Q3 2023 LTC Properties Inc Earnings Call
Greetings and welcome to the LTC properties, Inc. Third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker 1: Greetings. Welcome to the LTC Properties, Inc. 3rd Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 1: Before management begins its presentation, please know that today's comments, including the question and answer session, may include forward looking...
Before management begins its presentation. Please know that today's comments, including the question and answer session may include forward looking statements subject to risks and uncertainties that may cause actual results and events to differ materially.
Speaker 1: subject to risks and uncertainties that may cause actual results and events to differ material.
Speaker 1: These risks and uncertainties are detailed in LTC properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10K, dated December 31st, 2021.
These risks and uncertainties are detailed in LTC properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated December 31st 2022.
Speaker 1: LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note this event is not a
L. T C undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the date of this presentation.
Please note. This event is being recorded I would now like to turn the conference over to Wendy Simpson.
Speaker 2: Thank you, operator, and welcome everyone to LTC's 2023 third quarter conference call. I am joined today by Pam Kessler, co-president and chief financial officer, and Clint Maillan, co-president and chief investment officer.
Thank you operator, and welcome everyone to Ltc's 2043 third quarter conference call I'm joined today by Pam Kessler, <unk>, President and Chief Financial Officer.
Maybe one co president and Chief investment Officer.
Speaker 2: On our last call, I spoke about LTC's primary mission of focus for the remainder of 2023. As a result of that strategy, we have made progress towards those identified goals, including very positive results regarding the Brookdale and prestige portfolios.
On our last call I spoke about Ltc's primary mission of focus for the remainder of 2023.
And as a result of that strategy, we have made progress towards those identified pools, including very positive results regarding to brookdale and prestige portfolios.
Speaker 2: We also closed the remaining transactions in the pipeline with funding of that transaction expected early next year. Haminson will talk more about these later.
We also closed the remaining transactions in the pipeline with funding of their transaction expected early next year.
Chairman said, we'll talk more about this later.
To recap.
Speaker 2: To recap, since the beginning of the year, we've originated nearly 270 million in transactions and generated over 51 million in sales proceeds, resulting in net gains totaling approximately $21 million.
Since the beginning of the year, we originated nearly $270 million in transactions and generated over $51 billion in sales proceeds, resulting in net gains totaling approximately $21 million.
Speaker 2: Of the $51 million in sales proceeds to date, $14 million was received in the third quarter.
Up to 51 billion in sales proceeds to date 14 million was received in the third quarter we.
Speaker 2: We expect to receive additional sales proceeds in the $27 to $28 million range throughout the remainder of 2023. Primarily related to the expected sales of portion of the Brookdale portfolio.
We expect to receive additional sales proceeds in the $27 million to $28 million range throughout the remainder of 2023, primarily related to the expected sales portion of the Brookdale portfolio.
Speaker 2: Additionally, so far in 2023, we have received almost 12 million in Messonine loan payoffs generating $1.6 million of exit IAR income at a weighted average rate of 12 percent.
Additionally, so far in 2023, we have received almost 12 million and mezzanine loan payoffs generated one $6 million exit IR, our income at a weighted average rate of 12%.
LTC is long term mandate remains focused first focus on the portfolio, where we have been working to further reduce its average age while creating additional operator diversity and maintaining a balanced portfolio of private pay and skilled nursing.
Speaker 2: LTC's long-term mandate remains focus. First focus on the portfolio, where we have been working to further reduce its average age while creating additional operator diversity and maintaining a balanced portfolio of private pay and skilled nursing.
Speaker 2: Second, focus on reducing leverage to more historical levels by using sales proceeds to pay down a portion of our debt.
Second focus on reducing leverage to more historical levels by using sales proceeds to pay down a portion of our debt.
And third focus on positioning LTC for future growth.
Speaker 2: And third, focus on positioning LTC for future growth.
Speaker 2: I'd now like to spend a few minutes on some industry-wide trends that I'm sure are top of mind starting with some positive news.
I'd now like to spend a few minutes on some industry trends that I'm sure are top of mind, starting with some positive news.
Speaker 2: The latest Nick Math data shows that in the third quarter, occupancy grew in both seniors housing and skilled nursing.
The latest Nic map data shows that in the third quarter occupancy grew in both seniors housing and skilled nursing.
Speaker 2: Recent industry reports have further shown that current indicators point to a return to pre-pandemic occupancy levels by the end of 2024.
Recent industry reports show further show that current indicators point to a return to pre pandemic occupancy levels by the end of 2024.
Speaker 2: While we cannot predict specific timing, we agree that the industry is making progress towards that goal.
While we cannot predict specific timing.
We agree that the industry is making progress towards that goal. Additionally.
Speaker 2: Additionally, agency usage is trending down in certain cases and the labor market is strengthening for operators in many areas.
Additionally agency usage is trading down in certain cases, and the labor market is strengthening for operators in many areas.
Speaker 2: These factors combined with a net Medicare rate increase before percent, which is slightly higher than the expected increase before the final rate went into effect on October 1st. And additional increases at the state level, but operators, particularly SNF operators, in a better position to begin improving margins.
These factors combined with a net Medicare rate increase of 4%, which is slightly higher than you expected increase before the final rate went into effect on October one.
Additional increases at the state level, but operators, particularly sniff operators in a better position to begin improving margins.
Speaker 2: We are happy to see the positive gains in the industry that has made.
We are happy to see the positive gains in the industry estimate.
Speaker 2: but are also cognizant that the operators will face some challenges for both senior housing and skilled nursing, including inflation, insurance premiums.
But are also cognizant that the operators will face some challenges for both senior housing and skilled nursing, including inflation insurance premiums.
Speaker 2: litigation, and minimum staffing requirements, which pending the release of the final rule will take several years to implement.
Litigation.
Minimum staffing requirements, which pending the release of the final rule will take several years to implement.
Speaker 2: Finishing up with some LTC-specific metrics. The FANTAS tear ratio for the third quarter was 86%, with the long-term historical goal remaining at 80%.
Finishing up with some LTC specific metrics.
Fad payout ratio for the third quarter was 86% with the long term historical remaining at 80%.
Speaker 2: We are currently projecting a FAD payout ratio of 83% for fiscal 2023 down from 85% in fiscal 2022. We also maintain a monthly dividend payout of 19 cents per share.
We are currently projecting a fad payout ratio of 83% for fiscal 2023 down from 85% in fiscal 2022.
We also maintained a monthly dividend payout of <unk> 19 per share.
Speaker 2: For the fourth quarter, we anticipate that FFO, excluding non-repearing items, will be in the range of 65 to 66 cents per share.
For the fourth quarter, we anticipate the SFO, excluding nonrecurring items will be in the range of 65% to 66 cents per share.
Speaker 2: As we enter into the last quarter of 2023 and move into 2024, focus remains on needs-based care, coupled with strong demographic demand positioning us for future growth. With that, I'll turn the call over to Pam.
As we enter into the last quarter of 2023 and moved into 'twenty 'twenty four focus remains on needs based care, coupled with strong demographic demand.
Meeting us for future growth with that I'll turn the call over to him.
Speaker 3: Thank you, Wendy. For the third quarter of 2023, total revenue increased by $5.8 million compared with the third quarter of 2022. The improvement related primarily to $3.5 million more of interest income from acquisitions accounted for as financing receivables and $1.9 million more of interest income from 2023 more of a children's origination.
Thank you Wendy.
For the third quarter of 2023 total revenue increased by $5 8 million compared with the third quarter of 2022.
The improvement related primarily to $3 5 million more of interest income from acquisitions accounted for as financing receivables and $1 9 million more of interest income from 2023 mortgage loan originations. Additionally, interest and other income increased by 453000, primarily due to a REIT.
Mezzanine loan origination.
Speaker 3: Rental revenue and income from unconsolidated joint ventures were comparable to the prior year period.
Rental revenue and income from unconsolidated joint ventures were comparable to the prior year period.
