Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

ltc_Current folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

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.)

 

2829 Townsgate Road, Suite 350

Westlake Village, California  91361

(Address of principal executive offices, including zip code)

 

(805) 981-8655

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether registrant (1) has filed all reports required 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

 

(Do not check if a
smaller reporting company)

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐  No  ☑

 

The number of shares of common stock outstanding on August 3, 2018 was 39,634,980.

 

 


 

Table of Contents

LTC PROPERTIES, INC.

 

FORM 10-Q

 

June 30, 2018

 

 

INDEX

 

 

 

 

PART I -- Financial Information

Page

 

 

 

Item 1.

Financial Statements

 

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Income and Comprehensive 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

21

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

38

Item 4. 

Controls and Procedures

38

PART II -- Other Information 

 

 

 

Item 1. 

Legal Proceedings

39

Item 1A. 

Risk Factors

39

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 6. 

Exhibits

40

 

 

 

 


 

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

 

 

 

(unaudited)

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Land

 

$

125,882

 

$

124,041

 

Buildings and improvements

 

 

1,269,675

 

 

1,262,335

 

Accumulated depreciation and amortization

 

 

(301,458)

 

 

(304,117)

 

Operating real estate property, net

 

 

1,094,099

 

 

1,082,259

 

Properties held-for-sale, net of accumulated depreciation: 2018—$1,916; 2017—$1,916

 

 

3,830

 

 

3,830

 

Real property investments, net

 

 

1,097,929

 

 

1,086,089

 

 

 

 

 

 

 

 

 

Mortgage loans receivable, net of loan loss reserve: 2018—$2,355; 2017—$2,255

 

 

233,823

 

 

223,907

 

Real estate investments, net

 

 

1,331,752

 

 

1,309,996

 

Notes receivable, net of loan loss reserve: 2018—$142; 2017—$166

 

 

14,074

 

 

16,402

 

Investments in unconsolidated joint ventures

 

 

30,397

 

 

29,898

 

Investments, net

 

 

1,376,223

 

 

1,356,296

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,260

 

 

5,213

 

Restricted cash

 

 

2,446

 

 

 —

 

Debt issue costs related to bank borrowings

 

 

3,304

 

 

810

 

Interest receivable

 

 

17,864

 

 

15,050

 

Straight-line rent receivable, net of allowance for doubtful accounts: 2018—$707; 2017—$814

 

 

70,036

 

 

64,490

 

Lease incentives

 

 

21,407

 

 

21,481

 

Prepaid expenses and other assets

 

 

4,089

 

 

2,230

 

Total assets

 

$

1,499,629

 

$

1,465,570

 

LIABILITIES

 

 

 

 

 

 

 

Bank borrowings

 

$

85,500

 

$

96,500

 

Senior unsecured notes, net of debt issue costs: 2018—$1,027; 2017—$1,131

 

 

566,940

 

 

571,002

 

Accrued interest

 

 

5,105

 

 

5,276

 

Accrued incentives and earn-outs

 

 

9,167

 

 

8,916

 

Accrued expenses and other liabilities

 

 

27,221

 

 

25,228

 

Total liabilities

 

 

693,933

 

 

706,922

 

EQUITY

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding:   2018—39,635; 2017—39,570

 

 

396

 

 

396

 

Capital in excess of par value

 

 

858,832

 

 

856,992

 

Cumulative net income

 

 

1,190,078

 

 

1,100,783

 

Cumulative distributions

 

 

(1,248,179)

 

 

(1,203,011)

 

Total LTC Properties, Inc. stockholders’ equity

 

 

801,127

 

 

755,160

 

Non-controlling interests

 

 

4,569

 

 

3,488

 

Total equity

 

 

805,696

 

 

758,648

 

Total liabilities and equity

 

$

1,499,629

 

$

1,465,570

 

 

See accompanying notes.

