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Text: It continues to be a somewhat uneasy road.
But our partners have shown amazing resilience and grace.
Operating through the pandemic has been different from any other cycle in the history of our industry.
During the '08, '09 financial crisis, certain levers could be pulled while waiting out a return to normalcy.
Similar levers do not exist in this current cycle.
By now, you have read news reports or heard earnings calls of other healthcare REITs citing squeezed margins, moving the challenges, labor exhaustion, decreasing length of stay, home healthcare growth, and holds on elective surgeries, all creating challenges to operators.
We do believe that the industry census is close to or has hit bottom.
As the current vaccines and hopefully a third from Johnson & Johnson become more widely available and utilized, visitation opens up, communities and facilities continue to aggressively market their services and consumer confidence in these settings improves, we should see the current census stabilize and even improve.
However, visibility to these events remains low.
So we can't predict when that might happen or when the industry will be able to fully recover from the effect of the pandemic.
Because LTC has built a conservative foundation with a strong and flexible balance sheet, we can continue to provide support to our operators if needed and take advantage of investment opportunities as they arise without placing undue strain on LTC.
The need for senior care hasn't abated and states in which we have some of our highest concentration of properties are also states with the highest projected increases in the 80-plus population cohort over the next 10 years.
Government support for our industry remains vitally important and our industry associations have successfully lobbied and are continuing to lobby for much-needed ongoing aid and support.
With the new administration likely comes more spending on and attention to the COVID crisis.
It remains to be seen how much additional aid and with it, additional governmental regulation will be forthcoming and when it will arrive.
We believe this extra support is necessary.
Last month, the federal public health emergency declaration related to the corona's pandemic was extended through April 20, keeping in place the temporary 6.2% increase in federal Medicaid matching funds, including the three-day hospital stay waiver.
We believe a further extension is likely.
Additionally, a bipartisan bill was drafted to help ensure that senior care communities and facilities can maintain adequate staffing levels by allowing temporary nurse aids to retain their certification status after the COVID-19 emergency declaration has been lifted.
In addition to the new stimulus package being negotiated, about $30 billion of prior earmarked aid remains unallocated, which will hopefully provide some incremental support to operators in the industry.
Moving now to more LTC-specific discussion, I'll start with rent deferrals and abatements.
Fourth quarter rent and mortgage interest income collections were strong at 98%.
As previously disclosed, we provided partial relief to all eligible operators in the form of reduced 2021 rent escalations.
We thought it was prudent to proactively offer relief to our partners, so that they had additional funds early in 2021.
The rent credit is expected to have an approximate $530,000 impact on our 2021 GAAP revenue and an approximate $1.3 million impact on our 2021 FAD.
As we noted when we announced this program, our Board discussed various ways for LTC to provide support while balancing our fiduciary responsibilities to shareholders.
So while FAD will be reduced, we are focusing efforts on replacing the funds with accretive transactions this year.
We will evaluate requests for additional support from operating partners, as we receive them and we'll review them on a case-by-case basis with careful evaluation of each operator's ongoing operations, rent coverage, corporate financial health, and liquidity.
Pam will provide additional color shortly.
Next, I'll discuss our Senior Lifestyle portfolio, which is currently a main area of focus for us as we work to transition the 23 communities they have operated for LTC.
So far in the first quarter, we have transitioned 11 assisted living communities to two operators.
One operator is new to LTC and the other is an existing partner and our goal is to complete all SLC-related transitions by the end of the second quarter.
Clint will spend some time on the specifics.
The M&A market remains challenging for the industry.
While there are deals being done, we do not plan to relax our underwriting standards, opting instead to wait until we can complete deals that provide accretive growth for our shareholders.
We do not expect to engage in any large transactions for the foreseeable future, but we are seeing interesting opportunities to participate in growth through structured finance deals with reduced risk profiles and strong returns, especially for development projects that are not dependent for success on immediate lease-up or current census.
When the market begins to open up, we plan to use our considerable balance sheet to provide a wide range of regional operating partners with the financing they need to help grow their businesses.
Until then, we will continue to develop new relationships and solidify existing ones, so that we're ready to act when we see appropriate opportunities.
