LTC Properties, Inc. (LTC) CEO Wendy Simpson on Q2 2019 Results - Earnings Call Transcript

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About: LTC Properties, Inc. (LTC)
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Earning Call Audio

LTC Properties, Inc. (NYSE:LTC) Q2 2019 Earnings Conference Call August 9, 2019 11:00 AM ET

Company Participants

Wendy Simpson - CEO

Pam Kessler - CFO

Clint Malin - Chief Investment Officer

Conference Call Participants

Kate Lyons - Keybanc Capital Markets

Chad Vanacore - Stifel

Rich Anderson - SMBC

Daniel Bernstein - Capital One

Todd Stender - Wells Fargo

Michael Carroll - RBC Capital Markets

Operator

Good morning, and welcome to the LTC Properties Second Quarter 2019 Analyst and Investor Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask your questions. [Operator Instructions]

Before management begins its presentation, please note 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, 2016. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note this event is being recorded.

I would now like to turn the conference over to Wendy Simpson, Chief Executive Officer. Please go ahead.

Wendy Simpson

Thank you, operator, and welcome everyone to LTC's 2019 second quarter conference call. Joining me today are Pam Kessler, our CFO; and Clint Malin, our Chief Investment Officer. After a few introductory remarks, I will turn the call over to Pam, who will discuss our financial results. Then to Clint, who will discuss our portfolio, operator performance, and the pipeline. I'll come back to conclude our prepared remarks before the question-and-answer session.

LTC has made significant progress in resolving the challenges we've discussed. We are confident that at the end of the year, the challenges under our control will be behind us, putting LTC in a great position to devote more focus on future growth from a base of a strengthened portfolio. I'll provide brief updates on Senior Care Centers, Thrive, Anthem and Preferred Care. I'll end my comments with guidance.

I'll start with Senior Care Centers, which is the one issue over which we have the most limited control as they continue to work through the bankruptcy process. Senior Care Centers recently filed a motion to assume the LTC lease, and we filed an objection shortly thereafter. In the interim, Senior Care Centers remains current on their 2019 rent and escrow amount. Coverage in the senior care portfolio was essentially flat on a quarter-over-quarter trailing 12-months basis.

Moving to Thrive. The entire portfolio has been successfully transitioned. As previously disclosed, we transition three of the six properties on June 1st, and completed the transition of two additional properties on July 1st. The final property has been transferred August 1st and Clint will talk more about this transition later.

Now as to Anthem. Their operations continue to improve and they are meeting our increased rent expectations as reflected in our 2019 guidance. As we have said before, we cannot appropriately establish formalized contractual rent levels associated with the Anthem portfolio going forward until we can realistically calculate rent, once all of the properties have been stabilized for a period of time. As a result, it will likely be late next year before we have greater visibility on future stabilized rents.

I'll finish my portfolio discussion with Preferred Care here, which operates 23 properties for us. As discuss last quarter, we have been working to reduce the number of LTC-owned properties under their operations. We are in active negotiations for all of these properties. These negotiations continue to include both possible sales and leases.

Before I turn the call over to Pam, I'll discuss guidance for 2019, which we are maintaining at $3.02 to $3.04 for the year. Although, we are receiving higher rent from the transition Thrive properties, sooner than originally anticipated as well as income from new investments, we are lowering our projections for income from unconsolidated joint ventures due to the non-accrual status of our preferred equity investments, that Pam and Clint will discuss in their comments.

Additionally, the timing relative to transitions around preferred curiosity is not yet certain while we have not included any sales assumptions in our portfolio guidance, it is possible that we will sell some or all of the Preferred Care portfolio prior to your end. As we will have more visibility into the timing of net sales proceeds and/or future growth from this process next quarter, we are postponing an updated guidance until that time.

Now, I'll turn the call over to Pam.

Pam Kessler

Thank you, Wendy. Since our last earnings call, FASB has allowed two approaches for recognizing recoveries as previously written-off straight-line rents under the new lease accounting guidance. Accordingly, we no longer show a contract expense for recoveries of previously written-off straight-line rents. All such recoveries are in rental income, which increases the comparability and transparency of our results.

