LTC Properties Inc (LTC) 2009 Q1 法說會逐字稿

Please stand by for a realtime transcript. Good afternoon, my name is Shawn and I will be your conference operator today. At this time, I will would like to welcome everyone to the 1Q '09 analyst conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. (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 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 financial services and real estate markets, the performance of tenants and borrowers within LTC Properties' portfolio and regulatory and other changes in the healthcare sector as described in the company's filings with the Securities and Exchange Commission. I now turn the call over to CEO and President, Wendy Simpson. Ms. Simpson, you may begin your conference.

Thank you, Shawn. Good morning and afternoon. Thank you for joining us for our first quarter 2009 conference call. I have with me Pam Kessler, our Senior Vice President and CFO, who will be providing comments on the financial statements after my brief comments. Then after Pam's comments, we will open the call to questions.

We reported fully diluted FFO per share of $0.50 for the first quarter of 2009. This includes the benefit of approximately $0.02 from the repurchase of shares of our preferred Fs as a below face price. Pam will give details of this transaction. During the quarter, we had no other material financial impacts. Small things to the plus offset small things to the minus, so basically, we performed as anticipated. We did not do transactions other than capital provided to operators under our ongoing programs of providing capital to improve and/or expand our properties. This program may expand from what we anticipated in the beginning of the year as a result of recent inquiries as to our interest in providing capital for projects that were not on our schedule in January. It's too early to quantify this, but we will keep you informed as we pursue these discussions with our operators. We didn't do any capital market transactions as we did not foresee a need to reequitize our company nor did we need access the debt markets. We are continuing to evaluate a continuance issue program and may activate this program during the year. I again assure you that we plan to use such a program appropriately to avoid dilution of existing shareholders. At the moment, we do not have anyone on a nonaccrual basis.

All rents and mortgages and payments are current. We have, however, ceased booking straight line rent on Sunrise properties. Sunrise may be in default of their lease if they are unable to provide us with the required security deposit by the end of May. In anticipation of this, we have stopped the accrual of our straight line rent. Sunrise is current on their rent payments. They have already paid -- they paid early for the month of May as they generally pay a few days before the beginning of the month. The straight line rent for the remainder of 2009 for Sunrise would have been $206,000. At this point, I cannot predict what we will work out with Sunrise, but I do not expect anything we work out with Sunrise to be material to our FFO. Our physical property reports have noted what may be some deferred maintenance in certain assisted living properties. We are working with the operators the make sure the capital is spent as required. We have submitted a notice to lenders of a June 1 early payoff of approximately $15.6 million of 8.8% debt. This amount will be paid off with cash on hand. We continue to have our undrawn $80 million unsecured line of credit. It does not expire in until July of 2011. Additionally, we have almost all of our balance sheets unlevered.

The acquisition activity remains very quiet. We have met several new operators through our marketing efforts and look forward to developing new relationships and opportunities. However we are still seeing the spreads between yield and price to be too wide to really encourage us to actively pursue the few opportunities we have seen recently. I'm glad to have noted comments from other REITS who have published earlier in this quarter, they are seeing the same phenomena, that the yields that they need on investments to be too far away from the prices that sellers are looking for. In summary, I believe the guidance we gave at the beginning of a year of $1.87 to $1.91 FFO is still reasonable for us in 2009. This assumes, again, that all leases and mortgages are paid in accordance with the applicable agreements, we don't have any new acquisition or sales of properties, there are no significant additional capital provided for currently unplanned renovation projects, no buying back of our own securities, no additional overhead expenses as a result of acquisition activity or other unforeseen events and certainly no capital markets activities. I will now turn the call over the to Pam, and then after Pam's comments, again, we will open it up for questions.

Thank you, Wendy. I'm going to be addressing comparisons between the first quarter 2009 and the fourth quarter of 2008, I will refer you to the 10-Q for year-over-year analysis.

