Leaders with LTC Properties (NYSE: LTC) are encouraged by skilled nursing occupancy trends, but the real estate investment trust (REIT) is still awaiting resolution on the bankruptcy of SNF operator Abri Health Care, formerly Senior Care Centers, and its Q2 2021 earnings took a hit from rent deferrals and abatements.
Portfolio properties are no longer asking for new “substantial” rent deferrals and abatements, but LTC Properties CEO Wendy Simpson expects LTC will continue providing relief in this way until occupancy gains become more permanent.
“What we have recently heard from our operators gives us some optimism,” Simpson noted Friday on LTC’s Q2 2021 earnings call. “SNF occupancy is trending slowly upward. Over the last 25 weeks SNFs have seen occupancy rise in each week except one when census remained flat. Various government stimulus programs have helped significantly in keeping skilled nursing operators afloat.”
For LTC’s skilled nursing portfolio, the Michigan market is lagging behind in this occupancy trend, Simpson said.
Skilled nursing makes up $820.1 million of LTC’s gross investments totaling $1.67 billion, according to BMO Capital Markets. The other half of its assets are largely in the assisted living market. Twenty-two of its 73 SNF properties are in Michigan.
Addressing the delta variant, Simpson hopes restrictions will be reinstated locally, rather than the industry dealing with a national edict.
Rent Deferrals, Abatements Continue
LTC on Thursday reported earnings for its second financial quarter ending June 30, with net income available to common stockholders of $18.1 million, or 46 cents per share for the second quarter, a sizable increase from last year’s second quarter figure of $1.8 million, or 5 cents per diluted share.
LTC managed to pay down $41 million under its unsecured revolving line of credit during the second quarter.
Funds from operations (FFO) per share was 57 cents, up significantly from 31 cents during the second quarter last year, but still missing analyst expectations.
Analysts at BMO Capital Markets expected 65 cents in FFO per share for the quarter. The BMO team noted that Wall Street analysts were working from “stale numbers on rents collections.”
The West Coast REIT provided $366,000 of deferred rent and $323,000 in rent abatement subsequent to June 30 — LTC has agreed to add up to $493,000 and $319,000 in rent deferrals and abatements, respectively, for both August and September.
BMO analysts call the additional monthly deferrals a “bit surprising.”
LTC attributes its results in part to a $17.7 million write-off during last year’s second quarter related to its Senior Lifestyle Corporation portfolio, leading to higher rental income. Senior Lifestyle provides skilled nursing services, as well as independent living, assisted living, memory and respite care.
The REIT enjoyed higher income from completed developments and unconsolidated joint ventures too.
The increase was offset by unpaid lease obligations from tenant Abri Health Care, formerly Senior Care Centers, after the skilled nursing operator filed for Chapter 11 bankruptcy on April 16 — the company had emerged from a previous bankruptcy, where it was reformed as Abri, only to file again that same day.
Abri operates 11 SNFs in Texas, totalling approximately 1,400 beds.
Simpson said bankruptcy proceedings are continuing with a scheduled court date of Aug. 11.
Abri’s facilities would normally account for $15 million in annualized rent revenue, 9.2% and 9.3% of GAAP and cash revenue for LTC, respectively.
Transitioning the Senior Lifestyle Portfolio
Simpson said the REIT’s transition away from operator Senior Lifestyle is “nearly complete,” adding that 19 properties are or will be under new leases with different operators and four have been sold.
During the second quarter specifically, LTC sold three Wisconsin communities and one closed community in Nebraska all previously leased to Senior Lifestyle, for a total sale price of $35.9 million.
Another Senior Lifestyle property — a memory care community in Colorado — was transferred to an unnamed operator new to LTC under a five-year lease.
Transactions technically falling in the third financial quarter include more Senior Lifestyle transitions, including new lease agreements for seven assisted living communities across four states.
In terms of investments, LTC is currently focused mostly on structured finance transactions such as mezzanine and preferred equity deals, although acquisitions could be in the offing.
“We saw toward the end of the last quarter deal flow continue to accelerate with several potential transactions in the pipeline that meet our investment criteria,” explained Simpson. “These opportunities are mostly shorter term and cash flow strategic with what we believe are reduced risk profiles and strong returns through the first half of the year.”
LTC has passed on a “host of transactions” because properties weren’t performing well or asking prices didn’t match market value rates, Simpson said, emphasizing that LTC has “ample access” to liquidity while striving to be a “good financial steward.”
“We have no problem temporarily remaining on the sidelines for our more traditional long term investments, until we can find the right deal at the right price,” she added.