There is no question that the operating environment, and investing environment, has been tough on REITs. Most have spent the past two years adjusting their portfolios, either selling properties that were not performing and had little likelihood of getting back on track, or switching out operators to new ones that had a better chance of succeeding. Often, it was both, including working on their capital structures.
LTC Properties, with one of the smallest market caps ($1.3 billion) among the healthcare REITs, but also one of the most stable management teams, has worked on all three issues. Last year and the fourth quarter represented moves and changes that may put the REIT into a better position for growth, if they can find the right investment opportunities.
First, they repositioned, re-leased or sold the 35 assisted living communities that had been leased to Brookdale Senior Living. Brookdale signed a new lease for 17 of them, with new tenants and sales for the remaining 18. All said, LTC will be generating about $500,000 more income than before with these changes, which was good, and surprising news.
But the most positive news is that it appears most, if not all, of the problems that arose during the pandemic are in the rearview mirror. And, they have begun to de-lever, which will also put them in a better position for growth, whether by acquisitions or debt and mezzanine financings. Last year was a big year for the REIT with $262 million in new investments.
One of the last remaining troubled portfolios, with 12 properties in five states operated by ALG Senior, is concluding its restructuring. Two were sold in 2023, five are expected to be sold this year for $1.6 million. One facility in Texas was sold last year and another is expected to be closed and both will be sold for alternative uses.
These were obviously old and not in attractive rural markets. The remaining Texas facility is being transitioned to a new operator, and the Georgia and South Carolina facilities were leased to a new operator for LTC effective December 31. The rent for the first six months will be zero, after which they will negotiate the rent. LTC has agreed to provide $906,000 in capex financing and $240,000 for a working capital note at 8.25%.
The shares did not move much on the news, dropping about 1% in early trading on February 16.
