Q4 2024 LTC Properties Inc Earnings Call
On INTRO On Intro On Intro On intro On intro
Speaker Change: Before I turn the call over to Pam and Clint our co Ceos and C. C. Our chief Financial Officer, I want to say, thank you to everyone on today's call for your steadfast support leading L. T. C. For the past 17 years has been a little credible honor today as executive Chairman My ex.
Speaker Change: Statement for the company remains the strongest ever in fact with the idea of driving our growth strategy I could not be more optimistic about our future.
Speaker Change: I've had the privilege of working alongside this very talented group for more than two decades. They have a proven track record of navigating numerous complex real estate cycles.
Speaker Change: And an unprecedented pandemic.
Speaker Change: While consistently delivering value to our stakeholders and our industry.
Speaker Change: Additionally, the recent promotions of Gibson Satterwhite, two executive Vice President of asset management, and <unk> to senior Vice President investments further recognizes the talents of our highly experienced team.
Speaker Change: As we finalize our search for a new Chief investment officer, our focus is on adding a seasoned executive who will assist us in growing our RIDEA platform.
Speaker Change: We anticipate completing the search in the second quarter. The board is fully confident this team will continue to drive our business forward.
Speaker Change: The team's depth of experience a board that brings fresh perspectives with half of its members having joined US in the last five years and an aggressive but achievable plan for growth LTC is positioned to thrive this year and well into the future.
Speaker Change: With that I'll turn things over to Pam.
Pam: Thank you Wendy.
Speaker Change: 2024, we work to position L. T C for long term growth of note, we reduced our leverage and continued our policy of having well staggered debt maturities matched to our projected cash flow.
Speaker Change: For 2025, we are focused on further diversifying our portfolio to ensure a balanced with respect to operator geography property type and investment vehicle and importantly, we are unlocking a strong catalyst for growth by adding a RIDEA structure to our business.
Speaker Change: After extensive analysis and consultation with industry experts as to implementing a RIDEA platform. We are now moving quickly to execute our strategy, while actively building out the infrastructure necessary to make this strategy a success.
Speaker Change: As we've discussed we have identified several opportunities to cooperatively convert selected existing triple net basis into RIDEA structures and are targeting $150 million to $200 million and initial gross investment assets currently on our balance sheet.
Speaker Change: We expect to complete these conversions from triple net to RIDEA during the second quarter.
Speaker Change: Currently we expect that year, one NOI from these conversions will offset the initial expense incurred to build the platform.
Once the conversions are complete we will provide full year guidance for 2025.
Speaker Change: He will provide our first quarter guidance during her remarks.
Speaker Change: In short for US RIDEA isn't justice strategy. It has the potential to be transformative.
Speaker Change: When combined with a robust suite of tailored financing solutions to support operators success, we will unlock long term growth potential for LTC.
Stacy: Now I'll turn things over to Stacy for a review of our fourth quarter financial results.
Thank you Pam.
Stacy: All the numbers I'll be discussing today for the fourth quarter of 2024 compared with the same period in 2023, unless otherwise noted.
Stacy: Net income available to common shareholders decreased by $10 1 million, primarily due to a decrease on gain on sale and increase in impairment losses and higher G&A. These were partially offset by a decrease in interest expense a decrease in our provision for credit losses, and an increase in onetime straight line rental.
Stacy: Income related to restoring certain master leases from cash basis to accrual basis as required by GAAP.
Stacy: <unk>, excluding nonrecurring items improved to $1 million, primarily due to lower interest expense rent increases from fair market rent resets previously transition portfolios and Escalations and increase in interest income from construction loan funding in 2024 and lower.
Stacy: Transaction costs, the increase was partially offset by lower revenues due to property sales and mortgage loan payoffs as well as higher G&A.
Stacy: On a fully diluted per share basis, <unk> was 72 cents compared to 57 cents last year core SSO, which excludes nonrecurring items was 65 cents per share in the 'twenty 'twenty four fourth quarter compared with 66 per share in the 'twenty two 'twenty three fourth quarter.