Speaker 3: Interest expense increased by 4.7 million from last year's third quarter, primarily related to higher interest rates and a higher outstanding balance on our revolving line of credit, partially offset by scheduled principal paydowns on our senior unsecured notes.
Interest expense increased by $4 7 million from last years third quarter, primarily related to higher interest rates and a higher outstanding balance on our revolving line of credit partially offset by scheduled principal paydowns on our senior unsecured notes.
Speaker 3: During the 2023 third quarter, we recognized a 4.9 million gain on sale related to two assisted living communities in Pennsylvania. I'll provide additional details on property sales shortly.
During the 2023 third quarter, we recognized a $4 9 million gain on sale related to two assisted living communities in Pennsylvania, I'll provide additional details on property sales shortly.
Speaker 3: Our provision for credit losses decreased by approximately 600,000 primarily due to the 2022 acquisition of three skilled nursing centers accounted for as a financing receivable partially offset by the origination of the mezzanine loan I mentioned earlier. As a reminder, upon origination, we record a loan loss reserve estimate equal to 1% of the loan balance. This reserve is amortized as the loan principle is paid down.
Our provision for credit losses decreased by approximately 600000, primarily due to the 2022 acquisition of three skilled nursing centers accounted for as a financing receivable, partially offset by the origination of the mezzanine loan I mentioned earlier.
As a reminder, upon origination we record a loan loss reserve estimate equaled two 1% of the loan balance. This reserve is amortized at the loan principal is paid down.
Speaker 3: Net income available to common shareholders increased by $8.9 million, primarily due to higher interest income from new investments, the increase in gain on sale of real estate, and an impairment charge of $1.3 million reported in the prior year's third quarter, partially offset by higher interest expense.
Net income available to common shareholders increased by $8 9 million, primarily due to higher interest income from new investments the increase in gain on sale of real estate and an impairment charge of $1 3 million reported in the prior year third quarter, partially offset by higher interest expense.
Speaker 3: Fully diluted FFO for share, improved to 65 cents for the third quarter of 2023, up from 60 cents in the third quarter of 2022.
Fully diluted <unk> per share improved to 65 for the third quarter of 2023 up from 60 cents in the third quarter of 2022.
Speaker 3: excluding non-recurring items, FFO per share was $0.65 for the 2023 third quarter compared with $0.63 last year.
Excluding nonrecurring items <unk> per share was <unk> 65 for the 2023 third quarter compared with 63 cents last year.
The increase in SSO, excluding nonrecurring items was due to higher income from new investments, partially offset by higher interest expense.
Speaker 3: The increase in FFO excluding non-recurring items was due to higher income from new investments partially offset by higher interest expense. Next, I'll discuss recent divestitures. Clint will detail our investment activity later.
Next I'll discuss recent divestitures claim will detail our investment activity later.
Speaker 3: During the third quarter of 2023, we sold two assisted living communities in Pennsylvania with a combined total of 130 units for $11.1 million, with a gain on sale of $4.9 million. We also sold three assisted living communities in Nebraska with a combined total of 117 units at a net book value equal to $3 million.
During the third quarter of 2023, we sold two assisted living communities in Pennsylvania with a combined total of 130 units for $11 1 million with a gain on sale of $4 9 million. We also sold three assisted living communities in Nebraska with a combined total of 117 units.
At a net book value equal to $3 million.
Speaker 3: We repaid $33.1 million in regular schedule principal payments under our senior unsecured notes and also paid $23.6 million in common dividends for the 2023 third quarter.
We repaid $33 1 million and regular scheduled principal payments under our senior unsecured notes and also paid $23 6 million in common dividends for 2023 third quarter.
During the third quarter, we borrowed $35 9 million under our unsecured revolving line of credit.
Speaker 3: During the third quarter, we borrowed $35.9 million under our unsecured revolving line of credit.
Speaker 3: Currently, we have $11.3 million of cash on hand, approximately $38 million available under our line of credit, with roughly $362 million outstanding, and about $129 million available under our ATM.
Currently we have $11 3 million of cash on hand, approximately 38 million available under our line of credit with roughly 362 million outstanding and about 129 million available under our ATM.
Speaker 3: This gives us total liquidity of almost $178 million. Additionally, as Wendy mentioned, we anticipate receiving sales proceeds later this year in the range of $27 to $28 million, which will be used to pay down our line of credit.
This gives us total liquidity of almost $178 million. Additionally, as Wendy mentioned, we anticipate receiving sales proceeds later this year in the range of $27 million to $28 million, which will be used to pay down our line of credit.
Speaker 3: This sales proceeds amount is lower than our previous assumption based on our decision to sell fewer properties from the Brookdale portfolio, which Clint will describe later.
This sales proceeds amount is lower than our previous assumption based on our decision to sell fewer properties from the brookdale portfolio, which Clint will describe later.
Speaker 3: Additionally, we anticipate receiving $30 million in the first quarter of 2024 related to the payoff of a mortgage loan secured by a 189-bed skilled nursing center in Louisiana.
Additionally, we anticipate receiving $30 million in the first quarter of 2024 related to the payoff of a mortgage loan secured by a 189 bed skilled nursing center in Louisiana.
At the end of the 2023 third quarter, our debt to annualized adjusted EBITDA for real estate was six times and our annualized adjusted fixed charge coverage ratio was three two times.
Speaker 3: At the end of the 2023 third quarter, our debt to annualized adjusted EBITDA for real estate was six times, and our annualized adjusted fixed charge coverage ratio was 3.2 times.
Speaker 3: Additionally, regarding Prestige Healthcare, during the third quarter of 2023, we deferred 900,000 in interest payments under our previously disclosed agreement to defer up to 1.5 million, or up to 300,000 per month for May through September , 2023. Subsequent to the end of the third quarter.
Additionally, regarding prestige healthcare during the third quarter of 2023, we deferred 900000 in interest payments under our previously disclosed agreement to defer up to $1 5 million or up to 300000 per month from May through September 2023.
Subsequent to the end of the third quarter, we amended the law.
Speaker 3: As part of the amendment, LTC has drawn down $2.8 million of the approximate $5 million letter of credit from Prestige to repay all deferred interest outstanding through October 2023.
As part of the Amendment LTC has drawn down $2 8 million of the approximate $5 million letter of credit from prestige to repay all deferred interest outstanding through October 2023.
Speaker 3: We will draw down approximately $334,000 in each of November and December 2023 to be applied toward interest due on the loan at that point. As a result, we expect to receive all contractual interest of $19.5 million due from Prestige in 2023.
We will draw down approximately 334000 in each of November and December 2023 to be applied toward interest due on the loan at that point.
As a result, we expect to receive all contractual interest of $19 5 million due from prestige in 2023.
Speaker 3: Beginning on January 1st, 2024, the minimum mortgage interest payment due to LTC will be based on an annual current pay rate of 8.5% on the outstanding loan balance.
Beginning on January one 2020 for the minimum mortgage interest payment due to LTC will be based on an annual current pay rate of eight 5% on the outstanding loan balance.
Speaker 3: the contractual interest rate on the loan of 10.84% as of January 1, 2024 remains unchanged.
The contractual interest rate on the loan at 10, 84% as of January one 2024 remains unchanged.
Speaker 3: From retroactive Medicaid funds due to Prestige, we expect our letter of credit will be replenished in 2024 and Prestige will be able to pay all contractual interest during 2024 and 2025. Now, I'll turn the
From retroactive Medicaid funds due to prestige, we expect our letter of credit will be replenished in 2024, and prestige will be able to pay all contractual interest during 2024 and 2025.
Now I'll turn the call over to Claire.
Speaker 4: Thank you, Pam. I'll start with an update on our 35 property Brookdale portfolio whose lease expires on December 31st.
Thank you Paul I'll.
I will start with an update on our 35 property brookdale portfolio, whose lease expires on December 31.
Speaker 4: As previously announced, we released 10 of the properties, 6 in Colorado and 4 in Kansas, back to Brookdale under a new 6-year master lease commencing on January 1, 2024. Recently, we amended the new master lease to add 7 additional assisted living communities from the 35-property portfolio, including 1 in Ohio and 6 in Texas.