Revenues increased 4.8 million for the 2019 second quarter compared with a year ago. 3.9 million of the increase is due to property tax revenue recorded in accordance with the new lease accounting guidance that requires us to record the property tax escrows we collect from our tenants as revenue, with a corresponding expense.

Accordingly 2019 revenue includes property tax income while 2018 does not. The remaining $900,000 increase is due to revenues from acquisitions, mortgage origination, completed development projects, and capital improvements, increased rent from Anthem and a decrease in lease incentive amortization, partly offset by decreased rent from Thrive in 2019 and property sold in 2018.

NAREIT FFO was $0.75 per diluted share for both the 2019 and 2018 second quarters. Net income available to common shareholders decrease $48.3 million from the prior year quarter to due to a higher gain on sale of $47.8 million in last year's second quarter, a decrease in income from unconsolidated joint ventures of $598,000, $592,000 higher depreciation expense, and 194,000 higher transaction costs, partially offset of the 900,000 increase in revenue previously detailed.

Income from unconsolidated joint ventures decreased 598,000, 77,000 of this decrease was due to a mezzanine loan that paid off last quarter, and 529,000 of the decrease was due to a preferred equity investment converting to non-accrual status. In the second quarter, an affiliate of Senior Lifestyle did not make the full contractual preferred return payments to us and became 60 days past due.

During the third quarter, we received most of the remaining preferred return we had accrued, but as yet we have not received second quarter amounts due so they remain on a non-accrual basis. Clint will provide more detail on this investment. In the second quarter, we recognized a $500,000 gain on the receipt of escrow deposits related to the 2018 sale of 16 senior housing communities previously operated by Sunrise. Both interest expense and G&A were comparable between the two periods.

We currently estimate that G&A will be in the $4.6 to $4.7 million range per quarter through the remainder of this year. During the second quarter of 2019, we funded $7.5 million of additional proceeds under an existing mortgage loan with an affiliate of Prestige Healthcare, secured by two skilled nursing centers totaling 205 beds in East Lansing, Michigan.

The additional proceeds bear interest at 9.41% for two years, increasing 2.25% thereafter. We also funded 6.99 in development and capital improvement projects on properties we owned, 781,000, under mortgage loans and continue to fund LTC's $0.19 per share a monthly dividend for a total of 22.6 million in dividend payments.

At June 30th, we owned one property under development with remaining commitments totaling 10.2 million and two properties under renovation with remaining commitments of 4.6 million. We also have remaining commitments under mortgage loans at 14.9 million related to expansions and renovations on seven properties in Michigan, and 1.7 million remaining under a preferred equity commitment.

Subsequently to June 30th, we borrowed 12 million under our line of credit and repaid 8.5 million in scheduled principal pay downs on our senior and secured notes. In keeping with our philosophy, we are maintaining a strong balance sheet to provide us with ample flexibility and capacity to fund current and long-term growth initiative.

We currently have 441.1 million available under our line of credit, 105.5 million under our shop agreement with Prudential, and 200 million under our ATM program, providing LTC with total liquidity of approximately 746.6 million. Our long term debt maturity profile remains well matched to our projected free cash flow, helping moderate future refinancing risk, and we have no significant long-term debt maturities over the next five years.

At the end of the second quarter, our credit metrics remained well matched to the healthcare REIT industry average with debt to analyzed adjusted EBITDA for real estate of 4.5 times and annualized adjusted fixed charge coverage ratio of 4.8 times and against the enterprise value of 27.1%.

Now I'll turn the call over to Clint.

Clint Malin

Thank you, Pam. I'll begin my discussion with the Thrive portfolio. As Wendy mentioned, the entire portfolio has been successfully transition with the final community in Jacksonville transferring operations to Affinity Living Group on August 1st. Affinity now operates two properties owned by LTC.

The Jacksonville property, a 60 unit memory care community, was leased to an affiliate of Affinity under a new 10-year lease. The news lease provides LTC with 12 months free rent increasing to 460,000 in your two and $600,000 in year three and thereafter. In year two, LTC have the option to defer rents and not to exceed a $150,000. Rent may increase subject to a contingent escalation formula commencing in the year three and annually thereafter.

