Monthly Dividend Stock In Focus: LTC Properties, Inc.

Up to date on Could twentieth, 2021 by Bob Ciura

The demographics of america are present process a seismic shift because the Child Boomers age. The Child Boomers are a really giant generational group, which means the ageing U.S. inhabitants is predicted to lead to increased demand for healthcare.

Many buyers have expressed concern about how it will have an effect on the economic system. Whereas some areas of the economic system might really feel strain from this development, one sector is nearly sure to develop consequently: healthcare spending, and healthcare Actual Property Funding Trusts or REITs for brief.

LTC Properties (LTC) is poised to reap the benefits of this development. As a premier owner-operator of healthcare properties, LTC is seeing the demand for its properties enhance.

We imagine LTC is a gorgeous funding for earnings buyers. The inventory has a excessive dividend yield of 5.8%, and pays these dividends month-to-month. There are presently fewer than 60 month-to-month dividend shares.

You’ll be able to obtain our full record of all month-to-month dividend shares (plus essential monetary metrics comparable to price-to-earnings ratios and dividend yields) by clicking on the hyperlink under:

Whereas LTC Properties is poised to learn from the ageing inhabitants, that doesn’t assure that the inventory will probably be a robust performer shifting ahead; basic evaluation continues to be required.

This text will analyze the funding prospects of LTC Properties intimately.

Enterprise Overview

LTC Properties is a healthcare Actual Property Funding Belief that owns and operates expert nursing amenities, assisted residing amenities, and different healthcare properties. Its portfolio consists of roughly 50% senior housing and 50% expert nursing properties. The REIT owns 180 investments in 27 states with 30 working companions and has a market capitalization of $1.5 billion.

Supply: Investor Presentation

Similar to different healthcare REITs, LTC advantages from a robust secular development, specifically the excessive progress of the inhabitants that is above 80 years previous. This progress outcomes from the ageing of the infant boomers’ era and the regular rise of life expectancy because of sustained progress in medical sciences.

LTC is presently going through a major problem, the chapter of Senior Care Facilities, which is the biggest expert nursing operator in Texas. Senior Care filed for Chapter 11 chapter in December–2018. Till 2018, it was producing 9.7% of the annual revenues of LTC and was the fifth largest buyer of LTC.

In late April, LTC reported (4/29/21) monetary outcomes for the first quarter of fiscal 2021. Funds from operations (FFO) per share decreased –16% over final 12 months’s quarter, from $0.74 to $0.62, attributable to asset sale losses and decrease rental earnings as a results of nonpayment of lease obligations of Senior Life-style and a few hire deferrals.

LTC is going through one other headwind within the type of the coronavirus pandemic, which has resulted in deferred funds from some tenants. In consequence, LTC has not supplied any steerage for 2021. Due to the pandemic, the turnaround is on maintain proper now however we imagine that the worse is behind LTC.

Development Prospects

As talked about, LTC Properties will profit from the secular tailwind of the ageing inhabitants in america. Because the Child Boomers age, the demand for expert nursing and assisted residing properties will enhance materially. This advantages LTC Properties in two fundamental methods.

First, extra demand for its properties signifies that LTC should buy extra properties and develop its asset base. If this may be accomplished conservatively – with out diluting the REIT’s unitholders – it will increase the belief’s per-share funds from operations.

Second, LTC Properties may have a tangential profit since its tenants (healthcare operators) will probably be experiencing a better demand for his or her providers. Since their providers are in excessive demand, this reduces the likelihood of default on their leases and likewise reduces the tenant emptiness of LTC Properties.

This REIT has been investing closely to reap the benefits of this development. Since 2010, LTC has put over $1.5 billion to work in new actual property investments.

Due to the aforementioned favorable underlying fundamentals of the healthcare sector, LTC has grown its funds from operations at a 4.5% common annual fee within the final decade. Furthermore, the REIT has most of its belongings within the states with the best projected will increase within the 80+ inhabitants cohort over the subsequent decade. Alternatively, progress has stalled within the final 4 years, partly as a result of chapter of Senior Care.

As well as, the REIT has been affected by the pandemic, however we anticipate this disaster to attenuate in the second half of this 12 months because of the vaccination program underway. We proceed to anticipate 3.0% progress in funds from operations over the subsequent 5 years.

Aggressive Benefits & Recession Efficiency

LTC Properties has a cost-based aggressive benefit from being a triple web REIT. Because of this LTC’s tenants occupying the properties beneath triple web leases, implying that the tenants should take in the three fundamental prices related to occupying actual property:

• Insurance coverage expense
• Property tax expense
• Upkeep expense

By working as a triple web REIT, LTC Properties has diminished its operator danger to basically zero – which ought to be seen as an enormous plus for LTC’s buyers.

As well as, LTC Properties has a aggressive benefit that comes from being each an proprietor and a developer of healthcare actual property. The corporate has a facet enterprise of actual property growth that generates sizable earnings. With that mentioned, the event enterprise is small compared to the possession enterprise.

The belief’s geographic diversification is excellent, as its properties are unfold throughout 27 states. This helps diversify the belief’s danger in opposition to shocks in native economies, and offers the belief a foothold in all kinds of markets it might probably use for future growth.

As a healthcare REIT, LTC Properties could be anticipated to carry out effectively (in comparison with non-healthcare REITs) throughout an financial downturn. It is because healthcare is a necessity – customers are extremely not like to chop spending on expert nursing or assisted residing when their disposable earnings turns into tight.

Concerning the dividend security, the payout ratio is a wholesome 76% anticipated for 2021 and the stability sheet is in respectable form, with a debt to adjusted EBITDAre ratio of 4.3x and an curiosity protection ratio of 2.9x.

Supply: Investor Presentation

In consequence, the dividend could be sustained if the pandemic restoration continues. The REIT has a clean debt maturity schedule this 12 months however it could be considerably pressured in 2022, when 21% of its debt ($138 million out of $665 million) matures, notably if the prevailing enterprise circumstances should not favorable subsequent 12 months.

Valuation & Anticipated Returns

Based mostly on anticipated FFO-per-share of $3.00 for 2021, shares of LTC presently commerce for a P/FFO ratio of 13.1. That is under our truthful worth estimate of 14.9, which is the typical valuation a number of of the inventory over the previous decade. If the P/FFO a number of expands from 13.1 to 14.9 over the subsequent 5 years, this is able to increase annual returns by 2.6% over this era.

The belief’s progress fee is prone to be pretty low within the coming years. We imagine buyers can anticipate LTC Properties to spice up its funds from operations per share at a low-single digit fee per 12 months of three% (on common) over full financial cycles.

Lastly, returns will probably be fueled by the excessive dividend yield of 5.8%.

General, we anticipate whole returns of 11.4% per 12 months for LTC over the subsequent 5 years. It is a robust fee of return that makes LTC inventory a purchase for earnings buyers.

Last Ideas

LTC has lots of the traits of a stable dividend funding. The corporate has a robust 5.8% dividend yield (greater than 3 times the typical dividend yield of the S&P 500) and may be very shareholder-friendly, paying these dividends month-to-month.

The belief may even profit immensely from the secular development of ageing home populations. Whereas FFO progress has been laborious to come back by lately, the inventory seems undervalued, with a excessive dividend yield to additional increase shareholder returns.

With all this in thoughts, LTC Properties appears to be like to be engaging for earnings buyers in search of publicity to the healthcare REIT area.