As previously announced we released 10 of the properties six in Colorado, and foreign Kansas back to Brookdale under a new secure master lease commencing on January one 2024 recent.
Recently, we amended the new master lease to add seven additional assisted living communities from the 35 property portfolio.
Including one in Ohio, and six in Texas.
Speaker 4: The initial rent on the new 17 property master lease will be 9.3 million escalating by approximately 2% annually and our capital expenditure commitment will be 7.2 million for the first two years of the lease at an initial rate of 8% escalating by approximately 2% annually thereafter.
The initial rent on the new 17 property Master lease will be $9 3 million, excluding by approximately 2% annually and our capital expenditure commitment will be $7 2 million for the first two years of beliefs added initial rate of 8% escalating by approximately 2% annually thereafter.
Speaker 4: Brookdale will have purchase options on these 17 properties in 2029.
Brookdale purchase options on the 17 properties in 2029 Brooks.
Speaker 4: Brookdale has been a great partner through the years and we are happy to have reached an outcome that benefits all parties.
Brookdale has been a great partner through the years and we were happy to have reached an outcome that benefits all parties.
Additionally, we are on track to transition the remaining 18 properties by year end.
Speaker 4: Additionally, we are on track to transition the remaining 18 properties by year-end. More specifically, we plan to sell seven while leasing 11 to two different operators.
More specifically, we plan to sell seven while leasing 11% to two different operators.
Speaker 4: The sales price for the seven properties being sold, four of which are in Florida, and three of which are in South Carolina, will be approximately $27.1 million.
The sales price for the southern properties being sold four of which are in Florida, and three of which were in South Carolina to be approximately $27 1 million.
Speaker 4: We anticipate receiving 20 to 21 million in proceeds, net of transaction costs, and seller financing as a result of these sales. We are leasing the remaining.
We anticipate receiving $20 million to $21 million in proceeds net of transaction cost and seller financing as a result of these sales.
We are leasing the remaining 11 properties to two operators.
Speaker 4: Six in Oklahoma, with a total of 219 assisted living units, will be operated under a new master lease by a current LTC operator, which we anticipate will commence on November 1, subject to the issuance of licensure to the new operator.
Six in Oklahoma with a total of 219 assisted living units will be operated under a new master lease by our current LTC, operator, which we anticipate will commence on November one subject to the issuance of licensure to a new operator.
Speaker 4: The lease term is for three years with one four-year extension period.
The lease term is for three years with one four year extension period.
Speaker 4: Rent in the first year is set at $960,000, increasing to $984,000 in the second year, and $1.2 million in the third year.
Rent in the first year is set at 960000, increasing to 984000 in the second year and $1 2 million in the third year.
Speaker 4: Additionally, the master lease includes a purchase option that can be exercised starting in November 2027 through October of 2029 if the lessee exercises its four-year extension option.
Additionally, the master lease includes a purchase option that can be exercised starting in November 2027 through October of 2029, if the lessee exercises its four year extension option.
We are currently working on finalizing a new lease for the remaining five properties located in North Carolina with a total of 210 assisted living units.
Speaker 4: We are currently working on finalizing a new lease for the remaining five properties located in North Carolina with a total of 210 assisted living units.
Speaker 4: This new lease is expected to commence on January 1, 2024.
This new leases expected to commence on January one 2024.
As Wendy detailed in last quarter's call, we remain confident that between the expected sales and the new leases I just mentioned, we should not see a 2024 <unk> decline relating to the non renewal of the original Brookdale lease.
Speaker 4: As Wendy detailed in last quarter's call, we remain confident that between the expected sales and the new leases I just mentioned, we should not see a 2024 FFO decline related to the non-renewal of the original Brookdale
Speaker 4: Further, using anticipated sales proceeds, we will reduce our outstanding line of credit, which was used to pre-fund accretive investments made earlier this year.
Further using anticipated sales proceeds we will reduce our outstanding line of credit, which was used to pre fund accretive investments made earlier this year.
Through this process, we are selling some older buildings and will decrease our brookdale concentration, reducing the number of buildings operated by brookdale by 50% and reducing our rental exposure with brookdale by 40%.
Speaker 4: Through this process, we're selling some older buildings and we'll decrease our Brookdale concentration, reducing the number of buildings operated by Brookdale by 50%, and reducing our rental exposure with Brookdale by 40%.
Moving now to our investment activity during the third quarter and as previously disclosed we originated a $17 million mezzanine loan with an affiliate of current operator Gallery living.
Speaker 4: During the third quarter and it's previously disclosed, we originated a $17 million Mezzanine loan with an affiliate of current operator gallery living.
Speaker 4: Mezzanine loan was used to recapitalize an existing 130-unit assisted living, memory care, and independent living campus in Georgia, as well as the construction of 89 additional units.
The mezzanine loan was used to recapitalize, an existing 130 unit assisted living memory care and independent living campus in Georgia as.
As well as the construction of 89 additional units. The long term is five years at an initial yield of 875% and an IRR of 12%.
Speaker 4: The loan term is five years at an initial yield of 8.75% and an IRR of 12%.
We also committed to fund a $19 $5 million mortgage loan for the construction of an 85 unit assisted living and memory care community in Michigan.
Speaker 4: We also committed to fund a $19.5 million mortgage loan for the construction of an 85-unit assisted living and memory care community in Michigan, completing the last transaction in our 2023 pipeline.
Completing the last transaction in our 2023 pipeline.
Borrower contributed $12 1 million of equity, which will initially be used to fund the construction.
Speaker 4: borrower contributed 12.1 million of equity, which will initially be used to fund the construction.
Speaker 4: Once all of the borrower's equity has been drawn, we will begin funding our commitment, which is expected to be in early 2024.
Once all of the borrower's equity has been drawn we will begin funding our commitment which is expected to be in early 2024.
Speaker 4: The loan term is approximately three years at a rate of eight and three-quarter percent and includes two one-year extensions, each of which is contingent on the achievement of certain coverage thresholds.
The long term is approximately three years.
The rate of eight in three quarter percent. It includes two one year extensions each of which is contingent on the achievement of certain coverage thresholds.
Speaker 4: Moving on to our transition portfolios, as expected, we received $1.75 million in rent from HMG in the third quarter and continue to expect $2.75 million in the fourth quarter, $750,000 of which relates to the first three quarters of the year, bringing total rent from HMG for 2023 to $8 million.
Moving onto our transitioning portfolio as expected, we received $1 $75 million in rent from <unk> in the third quarter and continue to expect $2 $75 million in the fourth quarter 750000 of which relates to the first three quarters of the year, bringing total rent from H M. G for 'twenty.
23 8 million.
Speaker 4: Regarding all of the transition properties with market-based rent resets, projected rent for the 2023 fiscal year is expected to be 561,000, with 60,000 of that in the fourth quarter of this year. This is lower than our prior projection of 720,000 due to the sale of the three Nebraska and two Pennsylvania buildings Pam discussed earlier.
Regarding although the transition properties with market based rent resets <unk>.
Projected rent for the 2023 fiscal year is expected to be 561000 with 60000 of that in the fourth quarter of this year.
This is lower than our prior projection of 720000 due to the sale of the three Nebraska and to Pennsylvania buildings Pam discussed earlier.
Speaker 4: We expect rent from the transition properties to equal 360,000 for next year's first quarter.
We expect rent from the transition properties to equal 360000 for next year's first quarter.
Speaker 4: Next, I'll provide some insight into our portfolio numbers, which exclude properties transitioned on or after January 1, 2022.
Next I'll provide some insight into our portfolio numbers, which exclude properties transitioned on or after January one 2022.
Speaker 4: Due to trailing 12-month EBITDARM and EBITDAR coverage as reported, using a 5% management fee was 1.26 times and 1.02 times respectively for our assisted living portfolio.
Q2, trailing 12 month, EBITDAR and EBITDAR coverage as reported using a 5% management fee was 126 times and 1.02 times, respectively for our assisted living portfolio.
