Q4 2023 LTC Properties Inc Earnings Call
Operator: Greetings. Welcome to the LTC Properties Inc. fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the LTC properties, Inc. Fourth quarter 2023 earnings call.
At this time, all participants are in English and only mode.
Operator: 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. 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. 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 31, 2023. 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 that this event is being recorded. I would now like to turn the conference over to Wendy Simpson.
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.
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.
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 2023 L.
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.
Wendy L. Simpson: Thank you, operator, and welcome everybody to LTC's 2023 fourth 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. 2023 was a year of solid execution, so I want to begin by recognizing our very talented LTC team.
Thank you operator, and welcome everybody to L. T. Six 2023 fourth quarter conference call.
I'm joined today by Pam Kessler, co President and Chief Financial Officer, and Clint Malin co President and Chief investment Officer.
2023 was a year of solid execution, so I want to begin by recognizing our very talented LTC team.
Wendy L. Simpson: During the year, we completed $262 million in investments and generated $77 million in sales proceeds. The sales resulted in net gains totaling $37 million. Additionally, we received $11.8 million in mezzanine loan payoffs, generating $1.6 million of exit IRR income at a weighted average rate of 12%. From an operational perspective, we successfully transitioned the Brookdale portfolio, resulting in anticipated revenue of half a million dollars more than we generated from the original lease. We received full contractual 2023 interest from Prestige with expectations for full contractual payments through at least 2025. Clint will further discuss this shortly. And importantly, we significantly reduced our leverage ahead of street expectations. From an industry perspective, demand for senior housing is strong.
During the year, we completed 262 million and investments and generated $77 million in sales proceeds.
The sales resulted in net gains totaling $37 million, but.
Additionally, we received $11 $8 million and mezzanine loan pay offs generating $1 6 million of exit I R. R income at a weighted average rate of 12%.
From an operational perspective, we successfully transitioned the brookdale portfolio, resulting in anticipated revenue of half a million dollars more than we generated from the original lease.
We received full contractual 2023 interest from prestige with expectations for full contractual payments through at least 2025 Quint.
Quint will further discuss this shortly.
And importantly, we significantly reduced our leverage.
Of Street expectations.
From an industry perspective demand for seniors housing is strong occupancy has increased for 10 consecutive quarters and according to Nic seniors housing occupancy rates are now on track to recover to pre pandemic levels in the second half of this year.
Wendy L. Simpson: Occupancy has increased for 10 consecutive quarters. And according to Nick, seniors housing occupancy rates are now on track to recover to pre-pandemic levels in the second half of this year, especially as new construction remains muted. While we are not in the prediction game, we are encouraged by what we're seeing.
Especially as new construction remains muted.
While we are not in the prediction game, we are encouraged by what we're seeing.
Wendy L. Simpson: Market fundamentals currently favor REITs, with billions of dollars of financing maturities coming due, interest rates in flux, and banks being more selective about their investments, particularly in real estate and for properties that are not currently generating positive cash flow. We have been preparing for this environment by developing creative financing structures, including those with shorter maturities. We believe LTC's creativity and flexibility makes it easier for us to act quickly by providing customized financing solutions based on an operator's needs. Finishing up now with some LTC-specific metrics, the FAD payout ratio for the fourth quarter was 79%. We have also maintained our monthly dividend payout of $0.19 per share.
Market fundamentals currently favor reads with billions of dollars of financing maturities coming due interest rates influx and banks being more selective about their investments, particularly in real estate and for properties that are not currently generating positive cash flow.
We have been preparing for this environment by developing creative financing structures.
Including those with shorter maturities.
We believe ltc's creativity and flexibility makes it easier for us to act quickly by providing customized financing solutions based on an operator's needs.
Finishing up now with some LTC specific metrics the S. A D payout ratio for the fourth quarter was 79%. We also maintained our monthly dividend payout of <unk> 19 per share.
Wendy L. Simpson: For the 2024 first quarter, we anticipate that FFO will be in the range of $0.69 to $0.70 per share, and FFO excluding non-recurring items will be in the range of $0.63 to $0.64 per share. The decrease between FFO and FFO excluding non-recurring items is due to the repayment of rent related to a property sale in January. Pam will provide details shortly. We're entering 2024 with a stronger, more diversified portfolio and a stronger balance sheet, better positioning LTC for future growth. Now, I'd like to turn things over to Pam.
For the 'twenty 'twenty four first quarter, we anticipate the F. F O will be in the range of 69 to 70 cents per share.
S. S Boe, excluding nonrecurring items will be in the range of 63 to 64 cents per share.
The decrease between F F O and <unk>, excluding nonrecurring items is due to the repayment of rent related to a property sale in January.
Dan will provide details shortly.
We're entering 2024 with a stronger more diversified portfolio and a stronger balance sheet better positioning LTC for future growth now.
Now I'd like to turn things over to Pam. Thank you Randy all numbers I'm going to discuss today are for the fourth quarter of 2023 compared with the fourth quarter of 2022, unless otherwise stated total.
Pamela J. Shelley: Thank you, Wendy. All the numbers I'm going to discuss today are for the fourth quarter of 2023 compared with the fourth quarter of 2022 unless otherwise stated. Total rental revenue decreased by $2.2 million, principally related to portfolio transitions, Anthem Street's payment in 2022 of a temporary rent reduction, and property sales. However, this was partially offset by revenue from an acquisition completed in the second quarter of 2023, annual rent escalations, and lease renewals and extensions. Interest income from sale leaseback financing increased $2.4 million, mainly due to the acquisition of 11 assisted living and memory care communities during the 2023 first quarter accounted for as a financing receivable in accordance with GAAP. Interest income from mortgage loans increased $1.8 million, primarily due to mortgage loan originations in the first quarter of 2023.
Total rental revenue decreased by $2 2 million principally related to portfolio transition anthems repayment in 2022 of the temporary rent reduction and property sales.
