LTC Properties, Inc. (LTC) Q4 2017 Earnings Report, Transcript and Summary

Operator Good morning, and welcome to the LTC Properties Fourth Quarter 2017 Analyst and Investor Conference Call. [Operator Instructions] Please note, this event is being recorded. Before management begins its presentation, please know that today's comments, including the question-and-answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties' filings with the Securities and Exchange Commission from time to time, including the Company’s most recent 10-K dated December 31, 2017. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. I would now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you, operator, and welcome everybody to LTC's 2017 Fourth Quarter and Year-end Investor Call. Joining. Joining me today are Pam Kessler, our CFO; and Clint Malin, our Chief Investment Officer. I will begin with a few thoughts including an update on Anthem and our 2018 guidance. guidance. Pam will follow with a discussion of our financial results. And Clint will provide commentary on our portfolio investment activity, pipeline and operator partner performance. I will finish I will finish with a quick summary before we begin the questions and answers. LTC has successfully managed through several real estate cycles and no matter the environment, I firmly believe that our focus on flexibility and financing structure creativity has allowed us to meet the evolving needs of our partners, while continuing to drive long-term value through a culture of trust, transparency and shared success. New investment activity was $49 million in the quarter with the acquisition of an assisted living and memory care community in Missouri, which Clint detailed on our last call, and two new real estate joint venture agreements, one for the development of an assisted living memory care and independent living community in Wisconsin and the other for the acquisition of an assisted living and memory care community in South Carolina. Both investments were with regional operators new to our portfolio. In fact, through our business development efforts, we added three new operators to our portfolio during 2017 adding greater diversification. During and subsequent to the end of the quarter, we sold one property, donated a skilled nursing center in Texas, completed the development of a new private pay memory care community in Illinois and entered into an agreement to sell our Sunrise portfolio. As Clint mentioned during our previous earnings call, we engaged investment bankers to run a process to sell or re-lease these assets. The process was highly competitive, resulting in multiple lease and sales options, with KeyBanc Capital Markets leading the sales process and CS Capital Advisors leading the re-leasing initiative. We are very pleased with the collaborative process led by Key and CSCA, resulting in the executed sales contract. As always Clint will provide color later regarding asset sales. I would characterize our active pipeline as moderate, with anticipated growth during the year. We are currently looking at single asset transactions, all of which meet our stringent underwriting hurdles. All were sourced off market and they all represent a good strategic fit for our portfolio. The pipeline encompasses a variety of deal structures and property types. Regarding Anthem. In 2018 we expect rent from them to escalate over the course of the year. Currently, we expect to receive $1.1 million of rent from Anthem in the first quarter, $1.2 million in the second, $1.4 million in the third and $1.5 million in the fourth quarter for a total of $5.2 million of rent in 2018. The properties in the Anthem portfolio are continuing to make progress, with occupancy rising at Tinley Park and Burr Ridge, and Westminster recently reaching stabilization. At January 31st Tinley Park occupancy was 47% up from 42% at October 31st and Burr Ridge was 67% up from 64%. Last quarter, we discussed transitioning the two Kansas communities operated by Anthem to another existing partner. While we have an agreement in principle to transition these properties during the first quarter of 2018 we were not able to come to specific terms. So for the time being, we have decided to keep them with Anthem. We have a great relationship with our other operator and expect to continue to grow with them, but Kansas just wasn't right for that opportunity. In December 2017, Anthem's Glenview, Illinois memory care community opened and early lease-up figures are encouraging with occupancy at 24% at January 31st. The remaining construction project with Anthem in Oaklawn, Illinois, is on-track for a second quarter opening. Overall, at this time, Anthem has made solid adjustments and improvements. We will continue to closely monitor their progress. Before I turn the call over to Pam, I will provide our guidance for 2018. Assuming no additional investment activity, financing or equity issuances, FFO is expected to be between $2.95 and $2.97 per share for the full-year. This assumes net proceeds from the possible Sunrise sale are used to pay down the line of credit debt. Now, I will turn it over to Pam. Pam.

