LTC Properties (NYSE: LTC) will stick with its troubled tenant, Anthem Memory Care—at least for now.
The Westlake Village, California-based real estate investment trust (REIT) recently signed a forbearance agreement with Anthem, under which it won’t pursue enforcement related to its default through the end of the year so long as Anthem pays a minimum rent of $400,000 per month.
“If we can determine that they will be able to pay a rent that will provide LTC and its shareholders the proper return, then we will stay with them,” LTC CEO Wendy Simpson said during Thursday’s third-quarter earnings call.
The trouble began when Anthem failed to raise a certain amount of equity and pay its quarterly rent in full last quarter. In response, LTC issued a monitory default notice on its master lease with the company.
Lake Oswego, Oregon-based Anthem is LTC’s sixth-largest tenant, with 11 memory care communities, two of which are under development and nine of which are currently operational.
The REIT’s most recent decision came on news that Anthem boosted occupancy at three of its most troubled communities: one in Burr Ridge, Illinois; one in Westminster, Colorado; and one in Tinley Park, Illinois.
“The community-level staffing challenges we told you about have abated, corporate overhead is being reduced, and occupancy at the three communities…continues to improve,” Simpson said. “At October 31, occupancy at Tinley Park was 42%, Burr Ridge was 64%, and Westminster was 97%, up from 29%, 47%, and 88%, respectively.”
The memory care provider has increased its across-the-board occupancy by nearly 12% between June and October, according to Mark Rockwell, principal at Anthem.
“Much of the spade work that Anthem implemented during the first two quarters of 2017 regarding sales and marketing has begun to pay off,” Rockwell told Senior Housing News. “Five of Anthem’s communities currently have occupancy levels north of 90%…and the properties that are below 90% are newer to Anthem and either in lease-up or being repositioned.”
That doesn’t mean Anthem is out of the woods yet with LTC, though.
“We still need a few more months of operating history for Anthem before we can provide a cogent forecast for 2018 rent from them,” Simpson said. “But as I mentioned, in the few months since their default, Anthem has made good progress.”
LTC is also currently working to transition two Anthem communities in Kansas to an existing operating partner’s master lease. The REIT expects to complete its negotiations by the end of November and transition the properties to a new operator by January or February of next year, Simpson said.
LTC will keep a watchful eye trained on Anthem in the months ahead, Simpson said. One upcoming hurdle the provider must clear is the opening of its two communities under development, which are expected to begin operations in December and in the second quarter of next year.
Still, Simpson is optimistic that Anthem was on the right track.
“Their total focus is on operating the properties that they have in their portfolio…so that they’ll have a really good base going forward,” she said.
Overall, LTC’s net income for the 2017 third quarter was $20.5 million, a slight decrease from the net income of $22.3 million in the third quarter of last year. Its 2017 third quarter earnings per share of $0.52 beat analyst expectations.
LTC’s market value was down .38%, to $47.09, by the time the markets closed Thursday.
Written by Tim Regan
- Willowbrook Place, Anthem community: Anthem Memory Care