LTC PROPERTIES INC Q3 FY2025 earnings call

• Executed on every front including initial cooperative conversions from triple net lease to SHOP, external growth through investments, capital recycling and transformation through SHOP. • Investment pipeline grew fourfold since the beginning of the year, with about 85% of the $460 million projected pipeline closed, over $290 million in SHOP segment. • Expanded operator relationships to 6, 4 new to LTC. • Raising 2025 SHOP NOI guidance. • Completed sale of 7 skilled nursing assets, generating net proceeds and gain. • SHOP has been a true external growth engine built on disciplined underwriting, strong partnerships and consistent execution. • Building a SHOP portfolio of newer assets with staying power, focusing on newer, well-located communities operated by experienced partners.

Core FFO improved to $0.69 from $0.68 in the third quarter of 2025 compared to the same quarter in 2024, principally due to an increase in SHOP NOI from Anthem and New Perspective, new SHOP acquisitions and a decrease in interest expense, partially offset by an increase in reoccurring G&A. Core FAD improved by $0.04 to $0.72 versus $0.68 last year. The increase primarily related to factors impacting core FFO and other factors, partially offset by an increase in reoccurring G&A. SHOP segment: As of the close of the third quarter, SHOP included 21 properties with 5 operators, 3 new to LTC, with a gross book value of $447 million or approximately 20% of the overall portfolio and an average occupancy of 87%. We have closed about 85% of the projected $460 million investment pipeline, more than $290 million of which was in the SHOP segment. By the end of the year, SHOP is expected to approach 25% of the investment portfolio with an average age of less than 9 years. The sale of a previously discussed portfolio of 7 skilled nursing assets generated net proceeds of approximately $120 million and a resulting gain of $78 million.

• Increased the low end of 2025 core FFO guidance by $0.01 to $2.69 to $2.71. • Fourth quarter core FFO expected in the range of $0.67 to $0.69, excluding asset sales and including transactions closed to date or expected to close over the next 60 days. • Raising 2025 SHOP NOI guidance. • By the end of the year, SHOP expected to approach 25% of investment portfolio with average age less than 9 years. • For the 13 properties originally converted to SHOP, increasing guidance to $10.9 million to $11.3 million, up from $9.4 million to $10.3 million. • Remainder of SHOP portfolio acquired expected fourth quarter NOI of $4.8 million to $5.2 million.

• Today's comments include forward-looking statements subject to risks and uncertainties detailed in LTC's Properties' filings with the Securities and Exchange Commission, such as market evolution, competition, and operational execution risks.

Q: Just looking at the guidance here to get started, looking at the moving parts, just talk about the underlying assumptions here for the low end and the high end of the range A: Yes, the low range included all investments that have closed to date and the high is all that we expect to close within the next 60 days Q: And let's talk about the pipeline as well and the makeup here. Are you purely focusing on SHOP deals at the moment? Or are you looking at other triple net and loans as well?

A: Predominantly SHOP. Certainly, we will consider other opportunities across our desk, but our primary focus is SHOP Q: Could you provide any color on expected yields and growth for $110 million in the pipeline to close in January and $70 million over the next 60 days?

A: We've guided to 7% yields on our SHOP acquisitions, and you should think of the same for the $110 million deal we disclosed in our earnings release Q: And then just you guys -- or how should we think about funding the incremental capital that you've outlined? And then how do you think about your marginal cost of capital, both debt and equity?

A: We have proceeds coming to us in the first quarter in the form of loan payoffs and purchase option exercises that we disclosed in the supplemental. And so that's about $90 million of proceeds and then funding the remainder on the -- with equity on the ATM. We've been very disciplined this year in issuing equity to match-fund our investments. And so you can anticipate that going forward as well Q: Any other options of prepayments that we should expect in 2026 or '27 that you think realistically would be executed?

A: The only thing you should think about is Prestige, which we talked about previously. And we gave them a prepayment window starting in July of '26, and they have improved performance, and we have been in communication with them, and they are going to be making loan applications in early '26. So at this point, we would think that they should be on track for hopefully 7%, Juan. It may take a little bit longer, but that's $180 million Q: You mentioned the conversion of -- to Compass previously, $2.5 million rent, $1.2 million SHOP with an expectation to pass that $2.5 million. Is that the typical model when you do a conversion where you're sort of giving up short-term rent? Or do you kind of sometimes start at a higher number on a SHOP execution versus the previous net lease structure?

