LTC Looks to Offload Preferred Care Assets, Senior Care Centers Prevails in Long Lease Fight

LTC Properties, Inc. (NYSE: LTC) is still navigating the aftermath of bankruptcies with two of its skilled nursing operators — with plans to offload the assets operated by Preferred Care, and a potential end to the protracted Senior Care Centers fight on the horizon.

The latter company, which declared bankruptcy in December of last year, remained a challenge for the Westlake Village, Calif.-based real estate investment trust (REIT).

“Senior Care Centers remains the one issue over which we have the most limited control, as they continue to work through the bankruptcy process,” LTC president and CEO Wendy Simpson said Friday in prepared remarks on the company’s third-quarter earnings call. “The judge in the proceedings entered an order allowing Senior Care to assume their LTC lease.”


That order requires payment of LTC’s secured claim of of $1.6 million, which consists of unpaid December 2018 rent, late fees, and legal fees as of the date of the order, Simpson said. This amount has to be paid on the earlier of either the effective date of Senior Care’s plan of reorganization or December 16.

*A confirmation hearing to approve Senior Care’s plan of reorganization is scheduled for December 4.

“According to the disclosure statement that was approved by the courts, the entity that’s proposed to emerge will have 22 properties under their operation, which will all be leased,” executive vice president and chief investment officer Clint Malin said on the call. “LTC’s portfolio would comprise half of that 22-building portfolio. So we would make up a material part of the emerged organization.”


This is not something LTC is particularly happy about; the REIT tried to transfer the properties to another operator and filed an objection to Senior Care Centers’ move to assume the lease, but “we did not prevail on that,” Malin said.

Still, the assets themselves are doing well, and even though there is ongoing concern, Senior Care Centers does have a new lender — which is doing “deep due diligence,” and will not provide a line of credit on the receivables without confidence of some sort that the new entity will be profitable, Simpson noted.

“At this point, we wish them well and profitability in the future,” she said. “They have asked us to approve the movement of a few beds to another of our facilities to maximize revenue for them, and so we have evidence that they are looking to the future and doing some strategic business planning.”

LTC reported net income available to common stockholders of $27.1 million, or 68 cents per share, for the third-quarter, compared with $34.8 million, or 88 cents per share, in the year-ago period.

The REIT’s third-quarter results largely met expectations, according to an analyst note from KeyBanc Capital Markets, though the firm noted that company is still dealing with tenant issues.

Stifel had a similar take, concluding that while the results were fairly close to expectations, “transitional assets remain the biggest question mark.”

“We see management making progress restructuring to reduce risks to its rent streams, but we remain cautious, as we continue to see plenty of risks in the portfolio,” the investment firm said in a note.

Preferred Care’s bankruptcy journey

Preferred Care was the other bankrupt tenant that has caused problems for LTC. The operator is currently paying monthly rent of $55,000, compared with contractual obligations of $1 million.

Preferred Care declared Chapter 11 bankruptcy for 33 of its facilities in November 2017, citing a rash of lawsuits.

The LTC master lessee did file for bankruptcy, but none of the sub-lessee entities holding the licenses and operating the properties were among those in the bankruptcy proceeding. At the time, LTC did not expect its financial performance to be affected; Preferred Care had intentionally adopted a decentralized organizational structure in which it subleased individual buildings to separate entities, Simpson told SNN at that time.

Back then, Preferred Care intended to operate the facilities and affirmed the lease; the plan was for those properties to be part of the emergence from bankruptcy, Simpson said.

But the lease was not affirmed by the deadline — which was not what the operating entities had told LTC they would do, Simpson said.

“When that changed, we were very transparent and said: ‘Preferred Care has decided they’re going to be a much smaller company, and that smaller company will not include our assets.’ And that was earlier this year,” she said.

In June of this year, the proceedings were changed to a Chapter 7 action for some specific Preferred Care entities — rather than the entire organization — due to a lawsuit filed in Kentucky against Preferred Care and another health care entity that alleged a post-petition tort claim, meaning it did not fall under the automatic stay of litigation against bankrupt entities.

The case is expected to be closed shortly, Malin said on LTC’s call.

A representative for Preferred Care did not respond to a request for comment as of press time.

Expense control has also been an issue with the Preferred Care properties, though revenue and occupancy have been fairly consistent, he noted.

LTC has 24 properties with Preferred Care, 22 of which are under contract with due diligence in process; the REIT is also negotiating a purchase-and-sale agreement on one of the two remaining properties, Malin said.

As to why the REIT had not replaced the operator, LTC ran into a similar problem as it did with Senior Care Centers — namely the process of bankruptcy.

“We approached Preferred Care to try to sell these assets back even before they filed bankruptcy,” Malin said on the call. “We were looking at actually working with Preferred Care to strategically sell these over a period of time through them. Then they filed bankruptcy … and as we’ve seen through the Senior Care process, the ability to change an operator in the course of a bankruptcy case is not easy.”

*This story originally misstated the hearing date as November 4. SNN regrets the error.

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