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, 2015
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)
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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, 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.
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Large accelerated filer ☑ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
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(Do not check if a
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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 2 3 , 201 5 was 3 5 , 540 , 762 .
LTC PROPERTIES, INC.
FORM 10-Q
March 31, 2015
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PART I -- Financial Information |
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Item 1. |
Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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LTC PROPERTIES, INC.
( a mounts in thousands , except per share )
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March 31, 2015 |
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December 31, 2014 |
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ASSETS |
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(unaudited) |
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(audited) |
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Investments: |
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Land |
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$ |
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$ |
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Buildings and improvements |
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Accumulated depreciation and amortization |
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Net operating real estate property |
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Mortgage loans receivable, net of loan loss reserve: 2015— $1,653; 2014— $1,673 |
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Real estate investments, net |
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Investment in unconsolidated joint venture |
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— |
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Investments, net |
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Other assets: |
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Cash and cash equivalents |
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Debt issue costs, net |
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Interest receivable |
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Straight-line rent receivable, net of allowance for doubtful accounts: 2015— $754; 2014 — $731 |
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Prepaid expenses and other assets |
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Notes receivable |
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Total assets |
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$ |
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$ |
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LIABILITIES |
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Bank borrowings |
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$ |
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$ |
— |
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Senior unsecured notes |
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Accrued interest |
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Earn-out liabilities |
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Accrued expenses and other liabilities |
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Total liabilities |
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EQUITY |
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Stockholders’ equity: |
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Preferred stock $0.01 par value; 15,000 shares authorized; shares issued and outstanding: 2015— 2,000; 2014— 2,000 |
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Common stock: $0.01 par value; 60,000 shares authorized; shares issued and outstanding: 2015— 35,541; 2014— 35,480 |
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Capital in excess of par value |
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Cumulative net income |
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Accumulated other comprehensive income |
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Cumulative distributions |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying notes.
3
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOM E
(a mounts in thousands, except per share, unaudited)
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Three Months Ended |
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March 31, |
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2015 |
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2014 |
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Revenues: |
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Rental income |
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$ |
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$ |
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Interest income from mortgage loans |
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Interest and other income |
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Total revenues |
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Expenses: |
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Interest expense |
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Depreciation and amortization |
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General and administrative expenses |
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Total expenses |
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Operating income |
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Income from unconsolidated joint venture |
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— |
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Net income |
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Income allocated to participating securities |
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Income allocated to preferred stockholders |
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Net income available to common stockholders |
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$ |
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$ |
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Earnings per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average shares used to calculate earnings per common share: |
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Basic |
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Diluted |
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Dividends declared and paid per common share |
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$ |
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$ |
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See accompanying notes.
4
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOM E
( A mounts in thousands, unaudited)
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Three Months Ended |
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March 31, |
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2015 |
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2014 |
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Net income |
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$ |
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$ |
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Reclassification adjustment (Note 6) |
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Comprehensive income |
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$ |
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$ |
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See accompanying notes.
5
LTC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW S
(Amounts in thousands, unaudited)
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Three Months Ended March 31, |
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2015 |
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2014 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
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$ |
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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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Stock-based compensation expense |
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Income from unconsolidated joint venture |
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— |
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Straight-line rental income |
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Amortization of lease inducement |
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Provision for doubtful accounts |
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Non-cash interest related to earn-out liabilities |
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— |
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Other non-cash items, net |
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(Increase) decrease in interest receivable |
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Decrease in accrued interest payable |
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Net change in other assets and liabilities |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES: |
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Investment in real estate properties, net |
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— |
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Investment in real estate developments, net |
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Investment in real estate capital improvements, net |
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Capitalized interest |
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Advances under mortgage loans receivable |
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Investment in real estate mortgages |
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— |
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Principal payments received on mortgage loans receivable |
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Investment in unconsolidated joint ventures |
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— |
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Advances under notes receivable |
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— |
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Net cash used in investing activities |
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FINANCING ACTIVITIES: |
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Bank borrowings |
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Principal payments on senior unsecured notes |
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Principal payments on bonds payable |
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— |
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Stock option exercises |
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— |
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Distributions paid to stockholders |
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Other |
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Net cash provided by (used in) financing activities |
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(Decrease) increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of year |
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Cash and cash equivalents, end of year |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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$ |
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$ |
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Non-cash investing and financing transactions: |
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Mortgage loan receivable applied against purchase price to acquire real estate (Note 2) |
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$ |
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$ |
— |
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See accompanying notes.
6
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
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 long-term 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 long-term health care properties managed by experienced operators. Our primary senior housing and long-term health care property types include skilled nursing properties (or SNF), assisted living properties (or ALF), independent living properties (or ILF), memory care properties (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 type 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, 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, 2015 and 2014 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.
Investments in unconsolidated joint ventures
From time to time, the Company may make investments in unconsolidated entities, which may be in the form of common equity, preferred equity, or debt (in the form of an acquisitio n, development or construction or “ ADC ” loan, or similar arrangement). The Company evaluates each investment pursuant to ASC 805, Consolidation, to determine whether it meets the definition of a variable interest entity (or VIE) and whether the Company is the primary beneficiary. If the entity is deemed to be a VIE but the Company is not the primary beneficiary, or if the entity is deemed to be a voting interest entity but the Company does not have a controlling financial interest, it accounts for its investment using the equity method. Under the equity method, the Company i nitially records its investment at cost and subsequently recognizes the Company’s share of net earnings or losses and other comprehensive income or loss, cash contributions made and distributions received, and other adjustments, as appropriate. Allocations of net income or loss may be subject to preferred returns or allocation formulas defined in operating agreements and may not be according to percentage interests of the members. In certain circumstances where the Company has a substantive profit-sharing arrangement which provides a priority return on its investment, a portion of its equity in earnings may consist of a change in its claim on the net assets of the underlying
7
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
joint venture. Distributions of operating profit from the joint ventures are reported as part of operating cash flows, while distributions related to a capital transaction, such as a refinancing transaction or sale, are reported as investing activities.
The Company performs a quarterly evaluation of its investments in unconsolidated joint ventures to determine whether the fair value of each investment is less than the carrying value, and, if such decrease in value is deemed to be other-than-temporary, writes the investment down to its estimated fair value as of the measurement date.
Impact of New Accounting Pronouncement s .
In May 2014, the FASB issued Accounting Standards Update (or ASU) No. 2014-09 (or ASU 2014-09), Revenue from Contracts with Customers: Topic 606 . ASU 2014-09 provides for a single comprehensive principles based standard for the recognition of revenue across all industries. ASU 2014-09 requires expanded disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. On April 1, 2015, FASB voted for a one-year deferral of the effective date to December 15, 2017. Also, FASB will permit public companies to adopt the amendment as of the original effective date. We are currently evaluating the effects of this adoption on our consolidated financial statements.
In January 2015, FASB issued ASU No. 2015-01 (or ASU 2015-01), Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates the separate classification, presentation and disclosure of extraordinary events and transactions. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We elected early adoption of ASU 2015-01 as of January 1, 2015. The adoption did not have a material impact on our consolidated financial statements.
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. We are currently evaluating the effects of this adoption on our consolidated financial statements.
In April 2015, FASB issued ASU No. 2015-03 (ASU 2015-03), Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects of this adoption on our consolidated financial statements.
8
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
2. Real Estate Investments
Assisted living properties, independent living properties, memory care properties, and combinations thereof are included in the assisted living property type. Range of care properties (or ROC) property type 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, 2015 (dollar amounts in thousands) :
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Average |
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Percentage |
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Number |
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Number of |
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Investment |
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Gross |
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of |
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of |
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SNF |
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ALF |
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per |
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Type of Property |
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Investments |
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Investments |
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Properties (1) |
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Beds |
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Units |
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Bed/Unit |
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Skilled Nursing |
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$ |
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% |
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— |
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$ |
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Assisted Living |
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% |
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— |
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$ |
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Range of Care |
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% |
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$ |
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Under Development (2) |
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% |
— |
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— |
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— |
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— |
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Other (3) |
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% |
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— |
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— |
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— |
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Totals |
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$ |
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% |
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(1) |
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We own properties in 27 states that are leased to 29 different operators. |
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(2) |
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Includes two MC developments with a total of 122 units and a combination ALF and MC development with 89 units. |
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(3) |
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Includes one school property and five parcels of land held-for-use. |
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:
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a specified percentage increase over the prior year’s rent, generally between 2.0% and 3.0%; |
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a calculation based on the Consumer Price Index; |
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as a percentage of facility net patient revenues in excess of base amounts; or |
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specific dollar increases. |
During the three months ended March 31, 2015, we funded $7,195,000 under a $12,182,000 development commitment to purchase the land and existing improvements and then complete the related development of a 56 -unit memory care property currently under construction in Texas. In conjunction with this commitment, we entered into a master lease agreement for an initial term of 15 years with three
9
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
5 -year renewal options at an initial cash yield of 8.75% . The master lease provides for our payment of a lease inducement of up to $1,589,000 . Also, the master lease gives us a right to provide similar financing for certain future development opportunities.
During the three months ended March 31, 2015, we elected to exercise our right to provide financing for one such opportunity, adding to the master lease a parcel of land purchased in South Carolina for $2,490,000 as part of our commitment to provide the operator with up to $16,535,000 , including the land purchase , for the development of an 89 -unit combination assisted living and memory care property. In conjunction with this new development commitment, the master lease provide s for an additional $2,363,000 lease inducement payment. See Note 7. Commitments and Contingencies for further discussion of the lease inducement commitments.
During the quarter ended March 31, 2015, we purchased and equipped a 106 -bed skilled nursing property 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 $1,054,000 lease inducement which will be amortized as a yield adjustment over the life of the lease term. See Mortgage Loans below for further discussion of the loan agreement.
The following table summarizes our completed development and improvement projects and amounts funded during the three months ended March 31, 2015 (dollar amounts in thousands) :
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Number |
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Number |
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of |
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Type of |
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of |
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Type of Project |
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Properties |
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Property |
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Beds/Units |
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State |
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2015 Funding |
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Total Funding |
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Development |
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1 |
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ALF |
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60 |
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Colorado |
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$ |
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$ |
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(1) |
Renovation |
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1 |
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SNF |
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121 |
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California |
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Renovation |
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2 |
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SNF |
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141 |
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Tennessee |
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4 |
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322 |
|
|
|
$ |
|
(2) |
$ |
|
|
|
(1) |
|
Completed a MC property in February 2015. |
|
(2) |
|
Excludes $5,692 of funding on projects that were completed during 2014. |
The following table summarizes our investment commitments as of March 31, 2015, and amounts funded under these projects (excludes capitalized interest, dollar amounts in thousands) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Number |
|
|
|
Investment |
|
2015 |
|
Commitment |
|
Remaining |
|
of |
|
of |
|
||||
Type of Property |
|
Commitment |
|
Funding (2) |
|
Funded |
|
Commitment |
|
Properties |
|
Beds/Units |
|
||||
Skilled Nursing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
Assisted Living (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
(1) |
|
Includes the development of two MC properties for a total commitment of $24,430 and one ALF/MC property for a total commitment of $16,535 . Also, includes three commitments for renovation projects on 24 ALFs totaling $4,800 . |
|
(2) |
|
Excludes funding for completed development and improvement projects discussed above. Includes $7,195 of land and improvements acquired for the development of a 56 -unit MC property and $2,490 of land acquired for the development of an 89 -unit ALF/MC property, as previously discussed. |
10
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
Our construction in progress (or CIP) activity during the three months ended March 31, 2015 for our development, redevelopment, renovation, and expansion projects is as follows (dollar amounts in thousands) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIP |
|
|
|
|
|
|
|
|
|
|
CIP |
|
||
|
|
Balance at |
|
|
|
|
Capitalized |
|
Conversions |
|
Balance at |
|
||||
Properties |
|
12/31/2014 |
|
Funded (1) |
|
Interest |
|
out of CIP |
|
3/31/2015 |
|
|||||
Development projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assisted living |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment, renovation and expansion projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Skilled nursing |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Subtotal |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
Excludes $7,298 of funding on development and renovations projects which was capitalized directly into building and includes the acquisition of the existing improvements of the 56-unit MC property for $6,315, as previously discussed. |
Mortgage Loans. The following table summarizes our investments in mortgage loans secured by first mortgages at March 31, 2015 (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 |
|
Units |
|
Bed/Unit |
|
||
Skilled Nursing |
|
$ |
|
|
|
% |
|
|
|
|
|
|
— |
|
$ |
|
|
Assisted Living |
|
|
|
|
|
% |
|
|
|
|
— |
|
|
|
$ |
|
|
Totals |
|
$ |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We have investments in properties located in 7 states that include mortgages to 10 different operators. |
At March 31, 2015, the mortgage loans had interest rates ranging from 7.1% 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, 2015, we received $2,285,000 plus accrued interest related to the payoff of a mortgage loan secured by a range of care property located in California. During the three months ended March 31, 2015 and 2014, we received $501,000 and $519,000 , respectively, in regularly scheduled principal payments.
During 2013, we funded the initial amount of $124,387,000 under a mortgage loan with a third ‑party borrower secured by 15 skilled nursing properties with a total of 2,058 beds in Michigan. The loan agreement provides for additional commitments of $12,000,000 for capital improvements and up to $40,000,000 of additional proceeds, for a total loan commitment of up to $176,387,000 . See Note 7. Commitments and Contingencies for further discussion of the additional $40,000,000 loan commitment. During the three months ended March 31, 2015, we funded $1,858,000 under the $12,000,000 capital improvement commitment with $6,804,000 remaining as of March 31, 2015.
In addition, this mortgage loan provided the borrower a one ‑time option to prepay up to 50% of the then outstanding loan balance without penalty. During the three months ended March 31, 2015, we amended this mortgage loan to provide up to an additional $20,000,000 in loan proceeds for the
11
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
expansion of two properties securing the loan (increasing the total capital improvement commitment to $32,000,000 and the total loan commitment to $196,387,000) and agreed to convey, to the borrower , two parcels of land held-for-use adjacent to these properties to facilitate the projects. As partial consideration for the increased commitment and associated conveyance, the borrower forfeited their prepayment option.
Additionally, during the quarter ended March 31, 2015, we originated an $11,000,000 mortgage loan with the borrower concurrently funding $9,500,000 with a commitment to fund the balance for approved capital improvement projects. The loan is secured by a 157 -bed skilled nursing property in Michigan and bears interest at 9.41% for five years, escalating annually thereafter by 2.25% . The term is 30 years with interest-only payments for the initial three years . Additionally, we have the option to purchase the property under certain circumstances, including a change in regulatory environment.
We had a $10,600,000 mortgage and construction loan that afforded the borrower to develop a new 106 -bed skilled nursing property in Wisconsin to replace an old existing skilled nursing property. Upon completion of construction and relocation of the residents from the old property to the replacement property in 2014, the old property was sold and released as collateral. During the three months ended March 31, 2015, we purchased and equipped the replacement property for a total of $13,946,000 by exercising our right under the agreement including applying amounts otherwise due to us under the underlying loan as a closing adjustment . See Owned Properties above for further discussion of the property purchase.
12
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
3. Investment in Unconsolidated Joint Ventures
During the three months ended March 31, 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 contribute 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 not entitled to share in the JV’s earnings or losses. Rather, 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 added to the balance of the preferred equity investment and will be repaid upon redemption. In addition, we have the option to purchase either the properties owned by the JV or 100% of the common membership interest in the JV, which is exercisable between the 37th month and the 54th month from the commencement of the JV. If we elect not to exercise our purchase option, we have the right to put our preferred equity interest to the common member after the 54th month for an amount equal to the unpaid preferred equity investment balance and accrued preferred return thereon. The common equity member has the right to call our preferred interest at any time for an amount equal to the preferred equity investment balance and accrued preferred return thereon that would be due for the first 36 months, less amounts paid to us prior to the redemption date.
The JV is intended to be self-financing, other than our preferred capital contributions, no direct support will be provide d by us. 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. We have conclude d that the JV meets the accounting criteria to be considered a s 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, 2015, we recognized $116,000 in income from our preferred equity investment in the JV.
4. Notes Receivable
Notes receivable consists of various loans and line of credit agreements with certain operators. During the three months ended March 31, 2015, we funded $892,000 in principal under these notes. In the comparable 2014 period, we did not receive or fund any principal under these notes. At March 31, 2015, we had twelve loans and line of credit agreements with commitments totaling $4,288,000 and weighted average interest rate of 10.8% . As of March 31, 2015, we funded $ 2,334,000 under these commitments and we have a remaining commitment of $1,954,000 .
5. Debt Obligations
Bank Borrowings. We have an Unsecured Credit Agreement that provides for a revolving line of credit up to $400,000,000 with the opportunity to increase the credit amount up to a total of $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, 2015, the facility provides for interest annually at LIBOR plus 125 basis points and an unused commitment fee of 30 basis points. During the three mont hs ended March 31, 2015 and 201 4 we borrowed $36,500,000 and $20,000,000 , respectively, under our Unsecured Credit Agreement. At March 31, 2015, we
13
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
had $36,500,000 outstanding and $363,500,000 available for borrowing . At March 31, 2015, we were in compliance with all covenants.
Senior Unsecured Notes. At March 31, 2015 and December 31, 2014, we had $277,467,000 and $281,633,000 , respectively, outstanding under our Senior Unsecured Notes with a weighted average interest rate of 4.8 %. During each of the three months ended March 31, 2015 and 2014, we paid $4,167,000 in regular scheduled principal payments.
Subsequent to March 31, 2015, we entered into a third amended and restated $200,000,000 private shelf agreement with Prudential Investment Management, Inc. (or Prudential) for a three year term. The agreement provides for the possible issuance of up to an additional $102,000,000 of senior unsecured fixed interest rate term notes. After July 14 , 2015 and for the balance of the term , the agreement provides for the possible issuance of additional senior unsecured fixed interest rate term notes up to the maximum availability upon us making our scheduled principal payments on existing notes then outstanding. Interest rates on any issuance under the shelf agreement will be set at a spread over applicable Treasury rates. Maturities of each issuance are at our election for up to 15 years from the date of issuance with a maximum average life of 12 years from the date of original issuance.
