LTC Properties Inc (LTC) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q2 2005 LTC Properties earnings conference call. My name is Candice and I'll be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. If at any time during the call your require assistance, please press star followed by zero and a coordinator will be happy to assist you.

I would now like to turn the presentation over to you host for today's conference, Andre Dimitriadis, Chairman and CEO. Please proceed.

Good morning, ladies and gentlemen.

I have with me Wendy Simpson, our Vice Chair and CFO, Pam Kessler, our Chief Accounting Officer, and Clint Malin, our Chief Investment Officer.

I know Wendy will remind me but this time I remembered it on my own. These are forward-looking statements.

This presentation may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the Company's actual results to in the future to differ materially from expected results.

These risks and uncertainties include among others, general economic conditions, availability of capital, competition, real estate markets, the performance of tenants and borrowers within LTC's portfolio and regulatory and other changes in the health care sector as described in the Company's filings with the Securities and Exchange Commission.

Whew, done! Okay. Well, I know, I should, Wendy is going to make me memorize this, oh, my God.

We had a very good quarter in the second quarter and since then have done some good things. Wendy will go into great detail, I don't see any reason to duplicate.

We had $0.41 of fully diluted FFO against 40 for last quarter and 39 for the equivilent period fully diluted last year. But the key is, if you look at the type of Company we've got, we've done deals and we have deals in the pipeline exceeding our overall 30 million or whatever we had said in total that we were going to do for this year.

But the more important thing is assuming that Ernst & Young agrees with the way we propose to deal with the remnants of the REMIC, effectively it's possible that by the time you see the third quarter balance sheet there will be no more REMICs. We have at this point, there is only one REMIC technically remaining, the fourth one, the one we did in May of '98, and on that one there is less than $4 million of certificates held by outsiders.

Once we eliminate those either because something gets prepaid or along, gets prepaid and that thing goes which we expect would happen shortly, there is no more REMIC left, all the loans that we hold, we hold them through certificates but we hold the loans, so hopefully, you may not see any more in the third quarter perhaps.

But, and at the same time with a little bit of luck, you will see total debt just like the above $80 million market value close to approaching now probably market value $600 million preferred market value of 200 million in debt of 80 million. No outside certificates left on the REMIC, so you can't even say that there is some balance sheet hidden, you know, off balance sheet obligation out there.

A tremendous transformation when we look at what the Company has been probably our EBITDA to fixed charge [inaudible] ratio will be, which is 2.4 you will see if you read our Q for this quarter, probably will be trending towards 2.5 and above.

I can't help but remember when in June of '03 Wendy and I were beginning to try to access the equity markets and we were talking about a preferred EBITDA to fixed charge [inaudible] ratio was hovering around 1.6, and Wendy and I were saying we'll commit to try to bring it towards 2 or above that within the next couple of years. Well, nice to think it's a lot more than 2, more like 2.5.

Subsequent to the quarter we did, as you know, 1.5 million share offering. The way it happened is Wendy took a gun and put it to my hand and said you will part with equity. You know, I agreed to higher reason as they say.

It was a good transaction. We needed to do it. This Company has not gone and sold equity. I think the last time we sold equity was in the summer of '97 when we did 1 million shares.

It's nice to be back to that market and, you know, to have had also the price be successful in the sense that the stock is about $1.50 more than we sold it for so hopefully the buyers are not unhappy. We have, we did the deal because we have some transactions, I don't want to get into them in any detail, after we do them we'll tell you about them, that's a lot better, but we needed the funds and we're starting to eat into these funds in making various investments.

I'm sure we'll have some questions later on. With that I will turn it over to Wendy.

Thank you, Andre.

As Andre said, we had a very good quarter. Nothing unusual in the quarter to talk about, so I'm not going to go line by line but I'm just going point out the significant transactions in the quarter.

In April we did a $5 million loan on 104-bed Georgia SNF that was in our subsequent events in the first quarter. It's a 10% loan increasing by 12.5 basis points a year.

Also during the quarter we converted an Ohio loan on a 50-bed SNF. This property had been in bankruptcy for a while and we had the mortgage on it.

We credit bid for that property and with our claim in bankruptcy plus $285,000, which puts this property on our books for 1.3 million, we got the property, we already had a tenant, somebody we had done business with before, and we leased that out for $180,000 a year, increasing 2.5% a year.

We also had another conversion of a loan to an owned property. It was the last property we had with an operator we were trying to, I don't want to say divorce, we were trying to eliminate our connection with this operator and so we took the last property back, converted it into an owned property and have leased it to the lady who had been operating that property for our former tenant and she is going to operate the property for $129,000 a year.

