LTC to Trim Senior Lifestyle Portfolio Further, Build Relationships With Other Operators

Executives with LTC Properties (NYSE: LTC) are seeking to further reduce the company’s Senior Lifestyle holdings this year, while at the same time building new operator relationships and growing existing ones.

The Westlake Village, California-based real estate investment trust (REIT) yesterday disclosed it had transitioned 11 of its 23 assisted living communities leased to Senior Lifestyle to other operators. But the company is planning to trim its portfolio with the Chicago-based operator even further this year, executives said during the company’s fourth-quarter earnings call Friday.

As of the end of the fourth quarter of 2020, LTC had a senior housing portfolio consisting of 107 assisted living and 73 skilled nursing properties in 29 states.

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Working on potential operator transitions for Senior Lifestyle properties has been a months-long process for LTC, as Senior Lifestyle had fallen behind on its rent payments during the pandemic.

In the fourth quarter of 2020, Senior Lifestyle paid $3.9 million in rent, equaling 83% of its $4.7 million total due. LTC applied the operator’s letter of credit and deposits, totaling $3.7 million, to its 2020 second-quarter rent receivable; notes receivable; and its third- and fourth-quarter rent. As of Dec. 31, 2020, the operator’s remaining delinquent balance was $1 million, according to LTC.

LTC reported funds from operations (FFO) of $30.4 million, or $0.78 per share, in the fourth quarter of 2020, beating analysts’ expectations. The company didn’t offer guidance for 2021, citing many current unknowns related to the pandemic.

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“We do believe that the industry census is close to or has hit bottom,” said LTC Properties CEO and Chairman Wendy Simpson during Friday’s fourth-quarter earnings call with investors and analysts. “However… we can’t predict when that might happen, or when the industry will be able to fully recover from the effects of the pandemic.”

While the portfolio transitions with Senior Lifestyle will likely weigh on LTC’s future results, the company’s other operating partners are in good shape with regard to rent, according to Jordan Sadler, equity research analyst at KeyBanc Capital Markets.

“The rest of LTC’s portfolio saw relatively steady rent collections in the quarter, despite challenging conditions and falling occupancies/coverages, as provider relief funds offered support,” Sadler wrote.

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LTC’s share value fell about 0.2% to $40.68 by the time the markets closed Friday.

Operator transitions

Filling in to manage the 11 former Senior Lifestyle communities are Lawton, Michigan-based Randall Residence, a current LTC operating partner that is taking on six of the communities in Ohio and Illinois; and Chicago-based Encore Senior Living, a new operating partner for LTC that is taking on five of the communities in Wisconsin, where it is a “major player,” according to Clint Malin, LTC’s co-president and chief investment officer.

“Partnering with regional operators is an important part of LTC’s long-term strategy,” Malin said during the company’s fourth-quarter earnings call Friday. “And expanding our relationship with Randall, while building a new one with Encore, are great examples of our ability to partner with operators who have a solid presence in their local markets and regions.”

Of the 12 communities still leased to Senior Lifestyle, LTC plans to transfer five to other operators and sell off three more in the first and second quarters of this year.

The company will continue to weigh its options for the Senior Lifestyle communities not transferred or sold, which have a net book value of about $4.5 million. Already, LTC executives have decided to close one of the four and sell it for an “alternative use.”

“We are evaluating our options for the remaining three,” Malin added.

Occupancy for the company’s private-pay senior housing portfolio was 71% as of Jan. 31 — though Malin noted that figure includes slightly less than three-quarters of the company’s private-pay units.

LTC also collected 98% of its contractual rent and mortgage interest in the fourth quarter of 2020.

For its existing operators, LTC has pledged to work in 2021 to provide them with more support, should they need it. The company’s leaders are also hopeful that senior living operators will receive more financial support from the roughly $30 billion of still-unallocated aid in the federal government’s Provider Relief Fund.

“We do not expect to engage in any large transactions for the foreseeable future, but we are seeing interesting opportunities to participate in growth through structured finance deals with reduced risk profiles and strong returns, especially for development projects that are not dependent for success on immediate lease-upor current census,” Simpson said. “When the market begins to open up, we plan to use our considerable balance sheet to provide a wide range of regional operating partners with the financing they need to help grow their businesses.”

Until the company’s leaders are confident LTC can complete deals for the right price and the right return, the REIT will focus on smaller investments while building new and existing relationships, Malin noted.

One big unknown in LTC’s portfolio is Brookdale Senior Living (NYSE: BKD), which is still waiting to decide whether to renew a master lease with the REIT. Last year, LTC consolidated four Brookdale leases into one master lease and extended the term until Dec. 31, 2021. Brookdale has until April 30 to choose among three renewal options.

Although Malin noted he was unsure whether Brookdale would ultimately extend the lease, he is encouraged by the fact that Brookdale is working to spend roughly $2 million of the $4 million LTC provided for capital improvements.

“Even if Brookdale chooses not to renew this, there’s been capital that’s been put into the buildings, which is a positive,” Malin said.

Looking ahead, the company believes that there may be some potential acquisition opportunities coming in the spring or summer of this year, as LTC is approached by sellers in the market.

“We’re looking forward to being able to spend some of the money that Clint will be creating by selling some of the Senior Lifestyle assets,” Simpson said

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