LTC Properties Inc (LTC) 2004 Q2 法說會逐字稿

(Note, some portions difficult to hear and understand. Transcript is best product.)

Good day, ladies and gentleman, and welcome to the Q2 2004 LTC Properties Earnings Conference Call. My name is David and I’ll be your coordinator for today. At this time, all participants are in a listen only mode. We’ll be conducting a question and answer session towards the end of today’s conference. If at any time during the call you require assistance, please key star, zero, and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I’d like to now turn the presentation over to your host for today’s call, Mr. Andre Dimitriadis, Chief Executive Officer. Please go ahead, sir.

Ladies and gentleman, good afternoon. I have with me Wendy Simpson, Vice Chair and CFO and Alex Chavez, Senior VP and Treasurer. And first and foremost, let me read this forward-looking statement. This presentation may contain forward-looking statements as defined in the Private Securities and Litigation Reform Act of ‘95. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company’s actual results in the future to differ materially from expected results. These risks and uncertainties may include, among others, general economic conditions, the availability of capital, competition within the financial services, the real estate market, the performance of (inaudible) and borrowers within our business portfolio, regulatory and other changes in the healthcare sectors, as described in the company’s filings with the Securities and Exchange Commission, and the ability of the management to go fishing and desert the company.

I’ve been threatened. I have to read this to you, ladies and gentlemen, so I thought I would add something to it. No, we are not going fishing, despite the fact that right now, I’m looking at the Pacific Ocean and there are some dolphins jumping up and down out there.

We had a really good quarter and I would like to share this with you. You’ve seen our release. We had 39 cents of FFO, as we internally expected we would do. You notice that rental income is significantly up from last year. Wendy can give you more details, but you will recall that last year, we did not have the CLC properties, except two or three of them, earning us money, and most of the (inaudible) properties, the same way. Now all our properties are out there making us money and that, of course, significantly increased the rental income, which more than offset the very slight drop in interest income and the half a million drop in REMIC income.

As you know, our REMICs are being paid off slowly and steadily, and although we are very sad to see those good instruments slowly dissolve, nevertheless, there is a certain indication because people kept always worrying about REMICs and whether there will material -- you know, whether they will present us with problems; again, none whatsoever so far.

Increase expense, of course, was a little -- was significantly lower and otherwise, everything was as expected, and we ended up, as I said, with 39 cents of FFO.

We completed a $62-plus-billion before underwriting expenses offering of F Preferred and we already immediately used 22 million of that to extinguish one loan in one debt that we had coming in ‘05 and another 19 million of ‘06 debt, so that now, the combined ‘05 and ‘06 maturities are down to $33 million, of which only $4-million-plus is in ’05 and the remaining 29 is in ‘06. The balance sheet is as clean as can be and we continue to deleverage it as we go along.

We expect that we are in increase of the dividend from 27 cents -- .275 cents to .30 per quarter, or 110 a year to 120 a year, should convince the remaining E Preferred to convert and thus further improve our overall coverages. As you know, the equivalent dividend of the E Preferred is 106 and if you convert now, you would be receiving $1.20 versus $1.06; 20 million of that has already converted prior to the increase that we did in June from 25 to 27.5 and again, I -- you know, hard to guess, but I presume most of the remaining one will convert prior to September, if not prior to December.

The remaining 40, or just slightly below $40 million after underwriting discounts of funds, we are intending them for investment. There are quite a few opportunities we are pursuing. We are probably just a week or two away from closing a 5 to $6 million loan at a very good rate, and we are pursuing a total probably of another 25 to $30 million of transactions, some of which will happen, some of which, as you know, this is like fishing, will not happen. And we are constantly evaluating additional opportunities.

Of course, we have the opportunity to pay another, I would say, 18 to $23 million of debt if we so choose, and the timing of that will depend on how quickly we deploy how much of that $40 million that remains in our hands. Our credit line of $45 million is untouched and available, so that can supplement any additional needs that we might have.

Let me stop here now and turn it over to Wendy. Of course, you might have certain questions and we’ll be glad to answer them after the conference call -- I mean, after Wendy’s presentation. Wendy, go ahead.

Thank you. As Andre indicated when he talked about our comparison with prior years, I’m going to talk a little about our comparison to the prior quarter. Since we’ve started these calls, we really are not comparing to prior years because of the differences with the new leases. We started at the end of last year, so let me talk about this quarter-over-quarter and to let you know that we’re taking into consideration putting quarter-over-quarter disclosure comments in our press releases going forward, so that you’ll have that information on the press release.

