LTC Properties Inc (LTC) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LTC Properties analyst meeting conference call. [OPERATOR INSTRUCTIONS] I would now like to turn your presentation over to Andre Dimitriadis, Chairman and Chief Executive Officer. You may proceed, sir.

Ladies and gentlemen, good morning and thank you for participating in our conference call. Again I'm reminded I need to read you the forward-looking statement that Wendy invariably sticks in front of me because she knows I am going to forget it. This presentation may contain forward-looking statements as defined in the Private Securities 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 include among others general economic conditions, the availability of capital, competition within the [INAUDIBLE], performance of tenants and borrowers within LTC portfolio and regulatory and other changes in the healthcare sector as described in the Company's filings with the Securities and Exchange Commission. We had a good quarter last year, the fourth quarter. A major emphasis was in executing the transfer of properties from CHC to Preferred Care. As you know we had negotiated with CHC for the right to terminate the leases against a payment of close to $10 million. And we then leased those properties to Preferred Care, a more Medicare oriented provider that we believe will be able to take these properties from this phase to the next phase and be able, very frankly, to afford a lot better to spend the additional capital we have dedicated to these units. As you know, the company has been renovating its properties very, very significantly. And Preferred Care has a greater financial [INAUDIBLE] and can take the initial cost of renovating these facilities and thus making them be able to get a higher Medicare and private pay and to be more updated facilities and be able to compete very effectively. That has been -- continued to be accomplished very successfully. At the same time we worked on a lot of other renovations and Wendy will give you some numbers later on. We worked on a couple of deals, just like any fishing time, once in awhile you go out there, you have got good bait, you think you know where the fish are but you come home and you go buy a steak at the grocery store and you cook the steak because the fish did not agree with you. So we worked on a couple of deals and once in awhile you succeed, once in awhile you miss them. We missed them. But otherwise it was a good quarter. We met financial projections and we are entering 2007 very excited and in good shape. I will turn it over to Wendy and then I have prepared about an hour 45 minutes, sort of departing CEO speech that I will impact upon all of you after Wendy goes. But you can leave the conference now.

There will be appropriate music. As Andre said, we had a good fourth quarter for the FFO including -- fully diluted including the non-cash charge of the amortization of our restricted share grants. We are at $0.47 a share. Excluding bad cash on cash we were at $0.48 a share relative to FFO. Compared to last year, taking the noise out of the special entries in any quarter, any year, we were at $1.84 and fully diluted $1.80, compared to last year $1.73 and fully diluted $1.71. So we were pretty much in line with what we had been telling people that we were going to achieve and we did achieve that. There were no unusual events in the fourth quarter. As Andre said, our lease payments and interest are anticipated. Our expenses are in line. We had no gains or losses on sales. We have absolutely no delinquencies, no late payments, which depresses us because we don't get any fees, or late fees or penalty charges, but everybody has been paying on time and we see our lease and mortgage interest revenue very steady and reliable. Andre said we completed the lease of the 25 properties to the new master lease and they seem to be going very well. We are in contact with the new operators very often, as you can imagine, because of changes and they seem to be very happy with the properties. I don't think we've received any financial information from them yet, but we will probably get that for the year-end. We did, as we had talked in the past, spend a significant amount of time this quarter monitoring and approving capital expenditures at many of our skilled nursing facilities. That program, which we started awhile ago, has really kicked in and we've established quite a routine relative to how people give us the information, get requests for funding. We have a consultant who we always use to go out and make sure that the money has been spent as determined and that it's not being over spent. So we funded approximately $2.4 million of CapEx dollars into our own properties, basically on nine properties. And each of these fundings triggers additional rent and our average additional rent on that 2.4 million is 9.9%. It's generally, I'd say, I think eight of the nine are over ten. There's one that's a relatively low interest rate which brings the average interest rate down and that was on a independent living property and not on a [SNIF] property that we decided to -- it would be best for us to put some money in. Not the majority of the 2.4, but just -- I didn't give you a weighted-average of the return. If you go to the balance sheet you will note that we are even less leveraged than the last quarter. At year-end we paid off a maturing loan of 9.4 million. We had the offer to renew the loan. That loan was on two Sunrise properties but we didn't think that that was the better use of our cash at the time. So we paid that loan off. The next maturity that we have of any of our debt is in September of 2008 so we have no 2007 maturities. In the quarter we pretty much went through a lot of cash for us. We had 40, almost $46 million in cash at the last quarter and we have approximately $30 million of cash this quarter. As I said, we paid the 9.4 million down on the debt at the end of the year. We invested approximately $2.4 million in the CapEx properties and we paid approximately $9.5 million on that lease termination agreement that we talked about last quarter. So in effect we did have positive cash flow for this quarter even though we used all of that money of cash. We still have our unused line of credit for $90 million and it's unsecured. We look forward to using that, hopefully, and our banks look forward to using some of it hopefully this year in acquisitions. We've seen in the first quarter a pickup in activity and we've seen some assisted living deals. We've seen some independent living deals but mostly we've seen deals in the SNIF area and we've even had a couple of people call us and ask if we were still buying SNIFs because it seems like very few people are interested in buying SNIFs right now. So we have a fairly, I'd say active possible developments going on for this six, seven weeks that we are into the new year. Nothing to report on any potential closings, but I would say that we have some good indications that there is property available and, strangely enough, the property available might be in our -- the territory where we would be willing to spend money at a 9.5 to 10% return. Other than that I have no comments on the quarter.

