LTC Sees Stable Q3 as Tenant Cleanup Continues

LTC Properties (NYSE: LTC) made progress on retooling its senior living portfolio in the third quarter of 2019, but ongoing issues among some of its other tenants continue to make life complicated for the company.

The Westlake, California-based real estate investment trust continues to monitor previously troubled tenants, such as Lake Oswego, Oregon-based Anthem Memory Care, which is still paying a reduced rent of $7.5 million as a result of its default under its master lease in 2017.

But the overall picture is improving, LTC CEO Wendy Simpson said during the company’s third-quarter earnings call Friday. The company is currently focused on overcoming recent partner challenges, realizing opportunities in its pipeline, shedding non-strategic assets and diversifying its provider concentration.


“Most of the portfolio challenges we’ve discussed are being resolved,” Simpson said during the call. “Our Thrive portfolio is 100% transitioned, and Anthem continues to improve performance.”

LTC this year completed its transition of its Thrive Senior Living portfolio to other operators. The final Thrive property, a 60-unit memory care community in Jacksonville, Florida, was assigned to Hickory, North Carolina-based Affinity Living Group in August.

Additionally, two locations owned by an affiliate of Senior Lifestyle — in which LTC owns a preferred equity investment — were under a letter of intent for sale. But the first buyer, a not-for-profit organization, chose not to move forward with the sale, and Senior Lifestyle entered into a letter of intent with a second buyer, a for-profit company.


LTC expects that the sale, if it goes through, will end in a loss for the REIT in the range of $3.3 million to $3.7 million. Senior Lifestyle is also pursuing refinancing alternatives in the event that the sale doesn’t go through in the end.

Occupancy for its assisted living properties grew 80 basis points sequentially, up from 86.1% in the first quarter to 86.9% in the second quarter of 2019, according to an Oct. 31 investor document.

LTC on Friday logged a funds from operations (FFO) of $0.77 per share, which was in line with analysts’ expectations for the quarter. The REIT had 105 assisted living communities and 94 skilled nursing facilities in its senior housing portfolio as of Sept. 30.

Though the REIT made progress in its senior living segment, the company’s relationship with two of its skilled nursing providers, Preferred Care and Senior Care Centers, remained complicated.

As it previously announced, LTC intends to sell its much of its portfolio with Preferred Care, a skilled nursing provider that filed for Chapter 11 bankruptcy in 2017.

Preferred Care paid just $55,000 in monthly rent for the third quarter of 2019 — far less than its contracted $12 million in annual rent — which prompted LTC to apply the provider’s security deposits in order to satisfy the majority of its outstanding rent obligations. But, that didn’t cover Preferred Care’s full rent payments, and LTC ended up taking a shortfall of roughly $476,000 for the quarter.

Senior Care Centers, which is wrapping up its own bankruptcy proceedings, will continue to operate under its master lease against LTC’s wishes. A bankruptcy judge recently denied LTC’s petition to swap operators under that lease, but also ordered Senior Care to pay $1.6 million to the REIT in unpaid rent and fees. LTC expects to receive that payment toward the end of this year.

Still, other recent moves and investments could act as a counterweight to LTC’s skilled nursing woes going forward. In the third quarter of 2019, the REIT acquired a new 90-bed skilled nursing center in Kansas City, Missouri for $19.5 million and bought a parcel of land in the same state with the intention of developing a $17.4 million, 90-bed skilled nursing center there.

The REIT also funded $3.1 million on development and capital improvement projects on property it owns in the third quarter of 2019.

“Projected revenue increases from Anthem and from our former Thrive assets, combined with the 2019 investments, should partially offset and replace the Preferred Care rent,” Simpson explained.

Analysts agreed that LTC made progress on righting the ship for much of its portfolio. But, woes related to the company’s skilled nursing segment continue to make the long-term picture hazy.

“We see management making progress restructuring to reduce risks to its rent streams, but we remain cautious as we continue to see plenty of risks in the portfolio,” read a note to investors from Stifel Analyst Chad Vanacore.

Although LTC’s third-quarter results were as expected, its tenant issues make the future uncertain, according to an analysis from RBC Capital Markets.

“The headline results appeared largely in-line with expectations, with FFO meeting both our estimate and consensus,” an RBC note to investors read. “However, the company is still working through issues regarding its Preferred Care lease and the previously impaired preferred equity investment.”

KeyBanc Capital Markets mirrored those messages in its own note to investors.

“The company continues to fix ongoing tenant issues within the portfolio,” the note read. “While the company posted FFO slightly behind our estimate, core performance was largely in line.”

LTC’s share price dropped 2.72% to end up at $50.44 by the time the markets closed Friday.

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