Right now, we see too many uncertainties in 2021 and we feel we cannot reasonably provide guidance at this time.
Total revenue declined $190,000 compared with last year's fourth quarter.
Impacting our results were abated delinquent and deferred rent granted in 2020, a reduction in property tax revenue, and lower rental revenue from the sale of the Preferred Care portfolio in 2020.
Additionally, in the fourth quarter of 2019, we collected past due rent from Senior Care.
Partially offsetting the decline was rent from acquisitions and completed development projects, higher rent payments from anthem, and contractual rent increases.
Mortgage interest income increased $226,000 due to the funding of expansion and renovation projects.
Interest expense decreased $490,000 due to lower outstanding balances and interest rates under our line of credit in the fourth quarter of 2020 and scheduled principal payments on our senior unsecured notes.
Property tax expense decreased $809,000, primarily due to the timing of Senior Lifestyle property tax escrow receipts and the payment of related taxes.
G&A expense increased $675,000 compared with the fourth quarter of 2019 due to the reimbursement of legal fees from Senior Care in the prior-year period as well as the timing of certain expenditures.
Income from unconsolidated joint ventures decreased $270,000 due to a dissolution in 2019 of a preferred equity investment in a joint venture, offset by two preferred equity investments we made in 2020.
During the fourth quarter of 2020, we recorded a $3 million impairment charge associated with a memory care community in Colorado operated by Senior Lifestyle, the impairment related to our release efforts of this property.
During the fourth quarter of 2019, we recognized a $5.5 million impairment charge related to the Senior Lifestyle joint venture.
The four properties comprising the JV were sold in the second quarter of 2020.
Accordingly, we received liquidation proceeds of $17.5 million and recognized a loss on liquidation of unconsolidated joint ventures of $620,000.
During the fourth quarter of 2020, we recognized an additional loss of $138,000 related to the final liquidation of this unconsolidated joint venture.
In the fourth quarter of 2019, we recognized a $2.1 million gain from insurance proceeds related to a close skilled nursing center in Texas.
This property sustained hurricane damage and rather than rebuild it, we sold it and two other properties in the fourth quarter of 2019, resulting in a cumulative loss of $4.6 million.
We provided Senior Lifestyle deferred rent in the amount of $394,000 in April of last year.
While this amount has since been fully repaid, they failed to pay full rent during the second quarter of 2020.
As a result, we wrote off a total of $17.7 million of straight-line rent receivable and lease incentives related to this master lease and transitioned rental revenue recognition to a cash basis effective July 2020.
During the fourth quarter of 2020, we applied their letter of credit and deposits totaling $3.7 million to accrued second quarter 2020 rent receivable of $2.5 million and notes receivable of $125,000 with the remaining $1.1 million to third and fourth quarter 2020 rent.
At December 31, 2020, Senior Lifestyle's unaccrued delinquent rent balance was $1 million.
Net income available to common shareholders for the fourth quarter of 2020 increased by $5 million, primarily resulting from acquisitions and completed development projects, rent increases, lower interest expense, the prior year's loss on sale, and the fourth quarter of 2019's $5.5 million impairment charge.
Offsets included the $3 million impairment charge, decreased rent related to the Preferred Care property sales, abated and deferred rent net of repayment, a decrease in property tax revenue, the 2019 receipt of 2018 past due rent from Senior Care, and the fourth quarter 2019 gain from insurance proceeds.
NAREIT FFO per fully diluted share is $0.78 in the fourth quarter of 2020 and $0.81 in the prior-year fourth quarter.
Excluding the gain from insurance proceeds in the fourth quarter of 2019, FFO per fully diluted share was $0.76.
The $0.02 increase in FFO excluding the gain was due to lower weighted average shares outstanding in 2020, resulting from the purchase of shares in the first quarter of 2020 under our share buyback program.
Moving now to our investment activity, during the fourth quarter of 2020, we invested $5 million under our previously announced $13 million preferred equity commitment related to the development of a 267 unit independent and assisted living community in Vancouver, Washington.
Our investment earns an initial cash rate of 8% and a 12% IRR.
We expect to fund our remaining $8 million investment before the end of the first quarter of 2021.