Well, I -- since I last spoke to you I have good news. In my usual disorganized way I have lost the papers for the hour 45 minute speech so you will be spared but I will give you a five-minute one. I think departing CEOs do have the right for the little [expletive] -- excuse me, a little extraordinary commentary, to be more appropriate. I can't help but think about the fact that it was exactly 15 years ago in February of '92 that Brad [Rasuke] and Peter Sodoti, then of Net West Capital Markets, and [Zefca] called me and I met in Dallas, Texas. I was still working at the time for Beverly and was trying to create LTC and probably we cemented some initial relations there to finance some properties [INAUDIBLE] and then by August of '92 we thought we launched a big IPO, $150 million. I thought, wow, that's a hell of a lot of money. Today, of course it would be below the radar screen. But anyway, it's been a hell of a lot of a job. It's been fun for 15 years and not to disregard the frustrations for the mistakes I made but overall it was a good run. As my ancestors would say the gods were kind to us and things worked out very well. But 15 years is a long time and I think both people and companies need renewal, you need new leadership. Not that one stops being smart or creative but one settles into certain habits, probably I have been in the last couple of years more conservative maybe than I should have been. But you learn from the mistakes of the past and you sometimes worry about making them all over again, at least not on the same ship. It's really delightful to be able to see a great new CEO, Wendy Simpson, with whom I've worked for 21 years, take over. It's great to be permitted to be part of the ship again rather than sitting at port watching it go and although from the easy deck. Now I'm in my lounge chair and I get a suntan, even when there is a little bit of a storm. I want to thank everybody for all the help everybody gave me, the employees, the customers, you the investors. It's been great and thank you very much and I must say one thing, when I landed in Idlewild in June of 65, it was still Idlewild, it was not JFK, I never would have imagined I ran a, for 15 years, a New York Stock Exchange company. As my mama used to say, only in America. So, thank you all and open for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Tony Howard from Hilliard Lyons. You may proceed.

Good morning or good afternoon for me. First, my congratulations, Wendy, and I guess also congratulations to the family.

Yes, thank you.

Andre and Wendy, maybe we can address that first. What kind of -- with these management changes what kind of affect do you expect it to have on day-to-day operations if any and maybe long-term strategy?

I don't expect to have any changes. I was going to have a meeting with the staff today and tell them I was moving the office closer to my house because I was tired of commuting. But, no, I don't expect any changes on the day-to-day operation. We have the capacity for people to move around and Pam has moved up to CFO and her assistant controller, CC Wong, has accepted the position of Vice President and Comptroller. And on the strategy, I've been with Andre for -- at the company for seven years as an employee and since '95 as a board member and I pretty much agree with the strategy that we have had in the past that I have been here, so I don't see much of a change. I see change in opportunity because the environment has changed. And where we wouldn't have thought about raising any money as recently as two weeks ago, we were just talking about maybe it's time to raise some money because it looks like some of the environment is picking up in terms of our being able to actually invest that money. So if we did that it would look like there was a change in strategy but not really. I think if Andre were still the CEO at that time he would do it the same way. So my strategy is not to change much of what's been a success in the past.

But let me add something here. A new CEO always will bring a new thing and I think that's one of the reasons for the renewal here. So we don't have any wedded strategy. Want to reassure people that there is no sum. We must follow this strategy, the new CEO will create, will take advantage of the opportunities when they come.

And to be perfectly candid, there has been a lot of talk about why we exist, should we be sold, are we going to be sold. So if the thought process is Andre is now out of the way and the company will get sold because he was the dam at which nobody wanted to face, that's not true. So if that is a strategy somebody thinks is going to happen, Andre was never somebody who was going to be stopping the appropriate sale of this company. And I am not putting the company up for sale and my board hasn't authorized me to put the company up for sale and we don't have an offer from anybody to buy the company. So in terms of that strategy, nothing has changed.

