LTC Properties Inc (LTC) 2007 Q2 法說會逐字稿

Welcome to the second quarter earnings release conference call. My name is Grace 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. (OPERATOR INSTRUCTIONS) 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 you 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 and real estate markets, the performance of tenants and borrowers within the LTC, properties, portfolio, and regulatory and other changes in healthcare sector as described in the company's filings with the Securities and Exchange Commission.

I would now like to turn the presentation over to your host for today's conference, Ms. Wendy Simpson, CEO of LTC Properties. Please proceed.

Thank you. Good morning, everyone. First I'm going to have Pam Kessler, our Senior Vice President and CFO give you some color on our earnings release and certainly highlights on some of the one-time impacts that we had this quarter. So I'll turn it over to Pam. And then I'll have some comments in general about LTC and what we see for the second half of the year.

Thank you, Wendy. From the press release, revenues increased $1.1 million. Most of this was due to rental rate increases from a lease that we entered into at the end of last year, some acquisitions that we did last year, and an increase in straight-line rent. We had a decrease in interest from mortgage loans, primarily due to payoffs. However, this increase was offset by some one-time interest income that we received related to loans that were paid off. Included in mortgage interest income is approximately $700,000 of one-time income pickup. Additionally, interest in other income decreased primarily due to payoffs of AR loans. And in the other income line, this quarter we had approximately $600,000 of one-time pickups due to our investment in skilled health care bonds, that was partially redeemed. We had a 35% redemption so we received interest income related to that.

Interest expense decreased, primarily due to the payoff of mortgage loans payable and the senior participation payable that we paid off at the end of last year. Operating and other expenses increased primarily due to additional restricted stock vesting. During the quarter we granted restricted stock and we accelerated divesting on our chairman's restricted stock. In the second quarter of last year, we had approximately $120,000 of income from discontinued operations related to properties sold. We did not have any properties sold this quarter. Fully diluted EPS per share was $0.36 this quarter compared to $0.33 last year. And fully diluted FFO was 50% -- was $0.50 a share this quarter compared to $0.47 last year.

Moving to the balance sheet, year-to-date we have invested $2.6 million in -- at an average 10% yield under CapEx agreements with seven different operators. $1.4 million was invested this quarter. We have $1 million less to fund under these agreements and we have $6 million to fund under new agreements that are at the option of the operators and those will be at an 11% yield. Year-to-date we've had eight mortgage loans pay off for a total of $26.7 million. $25.6 million of that was received in the second quarter. We received $870,000 in principal paydowns from AR loans and other notes receivable. Debt decreased due to normal principal payments made during the year. And year-to-date, we've had 13,161 shares of our preferred E converted to common stock. We still have 180,000 shares of preferred E outstanding to convert. And year-to-date, we've paid $26.2 million in dividends. And that's it.

Okay, thank you, Pam. I'd like to mention a couple of things that Pam touched on. And one is our additional interest income. We had a borrower with four cross collateralized mortgages that we had an opportunity to get a prepayment on and collect fees. We determined that even though these were good mortgages, we would prefer to get the early payment and the early fees and reduce our exposure to mortgages. So we decided that in this last quarter to go ahead and accept those prepayments. The prepayment on the skilled bonds was out of our control. So we did take that prepayment and got that additional income. So those were the -- these additional income items. One was a determination that we decided was the best thing for the company to do to take that opportunity and the other was out of our hands. But certainly, we still have an investment in the skilled health bonds and they're still paying a good dividend to us, a good return.

Wendy, I think I neglected to say that they -- the bonds were redeemed at 11% amount. So that was an 11% premium. That's where the additional interest income came from.

Okay. And in the overhead number, we do have as we mentioned in the first quarter, and it hit for the whole quarter, is Andre's contract allows him to vest in his restricted stock through the end of this year. So we have the impact of the entire quarter of that noncash vesting. We also had a board member who retired in -- at the annual meeting, which was in May and all of his stock and restricted stock vested and that was about an $85,000 impact. And as Pam indicated, we have additional restricted shares granted at the annual meeting. Those were granted to management not including Andre and me. And we had not granted management restricted stock or options for, I think, a couple of years. So that was the additional grants that were made in the second quarter that were not in the first quarter. So those were -- that's some more information about our unusual entries this quarter.