But our lease -- our rental income is up only slightly quarter-over-quarter and it’s from the normal step-ups in leases. Our straight line rent for this quarter was $304,000 compared to $281,000 in the first quarter of this year. There are 12 separate leases that qualify by our standards for straight lining, so you can see that none of these would be material in themselves. We have quite a few leases in that $304,000 and we monitor it very carefully. We expect that for the next two quarters, the straight-line lease income would be approximately in the same range of the $300,000.

Our mortgage interest is up, primarily because we dissolved our second REMIC that we talked about doing in the first quarter. We said we’d do it in the second quarter and indeed, we did, so for this year, we’re down two REMICs.

The mortgages that were left in that REMIC, we bought -- quote “bought” from the REMIC, and they are now our mortgages. So our mortgage interest income is up and REMIC interest income is down. It’s mostly a transfer from one to the other, but we are able to save the costs and the overhead of administering another REMIC. So we’re REMIC -- we’re left two REMICs from the beginning of the year.

Our interest and other income is down this quarter over last quarter primarily because in the first quarter, we collected interest income on two notes that we have on non-accruals, and we keep those notes on non-accrual. And if they pay, it does become other income for us, so we had some in the first quarter from those two notes that we don't have in the second quarter; nothing material in those -- interest and other income changes.

Interest is down over the first quarter due to our lower amounts outstanding, and we also paid, as Andre said, our entire line is available. You’ll see on the balance sheet we show 1.5 million bank line balance at the end of June, and shortly after June 30, we paid that down. So presently, we have no bank line outstanding.

The loss on sale -- we sold two facilities. One had been under contract to sell. It was a prior -- it was a facility priorly (sic) operated by CLC and then we also sold a closed facility. So we have one more closed facility that has been sold, and I think we only have one more closed facility to sell.

With the funds we raised, as Andre said, we paid down the $22 million of mortgage debt. Andre also indicated -- going to the balance sheet from the income statement, Andre also indicated that many of our Series E Preferred holders have already converted, and we are hoping -- not hoping, but we do expect that they will -- more will convert before the end of the year.

There’s nothing else on the balance sheet that is, I think, unusual or that needs explanations, that wouldn’t be explained generally by the operations of the company. There have been no other significant acquisitions. We had one acquisition during the beginning of the quarter that was disclosed in our first quarter as a subsequent event. It was a property in Texas that we have leased, and so that lease revenue is in this quarter, but it’s not a significant amount of lease revenue. So it’s not enough to bring to the fore.

There are no other comments that I want to make about the balance sheet. I know some of the analysts like to know what our fully diluted EPS was, and our fully diluted number of shares for EPS was 22-million-568, but it was non-dilutive. So our primary and diluted EPS is the same.

Andre, I’ll turn it back to you and --

I (inaudible) like to talk, but I don’t know that we have much more to say, so perhaps I should turn it over for questions, and that might give us a chance to --

(Call instructions). Our first question comes from John Roberts from Stifel, Nicholas.

First, just talk a little bit about the dividend. What do you expect to see as you're sort of going-forward payout ratio?

Oh, I mean, no change there between 75 and 80 percent of (inaudible).

Would you really say this is sort of the -- you know, going forward, your sort of base level dividend? We won't see any more large dividend increases going forward, I wouldn’t expect, right?

(Inaudible). Circumstances change and strategies change. You adapt to your circumstances, but at least for the foreseeable future, I don’t think there is any reason to change it. We like the idea of continuing to accumulate such funds and we’re winding -- especially even the, you know, capital gains versus (inaudible) taxation that exists today. If that changes in the future, we might (inaudible) ourselves, but at least at this point, 75 to 80 percent is where we would like to remain. The reason we accelerated that from this (inaudible) that we would release everything, we were waiting until the fourth (inaudible) and we thought it would be nice to clean, up to the extent we can, the remaining year and further strengthen the balance sheet.

Got you. Do you think at this point you’ll sort of put in or institute a regular increase, you know, on an annual basis?

I don't know that we are thinking in that reaction. I mean, we still have, you know, (inaudible). I imagine, you know, when we catch it, we’ll -- you know, we (inaudible). That’s a help, as you know, both 1,452,000 shares of (inaudible). As you know, the company that is up for sale and the stock has been getting around 10 to $10.50 per share, and so, you know, rental, what happened there and what happens with our other investments.

