Ltc Properties Inc Q4 FY2025 Earnings Call

Greetings, and welcome to the LTC Properties, Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to introduce Pam Kessler, Co-President and Co-CEO. Pam, please go ahead.

Good morning, and thank you for joining us. Eight months after launching our SHOP initiative, we are almost halfway through our transformation from a lower growth triple-net REIT into a faster-growing SHOP-focused REIT, a transformation that will lead to higher multi-year, internal and external SHOP and earnings growth and to superior shareholder returns. This transformation has included substantial investment in people, systems, and technology, which will continue to be a focus to support our aggressive growth plans. We have made great progress growing our seniors housing portfolio through SHOP, reflecting successful execution across every aspect of the business. Today, we are guiding to $600 million in acquisitions at the midpoint for 2026, all of which we anticipate will be in SHOP. This acquisition guidance is nearly 70% higher than SHOP acquisitions in 2025. 2026 started off strong with $108 million in SHOP acquisitions already completed and another $160 million on schedule to close in the second quarter, which takes us nearly halfway to our $600 million midpoint investment guidance for the year. Throughout our transformation, we have continued to maintain a strong balance sheet with well-laddered debt maturities and a FAD payout ratio below 80%. Since launching SHOP last May, we grew it to 25% of our investment portfolio by year-end. Based on our 2026 acquisition guidance, we expect to end this year with SHOP growing to 45% of our investment portfolio and 40% of our NOI, capitalizing on LTC's ability to accelerate our growth through acquisitions. By launching SHOP at a small-cap REIT, we are leveraging the denominator effect to our advantage. LTC's smaller initial footprint provides the power to capture outsized growth, where even modest investments have a meaningful and visible impact. Additionally, after the prepayment of the $180 million Prestige loan expected later this year, loans should be reduced to less than 10% of our portfolio, and skilled nursing investments will represent less than 30% by the end of 2026. This strategic portfolio transformation reflects our SHOP launch and rapid growth within a targeted 18-month period. With our transformation complete at the end of 2026, we see the opportunity for continued accelerated internal and external growth powered by SHOP in 2027. Now I'll turn the call over to Gibson to discuss our portfolio and strong SHOP performance.

Thank you, Pam. We've undertaken the transformation to increase the organic growth and new investment growth profile of our portfolio and maximize risk-adjusted returns for our shareholders. To that end, we have focused over the last 1.5 years to develop and enhance our platform to position LTC and our operators for success, and we'll continue to make further investments going forward to position LTC for profitable growth. In addition to adding accounting, FP&A, and data analytics resources, we recently welcomed 2 Vice Presidents to our asset management team, both with extensive experience in systems development and seniors housing asset management. Our SHOP portfolio results support our 2025 strategy by outperforming our expectations. The original 13 properties converted to SHOP grew NOI over 2024 pro forma NOI by 22% and produced $16.2 million of combined rent and NOI in 2025 compared to $12.3 million of rent in 2024. The remainder of the SHOP portfolio outperformed expectations in the fourth quarter by contributing $5.9 million of NOI, about $700,000 above the midpoint of guidance. Our 2026 SHOP NOI guidance includes 13 properties we originally converted and 14 properties acquired to date. Our guidance for these 27 properties assumes 14% NOI growth at the midpoint for the full year 2026 over pro forma 2025. This subset of properties realized occupancy of 89.7% in 2025, which we are projecting will grow by about 150 basis points in 2026. We further project that RevPOR will grow by approximately 5% and EXPOR will grow by 2.5%. We do want to note that the 2025 results for the 14 properties we have acquired include occupancy and performance as reported by the prior owners adjusted for the current management fee structure. We will continue changing the mix of our portfolio in 2026. Prestige Healthcare has delivered notice of their intent to prepay on or about July 1, the $180 million loan, which is currently yielding approximately 11%. Additionally, we expect to sell 5 skilled nursing properties and have certain loan payoffs totaling $90 million in the next 60 days. These transactions, together with our external growth through SHOP will meaningfully reduce our skilled nursing and loan exposure. With that, I'll turn things over to Dave for an update on our growth strategy.

