LTC Properties (NYSE: LTC) is currently engaged in its most active year of investments in seven years, and leaders with the company are not done growing yet.
The company has invested over $170 million in 2022, representing the highest level of investment since 2015, executives from the Westlake, California-based real estate investment trust (REIT) noted during Friday’s third-quarter 2022 earnings call. And that will continue,even as some banks have cooled on further investment in the senior living sector due to rising interest rates.
“We believe that LTC’s investment activity will continue to ramp up as we become even more competitive, bringing flexible and creative financing to strong regional operators who are seeking growth capital at fair rates,” LTC Properties CEO and Chairman Wendy Simpson told investors during Friday’s call.
Simpson noted that while she has no special insight regarding the rumors or the eventual outcome, LTC is ready should Brookdale (NYSE: BKD) initiate a sale of the company, which would impact a number of properties currently in lease agreements with the operator.
“We’ve been putting capital into them, so it might be a little disruptive for us,” Simpson said in response to an analyst question on the impact of a Brookdale sale. “We are as prepared as we can be…we’re hoping that we don’t have to make a change, but we are prepared if we have to.”
She noted that the REIT has a lease with the Brentwood, Tennessee-based operator that provides for change of control provisions should the company not renew with LTC by the time its window expires at the end of next February.
“We are not sitting here waiting for them to toss us the jump ball, we’re doing strategic planning, what operators we would possibly bring in to look at the portfolio,” she added.
LTC has 176 properties in 27 states with 31 operating partners; half of which operate senior living communities, with the other half skilled nursing.
The company’s stock price fell to $39.18 per share, down 0.36% at market close.
Portfolio evolution continues
Simpson highlighted LTC’s $62 million investment with PruittHealth for a joint venture with three nursing homes in Florida, along with the company’s recent transition of a dozen senior living communities to operating partner ALG Senior.
Clint Malin, LTC’s chief investment officer and co-president, said the company was “currently determining” whether the company sells the communities or retains some or all of the portfolio with ALG.
Looking ahead to the fourth quarter of this year, management projected the company’s funds from operations (FFO) will increase between nine and 10 cents per share compared to 3Q2022. Of that, approximately $0.08 cents per share of the increase relates to the $2.4 million payment to Anthem Memory Care’s temporary rent reduction and a $1 million increase in rental rates from Texas-based HMG Healthcare.
Total revenue for HMG increased by $6 million compared to 3Q2021, with the growth attributable to a $2.3 million increase in rental revenue increases and the recently-acquired Texas properties, according to Chief Financial Officer Pam Kessler, among other factors like increased property tax income from completed projects.
Increases in revenue was offset by lower rent due to property sales made in the second quarter of this year, along with the temporary Anthem rate reduction and deferred rent. Interest expenses also increased $1.3 million from last year’s third quarter due to the origination of term loans in 4Q2021.
In the third quarter, LTC reported non-recurring FFO per share of $0.63 cents compared to $0.55 cents last year. That increase was caused by loan origination and the increase in rental revenue, Kessler reported.
Analysts at BMO Capital Markets and RBC Capital Markets both reported that LTC missed 3Q22 FFO guidance of $0.64 cents per share, investor notes shared with Senior Housing News show.
RBC Capital Markets Analyst Michael Carroll writes that LTC’s results were “largely in-line” with expectations, noting that the Anthem Memory Care deferral and others “pushed back the expected quarterly earning pop one quarter to 4Q22.”
“Our earnings outlook implies FFO will jump ~$0.08/share between 3Q22 and 4Q22, and our 4Q22 estimate is $0.02/share above consensus,” Carroll wrote.
Similar guidance was issued by BMO, with BMO Managing Director Juan Sanabria noting that results were “moderately missed” but in line with expectations.
“No new tenant issues or deferrals were reported – a positive amidst a choppy recovery,” Sanabria wrote. “Positively cash rents expected from the old Senior Care and Senior Lifestyle portfolios in ’22 were increased modestly ($165K).”
Kessler noted the company has $6.5 million cash on hand, with $249 million available in credit and an approximate liquidity of $416 million with no significant long term debt maturities over the next five years.
In terms of occupancy, LTC continues to report gains being made from last year. Its former Senior Lifestyle portfolio, which includes 18 communities, saw occupancy of 88% compared to 83% in March. For the six communities under two separate leases with quarterly market based rent resets, occupancy was 88% compared to 76% in March.
Private pay occupancy communities were at 81% in September compared to 77% in March.
Milan said LTC was “closely watching” pricing for sale and lease-back transactions, while noting that the company is prepared to find “strategic and creative deals” for future investment opportunities.
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