LTC Reports 2016 Third Quarter Results And Announces New Investments

LTC Properties, Inc. (NYSE: LTC), a real estate investment trust that primarily invests in seniors housing and health care properties, today announced operating results for its third quarter ended September 30, 2016 and recent investment activity.

Net income available to common stockholders was $22.3 million, or $0.57 per diluted share, for the 2016 third quarter, compared with $18.7 million, or $0.52 per diluted share, for the same period in 2015. Funds from Operations ("FFO") increased 13.9% to $29.7 million for the 2016 third quarter, up from $26.1 million for the comparable 2015 period. FFO per diluted common share was $0.76 and $0.72 for the quarters ended September 30, 2016 and 2015, respectively, which represents a 5.6% per share increase. Normalized FFO increased 11.6% to $29.7 million for the 2016 third quarter, up from $26.6 million for the same period in 2015. The increase in net income, FFO and normalized FFO was primarily due to higher revenues from recent acquisitions, mortgage loan originations and completed development projects, partially offset by higher interest expense resulting from the sale of senior unsecured notes and increased utilization of LTC's line of credit, as well as additional general and administrative expenditures related to increased investment activity.

LTC completed the following transactions during the third quarter of 2016:
  • Purchased a parcel of land and improvements in Kentucky for $5.4 million and entered into a development commitment to construct a 143-bed skilled nursing center. The commitment totals $24.3 million, including the land and improvements purchase. The property was added to an existing master lease agreement. Rent on the property will commence upon completion of construction at an initial lease rate of 8.5%;
  • Completed construction of a 66-unit memory care community in California, a 66-unit memory care community in Illinois and an 89-unit combination assisted living and memory care community in South Carolina;
  • Originated a $1.4 million mezzanine loan, funding $1.2 million at closing, with a commitment to fund an additional $0.2 million. This mezzanine loan has a five-year term and a rate of 15%;
  • Sold an assisted living community in Florida for $5.1 million, resulting in a net gain on sale of $2.0 million;
  • Sold a school in New Jersey for $3.9 million, resulting in a net loss of $0.2 million;
  • Sold $40.0 million of 3.99% senior unsecured notes due July 20, 2031 to an insurance company; and
  • Sold 152,623 shares of its common stock for $7.7 million in net proceeds under its equity distribution agreement.

Subsequent to September 30, 2016, LTC completed the following:
  • Increased its monthly cash dividend for the fourth quarter of 2016 by 5.6% from $0.18 per share to $0.19 per share, as previously announced; and
  • Purchased a parcel of land in Illinois for $1.6 million and entered into a development commitment to construct a 66-unit memory care community. The commitment totals $14.5 million, including the land purchase.

Conference Call Information

LTC will conduct a conference call on Thursday, November 3, 2016, at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time), to provide commentary on its performance and operating results for the quarter ended September 30, 2016. The conference call is accessible by telephone and the internet. Telephone access will be available by dialing 877-510-2862 (domestically) or 412-902-4134 (internationally). To participate in the webcast, go to LTC's website at www.LTCreit.com 15 minutes before the call to download the necessary software.

An audio replay of the conference call will be available from November 3 through November 17, 2016, and may be accessed by dialing 877-344-7529 (domestically) or 412-317-0088 (internationally) and entering conference number 10092617. Additionally, an audio archive will be available on LTC's website on the "Presentations" page of the "Investor Information" section, which is under the "Investors" tab. LTC's earnings release and supplemental information package for the current period will be available on its website on the "Press Releases" and "Presentations" pages, respectively, of the "Investor Information" section which is under the "Investors" tab.

About LTC

LTC is a self-administered real estate investment trust that primarily invests in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending. At September 30, 2016, LTC had 223 investments located in 30 states comprising 111 assisted living communities, 97 skilled nursing centers, 7 range of care communities, 1 behavioral health care hospital, 3 parcels of land under development and 4 parcels of land held-for-use. Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property type. Range of care communities consist of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services. For more information on LTC Properties, Inc., visit the Company's website at www.LTCreit.com.

Forward Looking Statements

This press release includes statements that are not purely historical and are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All statements other than historical facts contained in this press release are forward looking statements. These forward looking statements involve a number of risks and uncertainties. Please see LTC's most recent Annual Report on Form 10-K, its subsequent Quarterly Reports on Form 10-Q, and its other publicly available filings with the Securities and Exchange Commission for a discussion of these and other risks and uncertainties. All forward looking statements included in this press release are based on information available to the Company on the date hereof, and LTC assumes no obligation to update such forward looking statements. Although the Company's management believes that the assumptions and expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The actual results achieved by the Company may differ materially from any forward looking statements due to the risks and uncertainties of such statements.
                       