Stacy: Recapping, our fourth quarter activities, some of which was discussed on last quarter's call. We received the payoff of a $51 1 million mortgage loan secured by a senior housing community in Georgia.
Hold a closed property in Colorado for $5 3 million and recorded a $1 1 million gain.
Stacy: Repaid $95 8 million under our unsecured revolving line of credit repaid $5 million in scheduled principal paydowns on our senior unsecured notes entered into a new $400 million ATM program, which includes a forward feature and subsequently terminated our $200 million.
Stacy: ATM program, we sold 476370 shares of common stock for $17 5 million in net proceeds under these ATM programs and paid $25 8 million in common dividends.
Stacy: Subsequent to the end of the fourth quarter, we sold a 29 unit assisted living property in Oklahoma for $670000. Upon sell the property was removed from a master lease covering five assisted living properties in Oklahoma rent under the Master lease was not reduced as a result of.
Stacy: The cell repaid 7 million under our senior unsecured notes and borrowed 15 million under our revolving line of credit.
Stacy: At the end of the last quarter. Our total liquidity was approximately $680 million up from $229 million at the end of September 2024 weeks.
Stacy: We have $94 million of Cashman had $281 million available on our line of credit and $390 million available under our ATM.
Stacy: Each of these metrics improved from the end of the 'twenty 'twenty four third quarter, our debt to annualized adjusted EBITDA for real estate is down to four three times from four seven times for the third quarter and our annualized adjusted fixed charge coverage ratio is up to four seven times.
Stacy: From four two times for the third quarter are.
Stacy: Our first quarter 2025 guidance for core S. F. O is between 64 cents at 65 per share. This guidance assumes no additional investments asset sales financing or equity issuances now I'll turn the call over to Clint.
Clint: Thank you Sir there is increasing momentum in our pipeline, which is expanding as a result of our entrance into radio.
Clint: Were seeing numerous opportunities from both proactive outreach and inbound inquiries and are having some of the most productive conversations with operators that we've had in recent memory.
Clint: Our strategy has always been to listen closely to what operators want their needs and provide them with a robust flexible and innovative solutions for idea is now part of that toolbox.
Clint: It is anchoring our external growth story well.
Clint: Hello, Brian deal represents our largest growth opportunity, we will continue to deploy other financing vehicles like triple net leases mortgage loans and structured finance.
Clint: Currently our pipeline is valued at approximately $100 million, including potential RIDEA transactions.
Clint: We are in one of the best positions for accretive growth in recent years.
Clint: Moving onto a few operator updates ALG paid their contractual rent obligation with no deferral concession for January and February in a timely manner.
Clint: And we expect the same for Mark.
Clint: <unk> is continuing to work towards exercising their purchase options, but we don't have a formal timeline as they are still evaluating financing opportunities.
Clint: We received $4 3 million from prestige during the fourth quarter related to retroactive Medicaid payments. They received the security. We now hold approximately 5 million combined with their current pay should allow us to receive full construction interest through at least the end of this year occupancy in this portfolio increased.
Clint: 740 basis points from January of last year to January of this year.
Clint: For our portfolio of 15 properties subject to market base rent resets, we received $3 7 million in rent in 2024, and expect that to increase to $4 8 billion in 2025.
Clint: We expect all 2025 lease maturities to be addressed by the end of the second quarter and also are actively working on 2026 maturities.
Clint: Next year, we have about $19 million in annualized GAAP rental income maturing, including with two operators in our topped up to make up 89% of that $19 million.
Clint: One operator is expected to bring them.
Clint: The other has informed us that for strategic reasons. They do not plan to renew we are actively negotiating offers to sell the seven skilled nursing centers that make up this portfolio base.
Based on feedback we're receiving from potential buyers. We believe that we will fully replace the $8 3 million of annualized GAAP rent for this portfolio by strategically redeploying. The capital received from these sales at rates available to US today, we expect to complete the transactions in the fourth quarter of this year.
