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EX-31.2 - EX-31.2 - LTC PROPERTIES INCltc-20160331ex312b1ffda.htm
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EX-32 - EX-32 - LTC PROPERTIES INCltc-20160331xex32.htm

 

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 March 31, 2016

 

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

 

 

 

71-0720518

(State or other jurisdiction of

 

 

 

(I.R.S. Employer

incorporation or organization)

 

 

 

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, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

(Do not check if a
smaller reporting company)

 

 

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 April 26, 2016 was 37,915,120.

 


 

 

LTC PROPERTIES, INC.

 

FORM 10-Q

 

March 31, 2016

 

 

INDEX

 

 

 

 

 


 

LTC PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share)

 

 

 

 

 

 

 

 

 

 

    

March 31, 2016

    

December 31, 2015

 

 

 

(unaudited)

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Land

 

$

108,867

 

$

106,841

 

Buildings and improvements

 

 

1,120,889

 

 

1,091,845

 

Accumulated depreciation and amortization

 

 

(259,237)

 

 

(251,265)

 

Real property investments, net

 

 

970,519

 

 

947,421

 

Mortgage loans receivable, net of loan loss reserve: 2016—$2,246; 2015—$2,190

 

 

223,053

 

 

217,529

 

Real estate investments, net

 

 

1,193,572

 

 

1,164,950

 

Investments in unconsolidated joint ventures

 

 

24,042

 

 

24,042

 

Investments, net

 

 

1,217,614

 

 

1,188,992

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

24,280

 

 

12,942

 

Debt issue costs related to bank borrowing

 

 

2,605

 

 

2,865

 

Interest receivable

 

 

5,815

 

 

4,536

 

Straight-line rent receivable, net of allowance for doubtful accounts: 2016—$861; 2015—$833

 

 

45,492

 

 

42,685

 

Prepaid expenses and other assets

 

 

21,020

 

 

21,443

 

Notes receivable

 

 

2,024

 

 

1,961

 

Total assets

 

$

1,318,850

 

$

1,275,424

 

LIABILITIES

 

 

 

 

 

 

 

Bank borrowings

 

$

161,000

 

$

120,500

 

Senior unsecured notes, net of debt issue costs: 2016—$1,044; 2015—$1,095

 

 

447,256

 

 

451,372

 

Accrued interest

 

 

2,852

 

 

3,974

 

Accrued incentives and earn-outs

 

 

12,572

 

 

12,722

 

Accrued expenses and other liabilities

 

 

22,480

 

 

27,654

 

Total liabilities

 

 

646,160

 

 

616,222

 

EQUITY

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding:  

2016—37,915; 2015—37,548

 

 

379

 

 

375

 

Capital in excess of par value

 

 

772,677

 

 

758,676

 

Cumulative net income

 

 

948,186

 

 

928,328

 

Accumulated other comprehensive income

 

 

18

 

 

47

 

Cumulative distributions

 

 

(1,048,570)

 

 

(1,028,224)

 

Total equity

 

 

672,690

 

 

659,202

 

Total liabilities and equity

 

$

1,318,850

 

$

1,275,424

 

 

See accompanying notes.

 

 

3


 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

  

2016

  

2015

 

Revenues:

 

 

 

 

 

 

 

Rental income

 

$

31,880

 

$

26,678

 

Interest income from mortgage loans

 

 

6,578

 

 

4,607

 

Interest and other income

 

 

146

 

 

195

 

Total revenues

 

 

38,604

 

 

31,480

 

Expenses:

 

 

 

 

 

 

 

Interest expense

 

 

6,000

 

 

3,766

 

Depreciation and amortization

 

 

8,561

 

 

6,779

 

General and administrative expenses

 

 

4,457

 

 

3,499

 

Total expenses

 

 

19,018

 

 

14,044

 

Operating income

 

 

19,586

 

 

17,436

 

Income from unconsolidated joint ventures

 

 

272

 

 

116

 

Net income

 

 

19,858

 

 

17,552

 

Income allocated to participating securities

 

 

(101)

 

 

(123)

 

Income allocated to preferred stockholders

 

 

 —

 

 

(818)

 

Net income available to common stockholders

 

$

19,757

 

$

16,611

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

Basic

 

$

0.53

 

$

0.47

 

Diluted

 

$

0.53

 

$

0.47

 

 

 

 

 

 

 

 

 

Weighted average shares used to calculate earnings per common share:

 

 

 

 

 

 

 

Basic

 

 

37,446

 

 

35,277

 

Diluted

 

 

37,459

 

 

37,292

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$

0.54

 

$

0.51

 

 

See accompanying notes.