This was partially offset by revenue from an acquisition completed in the second quarter of 2023 annual rent Escalations and lease renewals and extensions.
Interest income from sale leaseback financing increased $2 4 million, mainly due to the acquisition of 11 assisted living and memory care communities. During the 2023 first quarter accounted for as a financing receivable in accordance with GAAP.
Interest income from mortgage loans increased $1 8 million, primarily due to mortgage loan originations in the first quarter of 2023.
Pamela J. Shelley: Interest expense increased by $3.6 million, primarily due to a higher outstanding balance on our revolving line of credit and higher interest rates; draws on our line of credit were used primarily to pre-fund 2023 investments. However, interest expense is partially offset by scheduled principal paydowns on our senior unsecured notes. We recognize a $16.8 million gain on the sale related to the divestiture of nine assisted living communities, which I'll discuss shortly. Our provisions for credit losses increased by $4.2 million, primarily due to a $3.6 million write-off of a working capital note pursuant to a 12-property assisted living master lease with ALG. Additionally, we recorded an impairment loss of $3.3 million related to seven of the Texas properties covered under this lease. Clint will provide additional detail later in the call.
Interest expense increased by $3 6 million, primarily due to a higher outstanding balance on our revolving line of credit and higher interest rates.
Draws on our line of credit were used primarily to pre fund 2023 investments.
Interest expense was partially offset by scheduled principal paydowns on our senior unsecured notes.
We recognized a $16 8 million gain on the sale related to the divestiture of night assisted living communities, which I'll discuss shortly.
Our provision for credit losses increased by $4 2 million, primarily due to a $3 6 million write off of a working capital note pursuant to a 12 property assisted living master lease with ALG.
Additionally, we recorded an impairment loss of $3 3 million related to seven of the Texas properties covered under this lease Clint will provide additional detail later in the call.
Pamela J. Shelley: Transaction fees increased approximately half a million dollars related to lease transitions and amendments. Net income available to common shareholders increased by $10.2 million, primarily due to the increase in gain on sale and higher interest income from new investments, partially offset by higher interest expense, the previously discussed impairment loss and increase in our provision for credit losses, as well as the decrease in rental income. Fully diluted FFO per share was $.57 compared with $.72. Excluding non-recurring items, which represents the write-off of the working capital note, FFO per share was $.66 compared with $.72.
Transaction fees increased approximately half a million dollars related to lease transitions and amendments.
Net income available to common shareholders increased by $10 2 million, primarily due to the increase in gain on sale and higher interest income from new investments, partially offset by higher interest expense. The previously discussed impairment loss and increase in our provision for credit losses as well as a decrease in rental income.
Fully diluted <unk> per share was 57 compared with 72 cents excluding.
Nonrecurring items, which represents the write off of the working capital note.
<unk> per share was <unk> 66 cents compared with 72 cents.
Pamela J. Shelley: The decrease in FFO, excluding non-recurring items, was due to higher interest expense, lower rental income, and additional shares outstanding from sales under our ATM program, partially offset by higher interest income from new investments. Now, I'll recap our recent divestitures. In total, we sold nine properties with a combined 408 units for $29.6 million. We received proceeds of $24.6 million net of transaction costs and seller financing and recorded gains of approximately $17 million. Eight of the properties were part of our previously disclosed Brookdale transaction. Additionally, subsequent to the end of the fourth quarter, we sold our JV interest in a 110-unit assisted living community located in Wisconsin for $23.1 million, which yielded 8.12% to LTC in 2023. The purchase price includes the repayment of 2.4 million in rent credits given to the operator during the new construction lease up and the payoff of a $550,000 working capital note.
The decrease in SSO, excluding nonrecurring items was due to higher interest expense lower rental income and additional shares outstanding from sales under our ATM program, partially offset by higher interest income from new investments.
Now I'll recap our recent divestitures in total we sold nine properties with a combined 408 units for $29 6 million. We received proceeds of $24 6 million net of transaction costs and seller financing and recorded gains of approximately $17 million.
Eight of the properties were part of our previously disclosed brookdale transactions.
Subsequent to the end of the fourth quarter, we sold our JV interest in a 110 unit assisted living community located in Wisconsin for $23 1 million, which yielded $8 12 per cent to LTC in 2023.
<unk> price includes the repayment of $2 4 million of rent credits given to the operator during new construction lease up and the path of a 550000 dollar working capital note.
Pamela J. Shelley: We received net proceeds of $19.6 million net of transaction costs, and we anticipate reporting a gain on sale of $4 million in the 2024 first quarter. With the prepayment of the rent credits, we effectively received full 2024 rental income during the first quarter. However, in order to provide first-quarter FFO guidance, we normalized this $2.4 million of rent as a non-recurring item. Also, during the fourth quarter, we sold approximately 1.6 million shares of common stock for net proceeds of $52 million under our ATM program.
We received net proceeds of $19 6 million net of transaction costs, and we anticipate reporting a gain on sale of $4 million in the 2024 first quarter.
With the prepayment of the rent credits, we effectively received full 2020 for rental income during the first quarter.
However in order to provide first quarter guidance, we normalized this $2 4 million of rent as a nonrecurring item.
Also during the fourth quarter, we sold approximately one 6 million shares of common stock for net proceeds of $52 million under our ATM program.
Pamela J. Shelley: Subsequent to the end of the quarter, we sold approximately 91,000 shares of common stock for net proceeds of $2.9 million under the program. During the fourth quarter, we repaid $5 million in scheduled principal paydowns on our senior unsecured notes and paid $24 million in common dividends. Importantly, we repaid $60 million under our unsecured revolving line of credit, reducing our debt to annualized adjusted EBITDA for real estate from six times for the 2023 third quarter to 5.5 times for the 2023 fourth quarter. Subsequent to the end of the quarter, we repaid $30.5 million under our unsecured revolving line of credit, reducing our 2023 fourth quarter debt-to-adjusted EBITDA for real estate ratio from 5.5 times to 5.4 times on a pro forma basis.