Thank you Wendy. We generated $0.77 of NAREIT FFO, which was 0.01 lower than the same period last year, primarily due to lower revenue and higher interest expense. Revenue decreased due to lower rent from Anthem and property sold during the past year, and lower mortgage interest income related to loans that were paid off. These revenue reductions were partially offset by increases in revenue from acquisitions, development, capital improvement projects and mezzanine loan investments. Interest expense increased due to the sale of senior unsecured notes in the beginning of 2017. G&A decreased due to the timing of certain expenditures and lower 2017 investment volume. I anticipate G&A of $4.5 million to $4.8 million per quarter during 2018. And, finally, income from unconsolidated joint ventures in 2017 increased due to mezzanine loan originations that are accounted for as joint ventures. As Wendy mentioned, new investments for the fourth quarter totaled approximately $49 million, including $21.6 million development commitment, which Clint will discuss in greater detail. In addition to the $27.4 million funded for acquisitions during the quarter, we funded an additional $12.1 million under existing commitments for development and capital improvement projects. We currently own three properties under development and two properties under renovation with remaining commitments totaling $47 million. We also have remaining commitments under mortgage loans of $17.7 million related to expansions and renovations on seven properties in Michigan. During the quarter, we borrowed $41.5 million under our line of credit; we paid $12 million of senior unsecured notes and continued to fund our $0.19 per share of monthly common dividend. Subsequent to December 31st, we borrowed $24 million on our line of credit, under which we currently have $120.5 million outstanding. Our balance sheet remains strong with significant flexibility. We have maintained a long-term debt to maturity profile that is well matched to our projected free cash flow helping moderate future refinancing risk. We have no major long-term debt maturities over the next five years and we maintain significant liquidity to meet our obligation and fund future expected growth. Currently, approximately $480 million remains under our line of credit, $68 million under our shelf agreement with Prudential and $185 million under our ATM program, giving us $733 million of availability. We plan to continue to allocating capital strategically and conservatively to help ensure profitable long-term growth and to provide increasing value to our key stakeholders. At the end of the fourth quarter, our credit metrics continue to compare well to the healthcare REIT industry average with debt to annualized normalized EBITDA of 4.3 times, a normalized annualized charge coverage ratio of 4.8 times and debt to enterprise value of 28%. I will now turn things over to Clint for a discussion of our investment activity, pipeline and portfolio metrics. Clint.