Next, I'd like to update you on the progress of our newly developed and still to be completed communities. Boonespring of Boone County of 143 bed transitional care center in Kentucky is now up to 67% occupancy as of July 31st, which is ahead of projection and is up from 45% as of our last quarterly call. Boonespring opened in February of this year.

Hamilton House a 110-unit independent living, assisted living and memory care community in Wisconsin is now at 16% occupancy as of July 31st, up from 10% as of our last call. Hamilton House opened in May of this year. Weatherly Court a 78-unit assisted living and memory care community in Oregon is still under construction and remains on track to open later this year.

The preferred equity investment on non-accrual status Pam mentioned includes two locations in Arizona. The first location is a 28-acre campus in the Phoenix Metro area is 432 units, offering independent living, assisted living and memory care services spanning three buildings. The second location is an assisted living and memory care community in Yuma with a 148 units. LTC entered into this investment with an affiliate of Senior Lifestyle in 2015 and LTC's investment balance as of June 30th is $24.3 million.

The two locations are under a letter of intent with a likely closing expected to occur sometime towards the end of the year or in Q1 of 2020. From the net sales proceeds, LTC expect repayment in full of the $24.3 million investment. Based on forecast of net operating income for the remainder of 2019, provided by senior lifestyle, we anticipate additional income to be paid to us in 2019 of approximately $600,000. But given the non-accrual status, our guidance does not assume any such additional income.

Moving on to the portfolio numbers, our coverage remains stable. Q1 trailing 12 month EBITDARM and EBITDA coverage moving at 5% management fee, was 1.43 times and 1.21 times respectively for our assisted living portfolio, and 1.77 times and 1.28 times respectively for our skilled nursing portfolio.

Now, I'd like to briefly comment on our pipeline. We have identified a few interesting opportunities primarily where we can strategically add quality, growth oriented operators and improved average age of our portfolio. We currently have two signed purchase payments totaling approximately $38 million. Owners for the purchase of a newly constructed 90-bed skilled nursing center in the Kansas City market that is 90% occupied and is operated by Night Medical Resorts, the new operator for LTC. This transaction is expected to close in the current quarter.

The other is for the acquisition of a land parcel and development of a new 90-bed skilled nursing center also to be operated Night in the same market. For land parcel acquisitions expected to close this quarter with groundbreaking shortly thereafter. Completion of the project is slated for the fall of 2020. Both of these transactions will off market deals sourced through a longstanding relationship we've built with Avenue development. We will be handling the development and construction of the new property.

Avenue is well respected, full-service development company that focuses on healthcare and senior living. We are reviewing other opportunities this fall, spending acquisitions in real estate joint ventures, primarily in the assisted living and memory care space where operators new to LTC. We will update you as our activities progress.

Now, I'll turn things back to Wendy.

Wendy Simpson

Thank you, Pan and Clint. Coming back to my opening comments, we have made significant progress in resolving the portfolio issues we have faced. I'm very proud of our team who has helped bring these issues to resolution while also remaining focused on continually positioning LTC for future value creation.

We are continuing to successfully execute our plan and are confident that the current portfolio challenges under our control will be fully resolved by the end of this year or early next year. At the same time, we have been working towards building a more diversified asset and operator base, and positioning LTC to deliver long-term and sustained growth.

Thank you for joining us today. Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator instructions] And our first question comes from Jordan Sadler of Keybanc Capital Markets. Please go ahead.

Kate Lyons

This is Kate Lyons for Jordan. I appreciate all the color you guys gave us on your portfolio, but I wanted to touch on. I think you guys have some Brookdale renewals coming up next year, if you guys could offer any additional color on that? Thank you.

Clint Malin

This is Clint. We do have the current term for the Brookdale leases, expires at the end of 2020, and Brookdale is not getting renewal window that would open up the first part of 2020. And given the performance and coverage, our expectation is that they would extend the lease to the renewal term.

Operator

Our next question comes from Chad Vanacore of Stifel. Please go ahead..

Chad Vanacore

So now that you've transitioned all your Thrive, they had owed you some past due rent. Were you able to collect any that? Or do you expect to collect any of that in the future?

Clint Malin

Chad, this is Clint. We had -- they owed us rent from 2018, which we did collect in 2019. They did not pay rents in 2019. To facilitate the transition of the property to new operators, we provided a note them to assistance, some of those transition costs. We have guarantee and security interest to full payments of those funds, which we've made the line of credit available. So, that's why we feel confident that we'll be able to collect those amounts that are due to us, I mean, they are not ready to transition.

Chad Vanacore

And then, at a property that you've transitioned in the past six months, how are they faring so far under their new operators? There was Frontier. There's a few with Thrive. There's some here there's. But in general, what's the direction should we expect the NOI to really be a slog for the next 12 months or have some shown some kind of improvement really on a short basis?

Clint Malin

Some of them are stable and improving. There's been some decline in others. It's been a little bit of disruption when you have the transition, but the operators we've brought in to these communities are excited about the opportunities. I think that it takes awhile to change culture and build a presence under that brand in the marketplace. So, I mean, we feel confident that the operators that we're working with that are now taking over those communities will be able to make progress. How much time it will take? It has been seen that everybody has been -- we've been encouraged by people's interest in these communities and we think overtime that will grow.

Wendy Simpson

I think basically, the operators that are now in the transition properties are better capitalized than Thrive. And so, they have a base of that. The most challenged property, as you come into it was Jacksonville. And so, we gave a year's worth of free rents. And I expect that that will do very well. The operator Affinity, it is very well-known and established operator. And they're very excited about having that property. So I think we are very comfortable with the operators that have transitioned. In fact, the people who took over the Baker back from Brookdale have some deferred opportunity and they -- this current period, they haven't used that to deferred rent. So that's doing better.

Chad Vanacore

Wendy, just on Jacksonville, why do end up keeping it rather than or why do end up re-renting rather than selling?

Wendy Simpson

Yes, the prices we were getting, we're not indicative of the value of the property because of the feeling that we were up against a wall. And everything that came in relative to the market in Jacksonville and the growth in Jacksonville, and all of the forward-looking information was very positive. So, we decided that for our future portfolio, it was -- it made much more sense for us to keep it and get the right operator in there. So that's why we have it. It wasn't an easy decision. I mean, it's easy to say, let's just take the loss and walk away. But it just -- it was just such a badly one property that we had a lot of faith in the market and the property.

Operator

Our next question comes from Rich Anderson of SMBC. Please go ahead.

Rich Anderson

So on Thrive, can we kind of aggregate this all up? I try to do the math. It looks like the new cash rents, once you kind of get to the cash paying story for all fixed is called 3.5 million to 4 million per year. I don't know, if I got that right to the quickly, but I think that's right. And does that compare to cash rents prior to all this sort of starting of 7 million? Is it -- could we say that the change from pre and post kind of transitions with 7 million to 3.5 million in annual rent?

Clint Malin

Good question, Rich. So right now, we were phasing in rents on the property. So, right now, when we get to the third year where at rent for about $5.2 million compared to the $7 million with Thrive, but that does not include the percentage rents that we have on one of the buildings that we transition to Veritas. Plus the other two buildings with Veritas, which are assisted living and memory care properties, one in Georgia and one in South Carolina. It's a two-year lease. So, we have the ability to reset rents at that point in time.

It really was -- that was born out of looking at could the operator reduced costs on those buildings and we thought they should be able to reduce costs. And the easy solution for us and Veritas was to enter into the two-year lease and then address appropriate rents once they've been able to operate the communities and make appropriate rent or expense reductions at the time. So we're hopeful that $5.2 million would increase going into year three after we can reach up the rents hopefully on the two buildings that are in the two year lease with Veritas.

Rich Anderson

Got you. That's helpful. Thanks. On Anthem, so you know, the big story there is 45% increase in rents this year and you have to wait it out to see what a real stabilized rent will be as you discussed Wendy. But, I'm curious, is the bend towards rent going up or down versus what you see today?

Wendy Simpson

It will go up.

Rich Anderson

Okay.

Wendy Simpson

It will definitely go up. They're beating their projections. They're even beating up well. Well, they are beating our projections definitely because we haircut their projections in order to establish rents, but they are beating their production, which were higher than ours. So, we have a lot of hope relative to the Anthem properties.

Rich Anderson

I figured out with the answer, but you did explicitly say, so I figure out to give you a chance to do that. So, you're welcome.