Thank you, Gibson. In 2025, we put $360 million to work through SHOP acquisitions. By the end of the second quarter of this year, we will have added an additional $270 million, moving us rapidly towards our $600 million midpoint acquisition guidance and making 2026 our most active investment year yet as we accelerate our growth towards an increasingly SHOP weighted portfolio. LTC's relationship-focused culture is the foundation of our success. In 2025, we closed 2 follow-on transactions with existing operating partners and our momentum is continuing in 2026 with another follow-on deal completed and 2 more and the $160 million we expect to close shortly. At the same time, we are in active conversations with operating partners new to LTC and are evaluating acquisitions to kick off those relationships. In a competitive senior housing acquisitions environment, our smaller asset base and personal relationship-driven strategy are competitive advantages. We find opportunities in both single and multi-property investments and do not need to chase overpriced large on-market transactions. We are keenly focused on every deal and every LTC operator relationship, each of which directly contributes to our growth and furthers our transformation into a SHOP growth engine. Existing and prospective operators desiring to grow their portfolios or retain assets when an investor wishes to exit seek LTC because we listen, we collaborate, and we engage. The evidence of this success can be seen in our accelerating year-to-date external growth that in addition to the $160 million previously mentioned, includes an acquisition pipeline of over $500 million in deals under review and consists entirely of SHOP. Our acquisition strategy is to partner with experienced, regionally focused operating teams and add newer communities with lower CapEx requirements. These are stabilized assets, but that does not equate to low growth. We are buying assets with strong pricing power, high incremental margins, and durable contributions to earnings growth. Our expanding SHOP platform is positioned to perform over time, and we expect to achieve unlevered IRRs in the low to mid-teens. I'll now pass the call to Cece for a review of our financial results.

Thank you, Dave. For the end of the year, we bolstered our growth capacity by expanding our credit facility to $800 million, including $200 million of term loans. We anticipate receiving nearly $270 million in asset sales and loan payoffs in 2026, which will be used to fund future investments using multiple levers, including proceeds from our ATM program, borrowings under our revolving line of credit, and asset sales where attractive pricing provides a better cost of capital. We feel very confident in our financial strength, which will support our ability to fuel our SHOP growth. With the $270 million of expected proceeds, our liquidity stands at $810 million on a pro forma basis. We have minimal near-term debt maturities, giving us virtually no refinancing risk. At year-end, our debt to annualized adjusted EBITDA for real estate was 4.5x, and our annualized adjusted fixed charge coverage ratio was 4.4x. While we are well within our stated leverage target of 4 to 5x, we believe we can reduce that further over time. Compared with the same quarter last year, core FFO per share improved $0.05 to $0.70 and core FAD per share improved $0.07 to $0.73. These results represent core FFO per share and core FAD per share growth of 8% and 11%, respectively. The increases were primarily due to new SHOP acquisitions and triple-net conversions to SHOP, partially offset by an increase in interest expense and decreased rents related to asset sales. Our 2026 guidance for core FFO per share is projected to be in the range of $2.75 to $2.79 and core FAD per share in the range of $2.82 to $2.86. For the first quarter, we expect core FFO per share in the range of $0.66 to $0.68 and core FAD in the range of $0.68 to $0.70. Our 2026 guidance includes $400 million to $800 million of SHOP acquisitions, with SHOP NOI in the range of $65 million to $77 million and FAD CapEx of approximately $5 million. Additionally, our guidance includes the $270 million of proceeds from asset sales and loan payoffs. Other assumptions underpinning this guidance are detailed in yesterday's earnings press release and supplemental, which are posted on our website. Now I'll turn the call over to Clint for some closing comments.

