,267) (240,273)
-------------- --------------
Total Stockholders' Equity 397,753 408,617
-------------- --------------
Total Liabilities and Stockholders' Equity $700,830 $721,811
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ----------------------------
2000 1999 2000 1999
------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $12,148 $11,572 $38,214 $34,227
Interest income from mortgage loans and notes receivable 3,592 5,026 11,616 15,127
Interest income from REMIC Certificates 4,197 4,419 12,782 13,224
Interest and other income 1,599 1,778 4,147 5,379
----------- ------------- ------------ ------------
Total revenues 21,536 22,795 66,759 67,957
----------- ------------- ------------ ------------
Expenses:
Interest expense 7,177 5,399 20,620 15,990
Depreciation and amortization 3,799 3,256 11,485 9,799
Minority interest 236 253 706 765
Operating and other expenses 1,305 1,941 4,402 4,034
----------- ------------- ------------ ------------
Total expenses 12,517 10,849 37,213 30,588
----------- ------------- ------------ ------------
Operating income 9,019 11,946 29,546 37,369
Gain on sale of assets, net 1,271 - 1,271 -
----------- ------------- ------------ ------------
Net income 10,290 11,946 30,817 37,369
Preferred dividends (3,772) (3,772) (11,315) (11,315)
----------- ------------- ------------ ------------
Net income available to common stockholders $6,518 $8,174 $19,502 $26,054
=========== ============= ============ ============
Net Income per Common Share:
Basic $0.25 $0.30 $ 0.75 $ 0.95
=========== ============= ============ ============
Diluted $0.25 $0.30 $ 0.75 $ 0.95
=========== ============= ============ ============
Comprehensive Income:
Net income $10,290 $11,946 $30,817 $37,369
Unrealized gain (loss) on available for sale securities 46 90 90 (1,184)
----------- ------------- ------------ ------------
Total comprehensive income $10,336 $12,036 $30,907 $36,185
=========== ============= ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,817 $ 37,369
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,485 9,799
Gain on repurchase of convertible subordinated debentures - (1,021)
Other non-cash charges 1,338 1,609
Gain on sale of real estate investments, net (1,271) -
Decrease in accrued interest (1,043) (1,560)
Net change in other assets and liabilities (6,198) (3,395)
----------- ------------
Net cash provided by operating activities 35,128 42,801
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mortgage loans receivable (964) (8,555)
Acquisitions of real estate properties and capital improvements, net (3,829) (5,929)
Proceeds from sale of real estate properties, net 38,152 -
Investment in debt securities - (13,097)
Principal payments on mortgage loans receivable 8,620 6,309
Advances under line of credit to LTC Healthcare, Inc. (14,753) (8,123)
Payments on line of credit to LTC Healthcare, Inc. 565 4,674
Other (383) (6,748)
----------- ------------
Net cash provided by (used in) investing activities 27,408 (31,469)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the lines of credit 36,000 117,500
Repayments of bank borrowings under lines of credit (56,000) (64,500)
Principal payments on mortgage loans payable and capital lease obligations (1,091) (771)
Redemption of convertible subordinated debentures - (25,780)
Repurchase of common stock (7,968) (4,488)
Distributions paid (33,994) (32,612)
Other 129 (313)
----------- ------------
Net cash used in financing activities (62,924) (10,964)
----------- ------------
Increase (decrease) in cash and cash equivalents (388) 368
Cash and cash equivalents, beginning of period 2,655 1,503
----------- ------------
Cash and cash equivalents, end of period $ 2,267 $ 1,871
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 20,789 $ 16,604
Non-cash investing and financing transactions:
Conversion of debentures into common stock $ - $ 435
Conversion of mortgage loans into owned properties 6,797 34,874
Assumption of mortgage loans payable for acquisitions of real estate properties 13,696 7,510
Reduction in receivables from LTC Healthcare, Inc. for acquisitions of real estate 5,346 -
properties
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
LTC Properties, Inc. (the "Company"), a Maryland corporation, is a real estate
investment trust ("REIT") that invests primarily in long term care facilities
through mortgage loans, facility lease transactions and other investments.