Subsequent to the end of the quarter, we sold approximately 91000 shares of common stock for net proceeds of $2 9 million under the program.
During the fourth quarter, we repaid $5 million in scheduled principal paydowns on our senior unsecured notes and paid $24 million in common dividends.
Importantly, we repaid $60 million under our unsecured revolving line of credit reducing our debt to annualized adjusted EBITDA for real estate from six times for the 2023 third quarter to five five times for the 2023 fourth quarter.
Subsequent to the end of the quarter, we repaid $35 million under our unsecured revolving line of credit, reducing our 2023 fourth quarter debt to adjusted EBITDA for real estate ratio from five five times to five four times on a pro forma basis as.
Pamela J. Shelley: As Wendy mentioned earlier, by substantially reducing our leverage, LTC is better positioned for growth in 2024 and in the future. Additionally, subsequent to the end of the quarter, we amended our unsecured revolving line of credit to accelerate the one-year extension option notice date and exercised our option to extend the maturity date to November 19, 2026. All other provisions of the agreement remain unchanged.
As Wendy mentioned earlier by substantially reducing our leverage LTC is better positioned for growth in 2024 and in the future.
Additionally, subsequent to the end of the quarter, we amended our unsecured revolving line of credit to accelerate the one year extension option notice state and exercised our option to extend the maturity date to November 19th 2026.
All other provisions of the agreement remain unchanged.
Pamela J. Shelley: Currently, we have $15 million of cash on hand, approximately $128 million available on our line of credit with roughly $272 million outstanding, and about $73 million available under our ATM. This gives us total liquidity of almost $217 million. Now I'll hand the mic over to Pam. Thank you, Pam.
Currently we have $15 million of cash on hand, approximately $128 million available on our line of credit with roughly 272 million outstanding and about $73 million available under our ATM. This gives us total liquidity of almost $217 million now.
Now I'll hand, the mic over to claim thank.
Thank you Pam.
Clint B. Malin: I'll begin with a discussion of some of our operating partners, starting with Brookdale. Aside from the eight properties sold from the original portfolio, Brookdale retained 17 of the properties under a new master lease. Five properties were transitioned to an existing LTC operator, Oxford Senior Living, and five were transitioned to an operator new to LTC, Navion Senior Solutions. It bears repeating that through these successful transactions, we have more than replaced the income that was generated from the original Brookdale portfolio through a combination of new leases and pre-investing sales proceeds. Next, I'll discuss a 12-property non-revenue-generating portfolio which was temporarily transitioned to ALG in July 2022 following the COVID pandemic. ALG provided assistance by stepping out of their geographic footprint to quickly support us by operating these properties while we evaluated whether to sell them or transition them or some combination of both. This 12-property ALG mass release included eight properties in Texas and one each in Florida, Georgia, Mississippi, and South Carolina. The majority of these properties are primarily located in small towns and were built in the 1990s.
I'll begin with a discussion of some of our operating partners starting with Brookdale beside from the eight properties sold from the original portfolio Brookdale retained 17 other properties under a new master lease.
Five properties were transitioned to an existing LTC, operator, Oxford senior living.
In fiber transition to an operator, new to LTC Navient senior solutions.
It bears repeating that through these successful transactions, we have more than replaced the income that was generated from the original brookdale portfolio through a combination of new leases in pre investing sales proceeds.
Next I'll discuss the 12 properties non revenue generating portfolio, which was temporarily transition to ALG in July 2022, following the Covid pandemic.
ALG provided assistance by stepping out of their geographic footprint to quickly support us by operating these properties, where we evaluate whether to sell them or transition them, where some combination of both.
This 12 property ALG mass release included eight properties in Texas, and one each in Florida, Georgia, Mississippi, and South Carolina.
The majority of these properties are primarily located in small towns and were built in the 19 nineties we.
Clint B. Malin: We sold them to Florida and Mississippi communities in 2023. For the remaining 10 properties, we entered into an agreement to sell 5 of the Texas properties, closed a building in Texas in 2023, and plan to close a second Texas property in the near future. We then expect to sell the 2 closed properties for alternative use in the future. After the end of the fourth quarter, we transitioned two properties that were built in the last five to seven years in Georgia and South Carolina to an operator new to LTC, Legacy Senior Living. The lease term is for two years and with two one-year extension options. Initial rent for the first six months is zero, after which it will be based on a mutually agreed-upon fair market rent.
We sold the Florida and Mississippi communities during 2023.
For the remaining 10 properties, we entered into an agreement to sell five of the Texas properties close to building in Texas during 2020 three.
Plan to close a second Texas property in the near future. We then expect to so the two closed properties for alternative uses.
After the end of the fourth quarter, we transitioned properties that were built in the last five to seven years in Georgia, and South Carolina to an operator, new to LTC legacy senior living.
The lease term is for two years and with two one year extension options initial.
The initial rent for the first six months of zero after which will be based upon mutually agreed upon fair market rent.
Clint B. Malin: The master lease includes a purchase option that can be exercised in 2027 if the two one-year lease extensions are exercised. Additionally, we agreed to fund up to $900,000 for capital expenditures for the first year of the lease and up to $240,000 for a working capital note at 8.25%, maturing on December 31, 2025. We are currently working to transition the remaining property. To reiterate, the portfolio was non-revenue-generating.
This release includes a purchase option that can be exercised in 2027, if the two one year lease extensions are exercised.
Additionally, we agreed to fund up to 900000 for capital expenditures for the first year of the lease and up to 240000 for a working capital note that 8.25% maturing on December 31 2025.
We are currently working to transition the remaining property to reiterate the portfolio was non revenue generating.