The preferred equity investment is accounted for as an unconsolidated joint venture.
We also funded $6.3 million in development in capital improvement projects at a weighted average rate of 8% on properties we own and paid $22.4 million in common dividends.
Our 2020 FAD payout ratio was 77%.
We currently have remaining commitments under mortgage loans of $1.7 million related to expansions and renovations on three properties in Michigan.
We also paid $7 million in regular scheduled principal payments under our senior unsecured notes.
Subsequent to the end of the quarter, we borrowed at $9 million under our unsecured line of credit.
Including this borrowing, we have $7.8 million in cash, $501.1 million available on our line of credit, under which $98.9 million is outstanding, and $200 million under our ATM program, providing LTC with liquidity of approximately $709 million.
As a reminder, we have no significant long-term debt maturities over the next five years.
At the end of the 2020 fourth quarter, our credit metrics remained favorably compared with the healthcare REIT industry average, with net debt to annualized adjusted EBITDA for real estate of 4.3 times and annualized adjusted fixed-charge coverage ratio of 5.3 times and a debt to enterprise value of approximately 30%.
I'll conclude my remarks with a discussion of rent deferrals and abatement.
We collected 98% of fourth-quarter rent and mortgage interest income including the application of Senior Lifestyle's letter of credit and deposit.
Of the rent not collected, $360,000 related to rent abatements and $369,000 related to rent deferral, net of repayment, which were provided to three private pay operators Clint mentioned on our previous earnings call.
As I mentioned earlier, Senior Lifestyle remains delinquent in their 2020 contractual rent by $1 million, and they have paid no rent so far in 2021.
For all of 2020, we collected 98% of contractual rent including the application of Senior Lifestyle's letter of credit and deposits.
Of the 2% we did not collect, 0.7% was abated, 0.7% was net deferred, and the remaining 0.6% was delinquent.
To date so far in 2021, rent deferrals totaled $689,000, net of $14,000 of deferred rent repayments.
These deferrals relate to the same three private pay operators previously mentioned.
Excluding the rent credit related to the rent escalation reduction already discussed, abated rent to date in 2021 is $360,000.
We did receive rent from the operators who transitioned former SLC operator communities to date.
Clint will provide more detail.
Now, I'll turn things over to Clint.
I'll start my discussion with Senior Lifestyle.
As Wendy said earlier, thus far in the first quarter of 2021, we have transitioned 11 of the 23 assisted living communities under their master lease.
Six of these communities were transferred to Randall Residence, a current LTC operator; and five were transitioned to Encore Senior Living, an operator new to us.
The Randall communities, five of which are located in Ohio and one in Illinois, were transferred on January 1.
Combined, these communities contain 344 units.
We first began working with Randall in 2019 when we acquired two properties in Michigan, and they are now the operator of eight LTC Properties.
Randall already operates properties in Ohio and Illinois and has a strong regional presence in the Upper Midwest.
The six properties were added to an existing master lease with Randall.
Terms of the amended master lease were extended by one year with nine years remaining.
Incremental cash rent under the amended lease is $2.7 million for the first year, $3.7 million for the second year, and $3.9 million for the third year, escalating by 2% annually thereafter.
On February 15, we transferred five communities, all in Wisconsin with a total of 374 units to Encore Senior Living.
Encore, founded in 2011, is a major player in the Wisconsin market, operating 34 locations [Indecipherable] these communities.
The new master lease covers a 10-year period with three five-year renewal options.
Cash rent under the lease is $2.6 million for the first year, $3.3 million for the second year, and $3.4 million for the third year, escalating by 2% annually thereafter.
Partnering with regional operators is an important part of LTC's long-term strategy and expanding our relationship with Randall while building a new one with Encore are great examples of our ability to partner with operators with a solid presence in their local markets and regions.
There are now 12 buildings remaining in the Senior Lifestyle portfolio.
Of those, we will be transferring five and selling three and continue to evaluate options for the remaining four properties.
Of the five that will be transferred, four are expected to be transferred by the end of Q1 and the fifth by the end of Q2.
The three properties we intend to sell are under contract with an expected closing at the end of the second quarter subject to timely completion of due diligence.