 

 

3


 

Table of Contents

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except per share, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

  

2018

  

2017

  

2018

  

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

33,930

 

$

35,265

 

$

68,435

 

$

70,300

 

Interest income from mortgage loans

 

 

7,007

 

 

6,625

 

 

13,823

 

 

13,373

 

Interest and other income

 

 

535

 

 

578

 

 

1,024

 

 

1,417

 

Total revenues

 

 

41,472

 

 

42,468

 

 

83,282

 

 

85,090

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

7,655

 

 

7,151

 

 

15,484

 

 

14,622

 

Depreciation and amortization

 

 

9,268

 

 

9,308

 

 

18,712

 

 

18,667

 

Impairment charges

 

 

 —

 

 

1,880

 

 

 —

 

 

1,880

 

Recovery for doubtful accounts

 

 

(38)

 

 

(5)

 

 

(30)

 

 

(43)

 

Transaction costs

 

 

 6

 

 

 —

 

 

10

 

 

22

 

General and administrative expenses

 

 

4,716

 

 

4,386

 

 

9,513

 

 

9,126

 

Total expenses

 

 

21,607

 

 

22,720

 

 

43,689

 

 

44,274

 

Operating income

 

 

19,865

 

 

19,748

 

 

39,593

 

 

40,816

 

Income from unconsolidated joint ventures

 

 

726

 

 

575

 

 

1,357

 

 

1,020

 

Gain on sale of real estate, net

 

 

48,345

 

 

5,054

 

 

48,345

 

 

5,054

 

Net income

 

 

68,936

 

 

25,377

 

 

89,295

 

 

46,890

 

Income allocated to participating securities

 

 

(278)

 

 

(104)

 

 

(366)

 

 

(201)

 

Net income available to common stockholders

 

$

68,658

 

$

25,273

 

$

88,929

 

$

46,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.74

 

$

0.64

 

$

2.25

 

$

1.19

 

Diluted

 

$

1.73

 

$

0.64

 

$

2.25

 

$

1.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,471

 

 

39,414

 

 

39,461

 

 

39,390

 

Diluted

 

 

39,765

 

 

39,794

 

 

39,750

 

 

39,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$

0.57

 

$

0.57

 

$

1.14

 

$

1.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

68,936

 

$

25,377

 

$

89,295

 

$

46,890

 

Comprehensive income

 

$

68,936

 

$

25,377

 

$

89,295

 

$

46,890

 

 

See accompanying notes.

 

 

4


 

Table of Contents

 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

  

2018

  

2017

 

OPERATING ACTIVITIES:

 

 

    

 

 

    

 

Net income

 

$

89,295

 

$

46,890

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

18,712

 

 

18,667

 

Stock-based compensation expense

 

 

2,897

 

 

2,684

 

Impairment charges

 

 

 —

 

 

1,880

 

Gain on sale of real estate, net

 

 

(48,345)

 

 

(5,054)

 

Income from unconsolidated joint ventures

 

 

(1,357)

 

 

(1,020)

 

Income distributions from unconsolidated joint ventures

 

 

1,256

 

 

754

 

Insurance proceeds for damaged property

 

 

2,619

 

 

 —

 

Payment for remediation of damaged property

 

 

(173)

 

 

 —

 

Straight-line rental income

 

 

(5,440)

 

 

(5,307)

 

Lease incentives funding

 

 

(1,017)

 

 

(5,172)

 

Amortization of lease incentives

 

 

1,091

 

 

1,111

 

Provision for doubtful accounts

 

 

(30)

 

 

(43)

 

Non-cash interest related to contingent liabilities

 

 

251

 

 

351

 

Other non-cash items, net

 

 

663

 

 

637

 

Increase in interest receivable

 

 

(2,814)

 

 

(2,572)

 

Decrease in accrued interest payable

 

 

(171)

 

 

(132)

 

Net change in other assets and liabilities

 

 

(1,966)

 

 

(6,336)

 

Net cash provided by operating activities

 

 

55,471

 

 

47,338

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Investment in real estate properties

 

 

(25,902)

 

 

(54,740)

 

Investment in real estate developments

 

 

(18,623)

 

 

(9,155)

 

Investment in real estate capital improvements

 

 

(1,763)

 

 

(2,195)

 

Capitalized interest

 

 

(552)

 

 

(371)

 

Proceeds from sale of real estate, net

 

 

64,386

 

 

14,106

 

Investment in real estate mortgage loans receivable

 

 

(11,654)

