Q3 2024 LTC Properties Inc Earnings Call
Speaker Change: Good day ladies and gentlemen and welcome to the LTC Properties Incorporated 3rd quarter 2024 earnings conference call.
Ali: My name is Ali and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct the question and answer session. During the question and answer session, if you have a question, please press star one on your touch tone for.
Speaker Change: 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 Change: These risks and uncertainty to detail the NLTC properties filings with the Securities and Exchange Commission from time to time. Including the company's most recent 10K, dated December 31, 2020 to 3.
Speaker Change: LTC undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances after the days of this presentation.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would like to turn the conference over to Wendy Simpson. Mom, you may be gay.
Wendy Simpson: Thank you, operator, and welcome everyone to LTC's 2024-4 Conference Call. On the call with me today, our Pam Kessler, co-president and chief financial officer, and Clint Malin, co-president and chief investment officer.
Wendy Simpson: The third quarter and fourth quarter to date have been positive to LTC and we are optimistic about the year and 2025.
Wendy Simpson: Year-to-date, we have collected $4.1 million in previously unrecorded revenue from former operators related to portfolio transitions in prior years.
Wendy Simpson: and we have received more than $98 million related to loan receivable payoffs and pay downs.
Wendy Simpson: Additionally, we received net proceeds of nearly $63 million from equity sales under our ATM program.
Wendy Simpson: As a result, we have substantially de-levered our balance sheet, better positioning LTC to capitalize on new investment opportunities.
Wendy Simpson: When thinking about growth opportunities ahead and with the full support of our board, we are actively evaluating RIDEA.
Wendy Simpson: We are currently reviewing several strategic approaches, as well as analyzing the infrastructure needed to successfully execute on this structure. Clint will provide more detail later.
Wendy Simpson: Before I turn the call over, I want to recognize the heroic efforts taken by our operators who are located in areas impacted by the recent hurricanes.
Wendy Simpson: They and their employees met the challenge to ensure residents and patients continue to receive the high-level care they need and expect.
Wendy Simpson: We've heard stories of great courage throughout the regions, and LTC extends its sympathies and support to everyone who has been and still is affected. Now I'll hand things over to Pam.
Pam Kessler: Thank you, Wendy. Please note that all numbers I discussed today are for the third quarter of 2024, compared with the same period in 2023, unless otherwise noted.
Pam Kessler: You can find additional details about our financial results in our Earnings Press Release, Supplemental and Form 10-Q.
Pam Kessler: Net income available to common shareholders increased by $7.1 million primarily due to one-time income from former operators related to portfolio transitions in prior years.
Pam Kessler: A decline in interest expense resulting from our deleveraging activities and increases in rent and income from unconsolidated joint ventures.
Pam Kessler: Fully diluted FFO per share was $0.78 compared with $0.65 last year. Excluding non-recurring items, FFO per share was $0.68 versus $0.65.
Pam Kessler: For a recap of third quarter activity, some of which was discussed on last quarter's call, we committed to fund a $26.1 million mortgage loan, which should begin early in 2025.
Pam Kessler: recorded a $3.6 million gain on sale related to an assisted living community in Texas and received $441,000 in contractual rent through the remainder of the lease term which would have expired in January 2025.
Pam Kessler: received a total of $39.7 million related to the payoff of a $29.3 million mortgage loan secured by a skilled nursing center in Louisiana as well as the $10.4 million pay down on a working capital note.
Pam Kessler: recorded 4.1 million of income from former operators related to portfolio transitions in prior years
Pam Kessler: Sold 1,543,100 shares under our ATM program for net proceeds of $54.7 million Exercised the accordion feature under our credit agreement to increase our revolving line of credit by $25 million
Pam Kessler: repaid $41.6 million under our unsecured revolving line of credit and $34.2 million in scheduled principal paydowns on our senior unsecured notes, and paid $25.3 million in monthly common dividends of $0.19 per share.
Pam Kessler: sold 226,370 shares under our ATM program for $7.9 million in net proceeds and repaid $93.8 million under our revolving line of credit.
Pam Kessler: Subsequent to September 30th, our total liquidity was approximately $286 million, up 51% from the prior quarter.
