With Brookdale Senior Living’s lease with real estate investment trust LTC Properties up in 2023 and rumors swirling that the Brentwood, TN-based senior living operator is shopping for a buyer, the Westlake Village, CA-based REIT is “not sitting here waiting” to see what Brookdale’s future moves are, LTC Properties Chairman and CEO Wendy Simpson said Friday on the company’s third-quarter earnings call.
“We have a lease that provides for change-of-control provisions. That lease, if they don’t renew it, expires at the end of next year,” Simpson said. “So if they get purchased after the end of next year and they haven’t renewed the lease, it’s a ‘jump ball’ at that point.
“We are not sitting here waiting for them to toss us the jump ball,” she continued. “We’re doing strategic planning on what operators we would possibly bring in to look at the portfolio.”
LTC Co-President and Chief Investment Officer Clint Malin said that selling communities is an option as well.
Brookdale, which tops the American Seniors Housing Association’s 2022 list of largest operators and Argentum’s 2022 list of largest senior living providers, operated 672 communities across 41 states as of Sept. 30, according to information LTC Properties filed with the Securities and Exchange Commission in conjunction with the earnings call. That number is down from approximately 1,010 communities in 2018 as Brookdale has sought to reduce the number of communities in its portfolio.
As of Sept. 30, LTC Properties’ portfolio included 104 senior living and care properties, 35 of which were Brookdale communities. The communities represented 9.7% of LTC’s annualized actual cash, 9% of its annualized contractual cash and 5.4% of its gross investments.
Simpson said the Brookdale communities in its portfolio are “nicely grouped” and that most if not all have positive cash flow, with operating expenses and rent covered.
If Brookdale is sold, Simpson said, “it might be a little disruptive for us, but we are as prepared as we can be with the information we can get either through the Wall Street Journal or through rumors or Brookdale.”
Brookdale, she added, “is not calling us and telling us what’s going on, which is appropriate.”
LTC Properties, Simpson said, is “hoping that we don’t have to make a change, but we’re prepared if we have to.”
Brookdale’s lease is one of six maturing for the REIT in 2023. LTC said that the Brookale lease represents 75% of its annualized income maturing next year.
Malin said that executives with the REIT met with executives from Brookale over the summer to discuss the lease.
“Their [renewal] window opens up next week, and they have until Feb. 28 to extend the lease, so they’re going through that evaluation process,” he said Friday.
So far in 2022, LTC has funded $1.5 million in capital improvements at Brookdale communities, out of a total of $4 million committed in 2020, Malin said. “We’re actively working with them to approve additional projects to fund on that $4 million commitment,” he said. “So we view those to be positive.”
Highest investment activity since 2015
LTC’s recent investments overall total more than $170 million, “which represents our highest level of investment activities since 2015,” Simpson said, adding that the REIT is “continuing to aggressively identify additional opportunities to build a financing void that has been created as banks take a wait-and-see approach to investments in our sector.”
Over the next year or two, the CEO said, LTC’s investment activity “will continue to ramp up as we become even more competitive, bringing flexible and creative financing to strong regional operators who are seeking growth capital at fair rates.”
Anecdotal good news
Simpson reported positive signs from the operators in LTC’s portfolio.
“Anecdotally, our operators are reporting lower utilization of staffing agencies, allowing them to increase salaries in certain cases, making jobs in the sector more attractive. Rent increases continue to be implemented by several of our private-pay operators, and occupancy in our portfolio continues to gradually improve,” she said. “However, with inflation and labor challenges, our crystal ball is a bit murky, so we can’t predict when or if net operating income and margins will return to pre-pandemic levels for our industry.”
A margin recovery could be delayed if the flu, COVID-19 and respiratory syncytial virus, or RSV, all hit long-term care communities at the same time in the fall and affect occupancy, LTC Co-President, Chief Financial Officer and Secretary Pam Kessler said.
“Admissions bans — we’re hoping that those won’t be instituted again, because those were very harmful for both assisted living and skilled nursing,” she said.
Also during the third quarter:
- LTC provided a temporary rent reduction of $900,000 to Anthem Memory Care, bringing the total temporary reduction provided to the operator in 2022 to $1.5 million. The annual agreed-on rent from Anthem is $10.8 million, of which $6.6 million was paid through the end of September. As of October, LTC had received an additional $1.2 million of rent and still expects to receive a total of $10.8 million by year end, upon Anthem receiving additional money from the Employee Retention Tax Credit and from improving operating results. LTC also provided $200,000 of net deferred rent, which excludes the temporary rent reduction provided to Anthem and $720,000 of abated rent.
- LTC terminated a master lease covering 12 assisted living communities with a total of 625 units and transitioned the communities to an existing operator in its portfolio. The REIT said that the former operator was one of the few for whom LTC had provided previous rent deferrals and abatements. “In connection with the lease termination, LTC abated rent for June 2022 and has forgiven the former operator’s outstanding deferred rent balance of $7.1 million,” the company reported. “Also, LTC paid the former operator a $500,000 lease termination fee in exchange for cooperation and assistance in facilitating an orderly transition.”
For additional coverage of the earnings call, see the McKnight’s Business Daily and McKnight’s Long-Term Care News.