Speaker 4: Excluding stimulus funds received by our operators, coverage was 1.09 times and 0.85 times respectively.
Excluding stimulus funds received by our operators coverage was 1.09 times and 0.85 times respectively.
Speaker 4: Because these metrics are given in the Rears, this private pay coverage does not include potential future upside related to recent rate and occupancy increase.
Because these metrics were given in arrears. This private pay coverage does not include potential future upside related to recent rate and occupancy increases.
For our skilled nursing portfolio as reported EBITDAR and EBITDAR coverage was 192 times and 144 times respectively.
Speaker 4: For our skilled nursing portfolio, as reported, EBADARM and EBADAR coverage was 1.92 times and 1.44 times respectively.
Speaker 4: Excluding stimulus funds received by our operators, coverage is 1.62 times and 1.14 times, respectively.
Excluding stimulus funds received by our operators coverage was 162 times and one four times respectively.
Speaker 4: Pro forma, for the 4% Medicare market basket rate increase, skilled EBITDA coverage, excluding stimulus funds, would have been 1.2 times coverage.
Pro forma for the 4% Medicare market basket rate increase skilled EBITDAR coverage, excluding stimulus funds would have been one two times coverage.
Speaker 4: Now for some recent general occupancy trends, which are as of September 30, and are for our same-store portfolio. These numbers include approximately 96% of our total same-store private pay units and approximately 92% of our same-store skilled nursing beds.
Now for some recent general occupancy trends, which are as of September 30, and our for our same store portfolio.
These numbers include approximately 96% of our total same store private pay units and approximately 92% of our same store skilled nursing beds.
Speaker 4: Private pay occupancy was 85% at September 30, 2023, 82% at June 30, and 81% at March 31.
They pay occupancy was 85% at September 32023, 82% at June 30, and 81% at March 31.
Speaker 4: For our skill nursing portfolio, average monthly occupancy was 73% in September , 72% in June , and 73% in March.
For our skilled nursing portfolio average monthly occupancy was 73% in September 72% in June and 73% in March.
Speaker 4: For comparative purposes, our private pay pre-pandemic occupancy in 2019 was approximately 87 percent. And our average skill nursing occupancy was approximately 80 percent.
For comparative purposes, our private pay pre pandemic occupancy in 2019 was approximately 87% and our average skilled nursing occupancy was approximately 80%.
Speaker 4: I'll finish with a brief discussion of our pipeline and what we're seeing in the M&A marketplace.
I'll finish with a brief discussion of our pipeline and what we're seeing in the M&A marketplace.
Speaker 4: As I discussed earlier, we completed the remaining transaction in our 2023 pipeline during the third quarter.
As I discussed earlier, we completed the remaining transactions our 2023 pipeline during the third quarter.
Speaker 4: We are now in the planning stages of building a new pipeline for 2024 and beyond, but we'll remain a patient investor.
We are now in the planning stages of building, a new pipeline for 2024 and beyond but will remain a patient investor.
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.
Speaker 4: We are watching to see what happens with respect 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. Now we'll turn the call back to Wendy for her closing remarks.
Now I will turn the call back to Wendy for her closing remarks.
Speaker 2: Thank you, Pam and Clips. The third quarter was very productive as we worked through some previously identified challenges and made progress on some of the expectations we set for ourselves and for our shareholders.
Thank you Tammy.
The third quarter was very productive as we worked through some previously identified challenges and made progress on some of the expectations, we set for ourselves and for our shareholders.
Speaker 2: We're going into the end of the year on a positive note, with most signs pointing to continued industry recovery. As Clint said, bank lending is in flux. Maturities are coming due for operators at a brisk pace, and interest rate increases are causing anxiety.
We're going into the end of the year on a positive note with most signs pointing to continued industry recovery.
<unk> said.
Bank lending is in blocks maturities are coming due for operators at a brisk pace and interest rate increases are causing anxiety.
We think this environment favors rates, especially those like LTC, who maintained a conservative investment strategy and provide customized solutions geared towards the needs of operators I believe we are well positioned for growth for next year and into the feature.
Speaker 2: I believe we are well positioned for growth for next year and into the future.
Thank you everyone for your continued support and we'll talk to you again next quarter.
Speaker 2: Thank you everyone for your continued support. We'll talk to you again next quarter. Operator, we're now ready to take questions.
Operator, we're now ready to take questions.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker 1: And certainly, at this time, we will be conducting a question and answer.
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You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
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Okay.
Okay.
Your first question for today is coming from Juan Sanabria with BMO.
Speaker 1: The first question for today is coming from Juan Sonabria with BM.
Speaker 5: I had good morning. Just wanted to ask a question on prestige with regards to modeling fat or cash. How should we think about
Hi, good morning.
Just wanted to ask you.
Good morning, I just wanted to ask a question on Christie with regards to modeling.
CAD or cash how should we think about.
Speaker 5: What they are expected to pay in 24, should we be modeling?
What they are expected to pay in 'twenty for should we be modeling.
Speaker 5: And kind of the floor on the way that you said, how that alone was, we don't know should we think about the effect of rate. I know there's a difference between apple phone and fat from a gap perspective. It's curious from a cash perspective, how should we think about that for 24?
The kind of the floor on the rate that you set.
How that loan was Mcdonald's should we think about the effective rate I know, there's a difference between Apple phone.
That from a GAAP perspective curious from a cash perspective, how we should be thinking about that for 'twenty four.
Speaker 3: Yeah, sure. One, this is Pam. You should model FSO and FAB the same at the effective rate, because we're gonna be getting the cash. It's just a tiny...
Yeah sure Juan this is Pam you should model at <unk> fab the same at the effective rate because we're going to be getting the cash it's just the timing.
Speaker 3: issue for replenishing the letter of credit. So we'll be drawing down on the letter of credit.
Issue for replenishing the letter of credit so we'll be drawing down on the letter of credit each month to fund the difference and then they will when they get their retroactive Medicaid funds that will replenish the letter of credit so.
Speaker 3: each month to fund the difference and then they will when they get their retroactive Medicaid funds they'll replenish the letter of credit. So from a cash and gap standpoint it's the same as it has been previously. So same as you probably already have a
From a cash and.
GAAP standpoint, it's the same as it has been previously so payments came as you probably already have in your model.
Speaker 5: So that the drawing down just to confirm the drawing down in the letter credit will continue in 24 to make up any difference between the cash and the sector rate. Yes.
So that they're drawing down just to confirm the drawing on the letter of credit will continue in 'twenty four to make up any difference between the cash and the effective rate.
Yes.
Okay great.
Speaker 5: And then on on Brookdale, so the proceeds from
And then on Brookdale, so the proceeds from the.
The dispositions of those assets.
Speaker 5: and the dispositions of those assets that are teed up.
That are teed up.
Speaker 5: or completed. Should we think of those as just repaying the line and any sort of offset to the illusion from asset sales being just the repayment of the line given you invested most of your anticipated capital into the 20s repiped line? Is that the right way or should we be reinvesting those proceeds that are higher yield?
Our completed should we think of those as just repaying the line and any sort of.
Kind of offset the dilution from asset sales being just the repayment of the line given your <unk>.
Invested most of your anticipated capital into the 'twenty three pipeline is that is that the right where should we be reinvesting those proceeds at a higher yield.
Speaker 3: Well, as we talked about on the last call, you know, we consider we pre-invested the proceeds, right? We're getting 27 million and we invested this year earlier at 8.5%. So in theory, we've already reinvested those, but logistically because of timing, we drew down on the line and that's why, you know, debt got higher and we talked about on the last call that we were comfortable with debt creeping a little higher.
Well as we talked about on the last call. We we consider we pre invested the proceeds right, we're getting $27 million and we invested this year earlier at eight 5%. So in theory, we have already reinvested those but logistically because of timing, we drew down on the line and that's why.
<unk> got higher and we talked about on the last call that we were comfortable with that creeping a little higher because there was a difference in the timing of us pre investing the proceeds and then actually getting the proceeds. So logistically you are going to take down the line, but when youre looking at the transaction Holistically and say.