Clint: Summarize OTC has been one of the best positioned for accretive growth than it has been for a while we have made tremendous progress in diversifying our portfolio shoring up our balance sheet and importantly, adding a new investment structure that can become a mainstay for growth.
Clint: Thank you all for joining US today, we look forward to talking to you again next quarter to discuss our first quarter results operator, we're now ready to take questions.
Clint: Certainly at this time, we will be conducting a question and answer session to answer.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press Star two if you would like to remove your question from the queue from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith Markey one moment. Please while we poll for questions question.
Austin: Your first question for today is from Austin, <unk> with Keybanc capital market capital market.
Speaker Change: Hey, and good morning.
Speaker Change: Glenn I was wondering if you could just provide some additional detail about who the operator operator.
Dave: Dave noticed that they don't intend to renew it and.
Dave: And then share a little bit more of around I guess, the sale and redeployment of proceeds are and what the timeline of that looks like them that much in the prepared remarks. Thanks so much.
Dave: Sure not a problem.
Dave: So this operator has they've decided to downsize the organization and they've made a strategic decision to exit the states, where we have the properties in the portfolio.
Dave: So the the assets they cover and we have credit enhancements to secure rent is paid through the maturity.
Dave: This is a process we've gone through it's consistent with our historical recycling of capital on older skilled assets.
Dave: This is a strategic decision to recycle capital and sell into a strong market for private buyers of older assets and by doing this we feel we're gonna be able to reduce our average age of our portfolio.
Dave: And we will continue to strategically reduce exposure to skilled nursing.
Dave: And we think that this the timing of this sale and our interests in RIDEA lineup.
Dave: Well and we think that by the end of the year will be able to execute on these transactions and the rates available to US today, we think we'll be able to replace the income.
Dave: This is something similar to our previous maturity with Brookdale, where we demonstrated our ability to transition assets whether through.
Dave: Sales or re leasing to go ahead and.
Dave: Cover or in the case of Brookdale.
Dave: I'll cover more income they were under the existing Brookdale lease.
Dave: So you think gives them.
Dave: Where you can sell those assets today that you can redeploy that into shot on an earnings neutral basis today did I hear that correctly here, you're correct correct yes.
Dave: Okay. That's helpful and then.
Dave: And in the prepared remarks, you guys referenced states, where do you expect a neutral earnings empower and extend from the transition.
Dave: Right right.
Dave: Thanks for taking on the Capex as well for those assets and can you share what the yield is on in place NOI for the 150 to 200 million better initially be it very differently.
Dave: Thank you.
Dave: Yes. It does often it takes into account the expected one time expenses related to setting up a platform like establishing a database and all of that as far as the in place yield about 8%.
Dave: That's helpful. That's all for me. Thank you. Thank you.
Dave: Thank you.
John: Your next question from John Kilocalories without Wells Fargo Wells Fargo.
Speaker Change: Thank you good morning. Thank you good morning.
John: With the.
John: The conversion of the pipeline pipeline.
John: Sorry, the echo is good.
John: A little bit a little bit.
John: What percentage of your.
John: Our portfolio by the run.
John: Run rate do you expect.
John: Drop versus that one for now.
John: Well I think with the conversion that Tim spoke about in our prepared remarks. We were currently about 50 50, right now I think youre going to see that over time, that's going to continue to increase more weighted towards shop.
Speaker Change: Okay, and then maybe just trying to think about how you're building out preparing chocolate applaud what mark.
Speaker Change: For some of your networks here Darren Scott, they're like Oh, we're not prepared at least internally externally what should we expect on the G&A side again prepared God bless shop auto body shop.
Speaker Change: After we establish the platform will give you a run rate on that increased G&A, but right now as we said in our prepared remarks, we expect the increase in NOI from the shop portfolio to offset those expenses this year.
Speaker Change: Got it okay. Thank you okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question is from the one channel for you.
Speaker Change: Oh.
Rob: This is Rob my last running into lawn.
Rob: Just curious if you could elaborate on to elaborate on et cetera.
