That outsized exposure to a small group of tenants puts the REIT at greater risk should market conditions deteriorate.
LTC Properties news
The COVID-19 outbreak had a noticeable impact on LTC Properties because the virus had a significant effect on older populations, especially those in long-term care facilities. Because of that, some of its tenants struggled to pay their rent. Overall, it collected 98% of the rent it billed last year, with some of that due to letters of credit and security deposits.
While LTC Properties collected or deferred most of the rent it billed last year, it had to write off a significant amount of rental income due to the impact the pandemic had on its tenants' financial flexibility. During the second quarter, LTC Properties wrote off $17.7 million of rent- and lease- incentive balances related to Senior Lifestyle Corporation and recorded a $0.6 million loss on the liquidation of an unconsolidated joint venture associated with that company.
Meanwhile, during the third quarter, the company wrote off $5.5 million of rent related to Genesis Healthcare and another operator. While Genesis continued to pay its rent, the company is facing financial hardship and might not meet its lease obligations. On a more positive note, Senior Lifestyle did pay some of the rent owed in cash while applying letters of credit and deposits to cover some of its remaining balance during the fourth quarter. As a result of these issues and the impact of asset sales, LTC Properties' FFO declined from $3.08 per share in 2019 to $2.14 per share in 2020.
Due to the pandemic, 2020 was a quiet investment year for LTC Properties. The REIT made one acquisition, purchasing a skilled nursing facility in January for $13.5 million. Meanwhile, it made one new loan origination. It also financed a couple of preferred equity investments in some joint ventures to develop independent and assisted living communities. Finally, it delivered on its financing commitments for some development, expansion, and renovation projects. Overall, it made $35 million of growth-related investments in 2020.
Meanwhile, it sold its Preferred Care portfolio in 2020, closing the remaining 21 properties during the first quarter. Overall, it received $71.9 million in net proceeds from these transactions, resulting in a $43.9 million gain. The company unloaded the portfolio following the provider's desire to reduce its relationship with the REIT because of its bankruptcy.
LTC Properties announced in late 2020 that it would be providing additional support to its tenants for 2021 by reducing its rent escalations by 50% in the form of a rent credit. This move will provide its operating partners with additional funds during the current crisis. The one-time rent-escalation reduction will reduce the company's first-quarter revenue by about $560,000 and have a $1.4 million, or $0.03 per share, impact on its funds available for distribution during the first quarter. However, it's striving to replace that lost revenue with accretive transactions in 2021.
LTC Properties stock price
Despite LTC Properties' lower-risk business model, the REIT's strategy hasn't created value for shareholders in recent years: