LTC Properties (NYSE: LTC) announced today that it has resolved a portfolio of properties that were leased most recently to Extendicare and Enlivant, formerly known as Assisted Living Concepts.
The 37 properties will be re-leased and sold, with 16 properties being sold to Enlivant for $26.5 million; 13 properties entering into an existing master lease with an affiliate of Senior Lifestyle Corp.; and seven properties being re-leased by Veritas InCare under a new 10-year master lease. LTC has granted consent for the remaining property to be closed by Enlivant.
The properties being leased to Senior Lifestyle include 500 units in Indiana, Iowa, Ohio, Nebraska and New Jersey, under an amended and restated 15-year master lease with a rent increase of $5.1 million over the current annual rent.
Veritas InCare will re-lease the seven properties with 278 units in Texas under a new 10-year master lease with initial rent beginning at $1.5 million and a 2.5% increase annually.
LTC announced in January that it was seeking a new tenant for the portfolio. At the time, the company said it had decided not to renew its leases with Extendicare and Assisted Living Concepts and would consider proposals from operators to lease the entire portfolio or cluster the properties regionally.
In March, Assisted Living Concepts announced a rebranding and name change to Enlivant as a “fresh start” for the company after private equity firm TPG closed a $280 million acquisition of then-Assisted Living Concepts. The company had experienced several troubled quarters following a lease violation lawsuit from Ventas amid allegations of subpar care and state regulatory issues.
The properties being sold to Enlivant, located in Arizona, Washington, Oregon and Idaho, will increase the company’s operating footprint by roughly 10%, the company said in a press release. They will be rebranded in early 2015 and will add to Enlivant’s portfolio that is wholly owned and managed by the company.
“We are thrilled to increase the size of our owned portfolio by almost 10%,” said Enlivant CEO Jack Callison, Jr. in a company release. “The continued build out of a strong and highly scalable operating platform, combined with the dramatic positive improvements in Enlivant’s recent operational, financial and regulatory performance following the rebirth of our 33-year old organization 15 months ago, has provided the foundation for us to usher in a new era of exciting growth.”
In seeking new tenants and buyers for the properties, LTC says it had interest from about 80 operators; ultimately deciding to work with an experienced operator and sell off some of the assets.
“The original strategy was to entice the newer operators to have an opportunity in these properties,” LTC CEO Wendy Simpson said during a quarterly earnings call with analysts on Tuesday. “But we found out in the Northwest that the occupancies were too stressed for a newer operator to come in. They don’t have the capital to fund working capital, and I didn’t think it would be a healthy thing for LTC to fund working capital and continue to explain these ALC properties to the investment community.”
Senior Lifestyle Corp. has gradually expanded its presence across the U.S., and while it tends to focus on larger properties, the opportunity was a good one, said Clint Malin, Chief Investment Officer for LTC.
“Senior Lifestyle has historically done larger communities, but as they have grown and expanded have looked at smaller opportunities. [This allows] continued expansion for them.”
LTC reported third quarter earnings Tuesday including a 12.8% increase in funds from operations (FFO) to $22.5 million versus the third quarter of 2013 when the company reported FFO of $20 million.
The company attributed the increase in FFP to higher revenues from mortgage loan originations, acquisitions and completed property developments.
Written by Elizabeth Ecker