LTC Properties (NYSE: LTC) management expects the company’s operating partners will make progress on occupancy and expenses in 2023, but the rate of recovery in the year ahead remains uncertain.
Part of the reason why is that occupancy increases coming out of the pandemic “have not been linear,” LTC Properties Chairman and CEO Wendy Simpson said on the company’s Q4 earnings call.
Occupancy growth has been sporadic for the company’s operating partners, and a myriad of factors, from staffing shortages to seasonality, have impacted that trend.
“I think we should expect to see it continue to be a bumpy road. I don’t think it’s going to be a straight shot upward,” Simpson said.
Still, Simpson said there is progress being made in the company’s senior housing portfolio. She added: “What we are certain of is that LTC is well-positioned to not only withstand any remaining challenges but to continue our strategic and judicious growth.”
Despite seeing some progress among operating partners, LTC management stopped short of offering guidance for 2023, citing the uncertainty ahead.
LTC’s total property portfolio comprises 216 communities – 137 of which are assisted living and 78 of which are skilled nursing assets. In all, the company owns 152 of the properties in the portfolio while an additional 42 are mortgage loans.
LTC reported $47.8 million in revenue in 4Q2022, an increase of more than $8 million from the same period last year, aided by a $4.7 million increase in rental revenue in 2022.
LTC stock closed at $37.66 per share, up 2.67% on the day.
Appetite for growth in 2023
Despite the long road to recovering occupancy lost during the pandemic, LTC’s appetite for growth remains strong. Last year, the Westlake, California-based real estate investment trust (REIT) invested more than $170 million in its portfolio, representing the company’s most active year for investments since 2015.
That momentum has carried over into the new year, according to Simpson.
In the next few days, LTC plans to close on a $51 million joint venture in Georgia with an existing LTC partner, according to Co-President and Chief Investment Officer Clint Malin.
The investment in Georgia comes about two months after the company started the new year by closing a $128 million JV for 11 assisted living and memory care communities in North Carolina with ALG Senior, an affiliation of an LTC partner.
The 11-property JV announced in January gives ALG Senior the option to buy as much as half of the properties at the beginning of the lease’s third year and the entire portfolio at the beginning of the fourth year.
“Access to capital has gotten tired from traditional sources, making flexible creative REITs like LTC more competitive in the marketplace,” Simpson said.
Those JVs are part of LTC’s larger investment pipeline for 2023, which Malin estimated at $150 million dollar, most of which will be off-market.
“After closing this investment, we will have eclipsed last year’s investment total early in 2023,” Malin said in the company’s fourth-quarter earnings call. For LTC, the ability to grow aggressively in 2023 hinges on strong relationships with lenders and operators.
Banks have been tightening their belts for months as interest rate hikes impact their balance sheets. But LTC believes it has financing structures and relationships that will lead to deals getting done.
And while LTC would prefer to own their communities, making deals with operator purchase options is something the company will consider, especially if it opens the door to a new operator relationship.
One important operator relationship for LTC – Brookdale Senior Living (NYSE: BKD) – represents 75% of GAAP income for 2023. And the lease is up for renewal.
“We continuously have negotiations with Brookdale,” Malin said.
LTC last year provided the nation’s largest senior living operator with $4 million for capital improvements, $3 million of which has already been put to use.
“We’re encouraged to see continued capital improvement in the Brookdale portfolio. Their window remains open and they have until the end of the month to exercise that renewal, which they have the unilateral right to exercise.”
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