LTC Properties: Senior Care Centers Won’t Survive Bankruptcy, Transfer Ongoing

Executives at LTC Properties, Inc. (NYSE: LTC) don’t have high hopes that troubled tenant Senior Care Centers will survive its current bankruptcy proceedings, and the real estate investment trust (REIT) is actively negotiating its exit from the facilities.

“As you know, Senior Care declared bankruptcy in December, and we don’t believe they have the ability to emerge from the process as a viable, ongoing concern,” CEO Wendy Simpson said Friday during the company’s fourth quarter 2018 earnings call.

The Dallas-based Senior Care Centers left landlord LTC without $1.8 million in rent for the month of December in the wake of its filing, which the provider blamed on prohibitively expensive lease payments. At the time, Simpson announced plans to re-tenant the 11 properties in its portfolio with an operator that had overseen the facilities prior to Senior Care Centers — a process that remained ongoing as of Friday.

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“It is still very early in the process, and any lease transaction with a new operator is subject to bankruptcy court approval,” Simpson said Friday.

About $1 million of Senior Care Centers’ shortfall is associated with post-petition claims that would take priority over other outstanding payments during the provider’s ongoing bankruptcy proceedings, CFO Pamela Kessler noted, and chief investment officer Clint Malin emphasized the potential for a quick transfer given Texas’s more “landlord-advantageous” licensing laws.

“There’s always risk of downtime, but the good thing about investing in the state of Texas is the licensure process in the state is a very short timeframe,” Malin said.

Senior Care Centers isn’t the only bankrupt tenant in LTC’s portfolio: The company also provided an update on its 24 properties leased to Preferred Care, Inc., which filed for Chapter 11 protection in 2017 after suffering a series of expensive lawsuit judgments.

That bankruptcy process remains ongoing, with LTC reporting in its 10-K that Preferred Care did not respond to a court-mandated deadline to either affirm or reject its leases with the REIT — though it continues to pay the rent. But unlike Senior Care Centers, LTC sees less of a bleak future for Preferred Care, its sixth-largest tenant, as management continues to decide which buildings to exit and which to continue operating after the restructuring process wraps.

“Right now, we’re working with them to see if we can accommodate possibly removing some of the buildings from that master lease,” Malin said. “They do want to stay in, and have a viable entity coming out of bankruptcy.”

Simpson expressed cautious optimism about the skilled nursing space in general moving forward, pointing to the potential benefits of the Patient-Driven Payment Model (PDPM) and a proposed Texas tax law that would bring in additional revenue to the state’s operators.

“The two reimbursement changes … might significantly benefit our SNF portfolio at the end of 2019 and into future years,” Simpson said.

That said, the CEO predicted more movement in senior housing than skilled nursing in 2019 and beyond.

“On the skilled side, there is still a lot of capital moving around, and while we remain interested in investing in SNFs, we are seeing more opportunities in private pay,” Simpson said.

LTC reported net income of $30.6 million in the fourth quarter, up from $19.8 million in the last three months of 2017. For the year, LTC’s income clocked in at $154.4 million, a gain from 2017’s haul of about $87 million.

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