 

 

4


 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

 

  

2016

  

2015

 

Net income

 

$

19,858

 

$

17,552

 

Reclassification adjustment (Note 6)

 

 

(28)

 

 

(9)

 

Comprehensive income

 

$

19,830

 

$

17,543

 

 

See accompanying notes.

5


 

LTC PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

  

2016

  

2015

 

OPERATING ACTIVITIES:

 

 

    

 

 

    

 

Net income

 

$

19,858

 

$

17,552

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,561

 

 

6,779

 

Stock-based compensation expense

 

 

990

 

 

982

 

Income from unconsolidated joint ventures

 

 

(272)

 

 

(116)

 

Income distributions from unconsolidated joint ventures

 

 

268

 

 

 —

 

Straight-line rental income

 

 

(2,835)

 

 

(2,275)

 

Amortization of lease incentive

 

 

518

 

 

352

 

Provision for doubtful accounts

 

 

84

 

 

3

 

Non-cash interest related to contingent liabilities

 

 

149

 

 

55

 

Other non-cash items, net

 

 

291

 

 

215

 

Increase in interest receivable

 

 

(1,279)

 

 

(570)

 

Decrease in accrued interest payable

 

 

(1,122)

 

 

(1,084)

 

Net change in other assets and liabilities

 

 

(5,606)

 

 

(4,029)

 

Net cash provided by operating activities

 

 

19,605

 

 

17,864

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Investment in real estate properties

 

 

(16,000)

 

 

(13,031)

 

Investment in real estate developments

 

 

(13,439)

 

 

(5,041)

 

Investment in real estate capital improvements

 

 

(3,253)

 

 

(4,928)

 

Capitalized interest

 

 

(686)

 

 

(147)

 

Proceeds from sale of real estate, net

 

 

1,750

 

 

 —

 

Investment in real estate mortgage loans receivable

 

 

(6,599)

 

 

(11,358)

 

Principal payments received on mortgage loans receivable

 

 

1,015

 

 

2,786

 

Investments in unconsolidated joint ventures

 

 

 —

 

 

(20,143)

 

Payment of working capital reserve

 

 

(299)

 

 

 —

 

Advances under notes receivable

 

 

(93)

 

 

(892)

 

Principal payments received on notes receivable

 

 

30

 

 

 —

 

Net cash used in investing activities

 

 

(37,574)

 

 

(52,754)

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Bank borrowings

 

 

40,500

 

 

36,500

 

Principal payments on senior unsecured notes

 

 

(4,167)

 

 

(4,167)

 

Proceeds from issuance of common stock, net

 

 

14,637

 

 

 —

 

Distributions paid to stockholders

 

 

(20,347)

 

 

(18,934)

 

Other

 

 

(1,316)

 

 

(329)

 

Net cash provided by financing activities

 

 

29,307

 

 

13,070

 

Increase (decrease) in cash and cash equivalents

 

 

11,338

 

 

(21,820)

 

Cash and cash equivalents, beginning of period

 

 

12,942

 

 

25,237

 

Cash and cash equivalents, end of period

 

$

24,280

 

$

3,417

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

6,807

 

$

4,774

 

Mortgage loan receivable applied against purchase price to acquire real estate (Note 2)

 

$

 —

 

$

10,600

 

 

See accompanying notes.

 

 

6


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

1.General

LTC Properties, Inc., a health care real estate investment trust (or REIT), was incorporated on May 12, 1992 in the State of Maryland and commenced operations on August 25, 1992. We invest primarily in senior housing and health care properties through acquisitions, development, mortgage loans and other investments. 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 senior housing and health care properties managed by experienced operators. Our primary senior housing and health care property classifications include skilled nursing centers (or SNF), assisted living communities (or ALF), independent living communities (or ILF), memory care communities (or 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 (or SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (or 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 months ended March 31, 2016 and 2015 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.

New Accounting Pronouncements.