The consolidated financial statements included herein have been prepared by
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 nine months ended September 30, 2000 and 1999 pursuant to
the rules and regulations of the Securities and Exchange Commission. The
accompanying 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. Certain amounts in the 1999 financial statements
have been reclassified to conform with financial statement presentations in
2000. The results of operations for the three and nine months ended September
30, 2000 and 1999 are not necessarily indicative of the results for a full
year.
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
OWNED PROPERTIES. During the first six months of calendar 2000 the Company sold
one 100-bed skilled nursing facility in North Carolina and one 104-bed skilled
nursing facility in Tennessee. These two sales generated approximately
$3,966,000 of net proceeds resulting in a net gain of $129,000. The Company's
original investment in these properties was approximately $5,001,000.
In the quarter ended September 2000, the Company sold nine skilled nursing
facilities in four separate transactions. The combined transactions included
1,139 beds in four states, generated approximately $34,186,000 of net proceeds
resulting in a net gain of approximately $7,508,000. Details of the sale are as
follows:
In July 2000, the Company sold a closed 214-bed skilled nursing facility in
Iowa. The sale generated approximately $353,000 in net proceeds, which
approximated the Company's investment balance in this property. The Company's
original investment in the property was a mortgage with a balance of $2,767,000
(prior to an impairment charge of $2,417,000 recorded in 1999).
In August 2000, the Company sold one 120-bed skilled nursing facility in
Tennessee for a gross sales price of approximately $3,010,000. This home had
been operated by LTC Healthcare, Inc. ("Healthcare") and was leased for an
annual rental of approximately $273,000. The Company's original investment in
this property was approximately $2,550,000.
The Company sold in September 2000, a 92-bed skilled nursing facility in
California to the facility's operator. The gross sales price was approximately
$3,100,000 and the Company's original investment in the property was
approximately $2,575,000. This property was leased for an annual rental of
approximately $331,000.
6
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
Also in September 2000, the Company sold six skilled nursing facilities in
Florida to Delta Health Group, Inc. ("Delta"). These six facilities had been
leased and operated by Delta, contained a combined 713-beds and were leased
for an annual rental of approximately $3,010,000. The total gross sales price
of these facilities was approximately $30,000,000. The Company's original
investment in the facilities was approximately $27,390,000. Additionally, the
Company received a three year $2,000,000 note with an interest rate of 10%.
This note is a deposit on a seventh skilled nursing facility in Florida
currently operated by Delta. The ultimate gross total sales price of this
facility is approximately $6,000,000. The Company's original investment in
this facility was approximately $6,542,000 and was generating approximately
$621,000 in annual rental income. The facility is now generating annual rent
to the Company of approximately $435,000 based on the remaining investment
balance, net of the $2,000,000 deposit, of $4,542,000.
MORTGAGE LOANS. At September 30, 2000, the Company had 50 mortgage loans secured
by first mortgages on 49 skilled nursing facilities with a total of 5,416 beds
and 8 assisted living residences with a total of 369 units located in 23 states.
At September 30, 2000, the mortgage loans had interest rates ranging from 9.1%
to 13.5% and maturities ranging from 2001 to 2018. In addition, the loans
contain certain guarantees, provide for certain facility fees and generally have
25-year amortization schedules. The majority of the mortgage loans provide for
annual increases in the interest rate based upon a specified increase of 10 to
25 basis points.
REMIC CERTIFICATES. As of September 30, 2000 the outstanding certificate
principal balance and the weighted average pass-through rate for the senior
REMIC certificates (all held by outside third parties) was $269,954,000 and
7.22%. As of September 30, 2000, the carrying value of the subordinated REMIC
certificates held by the Company was $96,332,000. 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 17.25% at September 30, 2000.
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 of "B" or lower are classified as
held-to-maturity. As of September 30, 2000, available-for-sale certificates
were recorded at their fair value of approximately $43,911,000. Unrealized
holding gains on available-for-sale certificates of $93,000 and $106,000 were
included in comprehensive income for the three months ended September 30,
2000 and 1999. At September 30, 2000 held-to-maturity certificates had a book
value of $52,421,000 and a fair value of $31,563,000. As of September 30,
2000, 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 22.8% and 11.9%, respectively.