The basis in that property is about $1 million.

Also, we bought out the last five loans in the 1996 REMIC as we indicated we would do last year, or last quarter. We paid $855,000 in cash because we have the rest of the certificates.

So we put on our books $10.5 million of mortgage loans, five loans, and that eliminated the 1996 REMIC totally.

We had a few conversions of our Series E. There's still 371,370 shares of Series E unconverted at the end of the quarter. I think we had a few conversions after the end of the quarter and that's in the subsequent events.

That's all that significantly happened in the quarter and all of those financial impacts are reflected in the quarter.

Subsequent to the quarter, as Andre indicated, we did the 1.5 million shares of equity. We also purchased out of REMIC 98 eight loans for a total of $15.2 million.

The weighted average interest rate on those loans is 11.4%, and as Andre indicated, that leaves less than $4 million of senior certificates out there and we are working to eliminate those senior certificates and eliminate the REMIC from our balance sheet.

Since we have some loans on properties that we own in that REMIC, when the REMIC is eliminated it will be in effect a contra entry. We will take debt off of our books and take mortgages receivable off of our books because of they would be loans to ourselves again.

In the third quarter, as I indicated, we did issue the common shares and we got about $32.7 million for that. And since the beginning of the quarter let me tell you where your cash has gone.

We started out the quarter, or ended the quarter, with about $14 million of cash. The very next day we paid our monthly dividend of about 2.4 million. Then we bought loans and we paid $15 million for those loans.

We paid our preferred of 3.5 million. And then we paid our July common and we are sitting now with about $26 million of cash.

As Andre said, we have commitments for that cash at certain levels. I mean they're not at a point that we would be doing a Form 8 or a press release now, but we are fairly confident that we have places to put that money and it's possible that we might even draw on our undrawn line of credit. It's totally undrawn now at $65 million.

And if some of these things that we currently have in progress or all of them are accomplished in this quarter, we might end the third quarter with a slight outstanding balance on our line of credit which I'd be happy to see because we would be putting that money to good use.

Relative to our fully diluted shares, we don't have much dilution as I said from the Es any longer. We still have the Cs that are fully diluted, that's 2 million shares. And we have very few stock options.

Everybody or most people have exercised all of their available stock options. So our fully diluted, our primary to fully diluted shares, our weighted average shares primary were 21,614,000, and our fully diluted shares weighted average are 24,464,000. I know some analysts do the fully diluted.

I don't have any more comments about the quarter and we hope to have comments relative to the use of our cash relatively soon, but we don't have the last pieces of paper signed and commitments bound that we would be doing that right at the moment. Andre?

One thing maybe I should comment on the reason we are buying all these loans out of the REMIC is very frankly because we don't want to have anymore REMICs outstanding. Their accounting is cumbersome and I think a balance sheet without the REMICs will be a lot simpler for any investor or debtholder of LTC to understand it. We've been marching to that goal that we're about to undertake.

I think we should open it for questions.

[Operator instructions] Our first question comes from John Wallace of Legg Mason. Please proceed.

Good morning.

Hi, John.

Good morning, John.

Just trying to understand, I guess, what Wendy was breaking through. You've already done in the third quarter $50 million of loans. Is that correct?

Yes.

Yes.

Okay. And then.

We made 15 million, we purchased out of the REMIC 15 million.

Okay. Okay.

But we had to write the check for that because that 15 million of equivalent certificates sat on the outside.

Okay.

And as you buy $15 million worth of loans what happens is $15 million worth of outside 98-1 certificates get cancelled.

Okay. And then how much did you say you had left in cash?

About $26 million.

26. Okay. And a $60 million credit facility?

65.

65.

65.

And as Wendy said, by the time hopefully somewhere around just after November the 1st we ought to be into our line.

Okay.

Our credit line.

And why did you guys decide to issue common instead of maybe more notes? Was there a line of thinking?

That was a very real alternative and, of course, FFO per share would have been higher had we not issued the equity. But, John, I mean this Company did not issue any equity, as I said, since the summer of '97, just the opposite, we have gobbled up equity. We bought 9 plus or 10 million shares, I don't know what we bought since '97.

And I mean we were keen on increasing our market cap, John. As you know, the ability to obtain if some day we decided to become a rated Company to obtain an adequate rating depends on your market size. The smaller you are the more difficult it is to get there.

