UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____ to ____
Commission file number 1-11314
LTC PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Maryland |
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71-0720518 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
2829 Townsgate Road, Suite 350
Westlake Village, California 91361
(Address of principal executive offices, including zip code)
(805) 981-8655
(Registrant’s telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
Emerging growth company ☐ |
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(Do not check if a |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares of common stock outstanding on August 3, 2018 was 39,634,980.
LTC PROPERTIES, INC.
FORM 10-Q
June 30, 2018
PART I -- Financial Information |
Page |
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Item 1. |
Financial Statements |
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3 | |
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4 | |
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5 | |
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6 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 | |
38 | ||
38 | ||
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39 | ||
39 | ||
39 | ||
40 |
LTC PROPERTIES, INC.
(amounts in thousands, except per share)
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June 30, 2018 |
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December 31, 2017 |
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(unaudited) |
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(audited) |
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ASSETS |
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Investments: |
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Land |
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$ |
125,882 |
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$ |
124,041 |
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Buildings and improvements |
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1,269,675 |
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1,262,335 |
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Accumulated depreciation and amortization |
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(301,458) |
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(304,117) |
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Operating real estate property, net |
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1,094,099 |
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1,082,259 |
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Properties held-for-sale, net of accumulated depreciation: 2018—$1,916; 2017—$1,916 |
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3,830 |
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3,830 |
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Real property investments, net |
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1,097,929 |
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1,086,089 |
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Mortgage loans receivable, net of loan loss reserve: 2018—$2,355; 2017—$2,255 |
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233,823 |
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223,907 |
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Real estate investments, net |
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1,331,752 |
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1,309,996 |
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Notes receivable, net of loan loss reserve: 2018—$142; 2017—$166 |
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14,074 |
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16,402 |
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Investments in unconsolidated joint ventures |
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30,397 |
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29,898 |
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Investments, net |
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1,376,223 |
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1,356,296 |
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Other assets: |
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Cash and cash equivalents |
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4,260 |
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5,213 |
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Restricted cash |
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2,446 |
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— |
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Debt issue costs related to bank borrowings |
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3,304 |
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|
810 |
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Interest receivable |
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17,864 |
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15,050 |
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Straight-line rent receivable, net of allowance for doubtful accounts: 2018—$707; 2017—$814 |
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70,036 |
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64,490 |
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Lease incentives |
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21,407 |
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21,481 |
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Prepaid expenses and other assets |
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4,089 |
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2,230 |
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Total assets |
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$ |
1,499,629 |
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$ |
1,465,570 |
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LIABILITIES |
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Bank borrowings |
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$ |
85,500 |
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$ |
96,500 |
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Senior unsecured notes, net of debt issue costs: 2018—$1,027; 2017—$1,131 |
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566,940 |
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571,002 |
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Accrued interest |
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5,105 |
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5,276 |
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Accrued incentives and earn-outs |
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9,167 |
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8,916 |
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Accrued expenses and other liabilities |
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27,221 |
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25,228 |
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Total liabilities |
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693,933 |
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706,922 |
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EQUITY |
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Stockholders’ equity: |
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Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2018—39,635; 2017—39,570 |
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396 |
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396 |
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Capital in excess of par value |
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858,832 |
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856,992 |
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Cumulative net income |
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1,190,078 |
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1,100,783 |
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Cumulative distributions |
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(1,248,179) |
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(1,203,011) |
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Total LTC Properties, Inc. stockholders’ equity |
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801,127 |
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755,160 |
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Non-controlling interests |
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4,569 |
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3,488 |
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Total equity |
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805,696 |
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758,648 |
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Total liabilities and equity |
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$ |
1,499,629 |
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$ |
1,465,570 |
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See accompanying notes.