Revenues increased this quarter approximately $1.1 million due to the following: rental income increased $807,000 primarily due to normal step ups, three months of Ameritas in the first quarter versus one month in the fourth quarter of last year and an increase in straight line rent, also primarily due to the new Ameritas lease. In the first quarter, straight line rent was $1.2 million the amortization of the lease inducement cost was $162,000. Mortgage interest income increased $348,000. This increase was due primarily to the prepayment of a loan in the first quarter. The loan payoff in the first quarter totaled $2 million and resulted in a realization of approximately $200,000 of one time income. Interest and other income increased $99,000, primarily due to lower interest rates on our overnight investments of cash. Legal expenses were $109,000 higher in the fourth quarter, primarily due to transactions that were terminated in that quarter. Operating and other expenses were -- in the first quarter were comparable to the fourth quarter. And this quarter there was an includes of $150,000 of straight line rent reserve on two properties we have with a new operator. And last quarter included in G&A was $140,000 straight line rent receivable reserve just for the general straight line receivable balance and $75,000 write off of a note receivable.

In January of this year, we purchased 109,484 shares of preferred F stock on the open market for $2 million or weighted average price including commissions of $18.27 per share. In accordance with GAAP, 662,000 was credited directly to common stockholders which represents the difference between the purchase price and a net book value of the shares. The preferred F stock has a $25 per share liquidation value which netted with the $1.01 per share original issue discount equals a net book value of $23.99 per share for the preferred F stock.

New accounting rules effective January 1 of 2009 require us to allocate net income to noncontrolling interest. This was formally called minority interest. In the past, the preferred return we paid to the noncontrolling interest was shown as minority interest expense on the income statement and was deducted in the calculation of net income and the calculation of net income available to common stockholders. Under the new rule, our noncontrolling interest are classified as permanent equity on the balance sheet and the quarterly preferred return they receive is not deducted in calculating net income, but it is deducted from net income in calculating net income allocatable to common stockholders. Retrospective restatement is required for all periods presented in the financial statements for comparison services. This new rule changes the location on the income statement of the preferred return paid to noncontrolling interest and changes the historical calculation of net income but does not change our historical net income allocatable to common stockholders. Another new accounting rule effective January 1, 2009 requires us to include non-forfeitable dividends paid on unvested restricted stock in the calculation of net income allocatable to common stockholders. This application is also retrospective for all periods presented. The effect of this new rule is immaterial to the calculation of net income applicable to common stock holders. Turning to the balance sheet, invested $462,000 in capital improvements with a weighted average yield of 11.5% and $212,000 in capital improvements at yields already reflected in the lease rate.

We received $2 million from a mortgage that loan paid off and $1.1 million in scheduled principal payments on mortgage loans receivable. During the quarter, holders of 900 shares of preferred E stock converted to 1,800 shares of common stock. At March 31, 2009 there were approximately 38,000 shares of preferred E stock outstanding. In January, we purchased 109,484 shares of our preferred F stock on the open market for $2 million or weighted average price, including commissions of $18.27 per share, for an proximate 11% yield. During the first quarter, we paid $12.8 million in preferred and common dividends.

Thank you, Pam. Now Shawn, we will open the call for questions.

(Operator Instructions) We will pause for just a moment to compile the q-and-a roster. Your first question comes from the line of Jerry Doctrow, your line is open.

Thanks. Really just a couple of things, is there anymore debt that gets refinanced or available to refinance in 2009?

We have one other piece that's going to be paid off, $8 million that's going to be paid off Septem -- or July 1, that's when it's prepayable.

It's prepayable July 1, that's 8.4% debt.

Is that likely still be paid off with cash rather than refinanced in some way?

Yes, right now, we will use cash.

Okay, and then broader strategy, trying to think forward to a time when there might actually be investments out there. How do you feel overall about leverage? Assuming you had investments out there meeting your threshold, I don't know if that's 11% or something these days. Where would you be comfortable taking leverage? Would you be thinking about doing something large scale or still focused on individual property investments?

I don't see us doing anything large scale, Jerry. We are looking in to doing -- we're looking and talking to some people about doing some secured financing on packages of assets. I don't see us being leveraged more than 30% to 40%, I think. We continue to see a very low leverage for this company. Right now, I would very much like to draw down on our line to use because the arbitrage of our 1.5 over LIBOR plus -- compared to what we would like to invest the money at is so attractive. That again, as I said in the first -- in the call at year end, if we we have this continuing issuance equity program it's just the type of thing that would be very beneficial to us to issue a few million dollars worth of equity to do transactions. So I don't see us doing a large capital transaction in the market in the debt area at all. I would love to have the preferred market open up, but I don't see that right now.