Clint B. Malin: A few words about Prestige Healthcare. As we previously disclosed, we amended Prestige's mortgage loan, which is secured by 15 skilled nursing centers in Michigan. As of January 1, 2024, the minimum mortgage interest payment due to LTC is based on an annual current pay rate of 8.5% on the outstanding loan balance of $183 million. The contractual interest rate on the loan, 10.8%, remains unchanged.
A few words about prestige healthcare.
As we previously disclosed we amended prestige as mortgage loan, which was secured by 15 skilled nursing centers in Michigan.
Effective January one 2020 for the minimum mortgage interest payment due to LTC is based on the annual current pay rate of eight 5% on the outstanding loan balance of $183 million.
The contractual interest rate on the loan 10, 8% remains unchanged.
Clint B. Malin: Additionally, the amendment gives LTC the right to draw on Prestige's security to pay the difference between the contractual rate on the loan and the current pay rate. We've received all 2023 contractual interest of $19.5 million due from Prestige, including drawing $3.4 million of security held by us. Subsequent to the end of the 2023 fourth quarter, Prestige increased its security using retroactive Medicaid payments received from the state of Michigan. We currently hold security of $4 million and expect that additional retroactive Medicaid payments to be received by Prestige later in 2024 will be remitted to LTC as security. Full contractual interest has been paid on the loan through February 2024, and we expect to receive full contractual interest through at least 2025, including draws as needed from the security provided by the retroactive Medicaid payments. However, improvement in the performance of the properties will reduce the need to apply the security held by us.
Additionally, the amendment gives LTC the right to draw on prestige as security pay the difference between the contractual rate on the loan and the current pay rate.
We've received all 20 twenty-three contractual interest of $19 5 million due from prestige, including drawing $3 4 million of security held by us.
Subsequent to the end of the 2023 fourth quarter prestige increased our security using retroactive Medicaid payments received from the state of Michigan.
We currently hold security of $4 million and expect that additional retroactive Medicaid payments to be received by prestige later in 2024 will be remitted to LTC as security.
Full contractual interest has been pay them alone through February 2024, and we expect to receive full contractual interest through at least 2025, including draws as needed from the security provided by the retroactive Medicaid payments.
Prudent in the performance of the properties, we will reduce the need to apply security held by US occupancy in this portfolio grew from 73% in September to 75% in January.
Clint B. Malin: Occupancy in this portfolio grew from 73% in September to 75% in January. Regarding our fourth quarter investment activity, we mentioned during the last quarter's call that we closed on a transaction to fund a $19.5 million mortgage loan at a yield of 8.75% for the construction of an 85-unit assisted living and memory care community in Michigan. The borrower's equity had been fully drawn down, so we began funding in the first quarter of this year.
Regarding our fourth quarter investment activity, we mentioned during the last quarter's call that we closed on a transaction to fund a $19 $5 million mortgage loan at a yield of eight in three quarter percent for the construction of an 85 unit assisted living and memory care community in Michigan, the borrower's equity.
<unk> has been fully drawn so we began funding in the first quarter of this year.
Clint B. Malin: Moving on to our assisted living portfolios with quarterly market-based rent resets, which now include the two assisted living communities for whom we have been providing abated rent. We received $861,000 during 2023 and expect to receive $3.3 million in 2024. For our SNP portfolio transition to HMG, we received $8 million in rent during 2023. Subsequent to December 31, 2023, we amended the mass release to extend its term from February 1, 2024 to August 31, 2024. Rent was set at $4.7 million for the period, which annualizes to $8 million.
Moving onto our assisted living portfolio with quarterly market base rent resets, which now include the two assisted living communities for whom we have been providing abated rent.
We received 861000 during 2023 and expect to receive $3 3 million in 2024.
Our our sniff portfolio transition to <unk>, we received $8 million in rent during 2023.
Subsequent to December 31, 2023, we amended the master lease to extend its term from February one 2024 to August 31 2024.
Rent was set at $4 7 million for the period, which annualized to $8 million. We also extended the term of <unk> revolving line of credit to coincide with the new lease exploration.
Clint B. Malin: We also extended the term of HMG's revolving line of credit to coincide with the new lease expiration. Next, I'll provide insight into our portfolio numbers, which excludes properties transitioned on or after July 1, 2022. Q3 trailing 12-month EBITDARM and EBITDAR coverage, as reported, using a 5% management fee, was 1.23 times and 0.99 times, respectively, for our assisted living portfolio. Excluding stimulus funds received by our operators, coverage is 1.14 times and 0.9 times, respectively. For our skilled nursing portfolio, as reported, EBIDARM and EBIDAR coverage was 1.96 times and 1.47 times, respectively. However, excluding stimulus funds received by our operators, coverage was 1.68 times and 1.19 times, respectively.
Next I'll.
Provide insight into our portfolio numbers, which excludes properties transitioned on or after July one 2022.
Q3, trailing 12 month, EBITDAR and EBITDAR coverage as reported using a 5% management fee was 123 times and <unk> 99 times, respectively for our assisted living portfolio.
Excluding stimulus funds received by our operators coverage was 114 times and nine times respectively.
For our skilled nursing portfolio as reported EBITDAR and EBITDAR coverage was 196 times and 147 times, respectively. Excluding stimulus funds received by our operators coverage was 168 times and 1.19 times respectively.
Clint B. Malin: Pro forma for the 4% Medicare market basket rate increase, skilled nursing EBITDA coverage excluding stimulus funds would have been 1.24 times. Now for some recent general occupancy trends, which are as of January 31 and are for our same-store portfolio. These numbers include approximately 65% of our total same-store private pay units and approximately 78% of our same-store skilled nursing beds. Private pay occupancy was 87% at January 31, 2024, 87% at September 30, 2023, and 85% at June 30. For our skilled nursing portfolio, average monthly occupancy was 76% in January and 75% in both September and June.
Pro forma for the 4% Medicare market basket rate increase skilled nursing EBITDAR coverage, excluding stimulus funds would have been 124 times now.
Now for some recent general occupancy trends, which are as of January 31, and our for our same store portfolio.
