This article is sponsored by LTC. In this Voices interview, Skilled Nursing News sits down with LTC Chief Investment Officer — and new co-president — Clint Malin to learn about how LTC became a unique real estate investment trust (REIT) in skilled nursing, why the REIT is focused on shorter duration investments right now and why determining what “normal” looks like during the COVID-19 pandemic will be the biggest challenge for the skilled industry moving forward.
Skilled Nursing News: Let’s start at the beginning. Give us your background, and your journey that led you to LTC.
Clint Malin: My journey to LTC was one of happenstance. My background is in public accounting. I initially started with KPMG out of college and then relocated and transitioned to Arthur Andersen in 1996, where I was introduced to the seniors housing and care industry. I was new to the office and assigned to an engagement that was complicated and challenging, one that maybe other people in the office didn’t want to be involved in: a publicly held skilled nursing operator back in the days of cost-based reimbursement.
I spent one year auditing Sun Healthcare Group, and then I was hired to join their acquisitions team. About two years after joining Sun, Medicare transitioned from cost-based reimbursement to the Prospective Payment System (PPS). Unlike what just happened on a smooth transition to PDPM (Patient-Driven Payment Model), that transition to PPS caused a lot of disruption in the industry. At that point, Sun, along with many other operators in the space, filed for Chapter 11 bankruptcy protection and people started leaving the company.
I seized the opportunity to take on more responsibilities. I spent four to five years participating in a restructuring initiative at Sun, which included selling assets as well as negotiating lease terminations and restructurings with various health care REITs. Prior to Sun’s bankruptcy, it operated approximately 450 buildings domestically. When we finished the restructuring, the portfolio shrank to approximately 110 buildings.
That experience gave me the opportunity to engage and build relationships with several REIT management teams. I was fortunate to receive job offers from a couple of health care REITs. I chose LTC because of the people and the size of the organization. It was an opportunity to really take the experience that I had gained from acquisitions and lease restructurings in skilled nursing over to the real estate side with a health care REIT.
That’s great. Tell me about LTC’s background.
LTC went public in 1992, really focused on providing mortgage financing on just the skilled nursing side of the business. During the mid-’90s, LTC saw an opportunity for growth in assisted living. We provided development financing for a couple of operators during that uptick in construction on the assisted living side.
Things changed in the early 2000s. Skilled nursing reimbursement changes, coupled with oversupply in assisted living, created pressure. LTC spent the next few years doing workouts, selling older non-strategic assets and focusing on de-leveraging the balance sheet and driving down its cost of capital.
We’ve completed approximately $1.5 billion of investments since the end of 2009. We’ve been active on the development side over the past years, investing approximately $350 million in development projects consisting primarily of seniors housing, but including some skilled nursing centers. Additionally, we’ve been active in recycling capital by selling older, less strategic assets and investing in newer properties, including the acquisition of a number of newer skilled nursing centers.
Right now, we’re a $2 billion health care REIT, focused on needs-driven seniors housing and skilled nursing. We have 180 properties — with about 50-50 percent split between private pay and skilled nursing investments — in 27 states with 29 different operators.
Through our development, recycling of capital and focus on investing in new assets, the average age of our portfolio for seniors housing is 12 years, and skilled nursing is 22 years.
In May, you became co-president of LTC, alongside CFO Pam Kessler. What are your areas of focus, and how do you see your role evolving?
Given Pam’s and my tenure and the nature of a small organization, we’ve been taking on more day-to-day responsibility and activities of running a multi-billion dollar company. Our collective engagement in leadership has been evolving over the years and will continue to evolve as we grow the company. We have been executing in our roles for a long time, and focused on working together to continue to evolve and develop talent and bench strength within the company. Wendy [CEO Wendy Simpson] remains very active from both a strategic and leadership role.
For me specifically, I’ll become more involved on the investor side of the company. I’m currently involved in a number of the investor meetings throughout the year, but more of my time will be spent with Pam engaging with investors and analysts.
How do you plan to lead the company across the next decade?
Our plan is to continue LTC’s legacy as a long-term capital provider in seniors housing and care. We focus on regional-based operating companies, and continuously strive to be responsive to needs of operating partners. We provide a multitude of financing solutions outside of permanent financing in a triple-net lease structure. We’re always looking for that next opportunity going forward.
We’re going to continue to look at diversifying our operator base, and diversifying our geographic footprint as well as the different investments that we make, whether it be triple net leases, real estate joint ventures or structured finance products. We really like the idea of a balanced portfolio between private pay and skilled nursing. That’s a continual focus, complemented by stabilized acquisitions, lease-up and development opportunities.
Regarding business philosophy, how do you approach partnerships and deals? I mean you, specifically.
How do I approach partnerships and deals? It’s a very good question. I would say that one thing that I learned early on in my career with Sun Healthcare, which involved challenging workouts and restructurings, was don’t try to overreach in your position — look for win-win situations. I believe that approach is what launched my transition to and career in the health care REIT space by building relationships of mutual trust and respect. LTC’s growth strategy is focused on partnering with regional-based operating companies, and to me, creating win-win situations is the key that drives new opportunities.
How is LTC different from other REITs?
We are highly creative in sourcing different types of investments and partners. Our business development team is constantly working to identify the strongest regional operators out there and then engaging in a dialogue to determine their needs to then offer an array of solutions. This includes anything from real estate joint ventures, development financing, to some type of structured finance product, or a sale leaseback opportunity as permanent financing to avoid future recap risk.
One differentiating factor for us is providing a broad array of products. Because we’re probably one of the smallest healthcare REITs, we use that to our advantage because we can drive earnings accretion through one-off deals, which we think offers lower risk and better pricing. Those two benefits, as well as not having significant operator concentration risk, allows us to keep diversification among operators.
How has LTC adjusted its normal course of business due to COVID-19?
We are a dedicated, long-term capital provider in this industry. Today’s challenge of uncertainty surrounding cap rates, cost of capital, operating margins, occupancy, labor costs and the duration of the pandemic has us doing things differently.
We are looking at shorter duration investments, more along the lines of structured finance products, whether it be preferred equity, mezzanine, construction lending or unique opportunities with operators who want to partner. We think these types of investments offer better risk-adjusted returns in today’s environment while we wait to get a better sense of long-term pricing.
What is the top financing challenge facing skilled nursing today, and what are your expectations moving forward?
For skilled nursing, I think the biggest challenge is getting a sense of where occupancy is normalized through the pandemic. So far, skilled has fared far better than private pay given the financial support provided by the government. A lot of the challenges for financing is just getting a sense of what the new normal is, and what operating margins are going to look like long-term.
Editor’s note: This interview has been edited for length and clarity.
LTC is a health care REIT investing in seniors housing and health care real estate. To learn more about why LTC might be right for you, visit LTCREIT.com.
The Voices Series is a sponsored content program featuring leading executives discussing trends, topics and more shaping their industry in a question-and-answer format. For more information on Voices, please contact [email protected].