Speaker 3: because there was a difference in the timing of pre-investing the proceeds and then actually getting the proceeds. So logistically, you are going to take down the line. But when you're looking at the transaction holistically and saying, are we getting replacement income? Did we replace the 15.4 million from Brookdale? Yes, we did. And we can walk through that math if you want, but it's...
Are we getting replacement income did we replaced the $15 4 million from Brookdale, Yes, we did and we can walk through that math, if you want but it.
Speaker 3: But logistically, you are going to just take it. Don't assume any more investments this year is what I'm telling you.
Lynn.
Logistically you are going to just take it don't assume any more investments this year, so what I'm telling you.
Speaker 5: Okay. And then one last quick, what for me, I think you called out a 30 million long maturity in the first quarter 24. Is there anything else that we should be modeling for the balances of the year for 24?
Okay and then one just one last quick one for me I think you called out a $30 million loan maturity in the first quarter 'twenty. Four is there anything else that we should be modeling for the balances.
Figure for 24 looking forward.
Speaker 3: Not right now, not with any certainty. The debt markets are challenging, but for cash flowing properties.
Not not right now not not with any certainty.
The debt markets are challenging but for cash flowing properties.
Speaker 3: You know, operators are able to find financing for that. So right now, I'm comfortable with it with the debt maturities are, you know, are mortgage loan maturities that are coming back to us, not our own mortgage maturities because we don't really have any, and we don't have mortgages. We have no maturities, but our debt payments obviously are, you know, we feel comfortable with those. Right. Thanks, Sally. I appreciate it.
Operators are able to find financing for that so right now.
Comfortable with it with the debt maturities are.
Our.
Mortgage loan maturities that are coming back to us not at not our own mortgage maturities because we don't really have any and we don't have mortgages. So we have no maturities, but our debt payments, obviously our field.
Comfortable with those.
Alright, thanks for that I appreciate it. Thank you I appreciate it.
Speaker 1: Your next question is from Conor, Severus Conor, Severus Youth with Wells Farms.
Your next question is coming.
Coming from Connor Seversky nurses.
With Wells Fargo.
Good morning out there thanks for the time.
Speaker 6: Good morning out there, thanks for the time. Maybe just to zoom in on the minimum staff in our environment and following the emotional ruling we had, you know, curious, where your feedback has been from your operators and the Smith portfolio?
Yeah, maybe just to zoom in on the minimum staffing requirements. Following the impartial ruling we had you know I'm curious area feedback has been from your operators in the sniff portfolio and then.
Speaker 6: Do you believe there's any potential that makes you see a cup of effort to run around in the hours required how the registered nurse part of the room?
Do you believe theres any potential there that you would see a cut back or a broadband only.
<unk> requires how would be the largest.
Certain nursery as part of the room.
Hey, good morning, it's quite a.
Speaker 4: Hey Connor, good morning at the plant. I mean the feedback we're getting from our offers we're speaking to about this. You know, it's in the comment period right now there's been a lot of comments that have been submitted. Um, and you know, Auk is doing a good job of organizing that.
The feedback we're getting from operators were speaking to about this.
We turned the common period right now theres been a lot of comments that have been submitted.
And <unk> is doing a good job of organizing that.
Speaker 4: Generally speaking, I think the consensus is that the impact is not in obviously 23 or 24, 25 and really working with CMS, how to phase that in. So that's really where the focus is right now. As you look into 2024, generally speaking, people aren't concerned about that, but it's just trying to shape what it looks like and how it's phased in beyond that timeframe.
Generally speaking I think the consensus is that you know the impact does not and obviously 'twenty three 'twenty four.
25, and really working with CMS, how to phase that in so that's really where the focus is right now. So as you look into 2020 for generally speaking people are concerned about that but just trying to shape, what it looks like and how it's phased in beyond that timeframe.
Operator: Welcome to the LTC Properties Inc. 3rd quarter 2023 earnings conference call. At this time, all participants are in a listenly mode.
Okay understood and then.
Speaker 6: Okay, understood and then understood. I'm going to transact to the next application for next year. And we've seen the 10 year morning, the double, and he had an ALF and AFS at the same time he was only gone on maybe 100 or 150 basis points in certain cases. You have any idea what's realising what kind of stickiness and pricing, whether that's just a lack of untransact, or an activity that I was paying attention to those assets?
Transactional activity expectations for next year, I think we've seen the 10 year more than double.
Ed.
Asset yields were only gone up maybe 100 over 150 basis points in certain cases.
Do you have any idea of what's driving that kind of stickiness on pricing, whether that's doing a lack of transaction activity is paying attention to those assets those assets.
Operator: The working statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties' filings with the Securities and Exchange Commission from time to time, including the company's most recent 10K, dated December 31, 2022. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note this event is being recorded.
Speaker 4: I think it's just a lower transaction volume and then we see going forward with that rise in rates and you haven't seen the adjustments yet in the cap rates that with mortgages coming due as I talked about and prepare the marks. I mean we see in a volume market with opportunity in front of us and we think that REITs would be well positioned to take advantage in capitalizing on deploying initial capital.
I think it's just a lower transaction volume and then we see going forward with that rising rates and you haven't seen the adjustments yet and the cap rates.
Mortgages coming due as I talked about in prepared remarks, I mean, we see <unk>.
All the market with the opportunity in front of us and we think that rates would be well positioned.
To take advantage in capitalizing on.
Pulling additional capital.
Got it thank you for taking my questions. Thank you.
Wendy Simpson: I will now like to turn the conference over to Wendy Simpson.
Speaker 1: Your next question for today is coming from the Michael Carroll with RBC, we have our market capital more.
Your next question for today is coming from Michael Carroll with RBC, what happened our market capital market.
Wendy Simpson: Thank you, operator, and welcome everyone to LTC's 2023 3rd quarter conference call. I am joined today by Pam Kessler, co-president and chief financial officer and Clint Malin, co-president and chief investment officer. On our last call, I spoke about LTC's primary mission of focus for the remainder of 2023. As a result of that strategy, we have made progress towards those identified goals, including very positive results regarding the Brookdale and prestige portfolios. We also closed the remaining transactions in the pipeline with funding of that transaction expected early next year.
Okay.
Speaker 7: Yeah, thanks. I'm not sure if everybody else is here in everybody, but I'm giving some feedback on the line too. On the line too.
Yeah, I'm not sure if everybody else is showing everybody I'm getting some feedback on the line two on the line.
Oh.
But anyway I guess my first I guess my first.
Speaker 7: Okay, my first question is on prestige. Can you kind of give us some ideas of what's going on with the Michigan Medicaid throughout payments? I mean, how much additional capital is prestige going to get in the fourth quarter of 23? And why wasn't that capital used to pay back the deferral? Wasn't that tax jacked for deferral?
I guess my first question is on for Steve on for Steve Kent can you kind of give us some ideas of whats going on with the Michigan Medicaid payments.
How much additional capital is Bristol, you're just going to get in the fourth quarter of 2003, and why wasn't bad capital used to pay back the deferrals deferrals.
Okay.
Speaker 4: So on that call, you and I had a conversation in the Q&A regarding this. So last quarter, like I mentioned that the estimates of the time
So we like our last call, we you and I had a conversation in the Q&A regarding this the last quarter.
Wendy Simpson: Pam and Simpson will talk more about these later. To recap, since the beginning of the year, we have originated nearly 270 million in transactions and generated over 51 million in sales proceeds, resulting in net gains totaling approximately $21 million. Of the 51 million in sales proceeds to date, 14 million was received in the 3rd quarter. We expect to receive additional sales proceeds in the $27 to $28 million range throughout the remainder of 2023, primarily related to the expected sales of portion of the Brookdale portfolio.
I had mentioned that you know the estimates at the time.
Speaker 4: was that Precision receives 7 million in, or estimated to be 7 million in 23, and then the eight to $10 million range in 24. At this point, right now that the rate letters have been issued, that estimate is approximately $8 million for 2023. And we're at the higher end of the range of 10 million in 2024.