Thank you, Pam. As Wendy mentioned, 2017 ended on a strong note with a nice uptick in investment activity closing three new investments. First, we acquired a 73-unit newly built assisted living and memory care community in Kansas City, Missouri. I discussed the acquisition at length last quarter, so I will just remind you that the deal is with an existing partner, Oxford Senior Living, which now operates three private pay communities owned by us. The other two completed transactions are comprised of real estate joint venture agreements demonstrating our ability to provide unique financing solutions to our operating partners. The first agreement is to jointly develop 110-unit assisted living, memory care and independent living community in Wisconsin with Tealwood Senior Living and Developer Tukka Properties. And the total estimate of project cost, including the land purchase is $22.5 million. Near the completion of the project, we plan to enter into a 10-year lease agreement at an initial cash yield of 7.5% of the Tealwood, a new operating partner for LTC. Tealwood was founded almost 30 years ago and currently has managements and operational responsibilities in over 50 independent living, assisted living and memory care communities as well as skilled nursing centers across Minnesota, Iowa, Nebraska, and South Dakota. Construction has commenced, with a planned opening date in the spring of 2019. Through the second agreement, we acquired an 87-unit assisted living and memory care community in South Carolina for $10 million with a new operating partner, Affinity Living Group. Simultaneously, we entered into a 10-year master lease agreement with an affiliate of affinity at an initial cash yield of 7.25%. Affinity operates assisted living, memory care and independent living communities predominantly in the Southeastern United States. As part of the acquisition, the joint venture has made available $1.5 million for capital improvements. For 2017, we invested a total of $81 million in the acquisition of private pay assets and committed to an additional $22.5 million for the Tealwood development project, totaling a $103 million of underwritten transactions shown in our supplemental. Our 2017 investments continue our strategy of adding newer modernized properties to our portfolio by expanding our relationships with strong regional operators. During and subsequent to the end of the quarter, we also identified opportunities to recycle capital and assets that are no longer core or strategic. We sold a 36-unit closed assisted living community in Oregon for $1.4 million and reported a net loss on sale of approximately $70,000 and donated a small scale nursing center in Texas to a non-profit healthcare provider as the carrying value of this property was $1.2 million, neither property paid rent during 2017. On a larger scale, we entered into a contract to sell our Sunrise portfolio, comprised of six senior living communities in Ohio and Pennsylvania. The master lease relating to this portfolio expires on April 30th. The anticipated closing date of the sale, subject to conditions precedent to closing, is May 1st. The agreement is subject to various confidentiality restrictions, so while we are not able to provide specific details at this time, we do expect to record a sizeable gain on the sale. Please note that the possible sunrise sale is included in the guidance Wendy gave earlier. We are actively pursuing strategic opportunities to put this capital to work. Over the last five years, we have recycled $80 million of capital at an average of $16 million annually. We plan to continue evaluating our portfolio to find additional opportunities as warranted with a focus on being strategic and selective, it is most likely that future sales would be up single buildings rather than large portfolios. Our active pipeline is guided approximately $50 million. The pipeline size is fairly typical for us at this time of year and we will likely grow throughout 2018. Currently, we are actively engaged with three potential transactions encompassing a variety of deal structures and property types, all of which were sourced off market. One is for a loan with a current operating partner related to a skilled nursing center and a suburb of Detroit. The other two on expansion of a potential deal I discussed in detail last quarter with an operator in the Pacific Northwest. The deal which is structured as a real estate joint venture in the state of Oregon was originally for the development of an assisted living and memory care community. We have since expanded the deal to include the acquisition of an independent living community on an adjacent land parcel to create an integrated campus. In addition to our active pipeline, we are cultivating several additional off-market opportunities with operators that would be new to our portfolio and expand multiple property types and deal structures from development to acquisitions to joint ventures. These opportunities take a bit longer to conclude, so they are not included in our active pipeline. We continue to believe that LTC’s strong balance sheet makes us extremely competitive in the marketplace for new investments and allows us to move quickly as opportunities materialize. Now, I will finish with a few comments on our portfolio of the two Thrive Memory Care communities added to their master lease in September, the Louisville community saw a different occupancy at December 31st as reported in our supplemental since has returned to 73% at January 31. We fortunately sized Corpus Christi Community in Texas saw a setback in occupancy from 65% at September 30th to 57% on January 31st. We are actively monitoring our portfolio with Thrive and engage with them as they progress through a lease up of the six communities, which have opened at various times during the past 20 months. For our portfolio statistics, which as a reminder, are reported one quarter in arrears, Q3 trailing 12 month EBITDARM and EBITDAR coverage using a 5% management fee on a same-store basis was 1.89 times and 1.38 times respectively for our skilled nursing portfolio; and 1.43 times and 1.21 times respectively for our assisted living portfolio. While coverage on our assisted living portfolio remains fairly stable on a same-store basis to recent quarters, our skilled nursing portfolio coverage declined three basis points. As would be expected in the current industry environment, some operators in our portfolio continue to face challenges relating to length of stay, labor cost and managed care pressures. We are engaged with our operating partners, monitoring their performance and their implementation of various strategies as they manage through this cycle in the industry. Now, I will turn the call back to Wendy.