In February 2015, FASB issued ASU No. 2015-02 (or ASU 2015-02), Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 amends the consolidation guidance for variable interest entities and voting interest entities, among other items, by eliminating the consolidation model previously applied to limited partnerships, emphasizing the risk of loss when determining a controlling financial interest and reducing the frequency of the application of related-party guidance when determining a controlling financial interest. ASU 2015-02 is effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update (or ASU) No. 2016-02 (or ASU 2016-02), Leases (Topic 842). ASU 2016-02 modifies existing guidance for off-balance sheet treatment of a lessees’ operating leases by requiring lessees to recognize lease assets and lease liabilities. Under ASU 2016-02, lessor accounting is largely unchanged. 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 are currently evaluating the effects of this ASU on our consolidated financial statements.

7


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

In March 2016, FASB issued ASU No. 2016-07 (or ASU 2016-07), Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 eliminates retroactive adjustment of an investment upon an investment qualifying for the equity method of accounting and requires that the equity method investor to adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the effects of this ASU on our consolidated financial statements.

In March 2016, FASB issued ASU No. 2016-09 (or ASU 2016-09), Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects of this ASU on our consolidated financial statements.

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). Range of care communities (or ROC) property classification consists of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services.

Any reference to the number of properties, number of units, number of beds, and yield on investments in real estate are unaudited and outside the scope of our 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 March 31, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Percentage

 

Number

 

Number of

 

Investment

 

 

 

Gross

 

of

 

of

 

SNF

 

ALF

 

per

 

Type of Property

    

Investments

    

Investments

    

Properties(1)

    

Beds

    

Units

    

Bed/Unit

 

Assisted Living

 

$

582,362

 

47.4

96

 

 —

 

5,205

 

$

111.89

 

Skilled Nursing

 

 

540,240

 

43.9

%  

71

 

8,781

 

 —

 

$

61.52

 

Range of Care

 

 

43,907

 

3.6

7

 

634

 

274

 

$

48.36

 

Under Development(2)

 

 

43,761

 

3.6

 —

 

 —

 

 —

 

 

 —

 

Other(3)

 

 

19,486

 

1.5

2

 

118

 

 —

 

 

 —

 

Totals

 

$

1,229,756

 

100.0

176

 

9,533

 

5,479

 

 

 

 


(1)

We own properties in 28 states that are leased to 29 different operators.

 

(2)

Represents six development projects consisting of four MC communities with a total of 254 units, a 108-unit independent living community and an 89-unit combination ALF and MC community.

 

(3)

Includes one school, three parcels of land held-for-use, and one behavioral health care hospital. The behavioral health care hospital has two skilled nursing beds and 116 medical hospital beds which represents a $78.39 investment per bed.

 

 

8


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

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.

Acquisitions and Development: The following table summarizes our investment for the three months ended March 31, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Total

    

Number

    

Number

 

 

Purchase

 

Transaction

 

Acquisition

 

of

 

of

Type of Property

 

Price

 

Costs(1)

 

Costs

 

Properties

 

Beds/Units

Skilled Nursing(2)

 

$

16,000

 

$

40

 

$

16,040

 

1

 

126

(1)

Represents cost associated with our acquisition; however, depending on the accounting treatment of our acquisitions, transaction costs may be capitalized to the properties’ basis and, for our land purchases with forward development commitments, transaction costs are capitalized as part of construction in progress. Additionally, transaction costs in the table above may differ from the acquisition costs included in the general and administrative expenses line item in our consolidated statements of income ($90) due to the timing and recognition of costs associated with pending, completed and terminated transactions.

 

(2)

We acquired a newly constructed 126-bed skilled nursing center in Texas. The property was added to an existing master lease agreement at an incremental rate of 8.5%.

 

Subsequent to March 31, 2016, we purchased two memory care communities in Kansas totaling 120 units for an aggregate purchase price of $25,000,000. Simultaneously with the acquisition, the properties were added to an existing master lease agreement at an initial cash yield of 8.0%. Also, we agreed to pay up to $550,000 and $750,000 for lease inducement and capital improvements, respectively.

Additionally, we acquired a 60-unit memory care community in Kentucky for $14,250,000 and agreed to provide a contingent lease incentive of up to $300,000 upon satisfaction of certain coverage thresholds. The property was added to an existing master lease agreement at an initial incremental yield of 8.0%.

