Wendy Simpson headshot
LTC Properties Chairman and CEO Wendy Simpson

Long-term care operators felt “some stress” in the first quarter as they continued to confront labor pressures and inflation, LTC Properties Chairman and CEO Wendy Simpson said Friday during the Westlake Village, CA-based real estate investment trust’s first-quarter earnings call.

“Several of our private-pay operators have implemented rent hikes to offset higher labor and supply costs,” she said, adding that “[n]one have reported pushback from residents or their families.”

For a “small subset” of operators, that stress translated into a collective $1.3 million in rent deferrals and $720,000 in rent abatements in the first quarter. So far in the second quarter, LTC has deferred $376,000 in rent and abated $240,000 in rent. The REIT reported that it also has agreed to provide rent abatements of up to $240,000 for each of May and June.

LTC Co-president and Chief Financial Officer Pam Kessler said that the actions involve ”the same small subset of operators that have been receiving assistance from us.” One operator for which LTC has reduced rent is Anthem Memory Care.

“Anthem experienced an occupancy decline and cost increases resulting from a surge of the omicron variant in [the first quarter] that may make it difficult for them to pay the full second-quarter cash rent of $2.7 million,” Simpson said, noting that the company has experienced similar short-term occupancy declines resulting from surges of other variants and rebuilt census “rapidly” in each case. “We believe occupancy will recover, and with Anthem’s expected receipt of additional stimulus funds, we still anticipate receiving total cash rent from Anthem in 2022 of approximately $10.8 million, in line with prior guidance,” she said.

The REIT now expects only $2.1 million in rent from Anthem in the second quarter, however, Simpson said. Kessler said the figure factors in a $300,000 reduction for each of May and June. Anthem has paid its agreed-on rent through April, LTC reported in a press release issued in conjunction with the call.

‘Recovery slowing coming together’

Despite the deferrals or abatements needed by some providers, Simpson said she believes that the long-term care industry is “steadily moving toward a pre-pandemic environment.”

“Our industry is seeing evidence of the recovery slowly coming together, and we are hopeful about turning the corner on COVID,” she said. “As a needs-based industry, I believe the long-term picture for our industry remains positive based on solid demographics and fundamental needs for the care of our senior population.”

Occupancy at 78%

Occupancy in the REIT’s same-store private-pay senior housing portfolio was 78% as of March 31, Co-president and Chief Investment Officer Clint Malin said. The percentage was equal to that of Jan. 31 and up from the 76% occupancy rate seen as of Sept. 30.

Operators provided the information to LTC on a “voluntary and expedited basis,” Malin said, adding that the rate includes approximately 63% of the total same-store private-pay units in the REIT’s portfolio.

Pipeline valued at $70 million

Simpson said the REIT’s focus in 2022 “is on a return to growth.” Toward that end, she said, LTC has closed on approximately $77 million in investments year to date and has identified several more investments “that will advance our growth.”

Malin characterized the REIT’s pipeline as “robust,” adding that “it hasn’t really slowed down since late last summer.”

He said that the current pipeline is valued at approximately $70 million, spans private-pay senior living and skilled nursing, is geographically diverse and includes new and existing operating partners. “The [pipeline] opportunities are also varied in terms of financing vehicle, including development joint ventures and mezzanine and mortgage loans,” Malin said.

Only one current investment opportunity involves skilled nursing, he said, and it’s a development project with Ignite Medical Resorts. “We provided them a loan to acquire a piece of land in Missouri,” he said.

Several transactions in, after first quarter

LTC reported that during the first quarter:

  • LTC began a relationship with The Springs Living by originating a five-year, $25 million mezzanine loan for the recapitalization of five senior living properties in Oregon and Montana with a total of 621 units. The loan has options for two one-year extensions.
  • LTC transitioned two memory care communities in Texas with a combined 88 units to an operator already in LTC’s portfolio. The new master lease has a two-year term. Cash rent will start in the fifth month, based on mutually agreed fair-market rent. LTC recognized $282,000 of rent from the transitioned communities during the first quarter and anticipates recognizing approximately $370,000 of rent from them during the second half of the year.
  • Field Senior Living exercised the purchase option under its lease related to two assisted living communities in California that have a total of 232 units. The communities, bought for $43.7 million, have a gross book value of $31.8 million and a net book value of $16.8 million. LTC anticipates recognizing a $26 million gain on the sale in the second quarter. “We expect to close the sale within the next week or so,” Kessler said.
  • LTC decided to close a 48-unit stand-alone memory care community in Castle Rock, CO, that it owns. “This community was transitioned from Senior Lifestyle to a new operator during the first quarter of 2021,” Kessler said. “The lease with the new operator, which was expected to generate rent of $150,000 in year two of the five-year lease, was terminated as of April 1, 2022.” The net book value of the property is $5.3 million, and LTC intends to sell it, she said.

After the end of the quarter:

  • LTC sold a 74-unit assisted living community in Virginia for $16.9 million. The community has a gross book value of $16.9 million and a net book value of $15.5 million. LTC anticipates recognizing a $1.3 million gain on sale in the second quarter. In connection with the sale, the current operator paid LTC a $1.2 million lease termination fee. The proceeds from the sale were used to pay down LTC’s unsecured revolving line of credit.
  • LTC amended Brookdale Senior Living’s master lease to extend the maturity by one year, to Dec. 31, 2023. “The renewal options under the new amended master lease did not change except for the term of the first renewal option, which was reduced from three years to two years,” Malin said. “Aside from the two-year option, the amended lease also includes a five-year renewal option and a 10-year renewal option.”

Mentioned in Brookdale book

Simpson said LTC was honored to be mentioned in the new book of Brookdale President and CEO Cindy Baier, titled “Heroes Work  Here.”

“One of the things that make this book so interesting to me is that LTC is featured as a flexible capital partner, something on which we pride ourselves,” she said. “A few months into the pandemic, we worked collaboratively with Brookdale to consolidate four leases into one master lease. As Cindy said in the book, through collaboration, a focus on finding solutions that work for both parties and a renewed commitment to our partnership, we were able to achieve a positive outcome that protected Brookdale’s interests in the midst of substantial uncertainty.”

ESG initiative expands

Simpson also announced that LTC Properties is taking its environmental, social and governance initiative to the next level by encouraging the operators in its portfolios to do some introspection and possibly make some changes. Read more here.

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