LTC Properties, Inc.
Q1 2008 Earnings Call Transcript

Published: 10 Jun 2008

[Operator:]

Good day ladies and gentlemen and welcome to the LTC Properties analyst meeting conference call. My name is Lacey, and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. 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 may include among others;[Author ID1

[Wendy Simpson:]

Thank you, Lacey. Good morning or afternoon and thanks for joining us for our first quarter 2008 conference call. With me are Pam Kessler, our CFO, and Clint Malin, our Chief Investment Officer. After my initial comments, I will turn it over to Pam and she will have a few more specific comments on our financial results. Net results wise, we had an as expected quarter and we really commented on most of the activity during our year-[Author ID1

[Pam Kessler:]

Thank you, Wendy. The year-over-year analysis, you can read in the Q, so I am just going to detail that quarter-over-quarter analysis. Revenues decreased approximately $175,000 from prior quarter primarily due to the lower interest income from our overnight investments as Wendy discussed. This is partially offset by an increase in rental revenue due to our contractual rental rate increases. Straight line rent decreased $252,000 this quarter and that straight line rent number was $953,000 for the quarter. And the lease inducement cost amortization was $162,000. Operating and other expenses decreased due [Author ID1

[Wendy Simpson:]

Thanks Pam. Just to reiterate, we have still our unsecured line totally available that is $90 million. It expires in November of this year. There are no restrictions on us drawing on it for any reason right now. So, if we had a large transaction that we wanted to do, the line is totally available or I believe that the capital markets are still smiling on REITs and healthcare REITs. I understand Omega did a deal this morning in the equity sector and we would raise equity if it paid and we can see where the money was going. So, in terms of the credit crisis or the credit crunch right now, I don't see it impacting our company. At this point, we still have about $30 million on our balance sheet. Closing these two transactions by the end of the quarter will use up a significant amount of that cash. I would be happy to draw on the line to do other transactions and we're not reluctant to do that. We are reluctant to do an equity or a debt issue right now without use of proceeds and absorb the negative arbitrage until we could invest the money. So, we have opportunities in front of us. The company continues to be cautious. We are making what we thought we would be able to do at approximately $10 million a quarter. And at this point, I see no reason to change the guidance of the company and we just look forward to being able to convert these opportunities into closed transactions. Lacey, I will take any questions now.

[Operator:]

(Operator Instructions). And our first question will come from the line of Tony Howard with Hilliard Lyons. Please proceed.

[Tony Howard:]

Good morning Wendy and Pam.

[Wendy Simpson:]

Hi Tony.

[Tony Howard:]

First, a clarification, on the 10-Q on page 8.

[Wendy Simpson:]

Okay, hold on. Pam? Moving it.

[Pam Kessler:]

Yes.

[Tony Howard:]

Okay. You mentioned then the acquisition of the Ohio property and then you mentioned at the same time that there is an agreement to spend up to $2 million to rebuild,[Author ID1

[Wendy Simpson:]

Right.

[Tony Howard:]

I guess part of my question is how should we model this $2 million as far as near-term projections?

[Wendy Simpson:]

I'm going to have Clint answer that because he's working with the operator. I know the operator had identified several pieces of land in Ohio. We contacted KeyBank, who is familiar with Ohio about the value of land in Ohio but Clint, would you --?

[Clint Malin:]

Tony, I will give you some guidance on that. Ohio is a certificate of needs state. So, there's a regulatory process that would have to go through. And right now, the plan is to file that certificate of need application by June 1st. I think it's usually a three or four-month process to [Author ID1

[Wendy Simpson:]

The latter part of the year, the latter part of the fourth quarter.

[Tony Howard:]

Okay. Thanks Clint. In that same paragraph then, you mentioned as of March 31st you have remaining under these agreements $2.5 million. I am a little confused as far as what that represents?

[Clint Malin:]

That's just what remains of the existing commitments we have outstanding.

[Pam Kessler:]

Are you wanting to know how to model that? Is that your question?

[Tony Howard:]

Well, not only that but where is this $2.5 million? Is that part of the $2 million you are talking about as far as rebuilding this building?

[Pam Kessler:]

No, we have got about $1.6 million of that is one property in Ohio that is currently under construction and that will probably be done -- or it's remodeling.

