The third quarter was a productive one for LTC Properties as it worked through some previously identified challenges and made progress on its goals, according to Chairman and CEO Wendy Simpson.
Simpson said Friday that the Westlake Village, CA-based real estate investment trust’s long-term mandate remains to reduce the average age of the properties within its portfolio while creating additional operator diversity and maintaining a balance of private-pay properties and skilled nursing facilities that rely on government reimbursement.
“We’re going into the end of the year on a positive note, with most signs pointing to continued industry recovery,” Simpson said during a third-quarter earnings call. “Bank lending is in flux, maturities are coming due for operators at a brisk pace and interest rate increases are causing anxiety. We think this environment favors REITs — especially those like LTC who maintain a conservative investment strategy and provide customized solutions geared toward the needs of operators.”
Closing out the 2023 investment pipeline
During the third quarter, LTC Properties originated a $17 million mezzanine loan with an affiliate of Galerie Living to recapitalize an existing assisted living, memory care and independent living campus in Georgia as well as build 89 additional units.
The REIT also committed to fund a $19.5 million loan for the construction of an 85-unit assisted living and memory care community in Michigan, which Chief Investment Officer and Co-President Clint Malin said will complete the company’s last transaction in its 2023 investment pipeline.
“We are now in the planning stages of building new pipelines for 2024 and beyond but will remain a patient investor,” Malin said. “We are watching to see what happens with respect to pricing as current loans come due and owners don’t have the resources to refinance. We are hearing banks are becoming more selective about senior housing and skilled nursing investments, potentially leading to more opportunities for LTC.”
LTC Properties has originated nearly $270 million in transactions since the beginning of the year, generating more than $51 million in sales proceeds, Simpson said.
During the third quarter, the REIT collected 96.9% of contractual rent and mortgage interest income and deferred 1.4% of contractual rent and mortgage interest, according to a supplement report. The company also provided 1.7% of abated rent to an existing operator.
Occupancy in its private-pay senior living portfolio was 85% as of Sept. 30, compared with 82% as of June 30 and 81% as of March 31. Pre-pandemic 2019 occupancy for the portfolio was 87%.
Reducing its Brookdale concentration
As previously announced, Brookdale elected not to exercise its renewal option on 35 assisted living communities on a master lease that matures on Dec. 31. LTC Properties re-leased 10 of the 35 properties — six in Colorado and four in Kansas — back to Brookdale under a new six-year master lease beginning Jan. 1, Malin said.
After the quarter ended, the REIT amended the new Brookdale master lease to add seven additional properties in Ohio and Texas. As a result, Brookdale will operate 17 properties for LTC Properties under the new master lease agreement.
For the remaining 18 properties, Malin said, LTC Properties plans to sell seven communities in Florida and South Carolina and lease out the other 11 properties. Six of those 11 properties are in Oklahoma and will be operated by an operator that LTC already has a relationship with, and the REIT is finalizing a new lease for the remaining five properties in North Carolina.
Through this process, Malin said, LTC Properties is selling older buildings, reducing the number of buildings operated by Brookdale in its portfolio by 50% and reducing its rental exposure with Brookdale by 40%.
Industry trends
Recent industry reports show occupancy gains, with an expected return to pre-pandemic occupancy levels in senior living and skilled nursing by the end of 2024. Simpson said she agrees with reports that the industry is making progress toward that goal with staffing agency use trending down and the labor market strengthening. Those factors, she said, put operators in a better position to begin improving margins.
But she said she is aware that operators will continue to face challenges in the form of inflation, insurance premiums, litigation and the federally proposed staffing minimum for nursing homes.
“As we enter the last quarter of 2023 and move into 2024, focus remains on needs-based care coupled with strong demographic demand, positioning us for future growth,” Simpson said.