These numbers include approximately 65% of our total same store private pay units and approximately 78% of our same store skilled nursing beds.
Private pay occupancy was 87% at January 31, 2024, 87% at September 32023, and <unk>, 85% at June 30.
For our skilled nursing portfolio average monthly occupancy was 76% in January 75% in both September and June.
Clint B. Malin: As for the pipeline, we are working to rebuild it with creative and strategic investments. The majority of our investments during 2024 are expected to be back-end loaded, in terms of how we're thinking about the current market and potential opportunities. Bank maturities will likely be in billions of dollars this year, and in many cases, banks are highly selective and will only work with existing customers that are willing and able to put up higher reserves.
That's where the pipeline we are working to rebuild it with accretive and strategic investments. The majority of our investments during 2024 are expected to be backend loaded.
In terms of how we're thinking about the current market and potential opportunities bank maturities will likely be in the billions of dollars. This year and in many cases banks are highly selective in OLED, we will work with existing customers that are willing and able to put up higher reserves.
Wendy L. Simpson: The bottom line for LTC is that we believe we are in a good position to grow and further diversify our portfolio. We believe our structured finance platform offers interesting solutions to complement triple net acquisitions and joint ventures and that, as a result of the current lending environment, we can grow relationships with regional operators with whom we don't already have a relationship. Now we'll turn the call back to Wendy for her closing remarks. Thank you, Pam and Clint. After some major accomplishments in 2023 and strengthening our portfolio and balance sheet, we believe LTC is well positioned to capture current opportunities. Thank you, everyone.
Bottom line for LTC is that we believe we are in a good position to grow and further diversify our portfolio. We believe our structure finance platform offers interesting solutions to complement triple net acquisitions and joint ventures and that is a result of the current lending environment, we can grow relationships with our regional operators with whom we don't.
Already have a relationship now I will turn the call back to Wendy for her closing remarks.
Thank you Pam and Clint.
After some major accomplishments in 2023, and strengthening our portfolio and balance sheet. We believe LTC is well positioned to capture current opportunities.
Thank you everyone. We appreciate your continued support and we'll talk to you again next quarter.
Operator: We appreciate your continued support, and we'll talk to you again next quarter. Operator, we are 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star 2 if you'd like to remove your question from. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Later, we are 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.
A confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd 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, while we poll for questions.
Pamela J. Shelley: One moment while we poll for questions. Your first question for today is coming from Austin Werschmitt with KeyBank Capital Markets. Hey, good morning, everybody. Just wanted to first hit on the quarterly first quarter guidance and just curious what the biggest factors are driving the delta between what you achieved in the fourth quarter and the guidance that you put out for the first quarter. I think 63, 64 sounds like. Hi Austin, it's Pam.
Your first question for today is coming from Austin, where Schmidt with Keybanc capital markets.
Hey, good morning, everybody just wanted to first hit on the quarterly first quarter guidance and just curious what the biggest factors are driving the delta between what you achieved in the fourth quarter and and the the the guidance that you've put out for the first quarter. I think 63 is just the core service.
Yeah.
Hi, Austin, it's Dan, it's primarily coming from a decrease in revenue from properties sold and then the dilution from the ATM issuance.
Pamela J. Shelley: It's primarily coming from a decrease in revenue from properties sold, and then the dilution from the ATM issuance. Is there anything from an excess rent payment that's also having an impact there from, you know, you received over 100 percent, I believe, in the fourth quarter. I'm just curious how much of an impact there is or any other considerations in the first quarter as we think about, then, the run rate through the balance of the year. So we did normalize, in the first quarter of the guidance, the year of rent that we received for the property that was sold. And then in the fourth quarter, I think you're referring to the prestige deferred interest, we received $1.5 million. That was recorded on the effective interest method, which is essentially a straight line for interest income. So there was no effect from that in FFO. In FAD, yes, you know, there was a pickup of $1.5 million. But in FFO, there was nothing that would change that.
Alright is there anything from an excess rent payments. That's also having an impact there from from you know you received over 100% I believe in the fourth quarter.
Just curious how much of an impact there is there any other considerations in the first quarter as we think about that in the run rate through the balance of the year.
Right. So we did normalize in the first quarter and the guidance, we did normalize the Dod.
Year of rent that we received for the property that was sold and then in the fourth quarter I think you're referring to the prestige deferred interest we received a $1 5 million that was recorded on the effective interest method, which is essentially straight line for interest income. So there was no effect from that and in F. F L.
<unk> and Fad, Yeah, Theres, a pickup of $1 5 million, but in <unk>. There was nothing that would change that run rate.
Clint B. Malin: Got it, got it. That's helpful. And then just switching over to the HMG portfolio, you guys have talked a lot about this, you know, pushing out the lease on a sort of temporary basis. But what are your thoughts on how you plan to, you know, keep the assets in the current master lease? Or are you still considering selling some of those assets?
Got it got it that's helpful. And then just switching over to the <unk> portfolio you guys have talked a lot about this you know pushing out the lease on a on a temporary basis, but what what are sort of the thoughts on how you plan to keep the assets.
In the current master lease or are you still considering selling some of those assets and then you know as it stands today I mean can you can you kind of put a little bit of a ring fence around or book and where you think potential upside is currently within that lease and then is there even further upside if the reimbursement.
Clint B. Malin: And then, you know, as it stands today, I mean, can you kind of put a little bit of a ring fence around or book end where you think potential upside is, you know, currently within that lease? And then is there even further upside if the reimbursement environment is more favorable than today? Sure, this is Clint.
You know is more favorable than today.
Sure this is Clint.
Clint B. Malin: Well, one of the items for doing the seven-month extension is that HMG has asked us to look at re-tenanting or selling two of the properties. So, we're going through that evaluation right now. And that was the primary reason for extending just for seven months.
One of the items for doing the sub.
Seven month extension is <unk>.
