LTC Properties Pivots to RIDEA, Seeing ‘Catalyst for Growth’ in 2025

LTC Properties (NYSE: LTC) CEO Wendy Simpson said she’s now a “new convert” of the RIDEA lease structure after years of being “anti-RIDEA,” with the real estate investment trust pivoting to conversions heading into 2025.

During a call with investors and analysts covering third-quarter results, Simpson and Co-President and Chief Investment Officer Clint Malin outlined plans for converting between $150 million and $200 million in leases with operators to RIDEA-structured arrangements by the second quarter of 2025.

“We believe the structure will act as a catalyst for growth in 2025,” Malin said during Tuesday’s call, with the company set to convert triple net leases as a gateway for LTC to “manage into RIDEA” due to existing asset management.

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LTC’s stock price rose 6.01% to rest at $38.08 per share on Tuesday.

In a note to investors, BMO Capital Markets analysts Juan Sanabria and John Kim highlighted LTC’s stable guidance and earnings exceeding analyst expectations with adjusted funds from operations per share of $0.68 as LTC reduced its net debt-to-EBITDA ratio by 60 basis points to improve to 4.7x.

That decrease in leverage positions LTC to pursue growth opportunities and maintain financial flexibility.

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LTC also raised approximately $63 million from at-the-market (ATM) offerings to raise capital to position the company “to be more offensive.”

LTC the latest REIT to embrace RIDEA

Malin noted that LTC’s operating partners find the RIDEA structure appealing, and multiple operating companies “are interested in growing on a RIDEA basis.”

“We do think there’s a lot of opportunity for us in that space,” Malin added.

The modern anatomy of RIDEA lease structures was born 17 years ago with the REIT Investment Diversification and Empowerment Act. In a nutshell, RIDEA contracts allow REITs to take a greater role in community operations and results instead of solely operators, typically with baked-in incentives for well-performing operators.

LTC is not the only REIT that has embraced RIDEA over the last decade. Others, including Welltower (NYSE: WELL), Ventas (NYSE: VTR) and National Health Investors (NYSE: NHI) have also looked to RIDEA to help grow senior housing operating portfolios.

LTC is poised to go beyond just making RIDEA conversions, with Malin adding that the REIT would explore “new investments outside of just converting.”

LTC Properties Co-President Pamela Kessler said the new effort could “grow to be a very significant part” of the REIT’s business going forward, noting the difficulty in penciling out triple net leases in senior housing.

“If you look at our peers, private equity and competition in our space, if you don’t have this platform, you’re excluding yourself from a lot of investment opportunities right off the bat, and that’s what we’ve experienced,” Kessler said during the Q&A.

LTC is currently weighing RIDEA conversions for operating partners that don’t have fixed rents or have a shorter duration of maturity in their existing agreements, Malin said. In 2024, Kessler noted that LTC had “cleared the deck” to create liquidity for investment opportunities.

With the projected $150 million to $200 million in RIDEA conversions, Malin added that investment would be spread across “multiple operators” before partnering with those operators for potential external growth in the future.

When asked about the resources needed to complete the conversions, Malin said LTC would be “actively evaluating” additional investments to allow for a smooth transition.

“It’s a little bit of everything, from the accounting side to the asset management side,” Malin said of what’s needed to ensure a smooth transition to RIDEA structures. “Given the visibility we already have into these assets, we’re able to manage without a lot more resources, and then we would look to scale as we turn more to an external growth story on RIDEA.”

Providing further clarity on the resources potentially needed to aid in the RIDEA transitions, Simpson said she “wouldn’t expect to see millions” spent on the buildout of the new platform.

Regarding future, external growth opportunities, Malin said LTC was “actively looking at opportunities now” with hope to provide additional details on the external growth pipeline during the REIT’s fourth-quarter earnings call.

‘All the elements in place’

During the third quarter of the year, LTC collected $4.1 million from former operators related to portfolio transitions from prior years and $98 million from loan repayments. The REIT also received net proceeds of nearly $63 million from equity sales, allowing the company to de-lever its balance sheet and capitalize on future investment opportunities.

With LTC owning many buildings in the Southeast, Malin noted that no material damages were sustained by LTC properties as a result of Hurricanes Helene and Milton, although one community remains vacant as water supply is restored to the property due to storm damage.

“The real story is the sacrifices made by many caregivers who valiantly showed up for work, even as their own homes were being damaged and destroyed,” Malin said.

After dealing with rent deferrals from ALG Senior in North Carolina, LTC reported that ALG made rent payments in October, and the same is expected in November, with ALG “engaged in pursuing financing” to exercise purchase options on the 11-community portfolio.

Across 17 communities and seven operators, LTC projects receiving all contractual interest due this year and in 2025. Revenue generated by lease-up communities in 2024 is expected to be approximately $3.6 million.

“We now have all of the elements in place to build a pipeline with the accretive transactions,” Malin said.

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