LTC Properties, Inc. (NYSE:LTC) is a healthcare REIT in the United States. It invests in senior housing and long-term healthcare properties. These investments include skilled nursing properties, assisted living properties, independent living properties, and combinations through mortgage loans, property lease transactions, and other investments. The companys portfolio currently includes 200+ assisted living, memory care, post-acute/skilled nursing and range-of-care properties in 29 states. It pays a 4.9% annual dividend.
The chart and table below describe LTCs portfolio in more detail.
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As readers can see, LTC participates in a diverse range of industries within the healthcare industry. The wide diversification allows for a more reliable income stream. LTC also practices geographical diversification (see map below).
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Further, the demographics of the healthcare industry are extremely positive for growth (and income). ObamaCare is expected to have added roughly 25 million new insured persons to the total insureds in the US by 2017. On top of that, the Baby Boomer Generation is just starting to reach 65 years of age. As the Baby Boomer Generation moves fully into retirement age, it will use more and more medical services (see chart below). This will provide huge growth potential for the healthcare industry (see charts below).
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Readers will want to notice that the number of hospital days of care per 10,000 population more than triples from the 45-64 year age group to the 65+ age group. The days of care for those 65+ years of age are more than six-fold the 18-44 year old age groups. The first chart shows that the percentage of the US population over 65+ will quickly rise from the mid teens to over 20% as the Baby Boomer Generation moves into that age group. This should drive growth in the industry for more than 15 years. It is a very positive thesis for investment in this area.
LTC also tries to invest in the top MSAs (Metropolitan Statistical Areas). 64% of its properties are in the top 100 MSAs in the US. Only 4.9% of its properties are not in an MSA or a Micro-MSA. There is usually limited space to grow in the center of these areas. Therefore, there is a stronger likelihood of greater occupancy and of greater ability to raise rents. Both of these are positives for LTCs AFFO and FAD.
LTC has good operator diversification (see table and chart below).
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The top two operators as of June 30, 2015 were Brookdale (12.4% of income) and Prestige Healthcare (12.4% of income). All of the other operators account for significantly lower percentages of LTCs annual income. This form of diversification again makes LTCs income stream safer and more reliable.
All of LTCs leases are triple net leases. Triple net leases allow for low administration costs. The tenant is responsible for all taxes, insurance, rent, maintenance, and other costs. The initial term is usually 10-15 years. Most leases provide for a fixed minimum base rent, annual rent increases, and often renewal options. LTCs weighted average remaining lease term is 8.4 years. As of June 30, 2015, 92% of all properties and 96% of all rental revenues were under master leases or cross-default leases. None are expiring in 2015. Only $2.4 million are expiring in 2016, and only $1.7 million are expiring in 2017. Again, LTC is in a relatively safe position.
LTCs debt is also in good shape. As of June 30, 2015, its Debt/Enterprise Value is only 19.2%. Its (Debt + Preferred)/Enterprise Value is only 21.2%. The Debt/Normalized EBITDA is a healthy 3.2x. The chart below gives a good top level picture of LTCs Capitalization as of June 30, 2015.
Through the end of 2017, LTC has only an average of about $26 million in debt maturing each year. This makes LTC very well positioned for a recession in the next 2-3 years, if one occurs. In other words, it should be a safe investment.
The chart below showing LTCs Dividend CAGR of 6.1% substantiates the value of LTCs strategy.
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Recent performance in Q2 2015 was good. LTC beat on revenue of $27.12 million (+8.4% year over year) by +$0.14 million. FFO was in line. FFO increased 6.5% to $24.0 million, up from $22.5 million from Q2 2014. FFO per diluted common share was $0.66 in Q2 2015 up from $0.64 in Q2 2014. Normalized FFO was $24.4 million ($0.67 per share) in Q2 2015. This was up +8.3% from $22.5 million ($0.64) in Q2 2014. The Q2 2015 Normalized FFO excludes a $400,000 one-time, non-cash loan loss reserve related to $40.0 million of additional loan proceeds funded during Q2 2015. The increase in FFO and normalized FFO was primarily due to higher revenues from mortgage loan originations, completed development projects, and income from an unconsolidated joint venture. This was partially offset by higher debt interest payments (more debt from financing deals) and higher general and administrative costs.
Net income available to common stockholders was $17.0 million ($0.48 per diluted share) in Q2 2015 compared with $17.3 million ($0.50 per diluted share) in Q2 2014. The decrease was primarily due to a gain on a sale recognized in the 2014 period.
In Q2 2015, LTC entered into an agreement to purchase a 10-property portfolio of assisted living and memory care services totaling 891 units for $142 million. Nine of the properties are in Wisconsin and one is in Illinois. On August 17, 2015, LTC closed on this deal. Simultaneously, it entered into a master triple net lease agreement with an affiliate of Senior Lifestyle Corp. for a term of 15 years at an initial cash yield of 6.5%. This will escalate by 25 bps at the end of each of the first two years. After that, it will escalate by 2.75% annually.
The table below shows some of the financial metrics of the various sectors of LTCs business.
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