Wendy Simpson

Thank you. I'll thank you the questions for next quarter soon.

Rich Anderson

So, on the preferred equity issue, so does the 600,000 that you're not assuming from the sales over above your investment that is sort of tethered to the fact that it's a non-accrual status. So the impact on guidance has nothing to do with the 600,000, correct?

Wendy Simpson

Well, it kind of does. If we put the 600,000 in guidance, we'll be up another $0.02, but we don't have that in guidance.

Rich Anderson

Okay. So, okay, maybe I'll take that off line because I understood that to be sales proceeds, but maybe I'm misunderstanding that.

Wendy Simpson

No, no, no. It's how much interest they can pay on the $24 million balance for this quarter.

Clint Malin

For remainder of the year.

Wendy Simpson

Yes, for remainder of the year.

Rich Anderson

Got you, 600,000 interest that is not in guidance now?

Wendy Simpson

Correct, correct.

Rich Anderson

Okay. Thank you. Thank for that. And then lastly, I heard you say that you used the line of credit to pay off principal balances this quarter. Is that common practice? Or was all the moving parts from things going on did that kind of require you to go and do that to make those commitments?

Wendy Simpson

Well, I mean cash is fungible. We used cash to pay our development commitment, pay for development we have undergoing and renovation. So, you could say, we used cash to do that and pay down debt I mean it wasn't one-for-one. I know that's not a common practice.

Rich Anderson

Okay. Okay.

Pam Kessler

If you look at the cash flow statement.

Wendy Simpson

Yes.

Pam Kessler

The most important statement in the financials, so look at the cash flow statement and I assume we had.

Wendy Simpson

We had investment, quite a few investments. We would say we borrowed by the investments and we used our free cash flow to pay down our debt.

Rich Anderson

Yes, I understand. Okay. I just want to make sure I understood. Thank you much for all of that.

Wendy Simpson

Thank you.

Operator

Our next question comes from Daniel Bernstein of Capital One. Please go ahead.

Daniel Bernstein

I don't know how much you can talk about Preferred Care, but I was trying to get a sense of at this point whether you have any kind of idea of kind of the split of what you might sell versus what you might release?

Clint Malin

I think, Dan, this point, I'd say, the majority of the portfolio is probably likely to be sold as we indicated on our last quarter's call. We are actively involved in the process and getting offers. So, I think the majority is likely to sell. Things could change in the case of Jacksonville. It's right, you just never know what transpires out of this, but it's likely the majority would be sold. Preferred Care has indicated they like to stay in a few properties. And they're looking at the best option available to LTC whether that's leasing their buildings to Preferred Care, another tenant or selling. So, we're actively engaged in the process and trying to bring conclusions to this quickly as possible. And we think on next quarters call, we will be able to provide that to you.

Daniel Bernstein

And then on the pipeline, it seems like you have some level of investments that are picking up. Can you talk about a little bit about that activity in terms of, are you seeing more flow coming in that you're evaluating, the quality of the assets, the pricing of the assets. I was trying to get a sense of, of where your investment level might get because in the past, you've kind of alluded to maybe pricing not being where you wanted to be and quality maybe not being where you wanted today. So just trying to understand, if something has changed in terms of your investment pipeline?

Clint Malin

I think we've been very selected then on what we invest. Pricing is still very strong, a lot of interest from private equity. So, we're looking at finding unique opportunities such as the opportunities that we found with Ignite to invest in newer skilled nursing as well as a development project. And we are seeing a few select opportunities from a price point on the private pay side that we are opportunistic about that we can convert to transactions, but it is -- it's trying to find needle in the haystack that are priced appropriately. And that has been a challenge, if we talked about throughout the year so far.

Wendy Simpson

I think, Dan, what we have -- what we've seen recently is that we've seen older properties, not ancient properties, but older properties, maybe in the 90s, built in the 90s where to buy them and to bring them up to a standard that our operator and we would like, we generally have to add a CapEx component to our price. And we're finding that some of the other buyers are fine operating them as they are, and maybe for the next five years or so getting the cash flow that they can.