Thank you, Pam and Clint. I hope you've heard through our remarks today that we remain positive about our prospects and more importantly LTC's ability to drive profitable growth over the long-term. Although several overarching things continue to impact the senior's housing industry and equity REIT share pricing has been volatile, there are pockets of opportunity for savvy, disciplined and innovative and well-funded capital partners like LTC. We agree with many of our peers that the market is currently in a state of price discovery, both in terms of asset pricing and cost of capital. Nonetheless, I’m confident that we can successfully meet the needs of our operating partners through financing flexibility and creativity. Not only are we being creative in how we are structuring deals, but also in terms of how we are deploying capital. Our committed capital to date is approximately $67 million which includes development, renovation and expansions. I remain as optimistic as ever about our future for several reasons. We have built a portfolio to generate FFO through 2018 and beyond. We are well capitalized and we have successfully demonstrated our ability to provide creative ways to add value for our partners and our shareholders. I look forward to updating you next quarter on our progress. Thank you all for joining us today. We would now be happy to take your questions.

[Operator Instructions] The first question today will come from Jordon Sadler with Keybanc Capital Markets. Please go ahead.

Thank you. Good morning. I was Curious for the guidance. Is there an impact that you can sort of lay out? Or can you tell us what the guidance might look like without the sale of the Sunrise portfolio?

What we have included in guidance, Jordan, is a reduction in the Sunrise rent - Pam is showing me something.

To $1.5 million.

To $1.5 million which is a $3 million increase year-over-year. Decrease. I'm sorry. So it’s a $3 million decrease year-over-year, we have Sunrise in for rent through May - April.

And then is there also are you including some interest savings associated with the proceeds or not? Because I heard, I think Pam you said you are assuming you pay down the line.

Yes, so it's correct some interest saving that we have also adjusted for the increase in LIBOR so interest expense on the line were paying at about 3.5% right now.

That’s helpful. And then separately, can you give us an update on preferred, I didn’t hear much going on there, where do we stand with that tenant?

The Preferred Care is progressing through the bankruptcy case right now. They have received an extension for a date to assume and reject leases until June 11th. So there is still that extension. Through recent court filings, it appears they have a tentative deal to transfer a majority of the New Mexico locations they have. They are making progress on exiting New Mexico and Kentucky. So right now they are working through the process. It seems like things are going smoothly for them.

You would expect your leases to be affirmed?

That is our view. Yes, we have - that's what the company has told us and I mean They are cash flow positive. They are in states where they currently operate, So yes, we do assume that they will affirm our leases.

And they are current on rent and we have...

Okay, remember, They are bankruptcy filing. I mean they were current on their obligation to the organization prior to filing bankruptcy, which is very atypical for a company entering into bankruptcies. So usually borne out of a strategic filings associated with effectively one creditor, which was a judgment, a lawsuit comprised on majority basis of punitive damages.

Okay. And with that sort of backdrop, I know that wasn't necessarily related to industry conditions and fundamentals per se, but given the slippage in the coverage, any other tenants that have maybe made it onto the watchlist as a result of upcoming rent increases or deteriorating conditions.

We have seen it in certain operators has been, some operators moved up, some operators moved down a little bit it seems to point - to the comments I made in my prepared remarks, about in certain markets there are more cost pressures than others. Other markets there is more challenge on length of stay. So not every operator is faced with each of the items that I talked about. But nonetheless, they have some component of those pressures But there's other operators in our portfolio that I have seen upticks as well.

Okay. Last one from me just on the Genesis loan that you guys have, any changes there? They just went through a bit of a restructuring on much of their capital stack and leases, or is yours kind of status quo?

No changes right now. I believe They are trying to trying to look at selling a couple of the assets within that portfolio. But no significant changes or impact to us. I mean, the credit behind that loan is very strong with a significant amount of equity invested. So I guess So I guess potentially for us, if there was a sale of some of the assets, there's a paydown of debt provided for the occupants if that were to be granted and consent to probably for us, it would be a minor amount. There would be a paydown I think to all of the debt structures. So, it wouldn’t be significant, but there could be some potential paydown on principal on that loan.

Okay, that’s helpful.

Thank you.

The next question will from Seth Canetto with Stifel. Please go ahead.

Hey, good morning.

Good morning.

First question just on the anthem rents and the ramp-up for the year. The $1.1 million seem to be a little bit below the $400,000 per month. And then what gives you guys confidence that they can achieve the $1.4 million and $1.5 million on the back half of the year?

