Westlake Village, CA-based real estate investment trust LTC Properties is offering financing options beyond triple-net leases to meet the expectations of senior living operators, but when it comes to triple-net leases versus the RIDEA structures that some peers are favoring lately, “we’re firmly in the triple-net camp,” CEO Wendy Simpson said Thursday on the REIT’s second-quarter earnings call.
“We have been laser-focused on evaluating and strengthening our portfolio, positioning LTC for continued long-term success,” she said. “Importantly, by listening closely to our operators, we offer creative financing solutions that go beyond traditional sale-leaseback, including real estate joint ventures, preferred equity and mezzanine lending to best meet operators’ various goals, strategies and needs.”
Chief Investment Officer Clint Malin said the REIT has been “actively engaged” in looking at joint ventures for the past couple of years and has completed three such deals in the past 12 months.
In January, for instance, LTC announced that it was teaming up with an affiliate of Tealwood Senior Living and developer Tukka Properties in a $23 million joint venture to develop an independent living, assisted living and memory care campus in Cedarburg, WI. The deal also includes a triple-net lease.
And on Thursday’s call, LTC executives talked about a new joint venture with a new operating partner, Field Senior Living, through which a 78-unit assisted living and memory care community is being developed in Medford, OR. LTC funded a $600,000 land purchase made by the joint venture for the community, which is expected to be completed by the end of next year, Malin said.
“The joint venture also executed a purchase and sale agreement to acquire an adjacent 89-unit independent living community, currently owned and operated by Field, to create an integrated campus,” he said, adding that the acquisition is expected to close in the third quarter.
“This partnership with the Field Senior Living is the third real estate joint venture deal we have completed in the past 12 months, demonstrating LTC’s willingness to listen to operators’ needs and provide creative financing solutions meeting their strategic capital requirements,” Malin said. “As a result, we are attracting dynamic new operator relationships while decreasing the average age of our portfolio by adding newer assets.”
Whether the REIT considers a joint venture or triple-net lease is “situational,” he said.
“Obviously, we just did a sale-leaseback with Koelsch, so there are still opportunities to do sale-leaseback transactions,” he said, referring to a $25.2 million deal announced in July through which LTC will acquire two Texas memory care communities in a $25.2 million sale-leaseback arrangement that adds Koelsch Communities to its portfolio of operators.
The transaction made sense, Simpson said, because Koelsch is an established operator.
“If it had been a brand new operator who didn’t have a great track record, we probably wouldn’t do that acquisition, but we have a lot of confidence in the Koelsch operation,” she said.
Triple-net leases, if structured properly, deserve a place in the mix of options, Simpson said, adding that some operators prefer such deals.
“The fact that people say, ‘The triple-net lease is dead,’ — it is dead if you have over-levered and over-monetized,” she said. “So yes, those [bad deals] were going to happen, and they did happen. And so now everybody is thinking that the triple-net lease is an evil way of financing and nobody can make any money. That’s my opinion.”
‘Supporter’ of skilled nursing
Another way in which LTC differs from some peers, which are scaling back their exposure to skilled nursing, is that the REIT continues to look for chances to invest in the sector, Malin said.
“We’ve been a supporter of the skilled space, and we continue to be a supporter for the skilled space,” he said. “We’re really focused on looking on the right opportunities to grow on the skilled side — right markets, right regional operator — and we just haven’t found those opportunities to date, but we are actively looking at sourcing and finding those opportunities in which to grow with the right companies and the right assets.”
The REIT is seeing “some positives” regarding its skilled nursing portfolio, Malin said, including sequential, quarter-over-quarter improvements at two of four operators, and an 8% Medicaid rate increase in New Mexico, which positively affects two operators, and a 2.4% Medicare rate increase beginning in October.
‘Closely monitoring’ Thrive Senior Living
LTC has been “closely monitoring” operations at Thrive Senior Living, Simpson said.
“We just recently signed a lease amendment to provide Thrive with support in the form of up to $1.4 million of deferred rent through June 30, 2019, as they work through continued lease-up softness,” she said.
Occupancy in LTC’s Thrive portfolio as of July 31 was flat compared with April 30, Simpson said. The rent deferment was needed due to “general softness in the market,” LTC Chief Investment Officer Clint Malin said.
Thrive’s many investments outside of its LTC relationship and the company’s equity ownership positions in other buildings give LTC confidence that it will be paid back, Malin said.
“We expect to be paid back on … the deferred rent we’re giving to them,” he added. “And we feel they have the capability to go ahead and pay that back. So really it’s just bridging a short-term gap for them.”
‘Pleased’ with Anthem Memory Care payments
Anthem Memory Care continues to make progress on its financial commitments and, in some communities, occupancy, Simpson said.
“We remain pleased with Anthem’s ability to pay higher rent in line with our expectations but continue to work closely with them to ensure they achieve the goals they committed to for 2018,” Simpson said. Anthem is on track to make its $1.4 million rent payment in the third quarter, she said.
Occupancy at Vineyard Place, Anthem’s community in Murrieta, CA, increased to 80% as of June 30 and to 88% as of July 31, up from 71% as of April 30, according to Simpson and supplemental materials released in conjunction with the call. Occupancy at Anthem communities Porter Place in Tinley Park, IL, and Emerald Place in Glenview, IL, was relatively flat as of June 30, at 55% and 50%, respectively.
Occupancy at Harvester Place in Burr Ridge, IL, also was flat, according to Simpson. On the first-quarter earnings call, LTC had said occupancy there was approximately 71%.
Occupancy at Grace Point Place in Oak Lawn, IL, which began admitting residents in late May, was 17% as of June 30 and 20% as of July 31.