3
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(amounts in thousands, except per share, unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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Revenues: |
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Rental income |
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$ |
33,930 |
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$ |
35,265 |
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$ |
68,435 |
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$ |
70,300 |
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Interest income from mortgage loans |
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7,007 |
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6,625 |
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13,823 |
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13,373 |
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Interest and other income |
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535 |
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578 |
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1,024 |
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1,417 |
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Total revenues |
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41,472 |
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42,468 |
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83,282 |
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85,090 |
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Expenses: |
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Interest expense |
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7,655 |
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7,151 |
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15,484 |
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14,622 |
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Depreciation and amortization |
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9,268 |
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9,308 |
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18,712 |
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18,667 |
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Impairment charges |
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— |
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1,880 |
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— |
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1,880 |
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Recovery for doubtful accounts |
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(38) |
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(5) |
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(30) |
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(43) |
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Transaction costs |
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6 |
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— |
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10 |
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22 |
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General and administrative expenses |
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4,716 |
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4,386 |
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9,513 |
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9,126 |
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Total expenses |
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21,607 |
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22,720 |
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43,689 |
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44,274 |
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Operating income |
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19,865 |
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19,748 |
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39,593 |
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40,816 |
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Income from unconsolidated joint ventures |
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726 |
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575 |
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1,357 |
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1,020 |
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Gain on sale of real estate, net |
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48,345 |
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5,054 |
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48,345 |
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5,054 |
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Net income |
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68,936 |
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25,377 |
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89,295 |
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46,890 |
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Income allocated to participating securities |
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(278) |
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(104) |
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(366) |
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(201) |
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Net income available to common stockholders |
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$ |
68,658 |
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$ |
25,273 |
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$ |
88,929 |
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$ |
46,689 |
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Earnings per common share: |
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Basic |
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$ |
1.74 |
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$ |
0.64 |
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$ |
2.25 |
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$ |
1.19 |
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Diluted |
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$ |
1.73 |
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$ |
0.64 |
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$ |
2.25 |
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$ |
1.18 |
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Weighted average shares used to calculate earnings per common share: |
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Basic |
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39,471 |
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39,414 |
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39,461 |
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39,390 |
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Diluted |
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39,765 |
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39,794 |
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39,750 |
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39,769 |
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Dividends declared and paid per common share |
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$ |
0.57 |
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$ |
0.57 |
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$ |
1.14 |
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$ |
1.14 |
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Comprehensive Income: |
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Net income |
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$ |
68,936 |
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$ |
25,377 |
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$ |
89,295 |
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$ |
46,890 |
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Comprehensive income |
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$ |
68,936 |
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$ |
25,377 |
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$ |
89,295 |
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$ |
46,890 |
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See accompanying notes.
4
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, unaudited)
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Six Months Ended June 30, |
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2018 |