3. IMPAIRMENT CHARGE
During the nine months ended September 30, 2000 the Company recorded an
impairment charge of approximately $6,400,000. The impairment charge included
the write-down of the carrying value to the estimated net realizable value of
two owned skilled nursing facilities of $1,000,000, mortgage loans secured by
skilled nursing facilities of $4,100,000 and notes receivable of $1,300,000. The
impairment charge has been netted against the gain on sale of properties in the
consolidated statement of income.
7
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
4. RELATED PARTY TRANSACTIONS
As of September 30, 2000, 29 real estate properties with a gross carrying value
of $76,653,000 or 8.78% of the Company's gross and net real estate investment
portfolio (adjusted to include mortgage loans underlying the REMIC Certificates)
were operated by LTC Healthcare, Inc. ("Healthcare"). During the three and nine
months ended September 30, 2000, the Company recorded rental income of
approximately $1,031,000 and $5,118,000 respectively, from Healthcare. These
properties are leased in general, on a short-term basis, and new rental rates as
of July 1, 2000 were approved by the independent members of the Board of
Directors of both Healthcare and the Company. The new rates are for one year,
ending June 30, 2001, at which time all leases will be reevaluated by the
Company and Healthcare. Annual rental from Healthcare under these new rates is
approximately $4,100,000.
At September 30, 2000 the Company held 207,900 shares of Healthcare common stock
that was recorded at its fair value of approximately $117,000. For the three
months ended September 30, 2000 and 1999, an unrealized holding loss of $47,000
and $16,000, respectively, was included in comprehensive income.
The Company has provided Healthcare with a $20,000,000 unsecured line of credit
that bears interest at 10% and matures in March 2008. As of September 30, 2000
and December 31, 1999, $19,557,000 and $6,337,000, respectively, was outstanding
under the line of credit. Under the terms of the new Secured Revolving Credit
(See Note 5.), the Company is permitted to loan Healthcare up to $25,000,000.
The Company and Healthcare have not increased the $20,000,000 unsecured line of
credit between the companies. Should any such amendment be proposed, it would
need approval of the independent Board members of each company's board. During
the three months ended September 30, 2000 and 1999, the Company recorded
interest income of $489,000 and $451,000, respectively. For the nine months
ended September 30, 2000 and 1999, the Company recorded interest income of
$1,257,000 and $1,319,000, respectively on the average outstanding principal
balance under the line of credit.
During 1999, the Company had an administrative services agreement with
Healthcare. Accordingly, Healthcare reimbursed the Company for administrative
and management advisory services in the amounts of $162,000 and $577,000 for the
three months and the nine months ended September 30, 1999. The administrative
services agreement was terminated effective January 1, 2000 since Healthcare has
its own management and administrative staff. The Company received no
reimbursement for administrative and management advisory services in 2000. The
Company continues to provide advisory services to Healthcare. On June 23, 2000,
the Company's Board of Directors appointed Healthcare as the Company's exclusive
sales agent for all skilled nursing facilities for a period of one year and
approved a commission agreement with Healthcare. Pursuant to the agreements,
during the three months and nine months ended September 30, 2000, the Company
paid Healthcare sales commissions of approximately $1,345,000 and $1,600,000,
respectively.
On September 6, 2000 the Company purchased 100% of the common stock of Coronado
Corporation ("Coronado") and Park Villa Corporation ("Park Villa") from
Healthcare for a total purchase price of $19,200,000, which was based upon
independent appraisals. As a result of the purchase, the Company assumed
approximately $13,700,000 of mortgage debt and reduced receivables from
Healthcare by approximately $5,300,000. Annual rentals from these properties
total approximately $1,600,000 (increasing annually by 3%) and annual interest
expense for the assumed mortgages is approximately $1,300,000.
