LTC Properties (NYSE: LTC) has been spinning its wheels over the past few years. The healthcare real estate investment trust (REIT) focused on long-term care properties has matched new investments with a similar number of asset sales. As a result, it hasn't increased its dividend in several years, causing its stock to underperform the market.
However, that recent lackluster performance doesn't mean better days aren't ahead. Here's a closer look at where this REIT seems headed over the next three years.
Where LTC Properties is today
LTC Properties currently has investments in 181 healthcare properties. It has 73 skilled nursing properties that contribute 56.8% of its revenue, 107 assisted living facilities that supply 42.6%, and one behavioral healthcare hospital and three land parcels that generate the final 0.6%. It has invested more than $1.7 billion into these properties, including $1.4 billion into real estate (84.8%) and roughly $300 million into providing loans (15.2%) backed by skilled nursing properties. The company currently works with 29 operators across 27 states.
Where LTC Properties seems headed
LTC Properties aims to have a balanced 50/50 mix between senior housing and skilled nursing properties. Given the current percentage tilts toward skilled nursing, the company will likely prioritize new investments in assisted living facilities over the next three years to improve its balance.
The REIT will also likely concentrate on further diversifying its operating partners. While it currently works with 29 operators, 76% of its annualized income on a cash-basis comes from its top 10 tenants. That's a concern, since four of those companies are currently experiencing financial troubles. LTC has been working with tenants to assist them through rent abatement, deferrals, and an across-the-board 50% reduction in 2021 rental escalations via a rent credit.
The company will likely take a two-pronged approach to diversify its operators in the future. It could sell additional properties leased to financially weaker companies -- it unloaded its entire portfolio leased to bankrupt Preferred Care in 2020 -- and invest in more properties backed by new operators.
LTC Properties has a solid balance sheet to fund new investments. It has a reasonable leverage ratio because it spent the past few years recycling capital (selling properties to help finance new investments). On top of that, it has lots of liquidity -- over $510 million of available credit -- to fund acquisitions. Meanwhile, future asset sales and loan payouts will provide incremental cash to reinvest in new opportunities.
The REIT should have plenty of opportunities to make acquisitions, given the current state of the long-term care sector following the pandemic. Operators across the industry will likely want to monetize their real estate through sale-leaseback transactions to improve their financial profiles. However, the key will be to partner with financially strong operators to strengthen its rent roll and reduce its current concentration to troubled operators.
Expect a more balanced portfolio in three years
LTC Properties hasn't grown that much in recent years. However, that could change over the next three years, since it has a solid balance sheet and should have more investment opportunities coming out of the pandemic. Given the company's current portfolio makeup, it will likely focus new investments on senior housing properties that diversify its operating partner exposure. That would enable the company to have a more balanced portfolio in three years.
Meanwhile, a return to growth and improvement in its operating partners' quality could allow the REIT to do a better job creating shareholder value than it has in the recent past.