Proposed cuts to skilled nursing Medicare reimbursement add another layer of complexity for the skilled nursing industry as operators continue to face financial pressure. That holds true for one of the nation’s largest owners of skilled nursing facilities, LTC Properties (NYSE: LTC), as the company continues to deal with rent deferrals and abatements for its operating partners.

But with occupancy increasing in several markets and agency staff utilization dropping, LTC Properties CEO Wendy Simpson sees evidence of recovery and is “hopeful about turning the corner” on Covid.

“I believe we are steadily moving toward a pre-pandemic environment,” she said during the company’s Q1 2022 earnings call.

While Simpson hopes to see the Medicare decrease proposed by the Centers for Medicare & Medicaid Services (CMS) spread out over multiple years, she said that LTC’s skilled nursing tenants “weren’t presenting hair on fire situations.”

Revenue for the first quarter for LTC was approximately $40.8 million, compared to $39.4 million in the fourth quarter of 2021 – as it exceeded the consensus estimate by $3.7 million.

LTC continues to deal with troubled operators through rent deferrals and abatements, and those issues are expected to persist for at least the next six to 12 months, Stifel analysts wrote in a note issued Friday.

Similarly, BMO Capital Markets in its analyst note highlighted continued modest new deferrals, but noted that they appear to be trending downward.

“Despite fears, no new rent cuts or material new medium- to long-term deferrals were announced,” BMO analysts wrote in a Friday note. “It appears LTC has avoided the late-inning COVID pain that has bitten some of its peers.”

Rent deferrals continue

While LTC Properties continues to deal with the fallout from a few troubled operations, CIO Clint Malin remains encouraged that it’s only been “a handful” of operators among its overall portfolio.

First quarter rent collections improved to nearly 95% for the company with $720,000 abated and $1.3 million deferred for the quarter.

LTC reduced Anthem’s rent by $300,000 for May and June but expects occupancy to recover and anticipates receiving all of the company’s contracted rent for FY22.

Rental income for the company increased from $30 million in the fourth quarter of 2021 to $30.3 million in the first quarter, but was still down compared to $32 million in the first quarter of 2021. Though the company met the consensus estimate, LTC provided $376,000 of deferred rent and $240,000 of abated rent in April and has also agreed to provide rent abatements up to $240,000 for May and June.

Looking at the majority of the company’s same store SNF beds, average monthly occupancy rose to 73% in March – up from 72% In January and 70% in September. 

Becoming the flexible capital provider of choice

While national reforms and state initiatives have put the spotlight on private equity and REIT investment in the skilled nursing space, LTC Properties leaders said the company prides itself on being a flexible capital partner to clients in 2022.

“The pace of pipeline opportunities is robust and hasn’t slowed down since late last summer,” Malin said. “Our pipeline is currently valued at approximately $70 million and spans private pay and skilled nursing, is geographically diverse, and includes operating partners moved to LTC as well as existing partners.”

LTC has found success utilizing a variety of financing vehicles across its pipeline including joint ventures, mezzanines and mortgage loans as it remains an attractive option for SNF investors.

“We never take a one-size fits all approach,” Malin said. “We can offer specifically tailored financing structures based on operator needs, giving us a nimble competitive advantage.”

Some of the company’s recent transactions included the acquisition of four transitional care centers in Texas which will be operated by Ignite Medical Resorts in a $52 million deal. 

The properties encompass 339 beds and formerly were operated by Bridgemoor Transitional Care and held in a joint venture with Invesque (TSX: IVQ). Ignite CEO Tim Fields told SNN at the time of the deal that the buildings were very attractive because they were in a new state with great physical plants in major metro markets.

LTC also provided a $25 mezzanine loan secured by five communities providing a range of senior living services in Oregon and Montana.

Malin said that with the “incredible” amount of capital in the market right now, the $25 million mezzanine loan served as an example of the array of diversified products that LTC offers that are tailored to the needs of operators who otherwise might not think of a REIT for their financing needs.

“This investment allowed the partnership owning the portfolio to buy out an equity fund,” Malin added.

“I believe we have taken the steps necessary to position LTC as a capital partner of choice in today’s market,” Simpson added.

Malin said LTC’s ability to attract and close new opportunities is driven by its ability to find creative financing structures to bring new operating relationships into its portfolio and enhance current relationships.

LTC’s strategy when it comes to the SNF space is to acquire “newer assets”, which aligns with the Biden administration’s nursing home reform push that includes a provision related to private rooms.