<unk> asked us to look at re tenant or selling two of the properties. So we're going through that evaluation right now.
And that was the primary reason for extending just for seven months. We do believe there is upside in this portfolio.
Clint B. Malin: We do believe there is upside in this portfolio. We're not sure exactly of the timing and how much, but we do believe there is definitely room for us to participate in the cash flow on this. So, to set a more permanent rent where we have constant rent growth, even if you sell those two assets, can the remaining portfolio? Well, these two assets, whether we sell or rent them out, are currently collectively positive cash flow. So it's not that they are a negative drain on HMG. It's maybe more geographic based.
We're not sure exactly of the timing.
And how much but we do believe there is definitely room that we should be participating in the cash flow on those so to set a more permanent rent, where we have constant rent growth.
Even if you sell those two assets can be right now remaining ports.
While these two assets, whether we sell or re tenant. They are currently collectively positive cash flow.
So it's not that they are a negative drain to AMG is maybe more geographic based shell.
Clint B. Malin: So I think that gives us optionality. Got it. But do you think you can sustain the $8 million run rate then if those two assets get stolen? Or...
I think that gives us optionality.
Got it but do you think you can sustain the 8 million.
Run rate then if those two assets get sold or well if we get that.
Clint B. Malin: If we could sell, and redeploy capital. Yeah, I think on a net basis, we sell the assets, and what we could redeploy those dollars at, I think on a net basis, yes, we would be at $8 million at a minimum. That's helpful. And then just last one for me.
Capital.
On a net basis, we sell it.
And what we could redeploy those dollars out I think on a net basis, yes, we would be at the $8 million at a minimum.
Okay. That's helpful. And then just last one for me I'm. Just curious you guys were active on the ATM this quarter brought down leverage I mean.
Pamela J. Shelley: I'm just curious, you guys were active in the APM this quarter, and you brought down leverage. Should we expect that you want to, you know, continue to drive down leverage, or would you think about further deleveraging from here, more so from over-equitizing on future investments? Yeah, probably the latter.
Should we expect that you wanted to you know continue to drive down leverage or would you think about further deleveraging from here more so from <unk> on on future investments.
Yeah, probably the latter.
Pamela J. Shelley: We now have some loans; if you look at the maturity, the long receivable maturity schedule, and the supplemental, we have about 80 million coming due to us this year. So that naturally de-leverages us down to five times by the end of the year, which is around our, you know, long-term target. But yeah, we would look to over-equitize investments as well. Understood. Thanks for the time.
We know we had some loans if you look at the maturity of the loan receivable maturity schedule in our supplemental we have about $80 million coming due to us. This year. So that naturally deleverage is that down to five times by the end of the year, which is around our long term target, but yeah, we would look to over <unk> investments.
As well.
Understood. Thanks for the time.
Thanks Austin.
Your next question is from Rich Anderson with Wedbush.
Operator: Thanks, Austin. Your next question is from Rich Anderson with Wedbush. Thanks. Good morning.
Good morning.
Yeah.
I don't think in my thoughts together here on the ALG.
Operator: Let me get my thoughts together here. On the ALG portfolio, that was paying you zero, correct, Clint, prior to all of this? Correct. Prior to the transition to ALG, it was paying us zero.
Portfolio that was paying U zero correct claim.
Carrabba's.
Prior to the prior to the transition to ALG was paying us zero.
Clint B. Malin: Okay, and so now you go through all the... Do I have this right? You'll be left with probably two operating assets. So we'll be left with three.
Okay, and so now you go through all the steps.
Do I have this right you you'll be left with probably two operating assets.
So it will be loved towards three so two we've already transitioned to a new operator at the end of the year.
Clint B. Malin: So two, we've already transitioned to a new operator at the end of the year. And then we have one remaining property to transition. And those three buildings are the newer buildings of the twelve property master lease. Two to legacy and one to go. Correct. And zero rent for the first six months on this.
And then we have one remaining property too.
The transition and those three buildings are then those three buildings are the newer buildings of the 12 properties.
Police.
Two to legacy and want to go.
And and zero rent for the first six months on those too.
Clint B. Malin: Correct. Okay, so, there's no downside in 2024 from this, if you get anything from those three, pause. As I emphasized on the call, non-revenue generating. Correct. Okay. And then on Prestige.
Correct. Okay. So there's no there's no downside in 2024 from this then right as you get anything from those three it's it's positive from zero fragrance called <unk>.
Non revenue generating correct okay.
Clint B. Malin: You collected $19,500, including, I think you said, a $3.4 million draw last year. They've added to that, or replenished that through retroactive Medicaid. Did you say how much more your security deposit is now, and that's the question number? So we were at 5 million previously; we're now at 4 million. After that, after we drew on the letter of credit, and then they replenished the letter of credit.
And then on prestige.
You collected the 19 five.
<unk> I think you said, a 3.4 million draw all of last year.
They've added to that to replenish that through the retroactive Medicaid.
Did you say how much how much more of your security deposit is now and that's the question number one.
So we were at $5 million previously, we're now at $4 million.
After the after we drew on the letter of credit and then they replenished the letter of credit. So net change down a million were current on contractual interest through February of 2024.
Clint B. Malin: So net change down a million, we're current on contractual interest through February of this year. Okay, so that contractual interest is some combination of real payment, interest payment, and draws, future draws, and security, correct? Correct. The current pay is 8.5%, and then we can draw on the security to reach the contractual interest payment amount. You know, security, deposit, draws, you know what you get to have. So as the, we've given them effectively a two and a half year runway to improve operations, occupancy, and improve margins. So what they're doing is they are paying us eight and a half percent current income from cash flow generated from the portfolio. And as they get retroactive funds, they provide those to us to increase security.
Okay. So so that contractual interests is some combination of real payment interest payment and draws future draws and security correct.
Correct. The current pay is eight 9% and then we can draw on the security to reach the contractual interest payment amount, okay and when do you think that.