Thanks, Cece. 2026 will complete LTC's transformation from a triple-net skilled nursing and seniors housing REIT, fueling our growth through the idea to become a larger SHOP focused REIT. Increased NOI growth will come organically through our existing portfolio and through new SHOP acquisitions. With our investment guidance of $600 million at the midpoint in 2026, SHOP will exceed $1 billion of assets and represent 45% of our portfolio by year-end. Including the SHOP acquisitions under contract, the average age of our SHOP portfolio will be 9 years, reflecting our strategy of investing in newer SHOP communities that are best positioned to compete against future new developments. We will drive strong organic SHOP NOI and per share growth through aligned operator relationships and the quality of the assets. In fact, we believe that organic NOI growth will double by the end of this year compared with our pre-transformation to SHOP. We have made rapid progress in executing on our SHOP strategy. So most importantly, on behalf of the entire LTC team, I want to extend a sincere thank you to the operators who have placed their trust in us, helping us establish and grow our SHOP platform. We have 8 SHOP operator relationships in our portfolio, 6 new to LTC since our launch. And in Q2, we will be adding 2 more. Each one of these operator relationships represents a huge opportunity to continue driving LTC SHOP growth through management agreements that align interest to deepen our relationships. We have a simplified and compelling investment thesis, which we are executing upon with speed, determination, and conviction to power future growth by optimizing risk-adjusted returns to our shareholders while increasing our organic and investment growth profile. This success is made possible by a talented group of tenured employees and new professionals recently joining our team, all coalescing around a transforming LTC that is standing out in the industry and is well positioned for tremendous growth. With that, we are ready to take your questions.

Our first question today is from John Kilichowski from Wells Fargo.

This pivot is happening relatively quickly, and it sounds like messaging has been it's not if but when something happens to the SNF funding landscape. I'm curious in your minds, like what are the nearest 1 or 2 greatest threats to SNF today that could cause some sort of re-rating the market isn't expecting?

From a SNF perspective, John, I would say that there's a tremendous amount of private capital, I think, that's driving prices in skilled nursing. So that's one element that could have a change. And then just as we've generally seen over the years, skilled nursing at cap rates that it has, it has a stroke of the pen risk and things tend to happen when you least expect it. And we do see much more organic growth from investing in newer assets with a better growth profile. So that's really our thesis and why we're aggressively growing into SHOP.

Okay. Well, the 14% same-store growth is a great starting point. I'm curious, is this sort of like a 3- to 4-year run rate as the business remains immune, likely immune to supply shocks and demand is relatively known? Or do you forecast that moderating slightly as occupancy fully stabilizes at these assets?

It's a fair question. This is Gibson. We are comfortable with the guidance for our relatively new portfolio. The pro forma occupancy I mentioned earlier is 89.7%, which is close to stabilized levels. We are encouraged by our expectations for a mid-teens growth rate this year, but we prefer not to discuss projections for the future just yet.

Our next question is coming from Austin Wurschmidt from KeyBanc Capital Markets.

Just going back to SHOP for a minute. Gibson, you had highlighted that the 13 original assets grew NOI by 22% last year on a pro forma basis versus '24. Can you give us a sense how the 14% on the 27 assets compares to how that trended in 2025 or just versus the fourth quarter?

Let me see if I can answer this in another way and see if that scratches your itch, Austin. If you look at our projections, '25 over '24 and you pull out that original 13, our growth rate of 14% isn't going to materially change.

Got it. That's helpful. And then maybe just going back to John's question a little bit differently here. I mean you mentioned the 89% is nearing stabilization, but this portfolio does continue to evolve as you layer on additional acquisitions. I mean, what are your latest thoughts for the portfolio today as to where stabilized occupancy levels are? And what sort of the right feeling on where you can kind of send out in-place rent increases or drive RevPOR in the coming years?

Austin, this is Pam. For stabilized occupancy, given the lack of supply that we see over the next few years, we feel occupancy can climb into the 90s. We did not project that in our 2026 guidance, but it is possible. And it's always a fine balance between occupancy and rate growth, and we feel that this portfolio has the opportunity for both.

We are focused on investing in newer assets, as highlighted in our comments about the average age. We believe these assets will be well-positioned to compete against new developments in the market. In the meantime, we expect them to have pricing power to drive growth. This strategy is intentional and aimed at ensuring our assets can effectively compete in the future.

And then what was the in-place rent increases now for this year?