So one of our I think what we're finding out in our underwriting is that, we are looking at putting cash in and in addition to our purchase price, and might be not making the final cut for people who are just willing to take them the way they are and operate them for the current cash flow. So, that's I think one of the things that that's hurting our opportunities.

We are finding opportunities from other REITs who are looking at their portfolio and finding one or two assets that they might not want. It's not that they don't want to keep them, it's just that doesn't fit their profile. And we're finding some smaller operators who in these assets fit nicely into their portfolio.

So, that's a source of acquisitions that we hadn't really seen in the past. But it's not a huge amount of assets that we're looking at, but I'm very happy with the ones that we are looking at. And I think that would be really good additions to our portfolio.

Daniel Bernstein

And do you have a number of turnaround assets, assets in your transition, in your portfolio now, but some other recalls we heard opportunities and value add, and I guess maybe you alluded to that where you take an asset you put CapEx in, you think it could be a viable asset. How much risk do you want to take on a value add and turn around today given maybe the perspectives that seniors housing and skilled nursing fundamentals might trough in the next couple of years? Do you want to take on any kind of value add or additional risk or which stable assets would be preferred at this point?

Wendy Simpson

With Anthem [ph], we only have 746.6 million to take. And I would say virtually zero of that. What I -- that's not true. I mean, if we found an opportunity with a really established operator, we would do that. But to -- in this environment, fund another answer or something like that, it just wouldn't be in our real house. We kind of are with the Ignite, I mean, we're going to build a property with Ignite, but we've already seen a property that they are going to buy from them. It's already 90% full.

It's a high end rehab sort of resort community, and so building one with them it's kind of a development type of thing. But no, I don't see us putting 15 million to 100 million in a property that we're hoping will turnaround by putting another 5 million into it. Right now, we're seeing some not a lot. But a lot of some stabilized whatever we're buying now other than the ignite thing is stabilized and cash flow positive.

Operator

Our next question comes from Todd Stender of Wells Fargo. Please go ahead.

Todd Stender

So back to the transition portfolio, is it Veritas, are they the ones taken over the Georgia and South Carolina properties? I know it's got a two-year lease.

Clint Malin

Correct Todd.

Todd Stender

It's…

Clint Malin

Todd, they also took over a building in Texas, which we added to their master lease, which includes other properties they operator for us in Texas.

Todd Stender

So, that's going into a master lease I guess the Texas one, but how does a two-year lease work? Was this your call? Was it their? Was it kind of a combination?

Clint Malin

That was a combination of between us. The occupancy was strong at these communities. It was really a cost issue. We felt the cost under Thrive's operation was higher than it probably should be and Veritas wasn't uncertain they can drive down the cost as quickly. So, the idea of having two-year lease really gave both of us a point number look at this and give them a chance to get in and see where staffing ratios are, where salaries are to make an assessment of where they feel, they can operate long-term.

But Veritas like the -- it was basically two new communities that we've been involved at, we've bought it a few ago or developed with Thrive. So, they were encouraged -- Veritas was encouraged and excited about the buildings and the locations. They were really looking at can they reduce the cost. And that was a decision that we collectively made to be able to look at setting a rent long-term.

We didn't want -- the given the rents I discussed already in the call -- we want to obviously make sure that we can get in an appropriate return on this. So, we thought it was in our best interest to be able to let Veritas get in and establish their operating model and then assess what the appropriate rents should be on those two buildings.

Todd Stender

Do you have any operating expense exposure on this? Or this is all triple net?

Clint Malin

Triple net.

Todd Stender

And they can defer some of the rent. Do you book it all upfront? How does that work?

Wendy Simpson

No. They're not deferring anything rent, not on that one, yes.

Clint Malin

We can give them a small amount of deferred rent just to get through the transition and it get started. So, there is a little bit deferred rent on those two buildings.

Todd Stender

And then, we hear about the Trilogy management, we know, Veritas, but I don't think we know Trilogy, if I had that right?

Clint Malin

Trilogy is a very large operator based from Louisville, Kentucky, of which one of the buildings that we have leased to them is located in Louisville and then the other bedding is Cincinnati market where they have a strong presence already. So, Trilogy is a sizable operator both in skilled nursing and senior housing property. So, that was an idea that I think from a presence standpoint well they are already in the marketplace, they've new buildings. And it's organization that we've talked over a number of years to look at investment opportunities. And it just happened, used the right opportunity for them to come in, and we felt confident with their knowledge of the local markets that they could drive performance and improvements at these two communities.