8
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
5. DEBT OBLIGATIONS
As of September 30, 2000, $115,000,000 was outstanding under the Company's
$170,000,000 Senior Unsecured Revolving Line of Credit (the "Revolving Credit
Facility"). During the nine months ended September 30, 2000, pricing under the
Revolving Credit Facility was LIBOR plus a range of 1.25% to 1.375%. As of
September 30, 2000, $25,000,000 was outstanding under a term loan that bears
interest at LIBOR plus 1.375%. At September 30, 2000 the Company's interest rate
was 8.06%.
Both of these financing agreements matured on October 2, 2000 and the Company
received an extension from its lenders to October 31, 2000 during which time the
Company and its lenders were negotiating a new loan agreement. The extension was
under the same terms and conditions as the existing financing agreements.
The Company and its lenders have entered into a new Senior Secured Revolving
Credit Agreement (the "Secured Revolving Credit") that expires on October 2,
2004 and replaces the above mentioned two credit facilities. The Secured
Revolving Credit initially provides for $185,000,000 of total commitments with
periodic reductions of these commitments to fully retire the commitments as of
October 2, 2004. Specifically scheduled available commitments as of December 31,
2000, 2001, 2002 and 2003 are $185,000,000, $157,500,000, $95,000,000 and
$75,000,000 respectively.
The Secured Revolving Credit pricing varies between LIBOR plus 2.00% and LIBOR
plus 3.00% depending on the Company's leverage ratio. Had this agreement been in
place at September 30, 2000, the Company's interest rate would have been 9.1%.
The Secured Revolving Credit contains financial covenants including, but not
limited to a collateral value ratio, funded debt ratio, senior leverage ratio,
interest coverage ratio and a tangible net worth ratio. Under the terms of the
Secured Revolving Credit the Company is limited in any fiscal year to paying
total common and preferred cash dividends to 110% of consolidated taxable
income. Additional provisions in the Secured Revolving Credit provide for the
release of certain collateral when the commitments are reduced to $100,000,000
or less and $60,000,000 or less and allows the Company to buyback its stock once
the commitments are $135,000,000 or less. In addition to a fee to the lenders at
the time of signing the Secured Revolving Credit, the Company has agreed to pay
an additional fee to the lenders based on total commitments, if any, outstanding
as of October 2, 2002.
6. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 2000, the Company repurchased and
retired 1,005,600 shares of common stock for an aggregate purchase price of
approximately $7,968,000. In addition, during the nine months ended September
30, 2000 the Company granted 23,000 shares of restricted stock and the Company
granted 487,500 stock options principally at an exercise price of $5 3/8. The
options vest over five years and expire the earlier of seven years from the date
of vesting and ten years from the date of grant.
During the nine months ended September 30, 2000, the Company declared and paid
cash dividends on its Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock totaling $5,486,000, $3,375,000 and $2,454,000,
respectively. During the nine months ended September 30, 2000 the Company
declared and paid quarterly cash dividends of $0.29 per share per quarter on its
common stock totaling $22,679,000. Subsequent to September 30, 2000, the
Company's Board of Directors authorized the buyback of up to five million shares
once the Company is so permitted under the Secured Revolving credit.
9
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
7. MAJOR OPERATORS
Sun Healthcare, Inc. ("Sun") is currently operating its business as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. At
September 30, 2000, Sun operated 40 facilities representing 12.89% or
$112,597,000 of the Company's gross real estate investment portfolio (adjusted
to include mortgage loans underlying the REMIC Certificates).
During the quarter ended September 30, 2000, the Company purchased two
properties from Sun for the amount of debt that was outstanding. In connection
with these transactions, Sun paid accrued interest that was due to the Company.
Since the two loans were on non-accrual status, the Company recognized this
interest income in the third quarter when it was received. The two properties
purchased in the third quarter are leased to a third party for an initial annual
rental payment of approximately $561,000.
As of September 30, 2000, Sun was not current on principal and interest
payments on one mortgage loan secured by three properties, with a combined
principal balance of approximately $3,500,000. The Company agreed to purchase
the three properties from Sun for the amount of debt outstanding. Subsequent
to September 30, 2000, the Company completed the purchase of the three
properties discussed above and has leased them to a third party for an
initial annual rental payment of approximately $440,000. As a result of the
above mentioned transactions, Sun is now current on all of its mortgage and
lease payments to the Company as well as all payments on mortgages
collateralized by the Company's REMIC Certificates.