The lease-up properties are leasing up as I indicated that Tinley Park and Burr Ridge are leasing up. The Glenview property has opened strong and we are hoping that it continues to be strong. Westminster and what is the other one in Denver - have reached stabilization during last year, so they should be stabilized all of this year. So those are the reasons. The 400,000 that regarding cash last quarter we allocated $40,000 a month to real estate taxes. So now, we are hoping - we are expecting them to pay the rent and real estate taxes on top of that for this current year. So, all of those factors go into having anthem be able to pay cash rent based on our projections.

Okay. And then is there any impact from just new supply in 2018 or the flu in 1Q that might trick on the 2Q that could slow those lease-ups?

Not that at where we are right now. It’s always possible, but right now, they have made a lot of progress on the lease-up and we are not seeing that currently on these properties.

And they have also seen - they have also achieved overhead reductions, which we had asked for. And they will achieve a little bit more this year as they stopped construction once the Glenview Oak Lawn property opens up into May.

All right, great. And then just thinking about your decision to sell the Sunrise portfolio. Can you just walk us through how you weighed the near-term dilution versus the opportunity to lease that portfolio? I know you guys had mentioned in last quarter that there seem to be significant NOI improvements just given how the portfolio was run on the expense side.

I mean we had - that’s the hard part for us as going through longer options and see what was the best logical outcome for us. A part of that analysis we are looking if we could sell the assets how would we redeploy that capital and could we redeploy the capital into newer assets. And at the prices that were tendered on bids and what we ended up doing a contract, we think that it’s a likely outcome for us to be able to redeploy that capital into new assets. We do have some viable lease options; I think that would have been good options for us to build relationships with our regional based operating companies. But the counterparty, the execution risk associated with sale and the price point made sense for us.

All right. Thanks. And then these new opportunities are they mostly like acquisitions on development or are you guys going to do some more JVs or how should we think about the pipeline?

It’s a little bit of everything. I detailed the specific items that are in our active guidance, but beyond that we are looking at a lot of different opportunities, some construction and acquisition, new operating partners, definitely joint ventures as evidenced by our investment activity in 2017, it’s been a structure for us to reach out to operating companies that typically haven’t utilized our lease back financing to partner with them on a traded financial construction that has worked for them, so I do see us doing probably more of that.

All right. And then assuming that you guys pay-off the line of credit with the capital rates from Sunrise sale, how quickly - can you give us any idea in terms of timing when all that capital would be redeployed?

We are working as fast as we can.

All right. And then just lastly on the Thrive Memory Care and Corpus Christie, was the occupancy impacted by the hurricane, is that really what is driving that decrease?

I mean they did that some impact from the hurricane on that building, so that is definitely a consultant, but those had - those had some flows in that market, it is a little bit outside of their geographical core. So, it is a building that they have seen a little bit of slippage on that, but they have definitely refocused their operations and focused on performance of that building. So, although we have seen a little bit of difference, I mean They are aware of it and they are focused on the lease-up of that property.

All right. Great. That’s it from me. Thanks for taking my questions.

Thank you.

The next question will come from Rich Anderson with Mizuho Securities. Please go ahead.

Thank you. Good morning. Can you hear me?

Yes, we can.

Okay. So, just a couple of more questions. Clint, you have kind of said, you are kind of keeping an eye on your portfolio and seeing how operators were kind of navigating through some of the stresses to the business. Could you give a sense of how big that if I’m going to use the word watch list, how big that is relative to the size of your overall portfolio, is it 5% or 10% of your operators or is that too much to think about?

I guess I haven’t really put it down into a percentage basis, but when you see in our supplemental, we have a lease-up page, which we have highlighted for you.

Yes.

Properties that are in the lease-up phase that definitely is a focusing of our attention, on the skill side, it’s not significant. We have a number of operators we are following, but nothing more than normal course in engaging with our operating partners and markets what They are doing, and talking with them, there are capital deployments that we could do to help them facilitate and make them more competitive in their marketplace, so I mean really normal course for us Rich.

