EXPERT OPINION: A Conversation with Wendy Simpson

November 13, 2012

In this "Expert Opinion" interview, Wendy Simpson, President and CEO of LTC Properties, discusses REIT activity, construction, skilled nursing, RIDEA, acquisition security, and more.....

Watch the video      Read the transcript

Wendy Simpson has been CEO and President of LTC Properties, Inc. since March 2007.  She was elected to the Board in 1995 and joined the Company as Vice Chairman in 2000.  She has also held the title of CFO of LTC Properties, Inc. Prior to her employment by LTC, Wendy held executive positions in public companies owning and operating acute care hospitals, LTACH hospitals, psychiatric hospitals and home health. She began her career in public accounting and has over 24 years in health care related businesses.

 

Contact Information:
Wendy Simpson
CEO & President
LTC Properties, Inc.
2829 Townsgate Road, Suite 350
Westlake Village, CA  91361
805-981-8646 direct
805-981-8663 fax
wendy.simpson@ltcproperties.com

 
Watch the video of the interview: 
 

 

Read the interview transcript:

Steve Monroe
Health care REITs have been dominating the senior care market for a while now. A lot of the focus has been on the large cap health care REITs, but there are some smaller REITs that are getting very active these days. I'm here today with Wendy Simpson. She's the President and CEO of LTC Properties, which has been a publicly traded REIT for quite a while. This is really looking like it's going to be the decade of the REITs. I'm sure you hope it's going to be lasting through the decade. LTC Properties has become a lot more active in the past couple of years. What's changed for all of you?

Wendy Simpson
Our cost of capital and the fact that there's a lot of investment cash available, whether it's bank financing. Banks are giving us large lines of credit with good terms, a good term line. We now have four year terms, we used to be able to get one or two years. So you have some confidence that that bank availability is going to be there. The capital markets are open for the REIT sector. The Fed has taken rates down to almost zero. So the cost of capital has just become low enough for us to be able to make some accretive investments.

Steve Monroe
Your portfolio is pretty even on assisted living and skilled nursing at least property wise. Is there one sector or the other that you're targeting now?

Wendy Simpson
We're not targeting either of them. We would like to have more assisted living because for the last couple of years, our successes and acquisitions have been primarily in the skilled nursing area. The assisted living assets are still being pretty heavily competitively bid. You really have to have a cap rate of 6 or 7 for the cost per unit on the assisted living properties before you can make any money or really buy some of the properties.

So we do look at the smaller assisted living packages, but if there's a large assisted living package, we know it's going to be bid up either by the larger REITs or some private capital has come into the market and is buying some of those. So while we would like to keep our portfolio 50/50, right now we see that we have more opportunity on the skilled nursing side. We're not going to not take advantage of an opportunity just to keep that 50/50, but we do have interest in assisted living, so we are looking at it.

Steve Monroe
Historically, LTC has always seemed more comfortable in more of a middle market, whether it's skilled nursing or assisted living facilities, but you very recently did a sale-leaseback for two very new, very expensive skilled nursing facilities. Now, I assume that these are very high managed care/Medicare properties. Is that going to be a target that you're looking for, getting into much more of the higher acuity, sub-acute type SNF?

Wendy Simpson
We see that as the growth area for the skilled nursing. As the Baby Boomers become more of the patient classification, they can drive more where they're going to go for their rehab and the newer properties are getting the higher acuity patients out of the hospitals. We are very focused on investing in the newer properties, the higher acuity type of properties. The two that we bought in Ohio are just stellar properties. While you do have a little bit of a gasp at a per-unit price, just to see their mix, the type of building it is, the location, it almost looks like an assisted living property.

We also have been looking at some properties that we would buy to close and build a new one. So there are other things that we're looking at in terms of what we would like our portfolio to as an average age go down, so we are really thinking about that and looking at properties that are of the newer quality.