Bonds Payable . We had a multifamily tax-exempt revenue bonds that was secured by five assisted living properties in Washington which were paid off during 2014. For the three months ended March 31, 2014, we paid $ 635,000 in regularly scheduled principal payments.
6. Equity
Equity activity was as follows (in thousands) :
|
|
|
|
|
|
|
Total |
|
|
|
|
Equity |
|
|
Balance at December 31, 2014 |
|
$ |
|
|
Net income |
|
|
|
|
Vesting of stock option and restricted common stock |
|
|
|
|
Reclassification adjustment |
|
|
|
|
Preferred stock dividends |
|
|
|
|
Common stock dividends |
|
|
|
|
Other |
|
|
|
|
Balance at March 31, 2015 |
|
$ |
|
|
Preferred Stock. At March 31, 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 is convertible into 2,000,000 shares of our common stock at $19.25 per share. Total shares reserved for issuance of common stock related to the conversion of Series C preferred stock were 2,000,000 shares at March 31, 2015.
Common Stock. During the three months ended March 31, 2015 and 2014, we acquired 4,609 shares and 200 shares respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
14
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
Available Shelf Registrations. Our shelf registration statement provides us with the capacity to offer up to $800,000,000 in common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under this current shelf registration in amounts, at prices, and on terms to be announced when and if the securities are offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. At March 31, 2015, we had availability of $775,100,000 under our effective shelf registration which expires on July 19, 2016.
Distributions. We declared and paid the following cash dividends (in thousands) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 |
|
Three Months Ended March 31, 2014 |
|
||||||||
|
|
Declared |
|
Paid |
|
Declared |
|
Paid |
|
||||
Preferred Stock Series C |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Common Stock (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
Represents $0.17 per share per month for each of the three months ended March 31, 2015 and 2014, respectively. |
In April 2015, we declared a monthly cash dividend of $0.17 per share on our common stock for the months of April, May and June, payable on April 30, May 29, and June 30, 2015, respectively, to stockholders of record on April 22, May 21, and June 22, 2015, respectively.
Accumulated Other Comprehensive Income. At March 31, 2015 and December 31, 2014, accumulated comprehensive income of $73,000 and $82,000 , 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 the three months ended March 31, 2015, no stock options were granted or exercised . In the comparable 2014 period, we granted 15,000 options to purchase common stock at an exercise price of $38.43 per share. These stock options vest ratably over a three -year period from the grant date. Additionally, during the three months ended March 31, 2014, a total of 10,000 stock options were exercised at a total option value of $238,000 and a total market value on the date of exercise of $390,000 . At March 31, 2015, we had 43,334 stock options outstanding and 33,334 stock options are exercisable.
At March 31, 2015, the total number of stock options that are scheduled to vest through December 31, 2015, 2016 and 2017 is 0; 5,000 and 5,000 , respectively. We have no stock options outstanding that are scheduled to vest beyond 2017. Compensation expense related to the vesting of stock options for the three months ended March 31, 2015 and 2014, was $4,000 and $1,000 , respectively. The remaining compensation expense to be recognized related to the future service period of unvested outstanding stock options for 2015, 2016 and 2017 is $11,000; $15,000 and $2,000 , respectively.
During the first quarter of March 31, 2015, we cancelled 640 shares of restricted stock. During the three months ended March 31, 2015 and 2014, we granted 65,750 and 62,000 shares of restricted common stock, respectively, as follows:
15
|
|
|
|
|
|
|
|
|
|
|
|
Price per |
|
|
|
Year |
|
No. of Shares |
|
Share |
|
Vesting Period |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
ratably over 3 years |
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
ratably over 3 years |
|
|
|
|
$ |
|
|
ratably over 3 years |
|
|
|
|
|
|
|
|
At March 31, 2015, we had 255,815 restricted common shares outstanding. The total number of restricted common shares that are scheduled to vest through December 31, 2015, 2016, 2017 and 2018 is 94,168; 88,360; 51,367 and 21,920 , respectively. We have no restricted common stock that is scheduled to vest beyond 2018. During the three months ended March 31, 2015 and 2014, we recognized $978,000 and $665,000 , respectively, of compensation expense related to the vesting of restricted common stock. The remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock for 2015, 2016, 2017, and 2018 is $2,648,000; $2,227,000; $1,162,000 and $81,000 , respectively.
7. Commitments and Contingencies
As part of an acquisition in December 2014, we committed to provide two contingent payments totaling up to $4,000,000 payable in increments of $2,000,000 upon the property achieving a sustainable stipulated rent coverage ratio. We estimated the fair value of the contingent payment using a discounted cash flow analysis. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 measurement. These contingent payments were recorded at the date of the acquisition in the amount of $3,240,000 and we are accreting the contingent liability up to the estimated settlement amount as of the estimated payment dates. The fair value of these contingent liabilities are evaluated on a quarterly basis based on changes in estimates of future operating results and changes in market discount rates. During the three months ended March 31, 2015, we recorded non ‑cash interest expense of $55,000 related to these contingent liabilities and the fair value of these contingent payments was $3,313,000 at March 31, 2015.
During the three months ended March 31, 2015, we entered into two development commitments totaling $28,717,000 to acquire two parcels of land and an existing improvement and to construct a 56 -unit memory care property and an 89 -unit combination assisted living and memory care property. Concurrent with these commitments, we entered into a master lease agreement which provides for two lease inducement payments totaling $3,952,000 , which will be amortized as a yield adjustment over the lease term. Up to 25% of the fee is currently available for funding with the remaining balance available following the issuance of a certificate of occupancy and receipt of regulatory approval required for the operation of the newly constructed properties. As of March 31, 2015, we have funded $44,000 and have a remaining commitment of $944,000 under the available lease inducement commitment. See Note 2. Real Estate Investments for further discussion of the acquisition and master lease terms.
At March 31, 2015, we had a commitment to provide a borrower an additional $40,000,000 of loan proceeds under a mortgage loan secured by 15 skilled nursing properties in Michigan. The addi tional proceeds are contingent o n certain conditions and are based on certain operating metrics and valuation thresholds. Also, the additional proceeds are limited to $10,000,000 in any twelve month period. See Note
16
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
2. Real Estate Investments for further discussion of this mortgage loan.
At March 31, 2015, we had additional commitments as follows (in thousands) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
2015 |
|
Commitment |
|
Remaining |
|
||||
|
|
Commitment |
|
Funding |
|
Funded |
|
Commitment |
|
||||
Real estate properties (See Note 2) |
|
$ |
|
(1) |
$ |
|
|
$ |
|
|
$ |
|
|
Mortgage loans (See Note 2) |
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
Notes receivable (See Note 4) |
|
|
|
(2) |
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
Represents commitments to purchase land and improvements, if applicable, and to develop, re-develop, renovate or expand senior housing and long term care properties . |
|
(2) |
|
Represents loan and line of credit commitments. |
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 three operators from each of which we derive approximately 10% of our combined rental revenue and interest income from mortgage loans.
Prestige Healthcare (or Prestige) is a privately held company and operates 16 skilled nursing properties and two range of care properties that we own or on which we hold mortgage s secured by first trust deeds. These properties consist of a total of 2,333 skilled nursing beds and 93 assisted living units. Additionally, Prestige manages five parcels of land that we own. These assets represent 15.0% of our total assets at March 31, 2015 and generated 13.2% of our combined rental revenue and interest income from mortgage loans recognized for the three months ended March 31, 2015.
In July 2014, Brookdale Senior Living, Inc. (or Brookdale), parent company of Brookdale Senior Living Communities, Inc. (or Brookdale Communities), merged with Emeritus Corporation. Brookdale Communities leases 37 assisted living properties with a total of 1,704 units owned by us representing approximately 8.2% of our total assets at March 31, 2015 and 12.4% of our combined rental revenue and interest income from mortgage loans recognized for the three months ended March 31, 2015.
Senior Care Centers, LLC (or Senior Care) is a privately held company. Senior Care leases nine skilled nursing properties with a total of 1,190 beds owned by us representing approximately 10.1% of our total assets at March 31, 2015 and generated 9.9% of our combined rental revenue and interest income from mortgage loans recognized for the three months ended March 31, 2015.
Our financial position and ability to make distributions may be adversely affected by financial difficulties experienced by Brookdale Communities, Prestige Healthcare, Senior Care, or any of our
17
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
lessees and borrowers, 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 or our borrowers when it expires.
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 ):
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Net income |
|
$ |
|
|
$ |
|
|
Less net income allocated to participating securities: |
|
|
|
|
|
|
|
Non-forfeitable dividends on participating securities |
|
|
|
|
|
|
|
Total net income allocated to participating securities |
|
|
|
|
|
|
|
Less net income allocated to preferred stockholders: |
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
Total net income allocated to preferred stockholders |
|
|
|
|
|
|
|
Net income available to common stockholders |
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
Convertible preferred securities |
|
|
|
|
|
|
|
Total effect of dilutive securities |
|
|
|
|
|
|
|
Net income for diluted net income per share |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Shares for basic net income per share |
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
Convertible preferred securities |
|
|
|
|
|
|
|
Total effect of dilutive securities |
|
|
|
|
|
|
|
Shares for diluted net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
|
|
$ |
|
|
Diluted net income per share |
|
$ |
|
|
$ |
|
|
10. Fair Value Measurements
In accordance with the accounting guidance regarding the fair value option for financial assets and financial liabilities, entities are permitted to choose to measure certain financial assets and liabilities at fair value, with the change in unrealized gains and losses reported in earnings. We did not adopt the elective fair value option for our financial assets and financial liabilities.
18
LTC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. We do not invest our cash in auction rate securities. The carrying value and fair value of our financial instruments as of March 31, 2015 and December 31, 2014 assuming election of fair value for our financial assets and financial liabilities were as follows ( in thousands ):
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At March 31, 2015 |
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At December 31, 2014 |
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Carrying |
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Carrying |
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Value |
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Fair Value |
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Value |
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Fair Value |
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Mortgage loans receivable |
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$ |
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$ |
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(1) |
$ |
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$ |
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(1) |
Bank borrowings |
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(2) |
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— |
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— |
(2) |
Senior unsecured notes |
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(3) |
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(3) |
Contingent liabilities |
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(4) |
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(4) |
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(1) |
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Our investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash inflows of the mortgage loans receivable at March 31, 2015 and December 31, 2014 was 8.7% and 8.6%, respectively. |
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(2) |
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Our bank borrowings are at a variable interest rate. The estimated fair value of our bank borrowings approximated their carrying values at March 31, 2015 and December 31, 2014 based upon prevailing market interest rates for similar debt arrangements. |
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(3) |
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Our obligation under our senior unsecured notes is classified as Level 3 and thus the fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is measured based upon management’s estimates of rates currently prevailing for comparable loans available to us, and instruments of comparable maturities. At March 31, 2015, the discount rate used to value our future cash outflow of our senior unsecured notes was 3.75% for those maturing before year 2020 and 4.0% for those maturing beyond year 2020. At December 31, 2014, the discount rate used to value our future cash outflow of our senior unsecured notes was 3.8% for those maturing before year 2020 and 4.55% for those maturing beyond year 2020. |
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(4) |
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Our contingent obligation under the earn ‑out liabilities is classified as Level 3. We estimated the fair value of the contingent earn ‑out payments using a discounted cash flow analysis. The discount rate that we use consists of a risk ‑free U.S. Treasury rate plus a company specific credit spread which we believe is acceptable by willing market participants. At March 31, 2015 and December 31, 2014, the discount rate used to value our future cash outflow of the earn-out liability was 6.1% and 6.2%, respectively. |
1 1 . Subsequent Events
Subsequent to March 31, 2015 the following events occurred.
Debt Obligations: We amended and restated our note purchase and private shelf agreement with Prudential which provides for the possible issuance of up to $ 10 2,000,000 of senior unsecured fixed interest rate term notes. See Note 5 . Debt Obligations for further discussion .
Equity: We declared a monthly cash dividend of $0.17 per share on our common stock for the months of April , May and June , payable on April 3 0 , May 2 9 , and June 3 0 , 201 5 , respectively, to stockholders of record on April 2 2 , May 2 1 , and June 2 2 , 201 5 , respectively .
19
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward Looking Disclosure
This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words, such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or the negative of those words or similar words. Forward- looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, the status of the economy; the status of capital markets (including prevailing interest rates) and our access to capital; the income and returns available from investments in health care related real estate (including our ability to re-lease properties upon expiration of a lease term); the ability of our borrowers and lessees to meet their obligations to us; our reliance on a few major operators; competition faced by our borrowers and lessees within the health care industry; regulation of the health care industry by federal, state and local governments (including as a result of the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010); changes in Medicare and Medicaid reimbursement amounts (including due to federal and state budget constraints); compliance with and changes to regulations and payment policies within the health care industry; debt that we may incur and changes in financing terms; our ability to continue to qualify as a real estate investment trust; the relative illiquidity of our real estate investments; potential limitations on our remedies when mortgage loans default; and risks and liabilities in connection with properties owned through limited liability companies and partnerships. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in our publicly available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events or otherwise.
Executive Overview
Business
We are a self-administered health care real estate investment trust (or REIT) that invests primarily in senior housing and long-term 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 long-term health care properties managed by experienced operators. Our primary senior housing and long-term health care property types include skilled nursing properties (or SNF), assisted living properties (or ALF), independent living properties (or ILF), memory care properties (or MC) and combinations thereof. ALF, ILF, MC, and combinations thereof are included in the ALF property type. Range of care properties (or ROC) property type consists of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services. As of March 31, 2015, senior housing and long-
20
term health care properties comprised approximately 99% of our real estate investment portfolio. We have been operating since August 1992.
The following table summarizes our real estate investment portfolio as of March 31, 2015 ( dollar amounts in thousands ):
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Three Months Ended |
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Percentage |
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March 31, 2015 |
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Percentage |
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Number |
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Number of |
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Gross |
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of |
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Rental |
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Interest |
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of |
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of |
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SNF |
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ALF |
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Type of Property |
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Investments |
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Investments |
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Income |
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Income (1) |
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Revenues (2) |
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Properties (3) |
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Beds (3) |
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Units (3) |
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Skilled Nursing |
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$ |
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% |
$ |
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$ |
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% |
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— |
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Assisted Living |
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% |
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% |
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— |
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Range of Care |
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% |
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— |
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% |
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Under Development (4) |
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% |
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— |
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— |
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— |
% |
— |
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— |
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— |
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Other (5) |
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% |
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— |
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% |
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— |
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— |
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Totals |
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$ |
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% |
$ |
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$ |
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% |
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(1) |
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Includes interest income from mortgage loans excluding interest income from mortgage loan paid off during the three months ended March 31, 2015 . |
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(2) |
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Includes rental income and (1) above . |
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(3) |
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We have investments in 29 states leased or mortgaged to 3 5 different operators. See Item 1. Financial Statements – Note 2. Real Estate Investments for discussion of bed/unit count. |
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(4) |
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Includes two MC developments with a total of 1 22 units and a combination ALF and MC development with 8 9 units. |
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(5) |
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Includes one school property and five parcels of land held-for-use. |
As of March 31, 2015 we had $917.2 million in carrying value of net real estate investments, consisting of $753.5 million or 82.2% invested in owned and leased properties and $163.7 million or 17.8% invested in mortgage loans secured by first mortgages.
For the three months ended March 31, 2015, rental income and interest income from mortgage loans represented 84.7% and 14.6%, respectively, of total gross revenues. In most instances, our lease structure contains fixed annual rental escalations, which are generally recognized on a straight-line basis over the minimum lease period. Certain leases have annual rental escalations that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved. For the three months ended March 31, 2015, we recorded $2.3 million in straight-line rental income and $23,000 of straight-line rent receivable reserve. During the three months ended March 31, 2015, we received $24.8 million of cash rental revenue and recorded amortization of lease inducement cost of $0.4 million. During the three months ended March 31, 2015, an existing master lease was amended to extend the terms an additional three years and increased rent by 3%. In conjunction with the amendment, we provided the lessee a $2.0 million lease inducement, which is amortized as a yield adjustment over the life of the lease term. At March 31, 2015, the straight-line rent receivable balance, net of reserves, on the balance sheet was $34.9 million.
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 long-term health care properties managed by experienced operators or in investments secured by health care related real estate assets. To meet these objectives, we attempt to make investments that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property type and form of investment. We opportunistically consider investments in health care facilities in related businesses where the business model is similar to our existing model and the opportunity provides an attractive expected return. Consistent with this
21
strategy, we pursue, from time to time, opportunities for potential acquisitions and investments, with due diligence and negotiations often at different stages of development at any particular time.
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· |
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With respect to skilled nursing properties, a primary component of our strategy is to invest in new or modernized properties operated by experienced, regionally-based operators demonstrating established relationships with local health care systems and managed care provider networks. We prefer to invest in a property that has significant market presence in its community and where state certificate of need and/or licensing procedures limit the entry of competing properties. |
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· |
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For assisted living and independent living investments we have attempted to diversify our portfolio both geographically and across product levels. |
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· |
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Memory care facilities offer specialized options for seniors with Alzheimer’s disease and other forms of dementia. Purpose built, free-standing memory care facilities offer an attractive alternative for private-pay residents affected by memory loss in comparison to other accommodations that typically have been provided within a secured unit of an assisted living or skilled nursing facility. These facilities offer dedicated care and specialized programming for various conditions relating to memory loss in a secured environment that is typically smaller in scale and more residential in nature than traditional assisted living facilities. Residents require a higher level of care and more assistance with activities of daily living than in assisted living facilities. Therefore, these facilities have staff available 24 hours a day to respond to the unique needs of their residents. |
Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable. Our investments in owned properties and mortgage loans represent our primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and the rates earned thereon. To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of health care facility and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review of covenant compliance.
In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.
Depending upon the availability and cost of external capital, we anticipate making additional investments in health care related properties and health care related securities and/or ventures. New investments are generally funded from cash on hand, temporary borrowings under our unsecured revolving line of credit and internally generated cash flows. Our investments generate internal cash from rent and interest receipts and principal payments on mortgage loans receivable. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving line of credit, is expected to be provided through a combination of public and private offerings of debt and equity securities and secured and unsecured debt financing. The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets environment,
22
especially to changes in interest rates. Changes in the capital markets’ environment may impact the availability of cost-effective capital.
