LTC Properties (NYSE: LTC) is slamming the brakes on its future development plans with Anthem Memory Care after the Lake Oswego, Oregon-based provider failed to raise a certain amount of equity and pay its quarterly rent in full.
The California-based real estate investment trust (REIT) issued a monitory default notice on its master lease with Anthem covering 11 memory care communities, two of which are under development and nine of which are currently operational, LTC executives noted during the company’s second-quarter 2017 earnings call on August 10.
Anthem is currently LTC’s sixth-largest tenant.
Anthem expects to resolve several issues within the next 60 to 90 days, according to Anthem Principal Mark Rockwell.
“These include actively working on purchasing the five communities we operate in the Chicago area and Murrieta, California, and renegotiating the leases for our four Denver-area communities,” Rockwell said in an emailed statement to Senior Housing News. “We have been seeing a great upsurge in leasing activity across our portfolio over the last 90 days and have made tremendous strides across the company during the past six months.”
Three Anthem communities in particular—one in Burr Ridge, Illinois, one in Westminster, Colorado, and one in Tinley Park, Illinois—are coping with staffing challenges that LTC believes have negatively affected their occupancy.
Additionally, LTC is currently in talks to transition two Anthem communities in Kansas to a different operating partner, as Anthem “soon realized that turning around existing properties [like these] was not part of their core DNA,” LTC Chairman, President and CEO Wendy Simpson said on the earnings call.
For the past six months, Anthem had been trying to raise additional equity, but it was unsuccessful.
“We’ve given them a date certain that they needed to come up with that equity to give us some more confidence in their ability to sustain their business and when those efforts have failed, that’s when we said well, we need to issue the default and we need to be able to determine the fate of these properties in a more proactive way,” Simpson said.
LTC is proactively trying to determine how to resolve these issues.
“Aside from making an operator change at the two Kansas communities, we are evaluating all options related to the nine remaining communities,” Simpson explained. “In addition to negotiating with Anthem, we could transition some or all of the remaining properties to a new operator, sell some or all of the properties or a combination of these two. ”
LTC now anticipates that, instead of the $2.6 million per quarter that the company is contractually obligated to pay, Anthem will pay $1 million per quarter in rent through year-end.
“Their agreement is they’ll pay as much cash rent as they possibly can pay, and right now it looks like about a $1 million a quarter,” LTC Executive Vice President and CFO Pam Kessler explained on the earnings call.
Additionally, Simpson is holding a weekly call with one of Anthem’s principals to discuss current occupancy reports and to “keep them focused on cost reductions,” she said on the call. So far, Simpson suggested, LTC’s guidance has made a positive difference—as of August 9, occupancy was up at three of Anthem’s communities.
“Nine days does not make a month, but the trend is positive,” she said.
As it stands, LTC is no longer developing projects with Anthem.
“We’ve had additional opportunities to fund new development projects with them, but proactively put the brakes on our combined activity after seeing declines in their operating performance at the community levels mentioned,” Simpson said.
Additionally, the REIT does not have any plans to develop any more standalone memory care properties, period. These projects are complicated because they tend to be smaller properties where each unit is a larger percentage of the whole, Kessler explained.
“If I had to do it over again, I think we would not have gone with as many memory care only,” she said.
Written by Mary Kate Nelson