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2017 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
89,295 |
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$ |
46,890 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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18,712 |
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18,667 |
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Stock-based compensation expense |
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2,897 |
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|
2,684 |
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Impairment charges |
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— |
|
|
1,880 |
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Gain on sale of real estate, net |
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(48,345) |
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(5,054) |
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Income from unconsolidated joint ventures |
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(1,357) |
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|
(1,020) |
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Income distributions from unconsolidated joint ventures |
|
|
1,256 |
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|
754 |
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Insurance proceeds for damaged property |
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2,619 |
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— |
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Payment for remediation of damaged property |
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(173) |
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— |
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Straight-line rental income |
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|
(5,440) |
|
|
(5,307) |
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Lease incentives funding |
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(1,017) |
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(5,172) |
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Amortization of lease incentives |
|
|
1,091 |
|
|
1,111 |
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Provision for doubtful accounts |
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(30) |
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(43) |
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Non-cash interest related to contingent liabilities |
|
|
251 |
|
|
351 |
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Other non-cash items, net |
|
|
663 |
|
|
637 |
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Increase in interest receivable |
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(2,814) |
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|
(2,572) |
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Decrease in accrued interest payable |
|
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(171) |
|
|
(132) |
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Net change in other assets and liabilities |
|
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(1,966) |
|
|
(6,336) |
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Net cash provided by operating activities |
|
|
55,471 |
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|
47,338 |
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INVESTING ACTIVITIES: |
|
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|
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Investment in real estate properties |
|
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(25,902) |
|
|
(54,740) |
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Investment in real estate developments |
|
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(18,623) |
|
|
(9,155) |
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Investment in real estate capital improvements |
|
|
(1,763) |
|
|
(2,195) |
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Capitalized interest |
|
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(552) |
|
|
(371) |
|
Proceeds from sale of real estate, net |
|
|
64,386 |
|
|
14,106 |
|
Investment in real estate mortgage loans receivable |
|
|
(11,654) |
|
|
(7,829) |
|
Principal payments received on mortgage loans receivable |
|
|
1,636 |
|
|
17,339 |
|
Investments in unconsolidated joint ventures |
|
|
(497) |
|
|
(3,734) |
|
Payment of working capital reserve |
|
|
— |
|
|
(439) |
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Principal payments received on notes receivable |
|
|
2,352 |
|
|
25 |
|
Net cash provided by (used in) investing activities |
|
|
9,383 |
|
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(46,993) |
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FINANCING ACTIVITIES: |
|
|
|
|
|
|
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Bank borrowings |
|
|
54,000 |
|
|
48,500 |
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Repayment of bank borrowings |
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(65,000) |
|
|
(110,600) |
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Proceeds from issuance of senior unsecured notes |
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|
— |
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|
100,000 |
|
Principal payments on senior unsecured notes |
|
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(4,166) |
|
|
(4,167) |
|
Proceeds from common stock issued |
|
|
— |
|
|
14,578 |
|
Stock option exercises |
|
|
123 |
|
|
79 |
|
Distributions paid to stockholders |
|
|
(45,168) |
|
|
(45,110) |
|
Contribution from non-controlling interests |
|
|
1,081 |
|
|
— |
|
Financing costs paid |
|
|
(3,051) |
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|
(363) |
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Other |
|
|
(1,180) |
|
|
(1,954) |
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Net cash (used in) provided by financing activities |
|
|
(63,361) |
|
|
963 |
|
Increase in cash, cash equivalents and restricted cash |
|
|
1,493 |
|
|
1,308 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
5,213 |
|
|
7,991 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
6,706 |
|
$ |
9,299 |
|
|
|
|
|
|
|
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Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
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Interest paid |
|
$ |
14,994 |
|
$ |
14,119 |
|
See accompanying notes.
5
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
LTC Properties, Inc., a health care real estate investment trust (“REIT”), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in seniors housing and health care properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending. We conduct and manage our business as one operating segment, rather than multiple operating segments, for internal reporting and internal decision making purposes. Our primary objectives are to create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators. Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property classification and form of investment.
We have prepared consolidated financial statements included herein without audit and in the opinion of management have included all adjustments necessary for a fair presentation of the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to rules and regulations governing the presentation of interim financial statements. The accompanying consolidated financial statements include the accounts of our company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2018 and 2017 are not necessarily indicative of the results for a full year.
No provision has been made for federal or state income taxes. Our company qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As such, we generally are not taxed on income that is distributed to our stockholders.
Restricted Cash
During the third quarter of 2017, a 170-bed skilled nursing center in our portfolio was evacuated due to damages caused by Hurricane Harvey. This property is located in Texas and operated under a triple net master lease agreement. We periodically evaluate properties for impairment when events or changes in circumstances indicate that the asset may be impaired or the carrying amount of the asset may not be recoverable through future undiscounted cash flows. Based upon a quarterly assessment of this 170-bed property using the recoverability test, our management concluded the property has not been impaired.
As of June 30, 2018, the gross value and the carrying value of the property were $2,021,000 and $1,200,000, respectively.