Was the procedure, we received $7 million in our warehouse.
Our estimate would be $7 million in 'twenty, three and then the $8 million to $10 million range in 'twenty four.
At this point right now that the rate letters have been issued that estimate is approximately $8 million for 2023.
And we're at the higher end of the range of $10 million in 2024, given the deferral and these rates over the last three years.
Speaker 4: You know, given the deferral in these rates over, you know, the last three years, there'll be, you know, there's AP, there's bed taxes that need to be paid for.
There will be theirs.
P. There's bad taxes that need to be paid for prestige. So this basically this initial payment allows them to bring AP back into current terms pay the deferred bed tax and on the call last time I had mentioned that you shouldnt assume those dollars in 2023.
Speaker 4: So this basically this initial payment allows them to, you know, bring AP back into, you know, current terms Pay the deferred bed tax and and on the call last time I mentioned that you shouldn't assume those dollars in 2023 would come to LTC
Wendy Simpson: Additionally, so far in 2023, we have received almost 12 million in messaging loan payoffs, generating $1.6 million of exit IRR income at a weighted average rate of 12%. LTC's long-term mandate remains focused. First focus on the portfolio, where we have been working to further reduce its average age, while creating additional operator diversity and maintaining a balanced portfolio of private pay and skilled nursing. Second, focus on reducing leverage to more historical levels by using sales proceeds to pay down a portion of our debt. And third, focus on positioning LTC for future growth.
When it come to LTC.
Yes.
Speaker 7: Okay, and then as you're thinking about into the operations of the proceed going into .24, are there operating trends improving? And I believe you might have answered this with with lawns question, but do you expect that they're not going to pay the full contractual rent in .24?
Okay, and then as you're thinking about and to the operations of our proceeds going into 2024 before are there are operating trends are improving and I believe you might have answered this with with one question, but do you expect that theyre not going to pay the full contractual rent in 2024.
Speaker 4: Now we fully expect this PAM just in a detail. We fully expect and as PAM mentioned to WAN's comment to model, you know, FAD cash rent from or cash interest from prestige, the same as FFO. So we fully expect to receive, you know, the contractual interest payment not only in 23, but in 24 and our prepared remarks, you said 2025 as well.
We fully expect this Pam just detailed we fully expect.
As Pam mentioned to one's comment to model.
Fad.
Cash rent from our cash interest from prestige the same as <unk>. So we fully expect to receive contractual interest payments not only in 'twenty three but in 'twenty four and our prepared remarks, you said 2025 as well.
Wendy Simpson: I'd now like to spend a few minutes on some industry-wide trends that I'm sure are top of mind starting with some positive news. The latest Nick Math Dana shows that in the third quarter, occupancy grew in both seniors housing and skilled nursing. Recent industry reports have further shown that current indicators point to a return to pre-pandemic occupancy levels by the end of 2024. While we cannot predict specific timing, we agree that the industry is making progress towards that goal.
Okay, and then why did you change it to allow them to Payless I guess, what was the reasoning behind that.
The real story for procedures building back census, and improving operations. So what we've done is we've afforded them the ability to have a lower current pay while they're doing that.
Speaker 4: In addition to our participation in the Retract and Medicaid payments in exchange for implementing the current rate.
And in addition to our participation in the a retroactive Medicaid payments in exchange for implementing the current rate that LTC will be participating in 50% of the excess cash flow beginning January one 2025.
Speaker 4: LTC will be participating in 50% of the excess cash flow beginning January 1, 2025.
Wendy Simpson: Additionally, agency usage is striking down in certain cases, and the labor market is strengthening for operators in many areas. These factors, combined with a net Medicare rate increase of 4%, which is slightly higher than the expected increase before the final rate went into effect on October 1st and additional increases at the state level, but operators particularly SNF operators in a better position to begin improving margins. We are happy to see the positive gains in the industry that's made, but are also cognizant that the operators will face some challenges for both senior housing and skilled nursing, including inflation, insurance premiums, litigation, and SNF minimum staffing requirements, which pending the release of the final rule will take several years to implement.
Speaker 4: And that amount that materializes will just be added into our letter of credit to provide more security. If there's a crude interest, that will be money available to pay down a crude interest. So that was the, it was giving them a runway of effectively two and a half years as we're guiding to getting full contractual interest through that time frame, we're giving them a two and a half year runway to make improvement in operations and improve margins.
And that amount that mature it will if it materializes will just be added into our letter of credit to provide more security if theres a crude interest that will be money available to pay down accrued interests. So that was the.
And it was worth giving them a runway of effectively two and a half years as we are guiding to getting full contractual interest through that timeframe, we're giving them a two and a half year runway to make improvement in operations and improve margins.
Okay, great. Thank you.
Thank you.
Speaker 8: Thank you.
Speaker 1: We have reached the end of the question and answer session and I will now turn the call over to Wendy for closing remarks.
We have reached the end of the question and answer session and I will now turn the call over to Wendy for closing remarks.
Speaker 2: Thank you everyone. We really appreciate the time you take to listen to our comments. And we appreciate your questions to help us clarify those comments.
Thank you everyone. We really appreciate the time you take to listen to our comments and we appreciate your questions to help us clarify those comments.
Wendy Simpson: Finishing up with some LTC-specific metrics, the FAAD-TAO ratio for the third quarter was 86%, with the long-term historical goal remaining at 80%. We are currently projecting a FAAD-TAO ratio of 83% for fiscal 2023 down from 85% in fiscal 2022. We also maintain a monthly dividend tail of 19 cents per share. For the fourth quarter, we anticipate that FFO, excluding non-recurring items, will be in the range of 65 to 66 cents per share. As we enter into the last quarter of 2023 and move into 2024, focus remains on needs-based care, coupled with strong demographic demand, positioning us for future growth.
Speaker 2: I look forward to talking to you after the end of the year.
I look forward to talking to you after the end of the year.
Speaker 2: Have a great rest of your 2023 and a great weekend. Bye.
Have a great rest of your 2023 and a great weekend talk to you soon bye bye.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Pam Kessler: With that, I'll turn the call over to Pam. Thank you, Wendy. For the third quarter of 2023, total revenue increased by $5.8 million, compared with the third quarter of 2022. The improvement related primarily to $3.5 million more of interest income from acquisitions accounted for as financing receivables, and $1.9 million more of interest income from 2023 mortgage loan originations. Additionally, interest and other income increased by $453,000 primarily due to a recent mezzanine loan origination.
Pam Kessler: Rental revenue and income from unconsolidated joint ventures were comparable to the prior year period. Interest expense increased by 4.7 million from last year's third quarter primarily related to higher interest rates and a higher outstanding balance on our revolving line of credit, partially offset by scheduled principal paydowns on our senior unsecured notes.
Pam Kessler: During the 2023 third quarter, we recognized a 4.9 million gain on sale related to two assisted living communities in Pennsylvania. I'll provide additional details on property sales shortly. Our provision for credit losses decreased by approximately 600,000 primarily due to the 2022 acquisition of three skilled nursing centers accounted for as a financing receivable, partially offset by the origination of the mezzanine loan I mentioned earlier. As a reminder, upon origination, we record a loan loss reserve estimate equal to 1 percent of the loan balance.
Pam Kessler: This reserve is amortized as the loan principal is paid down. Net income available to common shareholders increased by 8.9 million primarily due to higher interest income from new investments, the increase in gain on sale of real estate and an impairment charge of 1.3 million reported in the prior year's third quarter partially offset by higher interest expense. Fully diluted FFO for share improved to 65 cents for the third quarter of 2023 up from 60 cents in the third quarter of 2022.
Pam Kessler: Excluding non-recurring items, FFO for share was 65 cents for the 2023 third quarter compared with 63 cents last year. The increase in FFO, excluding non-recurring items, was due to higher income from new investment partially offset by higher interest expense.
