LTC Properties’ first quarter earnings report was a mixed bag of news. The company is still dealing with some operator problems resulting in rent deferral and abatements, which affected its earnings. Rental income dropped year over year from $30.97 million in Q1:21 to $30.32 million in Q1:22, caused also by the transition of the Senior Care Centers and Abri Health Services portfolio. There was also the sale of a SNF in Washington and a lease incentive balance write-off related to a terminated lease that led to the drop in rental income.
However, offsetting the drop were new properties transitioned from Senior Lifestyle Corporation, rental income from completed development projects and annual rent escalations. Plus, last year saw a one-time 50% reduction of 2021 rent escalations provided to most LTC operating partners. LTC also pointed to higher G&A expenses due to higher incentive compensation as well as higher non-cash compensation charges and increases in overall costs due to inflationary pressures. The operator issues are not totally behind LTC (April’s deferrals were $376,000 and abatements totaled $240,000), but the repayment of some deferrals will likely start early next year.
In its search for yield, LTC announced that it remains active in funding loans. The REIT originated a five-year $25 million mezzanine loan bearing 8% interest for the recapitalization of a five-property senior housing portfolio in Oregon and Montana, managed by The Springs Living. Next, LTC funded $9.5 million under a working capital loan for HMG Healthcare, with the current outstanding balance at $18.6 million and remaining availability of up to $6.4 million.
On the M&A front, LTC was also opportunistic throughout and following the quarter. An operator of two assisted living communities in California with a total of 232 units exercised the purchase option under their lease for $43.7 million, or $188,400 per unit. The communities have a gross book value of $31.8 million and a net book value of $16.8 million, and LTC anticipates recognizing a gain on sale of approximately $26.0 million in the second quarter of 2022. Taking advantage of high SNF values these days, LTC also entered into an agreement with a third party to sell a 121-bed skilled nursing facility in California for $13.3 million, or $109,900 per bed, resulting in a recognized gain on sale of approximately $10.5 million in the second quarter of 2022.
Subsequent to the quarter, the REIT acquired four new transitional care facilities in Texas for $51.5 million, or $151,900 per bed. Combining for 339 beds primarily in private rooms, the facilities will be operated by Ignite Medical Resorts, a current LTC operating partner, under a 10-year lease with two five-year renewal options and a purchase option beginning in the sixth lease year through the seventh lease year. Additionally, LTC provided Ignite a 10-year working capital loan for up to $2.0 million, of which $1.9 million has been funded, at 8% for first year, increasing to 8.25% for the second year, then increasing annually with the lease rate.
Finally, LTC sold a 74-unit assisted living community in Virginia for $16.9 million, or $228,400 per unit. In connection with the sale, the current operator paid LTC a $1.2 million lease termination fee, and proceeds of the sale were used to paydown LTC’s unsecured revolving line of credit.