8. SUBSEQUENT EVENT
In October 2000, TesseracT Group ("TesseracT") filed for reorganization under
Chapter 11 of the Bankruptcy Code. TesseracT leases and operates five charter
schools from the Company, one in Minnesota and four in Arizona.
Prior to TesseracT's filing for bankruptcy protection, the Company was in
negotiations with TesseracT and a possible new tenant to lease one of the
Arizona schools to the new tenant.
At this time it is not possible to predict when the Company will know if
TesseracT will confirm or reject its leases with the Company. However, the
Company has been contacted by several interested parties to lease or buy
individual or multiple schools currently leased by TesseracT. While this action
by TesseracT will temporarily interrupt cash flow to the Company from these
properties, management believes these properties will be leased or purchased by
new operators.
At September 30, 2000 the Company's gross investment in these five schools was
approximately $23,300,000. Annual rental is approximately $2,500,000. As of
September 30, 2000, TesseracT was current on all rents. Subsequently TesseracT
has not paid rent for the month of October but has paid $208,000 of the $212,000
due for November 2000 rent.
10
<PAGE>
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
9. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income $10,290 $11,946 $30,817 $37,369
Preferred dividends (3,772) (3,772) (11,315) (11,315)
---------- ----------- ---------- -----------
Net income for basic net income per share 6,518 8,174 19,502 26,054
Effect of dilutive securities:
8.25% convertible debentures due 1999 - - - -
8.25% convertible debentures due 2001 - - - -
8.50% convertible debentures due 2001 - - - -
7.75% convertible debentures due 2002 - - - -
Other dilutive securities - - - -
---------- ----------- ---------- -----------
Net income for diluted net income per share $6,518 $8,174 $19,502 $26,054
========== =========== ========== ===========
Shares for basic net income per share 26,048 27,386 26,134 27,439
Effect of dilutive securities:
Stock options - - - 16
8.25% convertible debentures due 1999 - - - -
8.25% convertible debentures due 2001 - - - -
8.50% convertible debentures due 2001 - - - -
7.75% convertible debentures due 2002 - - - -
Other dilutive securities - - - -
---------- ----------- ---------- -----------
Shares for diluted net income per share 26,048 27,386 26,134 27,455
========== =========== ========== ===========
Basic net income per share $0.25 $0.30 $0.75 $0.95
========== =========== ========== ===========
Diluted net income per share $0.25 $0.30 $0.75 $0.95
========== =========== ========== ===========
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues for the three months ended September 30, 2000 decreased to $21.5
million from $22.8 million for the same period in 1999. Rental income for the
three months ended September 30, 2000 increased $0.6 million compared to the
same period of 1999 primarily as a result of the acquisition of 19 properties
and the receipt of rental increases as provided for in the lease agreements
partially offset by the elimination of rents from sold properties. Eight of the
properties purchased were leased to LTC Healthcare, Inc. ("Healthcare")
beginning September 1999, October 1999 and January 2000. The other eleven
properties were leased to third party payors. Same store rental income,
properties owned for the three months ended September 30, 2000 and the three
months ended September 30,1999, decreased $0.6 million due to the new rental
rates discussed in Note 4, partially offset by the receipts of contingent rents
and rental increases as provided for in the lease agreements. Interest income
from mortgage loans and notes receivable decreased $1.4 million primarily as a
result of the mortgage loans which converted to owned properties and were then
leased to third parties as discussed above. Interest income from REMIC
certificates for the three months ended September 30, 2000 decreased $0.2
million compared to the same period of 1999 due to the amortization of the
related asset. Interest and other income for the three months ended September
30, 2000 were comparable to the same period in 1999.
Interest expense increased by $1.8 million to $7.2 million for the three months
ended September 30, 2000 from $5.4 million during the same period in 1999, due
to an increase in debt outstanding along with general increases in interest
rates. Depreciation and amortization increased $0.5 million due to the
acquisition of properties as discussed above. General and administrative
expenses decreased $0.6 million in the third quarter of 2000 due to a
non-recurring expense in the third quarter of 1999 related to a settlement of an
employee related dispute.
