LTC Moves Closer to $59M Preferred Care Sale, Remains Cautious on Senior Care Centers

After dealing with the fallout of skilled nursing bankruptcies throughout 2019, LTC Properties, Inc. (NYSE: LTC) is looking ahead to a new year and new investments.

But the Westlake Village, Calif.-based real estate investment trust (REIT) is keeping an eye out for any signs of trouble, especially in the case of Senior Care Centers, which entered bankruptcy in December 2018 and remained a thorn in the side of LTC throughout the rest of 2019.

The operator — which had a judge confirm its post-bankruptcy reorganization plan in December — is expected to emerge from bankruptcy officially in March of this year, LTC president and CEO Wendy Simpson said in prepared remarks on the company’s fourth-quarter and 2019 year-end eearnings call.


“We continue to have a plan to transition the portfolio should the need arise, and we are ready to implement that plan, should they not emerge from bankruptcy or fail to comply with terms of the master lease post-emergence,” she said on the call. “We are carefully monitoring Senior Care’s progress and are confident that LTC is prepared for likely contingencies.”

The REIT is also moving closer to a resolution to its pending sale of a portfolio of SNFs operated by Preferred Care, which had 33 facilities enter bankruptcy in 2017.

Of 23 LTC-owned Preferred Care properties, one was sold in 2019, according to executive vice president and chief investment officer Clint Malin. Twenty are under contract for a sale expected to close by the end of the first quarter of 2020; the last two buildings are expected to be be sold in the second quarter, Malin said.


The net proceeds for the properties currently under contract is expected to be $59 million.

LTC reported net income available to common stockholders of $12.45 million in the fourth quarter, compared with $30.65 million in the quarter ending December 2018. For the 12 months ending December 2019, the REIT reported net income of $80.13 million, compared with net income of $154.36 million in December 2018.(

Senior Care Centers did pay all its past-due rent in December 2019, to the tune of $2.5 million more than it did December 2018. But because of a shortfall of $2.5 million in rent from Preferred Care in the fourth quarter of 2019, compared with the fourth quarter of 2018, the increase was canceled out, executive vice president and chief financial officer Pam Kessler said.

The guidance LTC issued for 2020 assumes no additional investment activity, financing, or equity issuances and assumes the sale of the Preferred Care portfolio, Simpson noted. Under that guidance, funds from operations is expected to be between $3.01 per share and $3.03 per share for the year.

LTC also highlighted its new relationships with operators in 2019, with optimism for what the new skilled partnerships can bring to the table.

Ignite [Medical Resorts] and HMG [Healthcare] are progressive and innovative regional operators whose care models and depth of talent should allow them to successfully manage through evolving reimbursement models like PDPM,” Simpson said on the call.

HMG Healthcare actually took over one of LTC’s Preferred Care properties in Nacogdoches, Texas, at the same time as it assumed operations of a different LTC SNF in the same city, Malin noted. HMG closed the Preferred Care facility, which is now being marketed for sale.

In terms of new acquisitions and growth for 2020, pricing is still a challenge, though the the REIT is still committed to “traditional triple net leases and new opportunities requiring creative financial solutions,” Simpson said.

“Older properties have unattractive cap rates and newer properties are priced well above replacement costs,” she said. “We have never been a fan of growing for growth’s sake and have no plans to abandon our stringent underwriting criteria. We will, however, continue to build relationships with regional operators who are interested in growing their businesses and have the resources to do so.”

That said, executives were more cautious in discussing how LTC is handling underwriting in Texas, where a key source of revenue for SNFs could be in peril under the proposed Medicaid Fiscal Accountability Regulation (MFAR).

“We’ve been selective in Texas,” Malin said when asked about the HMG acquisition in Texas in light of MFAR, and whether anything has changed in LTC’s underwriting standards. “We’ve had a long-standing relationship with the principles of HMG … and we’ve been working on finding transactions with HMG over a number of years, and we found the right opportunity.”

LTC’s stock closed Friday at $49.67, up 1.68%.

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