LTC Properties reported fourth quarter and full year earnings late last week, and while there is some uncertainty, management appears to have a good handle on how they are dealing with it. This is especially true with the 23 communities leased to Senior Lifestyle Corporation (SLC), which we will get to below.
One interesting statistic that came out is that with 71% of their private pay tenants reporting, actual occupancy dropped from 79% on September 30 to 72% on December 31, one of the largest quarterly declines we have seen. The good news is that one month later occupancy stood at 71% on January 31, so the rate of decline has slowed significantly.
LTC’s skilled nursing portfolio has fared a little better from a trend line perspective. With 93% of their tenants reporting, SNF occupancy averaged 70% in September, dropping to 66% in December, where it remained in January. Given it is the winter, one would expect that to keep on dropping, so maybe they have seen a bottom, or at least are close to it.
Getting back to the 23 Senior Lifestyle properties, 11 of them have been transferred to two other operators. An existing tenant, Randall Residences, is taking over six of them with 344 units. Five are in Ohio and one in Illinois, and this will bring the total relationship with LTC to eight properties. In the first year, annual cash rent will be $2.7 million, or about $7,850 per unit. This will bump up by 37% to $3.7 million ($10,755 per unit) in the second year, obviously to give the new provider some time to right the ship. This will then be followed by a normalized $3.9 million and the 2% annual escalators after that.
The other five communities will be leased to a new relationship for LTC, Encore Senior Living. All five with 374 units are in Wisconsin, where Encore already operates 34 communities, and LTC likes that regional dominance and local knowledge. For this group, first-year rent will be $2.6 million, or about $6,950 per unit. This bumps up by 27% to $3.3 million in year two, so we assume there is less of a turnaround involved. Year three will be normalized at $3.7 million followed by the 2% annual escalators.
Unfortunately for SLC, the story does not end. With the remaining 12 communities, five are in the process of being transferred to other operators, with four by the end of the first quarter and the fifth by the end of the second quarter. LTC is selling three other communities, which are under contract and should close towards the end of the second quarter. LTC is still looking at its options for the remaining four, but one of them will be closed down with an expected alternative use.
To make up for payments not made in the fourth quarter, LTC applied the letter of credit guarantee and deposits in the amount of $3.7 million. As of December 31, SLC was still delinquent in the amount of $1.0 million, and so far in 2021 they have not made any rent payments.
LTC is still funding new developments during the pandemic, one of which is located in Medford, Oregon and operated by Fields Senior Living. Its opening was delayed because of the pandemic, and because it was new it was not eligible for any government stimulus funds. Occupancy has increased from 10% in late October to 23% in mid-February. LTC has agreed to provide $1.3 million of free rent. Now that is a partnership.
In another new development, this time with Ignite Medical Resort in Independence, Missouri, patients were first admitted last October, and census has increased from 23% on October 23 to 64% on February 15. Given the environment, that is a great performance. We are sure management is pleased. As for investors, they like their monthly dividend with a yield of 5.6%.
