LTC
#It's something that our operators do talk about.
That's something very cognizant on their radar screen, but they've been able to manage through changes in labor.
And not to say what could happen going forward, but it's something that people are being very proactive about.
They are trying to focus on reducing turnover cost and labor turnover to try to proactively manage that, so it's something that's definitely on the minds of our operating companies in our portfolio.
I think it's always been challenging getting nurses.
I mean, there's been talk ---+ I don't have a specific percentage, but it's something that as the economy increases and inflationary pressures are out there, it's something that's definitely something to be focused on.
And this is one of the reasons why we underwrite to a 1.5 times coverage, because we feel on the skilled nursing portfolio, there's ebbs and flows and we want to make sure we have adequate security in our investments, and we think the 1.5 times coverage ratio on an underwriting basis provides for the ebbs and flows of the cash flow.
The total debt piece is about 1.94 times on total debt, so we felt it to be very strong.
Substantial equity had been invested in this portfolio and occupancy was very strong, in the low 90% range.
So it seemed to be a very strong covered investment, and that's what got our interest was the security of this investment.
Again, it was a unique opportunity.
It was well secured and something that we had an opportunity to invest in on an off-market basis.
And an operator we know.
Correct.
We haven't really gotten that far into it.
We started hearing about the interest in independent living probably a couple of months ago.
We generally, of course, were aware of independent living; it's not in our current wheelhouse, so we don't pay much attention to it.
I think ---+ I don't believe that we're going to approach it like we did memory care, where we're going to look for a new company to incubate and that sort of thing.
I'd like to work with some of our current operators to see if we can add independent-living components to assets that they are currently working with.
We would look at doing independent acquisitions if they come across our desk.
We'll let people know we're looking at independent.
So in terms of the metrics, I can't say I would quote anything that LTC would underwrite right at the moment, but I think it's an area that we might be very interested in looking at.
The return risk isn't going to be increased, I don't believe.
The mezz, if you look at mezz as a more risky investment, it's currently going to be capped at $50 million and we'll reassess it when we get there.
But we'll be underwriting at the same percentages.
What we are adjusting for is if it's needed that we won't have specific increases in rent every year at 2.5%, so it's not that the rent is any more risky, it's the upside that might be a little more ---+ or a little less assured.
However, the upside has an upside, where our 2.5% doesn't have an upside, other than the 2.5%.
So I don't consider that LTC is going out on a limb, being risky.
Relative to the additional investments that we'd be willing to make in a triple net lease, as <UNK> said, we've always done that, but some people who don't have triple net leases or haven't worked with us before I think would like to see something written in the lease that says we are committed to doing something like that.
So I don't think that increases our risk at all.
I think it just makes it clear that LTC is investing alongside the operator for the buildings and the operations.
And we're not going to put the money in for free.
It will be at a return for the additional investment.
So I really don't see us becoming a more risky company.
Thank you.
We are not going to restructure our current leases.
They all cover very well, so I think it would be more on leases going forward.
So that's not maintenance CapEx because we're getting a return on it.
Compared to commercial buildings or apartments that have recurring maintenance CapEx, we don't have that.
Every CapEx dollar we put in gets a return on it.
(multiple speakers) would be the same going forward.
<UNK>'s just ---+ there's really not a change in strategy.
It's just more than memorializing that in a document, in the lease document, versus negotiating it when the operator comes and asks if we want to participate in doing a renovation or an expansion.
Absolutely.
We're definitely seeing that.
As I have been working closely with Doug Korey on our mezzanine financing program, obviously we interact a lot with banks in regard to those discussions and we're definitely seeing a pullback in the lending environment for construction projects.
The percentages that are made available as far as loan to construction cost has gone down, so we're definitely seeing that.
I think that's a positive for the industry to hopefully moderate some of the development that's taking place just as we go through the cycles.
So we're seeing the same thing in the seniors' housing space.
Absolutely.
As options to seek construction financing become a little bit more limited, yes, I think it does.
In discussions with operating companies, it gives us a seat at the table and allows us to be creative with them and flexible, so I think it does give us an opportunity to look at providing additional capital.
We have not.
Of the $50 million, I'd say 50% of that is skilled and 50% is AL, and about 50% represents development for that $50 million.
And if you're talking about just a broader swath of what we are seeing in the market, I think deal flow has definitely come down.
As I mentioned, there's a number of largest skilled nursing transactions we've seen, but more of what we've seen is just larger deals that just are not a strategic fit for our portfolio.
That was just the one-time lease incentives that we gave during the quarter related to extensions, modifications, and leased-up properties.
No.
I guess to start at the last item, regarding lease coverage, where it ends, we have looked at trending on our portfolio on more recent quarters, and we're trending still, as we mentioned last quarter, in the 1.5 times range in our skilled portfolio.
But the one unknown as we go into fourth quarter and there are adjustments that operators push through in the financials, that would be the one caveat going into fourth quarter, that that's typically the quarter in which you see adjustments happen.
But barring any of those adjustments that are unexpected or large one-time adjustments, we continue to see that we're trending in a 1.5 times range for skilled nursing.
You know, on the cap rate, we're probably in the 9% range on lease rates is where we have talked about.
For the right opportunity to put something into an existing master lease, possibly a little bit below that, but that's where we're targeting right now for skilled nursing.
On the private-pay side, we did put an offer in on a portfolio of private-pay properties earlier, towards the end of the quarter at a 7% rate, which we've been told that the winning bid was a sub-7% rate, but we don't know where that will end up.
So we're somewhere in that 7% to 7.5% on the private-pay side.
I don't see that happening.
What we're looking at on the asset sale side is a moderated pace of selective assets.
There's no large transactions we're looking at on selling assets, so I would not see us being a net seller.
And in terms of deal flow, I remind everyone we sat at the same place this time last year with a very slow first quarter, not much in the pipeline, and we ended up doing $142 million of investments in 2016.
So, I wouldn't read that much into the first-quarter sluggishness.
I think after the transition of the Trump administration, there seems to be some type of understanding of where that's headed, where interest rates are headed.
I think, then, people understand where the transaction market is and you'll hopefully see some deal flow following them.
We haven't been approached on doing that, so, as I said in the past, we're open to almost anything in terms of the structure, other than RIDEA, but we haven't been approached, <UNK>.
I'd be more than happy to talk to anybody about an opportunity in that area.
I have no closing remarks, other than to thank you for your time and we look forward to talking to you about our first quarter.
Have a great day.