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

( amounts in thousands, except per share amounts)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Revenues:
Rental income $ 33,753 $ 28,531 $ 98,705 $ 82,325
Interest income from mortgage loans 6,958 6,117 20,347 15,777
Interest and other income   131     295     390     708  
Total revenues   40,842     34,943     119,442     98,810  
 
Expenses:
Interest expense 6,836 4,296 19,586 11,916
Depreciation and amortization 9,155 7,365 26,623 21,121
Provision for doubtful accounts 43 31 245 463
Transaction costs 2 570 96 632
General and administrative expenses   4,464     3,708     12,864     11,094  
Total expenses   20,500     15,970     59,414     45,226  
 
Operating income 20,342 18,973 60,028 53,584
Income from unconsolidated joint ventures 289 674 839 1,543
Gain on sale of real estate, net   1,780         3,582    
Net income 22,411 19,647 64,449 55,127
Income allocated to participating securities (90 ) (121 ) (296 ) (370 )
Income allocated to preferred stockholders       (818 )       (2,454 )
Net income available to common stockholders $ 22,321   $ 18,708   $ 64,153   $ 52,303  
 
Earnings per common share:
Basic $ 0.57   $ 0.53   $ 1.68   $ 1.48  
Diluted $ 0.57   $ 0.52   $ 1.68   $ 1.47  
 

Weighted average shares used to calculate earnings per common share:
Basic   39,057     35,341     38,161     35,306  
Diluted   39,335     37,352     38,455     37,319  
 
Dividends declared and paid per common share $ 0.54   $ 0.51   $ 1.62   $ 1.53  
 
 

Supplemental Reporting Measures

FFO, adjusted FFO ("AFFO") and Funds Available for Distribution ("FAD") are supplemental measures of a real estate investment trust's ("REIT") financial performance that are not defined by U.S. generally accepted accounting principles ("GAAP"). Investors, analysts and the Company use FFO, AFFO and FAD as supplemental measures of operating performance. The Company believes FFO, AFFO and FAD are helpful in evaluating the operating performance of a REIT. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. We believe that by excluding the effect of historical cost depreciation, which may be of limited relevance in evaluating current performance, FFO, AFFO and FAD facilitate like comparisons of operating performance between periods. Additionally the Company believes that normalized FFO, normalized AFFO and normalized FAD provide useful information because they allow investors, analysts and our management to compare the Company's operating performance on a consistent basis without having to account for differences caused by unanticipated items.

FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), means net income available to common stockholders (computed in accordance with GAAP) excluding gains or losses on the sale of real estate and impairment write-downs of depreciable real estate, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Normalized FFO represents FFO adjusted for certain items detailed in the reconciliations. The Company's computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or have a different interpretation of the current NAREIT definition from that of the Company; therefore, caution should be exercised when comparing our Company's FFO to that of other REITs.

We define AFFO as FFO excluding the effects of straight-line rent, amortization of lease inducement, effective interest income and deferred income from unconsolidated joint ventures. GAAP requires rental revenues related to non-contingent leases that contain specified rental increases over the life of the lease to be recognized evenly over the life of the lease. This method results in rental income in the early years of a lease that is higher than actual cash received, creating a straight-line rent receivable asset included in our consolidated balance sheet. At some point during the lease, depending on its terms, cash rent payments exceed the straight-line rent which results in the straight-line rent receivable asset decreasing to zero over the remainder of the lease term. Effective interest method, as required by GAAP, is a technique for calculating the actual interest rate for the term of a mortgage loan based on the initial origination value. Similar to the accounting methodology of straight-line rent, the actual interest rate is higher than the stated interest rate in the early years of the mortgage loan thus creating an effective interest receivable asset included in the interest receivable line item in our consolidated balance sheet and reduces down to zero when, at some point during the mortgage loan, the stated interest rate is higher than the actual interest rate. By excluding the non-cash portion of rental income, interest income from mortgage loans and income from unconsolidated joint ventures, investors, analysts and our management can compare AFFO between periods. Normalized AFFO represents AFFO adjusted for certain items detailed in the reconciliations.

We define FAD as AFFO excluding the effects of non-cash compensation charges, capitalized interest and non-cash interest charges. FAD is useful in analyzing the portion of cash flow that is available for distribution to stockholders. Investors, analysts and the Company utilize FAD as an indicator of common dividend potential. The FAD payout ratio, which represents annual distributions to common shareholders expressed as a percentage of FAD, facilitates the comparison of dividend coverage between REITs. Normalized FAD represents FAD adjusted for certain items detailed in the reconciliations.

While the Company uses FFO, Normalized FFO, AFFO, Normalized AFFO, FAD and Normalized FAD as supplemental performance measures of our cash flow generated by operations and cash available for distribution to stockholders, such measures are not representative of cash generated from operating activities in accordance with GAAP, and are not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income available to common stockholders.

