LTC Properties Inc (LTC) 2009 Q4 法說會逐字稿

Greetings and welcome to the LTC Properties fourth quarter 2009 analyst call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

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 or real estate markets, the performance of tenants and borrowers within the LTC Properties portfolio, and regulatory and other changes in the healthcare sector, as described in the Company's filings with the Securities & Exchange Commission Commission.

It is now my pleasure to introduce your host, Ms. Wendy Simpson, President and CEO for LTC Properties. Thank you, Ms. Simpson. You may now begin.

Thank you. Good morning, and good afternoon. Thank you for joining us for our 2009 year-end earnings call. I have with me Pam Kessler, our Senior Vice President and CFO, who after my opening comments will give some specifics about our fourth quarter and year-end earnings.

Yesterday after the close of business -- close of the markets, we released our results for 2009 and filed our form 10-K. We reported fully diluted, including noncash compensation charges, FFO of $0.46 for the quarter and $1.89 for the year. Not including the noncash charges, the quarter was $0.48 and $1.94. These results are in line with the guidance we gave during our third quarter results.

I am pleased to say that we have begun making investments in properties new to LTC, and in some cases with operators new to LTC. We issued a press release earlier this month detailing approximately $30 million that we have invested in assisted living and skilled nursing properties. We have been funding these investments by drawing down on our unsecured line of credit. We're actively looking at other opportunities, and both Clint and Andy are on the road doing just that so they're not available for comments on this call.

At this time, I cannot predict when, if or how much we will be able to invest in 2010, but the opportunities are better than they have been in the last few years. That is, we are seeing more reasonably priced assets offering returns in the high 9% and above ranges. As I said, right now we're funding these transactions with our bank line of credit. We will be looking during the year at a best way to permanently fund these transactions -- these acquisitions. We believe we have several options available to us, but we have not decided on any specific action at this time.

On the operational front, our lessees seem to be doing as well as they did last quarter. AssisTed Living Concepts continues to lag the coverage of others, but their stock price continues to go up and they continue to make profits on a consolidated basis. They actually have improved from a 94% coverage after a 5% management fee to a 98% coverage. Without a management fee and we include a 5% management fee, and without a management fee they cover 1.13 times on a consolidated basis, meaning both of their mass releases with us. I remind you that Extendicare is still on the lease so we have that as a credit enhancement. As for Sunrise, their coverage has remained a solid 7.6% after a 5% management fee and 96% before a management fee. Occupancy at Sunrise has gone just slightly down from the -- in the fourth quarter from the third quarter, it went to 8.5 -- or 85.9% from 86.9%, so a 1% reduction. I mean 76%. It would appear that they're managing the expenses closer.

Pam pointed that out to me, I said 7.6 coverage. It is 76% coverage after 5% management fee. At this time, I will ask Pam to comment on specific results and then I will have some closing comments before questions.

Thank you, Wendy. I will be discussing the quarter-over-quarter results for 2009. I will refer you to the 10-K that filed yesterday for the year-over-year results.

Revenues for the fourth quarter increased approximately $137,000 due to the following. Rental income increased $102,000 due to the acquisition of the three assisted living properties in November as previously disclosed. Straight line rent was $1million and amortization of lease inducement costs were $163,000 in the fourth quarter. Mortgage interest income decreased $41,000 die to the pay off of a loan and the normal amortization of mortgage loans. Interest and other income increased $76,000 due to the reimbursement of lender reserves related to the debt pay off that we did earlier this year. Interest expense increased $32,000 due to an increase in the outstanding balance on our line of credit related to the acquisition in November.

The provision for doubtful accounts in notes was comparable quarter-over-quarter. Assuming no new acquisitions, the quarterly provision should decrease by approximately 40% over the year as straight line rent decreases. Operating and other expenses increased $336,000, primarily due to transaction costs related to the acquisition of the three properties that amounted to $180,000 of transaction costs, and the timing of certain expenditures such as property inspections, travel and marketing. Net income available to common shareholders decreased $261,000, primarily due to the increase in operating and other expenses, partially offset by an increase in revenues as discussed previously. Fully diluted FFO per share was $0.46 this quarter compared to fully diluted FFO per share of $0.47 last quarter.

Moving to the balance sheet, we acquired three assisted living properties for $13 million. And under the new accounting guidance, all costs associated with transactions such as closing costs, legal fees, transfer taxes were expensed and as I noted previously, that was $180,000. Prior to the new accounting rules, those were all capitalized as part of the acquisition costs. We invested $1.2 million in capital improvements at a weighted average yield of approximately 10.5% and $74,000 in capital improvements at yields already reflected in the lease rate. We received a mortgage loan pay off of $690,000 and we received $965,000 in scheduled principle payments on mortgage loan receivables.