The provisions of our triple net lease agreements impose certain obligations on our operators including:
· |
Acquire property insurance, subject to certain criteria; |
· |
Continue paying rent in the event of any property damage or destruction; and |
· |
Return the leased property back to us at the end of the lease term, in the same condition originally received. |
6
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
During the second quarter of 2018, our operator provided us with insurance proceeds of $2,619,000 to be used for remediation of the property as noted in the provisions of our master lease agreement. Accordingly, we have classified the insurance proceeds as restricted cash on our consolidated financial statements.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While this ASU specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate. Additionally, the FASB has issued targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. The new standard and its amendments were effective on January 1, 2018 and permitted reporting entities to apply the standard using either a modified retrospective approach, by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or full retrospective approach. We assessed our revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. We evaluated the provisions of ASU 2014-09 and its related additional guidance to determine the potential impact of the new standard. We concluded that adoption of this standard did not have an impact on our results of operations or financial condition, as our revenue consists of rental income from leasing arrangements and interest income from loan arrangements, both of which are specifically excluded from ASU 2014-09. We adopted this standard using the modified retrospective adoption method on January 1, 2018.
In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). The objective of this ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 modifies existing guidance by requiring lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance of operating leases. ASU 2016-02 requires the lessors to identify lease and non-lease components of a lease agreement. ASU 2016-02 will govern the recognition of revenue for lease components. Revenue related to non-lease components under lease agreements will be subject to the revenue recognition standard, upon adoption of this ASU. Entities are required to use a modified retrospective approach for leases that exist or are entered into after January 1, 2017, the beginning of the earliest comparative period presented in the 2019 consolidated financial statements with a cumulative adjustment to the opening balance of retained earnings. In March 2018, the FASB approved to amend ASU 2016-02 allowing the lessors, as a practical expedient, an election to not separate the non-lease components from the related lease components and instead, to account for those components as a single lease component (if certain criteria are met). The practical expedient option is available as a single election that must be consistently applied to all existing leases at the date of adoption. Furthermore, in March 2018, the FASB agreed to issue an amendment to ASU 2016-02 that would provide an entity the optional transition method to make January 1, 2019, the initial application date of the ASU, rather than January 1, 2017. Consequently,
7
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
entities that elect both the practical expedient and the optional transitional method will apply the new lease ASU prospectively to leases commencing or modified after January 1, 2019, and will not be required to apply the disclosures under the new lease ASU to comparative periods.
Consistent with present standards, we will continue to account for lease revenue on a straight-line basis when applicable. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We have begun our process for implementing this guidance, including identifying any non-lease components in our lease arrangements. We will continue to evaluate this guidance and the impact to us, as both lessor and lessee, on our consolidated financial statements.
In August 2016, FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force). ASU 2016-15 provides guidance that reduces the diversity in practice of the classification of certain cash receipts and cash payments within the statement of cash flows. This guidance is effective for fiscal periods beginning after December 15, 2017. We adopted this standard on January 1, 2018. The adoption of this guidance did not have a material impact on our financial statements.
In January 2017, the FASB issued ASU No. 2017-01(“ASU 2017-01”), Business Combinations (Topic 805): Clarifying Definition of a Business. ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. We adopted ASU 2017-01 during the second quarter of 2017. Historically, our acquisitions qualified as either a business combination or asset acquisition. The adoption of this ASU did not have a material impact on the company’s results of operations or financial condition as most of our acquisitions of investment properties will continue to qualify as asset acquisitions.
In February 2017, the FASB issued ASU No. 2017-05 (“ASU 2017-05”), Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 defines an in-substance nonfinancial asset and clarifies guidance related to partial sales of nonfinancial assets. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this ASU did not have a material impact on the consolidated financial statements and related notes.
.
2.Real Estate Investments
Assisted living communities, independent living communities, memory care communities and combinations thereof are included in the assisted living property classification (or collectively ALF).
Any reference to the number of properties or facilities, number of units, number of beds, number of operators and yield on investments in real estate are unaudited and outside the scope of our
8
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
independent registered public accounting firm’s review of our consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.
