Even though it took a year, the 35 assisted living communities that had been leased by LTC Properties to Brookdale Senior Living have now found homes, with some being new. The leases were set to expire at the end of 2023, and in early 2023 discussions began in earnest. It appeared that Brookdale did not want to renew at the then existing lease rate, at least not for all 35, so it looked like they were going to walk.
What is often forgotten in these negotiations is how much overhead these portfolios cover, especially when concentrated in areas where the tenant already has many other properties. After looking like Brookdale was putting them in the rearview mirror, they came back to the table and agreed to re-lease 17 of the communities with 738 beds for six years. The first-year lease rate is $9.325 million.
Five communities in Oklahoma with 184 units have been leased to Oxford Senior Living for three years with a starting lease rate of $960,000, with one four-year extension. Oxford is an existing LTC operator. Five additional communities with 210 units in North Carolina were leased to new tenant Navion Senior Solutions. The six-year lease starts with an annual rent of $3.3 million.
Almost all of the buildings are relatively small, and the quality, at least based on the rent, is very different among them. The five communities going to Navion average about 42 units, but the annual rent comes to $15,714 per unit. This is almost triple the per-unit rent of the Oxford portfolio, which comes in at $5,217 per unit, which has a smaller average community size of 37 units.
The 17 properties staying with Brookdale are in the middle, with new average annual rent of $12,635 per unit and an average building size of 43 units. It was not disclosed what these individual groups of properties were paying prior to the restructuring, but LTC’s rent from the entire portfolio was $15.418 million. The new rent, combined with the investment return from the sale proceeds and some seller financing, brings the total to about breakeven for LTC.
So, this is a win-win with portfolio diversification and similar revenues. We would put a value on the Navion portfolio at close to $200,000 per unit, the Brookdale portfolio close to $155,000 per unit, and the Oxford portfolio at $65,000 per unit, but these are very rough estimates based on the lease rate.
Eight communities in three states were sold for $28.0 million, or $82,111 per unit, for a gain of $17.0 million. LTC provided seller financing of $4.0 million on two of the properties at an interest rate of 8.75%. The four Florida communities sold for $106,534 per unit, the three in South Carolina for $65,695 per unit, and the one in Oklahoma for $21,626 per unit.
As we have been saying, there is a lot of movement in the industry with smaller companies getting larger and larger ones shrinking a bit. Management transitions are seldom easy, and that will be what to watch for in 2024.
