Seniors Housing Business is the magazine that helps you navigate the evolution of the seniors housing industry.
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www.seniorshousingbusiness.com 65 February/March 2017 n Seniors Housing Business Fast facts Company Name: LTC Properties Inc. Founded: 1992 Headquarters: Westlake Village, Calif. Portfolio: 219 communities Locations: 30 U.S. states The company's size also allows LTC to pick and choose small port- folios and one-off transactions, rather than the massive portfolios typical of the larger REITs. The company's investments total, on average, $150 million to $200 mil- lion annually, Kessler says, smaller than some single portfolios the big REITs purchase. "If there was one word to describe LTC, it's 'opportunistic.' We don't have a mandate to invest in any certain way," says Kessler. "We're not forced to issue equity in a way that's not smart at the time. We invest in skilled nursing, assisted living and memory care, and we don't have a mandate to keep a specific ratio." "And we don't make big prom- ises to the analysts," adds Simp- son. "If you make promises to investors or analysts, you can cre- ate misalignment in your invest- ment strategy or pursue deals that you otherwise might not pursue." LTC is still subject to the ebbs and flows of the market, of course. The company saw a spike of acqui- sition activity in 2015 to $414 mil- lion, followed by a return to nor- mal in 2016 with $142 million. This reflects the general trend for seniors housing over those two years. (see M&A; article, page 56) The company has managed to hold to a steady return each year and steady growth for several years running, and hopes to hold to that trend. "In terms of growth, our strat- egy is being the tortoise," says Kessler. "We're happy with slow, steady, measured growth." Skilled nursing opportunities Although LTC followed the gen- eral REIT transaction trends in 2015 and 2016, the company sepa- rates itself from the other REITs in one key way: While the big REITs dispose of massive skilled nursing portfolios and spin their skilled nursing businesses off into sepa- rate companies, LTC has embraced the sector. The 92 skilled nursing proper- ties that the company owns repre- sent 49.2 percent of its real estate investments and 55.3 percent of its revenue, according to LTC's fourth-quarter 2016 report. The company owns 112 assisted living properties; the sector accounts for 46.4 percent of the company's investments and 41.2 percent of its revenues. While Malin admits there will always be risk associated with skilled nursing, LTC finds both stability and availability in the sector. "In the late 1990s, there were a lot of challenges and people thought skilled nursing was com- ing to an end. Here we sit nearly 20 years later and it's still a critical component of the healthcare deliv- ery system," says Malin. "If there are fewer investors, then there will be more opportunities for us — as long as it's the right relationships and the right assets." Representing just over half of LTC's income, skilled nursing is a safe play because of the company's strict underwriting standards and the diversification of its operating partners, emphasizes Simpson. "While we do have some con- centration in terms of invested dollars and rental flow, it's not a bet-the-farm investment," says Simpson. "Even if an operator went supernova, that wouldn't be a bankruptcy-type situation for LTC." "We stuck to our underwriting, because skilled nursing is the most volatile sector in terms of both risk and reimbursement," Simpson continues. "We never reduced our criteria." LTC takes an opportunistic approach to investing, frequently completing off-market transactions and larger transactions, from time to time, with existing operating partners. In 2012, the company initiated one of its largest investments at the time: a $125 million portfo- lio of 15 skilled nursing facilities in Michigan operated by Prestige Healthcare. Since that time, LTC has committed a total of $197 mil- lion to Prestige on this portfolio, including $20 million for major upgrades to two of the older properties. "Trying to be opportunistic in the marketplace, we had a great opportunity to partner with Pres- tige in Michigan," says Malin. "We got a very solid investment, even though it tipped the scales toward skilled nursing." Further diversifying its portfolio with existing partners, LTC also acquired $142 million in private- pay assets with Senior Lifestyle Corp., with which LTC already partnered on several properties. Operating with Prestige Based on LTC's fourth-quar- ter 2016 report, Kentucky-based Prestige accounts for 15.8 percent of LTC's income, the most of any operator, despite operating the fourth highest number of proper- ties in the portfolio at 22, accord- ing to LTC's fourth-quarter earn- ings report. By comparison, Senior Lifestyle Corp. operates 27 LTC proper- ties and accounts for 12 percent of income, and Brookdale Senior Liv- ing operates 37 LTC properties and accounts for 9.5 percent of income. Prestige helped contribute in other ways as well. During LTC's first-quarter 2016 earnings call, investors were expressing concern about the skilled nursing industry. The board decided to invite Pres- tige's CEO, as well as a memory care operator's CEO, to participate in the call. This allowed investors and analysts to hear directly from operators regarding the industry, and for the operators to answer direct questions from people on the call. "We don't have any fear of any- body contacting our operators," says Simpson. "They're very sophisticated business people and caregivers. We've gone out of our way to make that link to answer our analysts and investors." Despite Prestige's importance to LTC's portfolio, diversification of operators is equally essential. The company leases its 219 properties to 31 different operators. By focusing on smaller, regional operators, LTC is able to better wrap its arms around its wide geo- graphic spread of 30 states. Brook- dale and Senior Lifestyle Corp. are the only large, national opera- tors with LTC properties in many states, according to Simpson. Because of the operationally intensive nature of seniors hous- ing, and skilled nursing in par- ticular, the operator is even more important than the property itself, says Simpson. "The operator is the primary focus in terms of doing a deal. The secondary focus is the physical presence." When asked where she would like to see LTC in five years, Kes- sler looked to the past, which she hopes indicates the company's future. "Since 2008, we've invested a billion dollars, doubled revenues and doubled funds from opera- tions (FFO) to shareholders," says Kessler. "I'd be happy if we did that again." n MediLodge of Montrose, a skilled nursing facility in Montrose, Mich., opened in 2011, is one of the properties in LTC's Prestige portfolio. The main lobby at Oxford Grand, an assisted living and memory care community financed and owned by LTC in Wichita, Kan., was completed in 2013. The room features exposed wood rafters and a distinctive chandelier.