Our Q will be filed either later today or in the morning. So you'll be getting more detail in the footnotes in the Q. But right now I just want to make some few comments to point out some review about LTC's balance sheet and our financial position. At the end of June, we had $63.5 million in cash. We had $52.9 million of debt. Only $5.1 million of that debt is variable. And that rate right now is about 6%. Our first maturity of that debt is in September of 2008. And that's $14 million. Our next maturity is in the fourth quarter of '09 and that's $23.7 million. On -- and those, I think, are primarily some west related properties. We have $5.8 million of mortgages that are coming due still this year in November of '07. We're getting about 11% on that $5.8 million of mortgages, ALF assets. And that comes to $4.4 million of that is on ALF assets at $31,628 a unit. 1.4% is on ALF assets at a rate of $8,575 per unit. So we're fairly comfortable with that mortgage maturity.

In '08, we have two loans that mature at $1.3 million each. One of them is at $13,000 a bed in a [COM] state. And the other is at $16,000 a bed at on a nonCOM state, but we have an operator in that state if there was an issue, we would have great confidence that we'd be able to get an operator in there. There's no reason to believe that there would be an issue. It's a good operator, and so we don't have a concern. We have one property lease we're working on, which is a $2.2 million investment. That lease comes up for renewal in March. We're working on that. I'm not sure what is going to happen on that property. We have two leases that come up for renewal in May and -- of '08. And that is two operated properties in Alabama. And we have every confidence they will renew. They're good properties and cover.

So in terms of the next two years on our balance sheet, we don't have much in the way of exposure. We believe all of our operators are doing very well. We don't believe that -- and we've been impacted by this market down turn in real estate. And we've been taking the hits along with everybody else. We don't believe that the hits are happening at our operator level in terms of their reimbursement. I'm not aware of any changes in reimbursement that would affect the operators and their ability to either pay their mortgages or pay their rent. As I mentioned, we allowed some mortgages to pay off. It's not to say that we wouldn't make some mortgages in the future. We may make some individual mortgages as for growth. But right now, we have a reduced mortgage level. I think it's the lowest mortgage level the company has had in its history.

We've put the couple of [dinoval] projects that we were working on on hold. The operators agree with us. We're waiting to see what's going to happen in the marketplaces. And see whether building makes any sense right now. We don't have any operators who are in default or are late in their payments. Right now, we're signed with operators to spend about $3.8 million on projects -- about eight projects. Ask those investments will be at about an average of 10.5%. So we're still pursuing our strategy to reinvest in our own properties.

As you'll see when we got -- when you get the Q, we have been investing in our own stock. We got a refreshed board authorization to buy back stock. We had a standing authorization, I think we have a little over two million shares left under that authorization, which was in 2000. And so we decided to go to the board and ask them to refresh that authorization since it was now seven years old. We had some new board members and we just wanted to get that cleaned up. So we've got a new authorization, or a refreshed authorization, actually, for a total of five million shares. I'm not saying we're going to buy five million shares, but it is a strategy that we have applied in the past. And rather go back to the board for every authorization of a million shares or whatever we might want to buy, we just decided to go for the five million. As of yesterday, we've purchased in the open market 497,000 shares at an average purchase price of $20.84. And that's an FFO yield of about 9.2%. So we find investing in our own shares, a risk free investment and the best place to put our cash right now.