You kind of get away from.
Security deposit draws so.
Yeah.
So as the we've given them effectively a two and a half year runway to improve operations occupancy improve margins. So what they're doing because they are they are paying us 85% current pay from cash flow generated from the portfolio.
And as they get retroactive funds.
They provide those to us to increase the security.
Clint B. Malin: And starting in 2025, incremental to the retroactive Medicaid funds, we get 50% of the excess cash flow. So as the buildings perform better... We also participate in the cash flow through that mechanism, so as operations improve, we have fewer draws on our security. Okay. Um, okay, great. And then, on the run rate, you know, the 63 to 64, excluding the non-recurring rent... How do you do that?
And starting in 2025 incremental to the retroactive Medicaid funds, we get 50%.
Of the excess cash flow so as the buildings perform better.
We contribute all we also participate in the.
Cash flows through that mechanism. So as operations improve we have less draws on our security.
Okay.
Okay, Great and then on the run rate you know the 63 to 64.
<unk> the nonrecurring rent.
How do you would.
Pamela J. Shelley: Would you call that a kind of a floor for the year? Is there any reason why that might trickle down from here for some reason, maybe through ATM withdrawals or whatever, temporarily speaking? Or do you see this as sort of like a jumping off point and likely to see more of a quarterly sequential ramp from that? Yeah, I, I, I think it's probably more of a floor than a run rate for the year.
Would you call that a kind of a floor to the year is there any reason why that might trickle down from here or for whatever reason, maybe through ATM draws or whatever temporarily speaking or do you see this as sort of like a jumping off point and you know.
Likely to see.
More of a quarterly sequential ramp from that level.
Yeah, I I I.
I think it's probably more of a floor than then Ron.
Pamela J. Shelley: But, you know, that remains to be seen. I mean, we're very bullish on the investment outlook for the year. So that would add to it. You know, we give a base case scenario given no additional investments. So anything above what we have right now would be accretive, even even over-equitizing. If you assume zero future acquisitions, it still trickles up right through escalations and so on. It does.
Run rate for the year.
But you know that.
That remains to be seen I mean, we're very bullish on the our investment our outlook for the year. So that would add to it we give a base case scenario given no additional investments.
So anything above what we already have right now would be accretive even even over appetizing.
If you assume zero future acquisitions, it still its still trickles up right through Escalations and so on.
Pamela J. Shelley: That is correct. Yeah. And those hit more in the back half of the year. Yes, sort of sinisterly behind the scenes that's waiting to lower that number for one reason or another. Nothing kind of one-time-ish that you see coming.
That is correct, yeah, and those hit more in the back half of the year, yes, but theres nothing sort of.
Sort of centers steadily.
Behind the scenes look waiting to lower that number for one reason or another nothing kind of onetime ish that you see coming it's it's basically pretty go pretty good visible path from this point going forward yes.
Pamela J. Shelley: It's basically a pretty good visible path from this point going forward. Yes, correct. Our crystal ball right now does not have anything looming out there.
Yes, correct, our Crystal ball right now.
Do you have anything.
Pamela J. Shelley: Wonderful. Okay, that's all, guys. Pam.
<unk> out there.
Wonderful Okay. That's all I got thank you.
Operator: Your next question for today is coming from Michael Carroll with RBC. Yeah, thanks. I wanted to circle back to HMG, just to confirm the rest of the portfolio minus those two assets that they are happy with and how it fits within their geographic footprint. And they want to keep those properties going forward once you kind of figure out what to do with those other two properties.
Thanks.
Yeah.
Your next question for today is coming from Michael Carroll with RBC.
Yeah. Thanks, I wanted to circle back to <unk> just to confirm the rest of the portfolio minus those two assets that they they are happy with and how it fits within their geographic footprint and they want to keep those properties going forward. Once you kind of figure out what to do with those other two property.
Clint B. Malin: Correct, yes. I mean, and they've identified these two buildings, you know, where they are cash flow positive. So we're in discussion with them about how we approach those two, but they have approached us about, you know, the possibility of transitioning to. But again, the two collectively are cash flow positive. And then once those two get transitioned away, would you be in a position to create a longer-term lease with HMG, or are you still waiting for that portfolio to recover before you set a longer-term lease with more of a permanent rental rate? Yeah, we have to see more.
<unk>.
Correct, yes.
You know they've identified leased two buildings, where they are cash flow positive.
So we are in discussion with them on on how we approach those two but they have approached us about possibility of of transitioning too, but again to collectively are cash flow positive.
And then once those two get transitioned away would you be in a position to create a longer term lease with H M. G or are you still waiting for that portfolio to recover.
<unk>, you said a longer term lease with more of a permanent rental rate.
So we have to see more track, we think theres more upside in occupancy and performance. So we definitely feel there is more more room for growth. So we are we want to participate in that.
Clint B. Malin: We think there's more upside in occupancy and performance. So we definitely feel there's more room for growth. So we, we want to participate in that. And then how are those assets performing? I know that they took over those. Was it early 2023 when they took those over? I guess how have they recovered since they've been operating them? It was in 21 after they took over.
And then how how are those assets performing I know that they took over those was it early 2023 when they took those over I guess, how have they recovered since they've been operating them.
For 2020 one after they took over our occupancy.
Clint B. Malin: Occupancy has been fairly flat, but they've improved, you know; labor agency utilization has gone down. So cash flow has improved, but occupancy has been a little bit flat. So that's really where we see the potential for growth in occupancy gain. Okay. And I know that the, I mean, I guess SEC's contractual rent was significantly higher. I mean, should you kind of set a new rate, is it going to be closer to that $14, $15 million run rate? Or is it going to be closer to this $8 million run rate?
Occupancy has been fairly flat.
But they have improved.
Labor Agency utilization has gone down so cash flow has improved.
But occupancy has been a little bit slot. So that's really where we see the potential for growth as well.
Occupancy gains.