I’m not (inaudible) at least at this point (inaudible) after -- at this point (inaudible) instituting an increase. You know, in the old days, the interest in these quarterly increases and we’ve seen what that (inaudible) ended up with, you know, payoff issues of 95-plus or 100 percent. And an increase (inaudible) after that increase and then interrupt, we both say, “Oops.” (Inaudible) go, things are not going well. If you're going to (inaudible) with 100 percent payout ratio.

Yeah. I understand it from that point of view. I’m just wondering if you know, you might expect to raise it, you know, a couple of cents a year sort of thing going forward or essentially raise it along with your increase in FFO?

Absolutely. We don’t (inaudible), but our shareholders expect to get the dividends and we expect to give them the dividends (inaudible) the dividends. All I’m saying is that as long as we maintain ourselves within the 75 to 80 percent range, we’re very comfortable and we hope to increase our (inaudible). I mean, you know, I think you are saying (inaudible) correctly, we are somewhere around $1.60 for next year --

Um-hum.

-- and there’s no reason to disagree with you at all. So, you know, at some point, we’ll consider dividend next year, absolutely.

Any further thoughts on -- you know, I know you mentioned a little bit about acquisitions. What are you looking at going forward here? I mean, is it going to be more on the loan side, more on the real estate, direct real estate investments? Are you going to stick with what you're doing?

Half and half sort of we are looking at and you know, last night we had 10 million (inaudible) and 10 million by January and we’re feeling very comfortable about that. Hopefully, we can do a little better than that, but you know, continuing -- I mean, we started now a modest acquisition as we feel we had completed (inaudible) of the balance sheet. (Inaudible) strengthen it further and we’d love to do that by paying down some more debt, but no, we’re very comfortable with our acquisition (inaudible).

And talking about paying down the debt, what impact do you expect from the Preferred? Is it going to be dilutive or --

(Inaudible) to the extent that we are holding $40 million in our hands now, investing it at 1 percent and paying 8 percent, because we are a little dilutive, but I think that even the guidance projections you have on that was $1.53 for the year. We have sort of envisioned doing something that could be dilutive. So we are still very comfortable with that dollar (inaudible).

Very good. I think that’s all I need, Andre. Thanks. Jerry or John, any questions?

(Call instructions). Our next question comes from Jerry Doctrow from Legg Mason.

You're jumping the gun, Andre.

Hi, Jerry. Well, I was hoping you’d be there.

I wouldn’t miss it. And I think I’m having -- we’re having a little trouble hearing you. You might want to move a little closer to the mike there.

I apologize. I’m not good with the technical things here. This phone is getting a bit too complex.

That’s better. Now you sound like yourself. I wanted to talk just a little bit more about acquisitions. Just the stuff that you did in the second quarter, what kind of yield are we talking about?

We -- the (inaudible) was 10.5, I believe, and the one we are about to do would be 11.

Okay.

I mean, we find a lot of opportunities in the 8.5 to 9 percent. We just -- unless it’s a very special situation that somebody has financed something with Harder (phonetic) or Fanny Mae or tax exempt, and you can assume some 5 or 4 percent or 6 percent debt with it, then you might consider going there. After all, it’s everything that (inaudible) spread. But otherwise, we don’t want to do something below 10.5 to 11. We’d rather not do it than go as we were doing a bit, you know, in ‘98 where everybody was competing to throw money at a sector. We -- you know, but all the transactions we are looking at, except some very special situations which we are also looking at, would be in the 10 to 11 range.

Okay. And you're finding those even though your competitors are doing deals, you know, at lower levels?

You know, I mean, you know, not to me to criticize the strategy of any competitor. They have different balance sheet; they have different long-term goals. Maybe they went through different experiences. Our own sense is that we are growing therefore very nicely without getting into those low things.

I am terrified by the $500 billion deficit we’ve got, both from a fiscal point of view, but also in terms of the current deficit that the United States is running. I mean, a long time ago, I got a PhD. in Economics. I know the world has changed since that happened 40 years ago, but what I -- or 35 or whenever, 30 years ago, but what I remember is ultimately, deficits cannot last forever. Interest rates will have to go up in order to protect the dollar because at some point, other countries, you know, several banks, may not be willing to take dollars.