Very well put, Wendy.

Okay.

On a financial aspect, though, what, if any, will there be any changes in G&A expenses?

I don't see that there will be any changes. If we do have more activity, I mean Clint is only one person and he's using a lot of staff time here, we might add a person or two in an analytical area. But I don't expect that there will be much of a change in G&A.

Let's go over some numbers now.

Okay.

You mentioned as far as you're expanding and renovating existing properties. In the third quarter you did nine properties, to make the correction how many did you do in the fourth quarter?

In the fourth quarter?

Right.

Nine.

So you did nine also in the third quarter and nine in the fourth quarter.

Oh, how much did we do in the third quarter?

I thought there was nine in the third quarter, that's why I wanted to make sure the number in the fourth.

These are the same nine ongoing projects.

It was the same, you just continued.

I mean, Howard, what happens is the project, Tony, the project begins let's say in February and ends next March so it spans.

How many do we have going in total?

Right now we have probably about nine in total, with commitments that very anywhere from 0.5 million up to 2.5, one being 4 million. It takes up to 12 months to complete projects, possibly. Plus we are looking at adding two more projects here in the next week or so. There's continued growth in this program as well.

Were there any acquisitions in the fourth quarter.

No.

As I said, Tony, we went fishing and with some good bait and worked hard but we didn't catch. Once in awhile you come back without catching one. As Wendy pointed out, we have seen an increasing activity mostly in the SNIF area but there is an increase activity.

Since you are only going to be around two days, does that mean five days a week you are going to be fishing, Andre?

Actually, Tony, it is one of the objectives. I have a house back in New York and I did a little fishing last year and I discovered how much I like -- I used to go fishing. I was born in Istanbul and we had a boat and went fishing almost every day in the summer. Yes, I plan to do that a little bit and I will help here a little bit. There is a lot of knowledge I can mentor people with and do whatever I need to help. That's about it, then, and have fun. And I will tell you on top of it I have got two 15.5 year old teenage daughters. Those of you that have had the experience know what a full-time job that can be.

I feel it only fair to warn the investing community that Andre seriously looked at me when we were talking about this transition. He says, I want to get bored. So I am just warning you that he wants to spend some time getting bored at which time --

Wendy as far as -- you were talking about the acquisitions environment, is a good go still $10 million per quarter for modeling purposes.

We are looking at that as a target for this year, yes. And I can say that what you and Jerry have put out as to projections, we are not uncomfortable with that.

As far as this pick-up in activity that you are seeing, is it semi due because of the concern as far as the change in Congress and what that may do to Medicare, Medicaid payments.

A couple of them are retreads and people who tried to sell these properties last year at prices we would not even go near and have come back around saying that we are pricing them a little less aggressively. So I think they are people who are taking the opportunity to cash out at a high -- at a high price, not as high as they wanted, but at a relatively high price. A couple of the packages that we are looking at are people who are planning their estates and wanting to get out of the business and sell their properties. So I haven't had the indication that they are selling because they see something on the horizon to hurt their [INAUDIBLE].

And if I can comment, Tony, I did bring that up to Wendy's attention when I was in here. Wendy reminded me, look, they couldn't do it, that cut in Medicare, when there was a Republican Congress and now that it's a Democrat Congress, is it likely a Democratic Congress it will do what the Republican Congress did not do, i.e. severe cuts in Medicare, There's always the threat of cuts but let's also remember what a cut is. A cut is a decrease in the growth of expenditures.

And most of our properties we look at them as what they have to spend in rent per day for a bed, which I think ours we calculate as around $545 on the average a day.

Okay, some numbers. As far as in the fourth quarter was there any buyback of LTC stock?

No.

Do you plan to do any more or you still have some authorization left?

Yes, it would be an unusual situation if we did it.

I guess there hasn't been no further purchase of NHI stock?

No, in fact we sold all of our NHI stock in December and that's the $500,00 and some gain that we had.

What's the markup of securities now on the balance sheet?

Marketable securities is a bond that we hold in skilled nursing and we bought that a year ago December for $0.97 on the $1.00 and it's now trading at 110.

It has got an 11 and an 8 coupon, I believe, or 11% coupon.

It ticked up.

Yes, it ticked up.

That's not considered a mortgage loan receivable then?

It's not.

Okay. Were there any series E preferreds converted?

Yes. Do you have that, Pam?

I can see Tony is updating his model.

I don't have the quarterly number but I have the year number.

If you have the three quarters number.

