LTC Properties: A 6.2% Monthly Payer You Don't Want To Miss

Dec. 23, 2022 7:22 AM ETLTC Properties, Inc. (LTC)3 Comments

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Summary

LTC Properties offers passive income investors a covered dividend that has been paid for years.
The trust profits from the aging of the U.S., a long-term trend.
Valuation and yield both remain attractive.

Doctors or nurses walking in hospital hallway, blurred motion — hxdbzxy

LTC Properties Inc. (NYSE:LTC) is a well-managed real estate investment trust focused on the healthcare sector that passive income investors should consider.

Long-term fund from operations growth is supported by aging trends, and the REIT pays a dividend that is covered by FFO.

With a yield of 6.2%, I believe LTC Properties has a place in the portfolios of investors seeking recurring monthly dividend income. The trust's valuation (based on FFO) and yield are both appealing.

Portfolio Composition And Aging Trends

LTC Properties, a healthcare-focused real estate investment trust, caters to the growing market of people aged 65 and older.

The company owns a portfolio of skilled-nursing and assisted-living facilities, with the portfolio being roughly evenly split in terms of investment exposure. 50% of the trust's investments have been made in skilled-nursing facilities, while 49% of LTC Properties' asset base consists of assisted-living real estate. LTC Properties owned 204 properties valued at $1.95 billion as of September 30, 2022.

Portfolio By Property Type (LTC Properties Inc)

LTC Properties has real estate investments in 29 states, and the REIT is a solely U.S.-focused investor in the healthcare market.

Portfolio Diversification By Geography (LTC Properties Inc)

The United States is aging, and with birth rates declining, the proportion of the population 65 and older is expected to grow rapidly until 2050. More than 22% of Americans are expected to be 65 or older by 2050, up from 15% in 2015. This aging trend fuels decades of increasing facility demand for healthcare real estate investment trusts such as LTC Properties and their investors.

Portfolio Recovery Underway

Healthcare trusts had a difficult time during the Covid-19 pandemic, but the sector's fundamentals are improving. Many operators failed to make rental payments during the pandemic, and healthcare trusts across the sector effectively restructured many of their leases by putting operators on a cash basis or transitioning properties to more solvent operators.

LTC properties collected 97.6% of their rent and mortgage interest in the third quarter, while abating or deferring the rest.

Abated And Deferred Rent (LTC Properties Inc)

Dividend Coverage

In the third quarter, LTC Properties earned $0.60 per share in funds from operations while paying out $0.57 per share. The dividend pay-out ratio in the third quarter was 95%, which is the same as the pay-out ratio for the previous twelve months.

LTC Properties currently provides a stock yield of 6.2% to passive income investors, based on a monthly dividend of $0.19 per share. The REIT stopped growing its dividend in 2017, but given that the trust covers its dividend payments with FFO, the stock remains appealing to income investors.

Historic Dividend Growth (LTC Properties Inc)

FFO Outlook

I estimated LTC Properties' FFO potential in 2022 to be between $2.40 and $2.50 per share, but given a YTD FFO total of $1.83 per share, I am leaning toward the lower end of this range.

With funds from operations of $2.40 per share, the trust has an FFO multiple of 15.2x, which is neither too high nor too low.

Given the strength of the yield, I believe LTC Properties is trading at or near fair value.

Why LTC Properties Could See A Lower Valuation (Risks)

LTC Properties experienced financial stress during the pandemic, as did many other healthcare-focused real estate investment trusts, but the real story for the trust and its investors is the long-term aging trend.

In the short term, LTC Properties may face financial difficulties with some of its operators, but the trust collected the vast majority of its rent (98%) in 3Q-22, and healthcare trusts can always restructure leases or transition properties if an operator falls behind on payments.

However, a significant decline in operator health could jeopardize the trust's ability to maintain adequate dividend coverage.

My Conclusion

LTC Properties is a well-managed, healthcare-focused real estate investment trust that pays a monthly dividend that was covered by funds from operations in the third quarter and the previous year.

LTC Properties benefits from irreversible aging trends in the United States, which creates a positive long-term outlook for facility utilization and revenue growth from operations.

The stock of LTC Properties trades at a reasonable FFO multiple, and I believe the trust's 6.2% dividend yield is sustainable as the sector recovers from the Covid-19 pandemic.

This article was written by

On the Pulse

8.13K Followers

A financial researcher and avid investor with a keen eye for innovation and disruption, as well as growth buy-outs and value stocks. Keeping an eye on the pace of high tech and early growth companies, I write about current events and the biggest news surrounding the industry, and strive to provide readers with ample research and investment opportunities.

Disclosure: I/we have a beneficial long position in the shares of LTC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.