[Clint Malin:]

That is a remodel project and that probably should be completed in the next probably three to four months.

[Tony Howard:]

Okay.

[Pam Kessler:]

And then the rest of it are little, little transactions.

[Tony Howard:]

Okay. And then under Section 7, I guess is page 12. Pam, you have like 10 or 15 different commitments. What is the total commitment that LTC is required to finance over the next several years?

[Wendy Simpson:]

Yeah. Our total commitments is it -- you are using this schedule, Pam?

[Pam Kessler:]

Yeah, the total commitments are $14.9 million if you're looking at what total commitments are outstanding. But as you will notice in the footnotes, several of those like Alterra that has been a commitment for a long time and they have not given us any indication that they're going to exercise that commitment. However, the SEC rules require that we give you all of our commitment. I think, if you're just looking at modeling, the $2.5 million that we had in that footnote on page 8 that you discussed, that is what we believe is going to be spent over the next nine months.

[Tony Howard:]

Okay. That's very helpful.

[Pam Kessler:]

So, I would use that number for modeling. The commitments in contingencies on Footnote 7, those are really just regulatory required…

[Wendy Simpson:]

But we are committed.

[Pam Kessler:]

Yes, we are committed.

[Wendy Simpson:]

We are committed, so,[Author ID1

[Pam Kessler:]

Exactly.

[Wendy Simpson:]

But all of them are at 10% or higher commitment yield.

[Tony Howard:]

Wendy, you mentioned as far as the outlook for acquisitions and this was a lot better. You mentioned some fairly large numbers of $200 million or so. But if you were to narrow that down to what you would consider your area of comfort, what would be like a good dollar amount for that?

[Wendy Simpson:]

Well, we still like the smaller transactions, the $5 million to $10 million transaction. But I think we would do between $50 million and $75 million if we came across the right transaction. We are willing to look at -- I know we can raise money to do a $200 million transaction. But it would -- we still would like to work on these smaller transactions where you can convert them, take less risk under one transaction and add FFO to the company.

[Tony Howard:]

Okay. Final question is, can you give me the rationale for repurchasing a Series F versus repurchasing the common stock?

[Wendy Simpson:]

Yeah, we were getting a better yield on the Fs at that time. It was just a yield issue. And there was a block. So, if somebody had come to me with a block of common with the same yield, I would have done the common. B[Author ID1

[Tony Howard:]

But the Series F, I guess is callable sometime next year?

[Pam Kessler:]

It is callable late February of next year right.

[Tony Howard:]

And what is your idea of what will [Author ID1

[Wendy Simpson:]

I don't know. It will depend on our financing costs as it goes forward. We have run a couple of models. We have run a model of,[Author ID1

[Tony Howard:]

Okay. Thank you.

[Operator:]

And our next question will come from the line of Peter Costa with FTN Midwest Securities. Please proceed.

[Peter Costa:]

Hi guys.

[Wendy Simpson:]

Hi Peter.

[Peter Costa:]

You talked about on the last call a facility in Georgia that you were getting close to on a $2.5 million facility.

[Wendy Simpson:]

Yes, that's the one we are talking about that we're almost –

[Clint Malin:]

This is Clint. Actually, we've had conversations with the tenant in the past couple of weeks and we are working on finalizing a lease amendment to make that happen. And we are hopeful they can commence the project probably in the next month or so.

[Peter Costa:]

Okay. So that is the same?

[Wendy Simpson:]

Yes, that's the same one.

[Clint Malin:]

That's correct.

[Peter Costa:]

And then we talked about the prices of facilities versus what you would like to pay versus where the rents are in this $200 million book that you're talking about of transactions that are out there. Are you seeing anything move at this point even if it's not exactly in the book at prices that you find attractive? Or do you think there's going to be a softening anytime soon? How close are we to where the [[Author ID1

[Wendy Simpson:]

Well, we look at every transaction that comes out and certainly Omega's recent announcement of the deal that they did in Maryland and -- Ohio and Maryland.[Author ID1

[Peter Costa:]

How much lower would you go on your hurdle rates? Where would you let that get to?