Greenberg: Greenberg friend from Russia, and could you share details on Colorado.
Rob: The overall decline.
Rob: When the transition.
Rob: Oh sure right now the discussions that we are having with the operating companies has been very robust.
Rob: And as I mentioned in the prepared remarks, we've had some of the most productive conversations.
In recent memory in regards to RIDEA. We've had I think this is what operators are looking for.
Rob: And you'll see a lot of companies gravitating towards the RIDEA platform.
Rob: And so this is really opened up conversations with a big part of the market that we were missing now previously by not doing RIDEA. So.
Rob: The the business development side, we've been probably the most active on this front in the last couple of years. So the traction is tremendous and we're really ramping up.
Rob: Evaluating opportunities.
Rob: And on the pipeline the pipeline.
Rob: More broadly.
Rob: Bob.
Rob: What's the fee simple loan split and what part of the pipe includes a radio.
Rob: Sure well you know normally we quote we called our pipeline for transactions are under LOI.
Rob: But given just the the ramp up in our underwriting we have as we're going through a number of transactions were about $100 million I'd say right now that's about 50% RIDEA and about 50% loans the majority of it.
Rob: Is on private pay assets.
Rob: One of the exciting things that we're hearing and talking to operators is really looking at right sizing the relationship with capital partners.
Rob: I think that our entrance into RIDEA is.
Rob: He is well timed and it gives operators different optionality for you have to work with smaller reach too bright side, it's about alignment of interest between the capital and the operator.
Rob: When you look at you know youre, comparing triple net and RIDEA.
Rob: Did it really gives us a better long term organic growth outlook.
Rob: Then the stated 2% our CPI increases in triple net leases, so I'm really looking at future growth.
Rob: For LTC the idea of really provides.
Rob: <unk> provides and an outsized return versus a triple net investment.
Rob: And then on the nettles each portfolio just curious if there's any outside risk stood up to that ability on the ability to sustain rents with medicated kept on getting new D. C administration.
Rob: Oh as I mentioned in prepared remarks prestige has done a good job growing occupancy over 730 basis points over the last year.
Rob: When we structured this.
Rob: Transaction with prestige at the end of 'twenty, three we gave them a long runway to be able to recover occupancy and they've been able to accomplish that 700 basis points from January 2004, and January through December of 'twenty, four or so we're encouraged to see that.
Rob: We did receive the retroactive Medicaid payment that was due us.
Rob: So we're encouraged by that and our hope is they continue to increase occupancy and improve operational performance.
Rob: Thank you.
Rich Anderson: Your next question for today is from Rich Anderson with Wedbush.
Speaker Change: Thanks, Good morning, and I hope that Echo has gone it was giving me vertigo.
Speaker Change: So in terms of like where where you go from here you mentioned paying them 150 to 200 million of internal transitions to RIDEA one.
Speaker Change: What is the is there a much larger number that you think can execute and the reason why I ask is I'm wondering when RIDEA.
Speaker Change: Truly make a dent in the portfolio in terms of its influence on your growth profile.
Speaker Change: It could take a while for it to become a meaningful part of the Pie chart, but maybe maybe I'm wrong about that so that's the question.
Speaker Change: You'll have.
Speaker Change: The bucket of transition assets or lease up assets. We call them. These are the leases that are currently on market based resets. So if some of those operators wanted to transition to idea that would be a natural progression for that but right. Now we are only targeting the two that we discussed in our prepared remarks.
Speaker Change: Think most of that the growth will come from externally from investments to RIDEA.
And what's your vision.
Speaker Change: <unk> three or five years from now that you think you.
Speaker Change: You'll get to some level of 25% rate of the total pie as it is do you have something like that in mind right now.
Speaker Change: Senior housing like 25% to 50% depending on the acquisition volume.
Speaker Change: Senior housing.
Speaker Change: Mhm, Yeah, sorry.
Speaker Change: It's predominantly what we're seeing in interest earnings from from.
Speaker Change: Some operators from our customer base and new operators who've got a lot of inbound calls from new operators that we haven't done business with in the past because they don't do trip on that so it's really opened up.