And in terms of property type, if we are talking about 11%-ish yields, I would think that that still keeps you focused on skilled nursing. Are there other asset types that you would be thinking about, whether it's acute care or -- my sense is the -- you can't get those kind of yields right now on senior housing.

Yes, we would -- I think our best target is the nursing area. We have had some inquiries or some interest in smaller operators that do have assisted living properties, but not any significant amount. So I still see that the skilled nursing would probably be our best capital dollars spent. Indeed, it's the skilled nursing operators who have come back to us and asked us if we have capital available to expand and renovate properties. So we are not getting as much inquiry from the assisted living side of the business.

Okay. And then, just maybe if you can give us current thoughts on ALC, and then I will jump off.

Well, ALC continues to be an enigma wrapped in a history, I guess. They are performing better than other people in the industry. However, their occupancies are dismal. They are continuing to invest in our properties. Again, to remind the investing public, we have two public companies on that lease. Both extended care and assisted living, we have the full credit of both of those companies on our leases. So if anything happens to assisted living, extended care has to step in. It's not a guarantee, it's a co-responsibility. The company assisted living is investing in our properties. There have been some instances of slight increases in occupancy. They're holding their costs very well. We haven't received their financial results, we just got Sunrise's today, I saw. So I don't have coverages for our operators for the first quarter. I don't expect that she is going to have better coverage than she had before, but our property reviews show that the properties are well maintained, that the cost structure is being held, and so I'm not concerned about assisted living at all at this moment.

Okay. Thanks.

Your next question comes from the line of Karin Ford. Your line is open.

Good morning. Just wanted to ask a couple of questions for some more detail on your comments on Sunrise. Did I get it right? They're current on rent through the end of May, but they needed to put up an additional security deposit and if they don't by the end of May, they will be in default?

Correct.

Is your expectation that they will do something,or will you waive that default, or can you terminate the lease if they don't put up the money by the end of May?

Yes, they would be in default under the lease, so we could move towards termination of the lease. I don't know what we will work out with Sunrise. I saw with their Q, they're anticipated that they will be cash flow positive shortly. And so it looks like financially they're having a little bit of a turn around, so I can't predict -- they're very -- we are working hand in hand with them on their issues relative to the properties. They're doing the maintenance that we are asking them to do. But nonetheless, we have a lease with them. It requires them to put up a significant security deposit and they may be able to do that. I can't predict whether they will or not, whether financially they would prefer to get out of these leases or to come up with the cash. So we will see.

How big is the security deposit?

It's 3 months of rent. I think -- I don't know how much rent for Sunrise is.

It sounds like your preference would be to continue to work with them at this stage.

My preference would be to never disrupt a lease, but we have to enforce our leases. So we are going to do that.

Okay. Next question is just your thoughts on Medicare and Medicaid reimbursement environment and the new rates that were put in to effect and what potential effect that could have on you operators and your coverage.

Okay, Pam is just giving me a calculation that the deposit would be approximately $1.1 million.

Okay, great. Thanks.

I'm sorry, the recent changes in reimbursement --

Right.

As I have said in the past, any changes in Medicare or Medicaid seem to be very minor, and our operators of our skilled nursing properties are very -- have very good margins and very good coverage. So I anticipate that any changes they would have in their total reimbursement, not taking in to consideration mix changes or anything like that, would not affect their ability to pay our rents, and it might change coverage by 15, 20 basis points or something like that. So I don't see -- I'm more concerned about the assisted living sector and the number -- the occupancy issues that may be there. As I've seen the reports from other REITS and the reports that we have gotten back from our operators, they've been doing fairly well by cutting costs and having some success in raising rates, and I don't know how much more they can do of that in the second, third, fourth quarter of this year if occupancy doesn't come back.

Makes sense. Just the last question, it sounded like from your earlier comments that you guys would be more focused on taking some debt down on the line rather than doing an agency financing. Are you guys still working on the agency financing?

We are. It just takes time. So if something comes up, we can always use the lines.

Got you. Thanks very much.

You're welcome, Karin.

Your next question comes from the line of John Roberts. Your line is open.

Good morning Wendy, most questions have been asked. But let me drop a few more in here. You've got the capital, your front capital existing properties during the quarter, how much was that?

I think it was around $400,000 total. It wasn't much this quarter.

It was $426,000 at an additional yield. So that's 11.5% yield. And then there was $212,000 that the yield was already built into the lease.

