LTC Properties has sunk $170 million into new deals so far this year, making 2022 the real estate investment trust’s most active year since 2015, leaders said on an earning calls Friday.
The biggest third-quarter move was a $62 million, off-market joint venture with PruittHealth in northern Florida. The Sept. 12 deal included three skilled nursing centers and made LTC Properties the majority owner. The three centers were constructed between 2018 and 2021, with a combined 299 licensed beds, primarily in private rooms, said Clint Malin, LTC Properties co-president and chief investment officer.
“The Pruitt investment not only adds newer skilled nursing centers to our portfolio, helping lower the portfolio’s average age, but also adds a formidable operator with more than five decades of experience and a substantial footprint in the Southeastern United States,” Malin said. “We were able to utilize a creative financing package that worked well for PruittHealth and that makes good strategic and financial sense for LTC and our stakeholders. Pruitt is just the kind of operator with whom we like to grow.”
Showing her continued bullishness on the sector, LTC Properties Chairman and CEO Wendy Simpson said her team was working to “aggressively identify additional opportunities to fill the financing void that has been created as banks take a wait-and-see approach to investments in our sector.”
“We believe we are well positioned to weather the current environment,” she said. “We truly believe that our intractable and, some might say, boring conservatism does prove that LTC is a good investment now and in the future. I am a strong believer that needs-based care is and will remain a vital part of our society.”
Simpson said emergence from pandemic conditions to pre-pandemic levels of occupancy and staffing agency use is ongoing.
“Anecdotally, our operators are reporting lower utilization of staffing agencies, allowing them to increase salaries in certain cases, making jobs in the sector more attractive,” she said. “With inflation and labor challenges, our crystal ball is a bit murky, so we can’t predict when or if net operating income and margins will return to pre-pandemic levels for our industry.”
LTC Properties’ skilled portfolio showed an average monthly occupancy of 74% in September, up from 73% in June and 72% in March. In 2019, the LTC Properties average skilled nursing occupancy was 80%.
Hope for Texas rate boost
As a microcosm of the LTC Properties portfolio battle with pandemic effects, Malin gave an update on 11 Texas properties operated by HMG Healthcare, which took over the locations in September of 2021. The locations are at 57% occupancy overall, Malin said, and LTC Properties continues to help with capital expenditures.
“There was a heavy lift coming in,” said Malin. “It was in the middle of the surge. HMG had to come in, change the culture of the buildings, work on stabilizing staffing, and there was a huge uptick in agency utilization that happened early on in 2022. They’ve been working hard on entering into new managed care contracts to be able to build up census.
“But we think with what HMG has been doing from culture, stabilization of staffing, new managed care contracts, CapEx we’re putting into the buildings, that hopefully that positions the buildings to be able to continue increasing occupancy. And then also, there’s the potential for a Texas (Medicaid) increase rate as well.”
The anticipated rate increase would be the first in 10 years for the state where LTC Properties has its biggest footprint.
“When you look at that historically, plus all the inflationary pressures that are being experienced from a staffing standpoint, I think that puts more pressure on the state to look at a rate increase,” Malin said.
But Simpson said the company is also keeping a close eye on health and operational concerns as winter nears.
“We’re not calling the end of the pandemic,” she said. “If we get COVID, RSV and the flu, all at once, what’s that going to do to our industry and admissions bans? We’re hoping that those won’t be instituted again because those were very harmful for both assisted living and skilled nursing. But if occupancy does not continue to increase or it decreases because of a surge in the fall, margins that could delay the margin recovery.”
For additional coverage of the earnings call, see McKnight’s Senior Living and the McKnight’s Business Daily.