 

 

(7,829)

 

Principal payments received on mortgage loans receivable

 

 

1,636

 

 

17,339

 

Investments in unconsolidated joint ventures

 

 

(497)

 

 

(3,734)

 

Payment of working capital reserve

 

 

 —

 

 

(439)

 

Principal payments received on notes receivable

 

 

2,352

 

 

25

 

Net cash provided by (used in) investing activities

 

 

9,383

 

 

(46,993)

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Bank borrowings

 

 

54,000

 

 

48,500

 

Repayment of bank borrowings

 

 

(65,000)

 

 

(110,600)

 

Proceeds from issuance of senior unsecured notes

 

 

 —

 

 

100,000

 

Principal payments on senior unsecured notes

 

 

(4,166)

 

 

(4,167)

 

Proceeds from common stock issued

 

 

 —

 

 

14,578

 

Stock option exercises

 

 

123

 

 

79

 

Distributions paid to stockholders

 

 

(45,168)

 

 

(45,110)

 

Contribution from non-controlling interests

 

 

1,081

 

 

 —

 

Financing costs paid

 

 

(3,051)

 

 

(363)

 

Other

 

 

(1,180)

 

 

(1,954)

 

Net cash (used in) provided by financing activities

 

 

(63,361)

 

 

963

 

Increase in cash, cash equivalents and restricted cash

 

 

1,493

 

 

1,308

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

5,213

 

 

7,991

 

Cash, cash equivalents and restricted cash, end of period

 

$

6,706

 

$

9,299

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

14,994

 

$

14,119

 

 

See accompanying notes.

 

 

5


 

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.General

LTC Properties, Inc., a health care real estate investment trust (“REIT”), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending.  We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property classification and form of investment.

We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2018 and 2017 are not necessarily indicative of the results for a full year.

No provision has been made for federal or state income taxes. Our company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As such, we generally are not taxed on income that is distributed to our stockholders.

Restricted Cash

During the third quarter of 2017, a 170-bed skilled nursing center in our portfolio was evacuated due to damages caused by Hurricane Harvey. This property is located in Texas and operated under a triple net master lease agreement. We periodically evaluate properties for impairment when events or changes in circumstances indicate that the asset may be impaired or the carrying amount of the asset may not be recoverable through future undiscounted cash flows. Based upon a quarterly assessment of this 170-bed property using the recoverability test, our management concluded the property has not been impaired.

As of June 30, 2018, the gross value and the carrying value of the property were $2,021,000 and $1,200,000, respectively.

The provisions of our triple net lease agreements impose certain obligations on our operators including:

·

Acquire property insurance, subject to certain criteria;

·

Continue paying rent in the event of any property damage or destruction; and

·

Return the leased property back to us at the end of the lease term, in the same condition originally received.

6

 


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

During the second quarter of 2018, our operator provided us with insurance proceeds of $2,619,000 to be used for remediation of the property as noted in the provisions of our master lease agreement. Accordingly, we have classified the insurance proceeds as restricted cash on our consolidated financial statements.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While this ASU specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate. Additionally, the FASB has issued targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. The new standard and its amendments were effective on January 1, 2018 and permitted reporting entities to apply the standard using either a modified retrospective approach, by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or full retrospective approach. We assessed our revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. We evaluated the provisions of ASU 2014-09 and its related additional guidance to determine the potential impact of the new standard. We concluded that adoption of this standard did not have an impact on our results of operations or financial condition, as our revenue consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASU 2014-09. We adopted this standard using the modified retrospective adoption method on January 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 modifies existing guidance by requiring lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance of operating leases. ASU 2016-02 requires the lessors to identify lease and non-lease components of a lease agreement. ASU 2016-02 will govern the recognition of revenue for lease components. Revenue related to non-lease components under lease agreements will be subject to the revenue recognition standard, upon adoption of this ASU. Entities are required to use a modified retrospective approach for leases that exist or are entered into after January 1, 2017, the beginning of the earliest comparative period presented in the 2019 consolidated financial statements with a cumulative adjustment to the opening balance of retained earnings. In March 2018, the FASB approved to amend ASU 2016-02 allowing the lessors, as a practical expedient, an election to not separate the non-lease components from the related lease components and instead, to account for those components as a single lease component (if certain criteria are met). The practical expedient option is available as a single election that must be consistently applied to all existing leases at the date of adoption. Furthermore, in March 2018, the FASB agreed to issue an amendment to ASU 2016-02 that would provide an entity the optional transition method to make January 1, 2019, the initial application date of the ASU, rather than January 1, 2017. Consequently,