Todd Stender

And then just last question with the loan that you're making, the mortgages loan, it's at 9.4%. It's got escalators on it. How long is that going to stay outstanding? Just with interest rate so low, how long do you project that to be outstanding?

Clint Malin

Todd, these loans are the ones with the Prestige Healthcare, which on property is located in Michigan. So, given Michigan reimbursement, most investments in Michigan are done via mortgages as opposed to triple net lease. So, these mortgages as we said in the past embody many elements of a long-term lease. So, the duration on those was approximately a 30-year term and it so much while the loans we have with Prestige.

Operator

[Operator Instructions] And our next question will come from Michael Carroll of RBC Capital Markets. Please go ahead.

Michael Carroll

Yes. Thanks. I appreciate your comments on the investment activity. I know that LTC typically is pretty conservative on our underwriting and that's kind of what makes a little bit more difficult to acquire assets because you're looking for the right deal. Is the competitive landscape getting more difficult to find those types of deals in this marketplace? I guess, how do you kind of looking at that?

Clint Malin

Sure, we talked about it during the course of the year. It is very competitive and I think we've seen where it is more challenging to grow it. And we have made a decision not to be aggressive at this point in time to overpay for an assets. So, we have been actively engaged in finding unique opportunities that we have with Ignite, but it's a very-very competitive marketplace today.

Michael Carroll

And then how you are thinking about I guess Wendy's comment earlier about taking some portfolios or maybe few assets from other REITs. Is that kind of transition type opportunity where you'll be buying the asset and transitioning the operations to one of your existing operators?

Clint Malin

Yes, correct.

Michael Carroll

And then, how do you kind of underwrite those types of deals? Is that the operators currently in those specific markets and that you get comfortable about their ability to do that?

Clint Malin

Exactly, it's finding operators that have a presence in existing markets where they see an opportunity where we can partner with them.

Michael Carroll

And do you typically get better valuation from those types of deals? I'm sure the competitive landscape for those projects are not as deep.

Clint Malin

I think on those type of deals, the seller will look at what the execution risk is. And if we have a relationship with an operator, we have a lease in place and obviously we are non-capital provider that doesn't have those financing contingencies. So, I think that's an enticing part of the sellers looking at what, try to mitigate their risk and actually closing because we are looking and selling building within our -- we're looking at maybe not the highest dollar but the best execution. And I think that we provide that to some of the other larger REITs they're looking potentially at selling assets.

Michael Carroll

Okay. And then I guess last one is for me, just kind of talking about senior care and I'm not sure how much you can really mention. But I guess what's the next step? So I guess if you're filing your emotion to object to senior cares, wanting to affirm the lease, I guess what's the outcome there or what are what are we should we be looking for?

Clint Malin

Well, it's a -- as Wendy mentioned in her comments, it's a situation where we have the least amount of control. And as we found out bankruptcy is a -- doesn't always makes the most business sense as far as the process, the duration and decisions that courts make. The main concern that we have looking at the Senior Care Centers, potential plan at reorganization, just understanding who is that management team that has been continued to operate those buildings. If they're successful and being able to emerge from bankruptcy, that's one of the biggest challenge and concern that we have looking forward at this.

But if Senior Care Centers was successful in emerging and assuming our rates by which we have objected to that, we would be able to get paid our rents that we have not recorded for the month of December of 2018. So, we are positioned right now, we have another operator that we've been working with that's prepared. If we can get court approval to transition these buildings to another operator, we recognize that is probably subject court approval. We have to wait and see. But we have the objective, as Wendy mentioned, to that lease assumption in their court process right now and the date in which the motion to assume as scheduled now to be heard has been moved to August 30th. So, we will see how things play out on August 30th when that motion is heard in court.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Wendy Simpson for any closing remarks.

Wendy Simpson

Thank you, Andrea. We look forward in the third quarter to having more updates about Preferred Care and hopefully Senior Care Centers also, and look forward to talking to them. Thank you very much for joining us today. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.