A summary of our funding for development and improvement projects for the three months ended March 31, 2016 and 2015 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2016

 

Three months ended March 31, 2015

 

 

 

 

 

Expansion,

 

 

 

Expansion,

 

 

 

 

 

Renovation and

 

 

 

Renovation and

 

 

    

Development

    

Improvements

    

Development

    

Improvements

 

Assisted Living Communities

 

$

13,439

 

$

1,135

 

$

3,278

 

$

3,093

 

Skilled Nursing Centers

 

 

 —

 

 

2,118

 

 

1,763

 

 

1,835

 

 

 

$

13,439

 

$

3,253

 

$

5,041

 

$

4,928

 

 

 

9


 

Table of Contents

LTC PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

(Unaudited)

 

The following table summarizes the development project completed during the three months ended March 31, 2016 and total amounts funded under the development project (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Number

    

 

    

Number

    

 

    

 

 

 

 

 

of

 

Type of

 

of

 

 

 

 

 

 

Type of Project

 

Properties

 

Property

 

Beds/Units

 

State

 

Total Funding

 

Development

 

1

 

ALF

 

66

 

Illinois

 

$

11,808

 

 

Our construction in progress (or CIP) activity during the three months ended March 31, 2016 for our development, redevelopment, renovation, and expansion projects is as follows (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

CIP

    

 

 

    

 

 

    

 

 

    

CIP

 

 

 

Balance at

 

 

 

 

Capitalized

 

Conversions

 

Balance at

 

Type of Property

 

12/31/2015

 

Funded(1)

 

Interest

 

out of CIP

 

3/31/2016

 

Skilled nursing

 

$

1,252

 

$

2,117

 

$

 —

 

$

(13)

 

$

3,356

 

Assisted living

 

 

30,713

 

 

13,409

 

 

686

 

 

(10,352)

 

 

34,456

 

Total

 

$

31,965

 

$

15,526

 

$

686

 

$

(10,365)

 

$

37,812

 


(1)

Excludes $1,165 of funding directly capitalized into building.

During the three months ended March 31, 2016, we sold a 48-unit assisted living community located in Florida for $1,750,000 which was previously written down to its estimated sale price in the fourth quarter of 2015.

Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, 2016 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage

 

Number

 

Number

 

Number of

 

Investment

 

 

 

Gross

 

of

 

of

 

of

 

SNF

 

ALF

 

per

 

Type of Property

 

Investments

 

Investments

 

Loans

 

Properties(1)

 

Beds(2)

 

Units(2)

 

Bed/Unit

 

Skilled Nursing

  

$

210,423

  

93.4

%  

13

  

28

  

3,676

  

 —

  

$

57.24

 

Assisted Living

 

 

13,667

 

6.1

%  

3

 

8

 

 —

 

270

 

$

50.62

 

Other(3)

 

 

1,209

 

0.5

%  

1

 

 —

 

 —

 

 —

 

 

 —

 

Totals

 

$

225,299

 

100.0

%  

17

 

36

 

3,676

 

270

 

 

 

 


(1)

We have investments in properties located in eight states that include mortgages to 11 different operators.

 

(2)

See Item 2. Properties for discussion of bed/unit count.

 

(3)

Includes a parcel of land secured under a short-term mortgage loan.

 

At March 31, 2016, the mortgage loans had interest rates ranging from 7.3% to 13.9% and maturities ranging from 2016 to 2045. In addition, some loans contain certain guarantees, provide for certain facility fees and generally have 20-year to 30-year amortization schedules. The majority of the mortgage loans provide for annual increases in the interest rate based upon a specified increase of 10 to 25 basis points.

During the three months ended March 31, 2016 and 2015, we received $513,000 and $2,285,000, respectively, plus accrued interest related to the payoff of three mortgage loans secured by two skilled nursing centers and a range of care community. During the three months ended March 31, 2016 and 2015, we received $502,000 and $501,000, respectively, in regularly scheduled principal payments.

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A summary of our mortgage loan funding for the three months ended March 31, 2016 and 2015 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 

 

 

    

2016 Funding

    

2015 Funding

 

Skilled Nursing Centers

 

$

6,599

 

$

11,358

 

 

Subsequent to March 31, 2016, we originated a $12,250,000 mortgage loan secured by a first lien mortgage encumbering two skilled nursing centers in Michigan totaling 216 beds. We funded $7,750,000 at closing, with a commitment to fund $4,500,000 for approved capital improvement projects. The loan has an initial term of 4 years and bears interest at 9.41%.