We believe our business model has enabled and will continue to enable us to maintain the integrity of our property investments, including in response to financial difficulties that may be experienced by operators. Traditionally, we have taken a conservative approach to managing our business, choosing to maintain liquidity and exercise patience until favorable investment opportunities arise.
At March 31, 2015, we had $3.4 million of cash on hand and $363.5 million available under our unsecured revolving line of credit with the opportunity to increase the credit up to an additional $200.0 million. Also, we have $775.1 million available under our effective shelf registration to access the capital markets through the issuance of debt and/or equity securities. Subsequent to March 31, 2015, we amended and restated our note purchase and private shelf agreement with Prudential Investment Management, Inc. (or Prudential) which provides for the possible issuance of up to an additional $102.0 million of senior unsecured fixed interest rate term notes. As a result, we believe our liquidity and various sources of available capital are sufficient to fund operations and development commitments, meet debt service obligations (both principal and interest), make dividend distributions and finance some future investments should we determine such future investments are financially feasible.
Health Care Regulatory Climate
The Centers for Medicare & Medicaid Services (or CMS) annually updates Medicare skilled nursing facility prospective payment system rates and other policies. CMS published the final fiscal year 2015 Medicare skilled nursing facility payment update on August 5, 2014. Under the final rule, Medicare rates are updated by 2%, based on a 2.5% market basket increase that is reduced by a 0.5 percentage point multifactor productivity adjustment (described below). CMS estimates that the final rule will increase aggregate Medicare payments to skilled nursing facilities by $750 million. On April 15, 2015, CMS released its proposed skilled nursing facility prospective payment system update for fiscal year 2016. CMS projects that aggregate Medicare payments to skilled nursing facilities would increase by $500 million, or 1.4% under the proposed rule. This estimated increase reflects a 2.6% market basket increase, reduced by both a 0.6 percentage point forecast error adjustment and a 0.6 percentage point multifactor productivity adjustment. The final fiscal year 2016 rule has not yet been released. There can be no assurance that future regulations modifying Medicare skilled nursing facility payment rates will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us.
In March 2010, the President signed into law the Patient Protection and Affordable Care Act, which subsequently was amended by the Health Care and Education and Reconciliation Act of 2010 (collectively referred to as the “Affordable Care Act”). The Affordable Care Act is designed to expand access to affordable health insurance, contain health care costs, and institute a variety of health policy reforms. The provisions of the sweeping law may affect us directly, as well as impact our lessees and borrowers. While certain provisions, such as expanding the insured population, may positively impact the revenues of our lessees and borrowers, other provisions, particularly those intended to reduce federal health care spending, could have a negative impact on our lessees and borrowers. Among other things, the Affordable Care Act: reduces Medicare skilled nursing facility reimbursement by a so-called “multifactor productivity adjustment” based on economy-wide productivity gains; requires the development of a value-based purchasing program for Medicare skilled nursing facility services; establishes a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services that could lead to changes in the delivery of post-acute services; and provides incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term health
23
care services. The Affordable Care Act also includes provisions intended to expand public disclosure about nursing home ownership and operations, institute mandatory compliance and quality assurance programs, increase penalties for noncompliance, and expand fraud and abuse enforcement and penalty provisions that could impact our operators. In addition, the Affordable Care Act impacts both us and our lessees and borrowers as employers, including new requirements related to the health insurance we offer to our respective employees. Many aspects of the Affordable Care Act are being implemented through new regulations and subregulatory guidance. We cannot predict at this time what effect, if any, the various provisions of the Affordable Care Act will have on our lessees and borrowers or our business when fully implemented. There can be no assurances, however, that the Affordable Care Act will not adversely impact the operations, cash flows or financial condition of our lessees and borrowers, which subsequently could materially adversely impact our revenue and operations.
Under the terms of the Budget Control Act of 2011, as modified by the American Taxpayer Relief Act, President Obama issued a sequestration order on March 1, 2013 that mandates a 2% cut to Medicare payments to providers and health plans. The cuts generally apply to Medicare fee-for-service claims with dates-of-service or dates-of-discharge on or after April 1, 2013. As amended by subsequent legislation, the Medicare sequestration cuts are currently scheduled to be applied through fiscal year 2024, although Congress and the Administration could enact legislation to modify sequestration at any time. On April 1, 2014, President Obama signed into law H.R. 4302, the “Protecting Access to Medicare Act of 2014.” Among other things, the Protecting Access to Medicare Act requires the Secretary of the Department of Health and Human Services to develop a skilled nursing facility “value-based purchasing program,” which will tie Medicare payments to skilled nursing facilities to their performance on certain new readmissions measures, applicable to services furnished beginning October 1, 2018. On October 6, 2014, President Obama signed the Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”). This law requires the collection of standardized post-acute care assessment data, which eventually could be used as the basis for developing changes to Medicare post-acute care reimbursement policy. On April 16, 2015, President Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which, among other things, sets the annual skilled nursing facility prospective payment system update for FY 2018 at 1%. Congress and the Administration also could consider other legislation that would have the impact of reducing Medicare reimbursement for skilled nursing facilities and other Medicare providers, encouraging home and community-based long term care services as an alternative to institutional settings, or otherwise reforming payment policy for post-acute care services. There can be no assurances that enacted or future budget control mechanisms will not have an adverse impact on the financial condition of our borrowers and lessees, which subsequently could materially adversely impact our company.
Additional reforms affecting the payment for and availability of health care services have been proposed at the state level and adopted by certain states. Increasingly state Medicaid programs are providing coverage through managed care programs under contracts with private health plans, which is intended to decrease state Medicaid costs. Congress and state legislatures can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law, new interpretations of existing laws, or changes in payment methodologies may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government and other third party payors.
Key Transactions
During the three months ended March 31, 2015 , we purchased and equipped a 106-bed skilled nursing property in Wisconsin for a total of $13. 9 million by exercising our purchase option under a $10 . 6 million mortgage and construction loan. The property was added to an existing master lease at a lease rate
24
equivalent to the interest rate in effect on the loan at the time the purchase option was exercised . In addition, we completed the development and opened a 60-unit memory care property located in Colorado.
Also, during the first quarter of 2015, we entered into two development commitments totaling $28.7 million to acquire two parcels of land and an existing improvement and to develop a 56-unit memory care property located in Texas and an 89-unit combination assisted living and memory care property located in South Carolina. Concurrent with these commitments, we entered into a master lease agreement for an initial term of 15 years with three 5-year renewal options at an initial cash yield of 8.75%. T he master lease gives us a right to provide similar financing for certain future development opportunities.
We also committed to provide a borrower additional loan proceeds up to $20.0 million for the expansion of two of the 15 properties securing its original loan which increased the total loan commitment to $196.4 million . We also agreed to convey to the borrower two parcels of land adjacent to these properties to facilitate the projects. As partial consideration for the increased commitment and associated conveyance, the borrower forfeited a one-time option to prepay up to 50% of the then outstanding loan balance without penalty.
Furthermore, we originated a new $11 . 0 million mortgage loan , of which $9 . 5 million was initially funded, with a commitment to fund the balance for approved capital improvement projects. The loan is secured by a 157-bed skilled nursing property in Michigan and bears interest at 9.41% for five years, escalating annually thereafter by 2.25%. The term is 30 years with interest-only payments for the initial three years . Additionally, we have the option to purchase the property under certain circumstances, including a change in regulatory environment .
During the three months ended March 31, 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 $20.1 million and have committed to contribute an additional preferred capital contribution of $5.5 million for a total preferred capital contribution of $25.6 million. 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 added to the balance of the preferred equity investment and will be repaid upon redemption.
Key Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to concentration risk and credit strength. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results in making operating decisions and for budget planning purposes.
Concentration Risk. We evaluate by gross investment our concentration risk in terms of asset mix, investment mix, operator mix and geographic mix. Concentration risk is valuable to understand what portion of our investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property or mortgage loans. In order to qualify as an equity REIT, at least 75 percent of our total assets must be represented by real estate assets, cash, cash items and government securities. Investment mix measures the portion of our investments that relate to our various property types. Operator mix measures the portion of our investments that relate to our top five operators. Geographic mix measures the portion of our investment that relate to our top five states.
25
The following table reflects our recent historical trends of concentration risk (gross investment, in thousands) :
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3/31/15 |
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12/31/14 |
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9/30/14 |
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6/30/14 |
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3/31/14 |
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Asset mix: |
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Real property |
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$ |
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$ |
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$ |
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$ |
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$ |
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Loans receivable |
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Investment mix: |
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Skilled nursing properties |
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$ |
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$ |
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$ |
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$ |
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$ |
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Assisted living properties (1) |
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Range of care properties |
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Under development (1) |
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— |
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— |
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— |
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Other (2) |
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Operator mix: |
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Prestige Healthcare (2) |
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$ |
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$ |
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$ |
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$ |
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$ |
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Brookdale Communities |
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Senior Care Centers, LLC |
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Juniper Communities, LLC |
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Preferred Care |
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Remaining operators |
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Geographic mix: |
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Texas |
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$ |
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$ |
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$ |
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$ |
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$ |
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Michigan |
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Colorado |
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Ohio |
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Florida |
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Remaining states |
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|
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|
|
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|
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|
|
(1) |
|
During the three months ended March 31, 2015, we completed the construction of a 60-unit memory care property. Accordingly, this property was reclassified from “Under development” to “Assisted living property” for all periods presented. |
|
(2) |
|
During the second quarter of 2014, we sold a school property. Accordingly, we had one school property and five parcels of land as of March 31, 2015. The parcels of land are located adjacent to properties securing the Prestige mortgage loan and are managed by Prestige. During the three months ended March 31, 2015, we committed to provide additional loan proceeds under the Prestige mortgage loan for the expansion of two of the 15 properties secured under a mortgage loan and we will convey to Prestige two parcels of land adjacent to those properties. |
Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to gross asset value and debt to market capitalization. The leverage ratios indicate how much of our consolidated balance sheet capitalization is related to long term obligations. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest plus preferred dividends). The coverage ratios are based on adjusted earnings before gain on sale of real estate, interest, taxes, depreciation and amortization (or Adjusted EBITDA). Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures:
26
Balance Sheet Metrics
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Quarter Ended |
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||||||||
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3/31/15 |
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12/31/14 |
|
9/30/14 |
|
6/30/14 |
|
3/31/14 |
|
Debt to gross asset value |
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(1) |
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(3) |
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Debt & preferred stock to gross asset value |
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(1) |
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(3) |
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Debt to market capitalization ratio |
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(1) |
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(4) |
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(6) |
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Debt & preferred stock to market capitalization ratio |
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(1) |
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(4) |
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(6) |
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|
Interest coverage ratio (7) |
|
7.2x |
(2) |
6.9x |
(5) |
7.3x |
|
7.5x |
|
7.6x |
|
Fixed charge coverage ratio (7) |
|
5.9x |
(2) |
5.7x |
(5) |
6.0x |
|
6.1x |
|
6.1x |
|
|
(1) |
|
Increased primarily due to the increase in outstanding debt partially offset by the increase in gross asset value from acquisitions, additional development and capital improvement funding. |
|
(2) |
|
Increased primarily due to revenue from the new investment in an unconsolidated joint venture and higher effective interest income from the forfeiture of a mortgage loan prepayment option. |
|
(3) |
|
Decrease primarily due to debt pay down from proceeds from the sale of 16 properties to Enlivant and proceeds from the sale of 600,000 shares of common stock in a registered direct placement partially offset by a decrease in gross asset value related to the sale of properties. |
|
(4) |
|
Decrease primarily due to the decrease in outstanding debt and the increase in market capitalization resulting from the sale of 600,000 shares of common stock in a registered direct placement and increase in stock price. |
|
(5) |
|
Decrease primarily due to increase in interest expense resulting from the sale of senior unsecured notes and increased availability under our expanded unsecured revolving line of credit. |
|
(6) |
|
Increase primarily due to sale of senior unsecured notes and decrease in market capitalization due to decrease in stock price . |
|
(7) |
|
In calculating our interest coverage and fixed charge coverage ratios above, we use Adjusted EBITDA, which is a financial measure not derived in accordance with U.S. generally accepted accounting principles (non-GAAP financial measure). Adjusted EBITDA is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with U.S. GAAP. You should not rely on Adjusted EBITDA as a substitute for any such U.S. GAAP financial measures or consider it in isolation, for the purpose of analyzing our financial performance, financial position or cash flows. Net income is the most directly comparable GAAP measure to Adjusted EBITDA. |
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Quarter Ended |
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|||||||||||||
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3/31/15 |
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12/31/14 |
|
9/30/14 |
|
6/30/14 |
|
3/31/14 |
|
|||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Less: Gain on sale |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
Add: Interest expense |
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|
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|
|
Add: Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Add: Capitalized interest |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio |
|
|
|
x |
|
|
x |
|
|
x |
|
|
x |
|
|
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest incurred |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charge coverage ratio |
|
|
|
x |
|
|
x |
|
|
x |
|
|
x |
|
|
x |
27
We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to
|
· |
|
The status of the economy; |
|
· |
|
The status of capital markets, including prevailing interest rates; |
|
· |
|
Compliance with and changes to regulations and payment policies within the health care industry; |
|
· |
|
Changes in financing terms; |
|
· |
|
Competition within the health care and senior housing industries; and |
|
· |
|
Changes in federal, state and local legislation. |
Management regularly monitors the economic and other factors listed above. We develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends.
Operating Results
Three months ended March 31, 2015 compared to three months ended March 31, 2014 (amounts in thousands)
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Three Months Ended |
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||||
|
|
March 31, |
|
Increase/ |
|
|||||
|
|
2015 |
|
2014 |
|
(Decrease) |
|
|||
Revenues: |
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|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
|
|
$ |
|
|
$ |
|
(1) |
Interest income from mortgage loans |
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|
|
|
|
|
|
|
|
(2) |
Interest and other income |
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|
(3) |
Total revenues |
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|
Expenses: |
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|
|
Interest expense |
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|
|
|
(4) |
Depreciation and amortization |
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|
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|
|
|
|
|
|
(1) |
General and administrative expenses |
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(5) |
Total expenses |
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Operating income |
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|
|
Income from unconsolidated joint ventures |
|
|
|
|
|
— |
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|
(6) |
Net income |
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|
|
Income allocated to participating securities |
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|
|
Income allocated to preferred stockholders |
|
|
|
|
|
|
|
|
— |
|
Net income available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
Increased due to acquisitions, development and capital improvement investments. |
|
(2) |
|
Increased primarily due to increase in effective interest income from a mortgage loan when the borrower forfeited its prepayment option, a mortgage origination and additional funding for capital improvement commitments under certain mortgage loans partially offset by normal amortization of existing mortgage loans. |
|
(3) |
|
Increased primarily due to additional funding under our notes receivable. |
|
(4) |
|
Increased primarily due to the sale of senior unsecured notes and decrease in capitalized interest related to development projects. |
|
(5) |
|
Increased primarily due to additional expenditures related to increased investment activity and restricted stock vesting. |
|
(6) |
|
Represents our preferred return from our investment in an unconsolidated joint venture during the first quarter of 2015. |
28
Funds From Operations
Funds from Operations (or FFO) available to common stockholders, basic FFO available to common stockholders per share and diluted FFO available to common stockholders per share are supplemental measures of a REIT’s financial performance that are not defined by U.S. GAAP. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with U.S. GAAP assumes that the value of real estate assets diminishes predictably over time. We believe that by excluding the effect of historical cost depreciation, which may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods.
We use FFO as a supplemental performance measurement of our cash flow generated by operations. FFO does not represent cash generated from operating activities in accordance with U.S. GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income available to common stockholders.
We calculate and report FFO in accordance with the definition and interpretive guidelines issued by the National Association of Real Estate Investment Trusts (or NAREIT). FFO, as defined by NAREIT, means net income available to common stockholders (computed in accordance with U.S. GAAP) excluding gains or losses on the sale of real estate and impairment write-downs of depreciable real estate plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that have a different interpretation of the current NAREIT definition from us; therefore, caution should be exercised when comparing our FFO to that of other REITs.
The following table reconciles net income available to common stockholders to FFO available to common stockholders (unaudited, amounts in thousands, except per share amounts) :
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Net income available to common stockholders |
|
$ |
|
|
$ |
|
|
Add: Depreciation and amortization |
|
|
|
|
|
|
|
FFO available to common stockholders |
|
$ |
|
|
$ |
|
|
FFO available to common stockholders per share: |
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
$ |
|
|
Diluted (1) |
|
$ |
|
|
$ |
|
|
Weighted average shares used to calculate FFO per share: |
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|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
Diluted (2) |
|
|
|
|
|
|
|
|
(1) |
|
D iluted FFO available to common stockholders per share includes the effect of the participating securities and the convertible preferred securities . |
|
(2) |
|
Diluted weighted average shares used to calculate FFO per share includes the effect of stock option equivalents, participating securities and convertible preferred securities . |
29
Liquidity and Capital Resources
Operating Activities. At March 31, 2015, our gross real estate investment portfolio (before accumulated depreciation and amortization) consisted of $983.6 million invested primarily in owned long-term health care properties and mortgage loans of approximately $165.3 million (prior to deducting a $1.7 million reserve). Our portfolio consists of direct investments (properties that we either own or on which we hold promissory notes secured by first mortgages) in 98 skilled nursing properties, 93 assisted living properties, 7 range of care properties, one school, three parcels of land under development and five parcels of land held-for-use. These properties are located in 29 states. Assisted living properties, independent living properties, memory care properties and combinations thereof are included in the assisted living property type. Range of care properties consist of properties providing skilled nursing and any combination of assisted living, independent living and/or memory care services. For the three months ended March 31, 2015, we had net cash provided by operating activities of $17.9 million.
For the three months ended March 31, 2015, we recorded $2.3 million in straight-line rental income and a reserve of $23,000 on our straight-line rent receivable. During the three months ended March 31, 2015, we received $24.8 million of cash rental revenue and recorded amortization of lease inducement cost of $0.4 million. During the three months ended March 31, 2015, an existing master lease was amended to extend the terms an additional three years and increased rent by 3%. In conjunction with the amendment, we provided the lessee a $2.0 million lease inducement, which is amortized as a yield adjustment over the life of the lease term. At March 31, 2015, the straight-line rent receivable balance, net of reserves, on the balance sheet was $34.9 million.
