With some of the more daunting challenges of the COVID-19 pandemic “mostly” behind the senior living industry, LTC Properties Chairman and CEO Wendy Simpson said Friday she is cautiously optimistic that the industry has entered the recovery stage.
During a first-quarter earnings call, Simpson said that although it remains unknown when occupancy will return to pre-pandemic levels, anecdotal evidence from operators is encouraging. High resident COVID-19 vaccination rates mean that assisted living communities and skilled nursing facilities are welcoming new residents and patients at an increasing frequency, she said.
“If we’ve learned one thing, it’s that we are resilient,” Simpson said. “It’s that resiliency that will help us through recovery as we work to return to pre-pandemic normalcy.”
But not all are out of the collective woods yet.
The Westlake Village, CA-based healthcare real estate investment trust reported collecting 86.5% of rent and interest income from operators in its portfolio in the first quarter. The company implemented a one-time 50% rent escalation reduction on 2021 rent and mortgage interest in the form of a rent credit, to provide financial support to eligible operating partners. Through the end of the first quarter, rent deferrals were $1.1 million and rent abatements totaled $600,000.
The REIT saw decreased rental income as a result of Senior Lifestyle Corp.’s nonpayment of its lease obligations during the first quarter. An affiliate of Senior Lifestyle operated 23 senior living properties for LTC under a master lease.
LTC transitioned 11 of the assisted living communities in Wisconsin, Ohio and Illinois previously leased to Senior Lifestyle to two operators. In April, the REIT transitioned a Colorado memory care community to a new operator. For the remaining 11 assisted living communities, three are expected to be transferred to an existing LTC operator by the end of the second quarter, three are expected to be sold by end of the second quarter, one is expected to be transferred to a new operator by the end of July, one closed and will be sold for an alternative use, and options are being evaluated for the remaining communities.
Senior Care Centers also did not pay rent and additional charges owed under its master lease. As a result of Senior Care Center’s bankruptcy filing and default, LTC is working to transition Senior Care properties in its portfolio to Texas-based HMG Healthcare by the end of the second quarter.
The REIT also experienced lower property tax revenue associated with other operators’ nonpayment of rent and escrows. During the first quarter, LTC extended the deferral period another three months for an operator that previously had deferred rent through March 31. Another assisted living community under this same operator closed last fall and was sold during the first quarter, LTC said.
Since March 31, LTC provided $367,000 in deferred rent in April and agreed to provide rent deferrals and abatements up to $800,000 each in May and June.
“We don’t anticipate providing additional across-the-board relief but will continue to review relief requests, if any, on a case-by-case basis, keeping in mind the operator’s ongoing operations, rent coverage and corporate financial health and liquidity,” Simpson said.
The CEO said that one way LTC has helped its operators through the pandemic was with its Smart Design program, which provided financing to retrofit communities with state-of-the-art infection control protocols to create safer physical environments. Thirteen communities have used the program to install air filtration units, bipolar ionization, UV sanitation devices, custom dividers and touchless equipment, she said.
In terms of investments, LTC invested the remaining $8 million of a $13 million commitment to develop a 267-unit independent living and assisting living community in Vancouver, WA.
Clint Malin, co-president and chief investment officer, reported that Weatherly Court, an assisted living and memory care community operated by Field Senior Living in Medford, OR, began accepting residents in September, with occupancy reported at 24% in March.
The 2021 growth pipeline is more active than it has been in awhile, he said, with opportunities predominantly in private-pay senior living. LTC is making an increasing number of bids, he said, although he could not provide specifics about deals, saying that the market has not yet returned to normal and the sales cycle is “elongated.”
LTC’s “right price for the right return” strategy is to provide strong regional operators with the capital they need, Malin said. For now, the REIT is focusing on smaller investments with a better than risk-reward profile, including mezzanine loans and preferred equity financing.
“Partnering with regional operators is an important part of our ongoing strategy, and we will continue to build relationships with those that have good operating track records and are experts in their local markets and regions,” he said.
The disruption caused by the pandemic upended the world and the senior living industry but also highlighted the industry’s strengths, Simpson said.
“We are moving forward with cautious optimism as a result of the ramp-up of the vaccine rollout, government focus and attention on ending the pandemic, and an industry that continues to work steadfastly to stabilize occupancy rates and restore consumer confidence,” she said.
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