During the quarter, we borrowed $13.5 million under our line of credit, primarily for the acquisition that we discussed previously. And subsequent to December 31, we borrowed $17 million under the line. Therefore, we currently have $30.5 million drawn on the line and $49.5 million available under our line of credit. In the fourth quarter we issued 10,000 shares of common stock through our at-the-market offering program at $28.18 for a weighted average price including commissions of $27.55 per share.

Net proceeds from the sale were approximately $275,000. In the fourth quarter, one of our limited partners exercised his conversion option and we elected to issue him 67,294 shares of common stock rather than pay the equivalent in cash. During the fourth quarter, we paid $12.8 million in preferred and common dividends.

Thank you, Pam. We're optimistic about transactions in 2010, and I don't remember the last time I was able to say this. We are however, sticking to our underwriting parameters and the asset types we are comfortable with. We strive to get an initial 9% plus return and look at assisted living and skilled nursing properties in the main. Sometimes we may have a small independent living opportunity, but that is not an asset class in which we really expect to invest material dollars.

In the past two years, I have commented on the efforts of Andy Stokes, our Vice President of Marketing, to make smaller operators aware of LTC and our financing interest and abilities. Some of the opportunities we have and are looking at, are ones we have closed -- or ones we have closed can be traced directly to the success of Andy's efforts. Additionally, Clint Malin, our Vice President and Chief Development Officer, has maintained close relationships with our operators and other historical contacts that he's had in the industry, and has been able to turn his relationships into new deals and new opportunities. As I said, they're not on this call because they are out doing just what they're supposed to do.

Earlier this week, I flew across the country, looked at two properties and flew back so when Andy and Clint are too busy or on the road, either Pam or I hit the road. We're stretching ourselves extremely thin right at the moment. I may have to increase the staff by all of one person this year to do financial analysis of transactions and that wouldn't be a bad thing, but it has been a long time since LTC has looked at increasing staffing levels.

Looking at 2010 as it is now, I would give fully diluted FFO guidance of between $1.92 and $1.96. This does not assume additional acquisitions or capital transactions. It does assume that certain mortgages will pay as they mature, and we will use those proceeds to repay bank lines. We will use principle payments on our mortgage receivables that we receive to pay down bank lines. That's our assumptions in the $1.92 to $1.96.

As I said before, we're actively looking at transactions and we'll make the appropriate announcements, whether it is a capital raising or acquisition, and update you as to revised guidance as the reality changes. Thank you for your attention, and now I will open it up for questions. Jackie?

Thank you. (Operator Instructions). Our first question is coming from Karin Ford of Keybanc.

Hi. Good morning.

Hi, Karin.

Just a couple questions the guidance. It includes the $30 million of acquisitions that you guys have recently done, but nothing additional beyond that? Is that correct?

That's correct.

Okay. How much mortgage -- how many mortgages -- what volume of mortgages do you expect to be paid down in 2010?

There are no mortgage that pay, but we have principle payments.

Okay. Just the regular amortization?

Correct.

That is disclosed in the 10-K.

Got it. Okay. And then as far as lease escalators or rent relief, is there anything going on in the core operations line in 2010, that's different than what we have seen in the past?

No.

Okay.

Let me ask Pam a question. What was after bad debt this year.

200 a quarter.

You mentioned earlier that you're looking at a number of different options to permanently finance acquisitions that you're making this year. Can you talk about what those options are and what type of costs you're looking at for the different ones?

Yes. We're looking at private placements, and it could be 6.5% to 7%. Insurance companies are looking to place the money in that level. We could look at a convertible debt placement that would be in the 6% to 6.5% range. Again, we can -- we're told we can do relatively low volumes in that. We wouldn't do $100 million. We're looking to raise debt in multiples of $50 million to $75 million rather than $100 million.

Right now, based on what we see as our need of capital in the future. We can use -- if the stock price is attractive, we could use our ATM to draw down some lines on that. Those are basically the areas of investing or raising capital dollars that we see open right at the moment for us.

That's helpful. Just finally on Sunrise, the 100 basis point tick down in occupancy seems a little troubling in light of what seems like it has been fairly stable or perhaps even improving for a lot of the other operators. Do you see anything specifically going on there? Does it raise red flags for you guys? Make you more concerned about trying to do something there? What do you think is going on?

I think it could possibly be just a seasonal issue.

And you're comparing to prior year end. Quarter-over-quarter, the decrease was 20 basis points.

Okay.

It is not a significant quarter over quarter.

Right. Are you guys talking to them?

Constantly, but they're complying with all of their lease provisions and there is really nothing we can do right at the moment to take those properties away.

Okay. Thanks very much.

