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LTC Buys Skilled Nursing Facility, Plans Another in Missouri

Zacks Equity Research

LTC Properties, Inc. LTC recently announced investments worth $37 million to strengthen its acute skilled nursing portfolio. The company acquired a 90-bed post-acute skilled nursing center in Kansas City, MO, for $19.5 million. Simultaneously, it has also purchased another land parcel for developing a 90-bed post-acute skilled nursing center in Independence, MO.  

Both centers will be operated by the new-to-portfolio operator Ignite Medical Resorts.  

The Kansas-City facility has a lease term of 12 years at an initial cash yield of 8.3%, with additional annual escalations of 2%. The lease also carries two five-year renewals. The center was constructed in 2018, its average occupancy being 90%. The acquisition will be accretive to top-line growth as it generates more than $1 million in monthly revenues.

Additionally, the company’s commitment to develop a similar product on the acquired land aggregates $17.4 million. The center will have similar lease terms and an initial cash yield of 9.3%. The project, being managed by Avenue Development, is scheduled for completion by the fall of 2020.

Management is optimistic about Ignite’s innovative approach of using a resort-style setting in the skilled nursing space. However, the skilled nursing fundamentals have remained soft for the past few quarters.

Specifically, policy-makers’ efforts to reduce aggregate healthcare costs as well ad policy changes enacted under the Affordable Care Act have resulted in lower reimbursement rates, shorter lengths of stay and affected occupancy rates at these facilities. Further, operator struggle continues to trouble the skilled nursing segment.

In fact, according to NIC data, skilled nursing occupancy shrunk 10 basis points to 86.7% in second-quarter 2019. Annual rent growth also witnessed a sequential decline to 2.5%.

Hence, this presents an opportunity for well-capitalized REITs to modernize and reposition or replace old facilities in a bid to cater to higher-acuity patient demands. 

LTC currently carries a Zacks Rank #3 (Hold). Year to date, its shares have gained 16.8%, underperforming the industry’s rally of 23.8%.

Stocks to Consider

OUTFRONT Media Inc. OUT currently sports a Zacks Rank of 1 (Strong Buy). The Zacks Consensus Estimate for 2019 funds from operations (FFO) per share has been revised around 2% upward to $2.33 over the past month.You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexandria Real Estate Equities, Inc. ARE holds a Zacks Rank of 2 (Buy), at present. The Zacks Consensus Estimate for the current-year FFO per share remained unchanged at $6.98 in the past month.

Mid-America Apartment Communities, Inc.  MAA is another Zacks #2 Ranked company, presently. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward to $6.28 in a week’s time.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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