LTC Properties’ conservative investment approach paid off in the third quarter as the company’s top executive said the real estate investment trust’s skilled nursing occupancy resumed its upward crawl and overall market indicators continued to improve.
Average monthly occupancy among skilled nursing properties in the company’s portfolio was 73% in September, compared to 72% in June, and 73% in March, said Clint Malin, co-president and chief investment officer, on Friday. By comparison, it was 71% in September 2022.
The REIT’s average skilled nursing occupancy in 2019, before the pandemic hit, was approximately 80%.
“Recent industry reports have … shown that current indicators point to a return to pre-pandemic occupancy levels by the end of 2024,” explained LTC Properties Chairman and CEO Wendy Simpson (pictured) during the company’s third-quarter earnings conference call Friday.
“While we cannot predict specific timing, we agree that the industry is making progress towards that goal,” she added. “Additionally, [temporary employment] agency usage is trending down in certain cases and the labor market is strengthening for operators in many areas.”
She tempered those comments by acknowledging that operators can still expect “some challenges” connected to “inflation, insurance premiums, litigation and SNF minimum staffing requirements, which pending the release of the final rule, will take several years to implement.”
Other positive market influences, she said, include the higher-than-originally-anticipated net 4% Medicare pay hike that kicked in on Oct. 1 and Medicaid increases at the state level that are putting some skilled nursing operators in a better position “to begin the improving margins.”
Simpson noted the company has been studiously working to reduce the average age of the properties in its portfolio while creating operator diversity and maintaining a balance of private pay and skilled nursing. Private pay occupancy also has continued to increase, rising to 85% in September, notably higher than the 82% and 81% rates registered at the end of the previous two quarters. The current rate sits within grasping range of the 2019 pre-pandemic rate of 87%.
Reasons for optimism
Overall, Simpson expressed an upbeat outlook.
“Bank lending is in flux, maturities are coming due for operators at a brisk pace and interest rate increases are causing anxiety,” she explained. “We think this environment favors REITs, especially those like LTC who maintain a conservative investment strategy and provide customized solutions geared toward the needs of operators.”
“We remain a patient investor,” added Malin, referring to LTC’s merger and acquisition strategy. “We are watching to see what happens with respect to pricing as current loans come due and owners don’t have the resources to refinance. Broadly speaking, we are hearing that banks are being more selective about seniors housing and skilled nursing investments potentially leading to more opportunities for LTC.”
He explained that goals for its Prestige Healthcare properties, a Michigan-based skilled-nursing heavy portion of the portfolio, remain on track. LTC Properties deferred $900,000 in interest payments owed by Prestige during the third quarter.
“The real story for Prestige is building back census and improving operations,” Malin said. “We’ve afforded them the ability to have a lower current pay while they’re doing that. And in addition to our participation in the retroactive Medicaid payments in exchange for implementing the current rate, LTC will be participating in 50% of the excess cash flow beginning January 1, 2025.”
He said any of that will be added into the letter of credit to provide “more security” and that it would be used to pay down accrued interest.
“We’re giving them a 2.5-year runway to make improvement in operations and improve margins,” he explained. “We fully expect to receive the contractual interest payment, not only in ’23, but in ’24 [and] 2025 as well.”
In other skilled nursing related-news, Pam Kessler, the company’s co-president and chief financial officer, said it expects to receive $30 million in the first quarter of 2024 connected to the payoff of a mortgage loan secured by a 189-bed skilled nursing facility in Louisiana.
More highlights and figures about LTC Properties’ third quarter can be found in this information sheet.
McKnight’s Senior Living’s coverage of the earning call also is available.