Pam Kessler: Accordingly, we have $5.4 million of cash on hand, $279 million available on our line of credit, and $1.5 million available under our ATM, which we are in the process of renewing and expanding.
Pam Kessler: Our conservative balance sheet management allows us to take advantage of new investment opportunities as they arise.
Pam Kessler: As a result of successfully deleveraging our balance sheet, our pro forma debt to annualized adjusted EBITDA for real estate is down to 4.2 times from 5.3 times for the second quarter, and our pro forma annualized adjusted fixed charge coverage ratio is up to 4.8 times from 3.7 times for the second quarter.
Pam Kessler: Our fourth quarter guidance for FFO, excluding one currently known non-recurring item, is between $0.65 and $0.66 per share. The $0.02 decrease from the third quarter is the result of the mortgage loan payoff as we have yet to redeploy that capital.
Pam Kessler: The non-recurring item for the fourth quarter relates to provision for credit losses recovery of approximately $510,000 due to a mortgage loan receivable payoff in the fourth quarter.
Pam Kessler: Our full year guidance for FFO excluding non-recurring items remains $2.63 to $2.65 per share. Non-recurring items for the full year include the non-recurring items recognized to date as detailed in our earnings release, as well as the provision for credit loss recovery I just mentioned.
Pam Kessler: Our guidance assumes no additional investment activity, asset sales, financing, or equity issuances.
Speaker Change: Now I'll turn the call over to Clint for our portfolio review.
Clint Malin: Thank you, Pam.
Clint Malin: Before I start a brief portfolio update, I'd like to say a few more words regarding the hurricanes, given our ownership of several buildings in the areas affected.
Clint Malin: First, there was no material damage to our buildings. We are very fortunate that only one building in our portfolio remains unoccupied until the municipal water supply is restored.
Clint Malin: The real story is the sacrifices made by many caregivers who valiantly showed up for work even as their own homes were being damaged and destroyed.
Clint Malin: Moving to our portfolio, I'll start with ALG. They paid their contractual rent obligation for October in a timely manner and we expect the same for November. Net of the deferral we provided on the 11 property assisted living portfolio we own through a joint venture accounted for as a financing receivable.
Clint Malin: With our cooperation, ALG is actively engaged in pursuing financing to exercise their purchase options. As a reminder, all of our investments with ALG are now cross-defaulted and cross-collateralized, providing us with added security.
Clint Malin: Regarding the loan we modified in 2023 with Prestige Healthcare, occupancy improved to 83% in September of this year, 76% in October 2023.
Clint Malin: Additionally, in the fourth quarter, we expect Prestige to receive approximately $6 million in retroactive Medicaid payments, which will be added to the security deposit we hold.
Clint Malin: Beginning in January 2025, 50% of Prestige's excess cash flow will be added to our security deposit, which will be used to pay contractual interest above the current pay amount.
Clint Malin: Our projections continue to indicate we will receive all contractual interest due this year and in 2025.
Clint Malin: Regarding our lease up portfolio, which includes 17 properties across seven operators, we continue to expect 2024 revenue of approximately $3.6 million.
Clint Malin: We are actively reviewing 2025 budgets with our operators, and we will provide additional guidance on our next earnings call.
Clint Malin: You can find our recent portfolio coverage and occupancy metrics on page 16 of our supplemental.
Speaker Change: After the significant deleveraging Pam mentioned, we now have all of the elements in place to build a pipeline with accretive transactions.
Speaker Change: As Wendy mentioned, we are actively analyzing the addition of a RIDEA structure.
Speaker Change: We believe the quickest path to implementing this structure is through the cooperative conversion of selected current triple net leases covering seniors housing investments.
Speaker Change: This represents an approximate initial range of gross investment between $150 and $200 million.
Speaker Change: which could be converted by the second quarter of next year.
Speaker Change: We believe this structure will act as a catalyst for growth in 2025. Now we'll turn things back to Wendy for her closing remarks.
Wendy Simpson: Thank you, Pam and Clint. I feel really good about the progress we've made and our growth outlook and believe we have the right team, the right strategy, and the access to capital needed to ensure a bright future for LTC.