7


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

entities that elect both the practical expedient and the optional transitional method will apply the new lease ASU prospectively to leases commencing or modified after January 1, 2019, and will not be required to apply the disclosures under the new lease ASU to comparative periods.

Consistent with present standards, we will continue to account for lease revenue on a straight-line basis when applicable. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We have begun our process for implementing this guidance, including identifying any non-lease components in our lease arrangements. We will continue to evaluate this guidance and the impact to us, as both lessor and lessee, on our consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force). ASU 2016-15 provides guidance that reduces the diversity in practice of the classification of certain cash receipts and cash payments within the statement of cash flows. This guidance is effective for fiscal periods beginning after December 15, 2017. We adopted this standard on January 1, 2018. The adoption of this guidance did not have a material impact on our financial statements.

In January 2017, the FASB issued ASU No. 2017-01(“ASU 2017-01”), Business Combinations (Topic 805): Clarifying Definition of a Business. ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. We adopted ASU 2017-01 during the second quarter of 2017. Historically, our acquisitions qualified as either a business combination or asset acquisition. The adoption of this ASU did not have a material impact on the company’s results of operations or financial condition as most of our acquisitions of investment properties will continue to qualify as asset acquisitions.

In February 2017, the FASB issued ASU No. 2017-05 (“ASU 2017-05”), Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 defines an in-substance nonfinancial asset and clarifies guidance related to partial sales of nonfinancial assets. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this ASU did not have a material impact on the consolidated financial statements and related notes.

.

2.Real Estate Investments

Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF).

Any reference to the number of properties or facilities, number of units, number of beds, number of operators and yield on investments in real estate are unaudited and outside the scope of our

8


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

Owned Properties. The following table summarizes our investments in owned properties at June 30, 2018 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Percentage

 

Number

 

Number of

 

Investment

 

 

 

Gross

 

of

 

of

 

SNF

 

ALF

 

per

 

Type of Property

 

Investment

 

Investment

 

Properties (1)

 

Beds

 

Units

 

Bed/Unit

 

Assisted Living

 

$

787,373

 

56.2

102

 

 —

 

5,796

 

$

135.85

 

Skilled Nursing

 

 

578,030

 

41.2

%  

75

 

9,204

 

261

 

$

61.07

 

Under Development (2)

 

 

25,077

 

1.8

 —

 

 —

 

 —

 

 

 —

 

Other (3)

 

 

10,823

 

0.8

 1

 

118

 

 —

 

 

 —

 

Total

 

$

1,401,303

 

100.0

178

 

9,322

 

6,057

 

 

 

 


(1)

We own properties in 28 states that are leased to 30 different operators.

 

(2)

Represents three development projects, consisting of a 143-bed SNF in Kentucky, a 78-unit ALF/MC located in Oregon and a 110-unit ILF/ALF/MC in Wisconsin.

 

(3)

Includes three parcels of land held-for-use, and one behavioral health care hospital.

 

Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:

(i)

a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%;

(ii)

a calculation based on the Consumer Price Index;

(iii)

as a percentage of facility net patient revenues in excess of base amounts; or

(iv)

specific dollar increases.

9


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

Acquisitions and Developments: The following table summarizes our acquisitions for the six months ended June 30, 2018 and 2017 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Number

 

Number

 

 

 

 

Purchase

 

Transaction

 

Acquisition

 

of

 

of

Year

 

Type of Property

 

Price

 

Costs (1)

 

Costs

 

Properties

 

Beds/Units

2018

 

Assisted Living (2)

 

$

25,200

 

$

66

 

$

25,266

 

 2

 

88

 

 

Land (3)

 

 

600

 

 

36

 

 

636

 

 —

 

 —

 

 

Total

 

$

25,800

 

$

102

 

$

25,902

 

 2

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

Assisted Living (4)

 

$

54,463

 

$

277

 

$

54,740

 

 3

 

240

Total

 

 

 

$

54,463

 

$

277

 

$

54,740

 

 3

 

240


(1)

Represents cost associated with our acquisitions; however, upon adoption of ASU 2017-01, our acquisitions meet the definition of an asset acquisition resulting in capitalization of transaction costs to the properties’ basis. For our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Additionally, transaction costs may include costs related to the prior year due to timing and terminated transactions.

