Westlake Village, CA-based LTC Properties executives updated shareholders, analysts and others on the status of several troubled or formerly troubled operators in its portfolio — Thrive Senior Living, Frontier Management, Anthem Memory Care and Senior Care Centers — Friday during a fourth-quarter and full-year 2018 earnings call.
The healthcare real estate investment trust is considering selling some or all of the Atlanta-based Thrive communities in its portfolio or transitioning some or all of them to new operators after the company paid only part of its contractual rent to the REIT in November and hasn’t paid any rent since then, LTC Chairman, President and CEO Wendy Simpson said.
“As a result, we have issued a reservation-of-rights letter to Thrive as we pursue our options related to the nonpayment and are no longer approving contractual rents starting in 2019,” Simpson said. “I’d note that we do have certain guarantees in place,” she added.
The six Thrive assisted living and memory care communities in LTC’s portfolio, which have a total of 395 units, had a net book value of $81.7 million as of Dec. 31, Simpson said. The company operates a total of 19 communities, according to its website.
“We love them as a management team,” she said, but Pam Kessler, LTC executive vice president, chief financial officer and secretary, said Thrive is “having challenges in the lease-up of the newer properties.”
LTC had announced an expansion of its relationship with Thrive in the second quarter of 2017, transitioning the operation of senior living communities in Jacksonville, FL, and Louisville, KY, from Clarity Pointe and acquiring a 60-unit memory care community in West Chester, OH, for approximately $15.7 million and leasing it to Thrive.
Kessler said LTC knows of an operator in Texas that is interested in Thrive Memory Care at Corpus Christi, and that the Jacksonville, FL, community, now called Thrive Memory Care at Deerwood, “is probably more likely to be a sale than a re-tenanting” because of challenges in the geographic area.
LTC has found a new operator for two communities managed by Frontier Management — an independent living / memory care community and an assisted living community, both in Clovis, CA — in the REIT’s portfolio, LTC Executive Vice President and Chief Investment Officer Clint Malin said.
Frontier has experienced “lumpiness” in occupancy there, he said.
“We have negotiated a new lease and a guarantee with another operating company to take over operations of the Clovis community,” Malin said. “Right now, it’s just subject to state approval, which we hope to have any day now.”
The new company, which Malin didn’t name, will have a purchase option after six years.
“We think it’s really a strong win-win for us in this new operating company,” he said. Frontier, he added, has “been great to work with. I think this wasn’t the right opportunity for them.”
Anthem Memory Care
Another operator in LTC’s portfolio, Anthem recently has “turned the corner,” Simpson said. LTC had issued a default notice on a master lease covering 11 memory care communities operated by Anthem in 2017 and was evaluating its options for the communities at that time. There currently are seven Anthem communities in the LTC portfolio, according to information released by the REIT in conjunction with the earnings call.
“We recently agreed to $7.5 million in rent from Anthem for 2019, which is approximately 45% higher than the rent they paid us in 2018,” the CEO said. “We continue to actively monitor expected ongoing improvements. We will revisit appropriate rent levels associated with these properties in the 2019 fourth quarter.”
Occupancy has stabilized at Vineyard Place in Murrieta, CA, and has grown at Harvester Place in Burr Ridge, IL, and Grace Point Place in Oak Lawn, IL, Simpson said, whereas occupancy at Porter Place in Tinley Park, IL, has declined slightly.
“We are pleased that Anthem met their 2018 rent commitment, but we will continue to closely watch their progress and their ability to meet their new higher 2019 commitment,” she said.
Senior Care Centers
Simpson also discussed Senior Care Centers, which operates 11 skilled nursing facilities in Texas for LTC and filed for bankruptcy in December.
“We don’t believe they have the ability to emerge from the process as a viable ongoing concern. Given this assumption and acting as good fiduciary stewards, we are proactively negotiating a potential new master lease with a different Texas-based operator familiar with these assets to ensure,” she said. “We are poised and ready to act should the opportunity arise. It is still very early in the process, and any lease transaction with a new operator is subject to bankruptcy court approval.”
Brookdale, Fields, Tealwood, English Meadows
Other portfolio news announced during the earnings call:
- LTC sold 10 properties — six senior housing communities and four skilled nursing facilities for a combined $95.9 million, recognizing a total gain of $70.7 million, Kessler said. Proceeds were used to acquire three seniors housing properties, one parcel of land and two skilled nursing facilities, she said. “While 2018 asset sales were higher than normal for LTC, we currently expect 2019 divestitures to be in a more typical historical range,” Kessler said.
- Fields Senior Living is expected to take over the leases on two properties currently operated by Brookdale Senior Living, in Bakersfield and Vacaville, CA, on May 1, Malin said. Brookdale is continuing to manage the properties under a lease amendment until Fields receives its license. “Once the transition is complete, our relationship with Fields will include four properties,” he said.
- Hamilton House Senior Living, a 110-unit independent living, assisted living and memory care community in Cedarburg, WI, should open in early to mid-April and will be operated by Tealwood Senior Living, Malin said.
- After the fourth quarter, LTC closed a $17 million real estate joint venture acquisition with an affiliate of English Meadows Senior Living Communities, a new operating partner for the REIT. LTC has a 95% interest in the real estate joint venture, Malin said. The English Meadows Abingdon Campus, Abingdon, VA, which opened in 2015, is a 74-unit assisted living and memory care community that was 90% occupied at the time of closing, he said.
‘Optimistic and opportunistic’
The REIT remains “optimistic and opportunistic” about deals, Simpson said, and is seeing more investment opportunities in private-pay senior housing rather than in skilled nursing.
“While [the first quarter] tends to be slower in terms of pipeline creation, we are continuing to build ours with strategic assets where we can grow with our current operators, improve the average age of our portfolio, add new strong regional operating partners and expand our existing geographic footprint,” she said.
LTC continues to focus on regional operators, Simpson said. “We believe this focus is what sets us apart, what allows us to be ready and able when an opportunity arises and what will allow us to continue to drive long-term growth and value,” she said.