Despite labor shortage strains causing some LTC Properties (NYSE: LTC) tenants to continue requests for incremental rent deferrals and abatements, the real estate investment trust (REIT) says it’s “fairly confident” in occupancy recovery and reduced need for rent deferrals in the new year.
“The rent support we’ve been giving to this small subset of operators has been constant for the past three quarters, and although there are labor pressures, some operators are able to pass rent increases that are helping that, the government has given more support,” said Pam Kessler, LTC CFO, during the company’s third quarter earnings call.
Wendy Simpson, CEO of LTC, said the REIT has not received any new “substantial” requests for rent deferrals or abatement; she expects LTC will continue to provide some amount of rent relief as occupancy gains stabilize.
About 16% of the Westlake Village, Calif.-based REIT total rent falls under abated, deferred or delinquent, and abatement for some tenants will continue into the fourth quarter. The REIT missed analyst expectations for its funds from operations (FFO) per share by 11 cents for the third quarter ending Sept. 30, coming in at 45 cents.
During the third quarter last year, FFO per share was 58 cents.
Skilled nursing occupancy increased to 71% in September, LTC Co-President and Chief Investment Officer Clint Malin said during the call, from 69% in March, effectively demonstrating the change from 2Q to 3Q. In its third quarter presentation deck, LTC occupancy shows a decrease from the first quarter to the second quarter this year: 72.4% to 71.3%.
When asked if labor cost lines are different in skilled nursing compared to senior and assisted living operators, Malin said financial support from states like Texas and Michigan have helped SNF operators scale reimbursement and add bonuses.
Malin refers to Senate Bill 8 in Texas, which was passed earlier this month to provide $200 million in grants for nursing homes via the American Rescue Plan Act (ARPA) to recruit and retain staff.
“COVID is definitely a second item in line on issues being discussed,” added Malin during LTC’s earnings call.
Michigan passed a similar law in July, providing two-thirds of $385 million in funding to nursing homes and hospitals.
“Salaries haven’t gone up for many years. This is a catch up that’s causing us a whiplash, but it will flow through the system,” said Simpson..
The REIT has 73 SNF properties in its portfolio, compared to 103 assisted living facilities and one classified as “other.” Close to 60% of its SNF properties make up LTC’s revenues, with nearly 40% falling to assisted living. LTC works with 33 operators in 27 states across the care continuum.
Simpson confirmed that more SNF operators compared to seniors housing are saying they’re having to turn away referrals based on labor shortages.
LTC received lower rental income due to unpaid lease obligations from Senior Care Centers and its parent company, Abri Health Services — non-payment of rent, abated and deferred rent, and the sale of a skilled nursing facility in Washington were partially offset by a $5.5 million write-off of straight-line rent receivable balances in 2020’s third quarter, re-leasing 18 former Senior Lifestyle properties at higher rates, and rental income from completed development projects, LTC said.
LTC entered into a settlement agreement with Senior Care and Abri Health, approved by U.S. Bankruptcy Court with a $3.25 million settlement from LTC to the operator to transition 11 of its skilled nursing facilities to HMG Healthcare; payment and transition occurred after Sept. 30, LTC said.
LTC also transitioned six assisted living communities previously operated by Senior Lifestyle, one in Wisconsin, two in Pennsylvania and three in Nebraska.
LTC Properties operators are turning away residents and patients due to the labor shortage and resulting staffing challenges: “We have heard from several operators that if not for the current labor constraints, they could increase occupancy,” said Simpson.
Skilled nursing transactions during the third financial quarter consisted of a $1.8 million mortgage loan to secure a parcel of land to build a post-acute skilled nursing center in Missouri. Once built, the facility will be operated by an affiliate of Ignite Medical Resorts.
LTC sold a Washington SNF for $7.7 million during the quarter as well, receiving $7.1 million in proceeds and a recognized gain on sale of $2.6 million.
Transactions that will fall under the fourth financial quarter include a $27 million mortgage loan for a skilled nursing center in Louisiana, operated by a provider new to LTC.
“We remain focused on shorter term cash flows, strategic deals, that have what we believe to be reduced risk profiles and look forward to announcing additional investments over the next several months,” Simpson added during the earnings call. “We have ample access to liquidity to act on these opportunities.”
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