 

(2)

We acquired two memory care communities in Texas.

 

(3)

We entered into a partnership to own the real estate and develop a 78-unit assisted living and memory care community in Medford, OR for $18,108 and committed to purchase an existing operational 89-unit independent living community in Oregon. We anticipate acquiring the independent living community in the third quarter of 2018.

 

(4)

We acquired a 107-unit ALF and a 73-unit MC for an aggregate purchase price of $38,813. Additionally, we acquired a 60-unit MC for $15,650.

 

During the six months ended June 30, 2018 and 2017, we invested the following in development and improvement projects (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018

 

Six months ended June 30, 2017

 

 

Developments

 

Improvements

 

 

Developments

 

 

Improvements

Assisted Living Communities

 

$

14,653

 

$

1,048

 

 

$

7,198

 

$

839

Skilled Nursing Centers

 

 

3,970

 

 

500

 

 

 

1,957

 

 

1,356

Other

 

 

 —

 

 

215

 

 

 

 —

 

 

 —

Total

 

$

18,623

 

$

1,763

 

 

$

9,155

 

$

2,195

 

Completed Developments. The following table summarizes our completed developments during the six months ended June 30, 2018 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

Type

 

Number

 

 

 

 

 

 

 

of

 

of

 

of

 

 

 

 

Total

Type of Project

 

Properties

 

Property

 

Beds/Units

 

State

 

Investment

Development

 

1

 

MC

 

66

 

Illinois

 

$

13,974

Properties held-for-sale. The following table summarizes our properties held-for-sale as of June 30, 2018 and December 31, 2017 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type

 

Number

 

 

 

 

 

 

 

Number

 

 

of

 

of

 

 

Gross

 

 

Accumulated

 

of

State

 

Property

 

Properties

 

 

Investment

 

 

Depreciation

 

Beds/units

Texas

 

ILF

 

 1

 

$

5,746

 

$

1,916

 

140

 

10


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

Properties sold. The following table summarizes property sales during the six months ended June 30, 2018 and 2017(dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type

 

Number

 

Number

 

 

 

 

 

 

 

 

 

 

 

 

 

of

 

of

 

of

 

 

Sales

 

 

Carrying

 

 

Net

Year

 

State

 

Properties

 

Properties

 

Beds

 

 

Price

 

 

Value

 

 

Gain

2018

 

Ohio and Pennsylvania

 

ALF

 

6

 

320

 

$

67,500

 

$

16,352

 

$

48,345

2017

 

Indiana and Iowa

 

ALF

 

4

 

175

 

$

14,250

 

$

8,726

 

$

5,054

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at June 30, 2018 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type

 

Percentage

 

Number of

 

Investment

 

 

 

 

Gross

 

of

 

of

 

 

 

 

 

SNF

 

per

Interest Rate (1)

 

Maturity

 

Investment

 

Property

 

Investment

 

Loans (2)

 

Properties (3)

 

Beds

 

Bed/Unit

9.5%

 

2043

 

$

186,496

 

SNF

 

79.0

%

 1

 

15

 

2,043

 

$

91.29

9.2%

 

2045

 

 

25,326

 

SNF

 

10.7

%

 1

 

 3

 

375

 

$

67.54

9.4%

 

2045

 

 

14,300

 

SNF

 

6.0

%

 1

 

 1

 

157

 

$

91.08

9.5%

 

2020

 

 

10,056

 

SNF

 

4.3

%

 1

 

 2

 

205

 

$

49.05

Total

 

 

 

$

236,178

 

 

 

100.0

%

 4

 

21

 

2,780

 

$

84.96


(1)

The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 2.25%.