During the quarter ended March 31, 2015, we purchased and equipped a 106-bed skilled nursing center in Wisconsin for a total of $13,946,000 by exercising our purchase option under a $10,600,000 mortgage and construction loan. The property was added to an existing master lease at a lease rate equivalent to the interest rate in effect on the loan at the time the purchase option was exercised. Additionally, we paid the lessee a $1,054,000 lease inducement which will be amortized as a yield adjustment over the life of the lease term.    

3.Investment in Unconsolidated Joint Ventures

 

During 2015, we made a preferred equity investment in an entity (the JV) that owns four properties providing independent, assisted living and memory care services. These properties are located in Arizona. At closing, we provided an initial preferred capital contribution of $20,143,000 and have committed to provide an additional preferred capital contribution of $5,507,000 for a total preferred capital contribution of $25,650,000. As the preferred member of the JV, we are entitled to receive a 15% preferred return, a portion of which is paid in cash and a portion of which is deferred if the cash flow of the JV is insufficient to pay all of the accrued preferred return. The unpaid accrued preferred return will be accrued to the extent of the common member’s capital account balance in the underlying JV (as determined in accordance with GAAP).  As of March 31, 2016, the common member’s capital account was $0. Therefore, in accordance with GAAP, we did not accrue the deferred portion of the preferred return during the quarter ended March 31, 2016. We continue to evaluate our claim on the estimated net assets of the underlying joint venture quarterly. Any unpaid accrued preferred return, whether recorded or unrecorded by us, is due and payable upon redemption.

The JV is intended to be self-financing and other than our preferred capital contributions, we are not required to provide any direct support and we are not entitled to share in the JV’s earnings or losses. As a result, we believe our maximum exposure to loss due to our investment in the JV would be limited to our preferred capital contributions plus any unpaid accrued preferred return. We have concluded that the JV meets the accounting criteria to be considered as a variable interest entity (or VIE). 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 our JV investment using the equity method. During the three months ended March 31, 2016, we recognized $272,000 in income from our preferred equity investment in the JV.  Additionally, during the three months ended March 31, 2016, we received $268,000 from our preferred equity investment in the JV.

Also, during 2015, we originated a $2,900,000 mezzanine loan to develop a 99-unit combination ALF, MC and ILF community. The loan matures on November 1, 2020 and bears interest at 10% for the

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first two years escalating to 12% until November 1, 2018 and, 15% thereafter. Interest is deferred for a period ending on the earlier of February 1, 2017 or the effective date of the certificate of occupancy. During this period, the borrower is not required to pay any interest; however, the unpaid deferred interest accrues to the loan principal balance. In addition to the interest payments, the borrower is required to make cash flow participation payments. We have evaluated this acquisition, development and construction (or ADC) arrangement and determined that the characteristics are similar to a jointly-owned investment or partnership, and accordingly, the investment is accounted for as an unconsolidated joint venture under the equity method of accounting instead of loan accounting.

4.Notes Receivable

Notes receivable consists of various loans and line of credit agreements. The following table summarizes our notes receivable activities for the three months ended March 31, 2016 and 2015 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

Three months ended  March 31, 

 

 

2016

 

2015

 

Advances under notes receivable

$

93

 

$

892

 

Principal payments received under notes receivable

 

(30)

 

 

 -

 

Net increase in notes receivable

$

63

 

$

892

 

 

At March 31, 2016, we had six loans and line of credit agreements with on-going commitments totaling $2,600,000 and weighted average interest rate of 10.0%. As of March 31, 2016, we have remaining commitments of $2,224,000 under these commitments.

 

5.Debt Obligations

 

The following table sets forth information regarding debt obligations by component as of March 31, 2016 and December 31, 2015 (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2016

 

At December 31, 2015

 

 

 

Applicable

 

 

 

Available

 

 

 

Available

 

 

 

Interest

 

Outstanding

 

for

 

Outstanding

 

for

 

Debt Obligations

    

Rate(1)

    

Balance

    

Borrowing

    

Balance

    

Borrowing

 

Bank borrowings(2)

 

2.13%

 

$

161,000

 

$

439,000

 

$

120,500

 

$

479,500

 

Senior unsecured notes, net of debt issue costs

 

4.63%

 

 

447,256

 

 

37,500

 

 

451,372

 

 

33,333

 

Total

 

3.97%

 

$

608,256

 

 

 

 

$

571,872

 

 

 

 


(1)

Represents weighted average of interest rate as of March 31, 2016.