You're welcome, Karin.

Thank you. Our next question is coming from Mark Lutenski of BMO Capital Markets.

Good morning.

Good morning, Mark.

Pam, I was wondering, sorry to make you repeat yourself, but can you say again the provision for doubtful accounts? Did you say you expect that to burn off during 2010?

Not totally burn off, but decrease by 40%. From fourth quarter 2009 to fourth quarter 2010, I expect it to decrease 40% as straight line rent decreases because that's primarily what the reserve is for.

Then on the acquisitions, I was wondering were these in the works for a while or were these recent opportunities that you guys found?

You referenced them on the last call.

Yes. They closed relatively -- the assisted living properties was really a quick close. Those were properties that we bought out of the Brookdale acquisition of the Sunrise properties, so that the operator who bought those properties came to us and we quickly had the money available to do that transaction. The one that just closed on Monday was a relatively fast transaction, too. The other one, we had been working on for a couple of months. It takes us anywhere from 60 to 120 days to close a transaction.

I am sorry. Did you guys disclose what yield you expect on those?

We gave the rent, yes.

Okay. And then on capital commitments, what expectations do you have for those in 2010?

I think that's in the K, right?. There is a footnote in the K called Commitments and Contingency. I can't remember the number. It has a whole schedule of the commitments that are out there.

How much do you expect to be drawn down from those tenants during 2010? Do you have any indication of that?

Yes. Hold on a second. About I would say about $2 million -- I would say about $1 million.

Okay.

Over the year.

And that has an additional yield on that, right?

It does, yes. These tend to be conservative. They range between 10% and 10.5%.

Got it. Okay. Thank you.

You're welcome.

Our next question is coming from John Roberts of Hilliard Lyons.

Hey, Wendy, hey, Pam.

Hi, John.

First of all, going back to the guidance a bit, does that include noncash comp?

It does.

And also what are you assuming on financing for that? Are you assuming it stays in a credit line or are you assuming permanent financing?

We're assuming the credit line.

If you look at cap rates 9%, high 9%, or even above that. I am not hearing it from anybody else?

It is not a cap rate. It is a yield.

Yield. Okay.

A lease yield.

Very good. You haven't talked about the schools in awhile. Any thoughts on -- I know you're making a nice return on them. Obviously they're not in your wheel house so to speak. Any thoughts on those and what you're going to do?

The one in Minnesota is a mortgage. They're having a bit of difficulty right at the moment because when Northwest merged with Delta or whoever they merged with, a lot of executives moved out of the area. Right now, we are paying some attention to that mortgage. How much is the mortgage, Pam?

$3.7 million.

It is $3.7 million, and our total interest income on that a year is $285,000. The one in New Jersey is doing very well. We haven't put it up for sale. I am not too concerned about the value or the return from the building. They seem to be doing very well. It is about a 12% return right now, so I am not looking to turn it over and get cash out of it. We're not looking at schools any more.

Wendy, thanks. That's it.

You're welcome.

Thank you. Our next question is coming from Daniel Bernstein of Stifel Nicolaus.

Good morning. This is Dan filling in for Jerry. Good to hear you making acquisitions and positive on the acquisition environment.

I am looking for a strong buy, like you have for OHI.

I will have to ask Jerry when he gets back.

Okay. I will take just a passive buy.

Okay. I wanted to follow up on a question on the potential for asset sales. Is that an avenue to raise money as well? Are you looking to maybe call the portfolio at all going forward. And maybe I could look through the K, but do you have any assets held for sale at this point?

We don't. There are no -- well, other than this property in Minnesota if -- they're having significant problems, we might sell that property right out, but no significant acquisitions -- or sales that I can think of.

I don't want to peg you to a number. Is there a hopeful amount of acquisitions that you would like to do, maybe not a goal but a hopeful amount for 2010?

Yes. Hopefully, we could do another $60 million through 2010.

Okay. I think almost everything else has been asked and again, congratulations on picking up the acquisition.

Thank you. Say high to Jerry for us.

I will.

Thank you. Our next question is coming from Karin Ford of Keybanc.

Hi. Just a follow-up. I think on the third quarter call, you said you were expecting the acquisition volume to be around $50 million and it came in at $30 million. Did a piece of expected acquisitions fall out of bed?

Yes. As we go through due diligence on properties, we find things because we are extremely conservative and careful, we find things that we just would prefer not completing the deals. Yes, a couple of things we decided to walk away from.

Okay. Great. Thanks.

There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.

Thank you very much for joining us. We look forward to talking to you for our first quarter of 2010. And more than that, we look forward to possible having some press releases out in advance of our earnings to talk about moving forward in 2010 with acquisitions or other things that LTC is working on. Thank you very much for joining us. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time.