Okay, and I know that the I mean, I guess sec's contractual rent was significantly higher I mean should when you kind of set a new rate is it going to be closer to that 14 and $15 million run rate or is it going to be closer to $8 million run rate.
Clint B. Malin: somewhere in between. I don't think you're going to get all the way back to 14.8, Okay. And then just last one for me on investments. I know you kind of touched on this a little bit. So what on the investment side are you looking at more intently right now? It sounded like you're more interested in the loans. Is that correct?
Somewhere in between I don't think youre going to get all the way back to the <unk> eight.
Okay.
And then just last one for me on on investments I know you've kind of touched on this a little bit so what on the investment side are you looking at more intently right now and it sounded like you were more interested on the loans is that correct or is it are you seeing a lot of different opportunities on the real estate too.
Clint B. Malin: Or are you seeing a lot of different opportunities in real estate too? I think there are a lot of different opportunities. I think that people we're speaking to are looking to, you know, work with stable capital providers.
I think a lot of different opportunities.
Think that people are speaking to or looking to work with stable capital providers.
Clint B. Malin: And so for us, we're going to be looking at, you know, loans, MES, preferred equity, joint ventures, acquisitions, and triple nets, a little bit of everything. So I think we're going to be considering and looking at a lot of opportunities. Okay, great.
And so for us it's going to be looking at loans mez preferred equity joint.
Joint ventures acquisitions in Triple net so a little bit of everything so I think we're going to be considering and looking at a lot of opportunities.
Operator: Your next question for today is coming from Connor Seversky with Wells Fargo. Hey, good morning, guys. Jesus Anfracana this morning.
Okay, great. Thank you.
Thank you.
Your next question for today is coming from Connor Seversky with Wells Fargo.
Hey, good morning, guys, Hey, Suzanne for kind of this morning, thanks for taking the question.
Operator: Thanks for taking the question. I just, can you, most of my questions have kind of been asked at this point. Can you quickly go over what you're seeing in the watch list? It seems like ALG was a unique situation given COVID.
I just can you most of my questions have kind of been asked at this point can you quickly go over what you're seeing in the watch list. It it seems like Oh Gee was a unique situation given COVID-19.
Clint B. Malin: Prestige seems to be like, you guys are pretty comfortable with the level of visibility you have with them, the way you structured that contract and the anticipated Medicaid rate increases you restructured that for? What else are you seeing out there just in the portfolio? Well, I mean, we brought resolution to a lot of items, you know, the Brookdale lease transition, Prestige, we're working through the ALG transition, and we spoke about HMG. So, you know, those are our main focuses. And we're talking about, you know, growth.
Prestige seems you seem to be like you guys are pretty comfortable with the level of visibility you have with them. The way you structured that contract and the anticipated Medicaid rate increases.
The restructure that for.
What else are you seeing out there just send me up for them.
Bobby we bought resolution to a lot of items.
Brookdale lease transition prestige.
Working through the ALG transition that we spoke about <unk>. So.
Those are our main focus is and we're talking about growth. So I think that is a positive aspect of where we are at and our focuses and also in the transition portfolio, we're seeing upward movement in recovering rents.
Clint B. Malin: So I think that is a positive aspect of where we are at in our focus. And also, in the transition portfolio, we're seeing upward movement in recovering, you know, rental income. So those are all positive.
Rental income so those are all positives.
Clint B. Malin: Great, I appreciate the color. And just a quick modeling one to make sure I'm kind of buttoned up here with the post-quarter acquisitions and dispositions. So some, There were a bunch of moving parts here, post-quarter here. Can you go over any anticipated acquisitions and disposition activity that has closed so far in one queue or expected to close in the near term? For the LG, it looks like you got 1.6 million in proceeds you're anticipating from five properties and another one that's expected to be sold as well.
Great appreciate the color and just a quick modeling one to make sure I'm kind of buttoned up here with the post quarter acquisitions and dispositions.
Some.
So it was a bunch of moving parts here post post quarter here can you go over any anticipated acquisitions in it.
Disposition activity that have closed so far in <unk> are expected to close in the near term.
For the LG it looks like you've got $1 6 million in proceeds you're anticipating from five properties and another one that is expected to be sold as well anything else kind of think about that is expected to close near term as we're kind of putting up the models here.
Clint B. Malin: Anything else kind of to think about that's expected to close near term as we're kind of buttoning up the models here? No, nothing. Everything that we have on deck right now, we've talked about. So nothing beyond that right now.
No nothing every everything that we have on deck right now we talked about so nothing nothing beyond that right now.
Clint B. Malin: Great. Thanks, guys. Thank you. Thank you. Your next question is coming from Marcus Mevi, a private investigator. Thank you. Marcus, your line is live. Marcus, if you have a question, please announce it on your line. Once again, if there are any questions or comments, please press star 1 on your touchtone phone. It seems like the speaker line dropped. Just one moment while we reconnect. We're here. No, we'
Great. Thanks, guys.
Thanks cases, thank you.
Your next question is coming from Marcus me by a private investor.
Okay.
Marcus Your line is live.
Marcus if you have a question. Please announce it your line is live.
Once again, if there are any questions or comments. Please press star one on your Touchtone phone.
It seems like the speaker line dropped just one moment, while we reconnect.
Oh no.
Operator: Hello, we have reached the end of the question and answer session. I'll turn the call over to Wendy for closing remarks. Thank you, operator, and we look forward to talking to you at the end of this first quarter, and we appreciate the time you've taken to listen to us today. Have a great weekend. Bye bye. Thank you. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.
We're here.
Hello.
Okay. We.
Have reached the end of the question and answer session I'll turn the call over to Wendy for closing remarks.
Thank you operator.
And we look forward to talking to you at the end of this first quarter and we appreciate the time, you've taken to listen to US today have a great weekend bye bye.
Thank you. This does conclude today's conference and you may disconnect. Your lines at this time. Thank you for your participation.