Well, the RevPOR guidance we gave is around the 5%. And so that ranges across the portfolio from 4.5% up to 7%. But a lot of the hay is in the barn with respect to year-end increases or increases that went into effect in January. But then we have some more that increase on anniversary. And then we have to see what happens with the Street rate. So I think we're comfortable with our all-in RevPOR assumption of that 5% range.

Next question is coming from Juan Sanabria from BMO Capital Markets.

I'm just hoping you could talk a little bit about the pipeline of investments and the year 1 yields you're underwriting for SHOP. And then on the flip side, how we should be thinking about some of the disposition yields for some of the SNF that you're selling. You've already given us the loan piece.

Juan, this is Dave. I'll take the first half, and I think Gibson will take the second half. So from an acquisition pipeline perspective, you saw in our remarks that we have $160 million under LOI and in process. We are looking at generally what we looked at last year in terms of sort of going in year 1 yields about 7% or so with good growth headroom beyond that.

Also one thing to think about on what we're looking at for deals, as Pam mentioned in her prepared remarks, mean the size of LTC really we're using to our advantage to be able to grow because we can look at smaller transactions, which have better price points to be able to drive those initial yields. So we think that's a huge opportunity for us as we're growing this portfolio and are projecting on gross book to be a 45% SHOP by the end of the year since we launched this midyear in '25.

And then Juan, this is Gibson on the dispositions. I think the Prestige loan is a unique case where that, we had a heavy concentration with one operator in one state that caused some disruption a couple of years back because of that state's specific reimbursement program. And so that was a strategic decision to derisk the portfolio and reduce operator concentration. We still have investments to for Prestige, and it's not a Prestige thing. It's just an overall operator concentration thing. On the rest, if you blend it together, we're selling at about an 8.2% cap. And so there, if you think about that in terms of swapping out of older skilled nursing assets as we've been doing on an opportunistic basis over the last 1.5 years or so, and 8.2% with 2.5% anywhere from 2% to 2.5% escalators, and we can recycle that into newer seniors housing assets that are really built and will be competitive over the long term. We feel like that's a good risk/reward trade for our shareholders.

And then I just wanted to ask ALG, there was previously some discussion about some change in that portfolio going forward and some options they had. So just curious how we should be thinking about piece of your exposure longer term?

I believe that ALG does have purchase options. We previously discussed that it’s more sensitive to interest rates, so they might consider bond financing to address this. We anticipate this will likely occur in 2027. We have three or four different investments with them, and one of the smaller portfolios might trade towards the end of this year, but I see it more as a 2027 event.

Got it. If I could ask one more question about the incremental financing, if you reach the upper end of your acquisition guidance, how should we view that? It seems like leverage could decrease. I'm not clear if that's due to EBITDA increasing or if we should consider that the aim might be to enhance equity positions beyond the dispositions you mentioned or loan repayments. I'm just interested in understanding the funding for the pipeline at either the midpoint or particularly the high end.

Yes. Thanks, Juan. It's Pam. Yes, I think you're thinking about it right. I mean the beauty of a higher growing portfolio is that your deleveraging happens naturally a lot faster through EBITDA growth. But we would also look to over-equitize acquisitions if the pricing is right.

Our next question is coming from Michael Carroll from RBC Capital Markets.

Clint or Dave, can you guys provide some more color on the competitive landscape for seniors housing deals right now? I mean, how difficult is it for you to find deals that you want to own that meet your underwriting? And then when you do find those transactions, I guess, where have cap rates trended? I know you've been talking about that 7% range for some time. I mean, are we starting to see that take a little bit lower? Is it hard to find yields at that 7% yield?

This is Dave. Clint highlighted the significance of a deal to LTC and how our scale benefits us. We excel at identifying transactions that typically arise during busy periods, and our size helps our clients and sellers recognize their importance to us. A major advantage is that we can conduct buyer interviews, allowing me to involve our CEOs on those calls to emphasize the deal's significance. As you know, certainty of execution is crucial for any seller. We can dedicate significant attention and focus to a transaction. We're still seeing a robust stream of opportunities. Generally, in that first year, we underwrite around 7%, which indicates some pressure, but we are evaluating numerous transactions to identify a select few that are worthy of underwriting and progressing through the process. We are optimistic about finding the right opportunities for LTC from this flow.