Okay, fair enough. And then just looking it for some of the more high-profile operators in your portfolio, you mentioned preferred care, which really wasn’t a direct hit to you in terms of their bankruptcy, but it’s still sort of association issues I suppose and benefits, and senior care and book sale and senior lifestyles all, they are in degrees of REIT problems in the market right now, how - I mean do you have any anxiety there when you consider so that group of five in terms of maybe got some bullets or are they sort of on your watch list in a way only because they have given some problems to some of your REIT peers.

Well, I would say that’s on a couple of thoughts there. We think from a Preferred Care standpoint, I mean, we think They are going to end up being a stronger company through this process. So our building's performed, they have paid rent. So I think, that will be a positive for a preferred care. But I know there's been some discussions on various earnings calls regarding senior care centers. We have - doing our deals with senior care centers, we have underwritten property specific in our performance and cash flow on those buildings right now are doing fine. So the - so we don't see some of the same challenges that others do. we were selective on those deals, underwrote those, and although they've had a little bit of decline in coverage that's still, we call, more than adequate. And they've hired a new COO, they've brought him to what we think is a positive step for senior care centers. So our Brookdale properties have strong coverage. So although they've been in the news in discussions with some changes there. Our Brookdale assets performed very well. So I guess, nothing of specific concern on those tenants, Rich.

Okay. Fair enough. And then this is just more of a curiosity question. But you are reporting very fairly late in the quarter. Is there - was there a reason to like sort of have something to say about Sunrise? Or if you could maybe explain, if maybe there's no explanation, but did you want to sort of have more to say, is that why you're kind of maxing out your report date? ?

Yes, there were basically two things. We wanted to give you as current information on Anthem as we possibly could. And so through February, They are doing well. They are doing - tracking to their projections. and also the Sunrise sale or …

Okay. I guess from my standpoint I guess we appreciate it. So that’s all from me. Thanks very much.

Thanks Rich.

The next question will come from Daniel Bernstein of Capital One. Please go ahead.

Last quarter, you talked about a couple of large potential transactions that are out in the market that you might have been looking at. You avoided - didn't talk about it much today or at all today. So I just wanted to understand, are you still interested in some of those large transactions or are those kind of gone by the wayside?

You know Dan we were debating whether or not last time to talk about that large transaction. And for transparency we wanted to give you visibility on what we're looking at, and that there was a transaction that we feel -- probably shown to a few number of people. We thought it had a lot - it had lot of interest to us. At the end of the day, the seller decided to not proceed with selling the asset so. But it's something that we are and we typically haven't done larger transaction, except in certain cases. But we do spend time in select cases looking at larger opportunities where we think there is opportunity in alignment with the new operating partner to bring into our portfolio.

Okay, And then earlier I think Wendy mentioned it's a time of price discovery. Are you seeing portfolios or individual assets start to retread? Are you seeing any movement in cap rates. Any -- are other more value-add or distressed assets out there that might be of interest? Just trying to understand how that market dynamic for investments and acquisitions might be changing? Or how you think it might change?

On the private pay side, Dan, especially when you have marketed transactions, we have not seen any movement on cap rates. Pricing is still very strong on stabilized assets. So we have not seen movement on that. However, with the change in equity prices on the REIT side, I think that causes people to sit back and look at how they deploy capital and at what cost they deploy capital. I'm sure our peers are having the same discussions that we are internally about pricing and cost of capital. But there's still a lot of private equity money out there, private buyers and access to debt. So we have not seen a lot of change in pricing on private pay assets. We do see distress here and there and to the extent we can find opportunities going forward and look for those opportunities to partner with the right operating company, to take advantage of opportunities, we absolutely look forward to that.

Okay. And then one more quick question. I was just thinking about the number of assets that you haven't leased-up. And how are - aside from Anthem which you discussed, are - is there some expectations that we should have when we model or when we think about in the future that rent should go up commensurate with the lease-up of those assets? I just want to understand how you're getting paid today on those lease-ups versus potential upside when those properties do stabilize?