Steve Monroe
With your recent acquisition activity, are you still comfortable with the onsies-twosies? Is that going to be more your priority, or are you looking for smallish five-property portfolios? Any target in that area?

Wendy Simpson
If the portfolio gets big enough, then it's competitively bid again and we don't tend to want to get into a competitive bidding process. So in the onsies-twosies, what we're seeing is an opportunity to buy a property from an individual owner. I'm always surprised at how many there are still out there. Generally, we're going to bring in an operator that we've already have other properties with. So while it might be a one-property purchase, it's going to be with an operator that we probably have a couple more properties with and can go into a master lease.

So I don't see us right now, and I'm going through the things that we're working on, buying a property from an owner-operator and leasing it back to that individual owner-operator. We'd like more tie-in in terms of security on acquisitions.

Steve Monroe
Security in terms of?

Wendy Simpson
A bigger base of assets to pay the rent and for the coverage.

Steve Monroe
So does that mean you are looking more towards expanding your existing relationships, or if you go into a new relationship you want it to be larger than a onesie-twosie?

Wendy Simpson
Yes. Both. We're cognizant of the concentration, so when we have an opportunity with some of our operators that we have a large concentration of skilled nursing, for instance, one of the factors that we look at is how the market is going to evaluate this in terms of more investment in this single basket. So we really do support our operators and want to do more business with them, but to a point that we don't want one of them to become so important to us that that causes a concern.

Steve Monroe
Right, because the whole trend with larger REITs is they want to be the exclusive REIT for people. So it sounds like you don't want to have that much concentration.

Wendy Simpson
Correct.

Steve Monroe
A few of the REITs have done the RIDEA transactions, even though you don't need that particular Act of Congress to set these up this way, but everyone refers to them as that. But people are doing RIDEA transactions to obtain a higher return than just a lease with 2.5 percent escalators. Are you thinking about doing that down the road with either existing or new customers?

Wendy Simpson
We've looked at it a couple of times. In underwriting, we haven't quite understood how you use a REIT yield to value an operating risk. So we really haven't been able to work out the numbers in any of the deals that we've been looking at. A small RIDEA would be something we might do in the right strategic situation, but we currently don't have the overhead to manage a management type of situation. So it's not one of our strategies, but five years ago I would have said no, we're never going to do that because we are the owner-lessor and you don't want to get into operations. But it does seem to be somewhat accepted in our industry now, so I'm not going to discount it right out of hand anymore, but it's not a strategy that we're spending a lot of time on.

Steve Monroe
Five years ago, not possible. Today, who knows?

Wendy Simpson
Possible, yes.

Steve Monroe
As you've proven with your recent acquisition of new skilled nursing facilities in good markets they can be extremely valuable.

Wendy Simpson
Yes.

Steve Monroe
High cash flow, I think is kind of the new model for the sector. Would you be doing much new construction for skilled nursing? You said you would buy an old one, tear it down and build a replacement. Are you looking at doing more construction?

Wendy Simpson
We are. We are actually doing one, which is a replacement of a property. It's under construction right now in Amarillo, Texas. We're talking to another operator about just building new. They have CONs in a CON state. Just building new property, two new properties. We're also talking to another operator about buying, like I said, an older property, closing it down and building a new one. So we are.

We're also building—we're under contract and under construction in one memory care in Littleton, Colorado. That's currently earth's moving and things are being stuck in the ground. And then, we're talking to two other operators of memory care about building de novo projects in two different states.

So we're very interested in building in the memory care area. The buildings that we're looking at, the profile of the buildings are the smaller buildings, 40 to 60 units, and the price including land in the areas that we're looking is somewhere in the $10 million to $12 million category. So it's a good bite for us, we are looking to do some building in the memory care, which will in the future give us more private pay, which is back-filling for the fact that we're not buying assisted living now. So that's one area that we're looking at in addition to the skilled nursing building.

Steve Monroe
Well, good luck in 2013.

Wendy Simpson
Thank you.


 

 

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