Owned Properties. The following table summarizes our investments in owned properties at June 30, 2018 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Percentage |
|
Number |
|
Number of |
|
Investment |
|
|||
|
|
Gross |
|
of |
|
of |
|
SNF |
|
ALF |
|
per |
|
||
Type of Property |
|
Investment |
|
Investment |
|
Properties (1) |
|
Beds |
|
Units |
|
Bed/Unit |
|
||
Assisted Living |
|
$ |
787,373 |
|
56.2 |
% |
102 |
|
— |
|
5,796 |
|
$ |
135.85 |
|
Skilled Nursing |
|
|
578,030 |
|
41.2 |
% |
75 |
|
9,204 |
|
261 |
|
$ |
61.07 |
|
Under Development (2) |
|
|
25,077 |
|
1.8 |
% |
— |
|
— |
|
— |
|
|
— |
|
Other (3) |
|
|
10,823 |
|
0.8 |
% |
1 |
|
118 |
|
— |
|
|
— |
|
Total |
|
$ |
1,401,303 |
|
100.0 |
% |
178 |
|
9,322 |
|
6,057 |
|
|
|
|
(1) |
We own properties in 28 states that are leased to 30 different operators. |
(2) |
Represents three development projects, consisting of a 143-bed SNF in Kentucky, a 78-unit ALF/MC located in Oregon and a 110-unit ILF/ALF/MC in Wisconsin. |
(3) |
Includes three parcels of land held-for-use, and one behavioral health care hospital. |
Owned properties are leased pursuant to non-cancelable operating leases generally with an initial term of 10 to 15 years. Each lease is a triple net lease which requires the lessee to pay all taxes, insurance, maintenance and repairs, capital and non-capital expenditures and other costs necessary in the operations of the facilities. Many of the leases contain renewal options. The leases provide for fixed minimum base rent during the initial and renewal periods. The majority of our leases contain provisions for specified annual increases over the rents of the prior year that are generally computed in one of four ways depending on specific provisions of each lease:
(i) |
a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%; |
(ii) |
a calculation based on the Consumer Price Index; |
(iii) |
as a percentage of facility net patient revenues in excess of base amounts; or |
(iv) |
specific dollar increases. |
9
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
Acquisitions and Developments: The following table summarizes our acquisitions for the six months ended June 30, 2018 and 2017 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Total |
|
Number |
|
Number |
||
|
|
|
|
Purchase |
|
Transaction |
|
Acquisition |
|
of |
|
of |
|||
Year |
|
Type of Property |
|
Price |
|
Costs (1) |
|
Costs |
|
Properties |
|
Beds/Units |
|||
2018 |
|
Assisted Living (2) |
|
$ |
25,200 |
|
$ |
66 |
|
$ |
25,266 |
|
2 |
|
88 |
|
|
Land (3) |
|
|
600 |
|
|
36 |
|
|
636 |
|
— |
|
— |
|
|
Total |
|
$ |
25,800 |
|
$ |
102 |
|
$ |
25,902 |
|
2 |
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
Assisted Living (4) |
|
$ |
54,463 |
|
$ |
277 |
|
$ |
54,740 |
|
3 |
|
240 |
Total |
|
|
|
$ |
54,463 |
|
$ |
277 |
|
$ |
54,740 |
|
3 |
|
240 |
(1) |
Represents cost associated with our acquisitions; however, upon adoption of ASU 2017-01, our acquisitions meet the definition of an asset acquisition resulting in capitalization of transaction costs to the properties’ basis. For our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Additionally, transaction costs may include costs related to the prior year due to timing and terminated transactions. |
(2) |
We acquired two memory care communities in Texas. |
(3) |
