LTC Properties Transitions 12 Communities to ALG Senior, Ramps Up Investments

LTC Properties (NYSE: LTC) has transitioned 12 senior living communities to operating partner ALG Senior as the company gears up to make more investments in 2022 than last year.

Leaders with the Westlake Village, California-based real estate investment trust (REIT) said the the properties, which represent 625 private-pay units, were formerly operated by a company that was not among LTC’s “top 10” in terms of unit concentration. They added it was one of ​​one of the few operators for whom the REIT provided rent deferrals and abatements in the past.

At the same time, LTC management is looking in 2022 to further enhance the quality of the company’s senior housing portfolio, including by reducing its average age by adding certain properties and disposing of others.

In the first half of the year, the company put $110 million toward senior housing and care — a total that is higher than the entirety of LTC’s investments in 2021.

“We are continuing to identify additional strategic investments, and have been busy touring sites and building relationships,” said LTC Properties CEO and Chairman Wendy Simpson during the company’s second-quarter earnings call on Friday.

But as it grows, the company is managing a stable of 32 operating partners, a small number of which still need assistance in the form of rent deferral and abatement. While that list still includes formerly troubled operator Anthem, LTC expects the operator to pay its annual cash rent of about $10.8 million in 2022.

Excluding Anthem, the REIT reported $702,000 in rent deferrals and $1.2 million in abatements during the second quarter of this year, collecting just under 95% of the contractual rent and mortgage interest it was owed.

The REIT logged funds from operations of 64 cents per share, beating analysts’ expectations by two cents.

While the ramping-up of investment activity is a plus in the eyes of BMO Capital Markets Analyst Juan Sanabria, the company’s ongoing deferrals are still worth watching in the quarters ahead.

“Disappointingly, modest new deferrals were announced on smaller AL assets, which continue to be challenged despite improving occupancy,” Sanabria wrote in a July 28 note to investors.

LTC Properties’ share value had risen 2.25% to land at $41.90 by the time the markets closed Friday afternoon.

Evolving portfolio

As management alluded, LTC’s portfolio of 202 properties in 29 states is somewhat in flux in 2022.

ALG and LTC have agreed on a master lease for the communities with a two-year term and zero rent for the first four months.

The communities, located in smaller markets across the country, are as of today collectively cash-flow positive and in good condition, according to leadership. Even so, the previous operator did not pay rent on the portfolio over the last several quarters.

In conjunction with the transaction, LTC is paying the former operator a $500,000 lease termination fee “in exchange for cooperation and assistance in facilitating an orderly transition,” according to Co-President and Chief Investment Officer Clint Malin. LTC also foregave the former operator’s deferred rent balance of $7.1 million.

As part of the move, the REIT is paying ALG Senior a $410,000 lease incentive payment, which Malin noted was so the operator can purchase equipment and other necessities during the transition period.

Regarding the 12-property porfolio’s future, Malin said LTC management is still working that out.

“We are currently determining whether we will retain all of the buildings or sell all or part of the portfolio,” he said.

Several of the communities were formerly operated by Assisted Living Concepts, and looking ahead, Simpson anticipates the company will indeed sell most or all of them.

“A few of those assets may stay with the current operator, but it’s likely we’ll sell most of those old ALC assets,” she added.

The REIT also during the quarter sold two assisted living communities in California representing a total of 232 units and under a lease purchase option to the operator that managed them for $43.7 million. LTC additionally sold a 74-unit assisted living community in Virginia for $16.9 million.

Those are not the end of the company’s dispositions this year, according to the company’s leaders. LTC has already marketed for sale a 180-unit senior living campus that is currently not generating any rental income.

“By selling it, we can redeploy the capital into income-producing assets,” Malin said.

Looking ahead, management anticipates sticking with a debt-equity mix on acquisitions of 70% equity, 30% debt. And Simpson anticipates that will serve as a competitive advantage as interest rates continue to rise.

“The private equity players, they use a lot more debt, and so that part of their capital stack has really increased their cost,” Simpson said. “I think that the increase in rates perversely have been positive for LTC and REITs in general.”