Wendy Simpson: Thank you for joining us today. We look forward to talking to you again in February with our fourth quarter results. Operator, we're ready to take questions.
Speaker Change: Thank you. At this time, we will be conducting our question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: confirmation tone will indicate your line is in the question key and you may press star 2 if you would like to remove your question from the key
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please while we poll for questions.
Speaker Change: Thank you.
Speaker Change: Our first question...
Speaker Change: is coming from Austin Warschmidt with KeyBank Capital Markets. Your line is live.
Speaker Change: Great, thanks and good morning everybody.
Austin Warschmidt: So, now that you've more than opened the door to RIDEA, I guess can you share some additional detail around what you think sort of the...
Austin Warschmidt: upfront platform investments.
Austin Warschmidt: are necessary to jump into that segment of the business and and would you would you think that the 150 to 200 or so million of Conversions would be immediately accretive when you take into consideration any additional investment from an overhead perspective
Speaker Change: Well, we're going through the analysis, as Wendy mentioned in her prepared remarks.
Speaker Change: and tying into my comments.
Speaker Change: you know, going into a conversion of triple net leases in our portfolio, I mean, that's a way to manage in to RIDEA because we're actively involved in the asset management.
Speaker Change: of those properties currently, so that gives us a way to work into the platform. But we are analyzing...
Speaker Change: and looking at what resources we need to add to be able to effectively manage that by doing new investments outside of just converting. So we'll provide more information.
Speaker Change: on that, our next quarterly call.
Speaker Change: And in regard to any accretion from this, we're going through budgets right now with operators and looking at both the capital side of it, what's needed, as well as looking at implementation by operators of rate increases to see what the bottom line would look like. So we look forward to providing more information about that on our next quarterly call.
Speaker Change: That'll be helpful. And I guess beyond the conversion opportunities, can you just share what conversations you've had from an external growth perspective around Ridea? And are you seeing opportunities at cap rates that you think you can be competitive in that business?
Speaker Change: Yes, we are seeing some opportunities and that's been a catalyst for us in driving forward on this.
Speaker Change: And in conversations with operators, I think they find it appealing to be able to look at maybe starting a relationship with the right-sized capital partner to be able to grow.
Speaker Change: and we do see opportunity where different operating companies are interested in growing on our idea basis. We've had people talk to us about this over the past couple of years, and so it's been listening to operators over that timeframe, and we do think there's a lot of opportunity for us in that space.
Speaker Change: So just I know it's still early days and last one for me But how do you think holistically about kind of the size and scope of this this piece of business within the context of you know? Your legacy in a triple net investment business
Pam Kessler: Hi Ashton, this is Pam. I think given the deal landscape out there and the trajectory of Rydia, I think it would be, it could grow to be a very significant part of our business.
Pam Kessler: difficult to make.
Pam Kessler: triple net deals on the senior housing side you know pencil and especially if you're wanting to participate in in the upside
Pam Kessler: So it will probably grow to be a significant part of our business. I can't really put a percent or an amount, dollar amount, on it. But if you look at our peers and at private equity, which certainly is competition in our space,
Pam Kessler: if you don't have this platform you're excluding yourself from a lot of investment opportunity just right off the bat and that's what we've experienced.
Speaker Change: That's helpful. I look forward to hearing more.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is coming from Juan Sanabria with BMO. Your line is live.
Speaker Change: Hi, this is Robin Haidel. I'm sitting in for Juan. I just wanted to follow up on the Rodeo opportunities. Could you maybe elaborate on why tenants are interested in conversions to Rodeo today?
Speaker Change: It would be any tenant that doesn't have a long-term triple net lease. So we've talked about the transition bucket that we have, and it's that subset, and Clint talked kind of the sizing of that in his prepared remarks of about $150 to $200 million.
Speaker Change: and it could be any other leases in our portfolio that whether don't have set fixed rents or have a shorter duration maturity.
Speaker Change: Okay, and on the 90 million loan repayments, including working capital in the third and fourth quarter to date, is there anything else expected for the remainder of 2024, and how should we be thinking about repayments for 2025?