The four remaining properties have a net book value of approximately $4.5 million.
One of those properties is being closed and would be sold for an alternative use and we are evaluating our options for the remaining three.
Now I'd like to quickly update you on our most recent development projects to come online.
Weatherly Court, which is located in Medford, Oregon, and operated by Fields Senior Living, began accepting residents last September.
As of February 15, occupancy was 23%, up from 10% on October 23.
The opening of this community was delayed due to the pandemic.
As a result of the delay and because as a newly opened property, Fields was not eligible for government stimulus money.
We have agreed to provide them $1.3 million of additional free rent.
Ignite Medical Resort in Blue Springs, which is located in Independence, Missouri, began welcoming patients last October.
At February 15, occupancy was 64%, up from 23% on October 20.
Last quarter, we discussed Genesis and its disclosed doubt regarding its ability to continue as a going concern.
Genesis remains current on all of its lease obligations to LTC.
They operate six properties for us; five in New Mexico, and one in Alabama.
Brookdale master lease matures on December 31, 2021.
The first renewal option is for a four-year period.
The notice period for the renewal option began on January 1, 2021, and ends on April 30, 2021.
In 2020, we extended a $4 million capital commitment to Brookdale, which is available through December 31, 2021, at a 7% yield.
To date, we have funded $2 million of this commitment.
Of note, aside from the Brookdale lease renewal, we have only one other lease that expires in 2021.
The SNF [Phonetic] operated under this lease is under contract for sale with closing expected in the second quarter.
Next, I'll discuss our portfolio numbers.
As a reminder, given the pandemic and the challenging environment it has created, we don't believe coverage is a good indicator of future performance at this time and are focused mainly on occupancy trends, which I'll discuss shortly.
Q3 trailing 12-month EBITDARM and EBITDAR coverage using a 5% management fee was 1.14 times and 0.94 times respectively for our assisted living portfolio.
These metrics are the same with and without stimulus funds as no operators allocated these funds to their P&L statements.
Excluding Senior Lifestyle from our assisted living portfolio, EBITDARM and EBITDAR coverages would increase to 1.25 times and 1.04 times, respectively.
For our skilled nursing portfolio, EBITDARM and EBITDAR coverage was 1.85 times and 1.39 times, respectively.
Excluding stimulus funds, EBITDARM coverage was 1.58 times and EBITDAR coverage is 1.23 times.
Now for some occupancy trends in our portfolio, which is as of January 31.
As a reminder, for our private pay portfolio, occupancy is of that date specifically and for our skilled portfolio, occupancy is the average for the month.
Because our partners have provided January data to us on a voluntary and expedited basis, the information we are providing includes approximately 71% of our total private pay units and approximately 93% of our skilled nursing beds.
Private pay occupancy was 79% at September 30%, 72% at December 31, and 71% at January 31.
For skilled nursing, average monthly occupancy for the same time periods respectively was 70%, 66%, and 66%.
We cannot predict when occupancy might begin trending upward.
Regarding 2021 growth, when we are confident that we can complete deals at the right price for the right return, we will use our liquidity to provide strong regional operators with the growth capital they need.
Until that time, we will focus on smaller investments with what we believe to be a better risk-reward profile using vehicles such as mezzanine and preferred equity financing while building new and existing relationships that will serve us far into the future.
Preferred equity transactions we announced last quarter validate our ability to successfully transact in this market.
The pandemic has caused considerable disruption within our industry and we can't determine exactly when things will begin to return to pre-pandemic levels.
The rollout of the COVID vaccines, a new administration that is focused on getting the country through the pandemic, and an industry that is working hard to stabilized occupancy and restore consumer confidence give us hope that things are starting to turn and will continue to get better.
As a company that has always viewed its operators as partners and a company that has worked hard to build a balance sheet capable of withstanding the very type of crisis through which we have been managing, LTC is ready and able to continue enhancing its portfolio, diversifying its investments and generating new opportunities to allow us to continue to serve as a growth partner of choice as a REIT done differently.

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compname reports q4 ffo per share $0.78.
q4 ffo per share $0.78.

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