I mean, you read about this all the time and therefore, don’t feel as comfortable as a figure (inaudible) in taking 8.5 or 9 percent yields unless they have their own specific come-along financing.

Okay. Okay. And so you know, you're facing now about 10 million, say, in the third quarter and the fourth quarter. Any sense of next year what’s a reasonable investment volume for you guys?

I mean, we -- initially in our models, we only put, you know, 20 million. Clearly, we need to revise that and I would say, you know, 10 million a quarter would be a costable thing for us to postulate.

Okay. And more of it is mortgage than lease, do you think, at this point?

No. I would say half and half, Jerry.

Okay.

Pursuing at least two leasing opportunities and we are pursuing three loans, other than the one that we will be closing in about a week or two.

Okay. And in terms of product types, it’s skilled nursing rather than assisted?

Both -- both, actually.

Okay.

Both, actually.

Okay.

And at some point, as I said, Jerry -- as I was saying to John before, we hope that, you know, at some point, the (inaudible) Health holds will be sold to someone, and we will receive another bunch of dollars out of that one.

And when that, you know -- when that happens, it just comes in basically as sort of free equity. Would that cause you to, you know, pay out debt or accelerate your investments or a special dividend or --

A combination of both. No, I mean, we won't pay it as a special dividend. On the books, the note is for $9 million. Depending upon the rumors we hear, we could get anywhere between 15 and $18 million out of that.

Okay.

So there’s a nice inflow of cash that we could expect there.

Okay. All right. Well, that’s great. Yeah, I think there’s some other little bitty (inaudible) things. We can talk about those offline, but again, it was a good quarter.

Well, yes, and I read your other question, which is what was my opinion on industry consolidation.

Right, so what, are you going to buy HCN? Is that --

All I hear is (inaudible). George would kill me and so (inaudible).

Right. I’m only kidding, but yeah, what is your sense about where that’s headed?

He might want to come here when I show him all the dolphins, you know. We -- LTC’s price in the future will include the view of dolphins, you know, swim with the dolphins premium sort of. But putting joking aside, you know, while on one hand, one logically would expect consolidation, all I hear is (inaudible) being born. I mean, I hear it (inaudible); I hear it this (inaudible); I hear it that (inaudible). A lot of (inaudible) are now going out. I mean, I hear a lot of rumors and frankly, I really don’t know anything in complete terms, but I hear (inaudible) coming to the market.

Okay.

So whether that will mean more need for consolidation probably and will make the assets, the current leads more valuable, I presume so. So we are not unhappy. That’s why, you know, we sort of feel pretty good about what’s going on.

Okay, thanks.

(Call instructions). And we have a follow-up question from John Roberts.

Yeah, Andre. On the assisted living, what’s your book value on that?

$9 million. The note is $9 million.

That’s what it’s on your books for?

It is 9 or just 9 and change.

Okay. So I mean, any -- if you get 15 or 20, whatever the difference is, that’s going to be taxable income?

Well, I mean, taxable income is an interesting word. It would be income to us to the extent that we distribute in dividends in excess of our taxable income, which this year, we clearly are doing.

There would be no problem then, from a dividend-tax situation?

Yeah. I mean, we’re not going to be paying taxes because, you know, we would distribute it as the code requires us to do and wants us to do to our shareholders.

Yeah. I mean this here -- if you get a big distribution this year or a big gain on that this year because of that, you’re not going to have an issue of bumping up against the minimum payout then?

No, sir.

Okay.

No.

Thanks.

(Call instructions).

Remember, you get Frequent Flyer miles for asking questions. We don’t know -- we want to go into the airline business. We hear how well they are losing money. Am I glad I left my old career in 1984 of the airlines. Any other questions?

(Call instructions).

Well, if anyone thinks of any other questions that we could help you with, please call us. Call Wendy, myself or Alex. We’re here to help if we can. Otherwise, may I thank you very much for taking the time to participate. Sorry that we can’t make it a more exciting quarter, but to us, it’s very exciting if we can go steady.

I think what we consider now after the last few turbulent years of exciting is a (inaudible) quarter where we progressively get slightly better and better results and raise our dividends. That’s what is exciting for us now.

Thank you all very much and have a great day.

Thank you, sir. Thank you, ladies and gentlemen. Thank you for your participation. This concludes your conference call. You may now disconnect. Have a good day.

Good-bye.

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