Speaker Change: No, those are the repayments that we were expecting all year and we talked about it, you know, being in the third quarter, beginning of fourth quarter for twenty twenty five, there's nothing of great significance about thirty million.
Speaker Change: scheduled to come due to us. And currently we expect that to be paid off as.
Speaker Change: as it matures. And most of those are backdated towards the end of the year. The only other item on that would be if ALG is able to secure their financing to exercise some of the purchase options. That would be the only other item that would add into maturities.
Speaker Change: Got it. And on the ATM, what's the use of proceeds here and is this maybe related to Radea or is there anything we can expect on the taxation front in the near term?
Speaker Change: Well, we talked about deleveraging all year, and we took care of that in the third quarter so that we could basically clear the deck and create liquidity for investment opportunities.
Speaker Change: right now, where we sit with leverage at 28% debt-to-enterprise value and 4.2 times, I think we don't have any more deleveraging to do.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is coming from Rich Anderson with Wedbush. Your line is live.
Rich Anderson: Thanks, good morning.
Rich Anderson: So, on the RIDEA rollout, you mentioned the 150 to 200 of conversion potential starting next year. And, again, I understand short-duration maturities or no-set rents is sort of the sweet spot to look to do those types of conversions.
Rich Anderson: How much is that, let's say, $200 million?
Rich Anderson: How much does that represent of those types of existing lease structures in your portfolio? In other words, like, is it $200 million?
Rich Anderson: sort of all of it, or is it some of it, and just wondering what the growth profile potentially might be in, you know, from that conversion and then going forward internally and converting other assets or other triple net arrangements within your existing portfolio.
Speaker Change: There will be some additional opportunities possibly, but I think beyond this, we'd probably look more of an external growth story as opposed to just more conversions internally. So this would be the initial rollout. There could be some to follow, but it really would be an external growth story, Richard.
Rich Anderson: Okay, and and in terms of that 150 to 200 is that a single
Speaker Change: operator or is that a collection of operators?
Speaker Change: It would be multiple operators. Multiple operators, and then you would partner with them.
Speaker Change: you know, one or some of them and go out on the field and try to deploy, right, and deploy external growth opportunities with that operator, or would it be then separate from those as well in terms of
Speaker Change: finding opportunities where an operator that perhaps is not in your portfolio today that you would bring in as a RIDEA partner. Is that... It would be incremental.
Speaker Change: It would be incremental. One thing we would think about is just concentration. And we wouldn't want to have too much concentration with a single operator, so that would be sort of a governor, if you will. Yeah, I would say a combination of both, most likely. Okay.
Speaker Change: Pam, did you say, or maybe it was Clint, ALG was current on October, November, but that is net of the deferrals that you offered, is that right, after the 3 million of deferrals for this year?
Speaker Change: That is correct and they paid October and we expect them to pay November and they have not started Talking about repaying back any of the deferrals or anything like that yet. Is that is that true? Or is that starting to happen?
Speaker Change: be part of that? You know, they're working through the refinancing of the properties to exercise the purchase option, so that would be part of that equation, Rich.
Speaker Change: We have a cross-collateralization and a cross-default provision, so that adds more security in the repayment specifically of the deferred grant we provided.
Speaker Change: and you know and why it makes sense for you guys.
Rich Anderson: And the one that's kind of out there a bit is Brookdale, I think it's 2029 where it becomes extra sizable. But Brookdale is clearly stating that they want to own more of their units than rent them. Is there any chance where you could see that move, you know, push forward?
Rich Anderson: Or do you not want to perhaps do that because you don't want to get into a lumpy situation of you know too many purchase options being executed potentially at the same time? Thanks.
Speaker Change: Yeah, we've carefully laddered those purchase option dates in, so I don't see a catalyst for us bringing that forward.
Speaker Change: Thank you
Speaker Change: Thank you. Our next question is coming from Michael Carroll with RBC. Your line is live.
Michael Carroll: Thanks, I guess, Pam or Clint, I wanted to touch on the platform investments that you kind of refer to that you're looking at to bring on Rodea.