[Wendy Simpson:]

Well, you know, we would probably get to about 9% and we are looking at adjusting as I said our lease provisions. Because for the last several years, we've had a standard up and that is why we have got straight line lease payments and negotiating with the operators and saying let's peg something at your net revenues. So,[Author ID1

[Peter Costa:]

The last time percentage rents worked well is when you go back to nursing homes getting paid extra money for Medicare for rehab and the whole sub-acute thing started up. Do you see some kind of phenomenon in reimbursement that it's going to make percentage rents attractive again?

[Wendy Simpson:]

Well, that would be in a facility that wants to buy on the future because it is not 100% occupied or 90% occupied. We would not do it on a facility that was 93% occupied. So it would be based on a facility that somebody wanted to buy because they saw an upside and wanted us to pay a little bit of that upside in the price. So, you are right. It wouldn't make sense and it wouldn't be a proper risk underwriting to just base it on a property that is already full.

[Peter Costa:]

Got it.

[Wendy Simpson:]

But what would be full for a SNF is over 90% because of the man/woman issue of putting people in the same room and that sort of thing. So, no. Right now, people are looking to sell properties on [Author ID1

[Peter Costa:]

Okay. Thank you very much.

[Wendy Simpson:]

You are welcome.

[Operator:]

(Operator Instructions). Our next question will come from the line of Jerry Doctrow with Stifel Nicolaus. Please proceed.

[Jerry Doctrow:]

Thanks. Hello everyone. I just wanted to cover a couple of things Wendy. A lot of it has already been gone over. Just on Medicaid/Medicare a little bit. You sort of touched on it just now saying some states running big deficits. It was discussed on the ACP call the other day. And I think you also had said that your rent per bed basically is low enough that you don't think you are going to be impacted. I was wondering if you can just give me a little more color and so your sense of Medicare/Medicaid reimbursement and maybe a little bit more color on why you don't think you guys are at risk.

[Wendy Simpson:]

Well, we are at risk because everybody is at risk but I think we have less risk than most people because of our lower bed rates and that is basically why I am saying that. Plus, we have many different states. We don't have a -- our concentration in SNFs is with Preferred Healthcare who has properties in many different states. They seem to be doing very well on our properties. What I am hearing,[Author ID1

[Jerry Doctrow:]

Okay. And you guys don't disclose coverage because I understand you have got a lot of -- there are smaller operators that are unaudited. If I am thinking about that where coverage numbers we've seen for others are probably between 1.5 and as high as 1.8, 1.9 --?

[Wendy Simpson:]

If we added back everything those others add back, we would be comparable.

[Jerry Doctrow:]

Okay. You got my question. Okay.

[Wendy Simpson:]

We would be comparable on an overall -- [Author ID1

[Jerry Doctrow:]

Right. Okay. And then just two other things. Dividend policy, you popped up the dividend I think earlier in the year. How frequently would you say it gets reviewed and do you look at it in terms of just a ratio of FFO or FAD?

[Wendy Simpson:]

We look at it more as a ratio and if for some reason we get a lot of transactions. But I think our policy is probably once a year which would be in January again we would talk about it. Right now, it looks like this is a good ratio and a good payout for this year and we still do it monthly. So, I am not predicting any dividend changes.

[Jerry Doctrow:]

Okay, thanks. And then the last thing I had for you or for Pam. The level of G&A was a little bit higher first quarter I think than we had expected and I was just wondering if there is a good run rate either quarterly or for the rest of the year?

[Wendy Simpson:]

Our run rate -- the first of the year, we have all the payroll taxes. We had a lot of state taxes that we paid and we do not amortize them over the 12 months of the year. And I think our run rate is $1.5 million.

[Jerry Doctrow:]

Okay. So from here on, we would be at $1.5 million a quarter.

[Wendy Simpson:]

$[Author ID1

[Jerry Doctrow:]

Yeah, okay. Okay, I think that's all for me.

[Wendy Simpson:]

All right, thanks…

[Operator:]

(Operator Instructions). And at this time, we have no questions in queue. I would like to turn the conference back over to Wendy Simpson for closing remarks.

[Wendy Simpson:]

Thank you Lacey and thanks everybody for joining us for this call and we look forward to talking to you at the end of the second quarter. Have a good day. Bye-bye.

[Operator:]

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day. Copyright policy