W e committed to provide , as part of an acquisition in 2014, two contingent payments totaling up to $4 . 0 million payable in increments of $2 . 0 million upon the property achieving a sustainable stipulated rent coverage ratio. These contingent payments were recorded at the date of the acquisition in the amount of $3. 2 million which is the estimated fair value using a discounted cash flow analysis and we are accreting the contingent liability up to the estimated settlement amount as of the estimated payment date s . During the three months ended March 31, 201 5 , we recorded non ‑cash interest expense of $ 55 ,000 related to th e s e contingent liabilities and the fair value of th ese contingent payments was $3.3 million at March 31, 2015.
Investing Activities. For the three months ended March 31, 2015, we used $52.8 million of cash for investing activities.
Real Estate Investments – Owned Properties. We funded $7.2 million under a $12 .2 million development commitment to purchase the land and existing improvements and then complete the related development of a 56-unit memory care property currently under construction in Texas. In conjunction with this commitment, we entered into a master lease agreement for an initial term of 15 years with three 5-year renewal options at an initial cash yield of 8.75%. The master lease provides for our payment of a lease inducement of up to $1 .6 million. Also, t he master lease gives us a right to provide similar financing for certain future development opportunities.
During the three months ended March 31, 2015, we elected to exercise our right to provide financing for one such opportunity, adding to the master lease a parcel of land purchased in South Carolina for $2 .5 million as part of our commitment to provide the operator with up to $16 . 5 million , includ ing the land purchase , for the development of an 89-unit combination assisted living and memory
30
care property. In conjunction with this new development commitment, the master lease provide s for an additional $2 .4 million lease inducement payment .
The two lease inducement payments under the master lease totaling $4.0 million will be amortized as a yield adjustment over the lease term. Up to 25% of the fee is currently available for funding with the remaining balance available following the issuance of a certificate of occupancy and receipt of regulatory approval required for the operation of the newly constructed properties. As of March 31, 2015, we have funded $44,000 and have a remaining commitment of $0.9 million under the available lease inducement commitment.
Additionally, during the quarter ended March 31, 2015, we purchased and equipped a 106-bed skilled nursing property in Wisconsin for a total of $13 . 9 million by exercising our purchase option under a $10.6 million 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. Additi onally, we paid the lessee a $1.1 million lease inducement which will be amortized as a yield adjustment over the life of the lease term .
The following table summarizes our completed development and improvement projects and amounts funded d uring the three months ended March 31, 2015 (dollar amounts in thousands) :
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|
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Number |
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Number |
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|
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|
|
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|
|
|
of |
|
Type of |
|
of |
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|
|
|
|
|
|
|
|
Type of Project |
|
Properties |
|
Property |
|
Beds/Units |
|
State |
|
2015 Funding |
|
Total Funding |
|
||
Development |
|
1 |
|
ALF |
|
60 |
|
Colorado |
|
$ |
|
|
$ |
|
(1) |
Renovation |
|
1 |
|
SNF |
|
121 |
|
California |
|
|
|
|
|
|
|
Renovation |
|
2 |
|
SNF |
|
141 |
|
Tennessee |
|
|
|
|
|
|
|
|
|
4 |
|
|
|
322 |
|
|
|
$ |
|
(2) |
$ |
|
|
|
(1) |
|
Completed a MC property in February 2015 . |
|
(2) |
|
Excludes $5,692 of funding on projects that were completed during 2014 . |
The following table summarizes our investment commitments as of March 31, 2015 and amounts funded under these projects (excludes capitalized interest, dollar amounts in thousands) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
2015 |
|
Commitment |
|
Remaining |
|
Number of |
|
Number of |
|
||||
Type of Property |
|
Commitment |
|
Funding (2) |
|
Funded |
|
Commitment |
|
Properties |
|
Beds/Units |
|
||||
Skilled Nursing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
3 |
|
510 |
|
Assisted Living (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
1,240 |
|
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
30 |
|
1,750 |
|
|
(1) |
|
Includes the development of two MC properties for a total commitment of $24,430 and one ALF/MC property for a total commitment of $16,535. Also, includes three commitments for renovation projects on 24 ALFs totaling $4,800. |
|
(2) |
|
Excludes funding for completed development and improvement projects discussed above. Includes $7,195 of land and improvements acquired for the development of a 56-unit MC property and $2,490 of land acquired for the development of an 89-unit ALF/MC property, as previously discussed . |
Real Estate Investments – Mortgage Loans. During 2013, we funded the initial amount of $124 .4 million under a mortgage loan with a third ‑party borrower secured by 15 skilled nursing properties with a total of 2,058 beds in Michigan. The loan agreement provide d for additional commitments of $12 . 0 million for capital improvements and up to $40 . 0 million of additional proceeds, for a tota l loan commitment of up to $176.4 million . The additional proceeds are contingent on certain conditions and are based on certain operating metrics and valuation thresholds. Also, the additional proceeds are limited to $10.0 million in any twelve month period. During the three months ended March 31, 2015 , we funded
31
$ 1.9 million under the $12 . 0 million capital improvement commitment with $ 6.8 million remaining as of March 31, 201 5 .
This mortgage loan also provided the borrower a one ‑time option to prepay up to 50% of the then outstanding loan balance without penalty. During the three months ended March 31, 2015 , we amended this mortgage loan to provide up to an additional $20 . 0 million in loan proceeds for the expansion of two properties securing the loan (increasing the total capita l improvement commitment to $32. 0 million and th e total loan commitment to $196.4 million ) and agreed to convey, to the borrower , two parcels of land held-for-use adjacent to these properties to facilitate the projects. As partial consideration for the increased commitment and associated conveyance, the borrower forfeited their prepayment option.
Furthermore, we originated a n ew $11 . 0 million mortgage loan with the borrower concurrently funding $9 . 5 million with a commitment to fund the balance for approved capital improvement projects. The loan is secured by a 157-bed skilled nursing property in Michigan and bears interest at 9.41% for five years, escalating annually thereafter by 2.25%. The term is 30 years with interest-only payments for the initial three years . Additionally, we have the option to purchase the property under certain circumstances, including a change in regulatory environment.
Investment in Unconsolidated Joint Ventures. During the three months ended March 31, 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 . 1 million and have committed to contribute an additional preferred capital contribution of $5 . 5 million for a total preferred capital contribution of $2 5. 6 million . 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 added to the balance of the preferred equity investment and will be repaid upon redemption. In addition, we have the option to purchase either the properties owned by the JV or 100% of the common membership interest in the JV, which is exercisable between the 3 7 th month and the 54th month from the commencement of the JV. If we elect not to exercise our purchase option, we have the right to put our preferred equity interest to the common member after the 54th month for an amount equal to the unpaid preferred equity investment balance and accrued preferred return thereon. The common equity member has the right to call our preferred interest at any time for an amount equal to the preferred equity investment balance and accrued preferred return thereon that would be due for the first 36 months, less amounts paid to us prior to the redemption date.
Notes Receivable. During the three months ended March 31, 2015, we funded $0.9 million in principal under our note receivable loans. At March 31, 2015, we had twelve notes receivable outstanding with a total commitment to fund $4.3 million and a weighted average interest rate of 10.8%. As of March 31, 2015, we funded $2.3 million under these commitments and we have a remaining commitment of $2.0 million.
Financing Activities. For the three months ended March 31, 2015, we had net cash provided by financing activities of $13.1 million.
Debt Obligations. During the three months ended March 31, 2015, we borrowed $36.5 million under our unsecured revolving line of credit. At March 31, 2015, we had $36.5 million outstanding under our unsecured revolving line of credit with $363.5 million available for borrowing. At March 31, 2015, we were in compliance with all our covenants.
32
During the three months ended March 31, 2015, we paid $4.2 million in scheduled principal payments on senior unsecured notes. Subsequent to March 31, 2015, we entered into a third amended and restated $200.0 million private shelf agreement with Prudential for a three year term. The agreement provides for the possible issuance of up to an additional $102.0 million senior unsecured fixed interest rate term notes. After July 14, 2015 and for the balance of the term, the agreement provides for the possible issuance of additional senior unsecured fixed interest rate term notes up to the maximum availability upon us making our scheduled principal payments on existing notes then outstanding. Interest rates on any issuance under the shelf agreement will be set at a spread over applicable Treasury rates. Maturities of each issuance are at our election for up to 15 years from the date of issuance with a maximum average life of 12 years from the date of original issuance.
Equity. During the three months ended March 31, 2015, we acquired 4,609 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. During the three months ended M arch 31, 2015, we paid cash dividends on our 8.5% Series C Cumulative Convertible Preferred Stock totaling $0.8 million. We also declared and paid cash dividends on our common stock totaling $18.1 million. Subsequent to March 31, 2015, we declared a monthly cash dividend of $0.17 per share on our common stock for the months of April, May and June, payable on April 30, May 29, and June 30, 2015, respectively, to stockholders of record on April 22, May 21, and June 22, 2015, respectively.
During the three months ended March 31, 2015, no stock options were granted or exercised. At March 31, 2015, we had 43,334 stock options outstanding and 33,334 stock options were exercisable. The total number of stock options that are scheduled to vest through December 31, 2015, 2016 and 2017 is 0; 5,000 and 5,000, respectively. We have no stock options outstanding that are scheduled to vest beyond 2017. Compensation expense relating to the vesting of stock options for the three months ended March 31, 2015 was $4,000. The remaining compensation expense to be recognized related to the future service period of unvested outstanding stock options for 2015, 2016 and 2017 is $11,000; $15,000 and $2,000, respectively.
During the three months ended March 31, 2015, we cancelled 640 shares of restricted common stock. In addition, we granted 65,750 shares of restricted common stock at $44.45 per share. These shares vest ratably over a three-year period from the grant date. At March 31, 2015, we had 255,815 restricted common shares outstanding. The total number of restricted common shares that are scheduled to vest through December 31, 2015, 2016, 2017 and 2018 is 94,168; 88,360; 51,367 and 21,920, respectively. We have no restricted common stock that are scheduled to vest beyond 2018. During the three months ended March 31, 2015, we recognized $1.0 million of compensation expense related to the vesting of restricted common stock. The remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock for 2015, 2016, 2017 and 2018 is $2.6 million; $2.2 million; $1.2 million and $0.1 million, respectively.
Available Shelf Registration. Our shelf registration statement provides us with the capacity to offer up to $800.0 million in common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our current shelf registration 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. At March 31, 2015, we had availability of $775.1 million under our effective shelf registration which expires in July 2016.
Liquidity. We expect our future income and ability to make distributions from cash flows from operations to depend on the collectibility of our rents and mortgage loans receivable. The collection of these loans and rents will be dependent, in large part, upon the successful operation by the operators of
33
the skilled nursing properties, assisted living properties, independent living properties, memory care properties, range of care properties and school we own or that are pledged to us. The operating results of the facilities will be impacted by various factors over which the operators/owners may have no control. Those factors include, without limitation, the status of the economy, changes in supply of or demand for competing long-term health care facilities, ability to control rising operating costs, and the potential for significant reforms in the long-term health care industry. In addition, our future growth in net income and cash flow may be adversely impacted by various proposals for changes in the governmental regulations and financing of the long-term health care industry. We cannot presently predict what impact these proposals may have, if any. We believe that an adequate provision has been made for the possibility of loans proving uncollectible but we will continually evaluate the financial status of the operations of the senior housing and long-term health care properties. In addition, we will monitor our borrowers and the underlying collateral for mortgage loans and will make future revisions to the provision, if considered necessary.
Our investments, principally our investments in mortgage loans and owned properties, are subject to the possibility of loss of their carrying values as a result of changes in market prices, interest rates and inflationary expectations. The effects on interest rates may affect our costs of financing our operations and the fair market value of our financial assets. Generally our loans have predetermined increases in interest rates and our leases have agreed upon annual increases. Inasmuch as we may initially fund some of our investments with variable interest rate debt, we would be at risk of net interest margin deterioration if medium and long-term rates were to increase.
At March 31, 2015, we had $3.4 million of cash on hand and $363.5 million available under our unsecured revolving line of credit with the opportunity to increase the credit up to an additional $200.0 million. Also, we have $775.1 million available under our effective shelf registration to access the capital markets through the issuance of debt and/or equity securities. Subsequent to March 31, 2015, we amended and restated our note purchase and private shelf agreement with Prudential which provides for the possible issuance of up to an additional $102.0 million of senior unsecured fixed interest rate term notes. We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our borrowing capacity and our potential ability to access the capital markets are sufficient to provide for payment of our current operating costs, meet debt obligations, provide funds for distribution to the holders of our preferred stock and pay common dividends at least sufficient to maintain our REIT status and repay borrowings at, or prior to, their maturity. The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets environment, especially to changes in interest rates. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for additional capital investments in 2015.
Critical Accounting Policies
There have been no material changes from the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in our market risk during the three month s ended March 31, 2015 . For additional information, refer to Item 7A as presented in our Annual Report on Form 10-K for the year ended December 31, 2014 .
34
Item 4. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). As of the end of the period covered by this report based on such evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.
There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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We are and may become from time to time a party to various claims and lawsuits arising in the ordinary course of business, which in our opinion are not singularly or in the aggregate anticipated to be material to our results of operations or financial condition. Claims and lawsuits may include matters involving general or professional liability asserted against the lessees or borrowers related to our properties, 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 and lawsuits.
There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 .
On April 28, 2015, we entered into an amended and restated note purchase and private shelf agreement with Prudential Investment Management, Inc. (or Prudential) for a three year term. The amended shelf agreement increases the aggregate commitment to $200.0 million compared to $100.0 million previously.
As a result of prior issuances and payments, the amended shelf agreement currently provides for the possible issuance by us to Prudential of up to $102.0 million of senior unsecured fixed interest rate term notes. After July 14, 2015 and for the balance of the term, the amended shelf agreement provides for the possible issuance of additional senior unsecured fixed interest rate term notes up to the maximum availability upon us making our scheduled principal payments on existing notes then outstanding. The amended shelf agreement also provides for other limitations as to the maximum amount that can be held by Prudential.
Interest rates on any issuance under the amended shelf agreement will be set at a fixed spread over applicable Treasury rates. Maturities of each issuance are at our election for up to 15 years from the date of issuance with a maximum average life of 12 years from the date of original issuance. The amended shelf agreement also contains standard covenants including requirements to maintain financial ratios such as debt to asset value ratios.
The amended shelf agreement is filed as an exhibit to this Quarterly Report on Form 10-Q. The description herein of the amended shelf agreement is qualified in its entirety by reference to the exhibit filed hereto .
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3.1 |
LTC Properties, Inc. Articles of Restatement (incorporated by reference to Exhibit 3.2 to LTC Properties Inc.’s Current Report on Form 8-K filed September 14, 2012) |
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3.2 |
Bylaws of LTC Properties, Inc., as amended and restated August 3, 2009 (incorporated by reference to Exhibit 3.2 to LTC Properties Inc.’s Form 10-Q for the quarter ended June 30, 2009) |
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3. 3 |
First Amendment to Bylaws of LTC Properties, Inc. (incorporated by reference to Exhibit 3.1 to LTC Properties Inc.’s Current Report on Form 8-K filed February 12, 2015) |
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1 0 .1 |
Third Amended and Restated Note Purchase and Private Shelf Agreement between LTC Properties, Inc. and Prudential Investment Management, Inc. dated April 28, 2015 |
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31.1 |
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32 |
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101 |
The following materials from LTC Properties, Inc.’s Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income for the three months ended March 31, 2015 and 2014; (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014; and (iv) Notes to Consolidated Financial Statements |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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LTC PROPERTIES, INC. |
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Registrant |
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Dated: April 30, 2015 |
By: |
/s/ Pamela Kessler |
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Pamela Kessler |
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Executive Vice President, Chief Financial
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(Principal Financial and Accounting Officer) |
38
LTC PROPERTIES, INC.