On the acquisition deal front, we continue to be cautious buyers/bidders and we've done no acquisitions or loans in the second quarter. Anecdotally -- and I'm an awful speller so if you saw how I phonetically wrote anecdotally it would be quite humorous, we're getting calls from busted deals. And we're finding some people coming to us saying they were almost ready to complete a deal and the other side has either backed out or asked for some adjustments. So they're looking to see if there's other opportunities out there to do their deals. Right now, they're still looking to do the deal at a very high price and a low return. And seeing if somebody else is willing to do that deal. I'm not saying that we're currently working on any of those busted deals, but in the last week we've had at least five calls on deals. So we'll be looking at those deals and -- or other deals. With the addition of Andy Stokes this last quarter, we're now going to more industry meetings, we're making new contacts, we're mining Andy's contacts from his many years in the business. And we are open for business, and hopefully we're establishing more contracts -- contacts and more opportunities. We believe we're on target to meet the 2007 expectations and don't have any reason to believe that we'll fall short for the entire year. That's all the specific comments I have on the company, and so Grace Ann, I'll turn it back to you for questions.

(OPERATOR INSTRUCTIONS) Questions will be taken in the order received. (OPERATOR INSTRUCTIONS) And your first question comes from the line of Jerry Doctrow of Stifel, Nicolaus.

Good morning, I guess, in California. Let's see, couple things. I just wanted to revisit. Not even so much the one-time thing to make sure we're clear on the run rate go forward. So I don't know if that's Pam or Wendy. But let me just touch on those. There were two things, if I understood it. One was in mortgage interest where you got extra income from a payoff that will go away. And the other was in -- I guess maybe also in interest and other income on the bonds. Can we just kind of go through those again and clarify the amount. And what's the right run rate for those items kind of go forward from here?

Hold -- if you've got a second question, Jerry, we'll come back to that. I need to get the projection, hold on.

Okay. Okay we talked about that -- And there was an expectation, I think of about $10 million investment in third quarter. I think -- I don't know if that was a transaction you were working on last quarter that we talked about. But it sounds like you're looking at more investments, but it doesn't sound like there's anything kind of on the -- close this quarter. Is that the right inference? Or maybe a little bit more on the outlook for acquisitions or other investments?

Jerry, this is Andre, can we wait a little bit? Wendy's going to be back in a second.

Okay.

Question. She's back.

What was the question?

Jay was asking about the $10 million he thought we were planning to invest in the third quarter. Do you plan to do that or are you going to hold given all this --

Yes, we're probably -- it's unlikely that we'll do $10 million in the third quarter.

Okay.

The run rate, Jerry, on lease or on mortgage interest, I do a run rate about $450,000 a quarter.

Okay. And is that the sole item that was affected by the two -- are both of those in interest or was the skilled in one thing and then the prepayment was in some other category? Just --

The prepayment, Jerry, -- this is Pam, the prepayment was in mortgage interest income and the skilled health care premium was in other income.

Okay. In other. Okay. And so the -- this is the mortgage interest rise is $450,000. And other income -- I know that may bounce around a bunch. So what's the right run rate on that?

I do the run rate on other income of about $800,000 a quarter.

Okay. Okay.

And that includes our interest, doesn't it from our investments?

Yes.

Okay. And we -- and obviously you're authorized. You've made some purchases. You may be purchasing shares again. But in terms of specific guidance, whatever, we're sort of on our own to sort of make a decision about that.. But you could well be buying, is that fair, right way to think about it?

Yes.

Okay, and just in terms of other. I want to come back maybe to acquisitions or investments a little bit more broadly because you talked about a number of kind of specific things. And I just wanted to get maybe a better sense of sort of what it looks like. You had said, Wendy, I think that there was like $3.8 million of funding for expansions. Pam, I think had talked about it saying it was like $1 million under your existing commitments and then new commitments potentially of $6 million. So I was just trying to reconcile kind of those numbers and what I should be thinking about may be per quarter or over the rest of the year in terms of the expansion funding.

Right. The difference is that what I was saying in the $3.8 million are deals that we currently got signed up. We've agreed that they're going to spend this money. This is the rate. We have made available additional money. And those are the -- that's the higher number that Pam used. But they have -- nobody's committed to using it yet.

Okay. So the $3.8 million is probably reasonably firm.

Yes.

Will it take -- would it be spend, you think, between now and the end of the year? Or it might take a little longer since the construction work is involved. Or --

We expect it'll be spent by the end of the year.

