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Market conditions are currently favorable for REITs, and LTC Properties (NYSE: LTC) management feels “very bullish” about its investment prospects this year.
LTC executives expressed optimism about the sector’s growth prospects, citing strong market fundamentals and growing demand for senior housing. Specifically, with the debt maturity wall looming in 2024, banks see increased lending selection as a competitive advantage.
That’s why the Westlake Village, Calif.-based real estate investment trust (REIT) is focused on providing customized financing solutions for operators, according to Clint Mullin, LTC’s chief investment officer. The company expects sustainable growth beyond 2024.
“For us, we’ll be looking at a little bit of everything: loans, mezzanine, preferred stock, joint ventures, acquisitions, triple net,” Marin said on Friday’s fourth-quarter earnings call. “I think we’ll be looking at and considering a number of opportunities.”
LTC CEO Wendy Simpson said the company made total investments of $262 million and generated sales revenue of $77 million during the previous year. Mr. Simpson praised the LTC team’s efforts in successfully navigating the portfolio transition and reducing leverage ahead of public expectations.
“From an operational perspective, we have successfully transitioned the Brookdale portfolio and are expected to generate $500,000 more in revenue than we received from the original lease,” she said. “We will receive full contractual interest payments from Prestige Healthcare in 2023 and expect full contractual payments through at least 2025.”
Brookdale will now operate 17 properties under a new master lease with initial rent of $9.3 million and capital investment of $7.2 million funded by LTC.
Regarding the outlook for the market as a whole, Mr. Simpson expressed cautious expectations.
“We’re not in the prediction game, but we’re encouraged by what we’re seeing,” Simpson said, adding that market fundamentals now point to a multibillion-dollar funding maturity. He noted that interest rates are fluid in favor of REITs.
Stifel analysts expressed a similar view.
“Metrics continue to improve, indicating that the operating environment for both AL and SNF is improving,” they wrote.
Pam Kessler, co-president and CFO of LTC, reviewed fourth quarter financial metrics and reported a $2.2 million decrease in gross rental revenue, primarily due to portfolio transitions. However, interest income from sale-leaseback financing and mortgage loans has increased significantly, contributing to overall income available to public shareholders, he said.
“By significantly reducing our leverage, LTC will be better positioned for growth in 2024 and in the future,” she said.
Skilled Nurse Portfolio Update
LTC Co-President and Chief Investment Officer Clint Mullin provided an update on tenant Prestige Healthcare and the 15 skilled nursing facilities LTC partners with in Michigan.
He noted that on Jan. 1, LTC modified mortgages secured by 15 skilled nursing centers in Michigan. The minimum interest payment on LTC’s mortgage loans is currently based on a current payment rate of 8.5 percent per annum on the $183 million loan balance.
Previously, the real estate investment trust (REIT) notified shareholders that it would defer $900,000 in third-quarter interest payments to tenants. LTC and Prestige have reached an agreement to defer payments of up to $1.5 million, or up to $300,000 per month, from May to September.
Mr Marin said the new amendments will also allow LTCs to use prestige guarantees to cover the difference between the contractual rate and the current salary rate. LTC received all contractual interest in 2023, including $3.4 million drawn on the collateral, and holds $4 million worth of collateral, with more in late 2024 due to retroactive Medicaid payments. payment is expected.
He also noted that Prestige’s occupancy rate increased from 73% in September to 75% in January.
For LTC’s skilled nursing portfolio, Marin said the recent 4% increase in the Medicare Market Basket rate improved EBIT coverage excluding stimulus funds by 1.24x, resulting in a monthly average increase for the skilled nursing portfolio in January. He said the occupancy rate was 76%.
Marin did not comment specifically on investments in skilled nurses, but said LTC is well positioned to grow and diversify its portfolio in 2024.
“In terms of the current market and how we think about the potential opportunities, bank maturities this year will probably be in the billions of dollars,” he said. “Banks are often selective and only work with existing customers who are willing and able to build higher reserves.”
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