Net income available to common stockholders decreased to $6.5 million for the
three months ended September 30, 2000 from $8.2 million for the same period in
1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues for the nine months ended September 30, 2000 decreased to $66.8 million
from $68.0 million for the same period in 1999. Rental income for the nine
months ended September 30, 2000 increased $4.0 million compared to the same
period of 1999 primarily as a result of the acquisition of 24 properties and the
receipt of rental increases as provided for in the lease agreements partially
offset by the elimination of rents from sold properties. Eight of the properties
purchased were leased to Healthcare beginning September 1999, October 1999 and
January 2000. The other 16 properties were leased to third party payors. Same
store rental income, properties owned for the nine months ended September 30,
2000 and the nine months ended September 30,1999, decreased $0.3 million due to
the new rental rates discussed in Note 4, partially offset by the receipts of
contingent rents and rental increases as provided for in the lease agreements.
Interest income from mortgage loans and notes receivable decreased $3.5 million
primarily as a result of the mortgage loans which converted to owned properties
and were then leased to third parties as discussed above. Interest income from
REMIC certificates for the nine months ended September 30, 2000 decreased $0.4
million compared to the same period of 1999 due to the amortization of the
related asset. Interest and other income decreased $1.2 million compared to the
same period in 1999 primarily as a result of certain investment gains that were
realized in the first half of 1999.
Interest expense increased by $4.6 million to $20.6 million for the nine months
ended September 30, 2000 from $16.0 million during the same period in 1999 due
to an increase in debt outstanding along with general increases in interest
rates. Depreciation and amortization increased $1.7 million due to the
acquisition of properties as discussed above. The increase in general and
administrative expenses is attributable to an increase in the number
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of full time employees, additional legal costs and the effect of the elimination
of reimbursements received from Healthcare for administrative costs.
Net income available to common stockholders decreased to $19.5 million for the
nine months ended September 30, 2000 from $26.1 million for the same period in
1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 the Company's real estate investment portfolio (before
accumulated depreciation and allowance for doubtful accounts) consisted of
$485.5 million invested primarily in owned long-term care facilities, mortgage
loans of approximately $113.8 million and subordinated REMIC certificates of
approximately $96.3 million with a weighted average effective yield of 17.25%.
At September 30, 2000 the outstanding certificate principal balance and the
weighted average pass-through rate for the senior REMIC certificates (all held
by outside third parties) was $270.0 million and 7.22%. The Company's portfolio
consists of investments in 250 skilled nursing facilities, 95 assisted living
facilities and six schools in 36 states.
For the nine months ended September 30, 2000, the Company had net cash provided
by operating activities of $35.1 million. The Company invested $3.8 million in
the acquisition of two properties and the expansion and improvements of existing
properties. The Company sold nine skilled nursing facilities for net proceeds of
$38.2 million. In addition, the Company provided Healthcare with an additional
$14.2 million in borrowings under the $20.0 million unsecured line of credit
that bears interest at 10% and matures in March 2008. In addition, principal
payments of $8.6 million were received on mortgage loans receivable during the
nine months ended September 30, 2000, including $7.7 million related to the
early payoff of two loans.
During the nine months ended September 30, 2000, the Company had additional bank
borrowings of $36.0 million and repaid $56.0 million. During the same period,
the Company repaid $1.1 million of principal on mortgage loans payable and
capital lease obligations. During the nine months ended September 30, 2000, the
Company repurchased and retired 1,005,600 shares of common stock for an
aggregate purchase price of approximately $8.0 million. During the nine months
ended September 30, 2000, the Company declared and paid cash dividends on its
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
totaling $5.5 million, $3.4 million, and $2.4 million, respectively. In
addition, the Company paid quarterly cash dividends on its common stock totaling
$22.7 million.
