SOUTHERN CALIFORNIA ENTERPRISE : Oxnard’s LTC Properties Leads Rally in REITs : Real estate: Company with $205 million in assets returned 39% to shareholders last year--double the industry average--by investing in nursing homes.
Real estate investment trusts took a pounding in the late 1980s, but now they’re coming back. And leading the Wall Street rally are health care REITs such as LTC Properties of Oxnard.
Last year, LTC shareholders got a hefty 39% return in the form of dividends and higher stock prices--double the average return for the entire REIT industry, according to the National Assn. of Real Estate Investment Trusts, a Washington trade group. Even among health care REITs, LTC, with assets of about $205 million, is ahead of the pack.
Why? Because LTC has been putting all its money in nursing homes, which unlike other real estate, weren’t overbuilt during the 1980s, thanks to state regulatory restrictions. So unlike hospitals, which are struggling with too many vacant beds, nursing homes have an overall occupancy rate above 90%, says Peter Sidoti, a health care analyst at Natwest Securities Corp. in New York. And demand for long-term elderly care continues to grow as the population ages.
“We think LTC is the most attractive of the health care REITs,” Sidoti said.
A real estate investment trust is effectively a real estate mutual fund. REITs pool investors’ cash and invest directly in properties or make mortgage loans on them. Because REITs pass most of their earnings through to shareholders, theoretically at least, they provide more income to investors compared to most other stocks.
But REITs tend to have boom and bust cycles. They fell out of favor in the mid-1970s, and again in the 1980s when the real estate market performed poorly, but in the last couple of years, investors have flocked back to REITs for their relatively high dividends.
The flurry of REIT trading has created a boom of new REIT market offerings on Wall Street, which is likely to spawn more competition for LTC.
Also, traditional banks that had once shied away from financing health care facilities are now starting to step back into the arena. Another risk for LTC is the uncertainty of national health care reform, which is driving sweeping changes in the medical industry.
But for now, LTC is one of only a few REITs that specialize in nursing homes, and analysts like LTC even more because of its experienced management.
LTC Chairman and Chief Executive Andre Dimitriadis and President William McBride used to be senior executives at Beverly Enterprises, the nation’s largest operator of nursing homes, based in Fort Smith, Ark. In the late 1980s, the pair helped restructure Beverly Enterprises, and their experience in the field has paid off so far by finding good nursing-home operators and properties to invest in.
“Clearly, they know what they’re doing,” Andrew Turner said of LTC management. Turner is chief executive of Sun Healthcare, a large nursing home chain based in Albuquerque, N.M., and one of LTC’s borrowers.
LTC--short for Long Term Care--started out in August, 1992, with a $142-million public offering of stock, at $10 per share, and convertible debt. Last March, LTC followed with a secondary offering of 4.8 million shares of common stock at $13.25 each, raising $60 million.
In New York Stock Exchange Trading Friday, LTC closed at $13.875, down 12.5 cents.
While LTC buys nursing homes, most of the $280 million of investments it’s made so far have been mortgage loans to partnerships that own or lease nursing homes in more than a dozen states, mainly in the Sun Belt. Last summer, LTC sold off about $75 million worth of these mortgages.