With that context in mind, we have projected $600 million for investments by 2026, and with deals already closed, we are nearly halfway there. Even though the market is competitive, we believe we are successfully participating in transactions. Many of the deals we have, as Dave previously noted, involve operators who are bringing us into them, and soon we will have ten operational relationships in our portfolio. This is expected to enhance our access to deals. When evaluating smaller transactions, this can be beneficial. Additionally, in one of the transactions we are currently working on, the seller is considering a tax-efficient deal, so we are exploring a down REIT structure. This financing approach, together with equity pricing through a down REIT, could present an appealing option for us.

So then, in this type of environment, if you look at the 7 yields, I mean, do you foresee like if you kind of get back to the end of this year, you might have to go below that? Or is there enough transactions at that level that you think at least through this year, you can still achieve that 7% target?

So as Clint mentioned, right, we have $270 million in the door, right? So those are set. So we've got another $300 million plus to go. Nothing is easy if you're going to do it well. So we'll be working hard to find the right deals all year long. But we are steadfast in working to maintain that kind of year 1 yield of 7%. But definitely, there will be pressure in the industry. A lot of people are discovering senior housing or people showing up at the table. We still feel like we've got a good opportunity, kind of given our relationship focus and our style of execution to find the deals that make sense for LTC.

And Mike, I have one more thing to add to that. Last year, when we talked about our projected underwriting and being at 7%, very conservative. Our 2026 guidance is already a year 1 over 7.5%, it's like 7.7%. So we're already beating that. So we've created value there just in a few short months and expect to create more.

Okay. Great. No, that's helpful. And then just last for me. Related to Prestige, on the remaining loans that LTC is holding after, if they potentially pay them off in July or half of them. I mean, is there a desire to have them pay off those loans too? Or should we think about that as a longer-term hold that LTC plans to continue to maintain?

We should consider it a long-term hold. After the payoff of $180 million, we will have $90 million remaining with them. They will be reducing concentration as Gibson mentioned, and they are likely to fall outside of our top 5 operator relationships.

And they don't have an option to prepay those.

Next question is coming from Rich Anderson from Cantor Fitzgerald.

So I just want to make this sort of crystal clear. Is your expectation on a go-forward basis, 2027 and beyond for your SHOP business to be producing sort of low mid-teens type of same-store NOI growth? Is that the target you're going after? Or is it something lower than that?

We're looking forward to seeing how this year unfolds. We're enthusiastic about the trends we're noticing as we progress through the year, and as we move further along, Rich, we'll provide updates. A few calls ago, we mentioned that we were targeting a 7% starting point and aiming for low teens IRRs, which indicates our expectation of mid-single-digit growth in the long term. As we continue to analyze our portfolio, we are optimistic. Additionally, as Pam noted, our projections account for higher yields on the initial purchase price compared to what we anticipated during acquisition. We are hopeful about the prospects for 2026 and aim for that positive trend to persist. We will keep you informed as the year progresses.

But the 22% NOI in the 13, that's really apples-to-oranges from a previous net lease structure, correct? Just so I understand that correctly.

Yes. That's fair, yes.

And that was intended just to give visibility in regard to what we had under our rent structure and what we had for comparable metrics under SHOP. So that was why we broke that out separately.

That's right. Please continue.

No, you go ahead.

I was going to say that we were able to capture the upside in those properties. This was something we started seriously discussing about 18 months ago regarding our entry into RIDEA. We're really excited about achieving this and aligning our interests with our operators to incentivize performance. Your observation about comparing the increase in NOI or the triple-net structure is valid. However, we managed to capture the upside since the coverage on the Anthem portfolio was quite close to the rents we were collecting.

I understand. In terms of the CapEx, your guidance is $0.10, which amounts to a little less than $5 million per year on your average portfolio value. I feel that $5 million seems low for a $1 billion portfolio. Is this related to the portfolio's age? I'm curious about your thoughts on what the CapEx burden might look like for LTC in the future once you have around $1 billion in assets fully developed.