We entered into a partnership to own the real estate and develop a 78-unit assisted living and memory care community in Medford, OR for $18,108 and committed to purchase an existing operational 89-unit independent living community in Oregon. We anticipate acquiring the independent living community in the third quarter of 2018. |
(4) |
We acquired a 107-unit ALF and a 73-unit MC for an aggregate purchase price of $38,813. Additionally, we acquired a 60-unit MC for $15,650. |
During the six months ended June 30, 2018 and 2017, we invested the following in development and improvement projects (in thousands):
|
|
Six months ended June 30, 2018 |
|
Six months ended June 30, 2017 |
|||||||||
|
|
Developments |
|
Improvements |
|
|
Developments |
|
|
Improvements |
|||
Assisted Living Communities |
|
$ |
14,653 |
|
$ |
1,048 |
|
|
$ |
7,198 |
|
$ |
839 |
Skilled Nursing Centers |
|
|
3,970 |
|
|
500 |
|
|
|
1,957 |
|
|
1,356 |
Other |
|
|
— |
|
|
215 |
|
|
|
— |
|
|
— |
Total |
|
$ |
18,623 |
|
$ |
1,763 |
|
|
$ |
9,155 |
|
$ |
2,195 |
Completed Developments. The following table summarizes our completed developments during the six months ended June 30, 2018 (dollar amounts in thousands):
|
|
Number |
|
Type |
|
Number |
|
|
|
|
|
|
|
of |
|
of |
|
of |
|
|
|
|
Total |
Type of Project |
|
Properties |
|
Property |
|
Beds/Units |
|
State |
|
Investment |
|
Development |
|
1 |
|
MC |
|
66 |
|
Illinois |
|
$ |
13,974 |
Properties held-for-sale. The following table summarizes our properties held-for-sale as of June 30, 2018 and December 31, 2017 (dollar amounts in thousands):
|
|
Type |
|
Number |
|
|
|
|
|
|
|
Number |
|
|
of |
|
of |
|
|
Gross |
|
|
Accumulated |
|
of |
State |
|
Property |
|
Properties |
|
|
Investment |
|
|
Depreciation |
|
Beds/units |
Texas |
|
ILF |
|
1 |
|
$ |
5,746 |
|
$ |
1,916 |
|
140 |
10
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
Properties sold. The following table summarizes property sales during the six months ended June 30, 2018 and 2017(dollar amounts in thousands):
|
|
|
|
Type |
|
Number |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
of |
|
of |
|
of |
|
|
Sales |
|
|
Carrying |
|
|
Net |
Year |
|
State |
|
Properties |
|
Properties |
|
Beds |
|
|
Price |
|
|
Value |
|
|
Gain |
2018 |
|
Ohio and Pennsylvania |
|
ALF |
|
6 |
|
320 |
|
$ |
67,500 |
|
$ |
16,352 |
|
$ |
48,345 |
2017 |
|
Indiana and Iowa |
|
ALF |
|
4 |
|
175 |
|
$ |
14,250 |
|
$ |
8,726 |
|
$ |
5,054 |
Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at June 30, 2018 (dollar amounts in thousands):
|
|
|
|
|
|
|
Type |
|
Percentage |
|
Number of |
|
Investment |
|||||
|
|
|
|
Gross |
|
of |
|
of |
|
|
|
|
|
SNF |
|
per |
||
Interest Rate (1) |
|
Maturity |
|
Investment |
|
Property |
|
Investment |
|
Loans (2) |
|
Properties (3) |
|
Beds |
|
Bed/Unit |
||
9.5% |
|
2043 |
|
$ |
186,496 |
|
SNF |
|
79.0 |
% |
1 |
|
15 |
|
2,043 |
|
$ |
91.29 |
9.2% |
|
2045 |
|
|
25,326 |
|
SNF |
|
10.7 |
% |
1 |
|
3 |
|
375 |
|
$ |
67.54 |
9.4% |
|
2045 |
|
|
14,300 |
|
SNF |
|
6.0 |
% |
1 |
|
1 |
|
157 |
|
$ |
91.08 |
9.5% |
|
2020 |
|
|
10,056 |
|
SNF |
|
4.3 |
% |
1 |
|
2 |
|
205 |
|
$ |
49.05 |
Total |
|
|
|
$ |
236,178 |
|
|
|
100.0 |
% |
4 |
|
21 |
|
2,780 |
|
$ |
84.96 |
(1) |
The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 2.25%. |
(2) |
Some loans contain certain guarantees, provide for certain facility fees and the majority of the mortgage loans have a 30-year term. |
(3) |
