LTC Completes Thrive Transition, Fine Tunes Acquisition Strategy

LTC Properties (NYSE: LTC) spent the first half of 2019 addressing underperforming operator partnerships and now believes it has set up its portfolio for improved performance in the year’s final months.

Notably, the Westlake, California-based health care real estate trust completed the transition of six properties previously operated by Thrive Senior Living, and LTC is weighing its options with assets managed by one of its troubled skilled nursing providers.

LTC on Thursday reported funds from operations of $0.75 per share in the second quarter, in line with analysts’ consensus expectations and unchanged year-over-year. LTC reported $46.3 million in revenues in Q2, a 13% increase over the prior year. Rental revenue jumped from $33.9 million in Q2 2018 to $38.3 million.

Thrive transition complete

LTC spent the second quarter transitioning six properties operated by Thrive to new operators.

Two memory care communities in Cincinnati, Ohio and Louisville, Kentucky totaling 120 units were moved from Thrive to Louisville-based Trilogy Health Services on June 1.

Two memory care communities in Georgia and South Carolina totaling 159 units were transitioned to Chattanooga, Tennessee-based Veritas Senior Living on July 1. Veritas also assumed management of a 56-unit memory care community in Texas on June 1.

The final Thrive property, a 60-unit memory care community in Jacksonville, Florida, was taken over by Hickory, North Carolina-based Affinity Living Group on Aug. 1.

The new operators are all better capitalized than Thrive and positioned to stabilize the properties and generate revenue, LTC CEO Wendy Simpson said during an Aug. 9 earnings call. The Atlanta-based operator was issued a notice of default by LTC on April 5, and has not paid $2.9 million in back rent in 2019.

The Jacksonville community was the most troubled of the six transitioned properties. Affinity and LTC agreed to a 10-year lease for the Jacksonville facility with 12 months free rent, $450,000 in year two and $600,000 in year three and thereafter. Affinity has an option to defer up to $150,000 in rent in the second year.

The REIT considered selling the property but after studying the market and entertaining bids, LTC determined the prices offered were not indicative of the value. Furthermore, market demographics and growth trends indicated a new operator would succeed if given the opportunity to manage the community.

“Affinity is an established operator and is excited to have the property,” Simpson said.

Of the three communities transitioned to Veritas, the Texas property was added to its master lease with LTC, while the two sides agreed to two-year leases on the Georgia and South Carolina communities. This was a joint decision, Chief Investment Officer Clint Malin said during the earnings call.

The occupancy on the communities is strong, but LTC was concerned about expenses under Thrive’s management and Veritas is not certain it can reduce costs as quickly, even though the new operator is excited to assume control of the buildings.

“The idea of having a two-year lease gives Veritas a chance to look at [costs], see where staffing ratios and salaries are, and make an assessment of if they can operate [the properties] long-term,” Malin said.

Lake Oswego, Oregon-based Anthem Memory Care, which operated 11 communities under a master lease, is on more stable footing and is meeting its increased rent expectations. But any revisions in contractual rent cannot realistically be calculated until all of the properties have been stabilized, which Simpson believes will be next year.

Still, Anthem’s performance has LTC feeling optimistic.

“Anthem is beating their own projections, which are higher than ours,” she said.

LTC also completed construction and opened a 110-unit senior housing community in Wisconsin.

As for future future acquisitions, LTC is being very selective in the market, and is looking to acquire single assets from other REITs that no longer fit the investment profiles of those companies.

“It’s like finding needles in haystacks,” Simpson said.

Skilled nursing woes

With the senior housing portfolio in a better position for growth and success, LTC is now turning its attention to its skilled nursing assets. The REIT expects to sell a majority of its facilities operated by Preferred Care by the end of the year, Malin said.

Preferred Care, which filed for Chapter 11 bankruptcy in 2017, expressed interest in continuing to operate a handful of facilities, but LTC will ultimately make decisions based on what is best for the company and its investors, Malin said.

LTC’s options with its other struggling skilled nursing operator, Senior Care Centers, is out of its control as that company works through Chapter 11 bankruptcy proceedings. LTC has providers waiting to take over operations of the 11 facilities operated by Dallas-based Senior Care Centers, but those new operators cannot be placed without court approval.

Senior Care filed a lawsuit requesting to assume control of the properties from LTC, and LTC responded by filing an injunction. An Aug. 30 court hearing is scheduled to determine next steps.

“It’s a situation where we have the least amount of control,” Malin said.

LTC stock was up in trading Friday.