That's a good question. I'll respond this way. We have essentially assumed about $1,500 per unit. For our current portfolio of 30 properties, we reviewed the recurring CapEx budgets and feel confident about them given the assets' age. We do not believe we are stretching or deferring any necessary costs and feel this amount is essential for keeping the buildings competitive. We'll need to monitor how this changes over time. The overall figure reflects a weighted average assumption of $1,500 per unit for future acquisitions.

Yes. And I don't think you can compare our CapEx budget to our peers just because the makeup of our SHOP portfolio is so different. I mean with an average age of 9 years, that's really young, really new buildings that don't have a lot of CapEx requirements.

That was strategic on our part because as we were introducing this portfolio, to simplify the integration of this and have assets that can compete against potential new development. I mean, we do see that over time, that will increase. But for the interim and short-term period, that's why you're seeing a lower spend.

Yes. Okay. Yes, I was going to say young does become old unfortunately, over time.

And we'll see...

We all age, Rich. We all age.

Rich, as we work through the budgets, we are not deferring projects that we are not targeting a specific number for. We are committed to investing in the portfolio to keep it competitive. If that number increases to drive NOI growth, we will proceed with that. However, we are approaching this from a holistic perspective and are not looking to reduce the maintenance CapEx budgets going forward.

Okay. Last for me. You call yourself done at the end of 2026 with this transformation, 45% essentially SHOP. Is that your version of the efficient frontier? Or will you expect the SHOP exposure to sort of trickle up from that point forward? Or is it like a 50% exposure to SHOP sort of your kind of your sweet spot?

No, we don't have a specific target on it, Rich. It's really about transformation versus evolution. Transformation is something we've accomplished quickly, and as Clint mentioned, achieving this in 18 months is quite fast for changing a company's direction. After this year, we anticipate it will be more of an evolution. We will keep investing where we see the best returns for our shareholders, which currently looks like it will continue to be in SHOP. However, if that changes, we will adjust our investments to focus on maximizing shareholder value. For now, it will lean more towards an evolution related to SHOP rather than a transformation after this year.

Next question is coming from Okusanya Omotayo from Deutsche Bank.

Given the RevPOR, EXPOR spread you guys saw in the quarter, how confident are you that the SHOP portfolio can deliver the growth you're guiding to? And can you walk us through kind of the key operational levers that you kind of are relying on to get you guys there?

I believe the main factors are outlined in the supplemental guidance page. When considering occupancy growth, our expectations for EXPOR are slightly below general inflation expectations, which isn't a particularly aggressive viewpoint. Some might see the projected top-line occupancy growth of 150 basis points as somewhat conservative. We're dealing with a 30-property portfolio, including 27 that we've guided to; 13 of these have been converted, along with all acquisitions made since. Most of these properties are at or near stabilization. However, when managing a portfolio of this size, it's challenging to provide more detailed operational insights beyond what we've shared. We believe the guidance we've given is appropriate. With 27 properties, there will naturally be more variability compared to a much larger portfolio of 500 properties. Nonetheless, we're confident about our RevPOR assumptions moving forward; we consider them attainable, though not guaranteed. The same applies to EXPOR. Our goal is to set a balanced level of guidance that pushes our operators while still being realistic.

That makes sense. My second question is, I know you have mentioned that suppliers have been a significant issue, but has there been any change regarding that?

I wouldn't say there is a significant supply issue right now. However, what we are seeing is that operators with a proven track record in development are increasingly discussing their preparations for upcoming projects. So, while there may not be immediate action taken, they recognize a future demand for supply, and with their experience, they are getting ready to engage when the opportunity arises.

And I think what specifically within our SHOP portfolio construction activity is very light. There may be 1 under construction, 1 under consideration, and some expansions here and there around the edges, but it's very light.

We reached the end of our question-and-answer session. Before I turn the call back to management, please note that today's comments, including the question-and-answer session, may have included forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC Properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated December 31, 2025. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. I'd now like to turn the floor back over to management for any further or closing comments.

Thank you, operator. And thanks to everyone for your thoughtful questions. We appreciate your continued interest, and we look forward to updating you on our progress next quarter.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.