The Company expects its future income and ability to make distributions from
cash flows from operations to depend on the collectibility of its mortgage loans
receivable, REMIC Certificates and rents. The collection of these loans,
certificates and rents will be dependent, in large part, upon the successful
operation by the operators of the skilled nursing facilities, assisted living
facilities and schools owned by or pledged to the Company. The operating results
of the facilities will be impacted by various factors over which the
operators/owners may have no control. Those factors include, without limitation,
the status of the economy, changes in supply of or demand for competing
long-term care facilities, ability to control rising operating costs, and the
potential for significant reforms in the long-term care industry. In addition,
the Company's future growth in net income and cash flow may be adversely
impacted by various proposals for changes in the governmental regulations and
financing of the long-term care industry. The Company cannot presently predict
what impact these proposals may have, if any. The Company believes that an
adequate provision has been made for the possibility of loans proving
uncollectible but will continually evaluate the status of the operations of the
skilled nursing facilities, assisted living facilities and schools. In addition,
the Company will monitor its borrowers and the underlying collateral for
mortgage loans and will make future revisions to the provision, if considered
necessary.
As of September 30, 2000, Healthcare operates 29 properties in the Company's
real estate portfolio, of which 27 of these properties are leased from the
Company and two properties are owned by Healthcare and are securing mortgage
loans that collateralize the Company's REMIC Certificates. The 27 properties
leased from the Company currently generate annual rental income to the Company
of approximately $4.1 million. These properties are leased on a short-term
basis.
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The Company's investments, principally its investments in mortgage loans, REMIC
Certificates, and owned properties, are subject to the possibility of loss of
their carrying values as a result of changes in market prices, interest rates
and inflationary expectations. The effects on interest rates may affect the
Company's costs of financing its operations and the fair market value of its
financial assets. The Company generally makes loans that have predetermined
increases in interest rates and leases that have agreed upon annual increases.
In as much as the Company initially funds its investments with its Revolving
Credit Facility, the Company is at risk of net interest margin deterioration if
medium and long-term rates were to increase between the time the Company
originates the investment and replaces the short-term variable rate borrowings
with a fixed rate financing.
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,
in most cases, bear the first risk of loss in the event of 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).
The Company believes that its current cash flow from operations available for
distribution or reinvestment and its current borrowing capacity are sufficient
to provide for payment of its operating costs and provide funds for distribution
to its stockholders. Difficult capital market conditions in the health care
industry have limited the Company's access to traditional forms of growth
capital. As a result of the tight capital markets for the health care industry,
the Company has continued to limit its investment activity in 2000. The Company
expects to utilize cash from operations and additional borrowings under the
Secured Revolving Credit, to repay the convertible subordinated debentures at
maturity. The Secured Revolving Credit requires periodic reductions of
commitments. The Company expects to meet these reductions through a combination
of cash from operations, asset sales and refinancings. If prevailing interest
rates or other factors at the time of refinancing, if any, (such as the
reluctance of lenders to make commercial real estate loans) result in higher
rates upon refinancing the interest expense relating to the refinanced
indebtedness would increase and therefore adversely affect the Company's
financial condition and results of operations.
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 and
impairment charges, if any, 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 an 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.
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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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
2000 1999 2000 1999
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income available to common stockholders $6,518 $ 8,174 $19,502 $26,054
Gain on sale of assets, net (1,271) - (1,271) -
Real estate depreciation 3,799 3,256 11,485 9,799
---------- ----------- ----------- ----------
FFO available to common stockholders $9,046 $11,430 $29,716 $35,853
========== =========== =========== ==========
Basic FFO per share $ 0.35 $ 0.42 $ 1.14 $ 1.31
========== =========== =========== ==========
Diluted FFO per share $ 0.35 $ 0.42 $ 1.13 $ 1.28
========== =========== =========== ==========
</TABLE>
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
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 changes 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.
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PART II
LTC PROPERTIES, INC.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10 Senior Secured Revolving Credit Agreement dated October 31, 2000
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 September 30, 2000.
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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: November 14, 2000 By: /s/ WENDY L. SIMPSON
----------------------------------------
Wendy L. Simpson
Vice Chairman and Chief Financial Officer
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