headshot - LTC Properties Co-President and Chief Investment Officer Clint Malin
LTC Properties Co-President and Chief Investment Officer Clint Malin.

LTC Properties plans to sell approximately half of the 35 Brookdale Senior Living communities it owns and re-lease the other half, Chief Investment Officer and Co-President Clint Malin said Friday during the Westlake Village, CA-based real estate investment trust’s first-quarter 2023 earnings call. His comments built on information the REIT shared in February after the country’s largest senior living company opted not to renew its lease with LTC.

The REIT has engaged two third parties to run the process related to the sales and re-leasing effort, Malin said. The current lease for the Brookdale portfolio ends Dec. 31, and Brookdale is contractually obligated to pay rent through the end of the lease term, he said.

“Although transitioning 35 properties can be challenging, we believe we have the experience necessary to complete the transition in a timely fashion and welcome the opportunity to reduce operator concentration,” Malin said.

The Brookdale communities in LTC’s portfolio are spread across eight states, he said. The ones that LTC Properties plans to keep have “much higher” EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring or rent costs), Malin said.

“We have definitely had a lot of interest even before we began the process of marketing the portfolio, so we’re encouraged by that,” he said. Also encouraging, Malin said, is that the rate growth and occupancy trends in LTC’s Brookdale portfolio are similar to those that Brookdale has publicly disclosed for its overall portfolio.

LTC Properties has been “in close contact” with Brookdale, he said, adding that the company has been “very cooperative in this process.”

Strongest investment year since 2015 

So far in 2023, the REIT has closed on almost $180 million in new investments, Chairman and CEO Wendy Simpson said.

“We have already eclipsed last year’s total, which before now was our strongest investment year since 2015,” she said. “Additionally, we have generated $32 million in proceeds from property sales year-to-date, generating net gains of $15 million and reducing the average age of our portfolio.”

LTC Properties is reviewing several opportunities for investment, Simpson said.

“We are cognizant of current market conditions and are prioritizing judicious capital allocation and disciplined portfolio management to identify the most appropriate opportunities,” she said. “We will continue to diversify our operator base and recycle capital. Our strategy for dispositions remains unchanged, with focus on methodically divesting non-core assets and recycling capital at or around annual historical levels of $35 million to $40 million.”

The expected sale of some of the Brookdale properties may mean that the REIT exceeds its historic level of capital recycling this year, she added.

Malin said that the REIT currently has a pipeline of an additional $100 million in investments under letter of intent.

“These transactions are diverse as to financing vehicle and operator and skew towards private-pay assets,” he said. “All are with current LTC operators, and all are off-market deals based on our existing relationships.”

Other actions in the quarter

Among other activity during the first quarter, executives said, LTC Properties:

  • Entered into a $121.3 million joint venture with an existing LTC operator and contributed $117.5 million into the JV that purchased 11 assisted living and memory care communities with a total of 523 units. The communities are being operated under a 10-year master lease with two 5-year renewal options.
  • Invested $51.1 million in Corso Atlanta by purchasing a participation in an existing mortgage loan. Corso Atlanta is a new luxury 203-unit gated independent living, assisted living and memory care community owned and operated by an affiliate of Galerie Living, an existing LTC partner.
  • Recorded an impairment loss totaling $434,000 related to a 70-unit assisted living community in Florida, which was sold for $4.9 million after the quarter ended.
  • Sold a 60-unit memory care community in Kentucky for $11 million.
  • Originated a $10.8 million mortgage loan secured by a 45-unit memory care community in North Carolina.
  • Received $4.5 million from a mezzanine loan prepayment for a loan originated in 2021 for the refinancing of a 136-unit independent living community in Oregon.
  • Transitioned a 60-unit memory care community in Ohio to Anthem Memory Care, a current LTC operator, under a three-year lease with no rent through May, after which cash rent will be based on mutually agreed upon fair market rent.

LTC Properties still expects to receive $300,000 in rent this year from an operator it has been providing abatements to, Chief Financial Officer, Co-President and Corporate Secretary Pam Kessler said. “We continue to evaluate options for the two properties that operate as a senior living campus that provides independent living, assisted living and memory care services,” she said.

Separately, Kessler said, the REIT agreed to defer $467,000 in rent for each of April and May for an operator to whom it has provided assistance in the past. “We expect to transition this portfolio of eight assisted living communities — with a total of 500 units in Ohio, Michigan and Illinois — to an existing LTC operator during the second quarter. After the portfolio is transitioned, cash rent will be based on mutually agreed upon fair market rent,” she said.

Still positive about the future

Despite the fact that some operators are experiencing challenges, Simpson said, the REIT remains positive about the future.

“It is no secret that our industry’s recovery from the pandemic has been choppy and, in some cases, drawn out, and while certain operators have made progress on improving occupancy, increasing revenue and reducing costs, others remain challenged,” she said. “LTC’s portfolio is not immune. While we cannot ignore market conditions and market volatility, I want to be very clear that I remain optimistic about LTC’s long-term future and the future of our industry.

“Demographics are on our side as needs-based care continues to grow and the population continues to age and live longer,” she continued. “Although the recovery may continue to move slowly and the path to get there may not be linear, I am a firm believer that by using our collective experience, tenacity and flexibility, we can emerge stronger and more resilient.”

Across LTC Properties’ portfolio, Malin said, private-pay occupancy was 80% as of March 31, compared with 79% as of Jan. 31, 81% as of Sept. 30. “For comparative purposes, our private-pay occupancy in 2019 pre-pandemic was approximately 87%,” he said.

In its private-pay properties, rate increases are being implemented “without significant declines in occupancy,” Simpson said.

As of March 31, in addition to Brookdale and Anthem (20 properties in LTCs’s portfolio), operators with a large presence in LTC’s 212-property portfolio include ALG Senior (43), Prestige Healthcare (24), HMG Healthcare (13), Ark Post Acute Network (7), Genesis Healthcare (6), Ignite Medical Resorts (6), Fundamental (5) and Carespring Health Care Management (4), according to an investor presentation released in conjunction with the earnings call. Some of the companies offer skilled nursing in addition to senior living. An additional 57 properties in LTC’s portfolio are split among 20 other operators, according to the REIT.

For more coverage of LTC Properties’ first-quarter 2023 earnings call, see sister media brand McKnight’s Long-Term Care News.