LTC Properties CEO: Labor Woes Are Preventing Occupancy Growth

Senior housing and care operators are “working constantly and creatively” to overcome staffing challenges, but workforce issues are constraining occupancy growth, according to Wendy Simpson, CEO of LTC Properties (NYSE: LTC).

“We’ve had some of our assisted living operators say they closed a floor and are not opening up the floor until they can get more labor,” Simpson said Friday on the Q3 2021 earnings call for the Westlake Village, California-based real estate investment trust (REIT).

Despite these labor headwinds, Simpson believes the industry is “firmly in the midst of a recovery” from the effects of Covid-19.

And, she is confident about the state of LTC’s business, with operator-related issues and transitions now largely complete. That includes the planned transition of 23 properties formerly operated by Senior Lifestyle Corp. New operators are in place at all those communities except one in New Jersey that is working through licensure issues.

LTC’s portfolio includes 177 properties, including 103 assisted living communities, across 27 states.

The REIT’s Q3 2021 adjusted funds from operations (AFFO) of $0.55 a share fell short of analyst expectations, but normalized AFFO beat analysts’ pre-earnings consensus. LTC shares were down 5.93% at the end of regular trading on Friday, at $31.86.

Labor struggles

LTC’s same-store assisted living occupancy — reported one quarter in arrears — declined from 76.7% to 74.4%.

Staffing challenges are contributing to the census trends, Simpson noted.

“Operators are turning away residents and patients due to the labor shortage and the resulting staffing challenges,” she said. “We have heard from several operators that if not for the current labor constraints, they could increase occupancy.”

In an effort to drive hiring and cut turnover, operators are increasing wages and offering sign-up and retention bonuses, she noted.

The labor crisis in senior living is part of a workforce crunch being felt across the economy, which is being driven by a variety of factors, most of them related in some way to the Covid-19 pandemic.

Simpson is optimistic that labor pressures could be eased somewhat as the start of in-person school now is freeing up some parents to reenter the workforce. And, she noted that enhanced unemployment benefits — enacted as a Covid-19 relief measure — have now ended. However, she believes that ongoing federal support, including certain tax credits, could continue to keep workforce participation below pre-pandemic levels.

There are certain geographic pockets that aren’t experiencing labor problems, and the problems are less dire in senior living than in skilled nursing, Simpson said. But still, she said, “I have not spoken to an operator yet that has not had trouble finding and retaining qualified employees.”

These labor issues are contributing to LTC’s ongoing rent deferrals and abatements. Rent collections decreased from 86.1% in Q2 2021 to 84.2% in Q3. Since the end of Q3, LTC provided $438,000 of deferrals and $240,000 in abatements for October, with further deferrals and abatements agreed to for November and December.

A peer REIT — Murfreesboro, Tennessee-based National Health Investors (NYSE: NHI) — also recently reported on rent deferrals related in part to labor cost pressures.

“Given labor cost pressures which negatively impacted NHI’s deferral trends, we don’t believe we can wave the all clear flag,” BMO Capital Markets analysts wrote in a note on the LTC earnings.

On the earnings call, Simpson said that LTC’s leadership is “fairly confident” that no further deferrals will be needed, noting that the “rent support we’ve been giving to the small subset of operators has been constant for the past three quarters,” and that some operators have been able to raise rental rates to help offset the labor cost increases.

Texas, where LTC owns 34 properties, recently passed a bill to provide financial support to help senior care communities with staffing. The bill includes $178.3 million in grants to assisted living communities and other care-based providers.

“We would love to see other states follow this example,” Simpson said.

Ready for external growth

In addition to nearly completing the Senior Lifestyle transitions, LTC also has resolved ongoing uncertainty related to a skilled nursing bankruptcy situation, transitioning 11 former Senior Care Centers properties to HMG Healthcare.

With these operator transitions complete, LTC is primed for external growth.

“We have a healthy pipeline that we’re hoping to execute on over the next 12 months,” Simpson said.

Getting an acquisition across the finish line is still challenging, with elongated sales cycles and LTC’s belief that “pricing for some properties does not accurately reflect what we believe is their actual value,” observed LTC Co-President and Chief Investment Officer Clint Malin.

In the meantime, LTC has been executing on structured financing deals. And, the REIT is hopeful about being able to complete other transactions in a near-term pipeline that is valued at more than $100 million.

“Our pipeline remains healthy, with a nice mix of opportunities, including for private pay and skilled nursing and with regional operating partners, both new to LTC and existing,” Malin said.

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