And it might go a little higher if some of these other things come together?

Absolutely.

Okay. And then just on acquisitions more broadly, it sounds like you're a little more cautious near term just because of market conditions. But maybe if you could give me a little color on that. But you also think the market may be coming back to you because of disruptions in the credit markets and that sort of thing. So can you give me a little maybe a little more color on sort of what's out there? And -- or could we see a significant pickup maybe in investment volumes and stuff if things play out, if other capital sources aren't available?

Yes, well, right now, we're seeing that the seller is still finding the asset values not to have adjusted themselves.

Okay.

As opposed to the rates being wrong.

Okay.

So I think that if somebody really wants to do a deal out there, they're going to have to come down either in price or come very much higher in the rate.

Okay.

And I think it's still too early to tell. But we've talked to some people in the second quarter and we're still talking to people in the third quarter. We're still interested in skilled nursing properties. We're -- we had a deal come back to us that's an ALF deal, but it's probably something that one of our competitors would be much more suited to handle. I just can't say. I think the prices will come down to the level that we would be interested in talking to people about. And as long as we still have all this liquidity -- And I fail to mention we still have the $90 million of our bank line available. We have all this liquidity, we certainly can do deals fairly quickly with no financing contingencies.

Okay. And basically, you'll either find new investments or you'll buy back shares. Is that a fair way to just think about the --

That is. We will get at least a 9% return.

Okay. Okay. And on some $10 million a quarter or something. Or do you have kind of a target spending level? Or is it not that specific?

Yes, we don't have a target level. I would -- as much as I like buying back our shares, I know one of our problems is our float and the liquidity of getting in and of our shares. So if it were one or the other, I'd rather do investments over 9% to grow the company than invest in our own stock and sort of decrease the capital available of our company. But right now, I think that for our shareholders return, buying our stock is the best way to do it so we don't have any deal in hand right now.

Okay. And one more broad thing and a couple minor items that we could let me throw out, but we can do now or do offline, whatever's easiest. We -- on the skilled healthcare call, which was earlier today, they had, I think made their earnings, but had expressed some concerns about the competitive environment in Texas, where because some people have been building new properties, which are more attractive for Medicare and stuff, they've been seeing some pressures on occupancies and stuff. Yes. I know you've got fairly heavy investments in Texas. My sense is most of it's older properties. Are you seeing any of that condition as well? Is there risks that we should be concerned about at all?

We haven't. Our Texas properties, as you say they're older investments, so our investment per bed is probably low. Skilled is looking at and I -- Boyd often asks me to speak for him. Skilled is looking for a mix that our operators are not competing for. He's looking for the almost pure Medicare high return, not that our operators aren't happy to have the Medicare residents. But they're not in the same competitive market that Boyd is. Boyd is looking specifically for the hospital association type of projects.

Okay.

And so ours -- ours are more Medicaid driven.

Yep.

And so we haven't had, one of our operators we know is looking to add a couple of properties. And as we're talking to them or his financing source about possibly doing a mortgage on those properties. So we haven't seen any pull back in our Texas operations.

Okay. And then, just some odds and ends. Which let me throw out and if you want to take them now or come back. Just, I think, diluted FFO share count, I don't think that was in your reconciliation. Just wanted to make sure we were straight there.

Yes, we'll call you on that.

And then I think, there's a noncash D&A reduction for lease induce, just wanted to check on that. Straight line the going forward rate for straight line. And then, again, G&A was supposed to go down. I think what we talked about -- just about $300,000 a quarter in '08 after Andre's restricted stuff all vested. It sounds like there's been some new stuff. I just wanted to clarify whether if that's the right run wait or if it should be a little higher for these other things. So we can take all of those offline if you want.

Okay.

Thanks.

Yes.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Tony Howard of Hilliard Lyons.

Good afternoon, Wendy, Andre and Pam.

Hi, Tony.

I'd rather a lot of those questions that were asked be put online so I can get the answers too.

Hmm?

I said, I'd rather a lot of those questions that were asked be put online so I can get the answers too.

Okay. The question of the dilution, Pam will give you the detail of what's in our share count. She's going to grab it. And in the terms of overhead run rate, we're still expecting it to be, not counting the noncash amortization of Andre's restricted stock. And there was also, I forgot to mention a -- an impact of a deferred -- what's it called? The healthcare -- a healthcare post retirement benefit that's in Andre's contract. It's a total of $250,000.

I'm getting to be very costly, Tony.

I've noticed.

It's been amortized over this year. We have added Andy Stokes to the overhead, so that's that slight increase. We're going to more -- we're going to more meetings. We have invested some money -- one of the things that I thought we were short in is spending money to maybe make some money. So we've spent a little money in this last quarter to go to more meetings and we spent some legal fees to look at deals because we don't have in-house legal council. But I would say in your projections a good run rate -- a good quarterly run rate without adjustments would be about $1.4 million. And Pam's --

Okay, so for the FFO per share. For this quarter you would assume that everything converts. So you have for the numerator, you have $818,000 of preferred Cs and $96,000 of the preferred Es. You have $86,000 from the convertible partnership units, which gives you an FFO assuming conversion of $13.184 million. And then for your share count, you start with the 23.529 million and then you add 17,000 for stock options, 55,000 for restricted stock, 2 million for preferred Cs, and 361,000 for the preferred Es. 202,000 for the partnership units, which gives you shares assuming the conversion of 26.164 million.

Okay. Good. Thanks.

Got it all? Okay.

Now Wendy, will this -- I'm sure -- has the 10Q been published yet?

It's either going to be filed -- tomorrow morning.

Okay. Some of these expenses -- now they're going to go under other expenses, Wendy -- other operating income -- other operating expenses?

Operating and other expenses, yes, that's where G&A is.

Okay. Go back to Jerry's question as far as on the acquisition environment. You mentioned a little bit as far as the potential of buying some mortgages. Where do you stand on that since you've been running off some of the mortgages?

Yes. This is an opportunity that we have a very established operator that we have a good run rate with. And we have a borrower who does syndicates that we have a good history with. So it's a unique opportunity. And so we would evaluate this. And it's relatively small. It's about $6.2 million. It's not like it's a lot of mortgages that we have on our plate to do. So this is just one that we might do in the third quarter because we know the operator, we know the borrower, we know the assets.

Given the situation as far as the credit crunch, do you see this longer term as maybe a good opportunity to get to doing this instead of buying back your stock?

Yes. I think we'll probably have more opportunities to do mortgages than buying properties. But right now that's what we currently have. So I agree, Tony that if there were a lot of mortgages available -- we've taken our lumps in the past for having, however we've lost very little on any of our mortgages, even when we had the [Rumex]. So we're used to taking our lumps of doing mortgages rather than doing investments of owned properties. So I take your point and I agree with you that it's a good opportunity for us with this credit crunch.

Okay. Clarification, the 497,000 shares you mentioned you repurchased, now is that just the amount in the second quarter? Or is that the total you've repurchased?

That's the amount in the second quarter. -- third quarter, I'm sorry. Third quarter. We didn't start purchasing until the third quarter.

Was there any -- there was some repurchases if I remember last year, or --

Last year we did a few. In May, that was the last time we purchased was in May.

And that was part of the old authorization?

Correct.

So the 497,000 was part of the 5 million new authorization?

So we have 4.5 million shares left.

Okay. Got you. You said you're -- if I can get a clarifications that talked about the 2007 expectations, what are your expectations now that you're at the mid-year point?

We're expecting our FFO to be somewhere in the $0.46 to $0.47 a quarter range.

For the next two quarters, I guess.

Right.

Okay. All right. That's all the questions I got.

Okay. And do you want to -- Grace?

And you have no questions at this time. (OPERATOR INSTRUCTIONS)

Okay. Thank you, all. And please call us if you have any specific questions that don't violate FD. And we'll be here. And thank you very much for your attention and interest in listening to the company's story. Talk to you next quarter. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect.