LTC Properties Inc (LTC) 2017 Q4 法說會逐字稿

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 me today are Pam Kessler, our CFO; and Clint Malin, our Chief Investment Officer. I'll begin with a few thoughts including an update on Anthem and our 2018 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'll 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 2 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 3 new operators to our portfolio during 2017 adding greater diversification. During and subsequent to the end of the quarter, we sold 1 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, 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 31, Tinley Park occupancy was 47%, up from 42% at October 31. And Burr Ridge was 67%, up from 64%. Last quarter, we discussed transitioning the 2 Kansas communities operated by Anthem to another existing partner. While we had 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 31. 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'll 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'll 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 a $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 3 properties under development and 2 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 7 properties in Michigan.

During the quarter, we borrowed $41.5 million under our line of credit, repaid $12 million of senior unsecured notes, and continued to fund our $0.19 per share monthly common dividend. Subsequent to December 31, 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 5 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 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 health care REIT industry average, with debt-to-annualized normalized EBIDTA of 4.3x, a normalized annualized fixed charge coverage ratio of 4.8x, and debt-to-enterprise value of 28%.

I'll 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 3 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'll just remind you that the deal was with an existing partner, Oxford Senior Living, which now operates 3 private pay communities owned by us. The other 2 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 a 110-unit assisted living memory care and independent living community in Wisconsin with Tealwood Senior Living and developer Tukka Properties. The total estimated 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% with Tealwood, a new operating partner for LTC. Tealwood was founded almost 30 years ago and currently has management and operational responsibilities in over 50 independent living, assisted living and memory care communities, as well as skilled nursing centers over 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 $103 million of underwritten transactions shown in our supplemental.

Our 2017 investments continue our strategy of adding newer, modernized properties to our portfolio while 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 recorded a net loss on sale of approximately $70,000. And donated a small skilled nursing center in Texas to a nonprofit health care provider. 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 6 senior living communities in Ohio and Pennsylvania. The master lease related to this portfolio expires on April 30. The anticipated closing date of the sale, subject to conditions precedent to closing, is May 1. The agreement is subject to various confidentiality restrictions. So while we're not able to provide specific details at this time, we do expect to record a sizable 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 5 years, we've recycled $80 million of capital, 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 will be of single buildings rather than large portfolios. Our active pipeline is valued at approximately $50 million. The pipeline size is fairly typical for us this time of year and will likely grow throughout 2018.

Currently, we are actively engaged with 3 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 in a suburb of Detroit. The other 2 are an 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're 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're 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'll finish with a few comments on our portfolio. Of the 2 Thrive Memory Care communities added to their master lease in September, the Louisville community saw a dip in occupancy at December 31, as reported in our supplemental since its return to 73% at January 31.

Unfortunately, Thrive's Corpus Christi community in Texas saw a setback in occupancy from 65% at September 30 to 57% on January 31. We are actively monitoring our portfolio with Thrive and engage with them as they progress through a lease up of the 6 communities, which have opened at various times during the past 20 months. For our portfolio statistics, which as a reminder, are reported 1 quarter in arrears, Q3 trailing 12-month EBITDARM and EBITDAR coverage using a 5% management fee on a same-store basis was 1.89x and 1.38x, respectively for our skilled nursing portfolio; and 1.43x and 1.21x, 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 3 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'll 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 am 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've 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'd now be happy to take your questions.

(Operator Instructions) The first question today will come from Jordan Sadler with KeyBanc Capital Markets.

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've included in guidance, Jordan, is a reduction in the Sunrise rent -- Pam's 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. So we're -- we have Sunrise in for rent through May -- April, through April.

Got it. Through April. $3 million decrease. 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're assuming you pay down the line?

Yes, that is correct. Some interest savings. But we've also adjusted for the increase in LIBOR. So interest expense on the line we're pegging at about 3.5% right now.

Okay. 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?

Sure. The Preferred Care is progressing through the bankruptcy case right now. They have received an extension for a date to assume or reject leases until June 11. 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're 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.

So you would expect your leases to be affirmed?

That is our view. Yes, we've -- that's what the company has told us and I mean they're 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're 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 bankruptcy. So usually borne out of strategic filing 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've seen it in certain operators has been, some operators moved up, some operators moved down a little bit. But 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've seen upticks as well.

Okay. Last one for me is 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're 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 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. So it probably for us would be a minor amount because that would be a paydown, I think, through all of the debt structure. So it wouldn't be significant, but there couldn't be some potential paydown on principal on that loan.

The next question will come from Seth Canetto with Stifel.

First question just on the Anthem rent and the ramp up for the year. The $1.1 million seems 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 in 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 open strong and we're hoping that it continues to be strong. Westminster and -- what's 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 we got in cash last quarter, we allocated $40,000 a month to real estate taxes. So now we're hoping -- we're 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.

And then is there any impact from just new supply in 2018 or the flu in 1Q that might trek on the Q2 that could swell those lease-ups?

Not that we're aware of right now. Yes, it's always possible. But right now they've made a lot of progress on their lease-up and we're not seeing that currently on these properties.

And they've also seen -- they've also achieved overhead reductions, which we had asked for. And they'll achieve a little bit more this year as they stop construction once the Glenview -- Oaklawn property opens up, I think, in 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 delusion versus the opportunity to lease that portfolio? I know you guys had mentioned last quarter that there seems to be significant NOI improvement just given the -- how the portfolio was run on the expense side.

Sure. I mean, we had -- that's the hard part for us is going through and mulling the option to see what was the best logical outcome for us. Part of that analysis is looking if we could sell the assets, how would we redeploy that capital? And could we redeploy the capital into newer assets? And at -- but at the prices that were tendered on bids and what we ended to in a contract, we think that it's a likely outcome for us to be able to redeploy that capital into new assets. We did have some viable lease options. I think, that would have been good options for us to build relationships with regionally based operating companies. But the counter party, the execution risk associated with sale and the price point made sense for us.

All right. And then did 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're looking at a lot of different opportunities. Some construction, 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 sale leaseback financing to partner with them on a creative financing structure 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 raise from the Sunrise sale, how quickly -- can you give us any idea in terms of timing when all that capital will be redeployed?

We're working as fast as we can.

All right. And then just lastly, on the Thrive Memory Care in Corpus Christi, was the occupancy impacted by the hurricane? Is that really what's driving that decrease?

I mean they did have some impact from the hurricane on that building. So that is definitely a compelling event. But they've had -- there's just ebbs and flows in that market. It is a little bit outside of their geographical core. So it's a building, they've seen a little bit of slippage on that. But they've definitely refocused their operations and focused on performance of that building. So although we've seen a little bit of dip, I mean, they're aware of it and they are focused on the lease-up of that property.

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

Can you hear me?

Yes, we can.

Okay. So just a couple more questions. Clint, you kind of said you're kind of keeping an eye on your portfolio and seeing how operators are 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, watchlist, 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 percentage basis. But when you see in our supplemental, we a lease-up page, which we've highlighted for you, properties that are in the lease-up phase. So that definitely is a focus in of our attention. On the skilled side, it's not significant. We have a number of operators we are following, but nothing more than normal course and engaging with our operating partners and monitoring what they are doing. And talking with them, there's capital deployment 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 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 an association issue, I suppose. And Genesis and Senior Care, and Brookdale, and Senior Lifestyle all varying different degrees of REIT problems in the market right now. How -- I mean, do you have any anxiety there? When you consider that group of 5 in terms of maybe dodge the bullets? Or are they sort of on your watchlist in a way only because they have given some problems to some of your REIT peers?

Well, I would say that on a couple of fronts, we think from a Preferred Care standpoint, I mean, we think they're 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 Preferred Care. But I know there's been some discussions on various earnings calls regarding senior care centers. We've -- doing our deals with senior care centers, we've 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. But 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 center. So our Brookdale properties have strong coverage. So although they have -- 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 here?

Yes, there were basically 2 things. We wanted to give you as current information on Anthem as we possibly could. And so through February, they're doing well. They're doing -- tracking to their projections. And also the Sunrise sale or ...

Okay. All right, I guess -- from that standpoint, I guess, we appreciate it.

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

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?

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.

And then earlier I think Wendy mentioned it's a time of price discovery. Are you seeing portfolios or individual assets start to retrade? 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've 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've 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're in lease-up, we are already recording all the revenue that we would get from them.

Okay. Are there...

