For 2020, “early indications show that we will have to dig deep to find the kinds of transactions that best benefit our shareholders,” Westlake Village, CA-based LTC Properties’ Chairman, Chief Executive Officer and President Wendy Simpson said Friday.
“Our 2020 growth strategy will focus on continuing to source traditional triple-net leases and new opportunities requiring creative financial solutions,” she said, “but it bears repeating that the market has not changed meaningfully since our last call.”
LTC Executive Vice President and Chief Investment Officer Clint Malin said that development for private-pay assets “is going to be select and opportunistic.”
Older buildings and senior apartments could be two areas of interest, executives said.
At the end of 2019, the REIT acquired two senior living communities in Michigan — in Auburn Hills and Sterling Heights — that are more than 20 years old and will be operated by Randall Residence. The buildings have a collective 156 assisted living and memory care units and were purchased for $19 million plus an additional capital improvement investment of approximately $2 million in the first year of the lease.
“We’ve been building a relationship with Randall Residence for a number of years now and looking for opportunities to work on a project with that organization. This is an opportunity we found in a marketplace that Randall Residence has a presence, so that made a lot of sense to partner with them on this,” Malin said. “Although it is a little bit older in regard to the original construction date, the buildings were in fairly good condition.”
The purchase price allowed room for the capital expenditures to keep the buildings competitive, he said.
Asked whether LTC believes that older assets can be attractive investment opportunities over the next few years, Malin said, “We would absolutely look at older assets that need additional capital, but it’s got to be the right overall investment, from the initial investment through capex that makes the buildings sustainable and doesn’t overburden the property with too much rent.”
One area that LTC hasn’t spent much time looking at but would consider, he said, is senior housing with limited services. Such senior apartments “seem to be the flavor of the day,” one analyst on the call said, noting Welltower’s unveiling Wednesday of welltowerLiving, a new brand for middle-income adults over the age of 55.
“We actually do have one project in Wichita, KS, that we financed construction on with an operating partner of ours, Oxford Senior Living. And so we do have that on a campus with an assisted living / memory care community that we financed with them in the same market,” Malin said. “On a broad basis, we haven’t spent a lot of time, but it’s something we would look at.”
Operator updates
LTC executives also provided updates on other operators in the portfolio:
- Brookdale Senior Living. The REIT’s master leases with the country’s largest senior living company, covering 35 properties in eight states, expire at the end of 2020, Malin said. “Coverage in the portfolio by master lease is healthy, which leads us to believe Brookdale is likely to exercise its renewal option,” he said.
- Senior Care Centers. LTC expects Senior Care Centers to emerge from bankruptcy in March, Simpson said. “We continue to have a plan to transition the portfolio should the need arise, and we are ready to implement that plan should they not emerge from bankruptcy or fail to comply with terms of the master lease post-emergence,” she said. “We are carefully monitoring Senior Care’s progress and are confident that LTC is prepared for likely contingencies,” Simpson added. The bankruptcy count allowed Senior Care to assume its LTC lease over the REIT’s objectives, but LTC has received all monies owed to it, including all past-due rent and legal fees, the CEO said. The REIT received $2.5 million more rent from Senior Care in the fourth quarter of 2019 than in the fourth quarter of 2018, according to Executive Vice President, Chief Financial Officer and Secretary Pam Kessler. “In December 2018, Senior Care failed to pay rent and entered bankruptcy protection,” Kessler said, adding, “In December 2019, they paid all past-due 2018 rent in addition to December 2019 rent.”
- Anthem Memory Care. “In the last half of 2017, it became painfully obvious that Anthem’s early success in leasing up new properties was not going to be the new norm. Causes were attributable to their operational challenges, overdevelopment and other market conditions,” Simpson said. Earlier on the earnings call, she said: “We worked to support them through their operational challenges and rationalization of corporate overhead. By the end of 2019, performance in our Anthem portfolio was greatly improved, and rent collected from them was approximately 45% higher than the rent they paid us in 2018. We expect to collect $9.9 million of rent from Anthem in 2020, which is a 32% increase.”
- Thrive Senior Living. “After identifying lease-up softness in 2018 at the six communities they leased from us, we granted Thrive temporary rent relief to give them an opportunity to demonstrate forward progress,” Simpson recounted. “When that progress did not materialize, we moved quickly to transition the portfolio to three separate regionally based operators who we believe are better capitalized and better suited to meet the demands of their local markets.” Trilogy Management Services was a new operating partner for LTC, whereas the REIT had existing relationships with Veritas Healthcare Group and Affinity Living Group. “We are pleased with the transitions and the progress that has been made as these partners implement their own cultures, marketing initiatives and care programming,” Simpson said. “Former Thrive assets will yield higher cash rents in 2020 over 2019.”
- Fields Senior Living. A 78-unit assisted living and memory care community in Medford, OR, that LTC is developing with Fields Senior Living under a real estate joint venture is expected to open in March, becoming the fourth building LTC has in partnership with Fields, Malin said.
- Senior Lifestyle. The sale of two properties owned by an affiliate of Senior Lifestyle, and in which LTC holds a preferred equity investment, should close in April, Malin said.
For more on this earnings call, see our sister publication, McKnight’s Long-Term Care News.