Okay, very good. Could you give us a little color on what you are seeing from an acquisition perspective? And really more along the lines of are you getting closer to what you are really looking for, or is everybody still hanging in there and really not budging?

This last quarter, John, we haven't seen much of anything. We have seen -- I'm reluctant to say this because it might not happen. But we have talked to a small operator in Florida that Andy met in his marketing efforts. They're funded by individuals whose invested in them years ago, and one of their original funding people wants to sell out, and he owns the buildings. So this is just a unique situation where we are talking in the double digit returns. Now, whether that will happen or not, I don't know. It doesn't appear to me that they are doing a massive marketing effort on this, so we might have a unique opportunity to buy two assisted living properties in Florida. And it's not going to be a significant amount of money, and they have HUD debt on it, so we'd assume a little bit of debt. So that, it's just a unique opportunity that's come to us, and we are working on that. Other than that, I can't say that we've spent a lot of time at all this quarter, even looking at packages. I understand that there are some big packages out there for both SNIPs -- I think only SNIPs, but nothing has come across our desk at all.

Antibes still owns their stake in you guys. Any change in that relationship with the new management team?

No, I haven't talked to the new COO, is that the COO? I haven't talked to him at all. We haven't heard from them about anything.

Guess they're still pretty happy.

They should be.

Yes, absolutely.

As any investor in us, John.

Absolutely. Me included. Thanks, Wendy.

You're welcome, John.

Your next question comes from Mark Lutenski. Your line is open.

Good morning. Just to touch on the Sunrise for a second. Can you remind me how much NOI came from Sunrise this past quarter?

NOI? How much rent?

Sure. Rent interest.

About $1.1 million. Because they're required to put up three months of rent.

Okay, got it. That's still around 7%, 8% of your total portfolio, right?

Correct.

Okay. And just in looking at that, I'm curious, how many alternative tenants do you think are out there for replacing Sunrise?

Well, that's an interesting number. Because our lease require -- if we had a new tenant who was paying less rent, Sunrise is obligated to make up the difference in the rent payment through the end of their lease. There are probably three that would be able to get very close to Sunrise's rent, and then there are probably three others that are smaller operators who couldn't come up in the early years with as much rent but might be able to be a little more aggressive in the outer years. So if we went in that direction with Sunrise, it's our obligation to mitigate the impact on sunrise if we move to a new operator . But we know there are operators who are interested. It's a very cohesive group of properties in Ohio and just across the border in

And were there any changes in some of your assumptions for your guidance, given preferred repurchase gain?

No. Basically, we took -- we had the early payoff of about $2 million of that note that created the $200,000, and took that $2 million and invested it in the preferred because the note was paying about 11% yield. And so we invested it in the preferred and picked up 11% there, plus we got the $600,000 of gain from not having to pay $25 a share for it. So we just redeployed the proceeds that we got from a loan payout to offset the interest that we would have lost.

Okay. And I was wondering if you could comment on demand for some capital improvements. I think a couple of quarters ago you might have expressed that, there might be heightened demand for that on the horizon given that you guys might be a cheaper alternative for funding for that.

We have had -- one of our skilled nursing properties up in Washington asked us, and I think Clint recently went up there to look at the project,, it might be around $2 million.

About $2 million.

Clint says it's about $2 million. We don't have anything agreed to on that, but that came up that we hasn't expected. We got an inquiry from an operator with the property in Kansas that is significant.We have been encouraging this increase, but they work very slowly, So I'm not sure that's going to come through, and that might be $4 million.

$4 million.

About $4 million if they proceed with that project. It's those projects.

We also -- we've signed $0.5 million commitment last week for an assisted living property, for the one in Florida.

Oh, okay. And we did $0.5 million commitment last -- during last month for an assisted living in Florida that wasn't in our projections at the beginning of the year. But it all depends on how quickly they spend that money and how quickly we fund it to get the returns.

Got it. Thank you.

(Operator Instructions) Your next question comes from the line of Jerry Doctrow. Your line is open.

Wendy, hi. Don't want to beat this to death, but just on Sunrise, what specifically was it that triggered extra security deposit payment?

Their debt to equity ratio.

Okay, thanks.

You're welcome.

Ms. Simpson, there are no further questions at this time.

Okay, thank you very much. Thank you, everyone for joining our call, and we will talk to you in a few months.

This concludes today's conference. You may now disconnect.