By now, most everyone has heard of the problems LTC Properties has had with one of its tenants, Anthem Memory Care. The REIT has a master lease covering 11 Anthem memory care properties located in California, Illinois, Colorado and Kansas. Stand-alone memory care communities, at least those developed recently, have come under some fire as not the right way to go. LTC, for one, has decided to take a breather from financing stand-alone MC until the market stabilizes from all the new development. In Colorado and Illinois, that is the right thing to do.
What many people are missing, however, is how calmly LTC is going about the problem. Sure, they issued a notice of default, which was appropriate when Anthem paid just 38% of the quarterly rent that was due, with more to come as the funds become available. The important thing to notice is that there is a reasonable plan of action. Anthem may try to buy back a few properties, maybe renegotiate the rent on a few others and have new operators transitioned in to the two properties in Kansas. Although REITs have been great providers of capital for decades, perhaps what they also do best is deal with problems. Remember, they are in the driver’s seat because they own the real estate, and they also have relationships with other providers willing to step in. Some may do a better job than the removed tenant; others, maybe not.
Anthem is not a big enough company to take anyone down with its problems, which look like they may be short-term in nature, at least with some of the properties. LTC will be able to live with the reduced rent, some of which they may ultimately get back in the future depending on how well Anthem turns the census around, not to mention keeping a better eye on staffing. But development has been risky, and this will not be the last we hear of a landlord stepping in with its seniors housing tenant. LTC has also transitioned a new operator into two other memory care buildings operated by a smaller tenant. These problems were especially surprising to us because we think of the management at LTC as being somewhat conservative. No one has accused them of being gunslingers of the Wild West. This leads us to believe there will be more to come from other REITs and lenders.
Not to beat a dead horse, but that is one of the reasons why we have been in favor of the Sabra Health Care REIT merger with Care Capital Properties. Any problems, and there will be problems, will be spread over a wider group of tenants, most of which are relatively small, and Sabra CEO Rick Matros has a proven track record of dealing with problems when they arise, with little or no financial hit to the REIT. It is always easy to lend out money, but dealing with the hiccups is when you show your strength.