Look, they are accounted for in a straight-line basis. So it's already -- to the extent they've reached their Certificate of Occupancy and They are in lease-up, we are already recording all the revenue that we would get from them.

We provide various mechanisms to facilitate the lease-up, whether it's lease inducement or deferred rent. We have modeled that and that's in the number that Pam mentioned on lease-up properties.

Are those lease-up assets in your lease coverages at this point or no?

No. We use same-store stabilized, which does account for about 90% of our portfolio though. Only about 10% of revenue is not in same-store.

[Multiple Speakers].

Pretty much yes, or things we bought over the past year.

Okay. I appreciate the color. I will hop off. Thank you.

Thank you Dan.

The next question will be from Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, just real quick, a follow-up on Dan's last question. When does the cash start commencing for those assets, for the lease-up assets?

I mean, we usually underwrite anywhere 18 to 24 months on the lease-ups. So they have typically a lease inducement deferment factor for a period of time. So the payments could be comprised of utilization of lease inducement and cash. So it can vary by project.

So by 18 months the full cash rent should start being paid or 18 to 24 months?

18 to 24 months but as the average 18.

Okay, great. And then I just wanted to take a quick dive into Thrive a bit more. I know that operator's currently leasing up a lot of recent completed development projects. Do they have enough capital or cash on hand to fund those ramp ups right now?

I mean, to our knowledge right now, they do, yes. We did, when they took over the two Clarity Pointe buildings, we provided them with lease inducement to facilitate them going to the lease-up. Some of the other buildings like West Chester, which opened up mid-year, last year, that was provided lease inducement. Example of West Chester right now, I mean, They are currently at 58% which we think is a tremendous lease-up volume on the on the Athens, Georgia, property which in January is sitting almost at 90%. So they have had some very positive lease-ups in those. Only lease-ups obviously help provide cash flow to their organization.

Okay. Then can you provide an update on the clarity point assets, it looks like the occupancy is kind of stay flattered even declined since they took over? Are they trying to implement new processes, which is taking our eye off the ball a little bit or is making a little bit more complicated? I guess why aren’t we seeing more improvement there?

No it’s - I talked about that much in the prepared remarks and we did see a dip in December for the Louisville property. But as I mentioned, it’s bounced back up to 73% and it was just where it was out in September. Part of that on the Louisville property was, there was a number of very high acuity residents in that community, and when Thrive came in and transitioned that, they ended up discharging some residents, because of levels of care. So that was an intentional decision they chose to do to discharge few of the patients at that. But They are making progress on the continued lease-up of that property. I think for those two buildings that they have come into, just takes a little bit of time for them to get in and integrate their policies, procedures, staffing to build to facilitate the changes there. But I think that probably was a good move for them, is to have the right residents in the community and to discharge, if necessary, made sense to them. So, They are making the right decisions.

Okay. And then historically LTCs and I mean still do, had very strong trip on lease coverage ratios and obviously, there has been some pretty big declines over the past several quarters. I mean should we expect those coverage ratios to start improving over the next few quarters or could they get back to the levels that that you guys had just a few years ago?

We are hopeful that we will see an uptick on that Mike. I talked last time about too often it is in our portfolio on last quarter’s call. One that I had seen some challenges on length of stay and they are implementing programs to focus on different patient populations, and also there was some costs spent towards improvement of Medicaid rates going forward. So through that, we hope there is some upside that can be realized in coverage. And on the operator, I talked about last time, they were impacted by expenses and I think they had other focuses in the portfolio and cost containment maybe last side of that a little bit. So as that organization focuses on cost containments and trying to improve that I think we will hopefully see some improvement in those two portfolios, which hopefully will have to translate into some upward movement on our coverage.

And then is that weakness fully reflected in the coverage ratio today or should we expect another takedown next quarter as the fourth quarter goes online?

I mean I would say, there maybe there is not going to be a lot of large variability going forward. But there could be basis point takedown possibly, but I don’t see at this point any large swings in coverage.

Okay, great. Thank you.

Thank you.

Thanks, Mike.

[Operator Instructions]. Our next question comes from John Kim with BMO Capital Markets. Please go ahead.