THIRD AMENDED AND RESTATED
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
5.26% Series A-1 Senior Notes Due July 14, 2015
($25,000,000 Aggregate Original Principal Amount)
5.74% Series A-2 Senior Notes Due January 14, 2019
($25,000,000 Aggregate Original Principal Amount)
4.80% Series B Senior Notes Due July 20, 2021
($50,000,000 Aggregate Original Principal Amount)
3.99% Series C Senior Notes Due November 20, 2021
($70,000,000 Aggregate Original Principal Amount)
4.50% Series D Senior Notes Due July 31, 2026
($30,000,000 Aggregate Original Principal Amount)
$ 200 ,000,000 Private Shelf Facility
As of April 28 , 2015
Information Schedule |
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Schedule A |
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Purchaser Schedule Related to Series A Notes Purchaser Schedule Related to Series B Notes |
Schedule B |
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Defined Terms |
Schedule 5.4 |
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Subsidiaries; Affiliates; Directors and Officers; Restrictions on Subsidiaries |
Schedule 5.15 |
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Existing Indebtedness for Borrowed Money |
Schedule 10.2 |
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Existing Investments |
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Exhibit A-1 |
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Form of 5.26% Series A-1 Senior Note due July 14, 2015 |
Exhibit A-2 |
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Form of 5.74% Series A-2 Senior Note due January 14, 2019 |
Exhibit A-3 |
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Form of 4.80% Series B Senior Note due July 20, 2021 |
Exhibit A-4 |
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Form of 3.99% Series C Senior Note due November 20, 2021 |
Exhibit A-5 |
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Form of 4.50% Series D Senior Note due July 31, 2016 |
Exhibit A- 6 |
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Form of Shelf Note |
Exhibit B |
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Form of Request for Purchase |
Exhibit C |
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Form of Confirmation of Acceptance |
Exhibit D -1 |
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Form of Opinion of Special Counsel for the C ompany |
Exhibit D-2 |
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Form of Opinion of Special Maryland Counsel for the Company |
Exhibit E |
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Form of Compliance Certificate |
Table of Contents
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1 |
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Authorization of Notes |
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1A |
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Amendment and Restatement; Prior Release of Guarantors |
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1B |
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Existing Series A-1 Notes |
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1C |
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Existing Series A-2 Notes |
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1D |
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Existing Series B Notes |
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1E |
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EXISTING SERIES C NOTES |
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1F |
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EXISTING SERIES D NOTES |
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1G |
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Authorization of Issue of Shelf Notes |
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2 |
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Sale And Purchase of Notes |
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2A |
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[Intentionally Omitted] |
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2B |
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Sale and Purchase of Shelf Notes |
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2B(1) |
Facility |
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2B(2) |
Issuance Period |
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2B(3) |
Request For Purchase |
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2B(4) |
Rate Quotes |
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2B(5) |
Acceptance |
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2B(6) |
Market Disruption |
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2B(7) |
Facility Closings |
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2B(8) |
Fees |
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2B(8)(i) |
Draw Fees |
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2B(8)(ii) |
Structuring Fee |
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2B(8)(iii) |
Delayed Delivery Fees |
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2B(8)(iv) |
Cancellation Fee |
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3 |
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[Intentionally Omitted] |
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4 |
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Conditions |
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4A |
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Conditions to Effectiveness of Amendment and Restatement |
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4A(1) |
Officer’s Certificate (Unencumbered Assets/Qualified Mortgage Loans) |
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4A(2) |
Officer’s Certificate (Bringdown) |
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4A(3) |
Payment of Special Counsel Fees |
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i
Table of Contents
(continued)
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Page |
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4B |
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Conditions to Each Closing |
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4B(1) |
Certain Documents |
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4B(2) |
Payment of Fees |
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4B(3) |
Representations and Warranties |
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4B(4) |
Performance; No Default |
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4B(5) |
Changes in Structure |
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4B(6) |
Purchase Permitted By Applicable Law, Etc |
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4B(7) |
Private Placement Number |
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4B(8) |
Proceedings and Documents |
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5 |
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Representations and Warranties of the Company |
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5.1 |
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Organization; Power and Authority |
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5.2 |
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Authorization, Etc |
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5.3 |
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Disclosure |
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5.4 |
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Organization and Ownership of Equity in Subsidiaries; Affiliates |
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5.5 |
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Financial Statements |
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5.6 |
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Compliance with Laws; Other Instruments, Etc |
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5.7 |
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Governmental Authorizations, Etc |
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5.8 |
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Litigation; Observance of Agreements, Statutes and Orders |
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5.9 |
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Taxes |
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5.10 |
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Title to Property; Leases |
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5.11 |
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Licenses, Permits, Etc |
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5.12 |
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Compliance with ERISA |
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5.13 |
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Private Offering |
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5.14 |
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Use of Proceeds; Margin Regulations |
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5.15 |
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Existing Indebtedness for Borrowed Money; Future Liens |
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5.16 |
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Foreign Assets Control Regulations, Etc |
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5.17 |
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Status under Certain Statutes |
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5.18 |
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Environmental Matters |
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5.19 |
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Stock of the Company |
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5.20 |
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Condition of Property; Casualties; Condemnation |
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ii
Table of Contents
(continued)
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Page |
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5.21 |
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Legal Requirements and Zoning |
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5.22 |
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[Intentionally Omitted] |
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5.23 |
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Solvency |
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5.24 |
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Hostile Tender Offers |
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6 |
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Representations of the Purchasers |
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6.1 |
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Purchase for Investment |
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6.2 |
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Source of Funds |
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7 |
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Information as to the Company |
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7.1 |
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Financial and Business Information |
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7.2 |
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Officer’s Certificate |
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7.3 |
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Visitation |
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8 |
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Prepayment of the Notes |
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8.1 |
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Required Prepayments |
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8.2 |
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Optional Prepayments with Make-Whole Amount |
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8.3 |
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Allocation of Partial Prepayments |
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8.4 |
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Maturity; Surrender, Etc |
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8.5 |
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Purchase of Notes |
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8.6 |
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Make-Whole Amount |
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9 |
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Affirmative Covenants |
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9.1 |
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Compliance with Laws and Contractual Obligations |
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9.2 |
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Insurance |
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9.3 |
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Maintenance of Properties |
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9.4 |
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Payment of Taxes and Claims |
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9.5 |
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Maintenance of Existence, Etc |
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9.6 |
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Books and Records |
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9.7 |
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Maintenance of REIT Status |
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9.8 |
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Listing of Common Stock; Filing of Reports |
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9.9 |
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Limitations on Guaranties of Indebtedness |
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9.10 |
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Information Required by Rule 144A |
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10 |
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Negative Covenants |
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iii
Table of Contents
(continued)
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Page |
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10.1 |
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Liens, Etc |
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10.2 |
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Investments, Acquisitions, Loans and Advances |
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10.3 |
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Mergers, Consolidations and Sales |
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10.4 |
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No Burdensome Contracts With Affiliates |
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10.5 |
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No Changes in Fiscal Year |
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10.6 |
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Change in the Nature of Business |
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10.7 |
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Use of Proceeds of Notes |
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10.8 |
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No Restrictions |
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10.9 |
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Financial Covenants |
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10.10 |
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Two-Way Most Favored Lender |
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10.11 |
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Redemption of Stock, Etc |
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10.12 |
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Terrorism Sanctions Regulations |
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11 |
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Events Of Default |
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12 |
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Remedies On Default, Etc |
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12.1 |
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Acceleration |
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12.2 |
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Other Remedies |
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12.3 |
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Rescission |
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12.4 |
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No Waivers or Election of Remedies, Expenses, Etc |
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13 |
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Registration; Exchange; Substitution Of Notes |
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13.1 |
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Registration of Notes |
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13.2 |
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Transfer and Exchange of Notes |
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13.3 |
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Replacement of Notes |
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14 |
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Payments On Notes |
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14.1 |
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Place of Payment |
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14.2 |
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Home Office Payment |
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15 |
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Expenses, Etc |
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15.1 |
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Transaction Expenses |
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15.2 |
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Survival |
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16 |
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Survival Of Representations And Warranties; Entire Agreement |
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17 |
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Amendment And Waiver |
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iv
Table of Contents
(continued)
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Page |
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17.1 |
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Requirements |
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17.2 |
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Solicitation of Holders of Notes |
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17.3 |
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Binding Effect. Etc |
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17.4 |
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Notes Held by Company, Etc |
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18 |
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Notices |
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19 |
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Reproduction Of Documents |
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20 |
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CONFIDENTIALITY |
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21 |
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MISCELLANEOUS |
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21.1 |
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Successors and Assigns |
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21.2 |
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Payments Due on Non-Business Days |
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21.3 |
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Accounting Terms |
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21.4 |
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Severability |
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21.5 |
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Construction |
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21.6 |
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Counterparts |
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21.7 |
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Governing Law |
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21.8 |
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Jurisdiction and Process |
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21.9 |
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Waiver of Jury Trial |
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21.10 |
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Transaction References |
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21.11 |
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No Novation |
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v
LTC PROPERTIES, INC.
2829 Townsgate Road, Suite 350
Westlake Village, California 91361
As of April 28 , 201 5
Prudential Investment Management, Inc.
Each Prudential Affiliate (as hereinafter defined) which is
a signatory of this Agreement or becomes bound by certain
provisions of this Agreement as hereinafter provided)
c/o Prudential Capital Group
2029 Century Park East,
Suite
715
Los Angeles, California 90067
Ladies and Gentlemen:
T he undersigned, LTC Properties, Inc., a Maryland corporation (the “ Company ”), agrees with each of the Purchasers as follows:
1A Amendment and Restatement ; Prior Release of Guarantors.
This Agreement amends, restates and replaces in its entirety that certain Second Amended and Restated Note Purchase and Private Shelf Agreement, dated as of October 30 , 201 3 (as amended, restated, supplemented or otherwise modified through the date hereof, the “ Prior Agreement ”), between the Persons wh ich are parties hereto as of the date hereof. Certain capitalized and other terms used in this Agreement are defined in Schedule B ; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
Pursuant to Section 20.4(b) of the Prior Agreement, each Guarantor (as defined in the Prior Agreement) was released and discharged automatically from its obligations under the Multiparty Guaranty (as defined in the Prior Agreement) effective as of October 14, 2014.
1B Existing Series A-1 Notes .
On July 14, 2010 the Company issued and sold $25,000,000 aggregate original principal amount of its 5.26% Series A-1 Senior Notes due July 14, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “ Series A-1 Notes ”, such term to include any such notes issued in substitution therefor pursuant to Section 13 of th is Agreement, the Prior Agreement or any predecessor agreement to the Prior Agreement ) . The Series A-1 Notes are substantially in the form set out in Exhibit A-1 .
1C Existing Series A-2 Notes .
On July 14, 2010 the Company issued and sold $25,000,000 aggregate original principal amount of its 5.74% Series A-2 Senior Notes due January 14, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “ Series A-2 Notes ”, such term to include any such notes issued in substitution therefor pursuant to Section 13 of th is Agreement, the Prior Agreement or any predecessor agreement to the Prior Agreement). The Series A-2 Notes are substantially in the form set out in Exhibit A-2 . The terms “ Series A Note ” and “ Series A Notes ” as used herein shall include each Series A-1 Note and each Series A-2 Note.
On July 20, 2011 the Company issued and sold $50,000,000 aggregate original principal amount of its 4.80% Series B Senior Notes due July 20, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “ Series B Notes ”, such term to include any such notes issued in substitution therefor pursuant to Section 13 of th is Agreement, the Prior Agreement or any predecessor agreement to the Prior Agreement). The Series B Notes are substantially in the form set out in Exhibit A-3 .
On November 20, 201 3 the Company issued and sold $ 7 0,000,000 aggregate original principal amount of its 3.99 % Series C Senior Notes due November 20, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “ Series C Notes ”, such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement , the Prior Agreement or any predecessor agreement to the Prior Agreement). The Series C Notes are substantially in the form set out in Exhibit A- 4 .
On August 21, 2014 the Company issued and sold $ 3 0,000,000 aggregate original principal amount of its 4. 5 0% Series D Senior Notes due July 31, 2026 (as amended, restated, supplemented or otherwise modified from time to time, the “ Series D Notes ”, such term to include any such notes issued in substitution therefor pursuant to Section 13 of th is Agreement, the Prior Agreement or any predecessor agreement to the Prior Agreement). The Series D Notes are substantially in the form set out in Exhibit A- 5 .
1G Authorization of Issue of Shelf Notes .
The Company will authorize the issue and sale of its additional senior notes (as amended, restated, supplemented or otherwise modified from time to time, the “ Shelf Notes ” , such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement ) in the aggregate principal amount of up to $ 200 ,000,000, which amount for the avoidance of doubt does not include the outstanding principal amounts under the Series A Notes, the Series B Notes, the Series C Notes and the Series D Notes, to be dated the date of issue thereof, to mature, in the case of each Shelf Note so issued, no more than 1 5 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 1 2 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof
2
from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in the Confirmation of Acceptance with respect to such Shelf Note delivered pursuant to Section 2B(5), and to be substantially in the form of Exhibit A- 6 . The terms “ Note ” and “ Notes ” as used herein shall include each Series A Note, each Series B Note , each Series C Note, each Series D Note and each Shelf Note . Not es that have (i) the same final maturity, (ii) the same principal prepayment dates, (iii) the same principal prepayment amounts (as a percentage of the original principal amount of each Note), (iv) the same interest rate, (v) the same interest payment periods, and (vi) the same date of issuance (which, in the case of a Note issued in exchange for another Note, shall be deemed for these purposes the date on which such Note’s ultimate predecessor Note was issued), are herein called a “ Series ” of Notes.
2B Sale and Purchase of Shelf Notes .
2B(1) Facility . PIM is willing to consider, in its sole discretion and within limits that may be authorized for purchase by PIM and Prudential Affiliates from time to time, the purchase of Shelf Notes pursuant to this Agreement. The willingness of PIM to consider such purchase of Shelf Notes is herein called the “ Facility .” At any time, (i) the aggregate principal amount of Shelf Notes stated in Section 1 G , minus (ii) the aggregate principal amount of Shelf Notes purchased and sold pursuant to this Agreement prior to such time, minus (iii) the aggregate principal amount of Accepted Notes (as hereinafter defined) which have not yet been purchased and sold hereunder prior to such time, is herein called the “ Available Facility Amount ” at such time. Notwithstanding anything to the contrary appearing herein, (a) in no event shall any Shelf Note be purchased under the Facility if, upon giving effect to such purchase and the use of proceeds thereof, the aggregate principal amount of all Notes then outstanding would exceed $ 300 ,000,000 , and (b) in no event shall any Shelf Note be purchased under the Facility by a Prudential Affiliate described in clause (i) of the definition thereof if, upon giving effect to such purchase and the use of proceeds thereof, the aggregate principal amount of all Notes and any other notes of the Company then outstanding and held by all Prudential Affiliates described in such clause, would exceed $250,000,000 . NOTWITHSTANDING THE WILLINGNESS OF PIM TO CONSIDER PURCHASES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER PIM NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PIM OR ANY PRUDENTIAL AFFILIATE.
2B(2) Issuance Period. Shelf Notes may be issued and sold pursuant to this Agreement until the earlier of (i) the third anniversary of the date of this Agreement (or if such date is not a New York Business Day, the New York Business Day next preceding such date ), and (ii) the thirtieth day after PIM shall have given to the Company, or the Company shall have given to PIM, written notice stating that it elects to terminate the issuance and sale of Shelf Notes
3
pursuant to this Agreement (or if such thirtieth day is not a New York Business Day, the New York Business Day next preceding such thirtieth day). The period during which Shelf Notes may be issued and sold pursuant to this Agreement is herein called the “ Issuance Period .”
2B(3) Request For Purchase . The Company may from time to time during the Issuance Period make requests for purchases of Shelf Notes (each such request being herein called a “ Request for Purchase ”). Each Request for Purchase shall be made to PIM by email or overnight delivery service, and shall (i) specify the aggregate principal amount of Shelf Notes covered thereby, which shall not be less than $10,000,000 and not be greater than the Available Facility Amount at the time such Request for Purchase is made, (ii) specify the principal amounts, final maturities (which shall be no more than 1 5 years from the date of original issuance), and principal prepayment dates and amounts (which shall result in an average life of no more than 1 2 years from the date of original issuance) of the Shelf Notes covered thereby, (iii) specify the interest payment periods (which shall be quarterly or semi-annually), (iv) specify the use of proceeds of such Shelf Notes, (v) specify the proposed day for the closing of the purchase and sale of such Shelf Notes, which shall be a Business Day during the Issuance Period not less than 10 Business Days and not more than 120 days after the making of such Request for Purchase, (vi) specify the number of the account and the name and address of the depository institution to which the purchase prices of such Shelf Notes are to be transferred on the Closing Day for such purchase and sale, (vii) certify that the representations and warranties contained in Section 5 are true on and as of the date of such Request for Purchase and that there exists on the date of such Request for Purchase no Event of Default or Default, and (viii) be substantially in the form of Exhibit B attached hereto. Each Request for Purchase shall be in writing and shall be deemed made when received by PIM.
2B(4) Rate Quotes . Not later than 5 Business Days after the Company shall have given PIM a Request for Purchase pursuant to Section 2B(3), PIM may, but shall be under no obligation to, provide to the Company by telephone interest rate quotes for the several principal amounts, maturities and principal prepayment schedules, and interest payment periods of Shelf Notes specified in such Request for Purchase. Each quote shall represent the interest rate per annum payable on the outstanding principal balance of such Shelf Notes at which PIM or a Prudential Affiliate would be willing to purchase such Shelf Notes at 100% of the principal amount thereof.
2B(5) Acceptance. Within 2 minutes after PIM shall have provided any interest rate quotes pursuant to Section 2B(4) or such shorter period as PIM may specify to the Company (such period herein called the “ Acceptance Window ”), the Company may, subject to Section 2B(6), elect to accept such interest rate quotes as to not less than $10,000,000 aggregate principal amount of the Shelf Notes specified in the related Request for Purchase. Such election shall be made by an Authorized Officer of the Company notifying PIM by telephone or email within the Acceptance Window (but not earlier than 9:30 a.m. or later than 1:30 p.m. (or such later time as PIM may agree), New York City local time) that the Company elects to accept such interest rate quotes, specifying the Shelf Notes (each such Shelf Note being herein called an “ Accepted Note ”) as to which such acceptance (herein called an “ Acceptance ”) relates. The day the Company notifies PIM of an Acceptance with respect to any Accepted Notes is herein called the “ Acceptance Day ” for such Accepted Notes. Any interest rate quotes as to which PIM does not receive an Acceptance within the Acceptance Window shall expire, and no
4
purchase or sale of Shelf Notes hereunder shall be made based on such expired interest rate quotes. Subject to Section 2B(6) and the other terms and conditions hereof, the Company agrees to sell to PIM or a Prudential Affiliate, and PIM agrees to purchase, or to cause the purchase by a Prudential Affiliate of, the Accepted Notes at 100% of the principal amount of such Accepted Notes. As soon as practicable following the Acceptance Day, the Company, PIM and each Prudential Affiliate which is to purchase any such Accepted Notes will execute a confirmation of such Acceptance substantially in the form of Exhibit C (herein called a “ Confirmation of Acceptance ”). If the Company should fail to execute and return to PIM within 2 Business Days following receipt thereof a Confirmation of Acceptance with respect to any Accepted Notes, PIM may at its election at any time prior to its receipt thereof cancel the closing with respect to such Accepted Notes by so notifying the Company in writing.
2B(6) Market Disruption . Notwithstanding the provisions of Section 2B(5), if PIM shall have provided interest rate quotes pursuant to Section 2B(4) and thereafter, prior to the time an Acceptance with respect to such quotes shall have been notified to PIM in accordance with Section 2B(5), the domestic market for U nited States tre asury securities or derivatives shall have closed or there shall have occurred a general suspension, material limitation, or significant disruption of trading in securities generally on the New York Stock Exchange or in the domestic market for United States t reasury securities or derivatives, then such interest rate quotes shall expire, and no purchase or sale of Shelf Notes hereunder shall be made based on such expired interest rate quotes. If the Company thereafter notifies PIM of the Acceptance of any such interest rate quotes, such Acceptance shall be ineffective for all purposes of this Agreement, and PIM shall promptly notify the Company that the provisions of this Section 2B(6) are applicable with respect to such Acceptance.