 

(2)

Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30-year term.

 

(3)

We have investments in properties located in one state that includes mortgages to one operator.

The following table summarizes our mortgage loan activity for the six months ended June 30, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

2018

 

2017

Originations and funding under mortgage loans receivable

 

$

11,654

(1)

$

7,829

Pay-offs received

 

 

(1,086)

 

 

(16,665)

Scheduled principal payments received

 

 

(550)

 

 

(674)

Net increase (decrease) in mortgage loans receivable

 

$

10,018

 

$

(9,510)


(1)

During 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter.

 

11


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

3.Investment in Unconsolidated Joint Ventures

Our investment in unconsolidated joint ventures consists of a preferred equity investment and two mezzanine loans which are accounted for as unconsolidated joint ventures in accordance with GAAP. The following table summarizes our investment in unconsolidated joint ventures (dollar amounts in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type

 

Type

 

Total

 

 

Currently

 

 

Number

 

 

 

 

 

 

 

 

 

of

 

of

 

Preferred

 

 

Paid in

 

 

of

 

 

Investment

 

 

Carrying

 

State

 

Properties

 

Investment

 

Return

 

 

Cash

 

 

Beds/ Units

 

 

Commitment

 

 

Value

 

Arizona

 

ALF/MC/ILF

 

Preferred Equity

(1)

15

%

 

7

%

 

585

 

$

25,650

 

$

23,859

 

Florida

 

ALF/IL/MC

 

Mezzanine

(2)

15

%

 

12

%

 

99

 

 

2,900

(3)

 

3,138

(3)

Florida

 

UDP-ALF/MC

 

Mezzanine

(2)

15

%

 

10

%

 

127

 

 

3,400

 

 

3,400

 

Total

 

 

 

 

 

 

 

 

 

 

 

811

 

$

31,950

 

$

30,397

 


(1)

We have concluded that the JV is a variable interest entity (“VIE”) in accordance with GAAP. However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for the JV investment using the equity method.

 

(2)

We evaluated these acquisition, development and construction (“ADC”) arrangements and determined that the characteristics are similar to jointly-owned investments or partnerships, and accordingly, these investments are accounted for as unconsolidated joint ventures under the equity method of accounting instead of loan accounting.

 

(3)

Since interest payments were deferred and no interest was recorded for the first twelve months of the loan, we used the effective interest method in accordance with GAAP to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance.

 

The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

Type

 

2018

 

2017

 

of

 

 

Capital

 

 

Income

 

 

Cash Interest

 

 

Capital

 

 

Income

 

 

Cash Interest

 

Properties

 

 

Contribution

 

 

Recognized

 

 

Received

 

 

Contribution

 

 

Recognized

 

 

Received

 

ALF/MC/ILF

 

$

497

 

$

951

 

$

1,062

 

$

987

 

$

719

 

$

619

 

ALF/IL/MC

 

 

 —

 

 

255

 

 

194

 

 

 —

 

 

255

 

 

135

 

UDP-ALF/MC

 

 

 —

 

 

151

 

 

 —

(1)

 

2,747

 

 

46

 

 

 —

(1)

Total

 

$

497

 

$

1,357

 

$

1,256

 

$

3,734

 

$

1,020

 

$

754

 


(1)

We withheld $653 at the time of loan origination which is being applied to interest. As of June 30, 2018, we still hold $336 which will be applied to future interest.

 

12


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

4.Notes Receivable

Notes receivable consists of mezzanine loans and other loan arrangements. The following table is a summary of our notes receivable components as of June 30, 2018 and December 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

At June 30, 2018

 

 

At December 31, 2017

Mezzanine loans

$

11,348

 

$

13,700

Other loans

 

2,868

 

 

2,868

Notes receivable reserve

 

(142)

 

 

(166)

Total

$

14,074

 

$

16,402

The following tables summarizes our notes receivable activity for the six months ended June 30, 2018 and 2017 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

2018

 

 

2017

Principal payments received under notes receivable

$

(2,352)

 

$

(25)

 

 

 

5.Lease Incentives

The following summarizes lease incentives by component as of June 30, 2018 and December 31, 2017, (in thousands):