Reconciliation of FFO, AFFO and FAD

The following table reconciles GAAP net income available to common stockholders to each of NAREIT FFO attributable to common stockholders and normalized FFO attributable to common stockholders, as well as normalized AFFO and normalized FAD (unaudited, amounts in thousands, except per share amounts):
          Three Months Ended     Nine Months Ended
September 30, September 30,
2016       2015 2016       2015
 
GAAP net income available to common stockholders $ 22,321 $ 18,708 $ 64,153 $ 52,303
Add: Depreciation and amortization 9,155 7,365 26,623 21,121
Less: Gain on sale of real estate, net   (1,780 )       (3,582 )    
NAREIT FFO attributable to common stockholders 29,696 26,073 87,194 73,424
 
Add: Non-recurring one-time items       537  

(1)
      937  

(2)
Normalized FFO attributable to common stockholders 29,696 26,610 87,194 74,361
 
Less: Non-cash rental income (2,278 ) (2,179 ) (6,755 ) (5,897 )
Less: Effective interest income from mortgage loans (1,352 ) (1,195 ) (3,907 ) (2,680 )
Less: Deferred income from unconsolidated joint ventures       (421 )       (1,000 )
Normalized adjusted FFO (AFFO) 26,066 22,815 76,532 64,784
 
Add: Non-cash compensation charges 1,130 1,012 3,149 3,093
Add: Non-cash interest related to earn-out liabilities 223 96 538 205
Less: Capitalized interest   (251 )   (184 )   (1,193 )   (481 )
Normalized funds available for distribution (FAD) $ 27,168   $ 23,739   $ 79,026   $ 67,601  
 

(1)

Represents acquisition costs related to the 10-property senior housing portfolio acquired during the quarter.

(2)

Represents a $400 provision for loan loss reserve related to additional loan proceeds funded under an existing mortgage loan and item (1) above.
                                 
 
NAREIT Basic FFO attributable to common stockholders per share $ 0.76   $ 0.74   $ 2.28   $ 2.08  
NAREIT Diluted FFO attributable to common stockholders per share $ 0.76   $ 0.72   $ 2.28   $ 2.03  
 
NAREIT Diluted FFO attributable to common stockholders $ 29,786   $ 27,012   $ 87,490   $ 76,248  

Weighted average shares used to calculate NAREIT diluted FFO per share attributable to common stockholders
  39,335     37,581     38,455     37,558  
                                 
 
Diluted normalized FFO attributable to common stockholders $ 29,786   $ 27,549   $ 87,490   $ 77,185  

Weighted average shares used to calculate diluted normalized FFO per share attributable to common stockholders
  39,335     37,581     38,455     37,558  
                                 
 
Diluted normalized AFFO $ 26,156   $ 23,754   $ 76,828   $ 67,608  

Weighted average shares used to calculate diluted normalized AFFO per share
  39,335     37,581     38,455     37,558  
                                 
 
Diluted normalized FAD $ 27,258   $ 24,678   $ 79,322   $ 70,425  

Weighted average shares used to calculate diluted normalized FAD per share
  39,335     37,581     38,455     37,558  

 
                               
 
 
                     

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)
 
September 30, 2016 December 31, 2015
ASSETS
Investments:
Land $ 114,630 $ 106,841
Buildings and improvements 1,177,829 1,091,845
Accumulated depreciation and amortization   (266,581 )   (251,265 )
Real property investments, net 1,025,878 947,421
Mortgage loans receivable, net of loan loss reserve:2016—$2,360; 2015—$2,190   234,347     217,529  
Real estate investments, net 1,260,225 1,164,950
Investments in unconsolidated joint ventures   23,932     24,042  
Investments, net 1,284,157 1,188,992
 
Other assets:
Cash and cash equivalents 3,613 12,942
Debt issue costs related to bank borrowings 2,112 2,865
Interest receivable 8,434 4,536

Straight-line rent receivable, net of allowance for doubtful accounts: 2016—$907; 2015—$833
50,092 42,685
Prepaid expenses and other assets 20,779 21,443
Notes receivable   4,199     1,961  
Total assets $ 1,373,386   $ 1,275,424  
 
LIABILITIES
Bank borrowings $ 77,000 $ 120,500

Senior unsecured notes, net of debt issue costs: 2016—$1,038; 2015—$1,095
512,262 451,372
Accrued interest 3,616 3,974
Accrued incentives and earn-outs 12,514 12,722
Accrued expenses and other liabilities   27,363     27,654  
Total liabilities 632,755 616,222
 
EQUITY
Stockholders' equity:
Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2016—39,222; 2015—37,548 392 375
Capital in excess of par value 837,889 758,676
Cumulative net income 992,777 928,328
Accumulated other comprehensive income 8 47
Cumulative distributions   (1,090,435 )   (1,028,224 )
Total equity   740,631     659,202  
Total liabilities and equity $ 1,373,386   $ 1,275,424  
 

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