Second, every time we had gone to the market with an alternative type of paper people had said we want some equity and we kept saying, well, you know, we will issue equity, we will issue equity, and this was a great opportunity to so do.

And thirdly, we believe that as the market evolves there will be a lot of good opportunities out there at some point. The Company's debt carrying ability is immense at this point. You've got, as I said, close to $600 million market equity, close to 200 million preferred equity, and $80 million of debt with no REMICs, so one can't say you're holding subordinated pieces of paper or anything.

This Company could, you know, take over $200 million of debt and still be very well within, you know, their safe balance sheet. It's a very good position to be in.

Have you gotten any response from the credit rating agencies?

Don't talk to the credit rating agencies yet.

Okay.

There is no point. I mean, I think that you sort of go there when you really can make an argument for investment grade, not before. We are not interested. The last time they had us rated was B1/B3. I mean with a 2.5 EBITDA to fixed charge coverage with interest coverages that are the best in the health care REIT industry.

Um-hm.

You know, no point going and timidly asking for improvement in grades. When we are ready we'll go to them. The market doesn't punish us. I mean when I look at where our straight preferred trades compared to NHP straight preferred they trade within 10 basis points and NHP is a good investment grade company, well round, so when we trade within 10 basis points of that or 15 basis points, I feel like, all right, the market is rating us, I don't need Moody's wisdom in there.

Not that I doubt it, just at this point if we went to Moody's they would say you are too small, you are health care, you are this, you're that.

Okay. My last question is in line with kind of acquisitions. Are you looking at doing more loans or would this be real property-type investments?

And then, what kind of yields are you looking at doing? Should I be looking at similar to the yields that you did in the first and second quarter?

Yeah.

Our biggest deal right now is a purchase but we've got some loans that we're looking at, too. But I would say that if things work out correctly in the third quarter most of our money will be spent to purchase property.

Okay.

And again, I want to remind everyone the niche that LTC has been trying to create for itself. We know that rate-wise we are not competitive when we ask for double-digit rates. The only way we become competitive is by way we execute.

What we're trying to create is a niche where we say, if you've got a transaction that's a good transaction, but it needs a firm commitment in two weeks, this Company can and will drop everything it's doing if you're a known client, and focus on your transaction and deliver you either a closing in two and a half weeks or a firm financing commitment with no outs in two weeks as we did in a recent transaction that we are contemplating.

And I think that's when people will come and pay a double-digit at 10% or 10.5 rather than going and getting nine from a competitor. And we are small enough that a few of these transactions can create a very successful year. And that's where we are and that's what we are pursuing, that's why we did the equity offering.

And then these would be with existing tenants?

Yes.

Okay. Thanks.

Thank you, John.

Again, ladies and gentlemen, that's star one to ask a question. Our next question comes from Matt Thorpe with Stifel Nicholaus. Please proceed.

How are you doing today?

Hi. And I'm sorry, your name?

Matt Thorpe. I work with Phillip Martin.

Thank you, Matt.

We were wondering what the straight line rent number was for the quarter or year-to-date and any expectations for the second half of the year?

Yes, absolutely. I'm glad you mentioned that.

The straight line rent was approximately the same as it was for the first quarter. The first quarter was 196,000. The second quarter is 190,000.

In the third and fourth quarter we are going to have Extendicare come online for straight line so that is going to increase our straight line to about 580,000. I'm glad you asked that question. I forgot to mention it.

Okay.

So for the next two quarters at least, our straight line is going to be more in the $580,000 range. Again, and I've said it over and over, I'm not happy about it, but that's GAAP.

And that's for the second half of the year or for each quarter?

580 for each quarter.

Okay. And I was wondering what the variable rate debt number is now?

Zero.

Zero. Oh. All right. That's it.

Easy.

Easy to model.

Easy to remember. Actually, technically, not correct. There is $5.8 million of weekly low floater tax exempt debt that can vary between, you know, 1% and 2% and that's a very low rate, but technically it is variable rate supported by a letter of credit so it never really picks up.

Okay. Great. Thanks.

I like to think of it is zero. There is no LIBOR or prime related debt.

Thanks, Matt.

Again, ladies and gentlemen, that's star one to ask a question. There are no further questions at this time. Please proceed to your closing remarks.

Wendy, do you want to make any closing remarks or something?

I want to thank everybody for your time in being on the call. Hopefully, we'll have some additional information about our use of the proceeds and our cash of $26 million. And we look forward to our third quarter call.

Thank you very much. Bye bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.