A: This one is a little bit of an anomaly, and it's a fair question. So as you know, as I disclosed in my prepared comments that the current NOI run rate was lower than the contractual rent. So this was a specific operator issue that we dealt with that we had to address. We're really excited to start the relationship with Compass. These 2 particular properties have covered that contractual rent before, and we've just seen performance deteriorate. So we looked at this as a good opportunity, and we're really glad to have SHOP, the RIDEA platform and the toolkit to address a situation like this. So we really are confident that Compass is going to be able to drive NOI to more than exceed that contractual rent such that the value creation is going to more than offset the temporary reduction in our income Q: How many of the assets that you have in the portfolio were recently transitioned or how many of the acquisitions that you guys have are recent acquisitions where you're transitioning out the old operator and bringing in a new operator? And with regard to those, should we expect some type of disruption, so higher expenses or lower revenues as there's always some type of disruptions with those?

A: So far, on our existing external acquisitions, the operator has remained in place, and it's actually been, as far as I'm concerned, sort of a twofer because we get to buy a great piece of real estate and we get to establish a great relationship with an operator. There will be some situations where we do have transitions. And obviously, we're very careful to plan well in advance with the operator to avoid disruptions. But predominantly, so far, we've been able to keep the operator in place on deals that we've executed Q: What do they need to get done to exercise that purchase option? I mean, is it just obtaining the loans? Or do they need to drive better results so they can get, I guess, better underwriting with any potential, I guess, HUD-type debt? I mean, do they need to drive performance in order to exercise that? Or is it just getting the loans done?

A: Driving a little bit more performance. And that's why we gave them a year to go ahead and to prepay. But they have been improving substantially, and we think they're on track to be able to -- we've been analyzing their financial performance. They've improved substantially. And for right now, it looks positive for us. They'll be able to exist and it brings down our -- oh yes, the interest rates going down, too, could be a benefit for them. So we feel good about that. We feel good about our decision to allow this prepayment to be able to redeploy that capital into higher quality assets. So we are keeping close tabs on it, and it looks positive right now for middle of the year next year Q: When you take a look at your skilled nursing portfolio at this point, if there are opportunities to also try to improve your earnings growth from your current portfolio? Again, one of your peers did something really interesting with one of their operators. Again, not wondering again, are you guys looking at structures like that, that could also kind of help you generate better earnings growth from the skilled nursing portfolio?

A: We have not looked at that, Tayo, as an option. We've mentioned previously on our calls, we've been selective looking at skilled nursing, and we have focused on more transitional newer transitional care, newer assets. And we continue to be in discussions with companies about that. So that would be what I'd see us selectively growing on skilled nursing Q: Anything from a regulatory perspective as well on the skilled nursing side, you guys are watching at this point?

A: Nothing new at this point. I mean I think everything that's been discussed as far as the staffing mandate, that's in the rearview mirror now. So no major issues that we're aware of on skilled nursing other than there has been a few states that have touched on potential Medicaid rate reductions. So that's -- I guess -- and that's a narrative that's out there in select states. We don't know if that will continue to grow or not, but that has cropped up in a few cases Q: How are you guys balancing the regional densification or sort of a clustering strategy and the benefits of scale within SHOP versus geographic diversification and just kind of thinking about those future SHOP investments?

A: Yes. I think that we're going to continue to evolve into that, Austin, but we've been out meeting with operators for upwards of a year now premarketing this. And I think where you see where the pipeline and our investments to date, this has been a result of that very intentional effort of going out and meeting with operating companies. So as we continue to work with these companies, I mean, we will look at density being a factor of concentrating in certain markets with certain operators. And we've done that. The operators that we're partnering with in our acquisitions, they are the market leaders in their area. And so that is a strategy of ours Q: Has the competition changed at all to a point where you felt you've had to increase your growth underwriting in sort of the 3 years out? I think you were in sort of the low to mid-single-digit growth you referenced last quarter with the expectation they would exceed that, of course.

A: Yes, it's very competitive in the market as far as deals, and we've been focused on -- smaller transactions, we've been fortunate to be able to secure a couple of portfolios, but it is definitely competitive. But we feel we feel very good about our momentum and our positioning in the marketplace to be able to succeed on investments. And I think our investments to date plus our new investment we announced for '26 is evidence of that we're able to compete in the marketplace Q: The transitions this quarter, I mean, it didn't sound like there was any other immediate kind of transitions that were available, but I think you'd referenced maybe evaluating some assets in the market-based rent reset, those 14 properties. Anything in the near term there that you're evaluating on maybe transitioning some additional assets from triple net or to the SHOP structure?

A: Sure, Austin, this is Gibson. Yes, we're certainly considering that as we look into 2026. We have a few options as it relates to those properties. We continue to work with current operators and set permanent rents. As a reminder, these are -- there were 14 properties that were all set up in short-term leases, basically 2 years in duration on average with regular market rent resets. And so there may be certain situations where we keep those with the operators once we're satisfied that we're at an occupancy level and margin that makes sense if that fits that relationship. But we'll certainly look at some of those assets to transition to SHOP. You'll probably see a little bit of movement on that early next year. And then we may make some decisions on a few as to whether or not we dispose of them. But those are our options to -- just to maximize value in that group of assets, and we certainly see upside in that portfolio from here