Speaker Change: One big area for us to make entry into it also rich as we talked about with you specifically about.
Speaker Change: Just opens up the opportunity set of conversations and deals that we can look at.
Speaker Change: So it really is.
Speaker Change: Giving us a lot more opportunities to explore.
Speaker Change: Okay.
Speaker Change: Is there something about the nature of your portfolio that you know it took this long for you to sort of go after the right David structure. I mean, it's you know the the the law has been around since 2007, but has it not been evident you know just in the in the corner of the business that you work in that you really need it until <unk>.
Speaker Change: More recently or I'm, just I'm wondering about why now I guess on right there right.
Speaker Change: Well I think a couple of things one is just lessons learned through the pandemic and we participated on the downside in the triple net lease, but it was hard to recover and participate in the upside.
Speaker Change: Yeah, and then just looking at.
Speaker Change: Deal flow and pricing cap rates are where we can execute on so the culmination of what we went through it through the pandemic and then just being able to look at opportunities to invest and where that growth is it's really the RIDEA to be able to to invest at those cap rates and meeting the threshold.
Speaker Change: All of our meetings and operators. This is what they want and this is what they are requesting and for so long we said no no no.
Speaker Change: And our strategic planning meeting is were sitting around saying well why are we saying no I mean, because it is a big undertaking I mean, I don't want to diminish the efforts of everyone here at LTC, where a small company to a two to put this platform in place and do it right but.
But we're fully committed to it once we.
Speaker Change: Evaluate it and said yes. This is this is the best path forward for LTC for future growth and this is really where we've.
Speaker Change: We've been able to we've been able to experience. This recently rich just by on the business development front of getting meetings, having conversations about opportunities I mean, it is it's ramping up substantially and that wouldn't be happening if it wasn't for RIDEA. So really the ability to to increase the pie of what we're looking at.
Speaker Change: We feel were getting a lot of traction with this okay and just real quickly for you Clint the $8 3 million of rent that.
Speaker Change: So if there was a seven property portfolio is there any amount of that that you'll you're vulnerable to missing out on during 2025 as you.
Speaker Change: To execute the sale and redeployment or do you or does as the security deposits to cover all of that I'll just cover all that.
Speaker Change: Hello.
Speaker Change: Okay.
Speaker Change: Yeah, rich so where.
Speaker Change: We're fully expecting the operator to pay rent on the portfolio through maturity or a sale of assets.
Okay, and when does that mature and when does that maturity.
January 31.
Speaker Change: <unk> okay.
Yeah got it got it. Thank you very much. Thank you very much alright. Thank you.
Speaker Change: Your next question is from Michael <unk>, RBC capital markets flow market.
Speaker Change: Yes, Thanks, I know in your prepared.
Speaker Change: Paired remarks, Pam you kind of mentioned in your kind of been talking about in the Q&A about building your infrastructure for your RIDEA platform. I mean can you provide some color on what that means I mean, how are you going to build this infrastructure and what do you what type of investments do you need to make to make sure you're tracking those RIDEA investments.
Speaker Change: And how are you going to be helping our operators make these types of decisions are you going to be letting your operators kind of run this without much advice from you.
Speaker Change: It's really the database to collect all the operational information at the property level.
Speaker Change: Accounting systems and some personnel.
Speaker Change: We view this as a partnership a strategic partnership that will be working with our operators.
Speaker Change: But yeah. We were back then the manager would be in charge of the day to day operations Al RIDEA works.
Speaker Change: But obviously strategic decisions capital improvements.
Speaker Change: And future investments that will be made together with the operator.
Speaker Change: So how long does it take to build that type of database and what type of information are you requesting your operators to give you is it both operational and financial information like are you getting like tour activity and other types of leading indicators from them.
Speaker Change: Yeah.
Speaker Change: That type of information it is crucial that tourist leach the conversion ratios all of that and yes, we will be collecting that from our operators.