2B(7) Facility Closings. Not later than 1:30 p.m. (New York City local time) on the Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at the offices of Vedder Price P.C. , 275 Battery Street, Suite 2464 , San Francisco, California 94111 (or such other address as PIM may specify in writing), the Accepted Notes to be purchased by such Purchaser in the form of one or more Notes in authorized denominations as such Purchaser may request for each Series of Accepted Notes to be purchased on such Closing Day, dated the applicable Closing Day and registered in such Purchaser’s name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the account specified in the Request for Purchase of such Notes. If the Company fails to tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on the scheduled Closing Day for such Accepted Notes as provided above in this paragraph 2B(7), or any of the conditions specified in Section 4 shall not have been fulfilled by the time required on such scheduled Closing Day, the Company shall, prior to 2:00 p.m., New York City local time, on such scheduled Closing Day notify PIM (which notification shall be deemed received by each Purchaser) in writing whether (i) such closing is to be rescheduled (such rescheduled date to be a Business Day during the Issuance Period not less than one Business Day and not more than 10 Business Days after such scheduled Closing Day (the “ Rescheduled Closing Day ”)) and certify to PIM (which certification shall be for the benefit of each Purchaser) that the Company reasonably believes that it will be able to comply with the conditions set forth in Section 4 on such Rescheduled Closing Day and that the Company will pay the Delayed Delivery Fee in accordance with Section 2B(8)(iii), or (ii) such closing is to be canceled and the Company will pay the Cancellation Fee
5
as provided in Section 2B(8)(iv). In the event that the Company shall fail to give such notice referred to in the immediately preceding sentence, PIM (on behalf of each Purchaser) may at its election, at any time after 2:00 p.m., New York City local time, on such scheduled Closing Day, notify the Company in writing that such closing is to be canceled and the Company is obligated to pay the Cancellation Fee as provided in Section 2B(8)(iv). Notwithstanding anything to the contrary appearing in this Agreement, the Company may elect to reschedule a closing with respect to any given Accepted Notes on not more than one occasion, unless PIM shall have otherwise consented in writing.
2B(8)(i) Draw Fees. The Company shall pay to or as directed by PIM in immediately available funds a fee (herein called a “ Draw Fee ”) on or before each Closing Day (other than the initial Closing Day, if any, occurring within the first six months after the date hereof on which a minimum aggregate principal amount of $2 5 ,000,000 of Shelf Notes is purchased and sold) in an amount equal to 0.10% of the aggregate principal amount of Notes sold on such Closing Day.
2B(8)(ii) Structuring Fee. In consideration for the time, effort and expense involved in the preparation, negotiation and execution of this Agreement, the Company will pay to or as directed by PIM, on the date that is six months after the date hereof (or, if such date is not a Business Day, the next succeeding Business Day) , a fully earned and non-refundable fee in the aggregate amount of $ 50,000 ; provided , however , that (a) if a minimum aggregate principal amount of $25,000,000 of Shelf Notes is purchased and sold during the first six months after the date hereof, then the amount of such fee required to be paid on such day shall be reduced to $25,000 , and (b) if a minimum aggregate principal amount of $100,000,000 of Shelf Notes is purchased and sold during the first three months after the date hereof, then no such fee shall be payable (herein called the “ Structuring Fee ”).
2B(8)(iii) Delayed Delivery Fee s .
( a ) In the Event of a Delayed Closing . If the closing of the purchase and sale of any Accepted Note is delayed for any reason beyond the original Closing Day for such Accepted Note but such closing is ultimately consummated, then the Company shall pay to or as directed by PIM, on the actual Closing Day of such purchase and sale, an amount ( herein called the “ Delayed Delivery Fee ”) equal to:
(BEY - MMY) X DTS/360 X PA
where “ BEY ” means Bond Equivalent Yield, i.e. , the bond equivalent yield per annum of such Accepted Note; “ MMY ” means Money Market Yield, i.e. , the yield per annum on an alternative Dollar investment of the highest quality selected by PIM having a maturity date or dates the same as, or closest to, the Rescheduled Closing Day from time to time fixed for the delayed delivery of such Accepted Note; “ DTS ” means Days to Settlement, i.e. , the number of actual days elapsed from and including the original Closing Day for such Accepted Note to but excluding the date of such payment; and “ PA ” means Principal Amount, i.e. , the principal amount of the Accepted Note for which such calculation is being made.
6
In no case shall the Delayed Delivery Fee be less than zero. Nothing contained herein shall obligate any Purchaser to purchase any Accepted Note on any day other than the Closing Day for
7
such Accepted Note, as the same may be rescheduled from time to time in compliance with Section 2B(7).
( b ) In the Event of Cancellation . If the Company at any time notifies PIM in writing that the Company is canceling the closing of the purchase and sale of any Accepted Note, or if PIM notifies the Company in writing under the circumstances set forth in the last sentence of paragraph 2B(5) or the penultimate sentence of Section 2B(7) that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period (the date of any such notification, or the last day of the Issuance Period, as the case may be, being herein called the “ Cancellation Date ”) , the Company shall pay to or as directed by PIM in immediately available funds on the Cancellation Date an amount ( herein called the “ Cancellation Event Delayed Delivery Fee ”) equal to:
(BEY - MMY) X DTS/360 X PA
where “ BEY ” means Bond Equivalent Yield, i.e. , the bond equivalent yield per annum of such Accepted Note; “ MMY ” means Money Market Yield, i.e. , the yield per annum on an alternative Dollar investment of the highest quality selected by PIM having a maturity date or dates the same as, or closest to, the original scheduled Closing Day or any Rescheduled Closing Day from time to time fixed for the delayed delivery of such Accepted Note; “ DTS ” means Days to Settlement, i.e. , the number of actual days elapsed from and including the Acceptance Day for such Accepted Note to but excluding the Cancellation D ate of such Accepted Note ; and “ PA ” means Principal Amount, i.e. , the principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Cancellation Event Delayed Delivery Fee be less than zero.
2B ( 8 )(i v ) Cancellation Fee. If the Company at any time notifies PIM in writing that the Company is canceling the closing of the purchase and sale of any Accepted Note, or if PIM notifies the Company in writing under the circumstances set forth in the last sentence of paragraph 2B(5) or the penultimate sentence of Section 2B(7) that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period, the Company shall pay to or as directed by PIM in immediately available funds on the Cancellation Date an amount ( herein called the “ Cancellation Fee ”) equal to:
PI X PA
where “ PI ” means Price Increase, i.e. , the quotient (expressed in decimals) obtained by dividing (a) the excess of the ask price (as determined by PIM) of the Hedge Treasury Note(s) on the Cancellation Date over the bid price (as determined by PIM) of the Hedge Treasury Note(s) on the Acceptance Day for such Accepted Note by (b) such bid price; and “ PA ” has the meaning ascribed to it in paragraph 2B(8)(iii). The foregoing bid and ask prices shall be as reported by such publicly available source of such market data as is then customarily used by PIM, and rounded to the second decimal place.
In no case shall the Cancellation Fee be less than zero.
8
The effectiveness of the amendment and restatement effected herein is subject to the satisfaction of the conditions set forth in Section 4A, and the obligation of any Purchaser to purchase and pay for any Shelf Notes is subject to the fulfillment to its satisfaction, on or before the applicable Closing Day, of the conditions set forth in Section 4B:
4A Conditions to Effectiveness of Amendment and Restatement .
4A(1) Officer’s Certificate (Unencumbered Assets/Qualified Mortgage Loans) . The Company shall have delivered to PIM an Officer’s Certificate, dated the date of this Agreement, setting forth a listing of the Unencumbered Assets and Qualified Mortgage Loans as of the date of this Agreement.
4A(2) Officer’s Certificate (Bringdown). The Company shall have delivered to PIM an Officer’s Certificate, dated the date of this Agreement, certifying that (a) the representations and warranties of the Company in Section 5 hereof are correct on and as of the date of this Agreement, and (b) on and as of the date of this Agreement (both immediately before and immediately after giving effect to the effectiveness of the amendment and restatement effected herein) no Default or Event of Default has occurred and is continuing .
4A(3) Payment of Special Counsel Fees . Without lim iting the provisions of Section 15.1, the Company shall have paid on or before the date hereof the fees, charges and disbursements of the special counsel of PIM , the Series A Purchasers and the Series B Purchasers referred to in Section 4B(1)(g), to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the date hereof.
4B Conditions to Each Closing .
4B(1) Certain Documents . PIM and each Purchaser that is purchasing Notes on such Closing Day shall have received the following, each dated the applicable Closing Day (except as provided in clause (h)) :
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(b) an Officer’s Certificate from the Company, certifying that the conditions specified in Sections 4B(3), 4B(4) and 4B(5) have been fulfilled; |
9
4B(2) Payment of Fees . The Company shall have paid to or as directed by PIM any fees due pursuant to or in connection with this Agreement, including the Draw Fee due pursuant to Section 2B(8)(i) and any Delayed Delivery Fee due pursuant to Section 2B(8)(iii).
4B(3) Representations and Warranties . The representations and warranties of the C ompany in Section 5 hereof shall, in each case, be correct when made and on and as of such Closing Day.
4B(4) Performance; No Default . T he C ompany shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at such Closing Day, and after giving effect to the issue and sale of the applicable Series of Notes (and the application of the proceeds thereof pursuant to the requirements of Section 5.14) no Default or Event of Default shall have occurred and be continuing.
4B(5) Changes in Structure . The Company shall not have changed its jurisdiction of organization or been a party to any merger or consolidation or succeeded to all or any substantial
10
part of the liabilities of any other Person, at any time following the date of the most recent financial statements referred to in Section 5.5.
4B(6) Purchas e Permitted By Applicable Law, E tc . Each Purchaser’s purchase of Notes on such Closing Day shall (i) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including Regulation T, U or X of the Board of Governors of the Federal Reserve System), and (iii) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by any Purchaser of Notes on such Closing Day, such Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact as it may reasonably specify to enable it to determine whether such purchase is so permitted.
4B(7) Private Placement Number . A Private Placement number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for each Series of Notes to be issued on the applicable Closing Day.
4B(8) Proceedings and Documents . All corporate, organizational and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to each Purchaser purchasing Notes on the applicable Closing Day and its special counsel, and each such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or such counsel may reasonably request.
5 R epresentation S and Warranties of the Company .
The Company represents and warrants to each Purchaser that:
5.1 Organization; Power and Authority .
The Company is a corporation duly organized, validly existing and in good standing under the laws of Maryland , and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the requisite power and authority to own or hold under lease the Properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver the Transaction Documents and to perform the provisions of the Transaction Documents which it is required to perform . The Company is organized in conformity with the requirements for qualification as a REIT under the Code, and its method of operation enables it to meet the requirements for qualification and taxation as a REIT under the Code.
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This Agreement, the Notes and the other Transaction Documents have been duly authorized by all necessary action on the part of the Company , and each of this Agreement and the other Transaction Documents (other than the Notes) constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
Neither this Agreement nor any other document, certificate or statement furnished to PIM by or on behalf of the Company in connection herewith , contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading in light of the circumstanc es under which they were made, PIM acknowledging that as to any projections furnished to PIM, the Company only represents that the same were prepared in good faith on the basis of information and estimates the Company believed to be reasonable at the time of the preparation and delivery thereof. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the other documents, certificates and other writings (including the Company’s most recent reports on Form 10-Q and Form 10-K and the Company’s reports on Form 8-K filed during the period from January 1, 201 4 through the date hereof) delivered to PIM by or on behalf of the Company. Since the date of the most recent audited balance sheet delivered pursuant to Section 7. 1(b), or if no such balance sheet has been delivered, the most recent audited balance sheet referred to in Section 5.5, there has been no change in the financial co ndition, operations, business, P roperties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the other documents, certificates and other writings delivered to PIM by or on behalf of the Company.
5.4 Organization and Ownership of Equity in Subsidiaries; Affiliates .
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(b) All of the outstanding shares of capital stock or similar equity interes ts of each S ubsidiary owned by the C ompany and its S ubsidiaries have been validly issued, are fully |
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paid and nonassessable and are owned by the C ompany or another S ubsidiary free and clear of any L ien except as disclosed on S chedule 5.4 .
The Company has furnished each holder of Notes and each Purchaser of Accepted N otes with the following financial statements: (i) consolidated balance sheets of the Company and its Subsidiaries as of the last day in each of the last three F iscal Y ears completed prior to the date as of which this representation is made or repeated (other than F iscal Y ears completed within 90 days prior to such date for which audited financial statements have not been released), and consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for each such year, all certified by independent certified public accountants of recognized international standing; and (ii) unaudited consolidated balance sheets of the Company and its Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of the most recent F iscal Y ear (other than quarterly periods completed within 45 days prior to such date for which financial statements have not been released) and unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for the per iods from the beginning of the F iscal Y ears in which such quarterly periods are included to the end of such quarterly periods and the comparable quarterly perio d in the immediately preceding F iscal Y ear. Such financial statements (including any related schedules and/or notes) have been prepared in accordance with GAAP (subject, as to interim statements, to changes resulting from year-end adjustments) consistently applied throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present in all material respects the consolidated financial condition of the Company and its Subsidiaries as at the dates thereof, and the statements of income, retained earnings and cash flows fairly present the consolidated financial results of their operations for the periods indicated. The Company and its Subsidiaries do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in writing to the Purchasers. No event has occurred si nce the end of the most recent F iscal Y ear for which such audited financial statements
13
have been furnished which has had or could reasonably be expected to have a M aterial A dverse E ffect.
5.6 Compliance with Laws; Other Instruments, Etc .
The execution, delivery and performance by the Company of the Transaction Documents will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any Property of the Company or any of its Subsidiaries under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter (or similar constitutive documents) or bylaws (or similar documents), or any other agreement or instrument to which the Company or any of its Subsidiaries is bound or by which the Company or any of its Subsidiaries or any of their respective Properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any of its Subsidiaries, or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any of its Subsidiaries.
Neither the Company nor any Subsidiary is in default under the terms of any covenant, indenture or agreement of or affecting such Person or any of its Property, which default, if uncured, could reasonably be expected to h ave a Material Adverse Effect.
5.7 Governmental Authorizations, Etc .
No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement, the Notes or the other Transaction Documents.
5.8 Litigation; Observance of Agreements, Statutes and Orders .
All tax returns required to be filed by the Company or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees, and other governmental charges upon the Company or any Subsidiary or upon any of its Property, income or franchises, which are shown to be due and payable in such returns, have been paid, except such taxes, assessments, fees and governmental charges, if any, as are being contested in good faith and by appropriate
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proceedings which prevent enforcement of the matter under contest and as to which adequate reserves established in accordance with GAAP have been provided or where the failure to so file or pay would not cause a Material Adverse Effect. The Company does not know of any proposed additional tax assessment against it or its Subsidiaries for which adequate provisions in accordance with GAAP have not been made on their accounts. Adequate provisions in accordance with GAAP for taxes on the books of the Company and each Subsidiary have been made for all open years, and for its current fiscal period.
5.10 Title to Property; Leases .
The Company and its Subsidiaries have good and sufficient title to their respective Properties (other than Properties which are leased) that individually or in the aggregate are Material, including all such Properties reflected in the most recent audited balance sheet delivered pursuant to Section 7.1(b), or if no such balance sheet has been delivered, the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement .
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ERISA, other than such liabilities or Liens as would not be individually or in the aggregate Material.
Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and other Institutional Investors (as defined in clause (c) to the definition of such term ) , each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would constitute a general solicitation with respect to the issuance or sale of the Notes or that otherwise would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act or the registration requirements of any securities or blue sky laws of any applicable jurisdiction.
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5.14 Use of Proceeds; Margin Regulations .
The Company will apply the proceeds of the sale of each Series of Shelf Notes in the manner described in the applicable Request for Purchase with respect to such Series of Shelf Notes. None of the proceeds of the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 2 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 2 5% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.
5.15 Existing Indebtedness for Borrowed Money ; Future Liens .
5.16 Foreign Assets Control Regulations, Etc .
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to, the Trading with the Enemy Act, the International Emergency Economic Powers Act, the Comprehensive Iran Sanctions, Accountability and Divestment Act (“ CISADA ”) or any similar law or regulation with respect to Iran or any other country , the Sudan Accountability and Divestment Act, any OFAC Sanctions Program, or any economic sanctions regulations administered and enforced by the U nited S tates or any enabling legislation or executive order relating to any of the foregoing (collectively, “U.S. Economic Sanctions” ) (each OFAC Listed Person and each other Person, entity, organization and government of a country described in clause (i), clause (ii) or clause (iii), a “Blocked Person” ). Neither the Company nor any Controlled Entity has been notified that its name appears or may in the future appear on a state list of Persons that engage in investment or other commercial activities in Iran or any other country that is subject to U.S. Economic Sanctions.
(ii) T o the Company’s best knowledge, neither the Company nor any Controlled Entity has, within the last five years, directly or indirectly offered, promised, given, paid or authorized the offer, promise, giving or payment of anything of value to a
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Governmental Official or a commercial counterparty for the purposes of : ( 1 ) influencing any act, decision or failure to act by such Government Official in his or her official capacity or such commercial counterparty; (2 ) inducing a Governmental Official to do or omit to do any act in violation of the Government al Official’s lawful duty; or (3 ) inducing a Governmental Official or a commercial counterparty to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity ; in each case which is contrary to applicable law ; and
(iii) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any improper payments, including bribes, to any Governmental Official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage , in each case which would cause any holder of a Note to be in violation of applicable Anti-Corruption Laws . The Company has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable Anti-Corruption Laws .
5.17 Status under Certain Statutes .
Neither the Company nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 2005, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended.
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As of the date hereof , the entire outstanding capital stock of the Company consists of : (i) Series C Cumulative Convertible Preferred Stock, 2,000,0 00 shares outstanding; and (ii) Common Stock, 35,540,762 shares outstanding.
5.20 Condition of Property; Casualties; Condemnation .
T o the actual knowledge of the Company or its Unencumbered Asset Subsidiaries, and except such as has not had, and could not reasonably be expected to have, a Material Adverse Effect, each Property owned by them (a) is in good repair, working order and condition, normal wear and tear excepted, (b) is free of structural defects, (c) is not subject to material deferred maintenance , and (d) has and will have all building systems contained therein in good repair, working order and condition, normal wear and tear excepted. To the actual knowledge of the Company or of any of its Subsidiaries, and except such as has not had, and could not reasonably be expected to have, a Material Adverse Effect, none of the Properties owned by them is currently affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of P roperty or cancellation of contracts, permits or concessions by a Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy. No condemnation or other like proceedings that has had, or could reasonably be expected to result in, a Material Adverse Effect , are pending and served nor, to the actual knowledge of the Company or its Subsidiaries , threatened against any Property owned by it or any of its Subsidiaries in any manner whatsoever. No casualty has occurred to any such Property that could reasonably be expected to have a Material Adverse Effect.