 

(2)

Subsequent to March 31, 2016, we borrowed an additional $37,000 under our unsecured revolving line of credit. Accordingly, we have $198,000 outstanding under our unsecured revolving line of credit with $402,000 available for borrowing.

 

Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to $600,000,000. The Unsecured Credit Agreement matures on October 14, 2018 and provides for a one-year extension option at our discretion, subject to customary conditions. Based on our leverage at March 31, 2016, the facility provides for interest annually at LIBOR plus 150 basis points and an unused commitment fee of 35 basis points. During the three months ended March 31, 2016 and 2015 we borrowed $40,500,000 and $36,500,000, respectively, under our Unsecured Credit Agreement. At March 31, 2016, we were in compliance with all covenants.

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Subsequent to March 31, 2016, we borrowed an additional $37,000 under our unsecured revolving line of credit. Accordingly, we have $198,000 outstanding under our unsecured revolving line of credit with $402,000 available for borrowing.

Senior Unsecured Notes. During each of the three months ended March 31, 2016 and 2015, we paid $4,167,000 in regular scheduled principal payments. Subsequent to March 31, 2016, we locked rate under our Prudential shelf agreement on $37,500,000 senior unsecured notes with an annual fixed rate of 4.15% and anticipate selling the notes to Prudential on or around May 20, 2016. These notes have periodic scheduled principal repayments with a 12-year final maturity.

6.Equity

 

Equity activity was as follows (in thousands):

 

 

 

 

 

 

 

 

Total

 

 

 

Equity

 

Balance at December 31, 2015

    

$

659,202

 

Net income

 

 

19,858

 

Proceeds from common stock offering, net of  fees and costs

 

 

14,327

 

Vesting of stock option and restricted common stock

 

 

990

 

Reclassification adjustment

 

 

(28)

 

Common stock dividends

 

 

(20,347)

 

Other

 

 

(1,312)

 

Balance at March 31, 2016

 

$

672,690

 

 

Preferred Stock.    As of January 1, 2015, we had 2,000,000 shares of our 8.5% Series C Cumulative Convertible Preferred Stock (or Series C preferred stock) outstanding. Our Series C preferred stock was convertible into 2,000,000 shares of our common stock at $19.25 per share and dividends were payable quarterly. During 2015, the sole holder of our Series C Preferred stock elected to convert all of its preferred shares into 2,000,000 shares of common stock. Accordingly, we had no preferred stock outstanding as of March 31, 2016.

Common Stock. During 2015, we entered into equity distribution agreements to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our common shares. Sales of common shares are made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings. During the three months ended March 31, 2016, we sold 332,619 shares of common stock for $14,637,000 in net proceeds under our equity distribution agreements. In conjunction with the sale of common stock, we reclassified $310,000 of accumulated costs associated with the equity distribution agreements to additional paid in capital. At March 31, 2016, we had $185,102,000 available under these agreements. Also, during the three months ended March 31, 2016 and 2015, we acquired 30,910 shares and 4,609 shares respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Available Shelf Registrations. We had an automatic shelf registration statement which was filed in 2013 and provided us with the capacity to publicly offer up to $800,000,000 in common stock, preferred stock, warrants, debt, depositary shares, or units. At December 31, 2015, we had availability of $575,100,000 under our effective shelf registration.

In advance of the three-year expiration of the automatic shelf registration statement we filed in 2013, we filed a new automatic shelf registration statement with the SEC on January 29, 2016 to provide

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us with additional capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under the automatic registration statement we filed in 2016 (until its expiration on January 29, 2019) in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.