Pretty standard RIDEA information, we talk to people industry experts and our peers. That's the type of information, they're collecting and helping you know it really does help the operators to provide them information not just in our portfolio but.
Speaker Change: What's happening in the marketplace and better more information help better informed decisions.
Speaker Change: Okay, and then related to the January 2026 exploration I mean can you give us an idea of what the coverage ratios are on those properties and or at least how it pertains to the averages that you guys quoted in our supplemental.
Speaker Change: Oh, I would say right now we haven't given coverage by specific assets, but these assets cover and we have strong credit enhancements on it so the ability to collect rent for the duration of this lease is not a concern for us.
Speaker Change: Okay.
Speaker Change: And then Clint I know for Austin's question earlier, you mentioned that the reinvestment of these proceeds were into RIDEA assets kind of what you'd kind of highlight about your prepared remarks, I hear that correctly or do you. When do you think you can regain this E plus million dollars of NOI, It's RIDEA investments right not <unk>.
Speaker Change: Is there anything like that.
Speaker Change: Primarily RIDEA, but look it's going to be a timing of executing on the sales and then deploying that capital and it'll be a combination probably of.
Speaker Change: Timing of re RIDEA investments as well as other investments, we'd make which could be loans triple net leases. So it really goes back just to the timing, but what we see right now in the market as far as rates available to US today, we think that we can recapture recover redeploy at the same yield to retain that income in the portfolio.
Speaker Change: Great and then just last one for me.
Speaker Change: There was a small tenant that it looks like you had a short term one year renewal.
Speaker Change: Can you describe why it was only a one year renewal if theres any risk to that tenant or are you working on a bigger role with them now.
Speaker Change: The operator is looking at doing a larger financing and adding these two properties into that larger financing. So this was an accommodation to give them more time to be able to accomplish that.
Speaker Change: The purchase option. They have is based on fair market value, but as consideration for this extension we've increased the floor.
Speaker Change: For that so really this.
Speaker Change: This is a long 10 year trend that we've had in our portfolio and our combination to help them accomplish a larger financing.
Speaker Change: Okay, great. Thank you.
Your next question for today is from Amato Okusanya with Deutsche Bank.
Speaker Change: Hey, guys.
Speaker Change: I'm on for Tayo.
Speaker Change: I'm just wondering if you guys could provide some details around the circumstances, leading to the restoring of accrual based accounting from two master leases.
Speaker Change: Sure.
Speaker Change: We evaluate our leases on a quarterly basis the leases we have on a cash basis of accounting.
Speaker Change: And with the sustained strong operational performance.
Speaker Change: Performance in these portfolios, we had a higher confidence level that we would receive a contractual rent through maturity.
Speaker Change: Gotcha.
Speaker Change: If you guys.
Speaker Change: Currently would be kind of where we're at.
Speaker Change: If you think this will occur again in 2025.
Speaker Change: Well, we haven't disclosed that the tenants, we typically don't talk about our tenants on a individual basis.
Speaker Change: But.
Speaker Change: We do have more to your question is how many more we have on a cash basis about 50% of our portfolio is on a cash basis, and we're evaluating that quarterly so it could but right now there's there's not there's nothing that we have that high of a confidence level that would require us to put them back on.
Speaker Change: Cash basis, but we are looking at it but possibly in 2026 and 2027, especially as you get closer to the maturity.
Speaker Change: Of leases and you have that are.
A higher level of confidence and insight.
Speaker Change: What you project that they'll be able to pay through maturity that's really the crops.
Speaker Change: Them back on a cash basis.
Speaker Change: I'm sorry accrual.
Speaker Change: Taking them off the cash basis, and putting them on accrual.
Speaker Change: Got it got it that's all I got on my own. Thanks, guys. Appreciate the time.
Speaker Change: We have reached the end of the question and answer session and I will now turn the call over to Wendy for closing remarks.
Wendy: Again, thank you all for joining US today, we are very excited as you can here for the future of LTC and we look forward to talking to you relative to our first quarter results in just a few short months have a great day.
Wendy: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.