Thanks, good morning. Just a follow-up on the coverage. So, I think Pam you said that it’s about 90% of your total portfolio in these coverage statistics today.

Yes.

Okay. What would be the coverage that is included in your entire portfolio?

Well, they are in leased up, so it’s not relative. It’s not. Yes.

Okay. But you don’t take out assets that are, I don’t know being released or…

It’s the only assets that are in the lease-up. We had not taken out buildings that aren’t performing out of our…

And assets we have recently purchased, where we don’t have them in the comparative period. So our same-store are the exact same assets in the comparative period. So you had to have owned them for then a year.

So what is executed primarily is acquisitions haven’t met that criteria or facilities in lease-up.

Yes.

Now the one thing that we would see on our coverage going forward, should we close on the sale of the Sunrise assets that would have some upward movement in our assisted living coverage?

Yes.

And just in terms of policy, do you update that your same property portfolio once a year or every quarter?

Every quarter.

Wendy, you mentioned in your prepared remarks, opportunities were well capitalized owners to be creative. So, I’m just wondering what you meant about being creative, is it something in the lease structure that might be with a typical or just doing what kind of as investments or a different kind of investment.

Yes. In the lease structure, definitely we have talked about going from a stated 2.5% increase to a PPI increase in new leases if that would be a beneficial to the operator. We have done some successful joint ventures recently, where the operator has some equity interest in the building and that is attractive to some operators and we have looked at adding on services to other properties. We were looking at a development opportunity and next to that development opportunity was possibly an asset that we could buy that would enhance their operator and a total campus type situation. So, we want to be open to many different opportunities.

I mean looking at earn-out structures also looking entertaining and in certain cases purchase options possibly under a lease structure continue to look at development some independent living for the right opportunities, some mess preferred equity. So, a lot of different ways to look at deploying capital and building and growing relationships with companies.

But right now and again, we are not looking at any RIDEA structures, so that’s not anything that we will be adding on to our portfolio during the year. So, we have had opportunities to look at things what if it’s got significant RIDEA structures first component we are passing on those.

And operators for the most part are still willing to sign triple net lease long-term structured leases?

We signed a couple of last years. So, yes, I mean it depends on the circumstance situation. I mean it’s just a fully-valued stabilized asset and you are coming in with no coverage. No that’s where I think a lot of operators have concerns with signing triple net leases in that situation, but I mean we have evidenced we have been able to execute last year triple net leases. So there are opportunities. So again, those were off market as well. So it’s building relationships getting into to know these companies and being able to provide the capital at the right time when the opportunity presents itself.

That’s operator. There are several operators who don’t like triple net leases and there are several operators who operate well under the properly-costed triple net lease. I mean you’ll enter a triple net lease that already has skinny coverage and then you add on rent increases, and it's a formula for disaster which we found with some of the bigger triple net leases that have been in the marketplace. And that's probably one of the reasons that LTC hasn’t had a significant problem with their operators, because we tended not to over pay and we don't intend to over pay even in this environment. And I think we're going to see a lot of deals that have been announced that we couldn't underwrite and wouldn't underwrite because of overpaying for assets on a triple net lease basis, doesn’t work.

Okay. And then a question on Brookdale. I think, Clint, you mentioned your portfolio's performing well with them, but if you can provide any additional commentary on the performance and also the lease maturity which I think there is one later this year.

The lease maturity is 2020. There are two assets in the lease that are in a separate lease. The 2020 is a master lease. There are two assets that come through their Emeritus acquisition, Bakersfield and Vacaville, that the lease expires this year. And we'll be looking at replacing the operator, selling those assets. Brookdale doesn't want to renew that lease.

Great, thank you.

Ladies and gentlemen this concludes our question-and-answer session. I would like to turn the conference back over to Wendy Simpson for any closing remarks.

Thank you very much for joining us. And I’m sorry that we were so late in the season, but as I said, we want to give you as much current information as possible on two significant operators. And we look forward to talking to you in just a couple of months. Have a great day. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.