Leaders with LTC Properties (NYSE: LTC) said the real estate investment trust (REIT) has made significant investments so far this year and currently has a pipeline of an additional $100 million in intended investments that are skewed toward private pay assets. This, despite higher interest rates and economic challenges impacting the sector, company executives said Friday.
The company also agreed to defer $1.5 million in interest payments due on a mortgage loan secured by 15 skilled nursing centers located in Michigan, which are operated by Prestige Health Care.
“We are working with Prestige to forecast how the anticipated rate increases will affect this portfolio’s future budgeted performance in light of elevated cost and lower occupancy growth to determine if additional financial assistance is warranted,” LTC CEO Wendy Simpson said during the company’s Q1 2023 earnings call.
The deferral is to assist Prestige financially until the Michigan Medicaid Rebasing and Medicare rate increases take effect on October 1.
LTC sold two skilled nursing centers located in New Mexico with a total of 235 beds for $21.3 million and recorded a gain on sale of $15.3 million.
For the Westlake Village-Calif.-based REIT, revenue came in stronger-than-expected for the first quarter as rental income climbed from a year ago, as did interest income from mortgage loans and financing receivables.
LTC’s total revenue increased by $8.7 million from last year’s first quarter, which CEO Wendy Simpson said was primarily related to higher rents from transition portfolios and rent received from the 2022 acquisition of four properties in Texas.
“It is no secret that our industry’s recovery from the pandemic has been choppy and in some cases drawn out,” Simpson said. “While certain operators have made progress on improving occupancy, increasing revenue and reducing costs, others remain challenged. LTCs portfolio is not immune.”
Simpson noted that bank lending and interest rates and current turmoil in the market has resulted in unanticipated volatility that has impacted investors’ ability to finance new investments.
“We continue to believe that LTC is a solid capital partner, but being mindful of this turbulence we are being even more selective with respect to new investments, and will continue to be judicious capital allocators,” Simpson said.
The company’s first quarter revenue of $49.5 million surpassed analysts’ consensus estimate of $43.9 million and increased from $40.8M a year ago and $47.8M in the fourth quarter of 2022, the company said in a press release.
However, FFO per share of $0.66 missed analysts’ expectations of $0.69, and the number fell from $0.72 in Q4 of 2022, but rose from $0.60 in Q1 of 2022.
Occupancy for skilled nursing
For the skilled nursing portfolio, average monthly occupancy was 73% in March compared to 71% in both January of this year in September 2022.
“For comparative purposes, our private-pay occupancy in 2019 pre-pandemic was approximately 87% and our average skilled nursing occupancy was approximately 80%,” Chief Investment Officer Clint Malin said during the call.
Analysts at Stifel said the REIT is successfully addressing tenant issues caused by the difficult operating environment, but they believe there could be more over the next 6 to 12 months.
“This is likely to lead to additional near-term earnings volatility,” analysts wrote, although they do expect earnings growth over the next two years. But they cautioned that “ solid growth is partly due to our assumptions about decreasing deferrals over the next year.”
They also noted that the strong balance sheet is allowing LTC to capitalize on opportunities that could offset any further tenant issues.
Executives also noted that they were happy to see the proposed CMS rule for fiscal 2024, which included a net market basket increase of 3.7% for SNFsbeginning October 1, 2023.
“At the same time, given the substantial challenges the skilled sector has been navigating through for more than three years, it’s likely not enough to result in a much faster recovery,” they said.
Diversification and sales
The company is also diversifying its portfolio through the transition and possible sale of some of the properties in its Brookdale Senior Living (NYSE: BKD) portfolio, following Brookdale’s election not to exercise its lease renewal option.
“Our current plan includes selling about 50% of the properties while releasing the other 50%. We have engaged third parties to help run the process, and they are now underway,” CIO Malin said during the call. “Although transitioning 35 properties can be challenging, we believe we have the experience necessary to complete the transition in a timely fashion and welcome the opportunity to reduce operator concentration.”
Brookdale is contractually obligated to pay rent on the portfolio of 35 assisted living communities across eight states through the end of the lease term on December 31, 2023.
Companies featured in this article:
