LTC Properties (NYSE: LTC) continues to reduce its exposure to skilled nursing in the year ahead, with one of its top 10 operators opting not to renew its lease, which is set to mature in January 2026.

Moreover, the REIT is actively negotiating offers to sell seven skilled nursing facilities from that operator, based on feedback the REIT is receiving from potential buyers.

The organization plans to fully replace the $8.3 million of annualized gap rent for this skilled portfolio by strategically redeploying capital received from the sales, at today’s available rates, LTC Co-CEO Clint Malin said during its fourth quarter earnings call on Tuesday.

The unnamed operator planning the SNF divestitures told LTC that it had decided to downsize the organization and exit certain states.

“This is a process we’ve gone through. It’s consistent with our historical recycling of capital on older skilled assets, and this is a strategic decision to recycle capital and sell into a strong market for private buyers of older assets,” Matlin said, adding that “credit enhancements will secure rent is paid through the maturity.”

LTC’s portfolio currently consists of 189 properties in 25 states, with 30 operating partners, 50% being seniors housing and 50% skilled nursing.

The timing of this sale and LTC’s interest in divesting skilled nursing assets “line up well,” Malin said. By the end of the year, Malin expects LTC will replace the income with something similar to its previous maturity with Brookdale Senior Living.

“With Brookdale, we demonstrated our ability to transition assets, whether through sales or releasing to go ahead and recover or, in the case of Brookdale, recover more income than under the existing Brookdale lease,” said Malin.

Skilled nursing operator Prestige received $4.26 million in retroactive Medicaid payments, which was used for a security deposit, BMO Capital Markets analysts said in a note. In addition, LTC received $4.96 million in cash interest from Prestige, with executives confident that Prestige will send contractual interest despite potential Medicaid cuts posing a risk, analysts said.

LTC agreed in April 2023 to defer $1.5 million in interest payments due on a loan secured by 15 facilities in Michigan. The state’s rebasing efforts were set to go into effect on Oct. 1, 2023.

Malin stepped into the co-CEO role along with Pam Kessler as of Dec. 31, with long-time CEO Wendy Simpson taking on the role of executive chairman for the REIT’s board of directors. The team said they plan to finalize the search for a new chief investment officer by 2Q.

Divestiture of the seven skilled nursing facilities is expected to complete in 4Q of this year.

“LTC is in one of the best positions for creative growth, and it has been for a while we have made tremendous progress in diversifying our portfolio, shoring up our balance sheet, and importantly, adding a new investment structure that should become a mainstay for growth,” Malin said.

During the fourth quarter, LTC Properties posted funds from operations (FFO) of 72 cents, beating analyst estimates by 6 cents. Normalized funds from operations per share missed estimates by 2 cents at 65 cents, while revenue of $52.58 million beat by $7.33 million.

“Disappointingly, LTC didn’t complete any new investments in 4Q,” BMO analysts said. “However, LTC raised a modest amount of equity to position itself to invest. With the decision to move into SHOP, LTC expects initial transactions in 2Q – a touch later than hoped.”

LTC’s total liquidity increased to $680 million in 4Q, with $9.4 million in cash and $281 million available on its line of credit.

LTC shares closed Tuesday at $34.60, down 27 cents, or less than 1%.