5.21 Legal Requirements and Zoning .
To the actual knowledge of the Company and its Subsidiaries, the use and operation of each Property owned by the Company or its Subsidiaries constitutes a legal use under applicable
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zoning regulations (as the same may be modified by special use permits or the granting of variances) and complies in all material respects with all L egal R equirements, and does not violate in any material respect any material approvals, material restrictions of record or any material agreement affecting any such Property (or any portion thereof).
5.22 [Intentionally Omitted] .
The Company and each of its Subsidiaries are solvent, able to pay their debts as they become due, and have sufficient capital to carry on their business as currently conducted .
None of the proceeds of the sale of any Notes will be used to finance a Hostile Acquisition.
6 Representations of the Purchasers .
6.1 Purchase for Investment . Each Purchaser of any Series of Shelf Notes severally represents that it is purchasing such Notes for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or their property shall at all times be within such Purchaser’s or their control. Each such Purchaser understands that such Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register such Notes.
Each Purchaser of any Series of Shelf Notes severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “ Source ”) to be used by such Purchaser to pay the purchase price of such Notes to be purchased by such Purchaser hereunder:
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(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. |
As used in this Section 6.2, the terms “employee benefit plan”, “governmental plan”, and “separate account” shall have the respective meanings assigned to such terms in Section 3 of ERISA.
7 Information as to the Company .
The Company covenants that during the Issuance Period and so long thereafter as any Notes remain outstanding or any amounts owing under the Transaction Documents remain unpaid:
7.1 Financial and Business Information . The Company shall deliver to each holder of Notes that is an Institutional Investor:
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(b) Annual Statements — as soon as available, and in any event within 90 days after the end of each Fiscal Year of the Company, duplicate copies of |
(i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, and
(ii) consolidated statements of income, changes in stockholders’ equity and cash flows of the Company and its Subsidiaries for such year,
setting forth in each case in comparative for m the figures for the previous F iscal Y ear, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances,
provided that the filing within the time period specified above of the Company’s Form 10-K for such Fiscal Year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act, provided that such annual report need not be filed until required to be filed pursuant to SEC requirements) prepared in accordance with the
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requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 7.1(b);
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Company or any Subsidiary or any of their Property which, if adversely determined, could reasonably be expected to have a Material Adverse Effect;
(i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multi-employer Plan that such action has been taken by the PBGC with respect to such Multi-employer Plan; or
(iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; and
7.2 Officer’s Certificate . Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer , substantially in the form of Exhibit E attached hereto, setting forth:
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Section 10.2, Section 10.3, Section 10. 9 and any additional Financial Covenants incorporated herein pursuant to Section 10.1 0 , after giving effect to the exclusion from GAAP of the effects of Accounting Standards Codification 825-10-25 (previously referred to as SFAS 159) or any successor or similar provision to the extent it relates to “fair value” accounting for liabilities) , and (y) a listing of the Unencumbered Assets and Qualified Mortgage Loans as of the end of the quarterly or annual period covered by the statements then being furnished ; and
7.3 Visitation . The Company shall permit the representatives of each holder of Notes that is an Institutional Investor:
The Series A Notes , the Series B Notes and any Shelf Notes shall be subject to required prepayment as and to the extent provided in Section 8.1. The Series A Notes , the Series B Notes and any Shelf Notes shall also be subject to prepayment under the circumstances set forth in Section 8.2.
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(a) Series A-1 Notes . As provided therein, the entire unpaid principal balance of the Series A-1 Notes shall be due and payable on the stated maturity date thereof. |
8.2 Optional Prepayments with Make-Whole Amount .
The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes of any Series (to the exclusion of all other Series), in an amount not less than $1,000,000 (and increments of $100,000 in excess thereof) of the aggregate principal amount of the Notes of such Series then outstanding in the case of a partial prepayment, or such lesser principal amount of the Notes of such Series as shall then be outstanding, at 100% of the principal amount so prepaid, plus interest thereon to the prepayment date and the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes of such Series written notice of each optional prepayment under this Section 8.2 not less than 5 Business Days and not more than 60 days prior to the date (which shall be a Business Day) fixed for such prepayment. Each such notice shall specify such date, the Series of Notes to be prepaid, the aggregate principal amount of such Notes to be prepaid on such date, the principal amount of each Note of such Series held by the registered holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid.
8.3 Allocation of Partial Prepayments .
In the case of each partial prepayment of the Notes of each Series under Section 8.1(b) or Section 8.2, the principal amount prepaid shall be allocated among the Notes of such Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore prepaid.
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8.4 Maturity; Surrender, E tc .
In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment (which shall be a Business Day), together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.
The Company will not, and will not permit any Affiliate to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes of any Series except (i) upon the payment or prepayment of the Notes of such Series in accordance with the terms of this Agreement and the Notes of such Series, or (ii) pursuant to a written offer to purchase any outstanding Notes of such Series made by the Company or an Affiliate pro rata to the holders of all Notes of such Series at the time outstanding upon the same terms and conditions. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement, and no Notes may be issued in substitution or exchange for any such Notes.
The term “ Make-Whole Amount ” means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal; provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
“ Called Principal ” means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.
“ Discounted Value ” means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.
“ Reinvestment Yield ” means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the ask side yields reported, as of 10:00 a.m. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, for actively traded U nited States t reasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date on the display
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designated as “Page PX1” on Bloomberg Financial Markets (“ Bloomberg ”) (or, if Bloomberg shall cease to report such yields on Page PX1 or shall cease to be PIM’s customary source of information for calculating make-whole amounts on privately placed notes, then such source as is then PIM’s customary source of such information), or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the second Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U nited States t reasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U nited States t reasury bill quotations to bond-equivalent yields in accordance with accepted financial practice, and (b) interpolating linearly between (1) the actively traded U nited States t reasury security with the maturity closest to and greater than the Remaining Average Life of such Called Principal, and (2) the actively traded U nited States t reasury security with the maturity closest to and less than the Remaining Average Life of such Called Principal. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.
“ Remaining Average Life ” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
“ Remaining Scheduled Payments ” means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or Section 12.1.
“ Settlement Date ” means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2, or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.
The Company covenants that during the Issuance Period and for so long thereafter as any of the Notes are outstanding or any amounts owing under the Transaction Documents remain unpaid:
9.1 Compliance with Law s and Contractual Obligations . (a) Without limiting Section 10.1 2 , the Company will, and will cause each of its Subsidiaries to, comply with (i) all laws, ordinances or governmental rules or regulations to which each of them is subject,
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including, without limitation, ERISA, the USA P ATRIOT Act , Environmental Laws, and the other laws and regulations that are referenced in Section 5.16, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective Properties or to the conduct of their respective businesses and (ii) all contractual obligations , in each case to the extent necessary to ensure that non - compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations or non-compliance with such contractual obligations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.2 Insurance . The Company will, and will cause each of its Subsidiaries to, maintain and cause their respective tenants to maintain, with financially sound and reputable
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insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business, similarly situated, and operating like Properties . The Company shall, upon the request of the Required Holders, furnish to the holders of Notes certificates of insurance setting forth in summary form the nature and extent of the insurance maintained on the Properties.
9.3 Maintenance of Properties . The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept (including, without limitation, by their respective tenants), their respective Properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its Properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.4 Payment of Taxes and Claims . The Company will cause each of its tenants to duly pay and discharge, all taxes, rates, assessments, fees, and governmental charges upon or against it or its Property relating to such Property, that individually or collectively would materially impair the value of such Property, and in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves are provided therefor.
The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their Properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on Properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax, assessment, charge, levy or claim if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary, or (ii) the nonpayment of all such taxes, assessments, charges, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect.
9.5 Maintenance of Existence, Etc. Subject to Section 10.3, the Company will at all times preserve and keep in full force and effect its corporate or similar existence and the corporate or similar existence of each of its Subsidiaries (unless merged into the Company or a Wholly-Owned Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.
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9.6 Books and Records . The Company will, and will cause each of its Subsidiaries to, maintain proper books of record and account in conformity with GAAP and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over the Company or such Subsidiary, as the case may be.
9.7 Maintenance of REIT Status . The Company will , at all times, conduct its affairs and the affairs of its Subsidiaries in a manner so as to continue to qualify as a REIT and elect to be treated as a REIT under all applicable laws, rules and regulations.
9.8 Listing of Common Stock; Filing of Reports . The Company will (i) at all times cause its common stock to be duly listed on the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation or other national stock exchange, and (ii) timely file all reports required to be filed by it with the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation and the Securities and Exchange Commission.
9.9 Limitations on Guaranties of Indebtedness . Concurrent with (i) any Subsidiary issuing Unsecured Debt or becoming a guarantor or other obligor with respect to Unsecured Debt, or (ii) any Secured Debt becoming Unsecured Debt, the Company shall cause each Subsidiary described in clause (i) and each Subsidiary which is the issuer or a guarantor or other obligor with respect to Unsecured Debt described in clause (ii) (if the applicable Subsidiary is not then a guarantor or other obligor of the Notes) to execute and deliver to the holders of the Notes a guaranty of the obligations evidenced by the Notes, together with such other instruments, documents, certificates and opinions reasonably required by the Required Holders in connection therewith, each of the foregoing being in form and substance customary and appropriate for financings of this type.
9.10 Information Required by Rule 144A . U pon the request of the holder of any Note, the Company will promptly provide to such holder, and to any Qualified Institutional Buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
The Company covenants that, during the Issuance Period and for so long thereafter as any of the Notes are outstanding or any amounts owing under the Transaction Documents remain unpaid:
10.1 Liens, Etc. The Company will not, nor shall it permit any Subsidiary to, create, incur or permit to exist any Lien of any kind on any Property owned by any such Person; provided , however , that the foregoing shall not apply to nor operate to prevent any Permitted Liens. Without limitation of the immediately preceding sentence, the Company will not permit any Principal Credit Facility (including the Credit Agreement and the 2012 Note Agreement ) to be secured by any consensual Lien unless the Notes are simultaneously secured pursuant to terms and provisions, including an intercreditor a greement, satisfactory to the Required Holders.
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10.2 Investments, Acquisitions, Loans and Advances . The Company will not, nor will it permit any Subsidiary to, (i) directly or indirectly, make, retain or have outstanding any investments (whether through the purchase of stock or obligations or otherwise) in any Person, real property or improvement on real property, or any loans, advances, lines of credit, mortgage loans or other financings (including pursuant to sale/leaseback transactions) to any other Person, or (ii) acquire any real property, improvements on real property or all or any substantial part of the assets or business of any other Person or division thereof; provided , however , that the foregoing shall not apply to nor operate to prevent:
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(b) investments in commercial paper rated at least P-1 by Moody’s and at least A-1 by S&P maturing within one year of the date of issuance thereof; |
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(f) the Company’s investments from time to time in its Subsidiaries, and investments made from time to time by a Subsidiary in one or more of its Subsidiaries; |
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(g) intercompany loans or advances made from time to time among the Company and its Subsidiaries for general company purposes ; |
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(h) investments in Permitted Acquisitions, other than those described in clauses (j), (k) or (l) below; |
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(i) investments held by the Company and its Subsidiaries as of the date hereof and disclosed in Schedule 10.2 ; |
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(m) investments received in connection with a workout of any obligation owed to the Company or its Subsidiaries; and |
Investments made after the date hereof of the type described in Sections (j), (k), (l) and (n) immediately preceding shall at no time exceed in the aggregate at any one time outstanding 30 % of the Total Asset Value of the Company and its Subsidiaries at such time. In determining the amount of investments, acquisitions, loans, and advances permitted under this Section, investments and acquisitions shall always be taken at the original cost thereof (regardless of any subsequent appreciation or depreciation therein), and loans and advances shall be taken at the principal amount thereof then remaining unpaid.
10.3 Mergers, Consolidations and Sales . The Company will not merge or consolidate with or into, or convey, transfer or otherwise dispose of (whether in one transaction or a series of transactions) any of its Property (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets of, any Person, or permit any Subsidiary to do so; provided , however , that the Company may merge or consolidate with another Person, including a Subsidiary, if (A) the Company is the surviving corporation, (B) the Company will be in pro forma compliance with all provisions of this Agreement upon and after such merger or consolidation, and (C) the Company will not engage in any material line of business substantially different from that engaged in on the date hereof and; provided further, that so long as no Default or Event of Default exists this Section shall not apply to nor operate to prevent:
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(a) the sale, transfer or other disposition of Property of the Company and its Subsidiaries to one another in the ordinary course of its business; |
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(d) the sale, transfer or other disposition of Property of the Company or any Subsidiary (including any disposition of Property as part of a sale and leaseback transaction); |
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provided , that if the Gross Book Value of such sale, transfer or disposition during any Fiscal Quarter exceeds $10,000,000 and together with any other sales, transfers or dispositions made during such Fiscal Quarter in the aggregate exceed an amount equal to $100,000,000 , then for such sales, transfers or dispositions, the Company shall provide to the holders of Notes covenant calculations for the covenants contained in Section 10. 9 , showing that, after giving effect to such sales, transfers or dispositions, the Company shall be in pro forma compliance with such covenants for the Fiscal Quarter then most recently ended for which financial statement s have been provided hereunder .
10.4 No Burdensome Contracts With Affiliates . The Company shall not, nor shall it permit any Subsidiary to, enter into any contract, agreement or business arrangement with any of its Affiliates (other than with Wholly-owned Subsidiaries) on terms and conditions which are less favorable to the Company or such Subsidiary than would be usual and customary in similar contracts, agreements or business arrangements between Persons not affiliated with each other.
10.5 No Changes in Fiscal Year . The F iscal Y ear of the Company ends on December 31st of each year; and the Company shall not change its F iscal Y ear from its present basis.
10.6 Change in the Nature of Business . The Company will not, nor shall it permit any Subsidiary to, engage in any business or activity if as a result the general nature of the business of the Company and its Subsidiaries would be changed in any material respect from the general nature of the business engaged in by it as of the date hereof. As of the date hereof, the general nature of the business of the Company and its Subsidiaries is primarily the business of the acquisition, financing and ownership of Senior Housing Assets and other business activities incidental thereto.
10.7 Use of Proceeds of Notes . The Company will not use the credit extended under this Agreement for any purpose other than solely the purposes set forth in, or otherwise contemplated by, Section 5.14 hereof.
10.8 No Restrictions . Except as provided herein, the Company will not, nor will it permit any Subsidiary (except for bankruptcy remote subsidiaries established in connection with (i) any securitization or participation transaction or with any Permitted Lien, or (ii) any ownership of fee simple real estate Properties not exceeding $200,000,000 individually or in the aggregate) to, directly or indirectly , create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of the Company or any Subsidiary to: (a) pay dividends or make any other distributions on any Subsidiary’s capital stock or other equity interests owned by the Company or any other Subsidiary, (b) pay any indebtedness owed to the Company or any other Subsidiary, (c) make loans or advances to the Company or any other Subsidiary, (d) transfer any of its Property to the Company or any other Subsidiary, provided however , that the foregoing does not impose any limitation on transfers of property that is subject to a Permitted Lien, or (e) guarantee the obligations evidenced by the Notes or under this Agreement and/or grant Liens on its assets to a collateral a gent for the ratable benefit of the holders from time to time of the Notes , the 2012 Noteholders, the Lenders under (and as defined in) the Credit Agreement and other indebtedness as required by the Transaction Documents.
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10.10 Two-Way M ost Favored Lender . If at any time after October 14, 2014 the Credit Agreement is amended or otherwise modified, or any agreement related to the Credit Agreement is entered into or is amended or otherwise modified, and as a result of any of the foregoing any Financial Covenant for the Bank Facility is modified (whether in a manner to be more beneficial or less beneficial to the lenders under the Credit Agreement) or eliminated, or any Financial Covenant is added for the Bank Facility (in each such case, a “ Modified Bank Financial Covenant ”), then (i) the corresponding Financial Covenant in this Agreement shall be deemed automatically modified in such manner or eliminated, as the case may be, or such additional Financial Covenant for the Bank Facility shall be deemed automatically incorporated by reference, in each case mutatis mutandis , as if such modified or additional Financial Covenant were set forth fully herein or such eliminated Financial Covenant were deleted herefrom, as applicable, and (ii) the Company shall promptly, and in any event within five (5) Business Days after entering into any such Modified Bank Financial Covenant, advise the holders of Notes in writing of such Modified Bank Financial Covenant . Thereafter, upon the request of the Required Holders, the Company shall enter into an amendment to this Agreement with the Required Holders evidencing the incorporation of such Modified Bank Financial Covenant, it being agreed
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that any failure to make such request or to enter into any such amendment shall in no way qualify or limit the effectiveness of the deemed modification or elimination, as the case may be, of the applicable Financial Covenant in this Agreement, or the incorporation by reference into this Agreement of the applicable additional Financial Covenant, in each case as described in clause (i) of the immediately preceding sentence.
Notwithstanding anything to the contrary in the immediately preceding paragraph of this Section 10.1 0 : (a) no such modification of a Financial Covenant hereunder that would be less beneficial to the holders of the Notes, and no such elimination hereunder of a Financial Covenant, shall be effective if a Default or Event of Default has occurred and is continuing immediately prior to the time such Modified Bank Financial Covenant becomes effective; (b) no modification or series of modifications effected pursuant to the provisions of this Section 10.1 0 shall be effective to (w) increase the maximum permitted ratio of Total Indebtedness to Total Asset Value as set forth in Section 10. 9 (a) of this Agreement to a level greater than 0.60 to 1.00 (assuming such Financial C ovenant were calculated on a basis consistent with the manner in which it is calculated on the date hereof pursuant to this Agreement) or eliminate such Financial C ovenant set forth in Section 10. 9 (a) from this Agreement, (x) increase the maximum permitted ratio of Secured Debt to Total Asset Value as set forth in Section 10. 9 (b) of this Agreement to a level greater than 0.40 to 1.00 (assuming such Financial C ovenant were calculated on a basis consistent with the manner in which it is calculated on the date hereof pursuant to this Agreement) or eliminate such Financial C ovenant set forth in Section 10. 9 (b) from this Agreement, (y) (i) increase the maximum permitted ratio of Unsecured Debt of the Company and its Subsidiaries to Unencumbered Asset Value as set forth in Section 10. 9 (c) of this Agreement to a level greater than 0.6667 to 1.00 (assuming such Financial C ovenant were calculated on a basis consistent with the manner in which it is calculated on the date hereof pursuant to this Agreement), or (ii) modify the definition of “Capitalization Rate” such that the capitalization rate for ALFs would be lower than 7.00%, the capitalization rate for continuum of care facilities would be lower than 7.50% , any capitalization rate set forth in such definition on the date hereof as 10% would be lower than 8.50% , or any capitalization rate set forth in such definition on the date hereof as 11.5% would be lower than 1 1.5 % , or (iii) eliminate such Financial C ovenant set forth in Section 10. 9 (c) from this Agreement unless (1) such Financial C ovenant is replaced with a Financial C ovenant prohibiting the ratio of Total Asset Value (but computed solely for unencumbered assets of the Company and its Subsidiaries) to Unsecured Debt, or a formulation for such replacement Financial C ovenant which is substantially similar thereto, from being less than 1.50 to 1.00 as of the last day of each Fiscal Quarter of the Company, (2) a customary priority debt covenant satisfactory to the Requi red Holders is added to Section 10. 9 and (3) Section 10.1 is modified in a manner consistent with such newly added priority debt covenant and reasonably satisfactory to the Required Holders, provided that if such Financial C ovenant set forth in Section 10. 9 (c) is eliminated as provided in this clause (y)(iii), then the immediately preceding clauses (y)(i) and (y)(ii) will not be applicable or (z) decrease the minimum required ratio of EBITDA for any Rolling Period to Fixed Charges for such Rolling Period as set forth in Section 10. 9 (d) of this Agreement to a level less than 1.50 to 1.00 (assuming such Financial C ovenant were calculated on a basis consistent with the manner in which it is calculated on the date hereof pursuant to this Agreement) or eliminate such Financial C ovenant set forth in Section 10. 9 (d) from this Agreement; and (c) in the event the Bank Facility is terminated, all Financial Covenants hereunder shall be unaffected and shall remain in effect in the same manner as they existed immediately prior to such termination.
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10.11 Redemption of Stock, Etc . The Company will not, and will not permit any Subsidiary to, (a) redeem, purchase or otherwise acquire, refinance or repay any preferred stock of the Company or any Subsidiary if an Event of Default exists at such time or immediately after giving effect thereto, or (b) redeem, purchase or otherwise acquire, refinance or repay any preferred stock of the Company or any Subsidiary with the proceeds from, or in exchange for, the issuance of capital stock which is mandatorily redeemable, preferred stock which is redeemable at the election of the holder thereof or preferred stock with respect to which any holder thereof has a put or similar right to require the Company or any Subsidiary to purchase, re-purchase or otherwise acquire such preferred stock .
10.12 Terrorism Sanctions Regulations . The Company will not and will not permit any Controlled Entity (a ) to become (including by virtue of being owned or controlled by a Blocked Person), own or control a Blocked Person or any Person that is the target of sanctions imposed by the United Nations or by the European Union, or (b ) directly or indirectly to have any investment in or engage in any dealing or transaction (including , without limitation , any investment, dealing or transaction involving the proceeds of the Notes) with any Person if such investment, dealing or transaction (i ) would cause any holder to be in violation of any law or regulation applicable to such holder, or (ii ) is prohibited by or subject to sanctions under any U.S. Economic Sanctions, or (c ) to engage, nor shall any Affiliate of either engage, in any activity that could subject such Person or any holder to sanctions under CISADA or any similar law or regulation with respect to Iran or any other country that is subject to U.S. Economic Sanctions .
An “ Event of Default ” shall exist if any of the following conditions or events shall occur and be continuing:
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(b) the Company defaults in the payment of any interest on any Note for more than three Business Days after the same becomes due and payable; or |
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the Company or any of the Subsidiaries and such petition shall not be dismissed within 60 days; or
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(m) there shall be a determination from the applicable Governmental Authority from which no appeal can be taken that the Company’s tax status as a REIT has been lost; or |
As used in Section 11(j), the terms “ employee benefit plan ” and “ employee welfare benefit plan ” shall have the respective meanings assigned to such terms in Section 3 of ERISA.
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Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the Default Rate) and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from prepayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.
If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediatel y due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.
At any time after any Notes of any Series have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than a majority in principal amount of the Notes
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of such Series then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes of such Series, all principal of and Make-Whole Amount, if any, on any Notes of such Series that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes of such Series, at the Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.
12.4 No Waivers or Election of Remedies, Expenses, E tc .
No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement, any Note or any other Transaction Document upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of ea ch Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.
13 Registration; Exchange; Substitution Of Notes .
The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.
13.2 Transfer and Exchange of Notes .
Upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)), for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in
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writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more replacement Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such replacement Note shall be payable to such Person as such holder may request and shall be substantially in the form of the Note so surrendered. Each such replacement Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $1,000,000; provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes of a Series, one Note may be in a denomination of less than $1,000,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2.
Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and
Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of JPMorgan Chase Bank in such jurisdiction. The holder of a Note may at any time, by notice to the Company, change the place of payment of the Notes so long as such place of
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payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.
So long as a Purchaser or its nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose, in the case of the Series A Notes or the Series B Notes, on the Purchaser Schedule Relating to Series A Notes or Purchaser Schedule Relating to Series B Notes, as applicable, attached hereto as Schedule A and, in the case of any Series C Note, any Series D Note or any Shelf Note, on the Purchaser Schedule attached to the Confirmation of Acceptance with respect to such Note, or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by any Purchaser or its nominee such Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a replacement Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by any Purchaser under this Agreement and that has made the same agreement relating to such Note as each Purchaser has made in this Section 14.2.
Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required by the Required Holders, local or other counsel) incurred by PIM, the Purchasers or any holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Notes or any of the other Transaction Documents (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes or any of the other Transaction Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes or any of the other Transaction Documents, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby, by the Notes and the other Transaction Documents. The Company will pay, and will save PIM, each
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Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders.
The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.
16 Survival Of Representations And Warranties; Entire Agreement .
All representations and warranties contained herein or in any of the other Transaction Documents shall survive the execution and delivery of this Agreement, the Notes and the other Transaction Documents, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of any Purchaser or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement or any of the other Transaction Documents shall be deemed representations and warranties of the Company under this Agreement or such other Transaction Document. Subject to the preceding sentence, this Agreement, the Notes and the other Transaction Documents embody the entire agreement and understanding among PIM, the Purchasers and the C ompany and supersede all prior agreements and understandings relating to the subject matter hereof.
This Agreement, the Notes and the other Transaction Documents may be amended, and the Company may take any action herein or therein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) of the Notes of each Series except that , (i) with the written consent of the holders of all Notes of a particular Series, and if an Event of Default shall have occurred and be continuing, of the holders of all Notes of all Series, at the time outstanding (and not without such written consents), the Notes of such Series may be amended or the provisions thereof waived to change the maturity thereof, to change or affect the principal thereof, or to change or affect the rate or time of payment of interest on or any Make-Whole Amount payable with respect to the Notes of such Series, (ii) without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to or waiver of the provisions of this Agreement shall change or affect the provisions of Section 12 or this Section 17 insofar as such provisions relate to proportions of the principal amount of the Notes of any Series, or the rights of any individual holder of Notes, required with respect to any declaration of Notes to be due and payable or with respect to any consent, amendment, waiver or declaration, (iii) with the written consent of PIM (and not without the written consent of PIM) the provisions of Section 2B may be amended or waived (except insofar as any such amendment or waiver would affect any rights or obligations with respect to the purchase and sale of Notes which shall
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have become Accepted Notes prior to such amendment or waiver), and (iv) with the written consent of all of the Purchasers which shall have become obligated to purchase Accepted Notes of any Series (and not without the written consent of all such Purchasers), any of the provisions of Sections 2B and 4 may be amended or waived insofar as such amendment or waiver would affect only rights or obligations with respect to the purchase and sale of the Accepted Notes of such Series or the terms and provisions of such Accepted Notes. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this Section 17, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent.
17.2 Solicitation of Holders of Notes .
Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.
17.4 Notes Held by Company, E tc .
Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes or any Series thereof then outstanding have approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes
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or any Series thereof, or have directed the taking of any action provided herein or in the Notes or any Series thereof to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes or any Series thereof then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.
All notices and communications provided for hereunder (other than communications provided for in Section 2) shall be in writing and sent (a) by facsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:
(i) if to any Series A Purchaser or its nominee or any Series B Purchaser or its nominee, to such Person at the address specified for such communications in the Purchaser Schedule Relating to Series A Notes or Purchaser Schedule Relating to Series B Notes, as applicable, attached hereto as Schedule A and, in the case of a Purchaser of any Series C Note or its nominee, any Series D Note or its nominee, or any Shelf Note or its nominee, to such Person at the address specified for such communications in the Purchaser Schedule attached to the Confirmation of Acceptance with respect to such Shelf Note, or at such other address as such Person or it shall have specified to the Company in writing;
(ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing; or
(iii) if to the Company , at its address set forth at the beginning hereof to the attention of the Chief Financial Officer, or at such other address as the Company, shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed to have been given and received when delivered at the address so specified. Any communication pursuant to Section 2 shall be made by the method specified for such communication in Section 2, and shall be effective to create any rights or obligations under this Agreement only if, in the case of a telephone communication, an Authorized Officer of the party conveying the information and of the party receiving the information are parties to the telephone call, and in the case of a facsimile communication, the communication is signed by an Authorized Officer of the party conveying the information, addressed to the attention of an Authorized Officer of the party receiving the information, and in fact received at the facsimile number that is listed for the party receiving the communication on the Information Schedule or at such other facsimile number as the party receiving the information shall have specified in writing to the party sending such information.
19 Reproduction Of Documents .
This Agreement, and all documents relating hereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by any Purchaser on any Closing Day (except the Notes themselves), and (c) financial statements,
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certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and such Purchaser may destroy any original document so reproduced. To the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit any party hereto from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.
For the purposes of this Section 2 0 , “ Confidential Information ” means information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any person acting on such Purchaser ’ s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or any Subsidiary , or (d) constitutes financial statemen ts delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (i) its directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes), (ii) its financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 2 0 , (iii) any other holder of any Note, (iv) any Institutional Investor to which it sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 2 0 ), (v) any Person from which it offers to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 2 0 ), (vi) any federal or state regulatory authority having jurisdiction over such Purchaser, (vii) the NAIC or the SVO or, in each case, any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser ’ s investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party , or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser ’ s Notes and this Agreement. Each holder of a Note, by its acceptance of a
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Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 2 0 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying t he provisions of this Section 2 0 .
All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including any subsequent holder of a Note) whether so expressed or not.
21.2 Payments Due on Non-Business Days .
Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting the requirement in Section 8.4 that the notice of any optional prepayment specify a Business Day as the date fixed for such prepayment), any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a New York Business Day shall be made on the next succeeding New York Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding New York Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.
All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP. If, after the date of this Agreement, there shall occur any change in GAAP from those used in the preparation of the financial statements referred to in Section 7 .1(b) hereof for the F iscal Y ear ended December 31, 201 2 and such change shall result in a change in the method of calculation of any financial covenant, standard or term found in this Agreement, either the Company or the Required Holders may by notice to the holders of the Notes and the Company, respectively, require that the holders of the Notes and the Company negotiate in good faith to amend such covenants, standards, and terms so as equitably to reflect such change in accounting principles, with the desired result being that the criteria for evaluating the financial condition of the Company and its Subsidiaries shall be the same as if such change had not been made. No delay by the Company or the Required Holders in requiring such negotiation shall limit their right to so require such a negotiation at any time after such a change in accounting principles. Until any such covenant, standard, or term is amended in accordance with this Section 2 1 .3,
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financial covenants shall be computed and determined in accordance with GAAP in effect prior to such change in accounting principles.
Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.
Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.
For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.
This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.
This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such state that would permit the application of the laws of a jurisdiction other than such state.
21.8 Jurisdiction and Process . (a) The Company irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
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holder of Notes in any suit, action or proceeding of the nature referred to in Section 2 1 .8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 18 or at such other address of which such holder shall then have been notif ied pursuant to said Section. The Company agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding, and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.
21.9 Waiver of Jury Trial . THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY, if an action or other proceeding is brought in the State of California and if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them concerning this Agreement, the Notes, the other Transaction Documents and the matters contemplated hereby or thereby (each, a “ Claim ” ), including any and all questions of law or fact relating thereto, shall be determined by judicial reference pursuant to the California Code of Civil Procedure ( “ Reference ” ). The parties shall select a single neutral referee, who shall be a retired state or federal judge. In the event that the parties cannot agree upon a referee, the referee shall be appointed by the court. The referee shall report a statement of decision to the court. Nothing in this paragraph shall limit the right of any party at any time to exercise any self - help remedies, foreclose against any collateral or obtain provisional remedies. The Company shall bear the fees and expenses of the referee unless the referee orders otherwise. The referee shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
21.10 Transaction References . T he Company agrees that Prudential Capital Group may (a) refer to its role in the origination of the purchase of the Notes from the Company, as well as the identity of the Company and the aggregate principal amount and issue date of the Notes, on its internet site or in marketing materials, press releases, published “tombstone” announcements or any other print or electronic medium, and (b) display the Company’s corporate logo in conjunction with any such reference.
21.11 No Novation . This Agreement amends, restates and replaces the Prior Agreement and is not intended to constitute a novation there of (it being acknowledged and
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agreed that the Company’ s covenants in the Prior Agreement shall remain operative for periods prior to the effectiveness of this Agreement, and any unwaived breach of such covenants or any unwaived breach of representations and warranties under the Prior Agreement made prior to the effectiveness of this Agreement, in each case if such unwaived breach constituted a Default or Event of Default under the Prior Agreement immediately prior to the effectiveness of this Agreement, shall constitute a Default or Event of Default, as applicable, under this Agreement ) .
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Very truly yours, |
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THE COMPANY: |
LTC PROPERTIES, INC. |
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By: |
/s/ Wendy Simpson |
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Name: |
Wendy Simpson |
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Title: |
Chairman, Chief Executive Officer and President |
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By: |
/s/ Pamela Shelley-Kessler |
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Name: |
Pamela J. Shelley-Kessler |
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Title: |
Executive Vice President, Chief Financial Officer and Secretary |
/s/ Cornelia Cheng |
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PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY , as a holder of Series B Notes and Series C Notes |
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By: |
Prudential Investment Management, Inc., as investment advisor |
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By: |
/s/ Cornelia Cheng |
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Title: |
Vice President |
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FARMERS NEW WORLD LIFE INSURANCE COMPANY , as a holder of Series C Notes |
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By: |
Prudential Private Placement Investors, L.P., (as Investment Advisor) |
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By: |
Prudential Private Placement Investors, Inc., (as its General Partner) |
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By: |
/s/ Cornelia Cheng |
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Title: |
Vice President |
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AMERICAN INCOME LIFE INSURANCE COMPANY , as a holder of Series D Notes |
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By: |
Prudential Private Placement Investors, L.P., (as Investment Advisor) |
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By: |
Prudential Private Placement Investors, Inc., (as its General Partner) |
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By: |
/s/ Cornelia Cheng |
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Title: |
Vice President |
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LIBERTY NATIONAL LIFE INSURANCE COMPANY , as a holder of Series D Notes |
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By: |
Prudential Private Placement Investors, L.P., (as Investment Advisor) |
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By: |
Prudential Private Placement Investors, Inc., (as its General Partner) |
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By: |
/s/ Cornelia Cheng |
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Title: |
Vice President |
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FAMILY HERITAGE LIFE INSURANCE COMPANY OF AMERICA , as a holder of Series D Notes |
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By: |
Prudential Private Placement Investors, L.P., (as Investment Advisor) |
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By: |
Prudential Private Placement Investors, Inc., (as its General Partner) |
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By: |
/s/ Cornelia Cheng |
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Title: |
Vice President |
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CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES ‑OXLEY ACT OF 2002
I, Wendy L. Simpson, certify that:
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1. I have reviewed this quarterly report on Form 10 ‑Q of LTC Properties, Inc.; |
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2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a ‑15(e) and 15d ‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a ‑15(f) and 15d ‑15(f)) for the registrant and have: |
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a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the registrant ’ s most recent fiscal quarter (the registrant ’ s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant ’ s internal control over financial reporting; and |
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5. The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s board of directors (or persons performing the equivalent functions): |
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a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial information; and |
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b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s internal control over financial reporting. |
/s/ Wendy L. Simpson |
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Wendy L. Simpson |
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Chairman, Chief Executive Officer and President |
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(Principal Executive Officer) |
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April 30 , 201 5 |
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CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES ‑OXLEY ACT OF 2002
I, Pamela Kessler, certify that:
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1. I have reviewed this quarterly report on Form 10 ‑Q of LTC Properties, Inc.; |
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2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a ‑15(e) and 15d ‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a ‑15(f) and 15d ‑15(f)) for the registrant and have: |
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a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the registrant ’ s most recent fiscal quarter (the registrant ’ s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant ’ s internal control over financial reporting; and |
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5. The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s board of directors (or persons performing the equivalent functions): |
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a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial information; and |
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b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s internal control over financial reporting. |
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/s/ Pamela Kessler |
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Pamela Kessler |
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Executive Vice President, Chief Financial Officer |
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and Corporate Secretary |
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(Principal Financial and Accounting Officer) |
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April 30 , 201 5 |
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CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES ‑OXLEY ACT OF 2002
Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of LTC Properties, Inc. (the “Company”) hereby certifies with respect to the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31 , 201 5 as filed with the Securities and Exchange Commission (the “Report”) that to her knowledge:
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(1) |
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 30 , 201 5 |
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/s/ Wendy L. Simpson |
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Wendy L. Simpson
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Date: April 30 , 201 5 |
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/s/ Pamela Kessler |
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Pamela Kessler
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This certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Act of 1934 (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.