LTC Properties is “very interested” in opportunities in independent living, the self-administered real estate investment trust’s chairwoman, CEO and president, Wendy Simpson, told participants in an earnings call on Thursday.
“At a recent industry conference, we met with operators and did quite a bit of listening. We heard that the need of independent living may be almost as demographically strong and feasible as the need for memory care was five years ago,” Simpson said. “LTC has not been a significant investor in this segment, but we are looking at opportunities in 2017.”
The REIT recently funded its first all-independent living building, a 108-unit community in Kansas that was opened by Oxford Senior Living in the fourth quarter of 2016, according Simpson and materials issued by LTC in advance of the call.
The company is “well-prepared” to take advantage of investment opportunities in 2017, Executive Vice President and Chief Financial Officer Pam Kessler said, with a total of more than $820 million available through its line of credit, its at-the-market program and a shelf agreement with Prudential Investment Management.
Simpson said that LTC probably will take a different approach than the one it has taken with memory care, “where we’re going to look for a new company to incubate and that sort of thing. I’d like to work with some of our current operators to see if we can add independent living components to assets that they are currently working with. We would look at doing independent acquisitions if they come across our desk.”
When it comes to financial arrangements, she added, LTC is willing to work with operators who have concerns about triple net leases.
“We heard that some operators do not like the triple net lease, primarily because they find it illogical to invest their money in capital improvements to buildings they do not actually own,” Simpson said. “The money they invest is actually equity money, because they cannot get bank loans to put a new roof on a building or build a new wing on a building they don’t own. We’ve always been, and remain willing, to work with operators to add additional accretive building capital to our properties. We will work with operators to craft these provisions that would provide for modified triple net leases where we would make additional capital available for a certain cost of capital.”
Some LTC competitors are doing triple net leases this year, Simpson said, and some LTC operators like triple net leases. They “look at the buildings as really their own buildings since they have them for almost the life of the building,” she said. “But if that were a stumbling block, we want operators to know that we’re willing to talk about those issues.”
LTC does not have plans to “join the RIDEA community,” she said, but the REIT is willing to look at lease structures that have consumer price index increases or percentage-of-revenue increases. “We have now been in this industry for 25 years and have seen funding sources come and go,” Simpson said. “We will remain in the senior housing sector when this cycle ends and when the next cycle begins.”
LTC invests in seniors housing and healthcare properties primarily through sale-leaseback transactions, mortgage financing and structured finance solutions including mezzanine lending. As of Dec. 31, the REIT had 219 investments in 30 states, including 112 assisted living communities, 92 skilled nursing centers, seven range-of-care communities (properties providing skilled nursing and any combination of independent living, assisted living or memory care services), one behavioral healthcare hospital, three parcels of land under development and four held-for-use parcels of land. LTC has 35 operating partners.