We have investments in properties located in one state that includes mortgages to one operator. |
The following table summarizes our mortgage loan activity for the six months ended June 30, 2018 and 2017 (in thousands):
|
|
Six months ended June 30, |
||||
|
|
2018 |
|
2017 |
||
Originations and funding under mortgage loans receivable |
|
$ |
11,654 |
(1) |
$ |
7,829 |
Pay-offs received |
|
|
(1,086) |
|
|
(16,665) |
Scheduled principal payments received |
|
|
(550) |
|
|
(674) |
Net increase (decrease) in mortgage loans receivable |
|
$ |
10,018 |
|
$ |
(9,510) |
(1) |
During 2018, we funded an additional $7,400 under an existing mortgage loan for the purchase of a 112-bed skilled nursing center in Michigan. The incremental funding bears interest at 8.7%, fixed for five years, and escalating by 2.25% thereafter. |
11
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
3.Investment in Unconsolidated Joint Ventures
Our investment in unconsolidated joint ventures consists of a preferred equity investment and two mezzanine loans which are accounted for as unconsolidated joint ventures in accordance with GAAP. The following table summarizes our investment in unconsolidated joint ventures (dollar amounts in thousands):
|
|
Type |
|
Type |
|
Total |
|
|
Currently |
|
|
Number |
|
|
|
|
|
|
|
|
|
of |
|
of |
|
Preferred |
|
|
Paid in |
|
|
of |
|
|
Investment |
|
|
Carrying |
|
State |
|
Properties |
|
Investment |
|
Return |
|
|
Cash |
|
|
Beds/ Units |
|
|
Commitment |
|
|
Value |
|
Arizona |
|
ALF/MC/ILF |
|
Preferred Equity |
(1) |
15 |
% |
|
7 |
% |
|
585 |
|
$ |
25,650 |
|
$ |
23,859 |
|
Florida |
|
ALF/IL/MC |
|
Mezzanine |
(2) |
15 |
% |
|
12 |
% |
|
99 |
|
|
2,900 |
(3) |
|
3,138 |
(3) |
Florida |
|
UDP-ALF/MC |
|
Mezzanine |
(2) |
15 |
% |
|
10 |
% |
|
127 |
|
|
3,400 |
|
|
3,400 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
811 |
|
$ |
31,950 |
|
$ |
30,397 |
|
(1) |
We have concluded that the JV is a variable interest entity (“VIE”) in accordance with GAAP. However, because we do not control the entity, nor do we have any role in the day-to-day management, we are not the primary beneficiary of the JV. Therefore, we account for the JV investment using the equity method. |
(2) |
We evaluated these acquisition, development and construction (“ADC”) arrangements and determined that the characteristics are similar to jointly-owned investments or partnerships, and accordingly, these investments are accounted for as unconsolidated joint ventures under the equity method of accounting instead of loan accounting. |
(3) |
Since interest payments were deferred and no interest was recorded for the first twelve months of the loan, we used the effective interest method in accordance with GAAP to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance. |
The following table summarizes our capital contributions, income recognized, and cash interest received related to our investments in unconsolidated joint ventures (in thousands):
|
|
Six Months Ended June 30, |
|
||||||||||||||||
Type |
|
2018 |
|
2017 |
|
||||||||||||||
of |
|
|
Capital |
|
|
Income |
|
|
Cash Interest |
|
|
Capital |
|
|
Income |
|
|
Cash Interest |
|
Properties |
|
|
Contribution |
|
|
Recognized |
|
|
Received |
|
|
Contribution |
|
|
Recognized |
|
|
Received |
|
ALF/MC/ILF |
|
$ |
497 |
|
$ |
951 |
|
$ |
1,062 |
|
$ |
987 |
|
$ |
719 |
|
$ |
619 |
|
ALF/IL/MC |
|
|
— |
|
|
255 |
|
|
194 |
|
|
— |