We provide various mechanisms to facilitate the lease-up, whether it's lease inducement or deferred rent. We've 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.

Okay.

(inaudible) lease-up assets.

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

Our next question will be from Michael Carroll with RBC Capital Markets.

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 from 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 I'd say average 18 months.

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 2 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're currently at 58%, which we think is a tremendous lease-up volume on that community. They've also got tremendous lease-up volume on the Athens, Georgia, property which in January is sitting almost at 90%. So they've had some very positive lease-ups in those. Early lease-ups obviously help provide cash flow to their organization.

Okay. And then what -- can you provide an update on the Clarity Pointe assets. It looks like the occupancy is kind of stay flatter or even declined since they took over. Are they trying to implement new processes which is taking their eye off the ball a little bit, or is making that a little bit more complicated? I guess, why aren't we seeing more improvement there?

It's -- I talked about that in my 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%, which is where it was at 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. And I think for those 2 buildings that they've come in to, it takes a little bit of time for them to get in and integrate their policies, procedures, staffing to be able 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 for them. So they are making the right decisions.

Okay. I know historically LTC and, I mean, still do, had very strong triple net lease coverage ratios. And then obviously there's 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 can they get back to the levels that you guys had just a few years ago?

We're hopeful that we'll see an uptick on that, Mike. I talked last time about 2 operators in our portfolio on last quarter's call. One had seen some challenges on length of stay and they're implementing programs to focus on different patient populations. And also there was some cost spend towards improvement of Medicaid rates going forward. So through that we hope there's some upside that can be realized in coverage. And on the other 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 lost sight of that a little bit. So as that organization focuses on cost containment and trying to improve that, I think we'll, hopefully, see some improvement in those 2 portfolios which, hopefully, will help translate into some movement -- some upward movement on our coverage.

And then is that weakness fully reflected in the coverage ratios today? Or should we expect another tick down next quarter as the fourth quarter rolls online?

I mean, I would say there maybe -- I wouldn't -- there's not going to be a lot of large variability going forward. But there could be basis -- a couple basis point tick down possibly. But I don't see at this point any large swings in coverage.

(Operator Instructions) The next question comes from John Kim with BMO Capital Markets.

Just a follow-up on the coverage. So I think, Pam you said it's about 90% of your total portfolio is in these coverage statistics today?

Yes.

Okay. What would be the coverage if you included your entire portfolio?

Well, they are in lease-up. So it's not ...

Not relevant.

Yes.

Okay. But you don't take out assets that are, I don't know, being re-leased or?

We only have -- it's only assets that are in the lease-up. We haven't -- we have not taken out buildings that aren't performing out of our coverage.

And assets we've 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 own them for more than a year.

But what's excluded primarily is acquisition haven't met that criteria or facilities in lease-up. 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 as a policy, do you update your same-property portfolio once a year or every quarter?

Every quarter.

Wendy you mentioned in your prepared remarks opportunities for well-capitalized owners to be creative. I'm just wondering what you meant about being creative? Is it something in the lease structure that maybe look atypical or just doing more kind of mezz investments or different kind of investments?

Yes. In the lease structure definitely we've talked about going from a stated 2.5% increase to a CPI increase in new leases if that would be beneficial to the operator. We've done some successful joint ventures recently where the operator has some equity interest in the buildings and that is attractive to some operators. We've 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 that operator in a total campus type situation. So we want to be open to many different opportunities.

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

But right, again, we're not looking at any RIDEA structures. So that's not anything that we would be adding on to our portfolio during the year, though we've had opportunities to look at things if it's got significant RIDEA structures component we're 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 last year, so yes. I mean, it depends on circumstances, situations. I mean, if it's a fully valued stabilized asset and you're coming in with no coverage, no. That's where I think a lot of operators have concern with signing triple net leases in that situation. But we've evidence, we've been able to execute last year triple net leases. So there are opportunities. But again, those were off-market as well. So it's building relationships, getting in to know these companies, and being able to provide the capital at the right time when the opportunity presents itself.

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 would 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 with lease maturity which, I think, there's one later this year.

The lease maturity is 2020. There are 2 assets in the lease that are in a separate lease. The 2020 is a master lease. There are 2 assets that came 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.

Ladies and gentleman, 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 2 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.