Distributions. We declared and paid the following cash dividends (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 2016

 

March 31, 2015

 

 

 

 

Declared

 

Paid

 

Declared

 

Paid

 

 

Preferred Stock Series C

    

$

 —

    

$

 —

    

$

818

    

$

818

 

 

Common Stock

 

 

20,347

(1)

 

20,347

(1)

 

18,116

(2)

 

18,116

(2)

 

Total

 

$

20,347

 

$

20,347

 

$

18,934

 

$

18,934

 

 


(1)

Represents $0.18 per share per month for the three months ended March 31, 2016.

 

(2)

Represents $0.17 per share per month for the three months ended March 31, 2015.

In April 2016, we declared a monthly cash dividend of $0.18 per share on our common stock for the months of April, May and June, payable on April 29, May 31, and June 30, 2016, respectively, to stockholders of record on April 21, May 23, and June 22, 2016, respectively.

Accumulated Other Comprehensive Income. At March 31, 2016 and December 31, 2015, accumulated comprehensive income of $18,000 and $47,000, respectively, represents the net unrealized holding gains on available-for-sale REMIC Certificates recorded in 2005 when we repurchased the loans in the underlying loan pool. This amount is being amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC Pool.

Stock-Based Compensation.  During 2015, we adopted and our shareholders approved the 2015 Equity Participation Plan (or the 2015 Plan) which replaces the 2008 Equity Participation Plan (or the 2008 Plan). Under the 2015 Plan, 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its discretion. During the three months ended March 31, 2016 and 2015, no stock options were granted or exercised under the 2015 Plan or 2008 Plan. 

At March 31, 2016, we had 40,001 stock options outstanding of which 35,001 stock options are exercisable.  Compensation expense related to the vesting of stock options for each of the three months ended March 31, 2016 and 2015, were $4,000. At March 31, 2016, we had 5,000 unvested stock options. The remaining compensation expense to be recognized related to the future service period of unvested outstanding stock options for 2016 and 2017 is $11,000 and $3,000, respectively.

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During the three months ended March 31, 2015, we cancelled 640 shares of restricted stock under the 2008 Plan. During the three months ended March 31, 2016 and 2015, we granted 65,300 and 65,750 shares of restricted common stock under the 2015 Plan and 2008 Plan, respectively, as follows:

 

 

 

 

 

 

 

 

 

 

 

    

 

Price per

 

 

 

Year

 

No. of Shares

 

Share

 

Vesting Period

 

2016

 

65,300

 

$

43.24

 

ratably over 3 years

 

2015

 

65,750

 

$

44.45

 

ratably over 3 years

 

 

Compensation expense recognized related to the vesting of restricted common stock for the three months ended March 31, 2016 and 2015 were $986,000 and $978,000, respectively. At March 31, 2016, the total number of restricted common shares that are scheduled to vest and remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock are as follows:

 

 

 

 

 

 

 

 

 

Number

 

Remaining 

 

 

 

of

 

Compensation

 

Vesting Date

    

Awards

    

Expense

 

2016

 

44,480

 

$

2,519,000

 

2017

 

77,663

 

 

2,335,000

 

2018

 

49,352

 

 

1,127,000

 

2019

 

21,771

 

 

78,000

 

 

 

193,266

 

$

6,059,000

 

 

 

 

 

7.Commitments and Contingencies

 

As part of our acquisitions, we may commit to provide contingent payments to the sellers or lessees, upon the properties achieving certain rent coverage ratios. Typically, when the contingent payments are funded, cash rent will increase by the amount funded multiplied by a rate stipulated in the agreement. If it is deemed probable at acquisition, the contingent payment is recorded as a liability at estimated fair value calculated using a discounted cash flow analysis and accreted to the settlement amount of the estimated payment date. If the contingent payment is an earn-out provided to the seller, the estimated fair value is capitalized to the property’s basis. If the contingent payment is provided to the lessee, the estimated fair value is recorded as a lease incentive (included in the prepaid and other assets line item in our consolidated balance sheets) and is amortized as a yield adjustment over the life of the lease. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement. The fair value of these contingent payment obligations are evaluated quarterly, based on changes in estimates of future operating results and changes in market discount rates. During the three months ended March 31, 2016, we recorded non‑cash interest expense of $149,000 related to these contingent liabilities and the fair value of our contingent payments was $12,572,000 at March 31, 2016.