The total for the year is 159,031 shares. Oh, I'm sorry -- no, that's it.

How many are left?

193,644.

193 what.

644.

Series E's left?

Right.

Final question. I lost it.

That's all right. Come back and ask it again, Tony.

Okay. Thanks.

[OPERATOR INSTRUCTIONS] Next question comes from the line of Dan Bernstein from Stifel Nicolaus. You may proceed. Good morning. Hi, Dan.

Hi and congratulations.

Thank you very much.

Jerry would be on the call but he's out buying fishing equipment.

He plans to invite me fishing. Tell him I accept.

He's going to call after probably another hour or so and you can save the hour 45 minute speech for him.

He will be a great audience.

I'll find it by then.

If you would have -- you would have always got the transcript if you found it..

There you go.

Tony asked most of the questions I had but as far as the investment pickup on the SNIFs, is that -- I guess that's mostly one offer. Are you seeing any portfolios come your way?

We have. We've seen a teen and a group of five.

I guess I was also trying to for the way we calculate FFO within our models I know I talked to Pam last night but somehow my notes don't seem to add up correctly. Do you have the breakdown on the dividend payments for the series C and the series E preferreds, what those were.

For the quarter? The series C for dividend was 818,000. Series E was 102,000. And then we have the partners share, the partnership shares of 86,000.

And that probably would go down next quarter after the converts were [INAUDIBLE].

The series E, yes.

[INAUDIBLE] For non-cash compensation, is that probably going to stay about the same level for '07?

Yes. In Andre's and my contracts we changed our vesting of the restricted shares that we have. We are not vesting ratably over a period of time. We vest only when we leave the company. So it will probably go down for awhile but we have some additional restricted stock grants, too. The new management group, not me because I got those with the change. But for modeling purposes I would leave it the same, about the same level just to be conservative.

On the lease termination with CLC were there any costs, legal fees or costs or uncollectables in the fourth quarter that might come out in the first quarter of '07?

I don't think so. I think if it was a material amount we would count it as a lease termination fee. And we are amortizing that lease termination fee against the rent. If it were material -- if it were a significant dollar amount we would probably be able to include it in the lease termination fee.

I know you went over some of the investments for the quarter but do you have a total investment amount for the quarter and what maybe what might be the average rate of return on those investments were?

It was two-point -- . At 9.9.

9.9 million?

Correct.

Oh, 9.9%.

9.9%

For capital investment. Okay.

In a sense, Tony had that although it was not an investment in real property in the classical sense, but the near $10 million we spent for the right to terminate the lease in return for a higher rent is an investment in increased rent. So, yes, I don't want to play soft shoe here with numbers to try to claim we invested more than we did, but it was some sort of an investment because it returned a commensurate return to us and, of course, strengthened the Medicare ability of these properties which makes them a lot more valuable in the future. But it delivered an immediate return. So that was sort of an investment.

I think we actually modeled it that way.

Yes.

As an investment.

Exactly.

Okay. That's all I have. And again Jerry will probably give you a call soon.

I'm looking frantic for the speech because I know Jerry wants to hear it.

Maybe it was to good fishing holes in New York.

Thanks, Dan.

Have a good day.

[OPERATOR INSTRUCTIONS] Our next question comes with a follow-up from the line of Tony Howard from Hilliard Lyons. You may proceed, sir.

Just remembered what my question was.

Okay.

You mentioned, Wendy, as far as potential of raising some money. Given that the amount of cash you got versus the little amount of debt that you have and your line of credit not being used, you would need to make -- need to raise cash, a large portfolio acquisition. And also would you consider doing common equity or preferred?

In terms of how I'd raise it?

Right.

I would probably raise it with debt if I could get a decent rate.

Why would you need to raise debt other than using your bank line of credit unless there is a large acquisition over and above the 10 million for the quarter.

Yes, if there was a -- only if there was a large acquisition would I raise debt because our line is unused but our line is still only a year and a half away from being expired. So if -- and that rate isn't so -- I can lock it in for awhile but if I can get some good permanent debt at a reasonable rate, maybe I would than reduce my bank line to much less and save interest on my unused bank line fees. It would be a calculation of how long that we would want to put the debt out and the interest rate we could get.

Okay. Thank you.

I don't right now see us -- though we like preferred, I like preferred and I understand that there's quite an appetite for preferred with conversion, I think that we would go probably debt this time.

Okay. Thank you.

There appears to be no further questions at this time.

Thank you very much.

Thank you very much. Have a great day.

Bye-bye.

Thank you for your attendance in today's conference. This concludes the presentation. You may disconnect now, and have a wonderful day.