Pam Kessler: Next, I'll discuss recent investitures. Clint will detail our investment activity later. During the third quarter of 2023, we sold two assisted living communities in Pennsylvania with a combined total of 130 units for 11.1 million with a gain on sale of 4.9 million. We also sold three assisted living communities in Nebraska with a combined total of 117 units at a net value equal to 3 million. We repaid 33.1 million in regular schedule principal payments under our senior unsecured notes and also paid 23.6 million in common dividends for the 2023 third quarter.
Pam Kessler: During the third quarter, we borrowed 35.9 million under our unsecured revolving line of credit. Currently, we have 11.3 million of cash on hand approximately 38 million available under our line of credit with roughly 362 million outstanding and about 129 million available under our ATM. This gives us total liquidity of almost 178 million. Additionally, as Wendy mentioned, we anticipate receiving sales proceeds later this year in the range of 27 to 28 million, which will be used to pay down our line of credit.
Pam Kessler: This sales proceeds amount is lower than our previous assumption based on our decision to sell fewer properties from the Brookdale portfolio, which Clint will describe later. Additionally, we anticipate receiving 30 million in the first quarter of 2024 related to the path of a mortgage loan secured by a 189-bed skilled nursing center in Louisiana. At the end of the 2023-3rd quarter, our debt to annualize adjusted EBITDA for real estate with six times, and our annualized adjusted discharge coverage ratio was 3.2 times.
Pam Kessler: Additionally, regarding prestige health care, during the 3rd quarter of 2023, we deferred 900,000 in interest payments under our previously disclosed agreement to defer up to 1.5 million, or up to 300,000 per month, or May through September 2023. Subsequent to the end of the 3rd quarter, we amended the loan. As part of the amendment, LTC has drawn down 2.8 million of the approximate $5 million letter of credit from prestige to repay all deferred interest outstanding through October 2023.
Pam Kessler: We will draw down approximately 334,000 in each of November and December 2023 to be applied toward interest due on the loan at that point. As a result, we expect to receive all contractual interest of 19.5 million due from prestige in 2023. Beginning on January 1, 2024, the minimum mortgage interest payment due to LTC will be based on an annual current pay rate of 8.5% on the outstanding loan balance. The contractual interest rate on the loan of 10.84% as of January 1, 2024 remains unchanged. From retroactive Medicaid funds due to prestige, we expect our letter of credit will be replenished in 2024, and prestige will be able to pay all contractual interest during 2024 and 2025.
Clint Malin: Now, I'll turn the call over to Clamp. Thank you, Pam. I'll start with an update on our 35-property Brookdale portfolio whose lease expires on December 31st. As previously announced, we released 10 of the properties, six in Colorado, and four in Kansas, back to Brookdale, under a new six-year master lease commencing on January 1, 2024. Recently, we amended the new master lease to add seven additional assisted living communities from the 35-property portfolio, including one in Ohio and six in Texas.
Clint Malin: The initial rent on the new 17-property master lease will be 9.3 million, escalating by approximately 2% annually, and our capital expenditure commitment will be 7.2 million for the first two years of the lease added an initial rate of 8% escalating by approximately 2% annually thereafter. Brookdale will have purchase options on these 17 properties in 2029. Brookdale has been a great partner through the years, and we are happy to have reached an outcome that benefits all parties.
Clint Malin: Additionally, we are on track to transition the remaining 18 properties by year end. More specifically, we plan to sell seven while leasing 11 to two different operators. The sales price for the seven properties being sold, four of which are in Florida, in three of which are in South Carolina, will be approximately 27.1 million. We anticipate receiving 20 to 21 million in proceeds, net of transaction costs, and seller financing as a result of these sales.
Clint Malin: We are leasing the remaining 11 properties to two operators. Six in Oklahoma, with a total of 219 assisted living units, will be operated under a new master lease by a current LTC operator, which we anticipate will commence on November 1, subject to the issuance of licensure to the new operator. The lease term is for three years, with one four-year extension period. Rent in the first year is set at 960,000, increasing to 984,000 in the second year, and 1.2 million in the third year.
Clint Malin: Additionally, the master lease includes a purchase option that can be exercised starting in November 2027 through October of 2029, if the less the exercises is for your extension option. We are currently working on finalizing a new lease for the remaining five properties located in North Carolina, with a total of 210 assisted living units. This new lease is expected to commence on January 1, 2024. As Wendy detailed in last quarter's call, we remain confident that between the expected sales and the new lease, as I just mentioned, we should not see a 2024 FFO decline relating to the non-renewal of the original Brookdale lease. Further, using anticipated sales proceeds, we will reduce our outstanding line of credit, which was used to pre-fund creative investments made earlier this year.
Clint Malin: Through this process, we are selling some older buildings and will decrease our Brookdale concentration, reducing the number of buildings operated by Brookdale by 50 percent, and reducing our rental exposure with Brookdale by 40 percent.
Clint Malin: Moving now to our investment activity. During the third quarter and its previously disclosed, we originated a $17 million Mezzanine loan with an affiliate of current operator gallery living. Mezzanine loan was used to recapitalize an existing 130 unit assisted living, memory care, and independent living campus in Georgia, as well as the construction of 89 additional units. The loan term is five years at an initial yield of 8.75 percent and an IRR of 12 percent.
Clint Malin: We also committed to fund a $19.5 million mortgage loan with a construction of an 85 unit assisted living in memory care, community, and Michigan, completing the last transaction in our 2023 pipeline. The borrowers contributed $12.1 million of equity, which will initially be used to fund the construction. Once all of the borrowers equity has been drawn, we will begin funding our commitment, which is expected to be in early 2024. The loan term is approximately three years at a rate of 8.3 quarter percent and includes two one-year extensions, each of which is contingent on the achievement of certain coverage thresholds.
Clint Malin: Moving on to our transition portfolios, as expected, we received 1.75 million in rent from H&G in the third quarter and continue to expect 2.75 million in the fourth quarter, 750 thousand of which relate to the first recorders of the year, bringing total rent from H&G for 2023 to 8 million. Regarding all of the transition properties with market-based rent resets, projected rent for the 2023 fiscal year is expected to be 561,000, with 60,000 of that in the fourth quarter of this year.
Clint Malin: Next, I'll provide some insight into our portfolio numbers, which exclude properties transitioned on or after January 1, 2022. Due to trailing 12-month EBADARM and EBADAR coverage, as reported, using a 5% management fee was 1.26 times and 1.02 times respectively for our assisted living portfolio. Excluding stimulus funds received by our operators, coverage was 1.09 times and 0.85 times respectively. Because these metrics are given in our readers, this private pay coverage does not include potential future upside related to recent rate and occupancy increases.
Clint Malin: For our skilled nursing portfolio, as reported, EBADARM and EBADAR coverage was 1.92 times and 1.44 times respectively. Excluding stimulus funds received by our operators, coverage was 1.62 times and 1.14 times respectively. Both formula for the 4% Medicare market basket rate increase, skilled EBADAR coverage, excluding stimulus funds, would have been 1.2 times coverage.
Clint Malin: Now for some recent general occupancy trends, which are as of September 30 and are for our same-store portfolio. These numbers include approximately 96% of our total same-store private pay units and approximately 92% of our same-store skilled nursing beds. Private pay occupancy was 85% at September 30, 2023, 82% at June 30, and 81% at March 31. For our skilled nursing portfolio, average monthly occupancy was 73% in September, 72% in June, and 73% in March. For comparative purposes, our private pay pre-pandemic occupancy in 2019 was approximately 87% and our average skilled nursing occupancy was approximately 80%.
Clint Malin: I'll finish with a brief discussion of our pipeline and what we're seeing in the M&A marketplace. As I discussed earlier, we completed the remaining transaction in our 2023 pipeline during the third quarter. We are now in the planning stages of building a new pipeline for 2024 and beyond, but remain a patient investor. We are watching to see what happens with respect 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.
