Just when we thought it was safe to go outside again, it was revealed that Welltower had transferred the operations of 20 memory care and Alzheimer’s communities from one of its formerly favored tenants, Silverado Senior Living, to a formerly much smaller tenant, Frontier Management. These 20 properties represent 50% of Silverado’s memory care operations, and the transition is obviously a serious blow. To say that people were shocked by this development would be an understatement.

Of the 20 properties, 11 are located in Texas and the rest scattered among four other western and midwestern states. We understand that sometimes a REIT or a lender has to make difficult decisions to protect its financial interests, but Welltower had really touted its relationship with Silverado in its marketing. As of March 31, 2019, Welltower owned 28 Silverado properties with 2,522 units in a joint venture with Silverado, so we assume the remaining eight will stay with Silverado, but you never know.

Nearly everyone is going through difficult times, at least with some of their communities, and we always wonder how the new operator is going to do things differently, and better. Frontier Management currently has four communities in a joint venture with Welltower, so this will be a significant expansion of that relationship.

Frontier operates just over 80 communities in 14 states with another dozen in various stages of development in seven states, two of which will be new to them. They are no stranger to the Texas market, however, with eight operating communities and three in development, and they operate in three of the other four states that have Silverado communities which will be taken over. Most of Frontier’s communities offer memory care services, but we suspect they are not the high acuity that was typical in most of Silverado’s communities.

In a move that was not surprising, as it has been part of an ongoing workout, LTC Properties announced that it has transitioned two of the Thrive Senior Living leased properties with 120 memory care units to Trilogy Management Services, which will be a new relationship for LTC. We think that is a good move because we have always had a lot of respect for the Trilogy management team, and we hope they can expand this new relationship.

The two communities are located in Louisville (Trilogy’s home town) and in Ohio. The annual cash rents will start at $1.25 million the first year, growing to $1.5 million in year two, $1.975 million in year three and $2.15 million in year four, followed by contingent escalators thereafter. We presume that the low initial rents are because of the current operating and census problems, and that both Trilogy and LTC have confidence that operations will improve significantly, but obviously not overnight.

Three additional Thrive communities are being transitioned to an existing LTC tenant, Veritas Healthcare Group. They include 215 assisted living and memory care units in Texas, Georgia and South Carolina. Just like with the Trilogy lease, the new lease on the Texas property will start at $400,000 per year and grow to $700,000 by year three with 2.5% escalators after that. The other two properties will be in a separate lease and start at $1.762 million and increase by 3.5% annually thereafter. When the transition is complete, Veritas will operate 21 communities in the South, 13 of which will be owned by LTC.

There is one remaining Thrive community in LTC’s portfolio, located in Jacksonville, Florida, which is actively being marketed for sale. Jacksonville is a bit of an overbuilt market, so we assume there will be a price discount on that one. Once the higher rents with the new operators kick in in a few years, all will be better. All will be better anyway since Thrive apparently did not pay their rents in the first quarter. Glad to have this in the rearview mirror.