LTC Properties (LTC)
As of 10/14/2017
Industry: REIT – Healthcare Facilities
Market Cap: 1.9B
Earnings Yield: 4.83%
LTC Properties Inc. is a healthcare real estate investment trust (REIT). The Company invests in senior housing and healthcare properties through sale-leaseback transactions, mortgage financing and structured finance solutions, including mezzanine lending. It invests in various properties, including Skilled nursing facilities (SNF), Assisted living facilities (ALF), Independent living facilities (ILF), Memory care facilities (MC) and Range of care facilities (ROC). SNF provides restorative, rehabilitative and nursing care. Many skilled nursing facilities provide ancillary services that include occupational, speech, physical, respiratory and IV therapies, as well as sub-acute care services, which are paid either by the patient, the patient's family, private health insurance, or through the federal Medicare or state Medicaid programs. ALF serves people requiring assistance with activities of daily living, but do not require the constant supervision skilled nursing facilities provide.
Performance and Insights
LTC Properties does not yield staggering returns, but instead is consistent and conservative in their approach. FFO/share grew by about 10.8% between 2015 and 2016 (2.77 to 3.07), and is expected to grow by 4% by the end of 2017 (3.07 to 3.20). With a debt to equity ratio of .9, a debt to EBITDA of 4.3x (better than the average for healthcare REITs), and no major debt maturities until after 2022, LTC does a good job of managing risk and not overextending itself. The dividend yield is 4.84% and is expected to grow closer to 5% by the end of 2017, which is on par or above the bigger comparable players in the industry.
LTC holds 201 properties across the nation, a majority of which are in Texas, Michigan, and Colorado. Over 65% of these properties are located in the top 100 MSAs in the United States. With the massive anticipated shift in expected age demographics as the Baby Boomers grow older, it can be predicted that skilled nursing and assisted living properties will become more and more valuable. LTC also maintains a high ratio of private pay sources (52%) as opposed to many other healthcare REITs who focus on a government pay model with Medicare and Medicaid. This model will help minimize LTC’s downside in the long run against reductions across both programs.
LTC is a conservative option in terms of REITs. At the moment it is trading at $47.13 per share and a PE of 21x, whereas the average industry is trading at a PE of around 30x. Along with a relatively cheaper price across the industry, LTC has a predicted future cash flow value of $60.92 per share. Based on analyst’s insights, growth is set to stagger a bit over the coming year. However, with consistent management it has been made clear that the approach is to invest conservatively and effectively, and it makes me believe LTC is a less risky investment in terms of other REITs in the industry. In the end, this high dividend yield investment would be a nice addition to a risk-adverse portfolio looking to earn consistent dividends for years to come.
Institutionally Vanguard and Blackrock hold a majority of shares at 6.5M and 6M respectively. Vanguard’s REIT index fund is also the top mutual fund holder comprising about 3M shares. Earnings in the second quarter of 2017 were 64 cents, beating the estimate of 55 cents. LTC attributes this growth to higher revenues on prior years acquisitions, mezzanine loan originations, the sale of four assisted living facilities of $5.1M, and completion of 3 development projects. Interestingly these development projects will begin to have initial cash yields of 8% and above beginning Q4-17, Q1-18, and Q3-18. Also during the second quarter LTC bought a 107 unit assisted living property in California, and simultaneously closed a 15 year master lease with a new operator, which will have an initial cash yield of 7%.