Citing Tenant Needs, LTC Properties Cuts Rent Escalators in Half for 2021

Skilled nursing and senior living landlord LTC Properties (NYSE: LTC) will reduce rent escalators for its tenants by 50% in 2021, the real estate investment trust (REIT) announced Thursday.

The move will bring a $560,000 revenue hit to the Westlake Village, Calif.-based LTC for the first quarter of the new year, along with a $1.4 million reduction in funds available for distribution (FAD).

The REIT made the decision in response to feedback from tenants, according to CEO Wendy Simpson.


“After listening carefully to their needs, and to give back to our industry, we are providing partial relief from 2021 rent escalations so that our operating partners have additional funds at a time during which they need them most,” Simpson said in a statement. “This additional assistance will help our partners as they continue to deliver outstanding and safe care to our nation’s seniors.”

The reductions will take the form of a credit that the REIT’s operating partners can take against January rent, regardless of when their specific escalators are scheduled to kick in during the coming calendar year.

LTC’s portfolio is split roughly evenly between skilled nursing facilities and lower-acuity senior living properties.


“Since the beginning of the pandemic, our board has discussed various ways LTC could provide support to our operating partners, while balancing its fiduciary responsibilities to shareholders,” Simpson said. “While the board is fully aware that FAD will be reduced as a result of the aid we are providing, it unanimously supports the decision as well as our focus on striving to replace the funds with accretive transactions in 2021.”

LTC thus becomes the first publicly traded landlord in the post-acute and long-term care space to institute a blanket rent reduction.

Despite the financial strains of COVID-19 on providers, billions in federal aid have allowed the vast majority of operators to maintain their rent obligations.

Fitch Ratings earlier this month pointed to stable coverage for a quintet of operators as evidence that many providers will be able to at least keep up with rent if Washington does not offer further aid.

“Assuming that REIT tenants have similar underlying facility-level cash flow profiles as the five operators in our study (less than 10% of beds nationally), tenants have sufficient cash flows to pay rent without government subsidies,” Fitch observed in its report.

Prior to LTC’s move, REIT actions around skilled nursing tenants have been largely limited to accounting write-downs associated with major operators Genesis HealthCare (NYSE: GEN) and Signature HealthCARE — both of which have been subject to serious doubts about their ability to continue as going concerns under the weight of COVID-related revenue declines and expense increases.

LTC’s write-down on Genesis and another unnamed operator totaled $5.5 million, substantially lower than the $140 million Genesis-Signature hit at Omega Healthcare Investors (NYSE: OHI) and Welltower Inc.’s (NYSE: WELL) $97 million write-down on Genesis alone.

For LTC’s part, Simpson expressed optimism for the year ahead.

“There is a light at the end of the tunnel, and we remain hopeful that vaccines will be distributed quickly to those who need it most,” Simpson said. “We are grateful for the excellent strides our industry has made in caring for those most vulnerable, and will continue to do our part to support both our operators and our industry.”

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