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At March 31, 2016, we had commitments as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Total

    

 

 

    

 

 

Investment

 

2016

 

Commitment

 

Remaining

 

 

    

Commitment

    

Funding

    

Funded

    

Commitment

 

Real estate properties (See Note 2)

 

$

98,402

(1)

$

14,001

 

$

47,124

 

$

51,278

 

Accrued incentives and earn-out liabilities

 

 

16,300

 

 

299

 

 

1,104

 

 

15,196

 

Lease incentives

 

 

3,952

 

 

191

 

 

646

 

 

3,306

 

Mortgage loans (See Note 2)

 

 

46,990

(1)

 

1,099

 

 

11,362

 

 

35,628

 

Joint venture investments (See Note 3)

 

 

25,650

 

 

 —

 

 

20,143

 

 

5,507

 

Notes receivable (See Note 4)

 

 

2,600

 

 

93

 

 

376

 

 

2,224

 

Totals

 

$

193,894

 

$

15,683

 

$

80,755

 

$

113,139

 


(1)

Represents commitments to purchase land and improvements, if applicable, and to develop, re-develop, renovate or expand senior housing and health care properties.

We are a party from time to time to various general and professional liability claims and lawsuits asserted against the lessees or borrowers of our properties, which in our opinion are not singularly or in the aggregate material to our results of operations or financial condition. These types of claims and lawsuits may include matters involving general or professional liability, which we believe under applicable legal principles are not our responsibility as a non-possessory landlord or mortgage holder. We believe that these matters are the responsibility of our lessees and borrowers pursuant to general legal principles and pursuant to insurance and indemnification provisions in the applicable leases or mortgages. We intend to continue to vigorously defend such claims.

 

8.Major Operators

 

We have four operators from each of which we derive approximately 10% or more of our combined rental revenue and interest income from mortgage loans. The following table sets forth information regarding our major operators as of March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Number of

 

Percentage of

 

 

 

 

SNF

 

ALF

 

ROC

 

SNF

 

ALF

 

Total

 

 

Total

 

 

Operator

 

Centers

 

Communities

 

Communities

 

Beds

 

Units

 

Revenue (1)

 

 

Assets

 

 

Prestige Healthcare (2)

    

18

    

 —

    

2

    

2,606

    

93

    

16.3

%  

    

15.8

%

 

Senior Lifestyle Corporation(2)

 

 —

 

27

 

 —

 

 —

 

1,631

 

12.8

%

 

13.6

%

 

Brookdale Senior Living (3)

 

 —

 

37

 

 —

 

 —

 

1,704

 

10.3

%  

 

5.9

%

 

Senior Care Centers (2)

 

11

 

 —

 

 —

 

1,444

 

 —

 

10.2

%  

 

9.1

%

 

Totals

 

29

 

64

 

2

 

4,050

 

3,428

 

49.6

%  

 

44.4

%

 


(1)

Includes rental income and interest income from mortgage loans.

 

(2)

A privately held company.

 

(3)

A subsidiary of Brookdale Senior Living, Inc.

 

Our financial position and ability to make distributions may be adversely affected if Prestige Healthcare, Senior Lifestyle Corporation, Brookdale Senior Living, Senior Care Centers or any of our lessees and borrowers face financial difficulties, including any bankruptcies, inability to emerge from bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew and/or extend its relationship with us.

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9.Earnings per Share

 

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

 

 

2016

 

2015

 

Net income

  

$

19,858

  

$

17,552

  

Less net income allocated to participating securities:

 

 

 

 

 

 

 

Non-forfeitable dividends on participating securities

 

 

(101)

 

 

(123)

 

Total net income allocated to participating securities

 

 

(101)

 

 

(123)

 

Less net income allocated to preferred stockholders:

 

 

 

 

 

 

 

Preferred stock dividends

 

 

 —

 

 

(818)

 

Total net income allocated to preferred stockholders

 

 

 —

 

 

(818)

 

Net income available to common stockholders

 

 

19,757

 

 

16,611

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Convertible preferred securities

 

 

 —

 

 

818

 

Total effect of dilutive securities

 

 

 —

 

 

818

 

Net income for diluted net income per share

 

$

19,757

 

$

17,429

 

 

 

 

 

 

 

 

 

Shares for basic net income per share

 

 

37,446

 

 

35,277

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Stock options

 

 

13

 

 

15

 

Convertible preferred securities

 

 

 —

 

 

2,000

 

Total effect of dilutive securities