LTC Looks Ahead as Anthem Occupancy Improves

LTC Properties (NYSE: LTC) says it’s well-prepared to weather industry headwinds, especially now that occupancy is on the upswing with one of its previously embattled tenants.

That operator, Anthem Memory Care, has made good progress so far this year, LTC Chairman, President and CEO Wendy Simpson said during Thursday’s first-quarter 2018 earnings call. Anthem makes up about 8% of the California-based real estate investment trust’s (REIT) portfolio.

“We are encouraged Anthem is paying higher rent in line with our expectations, and that they have made some progress on occupancy,” Simpson said. “But we are continuing to work closely with them to make sure they achieve goals they committed to for 2018.”

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LTC logged first-quarter 2018 funds from operations (FFO) of 75 cents, which missed analysts’ expectations by 1 cent. However, its total revenue of approximately $41.8 million was ahead of analysts’ expectations by $7.4 million.

As of March 31, LTC had 105 assisted living communities, 97 skilled nursing facilities and one behavioral health care hospital located in 29 states. Those figures don’t factor in LTC’s recent $67.5 million sale of six properties operated by Sunrise Senior Living in Ohio and Pennsylvania.

Anthem ascending

Though Lake Oswego, Oregon-based Anthem isn’t out of the woods yet, it has come a long way since it first failed to make its quarterly rent last summer, with several Chicago-area properties exemplifying this turnaround. At a community in Tinley Park, Illinois, occupancy hit 56% at the end of April, which is up from the 47% rate it logged at the end of January. In Burr Ridge, Illinois, that community’s occupancy rose to 71% in April, up from 67% in January.

Similarly, Anthem’s newly opened community in Glenview, Illinois, hit 50% occupancy last month, which is more than double the 24% occupancy rate it saw in January. Another newly constructed community in the Chicago suburb of Oak Lawn will begin taking residents later this month.

“That completes our development with Anthem,” Simpson said. “Now, Anthem’s entire focus is on profitably operating our portfolio while providing care to their residents.”

LTC expects Anthem will pay $5.2 million in rent in 2018.

While the memory care provider appears to be on a steady upward trajectory now, recovery seemed far less certain just under a year ago.

In the second quarter of 2017, LTC issued Anthem a monitory default notice on its master lease after the memory care provider failed to pay its quarterly rent in full. Just a few months later, LTC signed a forbearance agreement with Anthem, which dictated that LTC wouldn’t seek enforcement regarding its default through the end of the year as long as Anthem paid a monthly rent of at least $400,000.

Looking ahead

Despite its recent progress with Anthem, occupancy pressures in the the senior living industry will continue to challenge LTC, Simpson said. But the company is well-positioned to stand tall against those headwinds, she added.

“The most recent NIC report did not provide much good news for our sector. However, we all know the long-term demographic trends remain strong,” Simpson said. “I believe LTC has managed well through this challenging seniors housing environment.”

Looking ahead, the REIT will take its time identifying new opportunities for its pipeline. It will also eventually use the capital generated by the recent $67.5 million sale of the Sunrise Senior Living portfolio to reinvest in newer, more modernized assets, Simpson said.

Currently, LTC’s active pipeline is valued at $50 million. The REIT is also mulling two potential off-market transactions: an acquisition of an independent living community in Oregon with plans to build an assisted living and memory care community on adjacent land parcel, and two private-pay memory care communities built in 2014 and 2015 in Texas.

The REIT is also working on finding a buyer or a new lessee for two income-generating assisted living communities in California by the time their master leases expire in November.

LTC’s stock had risen roughly 2.8%, to $39.23 by the time the markets closed Thursday.

Written by Tim Regan

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