LTC Properties Inc (LTC) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LTC Properties Analysts Meeting Conference Call. My name is Torleesha and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and answer-session towards the end of this conference. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. Andre Dimitriadis. Please proceed.

Good morning. I will read that forward-looking statement bit. 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 in the future to differ materially from expected results.

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

Good morning, ladies and gentlemen. I believe we had another nice quarter. As you notice from the release, adjusted diluted FFO was $0.46 per share, unadjusted for non-cash compensation and that small IRS settlement was $0.41 per share. We continued -- we made small investments nothing compared to what some of our competitors have done. We had a total I believe of $10 million in new investments at a very good yield. And we continued mostly our effort to improve, renovate, and sort of upgrade our existing portfolio. The amount spent was small, $1.6 million, but it affected nine different properties operated by six operators, and it's part of an ongoing big effort to do that.

As you know, about a year ago we [all] feeling that current prices were way too high. We are not trying to make any major big acquisitions at current prices, but instead decided to upgrade both physically and operator-wise our existing portfolio. As part of that, as we said, we are giving each of our lessees additional money and raising their rents anywhere between 10% and 11% to compensate ourselves from that. The result is a renovated stock. We can hope to do that for our total portfolio. In the same vein, another transaction we have been working on is the old CLC Healthcare portfolio.

For those of you that have been following LTC, in the summer of 2003, CLC Healthcare was acquired by a company named Center Healthcare and as part of that, LTC agreed to continue leasing the 25 properties to Center Healthcare. And very frankly, when they took them over, these properties were losers. I believer Center Healthcare has done a very good job in turning them around sort of Phase I turnaround. And today, these properties are all profitable after 5% management fees. As a matter of fact, there were cash flow in between $1 million and $2 million, which is good compared to where they were. The weakness in these properties was that there was very little Medicare census, their average Medicare census was about 6.2 by PPD.

We had an opportunity to lease these properties to an entity that we have been in working with for the last 15 years, Preferred Care. Preferred Care is owned and led by Tom Scott, somebody I have known since LTC Properties went public in 1992, and with whom we have currently one lease and at least seven or eight loans indirectly with properties that somebody else owned and Tom operated. We got to like Tom and we worked well with him and one of his specialty was to increase the Medicare census of the properties. The one that we had leased him in January in Beaumont, Texas, went from about a 4% census in Medicare to about, oh, I would say 18% census based on available beds. They had 25 Medicare patients compared to many fewer they had when they took it over.

We had an opportunity to negotiate with Tom, who wanted to see if we would give him the whole Center Health portfolio, which of course was currently leased to Center Health. After quite a lengthy and complicated negotiation, we agreed to pay Center Healthcare $9.5 million lease termination fee, give an additional $3 million of capital expenditures to Preferred Care, and ended up raising the rents from $190 a bed a month that Center Healthcare was paying to $240 a bed a month that Preferred Care has agreed to pay. That event happened on November 1 and Preferred Care now operates these buildings either as licensee or for some buildings where license applications take longer as Manager [At Risk] and we are very enthused about that.

The total investment we had for this change -- it was about $12 million -- $12.5 million including the $3 million that has not been spent yet on additional improvements to the facilities, but the increased rent is about $1,570,000 which is a nice 12% return on our investment. So, that basically was the two major events of the quarter and we are very enthused about the possibilities with our portfolio. We have made additional dollars available, but these at 11% rate to Tom Scott or Preferred Care to improve, renovate, expand a lot of these properties are in key areas where they have tremendous Medicare potential and we are going to try to take advantage of that. In essence, in lieu of going out and buying very, very expensive beds, which right now, I see from some of our competitors' releases, are between $75,000 and $85,000 a bed, something that at least at this point we consider a bit high on the risk side. We found it more appropriate to spend dollars renovating and improving existing facilities.

With that, let me turn it over to Wendy to give you some more specifics on revenue and other things. And then, we will be glad to answer questions.

Thank you, Andre. I would like to comment on just a few specific line items on our consolidated statements of income. I will start with the rental income. Even though we sold four assisted-living properties to Sunwest in the fourth quarter, our property additions and rent step-ups have increased our rental income year-over-year. To recap, we bought three SNFs in the second quarter of this year, all in Ohio, totaling 150 beds and bought one SNF in the State of Washington with 123 beds, locked one SNF in Arizona with 100 beds. So, our total invested acquisition dollars this year, so far, is about $17 million at a combined rental rate of about 11.4%. These properties added about $350,000 in rental income this quarter.

Additionally, we purchased three SNF properties in New Mexico in the last quarter of 2005. So, their contribution to rental income quarter-over-quarter for 2006 was about $481,000 and our step-ups and other miscellaneous charges totaled about $498,000 quarter-over-quarter. The loss of the Sunwest rental was about $1,027,000. So, all of these step-ups net of the $1 million loss from the four sold assisted-living properties accounted for our increase of rental income quarter-over-quarter, plus year-over-year.

As we have talked about in the past, we have effectively eliminated all of our REMIC investments. So now, the interest income that we used to have from REMIC Securities is on our interest income from mortgage and notes receivable line. And the total reduction in that line is because of mortgage pay-off. Interest income and other income is higher quarter-over-quarter for the same period because of our investments in skilled healthcare bonds and higher cash balances earning higher interest rate.

In the expense area, our operating and other expenses are higher due to the $958,000 tax accrual that we disclosed in our 10-Q. There are no other notable variances. We expect that our quarterly overhead continues to run in the $1,300,000 to the $1,400,000 quarterly range.

As I said when I was discussing the rental income, we did swap a property in Arizona for another property in Arizona, both operated by the same company and the accounting rules required us to account for the original property as a discontinued operation and account for a gain based on the value of the acquired property compared with the swap property. So that is the gain on sales of assets that we have for the quarter.

Turning to the balance sheet, there are no significant balance sheet changes that I want to point out that we haven't discussed in the past. So, if there is anybody who has any specific questions on a balance sheet item, during the question-and-answer period, I would be happy to try to answer them. I have no other further comments, so I will turn the call back to Andre.

We open it for questions, Wendy.

Certainly.

Let's open it for questions.

Torleesha?

Thank you. [OPERATOR INSTRUCTIONS]

All right.

And there appears to be no questions in queue right now. I would now like to turn the call over to Mr. Dimitriadis.

Okay. Well, I guess we either confused everybody or made it very clear to everybody. Again, we are on track to continue meeting our performance goals for this year in terms of FFO per share. So with that, we continue working on a few deals we have seen. A slight increase in the deals flow, very frankly -- small deals we are unwilling again to pay the high prices that perhaps some in the competition have paid. That's all I would like to say for this (inaudible).

Thank you, Torleesha.

Thank you very much.

You are welcome. Thank you for your participation in today's conference. This concludes your presentation. You may disconnect and have a great day.

Thank you.