Wendy Simpson: Now I'll turn the call back to Wendy for her closing remarks. Thanks, Pam and Clint. The third quarter was very productive as we worked through some previously identified challenges and made progress on some of the expectations we set for ourselves and for our shareholders. We're going into the end of the year on a positive note with most signs pointing to continued industry recovery. As Clint said, bank lending is in blocks. Materities are coming due for operators and a risk pay and interest rate increases are causing anxiety.
Wendy Simpson: We think this environment favors REITs, especially those like LTC, who maintain a conservative investment strategy and provide customized solutions geared towards the needs of operators. I believe we are well positioned for growth for next year and into the future.
Wendy Simpson: Thank you everyone for your continued support.
Wendy Simpson: We'll talk to you again next quarter.
Operator: Operator, we're now ready to take questions. Certainly. At this time, we will be conducting a question and answer session.
Operator: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Juan Sanabria: Your first question for today is coming from Juan Sonabria with BMO. I had good morning. Just wanted to ask a question on prestige with regards to modeling that or cash. How should we think about what they are expected to pay in 24? Should we be modeling the floor on the way that you set? How that alone was redone or should we think about the effective rate? I know there's a difference between FFO and FAAD from a cash perspective. Yes, sure.
Pam Kessler: Juan, this is Pam. You should model FFO and FAAD the same at the effective rate because we're going to be getting the cash. It's just a timing issue for replenishing the letter of credit, so we'll be drawing down on the letter of credit each month to fund the difference and then they will, when they get their retroactive Medicaid funds, they'll replenish the letter of credit. From a cash and gap standpoint, it's the same as it has been previously.
Pam Kessler: Same as you probably already have in your model. So that the drawing down just to confirm the drawing down on the letter of credit will continue in 24 to make up any difference between the cash and the effective rate? Yes. Okay, great.
Juan Sanabria: It's then on Brookdale, so the proceeds from.., the dispositions of those assets that are teed up or completed.
Pam Kessler: Should we think of those as just repaying the line and any sort of offset to the illusion of massive sales being just the repayment of the line given you've invested most of your anticipated capital into the 20th repiped line? Is that the right way or should we be reinvesting those proceeds at a higher yield? Well, as we talked about on the last call, we consider we pre-invested the proceeds, right? We're getting 27 million and we invested this year earlier at 8.5%.
Pam Kessler: So in theory, we've already reinvested those, but logistically because of timing, we drew down on the line and that's why debt got higher. And we talked about on the last call that we were comfortable with debt creeping a little higher because there was a difference that in the timing of pre-investing the proceeds and then actually getting the proceeds. So logistically, you are going to take down the line.
Pam Kessler: But when you're looking at the transaction holistically and saying, are we getting replacement income? Did we replace the 15.4 million from Brookdale? Yes, we did. And we can walk through that math if you want. But logistically, you are going to just take it.
Pam Kessler: Don't assume any more investments this year is what I'm telling you. Okay.
Juan Sanabria: And then one last quick one for me. I think you called out a 30 million along maturity in the first quarter 24. Is there anything else that we should be modeling for the balances of the year for 24? We're going forward.
Pam Kessler: Not right now. Not with any certainty. You know, I mean, the debt markets are challenging, but for cash flowing properties, operators are able to find financing for that. So right now, I'm comfortable with the debt maturities, our mortgage loan maturities that are coming back to us, not our own mortgage maturities because we don't really have any, and we don't have mortgages. We have no maturities, but our debt payments obviously are, you know, we feel comfortable with those. Right.
Juan Sanabria: Thanks, Sally. Appreciate it.
Juan Sanabria: Thanks, Sally. Appreciate it.
Connor Siversky: Your next question is your next question is coming from Conor, Sever, Conor, Sever, with Wells Fargo.
Connor Siversky: Good morning out there. Thanks for the time. Maybe just to zoom in on the minimum staffing requirement, you're following the initial ruling we had. You know, curious, curious feedback has been from your operators in the Smith portfolio. And then, you know, do you believe there's any potential that you could see a cup after a long time in the hours required, how the registered nurse part of the room.
Clint Malin: Hey, Conor, good morning, it's a plant. I mean, the feedback we're getting from operators we're speaking to about this, you know, it's in the comment period right now. There's been a lot of comments that have been submitted. And, you know, all is doing a good job of organizing that. Generally speaking, I think the consensus is that, you know, the impact is not in, you know obviously 23 or 24, 25 and really working with CMS, how to phase that in.
Clint Malin: So that's really where the focus is right now. So as you look into 2024, generally speaking, people aren't concerned about that, but it's just trying to shape what it looks like and how it's phased in beyond that time frame.
Clint Malin: Okay, understood and then understood and then transactivity adaptations for next year, I mean, we've seen the 10-year morning double and he had an ALFs and ANF assets, it's easy to be able to only go on maybe a hundred or 150 basis points in 30 cases. You have any idea what's realising what kind of stickiness and pricing, whether that's the lack of transactivity or that rise paying attention to those assets? I think it's just a lower transaction volume and then, you know, we see going forward, you know, with that rise in rates and you haven't seen the adjustments yet in the cap rates that, you know, with mortgages coming do as I talked about and prepare remarks, I mean, we see, you know, in a volume market with opportunity in front of us, we think that REITs would be well positioned to take advantage and capitalising on deploying initial capital. Got it. Thank you for the time. Got it. Thank you for the question. Thank you.
Michael Carroll: Your next question for today is coming from the Michael Carroll with RBC, we have our market, capital market. Yeah, thanks.
Michael Carroll: I'm not sure if everybody else is hearing everybody else, but I'm giving some feedback on the line, too. But anyway, I guess my first question is on proceed. Can you kind of give us some ideas of what's going on with the Michigan Medicaid group payments? How much additional capital is receipts going to get in the fourth quarter of 23 and why wasn't that capital used to pay back the deferral back the deferral?
Michael Carroll: So, well, on last call, we, you and I had a conversation in the Q&A regarding this. So last quarter, like I'd mentioned that, you know, the estimate of the time was the procedure, received seven million in or estimated to be seven million in 23 and then the eight to ten million dollar range in in 24. At this point, right now that the rate letters have been issued, that estimate is approximately eight million dollars for 2023.
Michael Carroll: And we're at the higher end of the range of 10 million in 2024. You know, given the deferral in these rates over the last three years, there will be, you know, there's AP. There's bed taxes that need to be paid for prestige. So this basically is initial payment allows them to, you know, bring AP back into, you know, current terms, paid the deferred bed tax. And on the call, last time I mentioned that you shouldn't assume those dollars in 2023 would come to LTC.
Pam Kessler: Okay. And then as you're thinking about into the operations of the fees going into 2024, are there operating trends improving? And I believe you might have answered this with, uh, with lawns question, but do you expect that they're not going to pay the full contractual rent in 2024? No, we fully expect this PAM just, you know, detail. We fully expect. And as PAM mentioned to wants comment to model, you know, FAD cash rent from or cash interest from prestige, the same as FFO. So we fully expect to receive, you know, the contractual interest payment, not only in 23, but in 24 and our prepared remarks, you said 2025 as well.
Pam Kessler: Okay. And then why did you change it to allow them to pay left? I guess what was the reason behind that? The real story for procedures, building back census and improving operations. So what we've done is, you know, we've afforded them the ability to have a lower current pay while they're doing that. 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.
Pam Kessler: And that amount that materializes would just be added into our letter of credit to provide more security. If there's a crude interest, that will be money available to pay down a crude interest. So that was the, and it was worth giving them a runway of effectively two and a half years as we're guiding to getting full contractual interest through that time frame, we're giving them a two and a half year runway to make improvement in operations and improve margins.
Michael Carroll: Okay. Great.
Michael Carroll: Thank you.
Wendy Simpson: We have reached the end of the question and answer session and I will now turn the call over to Wendy for closing remarks. Thank you, everyone. We really appreciate the time you take to listen to our comments and we appreciate your questions to help us clarify those comments.
Wendy Simpson: I look forward to talking to you after the end of the year. Have a great rest of your 2023 and a great weekend. Talk to you soon. Bye-bye.
Operator: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.