Michael Carroll: I know previously I think we last talked you're kind of highlighting that you might want to hire somebody first I mean is that the first investment we should think about and are there other tech investments that you need to do to be able to better track the operating and financial results of these operators that could be potentially operating these these communities under the structure
Speaker Change: Well, I think on the conversions, given our familiarity with the assets, that gives us visibility already to be able to, you know, work through that as we actively are right now. So, you know, as we expand the platform and it's something that, you know, we're actively evaluating that, you know, we would look over time probably to add resources.
Speaker Change: And Clint, can you talk about what adding resources means? Is it just hiring somebody that that is kind of an operator background or is it like building out a platform to track your operators operating and financial results?
Clint Malin: a little bit a little bit of everything I mean from the accounting side to the asset management side yeah
Clint Malin: Should we think about G&A kind of ramping up higher next year as you kind of make these investments or is it too early to tell?
Speaker Change: It's too early to tell at this point again We think that you know converting into these and cooperate and emphasizing cooperative Situations and given the visibility we already have into these assets. We're able to manage that you know without a lot more resources And then we would look to scale as we turn more to an external growth story on radium
Wendy Simpson: Okay. Michael, I've got it. Michael, this is Wendy. I've got to say...
Wendy Simpson: a shout-out to all of our competitors who have RIDEA. We've reached out to almost every one of them. They've been very helpful in telling us what we need, what type of systems we might have to add on. I mean, we're not going into this blind. We're using our connections with the industry, and it's really helping us.
Wendy Simpson: to focus in on what we need. And I don't think it's going to be a significant investment.
Wendy Simpson: because we're going a little bit smaller as as we start out but you know I wouldn't expect to see millions of dollars being spent to to build out the platform to begin with.
Speaker Change: Okay, great. I appreciate that, Wendy. And then the last one for me, I guess, on these near-term conversions.
Speaker Change: I guess, is there any like deferred maintenance or renovation projects that we should think about where the operator is unable to make those investments but now putting into the structure it makes sense for LTC to make those investments to kind of drive
Speaker Change: near-term growth above and beyond what they could have done in the Triple-N portfolio. Is there anything like that embedded in those opportunities?
Speaker Change: I wouldn't see any major capital dollars, other than maybe...
Speaker Change: and a couple, it would be one asset specifically where there's, you know, revenue enhancing dollars, but by and large I wouldn't say there's not significant capital that would be needed. In transition portfolios we put capital in when we transition the operators, so it's already, most of it's already been added.
Speaker Change: Great. Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question is coming from Amateo Acasonia with Deutsche Bank. Your line is live.
Speaker Change: Hey guys, this is Sam on for Tayo. I just have a question around Prestige. I was just wondering if you guys are seeing any improvements with that operator and if you have a rough expectation around when they'll return to meeting their contractual rental obligations entirely through cash.
Speaker Change: Well, we were very encouraged by their occupancy growth, which I mentioned in prepared remarks.
Speaker Change: in September, they were 83% compared to that time frame a year ago, so they've made a lot of progress on that. As we talked, we first entered into this arrangement with Prestige back in the fall of 23.
Speaker Change: You know through the them putting their retroactive Medicaid funds into escrow with us
Speaker Change: as well as LTC participating in XS Cash Flow starting in 2025. We really have given Prestige almost a two, two and a half year runway.
Speaker Change: to be able to build back occupancy and improve margins. So I think that growth in occupancy is very encouraging. We're happy to see that, and I think they are making a lot of progress.
Speaker Change: Right, that all makes sense. And I guess the last one for me is...
Speaker Change: I hope I didn't mix this board to the outlook around external growth, giving you improved leverage in liquidity
Speaker Change: All right, that's it for me. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. As we have no further questions on the line I would like to hand the call back over to Wendy Simpson for any closing remarks.
Wendy Simpson: Thank you everyone for joining us on the call today and we're very excited about the RIDEA structure and for those of you who have followed us a long time you know how anti-RIDEA I have been in the past. I'm a new convert and you know what converts do, they go in big time.
Wendy Simpson: So I'm very excited about our opportunities. Thank you and we'll talk to you after the fourth quarter.
Speaker Change: Thank you. Ladies and gentlemen, this does conclude today's conference and you may disconnect your lines at this time and we thank you for your participation.