Coming off a quarter marked by significant investment, LTC Properties is still being challenged by operators facing reduced occupancy and higher costs — circumstances that have led to a major payment deferral for one skilled nursing partner.
Executives with the real estate investment trust on Friday outlined a plan to extend the deadline on $1.5 million in interest payments from Prestige Healthcare in Michigan, a state where providers are anxiously awaiting Medicaid rebasing this fall.
“It is no secret that our industry’s recovery from the pandemic has been choppy and in some cases, drawn out. And while certain operators have made progress on improving occupancy, increasing revenue and reducing cost, others remain challenged,” CEO and President Wendy Simpson (pictured) said during the company’s first-quarter earnings call. “LTC’s portfolio is not immune.”
Pam Kessler, LTC Properties’ co-president and chief financial officer, said the deferral is connected to payments due on a mortgage loan secured by 15 skilled nursing facilities. LTC will defer payments through September, capping the deferment at $300,000 monthly, or about 18% of what Prestige is obligated to pay.
“The deferral is to assist them financially until the Michigan medicaid rebasing and Medicare rate increases take effect on Oct. 1,” Kessler said. “We are working with Prestige to forecast how the anticipated rate increases will affect this portfolio’s future budgeted performance, in light of elevated costs and lower occupancy growth, to determine if additional financial assistance is warranted.”
Co-president and Chief Investment Officer Clint Malin said Michigan had not updated costs reports since 2019 and implemented 2.5% increases annually in 2021 and 2022. Providers are expecting a settlement to address previous years’ shortages, as well as a rate increase more in line with rising costs this October, Malin explained.
The patient approach to Prestige is in contrast to LTC Properties’ plans to shed half of its Brookdale Senior Living portfolio. Malin said the REIT is working with two intermediaries to decide which assets to sell, and which to transfer to other LTC Properties operators.
Malin projected the properties to be sold would likely be broken up by state.
Back on the skilled side, Malin said LTC continues to work with HMG Healthcare on its takeover of 11 Texas properties. The company expects $8 million in rent from the operator this year, though Malin noted the first quarter payment was about $250,000 shy of its required $2 million.
Late last year, the properties were reporting an overall occupancy of 57% occupancy. Texas lawmakers have yet to vote on a Medicaid increase this legislative session. Though a rate hike was widely anticipated there after several years’ drought, the session is now in its final month with no promising public developments.
But Malin said LTC Properties still expects HMG to come through, starting in the second quarter, with payments that make up the operator’s quarter one shortfall.
Across its SNF portfolio, Malin said LTC Properties’ operators reported occupancy of 73% as of March 31, up from 71% in January 2023 and September 2022.
The company also expects the recently proposed 2024 skilled nursing payment rate to boost margins in its SNF portfolio. But given the significant challenges of the last three years, Simpson said, “it’s likely not enough to result in a much faster recovery.”
Still, the company remains bullish on healthcare investments, with Simpson saying that “demographics are on our side as needs-based care continues to grow and the population continues to age.”
Malin noted another $100 million in deals in the LTC pipeline; if completed, those would bring the REIT’s investments close to $300 million for 2023. Malin characterized the potential deals as off-market negotiations with known partners and operators from the REIT’s private-pay side.
For more coverage of LTC Properties’ first-quarter 2023 earnings call, see sister media brand McKnight’s Senior Living.
