Looking Forward and Looking Up: A Conversation with LTC’s Wendy Simpson

For the first time in a while, Wendy Simpson, chairman and CEO at LTC Properties, is looking forward to the next earnings call for the publicly traded REIT. Business is looking up at the Westlake Village, California-based company after a difficult year for the entire industry.

NIC Chief Economist Beth Mace recently talked with Simpson about LTC’s approach to financing solutions. They discussed the last 18 months and the outlook for LTC and the industry. Overall, Simpson is optimistic. Why? She credits LTC’s employees, its board of directors, the stability of its balance sheet, and the dedicated people throughout the industry who stepped forward in a crisis.

Here’s more detail in a recap of their conversation:

Mace: LTC Properties is a real estate investment trust (REIT) investing in seniors housing and health care primarily through sale-leasebacks, mortgage financing, joint ventures, construction financing and structured finance solutions including preferred equity, bridge, and mezzanine lending. How does your structure as a REIT better position you than other lenders and private equity groups in financing solutions for both senior housing and skilled nursing properties?

Simpson: We strive to provide options for our operators. The best way to understand our approach is to contrast it with other sources. Unlike private equity, LTC is a long-term holder. We’re not looking to recycle an asset in 5-7 years. Our rates are generally lower than private equity because we’re not looking for a residual value. We strive to have assets that appreciate, but the value appreciation is greatly enhanced by the performance of the operator. Contrasting LTC to banks, they are often the first to step back when a sector has problems. And we haven’t stepped back from these asset classes. We keep a solid balance sheet so we can offer structured financing solutions. When banks step back, we sometimes can salvage the deal. We have different goals than other possible financing sources. We hope to be the solution for the operators’ financial goals and structures.

Mace: Many REITS have embraced RIDEA structures (an acronym that stands for the REIT Investment Diversification and Empowerment ACT) where REITs can participate in the actual net operating income if there is an involved third-party manager. Most of your structures at LTC are triple net leases (NNN) with annual rent payments and escalations, and joint ventures (JVs) as opposed to RIDEA structures. Why is this?

Simpson: Early on, when RIDEA emerged as a structure, we ran some acquisition options, and we couldn’t understand why investors in the RIDEA structure were paying real estate multiples for the operations. We did understand that the upside was the ability to invest in an underperforming asset and benefit from the addition of a quality operator. To do that, an investor needs people who understand operations and we didn’t have anyone with operations experience. You really have to delve into operations to be part of the RIDEA structure. We would have had to hire people and carry that overhead to make a big investment in RIDEA. Historically, we haven’t been big enough to have a concentration in this new line of business. Also, I’m a firm believer that operators have more incentive if the bottom line is all theirs. We just don’t see the same incentive in the RIDEA structure for the operators.

Mace: The industry has been challenged during the pandemic, but throughout the crisis, it has stepped up to the myriad problems ranging from securing PPE in the early days of March 2020 to the recognition of the importance of socialization even during periods of physical distancing to the distribution of vaccines in December 2020. Unlike some industries, it never closed. It has shown itself to be responsive, flexible adaptable, and proactive.   What types of challenges have you incurred during these turbulent times?   And what creative financing solutions has LTC implemented for your clients and prospective clients?

Simpson: From our point of view our challenge was revenue insecurity. Operators had massive issues. We established connections with operators to find PPE and share the status of government relief programs. We were a cheerleader to provide rent abatements and other deferrals for operators. We also stepped up financially to support our operators by providing a level of rent abatement in 2021 which gave them additional cash to help defray the costs of the impact of the pandemic. We’re pleased with the opportunities we see in shorter-term financing and bridge lending as we ramp up revenues from the properties with new operators. Inside LTC, we were able to work virtually, so we didn’t miss a step on auditing or quarterly reports.

Mace: LTC Properties was established in 1992. You joined the company in 2000 and took the helm as CEO and President in 2007 and were appointed Chair of the Board in 2013. How has LTC changed in those years? What are you most proud of?

Simpson: We began in 1992 as a skilled nursing home lender providing mortgages for skilled nursing homes. Our founder Andre Dimitriadis said it was like shooting fish in a barrel. No one else was lending in the space except banks and they were lenders, not investors. More healthcare REITS were established in the mid-1990s and LTC began buying, developing, and investing in assisted living assets and operators. For most of our history, we’ve been equity investors in skilled nursing and private pay senior housing. In 2022, we’re looking to invest more dollars in financing vehicles as a nod to our early history. What I’m most proud of is our employees and board. We have a meeting coming up and I have a chart showing employment history. I lead the chart since I had a 1995 board position and became an employee in 2000. Our average tenure is 10 years, pulled down only by some great recent hires. Financially, I’m most proud of our balance sheet. While it’s nail biting right now, we have maintained and not cut our dividends during this period of stress in the industry. Even though we have remained small, we’re stable and secure. We’re open about the challenges we’ve had with our operators, but we’ve worked with them and kept our shareholders and market analysts informed.

Mace: As the leader at LTC, what does the future look like?

Simpson: For the first time in six quarters, I’m somewhat looking forward to our earnings call in October. I think we have a pretty bright 2022. It’s nice to be looking up and 2022 seems like a much better year.

Mace: Are you optimistic for the recovery of the sector in the remaining part of 2021 and into 2022?

Simpson: I‘m optimistic. It’s amazing what people did during the ravages of the pandemic. How can you not be optimistic when you are working with people like that?

Mace: What are some of the challenges that need to be overcome? Anything keep you up at night?

Simpson: Another variant or wave of COVID-19 would slow the recovery. If there was another variant the industry has the protocols to stem the amount of damage that might be done. I don’t think it would be like 2020, but it would slow the recovery. I also worry about our operators being able to get staff. It’s universal. I haven’t talked to an operator yet that doesn’t have trouble getting and retaining staff. And it’s not about money. Many places are paying $15 an hour. I hope with the expiration of the extra $300 in unemployment and the opening of school that people will come back to work. There’s still some insecurity relative to childcare because parents worry that schools might close.

Mace: Anything else you’d like our readership to know about LTC?

Simpson: LTC does well bonding with operators. We really want to get to know them and be part of their culture. We’re not just providing structured finance products. Our operators see us as partners that they can work with. That’s important for people to know. We want to be part of the financing solution.